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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______TO_____________
COMMISSION FILE NO: 1-14364
ACADIANA BANCSHARES, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-1317124
--------------------------------- ----------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 WEST VERMILION STREET
LAFAYETTE, LOUISIANA 70501
--------------------------------- ------------
(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 19, 1999, the aggregate market value of the 1,450,299 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 290,893 shares held by all directors and officers of the Registrant as
a group, was approximately $26.1 million. This figure is based on the closing
sale price of $18.00 per share of the Registrant's Common Stock on March 19,
1999.
Number of shares of Common Stock outstanding as of December 31, 1998: 1,820,492
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated.
(1) Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1998 are incorporated into Part II, Items 5 through 8 of
this Form 10-K.
(2) Portions of the definitive proxy statement for the 1998 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 15, 1996. The only significant asset of the
Company is the capital stock of the Bank. The Company's common stock trades on
the AMEX under the symbol "ANA." At December 31, 1998, the Company had total
assets of $282.1 million, total deposits of $200.6 million, and stockholders'
equity of $32.2 million.
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 Federal Deposit Insurance Corporation
("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 Bank is a Savings Association Insurance Fund ("SAIF") -insured,
Louisiana chartered, stock savings bank 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 executive office is located at 101 West Vermilion
Street, Lafayette, Louisiana, 70501, and its telephone number is (318) 232-4631.
Through its continuing operation of the Bank, 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. At
December 31, 1998, the Company's loan portfolio totaled $225.8 million, or 80.0%
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
investment securities portfolio amounted to $15.0 million, or 5.3% of total
assets and its mortgage-backed securities portfolio totaled $23.8 million, or
8.4% of the Company's total assets at December 31, 1998. At December 31, 1998,
the Company had total deposits of $200.6 million, of which $59.6 million, or
29.7% consisted of core deposits which include savings deposits, money market
deposits ("MMDA"), negotiable order of withdrawal ("NOW") and
noninterest-bearing accounts and $141.0 million, or 70.3%, consisted of
certificates of deposit, including $37.5 million of deposit accounts equal to or
exceeding $100,000. Traditionally, the Company's principal source of funds has
come from deposits; however, FHLB borrowings provide the Company with an
alternative source of funds compared to raising deposits in the local market.
The Company, like many other financial institutions, has experienced increasing
difficulty in attracting net new deposits in amounts necessary to fully fund new
loan demand. The FHLB has provided an important funding source that, when used
together with deposits, is expected to be an adequate source of funds to meet
anticipated loan demand. At December 31, 1998, borrowings from the FHLB totaled
$47.2 million, or 16.7% of total assets at such date.
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Stockholders' equity provides a permanent source of funding to the
Company, allows for future growth, and provides the Company with a cushion to
withstand unforeseen, adverse developments. At December 31, 1998, stockholders'
equity totaled $32.2 million, or 11.4% of total assets at such date. Federal
regulations impose minimum regulatory capital requirements on all institutions
with deposits insured by the FDIC. At December 31, 1998, the Company and the
Bank significantly exceeded all regulatory capital ratio requirements.
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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,
------------------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1996
---------------------- ---------------------- ----------------------
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 $ 168,533 74.65% $ 169,637 79.70% $ 142,833 78.17%
Construction 11,651 5.16 9,301 4.37 10,565 5.78
Multi-family residential 481 0.21 546 0.26 862 0.47
Commercial and other real estate 9,371 4.15 9,363 4.40 12,873 7.05
--------- ------ --------- ------ --------- ------
Total real estate loans 190,036 84.17 188,847 88.73 167,133 91.47
--------- ------ --------- ------ --------- ------
Non-real estate loans:
Consumer 21,388 9.48 16,355 7.67 16,859 9.23
Commercial business 23,143 10.25 15,400 7.24 7,363 4.03
--------- ------ --------- ------ --------- ------
Total non-real estate loans 44,531 19.73 31,755 14.91 24,222 13.26
--------- ------ --------- ------ --------- ------
Total loans 234,567 103.90 220,602 103.64 191,355 104.73
Less:
Undisbursed loan funds 5,789 2.56 4,629 2.17 5,899 3.23
Unearned discounts (57) (0.03) (162) (0.08) (331) (0.18)
Allowance for loan losses 2,726 1.21 2,760 1.30 2,592 1.42
Net deferred fees (cost) 357 0.16 535 0.25 471 0.26
--------- ------ --------- ------ --------- ------
Total loans, net $ 225,752 100.00% $ 212,840 100.00% $ 182,724 100.00%
========= ====== ========= ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
(Dollars in Thousands) 1995 1994
---------------------- ---------------------
Percent Percent
Balance of Total Balance of Total
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Type of loan:
Real estate loans:
Residential single family $ 127,656 80.96% $ 120,483 79.71%
Construction 7,304 4.63 6,908 4.57
Multi-family residential 1,202 0.76 1,638 1.08
Commercial and other real estate 13,370 8.48 13,505 8.93
--------- ------ --------- ------
Total real estate loans 149,532 94.83 142,534 94.29
--------- ------ --------- ------
Non-real estate loans:
Consumer 13,704 8.69 12,749 8.43
Commercial business 1,358 0.86 1,479 0.98
--------- ------ --------- ------
Total non-real estate loans 15,062 9.55 14,228 9.41
--------- ------ --------- ------
Total loans 164,594 104.38 156,762 103.70
Less:
Undisbursed loan funds 4,292 2.72 3,593 2.37
Unearned discounts (206) (0.13) 498 0.33
Allowance for loan losses 2,329 1.48 1,087 0.72
Net deferred fees (cost) 488 0.31 423 0.28
--------- ------ --------- ------
Total loans, net $ 157,691 100.00% $ 151,161 100.00%
========= ====== ========= ======
</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, 1998.
<TABLE>
<CAPTION>
Over One
Less than Through Five Over Five
One Year Years Years Total
----------------- ----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Residential single-family mortgage loans $ 26,599 $ 60,118 $ 81,816 $ 168,533
Multi-family residential 211 188 82 481
Commerical and other real estate 4,138 4,413 820 9,371
Construction loans 11,651 - - 11,651
Commercial business loans 10,443 5,848 6,852 23,143
All Other loans 7,744 9,517 4,127 21,388
----------------- ----------------- ----------------- -----------------
Total $ 60,786 $ 80,084 $ 93,697 $ 234,567
================= ================= ================ =================
</TABLE>
The following table sets forth the dollar amount at December 31, 1998 of
all loans maturing after December 31, 1999 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 $ 83,077 $ 58,857
All other loans secured by real estate 1,737 3,766
All other loans 13,765 12,579
----------------- -----------------
$ 98,579 $ 75,202
----------------- -----------------
</TABLE>
Contractual maturities of the company's loan portfolio do not reflect the
expected timing of loan repayments. The average life of its loans is
substantially less than contractual terms because of loan prepayments and due on
sale clauses. Prepayments occur when loan repayments are made before they are
contractually due. Prepayment amounts are expected to be higher when competing
loan rates are lower than actual loan rates. Prepayment amounts are expected to
be lower when competing loan rates are higher than actual loan rates. A
due-on-sale clause requires a loan to be paid in full upon sale of the
underlying collateral.
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.
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<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
(In Thousands) 1998 1997 1996
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Loans receivable, net beginning of period $ 212,840 $ 182,724 $ 157,691
Loan originations:
Residential single-family 41,007 36,688 27,612
Construction loans 15,306 17,375 20,059
Multi-family residential - - -
Commercial and other real estate - - 15
Commercial business 32,750 18,803 7,334
Consumer 14,412 10,762 13,078
---------------------- ---------------------- ---------------------
Total loan originations 103,475 83,628 68,098
---------------------- ---------------------- ---------------------
Loan reductions:
Loan sales (19,479) (878) (6,460)
Principal repayments (64,838) (53,168) (34,611)
Other changes, net (1) (6,246) 534 (1,994)
---------------------- ---------------------- ---------------------
Total loan reductions (90,563) (53,512) (43,065)
---------------------- ---------------------- ---------------------
Loans receivable, net end of period $ 225,752 $ 212,840 $ 182,724
====================== ====================== =====================
</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. The Company requires that title
insurance or a title opinion (other than with respect to home equity loans) and
hazard insurance be maintained on all security properties and that flood
insurance be maintained if the property is within a designated flood plain.
Residential mortgage loan applications are primarily developed from
advertising, referrals from real estate brokers and builders, existing customers
and walk-in customers. Commercial real estate and commercial business loan
applications are obtained primarily from previous borrowers, direct
solicitations by Company personnel, as well as referrals. Consumer loans
originated by the Company are obtained primarily from advertising, and through
existing and walk-in customers.
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Applications for real estate mortgage loans, construction loans and
commercial business loans must be reviewed and approved by appropriate Loan
Officers, the Loan Committee of the Company's Board of Directors, and the full
Board of Directors, depending on the amount of the request. 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") nor 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"), or the Federal National Mortgage
Association ("FNMA"). As of December 31, 1998, $168.5 million, or 74.7%, of the
Company's total loan portfolio consisted of single-family residential mortgage
loans.
The Company's residential mortgage loans either have 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, 1998, $87.2
million, or 51.7%, of the Company's single-family residential mortgage loans
were fixed-rate loans. At December 31, 1998, the weighted average remaining term
to maturity of the Company's fixed-rate, single-family residential mortgage
loans was approximately 18 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 United States Treasury securities adjusted to a
constant maturity of one year), plus a stipulated margin. The Company's
adjustable-rate single-family residential real estate loans generally have a cap
of 2% on any increase or decrease in the interest rate at any adjustment date,
and include a specified cap on the maximum interest rate over the life of the
loan, which cap generally is 4% to 6% above the initial rate. The Company's
adjustable-rate loans require that any payment adjustment resulting from a
change in the interest rate of an adjustable-rate loan be sufficient to
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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, 1998, the weighted average remaining term to maturity of the Company's
adjustable-rate, single-family residential mortgage loans was approximately 25
years. At December 31, 1998, $81.3 million or 48.3%, 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, 1998, 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 4.2% of the Company's total loan portfolio at
December 31, 1998, 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 rate loans indexed to the New York Prime Rate, as quoted in The Wall
Street Journal, plus a margin. Generally, fees of 50 basis points to 2% of the
principal loan balances are charged to the borrower upon closing. 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, 1998, 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.
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
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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, 1998, the Company's construction loans amounted to $11.7 million, or 5.2% 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 $13.4 million of single-family construction
loans to individuals during the year ended December 31, 1998.
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 $1.9 million in single-family construction
loans to builders during the year ended December 31, 1998.
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
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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, 1998, 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, 1998,
$21.4 million, or 9.5% 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 $14.4 million in
1998 compared to $10.8 million and $13.1 million in 1997 and 1996, respectively.
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
finance loan will not provide an adequate source of repayment of the outstanding
loan balance because of improper repair and maintenance of the underlying
security. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower. As of December 31, 1998, $50,000, or
0.2% of the Company's total consumer loans were considered non-performing.
Commercial Business Loans. At December 31, 1998, the Company's commercial
business loans amounted to $23.1 million, or 10.3% of the Company's total loan
portfolio. Prior to 1996, the Company had not been an active originator of
commercial business loans.
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
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business loans by the Company amounted to $32.8 million in 1998, compared to
$18.8 million, and $7.3 million in 1997 and 1996, 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; and (v) mandatory convertible debt up to 20% of categories (i) through
(iv). Readily marketable collateral consists of financial instruments or
bullion, which are salable under ordinary circumstances with reasonable
promptness at fair market value or on an auction or a similarly available daily
bid and ask price market. At December 31, 1998, the Company's limit on
loans-to-one borrower under LSBA was approximately $4.0 million. At December 31,
1998, the Company's five largest loans or groups of loans-to-one borrower ranged
from $1.1 million to $2.5 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 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 is classified as real estate owned until sold.
Pursuant to Statement of Procedure ("SOP") 92-3 issued by the American Institute
of Certified Public Accountants ("AICPA") in April 1992, which provides guidance
on determining the balance sheet treatment of foreclosed assets in annual
financial statements for periods ending on or after December 15, 1992, there is
a refutable presumption that foreclosed assets are held for sale and such assets
are
11
<PAGE> 12
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 $490,000 of loans deemed troubled
debt restructurings as of December 31, 1998. The interest income that would have
been recognized if those loans had been current with their original terms was
approximately $111,000 for the year ended December 31, 1998. Interest income
totaling $62,000 was included in income for the year ended December 31, 1998.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1998, in dollar amounts and as a percentage of
each category of the 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, 1998
---------------------------------------------------------------------------------
30-59 Days 60-89 Days
--------------------------------------- ---------------------------------------
Percent of Percent of
Amount Loan Category Amount Loan Category
----------------- ------------------- ----------------- -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Residential:
Single family $ 339 0.20% $ 132 0.08%
Multi-family - 0.00% - 0.00%
Commercial and other real estate - 0.00% - 0.00%
Construction - 0.00% - 0.00%
Consumer 182 0.85% 46 0.22%
Commercial business 47 0.20% - 0.00%
----------------- ------------------- ----------------- -------------------
Total $ 568 1.26% $ 178 0.29%
================= =================== ================= ===================
</TABLE>
12
<PAGE> 13
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,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- -------------- ------------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Accruing loans 90 days or more past due:
Residential single-family $ - $ - $ - $ - $ 377
Construction - - - - -
Multi-family residential - - - - -
Commercial and other real estate - - - - -
Consumer - - - - 96
Commercial business - - - - -
------------- -------------- ------------- ------------- --------------
Total accruing loans - - - - 473
------------- -------------- ------------- ------------- --------------
Non-accrual loans:
Residential single-family 140 285 632 527 72
Construction - - - - -
Multi-family residential - - - - -
Commercial and other real estate - - 145 197 -
Consumer 50 129 96 16 21
Commercial business - - - - -
------------- -------------- ------------- ------------- --------------
Total non-accrual loans 190 414 873 740 93
------------- -------------- ------------- ------------- --------------
Total non-performing loans 190 414 873 740 566
------------- -------------- ------------- ------------- --------------
Other real estate owned, and repossessed assets 7 204 75 845 2,449
------------- -------------- ------------- ------------- --------------
Total non-performing assets $ 197 $ 618 $ 948 $ 1,585 $ 3,015
============= ============== ============= ============= ==============
Performing troubled debt restructurings $ 490 $ 515 $ 536 $ 878 $ 954
============= ============== ============= ============= ==============
Total non-performing assets and troubled debt
restructuings $ 687 $ 1,133 $ 1,484 $ 2,463 $ 3,969
============= ============== ============= ============= ==============
Non-performing assets to total loans 0.08% 0.29% 0.52% 0.96% 1.92%
Non-performing assets to total assets 0.07 0.22 0.36 0.70 1.35
Non-performing loans to total loans 0.08 0.19 0.48 0.45 0.36
Non-performing loans to total assets 0.07 0.15 0.33 0.33 0.25
Total non-performing assets and troubled debt
restructurings to total assets 0.24 0.41 0.56 1.09 1.78
</TABLE>
Other Classified Assets. Federal regulations require that the Company
classify its assets on a regular basis. In addition, concerning 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
13
<PAGE> 14
with the additional characteristic that the weaknesses make collection or
liquidation in full, based on currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted.
