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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________
Commission File No.: 1-14364
Acadiana Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
Louisiana 72-1317124
- - --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
107 West Vermilion Street
Lafayette, Louisiana 70502
------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 232-4631
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (par value $0.01 per share)
----------------------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
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
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Indicate by check mark if disclosure of delinquent filers pursuant to 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 to this Form 10-K. /X/
As of March 27, 1997, the aggregate market value of the 2,731,250 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 105,887 shares held by all directors and officers of the Registrant
as a group, was approximately $50.5 million. This figure is based on the
closing sale price of $19.25 per share of the Registrant's Common Stock on
March 27, 1997.
Number of shares of Common Stock outstanding as of December 31, 1996:
2,731,250
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, 1996 are incorporated into Part II, Items 5 through 8
of this Form 10-K.
(2) Portions of the definitive proxy statement for the 1997 Annual Meeting
of Stockholders to be filed within 120 days of Registrant's fiscal year end
are incorporated into Part III, Items 9 through 13 of this Form 10-K.
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PART I.
Item 1. Business.
General
Acadiana Bancshares, Inc., ("the Company) is a Louisiana corporation
organized in February 1996 by LBA Savings Bank (the "Bank" or the
"Savings Bank") for the purpose of acquiring all of the capital stock of
the Bank to be issued by the Bank in the conversion (the "Conversion") of
the Bank from the mutual to stock form, which was completed on July 16,
1996. The only significant assets of the Company are the capital stock of the
Bank, the Company's loan to an employee stock ownership plan ("ESOP"), and
the net Conversion proceeds retained by the Company. To date, the business of
the Company has consisted of the business of the Bank. The Company's common
stock trades on the American Stock Exchange under the symbol "ANA." At
December 31, 1996, the Company had total assets of $264.4 million, total
deposits of $193.5 million, and stockholders' equity of $47.1 million.
The Bank is a Louisiana chartered, stock savings bank conducting business
from its main office and three branch offices, all located in Lafayette,
Louisiana and one loan production office in Eunice, Louisiana. Deposits at
the Bank are insured, up to applicable limits, by the Savings Association
Insurance Fund ("SAIF") which is administered by the Federal Deposit
Insurance Corporation ("FDIC").
The Company's principal business has been, and continues to be, attracting
deposits from its customers and investing such funds in residential real
estate loans and other loans through its continuing operation of the Bank. At
December 31, 1996, the Company's loan portfolio totaled $182.7 million, or
69.1% of the Company's assets. In addition to its lending activities, the
Company also invests in mortgage-backed securities and investment securities.
The Company's mortgage-backed securities portfolio totaled $34.7 million, or
13.1% of the Company's total assets at December 31, 1996, and its
investment securities portfolio amounted to $20.5 million, or 7.8% of total
assets at such date. Traditionally, the Company's principal source of funds
has come from deposits. At December 31, 1996, the Company had total
deposits of $193.5 million, of which $46.7 million, or 24.1%, consisted of
core deposits which include passbook, money market deposits ("MMDA"),
negotiable order of withdrawal ("NOW") and noninterest-bearing accounts and
$146.8 million, or 75.9%, consisted of certificates of deposit, including
$36.0 million of deposit accounts equal to or exceeding $100,000.
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
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administrator of the SAIF, and to certain reserve requirements established by
the FRB. The Bank is a member of the Federal Home Loan Bank ("FHLB") of
Dallas which is one of twelve regional banks comprising the FHLB System.
The Company's executive office is located at 101 West Vermilion Street,
Lafayette, Louisiana, 70501, and its telephone number is (318) 232-4631.
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Lending Activities
Loan Portfolio Composition. The following table sets forth the composition of
the Company's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- ------------------ ----------------- ------------------ ------------------
Percent of Percent Percent Percent Percent
Balance Total Balance of Total Balance of Total Balance of Total Balance of Total
------- ---------- ------- -------- ------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of loan:
Real estate loans:
Residential single
family.......... $142,965 78.24% $127,656 80.96% $120,483 79.71% $115,308 75.22% $110,332 71.54%
Construction..... 10,565 5.78% 7,304 4.63 6,908 4.57 5,339 3.48 7,902 5.12
Multi-family
residential..... 862 0.47% 1,202 0.76 1,638 1.08 2,049 1.34 2,380 1.54
Commercial and
other real
estate.......... 12,873 7.05% 13,370 8.48 13,505 8.93 15,973 10.42 17,447 11.31
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate
loans............ 167,265 91.54% 149,532 94.83 142,534 94.29 138,669 90.46 138,061 89.51
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Non-real estate
loans:
Consumer...... 16,727 9.15% 13,704 8.69 12,749 8.43 17,793 11.61 21,030 13.64
Commercial
business..... 7,363 4.03% 1,358 0.86 1,479 0.98 1,394 0.91 1,478 0.96
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total non-real estate
loans........... 24,090 13.18% 15,062 9.55 14,228 9.41 19,187 12.52 22,508 14.60
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans...... 191,355 104.72% 164,594 104.38 156,762 103.70 157,856 102.98 160,569 104.11
Less:
Undisbursed loan
funds.......... 5,899 3.23% 4,292 2.72 3,593 2.37 2,929 1.91 5,004 3.24
Unearned
discounts...... (331) (-0.18)% (206) -0.13 498 0.33 600 0.39 673 0.44
Allowance for
loan losses.... 2,592 1.42% 2,329 1.48 1,087 0.72 1,015 0.66 981 0.64
Net deferred
fees (cost).... 471 0.26% 488 0.31 423 0.28 28 0.02 (322) (0.21)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, net.. $182,724 100.0% $157,691 100.00% $151,161 100.00% $153,284 100.00% $154,233 100.00%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
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Contractual Maturities. The following table sets forth the time to
contractual maturity of the Company's loan portfolio at December 31, 1996.
Over One
Less than Through Over Five
One Year Five Years Years Total
--------- ---------- ---------- -----
(Dollars in Thousands)
Residential single-family
mortgage loans............ $5,070 $22,845 $115,050 $142,965
Multi-family residential... 49 246 567 862
Commercial and other
real estate............... 820 3,782 8,271 12,873
Construction loans......... 10,565 -- -- 10,565
Commercial business loans.. 2,335 2,577 2,451 7,363
All Other loans............ 2,593 10,522 3,612 16,727
------- ------- -------- ---------
Total...................... $21,432 $39,972 $129,951 $191,355
------- ------- -------- ---------
------- ------- -------- ---------
The following table sets forth the dollar amount at December 31, 1996 of all
loans maturing after December 31, 1997 by fixed and adjustable interest
rates.
Fixed Adjustable
Rates Rates
----- ----------
(In thousands)
Loans secured by 1-4 family
residential property.......... $63,870 $74,025
All other loans secured
by real estate................ 3,957 8,909
All other loans................ 17,609 1,553
------- -------
$85,436 $84,487
------- -------
------- -------
Scheduled amortization does not reflect the expected term of the Company'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 Company 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 refinancing 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.
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Loan Origination and Sales Activity. The table below sets forth the Company's
total loan origination and loan reduction experience during the periods
indicated. The Company historically has not made any loan purchases.
Years Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Loans receivable, net
beginning of period............ $157,691 $151,161 $153,284
Loan originations:
Residential single family...... 27,612 16,172 21,679
Construction loans............. 20,059 7,810 8,015
Multi-family residential....... -- -- --
Commercial and other
real estate................... 15 870 1,073
Commercial business loans...... 7,334 723 815
Consumer loans................. 13,078 10,162 5,792
-------- -------- -------
Total loan originations...... 68,098 35,737 37,374
-------- -------- -------
Loan reductions:
Loan sales..................... (6,460) (1,551) (557)
Principal repayments........... (34,611) (26,219) (38,098)
Other changes, net(1).......... (1,994) (1,437) (842)
-------- -------- -------
Total loan reductions........ (43,065) (29,207) (39,497)
-------- -------- -------
Loans receivable, net end
of period...................... $182,724 $157,691 $151,161
-------- -------- -------
-------- -------- -------
- - ----------------------------
(1) Includes changes in net deferred loan fees, allowance for loan losses,
unearned discounts and loans in process.
The lending activities of the Company are subject to written underwriting
standards and loan origination procedures established by the Company's Board
of Directors and management. Applications for residential mortgage loans are
taken by one of the Company's mortgage officers, while the Company's
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 Company's loan originators will take loan applications at
any of the Company's offices and, on occasion, outside of the Company's
offices at the customer's convenience. The process of underwriting loans and
obtaining appropriate documentation, such as credit reports, appraisals and
other documentation is centralized in the Company's main office. The
Company's commercial loan officers are responsible for overseeing the
underwriting of all commercial business and commercial real estate loans. The
Company generally requires that a property appraisal be obtained in
connection with
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all new mortgage loans. Property appraisals generally are performed by an
independent appraiser from a list approved by the Company's Board of
Directors. LBA Savings 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 Company personnel, as well as referrals. Consumer
loans originated by the Company are obtained primarily from advertising, and
through existing and walk-in customers.
Applications for real estate mortgage loans, construction loans and
commercial business loans must be reviewed and approved by the Loan Committee
of the Company's Board of Directors. Unsecured consumer loans in amounts up
to $25,000 and secured consumer loans in amounts up to $50,000 may be
approved by designated senior loan officers of the Company. The Company's
Commercial Lending Manager has authority to approve secured commercial
business loans in amounts up to $100,000. The Company's President and Chief
Executive Officer has authority to approve loans in amounts up to $250,000.
Loans exceeding the above-described amounts but which are less than $500,000
must be approved by the Loan Committee of the Company's Board of Directors.
Loans in excess of $500,000 must be reviewed and approved by the full Board
of Directors of the Company.
Single-Family Residential Loans. Substantially all of the Company'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 Company's single-family
residential mortgage loans are secured by properties located in Lafayette,
Louisiana and the Louisiana parishes immediately contiguous to Lafayette
Parish, and are originated under terms and documentation which permit their
sale to the Federal Home Loan Mortgage Corporation ("FHLMC"), the FHA, or
the Federal National Mortgage Association ("FNMA"). Sales of residential
mortgage loans have been insignificant to date. As of December 31, 1996,
$143.0 million, or 78.2%, of the Company's total loans consisted of
single-family residential mortgage loans.
The Company's residential mortgage loans have either fixed rates of interest
or interest rates which adjust periodically during the term of the loan.
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 Company'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 FNMA and the FHLMC, and other investors in the
secondary market
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for single-family residential mortgages. At December 31, 1996, $67.5
million, or 47.2%, of the Company's single-family residential mortgage loans
were fixed-rate loans. At December 31, 1996, the weighted average
remaining term to maturity of the Company's fixed-rate, single-family
residential mortgage loans was approximately 15 years. Substantially all of
the Company's fixed-rate, single family residential mortgage loans contain
due-on-sale clauses, which permit the Company to declare the unpaid balance
to be due and payable upon the sale or transfer of any interest in the
property securing the loan. The Company enforces such due-on-sale clauses.
The adjustable-rate loans currently offered by the Company 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 one, three,
five, seven or ten years in accordance with a designated index (the primary
index utilized by the Company is the Eleventh District Cost of Funds for
SAIF-Insured Institutions), plus a stipulated margin. The Company'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
Company'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. From time-to-time,
based on prevailing market conditions, the Company may offer adjustable-rate
loans with "teaser" rates, i.e., initial rates below the fully indexed
rate. At December 31, 1996, $75.5 million or 52.8%, of the Company's
single-family residential mortgage 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. The Company believes these risks, which have not had a material
adverse effect on the Company to date because of the generally declining or
flat interest rate environment in recent years, generally are less than the
risks associated with holding fixed-rate loans in an increasing interest rate
environment.
For conventional residential mortgage loans held in the portfolio and also
for those loans originated for sale in the secondary market, the Company's
maximum loan-to-value ("LTV") ratio is 80%, and is based on the lesser of
sales price or appraised value. Generally on loans with a LTV ratio of over
80%, private mortgage insurance ("PMI") is required on the amount of the
loan in excess of 80% of value. However, the Loan Committee may approve loans
with LTV ratios of up to 89.5% without PMI.
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Commercial and Other Real Estate Loans and Multi-Family Residential Loans. At
December 31, 1996, the Company had $12.9 million in outstanding loans
secured by commercial and other real estate. Such commercial and other real
estate loans, which comprised 7.0% of the Company's total loan portfolio at
December 31, 1996, are secured primarily by office and other commercial
buildings, retail and manufacturing properties and church properties. At such
date, 145,000, or 1.1%, of the Company's commercial and other real estate
loans were non-performing loans.
The Company's commercial real estate loans generally are one-year adjustable
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. Although
terms for multi-family residential and commercial real estate loans may vary,
the Company's underwriting standards generally provide for terms of up to ten
years, with amortization of principal over the term of the loan and LTV
ratios of not more than 75%. Generally, the Company obtains personal
guarantees of the principals as additional security for any commercial real
estate and multi-family residential loans.
At December 31, 1996, the Company had $862,000 of multi-family residential
real estate loans. The Company has not originated any new multi-family
residential loans during the past two years, and does not anticipate becoming
an active originator of multi-family residential loans.
The Company evaluates various aspects of commercial and multi-family
residential 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 Company 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
150%. 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 Master Appraisal Institute ("MAI") certified) commissioned by
the Company to substantiate values for every commercial real estate and
multi-family loan transaction. All appraisal reports are reviewed by the
Company prior to the approval of the loan. On occasion the Company also
retains a second independent appraiser to review an appraisal report.
Commercial real estate and multi-family residential 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
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Company 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.
Construction Loans. Substantially all of the Company's construction loans
have consisted of loans to construct single-family residences. As of
December 31, 1996, the Company's construction loans amounted to $10.6
million, or 5.8% of the Company's total loan portfolio.
The Company makes construction loans both to individuals and to builders.
Construction loans made to individuals for one-to-four family residences
normally are construction/permanent loans which provide for the payment of
interest during the construction period, after which the loan converts to a
permanent loan at fixed or adjustable interest rates with monthly
amortization of principal and interest. Construction loans to individuals for
single-family residential properties generally have a maximum LTV ratio of
80% of the sales price or appraised value of the property, whichever is less.
Higher ratios require PMI. The Company originated $14.9 million of
single-family construction loans to individuals during the year ended
December 31, 1996.
The Company's policies permit loans to builders constructing single-family
residential properties on a speculative basis; however, such policies
generally limit a builder to two such loans. Other builder loans are made to
finance construction of residences which have been pre-sold prior to loan
closing. Loans made to builders generally require the payment of interest
during the construction period and the payment of the principal in full at
the end of the construction period. Construction loans to builders made on a
speculative basis are generally limited to 85% of the appraised value of the
property. The Company originated $4.7 million in single family construction
loans to builders during the year ended December 31, 1996.
Prior to making a commitment to fund a construction loan, the Company
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 Company may be confronted, at or prior to 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.
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As of December 31, 1996, none of the Company's construction loans were
considered non-performing.
Consumer Loans. The Company offers consumer loans in order to provide a full
range of retail financial services to its customers. At December 31, 1996,
$16.7 million, or 9.2% of the Company's total loan portfolio was comprised of
consumer loans. The Company originates substantially all of such loans in its
primary market area.
Origination of consumer loans by the Company amounted to $13.1 million in
1996 compared to $10.2 million and $5.8 million in 1995 and 1994,
respectively. The primary reason for the increase in consumer loans
originated in 1996 and 1995 were the result of the Company's determination to
increase its portfolio of automobile loans due to their generally higher
yields and shorter terms to maturity compared to mortgage loans. During 1996,
the Company discontinued its indirect automobile loan origination program
which it had initiated during 1995. Indirect automobile loans originated
accounted for approximately 43.6% and 39.3% of the Company's total consumer
loans originated during 1996 and 1995, respectively. Although applications
for such loans are taken by employees of the dealer, the loans are made
pursuant to the Company's underwriting standards using the Company's
documentation, and all such indirect loans must be approved by a loan officer
of the Company before disbursement of loan proceeds. The Company also
originates automobile loans directly, primarily to existing customers. During
the years ended December 31, 1996, 1995, and 1994, the Company directly
originated $2.2 million, $1.9 million, and $1.3 million, respectively, in
automobile loans.
Consumer finance loans generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness and personal
bankruptcy. In many cases, any repossessed collateral for a defaulted
consumer finance loan will not provide an adequate source of repayment of the
outstanding loan balance because of improper repair and maintenance of the
underlying security. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. As of December 31,
1996, $45,000, or 0.6% of the Company's consumer loans from indirect
origination activities were considered non-performing. As of December 31,
1996, $96,000, or 0.6% of the Company's total consumer loans were considered
non-performing.
Commercial Business Loans. At December 31, 1996, the Company's commercial
business loans amounted to $7.4 million, or 4.0% of the Company's net loan
portfolio. Prior to 1996, the Company had not been an active originator of
commercial business loans, and, the Company's outstanding commercial business
loans at December 31, 1995 were comprised entirely of an existing line of
credit to one Lafayette, Louisiana automobile leasing company.
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Due to the generally higher yields available and/or adjustable interest
rates, the Company resolved to increase its emphasis on originated commercial
business loans. In February 1996, the Company hired a new Senior Vice
President--Commercial Lending Manager with extensive experience in commercial
lending in southwestern Louisiana. The Company intends to concentrate its
commercial lending activities among small- to mid-size businesses in
Lafayette, Louisiana and contiguous parishes in a manner consistent with its
current underwriting standards. Commercial business lending generally
involves more credit risk than traditional, single-family residential
mortgage lending.
Origination of commercial business loans by the Company amounted to $7.3
million in 1996, compared to $723,000, and $815,000 in 1995 and 1994,
respectively. The primary reason for the increase in commercial business
loans originated in 1996 was the hiring of the new commercial loan officer in
February 1996. As of December 31, 1996, the Company had no
non-performing commercial business loans.
Loans-to-One Borrower Limitations. The Louisiana Savings Bank Act of 1990
(the "LSBA") imposes limitations on the aggregate amount of loans that a
Louisiana chartered savings bank can make to any one borrower. Under the
LSBA, the permissible amount of loans-to-one borrower may not exceed 15% of a
savings bank's total net worth. In addition, a savings bank may make loans in
an amount equal to an additional 10% of a savings bank's net worth if the
loans are 100% secured by readily marketable collateral. A savings bank's net
worth shall be calculated based on its last quarterly call report and
consists of (i) outstanding and unimpaired common stock; (ii)
outstanding and unimpaired perpetual preferred stock; (iii) unimpaired
capital surplus, undivided profits, capital reserves, minus intangible
assets; (iv) purchased mortgage servicing rights; and (v) mandatory
convertible debt up to 20% of categories (i) through (iv). Readily
marketable collateral consists of financial instruments or bullion which are
salable under ordinary circumstances with reasonable promptness at fair
market value or on an auction or a similarly available daily bid and ask
price market. At December 31, 1996, the Company's limit on loans-to-one
borrower under LSBA was approximately $5.1 million. At December 31, 1996,
the Company's five largest loans or groups of loans-to-one borrower ranged
from $1.0 million to $2.3 million, and all such loans were performing in
accordance with their terms.
Asset Quality
General. As part of the Company's efforts to improve its asset quality, it
has developed and implemented an asset classification system. All of the
Company's assets are subject to review under the classification system. All
assets of the Company are periodically reviewed and the classifications are
reviewed by the Audit 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 Company
attempts to cure the deficiency by contacting the borrower and seeking
payment. Contacts are
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generally made 16 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 Company generally
prefers to work with borrowers to resolve such problems, when the account
becomes 90 days delinquent, the Company institutes 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. As a
matter of policy, the Company does not accrue interest on loans past due 90
days or more.
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed
under generally accepted accounting principles ("GAAP") are classified as
real estate owned until sold. Pursuant to Statement of Procedure ("SOP")
92-3 issued by the American Institute of Certified Public Accountants
("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 refutable
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 expensed and costs incurred for the
improvement or development of such property are capitalized up to the extent
of their net realizable value. The Company's accounting for its real estate
owned complies with the guidance set forth in SOP 92-3. At December 31,
1996 the net carrying value of the Company's real estate owned was $75,000.
Under GAAP, the Company 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 Company, for economic or legal reasons related to the
borrower's financial difficulties, grants a concession to the borrower that
the Company would not otherwise consider under current market conditions.
Debt restructurings, however, and troubled debt restructurings do not
necessarily result in non-accrual loans. The Company had $535,600 of loans
deemed to be troubled debt restructurings as of December 31, 1996.
13
<PAGE>
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1996, in dollar amounts and as a
percentage of each category of the Company'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, 1996
----------------------------------------------------
30-59 Days 60-89 Days
-------------------------- ----------------------
Percent of Percent of
Amount Loan Category Amount Loan Category
------ ------------- ------ -------------
(Dollars in Thousands)
Mortgage loans:
Residential:
Single-family....... $550 0.38% $181 0.13%
Multi-family........ -- 0.00 -- 0.00
Commercial and
other real estate.. 28 0.22 -- 0.00
Construction........ -- 0.00 -- 0.00
Consumer............ 326 1.92 52 0.31
Commercial
business........... -- -- -- --
---- ----
Total Loans....... $904 .49% $233 .15%
---- ----
---- ----
14
<PAGE>
Non-Performing Assets and Troubled Debt Restructurings. The following table
sets forth information with respect to non-performing assets identified by
the Company, including non-accrual loans, other real estate owned, and
non-performing investments in real estate at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Accruing loans 90
days or more past due:
Residential single-family..... $-- $-- $377 $1,543 $1,236
Construction.................. -- -- -- -- --
Multi-family residential...... -- -- -- 76 --
Commercial and other
real estate.................. -- -- -- 240 121
Consumer...................... -- -- 96 152 125
Commercial business........... -- -- -- -- --
---- ----- ----- -------- --------
Total accruing loans........ -- -- 473 2,011 1,482
---- ----- ----- -------- --------
Non-accrual loans:
Residential single-family..... 632 527 72 229 97
Construction.................. -- -- -- -- --
Multi-family residential...... -- -- -- -- --
Commercial and other
real estate.................. 145 197 -- 452 405
Consumer...................... 96 16 21 105 131
Commercial business........... -- -- -- -- --
---- ----- ----- -------- --------
Total non-accrual loans........ 873 740 93 786 633
---- ----- ----- -------- --------
Total non-performing loans..... 873 740 566 2,797 2,115
Other real estate owned, and
repossessed assets............ 75 845 2,449 2,693 3,554
---- ----- ----- -------- --------
Total non-performing assets.... $948 $1,585 $3,015 $5,490 $5,669
---- ----- ----- -------- --------
---- ----- ----- -------- --------
Performing troubled debt
restructurings................ $536 $878 $954 $996 $1,044
---- ----- ----- -------- --------
---- ----- ----- -------- --------
Total non-performing assets and
troubled debt restructurings... $1,484 $2,463 $3,969 $6,486 $6,713
---- ----- ----- -------- --------
---- ----- ----- -------- --------
Non-performing assets to total
loans.......................... 0.52% 1.01% 1.92% 3.48% 3.53%
Non-performing assets to total
assets......................... 0.36% 0.70% 1.35% 2.35% 2.45%
Non-performing loans to total
loans.......................... 0.48% 0.45% 0.36% 1.77% 1.32%
Non-performing loans to total
assets......................... 0.33% 0.33% 0.25% 1.20% 0.91%
Total non-performing assets
and troubled debt restructurings
to total assets................ 0.56% 1.03% 1.78% 2.78% 2.90%
</TABLE>
For the year ended December 31, 1996, approximately $131,000 in gross
interest income would have been recorded on loans accounted for on a
non-accrual basis and troubled debt restructurings if such loans had been
current in accordance with their original terms and had been outstanding
throughout the year or since origination if held for part of the year. For
the year ended December 31, 1996, $78,000 was included in net income for
these loans.
