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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, 1998
Commission File Number 0- 25756
ISB Financial Corporation
(Exact name of registrant as specified in its charter)
Louisiana 72-1280718
--------- ----------
(State or other jurisdiction of incorporation or (I.R. S. Employer
organization) Identification Number)
1101 East Admiral Doyle Drive
New Iberia, Louisiana 70560
--------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (318) 365- 2361
Securities registered pursuant of Section 12(b) of the Act: Not Applicable
Securities registered pursuant of Section 12(g) of the Act
Common Stock (par value $1.00 per share)
----------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant of Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10- K. [X]
As of March 16, 1999, the aggregate market value of the 6,368,344 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 461,522 shares held by all directors and officers of the Registrant as
a group, was approximately $129.0 million. This figure is based on the closing
sale price of $20.25 per share of the Registrant's Common Stock on March 16,
1999.
Number of shares of Common Stock outstanding as of December 31, 1998: 6,829,866
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, 1998 are
incorporated into Part II, Items 5 through 8 of this Form 10-K, (2) Portions of
the definitive proxy statement for the 1999 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 November 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. On May 3, 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. On October 18,
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"). On September 1,
1997, Jefferson Bank was merged with and into Iberia Savings Bank. On December
1, 1997, Iberia Savings Bank changed its name to IBERIABANK and converted to a
Louisiana chartered commercial bank. On September 10, 1998, Iberia acquired 17
branch offices from 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 the Iberia. The
Company's common stock trades on the NASDAQ National Market under the symbol
"ISBF." At December 31, 1998, the Company had total assets of $1.4 billion,
total deposits of $1.2 billion and equity of $124.0 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, 1998, such loans amounted to $301.5 million or
39.4% 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, 1998, $255.7 million, or 33.4%, of the Bank's gross loans were consumer
loans. Of that amount $114.3 million, or 14.9% of gross loans, were indirect
automobile loans. Commercial loans consist of commercial real estate loans and
commercial business loans. At December 31, 1998, $117.6 million, or 15.4% of
gross loans are secured by commercial real estate and $83.4 million, or 10.9%,
are commercial business loans. The Bank also originates loans for the purpose of
constructing single-family residential units. At December 31, 1998, $7.5
million, or 1.0% of the Bank's loans, are 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 ("Federal
Reserve Board" or "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, 1998, the Bank's mortgage-backed
securities amounted to $277.8 million, or 19.8% of total assets and its
investment securities amounted to $99.8 million, or 7.1% of total assets.
1
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,
-------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ --------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
------------------------- ------------------------ ----------- ---------
(Dollars in Thousands)
Mortgage loans:
Single-family residential $ 301,468 39.37% $ 371,943 56.48% $ 386,555 67.14%
Construction 7,549 0.99% 8,027 1.22% 8,005 1.39%
--------- ----- --------- ----- --------- -----
Total mortgage loans 309,017 40.36% 379,970 57.70% 394,560 68.54%
--------- ----- --------- ----- --------- -----
Commercial Loans
Business loans 83,368 10.89% 57,978 8.80% 36,089 6.27%
Real estate 117,628 15.36% 50,807 7.72% 25,240 4.38%
--------- ----- --------- ----- --------- -----
Total commercial loans 200,996 26.25% 108,785 16.52% 61,329 10.65%
--------- ----- --------- ----- --------- -----
Consumer loans:
Home equity 73,184 9.56% 34,192 5.19% 21,646 3.76%
Automobile 24,630 3.22% 9,433 1.43% 7,509 1.30%
Indirect automobile 114,337 14.93% 90,676 13.77% 52,371 9.10%
Mobile home loans 2,511 0.33% 3,226 0.49% 4,215 0.73%
Educational loans 624 0.08% 9,458 1.44% 9,345 1.62%
Credit card loans 4,584 0.60% 4,150 0.63% 4,017 0.70%
Loans on savings 8,104 1.06% 11,255 1.71% 12,487 2.17%
Other 27,753 3.62% 7,358 1.12% 8,225 1.43%
--------- ----- --------- ----- --------- -----
Total consumer loans 255,727 33.40% 169,748 25.78% 119,815 20.81%
--------- ----- --------- ----- --------- -----
Total loans receivable 765,740 100.00% 658,503 100.00% 575,704 100.00%
--------- ------ --------- ------ --------- ------
Less:
Allowance for loan losses (7,135) (5,258) (4,615)
Unearned discount (236) (160) (143)
Prepaid dealer
participations 4,145 3,636 2,555
Deferred loan fees &
purchased discounts, net (1,339) (1,854) (2,382)
--------- --------- ---------
Loans receivable, net $ 761,175 $ 654,867 $ 571,119
--------- --------- ---------
(1) This schedule does not include loans held for sale of $18.5 million and 4.3
million at December 31, 1998 and 1997 respectively. There were no loans
classified held for sale prior to the year ended December 31, 1997.