At December 31, 1998, the Company had $1.4 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 0.5% 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, 1998, totaled $3.4 million, or 1.4%, 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 $2.4 million at
December 31, 1998, or 1.1% 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. In addition, 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, 1998, the
Company's allowance for loan losses amounted to 400.88% and 1.16% 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
14
<PAGE> 15
necessarily constitute GAAP, includes guidance (i) on the responsibilities of
management for the assessment and establishment of an adequate allowance and
(ii) for the agencies' examiners to use in evaluating the adequacy of such
allowance and the policies utilized to determine such allowance. The Policy
Statement also sets forth quantitative measures for the allowance with respect
to assets classified substandard and doubtful and with respect to the remaining
portion of an institution's loan portfolio. Specifically, the Policy Statement
also sets forth quantitative measures which examiners may use to determine the
reasonableness of an allowance; (i) 50% of the portfolio that is classified
doubtful; (ii) 15% of the portfolio that is classified substandard; and (iii)
for the portions of the portfolio that have not been classified (including loans
designated special mention), estimated credit losses over the upcoming 12 months
based on facts and circumstances available on the evaluation date. While the
Policy Statement sets forth this quantitative measure, such guidance is not
intended as a "floor" or "ceiling."
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 2,760 $ 2,592 $ 2,329 $ 1,087 $ 1,015
Provision for loan losses 90 180 355 1,274 63
Charge-offs:
Residential single-family (40) (14) - (70) (37)
Construction - - - - -
Multi-family residential - - - (7) -
Commercial and other real estate - - (67) - -
Commercial business (169) - - - (11)
Consumer (104) (221) (210) (50) (135)
------------ ------------ ------------ ------------ ------------
Total charge-offs (313) (235) (277) (127) (183)
------------ ------------ ------------ ------------ ------------
Recoveries:
Residential single-family 36 76 87 10 72
Construction - - - - -
Multi-family residential - - - - -
Commercial and other real estate - 56 10 - 55
Commercial business 22 - - - -
Consumer 131 91 88 85 65
------------ ------------ ------------ ------------ ------------
Total recoveries 189 223 185 95 192
------------ ------------ ------------ ------------ ------------
Net (charge-offs) / recoveries (124) (12) (92) (32) 9
------------ ------------ ------------ ------------ ------------
Balance, end of period 2,726 2,760 2,592 2,329 1,087
============ ============ ============ ============ ============
Allowance for loan losses to total non-
performing loans and troubled debt
restructurings at end of period 400.88% 297.09% 183.96% 143.94% 71.51%
============ ============ ============ ============ ============
Allowance for loan losses to
total loans at end of period 1.16% 1.25% 1.35% 1.41% 0.69%
============ ============ ============ ============ ============
Net (charge-offs) / recoveries to
average loans outstanding (0.06)% (0.01)% (0.05)% (0.02)% 0.01%
============ ============ ============ ============ ============
</TABLE>
The following table describes the activity related to the Company's
allowance for possible loan losses for the periods indicated.
15
<PAGE> 16
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,
---------------------------------------------------------------------------
(Dollars in Thousands) Percent Percent Percent
of Loans of Loans of Loans
1998 to Gross 1997 to Gross 1996 to Gross
Amount Loans Amount Loans Amount Loans
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential single family $ 1,591 71.85% $ 1,739 76.90% $ 1,565 74.64%
Construction 80 4.97% 64 4.22% 58 5.52%
Multi-family residential 3 8.31% 5 0.25% 7 0.45%
Commercial and other real estate 397 4.00% 350 4.24% 460 6.73%
---------- ---------- ---------- ---------- ---------- ----------
Total real estate loans 2,071 81.02% 2,158 85.61% 2,090 87.34%
---------- ---------- ---------- ---------- ---------- ----------
Non-real estate loans:
Commercial business 346 9.12% 274 6.98% 163 3.85%
Consumer 309 9.86% 328 7.41% 339 8.81%
---------- ---------- ---------- ---------- ---------- ----------
Total non-real estate loans 655 18.98% 602 14.39% 502 12.66%
---------- ---------- ---------- ---------- ---------- ----------
Total allowance for loans $ 2,726 100.00% $ 2,760 100.00% $ 2,592 100.00%
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
(Dollars in Thousands) Percent Percent
of Loans of Loans
1995 to Gross 1994 to Gross
Amount Loans Amount Loans
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Real estate loans:
Residential single family $ 1,773 77.55% $ 597 76.86%
Construction 22 4.44% 15 4.41%
Multi-family residential 80 0.73% 30 1.04%
Commercial and other real estate 331 8.13% 277 8.62%
---------- ---------- ---------- ----------
Total real estate loans 2,206 90.85% 919 90.93%
---------- ---------- ---------- ----------
Non-real estate loans:
Commercial business 26 0.82% - 0.94%
Consumer 97 8.33% 168 8.13%
---------- ---------- ---------- ----------
Total non-real estate loans 123 9.15% 168 9.07%
---------- ---------- ---------- ----------
Total allowance for loans $ 2,329 100.00% $ 1,087 100.00%
========== ========== ========== ==========
</TABLE>
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.
16
<PAGE> 17
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, FHLMC and certain highly related
private issues. The Company's objective is to use such investments to reduce
interest rate risk, enhance yields on assets and provide liquidity. On December
31, 1998, the Company's mortgage-backed securities and investment securities
portfolio amounted to $23.8 million and $15.0 million, respectively. At such
date, the Company had an unrealized gain of $258,000, net of deferred taxes,
with respect to its securities available for sale.
Mortgage-Backed Securities. As of December 31, 1998, the Company's
mortgage-backed securities amounted to $23.8 million, or 8.4%, 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) represent 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.
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
17
<PAGE> 18
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, 1998, the Company's
investment in CMOs amounted to $11.2 million, or 4.0% of total assets, all of
which consisted of regular interests. As of December 31, 1998, 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, 1998, $12.4 million of the Company's mortgage-backed
securities were classified as held to maturity and $11.4 million were classified
as available for sale. Mortgage-backed securities which are held to maturity are
carried at cost, adjusted for the amortization of premiums and the accretion of
discounts using a method which approximates a level yield. Mortgage-backed
securities classified as available for sale are carried at fair value.
Unrealized gains and losses on available for sale mortgage-backed securities are
recognized as direct increases or decreases in equity, net of applicable income
taxes.
18
<PAGE> 19
At December 31, 1998, the weighted average contractual maturity of the
Company's fixed-rate mortgage-backed securities was approximately 10.8 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. During
periods of falling mortgage interest rates, if the coupon rates of the
underlying mortgages are more than the prevailing interest rates offered for
mortgage loans, refinancings generally increase and accelerate 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, 1998, of the
$23.8 million of mortgage-backed securities, an aggregate of $11.4 million were
secured by fixed-rate securities and classified as available for sale, and an
aggregate of $12.4 million were secured by adjustable-rate securities and
classified as held to maturity.
The following table sets forth certain information regarding the
Company's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Available Held to Available Held to Available Held to
for Sale Maturity for Sale Maturity for Sale Maturity
---------- ---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 2,596 $ 616 $ 5,463 $ 750 $ 6,853 $ 822
FNMA 7,223 185 10,487 206 12,449 232
GNMA 1,165 828 1,399 1,121 1,776 1,320
FNMA CMO 425 4,736 497 4,736 488 4,733
FHLMC CMO - 5,995 - 5,993 - 5,980
---------- ---------- ---------- ---------- ---------- ----------
Total mortgage-backed securities $ 11,409 $ 12,360 $ 17,846 $ 12,806 $ 21,566 $ 13,087
========== ========== ========== ========== ========== ==========
</TABLE>
19
<PAGE> 20
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, 1998, the Company's entire
portfolio of investment securities was classified as available for sale and
amounted to $15.0 million, net of gross unrealized gains of $49,000. 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, 1998, the estimated weighted average
life of the Company's investment securities portfolio was 1.9 years.
The following table sets forth certain information regarding the
Company's investment securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
---------- ---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and federal
agency obligations $ 8,973 $ 8,973 $ 11,021 $ 11,021 $ 20,524 $ 20,524
Commercial paper 5,992 5,992 - - - -
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 14,965 14,965 11,021 11,021 20,524 20,524
Marketable equity securities 30 30 23 23 15 15
---------- ---------- ---------- ---------- ---------- ----------
Total $ 14,995 $ 14,995 $ 11,044 $ 11,044 $ 20,539 $ 20,539
========== ========== ========== ========== ========== ==========
</TABLE>
The following table sets forth certain information regarding the maturities of
the Company's investment securities at December 31, 1998.
<TABLE>
<CAPTION>
Contractually Maturing
-----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Under 1 Average 1-5 Average 6-10 Average Over 10 Average
Year Yield Years Yield Years Yield Years Yield
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and federal
agency obligations $ 3,949 5.93% $ - - $ 5,000 6.03% $ - -
Commercial paper 5,992 5.82% - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 9,941 5.86% $ - - $ 5,000 6.03% $ - -
========== ========== ========== =========== ========== ========== ========== ==========
</TABLE>
In addition, as a member of the FHLB of Dallas, the Bank is required to maintain
an investment in stock of the FHLB of Dallas equal to the greater of 1% of the
Bank's outstanding home mortgage related assets or 5% of its outstanding
advances from the FHLB of Dallas. As of December 31, 1998, the Bank's investment
in stock of the FHLB of Dallas amounted to $2.9 million. During the year ended
December 31, 1998, the Bank received $153,000 in dividends on its FHLB stock. No
ready market exists for such stock, which is carried at par value.
20
<PAGE> 21
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 five 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
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.
The following table sets forth certain information relating to the
Company's deposits.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------------- ---------------------------
Percent of Percent of Percent of
(Dollars in Thousands) Amount Total Deposits Amount Total Deposits Amount Total Deposits
----------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 9,022 4.50% $ 8,177 4.23% $ 11,528 5.96%
Money market accounts 19,364 9.65% 9,436 4.88% 5,101 2.64%
Noninterest-bearing checking accounts 11,512 5.74% 8,941 4.62% 4,954 2.56%
----------- --------- ----------- --------- ----------- ---------
Total demand deposits 39,898 19.89% 26,554 13.73% 21,583 11.16%
----------- --------- ----------- --------- ----------- ---------
Savings deposits 19,706 9.82% 23,343 12.07% 25,071 12.96%
----------- --------- ----------- --------- ----------- ---------
Certificate of Deposit accounts:
Less than 6 months 34,954 17.42% 41,898 21.66% 44,256 22.88%
6-11 months 37,026 18.45% 25,020 12.93% 31,148 16.10%
12-35 months 51,689 25.76% 59,246 30.63% 53,329 27.57%
More than 35 months 17,374 8.66% 17,361 8.98% 18,063 9.34%
----------- --------- ----------- --------- ----------- ---------
Total certificates 141,043 70.29% 143,525 74.20% 146,796 75.88%
----------- --------- ----------- --------- ----------- ---------
Total Deposits $ 200,647 100.00% $ 193,422 100.00% $ 193,450 100.00%
=========== ========= =========== ========= =========== =========
</TABLE>
21
<PAGE> 22
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.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
0.00% to 2.99% $ 122 $ 226 $ 100
3.00% to 3.99% 347 - -
4.00% to 4.99% 38,636 13,474 17,031
5.00% to 5.99% 57,020 79,702 71,021
6.00% to 6.99% 32,493 34,172 34,364
7.00% to 8.99% 11,533 15,056 23,434
9.00% and over 892 895 846
----------- ----------- -----------
$ 141,043 $ 143,525 $ 146,796
=========== =========== ===========
</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,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Total deposits, beginning of period $ 193,422 $ 193,450 $ 206,343
Net increase (decrease) before interest credited 823 (6,143) (19,616)
Interest credited 6,402 6,115 6,723
----------- ----------- -----------
Total deposits, end of period $ 200,647 $ 193,422 $ 193,450
=========== =========== ===========
</TABLE>
The following table sets forth the amount and maturities of the Company's
certificates of deposit at December 31,1998.
<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% $ 122 $ - $ - $ - $ - $ - $ 122
3.00% to 3.99% 347 - - - - - 347
4.00% to 4.99% 17,674 12,172 7,720 827 225 18 38,636
5.00% to 5.99% 17,198 14,900 11,243 10,994 2,244 441 57,020
6.00% to 6.99% 2,516 8,825 13,284 2,010 5,591 267 32,493
7.00% to 8.99% 841 1,468 843 367 6,549 1,465 11,533
9.00% and over 892 - - - - - 892
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 39,590 $ 37,365 $ 33,090 $ 14,198 $ 14,609 $ 2,191 $ 141,043
------------- ------------- ------------- ------------ ------------- ------------- -------------
</TABLE>
22
<PAGE> 23
As of December 31, 1998, the aggregate amount of time certificates of
deposit in amounts greater than or equal to $100,000 was approximately $37.5
million. The following table presents the maturity of these time certificates of
deposit at such dates.
<TABLE>
<CAPTION>
Over Three Over Six Over One Over Two Over Three
Three Months Months Year Years Years Over
Months Through Through Through Through Through Five
and Less Six Months One Year Two Years Three Years Five Years Years Total
- - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,835 $ 5,027 $ 12,662 $ 8,218 $ 3,201 $ 3,302 $ 247 $ 37,492
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
Borrowings. The Company may obtain advances from the FHLB of Dallas upon
the security of the common stock it owns in the FHLB and certain of its
residential mortgage loans, investment securities and mortgage-backed securities
provided certain standards related to creditworthiness have been met. Such
advances are made pursuant to several credit programs, each of which has its own
interest rate and range of maturities.
