<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] 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, 1997
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
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COMMISSION FILE NO: 1-14364
ACADIANA BANCSHARES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-1317124
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 WEST VERMILION STREET
LAFAYETTE, LOUISIANA 70501
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(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 $.01 PER SHARE)
---------------------------------------
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NOT APPLICABLE
Indicate by check mark whether Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant 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 20, 1998, the aggregate market value of the 2,333,066 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 242,184 shares held by all directors and officers of the Registrant as
a group, was approximately $51.6 million. This figure is based on the closing
sale price of $22.125 per share of the Registrant's Common Stock on March 20,
1998.
Number of shares of Common Stock outstanding as of December 31, 1997:
2,581,250
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, 1997 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 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, and the net conversion proceeds retained by the Company.
The Company's common stock trades on the AMEX under the symbol "ANA". At
December 31, 1997, the Company had total assets of $277.1 million, total
deposits of $193.4 million, and stockholders' equity of $44.6 million.
The Bank is a Savings Association Insurance Fund ("SAIF") -insured,
Louisiana chartered, stock savings Company conducting business from its main
office and three branch offices, located in Lafayette, Louisiana, one branch
office located in New Iberia, Louisiana and one loan production office in
Eunice, Louisiana.
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, 1997, the Company's loan portfolio totaled $212.8 million, or 76.8% 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 $30.7 million, or 11.1% of the
Company's total assets at December 31, 1997, and its investment securities
portfolio amounted to $11.9 million, or 4.3% of total assets at such date.
Traditionally, the Company's principal source of funds has come from deposits.
At December 31, 1997, the Company had total deposits of $193.4 million, of which
$49.9 million, or 25.8%, consisted of core deposits which include passbook,
money market deposits ("MMDA"), negotiable order of withdrawal ("NOW") and
noninterest-bearing accounts and $143.5 million, or 74.2%, consisted of
certificates of deposit, including $36.8 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 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,
-----------------------------------------------------------------------------------
1997 1996 1995
--------------------------- -------------------------- ----------------------------
Percent Percent Percent
Balance of Total Balance of Total Balance of Total
-------------- ------------ ------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Type of loan:
Real estate loans:
Residential single family $ 169,637 79.70% $ 142,833 78.24% $ 127,656 80.96%
Construction 9,301 4.37% 10,565 5.78% 7,304 4.63%
Multi-family residential 546 0.26% 862 0.47% 1,202 0.76%
Commercial and other real estate 9,363 4.40% 12,873 7.05% 13,370 8.48%
-------------- ------------ ------------- ------------ --------------- ------------
Total real estate loans 188,847 88.73% 167,133 91.47% 149,532 94.83%
-------------- ------------ ------------- ------------ --------------- ------------
Non-real estate loans:
Consumer 16,355 7.67% 16,859 9.23% 13,704 8.69%
Commercial business 15,400 7.24% 7,363 4.03% 1,358 0.86%
-------------- ------------ ------------- ------------ --------------- ------------
Total non-real estate loans 31,755 14.91% 24,222 13.26% 15,062 9.55%
-------------- ------------ ------------- ------------ --------------- ------------
Total loans 220,602 103.64% 191,355 104.73% 164,594 104.38%
Less:
Undisbursed loan funds 4,629 2.17% 5,899 3.23% 4,292 2.72%
Unearned discounts (162) -0.08% (331) -0.18% (206) -0.13%
Allowance for loan losses 2,760 1.30% 2,592 1.42% 2,329 1.48%
Net deferred fees (cost) 535 0.25% 471 0.26% 488 0.31%
-------------- ------------ ------------- ------------ --------------- ------------
Total loans, net $ 212,840 100.00% $ 182,724 100.00% $ 157,691 100.00%
============== ============ ============= ============ =============== ============
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1994 1993
--------------------------- ----------------------------
Percent Percent
Balance of Total Balance of Total
-------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Type of loan:
Real estate loans:
Residential single family $ 120,483 79.71% $ 115,308 75.22%
Construction 6,908 4.57% 5,339 3.48%
Multi-family residential 1,638 1.08% 2,049 1.34%
Commercial and other real estate 13,505 8.93% 15,973 10.42%
-------------- ------------ --------------- ------------
Total real estate loans 142,534 94.29% 138,669 90.46%
-------------- ------------ --------------- ------------
Non-real estate loans:
Consumer 12,749 8.43% 17,793 11.61%
Commercial business 1,479 0.98% 1,394 0.91%
-------------- ------------ --------------- ------------
Total non-real estate loans 14,228 9.41% 19,187 12.52%
-------------- ------------ --------------- ------------
Total loans 156,762 103.70% 157,856 102.98%
Less:
Undisbursed loan funds 3,593 2.37% 2,929 1.91%
Unearned discounts 498 0.33% 600 0.39%
Allowance for loan losses 1,087 0.72% 1,015 0.66%
Net deferred fees (cost) 423 0.28% 28 0.02%
-------------- ------------ --------------- ------------
Total loans, net $ 151,161 100.00% $ 153,284 100.00%
============== ============ =============== ============
</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, 1997.
<TABLE>
<CAPTION>
Over One
Less than Through Five Over Five
One Year Years Years Total
----------- ----------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential single-family mortgage loans $ 5,451 $ 25,209 $ 138,977 $ 169,637
Multi-family residential 44 223 279 546
Commercial and other real estate 610 2,888 5,865 9,363
Construction loans 9,301 - - 9,301
Commercial business loans 5,109 5,216 5,075 15,400
All Other loans 5,068 8,127 3,160 16,355
------- --------- --------- ---------
Total $25,583 $ 41,663 $ 153,356 $ 220,602
======= ========= ========= =========
</TABLE>
The following table sets forth the dollar amount at December 31, 1997 of
all loans maturing after December 31, 1998 by fixed and adjustable interest
rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
---------- ------------
(In thousands)
<S> <C> <C>
Loans secured by 1-4 family residential property $ 76,325 $ 87,861
All other loans secured by real estate 1,732 7,523
All other loans 17,392 4,185
---------- -----------
$ 95,450 $ 99,569
========== ===========
</TABLE>
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.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
1997 1996 1995
------------------- -------------------- -------------------
<S> <C> <C> <C>
Loans receivable, net beginning of period $ 182,724 $ 157,691 $ 151,161
Loan originations:
Residential single-family 36,688 27,612 16,172
Construction loans 17,375 20,059 7,810
Multi-family residential - - -
Commercial and other real estate - 15 870
Commercial business loans 18,803 7,334 723
Consumer loans 10,762 13,078 10,162
------------------- -------------------- -------------------
Total loan originations 83,628 68,098 35,737
------------------- -------------------- -------------------
Loan reductions:
Loan sales (878) (6,460) (1,551)
Principal repayments (53,168) (34,611) (26,219)
Other changes, net(1) 534 (1,994) (1,437)
------------------- -------------------- -------------------
Total loan reductions (53,512) (43,065) (29,207)
------------------- -------------------- -------------------
Loans receivable, net end of period $ 212,840 $ 182,724 $ 157,691
=================== ==================== ===================
</TABLE>
- - ----------------------
(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 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
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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, 1997, $169.6 million, or 79.7%, 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 for single-family residential mortgages. At December 31, 1997, $80.0
million, or 47.2%, of the Company's single-family residential mortgage loans
were fixed-rate loans. At December 31, 1997, 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
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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, 1997, $89.6 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.
Commercial and Other Real Estate Loans and Multi-Family Residential Loans.
At December 31, 1997, the Company had $9.4 million in outstanding loans secured
by commercial and other real estate. Such commercial and other real estate
loans, which comprised 4.4% of the Company's total loan portfolio at December
31, 1997, are secured primarily by office and other commercial buildings, retail
and manufacturing properties and church properties. None of the Company's
commercial and other real estate loans were non-performing loans at such date.
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, 1997, the Company had $0.5 million of multi-family
residential real estate loans. The Company has not originated any new
multi-family residential loans during the past three years, and does not
anticipate becoming an active originator of multi-family residential loans.
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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
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, 1997, the Company's construction loans amounted to $9.3 million, or 4.4% 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 $14.1 million of single-family construction
loans to individuals during the year ended December 31, 1997.
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 $3.3 million in single family construction loans to builders during
the year ended December 31, 1997.
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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. 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, 1997,
$16.4 million, or 7.7% 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 $10.8 million in
1997 compared to $13.1 million and $10.2 million in 1996 and 1995, 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 were taken by employees of
the dealer, the loans were made pursuant to the Company's underwriting standards
using the Company's documentation, and all such indirect loans had to be
approved by a loan officer of the Company before disbursement of loan proceeds.
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
financial 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, 1997,
$99,000, or 2.2% of the Company's consumer loans from indirect origination
activities were considered non-performing. As of December 31, 1997, $129,000, or
0.6% of the Company's total consumer loans were considered non-performing.
Commercial Business Loans. At December 31, 1997, the Company's commercial
business loans amounted to $15.4 million, or 7.2% of the Company's gross loan
portfolio. Prior to 1996, the Company had not been an active originator of
commercial business loans.
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The Company concentrates 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 $18.8 million in 1997, compared to $9.2 million, and $723,000
thousand in 1996 and 1995, respectively.
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; or (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, 1997, the Company's limit on
loans-to-one borrower under LSBA was approximately $5.1 million. At December
31, 1997, the Company's five largest loans or groups of loans-to-one borrower
ranged from $1.1 million to $2.2 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 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 are classified as real estate owned until sold.
Pursuant to Statement of Procedure
10
<PAGE> 11
("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.
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 $515,000 of loans deemed to be
troubled debt restructurings as of December 31, 1997.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1997, 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.
<TABLE>
<CAPTION>
At December 31, 1997
---------------------------------------------------------------------------
30-59 Days 60-89 Days
----------------------------------------- --------------------------------
Percent of Percent of
Amount Loan Category Amount Loan Category
------------------- -------------------- -------------- ----------------
(Dollars in Thousands)
Mortgage loans:
Residential:
<S> <C> <C> <C> <C>
Single family $ 342 0.39% $ 157 0.13%
Multi-family 114 0.00% - 0.00%
Commercial and other real estate - 0.22% - 0.00%
Construction - 0.00% - 0.00%
Consumer 174 1.92% 46 0.31%
Commercial business - 0.00% - 0.00%
------------------- -------------------- -------------- ----------------
Total $ 630 2.53% $ 203 0.44%
=================== ==================== ============== ================
</TABLE>
11
<PAGE> 12
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,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ----------- ------------- ----------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Accruing loans 90 days or more past due:
Residential single-family $ - $ - $ - $ 377 $ 1,543
Construction - - - - -
Multi-family residential - - - - 76
Commercial and other real estate - - - - 240
Consumer - - - 96 152
Commercial business - - - - -
------------- ----------- ------------- ----------- ------------
Total accruing loans - - - 473 2,011
------------- ----------- ------------- ----------- ------------
Non-accrual loans:
Residential single-family 285 632 527 72 229
Construction - - - - -
Multi-family residential - - - - -
Commercial and other real estate - 145 197 - 452
Consumer 129 96 16 21 105
Commercial business - - - - -
------------- ----------- ------------- ----------- ------------
Total non-accrual loans 414 873 740 93 786
------------- ----------- ------------- ----------- ------------
Total non-performing loans 414 873 740 566 2,797
------------- ----------- ------------- ----------- ------------
Other real estate owned, and repossessed assets 204 75 845 2,449 2,693
------------- ----------- ------------- ----------- ------------
Total non-performing assets 618 948 1,585 3,015 5,490
============= =========== ============= =========== ============
Performing troubled debt restructurings $ 515 $ 536 $ 878 $ 954 $ 996
============= =========== ============= =========== ============
Total non-performing assets and troubled debt
restructurings $ 1,133 $ 1,484 $ 2,463 $ 3,969 $ 6,486
============= =========== ============= =========== ============
Non-performing assets to total loans 0.29% 0.52% 0.96% 1.92% 3.48%
Non-performing assets to total assets 0.22 0.36 0.70 1.35 2.35
Non-performing loans to total loans 0.19 0.48 0.45 0.36 1.77
Non-performing loans to total assets 0.15 0.33 0.33 0.25 1.20
Total non-performing assets and troubled debt
restructurings to total assets 0.41 0.56 1.09 1.78 2.78
</TABLE>
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,
12
<PAGE> 13
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, 1997, 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,
1997, totaled $5.0 million, or 2.3% 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 $4.5 million at
December 31, 1997, or 2.1% 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
experience 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.
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, 1997, the
Company's allowance for loan losses amounted to 297.09% and 1.25% 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'
13
<PAGE> 14
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.
