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, 1999
OR
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______to_____________
Commission File no: 1-14364
Acadiana Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
Louisiana 72-1317124
-------------------------------- -------------------------
(State or other jurisdiction (IRS 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 22, 2000, the aggregate market value of the 1,081,185 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 353,338 shares held by all directors and executive officers of the
Registrant as a group, was approximately $16.2 million. This figure was based on
the closing sale price of $15 per share of the Registrant's Common Stock on
March 22, 2000.
Number of shares of Common Stock outstanding as of December 31, 1999: 1,494,523
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, 1999 are incorporated into Part II, Items 5 through 8 of this
Form 10-K.
(2) Portions of the definitive proxy statement for the 1999 Annual Meeting of
Stockholders to be filed within 120 days of Registrant's fiscal year end
are incorporated into Part III, Items 9 through 13 of this Form 10-K.
PART I.
In addition to historical information, this Annual Report on Form 10K
includes certain "forward-looking statements," as defined in the Securities Act
of 1933 and the Securities Exchange Act of 1934, based on current management
expectations. The Company's actual results could differ materially from those
management expectations. Such forward-looking statements include statements
regarding the Company's intentions, beliefs or current expectations as well as
the assumptions on which such statements are based. Stockholders and potential
stockholders are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. Factors that could cause future results to vary from
current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and fees. The company undertakes no obligation to update or revise any
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
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, 1999, the Company had total
assets of $305.7million, total deposits of $213.2 million, and stockholders'
equity of $27.8 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 (337) 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, 1999, the Company's net loan portfolio totaled $245.0 million, or
80.1% of the Company's assets. In addition to its lending activities, the
Company also invests in investment securities. The Company's investment
securities portfolio amounted to $38.0 million, or 12.4%, of the Company's total
assets at December 31, 1999. At December 31, 1999, the Company had total
deposits of $213.2 million, of which $61.6 million, or 28.9% consisted of core
deposits which include savings deposits, money market deposits ("MMDA"),
negotiable order of withdrawal ("NOW") and non-interest-bearing accounts. At
that same date $151.6 million, or 71.1%, consisted of certificates of deposit,
including $43.5 million of deposit accounts equal to or exceeding $100,000. The
Company does not accept broker deposits. Traditionally, the Company's principal
source of funds has come from deposits raised in the local market; however, FHLB
borrowings provide the Company with an alternative source of funds. 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, 1999, borrowings from the FHLB totaled $6.0 million of
short-term advances and $57.9 million of long-term advances. Total advances were
20.9% of total assets at December 31, 1999.
2
<PAGE>
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, 1999, stockholders'
equity totaled $27.8 million, or 9.1% 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, 1999, the Company and the
Bank significantly exceeded all applicable regulatory capital ratio
requirements.
3
<PAGE>
Lending Activities
Loan Portfolio Composition. The following table sets forth the composition
of the Company's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------ ------------------------
Percent Percent Percent
Balance of Total Balance of Total Balance of Total
-------------- ---------- ------------- ---------- ------------- ----------
(Dollars in Thousands)
Type of loan:
Mortgage Loans:
<S> <C> <C> <C> <C> <C> <C>
Single-family residential $ 179,109 73.10% $ 169,362 75.02% $ 169,694 79.72%
Construction 12,612 5.15% 12,588 5.58% 10,286 4.83%
Multi-family residential 425 0.17% 481 0.21% 546 0.26%
Commercial real estate 18,798 7.67% 16,887 7.48% 13,900 6.53%
Equity lines of credit 3,406 1.39% 2,040 0.90% 587 0.28%
-------------- ---------- ------------- ---------- ------------- ----------
Total mortgage loans 214,350 87.48% 201,358 89.19% 195,013 91.62%
Commercial business loans 18,144 7.41% 13,861 6.14% 9,821 4.61%
Consumer loans 21,803 8.90% 19,348 8.57% 15,768 7.41%
-------------- ---------- ------------- ---------- ------------- ----------
Total loans 254,297 103.79% 234,567 103.90% 220,602 103.64%
Less:
Allowance for loan losses (2,747) -1.12% (2,726) -1.21% (2,760) -1.30%
Unearned discounts 13 0.01% 57 0.03% 162 0.08%
Net deferred loan fees (235) -0.10% (357) -0.16% (535) -0.25%
Unadvanced loan funds (6,332) -2.58% (5,789) -2.56% (4,629) -2.17%
-------------- ---------- ------------- ---------- ------------- ----------
Total loans, net $ 244,996 100.00% $ 225,752 100.00% $ 212,840 100.00%
============== ========== ============= ========== ============= ==========
<CAPTION>
At December 31,
-------------------------------------------------
1996 1995
------------------------ ------------------------
Percent Percent
Balance of Total Balance of Total
------------- ---------- ------------ ----------
Type of loan:
Mortgage Loans:
<S> <C> <C> <C> <C>
Single-family residential $ 142,774 78.15% $ 127,565 80.90%
Construction 10,581 5.79% 7,597 4.82%
Multi-family residential 862 0.47% 1,202 0.76%
Commercial real estate 14,744 8.07% 13,168 8.35%
Equity lines of credit 132 0.07% - 0.00%
------------- ---------- ------------ ----------
Total mortgage loans 169,093 92.55% 149,532 94.83%
Commercial business loans 5,535 3.03% 1,358 0.86%
Consumer loans 16,727 9.15% 13,704 8.69%
------------- ---------- ------------ ----------
Total loans 191,355 104.73% 164,594 104.38%
Less:
Allowance for loan losses (2,592) -1.42% (2,329) -1.48%
Unearned discounts 331 0.18% 206 0.13%
Net deferred loan fees (471) -0.26% (488) -0.31%
Unadvanced loan funds (5,899) -3.23% (4,292) -2.72%
------------- ---------- ------------ ----------
Total loans, net $ 182,724 100.00% $ 157,691 100.00%
============= ========== ============ ==========
</TABLE>
4
<PAGE>
The Company's primary source of income is from loans. Total loans
receivable grew $19.7 million, or 8.4%, during the year ended December 31, 1999.
Changes in types of loans during 1999 are as follows: single-family residential
loans increased $9.7 million or 5.8%; construction loans grew $24,000, or 0.2%;
multi-family residential loans decreased $56,000, or 11.6%; commercial real
estate loans grew $1.9 million, or 11.3%; equity lines of credit grew $1.4
million, or 67.0%; commercial business loans grew $4.3 million, or 30.9%; and
consumer loans grew $2.5 million, or 12.7%.
Contractual Maturities. The following table sets forth the time to
contractual maturity of the Company's loan portfolio at December 31, 1999.