The 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,
--------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ----------------------------- ----------------------------
Percent Percent Percent
Amount Rate Amount Rate Amount Rate
--------- --------- --------- --------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB advances $ 47,228 5.17% $ 36,628 5.82% $ 22,250 5.50%
--------- --------- ---------
Maximum amount
outstanding at any month-
end during the period $ 56,728 $ 36,628 $ 22,250
--------- --------- ---------
Average balance outstanding
during the period $ 46,277 $ 29,648 $ 10,388
--------- --------- ---------
Weighted average interest
rates on average balance
during the period 5.47% 5.67% 5.59%
------ ------ ------
</TABLE>
23
<PAGE> 24
Advances at December 31, 1998 have maturities in future years as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ --------
<S> <C>
1999 $ 16,878
2003 8,100
2005 250
2008 22,000
---------
Total $ 47,228
---------
</TABLE>
A significant portion of the advances contains a quarterly call feature
beginning between one and three years after the date of issuance; therefore,
actual repayments could vary from contractual maturities.
SUBSIDIARIES
The Bank is a wholly owned subsidiary of the Company. The Bank currently
has no subsidiaries. The Company has no other subsidiaries; however, the Company
owns a 40 percent interest in Cadence Holdings, LLC ("Cadence"), an affiliate in
the financial services industry, which is accounted for under the equity method.
A Limited Liability Company (LLC) is a legal form of doing business that
combines partnership and corporate attributes. The Company's share of Cadence's
net loss for the year ended December 31, 1998 was $34,000. The Company is
guarantor in the amount of $400,000 for a $1.0 million bank line of credit to
Cadence originated in January, 1999.
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 in both 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, the Company
faces 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
24
<PAGE> 25
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 84 full-time employees and 7 part-time employees as of
December 31, 1998. None of these employees is represented by a collective
bargaining agreement. The Bank believes that it enjoys excellent relations with
its personnel. 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
25
<PAGE> 26
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 engage 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
26
<PAGE> 27
or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock, which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for the bulk of assets which are
typically held by a bank holding company, including multi-family residential and
commercial real estate loans, commercial business loans and consumer loans.
Single-family residential first mortgage loans which are not past-due (90 days
or more) or non-performing and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighing system, as
are certain privately-issued mortgage-backed securities representing indirect
ownership of such loans. Off-balance sheet items also are adjusted to take into
account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose
does not include goodwill and any other intangible assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies will be expected to maintain Tier I leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition. At December
31, 1998, the Company believes it complies 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 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 structure also gives the
27
<PAGE> 28
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 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 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 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 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 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
28
<PAGE> 29
months to two years, as determined by the FDIC. Management is aware of no
existing circumstances that would result in termination of the 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, 1998, 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
29
<PAGE> 30
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 Bank is being conducted in a fraudulent,
illegal, unsafe or unsound manner or could lead to insolvency or substantial
dissipation of assets, earnings or impairment of capital, such order
30
<PAGE> 31
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 action
or inaction 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 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 Bank.
METHOD OF ACCOUNTING. The 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 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 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 Bank during its six taxable years preceding 1996. The amount of reserves of
the 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
31
<PAGE> 32
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, 1998, the federal income tax reserves of the 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 Bank in connection with the conversion
of the Bank to stock form, the retained earnings of the Bank is substantially
restricted.
DISTRIBUTIONS. If the 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 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 1997. At December 31, 1998, the 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
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.
32
<PAGE> 33
OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the Bank.
The Bank's federal income tax returns for the tax years ended 1995, 1996,
1997 and 1998 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 subject to
franchise tax. 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 Bank is subject to the Louisiana Shares Tax,
which is imposed on the assessed value of its stock. The formula for deriving
the assessed value is to calculate 15% of the sum of (a) 20% of the company's
capitalized earnings, plus (b) 80% of the company's taxable stockholders equity,
and to subtract from that figure 50% of the company's real and personal property
assessment. Various items are also subtracted in calculating a company's
capitalized earnings.
33
<PAGE> 34
ITEM 2. PROPERTIES.
OFFICES AND PROPERTIES
At December 31, 1998, 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, 1998.
<TABLE>
<CAPTION>
Net Book Value of
Premises and
Owned or Equipment at Deposits at
Leased December 31, 1998 December 31, 1998
----------------- -------------------------- --------------------------
(In Thousands)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Main Office:
101 West Vermilion Street Owned $ 1,578 $ 89,023
Lafayette, Louisiana 70501
Branch Offices:
Northside Office Owned 260 34,697
2601 Moss Street
Lafayette, Louisiana 70501
Southside Office Owned 169 38,543
3701 Johnston Street
Lafayette, Louisiana 70503
Broadmoor Office Owned 233 29,554
5301 Johnston Street
Lafayette, Louisiana 70503
New Iberia Office Owned 531 8,830
230 West Main Street
New Iberia, Louisiana 70560
Eunice Loan Production Office Leased 6 -
-------------------------- --------------------------
136 South Third Street
Eunice, Louisiana 70535
$ 2,777 $ 200,647
========================== ==========================
</TABLE>
34
<PAGE> 35
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.
Not Applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required herein, to the extent applicable, is
incorporated by reference from page 51 of the Registrant's 1998 Annual Report to
Stockholders ("Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The Information required herein is incorporated by reference from page 6
of the Registrant's 1998 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 7
to 20 of the Registrant's 1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Information required herein is incorporated by reference from pages
15 to 19 of the Registrant's 1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
35
<PAGE> 36
The Information required herein is incorporated by reference from pages
22 to 49 of the Registrant's 1998 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 1998 Annual Meeting of
Stockholders ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from the
Registrant's Proxy Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
(1) The following financial statements are incorporated by reference from
Item 8 hereof (see Exhibit 13):
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Fiscal Periods Ended December
31, 1998, 1997 and 1996
36
<PAGE> 37
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal
Periods ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Fiscal Periods Ended
December 31, 1998, 1997 and 1996
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
<TABLE>
<S> <C>
3.1* Articles of Incorporation of Acadiana Bancshares, Inc.
3.2* Bylaws of Acadiana Bancshares, Inc.
4.0* Form of Stock Certificate of Acadiana Bancshares, Inc.
10.1** Stock Option Plan
10.2** 1996 Recognition and Retention Plan and Trust Agreement for Employees and Non-Employee Directors
10.3*** Employment Agreement between LBA Savings Bank and Gerald G. Reaux, Jr.
10.4* Form of Severance Agreement between Acadiana Bancshares, Inc., LBA Savings Bank and Lawrence Gankendorff,
James J. Montelaro, Gregory King, Mary Anne Bertrand, Wayne Bares, Emile E. Soulier, III and Thomas F. Debaillon.
13.0 1998 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 & Dauterive, LLP
27.0 Financial Data Schedule
</TABLE>
- - -------------------
(*) 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.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACADIANA BANCSHARES, INC.
March 26, 1999 By: /s/ Gerald G. Reaux, Jr.
------------------------
Gerald G. Reaux, Jr.
President and Chief Executive Officer and
Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- - ---- ----- ----
<S> <C> <C>
/s/ Gerald G. Reaux, Jr. President, Chief Executive March 26, 1999
- - ----------------------- Officer and Director
Gerald G. Reaux, Jr.
/s/ Lawrence E. Gankendorff Chairman of the Board March 26, 1999
- - ----------------------------
Lawrence E. Gankendorff
/s/ Albert W. Beacham Director March 26, 1999
- - ----------------------
Albert W. Beacham, M.D.
/s/ James J. Montelaro Executive Vice President March 26, 1999
- - ----------------------- and Director
James J. Montelaro
/s/ John H. DeJean Director March 26, 1999
- - ------------------
John H. DeJean
/s/ Thomas S. Ortego Director March 26, 1999
- - --------------------
Thomas S. Ortego
/s/ William H. Mouton Director March 26, 1999
- - ---------------------
William H. Mouton
/s/ Donald J. O'Rourke, Sr. Director March 26, 1999
- - ---------------------------
Donald J. O'Rourke, Sr.
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C>
/s/ Kaliste J. Saloom, Jr. Director March 26, 1999
- - --------------------------
Kaliste J. Saloom, Jr.
/s/ Emile E. Soulier, III. Vice President and Chief March 26, 1999
- - ------------------------- Financial Officer
Emile E. Soulier, III (principal financial and
accounting officer)
</TABLE>
39
<PAGE> 1
Acadiana Bancshares, Inc. 1998 Annual Report
Letter to shareholders 3
Selected consolidated financial information 6
Management's discussion and analysis 7
Independent auditor's report 22
Consolidated statements of financial condition 23
Consolidated statement of operation 24
Consolidated statements of stockholders' equity 25
Consolidated statements of cash flows 26
Notes to consolidated financial statements 27
About the company 50
<PAGE> 2
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,
- - ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
============================================================================================================================
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total Assets $ 282,089 $ 277,066 $ 264,374 $ 225,574 $ 223,166
Cash and cash equivalents 7,578 14,157 19,784 16,481 10,384
Loans receivable, net 225,752 212,840 182,724 157,691 151,161
Trading securities 575 826 - - -
Investment securities 14,995 11,044 20,539 4,030 19,386
Mortgage-backed securities 23,769 30,652 34,653 39,514 33,349
Deposit accounts 200,647 193,422 193,450 206,343 204,088
Borrowings 47,228 36,628 22,250 250 -
Equity 32,174 44,562 47,091 17,697 17,845
<CAPTION>
Year Ended December 31,
- - ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
============================================================================================================================
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest Income $ 21,415 $ 20,328 $ 18,703 $ 16,975 $ 16,922
Interest Expense 11,935 10,860 10,762 10,134 9,378
- - ----------------------------------------------------------------------------------------------------------------------------
Net interest income 9,480 9,468 7,941 6,841 7,544
Provision for loan losses 90 180 355 1,274 63
- - ----------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 9,390 9,288 7,586 5,567 7,481
Non-interest income 1,197 1,169 954 802 943
Non-interest expense (1) (6,655) (5,878) (7,301) (7,812) (5,274)
- - ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 3,932 4,579 1,239 (1,443) 3,150
Income tax expense (benefit) 1,427 1,632 439 (477) 1,057
- - ----------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 2,505 $ 2,947 $ 800 $ (966) $ 2,093
Net income per share - basic(2) $ 1.20 $ 1.22 $ 0.07 N/A N/A
Net income per share - diluted(2) $ 1.17 $ 1.20 $ 0.07 N/A N/A
Dividends declared per share $ 0.44 $ 0.38 $ 0.18 N/A N/A
Dividend payout ratio 37.05% 31.76% 267.46% N/A N/A
<CAPTION>
At or For the Year Ended December 31,
- - ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
============================================================================================================================
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Profitability:
Return (loss) on average assets 0.87% 1.10% 0.32% (0.43)% 0.91%
Return (loss) on average equity 6.05 6.38 2.55 (5.23) 12.19
Interest rate spread for period (3) 2.54 2.64 2.68 2.80 3.15
Net interest margin (4) 3.36 3.61 3.34 3.16 3.41
Efficiency ratio (5) 62.33 55.26 82.08 88.45 62.14
Other expenses to average assets 2.31 2.19 2.95 3.49 2.30
Capital Ratios:
Average equity to average assets 14.34 17.23 12.71 8.25 7.48
Total capital to risk-weighted assets 20.86 31.39 36.69 16.20 16.29
Asset Quality:
Non-performing assets to total assets (6) 0.07 0.22 0.36 0.70 1.35
Allowance for loan losses to total loans 1.16 1.25 1.35 1.41 0.69
Allowance for loan losses to non-performing
loans and troubled debt restructuring 400.88 297.09 183.96 143.94 71.51
</TABLE>
(1) With respect to 1997, includes $436,000 recovery of net costs of real
estate owned; with respect to 1996, includes $1.3 million for a special
SAIF assessment; with respect to 1995, 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) 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.
(3) The interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate paid on
interest-bearing liabilities.
(4) The net interest margin represents net interest income divided by average
interest-earning assets.
(5) The efficiency ratio is non-interest expense (excluding, with respect to
1995, the write-off of expenses incurred in the previously contemplated
merger/conversion transaction) divided by the sum of net interest income
plus non-interest income.
(6) Non-performing assets include non-accrual loans, accruing loans
delinquent 90 days or more and real estate owned.
6
<PAGE> 3
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, 1996 through 1998. This review should be read in conjunction with
the audited consolidated financial statements, accompanying footnotes and
supplemental financial data included herein.
FINANCIAL CONDITION
ASSETS
GENERAL - Total assets of the Company increased $5.0 million, or 1.8%, from
$277.1 million at December 31, 1997, to $282.1 million at December 31, 1998.
Outpacing the growth in assets, net loans receivable of the Company increased
$12.9 million, or 6.1%, from $212.8 million at December 31, 1997, to $225.8
million at December 31, 1998. The growth in loans was funded by a $10.6
million net increase in advances from the Federal Home Loan Bank of Dallas
(the "FHLB"), together with a $7.2 million net increase in deposits. The
Company purchased $14.5 of its common stock, at market values, during the year
ended December 31, 1998, increasing its common shares held in treasury from
150,000 shares at December 31, 1997,to 910,758 shares at December 31, 1998.
The treasury stock purchases were partially funded by a $6.8 million decrease
in cash in interest bearing deposits, and a $6.9 million decrease in total
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 $6.6 million, or 46.5%, to $7.6 million at December 31, 1998, compared to
$14.2 million at December 31, 1997. The decrease in cash and cash equivalents
was primarily due to funding the repurchases of the Company's common stock for
treasury. At December 31, 1998, cash and cash equivalents amounted to 2.7% of
total assets.
TRADING SECURITIES - At December 31, 1998, the Company held equity securities
for trading of $575,000, or 0.2% of total assets at such date, compared to
$826,000 at December 31, 1997. The Company has no intention to significantly
increase its trading securities portfolio.
INVESTMENT SECURITIES - Investment securities increased by $4.0 million, or
35.8%, to $15.0 million at December 31, 1998, compared to $11.0 at December
31, 1997. At December 31, 1998, all of the Company's investment securities
were classified as available for sale and had a pre-tax effected net
unrealized gain of $49,000 at such date. In addition, at such date,
substantially all of the Company's investment securities consisted of U.S.
