-----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, Q9hhmtYXmmMJ8ZFOwQIc/AJlnFmtVNgmnJwV698Gb6JeDSeIaiNmwhKcXx+X+j7S RIm1oBhKgq3NkAxDYD25PQ== 0000950133-97-003913.txt : 19971117 0000950133-97-003913.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950133-97-003913 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISB FINANCIAL CORP/LA CENTRAL INDEX KEY: 0000933141 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 721280718 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25756 FILM NUMBER: 97717618 BUSINESS ADDRESS: STREET 1: 1101 E ADMIRAL DOYLE DR CITY: NEW IBERIA STATE: LA ZIP: 70560 BUSINESS PHONE: 3183652361 MAIL ADDRESS: STREET 1: 1101 EAST ADMIRAL DOYLE DR CITY: NEW IBERIA STATE: LA ZIP: 70560 10-Q 1 FORM 10-Q DATED SEPTEMBER 30, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ----------------- Commission File Number 0-25756 ISB Financial Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Louisiana 72-1280718 - ------------------------------------------------- ---------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification Number) 1101 East Admiral Doyle Drive New Iberia, Louisiana 70560 - ------------------------------------------------- ---------------------- (Address of principal executive office) (Zip Code) (318) 365-2361 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of November 7, 1997, 6,900,710 shares of the Registrant's common stock were issued and outstanding. Of that total, 590,069 shares are held by the Registrant's Employee Stock Ownership Plan, of which 409,105 shares were not committed to be released. 2 ISB FINANCIAL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements Consolidated Statements of Financial Condition 3 (As of September 30, 1997 and December 31, 1996) Consolidated Statements of Income (For the three months 4 and nine months ended September 30, 1997 and 1996) Consolidated Statements of Stockholders' Equity (For the 5 nine months ended September 30, 1997 and 1996) Consolidated Statements of Cash Flows (For the nine 6 months ended September 30, 1997 and 1996) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 10 and Results of Operations PART II. OTHER INFORMATION - -------- ----------------- Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19
2 3 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Dollars in Thousands, Except Per Share Data)
ASSETS ------ September 30, December 31, 1997 1996 ------------- ------------ Cash and Cash Equivalents: Cash on Hand and Due from Banks $14,628 $10,822 Interest Bearing Deposits 27,029 42,563 Investment Securities: Held to Maturity (fair value of $1,814 and $2,218, 1,810 2,216 respectively) Available for Sale, at fair value 91,085 101,144 Trading Account Securities, at fair value 504 364 Mortgage-Backed Securities Held to Maturity (fair 126,643 150,669 value of $127,262 and $150,014, respectively) Loans Receivable, Net 641,520 571,119 Real Estate Owned 609 978 Premises and Equipment, Net 18,564 15,483 Federal Home Loan Bank Stock, at Cost 6,069 5,808 Accrued Interest Receivable 5,817 5,667 Goodwill and Acquisition Intangibles 16,636 17,807 Other Assets 5,134 4,624 ------------- ------------ TOTAL ASSETS $956,048 $929,264 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ LIABILITIES: Deposits $783,224 $760,284 Federal Home Loan Bank Advances 46,990 47,750 Advance Payments by Borrowers for Taxes and Insurance 1,932 1,605 Accrued Interest Payable on Deposits 441 832 Accrued and Other Liabilities 8,209 4,787 ------------- ------------ TOTAL LIABILITIES 840,796 815,258 ------------- ------------ STOCKHOLDERS' EQUITY: Preferred Stock of $1 par value; 5,000,000 shares authorized 0 0 -0- shares issued or outstanding Common Stock of $1.00 par value, authorized 25,000,000 7,381 7,381 shares, 7,380,671 shares issued Additional Paid-in Capital 66,410 65,725 Retained Earnings (Substantially Restricted) 57,361 54,660 Unearned Common Stock Held by ESOP (4,091) (4,612) Unearned Common Stock Held by RRP Trust (4,169) (4,476) Treasury Stock, at cost; 479,961 shares (7,948) (4,859) Unrealized Gain on Securities, Net of Deferred Taxes 308 187 ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 115,252 114,006 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $956,048 $929,264 ============= ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3 4 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in Thousands, Except Per Share Data)
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------- ------------------- 1997 1996 1997 1996 ---------- -------- --------- -------- INTEREST INCOME: Interest on Loans $13,228 $10,394 $38,360 $28,587 Interest and Dividends on Investment Securities 1,667 1,059 4,837 3,385 Interest on Mortgage-Backed Securities 2,111 831 6,589 2,440 Interest on Deposits 345 694 1,370 2,434 ---------- -------- --------- -------- Total Interest Income 17,351 12,978 51,156 36,846 ---------- -------- --------- -------- INTEREST EXPENSE: Interest on Deposits 8,474 5,746 24,712 16,386 Interest on Federal Home Loan Bank Advances 776 791 2,318 2,331 ---------- -------- --------- -------- Total Interest Expense 9,250 6,537 27,030 18,717 ---------- -------- --------- -------- Net Interest Income 8,101 6,441 24,126 18,129 Provision for Loan Losses 302 27 706 44 ---------- -------- --------- -------- Net Interest Income After Provision for Loan Losses 7,799 6,414 23,420 18,085 ---------- -------- --------- -------- NONINTEREST INCOME: Service Charges on Deposit Accounts 962 505 2,473 1,336 Late Charges and Other Fees on Loans 328 149 854 542 Other Income 610 191 1,402 640 ---------- -------- --------- -------- Total Noninterest Income 1,900 845 4,729 2,518 ---------- -------- --------- -------- NONINTEREST EXPENSE: Salaries