<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 0-25756
ISB Financial Corporation
____________________________________________________________
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
_________________________________________________ ______________________
(State or other jurisdiction of incorporation (I.R.S. Employer
or 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 April 22, 1999, 6,788,866 shares of the Registrant's common stock
were issued and outstanding. Of that total, 573,654 shares are held by
the Registrant's Employee Stock Ownership Plan, of which 326,659 shares
were not committed to be released.
<PAGE> 2
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
(As of March 31, 1999 and December 31, 1998)
Consolidated Statements of Income (For the three months 4
ended March 31, 1999 and 1998)
Consolidated Statements of Stockholders' Equity (For the 5
three months ended March 31, 1999 and 1998)
Consolidated Statements of Cash Flows (For the three 6
months ended March 31, 1999 and 1998)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE> 3
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash and Cash Equivalents:
Cash on Hand and Due from Banks $ 34,186 $ 36,953
Interest Bearing Deposits 74,497 108,918
Investment Securities:
Held to Maturity (fair value of $2,260 and $2,675, 2,259 2,673
respectively)
Available for Sale, at fair value 110,754 97,085
Mortgage-Backed Securities Held to Maturity (fair 270,539 277,798
value of $268,488 and $277,692, respectively)
Loans Held For Sale 12,950 18,495
Loans Receivable, Net 760,227 761,175
Foreclosed Property 370 384
Premises and Equipment, Net 27,950 27,326
Federal Home Loan Bank Stock, at Cost 10,384 10,245
Accrued Interest Receivable 6,774 7,667
Goodwill and Acquisition Intangibles 44,499 45,352
Other Assets 6,342 7,559
----------- -----------
TOTAL ASSETS $ 1,361,731 $ 1,401,630
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 1,177,164 $ 1,218,698
Federal Home Loan Bank Advances 45,356 45,639
Long Term Debt 1,000 0
Advance Payments by Borrowers for Taxes and Insurance 1,403 1,228
Accrued Interest Payable on Deposits 6,280 6,708
Accrued and Other Liabilities 6,737 5,390
----------- -----------
TOTAL LIABILITIES 1,237,940 1,277,663
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock of $1 par value; 5,000,000 shares authorized 0 0
-0- shares issued or outstanding
Common Stock of $1 par value, authorized 25,000,000 7,381 7,381
shares, 7,380,671 shares issued
Additional Paid-in Capital 68,208 68,021
Retained Earnings (Substantially Restricted) 65,412 63,527
Unearned Common Stock Held by ESOP (3,109) (3,267)
Unearned Common Stock Held by RRP Trust (3,578) (3,683)
Treasury Stock, 566,805 and 498,805 shares, at cost (9,735) (8,361)
Accumulated Other Comprehensive Income (788) 349
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 123,791 123,967
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,361,731 $ 1,401,630
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
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,
--------------------
1999 1998
------- -------
<S> <C> <C>
INTEREST INCOME:
Interest on Loans $16,108 $14,033
Interest and Dividends on Investment Securities 1,700 1,234
Interest on Mortgage-Backed Securities 4,325 1,811
Interest on Deposits 843 486
------- -------
Total Interest Income 22,976 17,564
------- -------
INTEREST EXPENSE:
Interest on Deposits 10,270 7,793
Interest on Federal Home Loan Bank Advances 735 753
------- -------
Total Interest Expense 11,005 8,546
------- -------
Net Interest Income 11,971 9,018
Provision for Loan Losses 370 230
------- -------
Net Interest Income After Provision for Loan Losses 11,601 8,788
------- -------
NONINTEREST INCOME:
Gain on the Sale of Property 38 14
Gain on the Sale of Loans 302 179
Service Charges on Deposit Accounts 1,880 923
Late Charges and Other Fees on Loans 480 323
Other Income 784 358
------- -------
Total Noninterest Income 3,484 1,797
------- -------
NONINTEREST EXPENSE:
Salaries and Employee Benefits 5,133 3,520
SAIF Deposit Insurance Premium 121 110
Depreciation Expense 651 407
Occupancy Expense 777 475
Computer Expense 6 292
