1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 0-25756
ISB Financial Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
- ----------------------------------------- ------------------------------
(State or other jurisdiction of
incorporation or (I.R.S. Employer
organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
- ----------------------------------------- ------------------------------
(Address of principal executive office) (Zip Code)
(318) 365-2361
-------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X___ No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of August 10, 1999, 6,546,374 shares of the Registrants' common stock
were issued and outstanding. Of that total, 573,654 shares are held by the
Registrant's Employee Stock Ownership Plan, of which 295,383 shares were
not committed to be released.
2
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
(As of June 30, 1999 and December 31, 1998)
Consolidated Statements of Income (For the three and six 4
months ended June 30, 1999 and 1998)
Consolidated Statements of Stockholders' Equity (For the 5
six months ended June 30, 1999 and 1998)
Consolidated Statements of Cash Flows (For the six 6
months ended June 30, 1999 and 1998)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART 2. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
3
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in Thousands, Except Share Data)
ASSETS
------
June 30, December 31,
1999 1998
----------- -----------
Cash and Cash Equivalents:
Cash on Hand and Due from Banks $ 46,310 $ 36,953
Interest Bearing Deposits 428 108,918
Investment Securities:
Held to Maturity (fair value of $2,260 and $2,675, 2,259 2,673
respectively)
Available for Sale, at fair value 124,549 97,085
Mortgage-Backed Securities Held to Maturity (fair 296,842 277,798
value of $290,301 and $277,692, respectively)
Loans Held For Sale 19,302 18,495
Loans Receivable, Net 772,992 761,175
Foreclosed Property 390 384
Premises and Equipment, Net 27,465 27,326
Federal Home Loan Bank Stock, at Cost 10,520 10,245
Accrued Interest Receivable 8,105 7,667
Goodwill and Acquisition Intangibles 43,647 45,352
Other Assets 4,965 7,559
----------- -----------
TOTAL ASSETS $ 1,357,774 $ 1,401,630
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits $ 1,141,349 $ 1,218,698
Federal Home Loan Bank Advances 81,068 45,639
Long Term Debt 4,500 0
Advance Payments by Borrowers for Taxes and Insurance 1,564 1,228
Accrued Interest Payable on Deposits 5,918 6,708
Accrued and Other Liabilities 5,134 5,390
----------- -----------
TOTAL LIABILITIES 1,239,533 1,277,663
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock of $1 par value; 5,000,000 shares authorized 0 0
-0- shares issued or outstanding
Common Stock of $1 par value, authorized 25,000,000 7,381 7,381
shares, 7,380,671 shares issued
Additional Paid-in Capital 68,390 68,021
Retained Earnings (Substantially Restricted) 67,185 63,527
Unearned Common Stock Held by ESOP (2,954) (3,267)
Unearned Common Stock Held by RRP Trust (3,471) (3,683)
Treasury Stock, 566,805 and 498,805 shares, at cost (15,391) (8,361)
Accumulated Other Comprehensive Income (2,899) 349
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 118,241 123,967
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,357,774 $ 1,401,630
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
4
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
INTEREST INCOME:
Interest on Loans $16,391 $14,569 $32,263 $28,602
Interest and Dividends on Investment Securities 2,020 1,006 3,582 2,240
Interest on Mortgage-Backed Securities 4,571 1,612 8,897 3,423
Interest on Deposits 272 406 1,254 892
------- ------- ------- -------
Total Interest Income 23,254 17,593 45,996 35,157
------- ------- ------- -------
INTEREST EXPENSE:
Interest on Deposits 10,161 7,661 20,431 15,454
Interest on Federal Home Loan Bank Advances 926 756 1,661 1,509
------- ------- ------- -------
Total Interest Expense 11,087 8,417 22,092 16,963
------- ------- ------- -------
Net Interest Income 12,167 9,176 23,904 18,194
Provision for Loan Losses 265 255 635 485
------- ------- ------- -------
Net Interest Income After Provision for Loan Losses 11,902 8,921 23,269 17,709
------- ------- ------- -------
NONINTEREST INCOME:
Gain on the Sale of Property 26 1 64 14
Gain on the Sale of Loans 263 343 799 522
Service Charges on Deposit Accounts 1,846 927 3,726 1,850
Late Charges and Other Fees on Loans 443 207 923 529
Other Income 955 368 1,739 728
------- ------- ------- -------
Total Noninterest Income 3,533 1,846 7,251 3,643
------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and Employee Benefits 5,191 3,632 10,325 7,152
SAIF Deposit Insurance Premium 124 109 245 219
Depreciation Expense 626 406 1,277 813
Occupancy Expense 754 468 1,530 943
Computer Expense 25 304 31 596
Marketing and Advertising 239 240 474 453
Franchise and Shares Tax Expense 376 248 643 497
Amortization of Goodwill and Other Acquired Intangibles 855 362 1,708 731
Other Expenses 2,623 1,458 5,051 2,875
------- ------- ------- -------
Total Noninterest Expense 10,813 7,227 21,284 14,279
------- ------- ------- -------
Income Before Income Tax Expense 4,622 3,540 9,236 7,073
Income Tax Expense 1,794 1,384 3,549 2,770
------- ------- ------- -------
NET INCOME $ 2,828 $ 2,156 $ 5,687 $ 4,303
======= ======= ======= =======
EARNINGS PER SHARE - BASIC $ 0.46 $ 0.34 $ 0.91 $ 0.69
======= ======= ======= =======
EARNINGS PER SHARE - DILUTED $ 0.45 $ 0.33 $ 0.89 $ 0.66
======= ======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
5
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(Dollars in Thousands)
Unearned Accumulated
Unearned Common Other
Additional Common Stock Compre- Total