Government and Federal agency obligations and commercial paper. At December
31, 1998, investment securities amounted to 5.3% of total assets. Note 3 to
the Consolidated Financial Statements provides further information on the
Company's investment securities.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities, available for sale and
held to maturity, decreased by an aggregate of $6.9 million, or 22.5%, to
$23.8 million at December 31, 1998, compared to $30.7 million at December 31
1997. The decrease in mortgage-backed securities of $6.9 million was the
result of $6.7 million of principal repayments and a $219,000 decrease in the
carrying value of the mortgage-backed securities available for sale portfolio.
At December 31, 1998, the Company's fixed-rate mortgage-backed securities, all
of which were classified as available for sale, amounted to $11.4 million and
comprised 4.0% of total assets. At that same date, the Company's
adjustable-rate mortgage-backed securities, all of which were classified as
held to maturity, amounted to $12.4 million and comprised 4.4% of total
assets. At December 31, 1998, substantially all of the Company's
mortgage-backed securities consisted of securities issued or guaranteed by
7
<PAGE> 4
Federal agencies and government sponsored enterprises. Note 4 to the
Consolidated Financial Statements provides further information on the
Company's mortgage-backed securities.
LOANS RECEIVABLE, NET - Loans receivable, net, increased $12.9 million, or 6.1%,
to $225.8 million at December 31, 1998, compared to $212.8 million at December
31, 1997. Total real estate loans increased $1.2 million, or 0.6%, during
1998, primarily as the result of a $1.2 million, or 0.7%, increase in total
single-family residential mortgage loans, which was partially offset by a
$65,000, or 11.9%, decrease in total multi-family loans. Total single family
residential loans comprised 63.9% of total assets at December 31, 1998. Total
consumer loans increased $5.0 million, or 30.8%, during 1998. Commercial
business loans increased $7.7 million, or 50.3%, during 1998. Total consumer
and commercial business loans comprised 7.6% and 8.2% of total assets at
December 31, 1998, respectively. Loans receivable, net amounted to 80.0% of
total assets at December 31, 1998, compared to 76.8% at December 31, 1997.
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 1998.
DEPOSITS - The Company's deposits increased by $7.2 million, or 3.7%, to $200.6
million at December 31, 1998, compared to $193.4 million at December 31, 1997.
Certificates of deposit funded 50.0% of total assets at December 31, 1998,
compared to 51.8% at December 31, 1997. Total deposits funded 71.1% of total
assets at December 31, 1998, compared to 69.8% at December 31, 1997. Interest
credited during the 1998 year increased deposits by $6.4 million, supplemented
by an increase in new deposits of $823,000. Additional information regarding
deposits is provided in Note 9 to the Consolidated Financial Statements.
BORROWINGS - The Company's borrowings are composed of advances from the FHLB,
which increased $10.6 million, or 28.9%, to $47.2 million at December 31,
1998, compared to $36.6 million at December 31, 1997. 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. Additionally, the Company, like many
other financial institutions, has experienced increasing difficulty in
attracting net new deposits in amounts necessary to fully fund new loan
demand. The FHLB has provided an important funding source that, when used
together with deposits, is expected to be an adequate source of funds to meet
anticipated loan demand. Borrowings at December 31, 1998, funded 16.7% of
total assets, compared to 13.2% at December 31, 1997. Under a blanket
agreement pledging Federal Home Loan Bank Stock and single-family mortgage
loans as collateral, the Company has the ability to borrow total advances up
to $122.4 million from the FHLB. Of total outstanding borrowings at December
31, 1998, $9.4 million had variable rate interest rate features indexed to the
London Inter-Bank Offered Rate ("LIBOR"). All borrowings at December 31, 1998,
were non-amortizing advances of which $16.9 million were scheduled to mature
in 1999. Additional information regarding borrowings is provided in Note 10 to
the Consolidated Financial Statements.
STOCKHOLDERS' EQUITY - Stockholders' equity provides a source of permanent
funding, allows for future growth, and provides the Company with a cushion to
withstand unforeseen, adverse developments. At December 31, 1998,
stockholders' equity totaled $32.2 million, a decrease of $12.4 million, or
27.8%, compared to December 31, 1997. The decrease was primarily attributable
to $14.5 million of purchases of common stock into treasury, together with
$928,000 of dividends declared on the Company's common stock, all of which was
partially offset by net income for the year ended December 31, 1998, of $2.5
million, common stock released by the Company's employee stock own-
8
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ership plan ("ESOP") trust of $455,000, and common stock earned by
participants in the Company's recognition and retention plan ("RRP") of
$226,000. As a result of the above changes, the Company reduced its equity to
assets ratio from 16.1% at December 31, 1997, to 11.4% at December 31, 1998.
Additional information regarding stockholders' equity is included in the
Consolidated Statements of Stockholders' Equity and Note 13 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, 1998, the Bank significantly
exceeded all regulatory capital ratio requirements with a tier 1 leverage
capital ratio of 8.9%, a tier 1 risk-based capital ratio of 15.6%, and a total
risk-based capital ratio of 16.8%. The Company is required to comply with
similar regulatory capital requirements. At December 31, 1998, it also
significantly exceeded all applicable regulatory capital requirements with a
tier 1 leverage capital ratio of 11.3%, a tier 1 risk-based capital ratio of
19.6%, and a total risk-based capital ratio of 20.9%. These compared to
regulatory requirements of 4.0%, 4.0% and 8.0%, respectively for both the Bank
and the Company.
RESULTS OF OPERATIONS
GENERAL - The Company operates in one segment of business - the financial
services industry. Within this segment, the Company is primarily engaged in
residential mortgage lending, and commercial and consumer banking. The
Company's decision-making process for all aspects of its operations is
centralized in the President and Chief Executive Officer. The Company reported
net income of $2.5 million, $2.9 million and $800,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. The $442,000 decrease in net
income in 1998 was due primarily to a increase in non-interest expense of
$777,000, which was partially offset by an increase in net interest income of
$12,000, an increase in non-interest income of $28,000, a decrease in
provision for loan losses of $90,000, and a decrease in income tax expense of
$205,000.
The $2.1 million increase in net income in 1997 compared to 1996 was due
primarily to an increase in net interest income of $1.5 million, a $215,000
increase in non-interest income, a $175,000 decrease in provision for loan
losses, and a $1.4 million decrease in non-interest expense, all of which was
partially offset by a $1.2 million 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 2.54%, 2.64%, and 2.68%, during the years
ended December 31, 1998, 1997, and 1996, respectively.
Net interest income increased slightly by $12,000, or 0.1%, in 1998 compared
to 1997. The slight increase was the result of a $1.1 million increase in
interest income, which was substantially offset by a similar increase in
interest expense during 1998. The average balance of net interest-earning
assets (the average balance of interest-earning assets less the average
balance of interest-bearing liabilities) decreased $4.0 million, or 8.1%, to
$45.9 million for the year ended December 31, 1998, compared to $50.0 million
for the year ended December 31, 1997.
INTEREST INCOME - Interest income totaled $21.4 million for the year ended
December 31, 1998, which was an increase of $1.1 million, or 5.3% over the
$20.3 million for the year ended December 31, 1997. This improvement was
mainly due to an increase in the Company's average interest-earning assets of
$19.6 million, or 7.5%, to $281.8 million at December 31, 1998, as compared to
$262.1 million at December 31, 1997, which was partially offset by a 16 basis
point (with 100 basis points being equal
9
<PAGE> 6
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
to 1%) decrease in the yield earned. Interest earned on loans increased $1.7
million, or 10.5% from $15.9 million at December 31, 1997, to $17.6 million at
December 31, 1998. The increase in interest earned on loans was due to a $23.4
million increase in the average balance of loans, which was partially offset
by an 11 basis point decrease in the yield earned. Interest earned on
mortgage-backed securities decreased $419,000, or 18.0%, to $1.9 million at
December 31, 1998, from $2.3 million at December 31, 1997. The decrease was
due to a $5.2 million decrease in the average balance of mortgage-backed
securities together with a 17 basis point decrease in yield thereon. Interest
earned on investment securities decreased $697,000, or 46.2%, to $813,000 at
December 31, 1998, from $1.5 million at December 31, 1997. The decrease was
due to a $8.6 million decrease in the average balance of investment securities
together with a 79 basis point decrease in yield thereon. Interest income on
other earning assets increased $539,000, or 93.9%, to $1.1 million at December
31, 1998, from $574,000 at December 31, 1997. The increase was due to a $10.1
million increase in the average balance of other earning assets and a 27 basis
point increase in yield thereon.
Interest income totaled $20.3 million for the year ended December 31, 1997,
which was 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%
from $14.2 million at December 31, 1996 to $15.9 million at December 31, 1997.
The increase in interest earned on loans was due to a $24.3 million increase
in the average balance of loans, which was partially offset by a 17 basis
point decrease in the yield earned. Interest earned on mortgage-backed
securities decreased $280,000, or 10.7%, to $2.3 million at December 31, 1997,
from $2.6 million at December 31, 1996. The decrease was due to a $4.2 million
decrease in the average balance of mortgage-backed securities, which was
partially offset by a four basis point increase in yield thereon. Interest
earned on investment securities increased $325,000, or 27.4%, to $1.5 million
at December 31, 1997, from $1.2 million at December 31, 1996. The increase was
due to a $4.9 million increase in the average balance of investment
securities, which was partially offset by an eight basis point decrease in
yield thereon. Interest income on other earning assets decreased $117,000, or
16.9%, to $574,000 at December 31, 1997, from $691,000 at December 31, 1996.
The decrease was due to a $1.1 million decrease in the average balance of
other earning assets, together with a 51 basis point decrease in yield
thereon.
INTEREST EXPENSE - Interest expense increased $1.1 million, or 9.9%, in 1998
compared to 1997. The reason for such increase was a $23.7 million, or 11.2%,
increase in average interest-bearing liabilities, which was partially offset
by a six basis point decrease in interest rates on interest-bearing
liabilities. Interest expense on deposits increased $226,000, or 2.5%, to $9.4
million for 1998 compared to $9.2 million for 1997. The reason for such
increase was a $7.1 million, or 3.9%, increase in average balances of
interest-bearing deposits, which was partially offset by a seven 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 1998, the average balance of certificates of
deposit amounted to 75.5% of the average balance of all interest-bearing
deposits, compared to 79.4% during 1997. The average rate paid on certificates
of deposit was 5.70% during 1998, representing a nine basis point decrease
over the average rate in 1997, compared to average rates of 3.17% and 2.10%,
respectively, on interest-bearing demand deposits and savings deposits in
1998. Interest expense on advances from the FHLB increased $849,000, or 50.5%,
to $2.5 million for the year ended December 31, 1998, compared to $1.7 million
for 1997. The reason for such increase was a $16.6 million increase in average
balances on advances from the FHLB, which was partially offset by a 20 basis
point decrease in the average interest rate thereon.
10
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Interest expense increased $98,000, or 0.9%, 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 five 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 thereon. 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 eight
basis point increase in the average interest rate thereon.
11
<PAGE> 8
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
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 cost; (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,
- - ----------------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------- ------------------------------
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 $ 182,597 $ 14,160 7.75% $ 168,437 $ 13,365 7.93%
Commercial business loans 17,952 1,687 9.40 11,027 1,056 9.58
Consumer and other loans 18,325 1,732 9.45 15,974 1,494 9.35
- - ----------------------------------------------------------------------------------------------------------------------
Total loans 218,874 17,579 8.03 195,438 15,915 8.14
Mortgage-backed securities 27,479 1,910 6.95 32,711 2,329 7.12
Investment securities (1) 13,342 813 6.09 21,958 1,510 6.88
Other earning assets 22,056 1,113 5.05 12,002 574 4.78
- - ----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 281,751 21,415 7.60 262,109 20,328 7.76
Noninterest-earning assets 6,682 5,975
- - ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 288,433 $ 268,084
Interest-bearing liabilities:
Deposits:
Demand deposits $ 24,902 790 3.17 $ 14,033 273 1.95
Savings deposits 21,529 453 2.10 23,539 510 2.17
Certificates of deposit 143,122 8,162 5.70 144,921 8,396 5.79
- - ----------------------------------------------------------------------------------------------------------------------
Total deposits 189,553 9,405 4.96 182,493 9,179 5.03
Advances from FHLB 46,277 2,530 5.47 29,648 1,681 5.67
- - ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 235,830 11,935 5.06 212,141 10,860 5.12
Noninterest-bearing demand deposits 8,507 7,182
Other noninterest-bearing liabilities 2,721 2,571
- - ----------------------------------------------------------------------------------------------------------------------
Total liabilities 247,058 221,894
Stockholders' equity 41,375 46,190
======================================================================================================================
Total liabilities and stockholders' equity $ 288,433 $ 268,084
Net interest-earning assets $ 45,921 $ 49,968
Net interest income/interest rate spread $ 9,480 2.54 $ 9,468 2.64
Net interest margin 3.36 3.61
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.47% 123.55%
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
- - ---------------------------------------------------------------------------------------
1996
-------------------------------
Average
Average Yield/
Balance Interest Cost
=======================================================================================
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate mortgage loans $ 150,541 $ 12,438 8.26%
Commercial business loans 3,818 349 9.14
Consumer and other loans 16,780 1,431 8.53
- - ---------------------------------------------------------------------------------------
Total loans 171,139 14,218 8.31
Mortgage-backed securities 36,869 2,609 7.08
Investment securities (1) 17,032 1,185 6.96
Other earning assets 13,067 691 5.29
- - ---------------------------------------------------------------------------------------
Total interest-earning assets 238,107 18,703 7.85
Noninterest-earning assets 9,238
- - ---------------------------------------------------------------------------------------
Total Assets $ 247,345
Interest-bearing liabilities:
Deposits:
Demand deposits $ 15,953 291 1.82
Savings deposits 27,506 692 2.52
Certificates of deposit 154,187 9,201 5.97
- - ---------------------------------------------------------------------------------------
Total deposits 197,646 10,184 5.15
Advances from FHLB 10,338 578 5.59
- - ---------------------------------------------------------------------------------------
Total interest-bearing liabilities 207,984 10,762 5.17
Noninterest-bearing demand deposits 3,342
Other noninterest-bearing liabilities 4,592
- - ---------------------------------------------------------------------------------------
Total liabilities 215,918
Stockholders' equity 31,427
=======================================================================================
Total liabilities and stockholders' equity $ 247,345
Net interest-earning assets $ 30,123
Net interest income/interest rate spread $ 7,941 2.68
Net interest margin 3.34
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.48%
</TABLE>
(1) Includes FHLB stock.