Marketing and Advertising 235 213
Franchise and Shares Tax Expense 267 249
Amortization of Goodwill and Other Acquired Intangibles 853 369
Other Expenses 2,428 1,417
------- -------
Total Noninterest Expense 10,471 7,052
------- -------
Income Before Income Tax Expense 4,614 3,533
Income Tax Expense 1,755 1,386
------- -------
NET INCOME $ 2,859 $ 2,147
======= =======
EARNINGS PER SHARE - BASIC $ 0.45 $ 0.34
======= =======
EARNINGS PER SHARE - DILUTED $ 0.44 $ 0.33
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unearned
Unearned Common
Additional Common Stock
Common Paid In Retained Stock Held Held By
Stock Capital Earnings By ESOP RRP Trust
------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $7,381 $66,798 $57,096 ($3,921) ($4,082)
Comprehensive Income:
Net Income 2,147
Change in Unrealized Gain (Loss) on
Securities Available for Sale
Net of Deferred Taxes of $20
Total Comprehensive Income
Cash Dividends Declared (911)
Common Stock Released by 259 166
ESOP Trust
Common Stock earned by Participants 10 101
of Management Recognition Plan
Treasury Stock Acquired 5
------ ------- ------- ------- -------
BALANCE, MARCH 31, 1998 $7,381 $67,072 $58,332 ($3,755) ($3,981)
====== ======= ======= ======= =======
BALANCE, DECEMBER 31, 1998 $7,381 $68,021 $63,527 ($3,267) ($3,683)
Comprehensive Income:
Net Income 2,859
Change in Unrealized Gain (Loss) on
Securities Available for Sale
Net of Deferred Taxes of ($406)
Total Comprehensive Income
Cash Dividends Declared (974)
Common Stock Released by 174 158
ESOP Trust
Common Stock Earned by Participants 12 105
of Recognition and Retention
Plan Trust
Treasury Stock Acquired
Stock Options Exercised 1
------ ------- ------- ------- -------
BALANCE, MARCH 31, 1999 $7,381 $68,208 $65,412 ($3,109) ($3,578)
====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Treasury Comprehensive Stockholders'
Stock Income Equity
-------- ------------- ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 ($7,929) $ 221 $115,564
Comprehensive Income:
Net Income 2,147
Change in Unrealized Gain (Loss) on 38 38
Securities Available for Sale
Net of Deferred Taxes of $20
--------
Total Comprehensive Income 2,185
Cash Dividends Declared (911)
Common Stock Released by 425
ESOP Trust
Common Stock earned by Participants 111
of Management Recognition Plan
Treasury Stock Acquired 63 68
------- ------- --------
BALANCE, MARCH 31, 1998 ($7,866) $ 259 $117,442
======= ======= ========
BALANCE, DECEMBER 31, 1998 ($8,361) $ 349 $123,967
Comprehensive Income:
Net Income 2,859
Change in Unrealized Gain (Loss) on (1,137) (1,137)
Securities Available for Sale
Net of Deferred Taxes of ($406)
--------
Total Comprehensive Income 1,722
Cash Dividends Declared (974)
Common Stock Released by 332
ESOP Trust
Common Stock Earned by Participants 117
of Recognition and Retention
Plan Trust
Treasury Stock Acquired (1,389) (1,389)
Stock Options Exercised 15 16
------- ------- --------
BALANCE, MARCH 31, 1999 ($9,735) ($788) $123,791
======= ===== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
------------------------
1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,859 $ 2,147
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 1,655 809
Provision for Loan Losses 370 230
Compensation Expense Recognized on RRP 117 111
(Gain) Loss on Sale of Premises and Equipment (38) (12)
(Gain) Loss on Sale of Real Estate Owned 31 17
Gain on Sale of Loans Held for Sale (302) (166)
Gain on Sale of Investments 0 0
Amortization of Premium/Discount on Investments 32 (54)
Current Provision for Deferred Income Taxes (4) (32)
FHLB Stock Dividends (139) (91)
Loans Originated for Resale (19,324) (12,206)
Proceeds from Loans Sold to Others 29,622 11,105
Income Reinvested on Marketable Equity Securities (79) (82)
ESOP Contribution 332 370
Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable 893 271
Decrease (Increase) in Other Assets and Other Liabilities 3,591 3,483
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 19,616 $ 5,900
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Maturities of Held to Maturity Securities $ 414 $ 365
Proceeds From Maturities of Available for Sale Securities 9,500 12,845
