<PAGE>
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________TO ________________
Commission File Number 0-25756
ISB Financial Corporation
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
- ------------------------------------------------ -----------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
- ---------------------------------------------- -------------------------
(Address of principal executive office) (Zip Code)
(318) 365-2361
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes___ X___ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 8, 1997, 6,901,260 shares of the Registrant's common stock were
issued and outstanding. Of that total, 590,069 shares are held by the
Registrant's Employee Stock Ownership Plan, of which 443,701 shares were not
committed to be released.
1
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ISB FINANCIAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ---------- ---------------------------------- -----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
(As of March 31, 1997 and December 31, 1996)
Consolidated Statements of Income (For the three months 4
ended March 31, 1997 and 1996)
Consolidated Statements of Stockholders' Equity (For the 5
three months ended March 31, 1997 and 1996)
Consolidated Statements of Cash Flows (For the three 6
months ended March 31, 1997 and 1996)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceeding 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
Page 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,
1997 1996
---------- ------------
<S> <C> <C>
Cash and Cash Equivalents:
Cash on Hand and Due from Banks.................... $ 10,892 $ 10,822
Interest Bearing Deposit........................... 47,665 42,563
Investment Securities:
Held to Maturity (fair value of $1,878 and $2,218,
respectively) .................................. 1,876 2,216
Available for Sale, at fair value................. 97,325 101,144
Trading Account Securities, at fair value......... 406 364
Mortgage-Backed Securities Held to Maturity (fair
value of $139,828 and $150,014, respectively)..... 140,513 150,669
Loans Receivable, Net................................ 591,696 571,119
Real Estate Owned.................................... 580 978
Premises and Equipment, Net.......................... 17,310 15,483
Federal Home Loan Bank Stock, at Cost................ 5,890 5,808
Accrued Interest Receivable.......................... 5,626 5,667
Goodwill and Acquisition Intangibles................. 17,403 17,807
Other Assets......................................... 1,786 4,624
---------- ---------
Total Assets......................................... $ 938,968 $ 929,264
---------- ---------
---------- ---------
Liabilities and Stockholders' Equity
Liabilities:
Deposits............................................. $ 769,435 $ 760,284
Federal Home Loan Bank Advances...................... 47,500 47,750
Accrued Interest Payable on Deposits................. 412 1,605
Advance Payments by Borrowers for Taxes
and Insurance...................................... 1,690 832
Accrued and Other Liabilities........................ 5,517 4,787
---------- ---------
Total Liabilities.................................... 824,554 815,258
---------- ---------
Stockholders' Equity:
Preferred Stock of $1 par value; 5,000,000 shares
authorized -0- shares issued or outstanding........ 0 0
Common Stock of $1.00 par value, authorized 25,000,000
shares, 7,380,671 shares issued.................... 7,381 7,381
Additional Paid-in Capital............................ 65,935 65,725
Retained Earnings..................................... 55,756 54,660
Unearned Common Stock Held by ESOP.................... (4,437) (4,612)
Unearned Common Stock Held by RRP Trust............... (4,383) (4,476)
Treasury Stock, at cost; 379,411 shares............... (5,779) (4,859)
Unrealized Gain (Loss) on Securities, Net of
Deferred Taxes..................................... (59) 187
---------- ---------
Total Stockholders' Equity............................ 114,414 114,006
---------- ---------
Total Liabilities and Stockholders' Equity............ $ 938,968 $ 929,264
---------- ---------
---------- ---------
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page 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,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Interest Income:
Interest on Loans................................................. $ 12,333 $ 8,542
Interest and Dividends on Investment Securities................... 1,647 1,280
Interest on Mortgage-Backed Securities............................ 2,264 837
Interest on Deposits.............................................. 533 801