Common Paid In Retained Stock Held Held By Treasury hensive Stockholders'
Stock Capital Earnings By ESOP RRP Trust Stock Income Equity
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 $ 7,381 $ 66,798 $ 57,096 ($ 3,921) ($ 4,082) ($ 7,929) $ 221 $115,564
Comprehensive Income:
Net Income 4,303 4,303
Change in Unrealized Gain (Loss) on (12) (12)
Securities Available for Sale
Net of Deferred Taxes of $20
--------
Total Comprehensive Income 4,291
Cash Dividends Declared (1,824) (1,824)
Common Stock Released by 525 331 856
ESOP Trust
Common Stock earned by Participants 21 193 214
of Management Recognition Plan
Treasury Stock Acquired 35 71 141
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, JUNE 30, 1998 $ 7,381 $ 67,379 $ 59,575 ($ 3,590) ($ 3,889) ($ 7,858) $ 209 $119,207
======== ======== ======== ======== ======== ======== ======== ========
BALANCE, DECEMBER 31, 1998 $ 7,381 $ 68,021 $ 63,527 ($ 3,267) ($ 3,683) ($ 8,361) $ 349 $123,967
Comprehensive Income:
Net Income 5,687 5,687
Change in Unrealized Gain (Loss) on (3,248) (3,248)
Securities Available for Sale
Net of Deferred Taxes of ($1,749)
--------
Total Comprehensive Income 2,439
Cash Dividends Declared (2,029) (2,029)
Common Stock Released by 342 313 655
ESOP Trust
Common Stock Earned by Participants 26 212 238
of Recognition and Retention Plan Trust
Treasury Stock Acquired (7,045) (7,045)
Stock Options Exercised 1 15 16
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, JUNE 30, 1999 $ 7,381 $ 68,390 $ 67,185 ($ 2,954) ($ 3,471) ($15,391) ($ 2,899) $118,241
======== ======== ======== ======== ======== ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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6
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
For The Six Months
Ended June 30,
-------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,687 $ 4,303
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 3,295 1,623
Provision for Loan Losses 635 485
Compensation Expensed Recognized on RRP 238 214
(Gain) Loss on Sale of Premises and Equipment (47) (12)
(Gain) Loss on Sale of Real Estate Owned (3) 44
Gain on Sale of Loans Held for Sale (799) (499)
Gain on Sale of Investments 0 (3)
Amortization of Premium/Discount on Investments 723 (45)
Current Provision for Deferred Income Taxes (4) (33)
FHLB Stock Dividends (275) (168)
Loans Originated for Resale (35,733) (32,300)
Proceeds from Loans Sold to Others 47,148 32,799
Income Reinvested on Marketable Equity Security (159) (164)
ESOP Contribution 655 801
Net Change in Securities Classified as Trading 0 0
Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable (438) 165
Decrease in Other Assets and Other Liabilities 2,955 151
-------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 23,878 $ 7,361
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Calls of Held to Maturity Securities $ 0 $ 68
Proceeds From Sales of Available for Sale Securities 0 8,498
Proceeds From Maturities of Held to Maturity Securities 414 365
Proceeds From Maturities of Available for Sale Securities 15,500 12,845
Principal Collections on Mortgage-Backed Securities 32,438 20,265
Purchases of Securities Available for Sale (47,837) 0
Purchases of Mortgage-Backed Securities (52,161) 0
Increase in Loans Receivable, Net (24,411) (24,733)
Proceeds From FHLB Stock Redemption 0 1,162
Proceeds From ESOP Note Repayment 0 0
Proceeds From Sale of Premises and Equipment 345 202
Purchases of Premises and Equipment (1,714) (1,603)
Proceeds From Disposition of Real Estate Owned 513 371
-------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (76,913) $ 17,440
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Demand, NOW, Money Market and
Savings Deposits $ (50,070) $ (7,940)
Net Change in Time Deposits (27,279) (19,427)
Increase in Escrow Funds and Miscellaneous
Deposits, Net 336 252
Proceeds From FHLB Advances 949,800 0
Principal Repayments of FHLB Advances (914,371) (536)
Issuance of LT Debt 4,500 0
Dividends Paid to Shareholders (1,985) (1,662)
Proceeds From Sale of Treasury Stock 16 78
Payments to Repurchase Common Stock (7,045) 0
-------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ (46,098) $ (29,235)
-------------------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ (99,133) $ (4,434)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 145,871 44,307
-------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 46,738 $ 39,873
=========================
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of Real Estate in Settlement of Loans $ 525 $ 381
=========================
SUPPLEMENTAL DISCLOSURES:
Cash Paid (Received) For:
Interest on Deposits and Borrowings $ 22,882 $ 16,983
=========================
Income Taxes $ 3,018 $ 2,302
=========================
Income Tax Refunds $ 9 $ 0
=========================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
7
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in accordance
with the instructions to Form 10-Q, and therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. All normal, recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of the financial statements,
have been included. These interim financial statements should be read in
conjunction with the audited financial statements and note disclosures for ISB
Financial Corporation (the "Company") previously filed with the Securities and
Exchange Commission in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
BUSINESS
The Company's principal business is conducted through its wholly owned
subsidiary, IBERIABANK (the "Bank"), which conducts business from its main
office located in New Iberia, Louisiana and 42 full-service branch offices
located in the cities of New Iberia, Lafayette, Scott, Carencro, St.
