-----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, Kr7B/sv2fwYTpB9hbwh+k1pofaXYOLhJ5zItb3mOGefILspVFone21yeQ8gEld5m 21g2Fw6BMXn/7VIsjLti5g== 0000950133-98-001182.txt : 19980401 0000950133-98-001182.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950133-98-001182 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE 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: SEC FILE NUMBER: 000-25756 FILM NUMBER: 98582616 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 ISB FINANCIAL CORPORATION FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X} 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, 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 (I.R. S. Employer incorporation or organization) Identification Number) 1101 East Admiral Doyle Drive New Iberia, Louisiana 70560 --------------------------------------- ------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (318) 365-2361 Securities registered pursuant of Section 12(b) of the Act: Not Applicable Securities registered pursuant of 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 of 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 of this Form 10- K. As of March 18, 1998, the aggregate market value of the 6,594,793 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 369,184 shares held by all directors and officers of the Registrant as a group, was approximately $183.8 million. This figure is based on the closing sale price of $27.875 per share of the Registrant's Common Stock on March 18, 1997. Number of shares of Common Stock outstanding as of December 31, 1997: 6,902,028
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, 1997 are incorporated into Part II, Items 5 through 8 of this Form 10-K, (2) Portions of the definitive proxy statement for the 1998 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. 2 PART 1. 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 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. 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 operated as a separate subsidiary of the Company until September 1, 1997, as a state chartered savings bank under the name of Jefferson Bank ("Jefferson"). On September 1, 1997, Jefferson Bank was merged with and into Iberia Savings Bank. On December 1, 1997, Iberia Savings Bank changed its name to IBERIABANK. The only significant assets of the Company are the capital stock of Iberia , 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, 1997, the Company had total assets of $947.3 million, total deposits of $778.7 million and equity of $115.6 million. Iberia is a Louisiana chartered stock commercial bank conducting business from its main office located in New Iberia, Louisiana and 26 full-service branch offices located in New Iberia, Lafayette, Jeanerette, Franklin, Morgan City, Crowley, Rayne, Kaplan, St. Martinville, Abbeville, Gretna, Marrero, River Ridge, New Orleans, Metairie and Kenner, all of which are in southern Louisiana. The Bank attracts 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 Bank is primarily engaged in attracting deposits from the general public and using those funds to originate loans. The Bank's primary lending emphasis has been loans secured by first and second liens on single-family (one-to-four units) residences located in the Bank's primary market area. At December 31, 1997, such loans amounted to $376.3 million or 55.6% of the Bank's gross loan portfolio. The Bank 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, 1997, $169.7 million, or 25.1%, of the Bank's gross loans were consumer loans. Of that amount, $90.7 million, or 13.4% of gross loans, were indirect automobile loans. Commercial loans consist of commercial real estate loans, commercial business loans and multi-family residential real estate loans. At December 31, 1997, $48.3 million, or 7.1% of loans are secured by commercial real estate, $58.0 million, or 8.6%, are commercial business loans and $2.5 million, or .4%, are multi-family residential real estate loans. The Bank also originates loans for the purpose of constructing single-family residential units. At December 31, 1997, $22.1 million, or 3.3%, are construction loans. 1. 3 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 Bank is 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 Bank is 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 Bank is a member 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 Bank invests 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, 1997, the Bank's mortgage-backed securities amounted to $115.1 million, or 12.2% of total assets and its investment securities amounted to $77.3 million, or 8.2% of total assets. 2. 4 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, ----------------------------------------------------------- 1997 1996 ------------------------- ----------------------------- Percent of Percent of Amount Total Amount Total ----------- ----------- ------------ ----------- Mortgage loans: Single-family residential $ 376,320 55.59% $ 386,555 66.45% Multi-family 2,516 0.37% 2,279 0.39% Construction 22,109 3.27% 14,064 2.41% --------- -------- --------- -------- Total mortgage loans 400,945 59.23% 402,898 69.25% --------- -------- --------- -------- Commercial Loans Business loans 57,978 8.56% 36,089 6.20% Real estate 48,291 7.13% 22,961 3.95% --------- -------- --------- -------- Total commercial loans 106,269 15.69% 59,050 10.15% --------- -------- --------- -------- Consumer loans: Home equity 34,192 5.05% 21,646 3.72% Automobile 9,433 1.39% 7,509 1.29% Indirect 90,676 13.39% 52,371 9.00% Mobile home loans 3,226 0.48% 4,215 0.73% Educational loans 9,458 1.40% 9,345 1.61% Credit card loans 4,150 0.61% 4,017 0.69% Loans on savings 11,255 1.66% 12,487 2.15% Other 7,358 1.09% 8,225 1.41% --------- -------- --------- -------- Total consumer loans 169,748 25.08% 119,815 20.60% --------- -------- --------- -------- Total loans receivable 676,962 100.00% 581,763 100.00% --------- -------- --------- -------- Less: Allowance for loan losses (5,258) (4,615) Loans-in-process (14,082) (6,059) Unearned discount (160) (143) Prepaid dealer participations 3,636 2,555 Deferred loan fees, net (709) (922) Discount on loans purchased (1,145) (1,460) --------- --------- Loans receivable, net 659,244 571,119 --------- ---------
December 31, ------------------------------------------------------------ 1995 1994 ---------------------------- ---------------------------- Percent of Percent of Amount Total Amount Total ----------- ----------- ----------- ------------ Mortgage loans: Single-family residential $ 318,705 76.83% $ 300,730 78.00% Multi-family 1,506 0.36% 1,801 0.47% Construction 15,617 3.76% 14,427 3.74% --------- -------- --------- --------- Total mortgage loans 335,828 80.95% 316,958 82.21% --------- -------- --------- --------- Commercial Loans Business loans 11,055 2.66% 10,655 1.67% Real estate 14,486 3.49% 6,441 2.76% --------- -------- --------- --------- Total commercial loans 25,541 6.15% 17,096 4.43% --------- -------- --------- --------- Consumer loans: Home equity 15,364 3.70% 14,229 3.69% Automobile 5,873 1.42% 5,003 1.54% Indirect 619 0.15% 939 0.24% Mobile home loans 6,077 1.46% 8,017 2.08% Educational loans 9,262 2.23% 9,639 2.50% Credit card loans 3,836 0.92% 3,477 0.90% Loans on savings 7,481 1.80% 8,305 2.15% Other 4,960 1.20% 1,910 0.50% --------- -------- --------- --------- Total consumer loans 53,472 12.90% 51,519 13.60% --------- -------- --------- --------- Total loans receivable 414,841 100.00% 385,573 100.24% --------- -------- --------- --------- Less: Allowance for loan losses (3,746) (3,831) Loans-in-process (8,399) (6,848) Unearned discount (1) (5) Prepaid dealer participations 0 0 Deferred loan fees, net (1,191) (1,416) Discount on loans purchased (1,962) (2,679) --------- --------- Loans receivable, net 399,542 370,794 --------- ---------
December 31, ------------------------------- 1993 ------------------------------ Percent of Amount Total ----------- ----------- Mortgage loans: Single-family residential $ 284,630 79.96% Multi-family 1,897 0.53% Construction 9,082 2.55% -------- ------- Total mortgage loans 295,609 83.04% -------- ------- Commercial Loans Business loans 4,089 1.15% Real estate 8,271 2.32% -------- ------- Total commercial loans 12,360 3.47% -------- ------- Consumer loans: Home equity 11,493 3.23% Automobile 3,616 1.02% Indirect 1,339 0.38% Mobile home loans 9,989 2.81% Educational loans 8,953 2.52% Credit card loans 2,406 0.68% Loans on savings 8,117 2.28% Other 2,082 0.58% -------- ------- Total consumer loans 47,995 13.49% -------- ------- Total loans receivable 355,964 100.00% -------- ------- Less: Allowance for loan losses (3,413) Loans-in-process (3,991) Unearned discount (25) Prepaid dealer participations 0 Deferred loan fees, net (1,242) Discount on loans purchased (3,876) -------- Loans receivable, net 343,417 --------
3. 5 Contractual Maturities. The following table sets forth the scheduled contractual maturities of the Banks' loans held to maturity at December 31, 1997. 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.
Single Family Residential ------------------------------------------------------------------------------ Single-family Multi-family Construction Total ------------- ------------ ------------ ----- Amounts due in: One year or less $ 16,310 $ 18 $ 16,328 After one year through five years 65,940 1,052 66,992 After five years 294,070 1,446 22,109 (1) 317,625 ------------------------------------------------------------------------------ Total(2) $ 376,320 $ 2,516 $ 22,109 $ 400,945 ============================================================================== Interest rate terms on amounts due after one year: Fixed $ 185,106 $ 1,649 $ 16,582 $ 203,337 Adjustable 174,904 849 5,527 181,280 ------------------------------------------------------------------------------ Total $ 360,010 $ 2,498 $ 22,109 $ 384,617 ==============================================================================
Commercial ------------------------------------------------ Business Consumer Real Estate Loans Total Loans Total ----------- ----- ----- ----- ----- Amounts due in: One year or less $ 10,768 $ 30,488 $ 41,256 $ 48,114 $ 105,698 After one year through five years 12,614 10,473 23,087 91,882 181,961 After five years 24,909 17,017 41,926 29,752 389,303 ------------------------------------------------------------------------------------------- Total(2) $ 48,291 $ 57,978 $ 106,269 $ 169,748 $ 676,962 =========================================================================================== Interest rate terms on amounts due after one year: Fixed $ 16,570 $ 6,504 $ 23,074 $ 112,191 $ 338,602 Adjustable 20,953 20,986 41,939 9,443 232,662 --------------------------------------------------------------------------------------- Total $ 37,523 $ 27,490 $ 65,013 $ 121,634 $ 571,264 =======================================================================================
4. 6 Scheduled contractual amortization of loans does not reflect the expected term of the Bank's 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 Bank 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. 5. 7 Loan Originations, Purchases and Sales Activity. The following table shows the loan origination, purchase and sale activity of the Bank during the periods indicated.
Y e a r E n d e d D e c e m b e r 3 1 , --------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- --- (Dollars In Thousands) Gross loans at beginning of period $ 581,763 $ 414,841 $ 385,573 $ 355,964 $ 353,172 -- -- -- Originations of loans: Mortgage loans: Single-family residential 48,624 41,134 38,936 44,670 61,745 Multi-family residential -- -- -- -- -- Construction 22,187 21,939 24,330 25,602 17,225 Commercial business loans 80,872 32,457 15,608 13,712 5,170 Commercial real estate -- 15,143 5,486 3,044 2,721 Consumer loans: Home equity 18,693 13,785 11,257 8,367 7,261 Automobile 65,193 42,813 4,318 4,116 2,913 Mobile home loans 733 276 386 792 611 Educational loans 1,466 1,724 1,268 2,153 2,575 Loans on savings 5,202 5,272 4,463 3,329 3,908 Credit cards 1,338 1,137 1,430 6,677 5,311 Other 6,890 3,634 3,836 3,262 2,835 --------- --------- --------- --------- --------- Total originations 251,198 179,314 111,318 115,724 112,275 --------- --------- --------- --------- --------- -------------------------- Loan purchased/acquired -- 109,121 996 -- -- -------------------------- --------- --------- --------- Total purchases/acquisitions 0 109,121 996 -- -- --------- --------- --------- --------- --------- Total originations and purchases 251,198 288,435 112,314 115,724 112,275 Repayments (136,035) (116,511) (82,356) (84,204) (109,227) Loan sales (19,964) (5,002) (690) (1,911) (256) --------- --------- --------- --------- --------- Net activity in loans 95,199 166,922 29,268 29,609 2,792 --------- --------- --------- --------- --------- Gross loans held at end of period $ 676,962 $ 581,763 $ 414,841 $ 385,573 $ 355,964 ========= ========= ========= ========= =========
6. 8 The lending activities of Iberia are subject to written underwriting standards and loan origination procedures established by the Bank's 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 Bank's 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 one of the Bank's offices. The credit analysis department is responsible for overseeing the underwriting of all commercial business and commercial real estate loans. The Bank 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 Bank's Board of Directors. The Bank requires 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 Bank's personnel, as well as referrals. Consumer loans originated by the Bank are obtained primarily through existing customers, automobile dealerships and walk-in customers who have been made aware of the Bank's programs by advertising and other means. Applications for residential mortgage loans typically are approved by certain designated officers or, if the loan amount exceeds $227,100 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 Bank's Board of Directors, and loans in excess of $1.0 million must be approved by the Board of Directors. Certain designated officers of the Bank have limited authority to approve commercial loans not exceeding specified levels and 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 Bank's Commercial 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 insured by the Federal Housing Administration ("FHA") or partially guaranteed by the Department of Veterans Affairs ("VA"). The vast majority of the Bank's 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 1997 and 1996, the Bank 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 Bank's 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, 1997, $196.4 million, or 52.2%, of the Bank's single-family residential mortgage loans were fixed-rate loans. 7. 9 The adjustable-rate loans currently offered by the Bank 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, plus a margin. During 1996, the Banks changed its index to the one year constant maturity treasury ("CMT") from the National Median Cost of Funds for SAIF-Insured Institutions 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, 1997, $179.9 million or 47.8% 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 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 Bank's 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 Bank's 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, 1997, such loan originations have amounted to $7.4 million. To date, Iberia has not experienced any significant delinquency problems with respect to loans originated under this program. Construction Loans. Substantially all of the Bank's construction loans have consisted of loans to construct single-family residences extended to individuals where the Bank has committed to provide a permanent mortgage loan upon completion of the residence. As of December 31, 1997, the Bank's construction loans amounted to $22.1 million, or 3.3%, of the Bank's total loan portfolio. The Bank's 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 the such loans. The Bank's 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 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 Bank also will originate ground or land loans to individuals to purchase a building lot on which he intends to build his primary residence. 8. 10 Prior to making a commitment to fund a construction loan, the Bank requires 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, 1997, $169.7 million, or 25.1%, of the Bank's total loan portfolio was comprised of consumer loans. The Bank originates 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 sent via facsimile to bank personnel for approval or denial. The Bank relies 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 Bank has limited its dealings to automobile dealerships which have demonstrated reputable behavior in the past. At December 31, 1997, $90.7 million, or 13.4%, of the Bank's total loan portfolio are indirect automobile loans. At December 31, 1997, the Bank's remaining consumer loan portfolio was comprised of home equity loans, educational loans, loans secured by deposits at the Bank, mobile home loans, direct automobile loans, credit card loans and other consumer loans. At December 31, 1997, the Bank had $34.2 million or 5.1% of home equity loans, and $9.5 million or 1.4% 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 $11.3 million, or 1.7%, of the Bank's total loan portfolio at December 31, 1997. The Bank's mobile home loans amounted to $3.2 million, or .5% of the loan portfolio at December 31, 1997, compared to $18.1 million or 5.4% of the Bank's loan portfolio at December 31, 1991. The Bank has 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. The Bank also offers direct automobile loans, loans based on its VISA and MasterCard credit cards and other consumer loans. At December 31, 1997, the Bank's direct automobile loans amounted to $9.4 million, or 1.4%, of the Bank's total loan portfolio. The Bank's Visa and MasterCard credit card loans totaled $4.2 million, or 0.6%, of the Bank's total loan portfolio at such date. The Bank's other personal consumer loans amounted to $7.4 million, or 1.1% of the Bank's total loan portfolio at such date. Commercial and Multi-Family Residential Real Estate Loans. The Bank has increased its investment in commercial real estate loans from $8.3 million, or 2.3% of the total loan portfolio at December 31, 1993, to $48.3 million, or 7.1% of the total loan portfolio, at December 31, 1997. The Bank's multi-family residential loan portfolio at December 31, 1997 is $2.5 million or .4% of the total loan portfolio. The increase in commercial real estate loans reflects, in part, the Bank's determination to originate such loans in its market area and certain commercial real estate loans acquired from BOL. The Bank intends to continue to expand its involvement in commercial real estate lending and to continue to moderately increase the amount of such loans in the Bank's 9. 11 portfolio. The Bank expects 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 Bank believes has been underserved in recent years. The types of properties securing the Bank's commercial real estate loans include strip shopping centers, professional office buildings, small retail establishments and warehouses, all of which are located in the Bank's market area. As of December 31, 1997, the Bank's largest commercial real estate loan had a balance of $2.7 million. Such loan is secured by a commercial office complex in the Bank's market area and is performing in accordance with its terms. The Bank's 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 Bank's 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 Bank obtains personal guarantees of the principals as additional security for any commercial real estate and multi-family residential loans. The Bank evaluates various aspects of commercial and multifamily 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 Bank has 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 Bank to substantiate property values for every commercial real estate and multi-family loan transactions. All appraisal reports are reviewed by the Bank prior to the closing of the loan. On occasion, the Bank 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 Bank 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, 1997, $30,000 of the Bank's commercial real estate loans were non-performing. Commercial Business Loans. The Bank originates commercial business loans on a secured and, to a lesser extent, unsecured basis. The Bank's commercial business loans generally are made to small to mid-size companies located in the Bank's primary market area and are made for a variety of commercial purposes. At December 31, 1997, the Bank's commercial business loans amounted to $58.0 million or 8.6% of the Bank's gross loan portfolio. The Bank has 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 Bank's 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 Bank's commercial business loans generally are secured by equipment, machinery, real property or other corporate assets. In addition, the Bank generally obtains personal guarantees from the principals of the borrower with 10. 12 respect to all commercial business loans. The Bank also provides commercial loans structured as advances based upon perfected security interests in accounts receivable and inventory. Generally the Bank will advance amounts not in excess of 85% of accounts receivable, provided that such accounts have not aged more than 90 days. In such cases, payments are made directly to the Bank and the Bank generally maintains in escrow 2% to 100% of the amounts received. As of December 31, 1997, the Bank had $129,000 of non-performing commercial business loans and its largest commercial business loan had a principal balance of $3.0 million. Such loan is secured by the borrower's accounts receivable 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) 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, 1997, Iberia's limit on unsecured loans-to-one borrower under LSBA was $13.9 million. At December 31, 1997, lberia's five largest loans or groups of loans-to-one borrower ranged from $2.5 to $4.7 million, and all of such loans were performing in accordance with their terms. ASSET QUALITY General. As a part of the Bank's efforts to improve asset quality, it has developed and implemented an asset classification system. All of the Bank's assets are subject to review under the classification system. All assets of the Bank 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 Bank attempts 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 Bank generally prefers to work with borrowers to resolve such problems, when the account becomes 90 days delinquent, the Bank institutes 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 Bank does 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 11. 13 are expenses and costs incurred for the improvement or 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 Bank is 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 Bank for economic or legal reasons related to the borrower's financial difficulties grants a concession to the borrower that the Bank 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 Bank had one troubled debt restructuring as of December 31, 1997. See the table below under "NonPerforming Assets and Troubled Debt Restructurings." Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 1997, in dollar amounts and as a percentage of each category of the Bank's 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, 1997 ---------------------------------------------------------- 30 - 59 Days 60 - 89 Days ------------------------------- ------------------------ Percent of Percent of Loan Loan Amount Category Amount Category --------------- ------------- -------- -------------- (Dollars in Thousands) Mortgage loans: Residential: Single-family $6,927 1.84% $1,651 0.44% Multi-family - 0 - Construction - 0 - Commercial business loans 533 0.92% 343 0.59% Commercial 433 0.92% 285 0.59% Consumer loans 1,690 1.00% 582 0.34% ------ ---- ------ ---- Total $9,593 1.42% 2,861 0.42% ------ ---- ------ ----
12. 14 Non-Performing Assets and Troubled Debt Restructurings. The following table sets forth information relating to the Bank's non-performing assets and troubled debt restructurings at the dates indicated.