Principal Collections on Mortgage-Backed Securities 16,951 10,664
Purchases of Securities Available for Sale (24,837) 0
Purchases of Mortgage-Backed Securities (9,699) 0
Decrease (Increase) in Loans Receivable, Net (4,103) (12,878)
Proceeds From Sale of Premises and Equipment 87 202
Purchases of Premises and Equipment (1,324) (684)
Proceeds From Disposition of Real Estate Owned 206 157
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ (12,805) $ 10,671
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Demand, NOW, Money Market and
Savings Deposits $ (16,177) $ 4,961
Net Change in Time Deposits (25,357) (11,833)
Increase in Escrow Funds and Miscellaneous
Deposits, Net 175 179
Principal Repayments of FHLB Advances (283) (266)
Dividends Paid to Shareholders (984) (750)
Proceeds From Sale of Treasury Stock 16 68
Payments to Repurchase Common Stock (1,389) 0
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ (43,999) $ (7,641)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (37,188) $ 8,930
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 145,871 44,307
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,683 $ 53,237
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of Real Estate in Settlement of Loans $ 225 $ 187
========= ========
SUPPLEMENTAL DISCLOSURES:
Cash Paid (Received) For:
Interest on Deposits and Borrowings $ 11,433 $ 8,587
========= ========
Income Taxes $ 450 $ 0
========= ========
Income Tax Refunds $ 0 $ 0
========= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
ISB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with the instructions to Form 10-Q, and therefore, do not
include information or footnotes necessary for a complete presentation
of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. All normal,
recurring adjustments, which, in the opinion of management, are
necessary for a fair presentation of the financial statements, have
been included. These interim financial statements should be read in
conjunction with the audited financial statements and note disclosures
for ISB Financial Corporation (the "Company") previously filed with the
Securities and Exchange Commission in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
BUSINESS
The Company's principal business is conducted through its wholly owned
subsidiary, IBERIABANK (the "Bank"), which conducts business from its
main office located in New Iberia, Louisiana and 43 full-service branch
offices located in the cities of New Iberia, Lafayette, Scott,
Carencro, St. Martinville, Crowley, Rayne, Kaplan, Jeanerette,
Franklin, Morgan City, Abbeville, Ruston, Monroe, West Monroe, Gretna,
Marrero, River Ridge, Metairie, New Orleans and Kenner, Louisiana. The
Federal Deposit Insurance Corporation ("FDIC") insures the Bank's
deposits to the maximum extent permitted by law. The Bank is a
Louisiana chartered commercial bank. The Bank is subject to examination
and regulation by the Office of Financial Institutions of the State of
Louisiana, which is the Bank's chartering authority and primary
regulator. The Bank is also subject to regulation by the FDIC and to
certain reserve requirements established by the Federal Reserve Board
("FRB"). The Bank is a member of the Federal Home Loan Bank of Dallas
("FHLB").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, the Bank and the Bank's wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated
in consolidation.
2. LONG TERM DEBT
On March 4, 1999, the Company entered into a revolving line of credit
agreement with Union Planters Bank, N.A in the amount of $15.0 million.
This revolving line of credit is to be used for general operating
purposes, including the repurchase of the Company's common stock and
for capital investment in the Bank. The maturity date of the agreement
is March 31, 2001. The Company is required to make quarterly payments
of interest at an interest rate equal to Wall Street Prime minus .50%
and any balance outstanding under the agreement will be due at
maturity. As security for the line of credit, the Company has pledged
100% of the outstanding common stock of the Bank. At March 31, 1999,
the Company had drawn $1.0 million on the line of credit.