Martinville, Crowley, Rayne, Kaplan, Jeanerette, Franklin, Morgan City,
Abbeville, Ruston, Monroe, West Monroe, Gretna, Marrero, River Ridge, Metairie,
New Orleans and Kenner, Louisiana. The Federal Deposit Insurance Corporation
("FDIC") insures the Bank's deposits to the maximum extent permitted by law. The
Bank is a Louisiana chartered commercial bank. The Bank is subject to
examination and regulation by the Office of Financial Institutions of the State
of Louisiana, which is the Bank's chartering authority and primary regulator.
The Bank is also subject to regulation by the FDIC and to certain reserve
requirements established by the Federal Reserve Board ("FRB"). The Bank is a
member of the Federal Home Loan Bank of Dallas ("FHLB").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, the
Bank and the Bank's wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
2. LONG TERM DEBT
On March 4, 1999, the Company entered into a revolving line of credit agreement
with Union Planters Bank, N.A in the amount of $15.0 million. This revolving
line of credit is to be used for general operating purposes, including the
repurchase of the Company's common stock and for capital investment in the Bank.
The maturity date of the agreement is March 31, 2001. The Company is required to
make quarterly payments of interest at an interest rate equal to Wall Street
Prime minus .50% and any balance outstanding under the agreement will be due at
maturity. As security for the line of credit, the Company has pledged 100% of
the outstanding common stock of the Bank. At June 30, 1999, the Company had
drawn $4.5 million on the line of credit.
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8
3. LOANS RECEIVABLE
Loans receivable (in thousands) at June 30, 1999 and December 31, 1998 consisted
of the following:
June 30, Dec. 31,
1999 1998
--------- ---------
Residential Mortgage Loans:
Single-family $ 264,004 $ 301,468
Construction 5,913 7,549
--------- ---------
Total Residential Mortgage Loans 269,907 309,017
Commercial Loans:
Business 78,233 83,368
Real Estate 140,962 117,628
--------- ---------
Total Commercial Loans 219,195 200,996
Consumer Loans:
Home Equity 83,545 73,184
Automobile 22,979 24,630
Indirect Automobile 141,747 114,337
Mobile Home 2,345 2,511
Educational 264 624
Credit Card 5,112 4,584
Loans on Savings 5,905 8,104
Other 25,263 27,753
--------- ---------
Total Consumer Loans 287,160 255,727
--------- ---------
Total Loans Receivable 776,272 765,740
Adjustments:
Allowance for Loan Losses (7,130) (7,135)
Prepaid Dealer Participation 5,123 4,145
Unearned Interest (183) (236)
Deferred Loan Fees & Purchased Discounts, Net (1,090) (1,339)
--------- ---------
Loans Receivable, Net $ 772,992 $ 761,175
--------- ---------
4. EARNINGS PER SHARE
Basic earnings per share were based on 6,184,304 weighted average shares
outstanding during the three month period ended June 30, 1999. Diluted earnings
per share were based on 6,309,006 weighted average shares outstanding during the
three month period ended June 30, 1999. For the three months ended June 30,
1999, the weighted average number of common shares outstanding excludes (a) the
weighted average unreleased shares owned by the Employee Stock Ownership Plan
("ESOP") of 310,161; (b) the weighted average shares owned by the Management
Recognition Plan and Trust of 235,096 and (c) the weighted average shares
purchased in Treasury Stock of 648,110.
For the six months ended June 30, 1999, basic earnings per share were based on
6,239,568 weighted average shares outstanding and diluted earnings per share
were based on 6,374,472 weighted average shares outstanding. For the six months
ended June 30, 1999, the weighted average number of common shares outstanding
excludes (a) the weighted average unreleased shares owned by the ESOP of
310,980; (b) the weighted average shares owned by the Management Recognition
Plan and Trust of 240,718 and (c) the weighted average shares purchased in
Treasury Stock of 589,753.
