<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 June 30, 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 (I.R.S. Employer
of incorporation or organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
-------------------------------- ---------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (318) 365-2361
Common Stock (par value $1.00 per share)
---------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X___ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of July 30, 1997, 6,900,710 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 426,327 shares were
not committed to be released.
<PAGE>
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition
(As of June 30, 1997 and December 31, 1996).............. 3
Consolidated Statements of Income (For the three
months and six months ended June 30, 1997 and 1996)...... 4
Consolidated Statements of Stockholders' Equity (For
the six months ended June 30, 1997 and 1996)............. 5
Consolidated Statements of Cash Flows (For the six
months ended June 30, 1997 and 1996)..................... 6
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 10
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
2
<PAGE>
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Assets
Cash and Cash Equivalents:
Cash on Hand and Due from Banks..................................... $ 13,412 $ 10,822
Interest Bearing Deposits........................................... 24,090 42,563
Investment Securities:
Held to Maturity (fair value of $1,814 and
$2,218, respectively)............................................. 1,810 2,216
Available for Sale, at fair value................................... 104,397 101,144
Trading Account Securities, at fair value........................... 480 364
Mortgage-Backed Securities Held to Maturity
(fair value of $134,423 and $150,014, respectively)................. 134,508 150,669
Loans Receivable, Net................................................. 616,031 571,119
Real Estate Owned..................................................... 560 978
Premises and Equipment, Net........................................... 17,643 15,483
Federal Home Loan Bank Stock, at Cost................................. 5,978 5,808
Accrued Interest Receivable........................................... 5,928 5,667
Goodwill and Acquisition Intangibles.................................. 17,021 17,807
Other Assets.......................................................... 5,249 4,624
-------- --------
Total Assets.......................................................... $947,107 $929,264
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Liabilities:
Deposits.............................................................. $776,590 $760,284
Federal Home Loan Bank Advances....................................... 47,247 47,750
Advance Payments by Borrowers for Taxes and Insurance................. 1,816 1,605
Accrued Interest Payable on Deposits.................................. 470 832
Accrued and Other Liabilities......................................... 6,955 4,787
-------- --------
Total Liabilities..................................................... 833,078 815,258
-------- --------
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 shares,
7,380,671 shares issued............................................ 7,381 7,381
Additional Paid-in Capital............................................ 66,150 65,725
Retained Earnings (Substantially Restricted).......................... 56,865 54,660
Unearned Common Stock Held by ESOP.................................... (4,263) (4,612)
Unearned Common Stock Held by RRP Trust............................... (4,276) (4,476)
Treasury Stock, at cost; 479,961 shares............................... (7,948) (4,859)
Unrealized Gain on Securities, Net of Deferred Taxes.................. 120 187
-------- --------
Total Stockholders' Equity............................................ 114,029 114,006
-------- --------
Total Liabilities and Stockholders' Equity............................ $947,107 $929,264
-------- --------
-------- --------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -----------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income:
Interest on Loans...................................... $12,799 $ 9,651 $25,132 $18,193
Interest and Dividends on Investment Securities........ 1,522 1,046 3,169 2,326
Interest on Mortgage-Backed Securities................. 2,214 772 4,478 1,609
Interest on Deposits................................... 493 939 1,026 1,740
------- ------- ------- -------
Total Interest Income.................................... 17,028 12,408 33,805 23,868
------- ------- ------- -------
Interest Expense:
Interest on Deposits................................... 8,261 5,481 16,238 10,640
Interest on Federal Home Loan Bank Advances............ 773 787 1,542 1,540
------- ------- ------- -------
Total Interest Expense................................... 9,034 6,268 17,780 12,180
------- ------- ------- -------
Net Interest Income...................................... 7,994 6,140 16,025 11,688
Provision for Loan Losses................................ 242 9 404 17
------- ------- ------- -------
Net Interest Income After Provision for Loan Losses...... 7,752 6,131 15,621 11,671
------- ------- ------- -------
Noninterest Income:
Service Charges on Deposit Accounts.................... 798 445 1,511 831
Late Charges and Other Fees on Loans................... 326 223 526 393
Other Income........................................... 416 217 792 449
------- ------- ------- -------
Total Noninterest Income................................. 1,540 885 2,829 1,673
------- ------- ------- -------
Noninterest Expense:
Salaries and Employee Benefits......................... 3,164 2,041 6,311 3,757
SAIF Deposit Insurance Premium......................... 114 257 225 508