---------- ---------
Total Interest Income............................................... 16,777 11,460
---------- ---------
Interest Expense:
Interest on Deposits.............................................. 7,977 5,159
Interest on Federal Home Loan Bank Advances....................... 769 753
---------- ---------
Total Interest Expense.............................................. 8,746 5,912
---------- ---------
Net Interest Income................................................. 8,031 5,548
Provision for Loan Losses........................................... 162 8
---------- ---------
Net Interest Income After Provision for Loan Losses................. 7,869 5,540
---------- ---------
Noninterest Income:
Service Charges on Deposit Accounts................................ 713 386
Late Charges and Other Fees on Loans............................... 200 170
Other Income....................................................... 376 232
---------- ---------
Total Noninterest Income............................................. 1,289 788
---------- ---------
Noninterest Expense:
Salaries and Employee Benefits...................................... 3,147 1,716
SAIF Deposit Insurance Premium...................................... 111 251
Depreciation Expense................................................ 284 204
Occupancy Expense................................................... 408 210
Computer Expense.................................................... 339 140
Net Costs (Income) of Other Real Estate............................. (24) 19
Franchise and Shares Tax Expense.................................... 240 224
Amortization of Goodwill and Other Acquired Intangibles............. 401 2
Other Expenses...................................................... 1,232 786
---------- ----------
Total Noninterest Expense............................................. 6,138 3,552
---------- ----------
Income Before Income Tax Expense...................................... 3,020 2,776
Income Tax Expense.................................................... 1,225 997
---------- ----------
Net Income............................................................ $ 1,795 $ 1,779
---------- ----------
---------- ----------
Net Income per Common Share........................................... $ 0.29 $ 0.26
---------- ----------
---------- ----------
Weighted Average Common Shares Outstanding............................ 6,260,524 6,855,958
---------- ----------
---------- ----------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
Page 4
<PAGE>
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
UNEARNED
UNEARNED COMMON NET
ADDITIONAL COMMON STOCK UNREALIZED TOTAL
COMMON PAID IN RETAINED STOCK HELD HELD BY TREASURY GAIN (LOSS) STOCKHOLDERS'
STOCK CAPITAL EARNINGS BY ESOP RRP TRUST STOCK ON SECURITIES EQUITY
---------- --------- ---------- ---------- ---------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ... $7,381 $65,293 $51,584 ($5,339) $0 $0 $758 $ 119,677
Net Income.................... 1,779 1,779
Cash Dividends Declared....... (548) (548)
Common Stock Released by
ESOP Trust ................. 107 184 291
Change in Unrealized Gain
(Loss) on Securities
Available for Sale.......... (397) (397)
---------- --------- ----------- ---------- --------- ---------- ------------- -------------
Balance, March 31, 1996....... $7,381 $65,400 $52,815 ($5,155) $0 $0 $361 $ 120,802
---------- --------- ----------- ---------- --------- ---------- ------------- -------------
---------- --------- ----------- ---------- --------- ---------- ------------- -------------
Balance, December 31, 1996.... $7,381 $65,725 $54,660 ($4,612) ($4,476) ($4,859) $187 $ 114,006
Net Income.................... 1,795 1,795
Cash Dividends Declared....... (699) (699)
Common Stock Released by
ESOP Trust ................. 209 175 384
Common Stock Earned by
Participants of Recognition
and Retention Plan Trust ... 1 93 94
Treasury Stock Acquired ...... (920) (920)
Change in Unrealized Gain
(Loss) on Securities
Available for Sale ........ (246) (246)
---------- --------- ----------- ---------- --------- ---------- ------------- -------------
Balance, March 31, 1997....... $7,381 $65,935 $55,756 ($4,437) ($4,383) ($5,779) ($ 59) $ 114,414
----------- --------- --------- --------- --------- ---------- ----- ----------
----------- --------- --------- --------- --------- ---------- ----- ----------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
Page 5
<PAGE>
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
----------- -----------
Cash Flows from Operating Activities:
Net Income............................................................ $ 1,795 $ 1,779