8
9
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to the
financial condition, results of operations and business of the Company that are
subject to various factors which would cause actual results to differ materially
from the estimates. These factors include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand, real
estate values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
At June 30, 1999, the consolidated assets of the Company totaled $1.36 billion,
a decrease of $43.9 million, or 3.1%, from December 31, 1998.
Loans receivable, net, increased by $11.8 million, or 1.6%, to $773.0 million at
June 30, 1999 compared to $761.2 million at December 31, 1998. Such increase was
the result of a $23.3 million, or 19.8%, increase in the balance of commercial
real estate loans, a $10.4 million, or 14.2%, increase in home equity loans, a
$27.4 million, or 24.0%, increase in indirect automobile loans and a $528,000,
or 11.5%, increase in credit card loans, which was offset by a $37.5 million, or
12.4%, decrease in single-family residential loans, a $5.1 million, or 6.6%,
decrease in commercial business loans, a $1.6 million, or 21.7%, decrease in
single-family residential construction loans and a $7.0 million, or 10.9%,
decrease in other consumer loans. The changes in the loan portfolio reflect
management's efforts to increase the originations of commercial real estate,
commercial business, indirect automobile loans and consumer loans. Such loans
generally are considered to involve more risk than 1 - 4 family residential
mortgage loans, but generally have higher yields. The Company's loan to deposit
ratio at June 30, 1999 was 67.7% compared to 62.5% at December 31, 1998. For
additional information on loans, see Note 3 to the Consolidated Financial
Statements.
Loans held for sale decreased $807,000, or 4.4%, to $19.3 million compared
to $18.5 million at December 31, 1998. Loans held for sale are
single-family residential mortgage loans to be sold in the secondary
market.
Interest-bearing deposits at other institutions decreased $108.5 million,
or 99.6%, to $428,000 at June 30, 1999, compared to $108.9 million at
December 31, 1998. Such decrease was primarily used to fund loan
originations, the purchase of investment and mortgage-backed securities
and net deposit withdrawals.
The Company's investment securities available for sale increased $27.5
million, or 28.3%, to $124.5 million at June 30, 1999, compared to $97.1
million at December 31, 1998. Such increase was primarily the result of
purchase of $47.8 million of investment securities available for sale,
which was partially offset by the maturity or redemption of $15.5 million
of investment securities available for sale and a $5.0 million decrease in
the market value of such securities.
Mortgage-backed securities increased $19.0 million, or 6.9%, to $296.8
million at June 30, 1999, compared to $277.8 million at December 31, 1998.
Such increase was the result of $52.2 million of purchases of
mortgage-backed securities, which was partially offset by $32.4 million of
repayments of mortgage-backed securities and $723,000 of net amortization
of premiums on mortgage-backed securities.
9
10
Deposits decreased $77.3 million, or 6.3%, to $1,141.3 million at June 30,
1999, compared to $1,218.7 million at December 31, 1998. The decrease in
deposits was primarily the result of a large overnight deposit made on
December 31, 1998 that was withdrawn the next business day and a decrease
in time deposits due to lower pricing of non-relationship accounts.
Federal Home Loan Bank advances increased $35.4 million, or 77.6%, to
$81.1 million at June 30, 1999, compared to $45.6 million at December 31,
1998. The increase in advances was the result of $949.8 million of new
advances, which was partially offset by $914.4 million of advances repaid.
The increase in advances was used primarily to fund net deposit decreases.
Total stockholders' equity decreased $5.7 million, or 4.6%, to $118.2
million at June 30, 1999. The decrease was the result of $7.0 million of
treasury stock acquired, $2.0 million of cash dividends declared on common
stock and a $3.2 million, after taxes, decrease in accumulated other
comprehensive income, which was partially offset by the Company's net
income of $5.7 million, $655,000 of common stock released by the ESOP,
$238,000 of common stock earned by participants of the Recognition and
Retention Plan and $16,000 of common stock issued out of treasury.
10
11
RESULTS OF OPERATIONS
The Company reported net income of $2.8 million for the three months ended
June 30, 1999, compared to $2.2 million earned during the three months
ended June 30, 1998. The Company's net interest income increased $3.0
million and total noninterest income increased $1.7 million during the
three months ended June 30, 1999 compared to the second quarter of 1998.
Such increases were partially offset by a $3.6 million increase in
noninterest expense and a $410,000 increase in income tax expense. The
increases in interest income, interest expense, noninterest income and
noninterest expense were primarily the result of the acquisition of
branches from the former First Commerce Corporation ("First Commerce") in
September 1998. The Bank paid $29.2 million of cash as a deposit premium
and purchased $126.6 million of loans, $5.7 million of premises and
equipment and $753,000 of other assets. The Bank also assumed $452.6
million of deposits and $2.7 million of other liabilities from First
Commerce. The Bank received $292.4 million of net cash in the transaction.