12
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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>
(Dollars in thousands) Year Ended December 31,
====================================================================================
1998 compared to 1997 1997 compared to 1996
======================================== =========================================
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 $ 1,908 $ (218) $ (26) $ 1,664 $ 2,019 $ (282) $ (40) $ 1,697
Mortgage-backed securities (373) (55) 9 (419) (294) 16 (2) (280)
Investment securities (592) (172) 67 (697) 343 (14) (4) 325
Other earning assets 481 32 26 539 (56) (66) 5 (117)
- - -------------------------------------------------------------------------------------------------------------------------------
Total net change in income
on interest-earning assets 1,424 (413) 76 1,087 2,012 (346) (41) 1,625
- - -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits
Demand and savings deposits 185 223 52 460 (133) (77) 10 (200)
Certificates of deposit (104) (131) 1 (234) (553) (268) 16 (805)
- - -------------------------------------------------------------------------------------------------------------------------------
Total deposits 81 92 53 226 (686) (345) 26 (1,005)
Advance from FHLB 943 (60) (34) 849 1,080 8 15 1,103
- - -------------------------------------------------------------------------------------------------------------------------------
Total net change in expense on
interest-bearing liabilities 1,024 32 19 1,075 394 (337) 41 98
Net change in net interest income $ 400 $ (445) $ 57 $ 12 $ 1,618 $ (9) $ (82) $ 1,527
</TABLE>
PROVISION FOR LOAN LOSSES - Provisions 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 loan loss
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
at least 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 $90,000 in 1998, compared to
$180,000 and $355,000 in 1997 and 1996, respectively.
At December 31, 1998, the Company's allowance for loan losses amounted to $2.7
million, or 1.2% of total loans and 400.9% of non-performing loans and
troubled debt restructurings. At December 31, 1997, the Company's allowance
for loan losses amounted to $2.8 million, or 1.3% of total loans and 297.1% of
non-performing loans and troubled debt restructurings. At December 31, 1996,
the Company's allowance for loan losses amounted to $2.6 million, or 1.4% of
total loans and 184.0% of non-performing loans and troubled debt
restructurings.
NON-INTEREST INCOME - For 1998 and 1997, the Company reported non-interest
income of $1.2 million, with a slight increase of $28,000 for 1998. The
primary reasons for the $28,000, or 2.4%, increase
13
<PAGE> 10
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
were an $83,000 increase in deposit fees and service charges, and a $234,000
increase in net gain on sale of loans, both of which were substantially offset
by the difference in trading gains and losses of $248,000, a $34,000 loss from
investment in a limited liability company, and a decrease of $7,000, or 11.3%,
from servicing fees on loans sold.
For 1997, the Company reported non-interest income of $1.2 million, compared
to $954,000 for 1996. The primary reasons for the $215,000, or 22.5%, increase
were an increase of $180,000 in deposit fees and service charges and a
$137,000 net gain on trading securities, both of which were partially offset
by a $102,000 decrease in other income.
NON-INTEREST EXPENSE - Non-interest expense includes salaries and employee
benefits, occupancy, depreciation, net cost of real estate owned, Savings
Association Insurance Fund ("SAIF") deposit insurance premiums, advertising,
bank shares and franchise tax, and other expense items.
Non-interest expense amounted to $6.7 million for the year ended December 31,
1998, an increase of $777,000, or 13.2% compared to $5.9 million for the year
ended December 31, 1997. The primary reasons for the $777,000 increase were
the net cost of real estate owned of $8,000 for 1998, compared to a net
recovery of $436,000 in 1997, together with a $194,000, or 6.2%, increase in
salaries and employee benefits, a $79,000, or 22.5%, increase in bank shares
and franchise tax, and a $52,000, or 3.0%, increase in other expenses.
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. 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.
Salaries and employee benefits, the largest component of non-interest
expenses, increased $194,000, or 6.2%, in 1998 compared to 1997. The primary
reasons for such increase was an increase in salaries and employee benefits
for employees staffing a new Bank branch office located in New Iberia,
Louisiana, which was opened near the end of 1997, and an increase in employee
benefit plan expenses relating to the ESOP and the RRP, as further explained
in Note 14 of the Consolidated Financial Statements. Salaries and employee
benefits increased $490,000, or 18.5%, in 1997 compared to 1996. The primary
reason for such increase was a $451,000 increase in employee benefit plan
expenses relating primarily to the ESOP and the RRP. The ESOP was in effect
for only half of 1996. The ESOP and the RRP were in effect for all of 1997.
INCOME TAXES - For the years ended December 31, 1998, 1997, and 1996, the
Company incurred income tax expense of $1.4 million, $1.6 million, and
$439,000, respectively. The Company's effective tax rate amounted to 36.3%,
35.6%, and 35.4% during 1998, 1997, and 1996, 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, and
because state income tax is included on the Company's income, exclusive of the
income derived from the Bank. For more information on income taxes, refer to
Note 11 of the Consolidated Financial Statements.
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
14
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
and maturities from its loan portfolio and its held to maturity investment
securities and mortgage-backed securities portfolios, and other funds provided
from operations. While scheduled payments from the amortization of loans and
mortgage-backed securities and maturing investment securities are relatively
predictable sources of funds, deposit flows, loan prepayments, and
mortgage-backed securities prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Company has the ability
to borrow up to approximately $122.4 million from the FHLB through its
subsidiary Bank.
Liquidity management is both a daily and long-term function of business
management. The Company uses its primary liquidity to meet its ongoing
commitments, to pay maturing certificates of deposit and deposit withdrawals,
and to fund loan commitments. The Company's excess liquidity and borrowing
capacity provide added readiness to meet ongoing commitments and growth. At
December 31, 1998, the total approved commitments to extend credit amounted to
$32.5 million. Certificates of deposit scheduled to mature in one year or less
at that same date totaled $77.0 million. Management believes that a significant
portion of maturing deposits will remain with the Company. The Company
anticipates it will continue to have sufficient funds together with available
borrowings to meet its current commitments.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operation results in terms of historical dollars, without considering changes in
relative purchasing power over time due to inflation. Unlike most industrial
companies, virtually all of the Company's assets and liabilities are monetary in
nature. 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.
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 is 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 six 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.
15
<PAGE> 12
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
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 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. 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,
1998, the amount of 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 $3.1 million, or 1.1%, of the
Company's total assets.
The ALCO utilizes the results of a detailed and dynamic simulation model to
quantify the estimated exposure to 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 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 rata shift in rates over a 12-month period is assumed.
The following reflects the Company's NII sensitivity analysis as of December 31,
1998:
<TABLE>
<CAPTION>
Estimated NII
Rate Change Sensitivity
===================================================
<S> <C>
+ 200 basis points + 0.14%
- 200 basis points + 0.27%
</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
16
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
has increased its emphasis on originating commercial business loans, which
generally have higher as well as variable or adjustable rates of interest, and
has increased its emphasis on originating consumer loans, which have higher
interest rates and relatively short terms to maturity. The aggregate average
balances of commercial business loans and consumer loans has increased as a
percentage of the total average loan balances from 12.0% in 1996 to 13.8% in
1997 and 16.6% in 1998. The Company also has increased the amount of
non-interest bearing demand deposits, which are considered "core deposits" and
which are expected to lessen the effects of changes in interest rates on the
Company's net interest margin. The average balance of noninterest-bearing
deposits increased from $3.3 million in 1996, to $7.2 million in 1997 and to
$8.5 million in 1998. Additionally, the Company maintains substantially all of
its fixed-rate investment securities, and its fixed-rate mortgage-backed
securities in its available for sale portfolios, which at December 31, 1998,
amounted to $15.0 million and $11.4 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 $89.5 million of long-term adjustable-rate mortgage loans, $100.5
million of long-term fixed-rate loans, $21.4 million of shorter term consumer
loans, and $23.1 million of commercial loans. The Company's mortgage-backed
securities held to maturity portfolio of $12.4 million is substantially
comprised of adjustable-rate securities. The Company's asset/liability strategy
with respect to these portfolios includes an attempt to balance the effects of
rising and falling interest rates on the projected interest income from these
assets.
17
<PAGE> 14
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
The following table summarizes the anticipated maturities or repricing of the
Company's interest-sensitive assets and interest-sensitive liabilities as of
December 31, 1998 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) $ 42,868 $ 43,247 $ 72,556 $ 38,325 $28,566 $225,562
Investment securities(3) 18,102 1,500 5,622 25,224
Mortgage-backed securities(4) 12,740 3,666 4,250 1,288 1,825 23,769
- - -----------------------------------------------------------------------------------------------------------------------------
Total 73,710 48,413 76,806 39,613 36,013 274,555
- - -----------------------------------------------------------------------------------------------------------------------------
Interest-sensitive liabilities:
Deposits:
NOW accounts(5) - - - - 9,022 9,022
Savings accounts(5) - - - - 19,706 19,706
Money market deposit accounts(5) 19,364 - - - - 19,364
Certificates of deposit 21,249 56,561 46,438 14,604 2,191 141,043
Advances from FHLB 21,878 - 17,000 8,100 250 47,228
- - -----------------------------------------------------------------------------------------------------------------------------
Total 62,491 56,561 63,438 22,704 31,169 236,363
- - -----------------------------------------------------------------------------------------------------------------------------
Excess (deficiency) of interest-sensitive
assets over interest-bearing liabilities $ 11,219 $ (8,148) $ 13,368 $ 16,909 $ 4,844 $ 38,192
Cumulative excess of
interest-sensitive assets over
interest-sensitive liabilities $ 11,219 $ 3,071 $ 16,439 $ 33,348 $38,192
Cumulative excess of
interest-sensitive assets over
interest-sensitive liabilities as a
percent of total assets 3.98% 1.09% 5.83% 11.82% 13.54%
</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 1998.
(2) Balances have been reduced for non-performing loans, which amounted to
$190,000 at December 31, 1998.
(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 savings accounts are generally
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 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 $25.7 million or 9.10% of total assets.
18
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR 2000
The Year 2000 date change is possibly the largest technological challenge ever
faced by the business and financial community. Many computer systems may not be
able to distinguish between the year 2000 and the year 1900, which is a critical
issue as the new millennium approaches. Most computers were originally
programmed to record years using two-digit fields, rather than four-digit
fields. Being Year 2000 ready means that software can appropriately distinguish
between the year 1900 and the year 2000, as well as correctly interpreting
certain other esoteric dates, which could otherwise lead to incorrect
calculations or other problems.
The Company completed its awareness and assessment phases of its Year 2000
planning process. The Company's essential information technology ("IT") systems
are provided by several large third-party vendors. Based on successful test
results, third-party vendors providing essential IT for the Company's financial
and operation systems have made representations to the Company or the Bank that
such products are Year 2000 ready. Such renovated products are installed and
running at the Company, without any material change in recurring or ongoing
operational costs relating to product support services or renovation of existing
products and services provided by third party vendors. The Company has completed
its assessment of issues related to the impact of the year 2000 on its critical
IT and non-critical IT systems. Based on its assessment, the Company believes
that there will be no consequences of its Year 2000 issues that will be material
to the Company's business, results of operations or financial condition. The
Company has estimated total costs of completion of its Year 2000 process to not
exceed $10,000.
The Company is now involved in its in-house testing and validation phase of its
Year 2000 plan, which tests of its essential information technology systems are
expected to validate successful test results by its third party vendors. As of
December 31, 1998, the Company had completed approximately 95% of its internal
testing. Such test results have substantially validated and continue to reaffirm
the Year 2000 compliance of the Company's mission critical systems.
The status of these activities is provided to the Company's Board of Directors,
and the Company's regulators monitor Year 2000 readiness.
The discussion above entitled "Year 2000" includes certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 ("PSLRA"). This statement is included for the express purpose of
availing the Company of the protections of the safe harbor provisions of the
PSLRA. Management's ability to predict results or effects of Year 2000 issues is
inherently uncertain, and is subject to factors that may cause actual results to
differ materially from those projected. Factors that could affect the actual
results include the possibility that remediation efforts and contingency plans
will not operate as intended, the Company's failure to timely or completely
identify all software and hardware applications requiring remediation,
unexpected costs, and the uncertainty associated with the impact of Year 2000
issues on the banking industry and on the Company's customers, vendors, and
others with whom it conducts business. Readers are cautioned not to place undue
reliance on these forward-looking statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 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
19
<PAGE> 16
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
of the balance sheet. This statement is effective for the Company for the year
beginning January 1, 1998. Adoption of this statement did not have a material
impact on the financial condition or results of operations because it addresses
reporting and disclosure issues.
In June 1997, the FASB issued SFAS 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. Adoption of this statement did not have a material impact on the
financial condition or results of operation because it addresses reporting and
disclosure issues.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
imbedded in other contracts. It requires that entities recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the fair
value of derivatives (that is, gains and losses) depends on the intended use of
the derivative and the resulting designation. This statement is effective for
fiscal years beginning after June 15, 1999. The Company currently has no
derivatives and does not have any hedging activities. Adoption of this statement
is not expected to have a material impact on financial condition or results of
operation.
