EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
IBERIABANK
An Independent Louisiana Bank(TM)
ISB
FINANCIAL CORPORATION
---------------------
1999 ANNUAL REPORT
IBERIABANK
An Independent Louisiana Bank(TM)
ISB Financial Corporation is a commercial bank holding company organized under
the laws of the State of Louisiana with consolidated assets at December 31,
1999, of $1.4 billion. The lead bank for ISB Financial Corporation is
IBERIABANK. At the end of 1999, IBERIABANK had 43 full service offices serving
10 parishes in Louisiana. IBERIABANK and its predecessor organizations have
served Louisiana customers for 113 years. ISB Financial Corporation is the third
largest Louisiana-based bank holding company.
At December 31, 1999, ISB Financial Corporation had approximately 1,140
Shareholders of Record.
Annual Meeting
Friday, May 5, 2000, 1:00 p.m.
IBERIABANK
1101 E. Admiral Doyle Drive
New Iberia, LA
SECURITIES LISTING
ISB Financial Corporation's common stock trades on the NASDAQ Stock Market under
the symbol "ISBF". In local and national newspapers, the company is listed under
"ISB Fnl" or "ISB Fin (IBERIABANK)".
STOCK INFORMATION
Market Price
---------------- Dividends
1998 High Low Declared
---------------------------------
First Quarter $30.000 $25.375 $0.14
Second Quarter $29.375 $26.375 $0.14
Third Quarter $28.000 $19.813 $0.14
Fourth Quarter $26.250 $18.875 $0.15
Market Price
---------------- Dividends
1999 High Low Declared
---------------------------------
First Quarter $23.500 $18.125 $0.15
Second Quarter $22.375 $19.000 $0.16
Third Quarter $22.000 $18.000 $0.16
Fourth Quarter $17.500 $13.250 $0.16
Dividend Reinvestment Plan
ISB Financial Corporation shareholders may take advantage of our Dividend
Reinvestment Plan. This program provides a convenient, economical way for
shareholders to increase their holdings of the Company's common stock. The
shareholder pays no brokerage commissions or service charges while participating
in the plan. A nominal fee is charged at the time that an individual terminates
plan participation. This plan does not currently offer participants the ability
to purchase additional shares with optional cash payments.
To enroll in the ISB Financial Corporation Dividend Reinvestment Plan,
shareholders must have their stock certificate numbers and complete an
enrollment form. A summary of the plan and enrollment forms are available from
the Registrar and Transfer Company at the address provided below.
Shareholder Assistance
Shareholders requesting a change of address, records or information about lost
certificates should contact:
Investor Relations (800) 368-5948
Registrar and Transfer Company www.invrelations@RTCO.com
10 Commerce Drive
Cranford, NJ 07016
Corporate Office
ISB Financial Corporation
1101 East Admiral Doyle Drive
New Iberia, LA 70560
(337) 365-2361
www.iberiabank.com
For Information
News releases, quarterly reports, and other information regarding ISB Financial
Corporation and IBERIABANK may be accessed from our website at
www.iberiabank.com. In addition, shareholders and others may contact:
Investors, Analysts and Financial-Related Media Representatives
Daryl Byrd, President, or Jim McLemore, CFO Rae Robinson, Marketing Director
(337) 365-2361 (337) 365-2361
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
1999 1998 % Change
- --------------------------------------------------------------------------------------------------------
Income Data
Net Income $ 9,529 $ 10,137 -6%
Operating Income 11,175 8,796 27%
Net Interest Income 49,705 40,766 22%
Per Share Data
Net Income - Basic $ 1.55 $ 1.61 -4%
Net Income - Diluted 1.53 1.56 -2%
Operating Income - Basic 1.82 1.40 30%
Operating Income - Diluted 1.79 1.35 33%
Book Value (End of Period) 18.62 18.91 -2%
Tangible Book Value (End of Period) 11.94 11.99 0%
Cash Dividends 0.63 0.57 11%
Average Balance Sheet Data
Loans $ 798,846 $ 710,032 13%
Earning Assets 1,241,483 1,004,812 24%
Total Assets 1,356,851 1,086,440 25%
Deposits 1,145,831 898,810 27%
Shareholders' Equity 121,490 119,712 1%
Key Ratios
Return on Average Assets:
Net Income 0.70% 0.93%
Operating Income 0.82% 0.81%
Return on Average Equity:
Net Income 7.84% 8.47%
Operating Income 9.20% 7.35%
Net Interest Margin (Tax-equivalent Basis) 4.00% 4.06%
Tangible Efficiency Ratio (Operating Basis) 63.56% 64.42%
Average Loans to Average Deposits 69.72% 79.00%
Nonperforming Assets to Total Assets 0.24% 0.44%
Allowance For Loan Losses To Loans 1.04% 0.93%
Tier 1 Leverage Ratio 6.26% 5.81%
TABLE OF CONTENTS
Letter to Shareholders .......................................... 2
Strategic Direction and Focus .................................... 5
Management's Discussion and Analysis ............................. 10
Consolidated Financial Statements ................................ 22
Corporate Information ........................................... 52
1
LETTER TO SHAREHOLDERS
I believe our organization is in a unique and favorable position for the
future. As the third largest bank headquartered in Louisiana and the largest
bank headquartered outside of New Orleans, IBERIABANK has the resources to
excel, a customer-based focus, and locations in very attractive markets. We are
positioned to provide friendly, custom solutions for customers in several of the
most dynamic and attractive markets in Louisiana.
Several significant steps were taken during 1999. First, we fully
assimilated the customers acquired as a result of the merger of First Commerce
Corporation and Bank One. This acquisition added 17 full-service offices and
increased our asset size nearly fifty percent. Second, we realigned our
operating philosophy to best serve the needs of customers throughout Louisiana.
We believe our customers' needs are best met when customer decisions are made as
close to the customer as possible. To that end, our third step was adoption of a
decentralized and "flat" management structure. As a result, we have dedicated a
President directly responsible and accountable for each of our major markets.
While many financial institutions become more distant, we are positioning our
people to better understand the unique opportunities in each of our markets.
Finally, we have a new leadership team focused on dramatically improving the
core profitability of the company. To be successful in improving core
profitability, we must have the right focus and the right people.
OUR FOCUS
A Mission Statement provides proper focus for an organization. We have
recently established a Mission Statement and certain core beliefs that we think
provide a roadmap for our associates to follow. Our Mission Statement was an
outgrowth of a comprehensive strategic planning process recently undertaken by
our Board of Directors and leadership team. Our strategic direction and values
can be best understood through our Mission Statement.
MISSION STATEMENT
Provide exceptional value-based client service
o Clients will pay for exceptional service
o Excel at delivering accurate, timely and friendly service
o We are relationship oriented and recognize how valuable our clients
are at each distribution point
Great place to work
o We will provide a work environment where associates are empowered and
challenged to perform productively, be their best, and feel a sense of
accomplishment
o All associates recognize that they can share in the financial success
over time if the corporation realizes its potential
o The corporation's leadership team will strive to provide a clear
strategic focus for all associates
o The corporation's total compensation and benefits package consistently
exceeds the market and predictively addresses environmental changes
for our associates
Growth that is consistent with high performance
o Focus on growing profitable client segments, products and services
o Only pursue mergers and acquisitions that add shareholder value
o Always ensure that growth is consistent with high standards for credit
quality
o Understand that growth not only creates shareholder value, but also
creates professional and personal growth opportunities for our
associates
We are shareholder focused
o Value creation for shareholders is our first priority
o Earnings performance is created by producing exceptional results for
our clients, associates and communities
Strong sense of community
2
OUR LEADERS
To deliver and execute on our operating philosophy and stand true to our
Mission Statement we made significant people changes. First, we flattened our
organization structure. This action was taken with the conviction that the best
and most rapid decisions are made closest to our customers. Second, we
reorganized and enhanced our leadership team. In order to excel, we believe
relevant experience is critical. Recent leadership changes provide our
organization the relevant experience required for this company to succeed.
Third, our leaders have adopted a philosophy consistent with our core beliefs.
As a strong indication of this alignment, our leaders now have a significant
portion of their compensation "at risk."
While this new leadership team has tremendous experience, we believe our
greatest competitive advantage is our knowledge of the markets we serve. This
experience and knowledge has been gained not through casual acquaintances, but
by actually living in our markets. Our senior management team has commercial
banking experience in markets of all sizes throughout Louisiana and the
Southeast. Functionally, we have significant client, financial, credit,
operations, technology, marketing and strategic planning experience represented.
This group is dedicated to continuous personal development and maintaining the
appropriate level of knowledge to best serve our clients. Needless to say, we
are proud of the team attracted to our operating philosophy and core values.
FINANCIAL PERFORMANCE
We recognize that our core financial performance historically has lagged
peer performance. This historical performance is not representative of our high
performance philosophy. We are aggressively executing strategies and tactics to
dramatically improve our core earnings. At year-end 1999, we announced a
restructuring charge and associated expense reduction tactics intended to
significantly improve operating performance immediately. In February 2000, we
released publicly our aggressive core operating targets for the next few years.
This action was taken to provide guidance to the investment community and as an
indication of our commitment to improving performance. We believe that we are
moving in the right direction, and our leadership team is dedicated to
dramatically improving our core performance.
MARKETS
We are fortunate to operate in several of the best markets in Louisiana. Our
strongest franchise is clearly the Acadiana region (a four-parish area). We have
a strong number one market share in the New Iberia market (our historical
headquarters) and a solid number two market share in Lafayette. This area is
known for its entrepreneurial and progressive atmosphere. Recently, Inc.
Magazine named Lafayette one of the top Entrepreneurial Hot Zones in the nation.
Our combined market share rank in the Monroe/Ruston area is third. These are
both exceptional communities. Monroe, normally recognized as a conservative and
very stable economic environment, is going through an economic renaissance as
employment gains have reached 39% over the past 10 years. With 10 branches in
this area, we are excited to be able to grow with Monroe. Ruston has
consistently posted the lowest unemployment figures in Louisiana.
3
New Orleans, the cultural capital of the South, is a city of many diverse
neighborhoods. Our franchise in New Orleans is primarily in Jefferson Parish in
a community known as Gretna. This area is often identified as the Westbank and
is a highly industrialized area centered around the Harvey Canal. While our
market share rank in the New Orleans area, including Jefferson and Orleans
Parishes, is around 8th, we are much stronger than that in the Gretna area.
SUMMARY
We are convinced that by staying close to our customers and focusing on
core financial performance we will achieve appropriate returns for our
shareholders and ensure exceptional career opportunities for our associates.
Collectively, our management team is fully engaged and excited to be part of
what we believe is the freshest, most dynamic financial story in Louisiana.
Finally, I want to thank our Board of Directors and our associates for their
dedication to the task at hand.
/s/Daryl G. Byrd
Daryl G. Byrd
President
SPECIAL THANKS
Emile J. Plaisance, Jr., Chairman of the Board of Directors, and Ray Himel,
Director, have announced their intention to retire from the Board in keeping
with our Board of Directors retirement tradition. Both have served the
institution with exceptional grace and integrity.
Emile J. Plaisance, Jr. has been associated with the institution for over
37 years. He joined the institution as an employee in July 1962, and served in
numerous capacities. In July 1981, he was appointed President and Chief
Executive Officer and board member. In April 1998, Emile was appointed Chairman
of the Board. He has provided exceptional leadership to our industry, serving as
a member of the Federal Home Loan Bank of Dallas Board of Directors and Chairman
of the Louisiana League of Savings Institutions. In addition, he is a dedicated
civic leader.
Ray Himel's association with our institution stands at over 36 years as he
was appointed to our Board in August 1963. An exceptional entrepreneur, Mr.
Himel has owned Himel Motor Supply and Himel Marine since 1948. He has been a
NAPA (National Automotive Parts Association) distributor for 50 years and served
on the NAPA Board of Directors. Mr. Himel has served our community with
distinction.
IBERIABANK appreciates the contribution that each of these men has made to
our institution and community. We wish them well in all their future endeavors
and look forward to our continued friendship.
4
STRATEGIC DIRECTION AND FOCUS
Our organization has experienced a significant evolution since our founding
in 1887. This evolutionary process has accelerated rapidly since our conversion
from mutual to stock ownership in 1995. Since that time, we more than doubled
our size, solidified our leadership position in the Acadiana region of
Louisiana, became a significant player in northeast Louisiana, enhanced our New
Orleans franchise with new leadership, and transformed from a savings
association to a commercial bank. This transformation required a sizable
investment in new technology, product offerings, and skilled people. Our
attention is now focused on gaining efficiencies and improving the profitability
of the organization.
We remain dedicated to being the best, full-service, commercial bank in
Louisiana. To this end, we believe our competitive advantages are as follows:
o We know our clients well.
o We have the ability to customize our products and services to meet
customer needs.
o We are relationship focused.
o We can make decisions closer to our clients.
o We have large bank resources but small bank agility.
We intend to use our competitive advantages to dramatically improve the
core profitability of our organization. We anticipate our shareholders will be
the primary beneficiaries of earnings improvement. On February 17, 2000, our
Board of Directors and leadership team publicly announced our long-term
financial objectives for the company. The announced objectives were as follows:
o Focus on improving core profitability over the next 3-to-5 year
period.
o Return on Average Equity of 13%-to-15% within 3-to-5 years (9.2%
currently).
o Substantially improve our operating efficiency, as measured by a
Tangible Efficiency Ratio below 50% by the end of the period (64%
currently).
o Outstanding annual growth in key balances throughout the 3-to-5 year
period, including:
o Loans growing 7%-to-10% annually,
o Deposits growing 2%-to-4% annually, and
o Double-digit growth in Earnings Per Share ("EPS").
STRIVING FOR IMPROVED SHAREHOLDER VALUE
In addition to the financial objectives presented above, our leadership
team outlined EPS targets well above market expectations at the time of the
announcement. These announcements are indicative of the fact that we remain
committed to delivering dramatically improved operating performance for our
company and shareholders.