December 31,
------------------------------------------------------
1995 1994
--------------------------- -------------------------
Percent of Percent of
Amount Total Amount Total
-------------------------- ------------------------
Mortgage loans:
Single-family residential $ 318,705 78.41% $ 300,730 79.41%
Construction 7,218 1.78% 7,579 2.00%
--------- ----- --------- -----
Total mortgage loans 325,923 80.19% 308,309 81.41%
--------- ----- --------- -----
Commercial Loans
Business loans 11,055 2.72% 10,655 2.81%
Real estate 15,992 3.93% 8,242 2.18%
--------- ----- --------- -----
Total commercial loans 27,047 6.65% 18,897 4.99%
--------- ----- --------- -----
Consumer loans:
Home equity 15,364 3.78% 14,229 3.76%
Automobile 5,873 1.44% 5,003 1.32%
Indirect automobile 619 0.15% 939 0.25%
Mobile home loans 6,077 1.50% 8,017 2.12%
Educational loans 9,262 2.28% 9,639 2.55%
Credit card loans 3,836 0.94% 3,477 0.92%
Loans on savings 7,481 1.84% 8,305 2.19%
Other 4,960 1.22% 1,910 0.50%
--------- ----- --------- -----
Total consumer loans 53,472 13.16% 51,519 13.60%
--------- ----- --------- -----
Total loans receivable 406,442 100.00% 378,725 100.00%
--------- ----- --------- -----
Less:
Allowance for loan losses (3,746) (3,831)
Unearned discount (1) (5)
Prepaid dealer
participations 0 0
Deferred loan fees &
purchased discounts, net (3,153) (4,095)
------- -------
Loans receivable, net $399,542 $370,794
------- -------
2
Contractual Maturities. The following table sets forth the scheduled
contractual maturities of the Banks' loans held to maturity at December 31,
1998. 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.
Mortgage Commercial
------------------------------------------ ------------------------------------
Single-family Construction Total Real Estate Business Total
------------- ------------ ----- ----------- --------- -----
(In thousands)
Amounts due in:
One year or less $ 15,264 $ 15,264 $ 85,480 $ 47,727 $ 133,207
After one year through five years 66,880 66,880 33,871 28,530 62,401
After five years 219,324 7,549 226,873 3,311 2,077 5,388
-----------------------------------------------------------------------------------
Total $ 301,468 $ 7,549 $ 309,017 $ 122,662 $ 78,334 $ 200,996
===================================================================================
Interest rate terms on amounts
due after one year:
Fixed - rate $ 150,968 $ 5,662 $ 149,105 $ 25,477 $ 20,972 $ 46,449
Adjustable - rate 135,236 1,887 144,648 11,705 9,635 21,340
-----------------------------------------------------------------------------------
Total $ 286,204 $ 7,549 $ 293,753 $ 37,182 $ 30,607 $ 67,789
===================================================================================
Consumer
Loans Total
----- -----
Amounts due in:
One year or less $ 103,888 $ 252,359
After one year through five years 141,042 270,323
After five years 10,797 243,058
----------------------
Total $ 255,727 $ 765,740
======================
Interest rate terms on amounts
due after one year:
Fixed $ 151,475 $ 354,554
Adjustable 364 158,827
----------------------
Total $ 151,839 $ 513,381
======================
3
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 loan 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.
4
Loan Originations, Purchase and Sales Activity.
The following table shows the loan origination, purchase and sale activity
of the Bank during the periods indicated.