and Employee Benefits 3,818 2,113 10,129 5,870 SAIF Deposit Insurance Premium 112 3,153 337 3,661 Depreciation Expense 384 262 946 708 Occupancy Expense 528 336 1,354 825 Computer Expense 218 156 828 438 Net Costs (Income) of Other Real Estate 25 13 (35) 38 Franchise and Shares Tax Expense 288 224 763 671 Amortization of Goodwill and Other Acquired Intangibles 385 60 1,168 104 Other Expenses 1,622 1,158 4,412 2,820 ---------- -------- --------- -------- Total Noninterest Expense 7,380 7,475 19,902 15,135 ---------- -------- --------- -------- Income Before Income Tax Expense 2,319 (216) 8,247 5,468 Income Tax Expense 1,017 (23) 3,398 2,028 ---------- -------- --------- -------- NET INCOME $1,302 ($193) $4,849 $3,440 ========== ======== ========= ======== EARNINGS PER SHARE - PRIMARY AND FULLY DILUTED $0.20 ($0.03) $0.75 $0.50 ========== ======== ========= ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 4 5 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (Dollars in Thousands)
Unearned Common Additional Common Stock Common Paid In Retained Stock Held Held By Treasury Stock Capital Earnings By ESOP RRP Trust Stock ------- ---------- ---------- ---------- ---------- --------- BALANCE, JANUARY 1, 1996 $7,381 $65,293 $51,584 ($5,339) $0 $0 Net Income 3,440 Cash Dividends Declared (1,691) Common Stock Released by 307 548 ESOP Trust Common Stock Acquired by (4,687) Management Recognition Plan Trust Common Stock earned by Participants 123 of Management Recognition Plan Treasury Stock Acquired (4,859) Change in Unrealized Gain (Loss) on Securities Available for Sale ------- ---------- ---------- ---------- ---------- --------- BALANCE, SEPTEMBER 30, 1996 $7,381 $65,600 $53,333 ($4,791) ($4,564) ($4,859) ======= ========== ========== ========== ========== ========= BALANCE, JANUARY 1, 1997 $7,381 $65,725 $54,660 ($4,612) ($4,476) ($4,859) Net Income 4,849 Cash Dividends Declared (2,148) Common Stock Released by 684 521 ESOP Trust Common Stock Earned by Participants 1 307 of Recognition and Retention Plan Trust Treasury Stock Acquired (3,089) Change in Unrealized Gain (Loss) on Securities Available for Sale ------- ---------- ---------- ---------- ---------- --------- BALANCE, SEPTEMBER 30, 1997 $7,381 $66,410 $57,361 ($4,091) ($4,169) ($7,948) ======= ========== ========== ========== ========== =========
Net Unrealized Total Gain (Loss) Stockholders' On Securities Equity ------------- ------------ BALANCE, JANUARY 1, 1996 $758 $119,677 Net Income 3,440 Cash Dividends Declared (1,691) Common Stock Released by 855 ESOP Trust Common Stock Acquired by (4,687) Management Recognition Plan Trust Common Stock earned by Participants 123 of Management Recognition Plan Treasury Stock Acquired (4,859) Change in Unrealized Gain (Loss) on (544) (544) Securities Available for Sale ------------ ---------- BALANCE, SEPTEMBER 30, 1996 $214 $112,314 ============ ========== BALANCE, JANUARY 1, 1997 $187 $114,006 Net Income 4,849 Cash Dividends Declared (2,148) Common Stock Released by 1,205 ESOP Trust Common Stock Earned by Participants 308 of Recognition and Retention Plan Trust Treasury Stock Acquired (3,089) Change in Unrealized Gain (Loss) on 121 121 Securities Available for Sale ------------ ---------- BALANCE, SEPTEMBER 30, 1997 $308 $115,252 ============ ==========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5 6 ISB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
For The Nine Months Ended September 30, September 30, 1997 1996 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 4,849 $ 3,441 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 2,130 903 Provision for Loan Losses 706 44 Compensation Expense Recognized on RRP 308 123 Loss (Gain) on Sale of Premises and Equipment 7 (81) Loss (Gain) on Sale of Real Estate Owned (38) 31 Write-Down of Real Estate Owned to Market Value 0 6 Gain on Loans Sold (180) 0 (Gain) Loss on Sale of Trading Securities (15) 0 Amortization of Premium/Discount on Investments 106 296 FHLB Stock Dividends (261) (174) Loans Originated for Resale (13,036) (1,915) Proceeds From Loans Sold to Others 13,216 1,927 Income Reinvested on Marketable Equity Security (247) (228) ESOP Contribution 1,205 847 Net Change in Securities Classified as Trading (164) (2,332) Changes in Assets and Liabilities: Decrease (Increase) in Accrued Interest Receivable (150) 179 Decrease (Increase) in Other Assets and Other Liabilities 1,427 1,454 ----------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 9,863 4,521 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Trading Securities 40 0 Proceeds from Maturities of Held to Maturity Securities 406 2,142 Proceeds from Maturities of Available for Sale Securities 40,600 28,125 Purchases of Securities Held to Maturity 0 (1,576) Purchases of Securities Available for Sale (30,335) (2,995) Increase in Loans Receivable, Net (71,520) (47,319) Proceeds from ESOP Note Repayment 841 0 Proceeds from Sale of Premises and Equipment 0 180 Purchases of Premises and Equipment (3,990) (1,313) Proceeds from Disposition of Real Estate Owned 820 253 Principal Collections on Mortgage-Backed Securities 23,968 5,575 Cash Paid In Excess of Cash Received on Bank Acquisitions 0 5,605 Other Investing Activities 0 (165) ----------- ------------ NET CASH USED IN INVESTING ACTIVITIES (39,170) (11,488) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposit 5,988 638 Net Change in Time Deposits 16,952 8,482 (Decrease) Increase in Escrow Funds and Miscellaneous Deposits, Net 327 (28) Proceeds From FHLB Advances 0 8,195 Principal Repayments of FHLB Advances (760) (690) Dividends Paid to Shareholders (1,839) (1,604) Acquisition of Common Stock by RRP 0 (4,687) Purchase of Treasury Stock (3,089) (4,859) ----------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,579 5,447 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,728) (1,520) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,385 51,742 ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 41,657 $ 50,222 =========== ============ SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 413 $ 213 SUPPLEMENTAL DISCLOSURES: Cash Paid For: Interest on Deposits and Borrowings $ 27,422 $ 18,324 Income Taxes $ 3,088 $ 2,818
