UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number 0-25756
ISB Financial Corporation
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (337) 365-2361
Securities registered pursuant of Section 12(b) of the Act: Not Applicable
Securities registered pursuant of Section 12(g) of the Act
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 by check mark if disclosure of delinquent filers pursuant of Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. X
As of March 9, 2000, the aggregate market value of the 6,084,734 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 474,003 shares held by all directors and officers of the Registrant as
a group, was approximately $82.9 million. This figure is based on the closing
sale price of $13.625 per share of the Registrant's Common Stock on March 9,
2000.
Number of shares of Common Stock outstanding as of December 31, 1999:
6,558,737
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated. (1) Portions of
the Annual Report to Stockholders for the fiscal year ended December 31, 1999
are incorporated into Part II, Items 5 through 8 of this Form 10-K, (2) Portions
of the definitive proxy statement for the 2000 Annual Meeting of Stockholders to
be filed within 120 days of Registrant's fiscal year end are incorporated into
Part III, Items 9 through 13 of this Form 10-K.
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PART 1.
ITEM 1. BUSINESS.
GENERAL
ISB Financial Corporation (the "Company") is a Louisiana corporation
organized in 1994 by Iberia Savings Bank ("Iberia") for the purpose of acquiring
all of the capital stock of Iberia to be issued by Iberia in the conversion (the
"Conversion") of Iberia to stock form, which was completed on April 6, 1995. In
1996, the Company completed the acquisition of Royal Bankgroup of Acadiana,
Inc., ("Royal") and its wholly owned subsidiary, The Bank of Lafayette ("BOL").
Royal was merged into the Company and BOL was merged into Iberia. The two
offices of BOL now operate as branches of Iberia. In October 1996, the Company
completed the acquisition of Jefferson Bancorp, Inc. and its wholly owned
subsidiary, Jefferson Federal Savings Bank. Jefferson Bancorp, Inc. was merged
into the Company and Jefferson Federal Savings Bank operated as a separate
subsidiary of the Company until September 1, 1997, as a state chartered savings
bank under the name of Jefferson Bank ("Jefferson"). In 1997, Jefferson Bank was
merged with and into Iberia Savings Bank. In December 1997, Iberia Savings Bank
changed its name to IBERIABANK and converted to a Louisiana chartered commercial
bank. In 1998, Iberia acquired 17 branch offices from certain banking
subsidiaries of the former First Commerce Corporation ("FCOM"). The only
significant assets of the Company are the capital stock of Iberia, the Company's
loan to an employee stock ownership plan, and cash. To date, the business of the
Company has consisted of the business of Iberia. The Company's common stock
trades on the NASDAQ Stock Market under the symbol "ISBF." At December 31, 1999,
the Company had total assets of $1.4 billion, total deposits of $1.1 billion and
shareholders' equity of $117.2 million.
Iberia is a Louisiana-chartered stock commercial bank conducting business
from its main office located in New Iberia, Louisiana and 43 full-service branch
offices located in New Iberia, Lafayette, Jeanerette, Franklin, Morgan City,
Crowley, Rayne, Kaplan, St. Martinville, Abbeville, Scott, Carencro, Ruston,
Monroe, West Monroe, Gretna, Marrero, River Ridge, New Orleans, Metairie and
Kenner, all of which are in Louisiana. The Bank attracts retail deposits from
the general public and the business community through a variety of deposit
products. Deposits are insured by the Savings Association Insurance Fund
("SAIF"), administered by the Federal Deposit Insurance Corporation ("FDIC"),
within applicable limits.
The Bank is primarily engaged in attracting deposits from the general
public and using those funds to originate loans. Previous to 1996, the Bank's
primary lending emphasis was loans secured by first and second liens on
single-family (one-to-four units) residences located in the Bank's primary
market area. At December 31, 1999, such loans amounted to $266.4 million or
31.6% of the Bank's gross loan portfolio. The Bank has placed recent emphasis on
the origination of consumer and commercial loans. Consumer loans consist of home
equity loans, home equity lines of credit, automobile loans, indirect automobile
loans, loans secured by deposit accounts and other consumer loans. At December
31, 1999, $330.6 million, or 39.2%, of the Bank's gross loans were consumer
loans. Of that amount $179.4 million, or 21.3% of gross loans, were indirect
automobile loans. Commercial loans consist of commercial real estate loans and
commercial business loans. At December 31, 1999, $157.2 million, or 18.7% of
gross loans were secured by commercial real estate and $82.5 million, or 9.8%,
were commercial business loans. The Bank also originates loans for the purpose
of constructing single-family residential units. At December 31, 1999, $6.4
million, or 0.8% of the Bank's loans, were construction loans.
The Company, as a bank holding company, is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System ("FRB"). The
Bank is subject to examination and comprehensive regulation by the Office of
Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's
chartering authority and primary regulator. The Bank is also subject to
regulation by the FDIC, as the administrator of the SAIF, and to certain reserve
requirements established by the Federal Reserve Board. The Bank is a member of
the Federal Home Loan Bank ("FHLB") of Dallas which is one of the 12 regional
banks comprising the FHLB System.
In addition to its deposit gathering and lending activities, the Bank
invests in mortgage-backed securities, substantially all of which are issued or
guaranteed by U.S. Government agencies and government sponsored enterprises, as
well as U.S. Treasury and federal government agency obligations and other
investment securities. At December 31, 1999, the Bank's mortgage-backed
securities amounted to $269.1 million, or 19.7% of total assets and its other
investment securities amounted to $115.8 million, or 8.5% of total assets.
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LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Banks' loans held in portfolio at the dates indicated. (1)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ----------------- ---------------- ----------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $266,365 31.60% $300,150 39.06% $370,117 56.07% $384,032 66.70% $315,449 78.22%
Construction 6,381 0.76% 7,402 0.96% 7,890 1.20% 7,957 1.38% 7,176 1.78%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total mortgage loans 272,746 32.36% 307,552 40.02% 378,007 57.27% 391,989 68.08% 322,625 80.00%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Commercial loans:
Business loans 82,485 9.78% 83,237 10.83% 57,620 8.73% 35,894 6.24% 11,165 2.77%
Real estate 157,248 18.65% 117,768 15.33% 50,462 7.64% 25,239 4.38% 15,990 3.96%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total commercial loans 239,733 28.43% 201,005 26.16% 108,082 16.37% 61,133 10.62% 27,155 6.73%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Consumer loans:
Home equity 91,531 10.86% 73,185 9.52% 34,192 5.18% 21,637 3.76% 15,356 3.81%
Automobile 23,432 2.78% 24,631 3.21% 9,434 1.43% 7,509 1.30% 5,908 1.47%
Indirect automobile 179,350 21.27% 118,529 15.43% 94,282 14.28% 54,935 9.54% 625 0.15%
Credit card loans 6,436 0.76% 4,584 0.60% 4,150 0.63% 4,017 0.70% 3,836 0.95%
Other 29,854 3.54% 38,912 5.06% 31,978 4.84% 34,514 6.00% 27,783 6.89%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total consumer loans 330,603 39.21% 259,841 33.82% 174,036 26.36% 122,612 21.30% 53,508 13.27%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total loans receivable 843,082 100.00% 768,398 100.00% 660,125 100.00% 575,734 100.00% 403,288 100.00%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Less:
Allowance for loan losses (8,749) (7,135) (5,258) (4,615) (3,746)
-------- -------- -------- -------- --------
Loans receivable, net $834,333 $761,263 $654,867 $571,119 $399,542
======== ======== ======== ======== ========
</TABLE>
- ------------
(1) This schedule does not include loans held for sale of $4.8 million, $18.4
million, and $4.4 million at December 31, 1999, 1998 and 1997, respectively.
There were no loans classified as held for sale prior to the year ended
December 31, 1997.
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CONTRACTUAL MATURITIES. The following table sets forth the scheduled
contractual maturities of the Banks' loans held to maturity at December 31,
1999. Demand loans, loans having no stated schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less. The
amounts shown for each period do not take into account loan prepayments and
normal amortization of the Banks' loan portfolio held to maturity.
<TABLE>
<CAPTION>
Commercial
---------------------------------------------------------------
Construction Real Estate Business Total
------------ ----------- -------- -----
(Dollars in Thousands)
Amounts due in:
<S> <C> <C> <C> <C>
One year or less $ 5,601 $ 46,435 $ 45,464 $ 97,500
After one year through five years 780 88,404 29,249 118,433
After five years -- 22,409 7,772 30,181
--------- ------------- ------------- -----------
Total $ 6,381 $ 157,248 $ 82,485 $ 246,114
========= ============= ============= ===========
Interest rate terms on amounts
Due after one year:
Fixed rate $ -- $ 100,450 $ 33,257 $ 133,707
Adjustable rate 780 10,363 3,764 14,907
--------- ------------- ------------- -----------
Total $ 780 $ 110,813 $ 37,021 $ 148,614
========= ============= ============= ===========
</TABLE>
Scheduled contractual amortization of loans does not reflect the expected
term of the bank's loan portfolio. The average life of loans is substantially
less than their contractual terms because of prepayments and due-on-sale
clauses, which give the Bank the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase when current mortgage loan
rates are higher than rates on existing mortgage loans and, conversely, decrease
when rates on existing mortgage loans are lower than current mortgage loans
rates (due to refinancings of adjustable-rate and fixed-rate loans at lower
rates). Under the latter circumstances, the weighted average yield on loans
decreases as higher-yielding loans are repaid or refinanced at lower rates.
The lending activities of Iberia are subject to written underwriting
standards and loan origination procedures established by the Bank's Board of
Directors and management. Applications for residential mortgage loans are taken
by one of the Banks' mortgage executives, while the Banks' designated consumer
lenders have primary responsibility for taking consumer loan applications and
its commercial lending officers have primary responsibility for taking
commercial business and commercial real estate loan applications. The Bank's
loan originators will take loan applications at any of the Banks' offices and,
on occasion, outside of the Banks' offices at the customer's convenience. The
process of underwriting all residential mortgage, consumer and construction
loans and obtaining appropriate documentation, such as credit reports,
appraisals and other documentation is centralized. The credit analysis
department is responsible for overseeing the underwriting of all commercial
business and commercial real estate loans. The Bank generally requires that a
property appraisal be obtained in connection with all new mortgage loans.
Property appraisals generally are performed by an independent appraiser from a
list approved by the Bank's Board of Directors. The Bank requires that title
insurance or a title opinion (other than with respect to home equity loans) and
hazard insurance be maintained on all security properties and that flood
insurance be maintained if the property is within a designated flood plain.
Residential mortgage loan applications are primarily developed from
advertising, referrals from real estate brokers and builders, existing customers
and walk-in customers. Commercial real estate and commercial business loan
applications are obtained primarily from previous borrowers, direct
solicitations by the Bank's personnel, as well as referrals. Consumer loans
originated by the Bank are obtained primarily through existing customers,
automobile dealerships and walk-in customers who have been made aware of the
Bank's programs by advertising and other means.
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Applications for residential mortgage loans typically are approved by
certain designated officers or, if the loan amount exceeds $240,000 by a
combination of certain designated officers. If a loan is over $750,000, it must
also be approved by the Loan Committee of the Bank's Board of Directors. Certain
designated officers of the Bank have limited authority to approve commercial
loans not exceeding specified levels, the officers may combine their individual
limits and approve loans up to $1.0 million. Loans in excess of $1.0 million but
less than $8.0 million must be approved by the Bank's Commercial Loan Committee
made up of members of the Board of Directors. Commercial loans in excess of $8.0
million must be approved by the full Board of Directors. Certain designated
officers approve consumer loans up to $40,000 unsecured and $80,000 secured.
Consumer loans up to $200,000 unsecured and $500,000 secured must be approved by
certain combinations of Bank officers. Consumer loans over $200,000 unsecured
and $500,000 secured must be approved by the Board of Directors Loan Committee.
SINGLE-FAMILY RESIDENTIAL LOANS. Substantially all of the Bank's
single-family residential mortgage loans consist of conventional loans.
Conventional loans are loans that are neither insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans
Affairs ("VA"). The vast majority of the Bank's single-family residential
mortgage loans are secured by properties located in Southwestern Louisiana and
the greater New Orleans area and are originated under terms and documentation
which permit their sale to the Federal Home Loan Mortgage Corporation ("FHLMC")
or Federal National Mortgage Association ("FNMA"). Since 1996, the Bank has
decided to sell, or hold for sale, the majority of all conforming fixed-rate
loan originations into the secondary market and retain adjustable-rate loan
originations in its portfolio.
Fixed-rate loans generally have maturities ranging from 15 to 30 years and
are fully amortizing with monthly loan payments sufficient to repay the total
amount of the loan with interest by the end of the loan term. The Bank's
fixed-rate loans generally are originated under terms, conditions and
documentation which permit them to be sold to U.S. Government sponsored
agencies, such as the FHLMC and the FNMA, and other investors in the secondary
market for mortgages. At December 31, 1999, $147.4 million, or 54.1%, of the
Bank's single-family residential mortgage and construction loans were fixed-rate
loans.
The adjustable-rate loans currently offered by the Bank have interest rates
which adjust on an annual basis from the closing date of the loan or an annual
basis commencing after an initial fixed-rate period of three, five or ten years
in accordance with a designated index, plus a margin. During 1996, the Bank
changed its index to the one year constant maturity treasury ("CMT") from the
National Median Cost of Funds for SAIF-Insured Institutions for all new
adjustable-rate single-family residential loan originations. The Bank's
adjustable-rate single-family residential real estate loans generally have a cap
of 2% on any increase or decrease in the interest rate at any adjustment date,
and include a specified cap on the maximum interest rate over the life of the
loan, which cap generally is 4% to 6% above the initial rate. The Bank's
adjustable-rate loans require that any payment adjustment resulting from a
change in the interest rate of an adjustable-rate loan be sufficient to result
in full amortization of the loan by the end of the loan term and, thus, do not
permit any of the increased payment to be added to the principal amount of the
loan, or so-called negative amortization. At December 31, 1999, $125.3 million
or 45.9% of the Bank's single-family residential mortgage and construction loans
were adjustable-rate loans.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
increase the loan payment by the borrower increases to the extent permitted by
the terms of the loan, thereby increasing the potential for default. Moreover,
as with fixed-rate loans, as interest rates increase, the marketability of the
underlying collateral property may be adversely affected by higher interest
rates.
For conventional residential mortgage loans held in the portfolio and also
for those loans originated for sale in the secondary market, the Bank's maximum
loan-to-value ratio generally is 95%, and is based on the lesser of sales price
or appraised value. Generally on loans with a loan-to-value ratio of over 80%,
private mortgage insurance ("PMI") is required in an amount which reduces the
Bank's exposure to 80% or less.
In November 1994, in order to assist low- to moderate- income families
achieve home ownership, Iberia implemented a program whereby it will provide
100% financing to certain low-to moderate- income homebuyers in Iberia's market
area. Such loans are structured as a 30-year ARM with respect to 90% of the
value with the remaining necessary funds (including closing costs) being
provided through a five-year fixed rate second mortgage loan. No PMI is required
to be obtained with respect to loans originated under this program. Iberia has
developed its 100% financing loan product in an effort to address the home
buying needs of lower income residents. Due to the absence, or limited amount,
of equity with respect to such loans and the absence of PMI, this product may be
deemed to involve greater risk than Iberia's typical single-family residential
mortgage loans. However, the
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individual loans in this program generally are relatively small, with balances
generally less than $50,000. At this time, Iberia anticipates that the aggregate
balance of loans originated under this program will not exceed $10.0 million. As
of December 31, 1999, such loans amounted to $4.9 million, or 0.6%, of the
Bank's total loan portfolio. To date, Iberia has not experienced any significant
delinquency problems with respect to loans originated under this program.
CONSTRUCTION LOANS. Substantially all of the Bank's construction loans have
consisted of loans to construct single-family residences extended to individuals
where the Bank has committed to provide a permanent mortgage loan upon
completion of the residence. As of December 31, 1999, the Bank's construction
loans amounted to $6.4 million, or 0.8%, of the Bank's total loan portfolio. The
Bank's loans are underwritten as construction/permanent loans, with one set of
documents and one closing for both the construction and the long-term portions
of such loans. The Bank's construction loans typically provide for a
construction period not exceeding 12 months, generally have loan-to-value ratios
of 80% or less of the appraised value upon completion and generally do not
require the amortization of principal during the construction phase. Upon
completion of construction, the loans convert to permanent residential mortgage
loans. Loan proceeds are disbursed in stages after inspections of the project
indicate that such disbursements are for costs already incurred and which have
added to the value of the project. The Bank also will originate ground or land
loans to individuals to purchase a building lot on which he intends to build his
primary residence.
Prior to making a commitment to fund a construction loan, the Bank requires
an appraisal of the property by an independent state-licensed or qualified
appraiser approved by the Board of Directors. In addition, during the term of
the construction loan, the project periodically is inspected by an independent
inspector.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of value proves to be inaccurate, the
Bank may be confronted, at or prior to the maturity of the loan, with a project,
when completed, having a value which is insufficient to assure full repayment.
Loans on lots may run the risk of adverse zoning changes, environmental or other
restrictions on future use.
COMMERCIAL REAL ESTATE LOANS. The Bank has increased its investment in
commercial real estate loans from $16.0 million, or 4.0% of the total loan
portfolio at December 31, 1995, to $157.2 million, or 18.7% of the total loan
portfolio, at December 31, 1999. The increase in commercial real estate loans
reflects, in part, the Bank's focused efforts to originate such loans in its
market area, as well as the acquisition of certain commercial real estate loans
acquired from BOL and FCOM. The Bank intends to continue to expand its
involvement in commercial real estate lending and to continue to moderately
increase the amount of such loans in the Bank's portfolio. The Bank expects it
will continue to grant such loans primarily to small and medium sized businesses
located in the Banks' primary market area, a portion of the market that the Bank
believes has been underserved in recent years. The types of properties securing
the Bank's commercial real estate loans include strip shopping centers,
professional office buildings, small retail establishments and warehouses, all
of which are located in the Bank's market area. As of December 31, 1999, the
Bank's largest commercial real estate loan had a balance of $6.7 million. Such
loan is secured by two office buildings in the Bank's market area and is
performing in accordance with its terms.
The Bank's commercial real estate loans generally are adjustable-rate loans
indexed to the New York Prime Rate, as quoted in The Wall Street Journal, plus a
margin. Generally, fees of 50 basis points to 2% of the principal loan balances
are charged to the borrower upon closing. The Bank's underwriting standards
generally provide for terms of up to 10 years with amortization of principal
over the term of the loan and loan-to-value ratios of not more than 75%.
Generally, the Bank obtains personal guarantees of the principals as additional
security for any commercial real estate loans.
The Bank evaluates various aspects of commercial real estate loan
transactions in an effort to mitigate risk to the extent possible. In
underwriting these loans, consideration is given to the stability of the
property's cash flow history, future operating projections, current and
projected occupancy, position in the market, location and physical condition. In
recent periods, the Bank has also generally imposed a debt coverage ratio (the
ratio of net cash from operations before payment of debt service to debt
service) of not less than 120%. The underwriting analysis also includes credit
checks and a review of the financial condition of the borrower and guarantor, if
applicable. An appraisal report is prepared by a state licensed or certified
appraiser (generally MAI qualified) commissioned by the
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Bank to substantiate property values for every commercial real estate loan
transaction. All appraisal reports are reviewed by the Bank prior to the closing
of the loan. On occasion the Bank also retains a second independent appraiser to
review an appraisal report.
Commercial real estate lending entails different and significant risks when
compared to single-family residential lending because such loans often involve
large loan balances to single borrowers and because the payment experience on
such loans is typically dependent on the successful operation of the project or
the borrower's business. These risks can also be significantly affected by
supply and demand conditions in the local market for apartments, offices,
warehouses or other commercial space. The Bank attempts to minimize its risk
exposure by limiting such lending to proven businesses, only considering
properties with existing operating performance which can be analyzed, requiring
conservative debt coverage ratios, and periodically monitoring the operation and
physical condition of the collateral.
COMMERCIAL BUSINESS LOANS. The Bank originates commercial business loans on
a secured and, to a lesser extent, unsecured basis. The Bank's commercial
business loans generally are made to small to mid-size companies located in the
Bank's primary market area and are made for a variety of commercial purposes. At
December 31, 1999, the Bank's commercial business loans amounted to $82.5
million or 9.8% of the Bank's gross loan portfolio. The Bank has placed emphasis
on the origination of commercial real estate and commercial business loans.
Commercial real estate and commercial business loans generally have higher
yields and shorter repayment periods than single-family residential loans.
The Bank's commercial business loans may be structured as term loans or
revolving lines of credit. Commercial business loans generally have a term of
ten years or less and adjustable or variable rates of interest based upon the
New York Prime Rate. The Bank's commercial business loans generally are secured
by equipment, machinery, real property or other corporate assets. In addition,
the Bank generally obtains personal guarantees from the principals of the
borrower with respect to all commercial business loans. The Bank also provides
commercial loans structured as advances based upon perfected security interests
in accounts receivable and inventory. Generally the Bank will advance amounts
not in excess of 85.0% of accounts receivable, provided that such accounts have
not aged more than 90 days. In such cases, payments are made directly to the
Bank and the Bank generally maintains in escrow 2.0% to 100.0% of the amounts
received. As of December 31, 1999, the Bank's largest commercial business loan
had a principal balance of $5.9 million. Such loan is secured by deposit
accounts, equipment, and general intangibles and has performed in accordance
with its terms since origination.
CONSUMER LOANS. The Bank offers consumer loans in order to provide a full
range of retail financial services to its customers. At December 31, 1999,
$330.6 million, or 39.2%, of the Bank's total loan portfolio was comprised of
consumer loans. The Bank originates substantially all of such loans in its
primary market areas.
The largest component of the Bank's consumer loan portfolio consists of
indirect automobile loans. These loans are originated by the automobile
dealerships and applications are facsimiled to Bank personnel for approval or
denial. The Bank relies on the dealerships, in part, for loan qualifying
information. To that extent, there is risk inherent in indirect automobile loans
apart from the ability of the consumer to repay the loan, that being fraud
perpetrated by the automobile dealership. To limit its exposure, the Bank has
limited its dealings with automobile dealerships which have demonstrated
reputable behavior in the past. At December 31, 1999, $179.4 million, or 21.3%,
of the Bank's total loan portfolio were indirect automobile loans.
At December 31, 1999, the Bank's remaining consumer loan portfolio was
comprised of home equity loans, educational loans, loans secured by deposits at
the Bank, mobile home loans, direct automobile loans, credit card loans and
other consumer loans. At December 31, 1999, the Bank had $91.5 million or 10.9%
of home equity loans. The Bank has not emphasized originations of mobile home
loans in recent years due to, among other things, management's perception that
such loans generally are riskier than certain other consumer loans, such as home
equity loans, and single-family mortgage loans. The Bank also offers direct
automobile loans, loans based on its VISA and MasterCard credit cards and other
consumer loans. At December 31, 1999, the Bank's direct automobile loans
amounted to $23.4 million, or 2.8%, of the Bank's total loan portfolio. The
Bank's VISA and MasterCard credit card loans totaled $6.4 million, or 0.8%, of
the Bank's total loan portfolio at such date. The Bank's other personal consumer
loans amounted to $29.9 million, or 3.5% of the Bank's total loan portfolio at
such date.
LOANS-TO-ONE-BORROWER LIMITATIONS. The Louisiana Banking Laws impose
limitations on the aggregate amount of loans that a Louisiana chartered
commercial bank can make to any one borrower. Under these laws, the permissible
amount of loans-to-one borrower may not exceed 20% of the sum of the bank's
capital stock and surplus
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on an unsecured basis. On a secured basis, the permissible amount of
loans-to-one borrower may not exceed one-half the sum of the bank's capital
stock and unimpaired surplus. At December 31, 1999, Iberia's limit on unsecured
loans-to-one borrower was $18.3 million. At December 31, 1999, Iberia's five
largest loans or groups of loans-to-one borrower ranged from $5.0 million to
$9.9 million, and all of such loans were performing in accordance with their
terms.
ASSET QUALITY
GENERAL. As a part of the Bank's efforts to improve asset quality, it has
developed and implemented an asset classification system. All of the Bank's
assets are subject to review under the classification system. All assets of the
Bank are periodically reviewed and the classifications are reviewed by the Loan
Committee of the Board of Directors on at least a quarterly basis.
When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the deficiency by contacting the borrower and seeking payment.
Contacts are generally made 30 days after a payment is due. In most cases,
deficiencies are cured promptly. If a delinquency continues, late charges are
assessed and additional efforts are made to collect the loan. While the Bank
generally prefers to work with borrowers to resolve such problems, when the
account becomes 90 days delinquent, the Bank may institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.
Loans are placed on non-accrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. See Note 4 of the
Notes to Consolidated Financial Statements.
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed under
GAAP are classified as real estate owned until sold. Pursuant to SOP 92-3 issued
by the AICPA in April 1992, which provides guidance on determining the balance
sheet treatment of foreclosed assets in annual financial statements for periods
ending on or after December 15, 1992, there is a rebuttable presumption that
foreclosed assets are held for sale and such assets are recommended to be
carried at the lower of fair value minus estimated costs to sell the property,
or cost (generally the balance of the loan on the property at the date of
acquisition). After the date of acquisition, all costs incurred in maintaining
the property are expenses and costs incurred for the improvement or development
of such property are capitalized up to the extent of their net realizable value.
The Bank's accounting for its real estate owned complies with the guidance set
forth in SOP 92-3.
Under GAAP, the Bank is required to account for certain loan modifications
or restructurings as "troubled debt restructurings." In general, the
modification or restructuring of a debt constitutes a troubled debt
restructuring if the Bank for economic or legal reasons related to the
borrower's financial difficulties grants a concession to the borrower that the
Bank would not otherwise consider under current market conditions. Debt
restructurings or loan modifications for a borrower do not necessarily always
constitute troubled debt restructurings, however, and troubled debt
restructurings do not necessarily result in non-accrual loans. The Bank had no
troubled debt restructuring as of December 31, 1999. See the table below under
"Non-Performing Assets and Troubled Debt Restructurings."
8
<PAGE>
NON-PERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS. The following table
sets forth information relating to the Bank's non-performing assets and troubled
debt restructurings at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ----------- ------------ --------------
(Dollars in Thousands)
Non-accrual loans:
Mortgage loans:
<S> <C> <C> <C> <C> <C>
Single-family $ 208 $ 481 $ 1,698 $ 892 $ 788
Construction -- -- -- -- --
Commercial Loans:
Business 215 259 -- 407 --
Real Estate 1,078 -- 30 190 30
Consumer loans: 429 439 419 1,002 597
----------- ---------- ----------- ---------- -----------
Total non-accrual loans 1,930 1,179 2,147 2,491 1,415
----------- ---------- ----------- ---------- -----------
Accruing loans 90 days or more past due:
Mortgage loans:
Single-family 593 1,407 -- -- --
Construction -- -- -- -- --
Commercial Loans:
Business 74 370 -- -- --
Real Estate 22 1,898 -- -- --
Consumer loans 514 883 3 69 53
----------- ---------- ----------- ---------- -----------
Total past due 90 days or more 1,203 4,558 3 69 53
----------- ---------- ----------- ---------- -----------
Total non-performing loans 3,133 5,737 2,150 2,560 1,468
Foreclosed property 185 384 473 978 561
----------- ---------- ----------- ---------- -----------
Total non-performing assets $ 3,318 $ 6,121 $ 2,623 $ 3,538 $ 2,029
----------- ---------- ----------- ---------- -----------
Performing troubled debt restructurings $ -- $ -- $ -- $ 176 $ 186
----------- ---------- ----------- ---------- -----------
Total non-performing assets and
troubled debt restructurings $ 3,318 $ 6,121 $ 2,623 $ 3,714 $ 2,215
=========== ========== =========== ========== ===========
Non-performing loans to total loans 0.37% 0.74% 0.33% 0.45% 0.37%
Total non-performing assets to total assets 0.24% 0.44% 0.28% 0.38% 0.33%
Total non-performing assets and troubled debt
restructurings to total assets 0.24% 0.44% 0.28% 0.40% 0.36%
</TABLE>
9
<PAGE>
OTHER CLASSIFIED ASSETS. Federal regulations require that the Bank
classifies its assets on a regular basis. In addition, in connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted.