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization..................................... 719 236
Provision for Loan Losses......................................... 150 8
Compensation Expense Recognized on RRP............................ 94 0
Gain on Sale of Premises and Equipment............................ 7 (44)
Loss (Gain) on Sale of Real Estate Owned.......................... (24) 12
Write-Down of Real Estate Owned to Market Value................... 0 0
Gain on Loans Sold................................................ (40) 0
(Gain) Loss on Sale of Investments................................ 0 0
Amortization of Premium/Discount on Investments................... 58 114
Current Provision for Deferred Income Taxes....................... 0 0
FHLB Stock Dividends.............................................. (82) (56)
Loans Originated for Resale....................................... (2,503) 0
Proceeds From Loans Sold to Others................................ 2,543 0
Income Reinvested on Marketable Equity Security................... (79) (76)
ESOP Contribution................................................. 384 292
Net Change in Securities Classified as Trading.................... (42) 14
Proceeds from ESOP Note Repayment................................. 841 0
Changes in Assets and Liabilities:
Decrease (Increase) in Accrued Interest Receivable.............. 41 309
Decrease (Increase) in Other Assets and Other Liabilities....... 2,040 1,590
----------- -----------
Net Cash Provided by Operating Activities............................. 5,902 4,178
----------- -----------
Cash Flows From Investing Activities:
Proceeds from Sales of Available for Sale Securities.............. 0 0
Proceeds from Maturities of Held to Maturity Securities........... 340 80
Proceeds from Maturities of Available for Sale Securities......... 13,500 18,625
Purchases of Securities Held to Maturity.......................... 0 0
Purchases of Securities Available for Sale........................ (9,998) 0
Increase in Loans Receivable, Net................................. (20,806) (10,392)
Proceeds from Sale of Premises and Equipment...................... 0 92
Purchases of Premises and Equipment............................... (1,903) (236)
Proceeds from FHLB Stock Redemption............................... 0 0
Proceeds from Disposition of Real Estate Owned.................... 501 26
Purchases of Mortgage-Backed Securities........................... 0 0
Principal Collections on Mortgage-Backed Securities............... 10,122 2,264
Cash Paid In Excess of Cash Received on Bank Acquisitions......... 0 0
Other Investing Activities........................................ 0 (61)
----------- -----------
Net Cash Used in Investing Activities................................. (8,244) 10,398
----------- -----------
Cash Flows From Financing Activities:
Net Change in Demand, NOW, Money Market and Savings Deposit...... 11,117 3,827
Net Change in Time Deposits...................................... (1,966) 994
(Decrease) Increase in Escrow Funds and Miscellaneous Deposits,
Net............................................................ 85 (178)
Proceeds From FHLB Advances....................................... 0 8,195
Principal Repayments of FHLB Advances............................. (250) (211)
Proceeds from Issuance of Common Stock............................ 0 0
Dividends Paid to Shareholders.................................... (553) (509)
Acquisition of Common Stock by RRP................................ 0 0
Purchase of Treasury Stock........................................ (920) 0
Stock Conversion Costs Incurred................................... 0 0
----------- -----------
Net Cash Provided by (Used in) Financing Activities.................... 7,513 12,118
----------- -----------
Net Increase (Decrease) In Cash and Cash Equivalents................... 5,171 26,694
Cash and Cash Equivalents at Beginning of Year......................... 53,385 51,742
----------- -----------
Cash and Cash Equivalents at End of Year............................... $ 58,556 $ 78,436
----------- -----------
----------- -----------
Supplemental Schedule of Noncash Activities:
Acquisition of Real Estate in Settlement of Loans.................. $ 79 $ 18
Transfer of Land and Building to Real Estate Owned................. $ 0 $ 0
Supplemental Disclosures:
Cash Paid For:
Interest on Deposits and Borrowings................................ $ 9,167 $ 5,896
Income Taxes....................................................... $ 0 $ 0
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
</TABLE>
Page 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, 1996.