December 31, ------------------------------------------------------------ 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ (Dollars in Thousands) Non-accrual loans: Mortgage loans: Single-family $1,543 $ 892 $ 788 $ 729 $ 642 Multi-family - - - - - Construction - - - - - Commercial business loans 129 407 - - - Commercial 30 190 30 55 142 Consumer loans 419 1,002 597 461 586 ------ ------ ------ ------ ------ Total non-accrual loans 2,121 2,491 1,415 1,245 1,370 ------ ------ ------ ------ ------ Accruing loans more than 90 days past due (1) 3 69 53 13 14 ------ ------ ------ ------ ------ Total non-performing loans 2,124 2,560 1,468 1,258 1,384 ------ ------ ------ ------ ------ Real Estate owned, net 473 978 561 570 859 ------ ------ ------ ------ ------ Total non performing assets $2,597 $3,538 $2,029 $1,828 $2,243 ------ ------ ------ ------ ------ Performing troubled debt restructuring $ 122 $ 176 $ 186 $ 194 $ 201 ------ ------ ------ ------ ------ Total non-performing assets and troubled debt restructurings $2,719 $3,714 $2,215 $2,022 $2,444 Non-performing loans to total loans 0.31% 0.44% 0.35% 0.33% 0.39% Total non-performing assets to total assets 0.29% 0.38% 0.33% 0.37% 0.46% Total non-performing assets and troubled debt restructurings to total assets 0.29% 0.40% 0.36% 0.41% 0.51%
13. 15 Other Classified Assets. Federal regulations require that the Bank classifies 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, 1997, the Bank had $6.4 million of assets classified substandard, $601,000 of assets classified doubtful, and no assets classified loss. At such date, the aggregate of the Bank's classified assets amounted to .74% of total assets. Allowance For Loan Losses. The Bank's 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, 1997, the Bank's allowance for loan losses amounted to 232.6% and .78% of the Bank's 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 institutions's allowance for loan and lease losses. The Policy Statement, which relflects 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 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 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. 14. 16 The following table sets forth the activity in the Bank's allowance for loan losses during the periods indicated.
Year Ended December 31, ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------- ------------ ----------- ---------- ------------- (Dollars in Thousands) Allowance at beginning of period $4,615 $3,746 $3,831 $3,413 $3,254 Allowance from subsidiary acquisition - 1,114 13 - - Provisions 1,097 156 239 305 441 Charge-offs: Mortgage loans: Single-family 50 46 55 81 107 Multi-family - - - - - Construction - - - - - Commercial business loans 191 61 - - - Commercial - - 4 - 96 Consumer loans 562 509 371 214 343 ------ ------ ------ ------ ------ Total 803 616 430 295 546 ------ ------ ------ ------ ------ Recoveries: Mortgage loans: Single-family 79 39 15 302 107 Multi-family - - - - - Construction - - - - - Commercial business loan 55 - - - - Commercial - 43 - - - Consumer loans 215 133 78 106 157 ------ ------ ------ ------ ------ Total 349 215 93 408 264 ------ ------ ------ ------ ------ Allowance at end of period $5,258 $4,615 $3,746 $3,831 $3,413 ------ ------ ------ ------ ------ Allowance for loan losses to total non-performing loans at end of period 232.60% 180.28% 255.18% 304.53% 246.60% Allowance for loan losses to total loans at end of period 0.78% 0.79% 0.90% 0.99% 0.96%
15. 17 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, ---------------------------------------------------------------------------- 1997 1996 -------------------------------------- --------------------------------- % of Loan % of Loan in Each in Each Category to Category to Amount Total Loans Amount Total Loans ------------------- -------------- --------------- -------------- Single-family residential 1,439 55.59% 1,991 66.45% Multi-family residential 9 0.37% 11 0.39% Construction 84 3.27% 72 2.41% Commercial business 1,356 8.56% 817 3.95% Commercial real estate 660 7.13% 502 6.20% Consumer 1,710 25.08% 1,222 20.60% ------------------- -------------- --------------- -------------- Total allowance for loans losses 5,258 100.00% 4,615 100.00% ------------------- -------------- --------------- --------------
December 31, -------------------------------------------------------------------- 1995 1994 -------------------------------- -------------------------------- % of Loan % of Loan in Each in Each Category to Category to Amount Total Loans Amount Total Loans ------------- -------------- ------------- --------------- Single-family residential 2,184 76.83% 2,221 78.00% Multi-family residential 10 0.36% 13 0.47% Construction 107 3.76% 107 3.74% Commercial business 134 2.66% 118 1.67% Commercial real estate 176 3.49% 196 2.76% Consumer 1,135 12.89% 1,176 13.36% ------------- -------------- ------------- --------------- Total allowance for loans losses 3,746 100.00% 3,831 100.00% ------------- -------------- ------------- ---------------
December 31, ------------------------------- 1993 ------------------------------- % of Loan in Each Category to Amount Total Loans ------------ -------------- Single-family residential 2,042 79.96% Multi-family residential 14 0.53% Construction 65 2.55% Commercial business 97 1.15% Commercial real estate 197 2.32% Consumer 998 13.49% ------------ -------------- Total allowance for loans losses 3,413 100.00% ------------ --------------
16. 18 Management of the Bank presently believes that its allowance for loan losses is adequate to cover any potential losses in the Bank's loan portfolio. However, future adjustments to this allowance may be necessary, and the Bank's 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, 1997, the Bank's mortgage-backed securities amounted to $115.1 million, or 12.2% 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 Bank's 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 Bank 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 $227,100. 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 Bank has generally determined, consistent with its asset/liability management strategies, to limit its investments in mortgage-backed securities to securities backed by ARMS, which have a balloon feature or securities which otherwise have an adjustable rate feature. The Bank's 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, 17. 19 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 issuers 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, 1997, the fair value of the Bank's investment in CMOs amounted to $20.5 million, all of which consisted of regular interests. As of December 31, 1997, the Bank's CMOs did not include any residual interests or interest-only or principal-only securities. As a matter of policy, the Bank does 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 Bank in the event that the Bank determine to utilize borrowings as a source of funds. Mortgage-backed securities issued or guaranteed by the FNMA or the FHLMC (except interest-only securities or the residual interests in CMOs are weighted at no more than 20% for risk-based capital purposes, compared to a weight of 50% to 100% for residential loans. See "Regulation - The Bank - Capital Requirements." As of December 31, 1997, all of the Bank's 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. 18. 20 The following table sets forth the composition of the Bank's mortgage-backed securities at the dates indicated.
December 31, -------------------------------------------- 1997 1996 1995 ---------- ------------ ------------ ( Dollars In Thousands) Mortgage-backed securities : FHLMC $ 54,285 $ 80,648 $ 16,434 FNMA 28,864 35,340 15,553 GNMA 11,115 13,233 350 FNMA CMO 9,468 9,697 7,209 FHLMC CMO 10,901 10,901 10,901 Privately Issued (2) 492 850 1,199 -------- -------- -------- Total mortgage backed securities $115,125 $150,669 $ 51,646 -------- -------- -------- Total market value $116,004 $150,014 $ 51,872 -------- -------- --------
(1) See Note 4 of the Notes to Consolidated Financial Statements. (2) Rated AA by national rating agencies. (3) At December 31, 1997, $49.1 million of the Banks' mortgage-backed securities had adjustable rates and $66.0 million had fixed rates, of which $55.4 million had a balloon feature (the mortgage- backed security will mature and repay before the underlying loans have been fully amortized). The following table sets forth the purchases, principal repayments and sales of the Bank's mortgage-backed securities for the periods indicated.
Year Ended December 31, 1997 1996 1995 1994 ----------- ----------- ----------- ------------ (In Thousands) Mortgage-backed securities purchased(1) $ $ $ 15,532 $ 4,793 Acquired --- 111,114 Principal repayments (35,353) (11,903) (3,722) (6,108) Sales --- --- --- --- Other, net (191) (188) (87) (181) --------- --------- --------- --------- Net change $ (35,544) $ 99,023 $ 11,723 $ (1,496) ========= ========= ========= =========
(1) All purchases are of mortgage-backed securities issued by government entities or government sponsored entities. 19. 21 At December 31, 1997, the weighted average contractual maturity of the Bank's mortgage-backed securities with a balloon feature was approximately 2.1 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 and the related securities. Under such circumstances, the Bank may be subject to reinvestment risk because to the extent that the Bank's mortgage-related securities amortize or prepay faster than anticipated, the Bank may not be able to reinvest the proceeds of such repayments and prepayments at a comparable rate. INVESTMENT SECURITIES The Bank's investments in investment securities consist primarily of securities issued by the U.S. Treasury and federal government agency obligations. As of December 31, 1997, the Bank's investment securities available for sale amounted to $75.5 million, net of gross unrealized gains of $335,000, and its investment securities held to maturity amounted to $1.8 million. At the time of their respective acquisitions, BOL and Jefferson provided $2.0 million and $57.5 million, respectively, of investment securities. The Bank attempts to maintain a high degree of liquidity in its investment securities portfolio and generally does not invest in securities with terms to maturity exceeding five years. 20. 22 The following table sets forth information regarding the amortized cost and market value of the Bank's investment securities at the dates indicated.
December 31, ----------------------------------------------------------------------------------------- 1997 1996 1995 ----------------------------- --------------------------- --------------------------- Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value ------------- ------------- ----------- ----------- ----------- ------------ (Dollars In Thousands) U.S. Government and federal agency obligations $ 69,534 $ 69,872 $ 95,549 $ 95,855 $ 79,907 $ 81,065 Other 7,448 7,447 7,523 7,507 5,785 5,777 -------- -------- -------- -------- -------- -------- Total $ 76,982 $ 77,319 $103,072 $103,362 $ 85,692 $ 86,842 -------- -------- -------- -------- -------- --------
21. 23 The following table sets forth certain information regarding the maturities of the Bank's investment securities at December 31, 1997.
Contractually Maturing ---------------------------------------------------------------------------------- Weighted Weighted Under 1 Average 1-5 Average Year Yield Years Yield --------------- ---------------- ---------------- --------------- U.S. Government and federal agency obligations $ 33,831 6.18% $ 36,041 6.45% Other 5,634 (1) 5.80% 1,743 4.89% --------------- ---------------- Total $ 39,465 6.13% $ 37,784 6.38% =============== ================
Contractually Maturing ------------------------------------------------------------------------------------- Weighted Weighted 6-10 Average Over 10 Average Years Yield Years Yield --------------- ---------------- --------------- --------------- U.S. Government and federal agency obligations $ 0 % $ --- % Other 68 6.50% --- --------------- --------------- Total $ 68 6.50% $ 0 =============== ===============
- ------------------ (1) Consists of a mutual fund of adjustable rate mortgage-backed securities, all of which adjust at least annually. 22. 24 SOURCES OF FUNDS General. The Bank's principal source of funds for use in lending and for other general business purposes has traditionally come from deposits obtained through the Bank's branch offices. The acquisitions of Jefferson and BOL provided $288.3 million of deposits used to help fund the Bank's loan growth. The Bank also derives 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. During 1995 and 1996 the Bank also utilized borrowings from the FHLB as a source of funds. Deposits. The Bank's 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 Bank's deposit products also include Individual Retirement Account ("IRA") certificates and Keogh accounts. The Bank's deposits are obtained primarily from residents in its primary market area. The Bank 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 Bank utilizes traditional marketing methods to attract new customers and savings deposits, including print and broadcast advertising and direct mailings. However, the Bank does not solicit funds through deposit brokers nor does it pay any brokerage fees if it accepts such deposits. The Bank participates in the regional ATM network known as CIRRUS. The Bank has 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 Bank in recent years has experienced disintermediation of deposits into competing investment products. See Note 8 of the Notes to Consolidated Financial Statements. 23. 25 The following table sets forth certain information relating to the Bank's 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, ------------------------------------------------------------------------------- 1997 1996 1995 ------------------------ ---------------------- -------------------------- Percent Percent Percent of Total of Total of Total Amount Deposits Amount Deposits Amount Deposits ----------- ---------- --------- ---------- ---------- ------------- NOW account $ 83,282 10.70% $ 76,991 10.13% $ 32,472 7.30% Money market accounts 73,076 9.38% 58,669 7.72% 32,204 7.24% Non-interest-bearing checking accounts 44,862 5.76% 33,884 4.46% 9,124 2.05% -------- ------ -------- ------- -------- ------ Total demand deposits 201,220 25.84% 169,544 22.31% 73,800 16.59% -------- ------ -------- ------- -------- ------ Passbook savings deposits 109,532 14.07% 119,685 15.74% 49,920 11.23% ------ ------- ------ Certificate of deposit account: Less than 6 months 175,590 22.54% 11,099 1.46% 16,101 3.62% 6 - 12 months 126,375 16.23% 60,766 7.98% 45,211 10.17% 13 - 36 months 157,581 20.24% 261,151 34.35% 119,263 26.83% More than 36 months 8,397 1.08% 138,039 18.16% 140,305 31.56% -------- ------ -------- ------- -------- ------ Total certificates 467,943 60.09% 471,055 61.95% 320,880 72.18% -------- ------ -------- ------- -------- ------ Total deposits 778,695 100.00% 760,284 100.00% 444,600 100.00% -------- -------- --------
The following table sets forth the activity in the Bank's deposits during the periods indicated.