20
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
[CASTAING, HUSSEY, LOLAN & DAUTERIVE, 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, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ CASTAING, HUSSEY, LOLAN & DAUTERIVE, LLP
New Iberia, Louisiana
January 29, 1999
22
<PAGE> 18
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - --------------------------------------------------------------------------------
Consolidated Statements OF Financial Condition
December 31, 1998 and 1997
(In Thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
================================================================================================================
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Amounts Due from Banks $ 844 $ 622
Interest Bearing Deposits 6,734 13,535
- - -----------------------------------------------------------------------------------------------------------------
Total 7,578 14,157
Trading Securities 575 826
Securities Available for Sale, at Fair Value 14,995 11,044
Mortgage-Backed Securities:
Available for Sale, at Fair Value 11,409 17,846
Held to Maturity (Fair Value of $12,694 and $12,736, respectively) 12,360 12,806
Loans Receivable, Net of Allowance for
Loan Losses of $2,726 and $2,760, respectively 225,752 212,840
Investment in Limited Liability Company 966 --
Federal Home Loan Bank Stock, at Cost 2,920 1,887
Real Estate Owned, Net 7 204
Premises and Equipment, Net 2,777 2,806
Accrued Interest Receivable 1,367 1,416
Other Assets 1,383 1,234
- - -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 282,089 $ 277,066
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 200,647 $ 193,422
Advances from Federal Home Loan Bank 47,228 36,628
Accrued Interest Payable on Deposits 124 49
Advance Payments by Borrowers for Taxes and Insurance 394 431
Accrued and Other Liabilities 1,522 1,974
- - -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 249,915 232,504
- - -----------------------------------------------------------------------------------------------------------------
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 32,192 32,005
Retained Earnings (Substantially Restricted) 20,932 19,355
Unearned Common Stock Held by ESOP (1,965) (2,228)
Unearned Common Stock Held by RRP Trust (1,335) (1,602)
Treasury Stock, at Cost; 910,758 and 150,000 Shares, respectively (17,935) (3,445)
Accumulated Other Comprehensive Income 258 450
- - -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 32,174 44,562
- - -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 282,089 $ 277,066
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
23
<PAGE> 19
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - --------------------------------------------------------------------------------
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
(In Thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
=================================================================================================================
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 17,579 $ 15,915 $ 14,218
Mortgage-Backed Securities 1,910 2,329 2,609
Investment Securities 813 1,510 1,185
Interest Bearing Deposits 1,113 574 691
- - -----------------------------------------------------------------------------------------------------------------
Total Interest Income 21,415 20,328 18,703
- - -----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 9,405 9,179 10,184
Advances from Federal Home Loan Bank 2,530 1,681 578
- - -----------------------------------------------------------------------------------------------------------------
Total Interest Expense 11,935 10,860 10,762
- - -----------------------------------------------------------------------------------------------------------------
Net Interest Income 9,480 9,468 7,941
Provision for Loan Losses 90 180 355
- - -----------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Loan Losses 9,390 9,288 7,586
- - -----------------------------------------------------------------------------------------------------------------
Non-Interest Income:
Loan Fees and Service Charges 138 136 157
Servicing Fees on Loans Sold 55 62 60
Deposit Fees and Service Charges 832 749 569
Trading Account (Losses) Gains, Net (111) 137 --
Gain (Loss) on Sale of Loans, Net 233 (1) (20)
Loss from Investment in Limited Liability
Company (34) -- --
Other 84 86 188
- - -----------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 1,197 1,169 954
- - -----------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 3,338 3,144 2,654
Occupancy 280 308 285
Depreciation 393 322 320
Net Costs of Real Estate Owned 8 (436) 129
SAIF Deposit Insurance Premium 118 122 354
SAIF Special Assessment -- -- 1,338
Advertising 297 328 307
Bank Shares and Franchise Tax Expense 430 351 --
Other 1,791 1,739 1,914
- - -----------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 6,655 5,878 7,301
- - -----------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 3,932 4,579 1,239
Income Tax Expense 1,427 1,632 439
- - -----------------------------------------------------------------------------------------------------------------
Net Income $ 2,505 $ 2,947 $ 800
Net Income Per Common Share* - basic $ 1.20 $ 1.22 $ .07
Net Income Per Common Share* - diluted $ 1.17 $ 1.20 $ .07
</TABLE>
*Includes 3rd and 4th quarters only, for 1996.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
24
<PAGE> 20
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
Retained Unearned
Additional Earnings - Common
Common Paid-In (Substantially Stock Held
Stock Capital Restricted) By ESOP
=======================================================================================================
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ $ $16,996 $
Comprehensive Income:
Net Income 800
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
Total Comprehensive Income
Common Stock Issued in Conversion 27 31,811 (2,622)
Common Stock Released by ESOP Trust 16 132
Cash Dividends Declared (452)
- - -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 27 31,827 17,344 (2,490)
Comprehensive Income:
Net Income 2,947
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
Total Comprehensive Income
Common Stock Released by ESOP Trust 178 262
Common Stock Acquired by Recognition
and Retention Plan Trust
Common Stock Earned by Participants of
Recognition and Retention Plan Trust
Repurchase of Common Stock
Cash Dividends Declared (936)
- - -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 27 32,005 19,355 (2,228)
Comprehensive Income:
Net Income 2,505
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
Total Comprehensive Income
Common Stock Released by ESOP Trust 192 263
Common Stock Earned by Participants of
Recognition and Retention Plan Trust (5)
Repurchase of Common Stock
Cash Dividends Declared (928)
- - -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 27 $32,192 $20,932 $(1,965)
</TABLE>
<TABLE>
<CAPTION>
Unearned
Common Accumulated Total
Stock Other Stock-
Held By Treasury Comprehensive holder's
RRP Trust Stock Income Equity
======================================================================================================
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ $ $ 701 $ 17,697
Comprehensive Income:
Net Income 800
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes (318) (318)
----------
Total Comprehensive Income 482
Common Stock Issued in Conversion 29,216
Common Stock Released by ESOP Trust 148
Cash Dividends Declared (452)
- - -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 383 47,091
Comprehensive Income:
Net Income 2,947
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes 67 67
-----------
Total Comprehensive Income 3,014
Common Stock Released by ESOP Trust 440
Common Stock Acquired by Recognition
and Retention Plan Trust (1,829) (1,829)
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 227 227
Repurchase of Common Stock (3,445) (3,445)
Cash Dividends Declared (936)
- - -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 (1,602) (3,445) 450 44,562
Comprehensive Income:
Net Income 2,505
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes (192) (192)
----------
Total Comprehensive Income 2,313
Common Stock Released by ESOP Trust 455
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 267 262
Repurchase of Common Stock (14,490) (14,490)
Cash Dividends Declared (928)
- - -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $(1,335) $(17,935) $ 258 $ 32,174
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
25
<PAGE> 21
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
- - --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
==================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,505 $ 2,947 $ 800
- - ------------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 410 328 320
Provision for Deferred Income Taxes (17) 2 (43)
Provision for Losses on Loans 90 180 355
Provision for Losses on Real Estate Owned and Other
Property Acquired -- -- 256
Compensation Expense Recognized on RRP 232 227 --
ESOP Contribution 455 440 148
Other Gains and Losses, Net (19) (427) (121)
Net Change in Securities Classified as Trading 251 (826) --
Loss from Investment in Limited Liability Company 34 -- --
(Gain) Loss on Sale of Loans Held for Sale (233) 1 20
Proceeds from Sale of Loans Held for Sale 19,383 921 6,353
Originations of Loans Held for Sale (19,150) (922) (6,373)
Accretion of Discounts, Net of Premium Amortization
On Securities (42) (63) (46)
Amortization of Deferred Revenues and Unearned Income
on Loans (13) (60) (161)
FHLB Stock Dividend Received (153) (109) (101)
Changes in Assets and Liabilities:
Decrease (Increase) in Accrued Interest Receivable 49 135 (364)
(Increase) Decrease in Other Assets (21) 167 1,139
(Decrease) Increase in Accounts Payable and Accrued
Expenses (475) 846 133
- - ------------------------------------------------------------------------------------------------------------------
Total Adjustments 781 840 1,515
- - ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,286 $ 3,787 $ 2,315
- - ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Calls and Maturities of Securities Available
for Sale $ 39,925 $ 22,498 $ 3,000
Purchases of Securities Available for Sale (43,917) (12,998) (19,500)
Principal Collections on Mortgage-Backed Securities Available
for Sale 6,236 3,870 4,020
Principal Collections on Mortgage-Backed Securities Held to
Maturity 440 290 397
Investment in Limited Liability Company (1,000) -- --
Purchase of FHLB Stock (880) -- --
Net Advances on Loans (13,110) (30,739) (25,416)
Proceeds from Sale of Premises and Equipment -- -- 11
Purchase of Premises and Equipment (364) (1,301) (416)
Proceeds from Sale of Real Estate Owned and Other Property
Acquired 350 801 874
Capital Costs Incurred on Real Estate Owned and Other Property
Acquired (13) -- (35)
- - ------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (12,333) $(17,579) $ (37,065)
- - ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Demand, NOW and Savings Deposits $ 9,707 $ (3,271) $ (1,260)
Net Change in Time Deposits (2,482) 3,243 (11,633)
Net Change in Mortgage Escrow Funds (37) (10) (44)
Proceeds from FHLB Advances 42,600 14,378 22,000
Payments on FHLB Advances (32,000) -- --
Proceeds from Issuance of Common Stock -- -- 30,153
Dividends Paid to Shareholders (1,009) (901) (226)
Acquisition of Common Stock by RRP -- (1,829) --
Purchase of Treasury Stock (14,311) (3,445) --
Stock Conversion Costs Incurred -- -- (937)
- - ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 2,468 $ 8,165 $ 38,053
- - ------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (6,579) $ (5,627) $ 3,303
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,157 19,784 16,481
- - ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,578 $ 14,157 $ 19,784
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of Real Estate in Settlement of Loans $ 121 $ 503 $ 189
Unrealized Loss on Securities $ (290) $ (101) $ (481)
SUPPLEMENTAL DISCLOSURES:
Cash Paid For:
Interest on Deposits and Borrowings $ 11,861 $ 10,779 $ 10,747
Income Taxes $ 1,465 $ 1,541 $ 526
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
26
<PAGE> 22
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
mutual 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, consumer loans and
commercial business 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.
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
27
<PAGE> 23
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, net of applicable income
taxes, on securities available for sale are recognized as a net amount in other
comprehensive income. The cost of securities sold is recognized using the
specific identification method.
Mortgage-Backed Securities
Mortgage-Backed Securities, or MBSS, owned by the Company represent
participating interests in pools of underlying long-term first mortgage loans
issued by one of three agencies: GNMA, FNMA, and FHLMC. Collateralized Mortgage
Obligations, or CMOs, owned by the Company represent participating interests in
a multiclass security that is secured by one or more pools of mortgage
pass-through pools. Management classifies certain of both types of MBSs as
available for sale securities, which are carried at fair value. Management also
classifies certain of both types of MBSs as held to maturity, which are carried
at cost, adjusted for amortization of premiums and accretion of discounts using
methods approximating the interest method. The Company has both the intent and
ability to hold such securities to maturity. Unrealized gains and losses, net of
applicable income taxes, on MBSs available for sale are recognized as a net
amount in other comprehensive income. 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 one percent of the Bank's
outstanding home mortgage-related assets or five percent of its outstanding
advances from the FHLB. Any stock held in excess of required amounts is
redeemable at par. At December 31, 1998 and 1997, the Bank held 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, 1998 and 1997, 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
28
<PAGE> 24
Notes To Consolidated Financial Statements
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
29
<PAGE> 25
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. SFAS 107 excludes
certain financial instruments and all nonfinancial 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
experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Continues
30
<PAGE> 26
Notes To Consolidated Financial Statements
Note 1 continued
Deposits: The fair value disclosed for demand deposits (for example,
interest bearing checking accounts and savings 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.
FHLB Advances: Maturities are discounted to the Dallas FHLB's Advance
yield curve.
Off-Balance Sheet Items: The Company has outstanding commitments to
extend credit and stand-by letters of credit. These off-balance sheet
financial instruments are generally exerciseable at the market rate
prevailing at the date the underlying transaction will be completed and,
therefore, have no current value.
Effects of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("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. Adoption of
this statement did not have a material impact on the financial condition or
results of operations because it addresses reporting and disclosure issues.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This statement establishes standards for the
way public business enterprises report information about operating segments and
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. Information required to be
disclosed includes segment profit or loss, certain specific revenue and expense
items, segment assets and certain other information. This statement is effective
for the Company for financial statements issued for the year beginning January
1, 1998. Adoption of this statement did not have a material impact on the
financial condition or results of operations because it addresses reporting and
disclosure issues.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. The statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
imbedded in other contracts. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of derivatives (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. The statement is
effective for fiscal years beginning after June 15, 1999. The Company currently
has no derivatives and does not have any hedging activities. The adoption of
this statement is not expected to have a material effect on financial position
and results of operations.
Continues
31
<PAGE> 27
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 1 Continued
Reclassifications
Certain reclassifications have been made to the 1996 and 1997 Consolidated
Financial Statements in order to conform to the classifications adopted for
reporting in 1998.
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 reserve balance required at December 31, 1998 and 1997 was approximately
$446,000 and $298,000, respectively, and the Company satisfied its reserve
requirements at both dates.
NOTE 3 - INVESTMENT SECURITIES:
Securities available for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------------------------- -----------------------------------------------
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>
Commercial Paper $ 5,992 $ -- $ -- $ 5,992 $ -- $ -- $ -- $ --
U.S. Government and
Federal Agencies 8,949 25 (1) 8,973 10,918 103 -- 11,021
Marketable Equity
Security 5 25 -- 30 5 18 -- 23
- - -------------------------------------------------------------------------------------------------------------------------
Total $ 14,946 $ 50 $ (1) $ 14,995 $ 10,923 $ 121 $ -- $ 11,044
</TABLE>
The following is a summary of maturities of securities available for sale as of
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Securities Available for Sale
------------------------------------
Amortized Fair
Cost Value
=====================================================================================
<S> <C> <C>
Amounts maturing in:
One year or less $ 9,941 $ 9,965
After one year through five years -- --
After five years through ten years 5,000 5,000
After ten years -- --
- - -------------------------------------------------------------------------------------
14,941 14,965
Marketable Equity Security 5 30
- - -------------------------------------------------------------------------------------
Total $ 14,946 $ 14,995
</TABLE>
Securities are classified according to their contractual maturity without
consideration of call features. Accordingly, actual maturities may differ from
contractual maturities.
During 1998, 1997 and 1996, proceeds from calls and maturities of securities
available for sale were approximately $39,925,000, $22,498,000 and $3,000,000
respectively, resulting in no realized gain or loss. During 1998, 1997 and 1996,
no securities available for sale were sold.
Continues
32
<PAGE> 28
Notes to Consolidated Financial Statements
Note 3 continued
Investment securities with a carrying amount and fair value of approximately
$511,000 and $516,000 at December 31, 1998 and 1997, respectively, were pledged
to secure deposits as required or permitted by law.