Depreciation Expense................................... 278 242 562 446
Occupancy Expense...................................... 418 279 826 489
Computer Expense....................................... 271 142 610 282
Net Costs (Income) of Other Real Estate................ (35) 6 (59) 25
Franchise and Shares Tax Expense....................... 234 223 474 447
Amortization of Goodwill and Other Acquired
Intangibles......................................... 382 38 783 40
Other Expenses......................................... 1,558 880 2,790 1,666
------- ------- ------- -------
Total Noninterest Expense................................ 6,384 4,108 12,522 7,660
------- ------- ------- -------
Income Before Income Tax Expense......................... 2,908 2,908 5,928 5,684
Income Tax Expense....................................... 1,156 1,054 2,381 2,051
------- ------- ------- -------
Net Income............................................... $ 1,752 $ 1,854 $ 3,547 $ 3,633
------- ------- ------- -------
------- ------- ------- -------
Earnings Per Share--Primary and Fully Diluted............ $ 0.27 $ 0.27 $ 0.55 $ 0.53
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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, January 1, 1996... $7,381 $ 65,293 $ 51,584 ($ 5,339) $ 0 $ 0 $ 758 $ 119,677
Net Income................. 3,633 3,633
Cash Dividends Declared.... (1,095) (1,095)
Common Stock Released by
ESOP Trust............... 211 367 578
Common Stock Acquired by
Management Recognition
Plan Trust............... (4,687) (4,687)
Common Stock earned by
Participants of
Management Recognition
Plan..................... 31 31
Change in Unrealized Gain
(Loss) on Securities
Available for Sale....... (592) (592)
------ --------- --------- --------- --------- --------- --------- ----------
Balance, June 30, 1996..... $7,381 $ 65,504 $ 54,122 ($ 4,972) ($ 4,656) $ 0 $ 166 $ 117,545
------ --------- --------- --------- --------- --------- --------- ----------
------ --------- --------- --------- --------- --------- --------- ----------
Balance, January 1, 1997... $7,381 $ 65,725 $ 54,660 ($ 4,612) ($ 4,476) ($ 4,859) $ 187 $ 114,006
Net Income................. 3,547 3,547
Cash Dividends Declared.... (1,342) (1,342)
Common Stock Released by
ESOP Trust............... 424 349 773
Common Stock Earned by
Participants of
Recognition and Retention
Plan Trust............... 1 200 201
Treasury Stock Acquired.... (3,089) (3,089)
Change in Unrealized Gain
(Loss) on Securities
Available for Sale....... (67) (67)
------ --------- --------- --------- --------- --------- --------- ----------
Balance, June 30, 1997..... $7,381 $ 66,150 $ 56,865 ($ 4,263) ($ 4,276) ($ 7,948) $ 120 $ 114,029
------ --------- --------- --------- --------- --------- --------- ----------
------ --------- --------- --------- --------- --------- --------- ----------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the
Six Months
Ended
-------------
June 30, June 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income........................................................... $ 3,547 $ 3,633
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization...................................... 1,415 551
Provision for Loan Losses.......................................... 404 17
Compensation Expense Recognized on RRP............................. 201 31
Loss (Gain) on Sale of Premises and Equipment...................... 7 (57)
Loss (Gain) on Sale of Real Estate Owned........................... (64) 16
Write-Down of Real Estate Owned to Market Value.................... 0 0
Gain on Loans Sold................................................. (91) 0
(Gain) Loss on Sale of Investments................................. 0 0
Amortization of Premium/Discount on Investments.................... 170 242
Current Provision for Deferred Income Taxes........................ 0 0
FHLB Stock Dividends............................................... (170) (114)
Loans Originated for Resale........................................ (6,827) 0
Proceeds From Loans Sold to Others................................. 6,918 0
Income Reinvested on Marketable Equity Security.................... (163) (151)
ESOP Contribution.................................................. 773 574
Net Change in Securities Classified as Trading..................... (116) (2,291)
Changes in Assets and Liabilities:
Decrease (Increase) in Accrued Interest Receivable............... (261) 250
Decrease (Increase) in Other Assets and Other Liabilities........ 263 76
------- ---------
Net Cash Provided by Operating Activities............................. 6,006 2,777
------- ---------
Cash Flows From Investing Activities:
Proceeds from Sales of Available for Sale Securities............... 0 0
Proceeds from Maturities of Held to Maturity Securities............ 406 2,142
Proceeds from Maturities of Available for Sale Securities.......... 27,000 23,625
Purchases of Securities Held to Maturity........................... 0 (1,576)
Purchases of Securities Available for Sale......................... (30,335) (2,995)
Increase in Loans Receivable, Net.................................. (45,537) (26,770)
Proceeds from ESOP Note Repayment.................................. 841 0
Proceeds from Sale of Premises and Equipment....................... 0 128
Purchases of Premises and Equipment................................ (2,820) (1,035)
Proceeds from FHLB Stock Redemption................................ 0 0
Proceeds from Disposition of Real Estate Owned..................... 703 53
Purchases of Mortgage-Backed Securities............................ 0 0
Principal Collections on Mortgage-Backed Securities................ 16,134 4,219
Cash Paid In Excess of Cash Received on Bank Acquisitions.......... 0 5,614
Other Investing Activities......................................... 0 (75)