The Company's principal business is conducted through its wholly owned
banking subsidiaries, Iberia Savings Bank ("Iberia Savings"), which conducts
business from its main office located in New Iberia, Louisiana and 17
full-service branch offices located in the cities of New Iberia, Lafayette,
St. Martinville, Crowley, Rayne, Kaplan, Jeanerette, Franklin, Morgan City
and Abbeville and Jefferson Banks ("Jefferson"), which conducts business from
its main office in Gretna, Louisiana and six branch offices in the greater
New Orleans market area (Iberia Savings and Jefferson are hereinafter
referred to collectively as the "Banks"). The Banks' deposits are insured by
the Savings Association Insurance Fund ("SAIF") to the maximum extent
permitted by law. The Banks are also subject to examination and regulation by
the Office of Financial Institutions of the State of Louisiana, which is the
Banks' chartering authority and primary regulator. The Banks are 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 Banks are members of the Federal Home
Loan Bank of Dallas ("FHLB").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
the Banks and the Banks' wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Page 7
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(2) LOANS RECEIVABLE
Loans receivable (in thousands) at March 31, 1997 and December 31, 1996
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1997 1996
---------- ----------
<S> <C> <C>
Mortgage Loans:
Single-family Residential........................................... $ 388,399 $ 386,555
Multifamily......................................................... 2,020 2,279
Commercial Real Estate.............................................. 28,942 22,961
Construction........................................................ 10,764 14,064
---------- ----------
Total Mortgage Loans.............................................. 430,125 425,859
---------- ----------
Commercial Business Loans............................................. 42,220 36,089
---------- ----------
Consumer Loans:
Home Equity......................................................... $ 26,876 $ 21,646
Automobile.......................................................... 7,243 7,509
Indirect Automobile................................................. 61,873 52,371
Mobile Home Loans................................................... 3,894 4,215
Educational Loans................................................... 9,581 9,345
Credit Card Loans................................................... 3,790 4,017
Loans on Savings.................................................... 12,232 12,487
Other............................................................... 4,835 8,225
---------- ----------
Total Consumer Loans.............................................. 130,324 119,815
---------- ----------
Total Loans Receivable............................................ 602,669 581,763
---------- ----------
Less:
Allowance for Loan Losses............................................. (4,700) (4,615)
Loans-in-Process...................................................... (6,744) (6,059)
Prepaid Dealer Participation.......................................... 2,968 2,555
Unearned Interest..................................................... (155) (143)
Deferred Loan Fees.................................................... (976) (922)
Discount on Loans Purchased........................................... (1,366) (1,460)
---------- ----------
Loans Receivable, Net................................................. $ 591,696 $ 571,119
---------- ----------
---------- ----------
</TABLE>
Page 8
<PAGE>
(3) EARNINGS PER SHARE
Earnings per share were based on 6,260,524 weighted average shares
outstanding during the three month period ended March 31, 1997. The weighted
average number of common shares outstanding excludes (a) the weighted average
unreleased shares owned by the ESOP of 452,459 for the three month period ended
March 31, 1997; (b) the weighted average shares owned by the Recognition Plan
and Trust of 295,226 for the three months ending March 31, 1997 and (c) the
weighted average shares purchased in Treasury Stock of 377,078.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," ("SFAS 128") which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded.
The Company does not believe that the effect of SFAS 128 on the calculation
of fully diluted earnings per share for these quarters would be material.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
At March 31, 1997, the consolidated assets of the Company totalled $939.0
million, an increase of $9.7 million or 1.0% from December 31, 1996.
Loans receivable, net, increased by $20.6 million, or 3.6%, to $591.7
million at March 31, 1997, compared to $571.1 million at December 31, 1996. The
increase was primarily the result of a $1.8 million, or .5%, increase in
single-family residential loans, a $6.0 million, or 26.0%, increase in
commercial real estate loans, a $6.1 million, or 17.0%, increase in commercial
business loans, a $5.2 million, or 24.2%, increase in home equity loans and a
$9.5 million, or 26.3%, increase in indirect automobile loans. Such increases
were partially offset by a $3.3 million, or 23.5%, decrease in construction
loans and a $3.4 million, or 41.2%, decrease in other consumer loans.
The increase in loans receivable was funded primarily by the decrease in
investment securities available for sale and mortgage-backed securities and by
the increase in customer deposits.
Interest bearing deposits at other institutions increased $5.1 million, or
12.0%, to $47.7 million at March 31, 1997, compared to $42.6 million at December
31, 1996.
The Company's investment securities available for sale decreased $3.8
million, or 3.8%, to $97.3 million at March 31, 1997, compared to $101.1 million
at December 31, 1996. Such decrease was due primarily to the maturity or
redemption of $13.5 million of investment securities together with a $373,000
decrease in the market value of such securities which was partially offset by
the purchase of $10.0 million of investment securities.
Mortgage-backed securities decreased $10.2 million, or 6.7%, from December
31, 1996 to March 31, 1997. Such decrease was attributable entirely to
repayments.
Deposits increased $9.2 million, or 1.2%, to $769.4 million at March 31,
1997, compared to $760.3 million at December 31, 1996. Such increase was due to
$6.7 million of interest credited, and $2.5 million in net new deposits.
