<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 0-25756
ISB Financial Corporation
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Louisiana 72-1280718
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
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(Address of principal executive office) (Zip Code)
</TABLE>
(318) 365-2361
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X___ No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of May 12, 1996, 7,380,671 shares of the Registrant's common stock
were issued and outstanding. Of that total, 590,423 shares are held
by the Registrant's Employee Stock Ownership Plan, of which 515,472
shares were not committed to be released.
1
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ISB FINANCIAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
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<S> <C>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
(As of March 31, 1996 and December 31, 1995)
Consolidated Statements of Income (For the three months 4
ended March 31, 1996 and 1995)
Consolidated Statements of Stockholders' Equity (For the 5
three months ended March 31, 1996 and 1995)
Consolidated Statements of Cash Flows (For the three 6
months ended March 31, 1996 and 1995)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
PART II. OTHER INFORMATION
- - -------- -----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
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ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
------
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash and Cash Equivalents:
Cash on Hand and Due from Banks $5,359 $5,313
Interest Bearing Deposits 73,077 46,429
Investment Securities:
Held to Maturity (market value of $704 and $784, 704 784
respectively)
Available for Sale, at market value 66,827 86,058
Trading Account Securities, at market value 376 389
Mortgage-Backed Securities Held to Maturity (market 49,347 51,646
value of $49,389 and $51,872, respectively)
Loans Receivable, Net 409,908 399,542
Real Estate Owned 534 561
Premises and Equipment, Net 9,424 9,440
Federal Home Loan Bank Stock, at Cost 3,795 3,739
Accrued Interest Receivable, Net 3,844 4,153
Other Assets 525 776
-------- --------
TOTAL ASSETS $623,720 $608,830
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits $449,421 $444,600
Federal Home Loan Bank Advances 48,474 40,490
Accrued Interest Payable on Deposits 331 315
Advance Payments by Borrowers for Taxes and Insurance 1,150 1,239
Other Liabilities 3,542 2,509
-------- --------
TOTAL LIABILITIES 502,918 489,153
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock of $1 par value; 5,000,000 shares authorized 0 0
-0- shares issued or outstanding
Common Stock of $1.00 par value, authorized 25,000,000 7,381 7,381
shares, issued and outstanding 7,380,671 shares
Paid in Capital 65,400 65,293
Retained Earnings 52,815 51,584
Unearned Common Stock Held by ESOP (5,155) (5,339)
Net Unrealized Gain (Loss) on Securities 361 758
-------- --------
TOTAL STOCKHOLDERS' EQUITY 120,802 119,677
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $623,720 $608,830
======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
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ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------
1996 1995
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<S> <C> <C>
INTEREST INCOME:
Loans $8,542 $7,993
Investment Securities Available for Sale 1,213 708
Investment Securities Held to Maturity 12 15
Mortgage-Backed Securities Held to Maturity 837 548
Interest-Bearing Deposits 801 150
--------- ---------
TOTAL INTEREST INCOME 11,405 9,414
--------- ---------
Interest Expense:
Deposits 5,159 4,793
Federal Home Loan Bank Advances 753 40
--------- ---------
Total Interest Expense 5,912 4,833
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Net Interest Income 5,493 4,581
Provision for Loan Losses 8 72
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Net Interest Income After Provision for Loan Losses 5,485 4,509
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NONINTEREST INCOME:
Service Charges on Deposit Accounts 386 327
Late Charges and Other Fees on Loans 170 177
Dividends on FHLB Stock 55 54
Other Income 232 65
--------- ---------
Total Noninterest Income 843 623
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NONINTEREST EXPENSE:
Salaries and Employee Benefits 1,716 1,348
SAIF Deposit Insurance Premium 251 249
Depreciation Expense 204 217
Occupancy Expense 210 201
Computer Expense 140 119
Net Costs (Income) of Other Real Estate 19 (11)
Louisiana Shares and Franchise Tax 224 0
Other 788 720
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Total Noninterest Expense 3,552 2,843
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Income Before Income Taxes 2,776 2,289
---------
Income Taxes 997 755
--------- ---------
NET INCOME $1,779 $1,534
========= =========
NET INCOME PER COMMON SHARE $0.26