<TABLE>
<CAPTION>
Over One
Less than Through Five Over Five
One Year Years Years Total
--------------- --------------- ---------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Single-family residential $ 6,494 $ 34,599 $ 138,016 $ 179,109
Construction 982 171 11,459 12,612
Multi-family residential 278 57 90 425
Commercial real estate 2,661 6,856 9,281 18,798
Equity lines of credit 3,406 - - 3,406
Commercial business loans 8,748 4,736 4,660 18,144
Consumer loans 5,808 10,456 5,539 21,803
--------------- --------------- ---------------- ---------------
Total $ 28,377 $ 56,875 $ 169,045 $ 254,297
=============== =============== ================ ===============
</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.
The following table sets forth the dollar amount at December 31, 1999
of all loans contractually maturing after December 31, 2000 by fixed and
adjustable interest rates.
Fixed Adjustable
Rates Rates
--------------- ----------------
(In thousands)
Single-family residential $ 93,960 $ 78,655
Construction 11,630 -
Multi-family residential - 147
Commercial real estate 7,891 8,246
Equity lines of credit - -
Commercial business loans 5,174 4,222
Consumer loans 15,995 -
--------------- ----------------
$ 134,650 $ 91,270
=============== ================
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.
5
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans receivable, net beginning of period $ 225,752 $ 212,840 $ 182,724
Loan originations:
Single-family residential 37,154 41,007 36,800
Construction 14,704 15,306 18,982
Multi-family residential - - -
Commercial real estate 5,803 - 3,824
Commercial business loans 22,395 31,624 13,260
Consumer loans 16,642 16,664 10,762
---------------- ---------------- ----------------
Total loan originations 96,698 104,601 83,628
---------------- ---------------- ----------------
Loan reductions:
Loan sales (8,565) (19,479) (878)
Loan participation (2,471)
Principal repayments (73,417) (65,964) (53,168)
Other changes, net (1) 6,999 (6,246) 534
---------------- ---------------- ----------------
Total loan reductions (77,454) (91,689) (53,512)
---------------- ---------------- ----------------
Loans receivable, net end of period $ 244,996 $ 225,752 $ 212,840
================ ================ ================
</TABLE>
- - ------------------
(1) Includes changes in net deferred loan fees, allowance for loan losses, and
unadvanced loan funds.
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 lending 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
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 developed primarily 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, direct mail
campaigns and through existing and walk-in customers.
Applications for real estate mortgage loans, construction loans and
commercial business loans must be reviewed and approved by 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.
6
<PAGE>
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, 1999, $179.1 million, or 73.1%, 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, 1999, $98.3
million, or 54.8%, of the Company's single-family residential mortgage loans
were fixed-rate loans. At December 31, 1999, the weighted average remaining term
to maturity of the Company's fixed-rate, single-family residential mortgage
loans was approximately 19 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 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, 1999,
the weighted average remaining term to maturity of the Company's
adjustable-rate, single-family residential mortgage loans were approximately 25
years. At December 31, 1999, $81.0 million or 45.2%, of the Company's
single-family residential mortgage loans were adjustable-rate loans.
7
<PAGE>
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 Real Estate Loans and Multi-Family Residential Loans. At
December 31, 1999, the Company had $18.8 million in outstanding loans secured by
commercial real estate. Such commercial real estate loans, which comprised 7.7%
of the Company's total loan portfolio at December 31, 1999, 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, 1999, the Company had $425,000 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 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.
8
<PAGE>
Construction Loans. Substantially all of the Company's construction
loans have consisted of loans to construct single-family residences. As of
December 31, 1999, the Company's construction loans amounted to $12.6 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 only 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, 1999.
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. During the year ended December 31, 1999, the Company originated
$550,000 in such loans to builders.
Prior to making a commitment to fund a construction loan, the Company
requires an appraisal of the property by an independent state-licensed or
qualified appraiser approved by the Board of Directors. In addition, during the
term of the construction loan, an independent inspector periodically inspects
the project.
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, 1999, none of the Company's
construction loans was 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, 1999,
$21.8 million, or 8.9% 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 $16.6 million
in 1999 compared to $16.7 million and $10.8 million in 1998 and 1997,
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.
9
<PAGE>
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, 1999, $49,000, or
0.2% of the Company's total consumer loans were considered non-performing.
Commercial Business Loans. At December 31, 1999, the Company's
commercial business loans amounted to $18.1 million, or 7.4% 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 business loans by the
Company amounted to $22.4 million in 1999, compared to $31.6 million, and $13.3
million in 1998 and 1997, 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, 1999, the Company's limit on
loans-to-one borrower under LSBA was approximately $4.1 million. At December 31,
1999, the Company's five largest loans or groups of loans-to-one borrower ranged
from $1.2 million to $2.6 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 Audit Committee of the
Board of Directors reviews the classifications on at least a quarterly basis.
10
<PAGE>
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 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 $453,000 of loans deemed troubled
debt restructurings as of December 31, 1999. The interest income that would have
been recognized if those loans had been current with their original terms was
approximately $107,000 for the year ended December 31, 1999. Interest income
totaling $58,000 was included in income for the year ended December 31, 1999.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1999, 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.
11
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------
30-59 Days 60-89 Days
---------------------------- ----------------------------
Percent of Percent of
Amount Loan Category Amount Loan Category
------------ ------------- ------------ --------------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C>
Single-family residential $ 424 0.24% $ 96 0.05%
Construction - - - -
Multi-family residential - - - -
Commercial real estate 105 0.56 38 0.20
Equity lines of credit 103 3.02 - -
Commercial business loans 25 0.14 48 0.26
Consumer loans 7 0.03 1 -
------------ ------------- ------------ --------------
Total $ 664 0.26% $ 183 0.07%
============ ============= ============ ==============
</TABLE>
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.
12
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Accruing loans 90 days or more past due:
<S> <C> <C> <C> <C> <C>
Single-family residential $ - $ - $ - $ - $ -
Construction - - - - -
Multi-family residential - - - - -
Commercial real estate - - - - -
Equity lines of credit - - - - -
Commercial business loans - - - - -
Consumer loans - - - - -
---------- ---------- ---------- ---------- ----------
Total accruing loans - - - - -
---------- ---------- ---------- ---------- ----------
Non-accrual loans:
Single-family residential 33 140 285 632 527
Construction - - - - -
Multi-family residential - - - - -
Commercial real estate - - - 145 197
Equity lines of credit 18 - - - -
Commercial business loans - - - - -
Consumer loans 49 50 129 96 16
---------- ---------- ---------- ---------- ----------
Total non-accrual loans 100 190 414 873 740
---------- ---------- ---------- ---------- ----------
Total non-performing loans 100 190 414 873 740
---------- ---------- ---------- ---------- ----------
Other real estate owned, and repossessed assets - 7 204 75 845
---------- ---------- ---------- ---------- ----------
Total non-performing assets 100 197 618 948 1,585
========== ========== ========== ========== ==========
Performing troubled debt restructurings $ 453 $ 490 $ 515 $ 536 $ 878
========== ========== ========== ========== ==========
Total non-performing assets and troubled debt $ 553 $ 687 $1,133 $1,484 $2,463
========== ========== ========== ========== ==========
restructurings
Non-performing assets to total loans 0.04% 0.08% 0.29% 0.52% 0.96%
Non-performing assets to total assets 0.03 0.07 0.22 0.36 0.70
Non-performing loans to total loans 0.04 0.08 0.19 0.48 0.45
Non-performing loans to total assets 0.03 0.07 0.15 0.33 0.33
Total non-performing assets and troubled debt
restructurings to total assets 0.18 0.24 0.41 0.56 1.09
</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 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, 1999, the Company had $1.8 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 0.6% of total assets.