For the six months ended June 30, 1999, the Company earned $5.7 million
compared to $4.3 million for the same period of 1998. The Company's net
interest income increased $5.7 million and total noninterest income
increased $3.6 million during the six months ended June 30, 1999 compared
to the first six months of 1998. Such increases were partially offset by a
$150,000 increase in provision for loan losses, a $7.0 million increase in
noninterest expense and a $779,000 increase in income tax expense when
comparing the first six months of 1999 to the same period of 1998.
11
12
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Bank from
interest-earning assets and the resultant average yields (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods.
Three Months Ended June 30,
-------------------------------------------------------------------------
1999 1998
--------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(1) Balance Interest Cost(1)
-------- ------ ---- -------- ------ ----
Interest-earning assets:
Loans receivable:
Mortgage loans $293,837 $5,812 7.91% $358,762 $7,165 7.99%
Commercial loans 210,353 4,539 8.63 131,893 3,294 9.99
Consumer and other loans 279,364 6,037 8.64 187,521 4,110 8.77
---------- ------- ---------- -------
Total Loans 783,554 16,388 8.37 678,176 14,569 8.59
---------- ------- ---------- -------
Mortgage-backed securities 298,792 4,572 6.12 100,587 1,612 6.41
Investment securities 140,852 2,156 6.12 64,699 1,007 6.23
Other earning assets 11,924 137 4.60 20,303 405 7.98
---------- ------- ---------- -------
Total interest-earning assets 1,235,122 23,253 7.53 863,765 17,593 8.15
------- -------
Non-interest-earning assets 124,252 69,185
---------- ----------
Total assets $1,359,374 $932,950
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits $287,595 1,607 2.24 $153,936 1,016 2.64
Passbook savings deposits 127,181 579 1.82 107,527 628 2.34
Certificates of deposits 631,750 7,975 5.05 448,405 6,017 5.37
---------- ------- ---------- -------
Total deposits 1,046,526 10,161 3.88 709,868 7,661 4.32
Borrowings 63,265 926 5.85 46,371 756 6.52
---------- ------- ---------- -------
Total interest-bearing
liabilities 1,109,791 11,087 4.00 756,239 8,417 4.45
------- -------
Non-interest bearing demand deposits 115,825 48,148
Non-interest bearing liabilities 11,903 9,748
---------- ----------
Total liabilities 1,237,519 814,135
Stockholders' Equity 121,855 118,815
---------- ----------
Total liabilities and
stockholders' equity $1,359,374 $932,950
========== ==========
Net interest-earning assets $125,331 $107,526
========== ==========
Net interest income/interest rate
spread $12,166 3.53% $9,176 3.70%
======= ====== ======= ======
Net interest margin 3.94% 4.25%
====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 111.29% 114.22%
====== ==========
Six Months Ended June 30,
----------------------------------------------------------------------
1999 1998
---------------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(1) Balance Interest Cost(1)
-------- ------- ---- -------- ------- ----
Interest-earning assets:
Loans receivable:
Mortgage loans $304,065 $11,729 7.71% $349,839 $14,639 8.37%
Commercial loans 204,276 8,897 8.71 138,017 6,207 8.99
Consumer and other loans 271,623 11,637 8.57 182,202 7,757 8.51
---------- --------- --------- --------
Total Loans 779,964 32,263 8.27 670,058 28,603 8.54
---------- --------- --------- --------
Mortgage-backed securities 286,873 8,897 6.20 105,380 3,423 6.50
Investment securities 126,281 3,856 6.11 72,563 2,240 6.17
Other earning assets 45,562 979 4.30 24,010 891 7.42
---------- --------- --------- --------
Total interest-earning assets 1,238,680 45,995 7.43 872,011 35,157 8.06
--------- --------
Non-interest-earning assets 122,673 65,693
---------- ---------
Total assets
Interest-bearing liabilities: $1,361,353 $937,704
========== =========
Deposits:
Demand deposits $290,267 3,160 2.18 $154,437 1,992 2.58
Passbook savings deposits 128,410 1,160 1.81 109,179 1,279 2.34
Certificates of deposits 637,344 16,111 5.06 454,730 12,183 5.36
---------- --------- --------- --------
Total deposits 1,056,021 20,431 3.87 718,346 15,454 4.30
Borrowings 54,443 1,661 6.10 46,503 1,509 6.49
---------- --------- --------- --------
Total interest-bearing
liabilities 1,110,464 22,092 3.98 764,849 16,963 4.44
--------- --------
Non-interest bearing demand deposits 115,298 46,486
Non-interest bearing liabilities 12,450 8,416
---------- ---------
Total liabilities 1,238,212 819,751
Stockholders' Equity 123,141 117,953
---------- ---------
Total liabilities and
stockholders' equity $1,361,353 $937,704
========== =========
Net interest-earning assets $128,216 $107,162
========== =========
Net interest income/interest rate
spread $23,903 3.45% $18,194 3.63%
========= ===== ======== ======
Net interest margin 3.86% 4.17%
===== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 111.55% 114.01%
========== =======
- -----------------------
(1) Annualized.