------- -------
Net Cash Provided by (Used in) Investing Activities................... (33,608) 3,330
------- -------
Cash Flows From Financing Activities:
Net Change in Demand, NOW, Money Market and Savings Deposit........ (78) 6,118
Net Change in Time Deposits........................................ 16,384 1,165
(Decrease) Increase in Escrow Funds and Miscellaneous
Deposits, Net.................................................... 211 (14)
Proceeds From FHLB Advances........................................ 0 8,195
Principal Repayments of FHLB Advances.............................. (503) (449)
Proceeds from Issuance of Common Stock............................. 0 0
Dividends Paid to Shareholders..................................... (1,206) (1,056)
Acquisition of Common Stock by RRP................................. 0 (4,687)
Purchase of Treasury Stock......................................... (3,089) 0
Stock Conversion Costs Incurred.................................... 0 0
-------- --------
Net Cash Provided by (Used in) Financing Activities................... 11,719 9,272
-------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents................. (15,883) 15,379
Cash and Cash Equivalents at Beginning of Year....................... 53,385 51,742
-------- --------
Cash and Cash Equivalents at End of Period........................... $ 37,502 $ 67,121
--------- --------
--------- --------
Supplemental Schedule of Noncash Activities:
Acquisition of Real Estate in Settlement of Loans................ $ 221 $ 108
Supplemental Disclosures:
Cash Paid For:
Interest on Deposits and Borrowings............................... $ 18,143 $ 11,807
Income Taxes...................................................... $ 2,075 $ 1,663
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
6
<PAGE>
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.
BUSINESS
The Company's principal business is conducted through it's wholly owned
subsidiaries, Iberia Savings Bank, which conducts business from its main
office located in New Iberia, Louisiana and 18 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
Bank, which conducts business from its main office located in Gretna,
Louisiana and 7 full-service branch offices located in the cities of Gretna,
Marrero, River Ridge, Metairie, New Orleans and Kenner. The Banks' deposits
are insured by the Federal Deposit Insurance Corporation ("FDIC") to the
maximum extent permitted by law. The Company has previously announced its
intentions to merge Jefferson Bank with and into Iberia Savings Bank and to
convert Iberia Savings Bank to a Louisiana chartered commercial bank. It is
anticipated that the transactions will be consummated in the third quarter of
1997. The Banks are 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 FDIC 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.
7
<PAGE>
(2) LOANS RECEIVABLE
Loans receivable (in thousands) at June 30, 1997 and December 31, 1996
consisted of the following:
June 30, Dec. 31,
1997 1996
---------- ----------
Mortgage Loans:
Single-Family Residential.................. $ 385,745 $ 386,555
Multifamily................................ 2,298 2,279
Commercial Real Estate..................... 35,560 22,961
Construction............................... 11,343 14,064
---------- ----------
Total Mortgage Loans..................... 434,946 425,859
---------- ----------
Commercial Business Loans..................... 44,878 36,089
---------- ----------
Consumer Loans:
Home Equity................................ $ 28,438 $ 25,918
Automobile................................. 8,026 7,509
Indirect Automobile........................ 76,037 52,371
Mobile Home Loans.......................... 3,630 4,215
Educational Loans.......................... 9,385 9,345
Credit Card Loans.......................... 3,802 4,017
Loans on Savings........................... 12,334 12,487
Other...................................... 5,125 3,953
---------- ----------
Total Consumer Loans..................... 146,777 119,815
---------- ----------
Total Loans Receivable................... 626,601 581,763
---------- ----------
Adjustments:
Allowance for Loan Losses..................... (4,960) (4,615)
Loans-in-Process.............................. (6,872) (6,059)
Prepaid Dealer Participation.................. 3,575 2,555
Unearned Interest............................. (157) (143)
Deferred Loan Fees, Net....................... (868) (922)
Discount on Loans Purchased................... (1,288) (1,460)
---------- ----------
Loans Receivable, Net......................... $ 616,031 $ 571,119
---------- ----------
---------- ----------
8
<PAGE>
(3) EARNINGS PER SHARE
Primary earnings per share were based on 6,421,433 weighted average shares
outstanding during the three month period ended June 30, 1997 and 6,438,482
weighted average shares outstanding during the six months ended June 30,
1997. Fully diluted earnings per share were based on 6,470,182 weighted
average shares outstanding during the three month period ended June 30, 1997
and 6,480,341 weighted average shares outstanding during the six months ended
June 30, 1997. For the three months ended June 30, 1997, the weighted average
number of common shares outstanding excludes (a) the weighted average
unreleased shares owned by the ESOP of 435,012; (b) the weighted average
shares owned by the Management Recognition Plan and Trust of 285,775 and (c)
the weighted average shares purchased in Treasury Stock of 459,201. For the
six months ended June 30, 1997, the weighted average number of common shares
outstanding excludes (a) the weighted average unreleased shares owned by the
ESOP of 443,734; (b) the weighted average shares owned by the Management
Recognition Plan and Trust of 290,475 and (c) the weighted average shares
purchased in Treasury Stock of 416,074.