NOTE 4 - MORTGAGE-BACKED SECURITIES:
Mortgage-Backed Securities available for sale consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 December 31, 1997
------------------------------------------- ---------------------------------------------
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 $ 1,128 $ 37 $ -- $ 1,165 $ 1,366 $ 33 $ -- $ 1,399
FNMA 6,954 269 -- 7,223 9,978 509 -- 10,487
FHLMC 2,557 39 -- 2,596 5,439 42 (18) 5,463
FNMA CMO 428 -- (3) 425 502 -- (5) 497
- - --------------------------------------------------------------------------------------------------------
Total $ 11,067 $ 345 $ (3) $ 11,409 $ 17,285 $ 584 $ (23) $ 17,846
</TABLE>
Mortgage-Backed Securities held to maturity consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 December 31, 1997
------------------------------------------- ---------------------------------------------
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 $ 828 $ 3 $ -- $ 831 $ 1,121 $ 26 $ -- $ 1,147
FNMA 185 -- (1) 184 206 -- (2) 204
FHLMC 616 -- (3) 613 750 -- (29) 721
FNMA CMO 4,736 221 -- 4,957 4,736 -- (8) 4,728
FHLMC CMO 5,995 126 (12) 6,109 5,993 19 (76) 5,936
- - --------------------------------------------------------------------------------------------------------
Total $ 12,360 $ 350 $ (16) $ 12,694 $ 12,806 $ 45 $ (115) $ 12,736
</TABLE>
The following is a summary of maturities of Mortgage-Backed Securities available
for sale and held to maturity as of December 31, 1998 (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 $ 3,694 $ 3,808 $ 244 $ 251
After one year through five years 5,936 6,119 672 690
After five years through ten years 1,360 1,402 417 428
After ten years 77 80 11,027 11,325
- - ----------------------------------------------------------------------------------------------------------
Total $ 11,067 $ 11,409 $ 12,360 $ 12,694
</TABLE>
Maturities are based on the average life at the currently projected prepayment
speed.
During 1998, 1997 and 1996, no Mortgage-Backed Securities available for sale
were sold. There were no sales of held to maturity Mortgage-Backed Securities
in 1998, 1997 or 1996.
33
<PAGE> 29
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
NOTE 5 - LOANS RECEIVABLE:
Loans Receivable at December 31, 1998 and 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage Loans:
Single-Family Residential $ 168,533 $ 169,637
Single-Family Construction 11,651 9,301
Multi-family Residential 481 546
Commercial Real Estate 9,371 9,363
- - --------------------------------------------------------------------------------------------------------------
Total Mortgage Loans 190,036 188,847
Commercial Business Loans 23,143 15,400
Consumer Loans:
Savings 2,122 2,046
Indirect Dealer 2,367 4,526
Other 16,899 9,783
- - --------------------------------------------------------------------------------------------------------------
Total Loans 234,567 220,602
Less:
Allowance for Loan Losses (2,726) (2,760)
Unearned Discounts and Prepaid Dealer Reserve 57 162
Net Deferred Loan Origination Fees (357) (535)
Loans in Process and Undisbursed Funds (5,789) (4,629)
- - --------------------------------------------------------------------------------------------------------------
Net Loans $ 225,752 $ 212,840
</TABLE>
At December 31, 1998 and 1997, the Company's loan portfolio included $89,521,000
and $96,690,000 in adjustable-rate mortgage loans, respectively.
The following is an analysis of the allowance for possible loan losses for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Beginning $ 2,760 $ 2,592 $ 2,329
Provision Charged to Income 90 180 355
Loans Charged Off (313) (235) (277)
Loans Recovered 189 223 185
- - ------------------------------------------------------------------------------------------------------------------
Balance, Ending $ 2,726 $ 2,760 $ 2,592
</TABLE>
34
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $23,346,000 and $21,186,000 at December
31, 1998 and 1997, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $367,000 and $602,000 at December 31, 1998 and
1997, respectively.
Mortgage loan servicing rights of $91,000 and $1,000 were capitalized in 1998
and 1997, respectively. Amortization of mortgage servicing rights was $17,000,
$6,000 and $3,000 in 1998, 1997 and 1996, respectively, and the balance of
mortgage servicing rights at December 31, 1998 and 1997 was $101,000 and
$27,000, respectively.
NOTE 7 - INVESTMENT IN CADENCE HOLDINGS, LLC:
The Company owns a 40 percent investment in Cadence Holdings, LLC ("Cadence"),
an affiliate in the financial services industry which is accounted for under the
equity method. A Limited Liability Company (LLC) is a legal form of doing
business that combines partnership and corporate attributes. The Company's share
of the net loss for the year ended December 31, 1998 was $34,000.
The Company is a guarantor in the amount of $400,000 for a $1,000,000 bank line
of credit to Cadence which is dated January 1999.
NOTE 8 - PREMISES AND EQUIPMENT:
Premises and equipment at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 929 $ 929
Office Buildings 1,832 1,736
Furniture, Fixtures and Equipment 3,241 2,973
Transportation Equipment 95 95
- - ---------------------------------------------------------------------------------------------------------------
6,097 5,733
Accumulated Depreciation (3,320) (2,927)
- - ---------------------------------------------------------------------------------------------------------------
Premises and Equipment, Net $ 2,777 $ 2,806
</TABLE>
35
<PAGE> 31
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
NOTE 9 - DEPOSITS:
Deposit account balances at December 31 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Weighted 1998 1997
Average Rate at ------------------------ -------------------------
December 31, 1998 Amount % Amount %
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOW Accounts 1.8% $ 9,022 4.5% $ 8,177 4.2%
Money Market Accounts 4.1% 19,364 9.7 9,436 4.9
Non-interest Bearing Checking Accounts --% 11,512 5.7 8,941 4.6
- - ----------------------------------------------------------------------------------------------------------------
Total Demand Deposits 39,898 19.9 26,554 13.7
- - ----------------------------------------------------------------------------------------------------------------
Savings Deposits 2.1% 19,706 9.8 23,343 12.1
- - ----------------------------------------------------------------------------------------------------------------
Certificate of Deposit Accounts:
Less than 4.00% 469 0.2 226 0.1
4.0% to 4.99% 38,636 19.3 13,474 7.0
5.0% to 5.99% 57,020 28.4 79,702 41.2
6.0% to 6.99% 32,493 16.2 34,172 17.7
7.0% to 8.99% 11,533 5.8 15,056 7.8
9.0% and over 892 0.4 895 0.4
- - ----------------------------------------------------------------------------------------------------------------
Total Certificates of Deposit 5.6% 141,043 70.3% 143,525 74.2
- - ----------------------------------------------------------------------------------------------------------------
Total Deposits 4.6% $ 200,647 100.0% $ 193,422 100.0%
</TABLE>
At December 31, 1998, scheduled maturities of certificates of deposit accounts
were as follows (in thousands):
<TABLE>
<CAPTION>
Amount
- - ------------------------------------------------------------------------------------------
<S> <C>
One year or less $ 76,955
Over one year through two years 33,090
Over two years through three years 14,198
Over three years through five years 14,609
Over five years through ten years 2,191
- - ------------------------------------------------------------------------------------------
Total Certificates of Deposit $ 141,043
</TABLE>
Certificates of deposit with a balance of $100,000 and over were $37,492,000 and
$36,833,000 at December 31, 1998 and 1997, respectively.
Interest expense on deposits for the following years ended December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW Accounts $ 144 $ 109 $ 160
Money Market 646 163 131
Savings 517 589 692
Certificates of Deposits 8,098 8,318 9,201
- - -----------------------------------------------------------------------------------------------------------------
Total Interest Expense on Deposits $ 9,405 $ 9,179 $ 10,184
</TABLE>
Income from early withdrawal penalties on certificate accounts was $56,000,
$79,000, and $63,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
36
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances totaled $47,228,000 and $36,628,000 as of
December 31, 1998 and 1997, 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 Inter-Bank
Offered 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
$122,418,000 from the FHLB which would also be secured by the existing blanket
collateral agreement and by FHLB stock. Advances at December 31, 1998 and 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
Interest Rate 1998 1997
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Variable rate - 5.05% to 5.45% at December 31, 1998 $ 9,378 $ 36,378
Fixed rate - 4.80% to 8.70% at December 31, 1998 37,850 250
- - -------------------------------------------------------------------------------------------------------------
Total Advances $ 47,228 $ 36,628
</TABLE>
Advances at December 31, 1998 have maturities in future years as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending December 31 Amount
- - ------------------------------------------------------------------------------------
<S> <C> <C>
1999 $ 16,878
2003 8,100
2005 250
2008 22,000
- - ------------------------------------------------------------------------------------
Total $ 47,228
</TABLE>
A significant portion of the advances contain a quarterly call feature beginning
between one and three years after the date of issuance, therefore, actual
repayments could vary from contractural maturities.
NOTE 11 - INCOME TAXES:
The provision for Income Tax Expense is as follows for the years ended December
31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 1,431 $ 1,623 $ 468
State 13 7 14
Deferred Tax Expense (Benefit) (17) 2 (43)
- - ------------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 1,427 $ 1,632 $ 439
</TABLE>
There was an income tax payable of $12,000 and $173,000 at December 31, 1998 and
1997, respectively.
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>
1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------
<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 0.3 0.2 1.1
Nondeductible ESOP 1.6 1.3 0.4
Other Items 0.4 0.1 (0.1)
- - ----------------------------------------------------------------------------------------------------------
Effective Tax Rate 36.3% 35.6% 35.4%
</TABLE>
Continues
37
<PAGE> 33
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 11 continued
The tax effects of principal temporary differences at December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Deferred loan fees $ 86 $ 108
Book provision for losses on loans and real estate owned 939 949
Depreciable property basis differences 30 20
ESOP and RRP 141 118
Unrealized losses on Trading Securities 27 --
Other 39 36
- - -------------------------------------------------------------------------------------------------------------
Subtotal 1,262 1,231
- - -------------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Discount Accretion on Investment Securities 40 29
FHLB stock 338 286
Unrealized gains on Securities Available for Sale 133 232
Unrealized gains on Trading Securities -- 49
- - -------------------------------------------------------------------------------------------------------------
Subtotal 511 596
- - -------------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ 751 $ 635
</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 1998 or 1997.
Included in retained earnings at December 31, 1998 and 1997, 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 12 - 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")
(174,618, 196,578 and 213,026 shares at December 31, 1998, 1997, and 1996,
respectively) and the weighted average unvested shares in the Recognition and
Retention Plan ("RRP") (95,493, 96,769 and -0- shares at December 31, 1998, 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
38
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 continued
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
YEAR ENDED DECEMBER 31, 1998
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income Available to Common Stockholders $ 2,505,000 2,088,775 $ 1.20
Effect of Dilutive Securities
Stock Options Outstanding -- 44,649
RRP Grants -- 15,800
- - --------------------------------------------------------------------------------------------------------------------
Diluted EPS
Income Available to Common Stockholders
Plus Assumed Conversions $ 2,505,000 2,149,224 $ 1.17
<CAPTION>
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
RRP 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 13 - REGULATORY MATTERS:
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal and state 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.
At December 31, 1998 and 1997, 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.
As of December 31, the Company and the Bank met all regulatory capital
requirements as follows (dollars in thousands):
Continues
39
<PAGE> 35
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 13 continued
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
Required Actual
Amount Percent Amount Percent
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 leverage capital:
Acadiana Bancshares, Inc. $ 11,271 4.0% $ 31,916 11.3%
LBA Savings Bank 10,839 4.0% 24,125 8.9%
Tier 1 risk-based capital:
Acadiana Bancshares, Inc. 6,513 4.0% 31,916 19.6%
LBA Savings Bank 6,196 4.0% 24,125 15.6%
Total risk-based capital:
Acadiana Bancshares, Inc. 13,026 8.0% 33,971 20.9%
LBA Savings Bank 12,392 8.0% 26,082 16.8%
<CAPTION>
December 31, 1997
-------------------------------------------------
Required Actual
Amount Percent Amount Percent
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 leverage capital:
Acadiana Bancshares, Inc. $ 11,029 4.0% $ 44,112 16.0%
LBA Savings Bank 10,660 4.0% 33,214 12.5%
Tier 1 risk-based capital:
Acadiana Bancshares, Inc. 5,855 4.0% 44,112 30.1%
LBA Savings Bank 5,732 4.0% 33,214 23.2%
Total risk-based capital:
Acadiana Bancshares, Inc. 11,710 8.0% 45,953 31.4%
LBA Savings Bank 11,465 8.0% 35,017 24.4%
</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. During 1998,
the Bank received permission from the commissioner to pay a $12,000,000 dividend
to the Company. Because of the amount by which dividends paid by the Bank to the
Company in 1998 exceeded 1998 income, the Bank will not be able to pay any
dividends to the Company in 1999 without permission.
NOTE 14 - EMPLOYEE BENEFITS:
401(k) AND MONEY PURCHASE PENSION PLANS
The Company maintains a 401(k) Profit Sharing Plan to provide retirement
benefits for substantially all employees. Eligible employees may defer up to ten
percent of compensation. Until 1997, the Company contributed a matching
contribution of 100 percent of employee deferrals up to three percent of
compensation. The board of directors determines the amount of an additional
discretionary contribution, if any, annually. All employees are eligible after
completing one year of service and attaining age 21.
Employer contributions made to the plan was $-0-, $-0-, and $52,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Continues
40
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 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 offering. 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. Continuing its practice, the Company anticipates that
contributions will be made to the plan in amounts necessary to amortize the debt
to the Company over a period of ten 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 recognizes
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 is credited to equity. The Company receives 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 are used to pay the ESOP debt.
Compensation cost for the year ended December 31, 1998, was $455,000 based on
the release of 21,892 shares. For the year ended December 31, 1997, compensation
cost was $440,000 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 53,793, 32,707 and 10,946 shares allocated and 163,770,
185,662 and 207,554 shares held in suspense by the ESOP for the years ended
December 31, 1998, 1997 and 1996, respectively. The fair value of the unearned
ESOP shares at December 31, 1998 and 1997, using the quoted market closing price
per share, was approximately $2,866,000 and $4,341,000, 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, 1998 and 1997, the recognition and retention
plan expense was $232,000 and $227,000, respectively. The
Continues
41
<PAGE> 37
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 14 continued
weighted-average grant-date fair value of the restricted stock granted under
the RRP during the year ended December 31, 1998 and 1997 was $17.36 and $15.50,
respectively. 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
Granted (11,900) 11,900
Forfeited 1,600 (1,600)
Earned and Issued -- (14,639)
- - --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 25,748 68,863
</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 ten
years. The stock options granted to directors and officers are subject to 20
percent vesting per year and are exercisable upon vesting. 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 by the Company.