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NET INTEREST INCOME
Net interest income increased $3.0 million, or 32.6%, to $12.2 million in the
three months ended June 30, 1999, compared to $9.2 million in the three months
ended June 30, 1998. The increase was due to a $5.7 million, or 32.2% increase
in interest income, which was partially offset by a $2.7 million, or 31.7%,
increase in interest expense. The increase in interest income was the result of
a $371.4 million, or 43.0%, increase in the average balance of interest-earning
assets, which was partially offset by a 62 basis point (100 basis points being
equal to 1%) decrease in the yield earned on interest-earning assets. The
increase in interest expense was the result of a $353.6 million, or 46.8%,
increase in the average balance of interest-bearing liabilities, which was
partially offset by a 45 basis point decrease in the cost thereof. The increases
in the average balances of interest-earning assets and interest-bearing
liabilities were due primarily to the branch acquisition from First Commerce in
September 1998. The Company's interest rate spread (the difference between the
weighted average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities) and net interest margin (net interest income as
a percentage of average interest-earning assets) amounted to 3.53% and 3.94%,
respectively, during the three months ended June 30, 1999, compared to 3.70% and
4.25%, respectively, for the comparable period in 1998. The decline in interest
rate spread and the net interest margin was due primarily to the lower interest
rate spread and net interest margin associated with the assets and liabilities
of the First Commerce branch acquisition.
For the six months ended June 30, 1999, net interest income increased $5.7
million, or 31.4%, to $23.9 million, compared to $18.2 million for the first six
months of 1998. The increase was due to a $10.8 million, or 30.8%, increase in
interest income, which was partially offset by a $5.1 million, or 30.2%,
increase in interest expense. The increase in interest income was the result of
a $366.7 million, or 42.0%, increase in the average balance of interest-earning
assets, which was partially offset by a 63 basis point decrease in the yield
earned on interest-earning assets. The increase in interest expense was the
result of a $345.6 million, or 45.2%, increase in the average balance of
interest-bearing liabilities, which was partially offset by a 46 basis point
decrease in the cost thereof. The Company's interest rate spread and net
interest margin amounted to 3.45% and 3.86%, respectively, during the six months
ended June 30, 1999, compared to 3.63% and 4.17%, respectively, for the
comparable period in 1998.
INTEREST INCOME
The Company's total interest income was $23.3 million for the three months ended
June 30, 1999, compared to $17.6 million for the three months ended June 30,
1998. The reason for the $5.7 million, or 32.2%, increase in interest income was
a $1.8 million, or 12.5%, increase in interest income from loans, a $1.0
million, or 100.8%, increase in interest and dividends on investment securities
and a $3.0 million, or 183.6%, increase in interest on mortgage-backed
securities, which was partially offset by a $134,000, or 33.0%, decrease in
interest on deposits held at other institutions. The increase in interest income
from loans was the result of a $105.4 million, or 15.5%, increase in the average
balance of loans, which was partially offset by a 22 basis point decrease in the
yield earned thereon. The increase in interest income from investment securities
was the result of a $76.2 million, or 117.7%, increase in the average balance of
investment securities, which was partially offset by an 11 basis point decrease
in the yield earned thereon. The increase in interest income from
mortgage-backed securities was the result of a $198.2 million, or 197.0%,
increase in the average balance of mortgage-backed securities, which was
partially offset by a 29 basis point decrease in the yield earned thereon. The
decrease in interest from deposits at other institutions was the result of a
$8.4 million, or 41.3%, decrease in the average balance of deposits at other
institutions, which was partially offset by a 338 basis point decrease in the
yield earned thereon.
For the six months ended June 30, 1999, total interest income was $46.0 million,
compared to $35.2 million for the same period in 1998. The reasons for the $10.8
million, or 30.8%, increase in interest income were a $3.7 million, or 12.8%,
increase in interest income from loans, a $1.3 million, or 60.0%, increase in
interest income from investment securities, a $5.5 million, or 159.9%, increase
in interest income from mortgage-backed securities and a $362,000, or 40.6%,
increase in interest
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income from deposits at other institutions. The increase in interest from loans
was the result of a $109.9 million, or 16.4%, increase in the average balance of
loans, which was partially offset by a 27 basis point decrease in the yield on
loans. The increase in interest and dividends on investment securities was the
result of a $53.7 million, or 74.0%, increase in the average balance of
investment securities, which was partially offset by a six basis point decrease
in the yield on investment securities. The increase in interest on
mortgage-backed securities was the result of a $181.5 million, or 172.2%,
increase in the average balance of mortgage-backed securities, which was
partially offset by a 30 basis point decrease in the yield on mortgage-backed
securities. The increase in interest on deposits at other institutions was the
result of a $21.6 million, or 89.8%, increase in the average balance of deposits
at other institutions, which was partially offset by a 312 basis point decrease
in the yield on deposits at other institutions.