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,
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ----------------- ---------------- --------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 2,592 $ 2,329 $ 1,087 $ 1,015 $ 2,760
Provision for loan losses 180 355 1,274 63 235
Charge-offs:
Residential single-family (14) - (70) (37) (42)
Construction - - - - -
Multi-family residential - - (7) - -
Commercial and other real estate - (67) - - -
Commercial business - - - (11) -
Consumer (221) (210) (50) (135) (211)
---------------- ----------------- ---------------- --------------- -------------
Total charge-offs (235) (277) (127) (183) (253)
---------------- ----------------- ---------------- --------------- -------------
Recoveries:
Residential single-family 76 87 10 72 29
Construction - - - - -
Multi-family residential - - - - -
Commercial and other real estate 56 10 - 55 -
Commercial business - - - - -
Consumer 91 88 85 65 23
---------------- ----------------- ---------------- --------------- -------------
Total recoveries 223 185 95 192 52
---------------- ----------------- ---------------- --------------- -------------
Net (charge-offs) / recoveries (12) (92) (32) 9 (201)
---------------- ----------------- ---------------- --------------- -------------
Balance, end of period 2,760 2,592 2,329 1,087 2,794
================ ================= ================ =============== =============
Allowance for loan losses to
total non-performing loans
and troubled debt restructurings
at end of period 297.09% 183.96% 143.94% 71.51% 26.76%
================ ================= ================ =============== =============
Allowance for loan losses to
total loans at end of period 1.25% 1.35% 1.41% 0.69% 0.64%
================ ================= ================ =============== =============
</TABLE>
14
<PAGE> 15
The following table presents an allocation of the allowance for losses on
loans by the categories indicated 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
of Loans of Loans of Loans
1997 to Gross 1996 to Gross 1995 to Gross
Amount Loans Amount Loans Amount Loans
------------- ------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential single family $ 1,739 76.90% $ 1,565 74.64% $ 1,773 77.55%
Construction 64 4.22% 58 5.52% 22 4.44%
Multi-family residential 5 0.25% 7 0.45% 80 0.73%
Commercial and other real estate 350 4.24% 460 6.73% 331 8.13%
------------- ------------- ------------ ------------- ------------- --------------
Total real estate loans 2,158 85.61% 2,090 87.34% 2,206 90.85%
------------- ------------- ------------ ------------- ------------- --------------
Non-real estate loans:
Commercial business 274 6.98% 163 3.85% 26 0.82%
Consumer 328 7.41% 339 8.81% 97 8.33%
------------- ------------- ------------ ------------- ------------- --------------
Total non-real estate loans 602 14.39% 502 12.66% 123 9.15%
------------- ------------- ------------ ------------- ------------- --------------
Total allowance for loans $ 2,760 100.00% $ 2,592 100.00% $ 2,329 100.00%
============= ============= ============ ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
Percent Percent
of Loans of Loans
1994 to Gross 1993 to Gross
Amount Loans Amount Loans
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Real estate loans:
Residential single family $ 597 76.86% $ 542 73.05%
Construction 15 4.41% 15 3.38%
Multi-family residential 30 1.04% 33 1.30%
Commercial and other real estate 277 8.62% 245 10.12%
------------- -------------- ----------- -------------
Total real estate loans 919 90.93% 835 87.85%
------------- -------------- ----------- -------------
Non-real estate loans:
Commercial business - 0.94% - 0.88%
Consumer 168 8.13% 180 11.27%
------------- -------------- ----------- -------------
Total non-real estate loans 168 9.07% 180 12.15%
------------- -------------- ----------- -------------
Total allowance for loans $ 1,087 100.00% $ 1,015 100.00%
============= ============== =========== =============
</TABLE>
15
<PAGE> 16
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, 1997, the Company's
mortgage-backed securities and investment securities portfolio amounted to $30.7
million and $11.0 million, respectively. At such date, the Company had an
unrealized gain of $450,000, net of deferred taxes, with respect to its
securities available for sale.
Mortgage-Backed Securities. As of December 31, 1997, the Company's
mortgage-backed securities amounted to $30.7 million, or 11.1%, 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 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 $227,150.
16
<PAGE> 17
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, 1997, the Company's
investment in CMOs amounted to $11.2 million, all of which consisted of regular
interests. As of December 31, 1997, the Company's CMOs did not include any
residual interests or interest-only or principal-only securities. As 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, 1997, $12.8 million of the Company's mortgage-backed
securities were classified as held to maturity and $17.8 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.
17
<PAGE> 18
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, 1997, the weighted average contractual maturity of the
Company's fixed-rate mortgage-backed securities was approximately 10.5 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.
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. 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, 1997, of the
$30.7 million of mortgage-backed securities, an aggregate of $17.8 million were
secured by fixed-rate securities and classified as available for sale, and an
aggregate of $12.7 million were secured by adjustable-rate securities and
classified as held to maturity.
18
<PAGE> 19
The following table sets forth certain information regarding the Company's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- ----------------------------- -----------------------------
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 $ 750 $ 5,463 $ 822 $ 6,853 $ 936 $ 8,361
FNMA 206 10,487 232 12,449 259 15,185
GNMA 1,121 1,399 1,320 1,776 1,585 1,981
FNMA CMO 4,736 497 4,733 488 4,733 495
FHLMC CMO 5,993 - 5,980 - 5,979 -
--------------- --------------- -------------- ------------ ----------- ----------------
Total mortgage-backed securities 12,806 17,846 13,087 21,566 13,492 26,022
=============== =============== ============== ============ =========== ================
</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, 1997, the Company's entire
portfolio of investment securities was classified available for sale and
amounted to $11.0 million, net of gross unrealized gains of $121,000. 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, 1997, the estimated weighted
average life of the Company's investment securities portfolio was 3.6 years.
The following table sets forth certain information regarding the
Company's investment securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
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 $ 11,021 $ 11,021 $ 20,524 $ 20,524 $ 4,018 $ 4,018
Equity securities 826 826 -- -- -- --
Marketable equity securities 23 23 15 15 12 12
------------- ------------- ------------- ------------- ------------- -------------
Total 11,870 11,870 20,539 20,539 4,030 4,030
============= ============= ============= ============= ============= =============
</TABLE>
The following table sets forth certain information regarding the
maturities of the Company's investment securities at December 31, 1997.
<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>
U.S. Government and federal
agency obligations $ - 0.00% $ 9,016 7.08% $ 2,005 7.38% - 0.00%
</TABLE>
19
<PAGE> 20
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, 1997, the Bank's investment
in stock of the FHLB of Dallas amounted to $1.9 million. During the year ended
December 31, 1997, the Bank received $109,000 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 and advances from the FHLB of
Dallas. 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.
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.
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(R).
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.
20
<PAGE> 21
The following table sets forth certain information relating to the
Company's Deposits.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1997 1996
------------------------------------ -----------------------------------
Percent of Percent of
Amount Total Deposits Amount Total Deposits
------------------ ---------------- ------------------ ----------------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C>
NOW accounts $ 8,177 4.23% $ 11,528 5.96%
Money market accounts 9,436 4.88% 5,101 2.64%
Noninterest-bearing checking accounts 8,941 4.62% 4,954 2.56%
------------------ ---------------- ------------------ ----------------
Total demand deposits 26,554 13.73% 21,583 11.16%
------------------ ---------------- ------------------ ----------------
Passbook savings deposits 23,343 12.07% 25,071 12.96%
------------------ ---------------- ------------------ ----------------
Certificate of Deposit accounts:
Less than 6 months 41,898 21.66% 44,256 22.88%
6-11 months 25,020 12.94% 31,148 16.10%
12-35 months 59,246 30.63% 53,329 27.57%
More than 35 months 17,361 8.98% 18,063 9.34%
------------------ ---------------- ------------------ ----------------
Total certificates 143,525 74.20% 146,796 75.88%
------------------ ---------------- ------------------ ----------------
Total Deposits $ 193,422 100.00% $ 193,450 100.00%
================== ================ ================== ================
</TABLE>
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,
------------------------------------------------------------------
1997 1996 1995
------------------- -------------------- ----------------------
(Dollars in Thousands)
<S> <C> <C> <C>
0.00% to 2.99% $ 226 $ 100 $ 323
3.00% to 3.99% - - -
4.00% to 4.99% 13,474 17,031 14,845
5.00% to 5.99% 79,702 71,021 54,116
6.00% to 6.99% 34,172 34,364 51,650
7.00% to 8.99% 15,056 23,434 36,600
9.00% and over 895 846 895
------------------- -------------------- ----------------------
$ 143,525 $ 146,796 $ 158,429
=================== ==================== ======================
</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,
------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Total deposits, beginning of period $ 193,450 $ 206,343 $ 204,088
Net increase (decrease) before interest credited (6,143) (19,616) (4,331)
Interest credited 6,115 6,723 6,586
-------------------- --------------------- ---------------------
Total deposits, end of period $ 193,422 $ 193,450 $ 206,343
==================== ===================== =====================
</TABLE>
21
<PAGE> 22
The following table sets forth the amount and maturities of the Company's
certificates of deposit at December 31,1997.
<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
------------ --------------- ----------------- ---------------- -------------- ----------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
0.00% to 2.99% $ 226 $ - $ - $ - $ - $ - $ 226
3.00% to 3.99% - - - - - - -
4.00% to 4.99% 8,852 3,438 1,184 - - - 13,474
5.00% to 5.99% 27,327 22,264 20,815 6,539 2,076 681 79,702
6.00% to 6.99% 3,420 1,778 11,597 11,270 2,062 4,045 34,172
7.00% to 8.99% 2,073 1,468 2,292 941 6,849 1,433 15,056
9.00% and over - 25 870 - - - 895
------------ --------------- ----------------- ---------------- ------------- ------------- --------------
$ 41,898 $ 28,973 $ 36,758 $ 18,750 $ 10,987 $ 6,159 $ 143,525
============ =============== ================= ================ ============= ============== ==============
</TABLE>
As of December 31, 1997, the aggregate amount of outstanding time
certificates of deposit in amounts greater than or equal to $100,000 was
approximately $36.8 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>
$ 4,953 $ 3,580 $ 7,363 $ 20,937 $ 36,833
================== ================== ================= ================== ================
</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.
22
<PAGE> 23
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,
----------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- -------------------------------- -------------------------------
Percent Percent Percent
Amount Rate Amount Rate Amount Rate
--------------- -------------- -------------- --------------- -------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB advances $ 36,378 5.82% $ 22,250 5.50% $ 250 8.70%
=========== =========== =======
Maximum amount
outstanding at any month-
end during the period $ 36,378 $ 22,250 $ 250
=========== =========== =======
Average balance outstanding
during the period $ 29,648 $ 10,388 $ 250
=========== =========== =======
Weighted average interest
rates on average balance
during the period 5.67% 5.59% 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 Company 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 financial institutions, which have greater
financial and marketing resources available to them. In addition, during times
of high interest rates, the Company 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
Company 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 Company 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
23
<PAGE> 24
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 83 full-time employees and 5 part-time employees as of
December 31, 1997. None of these employees is represented by a collective
bargaining agreement. The Bank believes that it enjoys excellent relations with
its personnel. The officers of the Company are officers of the Bank.
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 "BCHA"). 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 BCHA 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 BCHA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting share 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
24
<PAGE> 25
securities brokerage services; acting as an investment or financial advisor;
acting as an insurance agent for certain types of credit-related insurance;
leasing personal property on a full-payout, non-operating basis; providing tax
planning and preparation services; operating a collection agency; and providing
certain courier services. The Federal Reserve Board also has determined that
certain other activities, including real estate brokerage and syndication, land
development, property management, and underwriting of life insurance not
related to credit transactions, are not closely related to banking and a proper
incident thereto.
Limitation 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.
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
25
<PAGE> 26
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, 1997, the Company believes it is in compliance with the above-described
Federal Reserve Board regulatory capital requirements.
Financial Support of Affiliated Institutions. Under Federal Reserve Board
policy, the Company will be expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances when it
might not do so absent such policy. The legality and precise scope of this
policy is unclear, however, in light of recent judicial precedent.
Federal Securities Laws. The Company's common stock is registered with the
SEC under the Securities Exchange Act of 1934 ("Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The Bank. The Bank is subject to extensive regulation and examination by
the OFI and by the FDIC and 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, 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
26
<PAGE> 27
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 eliminated the premium differential between SAIF-insured institutions and
BIF-insured institutions by re-capitalizing the SAIF's reserves to the required
ratio. The legislation provided that all SAIF member institutions pay a
one-time special assessment to recapitalize the SAIF, which in the aggregate
was 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 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 had amounted to 23 basis points, were reduced to 6.4 basis
points.
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
27
<PAGE> 28
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), non-cumulative
perpetual preferred stock and related surplus, and 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, 1997, 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
28
<PAGE> 29
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
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
29
<PAGE> 30
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
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. 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, is no longer permitted to make additions to its tax
bad debt reserve under the percentage of taxable Income method. The Bank
experience method must be used. In addition, the institution is required to
recapture (i.e. take into 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 reserves using the experience method. The recapture requirement
is 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. The amount of reserves of the Savings Bank that is
subject to recapture is not material.
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
of the
30
<PAGE> 31
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.
At December 31, 1997, 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).
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses ("NOLs") to the preceding two taxable years and forward to
the succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1997, the Savings Bank had
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
31
<PAGE> 32
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.
Other Matters. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the Savings Bank.
The Savings Bank's federal income tax returns for the tax years ended
1994 and 1995 and 1996 are open under the statute of limitations and are
subject to review by the IRS.
STATE TAXATION. The Company is subject to the Louisiana Corporation
Income Tax based on its separate Louisiana taxable income, and it is also
subject to 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, the Savings Bank is subject to the Louisiana
Shares Tax which is imposed on the assesseds 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 are also subtracted in
calculating a company's capitalized earnings.
32
<PAGE> 33
ITEM 2. PROPERTIES.
OFFICES AND PROPERTIES
At December 31, 1997, the Bank conducted business from its main office and
four branch offices, three of which are located in Lafayette, Louisiana and one
located in New Iberia, Louisiana. The Bank also conducted business from its one
loan production office in Eunice, Louisiana.
The following table sets forth certain information relating to the
Company's offices at December 31, 1997.
<TABLE>
<CAPTION>
Net Book Value of
Premises and
Owned or Equipment at Deposits at
Leased December 31, 1997 December 31, 1997
-------------- ---------------------- -----------------------
(In Thousands)
<S> <C> <C> <C>
Main Office:
101 West Vermilion Street Owned $ 1,565 89,780
Lafayette, Louisiana 70501
Branch Offices:
Northside Office Owned 265 33,108
2601 Moss Street
Lafayette, Louisiana 70501
Southside Office Owned 180 37,541
3701 Johnston Street
Lafayette, Louisiana 70503
Broadmoor Office Owned 243 27,136
5301 Johnston Street
Lafayette, Louisiana 70503
New Iberia Office Owned 548 5,857
230 West Main Street
New Iberia, Louisiana 70560
Eunice Loan Production Office Leased 5 -
---------------------- -----------------------
136 South Third Street
Eunice, Louisiana 70535
$ 2,806 $ 193,422
====================== =======================
</TABLE>
33
<PAGE> 34
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Bank are not involved in any pending legal proceedings
other than non-material legal proceedings occurring in the ordinary course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 1, 1997, the Company commenced a proxy solicitation of its
stockholders with respect to the Annual Meeting of Stockholders held April 30,
1997 ("Annual Meeting"). There were two matters considered at the Annual
Meeting, the election of two directors, and the ratification of the appointment
of Castaing, Hussey & Lolan, L.L.P. as the Company's independent auditors for
the fiscal year ending December 31, 1997.