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 6 7 ISB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. All normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. These interim financial statements should be read in conjunction with the audited financial statements and note disclosures for ISB Financial Corporation (the "Company") previously filed with the Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. BUSINESS The Company's principal business is conducted through it's wholly owned subsidiary, Iberia Savings Bank, which conducts business from its main office located in New Iberia, Louisiana and 27 full-service branch offices located in the cities of New Iberia, Lafayette, St. Martinville, Crowley, Rayne, Kaplan, Jeanerette, Franklin, Morgan City, Abbeville, Gretna, Marrero, River Ridge, Metairie, New Orleans and Kenner. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the maximum extent permitted by law. The Company has previously announced its intentions to convert Iberia Savings Bank to a Louisiana chartered commercial bank. It is anticipated that this transaction will be consummated in the fourth quarter of 1997. The Bank is subject to examination and regulation by the Office of Financial Institutions of the State of Louisiana, which is the Bank's chartering authority and primary regulator. The Bank is also subject to regulation by the FDIC and to certain reserve requirements established by the Federal Reserve Board ("FRB"). The Bank is a member of the Federal Home Loan Bank of Dallas ("FHLB"). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, the Bank and the Bank's wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The branches in Marrero, River Ridge, Metairie, New Orleans, Gretna and Kenner were branches of Jefferson Bank, a wholly owned subsidiary of the Company that 7 8 was merged into Iberia Savings Bank on September 14, 1997. Jefferson Bank was acquired by the Company in October of 1996. (2) LOANS RECEIVABLE Loans receivable (in thousands) at September 30, 1997 and December 31, 1996 consisted of the following:
Sept. 30, Dec. 31, 1997 1996 --------- --------- Mortgage Loans: Single-family Residential $379,068 $386,555 Multifamily 2,584 2,279 Commercial Real Estate 41,355 22,961 Construction 17,880 14,064 --------- --------- Total Mortgage Loans 440,887 425,859 --------- --------- Commercial Business Loans 52,647 36,089 --------- --------- Consumer Loans: Home Equity $31,863 $25,918 Automobile 8,738 7,509 Indirect Automobile 87,127 52,371 Mobile Home Loans 3,446 4,215 Educational Loans 9,602 9,345 Credit Card Loans 3,956 4,017 Loans on Savings 12,104 12,487 Other 7,175 3,953 --------- --------- Total Consumer Loans 164,011 119,815 --------- --------- Total Loans Receivable 657,545 581,763 --------- --------- Adjustments: Allowance for Loan Losses (5,170) (4,615) Loans-in-Process (12,664) (6,059) Prepaid Dealer Participation 3,917 2,555 Unearned Interest (191) (143) Deferred Loan Fees, Net (694) (922) Discount on Loans Purchased (1,223) (1,460) --------- --------- Loans Receivable, Net $641,520 $571,119 ========= =========
8 9 (3) EARNINGS PER SHARE Primary earnings per share were based on 6,470,981 weighted average shares outstanding during the three month period ended September 30, 1997 and 6,449,315 weighted average shares outstanding during the nine months ended September 30, 1997. Fully diluted earnings per share were based on 6,509,223 weighted average shares outstanding during the three month period ended September 30, 1997 and 6,489,968 weighted average shares outstanding during the nine months ended September 30, 1997. For the three months ended September 30, 1997, the weighted average number of common shares outstanding excludes (a) the weighted average unreleased shares owned by the Employee Stock Ownership Plan ("ESOP") of 417,716; (b) the weighted average shares owned by the Management Recognition Plan and Trust of 272,594 and (c) the weighted average shares purchased in Treasury Stock of 479,961. For the nine months ended September 30, 1997, the weighted average number of common shares outstanding excludes (a) the weighted average unreleased shares owned by the ESOP of 435,061; (b) the weighted average shares owned by the Management Recognition Plan and Trust of 284,532 and (c) the weighted average shares purchased in Treasury Stock of 437,235. In February of 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," ("SFAS 128") which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The Company does not believe that the effect of SFAS 128 on the calculation of fully diluted earnings per share for these quarters would be material. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CHANGES IN FINANCIAL CONDITION At September 30, 1997, the consolidated assets of the Company totalled $956.0 million, an increase of $26.8 million or 2.9% from December 31, 1996. Loans receivable, net, increased by $70.4 million, or 12.3%, to $641.5 million at September 30, 1997, compared to $571.1 million at December 31, 1996. Such increase was the result of a $18.4 million, or 80.1%, increase in commercial real estate loans, a $16.6 million, or 45.9%, increase in commercial business loans, a $5.9 million, or 22.9%, increase in home equity loans, a $34.8 million, or 66.4%, increase in indirect automobile loans and a $3.5 million, or 8.4%, increase in all other consumer loans. Such increases were partially offset by a $7.5 million, or 1.9%, decrease in single-family residential loans. The changes in the loan portfolio reflect management's efforts to increase the originations of commercial real estate, commercial business and indirect automobile loans. Such loans generally are considered to involve more risk than 1-4 family residential mortgage loans, but generally have higher yields. The Company's loan to deposit ratio at September 30, 1997 was 81.9% compared to 75.1% at December 31, 1996. For additional information on loans, see Note 2 to the Notes to Consolidated Financial Statements. The increase in loans receivable was funded primarily by a decrease in interest bearing deposits at other institutions, a decrease in investment securities available for sale, a decrease in mortgage-backed securities and by an increase in customer deposits. Interest bearing deposits at other institutions decreased $15.5 million, or 36.5%, to $27.0 million at September 30, 1997, compared to $42.6 million at December 31, 1996. The Company's investment securities available for sale decreased $10.1 million, or 9.9%, to $91.1 million at September 30, 1997, compared to $101.1 million at December 31, 1996. Such decrease was the result of the maturity or redemption of $40.6 million of investment securities, which was partially offset by the purchase of $30.3 million of investment securities together with a $184,000 increase in the market value of such securities and $106,000 of premium amortization on such securities. Mortgage-backed securities decreased $24.0 million, or 15.9%, from December 31, 1996 to September 30, 1997. Such decrease was attributable entirely to repayments. Deposits increased $22.9 million, or 3.0%, to $783.2 million at September 30, 1997, compared to $760.3 million at December 31, 1996. Such increase was due to $2.9 million of net new deposits together with $20.0 million of interest credited. Advances from the FHLB of Dallas decreased $760,000, or 1.6%, to $47.0 million at September 30, 1997, compared to $47.8 million at December 31, 1996. The decrease in advances was attributable to scheduled payments made. The advances are amortizing, fixed-rate and long term and were used to fund originations of fixed-rate, long term single-family residential loans. Total stockholders' equity increased $1.2 million, or 1.1%, to $115.3 million at September 30, 10 11 1997. The increase was the result of the Company's net income of $4.8 million, $1.2 million of common stock released by the ESOP, $308,000 of common stock earned by participants of the Recognition and Retention Plan and a $121,000, after deferred taxes, increase in net unrealized gains on securities available for sale, which was partially offset by the declaration of cash dividends on common stock of $2.1 million and $3.1 million of stock repurchased into treasury. RESULTS OF OPERATIONS The Company reported net income of $1.3 million for the three months ended September 30, 1997, compared to a net loss of $193,000 during the three month period ended September 30, 1996. Net income for the three months ended September 30, 1996 included a one-time SAIF assessment of $2.9 million. Excluding the SAIF assessment and its tax effect, net income for the three months ended September 30, 1996 was $1.7 million. The Company's net interest income increased by $1.7 million, total noninterest income increased by $1.1 million and total noninterest expense decreased $95,000 during the three months ended September 30, 1997 compared to the third quarter of 1996. Such changes were partially offset by a $275,000 increase in provision for loan losses and a $1.0 million increase in income tax expense. The change in noninterest expense includes an increase of $325,000 in the amortization of goodwill and other acquired intangibles. For the nine months ended September 30, 1997 the Company earned $4.8 million compared to $3.4 million for the same period of 1996. Excluding the one-time SAIF assessment and its tax effect, net income for the nine months ended September 30, 1996 was $5.4 million. The Company's net interest income increased $6.0 million and total noninterest income increased $2.2 million during the nine months ended September 30, 1997 compared to the first nine months of 1996. Such increases were partially offset by a $662,000 increase in provision for loan losses, a $4.8 million increase in noninterest expense and a $1.4 million increase in income tax expense when comparing the first nine months of 1997 to the same period of 1996. The increase in noninterest expense includes an increase of $1.1 million in the amortization of goodwill and other acquired intangibles. The increases in net interest income, noninterest income and noninterest expense are due principally to the Bank's efforts to increase its commercial real estate, commercial business and indirect automobile loans, which are relatively higher yielding loans compared to single-family residential mortgage loans, as well as the two acquisitions completed by the Company in 1996, which were Royal Bankgroup of Acadiana, Inc. ("Royal") of Lafayette, Louisiana, and its wholly owned subsidiary, Bank of Lafayette, and 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 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 were recognized in the Jefferson transaction. As of September 30, 1997, the Company had $16.7 million of goodwill and other acquisition intangibles. 11 12 AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Information is based on average daily balances during the indicated periods.
