1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED]
For the transition period from to
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Commission File No.: 0-25756
ISB FINANCIAL CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
LOUISIANA 72-1280718
--------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1101 EAST ADMIRAL DOYLE DRIVE
NEW IBERIA, LOUISIANA 70560
--------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 365-2361
Securities registered pursuant to Section 12(b) of the Act: NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK (PAR VALUE $1.00 PER SHARE)
----------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
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As of March 26, 1997, the aggregate market value of the 6,861,369 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 189,891 shares held by all directors and officers of the Registrant as
a group, was approximately $169.8 million. This figure is based on the closing
sale price of $24.75 per share of the Registrant's Common Stock on March 26,
1996.
Number of shares of Common Stock outstanding as of December 31, 1996: 7,051,260
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated.
(1) Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 are incorporated into Part II, Items 5 through 8 of this Form
10-K.
(2) Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders to be filed within 120 days of Registrant's fiscal year end are
incorporated into Part III, Items 9 through 13 of this Form 10-K.
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PART I.
ITEM 1. BUSINESS.
GENERAL
ISB Financial Corporation (the "Company") is a Louisiana corporation
organized in November 1994 by Iberia Savings Bank ("Iberia") for the purpose of
acquiring all of the capital stock of Iberia to be issued by Iberia in the
conversion (the "Conversion") of Iberia to stock form, which was completed on
April 6, 1995. On May 3, 1996, the Company completed the acquisition of Royal
Bankgroup of Acadina, Inc., ("Royal") and its wholly owned subsidiary, The Bank
of Lafayette ("BOL"). Royal was merged into the Company and BOL was merged in
Iberia. The two offices of BOL now operate as branches of Iberia. On October
18, 1996, the company completed the acquisition of Jefferson Bancorp, Inc. and
its wholly owned subsidiary, Jefferson Federal Savings Bank. Jefferson Bancorp,
Inc. was merged into the Company and Jefferson Federal Savings Bank now
operates as a separate subsidiary of the Company as a state chartered savings
bank under the name of Jefferson Bank ("Jefferson"). The only significant
assets of the Company are the capital stock of Iberia and Jefferson (the
"Banks"), the Company's loan to an employee stock ownership plan, and cash. To
date, the business of the Company has consisted of the business of the Banks.
The Company's common stock trades on the NASDAQ National Market under the
symbol "ISBF." At December 31, 1996, the Company had total assets of $929.3
million, total deposits of $760.3 million and equity of $114.0 million.
Iberia is a Louisiana chartered stock savings bank conducting business
from its main office located in New Iberia, Louisiana and 17 full-service
branch offices located in New Iberia, Lafayette, Jeanerette, Franklin, Morgan
City, Crowley, Rayne, Kaplan, St. Martinville and Abbeville, all of which are
in southwestern Louisiana. Jefferson is a Louisiana chartered stock savings
bank conducting business from its main office located in Gretna, Louisiana and
6 full-service offices located in Marrero, Metairie, River Ridge, Algiers and
Terrytown, all of which are in the greater New Orleans metropolitan area. The
Banks attract retail deposits from the general public and the business
community through a variety of deposit products. Deposits are insured by the
Savings Association Insurance Fund ("SAIF"), administered by the Federal
Deposit Insurance Corporation ("FDIC"), within applicable limits.
The Banks are primarily engaged in attracting deposits from the general
public and using those funds to originate loans. The Banks' primary lending
emphasis has been loans secured by first and second liens on single-family
(one-to-four units) residences located in the Banks' primary market area. At
December 31, 1996, such loans amounted to $386.6 million or 66.4% of the Banks'
gross loan portfolio. The Banks has placed recent emphasis on the origination
of consumer and commercial loans. Consumer loans consist of home equity loans,
home equity lines of credit, automobile loans, indirect automobile loans, loans
secured by deposit accounts and other consumer loans. At December 31, 1996,
$119.8 million, or 20.6%, of the Banks' gross loans were consumer loans. Of
that amount $52.4 million, or 9.0% of gross loans, were indirect
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automobile loans. Commercial loans consist of commercial real estate loans,
commercial business loans and multi-family residential real estate loans. At
December 31, 1996, $23.0 million, or 3.9% of loans are secured by commercial
real estate, $36.1 million, or 6.2%, are commercial business loans and $2.3
million, or .4%, are multi-family residential real estate loans. The Banks also
originate loans for the purpose of constructing single-family residential
units. At December 31, 1996, $14.1 million, or 2.4%, are construction loans.
The Company, as a bank holding company, is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board" or "FRB"). The Banks are subject to examination and
comprehensive regulation by the Office of Financial Institutions of the State
of Louisiana ("OFI"), which is the Bank's chartering authority and primary
regulator. The Banks are also subject to regulation by the FDIC, as the
administrator of the SAIF, and to certain reserve requirements established by
the Federal Reserve Board. The Banks are members of the Federal Home Loan Bank
("FHLB") of Dallas which is one of the 12 regional banks comprising the FHLB
System.
In addition to its deposit gathering and lending activities, the Banks
invest in mortgage-backed securities, substantially all of which are issued or
guaranteed by U.S. Government agencies and government sponsored enterprises, as
well as U.S. Treasury and federal government agency obligations and other
investment securities. At December 31, 1996, the Bank's mortgage-backed
securities amounted to $150.7 million, or 16.2% of total assets and its
investment securities amounted to $103.7 million, or 11.2% of total assets.
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LENDING ACTIVITIES
Loan Portfolio Composition. The following table sets forth the composition
of the Banks' loans held in portfolio at the dates indicated.
December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- --------------------------- ------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Mortgage loans:
Single-family residential $386,555 66.45% $318,705 76.83% $300,730 78.00%
Multi-family 2,279 0.39 1,506 0.36 1,801 0.47
Commercial real estate 22,961 3.95 14,486 3.49 10,655 2.76
Construction 14,064 2.41 15,617 3.76 14,427 3.74
------ ---- ------ ---- ------ ----
Total mortgage loans 425,859 73.20 350,314 84.45 327,613 84.97
------- ----- ------- ----- ------- -----
Commercial business loans 36,089 6.20 11,055 2.66 6,441 1.67
------ ---- ------ ---- ----- ----
Consumer loans:
Home equity 21,646 3.72 15,364 3.70 14,229 3.69
Automobile 59,880 10.29 6,492 1.56 5,942 1.54
Mobile home loans 4,215 .73 6,077 1.46 8,017 2.08
Educational loans 9,345 1.61 9,262 2.23 9,639 2.50
Credit card loans 4,017 0.69 3,836 0.92 3,477 0.90
Loans on savings 12,487 2.15 7,481 1.80 8,305 2.15
Other 8,225 1.41 4,960 1.20 1,910 0.50
----- ---- ----- ---- ----- ----
Total consumer loans 119,815 20.60 53,472 12.89 51,519 13.36
------- ----- ------ ----- ------ -----
Total loans receivable 581,763 100.00% 414,841 100.00% 385,573 100.00%
------- ====== ------- ====== ------- ======
Less:
Allowance for loan losses (4,615) (3,746) (3,831)
Loans-in-process (6,059) (8,399) (6,848)
Unearned discount (143) (1) (5)
Prepaid dealer
participations 2,555 0 0
Deferred loan fees (922) (1,191) (1,416)
Discount on loans
purchased (1,460) (1,962) (2,679)
------ ------ ------
Loans receivable, net $571,119 $399,542 $370,794
-------- -------- --------
December 31,
---------------------------------------------------------
1993 1992
---------------------------------------------------------
Percent of Percent of
Amount Total Amount Total
------ ----- ------ -----
(Dollars in Thousands)
Mortgage loans:
Single-family residential $284,630 79.96% $281,261 79.64%
Multi-family 1,897 0.53 2,498 0.71
Commercial real estate 8,271 2.32 4,635 1.31
Construction 9,082 2.55 10,394 2.94
----- ---- ------ ----
Total mortgage loans 303,880 85.36 298,788 84.60
------- ----- ------- -----
Commercial business loans 4,089 1.15 6,953 1.97
------ ---- ----- ----
Consumer loans:
Home equity 11,493 3.23 8,946 2.54
Automobile 4,955 1.39 4,912 1.39
Mobile home loans 9,989 2.81 12,973 3.67
Educational loans 8,953 2.52 7,491 2.12
Credit card loans 2,406 0.68 2,050 0.58
Loans on savings 8,117 2.28 8,980 2.54
Other 2,082 0.58 2,079 0.59
----- ---- ----- -----
Total consumer loans 47,995 13.49 47,431 13.43
------ ----- ------ -----
Total loans receivable 355,964 100.00% 353,172 100.00%
------- ====== ------- ======
Less:
Allowance for loan losses (3,413) (3,254)
Loans-in-process (3,991) (6,622)
Unearned discount (25) (107)
Prepaid dealer
participations 0 0
Deferred loan fees (1,242) (987)
Discount on loans
purchased (3,876) (5,798)
------ ------
Loans receivable, net $343,417 $336,404
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Contractual Maturities. The following table sets forth the scheduled
contractual maturities of the Banks' loans held to maturity at December 31,
1996. Demand loans, loans having no stated schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less. The
amounts shown for each period do not take into account loan prepayments and
normal amortization of the Banks' loan portfolio held to maturity.
Mortgage Loans
---------------------------------------------------------------------------------
Single-family Multi-family Commercial Construction Total
(In Thousands)
Amounts due in:
One year or less $ 18,087 $ 19 $956 $ --- $ 19,062
After one year through five
years 70,348 1,075 6,467 --- 77,890
After five years 298,120 1,185 15,538 14,064(1) 328,907
------- ----- ------ -------- -------
Total(2) $386,555 $2,279 $22,961 $14,064 $425,859
======== =======
Interest rate terms on amounts
due after one year:
Fixed $195,163 $ 1,494 $ 14,303 $ 10,548 $221,508
Adjustable 173,305 766 7,702 3,516 185,289
------- ----- ----- ----- -------
Total $368,468 $2,260 $22,005 $14,064 $406,797
======== =======
Commercial
Business Consumer
Loans Loans Total
(In Thousands)
Amounts due in:
One year or less $ 15,646 $40,564 $75,272
After one year through five
years 6,564 60,288 144,742
After five years 13,879 18,963 361,749
------ ------ -------
Total(2) $36,089 $119,815 $581,763
======= ======== ========
Interest rate terms on amounts
due after one year:
Fixed $11,612 $69,932 $303,052
Adjustable 8,831 9,319 203,439
----- ----- -------
Total $20,443 $79,251 $506,491
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(1) Reflects the contractual maturity of the related permanent residential
mortgage loan at the end of the construction phase.