Y e a r E n d e d D e c e m b e r 3 1 ,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Dollars In Thousands)
Gross loans at beginning of period $ 658,503 $ 580,164 $ 413,242 $ 383,974 $ 354,365
Originations of loans:
Mortgage loans:
Single-family residential 74,935 48,624 41,134 38,936 44,670
Construction 22,301 22,187 21,939 24,330 25,602
Commercial Loans:
Business 57,589 55,802 32,457 15,608 13,712
Real Estate 26,505 25,070 15,143 5,486 3,044
Consumer loans:
Home equity 38,547 18,693 13,785 11,257 8,367
Automobile 9,158 4,697 4,525 4,318 4,116
Indirect automobile 65,828 60,496 38,288 0 0
Mobile home 785 733 276 386 792
Educational 889 1,466 1,724 1,268 2,153
Loans on savings 3,300 5,202 5,272 4,463 3,329
Credit cards 9,134 1,338 1,137 1,430 6,677
Other 14,965 6,890 3,634 3,836 3,262
--------- --------- --------- --------- ---------
Total originations 323,936 251,198 179,314 111,318 115,724
--------- --------- --------- --------- ---------
Loan purchased/acquired 126,600 -- 109,121 996 --
--------- --------- --------- --------- ---------
Total purchases/acquisitions 126,600 -- 109,121 996 --
--------- --------- --------- --------- ---------
Total originations and purchases 450,536 251,198 288,435 112,314 115,724
Repayments (264,573) (152,589) (116,511) (82,356) (84,204)
Loan sales (78,726) (20,270) (5,002) (690) (1,911)
--------- --------- --------- --------- ---------
Net activity in loans 107,237 78,339 166,922 29,268 29,609
--------- --------- --------- --------- ---------
Gross loans held at end of period $ 765,740 $ 658,503 $ 580,164 $ 413,242 $ 383,974
========= ========= ========= ========= =========
5
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 up 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, all conforming fixed-rate loan originations
into the secondary market and only retain nonconforming fixed-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, 1998, $162.5 million, or 52.6%, 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
Banks 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, 1998, $146.6 million
or 47.4% of the Bank's single-family residential mortgage and construction loans
were adjustable-rate loans.
6
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, 1998, such loans
amounted to $5.7 million, or .7%, 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, 1998, the Bank's
construction loans amounted to $7.5 million, or 1.0%, 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 the 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 $8.2 million, or 2.2% of the total loan
portfolio at December 31, 1994, to $117.6 million, or 15.4% of the total loan
portfolio, at December 31, 1998. 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, 1998, the
Bank's largest commercial real estate loan had a balance of $5.1
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 one-year
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. As of December 31, 1998, $1.8 million of
the Bank's commercial real estate loans were over 90 days and still accruing and
were considered non-performing.
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, 1998, the Bank's commercial business loans
amounted to $83.4 million or 10.9% 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, 1998, the Bank had $658,000 of non-performing
commercial business loans and its largest commercial business loan had a
principal balance of $2.7 million. Such loan is secured by equipment, inventory
and receivables 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, 1998,
$255.7 million, or 33.4%, of the Bank's total loan portfolio was comprised of
consumer loans. The Bank originates substantially all of such loans in its
primary market area.
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, 1998, $114.3 million, or 14.9%,
of the Bank's total loan portfolio are indirect automobile loans.
8
At December 31, 1998, 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, 1998, the Bank had $73.2 million or 9.6%
of home equity loans Deposit loans totaled $8.1 million, or 1.1%, of the Bank's
total loan portfolio at December 31, 1998. The Bank's mobile home loans amounted
to $2.5 million, or .3% of the loan portfolio at December 31, 1998. 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, 1998,
the Bank's direct automobile loans amounted to $24.6 million, or 3.2%, of the
Bank's total loan portfolio. The Bank's Visa and MasterCard credit card loans
totaled $4.6 million, or 0.6%, of the Bank's total loan portfolio at such date.
The Bank's other personal consumer loans amounted to $27.8 million, or 3.6% 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, 1998, Iberia's
limit on unsecured loans-to-one borrower was $17.8 million. At December 31,
1998, lberia's five largest loans or groups of loans-to-one borrower ranged from
$3.3 million to $9.3 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 5 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, 1998. See the table below under
"NonPerforming Assets and Troubled Debt Restructurings."
9
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1998, in dollar amounts and as a percentage of
each category of the Bank's loan portfolio. The amounts presented represent the
total outstanding principal balances of the related loans, rather than the
actual payment amounts which are past due.
