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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 number 1-14364
Acadiana Bancshares, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
Louisiana 72-1317124
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer
Identification No.)
101 West Vermilion Street
Lafayette, Louisiana 70501
(Address of Principal Executive Offices) (Zip Code)
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(318) 232-4631
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of June 30, 1999, 1,559,023 shares of the Registrant's common stock
were issued and outstanding. Of that total, 217,301 shares were held by
the Registrant's Employee Stock Ownership Plan, of which 152,824 were
not committed to be released.
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ACADIANA BANCSHARES, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
(As of June 30, 1999 and December 31, 1998) 3
Consolidated Statements of Operations (For the three and six months
ended June 30, 1999 and 1998) 4
Consolidated Statements of Stockholders' Equity (For the six
months ended June 30, 1999 and 1998) 5
Consolidated Statements of Cash Flows (For the six months
ended June 30, 1999 and 1998) 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in Securities 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
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2
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ACADIANA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, except share data)
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<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Amounts Due from Banks $ 4,018 $ 844
Interest Bearing Deposits 7,351 6,734
--------- ---------
Total 11,369 7,578
Trading Securities 426 575
Securities Available for Sale, at fair value 5,449 14,995
Mortgage-Backed Securities:
Available for Sale, at fair value 17,931 11,409
Held to Maturity (fair value of $12,411 and $12,694, respectively) 12,162 12,360
Loans Receivable, net of Allowance for
Loan Losses of $2,738 and $2,726, respectively 229,746 225,752
Investment in Limited Liability Company 878 966
Federal Home Loan Bank Stock, at Cost 2,998 2,920
Real Estate Owned, Net 53 7
Premises and Equipment, Net 2,666 2,777
Accrued Interest Receivable 1,382 1,367
Other Assets 1,710 1,383
--------- ---------
TOTAL ASSETS $ 286,770 $ 282,089
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 208,635 $ 200,647
Advances from Federal Home Loan Bank 47,728 47,228
Accrued Interest Payable on Deposits 168 124
Advance Payments by Borrowers for Taxes and Insurance 524 394
Accrued and Other Liabilities 1,782 1,522
--------- ---------
TOTAL LIABILITIES 258,837 249,915
--------- ---------
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 32,230 32,192
Retained Earnings (Substantially Restricted) 21,666 20,932
Unearned Common Stock Held by ESOP (1,834) (1,965)
Unearned Common Stock Held by RRP Trust (1,188) (1,335)
Treasury Stock, at Cost; 1,172,227 shares and 910,758 shares, respectively (22,685) (17,935)
Accumulated Other Comprehensive Income (283) 258
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TOTAL STOCKHOLDERS' EQUITY 27,933 32,174
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 286,770 $ 282,089
========= =========
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3
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ACADIANA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
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For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 4,399 $ 4,433 $ 8,785 $ 8,767
Mortgage-Backed Securities 518 493 964 1,024
Investment Securities 129 187 333 413
Interest Bearing Deposits 131 360 230 576
-------- -------- -------- --------
Total interest income $ 5,177 $ 5,473 $ 10,312 $ 10,780
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits $ 2,280 $ 2,343 $ 4,537 $ 4,614
Advances from Federal Home Loan Bank 647 686 1,247 1,290
-------- -------- -------- --------
Total Interest Expense 2,927 3,029 5,784 5,904
-------- -------- -------- --------
Net Interest Income 2,250 2,444 4,528 4,876
Provision for Loan Losses -- 45 -- 90
-------- -------- -------- --------
Net Interest Income After Provision for Loan Losses 2,250 2,399 4,528 4,786
-------- -------- -------- --------
NON-INTEREST INCOME:
Loan Fees and Service Charges $ 36 $ 34 $ 68 $ 69
Servicing Fees on Loans Sold 13 12 28 23
Deposit Fees and Service Charges 226 198 445 375
Trading Account (Losses) Gains , Net 28 (45) 7 50
Gain (Loss) on Sale of Loans, Net 27 82 89 127
Loss from Investment in Limited Liability Company (43) -- (88) --
Other 25 19 51 40
-------- -------- -------- --------
Total Non-Interest Income $ 312 $ 300 $ 600 $ 684
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Salaries and Employee Benefits $ 845 $ 829 $ 1,752 $ 1,693
Occupancy 72 76 150 138
Depreciation 90 100 178 178
Net Costs of Real Estate Owned 12 (4) 24 (26)
SAIF Deposit Insurance Premium 29 30 60 59
Advertising 33 75 66 168
Bank Shares and Franchise Tax Expense 84 108 190 216
Other 496 492 961 855
-------- -------- -------- --------
Total Non-Interest Expenses $ 1,661 $ 1,706 $ 3,381 $ 3,281
-------- -------- -------- --------
Income Before Income Taxes $ 901 $ 993 $ 1,747 $ 2,189
Income Tax Expense 325 365 625 797
-------- -------- -------- --------
Net Income $ 576 $ 628 $ 1,122 $ 1,392
======== ======== ======== ========
Net Income Per Common Share - basic $ 0.41 $ 0.28 $ 0.77 $ 0.61
Net Income Per Common Share - diluted $ 0.40 $ 0.27 $ 0.75 $ 0.59
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ACADIANA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
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Retained Unearned
Additional Earnings Common
Common Paid In (Substantially Stock Held
Stock Capital Restricted) By ESOP
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<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 27 $ 32,005 $ 19,355 $ (2,228)
Comprehensive Income:
Net Income 1,392
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
Total Comprehensive Income
Common Stock Released by ESOP Trust 119 132
Common Stock Earned by Participants of
Recognition and Retention Plan Trust
Repurchase of Common Stock
Cash Dividends Declared (518)
-------- -------- -------- --------
BALANCE, JUNE 30, 1998 $ 27 $ 32,124 $ 20,229 $ (2,096)
======== ======== ======== ========
BALANCE, JANUARY 1, 1999 $ 27 $ 32,192 $ 20,932 $ (1,965)
Comprehensive Income:
Net Income 1,122
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
Total Comprehensive Income
Common Stock Released by ESOP Trust 66 131
Common Stock Earned by Participants of
Recognition and Retention Plan Trust (8)
Common Stock Issued (20)
Repurchase of Common Stock
Cash Dividends Declared (388)
-------- -------- -------- --------
BALANCE, JUNE 30, 1999 $ 27 $ 32,230 $ 21,666 $ (1,834)
