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)
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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.
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.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of the Banks' loans held in portfolio at the dates indicated. (1)
December 31,
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1999 1998 1997 1996 1995
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Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Mortgage loans:
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%
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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%
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Total commercial loans 239,733 28.43% 201,005 26.16% 108,082 16.37% 61,133 10.62% 27,155 6.73%
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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%
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Less:
Allowance for loan losses (8,749) (7,135) (5,258) (4,615) (3,746)
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Loans receivable, net $834,333 $761,263 $654,867 $571,119 $399,542
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There were no loans classified as held for sale prior to the year ended December 31, 1997.
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.
Commercial
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Construction Real Estate Business Total
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(Dollars in Thousands)
Amounts due in:
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
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Total $ 6,381 $ 157,248 $ 82,485 $ 246,114
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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
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Total $ 780 $ 110,813 $ 37,021 $ 148,614
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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.
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
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
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
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."
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.
December 31,
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1999 1998 1997 1996 1995
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(Dollars in Thousands)
Non-accrual loans:
Mortgage loans:
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
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Total non-accrual loans 1,930 1,179 2,147 2,491 1,415
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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
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Total past due 90 days or more 1,203 4,558 3 69 53
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Total non-performing loans 3,133 5,737 2,150 2,560 1,468
Foreclosed property 185 384 473 978 561
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Total non-performing assets $ 3,318 $ 6,121 $ 2,623 $ 3,538 $ 2,029
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Performing troubled debt restructurings $ -- $ -- $ -- $ 176 $ 186
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Total non-performing assets and
troubled debt restructurings $ 3,318 $ 6,121 $ 2,623 $ 3,714 $ 2,215
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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%
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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".
The following table sets forth the activity in the Bank's allowance for loan losses during the periods indicated.
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------- ------------- --------------- --------------
(Dollars in Thousands)
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%
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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.
December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ----------------- ---------------- ----------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
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%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
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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
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.
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.
Securities Available for Sale Securities Held to Maturity
-------------------------------------------- ------------------------------
Weighted
Average Amortized Fair Amortized Fair
Yield Cost Value Cost Value
------------ ---------------- -------------- --------------- --------------
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
============ =========== ============ ===========
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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.
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.
December 31,
--------------------------------------------------------------------------------
1999 1998 1997
--------------------------- ------------------------- --------------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
--------------- ----------- ------------- ----------- ------------- ------------
(Dollars In Thousands)
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%
============== ============= ============
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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
======== ======== ========
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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.
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
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)
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.
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Bank's offices at December 31, 1999.
Net Book Value of
Property
and Leasehold
Owned or Improvements at Deposits at
Location Leased December 31, 1999 December 31, 1999
-------- ------ ----------------- -----------------
(In Thousands)
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
========== ===========
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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.
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 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
|
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
|
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.
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
|
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
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.
(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
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.
(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
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
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,
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.
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) |
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.
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.
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
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.
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
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
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
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.
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
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.
EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
IBERIABANK
An Independent Louisiana Bank(TM)
ISB
FINANCIAL CORPORATION
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)".
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
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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.
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 www.invrelations@RTCO.com 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 |
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
1999 1998 % Change
--------------------------------------------------------------------------------------------------------
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%
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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 |
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
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.
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
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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.
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.
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.
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.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in thousands, except per share data)
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
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
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
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
==================================================================
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At or For the Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
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
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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
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.
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
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]
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
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.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------------------------------------
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%
====== ======
|
Year Ended December 31,
---------------------------------------------------------------------------------
1997
---------------------------------------------------------------------------------
Average
Average Yield/
Balance Interest Rate
-------------------------------
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%
======
|
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).
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)
-----------------------------------------------------------------------------------------------------------------------------
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
========================================================================================
|
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.
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
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
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.
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.
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.
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.
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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: chldcpa@net-connect.net Members of American Institute of Certified Public Accountants x Society of Louisiana Certified Public Accountants
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except share data)
1999 1998
---------------------------
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)
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1999 1998
---- ----
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
==========================
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
Dollars in thousands, except per share data)
1999 1998 1997
-----------------------------
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
-----------------------------
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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
=============================
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
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
-----------------------------------------------------------
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)
===========================================================
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Accumulated
Other Total
Comprehensive Treasury Shareholders'
Income Stock Equity
-------------------------------------------
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
===========================================
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The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------------------------
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)
------------------------------------
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(Continued)
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
-------------------------------------
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)
======================================
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The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
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
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
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.
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)
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:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------
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
=======================================================
|
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------
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
========================================================
|
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.
Securities Available Securities
for Sale Held to Maturity
-------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------
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
===========================================
|
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.
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
===============================
|
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
================
|
For The Years Ended
December 31,
----------------------------
1999 1998 1997
----------------------------
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
============================
|
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.
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
======================
|
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%.
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
==============================
|
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):
For The Years Ended
December 31,
--------------------------
1999 1998 1997
--------------------------
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%
==========================
|
The net deferred tax liability (in thousands) at December 31, 1999 and 1998 is as follows:
1999 1998
----------------------
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
----------------------
|
1999 1998
---------------------
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)
=====================
|
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:
1999 1998
---------------------
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)
=====================
|
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.
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
----------------------------------------
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
========================================
|
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.
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------
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
|
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.
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:
December 31
-----------------------------
1999 1998 1997
-----------------------------
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
=============================
|
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
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.
The following table summarizes the activity related to stock options:
Weighted
Available Option Average
for Grant Outstanding Exercise Price
-------------------------------------------
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
======= =======
|
The following table presents the weighted average remaining life as of December 31, 1999 for options outstanding within the stated exercise prices:
Outstanding Exerciseable
--------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Exercise Number Average Average Number Average
Price of Exercise Remaining of Exercise
Range Options Price Life Options Price
--------------------------------------------------------------------------------------------
$ 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
|
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:
1999 1998 1997
----------------------------------------------
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
|
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:
Contract Amount
-------------------
1999 1998
-------------------
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
===================
|
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.
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.
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:
December 31, 1999 December 31, 1998
-------------------------------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
-----------------------------------------------------------------------------------------
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
|
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.
NOTE 17 - COMPREHENSIVE INCOME:
The following is a summary of the components of other comprehensive income
(in thousands):
December 31
----------------------------------
1999 1998 1997
----------------------------------
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
==================================
|
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.
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.
Condensed Balance Sheets
December 31, 1999 and 1998
(Dollars in thousands)
Assets 1999 1998
------------------------
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
========================
Condensed Statements of Income Years
Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------------------------
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
==================================
|
NOTE 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(continued):
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
------------------------------------
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
====================================
|
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (unaudited):
(Dollars in thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------
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
========================================
|
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
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
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 |
| ARTICLE 9 |
| MULTIPLIER: 1,000 |
| CURRENCY: U.S. DOLLARS |
| 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 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 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 |
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.
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.
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".