Advances from the FHLB of Dallas decreased $250,000, or .5%, to $47.5
million at March 31, 1997, compared to $47.8 million at December 31, 1996. The
advances are fixed-rate and long term and were used to fund additional
originations of fixed-rate, long term single-family residential loans.
Total stockholders' equity increased $408,000, or .4%, to $114.4 million
at March 31, 1997, compared to $114.0 million at December 31, 1996. The
increase was the result of the Company's net income of $1.8 million, $384,000
of common stock released by the ESOP and $94,000 of common stock earned by
participants of the Recognition and Retention Plan, which was partially
offset by the declaration of cash dividends on common stock of $699,000, a
$246,000, after deferred taxes, decrease in net unrealized gains on
securities available for sale, and $920,000 of stock purchased into treasury.
Page 10
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RESULTS OF OPERATIONS
The Company reported net income of $1.8 million for the three months ended
March 31, 1997, and for the three months ended March 31, 1996. The Company's net
interest income increased by $2.5 million and total noninterest income increased
by $501,000 during the three months ended March 31, 1997 compared to the first
quarter of 1996. Such increases were offset by a $154,000 increase in the
provision for loan losses, a $2.6 million increase in noninterest expense and a
$228,000 increase in income tax expense.
The increases in net interest income, non-interest income and non-interest
expense are due principally to the two acquisitions completed by the Company in
1996, which were Royal Bankgroup of Acadiana, Inc. ("Royal") of Lafayette,
Louisiana, and its wholly owned subsidiary, Bank of Lafayette, and Jefferson
Bancorp, Inc. ("Jefferson") of Gretna, Louisiana and its wholly owned
subsidiary, Jefferson Federal Savings Bank. The Royal acquisition added $70.2
million of assets and $64.2 million of liabilities for a total cash price of
$9.2 million. Goodwill of $3.2 million was recognized in the Royal transaction.
The Jefferson acquisition added $266.2 million of assets and $229.4 million of
liabilities for a total cash price of $51.8 million. Goodwill of $11.1 million
and a core deposit intangible of $3.8 million was recognized in the Jefferson
transaction.
Page 11
<PAGE>
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,
---------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
YIELD/COST AVERAGE AVERAGE
at March 31, AVERAGE YIELD/ AVERAGE YIELD/
1997 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................... 7.86% $414,147 $8,392 8.11% $340,055 $6,933 8.16%
Commercial business loans........ 9.14 41,295 1,078 10.44 11,492 314 10.93
Consumer and other loans......... 9.38 126,381 2,863 9.06 52,257 1,295 9.91
-------- ------ -------- ------
Total Loans.................... 8.34 581,823 12,333 8.48 403,804 8,542 8.46
-------- ------ -------- ------
Mortgage-backed securities............ 6.35 145,667 2,264 6.22 50,674 837 6.61
Investment securities................. 6.26 106,250 1,647 6.20 77,431 1,225 6.33
Other earning assets.................. 6.31 35,551 533 6.00 59,951 801 5.34
-------- ------ -------- ------
Total interest-earning assets....... 7.68 869,291 16,777 7.72 591,860 11,405 7.71
------ ------
Non-interest-earning assets........... 59,836 26,741
-------- --------
Total assets.......................... $929,127 $618,601
-------- --------
Interest- bearing liabilities:
Deposits:
Demand deposits................... 2.05 $136,275 853 2.50 $ 65,177 417 2.56
Passbook savings deposits......... 2.57 120,474 765 2.54 50,598 347 2.74
Certificates of deposits.......... 5.46 468,927 6,359 5.42 320,815 4,395 5.48
-------- ------ -------- ------
Total deposits.................. 4.21 725,676 7,977 4.40 436,590 5,159 4.73
Borrowings............................ 6.54 47,664 769 6.45 45,978 753 6.55
-------- ------ -------- ------
Total interest-bearing
liabilities................... 4.35 773,340 8,746 4.52 482,568 5,912 4.90
------ ------
Non-interest bearing demand deposits.. 32,966 9,951
Non-interest bearing liabilities...... 8,709 5,465
-------- --------
Total liabilities............... 815,015 497,984
Stockholders Equity................... 114,112 120,617
-------- --------
Total liabilities and
stockholders' equity.......... $929,127 $618,601
-------- --------
-------- --------
Net interest-earning assets........... $ 95,951 $109,292
-------- --------
-------- --------
Net interest income/interest rate
spread.............................. 3.33% $8,031 3.20% $5,493 2.81%
----- ------ ----- ------ -----
----- ------ ----- ------ -----
Net interest margin................... 3.70% 3.71%
----- -----
----- -----
Ratio of average interest-
earning assets to average
interest-bearing liabilities........ 112.41% 122.65%
------- -------
------- -------
</TABLE>
- ------------------------
(1) Annualized.