December 31, 1998
------------------------------------------------------------------
30 - 59 Days 60 - 89 Days
------------------------------- -------------------------------
Percent of Percent of
Amount Loan Category Amount Loan Category
------------ --------------- ------------ ---------------
(Dollars in Thousand)
Mortgage loans:
Residential:
Single-family $ 9,429 3.05% $ 2,248 0.73%
Construction - -
Commercial loans - -
Business 403 0.48% 758 0.91%
Real Estate 492 0.42% 302 0.26%
Consumer loans 4,136 1.62% 1,204 0.47%
-------- ---- ----- ----
Total $ 14,460 1.89% 4,512 0.59%
======== ==== ===== ====
10
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,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(Dollars in Thousands)
Non-accrual loans:
Mortgage loans:
Single-family $ 483 $ 1,698 $ 823 $ 788 $ 729
Construction - - - - -
Commercial loans
Business 259 - 407 - -
Real Estate - 30 190 30 55
Consumer loans 637 419 1,002 597 461
------- ------- ------- ------- -------
Total non-accrual
loans 1,379 2,147 2,422 1,415 1,245
------- ------- ------- ------- -------
Accruing loans more than 90
days past due
Mortgage loans:
Single-family 2,025 -- -- -- --
Construction -- -- -- -- --
Commercial loans
Business 399 -- -- -- --
Real Estate 1,783 -- -- -- --
Consumer loans 53 3 69 53 13
------- ------- ------- ------- -------
Total non-performing
loans 5,639 2,150 2,491 1,468 1,258
------- ------- ------- ------- -------
Foreclosed property 384 473 978 561 570
------- ------- ------- ------- -------
Total non performing
assets $ 6,023 $ 2,623 $ 3,538 $ 2,029 $ 1,828
------- ------- ------- ------- -------
Performing troubled debt
restructuring $ - $ - $ 176 $ 186 $ 194
------- ------- ------- ------- -------
Total non-performing
assets and troubled debt
restructurings $ 6,023 $ 2,468 $ 3,714 $ 2,215 $ 2,022
Non-performing loans to
total loans 0.80% 0.38% 0.44% 0.35% 0.33%
Total non-performing
assets to total assets 0.43% 0.26% 0.38% 0.30% 0.37%
Total non-performing assets
and troubled debt
restructurings to total
assets 0.43% 0.26% 0.40% 0.36% 0.41%
11.
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, 1998, the Bank had $7.9 million of assets classified
substandard, $1.0 of assets classified doubtful, and no assets classified loss.
At such date, the aggregate of the Bank's classified assets amounted to .64% 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, 1998, the Bank's allowance for loan losses amounted to 126.5% and
.94% 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 agencie'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 review of the Policy Statement did not result in a material
adjustment to the Bank's policy for establishing loan losses.
12
The following table sets forth the activity in the Bank's allowance
for loan losses during the periods indicated.
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in Thousands)
Allowance at beginning of period $5,258 $4,615 $3,746 3,831 $3,413
Allowance from acquisition 1,392 -- 1,114 13 --
Provisions 903 1,097 156 239 305
Charge-offs:
Mortgage loans:
Single-family 2 50 46 55 81
Construction -- -- -- -- --
Commercial business loans 43 191 61 -- --
Commercial -- -- -- 4
Consumer loans 818 562 509 371 214
------ ------ ------ ------ ------
Total 863 803 616 430 295
------ ------ ------ ------ ------
Recoveries:
Mortgage loans:
Single-family 36 79 39 15 302
Construction -- -- -- -- --
Commercial business loan 175 55 -- -- --
Commercial -- -- 43 -- --
Consumer loans 234 215 133 78 106
------ ------ ------ ------ ------
Total 445 349 215 93 408
------ ------ ------ ------ ------
Allowance at end of period $7,135 $5,258 $4,615 $3,746 $3,831
------ ------ ------ ------ ------
Allowance for loan losses to
total non-performing loans at
end of period 126.53% 244.56% 185.27% 255.18% 304.53%
Allowance for loan losses to
total loans at end of period 0.94% 0.80% 0.79% 0.90% 0.99%
13
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,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------- ------------------- ------------------- --------------------
% of Loan % of Loan % of Loan % of Loan % of Loan
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loan Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ---------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
Single-family residential $1,529 39.37% $1,448 55.96% $2,002 66.84% $2,194 77.20% $2,234 78.47%
Construction 38 0.99% 84 3.27% 72 2.41% 107 3.76% 107 3.74%
Commercial business 1,897 10.89% 1,356 8.56% 817 3.95% 134 2.66% 118 1.67%
Commercial real estate 1,663 15.35% 660 7.13% 502 6.20% 176 3.49% 196 2.76%
Consumer 2,008 33.40% 1,710 25.08% 1,222 20.60% 1,135 12.89% 1,176 13.36%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses $7,135 100.00% $5,258 100.00% $4,615 100.00% $3,746 100.00% $3,831 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
14
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.