15
<PAGE>
Other Classified Assets. Federal regulations require that the Company
classify 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 in their reports
of examination. 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 as loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted.
At December 31, 1996, the Company had $2.1 million of assets classified
substandard and no assets classified as doubtful or loss. At such date, the
aggregate of the Company's classified assets amounted to .8% of total assets.
Potential Problem Loans. The Company has identified a group of residential
mortgage loans which were originated under its discontinued program of making
loans to facilitate the sale of real estate owned, and which, at December
31, 1996, totaled $6.0 million, or 3.3% of the Company's gross loan
portfolio. Loans in this portfolio were originated at 90% to 100% of
collateral value, without credit enhancements such as private mortgage
insurance. Although the portfolio is not currently demonstrating credit
problems evidenced by delinquent loan payments, the Company recognizes that
these loans are secured primarily by residential real estate which generally
became severely depressed during the most recent economic downturn. In that
regard, the Company has serious concerns that the collateral values would
again become severely adversely affected in the next economic downturn.
Accordingly, the Company believes the relative credit risk with regard to
this group of loans to be higher than that of its other residential mortgage
loans, taken as a whole.
Also, during 1995, the Company commenced a program of originating automobile
loans indirectly through a network of approximately 12 new and used
automobile dealers located in Lafayette, Louisiana, and in nearby parishes.
Although the Company determined to discontinue this program (see
"Business--Consumer Loans") in 1996, the outstanding portfolio totaled $7.4
million at December 31, 1996, or 4.1% of the Company's net loans. This
group of loans has demonstrated much higher delinquency ratios than that of
the Company's other secured consumer loans. Several of the loans in this
portfolio demonstrated serious credit problems such as first payment default.
Also, the Company's recent experience during the fourth quarter of 1996
indicates that the collateral values securing those loans which became
delinquent are generally insufficient to cover the amounts due the Company.
Accordingly, the Company believes this indirect loan portfolio has higher
relative credit risks than that of its other consumer loans, taken as a whole.
16
<PAGE>
Allowance for Loan Losses. The Company's policy is to establish reserves for
estimated losses on loans when it determines that losses are expected to be
incurred on such loans. 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, 1996, the Company's allowance for loan losses amounted to
183.96% and 1.35% of the Company's non-performing loans and troubled debt
restructurings, and gross loans, respectively.
Effective December 21, 1993, the FDIC, in conjunction with the Office of
the Comptroller of the Currency, the Office of Thrift Supervision ("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 agencies' 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 also sets forth 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 Company's policy for establishing loan losses.
17
<PAGE>
The following table describes the activity related to the Company's allowance
for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period..... $2,329 $1,087 $1,015 $981 $208
Provision for loan losses........ 355 1,274 63 235 1,293
Charge-offs:
Residential single-family....... -- (70) (37) (42) (231)
Construction.................... -- -- -- -- --
Multi-family residential........ -- (7) -- -- --
Commercial and other
real estate.................... (67) -- -- -- (98)
Commercial business............. -- -- (11) -- --
Consumer........................ (210) (50) (135) (211) (240)
------- ----- ------ ----- ------
Total charge-offs............. (277) (127) (183) (253) (569)
------- ----- ------ ----- ------
Recoveries:
Residential single-family....... 87 10 72 29 46
Construction.................... -- -- -- -- --
Multi-family residential........ -- -- -- -- --
Commercial and other
real estate................... 10 -- 55 -- --
Commercial business............. -- -- -- -- --
Consumer........................ 88 85 65 23 3
------- ----- ------ ----- ------
Total recoveries.............. 185 95 192 52 49
------- ----- ------ ----- ------
Net (charge-offs)/recoveries..... (92) (32) 9 (201) (520)
------- ----- ------ ----- ------
Balance, end of period........... 2,592 2,329 1,087 1,015 981
------- ----- ------ ----- ------
------- ----- ------ ----- ------
Allowance for loan losses
to total non-performing loans
and troubled debtrestructurings
at end of period................ 183.96% 143.94% 73.10% 26.76% 31.05%
------- ----- ------ ----- ------
------- ----- ------ ----- ------
Allowance for loan losses
to total loans at end of period.. 1.35% 1.41% 0.69% 0.64% 0.61%
------- ----- ------ ----- ------
------- ----- ------ ----- ------
</TABLE>
18
<PAGE>
The following table presents an allocation of the allowance for losses on
loans by the categories indicted and the percentage that loans in each
category bear to the total loans. This allocation is used by management to
assist in its evaluation of the Company's loan portfolio. It should be noted
that allocations are no more than estimates and are subject to revisions as
conditions change. Based upon historical loss experience and the Company's
assessment of its loan portfolio, all of the Company's allowances for losses
on loans have been allocated to the categories indicated. Allocations of
these loans are based primarily on the creditworthiness of each borrower. In
addition, general allocations are also made to each category based upon,
among other things, the current and future impact of economic conditions on
the loan portfolio taken as a whole. Losses on loans made to consumers are
reasonably predictable based on the prior loss experience and a review of
current economic conditions.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
1996 to Gross 1995 to Gross 1994 to Gross 1993 to Gross 1992 to Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential
single-family....... $1,565 74.71% $1,773 77.56% $597 76.86% $542 73.05% $677 68.91%
Construction......... 58 5.52 22 4.44 15 4.41 15 3.38 18 4.92
Multi-family
residential......... 7 0.45 80 0.73 30 1.04 33 1.30 15 1.48
Commercial and other
real estate......... 460 6.73 331 8.12 277 8.62 245 10.12 102 10.87
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
Total real estate
loans................ 2,090 89.41 2,206 90.85 919 90.93 835 87.85 812 85.98
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
Non-real estate loans:
Commercial business... 163 3.85 26 0.82 -- 0.94 -- 0.88 -- 0.92
Consumer.............. 339 8.74 97 8.33 168 8.13 180 11.27 169 13.10
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
Total non-real
estate loans......... 502 12.59 123 9.15 168 9.07 180 12.15 169 14.02
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
Total allowance for
loan losses.......... $2,592 100.00% $2,329 100.00% $1,087 100.00% $1,015 100.0% $981 100.00%
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
</TABLE>
19
<PAGE>
Management of the Company presently believes that its allowance for loan
losses is adequate to cover any potential losses in the Company's loan
portfolio. However, future adjustments to this allowance may be necessary,
and the Company'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 Activities
General. Interest income from mortgage-backed securities and investment
securities generally provides the second largest source of income to the
Company after interest on loans. The Company's Board of Directors has
authorized investments in U.S. Government and agency securities, obligations
of the FHLB, and mortgage-backed securities issued by FNMA and FHLMC. The
Company's objective is to use such investments to reduce interest rate risk,
enhance yields on assets and provide liquidity. On December 31, 1996, the
Company's mortgage-backed securities and investment securities portfolio
amounted to $34.7 million and $20.5 million, respectively. At such date, the
Company had an unrealized gain of $383,100, net of deferred taxes, with
respect to its securities available for sale.
Mortgage-Backed Securities. As of December 31, 1996, the Company's
mortgage-backed securities amounted to $34.7 million, or 13.1% of total
assets. The Company's mortgage-backed securities portfolio 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) represents a
participation interest in a pool of single-family or multi-family mortgages.
The servicer, through intermediaries (generally U.S. Government agencies and
government-sponsored enterprises) pool and repackage the participation
interests in the form of securities, to investors such as the Company. 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 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 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
20
<PAGE>
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 is
currently $214,600.
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, (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 Company's mortgage-backed securities portfolio
includes investments in mortgage-backed securities backed by adjustable rate
mortgages ("ARMs") or securities which otherwise have an adjustable rate
feature.
The Company'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 issuer's 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, 1996, the Company's investment in
CMOs amounted to $11.2 million, all of which consisted of regular interests.
As of December 31, 1996, the Company's CMOs did not include any residual
interests or interest-only or principal-only securities. As
21
<PAGE>
a matter of policy, the Company 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 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, 1996, $13.1 million of the Company's mortgage-backed
securities were classified as held to maturity and $21.6 million were
classified as available for sale. 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. Mortgage-backed securities classified as available for sale are
carried at fair value. Unrealized gains and losses on available for sale
mortgage-backed securities are recognized as direct increases or decreases in
equity, net of applicable income taxes.
During 1995, the Company reviewed its entire portfolio of mortgage-backed
securities, all of which previously had been classified as held to maturity,
and designated all of its fixed-rate mortgage-backed securities as available
for sale. The designation of such mortgage-backed securities as available for
sale provides the Company with additional flexibility to sell such securities
if deemed appropriate in response to, among other things, changes in interest
rates.
At December 31, 1996, the weighted average contractual maturity of the
Company's fixed-rate mortgage-backed securities was approximately 11.3 years.
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.
22
<PAGE>
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 Company may be subject to reinvestment risk because
to the extent that the Company's mortgage-related securities amortize or
prepay faster than anticipated, the Company may not be able to reinvest the
proceeds of such repayments and prepayments at a comparable rate. At
December 31, 1996, of the $34.7 million of mortgage-backed securities, an
aggregate of $21.6 million were secured by fixed-rate securities and
classified as available for sale, and an aggregate of $13.1 million were
secured by adjustable-rate securities and classified as held to maturity.
The following table sets forth certain information regarding the Company's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1996 1995 1994
----------------------- -------------------- ---------------------
Held to Available Held to Available Held to Available
Maturity for Sale Maturity for Sale Maturity for Sale
-------- --------- -------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC....................... $822 $6,853 $936 $8,361 $10,323 --
FNMA........................ 232 12,449 259 15,185 17,113 --
GNMA........................ 1,320 1,776 1,585 1,981 3,916 --
FNMA CMO.................... 4,733 488 4,733 495 503 --
FHLMC CMO................... 5,980 -- 5,979 -- 1,494 --
----- ------ ----- ------ ------- -----
Total mortgage-backed
securities..................$13,087 $21,566 $13,492 $26,022 $33,349 $--
----- ------ ----- ------ ------- -----
----- ------ ----- ------ ------- -----
</TABLE>
Investment Securities. The Company's investments in investment securities
consist primarily of securities issued by the U.S. Treasury and federal
government agency obligations. As of December 31, 1996, the Company's
entire portfolio of investment securities was classified available for sale
and amounted to $20.5 million, net of gross unrealized gains of $148,700. The
Company attempts to maintain a high degree of liquidity in its investment
securities portfolio and generally does not invest in securities with terms
to maturity exceeding ten years. As of December 31, 1996, the estimated
weighted average life of the Company's investment securities portfolio was
4.0 years.
23
<PAGE>
The following table sets forth certain information regarding the Company's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------ ------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------ --------- ------ -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and Federal
agency obligations........... $20,524 $20,524 $4,018 $4,018 $19,372 $18,875
Marketable equity securities.. 15 15 12 12 14 14
------- ------- ------ ------ ------- -------
Total...................... $20,539 $20,539 $4,030 $4,030 $19,386 $18,889
------- ------- ------ ------ ------- -------
------- ------- ------ ------ ------- -------
</TABLE>
The following table sets forth certain information regarding the maturities
of the Company's investment securities at December 31, 1996.
<TABLE>
<CAPTION>
Contractually Maturing
----------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Under 1 Average 1-5 Average 6-10 Average Over 10 Average
Year Yield Years Yield Years Yield Years Yield
------- -------- ----- -------- ----- -------- ------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
and federal
agency
obligations..... $1,001 5.74% $17,532 7.16% $1,991 7.38% -- 0.00%
</TABLE>
In addition, as a member of the FHLB of Dallas, the Bank is required to
maintain an investment in stock of the FHLB of Dallas equal to the greater of
1% of the Bank's outstanding home mortgage related assets or 5% of its
outstanding advances from the FHLB of Dallas. As of December 31, 1996, the
Bank's investment in stock of the FHLB of Dallas amounted to $1.8 million.
During the year ended December 31, 1996, the Bank received $101,100 in
dividends on its FHLB stock. No ready market exists for such stock, which is
carried at par value.
Sources of Funds
General. The Company's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Company's branch offices. The Company 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, until 1995, the Company made limited use of
borrowings to supplement its deposits as a source of funds.
Deposits. The Company's current deposit products include passbook accounts,
NOW accounts, MMDA, certificates of deposit ranging in terms from 90 days to
ten years and noninterest-bearing personal and business checking accounts.
The Company's deposit products also include Individual Retirement Accounts
("IRA") certificates and Keogh accounts.
24
<PAGE>
noninterest-bearing personal and business checking accounts. The Company's
deposit products also include Individual Retirement Accounts ("IRA")
certificates and Keogh accounts.
The Company's deposits are obtained primarily from residents in its Primary
Market Area. The Company attracts local deposit accounts by offering a wide
variety of accounts, competitive interest rates, and convenient branch office
locations and service hours. The Company utilizes traditional marketing methods
to attract new customers and savings deposits, including print and broadcast
advertising and direct mailings. However, the Company does not solicit funds
through deposit brokers nor does it pay any brokerage fees if it accepts such
deposits. The Company operates two automated teller machines ("ATMs") and
participates in the regional ATM network known as CIRRUS-Registered Trademark-.
The Company 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 Company in recent years
has experienced disintermediation of deposits into competing investment
products.
The following table sets forth certain information relating to the Company's
Deposits at December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
PERCENT OF
PERCENT OF TOTAL
AMOUNT TOTAL DEPOSITS AMOUNT DEPOSITS
-------- ---------------- -------- ------------
(DOLLARS IN THOUSANDS)
Now accounts......................... $ 11,528 5.96% $ 10,689 5.18%
Money market accounts................ 5,101 2.64 6,228 3.02
Noninterest-bearing checking
accounts........................... 4,954 2.56 3,024 1.46
-------- ------ -------- ------
Total demand deposits............ 21,583 11.16 19,941 9.66
-------- ------ -------- ------
Passbook savings deposits............ 25,071 12.96 27,973 13.56
-------- ------ -------- ------
Certificate of Deposit accounts:
Less than 6 months................. 44,256 22.88 -- --
6-11 months........................ 31,148 16.10 3,840 1.86
12-35 months....................... 53,329 27.57 74,979 36.34
More than 35 months................ 18,063 9.34 79,610 38.58
-------- ------ -------- ------
Total certificates................. 146,796 75.88 158,429 76.78
-------- ------ -------- ------
Total Deposits....................... $193,450 100.00% $206,343 100.00%
-------- ------ -------- ------
-------- ------ -------- ------
</TABLE>
25
<PAGE>
The following table sets forth by various interest rate categories the
certificates of deposit with the Company at the dates indicated. The Company had
no "brokered" deposits during any of the periods reported below and has no
intention to utilize brokered deposits in the future.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
0.00% to 2.99% $ 100 $ 323 $ 205
3.00% to 3.99% -- -- 24,380
4.00% to 4.99% 17,031 14,845 34,327
5.00% to 6.99% 105,385 105,766 66,830
7.00% to 8.99% 23,434 36,600 23,776
9.00% and over 846 895 872
-------- --------- --------
$146,796 $158,429 $150,390
-------- -------- --------
-------- -------- --------
</TABLE>
The following table sets forth information relating to the Company's deposit
flows during the periods shown and total deposits at the end of the periods
shown.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1996 1995 1996
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
Total deposits, beginning of period......................... $206,343 $204,088 $215,889
Net increase (decrease) before interest credited............ (19,616) (4,331) (17,882)
Interest credited........................................... 6,723 6,586 6,081
-------- -------- --------
Total deposits, end of period............................... $193,450 $206,343 $204,088
-------- -------- --------
-------- -------- --------
</TABLE>
26
<PAGE>
The following table sets forth the amount and maturities of the Company's
certificates of deposit at December 31,1996.
<TABLE>
<CAPTION>
OVER SIX OVER ONE OVER TWO OVER THREE
MONTHS YEAR YEARS YEARS OVER
SIX MONTHS THROUGH THROUGH THROUGH THROUGH FIVE
AND LESS ONE YEAR TWO YEARS THREE YEARS FIVE YEARS YEARS TOTAL
----------- --------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
0.00% to $ 100 $ -- $ -- $ -- $ -- $ -- $ 100
2.99%
3.00% to -- -- -- -- -- -- --
3.99%
4.00% to 10,236 3,962 2,833 -- -- -- 17,031
24.99%
5.00% to 29,919 27,901 26,893 12,134 1,716 6,822 105,385
6.999%
7.00% to 4,001 4,165 3,628 2,277 1,419 7,944 23,434
8.99%
9.00% and -- -- 24 822 -- -- 846
over
------- ------- ------- ------- ------ ------- --------
$44,256 $36,028 $33,378 $15,233 $3,135 $14,766 $146,796
------- ------- ------- ------- ------ ------- --------
------- ------- ------- ------- ------ ------- --------
</TABLE>
27
<PAGE>
As of December 31, 1996, the aggregate amount of outstanding time
certificates of deposit in amounts greater than or equal to $100,000, was
approximately $36.0 million. The following table presents the maturity of these
time certificates of deposit at such dates.
<TABLE>
<CAPTION>
OVER THREE OVER SIX
THREE MONTHS MONTHS OVER
MONTHS THROUGH THROUGH TWELVE
AND LESS SIX MONTHS TWELVE MONTHS MONTHS TOTAL
-------- ---------- ------------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
$3,557 $5,317 $12,565 $14,598 $36,037
----- ----- ------ ------ ------
----- ----- ------ ------ ------
</TABLE>
BORROWINGS. The Company may obtain advances from the FHLB of Dallas upon
the security of the common stock it owns in that Company 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. Until 1996, the Company had made nominal use of such
borrowings. In 1996, a total of $22.0 million of two year maturity variable rate
borrowings made to partially fund new mortgage loans originated.
28
<PAGE>
The following table sets forth the amount of the Company's borrowings and
the weighted average rates for the periods indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994
---------------------- ----------------------- ---------------------
PERCENT PERCENT PERCENT
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FHLB advances....................... $22,250 5.50% $ 250 8.70% $ 250 8.70%
------ ----- -----
------ ----- -----
Maximum amount
outstanding at any month-
end during the period.............. $22,250 $ 250 $ 250
------ ----- -----
------ ----- -----
Average balance outstanding
during the period.................. $10,388 $ 250 $ 250
------ ----- -----
------ ----- -----
Weighted average interest
rates on average balance
during the period.................. 5.59% 8.70% 8.70%
---- ---- ----
---- ---- ----
</TABLE>
SUBSIDIARIES
The Bank is a wholly owned subsidiary of the Company. The Company has no
other subsidiaries. The Bank currently has no subsidiaries. A former
subsidiary, Lafayette Land and Management, which held one parcel of real estate
owned, was liquidated in December 1995.
LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by management
to be immaterial to the financial condition of the Company.
COMPETITION
The Bank faces strong competition both in attracting deposits and making
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
29
<PAGE>
financial institutions which 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 real estate loans, commercial
business loans, and consumer loans, 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 74 full-time employees and 3 part-time employees as of December
31, 1996. None of these employees is represented by a collective bargaining
agreement. The Bank believes that it enjoys excellent relations with its
personnel.
30
<PAGE>
REGULATION
Set forth below is a brief description of certain laws and regulations which
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.
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
31
<PAGE>
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 may 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). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons unless the loans are made pursuant to a benefit or compensation program
that (i) is widely available to employees of the institution and (ii) does not
give preference to any director, executive officer or principal stockholder, or
certain affiliated interests of either, over other employees of the savings
institutions. Section 22(h) also requires prior board approval for certain
loans. 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.
32
<PAGE>
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, 1996, 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 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.
33
<PAGE>
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 is 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 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 Bank and their operations.
FDIC INSURANCE PREMIUMS. The deposits of the Savings 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 to 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 by 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 SAIF-assessable deposits as of March 31,
1995, which was collected on
34
<PAGE>
November 27, 1996. The Savings Bank's one-time special assessment amounted to
$1.3 million pre-tax. The payment of such special assessment had the effect of
immediately reducing the Savings Bank's capital by $883,000 after tax.
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. The Savings Bank's deposit insurance
premiums, which have amounted to 23 basis points will be reduced to 6.4 basis
points. Based upon the $193.6 million of assessable deposits at September 30,
1996, the Savings Bank would expect to pay $80,000 less in insurance premiums
per quarter during 1997, or $.029 per share.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Savings Bank, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Savings Bank's deposit insurance.
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, excellent asset quality,
high liquidity, good earnings and, in general, which are considered a strong
banking organization and are rated composite 1 under the Uniform Financial
Institutions Rating System. Leverage or core capital is defined as the sum of
common stockholders' equity (including retained earnings), noncumulative
perpetual preferred stock and related surplus, and
35
<PAGE>
minority interests in consolidated subsidiaries, minus all intangible assets
other than certain qualifying supervisory goodwill and certain purchased
mortgage servicing rights.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier I capital and
supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item. The components of Tier
I capital are equivalent to those discussed above under the 3% leverage capital
standard. The components of supplementary capital include certain perpetual
preferred stock, certain mandatory convertible securities, certain subordinated
debt and intermediate preferred stock and general allowances for loan and lease
losses. Allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core capital.