An example of a specific action we have taken recently to improve
shareholder value is our restructuring announcement at year-end 1999. At that
time, we announced a $1.3 million pre-tax charge in the fourth quarter of 1999
aimed at improving operating efficiency and profitability. We anticipate pre-tax
benefits of $1.2 million in 2000 and $2 million per year thereafter as a result
of this action.
5
As further evidence of our commitment to shareholder value, on February 17,
2000, our Board of Directors authorized the repurchase of up to 300,000 shares,
or approximately 5% of ISB Financial Corporation common stock outstanding. This
action is clearly a vote of confidence in the future of our organization.
PROPOSED NAME CHANGE FOR ISB FINANCIAL CORPORATION
In concert with the evolutionary process we are undergoing, we have
proposed a name change for the holding company. There are a number of reasons
for this name change recommendation. First, internal studies indicate we have
strong brand name recognition in our markets with our bank name ,"IBERIABANK."
We believe we need to capitalize on this name recognition whenever possible.
Second, we want our customers to be shareholders, and we want our shareholders
to be customers. We become a stronger organization if this linkage occurs.
Finally, we believe we have successfully completed our transition from savings
bank to commercial bank. Therefore, reference to "savings bank" or "SB" in our
holding company name does not accurately reflect our current position or
organizational focus.
As a result, we have proposed changing our holding company moniker from
"ISB Financial Corporation" to "IBERIABANK Corporation". In a similar fashion,
we have applied for our stock symbol to change from "ISBF" to "IBKC". We believe
these changes will allow us to capitalize on the IBERIABANK name. These proposed
changes are subject to shareholder approval at our upcoming annual meeting. If
approved, shareholders will be informed of the changes shortly after the
meeting.
FINANCIAL PERFORMANCE SUMMARY FOR 1999 - OPERATING BASIS
The following is a brief financial comparison on an annual ongoing,
operating basis. For purposes of this discussion, "operating basis" excludes the
impact of the one-time restructuring and organizational charges and additional
loan loss provision announced on December 29, 1999. In addition, gains on the
sale of properties in both 1998 and 1999 were excluded from the discussion.
Complete financial information, on a "reported basis", is provided in the
section of this report, titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In September 1998, IBERIABANK acquired 17 branches and other assets, and
assumed $455 million in deposits and other liabilities from First Commerce
Corporation. Much of the balance sheet and earnings growth in 1999 over 1998 was
the result of the full-year impact of this acquisition versus only a partial
year impact in 1998.
During the year 1999, net interest income increased $8.9 million, or 22%,
over 1998. The Net interest margin compressed 6 basis points during this period,
to 4.00% in 1999. Noninterest income increased $3.5 million, or 34%, over the
prior year. Amortization of acquisition intangibles increased from $2.1 million
in 1998 to $3.4 million in 1999. This is a direct result of having a full year
impact of goodwill amortization from the First Commerce branch acquisition. All
other noninterest expenses rose $11.1 million, or 33%, over the same period.
As a result of the increases mentioned, our efficiency generally improved.
A common measure of improved operating efficiency is our tangible efficiency
ratio, which decreased from 64.4% in 1998 to 63.6% in 1999. Net operating income
increased $2.4 million, or 27%, during the year. Our return on average equity
("ROE") improved from 7.35% in 1998 to 9.20% in 1999. On a cash basis, our ROE
in 1999 was 11.40%. Diluted earnings per share ("EPS") jumped 33%, from $1.35 in
1998 to $1.79 in 1999. Similarly, diluted EPS on a cash basis climbed 37%, from
$1.56 in 1998 to $2.14 in 1999.
6
Overall, our Board of Directors and leadership team were pleased with the
results for 1999. During the year, significant operating improvements were made
and investments for the future were undertaken. The diligent efforts and
commitment of all of our IBERIABANK associates made 1999 a very successful year.
However, we realize we must do better--much better. To be the best,
full-service, commercial bank in Louisiana, we must excel at everything we do.
Through our recent strategic planning process, we have set very challenging
goals for the next few years. We remain focused on dramatically improving the
core profitability of the company. We are confident in our future and we believe
we are well prepared to meet the challenges ahead.
FORWARD-LOOKING INFORMATION SAFE HARBOR
Statements contained in this report which are not historical facts and
which pertain to future operating results of ISB Financial Corporation and its
subsidiaries constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve significant risks and uncertainties. Actual results may
differ materially from the results discussed in these forward-looking
statements.
7
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in thousands, except per share data)
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
Balance Sheet Data
Total assets $1,363,578 $1,401,630 $947,282 $929,264 $ 608,830
Cash and cash equivalents 47,713 145,871 44,307 53,385 51,742
Loans receivable, net 834,333 761,263 654,867 571,119 399,542
Investment securities - Available for Sale 299,388 97,085 75,506 101,144 86,058
Investment securities - Held to Maturity 85,493 280,471 116,936 152,885 52,430
Goodwill and acquisition intangibles 42,063 45,352 16,358 17,807 54
Deposit accounts 1,100,014 1,220,594 786,864 766,729 451,519
Borrowings 135,053 45,639 46,728 47,750 40,490
Shareholders' equity 117,189 123,967 115,564 114,006 119,677
Book value per share $ 18.62 $ 18.91 $ 17.75 $ 17.30 $ 17.48
Tangible book value per share 11.94 11.99 15.24 14.60 17.47
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
Income Statement Data
Interest income $ 95,085 $ 79,224 $ 69,607 $ 53,434 $ 42,848
Interest expense 45,380 38,458 36,050 27,136 21,282
------------------------------------------------------------------
Net interest income 49,705 40,766 33,557 26,298 21,566
Provision for loan losses 2,836 903 1,097 156 239
------------------------------------------------------------------
Net interest income after provision for
loan losses 46,869 39,863 32,460 26,142 21,327
Noninterest income 13,679 10,214 5,664 3,296 2,294
Noninterest expense 44,881 33,758 29,001 20,983 12,833
------------------------------------------------------------------
Income before income taxes 15,667 16,319 9,123 8,455 10,788
Income taxes 6,138 6,182 3,780 3,177 3,781
------------------------------------------------------------------
Net Income $ 9,529 $ 10,137 $ 5,343 $ 5,278 $ 7,007
==================================================================
Earnings per share - basic (1) $ 1.55 $ 1.61 $ 0.86 $ 0.80 $ 0.80
==================================================================
Earnings per share - diluted (1) $ 1.53 $ 1.56 $ 0.83 $ 0.80 $ 0.80
==================================================================
Cash dividends per share (1) $ 0.63 $ 0.57 $ 0.45 $ 0.33 $ 0.23
==================================================================
8
At or For the Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
Key Ratios (3)
Return on average assets 0.70% 0.93% 0.57% 0.74% 1.26%
Return on average equity 7.84 8.47 4.66 4.49 7.14
Equity to assets at the end of period 8.59 8.84 12.20 12.27 19.66
Earning assets to interest-
bearing liabilities 111.90 113.91 113.33 120.01 119.87
Interest rate spread (4) 3.57 3.52 3.25 3.08 3.25
Net interest margin (4) 4.00 4.06 3.79 3.88 4.05
Noninterest expense to average assets 3.31 3.11 3.07 2.94 2.31
Efficiency ratio (5) 70.81 66.22 73.94 70.90 53.78
Dividend payout ratio 41.88 36.56 54.41 41.72 21.81
Operating Income Data (2)
Return on average assets 0.82% 0.81% 0.69% 1.01% 1.26%
Return on average equity 9.20 7.35 5.67 6.11 7.14
Noninterest expense to average assets 2.94 2.92 2.68 2.45 2.31
Efficiency ratio (5) 63.56 64.42 65.14 59.49 53.78
Operating earnings per diluted share $ 1.79 $ 1.35 $ 1.01 $ 1.10 $ 0.80
Asset Quality Data
Nonperforming assets to total assets
at end of period (6) 0.24% 0.44% 0.28% 0.38% 0.33%
Allowance for loan losses to nonperforming
loans at end of period 279.25 124.39 244.56 185.27 255.18
Allowance for loan losses to total loans
at end of period 1.04 0.93 0.79 0.80 0.93
Consolidated Capital Ratios
Tier 1 leverage capital ratio 6.26% 5.81% 10.54% 10.34% 19.52%
Tier 1 risk-based capital ratio 9.42 9.89 18.52 20.91 42.79
Total risk-based capital ratio 10.43 10.80 19.50 21.92 44.14
- ------------
(1) 1995 earnings per share and dividends declared have been stated only for a
partial period because of the Bank's conversion to stock form on April 6,
1995.
(2) Operating earnings exclude the effect of one-time or nonoperating events
from reported net income.
(3) With the exception of end-of-period ratios, all ratios are based on average
daily balances during the respective periods and are annualized where
appropriate.
(4) Interest rate spread represents the difference between the weighted average
yield on earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a
percentage of average earning assets.
(5) The efficiency ratio represents noninterest expense, as a percentage of the
sum of net interest income and noninterest income.
(6) Nonperforming assets consist of nonaccruing loans, loans 90 days or more
past due and reposessed assets.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the financial condition and results of operations of ISB Financial
Corporation (the "Company") and its subsidiary for the years ended December 31,
1997 through 1999. This review should be read in conjunction with the audited
consolidated financial statements, accompanying footnotes and supplemental
financial data included herein.
FINANCIAL CONDITION
ASSETS
General - Total assets of the Company remained relatively stable at $1.4
billion for December 31, 1999 and 1998. The decrease in total assets was $38.1
million, or 2.7%. This decrease was primarily due to the decrease in cash used
to fund deposit withdrawals. The following discussion describes the major
changes in the asset mix during 1999.
Cash and Cash Equivalents - Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing funds on deposit and cash on hand,
decreased by $98.2 million, or 67.3%, to $47.7 million at December 31, 1999
compared to $145.9 million at December 31, 1998. The decrease in cash was due
primarily to the funding of deposit withdrawals and loan originations.
Investment Securities - Investment securities increased by an aggregate of
$7.3 million, or 1.9%, to $384.9 million at December 31, 1999 compared to $377.6
million at December 31, 1998. Such increase was the result of $100.0 million of
investment securities purchased, which was partially offset by $26.3 million of
investment securities which matured, $54.4 million of principal collections on
mortgage backed securities, a $11.5 million decrease in the market value of
investment securities available for sale and $872,000 of premium amortization on
investment securities.
[GRAPHIC-PIE CHART DEPICTING ASSET MIX]
At December 31, 1999, $299.4 million of the Company's investment securities
were classified as available for sale with a pre-tax net unrealized loss of
$11.0 million. At such date, $107.7 million of the Company's investment
securities consisted of U.S. Government and Federal agency obligations and
$185.5 million consisted of mortgage backed securities. At December 31, 1999,
$85.5 million of the Company's investment securities were held to
10
maturity with a pre-tax net unrealized loss of $2.6 million, consisting
primarily of mortgage backed securities with a market value of $81.0 million.
During the fourth quarter of 1999 the Company transferred $198.9 million of
mortgage backed securities from the held to maturity classification to available
for sale upon the initial application of FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. The reclassification resulted in
a fair value adjustment of $5.7 million and a decrease in equity, net of taxes,
of $3.7 million. At December 31, 1999, $10.5 million, or 2.7% of the Company's
investment securities were due within one year. Note 3 to the Consolidated
Financial Statements provides further information on the Company's investment
securities.
Loans Held for Sale - Loans held for sale decreased $13.6 million, or
74.1%, to $4.8 million at December 31, 1999 compared to $18.4 million at
December 31, 1998. Loans held for sale represent single-family residential
mortgage loans to be sold in the secondary market. In 1999, 83.1% of
single-family mortgage originations were sold in the secondary market, compared
to 71.5% in 1998.
Loans Receivable, Net - Loans receivable, net, increased by $73.1 million,
or 9.6%, to $834.3 million at December 31, 1999 compared to $761.3 million at
December 31, 1998. During 1999, commercial real estate loans increased $39.5
million, or 33.5%, home equity loans increased $18.3 million, or 25.1%, indirect
automobile loans increased $60.8 million, or 51.3%, and credit card loans
increased $1.9 million, or 40.4%. Single-family mortgage loans decreased $33.8
million, or 11.3% during 1999 as 83.1% of the mortgage loans originated during
1999 were sold in the secondary market. During 1999, construction loans
decreased $1.0 million, or 13.8%, commercial business loans decreased $752,000,
or .9%, automobile loans decreased $1.2 million, or 4.9 %, and other loans
decreased $9.1 million, or 23.3%. The changes in the loan portfolio reflect
management's continued emphasis on commercial and consumer lending. For
additional information on loans, see Note 4 to the Consolidated Financial
Statements.
Premises and Equipment, Net - Premises and equipment, net, decreased by
$1.4 million, or 5.0%, to $26.0 million at December 31, 1999 compared to $27.3
million at December 31, 1998. The decrease was the result of $2.6 million of
depreciation of premises and equipment, $636,000 of assets sold, donated or
abandoned, and $451,000 of fixed asset impairments primarily consisting of
leasehold improvements written down to book value for the remaining lease term,
which was partially offset by $2.3 million in purchases of other premises and
equipment.
LIABILITIES AND SHAREHOLDERS' EQUITY
General - The Company's primary funding sources include deposits,
short-term and long-term borrowings and shareholders' equity. The following
discussion focuses on the major changes in the mix during 1999.
Deposits - Deposits decreased by $120.6 million, or 9.9%, from $1.2 billion
at December 31, 1998 to $1.1 billion at December 31, 1999. The decrease is
primarily due to $144.0 million of net cash withdrawals, which was partially
offset by $23.4 million of interest credited. The net cash withdrawals consisted
primarily of higher priced certificates of deposit as management reduced its
emphasis on large certificates of deposit as a funding source. Certificates of
deposit over $100,000 decreased $6.1 million, or 4.7%, from $130.6 million at
December 31, 1998 to $124.5 million at December 31, 1999. At December 31, 1999,
$116.5 million, or 10.6%, of the Company's total deposits were noninterest
bearing, compared to $123.7 million, or 10.1%, at December 31, 1998. Additional
information regarding deposits is provided in Note 7 to the Consolidated
Financial Statements.