At December 31, 1999, the Bank had $10.5 million of assets classified
substandard, $751,000 of assets classified doubtful, and no assets classified
loss. At such date, the aggregate of the Bank's classified assets amounted to
0.83% of total assets.
ALLOWANCE FOR LOAN LOSSES. The Bank's policy is to establish reserves for
estimated losses on delinquent loans when it determines that losses are expected
to be incurred on such loans and leases. The allowance for losses on loans is
maintained at a level believed adequate by management to absorb potential losses
in the portfolio. Management's determination of the adequacy of the allowance is
based on an evaluation of the portfolio, past loss experience, current economic
conditions, volume, growth and composition of the portfolio, and other relevant
factors. The allowance is increased by provisions for loan losses, which are
charged against income. As shown in the table below, at December 31, 1999, the
Bank's allowance for loan losses amounted to 279.3% and 1.0% of the Bank's
non-performing loans and gross loans receivable, respectively.
Effective December 21, 1993, the FDIC, in conjunction with the Office of
the Comptroller of the Currency, the OTS and the Federal Reserve Board, issued
the Policy Statement regarding an institution's allowance for loan and lease
losses. The Policy Statement, which reflects the position of the issuing
regulatory agencies and does not necessarily constitute GAAP, includes guidance
(i) on the responsibilities of management for the assessment and establishment
of an adequate allowance and (ii) for the agency's examiners to use in
evaluating the adequacy of such allowance and the policies utilized to determine
such allowance. The Policy Statement also sets forth quantitative measures for
the allowance with respect to assets classified substandard and doubtful and
with respect to the remaining portion of an institution's loan portfolio.
Specifically, the Policy Statement sets forth the following quantitative
measures which examiners may use to determine the reasonableness of an
allowance: (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the
portfolio that is classified substandard; and (iii) for the portions of the
portfolio that have not been classified (including loans designated special
mention), estimated credit losses over the upcoming 12 months based on facts and
circumstances available on the evaluation date. While the Policy Statement sets
forth this quantitative measure, such guidance is not intended as a "floor" or
"ceiling".
10
<PAGE>
The following table sets forth the activity in the Bank's allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------- ------------- --------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 7,135 $ 5,258 $ 4,615 $ 3,746 $ 3,831
Allowance from acquisition -- 1,392 -- 1,114 13
Provisions 2,836 903 1,097 156 239
Charge-offs:
Mortgage loans:
Single-family 71 2 50 46 55
Construction -- -- -- -- --
Commercial 148 43 191 61 4
Consumer loans 1,714 818 562 509 371
----------- ----------- ----------- ------------- --------------
Total charge-offs 1,933 863 803 616 430
----------- ----------- ----------- ------------- --------------
Recoveries:
Mortgage loans:
Single-family 37 36 79 39 15
Construction -- -- -- -- --
Commercial 94 175 55 43 --
Consumer loans 580 234 215 133 78
----------- ----------- ----------- ------------- --------------
Total recoveries 711 445 349 215 93
----------- ----------- ----------- ------------- --------------
Net charge-offs (1,222) (418) (454) (401) (337)
----------- ----------- ----------- ------------- --------------
Allowance at end of period $ 8,749 $ 7,135 $ 5,258 $ 4,615 $ 3,746
=========== =========== =========== ============= ==============
Allowance for loan losses to total
non-performing loans at end of
period 279.25% 124.39% 244.56% 185.27% 255.18%
Allowance for loan losses to total
loans at end of period 1.04% 0.93% 0.79% 0.80% 0.93%
Net charge-offs to average loans 0.15% 0.06% 0.07% 0.09% 0.09%
</TABLE>
11
<PAGE>
The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ----------------- ---------------- ----------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $ 1,278 31.60% $ 1,529 39.06% $ 1,448 56.07% $ 2,002 66.70% $ 2,194 78.22%
Construction 46 0.76% 38 0.96% 84 1.20% 72 1.38% 107 1.78%
Commercial business 342 9.78% 1,897 10.83% 1,356 8.73% 817 6.24% 134 2.77%
Commercial real estate 4,599 18.65% 1,663 15.33% 660 7.64% 502 4.38% 176 3.96%
Consumer 2,484 39.21% 2,008 33.82% 1,710 26.36% 1,222 21.30% 1,135 13.27%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total allowance for loan
losses $ 8,749 100.00% $ 7,135 100.00% $ 5,258 100.00% $ 4,615 100.00% $ 3,746 100.00%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
12
<PAGE>
Management of the Bank presently believes that its allowance for loan
losses is adequate to cover any potential losses in the Bank's loan portfolio.
However, future adjustments to this allowance may be necessary, and the Bank's
results of operations could be adversely affected if circumstances differ
substantially from the assumptions used by management in making its
determinations in this regard.
INVESTMENT IN MORTGAGE-BACKED SECURITIES
As of December 31, 1999, the Bank's mortgage-backed securities amounted to
$269.1 million, or 19.7% of total assets. At the time of their respective
acquisitions, BOL and Jefferson provided $4.2 million and $106.8 million,
respectively, of mortgage-backed securities. The Bank's mortgage-backed
securities portfolios provides a means of investing in housing-related mortgage
instruments without the costs associated with originating mortgage loans for
portfolio retention and with limited credit risk of default which arises in
holding a portfolio of loans to maturity. Mortgage-backed securities (which also
are known as mortgage participation certificates or pass-through certificates)
represent a participation interest in a pool of single-family or multi-family
mortgages. The principal and interest payments on mortgage-backed securities are
passed from the mortgage originators, as servicer, through intermediaries
(generally U.S. Government agencies and government-sponsored enterprises) that
pool and repackage the participation interests in the form of securities, to
investors such as the Banks. Such U.S. Government agencies and
government-sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, the FNMA and the Government
National Mortgage Association ("GNMA"). The Bank also invests to a limited
degree in certain privately issued, credit enhanced mortgage-backed securities
rated AA or above by national securities rating agencies.
The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 FHLBs and federally insured savings institutions. The FHLMC
issues participation certificates backed principally by conventional mortgage
loans. The FHLMC guarantees the timely payment of interest and the ultimate
return of principal on participation certificates. The FNMA is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. FHLMC and FNMA securities are not
backed by the full faith and credit of the United States, but because the FHLMC
and the FNMA are U.S. Government-sponsored enterprises, these securities are
considered to be among the highest quality investments with minimal credit
risks. The GNMA is a government agency within the Department of Housing and
Urban Development which is intended to help finance government-assisted housing
programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans, and
the timely payment of principal and interest on GNMA securities are guaranteed
by the GNMA and backed by the full faith and credit of the U.S. Government.
Because the FHLMC, the FNMA and the GNMA were established to provide support for
low- and middle-income housing, there are limits to the maximum size of loans
that qualify for these programs which limit currently is $240,000.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate loans. As a result, the risk characteristics of the underlying
pool of mortgages, (i.e., fixed-rate or adjustable rate) as well as prepayment
risk, are passed on to the certificate holder. The life of a mortgage-backed
pass-through security thus approximates the life of the underlying mortgages.
The Bank's mortgage-backed securities include interests in collateralized
mortgage obligations ("CMOs"). CMOs have been developed in response to investor
concerns regarding the uncertainty of cash flows associated with the prepayment
option of the underlying mortgagor and are typically issued by governmental
agencies, governmental sponsored enterprises and special purpose entities, such
as trusts, corporations or partnerships, established by financial institutions
or other similar institutions. A CMO can be collateralized by loans or
securities which are insured or guaranteed by the FNMA, the FHLMC or the GNMA.
In contrast to pass-through mortgage-backed securities, in which cash flow is
received pro rata by all security holders, the cash flow from the mortgages
underlying a CMO is segmented and paid in accordance with a predetermined
priority to investors holding various CMO classes. By allocating the principal
and interest cash flows from the underlying collateral among the separate CMO
classes, different classes of bonds are created, each with its own stated
maturity, estimated average life, coupon rate and prepayment characteristics.
The regular interests of some CMOs are like traditional
13
<PAGE>
debt instruments because they have stated principal amounts and traditionally
defined interest-rate terms. Purchasers of certain other CMOs are entitled to
the excess, if any, of the issuers cash inflows, including reinvestment
earnings, over the cash outflows for debt service and administrative expenses.
These CMOs may include instruments designated as residual interests, which
represent an equity ownership interest in the underlying collateral, subject to
the first lien of the investors in the other classes of the CMO. Certain
residual CMO interests may be riskier than many regular CMO interests to the
extent that they could result in the loss of a portion of the original
investment. Moreover, cash flows from residual interests are very sensitive to
prepayments and, thus, contain a high degree of interest-rate risk. At December
31, 1999, the Bank's investment in CMOs amounted to $146.7 million, all of which
consisted of regular interests. As of December 31, 1999, the Bank's CMOs did not
include any residual interests or interest-only or principal-only securities. As
a matter of policy, the Bank does not invest in residual interests of CMOs or
interest-only and principal-only securities.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed and
related securities are more liquid than individual mortgage loans and may be
used to collateralize borrowings of the Bank in the event that the Bank
determine to utilize borrowings as a source of funds. Mortgage-backed securities
issued or guaranteed by the FNMA or the FHLMC (except interest-only securities
or the residual interests in CMOs) are weighted at no more than 20.0% for
risk-based capital purposes, compared to a weight of 50.0% to 100.0% for
residential loans.
As of December 31, 1999, $185.5 million of the Bank's mortgage-backed
securities were classified as available for sale and $83.6 million were
classified as held to maturity. Mortgage-backed securities which are held to
maturity are carried at cost, adjusted for the amortization of premiums and the
accretion of discounts using a method which approximates a level yield, while
mortgage-backed securities available for sale are carried at current market
value. During the fourth quarter of 1999 the Company transferred $198.9 million
of mortgage-backed securities from the held to maturity classification to
available for sale upon the initial application of FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. The
reclassification resulted in a fair value adjustment of $5.7 million and a
decrease in equity, net of taxes, of $3.7 million. See Notes 1 and 3 of the
Notes to Consolidated Financial Statements.
The actual maturity of a mortgage-backed security may be less than its
stated maturity due to prepayments of the underlying mortgages. Prepayments that
are faster than anticipated may shorten the life of the security and adversely
affect its yield to maturity. The yield is based upon the interest income and
the amortization of any premium or discount related to the mortgage-backed
security. In accordance with GAAP, premiums and discounts are amortized over the
estimated lives of the loans, which decrease and increase interest income,
respectively. The prepayment assumptions used to determine the amortization
period for premiums and discounts can significantly affect the yield of the
mortgage-backed security, and these assumptions are reviewed periodically to
reflect actual prepayments. Although prepayments of underlying mortgages depend
on many factors, including the type of mortgages, the coupon rate, the age of
mortgages, the geographical location of the underlying real estate
collateralizing the mortgages and general levels of market interest rates, the
difference between the interest rates on the underlying mortgages and the
prevailing mortgage interest rates generally is the most significant determinant
of the rate of prepayments.
During periods of rising mortgage interest rates, if the coupon rates of
the underlying mortgages are less than the prevailing market interest rates
offered for mortgage loans, refinancings generally decrease and slow the
prepayment of the underlying mortgages and the related securities. Conversely,
during periods of falling mortgage interest rates, if the coupon rates of the
underlying mortgages exceed the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages and the related securities. Under such
circumstances, the Bank may be subject to reinvestment risk because to the
extent that the Bank's mortgage-related securities amortize or prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
14
<PAGE>
OTHER INVESTMENT SECURITIES
The Bank's other investments in investment securities consist primarily of
securities issued by the U.S. Government and federal agency obligations. As of
December 31, 1999, the Bank's investment securities available for sale, other
than mortgage-backed securities, amounted to $107.7 million, net of gross
unrealized losses of $5.2 million, and its investment securities held to
maturity amounted to $1.9 million. At the time of their respective acquisitions,
BOL and Jefferson provided $2.0 million and $57.5 million, respectively, of
investment securities. The Bank attempts to maintain a high degree of liquidity
in its investment securities portfolio and generally does not invest in
securities with average lives exceeding five years.
The following table sets forth information regarding the Bank's investment
securities at the dates indicated.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
-------------------------------------------- ------------------------------
Weighted
Average Amortized Fair Amortized Fair
Yield Cost Value Cost Value
------------ ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Within one year or less 6.32% $ 10,009 $ 10,020 $ 455 $ 455
One through five years 5.83% 34,863 33,707 555 555
After five through ten years 6.02% 67,992 63,956 675 675
Over ten years 7.20% -- -- 204 204
------------ ----------- ------------ -----------
Subtotal 112,864 107,683 1,889 1,889
Mortgage-backed 6.36% 191,167 185,474 83,604 80,995
Marketable equity security 5.73% 6,318 6,231 -- --
------------ ----------- ------------ -----------
Totals $ 310,349 $ 299,388 $ 85,493 $ 82,884
============ =========== ============ ===========
</TABLE>
15
<PAGE>
SOURCES OF FUNDS
GENERAL. The Bank's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Bank's branch offices. The acquisitions of Jefferson and BOL
provided $288.3 million of deposits used to help fund the Bank's loan growth.
The Bank also derives funds from short-term and long-term borrowings,
amortization and prepayments of outstanding loans and mortgage-related
securities, and from maturing investment securities. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
DEPOSITS. The Banks' current deposit products include savings accounts, NOW
accounts, MMDA, certificates of deposit ranging in terms from 30 days to seven
years and noninterest-bearing personal and business checking accounts.
The Bank's deposit products also include Individual Retirement Account
("IRA") certificates and Keogh accounts. The Bank's deposits are obtained
primarily from residents in its primary market area. The Bank attracts local
deposit accounts by offering a wide variety of accounts, competitive interest
rates, and convenient branch office locations and service hours. The acquisition
of BOL helped Iberia double its market share in the greater Lafayette market.
The acquisition of Jefferson established the Company in a new market, the
greater New Orleans area. The FCOM acquisition helped Iberia gain the number two
market share in the greater Lafayette market and establish the Company, with a
number two market share, in a new market, the greater Monroe area. The Bank
utilizes traditional marketing methods to attract new customers and savings
deposits, including print and broadcast advertising and direct mailings.
However, the Bank does not solicit funds through deposit brokers nor does it pay
any brokerage fees if it accepts such deposits. The Bank participates in the
regional ATM network known as CIRRUS.
The Bank has been competitive in the types of accounts and in interest
rates it has offered on its deposit products but does not necessarily seek to
match the highest rates paid by competing institutions. With the significant
decline in interest rates paid on deposit products, the Bank in recent years has
experienced disintermediation of deposits into competing investment products.
See generally Note 7 of the Notes to Consolidated Financial Statements.
16
<PAGE>
The following table sets forth certain information relating to the Bank's
deposits at the dates indicated. Years prior to 1998 do not include deposits
acquired in the branch acquisition from FCOM, as that acquisition did not take
place until 1998.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1999 1998 1997
--------------------------- ------------------------- --------------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
--------------- ----------- ------------- ----------- ------------- ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand
deposits $ 279,328 2.26% $ 196,254 2.45% $ 141,212 2.63%
Savings deposits 131,824 2.03% 114,934 2.21% 115,882 2.54%
Time deposits 618,582 5.10% 517,952 5.35% 477,325 5.51%
-------------- ------------ ------------
Total interest
bearing deposits 1,029,734 3.93% 829,140 4.23% 734,419 4.49%
Noninterest-bearing
demand deposits 116,097 0.00% 69,670 0.00% 37,647 0.00%
-------------- ------------ ------------
Total deposits $ 1,145,831 3.53% $ 898,810 3.90% $ 772,066 4.27%
============== ============= ============
</TABLE>
The following table shows large-denomination ($100,000 and over)
certificates of deposit by remaining maturities.
December 31,
--------------------------------------------------
1999 1998 1997
-------------- ----------------------- -----------
(Dollars In Thousands)
Certificates of deposit:
3 months or less $ 23,963 $ 1,909 $ 19,610
Over 3-12 months 69,885 21,006 46,755
Over 12-36 months 28,982 82,493 21,405
More than 36 months 1,708 25,223 5,958
-------- -------- --------
Total $124,538 $130,631 $ 93,728
======== ======== ========
17
<PAGE>
BORROWINGS. The Bank may obtain advances from the FHLB of Dallas upon the
security of the common stock it owns in that bank and certain of its residential
mortgage loans and securities held to maturity, provided certain standards
related to creditworthiness have been met. Such advances are made pursuant to
several credit programs, each of which has its own interest rate and range of
maturities.
The Company's short-term borrowings are comprised of advances from the
Federal Home Loan Bank ("FHLB") of Dallas. At December 31, 1999, total
short-term borrowing were $83.0 million. These advances were used to fund net
decreases in deposits and to fund loan growth. The weighted average rate on
short-term borrowings was 5.7% at December 31, 1999. At December 31, 1999, the
Company's long-term borrowings were comprised of fixed rate advances from the
Federal Home Loan Bank and a long-term note payable from Union Planters.
Long-term borrowings increased $6.4 million, or 14.1%, to $52.1 million at
December 31, 1999, compared to $45.6 million at December 31, 1998, which was
partially offset by normal amortization payments. The increase in long-term
borrowings was due to a new long-term note payable from Union Planters, which is
variable rate based on the Wall Street Prime. See Notes 8 and 9 of the Notes of
Consolidated Financial Statements.
SUBSIDIARIES
Iberia has only one active, wholly owned subsidiary, Iberia Financial
Services, LLC. ("Iberia Services"). At December 31, 1999, Iberia's equity
investment in Iberia Services was $1.5 million and Iberia Services had total
assets of $1.6 million. For the years ended December 31, 1999 and 1998, Iberia
Services had total revenue of $859,000 and $957,000, respectively and net income
of $280,000 in 1999 and $72,000 in 1998. See Note 1 of the Notes to Consolidated
Financial Statements. The business of Iberia Services consists of acting as a
broker for the sale of annuities and certain other securities to the general
public. Iberia Services has one wholly owned subsidiary, Finesco, LLC., which
the Bank acquired in January 1995 and which business consists of insurance
premium financing.
COMPETITION
The Bank faces strong competition both in attracting deposits and
originating loans. Its most direct competition for deposits has historically
come from other savings institutions, credit unions and commercial banks located
in its market area including many large financial institutions that have greater
financial and marketing resources available to them. In addition, during times
of high interest rates, the Bank has faced additional significant competition
for investors' funds from short-term money market securities, mutual funds and
other corporate and government securities. The ability of the Bank to attract
and retain savings deposits depends on its ability to generally provide a rate
of return, liquidity and risk comparable to that offered by competing investment
opportunities.
The Bank experiences strong competition for loan originations principally
from other savings institutions, commercial banks and mortgage banking
companies. The Bank competes for loans principally through the interest rates
and loan fees it charges, the efficiency and quality of services it provides
borrowers and the convenient locations of its branch office network. Competition
may increase as a result of the continuing reduction of restrictions on the
interstate operations of financial institutions.
EMPLOYEES
The Bank had 497 full-time employees and 68 part-time employees as of
December 31, 1999. None of these employees is represented by a collective
bargaining agreement. The Bank believes that it enjoys excellent relations with
its personnel.
18
<PAGE>
SUPERVISION AND REGULATION
GENERAL. The banking industry is extensively regulated under both federal
and state law. The Company is subject to regulation under the Bank Holding
Company Act of 1956 (BHCA) and to supervision by the FRB. The BHCA requires the
Company to obtain the prior approval of the FRB for bank and non-bank
acquisitions and prescribes certain limitations in connection with acquisitions
and the non-banking activities of the Company. The Bank is subject to regulation
and examination by the OFI and by the FDIC and also subject to certain
requirements established by the FRB.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
further expanded the regulatory and enforcement powers of bank regulatory
agencies. Among the significant provisions of FDICIA is the requirement that
bank regulatory agencies prescribe standards relating to internal controls,
information systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits. FDICIA mandates annual
examinations of banks by their primary regulators.
The banking industry is affected by the monetary and fiscal policies of the
FRB. An important function of the FRB is to regulate the national supply of bank
credit to moderate recessions and to curb inflation. Among the instruments of
monetary policy used by the FRB to implement its objectives are: open-market
operations in U.S. Government securities, changes in the discount rate and the
federal funds rate (which is the rate banks charge each other for overnight
borrowings) and changes in reserve requirements on bank deposits.
FINANCIAL MODERNIZATION LEGISLATION. On November 12, 1999, the
Gramm-Leach-Bliley Act of 1999 (the "GLB Act") was signed into law. The GLB Act
includes a number of provisions intended to modernize and to increase
competition in the American financial services industry, including authority for
bank holding companies to engage in a wider range of nonbanking activities,
including securities underwriting and general insurance activities. Under the
GLB Act, a bank holding company that elects to become a financial holding
company may engage in any activity that the FRB, in consultation with the
Secretary of the Treasury, determines by regulation or order is (i) financial in
nature, (ii) incidental to any such financial activity, or (iii) complementary
to any such financial activity and does not pose a substantial risk to the
safety or soundness of depository institutions or the financial system
generally. The GLB Act specifies certain activities that are deemed to be
financial in nature, including lending, exchanging, transferring, investing for
others, or safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting,
dealing in or making a market in, securities; and any activity currently
permitted for bank holding companies by the FRB under section 4(c)(8) of the
Holding Company Act. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are and continue to be well-capitalized and well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the GLB Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the FRB, determines is financial in nature or
incidental to any such financial activity, except (i) insurance underwriting,
(ii) real estate development or real estate investment activities (unless
otherwise permitted by law), (iii) insurance company portfolio investments and
(iv) merchant banking. The authority of a national bank to invest in a financial
subsidiary is subject to a number of conditions, including, among other things,
requirements that the bank must be well-managed and well-capitalized (after
deducting from capital the bank's outstanding investments in financial
subsidiaries). The GLB Act also provides that state banks may invest in
financial subsidiaries (assuming they have the requisite investment authority
under applicable state law) subject to the same conditions that apply to
national bank investments in financial subsidiaries.
The GLB Act also adopts a number of consumer protections, including
provisions intended to protect privacy of bank customers' financial information
and provisions requiring disclosure of ATM fees imposed by banks on customers of
other banks.
Most of the GLB Act's provisions have delayed effective dates and require
the adoption of implementing regulations to implement the statutory provisions.
At this time, the Company has not determined whether it will become a financial
holding company in order to utilize the expanded powers offered by the GLB Act,
and the Bank
19
<PAGE>
is unable to predict the impact of the GLB Act's financial subsidiary provisions
and consumer protections on its operations.
FEDERAL AND STATE TAXATION
GENERAL. The Company and the Bank are subject to the generally applicable
corporate tax provisions of the Code, and the Bank is subject to certain
additional provisions of the Code which apply to financial institutions. The
following discussion of federal taxation is intended only to summarize certain
pertinent federal income tax matters and is not a comprehensive discussion of
the tax rules applicable to the Bank.
FISCAL YEAR. The Company and the Bank and its subsidiary file a
consolidated federal income tax return on the basis of a fiscal year ending on
December 31.
BAD DEBT RESERVES. Prior to the Small Business Job Protection Act of 1996,
the bad debt deduction was the primary distinguishing factor between a thrift
and a bank for tax purposes. Thrifts computed their bad debt deduction under (a)
the percentage of taxable income method, or (b) the experience method. Under the
1996 Act, the special thrift bad debt reserve calculations under the percentage
of taxable income method were repealed for years beginning after December 31,
1995. As a result, a large thrift (with total assets exceeding $500 million) was
required to change from the reserve method to the specific charge-off method of
computing its bad debt deduction. Because of the change in methods, the
difference between the balances in the thrift bad debt reserve and the
calculated bank reserve (generally the 1987 base year reserve) must be
recaptured into taxable income over a six-year period beginning in 1996, subject
to the residential loan requirement described below. The recapture requirement
would be suspended for each of the two successive taxable years beginning after
January 1, 1996 in which Iberia originates an amount of certain kinds of
residential loans in which the aggregate are equal to or greater than the
average of the principal amounts of such loans made by Iberia during its six
taxable years preceding 1996. As of December 31, 1999 Iberia has 4 years of
recapture remaining in the amount of $1.8 million.
As discussed above, large institutions, such as Iberia, must determine
their bad debt deduction using the specific charge-off method. Its expense in
any given year will therefore equal the balance of loans charged off, net of any
recoveries during that year.
At December 31, 1999, the federal income tax reserves included $14.8
million for which no provision for federal income taxes has been made. If this
portion of retained earnings is used in the future for any purpose other than to
absorb bad debts, it will be added to future taxable income.
DISTRIBUTIONS. If Iberia distributes cash or property to its stockholders,
and the distribution is treated as being from its accumulated bad debt reserves,
the distribution will cause Iberia to have additional taxable income. A
distribution is deemed to have been made from accumulated bad debt reserves to
the extent that (a) the reserves exceed the amount that would have been
accumulated on the basis of actual loss experience, and (b) the distribution is
a "non-qualified distribution." A distribution with respect to stock is a
non-dividend distribution to the extent that, for federal income tax purposes,
(i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the
institution, or (iii) in the case of a current distribution, together with all
other such distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits. The amount of additional
taxable income created by a nondividend distribution is an amount that when
reduced by the tax attributable to it is equal to the amount of the
distribution.
INCOME TAX. The maximum federal corporate tax rate is 35%. The Code also
imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI") and is calculated
on the AMTI in excess of an exemption amount. The alternative minimum tax is
assessed to the extent that it exceeds the tax on regular taxable income. The
Code provides that an item of tax preference is the excess of the bad debt
deduction allowable for a taxable year pursuant to the percentage of taxable
income method over the amount allowable under the experience method. Other items
of tax preference that constitute AMTI include (a) tax-exempt interest on newly
issued (generally, issued on or after August 8, 1986) private activity bonds
other than certain qualified bonds and (b)
20
<PAGE>
75% of the excess (if any) of (i) adjusted current earnings as defined in the
Code, over (ii) AMTI (determined without regard to this preference and prior to
reduction by net operating losses).
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1999 the Company had a
federal net operating loss carryover of $1.0 million, which was assumed by the
Company in the acquisition of Royal Bankgroup.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTIONS. Corporate net
capital gains are taxed at a maximum rate of 35%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.
OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the Bank.
The Company's consolidated federal income tax returns for the tax years
ended 1996, 1997 and 1998 are open under the statute of limitations and are
subject to review by the IRS. In addition, the partial year 1996 federal tax
returns of Royal Bankgroup and Jefferson Bancorp are also considered open under
the statute of limitations and are subject to review by the IRS.
STATE TAXATION
Louisiana does not permit the filing of consolidated income tax returns.
The Company is subject to the Louisiana Corporation Income Tax based on its
separate Louisiana taxable income, as well as franchise taxes. The Corporation
Income Tax applies at graduated rates from 4% upon the first $25,000 of
Louisiana taxable income to 8% on all Louisiana taxable income in excess of
$200,000. For these purposes, "Louisiana taxable income" means net income which
is earned within or derived from sources within the State of Louisiana, after
adjustments permitted under Louisiana law including a federal income tax
deduction and an allowance for net operating losses, if any. The Bank is not
subject to the Louisiana income or franchise taxes. However, the Bank is subject
to the Louisiana Shares Tax which is imposed on the assessed value of its stock.