INTEREST EXPENSE
The Company's total interest expense was $11.1 million during the three
months ended June 30, 1999, compared to $8.4 million for the three months
ended June 30, 1998. The reasons for the $2.7 million, or 31.7%, increase
in interest expense was a $2.5 million, or 32.6%, increase in interest
expense on deposits due to a $336.7 million, or 47.4%, increase in
interest-bearing deposits, which was partially offset by a 44 basis point
decrease in the cost of such deposits and a $170,000, or 22.5%, increase
in interest expense on advances due to a $16.9 million, or 36.4%, increase
in the average balance of advances, which was partially offset by a 67
basis point decrease in the cost of such advances.
For the six months ended June 30, 1998, the Company's total interest
expense was $22.1 million, compared to $17.0 million for the same period
in 1998. The reason for the $5.1 million, or 30.2%, increase in interest
expense was a $5.0 million, or 32.2%, increase in the average balance
interest-bearing deposits, which was partially offset by a 46 basis point
decrease in the cost thereof and a $152,000, or 10.1%, increase in
interest expense on advances due to a $7.9 million, or 17.1%, increase in
the average balance of advances, which was partially offset by a 39 basis
point decrease in the cost of such advances.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $265,000 in the three months ended June
30, 1999 as compared to $255,000 for the same period in 1998. The Company
had $4.7 million of non-performing loans, or .34% of total assets, at June
30, 1999, compared to $5.7 million, or .41% of total assets, at December
31, 1998. As of June 30, 1999, the ratio of the Company's allowance for
loan losses to non-performing loans was 153.2%, compared to 126.5% at
December 31, 1998.
For the six months ended June 30, 1999, the provision for loan losses was
$635,000 as compared to $485,000 for the first six months of 1998.
NONINTEREST INCOME
Noninterest income increased $1.7 million, or 91.4%, in the three months
ended June 30, 1999 to $3.5 million, compared to $1.8 million for the
three months ended June 30, 1998. Such increase was due primarily to a
$919,000, or 99.1%, increase in service charges on deposit accounts, a
$236,000, or 114.0%, increase in late charges and other fees on loans and
a $587,000, or 159.5%, increase in other income, which was partially
offset by an $80,000, or 23.3% decrease in gains on the sale of mortgage
loans in the secondary market.
For the six months ended June 30, 1999, noninterest income increased $3.6
million, or 99.0%, to $7.3 million, compared to $3.6 million for the first
six months of 1998. Such increase was due to a $1.9
14
15
million, or 101.4%, increase in service charges on deposits accounts, a
$394,000, or 74.5%, increase in late charges and other fees on loans a $1.0
million, or 138.9%, increase in other income and a $277,000, or 53.1%, increase
in gains on the sale of mortgage loans in the secondary market.
NONINTEREST EXPENSE
Noninterest expense increased $3.6 million, or 49.6%, in the three months
ended June 30, 1999, to $10.8 million, compared to $7.2 million for the
three months ended June 30, 1998. Such increase was due primarily to a
$1.6 million, or 42.9%, increase in salaries and employee benefits
resulting from the increased staff added in the last half of 1998 as a
result primarily of the branch purchase in September 1998, a $220,000, or
54.2%, increase in depreciation expense primarily resulting from the fixed
assets acquired in the branch purchase in September 1998 and the in-house
data processing system installed in September 1998, a $286,000, or 61.1%,
increase in occupancy expense primarily resulting from the branch
purchase, a $128,000, or 51.6%, increase in franchise and shares tax
primarily as a result of capital increases in the Bank, a $493,000, or
136.2%, increase in the amortization of goodwill and other acquired
intangibles due to the branch acquisition and a $1.2 million, or 79.9%,
increase in other expenses, which was partially offset by a $279,000, or
91.8%, decrease in computer expense.
For the six months ended June 30, 1999, noninterest expense increased $7.0
million, or 49.1%, to $21.3 million compared to $14.3 million for the same
period in 1998. Such increase was primarily due to a $3.2 million, or
44.4%, increase in salaries and employee benefits, a $464,000, or 57.1%,
increase in depreciation, a $587,000, or 62.2%, increase in occupancy
expense, a $146,000, or 29.4%, increase in franchise and shares tax, a
$977,000, or 133.7%, increase in the amortization of goodwill and other
acquired intangibles and a $2.2 million, or 75.7%, increase in other
expense, which was partially offset by a $565,000, or 94.8%, decrease in
computer expense.
INCOME TAX EXPENSE
Income tax expense increased $410,000, or 29.6%, in the three months ended
June 30, 1999 to $1.8 million, compared to $1.4 million for the three
months ended June 30, 1998. The increase in income tax expense was due
primarily to the increase in income before income taxes.