11
Short-Term Borrowings - The Company's short-term borrowings are comprised
of advances from the Federal Home Loan Bank ("FHLB") of Dallas. At December 31,
1999, total short-term borrowings were $83.0 million. These advances were used
to fund net decreases in deposits and to fund loan growth. The weighted average
rate on short-term borrowings was 5.7% at December 31, 1999. For additional
information regarding the Company's short-term borrowings, see Note 8 to the
Consolidated Financial Statements.
Long-Term Borrowings - At December 31, 1999, the Company's long-term
borrowings were comprised of fixed rate advances from the Federal Home Loan Bank
and a long-term note payable from Union Planters. Long- term borrowings
increased $6.4 million, or 14.1%, to $52.1 million at December 31, 1999 compared
to $45.6 million at December 31, 1998, which was partially offset by normal
amortization payments. The increase in long-term borrowings was due to a new
long-term note payable from Union Planters, which is variable rate based on the
Wall Street Prime. For additional information, including maturities of the
Company's long-term borrowings, see Note 9 to the Consolidated Financial
Statements.
[GRAPHIC-PIE CHART DEPICTING LIABILITY AND EQUITY MIX]
Shareholders' Equity - Shareholders' equity provides a source of permanent
funding, allows for future growth and provides the Company with a cushion to
withstand unforeseen adverse developments. At December 31, 1999, shareholders'
equity totaled $117.2 million, a decrease of $6.8 million from the previous year
end level. The decrease in shareholders' equity in 1999 was the result of $4.0
million of cash dividends declared on the Company's common stock, $7.0 million
of the Company's common stock repurchased and placed into treasury, and a $7.5
million decrease in unrealized gain on securities available for sale, all of
which were partially offset by $9.5 million of net income, $1.2 million of
common stock released by the Company's Employee Stock Ownership Plan ("ESOP")
trust and $717,000 of common stock earned by participants of the Company's
Recognition and Retention Plan (`RRP") trust.
Federal regulations impose minimum regulatory capital requirements on all
institutions with deposits insured by the Federal Deposit Insurance Corporation
("FDIC"). The Board of Governors of the Federal Reserve System ("FRB") imposes
similar capital regulations on bank holding companies. At December 31, 1999, the
Company exceeded all regulatory capital ratio requirements with a tier 1
leverage capital ratio of 6.26%, a tier 1 risk-based capital ratio of 9.42% and
a total risk-based capital ratio of 10.43%. At December 31, 1999, IBERIABANK
exceeded all regulatory capital ratio requirements with a tier 1 leverage
capital ratio of 6.80%, a
12
tier 1 risk-based capital ratio of 10.30% and a total risk-based capital ratio
of 11.30%. As part of the regulatory approval of the acquisition of branches
from the former First Commerce Corporation ("FCOM"), the Bank also committed to
have a tier 1 leverage capital ratio of 6.0% and 6.5% at June 30, 1999 and
December 31, 1999, respectively. The Bank is in compliance with those capital
commitments.
RESULTS OF OPERATIONS
General - The Company reported net income of $9.5 million, $10.1 million
and $5.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Earnings in 1999 include a $454,000, after taxes, gain on the sale
of property and $766,000, after taxes, in restructuring charges. Earnings in
1998 include a $1.3 million, after taxes, gain on the sale of property. Earnings
in 1997 include $1.2 million, after taxes, of non-operating charges and
expenses. Without these one-time or non-operating items, the Company would have
reported net income of $11.2 million, $8.8 million and $6.5 million for the
years ended December 31, 1999, 1998 and 1997, respectively. During 1999,
interest income increased $15.9 million, interest expense increased $6.9
million, the provision for loan losses increased $1.9 million, noninterest
income increased $3.5 million, noninterest expense increased $11.1 million and
income tax expense decreased $44,000. Cash earnings (net income before the
amortization of acquisition intangibles) were $12.2 million, $12.0 million and
$6.9 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Net Interest Income - Net interest income is determined by interest rate
spread (i.e. the difference between the yields earned on earning assets and the
rates paid on interest-bearing liabilities) and the relative amounts of earning
assets and interest-bearing liabilities. The Company's average interest rate
spread was 3.57%, 3.52% and 3.25% during the years ended December 31, 1999, 1998
and 1997, respectively. The Company's net interest margin (i.e., net interest
income as a percentage of average earning assets) was 4.00%, 4.06% and 3.79%,
during the years ended December 31, 1999, 1998 and 1997, respectively.
[GRAPHIC-BAR CHART DEPICTING REGULATORY CAPITAL]
[GRAPHIC-BAR CHART DEPICTING NET INCOME]
13
Net interest income increased $8.9 million, or 21.9%, in 1999 to $49.7
million compared to $40.8 million in 1998. Such increase was due to a $15.9
million, or 20.0%, increase in interest income, which was partially offset by a
$6.9 million, or 18.0%, increase in interest expense. The increase in net
interest income was due to the increase in earning assets.
Net interest income increased $7.2 million, or 21.5%, in 1998 to $40.8
million compared to $33.6 million in 1997. The reason for such increase was a
$9.6 million, or 13.8%, increase in interest income, which was partially offset
by a $2.4 million, or 6.7%, increase in interest expense.
Interest Income - Interest income totaled $95.1 million for the year ended
December 31, 1999, an increase of $15.9 million, or 20.0%, over the total of
$79.2 million for the year ended December 31, 1998. This improvement was mainly
due to an increase in the Company's average earning assets of $236.7 million, or
23.6%, to $1.2 billion for the year ended December 31, 1999, caused primarily by
the acquisition of 17 full service branches from FCOM in September 1998 and the
utilization of the $452.6 million of deposits acquired into loans and investment
securities. Interest earned on loans increased $7.1 million, or 11.5%, in 1999.
The increase was due to a $88.8 million, or 12.5 %, increase in the average
balance of loans which was partially offset by a 7 basis point (with 100 basis
points being equal to 1 %) decrease in the yield earned. Interest earned on
investment securities increased $10.3 million, or 67.5%, in 1999. The increase
was due to a $177.9 million, or 73.9%, increase in the average balance of
investment securities, which was partially offset by a 24 basis point decrease
in the yield earned. Interest income on other earning assets, primarily
interest-bearing deposits, decreased $1.5 million, or 59.3%, during 1999. The
decrease was due to a $30.0 million, or 55.5%, decrease in the average balance
of other earning assets, together with a 41 basis point decrease in the yield
earned. The weighted average yield on all earning assets decreased from 7.88% in
1998 to 7.66% in 1999.
Interest income amounted to $79.2 million and $69.6 million for the years
ended December 31, 1998 and 1997, respectively. The $9.6 million, or 13.8%,
increase in interest income in 1998 was due to a $8.2 million, or 15.4%,
increase in interest income on loans, a $640,000, or 4.4%, increase in interest
income on investment securities, and a $807,000, or 45.8%, increase in interest
income on other earning assets.
[GRAPHIC-CHART DEPICTING NET INTEREST MARGIN]
Interest Expense - Interest expense increased $6.9 million, or 18.0%, in
1999 to $45.4 million compared to $38.5 million in 1998. The increase was due to
having one full year of interest expense on deposits acquired from FCOM in
September 1998. During 1999, there was an increase of $5.5 million, or 15.6%, in
interest expense on deposits, together with a $1.5 million, or 43.2%, increase
in interest expense on borrowings. The increase in interest expense on deposits
was the result of a $200.6 million, or 24.2%, increase in the average balance of
deposits, which was partially offset by a 30 basis point decrease in the average
cost of deposits. The
14
decrease in the average cost of deposits was both the result of the net cash
withdrawals of relatively higher priced certificates of deposit together with
the one full year of expense on deposits acquired from FCOM which had a
significant amount of relatively lower priced deposits. The increase in interest
expense on borrowings was the result of a $26.8 million, or 50.6%, increase in
the average balance of borrowings, which was partially offset by a 32 basis
point decrease in the average cost of borrowings. The increase in borrowings was
largely for short term borrowings used to fund net decreases in deposits and to
fund loan growth.
Total interest expense amounted to $38.5 million and $36.1 million for the years
ended December 31, 1998 and 1997, respectively. The $2.4 million, or 6.7%,
increase in interest expense in 1998 compared to 1997 was due to a $100.4
million, or 12.8%, increase in the average balance of interest-bearing
liabilities, which was partially offset by a 25 basis point decrease in the cost
of interest-bearing liabilities.
AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS/RATES
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Bank from 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) net interest spread; and (v) net interest margin.
Information is based on average daily balances during the indicated periods.
15
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
Earning assets:
Loans receivable:
Mortgage loans $ 291,411 $23,163 7.95% $ 350,627 $28,157 8.03%
Commercial loans 213,986 19,585 9.15 149,627 14,607 9.76
Consumer and other loans 293,449 25,685 8.75 209,778 18,600 8.87
---------- ------- ---------- -------
Total Loans 798,846 68,433 8.57 710,032 61,364 8.64
---------- ------- ---------- -------
Investment securities 418,509 25,608 6.12 240,620 15,292 6.36
Other earning assets 24,128 1,044 4.33 54,160 2,568 4.74
---------- ------- ---------- -------
Total earning assets 1,241,483 95,085 7.66 1,004,812 79,224 7.88
Nonearning assets 115,368 ------- 81,628 -------
---------- ----------
Total assets $1,356,851 $1,086,440
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 279,328 6,301 2.26 $ 196,254 4,801 2.45
Savings deposits 131,824 2,681 2.03 114,934 2,541 2.21
Certificates of deposits 618,582 31,518 5.10 517,952 27,707 5.35
---------- ------- ---------- -------
Total deposits 1,029,734 40,500 3.93 829,140 35,049 4.23
Borrowings 79,741 4,880 6.12 52,936 3,409 6.44
---------- ------- ---------- -------
Total interest-bearing liabilities 1,109,475 45,380 4.09 882,076 38,458 4.36
---------- ------- ---------- -------
Noninterest-bearing demand deposits 116,097 69,670
Noninterest-bearing liabilities 9,789 14,982
---------- ----------
Total liabilities 1,235,361 966,728
Shareholders' Equity 121,490 119,712
---------- ----------
Total liabilities and shareholders' equity $1,356,851 $1,086,440
========== ==========
Net earning assets $ 132,008 $ 122,736
========== ==========
Net interest spread $49,705 3.57% $40,766 3.52%
======= ==== ======= ====
Net interest margin 4.00% 4.06%
==== ====
Ratio of average earning assets to
average interest-bearing liabilities 111.90% 113.91%
====== ======
16
Year Ended December 31,
- ---------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------
Average
Average Yield/
Balance Interest Rate
-------------------------------
Earning assets:
Loans receivable:
Mortgage loans $ 377,776 $30,702 8.13%
Commercial loans 89,982 9,294 10.33
Consumer and other loans 154,444 13,198 8.55
---------- -------
Total Loans 622,202 53,194 8.55
---------- -------
Investment securities 236,939 14,652 6.18
Other earning assets 26,723 1,761 6.59
---------- -------
Total earning assets 885,864 69,607 7.86
-------
Nonearning assets 58,793
----------
Total assets $ 944,657
==========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 141,212 3,714 2.63
Savings deposits 115,882 2,949 2.54
Certificates of deposits 477,325 26,294 5.51
---------- -------
Total deposits 734,419 32,957 4.49
Borrowings 47,281 3,093 6.54
---------- -------
Total interest-bearing liabilities 781,700 36,050 4.61
---------- -------
Noninterest-bearing demand deposits 37,647
Noninterest-bearing liabilities 10,583
----------
Total liabilities 829,930
Shareholders' Equity 114,727
----------
Total liabilities and shareholders' equity $ 944,657
==========
Net earning assets $ 104,164
==========
Net interest spread $33,557 3.25%
======= ====
Net interest margin 3.79%
====
Ratio of average earning assets to
average interest-bearing liabilities 113.33%
======
17
Rate/Volume Analysis:
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to rate (changes in rate multiplied by the prior period's volume),
(ii) changes attributable to volume (changes in volume multiplied by the prior
period's rate), (iii) mixed change (changes in rate multiplied by changes in
volume), and (iv) total increase (decrease) (sum of the previous columns).
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1999/1998 1998/1997
- -----------------------------------------------------------------------------------------------------------------------------
Change Attributable To Change Attributable To
- -----------------------------------------------------------------------------------------------------------------------------
Total Total
Rate/ Increase Rate/ Increase
(Dollars in thousands) Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
Earning assets:
Loans:
Mortgage loans $ (4,755) $ (287) $ 48 $ (4,994) $(2,206) $ (365) $ 26 $ (2,545)
Commercial loans 6,283 (912) (393) 4,978 6,161 (510) (338) 5,313
Consumer and other loans 7,419 (239) (95) 7,085 4,729 496 177 5,402
Investment securities 11,305 (569) (420) 10,316 228 406 6 640
Other earning assets (1,424) (225) 125 (1,524) 1,808 (494) (507) 807
----------------------------------------------------------------------------------------
Total net change in income on
earning assets 18,828 (2,232) (735) 15,861 10,720 (467) (636) 9,617
----------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Demand deposits 2,032 (374) (158) 1,500 1,448 (260) (101) 1,087
Savings deposits 373 (204) (29) 140 (24) (387) 3 (408)
Certificates of deposit 5,383 (1,316) (256) 3,811 2,238 (760) (65) 1,413
Borrowings 1,726 (169) (86) 1,471 370 (48) (6) 316
----------------------------------------------------------------------------------------
Total net change in expense on
interest-bearing liabilities 9,514 (2,063) (529) 6,922 4,032 (1,455) (169) 2,408
----------------------------------------------------------------------------------------
Change in net interest income $ 9,314 $ (169) $(206) $ 8,939 $ 6,688 $ 988 $ (467) $ 7,209
========================================================================================
Provision for Loan Losses - Provisions for loan losses are charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on various factors, including historical
experience, the volume and type of lending conducted by the Company, the amount
of the Company's classified assets, seasoning of the loan portfolio, the status
of past due principal and interest payments, general economic conditions,
particularly as they relate to the Company's market area and other factors
related to the collectibility of the Company's loan portfolio. Management of the
Company assesses the allowance for loan losses on a quarterly basis and will
make provisions for loan losses as deemed appropriate in order to maintain the
adequacy of the allowance for loan losses.