Year Ended December 31, -------------------------------------------- 1997 1996 1995 -------------- ------------ ----------- Beginning balance $ 760,284 $ 444,600 $ 434,443 Deposits acquired - 288,290 - Net increase (decrease) before interest credited (8,329) 7,869 (3,197) Interest credited 26,740 19,525 13,354 --------- --------- --------- Net increase (decrease) in deposits 18,411 315,684 10,157 --------- --------- --------- Ending balance $ 778,695 $ 760,284 $ 444,600 --------- --------- ---------
24. 26 The following table sets forth by various interest rate categories the certificates of deposit with the Bank at the dates indicated.
December 31, ------------------------------------ 1997 1996 1995 -------- -------- -------- (Dollars in Thousands) 0.00% to 2.99% $ 90 $ 100 $ - 3.00% to 3.99% 2,665 706 3,840 4.00% to 4.99% 88,826 90,768 63,805 5.00% to 5.99% 275,302 258,860 162,619 6.00% to 6.99% 95,824 107,022 74,540 7.00% to 7.99% 5,068 13,429 15,953 8.00% and over 168 170 123 -------- -------- -------- $467,943 $471,055 $320,880
The following table sets forth the amount and maturities of the Bank's certificates of deposit at December 31, 1997.
Over One Over Two Year Years One Year and Through Through Over Three Less Two Years Three Years Years ------------- ----------- ----------- ------------- (Dollars in Thousands) 2.00% to 3.99% 2,672 66 0 17 4.00% to 4.99% 75,449 7,638 5,504 235 5.00% to 6.99% 222,492 87,324 32,471 28,839 7.00% to 8.99% 1,352 459 2,579 846 ------- ------- ------- ------- 301,965 95,487 40,554 29,937
Borrowings. The Bank 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. During 1995 and 1996, the Company borrowed $77.5 million and $8.2 million, respectively, primarily to fund long term fixed-rate mortgage loans. See Note 9 of the Notes of Consolidated Financial Statements. 25. 27 SUBSIDIARIES Iberia only has one active, wholly owned subsidiary, Iberia Financial Services, Inc. ("IFSI"). At December 31, 1997, lberia's equity investment in IFSI was $1.1 million and IFSI had total assets of $1.2 million. For the years ended December 31, 1997 and 1996, IFSI Services had total revenue of $663,000 and $210,000, respectively and a net income of $182,000 in 1997 and $131,000 in 1996. See Note 1 of the Notes to Consolidated Financial Statements. The business of IFSI consists of acting as a broker for the sale of annuities and certain other securities to the general public. IFSI has one wholly owned subsidiary, Finesco, Ltd., which the Bank acquired in January 1995 and which business consists of insurance premium financing. COMPETITION The Bank faces 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 Bank has 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 Bank 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 Bank experiences strong competition for loan originations principally from other savings institutions, commercial banks and mortgage banking companies. The Bank competes 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 Bank had 356 full-time employees and 39 part-time employees as of December 31, 1997. None of these employees is represented by a collective bargaining agreement. The Bank believes 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 Bank. The description of these laws and regulations, as well 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 is 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 26. 28 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 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 are 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. 27. 29 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 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-weighting 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, 1997, 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 Bank 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 BANK. The Bank is subject to extensive regulation and examination by the OFI and by the FDIC and is 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 Bank's 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 Bank and their operations. 28. 30 FDIC Insurance Premiums. The deposits of the Bank are currently insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit insurance fund that covers commercial bank deposits, are required by law to attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The BIF met its target reserve level 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 of 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. Iberia's one-time special assessment amounted to $2.9 million pre-tax. The payment of such special assessment had the effect of immediately reducing Iberia's capital by $1.9 million after tax. Jefferson was also subject to this assessment, but such assessment was before Jefferson's acquisition on October 18, 1996. 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 Bank's deposit insurance premiums, which have amounted to 23 basis points will be reduced to 6.4 basis points. Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks which, like the Bank, 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 I 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 related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights. 29. 31 The FDIC also requires that banks meet a risk-based capital standard. The risk-based capital standard for banks requires the maintenance of total capital (which is defined as Tier I capital and supplementary (Tier II) 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, 1997, the Bank 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 banks 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 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. 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. 30. 32 FEDERAL AND STATE TAXATION General. The Company and the Bank are subject to the generally applicable corporate tax provisions of the Code, and the Bank is 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 Bank. Fiscal Year. The Company and the Bank and its subsidiary file a consolidated federal income tax return on the basis of a fiscal year ending on December 31. Bad Debt Reserves. 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 Iberia, is no longer permitted to make additions to its tax bad debt reserve under the percentage of taxable income method, or to use the experience method. Such legislation also requires Iberia to realize increased tax liability over a period of at least six years, beginning in 1996, relating to Iberia'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 of 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 Iberia 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 Iberia during its six taxable years preceding 1996. The Bank is now required to use the specific charge off method for its bad debt deduction At December 31, 1997, the federal income tax reserves of Iberia included $14.8 million for which no federal income tax has been provided, which represents deductions for bad debts in years prior to 1987 under the percentage of taxable income method allowed at the time. 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 and the liquidation account established by Jefferson for the benefit of its depositors at the time of its conversion, the retained earnings of Iberia are substantially restricted. 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 accumulated earnings and profits. The amount of additional taxable income created by a nondividend 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). 31. 33 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, 1997 the Company had a federal and state net operating loss carryover of $1.2 million million and $451,000, respectively, which were assumed by the Company in the acquisition of Royal Bankgroup. Capital Gains and Corporate Dividends-Received Deductions. 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 Bank. The Company's consolidated federal income tax returns for the tax years ended 1994, 1995 and 1996 are open under the statute of limitations and are subject to review by the IRS. In addition, the 1994, 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 The nonbanking subsidiaries of the Bank and the Company are subject to the Louisiana Corporation Income Tax based on their Louisiana taxable income, as well as franchise taxes based on capital and long term debt. 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 Bank is 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 bank's capitalized earnings, plus (b) 80% of the bank's taxable stockholders' equity, and to subtract from that figure 50% of the bank's real and personal property assessment. Various items may also be subtracted in calculating a bank's capitalized earnings. 32. 34 ITEM 2. PROPERTIES. The following table sets forth certain information relating to the Bank's offices at December 31, 1997.
Net Book Value of Property and Leasehold Improvements Deposits Owned or at at Location Leased December 31, 1997 December 31, 1997 - ---------------------------------------- ----------- ---------------------- ----------------- (In Thousands) 1101 E. Admiral Doyle Drive, New Iberia Owned 3,231 186,176 1427 W. Main Street, Jeanerette Owned 196 28,736 403 N. Lewis Street, New Iberia Owned 360 53,287 1205 Victor II Boulevard, Morgan City Owned 355 18,331 1820 Main Street, Franklin (1) Leased 78 6,997 301 E. St. Peter Street, New Iberia Owned 1,084 24,327 700 Jefferson Street, Lafayette Owned 294 25,252 576 N. Parkerson Avenue, Crowley Owned 440 36,356 200 E. First Street, Kaplan Owned 134 24,740 1012 The Boulevard, Rayne Owned 222 11,609 500 S. Main Street, St Martinville Owned 71 12,170 1101 Veterans Memorial Drive, Abbeville Leased 1 6,582 150 Ridge Road, Lafayette Owned 74 14,328 2130 W. Kaliste Saloom, Lafayette Owned 1,178 16,723 2110 W. Pinhook Road, Lafayette Owned 2,795 65,743 2602 Johnston Street, Lafayette (1) Leased 325 17,350 2240 Ambassador Caffery, Lafayette Leased 162 6,120 4510 Ambassador Caffery, Lafayette Leased 163 3,260 2723 W. Pinhook Road Leased 179 550 1011 Fourth Street, Gretna Owned 924 77,908 3929 Veterans Blvd., Metairie Leased 20 27,524 9300 Jefferson Hwy., River Ridge Owned 499 38,558 2330 Barataria Boulevard, Marrero Owned 319 37,359 4626 General De Gaulle, New Orleans Owned 245 13,611 111 Wall Boulevard, Gretna Owned 290 21,417 1820 Barataria Blvd. Marrero Owned 157 2,855 4041 Williams Blvd. Kenner Leased 185 826 ---------- --------- $ 13,981 $ 778,695
- ------------------ (1) Building owned, ground leased. 33. 35 ITEM 3. LEGAL PROCEEDINGS. The Company and the Bank 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 1997 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 1997 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 18 of the Registrant's 1997 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required herein is incorporated by reference from pages 19 to 50 of the Registrant's 1997 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 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 1998 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. 34. 36 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, 1997 and 1996. Consolidated Statements of Income for the Fiscal Periods Ended December 31, 1997, 1996 and 1995. Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Periods Ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the Fiscal Periods ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. (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, IBERIABANK and Larrey G. Mouton dated February 15, 1995 *** 10.4 Severance Agreement among ISB Financial Corporation, IBERIABANK and Wayne Robideaux dated February 15, 1995 (representative of similar agreements entered into with Scott T. Sutton, William M. Lahasky, Johnny Ballatin, Donald Lee and Ronnie Foret) ** 13.0 1997 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. 33-9321 0) filed by the Registrant with the SEC on June 7, 1995. (***) Incorporated herein by reference from the like-numbered exhibit from the registrant's Annual Report on Form 10-K for the year ended December 31, 1997. 35. 37 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 By: /s/ Larrey G. Mouton --------------------------- March 24, 1998 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 24, 1998 - ---------------------------- Officer and Director -------------- Larrey G. Mouton (principal executive officer) /s/ John J. Ballatin Executive Vice President March 24, 1998 - ---------------------------- (principal financial and -------------- John J. Ballatin accounting officer) /s/ Henry J. Dauterive, Jr. Chairman of the Board March 26, 1998 - ---------------------------- -------------- Henry J. Dauterive, Jr. /s/ Emile J. Plaisance, Jr. Vice Chairman of the Board March 24, 1998 - ---------------------------- -------------- Emile J. Plaisance, Jr. /s/ Elaine D. Abell Director March 26, 1998 - ---------------------------- -------------- Elaine D. Abell /s/ Harry V. Barton, Jr. Director March 26, 1998 - ---------------------------- -------------- Harry V. Barton, Jr. Director - ---------------------------------------- -------------- William R. Bigler
36. 38 /s/ Cecil C. Broussard Director March 24, 1998 - ------------------------- -------------- Cecil C. Broussard /s/ William H. Fenstermaker Director March 26, 1998 - ---------------------------- -------------- William H. Fenstermaker /s/ Ray Himel Director March 26, 1998 - -------------------------------- -------------- Ray Himel Director - -------------------------------- -------------- Karen Knight /s/ E. Stewart Shea, III Director March 26, 1998 - ------------------------------- -------------- E. Stewart Shea, III /s/ Guyton H. Watkins Director March 25, 1998 - ------------------------------- -------------- Guyton H. Watkins /s/ Louis J. Tamporello, Sr. Director March 26, 1998 - ------------------------------- -------------- Louis J. Tamporello, Sr.