7
<PAGE> 8
3. LOANS RECEIVABLE
Loans receivable (in thousands) at March 31, 1999 and December 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1999 1998
--------- ---------
<S> <C> <C>
Residential Mortgage Loans:
Single-family $ 284,961 $ 301,468
Construction 6,662 7,549
--------- ---------
Total Residential Mortgage Loans 291,623 309,017
Commercial Loans:
Business 86,158 83,368
Real Estate 126,092 117,628
--------- ---------
Total Commercial Loans 212,250 200,996
Consumer Loans:
Home Equity 73,435 73,184
Automobile 23,353 24,630
Indirect Automobile 122,863 114,337
Mobile Home 2,330 2,511
Educational 265 624
Credit Card 4,713 4,584
Loans on Savings 6,746 8,104
Other 26,565 27,753
--------- ---------
Total Consumer Loans 260,270 255,727
--------- ---------
Total Loans Receivable 764,143 765,740
Adjustments:
Allowance for Loan Losses (7,178) (7,135)
Prepaid Dealer Participation 4,681 4,145
Unearned Interest (209) (236)
Deferred Loan Fees & Purchased Discounts, Net (1,210) (1,339)
--------- ---------
Loans Receivable, Net $ 760,227 $ 761,175
--------- ---------
</TABLE>
4. EARNINGS PER SHARE
Basic earnings per share were based on 6,294,832 weighted average
shares outstanding during the three month period ended March 31, 1999.
Diluted earnings per share were based on 6,439,937 weighted average
shares outstanding during the three month period ended March 31, 1999.
For the three months ended March 31, 1999, the weighted average number
of common shares outstanding excludes (a) the weighted average
unreleased shares owned by the Employee Stock Ownership Plan ("ESOP")
of 318,799; (b) the weighted average shares owned by the Management
Recognition Plan and Trust of 246,403 and (c) the weighted average
shares purchased in Treasury Stock of 510,637.
8
<PAGE> 9
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which
may be identified by the use of such words as "believe," "expect,"
"anticipate," "should," "planned," "estimated" and "potential."
Examples of forward-looking statements include, but are not limited to,
estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from
the estimates. These factors include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan
demand, real estate values, and competition; changes in accounting
principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory,
and technological factors affecting the Company's operations, pricing,
products and services.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
At March 31, 1999, the consolidated assets of the Company totaled $1.36
billion, a decrease of $39.9 million, or 2.8%, from December 31, 1998.
Loans receivable, net, decreased by $948,000, or .1%, to $760.2 million
at March 31, 1999 compared to $761.2 million at December 31, 1998. Such
decrease was the result of a $16.5 million, or 5.5%, decrease in the
balance of single-family residential mortgage loans, a $1.3 million, or
5.2%, decrease in automobile loans, a $1.4 million, or 16.8%, decrease
in loans on savings and a $1.2 million, or 4.3%, decrease in other
consumer loans, which was offset by a $2.8 million, or 3.3%, increase
in commercial business loans, a $8.5 million, or 7.2%, increase in
commercial real estate loans and a $8.5 million, or 7.5%, increase in
indirect automobile loans.. The changes in the loan portfolio reflect
management's efforts to increase the originations of commercial real
estate, commercial business, indirect automobile loans and consumer
loans. Such loans generally are considered to involve more risk than 1
- 4 family residential mortgage loans, but generally have higher
yields. The Company's loan to deposit ratio at March 31, 1999 was 64.6%
compared to 62.5% at December 31 1998. For additional information on
loans, see Note 3 to the Consolidated Financial Statements.
Loans held for sale decreased $5.5 million, or 30.0%, to $12.9 million
compared to $18.5 million at December 31, 1998. Loans held for sale are
single-family residential mortgage loans to be sold in the secondary
market.
Interest-bearing deposits at other institutions decreased $34.4
million, or 31.6%, to $74.5 million at March 31, 1999, compared to
$108.9 million at December 31, 1998. Such decrease was primarily used
to fund the purchase of investment securities and to fund the net
decline in deposits.
The Company's investment securities available for sale increased $13.7
million, or 14.1%, to $110.8 million at March 31, 1999, compared to
$97.1 million at December 31, 1998. Such increase was the result of the
purchase of $24.8 million of investment securities available for sale,
which was partially offset by the maturity or redemption of $9.5
million of investment securities available for sale and by $32,000 of
amortization of premium on such securities.