18
The Company made a provision for loan losses of $2.8 million in 1999,
compared to $903,000 and $1.1 million for 1998 and 1997, respectively. Net loan
charge-offs for 1999 totaled $1.2 million, compared to $418,000 for 1998. The
1999 provision included an additional provision of $1.6 million in the fourth
quarter. The additional reserves were the result of an evaluation of the overall
risk profile of the loan portfolio, including the continued growth and seasoning
of the commercial and indirect auto portfolios.
The allowance for loan losses amounted to $8.7 million, or 1.0% and 279.3%
of total loans and total nonperforming loans, respectively, at December 31, 1999
compared to .9% and 124.4%, respectively, at December 31, 1998. The allowance
for loan losses increased $1.6 million, or 22.6%, from the $7.1 million at
December 31, 1998. The increase included $2.8 million provision for loan losses.
The increase in the allowance for loan losses as a percentage of nonperforming
loans was the result of the decrease in the level of nonperforming loans.
Nonperforming loans (nonaccrual loans and accruing loans 90 days or more
past due) were $3.1 million and $5.7 million at December 31, 1999 and 1998,
respectively. The decrease in nonperforming loans was primarily attributable to
management's improved collection efforts. The Company's foreclosed property
amounted to $185,000 and $384,000 at December 31, 1999 and 1998, respectively.
As a percentage of total assets, the Company's total nonperforming assets, which
consists of nonperforming loans plus foreclosed property, amounted to $3.3
million, or .2% at December 31, 1999 compared to $6.1 million, or .4%, at
December 31, 1998.
Although management of the Company believes that the Company's allowance
for loan losses was adequate at December 31, 1999, based on facts and
circumstances available, there can be no assurances that additions to such
allowance will not be necessary in future periods, which would adversely affect
the Company's results of operations.
Noninterest Income - For 1999, the Company reported noninterest income of
$13.7 million compared to $10.2 million for 1998. The primary reasons for the
$3.5 million, or 33.9%, increase in noninterest income was a $2.9 million, or
60.7% increase on service charges on deposit accounts. The increase in service
charges was due to an increase in the number of accounts that are subject to
service charges due primarily to including one full year of charges on FCOM
deposits acquired in September 1998. Other changes to non interest income
include a $635,000, or 142.7%, increase in ATM fee income, and a $1.4 million,
or 85.6%, increase in other income, which was partially offset by a $1.1
million, or 60.8%, decrease in gain on the sale of property.
Total noninterest income amounted to $10.2 million and $5.7 million for the
years ended December 31, 1998 and 1997, respectively. The primary reasons for
the $4.6 million, or 80.3%, increase in noninterest income during 1998 compared
to 1997 was a $1.4 million, or 39.8%, increase in service charges on deposit
accounts, a $1.2 million, or 388.6%, increase in gains on the sale of loans, and
$1.8 million gain on the sale of property.
Noninterest Expense - Noninterest expense includes salaries and employee
benefits, occupancy and equipment expense, communication and delivery expense,
marketing and business development expense, amortization of acquisition
intangibles and other items. Noninterest expense amounted to $44.9 million,
$33.8 million and $29.0 million for the three years ended December 31, 1999,
1998 and 1997, respectively. The primary reason for the $11.1 million, or 32.9%,
increase in noninterest expense for 1999 compared to 1998 was
19
including one full year of expenses for the 17 FCOM branches acquired in
September 1998. Salaries and employee benefits increased $4.7 million, or 28.8%,
occupancy and equipment expense increased $1.7 million, or 44.7%, communication
and delivery expense increased $764,000, or 40.3%, franchise and shares tax
expense increased $337,000, or 32.5 %, the amortization of acquisition
intangibles increased $1.3 million, or 64.7%, printing, stationary and supplies
expense increased $140,000, or 17.4%, restructuring expenses of $1.2 million
were incurred (for more information regarding restructuring expenses see Note 2
to the Consolidated Financial Statements), other expenses increased $1.5
million, or 26.7%, marketing and business development expense decreased
$284,000, or 20.6%, and data processing expense decreased $197,000, or 17.7%,
due primarily to the conversion to an in-house data processing system in 1998.
The primary reasons for the $4.8 million, or 16.4%, increase in noninterest
expense for 1998 compared to 1997 were the acquisition of the 17 branch offices
and their employees and continuing to build a commercial bank infrastructure.
Income Taxes - For the years ended December 31, 1999, 1998 and 1997, the
Company incurred income tax expense of $6.1 million, $6.2 million and $3.8
million, respectively. The Company's effective tax rate amounted to 39.2%, 37.9%
and 41.4% during 1999, 1998 and 1997, respectively. The difference between the
effective tax rate and the statutory tax rate primarily related to variances in
the items that are either nontaxable or non-deductible, primarily the
non-deductibility of part of the amortization of goodwill and acquisition
intangibles, the non-deductible portion of the ESOP compensation expense and the
capital loss carryforward used during 1998 and 1999. For more information, see
Note 10 to the Consolidated Financial Statements.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset and liability management
function is to evaluate the interest-rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
focus, operating environment, capital and liquidity requirements and performance
objectives, establish prudent asset concentration guidelines and manage the risk
consistent with Board approved guidelines. Through such management, the Company
seeks to reduce the vulnerability of its operations to changes in interest
rates. The Company's actions in this regard are taken under the guidance of the
Asset/Liability Committee ("ALCO"), which is chaired by the Chief Financial
Officer and comprised of members of the Company's senior management. The ALCO
generally meets on a monthly basis, to review, among other things, the
sensitivity of the Company's assets and liabilities to interest rate changes,
local and national market conditions and interest rates. In connection
therewith, the ALCO generally reviews the Company's liquidity, cash flow needs,
maturities of investments, deposits and borrowings, and capital position.
The objective of interest rate risk management is to control the effects
that interest rate fluctuations have on net interest income and on the net
present value of the Company's earning assets and interest-bearing liabilities.
Management and the Board are responsible for managing interest rate risk and
employing risk
20
management policies that monitor and limit exposure to interest rate risk.
Interest rate risk is measured using net interest margin simulation and
asset/liability net present value sensitivity analyses. These analyses provide a
range of potential impacts on net interest income and portfolio equity caused by
interest rate movements.
The Company uses financial modeling to measure the impact of changes in
interest rates on the net interest margin. As of December 31, 1999, the model
indicated the impact of an immediate and sustained 200 basis point rise in rates
over 12 months would approximate a 5.7% decrease in net interest income, while a
200 basis point decline in rates over the same period would approximate a .6%
increase in net interest income from an unchanged rate environment.
The preceding sensitivity analysis does not represent a Company forecast
and should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cash flows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change. Also, as market conditions vary from those
assumed in the sensitivity analysis, actual results will also differ due to:
prepayment/refinancing levels likely deviating from those assumed, the varying
impact of interest rate changes on caps or floors on adjustable rate assets, the
potential effect of changing debt service levels on customers with adjustable
rate loans, depositor early withdrawals and product preference changes and other
internal/external variables. Furthermore, the sensitivity analysis does not
reflect actions that the ALCO might take in responding to or anticipating
changes in interest rates.
As part of its asset/liability management strategy, the Company has
emphasized the origination of consumer loans, commercial business loans and
commercial real estate loans, all of which typically have shorter terms than
residential mortgage loans and/or adjustable or variable rates of interest. The
Company has also emphasized the origination of fixed-rate, long-term residential
loans for sale in the secondary market. As of December 31, 1999, $250.5 million,
or 30.0%, of the Company's total loan portfolio had adjustable interest rates.
As part of the Company's asset/liability management strategies, the Company
has limited its investments in investment securities other than mortgage backed
securities to those with an estimated average life of seven years or less. In
addition, at December 31, 1999, $12.4 million, or 5.2%, of the fixed-rate
mortgage backed securities had a balloon feature (the mortgage backed security
will mature and repay before the underlying loans have been fully amortized).
The Company's strategy with respect to liabilities in recent periods has
been to emphasize transaction accounts, particularly noninterest bearing
transaction accounts, which are not as sensitive to changes in interest rates as
time certificates of deposit. At December 31, 1999, 46.7% of the Company's
deposits were in transaction accounts compared to 46.6% at December 31, 1998.
Noninterest bearing transaction accounts total 10.6% of total deposits at
December 31, 1999, compared to 10.1% of total deposits at December 31, 1998.
21
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, borrowings, loan and mortgage backed
security amortizations, prepayments and maturities, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage backed
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in overnight deposits
and other short-term earning assets which provide liquidity to meet lending
requirements. The Company has been able to generate sufficient cash through its
deposits and borrowings. At December 31, 1999, the Company had $127.5 million of
outstanding advances from the FHLB of Dallas. Additional advances available at
December 31, 1999 from the FHLB of Dallas amounted to $413.7 million. The
Company also has $7.6 million of long term debt outstanding with Union Planters
at December 31, 1999.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Company maintains a
strategy of investing in various lending products. The Company uses its sources
of funds primarily to meet its ongoing commitments, to pay maturing certificates
of deposit and deposit withdrawals, to fund loan commitments and to maintain a
portfolio of mortgage backed and investment securities. At December 31, 1999,
the total approved loan commitments outstanding amounted to $37.7 million. At
the same date, commitments under unused lines of credit, including credit card
lines, amounted to $109.3 million. Certificates of deposit scheduled to mature
in one year or less at December 31, 1999 totaled $433.9 million. Management
believes that a significant portion of maturing deposits will remain on deposit
with the Company. The Company anticipates it will continue to have sufficient
funds together with available borrowings to meet its current commitments.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operation results in terms of historical dollars, without considering changes in
relative purchasing power over time due to inflation. Unlike most industrial
companies, virtually all of the Company's assets and liabilities are monetary in
nature. As a result, interest rates generally have a more significant impact on
the Company's performance than does the effect of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates.
22
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivatives (i.e., gains and losses) depends on the
intended use of the derivative and the resulting designation. The statement is
effective for fiscal years beginning after June 15, 1999. The Company currently
has no derivatives and does not have any hedging activities. The Company adopted
the statement effective October 1, 1999. At the date of initial application, in
accordance with the provisions of the statement, the Company transferred certain
held to maturity securities into the available for sale category. The securities
transferred consisted of $198.9 million in mortgage backed securities, and the
adjustment to fair value at the time of transfer was a decrease of $5.7 million.
For additional information on these and other FASB statements see Note 1 to
the Consolidated Financial Statements.
23
INDEPENDENT AUDITOR'S REPORT
[Graphic - logo]
[graphic-letterhead Castaing Hussey Lolan & Dauterive, LLP
Samuel R. Lolan
Patrick J. Dauterive
Lori D. Percle
Debbie B. Taylor
Katherine H. Armentor
- --------------------------------------------------------------------------------
Charles E. Castaing, Retired Robin G. Freyou
Roger E. Hussey, Retired Dawn K. Gonsoulin
John G. Sarkies, Jr.