(2) Does not include adjustments relating to loans in process, allowances for
loan losses and deferred fee income.
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Scheduled contractual amortization of loans does not reflect the expected
term of the Banks' loan portfolio. The average life of loans is substantially
less than their contractual terms because of prepayments and due-on-sale
clauses, which give the Banks the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase when current mortgage loan
rates are higher than rates on existing mortgage loans and, conversely,
decrease when rates on existing mortgage loans are lower than current mortgage
loan rates (due to refinancings of adjustable-rate and fixed-rate loans at
lower rates). Under the latter circumstances, the weighted average yield on
loans decreases as higher-yielding loans are repaid or refinanced at lower
rates.
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Loan Origination, Purchase and Sales Activity. The following table shows
the loan origination, purchase and sale activity of the Banks during the
periods indicated.
Year Ended December 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Gross loans at beginning of period $414,841 $385,573 $355,964 $353,172 $333,945
Originations of loans:
Mortgage loans:
Single-family residential 41,134 38,936 44,670 61,745 72,514
Multi-family residential --- --- --- --- ---
Commercial real estate 15,143 5,486 3,044 2,721 733
Construction 21,939 24,330 25,602 17,225 17,037
Commercial business loans 32,457 15,608 13,712 5,170 3,563
Consumer loans:
Home equity 13,785 11,257 8,367 7,261 3,411
Automobile 42,813 4,318 4,116 2,913 2,149
Mobile home loans 276 386 792 611 454
Educational loans 1,724 1,268 2,153 2,575 1,948
Loans on savings 5,272 4,463 3,329 3,908 5,961
Credit cards 1,137 1,430 6,677 5,311 4,505
Other 3,634 3,836 3,262 2,835 2,812
------- ------- ------- ------- -------
Total originations 179,314 111,318 115,724 112,275 115,087
------- ------- ------- ------- -------
Loans purchasaes/acquired 109,121 996 --- --- ---
------- ------- ------- ------- -------
Total originations and
purchases 288,435 112,314 115,724 112,275 115,087
Repayments (116,511) (82,356) (84,204) (109,227) (95,489)
Loan sales (5,002) (690) (1,911) (256) (371)
------- ------- ------- ------- -------
Net activity in loans 166,922 29,268 29,609 2,792 19,227
------- ------- ------- ------- -------
Gross loans held at end of period $581,763 $414,841 $385,573 $355,964 $353,172
-------- ======== ======== ======== ========
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The lending activities of Iberia and Jefferson are subject to written
underwriting standards and loan origination procedures established by the
Banks' Board of Directors and management. Applications for residential mortgage
loans are taken by one of the Banks' mortgage executives, while the Banks'
designated consumer lenders have primary responsibility for taking consumer
loan applications and its commercial lending officers have primary
responsibility for taking commercial business and commercial real estate loan
applications. The Banks' loan originators will take loan applications at any of
the Banks' offices and, on occasion, outside of the Banks' offices at the
customer's convenience. The process of underwriting all residential mortgage,
consumer and construction loans and obtaining appropriate documentation, such
as credit reports, appraisals and other documentation is centralized in the
Banks' main office. The credit analysis department is responsible for
overseeing the underwriting of all commercial business and commercial real
estate loans. The Banks generally requires that a property appraisal be
obtained in connection with all new mortgage loans. Property appraisals
generally are performed by an independent appraiser from a list approved by the
Banks' Board of Directors. The Banks require that title insurance or a title
opinion (other than with respect to home equity loans) and hazard insurance be
maintained on all security properties and that flood insurance be maintained if
the property is within a designated flood plain.
Residential mortgage loan applications are primarily developed from
advertising, referrals from real estate brokers and builders, existing
customers and walk-in customers. Commercial real estate and commercial business
loan applications are obtained primarily from previous borrowers, direct
solicitations by the Banks' personnel, as well as referrals. Consumer loans
originated by the Banks are obtained primarily through existing customers,
automobile dealerships and walk-in customers who have been made aware of the
Banks' programs by advertising and other means.
Applications for residential mortgage loans typically are approved by
certain designated officers or, if the loan amount exceeds $214,600 by the
Officers' Loan Committee of the Bank, a committee of Bank officers. If a loan
is between $500,000 and $1.0 million, it must also be approved by the Loan
Committee of the Banks' Board of Directors, and loans in excess of $1.0 million
must be approved by the Board of Directors. Certain designated officers of the
Banks have limited authority to approve commercial commercial loans not
exceeding specified levels, the officers may combine their individual limits
and approve loans up to $1.0 million. Loans in excess of $1.0 million but less
than $8.0 million must be approved by the Banks' Commerical Loan Committee made
up of members of the Board of Directors. Commercial loans in excess of $8.0
million must be approved by the full Board of Directors. Certain designated
officers approve consumer loans up to $30,000 unsecured and $100,000 secured.
Consumer loans up to $200,000 unsecured and $500,000 secured must be approved
by the Officer's Loan Committee, consisting of at least two members of senior
management. Consumer loans up to $1.0 million must be approved by the Board of
Directors Loan Committee. Consumer loans in excess of $1.0 million must be
approved by the full board.
Single-Family Residential Loans. Substantially all of the Bank's
single-family residential mortgage loans consist of conventional loans.
Conventional loans are loans that are neither
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insured by the Federal Housing Administration ("FHA") or partially guaranteed
by the Department of Veterans Affairs ("VA"). The vast majority of the Banks'
single-family residential mortgage loans are secured by properties located in
southwestern Louisiana and the greater New Orleans area and are originated
under terms and documentation which permit their sale to the Federal Home Loan
Mortgage Corporation ("FHLMC") or Federal National Mortgage Association
("FNMA"). During 1995, the Bank altered its asset/liability management
strategies and determined that, rather than attempting to sell into the
secondary market all of the Bank's newly originated longer term (more than 10
years) fixed-rate residential mortgage loans, it would retain such loans in the
Bank's portfolio. To reduce the Bank's loan portfolio exposure on such loans to
interest rate risk, the Bank has increased its borrowings pursuant to a program
whereby it obtains long-term fixed-rate FHLB advances as a funding source for
the long-term fixed-rate mortgage loans which the Bank soriginates for its
portfolio. During 1996, the Banks decided to sell all conforming fixed-rate
loan originations into the secondary market and only retain nonconforming
fixed-rate loan originations in its portfolio.
Fixed-rate loans generally have maturities ranging from 15 to 30 years and
are fully amortizing with monthly loan payments sufficient to repay the total
amount of the loan with interest by the end of the loan term. The Banks'
fixed-rate loans generally are originated under terms, conditions and
documentation which permit them to be sold to U.S. Government-sponsored
agencies, such as the FHLMC and the FNMA, and other investors in the secondary
market for mortgages. At December 31, 1996, $231.5 million, or 56.6%, of the
Banks' single-family residential mortgage loans were fixed-rate loans.
The adjustable-rate loans currently offered by the Banks have interest
rates which adjust on an annual basis from the closing date of the loan or an
annual basis commencing after an initial fixed-rate period of three, five or
ten years in accordance with a designated index (to date the index utilized by
the Bank has been the National Median Cost of Funds for SAIF-Insured
Institutions), plus a stipulated margin. In 1996, the Banks changed its index
to the one year constant maturity treasury ("CMT") for all new adjustable-rate
single-family residential loan originations. The Bank's adjustable-rate
single-family residential real estate loans generally have a cap of 2% on any
increase or decrease in the interest rate at any adjustment date, and include a
specified cap on the maximum interest rate over the life of the loan, which cap
generally is 4% to 6% above the initial rate. The Bank's adjustable-rate loans
require that any payment adjustment resulting from a change in the interest
rate of an adjustable-rate loan be sufficient to result in full amortization of
the loan by the end of the loan term and, thus, do not permit any of the
increased payment to be added to the principal amount of the loan, or so-called
negative amortization. At December 31, 1996, $177.8 million or 43.4% of the
Bank's single-family residential mortgage loans were adjustable-rate loans.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
increase the loan payment by the borrower increases to the extent permitted by
the terms of the loan, thereby increasing the potential for
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default. Moreover, as with fixed-rate loans, as interest rates increase, the
marketability of the underlying collateral property may be adversely affected
by higher interest rates.
For conventional residential mortgage loans held in the portfolio and also
for those loans originated for sale in the secondary market, the Banks' maximum
loan-to-value ratio generally is 95%, and is based on the lesser of sales price
or appraised value. Generally on loans with a loan-to-value ratio of over 80%,
private mortgage insurance ("PMI") is required in an amount which reduces the
Banks' exposure to 80% or less.
In November 1994, in order to assist low- to moderate- income families
achieve home ownership, Iberia implemented a program whereby it will provide
100% financing to certain low- to moderate- income homebuyers in Iberia's
market area. Such loans are structured as a 30-year ARM with respect to 90% of
the value with the remaining necessary funds (including closing costs) being
provided through a five-year fixed rate second mortgage loan. No PMI is
required to be obtained with respect to loans originated under this program.
Iberia has developed its 100% financing loan product in an effort to address
the home buying needs of lower income residents. Due to the absence, or limited
amount, of equity with respect to such loans and the absence of PMI, this
product may be deemed to involve greater risk than Iberia's typical
single-family residential mortgage loans. However, the individual loans in this
program generally are relatively small, with balances generally less than
$50,000. At this time, Iberia anticipates that the aggregate balance of loans
originated under this program will not exceed $10.0 million. As of December 31,
1996, such loans amounted to $4.4 million, or .01%, of the Banks' total loan
portfolio. To date, Iberia has not experienced any significant delinquency
problems with respect to loans originated under this program.
Commercial and Multi-Family Residential Real Estate Loans. The Bank has
increased its investment in commercial real estate loans from $4.6 million, or
1.3% of the total loan portfolio at December 31, 1992, to $23.0 million, or
3.9% of the total loan portfolio, at December 31, 1996. The Banks' multi-family
residential loan portfolio at December 31, 1996 is $2.3 million or .39% of the
total loan portfolio. The increase in commercial real estate loans reflects, in
part, the Banks' determination to originate such loans in its market area and
certain commercial real estate loans acquired from BOL. The Banks intend to
continue to expand its involvement in commercial real estate lending and to
continue to moderately increase the amount of such loans in the Banks'
portfolio. The Banks expect it will continue to grant such loans primarily to
small and medium-sized businesses located in the Banks' primary market area, a
portion of the market that the Banks believes has been underserved in recent
years. The types of properties securing the Banks' commercial real estate loans
include strip shopping centers, professional office buildings, small retail
establishments and warehouses, all of which are located in the Banks' market
area. As of December 31, 1996, the Banks' largest commercial real estate loan
had a balance of $2.4 million. Such loan is secured by an strip shopping center
in the Banks' market area and is performing in accordance with its terms.