The formula for deriving the assessed value is to calculate 15% of the sum of
(a) 20% of the company's capitalized earnings, plus (b) 80% of the company's
taxable stockholders' equity, and to subtract from that figure 50% of the
company's real and personal property assessment. Various items may also be
subtracted in calculating a company's capitalized earnings.
STRATEGIC FOCUS
On February 17, 2000, the Company announced information regarding its
strategic direction and focus. The Company also provided guidance to the
investment community regarding current comfort ranges for operating Earnings Per
Share figures for years 2000 and 2001.
A copy of the Company's press release with respect to this information is
attached hereto as Exhibit No. 99.1, which is incorporated herein by reference.
The Company intends to provide to the investment community in the future
additional guidance with respect to its anticipated performance. The Company
will disclose any material change in the previously disclosed information or in
the material assumptions on which such information was based.
21
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Bank's
offices at December 31, 1999.
<TABLE>
<CAPTION>
Net Book Value of
Property
and Leasehold
Owned or Improvements at Deposits at
Location Leased December 31, 1999 December 31, 1999
-------- ------ ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
1101 E. Admiral Doyle Drive, New Iberia Owned $ 4,150 $ 187,842
1427 W. Main Street, Jeanerette Owned 190 26,000
403 N. Lewis Street, New Iberia Owned 337 46,229
1205 Victor II Boulevard, Morgan City Owned 329 18,233
1820 Main Street, Franklin (1) Leased 75 6,796
301 E. St. Peter Street, New Iberia Owned 980 20,740
700 Jefferson Street, Lafayette Owned 276 18,173
576 N. Parkerson Avenue, Crowley Owned 424 29,745
200 E. First Street, Kaplan Owned 128 24,282
1012 The Boulevard, Rayne Owned 173 9,085
500 S. Main Street, St. Martinville Owned 271 11,799
1101 Veterans Memorial Drive, Abbeville Leased 4 6,985
150 Ridge Road, Lafayette Owned 69 7,451
2130 W. Kaliste Saloom, Lafayette Owned 1,075 18,699
2110 W. Pinhook Road, Lafayette Owned 2,769 75,073
2602 Johnston Street, Lafayette (1) Leased 320 13,790
2240 Ambassador Caffery, Lafayette Leased 123 5,011
4510 Ambassador Caffery, Lafayette Leased 125 1,998
2723 W. Pinhook Road Leased 140 1,716
1011 Fourth Street, Gretna Owned 619 61,371
3929 Veterans Blvd., Metairie Leased -- 24,713
9300 Jefferson Hwy., River Ridge Owned 470 36,714
2330 Barataria Boulevard, Marrero Owned 306 37,446
4626 General De Gaulle, New Orleans Owned 230 12,727
111 Wall Boulevard, Gretna Owned 277 19,231
1820 Barataria Blvd., Marrero Owned 154 2,341
4041 Williams Blvd., Kenner Leased 147 2,521
805 Bernard Road, Carenero Owned 253 24,578
200 Westgate Road, Scott Owned 24 25,828
463 Heyman Blvd., Lafayette Owned 296 31,724
1820 Moss St., Lafayette Owned 287 26,095
420 E. Kaliste Saloom, Lafayette Leased 69 22,695
4010 West Congress St., Lafayette Owned 1,073 24,768
3710 Ambassador Caffery, Lafayette Leased 17 20,243
3500 Desiard St., Monroe Owned 267 24,762
One Stella Mill Road, West Monroe Owned 1,657 26,070
2348 Sterlington Road, Monroe Leased -- 13,281
5329 Cypress St., West Monroe Owned 65 19,406
1900 Jackson St., Monroe Owned 114 7,887
305 South Vienna, Ruston Owned 631 35,924
2810 Louisville Ave., Monroe Leased 43 7,483
1327 North Trenton St., Ruston Owned 179 13,530
2907 Cypress St., West Monroe Owned 40 14,281
8019 Desiard St., Monroe Owned 165 34,748
---------- -----------
$ 19,341 $ 1,100,014
========== ===========
</TABLE>
22
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Bank are not involved in any pending legal proceedings
other than nonmaterial legal proceedings occurring in the ordinary course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required herein, to the extent applicable, is incorporated
by reference on the inside front cover page of the Registrant's 1999 Annual
Report to Stockholders ("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from pages 8
and 9 of the Registrant's 1999 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required herein is incorporated by reference from pages 10
through 21 of the Registrant's 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The information required hereon is incorporated by reference from pages 18
through 20 of the Registrant's 1999 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages 22
through 51 of the Registrant's 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein is incorporated by reference from the
Registrant's definitive proxy statement for the 2000 Annual Meeting of
Stockholders ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
(1) The following financial statements are incorporated by reference
from Item 8 hereof (see Exhibit No. 13):
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the Fiscal Periods Ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders' Equity for
the Fiscal Periods Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Fiscal Periods
Ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable
accounting regulation of the SEC are omitted because of the
absence of conditions under which they are required or because
the required information is included in the consolidated
financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K, and
this list includes the Exhibit Index.
Exhibit Index
-------------
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. 3.1. Articles of Incorporation - incorporated herein by reference to Registration
Statement on Form S-1 (File No. 33-96598).
Exhibit No. 3.2. Bylaws - incorporated herein by reference to Registration Statement on Form S-1 (File
No. 33-96598).
Exhibit No. 4.1. Stock Certificate - incorporated herein by reference to Registration Statement on
Form S-8 (File No. 33-93210).
Exhibit No. 10.1. Employee Stock Ownership Plan - incorporated herein by reference to Registration
Statement on Form S-1 (File No. 33-96598).
Exhibit No. 10.2. Profit Sharing Plan and Trust - incorporated herein by reference to Registration
Statement on Form S-8 (File No. 33-93210).
Exhibit No. 10.3. Employment Agreement with Larrey G. Mouton - incorporated herein by reference to
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1999.
Exhibit No. 10.4. Employment Agreement with Daryl G. Byrd - incorporated herein by reference to Exhibit
10.4 to Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1999.
Exhibit No. 10.5. Indemnification Agreement with Daryl G. Byrd and Michael Brown.
Exhibit No. 10.6. Severance Agreement with James R. McLemore, Jr. and Donald P. Lee - incorporated
herein by reference to Registration Statement on Form S-8 (File No. 33-93210).
Exhibit No. 10.7 1996 Stock Option Plan - incorporated herein by reference to Exhibit 10.1 to
Registration Statement on Form S-8 (File No. 333-28859).
24
<PAGE>
Exhibit No. 10.8. 1999 Stock Option Plan - incorporated herein by reference to Registrant's definitive
proxy statement dated March 19, 1999.
Exhibit No. 10.9. Recognition and Retention Plan - incorporated herein by reference to Registrant's
definitive proxy statement dated April 16, 1996.
Exhibit No. 10.10. Supplemental Stock Option Plan.
Exhibit No. 13. 1999 Annual Report to Stockholders - Except for those portions of the Annual Report
to Stockholders for the year ended December 31, 1999, which are expressly
incorporated herein by reference, such Annual Report is furnished for the information
of the Commission and is not to be deemed "filed" as part of this Report.
Exhibit No. 21. Subsidiaries of the Registrant - reference is made to "Item 1. Business" for the
required information.
Exhibit No. 23. Consent of Castaing, Hussey, Lolan & Dauterieve LLP.
Exhibit No. 27. Financial Data Schedule (SEC use only)
Exhibit No. 99.1 Press Release dated February 17, 2000 - Regarding the Company's strategic focus
</TABLE>
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2000 By: /s/ Daryl G. Byrd
------------------------------
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
---- ----- ----
/s/ Larrey G. Mouton Chief Executive Officer and Director March 30, 2000
- ------------------------------------
Larrey G. Mouton
/s/ James R. McLemore, Jr. Senior Vice President and Chief Financial Officer March 30, 2000
- ------------------------------------
James R. McLemore, Jr.
(Principal Financial Officer)
/s/ Marilyn Burch Senior Vice President and Controller March 30, 2000
- ------------------------------------
Marilyn Burch
(Principal Accounting Officer)
/s/ Daryl G. Byrd President and Director March 30, 2000
- ------------------------------------
Daryl G. Byrd
/s/ Emile J. Plaisance Chairman of the Board March 30, 2000
- ------------------------------------
Emile J. Plaisance
/s/ Elaine D. Abell Director March 30, 2000
- ------------------------------------
Elaine D. Abell
/s/ Harry V. Barton, Jr. Director March 30, 2000
- ------------------------------------
Harry V. Barton, Jr.
/s/ Ernest P. Breaux, Jr. Director March 30, 2000
- ------------------------------------
Ernest P. Breaux, Jr.
/s/ Cecil C. Broussard Director March 30, 2000
- ------------------------------------
Cecil C. Broussard
/s/ William H. Fenstermaker Director March 30, 2000
- ------------------------------------
William H. Fenstermaker
/s/ Richard F. Hebert Director March 30, 2000
- ------------------------------------
Richard F. Hebert
/s/ Ray Himel Director March 30, 2000
- ------------------------------------
Ray Himel
/s/ E. Stewart Shea, III Director March 30, 2000
- ------------------------------------
E. Stewart Shea, III
</TABLE>
26
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this __ day of
_________, 1999 by and between ISB Financial Corporation, a Louisiana
corporation ("ISB"), and (the "Indemnitee").
WHEREAS, ISB and the Indemnitee recognize the volatility in the market for
directors' and officers' liability insurance, the lack of certainty as to the
availability and scope of such insurance at any given time, and the fluctuating
cost of such insurance;
WHEREAS, ISB and the Indemnitee further recognize the substantial increase
in corporate litigation in general, which has subjected officers to a greater
risk of expensive litigation;
WHEREAS, the Indemnitee does not regard the current protection available as
adequate under the present circumstances; and
WHEREAS, ISB desires to indemnify the Indemnitee individually so as to
provide him maximum protection permitted by law.
NOW, THEREFORE, ISB and the Indemnitee hereby agree as follows:
1. Definitions. The following terms shall have the indicated meanings:
(a) A "Change in Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of ISB, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of ISB representing 25% or more of the total voting
power represented by ISB's then outstanding Voting Securities, or (ii) during
any 24-consecutive-month-period, individuals who at the beginning of such period
constitute the Board of Directors of ISB and any new directors whose election by
the Board of Directors or nomination for election by ISB's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of ISB
approve a merger or consolidation of ISB with any other corporation, other than
a merger or consolidation which would result in the Voting Securities of ISB
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of" the
surviving entity) at least 80% of the total power represented by the Voting
Securities of ISB or such surviving entity outstanding immediately after such
merger or consolidation, or (iv) the stockholders of ISB approve a plan of
complete liquidation of ISB or an agreement for the sale or disposition by ISB
(in one transaction or a series of transactions) of all or substantially all
ISB's assets.
(b) "Disinterested Director" shall mean a director of ISB qualified and in
good standing who is not a party, or an officer, employee, significant
shareholder or owner, or member of the
<PAGE>
immediate family of any party, other than the Batik or its subsidiaries or
affiliates, to the Proceeding for which indemnification hereunder is being
sought.
(c) "Expenses" include, without limitation, (i) an amount for which the
Indemnitee becomes liable in a judgment in a Proceeding (include without
limitation, all judgments, fines, excise taxes assessed with respect to an
employee benefit plan, court costs), (ii) amounts paid in Settlement of a
Proceeding, (iii) reasonable attorney's fees actually paid or incurred by the
Indemnitee in connection with a Proceeding, and (iv) if the Indemnitee commences
any action or other proceeding to enforcing the Indemnitee's rights under this
Agreement, or under the Charter or Bylaws of ISB, and obtains a favorable
judgment therein, the Indemnitee's reasonable attorney's fees, costs and other
expenses actually paid or incurred in connection therewith.
(d) "Final Judgment" means a judgment, decree or order which is not
appealable or as to which the period for appeal has expired with no appeal
taken.
(e) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 8 hereof, who shall not have otherwise
performed services for ISB or the Indemnitee within the last five years (other
than in connection with seeking indemnification under this Agreement).
Independent Legal Counsel shall not be any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either ISB or the Indemnitee in an action to determine
the Indemnitee's rights under this Agreement, nor shall Independent Legal
Counsel be any person who has been sanctioned or censured for ethical violations
of applicable standards of professional conduct.
(f) A "Potential Change in Control" shall be deemed to have occurred if (i)
ISB enters into an agreement or arrangement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person (including ISB)
publicly announces an intention to take or to consider taking actions that if
consummated would constitute a Change in Control; or (iii) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(g) "Proceeding" means any judicial or administrative proceeding, or other
proceeding, whether civil, criminal, administrative or otherwise, including any
appeal or other proceeding for review, as a result of or in connection with any
action or inaction on the part of the Indemnitee while the Indemnitee is or was
an officer of ISB or of a subsidiary of ISB or while the Indemnitee is or was
serving at the request of ISB as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or as
a trustee, administrator or committee member of any employee benefit plan
established and maintained by ISB or by a subsidiary of ISB, to which the
Indemnitee is or was a party or target or is threatened to be made a party or
target. Without limitation of any indemnification provided hereunder, an
Indemnitee serving (i) another corporation, partnership, joint venture or trust
of which 20% or more of the voting power or residual economic interest is held,
directly or indirectly, by ISB, or (ii) any employee benefit plan of ISB or any
entity referred to in clause (i), in any capacity shall be deemed to be doing so
at the request of ISB.
2
<PAGE>
(h) "Settlement" shall mean any agreement or action by which a Proceeding
or other action is terminated or a complaint withdrawn before final judgment on
the merits, and shall include, without limitation, a judgment by consent or
confession or plea of guilty or nolo contendere.
(i) "Voting Securities" shall mean any securities of ISB that vote
generally in the election of directors.
2. Indemnification.
(a) Indemnification. ISB shall indemnify, and advance Expenses (as
hereinafter defined) to, Indemnitee (a) as provided in this Agreement and (b) to
the fullest extent permitted by applicable law in effect on the date hereof and
as amended from time to time. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other sections of this Agreement. Subject to the limitations and
exceptions set forth herein, ISB shall indemnify the Indemnitee for Expenses
incurred in connection with any and all Proceedings to which the Indemnitee is a
party or a witness; provided, however, that the facts giving rise to the
Proceedings were disclosed to the Chairman or the Executive Committee of the
Board of Directors prior to the initiation of the Proceedings.
(b) No Presumptions Created: Defenses. The termination of any Proceeding by
Final Judgment or Settlement shall not, of itself, create a presumption that the
Indemnitee did not act in good faith in the reasonable belief that the
Indemnitee's action was in the best interests of the Bank. ISB's inability,
pursuant to law, regulation, or order, to perform its obligations under this
Agreement shall not constitute a breach of this Agreement. It shall be a defense
to any action by the Indemnitee for indemnification under this Agreement that
the Indemnitee has not met the standards of conduct which make it permissible
under applicable law for ISB to indemnify the Indemnitee for the amount claimed
or that ISB is prohibited by law, regulation, or order from paying such amount,
but the burden of proving such defense shall be on ISB except as may otherwise
be required by applicable law or regulation.
(c) ISB Duty to Act. ISB shall act diligently, promptly, in good faith, and
at its own expense with respect to requests for indemnification hereunder.
(d) Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by ISB for some or a portion of
any Expenses incurred by the Indemnitee in connection with a Proceeding, but
not, however, for the total amount thereof, ISB shall nevertheless indemnify the
Indemnitee for the portion of such Expenses to which the Indemnitee is entitled.
3. Expenses: Indemnification Procedure.
(a) Notice/Cooperation by the Indemnitee. The Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
ISB notice in writing as soon as practicable of any claim made against the
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to ISB shall be directed to the Corporate Secretary of ISB, at
1101 East Admiral Doyle Drive, New Iberia, Louisiana 70560, or such other
address as ISB shall designate in writing to the Indemnitee. In addition, the
Indemnitee shall give ISB such
3
<PAGE>
information and cooperation as it may reasonably require and as shall be within
the Indemnitee's power.
(b) Claims. Claims for indemnification must be made in writing and be
accompanied by evidence that the Expense for which indemnification is claimed
hereunder has been paid or incurred by the Indemnitee.
(c) Payment Procedure for Indemnification. Any indemnification provided for
hereunder shall be paid no later than thirty (30) days after receipt of the
written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of ISB's Charter or Bylaws providing for
indemnification is not paid 'in full by ISB within thirty (30) days after a
written request for payment thereof has first been received by ISB, the
Indemnitee may, but need not, at any time thereafter bring an action against ISB
to recover the unpaid amount of the claim and be entitled to indemnification in
accordance herewith with respect to such action.
(d) Procedure for Advance Payment of Expenses. Any provision to the
contrary herein notwithstanding, ISB shall make payment of Expenses incurred by
the Indemnitee, in advance of the final disposition of a Proceeding, to the
Indemnitee within five (5) business days after receipt of the Indemnitee's
written request therefor, which must include the Indemnitee's undertaking to
repay such payment if the Indemnitee shall be adjudicated to be not entitled to
indemnification under Louisiana law. ISB shall accept such undertaking by the
Indemnitee without reference to the Indemnitee's ability to make such repayment.
(e) Advance Payment of Expenses in Claims Initiated by the Indemnitee.
Within five (5) business days of receipt of a written request from the
Indemnitee, ISB shall make payment to the Indemnitee of Expenses incurred by the
Indemnitee in connection with any action brought by the Indemnitee for (i)
indemnification or advance payment of Expenses by ISB under this Agreement or
any other agreement or the Charter or Bylaws of ISB now or hereafter in effect
relating to a Proceeding, in which case the Indemnitee's written request must
include the Indemnitee's undertaking to repay such payment if the Indemnitee
shall be adjudicated to be not entitled to indemnification under Louisiana law;
and/or (ii) recovery under any directors' and officers' liability insurance
policies maintained by ISB, regardless of whether the Indemnitee ultimately is
determined to be entitled to such insurance recovery.
4. Limitations and Exceptions. The limitations and exceptions set forth in this
Section 4 are effective notwithstanding any other provision of this Agreement to
the contrary.
(a) Excluded Acts. The Indemnitee will not be indemnified hereunder for any
acts or omissions or transactions from which a director or officer, as the case
may be, may not be indemnified under the laws of the State of Louisiana.
(b) Proceedings or in the Right of ISB. No indemnification shall be made
hereunder of Expenses for which the Indemnitee is adjudged in a Proceeding to be
liable to ISB in the performance the Indemnitee's duty to ISB and its
shareholders unless, and only to the extent that court in which such Proceeding
is or was pending determines that, in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnity for Expenses and
then only to the extent that the court shall determine.
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(c) Claims Initiated by the Indemnitee. ISB is not required hereunder to
indemnify or advance Expenses to the Indemnitee with respect to proceedings or
claims initiated or brought voluntarily by the Indemnitee and not by way of
defense, except with respect to (i) actions brought to establish or enforce a
right to indemnification under this Agreement or any other agreement or the
Charter or Bylaws of ISB now or hereafter in effect relating to a Proceeding;
and (ii) actions for recovery under any directors' and officers' liability
insurance policies maintained by ISB, regardless of whether the Indemnitee
ultimately is determined to be entitled to such advance expense payment or
insurance recovery.
(d) No Duplication of Payments. ISB is not required hereunder to indemnify
the Indemnitee for Expenses which have been paid directly to the Indemnitee by
ISB under its Charter or Bylaws or by an insurance carrier under a policy of
directors' and officers' liability insurance.
5. Attorneys.
(a) Selection of Counsel. In the event ISB shall be obligated under Section
2 hereof to pay the Expenses of any Proceeding against the Indemnitee, ISB, if
appropriate, shall be entitled to assume the defense of such Proceeding 'with
counsel approved by the Indemnitee, which approval shall not be unreasonably
withheld, upon the delivery to the Indemnitee of written notice of its election
so to do. After delivery of such notice, approval of such counsel by the
Indemnitee and the retention of such counsel by ISB, ISB shall not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same Proceeding, provided that
(i) the Indemnitee shall have the right to employ its counsel in any such
Proceeding at the Indemnitee's expense; and (ii) if (A) the employment of
counsel by the Indemnitee has been previously authorized by ISB, (B) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between ISB and the Indemnitee in the conduct of any such defense, or
(C) ISB shall not, in fact, have employed counsel to assume the defense of such
Proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of ISB.
(b) Attorney's Fees. In the event the Indemnitee commences any action or
other proceeding to enforce the Indemnitee's rights under this Agreement, or
under the Charter or Bylaws of ISB, and obtains a favorable judgment therein,
ISB shall indemnify the Indemnitee for the Indemnitee's Expenses incurred in
connection therewith. In the event of an action instituted by or in the name of
ISB under this Agreement or to enforce or interpret any of the terms of this
Agreement, the Indemnitee shall be entitled to be paid all Expenses incurred by
the Indemnitee in defense of such action (including with respect to the
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of the Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
6. Directors' and Officers' Liability Insurance.
(a) Maintenance of Insurance. ISB has the power to purchase and maintain
insurance on behalf of any person who is or was a director or officer of ISB
against any liability incurred by such person in such capacity, whether or not
ISB would have the power to indemnify such person against such liability. From
time to time, ISB shall make the good faith determination
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whether or not it is practicable for ISB to obtain and maintain a policy or
policies of insurance with reputable insurance companies providing the officers
and the directors of ISB with coverage for losses from wrongful acts, or to
ensure ISB's performance of its indemnification obligations under this
Agreement. Among other considerations, ISB will weigh the costs of obtaining
such insurance against the protection afforded by such coverage. In all policies
of directors' and officers' liability insurance, the Indemnitee shall be named
as an insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of ISB directors or
officers, as the case may be. Notwithstanding the foregoing, ISB shall have no
obligation to obtain or maintain such insurance if ISB determines in good faith
that such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if the Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of ISB.
(b) Notice to Insurers. If, at the time of the receipt of a notice of a
claim hereunder, ISB has directors' and officers' liability insurance in effect,
ISB shall give prompt notice of the commencement of such Proceeding to the
insurers in accordance with the procedures set forth in the respective policies.
ISB shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of
such Proceeding in accordance with the terms of such policies.
7. Nonexclusivity. The indemnification provided by this Agreement shall not be
deemed exclusive of any rights to which the Indemnitee may be entitled under
ISB's Charter, its Bylaws, any agreement, any vote of shareholders or
disinterested directors, or otherwise, as to action in the Indemnitee's official
capacity and as to liability alleged to result from holding such office.
8. Change in Control. ISB agrees that if there is a Change in Control of ISB
(other than a Change in Control that has been approved by a majority of ISB's
Board of Directors who were directors immediately prior to such Change in
Control), then Independent Legal Counsel shall be selected by the Indemnitee and
approved by ISB (which approval shall not be unreasonably withheld) and such
Independent Legal Counsel shall determine whether the Indemnitee is entitled to
indemnity payments and advances of Expenses under this Agreement or any other
agreement or the Charter or Bylaws of ISB now or hereafter in effect in
connection with any Proceeding. Such Independent Legal Counsel, among other
things, shall render its written opinion to ISB and the Indemnitee as to whether
and to what extent the Indemnitee will be permitted to be indemnified. ISB
agrees to pay the reasonable fees of the Independent Legal Counsel and to
indemnify fully such Independent Legal Counsel against any and all expenses
(including attorneys' fees) claims, liabilities and damages arising out of or
relating to this Agreement or the engagement of Independent Legal Counsel
pursuant hereto.
9. Potential Change in Control, Establishment of Trust. In the event of a
Potential Change in Control, ISB shall, upon written request by the Indemnitee,
create a trust for the benefit of the Indemnitee and from time to time upon
written request of the Indemnitee shall fund such trust in an amount sufficient
to satisfy any and all Expenses reasonably anticipated at the time of each such
request to be incurred in connection with a Proceeding and any and all
judgments, fines, penalties and settlement amounts in connection with a
Proceeding from time to time actually paid or claimed, reasonably anticipated or
proposed to be paid, plus reasonable fees to the trustee
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and coverage of the trustee's expenses in connection with his, her, or its
duties under the trust. The amount or amounts to be deposited in the trust
pursuant to the foregoing funding obligation shall be determined by a majority
of the Disinterested Directors. The terms of the trust shall provide that upon a
Change in Control (i) the trust shall not be revoked or the principal thereof
invaded, without the written consent of the Indemnitee, (ii) the trustee shall
advance, within five (5) business days of a written request by the Indemnitee,
any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to
reimburse the trust under the circumstances under which the Indemnitee would be
required to reimburse ISB under Section 3 hereof), (iii) the trust shall
continue to be funded by ISB in accordance with the funding obligation set forth
above, (iv) the trustee shall promptly pay to the Indemnitee all amounts for
which the Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in such trust shall revert
to ISB upon a final determination by the Independent Legal Counsel selected in
accordance with Section 8 hereof or a court of competent jurisdiction, as the
case may be, that the Indemnitee has been fully indemnified under the terms of
this Agreement. The trust shall provide for prompt payment of reasonable fees
and expenses of the trustee. The trustee shall be chosen by the Indemnitee.
Nothing in this Section 9 shall relieve ISB of any of its obligations under this
Agreement. All income earned on the assets held in the trust shall be reported
as income by ISB for federal, state, local and foreign tax purposes.
10. Effect of Merger, Consolidation or Acquisition. For purposes of this
Agreement, the term "ISB" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power or authority to indemnify its
directors, officers, employees or agents, so that if the Indemnitee is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise, the Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as the Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
11. Severability. The provisions of this Agreement shall be severable as
provided in this Section 11. If this Agreement or any portion hereof: shall be
invalidated on any ground by any court of competent jurisdiction, then ISB shall
nevertheless indemnify the Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated, and
the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
12. Specific Performance. The parties recognize that if any provision of this
Agreement is violated by ISB, the Indemnitee may be without an adequate remedy
at law. Accordingly, in the event of any such violation, the Indemnitee shall be
entitled, if the Indemnitee so elects, to institute proceedings, either in law
or at equity, to obtain damages, to enforce specific performance, to enjoin such
violation, or to obtain any relief or any combination of the foregoing as the
Indemnitee may elect to pursue.
13. Binding Effect; Continuation Of Indemnification. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors,
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assigns, including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business and/or
assets of ISB, spouses, heirs, and personal and legal representatives. ISB shall
require and cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business and/or assets of the, Bank, by written agreement in form and
substance satisfactory to the Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that ISB would
be required to perform if no such succession had taken place. The
indemnification provided under this Agreement shall continue as to the
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action or other covered Proceeding.
14. Changes in Applicable Law. To the extent that changes in the Louisiana law
permit greater indemnification by agreement than would be afforded currently
under this Agreement and the Charter and Bylaws of ISB, it is the intent of the
parties hereto that the Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. In the event that changes in the Louisiana
law place limitations on indemnification of directors and officers that restrict
the rights to indemnification set forth in this Agreement, any such change in
applicable law shall not alter any rights or obligations then existing with
respect to any state of facts then or theretofore existing or any action, suit
or proceeding theretofore or thereafter brought based in whole or in part upon
any such state of facts.
15. Amendments. No amendment or modification of, or supplement to, this
Agreement shall be binding unless executed in writing by both of the parties
hereto.
16. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall constitute an original.
17. Notices. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipted for by the party addressed, on the date of such receipt, or
(ii) if mailed by domestic certified or registered mail with postage prepaid, on
the third business day after the date postmarked. The address for notice to ISB
is 1101 East Admiral Doyle Drive, New Iberia, Louisiana 70560 , and the address
for notice to the Indemnitee is as shown on the signature page of this
Agreement, until either is subsequently modified by written notice.
18. Choice of Law. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Louisiana as applied to
contracts between residents thereof entered into and to be performed entirely
within the State of Louisiana.