Mortgage-Backed Securities
As of December 31, 1998, the Bank's mortgage-backed securities amounted
to $277.8 million, or 19.8% 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
15
31, 1998, the Bank's investment in CMOs amounted to $125.3 million, all of which
consisted of regular interests. As of December 31, 1998, 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. See "Regulation - The Bank - Capital Requirements."
As of December 31, 1998, all of the Bank's mortgage-backed securities
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. See Notes 1 and 4 of the Notes to Consolidated Financial
Statements.
16
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
December 31,
------------------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
Mortgage-backed securities:(1)
FHLMC $ 76,542 $ 54,285 $ 80,648
FNMA 19,194 28,864 35,340
GNMA 56,811 11,115 13,233
FNMA CMO 26,211 9,468 9,697
FHLMC CMO 78,712 10,901 10,901
Privately Issued (2) 20,328 492 850
-------- -------- --------
Total mortgage backed
securities (3) $277,798 $115,125 $150,669
-------- -------- --------
Total market value $277,692 $116,004 $150,014
-------- -------- --------
(1) See Note 4 of the Notes to Consolidated Financial Statements.
(2) Rated AA by national rating agencies.
(3) At December 31, 1998, $46.9 million of the Banks' mortgage-backed
securities had adjustable rates and $230.9 million had fixed rates, of
which $27.6 million had a balloon feature (the mortgage-backed security
will mature and repay before the underlying loans have been fully
amortized).
The following table sets forth the purchases, principal repayments and sales
of the Bank's mortgage-backed securities for the periods indicated.
Year Ended December 31,
1998 1997 1996 1995
--------- --------- --------- ---------
(In Thousands)
Mortgage-backed securities
purchased $ 209,280 $ -- $ -- $ 15,532
Acquired -- -- 111,114 --
Principal repayments (46,571) (35,353) (11,903) (3,722)
Sales -- -- -- --
Other, net (36) (191) (181) (87)
--------- --------- --------- ---------
Net Change $ 162,673 $ (35,544) $ 99,023 $ 11,723
========= ========= ========= =========
17
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. The declining yields earned
during fiscal 1993 and 1994 a direct response to falling interest rates as well
as to accelerated prepayments. In fiscal 1995, higher yields were earned as a
direct response to increasing interest rates.
Investment Securities
The Bank's investments in investment securities consist primarily of
securities issued by the U.S. Treasury and federal government agency
obligations. As of December 31, 1998, the Bank's investment securities available
for sale amounted to $97.1 million, net of gross unrealized gains of $531,000,
and its investment securities held to maturity amounted to $2.7 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 do not invest in securities with average lives exceeding five years.
18
The following table sets forth information regarding the amortized cost
and market value of the Bank's investment securities at the dates indicated.
December 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ----------------------------- -------------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
------------ ------------ -------------- ----------- -------------- -------------
(In Thousands)
U.S. Government
and federal agency
obligations $ 90,594 $ 91,159 $ 69,534 $ 69,872 $ 95,549 $ 95,855
Other 8,635 8,601 7,448 7,447 7,523 7,507
-------- -------- -------- -------- --------- ---------
Total $ 99,229 $ 99,760 $ 76,982 $ 77,319 $ 103,072 $ 103,362
======== ======== ======== ======== ========= =========
19
The following table sets forth certain information regarding the maturities of
the Bank's investment securities at December 31, 1998.