=========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,855,958
=========
DIVIDENDS PER SHARE $0.08
=========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(Dollars in Thousands)
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<CAPTION>
COMMON NET
STOCK UNREALIZED TOTAL
COMMON PAID IN RETAINED ACQUIRED GAIN (LOSS) STOCKHOLDERS'
STOCK CAPITAL EARNINGS BY ESOP ON SECURITIES EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $46,105 ($1,265) $44,840
Net Income 1,534 1,534
Change in Unrealized Gain (Loss) on 685 685
Securities Available for Sale
------ ------- ------- ------- ------- --------
BALANCE, MARCH 31, 1995 $0 $0 $47,639 $0 ($580) $47,059
====== ======= ======= ======= ======= ========
BALANCE, DECEMBER 31, 1995 $7,381 $65,293 $51,584 ($5,339) $758 $119,677
Net Income 1,779 1,779
Cash Dividends Declared (548) (548)
Common Stock Issued in Conversion 0
Common Stock Released by 107 184 291
ESOP Trust
Change in Unrealized Gain (Loss) on (397) (397)
Securities Available for Sale
------ ------- ------- ------- ------- --------
BALANCE, MARCH 31, 1996 $7,381 $65,400 $52,815 ($5,155) $361 $120,802
====== ======= ======= ======= ======= ========
</TABLE>
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ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, March 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,779 $ 1,534
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 236 242
Provision for Loan Losses 8 72
Gain on Sale of Premises and Equipment (44) 0
(Gain) Loss on Sale of Real Estate Owned 12 (15)
Amortization of Premium/Discount on Investments 114 85
FHLB Stock Dividends (56) (54)
Loans Originated for Resale 0 (188)
Proceeds From Loans Sold to Others 0 188
Income Reinvested on Marketable Equity Security (76) (67)
ESOP Contribution 292 0
Net Change in Securities Classified as Trading 14 0
Changes in Assets and Liabilities:
Decrease in Accrued Interest Receivable 309 192
Decrease in Other Assets and Other Liabilities 1,590 86
---------- ----------
Net Cash Provided by Operating Activities 4,178 2,075
---------- ----------
Cash Flows From Investing Activities:
Proceeds from Maturities of Held to Maturity Securities 80 80
Proceeds from Maturities of Available for Sale Securities 18,625 0
Increase in Loans Receivable, Net (10,392) (3,663)
Proceeds from Sale of Premises and Equipment 92 0
Purchases of Premises and Equipment (236) (172)
Proceeds from Disposition of Real Estate Owned 26 98
Principal Collections on Mortgage-Backed Securities 2,264 884
Other Investing Activities (61) 0
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 10,398 (2,773)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Demand, NOW, Money Market and Savings Deposit 3,827 (8,336)
Net Change in Time Deposits 994 16,027
Increase (Decrease) in Escrow Funds and Miscellaneous Deposits, Net (178) 95
Proceeds From FHLB Advances 8,195 36,750
Principal Repayments of FHLB Advances (211) (41,750)
Dividends Paid to Shareholders (509) 0
Stock Conversion Costs Incurred 0 (244)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,118 2,542
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26,694 1,844
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,742 9,686
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 78,436 $ 11,530
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of Real Estate in Settlement of Loans $ 18 $ 61
SUPPLEMENTAL DISCLOSURES:
Cash Paid For:
Interest on Deposits and Borrowings $ 5,896 $ 4,640
Income Taxes $ 0 $ 25
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
6
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ISB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not include
information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. All normal, recurring
adjustments which, in the opinion of management, are necessary for a fair
presentation of the financial statements, have been included. These
interim financial statements should be read in conjunction with the
audited financial statements and note disclosures for ISB Financial
Corporation (the "Company) previously filed with the Securities and
Exchange Commission in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
BUSINESS
The Company's principal business is conducted through it's wholly owned
subsidiary, Iberia Savings Bank, which conducts business from its main
office located in New Iberia, Louisiana and 13 full-service branch offices
located in the cities of New Iberia, Lafayette, St. Martinville, Crowley,
Rayne, Kaplan, Jeanerette, Franklin, Morgan City and Abbeville. The
Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") to the maximum extent permitted by law. The Bank is subject to
examination and regulation by the Office of Financial Institutions of the
State of Louisiana, which is the Bank's chartering authority and primary
regulator. The Bank is also subject to regulation by the Federal Deposit
Insurance Corporation ("FDIC"), as the administrator of the SAIF, and to