======== ======== ======== ========
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<TABLE>
<CAPTION>
Unearned
Common Accumulated
Stock Other Total
Held By Treasury Comprehensive Stockholders'
RRP Trust Stock Income Equity
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ (1,602) $ (3,445) $ 450 $ 44,562
Comprehensive Income:
Net Income 1,392
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes (126) (126)
--------
Total Comprehensive Income 1,266
Common Stock Released by ESOP Trust 251
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 124 124
Repurchase of Common Stock (1,785) (1,785)
Cash Dividends Declared (518)
-------- -------- -------- --------
BALANCE, JUNE 30, 1998 $ (1,478) $ (5,230) $ 324 $ 43,900
======== ======== ======== ========
BALANCE, JANUARY 1, 1999 (1,335) $(17,935) $ 258 $ 32,174
Comprehensive Income:
Net Income 1,122
Change in Unrealized Gain (Loss)
on Securities Available for Sale,
Net of Deferred Taxes
(541) (541)
--------
Total Comprehensive Income 581
Common Stock Released by ESOP Trust 197
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 147 139
Common Stock Issued 39 19
Repurchase of Common Stock (4,789) (4,789)
Cash Dividends Declared (388)
-------- -------- -------- --------
BALANCE, JUNE 30, 1999 $ (1,188) $(22,685) $ (283) $ 27,933
======== ======== ======== ========
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5
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ACADIANA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
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For the Six Months
-------------------------
June 30, June 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,122 $ 1,392
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 189 184
Provision for deferred income taxes (32) 16
Provision for losses on loans -- 90
Compensation expense recognized on RRP 139 124
ESOP contribution 197 251
Other gains and losses, net (10) (8)
Net change in securities classified as trading 149 (89)
Loss from investment in limited liability company 88 --
Gain on sale of loans held for sale (89) (127)
Proceeds from sale of loans held for sale 8,464 10,184
Originations of loans held for sale (8,375) (10,057)
Accretion of discounts, net of premium amortization on securities (7) (24)
Amortization of deferred revenues and unearned income on loans 58 (33)
FHLB stock dividend received (78) (70)
Changes in assets and liabilities:
Increase (decrease) in accrued interest receivable (15) 22
Increase in other assets (27) (83)
Increase in accounts payable and accrued expenses 303 65
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,076 1,837
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from calls and maturities of securities available for sale 19,425 5,000
Purchases of securities available for sale (19,977) --
Principal collections on mortgage-backed securities available for sale 2,651 3,236
Principal collections on mortgage-backed securities held to maturity 310 194
Purchase of FHLB stock -- (599)
Net advances on loans (4,109) (7,723)
Purchase of premises and equipment (69) (251)
Proceeds from sale of premises and equipment 7 --
Proceeds from sale of real estate owned and other property acquired 20 274
Capital costs incurred on real estate owned and other property acquired (4) (4)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,746) 127
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand, NOW and savings deposits 3,856 6,513
Net change in time deposits 4,132 1,959
Net change in mortgage escrow funds 130 113
Proceeds from FHLB advances 46,000 13,100
Payments on FHLB advances (45,500) --
Dividends paid to shareholders (387) (524)
Common stock issued 19 --
Purchase of treasury stock (4,789) (1,785)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,461 19,376
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,791 21,340
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,578 14,157
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,369 $ 35,497
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Acquisition of real estate in settlement of loans $ 56 $ 82
Unrealized loss on securities $ (820) $ (190)
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and borrowings $ 5,722 $ 5,770
Income taxes $ 508 $ 510
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ACADIANA BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all normal, recurring adjustments,
which, in the opinion of management, are necessary for a fair presentation of
financial statements, have been included. These interim financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for Acadiana Bancshares, Inc. (the "Company") previously filed
with the Securities and Exchange Commission in the Company's Annual Report and
Form 10-K for the year ended December 31, 1998.
BUSINESS
The Company's principal business is conducted through its wholly owned
subsidiary, LBA Savings Bank, (the "Bank") which conducts business from its main
office and three branch offices, all located in Lafayette, Louisiana, one branch
office in New Iberia, Louisiana, and one loan production office in Eunice,
Louisiana. 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. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany balances and transactions have been
eliminated in consolidation.
7
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(2) LOANS RECEIVABLE
Loans receivable (in thousands) at June 30, 1999 and December 31, 1998 consisted
of the following:
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June 30, December 31,
1999 1998
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Mortgage Loans:
Single Family Residential $ 169,252 $ 168,533
Single Family Construction 9,985 11,651
Multi-family Residential 454 481
Commercial Real Estate 7,931 9,371
--------- ---------
Total Mortgage loans 187,622 190,036
--------- ---------
Commercial Business Loans 27,454 23,143
Consumer Loans 23,255 21,388
--------- ---------
Total Loans 238,331 234,567
Less:
Allowance for Loan Losses 2,738 2,726
Unearned Discounts/Deferred Premiums (29) (57)
Net Deferred Loan Origination Fees 294 357
Loans in Process 5,582 5,789
--------- ---------
Net Loans $ 229,746 $ 225,752
========= =========
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(3) EARNINGS PER SHARE
The Company adopted FAS ("Financial Accounting Standard") 128, Earnings Per
Share, as of December 31, 1997. Weighted average shares of common stock
outstanding for basic EPS excludes the weighted average shares unreleased by the
Employee Stock Ownership Plan ("ESOP") (155,530 and 177,422 shares for the
quarter ended June 30, 1999 and June 30, 1998, respectively) and the weighted
average unvested shares in the Recognition and Retention Plan ("RRP") (79,972
and 94,611 for the quarter ended June 30, 1999 and June 30, 1998, respectively).