Proposal to elect Directors of the Company:
BROKER
FOR WITHHOLD NON-VOTES
Lawrence Gankendorff 2,415,772 13,982 301,496
Don J. O'Rourke, Sr. 2,415,917 13,837 301,496
Proposal to ratify the appointment by the Board of Directors of Castaing, Hussey
& Lolan, L.L.P. as the Company's independent auditors for the fiscal year ending
December 31, 1997:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
2,415,836 12,427 1,491 301,496
34
<PAGE> 35
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 51 of the Registrant's 1997 Annual Report to Stockholders
("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The Information required herein is incorporated by reference from pages 7
of the Registrant's 1997 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 21 of the Registrant's 1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Information required herein is incorporated by reference from pages 23
to 49 of the Registrant's 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein is incorporated by reference from the
Registrant's definitive proxy statement for the 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 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.
35
<PAGE> 36
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, 1997 and 1996
Consolidated Statements of Income for the Fiscal Periods Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the
Fiscal Periods Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Fiscal Periods Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) All schedules for which provisions 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 LBS 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 1997 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
27.0 Financial Data Schedule
- - ---------------
(*) 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)
(***) Incorporated herein by reference to the Annual Report on Form 10-K
(File No. 1-14364) filed by the Registrant with the SEC on March 31,
1997.
36
<PAGE> 37
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 25, 1998 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.
Name Title Date
- - ---- ----- ----
/s/ Gerald G. Reaux, Jr. President, Chief Executive March 25, 1998
- - ------------------------ Officer and Director
Gerald G. Reaux, Jr.
/s/ Lawrence E. Gankendorff Chairman of the Board March 25, 1998
- - --------------------------
Lawrence E. Gankendorff
/s/ Albert W. Beacham Director March 25, 1998
- - --------------------------
Albert W. Beacham, M.D.
/s/ James J. Montelaro Executive Vice President March 25, 1998
- - -------------------------- and Director
James J. Montelaro
/s/ John H. DeJean Director March 25, 1998
- - --------------------------
John H. DeJean
/s/ Thomas S. Ortego Director March 25, 1998
- - --------------------------
Thomas S. Ortego
/s/ William H. Mouton Director March 25, 1998
- - --------------------------
William H. Mouton
/s/ Donald J. O'Rourke, Sr. Director March 25, 1998
- - ---------------------------
Donald J. O'Rourke, Sr.
/s/ Kaliste J. Saloom, Jr. Director March 25, 1998
- - ---------------------------
Kaliste J. Saloom, Jr.
/s/ Emile E. Soulier, III Vice President and Chief March 25, 1998
- - --------------------------- Financial Officer
Emile E. Soulier, III (principal financial and
accounting officer)
<PAGE> 1
EXHIBIT 13
[ACADIANA BANCSHARES, INC. LOGO]
1997 ANNUAL REPORT
<PAGE> 2
3
[PHOTO]
L. GANKENDORFF,
Chairman of the Board
JERRY REAUX,
President and Chief Executive Officer
DEAR FELLOW SHAREHOLDERS:
WE ARE PROUD TO REPORT THAT 1997 WAS THE MOST PROFITABLE YEAR IN OUR HISTORY.
On behalf of the directors, management and staff of our Company, we are pleased
to provide you with our 1997 Annual Report. Our results for 1997 reflect our
continued strategic commitment to transition our traditional thrift institution
into a fully integrated banking organization. Although we successfully
accomplished a number of our 1997 strategic goals, there is still much work to
be done in order to achieve this long-term objective.
Expansion Into New Iberia Market
On September 8, 1997, the bank successfully completed its branch bank expansion
into neighboring New Iberia, Louisiana. New Iberia is a wonderful community
with a strong economic base that offers our bank the opportunity to expand both
loan and deposit market share on a regional basis within Acadiana. As large
super-regional banks continue to consolidate this market, we are optimistic our
community bank approach will be embraced by our many friends and neighbors in
the New Iberia area.
Mortgage Lending
During 1997, the bank maintained its position as the dominant single-family
mortgage lender within the Acadiana region, originating a record $54.1 million
in new single-familymortgage loans. Mortgage loans outstanding grew by $25.5
million from year-end 1996 to 1997. This growth contributed to a $1.7 million
increase in interest income for the same period. Our longstanding commitment to
the housing needs of Acadiana and a strong economic environment have continued
to be the catalyst for continued strong loan demand within our market.
Capital Improvements
The Bank successfully completed the demolition of our former main office
building, which was severely damaged by fire in 1992. In our ongoing efforts to
improve customer convenience, additional customer parking was installed at the
main office location. The Bank also completed renovations and interior
improvements to all branch banking facilities during the year. The management
of our Company will continue its commitment to manage fixed-asset investments
and operating overhead in a conservative and efficient manner.
Commercial Banking
The 1997 year brought significant growth in our commercial loan market share as
evidenced by a 109% increase in commercial loans outstanding from year-end 1996
to 1997. This portfolio growth is consistent with our strategy to take certain
actions in an effort to desensitize
[LOGO]
<PAGE> 3
4
MARKET MANAGERS
[PHOTO]
JAMES J. MONTELARO
Executive Vice President - Mortgage Banking
MARY ANNE S. BERTRAND
Vice President - Retail Banking
BRADY COMO
Senior Vice President - Commercial Banking
the interest rate risk of our balance sheet while diversifying credit risk away
from our historic dependence on mortgage loan assets.
To complement our commercial loan growth in 1997, the bank introduced the Fleur
de Lis Commercial Money Market Account, which contributed to the $4.3 million
increase in money market accounts from year-end 1996 to 1997.
Asset Quality
While the bank experienced net loan growth of 16% during 1997, our asset
quality ratios continued to improve with non-performing assets of .22% of total
assets and an allowance for loan loss of 297% of non-performing loans and
troubled debt restructurings. Our commitment to controlled growth, coupled with
prudent underwriting standards, continues to be important in the management of
loan portfolio risk. It is our sincere hope we can maintain this level of asset
quality as we continue our banking transition.
ADMINISTRATIVE SUPPORT
[PHOTO]
DENNIS SULLIVAN
Marketing and Investor Relations Manager
THOMAS DEBAILLON
Vice President - Operations
BAVO GALL
Data Processing Manager
EMILE E. SOULIER, III
Vice President and Chief Financial Officer
GREGORY KING
Vice President and Compliance Officer
Retail Banking
During the past year, a number of retail product innovations were implemented
in an effort to improve customer convenience and increase retail market share.
Some of our specific retail initiatives completed during 1997 are as follows:
- Successfully installed a 24-hour automated banking system to enhance
customer convenience.
- Implemented an ATM system to reimburse our checking customers for
foreign ATM charges which received both local and national
recognition.
While total bank consumer loans and deposits remained relatively stable, we did
experience over 80% growth in both non-interest bearing checking accounts and
money market accounts from year-end 1996 to 1997. This shift in our deposit mix
is consistent with our ongoing strategy to transition the balance sheet into a
more bank-like structure.
[LOGO]
<PAGE> 4
5
Expanded Board of Directors
It gives us great pleasure to report that, during 1997, the Company elected two
new board members to assist in the implementation of our strategic plan. Both
John DeJean and Thomas Ortego bring strong resources and extensive business and
financial institution experience to our Company. We are very fortunate to have
individuals of their caliber serving; they are an excellent complement to the
energy and resources of our existing Board of Directors.
Dividend Increase
On December 18, 1997, our Board of Directors approved a 22% increase in annual
dividends from 36 cents to 44 cents per share. Our continued financial success
has permitted the Company to increase our dividend rate, and we hope to
continue providing superior financial results on behalf of our shareholders.
Our Community
Dedication to the concept of community banking requires the members of our
Board of Directors, management and staff to continue a strong commitment to the
community we call home. During 1997, we supported a wide range of very
important community organizations, and we are pleased to report that both lba
Savings Bank and our staff led all financial institutions in our region in per
capita giving to the United Way of Acadiana during the year.
The Year Ahead
Although we enjoyed much success during 1997, the coming year will pose several
challenges for our Company. Our local market continues to experience fierce
competition from a wide range of financial institutions and financial service
competitors, especially in the area of deposit growth opportunities. The
broader financial markets represent an environment of historically low
long-term interest rates and declining oil commodity prices which will pose
management challenges should these economic factors continue their current
downward trend. We are confident we will meet these and other challenges
head-on in the year to come.
We thank you for your confidence in our Company and look forward to reporting
continued success in the future.
Sincerely,
<TABLE>
<S> <C>
/s/ L. GANKENDORFF /s/ JERRY REAUX
L. Gankendorff Jerry Reaux
Chairman of the Board President and Chief Executive Officer
</TABLE>
[LOGO]
<PAGE> 5
6
DIRECTORS OF ACADIANA BANCSHARES, INC.
[PHOTO]
Front, left to right
KALISTE J. SALOOM, JR.
Attorney and retired City Judge
WILLIAM H. MOUTON
Attorney
JERRY REAUX
President and Chief Executive Officer, Acadiana Bancshares, Inc., and LBA
Savings Bank
LAWRENCE GANKENDORFF
Chairman of the Board, Acadiana Bancshares, Inc., and LBA Savings Bank
Rear, left to right
JOHN H. DEJEAN
Retired
JAMES J. MONTELARO
Executive Vice President - Mortgage Banking, LBA Savings Bank
THOMAS S. ORTEGO
Self-employed Accountant
AL W. BEACHAM, M.D.
Urologist
DON J. O'ROURKE, SR.
Architect
[LOGO]
<PAGE> 6
7
SELECTED CONSOLIDATED FINANCIAL INFORMATION
- - --------------------------------------------------------------------------------
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>
(Dollars in Thousands, except per share data) At December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total Assets $ 277,066 $ 264,374 $ 225,574 $ 223,166 $ 223,143
Cash and cash equivalents 14,157 19,784 16,481 10,384 24,097
Loans receivable, net 212,840 182,724 157,691 151,161 153,284
Investment securities 11,870 20,539 4,030 19,386 16,910
Mortgage-backed securities 30,652 34,653 39,514 33,349 30,254
Deposit accounts 193,422 193,450 206,343 204,088 215,889
Borrowings 36,628 22,250 250 - -
Equity 44,562 47,091 17,697 17,845 15,869
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest Income $ 20,328 $ 18,703 $ 16,975 $ 16,922 $ 17,885
Interest Expense 10,860 10,762 10,134 9,378 10,021
------- ------- ------- ------- -------
Net interest income 9,468 7,941 6,841 7,544 7,864
Provision for loan losses 180 355 1,274 63 235
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 9,288 7,586 5,567 7,481 7,629
Non-interest income 1,169 954 802 943 1,039
Non-interest expense (5,878) (7,301) (7,812)(1) (5,274) (5,510)
------- ------- ------- ------- -------
Income (loss) before taxes and
extraordinary item 4,579 1,239 (1,443) 3,150 3,158
Income tax expense (benefit) 1,632 439 (477) 1,057 1,074
Extraordinary item(2) - - - - (54)
------- ------- ------- ------- -------
Net Income (loss) 2,947 800 (966) 2,093 2,030
======= ======= ======= ======= =======
Net income per share - basic(3) $ 1.22 $ 0.07 N/A N/A N/A
Net income per share - diluted(3) $ 1.20 $ 0.07 N/A N/A N/A
Dividends declared per share $ 0.38 $ 0.18 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Profitability:
Return on average assets 1.10% 0.32% (0.43)% 0.91% 0.87%
Return on average equity 6.38 2.55 (5.23) 12.19 13.36
Interest rate spread for period(4) 2.64 2.68 2.80 3.15 3.35
Net interest margin(5) 3.61 3.34 3.16 3.41 3.55
Efficiency ratio(6) 55.26 82.08 88.45 62.14 61.88
Other expenses to average assets 2.19 2.95 3.49 2.30 2.37
Capital Ratios:
Average equity to average assets 17.23 12.71 8.25 7.48 6.54
Total capital to risk-weighted assets 31.39 36.69 16.20 16.29 13.90
Asset Quality:
Non-performing assets to total assets(7) 0.22 0.36 0.70 1.35 2.35
Allowance for loan losses to
total loans 1.25 1.35 1.41 0.69 0.64
Allowance for loan losses to
non-performing loans and
troubled debt restructuring 297.09 183.96 143.94 71.51 26.76
</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) 1996 net income per share is for the six months ended December 31, 1996,
because of the Bank's conversion from mutual to stock form in July, 1996.
(4) The interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate paid on interest-bearing
liabilities.
(5) The net interest margin represents net interest income divided by average
interest-earning assets.
(6) 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.
(7) Non-performing assets include non-accrual loans, accruing loans delinquent
90 days or more and real estate owned.
[LOGO]
<PAGE> 7
8
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, 1995 through 1997. 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 loans receivable, net, of the Company increased $30.1 million,
or 16.5%, from $182.7 million at December 31, 1996, to $218.8 million at
December 31, 1997, outpacing growth in total assets of the Company of $12.7
million, or 4.8%, from $264.4 million at December 31, 1996, to $277.1 million
at December 31, 1997. The growth in total loans was primarily funded by a
$14.4 million increase in advances from the Federal Home Loan Bank of Dallas
(the "FHLB"), an $8.7 million decrease in investment securities and a $4.0
million decrease in mortgage-backed securities.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits and cash on hand, decreased
by $5.6 million, or 28.4%, to $14.2 million at December 31, 1997, compared to
$19.8 million at December 31, 1996. The decrease in cash and cash equivalents
was primarily due to funding the Recognition and Retention Plan Trust (the
"RRP") and the purchase of 150,000 shares of treasury stock. At December 31,
1997, cash and cash equivalents amounted to 5.1% of total assets.