37. EX-13 2 ANNUAL REPORT 1 EXHIBIT 13 [ISB FINANCIAL CORPORATION LOGO] --------------------------------- 1997 ANNUAL REPORT 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 ........................................ 19 Consolidated Financial Statements Consolidated Statements of Financial Condition. ................. 20 Consolidated Statements of Income ............................... 21 Consolidated Statements of Stockholders' Equity ................. 22 Consolidated Statements of Cash Flows ........................... 23 Notes to Consolidated Financial Statements ...................... 25 Corporate Information ................................................. 51
ANNUAL MEETING The Annual Meeting of Stockholders is scheduled for Wednesday, April 15, at 3:00 p.m., at IBERIABANK, 1101 E. Admiral Doyle Drive, New Iberia, Louisiana. --- 1 3 LETTER TO STOCKHOLDERS We are pleased to report that the Company earned $5,343,000 or $0.86 per share for the year 1997 compared to $5,278,000 or $0.80 per share for the year 1996. In the fourth quarter of 1997, the Company incurred charges and expenses of a non-recurring nature of $1,167,000 or $0.19 per share on an after tax basis. These were necessary costs of converting our two subsidiary savings banks, Iberia Savings Bank and Jefferson Bank, to commercial banks, consolidating and streamlining operations, and enhancing public recognition of our new bank name. IBERIABANK, with the continuing consolidation of banking, is now the third largest bank domiciled in Louisiana with total assets of $947.3 million. Your Board of Directors is committed to increasing shareholder value and recognizes the importance of dividends. Since becoming a public company in 1995, we have increased quarterly dividends each year. In the third quarter, the quarterly dividends were increased to $0.125 per share resulting in an annualized dividend of $0.50 per share. In addition to increasing dividends in 1997, the Company repurchased 150,550 shares of our common stock at an average price of $20.52 per share. In January 1998, the Company announced another share repurchase program of up to 5% of the outstanding common stock. The repurchased shares will be held as treasury stock and will be available for general corporate purposes including being available for reissuance as options are exercised under the 1996 stock option plan. As the result of the 1997 net income, the stock repurchases and the payment of dividends, at December 31, 1997 the Company's book value, or stockholders' equity per share, increased to $17.74 and stockholders' equity to assets was 12.2%. The mission of the Bank has not changed for the past 110 years of our existence. We have had a proud history of serving our local community's financial needs at a reasonable cost. Our charter change to a commercial bank gives us even more flexibility to add quality financial services to the business community. While concentrating on expanding our business services, we expect to continue to remain the leading residential loan originator in our market. The success of our commercial lending expansion in 1997 was aided by continued economic expansion in the oil and gas industry in south Louisiana. Commercial real estate and business loan balances increased 80.0% or $47.2 million during the year. In addition to dedicated commercial lending officers servicing the larger credit needs, IBERIABANK organized a small business credit department utilizing new computer technology to underwrite credit requests to business owners with borrowing needs of less than $250,000. These small business services are offered throughout our 27 branch offices. These new business relationships have helped to generate deposits that are less interest sensitive and lower interest costs. - --- 2 4 The increase in our consumer loan balances was 41.7% or $49.9 million during 1997. This was primarily the result of continuing growth in our program of financing automobiles through a network of local dealerships. Home equity loan balances also increased strongly as homeowners utilized the equity in their homes for improvements and other personal lifestyle needs. The Bank invested in new computer application software and equipment to speed the loan decision process and improve consistency in underwriting standards. The mortgage division originated $70.8 million in home loans and sold $19.9 million of these loans into the secondary market. We expect to originate and sell more loans in 1998 in response to customer demand for long term, fixed interest rate home loans. If interest rates remain at the current low levels for the remainder of 1998, our residential loan balances may decrease as homeowners refinance their loans. Any such refinancing and sales activities can be expected to increase fee income. The Bank improved our customer services with the introduction of "I+Direct" in the fourth quarter of 1997. This new automated telephone system gives our customers 24 hour access to information about their loan and deposit accounts. They also are able to transfer funds and review transactions in accounts from the convenience of their homes or offices . This complements our network of "I-24" automated teller machines and the "I+Check Card," a debit card that allows cash withdrawals and purchases at stores throughout the United States. In addition, two new "supermarket branches" were opened in 1997. We now operate four branch offices in Winn Dixie supermarkets. These branches provide extended hours and convenient locations to our customers. We will continue to make investments to develop our computer capacities to make our financial services even more accessible and convenient. Sincerely, /s/ LARREY G. MOUTON LARREY G. MOUTON PRESIDENT AND CHIEF EXECUTIVE OFFICER --- 3 5 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, ---------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------------------------------------- SELECTED FINANCIAL CONDITION DATA: Total Assets $947,282 $929,264 $608,830 $487,563 $482,814 Cash and cash equivalents 44,307 53,385 51,742 9,686 19,674 Discount on loans purchased 1,145 1,460 1,962 2,679 3,876 Loans receivable, net 659,244 571,119 399,542 370,794 343,417 Investment securities 77,317 103,724 87,231 48,088 58,285 Mortgage-backed securities 115,125 150,669 51,646 39,923 41,419 Deposit accounts 778,695 760,284 444,600 434,443 439,500 Borrowings 46,728 47,750 40,490 5,000 -- Equity 115,564 114,006 119,677 44,840 39,863
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------------------------------------- SELECTED OPERATING DATA: Interest income $ 68,481 $ 52,707 $ 42,334 $ 36,548 $ 38,340 Interest expense 36,050 27,136 21,282 17,294 17,508 ---------------------------------------------------------------------------------- Net interest income 32,431 25,571 21,052 19,254 20,832 Provision for loan losses 1,097 156 239 305 441 ---------------------------------------------------------------------------------- Net interest income after provision for loan losses 31,334 25,415 20,813 18,949 20,391 Noninterest income 6,390 3,818 2,668 2,425 2,107 Noninterest expense 28,601 20,778 12,693 11,783 11,407 ---------------------------------------------------------------------------------- Income before income taxes 9,123 8,455 10,788 9,591 11,091 Income taxes 3,780 3,177 3,781 3,354 3,541 ---------------------------------------------------------------------------------- Net income $ 5,343 $ 5,278 $ 7,007 $ 6,237 $ 7,550 ================================================================================== Earnings per share - Basic $ .86 $ .80 $ .80 (1) N/A N/A ================================================================================== Earnings per share - Diluted $ .83 $ .80 $ .80 (1) N/A N/A ==================================================================================
- --- 4 6
AT OR FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------------------------- SELECTED OPERATING RATIOS (2): Return on average assets 0.57% 0.74% 1.26% 1.29% 1.55% Return on average equity 4.66 4.49 7.14 14.56 20.77 Equity to assets at the end of period 12.20 12.27 19.66 9.20 8.26 Interest-earning assets to interest- bearing liabilities 113.33 120.01 119.87 107.69 105.39 Interest rate spread (3) 3.12 2.97 3.16 3.88 4.24 Net interest margin (3) 3.66 3.77 3.95 4.17 4.44 Noninterest expense to average assets 3.03 2.91 2.28 2.44 2.35 Efficiency ratio (4) 73.67 70.70 53.51 54.35 49.73 ASSET QUALITY DATA: Non-performing assets to total assets at end of period (5) 0.29 0.38 0.33 0.37 0.46 Allowance for loan losses to non-performing loans at end of period 232.55 180.27 255.18 304.53 246.60 Allowance for loan losses to total loans at end of period 0.78 0.79 0.90 1.08 0.99 CONSOLIDATED CAPITAL RATIOS: Tier 1 leverage capital ratio 10.54 10.34 19.52 9.44 8.21 Tier 1 risk-based capital ratio 18.52 20.91 42.79 19.12 18.24 Total risk-based capital ratio 19.50 21.92 44.14 20.37 19.48
- -------- (1) 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. (2) 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. (3) 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. (4) The efficiency ratio represents noninterest expense, as a percentage of the sum of net interest income and noninterest income. (5) 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, 1995 through 1997. 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 $18.0 million or 1.9%. This increase was primarily the result of a $88.1 million increase in loans receivable and a $3.8 million increase in premises and equipment which was partially offset by a $9.1 million decrease in cash and cash equivalents, a $26.4 million decrease in investment securities and a $35.5 million decrease in mortgage-backed securities. Such net increases in assets was funded primarily by a $18.4 million increase in customer deposits. The average balances of assets and liabilities and the resulting levels of income and expense during 1997 included a full year of the balances associated with the Bank of Lafayette ("BOL") and Jefferson Federal Savings Bank ("Jefferson") acquisitions that occurred in 1996. See Note 19 to the Consolidated Financial Statements for more details. The following discussion describes the major changes in the asset mix during 1997. ASSET MIX -------------------- AT DECEMBER 31, 1997 SINGLE FAMILY RESIDENTIAL LOANS 40.2% CONSUMER LOANS 18.1% CASH AND INVESTMENTS 12.8% MORTGAGE-BACKED SECURITIES 12.2% COMMERCIAL BUSINESS LOANS 6.0% COMMERCIAL REAL ESTATE LOANS 5.3% OTHER ASSETS 5.4%
CASH AND CASH EQUIVALENTS - Cash and cash equivalents, which consist of interest-bearing and noninterest-bearing deposits and cash on hand, decreased by $9.1 million, or 17.0%, to $44.3 million at December 31, 1997 compared to $53.4 million at December 31, 1996. The cash was used primarily to fund increases in loans receivable. INVESTMENT SECURITIES - Investment securities decreased by $26.4 million, or 25.5%, to $77.3 million at December 31, 1997 compared to $103.7 million at December 31, 1996. Such decrease was the result of $57.1 million of investment securities sold or matured, which was partially offset by $30.3 million of investment securities purchased, a $50,000 increase in the market value of investment securities available for sale and $311,000 of amortization of premiums on investment securities. The cash generated from the decreased balance of investment securities was used to fund increases in loans receivable. - --- 6 8 At December 31, 1997, $75.5 million of the Company's investment securities were classified as available for sale and had a pre-tax effected net unrealized gain of $339,000 at such date. In addition, at such date, $69.9 million of the Company's investment securities consisted of U.S. Government and Federal agency obligations and $33.8 million, or 43.8% 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 decreased by $35.5 million, or 23.6%, to $115.1 million at December 31, 1997 compared to $150.7 million at December 31, 1996. The decrease in the balance of mortgage-backed securities was due to repayments. The cash generated from the repayments of mortgage-backed securities was used as a source of funds for the increases in loans receivable. At December 31, 1997, 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 $88.1 million, or 15.4%, to $659.2 million at December 31, 1997 compared to $571.1 million at December 31, 1996. Residential mortgage loans decreased $2.0 million, or .5%, during 1997 primarily by a $10.2 million, or 2.6%, decrease in single-family residential loans which was partially offset by a $8.0 million, or 57.2%, increase in construction loans. Total commercial loans increased $47.2 million, or 80.0%, during 1997 as a result of a $21.9 million, or 60.7%, increase in commercial business loans and a $25.3 million, or 110.3%, increase in commercial real estate loans. During 1997, the Company continued its emphasis on the origination of commercial real estate, commercial business, home equity and indirect automobile loans. Consumer loans increased $49.9 million, or 41.7%, during 1997 to $169.7 million at year-end. Indirect automobile loans increased $38.3 million, or 73.1% to $90.7 million or 13.4% of total loans at December 31, 1997 and home equity loans increased $12.5 million or 58.0% during 1997. For additional information on loans, see Note 5 to the Consolidated Financial Statements. PREMISES AND EQUIPMENT, NET - Premises and equipment, net, increased by $3.8 million, or 24.3%, to $19.3 million at December 31, 1997 compared to $15. 5 million at December 31, 1996. The increase was the result of $5.3 million in purchases of premises and equipment which was partially offset by $1.5 million of depreciation of premises and equipment. The purchases of premises and equipment included the opening of two new branch offices in supermarkets, the purchase of land that was formally leased, the renovation of a facility to accommodate the Company's expanded work force and upgrading of the Company's technological infrastructure. --- 7 9 LIABILITY AND EQUITY MIX --------------------- AT DECEMBER 31, 1997 [CHART] CERTIFICATES OF DEPOSIT 49.4% DEMAND DEPOSITS 21.2% STOCKHOLDERS' EQUITY 12.2% REGULAR SAVINGS 11.6% FHLB ADVANCES 4.9% OTHER LIABILITIES 0.7%
- ------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY GENERAL - The Company's primary funding sources included 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 1997. DEPOSITS - Deposits increased by $18.4 million, or 2.4%, from $760.3 million at December 31, 1996 to $778.7 million at December 31, 1997. The increase was the result of $26.7 million of interest credited which was partially offset by $8.3 million of net cash withdrawals. The relative mix of deposits remained stable during 1997, and at December 31, 1997, $44.8 million, or 5.8%, of the Company's total deposits were non-interest bearing. 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 Federal Home Loan Bank ("FHLB") of Dallas, which decreased $1.0 million, or 2.1%, from $47.7 million at December 31, 1996 to $46.7 million at December 31, 1997. The decrease in borrowings was due to normal amortization payments with respect to such borrowings. The advances, which are fixed-rate and long-term, were used in prior years to fund fixed-rate and long-term single-family residential 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, 1997, stockholders' equity totaled $115.6 million, an increase of $1.6 million from the previous year-end level. The increase in stockholders' equity in 1997 was the result of $5.3 million of net income, $1.7 million of common stock released by the Company's Employee Stock Ownership Plan ("ESOP") trust and $475,000 of common stock earned by participants of the Company's Recognition and Retention Plan ("RRP") trust, which was partially offset by $2.9 million of cash dividends declared on the Company's common stock and $3.1 million of the Company's common stock re-purchased and placed into treasury. 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") impose similar capital regulations on bank holding companies. At December 31 1997, the - --- 8 10 Company exceeded all required regulatory capital ratio requirements with a tier 1 leverage capital ratio of 10.54%, a tier 1 risk-based capital ratio of 18.52% and a total risk-based capital ratio of 19.50%. At December 31, 1997, IBERIABANK exceeded all required regulatory capital ratio requirements with a tier 1 leverage capital ratio of 9.51%, a tier 1 risk-based capital ratio of 16.68% and a total risk-based capital ratio of 17.68%. The graph to the right displays the Company's and IBERIABANK's regulatory capital position as of December 31, 1997, along with the applicable regulatory requirements. - --------------------- RESULTS OF OPERATIONS GENERAL - The Company reported net income of $5.3 million, $5.3 million and $7.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. During 1997, interest income increased $15.8 million, interest expense increased $8.9 million, the provision for loan losses increased $941,000, noninterest income increased $2.6 million, noninterest expense increased $7.8 million and income tax expense increased $603,000. Cash earnings, net income before the amortization of goodwill, was $6.9 million, $5.7 million and $7.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. 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 3.12%, 2.97% and 3.16% during the years ended December 31, 1997, 1996 and 1995, respectively. The Company's net interest margin (i.e., net interest income as a percentage of average interest-earning assets) was 3.66%, 3.77% and 3.95%, during REGULATORY CAPITAL [GRAPH]
TIER 1 TIER 1 TOTAL LEVERAGE RISK-BASED RISK-BASED RATIO RATIO RATIO REQUIRED 4.00% 4.00% 8.00% ISB FINANCIAL 10.54% 18.52% 19.50% IBERIABANK 9.51% 16.68% 17.68%
------------------------------ NET INCOME [CHART] 1993 $7,550 1994 $6,237 1995 $7,007 1996 $5,278 1997 $5,343
--- 9 11 NET INTEREST MARGIN [CHART] 1993 4.44% 1994 4.17% 1995 3.95% 1996 3.77% 1997 3.66%
the years ended December 31, 1997, 1996 and 1995, respectively. Net interest income increased $6.9 million, or 26.8%, in 1997 to $32.4 million compared to $25.6 million in 1996. The reason for such increase was a $15.8 million, or 29.9%, increase in interest income, which was partially offset by a $8.9 million, or 32.8%, increase in interest expense. Net interest income increased $4.5 million, or 21.5%, in 1996 compared to 1995. Such increase was due to a $10.4 million increase in interest income, which was partially offset by a $5.9 million increase in interest expense. INTEREST INCOME - Interest income totaled $68.5 million for the year ended December 31, 1997, an increase of $15.8 million over the total of $52.7 million for the year ended December 31, 1996. This improvement was mainly due to an increase in the Company's average interest-earning assets of $207.6 million, or 30.6%, to $885.9 million for the year ended December 31, 1997, caused primarily by the two acquisitions that took place during 1996. Interest earned on loans increased $11.8 million, or 29.3%, in 1997. The increase was due to a $150.7 million, or 32.0%, increase in the average balance of loans, which was partially offset by a 17 basis point (with 100 basis points being equal to 1%) decrease in the yield earned. Interest earned on investment securities increased $1.3 million, or 26.2%, in 1997. The increase was due to a $22.3 million, or 27.7%, increase in the average balance of investment securities, which was partially offset by a 7 basis point decline in the yield earned. Interest earned on mortgage-backed securities increased $3.9 million, or 87.6%, in 1997. The increase was due to a $61.4 million, or 84.5%, increase in the average balance of mortgage-backed securities together with a 10 basis point increase in the yield earned. Interest income on other earning assets, primarily interest-bearing deposits, decreased $1.3 million, or 41.7%, during 1997. The decrease was due to a $26.8 million, or 50.1%, decrease in the average balance of other earning assets, which was partially offset by a 95 basis point increase 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, 1997 and 1996, $313,000 and $502,000, respectively, was accreted into income. At December 31, 1997, the amount of the Company's remaining unaccreted discount was $1.1 million. Interest income amounted to $52.7 million and $42.3 million for the years ended December 31, 1996 and 1995, respectively. The $10.4 million, or 24.5%, increase in interest income in 1996 was due to a $7.4 million, or 22.6%, increase in interest income on loans, a $106,000, or 2.2%, increase in interest income on investment securities, a $1.7 million, or 58.3%, increase in interest income on mortgage-backed securities and a $1.2 million, or 64.0%, increase in interest income on other earning assets. INTEREST EXPENSE - Interest expense increased $8.9 million, or 32.8%, in 1997 to $36.1 million compared to $27.1 million in 1996. The reason for such increase was a $8.9 million, or 37.2%, increase in interest - ---- 10 12 expense on deposits, which was partially offset by a $26,000, or .8%, decrease in interest expense on borrowings. The increase in interest expense on deposits was the result of a $216.9 million, or 41.9%, increase in the average balance of deposits, which was partially offset by a 15 basis point decrease in the average cost of deposits. The increase in the average balance of deposits was primarily the result of the two acquisitions that took place during 1996. The decrease in interest expense on borrowings was the result of a $329,000, or .7%, decrease in the average balance of borrowings together with a 1 basis point decrease in the cost of borrowings. Total interest expense amounted to $27.1 million and $21.3 million for the years ended December 31, 1996 and 1995, respectively. The $5.9 million, or 27.5%, increase in interest expense in 1996 compared to 1995 was due to a $120.8 million, or 27.2%, increase in the average balance of interest-bearing liabilities together with a 1 basis point increase in the cost of interest-bearing liabilities. 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.