The effect on diluted EPS of stock option shares outstanding and unvested RRP
shares are calculated using the treasury stock method. The following is a
reconcilement of the numerator and denominator for basic and diluted Earnings
Per Share:
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Three months ended Six months ended
-------------------------------- --------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
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<S> <C> <C> <C> <C>
BASIC EPS
Income available to Common Stockholders $ 576,000 $ 628,000 $1,122,000 $1,392,000
========== ========== ========== ==========
Weighted average shares of common
stock outstanding 1,405,227 2,271,520 1,465,600 2,283,076
========== ========== ========== ==========
Per-Share Amount $ 0.41 $ 0.28 $ 0.77 $ 0.61
========== ========== ========== ==========
DILUTED EPS
Effect of Dilutive Securities:
Stock Options Outstanding 27,207 61,880 26,780 58,392
Restricted Stock Grants 11,006 17,269 9,105 15,356
---------- ---------- ---------- ----------
Weighted average shares of common
stock outstanding 1,443,440 2,350,669 1,501,485 2,356,824
========== ========== ========== ==========
Per-Share Amount $ 0.40 $ 0.27 $ 0.75 $ 0.59
========== ========== ========== ==========
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This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential". Examples of forward-looking
statements include, but are not limited to, estimates with respect to the
financial condition, results of operations and business of the Company that are
subject to various factors which could cause actual results to differ materially
from the estimates. These factors include, but are not limited to, factors
relating to the Year 2000, general economic conditions, changes in interest
rates, deposit flows, loan demand, real estate values, and competition; changes
in accounting principles, or policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting the Company's operations, pricing, products and
services.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CHANGES IN FINANCIAL CONDITION
At June 30, 1999, the consolidated assets of the Company totaled $286.8
million, an increase of $4.7 million, or 1.7%, from December 31, 1998. The
primary reasons for the increase in consolidated assets were an increase in cash
and cash equivalents of $3.8 million, or 50.0%, an increase in mortgage-backed
securities available for sale of $6.5 million, or 57.2%, and an increase
9
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in loans receivable, net, of $4.0 million, or 1.8%, all of which were partially
offset by a decrease in investment securities available for sale of $9.5
million, or 63.7%. Asset growth was funded primarily by an increase in total
deposits of $8.0 million, or 4.0%, together with an increase of $500,000, or
1.1%, in advances from Federal Home Loan Bank, which were partially offset by a
decrease in total stockholders' equity of $4.2 million, or 13.2%.
Cash and cash equivalents increased $3.8 million, or 50.0%, to $11.4
million at June 30, 1999, compared with $7.6 million at December 31, 1998. Net
cash provided by (used in) operating activities, investing activities, and
financing activities amounted to $2.1 million, ($1.7) million, and $3.5 million,
respectively, for the six months ended June 30, 1999. As of June 30, 1999, cash
and cash equivalents funded 4.0% of total assets, compared with 2.7% at December
31, 1998. Nearing the end of the third quarter and during the fourth quarter of
1999, the Company plans to have sufficient cash available to meet a potential
increase in cash withdrawals related to Year 2000 concerns.
The Company owned $426,000 of trading securities as of June 30, 1999
compared with $575,000 at December 31, 1998. The Company has no intention to
increase significantly its trading securities portfolio. Trading securities are
carried at fair value.
Investment securities available for sale decreased $9.5 million, or
63.7%, to $5.4 million at June 30, 1999, compared with $15.0 million at December
31, 1998. The primary reason for such decrease was the redemption of $19.4
million of investment securities, which was partially offset by the purchase of
$10.0 million of investment securities. As of June 30, 1999, investment
securities available for sale amounted to 1.9% of assets and consisted of U.S.
Government and Federal agency obligations.
The mortgage-backed securities available for sale portfolio increased
$6.5 million, or 57.2%, to $17.9 million at June 30, 1999 as compared with $11.4
million at December 31, 1998. The increase reflects purchases of $10.0 million,
which were partially offset by normal principal repayments of $3.0 million and a
$544,000 decrease in unrealized gains on such securities. Mortgage-backed
securities available for sale amounted to 6.3% of total assets at June 30, 1999
compared with 4.0% at December 31, 1998. Mortgage-backed securities held to
maturity decreased $198,000, or 1.6%, to $12.2 million at June 30, 1999 compared
with $12.4 million at December 31, 1998. Such decrease was primarily the result
of principal repayments. Mortgage-backed securities amounted to 4.2% of total
assets at June 30, 1999 compared with 4.4% at December 31, 1998.
Loans receivable, net, increased $4.0 million, or 1.8%, to $229.7
million at June 30, 1999, compared with $225.8 million at December 31, 1998.
Commercial business loans increased $4.3 million, or 18.6%, to $27.5 million at
June 30, 1999 compared with $23.1 million at December 31, 1998. Consumer loans
increased $1.9 million, or 8.7%, to $23.3 million at June 30, 1999 compared with
$21.4 million at December 31, 1998. Partially offsetting these increases, single
family residential loans decreased $947,000, or .5%, to $179.2 million at June
30, 1999 compared with $180.2 million at December 31, 1998, together with a $1.4
million, or 15.4%, decrease in commercial real estate mortgage loans, and a
$27,000 decrease in multi-family residential mortgage loans. Loans receivable,
net, were 80.1% of total assets as of June 30, 1999 compared with 80.0% at
December 31, 1998.
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Deposits increased $8.0 million, or 4.0%, to $208.6 million at June 30,
1999, from $200.6 million at December 31, 1998. The increase in deposits is
primarily attributable to growth in the Company's new Fleur de Lis accounts,
which are interest bearing demand accounts, and to growth in certificates of
deposit accounts. Total interest-bearing demand accounts increased $7.2 million
during the six months ended June 30, 1999. Certificates of deposits increased
$4.1 million, or 2.9%, to $145.2 million at June 30, 1999 compared with $141.0
million at December 31, 1998. Partially offsetting such increases, savings
accounts decreased $2.8 million, or 14.1%, to $16.9 million at June 30, 1999
compared with $19.7 million at December 31, 1998, and non-interest bearing
demand accounts decreased $587,000. Total deposits funded 72.8% of total assets
at June 30, 1999 compared with 71.1% at December 31, 1998.