In February of 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
At June 30, 1997, the consolidated assets of the Company totalled $947.1
million, an increase of $17.8 million or 1.9% from December 31, 1996.
Loans receivable, net, increased by $44.9 million, or 7.9%, to $616.0 million
at June 30, 1997, compared to $571.1 million at December 31, 1996. Such
increase was the result of a $12.6 million, or 54.9%, increase in commercial
real estate loans, a $8.8 million, or 24.4%, increase in commercial business
loans, a $2.5 million, or 9.7%, increase in home equity loans, a $23.7
million, or 45.2%, increase in indirect automobile loans and a $1.2 million,
or 29.6%, increase in other consumer loans. Such increases were partially
offset by a $2.7 million, or 19.3%, decrease in construction loans. The
changes in the loan portfolio reflects management's efforts to increase the
originations of commercial real estate, commercial business and indirect
automobile loans. Such loans generally are considered to involve more risk
than 1-4 family residential mortgage loans, but generally have higher yields.
For additional information on loans, see Note 2 to the Notes to Consolidated
Financial Statements.
The increase in loans receivable was funded primarily by a decrease in
interest bearing deposits at other institutions, a decrease in
mortgage-backed securities and by an increase in customer deposits.
Interest bearing deposits at other institutions decreased $18.5 million, or
43.4%, to $24.1 million at June 30, 1997, compared to $42.6 million at
December 31, 1996.
The Company's investment securities available for sale increased $3.3
million, or 3.2%, to $104.4 million at June 30, 1997, compared to $101.1
million at December 31, 1996. Such increase was the result of the purchase of
$30.3 million of investment securities, which was partially offset by the
maturity or redemption of $27.0 million of investment securities together
with a $102,000 decrease in the market value of such securities and $130,000
of net premium amortization on such securities.
Mortgage-backed securities decreased $16.2 million, or 10.7%, from December
31, 1996 to June 30, 1997. Such decrease was attributable entirely to
repayments.
Deposits increased $16.3 million, or 2.1%, to $776.6 million at June 30,
1997, compared to $760.3 million at December 31, 1996. Such increase was due
to $3.1 million of net new deposits together with $13.2 million of interest
credited.
Advances from the FHLB of Dallas decreased $503,000, or 1.1%, to $47.2
million at June 30, 1997, compared to $47.8 million at December 31, 1996. The
decrease in advances was attributable to shceduled payments made. The
advances are amortizing, 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 $23,000 to $114.0 million at June 30,
1997. The increase was the result of the Company's net income of $3.5 million,
$773,000 of common stock released by the ESOPand $201,000 of common stock earned
by participants of the
10
<PAGE>
Recognition and Retention Plan, which was partially offset by the declaration
of cash dividends on common stock of $1.3 million, a $67,000, after deferred
taxes, decrease in net unrealized gains on securities available for sale, and
$3.1 million of stock repurchased into treasury.
RESULTS OF OPERATIONS
The Company reported net income of $1.8 million for the three months ended
June 30, 1997, compared to $1.9 million earned during the three month period
ended June 30, 1996. The Company's net interest income increased by $1.9
million and total noninterest income increased by $655,000 during the three
months ended June 30, 1997 compared to the second quarter of 1996. Such
increases were offset by a $233,000 increase in provision for loan losses, a
$2.3 million increase in noninterest expense and a $102,000 increase in
income tax expense. The increase in noninterest expense includes an increase
of $324,000 in the amortization of goodwill and other acquired intangibles.
For the six months ended June 30, 1997 the Company earned $3.5 million
compared to $3.6 million for the same period of 1996. The Company's net
interest income increased $4.3 million and total noninterest income increased
$1.2 million during the six months ended June 30, 1997 compared to the first
six months of 1996. Such increases were offset by a $387,000 increase in
provision for loan losses, a $4.9 million increase in noninterest expense and
a $330,000 increase in income tax expense when comparing the first six months
of 1997 to the same period of 1996. The increase in noninterest expense
includes an increase of $743,000 in the amortization of goodwill and other
acquired intangibles.