13
<PAGE>
Potential Problem Loans. The Company has identified a group of
residential mortgage loans which were originated during several years prior to
1996 under its discontinued program of making loans to facilitate the sale of
real estate owned, and which, at December 31, 1999, totaled $2.2 million, or
0.9%, 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 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 $994,000 at December
31, 1999, or 0.4% 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. Provisions for loan losses, which are charged against income, increase
the allowance. As shown in the table below, at December 31, 1999, the Company's
allowance for loan losses amounted to 496.75% and 1.08% 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 Company's policy for
establishing its estimated allowance for loan and lease losses is not
inconsistent with the Policy Statement.] The Policy Statement, which reflects
the position of the issuing regulatory agencies and does not necessarily
constitute GAAP, includes guidance (i) on the responsibilities of management for
the assessment and establishment of an adequate allowance and (ii) for the
agencies' examiners to use in evaluating the adequacy of such allowance and the
policies utilized to determine such allowance. The Policy Statement also sets
forth quantitative measures for the allowance with respect to assets classified
substandard and doubtful and with respect to the remaining portion of an
institution's loan portfolio. Specifically, the Policy Statement also sets forth
quantitative measures which examiners may use to determine the reasonableness of
an allowance; (i) 50% of the portfolio that is classified doubtful; (ii) 15% of
the portfolio that is classified substandard; and (iii) for the portions of the
portfolio that have not been classified (including loans designated special
mention), estimated credit losses over the upcoming 12 months based on facts and
circumstances available on the evaluation date. While the Policy Statement sets
forth this quantitative measure, such guidance is not intended as a "floor" or
"ceiling."
14
<PAGE>
The following table describes the activity related to the Company's
allowance for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ -------------- ------------ ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 2,726 $ 2,760 $ 2,592 $ 2,329 $ 1,087
Provision for loan losses - 90 180 355 1,274
Charge-offs:
Single-family residential (4) (40) (14) - (70)
Construction - - - - -
Multi-family residential - - - - (7)
Commercial real estate - - - (67) -
Equity lines of credit - - - - -
Commercial business loans (25) (169) - - -
Consumer loans (156) (104) (221) (210) (50)
------------ ------------- ------------ ------------ -------------
Total charge-offs (185) (313) (235) (277) (127)
------------ ------------- ------------ ------------ -------------
Recoveries:
Single-family residential 40 36 76 87 10
Construction - - - - -
Multi-family residential - - - - -
Commercial real estate - - 56 10 -
Equity lines of credit - - - - -
Commercial business loans 47 22 - - -
Consumer loans 119 131 91 88 85
------------ ------------- ------------ ------------ -------------
Total recoveries 206 189 223 185 95
------------ ------------- ------------ ------------ -------------
Net (charge-offs) / recoveries 21 (124) (12) (92) (32)
------------ ------------- ------------ ------------ -------------
Balance, end of period 2,747 2,726 2,760 2,592 2,329
============ ============= ============ ============ =============
Allowance for loan losses to
total non-performing loans
and troubled debt restructurings
at end of period 496.75% 396.80% 297.09% 183.96% 143.94%
============ ============= ============ ============ =============
Allowance for loan losses to
total loans at end of period 1.08% 1.16% 1.25% 1.35% 1.41%
============ ============= ============ ============ =============
Net (charge-offs) / recoveries to
average loans outstanding 0.01% -0.06% -0.01% -0.05% -0.02%
============ ============= ============ ============ =============
</TABLE>
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 impact of economic conditions on the loan portfolio taken as
a whole. Losses on loans made to consumers are reasonably predictable based on
prior loss experience and a review of current economic conditions.
15
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
Percent Percent Percent
of Loans of Loans of Loans
1999 to Gross 1998 to Gross 1997 to Gross
Amount Loans Amount Loans Amount Loans
---------------------- ----------- ---------- ----------- ----------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Single-family residential $ 992 70.43% $ 1,591 72.20% $ 1,739 76.92%
Construction 74 4.96% 80 5.37% 64 4.66%
Multi-family residential 3 0.17% 3 0.20% 5 0.25%
Commercial real estate 505 7.39% 397 7.20% 350 6.30%
Equity lines of credit 81 1.34% 31 0.87% 9 0.27%
----------- ---------- ----------- ---------- ----------- ----------
Total mortgage loans 1,655 84.29% 2,102 85.84% 2,167 88.40%
----------- ---------- ----------- ---------- ----------- ----------
Commercial business loans 737 7.14% 346 5.91% 274 4.45%
Consumer loans 355 8.57% 278 8.25% 319 7.15%
----------- ---------- ----------- ---------- ----------- ----------
Total non-mortgage loans 1,092 15.71% 624 14.16% 593 11.60%
----------- ---------- ----------- ---------- ----------- ----------
Total allowance for loans $ 2,747 100.00% $ 2,726 100.00% $ 2,760 100.00%
=========== ========== =========== ========== =========== ==========
<CAPTION>
At December 31,
---------------------------------------------
Percent Percent
of Loans of Loans
1996 to Gross 1995 to Gross
Amount Loans Amount Loans
----------- ---------- ----------- ----------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C>
Single-family residential $ 1,565 74.61% $ 1,773 77.50%
Construction 58 5.53% 22 4.62%
Multi-family residential 7 0.45% 80 0.73%
Commercial real estate 460 7.71% 331 8.00%
Equity lines of credit 2 0.07% - 0.00%
----------- ---------- ----------- ----------
Total mortgage loans 2,092 88.37% 2,206 90.85%
----------- ---------- ----------- ----------
Commercial business loans 163 2.89% 26 0.82%
Consumer loans 337 8.74% 97 8.33%
----------- ---------- ----------- ----------
Total non-mortgage loans 500 11.63% 123 9.15%
----------- ---------- ----------- ----------
Total allowance for loans $ 2,592 100.00% $ 2,329 100.00%
=========== ========== =========== ==========
</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>
Investment Activities
General. Interest and dividend income from investments in debt and
equity 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 obligations, obligations of the FHLB,
and debt of U.S. government agencies such as the Government National Mortgage
Association ("GNMA" or "Ginnie Mae"), and government-sponsored enterprises such
as the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"), and
the Federal National Mortgage Association ("FNMA" or "Fannie Mae") representing
mortgage-backed securities. The Company also invests in certain highly rated
privately issued mortgage-backed securities. Additionally, the Company holds
certain equity securities in its trading and available for sale portfolios. The
Company's objective is to use such investments to reduce interest rate risk,
provide liquidity and enhance yields on assets.