Advances from the FHLB of Dallas increased $500,000, or 1.1%, to $47.7
million at June 30, 1999 from $47.2 million at December 31, 1998. Of the
Company's total outstanding FHLB advances, $9.9 million were contractually due
within twelve months, while an additional $10.0 million were callable in August
of 1999, and quarterly thereafter. No payments are scheduled prior to the
earlier of maturity or call dates. Under an existing blanket collateral
agreement, the Company has the ability to borrow up to approximately $98.0
million from the FHLB of Dallas, which together with the current advances, would
be secured by residential mortgage loans and by Federal Home Loan Bank Stock.
Advances from the FHLB of Dallas funded 16.6% and 16.7% of assets at June 30,
1999 and December 31, 1998, respectively.
Total stockholders' equity decreased $4.2 million, or 13.2%, to $27.9
million at June 30, 1999, compared with $32.2 million at December 31, 1998. The
decrease was primarily attributable to the Company's program of repurchasing
shares of common stock for the treasury in the amount of $4.8 million during the
six months ended June 30, 1999, $388,000 in cash dividends declared on common
stock, and a decrease in accumulated other comprehensive income of $541,000, all
of which was partially offset by $1.1 million of net income, $197,000 of common
stock released by the ESOP Trust, and $139,000 of common stock earned by
participants of the Recognition and Retention Plan. The ratio of stockholders'
equity to total assets was 9.7% and 11.4% at June 30, 1999 and December 31,
1998, respectively.
RESULTS OF OPERATIONS
The Company reported net income of $576,000 for the three months ended
June 30, 1999, compared with net income of $628,000 for the three months ended
June 30, 1998. Income per common share, basic and diluted, was 41 cents and 40
cents, respectively for the quarter ended June 30, 1999, compared with 28 cents
and 27 cents, respectively, for the quarter ended June 30, 1998. While net
income decreased $52,000 in the second quarter of 1999 compared with the second
quarter of 1998, income per common share, basic and diluted, both increased 13
cents per share. Because of the fewer average number of common shares
outstanding at June 30, 1999, compared with June 30, 1998, the lower net income
produces higher earnings per share. The $52,000, or 8.3%, decrease in net income
for the quarter ended June 30, 1999 compared with the quarter ended June 30,
1998, was due primarily to a $194,000 decrease in net interest income, which was
partially offset by a $12,000 increase in non-interest income, a $45,000
decrease in the provision for loan losses, a $45,000 decrease in non-interest
expense, and a $40,000 decrease in income tax expense.
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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>
Three Months Ended June 30
----------------------------------------------------------------------
(Dollars in Thousands) 1999 1998
--------------------------------- ---------------------------------
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 $176,679 $ 3,351 7.59% $183,220 $ 3,603 7.87%
Commercial business loans 24,824 539 8.69% 17,868 427 9.56%
Consumer and other loans 22,260 509 9.15% 17,200 403 9.37%
-------- -------- -------- --------
Total loans 223,763 4,399 7.86% 218,288 4,433 8.12%
Mortgage-backed securities 31,382 518 6.60% 28,312 493 6.97%
Investment securities (1) 9,114 129 5.66% 11,988 187 6.24%
Other earning assets 11,595 131 4.52% 28,070 360 5.13%
-------- -------- -------- --------
Total interest-earning assets 275,854 5,177 7.51% 286,658 5,473 7.64%
Noninterest-earning assets 9,194 -------- 6,558 --------
-------- --------
Total Assets $285,048 $293,216
======== ========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 34,256 303 3.54% $ 22,067 171 3.10%
Savings deposits 18,109 78 1.72% 22,172 130 2.35%
Certificates of deposit 139,178 1,899 5.46% 143,723 2,042 5.68%
-------- -------- -------- --------
Total deposits 191,543 2,280 4.76% 187,962 2,343 4.99%
Advance from FHLB 50,461 647 5.13% 49,728 686 5.52%
-------- -------- -------- --------
Total interest-bearing 242,004 2,927 4.84% 237,690 3,029 5.10%
-------- --------
liabilities
Noninterest-bearing demand deposits 10,813 8,070
Other noninterest-bearing liabilities 2,711 2,706
-------- --------
Total liabilities 255,528 248,466
Stockholders' equity 29,520 44,750
-------- --------
Total liabilities and $285,048 $293,216
stockholders' equity ======== ========
Net interest-earning assets $ 33,850 $ 48,968
======== ========
Net interest income/interest rate spread $ 2,250 2.67% $ 2,444 2.54%
======== ==== ======== ====
Net interest margin 3.26% 3.41%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.99% 120.60%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------------------------------------------------
(Dollars in Thousands) 1999 1998
--------------------------------- ---------------------------------
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 $177,902 $ 6,760 7.60% $183,466 $ 7,196 7.84%
Commercial business loans 24,099 1,029 8.54% 16,684 792 9.49%
Consumer and other loans 21,794 996 9.14% 16,568 779 9.40%
-------- -------- -------- --------
Total loans 223,795 8,785 7.85% 216,718 8,767 8.09%
Mortgage-backed securities 29,004 964 6.65% 29,252 1,024 7.00%
Investment securities (1) 11,623 333 5.73% 12,976 413 6.37%
Other earning assets 10,853 230 4.24% 22,925 576 5.03%
-------- -------- -------- --------
Total interest-earning assets 275,275 10,312 7.49% 281,871 10,780 7.65%
-------- --------
Noninterest-earning assets 8,442 6,460
-------- --------
Total Assets $283,717 $288,331
======== ========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 32,864 558 3.40% $ 20,786 313 3.01%
Savings deposits 18,643 159 1.71% 22,688 254 2.24%
Certificates of deposit 140,022 3,820 5.46% 142,783 4,047 5.67%
-------- -------- -------- --------
Total deposits 191,529 4,537 4.74% 186,257 4,614 4.95%
Advance from FHLB 48,678 1,247 5.12% 46,564 1,290 5.54%
-------- -------- -------- --------
Total interest-bearing liabilities 240,207 5,784 4.82% 232,821 5,904 5.07%
-------- --------
Noninterest-bearing demand deposits 10,397 8,107
Other noninterest-bearing liabilities 2,523 2,570
-------- --------
Total liabilities 253,127 243,498
Stockholders' equity 30,590 44,833
-------- --------
Total liabilities and $283,717 $288,331
stockholders' equity ======== ========
Net interest-earning assets $ 35,068 $ 49,050
======== ========
Net interest income/interest rate spread $ 4,528 2.67% $ 4,876 2.58%
======== ==== ======== ====
Net interest margin 3.29% 3.46%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.60% 121.07%
====== ======
</TABLE>
(1) Includes FHLB stock
12
<PAGE> 13
The Company reported net income of $1.1 million for the six months
ended June 30, 1999, compared with net income of $1.4 million for the six months
ended June 30, 1998. Income per common share, basic and diluted, was 77 cents
and 75 cents, respectively for the six months ended June 30, 1999, compared with
61 cents and 59 cents, respectively, for the six months ended June 30, 1998.