To the Board of Directors
ISB Financial Corporation and Subsidiary
New Iberia, Louisiana
We have audited the accompanying consolidated balance sheets of ISB
Financial Corporation and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ISB
Financial Corporation and Subsidiary as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/Castaing, Hussey, Lolan & Dauterive, LLP
- -------------------------------------------
Castaing, Hussey, Lolan & Dauterive, LLP
New Iberia, Louisiana
February 11, 2000
525 Weeks Street x P.O. Box 14240 x New Iberia, Louisiana 70562-4240
Ph.: 337-364-7221 x Fax: 337-364-7235 x email: chldcpa@net-connect.net
Members of American Institute of Certified Public Accountants x Society of
Louisiana Certified Public Accountants
24
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except share data)
1999 1998
---------------------------
ASSETS
Cash and due from banks $ 39,443 $ 36,953
Interest-bearing deposits in banks 8,270 108,918
---------------------------
Total cash and cash equivalents 47,713 145,871
Investment securities:
Available for sale, at fair value 299,388 97,085
Held to maturity (fair value of $82,884
and $280,367, respectively) 85,493 280,471
Federal Home Loan Bank stock, at cost 6,821 10,245
Loans held for sale 4,771 18,407
Loans, net of unearned income, less allowance for loan
losses of $8,749 and $7,135, respectively 834,333 761,263
Accrued interest receivable 8,017 7,667
Premises and equipment, net 25,957 27,326
Goodwill and acquisition intangibles 42,063 45,352
Other assets 9,022 7,943
---------------------------
Total Assets $1,363,578 $1,401,630
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 116,493 $ 123,721
Interest-bearing 983,521 1,096,873
---------------------------
Total deposits 1,100,014 1,220,594
Short-term borrowings 83,000 --
Accrued interest payable 5,385 6,708
Long-term debt 52,053 45,639
Other liabilities 5,937 4,722
---------------------------
Total Liabilities 1,246,389 1,277,663
---------------------------
Commitments and contingencies (notes 14, 15)
25
1999 1998
---- ----
Shareholders' Equity:
Preferred stock of $1 par value;
5,000,000 shares authorized;
-0- shares issued -- --
Common stock of $1 par value; 25,000,000
shares authorized;
7,380,671 shares issued 7,381 7,381
Additional paid-in-capital 68,749 68,021
Retained earnings 69,065 63,527
Unearned common stock held by ESOP (2,649) (3,267)
Unearned common stock held by RRP trust (3,024) (3,683)
Accumulated other comprehensive income (7,124) 349
Treasury stock, at cost, 821,934 and 498,805 shares (15,209) (8,361)
--------------------------
Total Shareholders' Equity 117,189 123,967
--------------------------
Total Liabilities and Shareholders' Equity $1,363,578 $1,401,630
==========================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
26
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
Dollars in thousands, except per share data)
1999 1998 1997
-----------------------------
Interest and Dividend Income:
Loans, including fees $68,433 $61,364 $53,194
Investment securities:
Taxable interest and dividends 25,495 15,219 14,572
Tax-exempt interest 113 73 80
Interest-bearing demand deposits 1,044 2,568 1,761
-----------------------------
Total interest and dividend income 95,085 79,224 69,607
-----------------------------
Interest Expense:
Deposits 40,500 35,049 32,957
Short-term borrowings 1,665 384 --
Long-term debt 3,215 3,025 3,093
-----------------------------
Total interest expense 45,380 38,458 36,050
-----------------------------
Net interest income 49,705 40,766 33,557
Provision for loan losses 2,836 903 1,097
-----------------------------
Net interest income after provision for loan losses 46,869 39,863 32,460
-----------------------------
Noninterest Income:
Service charges on deposit accounts 7,794 4,850 3,470
ATM fee income 1,080 445 175
Gain on sale of loans, net 1,063 1,495 306
Gain on sale of property 698 1,781 --
Gain on sale of investments, net -- 3 266
Other income 3,044 1,640 1,447
-----------------------------
Total noninterest income 13,679 10,214 5,664
-----------------------------
27
Noninterest Expense:
Salaries and employee benefits 20,776 16,125 13,671
Occupancy and equipment 5,655 3,907 3,098
Amortization of acquisition intangibles 3,400 2,064 1,545
Franchise and shares tax 1,374 1,037 925
Communication and delivery 2,660 1,896 1,395
Marketing and Business Development 1,096 1,380 1,063
Data processing 916 1,113 1,795
Printing, stationery and supplies 946 806 961
Restructuring 1,178 -- --
Other expenses 6,880 5,430 4,548
-----------------------------
Total noninterest expense 44,881 33,758 29,001
-----------------------------
Income before income tax expense 15,667 16,319 9,123
Income tax expense 6,138 6,182 3,780
-----------------------------
Net Income $ 9,529 $10,137 $ 5,343
=============================
Earnings per share - basic $ 1.55 $ 1.61 $ 0.86
=============================
Earnings per share - diluted $ 1.53 $ 1.56 $ 0.83
=============================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
28
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except share and per share data)
Unearned
Unearned Common
Additional Common Stock
Common Paid-In Retained Stock Held Held By
Stock Capital Earnings By ESOP RRP Trust
-----------------------------------------------------------
Balance, January 1, 1997 $7,381 $65,725 $54,660 $(4,612) $(4,476)
Comprehensive income:
Net income for the year ended December 31, 1997 5,343
Change in unrealized gain on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.45 per share (2,907)
Reissuance of treasury stock under stock
option plan (1,318 shares) 1
Common stock released by ESOP trust 991 691
Common stock earned by participants of recognition
and retention plan trust 81 394
Treasury stock acquired at cost, 150,550 shares
-----------------------------------------------------------
Balance, December 31, 1997 7,381 66,798 57,096 (3,921) (4,082)
Comprehensive income:
Net income for the year ended December 31, 1998 10,137
Change in unrealized gain on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.57 per share (3,706)
Reissuance of treasury stock under stock
option plan (4,838 shares) 24
Common stock released by ESOP trust 1,029 654
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 170 399
Treasury stock acquired at cost, 25,000 shares
-----------------------------------------------------------
Balance, December 31, 1998 7,381 68,021 63,527 (3,267) (3,683)
Comprehensive income:
Net income for the year ended December 31, 1999 9,529
Change in unrealized gain on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.63 per share (3,991)
Reissuance of treasury stock under stock
option plan (13,371 shares) 15
Common stock released by ESOP trust 577 618
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 58 659
Compensation expense on stock option plans 78
Treasury stock acquired at cost, 336,500 shares
-----------------------------------------------------------
Balance, December 31, 1999 $7,381 $68,749 $69,065 $(2,649) $(3,024)
===========================================================
29
Accumulated
Other Total
Comprehensive Treasury Shareholders'
Income Stock Equity
-------------------------------------------
Balance, January 1, 1997 $187 $(4,859) $114,006
Comprehensive income:
Net income for the year ended December 31, 1997 5,343
Change in unrealized gain on securities
available for sale, net of deferred taxes 34 34
--------
Total comprehensive income 5,377
Cash dividends declared, $.45 per share (2,907)
Reissuance of treasury stock under stock
option plan (1,318 shares) 19 20
Common stock released by ESOP trust 1,682
Common stock earned by participants of recognition
and retention plan trust 475
Treasury stock acquired at cost, 150,550 shares (3,089) (3,089)
-------------------------------------------
Balance, December 31, 1997 221 (7,929) 115,564
Comprehensive income:
Net income for the year ended December 31, 1998 10,137
Change in unrealized gain on securities
available for sale, net of deferred taxes 128 128
--------
Total comprehensive income 10,265
Cash dividends declared, $.57 per share (3,706)
Reissuance of treasury stock under stock
option plan (4,838 shares) 71 95
Common stock released by ESOP trust 1,683
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 569
Treasury stock acquired at cost, 25,000 shares (503) (503)
-------------------------------------------
Balance, December 31, 1998 349 (8,361) 123,967
Comprehensive income:
Net income for the year ended December 31, 1999 9,529
Change in unrealized gain on securities
available for sale, net of deferred taxes (7,473) (7,473)
--------
Total comprehensive income 2,056
Cash dividends declared, $.63 per share (3,991)
Reissuance of treasury stock under stock
option plan (13,371 shares) 197 212
Common stock released by ESOP trust 1,195
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 717
Compensation expense on stock option plans 78
Treasury stock acquired at cost, 336,500 shares (7,045) (7,045)
-------------------------------------------
Balance, December 31, 1999 $ (7,124) $(15,209) $117,189
===========================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------------------------
Cash Flows From Operating Activities:
Net income $ 9,529 $ 10,137 $ 5,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,657 4,283 3,052
Provision for loan losses 2,836 903 1,097
Compensation expensed recognized on RRP and stock options 795 443 414
Gains on sales of assets (852) (1,869) 148
Equipment donated 120 -- --
Impairment of fixed assets due to restructuring 645 -- --
Gain on sale of investments -- (3) (266)
Amortization of premium/discount on investments 872 117 311
Current provision for deferred income taxes (1,143) (167) 161
FHLB stock dividends (447) (419) (352)
Net change in loans held for sale 13,636 (18,407) --
Proceeds from student loans sold 763 9,215 38
ESOP compensation 1,031 1,576 1,629
Net change in securities classified as trading -- -- 630
Other, net 2,464 (1,627) (1,152)
----------------------------------
Net Cash Provided by Operating Activities $ 36,906 $ 4,182 $ 11,053
----------------------------------
Cash Flows From Investing Activities:
Activity in available for sale securities:
Sales $ -- $ 4,498 $ --
Maturities, prepayments and calls 25,500 29,345 56,100
Purchases (99,998) (54,981) (30,335)
Activity in held to maturity securities:
Maturities, prepayments and calls 55,166 47,004 35,892
Purchases -- (210,575) --
(Increase) decrease in loans receivable, net (77,653) 12,407 (89,832)
Proceeds from FHLB stock redemption 4,853 1,162 --
Purchases of FHLB stock (982) (4,828) --
Proceeds from sale of premises and equipment 531 202 2
Purchases of premises and equipment (2,332) (4,348) (5,271)
Proceeds from disposition of real estate owned & property 1,961 2,719 931
Cash received in excess of cash paid on branch acquisition -- 292,439 --
Payments received from note receivable -- -- 841
------------------------------------
Net Cash (Used in) Provided By Investing Activities $(92,954) $115,044 $(31,672)
------------------------------------
(Continued)
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
-------------------------------------
Cash Flows From Financing Activities:
(Decrease) increase in deposits $(120,881) $ (12,776) $ 18,235
Net change in short-term borrowings 83,000 -- --
Proceeds from issuance of long-term debt 7,575 -- --
Repayments of long-term debt (1,161) (1,089) (1,022)
Dividends paid to shareholders (3,810) (3,372) (2,604)
Proceeds from sale of treasury stock for stock options exercised 212 78 21
Payments to repurchase common stock (7,045) (503) (3,089)
-------------------------------------
Net Cash (Used in) Provided by Financing Activities (42,110) (17,662) 11,541
-------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (98,158) 101,564 (9,078)
Cash and Cash Equivalents at Beginning of Period 145,871 44,307 53,385
-------------------------------------
Cash and Cash Equivalents at End of Period $ 47,713 $145,871 $ 44,307
======================================
Supplemental Schedule of Noncash Activities:
Acquisition of real estate in settlement of loans $ 1,035 $ 929 $ 566
======================================
Transfer of real estate owned to land and building $ -- $ -- $ 168
======================================
Supplemental Disclosures:
Cash paid (received) for:
Interest on deposits and borrowings $ 46,703 $ 35,745 $ 36,477
======================================
Income taxes $ 6,823 $ 5,112 $ 4,226
======================================
Income tax refunds $ 9 $ (495) $ (938)
======================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations: ISB Financial Corporation (the "Company") is a
Louisiana corporation organized in November 1994 for the purpose of becoming the
holding company for Iberia Savings Bank. The Board of Directors of Iberia
Savings Bank adopted the Plan of Conversion pursuant to which the bank converted
from a Louisiana-chartered mutual savings bank to a Louisiana-chartered stock
savings bank. The Company completed its subscription and community offering in
April 1995 and, with a portion of the net proceeds, acquired the capital stock
of the bank. In December of 1997, Iberia Savings Bank changed its charter from a
state savings bank to a state commercial bank and changed its name to IBERIABANK
("Iberia").
IBERIABANK operates 25 full service offices located in south central
Louisiana, 10 full service offices located in northeast Louisiana and 8 full
service offices located in the greater New Orleans area. Iberia provides a
variety of financial services to individuals and businesses throughout its
service area. Primary deposit products are checking, savings and certificate of
deposit accounts and primary lending products are consumer, mortgage and
commercial business loans. Iberia also offers discount brokerage services
through a wholly owned subsidiary.
Jefferson Bank, formerly Jefferson Federal Savings Bank, ("Jefferson"), a
Louisiana-chartered stock savings bank, was acquired on October 18, 1996 and was
operated as a wholly owned subsidiary of the Company until it was merged into
Iberia in September of 1997.
Principles of Consolidation: The consolidated financial statements include
the accounts of ISB Financial Corporation and its wholly owned subsidiary,
Iberia, as well as all of Iberia's subsidiaries, Iberia Financial Services, LLC,
Jefferson Insurance Corporation, Metro Service Corporation and Finesco, LLC. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Material estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for losses on loans and deferred tax assets. Actual results could differ from
those estimates.
Concentration of Credit Risks: Most of the Company's business activity is
with customers located within the state of Louisiana. The Company's lending
activity in the past was concentrated in the southwestern part of Louisiana.
That economy has historically been heavily dependent on the oil and gas
industry. The Company in recent years has increased originations of commercial
loans and indirect automobile loans, and through acquisitions, has entered the
New Orleans and Monroe, Louisiana markets. Repayment of loans is expected to
come from cash flow of the borrower or, particularly with the residential
mortgage portfolio, from the sale of the real estate. Losses are limited by the
value of the collateral upon default of the borrowers.
Cash and Cash Equivalents: For purposes of presentation in the consolidated
statements of cash flows, cash and cash equivalents are defined as cash,
interest-bearing and noninterest-bearing funds on deposit at other financial
institutions.
Investment Securities: Debt securities that management has the ability and
intent to hold to maturity are classified as held to maturity and carried at
cost, adjusted for amortization of premiums and accretion of discounts using
methods approximating the interest method. Securities not classified as held to
maturity or
33
trading, including equity securities with readily determinable fair values, are
classified as available for sale and recorded at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive
income. Declines in the value of individual held to maturity and available for
sale securities below their cost that are other than temporary are included in
earnings as realized losses. The cost of securities sold is recognized using the
specific identification method.
Stock in the Federal Home Loan Bank of Dallas ("FHLB") is carried at cost.
Since Iberia is a member of the FHLB, it is required to maintain an amount of
FHLB stock based on its total assets and level of borrowings. At December 31,
1999 and 1998, Iberia held more than the required level of FHLB stock.
Loans Held for Sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income.
Loans: The Company grants residential mortgage, commercial and consumer
loans to customers primarily throughout the state of Louisiana. The ability of
the debtors to honor contracts is dependent upon the collateral and general
economic conditions in this area.
Loans receivable are stated at the unpaid principal balances, less the
allowance for loan losses and net deferred loan origination fees and unearned
discounts. Interest income on loans is accrued over the term of the loans based
on the principal balance outstanding. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the
related loan yield, using the interest method.
The accrual of interest on mortgage and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Credit card loans and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful.
In general, interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis method or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual status
when all principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
Allowance for Loan Losses: The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. Changes in the allowance related to
impaired loans are charged or credited to the provision for loan losses.
The allowance for loan losses is maintained at a level which, in
management's judgement, is adequate to absorb credit losses inherent in the
portfolio. The amount of the allowance is based on management's evaluation of
various factors, including the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans,
and economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the
34
contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. The impairment loss is measured on a
loan by loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately identify
individual consumer and residential loans for impairment disclosures.
Loan Servicing: Mortgage servicing rights are recognized on loans sold
where the institution retains the servicing rights. The cost of mortgage
servicing rights is amortized in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage servicing rights is
assessed based on the fair value of those rights. Fair values are estimated
using discounted cash flows based on a current market interest rate.
Foreclosed Property: Real estate and other assets acquired in settlement of
loans are recorded at the balance of the loan or at estimated fair value minus
estimated costs to sell, whichever is less, at the date acquired. After
foreclosure, valuations are periodically performed by management and the assets
are carried at the lower of cost or fair value minus estimated costs to sell.