At December 31, 1995, the Bank met each of its capital requirements.
In August 1995, the FDIC and other federal banking agencies published a
final rule modifying their existing risk-based capital standards to provide for
consideration of interest rate risk when assessing capital adequacy of a bank.
Under the final rule, the FDIC must explicitly include a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
as a factor in evaluating a bank's capital adequacy. In addition, in August
1995, the FDIC and the other federal banking agencies published a joint policy
statement for public comment that describes the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates. Under the policy statement, the FDIC will consider
results of supervisory and internal interest rate risk models as one factor in
evaluating capital adequacy. The FDIC intends, at a future date, to incorporate
explicit minimum requirements for interest rate risk in its risk-based capital
standards through the use of a model developed from the policy statement, a
future proposed rule and the public comments received therefrom.
ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. The
activities and equity investments of FDIC-insured, state-chartered banks are
generally limited to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally
may not directly or indirectly acquire or retain any equity investment of a
type, or in an amount, that is not permissible for a national bank. An
insured state bank is not prohibited from, among other things, (i) acquiring
or retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a
qualified housing project, provided that such limited partnership investments
may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of
the voting stock of a company that solely provides or reinsures directors',
trustees' and officers' liability insurance coverage or bankers' blanket bond
group insurance coverage for insured
36
<PAGE>
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met. In addition, an insured
state-chartered bank may not, directly, or indirectly through a subsidiary,
engage as "principal" in any activity that is not permissible for a national
bank unless the FDIC has determined that such activities would pose no risk to
the insurance fund of which it is a member and the bank is in compliance with
applicable regulatory capital requirements. Any insured state-chartered bank
directly or indirectly engaged in any activity that is not permitted for a
national bank must cease the impermissible activity.
LOUISIANA SAVINGS BANK LAW. As a Louisiana chartered savings bank, the Bank
is subject to regulation and supervision by the OFI under LSBA. The LSBA
contains provisions governing the incorporation and organization, location of
offices, rights and responsibilities of directors, officers and members as well
as the corporate powers, savings, lending, capital and investment requirements
and other aspects of the Bank and its affairs. In addition, the OFI is given
extensive rulemaking power and administrative discretion under the LSBA
including authority to enact and promulgate rules and regulations governing the
conversion of Louisiana chartered savings banks which convert from the mutual to
the stock form.
The Bank is required under the LSBA to comply with certain capital
requirements established by the OFI. In addition, the LSBA prohibits the Bank
from declaring dividends unless the Bank has a surplus equal to 20% of the
outstanding common stock of the Bank both before and after the dividend is paid.
The LSBA also restricts the amount the Bank can lend to one borrower to an
amount which may not exceed 15% of the Bank's total net worth. The Bank may lend
an amount equal to an additional 10% of the Bank's total net worth to one
borrower if the loans are secured 100% by readily marketable collateral.
The OFI generally examines the Bank once every year and the current practice
is for the OFI to conduct a joint examination with the FDIC. The OFI may publish
part of an examination of any savings bank which does not take corrective action
to comply with comments received from the examiner within forty-five days after
notice. In addition, the OFI may require corrective action be taken by
directors, officers and employees of any savings bank and issue a formal order
if corrective action is not taken. If the formal order contains a finding that
the business of the savings bank is being conducted in a fraudulent, illegal,
unsafe or unsound manner or could lead to insolvency or substantial dissipation
of assets, earnings or impairment of capital, such order must be complied with
immediately and may be enforced by the OFI through a court of competent
jurisdiction.
REGULATORY ENFORCEMENT AUTHORITY. Applicable banking laws include
substantial enforcement powers available to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
37
<PAGE>
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.
FEDERAL AND STATE TAXATION
GENERAL. The Company and the Savings Bank are subject to the corporate tax
provisions of the Code, as well as certain additional provisions of the Code
which apply to thrift and other types of financial institutions. The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Company and
the Savings Bank.
METHOD OF ACCOUNTING. The Savings Bank maintains its books and records for
federal income tax purposes using the accrual method of accounting. The accrual
method of accounting generally requires that items of income be recognized when
all events have occurred that establish the right to receive the income and the
amount of income can be determined with reasonable accuracy, and that items of
expense be deducted at the later of (i) the time when all events have occurred
that establish the liability to pay the expense and the amount of such liability
can be determined with reasonable accuracy or (ii) the time when economic
performance with respect to the item of expense has occurred.
BAD DEBT RESERVES. Savings institutions, such as the Savings Bank, which
meet certain definitional tests primarily relating to their assets and the
nature of their businesses, are permitted to establish a reserve for bad debts
and to make annual additions to the reserve. These additions may, within
specified formula limits, be deducted in arriving at the institution's taxable
income. For purposes of computing the deductible addition to its bad debt
reserve, the institution's loans are separated into "qualifying real property
loans" (i.e., generally those loans secured by certain interests in real
property) and all other loans ("non-qualifying loans"). The deduction with
respect to non-qualifying loans must be computed under the experience method as
described below. The following formulas may be used to compute the bad debt
deduction with respect to qualifying real property loans: (i) actual loss
experience, or (ii) a percentage of taxable income. Reasonable additions to the
reserve for losses on non-qualifying loans must be based upon actual loss
experience and would reduce the current year's addition to the reserve for
losses on qualifying real property loans, unless that addition is also
determined under the experience method. The sum of the additions to each reserve
for each year is the institution's annual bad debt deduction.
Under the experience method, the deductible annual addition to the
institution's bad debt reserves is the amount necessary to increase the balance
of the reserve at the close of the taxable year to the greater of (a) the amount
which bears the same ratio to loans outstanding at the close of the taxable year
as the total net bad debts sustained during the current and five preceding
taxable years bear to the sum of the loans outstanding at the close of the six
years, or (b) the lower of (i) the balance of the reserve account at the close
38
<PAGE>
of the Savings Bank's "base year," which was its tax year ended December 31,
1987, or (ii) if the amount of loans outstanding at the close of the taxable
year is less than the amount of loans outstanding at the close of the base year,
the amount which bears the same ratio to loans outstanding at the close of the
taxable year as the balance of the reserve at the close of the base year bears
to the amount of loans outstanding at the close of the base year.
Under the percentage of taxable income method, the bad debt deduction equals
8% of taxable income determined without regard to that deduction and with
certain adjustments. The availability of the percentage of taxable income method
permits a qualifying savings institution to be taxed at a lower effective
federal income tax rate than that applicable to corporations in general. This
resulted generally in an effective federal income tax rate payable by a
qualifying savings institution fully able to use the maximum deduction permitted
under the percentage of taxable income method, in the absence of other factors
affecting taxable income, of 31.3% exclusive of any minimum tax or environmental
tax (as compared to 34% for corporations generally). For tax years beginning on
or after January 1, 1993, the maximum corporate tax rate was increased to 35%,
which increased the maximum effective federal income tax rate payable by a
qualifying savings institution fully able to use the maximum deduction to 32.2%.
Any savings institution at least 60% of whose assets are qualifying assets, as
described in the Code, will generally be eligible for the full deduction of 8%
of taxable income. As of December 31, 1996, 90.85% of the assets of the Savings
Bank were "qualifying assets" as defined in the Code, and the Savings Bank
anticipates that at least 60% of its assets will continue to be qualifying
assets in the immediate future. If this ceases to be the case, the institution
may be required to restore some portion of its bad debt reserve to taxable
income in the future.
Under the percentage of taxable income method, the bad debt deduction for an
addition to the reserve for qualifying real property loans cannot exceed the
amount necessary to increase the balance in this reserve to an amount equal to
6% of such loans outstanding at the end of the taxable year. The bad debt
deduction is also limited to the amount which, when added to the addition to the
reserve for losses on non-qualifying loans, equals the amount by which 12% of
deposits at the close of the year exceeds the sum of surplus, undivided profits
and reserves at the beginning of the year. Based on experience, it is not
expected that these restrictions will be a limiting factor for the Savings Bank
in the foreseeable future. In addition, the deduction for qualifying real
property loans is reduced by an amount equal to all or part of the deduction for
non-qualifying loans.
Pursuant to certain legislation which was recently enacted and which will be
effective for tax years beginning after 1995, a small thrift institution (one
with an adjusted basis of assets of less than $500 million), such as the Savings
Bank, would no longer be permitted to make additions to its tax bad debt reserve
under the percentage of taxable income method. Such institutions would be
permitted to use the experience method in lieu of deducting bad debts only as
they occur. Such legislation will require the Savings Bank to realize increased
tax liability over a period of at least six years, beginning in 1996.
Specifically, the legislation will require a small thrift institution to
recapture (i.e., take into
39
<PAGE>
income) over a multi-year period the balance of its bad debt reserves in excess
of the lesser of (i) the balance of such reserves as of the end of its last
taxable year ending before 1988 or (ii) an amount that would have been the
balance of such reserves had the institution always computed its additions to
its reserves using the experience method. The recapture requirement would be
suspended for each of two successive taxable years beginning January 1, 1996 in
which the Savings Bank originates an amount of certain kinds of residential
loans which in the aggregate are equal to or greater than the average of the
principal amounts of such loans made by the Savings Bank during its six taxable
years preceding 1996. It is anticipated that any recapture of the Savings
Bank's bad debt reserves accumulated after 1987 would not have a material
adverse effect on the Savings Bank's financial condition and results of
operations.
At December 31, 1996, the federal income tax reserves of the Savings Bank
included $7.1 million for which no federal income tax has been provided.
Because of these federal income tax reserves and the liquidation account
established for the benefit of certain depositors of the Savings Bank in
connection with the conversion of the Savings Bank to stock form, the retained
earnings of the Savings Bank is substantially restricted.
DISTRIBUTIONS. If the Savings Bank were to distribute cash or property to
its sole stockholder, and the distribution was treated as being from its
accumulated bad debt reserves, the distribution would cause the Savings Bank 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-qualified 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 non-qualified distribution is
an amount that when reduced by the tax attributable to it is equal to the amount
of the distribution.
MINIMUM TAX. The Code 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 payable to the extent such AMTI is in excess of an exemption
amount. 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).
40
<PAGE>
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, 1996, the Savings Bank had
no NOL carryforwards for federal income tax purposes.
AUDIT BY IRS. The Savings Bank's federal income tax returns for taxable
years through December 31, 1992 have been closed for the purpose of examination
by the Internal Revenue Service.
Under the percentage of taxable income method, the bad debt deduction equals
8% of taxable income determined without regard to that deduction and with
certain adjustments. The availability of the percentage of taxable income method
permits a qualifying savings institution to be taxed at a lower effective
federal income tax rate than that applicable to corporations in general. This
resulted generally in an effective federal income tax rate payable by a
qualifying savings institution fully able to use the maximum deduction permitted
under the percentage of taxable income method, in the absence of other factors
affecting taxable income, of 31.3% exclusive of any minimum tax or environmental
tax (as compared to 34% for corporations generally). For tax years beginning on
or after January 1, 1993, the maximum corporate tax rate was increased to 35%,
which increased the maximum effective federal income tax rate payable by a
qualifying savings institution fully able to use the maximum deduction to 32.2%.
Any savings institution at least 60% of whose assets are qualifying assets, as
described in the Code, will generally be eligible for the full deduction of 8%
of taxable income. At least 60% of the assets of Iberia Savings are "qualifying
assets" as defined in the Code, and Iberia Savings anticipates that at least 60%
of its assets will continue to be qualifying assets in the immediate future. If
this ceases to be the case, the institution may be required to restore some
portion of its bad debt reserve to taxable income in the future.
Under the percentage of taxable income method, the bad debt deduction for an
addition to the reserve for qualifying real property loans cannot exceed the
amount necessary to increase the balance in this reserve to an amount equal to
6% of such loans outstanding at the end of the taxable year. The bad debt
deduction is also limited to the amount which, when added to the addition to the
reserve for losses on non-qualifying loans, equals the amount by which 12% of
deposits at the close of the year exceeds the sum of surplus, undivided profits
and reserves at the beginning of the year. Based on experience, it is not
expected that these restrictions will be a limiting factor for Iberia Savings in
the foreseeable future. In addition, the deduction for qualifying real property
loans is reduced by an amount equal to all or part of the deduction for
non-qualifying loans.
At December 31, 1995, the federal income tax reserves of the Savings
Bank included $7.1 million for which no federal income tax has been provided.
Because of these federal income tax reserves and the liquidation account
established for the benefit of certain
41
<PAGE>
depositors of the Savings Bank in connection with the Conversion, the retained
earnings of the Savings Bank are substantially restricted.
DISTRIBUTIONS. If the Savings Bank distributes cash or property to its
stockholders, and the distribution is treated as being from its accumulated bad
debt reserves, the distribution will cause the Savings Bank 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 non-dividend distribution is
an amount that when reduced by the tax attributable to it is equal to the
amount of the distribution.
MINIMUM TAX. The Code 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. The Savings Bank has no NOL carryforwards
for federal income tax purposes.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net
capital gains are taxed at a maximum rate of 34%. 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
42
<PAGE>
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 Iberia Savings.
The Savings Bank's federal income tax returns for the tax years ended 1994
and 1995 are open under the statute of limitations and are subject to review
by the IRS.
STATE TAXATION
The nonbanking subsidiaries of the Savings Bank and the Company are subject
to the Louisiana Corporation Income Tax based on their 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. In addition, following the Conversion the Savings
Bank will be 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.
43
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Bank's
offices at December 31, 1996.
<TABLE>
<CAPTION>
NET BOOK VALUE OF
PREMISES AND
OWNED OR EQUIPMENT AT DEPOSITS AT
LEASED DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------------------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Main Office:
101 West Vermilion Street Owned $ 1,279 $ 96,499
Lafayette, Louisiana 70501
Branch Offices:
Northside Office Owned 123 34,129
2601 Moss Street
Lafayette, Louisiana 70501
Southside Office Owned 187 37,217
3701 Johnston Street
Lafayette, Louisiana 70503
Broadmoor Office Owned 229 25,605
5301 Johnston Street
Lafayette, Louisiana 70503
Eunice Loan Production Office Leased 9 --
136 South Third Street
Eunice, Louisiana 70535
-------- ----------
$ 1,827 $ 193,450
-------- ----------
-------- ----------
</TABLE>
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.
On December 16, 1996, the Company commenced a proxy solicitation of its
stockholders with respect to a Special Meeting of Stockholders held on January
21, 1997 ("Special Meeting"). There were two matters considered at the Special
Meeting, consideration of the Company's Stock Option Plan and the Company's
Recognition and Retention Plan and Trust. Both of such plans were approved by
the Company's stockholders by the vote reflected below.
44
<PAGE>
Approval of the Company's Stock Option Plan:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
1,906,276 132,460 11,996 423,471
Approval of the Company's Recognition and Retention Plan and Trust:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
1,886,670 186,764 7,454 393,315
45
<PAGE>
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 from page 9 of the Registrant's 1996 Annual Report to
Stockholders ("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from page 7 of
the Registrant's 1996 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 8
to 17 of the Registrant's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages 19
to 41 of the Registrant's 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
46
<PAGE>
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 1997 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 13):
Report of Independent Auditors
Consolidated Balance Sheets as of December 31,
1996 and 1995.
Consolidated Statements of Income for the Fiscal Periods Ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Shareholders' Equity for the
Fiscal Periods Ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Fiscal Periods
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
47
<PAGE>
(2) All schedules for which provision is made in the applicable accounting
regulation of the SEC are omitted because of the absence of conditions under
which they are required or because the required information is included in the
consolidated financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K, and this
list includes the Exhibit Index.
Exhibit Index
-------------
3.1* Articles of Incorporation of Acadiana Bancshares, Inc.
3.2* Bylaws of Acadiana Bancshares, Inc.
4.0* Form of Stock Certificate of Acadiana Bancshares, Inc.
10.1** Stock Option Plan
10.2** 1996 Recognition and Retention Plan and Trust
Agreement for Employees and Non-Employee Directors
10.3 Employment Agreement between LBA Savings Bank and
Gerald G. Reaux, Jr.
10.4* Form of Severance Agreement between Acadiana Bancshares,
Inc., LBA Savings Bank and Lawrence Gankendorff,
James J. Montelaro, Mary Anne Bertrand, Brady Como,
Thomas F. Debaillon and Emile E. Soulier, III
13.0 1996 Annual Report to Stockholders
22.0 Subsidiaries of the Registrant--Reference is made to "Item 2.
"Business" for the required information
23.1 Consent of Castaing, Hussey & Lolan LLP
- - ------------------------
(*) Incorporated herein by reference from the Registration Statement on Form
S-1 (Registration No. 333-1396) filed by the Registrant with the SEC on
February 15, 1996, as subsequently amended.
(**) Incorporated herein by reference from the definitive proxy statement,
dated December 16, 1996, filed by the Registrant with the SEC (Commission
File No. 1-14364).
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACADIANA BANCSHARES, INC.
MARCH 26, 1997
BY: /s/ Gerald G. Reaux, Jr.
-----------------------------------------
GERALD G. REAUX, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER 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 dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ------------------------------ --------------------------- -------------------
<S> <C> <C>
/s/ Gerald G. Reaux, Jr.
- - ------------------------------ President, Chief Executive March 26, 1997
Gerald G. Reaux, Jr. Officer and Director
/s/ Lawrence E. Gankendorff
- - ------------------------------ Chairman Of The Board March 26, 1997
Lawrence E. Gankendorff
/s/ Albert W. Beacham, M.D.
- - ------------------------------ Director March 26, 1997
Albert W. Beacham, M.D.
/s/ James J. Montelaro
- - ------------------------------ Executive Vice President March 26, 1997
James J. Montelaro and Director
/s/ William H. Mouton
- - ------------------------------ Director March 26, 1997
William H. Mouton
/s/Donald J. O'Rourke, Sr.
- - ------------------------------ Director March 26, 1997
Donald J. O'Rourke, Sr.
/s/ Kaliste J. Saloom, Jr.
- - ------------------------------ Director March 26, 1997
Kaliste J. Saloom, Jr.
/s/ Emile E. Soulier, III
- - ------------------------------ Vice President And Chief March 26, 1997
Emile E. Soulier, III Financial Officer
(principal financial and
accounting officer)
</TABLE>
<PAGE>
AGREEMENT
AGREEMENT, dated this 1st day of November, 1996, between Acadiana
Bancshares, Inc. (the "Corporation"), a Louisiana-chartered corporation, LBA
Savings Bank (the "Savings Bank"), a Louisiana-chartered savings bank and a
wholly-owned subsidiary of the Corporation, and Gerald G. Reaux, Jr. (the
"Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation and the
Savings Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's continued
active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employers is terminated under specified circumstances;
WHEREAS, the Savings Bank and the Executive previously entered into an
Employment Agreement effective as of September 1, 1995 ("Prior Agreement"), and
now desire to amend and restate such Prior Agreement in its entirety in order
to, among other things, reflect the mutual-to-stock conversion of the Savings
Bank and the Corporation's status as the parent holding company of the Savings
Bank;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby amend and restate the Prior Agreement in
its entirety and agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(b) Cause. Termination of the Executive's employment for "Cause" shall
mean termination because of 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 or material breach of any provision of this Agreement.
For purposes of this paragraph, no act or failure to act on the Executive's part
shall be
<PAGE>
considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers. Under the terms
of this Agreement, a determination that "Cause" for termination of employment
exists shall require a vote of all of the members (other than the Executive) of
the Boards of Directors of each of the Employers, and such vote shall not be
made prior to the expiration of a fifteen (15) day period following the date on
which such Boards shall, by written notice to the Executive, furnish to him a
statement of the grounds for proposing to make such determination, during which
period the Executive shall be afforded a reasonable opportunity to make oral and
written presentations to such Boards, and to be represented by his legal counsel
at such presentations, to refute the grounds for the proposed determination.
Regardless of the circumstances surrounding the termination for "Cause," the
Executive shall continue to receive all compensation and benefits otherwise
payable under this Agreement and otherwise during such fifteen (15) day period.
(c) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto, whether or not any security of the Corporation
is registered under Exchange Act; provided that, without limitation, such 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 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 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, 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.
(d) Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(f) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
-2-
<PAGE>
(g) Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) without the Executive's express written consent, the failure to
elect or to re-elect or to appoint or to re-appoint the Executive
to the offices of President and Chief Executive Officer of the
Employers or a material adverse change made by the Employers in
the Executive's functions, duties or responsibilities as
President and Chief Executive Officer;
(ii) without the Executive's express written consent, a reduction by
the Employers in the Executive's Base Salary as the same may be
increased from time to time or, except to the extent permitted by
Section 3(b) hereof, a reduction in the package of fringe
benefits provided to the Executive, taken as a whole;
(iii) The principal executive office of the Employers is relocated
outside of the Lafayette, Louisiana, area or, without the
Executive's express written consent, the Employers require
the Executive to be based anywhere other than an area in
which the Employers' principal executive office is located,
except for required travel on business of the Employers to
an extent substantially consistent with the Executive's
present business travel obligations;
(iv) Any purported termination of the Executive's employment for
Cause, Disability or Retirement which is not effected pursuant to
a Notice of Termination satisfying the requirements of paragraph
(i) below; or
(v) The failure by the Employers to obtain the assumption of and
agreement to perform this Agreement by any successor as
contemplated in Section 8 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days
-3-
<PAGE>
after such Notice of Termination is given, except in the case of the
Employers' termination of Executive's employment for Cause (in which case
such notice period shall be not less than fifteen (15) days and shall
otherwise satisfy the provisions of Section 1(b) hereof); and (iv) is given
in the manner specified in Section 9 hereof.
(j) Parachute Payment. The term "Parachute Payment" has the meaning as set
forth in Section 280G of the Code and applicable Treasury regulations (without
regard to Section 280G(b)(2)(A)(ii) of the Code and the Treasury regulations
thereunder).