Mortgage-backed securities decreased $7.3 million, or 2.6%, to $270.5
million at March 31, 1999, compared to $277.8 million at December 31,
1998. Such decrease was the result of $17.0 million of repayments of
mortgage-backed securities, which was partially offset by $9.7 million
of purchases of mortgage-backed securities.
Deposits decreased $41.5 million, or 3.4%, to $1,177.2 million at March
31, 1999, compared to $1,218.7 million at December 31, 1998. The
decrease in deposits was primarily the result of a large over-night
deposit made on December 31, 1998 that was withdrawn the next business
day and a decrease in time deposits due to lower pricing of
non-relationship accounts.
9
<PAGE> 10
Total stockholders' equity decreased $176,000, to $123.8 million at
March 31, 1999. The decrease was the result of $1.4 million of treasury
stock acquired, $974,000 of cash dividends declared on common stock and
a $1.1 million, after taxes, decrease in accumulated other
comprehensive income, which was partially offset by the Company's net
income of $2.9 million, $332,000 of common stock released by the ESOP,
$117,000 of common stock earned by participants of the Recognition and
Retention Plan and $16,000 of common stock issued out of treasury.
10
<PAGE> 11
RESULTS OF OPERATIONS
The Company reported net income of $2.9 million for the three months
ended March 31, 1999, compared to $2.1 million earned during the three
months ended March 31, 1998. The Company's net interest income
increased $3.0 million and total noninterest income increased $1.7
million during the three months ended March 31, 1999 compared to the
first quarter of 1998. Such increases were partially offset by a
$140,000 increase in the provision for loan losses, a $3.4 million
increase in noninterest expense and a $369,000 increase in income tax
expense. The increases in interest income, interest expense,
noninterest income and noninterest expense were primarily the result of
the acquisition of branches from the former First Commerce Corporation
("First Commerce") in September 1998. The Bank paid $29.2 million of
cash as a deposit premium and purchased $126.6 million of loans,
$5.7 million of premises and equipment and $753,000 of other assets.
The Bank also assumed $452.6 million of deposits and $2.7 million of
other liabilities from First Commerce. The Bank received $292.4 million
of net cash in the transaction.
11
<PAGE> 12
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company 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,
------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(1) Balance Interest Cost(1)
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $ 314,405 $ 6,151 7.83% $369,581 $ 7,474 8.09%
Commercial loans 199,797 4,358 8.72 117,025 2,912 9.95
Consumer and other loans 262,132 5,600 8.55 175,242 3,647 8.32
---------- -------- -------- -------
Total Loans 776,334 16,109 8.30 661,848 14,033 8.48
---------- -------- -------- -------
Mortgage-backed securities 274,821 4,325 6.30 110,227 1,811 6.57
Investment securities 111,548 1,700 6.10 80,515 1,234 6.13
Other earning assets 80,037 842 4.21 29,466 486 6.60
---------- -------- -------- -------
Total interest-earning assets 1,242,740 22,976 7.40 882,056 17,564 7.97
-------- -------
Non-interest-earning assets 120,616 62,645
---------- --------
Total assets $1,363,356 $944,701
========== ========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 292,971 1,553 2.12 $154,942 976 2.52
Passbook savings deposits 129,653 581 1.79 110,693 651 2.35
Certificates of deposits 643,001 8,136 5.06 461,125 6,166 5.35
---------- -------- -------- -------
Total deposits 1,065,625 10,270 3.86 726,760 7,793 4.29
Borrowings 45,538 735 6.45 46,637 753 6.46
---------- -------- -------- -------
Total interest-bearing
liabilities 1,111,163 11,005 3.96 773,397 8,546 4.42
-------- -------
Non-interest bearing demand deposits 114,767 44,801
Non-interest bearing liabilities 12,999 9,410
---------- --------
Total liabilities 1,238,929 827,608
Stockholders' Equity 124,427 117,093
---------- --------
Total liabilities and stockholders' equity $1,363,356 $944,701
========== ========
Net interest-earning assets $ 131,577 $108,659
========== ========
Net interest income/interest rate
spread $ 11,971 3.43% $ 9,018 3.55%
========= ===== ======== ====
Net interest margin 3.85% 4.09%
===== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 111.84% 114.05%
========== ========
</TABLE>
(1) Annualized.