Revenue and expenses from operations, gain or loss on sale and changes in the
valuation allowance are included in net expenses from foreclosed assets. There
was no allowance for losses on foreclosed property at December 31, 1999 and
1998.
Premises and Equipment: Land is carried at cost. Buildings and equipment
are carried at cost, less accumulated depreciation computed on a straight line
basis over the estimated useful lives of 15 to 40 years for buildings and 5 to
10 years for furniture, fixtures and equipment.
Goodwill and Other Intangible Assets: Goodwill, representing the purchase
price in excess of fair value of identifiable net assets at acquisition, is
amortized over periods not exceeding 25 years. Other acquired intangible assets,
such as core deposit intangibles, are amortized over the periods benefited, not
exceeding 8 years. As events or circumstances warrant, the Company evaluates the
recoverability of the unamortized balance based on expected future profitability
and undiscounted future cash flows of the acquisitions and their contribution to
the overall operation of the Company.
Income Taxes: The Company and all subsidiaries file a consolidated federal
income tax return on a calendar year basis. Deferred income tax assets and
liabilities are determined using the liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is determined based on the
tax effects of the temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Stock Compensation Plans: Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period, which
is usually the vesting period.
35
It also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plan generally have no intrinsic value at the grant date,
and under Opinion No. 25 no compensation cost is recognized for them. The
Company has elected to continue with the accounting methodology in Opinion No.
25 and, as a result, has provided pro forma disclosures of net income and
earnings per share and other disclosures, as if the fair value based method of
accounting had been applied.
Earnings Per Common Share: Basic earnings per share represents income
available to common shareholders divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. Potential common shares that may be issued by
the Company relate to outstanding stock options and unvested restricted stock,
and are determined using the treasury stock method.
Effects of New Accounting Pronouncements: In June 1997, the FASB issued
SFAS No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting and disclosure of comprehensive income and its
components (revenues, expenses, gains and losses). This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income (including, for example, unrealized holding
gains and losses on available for sale securities) be reported in a financial
statement similar to the statement of income and retained income. The
accumulated balance of other comprehensive income is disclosed separately from
retained income in the shareholders' equity section of the balance sheet. This
statement is effective for the Company for the fiscal year beginning January 1,
1998. Adoption of this statement did not have a material impact on the financial
condition or results of operations because it addresses reporting and disclosure
issues.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This statement establishes standards for
the way public business enterprises report information about operating segments
and establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Information required to be
disclosed includes segment profit or loss, certain specific revenue and expense
items, segment assets and certain other information. This statement is effective
for the Company for financial statements issued for the fiscal year beginning
January 1, 1998. Adoption of this statement did not have a material impact on
the financial condition or results of operations because it deals with reporting
and disclosure issues.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of derivatives (that
is, gains and losses)
36
depends on the intended use of the derivative and the resulting designation. The
statement is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivatives and does not have any hedging activities.
The Company adopted the statement effective October 1, 1999. At the date of
initial application, in accordance with the provisions of the statement, the
Company transferred certain held to maturity securities into the available for
sale category. The securities transferred consisted of $198,909,000 in mortgage
backed securities, and the adjustment to fair value at the time of transfer was
a decrease of $5,730,000.
Reclassifications: Certain reclassifications have been made to the 1997 and
1998 consolidated financial statements in order to conform to the
classifications adopted for reporting in 1999.
NOTE 2 - RESTRUCTURING:
On December 13, 1999 the Board of Directors approved a restructuring plan
aimed at improving the operating efficiency and profitability of the Company.
The plan involves consolidation of certain branches and elimination of
thirty-three personnel positions primarily at corporate headquarters. The
charges to current earnings consisted of $451,000 of fixed asset impairments
primarily consisting of leasehold improvements written down to book value for
the remaining lease term, $198,000 of lease termination penalties and $35,000 of
closure expenses all related to the branch consolidations and $244,000 of
severance accruals for the personnel positions eliminated. As part of the plan,
the four directors emeritus retired in December of 1999, resulting in
compensation expense of $250,000 for immediate vesting in their recognition and
retention plan shares. The anticipated date of completion of the plan is
mid-year 2000.
NOTE 3 - INVESTMENT SECURITIES:
The amortized cost and fair values of investment securities, with gross
unrealized gains and losses, (in thousands) consists of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------
December 31, 1999:
Securities available for sale:
U.S. Government and federal
agency obligations $112,864 $ -- $ (5,181) $107,683
Mortgage backed 191,167 -- (5,693) 185,474
-------------------------------------------------------
Total debt securities 304,031 -- (10,874) 293,157
Marketable equity security 6,318 -- (87) 6,231
-------------------------------------------------------
Total securities available for sale $310,349 $ -- $ (10,961) $299,388
=======================================================
Securities held to maturity:
Obligations of state and political
subdivisions $ 1,889 $ -- $ -- $ 1,889
Mortgage backed 83,604 -- (2,609) 80,995
-------------------------------------------------------
Total securities held to maturity $ 85,493 $ -- $ (2,609) $ 82,884
=======================================================
37
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------
December 31, 1998:
Securities available for sale:
U.S. Government and federal
agency obligations $ 90,594 $ 653 $ (88) $ 91,159
Marketable equity security 5,962 -- (36) 5,926
--------------------------------------------------------
Total securities available for sale $ 96,556 $ 653 $ (124) $ 97,085
========================================================
Securities held to maturity:
Obligations of state and political
subdivisions $ 2,673 $ 2 $ -- $ 2,675
Mortgage backed 277,798 1,102 (1,208) 277,692
--------------------------------------------------------
Total securities held to maturity $280,471 $ 1,104 $ (1,208) $ 280,367
========================================================
Securities with carrying values of $28,596,000 and $3,994,000 at December
31, 1999 and 1998, respectively, were pledged to secure public deposits and
other borrowings. Securities of $24,941,000 were pledged at December 31, 1999 to
secure a borrowing line obtained in anticipation of Y2K cash needs.
The amortized cost and fair value of investment securities at December 31,
1999, by contractual maturity, are shown below (in thousands). Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Securities Available Securities
for Sale Held to Maturity
-------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------
Within one year or less $ 10,009 $ 10,020 $ 455 $ 455
One through five years 34,863 33,707 555 555
After five through ten years 67,992 63,956 675 675
Over ten years -- -- 204 204
-------------------------------------------
Subtotal 112,864 107,683 1,889 1,889
Mortgage backed 191,167 185,474 83,604 80,995
Marketable equity security 6,318 6,231 -- --
-------------------------------------------
Totals $310,349 $299,388 $85,493 $82,884
===========================================
Proceeds from the sale of available for sale investment securities during
1998 were $4,498,000. Gross gains of $3,000, before related income taxes of
$1,000 and gross losses of $-0- were realized on those sales. The Company had no
sales of investment securities in the available for sale category during 1999 or
1997.
38
NOTE 4 - LOANS RECEIVABLE:
Loans receivable (in thousands) at December 31, 1999 and 1998 consists of
the following:
1999 1998
------------------------
Residential mortgage loans:
Residential 1-4 family $266,365 $300,150
Construction 6,381 7,402
------------------------
Total residential mortgage loans 272,746 307,552
------------------------
Commercial loans:
Business 82,485 83,237
Real estate 157,248 117,768
------------------------
Total commercial loans 239,733 201,005
------------------------
Consumer loans:
Home equity 91,531 73,185
Automobile 23,432 24,631
Indirect automobile 179,350 118,529
Credit card loans 6,436 4,584
Other 29,854 38,912
------------------------
Total consumer loans 330,603 259,841
------------------------
Total loans receivable 843,082 768,398
Allowance for loan losses (8,749) (7,135)
------------------------
Loans receivable, net $834,333 $761,263
========================
Loans receivable include approximately $250,537,000 and $243,646,000 of
adjustable rate loans and $583,796,000 and $517,617,000 of fixed rate loans at
December 31, 1999 and 1998, respectively.
The amount of loans for which the accrual of interest has been discontinued
totaled approximately $1,930,000 and $1,179,000 at December 31, 1999 and 1998,
respectively.
A summary of changes in the allowance for loan losses (in thousands) for
the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
-------------------------------
Balance, beginning of year $ 7,135 $ 5,258 $ 4,615
Allowance for loan losses from acquisitions -- 1,392 --
Provision charged to operations 2,836 903 1,097
Loans charged off (1,671) (863) (803)
Recoveries 449 445 349
-------------------------------
Balance, end of year $ 8,749 $ 7,135 $ 5,258
===============================
39
The following is a summary of information pertaining to impaired loans (in
thousands):
December 31,
----------------
1999 1998
----------------
Impaired loans without a valuation allowance $ -- $ --
Impaired loans with a valuation allowance 1,980 1,510
----------------
Total impaired loans $ 1,980 $ 1,510
----------------
Valuation allowance related to impaired loans $ 198 $ 34
================
For The Years Ended
December 31,
----------------------------
1999 1998 1997
----------------------------
Average investment in impaired loans $ 1,822 $ 1,825 $ 35
============================
Interest income recognized on impaired loans $ 167 $ 115 $ 25
============================
Interest income recognized on a cash basis on impaired loans $ 167 $ 115 $ 25
============================
No additional funds are committed to be advanced in connection with
impaired loans.
NOTE 5 - LOAN SERVICING:
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $34,852,000 and $27,177,000 at December 31, 1999 and
1998, respectively.
Custodial escrow balances maintained in connection with the foregoing
portfolio of loans serviced for others, and included in demand deposits, were
approximately $109,000 and $129,000 at December 31, 1999 and 1998, respectively.
Mortgage loan servicing rights of $67,000 and $116,000 were capitalized in
1999 and 1998, respectively. Amortization of mortgage servicing rights was
$26,000, $15,000 and $5,000 in 1999, 1998 and 1997, respectively. The balance of
mortgage servicing rights was $204,000 and $163,000 at December 31, 1999 and
1998, respectively.
40
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment (in thousands) at December 31, 1999 and 1998 is
summarized as follows:
1999 1998
----------------------
Land $ 4,093 $ 4,089
Buildings 18,982 18,265
Furniture, fixtures and equipment 14,602 14,145
----------------------
37,677 36,499
Less: accumulated depreciation 11,720 9,173
----------------------
Total premises and equipment $ 25,957 $ 27,326
======================
41
Depreciation expense was $2,615,000, $1,919,000 and $1,418,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The Company actively engages in leasing office space that it has available.
Leases have different terms ranging from monthly rental to five year leases. At
December 31, 1999, the lease income was $36,000 per month. Total lease income
for 1999, 1998 and 1997 was $439,000, $335,000 and $362,000, respectively.
Income from leases was reported as a reduction in occupancy and equipment
expense. The total allocated cost of the portion of the buildings held for lease
at December 31, 1999 and 1998 was $2,920,000 and $2,567,000, respectively, with
related accumulated depreciation of $922,000 and $928,000, respectively.
The Company leases certain branch offices, land and ATM facilities through
noncancellable operating leases with terms that range from one to twenty years,
with renewal options thereafter.
Minimum future annual rent commitments (in thousands) under these
agreements as of December 31, 1999 are:
Year Ending December 31, Amount
--------------------------------------------
2000 $ 452
2001 276
2002 238
2003 238
2004 and thereafter 838
------
Total $2,042
======
NOTE 7 - DEPOSITS:
Certificates of deposit with a balance of $100,000 and over were
$124,538,000 and $130,631,000 at December 31, 1999 and 1998, respectively.
A schedule of maturities of certificates of deposit (in thousands) is as
follows:
Year Ending December 31, Amount
--------------------------------------------
2000 $433,914
2001 99,512
2002 37,668
2003 5,198
2004 and thereafter 9,999
--------
Total $586,291
========
NOTE 8 - SHORT-TERM BORROWINGS:
The short-term borrowings consist of FHLB advances with terms ranging from
1 to 30 days, at fixed interest rates ranging from 5.25% to 5.97%.
42
NOTE 9 - LONG-TERM DEBT:
Long-term debt at December 31, 1999 and 1998 (in thousands) is summarized
as follows:
1999 1998
-----------------------
Federal Home Loan Bank fixed rate notes at:
5.0 to 5.99% $ 4,367 $ 4,579
6.0 to 6.99% 36,000 36,896
7.0 to 7.99% 4,111 4,164
Union Planters Bank, $15MM line of credit
with variable rate equal to Wall
Street prime minus .50%, currently
@ 7.75% maturing 3/31/01. 7,575 --
-----------------------
Total Advances $ 52,053 $ 45,639
=======================
FHLB advance repayments are amortized over periods ranging from fifteen to
thirty years, and have a balloon feature at maturity. Advances are
collateralized by a blanket pledge of mortgage loans and a secondary pledge of
FHLB stock and FHLB demand deposits. Total additional advances available from
the FHLB at December 31, 1999 were $106,604,000 under the blanket floating lien
and $307,080,000 with a pledge of investment securities.
Advances and long-term debt at December 31, 1999 (in thousands) have
maturities in future years as follows:
Year Ending December 31, Amount
---------------------------------
2000 $ 7,062
2001 3,895
2002 8,840
2003 --
2004 and thereafter 32,256
--------
Total $ 52,053
========
NOTE 10 - INCOME TAXES:
The provision for income tax expense (in thousands) consists of the
following:
For The Years Ended
December 31,
------------------------------
1999 1998 1997
------------------------------
Current expense:
Federal $ 7,080 $ 6,386 $ 3,653
State 201 (37) (34)
------------------------------
Total current expense 7,281 6,349 3,619
Deferred federal expense (1,143) (167) 161
------------------------------
Total income tax expense $ 6,138 $ 6,182 $ 3,780
==============================
43
There was an overpayment of federal income taxes of $242,000 at December
31, 1999 and a balance due of federal income taxes of $381,000 at December 31,
1998.
At December 31, 1999, the Company had Federal net operating loss tax
carryovers assumed in an acquisition of $1,044,000, expiring in 2003 through
2012.