19. Titles and Headings. Titles and headings used herein are for convenience of
reference only.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE INDEMNITEE ISB FINANCIAL
_____________________________ By: __________________________
(type name)
_____________________________ Title: _________________________
(signature)
_____________________________
(address)
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EXHIBIT 10.10
ISB FINANCIAL CORPORATION
SUPPLEMENTAL STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
ISB Financial Corporation (the "Corporation") hereby establishes this
Supplemental Stock Option Plan (the "Plan") upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation and its Subsidiary Companies by providing Employees and Consultants
with a proprietary interest in the Corporation as an incentive to contribute to
the success of the Corporation and its Subsidiary Companies, and rewarding
Employees and Consultants for outstanding performance and the attainment of
targeted goals. All Incentive Stock Options issued under this Plan are intended
to comply with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and applied
with that purpose in mind; provided that Incentive Stock Options shall not be
granted unless the Plan receives stockholder approval within one year of the
Effective Date. Each recipient of an Award hereunder is advised to consult with
his or her personal tax advisor with respect to the tax consequences under
federal, state, local and other tax laws of the receipt and/or exercise of an
Award hereunder.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted pursuant
to the terms of this Plan.
3.02 "Bank" means IBERIABANK, the wholly owned subsidiary of the
Corporation.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the occurrence of
any of the following: (i) an event that would be required to be reported in
response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A
pursuant to the Exchange Act, or any successor thereto, whether or not any class
of securities of the Corporation is registered under the Exchange Act; (ii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the Corporation's then
outstanding securities except for any securities purchased by the Corporation or
the Bank; or (iii) during any period of thirty-six consecutive months during the
term of an Option, individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof each whom shall be a non-employee
director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor
thereto and within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
<PAGE>
3.07 "Common Stock" means shares of the common stock, par value $1.00 per
share, of the Corporation.
3.07A "Consultant" means any person who performs services, as an
independent contractor but not as a Non-Employee Director, for the Corporation,
the Bank, or any Subsidiary Company.
3.08 "Disability" means any physical or mental impairment which qualifies
an individual for disability benefits under the applicable long-term disability
plan maintained by the Corporation or a Subsidiary Company, or, if no such plan
applies, which would qualify such individual for disability benefits under the
long-term disability plan maintained by the Corporation, if such individual were
covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation, the
Bank or any Subsidiary Company, or is an Officer of the Corporation, the Bank or
any Subsidiary Company, but not including directors who are not also Officers of
or otherwise employed by the Corporation, the Bank or any Subsidiary Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.12 "Fair Market Value" shall be equal to the fair market value per share
of the Corporation's Common Stock on the date an Award is granted. For purposes
hereof, the Fair Market Value of a share of Common Stock shall be the closing
sale price of a share of Common Stock on the date in question (or, if such day
is not a trading day in the U.S. markets, on the nearest preceding trading day),
as reported with respect to the principal market (or the composite of the
markets, if more than one) or national quotation system in which such shares are
then traded, or if no such closing prices are reported, the mean between the
high bid and low asked prices that day on the principal market or national
quotation system then in use, or if no such quotations are available, the price
furnished by a professional securities dealer making a market in such shares
selected by the Committee.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.14 "Non-Employee Director" means a member of the Board of the Corporation
or Board of Directors of the Bank or any successor thereto, including a Director
Emeritus of the Boards of the Corporation and/or the Bank, who is not an Officer
or Employee of the Corporation, the Bank or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this Plan which
is not an Incentive Stock Option.
3.16 "Officer" means an Employee whose position in the Corporation or a
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.17 "Option" means a right granted under this Plan to purchase Common
Stock.
3.18 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
3.19 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Corporation, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan. With respect to
Non-Employee Directors, retirement means retirement from service on the Board of
Directors of the Corporation or the Bank or any successor thereto (including
service as a Director Emeritus) after attaining the age of 70.
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3.20 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock, as
provided in the discretion of the Board or the Committee in accordance with
Section 8.10.
3.21 "Subsidiary Companies" means those subsidiaries of the Corporation,
including the Bank, which meet the definition of "subsidiary corporations" set
forth in Section 424(f) of the Code, at the time of granting of the Award in
question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Section 12.02 hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, and (iii) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or of any Award shall be
final and binding in the absence of action by the Board.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions and
decisions to the Board at appropriate times but in no event less than one time
per calendar year.
4.03 REVOCATION FOR MISCONDUCT. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, or any Stock Appreciation Right, to the
extent not yet exercised, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation or a Subsidiary
Company for cause, which, for purposes hereof, shall mean termination because of
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. Options granted
to a Non-Employee Director who is removed for cause pursuant to the
Corporation's Articles of Incorporation and Bylaws or the Bank's Charter and
Bylaws shall terminate as of the effective date of such removal.
4.04 LIMITATION ON LIABILITY. Neither the member of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Awards granted hereunder. If a member of the Board
or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulation, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests
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of the Corporation and its Subsidiary Companies and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option or Stock Appreciation Right
may be exercised if such exercise would be contrary to applicable laws and
regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon any
certificate representing shares acquired pursuant to an Award granted hereunder
noting that the transfer of such shares may be restricted by applicable laws and
regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees and Consultants of the Corporation
and its Subsidiary Companies as may be designated from time to time by the Board
or the Committee. Awards may not be granted to individuals who are not Employees
or Consultants of either the Corporation or its Subsidiary Companies.
Consultants shall be eligible to receive only Awards of Non-Qualified Options
pursuant to this Plan.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 NUMBER OF SHARES. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 24,999. None of such shares shall be the subject of more
than one Award at any time, but if an Option as to any shares is surrendered
before exercise, or expires or terminates for any reason without having been
exercised in full, or for any other reason ceases to be exercisable, the number
of shares covered thereby shall again become available for grant under the Plan
as if no Awards had been previously granted with respect to such shares.
Notwithstanding the foregoing, if an Option is surrendered in connection with
the exercise of a Stock Appreciation Right, the number of shares covered thereby
shall not be available for grant under the Plan.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan may
be authorized but unissued shares, treasury shares, shares purchased by the
Corporation on the open market or from private sources for use under the Plan,
or shares held in a grantor trust established by the Corporation or the Bank.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from time to
time which Employees and Consultants will be granted Awards under the Plan, the
number of shares of Common Stock subject to each Award, whether each Option will
be an Incentive Stock Option (in the case of Employees) or a Non-Qualified Stock
Option and the exercise price of an Option. In making all such determinations
there shall be taken into account the duties, responsibilities and performance
of each respective Employee and Non-Employee Director, his present and potential
contributions to the growth and success of the Corporation, his salary and such
other factors deemed relevant to accomplishing the purposes of the Plan.
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ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock Option
shall be no less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option is granted, except
as provided in Section 8.09(b).
(B) NON-QUALIFIED OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of a Non-Qualified Option
shall be established by the Committee at the time of grant, but in no event
shall be less than the one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Non-Qualified Option is granted.
8.03 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Incentive Stock Options and Non-Qualified
Options granted to Optionees shall become vested and exercisable at the rate, to
the extent and subject to such limitations or criteria as may be specified by
the Board or the Committee. Notwithstanding the foregoing, except as provided in
Section 8.03(b) hereof, no vesting shall occur on or after an Optionee's
employment or service as a Consultant with the Corporation and all Subsidiary
Companies is terminated for any reason other than his death or Disability. In
determining the number of shares of Common Stock with respect to which Options
are vested and/or exercisable, fractional shares will be rounded up to the
nearest whole number if the fraction is 0.5 or higher, and down if it is less.
(B) ACCELERATED VESTING. Unless the Board or the Committee
shall specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the date
an Optionee terminates his employment with the Corporation or a Subsidiary
Company or service as a Consultant because of his death or disability. All
Options hereunder shall become immediately vested and exercisable in full on the
date an Optionee terminates his employment with the Corporation or a Subsidiary
Corporation due to Retirement. In addition, all Options hereunder shall become
immediately vested and exercisable in full as of the effective date of a Change
in Control of the Corporation.
8.04 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.04(b) and
8.09, each Option or portion thereof granted to an Employee shall be exercisable
at any time on or after it vests and becomes exercisable until the earlier of
(i) ten (10) years after its date of grant or (ii) six (6) months after the date
on which the Employee ceases to be employed by the Corporation and all
Subsidiary Companies, unless the Board or the Committee in its discretion
decides at the time of grant or thereafter to extend such period of exercise
upon termination of employment to a period not exceeding five (5) years.
Except as provided in Section 8.04(b), each Option or portion thereof
granted to a Consultant shall be exercisable at any time on or after it vests
and becomes exercisable until the earlier of (i) ten (10) years after its date
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<PAGE>
of grant or (ii) three (3) years after the date on which the Consultant ceases
to serve as a consultant to the Corporation and all Subsidiary Companies, unless
the Board or the Committee in its discretion decides at the time of grant or
thereafter to extend such period of exercise upon termination of service to a
period not exceeding five (5) years.
(B) EXCEPTIONS. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted, if an Employee or
Consultant terminates his employment or service with the Corporation or a
Subsidiary Company as a result of Disability or Retirement without having fully
exercised his Options, the Optionee shall have the right, during the three (3)
year period following his termination due to Disability or Retirement, to
exercise such Options.
Unless the Board or the Committee shall specifically state otherwise at the
time an Option is granted if an Employee or Consultant terminates his employment
or service with the Corporation or a Subsidiary Company following a Change in
Control of the Corporation without having fully exercised his Options, the
Optionee shall have the right to exercise such Options during the remainder of
the original ten (10) year term of the Option from the date of grant.
Unless the board or the Committee shall specifically state otherwise at the
time an Option is granted, if an Optionee dies while in the employ or service of
the Corporation or a Subsidiary Company or terminates employment or service with
the Corporation or a Subsidiary Company as a result of Disability or Retirement
and dies without having fully exercised his Options, the executors,
administrators, legatees or distributees of his estate shall have the right,
during the one (1) year period following his death, to exercise such Options.
In no event, however, shall any Option be exercisable more than ten (10)
years from the date it was granted.
8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
could have initially transferred the Option pursuant to this Section 8.05.
Options which are transferred pursuant to this Section 8.05 shall be exercisable
by the transferee according to the same terms and conditions as applied to the
Optionee.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set forth
in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Corporation upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee (i) in cash or by check, (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker to sell the
shares and then to properly deliver to the Corporation the amount of sale
proceeds to pay the exercise price, all in accordance with applicable laws and
regulations, or (iii) at the discretion of the Committee, by delivering shares
of Common Stock (including shares acquired pursuant to the exercise of an
Option) equal in Fair Market Value to the purchase price of the shares to be
acquired pursuant to the Option, by withholding some of the shares of Common
Stock which are being purchased upon exercise of an Option, or any combination
of the foregoing. With respect to subclause (iii) hereof, the shares of Common
Stock delivered to pay the purchase price must have either been (x) purchased in
open market transactions or (y) issued by the Corporation pursuant to a plan
thereof, in each case more than six months prior to the exercise date of the
Option.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his
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<PAGE>
name is recorded on the Corporation's stockholder ledger as the holder of record
of such shares acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 8.01 to 8.08 above, to those contained in this
Section 8.09.
(A) Notwithstanding any contrary provisions contained
elsewhere in this Plan and as long as required by Section 422 of the Code, the
aggregate Fair Market Value, determined as of the time an Incentive Stock Option
is granted, of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
under this Plan, and stock options that satisfy the requirements of Section 422
of the Code under any other stock option plan or plans maintained by the
Corporation (or any parent or Subsidiary Company), shall not exceed $100,000.
(B) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and ten
percent (110%) of the Fair Market Value of a share of the Common Stock of the
Corporation at the time of grant, and such Incentive Stock Option shall by its
terms not be exercisable after the earlier of the date determined under Section
8.03 or the expiration of five (5) years from the date such Incentive Stock
Option is granted.
(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee
shall immediately notify the Corporation in writing of any sale, transfer,
assignment or other disposition (or action constituting a disqualifying
disposition within the meaning of Section 421 of the Code) of any shares of
Common Stock acquired through exercise of an Incentive Stock Option, within two
(2) years after the grant of such Incentive Stock Option or within one (1) year
after the acquisition of such shares, setting forth the date and manner of
disposition, the number of shares disposed of and the price at which such shares
were disposed of. The Corporation shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee or the
Board may, in its discretion, require shares of Common Stock acquired by an
Optionee upon exercise of an Incentive Stock Option to be held in an escrow
arrangement for the purpose of enabling compliance with the provisions of this
Section 8.09(c).
(D) STOCKHOLDER APPROVAL. Incentive Stock Options shall
not be granted unless the Plan receives stockholder approval within one year of
the Effective Date.
8.10 STOCK APPRECIATION RIGHTS.
(A) GENERAL TERMS AND CONDITIONS. The Board or the Committee
may, but shall not be obligated to, authorize the Corporation, on such terms and
conditions as it deems appropriate in each case, to grant rights to Optionees to
surrender an exercisable Option, or any portion thereof, in consideration for
the payment by the Corporation of an amount equal to the excess of the Fair
Market Value of the shares of Common Stock subject to the Option, or portion
thereof, surrendered over the exercise price of the Option with respect to such
shares (any such authorized surrender and payment being hereinafter referred to
as a "Stock Appreciation Right"). Such payment, at the discretion of the Board
or the Committee, may be made in shares of Common Stock valued at the then Fair
Market Value thereof, or in cash, or partly in cash and partly in shares of
Common Stock.
The terms and conditions with respect to a Stock Appreciation
Right may include (without limitation), subject to other provisions of this
Section 8.10 and the Plan: the period during which, date by which or event upon
which the Stock Appreciation Right may be exercised; the method for valuing
shares of Common Stock
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<PAGE>
for purposes of this Section 8.10; a ceiling on the amount of consideration
which the Corporation may pay in connection with exercise and cancellation of
the Stock Appreciation Right; and arrangements for income tax withholding. The
Board or the Committee shall have complete discretion to determine whether, when
and to whom Stock Appreciation Rights may be granted.
(B) TIME LIMITATIONS. If a holder of a Stock Appreciation
Right terminates service with the Corporation as an Officer or Employee, the
Stock Appreciation Right may be exercised only within the period, if any, within
which the Option to which it relates may be exercised.
(C) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR
OPTIONS. Upon the exercise of a Stock Appreciation Right, the number of shares
of Common Stock available under the Option to which it relates shall decrease by
a number equal to the number of shares for which the Stock Appreciation Right
was exercised. Upon the exercise of an Option, any related Stock Appreciation
Right shall terminate as to any number of shares of Common Stock subject to the
Stock Appreciation Right that exceeds the total number of shares for which the
Option remains unexercised.
(D) TIME OF GRANT. A Stock Appreciation Right granted in
connection with an Incentive Stock Option must be granted concurrently with the
Option to which it relates, while a Stock Appreciation Right granted in
connection with a Non-Qualified Option may be granted concurrently with the
Option to which it relates or at any time thereafter prior to the exercise or
expiration of such Option.
(E) NON-TRANSFERABLE. The holder of a Stock Appreciation Right
may not transfer or assign the Stock Appreciation Right otherwise than by will
or in accordance with the laws of descent and distribution, and during a
holder's lifetime a Stock Appreciation Right may be exercisable only by the
holder.
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance under
this Plan, the number of shares to which any outstanding Award relates, the
maximum number of shares that can be covered by Award to each Employee and each
Consultant and the exercise price per share of Common Stock under any
outstanding Option shall be proportionately adjusted for any increase or
decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decreases in such shares
effected without receipt or payment of consideration by the Corporation. If,
upon a merger, consolidation, reorganization, liquidation, recapitalization or
the like of the Corporation, the shares of the Corporation's Common Stock shall
be exchanged for other securities of the Corporation or of another corporation,
each recipient of an Award shall be entitled, subject to the conditions herein
stated, to purchase or acquire such number of shares of Common Stock or amount
of other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such optionees would have been entitled to purchase or acquire except for such
action, and appropriate adjustments shall be made to the per share exercise
price of outstanding Options. Notwithstanding any provision to the contrary
herein and to the extent permitted by applicable laws and regulations and
interpretations thereof, the exercise price of shares subject to outstanding
Awards may be proportionately adjusted upon the payment of a special large and
nonrecurring dividend that has the effect of a return of capital to the
stockholders, providing that the adjustment to the per share exercise price
shall satisfy the criteria set forth in Emerging Issues Task Force 90-9 (or any
successor thereto) so that the adjustments do not result in compensation
expense, and provided further that if such adjustment with respect to incentive
stock options would be treated as a modification of the outstanding incentive
stock options with the effect that, for purposes of Sections 422 and 425(h) of
the Code, and the rules and regulations promulgated thereunder, new Incentive
Stock Options would be deemed to be granted hereunder, then no adjustment to the
per share exercise price of outstanding stock options shall be made.
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ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock as to which Awards have not been granted,
subject to any required stockholder approval or any stockholder approval which
the Board may deem to be advisable for any reason, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under tax,
securities or other laws or satisfying any applicable stock exchange listing
requirements. The Board may not, without the consent of the holder of an Award,
alter or impair any Award previously granted or awarded under the Plan except as
specifically authorized herein.
ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Award hereunder nor any action taken
by the Committee or the Board in connection with the Plan shall create any right
on the part of any Employee or Consultant to continue in such capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is sufficient, the
Corporation may require the Optionee to pay to the Corporation the amount
required to be withheld as a condition to delivering the shares acquired
pursuant to an Award. The Corporation also may withhold or collect amounts with
respect to a disqualifying disposition of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option, as provided in Section
8.09(c).
12.02 METHODS OF TAX WITHHOLDING. The Board or the Committee is authorized
to adopt rules, regulations or procedures which provide for the satisfaction of
an Optionee's tax withholding obligation by the retention of shares of Common
Stock to which the Employee or Consultant would otherwise be entitled pursuant
to an Award and/or by the Optionee's delivery of previously owned shares of
Common Stock or other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder no earlier than the date
that this Plan is approved by stockholders of the Corporation and prior to the
termination of the Plan, provided that this Plan is approved by stockholders of
the Corporation pursuant to Article XIV hereof.
13.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
STOCKHOLDER APPROVAL
The Corporation may in its discretion submit this Plan to stockholders for
approval at a meeting of stockholders of the Corporation held within twelve (12)
months following the Effective Date in order to meet the
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requirements of Section 422 of the Code and regulations thereunder, and Section
162(m) of the Code and regulations thereunder.
ARTICLE XV
MISCELLANEOUS
15.01 GOVERNING LAW. To the extent not governed by federal law, this Plan
shall be construed under the laws of the State of Louisiana.
15.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
10
EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
IBERIABANK
An Independent Louisiana Bank(TM)
ISB
FINANCIAL CORPORATION
---------------------
1999 ANNUAL REPORT
<PAGE>
IBERIABANK
An Independent Louisiana Bank(TM)
ISB Financial Corporation is a commercial bank holding company organized under
the laws of the State of Louisiana with consolidated assets at December 31,
1999, of $1.4 billion. The lead bank for ISB Financial Corporation is
IBERIABANK. At the end of 1999, IBERIABANK had 43 full service offices serving
10 parishes in Louisiana. IBERIABANK and its predecessor organizations have
served Louisiana customers for 113 years. ISB Financial Corporation is the third
largest Louisiana-based bank holding company.
At December 31, 1999, ISB Financial Corporation had approximately 1,140
Shareholders of Record.
Annual Meeting
Friday, May 5, 2000, 1:00 p.m.
IBERIABANK
1101 E. Admiral Doyle Drive
New Iberia, LA
SECURITIES LISTING
ISB Financial Corporation's common stock trades on the NASDAQ Stock Market under
the symbol "ISBF". In local and national newspapers, the company is listed under
"ISB Fnl" or "ISB Fin (IBERIABANK)".
<PAGE>
STOCK INFORMATION
Market Price
---------------- Dividends
1998 High Low Declared
---------------------------------
First Quarter $30.000 $25.375 $0.14
Second Quarter $29.375 $26.375 $0.14
Third Quarter $28.000 $19.813 $0.14
Fourth Quarter $26.250 $18.875 $0.15
Market Price
---------------- Dividends
1999 High Low Declared
---------------------------------
First Quarter $23.500 $18.125 $0.15
Second Quarter $22.375 $19.000 $0.16
Third Quarter $22.000 $18.000 $0.16
Fourth Quarter $17.500 $13.250 $0.16
Dividend Reinvestment Plan
ISB Financial Corporation shareholders may take advantage of our Dividend
Reinvestment Plan. This program provides a convenient, economical way for
shareholders to increase their holdings of the Company's common stock. The
shareholder pays no brokerage commissions or service charges while participating
in the plan. A nominal fee is charged at the time that an individual terminates
plan participation. This plan does not currently offer participants the ability
to purchase additional shares with optional cash payments.
To enroll in the ISB Financial Corporation Dividend Reinvestment Plan,
shareholders must have their stock certificate numbers and complete an
enrollment form. A summary of the plan and enrollment forms are available from
the Registrar and Transfer Company at the address provided below.
<PAGE>
Shareholder Assistance
Shareholders requesting a change of address, records or information about lost
certificates should contact:
Investor Relations (800) 368-5948
Registrar and Transfer Company [email protected]
10 Commerce Drive
Cranford, NJ 07016
Corporate Office
ISB Financial Corporation
1101 East Admiral Doyle Drive
New Iberia, LA 70560
(337) 365-2361
www.iberiabank.com
For Information
News releases, quarterly reports, and other information regarding ISB Financial
Corporation and IBERIABANK may be accessed from our website at
www.iberiabank.com. In addition, shareholders and others may contact:
Investors, Analysts and Financial-Related Media Representatives
Daryl Byrd, President, or Jim McLemore, CFO Rae Robinson, Marketing Director
(337) 365-2361 (337) 365-2361
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
1999 1998 % Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Data
Net Income $ 9,529 $ 10,137 -6%
Operating Income 11,175 8,796 27%
Net Interest Income 49,705 40,766 22%
Per Share Data
Net Income - Basic $ 1.55 $ 1.61 -4%
Net Income - Diluted 1.53 1.56 -2%
Operating Income - Basic 1.82 1.40 30%
Operating Income - Diluted 1.79 1.35 33%
Book Value (End of Period) 18.62 18.91 -2%
Tangible Book Value (End of Period) 11.94 11.99 0%
Cash Dividends 0.63 0.57 11%
Average Balance Sheet Data
Loans $ 798,846 $ 710,032 13%
Earning Assets 1,241,483 1,004,812 24%
Total Assets 1,356,851 1,086,440 25%
Deposits 1,145,831 898,810 27%
Shareholders' Equity 121,490 119,712 1%
Key Ratios
Return on Average Assets:
Net Income 0.70% 0.93%
Operating Income 0.82% 0.81%
Return on Average Equity:
Net Income 7.84% 8.47%
Operating Income 9.20% 7.35%
Net Interest Margin (Tax-equivalent Basis) 4.00% 4.06%
Tangible Efficiency Ratio (Operating Basis) 63.56% 64.42%
Average Loans to Average Deposits 69.72% 79.00%
Nonperforming Assets to Total Assets 0.24% 0.44%
Allowance For Loan Losses To Loans 1.04% 0.93%
Tier 1 Leverage Ratio 6.26% 5.81%
</TABLE>
TABLE OF CONTENTS
Letter to Shareholders .......................................... 2
Strategic Direction and Focus .................................... 5
Management's Discussion and Analysis ............................. 10
Consolidated Financial Statements ................................ 22
Corporate Information ........................................... 52
1
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LETTER TO SHAREHOLDERS
I believe our organization is in a unique and favorable position for the
future. As the third largest bank headquartered in Louisiana and the largest
bank headquartered outside of New Orleans, IBERIABANK has the resources to
excel, a customer-based focus, and locations in very attractive markets. We are
positioned to provide friendly, custom solutions for customers in several of the
most dynamic and attractive markets in Louisiana.
Several significant steps were taken during 1999. First, we fully
assimilated the customers acquired as a result of the merger of First Commerce
Corporation and Bank One. This acquisition added 17 full-service offices and
increased our asset size nearly fifty percent. Second, we realigned our
operating philosophy to best serve the needs of customers throughout Louisiana.
We believe our customers' needs are best met when customer decisions are made as
close to the customer as possible. To that end, our third step was adoption of a
decentralized and "flat" management structure. As a result, we have dedicated a
President directly responsible and accountable for each of our major markets.
While many financial institutions become more distant, we are positioning our
people to better understand the unique opportunities in each of our markets.
Finally, we have a new leadership team focused on dramatically improving the
core profitability of the company. To be successful in improving core
profitability, we must have the right focus and the right people.
OUR FOCUS
A Mission Statement provides proper focus for an organization. We have
recently established a Mission Statement and certain core beliefs that we think
provide a roadmap for our associates to follow. Our Mission Statement was an
outgrowth of a comprehensive strategic planning process recently undertaken by
our Board of Directors and leadership team. Our strategic direction and values
can be best understood through our Mission Statement.
MISSION STATEMENT
Provide exceptional value-based client service
o Clients will pay for exceptional service
o Excel at delivering accurate, timely and friendly service
o We are relationship oriented and recognize how valuable our clients
are at each distribution point
Great place to work
o We will provide a work environment where associates are empowered and
challenged to perform productively, be their best, and feel a sense of
accomplishment
o All associates recognize that they can share in the financial success
over time if the corporation realizes its potential
o The corporation's leadership team will strive to provide a clear
strategic focus for all associates
o The corporation's total compensation and benefits package consistently
exceeds the market and predictively addresses environmental changes
for our associates
Growth that is consistent with high performance
o Focus on growing profitable client segments, products and services
o Only pursue mergers and acquisitions that add shareholder value
o Always ensure that growth is consistent with high standards for credit
quality
o Understand that growth not only creates shareholder value, but also
creates professional and personal growth opportunities for our
associates
We are shareholder focused
o Value creation for shareholders is our first priority
o Earnings performance is created by producing exceptional results for
our clients, associates and communities
Strong sense of community
2
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OUR LEADERS
To deliver and execute on our operating philosophy and stand true to our
Mission Statement we made significant people changes. First, we flattened our
organization structure. This action was taken with the conviction that the best
and most rapid decisions are made closest to our customers. Second, we
reorganized and enhanced our leadership team. In order to excel, we believe
relevant experience is critical. Recent leadership changes provide our
organization the relevant experience required for this company to succeed.
Third, our leaders have adopted a philosophy consistent with our core beliefs.
As a strong indication of this alignment, our leaders now have a significant
portion of their compensation "at risk."
While this new leadership team has tremendous experience, we believe our
greatest competitive advantage is our knowledge of the markets we serve. This
experience and knowledge has been gained not through casual acquaintances, but
by actually living in our markets. Our senior management team has commercial
banking experience in markets of all sizes throughout Louisiana and the
Southeast. Functionally, we have significant client, financial, credit,
operations, technology, marketing and strategic planning experience represented.
This group is dedicated to continuous personal development and maintaining the
appropriate level of knowledge to best serve our clients. Needless to say, we
are proud of the team attracted to our operating philosophy and core values.
FINANCIAL PERFORMANCE
We recognize that our core financial performance historically has lagged
peer performance. This historical performance is not representative of our high
performance philosophy. We are aggressively executing strategies and tactics to
dramatically improve our core earnings. At year-end 1999, we announced a
restructuring charge and associated expense reduction tactics intended to
significantly improve operating performance immediately. In February 2000, we
released publicly our aggressive core operating targets for the next few years.
This action was taken to provide guidance to the investment community and as an
indication of our commitment to improving performance. We believe that we are
moving in the right direction, and our leadership team is dedicated to
dramatically improving our core performance.
MARKETS
We are fortunate to operate in several of the best markets in Louisiana. Our
strongest franchise is clearly the Acadiana region (a four-parish area). We have
a strong number one market share in the New Iberia market (our historical
headquarters) and a solid number two market share in Lafayette. This area is
known for its entrepreneurial and progressive atmosphere. Recently, Inc.