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The Banks' commercial real estate and multi-family residential loans
generally are one-year adjustable-rate loans indexed to the New York Prime
Rate, as quoted in The Wall Street Journal, plus a margin. Generally, fees of
50 basis points to 2% of the principal loan balances are charged to the
borrower upon closing. Although terms for multi-family residential and
commercial real estate loans may vary, the Banks' underwriting standards
generally provide for terms of up to 10 years with amortization of principal
over the term of the loan and loan-to-value ratios of not more than 75%.
Generally, the Banks obtain personal guarantees of the principals as additional
security for any commercial real estate and multi-family residential loans.
The Banks evaluate various aspects of commercial and multi-family
residential real estate loan transactions in an effort to mitigate risk to the
extent possible. In underwriting these loans, consideration is given to the
stability of the property's cash flow history, future operating projections,
current and projected occupancy, position in the market, location and physical
condition. In recent periods, the Banks have also generally imposed a debt
coverage ratio (the ratio of net cash from operations before payment of debt
service to debt service) of not less than 120%. The underwriting analysis also
includes credit checks and a review of the financial condition of the borrower
and guarantor, if applicable. An appraisal report is prepared by a
state-licensed or certified appraiser (generally MAI qualified) commissioned by
the Banks to substantiate property values for every commercial real estate and
multi-family loan transaction. All appraisal reports are reviewed by the Banks
prior to the closing of the loan. On occasion the Banks also retains a second
independent appraiser to review an appraisal report.
Commercial real estate and multi-family residential lending entails
different and significant risks when compared to single-family residential
lending because such loans often involve large loan balances to single
borrowers and because the payment experience on such loans is typically
dependent on the successful operation of the project or the borrower's
business. These risks can also be significantly affected by supply and demand
conditions in the local market for apartments, offices, warehouses or other
commercial space. The Banks attempt to minimize its risk exposure by limiting
such lending to proven businesses, only considering properties with existing
operating performance which can be analyzed, requiring conservative debt
coverage ratios, and periodically monitoring the operation and physical
condition of the collateral. As of December 31, 1996, $190,000 of the Banks'
commercial real estate loans were non-performing.
Construction Loans. Substantially all of the Banks' construction loans
have consisted of loans to construct single-family residences extended to
individuals where the Banks have committed to provide a permanent mortgage loan
upon completion of the residence. As of December 31, 1996, the Banks'
construction loans amounted to $14.1 million, or 2.4% of the Banks' total loan
portfolio. The Banks' loans are underwritten as construction/permanent loans,
with one set of documents and one closing for both the construction and the
long-term portions of such loans. The Banks' construction loans typically
provide for a construction period not exceeding 12 months, generally have
loan-to-value ratios of 80% or less of the appraised value upon completion and
generally do not require the amortization of principal during the construction
phase. Upon completion of construction, the loans convert to permanent
residential
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mortgage loans. Loan proceeds are disbursed in stages after inspections of the
project indicate that such disbursements are for costs already incurred and
which have added to the value of the project. The Banks also will originate
ground or land loans to individuals to purchase a building lot on which he
intends to build his primary residence.
Prior to making a commitment to fund a construction loan, the Banks
require an appraisal of the property by an independent state-licensed or
qualified appraiser approved by the Board of Directors. In addition, during the
term of the construction loan, the project periodically is inspected by an
independent inspector.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result
in delays and cost overruns. If the estimate of value proves to be inaccurate,
the Bank may be confronted, at or prior to the maturity of the loan, with a
project, when completed, having a value which is insufficient to assure full
repayment. Loans on lots may run the risk of adverse zoning changes,
environmental or other restrictions on future use.
Consumer Loans. The Bank offers consumer loans in order to provide a full
range of retail financial services to its customers. At December 31, 1996,
$119.8 million, or 20.6%, of the Banks' total loan portfolio was comprised of
consumer loans. The Banks originate substantially all of such loans in its
primary market area.
The largest component of the Bank's consumer loan portfolio consists of
indirect automobile loans. These loans are originated by the automobile
dealerships and applications are facsimiled to bank personnel for approval or
denial. The Banks rely on the dealerships, in part, for loan qualifying
information. To that extent, there is risk inherent in indirect automobile
loans apart from the ability of the consumer to repay the loan, that being
fraud perpetrated by the automobile dealership. To limit its exposure, the
Banks have limited its dealings with automobile dealerships which have
demonstrated reputable behavior in the past. At December 31, 1996, $52.4
million, or 9.0%, of the Banks' total loan portfolio are indirect automobile
loans.
At December 31, 1996, the Banks' remaining consumer loan portfolio was
comprised of home equity loans, educational loans, loans secured by deposits at
the Banks, mobile home loans, direct automobile loans, credit card loans and
other consumer loans. At December 31, 1996, the Banks had $21.6 million or 3.7%
of home equity loans, $9.3 million or 1.6% of educational loans, all of which
were underwritten to conform with the standards of the Louisiana Public
Facilities Authority ("LPFA"). Generally, the Bank has sold its educational
loans to the LPFA or other government sponsored agencies at the commencement of
the repayment period. Deposit loans totaled $12.5 million, or 2.1%, of the
Banks' total loan portfolio at December 31, 1996. The Banks' mobile home loans
amounted to $4.2 million, or .7% of the loan portfolio at December 31,
14
1996, compared to $18.1 million or 5.4% of the Bank's loan portfolio at
December 31, 1991. The Bank have not emphasized originations of mobile home
loans in recent years due to, among other things, management's perception that
such loans generally are riskier than certain other consumer loans, such as
home equity loans, and single-family mortgage loans. Thes Bank also offers
direct automobile loans, loans based on its VISA and MasterCard credit cards
and other consumer loans. At December 31, 1996, the Bank's direct automobile
loans amounted to $7.5 million, or 1.3%, of the Banks' total loan portfolio.
The Banks' Visa and MasterCard credit card loans totaled $4.0 million, or 0.7%,
of the Banks' total loan portfolio at such date.
Commercial Business Loans. The Banks originate commercial business loans
on a secured and, to a lesser extent, unsecured basis. The Banks' commercial
business loans generally are made to small to mid-size companies located in the
Banks' primary market area and are made for a variety of commercial purposes.
At December 31, 1996, the Banks' commercial business loans amounted to $36.1
million or 6.2% of the Banks' gross loan portfolio. The Banks have placed
emphasis on the origination of commercial real estate and commercial business
loans. Commercial real estate and commercial business loans generally have
higher yields and shorter repayment periods than single-family residential
loans.
The Banks' commercial business loans may be structured as term loans or
revolving lines of credit. Commercial business loans generally have a term of
ten years or less and adjustable or variable rates of interest based upon the
New York Prime Rate. The Banks' commercial business loans generally are secured
by equipment, machinery, real property or other corporate assets. In addition,
the Banks generally obtain personal guarantees from the principals of the
borrower with respect to all commercial business loans. The Banks also provide
commercial loans structured as advances based upon perfected security interests
in accounts receivable and inventory. Generally the Banks will advance amounts
not in excess of 85.0% of accounts receivable, provided that such accounts have
not aged more than 90 days. In such cases, payments are made directly to the
Banks and the Banks generally maintain in escrow 2.0% to 10.0% of the amounts
received. As of December 31, 1996, the Banks had $407,000 of non-performing
commercial business loans and its largest commercial business loan had a
principal balance of $1.8 million. Such loan is secured by a rental fleet of
automobiles and generally has performed in accordance with its terms since
origination.
Loans-to-One Borrower Limitations. The Louisiana Savings Bank Act of 1990,
as amended (the "LSBA") imposes limitations on the aggregate amount of loans
that a Louisiana chartered savings bank can make to any one borrower. Under
LSBA, the permissible amount of loans-to-one borrower may not exceed 15% of the
savings bank's total net worth. In addition, a savings bank may make loans in
an amount equal to an additional 10% of the savings bank's net worth if the
loans are 100% secured by readily marketable collateral. A savings bank's net
worth shall be calculated based on its last quarterly call report and consists
of (i) outstanding and unimpaired common stock; (ii) outstanding and unimpaired
perpetual preferred stock; (iii) unimpaired capital surplus, undivided profits,
capital reserves, minus intangible assets; (iv)
15
purchased mortgage servicing rights; or (v) mandatory convertible debt up to
20% of categories (i) through (iv). Readily marketable collateral consists of
financial instruments or bullion which are salable under ordinary circumstances
with reasonable promptness at fair market value or on an auction or a similarly
available daily bid and ask price market. At December 31, 1996, Iberia's limit
on unsecured fix-to-one borrower under LSBA was $10.3 million. At December
31, 1996, Jefferson's limit on unsecured lons-to-one-borrower under LSBA was
$2.7 million. At December 31, 1996, Iberia's five largest loans or groups of
loans-to-one borrower ranged from $992,000 to $2.4 million, and all of such
loans were performing in accordance with their term. Jefferson had no loans in
excess of $500,000 at December 31, 1996.
ASSET QUALITY
General. As a part of the Banks' efforts to improve asset quality, it has
developed and implemented an asset classification system. All of the Banks'
assets are subject to review under the classification system. All assets of the
Banks are periodically reviewed and the classifications are reviewed by the
Loan Committee of the Board of Directors on at least a quarterly basis.
When a borrower fails to make a required payment on a loan, the Banks
attempt to cure the deficiency by contacting the borrower and seeking payment.
Contacts are generally made 30 days after a payment is due. In most cases,
deficiencies are cured promptly. If a delinquency continues, late charges are
assessed and additional efforts are made to collect the loan. While the Banks
generally prefer to work with borrowers to resolve such problems, when the
account becomes 90 days delinquent, the Banks institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest
income. As a matter of policy, the Banks do not accrue interest on loans past
due 90 days or more, except for credit card loans. See Note 5 of the Notes to
Consolidated Financial Statements.