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST - ----------------------------------------------------------------------------------------------------------------------- Interest-earning assets: Loans receivable: Mortgage loans $420,510 $34,272 8.15% $362,663 $29,648 8.18% Commercial business loans 47,248 4,900 10.37 23,835 2,559 10.74 Consumer and other loans 154,444 12,896 8.35 85,017 8,056 9.48 -------- ------- -------- ------- Total loans 622,202 52,068 8.37 471,515 40,263 8.54 -------- ------- -------- ------- Mortgage-backed securities 134,059 8,436 6.29 72,664 4,498 6.19 Investment securities 102,880 6,216 6.04 80,565 4,926 6.11 Other earning assets 26,723 1,761 6.59 53,535 3,020 5.64 -------- ------- -------- ------- Total interest-earning assets 885,864 68,481 7.73 678,279 52,707 7.77 ------- ------- Non-interest earning assets 58,793 35,572 -------- -------- Total assets $944,657 $713,851 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits $141,212 3,714 2.63 $ 84,921 2,151 2.53 Passbook savings deposits 115,882 2,949 2.54 69,892 1,860 2.66 Certificates of deposit 477,325 26,294 5.51 362,745 20,006 5.52 -------- ------- -------- ------- Total deposits 734,419 32,957 4.49 517,558 24,017 4.64 Borrowings 47,281 3,093 6.54 47,610 3,119 6.55 -------- ------- -------- ------- Total interest-bearing liabilities 781,700 36,050 4.61 565,168 27,136 4.80 ------- ------- Non-interest bearing demand deposits 37,647 23,603 Non-interest bearing liabilities 10,583 7,597 -------- -------- Total liabilities 829,930 596,368 Stockholders' Equity 114,727 117,483 -------- -------- Total liabilities and stockholders' equity $944,657 $713,851 ======== ======== Net interest-earning assets $104,164 $113,111 ======== ======== Net interest income/interest rate spread $32,431 3.12% $25,571 2.97% ======= ===== ======= ===== Net interest margin 3.66% 3.77% ===== ===== Ratio of average interest-earning assets to average interest-bearing liabilities 113.33% 120.01% ====== ====== YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------- 1995 - ------------------------------------------------------------------------------------------- AVERAGE AVERAGE YIELD/ BALANCE INTEREST COST - ------------------------------------------------------------------------------------------- Interest-earning assets: Loans receivable: Mortgage loans $321,528 $26,787 8.33% Commercial business loans 8,699 838 9.63 Consumer and other loans 51,885 5,205 10.03 -------- ------- Total loans 382,112 32,830 8.59 -------- ------- Mortgage-backed securities 44,531 2,842 6.38 Investment securities 79,134 4,820 6.09 Other earning assets 26,922 1,842 6.84 -------- ------- Total interest-earning assets 532,699 42,334 7.95 ------- Non-interest earning assets 23,366 -------- Total assets $556,065 ======== Interest-bearing liabilities: Deposits: Demand deposits $ 63,035 1,736 2.75 Passbook savings deposits 53,532 1,520 2.84 Certificates of deposit 312,326 16,987 5.44 -------- ------- Total deposits 428,893 20,243 4.72 Borrowings 15,511 1,039 6.70 -------- ------- Total interest-bearing liabilities 444,404 21,282 4.79 ------- Non-interest bearing demand deposits 8,041 Non-interest bearing liabilities 5,538 -------- Total liabilities 457,983 Stockholders' Equity 98,082 -------- Total liabilities and stockholders' equity $556,065 ======== Net interest-earning assets $ 88,295 ======== Net interest income/interest rate spread $21,052 3.16% ======= ====== Net interest margin 3.95 ====== Ratio of average interest-earning assets to average interest-bearing liabilities 119.87% ======
---- 11 13 The following table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to rate (changes in rate multiplied by the prior period's volume), (ii) changes attributable to volume (changes in volume multiplied by the prior period's rate, (iii) mixed change (changes in rate multiplied by changes in volume), and (iv) total increase (decrease) (sum of the previous column).
(DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1997/1996 --------------------------------------------------------- CHANGE ATTRIBUTABLE TO --------------------------------------------------------- TOTAL RATE/ INCREASE VOLUME RATE VOLUME (DECREASE) --------------------------------------------------------- Interest-Earning Assets: Loans: Mortgage loans $ 4,729 $ (91) $ (14) $ 4,624 Commercial business loans 2,514 (87) (86) 2,341 Consumer and other loans 6,579 (957) (782) 4,840 Investment securities 1,364 (58) (16) 1,290 Mortgage-backed securities 3,800 75 63 3,938 Other earning assets (1,513) 508 (254) (1,259) --------------------------------------------------------- Total net change in income on interest-earning assets 17,473 (610) (1,089) 15,774 --------------------------------------------------------- Interest-Bearing Liabilities: Deposits: Demand deposits 1,426 82 55 1,563 Regular savings deposits 1,224 (81) (54) 1,089 Certificates of deposit 6,319 (24) (7) 6,288 Borrowings (22) (4) 0 (26) --------------------------------------------------------- Total net change in expense on interest-bearing liabilities 8,947 (27) (6) 8,914 --------------------------------------------------------- Net change in net interest income $ 8,526 $(583) $(1,083) $ 6,860 ========================================================= YEARS ENDED DECEMBER 31, ------------------------------------------------------- 1996/1995 ------------------------------------------------------- CHANGE ATTRIBUTABLE TO ------------------------------------------------------- TOTAL RATE/ INCREASE VOLUME RATE VOLUME (DECREASE) ------------------------------------------------------- Interest-Earning Assets: Loans: Mortgage loans $ 3,427 $(502) $ (64) $ 2,861 Commercial business loans 1,458 96 167 1,721 Consumer and other loans 3,324 (289) (184) 2,851 Investment securities 87 19 0 106 Mortgage-backed securities 1,795 (85) (54) 1,656 Other earning assets 1,821 (323) (320) 1,178 ------------------------------------------------------- Total net change in income on interest-earning assets 11,912 (1,084) (455) 10,373 ------------------------------------------------------- Interest-Bearing Liabilities: Deposits: Demand deposits 602 (139) (48) 415 Regular savings deposits 464 (95) (29) 340 Certificates of deposit 2,743 238 38 3,019 Borrowings 2,150 (23) (47) 2,080 ------------------------------------------------------- Total net change in expense on interest-bearing liabilities 5,959 (19) (86) 5,854 ------------------------------------------------------- Net change in net interest income $ 5,953 $(1,065) $(369) $ 4,519 =======================================================
PROVISION FOR LOAN LOSSES - Provisions 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. The Company made a provision for loan losses of $1.1 million in 1997, compared to $156,000 and $239,000 for 1996 and 1995, respectively. The increased provision for 1997 is primarily the result of the $85.5 million, or 76.8%, increase in commercial real estate, commercial business and indirect automobile loan portfolios. Net loan charge offs for 1997 total $454,000. The allowance for loan losses amounted to $5.3 million or .78% and 232.6% of total loans and total nonperforming loans, respectively, at December 31, 1997 compared to .79% and 180.3%, respectively, at December 31, 1996. - ---- 12 14 Non-performing loans (non-accrual loans and accruing loans 90 days or more overdue) were $2.3 million and $2.6 million at December 31, 1997 and 1996, respectively. The Company's real estate owned, which consists of real estate acquired through foreclosure or by deed-in-lieu thereof, amounted to $473,000 and $978,000 at December 31, 1997 and 1996, 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 $2.7 million, or .29%, at December 31, 1997 compared to $3.7 million, or .38%, at December 31, 1996. Although management of the Company believes that the Company's allowance for loan losses was adequate at December 31, 1997, 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. ALLOWANCE FOR LOAN LOSSES AND AMOUNT OF NON-PERFORMING LOANS AT YEAR END [GRAPH]
1993 1994 1995 1996 1997 NON-PERFORMING LOANS $1,384 $1,258 $1,468 $2,560 $2,261 LOAN LOSS ALLOWANCE $3,413 $3,831 $3,746 $4,615 $5,258
NONINTEREST INCOME - For 1997, the Company reported noninterest income of $6.4 million compared to $3.8 million for 1996. The primary reasons for the $2.6 million, or 67.4%, increase in noninterest income was a $1.4 million, or 70.8%, increase in service charges on deposit accounts reflecting an increase in the number of accounts that are subject to service charges and an increase in the amount of such service charges, a $303,000, or 43.3%, increase in late charges and other fees on loans, a $495,000, or 58.1%, increase in other income, an $85,000, or 47.0%, increase in gains on sale of investments and a $250,000 increase in gains on the sale of loans reflecting the Company's increased emphasis on the sale of newly originated fixed rate single-family residential loans in the secondary market. Total noninterest income amounted to $3.8 million and $2.7 million for the years ended December 31 1996 and 1995, respectively. The primary reasons for the $1.1 million increase in noninterest income during 1996 compared to 1995 was a $507,000 increase in service charges on deposit accounts, a $343,000 increase in other income and $181,000 of gains on the sale of investment securities. NONINTEREST EXPENSE - Noninterest expense includes salaries and employee benefits, occupancy expense, federal deposit insurance premiums (including, in 1996, the one-time special S A I F ("SAIF") assessment), advertising and marketing expense, computer service expense and other items. Noninterest expense amounted to $28.6 million, $20.8 million and $12.7 million for the three years ended December 31, 1997, 1996 and 1995, respectively. The primary reasons for the $7.8 million, or 37.7%, increase in noninterest expense for 1997 compared to 1996 were having a full year of operating expense for the nine offices acquired in 1996 and the two branch offices opened in 1996, operating expenses relating to two new branch offices opened in 1997, consolidating the two subsidiary banks and changing the Bank's name, cancellation of the Bank's long-term computer servicing contract with a resultant early termination penalty and continuing to build a commercial bank infrastructure. ---- 13 15 Salaries and employee benefits increased $5.2 million, or 61.3%, occupancy expense increased $660,000, or 53.7%, computer expense increased $962,000, or 154.2%, depreciation expense increased $420,000, or 42.1%, the amortization of goodwill and other acquired intangibles increased $1.1 million, or 287.2%, printing and office supplies expense increased $537,000, or 126.7%, other expenses increased $2.0 million, or 63.2%, and SAIF deposit insurance premiums decreased $3.2 million, or 87.7%. Compensation expense related to the Company's Employee Stock Ownership Plan ("ESOP") was $1.6 million in 1997, compared to $1.1 million in 1996. The increase in expense is attributable to the increase in the Company's common stock market value associated with the shares committed to be released during 1997. In addition, expense associated with the Company's Recognition and Retention Plan was $416,000 in 1997, the first full year of the plan's existence, compared to $211,000 in 1996. The increase in computer expense of $962,000 from 1996 to 1997 was attributable in part to a $500,000 charge to earnings associated with the penalty assessed on the termination of the Company's long-term computer service contract. Amortization of goodwill and other acquired intangibles from the Jefferson transaction in 1996 was from the date of acquisition, October 18, 1996. Amortization in 1997 consisted of a full year, resulting in the $1,146,000 increase. Amortization in 1998 is anticipated to decrease slightly due to the accelerated amortization method used for the Jefferson core deposit intangible. YEAR 2000 - Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. Timely and accurate data processing is essential to any financial institution. The Company formed a task force in 1997 to assess the impact of the Year 2000 problem and to insure compliance for all critical and ancillary systems utilized by the Company. The Company is in the process of selecting a new computer vendor for data processing software for its core applications, and the Company will determine compliance with Year 2000 issues before awarding a contract. Many of the costs associated with determining compliance with and correcting Year 2000 issues for ancillary computer programs is expected to come from a reassignment of existing internal resources and is not expected to involve material additional costs. INCOME TAXES - For the years ended December 31, 1997, 1996 and 1995, the Company incurred income tax expense of $3.8 million, $3.2 million and $3.8 million, respectively. The Company's effective tax rate amounted to 41.4%, 37.6% and 35.0% during 1997, 1996 and 1995, 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 - ---- 14 16 of members of the Company's senior management. The ALCO generally meets on a monthly 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. The objective of interest rate risk management is to control the effects that interest rate fluctuations have on net interest income and on the net present value of the Company's interest-earning assets and interest-bearing liabilities. Management and the Board are responsible for managing interest rate risk and employing risk management policies that monitor and limit exposure to interest rate risk. Interest rate risk is measured using net interest margin simulation and asset/liability net present value sensitivity analyses. These analyses provide a range of potential impacts on net interest income and portfolio equity caused by interest rate movements. The Company uses financial modeling to measure the impact of changes interest rates on the net interest margin. The following table illustrates the simulated impact of a 100 basis point (where 100 basis points is equal to 1%) or 200 basis point upward or downward movement in interest rates on net interest income and market value of portfolio equity. The impact of the rate movements was developed by simulating the effect of rates changing over a twelve month period from the December 31, 1997 levels. INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
(IN THOUSANDS) MOVEMENTS IN INTEREST RATES FROM DECEMBER 31, 1997 RATES ---------------------------------------------------------------------------- INCREASE DECREASE ---------------------------------------------------------------------------- +100 BP +200 BP -100 BP -200 BP ---------------------------------------------------------------------------- Net Interest Income (1,203) (2,398) +1,154 +2,283 Market Value of Portfolio Equity (13,369) (26,015) +14,931 +32,812
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate changes on caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates. 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 of fixed-rate, long-term residential loans for sale in the secondary market. As of December 31, 1997, $269.2 million, or 39.8%, of the Company's total loan portfolio had adjustable interest rates. ---- 15 17 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, 1997, to those which are backed by adjustable-rate mortgages, have an adjustable rate feature or have an estimated life of less that five years. At December 31, 1997, $49.1 million, or 42.6%, of the Company's mortgage-backed securities were backed by ARMs or had adjustable interest rates. In addition, at December 31, 1997, $55.4 million, or 83.9%, 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). At December 31, 1997, the Company's portfolio of mortgage-backed securities with a balloon feature had a weighted average life of 2.1 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, 1997, 39.9% of the Company's deposits were in transaction accounts compared to 38.1% at December 31, 1996. The following summarizes the anticipated maturities or repricing of the Company's interest-earning assets and interest-bearing liabilities as of December 31, 1997, based on the information and assumptions set forth in the notes below.