(k) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Employee in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Employers hereby employ the Executive as President and Chief
Executive Officer and Executive hereby accepts said employment and agrees to
render such services to the Employers on the terms and conditions set forth in
this Agreement. The term of employment under this Agreement shall be for three
years, commencing on the date of this Agreement and, subject to the requirements
of the succeeding sentence, shall be deemed automatically, without further
action, to extend for an additional year on each annual anniversary of the date
of this Agreement such that at any time the remaining term of this Agreement
shall be from two to three years. Prior to November 1, 1997 and each annual
anniversary thereafter, the Board of Directors of the Employers shall consider
and review (with appropriate corporate documentation thereof, and after taking
into account all relevant factors, including the Executive's performance
hereunder) extension of the term under this Agreement, and the term shall
continue to extend in the manner set forth above unless either the Boards of
Directors of the Employers does not approve such extension and provides written
notice to the Executive of such event or the Executive gives written notice to
the Employers of the Executive's election not to extend the term, in each case
with such written notice to be given not less than thirty (30) days prior to any
such anniversary date. References herein to the term of this Agreement shall
refer both to the initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Board of Directors.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement a minimum salary of $129,600 per year, which
may be increased
-4-
<PAGE>
from time to time in such amounts as may be determined by the Board of
Directors of the Employers and may not be decreased without the Executive's
express written consent (hereinafter, referred to as Executive's "Base
Salary"). In addition, the Executive may receive bonus payments when, as,
and if determined in the sole discretion of the Board of Directors of
Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to Executive as compared with any other executive officer of the
Employers. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to paid
annual vacation in accordance with the policies as established from time to time
by the Board of Directors of the Employers, which shall in no event be less than
two weeks per annum. Executive shall not be entitled to receive any additional
compensation from the Employers for failure to take a vacation, nor shall
Executive be able to accumulate unused vacation time from one year to the next,
except to the extent authorized by the Board of Directors of the Employers.
(d) In the event of termination by the Employers of the Executive's
employment based on Disability (as defined herein):
(A) the Executive shall continue to receive on a monthly basis, the
Executive's annual compensation from the Employers at the rate in
effect at the time of such termination for a period of twelve
(12) months, and
(B) the Employers shall provide continued medical insurance for the
benefit of the Executive and his spouse until the Executive shall
have attained the age of 65, and such insurance shall be
comparable to that which is provided to the Executive as of the
date of this Agreement notwithstanding anything to the contrary
in this Agreement; provided further, in the event of the death of
the Executive prior to the Executive attaining age 65, the
Employers shall provide said medical insurance for the benefit of
the Executive's spouse until the Executive's spouse attains the
age of 65.
-5-
<PAGE>
(e) In the event of the Executive's death during the term of this
Agreement, his spouse, estate, legal representative or named beneficiaries (as
directed by the Executive in writing) shall be paid on a monthly basis the
Executive's annual compensation from the Employers at the rate in effect at the
time of the Executive's death for a period of twelve (12) months from the date
of the Executive's death.
(f) The Executive shall receive the use, during the term of this
Agreement, of an automobile of the make, year and model customarily furnished by
the Savings Bank to executive officers. Executive shall have use of the
automobile, and replacements thereof, at no cost and the Employers shall provide
for all insurance maintenance, operating expenses and fuel.
4. Expenses. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Board of
Directors of the Employers. If such expenses are paid in the first instance by
Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice of
Termination, to terminate the Executive's employment hereunder for any reason,
including without limitation termination for Cause, Disability or Retirement,
and Executive shall have the right, upon prior Notice of Termination, to
terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by the
Employers for Cause, Disability or Retirement or in the event of the Executive's
death, or (ii) Executive terminates his employment hereunder other than for Good
Reason, Executive shall have no right pursuant to this Agreement to compensation
or other benefits for any period after the applicable Date of Termination other
than as enumerated in subsections 3(d) and 3(e) hereinabove.
(c) In the event that Executive's employment is terminated by the
Employers for other than Cause, Disability, Retirement or the Executive's death
or such employment is terminated by the Executive due to a material breach of
this Agreement by the Employers, which breach has not been cured within fifteen
(15) days after a written notice of non-compliance has been given by the
Executive to the Employers, then the Employers shall, subject to the provisions
of Section 6 hereof, if applicable:
-6-
<PAGE>
(A) pay to the Executive, in equal monthly installments during the
period representing the term of this Agreement which would
otherwise remain but for the Notice of Termination and beginning
with the first business day of the month following the Date of
Termination, a cash severance amount equal to the greater of (x)
the Base Salary which the Executive would have earned over the
remaining term of this Agreement as of his Date of Termination or
(y) an amount equal to two (2) times the Executive's Base Salary
as of his Date of Termination; and
(B) maintain and provide for a period ending at the earlier of (x)
the expiration of the remaining term of employment pursuant
hereto prior to the Notice of Termination or (y) the date of the
Executive's full-time employment by another employer (provided
that the Executive is entitled under the terms of such employment
to benefits substantially similar to those described in this
subparagraph (B), at no cost to the Executive, the Executive's
continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans,
programs and arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination (other
than stock option and restricted stock plans of the Employers),
provided that in the event that the Executive's participation in
any plan, program or arrangement as provided in this subparagraph
(B) is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced or such benefits are less than the benefits
provided to Executive immediately prior to his termination of
employment with the Employers, the Employers shall arrange to
provide the Executive with benefits which (together with any
benefits provided to Executive by another Employer in the event
has accepted full-time employment with another employer) are
substantially similar to those which the Executive was entitled
to receive under such plans, programs and arrangements
immediately prior to the Date of Termination.
(d) In the event that Executive's employment is terminated for Good Reason
subsequent to a Change in Control, then the Employers shall, subject to the
provisions of Section 6 hereof, if applicable:
(A) pay to the Executive, a lump sum cash severance payment equal to
three (3) times the Executive's Base Salary as of his Date of
Termination; and
(B) maintain and provide for a period ending at the earlier of (x)
the expiration of the remaining term of employment pursuant
hereto prior to the Notice of Termination or (y) the date of the
Executive's
-7-
<PAGE>
full-time employment by another employer (provided
that the Executive is entitled under the terms of such employment
to benefits substantially similar to those described in this
subparagraph (B), at no cost to the Executive, the Executive's
continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans,
programs and arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination (other
than stock option and restricted stock plans of the Employers),
provided that in the event that the Executive's participation in
any plan, program or arrangement as provided in this subparagraph
(B) is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced or such benefits are less than the benefits
provided to Executive immediately prior to his termination of
employment with the Employers, the Employers shall arrange to
provide the Executive with benefits which (together with any
benefits provided to Executive by another Employer in the event
has accepted full-time employment with another employer) are
substantially similar to those which the Executive was entitled
to receive under such plans, programs and arrangements
immediately prior to the Date of Termination.
(e) If the Executive becomes liable, in any taxable year, for the payment
of an excise tax under Section 4999 of the Code on account of any payments to
the Executive pursuant to this Section 5, and the Employers choose not to
contest the liability or have exhausted all administrative and judicial appeals
contesting the liability, the Employers shall pay the Executive (i) an amount
equal to the excise tax for which the Executive is liable under Section 4999 of
the Code, (ii) the federal, state, and local income taxes, and interest if any,
for which the Executive is liable on account of the payments pursuant to item
(i), and (ii) any additional excise tax under Section 4999 of the Code and any
federal, state and local income taxes for which the Executive is liable on
account of payments made pursuant to items (i) and (ii).
(f) This subsection 5(f) applies if the amount of payments to the
Executive under subsection 5(e) has not been determined with finality by the
exhaustion of administrative and judicial appeals. In such circumstances, the
Employers and the Executive shall, as soon as practicable after the event or
series of events has occurred giving rise to the imposition of the excise
tax, cooperate in determining the amount of the Executive's excise tax
liability for purposes of paying the estimated tax. The Executive shall
thereafter furnish to the Employers or their successors a copy of each tax
return which reflects a liability for an excise tax under Section 4999 of the
Code at least 20 days before the date on which such return is required to be
filed with the IRS. The liability reflected on such return shall be
dispositive for the purposes hereof unless, within 15 days after such notice
is given, the Employers furnish the Executive with a letter of the auditors
or tax advisor selected by the Employers indicating a different liability or
that the matter is not free from doubt under the
-8-
<PAGE>
applicable laws and regulations and that the Executive may, in such
auditor's or advisor's opinion, cogently take a different position, which shall
be set forth in the letter with respect to the payments in question. Such letter
shall be addressed to the Executive and state that he is entitled to rely
thereon. If the Employers furnish such a letter to the Executive, the position
reflected in such letter shall be dispositive for purposes of this Agreement,
except as provided in subsection 5(g) below.
(g) Notwithstanding anything in this Agreement to the contrary, if the
Executive's liability for the excise tax under Section 4999 of the Code for a
taxable year is subsequently determined to be less than the amount paid by the
Employers pursuant to subsection 5(f), the Executive shall repay the Employers
at the time that the amount of such excise tax liability is finally determined,
the portion of such income and excise tax payments attributable to the reduction
(plus interest on the amount of such repayment at the rate provided on Section
1274(b)(2)(B) of the Code and if the Executive's liability for the excise tax
under Section 4999 of the Code for a taxable year is subsequently determined to
exceed the amount paid by the Employers pursuant to Section 5, the Employers
shall make an additional payment of income and excise taxes in the amount of
such excess, as well as the amount of any penalty and interest assessed with
respect thereto at the time that the amount of such excess and any penalty and
interest is finally determined.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
7. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
8. Assignability. The Employers may assign this Agreement and its rights
and obligations hereunder in whole, but not in part, to any corporation, bank or
other entity with or into which the Employers may hereafter merge or consolidate
or to which the Employers may transfer all or substantially all of its assets,
if in any such case said corporation, bank or other entity shall by operation of
law or expressly in writing assume all obligations of the Employers hereunder as
fully as if it had been originally made a party hereto, but may not otherwise
assign this Agreement or its rights and obligations hereunder. The Executive
may not assign or transfer this Agreement or any rights or obligations
hereunder.
-9-
<PAGE>
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: Acadiana Bancshares, Inc.
107 W. Vermilion Street
Lafayette, Louisiana 70501
To the Executive: Gerald G. Reaux, Jr.
533 Alonda Drive
Lafayette, Louisiana 70503
10. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the laws of the State of Louisiana.
12. Nature of Obligations. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
13. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
-10-
<PAGE>
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)) and any regulations
promulgated thereunder.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
Attest: ACADIANA BANCSHARES, INC.
By:
/s/ Mable D. Lantier /s/ Lawrence Gankendorff
- - ------------------------------ -----------------------------------
Lawrence Gankendorff
Chairman of the Board
Attest: LBA SAVINGS BANK
By:
/s/ Mable D. Lantier /s/Lawrence Gankendorff
- - ------------------------------ ----------------------------------
Lawrence Gankendorff
Chairman of the Board
Witness: GERALD G. REAUX, JR.
By:
/s/ Mable D. Lantier /s/Gerald G. Reaux, Jr.,
- - ------------------------------ ----------------------------------
Gerald G. Reaux, Jr., Individually
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<PAGE>
ACADIANA BANCSHARES, INC.
1996 ANNUAL REPORT
<PAGE>
Service Philosophy LBA Savings Bank, a wholly owned subsidiary of Acadiana
Bancshares, Inc., is Lafayette's largest locally owned and operated community
bank, committed exclusively to serving the banking needs of the people of
Acadiana.
LBA's success is dependent upon:
- Understanding and satisfying customer needs;
- Meeting customers' perceptions of value;
- Striving to place customers' interests first;
- Tailoring products and services to meet the individual needs of each
customer;
- Serving customers personally with enthusiasm, energy and creativity, and
especially with courtesy and good manners; and
- Always respecting customers' confidentiality.
All decisions concerning customer banking relationships are made in
Lafayette, both at the bank and holding company level. This helps us to provide
prompt and efficient response to customer requests.
The mission of LBA Savings Bank is to provide the people of Acadiana the
most friendly and efficient service in all banking areas. The bank's goals
include being a market leader in providing full-service banking, and to
consistently exceed our customers' expectations.
2
<PAGE>
Dear Fellow Shareholders:
On behalf of the directors, management and staff of our Company, we are
pleased to provide you with our first annual report on Acadiana Bancshares,
Inc.
The 1996 year was characterized by significant changes to both our
ownership structure and operating strategy. These changes are the catalyst
for our transition from a traditional thrift institution into a full-service
banking institution.
THE CULTURE
During 1996, we successfully completed the re-engineering of our
operating structure and conducted extensive marketing research to support our
new commercial banking focus. We were successful in attracting experienced
banking personnel to complement our existing officers and employees. The
adoption of a new logo was implemented for use by both the holding company
and the bank in an effort to reposition our image in the marketplace.
THE STOCK OFFERING
Everyone worked very hard this year to ensure our stock offering and
transition to public ownership was a success. Through the formation of our
holding company, we established an Employee Stock Ownership Plan which aligns
employees' interests with those of each and every shareholder.
Our primary goal in developing our franchise will be to maintain our
position as the dominant mortgage lender, while focusing on growth in
consumer and commercial market share. We will also consider our opportunities
to further leverage our capital position through acquisitions.
THE PRODUCTS AND SERVICES
Over the past year, we expanded into commercial lending, home equity
lines of credit and credit card programs designed to complement our existing
product mix. We discontinued our indirect automobile lending operation and
redesigned our direct consumer loan and deposit offerings.
THE SYSTEMS
Our Bank made significant investments in technology as evidenced by the
acquisition of a new mainframe computer, financial information software and
loan documentation systems. Our loan approval process was streamlined to
maximize prompt turnaround with a focus on local decision making.
FINANCIAL RESULTS
The Company posted improved financial performance over 1995 in both
profitability and asset growth. Despite the payment of $1.3 million in the
saif special assessment, our Company posted $800,000 in net income for the
1996 fiscal year. We are confident the trend of improved financial
performance will continue during the coming year.
THE COMMUNITY
Our Company continued its strong support of the community we serve
through participation in several worthwhile civic organizations. We are also
currently participating in various housing grant programs designed to assist
our low- to moderate-income neighbors.
Since the successful completion of our stock conversion during 1996, we
believe that Acadiana Bancshares, Inc. is well positioned to become the best
banking franchise in our region.
We thank you for your confidence in our company and look forward to
reporting continued success in the future.
SINCERELY,
/s/ JERRY REAUX
- - -------------------------------------
Jerry Reaux
President and Chief Executive Officer
3
<PAGE>
LBA SAVINGS BANK HISTORY
The year was 1900. A group of businessmen in Lafayette, Louisiana, in the
heart of "Cajun Country" in Southwestern Louisiana, saw the need for a
savings and loan association to serve the increasing financial needs of the
residents of the city and all of Lafayette Parish. Those financial needs
consisted primarily of a ready source of mortgage funding for home
construction and a safe depository for savings.
On February 12, 1900, Lafayette Building Association -- the first savings
and loan association in Lafayette -- was organized by Judge Julian Mouton,
A.B. Denbo, C.O. Mouton, Charles D. Caffery, B.N. Coronna, B.J. Pellerin and
J.E. Martin. The association's office was located in the heart of the
Downtown Lafayette business district at 107 West Vermilion Street.
LBA initially offered two basic types of savings accounts along with home
mortgages. The association published its first financial statement in
December 1900 citing assets of $6,289.
The original building was completely renovated in 1959 and continued
serving as LBA's main office until it was gutted by fire in late 1992.
Following the fire, the association moved next door to offices at 101 West
Vermilion Street that had been purchased in 1990. The original LBA office
building has since been demolished.
In 1973, to meet the needs of a rapidly growing Lafayette, LBA added the
first of three branch offices in Lafayette, the Northside Branch at 2601 Moss
Street. The Northside Branch was followed the next year by the Southside
Branch at 3701 Johnston Street, and in 1980 by the Broadmoor Branch at 5301
Johnston Street. In 1992, a loan production office was opened in Eunice,
Louisiana, 50 miles northwest of Lafayette.
At the Annual Meeting held July 15, 1993, members of Lafayette Building
Association approved the application with the Commissioner of Financial
Institutions of the State of Louisiana for the conversion of Lafayette
Building Association to a state-chartered savings bank. On August 2, 1993,
Lafayette Building Association was authorized by the state Commissioner of
Financial Institutions to begin operation as LBA Savings Bank.
The next major event in the 97-year history of LBA Savings Bank occurred
on November 15, 1995, when the Board of Directors approved a Plan of
Conversion to convert the bank from a mutual savings bank to a stock savings
bank and the creation of the bank's holding company, Acadiana Bancshares,
Inc.
LBA's eligible account holders overwhelmingly approved the Plan of
Conversion on June 26, 1996. On July 16, 1996, shares of common stock of
Acadiana Bancshares, Inc., began trading on the American Stock Exchange under
the symbol "ANA."
4
<PAGE>
DIRECTORS OF
ACADIANA
BANCSHARES,
INC.
Front, left to right
Lawrence Gankendorff--Chairman of the Board, LBA Savings Bank
Jerry Reaux-- President and Chief Executive Officer, LBA Savings Bank
William H. Mouton--Attorney
Rear, left to right
Don J. O'Rourke, Sr.- Architect
James J. Montelaro--Executive Vice President, LBA Savings Bank
Kaliste J. Saloom, Jr.--Attorney and retired City Judge
Not pictured
Al W. Beacham, md--Urologist
EXECUTIVE
Lawrence Gankendorff--Chairman of the Board OFFICERS
Jerry Reaux--President and Chief Executive Officer
James J. Montelaro--Executive Vice President
Brady Como--Senior Vice President
Emile Soulier, iii--Vice President and Chief Financial Officer
Thomas Debaillon--Vice President-Operations and Personnel
Mary Anne Bertrand--Vice President-Retail
5
<PAGE>
ABOUT THE COMPANY
Acadiana Bancshares, Inc., (the "Company") is a Louisiana-chartered bank
holding company with headquarters at 101 West Vermilion Street, Lafayette,
Louisiana 70501. Its banking subsidiary, LBA Savings Bank, operates four
full-service branches in Lafayette and a loan production office in Eunice,
Louisiana. Addresses of LBA Savings Bank branches are:
Main Office Branch
101 West Vermilion Street, Lafayette, Louisiana 70501
Southside Branch
3701 Johnston Street, Lafayette, Louisiana 70503
Broadmoor Branch
5301 Johnston Street, Lafayette, Louisiana 70503
Northside Branch
2601 Moss Street, Lafayette, Louisiana 70501
Eunice Loan Production Office
136 South 3rd Street, Eunice, Louisiana 70535
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Acadiana Bancshares, Inc., will be
held at 2:00 p.m. (Central Time) Wednesday, April 30, 1997, at a la carte,
301 Heymann Boulevard, Lafayette, Louisiana 70503.
STOCK LISTING
The common stock of Acadiana Bancshares, Inc., is traded on the American
Stock Exchange under the symbol "ANA." Price and other column information are
listed under the "ANA" symbol in The Wall Street Journal and under similar
designations in other daily newspapers. The Company's common stock is held of
record by 593 shareholders (as of March 20, 1997). Below is a table showing
the high and low sales prices of the common stock since the commencement of
trading on July 16, 1996:
<TABLE>
<CAPTION>
QUARTER,ENDED HIGH LOW
- - -------------- --------- ----------
<S> <C> <C>
September 30, 1996........................... $ 13 7/8 $ 11 11/14
December 31, 1996............................ 15 1/8 13 5/8
</TABLE>
REGISTRAR AND TRANSFER AGENT
Shareholders requesting a change of name, address, or ownership of stock,
or to report a lost stock certificate should contact the transfer agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Toll-free (800) 368-5948
INVESTOR RELATIONS
Shareholders, prospective shareholders, analysts or other interested
parties seeking copies of the Company's annual report, Form 10-K (which the
Company will furnish to shareholders upon request without charge), Form 10-Q,
quarterly earnings reports or other financial information should contact:
Jerry Reaux, President & CEO, or
Emile E. Soulier, iii, Vice President & CFO
Phone: (318) 232-4631
Fax: (318) 269-6233
ACADIANA BANCSHARES, INC.
P.O. Box 3607
Lafayette, Louisiana 70502
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands except per Share Data)
The following selected consolidated financial and other data of the
Company does not purport to be complete and should be read in conjunction
with, and is qualified in its entirety by, the more detailed financial
information, including the Consolidated Financial Statements of the Company
and Notes thereto, contained elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets................................ $264,374 $225,574 $223,166 $223,143 $231,122
Cash and cash equivalents................... 19,784 16,481 10,384 24,097 26,488
Loans receivable, net....................... 182,724 157,691 151,161 153,284 154,233
Investment securities....................... 20,539 4,030 19,386 16,910 4,753
Mortgage-backed securities.................. 34,653 39,514 33,349 30,254 34,836
Deposit accounts............................ 193,450 206,343 204,088 215,889 215,435
Borrowings.................................. 22,250 250 -- -- --
Equity...................................... 47,091 17,697 17,845 15,869 13,839
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- --------- --------- -------
Selected Operating Data:
Interest Income............................ $ 18,703 $ 16,975 $ 16,922 $ 17,885 $ 19,887
Interest expense........................... 10,762 10,134 9,378 10,021 11,725
--------- --------- --------- --------- --------
Net interest income........................ 7,941 6,841 7,544 7,864 8,162
Provision for loan losses.................. 355 1,274 63 235 1,293
--------- --------- --------- --------- -------
Net interest income after
provision for loan losses................. 7,586 5,567 7,481 7,629 6,869
Non-interest income........................ 954 802 943 1,039 1,348
Non-interest expense....................... (7,301) (7,812)(1) (5,274) (5,510) (5,723)
--------- --------- --------- --------- --------
Income (loss) before taxes
and extraordinary item...................... 1,239 (1,443) 3,150 3,158 2,494
Income tax expense (benefit)................. 439 (477) 1,057 1,074 591
Extraordinary item(2)........................ -- -- -- (54) 526
-------- --------- --------- --------- --------
Net income (loss)............................ $ 800 $ (966) $ 2,093 $ 2,030 2,429
-------- --------- --------- --------- --------
-------- --------- --------- --------- --------
Net income per share......................... $ 0.07 N/A N/A N/A N/A
Dividends declared per share................. $ 0.18 N/A N/A N/A N/A
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994 1993 1992
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Other Data:
Profitability:
Return on average assets................... 0.32% (0.43)% 0.91% 0.87% 1.04%
Return on average equity................... 2.55 (5.23) 12.19 13.36 18.75
Interest rate spread for period(3)......... 2.68 2.80 3.15 3.35 3.53
Net interest margin(4)..................... 3.34 3.16 3.41 3.55 3.66
Efficiency ratio(5)........................ 82.08 88.45 62.14 61.88 60.18
Other expenses to average assets........... 2.95 3.49 2.30 2.37 2.44
Capital ratios:
Average equity to average assets........... 12.71 8.25 7.48 6.54 5.53
Total capital to risk-weighted assets...... 36.69 16.20 16.29 13.90 11.37
Asset Quality:
Non-performing assets to total assets(6)... 0.36 0.70 1.35 2.35 2.45
Allowance for loan losses to total loans... 1.35 1.41 0.69 0.64 0.61
Allowance for loan losses to
non-performing loans and
troubled debt restructuring............... 183.96 143.94 71.51 26.76 31.05
</TABLE>
- - ------------------------
(1) Includes $1.1 million of write-downs and expenses of real estate owned and
$1.1 million of expenses of a previously contemplated merger/conversion.