While net income decreased $270,000 in the first six months of 1999 compared
with the first six months of 1998, income per common share, basic and diluted,
both increased 16 cents per share because of the fewer average number of common
shares outstanding during the six month period ended June 30, 1999, compared
with the six month period ended June 30, 1998. The $270,000, or 19.4%, decrease
in net income for the six months ended June 30, 1999 compared with the six
months ended June 30, 1998, was due primarily to a $348,000 decrease in net
interest income, an $84,000 decrease in non-interest income, and a $100,000
increase in non-interest expense which was partially offset by a $90,000
decrease in the provision for loan losses, and a $172,000 decrease in income tax
expense.
NET INTEREST INCOME
Net interest income decreased by $194,000, or 7.9%, to $2.3 million for
the three months ended June 30, 1999, compared with $2.4 million for the three
months ended June 30, 1998. Average net interest earning assets for the three
months ended June 30, decreased $15.1 million, or 30.9%, from $49.0 million at
June 30, 1998 to $33.9 million at June 30, 1999. The primary reason for the
decrease in average net interest earning assets was the Company's utilization of
its cash to fund common stock repurchases. The average net interest rate spread
increased 13 basis points for the three months ended June 30, 1999 to 2.67%
compared to 2.54% for the three months ended June 30, 1998. Although the average
yield on interest-earning assets decreased 13 basis points from 7.64% at June
30, 1998, to 7.51% for the three months ended June 30, 1999, the average cost of
interest-bearing liabilities decreased 26 basis points, from 5.10% for the three
months ended June 30, 1998 to 4.84% at June 30, 1999. Such changes in average
yields and rates primarily reflect changes in market rates of interest.
Net interest income decreased by $348,000, or 7.1%, to $4.5 million for
the six months ended June 30, 1999, compared with $4.9 million for the six
months ended June 30, 1998. Average net interest earning assets for the six
months ended June 30, decreased $14.0 million, or 28.5%, from $49.1 million at
June 30, 1998 to $35.1 million at June 30, 1999. The primary reason for the
decrease in average net interest earning assets was the Company's utilization of
its cash to fund common stock repurchases. The average net interest rate spread
increased nine basis points for the six months ended June 30, 1999 to 2.67%
compared to 2.58% for the six months ended June 30, 1998. Although the average
yield on interest-earning assets decreased 16 basis points from 7.65% at June
30, 1998, to 7.49% for the six months ended June 30, 1999, the average cost of
interest-bearing liabilities decreased 25 basis points, from 5.07% for the six
months ended June 30, 1998 to 4.82% at June 30, 1999. Such changes in average
yields and rates primarily reflect changes in market rates of interest.
INTEREST INCOME
Interest income decreased $296,000, or 5.4%, to $5.2 million for the
three months ended June 30, 1999 from $5.5 million for the three months ended
June 30, 1998. The decline in interest income
13
<PAGE> 14
resulted primarily from a decline in average interest-earning assets, compounded
by a lower overall average yield on interest-earning assets. Average
interest-earning assets decreased $10.8 million, or 3.8%, from $286.7 million at
June 30, 1998 to $275.9 million at June 30, 1999. Interest income on loans
decreased in spite of a higher level of average loans, because of a decline in
yields primarily as a result of the declining interest rate environment over the
past twelve months. Interest income from loans decreased slightly by $34,000, or
0.8%. The average balance of loans increased $5.5 million, or 2.5%, from $218.3
million for the three months ended June 30, 1998 to $223.8 million for the three
months ended June 30, 1999. The yield on loans decreased 26 basis points, from
8.12% for the quarter ended June 30, 1998 to 7.86% for the quarter ended June
30, 1999. Interest income from mortgage-backed securities increased $25,000, or
5.1%, from $493,000 for the quarter ended June 30, 1998 to $518,000 for the
quarter ended June 30, 1999. The increase in interest income from
mortgage-backed securities resulted from a higher average balance of
mortgage-backed securities, partially offset by a lower overall yield on such
securities. The average balance of mortgage-backed securities increased $3.1
million, or 10.8%, from $28.3 million for the three months ended June 30, 1998
to $31.4 million for the three months ended June 30, 1999. The average yield on
mortgage-backed securities decreased 37 basis points, from 6.97% for the quarter
ended June 30, 1998 to 6.60% for the quarter ended June 30, 1999. Interest
income from investment securities decreased because of a decline in yields
thereon, compounded by a decline in the average level of such investments.
Interest income from investment securities decreased $58,000, or 31.0%, from
$187,000 for the quarter ended June 30, 1998 to $129,000 for the quarter ended
June 30, 1999. The average balance of investment securities decreased $2.9
million, or 24.0%, from $12.0 million for the three months ended June 30, 1998
to $9.1 million for the three months ended June 30, 1999. The yield on
investment securities decreased 58 basis points, from 6.24% for the quarter
ended June 30, 1998 to 5.66% for the quarter ended June 30, 1999. Interest
income from other earning assets decreased $229,000, or 63.6%, from $360,000 for
the quarter ended June 30, 1998 to $131,000 for the quarter ended June 30, 1999.
The decline in interest income from other earning assets resulted from a lower
level of average other earning assets, compounded by a lower overall yield on
other earning assets. The average balance of other earning assets decreased
$16.5 million, or 58.7%, from $28.1 million for the three months ended June 30,
1998 to $11.6 million for the three months ended June 30, 1999. The yield on
other earning assets decreased 61 basis points, from 5.13% for the quarter ended
June 30, 1998 to 4.52% for the quarter ended June 30, 1999.