Mortgage-backed securities provide 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 servicers, 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 FHLMC, FNMA and GNMA.
The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 FHLB's 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 $240,000.
Typically mortgage-backed securities are created by pooling a group of
similar mortgages. Most mortgage-backed securities are issued with a stated
minimum principal amount, and a stated interest rate and represent a pro rata
share in the principal and interest cash flows to be received as the underlying
mortgages are repaid by the mortgagors. The interest and principal payments
representing cash flows from the underlying pool of mortgages, (i.e., fixed rate
or adjustable rate) are passed on to the certificate holder, as is prepayment
risk. The life of a mortgage-backed pass-through security thus approximates the
life of the underlying mortgages. The Company's mortgage-backed securities
portfolio includes investments in mortgage-backed securities backed by fixed
rate mortgages and adjustable rate mortgages ("ARMs"), collateralized by
single-family real estate mortgages.
17
<PAGE>
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. 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 (including CMOs) generally yield less than
the loans that underlie such securities because of their payment guarantees or
credit enhancements, which offer nominal credit risk. 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. 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.
18
<PAGE>
Trading Securities. As of December 31, 1999, the Company's trading
securities amounted to $285,000. The Company has no intention to increase its
trading securities portfolio significantly.
Securities Available for Sale. The Company's securities available for
sale amounted to $26.1 million, and $26.4 million, respectively, at December 31,
1999 and 1998. The following table sets forth certain information regarding the
Company's securities available for sale at the dates indicated. The Company's
mortgage-backed securities include interests in collateralized mortgage
obligations ("CMOs").
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------ ------------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----------- ------------ ----------- ----------- ----------- -----------
(Dollars in Thousands)
Debt securities:
<S> <C> <C> <C> <C> <C>
Commercial Paper $ - S - $ 5,992 5,992 $ - $ -
U.S. Government and
Federal Agencies 10,255 10,255 8,973 8,973 11,021 11,021
Mortgage-backed 15,780 15,780 11,409 11,409 17,846 17,846
----------- ------------ ----------- ----------- ----------- -----------
Total debt securities 26,035 26,035 26,374 26,374 28,867 28,867
Marketable equity securities 25 25 30 30 23 23
----------- ------------ ----------- ----------- ----------- -----------
Total $26,060 $26,060 $26,404 $26,404 $28,890 $28,890
=========== ============ =========== =========== =========== ===========
</TABLE>
At December 31, 1999, the Company's investments in U.S. Treasuries,
agency obligations, mortgage-backed securities, and CMOs were 1.9%, 37.5%,
40.8%, and 19.8%, respectively, of the total securities available for sale.
Securities classified as available for sale are carried at fair value.
Unrealized gains and losses on such securities are recognized as direct
increases or decreases in equity, net of applicable income taxes. At December
31, 1999, the Company had net unrealized losses of $364,000, net of deferred
taxes, with respect to its securities available-for-sale.
At December 31, 1999, the weighted average contractual maturity of the
Company's mortgage-backed securities available for sale was approximately 16.7
years, and the weighted average contractual maturity of the Company's CMOs
available for sale was approximately 28.9 years. The following table sets forth
certain other information regarding the maturities of the Company's debt
securities available for sale. Maturity distributions of mortgage-backed
securities are based on the estimated average life at the projected speed.
<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)
Debt securities:
U.S. Government and
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Agencies $ - 0.00% $10,255 6.36% $ - 0.00% $ - 0.00%
Mortgage-backed securities 97 8.51% 6,368 7.93% 2,114 6.53% 7,201 6.56%
---------- --------- ----------- --------- ---------- -------- --------- --------
Total $ 97 8.51% $16,623 6.96% $ 2,114 6.53% $7,201 6.56%
========== ========= =========== ========= ========== ======== ========= ========
</TABLE>
19
<PAGE>
Securities Held to Maturity. The Company's securities held to maturity
amounted to $11.9 million, and $12.4 million, respectively, at December 31, 1999
and 1998. The following table sets forth certain information regarding the
Company's securities held to maturity at the dates indicated. The Company's
mortgage-backed securities include interests in collateralized mortgage
obligations ("CMOs").
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------ ------------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----------- ------------ ----------- ----------- ----------- -----------
(Dollars in Thousands)
Debt securities:
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed $ 11,921 $ 11,958 $ 12,360 $ 12,694 $ 12,806 $ 12,736
=========== ============ =========== =========== =========== ===========
</TABLE>
All such mortgage-backed securities 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.
At December 31, 1999, the Company's investments in mortgage-backed
securities, and CMOs were 89.4% and 10.6%, respectively, of the total securities
held to maturity. At December 31, 1999, the weighted average contractual
maturity of the Company's mortgage-backed securities held to maturity was
approximately 24.1 years, and the weighted average contractual maturity of the
Company's CMOs held to maturity was approximately 23.3 years. The following
table sets forth certain other information regarding the maturities of the
Company's debt securities held to maturity. Maturity distributions are based on
the average life at the projected speed.
<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)
Debt securities:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed $5,657 7.11% $ 1,264 5.62% $ - 0.00% $5,000 7.06%
---------- --------- ----------- --------- ---------- -------- --------- --------
Total $5,657 7.11% $ 1,264 5.62% $ - 0.00% $5,000 7.06%
========== ========= =========== ========= ========== ======== ========= ========
</TABLE>
Federal Home Loan Bank Stock. 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, 1999, the Bank's investment in stock of the FHLB of Dallas amounted
to $3.7 million. During the year ended December 31, 1999, the Bank received
$167,000 in dividends on its FHLB stock. No ready market exists for such stock,
which is carried at par value.
Sources of Funds
General. The Company's principal source of funds for use in lending and
for other general business purposes has traditionally come from deposits
obtained through the Company's branch offices and advances from the FHLB of
Dallas. The Company also derives funds from amortization and prepayments of
outstanding loans and mortgage-related securities and from maturing investment
securities. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions.