(2) An extraordinary gain was recorded in 1992 and an extraordinary (loss) in
1993, both relating to the receipt of insurance proceeds from the loss, by
fire, of the Bank's former main office.
(3) The interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate paid on
interest-bearing liabilities.
(4) The net interest margin represents net interest income divided by average
interest-earning assets.
(5) The efficiency ratio is non-interest expense (excluding, with respect to
1995, the write-off of expenses incurred in the previously contemplated
merger/conversion transaction) divided by the sum of net interest income
plus non-interest income.
(6) Non-performing assets include non-accrual loans, accruing loans delinquent
90 days or more and real estate owned.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the financial condition and results of operations of Acadiana
Bancshares, Inc. (the "Company") and its subsidiary for the years ended December
31, 1994 through 1996. 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 increased by $38.8 million, or
17.2%, from $225.6 million at December 31, 1995, to $264.4 million at
December 31, 1996. The increase was primarily due to a $25.0 million increase
in net loans and a $16.5 million increase in investments securities available
for sale. Such increases were funded primarily by the $29.2 million of net
proceeds received in the Company's July 1996 offering of common stock and a
$22.0 million increase in advances from the Federal Home Loan Bank of Dallas
(the "FHLB").
Cash and Cash Equivalents--Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits and cash on hand, increased
by $3.3 million or 20.0% at December 31, 1996 compared to $16.5 million at
December 31, 1995. The increase in cash and cash equivalents was primarily
due to repayments of mortgage-backed securities. At December 31, 1996 cash
and cash equivalents amounted to 7.5% of total assets.
Investment Securities--Investment securities increased by $16.5 million,
or 409.7%, to $20.5 million at December 31, 1996 compared to $4.0 million at
December 31, 1995. The increased level of investment securities was primarily
funded by the net proceeds of the mutual to stock conversion of the Company's
wholly owned subsidiary, LBA Savings Bank (the "Bank"), and the concurrent
initial public offering of the Company's common stock completed during July
1996.
At December 31, 1996, all $20.5 million of the Company's investment
securities were classified as available for sale and had a pre-tax effected
net unrealized gain of $145,000 at such date. In addition, at such date,
substantially all of the Company's investment securities consisted of U.S.
Government and Federal agency obligations. At December 31, 1996, $9.5
million, or 46.3%, of the Company's investment securities held for sale were
either scheduled to mature or were callable within one year. Note 3 to the
Consolidated Financial Statements provides further information on the
Company's investment securities.
Mortgage-Backed Securities--Mortgage-backed securities decreased $4.9
million, or 12.3%, to $34.7 million at December 31, 1996 compared to $39.5
million at December 31, 1995. The decrease in mortgage-backed securities of
$4.9 million was the result of $4.4 million of principal repayments and a
$462,000 decrease in the carrying value of the mortgage-backed securities
available for sale portfolio. At December 31, 1996, the Company's adjustable
rate mortgage-backed securities amounted to $13.1 million and were classified
as held to maturity. At that same date, the Company's fixed rate
mortgage-backed securities amounted to $21.6 million and were classified as
available for sale. At December 31, 1996 and 1995, substantially all of the
Company's mortgage-backed securities consisted of securities issued or
guaranteed by Federal agencies and government sponsored enterprises.
Loans Receivable, Net--Loans receivable, net, increased by $25.0 million,
or 15.9%, to $182.7 million at December 31, 1996 compared to $157.7 million
at December 31, 1995. Total mortgage loans increased $17.7 million, or 11.9%,
during 1996, primarily as the result of a $15.3 million increase in
single-family residential mortgage loans, net of undisbursed funds. In
addition, commercial business loans increased $6.0 million, or 442.2%, during
1996 and consumer loans increased $3.0 million, or 22.1%, during 1996. The
increase in mortgage loans was funded primarily by borrowings from the FHLB,
while the increases in commercial and consumer loans were primarily funded by
a portion of the net proceeds of the Company's July 1996 offering of common
stock.
8
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
General--The Company's primary funding sources include deposits,
borrowings from the FHLB and stockholders' equity. The discussion which
follows focuses on the major changes in this mix during 1996.
Deposits--The Company's deposits decreased by $12.9 million, or 6.2%,
from $206.3 million at December 31, 1995, to $193.5 million at December 31,
1996. The decrease was the result of $19.6 million in net cash withdrawals,
$6.4 million of which were withdrawn to purchase stock in the Bank's mutual
to stock conversion, which was partially offset by $6.7 million in interest
credited during the year. Additionally, the Bank chose not to renew certain
higher yielding certificates of deposit that matured during 1996. Additional
information regarding deposits is provided in Note 9 to the Consolidated
Financial Statements.
Borrowings--The Company's borrowings are composed of advances from the
FHLB which increased by $22.0 million, from $250,000 at December 31, 1995 to
$22.3 million at December 31, 1996. FHLB borrowings provide the Company with
an alternative source of funds compared to raising deposits in the local
market which from time to time may be a cheaper source of funds because of
interest rates in general and because of competitive pressures on interest
rates of deposits in local markets. The Company has significantly increased
the amount of outstanding FHLB advances to fund origination of mortgage
loans. The $22.0 million of new advances are non-amortizing, variable rate
advances tied to the London International Bank Offering Rate ("libor"), and
are due within two years from the date of origination. For additional
information see Note 10 to the Consolidated Financial Statements.
Stockholders' Equity--Stockholders' 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, 1996
stockholders' equity totaled $47.1 million, an increase of $29.4 million from
the previous year-end level, primarily as a result of the infusion of $29.2
million of net proceeds from the conversion of the Bank from mutual to stock
ownership and its reorganization into the holding company form of ownership.
The increase in stockholders' equity during 1996 was also due to net income
of $800,000 and $148,000 in common stock released by the Company's Employee
Stock Ownership Plan (the "esop") trust. These increases were partially
offset by a decrease in the net unrealized gain on securities of $318,000 and
dividends declared on the Company's common stock of $452,000.
Federal regulations impose minimum regulatory capital requirements on all
institutions with deposits insured by the Federal Deposit Insurance
Corporation (the "fdic"). At December 31, 1996, the Bank significantly
exceeded all regulatory capital ratio requirements with a tier 1 leverage
capital ratio of 13.4%, a tier 1 risk-based capital ratio of 25.9%, and a
total risk-based capital ratio of 27.2%. These compared to regulatory
requirements of 4.0%, 4.0%, and 8.0%, respectively. The Company is required
to comply with similar regulatory capital requirements and at December 31,
1996, it also significantly exceeded all applicable regulatory capital
requirements with a tier 1 leverage capital ratio of 17.7% a tier 1
risk-based capital ratio of 35.4%, and a total risk-based capital ratio of
36.7%.
RESULTS OF OPERATIONS
General--The Company reported net income of $800,000 and $2.1 million for
the years ended December 31, 1996 and 1994, respectively, and a net loss of
$966,000 for the year ended December 31, 1995. The $1.8 million increase in
net income in 1996 compared to the prior year net loss was due primarily to
an increase in net interest income of $1.1 million, a $152,000 increase in
noninterest income, a $919,000 decrease in provision for loan losses, and a
$511,000 decrease in noninterest expense, which was partially offset by a
$916,000 increase in income tax expense.
The Company reported a net loss of $966,000 during the year ended
December 31, 1995 and net income of $2.1 million during the year ended
December 31, 1994. The primary reasons for the net loss reported in 1995 were
a $1.3 million provision for loan losses, compared to $63,000 in 1994, $1.1
million in write-downs and expenses related to real estate owned, and the
recognition of $1.1 million of expenses related to the merger/conversion
transaction previously contemplated by the Bank but which was abandoned
during 1995.
Net Interest Income--Net interest income is determined by interest rate
spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing
liabilities) and the
9
<PAGE>
relative amounts of interest-earning assets and interest-bearing liabilities.
The Company's average interest rate spread was 2.68%, 2.80%, and 3.15%,
during the years ended December 31, 1996, 1995, and 1994, respectively.
Net interest income increased $1.1 million, or 16.1%, in 1996 to $7.9
million compared to $6.8 million in 1995. The reason for the increase was a
$1.7 million increase in interest income, which was partially offset by a
$628,000 increase in interest expense. Net interest income decreased
$703,000, or 9.3%, in 1995 compared to 1994. Such decrease was due to a
$756,000 increase in interest expense which more than offset a $53,000
increase in interest income.
Interest Income--Interest income totaled $18.7 million for the year ended
December 31, 1996, an increase of $1.7 million over the total of $17.0
million for the year ended December 31, 1995. This improvement was mainly due
to an increase in the Company's average interest-earning assets by $21.9
million, or 10.1%, to $238.1 million for the year ended December 31, 1996 as
the Company began to leverage the capital raised as a result of the Bank's
mutual-to-stock conversion and the Company's initial public common stock
offering which was completed in July 1996. The increase in interest earning
assets produced additional interest income of $1.7 million. Interest earned
on loans increased $1.4 million, or 10.8%, in 1996. The increase was due to a
$17.4 million, or 11.3%, increase in the average balance of loans which was
partially offset by a 4 basis point (with 100 basis points being equal to 1%)
decrease in the yield earned. Interest earned on mortgage-backed securities
increased $73,000, or 2.9%, during 1996. This increase was due to a $2.2
million, or 6.3%, increase in the average balance of mortgage-backed
securities partially offset by a 23 basis point decrease in the yield earned
on mortgage-backed securities. Interest earned on investment securities
increased $305,000, or 34.7%, during 1996. The increase was due to a $2.5
million, or 17.3%, increase in the average balance of investment securities
combined with a 90 basis point increase in the yield earned. Interest income
on other earning assets, primarily interest-bearing deposits, decreased
$35,000 in 1996.
Interest income was stable for the years ended December 31, 1995, and
1994, amounting to $17.0 million and $16.9 million, respectively. The
$53,000, or .3%, increase in interest income in 1995 compared to 1994 was due
primarily to a $200,000, or 8.6%, increase in interest earned on
mortgage-backed securities as a result of a $2.6 million, or 8.2%, increase
in the average balance of mortgage-backed securities, accompanied by a 2
basis point increase in the yield earned on mortgage-backed securities, which
was partially offset by a $105,000 decrease in interest earned on
investments, a $23,000 decrease in interest earned on interest bearing
deposits, and a $19,000 decrease in interest earned on loans. The $105,000
decrease in interest earned on investments was the result of a $4.8 million
decrease in the average balance of investment securities, which was partially
offset by a 96 basis point increase in the yield earned in investment
securities.
Interest Expense--Interest expense increased $628,000, or 6.2%, in 1996
compared to 1995. The reason for such increase was a $72,000 increase in
interest expense on deposits and a $556,000 increase in interest expense on
borrowings. The increase in interest expense on deposits was due to an 11
basis point increase in the average cost of deposits, partially offset by a
$2.9 million, or 1.4%, decrease in the average balance of deposits.
Traditionally, deposits have included a relatively high amount of
certificates of deposit, including "jumbo" certificates with balances in
excess of $100,000. Such certificates generally are higher costing and more
interest rate sensitive than "core" deposits. During 1996, the average
balance of certificates of deposit amounted to 78.0% of the average balance
of all deposits, compared to 77.4% during 1995. The average rate paid on
certificates of deposit was 5.97% during 1996, representing an 11 basis point
increase over the average rate in 1995, compared to average rates of 1.82%
and 2.52%, respectively, on demand deposits and regular savings accounts in
1996. The increase in interest expense on borrowings was due to a $10.1
million increase in the average balance of borrowings.
Total interest expense amounted to $10.1 million and $9.4 million for the
years ended December 31, 1995 and 1994, respectively. The $756,000, or 8.1%,
increase in interest expense in 1995 compared to 1994 was due to a 55 basis
point increase in average rates on deposits, which was partially offset by a
$7.9 million, or 3.8%, decrease in the average balances of deposits.
10
<PAGE>
Average Balances, Net Interest Income, and Yields Earned and Rates Paid.
The following table sets forth, for the periods indicated, information
regarding (i) the dollar amount of interest income of the Bank from
interest-earning assets and the resultant average yields; (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant rate; (iii) net interest income; (iv) interest rate spread; and (v)
net interest margin. Non-accrual loans have been included in the appropriate
average balance loan category, but interest on non-accrual loans has been
included for purposes of determining interest income only to the extent that
cash payments are actually received.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994
YIELD/ ------------------------- ------------------------ -------------------------
COST AT AVERAGE AVERAGE AVERAGE
DECEMBER 31, AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
1996 BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
---- ------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate mortgage loans......... 7.86% $ 150,541 $12,438 8.26% $140,597 $11,652 8.29% $133,262 $11,334 8.51%
Commercial business loans.......... 9.45% 3,818 349 9.14% 1,467 128 8.73% 1,434 135 9.41%
Consumer and other loans........... 9.19% 16,780 1,431 8.53% 11,674 1,053 9.02% 14,855 1,383 9.31%
------- ------ ----- ------- ------- ----- -------- -------
Total loans....................... 8.04% 171,139 14,218 8.31% 153,738 12,833 8.35% 149,551 12,852 8.59%
Mortgage-backed securities.......... 7.30% 36,869 2,609 7.08% 34,681 2,536 7.31% 32,055 2,336 7.29%
Investment securities(1)............ 6.99% 17,032 1,185 6.96% 14,525 880 6.06% 19,299 985 5.10%
Other earning assets................ 5.21% 13,067 691 5.29% 13,242 726 5.48% 20,590 740 3.64%
------- ------ ----- ------- ------- ----- -------- ------- -----
Total interest-earning assets..... 7.77% 238,107 18,703 7.85% 216,186 16,975 7.85% 221,495 16,922 7.64%
------ ------- -------
Noninterest-earning assets.......... 9,238 7,782 7,978
------- -------- ------
Total Assets...................... $247,345 $223,968 $229,473
------- -------- -------
------- -------- -------
Interest-bearing liabilities:
Deposits:
Demand deposits................... 1.92% $15,953 291 1.82% $15,909 283 1.78% $18,458 342 1.85%
Passbook savings deposits........... 2.57% 27,506 692 2.52% 29,442 737 2.50% 37,081 928 2.50%
Certificates of deposit............. 5.95% 154,187 9,201 5.97% 155,173 9,092 5.86% 152,872 8,086 5.29%
------- ------ ----- ------- ------- ----- -------- -------
Total deposits.................... 5.14% 197,646 10,184 5.15% 200,524 10,112 5.04% 208,411 9,356 4.49%
Advance from FHLB................... 5.50% 10,338 578 5.59% 250 22 8.80% 250 22 8.80%
------- ------ ----- ------- ------- -------- -------
Total interest-bearing
liabilities...................... 5.18% 207,984 10,762 5.17% 200,774 10,134 5.05% 208,661 9,378 4.49%
------ ------ -----
Noninterest-bearing
demand deposits.................... 3,342 2,642 1,923
Other noninterest-bearing
liabilities......................... 4,592 2,080 1,723
------- ------- -----
Total liabilities................. 215,918 205,496 212,307
Equity................................ 31,427 18,472 17,166
------- -------- -------
Total liabilities and equity...... $247,345 $223,968 $229,473
------- -------- -------
------- -------- -------
Net interest-earning assets........... $30,123 $15,412 $12,834
------- -------- -------
------- -------- -------
Net interest income/interest
rate spread......................... 2.59% $7,941 2.68% $6,841 2.80% 7,544 3.15%
------ ----- ------- ----- ------- -----
------ ----- ------- ----- ------- -----
Net interest margin................... 3.34% 3.16% 3.41%
----- ----- -----
----- ----- -----
Ratio of average interest-
earning assets to average
interest-bearing liabilities.......... 114.48% 107.68% 106.15%
------- ------- -------
------- ------- -------
</TABLE>
- - ------------------------
(1) Includes FHLB stock
11
<PAGE>
MANAGEMENT'S Rate/Volume Analysis. The following table set forth the
DISCUSSION effects of changing rates and volumes on net interest
AND ANALYSIS income of the Company. Information is provided with respect
OF FINANCIAL to (i) effects on interest income attributable to changes
CONDITION in volume (changes in volume multiplied by prior rate);
AND RESULTS OF (ii) effects on interest income attributable to changes in
OPERATIONS rate (changes in rate multiplied by prior volume); and (iii)
(Dollars in changes in rate/volume (change in rate multiplied by change
Thousands) in volume).
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
---------------------------------- --------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------- --------------------------
TOTAL
RATE/ INCREASE RATE/ TOTAL
VOLUME RATE VOLUME (DECREASE) VOLUME RATE VOLUME INCREASE
------ ---- ------ ---------- ------ ---- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Decrease)
Interest-earning assets:
Loans receivable....................... $ 1,453 $(61) $ (7) $1,385 $ 360 $(369) $ (10) $ (19)
Mortgage-backed securities............. 160 (82) (5) 73 191 8 1 200
Investment securities.................. 144 138 26 308 (250) 156 (43) (137)
Other earning assets................... (3) (35) -- (38) (262) 406 (135) 9
-------- ---- --- ------ ----- ----- ----- ------
Total net change in income on
interest-earning assets............... 1,754 (40) 14 1,728 39 201 (187) 53
-------- ---- --- ------ ----- ----- ----- ------
Interest-bearing liabilities:
Deposits:
Demand deposits and passbook savings
deposits................................ (43) 6 -- (37) (233) (21) 4 (250)
Certificates of deposit................... (58) 168 (1) 109 122 871 13 1,006
------- ---- --- ------ ----- ---- ---- -----
Total deposits............................ (101) 174 (1) 72 (111) 850 17 756
Advance from FHLB......................... 888 (8) (324) 556 -- -- -- --
------- ---- ---- ----- ----- ---- ---- -----
Total net change in expense on
interest-bearing liabilities............ 787 166 (325) 628 (111) 850 17 756
------- ---- ---- ----- ----- ---- ---- -----
Net change in net interest income......... $ 967 $(206) $339 $1,100 $150 $(649) $(204) $(703)
------- ----- ---- ------ ----- ----- ----- -----
------- ----- ---- ------ ----- ----- ----- -----
</TABLE>
12
<PAGE>
Provision for Loan Losses--Provision for loan losses are MANAGEMENT'S
charged to earnings in order to bring the total allowance DISCUSSION
for loan losses to a level considered appropriate by AND ANALYSIS
management based on methodology implemented by the OF FINANCIAL
Company, which is designed to assess, among other things, CONDITION
historical experience, the volume and type of lending AND RESULTS OF
conducted by the Company, the amount of the Company's OPERATIONS
classified assets, the status of past due principal and
interest payments, loan-to-value ratios of loans in the
portfolio, 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 makes
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 $355,000 in
1996, compared to $1.3 million and $63,000 in 1995, and 1994,
respectively.
During 1995 the Company revised its methodology for making
provisions for loan losses and made certain adjustments
thereto. New management instituted new policies regarding loan
origination, supervision and review, and determined to increase
its collection and foreclosure efforts with respect to
delinquent loans. The Company also determined that it would no
longer continue its prior practice of making relatively high
loan-to-value loans to finance sales of its foreclosed property.
During 1996, the Company continued making provisions for
loan losses in a manner consistent with its revised methodology
of 1995. The Company increased its provision for loan losses
from $45,000 per quarter during the first three quarters of
1996, to $220,000 for the fourth quarter of 1996, primarily due
to management's continuing assessment of the asset quality in
the Bank's portfolio of indirect automobile loans. The Bank
recently abandoned its program of originating indirect
automobile loans through a network of local dealers which it
had begun in August of 1995. Indirect dealer loans outstanding
amounted to $7.4 million at December 31, 1996. During the third
and fourth quarters of 1996, the Bank charged-off $46,000 and
$122,000, respectively, of indirect auto loans. At December 31,
1996, $45,000 remained 90 days or more past due. At December
31, 1996, the Bank's allowance for loan losses amounted to $2.6
million, or 1.35% of total loans, and 183.96% of non-performing
loans and troubled debt restructurings.
Non-performing loans (non-accrual loans and accruing loans
90 days or more overdue) were $873,000 and $740,000 at December
31, 1996 and December 31, 1995, respectfully. The Company's
real estate owned, which consists of real estate acquired
through foreclosure or by deed-in-lieu of foreclosure, amounted
to $75,000 and $845,000 at December 31, 1996 and December 31,
1995, respectively. As a percentage of total assets, the
Company's total non-performing assets amounted to .36% and
.70%, at December 31, 1996 and 1995, respectively.
Although management of the Company believes that the
allowance for loan losses was adequate at December 31, 1996,
based on facts and circumstances available to it, 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. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the Company's provision for loan
losses and the carrying value of its other non-performing
assets based on their judgments about information available to
them at the time of their examination. No assurance can be
given whether any of such agencies might require the Bank to
make additional provisions for loan losses in the future.
Non-interest Income--For 1996, the Company reported
non-interest income of $954,000 compared to $802,000 of
non-interest income for 1995. The primary reason for the
$152,000, or 19.0%, increase in non-interest income for
1996 was an increase of $103,000 in other miscellaneous
income and the absence of losses on sales of investment
securities during 1996 compared to a $64,000 loss in 1995.
Total non-interest income amounted to $802,000 and
$943,000 for the years ended December 31, 1995 and 1994,
respectively. The primary reason for the $141,000, or
15.0%, decrease in non-interest income in 1995 compared to
1994 was a $64,000 loss on the sale of investment
securities, and a $57,000 decrease in deposit fees and
service charges reflecting a decrease in deposit accounts.