Interest income decreased $468,000, or 4.3%, to $10.3 million for the
six months ended June 30, 1999 from $10.8 million for the six months ended June
30, 1998. The decline in interest income resulted primarily from a decline in
average interest-earning assets, compounded by a lower overall average yield on
interest-earning assets. Average interest-earning assets decreased $6.6 million,
or 2.3%, from $281.9 million for the six months ended June 30, 1998 to $275.3
million for the six months ended June 30, 1999. Interest income on loans
increased slightly because of a higher level of average loans, which was
substantially offset by a decline in yields. Interest income from loans
increased slightly by $18,000, or 0.2%. The average balance of loans increased
$7.1 million, or 3.3%, from $216.7 million for the six months ended June 30,
1998 to $223.8 million for the six months ended June 30, 1999. The yield on
loans decreased 24 basis points, from 8.09% for the six months ended June 30,
1998 to 7.85% for the six months ended June 30, 1999. Interest income from
mortgage-backed securities decreased $60,000, or 5.9%, from $1.0 million for the
six months ended June 30, 1998 to $964,000 for the six months ended June 30,
1999. The decrease in interest income from mortgage-backed securities resulted
from a lower average balance of mortgage-backed securities, compounded by a
lower overall yield on such securities. The average balance of
14
<PAGE> 15
mortgage-backed securities decreased $248,000, or 0.8%, from $29.3 million for
the six months ended June 30, 1998 to $29.0 million for the six months ended
June 30, 1999. The average yield on mortgage-backed securities decreased 35
basis points, from 7.00% for the six months ended June 30, 1998 to 6.65% for the
six months ended June 30, 1999. Interest income from investment securities
decreased because of a decline in yields thereon, compounded by a decline in the
average level of such investments. Interest income from investment securities
decreased $80,000, or 19.4%, from $413,000 for the six months ended June 30,
1998 to $333,000 for the six months ended June 30, 1999. The average balance of
investment securities decreased $1.4 million, or 10.4%, from $13.0 million for
the six months ended June 30, 1998 to $11.6 million for the six months ended
June 30, 1999. The yield on investment securities decreased 64 basis points,
from 6.37% for the six months ended June 30, 1998 to 5.73% for the six months
ended June 30, 1999. Interest income from other earning assets decreased
$346,000, or 60.1%, from $576,000 for the six months ended June 30, 1998 to
$230,000 for the six months ended June 30, 1999. The decline in interest income
from other earning assets resulted from a lower level of average other earning
assets, compounded by a lower overall yield on other earning assets. The average
balance of other earning assets decreased $12.1 million, or 52.7%, from $22.9
million for the six months ended June 30, 1998 to $10.9 million for the six
months ended June 30, 1999. The yield on other earning assets decreased 79 basis
points, from 5.03% for the six months ended June 30, 1998 to 4.24% for the six
months ended June 30, 1999.
INTEREST EXPENSE
Interest expense decreased $102,000, or 3.4%, for the three months
ended June 30, 1999, compared with the three months ended June 30, 1998. A
higher average balance of deposits and advances from the Federal Home Loan Bank
(interest-bearing liabilities) was more than offset by a lower average cost of
such funds. Average interest-bearing liabilities increased $4.3 million, or
1.8%, to $242.0 million for the three months ended June 30, 1999, compared with
$237.7 million for the three months ended June 30, 1998. The cost of
interest-bearing liabilities decreased 26 basis points, from 5.10% for the three
months ended June 30, 1998 to 4.84% for the three months ended June 30, 1999.
Interest expense on deposits decreased $63,000, or 2.7%, for the three months
ended June 30, 1999, compared with the three months ended June 30, 1998. A
higher average balance in interest-bearing deposits was more than offset by a
lower average rate paid on such deposits. The average balances of
interest-bearing deposits increased $3.6 million, or 1.9%, from $188.0 million
for the three months ended June 30, 1998, to $191.5 million for the three months
ended June 30, 1999. The average cost of interest-bearing deposits decreased 23
basis points, from 4.99% for the three months ended June 30, 1998 to 4.76% for
the three months ended June 30, 1999. Interest expense on advances from the
Federal Home Loan Bank decreased $39,000, or 5.7%, from $686,000 for the three
months ended June 30, 1998 to $647,000 for the three months ended June 30, 1999.
A decrease in the cost of advances from the Federal Home Loan Bank more than
offset the cost associated with an increase in average borrowings. The average
balance of advances from the Federal Home Loan Bank increased $733,000, from
$49.7 million for the three months ended June 30, 1998 to $50.5 million for the
three months ended June 30, 1999. The average cost of borrowings from the
Federal Home Loan Bank decreased 39 basis points, from 5.52% for the three
months ended June 30, 1998 to 5.13% for the three months ended June 30, 1999.
Interest expense decreased $120,000, or 2.0%, for the six months ended
June 30, 1999, compared with the six months ended June 30, 1998. A higher
average balance of deposits and
15
<PAGE> 16
advances from the Federal Home Loan Bank (interest-bearing liabilities) was more
than offset by a lower average cost of such funds. Average interest-bearing
liabilities increased $7.4 million, or 3.2%, to $240.2 million for the six
months ended June 30, 1999, compared with $232.8 million for the six months
ended June 30, 1998. The cost of interest-bearing liabilities decreased 25 basis
points, from 5.07% for the six months ended June 30, 1998 to 4.82% for the six
months ended June 30, 1999. Interest expense on deposits decreased $77,000, or
1.7%, for the six months ended June 30, 1999, compared with the six months ended
June 30, 1998. A higher average balance in interest-bearing deposits was more
than offset by a lower cost of maintaining such deposits. The average balances
of interest-bearing deposits increased $5.3 million, or 2.8%, from $186.3
million for the six months ended June 30, 1998, to $191.5 million for the six
months ended June 30, 1999. The cost of interest-bearing deposits decreased 21
basis points, from 4.95% for the six months ended June 30, 1998 to 4.74% for the
six months ended June 30, 1999. Interest expense on advances from the Federal
Home Loan Bank decreased $43,000, or 3.3%, from $1.3 million for the six months
ended June 30, 1998 to $1.2 million for the six months ended June 30, 1999. A
decrease in the cost of advances from the Federal Home Loan Bank more than
offset the cost associated with an increase in average borrowings. The average
balance of advances from the Federal Home Loan Bank increased $2.1 million, or
4.5%, from $46.6 million for the six months ended June 30, 1998 to $48.7 million
for the six months ended June 30, 1999. The average cost of borrowings from the
Federal Home Loan Bank decreased 42 basis points, from 5.54% for the six months
ended June 30, 1998 to 5.12% for the six months ended June 30, 1999.