20
<PAGE>
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 four 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.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Percent of Percent of Percent of
Total Total Total
Amount Deposits Amount Deposits Amount Deposits
---------- ---------- ---------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts $ 18,354 8.61% $ 9,023 4.47% $ 8,177 4.19%
Money market accounts 18,491 8.67% 19,364 9.60% 9,436 4.83%
Noninterest-bearing demand accounts 10,382 4.87% 12,518 6.21% 10,562 5.42%
---------- ---------- ---------- ---------- ---------- ---------
Total demand deposits 47,227 22.15% 40,905 20.28% 28,175 14.44%
---------- ---------- ---------- ---------- ---------- ---------
Savings deposits 14,364 6.74% 19,706 9.77% 23,343 11.97%
---------- ---------- ---------- ---------- ---------- ---------
Certificate of Deposit accounts:
Six months and less 35,581 16.69% 41,357 20.51% 35,802 18.36%
Over six months through one year 28,851 13.53% 36,453 18.08% 30,131 15.45%
Over one year through two years 67,029 31.44% 32,239 15.99% 25,255 12.95%
Over two years through three years 12,601 5.91% 14,199 7.04% 15,772 8.09%
Over three years through five years 7,330 3.44% 15,823 7.85% 12,400 6.36%
Over five years 229 0.10% 972 0.48% 24,165 12.38%
---------- ---------- ---------- ---------- ---------- ---------
Total certificates 151,621 71.11% 141,043 69.95% 143,525 73.59%
---------- ---------- ---------- ---------- ---------- ---------
Total Deposits $ 213,212 100.00% $ 201,654 100.00% $ 195,043 100.00%
========== ========== ========== ========== ========== =========
</TABLE>
The following table sets forth certain information relating to the
Company's deposits.
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.
21
<PAGE>
December 31,
----------------------------------------------------
1999 1998 1997
--------------- ---------------- ----------------
(Dollars in Thousands)
0.00% to 2.99% $ 83 $ 122 $ 226
3.00% to 3.99% 1,854 347 -
4.00% to 4.99% 42,260 38,636 13,474
5.00% to 5.99% 64,549 57,020 79,702
5.00% to 6.99% 33,738 32,493 34,172
7.00% to 8.99% 9,137 11,533 15,056
9.00% and over - 892 895
--------------- ---------------- ----------------
$ 151,621 $ 141,043 $ 143,525
=============== ================ ================
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,
------------------------------------------------
1999 1998 1997
-------------- -------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Total deposits, beginning of period $ 201,654 $ 195,043 $ 194,192
Net increase (decrease) before interest credited 4,771 209 (5,264)
Interest credited 6,787 6,402 6,115
-------------- -------------- ---------------
Total deposits, end of period $ 213,212 $ 201,654 $ 195,043
============== ============== ===============
</TABLE>
As of December 31, 1999, the aggregate amount of time certificates of
deposit in amounts greater than or equal to $100,000 was approximately $43.5
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>
$ 3,731 $ 4,101 $ 9,863 $ 21,577 $ 2,712 $ 1,489 $ - $ 43,473
============ ============ ============== ============ ============= ============ ======= ==========
</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.
22
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- ----------------------
Percent Percent Percent
Amount Rate Amount Rate Amount Rate
----------- --------- ---------- -------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB Advances $ 63,850 5.51% $ 47,228 5.17% $ 36,628 5.82%
=========== ========= ========== ======== =========== =========
Maximum amount outstanding
at any month-end during the period $ 63,850 $ 56,728 $ 36,628
=========== ========== ===========
Average balance outstanding
during the period $ 51,430 $ 46,277 $ 29,648
=========== ========== ===========
Weighted average interest rates on
average balance during the period 5.26% 5.47% 5.67%
========= ======== =========
</TABLE>
Advances at December 31, 1999 have maturities in future years as
follows (dollars in thousands):
(Dollars in Thousands)
Year Ending DecembeAmount
----------------------------------------------
2000 $ 6,000
2001 2,500
2003 3,100
2005 250
2008 17,000
2009 35,000
--------------
--------------
Total $ 63,850
==============
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, 1999 was $155,000. The
Company is a guarantor in the amount of $400,000 for a $1.0 million bank line of
credit to Cadence dated 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.
23
<PAGE>
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 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 80 full-time employees and 11 part-time employees as of
December 31, 1999. 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, do 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.
24
<PAGE>
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include operating a mortgage company, finance company, credit card
company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full pay-out, 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.
25
<PAGE>
Capital Requirements. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the BHCA. The Federal Reserve Board capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount consisting of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock, which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for the bulk of assets which are
typically held by a bank holding company, including multi-family residential and
commercial real estate loans, commercial business loans and consumer loans.
Single-family residential first mortgage loans which are not past-due (90 days
or more) or non-performing and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighing system, as
are certain privately-issued mortgage-backed securities representing indirect
ownership of such loans. Off-balance sheet items also are adjusted to take into
account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose
does not include goodwill and any other intangible assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies will be expected to maintain Tier I leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition. At December
31, 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.
Financial Modernization. Under the Gramm-Leach-Bliley Act enacted into
law on November 12, 1999, no company may acquire control of a savings and loan
holding company after May 4, 1999, unless the company is engaged only in
activities traditionally permitted to a multiple savings and loan holding
company or newly permitted to a financial holding company under Section 4(k) of
the Bank Holding Company Act. Existing savings and loan holding companies and
those formed pursuant to an application filed with the OTS before May 4, 1999,
may engage in any activity including non-financial or commercial activities
provided such companies control only one savings and loan association that meets
the Qualified Thrift Lender test. Corporate reorganizations are permitted, but
the transfer of grandfathered unitary thrift holding company status through
acquisition is not permitted.
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.
26
<PAGE>
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
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. During the year ended December 31, 1999, the Bank paid $120,000 in
SAIF deposit insurance premiums.
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 months to two years, as determined by
the FDIC. Management is aware of no existing circumstances that would result in
termination of the deposit insurance of the Bank.
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 a savings bank 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.
27
<PAGE>
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 capital adequacy of a bank. In addition, in August
1995, the FDIC and the other federal banking agencies published a joint policy
statement for public comment that describes the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates. Under the policy statement, the FDIC will consider
results of supervisory and internal interest rate risk models as one factor in
evaluating capital adequacy. The FDIC intends, at a future date, to incorporate
explicit minimum requirements for interest rate risk in its risk-based capital
standards through the use of a model developed from the policy statement, a
future proposed rule and the public comments received therefrom.
Activities and Investments of Insured State-Chartered Banks. The
activities and equity investments of FDIC-insured, state-chartered banks are
generally limited to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not prohibited from, among other things, (i) acquiring or retaining a
majority interest in a subsidiary, (ii) investing as a limited partner in a
partnership the sole purpose of which is direct or indirect investment in the
acquisition, rehabilitation or new construction of a qualified housing project,
provided that such limited partnership investments may not exceed 2% of the
bank's total assets, (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors', trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
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.
28
<PAGE>
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 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.
29
<PAGE>
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 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, 1999, 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, 1999, 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.
30
<PAGE>
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 1996,
1997, 1998 and 1999 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.
Item 2. Properties.
Offices and Properties
At December 31, 1999, 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, 1999.