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed
under GAAP are classified as real estate owned until sold. Pursuant to SOP 92-3
issued by the AICPA in April 1992, which provides guidance on determining the
balance sheet treatment of foreclosed assets in annual financial statements for
periods ending on or after December 15, 1992, there is a rebuttable presumption
that foreclosed assets are held for sale and such assets are recommended to be
carried at the lower of fair value minus estimated costs to sell the property,
or cost (generally the balance of the loan on the property at the date of
acquisition). After the date of acquisition, all costs incurred in maintaining
the property are expenses and costs incurred for the improvement or
16
development of such property are capitalized up to the extent of their net
realizable value. The Bank's accounting for its real estate owned complies with
the guidance set forth in SOP 92-3.
Under GAAP, the Banks are required to account for certain loan
modifications or restructurings as "troubled debt restructurings." In general,
the modification or restructuring of a debt constitutes a troubled debt
restructuring if the Banks for economic or legal reasons related to the
borrower's financial difficulties grants a concession to the borrower that the
Banks would not otherwise consider under current market conditions. Debt
restructurings or loan modifications for a borrower do not necessarily always
constitute troubled debt restructurings, however, and troubled debt
restructurings do not necessarily result in non-accrual loans. The Banks had
one troubled debt restructuring as of December 31, 1996. See the table below
under "Non-Performing Assets and Troubled Debt Restructurings."
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1996, in dollar amounts and as a percentage of
each category of the Banks' loan portfolio. The amounts presented represent the
total outstanding principal balances of the related loans, rather than the
actual payment amounts which are past due.
December 31, 1996
--------------------------------------------------------------------
30-59 Days 60-89 Days
----------------------------- -----------------------------
Percent of Percent of
Amount Loan Category Amount Loan Category
(Dollars in Thousands)
Mortgage loans:
Residential:
Single-family $7,791 2.02% $1,349 0.35%
Multi-family --- --- --- ---
Commercial 39 0.17 6 .03
Construction --- --- --- ---
Commercial business loans 477 1.32 175 .48
Consumer loans 1,864 1.56 639 0.53
----- ---
Total $10,171 1.75% $2,169 0.37%
------- ==== ------ ====
17
Non-Performing Assets and Troubled Debt Restructurings. The following
table sets forth information relating to the Banks' non-performing assets and
troubled debt restructurings at the dates indicated.
December 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
(Dollars in Thousands)
Non-accrual loans:
Mortgage loans:
Single-family $ 892 $ 788 $ 729 $ 642 $1,477
Multi-family --- --- --- --- ---
Commercial 190 30 55 142 10
Construction --- --- --- --- ---
Commercial business loans 407 --- --- --- ---
Consumer loans 1,002 597 461 586 852
----- ----- ----- ----- -----
Total non-accrual
loans 2,491 1,415 1,245 1,370 2,339
----- ----- ----- ----- -----
Accruing loans more than 90
days past due(1) 69 53 13 14 14
Total non-performing
loans 2,560 1,468 1,258 1,384 2,353
----- ----- ----- ----- -----
Real estate owned, net 978 561 570 859 900
----- ----- ----- ----- -----
Total non-performing
assets $3,538 $2,029 $1,828 $2,243 $3,253
====== ====== ====== ====== ======
Performing troubled debt
restructurings $ 176 $ 186 $ 194 $ 201 $ 207
====== ====== ====== ====== ======
Total non-performing
assets and troubled debt
restructurings $3,714 $2,215 $2,022 $2,444 $3,460
====== ====== ====== ======
Non-performing loans to
total loans 0.44% 0.35% 0.33% 0.39% 0.67%
Total non-performing
assets to total assets 0.38% 0.33% 0.37% 0.46% 0.67%
Total non-performing assets
and troubled debt
restructurings to total 0.40% 0.36% 0.41% 0.51% 0.71%
assets
- ----------------
(1) Consists solely of credit card loans.
18
Other Classified Assets. Federal regulations require that the Banks
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted.
At December 31, 1996, the Bank had $7.3 million of assets classified
substandard, $183,000 assets classified doubtful, and no assets classified
loss. At such date, the aggregate of the Banks' classified assets amounted to
0.80% of total assets.
Allowance for Loan Losses. The Banks' policy is to establish reserves for
estimated losses on delinquent loans when it determines that losses are
expected to be incurred on such loans and leases. The allowance for losses on
loans is maintained at a level believed adequate by management to absorb
potential losses in the portfolio. Management's determination of the adequacy
of the allowance is based on an evaluation of the portfolio, past loss
experience, current economic conditions, volume, growth and composition of the
portfolio, and other relevant factors. The allowance is increased by provisions
for loan losses which are charged against income. As shown in the table below,
at December 31, 1996, the Banks' allowance for loan losses amounted to 180.3%
and 0.79% of the Banks' non-performing loans and gross loans receivable,
respectively.
Effective December 21, 1993, the FDIC, in conjunction with the Office of
the Comptroller of the Currency, the OTS and the Federal Reserve Board, issued
the Policy Statement regarding an institution's allowance for loan and lease
losses. The Policy Statement, which reflects the position of the issuing
regulatory agencies and does not necessarily constitute GAAP, includes guidance
(i) on the responsibilities of management for the assessment and establishment
of an adequate allowance and (ii) for the agencies' examiners to use in
evaluating the adequacy of such allowance and the policies utilized to
determine such allowance. The Policy Statement also sets forth quantitative
measures for the allowance with respect to assets classified substandard and
doubtful and with respect to the remaining portion of an institution's loan
portfolio. Specifically, the Policy Statement sets forth the following
quantitative measures which examiners may use to determine the reasonableness
of an allowance: (i) 50% of the portfolio that is classified doubtful; (ii) 15%
of the portfolio that is classified substandard; and (iii) for the portions of
the portfolio that have not been classified (including loans designated special
mention), estimated credit losses over the upcoming 12 months based on facts
and circumstances available on the evaluation date. While the Policy Statement
sets forth this quantitative measure, such guidance is not intended as a
"floor" or "ceiling." The review of the Policy Statement did not result in a
material adjustment to the Bank's policy for establishing loan losses.
19
The following table sets forth the activity in the Banks' allowance for
loan losses during the periods indicated.
Year Ended December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
(Dollars in Thousands)
Allowance at beginning of period $3,746 $3,831 $3,413 $3,254 $1,630
Allowance from subsidiary acquisition 1,114 13 --- --- ---
Provisions 156 239 305 441 2,200
Charge-offs:
Mortgage loans:
Single-family 46 55 81 107 290
Multi-family --- --- --- --- ---
Commercial --- 4 --- 96 21
Construction --- --- --- --- ---
Commercial business loans 61 --- --- --- ---
Consumer loans 509 371 214 343 534
----- ----- ----- ----- -----
Total 616 430 295 546 845
===== ===== ===== ----- -----
Recoveries:
Mortgage loans:
Single-family 39 15 302 107 177
Multi-family --- --- --- --- ---
Commercial --- --- --- --- 30
Construction --- --- --- --- ---
Commercial business loans 43 --- --- --- ---
Consumer loans 133 78 106 157 62
----- ----- ----- ----- -----
Total 215 93 408 264 269
----- ----- ----- ----- -----
Allowance at end of period $ 4,615 $ 3,746 $ 3,831 $3,413 $3,254
======= ======= ======= ====== ======
Allowance for loan losses to
total non-performing loans at 180.28% 255.18% 304.53% 246.60% 138.29%
end of period
Allowance for loan losses to
total loans at end of period 0.79% 0.90% 0.99% 0.96% 0.92%
20
The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.
December 31,
--------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ------------------------- ---------------------------
% of Loan % of Loans % of Loans
in Each in Each in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
(Dollars in Thousands)
Single-family residential $1,991 66.45% $2,184 76.83% $2,221 78.00%
Multi-family residential 11 0.39 10 0.36 13 0.47
Commercial real estate 502 3.95 176 3.49 196 2.76
Construction 72 2.41 107 3.76 107 3.74
Commercial business 817 6.20 134 2.66 118 1.67
Consumer 1,222 20.60 1,135 12.89 1,176 13.36
----- ----- ----- ----- ----- -----
Total allowance for loan losses $4,615 100.00% $3,746 100.00% $3,831 100.00%
------ ====== ====== ====== ====== ======
December 31,
--------------------------------------------------------------
1993 1992
---------------------------- -----------------------------
% of Loans % of Loans
in Each in Each
Category to Category to
Amount Total Loans Amount Total Loans
---------------------------- -----------------------------
(Dollars in Thousands)
Single-family residential $2,042 79.96% $1,846 79.64%
Multi-family residential 14 0.53 17 0.71
Commercial real estate 197 2.32 137 1.31
Construction 65 2.55 68 2.94
Commercial business 97 1.15 205 1.97
Consumer 998 13.49 981 13.43
------ ----- ------ -----
Total allowance for loan losses $3,413 100.00% $3,254 100.00%
====== ====== ====== ======
21
Management of the Banks presently believe that its allowance for loan
losses is adequate to cover any potential losses in the Banks' loan portfolio.
However, future adjustments to this allowance may be necessary, and the Banks'
results of operations could be adversely affected if circumstances differ
substantially from the assumptions used by management in making its
determinations in this regard.
MORTGAGE-BACKED SECURITIES
As of December 31, 1996, the Banks' mortgage-backed securities amounted to
$150.7 million, or 16.21% of total assets. At the time of their respective
acquisitions, BOL and Jefferson provided $4.2 million and $106.8 million,
respectively, of mortgage-backed securities. The Banks' mortgage-backed
securities portfolios provides a means of investing in housing-related mortgage
instruments without the costs associated with originating mortgage loans for
portfolio retention and with limited credit risk of default which arises in
holding a portfolio of loans to maturity. Mortgage-backed securities (which
also are known as mortgage participation certificates or pass-through
certificates) represent a participation interest in a pool of single-family or
multi-family mortgages. The principal and interest payments on mortgage-backed
securities are passed from the mortgage originators, as servicer, through
intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) that pool and repackage the participation interests in the form of
securities, to investors such as the Banks. Such U.S. Government agencies and
government sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, the FNMA and the Government
National Mortgage Association ("GNMA"). The Banks also invests to a limited
degree in certain privately issued, credit enhanced mortgage-backed securities
rated AA or above by national securities rating agencies.
The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 FHLBs and federally insured savings institutions. The FHLMC
issues participation certificates backed principally by conventional mortgage
loans. The FHLMC guarantees the timely payment of interest and the ultimate
return of principal on participation certificates. The FNMA is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. FHLMC and FNMA securities are not
backed by the full faith and credit of the United States, but because the FHLMC
and the FNMA are U.S. Government-sponsored enterprises, these securities are
considered to be among the highest quality investments with minimal credit
risks. The GNMA is a government agency within the Department of Housing and
Urban Development which is intended to help finance government-assisted housing
programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans,
and the timely payment of principal and interest on GNMA securities are
guaranteed by the GNMA and backed by the full faith and credit of the U.S.