INVESTMENT SECURITIES - Investment securities decreased by $8.7 million, or
42.2%, to $11.9 million at December 31, 1997, compared to $20.5 at December
31, 1996. The decrease in investment securities was used primarily to fund
new loans. During 1997 the Company purchased $13.0 million of securities
available for sale and had $22.5 million called away. At December 31, 1997,
investment securities amounted to 4.3% of total assets.
At December 31, 1997, $826,000 of the Company's investment securities were
classified as held for trading, or .3% of total assets, and consisted
entirely of marketable equity securities.
At December 31, 1997, $11.0 million of the Company's investment securities
were classified as available for sale and had a pre-tax effected net
unrealized gain of $121,000 at such date. In addition, at such date,
substantially all of the Company's investment securities classified as
available for sale consisted of U.S. Government and Federal agency
obligations. Note 3 to the Consolidated Financial Statements provides further
information on the Company's investment securities.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities decreased $4.0 million,
or 11.5%, to $30.7 million at December 31, 1997, compared to $34.7 million at
December 31, 1996. The decrease in mortgage-backed securities of $4.0 million
was the result of $4.2 million of principal repayments net of a $126,000
increase in the carrying value of the mortgage-backed securities available
for sale portfolio. At December 31, 1997, the Company's adjustable rate
mortgage-backed securities amounted to $12.8 million and were classified as
held to maturity. At that same date, the Company's fixed-rate mortgage-backed
securities amounted to $17.8 million and were classified as available for
sale. At December 31, 1997, 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 $30.1 million, or
16.5%, to $212.8 million at December 31, 1997, compared to $182.7 million at
December 31, 1996. Total real estate loans
[LOGO]
<PAGE> 8
9
increased $21.6 million, or 12.9%, during 1997, primarily as the result of a
$25.5 million, or 16.6%, increase in total single-family residential mortgage
loans, which was partially offset by a $316,000, or 36.7%, decrease in total
multi-family loans, and a $3.5 million, or 27.3%, decrease in total commercial
and other real estate loans. Total consumer and commercial loans increased
$7.5 million, or 31.1%, during 1997 primarily as the result of an $8.0
million, or 109.2%, increase in total commercial loans which was partially
offset by a $504,000, or 3.0%, decrease in total consumer loans. Undisbursed
loan funds, unearned discounts, allowance for loan losses, and net deferred
fees decreased $545,000, or 6.3%, to $8.1 million at December 31, 1997,
compared to $8.6 million at December 31, 1996. Loans receivable, net,
amounted to 76.8% of total assets at December 31, 1997, compared to 69.1% at
December 31, 1996. Note 5 to the Consolidated Financial Statements provides
further information on the Company's loans.
LIABILITIES AND STOCKHOLDERS' EQUITY
GENERAL - The Company's primary funding sources include deposits, borrowings
from the FHLB and stockholders' equity. The discussion that follows focuses
on the major changes in this mix during 1997.
DEPOSITS - The Company's deposits decreased by $28,000 to $193.4 million at
December 31, 1997, compared to $193.5 million at December 31, 1996. Deposits
at December 31, 1997, funded 69.8% of total assets, compared to 73.2% at
December 31, 1996. Interest credited during the 1997 year increased deposits
by $6.1 million, and was offset by net withdrawals during the year of $6.1
million. Additional information regarding deposits is provided in Note 8 to
the Consolidated Financial Statements.
BORROWINGS - The Company's borrowings are composed of advances from the FHLB,
which increased $14.4 million, to $36.6 million at December 31, 1997,
compared 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 that from time to time may be a cheaper source of funds
because of interest rates in general. Borrowings at December 31, 1997, funded
13.2% of total assets, compared to 8.4% at December 31, 1996. The increase
in borrowings was used to fund loan growth during 1997. Using single-family
mortgage loans as collateral, the Company has the ability to borrow total
advances up to $127.7 million from the FHLB. Of total outstanding borrowings
at December 31, 1997, $36.4 million had variable rate interest rate features
indexed to the London International Bank Offering Rate ("LIBOR"). All
borrowings at December 31, 1997, were non-amortizing advances of which $22.0
million was scheduled to mature in 1998.
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, 1997,
stockholders' equity totaled $44.6 million, a decrease of $2.5 million, or
5.4%, compared to December 31, 1996, which decrease was primarily
attributable to a $3.4
- - -------------------------------------------------------------------------------
"Through the good times and the bad, LBA Savings Bank has always been there for
us."
RED LERILLE
Red Lerille's Health & Racquet Club [PHOTO]
- - -------------------------------------------------------------------------------
[LOGO]
<PAGE> 9
10 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
million purchase of treasury common stock, a $1.8 million purchase of common
stock for the RRP and $936,000 of dividends declared, all of which was
partially offset by net income for the year ended December 31, 1997, of $2.9
million and $440,000 of stock released by the Employee Stock Ownership Plan.
Stockholders' equity at December 31, 1997 funded 16.1% of total assets,
compared to 17.8% at December 31, 1996. Additional information regarding
stockholders' equity is included in the Consolidated Statements of
Stockholders' Equity and Note 12 to the Consolidated Financial Statements.
Federal regulations impose minimum regulatory capital requirements on all
institutions with deposits insured by the Federal Deposit Insurance
Corporation (the "FDIC"). At December 31, 1997, the Bank significantly
exceeded all regulatory capital ratio requirements with a tier 1 leverage
capital ratio of 12.46%, a tier 1 risk-based capital ratio of 23.18% and a
total risk-based capital ratio of 24.43%. 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. At December 31, 1997,
the Company also significantly exceeded all applicable regulatory capital
requirements with a tier 1 leverage capital ratio of 16.00%, a tier 1
risk-based capital ratio of 30.14% and a total risk-based capital ratio of
31.39%.
RESULTS OF OPERATIONS
GENERAL - The Company reported net income of $2.9 million and $800,000 for the
years ended December 31, 1997 and 1996, respectively, and a net loss of
$966,000 for the year ended December 31, 1995. The $2.1 million increase in
net income in 1997 was due primarily to an increase in net interest income of
$1.5 million, an increase in non-interest income of $215,000 and a decrease
in non-interest expense of $1.4 million, all of which was partially offset by
an increase in income tax expense of $1.2 million.
The Company reported net income of $800,000 for the year ended December 31,
1996, 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 non-interest income, a $919,000 decrease in provision
for loan losses and a $511,000 decrease in non-interest expense, all of which
was partially offset by a $916,000 increase in income tax expense.
NET INTEREST INCOME - Net interest income is determined by interest rate spread
(i.e., the difference between the yields earned on interest-earning assets
and the rates paid on interest-bearing liabilities) and the relative amounts
of interest-earning assets and interest-bearing liabilities. The Company's
average interest rate spread was 2.64%, 2.68%, and 2.80%, during the years
ended December 31, 1997, 1996 and 1995, respectively.
- - -------------------------------------------------------------------------------
"LBA has always had a strong commitment to the housing industry throughout
South Louisiana."
[PHOTO] MIKE THOMPSON BOB AUSTIN
Thompson Home Building Co. Bob Austin Homes
- - -------------------------------------------------------------------------------
[LOGO]
<PAGE> 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Net interest income increased $1.5 million, or 19.2%, in 1997 to $9.5 million
compared to $7.9 million in 1996. The increase was primarily due to a $1.6
million increase in interest income, which was partially offset by a $98,000
increase in interest expense during 1997. Average net interest-earning assets
(interest-earning assets less interest-bearing liabilities) increased $19.8
million, or 65.9%, to $50.0 million for the year ended December 31, 1997,
compared to $30.1 million for the year ended December 31, 1996.
- - -------------------------------------------------------------------------------
AVERAGE ASSETS
Year ended December 31, 1997 [CHART]
- - -------------------------------------------------------------------------------
INTEREST INCOME - Interest income totaled $20.3 million for the year ended
December 31, 1997, an increase of $1.6 million, or 8.7%, over the $18.7
million for the year ended December 31, 1996. This improvement was mainly due
to an increase in the Company's average interest-earning assets of $24.0
million, or 10.1%, to $262.1 million at December 31, 1997, as compared to
$238.1 million at December 31, 1996. Interest earned on loans increased $1.7
million, or 11.9%, in 1997. The increase was due to a $24.3 million increase
in the average balance of loans which was partially offset by a 17 basis
point (with 100 basis points being equal to 1%) decrease in the yield earned.
Interest earned on mortgage-backed securities decreased $280,000, or 10.7%,
during 1997. This decrease was due to a $4.2 million, or 11.3%, decrease in
the average balances of mortgage-backed securities partially offset by a 4
basis point increase in the yield earned. Interest earned on investment
securities increased $325,000, or 27.4%, during 1997. The increase was due
to a $4.9 million, or 28.9%, increase in the average balances of investment
securities which was partially offset by an 8 basis point decrease in the
yield earned. Interest income on other earning assets, primarily
interest-bearing deposits, decreased $117,000 in 1997. The decrease was due
to a $1.1 million, or 8.2%, decrease in the average balances of other earning
assets together with a 51 basis point decrease in the yield earned.
Interest income totaled $18.7 million for the year ended December 31, 1996,
an increase of $1.7 million, or 10.2%, 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. 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 decrease in the yield earned. Interest earned on mortgage-
[LOGO]
<PAGE> 11
12 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
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, or 4.8%, in 1996.
INTEREST EXPENSE - Interest expense increased $98,000, or .9%, in 1997 compared
to 1996. The reason for such increase was a $4.2 million, or 2.0%, increase
in average interest-bearing liabilities, which was partially offset by a 5
basis point decrease in interest rates on interest-bearing liabilities.
Interest expense on deposits decreased $1.0 million, or 9.9%, to $9.2 million
for 1997 compared to $10.2 million for 1996. The reason for such decrease was
a $15.2 million, or 7.7%, decrease in average balances of interest-bearing
deposits combined with a 12 basis point decrease in interest rates on
interest-bearing 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 1997, the average balance of certificates of deposit amounted to 79.4%
of the average balance of all interest-bearing deposits, compared to 78.0%
during 1996. The average rate paid on certificates of deposit was 5.79%
during 1997, representing an 18 basis point decrease over the average rate in
1996, compared to average rates of 1.95% and 2.17%, respectively, on
interest-bearing demand deposits and savings deposits in 1997. Interest
expense on advances from the FHLB increased $1.1 million, or 190.8%, to $1.7
million for the year ended December 31, 1997, compared to $578,000 for 1996.
The reason for such increase was a $19.3 million increase in average balances
on advances from the FHLB combined with an 8 basis point increase in the
average interest rate.
- - -------------------------------------------------------------------------------
"LBA's Branch Manager had the authority to approve and fund my car loan all in
the same day."
[PHOTO] JEWELENE TAYLOR,
with daughter Chelsey
- - -------------------------------------------------------------------------------
[LOGO]
<PAGE> 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
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 Company from interest-earning
assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant 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>
(Dollars in Thousands)
Year Ended December 31,
--------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate mortgage loans $ 168,437 $ 13,365 7.93% $ 150,541 $ 12,438 8.26%
Commercial business loans 11,027 1,056 9.58% 3,818 349 9.14%
Consumer and other loans 15,974 1,494 9.35% 16,780 1,431 8.53%
------- ------- ----- ------- ------- -----
Total loans 195,438 15,915 8.14% 171,139 14,218 8.31%
Mortgage-backed securities 32,711 2,329 7.12% 36,869 2,609 7.08%
Investment securities(1) 21,958 1,510 6.88% 17,032 1,185 6.96%
Other earning assets 12,002 574 4.78% 13,067 691 5.29%
------- ------- ----- ------- ------- -----
Total interest-earning assets 262,109 20,328 7.76% 238,107 18,703 7.85%
Noninterest-earning assets 5,975 9,238
------- -------
Total Assets $ 268,084 $ 247,345
======= =======
Interest-bearing liabilities:
Deposits:
Demand deposits $ 14,033 273 1.95% $ 15,953 291 1.82%
Savings deposits 23,539 510 2.17% 27,506 692 2.52%
Certificates of deposit 144,921 8,396 5.79% 154,187 9,201 5.97%
------- ------- ----- ------- ------- -----
Total deposits 182,493 9,179 5.03% 197,646 10,184 5.15%
Advances from FHLB 29,648 1,681 5.67% 10,338 578 5.59%
------- ------- ----- ------- ------- -----
Total interest-bearing liabilities 212,141 10,860 5.12% 207,984 10,762 5.17%
Noninterest-bearing demand deposits 7,182 3,342
Other noninterest-bearing liabilities 2,571 4,592
------- -------
Total liabilities 221,894 215,918
Equity 46,190 31,427
------- -------
Total liabilities and equity $ 268,084 $ 247,345
======= =======
Net interest-earning assets $ 49,968 $ 30,123
======= =======
Net interest income/interest rate spread $ 9,468 2.64% $ 7,941 2.68%
======= ===== ======= =====
Net interest margin 3.61% 3.34%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities 123.55% 114.48%
======= =======
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
--------------------------------
1995
--------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate mortgage loans $ 140,597 $ 11,652 8.29%
Commercial business loans 1,467 128 8.73%
Consumer and other loans 11,674 1,053 9.02%
------- ------- -----
Total loans 153,738 12,833 8.35%
Mortgage-backed securities 34,681 2,536 7.31%
Investment securities(1) 14,525 880 6.06%
Other earning assets 13,242 726 5.48%
------- ------- -----
Total interest-earning assets 216,186 16,975 7.85%
Noninterest-earning assets 7,782
-------
Total Assets $ 223,968
=======
Interest-bearing liabilities:
Deposits:
Demand deposits $ 15,909 283 1.78%
Savings deposits 29,442 737 2.50%
Certificates of deposit 155,173 9,092 5.86%
------- ------- -----
Total deposits 200,524 10,112 5.04%
Advances from FHLB 250 22 8.80%
------- ------- -----
Total interest-bearing liabilities 200,774 10,134 5.05%
Noninterest-bearing demand deposits 2,642
Other noninterest-bearing liabilities 2,080
-------
Total liabilities 205,496
Equity 18,472
-------
Total liabilities and equity $ 223,968
=======
Net interest-earning assets $ 15,412
=======
Net interest income/interest rate spread $ 6,841 2.80%
======= =====
Net interest margin 3.16%
=====
Ratio of average interest-earning assets
to average interest-bearing liabilities 107.68%
=======
</TABLE>
(1) Includes FHLB stock.