31
<PAGE>
<TABLE>
<CAPTION>
Net Book Value of
Premises and
Owned or Equipment at Deposits at
Leased December 31, 1999 December 31, 1999
----------- -------------------- -------------------
(In Thousands)
Main Office
101 West Vermilion Street
<S> <C> <C> <C>
Lafayette, Louisiana 70501 Owned $ 1,414 $ 85,493
Branch Offices:
Northside Office
2601 Moss Street
Lafayette, Louisiana 70501 Owned 366 38,515
Southside Office
3701 Johnston Street
Lafayette, Louisiana 70503 Owned 157 43,523
Broadmoor Office
5301 Johnston Street
Lafayette, Louisiana 70503 Owned 220 33,606
New Iberia Office
230 West Main Street
New Iberia, Louisiana 70560 Owned 496 12,075
Loan Production Offices:
Eunice Loan Production Office
136 South Third Street
Eunice, Louisiana 70535 Leased 4 -
-------------------- -------------------
$ 2,657 $ 213,212
==================== ===================
</TABLE>
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 43 of the Registrant's 1999 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 1999 Annual Report.
32
<PAGE>
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 through 17 of the Registrant's 1999 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The information required herein is incorporated by reference from pages
14 through 17 of the registrant's 1999 Annual Report.
Item 8. Financial Statements and Supplementary Data.
The information required herein is incorporated by reference from pages
18 through 39 of the Registrant's 1999 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 1999 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, 1999 and 1998
Consolidated Statements of Income for the Fiscal Periods Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the
Fiscal Periods ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Fiscal Periods Ended
December 31, 1999, 1998 and 1997
Notes to consolidated Financial Statements
30
<PAGE>
(2) All schedules for which provisions is made in the applicable accounting
regulation of the SEC are omitted because of the absence of conditions
under which they are required or because the required information is
included in the consolidated financial statements and related notes
thereto.
(3) The following exhibits are filed as part of this Form 10-K and this
list includes the Exhibit Index.
EXHIBIT INDEX
3.1* Articles of Incorporation of Acadiana Bancshares, Inc.
3.2* Bylaws of Acadiana Bancshares, Inc.
4.0* Form of Stock Certificate of Acadiana Bancshares, Inc.
10.1** Stock Option Plan
10.2** 1996 Recognition and Retention Plan and Trust Agreement for Employees
and Non-Employee Directors
10.3*** Employment Agreement between 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.
10.5 Form of Amendment No. 1 to Severance Agreements
13.0 1999 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
- - -------------------
(*) 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.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACADIANA BANCSHARES, INC.
March 29, 2000 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 29, 2000
-----------------------
Gerald G. Reaux, Jr. Officer and Director
/s/ Lawrence E. Gankendorff Chairman of the Board March 29, 2000
----------------------------
Lawrence E. Gankendorff
/s/ Albert W. Beacham Director March 29, 2000
---------------------
Albert W. Beacham, M.D.
/s/ James J. Montelaro Executive Vice President March 29, 2000
----------------------- and Director
James J. Montelaro
/s/ John H. DeJean Director March 29, 2000
------------------
John H. DeJean
/s/ Thomas S. Ortego Director March 29, 2000
--------------------
Thomas S. Ortego
/s/ William H. Mouton Director March 29, 2000
---------------------
William H. Mouton
/s/ Donald J. O'Rourke, Sr. Director March 29, 2000
---------------------------
Donald J. O'Rourke, Sr.
/s/ Kaliste J. Saloom, Jr. Director March 29, 2000
--------------------------
Kaliste J. Saloom, Jr.
/s/ Emile E. Soulier, III. Vice President and Chief March 29, 2000
-------------------------
Emile E. Soulier, III Financial Officer
(principal financial and
accounting officer)
</TABLE>
35
EXHIBIT 10.5 FORM OF AMENDMENT NO. 1 TO SEVERANCE AGREEMENT
AMENDMENT NO. 1
TO THE
SEVERANCE AGREEMENT AMONG
ACADIANA BANCSHARES, INC.
LBA SAVINGS BANK
AND
EXECUTIVE
Amendment, dated as of July 16, 1999, by and between Acadiana
Bancshares, Inc., a Louisiana corporation (the "Corporation"), LBA Savings Bank,
a Louisiana chartered savings bank and a wholly owned subsidiary of the
Corporation (the "Savings Bank") and Executive (the "Executive") to the
Severance Agreement (the "Agreement"), dated as of July 15, 1996. Hereinafter,
the Corporation and the Savings Bank are referred to collectively as the
"Employers."
WHEREAS, in accordance with Section 8 of the Agreement, the Executive
and the Employers desire to revise the Agreement to provide for a one year
extension and automatic renewal for additional one year periods; and
WHEREAS, the Executive and the Employers hereto desire to amend the
Agreement in certain respects in order to reflect such revised structure.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the Executive and the Employers hereto agree as follows:
Section 11 is hereby amended in its entirety to read as follows:
"11. Term of Agreement. The term of this Agreement shall be to and
through July 15, 2000, whereupon it shall be automatically renewed on an annual
basis for additional one year periods unless the Employers give the Executive at
least 30 days prior notice in writing, that the agreement shall end at 5:00 p.m.
CST on the next succeeding July 15th following the date on which the notice is
given."
IN WITNESS WHEREOF, this Amendment has been executed by the Executive
and the Employers' respective officers thereunto duly authorized as of the date
first above written.
Attest: ACADIANA BANCSHARES, INC.
/s/ Donna H. Domec By: /s/ Gerald G. Reaux, Jr.
- - --------------------- ------------------------
Donna H. Domec Gerald G. Reaux, Jr.
President and Chief Executive Officer
Attest: LBA SAVINGS BANK.
/s/ Donna H. Domec By: /s/ Gerald G. Reaux, Jr.
- - ------------------ ------------------------
Donna H. Domec Gerald G. Reaux, Jr.
President and Chief Executive Officer
Witness:
/s/ witness By: /s/ Executive
- - ------------------ --------------------------
Executive
EXHIBIT 13
Acadiana Bancshares, Inc 1999 Annual Report
Letter to shareholders 2
Selected consolidated financial information 4
Management's discussion and analysis 5
Independent auditors' report 18
Consolidated balance sheets 19
Consolidated income statements 20
Consolidated statements of stockholders' equity 21
Consolidated statements of cash flows 22
Notes to consolidated financial statements 23
About the company 43
1
<PAGE>
Dear Fellow Shareholders:
On behalf of the directors, management and staff of our Company, we are pleased
to provide you with our 1999 Annual Report. During 1999, we made great progress
in our on-going commitment to expand our traditional thrift institution by
increasing our offerings of commercial bank products and services while
remaining dedicated to the principles of community banking. Overall, 1999 was
another successful year as we continued to grow both loan and deposit market
share. We successfully diversified our asset mix while continuing to leverage
our capital structure, which resulted in a 33% increase in basic earnings per
share.