The increases in net interest income, noninterest income and noninterest
expense are due pricipally 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 subusidiary, 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 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.
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 June 30,
------------------------------------------------------------------
1997 1996
------------------------------- ---------------------------------
Yield/Cost Average Average
At June 30, Average Yield/ Average Yield/
1997 Balance Interest Cost(1) Balance Interest Cost(1)
------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Interest-earning assets:
Loans receivable:
Mortgage loans 7.84% $421,252 $ 8,595 8.16% $348,870 $ 7,200 8.26%
Commercial business loans 9.42 43,329 1,118 10.32 22,194 511 9.21
Consumer and other loans 9.59 139,929 3,086 8.82 74,000 1,940 10.49
-------- ------- -------- -------
Total Loans 8.37 604,510 12,799 8.47 445,064 9,651 8.67
-------- ------- -------- -------
Mortgage-backed securities 6.43 138,356 2,214 6.40 51,908 772 5.95
Investment securities 6.71 105,883 1,522 5.75 67,090 1,046 6.24
Other earning assets 6.17 29,443 493 6.70 71,232 939 5.27
-------- ------- -------- -------
Total interest-earning assets 7.81 878,192 17,028 7.76 635,294 12,408 7.81
Non-interest-earning assets 64,004 ------- 33,925 -------
-------- --------
Total assets $942,196 $669,219
-------- --------
-------- --------
Interest-bearing liabilities:
Deposits:
Demand deposits 2.04 $137,935 920 2.67 $ 98,403 491 2.00
Passbook savings deposits 2.60 118,804 765 2.58 58,403 402 2.75
Certificates of deposits 5.66 477,798 6,576 5.51 334,927 4,588 5.48
-------- ------- -------- -------
Total deposits 4.52 734,537 8,261 4.50 491,733 5,481 4.46
Borrowings 6.54 47,413 773 6.52 48,392 787 6.51
-------- ------- -------- -------
Total interest-bearing
liabilities 4.64 781,950 9,034 4.62 540,125 6,268 4.64
Non-interest bearing demand deposits 36,192
Non-interest bearing liabilities 10,247 6,441
-------- --------
Total liabilities 828,389 546,566
Stockholders' Equity 113,807 122,653
-------- --------
Total liabilities and
stockholders' equity $942,196 $669,219
-------- --------
-------- --------
Net interest-earning assets $ 96,242 $ 95,169
-------- --------
-------- --------
Net interest income/interest rate
spread 3.17% $ 7,994 3.13% $6,140 3.17%
---- ------- ---- ------- ----
Net interest margin 3.64% 3.87%
---- ----
Ratio of average interest-earning
assets to average
interest-bearing liabilities 112.31% 117.62%
------ ------
Six Months Ended June 30,
--------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(1) Balance Interest Cost(1)
--------- ----------- --------- --------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $417,720 $16,987 8.13% $344,465 $14,133 8.21%
Commercial business loans 42,568 2,196 10.32 16,847 825 9.79
Consumer and other loans 133,266 5,949 8.93 63,124 3,235 10.25
-------- ------- -------- -------
Total Loans 593,554 25,132 8.47 424,436 18,193 8.57
-------- ------- -------- -------
Mortgage-backed securities 141,992 4,478 6.31 51,291 1,609 6.27
Investment securities 106,261 3,169 5.96 72,262 2,326 6.44
Other earning assets 32,487 1,026 6.32 65,591 1,740 5.31
-------- ------- -------- -------
Total interest-earning assets 874,294 33,805 7.73 613,580 23,868 7.78
Non-interest-earning assets 61,058 ------- 30,348 -------
-------- --------
Total assets $935,352 $643,928
-------- --------
-------- --------
Interest-bearing liabilities:
Deposits:
Demand deposits $137,112 1,773 2.59 $ 86,767 908 2.09
Passbook savings deposits 119,633 1,530 2.56 54,500 749 2.75
Certificates of deposits 473,388 12,935 5.46 327,871 8,983 5.48
-------- ------- -------- -------
Total deposits 730,133 16,238 4.45 469,138 10,640 4.54
Borrowings 47,538 1,542 6.49 47,185 1,540 6.53
-------- ------- -------- -------
Total interest-bearing
liabilities 777,671 17,780 4.57 516,323 12,180 4.72
Non-interest bearing demand
deposits 34,589
Non-interest bearing liabilities 9,132 5,970
-------- --------
Total liabilities 821,392 522,293
Stockholders' Equity 113,960 121,635
-------- --------
Total liabilities and
stockholders' equity $935,352 $643,928
-------- --------
-------- --------
Net interest-earning $ 96,623 $ 97,257
-------- --------
-------- --------
Net interest income/interest rate
spread $16,025 3.16% $11,688 3.06%
------- ---- ------- ----
Net interest margin 3.67% 3.81%
---- ----
Ratio of average interest-earning
assets to average
interest-bearing liabilities 112.42% 118.84%
------ ------
</TABLE>
- ------------------------
(1) Annualized.