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<PAGE> 13
14 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on net interest income of the Company. Information is
provided with respect to (i) effects on interest income attributable to changes
in volume (changes in volume multiplied by prior rate); (ii) effects on
interest income attributable to changes in rate (changes in rate multiplied by
prior volume); and (iii) changes in rate/volume (change in rate multiplied by
change in volume).
<TABLE>
<CAPTION>
1997 compared to 1996 1996 compared to 1995
-------------------------------------- --------------------------------------
Increase (decrease) due to Increase (decrease) due to
----------------------------- ----------------------------
Total Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------ ---- ------ ---------- ------ ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 2,019 $ (282) $ (40) $ 1,697 $1,453 $ (61) $ (7) $ 1,385
Mortgage-backed securities (294) 16 (2) (280) 160 (82) (5) 73
Investment securities 343 (14) (4) 325 152 131 22 305
Other earning assets (56) (66) 5 (117) (10) (26) 1 (35)
----- --- -- ----- ----- --- --- -----
Total net change in income
on interest-earning assets 2,012 (346) (41) 1,625 1,755 (38) 11 1,728
----- --- -- ----- ----- --- --- -----
Interest-bearing liabilities:
Deposits:
Demand deposits and
passbook savings deposits (133) (77) 10 (200) (43) 6 0 (37)
Certificates of deposit (553) (268) 16 (805) (58) 168 (1) 109
----- --- -- ----- ----- --- --- -----
Total deposits (686) (345) 26 (1,005) (101) 174 (1) 72
Advance from FHLB 1,080 8 15 1,103 888 (8) (324) 556
----- --- -- ----- ----- --- --- -----
Total net change in expense on
interest-bearing liabilities 394 (337) 41 98 787 166 (325) 628
----- --- -- ----- ----- --- --- -----
Net change in net interest income $ 1,618 $ (9) $ (82) $ 1,527 $ 968 $ (204) $ 336 $ 1,100
===== === == ===== ===== === === =====
</TABLE>
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 interest-bearing deposits. The
increase in interest expense on borrowings during 1996 was due to a $10.1
million increase in the average balance of borrowings
PROVISION FOR LOAN LOSSES - Provision for loan losses are charged to earnings
in order to bring the total allowance for loan losses to a level considered
appropriate by management based on methodology implemented by the Company,
which is designed to assess, among other things, historical experience, the
volume and type of lending conducted by the Company, the amount of the
Company's 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 $180,000 in 1997, compared to
$355,000 and $1.3 million in 1996 and 1995, 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
[LOGO]
<PAGE> 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
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 1997 and 1996, the Company continued making provisions for loan losses
in a manner consistent with its revised methodology of 1995. At December 31,
1997, the Bank's allowance for loan losses amounted to $2.8 million, or 1.25%
of total loans and 297.09% of non-performing loans and troubled debt
restructurings. 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. At December 31, 1995,
the Bank's allowance for loan losses amounted to $2.3 million, or 1.41% of
total loans and 143.94% of non-performing loans and troubled debt
restructurings.
NON-INTEREST INCOME - For 1997, the Company reported non-interest income of
$1.2 million, compared to $954,000 for 1996. The primary reason for the
$215,000, or 22.5%, increase was an increase of $180,000 in deposit fees and
service charges and a $137,000 net gain on investment securities, both of
which were partially offset by a $102,000 decrease in other income.
Total non-interest income amounted to $954,000 and $802,000 for the years
ended December 31, 1996 and 1995, respectively. 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.
NON-INTEREST EXPENSE - Non-interest expense includes salaries and employee
benefits, occupancy, depreciation, Savings Association Insurance Fund
("SAIF") deposit insurance premiums, advertising, contemplated
merger/conversion expenses, bank shares and franchise tax, net cost of real
estate owned and other expense items. Non-interest expense amounted to $5.9
million for the year ended December 31, 1997, a decrease of $1.4 million, or
19.5%, compared to $7.3 million for the year ended December 31, 1996. The
primary reason for the $1.4 million decrease was the absence of a SAIF
special assessment in 1997 compared to $1.3 million in 1996, together with
net costs of real estate owned being a net recovery of $436,000 for 1997
compared to a net cost of $129,000 for 1996.
Salaries and employee benefits, the largest component of non-interest
expenses, increased $558,000, or 21.0%, in 1997 compared to 1996. The primary
reason for such increase was a $460,000 increase in employee benefit plan
expenses relating to the ESOP and the RRP, which expenses were partially
offset due to discontinued matching contributions to the 401(k) Profit
Sharing Plan. The ESOP was in effect for all of 1997 compared to only six
months for 1996. In addition, the ESOP expense is directly related to the
average stock price of the Company, which was higher in 1997 than 1996. The
RRP began in 1997 and therefore had no comparable expense in 1996. Employee
benefit plans are explained further in Note 13 of the Consolidated Financial
Statements.
Bank shares and franchise tax expense together amounted to $351,000 in 1997,
the first year for which the Company was subject to these taxes on capital.
There was no comparable expense in 1996.
INCOME TAXES - For the years ended December 31, 1997 and 1996, the Company
incurred income tax expense of $1.6 million and $439,000, 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 35.6%, 35.4% and
(33.1)% during 1997, 1996, and 1995, 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 1997 and 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 10 to the Consolidated Financial Statements.
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<PAGE> 15
16 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. Excess liquidity
includes the Company's portfolios of investment securities held for sale and
mortgage-backed securities 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 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 $127.7 million from the FHLB through its
subsidiary Bank.
- - -------------------------------------------------------------------------------
"We have been loyal LBA mortgage customers for two generations."
[PHOTO] MR. AND MRS. PATRICK CONDON, SR.
MR. AND MRS. PATRICK CONDON, JR. AND FAMILY
- - -------------------------------------------------------------------------------
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, 1997, the total approved commitments to extend credit amounted to
$18.4 million. At that same date, certificates of deposit scheduled to mature
in one year or less totaled $70.9 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, most of the Company's assets and liabilities are monetary in nature.
Consequently, 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.
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<PAGE> 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
MARKET RISK
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates or prices such as interest rates, foreign currency
exchange rates, commodity prices, and equity prices. The Company's primary
market risk exposure is interest rate risk. The ongoing monitoring and
management of this risk is an important component of the Company's
asset/liability management process which is governed by policies established by
its Board of Directors that are reviewed and approved annually. 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 Bank, which is composed of Messrs. O'Rourke, Beacham, and
Ortego, and the Asset/Liability Management Committee ("ALCO"), which is
composed of five officers of the Bank. The Finance Committee meets jointly with
the ALCO 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. The Board of Directors delegates responsibility for carrying out the
asset/liability management policies to the ALCO. In its capacity, the ALCO
develops guidelines and strategies impacting the Company's asset/liability
management related activities based upon estimated market risk sensitivity,
policy limits and overall market interest rate levels and trends.
INTEREST RATE RISK
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change, the interest income and interest
expense streams associated with the Company's financial instruments also
change, thereby impacting net interest income ("NII"), the primary component of
the Company's earnings.
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 of interest rates. Interest rate sensitivity is a measure of the
difference between amounts of interest-earning assets and interest-bearing
liabilities that either reprice or mature within a given period. 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 31, 1997, the amount of
- - --------------------------------------------------------------------------------
NET INTEREST INCOME (IN MILLIONS)
[GRAPH]
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<PAGE> 17
18 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
the Company's interest-sensitive assets which were estimated to mature or
reprice within one year exceeded the Company's interest-sensitive liabilities
with the same characteristics by $6.6 million, or 2.4%, of the Company's total
assets.
The ALCO utilizes the results of a detailed and dynamic simulation model to
quantify the estimated exposure of NII to sustained interest rate changes.
While the ALCO routinely monitors simulated NII sensitivity over a rolling
two-year horizon, it also utilizes additional tools to monitor potential
longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and the interest expense paid on all assets and
liabilities reflected on the Company's statement of condition. This sensitivity
analysis is compared to ALCO policy limits which specify a maximum tolerance
level for NII exposure over a one-year horizon, assuming no balance sheet
growth, given both a 200 basis point upward and downward shift in interest
rates. A parallel and pro rate shift in rates over a 12-month period is
assumed. The following reflects the Company's NII sensitivity analysis as of
December 31, 1997:
<TABLE>
<CAPTION>
Estimated NII
Rate Change Sensitivity
----------- -----------
<S> <C>
+ 200 basis points -1.94%
- 200 basis points 0.46%
</TABLE>
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including, but
not limited to, the nature and timing of interest rate levels and yield curve
shapes, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, and reinvestment and replacement of asset and
liability cashflows. While assumptions are developed based upon perceived
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to prepayment and refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps
or floors on adjustable rate assets, the potential effect of changing debt
service levels on customers with adjustable rate loans, depositor early
withdrawals and product preference changes and other internal and external
variables. Furthermore, the sensitivity analysis does not reflect actions that
the alco might take in responding to or anticipating changes in interest rates.
As 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," 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, 1997,
amounted to $11.0 million and $17.8 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 $96.7 million of long-term adjustable-rate mortgage loans, $92.2
million of long-term fixed-rate loans, $16.4 million of shorter-term consumer
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<PAGE> 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
loans and $15.4 million of commercial loans. The Company's mortgage-backed
securities in its held to maturity portfolio of $12.8 million is substantially
composed 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.
The following table summarizes the anticipated maturities or repricing of the
Company's interest-sensitive assets and interest-sensitive liabilities as of
December 31, 1997, based on the information and assumptions set forth in the
notes below.
<TABLE>
<CAPTION>
(Dollars in Thousands)
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>
Interest-sensitive assets(1):
Loans receivable(2) $ 33,249 $ 47,116 $ 66,122 $ 42,855 $ 23,498 $ 212,840
Investment securities(3) 18,241 3,014 6,037 0 0 27,292
Mortgage-backed securities(4) 11,753 4,990 5,869 4,153 3,887 30,652
------ ------ ------ ------ ------ -------
Total 63,243 55,120 78,028 47,008 27,385 270,784
------ ------ ------ ------ ------ -------
Interest-sensitive liabilities:
Deposits:
NOW accounts(5) - - - - 8,177 8,177
Passbook savings accounts(5) - - - 63 23,280 23,343
Money market deposit accounts(5) 9,436 - - - - 9,436
Certificates of deposit 19,497 46,436 41,027 12,400 24,165 143,525
Advances from FHLB 36,378 - - - 250 36,628
------ ------ ------ ------ ------ -------
Total 65,311 46,436 41,027 12,463 55,872 221,109
------ ------ ------ ------ ------ -------
Excess (deficiency) of interest-sensitive
assets over interest-bearing liabilities $ (2,068) $ 8,684 $ 37,001 $ 34,545 $ (28,487) $ 49,675
====== ====== ====== ====== ====== =======
Cumulative excess (deficiency) of
interest-sensitive assets over
interest-sensitive liabilities $ (2,068) $ 6,616 $ 43,617 $ 78,162 $ 49,675
====== ====== ====== ====== ======
Cumulative excess (deficiency) of
interest-sensitive assets over
interest-sensitive liabilities as a
percent of total assets (0.75%) 2.39% 15.74% 28.21% 17.93%
====== ====== ====== ====== ======
</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 1997.
(2) Balances have been reduced for non-performing loans, which amounted to
$410,000 at December 31, 1997.
(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
$36.0 million or 13.0% of total assets.
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<PAGE> 19
20 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
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 FASB Statement No. 125, was
issued in December 1996 and deferred application of many of the provisions of
SFAS 125 until January 1, 1998. The adoption of SFAS 125 is not expected to
have a material effect on the consolidated financial position or the
consolidated results of operations of the Company.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
("EPS"). It will require the presentation of basic EPS on the face of the
income statement with dual presentation of both basic and diluted EPS for
entities with complex capital structures. This statement was adopted by the
Company on December 31, 1997. Restatement of earnings per share for all prior
periods presented is required. The statement deals with reporting and
disclosure and therefore adoption did not have an impact on the financial
statements.
For additional information on these and other FASB statements see Note 1 to the
Consolidated Financial Statements.
- - -------------------------------------------------------------------------------
"We are delighted to see LBA expand into the New Iberia area."
[PHOTO] VANCE AND WARD BREAUX
Breaux Brothers Enterprises, Inc.
- - -------------------------------------------------------------------------------
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<PAGE> 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21
YEAR 2000
The Company has developed plans to address issues related to the impact of the
year 2000 on its computer systems. Financial and operational systems have been
assessed and plans are being developed to address modification requirements.
Many of the Company's essential financial and operations systems are provided
by third-party vendors. Management of the Company has made preliminary
assessments of the efforts of such third parties to bring the systems used by
the Company and the Bank into compliance, and management continues to monitor
such progress. The compliance process is ongoing and is expected to continue
throughout 1998. The financial impact on the Company of making the required
system changes compliant with the year 2000 is not expected to be material to
the Company's consolidated financial position, results of operations or cash
flows.