Non-Interest Expense--Non-interest expense includes
salaries and employee benefits, occupancy, depreciation,
Savings Association Insurance Fund ("SAIF") deposit
insurance premiums, advertising, merger/conversion 13
<PAGE>
MANAGEMENT'S expenses-withdrawn transaction, and other items.
DISCUSSION Non-interest expense amounted to $7.3 million for the year
AND ANALYSIS ended December 31, 1996, a decrease of $511,000, or 6.5%,
OF FINANCIAL over the total of $7.8 million for the year ended December
CONDITION 31, 1995. The primary reason for the $511,000 was a decrease
AND RESULTS OF of $1.0 million in net costs of real estate owned, and the
OPERATIONS recognition in 1995 of cost incurred in connection with a
merger/conversion transaction which the Bank had previously
contemplated, and which was partially offset by a one-time
special assessment to recapitalize the SAIF deposit
insurance fund of $1.3 million (pre-tax) incurred at the
end of the third quarter of 1996.
Salaries and employee benefits, the largest component of
non-interest expenses, decreased by $12,000, or .5%, in
1996 compared to 1995. In connection with the conversion
from mutual to stock form, the Company established the ESOP
for the benefit of the employees of the Company and the
Bank, as further described in Note 13 to the Consolidated
Financial Statements. Compensation expenses related to the
ESOP amounted to $148,000 for the year ended December 31,
1996, which expenses began in July 1996. The Company also
maintains a 401(k) Profit Sharing Plan which provided for
up to 3% matching of employee contributions and additional
discretionary contributions, annually, as further described
in Note 13 to the Consolidated Financial Statements. During
1996, the Company amended the plan by discontinuing matching
employee contributions after December 31, 1996. On January
21, 1997, at a special meeting the stockholders of the
Company approved adoption of the Stock Option Plan and
Recognition and Retention Plan ("rrp") and Trust Agreement
for the benefit of directors, officers and key employees,
as more fully described in Note 21 to the Consolidated
Financial Statements. The Company expects the annual
expenses related to the rrp for the shares granted to be
approximately $227,000.
The $1.0 million decrease in net cost of real estate owned
in 1996 compared to 1995 was due primarily to the charges
to income taken in 1995, as the result of new appraisals
and management's reassessment of the carrying value of
several parcels of real estate owned.
The Bank's deposits are insured by the FDIC through the
SAIF, and as such, the Bank incurred a one-time special
assessment of $1.3 million on September 30, 1996 in
connection with an immediate recapitalization of the
SAIF. As a result of such recapitalization, the Bank's
regular and recurring SAIF premiums are expected to
decrease from 23 basis points per $100 of insured
deposits at and prior to September 30, 1996, to 6.5 basis
points in 1997, 1998, and 1999. The Bank incurred no
deposit insurance premium expense for the period
beginning October 1, 1996 and ending December 31, 1996,
which is unusual and is not expected to reoccur.
Beginning in 1997, the Company will incur a state tax
which is based on the stockholders' equity of the Bank.
The Company expects this tax to amount to $304,000 in
1997.
Income Taxes-For the years ended December 31, 1996 and 1994, the
Company incurred income tax expense of $439,000 and $1.1
million, respectively. For the year ended December 31,
1995, the Company reported an income tax benefit of
$477,000. The Company's effective tax rate amounted to
35.4%, (33.1)%, and 33.6% during 1996, 1995, and 1994,
respectively. The difference between the effective rate and
the statutory tax rate primarily related to variances in
the items that are either non-taxable or non-deductible. In
1996 the difference also included state income tax on the
Company's income, exclusive of the income derived from
the Bank. For more information on income taxes, see Note
11 to the Consolidated Financial Statements.
ASSET AND LIABILITY MANAGEMENT
The ability to maximize net interest income is largely
dependent upon the achievement of a positive interest
rate spread that can be sustained during fluctuations in
prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities
which either reprice or mature within a given period of
time. The difference, or the interest rate repricing
"gap", provides an indication of the extent to which an
institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities, and is
considered negative when the amount of interest-rate
sensitive liabilities exceeds the amount of interest-rate
sensitive assets, in a given time period. Generally,
during a period of rising interest rates, a negative gap
within shorter maturities would adversely affect net
interest income, while a positive gap within shorter
maturities would result in an increase in net interest
income, and during a period of falling interest rates, a
negative gap within shorter maturities would result in an
increase in net interest income while a positive gap
within shorter maturities would have the opposite effect.
As of December
14
<PAGE>
31, 1996, the amount of the Company's MANAGEMENT'S
interest-sensitive assets which were estimated to mature DISCUSSION
or reprice within one year exceeded the Company's AND ANALYSIS
interest-sensitive liabilities with the same OF FINANCIAL
characteristics by $7.6 million or 2.9% of the Company's CONDITION
total assets. AND RESULTS OF
OPERATIONS
The Company's actions with respect to interest rate risk
and its asset/liability gap management are taken under
guidance of the Finance Committee of the Board of
Directors of the Company, which is composed of Messrs.
O'Rourke, Beacham, and Montelaro, and the Asset/Liability
Management Committee ("ALCO"), which is comprised of ten
officers of the Bank. This joint committee meets
quarterly to, among other things, set interest rate risk
targets and review the Company's current composition of
assets and liabilities in light of the prevailing
interest rate environment. The committee assesses its
interest rate risk strategy quarterly, which is then
reviewed by the full Board of Directors.
As a part of the Company's asset/liability management
strategies, the Company intends to increase its emphasis
on originating commercial business loans, which generally
have variable or adjustable rates of interest, and to
increase its emphasis on originating consumer loans,
which have relatively short terms to maturity. The
Company also intends to increase the amount of
non-interest bearing demand deposits, which are
considered "core deposits" and which is expected to
lessen the effects of changes in interest rates on the
Company's net interest margin. Additionally, the Company
maintains substantially all of its fixed-rate investment
securities, and its fixed-rate mortgage-backed securities
in its held for sale portfolios, which at December 31,
1996 amounted to $20.5 million and $21.6 million,
respectively, as further described in Notes 3 and 4 to
the Consolidated Financial Statements, and which are
carried at fair value and could be liquidated in response
to rapid changes in interest rates, if deemed
appropriate. As more fully described in Note 5 to the
Consolidated Financial Statements, the Company's loan
portfolio includes approximately $86.6 million of
long-term adjustable-rate mortgage loans, $80.7 million
of long-term fixed-rate loans, $16.7 million of shorter
term consumer loans, and $7.4 million of commercial
loans. The Company's mortgage-backed securities held to
maturity portfolio of $13.1 million is substantially
comprised of adjustable-rate securities. The Company's
asset/liability strategy with respect to these portfolios
includes an attempt to balance the effects of rising and
falling interest rates on the projected interest income
from these assets.
15
<PAGE>
MANAGEMENT'S The following table summarizes the anticipated maturities
DISCUSSION or repricing of the Company's interest-sensitive assets
AND ANALYSIS and interest-sensitive liabilities as of December 31,
OF FINANCIAL 1996 based on the information and assumption set forth in
CONDITION the notes below.
AND RESULTS OF
OPERATIONS
(Dollars in
Thousands)
<TABLE>
<CAPTION>
MORE THAN
THREE TO MORE THAN THREE YEARS
WITHIN THREE TWELVE ONE YEAR TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
------------ --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive
assets1:
Loans receivable2......... $ 24,279 $ 45,849 $ 43,109 $ 27,837 $ 41,650 $ 182,724
Investment securities3.... 23,828 6,000 10,889 -- 150 40,867
Mortgage-backed
securities4............. 12,033 3,698 9,252 3,442 6,228 34,653
------------ --------- ----------- ----------- ----------- ----------
Total..................... 60,140 55,547 63,250 31,279 48,028 258,244
------------ --------- ----------- ----------- ----------- ----------
Interest-sensitive
liabilities:
Deposits:
NOW accounts5............. -- -- -- -- 11,528 11,528
Passbook savings
accounts5............... -- -- -- -- 25,071 25,071
Money market deposit
account5................ 5,101 -- -- -- -- 5,101
Certificates of deposit... 22,748 58,197 48,101 3,208 14,542 146,796
Advances from FHLB........ 22,000 -- -- -- 250 22,250
------------ --------- ----------- ----------- ----------- ----------
Total..................... 49,849 58,197 48,101 3,208 51,391 210,746
-
------------ --------- ----------- ----------- ----------- ----------
Excess (deficiency) of
interest-sensitive
assets over interest-
sensitive liabilities... $ 10,291 $ (2,650) $ 15,149 $ 28,071 $ (3,363) $ 47,498
------------ --------- ----------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------- ----------
Cumulative excess
(deficiency) of
interest-sensitive
assets over interest-
sensitive liabilities... $ 10,291 $ 7,641 $ 22,790 $ 50,861 $ 47,498
------------ --------- ----------- ----------- -----------
------------ --------- ----------- ----------- -----------
Cumulative excess
(deficiency) of
interest-sensitive
assets over interest-
sensitive liabilities as
a percent of total
assets.................. 3.89% 2.89% 8.62% 19.24% 17.97%
------------ --------- ----------- ----------- -----------
------------ --------- ----------- ----------- -----------
</TABLE>
- - ------------------------
(1) Adjustable-rate assets are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due, and fixed-rate assets are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, in each case as
adjusted to take into account estimated prepayments. The Company has
estimated the prepayments based upon its experience in the interest rate
environment prevailing during 1996.
(2) Balances have been reduced for non-performing loans, which amounted to
$873,000 at December 31, 1996.
(3) Includes interest-bearing deposits and fhlb stock.
(4) Reflects estimated prepayments in the current interest rate environment.
(5) Although the Company's NOW accounts and passbook savings accounts are
subject to immediate withdrawal, management considers substantially all of
such accounts to be core deposits having significantly longer effective
maturities. The Company generally has retained a relatively consistent
amount of such deposits under widely varying interest rate environments. If
all of the Company's NOW accounts and passbook savings accounts had been
assumed to be subject to repricing within one year, interest-bearing
liabilities which were estimated to mature or reprice within one year would
have exceeded interest-sensitive assets with comparable characteristics by
$29.0 million or 11.0% of total assets.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES MANAGEMENT'S
DISCUSSION
The Company's primary liquidity, represented by cash and AND ANALYSIS
cash equivalents, is a product of its operating, OF FINANCIAL
investing and financing activities. Excess liquidity CONDITION
includes the Company's portfolios of investment AND RESULTS OF
securities held for sale and mortgage-backed securities OPERATIONS
held for sale. The Company's primary sources of funds are
deposits, borrowings, proceeds from sale of stock, and
amortization, prepayments and maturities from its loan
portfolio and its held to maturity investment securities
and mortgage-backed securities portfolios, and other
funds provided from operations. While scheduled payments
from the amortization of loans and mortgage-backed
securities and maturing investment securities are
relatively predictable sources of funds, deposit flows,
loan prepayments, and mortgage-backed securities
prepayments are greatly influenced by general interest
rates, economic conditions and competition. The Company
has the ability to borrow up to approximately $126.0
million from the FHLB through its subsidiary Bank.
Liquidity management is both a daily and long-term
function of business management. The Company uses its primary
liquidity to meet its ongoing commitments, to pay maturing
certificates of deposit and deposit withdrawals, and to fund
loan commitments. The Company's excess liquidity and
borrowing capacity provide added readiness to meet ongoing
commitments and growth. At December 31, 1996, the total
approved commitments to extend credit amounted to $10.1
million. Certificates of deposit scheduled to mature in one
year or less at that same date totaled $80.3 million.
Management believes that a significant portion of maturing
deposits will stay 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.
EFFECT ON NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Federal Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") 123, Accounting for Stock-Based Compensation. The
statement establishes a fair value based method of accounting
for stock-based compensation plans. It encourages entities to
adopt that method in place of the provisions of Accounting
Principles Board ("APB") Opinion 25, Accounting for Stock
Issued to Employees, for all arrangements under which
employees receive shares of stock or other equity instruments
of the employer if the employer incurs liabilities to
employees in amounts based on the price of its stock. The
Company will continue using the accounting methods prescribed
by APB Opinion 25 and will disclose in the footnotes
information on a fair value basis for its stock-based
compensation plans.
In June 1996, the FASB issued SFAS 125, Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The statement establishes
accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of
liabilities based on the consistent application of the
financial-components approach. This approach requires the
recognition of financial assets and servicing assets that are
controlled by the reporting entity, and the de-recognition of
financial assets and liabilities when control is
extinguished. Liabilities and derivatives incurred or
obtained by transfers in conjunction with the transfer of
financial assets are required to be measured at fair value,
if practicable.
Servicing assets and other retained interests in
transferred assets are required to be measured by allocating
the previous carrying amount between the assets sold, if any,
and the interest that is retained, if any, based on the
relative fair value of the assets at the date of transfer.
SFAS 127, Deferral of the Effective Date of Certain
Provisions of SFAS 125, was issued in December 1995 and
deferred application of many of the provisions of SFAS 125
until after December 31, 1997.
17
<PAGE>
INDEPENDENT CHARLES E. CASTAING MEMBERS
AUDITORS' ROGER E. HUSSEY AMERICAN INSTITUTE OF
REPORT SAMUEL R. LOLAN CERTIFIED PUBLIC ACCOUNTANTS
CAROLINE C. BOUDREAUX SOCIETY OF
PATRICK J. DAUTERIVE LOUISIANA CERTIFIED PUBLIC ACCOUNTANTS
LORI D. PERCLE
DEBBIE B. TAYLOR
KATHERINE H. ARMENTOR
---------------------
ROBIN G. FREYOU
DAWN K. GONSOULIN
CASTAING, HUSSEY & LOLAN, LLP
CERTIFIED PUBLIC ACCOUNTANTS
525 WEEKS STREET--P.O. BOX 14240
NEW IBERIA, LA. 70562-4240
--------------------------
PH: (318) 364-7221
FAX: (318) 364-7235
To the Board of Directors
Acadiana Bancshares, Inc. and Subsidiary
Lafayette, Louisiana
We have audited the accompanying consolidated statements of
financial condition of Acadiana Bancshares, Inc. and Subsidiary
as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996.
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 Acadiana Bancshares, Inc. and Subsidiary as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ CASTAING, HUSSEY & LOLAN, LLP
---------------------------------
New Iberia, Louisiana
January 31, 1997
18
<PAGE>
<TABLE>
<CAPTION>
ASSETS 1996 1995
ACADIANA --------------------------------------------------- ---------- ----------
BANCSHARES, <S> <C> <C>
INC. AND Cash and Cash Equivalents:
SUBSIDIARY Cash and Amounts Due from Banks.................... $ 1,234 $ 802
Interest Bearing Deposits-Federal Home Loan Bank... 18,550 15,679
Consolidated ---------- ----------
Statements of Total.............................................. 19,784 16,481
Operations Investment Securities:
Years Ended Available for Sale, at fair value.................. 20,539 4,030
December 31, Mortgage-Backed Securities:
1995 and 1996 Held to Maturity (fair value of $12,938
and $13,539, respectively)....................... 13,087 13,492
(In Thousands, Available for Sale, at fair value.................. 21,566 26,022
except per share Loans Receivable, Net.............................. 182,724 157,691
data) Real Estate Owned, Net............................. 75 845
Premises and Equipment, Net........................ 1,827 1,799
The accompanying Federal Home Loan Bank Stock, at Cost.............. 1,778 1,677
Notes to Accrued Interest Receivable........................ 1,551 1,187
Consolidated Other Assets....................................... 1,443 2,350
Financial ---------- ----------
Statements are an Total Assets....................................... $ 264,374 $ 225,574
integral part of ---------- ----------
these Financial ---------- ----------
Statements. Liabilities and Stockholders' Equity
Liabilities:
Deposits........................................... $ 193,450 $ 206,343
Advances from Federal Home Loan Bank............... 22,250 250
Accrued Interest Payable on Deposits............... 46 31
Advance Payments by Borrowers for Taxes and
Insurance........................................ 441 485
Accrued and Other Liabilities...................... 1,096 768
---------- ----------
Total Liabilities.................................. 217,283 207,877
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock of $.01 Par Value; 5,000,000
shares authorized, -0-shares issued
or outstanding................................... -- --
Common Stock of $.01 Par Value; 20,000,000
shares authorized, 2,731,250 shares issued
and outstanding.................................. 27 --
Additional Paid-in Capital......................... 31,827 --
Retained Earnings (Substantially Restricted)....... 17,344 16,996
Unearned Common Stock Held by ESOP................. (2,490) --
Unrealized Gain on Securities Available for
Sale, Net of Deferred Taxes.. ................... 383 701
---------- ----------
Total Stockholders' Equity......................... 47,091 17,697
---------- ----------
Total Liabilities and Stockholders' Equity......... $ 264,374 $ 225,574
---------- ----------
---------- ----------
</TABLE>
19
<PAGE>
<TABLE>
ACADIANA
BANCSHARES,
INC. AND
SUBSIDIARY
Consolidated
Statements of
Operations
Years Ended
December 31, 1996,
1995 and 1994
(In Thousands,
except per share
data)
The accompanying
Notes to
Consolidated
Financial
Statements are an
integral part of
these Financial
Statements.
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest Income:
Loans........................................ $ 14,218 $ 12,833 $ 12,852
Mortgage-Backed Securities................... 2,609 2,536 2,336
Investment Securities........................ 1,185 880 985
Interest Bearing Deposits.................... 691 726 749
--------- --------- ---------
Total Interest Income........................ 18,703 16,975 16,922
--------- --------- ---------
Interest Expense:
Deposits..................................... 10,184 10,112 9,356
Advances from Federal Home Loan Bank......... 578 22 22
--------- --------- ---------
Total Interest Expense....................... 10,762 10,134 9,378
--------- --------- ---------
Net Interest Income.......................... 7,941 6,841 7,544
Provision for Loan Losses.................... 355 1,274 63
--------- --------- ---------
Net Interest Income After Provision for
Loan Losses................................ 7,586 5,567 7,481
--------- --------- ---------
Non-Interest Income:
Loan Fees and Service Charges................ 157 119 136
Servicing Fees on Loans Sold................. 60 68 86
Deposit Fees and Service Charges............. 569 583 640
Investment Securities Losses, Net............ -- (64) --
Gain (Loss) on Sale of Fixed Rate Loans...... (20) 11 3
Other........................................ 188 85 78
--------- --------- ---------
Total Non-Interest Income.................... 954 802 943
--------- --------- ---------
Non-Interest Expenses:
Salaries and Employee Benefits............... 2,654 2,666 2,517
Occupancy.................................... 285 222 193
Depreciation................................. 320 259 349
Net Costs of Real Estate Owned............... 129 1,144 182
SAIF Deposit Insurance Premium............... 354 469 523
SAIF Special Assessment...................... 1,338 -- --
Merger/Conversion Expenses--Withdrawn
Transaction................................ -- 1,052 --
Advertising.................................. 307 237 168
Consulting................................... 193 306 72
Other........................................ 1,721 1,457 1,270
--------- --------- ---------
Total Non-Interest Expenses.................. 7,301 7,812 5,274
--------- --------- ---------
Income (Loss) Before Income Taxes............ 1,239 (1,443) 3,150
Income Tax Expense (Benefit)................. 439 (477) 1,057
--------- --------- ---------
Net Income (Loss)............................ $ 800 $ (966) $ 2,093
--------- --------- ---------
--------- --------- ---------
Net Income Per Common Share*................. $ .07 N/A N/A
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - ------------------------
* Includes 3rd and 4th quarters only, for 1996.