Government. Because the FHLMC, the FNMA and the GNMA were established to
provide support for low- and middle-income housing, there are limits to the
maximum size of loans that qualify for these programs which limit currently is
$214,600.
22
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate loans. As a result, the risk characteristics of the underlying
pool of mortgages, (i.e., fixed-rate or adjustable rate) as well as prepayment
risk, are passed on to the certificate holder. The life of a mortgage-backed
pass-through security thus approximates the life of the underlying mortgages.
The Banks have generally determined, consistent with its asset/liability
management strategies, to limit its investments in mortgage-backed securities
to securities backed by ARMs, have a balloon feature or securities which
otherwise have an adjustable rate feature.
The Banks' mortgage-backed securities include interests in collateralized
mortgage obligations ("CMOs"). CMOs have been developed in response to investor
concerns regarding the uncertainty of cash flows associated with the prepayment
option of the underlying mortgagor and are typically issued by governmental
agencies, governmental sponsored enterprises and special purpose entities, such
as trusts, corporations or partnerships, established by financial institutions
or other similar institutions. A CMO can be collateralized by loans or
securities which are insured or guaranteed by the FNMA, the FHLMC or the GNMA.
In contrast to pass-through mortgage-backed securities, in which cash flow is
received pro rata by all security holders, the cash flow from the mortgages
underlying a CMO is segmented and paid in accordance with a predetermined
priority to investors holding various CMO classes. By allocating the principal
and interest cash flows from the underlying collateral among the separate CMO
classes, different classes of bonds are created, each with its own stated
maturity, estimated average life, coupon rate and prepayment characteristics.
The regular interests of some CMOs are like traditional debt instruments
because they have stated principal amounts and traditionally defined
interest-rate terms. Purchasers of certain other CMOs are entitled to the
excess, if any, of the issuer's cash inflows, including reinvestment earnings,
over the cash outflows for debt service and administrative expenses. These CMOs
may include instruments designated as residual interests, which represent an
equity ownership interest in the underlying collateral, subject to the first
lien of the investors in the other classes of the CMO. Certain residual CMO
interests may be riskier than many regular CMO interests to the extent that
they could result in the loss of a portion of the original investment.
Moreover, cash flows from residual interests are very sensitive to prepayments
and, thus, contain a high degree of interest-rate risk. At December 31, 1996,
the fair value of the Banks' investment in CMOs amounted to $21.4 million, all
of which consisted of regular interests. As of December 31, 1996, the Banks'
CMOs did not include any residual interests or interest-only or principal-only
securities. As a matter of policy, the Banks do not invest in residual
interests of CMOs or interest-only and principal-only securities.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed and
related securities are more liquid than individual mortgage loans and may be
used to collateralize borrowings of the Banks in the event that the Banks
determined to utilize borrowings as a source of funds. Mortgage-backed
securities issued or guaranteed by
23
the FNMA or the FHLMC (except interest-only securities or the residual
interests in CMOs) are weighted at no more than 20.0% for risk-based capital
purposes, compared to a weight of 50.0% to 100.0% for residential loans. See
"Regulation - The Bank - Capital Requirements."
As of December 31, 1996, all of the Banks' mortgage-backed securities were
classified as held to maturity. Mortgage-backed securities which are held to
maturity are carried at cost, adjusted for the amortization of premiums and the
accretion of discounts using a method which approximates a level yield, while
mortgage-backed securities available for sale are carried at current market
value. See Notes 1 and 4 of the Notes to Consolidated Financial Statements.
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
December 31,
---------------------------------------
1996 1995 1994
(In Thousands)
Mortgage-backed securities(1):
FHLMC $80,648 $16,434 $18,461
FNMA 35,340 15,553 10,574
GNMA 13,233 350 401
FNMA CMO 9,697 7,209 4,506
FHLMC CMO 10,901 10,901 4,495
Privately Issued 850 (2) 1,199 1,486
------ ------ ------
Total mortgage-backed
securities $150,669(3) $51,646 $39,923
---------- ======= =======
Total market value(4) $150,014 $51,872 $37,767
-------- ======= =======
- ---------------
(1) See Note 4 of the Notes to Consolidated Financial Statements.
(2) Rated AA by national rating agencies.
(3) At December 31, 1996, $62.5 million of the Banks' mortgage-backed
securities had adjustable rates and $88.2 million had fixed rates, of which
$79.3 million had a balloon feature (the mortgage-backed security will mature
and repay before the underlying loans have been fully amortized).
(4) At all periods presented, all of the Banks' mortgage-backed securities
were classified as held to maturity. Mortgage-backed securities held to
maturity are carried at their principal balances, net of acquisition
discount and premium and deferred fees.
24
The following table sets forth the purchases, principal repayments and
sales of the Banks' mortgage-backed securities for the periods indicated.
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
(In Thousands)
Mortgage-backed securities
purchased(1) $15,532 $ 4,793
Acquired $111,114
Principal repayments (11,903) (3,722) (6,108)
Sales --- --- ---
Other, net (188) (87) (181)
------- ------- --------
Net change $99,023 $11,723 $(1,496)
======= ======= ========
- ---------------
(1) All purchases are of mortgage-backed securities issued by government
entities or government sponsored entities.
At December 31, 1996, the weighted average contractual maturity of the
Banks' mortgage-backed securities with a balloon feature was approximately 2.5
years. The actual maturity of a mortgage-backed security may be less than its
stated maturity due to prepayments of the underlying mortgages. Prepayments
that are faster than anticipated may shorten the life of the security and
adversely affect its yield to maturity. The yield is based upon the interest
income and the amortization of any premium or discount related to the
mortgage-backed security. In accordance with GAAP, premiums and discounts are
amortized over the estimated lives of the loans, which decrease and increase
interest income, respectively. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security, and these assumptions are reviewed
periodically to reflect actual prepayments. Although prepayments of underlying
mortgages depend on many factors, including the type of mortgages, the coupon
rate, the age of mortgages, the geographical location of the underlying real
estate collateralizing the mortgages and general levels of market interest
rates, the difference between the interest rates on the underlying mortgages
and the prevailing mortgage interest rates generally is the most significant
determinant of the rate of prepayments.
During periods of rising mortgage interest rates, if the coupon rates of
the underlying mortgages are less than the prevailing market interest rates
offered for mortgage loans, refinancings generally decrease and slow the
prepayment of the underlying mortgages and the related securities. Conversely,
during periods of falling mortgage interest rates, if the coupon rates of the
underlying mortgages exceed the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages
25
and the related securities. Under such circumstances, the Banks may be subject
to reinvestment risk because to the extent that the Banks' mortgage-related
securities amortize or prepay faster than anticipated, the Banks may not be
able to reinvest the proceeds of such repayments and prepayments at a
comparable rate. The declining yields earned during fiscal 1993 and 1994 a
direct response to falling interest rates as well as to accelerated
prepayments. In fiscal 1995, higher yields were earned as a direct response to
increasing interest rates.
INVESTMENT SECURITIES
The Banks' investments in investment securities consist primarily of
securities issued by the U.S. Treasury and federal government agency
obligations. As of December 31, 1996, the Banks' investment securities
available for sale amounted to $101.1 million, net of gross unrealized gains of
$288,000, and its investment securities held to maturity amounted to $2.2
million. At the time of their respective acquisitions, BOL and Jefferson
provided $2.0 million and $57.5 million, respectively, of investment
securities. The Banks attempt to maintain a high degree of liquidity in its
investment securities portfolio and generally do not invest in securities with
terms to maturity exceeding five years.
The following table sets forth information regarding the amortized cost
and market value of the Banks' investment securities at the dates indicated.
December 31,
------------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------ -------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
(In Thousands)
U.S. Government and
federal agency obligations $95,549 $95,855 $79,907 $81,065 $44,371 $42,583
Other 7,523 7,507 5,785 5,777 5,634 5,504
----- ----- ----- ----- ----- -----
Total $103,072 $103,362 $85,692 $86,842 $50,005 $48,087
======== ======== ======= ======= ======= =======
26
The following table sets forth certain information regarding the
maturities of the Banks' investment securities at December 31, 1996.
Contractually Maturing
------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Under 1 Average 1-5 Average 6-10 Average Over 10 Average
Year Yield Years Yield Years Yield Years Yield
(Dollars in Thousands)
U.S. Government and
federal agency
obligations $56,396 5.94% $39,459 6.20% $ --- ---% $ --- ---%
Other 5,289(1) 6.08 2,032 5.78 184 6.30 --- ---
------- ----- ---- -----
Total $61,685 5.95 $41,491 6.18 $184 6.30 $ --- ---
------- ------- ==== ===== =====
- ---------------
(1) Consists of a mutual fund of adjustable rate mortgage-backed securities,
all of which adjust at least annually.
SOURCES OF FUNDS
General. The Banks' principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Banks' branch offices. The acquisitions of Jefferson and BOL
provided $288.3 million of deposits used to help fund the Banks' loan growth.
The Banks also derive funds from amortization and prepayments of outstanding
loans and mortgage-related securities, and from maturing investment securities.
Loan repayments are a relatively stable source of funds, while deposit inflows
and outflows are significantly influenced by general interest rates and money
market conditions. While available, during the past five years, the Bank has
not used borrowings to supplement its deposits as a source of funds.
Deposits. The Banks' current deposit products include passbook accounts,
NOW accounts, MMDA, certificates of deposit ranging in terms from 30 days to
seven years and noninterest-bearing personal and business checking accounts.
The Banks' deposit products also include Individual Retirement Account ("IRA")
certificates and Keogh accounts.
The Banks' deposits are obtained primarily from residents in its Primary
Market Area. The Banks attracts local deposit accounts by offering a wide
variety of accounts, competitive interest rates, and convenient branch office
locations and service hours. In addition, Iberia has supplemented its
traditional deposit activities with acquisitions from the RTC in 1989, 1990 and
1991. The acquisition of BOL helped Iberia double its market share in the
greater Lafayette market. The acquisition of Jefferson established the Company
in a new market, the greater New Orleans area. The Banks utilize traditional
marketing methods to attract new customers and
27
savings deposits, including print and broadcast advertising and direct
mailings. However, the Banks do not solicit funds through deposit brokers nor
does it pay any brokerage fees if it accepts such deposits. The Banks
participate in the regional ATM network known as CIRRUS(R).