Magazine named Lafayette one of the top Entrepreneurial Hot Zones in the nation.
Our combined market share rank in the Monroe/Ruston area is third. These are
both exceptional communities. Monroe, normally recognized as a conservative and
very stable economic environment, is going through an economic renaissance as
employment gains have reached 39% over the past 10 years. With 10 branches in
this area, we are excited to be able to grow with Monroe. Ruston has
consistently posted the lowest unemployment figures in Louisiana.
3
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New Orleans, the cultural capital of the South, is a city of many diverse
neighborhoods. Our franchise in New Orleans is primarily in Jefferson Parish in
a community known as Gretna. This area is often identified as the Westbank and
is a highly industrialized area centered around the Harvey Canal. While our
market share rank in the New Orleans area, including Jefferson and Orleans
Parishes, is around 8th, we are much stronger than that in the Gretna area.
SUMMARY
We are convinced that by staying close to our customers and focusing on
core financial performance we will achieve appropriate returns for our
shareholders and ensure exceptional career opportunities for our associates.
Collectively, our management team is fully engaged and excited to be part of
what we believe is the freshest, most dynamic financial story in Louisiana.
Finally, I want to thank our Board of Directors and our associates for their
dedication to the task at hand.
/s/Daryl G. Byrd
Daryl G. Byrd
President
SPECIAL THANKS
Emile J. Plaisance, Jr., Chairman of the Board of Directors, and Ray Himel,
Director, have announced their intention to retire from the Board in keeping
with our Board of Directors retirement tradition. Both have served the
institution with exceptional grace and integrity.
Emile J. Plaisance, Jr. has been associated with the institution for over
37 years. He joined the institution as an employee in July 1962, and served in
numerous capacities. In July 1981, he was appointed President and Chief
Executive Officer and board member. In April 1998, Emile was appointed Chairman
of the Board. He has provided exceptional leadership to our industry, serving as
a member of the Federal Home Loan Bank of Dallas Board of Directors and Chairman
of the Louisiana League of Savings Institutions. In addition, he is a dedicated
civic leader.
Ray Himel's association with our institution stands at over 36 years as he
was appointed to our Board in August 1963. An exceptional entrepreneur, Mr.
Himel has owned Himel Motor Supply and Himel Marine since 1948. He has been a
NAPA (National Automotive Parts Association) distributor for 50 years and served
on the NAPA Board of Directors. Mr. Himel has served our community with
distinction.
IBERIABANK appreciates the contribution that each of these men has made to
our institution and community. We wish them well in all their future endeavors
and look forward to our continued friendship.
4
<PAGE>
STRATEGIC DIRECTION AND FOCUS
Our organization has experienced a significant evolution since our founding
in 1887. This evolutionary process has accelerated rapidly since our conversion
from mutual to stock ownership in 1995. Since that time, we more than doubled
our size, solidified our leadership position in the Acadiana region of
Louisiana, became a significant player in northeast Louisiana, enhanced our New
Orleans franchise with new leadership, and transformed from a savings
association to a commercial bank. This transformation required a sizable
investment in new technology, product offerings, and skilled people. Our
attention is now focused on gaining efficiencies and improving the profitability
of the organization.
We remain dedicated to being the best, full-service, commercial bank in
Louisiana. To this end, we believe our competitive advantages are as follows:
o We know our clients well.
o We have the ability to customize our products and services to meet
customer needs.
o We are relationship focused.
o We can make decisions closer to our clients.
o We have large bank resources but small bank agility.
We intend to use our competitive advantages to dramatically improve the
core profitability of our organization. We anticipate our shareholders will be
the primary beneficiaries of earnings improvement. On February 17, 2000, our
Board of Directors and leadership team publicly announced our long-term
financial objectives for the company. The announced objectives were as follows:
o Focus on improving core profitability over the next 3-to-5 year
period.
o Return on Average Equity of 13%-to-15% within 3-to-5 years (9.2%
currently).
o Substantially improve our operating efficiency, as measured by a
Tangible Efficiency Ratio below 50% by the end of the period (64%
currently).
o Outstanding annual growth in key balances throughout the 3-to-5 year
period, including:
o Loans growing 7%-to-10% annually,
o Deposits growing 2%-to-4% annually, and
o Double-digit growth in Earnings Per Share ("EPS").
STRIVING FOR IMPROVED SHAREHOLDER VALUE
In addition to the financial objectives presented above, our leadership
team outlined EPS targets well above market expectations at the time of the
announcement. These announcements are indicative of the fact that we remain
committed to delivering dramatically improved operating performance for our
company and shareholders.
An example of a specific action we have taken recently to improve
shareholder value is our restructuring announcement at year-end 1999. At that
time, we announced a $1.3 million pre-tax charge in the fourth quarter of 1999
aimed at improving operating efficiency and profitability. We anticipate pre-tax
benefits of $1.2 million in 2000 and $2 million per year thereafter as a result
of this action.
5
<PAGE>
As further evidence of our commitment to shareholder value, on February 17,
2000, our Board of Directors authorized the repurchase of up to 300,000 shares,
or approximately 5% of ISB Financial Corporation common stock outstanding. This
action is clearly a vote of confidence in the future of our organization.
PROPOSED NAME CHANGE FOR ISB FINANCIAL CORPORATION
In concert with the evolutionary process we are undergoing, we have
proposed a name change for the holding company. There are a number of reasons
for this name change recommendation. First, internal studies indicate we have
strong brand name recognition in our markets with our bank name ,"IBERIABANK."
We believe we need to capitalize on this name recognition whenever possible.
Second, we want our customers to be shareholders, and we want our shareholders
to be customers. We become a stronger organization if this linkage occurs.
Finally, we believe we have successfully completed our transition from savings
bank to commercial bank. Therefore, reference to "savings bank" or "SB" in our
holding company name does not accurately reflect our current position or
organizational focus.
As a result, we have proposed changing our holding company moniker from
"ISB Financial Corporation" to "IBERIABANK Corporation". In a similar fashion,
we have applied for our stock symbol to change from "ISBF" to "IBKC". We believe
these changes will allow us to capitalize on the IBERIABANK name. These proposed
changes are subject to shareholder approval at our upcoming annual meeting. If
approved, shareholders will be informed of the changes shortly after the
meeting.
FINANCIAL PERFORMANCE SUMMARY FOR 1999 - OPERATING BASIS
The following is a brief financial comparison on an annual ongoing,
operating basis. For purposes of this discussion, "operating basis" excludes the
impact of the one-time restructuring and organizational charges and additional
loan loss provision announced on December 29, 1999. In addition, gains on the
sale of properties in both 1998 and 1999 were excluded from the discussion.
Complete financial information, on a "reported basis", is provided in the
section of this report, titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In September 1998, IBERIABANK acquired 17 branches and other assets, and
assumed $455 million in deposits and other liabilities from First Commerce
Corporation. Much of the balance sheet and earnings growth in 1999 over 1998 was
the result of the full-year impact of this acquisition versus only a partial
year impact in 1998.
During the year 1999, net interest income increased $8.9 million, or 22%,
over 1998. The Net interest margin compressed 6 basis points during this period,
to 4.00% in 1999. Noninterest income increased $3.5 million, or 34%, over the
prior year. Amortization of acquisition intangibles increased from $2.1 million
in 1998 to $3.4 million in 1999. This is a direct result of having a full year
impact of goodwill amortization from the First Commerce branch acquisition. All
other noninterest expenses rose $11.1 million, or 33%, over the same period.
As a result of the increases mentioned, our efficiency generally improved.
A common measure of improved operating efficiency is our tangible efficiency
ratio, which decreased from 64.4% in 1998 to 63.6% in 1999. Net operating income
increased $2.4 million, or 27%, during the year. Our return on average equity
("ROE") improved from 7.35% in 1998 to 9.20% in 1999. On a cash basis, our ROE
in 1999 was 11.40%. Diluted earnings per share ("EPS") jumped 33%, from $1.35 in
1998 to $1.79 in 1999. Similarly, diluted EPS on a cash basis climbed 37%, from
$1.56 in 1998 to $2.14 in 1999.
6
<PAGE>
Overall, our Board of Directors and leadership team were pleased with the
results for 1999. During the year, significant operating improvements were made
and investments for the future were undertaken. The diligent efforts and
commitment of all of our IBERIABANK associates made 1999 a very successful year.
However, we realize we must do better--much better. To be the best,
full-service, commercial bank in Louisiana, we must excel at everything we do.
Through our recent strategic planning process, we have set very challenging
goals for the next few years. We remain focused on dramatically improving the
core profitability of the company. We are confident in our future and we believe
we are well prepared to meet the challenges ahead.
FORWARD-LOOKING INFORMATION SAFE HARBOR
Statements contained in this report which are not historical facts and
which pertain to future operating results of ISB Financial Corporation and its
subsidiaries constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve significant risks and uncertainties. Actual results may
differ materially from the results discussed in these forward-looking
statements.
7
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in thousands, except per share data)
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets $1,363,578 $1,401,630 $947,282 $929,264 $ 608,830
Cash and cash equivalents 47,713 145,871 44,307 53,385 51,742
Loans receivable, net 834,333 761,263 654,867 571,119 399,542
Investment securities - Available for Sale 299,388 97,085 75,506 101,144 86,058
Investment securities - Held to Maturity 85,493 280,471 116,936 152,885 52,430
Goodwill and acquisition intangibles 42,063 45,352 16,358 17,807 54
Deposit accounts 1,100,014 1,220,594 786,864 766,729 451,519
Borrowings 135,053 45,639 46,728 47,750 40,490
Shareholders' equity 117,189 123,967 115,564 114,006 119,677
Book value per share $ 18.62 $ 18.91 $ 17.75 $ 17.30 $ 17.48
Tangible book value per share 11.94 11.99 15.24 14.60 17.47
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Interest income $ 95,085 $ 79,224 $ 69,607 $ 53,434 $ 42,848
Interest expense 45,380 38,458 36,050 27,136 21,282
------------------------------------------------------------------
Net interest income 49,705 40,766 33,557 26,298 21,566
Provision for loan losses 2,836 903 1,097 156 239
------------------------------------------------------------------
Net interest income after provision for
loan losses 46,869 39,863 32,460 26,142 21,327
Noninterest income 13,679 10,214 5,664 3,296 2,294
Noninterest expense 44,881 33,758 29,001 20,983 12,833
------------------------------------------------------------------
Income before income taxes 15,667 16,319 9,123 8,455 10,788
Income taxes 6,138 6,182 3,780 3,177 3,781
------------------------------------------------------------------
Net Income $ 9,529 $ 10,137 $ 5,343 $ 5,278 $ 7,007
==================================================================
Earnings per share - basic (1) $ 1.55 $ 1.61 $ 0.86 $ 0.80 $ 0.80
==================================================================
Earnings per share - diluted (1) $ 1.53 $ 1.56 $ 0.83 $ 0.80 $ 0.80
==================================================================
Cash dividends per share (1) $ 0.63 $ 0.57 $ 0.45 $ 0.33 $ 0.23
==================================================================
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Key Ratios (3)
Return on average assets 0.70% 0.93% 0.57% 0.74% 1.26%
Return on average equity 7.84 8.47 4.66 4.49 7.14
Equity to assets at the end of period 8.59 8.84 12.20 12.27 19.66
Earning assets to interest-
bearing liabilities 111.90 113.91 113.33 120.01 119.87
Interest rate spread (4) 3.57 3.52 3.25 3.08 3.25
Net interest margin (4) 4.00 4.06 3.79 3.88 4.05
Noninterest expense to average assets 3.31 3.11 3.07 2.94 2.31
Efficiency ratio (5) 70.81 66.22 73.94 70.90 53.78
Dividend payout ratio 41.88 36.56 54.41 41.72 21.81
Operating Income Data (2)
Return on average assets 0.82% 0.81% 0.69% 1.01% 1.26%
Return on average equity 9.20 7.35 5.67 6.11 7.14
Noninterest expense to average assets 2.94 2.92 2.68 2.45 2.31
Efficiency ratio (5) 63.56 64.42 65.14 59.49 53.78
Operating earnings per diluted share $ 1.79 $ 1.35 $ 1.01 $ 1.10 $ 0.80
Asset Quality Data
Nonperforming assets to total assets
at end of period (6) 0.24% 0.44% 0.28% 0.38% 0.33%
Allowance for loan losses to nonperforming
loans at end of period 279.25 124.39 244.56 185.27 255.18
Allowance for loan losses to total loans
at end of period 1.04 0.93 0.79 0.80 0.93
Consolidated Capital Ratios
Tier 1 leverage capital ratio 6.26% 5.81% 10.54% 10.34% 19.52%
Tier 1 risk-based capital ratio 9.42 9.89 18.52 20.91 42.79
Total risk-based capital ratio 10.43 10.80 19.50 21.92 44.14
</TABLE>
- ------------
(1) 1995 earnings per share and dividends declared have been stated only for a
partial period because of the Bank's conversion to stock form on April 6,
1995.
(2) Operating earnings exclude the effect of one-time or nonoperating events
from reported net income.
(3) With the exception of end-of-period ratios, all ratios are based on average
daily balances during the respective periods and are annualized where
appropriate.
(4) Interest rate spread represents the difference between the weighted average
yield on earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a
percentage of average earning assets.
(5) The efficiency ratio represents noninterest expense, as a percentage of the
sum of net interest income and noninterest income.
(6) Nonperforming assets consist of nonaccruing loans, loans 90 days or more
past due and reposessed assets.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the financial condition and results of operations of ISB Financial
Corporation (the "Company") and its subsidiary for the years ended December 31,
1997 through 1999. This review should be read in conjunction with the audited
consolidated financial statements, accompanying footnotes and supplemental
financial data included herein.
FINANCIAL CONDITION
ASSETS
General - Total assets of the Company remained relatively stable at $1.4
billion for December 31, 1999 and 1998. The decrease in total assets was $38.1
million, or 2.7%. This decrease was primarily due to the decrease in cash used
to fund deposit withdrawals. The following discussion describes the major
changes in the asset mix during 1999.
Cash and Cash Equivalents - Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing funds on deposit and cash on hand,
decreased by $98.2 million, or 67.3%, to $47.7 million at December 31, 1999
compared to $145.9 million at December 31, 1998. The decrease in cash was due
primarily to the funding of deposit withdrawals and loan originations.
Investment Securities - Investment securities increased by an aggregate of
$7.3 million, or 1.9%, to $384.9 million at December 31, 1999 compared to $377.6
million at December 31, 1998. Such increase was the result of $100.0 million of
investment securities purchased, which was partially offset by $26.3 million of
investment securities which matured, $54.4 million of principal collections on
mortgage backed securities, a $11.5 million decrease in the market value of
investment securities available for sale and $872,000 of premium amortization on
investment securities.
[GRAPHIC-PIE CHART DEPICTING ASSET MIX]
At December 31, 1999, $299.4 million of the Company's investment securities
were classified as available for sale with a pre-tax net unrealized loss of
$11.0 million. At such date, $107.7 million of the Company's investment
securities consisted of U.S. Government and Federal agency obligations and
$185.5 million consisted of mortgage backed securities. At December 31, 1999,
$85.5 million of the Company's investment securities were held to
10
<PAGE>
maturity with a pre-tax net unrealized loss of $2.6 million, consisting
primarily of mortgage backed securities with a market value of $81.0 million.
During the fourth quarter of 1999 the Company transferred $198.9 million of
mortgage backed securities from the held to maturity classification to available
for sale upon the initial application of FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. The reclassification resulted in
a fair value adjustment of $5.7 million and a decrease in equity, net of taxes,
of $3.7 million. At December 31, 1999, $10.5 million, or 2.7% of the Company's
investment securities were due within one year. Note 3 to the Consolidated
Financial Statements provides further information on the Company's investment
securities.
Loans Held for Sale - Loans held for sale decreased $13.6 million, or
74.1%, to $4.8 million at December 31, 1999 compared to $18.4 million at
December 31, 1998. Loans held for sale represent single-family residential
mortgage loans to be sold in the secondary market. In 1999, 83.1% of
single-family mortgage originations were sold in the secondary market, compared
to 71.5% in 1998.
Loans Receivable, Net - Loans receivable, net, increased by $73.1 million,
or 9.6%, to $834.3 million at December 31, 1999 compared to $761.3 million at
December 31, 1998. During 1999, commercial real estate loans increased $39.5
million, or 33.5%, home equity loans increased $18.3 million, or 25.1%, indirect
automobile loans increased $60.8 million, or 51.3%, and credit card loans
increased $1.9 million, or 40.4%. Single-family mortgage loans decreased $33.8
million, or 11.3% during 1999 as 83.1% of the mortgage loans originated during
1999 were sold in the secondary market. During 1999, construction loans
decreased $1.0 million, or 13.8%, commercial business loans decreased $752,000,
or .9%, automobile loans decreased $1.2 million, or 4.9 %, and other loans
decreased $9.1 million, or 23.3%. The changes in the loan portfolio reflect
management's continued emphasis on commercial and consumer lending. For
additional information on loans, see Note 4 to the Consolidated Financial
Statements.
Premises and Equipment, Net - Premises and equipment, net, decreased by
$1.4 million, or 5.0%, to $26.0 million at December 31, 1999 compared to $27.3
million at December 31, 1998. The decrease was the result of $2.6 million of
depreciation of premises and equipment, $636,000 of assets sold, donated or
abandoned, and $451,000 of fixed asset impairments primarily consisting of
leasehold improvements written down to book value for the remaining lease term,
which was partially offset by $2.3 million in purchases of other premises and
equipment.
LIABILITIES AND SHAREHOLDERS' EQUITY
General - The Company's primary funding sources include deposits,
short-term and long-term borrowings and shareholders' equity. The following
discussion focuses on the major changes in the mix during 1999.
Deposits - Deposits decreased by $120.6 million, or 9.9%, from $1.2 billion
at December 31, 1998 to $1.1 billion at December 31, 1999. The decrease is
primarily due to $144.0 million of net cash withdrawals, which was partially
offset by $23.4 million of interest credited. The net cash withdrawals consisted
primarily of higher priced certificates of deposit as management reduced its
emphasis on large certificates of deposit as a funding source. Certificates of
deposit over $100,000 decreased $6.1 million, or 4.7%, from $130.6 million at
December 31, 1998 to $124.5 million at December 31, 1999. At December 31, 1999,
$116.5 million, or 10.6%, of the Company's total deposits were noninterest
bearing, compared to $123.7 million, or 10.1%, at December 31, 1998. Additional
information regarding deposits is provided in Note 7 to the Consolidated
Financial Statements.
11
<PAGE>
Short-Term Borrowings - The Company's short-term borrowings are comprised
of advances from the Federal Home Loan Bank ("FHLB") of Dallas. At December 31,
1999, total short-term borrowings were $83.0 million. These advances were used
to fund net decreases in deposits and to fund loan growth. The weighted average
rate on short-term borrowings was 5.7% at December 31, 1999. For additional
information regarding the Company's short-term borrowings, see Note 8 to the
Consolidated Financial Statements.
Long-Term Borrowings - At December 31, 1999, the Company's long-term
borrowings were comprised of fixed rate advances from the Federal Home Loan Bank
and a long-term note payable from Union Planters. Long- term borrowings
increased $6.4 million, or 14.1%, to $52.1 million at December 31, 1999 compared
to $45.6 million at December 31, 1998, which was partially offset by normal
amortization payments. The increase in long-term borrowings was due to a new
long-term note payable from Union Planters, which is variable rate based on the
Wall Street Prime. For additional information, including maturities of the
Company's long-term borrowings, see Note 9 to the Consolidated Financial
Statements.
[GRAPHIC-PIE CHART DEPICTING LIABILITY AND EQUITY MIX]
Shareholders' Equity - Shareholders' equity provides a source of permanent
funding, allows for future growth and provides the Company with a cushion to
withstand unforeseen adverse developments. At December 31, 1999, shareholders'
equity totaled $117.2 million, a decrease of $6.8 million from the previous year
end level. The decrease in shareholders' equity in 1999 was the result of $4.0
million of cash dividends declared on the Company's common stock, $7.0 million
of the Company's common stock repurchased and placed into treasury, and a $7.5
million decrease in unrealized gain on securities available for sale, all of
which were partially offset by $9.5 million of net income, $1.2 million of
common stock released by the Company's Employee Stock Ownership Plan ("ESOP")
trust and $717,000 of common stock earned by participants of the Company's
Recognition and Retention Plan (`RRP") trust.
Federal regulations impose minimum regulatory capital requirements on all
institutions with deposits insured by the Federal Deposit Insurance Corporation
("FDIC"). The Board of Governors of the Federal Reserve System ("FRB") imposes
similar capital regulations on bank holding companies. At December 31, 1999, the
Company exceeded all regulatory capital ratio requirements with a tier 1
leverage capital ratio of 6.26%, a tier 1 risk-based capital ratio of 9.42% and
a total risk-based capital ratio of 10.43%. At December 31, 1999, IBERIABANK
exceeded all regulatory capital ratio requirements with a tier 1 leverage
capital ratio of 6.80%, a
12
<PAGE>
tier 1 risk-based capital ratio of 10.30% and a total risk-based capital ratio
of 11.30%. As part of the regulatory approval of the acquisition of branches
from the former First Commerce Corporation ("FCOM"), the Bank also committed to
have a tier 1 leverage capital ratio of 6.0% and 6.5% at June 30, 1999 and
December 31, 1999, respectively. The Bank is in compliance with those capital
commitments.
RESULTS OF OPERATIONS
General - The Company reported net income of $9.5 million, $10.1 million
and $5.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Earnings in 1999 include a $454,000, after taxes, gain on the sale
of property and $766,000, after taxes, in restructuring charges. Earnings in
1998 include a $1.3 million, after taxes, gain on the sale of property. Earnings
in 1997 include $1.2 million, after taxes, of non-operating charges and
expenses. Without these one-time or non-operating items, the Company would have
reported net income of $11.2 million, $8.8 million and $6.5 million for the
years ended December 31, 1999, 1998 and 1997, respectively. During 1999,
interest income increased $15.9 million, interest expense increased $6.9
million, the provision for loan losses increased $1.9 million, noninterest
income increased $3.5 million, noninterest expense increased $11.1 million and
income tax expense decreased $44,000. Cash earnings (net income before the
amortization of acquisition intangibles) were $12.2 million, $12.0 million and
$6.9 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Net Interest Income - Net interest income is determined by interest rate
spread (i.e. the difference between the yields earned on earning assets and the
rates paid on interest-bearing liabilities) and the relative amounts of earning
assets and interest-bearing liabilities. The Company's average interest rate
spread was 3.57%, 3.52% and 3.25% during the years ended December 31, 1999, 1998
and 1997, respectively. The Company's net interest margin (i.e., net interest
income as a percentage of average earning assets) was 4.00%, 4.06% and 3.79%,
during the years ended December 31, 1999, 1998 and 1997, respectively.
[GRAPHIC-BAR CHART DEPICTING REGULATORY CAPITAL]
[GRAPHIC-BAR CHART DEPICTING NET INCOME]
13
<PAGE>
Net interest income increased $8.9 million, or 21.9%, in 1999 to $49.7
million compared to $40.8 million in 1998. Such increase was due to a $15.9
million, or 20.0%, increase in interest income, which was partially offset by a
$6.9 million, or 18.0%, increase in interest expense. The increase in net
interest income was due to the increase in earning assets.
Net interest income increased $7.2 million, or 21.5%, in 1998 to $40.8
million compared to $33.6 million in 1997. The reason for such increase was a
$9.6 million, or 13.8%, increase in interest income, which was partially offset
by a $2.4 million, or 6.7%, increase in interest expense.
Interest Income - Interest income totaled $95.1 million for the year ended
December 31, 1999, an increase of $15.9 million, or 20.0%, over the total of
$79.2 million for the year ended December 31, 1998. This improvement was mainly
due to an increase in the Company's average earning assets of $236.7 million, or
23.6%, to $1.2 billion for the year ended December 31, 1999, caused primarily by
the acquisition of 17 full service branches from FCOM in September 1998 and the
utilization of the $452.6 million of deposits acquired into loans and investment
securities. Interest earned on loans increased $7.1 million, or 11.5%, in 1999.
The increase was due to a $88.8 million, or 12.5 %, increase in the average
balance of loans which was partially offset by a 7 basis point (with 100 basis
points being equal to 1 %) decrease in the yield earned. Interest earned on
investment securities increased $10.3 million, or 67.5%, in 1999. The increase
was due to a $177.9 million, or 73.9%, increase in the average balance of
investment securities, which was partially offset by a 24 basis point decrease
in the yield earned. Interest income on other earning assets, primarily
interest-bearing deposits, decreased $1.5 million, or 59.3%, during 1999. The
decrease was due to a $30.0 million, or 55.5%, decrease in the average balance
of other earning assets, together with a 41 basis point decrease in the yield
earned. The weighted average yield on all earning assets decreased from 7.88% in
1998 to 7.66% in 1999.
Interest income amounted to $79.2 million and $69.6 million for the years
ended December 31, 1998 and 1997, respectively. The $9.6 million, or 13.8%,
increase in interest income in 1998 was due to a $8.2 million, or 15.4%,
increase in interest income on loans, a $640,000, or 4.4%, increase in interest
income on investment securities, and a $807,000, or 45.8%, increase in interest
income on other earning assets.
[GRAPHIC-CHART DEPICTING NET INTEREST MARGIN]
Interest Expense - Interest expense increased $6.9 million, or 18.0%, in
1999 to $45.4 million compared to $38.5 million in 1998. The increase was due to
having one full year of interest expense on deposits acquired from FCOM in
September 1998. During 1999, there was an increase of $5.5 million, or 15.6%, in
interest expense on deposits, together with a $1.5 million, or 43.2%, increase
in interest expense on borrowings. The increase in interest expense on deposits
was the result of a $200.6 million, or 24.2%, increase in the average balance of
deposits, which was partially offset by a 30 basis point decrease in the average
cost of deposits. The
14
<PAGE>
decrease in the average cost of deposits was both the result of the net cash
withdrawals of relatively higher priced certificates of deposit together with
the one full year of expense on deposits acquired from FCOM which had a
significant amount of relatively lower priced deposits. The increase in interest
expense on borrowings was the result of a $26.8 million, or 50.6%, increase in
the average balance of borrowings, which was partially offset by a 32 basis
point decrease in the average cost of borrowings. The increase in borrowings was
largely for short term borrowings used to fund net decreases in deposits and to
fund loan growth.
Total interest expense amounted to $38.5 million and $36.1 million for the years
ended December 31, 1998 and 1997, respectively. The $2.4 million, or 6.7%,
increase in interest expense in 1998 compared to 1997 was due to a $100.4
million, or 12.8%, increase in the average balance of interest-bearing
liabilities, which was partially offset by a 25 basis point decrease in the cost
of interest-bearing liabilities.
AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST YIELDS/RATES
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Bank from earning assets
and the resultant average yields (ii) the total dollar amount of interest
expense on interest-bearing liabilities and the resultant average rate; (iii)
net interest income; (iv) net interest spread; and (v) net interest margin.
Information is based on average daily balances during the indicated periods.