For the six months ended June 30, 1999, income tax expense increased
$779,000, or 28.1%, to $3.5 million, compared to $2.8 million for the same
period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The
Company's primary sources of funds are deposits, borrowings, amortization,
prepayments and maturities of outstanding loans and mortgage-backed
securities, maturities of investment securities and other short-term
investments and funds provided from operations. While scheduled payments
from the amortization of loans and mortgage-backed securities and maturing
investment securities and short-term investments are relatively
predictable sources of funds, deposit flows and loan and mortgage-backed
security prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, the Company invests
excess funds in overnight deposits and other short-term interest-earning
assets, which provide liquidity to meet lending requirements. The Bank has
been able to generate sufficient cash through its deposits as well as
borrowings. At June 30, 1999, the Company had $81.1 million in outstanding
advances from the FHLB of Dallas and $4.5 million in outstanding advances
from Union Planters Bank, N.A.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term
investments such as over-night deposits. On a longer-
15
16
term basis, the Company maintains a strategy of investing in various
lending products. The Company uses its sources of funds primarily to meet
its ongoing commitments and to pay maturing savings certificates and saving
withdrawals, fund loan commitments and maintain a portfolio of
mortgage-backed and investment securities. At June 30, 1999, the total
approved loan commitments outstanding amounted to $32.0 million. At the
same time, commitments under unused lines of credit, including credit card
lines, amounted to $142.5 million. Certificates of deposit scheduled to
mature in twelve months or less at June 30, 1999 totaled $455.6 million.
Based on past experience management believes that a significant portion of
maturing deposits will remain with the Company. The Company anticipates it
will continue to have sufficient funds to meet its liquidity requirements.
At June 30, 1999, the Company and its subsidiary had regulatory capital,
which was in excess of regulatory requirements. The current requirements
and the Company's actual levels as of June 30, 1999 are detailed below
(dollars in thousands):
Required Capital Actual Capital
------------------ ----------------
Amount Percent Amount Percent
------ ------- ------ -------
Tier 1 Leverage $39,471 3.00% $77,482 5.89%
Tier 1 Risk-Based $29,986 4.00% $77,482 10.34%
Total Risk-Based $59,972 8.00% $84,592 11.28%
YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issues affects the ability of computer systems to
correctly process dates after December 31, 1999. These issues not only
affect the Bank, but virtually all companies that utilize computer
information systems.
In November 1997, the Bank established a Y2K Task Force headed by a member
of the Bank's senior management team. The mission of this task force was
to achieve Y2K compliance for all software, hardware and environmental
systems that were dependent upon computer technology for their operation.
In order to be ready for Year 2000, the Bank's Y2K Task Force developed a
Year 2000 Action and Assessment Plan (the "Action Plan"). The Action Plan
was developed using the guidelines outlined in the Federal Financial
Institution's Examination council, "The Effect of 2000 on Computer
Systems."
As part of the assessment phase of the project, the Y2K Task Force
identified 58 mission critical systems, 28 sensitive and 24 non-critical
applications. As a result of this assessment, the Bank undertook an
aggressive plan in early 1998 to completely replace all of the major
application systems with new state- of-the-art technology that was Y2K
compliant. The conversion to these new systems took place in September of
1998. The Bank has incurred capital expenditures amounting to
approximately $2.5 million for the replacement of the core application
systems. All other systems were determined by the Task Force to be Y2K
compliant "as is," or with some minor enhancements required. These
enhancements are not expected to involve material additional costs.
To assure that all systems are Y2K compliant, internal testing and
validation began in the fourth quarter of 1998 and has been completed as
of June 30, 1999.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are presented
at December 31, 1998 in Item 7A of the Company's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31, 1999.
Management believes there have been no material changes in the Company's
market risk since December 31, 1998.
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18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on April 16,
1999.
1. With respect to the election of two directors to serve three-year
terms expiring at the Annual Meeting of Stockholders to be held
in the year 2002 or until their respective successors are elected
and qualified, the following are the number of shares voted for
each nominee:
Harry V. Barton, Jr. For 5,748,228 Withheld 184,301
E. Stewart Shea, III For 5,783,142 Withheld 149,552
Arthur Mixon For 165 Withheld 0
2. With respect to the adoption of the 1999 Stock Option Plan, the
number of shares voted:
For 4,240,907 Against 1,670,070 Abstain 21,718
3. With Respect to the ratification of Castaing, Hussey, Lolan and
Dauterive, L.L.P. as the Company's independent auditors for the
fiscal year ending December 31, 1999, the following are the
number of shares voted:
For 5,903,637 Against 26,671 Abstain 2,387
4. With respect to the Stockholder Proposal restricting the
ownership of the Company's stock, The following are the number of
shares voted:
For 923,635 Against 3,431,009 Abstain 41,955
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
10.3 Employment Agreement among ISB Financial Corporation, IBERIABANK
And Larrey G. Mouton dated July 7, 1999.
10.7 Employment Agreement among ISB Financial Corporation, IBERIABANK
And Daryl G. Byrd dated July 7, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISB FINANCIAL CORPORATION
Date: August 11, 1999 By: /s/ Larrey G. Mouton
-------------------------------------
Larrey G. Mouton, Chief Executive Officer
Date: August 11, 1999 By: /s/ James R. McLemore, Jr.
-------------------------------------
James R. McLemore, Jr., Senior Vice President
and Chief Financial Officer
19