20
<PAGE>
<TABLE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
NET
UNREALIZED
GAIN (LOSS)
ON
RETAINED UNEARNED SECURITIES,
COMMON STOCK ADDITIONAL EARNINGS COMMON NET
--------------------- PAID-IN (SUBSTANTIALLY STOCK HELD OF DEFERRED
SHARES AMOUNT CAPITAL RESTRICTED) BY ESOP TAXES TOTAL
---------- --------- ----------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994............. $-- $ -- $15,869 $ -- $ -- $15,869
Net Income........................... 2,093 2,093
Change in Unrealized Gain (Loss)
on Securities Available for
Sale, Net of Deferred Taxes........ (117) (117)
--- ------- ------- ------- ----- -------
Balance, December 31, 1994........... -- -- 17,962 -- (117) 17,845
Net Loss............................. (966) (966)
Change in Unrealized Gain (Loss)
on Securities Available for
Sale, Net of Deferred Taxes........ 818 818
--- ------- ------- ------- ----- -------
Balance, December 31, 1995........... -- -- 16,996 -- 701 17,697
Net Income........................... 800 800
Common Stock Issued in Conversion.... 2,731,250 27 31,811 (2,622) 29,216
Common Stock Released by ESOP Trust.. 16 132 148
Cash Dividends Declared.............. (452) (452)
Change in Unrealized Gain (Loss)
on Securities Available for
Sale, Net of Deferred Taxes....... (318) (318)
--------- --- ------- ------- ------- ----- -------
Balance, December 31, 1996........... 2,731,250 $27 $31,827 $17,344 $(2,490) $ 383 $47,091
--------- --- ------- ------- ------- ----- -------
--------- --- ------- ------- ------- ----- -------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
21
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)............................... $ 800 $ (966) $ 2,093
-------- ------- --------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Depreciation.................................... 320 259 349
Provision for Deferred Income Taxes............. (43) (344) (54)
Provision for Losses on Loans................... 355 1,274 63
Provision for Losses on Real Estate Owned and
Other Property Acquired....................... 256 1,169 94
Other Gains and Losses, Net..................... (121) (139) (92)
Loss (Gain) on Sale of Loans Held for Sale...... 52 (11) (3)
Proceeds from Sale of Loans Held for Sale....... 6,353 1,553 554
Originations of Loans Held for Sale............. (6,405) (1,542) (551)
Abandonment of Construction Work in Progress.... -- 202 --
Accretion of Discounts, Net of Premium
Amortization On Securities.................... (46) (57) (150)
Amortization of Deferred Revenues and Unearned
Income on Loans............................... (161) (146) (193)
FHLB Stock Dividend Received.................... (101) (104) (72)
ESOP Contribution............................... 148 -- --
Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest
Receivable.................................... (364) 58 52
Decrease (Increase) in Other Assets............. 1,139 (723) (514)
Increase (Decrease) in Accounts Payable and
Accrued Expenses.............................. 133 (36) (368)
-------- ------- --------
Total Adjustments............................... 1,515 1,413 (885)
-------- ------- --------
Net Cash Provided by Operating Activities....... $ 2,315 $ 447 $ 1,208
-------- ------- --------
Cash Flows from Investing Activities:
Proceeds from Sale of Securities Available for
Sale.......................................... $ -- $ 2,719 $ --
Proceeds from Maturities of Securities Available
for Sale...................................... 3,000 2,500 16,250
Proceeds from Maturities of Securities Held to
Maturity...................................... -- 10,500 --
Purchases of Securities Held to Maturity........ -- -- (18,217)
Purchases of Securities Available for Sale...... (19,500) -- (500)
Net Advances on Loans........................... (25,416) (7,404) 1,453
Proceeds from Sale of Premises and Equipment.... 11 6 2
Purchase of Premises and Equipment.............. (416) (337) (183)
Proceeds from Sale of Real Estate Owned
and Other Property Acquired................... 874 908 1,241
Capital Costs Incurred on Real Estate Owned and
Other Property Acquired....................... (35) (131) (71)
Proceeds from Sale of Mortgage-Backed
Securities.................................... -- 467 --
Principal Collections on Mortgage-Backed
Securities Available for Sale................. 4,020 -- --
Principal Collections on Mortgage-Backed
Securities Held to Maturity................... 397 3,955 5,341
Purchase of Mortgage-Backed Securities Held to
Maturity...................................... -- (9,718) (8,471)
Purchase of FHLB Stock.......................... -- -- (53)
Net Cash Provided By (Used In) Investing
Activities.................................... $(37,065) $ 3,465 $ (3,208)
-------- ------- --------
Cash Flows From Financing Activities:
Net Change in Demand, now and Savings
Deposits...................................... $ (1,260) $(5,784) $(6,808)
Net Change in Time Deposits..................... (11,633) 8,039 (4,993)
Net Change in Mortgage Escrow Funds............. (44) (70) 88
Proceeds from FHLB Advances..................... 22,000 -- --
Proceeds from Issuance of Common Stock.......... 30,153 -- --
Dividends Paid to Shareholders.................. (226) -- --
Stock Conversion Costs Incurred................. (937) -- --
-------- ------- --------
Net Cash Provided By (Used In) Financing
Activities.................................... $ 38,053 $ 2,185 $(11,713)
-------- ------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents................................... $ 3,303 $ 6,097 $(13,713)
Cash and Cash Equivalents at Beginning of
Year.......................................... 16,481 10,384 24,097
-------- ------- --------
Cash and Cash Equivalents at End of Year........ $ 19,784 $16,481 $ 10,384
-------- ------- --------
-------- ------- --------
Supplemental Schedule of Noncash Activities:
Acquisition of Real Estate in Settlement of
Loans......................................... $ 189 $ 252 $ 955
Unrealized Appreciation (Loss) on Securities.... $ (481) $ 1,239 $ (177)
Loans Made to Facilitate Sales of Real Estate
Owned......................................... $ -- $ 317 $ 764
Supplemental Disclosures:
Cash Paid For:
Interest on Deposits and Borrowings............. $ 10,747 $10,136 $ 9,371
Income Taxes.................................... $ 526 $ 915 $ 951
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
22
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Acadiana Bancshares, Inc. (the "Company") is a Louisiana Corporation
organized in February 1996 for the purpose of becoming the bank holding
company for lba Savings Bank (the "Bank"). The Board of Directors of the Bank
adopted the Plan of Conversion pursuant to which the Bank converted from a
Louisiana chartered savings bank to a Louisiana chartered stock savings bank.
The Company completed its subscription and community offering in July 1996,
and with a portion of the net proceeds, acquired the capital stock of the
Bank. The Company provides a variety of financial services primarily to
individuals, but also to commercial business customers through its four full
service branches in Lafayette, Louisiana and its loan production office in
Eunice, Louisiana. The Bank's primary deposit products are interest bearing
checking accounts and certificates of deposit. Its primary lending products
are single family residential loans, commercial real estate loans and
commercial loans.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Acadiana
Bancshares, Inc. and its wholly owned subsidiary, lba Savings Bank. All
material intercompany balances and transactions have been eliminated in
consolidation. The 1995 and 1994 financial statements contained herein are
those of LBA Savings Bank (and Subsidiary) as the predecessor entity.
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 income and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
A majority of the Company's loan portfolio consists of single family
residential loans in the Lafayette area. The regional economy has
demonstrated heavy dependence on the oil and gas industry, which was in
severe economic decline in the 1980's. Real estate prices in this market were
substantially depressed. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed real estate are
susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination. Because of these factors,
it is reasonably possible that the allowances for losses on loans and
foreclosed real estate may change materially in the near term.
CASH AND CASH EQUIVALENTS
The Company considers all cash and amounts due from depository
institutions and interest bearing demand deposits in other banks to be cash
equivalents for purposes of the statements of cash flows.
INVESTMENT SECURITIES
Investment securities that are held for short-term resale are classified
as trading securities and carried at fair value. 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.
Other investment securities are classified as available for sale and are
carried at fair value. Realized and unrealized gains and losses on trading
securities are included in net income. Unrealized gains and losses on
securities available for sale are recognized as direct increases or decreases
in
Continued 23
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CONTINUED
equity, net of applicable income taxes. No investments have been classified
as trading securities. The cost of securities sold is recognized using the
specific identification method.
MORTGAGE-BACKED SECURITIES
Mortgage-Backed securities, or MBSS, owned by the Company represent
participating interests in pools of underlying long-term first mortgage loans
issued by one of three agencies: GNMA, FNMA, and FHLMC. Collateralized
mortgage obligations, or CMOS, owned by the Company represent participating
interests in a multiclass security that is secured by one or more pools of
mortgage pass-through pools. Management classifies certain of both types of
MBSS as available for sale securities, which are carried at fair value. These
securities may be sold in the future; however, it is not anticipated they
will be sold in the near future. Management also classifies certain of both
types of MBSS as held to maturity, which are carried at cost, adjusted for
amortization of premiums and accretion of discounts using methods
approximating the interest method. The Company has both the intent and
ability to hold such securities to maturity. Unrealized gains and losses on
securities available for sale are recognized as direct increases or decreases
in equity, net of applicable income taxes. The cost of mortgage-backed
securities sold is recognized using the specific identification method.
REDESIGNATIONS REGARDING INVESTMENT SECURITIES AND MORTGAGE-BACKED
SECURITIES
On November 15, 1995, the Financial Accounting Standards Board issued a
"Special Report", A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities. In connection with the
"Special Report", accounting principles allowed the Company a one-time
opportunity to reassess the appropriateness of the designations of all its
securities held upon the initial application of the "Special Report". In
December 1995, the Company elected to redesignate certain of its investment
securities and its mortgage-backed securities; such redesignations were
accounted for at fair value in accordance with SFAS 115.
LOANS HELD FOR SALE
Mortgage loans originated and held for sale in the secondary market are
carried at the lower of cost or market value determined on an aggregate
basis. Net unrealized losses are recognized in a valuation allowance through
charges to income. Gains and losses on the sale of loans held for sale are
determined using the specific identification method. At December 31, 1996 and
1995, the bank had no loans held for sale.
LOANS RECEIVABLE
Loans are stated at unpaid principal balances, less the allowance for
loan losses, net deferred loan fees and unearned discounts. Loan origination
fees and certain direct loan origination costs, including dealer
participation fees paid on indirect financing, are deferred and amortized as
an adjustment to the related loan's yield using the interest method. Interest
on loans is recognized using the simple interest method.
A loan (including a loan defined as impaired under SFAS 114) is
classified as nonaccrual when the loan becomes 90 days or more past due. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest
income on other nonaccrual loans is recognized only to the extent of cash
payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of various factors, including the collectibility of the loan
portfolio, the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.
In May 1993, the FASB issued SFAS 114, Accounting by Creditors for
Impairment of a Loan, which requires that impaired loans that are within the
scope of this statement be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or at the
loan's market price or the fair value of the collateral if the loan is
collateral dependent. The Company uses the loan-by-loan measurement method
for all loans; however, residential mortgage loans and consumer installment
loans are considered to be groups of
Continued 24
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CONTINUED
smaller balance homogenous loans and are collectively evaluated for
impairment and are not subject to SFAS 114 measurement criteria. A loan is
considered impaired when it is probable that all contractual amounts due will
not be collected in accordance with the terms of the loan. A loan is not
deemed to be impaired if a delay in receipt of payment is expected to be less
than 60 days or if, during a longer period of delay, the Company expects to
collect all amounts due, including interest accrued at the contractual rate
during the period of the delay. Factors considered by management include the
property location, economic conditions and any unique circumstances affecting
the loan. Due to the composition of the Company's loan portfolio, the fair
value of collateral is utilized to measure virtually all of the Company's
impaired loans. If the fair value of an impaired loan is less than the
related recorded amount, a valuation allowance is established or the
writedown is charged against the allowance for loan losses if the impairment
is considered to be permanent.
The standard is to be adopted prospectively with the effect of initially
applying the standard to be reflected as an adjustment to the Company's
provision for loan losses in the year of adoption. The Company adopted the
standard effective January 1, 1995.
PREMISES AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful
lives of the respective assets, 15 to 40 years for buildings and 3 to 12
years for furniture, fixtures and equipment. All premises and equipment are
recorded at cost and are depreciated on either the straight line method or
declining balance method.
REAL ESTATE AND OTHER PROPERTY ACQUIRED IN SETTLEMENT OF LOANS
Real estate and other property 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, plus
capital improvements made thereafter to facilitate sale. Writedowns based on
fair value at the date of acquisition are charged to the allowance for loan
losses. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of cost or fair value
minus estimated costs to sell. Costs of holding real estate acquired in
settlement of loans and subsequent writedowns to reflect fair value are shown
as charges against income currently. Gains on sales of such real estate are
taken into income based on the buyer's initial and continuing investment in
the property. Other property acquired in settlement of loans consists
primarily of automobiles.
LOAN SERVICING
The Company adopted SFAS 122, Accounting for Mortgage Servicing Rights,
prospectively as of January 1, 1996. Issued in May 1995, SFAS 122 amends
certain provisions of SFAS 65 to eliminate the accounting distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and rights acquired through purchase transactions. The
statement requires a mortgage banking enterprise, which sells or securitizes
loans and retains the related mortgage servicing rights, to allocate the
total cost of the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values.
When participating interests in loans sold have an average contractual
interest rate, adjusted for normal servicing fees, that differs from the
agreed yield to the purchaser, gains or losses are recognized equal to the
present value of such differential over the estimated remaining life of such
loans. The resulting "excess servicing receivable" or "deferred servicing
revenue" is amortized over the estimated life using a method approximating
the interest method.
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.
The effect of adopting SFAS 122 did not have a material impact on the
Company's financial condition or the results of operations.
ADVERTISING COSTS
The Company incurred no direct-response advertising costs and expenses all
advertising costs as incurred.
Continued 25
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CONTINUED
LONG-LIVED ASSETS
The Company adopted SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, in 1996. This statement
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present. Impairment would be
considered when the undiscounted cash flows estimated to be generated by
those assets are less then the assets' carrying amount. Implementation of
this statement had no material effect on the consolidated financial
statements.
EMPLOYEE BENEFITS
SFAS 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, which is effective for fiscal years beginning after December 15,
1992, requires recognition of estimated future postretirement costs over
employees' periods of service. SFAS 112, Employers' Accounting for
Postemployment Benefits, which is effective for fiscal years beginning after
December 15, 1993, requires recognition of estimated future postemployment
costs over employees' periods of service. The Company offers no
postretirement health or medical benefits or postemployment benefits to any
of its employees or former employees.
INCOME TAXES
The Company and its subsidiary file a consolidated federal income tax
return on a calendar year basis. Deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statements carrying amounts and the tax bases of existing assets and
liabilities in accordance with SFAS 109, Accounting for Income Taxes. 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.
EARNINGS PER SHARE
Net income per share of common stock is computed by dividing net income
by the weighted average number of shares of common stock outstanding during
each year. The weighted average number of common shares outstanding excludes
the weighted average unreleased shares owned by the ESOP of 213,026. Earnings
per share for periods preceding the third quarter of 1996 are not applicable,
as the Bank's conversion from mutual-to-stock form and reorganization into a
holding company format was not completed until July 15, 1996.
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the statement of financial condition. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statements of financial condition for cash and cash equivalents
approximate those assets' fair values.
Investment securities (including equity securities and mortgage-backed
securities): Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and mortgage loans) are estimated using discounted
cash flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Loan
fair value estimates
26 Continued
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CONTINUED
include judgments regarding future expected loss experience and risk
characteristics. The carrying amount of accrued interest receivable
approximates its fair value.
Deposits: The fair value disclosed for demand deposits (for example,
interest bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits. The
carrying amount of accrued interest payable approximates fair value.
Off-Balance Sheet Items: The Company has outstanding commitments to
extend credit and stand-by letters of credit. These off-balance sheet
financial instruments are generally exerciseable at the market rate
prevailing at the date the underlying transaction will be completed and,
therefore, have no current value.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, FASB issued SFAS 123, Accounting for Stock-Based
Compensation. The Company adopted SFAS 123 effective January 1, 1996. The
statement establishes a fair value based method of accounting for stock-based
compensation plans. It encourages entities to adopt that method in place of
the provisions of Accounting Principles Board ("apb") Opinion 25, Accounting
for Stock Issued to Employees, for all arrangements under which employees
receive shares of stock or other equity instruments of the employer if the
employer incurs liabilities to employees in amounts based on the price of its
stock. The Company will continue using the accounting methods prescribed by
apb Opinion 25 and will disclose in the footnotes information on a fair value
basis for its stock-based compensation plans.
In June 1996, the FASB issued SFAS 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on the
consistent application of the financial-components approach. This approach
requires the recognition of financial assets and servicing assets that are
controlled by the reporting entity, and the derecognition of financial assets
and liabilities when control is extinguished. Liabilities and derivatives
incurred or obtained by transfers in conjunction with the transfer of
financial assets are required to be measured at fair value, if practicable.
Servicing assets and other retained interests in transferred assets are
required to be measured by allocating the previous carrying amount between
the assets sold, if any and the interest that is retained, if any, based on
the relative fair value of the assets at the date of transfer. SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. SFAS 127, Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125, was issued in
December 1996 and deferred application of many of the provisions of SFAS 125
until after December 31, 1997.
Management believes adoption of SFAS 125 will not have a material effect
on financial position and the results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994
consolidated financial statements in order to conform to the classifications
adopted for reporting in 1996.
NOTE 2--CASH AND AMOUNTS DUE FROM BANKS:
The Company is required by the Federal Reserve Bank to maintain a reserve
of vault cash or cash on deposit based on a percentage of deposits. The
amount of the reserves at December 31, 1996 and 1995 was approximately
$281,000 and $223,000, respectively.
Continued 27
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--INVESTMENT SECURITIES:
Securities available for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------ ------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
and Federal Agencies....... $20,389 $149 $(14) 20,524 $3,861 $157 $ -- $4,018
Marketable Equity Security... 5 10 -- 15 5 7 -- 12
------- ---- ---- ------- ------ ---- ----- ------
Total........................ $20,394 $159 $(14) $20,539 $3,866 $164 $ -- $4,030
------- ---- ---- ------- ------ ---- ----- ------
------- ---- ---- ------- ------ ---- ----- ------
</TABLE>
The following is a summary of maturities of securities available for sale
as of December 31, 1996 (in thousands):
SECURITIES AVAILABLE
FOR SALE
----------------------
AMORTIZED FAIR
COST VALUE
----------- ---------
Amounts maturing in:
One year or less............................... $ 1,000 $ 1,001
After one year through five years.............. 17,389 17,532
After five years through ten years............. 2,000 1,991
After ten years................................ -- --
----------- ---------
20,389 20,524
Marketable Equity Security..................... 5 15
----------- ---------
Total.......................................... $20,394 $20,539
----------- ---------
----------- ---------
Securities are classified according to their contractual maturity without
consideration of call options. Accordingly, actual maturities may differ from
contractual maturities.
During 1996, no securities available for sale were sold. During 1995, the
Company sold securities available for sale for total proceeds of
approximately $2,719,000, resulting in realized losses of approximately
$31,000. There were no sales of securities in 1994.
As described above in Note 1, in 1995 the Company was permitted to make
transfers from the held to maturity to available for sale classifications. In
December 1995, investment securities with an amortized cost of approximately
$3,859,000 and market value of approximately $4,004,000 were transferred from
held to maturity to available for sale.
Investment securities with a carrying amount and fair value of
approximately $519,000 at December 31, 1996 were pledged to secure deposits
as required or permitted by law.
28
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities available for sale consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
GNMA..... $ 1,760 $ 16 $ -- $ 1,776 $ 1,924 $ 57 $ -- $ 1,981
FNMA..... 11,976 483 (10) 12,449 14,418 767 -- 15,185
FHLMC.... 6,893 45 (85) 6,853 8,281 111 (31) 8,361
FNMA
CMO.... 502 -- (14) 488 502 -- (7) 495
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
$ 21,131 $ 544 $ (109) $ 21,566 $ 25,125 $ 935 $ (38) $ 26,022
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
</TABLE>
Mortgage-backed securities held to maturity consist of the following (in
thousands):
<TABLE>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
GNMA..... $ 1,320 $ 21 $ -- $ 1,341 $ 1,585 $ -- $ (9) $ 1,576
FNMA..... 232 -- (3) 229 259 1 -- 260
FHLMC.... 822 -- (30) 792 936 -- (27) 909
FNMA
CMO.... 4,733 -- (21) 4,712 4,733 58 -- 4,791
FHLMC
CMO.... 5,980 -- (116) 5,864 5,979 79 (55) 6,003
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
$ 13,087 $ 21 $ (170) $ 12,938 $ 13,492 $ 138 $ (91) $ 13,539
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
</TABLE>
The following is a summary of maturities of mortgage-backed securities
available for sale and held to maturity as of December 31, 1996 (in
thousands):
AVAILABLE FOR SALE HELD TO MATURITY
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- ---------
Amounts maturing in:
One year or less.............. $ 3,441 $ 3,511 $ 304 $ 301
After one year through
five years................. 14,460 14,758 874 864
After five years through
ten years.................. 2,873 2,932 600 593
After ten years............... 357 365 11,309 11,180
----------- --------- ----------- ---------
Total......................... $ 21,131 $ 21,566 $ 13,087 $ 12,938
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Maturities are based on the average life at the currently projected
prepayment speed.
During 1996, no mortgage-backed securities available for sale were sold.
During 1995, the Company sold one available for sale mortgage-backed security
for total proceeds of approximately $468,000 resulting in a realized loss of
approximately $33,000. There were no sales of mortgage-backed securities
available for sale in 1994. There were no sales of held to maturity
mortgage-backed securities in 1996, 1995 or 1994.
As described above in Note 1, in 1995 the Company was permitted to make
transfers from the held to maturity to available for sale classifications. In
December 1995, mortgage-backed securities with an amortized cost of
approximately $25,921,000 and market value of approximately $26,737,000 were
transferred from held to maturity to available for sale.
Continued 29
<PAGE>
ACADIANA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--LOANS RECEIVABLE:
Loans Receivable at December 31, 1996 and 1995 are summarized as follows
(in thousands):
1996 1995
---------- ----------
Mortgage Loans:
Single Family Residential......................... $ 142,965 $ 127,656
Single Family Construction........................ 10,565 7,304
Multi-family Residential.......................... 862 1,202
Commercial Real Estate............................ 12,873 13,370
---------- ----------
Total Mortgage Loans.............................. 167,265 149,532
Commercial Business Loans......................... 7,363 1,358
Consumer Loans:
Savings........................................... 2,709 2,632
Indirect Automobile Dealer........................ 7,424 5,472
Other............................................. 6,594 5,600
---------- ----------
Total Loans....................................... 191,355 164,594
Less:
Allowance for Loan Losses......................... (2,592) (2,329)
Unearned Discounts and Prepaid Dealer Reserve..... 331 206
Net Deferred Loan Origination Fees................ (471) (488)
Loans in Process and Undisbursed Funds............ (5,899) (4,292)
---------- ----------
Net Loans......................................... $ 182,724 $ 157,691
---------- ----------
---------- ----------
At December 31, 1996 and 1995, the Company's loan portfolio included
$86,565,000 and $69,991,000 in adjustable rate mortgages, respectively.
The following is an analysis of the allowance for possible loan losses
for the years ended December 31 (in thousands):
1996 1995 1994
--------- --------- ---------
Balance, Beginning................... $2,329 $1,087 $1,015
Provision Charged to Income.......... 355 1,274 63
Loans Charged Off.................... (277) (127) (183)
Loans Recovered...................... 185 95 192
--------- --------- ---------
Balance, Ending...................... $ 2,592 $ 2,329 $ 1,087
--------- --------- ---------
--------- --------- ---------
The total recorded investment in impaired loans as of December 31, 1996
and 1995 was $197,000 which consisted of one loan. The total allowance for
impaired loans attributable to this loan was $65,000 as of December 31, 1996
and 1995. The average recorded investment in the impaired loan during 1996
and 1995 was $197,000. No interest income was recognized in 1996 on the
impaired loan. No interest income was recognized in 1995 on the impaired loan
during the period it was considered impaired.
At December 31, 1996 and 1995, the Company had loans totaling $536,000 (5
loans) and $747,000 (6 loans), respectively, whose terms had been modified as
a troubled debt restructuring. The interest income that would have been
recognized if those loans had been current with their original terms was
$131,000, $147,000 and $154,000 for the years ended December 31, 1996, 1995
and 1994, respectively. Interest income totaling $78,000, $89,000 and $96,000
was included in income for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company is not committed to lend additional funds to
debtors whose loans have been restructured.
30
<PAGE>
NOTE 6--LOAN SERVICING:
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others was $24,453,000 and $24,033,000 at December
31, 1996 and 1995, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing were approximately $378,000 and $295,000 at December 31, 1996
and 1995, respectively.
Mortgage loan servicing rights of $35,000 were capitalized in 1996.
Amortization of mortgage servicing rights was $3,000 in 1996, and the balance
of mortgage servicing rights at December 31, 1996 was $32,000.