certain reserve requirements established by the Federal Reserve Board
("FRB"). The Bank is a member of the Federal Home Loan Bank of Dallas
("FHLB").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
the Bank and the Bank's wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
7
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(2) LOANS RECEIVABLE
Loans receivable (in thousands) at March 31, 1996 and December 31, 1995
consisted of the following:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1996 1995
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<S> <C> <C>
Mortgage Loans:
Single-family Residential $326,735 $318,705
Multifamily 1,510 1,506
Commercial Real Estate 13,682 14,486
Construction 15,162 15,617
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Total Mortgage Loans 357,089 350,314
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Commercial Business Loans 14,055 11,055
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Consumer Loans:
Home Equity $18,925 $15,364
Automobile 6,463 6,492
Mobile Home Loans 5,606 6,077
Educational Loans 9,536 9,262
Credit Card Loans 3,664 3,836
Loans on Savings 7,413 7,481
Other 2,217 4,960
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Total Consumer Loans 53,824 53,472
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Total Loans Receivable 424,968 414,841
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Less:
Allowance for Loan Losses (3,761) (3,746)
Loans-in-Process (8,303) (8,399)
Unearned Discount (1) (1)
Deferred Loan Fees (1,169) (1,191)
Discount on Loans Purchased (1,826) (1,962)
-------- --------
Loans Receivable, Net $409,908 $399,542
======== ========
</TABLE>
(3) EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the conversion from mutual to stock form, the Company
established an Employee Stock Ownership Plan (ESOP) for the benefit of
employees of the Company and the Bank. The ESOP purchased 590,423 shares,
or 8% of the total stock sold in the subscription, for $5,904,230,
financed by a loan from the Company. The leveraged ESOP is accounted for
in accordance with AICPA SOP 93-6, "Employers' Accounting for Employee
Stock Ownership Plans".
Compensation cost of the ESOP for the three months ended March 31, 1996
was $292,000 based on the release of 18,482 shares. At March 31, 1996,
there were 56,469 allocated shares, 18,482 shares had been committed to be
released, and 515,472 shares were held in suspense by the ESOP. The fair
value of the unearned ESOP shares was approximately $8,022,000.
8
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(4) EARNINGS PER SHARE
Earnings per share were based on 6,855,958 weighted average shares
outstanding during the three month period ended March 31, 1996. The
weighted average number of common shares outstanding excludes the weighted
average unreleased shares owned by the Employee Stock Ownership Plan
("ESOP") of 524,713 for the three month period ended March 31, 1996.
Earnings per share for periods preceding the three months ended June 30,
1995 are not applicable, as the Bank's conversion from mutual-to-stock
form and reorganization into a holding company format was not completed
until April 6, 1995.
(5) SUBSEQUENT EVENT
After the close of business on May 3, 1996, the Company acquired, through
a multi-step cash merger transaction, Royal Bankgroup of Acadiana, Inc.
("RBA") and its wholly owned subsidiary, Bank of Lafayette ("BOL"), a
Louisiana chartered commercial bank with two offices in Lafayette,
Louisiana. BOL has been merged with and into Iberia Savings Bank and RBA
has been merged with and into the Company. The Company paid an aggregate
of $9.1 million in merger consideration for the previously outstanding
shares of common stock and options to acquire common stock of RBA. As of
March 31, 1996, RBA had $73.6 million in total assets, $64.4 million in
total deposits, $8.6 million in stockholders' equity and $43.1 million in
loans outstanding. The two BOL offices continue to be operated as branch
offices of Iberia Savings Bank. The transaction is accounted for as a
purchase under generally accepted accouting principles and the Company
anticipates that it will result in approximately $2.9 million of goodwill,
which is expected to be amortized over 15 years.
9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CHANGES IN FINANCIAL CONDITION
At March 31, 1996, the consolidated assets of the Company totalled $623.7
million, an increase of $14.9 million or 2.4% from December 31, 1995.
Loans receivable, net, increased by $10.4 million, or 2.6%, to $409.9
million at March 31, 1996, compared to $399.5 million at December 31,
1995. The increase was primarily the result of a $8.0 million, or 2.5%,
increase in single-family residential loans, a $3.0 million, or 27.1%,
increase in commercial business loans and a $3.6 million, or 23.2%,
increase in home equity loans. Such increases were partially offset by a
$2.7 million, or 55.3%, decrease in other consumer loans.