Three Months Ended September 30, ------------------------------------------------- 1997 ------------------------------------------------- Yield/Cost Average at September 30, Average Yield/ 1997 Balance Interest Cost(1) ---------------- ------------- ----------------- -------------- Interest-earning assets: Loans receivable: Mortgage loans 7.87% $422,439 $8,643 8.18% Commercial business loans 9.45 47,795 1,206 10.09 Consumer and other loans 9.64 158,113 3,379 8.55 ------- ----- Total Loans 8.46 628,347 13,228 8.42 ------- ------ Mortgage-backed securities 6.37 131,307 2,111 6.43 Investment securities 6.72 107,305 1,667 6.21 Other earning assets 6.15 19,998 345 6.90 ------ --- Total interest-earning assets 7.90 886,957 17,351 7.82 Non-interest-earning assets 66,910 ------ ------ Total assets $953,867 ======== Interest-bearing liabilities: Deposits: Demand deposits 2.04 $139,222 938 2.69 Passbook savings deposits 2.60 115,533 749 2.59 Certificates of deposits 5.65 486,466 6,787 5.58 ------- ----- Total deposits 4.50 741,221 8,474 4.57 Borrowings 6.54 47,158 776 6.58 ------ --- Total interest-bearing liabilities 4.62 788,379 9,250 4.69 ----- Non-interest bearing demand deposits 38,207 Non-interest bearing liabilities 12,223 ------ Total liabilities 838,809 Stockholders' Equity 115,058 ------- Total liabilities and stockholders' equity $953,867 ======== Net interest-earning assets $98,578 ======= Net interest income/interest rate spread 3.28% $8,101 3.13% ===== ====== ===== Net interest margin 3.65% ===== Ratio of average interest- earning assets to average interest-bearing liabilities 112.50% =======
Three Months Ended September 30, ------------------------------------------------- 1996 ------------------------------------------------- Average Average Yield/ Balance Interest Cost(1) ------------- ----------------- -------------- (Dollars in Thousands) Interest-earning assets: Loans receivable: Mortgage loans $354,712 $7,268 8.20% Commercial business loans 28,581 805 11.27 Consumer and other loans 95,986 2,321 9.67 ------ ----- Total Loans 479,279 10,394 8.67 ------- ------ Mortgage-backed securities 50,962 831 6.52 Investment securities 70,459 1,059 6.01 Other earning assets 47,544 694 5.84 ------ --- Total interest-earning assets 648,244 12,978 8.01 ------ Non-interest-earning assets 35,568 ------ Total assets $683,812 ======== Interest-bearing liabilities: Deposits: Demand deposits $76,560 504 2.63 Passbook savings deposits 61,310 412 2.69 Certificates of deposits 347,206 4,830 5.56 ------- ----- Total deposits 485,076 5,746 4.74 Borrowings 48,154 791 6.57 ------ --- Total interest-bearing liabilities 533,230 6,537 4.90 ----- Non-interest bearing demand deposits 30,365 Non-interest bearing liabilities 7,146 ----- Total liabilities 570,741 Stockholders' Equity 113,071 ------- Total liabilities and stockholders' equity $683,812 ======== Net interest-earning assets $115,014 ======== Net interest income/interest rate spread $6,441 3.10% ====== ===== Net interest margin 3.97% ===== Ratio of average interest- earning assets to average interest-bearing liabilities 121.57% =======
Nine Months Ended September 30, ------------------------------------------------- 1997 ------------------------------------------------- Average Average Yield/ Balance Interest Cost(1) ------------- ----------------- -------------- Interest-earning assets: Loans receivable: Mortgage loans $419,310 $25,630 8.15% Commercial business loans 43,804 3,402 10.36 Consumer and other loans 142,166 9,328 8.75 ------- ----- Total Loans 605,280 38,360 8.45 ------- ------ Mortgage-backed securities 138,391 6,589 6.35 Investment securities 106,614 4,837 6.05 Other earning assets 28,284 1,370 6.46 ------ ----- Total interest-earning assets 878,569 51,156 7.76 ------ Non-interest-earning assets 62,882 ------ Total assets $941,451 ======== Interest-bearing liabilities: Deposits: Demand deposits $137,823 2,711 2.62 Passbook savings deposits 118,251 2,279 2.57 Certificates of deposits 477,795 19,722 5.50 ------- ------ Total deposits 733,869 24,712 4.49 Borrowings 47,410 2,318 6.52 ------ ----- Total interest-bearing liabilities 781,279 27,030 4.61 Non-interest bearing demand deposits 35,807 ------ Non-interest bearing liabilities 10,039 ------ Total liabilities 827,125 Stockholders' Equity 114,326 ------- Total liabilities and stockholders' equity $941,451 ======== Net interest-earning assets $97,290 ======= Net interest income/interest rate spread $24,126 3.15% ======= ===== Net interest margin 3.66% ===== Ratio of average interest- earning assets to average interest-bearing liabilities 112.45% =======