Page 12
<PAGE>
NET INTEREST INCOME
Net interest income increased $2.5 million, or 44.8%, to $8.0 million in
the three months ended March 31, 1997, compared to $5.5 million in the three
months ended March 31, 1996. The increase was due to a $5.3 million, or
46.4%, increase in interest income, which was partially offset by a $2.8
million, or 47.9%, increase in interest expense. The increase in interest
income was the result of a $277.4 million, or 46.9%, increase in the average
balance of interest-earning assets, together with a 1 basis point (100 basis
points being equal to 1%) increase in the yield thereon. The increase in
interest expense was the result of a $290.8 million, or 60.3%, increase in
the average balance of interest-bearing liabilities which was partially
offset by a 38 basis point decrease 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 3.20% and 3.70%, respectively,
during the three months ended March 31, 1997, compared to 2.81% and 3.71%,
respectively, for the comparable period in 1996.
The increase in average interest-earning assets and interest-bearing
liabilities was a result primarily of the two 1996 acquisitions. The
improvement in the interest rate spread is attributable in part to the
relatively low cost of funds on Jefferson's deposits.
INTEREST INCOME
The Company's total interest income was $16.8 million for the three
months ended March 31, 1997, compared to $11.5 million for the three months
ended March 31, 1996. The reasons for the $5.3 million, or 46.4%, increase in
interest income were a $3.8 million, or 44.4%, increase in interest income
from loans, a $367,000, or 28.7%, increase in interest income from investment
securities and a $1.4 million, or 170.5%, increase in interest income from
mortgage-backed securities, which was partially offset by a $268,000, or
33.5%, decrease in interest income from other earning assets, primarily
interest earning deposits held at the FHLB. The increase in interest income
from loans was the result of a $ 178.0 million, or 44.1%, increase in the
average balance of loans, together with a 2 basis point increase in the
average yield thereon. The increase in interest income on mortgage-backed
securities was the result of a $95.0 million, or 187.5%, increase in the
average balance of mortgage-backed securities which was partially offset by a
39 basis point decrease in the yield earned thereon. The increase in interest
income from investment securities was the result of a $28.9 million, or
37.2%, increase in the average balance of investment securities which was
partially offset by a 13 basis point decrease in the yield thereon. The
decrease in interest income from other earning assets was the result of a
$24.4 million, or 40.7%, decrease in the average balance of other earning
assets which was partially offset by a 66 basis point increase in the yield
earned thereon.
INTEREST EXPENSE
The Company's total interest expense was $8.7 million during the three
months ended March 31, 1997, compared to $5.9 million for the three months
ended March 31, 1996. The primary reason for the $2.8 million, or 47.9%,
increase in interest expense was a $2.8 million, or 54.6%, increase in
interest expense on deposits due to a $289.1 million, or 66.2%, increase in
the average balance of deposits, which was partially offset by a 33 basis
point decrease in the average cost thereof. Interest expense paid on advances
from the FHLB remained relatively constant at $769,000 and $753,000 for the
three months ended March 31, 1997 and 1996, respectively.
Page 13
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $162,000 in the three months ended
March 31, 1997 as compared to $8,000 for the same period in 1996. As of March
31, 1997, the ratio of the Company's allowance for loan losses to
non-performing loans was 144.0% compared to 180.3% at December 31, 1996.
NONINTEREST INCOME
Noninterest income increased $501,000, or 63.6%, in the three months
ended March 31, 1997 to $1.3 million, compared to $788,000 for the three
months ended March 31, 1996. Such increase was due primarily to a $327,000,
or 84.7%, increase in service charges on deposit accounts, a $144,000, or
62.1%, increase in other income and a $30,000, or 17.6%, increase in late
charges and fees on loans. The increase in service charges on deposit
accounts was due in large part to the large number of transaction accounts
acquired in the 1996 acquisitions.