The provision for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate of 35 percent on income from
operations as indicated in the following analysis (in thousands):
For The Years Ended
December 31,
--------------------------
1999 1998 1997
--------------------------
Federal tax based on statutory rate $ 5,483 $ 5,611 $ 3,102
Increase (decrease) resulting from:
Effect of tax-exempt income (136) (94) (49)
Amortization of acquisition intangibles 457 483 523
Interest and other nondeductible expenses 40 37 25
Nondeductible ESOP expense 148 318 319
State income tax on non-bank entities 201 (37) (34)
Other 64 42 (12)
Benefit from change in deferred tax valuation
allowance (119) (178) (94)
--------------------------
Income tax expense $ 6,138 $ 6,182 $ 3,780
==========================
Effective rate 39.2% 37.9% 41.4%
==========================
The net deferred tax liability (in thousands) at December 31, 1999 and 1998
is as follows:
1999 1998
----------------------
Deferred tax asset:
Allowance for loan losses $ 2,063 $ 1,112
Deferred directors' fees 109 106
Net operating loss carryover 365 414
Capital loss carryover -- 119
ESOP and RRP 237 234
Unrealized loss on investments
classified as available for sale 3,836 --
Other 397 316
----------------------
Subtotal $ 7,007 $ 2,301
----------------------
44
1999 1998
---------------------
Deferred tax liability:
FHLB stock $ (561) $ (826)
Premises and equipment (1,829) (1,734)
Unrealized gain on investments
classified as available for sale -- (180)
Other (17) (1)
---------------------
Subtotal (2,407) (2,741)
---------------------
Deferred tax asset (liabilities) 4,600 (440)
Deferred tax valuation reserve -- (119)
---------------------
Net deferred tax asset (liability) $ 4,600 $ (559)
=====================
A summary of the changes in the net deferred tax asset (liability) for the years
ended December 31, 1999 and 1998 (in thousands) is as follows:
1999 1998
---------------------
Balance, beginning of year $ (559) $ (661)
Deferred tax expense, charged to operations 1,143 167
Unrealized gain on available for sale securities,
charged to equity 4,016 (65)
---------------------
Balance, end of year $ 4,600 $ (559)
=====================
Retained earnings at December 31, 1999 and 1998, included approximately
$14,791,000 accumulated prior to January 1, 1987 for which no provision for
federal income taxes has been made. If this portion of retained earnings is used
in the future for any purpose other than to absorb bad debts, it will be added
to future taxable income.
NOTE 11 - EARNINGS PER SHARE:
Weighted average shares of common stock outstanding for basic EPS excludes the
weighted average shares not released by the Employee Stock Ownership Plan
("ESOP") (295,517, 359,164, and 426,448 shares at December 31, 1999, 1998 and
1997, respectively) and the weighted average unvested shares in the Recognition
and Retention Plan ("RRP") (231,282, 257,171 and 281,448 shares at December 31,
1999, 1998 and 1997, respectively). Shares not included in the calculation of
EPS because they are anti-dilutive were stock options of 151,865, 28,000 and
44,650, and RRP grants of 54,000, 11,000 and 28,500 at December 31, 1999, 1998
and 1997 respectively. The following sets forth the computation of net income
per common share and net income per common share-assuming dilution.
45
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
----------------------------------------
Numerator:
Income applicable to common shares $9,529,000 $10,137,000 $ 5,343,000
========================================
Denominator:
Weighted average common shares outstanding 6,144,081 6,280,962 6,224,902
Effect of dilutive securities:
Stock options outstanding 79,188 185,235 180,911
RRP grants 17,435 36,620 52,936
----------------------------------------
Weighted average common shares outstanding -
assuming dilution 6,240,704 6,502,817 6,458,749
========================================
Earnings per common share $ 1.55 $ 1.61 $ 0.86
========================================
Earnings per common share - assuming dilution $ 1.53 $ 1.56 $ 0.83
========================================
NOTE 12 - CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS:
The Company (on a consolidated basis) and Iberia are subject to various
regulatory capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Iberia must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
In connection with the acquisition of branch deposits and related assets
from certain banking subsidiaries of First Commerce Corporation in September
1998, additional capital requirements were imposed on Iberia by the federal and
state banking agencies. Iberia was required to have Tier 1 leverage capital of
6.5 percent at December 31, 1999.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Iberia to maintain minimum amounts and ratios (set forth
in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999 and 1998, that the Company and Iberia met all capital adequacy requirements
to which they are subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized Iberia as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leveraged ratios as set forth in the following tables.
There are no conditions or events since the notification that management
believes have changed Iberia's category. The Company's and Iberia's actual
capital amounts (dollars in thousands) and ratios as of December 31, 1999 and
1998 are also presented in the table.
46
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------
December 31, 1999:
Tier 1 leverage capital:
ISB Financial Corp. $82,193 6.26% $52,512 4.00% $ N/A N/A%
IBERIABANK 89,746 6.80 52,817 4.00 66,021 5.00
Tier 1 risk-based capital:
ISB Financial Corp. 82,193 9.42 34,883 4.00 N/A N/A
IBERIABANK 89,746 10.30 34,862 4.00 52,293 6.00
Total risk-based capital:
ISB Financial Corp. 91,195 10.43 69,767 8.00 N/A N/A
IBERIABANK 98,748 11.30 69,725 8.00 87,156 10.00
December 31, 1998:
Tier 1 leverage capital:
ISB Financial Corp. $78,226 5.81% $53,860 4.00% $ N/A N/A%
IBERIABANK 77,131 5.76 53,594 4.00 66,999 5.00
Tier 1 risk-based capital:
ISB Financial Corp. 78,226 9.89 31,624 4.00 N/A N/A
IBERIABANK 77,131 9.77 31,575 4.00 47,362 6.00
Total risk-based capital:
ISB Financial Corp. 85,361 10.80 63,248 8.00 N/A N/A
IBERIABANK 84,266 10.68 63,149 8.00 78,936 10.00
Iberia is restricted under applicable laws in the payment of dividends to
an amount equal to current year earnings plus undistributed earnings for the
immediately preceding year, unless prior permission is received from the
Commissioner of Financial Institutions for the State of Louisiana. Dividends
payable without permission by Iberia in 2000 will be limited to 2000 earnings
plus an additional $6,904,000.
NOTE 13 - BENEFIT PLANS:
401(k) Profit Sharing Plan
The Company has a 401(K) profit sharing plan covering substantially all of
its employees. Annual employer contributions to the plan are set by the Board of
Directors. No contributions were made by the Company for the years ended
December 31, 1999, 1998 and 1997. The plan provides, among other things, that
participants in the plan be able to direct the investment of their account
balances within the Profit Sharing Plan into alternative investment funds.
Participant deferrals under the salary reduction election may be matched by the
employer based on a percentage to be determined annually by the employer.
47
Employee Stock Ownership Plan
In connection with the conversion from mutual to stock form, the Company
established an ESOP for the benefit of all eligible employees. The ESOP
purchased 590,423 shares, or 8 percent of the total stock sold in the Company's
initial public offering, for $5,904,000, financed by a loan from the Company.
The leveraged ESOP is accounted for in accordance with American Institute of
Certified Public Accountants ("AICPA") Statement of Procedures ("SOP") 93-6,
Employers' Accounting for Employee Stock Ownership Plans.
Full-time employees of the Company who have been credited with at least
1,000 hours of service during a 12 month period and who have attained age 21 are
eligible to participate in the ESOP. It is anticipated that contributions will
be made to the plan in amounts necessary to amortize the debt to the Company
over a period of 10 years.
Under SOP 93-6, unearned ESOP shares are not considered outstanding and are
shown as a reduction of shareholders' equity. Dividends on unallocated ESOP
shares are considered to be compensation expense. The Company will recognize
compensation cost equal to the fair value of the ESOP shares during the periods
in which they become committed to be released. To the extent that the fair value
of the Company's ESOP shares differ from the cost of such shares, this
differential will be credited to equity. The Company will receive a tax
deduction equal to the cost of the shares released. As the loan is internally
leveraged, the loan receivable from the ESOP to the Company is not reported as
an asset nor is the debt of the ESOP shown as a Company liability. Dividends on
allocated shares will be used to pay the ESOP debt.
Compensation cost related to the ESOP for the years ended December 31,
1999, 1998 and 1997 was $1,031,000, $1,576,000 and $1,629,000, respectively. The
fair value of the unearned ESOP shares, using the closing quoted market price
per share for that day was approximately $3,641,550 and $7,227,000 at December
31, 1999 and 1998, respectively.
A summary of the ESOP share allocation is as follows:
December 31
-----------------------------
1999 1998 1997
-----------------------------
Shares allocated beginning of year 246,995 197,952 128,853
Shares allocated during year 61,819 65,458 69,099
Shares distributed during the year (4,747) (16,415) 0
-----------------------------
Total allocated shares held by ESOP at year end 304,067 246,995 197,952
Unreleased shares 264,840 326,659 392,117
-----------------------------
Total ESOP shares 568,907 573,654 590,069
=============================
Recognition and Retention Plan (RRP)
The Company established the RRP for certain officers and directors during
the year ended December 31, 1996. Following shareholder approval of the RRP on
May 24, 1996, the Company purchased 295,226 shares of the Corporation's common
stock in the open market at $15.875 per share to fully fund the
48
related trust and to be awarded in accordance with the provisions of the RRP.
The cost of the shares of restricted stock awarded under these plans are
recorded as unearned compensation, a contra equity account. The fair value of
the shares on the date of award will be recognized as compensation expense over
the vesting period, which is seven years. The holders of the restricted stock
receive dividends and have the right to vote the shares. For the years ended
December 31, 1999, 1998 and 1997 the amount included in compensation expense was
$717,000, $442,000 and $416,000 respectively. The weighted average grant date
fair value of the restricted stock granted under the RRP during the years ended
December 31, 1999, 1998 and 1997 was $18.14, $26.19 and $25.37 respectively. A
summary of the changes in restricted stock follows:
Unawarded Awarded
Shares Shares
--------------------------
Balance, January 1, 1997 133,798 161,428
Granted (28,500) 28,500
Forfeited 3,374 (3,374)
Earned and issued -- (23,061)
--------------------------
Balance, December 31, 1997 108,672 163,493
Granted (6,000) 6,000
Forfeited 7,387 (7,387)
Earned and issued -- (25,411)
--------------------------
Balance, December 31, 1998 110,059 136,695
Granted (95,500) 95,500
Forfeited 32,060 (32,060)
Earned and issued -- (44,381)
--------------------------
Balance, December 31, 1999 46,619 155,754
==========================
Stock Option Plans
In 1996, the Company adopted a stock option plan for the benefit of
directors, officers, and other key employees. The number of shares of common
stock reserved for issuance under the stock option plan was equal to 738,067
shares or 10 percent of the total number of common shares sold in the Company's
initial public offering of its common stock upon the mutual-to-stock conversion
of Iberia Savings Bank. The option exercise price cannot be less than the fair
value of the underlying common stock as of the date of the option grant and the
maximum option term cannot exceed ten years. In 1999 the Company adopted a
similar plan that authorized an additional 300,000 shares available for the
granting of options. The Company also adopted a supplemental plan for 24,999
shares for grants to consultants.
The stock options granted are exercisable in seven equal annual
installments. Compensation expense in 1999, 1998 and 1997 related to the stock
option plans was $78,000, -0- and -0-, respectively. The stock option plans also
permit the granting of Stock Appreciation Rights ("SAR's"). SAR's entitle the
holder to receive, in the form of cash or stock, the increase in the fair value
of Company stock from the date of grant to the date of exercise. No SAR's have
been issued under the plan.
49
The following table summarizes the activity related to stock options:
Weighted
Available Option Average
for Grant Outstanding Exercise Price
-------------------------------------------
At January 1, 1997 94,344 643,723 $ 15.92
Granted (90,650) 90,650 23.31
Canceled 25,611 (25,611) 18.73
Exercised -- (1,318) 15.88
--------------------------
At December 31, 1997 29,305 707,444 16.76
Granted (34,500) 34,500 25.61
Canceled 49,972 (49,972) 19.13
Exercised -- (4,838) 16.17
--------------------------
At December 31, 1998 44,777 687,134 17.04
Shares available at inception of 1999 stock plans 324,999 --
Granted (287,000) 287,000 17.40
Canceled 91,416 (91,416) 18.57
Exercised -- (13,371) 15.88
-------------------------
At December 31, 1999 174,192 869,347 17.02
=========================
Exerciseable at December 31, 1997 89,399 $ 15.92
======= =======
Exerciseable at December 31, 1998 178,354 $ 16.29
======= =======
Exerciseable at December 31, 1999 299,748 $ 16.51
======= =======
The following table presents the weighted average remaining life as of
December 31, 1999 for options outstanding within the stated exercise prices:
Outstanding Exerciseable
- --------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Price of Exercise Remaining of Exercise
Range Options Price Life Options Price
- --------------------------------------------------------------------------------------------
$ 13.38 to $ 15.88 617,982 $ 15.47 7.1 years 267,912 $ 15.88
$ 16.31 to $ 19.75 100,786 $ 17.72 9.2 years 12,214 $ 17.97
$ 20.25 to $ 25.00 128,286 $ 22.29 8.8 years 13,721 $ 23.23
$ 25.13 to $ 28.25 22,293 $ 26.44 8.0 years 5,901 $ 26.45
50
In October 1995, the FASB issued SFAS 123. SFAS 123 requires disclosure of
the compensation cost for stock-based incentives granted after January 1, 1995
based on the fair value at grant date for awards. Applying SFAS 123 would result
in pro forma net income and earnings per share amounts as follows:
1999 1998 1997
----------------------------------------------
Net income As reported $ 9,529,000 $10,137,000 $ 5,343,000
Pro forma $ 9,229,000 $ 9,736,000 $ 4,919,000
Earnings per share As reported - basic $1.55 $ 1.61 $.86
As reported - diluted $1.53 $ 1.56 $.83
Pro forma - basic $1.50 $ 1.55 $.79
Pro forma - diluted $1.48 $ 1.50 $.76
51
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted average assumptions used for
1999, 1998 and 1997 grants: dividend yields of 3.31, 2.23, and 1.84 percent;
expected volatility of 26.13, 38.00 and 23.37 percent; risk-free interest rate
of 5.97, 5.48 and 6.55 percent; and expected lives of 8.5 years for all options.