Nine Months Ended September 30, ------------------------------------------------- 1996 ------------------------------------------------- Average Average Yield/ Balance Interest Cost(1) ------------- ----------------- -------------- Interest-earning assets: Loans receivable: Mortgage loans $347,903 $21,401 8.20% Commercial business loans 19,174 1,630 11.33 Consumer and other loans 70,982 5,556 10.44 ------ ----- Total Loans 438,059 28,587 8.70 ------- ------ Mortgage-backed securities 50,562 2,440 6.43 Investment securities 74,189 3,385 6.08 Other earning assets 58,417 2,434 5.56 ------ ----- Total interest-earning assets 621,227 36,846 7.91 Non-interest-earning assets 29,078 ------ ------ Total assets $650,305 ======== Interest-bearing liabilities: Deposits: Demand deposits $71,932 1,412 2.62 Passbook savings deposits 55,753 1,161 2.78 Certificates of deposits 332,146 13,813 5.54 ------- ------ Total deposits 459,831 16,386 4.75 Borrowings 47,510 2,331 6.54 ------ ----- Total interest-bearing liabilities 507,341 18,717 4.92 ------ Non-interest bearing demand deposits 18,251 Non-interest bearing liabilities 6,751 ----- Total liabilities 532,343 Stockholders' Equity 117,962 ------- Total liabilities and stockholders' equity $650,305 ======== Net interest-earning assets $113,886 ======== Net interest income/interest rate spread $18,129 2.99% ======= ===== Net interest margin 3.89% ===== Ratio of average interest- earning assets to average interest-bearing liabilities 122.45% =======
- -------------------------------- (1) Annualized. 12 13 NET INTEREST INCOME Net interest income increased $1.7 million, or 25.8%, to $8.1 million in the three months ended September 30, 1997, compared to $6.4 million in the three months ended September 30, 1996. The increase was due to a $4.4 million, or 33.7%, increase in interest income, which was partially offset by a $2.7 million, or 41.5%, increase in interest expense. The increase in interest income was the result of a $238.7 million, or 36.8%, increase in the average balance of interest-earning assets, which was partially offset by a 19 basis point (100 basis points being equal to 1%) decrease in the yield thereon. The increase in interest expense was the result of a $255.1 million, or 47.8%, increase in the average balance of interest-bearing liabilities, which was partially offset by a 21 basis point decrease in the cost thereon. The Company's interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) and net interest margin (net interest income as a percentage of average interest-earning assets) amounted to 3.13% and 3.65%, respectively, during the three months ended September 30, 1997, compared to 3.10% and 3.97%, respectively, for the comparable period in 1996. The increase in average interest-earning assets and interest-bearing liabilities was the result primarily of the two 1996 acquisitions. The decrease in yields on earning assets and the decrease in costs of interest bearing liabilities are primarily attributable to lower yielding assets and lower costing liabilities acquired in the Jefferson transaction. For the nine month period ending September 30, 1997, net interest income increased $6.0 million, or 33.1%, to $24.1 million compared to $18.1 million for the same period in 1996. The increase was due to a $14.3 million, or 38.8%, increase in interest income, which was partially offset by a $8.3 million, or 44.4%, increase in interest expense. The increase in interest income was the result of a $257.3 million, or 41.4%, increase in the average balance of interest-earning assets, which was partially offset by a 15 basis point decrease in the yield thereon. The increase in interest expense was the result of a $273.9 million, or 54.0%, increase in the average balance of interest-bearing liabilities, which was partially offset by a 31 basis point decrease in the cost thereon. The Company's interest rate spread and net interest margin amounted to 3.15% and 3.66%, respectively, during the nine months ended September 30, 1997, compared to 2.99% and 3.89%, respectively, for the comparable period in 1996. INTEREST INCOME The Company's total interest income was $17.4 million for the three months ended September 30, 1997, compared to $13.0 million for the three months ended September 30, 1996. The reasons for the $4.4 million, or 33.7%, increase in interest income were a $2.8 million, or 27.3%, increase in interest income from loans, a $608,000, or 57.4%, increase in interest and dividends on investment securities and a $1.3 million, or 154.0%, increase in interest income from mortgage-backed securities, which was partially offset by a $349,000, or 50.3%, decrease in interest on deposits held at other financial institutions. The increase in interest income from loans was the result of a $149.1 million, or 31.1%, increase in the average balance of loans, which was partially offset by a 25 basis point decrease in the yield earned thereon. The increase in interest and dividends on investment securities was the result of a $36.8 13 14 million, or 52.3%, increase in the average balance of investment securities, together with a 20 basis point increase in the yield earned thereon. The increase in interest income from mortgage-backed securities was the result of a $80.3 million, or 157.7%, increase in the average balance of mortgage-backed securities, which was partially offset by a nine basis point decrease in the yield earned thereon. The substantial increase in the average balance of mortgage-backed securities was a result of the Jefferson acquisition. The decrease in interest on other earning assets, primarily deposits at other financial institutions, was the result of a $27.5 million, or 57.9%, decrease in the average balance of other earning assets, which was partially offset by a 106 basis point increase in the yield earned thereon. For the nine months ended September 30, 1997, total interest income was $51.2 million compared to $36.8 million for the same period in 1996. The reasons for the $14.3 million, or 38.8%, increase in interest income were a $9.8 