UP TO ONE YEAR TO TWO YEARS TO THREE YEARS ONE YEAR TWO YEARS THREE YEARS TO FIVE YEARS ----------------------------------------------------------- (DOLLARS IN THOUSANDS) Interest-earning assets (1): Loans receivable $215,606 $ 87,911 $ 75,056 $113,181 Investment securities (2) 71,211 22,332 10,236 5,702 Mortgage-backed securities 64,876 10,726 11,304 19,762 ----------------------------------------------------------- Total 351,693 120,969 96,596 138,645 ----------------------------------------------------------- Interest-bearing liabilities: Deposits: NOW accounts (3) 30,814 16,790 11,417 7,547 Regular savings accounts (3) 18,620 15,455 12,828 18,438 Money market deposit accounts ("MMDA") (3) 57,730 4,757 3,283 3,828 Certificates of deposit 301,965 95,487 40,554 28,136 Borrowings 2,064 1,976 1,921 3,587 ----------------------------------------------------------- Total 411,193 134,465 70,003 61,536 ----------------------------------------------------------- Excess (deficiency) of interest- earning assets over interest- bearing liabilities $(59,500) $(13,496) $ 26,593 $ 77,109 =========================================================== Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities $(59,500) $(72,996) $(46,403) $ 30,706 =========================================================== Cumulative excess (deficiency) of interest- earning assets over interest-bearing liabilities as a percent of total assets (6.28)% (7.71)% (4.90)% 3.24% =========================================================== FIVE YEARS OVER TEN TO TEN YEARS YEARS TOTAL -------------------------------------- (DOLLARS IN THOUSANDS) Interest-earning assets (1): Loans receivable $109,150 $ 60,888 $661,792 Investment securities (2) 184 109,665 Mortgage-backed securities 8,457 115,125 -------------------------------------- Total 117,791 60,888 886,582 -------------------------------------- Interest-bearing liabilities: Deposits: NOW accounts (3) 10,129 6,585 83,282 Regular savings accounts (3) 25,710 18,481 109,532 Money market deposit accounts ("MMDA") (3) 2,933 545 73,076 Certificates of deposit 1,801 -- 467,943 Borrowings 10,672 26,508 46,728 -------------------------------------- Total 51,245 52,119 780,561 -------------------------------------- Excess (deficiency) of interest- earning assets over interest- bearing liabilities $ 66,546 $ 8,769 $106,021 ====================================== Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities $ 97,252 $106,021 ====================================== Cumulative excess (deficiency) of interest- earning assets over interest-bearing liabilities as a percent of total assets 10.27% 11.19% ======================================
(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, regular 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, regular 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 $233.2 million or 24.62% of total assets. - ---- 16 18 - ------------------------------- 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 (consisting of advances from the FHLB of Dallas). At December 31, 1997, the Company had $46.7 million of outstanding advances from the FHLB of Dallas. Additional advances available at December 31, 1997 from the FHLB of Dallas amounted to $232.3 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, 1997, the total approved loan commitments outstanding amounted to $48.1 million. At the same date, commitments under unused lines of credit, including credit card lines, amounted to $63.7 million. Certificates of deposit scheduled to mature in one year or less at December 31, 1997 totaled $302.0 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. ---- 17 19 - -------------------------------- RECENT ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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. 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 January 1, 1998. The adoption of SFAS 125 is not expected to have a material effect on financial position and the results of operations. In February, 1997, the FASB issued SFAS No. 128, Earning Per Share. This statement establishes standards for computing and presenting earnings per share ("EPS"). It will require the presentation of basic EPS on the face of the income statement with dual presentation of both basic and diluted EPS for entities with complex capital structures. This statement was adopted by the Company on December 31, 1997. Restatement of earnings per share for all prior periods presented is required. The statement deals with reporting and disclosure and therefore did not have an impact on the financial statements. For additional information on these and other FASB statements see Note 1 to the Consolidated Financial Statements. - ---- 18 20 INDEPENDENT AUDITOR'S REPORT CHARLES E. CASTAING ROGER E. HUSSEY CASTAING, HUSSEY & LOLAN, LLP SAMUEL R. LOLAN CERTIFIED PUBLIC ACCOUNTANTS MEMBERS PATRICK J. DAUTERIVE 525 WEEKS STREET - P.O. BOX 14240 AMERICAN INSTITUTE OF LORI D. PERCLE NEW IBERIA, LOUISIANA 70562-4240 CERTIFIED PUBLIC ACCOUNTANTS DEBBIE B. TAYLOR ------------------- SOCIETY OF KATHERINE H. ARMENTOR PH: (318) 364-7221 LOUISIANA CERTIFIED PUBLIC ACCOUNTANTS - --------------------- FAX: (318) 364-7235 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, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ CASTAING, HUSSEY & LOLAN, LLP New Iberia, Louisiana February 6, 1998 ---- 19 21 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996 ------------------------------ ASSETS Cash and Cash Equivalents: Cash on Hand and Due from Banks $ 11,959 $ 10,822 Interest Bearing Deposits - Federal Home Loan Bank 32,348 42,563 ------------------------------ Total Cash and Cash Equivalents 44,307 53,385 Investment Securities: Held to Maturity (fair value of $1,813 and $2,218, respectively) 1,811 2,216 Available for Sale, at fair value 75,506 101,144 Trading Account Securities, at fair value -0- 364 Mortgage-Backed Securities Held to Maturity (fair value of $116,004 and $150,014, respectively) 115,125 150,669 Loans Receivable, net of allowance for loan losses of $5,258 and $4,615, respectively 659,244 571,119 Real Estate Owned 473 978 Federal Home Loan Bank Stock, at cost 6,160 5,808 Premises and Equipment, Net 19,253 15,483 Accrued Interest Receivable 5,514 5,667 Goodwill and Acquisition Intangibles 16,358 17,807 Other Assets 3,531 4,624 ------------------------------ TOTAL ASSETS $947,282 $929,264 ============================== LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES: Deposits $778,695 $760,284 Federal Home Loan Bank Advances 46,728 47,750 Advance Payments by Borrowers for Taxes and Insurance 1,429 1,605 Accrued Interest Payable on Deposits 405 832 Accrued and Other Liabilities 4,461 4,787 ------------------------------ Total Liabilities 831,718 815,258 ------------------------------ 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 66,798 65,725 Retained Earnings (Substantially Restricted) 57,096 54,660 Unearned Common Stock Held by ESOP (3,921) (4,612) Unearned Common Stock Held by RRP Trust (4,082) (4,476) Treasury Stock, 478,643 and 329,411 shares, at cost (7,929) (4,859) Unrealized Gain on Securities, Net of Deferred Taxes 221 187 ------------------------------ TOTAL STOCKHOLDERS' EQUITY 115,564 114,006 ------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $947,282 $929,264 ==============================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. - ---- 20 22 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 ----------------------------------------------------- INTEREST INCOME: Interest on Loans $ 52,068 $ 40,263 $ 32,830 Interest and Dividends on Investment Securities 6,216 4,926 4,820 Interest on Mortgage-Backed Securities 8,436 4,498 2,842 Interest on Federal Home Loan Bank Deposits 1,761 3,020 1,842 ----------------------------------------------------- Total Interest Income 68,481 52,707 42,334 ----------------------------------------------------- INTEREST EXPENSE: Interest on Deposits 32,957 24,017 20,243 Interest on Federal Home Loan Bank Advances 3,093 3,119 1,039 ----------------------------------------------------- Total Interest Expense 36,050 27,136 21,282 ----------------------------------------------------- Net Interest Income 32,431 25,571 21,052 Provision for Loan Losses 1,097 156 239 ----------------------------------------------------- Net Interest Income After Provision For Loan Losses 31,334 25,415 20,813 ----------------------------------------------------- NONINTEREST INCOME: Gain on Sale of Investments, Net 266 181 -0- Gain on Sale of Loans, Net 306 55 -0- Service Charges on Deposit Accounts 3,470 2,032 1,525 Late Charges and Other Fees on Loans 1,002 699 635 Other Income 1,346 851 508 ----------------------------------------------------- Total Noninterest Income 6,390 3,818 2,668 ----------------------------------------------------- NONINTEREST EXPENSE: Salaries and Employee Benefits 13,671 8,475 6,324 SAIF Deposit Insurance Premium 451 3,679 998 Depreciation Expense 1,418 998 774 Occupancy Expense 1,889 1,229 816 Advertising Expense 931 762 475 Computer Expense 1,586 624 505 Printing, Stationery and Supplies Expense 961 424 272 Franchise and Shares Tax Expense 925 987 -0- Amortization of Goodwill and Other Acquired Intangibles 1,545 399 89 Other Expenses 5,224 3,201 2,440 ----------------------------------------------------- Total Noninterest Expense 28,601 20,778 12,693 ----------------------------------------------------- Income Before Income Tax Expense 9,123 8,455 10,788 Income Tax Expense 3,780 3,177 3,781 ----------------------------------------------------- NET INCOME $ 5,343 $ 5,278 $ 7,007 ===================================================== Earnings Per Share - Basic * $ .86 $ .80 $ .80 ===================================================== Earnings Per Share - Diluted* $ .83 $ .80 $ .80 =====================================================
*Includes 2nd, 3rd and 4th quarters only for 1995. The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. ---- 21 23 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS) UNEARNED RETAINED UNEARNED COMMON ADDITIONAL EARNINGS - COMMON STOCK COMMON PAID-IN (SUBSTANTIALLY STOCK HELD HELD BY STOCK CAPITAL RESTRICTED) BY ESOP RRP TRUST ------------------------------------------------------------------ BALANCE, JANUARY 1, 1995 $ -0- $ -0- $46,105 $ -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- 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 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) Net Income for the year ended December 31, 1997 5,343 Cash Dividends Declared (2,907) Stock Options Exercised 1 Common Stock Released by ESOP Trust 991 691 Common Stock Earned by Participants of Recognition and Retention Plan Trust 81 394 Treasury Stock Acquired at Cost Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 $7,381 $66,798 $57,096 $(3,921) $(4,082) ================================================================== (DOLLARS IN THOUSANDS) UNREALIZED TOTAL GAIN (LOSS) STOCK- TREASURY ON SECURITIES, HOLDER'S STOCK NET OF DEFERRED TAXES EQUITY -------------------------------------------------- BALANCE, JANUARY 1, 1995 $ -0- $(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 -0- 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) (4,859) Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes (571) (571) -------------------------------------------------- BALANCE, DECEMBER 31, 1996 (4,859) 187 114,006 Net Income for the year ended December 31, 1997 5,343 Cash Dividends Declared (2,907) Stock Options Exercised 19 20 Common Stock Released by ESOP Trust 1,682 Common Stock Earned by Participants of Recognition and Retention Plan Trust 475 Treasury Stock Acquired at Cost (3,089) (3,089) Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes 34 34 -------------------------------------------------- BALANCE, DECEMBER 31, 1997 $(7,929) $ 221 $115,564 ==================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. - ---- 22 24 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS) 1997 1996 1995 ----------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,343 $ 5,278 $ 7,007 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 3,052 1,522 973 Provision for Loan Losses 1,097 156 239 Compensation Expensed Recognized on RRP 414 211 -0- Loss(Gain) on Sale of Premises and Equipment 178 (107) (18) (Gain) Loss on Sale of Real Estate Owned (30) 32 (42) Gain on Sale of Loans Held for Sale (306) (55) -0- Gain on Sale of Investments (266) (181) -0- Amortization of Premium/Discount on Investments 311 370 405 Current Provision for Deferred Income Taxes 161 381 381 FHLB Stock Dividends (352) (259) (232) Loans Originated for Resale (19,964) (4,610) (406) Proceeds From Loans Sold to Others 20,270 4,665 406 Income Reinvested on Marketable Equity Security (329) (306) (296) ESOP Contribution 1,629 1,146 852 Net Change in Securities Classified as Trading 630 (9) (390) Changes in Assets and Liabilities: Decrease (Increase) in Accrued Interest Receivable 153 588 (1,179) (Increase) Decrease in Other Assets and Other Liabilities (976) (2,575) (180) ----------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,015 6,247 7,520 ----------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds From Sales of Available for Sale Securities -0- 12,207 -0- Proceeds From Maturities of Held to Maturity Securities 405 2,142 145 Proceeds From Maturities of Available for Sale Securities 56,100 40,625 7,000 Purchases of Securities Held to Maturity -0- (1,576) -0- Purchases of Securities Available for Sale (30,335) (11,034) (42,855) Increase in Loans Receivable, Net (89,794) (62,919) (29,184) Proceeds From FHLB Stock Redemption -0- 24 -0- Proceeds From Sale of Premises and Equipment 2 238 70 Purchases of Premises and Equipment (5,271) (1,812) (645) Proceeds From Disposition of Real Estate Owned 931 338 248 Purchases of Mortgage-Backed Securities -0- -0- (15,532) Principal Collections on Mortgage-Backed Securities 35,487 11,903 3,722 Cash Paid in Excess of Cash Received on Bank Acquisitions -0- (17,521) -0- Payments Received from Note Receivable 841 -0- -0- Other Investing Activities -0- -0- (20) ------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (31,634) (27,385) (77,051) ------------------------------------------------------
(Continued) ---- 23 25 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
(DOLLARS IN THOUSANDS) 1997 1996 1995 ----------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW, Money Market and Savings Deposits $ 21,523 $ 16,248 $ (10,181) Net Change in Time Deposits (3,112) 11,158 20,338 (Decrease) Increase in Escrow Funds and Miscellaneous Deposits, Net (176) (180) 172 Proceeds From FHLB Advances -0- 8,195 77,481 Principal Repayments of FHLB Advances (1,022) (935) (41,991) Proceeds From Issuance of Common Stock -0- -0- 67,903 Dividends Paid to Shareholders (2,604) (2,159) (1,019) Acquisition of Common Stock by RRP -0- (4,687) -0- Payments to Repurchase Common Stock (3,089) (4,859) -0- Proceeds from Sale of Treasury Stock 21 -0- -0- Stock Conversion Costs Incurred -0- -0- (1,116) ------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 11,541 22,781 111,587 ------------------------------------------------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,078) 1,643 42,056 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 53,385 51,742 9,686 ------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 44,307 $ 53,385 $ 51,742 ====================================================== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 566 $ 308 $ 197 Transfer of Real Estate Owned to Land and Building $ 168 $ -0- $ -0- SUPPLEMENTAL DISCLOSURES: Cash Paid (Received) For: Interest on Deposits and Borrowings $ 36,477 $ 26,618 $ 21,190 Income Taxes $ 4,226 $ 2,818 $ 3,472 Income Tax Refunds $ (938) $ -0- $ -0-
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. - ---- 24 26 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 1994 for the purpose of becoming the bank holding company for Iberia Savings Bank. The Board of Directors of Iberia Savings Bank adopted the Plan of Conversion pursuant to which the bank 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 the bank. The bank is a wholly owned subsidiary of the Company and provides a full range of financial services to individuals and corporate customers through its twenty-seven branches located throughout south Louisiana. In December of 1997, Iberia Savings Bank changed its charter from a state savings bank to a state commercial bank and changed its name to IBERIABANK ("Iberia"). Iberia Financial Services, Inc. ("IFSI") is a wholly owned subsidiary of Iberia. IFSI's main source of income is commissions from discount brokerage services. Finesco, Ltd. ("Finesco") is a wholly owned subsidiary of IFSI. Finesco's main source of income is 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 was operated as a wholly owned subsidiary of the Company until it was merged into Iberia Savings Bank in September of 1997. See the related Acquisition footnote. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of ISB Financial Corporation and its wholly owned subsidiary, Iberia, as well as all subsidiaries of the bank. All significant intercompany balances and transactions have been eliminated in consolidation. 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. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans. Actual results could differ from those estimates. 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. CASH AND CASH EQUIVALENTS: For purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as cash and interest bearing and non-interest bearing funds on deposit at other financial institutions. 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 ---- 25 27 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. 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. FEDERAL HOME LOAN BANK STOCK: Stock in the Federal Home Loan Bank of Dallas ("FHLB") is carried at cost. Since Iberia is a member of the FHLB, it is required to maintain an amount of stock based on its total assets. At December 31, 1997 and 1996, the institution held more than the required level of FHLB stock. LOANS RECEIVABLE: Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and unearned discounts. ALLOWANCE FOR LOAN LOSSES: 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, Accounting by Creditors for Impairment of a Loan, measurement criteria. 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 No. 91, Accounting For Nonrefundable Fees and Costs Associated with Originating or 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. LOANS HELD FOR SALE: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value. LOAN SERVICING: Mortgage servicing rights are recognized on loans sold where the institution retains the servicing rights. 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. - ---- 26 28 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 automobiles. 