The Banks have been competitive in the types of accounts and in interest
rates it has offered on its deposit products but does not necessarily seek to
match the highest rates paid by competing institutions. With the significant
decline in interest rates paid on deposit products, the Banks in
28
recent years has experienced disintermediation of deposits into competing
investment products. See generally Note 8 of the Notes to Consolidated
Financial Statements.
The following table sets forth certain information relating to the Banks'
deposits at the dates indicated. Years prior to 1996 do not include deposits of
Jefferson or BOL as those acquisitions did not take place until 1996.
December 31,
------------------------------------------------------------------------------------
1996 1995 1994
------------------------ -------------------------- ------------------------
Percent Percent Percent
of Total of Total of Total
Amount Deposits Amount Deposits Amount Deposits
(Dollars in Thousands)
NOW accounts $ 76,991 10.13% $ 32,472 7.30% $ 30,349 6.98%
Money market accounts 58,669 7.72 32,204 7.24 41,597 9.57
Non-interest-bearing
checking accounts 33,884 4.46 9,124 2.05 6,450 1.49
------- ----- ------ ----- ------ -----
Total demand deposits 169,544 22.30 73,800 16.59 78,396 18.04
------- ----- ------ ----- ------ -----
Passbook savings deposits 119,685 15.74 49,920 11.23 55,505 12.78
Certificate of deposit
accounts:
Less than 6 months 11,099 1.46 16,101 3.62 4,795 1.10
6-11 months 60,766 7.99 45,211 10.17 63,463 14.61
12-35 months 261,151 34.35 119,263 26.83 103,259 23.77
More than 35 months 138,039 18.16 140,305 31.56 129,025 29.70
------- ----- ------- ----- ------- -----
Total certificates 471,055 61.96 320,880 72.18 300,542 69.18
------- ----- ------- ----- ------- -----
Total deposits $760,284 100.00% $444,600 100.00% $434,443 100.00%
-------- ====== ======== ====== ======== ======
The following table sets forth the activity in the Banks'deposits during
the periods indicated.
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
--------- --------------- -------
(In Thousands)
Beginning balance $444,600 $434,443 $439,500
Deposits acquired 288,290 --- ---
Net increase (decrease)
before interest credited 7,869 (3,197) (16,920)
Interest credited 19,525 13,354 11,863
-------- -------- --------
Net increase (decrease) in
deposits 315,684 10,157 (5,057)
-------- -------- --------
Ending balance $760,284 $444,600 $434,443
======== ======== ========
29
The following table sets forth by various interest rate categories the
certificates of deposit with the Banks at the dates indicated.
December 31,
---------------------------------------------------
1996 1995 1994
(Dollars in Thousands)
0.00% to 2.99% $ 100 $ --- $ 103
3.00% to 3.99% 706 3,480 71,037
4.00% to 4.99% 90,768 63,805 70,222
5.00% to 6.99% 365,882 237,159 143,911
7.00% to 8.99% 13,599 16,076 15,269
9.00% and over --- --- ---
---------- ---------- ---------
$ 471,055 $ 320,880 $ 300,542
========== =========
30
The following table sets forth the amount and maturities of the Banks'
certificates of deposit at December 31, 1996.
Over One Over Two
Year Years
Through Through Over Three
One Year and Two Years Three Years Years
Less
(Dollars in Thousands)
2.00% to 3.99% $ 681 $ 15 $ 94 $ 16
4.00% to 4.99% 90,245 434 63 26
5.00% to 6.99% 178,155 118,653 36,533 32,541
7.00% to 8.99% 8,663 1,383 454 3,099
------- ------ ----- -----
$277,744 $120,485 $37,144 $35,682
Borrowings. The Banks may obtain advances from the FHLB of Dallas upon the
security of the common stock it owns in that bank and certain of its
residential mortgage loans and securities held to maturity, provided certain
standards related to creditworthiness have been met. Such advances are made
pursuant to several credit programs, each of which has its own interest rate
and range of maturities. The Banks made limited use of such borrowings during
the past five years. See Note 9 of the Notes of Consolidated Financial
Statements.
31
SUBSIDIARIES
Iberia only has one active, wholly owned subsidiary, Iberia Financial
Services, Inc. ("Iberia Services"). At December 31, 1996, Iberia's equity
investment in Iberia Services was $947,845 and Iberia Services had total assets
of $951,000. For the years ended December 31, 1996 and 1995, Iberia Services
had total revenue of $704,000 and $453,000, respectively and a net income of
$131,000 in 1996 and a net loss of $24,000 in 1995. See Note 1 of the Notes to
Consolidated Financial Statements. The business of Iberia Services consists of
holding certain parcels of real estate which the Iberia previously intended to
develop (all of which parcels were sold in 1996) as well as acting as a broker
for the sale of annuities and certain other securities to the general public.
Iberia Services has one wholly owned subsidiary, Finesco, Ltd., which the Bank
acquired in January 1995 and which business consists of insurance premium
financing.
COMPETITION
The Banks face strong competition both in attracting deposits and
originating loans. Its most direct competition for deposits has historically
come from other savings institutions, credit unions and commercial banks
located in its market area including many large financial institutions which
have greater financial and marketing resources available to them. In addition,
during times of high interest rates, the Banks have faced additional
significant competition for investors' funds from short-term money market
securities, mutual funds and other corporate and government securities. The
ability of the Banks to attract and retain savings deposits depends on its
ability to generally provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.
The Banks experience strong competition for loan originations principally
from other savings institutions, commercial banks and mortgage banking
companies. The Banks compete for loans principally through the interest rates
and loan fees it charges, the efficiency and quality of services it provides
borrowers and the convenient locations of its branch office network.
Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions.
EMPLOYEES
The Banks had 322 full-time employees and 34 part-time employees as of
December 31, 1996. None of these employees is represented by a collective
bargaining agreement. The Banks believe that it enjoys excellent relations with
its personnel.
REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company and the Banks. The description of
these laws and regulations, as well
32
as descriptions of laws and regulations contained elsewhere herein, does not
purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
THE COMPANY. The Company is a registered bank holding company pursuant to
the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company, as
a bank holding company, is subject to regulation and supervision by the Federal
Reserve Board. The Company is required to file annually a report of its
operations with, and will be subject to examination by, the Federal Reserve
Board.
BHCA Activities and Other Limitations. The BHCA prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any bank, or increasing such ownership or control of
any bank, without prior approval of the Federal Reserve Board. The BHCA also
generally prohibits a bank holding company from acquiring any bank located
outside of the state in which the existing bank subsidiaries of the bank
holding company are located unless specifically authorized by applicable state
law. No approval under the BHCA is required, however, for a bank holding
company already owning or controlling 50% of the voting shares of a bank to
acquire additional shares of such bank.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefit to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include operating a mortgage company, finance company, credit card
company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full-payout, non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier
services. The Federal Reserve Board also has determined that certain other
activities, including real estate brokerage and syndication, land development,
property management and underwriting of life insurance not related to credit
transactions, are not closely related to banking and a proper incident thereto.
Limitations on Transactions with Affiliates. Transaction between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a
33
savings institution is any company or entity which controls, is controlled by
or is under common control with the savings institution. In a holding company
context, the parent holding company of a savings institution (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the savings institution. Generally, Sections 23A and 23B (i)
limit the extent to which the savings institution or its subsidiaries may
engaged in "covered transactions" with any one affiliate to an amount equal to
10% of such institution's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable, to the institution
or subsidiary as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar transactions. In addition to the restrictions
imposed by Sections 23A and 23B, no savings institution may (i) loan or
otherwise extend credit to an affiliate, except for any affiliate which engages
only in activities which are permissible for bank holding companies, or (ii)
purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). In addition, the aggregate
amount of extensions of credit by a savings institution to all insiders cannot
exceed the institution's unimpaired capital and surplus. Furthermore, Section
22(g) places additional restrictions on loans to executive officers.
Capital Requirements. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the BHCA. The Federal Reserve Board capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount consisting of Tier
II or supplementary capital. Tier I capital for bank holding companies
generally consists of the sum of common stockholders' equity and perpetual
preferred stock (subject in the case of the latter to limitations on the kind
and amount of such stocks which may be included as Tier I capital), less
goodwill and, with certain exceptions, intangibles. Tier II capital generally
consists of hybrid capital instruments; perpetual preferred stock which is not
eligible to be included as Tier I capital; term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics, with the categories
ranging from 0% (requiring no additional capital) for assets
34
such as cash to 100% for the bulk of assets which are typically held by a bank
holding company, including multi-family residential and commercial real estate
loans, commercial business loans and consumer loans. Single-family residential
first mortgage loans which are not past-due (90 days or more) or non-performing
and which have been made in accordance with prudent underwriting standards are
assigned a 50% level in the risk-weighing system, as are certain
privately-issued mortgage-backed securities representing indirect ownership of
such loans. Off-balance sheet items also are adjusted to take into account
certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose
does not include goodwill and any other intangible assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital.
The Federal Reserve Board has announced that the 3.0% Tier I leverage capital
ratio requirement is the minimum for the top-rated bank holding companies
without any supervisory, financial or operational weaknesses or deficiencies or
those which are not experiencing or anticipating significant growth. Other bank
holding companies will be expected to maintain Tier I leverage capital ratios
of at least 4.0% to 5.0% or more, depending on their overall condition. At
December 31, 1995, the Company believes it is in compliance with the
above-described Federal Reserve Board regulatory capital requirements.
Financial Support of Affiliated Institutions. Under Federal Reserve Board
policy, the Company will be expected to act as a source of financial strength
to the Banks and to commit resources to support the Bank in circumstances when
it might not do so absent such policy. The legality and precise scope of this
policy is unclear, however, in light of recent judicial precedent.
Federal Securities Laws. The Company's common stock is registered with the
SEC under the Securities Exchange Act of 1934 ("Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions
and other requirements under the Exchange Act.
THE BANKS. The Banks are subject to extensive regulation and examination
by the OFI and by the FDIC and are also subject to certain requirements
established by the Federal Reserve Board. The federal and state laws and
regulations which are applicable to banks regulate, among other things, the
scope of their business, their investments, their reserves against deposits,
the timing of the availability of deposited funds and the nature and amount of
and collateral for certain loans. There are periodic examinations by the OFI
and the FDIC to test the Banks' compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the OFI, the FDIC or the Congress could
have a material adverse impact on the Company, the Banks and their operations.
35
FDIC Insurance Premiums. The deposits of the Savings Bank are currently
insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"),
the federal deposit insurance fund that covers commercial bank deposits, are
required by law to attain and thereafter maintain a reserve ratio of 1.25% of
insured deposits. The BIF fund met its target reserve in September 1995, but
the SAIF was not expected to meet its target reserve level until at least 2002.