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans receivable:
Mortgage loans $ 291,411 $23,163 7.95% $ 350,627 $28,157 8.03%
Commercial loans 213,986 19,585 9.15 149,627 14,607 9.76
Consumer and other loans 293,449 25,685 8.75 209,778 18,600 8.87
---------- ------- ---------- -------
Total Loans 798,846 68,433 8.57 710,032 61,364 8.64
---------- ------- ---------- -------
Investment securities 418,509 25,608 6.12 240,620 15,292 6.36
Other earning assets 24,128 1,044 4.33 54,160 2,568 4.74
---------- ------- ---------- -------
Total earning assets 1,241,483 95,085 7.66 1,004,812 79,224 7.88
Nonearning assets 115,368 ------- 81,628 -------
---------- ----------
Total assets $1,356,851 $1,086,440
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 279,328 6,301 2.26 $ 196,254 4,801 2.45
Savings deposits 131,824 2,681 2.03 114,934 2,541 2.21
Certificates of deposits 618,582 31,518 5.10 517,952 27,707 5.35
---------- ------- ---------- -------
Total deposits 1,029,734 40,500 3.93 829,140 35,049 4.23
Borrowings 79,741 4,880 6.12 52,936 3,409 6.44
---------- ------- ---------- -------
Total interest-bearing liabilities 1,109,475 45,380 4.09 882,076 38,458 4.36
---------- ------- ---------- -------
Noninterest-bearing demand deposits 116,097 69,670
Noninterest-bearing liabilities 9,789 14,982
---------- ----------
Total liabilities 1,235,361 966,728
Shareholders' Equity 121,490 119,712
---------- ----------
Total liabilities and shareholders' equity $1,356,851 $1,086,440
========== ==========
Net earning assets $ 132,008 $ 122,736
========== ==========
Net interest spread $49,705 3.57% $40,766 3.52%
======= ==== ======= ====
Net interest margin 4.00% 4.06%
==== ====
Ratio of average earning assets to
average interest-bearing liabilities 111.90% 113.91%
====== ======
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------
Average
Average Yield/
Balance Interest Rate
-------------------------------
<S> <C> <C> <C>
Earning assets:
Loans receivable:
Mortgage loans $ 377,776 $30,702 8.13%
Commercial loans 89,982 9,294 10.33
Consumer and other loans 154,444 13,198 8.55
---------- -------
Total Loans 622,202 53,194 8.55
---------- -------
Investment securities 236,939 14,652 6.18
Other earning assets 26,723 1,761 6.59
---------- -------
Total earning assets 885,864 69,607 7.86
-------
Nonearning assets 58,793
----------
Total assets $ 944,657
==========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 141,212 3,714 2.63
Savings deposits 115,882 2,949 2.54
Certificates of deposits 477,325 26,294 5.51
---------- -------
Total deposits 734,419 32,957 4.49
Borrowings 47,281 3,093 6.54
---------- -------
Total interest-bearing liabilities 781,700 36,050 4.61
---------- -------
Noninterest-bearing demand deposits 37,647
Noninterest-bearing liabilities 10,583
----------
Total liabilities 829,930
Shareholders' Equity 114,727
----------
Total liabilities and shareholders' equity $ 944,657
==========
Net earning assets $ 104,164
==========
Net interest spread $33,557 3.25%
======= ====
Net interest margin 3.79%
====
Ratio of average earning assets to
average interest-bearing liabilities 113.33%
======
</TABLE>
17
<PAGE>
Rate/Volume Analysis:
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to rate (changes in rate multiplied by the prior period's volume),
(ii) changes attributable to volume (changes in volume multiplied by the prior
period's rate), (iii) mixed change (changes in rate multiplied by changes in
volume), and (iv) total increase (decrease) (sum of the previous columns).
<TABLE>
<CAPTION>
Years ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1999/1998 1998/1997
- -----------------------------------------------------------------------------------------------------------------------------
Change Attributable To Change Attributable To
- -----------------------------------------------------------------------------------------------------------------------------
Total Total
Rate/ Increase Rate/ Increase
(Dollars in thousands) Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans:
Mortgage loans $ (4,755) $ (287) $ 48 $ (4,994) $(2,206) $ (365) $ 26 $ (2,545)
Commercial loans 6,283 (912) (393) 4,978 6,161 (510) (338) 5,313
Consumer and other loans 7,419 (239) (95) 7,085 4,729 496 177 5,402
Investment securities 11,305 (569) (420) 10,316 228 406 6 640
Other earning assets (1,424) (225) 125 (1,524) 1,808 (494) (507) 807
----------------------------------------------------------------------------------------
Total net change in income on
earning assets 18,828 (2,232) (735) 15,861 10,720 (467) (636) 9,617
----------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Demand deposits 2,032 (374) (158) 1,500 1,448 (260) (101) 1,087
Savings deposits 373 (204) (29) 140 (24) (387) 3 (408)
Certificates of deposit 5,383 (1,316) (256) 3,811 2,238 (760) (65) 1,413
Borrowings 1,726 (169) (86) 1,471 370 (48) (6) 316
----------------------------------------------------------------------------------------
Total net change in expense on
interest-bearing liabilities 9,514 (2,063) (529) 6,922 4,032 (1,455) (169) 2,408
----------------------------------------------------------------------------------------
Change in net interest income $ 9,314 $ (169) $(206) $ 8,939 $ 6,688 $ 988 $ (467) $ 7,209
========================================================================================
</TABLE>
Provision for Loan Losses - Provisions for loan losses are charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on various factors, including historical
experience, the volume and type of lending conducted by the Company, the amount
of the Company's classified assets, seasoning of the loan portfolio, the status
of past due principal and interest payments, general economic conditions,
particularly as they relate to the Company's market area and other factors
related to the collectibility of the Company's loan portfolio. Management of the
Company assesses the allowance for loan losses on a quarterly basis and will
make provisions for loan losses as deemed appropriate in order to maintain the
adequacy of the allowance for loan losses.
18
<PAGE>
The Company made a provision for loan losses of $2.8 million in 1999,
compared to $903,000 and $1.1 million for 1998 and 1997, respectively. Net loan
charge-offs for 1999 totaled $1.2 million, compared to $418,000 for 1998. The
1999 provision included an additional provision of $1.6 million in the fourth
quarter. The additional reserves were the result of an evaluation of the overall
risk profile of the loan portfolio, including the continued growth and seasoning
of the commercial and indirect auto portfolios.
The allowance for loan losses amounted to $8.7 million, or 1.0% and 279.3%
of total loans and total nonperforming loans, respectively, at December 31, 1999
compared to .9% and 124.4%, respectively, at December 31, 1998. The allowance
for loan losses increased $1.6 million, or 22.6%, from the $7.1 million at
December 31, 1998. The increase included $2.8 million provision for loan losses.
The increase in the allowance for loan losses as a percentage of nonperforming
loans was the result of the decrease in the level of nonperforming loans.
Nonperforming loans (nonaccrual loans and accruing loans 90 days or more
past due) were $3.1 million and $5.7 million at December 31, 1999 and 1998,
respectively. The decrease in nonperforming loans was primarily attributable to
management's improved collection efforts. The Company's foreclosed property
amounted to $185,000 and $384,000 at December 31, 1999 and 1998, respectively.
As a percentage of total assets, the Company's total nonperforming assets, which
consists of nonperforming loans plus foreclosed property, amounted to $3.3
million, or .2% at December 31, 1999 compared to $6.1 million, or .4%, at
December 31, 1998.
Although management of the Company believes that the Company's allowance
for loan losses was adequate at December 31, 1999, based on facts and
circumstances available, there can be no assurances that additions to such
allowance will not be necessary in future periods, which would adversely affect
the Company's results of operations.
Noninterest Income - For 1999, the Company reported noninterest income of
$13.7 million compared to $10.2 million for 1998. The primary reasons for the
$3.5 million, or 33.9%, increase in noninterest income was a $2.9 million, or
60.7% increase on service charges on deposit accounts. The increase in service
charges was due to an increase in the number of accounts that are subject to
service charges due primarily to including one full year of charges on FCOM
deposits acquired in September 1998. Other changes to non interest income
include a $635,000, or 142.7%, increase in ATM fee income, and a $1.4 million,
or 85.6%, increase in other income, which was partially offset by a $1.1
million, or 60.8%, decrease in gain on the sale of property.
Total noninterest income amounted to $10.2 million and $5.7 million for the
years ended December 31, 1998 and 1997, respectively. The primary reasons for
the $4.6 million, or 80.3%, increase in noninterest income during 1998 compared
to 1997 was a $1.4 million, or 39.8%, increase in service charges on deposit
accounts, a $1.2 million, or 388.6%, increase in gains on the sale of loans, and
$1.8 million gain on the sale of property.
Noninterest Expense - Noninterest expense includes salaries and employee
benefits, occupancy and equipment expense, communication and delivery expense,
marketing and business development expense, amortization of acquisition
intangibles and other items. Noninterest expense amounted to $44.9 million,
$33.8 million and $29.0 million for the three years ended December 31, 1999,
1998 and 1997, respectively. The primary reason for the $11.1 million, or 32.9%,
increase in noninterest expense for 1999 compared to 1998 was
19
<PAGE>
including one full year of expenses for the 17 FCOM branches acquired in
September 1998. Salaries and employee benefits increased $4.7 million, or 28.8%,
occupancy and equipment expense increased $1.7 million, or 44.7%, communication
and delivery expense increased $764,000, or 40.3%, franchise and shares tax
expense increased $337,000, or 32.5 %, the amortization of acquisition
intangibles increased $1.3 million, or 64.7%, printing, stationary and supplies
expense increased $140,000, or 17.4%, restructuring expenses of $1.2 million
were incurred (for more information regarding restructuring expenses see Note 2
to the Consolidated Financial Statements), other expenses increased $1.5
million, or 26.7%, marketing and business development expense decreased
$284,000, or 20.6%, and data processing expense decreased $197,000, or 17.7%,
due primarily to the conversion to an in-house data processing system in 1998.
The primary reasons for the $4.8 million, or 16.4%, increase in noninterest
expense for 1998 compared to 1997 were the acquisition of the 17 branch offices
and their employees and continuing to build a commercial bank infrastructure.
Income Taxes - For the years ended December 31, 1999, 1998 and 1997, the
Company incurred income tax expense of $6.1 million, $6.2 million and $3.8
million, respectively. The Company's effective tax rate amounted to 39.2%, 37.9%
and 41.4% during 1999, 1998 and 1997, respectively. The difference between the
effective tax rate and the statutory tax rate primarily related to variances in
the items that are either nontaxable or non-deductible, primarily the
non-deductibility of part of the amortization of goodwill and acquisition
intangibles, the non-deductible portion of the ESOP compensation expense and the
capital loss carryforward used during 1998 and 1999. For more information, see
Note 10 to the Consolidated Financial Statements.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset and liability management
function is to evaluate the interest-rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
focus, operating environment, capital and liquidity requirements and performance
objectives, establish prudent asset concentration guidelines and manage the risk
consistent with Board approved guidelines. Through such management, the Company
seeks to reduce the vulnerability of its operations to changes in interest
rates. The Company's actions in this regard are taken under the guidance of the
Asset/Liability Committee ("ALCO"), which is chaired by the Chief Financial
Officer and comprised of members of the Company's senior management. The ALCO
generally meets on a monthly basis, to review, among other things, the
sensitivity of the Company's assets and liabilities to interest rate changes,
local and national market conditions and interest rates. In connection
therewith, the ALCO generally reviews the Company's liquidity, cash flow needs,
maturities of investments, deposits and borrowings, and capital position.
The objective of interest rate risk management is to control the effects
that interest rate fluctuations have on net interest income and on the net
present value of the Company's earning assets and interest-bearing liabilities.
Management and the Board are responsible for managing interest rate risk and
employing risk
20
<PAGE>
management policies that monitor and limit exposure to interest rate risk.
Interest rate risk is measured using net interest margin simulation and
asset/liability net present value sensitivity analyses. These analyses provide a
range of potential impacts on net interest income and portfolio equity caused by
interest rate movements.
The Company uses financial modeling to measure the impact of changes in
interest rates on the net interest margin. As of December 31, 1999, the model
indicated the impact of an immediate and sustained 200 basis point rise in rates
over 12 months would approximate a 5.7% decrease in net interest income, while a
200 basis point decline in rates over the same period would approximate a .6%
increase in net interest income from an unchanged rate environment.
The preceding sensitivity analysis does not represent a Company forecast
and should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cash flows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change. Also, as market conditions vary from those
assumed in the sensitivity analysis, actual results will also differ due to:
prepayment/refinancing levels likely deviating from those assumed, the varying
impact of interest rate changes on caps or floors on adjustable rate assets, the
potential effect of changing debt service levels on customers with adjustable
rate loans, depositor early withdrawals and product preference changes and other
internal/external variables. Furthermore, the sensitivity analysis does not
reflect actions that the ALCO might take in responding to or anticipating
changes in interest rates.
As part of its asset/liability management strategy, the Company has
emphasized the origination of consumer loans, commercial business loans and
commercial real estate loans, all of which typically have shorter terms than
residential mortgage loans and/or adjustable or variable rates of interest. The
Company has also emphasized the origination of fixed-rate, long-term residential
loans for sale in the secondary market. As of December 31, 1999, $250.5 million,
or 30.0%, of the Company's total loan portfolio had adjustable interest rates.
As part of the Company's asset/liability management strategies, the Company
has limited its investments in investment securities other than mortgage backed
securities to those with an estimated average life of seven years or less. In
addition, at December 31, 1999, $12.4 million, or 5.2%, of the fixed-rate
mortgage backed securities had a balloon feature (the mortgage backed security
will mature and repay before the underlying loans have been fully amortized).
The Company's strategy with respect to liabilities in recent periods has
been to emphasize transaction accounts, particularly noninterest bearing
transaction accounts, which are not as sensitive to changes in interest rates as
time certificates of deposit. At December 31, 1999, 46.7% of the Company's
deposits were in transaction accounts compared to 46.6% at December 31, 1998.
Noninterest bearing transaction accounts total 10.6% of total deposits at
December 31, 1999, compared to 10.1% of total deposits at December 31, 1998.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, borrowings, loan and mortgage backed
security amortizations, prepayments and maturities, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage backed
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in overnight deposits
and other short-term earning assets which provide liquidity to meet lending
requirements. The Company has been able to generate sufficient cash through its
deposits and borrowings. At December 31, 1999, the Company had $127.5 million of
outstanding advances from the FHLB of Dallas. Additional advances available at
December 31, 1999 from the FHLB of Dallas amounted to $413.7 million. The
Company also has $7.6 million of long term debt outstanding with Union Planters
at December 31, 1999.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Company maintains a
strategy of investing in various lending products. The Company uses its sources
of funds primarily to meet its ongoing commitments, to pay maturing certificates
of deposit and deposit withdrawals, to fund loan commitments and to maintain a
portfolio of mortgage backed and investment securities. At December 31, 1999,
the total approved loan commitments outstanding amounted to $37.7 million. At
the same date, commitments under unused lines of credit, including credit card
lines, amounted to $109.3 million. Certificates of deposit scheduled to mature
in one year or less at December 31, 1999 totaled $433.9 million. Management
believes that a significant portion of maturing deposits will remain on deposit
with the Company. The Company anticipates it will continue to have sufficient
funds together with available borrowings to meet its current commitments.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operation results in terms of historical dollars, without considering changes in
relative purchasing power over time due to inflation. Unlike most industrial
companies, virtually all of the Company's assets and liabilities are monetary in
nature. As a result, interest rates generally have a more significant impact on
the Company's performance than does the effect of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates.
22
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivatives (i.e., gains and losses) depends on the
intended use of the derivative and the resulting designation. The statement is
effective for fiscal years beginning after June 15, 1999. The Company currently
has no derivatives and does not have any hedging activities. The Company adopted
the statement effective October 1, 1999. At the date of initial application, in
accordance with the provisions of the statement, the Company transferred certain
held to maturity securities into the available for sale category. The securities
transferred consisted of $198.9 million in mortgage backed securities, and the
adjustment to fair value at the time of transfer was a decrease of $5.7 million.
For additional information on these and other FASB statements see Note 1 to
the Consolidated Financial Statements.
23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
[Graphic - logo]
[graphic-letterhead Castaing Hussey Lolan & Dauterive, LLP
Samuel R. Lolan
Patrick J. Dauterive
Lori D. Percle
Debbie B. Taylor
Katherine H. Armentor
- --------------------------------------------------------------------------------
Charles E. Castaing, Retired Robin G. Freyou
Roger E. Hussey, Retired Dawn K. Gonsoulin
John G. Sarkies, Jr.
To the Board of Directors
ISB Financial Corporation and Subsidiary
New Iberia, Louisiana
We have audited the accompanying consolidated balance sheets of ISB
Financial Corporation and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ISB
Financial Corporation and Subsidiary as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/Castaing, Hussey, Lolan & Dauterive, LLP
- -------------------------------------------
Castaing, Hussey, Lolan & Dauterive, LLP
New Iberia, Louisiana
February 11, 2000
525 Weeks Street x P.O. Box 14240 x New Iberia, Louisiana 70562-4240
Ph.: 337-364-7221 x Fax: 337-364-7235 x email: [email protected]
Members of American Institute of Certified Public Accountants x Society of
Louisiana Certified Public Accountants
24
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except share data)
1999 1998
---------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 39,443 $ 36,953
Interest-bearing deposits in banks 8,270 108,918
---------------------------
Total cash and cash equivalents 47,713 145,871
Investment securities:
Available for sale, at fair value 299,388 97,085
Held to maturity (fair value of $82,884
and $280,367, respectively) 85,493 280,471
Federal Home Loan Bank stock, at cost 6,821 10,245
Loans held for sale 4,771 18,407
Loans, net of unearned income, less allowance for loan
losses of $8,749 and $7,135, respectively 834,333 761,263
Accrued interest receivable 8,017 7,667
Premises and equipment, net 25,957 27,326
Goodwill and acquisition intangibles 42,063 45,352
Other assets 9,022 7,943
---------------------------
Total Assets $1,363,578 $1,401,630
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 116,493 $ 123,721
Interest-bearing 983,521 1,096,873
---------------------------
Total deposits 1,100,014 1,220,594
Short-term borrowings 83,000 --
Accrued interest payable 5,385 6,708
Long-term debt 52,053 45,639
Other liabilities 5,937 4,722
---------------------------
Total Liabilities 1,246,389 1,277,663
---------------------------
Commitments and contingencies (notes 14, 15)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Shareholders' Equity:
Preferred stock of $1 par value;
5,000,000 shares authorized;
-0- shares issued -- --
Common stock of $1 par value; 25,000,000
shares authorized;
7,380,671 shares issued 7,381 7,381
Additional paid-in-capital 68,749 68,021
Retained earnings 69,065 63,527
Unearned common stock held by ESOP (2,649) (3,267)
Unearned common stock held by RRP trust (3,024) (3,683)
Accumulated other comprehensive income (7,124) 349
Treasury stock, at cost, 821,934 and 498,805 shares (15,209) (8,361)
--------------------------
Total Shareholders' Equity 117,189 123,967
--------------------------
Total Liabilities and Shareholders' Equity $1,363,578 $1,401,630
==========================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
Dollars in thousands, except per share data)
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Interest and Dividend Income:
Loans, including fees $68,433 $61,364 $53,194
Investment securities:
Taxable interest and dividends 25,495 15,219 14,572
Tax-exempt interest 113 73 80
Interest-bearing demand deposits 1,044 2,568 1,761
-----------------------------
Total interest and dividend income 95,085 79,224 69,607
-----------------------------
Interest Expense:
Deposits 40,500 35,049 32,957
Short-term borrowings 1,665 384 --
Long-term debt 3,215 3,025 3,093
-----------------------------
Total interest expense 45,380 38,458 36,050
-----------------------------
Net interest income 49,705 40,766 33,557
Provision for loan losses 2,836 903 1,097
-----------------------------
Net interest income after provision for loan losses 46,869 39,863 32,460
-----------------------------
Noninterest Income:
Service charges on deposit accounts 7,794 4,850 3,470
ATM fee income 1,080 445 175
Gain on sale of loans, net 1,063 1,495 306
Gain on sale of property 698 1,781 --
Gain on sale of investments, net -- 3 266
Other income 3,044 1,640 1,447
-----------------------------
Total noninterest income 13,679 10,214 5,664
-----------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Noninterest Expense:
Salaries and employee benefits 20,776 16,125 13,671
Occupancy and equipment 5,655 3,907 3,098
Amortization of acquisition intangibles 3,400 2,064 1,545
Franchise and shares tax 1,374 1,037 925
Communication and delivery 2,660 1,896 1,395
Marketing and Business Development 1,096 1,380 1,063
Data processing 916 1,113 1,795
Printing, stationery and supplies 946 806 961
Restructuring 1,178 -- --
Other expenses 6,880 5,430 4,548
-----------------------------
Total noninterest expense 44,881 33,758 29,001
-----------------------------
Income before income tax expense 15,667 16,319 9,123
Income tax expense 6,138 6,182 3,780
-----------------------------
Net Income $ 9,529 $10,137 $ 5,343
=============================
Earnings per share - basic $ 1.55 $ 1.61 $ 0.86
=============================
Earnings per share - diluted $ 1.53 $ 1.56 $ 0.83
=============================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except share and per share data)
Unearned
Unearned Common
Additional Common Stock
Common Paid-In Retained Stock Held Held By
Stock Capital Earnings By ESOP RRP Trust
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $7,381 $65,725 $54,660 $(4,612) $(4,476)
Comprehensive income:
Net income for the year ended December 31, 1997 5,343
Change in unrealized gain on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.45 per share (2,907)
Reissuance of treasury stock under stock
option plan (1,318 shares) 1
Common stock released by ESOP trust 991 691
Common stock earned by participants of recognition
and retention plan trust 81 394
Treasury stock acquired at cost, 150,550 shares
-----------------------------------------------------------
Balance, December 31, 1997 7,381 66,798 57,096 (3,921) (4,082)
Comprehensive income:
Net income for the year ended December 31, 1998 10,137
Change in unrealized gain on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.57 per share (3,706)
Reissuance of treasury stock under stock
option plan (4,838 shares) 24
Common stock released by ESOP trust 1,029 654
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 170 399
Treasury stock acquired at cost, 25,000 shares
-----------------------------------------------------------
Balance, December 31, 1998 7,381 68,021 63,527 (3,267) (3,683)
Comprehensive income:
Net income for the year ended December 31, 1999 9,529
Change in unrealized gain on securities
available for sale, net of deferred taxes
Total comprehensive income
Cash dividends declared, $.63 per share (3,991)
Reissuance of treasury stock under stock
option plan (13,371 shares) 15
Common stock released by ESOP trust 577 618
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 58 659
Compensation expense on stock option plans 78
Treasury stock acquired at cost, 336,500 shares
-----------------------------------------------------------
Balance, December 31, 1999 $7,381 $68,749 $69,065 $(2,649) $(3,024)
===========================================================
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Treasury Shareholders'
Income Stock Equity
-------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1997 $187 $(4,859) $114,006
Comprehensive income:
Net income for the year ended December 31, 1997 5,343
Change in unrealized gain on securities
available for sale, net of deferred taxes 34 34
--------
Total comprehensive income 5,377
Cash dividends declared, $.45 per share (2,907)
Reissuance of treasury stock under stock
option plan (1,318 shares) 19 20
Common stock released by ESOP trust 1,682
Common stock earned by participants of recognition
and retention plan trust 475
Treasury stock acquired at cost, 150,550 shares (3,089) (3,089)
-------------------------------------------
Balance, December 31, 1997 221 (7,929) 115,564
Comprehensive income:
Net income for the year ended December 31, 1998 10,137
Change in unrealized gain on securities
available for sale, net of deferred taxes 128 128
--------
Total comprehensive income 10,265
Cash dividends declared, $.57 per share (3,706)
Reissuance of treasury stock under stock
option plan (4,838 shares) 71 95
Common stock released by ESOP trust 1,683
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 569
Treasury stock acquired at cost, 25,000 shares (503) (503)
-------------------------------------------
Balance, December 31, 1998 349 (8,361) 123,967
Comprehensive income:
Net income for the year ended December 31, 1999 9,529
Change in unrealized gain on securities
available for sale, net of deferred taxes (7,473) (7,473)
--------
Total comprehensive income 2,056
Cash dividends declared, $.63 per share (3,991)
Reissuance of treasury stock under stock
option plan (13,371 shares) 197 212
Common stock released by ESOP trust 1,195
Common stock earned by participants of recognition
and retention plan trust, including tax benefit 717
Compensation expense on stock option plans 78
Treasury stock acquired at cost, 336,500 shares (7,045) (7,045)
-------------------------------------------
Balance, December 31, 1999 $ (7,124) $(15,209) $117,189
===========================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,529 $ 10,137 $ 5,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,657 4,283 3,052
Provision for loan losses 2,836 903 1,097
Compensation expensed recognized on RRP and stock options 795 443 414
Gains on sales of assets (852) (1,869) 148
Equipment donated 120 -- --
Impairment of fixed assets due to restructuring 645 -- --
Gain on sale of investments -- (3) (266)
Amortization of premium/discount on investments 872 117 311
Current provision for deferred income taxes (1,143) (167) 161
FHLB stock dividends (447) (419) (352)
Net change in loans held for sale 13,636 (18,407) --
Proceeds from student loans sold 763 9,215 38
ESOP compensation 1,031 1,576 1,629
Net change in securities classified as trading -- -- 630
Other, net 2,464 (1,627) (1,152)
----------------------------------
Net Cash Provided by Operating Activities $ 36,906 $ 4,182 $ 11,053
----------------------------------
Cash Flows From Investing Activities:
Activity in available for sale securities:
Sales $ -- $ 4,498 $ --
Maturities, prepayments and calls 25,500 29,345 56,100
Purchases (99,998) (54,981) (30,335)
Activity in held to maturity securities:
Maturities, prepayments and calls 55,166 47,004 35,892
Purchases -- (210,575) --
(Increase) decrease in loans receivable, net (77,653) 12,407 (89,832)
Proceeds from FHLB stock redemption 4,853 1,162 --
Purchases of FHLB stock (982) (4,828) --
Proceeds from sale of premises and equipment 531 202 2
Purchases of premises and equipment (2,332) (4,348) (5,271)
Proceeds from disposition of real estate owned & property 1,961 2,719 931
Cash received in excess of cash paid on branch acquisition -- 292,439 --
Payments received from note receivable -- -- 841
------------------------------------
Net Cash (Used in) Provided By Investing Activities $(92,954) $115,044 $(31,672)
------------------------------------
</TABLE>
(Continued)
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
(Decrease) increase in deposits $(120,881) $ (12,776) $ 18,235
Net change in short-term borrowings 83,000 -- --
Proceeds from issuance of long-term debt 7,575 -- --
Repayments of long-term debt (1,161) (1,089) (1,022)
Dividends paid to shareholders (3,810) (3,372) (2,604)
Proceeds from sale of treasury stock for stock options exercised 212 78 21
Payments to repurchase common stock (7,045) (503) (3,089)
-------------------------------------
Net Cash (Used in) Provided by Financing Activities (42,110) (17,662) 11,541
-------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (98,158) 101,564 (9,078)
Cash and Cash Equivalents at Beginning of Period 145,871 44,307 53,385
-------------------------------------
Cash and Cash Equivalents at End of Period $ 47,713 $145,871 $ 44,307
======================================
Supplemental Schedule of Noncash Activities:
Acquisition of real estate in settlement of loans $ 1,035 $ 929 $ 566
======================================
Transfer of real estate owned to land and building $ -- $ -- $ 168
======================================
Supplemental Disclosures:
Cash paid (received) for:
Interest on deposits and borrowings $ 46,703 $ 35,745 $ 36,477
======================================
Income taxes $ 6,823 $ 5,112 $ 4,226
======================================
Income tax refunds $ 9 $ (495) $ (938)
======================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations: ISB Financial Corporation (the "Company") is a
Louisiana corporation organized in November 1994 for the purpose of becoming the
holding company for Iberia Savings Bank. The Board of Directors of Iberia
Savings Bank adopted the Plan of Conversion pursuant to which the bank converted
from a Louisiana-chartered mutual savings bank to a Louisiana-chartered stock
savings bank. The Company completed its subscription and community offering in
April 1995 and, with a portion of the net proceeds, acquired the capital stock
of the bank. In December of 1997, Iberia Savings Bank changed its charter from a
state savings bank to a state commercial bank and changed its name to IBERIABANK
("Iberia").