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, 1997 and 1996. ADVERTISING COSTS: The Company expenses all advertising costs as incurred. There were no direct-response advertising costs capitalized as of December 31, 1997 or 1996. 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. 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. 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 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, 1997 and 1996, weighted for varying maturity dates. Other loans receivable were valued based on present values using entry-value interest rates at December 31, 1997 and 1996 applicable to each category of loans. 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, 1997 and 1996 for deposits of similar remaining maturities. ---- 27 29 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 supersedes SFAS 122, Accounting for Mortgage Serving 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 January 1, 1998. The adoption of SFAS 125 is not expected to have a material effect on financial position and the results of operations. In February, 1997, the FASB issued SFAS No. 128, Earnings Per Share. This statement establishes standards for computing and presenting earnings per share ("EPS"). It will require the presentation of basic EPS on the face of the income statement with dual presentation of both basic and diluted EPS for entities with complex capital structures. Basic EPS excludes the dilutive effect that could occur if any securities or other contracts to issue common stock were exercised or converted into or resulted in the issuance of common stock. Basic EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted EPS is similar to the computation of basic EPS except the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains and losses). This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income (including, for example, unrealized holding gains and losses on available for sale securities) be reported in a financial statement similar to the statement of income and retained income. The accumulated balance of other comprehensive income will be disclosed separately from retained income in the shareholders' equity section of the balance sheet. This statement is effective for the Company for - ---- 28 30 the fiscal year beginning January 1, 1998. Adoption of this statement will not have a material impact on the financial condition or results of operations because it deals with reporting and disclosure. In June, 1997 , the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This statement establishes standards for the way public business enterprises report information about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Information required to be disclosed includes segment profit or loss, certain specific revenue and expense items, segment assets and certain other information. This statement is effective for the Company for financial statements issued for the fiscal year beginning January 1, 1998. Adoption of this statement will not have a material impact on the financial condition or results of operations because it deals with reporting and disclosure. RECLASSIFICATIONS: Certain reclassifications have been made to the 1995 and 1996 consolidated financial statements in order to conform to the classifications adopted for reporting in 1997. 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 average reserve balance required at December 31, 1997 and 1996 was $7,334,000 and $4,353,000, respectively. NOTE 3 - INVESTMENT SECURITIES: The amortized cost and estimated fair values of investment securities (in thousands) at December 31, 1997 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 $69,534 $ 339 $ (1) $69,872 Marketable Equity Security 5,637 -0- (3) 5,634 -------------------------------------------------------------------------- Total Securities Available for Sale 75,171 339 (4) 75,506 -------------------------------------------------------------------------- Securities Held to Maturity: Obligations of State and Political Subdivisions 1,643 2 -0- 1,645 Other 168 -0- -0- 168 -------------------------------------------------------------------------- Total Securities Held to Maturity $ 1,811 $ 2 $ -0- $ 1,813 ==========================================================================
---- 29 31 The amortized cost and estimated fair value of investment securities at December 31, 1997, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers 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 $33,777 $33,831 $ -0- $ -0- Due two through five years 35,757 36,041 1,743 1,745 Due five through ten years -0- -0- 68 68 -------------------------------------------------------------------------- Subtotal 69,534 69,872 1,811 1,813 Marketable Equity Security 5,637 5,634 -0- -0- -------------------------------------------------------------------------- Totals $75,171 $75,506 $ 1,811 $ 1,813 ==========================================================================
The Company had no sales of investment securities available for sale during 1997. Proceeds from the sale of trading securities during 1997 were $630,000. Gross gains of $266,000, before related income taxes of $93,000 were realized on those sales. Securities with carrying values of $3,256,000 and $3,492,000 at December 31, 1997 and 1996, respectively were pledged to secure public deposits. 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 ==========================================================
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 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. - ---- 30 32 NOTE 4 - MORTGAGE-BACKED SECURITIES: All mortgage-backed securities are classified as held to maturity at December 31, 1997 and 1996 and consisted of the following (in thousands):
DECEMBER 31, 1997 ----------------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------------------------------------------------------------- FHLMC $ 54,285 $ 271 $ (106) $ 54,450 FNMA 28,864 361 (11) 29,214 GNMA 11,115 359 (130) 11,344 FNMA CMO 9,468 -0- (35) 9,433 FHLMC CMO 10,901 234 (64) 11,071 Privately Issued 492 -0- -0- 492 ----------------------------------------------------------------------- Totals $115,125 $ 1,225 $ (346) $ 116,004 =======================================================================
There were no sales of mortgage-backed securities for the year ended December 31, 1997. Mortgage-backed securities include approximately $49,094,000 of adjustable rate securities and $66,031,000 of fixed rate securities at December 31, 1997. At December 31, 1997, $55,414,000 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, 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 =======================================================================
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. There were no sales of mortgage-backed securities for the years ended December 31, 1996 and 1995. ---- 31 33 NOTE 5 - LOANS RECEIVABLE: Loans receivable (in thousands) at December 31, 1997 and 1996 consisted of the following:
DECEMBER 31, ------------------------------ 1997 1996 ------------------------------ Residential Mortgage Loans: Single-family Residential $ 376,320 $ 386,555 Multi-family 2,516 2,279 Construction 22,109 14,064 ------------------------------ Total Mortgage Loans 400,945 402,898 ------------------------------ Commercial Loans: Business 57,978 36,089 Real Estate 48,291 22,961 ------------------------------ Total Commercial Loans 106,269 59,050 ------------------------------ Consumer Loans: Home Equity 34,192 21,646 Automobile 9,433 7,509 Indirect Automobile 90,676 52,371 Mobile Home Loans 3,226 4,215 Educational Loans 9,458 9,345 Credit Card Loans 4,150 4,017 Loans on Savings 11,255 12,487 Other 7,358 8,225 ------------------------------ Total Consumer Loans 169,748 119,815 ------------------------------ Total Loans Receivable 676,962 581,763 ------------------------------ Allowance for Loan Losses (5,258) (4,615) Loans-in-Process (14,082) (6,059) Prepaid Dealer Participations 3,636 2,555 Unearned Discount (160) (143) Deferred Loan Fees, Net (709) (922) Discount on Loans Purchased (1,145) (1,460) ------------------------------ Loans Receivable, Net $ 659,244 $ 571,119 ==============================
Loans receivable include approximately $269,200,000 and $208,431,000 of adjustable rate loans and $407,762,000 and $373,332,000 of fixed rate loans at December 31, 1997 and 1996, respectively. The amount of loans for which the accrual of interest has been discontinued totaled approximately $2,150,000 and $2,491,000 at December 31, 1997 and 1996, 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, 1997, 1996 and 1995 is as follows:
1997 1996 1995 ------------------------------- Balance, Beginning of Year $ 4,615 $ 3,746 $ 3,831 Allowance for Loan Losses from Acquisitions -0- 1,114 13 Provision Charged to Operations 1,097 156 239 Loans Charged-Off (803) (616) (430) Recoveries 349 215 93 ------------------------------- Balance, End of Year $ 5,258 $ 4,615 $ 3,746 ===============================
- ---- 32 34 Fixed rate loans receivable (in thousands) as of December 31, 1997 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 $ 3,686 $ 20,483 $ 68,214 $119,684 $212,067 Adjustable Rate 46,030 51,238 78,697 1,283 177,248 Other loans secured by real estate: Fixed Rate 3,797 19,412 9,483 14,856 47,548 Adjustable Rate 20,766 4,081 138 -0- 24,985 All other loans 71,597 129,520 12,726 1,271 215,114 --------------------------------------------------------- Totals $145,876 $224,734 $169,258 $137,094 $676,962 =========================================================
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 $15,110,000 and $10,863,000 at December 31, 1997 and 1996, respectively. Custodial escrow balances maintained in connection with the foregoing portfolio of loans serviced for others, and included in demand deposits, were approximately $89,000 and $122,000 at December 31, 1997 and 1996, respectively. Mortgage loan servicing rights of $42,000 and $27,000 were capitalized in 1997 and 1996, respectively. Amortization of mortgage servicing rights was $5,000 in 1997 and $2,000 in 1996, and the balance of mortgage servicing rights was $62,000 and $25,000 at December 31, 1997 and 1996 respectively. NOTE 7 - PREMISES AND EQUIPMENT: Premises and equipment (in thousands) at December 31, 1997 and 1996 is summarized as follows:
DECEMBER 31, --------------------- 1997 1996 --------------------- Land $ 3,743 $ 3,053 Buildings 14,980 13,774 Furniture, Fixtures and Equipment 11,465 8,968 --------------------- 30,188 25,795 Less Accumulated Depreciation 10,935 10,312 --------------------- Total Premises and Equipment $ 19,253 $ 15,483 =====================
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, 1997, the monthly lease income was $23,000 per month. Total lease income for 1997, 1996 and 1995 was $362,000, $361,000, and $330,000, 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, 1997 and 1996 was $2,583,000 and $2,808,000, respectively, with related accumulated depreciation of $852,000 and $833,000, respectively. ---- 33 35 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, 1997 are:
YEAR ENDING DECEMBER 31, AMOUNT --------------------------------------------- 1998 $ 301,149 1999 295,285 2000 291,742 2001 101,480 2002 and Thereafter 520,334 ----------- Total $1,509,990 ===========
NOTE 8 - DEPOSITS: An analysis of deposits (in thousands) as of December 31, 1997 and 1996 is as follows:
DECEMBER 31, 1997 ------------------------------------------- WEIGHTED PERCENT AVERAGE RATE BALANCE TO TOTAL ------------------------------------------- Non-Interest-Bearing DDA .00% $ 44,862 5.76% NOW Accounts 1.85% 83,282 10.70 Money Market Deposit 3.50% 73,076 9.38 ------------------------ Total Demand Deposits 201,220 25.84 ------------------------ Regular Savings 2.41% 109,532 14.07 ------------------------ Certificates of Deposit: Less than 2.99% 90 .01 3.0 to 3.99% 2,665 .34 4.0 to 4.99% 88,826 11.41 5.0 to 5.99% 275,302 35.35 6.0 to 6.99% 95,824 12.31 7.0 to 7.99% 5,068 .65 8.0 and over 168 .02 ------------------------ Total Certificates of Deposit 5.58% 467,943 60.09 ------------------------ Total Deposits 4.22% $778,695 100.00% ========================
- ---- 34 36
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% ====================
Certificates of deposit with a balance of $100,000 and over were $93,728,000 and $92,364,000 at December 31, 1997 and 1996, respectively. A schedule of maturities of certificates of deposit (in thousands) at December 31, 1997 is as follows:
2002 AND 1998 1999 2000 2001 THEREAFTER TOTAL - ------------------------------------------------------------------------------------------ Less than 2.99% $ 90 $ -0- $ -0- $ -0- $ -0- $ 90 3.0 to 3.99% 2,582 66 -0- 17 -0- 2,665 4.0 to 4.99% 75,449 7,638 5,504 105 130 88,826 5.0 to 5.99% 181,669 59,036 23,194 6,285 5,118 275,302 6.0 to 6.99% 40,823 28,288 9,277 14,686 2,750 95,824 7.0 to 7.99% 1,352 443 2,579 447 247 5,068 8.0 and over -0- 16 -0- -0- 152 168 - ------------------------------------------------------------------------------------------ Total Certificates of Deposit $301,965 $ 95,487 $ 40,554 $ 21,540 $ 8,397 $467,943 ==========================================================================================
Interest expense on deposits (in thousands) is summarized as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------------------------------- NOW Accounts $ 1,537 $ 854 $ 674 Money Market Deposits 2,177 1,297 1,062 Regular Savings 2,949 1,860 1,520 Certificates of Deposit 26,294 20,006 16,987 -------------------------------- Total Interest Expense on Deposits $ 32,957 $ 24,017 $ 20,243 ================================
---- 35 37 NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances (in thousands) at December 31, 1997 and 1996 is summarized as follows:
DECEMBER 31, --------------------- 1997 1996 --------------------- Interest Rate: 5.0% to 5.99% $ 4,778 $ 4,967 6.0% to 6.99% 37,735 38,521 7.0% to 7.99% 4,215 4,262 --------------------- Total Advances $ 46,728 $ 47,750 =====================
Advances at December 31, 1997 have maturities in future years as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT -------------------------------------------------- 2000 $ 7,265 2001 4,264 2002 9,844 2005 9,779 2006 1,651 After 2006 13,925 --------- $ 46,728 =========
Repayments are amortized over periods ranging from fifteen to thirty years, and have a balloon feature at maturity. 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, 1997 were $232,268,000. 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, --------------------------------- 1997 1996 1995 --------------------------------- Current Expense: Federal $ 3,653 $ 2,756 $ 3,379 State (34) 40 22 --------------------------------- Total Current Expense 3,619 2,796 3,401 Deferred Federal Expense 161 381 380 --------------------------------- Total Income Tax Expense $ 3,780 $ 3,177 $ 3,781 =================================
There was an overpayment of federal income taxes of $1,219,000 at December 31, 1997 and $1,537,000 at December 31, 1996. Income tax was allocated to the Company and its subsidiaries based on its taxable income or loss in relation to total consolidated taxable income at the effective tax rate. At December 31, 1997, the Company had the following tax carryovers assumed in the Royal Bankgroup acquisition: Federal net operating loss of $1,212,000, expiring in 2003 through 2012, a capital loss of $873,000, expiring in 1998, and a state net operating loss of $451,000, expiring in 1999 through 2001. The capital loss - ---- 36 38 carryover is only available to offset capital gains, and a valuation allowance has been established equal to the total amount at December 31, 1997 and 1996. The change in the valuation allowance relates to the amount of capital loss carryover utilized in 1997. 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, ------------------------------------ 1997 1996 1995 ------------------------------------ Federal Tax Based on Statutory Rate $ 3,102 $ 2,875 $ 3,668 Increase (Decrease) Resulting from: Effect of Tax-Exempt Income (49) (46) (23) Amortization of Goodwill and Other Acquired Intangibles 523 133 23 Interest and Other Nondeductible Expenses 25 17 10 Nondeductible ESOP Expense 319 142 98 State Income Tax on Non-Bank Entities (34) 18 22 Other (12) 38 (17) Benefit from Change in Deferred Tax Valuation Allowance (94) -0- -0- ------------------------------------ Income Tax Expense $ 3,780 $ 3,177 $ 3,781 ====================================
The net deferred tax liability (in thousands) at December 31, 1997 and 1996 is as follows:
DECEMBER 31, ------------------------------ 1997 1996 ------------------------------ Deferred Tax Asset: Allowance for Loan Losses $ 739 $ 465 Deferred Loan Fees 14 24 Deferred Directors' Fees 133 114 Writedown of Real Estate Owned to Market Value 2 113 Health Care Accruals in Excess of Claims Paid 98 121 Net Operating Loss 412 496 Capital Loss Carryover 297 391 ESOP and RRP 212 159 Investment Securities -0- 16 Other 57 60 ------------------------------ Subtotal 1,964 1,959 ------------------------------ Deferred Tax Liability: FHLB Stock (850) (729) Premises and Equipment (1,047) (1,057) Unrealized Gain on Investments Classified as Available for Sale (114) (96) Discount Accretion and Purchase Adjustment on Investments (317) (168) ------------------------------ Subtotal (2,328) (2,050) ------------------------------ Deferred Tax Liabilities, Net of Deferred Tax Assets (364) (91) Deferred Tax Valuation Reserve (297) (391) ------------------------------ Net Deferred Tax Liability $ (661) $ (482) ==============================
---- 37 39 A summary of the changes in the net deferred tax asset (liability) for the years ended December 31, 1997 and 1996 is as follows (in thousands):
DECEMBER 31, --------------------- 1997 1996 --------------------- Balance, Beginning $ (482) $ (158) Deferred Tax Expense, Charged to Operations (161) (381) Deferred Tax Liability from Acquisition -0- (237) Unrealized Gain on Available for Sale Securities, Charged to Equity (18) 294 -------------------- Balance, Ending $ (661) $ (482) ====================
Retained earnings at December 31, 1997 and 1996, included approximately $14,791,000 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. NOTE 11 - EARNINGS PER SHARE: The Company adopted SFAS 128, as of December 31, 1997. Restatement of earnings per share for all prior periods presented is required. Weighted average shares of common stock outstanding for basic EPS excludes the weighted average shares unreleased by the Employee Stock Ownership Plan ("ESOP") (426,448 shares at December 31, 1997) and the weighted average unvested shares in the Recognition and Retention Plan ("RRP") (281,448 shares at December 31, 1997). The effect on diluted EPS of stock option shares outstanding and unvested RRP shares is calculated using the treasury stock method. EPS 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. The following is a reconcilement of the numerator and denominator for basic and diluted EPS:
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ---------------------------------------- YEAR ENDED DECEMBER 31, 1997 ---------------------------------------- Basic EPS: Income Available to Common Stockholders 5,343,000 6,224,902 $ 0.86 ====== Effect of Dilutive Securities: Stock Options Outstanding 180,911 Restricted Stock Grants 52,936 ---------- Diluted EPS: Income Available to Common Stockholders Plus Assumed Conversions 5,343,000 6,458,749 $ 0.83 ========================================
- ---- 38 40
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ---------------------------------------------------------- YEAR ENDED DECEMBER 31, 1996 ---------------------------------------------------------- Basic EPS: Income Available to Common Stockholders 5,278,000 6,559,883 $ 0.80 ====== Effect of Dilutive Securities: Stock Options Outstanding 8,252 Restricted Stock Grants 3,756 ---------- Diluted EPS: Income Available to Common Stockholders Plus Assumed Conversions 5,278,000 6,571,891 $ 0.80 =========================================================
NINE MONTHS ENDED DECEMBER 31, 1995 --------------------------------------------------------- Basic EPS: Income Available to Common Stockholders 5,473,000 6,819,132 $ 0.80 =========================================================
No stock options or other potential common stock securities were outstanding for the nine months ended December 31, 1995. NOTE 12 - 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, 1997 and 1996, Iberia was classified as well capitalized. At December 31, 1996, Jefferson was also classified as well capitalized. There are no conditions or events since those dates that management believes have changed Iberia's category. The Company and the bank met all regulatory capital requirements as follows (dollars in thousands): ---- 39 41
DECEMBER 31, 1997 ---------------------------------------------------------------- REQUIRED ACTUAL AMOUNT PERCENT AMOUNT PERCENT ---------------------------------------------------------------- Tier 1 leverage capital: ISB Financial Corp. $ 37,578 4.00% $ 98,985 10.54% IBERIABANK 37,125 4.00% 88,291 9.51% Tier 1 risk-based capital: ISB Financial Corp. 21,380 4.00% 98,985 18.52% IBERIABANK 21,167 4.00% 88,291 16.68% Total risk-based capital: ISB Financial Corp. 42,759 8.00% 104,243 19.50% IBERIABANK 42,334 8.00% 93,549 17.68%
DECEMBER 31, 1996 --------------------------------------------------------------- REQUIRED ACTUAL AMOUNT PERCENT AMOUNT PERCENT --------------------------------------------------------------- Tier 1 leverage capital: ISB Financial Corp. $ 37,171 4.00% $ 96,050 10.34% Iberia Savings Bank 26,521 4.00% 68,337 10.31% Jefferson Bank 10,420 4.00% 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%
Iberia is 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 the State of Louisiana. 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 in 1998 will be limited to 1998 earnings. NOTE 13 - 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, 1997, 1996 and 1995, were $-0-, $-0- and $-0-, 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. 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, 1997, 1996 and 1995. - ---- 40 42 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. 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. Compensation cost related to the ESOP for the years ended December 31, 1997, 1996 and 1995 was $1,629,000, $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 $11,714,000 and $8,302,000 at December 31, 1997 and 1996, respectively. A summary of the ESOP share allocation is as follows:
DECEMBER 31, ------------------------------ 1997 1996 ------------------------------ Shares allocated beginning of year 128,853 56,469 Shares allocated during year 69,099 72,738 Shares distributed during the year -0- (354) ------------------------------ Total allocated shares held by ESOP at year end 197,952 128,853 Unreleased shares 392,117 461,216 ------------------------------ Total ESOP shares 590,069 590,069 ==============================
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 years ended December 31, 1997 and 1996, the amount included in compensation expense was $416,000 and $211,000, ---- 41 43 respectively. The weighted-average grant-date fair value of the restricted stock granted under the RRP during the years ended December 31, 1997 and 1996 was $25.37 and $15.92, respectively. A summary of the changes in restricted stock follows:
UNAWARDED AWARDED SHARE SHARES ------------------------- Balance, January 1, 1996 -0- -0- Purchased by Plan 295,226 -0- Granted (165,364) 165,364 Forfeited 3,936 (3,936) Earned and Issued -0- -0- ------------------------- Balance, December 31, 1996 133,798 161,428 Granted (28,500) 28,500 Forfeited 3,374 (3,374) Earned and Issued -0- (23,061) ------------------------- Balance, December 31, 1997 108,672 163,493 =========================
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 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 are exercisable in seven equal annual installments. No compensation expense was recognized in 1997 or 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 :
WEIGHTED - AVAILABLE OPTIONS AVERAGE FOR GRANT OUTSTANDING EXERCISE PRICE -------------------------------------------------- At inception, May 24, 1996 738,067 -0- Granted (654,118) 654,118 $ 15.92 Canceled 10,395 (10,395) 15.88 Exercised -0- -0- ---------------------------- At December 31, 1996 94,344 643,723 15.92 Granted (90,650) 90,650 23.31 Canceled 25,611 (25,611) 18.73 Exercised -0- (1,318) 15.88 ---------------------------- At December 31, 1997 29,305 707,444 16.76 ============================ Exerciseable at December 31, 1996 -0- ======== Exerciseable at December 31, 1997 89,399 $ 15.92 ========
- ---- 42 44 The following table presents the weighted-average remaining life as of December 31, 1997 for options outstanding within the stated exercise prices:
OUTSTANDING EXERCISEABLE - --------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- EXERCISE NUMBER AVERAGE AVERAGE NUMBER AVERAGE PRICE RANGE OF EXERCISE REMAINING OF EXERCISE PER SHARE OPTIONS PRICE LIFE OPTIONS PRICE - --------------------------------------------------------------------------------------- $ 15.88 613,294 $ 15.88 8.4 years 87,613 $ 15.88 $ 17.00 to $ 18.50 19,500 $ 17.88 9.0 years 1,786 17.93 $ 20.25 to $ 25.00 60,500 $ 23.30 9.3 years -0- -0- $ 25.13 to $ 27.00 14,150 $ 25.87 9.6 years -0- -0-
In October 1995, the FASB issued SFAS 123. SFAS 123 requires disclosure of the compensation cost for stock-based incentives granted after January 1, 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:
1997 1996 -------------------------- Net income As reported $5,343,000 $5,278,000 Pro forma $4,919,000 $5,054,000 Earnings per share As reported - basic $.86 $.80 - diluted $.83 $.80 Pro forma - basic $.79 $.77 - diluted $.76 $.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 1997 and 1996 grants: dividend yields of 1.84 and 2.00 percent; expected volatility of 23.37 and 18.97 percent; risk-free interest rate of 6.55 and 6.71 percent; and expected lives of 8.5 years for all options. The weighted-average fair value per share at the date of grant for shares granted during 1997 and 1996 was $8.35 and $5.19, respectively. NOTE 14 - 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 certain officers. The total commitments under all agreements at December 31, 1997 was $1,226,000. ---- 43 45 NOTE 15 - 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, 1997 and 1996, the Company had outstanding firm commitments to originate loans as follows (in thousands):
DECEMBER 31, --------------------- 1997 1996 --------------------- Mortgage Loans $ 2,381 $ 167 Undisbursed Mortgage Loans-in-Process 14,082 6,426 Commercial Loans 29,124 25,822 Consumer and Other Loans 2,554 702 --------------------- Total Commitments $ 48,141 $ 33,117 =====================
At December 31, 1997 and 1996, 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 loans. At December 31, 1997 and 1996, the letters of credit outstanding were $1,442,000 and $1,232,000, respectively. Unfunded approved lines of credit, including unused credit card lines, at December 31, 1997 and 1996 were $63,702,000 and $42,625,000, 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, 1997 and 1996, outstanding letters of credit totaled $2,835,000 and $1,855,000, 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. - ---- 44 46 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 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 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair value of the Company's financial instruments (in thousands) are as follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 -------------------------------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------------------------------------------------------- ASSETS Cash $ 44,307 $ 44,307 $ 53,385 $ 53,385 Investment Securities 77,317 77,319 103,724 103,726 Mortgage-Backed Securities 115,125 116,004 150,669 150,014 Loans Receivable 661,742 677,107 575,740 587,274 LIABILITIES Deposits: Regular Savings, NOW Accounts, and Money Market Deposits $310,752 $311,031 $289,229 $289,229 Certificates of Deposit 467,943 471,717 471,055 476,749 FHLB Advances 46,728 47,874 47,750 45,653
The fair value estimates presented herein are based upon pertinent information available to management as of December 31, 1997 and 1996. 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. ---- 45 47 NOTE 17 - 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 and 1997, 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. With the acquisition of Jefferson, the Company acquired a mortgage loan portfolio in southeastern Louisiana, and has originated mortgage, consumer and commercial loans in that market since acquisition. NOTE 18 - CONVERSION FROM MUTUAL TO STOCK ASSOCIATION: In 1995, Iberia Savings Bank 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. 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 had a liquidation account from its conversion from mutual to stock form in the amount of $12,088,000, which was assumed by Iberia. 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, 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 each account holder and supplemental eligible account holder 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 may not pay a dividend on its capital stock if the dividend would bring regulatory capital below the balance of the liquidation accounts. Iberia is restricted from declaring or paying cash dividends or repurchasing any of its 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 19 - 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 - ---- 46 48 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 1997 and 1996 was $ 206,000 and $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 operated as a subsidiary of the Company until September of 1997, when it was merged into Iberia Savings Bank. 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 1997 and 1996 was $1,324,000 and $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 (in thousands) would have been as follows:
1996 1995 ---------------------- Restated Pro Forma Results of Operations: 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 ====================== Earnings per Share (includes 2nd, 3rd and 4th quarters only for 1995) Basic and Fully Diluted $ .73 $ .97 ======================
---- 47 49 NOTE 20 - 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, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ----------------------------- ASSETS Cash in Bank $ 7,396 $ 8,496 Trading Account Securities -0- 364 Investment in Subsidiaries 104,870 104,507 Other Assets 3,833 1,336 ----------------------------- Total Assets $116,099 $114,703 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities 535 697 Stockholders' Equity 115,564 114,006 ----------------------------- Total Liabilities and Stockholders' Equity $116,099 $114,703 =============================
CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
PERIOD FROM APRIL 6, 1995 TO DECEMBER 31, 1997 1996 1995 ---------------------------------------- Operating Income: Dividends from Subsidiaries $ 6,367 $ 25,490 $ 5,596 Securities Gains/Losses 265 181 -0- Interest Income 395 1,650 1,558 Other Income 86 -0- -0- ------------------------------------- Total Operating Income 7,113 27,321 7,154 Operating Expenses 1,532 1,483 173 ------------------------------------- Income Before Income Tax Expense and Decrease in Equity in Undistributed Earnings of Subsidiaries 5,581 25,838 6,981 Income Tax (Refund) Expense (427) 164 472 ------------------------------------- Income Before Decrease in Equity in Undistributed Earnings of Subsidiaries 6,008 25,674 6,509 Decrease in Equity in Undistributed Earnings of Subsidiaries (665) (20,396) (1,036) ------------------------------------- NET INCOME $ 5,343 $ 5,278 $ 5,473 =====================================
- ---- 48 50 CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS) PERIOD FROM APRIL 6, 1995 TO DECEMBER 31, 1997 1996 1995 ------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,343 $ 5,278 $ 5,473 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Deferred Income Taxes (21) (80) 12 Decrease in Equity in Net Income of Subsidiaries 665 20,396 1,036 (Increase) Decrease in Other Assets (3,696) 402 (827) (Decrease) Increase in Other Liabilities (140) 147 90 Amortization of Premium/Discount on Investments -0- 37 43 Net Change in Securities Classified as Trading 630 (9) (390) Gain on Sale of Investments (266) (181) -0- Compensation Expense Recognized on RRP 414 211 -0- ------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,929 26,201 5,437 ------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Securities Available for Sale -0- -0- (33,738) Proceeds From Sales and Maturities of Securities Available for Sale -0- 26,832 7,000 Purchase of Capital Stock of Subsidiaries -0- (42,480) (36,193) Payments Received from Note Receivable 841 -0- -0- Other Investing Activities -0- -0- (20) ------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 841 (15,648) (62,951) ------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends Paid to Shareholders (2,604) (2,159) (1,019) Capital Contributed to Subsidiaries (207) (173) (89) Payments Received From ESOP 1,009 1,062 824 Net Proceeds From Issuance of Common Stock -0- -0- 67,903 Stock Conversion Costs Incurred -0- -0- (1,346) Payments to Repurchase Common Stock (3,089) (9,546) -0- Proceeds from Sale of Treasury Stock 21 -0- -0- ------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,870) (10,816) 66,273 ------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,100) (263) 8,759 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,496 8,759 -0- ------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,396 $ 8,496 $ 8,759 ===========================================
Other Disclosures: The Company was charged $120,000 by Iberia for management and accounting services during 1997 and 1996. ---- 49 51 NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------ FIRST SECOND THIRD FOURTH (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER ------------------------------------------ Total Interest Income $ 16,777 $ 17,028 $ 17,351 $ 17,325 Total Interest Expense 8,746 9,034 9,250 9,020 ------------------------------------------ Net Interest Income 8,031 7,994 8101 8,305 Provision for Loan Losses 162 242 302 391 ------------------------------------------ Net Interest Income After Provision for Loan Losses 7,869 7,752 7,799 7,914 Noninterest Income 1,289 1,540 1,900 1,661 Noninterest Expense 6,138 6,384 7,380 8,699 ------------------------------------------ Income Before Income Taxes 3,020 2,908 2,319 876 Income Tax Expense 1,225 1,156 1,017 382 ------------------------------------------ NET INCOME $ 1,795 $ 1,752 $ 1,302 $ 494 ========================================== Earnings per Share - Basic $ .29 $ .28 $ .21 $ .08 ========================================== Earnings per Share - Diluted $ .28 $ .27 $ .20 $ .08 ==========================================
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------ FIRST SECOND THIRD FOURTH (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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 (Loss) Before Income Taxes 2,776 2,908 (216) 2,987 Income Tax Expense (Refund) 997 1,054 (23) 1,149 ------------------------------------------ NET INCOME (LOSS) $ 1,779 $ 1,854 $ (193) $ 1,838 ========================================== Earnings per Share - Basic and Diluted $ .26 $ .27 $ (.03) $ .29 ==========================================
- ---- 50 52 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 Corporation and IBERIABANK EMILE J. PLAISANCE, JR., VICE CHAIRMAN, Retired. STEWART SHEA, Vice President of Bayou Management Services, President of BayouPipe 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, Senior Executive Vice President JOHN J. BALLATIN, Executive Vice President ANNUAL MEETING Wednesday, April 15, 1998, 3:00 p.m. IBERIABANK 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 for the years ended December 31, 1996 and 1997.
DIVIDENDS 1996 HIGH LOW 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
DIVIDENDS 1997 HIGH LOW DECLARED - ------------------------------------------------ First Quarter $26.125 $17.625 $0.100 Second Quarter $26.500 $20.875 $0.100 Third Quarter $28.000 $23.375 $0.125 Fourth Quarter $30.000 $23.750 $.0125
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. ---- 51 53 INVESTOR INFORMATION Investors, analysts and others seeking financial information may contact: Larrey G. Mouton, President/CEO 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, DC 20005 GENERAL COUNSEL Guyton Watkins Landry & Watkins 211 E. Main Street New Iberia, LA 70560 - ---- 52 EX-23 3 INDEPENDENT AUDITOR'S CONSENT 1 Exhibit 23 [CASTAING, HUSSEY & LOLAN, LLP LETTERHEAD] 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 6, 1998 appearing in this Annual Report on Form 10-K of ISB Financial Corporation for the year ended December 31, 1997. /s/ Castaing, Hussey & Lolan LLP New Iberia, Louisiana March 25, 1998 EX-27 4 ISB FINANCIAL CORPORATION FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 11,959 32,348 0 0 75,506 116,936 117,817 659,244 5,258 947,282 778,695 0 53,023 0 0 0 7,381 108,183 947,282 52,068 14,652 1,761 68,481 32,957 36,050 32,431 1,097 266 28,601 9,123 9,123 0 0 5,343 .86 .83 7.73 2,121 3 122 6,400 4,615 803 349 5,258 0 0 5,258
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