Consequently, in late 1995, the FDIC approved a final rule regarding deposit
insurance premiums which, effective with respect to the semiannual premium
assessment beginning January 1, 1996, reduced deposit insurance premiums for
BIF member institutions to zero basis points (subject to an annual minimum of
$2,000) for institutions in the lowest risk category. Deposit insurance
premiums for SAIF members were maintained at their existing levels (23 basis
points for institutions in the lowest risk category).
On September 30, 1996, President Clinton signed into law legislation
which will eliminate the premium differential between SAIF-insured institutions
and BIF-insured institutions by recapitalizing the SAIF's reserves to the
required ratio. The legislation provides that all SAIF member institutions pay
a one-time special assessment to recapitalize the SAIF, which in the aggregate
will be sufficient to bring the reserve ratio in the SAIF to 1.25% of insured
deposits. The legislation also provides for the merger of the BIF and the
SAIF, with such merger being conditioned upon the prior elimination of the
thrift charter.
Effective October 8, 1996, FDIC regulations imposed a one-time special
assessment of 65.7 basis points on SAIF-assessable deposits as of March 31,
1995, which was collected on November 27, 1996. The Savings Bank's one-time
special assessment amounted to $2.9 million pre-tax. The payment of such
special assessment had the effect of immediately reducing the Savings Bank's
capital by $1.9 million after tax.
On October 16, 1996, the FDIC proposed to lower assessment rates for
SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates would range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members
will pay 6.4 basis points to fund the Financing Corporation while BIF
member institutions will pay approximately 1.3 basis points. The Savings
Bank's deposit insurance premiums, which have amounted to 23 basis points will
be reduced to 6.4 basis points.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Banks, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances which would
result in termination of the Banks' deposit insurance.
Capital Requirements. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like the Banks, will not be members of the Federal Reserve System. These
requirements are substantially similar to those adopted by the Federal Reserve
Board regarding bank holding companies, as described above.
The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member
banks, with an additional cushion of at least 100 to 200 basis points for all
other state-chartered, non-member banks, which effectively will increase the
minimum Tier I leverage ratio for such other banks to 4.0% to 5.0% or more.
Under the FDIC's regulation, highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have
well diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity, good earnings and, in general, which
are considered a strong banking organization and are rated composite 1 under
the Uniform Financial Institutions Rating System. Leverage or core capital is
defined as the sum of common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and
36
related surplus, and minority interests in consolidated subsidiaries, minus all
intangible assets other than certain qualifying supervisory goodwill and
certain purchased mortgage servicing rights.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier I capital and
supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item. The components of Tier
I capital are equivalent to those discussed above under the 3% leverage capital
standard. The components of supplementary capital include certain perpetual
preferred stock, certain mandatory convertible securities, certain subordinated
debt and intermediate preferred stock and general allowances for loan and lease
losses. Allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount
of capital counted toward supplementary capital cannot exceed 100% of core
capital. At December 31, 1996, the Banks met each of its capital requirements.
In August 1995, the FDIC and other federal banking agencies published a
final rule modifying their existing risk-based capital standards to provide for
consideration of interest rate risk when assessing capital adequacy of a bank.
Under the final rule, the FDIC must explicitly include a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
as a factor in evaluating a bank's capital adequacy. In addition, in August
1995, the FDIC and the other federal banking agencies published a joint policy
statement for public comment that describes the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates. Under the policy statement, the FDIC will consider
results of supervisory and internal interest rate risk models as one factor in
evaluating capital adequacy. The FDIC intends, at a future date, to incorporate
explicit minimum requirements for interest rate risk in its risk-based capital
standards through the use of a model developed from the policy statement, a
future proposed rule and the public comments received therefrom.
Activities and Investments of Insured State-Chartered Banks. The
activities and equity investments of FDIC-insured, state-chartered banks are
generally limited to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally
may not directly or indirectly acquire or retain any equity investment of a
type, or in an amount, that is not permissible for a national bank. An insured
state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a
qualified housing project, provided that such limited partnership investments
may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the
voting stock of a company that solely provides or reinsures directors',
trustees' and officers' liability insurance coverage or bankers' blanket bond
group insurance coverage for insured depository institutions, and (iv)
acquiring or retaining the voting
37
shares of a depository institution if certain requirements are met. In
addition, an insured state-chartered bank may not, directly, or indirectly
through a subsidiary, engage as "principal" in any activity that is not
permissible for a national bank unless the FDIC has determined that such
activities would pose no risk to the insurance fund of which it is a member and
the bank is in compliance with applicable regulatory capital requirements. Any
insured state-chartered bank directly or indirectly engaged in any activity
that is not permitted for a national bank must cease the impermissible
activity.
Louisiana Savings Bank Law. As Louisiana chartered savings banks, the
Banks are subject to regulation and supervision by the OFI under LSBA. The LSBA
contains provisions governing the incorporation and organization, location of
offices, rights and responsibilities of directors, officers and members as well
as the corporate powers, savings, lending, capital and investment requirements
and other aspects of the Bank and its affairs. In addition, the OFI is given
extensive rulemaking power and administrative discretion under the LSBA
including authority to enact and promulgate rules and regulations governing the
conversion of Louisiana chartered savings banks which convert from the mutual
to the stock form.
The Banks are required under the LSBA to comply with certain capital
requirements established by the OFI. In addition, the LSBA prohibits the Banks
from declaring dividends unless the Bank has a surplus equal to 20% of the
outstanding common stock of the Bank both before and after the dividend is
paid. The LSBA also restricts the amount the Bank can lend to one borrower to
an amount which may not exceed 15% of the Bank's total net worth. The Bank may
lend an amount equal to an additional 10% of the Bank's total net worth to one
borrower if the loans are secured 100% by readily marketable collateral.
The OFI generally examines the Banks once every year and the current
practice is for the OFI to conduct a joint examination with the FDIC. The OFI
may publish part of an examination of any savings bank which does not take
corrective action to comply with comments received from the examiner within
forty-five days after notice. In addition, the OFI may require corrective
action be taken by directors, officers and employees of any savings bank and
issue a formal order if corrective action is not taken. If the formal order
contains a finding that the business of the savings bank is being conducted in
a fraudulent, illegal, unsafe or unsound manner or could lead to insolvency or
substantial dissipation of assets, earnings or impairment of capital, such
order must be complied with immediately and may be enforced by the OFI through
a court of competent jurisdiction.
Regulatory Enforcement Authority. Applicable banking laws include
substantial enforcement powers available to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.
38
FEDERAL AND STATE TAXATION
General. The Company and the Banks are subject to the generally applicable
corporate tax provisions of the Code, and the Banks are subject to certain
additional provisions of the Code which apply to thrift and other types of
financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive discussion of the tax rules applicable to the Banks.
Fiscal Year. The Company and the Banks and its subsidiary file a
consolidated federal income tax return on the basis of a fiscal year ending on
December 31.
Bad Debt Reserves. Savings institutions, such as Iberia and Jefferson,
which meet certain definitional tests primarily relating to their assets and
the nature of their businesses, are permitted to establish a reserve for bad
debts and to make annual additions to the reserve. These additions may, within
specified formula limits, be deducted in arriving at the institution's taxable
income. For purposes of computing the deductible addition to its bad debt
reserve, the institution's loans are separated into "qualifying real property
loans" (i.e., generally those loans secured by certain interests in real
property) and all other loans ("non-qualifying loans"). The deduction with
respect to non-qualifying loans must be computed under the experience method as
described below. The following formulas may be used to compute the bad debt
deduction with respect to qualifying real property loans: (i) actual loss
experience, or (ii) a percentage of taxable income. Reasonable additions to the
reserve for losses on non-qualifying loans must be based upon actual loss
experience and would reduce the current year's addition to the reserve for
losses on qualifying real property loans, unless that addition is also
determined under the experience method. The sum of the additions to each
reserve for each year is the institution's annual bad debt deduction.
Under the experience method, the deductible annual addition to the
institution's bad debt reserves is the amount necessary to increase the balance
of the reserve at the close of the taxable year to the greater of (a) the
amount which bears the same ratio to loans outstanding at the close of the
taxable year as the total net bad debts sustained during the current and five
preceding taxable years bear to the sum of the loans outstanding at the close
of the six years, or (b) the lower of (i) the balance of the reserve account at
the close of the last taxable year prior to the most recent adoption of the
experience method (the "base year"), except that for taxable years beginning
after 1987, the base year shall be the last taxable year beginning before 1988,
or (ii) if the amount of loans outstanding at the close of the taxable year is
less than the amount of loans outstanding at the close of the base year, the
amount which bears the same ratio to loans outstanding at the close of the
taxable year as the balance of the reserve at the close of the base year bears
to the amount of loans outstanding at the close of the base year.
Under the percentage of taxable income method, the bad debt deduction
equals 8% of taxable income determined without regard to that deduction and
with certain adjustments. The availability of the percentage of taxable income
method permits a qualifying savings institution to
39
be taxed at a lower effective federal income tax rate than that applicable to
corporations in general. This resulted generally in an effective federal income
tax rate payable by a qualifying savings institution fully able to use the
maximum deduction permitted under the percentage of taxable income method, in
the absence of other factors affecting taxable income, of 31.3% exclusive of
any minimum tax or environmental tax (as compared to 34% for corporations
generally). For tax years beginning on or after January 1, 1993, the maximum
corporate tax rate was increased to 35%, which increased the maximum effective
federal income tax rate payable by a qualifying savings institution fully able
to use the maximum deduction to 32.2%. Any savings institution at least 60% of
whose assets are qualifying assets, as described in the Code, will generally be
eligible for the full deduction of 8% of taxable income. At least 60% of the
assets of the Banks are "qualifying assets" as defined in the Code, and Iberia
and Jefferson anticipates that at least 60% of its assets will continue to be
qualifying assets in the immediate future. If this ceases to be the case, the
institution may be required to restore some portion of its bad debt reserve to
taxable income in the future.
Under the percentage of taxable income method, the bad debt deduction for
an addition to the reserve for qualifying real property loans cannot exceed the
amount necessary to increase the balance in this reserve to an amount equal to
6% of such loans outstanding at the end of the taxable year. The bad debt
deduction is also limited to the amount which, when added to the addition to
the reserve for losses on non-qualifying loans, equals the amount by which 12%
of deposits at the close of the year exceeds the sum of surplus, undivided
profits and reserves at the beginning of the year. Based on experience, it is
not expected that these restrictions will be a limiting factor for Iberia
Savings in the foreseeable future. In addition, the deduction for qualifying
real property loans is reduced by an amount equal to all or part of the
deduction for non-qualifying loans.