IBERIABANK operates 25 full service offices located in south central
Louisiana, 10 full service offices located in northeast Louisiana and 8 full
service offices located in the greater New Orleans area. Iberia provides a
variety of financial services to individuals and businesses throughout its
service area. Primary deposit products are checking, savings and certificate of
deposit accounts and primary lending products are consumer, mortgage and
commercial business loans. Iberia also offers discount brokerage services
through a wholly owned subsidiary.
Jefferson Bank, formerly Jefferson Federal Savings Bank, ("Jefferson"), a
Louisiana-chartered stock savings bank, was acquired on October 18, 1996 and was
operated as a wholly owned subsidiary of the Company until it was merged into
Iberia in September of 1997.
Principles of Consolidation: The consolidated financial statements include
the accounts of ISB Financial Corporation and its wholly owned subsidiary,
Iberia, as well as all of Iberia's subsidiaries, Iberia Financial Services, LLC,
Jefferson Insurance Corporation, Metro Service Corporation and Finesco, LLC. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Material estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for losses on loans and deferred tax assets. Actual results could differ from
those estimates.
Concentration of Credit Risks: Most of the Company's business activity is
with customers located within the state of Louisiana. The Company's lending
activity in the past was concentrated in the southwestern part of Louisiana.
That economy has historically been heavily dependent on the oil and gas
industry. The Company in recent years has increased originations of commercial
loans and indirect automobile loans, and through acquisitions, has entered the
New Orleans and Monroe, Louisiana markets. Repayment of loans is expected to
come from cash flow of the borrower or, particularly with the residential
mortgage portfolio, from the sale of the real estate. Losses are limited by the
value of the collateral upon default of the borrowers.
Cash and Cash Equivalents: For purposes of presentation in the consolidated
statements of cash flows, cash and cash equivalents are defined as cash,
interest-bearing and noninterest-bearing funds on deposit at other financial
institutions.
Investment Securities: Debt securities that management has the ability and
intent to hold to maturity are classified as held to maturity and carried at
cost, adjusted for amortization of premiums and accretion of discounts using
methods approximating the interest method. Securities not classified as held to
maturity or
33
<PAGE>
trading, including equity securities with readily determinable fair values, are
classified as available for sale and recorded at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive
income. Declines in the value of individual held to maturity and available for
sale securities below their cost that are other than temporary are included in
earnings as realized losses. The cost of securities sold is recognized using the
specific identification method.
Stock in the Federal Home Loan Bank of Dallas ("FHLB") is carried at cost.
Since Iberia is a member of the FHLB, it is required to maintain an amount of
FHLB stock based on its total assets and level of borrowings. At December 31,
1999 and 1998, Iberia held more than the required level of FHLB stock.
Loans Held for Sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income.
Loans: The Company grants residential mortgage, commercial and consumer
loans to customers primarily throughout the state of Louisiana. The ability of
the debtors to honor contracts is dependent upon the collateral and general
economic conditions in this area.
Loans receivable are stated at the unpaid principal balances, less the
allowance for loan losses and net deferred loan origination fees and unearned
discounts. Interest income on loans is accrued over the term of the loans based
on the principal balance outstanding. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the
related loan yield, using the interest method.
The accrual of interest on mortgage and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Credit card loans and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful.
In general, interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis method or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual status
when all principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
Allowance for Loan Losses: The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. Changes in the allowance related to
impaired loans are charged or credited to the provision for loan losses.
The allowance for loan losses is maintained at a level which, in
management's judgement, is adequate to absorb credit losses inherent in the
portfolio. The amount of the allowance is based on management's evaluation of
various factors, including the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans,
and economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the
34
<PAGE>
contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. The impairment loss is measured on a
loan by loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately identify
individual consumer and residential loans for impairment disclosures.
Loan Servicing: Mortgage servicing rights are recognized on loans sold
where the institution retains the servicing rights. The cost of mortgage
servicing rights is amortized in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage servicing rights is
assessed based on the fair value of those rights. Fair values are estimated
using discounted cash flows based on a current market interest rate.
Foreclosed Property: Real estate and other assets acquired in settlement of
loans are recorded at the balance of the loan or at estimated fair value minus
estimated costs to sell, whichever is less, at the date acquired. After
foreclosure, valuations are periodically performed by management and the assets
are carried at the lower of cost or fair value minus estimated costs to sell.
Revenue and expenses from operations, gain or loss on sale and changes in the
valuation allowance are included in net expenses from foreclosed assets. There
was no allowance for losses on foreclosed property at December 31, 1999 and
1998.
Premises and Equipment: Land is carried at cost. Buildings and equipment
are carried at cost, less accumulated depreciation computed on a straight line
basis over the estimated useful lives of 15 to 40 years for buildings and 5 to
10 years for furniture, fixtures and equipment.
Goodwill and Other Intangible Assets: Goodwill, representing the purchase
price in excess of fair value of identifiable net assets at acquisition, is
amortized over periods not exceeding 25 years. Other acquired intangible assets,
such as core deposit intangibles, are amortized over the periods benefited, not
exceeding 8 years. As events or circumstances warrant, the Company evaluates the
recoverability of the unamortized balance based on expected future profitability
and undiscounted future cash flows of the acquisitions and their contribution to
the overall operation of the Company.
Income Taxes: The Company and all subsidiaries file a consolidated federal
income tax return on a calendar year basis. Deferred income tax assets and
liabilities are determined using the liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is determined based on the
tax effects of the temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Stock Compensation Plans: Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period, which
is usually the vesting period.
35
<PAGE>
It also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plan generally have no intrinsic value at the grant date,
and under Opinion No. 25 no compensation cost is recognized for them. The
Company has elected to continue with the accounting methodology in Opinion No.
25 and, as a result, has provided pro forma disclosures of net income and
earnings per share and other disclosures, as if the fair value based method of
accounting had been applied.
Earnings Per Common Share: Basic earnings per share represents income
available to common shareholders divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. Potential common shares that may be issued by
the Company relate to outstanding stock options and unvested restricted stock,
and are determined using the treasury stock method.
Effects of New Accounting Pronouncements: In June 1997, the FASB issued
SFAS No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting and disclosure of comprehensive income and its
components (revenues, expenses, gains and losses). This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income (including, for example, unrealized holding
gains and losses on available for sale securities) be reported in a financial
statement similar to the statement of income and retained income. The
accumulated balance of other comprehensive income is disclosed separately from
retained income in the shareholders' equity section of the balance sheet. This
statement is effective for the Company for the fiscal year beginning January 1,
1998. Adoption of this statement did not have a material impact on the financial
condition or results of operations because it addresses reporting and disclosure
issues.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This statement establishes standards for
the way public business enterprises report information about operating segments
and establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Information required to be
disclosed includes segment profit or loss, certain specific revenue and expense
items, segment assets and certain other information. This statement is effective
for the Company for financial statements issued for the fiscal year beginning
January 1, 1998. Adoption of this statement did not have a material impact on
the financial condition or results of operations because it deals with reporting
and disclosure issues.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of derivatives (that
is, gains and losses)
36
<PAGE>
depends on the intended use of the derivative and the resulting designation. The
statement is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivatives and does not have any hedging activities.
The Company adopted the statement effective October 1, 1999. At the date of
initial application, in accordance with the provisions of the statement, the
Company transferred certain held to maturity securities into the available for
sale category. The securities transferred consisted of $198,909,000 in mortgage
backed securities, and the adjustment to fair value at the time of transfer was
a decrease of $5,730,000.
Reclassifications: Certain reclassifications have been made to the 1997 and
1998 consolidated financial statements in order to conform to the
classifications adopted for reporting in 1999.
NOTE 2 - RESTRUCTURING:
On December 13, 1999 the Board of Directors approved a restructuring plan
aimed at improving the operating efficiency and profitability of the Company.
The plan involves consolidation of certain branches and elimination of
thirty-three personnel positions primarily at corporate headquarters. The
charges to current earnings consisted of $451,000 of fixed asset impairments
primarily consisting of leasehold improvements written down to book value for
the remaining lease term, $198,000 of lease termination penalties and $35,000 of
closure expenses all related to the branch consolidations and $244,000 of
severance accruals for the personnel positions eliminated. As part of the plan,
the four directors emeritus retired in December of 1999, resulting in
compensation expense of $250,000 for immediate vesting in their recognition and
retention plan shares. The anticipated date of completion of the plan is
mid-year 2000.
NOTE 3 - INVESTMENT SECURITIES:
The amortized cost and fair values of investment securities, with gross
unrealized gains and losses, (in thousands) consists of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1999:
Securities available for sale:
U.S. Government and federal
agency obligations $112,864 $ -- $ (5,181) $107,683
Mortgage backed 191,167 -- (5,693) 185,474
-------------------------------------------------------
Total debt securities 304,031 -- (10,874) 293,157
Marketable equity security 6,318 -- (87) 6,231
-------------------------------------------------------
Total securities available for sale $310,349 $ -- $ (10,961) $299,388
=======================================================
Securities held to maturity:
Obligations of state and political
subdivisions $ 1,889 $ -- $ -- $ 1,889
Mortgage backed 83,604 -- (2,609) 80,995
-------------------------------------------------------
Total securities held to maturity $ 85,493 $ -- $ (2,609) $ 82,884
=======================================================
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998:
Securities available for sale:
U.S. Government and federal
agency obligations $ 90,594 $ 653 $ (88) $ 91,159
Marketable equity security 5,962 -- (36) 5,926
--------------------------------------------------------
Total securities available for sale $ 96,556 $ 653 $ (124) $ 97,085
========================================================
Securities held to maturity:
Obligations of state and political
subdivisions $ 2,673 $ 2 $ -- $ 2,675
Mortgage backed 277,798 1,102 (1,208) 277,692
--------------------------------------------------------
Total securities held to maturity $280,471 $ 1,104 $ (1,208) $ 280,367
========================================================
</TABLE>
Securities with carrying values of $28,596,000 and $3,994,000 at December
31, 1999 and 1998, respectively, were pledged to secure public deposits and
other borrowings. Securities of $24,941,000 were pledged at December 31, 1999 to
secure a borrowing line obtained in anticipation of Y2K cash needs.
The amortized cost and fair value of investment securities at December 31,
1999, by contractual maturity, are shown below (in thousands). Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Securities Available Securities
for Sale Held to Maturity
-------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------
<S> <C> <C> <C> <C>
Within one year or less $ 10,009 $ 10,020 $ 455 $ 455
One through five years 34,863 33,707 555 555
After five through ten years 67,992 63,956 675 675
Over ten years -- -- 204 204
-------------------------------------------
Subtotal 112,864 107,683 1,889 1,889
Mortgage backed 191,167 185,474 83,604 80,995
Marketable equity security 6,318 6,231 -- --
-------------------------------------------
Totals $310,349 $299,388 $85,493 $82,884
===========================================
</TABLE>
Proceeds from the sale of available for sale investment securities during
1998 were $4,498,000. Gross gains of $3,000, before related income taxes of
$1,000 and gross losses of $-0- were realized on those sales. The Company had no
sales of investment securities in the available for sale category during 1999 or
1997.
38
<PAGE>
NOTE 4 - LOANS RECEIVABLE:
Loans receivable (in thousands) at December 31, 1999 and 1998 consists of
the following:
1999 1998
------------------------
Residential mortgage loans:
Residential 1-4 family $266,365 $300,150
Construction 6,381 7,402
------------------------
Total residential mortgage loans 272,746 307,552
------------------------
Commercial loans:
Business 82,485 83,237
Real estate 157,248 117,768
------------------------
Total commercial loans 239,733 201,005
------------------------
Consumer loans:
Home equity 91,531 73,185
Automobile 23,432 24,631
Indirect automobile 179,350 118,529
Credit card loans 6,436 4,584
Other 29,854 38,912
------------------------
Total consumer loans 330,603 259,841
------------------------
Total loans receivable 843,082 768,398
Allowance for loan losses (8,749) (7,135)
------------------------
Loans receivable, net $834,333 $761,263
========================
Loans receivable include approximately $250,537,000 and $243,646,000 of
adjustable rate loans and $583,796,000 and $517,617,000 of fixed rate loans at
December 31, 1999 and 1998, respectively.
The amount of loans for which the accrual of interest has been discontinued
totaled approximately $1,930,000 and $1,179,000 at December 31, 1999 and 1998,
respectively.
A summary of changes in the allowance for loan losses (in thousands) for
the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
-------------------------------
Balance, beginning of year $ 7,135 $ 5,258 $ 4,615
Allowance for loan losses from acquisitions -- 1,392 --
Provision charged to operations 2,836 903 1,097
Loans charged off (1,671) (863) (803)
Recoveries 449 445 349
-------------------------------
Balance, end of year $ 8,749 $ 7,135 $ 5,258
===============================
39
<PAGE>
The following is a summary of information pertaining to impaired loans (in
thousands):
December 31,
----------------
1999 1998
----------------
Impaired loans without a valuation allowance $ -- $ --
Impaired loans with a valuation allowance 1,980 1,510
----------------
Total impaired loans $ 1,980 $ 1,510
----------------
Valuation allowance related to impaired loans $ 198 $ 34
================
<TABLE>
<CAPTION>
For The Years Ended
December 31,
----------------------------
1999 1998 1997
----------------------------
<S> <C> <C> <C>
Average investment in impaired loans $ 1,822 $ 1,825 $ 35
============================
Interest income recognized on impaired loans $ 167 $ 115 $ 25
============================
Interest income recognized on a cash basis on impaired loans $ 167 $ 115 $ 25
============================
</TABLE>
No additional funds are committed to be advanced in connection with
impaired loans.
NOTE 5 - LOAN SERVICING:
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $34,852,000 and $27,177,000 at December 31, 1999 and
1998, respectively.
Custodial escrow balances maintained in connection with the foregoing
portfolio of loans serviced for others, and included in demand deposits, were
approximately $109,000 and $129,000 at December 31, 1999 and 1998, respectively.
Mortgage loan servicing rights of $67,000 and $116,000 were capitalized in
1999 and 1998, respectively. Amortization of mortgage servicing rights was
$26,000, $15,000 and $5,000 in 1999, 1998 and 1997, respectively. The balance of
mortgage servicing rights was $204,000 and $163,000 at December 31, 1999 and
1998, respectively.
40
<PAGE>
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment (in thousands) at December 31, 1999 and 1998 is
summarized as follows:
1999 1998
----------------------
Land $ 4,093 $ 4,089
Buildings 18,982 18,265
Furniture, fixtures and equipment 14,602 14,145
----------------------
37,677 36,499
Less: accumulated depreciation 11,720 9,173
----------------------
Total premises and equipment $ 25,957 $ 27,326
======================
41
<PAGE>
Depreciation expense was $2,615,000, $1,919,000 and $1,418,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The Company actively engages in leasing office space that it has available.
Leases have different terms ranging from monthly rental to five year leases. At
December 31, 1999, the lease income was $36,000 per month. Total lease income
for 1999, 1998 and 1997 was $439,000, $335,000 and $362,000, respectively.
Income from leases was reported as a reduction in occupancy and equipment
expense. The total allocated cost of the portion of the buildings held for lease
at December 31, 1999 and 1998 was $2,920,000 and $2,567,000, respectively, with
related accumulated depreciation of $922,000 and $928,000, respectively.
The Company leases certain branch offices, land and ATM facilities through
noncancellable operating leases with terms that range from one to twenty years,
with renewal options thereafter.
Minimum future annual rent commitments (in thousands) under these
agreements as of December 31, 1999 are:
Year Ending December 31, Amount
--------------------------------------------
2000 $ 452
2001 276
2002 238
2003 238
2004 and thereafter 838
------
Total $2,042
======
NOTE 7 - DEPOSITS:
Certificates of deposit with a balance of $100,000 and over were
$124,538,000 and $130,631,000 at December 31, 1999 and 1998, respectively.
A schedule of maturities of certificates of deposit (in thousands) is as
follows:
Year Ending December 31, Amount
--------------------------------------------
2000 $433,914
2001 99,512
2002 37,668
2003 5,198
2004 and thereafter 9,999
--------
Total $586,291
========
NOTE 8 - SHORT-TERM BORROWINGS:
The short-term borrowings consist of FHLB advances with terms ranging from
1 to 30 days, at fixed interest rates ranging from 5.25% to 5.97%.
42
<PAGE>
NOTE 9 - LONG-TERM DEBT:
Long-term debt at December 31, 1999 and 1998 (in thousands) is summarized
as follows:
1999 1998
-----------------------
Federal Home Loan Bank fixed rate notes at:
5.0 to 5.99% $ 4,367 $ 4,579
6.0 to 6.99% 36,000 36,896
7.0 to 7.99% 4,111 4,164
Union Planters Bank, $15MM line of credit
with variable rate equal to Wall
Street prime minus .50%, currently
@ 7.75% maturing 3/31/01. 7,575 --
-----------------------
Total Advances $ 52,053 $ 45,639
=======================
FHLB advance repayments are amortized over periods ranging from fifteen to
thirty years, and have a balloon feature at maturity. Advances are
collateralized by a blanket pledge of mortgage loans and a secondary pledge of
FHLB stock and FHLB demand deposits. Total additional advances available from
the FHLB at December 31, 1999 were $106,604,000 under the blanket floating lien
and $307,080,000 with a pledge of investment securities.
Advances and long-term debt at December 31, 1999 (in thousands) have
maturities in future years as follows:
Year Ending December 31, Amount
---------------------------------
2000 $ 7,062
2001 3,895
2002 8,840
2003 --
2004 and thereafter 32,256
--------
Total $ 52,053
========
NOTE 10 - INCOME TAXES:
The provision for income tax expense (in thousands) consists of the
following:
For The Years Ended
December 31,
------------------------------
1999 1998 1997
------------------------------
Current expense:
Federal $ 7,080 $ 6,386 $ 3,653
State 201 (37) (34)
------------------------------
Total current expense 7,281 6,349 3,619
Deferred federal expense (1,143) (167) 161
------------------------------
Total income tax expense $ 6,138 $ 6,182 $ 3,780
==============================
43
<PAGE>
There was an overpayment of federal income taxes of $242,000 at December
31, 1999 and a balance due of federal income taxes of $381,000 at December 31,
1998.
At December 31, 1999, the Company had Federal net operating loss tax
carryovers assumed in an acquisition of $1,044,000, expiring in 2003 through
2012.
The provision for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate of 35 percent on income from
operations as indicated in the following analysis (in thousands):
<TABLE>
<CAPTION>
For The Years Ended
December 31,
--------------------------
1999 1998 1997
--------------------------
<S> <C> <C> <C>
Federal tax based on statutory rate $ 5,483 $ 5,611 $ 3,102
Increase (decrease) resulting from:
Effect of tax-exempt income (136) (94) (49)
Amortization of acquisition intangibles 457 483 523
Interest and other nondeductible expenses 40 37 25
Nondeductible ESOP expense 148 318 319
State income tax on non-bank entities 201 (37) (34)
Other 64 42 (12)
Benefit from change in deferred tax valuation
allowance (119) (178) (94)
--------------------------
Income tax expense $ 6,138 $ 6,182 $ 3,780
==========================
Effective rate 39.2% 37.9% 41.4%
==========================
</TABLE>
The net deferred tax liability (in thousands) at December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses $ 2,063 $ 1,112
Deferred directors' fees 109 106
Net operating loss carryover 365 414
Capital loss carryover -- 119
ESOP and RRP 237 234
Unrealized loss on investments
classified as available for sale 3,836 --
Other 397 316
----------------------
Subtotal $ 7,007 $ 2,301
----------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---------------------
<S> <C> <C>
Deferred tax liability:
FHLB stock $ (561) $ (826)
Premises and equipment (1,829) (1,734)
Unrealized gain on investments
classified as available for sale -- (180)
Other (17) (1)
---------------------
Subtotal (2,407) (2,741)
---------------------
Deferred tax asset (liabilities) 4,600 (440)
Deferred tax valuation reserve -- (119)
---------------------
Net deferred tax asset (liability) $ 4,600 $ (559)
=====================
</TABLE>
A summary of the changes in the net deferred tax asset (liability) for the years
ended December 31, 1999 and 1998 (in thousands) is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------
<S> <C> <C>
Balance, beginning of year $ (559) $ (661)
Deferred tax expense, charged to operations 1,143 167
Unrealized gain on available for sale securities,
charged to equity 4,016 (65)
---------------------
Balance, end of year $ 4,600 $ (559)
=====================
</TABLE>
Retained earnings at December 31, 1999 and 1998, included approximately
$14,791,000 accumulated prior to January 1, 1987 for which no provision for
federal income taxes has been made. If this portion of retained earnings is used
in the future for any purpose other than to absorb bad debts, it will be added
to future taxable income.
NOTE 11 - EARNINGS PER SHARE:
Weighted average shares of common stock outstanding for basic EPS excludes the
weighted average shares not released by the Employee Stock Ownership Plan
("ESOP") (295,517, 359,164, and 426,448 shares at December 31, 1999, 1998 and
1997, respectively) and the weighted average unvested shares in the Recognition
and Retention Plan ("RRP") (231,282, 257,171 and 281,448 shares at December 31,
1999, 1998 and 1997, respectively). Shares not included in the calculation of
EPS because they are anti-dilutive were stock options of 151,865, 28,000 and
44,650, and RRP grants of 54,000, 11,000 and 28,500 at December 31, 1999, 1998
and 1997 respectively. The following sets forth the computation of net income
per common share and net income per common share-assuming dilution.
45
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Numerator:
Income applicable to common shares $9,529,000 $10,137,000 $ 5,343,000
========================================
Denominator:
Weighted average common shares outstanding 6,144,081 6,280,962 6,224,902
Effect of dilutive securities:
Stock options outstanding 79,188 185,235 180,911
RRP grants 17,435 36,620 52,936
----------------------------------------
Weighted average common shares outstanding -
assuming dilution 6,240,704 6,502,817 6,458,749
========================================
Earnings per common share $ 1.55 $ 1.61 $ 0.86
========================================
Earnings per common share - assuming dilution $ 1.53 $ 1.56 $ 0.83
========================================
</TABLE>
NOTE 12 - CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS:
The Company (on a consolidated basis) and Iberia are subject to various
regulatory capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Iberia must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
In connection with the acquisition of branch deposits and related assets
from certain banking subsidiaries of First Commerce Corporation in September
1998, additional capital requirements were imposed on Iberia by the federal and
state banking agencies. Iberia was required to have Tier 1 leverage capital of
6.5 percent at December 31, 1999.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Iberia to maintain minimum amounts and ratios (set forth
in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999 and 1998, that the Company and Iberia met all capital adequacy requirements
to which they are subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized Iberia as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leveraged ratios as set forth in the following tables.
There are no conditions or events since the notification that management
believes have changed Iberia's category. The Company's and Iberia's actual
capital amounts (dollars in thousands) and ratios as of December 31, 1999 and
1998 are also presented in the table.
46
<PAGE>
<TABLE>
<CAPTION>
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Tier 1 leverage capital:
ISB Financial Corp. $82,193 6.26% $52,512 4.00% $ N/A N/A%
IBERIABANK 89,746 6.80 52,817 4.00 66,021 5.00
Tier 1 risk-based capital:
ISB Financial Corp. 82,193 9.42 34,883 4.00 N/A N/A
IBERIABANK 89,746 10.30 34,862 4.00 52,293 6.00
Total risk-based capital:
ISB Financial Corp. 91,195 10.43 69,767 8.00 N/A N/A
IBERIABANK 98,748 11.30 69,725 8.00 87,156 10.00
December 31, 1998:
Tier 1 leverage capital:
ISB Financial Corp. $78,226 5.81% $53,860 4.00% $ N/A N/A%
IBERIABANK 77,131 5.76 53,594 4.00 66,999 5.00
Tier 1 risk-based capital:
ISB Financial Corp. 78,226 9.89 31,624 4.00 N/A N/A
IBERIABANK 77,131 9.77 31,575 4.00 47,362 6.00
Total risk-based capital:
ISB Financial Corp. 85,361 10.80 63,248 8.00 N/A N/A
IBERIABANK 84,266 10.68 63,149 8.00 78,936 10.00
</TABLE>
Iberia is restricted under applicable laws in the payment of dividends to
an amount equal to current year earnings plus undistributed earnings for the
immediately preceding year, unless prior permission is received from the
Commissioner of Financial Institutions for the State of Louisiana. Dividends
payable without permission by Iberia in 2000 will be limited to 2000 earnings
plus an additional $6,904,000.
NOTE 13 - BENEFIT PLANS:
401(k) Profit Sharing Plan
The Company has a 401(K) profit sharing plan covering substantially all of
its employees. Annual employer contributions to the plan are set by the Board of
Directors. No contributions were made by the Company for the years ended
December 31, 1999, 1998 and 1997. The plan provides, among other things, that
participants in the plan be able to direct the investment of their account
balances within the Profit Sharing Plan into alternative investment funds.
Participant deferrals under the salary reduction election may be matched by the
employer based on a percentage to be determined annually by the employer.
47
<PAGE>
Employee Stock Ownership Plan
In connection with the conversion from mutual to stock form, the Company
established an ESOP for the benefit of all eligible employees. The ESOP
purchased 590,423 shares, or 8 percent of the total stock sold in the Company's
initial public offering, for $5,904,000, financed by a loan from the Company.
The leveraged ESOP is accounted for in accordance with American Institute of
Certified Public Accountants ("AICPA") Statement of Procedures ("SOP") 93-6,
Employers' Accounting for Employee Stock Ownership Plans.
Full-time employees of the Company who have been credited with at least
1,000 hours of service during a 12 month period and who have attained age 21 are
eligible to participate in the ESOP. It is anticipated that contributions will
be made to the plan in amounts necessary to amortize the debt to the Company
over a period of 10 years.
Under SOP 93-6, unearned ESOP shares are not considered outstanding and are
shown as a reduction of shareholders' equity. Dividends on unallocated ESOP
shares are considered to be compensation expense. The Company will recognize
compensation cost equal to the fair value of the ESOP shares during the periods
in which they become committed to be released. To the extent that the fair value
of the Company's ESOP shares differ from the cost of such shares, this
differential will be credited to equity. The Company will receive a tax
deduction equal to the cost of the shares released. As the loan is internally
leveraged, the loan receivable from the ESOP to the Company is not reported as
an asset nor is the debt of the ESOP shown as a Company liability. Dividends on
allocated shares will be used to pay the ESOP debt.
Compensation cost related to the ESOP for the years ended December 31,
1999, 1998 and 1997 was $1,031,000, $1,576,000 and $1,629,000, respectively. The
fair value of the unearned ESOP shares, using the closing quoted market price
per share for that day was approximately $3,641,550 and $7,227,000 at December
31, 1999 and 1998, respectively.
A summary of the ESOP share allocation is as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Shares allocated beginning of year 246,995 197,952 128,853
Shares allocated during year 61,819 65,458 69,099
Shares distributed during the year (4,747) (16,415) 0
-----------------------------
Total allocated shares held by ESOP at year end 304,067 246,995 197,952
Unreleased shares 264,840 326,659 392,117
-----------------------------
Total ESOP shares 568,907 573,654 590,069
=============================
</TABLE>
Recognition and Retention Plan (RRP)
The Company established the RRP for certain officers and directors during
the year ended December 31, 1996. Following shareholder approval of the RRP on
May 24, 1996, the Company purchased 295,226 shares of the Corporation's common
stock in the open market at $15.875 per share to fully fund the
48
<PAGE>
related trust and to be awarded in accordance with the provisions of the RRP.