12
<PAGE> 13
NET INTEREST INCOME
Net interest income increased $3.0 million, or 32.7%, to $12.0 million
in the three months ended March 31, 1999, compared to $9.0 million in
the three months ended March 31, 1998. The increase was due to a $5.4
million, or 30.8% increase in interest income, which was partially
offset by a $2.5 million, or 28.8%, increase in interest expense. The
increase in interest income was the result of a $360.7 million, or
40.9%, increase in the average balance of interest-earning assets,
which was partially offset by a 57 basis point (100 basis points being
equal to 1%) decrease in the yield earned on interest-earning assets.
The increase in interest expense was the result of a $337.8 million, or
43.7%, increase in the average balance of interest-bearing liabilities,
which was partially offset by a 46 basis point decrease in the cost
thereof. The increases in the average balances of interest-earning
assets and interest-bearing liabilities were due primarily to the
acquisition from First Commerce in September 1998. The Company's
interest rate spread (the difference between the weighted average yield
on interest-earning assets and the weighted average cost of interest-
bearing liabilities) and net interest margin (net interest income as
a percentage of average interest-earning assets) amounted to 3.43% and
3.85%, respectively, during the three months ended March 31, 1999,
compared to 3.55% and 4.09%, respectively, for the comparable period in
1998.
INTEREST INCOME
The Company's total interest income was $23.0 million for the three
months ended March 31, 1999, compared to $17.6 million for the three
months ended March 31, 1998. The reason for the $5.4 million, or 30.8%,
increase in interest income was a $2.1 million, or 14.8%, increase in
interest income from loans, a $466,000, or 37.8%, increase in interest
and dividends on investment securities, a $2.5 million, or 138.8%,
increase in interest on mortgage-backed securities and a $357,000, or
73.5%, increase in interest on deposits held at other institutions. The
increase in interest income from loans was the result of a $114.5
million, or 17.3%, increase in the average balance of loans, which was
partially offset by a 18 basis point decrease in the yield earned
thereon. The increase in interest income from investment securities was
the result of a $31.0 million, or 38.5%, increase in the average
balance of investment securities, which was partially offset by a three
basis point decrease in the yield earned thereon. The increase in
interest income from mortgage-backed securities was the result of a
$164.6 million, or 149.3%, increase in the average balance of
mortgage-backed securities, which was partially offset by a 27 basis
point decrease in the yield earned thereon. The increase in interest
from deposits at other institutions was the result of a $50.6 million,
or 171.6%, increase in the average balance of deposits at other
institutions, which was partially offset by a 239 basis point decrease
in the yield earned thereon.
INTEREST EXPENSE
The Company's total interest expense was $11.0 million during the three
months ended March 31, 1999, compared to $8.5 million for the three
months ended March 31, 1998. The reasons for the $2.5 million, or
28.8%, increase in interest expense was a $2.5 million, or 31.8%,
increase in interest expense on deposits due to a $338.9 million, or
46.6%, increase in interest-bearing deposits, which was partially
offset by a 43 basis point decrease in the cost of such deposits. The
increase in interest expense on deposits was partially offset by a
$18,000, or 2.4%, decrease in interest expense on FHLB advances due to
a $1.1 million, or 2.4%, decrease in the average balance of FHLB
advances, together with a one basis point decrease in the cost of such
advances.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $370,000 in the three months ended
March 31, 1999 as compared to $230,000 for the same period in 1998. The
increase in the provision for loan losses was the result of the growth
in the commercial loan and indirect automobile loan portfolios together
with the increase in the amount of non-performing loans. The Company
had $5.1 million of non-performing loans, or
13
<PAGE> 14
.37% of total assets, at March 31, 1999, compared to $2.4 million, or
.26% of total assets, at March 31, 1998. As of March 31, 1999, the
ratio of the Company's allowance for loan losses to non-performing
loans was 142.0%, compared to 126.5% at December 31, 1998.