Contractually Maturing
------------------------------------------------------------------------------
Weighted Weighted
Under 1 Average 1-5 Average
Year Yield Years Yield
------------------ ------------------ ------------------ ------------------
(Dollars in Thousands)
U.S. Government and
federal agency obligations $25,698 6.45% $10,230 6.43%
Other 5,976 (1) 5.42% 1,328 4.88%
------- -------
Total $31,674 6.26% $11,558 6.25%
======= =======
Contractually Maturing
------------------------------------------------------------------------------
Weighted Weighted
6-10 Average Over 10 Average
Years Yield Years Yield
------------------ ------------------ ---------------------- --------------
U.S. Government and
federal agency obligations $ 55,231 6.14% $-- %
Other 1,295 7.20% --
------- ---
Total $ 56,526 6.16% $ 0
======= ===
(1) Consists of a mutual fund of adjustable rate mortgage-backed securities,
all of which adjust at least annually.
20
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 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. While available, during the past five years, the Bank has not used
borrowings to supplement its deposits as a source of funds.
Deposits. The Banks' current deposit products include passbook
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 8 of the Notes to Consolidated Financial Statements.
21
The following table sets forth certain information relating to the Bank's
deposits at the dates indicated. Years prior to 1996 do not include deposits of
Jefferson or BOL, as those acquisitions did not take place until 1996. 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,
---------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- -----------------------------
Percent Percent Percent
of Total of Total of Total
Amount Deposits Amount Deposits Amount Deposits
-------------- ----------- ------------ ------------ ------------ -------------
(Dollars in thousands)
NOW account $ 210,891 17.30% $ 83,282 10.70% $ 76,991 10.13%
Money market accounts 102,357 8.40% 73,076 9.38% 58,669 7.72%
Non-interest-bearing
checking accounts 121,825 10.00% 44,862 5.76% 33,884 4.46%
---------- ------ ------- ------ -------- ------
Total demand deposits 435,073 35.70% 201,220 25.84% 169,544 22.30%
---------- ------ ------- ------ -------- ------
Passbook savings deposits 131,300 10.77% 109,532 14.07% 119,685 15.74%
------ ------ ------
Certificate of deposit
account:
Less than 6 months 248,986 20.43% 175,590 22.55% 11,099 1.46%
6 - 12 months 218,890 17.96% 126,375 16.23% 60,766 7.99%
13 - 36 months 168,057 13.79% 157,581 20.24% 261,151 34.35%
More than 36 months 16,392 1.35% 8,397 1.08% 138,039 18.16%
---------- ------ ------- ------ -------- ------
Total certificates 652,325 53.53% 467,943 60.09% 471,055 61.96%
---------- ------ -------- ------- -------- ------
Total deposits $1,218,698 100.00% $778,695 100.00% $760,284 100.00%
========== ======== ========
22
The following table sets forth the activity in the Bank's deposits during the
periods indicated.
Year Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
(In thousands)
Beginning balance $ 778,695 $ 760,284 $ 444,600
Deposits acquired 452,578 -- 288,290
Net increase (decrease)
before interest credited (36,295) (6,829) 7,869
Interest creditied 23,720 25,240 19,525
----------- ----------- -----------
Net increase (decrease) in
deposits 440,003 18,411 315,684
----------- ----------- -----------
Ending balance $ 1,218,698 $ 778,695 $ 760,284
=========== =========== ===========
The following table sets forth by various interest rate categories the
certificates of deposit with the Bank at the dates indicated.
December 31,
------------------------------------------------------
1998 1997 1996
----------- -------------- --------------
(Dollars in Thousands)
0.00% to 2.99% $ 854 $ 90 $100.00
3.00% to 3.99% 45,738 2,665 706
4.00% to 4.99% 183,984 88,826 90,768
5.00% to 5.99% 319,736 275,302 258,860
6.00% to 6.99% 95,769 95,824 107,022
7.00% to 7.99% 6,001 5,068 13,429
8.00% and over 243 168 170
--------- -------- -------
$ 652,325 467,943 471,055
========= ======= =======
23
The following table sets forth the amount and maturities of the Banks'
certificates of deposit at December 31, 1998.