The increase in loans receivable was funded primarily by fixed-rate
advances from the Federal Home Loan Bank ("FHLB") of Dallas and by
customer deposits.
Interest bearing deposits at other institutions increased $26.6 million,
or 57.4%, to $73.1 million at March 31, 1996, compared to $46.4 million at
December 31, 1995. The increased level of interest bearing deposits will
be used as consideration in the Company's acquisition of Royal Bankgroup
of Acadiana, Inc. and its proposed acquistion of Jefferson Bancorp, Inc.,
the parent holding company of Jefferson Federal Savings Bank, Gretna,
Louisiana.
The Company's investment securities available for sale decreased $19.2
million, or 22.3%, to $66.8 million at March 31, 1996, compared to $86.1
million at December 31, 1995. Such decrease was due primarily to the
maturity or call of $18.6 million of investment securities together with a
$603,000 decrease in the market value of such securities.
Mortgage-backed securities decreased $2.3 million, or 4.5%, to $49.3
million at March 31, 1996, compared to $51.6 million at December 31, 1995.
Such decrease was the result of principal repayments on such
mortgage-backed securities.
Deposits increased $4.8 million, or 1.1%, to $449.4 million at March 31,
1996, compared to $444.6 million at December 31, 1995. Such increase was
due to $1.0 million in net new deposits and $3.8 million of credited
interest.
Advances from the FHLB of Dallas increased $8.0 million, or 19.7%, to
$48.5 million at March 31, 1996, compared to $40.5 million at December 31,
1995. The advances are fixed-rate and long term and are used to fund
fixed-rate, long term single-family residential loans.
Total stockholders' equity increased $1.1 million, or .9%, to $120.8
million at March 31, 1996, compared to $119.7 at December 31, 1995. The
increase was the result of the Company's net income of $1.8 million for
the three months ended March 31, 1996 and $291,000 in common stock
released by the ESOP, partially offset by the declaration of
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cash dividends on common stock of $548,000 and a $397,000, after deferred
taxes, decrease in net unrealized gains on securities available for sale.
RESULTS OF OPERATIONS
The Company reported net income of $1.8 million for the three months ended
March 31, 1996, compared to $1.5 million for the three months ended March
31, 1995. The $245,000, or 16.0%, increase was due to a $912,000, or
19.9%, increase in net interest income, a $64,000, or 88.9%, decrease in
the Company's provision for loan losses and a $220,000, or 35.3%, increase
in noninterest income, which was partially offset by a $709,000, or 24.9%,
increase in noninterest expense and a $242,000, or 32.1%, increase in
income tax expense.
11
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AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Bank from
interest-earning assets and the resultant average yields (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v)
net interest margin. Information is based on average daily balances during the
indicated periods.
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------
1996 1995
---------------------------------- ------------------------------------
Yield/Cost Average Average
at March 31, Average Yield/ Average Yield/
1996 Balance Interest Cost(1) Balance Interest Cost(1)
------------ ------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans 7.87% $340,055 $6,933 8.16% $314,641 $6,540 8.31%
Commercial business loans 9.16 11,492 314 10.93 6,036 143 9.48
Consumer and other loans 9.27 52,257 1,295 9.91 51,564 1,310 10.16
Total Loans 7.92 403,804 8,542 8.46 372,241 7,993 8.59
Mortgage-backed securities 6.39 50,674 837 6.61 39,494 548 5.55
Investment securities 6.24 77,431 1,225 6.33 48,451 723 5.97
Other earning assets 5.20 59,951 801 5.34 7,999 150 7.50
Total interest-earning assets 7.27 591,860 11,405 7.71 468,185 9,414 8.04
Non-interest-earning assets 26,741 26,807
Total assets $618,601 $494,992
Interest-bearing liabilities:
Deposits:
Demand deposits 2.19 $75,128 417 2.22 $72,454 451 2.49
Passbook savings deposits 2.75 50,598 347 2.74 62,482 368 2.36
Certificates of deposits 5.47 320,815 4,395 5.48 306,882 3,974 5.18
Total deposits 4.61 446,541 5,159 4.62 441,818 4,793 4.34
Borrowings 6.54 45,978 753 6.55 2,747 40 5.82
Total interest-bearing
liabilities 4.79 492,519 5,912 4.80 444,565 4,833 4.35
Non-interest bearing liabilities 5,465 4,442
Total liabilities 497,984 449,007
Stockholders' Equity 120,617 45,985
Total liabilities and
stockholders' equity $618,601 $494,992
Net interest-earning assets $99,341 $23,620
Net interest income/interest rate
spread 2.48% $5,493 2.91% $4,581 3.69%
Net interest margin 3.71% 3.91%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 120.17% 105.31%
</TABLE>
- - -------------------
(1) Annualized.