NONINTEREST INCOME
Noninterest income increased $1.7 million, or 93.9%, in the three
months ended March 31, 1999 to $3.5 million, compared to $1.8 million
for the three months ended March 31, 1998. Such increase was due
primarily to a $123,000, or 68.7%, increase in gain on the sale of
loans in the secondary market, a $957,000, or 103.7%, increase in
service charges on deposit accounts, a $157,000, or 48.6%, increase in
late charges and other fees on loans and a $426,000, or 119.0%,
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.
NONINTEREST EXPENSE
Noninterest expense increased $3.4 million, or 48.5%, in the three
months ended March 31, 1999, to $10.5 million, compared to $7.1 million
for the three months ended March 31, 1998. Such increase was due
primarily to a $1.6 million, or 45.8%, increase in salaries and
employee benefits resulting from the increased staff added in the last
half of 1998 as a result primarily of the branch purchase in September
1998, a $244,000, or 60.0%, increase in depreciation expense primarily
resulting from the fixed assets acquired in the branch purchase in
September 1998 and the in-house data processing system installed in
September 1998, a $302,000, or 63.6%, increase in occupancy expense
primarily resulting from the branch purchase, a $484,000, or 131.2%,
increase in the amortization of goodwill and other acquired intangibles
due to the branch acquisition and a $1.0 million, or 71.3%, increase in
other expenses, which was partially offset by a $286,000, or 97.9%,
decrease in computer expense.
INCOME TAX EXPENSE
Income tax expense increased $369,000, or 26.6%, in the three months
ended March 31, 1999 to $1.8 million, compared to $1.4 million for the
three months ended March 31, 1998. The increase in income tax expense
was due primarily to the increase in income before income taxes.
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
March 31, 1999, the Company had $45.4 million in outstanding advances
from the FHLB of Dallas and $1.0 million in outstanding advances from
Union Planters Bank, N.A.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term
investments such as over-night deposits. On a longer-term basis, the
Company maintains a strategy of investing in various lending products.
The Company uses its sources of funds primarily to meet its ongoing
commitments and to pay maturing savings certificates and saving
withdrawals, fund loan commitments and maintain a portfolio of
mortgage-backed and investment securities. At March 31, 1999, the total
approved loan commitments outstanding amounted to $30.5 million. At the
same time, commitments under unused lines of credit, including credit
card lines, amounted to $64.2 million. Certificates of deposit
scheduled to mature in twelve months or less at March 31, 1999 totaled
$476.2 million. Based on past experience
14
<PAGE> 15
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, 1999, the Company and its subsidiary had regulatory
capital, which was in excess of regulatory requirements. The current
requirements and the Company's actual levels as of March 31, 1999 are
detailed below (dollars in thousands):
<TABLE>
<CAPTION>
Required Capital Actual Capital
------------------ -------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Tier 1 Leverage $38,230 3.00% $80,055 6.28%
Tier 1 Risk-Based $31,825 4.00% $80,055 10.06%
Total Risk-Based $63,650 8.00% $87,217 10.96%
</TABLE>
YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issues affects the ability of computer systems to
correctly process dates after December 31, 1999. These issues not only
affect the Bank, but virtually all companies that utilize computer
information systems.
In November 1997, the Bank established a Y2K Task Force headed by a
member of the Bank's senior management team. The mission of this task
force was to achieve Y2K compliance for all software, hardware and
environmental systems that were dependent upon computer technology for
their operation.
In order to be ready for Year 2000, the Bank's Y2K Task Force developed
a Year 2000 Action and Assessment Plan (the "Action Plan"). The Action
Plan was developed using the guidelines outlined in the Federal
Financial Institution's Examination council, "The Effect of 2000 on
Computer Systems."
As part of the assessment phase of the project, the Y2K Task Force
identified 58 mission critical systems, 28 sensitive and 24
non-critical applications. As a result of this assessment, the Bank
undertook an aggressive plan in early 1998 to completely replace all of
the major application systems with new state- of-the-art technology
that was Y2K compliant. The conversion to these new systems took place
in September of 1998. The Bank has incurred capital expenditures
amounting to approximately $2.5 million for the replacement of the core
application systems. All other systems were determined by the Task
Force to be Y2K compliant "as is," or with some minor enhancements
required. These enhancements are not expected to involve material
additional costs.