At December 31, 1996, the federal income tax reserves of Iberia included
$10.9 million for which no federal income tax has been provided. Because of
these federal income tax reserves and the liquidation account established for
the benefit of certain depositors of Iberia in connection with the Conversion,
the retained earnings of Iberia are substantially restricted. Jefferson also
has a liquidation account established for the benefit of certain depositors of
Jefferson in connection with its Conversion, thus the retained earnings of
Jefferson are also restricted.
Pursuant to certain legislation which was recently enacted and which
was effective for tax years that began after December 31, 1995, a large bank
(one with an adjusted basis of assets of greater than $500 million), such as
the Bank, would no longer be permitted to make additions to its tax bad debt
reserve under the percentage of taxable income method. Such legislation also
requires the Bank to realize increased tax liability over a period of at least
six years, beginning in 1996, relating to the Bank's "applicable excess
reserves." The amount of applicable excess reserves is taken into account
ratably over a six-taxable year period, beginning with the first taxable year
beginning after 1995, subject to the residential loan requirement described
below. The recapture requirement would be suspended for each of two successive
taxable years beginning January 1, 1996 in which the Bank originates an amount
of certain kinds of residential loans which in the aggregate are equal to or
greater than the average of the principal amounts of such loans made by the
Bank during its six taxable years preceding 1996.
Distributions. If Iberia distributes cash or property to its stockholders,
and the distribution is treated as being from its accumulated bad debt
reserves, the distribution will cause Iberia to have additional taxable income.
A distribution is deemed to have been made from accumulated bad debt reserves
to the extent that (a) the reserves exceed the amount that would have been
accumulated on the basis of actual loss experience, and (b) the distribution is
a "non-qualified distribution." A distribution with respect to stock is a
non-dividend distribution to the extent that, for federal income tax purposes,
(i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the
institution, or (iii) in the case of a current distribution, together with all
other such distributions during the taxable year, it exceeds the institution's
current and post-1951
40
accumulated earnings and profits. The amount of additional taxable income
created by a non-dividend distribution is an amount that when reduced by the
tax attributable to it is equal to the amount of the distribution.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is calculated on the AMTI in excess of an exemption amount. The
alternative minimum tax is assessed to the extent that it exceeds the tax on
regular taxable income. The Code provides that an item of tax preference is the
excess of the bad debt deduction allowable for a taxable year pursuant to the
percentage of taxable income method over the amount allowable under the
experience method. Other items of tax preference that constitute AMTI include
(a) tax-exempt interest on newly issued (generally, issued on or after August
8, 1986) private activity bonds other than certain qualified bonds and (b) 75%
of the excess (if any) of (i) adjusted current earnings as defined in the Code,
over (ii) AMTI (determined without regard to this preference and prior to
reduction by net operating losses).
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1996 the Company had a
federal and state net operating loss carryover of $1.5 million and $581,000,
respectively, which were assumed by the Company in the acquistion of Royal
Bankgroup.
Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are taxed at a maximum rate of 34%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.
Other Matters. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the Banks.
The Company's consolidated federal income tax returns for the tax years
ended 1995 and 1996 are open under the statute of limitations and are subject
to review by the IRS. In addition, the 1995 and partial year 1996 federal tax
returns of Royal Bankgroup and Jefferson Bancorp are also considered open under
the statute of limitations and are subject to review by the IRS.
STATE TAXATION
41
The nonbanking subsidiaries of the Banks and the Company are subject to
the Louisiana Corporation Income Tax based on their Louisiana taxable income,
as well as franchise taxes. The Corporation Income Tax applies at graduated
rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all
Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana
taxable income" means net income which is earned within or derived from sources
within the State of Louisiana, after adjustments permitted under Louisiana law
including a federal income tax deduction and an allowance for net operating
losses, if any. In addition, the Banks are subject to the Louisiana Shares Tax
which is imposed on the assessed value of its stock. The formula for deriving
the assessed value is to calculate 15% of the sum of (a) 20% of the company's
capitalized earnings, plus (b) 80% of the company's taxable stockholders'
equity, and to subtract from that figure 50% of the company's real and personal
property assessment. Various items may also be subtracted in calculating a
company's capitalized earnings.
42
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Banks'
offices at December 31, 1996.
Net Book Value of
Property and
Leasehold
Improvements Deposits
Owned or at at
Location Leased December 31, 1996 December 31, 1996
(In Thousands)
1101 E. Admiral Doyle Drive, New Iberia Owned $3,253 $188,423
1427 W. Main Street, Jeanerette Owned 202 28,353
403 N. Lewis Street, New Iberia Owned 245 55,322
1205 Victor II Boulevard, Morgan City Owned 364 16,993
1820 Main Street, Franklin (1) Leased 82 6,845
301 E. St. Peter Street, New Iberia Owned 1,093 25,674
700 Jefferson Street, Lafayette Owned 303 27,246
576 N. Parkerson Avenue, Crowley Owned 423 38,580
200 E. First Street, Kaplan Owned 138 23,400
1012 The Boulevard, Rayne Owned 222 11,554
500 S. Main Street, St. Martinville Owned 82 12,186
1101 Veterans Memorial Drive, Abbeville Leased 1 4,640
150 Ridge Road, Lafayette Owned 74 14,826
2130 W. Kaliste Saloom, Lafayette Owned 1,152 16,225
2110 W. Pinhook Road, Lafayette Owned 1,700 46,873
2602 Johnston Street, Lafayette (1) Leased 333 20,647
2240 Ambassador Caffery, Lafayette Leased 181 2,183
4510 Ambassador Caffery, Lafayette Leased 183 1,547
1011 Fourth Street, Gretna Owned 973 80,996
3929 Veterans Blvd., Metairie Leased 24 28,768
9300 Jefferson Hwy., River Ridge Owned 533 39,242
43
2330 Barataria Boulevard, Marrero Owned 180 2,662
4626 General De Gaulle, New Orleans Owned 277 12,959
111 Wall Boulevard, Gretna Owned 316 20,869
1820 Barataria Blvd., Marrero Owned 346 39,271
--- ------
$12,680 $760,284
======= ========
- ---------------
(1) Building owned, ground leased.
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Banks are not involved in any pending legal
proceedings other than nonmaterial legal proceedings occurring in the ordinary
course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required herein, to the extent applicable, is incorporated
by reference from page 51 of the Registrant's 1996 Annual Report to
Stockholders ("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from pages 4
and 5 of the Registrant's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required herein is incorporated by reference from pages 6
to 17 of the Registrant's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
44
The information required herein is incorporated by reference from pages 18
to 47 of the Registrant's 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
45
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein is incorporated by reference from the
Registrant's definitive proxy statement for the 1997 Annual Meeting of
Stockholders ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
(1) The following financial statements are incorporated by reference from
Item 8 hereof (see Exhibit 13):
Report of Independent Auditors
Consolidated Balance Sheets as of December 31,
1996 and 1995.
Consolidated Statements of Income for the Fiscal Periods Ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Shareholders' Equity for the
Fiscal Periods Ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Fiscal Periods ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
46
(2) All schedules for which provision is made in the applicable accounting
regulation of the SEC are omitted because of the absence of conditions under
which they are required or because the required information is included in the
consolidated financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K, and this
list includes the Exhibit Index.
Exhibit Index
-------------
Page
----
3.1 Articles of Incorporation of ISB Financial Corporation *
3.2 Bylaws of ISB Financial Corporation *
4.1 Stock Certificate of ISB Financial Corporation **
10.1 ISB Financial Corporation Employee Stock Ownership Plan *
10.2 ISB Financial Corporation Profit Sharing Plan and Trust **
10.3 Employment Agreement among ISB Financial Corporation,
Iberia Savings Bank and Larrey G. Mouton dated February 15, 1995 ***
10.4 Severance Agreement among ISB Financial Corporation,
Iberia Savings Bank and Wayne Robideaux dated February 15,
1995 (representative of similar agreements entered into
with Scott T. Sutton, William M. Lahasky, Boyd Boudreaux and Ronnie J. Faret) **
13.0 1996 Annual Report to Stockholders
22.0 Subsidiaries of the Registrant - Reference is made to "Item 2.
"Business" for the required information
23.0 Consent of Castaing, Hussey & Lolan LLP
27.0 Financial Data Schedule
(*) Incorporated herein by reference from the Registration Statement on Form
S-1 (Registration No. 33-86598) filed by the Registrant with the SEC on
November 22, 1994, as subsequently amended.
(**) Incorporated herein by reference from the Registration Statement on Form
S-8 (Registration No. 33-93210) filed by the Registrant with the SEC on
June 7, 1995.
(***)Incorporated herein by reference from the like-numbered exhibit from the
registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ISB FINANCIAL CORPORATION
March 27, 1997 By: /s/ Larrey G. Mouton
--------------------
Larrey G. Mouton
President and Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Larrey G. Mouton President, Chief Executive March 27, 1997
- -------------------- Officer and Director
Larrey G. Mouton (principal executive officer)
/s/ William M. Lahasky Vice President and March 27, 1997
- ---------------------- Chief Financial Officer
William M. Lahasky (principal financial and
accounting officer)
/s/ Henry J. Dauterive, Jr. Chairman of the Board March 31, 1997
- --------------------------
Henry J. Dauterive, Jr.
/s/ Emile J. Plaisance, Jr. Vice Chairman of the Board March 31, 1997
- --------------------------
Emile J. Plaisance, Jr.
48
/s/ Elaine D. Abell Director March 31, 1997
- -------------------
Elaine D. Abell
/s/ Harry V. Barton, Jr. Director March 31, 1997
- -------------------
Harry V. Barton, Jr.
Director March , 1997
- ---------------------
William R. Bigler
/s/ Cecil C. Broussard Director March 31, 1997
- ----------------------
Cecil C. Broussard
/s/ William H. Fenstermaker Director March 31, 1997
- ---------------------------
William H. Fenstermaker
/s/ Ray Himel Director March 31, 1997
- ---------------
Ray Himel
Director March , 1997
- ----------------
Karen Knight
/s/ E. Stewart Shea, III Director March 31, 1997
- --------------------------
E. Stewart Shea, III
/s/ Guyton H. Watkins Director March 31, 1997
- ----------------------
Guyton H. Watkins
Director March , 1997
- ----------------------------
Louis J. Tamporello, Sr.