Over One Over Two
Year Years Over Three
One Year and Through Through Years
Less Two Years Three Years
----------------- ---------------- ---------------- ----------------
(Dollars in Thousands)
2.00% to 3.99% $ 42,680 $ 1,599 $ 2,088 $ 226
4.00% to 4.99% 130,669 36,348 13,551 3,416
5.00% to 6.99% 293,056 86,502 24,108 11,838
7.00% to 8.99% 1,471 3,408 453 912
-------- ------- ------- -------
$467,876 $27,857 $40,200 $16,392
======== ======= ======= =======
24
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 Bank made limited use of such borrowings during the
past five years. See Note 9 of the Notes of Consolidated Financial Statements.
Subsidiaries
Iberia only has one active, wholly owned subsidiary, Iberia Financial
Services, Inc. ("lberia Services"). At December 31, 1998, lberia's equity
investment in Iberia Services was $1.2 million and Iberia Services had total
assets of $1.2 million. For the years ended December 31, 1998 and 1997, Iberia
Services had total revenue of $957,000 and $663,000, respectively and a net
income of $72,000 in 1998 and $182,000 in 1997. See Note 1 of the Notes to
Consolidated Financial Statements. The business of Iberia Services consists of
holding certain parcels of real estate which the Iberia previously intended to
develop (all of which parcels were sold in 1996) as well as 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, Ltd., 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 471 full-time employees and 74 part-time employees as of December
31, 1998. None of these employees is represented by a collective bargaining
agreement. The Bank believes that it enjoys excellent relations with its
personnel.
Regulation
Set forth below is a brief description of certain laws and regulations that
relate to the regulation of the Company and the Bank. The description of these
laws and regulations, as well as descriptions of laws and regulations contained
elsewhere herein, does not purport to be complete and is qualified in its
entirety by reference to applicable laws and regulations.
The Company. The Company is a registered bank holding company pursuant to the
Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company, as a
bank holding company, is subject to regulation and supervision by the Federal
Reserve Board. The Company is required to file annually a report of its
operations with, and will be subject to examination by, the Federal Reserve
Board.
BHCA Activities and Other Limitations. The BHCA prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any bank, or increasing such ownership or control of any
bank, without prior approval of the Federal Reserve Board. The BHCA also
generally prohibits a bank holding company from acquiring any bank located
outside of the state in which the existing bank subsidiaries of the bank holding
company are located unless specifically authorized by applicable state law. No
approval under the BHCA is required, however, for a bank holding company already
owning or controlling 50% of the voting shares of a bank to acquire additional
shares of such bank.
25
The BHCA also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company that is not a bank
and from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company, the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
In making such determinations, the Federal Reserve Board is required to weigh
the expected benefit to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain activities
are closely related to banking within the meaning of the BHCA. These activities
include operating a mortgage company, finance company, credit card company,
factoring company, trust company or savings association; performing certain data
processing operations; providing limited securities brokerage services; acting
as an investment or financial advisor; acting as an insurance agent for certain
types of credit-related insurance; leasing personal property on a full-payout,
non-operating basis; providing tax planning and preparation services- operating
a collection agency; and providing certain courier services. The Federal Reserve
Board also has determined that certain other activities, including real estate
brokerage and syndication, land development, property management and
underwriting of life insurance not related to credit transactions, are not
closely related to banking and a proper incident thereto.
Limitations on Transactions With Affiliates: Transaction between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries are engaged in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). In addition, the aggregate amount
of extensions of credit by a savings institution to all insiders cannot exceed
the institution's unimpaired capital and surplus. Furthermore, Section 22(g)
places additional restrictions on loans to executive officers.
Capital Requirements. The Federal Reserve Board has adopted capital adequacy
guidelines pursuant to which it assesses the adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the BHCA. The Federal Reserve Board capital adequacy guidelines generally
require bank holding companies to maintain total capital equal to 8% of total
risk-adjusted assets, with at least one-half of that amount consisting of Tier I
or core capital and up to one-half of that amount consisting of Tier II or
supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses, Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for the bulk of assets which are
typically held by a bank holding company, including multi-family residential and
commercial real estate loans, commercial business loans and savings institution
is any company or entity which controls, is controlled by or is under common
control with the savings institution. In a holding company context, the parent
holding company of a savings institution (such as the Company) and any companies
which are controlled by such parent holding company are affiliates of the
savings institution. Generally, Sections 23A and 23B (i) limit the extent to
which the savings institution or its subsidiaries are engaged in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be on terms
substantially the same, or at least as
26
favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). In addition, the aggregate amount
of extensions of credit by a savings institution to all insiders cannot exceed
the institution's unimpaired capital and surplus. Furthermore, Section 22(g)
places additional restrictions on loans to executive officers.