12
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NET INTEREST INCOME
Net interest income increased $912,000, or 19.9%, to $5.5 million in the
three months ended March 31, 1996, compared to $4.6 million in the three
months ended March 31, 1995. The increase was due to a $2.0 million, or
21.1%, increase in interest income, which was partially offset by a $1.1
million, or 22.3%, increase in interest expense. The increase in interest
income was the result of a $123.7 million, or 26.4%, increase in the
average balance of interest-earning assets which was partially offset by a
33 basis point (100 basis points being equal to 1%) decrease in the yield
thereon. The increase in interest expense was the result of a $48.0
million, or 10.8%, increase in the average balance of interest-bearing
liabilities and a 45 basis point increase in the cost thereon. The
Company's interest rate spread (the difference between the weighted
average yield on interest- earning assets and the weighted average cost of
interest-bearing liabilities) and net interest margin (net interest income
as a percentage of average interest-earning assets) amounted to 2.91% and
3.71%, respectively, during the three months ended March 31, 1996,
compared to 3.69% and 3.91%, respectively, for the comparable period in
1995.
INTEREST INCOME
The Company's total interest income was $11.4 million for the three months
ended March 31, 1996, compared to $9.4 million for the three months ended
March 31, 1995. The reasons for the $2.0 million, or 21.1%, increase in
interest income were a $549,000, or 6.9%, increase in interest income from
loans, a $505,000, or 71.3%, increase in interest income from investment
securities available for sale, a $289,000, or 52.7%, increase in interest
income from mortgage-backed securities and a $651,000, or 434.0%, increase
in interest income from interest-bearing deposits held at other
institutions. The increase in interest income from loans was the result
of a $31.6 million, or 8.5%, increase in the average balance of loans,
which was partially offset by a 13 basis point decrease in the average
yield earned thereon. The increase in interest income from investment
securities was the result of a $29.0 million, or 59.8%, increase in the
average balance of investment securities and a 36 basis point increase in
the yield thereon. The increase in interest income on mortgage-backed
securities was the result of a $11.2 million, or 28.3%, increase in the
average balance of mortgage-backed securities and a 106 basis point
increase in the yield earned thereon. The increase in interest income on
other earning assets, substantially all of which are interest-bearing
deposits at the FHLB, was the result of a $52.0 million, or 649.5%,
increase in the average balance of other earning assets which was
partially offset by a 216 basis point decrease in the yield earned
thereon.
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INTEREST EXPENSE
The Company's total interest expense was $5.9 million during the three
months ended March 31, 1996, compared to $4.8 million for the three months
ended March 31, 1995. The primary reasons for the $1.1 million, or 22.3%,
increase in interest expense was a $366,000, or 7.6%, increase in interest
expense on deposits due to a $4.7 million, or 1.1%, increase in the
average balance of deposits together with a 28 basis point increase in the
average cost thereof and a $713,000, or 1,782.5%, increase in interest
expense paid on advances from the FHLB due to a $43.2 million, or
1,573.8%, increase in the average balance of advances from the FHLB
together with a 73 basis point increase in the cost thereof. The increase
in the average cost of deposits reflects increased competition and a
higher interest rate environment than was experienced in 1995. The
borrowings from the FHLB are used to fund fixed-rate, long term
single-family residential loans.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $8,000 in the three months ended March
31, 1996 as compared to $72,000 for the same period in 1995. The decrease
was primarily due to management's assessment of the amount provisions
necessary to maintain a sufficient level of loan loss reserves. As of
March 31, 1996, the ratio of the Company's allowance for loan losses to
non-performing loans was 241.9% and the ratio of its allowance for loan
losses to total loans was .92%.