12
<PAGE>
Net Interest Income
Net interest income increased $1.9 million, or 30.2%, to $8.0 million in the
three months ended June 30, 1997, compared to $6.1 million in the three
months ended June 30, 1996. The increase was due to a $4.6 million, or 37.2%,
increase in interest income, which was partially offset by a $2.8 million, or
44.1%, increase in interest expense. The increase in interest income was the
result of a $242.9 million, or 38.2%, increase in the average balance of
interest-earning assets, which was partially offset by a five basis point
(100 basis points being equal to 1%) decrease in the yield thereon. The
increase in interest expense was the result of a $241.8 million, or 44.8%,
increase in the average balance of interest-bearing liabilities, which was
partially offset by a two 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 3.13% and 3.64%,
respectively, during the three months ended June 30, 1997, compared to 3.17%
and 3.87%, respectively, for the comparable period in 1996.
The increase in average interest-earning assets and interest-bearing
liabilities was the result primarily of the two 1996 acquisitions.
For the six month period ending June 30, 1997, net interest income increased
$4.3 million, or 37.1%, to $16.0 million compared to $11.7 million for the
same period in 1996. The increase was due to a $9.9 million, or 41.6%,
increase in interest income, which was partially offset by a $5.6 million, or
46.0%, increase in interest expense. The increase in interest income was the
result of a $260.7 million, or 42.5%, increase in the average balance of
interest-earning assets, which was partially offset by a five basis point
decrease in the yield thereon. The increase in interest expense was the
result of a $261.3 million, or 50.6%, increase in the average balance of
interest-bearing liabilities, which was partially offset by a 15 basis point
decrease in the cost thereon. The Company's interest rate spread and net
interest margin amounted to 3.16% and 3.67%, respectively, during the six
months ended June 30, 1997, compared to 3.06% and 3.81%, respectively, for
the comparable period in 1996.
Interest Income
The Company's total interest income was $17.0 million for the three months
ended June 30, 1997, compared to $12.4 million for the three months ended
June 30, 1996. The reasons for the $4.6 million, or 37.2%, increase in
interest income were a $3.1 million, or 32.6%, increase in interest income
from loans, a $476,000, or 45.5%, increase in interest and dividends on
investment securities and a $1.4 million, or 186.8%, increase in interest
income from mortgage-backed securities, which was partially offset by a
$446,000, or 47.5%, decrease in interest on deposits held at other financial
institutions. The increase in interest income from loans was the result of a
$159.4 million, or 35.8%, increase in the average balance of loans, which was
partially offset by a 20 basis point decrease in the yield earned thereon.
The increase in interest and dividends on investment securities was the
result of a $38.8 million, or 57.8%, increase in the average balance of
investment securities, which was partially offset by a 49 basis point
decrease in the yield earned thereon. The increase in interest income from
13
<PAGE>
mortgage-backed securities was the result of a $86.4 million, or 166.5%,
increase in the average balance of mortgage-backed securities, together with
a 45 basis point increase in the yield earned thereon. The decrease in
interest on other earning assets, primarily deposits at other financial
institutions, was the result of a $41.8 million, or 58.7%, decrease in the
average balance of other earning assets, which was partially offset by a 143
basis point increase in the yield earned thereon.
For the six months ended June 30, 1997, total interest income was $33.8
million compared to $23.9 million for the same period in 1996. The reasons
for the $9.9 million, or 41.6%, increase in interest income were a $6.9
million, or 38.1%, increase in interest income from loans, a $843,000, or
36.2%, increase in interest and dividends from investment securities and a
$2.9 million, or 178.3%, increase in interest income from mortgage-backed
securities, which was partially offset by a $714,000, or 41.0%, decrease in
interest income from deposits held at other financial institutions. The
increase in interest income from loans was the result of a $169.1 million, or
39.8%, increase in the average balance of loans, which was partially offset
by a 10 basis point decrease in the yield earned thereon. The increase in
interest and dividends on investment securities was the result of a $34.0
million, or 47.0%, increase in the average balance of investment securities,
which was partially offset by a 48 basis point decrease in the yield earned
thereon. The increase in interest income from mortgage-backed securities was
the result of a $90.7 million, 176.8%, increase in the average balance of
mortgage-backed securities, together with a 4 basis point increase in the
yield earned thereon. The decrease in interest income from other earning
assets was the result of a $33.1 million, or 50.5%, decrease in the average
balance of other earning assets, which was partially offset by a 101 basis
point increase in the yield earned thereon.