- - --------------------------------------------------------------------------------
HISTORICAL SHARE PRICE
[GRAPH]
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<PAGE> 21
22
INDEPENDENT AUDITORS' REPORT
- - -------------------------------------------------------------------------------
[CASTAING, HUSSEY & LOLAN, LLP LETTERHEAD]
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, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ CASTAING, HUSSEY & LOLAN, LLP
New Iberia, Louisiana
January 30, 1998
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<PAGE> 22
23
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - -------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
(In Thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Cash and Cash Equivalents:
Cash and Amounts Due from Banks $ 622 $ 1,234
Interest Bearing Deposits-Federal Home Loan Bank 13,535 18,550
------- -------
Total 14,157 19,784
Investment Securities:
Equity Securities Held for Trading 826 --
Available for Sale, at fair value 11,044 20,539
Mortgage-Backed Securities:
Held to Maturity (fair value of $12,736
and $12,938, respectively) 12,806 13,087
Available for Sale, at fair value 17,846 21,566
Loans Receivable, net of Allowance for
Loan Losses of $2,760 and $2,592, respectively 212,840 182,724
Federal Home Loan Bank Stock, at Cost 1,887 1,778
Real Estate Owned, Net 204 75
Premises and Equipment, Net 2,806 1,827
Accrued Interest Receivable 1,416 1,551
Other Assets 1,234 1,443
------- -------
TOTAL ASSETS $ 277,066 $ 264,374
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 193,422 $ 193,450
Advances from Federal Home Loan Bank 36,628 22,250
Accrued Interest Payable on Deposits 49 46
Advance Payments by Borrowers for Taxes and Insurance 431 441
Accrued and Other Liabilities 1,974 1,096
------- -------
TOTAL LIABILITIES 232,504 217,283
------- -------
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 27 27
Additional Paid-in Capital 32,005 31,827
Retained Earnings (Substantially Restricted) 19,355 17,344
Unearned Common Stock Held by ESOP (2,228) (2,490)
Unearned Common Stock Held by RRP Trust (1,602) --
Treasury Stock, at Cost; 150,000 Shares (3,445) --
Unrealized Gain on Securities Available for
Sale, Net of Deferred Taxes 450 383
------- -------
TOTAL STOCKHOLDERS' EQUITY 44,562 47,091
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 277,066 $ 264,374
======= =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these Financial Statements.
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<PAGE> 23
24
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - -------------------------------------------------------------------------------
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In Thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 15,914 $ 14,218 $ 12,833
Mortgage-Backed Securities 2,329 2,609 2,536
Investment Securities 1,510 1,185 880
Interest Bearing Deposits 575 691 726
------ ------ ------
Total Interest Income 20,328 18,703 16,975
------ ------ ------
INTEREST EXPENSE:
Deposits 9,179 10,184 10,112
Advances from Federal Home Loan Bank 1,681 578 22
------ ------ ------
Total Interest Expense 10,860 10,762 10,134
------ ------ ------
Net Interest Income 9,468 7,941 6,841
Provision for Loan Losses 180 355 1,274
------ ------ ------
Net Interest Income After Provision for
Loan Losses 9,288 7,586 5,567
------ ------ ------
NON-INTEREST INCOME:
Loan Fees and Service Charges 136 157 119
Servicing Fees on Loans Sold 62 60 68
Deposit Fees and Service Charges 749 569 583
Investment Securities Gains (Losses), Net 137 -- (64)
Gain (Loss) on Sale of Fixed Rate Loans, Net (1) (20) 11
Other 86 188 85
------ ------ ------
Total Non-Interest Income 1,169 954 802
------ ------ ------
NON-INTEREST EXPENSES:
Salaries and Employee Benefits 3,212 2,654 2,666
Occupancy 308 285 222
Depreciation 322 320 259
Net Costs of Real Estate Owned (436) 129 1,144
SAIF Deposit Insurance Premium 122 354 469
SAIF Special Assessment -- 1,338 --
Merger/Conversion Expenses - Withdrawn
Transaction -- -- 1,052
Advertising 328 307 237
Consulting 82 193 306
Bank Shares and Franchise Tax Expense 351 -- --
Other 1,589 1,721 1,457
------ ------ ------
Total Non-Interest Expenses 5,878 7,301 7,812
------ ------ ------
Income (Loss) Before Income Taxes 4,579 1,239 (1,443)
Income Tax Expense (Benefit) 1,632 439 (477)
------ ------ ------
Net Income (Loss) $ 2,947 $ 800 $ (966)
====== ====== ======
Net Income Per Common Share* - basic $ 1.22 $ .07 N/A
====== ====== ======
Net Income Per Common Share - diluted $ 1.20 $ .07 N/A
====== ====== ======
</TABLE>
*Includes 3rd and 4th quarters only, for 1996.
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these Financial Statements.
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<PAGE> 24
25
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - -------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
Unearned
Retained Unearned Common
Additional Earnings - Common Stock
Common Paid-In (Substantially Stock Held Held By
Stock Capital Restricted) By ESOP RRP Trust
----- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ -- $ -- $ 17,962 $ -- $ --
Net Income (966)
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
-- ------ ------ ----- -----
Balance, December 31, 1995 16,996
Net Income 800
Common Stock Issued in Conversion 27 31,811 (2,622)
Common Stock Released by ESOP Trust 16 132
Cash Dividends Declared (452)
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
-- ------ ------ ----- -----
Balance, December 31, 1996 27 31,827 17,344 (2,490)
Net Income 2,947
Common Stock Released by ESOP Trust 178 262
Common Stock Acquired by Recognition
and Retention Plan Trust (1,829)
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 227
Repurchase of Common Stock
Cash Dividends Declared (936)
Change in Unrealized Gain on Securities
Available for Sale, Net of Deferred Taxes
-- ------ ------ ----- -----
Balance, December 31, 1997 $ 27 $ 32,005 $ 19,355 $ (2,228) $ (1,602)
== ====== ====== ===== =====
<CAPTION>
(In Thousands)
Unrealized
Gain (Loss) Total
on Securities, Stock-
Treasury Net of holders'
Stock Deferred Taxes Equity
----- -------------- ------
<S> <C> <C> <C>
Balance, January 1, 1995 $ -- $ (117) $ 17,845
Net Income (966)
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes 818 818
----- ------ ------
Balance, December 31, 1995 701 17,697
Net Income 800
Common Stock Issued in Conversion 29,216
Common Stock Released by ESOP Trust 148
Cash Dividends Declared (452)
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes (318) (318)
----- ------ ------
Balance, December 31, 1996 383 47,091
Net Income 2,947
Common Stock Released by ESOP Trust 440
Common Stock Acquired by Recognition
and Retention Plan Trust (1,829)
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 227
Repurchase of Common Stock (3,445) (3,445)
Cash Dividends Declared (936)
Change in Unrealized Gain on Securities
Available for Sale, Net of Deferred Taxes 667 67
----- ------ ------
Balance, December 31, 1997 $ (3,445) $ 450 $ 44,562
===== ====== ======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these Financial Statements.
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<PAGE> 25
26
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 2,947 $ 800 $ (966)
------ ------ ------
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 328 320 259
Provision for Deferred Income Taxes 2 (43) (344)
Provision for Losses on Loans 180 355 1,274
Provision for Losses on Real Estate Owned
and Other Property Acquired -- 256 1,169
Compensation Expense Recognized on RRP 227 -- --
ESOP Contribution 440 148 --
Other Gains and Losses, Net (427) (121) (139)
Net Change in Securities Classified as Trading (826) -- --
Loss (Gain) on Sale of Loans Held for Sale 1 20 (11)
Proceeds from Sale of Loans Held for Sale 921 6,353 1,553
Originations of Loans Held for Sale (922) (6,373) (1,542)
Abandonment of Construction Work in Progress -- -- 202
Accretion of Discounts, Net of Premium Amortization On Securities (63) (46) (57)
Amortization of Deferred Revenues and Unearned Income on Loans (60) (161) (146)
FHLB Stock Dividend Received (109) (101) (104)
Changes in Assets and Liabilities:
Decrease (Increase) in Accrued Interest Receivable 135 (364) 58
Decrease (Increase) in Other Assets 167 1,139 (723)
Increase (Decrease) in Accounts Payable and Accrued Expenses 846 133 (36)
------ ------ ------
Total Adjustments 840 1,515 1,413
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,787 $ 2,315 $ 447
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Securities Available for Sale $ -- $ -- $ 2,719
Proceeds from Calls and Maturities of Securities Available for Sale 22,498 3,000 2,500
Proceeds from Maturities of Securities Held to Maturity -- -- 10,500
Purchases of Securities Available for Sale (12,998) (19,500) --
Net Advances on Loans (30,739) (25,416) (7,404)
Proceeds from Sale of Premises and Equipment -- 11 6
Purchase of Premises and Equipment (1,301) (416) (337)
Proceeds from Sale of Real Estate Owned and Other Property Acquired 801 874 908
Capital Costs Incurred on Real Estate Owned and Other Property Acquired -- (35) (131)
Proceeds from Sale of Mortgage-Backed Securities -- -- 467
Principal Collections on Mortgage-Backed Securities Available for Sale 3,870 4,020 --
Principal Collections on Mortgage-Backed Securities Held to Maturity 290 397 3,955
Purchase of Mortgage-Backed Securities Held to Maturity -- -- (9,718)
------ ------ ------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (17,579) $ (37,065) $ 3,465
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Demand, NOW and Savings Deposits $ (3,271) $ (1,260) $ (5,784)
Net Change in Time Deposits 3,243 (11,633) 8,039
Net Change in Mortgage Escrow Funds (10) (44) (70)
Proceeds from FHLB Advances 14,378 22,000 --
Proceeds from Issuance of Common Stock -- 30,153 --
Dividends Paid to Shareholders (901) (226) --
Acquisition of Common Stock by RRP (1,829) -- --
Purchase of Treasury Stock (3,445) -- --
Stock Conversion Costs Incurred -- (937) --
------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 8,165 $ 38,053 $ 2,185
------ ------ ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (5,627) $ 3,303 $ 6,097
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,784 16,481 10,384
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,157 $ 19,784 $ 16,481
====== ====== ======
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of Real Estate in Settlement of Loans $ 503 $ 189 $ 252
Unrealized (Loss) Appreciation on Securities $ (101) $ (481) $ 1,239
Loans Made to Facilitate Sales of Real Estate Owned $ -- $ -- $ 317
SUPPLEMENTAL DISCLOSURES:
Cash Paid For:
Interest on Deposits and Borrowings $ 10,779 $ 10,747 $ 10,136
Income Taxes $ 1,541 $ 526 $ 915
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are an integral
part of these Financial Statements.
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<PAGE> 26
27
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, its full-service facility in New Iberia, 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 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. Future downturns in the oil and gas industry could result in an
adverse impact on the Company's real estate loans.
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. 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.
Continues
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<PAGE> 27
28 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 1 continued
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 equity, net of
applicable income taxes. 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 types of MBSS as available
for sale securities, which are carried at fair value. Management also
classifies certain 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.
FEDERAL HOME LOAN BANK STOCK
The Bank is required, as a member of the Federal Home Loan Bank of Dallas, to
maintain an amount of stock equal to the greater of 1% of the Bank's
outstanding home mortgage-related assets or 5% of its outstanding advances from
the FHLB. Stock held in excess of required amounts is redeemable at par. At
December 31, 1997 and 1996, the Bank held more than the required amount of
stock.
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, 1997 and 1996, the
Company 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.
Continues
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<PAGE> 28
Notes to Consolidated Financial Statements 29
Note 1 continued
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 using the loan's effective interest rate. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.
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. 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
smaller-balance homogenous loans and are collectively evaluated for impairment
and are not subject to SFAS 114 measurement criteria. 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.
A loan (including an impaired loan) 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.
PREMISES AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful lives of
the respective assets, 15 to 30 years for buildings and 3 to 15 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.
Continues
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<PAGE> 29
30 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 1 continued
LOAN SERVICING
Mortgage servicing rights are recognized on mortgage loans sold when the
institution has retained the servicing rights on the loan. 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.
ADVERTISING COSTS
The Company incurred no direct-response advertising costs and expenses all
advertising costs as incurred.
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, more likely than not will be unrealized.
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 Statements 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 include
judgments regarding future expected loss experi-
Continues
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<PAGE> 30
Notes to Consolidated Financial Statements 31
Note 1 continued
ence 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 exercisable 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 transferors 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 1997 and deferred application of many of the provisions of SFAS 125
until January 1, 1998. Management believes adoption of SFAS 125 will not have a
material effect on financial position and the results of operations.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
("EPS"). It requires the presentation of basic EPS on the face of the income
statement with dual presentation of both basic and diluted EPS for
Continues
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<PAGE> 31
32 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 1 continued
entities with complex capital structures. Basic EPS excludes the dilutive
effect that could occur if any securities or other contracts to issue common
stock were exercised or converted into or resulted in the issuance of common
stock. Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for
the period. The computation of diluted EPS is similar to the computation of
basic EPS except the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. In the case of certain convertible
securities, the numerator may also be increased by related interest or
dividends. This statement was adopted by the company effective December 31,
1997.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains and losses).
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income (including, for
example, unrealized holding gains and losses on available for sale securities)
be reported in a financial statement similar to the statement of income and
retained income. The accumulated balance of other comprehensive income will be
disclosed separately from retained income in the shareholders' equity section
of the balance sheet. This statement is effective for the Company for the year
beginning January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This statement establishes standards for
the way public business enterprises report information about operating segments
and establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. Information required to be
disclosed includes segment profit or loss, certain specific revenue and expense
items, segment assets and certain other information. This statement is
effective for the Company for financial statements issued for the year
beginning January 1, 1998.
Management has not determined the effects of adopting SFAS No. 130 and 131, but
their adoption will not impact financial condition or results of operations
because they deal with reporting and disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1996 Consolidated
Financial Statements in order to conform to the classifications adopted for
reporting in 1997.
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, 1997 and 1996 was approximately $298,000 and
$281,000, respectively.