PROVISION FOR LOAN LOSSES
The Company made no provision for loan losses for the three months
ended June 30, 1999, compared with a $45,000 provision for loan losses for the
three months ended June 30, 1998. The Company made no provision for loan losses
for the six months ended June 30, 1999, compared with a $90,000 provision for
loan losses for the three months ended June 30, 1998. The allowance for loan
losses to total loans was 1.15%, and 1.22% at June 30, 1999, and 1998,
respectively.
The Company's non-performing assets amounted to 0.10% of total assets
at June 30, 1999 compared with 0.13% at June 30, 1998. As of June 30, 1999, no
loans were past due ninety days or more and still accruing. Non-accrual loans
amounted to $232,000, and troubled debt restructings amounted to $474,000,
respectively, as of June 30, 1999, compared with $354,000 and $503,000,
respectively, at June 30, 1998. In addition, the ratio of the Company's
allowance for loan losses to non-performing loans and troubled debt
restructurings was 387.82% at June 30, 1999 compared with 328.82% at June 30,
1998. For the six months ended June 30, 1999, loan recoveries exceeded loan
charge-offs by $12,000.
NON-INTEREST INCOME
Non-interest income increased $12,000, or 4.0%, to $312,000 for the
three months ended June 30, 1999, from $300,000 for the three months ended June
30, 1998. Absent gains and losses related to investments and sales of loans and
investments, non-interest income consists of servicing fees and charges on
loans, servicing fees and charges on deposits, and miscellaneous income. Income
from these sources increased $37,000, or 14.1%, from $263,000 for the three
months ended June 30, 1998 to $300,000 for the three months ended June 30, 1999.
Deposit fees and service
16
<PAGE> 17
charges increased $28,000, or 14.1% to $226,000 for the three months ended June
30, 1999 compared with $198,000 for the three months ended June 30, 1998. Net
gains related to investments and sales of loans and investments were $12,000 for
the three months ended June 30, 1999 compared with a gain of $37,000 for the
three months ended June 30, 1998. The Company realized a gain of $28,000 for the
three months ended June 30, 1999 compared with a loss of $45,000 from investment
securities for the three months ended June 30, 1998. The Company realized a gain
of $27,000 on the sale of fixed rate loans for the three months ended June 30,
1999 compared with an $82,000 gain for the three months ended June 30, 1998. The
Company invested in a limited liability company in the fourth quarter of 1998,
and incurred a loss on such investment of $43,000 for the three months ended
June 30, 1999.
Non-interest income decreased $84,000, or 12.3%, to $600,000 for the
six months ended June 30, 1999, from $684,000 for the six months ended June 30,
1998. Absent gains and losses related to investments and sales of loans and
investments, non-interest income consists of servicing fees and charges on
loans, servicing fees and charges on deposits, and miscellaneous income. Income
from these sources increased $85,000, or 16.8%, from $507,000 for the six months
ended June 30, 1998 to $592,000 for the six months ended June 30, 1999. Deposit
fees and service charges increased $70,000, or 18.7% to $445,000 for the six
months ended June 30, 1999 compared with $375,000 for the six months ended June
30, 1998. Net gains related to investments and sales of loans and investments
were $8,000 for the six months ended June 30, 1999 compared with a gain of
$177,000 for the six months ended June 30, 1998. The Company realized a gain of
$7,000 for the six months ended June 30, 1999 compared with a gain of $50,000
from investment securities for the six months ended June 30, 1998. The Company
realized a gain of $89,000 on the sale of fixed rate loans for the six months
ended June 30, 1999 compared with a $127,000 gain for the six months ended June
30, 1998. The Company invested in a limited liability company in the fourth
quarter of 1998, and incurred a loss on such investment of $88,000 for the six
months ended June 30, 1999.
NON-INTEREST EXPENSE
Non-interest expense decreased slightly, by $45,000, amounting to $1.7
million for each of the three months ended June 30, 1998 and 1999. Salaries and
employee benefits increased $16,000, or 1.9%, to $845,000 for the three months
ended June 30, 1999, from $829,000 for the three months ended June 30, 1998.
Occupancy expenses decreased $4,000, depreciation expense decreased $10,000, and
all other expenses decreased $47,000. Non-interest expense increased $100,000,
or 3.0%, amounting to $3.4 million for the six months ended June 30, 1999
compared with $3.3 million for the six months ended June 30, 1998. Salaries and
employee benefits increased $59,000, or 3.5%, to $1.8 million for the six months
ended June 30, 1999, from $1.7 million for the six months ended June 30, 1998.
Occupancy expenses increased $12,000, depreciation expense remained at $178,000
for both periods, and all other expenses increased $29,000.
INCOME TAX EXPENSE
Income tax expense decreased $40,000, or 11.0%, to $325,000 for the
three months ended June 30, 1999, from $365,000 for the three months ended June
30, 1998. The decrease in income tax expense relates primarily to the decrease
in taxable income, and to a slightly lower effective tax rate applied to income
before taxes. Income before taxes decreased $92,000, or 9.3%, to $901,000
17
<PAGE> 18
for the three months ended June 30, 1999, from $993,000 for the three months
ended June 30, 1998.
Income tax expense decreased $172,000, or 21.6%, to $625,000 for the six
months ended June 30, 1999, from $797,000 for the six months ended June 30,
1998. The decrease in income tax expense relates primarily to the decrease in
taxable income, and to a slightly lower effective tax rate applied to income
before taxes. Income before taxes decreased $442,000, or 20.2%, to $1.7 million
for the six months ended June 30, 1999, from $2.2 million for the six months
ended June 30, 1998.