NONINTEREST INCOME
Noninterest income increased $220,000, or 35.3%, in the three months ended
March 31, 1996 to $843,000, compared to $623,000 for the three months
ended March 31, 1995. Such increase was due primarily to a $59,000, or
18.0%, increase in service charges on deposit accounts and a $167,000, or
256.9%, increase in other income due primarily to gains on the sale of
certain assets owned by the Bank's subsidiary company.
NONINTEREST EXPENSE
Noninterest expense increased $709,000, or 24.9%, in the three months
ended March 31, 1996 to $3.6 million, compared to $2.8 million in the
three months ended March 31, 1995. Such increase was due primarily to a
$368,000, or 27.3%, increase in salaries and employee benefits due
primarily to the Bank's contribution to the ESOP and $224,000 in Louisiana
Shares Tax, which is assessed only on stock-form institutions beginning in
the year following the issuance of stock, and Louisiana Franchise Tax,
which was nominal in 1995 because the parent company's assets at the
beginning of 1995 were zero. The shares tax and franchise tax expense
level in the first quarter of 1996 are relatively indicative of the
amounts that will be borne in future periods.
14
<PAGE> 15
INCOME TAX EXPENSE
Income tax expense increased $242,000, or 32.1%, in the three months ended
March 31, 1996 to $1.0 million, compared to $755,000 for the three months
ended March 31, 1995. The increase in income tax expense reflects an
increase in income before income taxes, and an increase in the estimated
effective tax rate for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Bank's
primary sources of funds are deposits, borrowings, amortization,
prepayments and maturities of outstanding loans and mortgage-backed
securities, maturities of investment securities and other short-term
investments and funds provided from operations. While scheduled payments
from the amortization of loans and mortgage-backed securities and maturing
investment securities and short-term investments are relatively
predictable sources of funds, deposit flows and loan and mortgage-backed
security prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, the Bank invests excess
funds in overnight deposits and other short-term interest-earning assets
which provide liquidity to meet lending requirements. The Bank has been
able to generate sufficient cash through its deposits as well as
borrowings. At March 31, 1996, the Company had $48.5 million in
outstanding advances from the Federal Home Loan Bank of Dallas.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term
investments such as over-night deposits. On a longer-term basis, the Bank
maintains a strategy of investing in various lending products. The Bank
uses its sources of funds primarily to meet its ongoing commitments, to
pay maturing savings certificates and savings withdrawals, fund loan
commitments and maintain a portfolio of mortgage-backed and investment
securities. At March 31, 1996, the total approved loan commitments
outstanding amounted to $15.2 million. At the same time, commitments under
unused lines of credit, including credit card lines, amounted to $16.5
million. Certificates of deposit scheduled to mature in six months or
less at March 31, 1996 totalled $134.5 million. Based on past experience,
management believes that a significant portion of maturing deposits will
remain with the Bank. The Company has acquired Royal Bankgroup of
Acadiana, Inc. for $9.1 million in cash and has signed a letter of intent
to purchase Jefferson Bancorp, Inc. for $51.2 million in cash. The
Company anticipates it will continue to have sufficient funds to meet its
liquidity requirements.
15
<PAGE> 16
At March 31, 1996, the Company and the Bank had regulatory capital which
was well in excess of regulatory limits. The current requirements and the
Bank's actual levels as of March 31, 1996 are detailed below (dollars in
thousands):
<TABLE>
<CAPTION>
Required Capital Actual Capital Excess Capital
------------------------ ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage $17,744 3.00% $84,501 14.29% $66,757 11.29%
Tier 1 Risk- Based $11,417 4.00% $84,501 29.60% $73,084 25.60%
Total Risk-Based $22,834 8.00% $88,072 30.86% $65,238 22.86%
</TABLE>
PROPOSED DEPOSIT INSURANCE PREMIUMS
The deposits of the Bank are currently insured by the SAIF. Both the SAIF
and the Bank Insurance Fund ("BIF"), the federal deposit insurance fund
that covers commercial bank deposits, are required by law to attain and
thereafter maintain a reserve ratio of 1.25% of insured deposits. The BIF
has achieved a fully funded status in contrast to the SAIF and, therefore,
the FDIC in 1995 substantially reduced the average deposit insurance
premium paid by commercial banks to a level approximately 75% below the
average premium paid by savings institutions.