NONINTEREST EXPENSE
Noninterest expense increased $2.6 million, or 72.8%, in the three months
ended March 31, 1997 to $6.1 million, compared to $3.6 million in the three
months ended March 31, 1996. Such increase was due primarily to the
compensation expense resulting from the ESOP and RRP Plan and the ongoing
expenses of operating 11 additional branches, nine of which were acquired in
the Royal and Jefferson transactions.
Salaries and employee benefits increased $1.4 million, or 83.4%,
occupancy expense increased $198,000 or 94.3%, computer expense increased
$199,000 or 142.1%, goodwill amortization increased $399,000 and other
noninterest expense increased $446,000, or 56.7%. The SAIF Deposit insurance
premium decreased $140,000 due to the recapitalization of the SAIF fund,
offset partially by the increase in deposits, principally from the 1996
acquisitions.
INCOME TAX EXPENSE
Income tax expense increased $228,000, or 22.9%, in the three months
ended March 31, 1997 to an expense of $1.2 million, compared to $1.0 million
for the three months ended March 31, 1996. The increase in income tax expense
reflects an increase in income before income taxes and an increase in the
effective rate due to the nondeductible goodwill amortization associated with
the acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, borrowings, amortization, prepayments
and maturities of outstanding loans and mortgage-backed securities,
maturities of investment securities and other short-term investments and
funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-backed securities and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan and
Page 14
<PAGE>
mortgage-backed security prepayments are greatly influenced by general
interest rates, economic conditions and competition. In addition, the Company
invests excess funds in overnight deposits and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
The Company has been able to generate sufficient cash through its deposits as
well as borrowings. At March 31, 1997, the Company had $47.5 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 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
savings certificates and savings withdrawals, fund loan commitments and
maintain a portfolio of mortgage-backed and investment securities. At March
31, 1997, the total approved loan commitments outstanding amounted to $28.4
million. At the same time, commitments under unused lines of credit,
including credit card lines, amounted to $61.7 million. Certificates of
deposit scheduled to mature in six months or less at March 31, 1997 totalled
$169.1 million. Based on past experience, management believes that a
significant portion of maturing deposits will remain with the Company. The
Company anticipates it will continue to have sufficient funds to meet its
liquidity requirements.
At March 31, 1997, the Company and its subsidiaries had regulatory
capital which was well in excess of regulatory requirements. The current
requirements and the Company's actual levels as of March 31, 1997 are
detailed below (dollars in thousands):
REQUIRED CAPITAL ACTUAL CAPITAL
---------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- ---------- -----------
Tier 1 Leverage........... $ 28,169 3.00% $ 97,011 10.33%
Tier 1 Risk- Based........ $ 19,299 4.00% $ 97,011 20.11%
Total Risk-Based.......... $ 38,597 8.00% $ 101,711 21.08%
Page 15
<PAGE>
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
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Not applicable.
b) No Form 8-K reports were filed during the quarter.
Page 16
<PAGE>
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
By: /s/ Larrey G. Mouton
Date: May 12, 1997 Larrey G. Mouton, President and
Chief Executive Officer
Date: May 12, 1997 By: /s/ William M. Lahasky
William M. Lahasky, Vice President
and Chief Financial Officer
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,892
<INT-BEARING-DEPOSITS> 47,665
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 406
<INVESTMENTS-HELD-FOR-SALE> 97,325
<INVESTMENTS-CARRYING> 142,389
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<LOANS> 591,696
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<TOTAL-ASSETS> 938,968
<DEPOSITS> 769,435
<SHORT-TERM> 47,500
<LIABILITIES-OTHER> 7,619
<LONG-TERM> 0
0
0
<COMMON> 7,381
<OTHER-SE> 107,033
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<INTEREST-TOTAL> 16,977
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<INCOME-PRETAX> 3,020
<INCOME-PRE-EXTRAORDINARY> 3,020
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,795
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 7.72
<LOANS-NON> 2,509
<LOANS-PAST> 0
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<LOANS-PROBLEM> 3,701
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<CHARGE-OFFS> 163
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<ALLOWANCE-CLOSE> 4,703
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