CAPITAL LEVERAGING
We are pleased to report that during 1999 our Company successfully repurchased
an additional 325,969 shares of Company common stock in an effort to enhance
earnings per share and return on equity to our shareholders. Since going public
in July of 1996, our Company has repurchased 45.3% of the original shares sold
in connection with our initial public offering at an average price of 104% of
book value. We believe this capital investment has enhanced shareholder value
and effectively increased the ownership stake for all our current stockholders.
MORTGAGE LENDING
Our average mortgage loan assets remained stable during 1999. We maintained our
position as the dominant mortgage lender within our local market. We continue to
be committed to providing financing to support the housing needs of the people
of Acadiana. Our strategic goal is to leverage our mortgage customer base by
cross-selling additional products and services to enhance profitability.
TECHNOLOGY
During 1999, our technology efforts were focused on continuing to upgrade our
operating systems while successfully meeting the demands of the Y2K operating
environment. We are pleased to report we experienced no disruptions in our
operations during this technologically challenging time. In addition, our Bank
expanded into the internet via our newly established web site at
www.lbabank.com. We expect that our web site will serve as a platform for future
development of products and services.
COMMERCIAL BANKING
We are pleased to report a 32.2% increase in average commercial loan fundings
during 1999. We are confident that our focus on delivering quality service
supported by local decision making will continue to enhance our growth
objectives within the commercial market sector. This growth is a logical
extension of our strategy to diversify our balance sheet mix and reduce our
historic dependence on residential mortgage lending assets.
RETAIL BANKING
The average interest-bearing demand deposit balances in the Bank increased 39.7%
during the past year. Our retail Banking division also achieved a 24.4% increase
in average consumer loan fundings during 1999. This growth was due in part to
our on-going commitment to cross-selling additional products and services to new
and existing customers. We are confident we can continue our growth in consumer
loans and demand deposit market share by providing exceptional customer service.
ASSET QUALITY
Our asset quality indicators continued to improve during 1999 as evidenced by
our non-performing assets to total loans ratio of 0.04%, the lowest in our
history as a public Company. We are optimistic that continued improvement in oil
and gas commodity prices will provide a stable economic environment in which to
operate during the year 2000. We will continue to be committed to maintaining
prudent underwriting standards in managing the credit risks associated with our
lending activities.
2
<PAGE>
THE YEAR AHEAD
The coming year holds much excitement and anticipation for our Company as we
begin our Centennial year of operation. Today our Company is the largest and
strongest financial institution headquartered in Lafayette, Louisiana. We have
met the challenges of our first hundred years and we look forward to our next
century of commitment to community banking.
We thank you for your confidence in our Company and look forward to reporting
continued success in the future.
Sincerely,
/s/ L. Gankendorff /s/ Jerry Reaux
L. Gankendorff Jerry Reaux
Chairman President and Chief Executive Officer
3
<PAGE>
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,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $305,696 $282,089 $277,066 $264,374 $225,574
Cash and cash equivalents 11,922 7,578 14,157 19,784 16,481
Loans receivable, net 244,996 225,752 212,840 182,724 157,691
Trading securities 285 575 826 - -
Investment securities 37,981 38,764 41,696 55,192 43,544
Deposit accounts 213,212 201,654 195,043 194,192 207,126
Borrowings 63,850 47,228 36,628 22,250 250
Equity 27,750 32,174 44,562 47,091 17,697
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------- ------------
Selected Operating Data:
Interest income $ 21,407 $ 21,553 $ 20,464 $ 18,860 $ 17,094
Interest expense 12,195 11,935 10,860 10,762 10,134
------------ ------------ ------------ ------------- ------------
Net interest income 9,212 9,618 9,604 8,098 6,960
Provision for loan losses - 90 180 355 1,274
------------ ------------ ------------ ------------- ------------
Net interest income after provision
for loan losses 9,212 9,528 9,424 7,743 5,686
Non-interest income 994 1,059 1,033 797 683
Non-interest expense (1) (6,771) (6,655) (5,878) (7,301) (7,812)
------------ ------------ ------------ ------------- ------------
Income (loss) before taxes 3,435 3,932 4,579 1,239 (1,443)
Income tax expense (benefit) 1,229 1,427 1,632 439 (477)
------------ ------------ ------------ ------------- ------------
Net income (loss) 2,206 2,505 2,947 800 (966)
============ ============ ============ ============= ===========
Earnings per share - basic (2) $ 1.60 $ 1.20 $ 1.22 $ 0.07 N/A
Earnings per share - diluted (2) $ 1.55 $ 1.17 $ 1.20 $ 0.07 N/A
Dividends declared per share $ 0.52 $ 0.44 $ 0.38 $ 0.18 N/A
Dividend payout ratio 33.27% 37.05% 31.76% 267.46% N/A
At or For the Year Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------- ------------
Other Data:
Profitability:
Return (loss) on average assets 0.76% 0.87% 1.10% 0.32% (0.43%)
Return (loss) on average equity 7.57 6.05 6.38 2.55 (5.23)
Interest rate spread for period (3) 0.03 0.03 0.03 2.75 2.86
Net interest margin (4) 0.03 0.03 0.04 3.40 3.22
Efficiency ratio (5) 66.34 62.33 55.26 82.08 88.45
Other expenses to average assets 2.33 2.31 2.19 2.95 3.49
Capital Ratios:
Average equity to average assets 10.03 14.35 17.23 12.71 8.25
Total capital to risk-weighted assets 17.51 20.86 31.39 36.69 16.20
Asset Quality:
Non-performing assets to total assets (6) 0.03 0.07 0.22 0.36 0.70
Allowance for loan losses to total loans 1.08 1.16 1.25 1.35 1.41
Allowance for loan losses to non-performing
loans and troubled debt restructuring 496.75 396.80 297.09 183.96 143.94
</TABLE>
(1) With respect to 1997, includes $436,000 recovery of net foreclosed
assets; 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 foreclosed assets and $1.1 million of expenses of a
previously contemplated merger/conversion.
(2) 1996 earnings 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 foreclosed assets.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the financial condition and results of operations of Acadiana
Bancshares, Inc. (the "Company") and its subsidiary, LBA Savings Bank (the
"Bank") for the years ended December 31, 1997 through 1999. 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 $23.6 million, or 8.4%, from
$282.1 million at December 31, 1998, to $305.7 million at December 31, 1999. Net
loans receivable of the Company increased $19.2 million, or 8.5%, from $225.8
million at December 31, 1998, to $245.0 million at December 31, 1999. Cash and
cash equivalents increased $4.3 million, from $7.6 million at December 31, 1998,
to $11.9 million at December 31, 1999. The growth in assets was funded by a
$16.6 million net increase in advances from the Federal Home Loan Bank of Dallas
(the "FHLB"), together with an $11.6 million net increase in deposits. The
Company repurchased $6.0 million of its common stock, on the open market, during
the year ended December 31, 1999, increasing its common shares held in treasury
from 910,758 at December 31, 1998, to 1,236,727 shares at December 31, 1999.