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, and amortization, prepayments and
maturities from its loan portfolio and its held to maturity investment
securities and mortgage-backed securities portfolios, and other funds provided
from operations. While scheduled payments from the amortization of loans and
mortgage-backed securities and maturing investment securities are relatively
predictable sources of funds, deposit flows, loan prepayments, and
mortgage-backed securities prepayments are greatly influenced by general
interest rates, economic conditions and competition. Under an existing blanket
collateral agreement covering residential mortgage loans, the Company has the
ability to borrow up to approximately $98.0 million from the Federal Home Loan
Bank of Dallas ("FHLB") through its subsidiary bank. At June 30, 1999, the Bank
had $47.7 million outstanding advances from the FHLB, and no other borrowings.
In connection with possible increased liquidity needs relating to Year 2000
concerns, the Company made certain additional borrowing arrangements with the
Federal Reserve Bank of Atlanta.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Bank maintains a
strategy of investing in various lending products. The Bank uses its sources of
funds primarily to meet its ongoing commitments and maintain a portfolio of
mortgage-backed and investment securities. At June 30, 1999, the total approved
loan commitments outstanding amounted to $6.7 million and the undisbursed loans
in process totaled $8.5 million. At the same date, commitments under unused
lines of credit and standby letters of credit amounted to $10.8 million and
$4,000 respectively. Certificates of deposit scheduled to mature in one year or
less at June 30, 1999 totaled $76.1 million. Management believes that a
significant portion of maturing deposits will remain with the Bank. The Bank
anticipates that even with interest rates at lower levels than have been
experienced in recent years, which has caused a disintermediation of funds, it
will continue to have sufficient funds to meet its current commitments.
Federally insured state-chartered banks are required to maintain
minimum levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks) and (ii) a ratio of Tier 1 capital risk weighted assets of
at least 4.0% and a ratio of total capital risk weighted assets of at least
8.0%. At June 30, 1999, the Bank complied with all applicable regulatory capital
requirements.
18
<PAGE> 19
The following reflects the Bank's actual levels of regulatory capital
and applicable regulatory capital requirements at June 30, 1999.
<TABLE>
<CAPTION>
Required Actual Excess
-------------------- ---------------------- ----------------------
Percent Amount Percent Amount Percent Amount
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 leverage capital ratio 4.00% $11,129 8.37% $23,278 4.37% $12,149
Risk-based capital ratios:
Tier 1 4.00 6,398 14.55 23,278 10.55 16,880
Total 8.00 $12,797 15.81 $25,296 7.81 $12,499
</TABLE>
The Company, as a separately incorporated holding company, has no
significant operations other than serving as sole stockholder of the Bank. On an
unconsolidated basis, the Company has no paid employees. The Company's assets
consist of its investment in the Bank, the Company's loan to the Bank's ESOP and
other investments, and its sources of income consists primarily of earnings from
the investment of such funds as well as any dividends from the Bank. The
expenses incurred by the Company relate to its reporting obligations under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and related
expenses as a publicly traded company. The Bank regularly reimburses the Company
for all such expenses. Management believes that the Company has adequate
liquidity available to respond to liquidity demands.
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.
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. Several large third-party vendors provide the Company's
essential information technology
19
<PAGE> 20
("IT") systems. 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 be
less than $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 efforts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND INTEREST
RATE RISK
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 influencing the Company's asset/liability
management related activities based upon estimated market risk sensitivity,
policy limits, and overall market interest rate levels and trends.
INTEREST RATE RISK
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and
interest expense streams associated with the Company's financial instruments
also change, thereby affecting net interest income ("NII"), and the primary
component of the Company's earnings. The ability to maximize net interest income
is largely
20
<PAGE> 21
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.
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 uses additional tools to monitor potential
longer-term rate risk. More information may be found in Item 7A of the Company's
Annual Report, on Form 10-K for the year ended December 31, 1998. Management
believes that there has been no material change in the Company's interest rate
risk or market risk since December 31, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
On April 28, 1999 the Company held the annual meeting of the
stockholders for the following purposes: (1) to elect three directors
for a three-year term expiring in 2002, and until their successors are
elected and qualified; (2) to ratify the appointment by the Board of
Directors of Castaing, Hussey, Lolan & Dauterive, LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
Votes were cast as follows:
<TABLE>
<CAPTION>
-------------------------- ------------------------ ----------------------- ------------------------
1 (a) William H. Mouton 1 (b) Jerry Reaux. 1 (c ) John H. DeJean
-------------------------- ------------------------ ----------------------- ------------------------
<S> <C> <C> <C>
For 1,409,791 1,416,091 1,416,091
-------------------------- ------------------------ ----------------------- ------------------------
Withheld 19,568 13,268 13,268
-------------------------- ------------------------ ----------------------- ------------------------
Total Votes Cast 1,429,359 1,429,359 1,429,359
-------------------------- ------------------------ ----------------------- ------------------------
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
-------------------------- ------------------------
2 Castaing, Hussey,
Lolan & Dauterive, LLP
-------------------------- ------------------------
<S> <C>
For 1,427,243
-------------------------- ------------------------
Against 950
-------------------------- ------------------------
Abstain 1,166
-------------------------- ------------------------
Total Votes Cast 1,429,359
-------------------------- ------------------------
</TABLE>
The stockholders of the Company adopted each of the proposals.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Rider B
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.
27.0 Financial Data Schedule
(*) Incorporated herein by reference from the Registration
Statement on Form S-1 (Registration No. 333-1396) filed by the
Registrant with the SEC on February 15, 1996, as subsequently
amended.
(**) Incorporated herein by reference from the definitive proxy
statement, dated December 16, 1996, filed by the Registrant
with the SEC (Commission File No. 1-4364).
(***) Incorporated herein by reference from the Annual Report on
Form 10-K (File No. 1-14364) filed by the Registrant with the
SEC on March 31, 1997.
b) No Form 8-K reports were filed during the quarter.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and 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.
Date: August 12, 1999 By: /s/ GERALD G. REAUX, JR.
------------------------
Gerald G. Reaux, Jr., President and
Chief Executive Officer
Date: August 12, 1999 By: /s/ EMILE E. SOULIER
------------------------
Emile E. Soulier, III, Vice-President
and Chief Financial Officer
23
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<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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