million, or 34.2%, increase in interest income from loans, a $1.5 million, or 42.9%, increase in interest and dividends from investment securities and a $4.1 million, or 170.0%, increase in interest income from mortgage-backed securities, which was partially offset by a $1.1 million, or 43.7%, decrease in interest income from deposits held at other financial institutions. The increase in interest income from loans was the result of a $167.2 million, or 38.2%, increase in the average balance of loans, which was partially offset by a 25 basis point decrease in the yield earned thereon. The increase in interest and dividends on investment securities was the result of a $32.4 million, or 43.7%, increase in the average balance of investment securities, which was partially offset by a three basis point decrease in the yield earned thereon. The increase in interest income from mortgage-backed securities was the result of a $87.8 million, or 173.7%, increase in the average balance of mortgage-backed securities, which was partially offset by a eight basis point decrease in the yield earned thereon. The decrease in interest income from other earning assets was the result of a $30.1 million, or 51.6%, decrease in the average balance of other earning assets, which was partially offset by a 90 basis point increase in the yield earned thereon. The increase in average interest-earning assets during the three and nine month periods ended September 30, 1997 compared to the 1996 comparable periods primarily reflect the Company's acquisitions of Royal and Jefferson during 1996 and, to a lesser extent, increased loan origination efforts. The Company originated $73.6 million and $185.6 million, respectively, of new loans during the three and nine month periods ended September 30, 1997, compared to $51.2 million and $129.8 million, respectively, of loans originated during the three and nine month periods ended September 30, 1996. INTEREST EXPENSE The Company's total interest expense was $9.3 million during the three months ended September 30, 1997, compared to $6.5 million for the three months ended September 30, 1996. The reason for the $2.7 million, or 41.5%, increase in interest expense was a $2.7 million, or 47.5%, increase in interest expense on deposits due to a $256.1 million, or 52.8%, increase in the average balance of deposits (primarily as a result of the two acquisitions made in 1996), which was partially offset by a 17 basis point decrease in the average cost thereof. Interest expense paid on advances from the FHLB remained relatively constant. The borrowings from the FHLB are used to fund fixed-rate, long term single-family residential loans. 14 15 For the nine months ended September 30, 1997, the company's total interest expense was $27.0 million, compared to $18.7 million for the same period in 1996. The reason for the $8.3 million, or 44.4%, increase in interest expense was a $8.3 million, or 50.8%, increase in interest expense on deposits due to a $274.0 million, or 59.6%, increase in the average balance of deposits (primarily as a result of the two acquisitions in 1996), which was partially offset by a 26 basis point decrease in the cost thereof. Interest expense on borrowings remained unchanged at $2.3 million for the nine months ended September 30, 1997 and 1996. PROVISION FOR LOAN LOSSES The provision for loan losses was $302,000 in the three months ended September 30, 1997 as compared to $27,000 for the same period in 1996. The provision for loan losses was $706,000 in the nine months ended September 30, 1997, compared to $44,000 for the same period in 1996. The increased provisions for loan losses during both the three and nine month periods in 1997 compared to the 1996 periods was due to the increase in net loans during the periods, particularly the increases in commercial real estate, commercial business and indirect automobile loans which generally involve greater risk than single-family residential loans. As of September 30, 1997, the ratio of the Company's allowance for loan losses to non-performing loans was 256.1%. NONINTEREST INCOME Noninterest income increased $1.1 million, or 124.9%, in the three months ended September 30, 1997 to $1.9 million, compared to $845,000 for the three months ended September 30, 1996. Such increase was due primarily to a $457,000, or 90.5%, increase in service charges on deposit accounts, a $179,000, or 120.1%, increase in late charges and other fees on loans and a $419,000, or 219.4%, increase in other income. The increase in service charges on deposit accounts was due primarily to the increased number of accounts that are subject to such service charges together with increased charges on such accounts. The increase in other income was due primarily to increased sales of investment services in the Bank's subsidiary company, Iberia Financial Services, Inc. For the nine months ended September 30, 1997, noninterest income increased $2.2 million, or 87.8%, to $4.7 million, compared to $2.5 million for the same period in 1996. Such increase was due primarily to a $1.1 million, or 85.1%, increase in service charges on deposit accounts, a $312,000, or 57.6%, increase in late charges and other fees on loans and a $762,000, or 119.1%, increase in other income. NONINTEREST EXPENSE Noninterest expense decreased $95,000, or 1.3%, in the three months