To assure that all systems are Y2K compliant, internal testing and
validation began in the fourth quarter of 1998 and is scheduled to be
completed by June 30, 1999. Currently the Bank is approximately 90%
complete in its test and validation phase.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are
presented at December 31, 1998 in Item 7A of the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission
on March 31, 1999. Management believes there have been no material
changes in the Company's market risk since December 31, 1998.
16
<PAGE> 17
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.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.1 Article of Incorporation of ISB Financial Corporation *
3.2 Bylaws of ISB Financial Corporation *
4.1 Stock Certificate of ISB Financial Corporation **
10.1 ISB Financial Corporation Employee Stock Ownership Plan *
10.2 ISB Financial Corporation Profit Sharing Plan and Trust **
10.3 Employment Agreement among ISB Financial Corporation, IBERIABANK
and Larrey G. Mouton ***
10.4 Severance Agreement among ISB Financial Corporation, IBERIABANK and
John J. Ballatin, James R. McLemore, Jr., Donald P., Lee and
Ronnie J. Foret
10.5 1999 Stock Option Plan ****
10.6 1996 Stock Option Plan *****
10.7 Recognition and Retention Plan of Iberia Savings Bank and Trust
Agreement *****
27.0 Financial Data Schedule
(*) Incorporated herein by reference from the Registration Statement on Form
S-1 (Registration No. 33-86598) filed by the Registrant with the SEC on
November 22, 1994, as subsequently amended.
(**) Incorporated herein by reference from the Registration Statement on Form S-8
(Registration No. 33-9321 0) filed by the Registrant with the SEC on
June 7, 1995.
(***) Incorporated herein by reference from the like-numbered exhibit from the
registrant's Annual Report on Form 10-K for the year ended December 31, 1997.
(****) Incorporated herein by reference from the Registrant's definitive proxy
statement, dated March 19, 1999, as filed with the SEC.
(*****) Incorporated herein by reference from the Registrant's definitive proxy
statement dated April 16, 1996, as filed with the SEC.
</TABLE>
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the three months
ended March 31, 1999.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISB FINANCIAL CORPORATION
Date: May 11, 1999 By: /s/ Larrey G. Mouton
------------ ---------------------------------
Larrey G. Mouton, President and
Chief Executive Officer
Date: May 11, 1999 By: /s/ James R. McLemore, Jr.
------------ ----------------------------------
James R. McLemore, Jr., Senior Vice
President and Chief Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000933141
<NAME> ISB FINANCIAL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 34,186
<INT-BEARING-DEPOSITS> 74,497
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110,754
<INVESTMENTS-CARRYING> 272,798
<INVESTMENTS-MARKET> 270,748
<LOANS> 760,227
<ALLOWANCE> (7,198)
<TOTAL-ASSETS> 1,361,731
<DEPOSITS> 1,177,164
<SHORT-TERM> 45,356
<LIABILITIES-OTHER> 14,420
<LONG-TERM> 1,000
0
0
<COMMON> 7,381
<OTHER-SE> 116,410
<TOTAL-LIABILITIES-AND-EQUITY> 1,361,731
<INTEREST-LOAN> 16,108
<INTEREST-INVEST> 6,025
<INTEREST-OTHER> 843
<INTEREST-TOTAL> 22,976
<INTEREST-DEPOSIT> 10,270
<INTEREST-EXPENSE> 11,005
<INTEREST-INCOME-NET> 11,971
<LOAN-LOSSES> 370
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,471
<INCOME-PRETAX> 4,614
<INCOME-PRE-EXTRAORDINARY> 2,859
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,859
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
<YIELD-ACTUAL> 7.40
<LOANS-NON> 3,018
<LOANS-PAST> 2,043
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,061
<ALLOWANCE-OPEN> 7,135
<CHARGE-OFFS> 402
<RECOVERIES> 75
<ALLOWANCE-CLOSE> 7,178
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,178
</TABLE>