Capital Requirements. The Federal Reserve Board has adopted capital adequacy
guidelines pursuant to which it assesses the adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the BHCA. The Federal Reserve Board capital adequacy guidelines generally
require bank holding companies to maintain total capital equal to 8% of total
risk-adjusted assets, with at least one-half of that amount consisting of Tier I
or core capital and up to one-half of that amount consisting of Tier II or
supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses, Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for the bulk of assets which are
typically held by a bank holding company, including multi-family residential and
commercial real estate loans, commercial business loans and consumer loans.
Single-family residential first mortgage loans which are not past-due (90 days
or more) or non-performing and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighing system, as
are certain privately-issued mortgage-backed securities representing indirect
ownership of such loans. Off-balance sheet items also are adjusted to take into
account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve Board
requires bank holding companies to maintain a minimum leverage capital ratio of
Tier I capital to total assets of 3.0%. Total assets for this purpose does not
include goodwill and any other intangible assets and investments that the
Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies will be expected to maintain Tier I leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition. At December
31, 1998, the Company believes it is in compliance with the above-described
Federal Reserve Board regulatory capital requirements.
Financial Support of Affiliated Institutions. Under Federal Reserve Board
policy, the Company will be expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances when it
might not do so absent such policy. The legality and precise scope of this
policy is unclear, however, in light of recent judicial precedent.
Federal Securities Laws. The Company's common stock is registered with the
SEC under the Securities Exchange Act of 1934 ("Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The Bank. The Bank is subject to extensive regulation and examination by the
OFI and by the FDIC and are also subject to certain requirements established by
the Federal Reserve Board. The federal and state laws and regulations which are
applicable to banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
certain loans. There are periodic examinations by the OFI and the FDIC to test
the Bank's compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for
27
regulatory purposes. Any change in such regulation, whether by the OFI, the FDIC
or the Congress could have a material adverse impact on the Company, the Banks
and their operations.
FDIC Insurance Premiums. The deposits of the Bank are currently insured by the
SAIF, Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit
insurance fund that covers commercial bank deposits, are required by law to
attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The
BIF fund met its target reserve level in September 1995, but the SAIF was not
expected to meet its target reserve level until at least 2002. Consequently, in
late 1995, the FDIC approved a final rule regarding deposit insurance premiums
which, effective with respect of the semiannual premium assessment beginning
January 1, 1996, reduced deposit insurance premiums for BIF member institutions
to zero basis points (subject to an annual minimum of $2,000) for institutions
in the lowest risk category. Deposit insurance premiums for SAIF members were
maintained at their existing levels (23 basis points for institutions in the
lowest risk category).
On September 30, 1996, President Clinton signed into law legislation which
will eliminate the premium differential between SAIF-insured institutions and
BIF-insured institutions be recapitalizing the SAIF's reserves to the required
ratio. The legislation provides that all SAIF member institutions pay a one-time
special assessment to recapitalize the SAIF, which in the aggregate will be
sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits.
The legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
Effective October 8, 1996, FDIC regulations imposed a one-time special
assessment of 65.7 basis points on S AIF-assessable deposits as of March 31,
1995, which was collected on November 27, 1996. lberia's one-time special
assessment amounted to $2.9 million pre-tax. The payment of such special
assessment had the effect of immediately reducing lberia's capital by $1.9
million after tax. Jefferson was also subject of this assessment, but such
assessment was before Jefferson's acquisition on October 18, 1996.
On October 16, 1996, the FDIC proposed to lower assessment rates for
SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates would range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members will
pay 6.4 basis points to fund the Financing Corporation while BIF member
institutions will pay approximately 1.3 basis points.
Capital Requirements. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like the Bank, will not be members of the Federal Reserve System. These
requirements are substantially similar to those adopted by the Federal Reserve
Board regarding bank holding companies, as described above.
The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively will increase the minimum
Tier I leverage ratio for such other banks to 4.0% to 5.0% or more.
Under the FDIC's regulation, highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, exc