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<PAGE> 32
Notes to Consolidated Financial Statements 33
NOTE 3 - INVESTMENT SECURITIES:
Securities available for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------------------------------- -----------------------------------------------------
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 $ 10,918 $ 103 $ -- $ 11,021 $ 20,389 $ 149 $ (14) $ 20,524
Marketable Equity
Security 5 18 -- 23 5 10 -- 15
------ --- -- ------ ------ --- -- ------
Total $ 10,923 $ 121 $ -- $ 11,044 $ 20,394 $ 159 $ (14) $ 20,539
====== === == ====== ====== === == ======
</TABLE>
The following is a summary of maturities of securities available for sale as of
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Securities Available for Sale
-------------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Amounts maturing in:
One year or less $ -- $ --
After one year through five years 8,918 9,016
After five years through ten years 2,000 2,005
After ten years -- --
------ ------
10,918 11,021
Marketable Equity Security 5 23
------ ------
Total $ 10,923 $ 11,044
====== ======
</TABLE>
Securities are classified according to their contractual maturity without
consideration of call features. Accordingly, actual maturities may differ from
contractual maturities.
During 1997, proceeds from calls of securities available for sale were
approximately $22,498,000, resulting in no realized gain or loss. During 1997
and 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.
Investment securities with a carrying amount and fair value of approximately
$516,000 at December 31, 1997, were pledged to secure deposits as required or
permitted by law.
Certain equity securities are classified as trading securities. Unrealized
gains of $130,000 were recognized in 1997 on such securities.
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<PAGE> 33
34 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
NOTE 4 - MORTGAGE-BACKED SECURITIES:
Mortgage-Backed Securities available for sale consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------- -------------------------------------------------
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>
GNMA $ 1,366 $ 33 $ -- $ 1,399 $ 1,760 $ 16 $ -- $ 1,776
FNMA 9,978 509 -- 10,487 11,976 483 (10) 12,449
FHLMC 5,439 42 (18) 5,463 6,893 45 (85) 6,853
FNMA CMO 502 -- (5) 497 502 -- (14) 488
------ --- -- ------ ------ --- --- ------
$ 17,285 $ 584 $ (23) $ 17,846 $ 21,131 $ 544 $ (109) $21,566
====== === == ====== ====== === === ======
</TABLE>
Mortgage-Backed Securities held to maturity consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------------------- ---------------------------------------------
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>
GNMA $ 1,121 $ 26 $ -- $ 1,147 $ 1,320 $ 21 $ -- $ 1,341
FNMA 206 -- (2) 204 232 -- (3) 229
FHLMC 750 -- (29) 721 822 -- (30) 792
FNMA CMO 4,736 -- (8) 4,728 4,733 -- (21) 4,712
FHLMC CMO 5,993 19 (76) 5,936 5,980 -- (116) 5,864
------ -- --- ------ ------ -- --- ------
$ 12,806 $ 45 $ (115) $ 12,736 $ 13,087 $ 21 $ (170) $12,938
====== == === ====== ====== == === ======
</TABLE>
The following is a summary of maturities of Mortgage-Backed Securities
available for sale and held to maturity as of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Amounts maturing in:
One year or less $ 3,926 $ 4,053 $ 229 $ 228
After one year through five years 10,577 10,920 796 792
After five years through ten years 1,955 2,018 536 533
After ten years 827 855 11,245 11,183
------ ------ ------ ------
Total $ 17,285 $ 17,846 $ 12,806 $ 12,736
====== ====== ====== ======
</TABLE>
Maturities are based on the average life at the currently projected prepayment
speed.
During 1997 and 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 $467,000 resulting in a realized
loss of approximately $33,000. There were no sales of held to maturity
Mortgage-Backed Securities in 1997, 1996 or 1995.
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<PAGE> 34
Notes to Consolidated Financial Statements 35
NOTE 5 - LOANS RECEIVABLE:
Loans Receivable at December 31, 1997 and 1996, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage Loans:
Single-Family Residential $ 169,637 $ 142,833
Single-Family Construction 9,301 10,565
Multi-Family Residential 546 862
Commercial Real Estate 9,363 12,873
------- -------
Total Mortgage Loans 188,847 167,133
Commercial Business Loans 15,400 7,363
Consumer Loans:
Savings 2,046 2,709
Indirect Automobile Dealer 4,526 7,424
Other 9,783 6,726
------- -------
Total Loans 220,602 191,355
Less:
Allowance for Loan Losses (2,760) (2,592)
Unearned Discounts and Prepaid Dealer Reserve 162 331
Net Deferred Loan Origination Fees (535) (471)
Loans in Process and Undisbursed Funds (4,629) (5,899)
------- -------
Net Loans $ 212,840 $ 182,724
======= =======
</TABLE>
At December 31, 1997 and 1996, the Company's loan portfolio included
$96,690,000 and $86,565,000 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):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, Beginning $ 2,592 $ 2,329 $ 1,087
Provision Charged to Income 180 355 1,274
Loans Charged Off (235) (277) (127)
Loans Recovered 223 185 95
----- ----- -----
Balance, Ending $ 2,760 $ 2,592 $ 2,329
===== ===== =====
</TABLE>
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<PAGE> 35
36 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
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 $21,186,000 and $24,453,000 at
December 31, 1997 and 1996, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $602,000 and $378,000 at December 31, 1997 and
1996, respectively.
Mortgage loan servicing rights of $1,000 and $35,000 were capitalized in 1997
and 1996, respectively. Amortization of mortgage servicing rights was $6,000
and $3,000 in 1997 and 1996, respectively, and the balance of mortgage
servicing rights at December 31, 1997 and 1996, was $27,000 and $32,000,
respectively.
NOTE 7- PREMISES AND EQUIPMENT:
Premises and equipment at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 929 $ 738
Office Buildings 1,736 1,237
Furniture, Fixtures and Equipment 2,973 2,381
Transportation Equipment 95 95
----- -----
5,733 4,451
Accumulated Depreciation (2,927) (2,624)
----- -----
Premises and Equipment, Net $ 2,806 $ 1,827
===== =====
</TABLE>
NOTE 8 - DEPOSITS:
Deposit account balances at December 31 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Weighted 1997 1996
Average Rate at ----------------------- ------------------------
December 31, 1997 Amount % Amount %
----------------- ------ - ------ -
<S> <C> <C> <C> <C> <C>
NOW Accounts 1.7% $ 8,177 4.2% $ 11,528 6.0%
Money Market Accounts 4.0% 9,436 4.9% 5,101 2.6%
Non-interest Bearing Checking Accounts --% 8,941 4.6% 4,954 2.6%
------- ------ ------- ------
Total Demand Deposits 26,554 13.7% 21,583 11.2%
------- ------ ------- ------
Passbook Savings Deposits 2.5% 23,343 12.1% 25,071 12.9%
------- ------ ------- ------
Certificate of Deposit Accounts:
Less than 4.00% 226 .1% 100 .1%
4.0% to 4.99% 13,474 7.0% 17,031 8.8%
5.0% to 5.99% 79,702 41.2% 71,021 36.7%
6.0% to 6.99% 34,172 17.7% 34,364 17.8%
7.0% to 8.99% 15,056 7.8% 23,434 12.1%
9.0% and over 895 .4% 846 .4%
------- ------ ------- ------
Total Certificates of Deposit 5.7% 143,525 74.2% 146,796 75.9%
------- ------ ------- ------
Total Deposits 4.8% $193,422 100.0% $193,450 100.0%
======= ====== ======= ======
</TABLE>
Continues
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<PAGE> 36
Notes to Consolidated Financial Statements 37
Note 8 continued
At December 31, 1997, scheduled maturities of certificates of deposit accounts
were as follows (in thousands):
<TABLE>
<CAPTION>
Amount
------
<S> <C>
One year or less $ 70,871
Over one year through two years 36,758
Over two years through three years 18,750
Over three years through five years 10,987
Over five years through ten years 6,159
-------
Total Certificates of Deposit $ 143,525
=======
</TABLE>
Certificates of deposit with a balance of $100,000 and over were $36,833,000
and $36,037,000 at December 31, 1997 and 1996, respectively.
Interest expense on deposits for the following years ended December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NOW Accounts $ 109 $ 160 $ 144
Money Market 163 131 139
Passbook Savings 589 692 737
Certificates of Deposits 8,318 9,201 9,092
----- ------ ------
Total Interest Expense on Deposits $ 9,179 $ 10,184 $ 10,112
===== ====== ======
</TABLE>
Income from early withdrawal penalties on certificate accounts was $79,000,
$63,000 and $53,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances totaled $36,628,000 and $22,250,000 as of
December 31, 1997 and 1996, respectively, which are secured by mortgage loans
under an existing blanket collateral agreement and by FHLB stock. The advances
have variable interest rates that are indexed to LIBOR (London International
Bank Offering Rate) and reprice either monthly or quarterly. No payments are
scheduled prior to maturity. The Company has the ability to borrow total
advances up to $127,746,000 from the FHLB which would also be secured by the
existing blanket collateral agreement and by FHLB stock. Advances at December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Interest Rate 1997 1996
---- ----
<S> <C> <C>
Variable rate - 5.63% to 5.99% at December 31, 1997 $ 36,378 $ 22,000
8.70% 250 250
------ ------
Total Advances $ 36,628 $ 22,250
====== ======
</TABLE>
Continues
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<PAGE> 37
38 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 9 continued
Advances at December 31, 1997, have maturities in future years as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending December 31 Amount
----------------------- ------
<S> <C>
1998 $ 22,000
1999 14,378
2005 250
$ 36,628
------
</TABLE>
NOTE 10 - INCOME TAXES:
The provision for Income Tax Expense (Benefit) is as follows for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 1,623 $ 468 $ (134)
State 7 14 --
Deferred Tax Expense 2 (43) (343)
----- --- ---
Total Income Tax Expense (Benefit) $ 1,632 $ 439 $ (477)
----- --- ---
</TABLE>
There was an income tax payable of $173,000 at December 31, 1997, and an income
tax refund receivable of $16,000 at December 31, 1996. Income tax expense or
benefit is allocated between the Company and its subsidiary based on each
member's taxable income or loss in relation to total consolidated taxable
income at the effective tax rate.
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>
1997 1996 1995
---- ---- ----
<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 .2 1.1 --
Nondeductible ESOP 1.3 .4 --
Other Items .1 (.1) .9
---- ---- ----
Effective Tax Rate 35.6% 35.4% (33.1)%
==== ==== ====
</TABLE>
Continues
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<PAGE> 38
Notes to Consolidated Financial Statements 39
Note 10 continued
The tax effects of principal temporary differences at December 31 is as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets:
Deferred loan fees $ 108 $ 90
Book provision for losses on loans
and real estate owned 949 879
Real estate owned basis differences 5 74
Deferred gains on loans 18 49
Depreciable property basis differences 20 25
ESOP and RRP 118 14
Other 13 7
----- -----
Subtotal 1,231 1,138
Deferred Tax Liabilities:
Discount Accretion on Investment Securities 29 19
FHLB stock 286 249
Unrealized gains on Securities Available for Sale 232 198
Unrealized gains on Trading Securities 44 --
----- -----
Subtotal 591 466
----- -----
Net Deferred Tax Asset $ 640 $ 672
----- -----
</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 1997 and 1996. The net deferred tax asset is included in
Other Assets on the Statements of Financial Condition.
Included in retained earnings at December 31, 1997 and 1996 is approximately
$7,073,000 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 11 - EARNINGS PER SHARE:
The Company adopted FAS 128, Earning Per Share, as of December 31, 1997.
Restatement of earnings per share for all prior periods presented is required.
Weighted average shares of common stock outstanding for basic EPS excludes the
weighted average shares unreleased by the Employee Stock Ownership Plan
("ESOP") (196,578 and 213,026 shares at December 31, 1997 and 1996,
respectively) and the weighted average unvested shares in the Recognition and
Retention Plan ("RRP") (96,769 and -0- shares at December 31, 1997 and 1996,
respectively). The effect on diluted EPS of stock option shares outstanding and
unvested RRP shares is calculated using the treasury stock method. EPS for
periods preceding the third quarter of 1996 are not applicable, as the
Company's conversion from mutual-to-stock form and reorganization into a
holding company format was not completed until July 15, 1996. The following is
a reconcilement of the numerator and denominator for basic and diluted Earnings
Per Share.
Continues
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<PAGE> 39
40 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 11 continued
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Year ended December 31, 1997
-----------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income Available to Common Stockholders $ 2,947,000 2,408,779 $ 1.22
====
Effect of Dilutive Securities
Stock Options Outstanding -- 38,315
Restricted Stock Grants -- 15,932
--------- ---------
Diluted EPS
Income Available to Common Stockholders
Plus Assumed Conversions $ 2,947,000 2,463,026 $ 1.20
========= ========= ====
<CAPTION>
Six months ended December 31, 1996
-----------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income Available to Common Stockholders $ 169,000 2,518,224 $ 0.07
======= ========= ====
</TABLE>
No stock options or other potential common stock securities were outstanding
for the six months ended December 31, 1996.
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.
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 2.0 percent or less. At
December 31, 1997 and 1996, the Bank was classified as "well capitalized."
There are no conditions or events since those dates that management believes
have changed the Bank's category.
Continues
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<PAGE> 40
Notes to Consolidated Financial Statements 41
Note 12 continued
As of December 31, the Company met all regulatory capital requirements as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------
Required Actual
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tier 1 leverage capital:
Acadiana Bancshares, Inc. $ 11,029 4.00% $ 44,112 16.00%
LBA Savings Bank 10,660 4.00% 33,214 12.46%
Tier 1 risk-based capital:
Acadiana Bancshares, Inc. 5,855 4.00% 44,112 30.14%
LBA Savings Bank 5,732 4.00% 33,214 23.18%
Total risk-based capital:
Acadiana Bancshares, Inc. 11,710 8.00% 45,953 31.39%
LBA Savings Bank 11,465 8.00% 35,017 24.43%
</TABLE>
<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>
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 for the State of
Louisiana. There are no undistributed earnings of the Bank for 1997 that are
available for dividend distribution to the Company in 1998.
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 10
percent of compensation. Until 1997, the Company contributed a matching
contribution of 100 percent of employee deferrals up to 3 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 2% contribution, effective
January 1, 1996.