Interest Expense
The Company's total interest expense was $9.0 million during the three months
ended June 30, 1997, compared to $6.3 million for the three months ended June
30, 1996. The reason for the $2.8 million, or 44.1%, increase in interest
expense was a $2.8 million, or 50.7%, increase in interest expense on
deposits due to a $242.8 million, or 49.4%, increase in the average balance
of deposits, together with a four basis point increase in the average cost
thereof, which was partially offset by a $14,000, or 1.8%, decrease in
interest expense paid on advances from the FHLB due to a $979,000, or 2.0%,
decrease in the average balance of advances, which was partially offset by a
one basis point increase in the cost thereof. The borrowings from the FHLB
are used to fund fixed-rate, long term single-family residential loans.
For the six months ended June 30, 1997, the company's total interest expense
was $17.8 million, compared to $12.2 million for the same period in 1996. The
reason for the $5.6 million, or 46.0%, increase in interest expense was a
$5.6 million, or 52.6%, increase in interest expense on deposits due to a
$261.0 million, or 55.6%, increase in the average balance of deposits, which
was partially offset by a nine basis point decrease in the cost thereof.
Interest expense on borrowings remained unchanged at $1.5 million for the six
months ended June 30, 1997 and 1996.
14
<PAGE>
Provision For Loan Losses
The provision for loan losses was $242,000 in the three months ended June 30,
1997 as compared to $9,000 for the same period in 1996. The increased
provision for loan losses was due to the increase in net loans experienced
during the period. As of June 30, 1997, the ratio of the Company's allowance
for loan losses to non-performing loans was 224.4%.
The provision for loan losses was $404,000 in the six months ended June 30,
1997, compared to $17,000 for the same period in 1996.
Noninterest Income
Noninterest income increased $655,000, or 74.0%, in the three months ended
June 30, 1997 to $1.5 million, compared to $885,000 for the three months
ended June 30, 1996. Such increase was due primarily to a $353,000, or 79.3%,
increase in service charges on deposit accounts, a $103,000, or 46.2%,
increase in late charges and other fees on loans and a $199,000, or 91.7%,
increase in other income. The increase in service charges on deposit accounts
was due primarily to the increased number of accounts that are subject to
such service charges.
For the six months ended June 30, 1997, noninterest income increased $1.2
million, or 69.1%, to $2.8 million, compared to $1.7 million for the same
period in 1996. Such increase was due primarily to a $680,000, or 81.8%,
increase in service charges on deposit accounts, a $133,000, or 33.8%,
increase in late charges and other fees on loans and a $343,000, or 76.4%,
increase in other income.
Noninterest Expense
Noninterest expense increased $2.3 million, or 55.4%, in the three months
ended June 30, 1997 to $6.4 million, compared to $4.1 million in the three
months ended June 30, 1996. Such increase was due primarily to a a $1.1
million, or 55.0%, increase in salaries and employee benefits due primarily
to expense of the ESOP and management recognition plans and salaries and
benefits associated with the additional personnel needed to staff the branch
offices acquired in 1996 and the two branch offices opened in 1997, a
$139,000, or 49.8%, increase in occupancy expense due primarily to the 10
additional branches during the 1997 period compared to the 1996 period, a
$129,000, or 90.8%, increase in computer expense, a $344,000 increase in
amortization of goodwill and other acquired intangibles due to the Royal
acquisition which took place in May of 1996 and the Jefferson acquisition
which was consumated in October of 1996, and a $678,000, or 77.1%, increase
in other noninterest expense, which was partially offset by a $143,000, or
55.6%, decrease in SAIF deposit insurance premium.
For the six months ended June 30, 1997, noninterest expense increased $4.9
million, or 63.5%, to $12.5 million compared to $7.7 million for the same
period in 1996. Such increase was primarily due to a $2.6 million, or 68.0%,
increase in salaries and employee benefits, a $337,000, or 68.9%, increase in
occupancy expense, a $328,000, or 116.3%, increase in computer expense, a
$743,000 increase in amortization of goodwill and other acquired intangibles
and a $1.1 million, or 67.5%, increase in other noninterest expense, which
was partially offset by a $283,000, or 55.7%, decrease in SAIF deposit
insurance premium.