The following table summarizes the activity related to stock options:
<TABLE>
<CAPTION>
Weighted-
Available Options Average
for Grant Outstanding Exercise Price
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At inception - January 22, 1997 273,125 --
Granted (211,701) 211,701 $ 15.50
Canceled -- --
Exercised -- --
- - --------------------------------------------------------------------------------------------------------------------
At December 31, 1997 61,424 211,701 $ 15.50
Granted (55,000) 55,000 $ 17.26
Canceled 8,000 (8,000) $ 15.50
Exercised -- --
- - --------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998 14,424 258,701 $ 15.75
Exercisable at December 31, 1997 -0-
EXERCISABLE AT DECEMBER 31, 1998 42,340 $ 15.50
</TABLE>
The weighted-average remaining life of the outstanding options at December 31,
1998 is 8.4 years.
The weighted-average grant-date fair value of options granted during the year
ended December 31, 1998 and 1997 was $5.66 and $4.32, respectively.
Continues
42
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 continued
In October 1995, the FASB issued 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>
1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income
As reported $ 2,505,000 $ 2,947,000
Pro forma $ 2,344,000 $ 2,804,000
Earnings per share
As reported - Basic $ 1.20 $ 1.22
- Diluted $ 1.17 $ 1.20
Pro forma - Basic $ 1.12 $ 1.16
- Diluted $ 1.09 $ 1.14
</TABLE>
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
1998 and 1997 grants: dividend yields of 2.15 and 2.20 percent; expected
volatility of 27.7 and 16.91 percent; risk-free interest rate of 5.48 and 6.51
percent; and expected lives of 7.5 years for all options.
NOTE 15 - 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 (plus merit
increases) through October 31, 1999. The Company has also entered into severance
agreements with seven officers. The total commitments under the severance
agreements at December 31, 1998 was $968,000.
NOTE 16 - 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 17 - 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
Continues
43
<PAGE> 39
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 17 continued
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, 1998, financial instruments for which the Contract or Notional
contract amounts were as follows represent credit risk: Amount (in thousands)
---------------------
<S> <C>
Undisbursed Loans in Process $ 5,789
Commitments to Extend Credit $ 26,608
Standby Letters of Credit $ 79
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
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 18 - 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.
44
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - 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>
1998 1997
- - --------------------------------------------------------------------------------------------------------------------
Estimated Recorded Estimated Recorded
Fair Book Fair Book
Value Balance Value Balance
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 7,578 $ 7,578 $ 14,157 $ 14,157
Investment Securities 18,490 18,490 13,757 13,757
Mortgage-Backed Securities 24,103 23,769 30,582 30,652
Loans Receivable 229,840 225,752 212,282 212,840
LIABILITIES
Deposits:
Regular Savings, NOW Accounts,
and Money Market Deposits 59,604 59,604 49,897 49,897
Certificates of Deposit 143,416 141,043 144,358 143,525
Advances from Federal Home Loan Bank 47,374 47,228 36,628 36,628
</TABLE>
NOTE 20 - COMPREHENSIVE INCOME:
The following is a summary of the components of other comprehensive income (in
thousands):
<TABLE>
<CAPTION>
For The Years Ended December 31,
- - --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized Gain (Loss) on Securities
Available for Sale, Net $ (290) $ 101 $ (486)
Reclassification Adjustment for Net Gains
Realized in Net Income -- -- --
- - --------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (290) 101 (486)
Income Tax (Expense) Benefit Related to Other
Comprehensive Income 98 (34) 168
- - --------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income, Net of Income
Taxes $ (192) $ 67 $ (318)
</TABLE>
NOTE 21 - CONVERSION FROM MUTUAL TO STOCK ASSOCIATION:
In 1996, the Bank converted from a Louisiana-chartered mutual savings bank to a
Louisiana-chartered stock savings bank, pursuant to its Plan of Conversion. The
Company issued 2,731,250 shares of common stock at $12.00 per share. The
Company's ESOP purchased 218,500 shares, financed by a loan from the Company.
The net proceeds received from the conversion was $30,153,000. Total conversion
costs approximated $937,000.
In accordance with regulations, at the time that the Bank converted from a
mutual savings bank to a stock savings bank, the Bank established a liquidation
account in the amount of $17,697,000. The liquidation account will be
maintained for the benefit of eligible account holders and supplemental
eligible account holders who continue to maintain their accounts at the Bank
after the Conversion. The liquidation account will be reduced annually to the
extent that eligible account holders and supplemental eligible account holders
have reduced their qualifying deposits. Subsequent increases in deposits will
Continues
45
<PAGE> 41
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 21 continued
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 22 - SEGMENT INFORMATION:
The Company, through its subsidiary bank, operates in one segment - the
financial services industry. Within this segment, the Company is primarily
engaged in commercial and consumer banking and mortgage lending.
NOTE 23 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Acadiana Bancshares, Inc. (parent company)
are shown below. The parent company has no significant operating activities.
Condensed Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash in Bank $ 484 $ 8,266
Equity Securities Held for Trading 575 826
Securities Available for Sale 5,992 2,018
Investment in Subsidiary 24,383 33,652
Investment in Limited Liability Company 966 --
Other Assets 75 116
- - --------------------------------------------------------------------------------------------------------------------
Total Assets $ 32,475 $ 44,878
- - --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 301 $ 316
- - --------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 32,174 44,562
- - --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 32,475 $ 44,878
</TABLE>
Continues
46
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 23 continued
Condensed Statement of Income
(In thousands)
<TABLE>
<CAPTION>
Period from
For the Years Ended July 15, 1996 to
1998 1997 December 31, 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Income:
Dividends from Subsidiary Bank $ 12,000 $ 3,274 $ 50
Interest Income 665 659 335
Trading Account (Losses) Gains (111) 137 --
Other Losses (34) -- --
- - --------------------------------------------------------------------------------------------------------------------
Total Operating Income 12,520 4,070 385
Operating Expenses 502 411 14
- - --------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and
Decrease in Equity in Undistributed
Earnings of Subsidiary 12,018 3,659 371
Income Tax Expense 4 138 119
- - --------------------------------------------------------------------------------------------------------------------
Income Before Decrease in Equity in
Undistributed Earnings of Subsidiary 12,014 3,521 252
Decrease in Equity in Undistributed
Earnings of Subsidiary (9,509) (574) (83)
- - --------------------------------------------------------------------------------------------------------------------
Net Income $ 2,505 $ 2,947 $ 169
</TABLE>
Continues
47
<PAGE> 43
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
Note 23 continued
Condensed Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Period from
For the Years Ended July 15, 1996 to
1998 1997 December 31, 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,505 $ 2,947 $ 169
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Decrease in Equity in Net Income of Subsidiary 9,509 574 83
Provision for Deferred Income Taxes (76) 49 --
Loss from Limited Liability Company 34 -- --
Net Change in Securities Classified as Trading 251 (826) --
Decrease (Increase) in Other Assets 39 (56) (60)
Increase (Decrease) in Other Liabilities (38) (117) 124
- - --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 12,224 2,571 316
- - --------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from Calls and Maturities of
Securities Available for Sale 34,925 6,998 --
Purchase of Securities Available for Sale (38,917) (6,998) (2,000)
Purchase of Capital Stock in
Limited Liability Company (1,000) -- --
Purchase of Capital Stock of Subsidiary -- -- (15,919)
- - --------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (4,992) -- (17,919)
- - --------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Capital Contributed to Subsidiary (82) (79) (20)
Payments Received From ESOP 388 388 194
Net Proceeds From Issuance of
Common Stock -- -- 30,153
Dividends Paid to Shareholders (1,009) (901) (226)
Acquisition of Common Stock by RRP -- (1,829) --
Repurchase of Common Stock (14,311) (3,445) --
Stock Conversion Costs Incurred -- -- (937)
- - --------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by
Financing Activities (15,014) (5,866) 29,164
- - --------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash
and Cash Equivalents (7,782) (3,295) 11,561
Cash and Cash Equivalents, Beginning of Period 8,266 11,561 --
- - --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 484 $ 8,266 $ 11,561
</TABLE>
Other Disclosures:
At December 31, 1998 and 1997, the Bank owed the Company $31,000 and $56,000,
respectively for overpayment of estimated tax payments.
48
<PAGE> 44
Notes to Consolidated Financial Statements
NOTE 24 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
(In Thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
- - --------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Interest Income $ 5,307 $ 5,473 $ 5,425 $ 5,209
Total Interest Expense 2,876 3,029 3,111 2,920
- - --------------------------------------------------------------------------------------------------------------------
Net Interest Income 2,431 2,444 2,314 2,289
Provision for Loan Losses 45 45 -- --
- - --------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 2,386 2,399 2,314 2,289
Noninterest Income 384 300 164 351
Noninterest Expense 1,574 1,706 1,648 1,726
- - --------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,196 993 830 914
Income Tax Expense 432 365 310 320
- - --------------------------------------------------------------------------------------------------------------------
Net Income 764 628 520 594
Net Income per Common Share - basic $ .33 $ .28 $ .25 $ .35
Net Income per Common Share - diluted $ .32 $ .27 $ .24 $ .34
</TABLE>
(In Thousands, except per share data)
<TABLE>
<CAPTION>
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>
49
<PAGE> 45
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 are:
MAIN OFFICE BRANCH
101 West Vermilion Street, Lafayette, Louisiana 70501
NORTHSIDE BRANCH
2601 Moss Street, Lafayette, Louisiana 70501
SOUTHSIDE BRANCH
3701 Johnston Street, Lafayette, Louisiana 70503
BROADMOOR BRANCH
5301 Johnston Street, Lafayette, Louisiana 70503
NEW IBERIA BRANCH
230 West Main Street, New Iberia, Louisiana 70560
EUNICE LOAN PRODUCTION OFFICE
136 South Third Street, Eunice, Louisiana 70535
DIRECTORS
- - -------------------------------------------------------------------------------
<TABLE>
<S> <C>
AL W. BEACHAM, M.D. DON J. O'ROURKE, SR.
Urologist Architect
JOHN H. DEJEAN THOMAS S. ORTEGO
Retired Self-employed Accountant
LAWRENCE GANKENDORFF JERRY REAUX
Chairman of the Board, President and Chief Executive Officer,
Acadiana Bancshares, Inc., and Acadiana Bancshares, Inc., and
LBA Savings Bank LBA Savings Bank
JAMES J. MONTELARO KALISTE J. SALOOM, JR.
Executive Vice President - Mortgage Banking, Attorney and retired City Judge
LBA Savings Bank
WILLIAM H. MOUTON
Attorney
EXECUTIVE OFFICERS
- - -------------------------------------------------------------------------------
LAWRENCE GANKENDORFF WAYNE BARES
Chairman of the Board Senior Vice President - Commercial Lending
JERRY REAUX MARY ANNE S. BERTRAND
President and Chief Executive Officer Senior Vice President - Retail Lending
JAMES J. MONTELARO EMILE E. SOULIER, III
Executive Vice President - Mortgage Banking Vice President and Chief Financial Officer
GREGORY KING THOMAS DEBAILLON
Executive Vice President - Chief Operating Vice President - Operations
Officer
</TABLE>
50
<PAGE> 46
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 28, 1999, 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 news sources. The Company's common stock is held of record by xxx
shareholders as of March 19, 1999. Below is a table showing the high and low
sales prices of the common stock and cash dividends declared during each quarter
of 1998 and 1997.
1998
Quarter Ended High Low Dividend Declared
- - -------------------------------------------------------------------------------
March 31, 1998 $23 5/8 $21 5/8 $0.11
June 30, 1998 $25 5/8 $22 $0.11
September 30, 1998 $22 1/2 $15 1/2 $0.11
December 31, 1998 $18 3/8 $15 $0.11
1997
Quarter Ended High Low Dividend Declared
- - -------------------------------------------------------------------------------
March 31, 1997 $19 1/4 $14 7/8 $0.09
June 30, 1997 $20 $17 1/2 $0.09
Sept. 30, 1997 $22 1/4 $19 3/4 $0.09
Dec. 31, 1997 $24 3/4 $22 1/4 $0.11
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 and CFO
Phone: (318) 232-4631
Fax: (318) 269-6233
INDEPENDENT AUDITORS
Castaing, Hussey, Lolan, & Dauterive, LLP
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
51
<PAGE> 1
EXHIBIT 23
[CASTAING HUSSEY LOLAN & DAUTERIVE, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 333-64213 and 333-10647) of our report dated January 29,
1999 appearing in this Annual Report on Form 10-K of Acadiana Bancshares, Inc.
and Subsidiary for the year ended December 31, 1998.
/s/ CASTAING, HUSSEY, LOLAN & DAUTERIVE, LLP
New Iberia, Louisiana
March 29, 1999
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 844
<INT-BEARING-DEPOSITS> 6,734
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 575
<INVESTMENTS-HELD-FOR-SALE> 26,404
<INVESTMENTS-CARRYING> 12,360
<INVESTMENTS-MARKET> 12,694
<LOANS> 228,478
<ALLOWANCE> 2,726
<TOTAL-ASSETS> 282,089
<DEPOSITS> 200,647
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,040
<LONG-TERM> 47,228
0
0
<COMMON> 27
<OTHER-SE> 32,147
<TOTAL-LIABILITIES-AND-EQUITY> 282,089
<INTEREST-LOAN> 17,579
<INTEREST-INVEST> 2,723
<INTEREST-OTHER> 1,113
<INTEREST-TOTAL> 21,415
<INTEREST-DEPOSIT> 9,405
<INTEREST-EXPENSE> 11,935
<INTEREST-INCOME-NET> 9,480
<LOAN-LOSSES> 90
<SECURITIES-GAINS> (111)
<EXPENSE-OTHER> 6,655
<INCOME-PRETAX> 3,932
<INCOME-PRE-EXTRAORDINARY> 3,932
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,427
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 7.60
<LOANS-NON> 190
<LOANS-PAST> 0
<LOANS-TROUBLED> 490
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,760
<CHARGE-OFFS> (313)
<RECOVERIES> 189
<ALLOWANCE-CLOSE> 2,726
<ALLOWANCE-DOMESTIC> 2,726
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,726
</TABLE>