The underfunded status of the SAIF has resulted in the introduction in the
U.S. Congress of various bills intended to, among other things,
recapitalize the SAIF and address the resulting premium disparity. The
Congress had been actively considering legislation which would require
savings institutions like the Bank to pay a one-time charge of $0.85 to
$0.95 for every $100 of insured deposits to recapitalize the depleted SAIF.
Based on total insured deposits of $440.5 million at March 31, 1995, which
is the anticipated measurement date for deposits, the Bank would incur a
one-time charge of between $3.7 million and $4.2 million on a pre-tax
basis ($2.5 million to $2.8 million after tax). Management does not
believe that this one-time charge to the Bank, if incurred, will have a
material impact on the Bank's overall financial condition.
The proposed legislation also contemplated the merger of the BIF and the
SAIF following the recapitalization of the SAIF. Thereafter, federal
deposit insurance premiums would be assessed similarly for all FDIC
insured institutions. The above described legislation had been, for some
time, included as part of a fiscal 1996 budget bill, but wasa eliminated
prior to the bill being enacted on April 26, 1996. The Bank cannot
presently predict with any degree of certainty what form the legislation
will ultimately take, nor when or whether it may be enacted.
16
<PAGE> 17
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," establishing financial accounting and reporting standards
for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation
cost of all employee stock compensation plans based on the estimated fair
value of the award at the date it is granted. Companies are, however,
allowed to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies that
elect to remain with the existing accounting are required to disclose in a
footnote to the financial statements pro forma net income and, if
presented, earnings per share, as if this Statement had been adopted. The
accounting requirements of this Statement are effective for transactions
entered into in fiscal years that begin after December 15, 1995; however,
companies are required to disclose information for awards.
The Company is currently contemplating the issuance of stock option
agreements. The Company does not anticipate the adoption of SFAS No. 123
and will be subject to the disclosure requirements only.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
After the close of business on May 3, 1996, the Company acquired,
through a multi-step cash merger transaction, Royal Bankgroup of
Acadiana, Inc. ("RBA") and its wholly owned subsidiary, Bank of
Lafayette ("BOL"), a Louisiana chartered commercial bank with two
offices in Lafayette, Louisiana. BOL has been merged with and into
Iberia Savings Bank and RBA has been merged with and into the
Company.
Item 6. Exhibits and Reports on Form 8-K
a) Not applicable.
b) On April 12, 1996 a current report on Form 8-K was filed
with repsect to the Letter of Intent which the registrant entered
into with respect to its proposed acquisition of Jefferson Bancorp,
Inc.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISB FINANCIAL CORPORATION
Date: May 10, 1996 By: /s/ LARREY G. MOUTON
----------------------------------
Larrey G. Mouton, President and
Chief Executive Officer
Date: May 10, 1996 By: /s/ WILLIAM M. LAHASKY
----------------------------------
William M. Lahasky, Vice President
and Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION AT MARCH 31, 1996 AND DECEMBER 31, 1995;
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTER
ENDED MARCH 31, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,359
<INT-BEARING-DEPOSITS> 73,077
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 376
<INVESTMENTS-HELD-FOR-SALE> 66,827
<INVESTMENTS-CARRYING> 50,051
<INVESTMENTS-MARKET> 50,093
<LOANS> 413,669
<ALLOWANCE> (3,761)
<TOTAL-ASSETS> 623,720
<DEPOSITS> 449,421
<SHORT-TERM> 48,474
<LIABILITIES-OTHER> 5,023
<LONG-TERM> 0
0
0
<COMMON> 7,381
<OTHER-SE> 113,421
<TOTAL-LIABILITIES-AND-EQUITY> 623,720
<INTEREST-LOAN> 8,542
<INTEREST-INVEST> 2,062
<INTEREST-OTHER> 801
<INTEREST-TOTAL> 11,405
<INTEREST-DEPOSIT> 5,159
<INTEREST-EXPENSE> 5,912
<INTEREST-INCOME-NET> 5,493
<LOAN-LOSSES> 8
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,552
<INCOME-PRETAX> 2,776
<INCOME-PRE-EXTRAORDINARY> 1,779
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,179
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<YIELD-ACTUAL> 3.71
<LOANS-NON> 1,447
<LOANS-PAST> 64
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,637
<ALLOWANCE-OPEN> 3,826
<CHARGE-OFFS> 94
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 3,761
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,761
</TABLE>