The weighted average fair value per share at the date of grant for shares
granted during 1999, 1998 and 1997 was $4.60, $10.66 and $8.35, respectively.
NOTE 14 - RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Bank has granted loans to executive
officers and directors and their affiliates amounting to $578,000 at December
31, 1999. During the year ended December 31, 1999, total principal additions
were $232,000 and total principal payments were $23,000.
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS, COMMITMENTS AND
CONTINGENCIES:
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. The same credit policies are used in these commitments as for
on-balance sheet instruments. The Company's exposure to credit loss in the event
of nonperformance by the other parties is represented by the contractual amount
of the financial instruments. The principal commitments of the Company are as
follows:
Loan Commitments:
At December 31, 1999 and 1998, the Company had outstanding firm commitments
to originate loans (in thousands) as follows:
Contract Amount
-------------------
1999 1998
-------------------
Mortgage loans $ 1,530 $ 4,205
Undisbursed mortgage loans-in-process 6,501 7,549
Commercial loans 22,580 32,643
Consumer and other loans 7,057 6,726
-------------------
Total commitments $37,668 $51,123
===================
At December 31, 1999 and 1998, the Company had outstanding commitments to
sell loans of $956,000 and $17,762,000, respectively.
Lines and Letters of Credit:
The Company issues letters of credit and approves lines of credit on
substantially the same terms as other loans. At December 31, 1999 and 1998, the
letters of credit outstanding were $2,570,000 and $1,780,000, respectively.
Unfunded approved lines of credit, including unused credit card lines, at
December 31, 1999 and 1998 were $109,347,000 and $81,879,000, respectively.
52
Letters of Credit Issued on Behalf of the Company:
The Company has outstanding Standby Letters of Credit issued by the FHLB in
favor of customers of the Company. The Company uses these letters of credit to
collateralize public entity deposits in lieu of a direct pledge of investment
securities of the Company. At December 31, 1999 and 1998, outstanding letters of
credit totaled $5,000,000 and $3,365,000, respectively. Essentially all letters
of credit have expiration dates within one year. The Company has made a blanket
pledge of loans to the FHLB to secure all letters of credit issued on behalf of
the Company. This blanket pledge is also used to collateralize any direct
borrowings from the FHLB.
The Company is subject to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material effect on the consolidated financial position of the Company.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
be drawn upon, the total commitment amounts generally represent future cash
requirements. The Company evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of the
counterparty.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents: The carrying amounts of cash and short-term
instruments approximate their fair value. The carrying amounts of
interest-bearing deposits maturing within ninety days approximate their fair
values.
Investment Securities: Fair value equals quoted market prices and dealer
quotes. The carrying value of Federal Home Loan Bank stock approximates fair
value based on the redemption provisions of the Federal Home Loan Bank.
Loans: The fair value of mortgage loans receivable was estimated based on
present values using entry-value rates at December 31, 1999 and 1998, weighted
for varying maturity dates. Other loans receivable were valued based on present
values using entry-value interest rates at December 31, 1999 and 1998 applicable
to each category of loans. Fair values of mortgage loans held for sale are based
on commitments on hand from investors or prevailing market prices.
53
Deposits: The fair value of NOW accounts, money market deposits and savings
accounts was the amount payable on demand at the reporting date. Certificates of
deposit were valued using a weighted average rate calculated based upon rates at
December 31, 1999 and 1998 for deposits of similar remaining maturities.
Short-term Borrowings: The carrying amounts of short-term borrowings
maturing within ninety days approximate their fair values.
Long-term Borrowings: The fair values of the Company's long-term borrowings
are estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Accrued Interest: The carrying amounts of accrued interest approximate fair
value.
Off-Balance Sheet Items: The Company has outstanding commitments to extend
credit and standby letters of credit. These off-balance sheet financial
instruments are generally exercisable at the market rate prevailing at the date
the underlying transaction will be completed and, therefore, have no current
fair value.
The estimated fair values and carrying amounts of the Company's financial
instruments (in thousands) are as follows:
December 31, 1999 December 31, 1998
-------------------------------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
- -----------------------------------------------------------------------------------------
Cash and cash equivalents $ 47,713 $ 47,713 $ 145,871 $ 145,871
Securities available for sale 299,388 299,388 97,085 97,085
Securities held to maturity 85,493 82,884 280,471 280,367
Federal Home Loan Bank stock 6,821 6,821 10,245 10,245
Loans and loans held for sale, net 839,104 836,068 779,670 785,696
Accrued interest receivable 8,017 8,017 7,667 7,667
Financial Liabilities
- -----------------------------------------------------------------------------------------
Deposits $1,100,014 $1,100,814 $1,220,594 $1,225,636
Short-term borrowings 83,000 83,000 -- --
Long-term debt 52,053 51,369 45,639 47,499
Accrued interest payable 5,385 5,385 6,708 6,708
The fair value estimates presented herein are based upon pertinent
information available to management as of December 31, 1999 and 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
54
NOTE 17 - COMPREHENSIVE INCOME:
The following is a summary of the components of other comprehensive income
(in thousands):
December 31
----------------------------------
1999 1998 1997
----------------------------------
Unrealized gain (loss) on securities available
for sale, net $(11,489) $ 196 $ 52
Reclassification adjustment for net gains realized
in net income -- (3) --
----------------------------------
Other comprehensive income (11,489) 193 52
Income tax (expense) benefit related to other
comprehensive income 4,016 (65) (18)
----------------------------------
Other comprehensive income, net of income taxes $ (7,473) $ 128 $ 34
==================================
NOTE 18 - ACQUISITIONS:
In September of 1998, the Company assumed the deposits and acquired the
related assets of 17 branches from certain banking subsidiaries of First
Commerce Corporation located in Lafayette and Monroe, Louisiana. Total assets of
$455,293,000 were acquired, including $126,600,000 of loans acquired at book
value, $292,439,000 of cash and $5,719,000 of fixed assets. Deposits of
$452,578,000 were assumed along with related liabilities of $2,715,000. Total
goodwill of $31,058,000 was recognized in the transaction, and is being
amortized over 15 years using the straight line method. Total amortization of
goodwill in 1999 and 1998 was $2,083,000 and $630,000, respectively. Results of
operations for the branch acquisitions are shown from the date of acquisition
only.
NOTE 19 - SEGMENT INFORMATION:
The Company, through its subsidiary bank, operates in one segment - the
financial services industry. Within this segment, the Company is primarily
engaged in commercial and consumer banking and mortgage lending.
55
NOTE 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS:
Condensed financial statements of ISB Financial Corporation (parent company
only) are shown below. The parent company has no significant operating
activities.
Condensed Balance Sheets
December 31, 1999 and 1998
(Dollars in thousands)
Assets 1999 1998
------------------------
Cash in bank $ 921 $ 1,114
Investment in subsidiary 124,792 122,884
Other assets 348 1,011
------------------------
Total assets $126,061 $125,009
========================
Liabilities and Shareholders' Equity
Liabilities $ 8,872 $ 1,042
Shareholders' equity 117,189 123,967
------------------------
Total liabilities and shareholders' equity $126,061 $125,009
========================
Condensed Statements of Income Years
Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------------------------
Operating income:
Dividends from subsidiary $ 4,550 $ 3,147 $ 6,367
Securities gains/losses -- -- 265
Interest income 27 303 395
Other income -- 2 86
----------------------------------
Total operating income 4,577 3,452 7,113
Operating expenses 2,752 1,761 1,532
----------------------------------
Income before income tax expense and
increase (decrease) in equity in undistributed
earnings of subsidiary 1,825 1,691 5,581
Income tax (benefit) expense (800) (510) (427)
----------------------------------
Income before increase (decrease) in equity in
undistributed earnings of subsidiary 2,625 2,201 6,008
Increase (decrease) in equity in undistributed
earnings of subsidiary 6,904 7,936 (665)
----------------------------------
Net Income $ 9,529 $ 10,137 $ 5,343
==================================
56
NOTE 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(continued):
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
------------------------------------
Cash Flows From Operating Activities:
Net income $ 9,529 $ 10,137 $ 5,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for deferred income taxes -- (1) (21)
(Increase) decrease in equity in net income of subsidiary (6,904) (7,936) 665
Decrease (increase) in other assets 663 3,239 (3,696)
Increase (decrease) in other liabilities 238 7 (140)
Net change in securities classified as trading -- -- 630
Gain on sale of investments -- -- (266)
Compensation expense recognized on RRP
and stock options 795 443 414
------------------------------------
Net Cash Provided by Operating Activities 4,321 5,889 2,929
------------------------------------
Cash Flows From Investing Activities:
Payments received from note receivable -- -- 841
------------------------------------
Net Cash Provided by Investing Activities -- -- 841
------------------------------------
Cash Flows From Financing Activities:
Dividends paid to shareholders (3,974) (3,479) (2,604)
Capital contributed to subsidiary (2,184) (9,222) (207)
Proceeds from issuance of long-term debt 7,575 -- --
Payments received from ESOP 902 955 1,009
Payments to repurchase common stock (7,045) (503) (3,089)
Proceeds from sale of treasury stock 212 78 21
------------------------------------
Net Cash Used in Financing Activities (4,514) (12,171) (4,870)
------------------------------------
Net Decrease in Cash and Cash Equivalents (193) (6,282) (1,100)
Cash and Cash Equivalents, Beginning of Period 1,114 7,396 8,496
------------------------------------
Cash and Cash Equivalents, at End of Period $ 921 $ 1,114 $ 7,396
====================================
57
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (unaudited):
(Dollars in thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------
Year Ended December 31, 1999:
Total interest income $23,434 $23,850 $23,359 $24,442
Total interest expense 11,005 11,087 11,458 11,830
----------------------------------------
Net interest income 12,429 12,763 11,901 12,612
Provision for loan losses 370 265 288 1,913
----------------------------------------
Net interest income after provision
for loan losses 12,059 12,498 11,613 10,699
Noninterest income 3,100 3,092 3,600 3,888
Noninterest expense 9,692 10,113 9,832 11,844
Goodwill amortization 853 855 843 850
----------------------------------------
Income before income taxes 4,614 4,622 4,538 1,893
Income tax expense 1,755 1,794 1,751 838
----------------------------------------
Net Income $ 2,859 $ 2,828 $ 2,787 $ 1,055
========================================
Earnings per share - basic $ 0.45 $ 0.46 $ 0.46 $ 0.17
========================================
Earnings per share - diluted $ 0.44 $ 0.45 $ 0.45 $ 0.17
========================================
Year Ended December 31, 1998:
Total interest income $17,851 $17,800 $19,844 $23,729
Total interest expense 8,546 8,417 9,688 11,807
----------------------------------------
Net interest income 9,305 9,383 10,156 11,922
Provision for loan losses 230 255 206 212
----------------------------------------
Net interest income after provision
for loan losses 9,075 9,128 9,950 11,710
Noninterest income 1,549 1,736 2,038 4,891
Noninterest expense 6,722 6,962 7,805 10,205
Goodwill amortization 369 362 472 861
----------------------------------------
Income before income taxes 3,533 3,540 3,711 5,535
Income tax expense 1,386 1,384 1,489 1,923
----------------------------------------
Net Income $ 2,147 $ 2,156 $ 2,222 $ 3,612
========================================
Earnings per share - basic $ 0.34 $ 0.34 $ 0.35 $ 0.57
========================================
Earnings per share - diluted $ 0.33 $ 0.33 $ 0.34 $ 0.56
========================================
58
CORPORATE INFORMATION
DIRECTORS OF ISB FINANCIAL CORPORATION
Elaine D. Abell, Attorney in private practice, Lafayette, LA
Harry V. Barton, Jr., Certified Public Accountant, Lafayette, LA
Ernest P. Breaux, President, E. P. Breaux Electrical Co.,
New Iberia, LA
Cecil C. Broussard, Retired Automobile Dealer,
Commercial Real Estate Broker, New Iberia, LA
Daryl G. Byrd, President, ISB Financial Corporation; President and Chief
Executive Officer of IBERIABANK
William H. Fenstermaker, President and Chief Executive Officer of C. H.
Fenstermaker and Associates, Inc., Lafayette, LA
Richard F. Hebert, Owner, President of Hebert's Home
and Garden Showplace, New Iberia, LA
Ray Himel, Vice-Chairman, Owner of Himel Motor Supply Corp., Himel Marine and
several Ace Hardware Stores in southern Louisiana.
Larrey G. Mouton, Chief Executive Officer of ISB Financial Corporation
Emile J. Plaisance, Jr., Chairman, Retired.
Stewart Shea, Vice President of Bayou Management Services, President of Bayou
Pipe Coating, LLC, affiliates of Bayou Management Services, New Iberia, LA.
RETIRED DIRECTORS
William R. Bigler
Henry J. Dauterive, Jr.
Louis J. Tamporello
Guyton H. Watkins
59
EXECUTIVE OFFICERS OF IBERIABANK
Daryl G. Byrd, President/Chief Executive Officer
George J. Becker, Executive Vice President, Monroe President
Michael J. Brown, Executive Vice President,
New Orleans President, Chief Credit Officer
John R. Davis, Executive Vice President, Chief Strategic Planning Officer
Donald P. Lee, Executive Vice President, Legal Counsel
& Corporate Secretary
Barry M. Mulroy, Executive Vice President, Chief Administrative Officer
Patrick J. Trahan, Executive Vice President, Lafayette President
Taylor F. Barras, Senior Vice President, New Iberia President
James R. McLemore, Jr., Senior Vice President,
Chief Financial Officer
Janel F. Tate, Senior Vice President, Community Banks President
INDEPENDENT AUDITORS
Castaing, Hussey, Lolan & Dauterive, LLP
525 Weeks Street
New Iberia, LA 70560
60