Employer contributions made to the plans were $-0- , $52,000 and $146,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
Continues
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<PAGE> 41
42 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
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, 1997, was $441,000 based on
the release of 21,892 shares. For the year ended December 31, 1996,
compensation cost was $148,000 based on the release of 10,946 shares. There
were 32,838 and 10,946 shares allocated and 185,662 and 207,554 shares were
held in suspense by the ESOP for the years ended December 31, 1997 and 1996,
respectively. The fair value of the unearned ESOP shares at December 31, 1997
and 1996, using the quoted market closing price per share, was approximately
$4,341,000 and $3,087,000, respectively.
RECOGNITION AND RETENTION PLAN
The Company established the Recognition and Retention Plan (RRP) for certain
officers and directors on January 22, 1997. During 1997, the Company fully
funded the trust with the purchase of 109,250 shares, or 4 percent, of the
Company's common stock in the open market to be awarded in accordance with the
provisions of the RRP. The cost of the shares of restricted stock awarded under
these plans is recorded as unearned compensation, a contra equity account. The
fair value of the shares on the date of award is recognized ratably as
compensation expense over the vesting period, which is five years. The grantees
of the restricted stock have the right to vote the shares awarded. Dividends on
unvested shares are held in trust and distributed when the related shares vest.
For the year ended December 31, 1997, the amount included in compensation
expense was $227,000. The
Continues
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<PAGE> 42
Notes to Consolidated Financial Statements 43
Note 13 continued
weighted-average grant-date fair value of the restricted stock granted under
the RRP during the year ended December 31, 1997, was $15.50. A summary of the
changes in restricted stock follows:
<TABLE>
<CAPTION>
Unawarded Awarded
Shares Shares
------ ------
<S> <C> <C>
Balance, January 1, 1997 -- --
Purchased by Plan 109,250 --
Granted (73,202) 73,202
Forfeited -- --
Earned and Issued -- --
------ ------
Balance, December 31, 1997 36,048 73,202
====== ======
</TABLE>
STOCK OPTION PLAN
In 1997, the Company adopted a stock option plan for the benefit of directors
and officers. The number of shares of common stock reserved for issuance under
the stock option plan was equal to 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 option term
cannot exceed 10 years. The stock options granted to directors and officers in
1997 are exercisable in five equal annual installments. Under APB No. 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
The following table summarizes the activity related to stock options:
<TABLE>
<CAPTION>
Available Options
for Grant Outstanding
--------- -----------
<S> <C> <C>
At inception 273,125 --
Granted (211,701) 211,701
Canceled -- --
Exercised -- --
------ -------
At December 31, 1997 61,424 211,701
====== =======
</TABLE>
The 211,701 outstanding options were issued on January 22, 1997, at an exercise
price of $15.50. No shares were exercisable at December 31, 1997. The
weighted-average grant-date fair value of options granted during the year ended
December 31, 1997 was $4.32.
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123 requires disclosure of the compensation cost for
stock-based incentives granted after January 31, 1995, based on the fair value
at grant date for awards. Applying SFAS 123 would result in pro forma net
income and earnings per share amounts as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Net income
As reported $ 2,947,000
Pro forma $ 2,804,000
Earnings per share
As reported - Basic $ 1.22
- Diluted $ 1.20
Pro forma - Basic $ 1.16
- Diluted $ 1.14
</TABLE>
Continues
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<PAGE> 43
44 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 13 continued
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted-average assumptions used for
1997 grants: dividend yields of 2.20 percent; expected volatility of 16.91
percent; risk-free interest rate of 6.51 percent; and expected lives of 7.5
years for all options.
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, 1997, were
$743,000.
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 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
Statements 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, 1997, 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 $ 4,629
Commitments to Extend Credit $13,714
Standby Letters of Credit $ 58
</TABLE>
Continues
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<PAGE> 44
Notes to Consolidated Financial Statements 45
Note 16 continued
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
creditworthiness 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>
1997 1996
---------------------------- ------------------------------
Estimated Recorded Estimated Recorded
Fair Book Fair Book
ASSETS Value Balance Value Balance
----- ------- ----- -------
<S> <C> <C> <C> <C>
Cash $ 14,157 $ 14,157 $ 19,784 $ 19,784
Investment Securities 11,870 11,870 20,539 20,539
Mortgage-Backed Securities 30,582 30,652 34,504 34,653
Loans Receivable 212,282 212,840 184,289 182,724
LIABILITIES
Deposits:
Regular Savings, NOW Accounts,
and Money Market Deposits 49,897 49,897 $ 46,654 $ 46,654
Certificates of Deposit 144,358 143,525 149,155 146,796
Advances from Federal Home Loan Bank 36,628 36,628 22,250 22,250
</TABLE>
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 were $30,153,000. Total
conversion costs approximated $937,000.
Continues
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<PAGE> 45
46 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 19 continued
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 - 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.
<TABLE>
<CAPTION>
Condensed Balance Sheet
(In thousands)
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash in Bank $ 8,266 $ 11,561
Equity Securities Held for Trading 826 --
Securities Available for Sale 2,018 2,014
Investment in Subsidiary 33,652 33,856
Other Assets 116 60
------ ------
Total Assets $ 44,878 $ 47,491
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 316 $ 400
------ ------
Stockholders' Equity 44,562 47,091
------ ------
Total Liabilities and Stockholders' Equity $ 44,878 $ 47,491
====== ======
</TABLE>
Continues
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<PAGE> 46
Notes to Consolidated Financial Statements 47
Note 20 continued
<TABLE>
<CAPTION>
Condensed Statement of Income
(In thousands)
For the Period from
Year Ended July 15, 1996 to
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Operating Income:
Dividends from Subsidiary Bank $ 3,274 $ 50
Interest Income 659 335
Investment Securities Gains 137 --
----- ---
Total Operating Income 4,070 385
Operating Expenses 411 14
----- ---
Income Before Income Tax Expense and Decrease in
Equity in Undistributed Earnings of Subsidiary 3,659 371
Income Tax Expense 138 119
----- ---
Income Before Decrease in Equity in Undistributed
Earnings of Subsidiary 3,521 252
Decrease in Equity in Undistributed Earnings of
Subsidiary (574) (83)
----- ---
Net Income $ 2,947 $ 169
===== ===
</TABLE>
Continues
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<PAGE> 47
48 ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 20 continued
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
(In thousands)
For the Period from
Year Ended July 15, 1996 to
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,947 $ 169
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Decrease in Equity in Net Income of Subsidiary 574 83
Provision for Deferred Income Taxes 49 --
Net Change in Securities Classified as Trading (826) --
Increase in Other Assets (56) (60)
(Decrease) Increase in Other Liabilities (117) 124
----- ------
Net Cash Provided by Operating Activities 2,571 316
----- ------
Cash Flows from Investing Activities:
Proceeds from Sale of Securities Available for Sale 6,998 --
Purchase of Securities Available for Sale (6,998) (2,000)
Purchase of Capital Stock of Subsidiary -- (15,919)
------ ------
Net Cash Used In Investing Activities -- (17,919)
------ ------
Cash Flows from Financing Activities:
Capital Contributed to Subsidiary (79) (20)
Payments Received From ESOP 388 194
Net Proceeds From Issuance of Common Stock -- 30,153
Dividends Paid to Shareholders (901) (226)
Acquisition of Common Stock by RRP (1,829) --
Repurchase of Common Stock (3,445) --
Stock Conversion Costs Incurred -- (937)
------ ------
Net Cash (Used) Provided by Financing Activities (5,866) 29,164
------ ------
Net (Decrease) Increase in Cash and Cash Equivalents (3,295) 11,561
------ ------
Cash and Cash Equivalents, Beginning of Period 11,561 --
------ ------
Cash and Cash Equivalents, End of Period $ 8,266 $ 11,561
====== ======
</TABLE>
Other Disclosures:
At December 31, 1997, the Bank owed the Company $56,000 for overpayment of
estimated tax payments. At December 31, 1996, the Company owed the Bank
$119,000 for estimated tax payments made on behalf of the Company.
[LOGO]
<PAGE> 48
Notes to Consolidated Financial Statements 49
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
(In Thousands, except per share data)
Year Ended December 31, 1997
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Interest Income $ 4,953 $ 5,036 $ 5,106 $ 5,232
Total Interest Expense 2,595 2,655 2,762 2,848
----- ----- ----- -----
Net Interest Income 2,358 2,381 2,344 2,384
Provision for Loan Losses 45 45 45 45
----- ----- ----- -----
Net Interest Income After Provision
for Loan Losses 2,313 2,336 2,299 2,339
Noninterest Income 261 262 327 320
Noninterest Expense 1,403 1,632 1,570 1,272
----- ----- ----- -----
Income Before Income Taxes 1,171 966 1,056 1,387
Income Tax Expense 400 341 362 529
----- ----- ----- -----
Net Income $ 771 $ 625 $ 694 $ 858
===== ===== ===== =====
Net Income per Common Share - basic $ .31 $ .26 $ .29 $ .37
===== ===== ===== =====
Net Income per Common Share - diluted $ .31 $ .25 $ .28 $ .35
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
(In Thousands, except per share data)
Year Ended December 31, 1996
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
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 - basic N/A N/A $ (.14) $ .21
===== ===== ===== =====
Net Income (Loss) per Common Share - diluted N/A N/A $ (.14) $ .21
===== ===== ===== =====
</TABLE>
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<PAGE> 49
50
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 five
full-service branches in Lafayette and New Iberia 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
NEW IBERIA BRANCH
230 West Main Street, New Iberia, Louisiana 70560
EUNICE LOAN PRODUCTION OFFICE
136 South 3rd Street, Eunice, Louisiana 70535
DIRECTORS
- - -------------------------------------------------------------------------------
AL W. BEACHAM, M.D.
Urologist
JOHN H. DEJEAN
Retired
LAWRENCE GANKENDORFF
Chairman of the Board,
Acadiana BancShares, Inc., and
LBA Savings Bank
JAMES J. MONTELARO
Executive Vice President - Mortgage Banking,
LBA Savings Bank
WILLIAM H. MOUTON
Attorney
DON J. O'ROURKE, SR.
Architect
THOMAS S. ORTEGO
Self-employed Accountant
JERRY REAUX
President and Chief Executive Officer,
Acadiana BancShares, Inc., and
LBA Savings Bank
KALISTE J. SALOOM, JR.
Attorney and retired City Judge
EXECUTIVE OFFICERS
- - -------------------------------------------------------------------------------
LAWRENCE GANKENDORFF
Chairman of the Board
JERRY REAUX
President and Chief Executive Officer
EMILE SOULIER, III
Vice President and Chief Financial Officer
JAMES J. MONTELARO
Executive Vice President - Mortgage Banking
BRADY COMO
Senior Vice President - Commercial Banking
THOMAS DEBAILLON
Vice President - Operations
MARY ANNE S. BERTRAND
Vice President - Retail Banking
[LOGO]
<PAGE> 50
51
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 29, 1998, 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 525 shareholders (as of March 20, 1998). Below is a table showing the
high and low sales prices of the common stock and cash dividends declared
during each quarter of 1997 and the third and fourth quarters of 1996:
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
Quarter Ended High Low Dividend Declared
----------------------------------------------------------
<S> <C> <C> <C>
March 31, 1997 $191/4 $147/8 $0.09
June 30, 1997 $20 $171/2 $0.09
Sept. 30, 1997 $221/4 $193/4 $0.09
Dec. 31, 1997 $243/4 $221/4 $0.11
</TABLE>
<TABLE>
<CAPTION>
1996
Quarter Ended High Low Dividend Declared
----------------------------------------------------------
<S> <C> <C> <C>
Sept. 30, 1996 $137/8 $1111/16 $0.09
Dec. 31, 1996 $151/8 $135/8 $0.09
</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 INFORMATION
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
INDEPENDENT AUDITORS
Castaing, Hussey & Lolan, L.L.P.
525 Weeks Street
New Iberia, Louisiana 70560
SPECIAL COUNSEL
Elias, Matz, Tiernan & Herrick, L.L.P.
734 15th Street N.W.
Washington, D.C. 20005
GENERAL COUNSEL
Mark Andrus
Davidson, Meaux, Sonnier, McElligott & Swift
810 South Buchanan Street
Lafayette, Louisiana 70501
[LOGO]
<PAGE> 1
EXHIBIT 23.1
[CASTAING, HUSSEY & LOLAN, LLP LETTERHEAD]
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 30, 1998 appearing in
this Annual Report on Form 10-K of Acadiana Bancshares, Inc. and Subsidiary
for the year ended December 31, 1997.
/s/ CASTAING, HUSSEY & LOLAN LLP
New Iberia, Louisiana
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 622
<INT-BEARING-DEPOSITS> 13,535
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 826
<INVESTMENTS-HELD-FOR-SALE> 28,890
<INVESTMENTS-CARRYING> 12,806
<INVESTMENTS-MARKET> 12,736
<LOANS> 215,599
<ALLOWANCE> 2,759
<TOTAL-ASSETS> 277,066
<DEPOSITS> 193,422
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,454
<LONG-TERM> 36,628
0
0
<COMMON> 27
<OTHER-SE> 44,535
<TOTAL-LIABILITIES-AND-EQUITY> 277,066
<INTEREST-LOAN> 15,915
<INTEREST-INVEST> 1,510
<INTEREST-OTHER> 2,903
<INTEREST-TOTAL> 20,328
<INTEREST-DEPOSIT> 9,179
<INTEREST-EXPENSE> 10,860
<INTEREST-INCOME-NET> 9,468
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 137
<EXPENSE-OTHER> 5,878
<INCOME-PRETAX> 4,579
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,947
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 7.70
<LOANS-NON> 414
<LOANS-PAST> 0
<LOANS-TROUBLED> 515
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,592
<CHARGE-OFFS> 235
<RECOVERIES> 222
<ALLOWANCE-CLOSE> 2,759
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,759
</TABLE>