15
<PAGE>
Income Tax Expense
Income tax expense increased $102,000, or 9.7%, in the three months ended
June 30, 1997 to $1.2 million, compared to $1.1 million for the three months
ended June 30, 1996. The increase in income tax expense reflects a increase
in the effective tax rate due primarily to the nondeductability of the
amortization of goodwill and other acquired intangibles for tax purposes.
For the six months ended June 30, 1997, income tax expense increased
$330,000, or 16.1%, to $2.4 million compared to $2.1 million for the same
period in 1996.
Liquidity and Capital Resources
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, borrowings, amortization, prepayments
and maturities of outstanding loans and mortgage-backed securities,
maturities of investment securities and other short-term investments and
funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-backed securities and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan and mortgage-backed security prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in overnight
deposits and other short-term interest-earning assets which provide liquidity
to meet lending requirements. The Bank has been able to generate sufficient
cash through its deposits as well as borrowings. At June 30, 1997, the
Company had $47.2 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 June
30, 1997, the total approved loan commitments outstanding amounted to $26.8
million. At the same time, commitments under unused lines of credit,
including credit card lines, amounted to $61.6 million. Certificates of
deposit scheduled to mature in twelve months or less at June 30, 1997
totalled $253.4 million. Based on past experience, management believes that a
significant portion of maturing deposits will remain with the Bank. The
Company anticipates it will continue to have sufficient funds to meet its
liquidity requirements.
16
<PAGE>
At June 30, 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 June 30, 1997 are detailed below
(dollars in thousands):
<TABLE>
<CAPTION>
Required Capital Actual Capital
------------------- ----------------------
Amount Percent Amount Percent
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Tier 1 Leverage...................... $28,461 3.00% $ 96,888 10.21%
Tier 1 Risk-Based.................... $20,333 4.00% $ 96,888 19.06%
Total Risk-Based..................... $40,665 8.00% $101,848 20.04%
</TABLE>
17
<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
The Company's Annual Meeting of Stockholders was held on April 16, 1997.
1. With respect to the election of four directors to serve three-year terms
expiring at the Annual Meeting of Stockholders to be held in the year 2000 or
until their respective successors are elected and qualified, the following are
the number of shares voted for each nominee:
Cecil C. Broussard For 6,207,924 Withheld 19,669
Ray Hime For 6,208,126 Withheld 19,467
Larrey G. Mouton For 6,173,216 Withheld 54,377
Emile J. Plaisance, Jr. For 6,208,361 Withheld 19,232
2. With respect to the ratification of Castaing, Hussey & Lolan, L.L.P. as
the Company's independent auditors for the fiscal year endeding December 31,
1997, the following are the number of shares voted:
For 6,198,885 Against 22,913 Abstain 5,794
3. With respect to the amendment of the Company's Bylaws to require that a
majority of the members of its Board of Directors be legal residents of Iberia
Parish, Louisiana, the following are the number of shares voted:
For 937,915 Against 3,569,711 Abstain 30,053
There were 1,689,914 "broker non-votes" cast at the Annual Meeting.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Not applicable.
b) No Form 8-K reports were filed during the quarter.
18
<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
Date: August 8, 1997 By: /s/ Larrey G. Mouton
---------------------------------
Larrey G. Mouton, President and
Chief Executive Officer
Date: August 8, 1997 By: /s/ Thomas E. Harrison
---------------------------------
Thomas E. Harrison,
Senior Vice President and
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT JUNE 30, 1997 AND DECEMBER 31, 1996, CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996, AND
FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,412
<INT-BEARING-DEPOSITS> 24,090
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 480
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 136,319
<INVESTMENTS-MARKET> 136,237
<LOANS> 616,031
<ALLOWANCE> (4,960)
<TOTAL-ASSETS> 947,107
<DEPOSITS> 776,590
<SHORT-TERM> 47,247
<LIABILITIES-OTHER> 9,241
<LONG-TERM> 0
0
0
<COMMON> 7,381
<OTHER-SE> 106,648
<TOTAL-LIABILITIES-AND-EQUITY> 947,107
<INTEREST-LOAN> 25,132
<INTEREST-INVEST> 7,647
<INTEREST-OTHER> 1,026
<INTEREST-TOTAL> 33,805
<INTEREST-DEPOSIT> 16,238
<INTEREST-EXPENSE> 17,780
<INTEREST-INCOME-NET> 16,025
<LOAN-LOSSES> 404
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,522
<INCOME-PRETAX> 5,928
<INCOME-PRE-EXTRAORDINARY> 5,928
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,547
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 3.64
<LOANS-NON> 2,100
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,756
<ALLOWANCE-OPEN> 4,617
<CHARGE-OFFS> 225
<RECOVERIES> 194
<ALLOWANCE-CLOSE> 404
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,960
</TABLE>