The cost of the shares of restricted stock awarded under these plans are
recorded as unearned compensation, a contra equity account. The fair value of
the shares on the date of award will be recognized as compensation expense over
the vesting period, which is seven years. The holders of the restricted stock
receive dividends and have the right to vote the shares. For the years ended
December 31, 1999, 1998 and 1997 the amount included in compensation expense was
$717,000, $442,000 and $416,000 respectively. The weighted average grant date
fair value of the restricted stock granted under the RRP during the years ended
December 31, 1999, 1998 and 1997 was $18.14, $26.19 and $25.37 respectively. A
summary of the changes in restricted stock follows:
Unawarded Awarded
Shares Shares
--------------------------
Balance, January 1, 1997 133,798 161,428
Granted (28,500) 28,500
Forfeited 3,374 (3,374)
Earned and issued -- (23,061)
--------------------------
Balance, December 31, 1997 108,672 163,493
Granted (6,000) 6,000
Forfeited 7,387 (7,387)
Earned and issued -- (25,411)
--------------------------
Balance, December 31, 1998 110,059 136,695
Granted (95,500) 95,500
Forfeited 32,060 (32,060)
Earned and issued -- (44,381)
--------------------------
Balance, December 31, 1999 46,619 155,754
==========================
Stock Option Plans
In 1996, the Company adopted a stock option plan for the benefit of
directors, officers, and other key employees. The number of shares of common
stock reserved for issuance under the stock option plan was equal to 738,067
shares or 10 percent of the total number of common shares sold in the Company's
initial public offering of its common stock upon the mutual-to-stock conversion
of Iberia Savings Bank. The option exercise price cannot be less than the fair
value of the underlying common stock as of the date of the option grant and the
maximum option term cannot exceed ten years. In 1999 the Company adopted a
similar plan that authorized an additional 300,000 shares available for the
granting of options. The Company also adopted a supplemental plan for 24,999
shares for grants to consultants.
The stock options granted are exercisable in seven equal annual
installments. Compensation expense in 1999, 1998 and 1997 related to the stock
option plans was $78,000, -0- and -0-, respectively. The stock option plans also
permit the granting of Stock Appreciation Rights ("SAR's"). SAR's entitle the
holder to receive, in the form of cash or stock, the increase in the fair value
of Company stock from the date of grant to the date of exercise. No SAR's have
been issued under the plan.
49
<PAGE>
The following table summarizes the activity related to stock options:
<TABLE>
<CAPTION>
Weighted
Available Option Average
for Grant Outstanding Exercise Price
-------------------------------------------
<S> <C> <C> <C>
At January 1, 1997 94,344 643,723 $ 15.92
Granted (90,650) 90,650 23.31
Canceled 25,611 (25,611) 18.73
Exercised -- (1,318) 15.88
--------------------------
At December 31, 1997 29,305 707,444 16.76
Granted (34,500) 34,500 25.61
Canceled 49,972 (49,972) 19.13
Exercised -- (4,838) 16.17
--------------------------
At December 31, 1998 44,777 687,134 17.04
Shares available at inception of 1999 stock plans 324,999 --
Granted (287,000) 287,000 17.40
Canceled 91,416 (91,416) 18.57
Exercised -- (13,371) 15.88
-------------------------
At December 31, 1999 174,192 869,347 17.02
=========================
Exerciseable at December 31, 1997 89,399 $ 15.92
======= =======
Exerciseable at December 31, 1998 178,354 $ 16.29
======= =======
Exerciseable at December 31, 1999 299,748 $ 16.51
======= =======
</TABLE>
The following table presents the weighted average remaining life as of
December 31, 1999 for options outstanding within the stated exercise prices:
<TABLE>
<CAPTION>
Outstanding Exerciseable
- --------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Price of Exercise Remaining of Exercise
Range Options Price Life Options Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 13.38 to $ 15.88 617,982 $ 15.47 7.1 years 267,912 $ 15.88
$ 16.31 to $ 19.75 100,786 $ 17.72 9.2 years 12,214 $ 17.97
$ 20.25 to $ 25.00 128,286 $ 22.29 8.8 years 13,721 $ 23.23
$ 25.13 to $ 28.25 22,293 $ 26.44 8.0 years 5,901 $ 26.45
</TABLE>
50
<PAGE>
In October 1995, the FASB issued SFAS 123. SFAS 123 requires disclosure of
the compensation cost for stock-based incentives granted after January 1, 1995
based on the fair value at grant date for awards. Applying SFAS 123 would result
in pro forma net income and earnings per share amounts as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Net income As reported $ 9,529,000 $10,137,000 $ 5,343,000
Pro forma $ 9,229,000 $ 9,736,000 $ 4,919,000
Earnings per share As reported - basic $1.55 $ 1.61 $.86
As reported - diluted $1.53 $ 1.56 $.83
Pro forma - basic $1.50 $ 1.55 $.79
Pro forma - diluted $1.48 $ 1.50 $.76
</TABLE>
51
<PAGE>
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted average assumptions used for
1999, 1998 and 1997 grants: dividend yields of 3.31, 2.23, and 1.84 percent;
expected volatility of 26.13, 38.00 and 23.37 percent; risk-free interest rate
of 5.97, 5.48 and 6.55 percent; and expected lives of 8.5 years for all options.
The weighted average fair value per share at the date of grant for shares
granted during 1999, 1998 and 1997 was $4.60, $10.66 and $8.35, respectively.
NOTE 14 - RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Bank has granted loans to executive
officers and directors and their affiliates amounting to $578,000 at December
31, 1999. During the year ended December 31, 1999, total principal additions
were $232,000 and total principal payments were $23,000.
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS, COMMITMENTS AND
CONTINGENCIES:
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. The same credit policies are used in these commitments as for
on-balance sheet instruments. The Company's exposure to credit loss in the event
of nonperformance by the other parties is represented by the contractual amount
of the financial instruments. The principal commitments of the Company are as
follows:
Loan Commitments:
At December 31, 1999 and 1998, the Company had outstanding firm commitments
to originate loans (in thousands) as follows:
<TABLE>
<CAPTION>
Contract Amount
-------------------
1999 1998
-------------------
<S> <C> <C>
Mortgage loans $ 1,530 $ 4,205
Undisbursed mortgage loans-in-process 6,501 7,549
Commercial loans 22,580 32,643
Consumer and other loans 7,057 6,726
-------------------
Total commitments $37,668 $51,123
===================
</TABLE>
At December 31, 1999 and 1998, the Company had outstanding commitments to
sell loans of $956,000 and $17,762,000, respectively.
Lines and Letters of Credit:
The Company issues letters of credit and approves lines of credit on
substantially the same terms as other loans. At December 31, 1999 and 1998, the
letters of credit outstanding were $2,570,000 and $1,780,000, respectively.
Unfunded approved lines of credit, including unused credit card lines, at
December 31, 1999 and 1998 were $109,347,000 and $81,879,000, respectively.
52
<PAGE>
Letters of Credit Issued on Behalf of the Company:
The Company has outstanding Standby Letters of Credit issued by the FHLB in
favor of customers of the Company. The Company uses these letters of credit to
collateralize public entity deposits in lieu of a direct pledge of investment
securities of the Company. At December 31, 1999 and 1998, outstanding letters of
credit totaled $5,000,000 and $3,365,000, respectively. Essentially all letters
of credit have expiration dates within one year. The Company has made a blanket
pledge of loans to the FHLB to secure all letters of credit issued on behalf of
the Company. This blanket pledge is also used to collateralize any direct
borrowings from the FHLB.
The Company is subject to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material effect on the consolidated financial position of the Company.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
be drawn upon, the total commitment amounts generally represent future cash
requirements. The Company evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of the
counterparty.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents: The carrying amounts of cash and short-term
instruments approximate their fair value. The carrying amounts of
interest-bearing deposits maturing within ninety days approximate their fair
values.
Investment Securities: Fair value equals quoted market prices and dealer
quotes. The carrying value of Federal Home Loan Bank stock approximates fair
value based on the redemption provisions of the Federal Home Loan Bank.
Loans: The fair value of mortgage loans receivable was estimated based on
present values using entry-value rates at December 31, 1999 and 1998, weighted
for varying maturity dates. Other loans receivable were valued based on present
values using entry-value interest rates at December 31, 1999 and 1998 applicable
to each category of loans. Fair values of mortgage loans held for sale are based
on commitments on hand from investors or prevailing market prices.
53
<PAGE>
Deposits: The fair value of NOW accounts, money market deposits and savings
accounts was the amount payable on demand at the reporting date. Certificates of
deposit were valued using a weighted average rate calculated based upon rates at
December 31, 1999 and 1998 for deposits of similar remaining maturities.
Short-term Borrowings: The carrying amounts of short-term borrowings
maturing within ninety days approximate their fair values.
Long-term Borrowings: The fair values of the Company's long-term borrowings
are estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Accrued Interest: The carrying amounts of accrued interest approximate fair
value.
Off-Balance Sheet Items: The Company has outstanding commitments to extend
credit and standby letters of credit. These off-balance sheet financial
instruments are generally exercisable at the market rate prevailing at the date
the underlying transaction will be completed and, therefore, have no current
fair value.
The estimated fair values and carrying amounts of the Company's financial
instruments (in thousands) are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 47,713 $ 47,713 $ 145,871 $ 145,871
Securities available for sale 299,388 299,388 97,085 97,085
Securities held to maturity 85,493 82,884 280,471 280,367
Federal Home Loan Bank stock 6,821 6,821 10,245 10,245
Loans and loans held for sale, net 839,104 836,068 779,670 785,696
Accrued interest receivable 8,017 8,017 7,667 7,667
Financial Liabilities
- -----------------------------------------------------------------------------------------
Deposits $1,100,014 $1,100,814 $1,220,594 $1,225,636
Short-term borrowings 83,000 83,000 -- --
Long-term debt 52,053 51,369 45,639 47,499
Accrued interest payable 5,385 5,385 6,708 6,708
</TABLE>
The fair value estimates presented herein are based upon pertinent
information available to management as of December 31, 1999 and 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
54
<PAGE>
NOTE 17 - COMPREHENSIVE INCOME:
The following is a summary of the components of other comprehensive income
(in thousands):
<TABLE>
<CAPTION>
December 31
----------------------------------
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Unrealized gain (loss) on securities available
for sale, net $(11,489) $ 196 $ 52
Reclassification adjustment for net gains realized
in net income -- (3) --
----------------------------------
Other comprehensive income (11,489) 193 52
Income tax (expense) benefit related to other
comprehensive income 4,016 (65) (18)
----------------------------------
Other comprehensive income, net of income taxes $ (7,473) $ 128 $ 34
==================================
</TABLE>
NOTE 18 - ACQUISITIONS:
In September of 1998, the Company assumed the deposits and acquired the
related assets of 17 branches from certain banking subsidiaries of First
Commerce Corporation located in Lafayette and Monroe, Louisiana. Total assets of
$455,293,000 were acquired, including $126,600,000 of loans acquired at book
value, $292,439,000 of cash and $5,719,000 of fixed assets. Deposits of
$452,578,000 were assumed along with related liabilities of $2,715,000. Total
goodwill of $31,058,000 was recognized in the transaction, and is being
amortized over 15 years using the straight line method. Total amortization of
goodwill in 1999 and 1998 was $2,083,000 and $630,000, respectively. Results of
operations for the branch acquisitions are shown from the date of acquisition
only.
NOTE 19 - SEGMENT INFORMATION:
The Company, through its subsidiary bank, operates in one segment - the
financial services industry. Within this segment, the Company is primarily
engaged in commercial and consumer banking and mortgage lending.
55
<PAGE>
NOTE 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS:
Condensed financial statements of ISB Financial Corporation (parent company
only) are shown below. The parent company has no significant operating
activities.
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1999 and 1998
(Dollars in thousands)
Assets 1999 1998
------------------------
<S> <C> <C>
Cash in bank $ 921 $ 1,114
Investment in subsidiary 124,792 122,884
Other assets 348 1,011
------------------------
Total assets $126,061 $125,009
========================
Liabilities and Shareholders' Equity
Liabilities $ 8,872 $ 1,042
Shareholders' equity 117,189 123,967
------------------------
Total liabilities and shareholders' equity $126,061 $125,009
========================
<CAPTION>
Condensed Statements of Income Years
Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Operating income:
Dividends from subsidiary $ 4,550 $ 3,147 $ 6,367
Securities gains/losses -- -- 265
Interest income 27 303 395
Other income -- 2 86
----------------------------------
Total operating income 4,577 3,452 7,113
Operating expenses 2,752 1,761 1,532
----------------------------------
Income before income tax expense and
increase (decrease) in equity in undistributed
earnings of subsidiary 1,825 1,691 5,581
Income tax (benefit) expense (800) (510) (427)
----------------------------------
Income before increase (decrease) in equity in
undistributed earnings of subsidiary 2,625 2,201 6,008
Increase (decrease) in equity in undistributed
earnings of subsidiary 6,904 7,936 (665)
----------------------------------
Net Income $ 9,529 $ 10,137 $ 5,343
==================================
</TABLE>
56
<PAGE>
NOTE 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(continued):
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,529 $ 10,137 $ 5,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for deferred income taxes -- (1) (21)
(Increase) decrease in equity in net income of subsidiary (6,904) (7,936) 665
Decrease (increase) in other assets 663 3,239 (3,696)
Increase (decrease) in other liabilities 238 7 (140)
Net change in securities classified as trading -- -- 630
Gain on sale of investments -- -- (266)
Compensation expense recognized on RRP
and stock options 795 443 414
------------------------------------
Net Cash Provided by Operating Activities 4,321 5,889 2,929
------------------------------------
Cash Flows From Investing Activities:
Payments received from note receivable -- -- 841
------------------------------------
Net Cash Provided by Investing Activities -- -- 841
------------------------------------
Cash Flows From Financing Activities:
Dividends paid to shareholders (3,974) (3,479) (2,604)
Capital contributed to subsidiary (2,184) (9,222) (207)
Proceeds from issuance of long-term debt 7,575 -- --
Payments received from ESOP 902 955 1,009
Payments to repurchase common stock (7,045) (503) (3,089)
Proceeds from sale of treasury stock 212 78 21
------------------------------------
Net Cash Used in Financing Activities (4,514) (12,171) (4,870)
------------------------------------
Net Decrease in Cash and Cash Equivalents (193) (6,282) (1,100)
Cash and Cash Equivalents, Beginning of Period 1,114 7,396 8,496
------------------------------------
Cash and Cash Equivalents, at End of Period $ 921 $ 1,114 $ 7,396
====================================
</TABLE>
57
<PAGE>
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (unaudited):
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
Total interest income $23,434 $23,850 $23,359 $24,442
Total interest expense 11,005 11,087 11,458 11,830
----------------------------------------
Net interest income 12,429 12,763 11,901 12,612
Provision for loan losses 370 265 288 1,913
----------------------------------------
Net interest income after provision
for loan losses 12,059 12,498 11,613 10,699
Noninterest income 3,100 3,092 3,600 3,888
Noninterest expense 9,692 10,113 9,832 11,844
Goodwill amortization 853 855 843 850
----------------------------------------
Income before income taxes 4,614 4,622 4,538 1,893
Income tax expense 1,755 1,794 1,751 838
----------------------------------------
Net Income $ 2,859 $ 2,828 $ 2,787 $ 1,055
========================================
Earnings per share - basic $ 0.45 $ 0.46 $ 0.46 $ 0.17
========================================
Earnings per share - diluted $ 0.44 $ 0.45 $ 0.45 $ 0.17
========================================
Year Ended December 31, 1998:
Total interest income $17,851 $17,800 $19,844 $23,729
Total interest expense 8,546 8,417 9,688 11,807
----------------------------------------
Net interest income 9,305 9,383 10,156 11,922
Provision for loan losses 230 255 206 212
----------------------------------------
Net interest income after provision
for loan losses 9,075 9,128 9,950 11,710
Noninterest income 1,549 1,736 2,038 4,891
Noninterest expense 6,722 6,962 7,805 10,205
Goodwill amortization 369 362 472 861
----------------------------------------
Income before income taxes 3,533 3,540 3,711 5,535
Income tax expense 1,386 1,384 1,489 1,923
----------------------------------------
Net Income $ 2,147 $ 2,156 $ 2,222 $ 3,612
========================================
Earnings per share - basic $ 0.34 $ 0.34 $ 0.35 $ 0.57
========================================
Earnings per share - diluted $ 0.33 $ 0.33 $ 0.34 $ 0.56
========================================
</TABLE>
58
<PAGE>
CORPORATE INFORMATION
DIRECTORS OF ISB FINANCIAL CORPORATION
Elaine D. Abell, Attorney in private practice, Lafayette, LA
Harry V. Barton, Jr., Certified Public Accountant, Lafayette, LA
Ernest P. Breaux, President, E. P. Breaux Electrical Co.,
New Iberia, LA
Cecil C. Broussard, Retired Automobile Dealer,
Commercial Real Estate Broker, New Iberia, LA
Daryl G. Byrd, President, ISB Financial Corporation; President and Chief
Executive Officer of IBERIABANK
William H. Fenstermaker, President and Chief Executive Officer of C. H.
Fenstermaker and Associates, Inc., Lafayette, LA
Richard F. Hebert, Owner, President of Hebert's Home
and Garden Showplace, New Iberia, LA
Ray Himel, Vice-Chairman, Owner of Himel Motor Supply Corp., Himel Marine and
several Ace Hardware Stores in southern Louisiana.
Larrey G. Mouton, Chief Executive Officer of ISB Financial Corporation
Emile J. Plaisance, Jr., Chairman, Retired.
Stewart Shea, Vice President of Bayou Management Services, President of Bayou
Pipe Coating, LLC, affiliates of Bayou Management Services, New Iberia, LA.
RETIRED DIRECTORS
William R. Bigler
Henry J. Dauterive, Jr.
Louis J. Tamporello
Guyton H. Watkins
59
<PAGE>
EXECUTIVE OFFICERS OF IBERIABANK
Daryl G. Byrd, President/Chief Executive Officer
George J. Becker, Executive Vice President, Monroe President
Michael J. Brown, Executive Vice President,
New Orleans President, Chief Credit Officer
John R. Davis, Executive Vice President, Chief Strategic Planning Officer
Donald P. Lee, Executive Vice President, Legal Counsel
& Corporate Secretary
Barry M. Mulroy, Executive Vice President, Chief Administrative Officer
Patrick J. Trahan, Executive Vice President, Lafayette President
Taylor F. Barras, Senior Vice President, New Iberia President
James R. McLemore, Jr., Senior Vice President,
Chief Financial Officer
Janel F. Tate, Senior Vice President, Community Banks President
INDEPENDENT AUDITORS
Castaing, Hussey, Lolan & Dauterive, LLP
525 Weeks Street
New Iberia, LA 70560
60
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
ISB Financial Corporation on Form S-8 (File No. 333-28859, 333-79811 and
333-81315) of our report dated February 11, 2000, on our audits of the
consolidated financial statements of ISB Financial Corporation as of December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, which report is incorporated by reference in this Annual Report on
Form 10-K.
/s/Castaing, Hussey, Lolan & Dauterive, L.L.P.
New Iberia, Louisiana
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 39,443
<INT-BEARING-DEPOSITS> 8,270
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 299,388
<INVESTMENTS-CARRYING> 85,493
<INVESTMENTS-MARKET> 82,884
<LOANS> 843,082
<ALLOWANCE> 8,749
<TOTAL-ASSETS> 1,363,578
<DEPOSITS> 1,100,014
<SHORT-TERM> 83,000
<LIABILITIES-OTHER> 11,322
<LONG-TERM> 52,053
0
0
<COMMON> 7,381
<OTHER-SE> 109,808
<TOTAL-LIABILITIES-AND-EQUITY> 1,363,578
<INTEREST-LOAN> 68,433
<INTEREST-INVEST> 25,608
<INTEREST-OTHER> 1,044
<INTEREST-TOTAL> 95,085
<INTEREST-DEPOSIT> 40,500
<INTEREST-EXPENSE> 45,380
<INTEREST-INCOME-NET> 49,705
<LOAN-LOSSES> 2,836
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 44,881
<INCOME-PRETAX> 15,667
<INCOME-PRE-EXTRAORDINARY> 9,529
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,529
<EPS-BASIC> 1.55
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 7.66
<LOANS-NON> 1,930
<LOANS-PAST> 1,203
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,135
<CHARGE-OFFS> 1,933
<RECOVERIES> 711
<ALLOWANCE-CLOSE> 8,749
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,749
</TABLE>
EXHIBIT 99.1
PRESS RELEASE DATED FEBRUARY 17, 2000
FOR IMMEDIATE RELEASE
February 17, 2000
Contact:
Daryl G. Byrd, President
John R. Davis, Executive Vice President
Phone: (337) 365-2361
ISB FINANCIAL CORP. ANNOUNCES STRATEGIC FOCUS AND STOCK REPURCHASE
(NASDAQ/NMS: ISBF)
NEW IBERIA, LOUISIANA -- ISB Financial Corporation, the holding company of
IBERIABANK (http://www.iberiabank.com), today announced information regarding
its strategic direction and focus. The Company also provided guidance to the
investment community regarding current "comfort ranges" for operating Earnings
Per Share figures for years 2000 and 2001. In addition, the Company announced
adoption of a stock repurchase program for the Company's common stock.
FORWARD LOOKING INFORMATION
To the extent that statements in this report relate to the plans,
objectives, or future performance of ISB Financial Corporation, these statements
are deemed to be forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are based on
management's current expectations and the current economic environment. ISB
Financial Corporation's actual strategies and results in future periods may
differ materially from those currently expected due to various risks and
uncertainties. A discussion of factors affecting ISB Financial Corporation's
business and prospects is contained in the Company's periodic filings with the
Securities and Exchange Commission.
BACKGROUND INFORMATION
ISB Financial Corporation is the third largest bank holding company
headquartered in Louisiana. On December 31, 1999, ISB Financial Corporation
reported total assets of $1.36 billion, deposits of $1.10 billion, and
shareholders' equity of $117 million. Non-performing assets amounted to $3.3
million, or 0.24%, of total assets. The allowance for loan losses was 1.07% of
loan receivables and 287% of non-performing loans. Commercial loans accounted
for approximately 29% of total loans and transaction deposits accounted for 28%
of total deposits.
The Company reported a Tier 1 Leverage Ratio of 6.27% and Total Risk Based
Capital Ratio of 11.45% as of December 31, 1999. Book value and tangible book
value per share were $18.62 and $11.94, respectively. Based on a closing stock
price of $13.625 per share on February 16, 2000, the Company's stock traded at a
73% multiple of book value and a 114% multiple of tangible book value.
<PAGE>
A quarterly cash dividend of $0.16 per share was paid to Company
shareholders on January 12, 2000. This equates to an annual dividend of $0.64
per share. Based on a closing stock price of $13.625 per share on February 16,
2000, the Company's current indicated dividend yield is 4.70%.
IBERIABANK operates 25 full service offices located in south central
Louisiana. As of June 30, 1999, the Bank ranked second in combined market share
for the 6-parish Acadiana region. IBERIABANK has 10 full service offices located
in northeast Louisiana. The Bank ranked third in deposit market share on June
30, 1999 for the combined market of Ouachita and Lincoln Parishes. IBERIABANK
has eight full service offices serving Jefferson and Orleans Parishes in the
greater New Orleans area. The Bank ranked eighth in deposit market share on June
30, 1999 for these combined two Parishes.
STRATEGIC FOCUS
In an effort to improve long-term shareholder value, the Company has set
earnings per share targets that significantly exceed prior targets. In addition,
the Company has internally communicated strategies and tactics designed to help
achieve those targets. The following are selected long-term performance targets
set by the Company:
o Focus on the core profitability of the Company over the next 3-to-5 year
period.
o Achieve operating Return on Average Equity of 13%-to-15% within 3-to-5
years.
o Strive for a Tangible Efficiency Ratio below 50% by the end of the period.
o Targeted annual growth rates throughout the 3-to-5 year period are as
follows:
1. Loan growth of 7%-to-10% annually.
2. Deposit growth of 2%-to-4% annually.
3. Double-digit growth in operating earnings per share.
IBERIABANK maintains a customer relationship focus. Decision-making made
closer to the client and customization of customer needs are two elements in
this strategy. Tactical plans to help achieve targeted performance include
channel/client profitability measurement, segmentation strategies, deepening
current client relationships, fair product/service pricing, diligent expense
management, and balance sheet optimization strategies.
(a) New Leadership Team
A new leadership team is in place at the Company. Daryl Byrd, President and
Chief Executive Officer of IBERIABANK, joined the organization in July 1999.
Since joining the Company, Byrd has flattened the organizational structure and
replaced a number of senior officers with seasoned commercial bank leaders.
Recent hires include:
o Patrick Trahan, Lafayette President
o Taylor Barras, New Iberia President
o Michael Brown, New Orleans President
o George Becker, Monroe President
o Barry Mulroy, Chief Administrative Officer
o John Davis, Chief Strategic Planning Officer
IBERIABANK has implemented a new Mission Statement to provide guidance to
the various constituencies of the Bank. These constituencies include the
Company's employees, clients, shareholders, and communities. The Mission
Statement describes the Company's goals, objectives, and strategies.
<PAGE>
EPS RANGES FOR 2000 AND 2001
Many controllable and uncontrollable factors influence actual versus
anticipated performance. There can be no assurances that stated "comfort ranges"
for operating performance will be achieved. In addition, management's
expectations may change from time to time as operating conditions change.
However, the Company's management felt compelled to provide guidance to the
investment community regarding the Company's current operating EPS expectations.
Operating EPS for 1999 was reported on January 28, 2000 as $1.79 per share.
Management has stated it is currently comfortable with estimated operating EPS
for the year 2000 in the range of $2.10 to $2.15. This range equates to a 17% to
20% increase over 1999 operating EPS. Based on the closing price of ISB
Financial Corporation's common stock of $13.625 on February 16, 2000, this price
equates to a Price/Earnings Ratio of between 6.4 and 6.5 times forecasted
operating EPS for 2000.
Management has stated it is currently comfortable with estimated operating
EPS for the year 2001 in the range of $2.35 to $2.45. This range approximates a
double-digit increase over the current comfort ranges for operating EPS for
2000. Based on the closing price of the Company's common stock of $13.625 on
February 16, 2000, this price equates to a Price/Earnings Ratio of between 5.6
and 5.8 times forecasted operating EPS for 2001.
(b) Actions to Improve Shareholder Value - Restructuring Announcement
From time to time, management will take significant actions that are taken
in the best long-term interests of ISB Financial Corporation's stakeholders. An
example of these actions is the Company's recent restructuring announcement on
December 29, 1999. At that time, the Company announced a $1.3 million pre-tax
charge in the fourth quarter of 1999, aimed at improving operating efficiency
and profitability. Management anticipates future pre-tax benefits of $1.2
million in 2000 and $2 million per year thereafter as a result of this action.
ACTIONS TO IMPROVE SHAREHOLDER VALUE - SHARE REPURCHASE PROGRAM
ISB Financial Corporation announced today that the Board of Directors of
the Company has authorized the repurchase of up to 300,000 shares, or
approximately 5% of the Company's outstanding common stock.
Repurchases of the stock are authorized to be made from time to time in
open-market transactions as, in the opinion of management, market conditions may
warrant. Purchases are expected to begin on or after February 17, 2000. The
company anticipates purchasing such shares during the next 12 months. The
repurchased shares will be held as treasury stock and will be available for
general corporate purposes, including being available for reissuance pursuant to
the Company's 1996 and 1999 stock option plans.
The deposits of IBERIABANK are insured by the Federal Deposit Insurance
Corporation to the full extent provided for by law and regulation. Additional
information regarding IBERIABANK and ISB Financial Corporation can be found on
the organization's website "www.iberiabank.com". ISB Financial Corporation's
common stock trades on NASDAQ/NMS under the stock symbol "ISBF".