NOTE 7- PREMISES AND EQUIPMENT:
Premises and equipment at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land....................................................................... $ 738 $ 738
Office Buildings........................................................... 1,237 1,510
Furniture, Fixtures and Equipment.......................................... 2,381 2,267
Transportation Equipment................................................... 95 81
--------- ---------
4,451 4,596
Accumulated Depreciation................................................... (2,624) (2,797)
--------- ---------
Premises and Equipment, Net................................................ $ 1,827 $ 1,799
--------- ---------
--------- ---------
</TABLE>
NOTE 8--REAL ESTATE OWNED:
Real estate owned at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Real Estate and Other Property Acquired.....................................$ 75 $ 855
Allowance for Losses........................................................ -- (10)
---------- ---------
Real Estate Owned, Net......................................................$ 75 $ 845
---------- ---------
---------- ---------
</TABLE>
The changes in real estate and other property acquired for the years ended
December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Balance, Beginning...........................................................$ 855 $ 2,753
Real Estate and Other Property acquired in settlement of loans.............. 281 252
Capitalized Costs............................................................ 34 131
Dispositions................................................................. (737) (818)
Losses and Writedowns Charged to Allowance................................... (358) (1,463)
--------- ---------
Balance, Ending..............................................................$ 75 $ 855
--------- ---------
--------- ---------
</TABLE>
Continued 31
<PAGE>
NOTE 8: Continued
The changes in the allowance for losses on real estate and other property
acquired in settlement of loans for the years ended December 31 is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, Beginning............................ $ 10 $ 304 $ 314
Provision Charged to Income.................. 1,169 94
Losses and Writedowns Charged to Allowance... (10) (1,463) (104)
--------- --------- ---------
Balance, Ending................................ $ -- $ 10 $ 304
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1996, the Company switched from the allowance method to the direct
charge-off method for Real Estate Owned and Other Repossessed Assets.
NOTE 9--DEPOSITS:
Deposit account balances at December 31 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
WEIGHTED 1996 1995
AVERAGE RATE AT --------------------- -------------------------
DECEMBER 31,,1996 AMOUNT % AMOUNT %
----------------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
NOW Accounts................................... 1.8% $ 11,528 6.0% $ 10,689 5.2%
Money Market Accounts.......................... 2.3% 5,101 2.6% 6,228 3.0%
Non-interest Bearing Checking Accounts......... --% 4,954 2.6% 3,024 1.5%
Total Demand Deposits.......................... 21,583 11.2% 19,941 9.7%
---------- --------- -------------- ---------
Passbook Savings Deposits...................... 2.5% 25,071 12.9% 27,973 13.5%
---------- --------- -------------- ---------
---------- --------- -------------- ---------
Certificate of Deposit Accounts:
Less than 4.00%................................ 100 .1% 323 .2%
4.0% to 4.99% 17,031 8.8% 14,845 7.2%
5.0% to 6.99% 105,385 54.5% 105,766 51.2%
7.0% to 8.99% 23,434 12.1% 36,600 17.8%
9.0% and over 846 .4% 895 .4%
---------- --------- -------------- ---------
Total Certificates of Deposit.................. 5.8% 146,796 75.9% 158,429 76.8%
---------- --------- -------------- ---------
Total Deposits................................. 4.9% $ 193,450 100.0% $ 206,343 100.0%
---------- --------- -------------- ---------
---------- --------- -------------- ---------
</TABLE>
At December 31, 1996, scheduled maturities of certificates of deposit
accounts were as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
One year or less........................................ $ 80,284
Over one year through two years...................................... 33,378
Over two years through three years................................... 15,233
Over three years through five years................................. 3,135
Over five years through ten years................................... 14,766
----------
Total Certificates of Deposit...................................... $ 146,796
----------
----------
</TABLE>
Certificates of deposit with a balance of $100,000 and over were $36,037,000
and $39,604,000 at December 31, 1996 and 1995, respectively.
32 Continued
<PAGE>
NOTE 9: Continued
Interest expense on deposits for the following years ended December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NOW Accounts............................................................. $ 160 $ 144 $ 153
Money Market............................................................. 131 139 189
Passbook Savings......................................................... 692 737 928
Certificates of Deposits................................................. 9,201 9,092 8,086
--------- --------- ---------
Total Interest Expense on Deposits....................................... $ 10,184 $ 10,112 $ 9,356
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income from early withdrawal penalties on certificate accounts was $63,000,
$53,000 and $45,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
NOTE 10--FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances totaled $22,250,000 and $250,000 as of
December 31, 1996 and 1995, respectively, which are secured by mortgage loans
under an existing blanket collateral agreement and by Federal Home Loan Bank
stock. No payments are scheduled prior to maturity. The Company has the
ability to borrow total advances up to $125,955,000 from the Federal Home
Loan Bank which would also be secured by the existing blanket collateral
agreement and by Federal Home Loan Bank stock. Advances at December 31, 1996
and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
INTEREST RATE 1996 1995
- - ------------------------------------------- -----------------------
<S> <C> <C>
5.350% to 5.566%, at floating libor $ 22,000 $ --
8.700% 250 250
----------- ----------
Total Advances............................. $ 22,250 $ 250
----------- ----------
----------- ----------
</TABLE>
Advances at December 31, 1996 have maturities in future years as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- -------
<S> <C>
1998................. $22,000
2005.................. 250
-------
$22,250
-------
-------
</TABLE>
NOTE 11--INCOME TAXES:
The provision for Income Tax Expense (Benefit) is as follows for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.......................... $ 468 $(134) $1,111
State.............................. 14 -- --
Deferred:
Federal........................... (43) (343) (54)
-------- --------- ---------
Total Income Tax Expense (Benefit)..... $439 $(477) $1,057
-------- --------- ---------
-------- --------- ---------
</TABLE>
There was an income tax refund receivable of $16,000 at December 31, 1996 and
$1,090,000 at December 31, 1995.
Continued 33
<PAGE>
NOTE 11: CONTINUED
The total provision for federal income taxes differs from that computed by
applying statutory corporate tax rates, as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate.......................................................... 34.0% (34.0)% 34.0%
Increase (Decrease) in Taxes Resulting From:
State Income Tax on Non-Bank Entities...................................................... 1.1 -- --
Other Items................................................................................ .3 .9 (.4)
Effective Tax Rate......................................................................... 35.4% (33.1)% 33.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of principal temporary differences at December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Deferred loan fees................................................................ $ 90 $ 166
Book provision for losses on loans and real estate owned.......................... 878 797
Real estate owned basis differences............................................... 74 --
Deferred gains on loans........................................................... 49 73
Depreciable property basis differences............................................ 25 --
Other............................................................................. 21 5
--------- ---------
Subtotal....................................................................... 1,137 1,041
--------- ---------
Deferred Tax Liabilities:
Discount Accretion on Investment.................................................. 19 --
FHLB stock........................................................................ 249 215
Unrealized gains on Securities Available for Sale................................. 193 361
--------- ---------
Subtotal....................................................................... 461 576
--------- ---------
Net Deferred Tax Asset............................................................ $ 676 $ 465
--------- ---------
--------- ---------
</TABLE>
The likelihood of realization of the entire amount of the deferred tax asset
is considered to be more likely than not; therefore, no valuation allowance
has been provided for 1996 and 1995. The net deferred tax asset is included
in Other Assets on the statement of financial condition.
Included in retained earnings at December 31, 1996 and 1995, is approximately
$7,073,000 and $7,064,000, respectively, in bad debt reserves for which no
deferred federal income tax liability has been recorded. These amounts
represent allocations of income to bad debt deductions for tax purposes only
for tax years prior to 1987. Reduction of these reserves for purposes other
than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes, which would be subject
to the then current corporate income tax rate.
NOTE 12--REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Financial institutions are
segmented into one of five classifications ranging from "well capitalized" to
"critically undercapitalized." Should a financial institution's ratios
decline below the predetermined minimum ratios, the institution would be
subject to increasingly restrictive regulatory action.
34 Continued
<PAGE>
Note 12: CONTINUED
The regulations require institutions to have a minimum regulatory tangible
capital equal to 1.5 percent of adjusted total assets, a minimum 4.0 percent
core/leverage capital ratio, a minimum 4.0 percent tier one risk-based ratio,
and a minimum 8.0 percent total risk-based capital ratio to be considered
"adequately capitalized." An institution is deemed to be "critically
undercapitalized" if it has a tangible equity ratio of two percent or less.
At December 31, 1996, the Bank was classified as "well capitalized".
As of December 31, the Company met all regulatory capital requirements as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1996
-----------------------
Required Actual
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Tier 1 leverage capital:
Acadiana Bancshares, Inc. $ 10,545 4.00% $ 46,676 17.71%
LBA Savings Bank 10,007 4.00% 33,451 13.37%
Tier 1 risk-based capital:
Acadiana Bancshares, Inc. 5,270 4.00% 46,676 35.43%
LBA Savings Bank 5,161 4.00% 33,451 25.93%
Total risk-based capital:
Acadiana Bancshares, Inc. 10,539 8.00% 48,334 36.69%
LBA Savings Bank 10,322 8.00% 35,076 27.19%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------
Required Actual
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Tier 1 leverage capital:
LBA Savings Bank $ 8,986 4.00% $ 16,996 7.57%
Tier 1 risk-based capital:
LBA Savings Bank 4,550 4.00% 16,996 14.94%
Total risk-based capital:
LBA Savings Bank 9,099 8.00% 18,429 16.20%
</TABLE>
LBA Savings Bank 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. Undistributed
earnings of the Bank for 1996 that are available for dividend distribution to
the Company in 1997 are $547,000.
NOTE 13--EMPLOYEE BENEFITS:
401(k) and Money Purchase Pension Plans
The Company maintains a 401(k) Profit Sharing Plan to provide retirement
benefits for substantially all employees. Eligible employees may defer up to
ten percent of compensation and the Company contributes a matching
contribution of 100 percent of employee deferrals up to three percent of
compensation. The board of directors determines the amount of an additional
discretionary contribution, if any, annually. All employees are eligible
after completing one year of service and attaining age 21. The Company
terminated the Money Purchase Pension Plan, which required a two percent
contribution, effective January 1, 1996.
Employer contributions made to the plans were $52,000, $146,000 and $189,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
Continued 35
<PAGE>
NOTE 13: CONTINUED
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the conversion from mutual to stock form, the Company
established an Employee Stock Ownership Plan ("ESOP") for the benefit of
employees of the Company and the Bank. The ESOP purchased 218,500 shares, or
8 percent of the total stock sold in the subscription, for $2,622,000,
financed by a loan from the Company. The leveraged ESOP is accounted for in
accordance with AICPA SOP 93-6, Employers' Accounting for Employee Stock
Ownership Plans.
The ESOP was effective upon completion of the conversion. Full-time employees
of the Company and the Bank 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.
Shares purchased by the ESOP with the proceeds of the loan will be held in a
suspense account and released on a pro-rata basis as debt service payments
are made. Shares released will be allocated among participants on the basis
of compensation. Participants will vest in their right to receive their
account balances within the ESOP at the rate of 20 percent per year starting
after one year of service. In the case of a "change of control," as defined
in the plan, participants will become immediately and fully vested in their
account balances.
Under SOP 93-6, unearned ESOP shares are not considered outstanding and are
shown as a reduction of stockholders' 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. The loan receivable from
the ESOP to the Company is not shown as an asset and the debt of the ESOP is
not shown as a Company liability. Dividends on allocated shares will be used
to pay the ESOP debt.
Compensation cost for the year ended December 31, 1996 was $148,000 based on
the release of 10,946 shares. At December 31, 1996, there were 10,946
allocated shares and 207,554 shares were held in suspense by the ESOP. The
fair value of the unearned ESOP shares at December 31, 1996, using the quoted
market closing price per share was approximately $3,087,000.
NOTE 14--RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Company makes loans to its employees,
officers and directors. Such loans to employees, officers and directors are
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons.
The Company has an employment agreement with an executive officer under which
the Company agreed to pay compensation of $130,000 annually through October
31, 1999. The Company has also entered into severance agreements with six
officers. The total commitments under the severance agreements at December
31, 1996 were $728,000.
NOTE 15--COMMITMENTS AND CONTINGENT LIABILITIES:
The Company is subject to claims and lawsuits which arise primarily in the
ordinary course of business. Based on information presently available and
advice received from legal counsel representing the Company in connection
with such claims and lawsuits, it is the opinion of management that the
disposition or ultimate determination of such claims and lawsuits will not
have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
NOTE 16--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
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
36 Continued
<PAGE>
NOTE 16: CONTINUED
to extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial condition. The contract or
notional amounts of those instruments reflect the extent of the Company's
involvement in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996, FINANCIAL INSTRUMENTS FOR WHICH THE CONTRACT OR NOTIONAL
CONTRACT AMOUNTS WERE AS FOLLOWS REPRESENT CREDIT RISK: AMOUNT (IN THOUSANDS)
- - ----------------------------------------------------------------------- ---------------------
<S> <C>
Undisbursed Loans in Process........................................... $ 5,899
Commitments to Extend Credit........................................... $ 10,105
Standby Letters of Credit.............................................. $ 598
</TABLE>
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 some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's credit-worthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the counter party.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bonding financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
NOTE 17--CONCENTRATION OF CREDIT:
All of the Company's loans, commitments, and letters of credit have been
granted to customers in the Company's market area. The concentration of
credit by type of loan is set forth in Note 5. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Letters of credit were granted primarily to borrowers who
develop real estate properties.
NOTE 18--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments as of
December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR BOOK FAIR BOOK
VALUE BALANCE VALUE BALANCE
----------- --------- ----------- ---------
ASSETS
Cash................................................................. $ 19,784 $ 19,784 $ 16,481 $ 16,481
Investment Securities................................................ 20,539 20,539 4,030 4,030
Mortgage-Backed Securities........................................... 34,504 34,653 39,561 39,514
Loans Receivable..................................................... 184,289 182,724 163,636 157,691
LIABILITIES
Deposits:
Regular Savings, NOW Accounts, and Money Market Deposits............. $ 46,654 $ 46,654 $ 47,913 $ 47,913
Certificates of Deposit.............................................. 149,155 146,796 160,842 158,430
Advances from Federal Home Loan Bank................................. 22,250 22,250 292 250
</TABLE>
37
<PAGE>
NOTE 19--CONVERSION FROM MUTUAL TO STOCK ASSOCIATION:
In 1996, the Bank converted from a Louisiana chartered mutual savings bank to
a Louisiana chartered stock savings bank, pursuant to its Plan of Conversion.
The Company issued 2,731,250 shares of common stock at $12.00 per share. The
Company's ESOP purchased 218,500 shares, financed by a loan from the Company.
The net proceeds received from the conversion was $30,153,000. Total
conversion costs approximated $937,000.
In accordance with regulations, at the time that the Bank converted from a
mutual savings bank to a stock savings bank, the Bank established a
liquidation account in the amount of $17,697,000. The liquidation account
will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their accounts
at the Bank after the Conversion. The liquidation account will be reduced
annually to the extent that eligible account holders and supplemental
eligible account holders have reduced their qualifying deposits. Subsequent
increases in deposits will not restore an eligible account holder's or
supplemental eligible account holder's interest in the liquidation account.
In the event of a complete liquidation of the Bank, each account holder and
supplemental eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The Bank may not
pay a dividend on its capital stock if the dividend would bring regulatory
capital below the balance of the liquidation account.
The Bank is restricted from declaring or paying cash dividends or
repurchasing any of its shares of common stock if the effect thereof would
cause equity to be reduced below applicable regulatory capital maintenance
requirements or if such declaration and payment would otherwise violate
regulatory requirements. The Bank continues to be a member of the Federal
Home Loan Bank System and all insured savings deposits continue to be insured
by the fdic up to the maximum provided by law.
NOTE 20--LAFAYETTE LAND AND MANAGEMENT:
Lafayette Land and Management (LLM), a wholly owned subsidiary of the Bank,
was liquidated into the Bank in December 1995. At the time of liquidation its
principal assets consisted of cash ($93,000) and one tract of real estate
($859,000) that had previously been acquired by the Bank through foreclosure.
The liquidation was a tax-free reorganization for tax purposes.
For the year ended December 31, 1995, total revenues of LLM were $100,000 and
its expenses were $48,000. For the year ended December 31, 1994, total
revenues of LLM were $28,000 and its expenses were $41,000. These amounts are
included in the consolidated statements of operations.
NOTE 21--SUBSEQUENT EVENTS:
On January 21, 1997, at a special meeting the stockholders of the Company
approved adoption of the Stock Option Plan and Recognition and Retention Plan
and Trust Agreement for the benefit of directors, officers and key employees.
The stock option plan authorizes grants totaling 273,125 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
lba 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 term cannot exceed ten years. On January 22, 1997, the Board of
Directors granted a total of 211,701 options to directors and officers at an
exercise price of $15.50 per share.
The Recognition and Retention Plan (RRP) is a restricted stock plan. The plan
authorizes the granting of up to 109,250 shares, or 4 percent of the total
number of common shares sold in the Company's initial public offering. The
Company intends to repurchase shares in the open market to fund the plan and
Trust. On January 22, 1997, the Board of Directors granted 73,202 shares of
restricted stock with a vesting period of 5 years.
38
<PAGE>
NOTE 22--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS:
Condensed financial statements of Acadiana Bancshares, Inc. (parent company)
are shown below. The parent company has no significant operating activities.
CONDENSED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Cash in Bank.......................................................... $ 11,561
Securities Available for Sale......................................... 2,014
Investment in Subsidiary.............................................. 33,856
Other Assets.......................................................... 60
------------
Total Assets.......................................................... $ 47,491
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities........................................................... $ 400
------------
Stockholders' Equity.................................................. 47,091
------------
Total Liabilities and Stockholders' Equity............................ $ 47,491
------------
------------
</TABLE>
CONDENSED STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 15, 1996 TO
DECEMBER 31,,1996
-----------------
<S> <C>
Operating Income:
Dividends from Subsidiary Bank.................................... $ 50
Interest Income................................................... 335
-------------
Total Operating Income............................................ 385
Operating Expenses................................................ 14
-------------
Income Before Income Tax Expense and Decrease in Equity in
Undistributed Earnings of Subsidiary............................ 371
Income Tax Expense................................................ 119
Income Before Decrease in Equity in Undistributed Earnings of -------------
Subsidiary...................................................... 252
Decrease in Equity in Undistributed Earnings of Subsidiary........ (83)
-------------
Net Income........................................................ $ 169
-------------
-------------
</TABLE>
39
<PAGE>
NOTE 22:CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 15, 1996 TO
DECEMBER 31, 1996
-----------------
<S> <C>
Cash Flows from Operating Activities:
Net Income................................................................. $ 169
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Decrease in Equity in Net Income of Subsidiary............................. 83
Increase in Other Assets................................................... (60)
Increase in Other Liabilities.............................................. 124
------------
Net Cash Provided by Operating Activities.................................. 316
------------
Cash Flows from Investing Activities:
Purchase of Securities Available for Sale.................................. (2,000)
Purchase of Capital Stock of Subsidiary.................................... (15,919)
------------
Net Cash Used In Investing Activities...................................... (17,919)
Cash Flows from Financing Activities:
Dividends Paid to Shareholders............................................. (226)
Capital Contributed to Subsidiary.......................................... (20)
Payments Received From esop................................................ 194
Net Proceeds From Issuance of Common Stock................................. 30,153
Stock Conversion Costs Incurred............................................ (937)
------------
Net Cash Provided by Financing Activities.................................. 29,164
------------
Net Increase in Cash and Cash Equivalents.................................. 11,561
Cash and Cash Equivalents, Beginning of Period............................. --
------------
Cash and Cash Equivalents, End of Period................................... $ 11,561
------------
------------
</TABLE>
Other Disclosures:
At December 31, 1996, the Company owed the Bank $119,000 for estimated tax
payments made on behalf of the Company.
40
<PAGE>
NOTE 23--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Total Interest Income........................................ $ 4,310 $ 4,458 $ 4,958 $ 4,977
Total Interest Expense....................................... 2,652 2,699 2,739 2,672
----------- ----------- ----------- -----------
Net Interest Income.......................................... 1,658 1,759 2,219 2,305
Provision for Loan Losses.................................... 45 45 45 220
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses.......... 1,613 1,714 2,174 2,085
Noninterest Income........................................... 254 247 165 288
Noninterest Expense.......................................... 1,452 1,414 2,864 1,571
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes............................ 415 547 (525) 802
Income Tax Expense (Benefit)................................. 132 200 (173) 280
----------- ----------- ----------- -----------
Net Income (Loss)............................................ $ 283 $ 347 $ (352) $ 522
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income (Loss) per Common Share........................... N/A N/A $ (.14) $ .21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Total Interest Income........................................ $ 4,209 $ 4,246 $ 4,263 $ 4,257
Total Interest Expense....................................... 2,343 2,509 2,613 2,669
----------- ----------- ----------- -----------
Net Interest Income.......................................... 1,866 1,737 1,650 1,588
Provision for Loan Losses.................................... -- -- -- 1,274
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses.......... 1,866 1,737 1,650 314
Noninterest Income........................................... 217 222 203 160
Noninterest Expense.......................................... 1,273 1,245 1,472 3,822
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes............................ 810 714 381 (3,348)
Income Tax Expense (Benefit)................................. 273 245 130 (1,125)
----------- ----------- ----------- -----------
Net Income (Loss)............................................ $ 537 $ 469 $ 251 $ (2,223)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income (Loss) per Common Share........................... N/A N/A $ N/A $ N/A
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
41
<PAGE>
CASTAING, HUSSEY & LOLAN, LLP
CERTIFIED PUBLIC ACCOUNTANTS
525 WEEKS STREET - P.O. BOX 14240
NEW IBERIA, LA 70582-4240
-------------------------
PH: (318) 364-7221
FAX: (318) 364-7235
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 1-14364) of our report dated January 31, 1997 appearing
in this Annual Report on Form 10-K of Acadiana Bancshares, Inc. and
Subsidiary for the year ended December 31, 1996.
New Iberia, Louisiana
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT DECEMBER 31, 1996 AND 1995 AND FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,234
<INT-BEARING-DEPOSITS> 18,550
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,105
<INVESTMENTS-CARRYING> 13,087
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<LONG-TERM> 22,250
0
0
<COMMON> 27
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<INTEREST-TOTAL> 18,703
<INTEREST-DEPOSIT> 10,184
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<CHANGES> 0
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<EPS-PRIMARY> .07
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<ALLOWANCE-CLOSE> 2,592
<ALLOWANCE-DOMESTIC> 335
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,257
</TABLE>