ended September 30, 1997 to $7.4 million, compared to $7.5 million in the three months ended September 30, 1996. Such decrease was due primarily to a $3.0 million, or 96.4%, decrease in SAIF deposit insurance premium due primarily to the one-time SAIF special assessment of $2.9 million in the third quarter of 1996, which was partially offset by a $1.7 million, or 80.7%, increase in 15 16 salaries and employee benefits due primarily to salaries and benefits associated with the additional personnel needed to staff the branch offices acquired in 1996 and the two branch offices opened in 1997, additional staff added as the Bank transitions to a commercial bank from a savings bank and a $147,000 increase in the ESOP expense caused by an increase in the average fair market value of Company stock, a $192,000, or 57.1%, increase in occupancy expense due primarily to the 10 additional branches during the 1997 period compared to the 1996 period, a $122,000, or 46.6%, increase in depreciation expense, a $62,000, or 39.7%, increase in computer expense, a $325,000 increase in amortization of goodwill and other acquired intangibles due to the Royal acquisition which took place in May of 1996 and the Jefferson acquisition which was consummated in October of 1996, and a $464,000, or 40.1%, increase in other noninterest expense. For the nine months ended September 30, 1997, noninterest expense increased $4.8 million, or 31.5%, to $19.9 million compared to $15.1 million for the same period in 1996. Such increase was primarily due to a $4.3 million, or 72.6%, increase in salaries and employee benefits, a $529,000, or 64.1%, increase in occupancy expense, a $238,000, or 33.6%, increase in depreciation expense, a $390,000, or 89.0%, increase in computer expense, a $1.1 million increase in amortization of goodwill and other acquired intangibles and a $1.6 million, or 56.5%, increase in other noninterest expense, which was partially offset by a $3.3 million, or 90.8%, decrease in SAIF deposit insurance premium. INCOME TAX EXPENSE Income tax expense increased $1.0 million in the three months ended September 30, 1997 to $1.0 million. The increase in income tax expense reflects an increase in income before taxes and an increase in the effective tax rate due primarily to the nondeductability of the amortization of goodwill and other acquired intangibles for tax purposes. For the nine months ended September 30, 1997, income tax expense increased $1.4 million, or 67.6%, to $3.4 million compared to $2.0 million for the same period in 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Company's primary sources of funds are deposits, borrowings, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, the Company invests excess funds in overnight deposits and other short-term interest-earning assets which provide liquidity to meet lending requirements. The Bank has been able to generate sufficient cash through its deposits as well as borrowings. At September 30, 1997, the Company had $47.0 million in outstanding advances from the Federal Home Loan Bank of Dallas. 16 17 Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as over-night deposits. On a longer-term basis, the Company maintains a strategy of investing in various lending products. The Company uses its sources of funds primarily to meet its ongoing commitments, to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed and investment securities. At September 30, 1997, the total approved loan commitments outstanding amounted to $40.2 million. At the same time, commitments under unused lines of credit, including credit card lines, amounted to $48.6 million. Certificates of deposit scheduled to mature in twelve months or less at September 30, 1997 totalled $336.5 million. Based on past experience, management believes that a significant portion of maturing deposits will remain with the Bank. The Company anticipates it will continue to have sufficient funds to meet its liquidity requirements. At September 30, 1997, the Company and its subsidiary had regulatory capital which was well in excess of regulatory requirements. The current requirements and the Company's actual levels as of September 30, 1997 are detailed below (dollars in thousands):
Required Capital Actual Capital -------------------- -------------------- Amount Percent Amount Percent ------- ------- -------- ------- Tier 1 Leverage $28,741 3.00% $98,616 10.29% Tier 1 Risk-Based $21,511 4.00% $98,616 18.34% Total Risk-Based $43,021 8.00% $103,786 19.30%
17 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K a) Not applicable. b) No Form 8-K reports were filed during the quarter. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ISB FINANCIAL CORPORATION Date: November 7, 1997 By: /s/ Larrey G. Mouton ----------------------------------------- Larrey G. Mouton, President and Chief Executive Officer Date: November 7, 1997 By: /s/ Thomas E. Harrison ----------------------------------------- Thomas E. Harrison, Senior Vice President and Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 14,628 27,029 0 504 0 128,843 129,076 641,520 (5,170) 956,048 783,224 46,990 8,209 0 0 0 7,381 107,871 956,048 38,360 11,426 1,370 51,156 24,712 27,030 24,126 706 0 19,902 8,247 4,849 0 0 4,849 .75 .75 7.76 2,019 0 0 6,223 4,534 295 225 5,170 0 0 5,170
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