Retained earnings increased $1.5 million, or 7.0%, from $20.9 million at
December 31, 1998, to $22.4 million at December 31, 1999.
Cash and Cash Equivalents - Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing demand deposits and cash on hand,
increased by $4.3 million, or 57.3%, to $11.9 million at December 31, 1999,
compared to $7.6 million at December 31, 1998. The increase in cash and cash
equivalents occurred primarily during the fourth quarter of 1999, intended for
meeting anticipated increased demands for cash by customers of the Bank at or
near year-end. At December 31, 1999, cash and cash equivalents amounted to 3.9%
of total assets.
Trading Securities - At December 31, 1999, the Company held equity securities
for trading of $285,000, compared to $575,000 at December 31, 1998. The Company
has no intention to increase its trading securities portfolio significantly.
Securities Available for Sale - Securities available for sale decreased
$344,000, or 1.3%, to $26.1 million at December 31, 1999, compared to $26.4
million at December 31, 1998. Securities available for sale include U.S.
Treasury notes and bonds, federal agency bonds, mortgage-backed securities
issued by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), and triple A rated private issuers, and certain equity
securities. Unrealized gains and losses on securities available for sale are
excluded from earnings and reported, net of applicable income taxes, as other
comprehensive income. At December 31, 1999, securities available for sale
amounted to 8.5% of total assets. Note 3 to the Consolidated Financial
Statements provides further information regarding the Company's securities
available for sale.
Securities Held to Maturity - Securities held to maturity decreased $439,000, or
3.6%, to $11.9 million at December 31, 1999, compared to $12.4 million at
December 31, 1998. Securities held to maturity include mortgage-backed
securities issued by GNMA, FNMA, and FHLMC. At December 31, 1999, securities
held to maturity amounted to 3.9% of total assets. Note 3 to the Consolidated
Financial Statements provides further information regarding the Company's
securities held to maturity.
5
<PAGE>
Federal Home Loan Bank Stock - Federal Home Loan Bank stock represents an equity
interest in the FHLB that does not have a readily determinable fair value (for
purposes of Federal Accounting Standards Board Statement No. 115) because its
ownership is restricted and it lacks a market. It can be sold only to the FHLB
or to another member institution. It is carried at cost. Both cash and stock
dividends are received on FHLB stock and are reported as income. The stock
dividends are redeemable at par value. At December 31, 1999, Federal Home Loan
Bank stock amounted to 1.2% of total assets.
Loans Receivable, Net - Loans receivable, net, increased $19.2 million, or 8.5%,
to $245.0 million at December 31, 1999, compared to $225.8 million at December
31, 1998. Single-family residential loans increased $9.7 million, or 5.8%, from
$169.4 million at December 31, 1998, to $179.1 million at December 31, 1999.
Construction loans remained stable at $12.6 million. Commercial real estate
loans increased $1.9 million, or 11.3%, from $16.9 million at December 31, 1998,
to $18.8 million at December 31, 1999. Equity lines of credit increased $1.4
million, or 67.0%, from $2.0 million at December 31, 1998, to $3.4 million at
December 31, 1999. Commercial business loans increased $4.3 million, or 30.9%,
from $13.9 million at December 31, 1998, to $18.1 million at December 31, 1999.
Consumer loans increased $2.5 million, or 12.7%, from $19.3 million at December
31, 1998, to $21.8 million at December 31, 1999. Total gross loans increased
$19.7 million, or 8.4%, from $234.6 million at December 31, 1998, to $254.3
million at December 31, 1999. Loans receivable, net, amounted to 80.1% of total
assets at December 31, 1999, compared to 80.0% of total assets at December 31,
1998. Note 4 to the Consolidated Financial Statements provides further
information regarding 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 1999.
Deposits - The Company's deposits increased by $11.6 million, or 5.7%, to $213.2
million at December 31, 1999, compared to $201.7 million at December 31, 1998.
Interest bearing deposits increased $13.7 million, or 7.2% while non-interest
bearing deposits decreased $2.1 million, or 17.1%. Certificates of deposit,
comprising the largest portion of interest-bearing deposits, amounted to $151.6
million at December 31, 1999. Total deposits funded 69.7% of total assets at
December 31, 1999, compared to 71.5% at December 31, 1998. Additional
information regarding deposits is provided in Note 8 to the Consolidated
Financial Statements.
Borrowings - The Company's borrowings include both short-term borrowings
(amounts maturing in one year or less from date of inception) and long-term debt
(amounts maturing more than one year from date of inception). Short-term
borrowings decreased $1.5 million, or 20.0%, from $7.5 million at December 31,
1998, to $6.0 million at December 31, 1999. Long-term debt increased $18.1
million, or 45.6%, from $39.7 million at December 31, 1998, to $57.9 million at
December 31, 1999. Total borrowings are composed of advances from the FHLB,
which increased $16.6 million, or 35.2%, to $63.9 million at December 31, 1999,
compared to $47.2 million at December 31, 1998. Borrowings at December 31, 1999,
funded 20.9% of total assets compared to 16.7% at December 31, 1998. Advances
from the FHLB have been, and are expected to continue to be, an important source
of funding for both existing assets and new asset growth. Additional information
regarding borrowings is provided in Note 9 to the Consolidated Financial
Statements.
6
<PAGE>
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, 1999, stockholders'
equity totaled $27.8 million, a decrease of $4.4 million, or 13.8%, compared to
$32.2 million at December 31, 1998. The decrease was primarily attributable to
$6.0 million of repurchases of common stock for the treasury, a $622,000
decrease in unrealized gain (loss) on securities available for sale, net of
deferred taxes, together with $734,000 of dividends declared on the Company's
common stock, all of which was partially offset by net income for the year ended
December 31, 1999, of $2.2 million, common stock released by the Company's
employee stock ownership plan (the "ESOP") trust of $408,000, and common stock
earned by participants in the Company's recognition plan (the "RRP") trust of
$290,000. Stockholders' equity funded 9.1% of assets at December 31, 1999,
compared to 11.4% at December 31, 1998. Additional information regarding
stockholders' equity is included in the Consolidated Statements of Stockholders'
Equity and Note 12 to the Consolidated Financial Statements.
Federal regulations impose minimum regulatory capital requirements on all
financial institutions with deposits insured by the Federal Deposit Insurance
Corporation (the "FDIC"), which requirements directly affect the minimum capital
levels at the Bank. The Board of Governors of the Federal Reserve System (the
"FRB") also imposes minimum regulatory capital requirements, which directly
affect the minimum capital levels at the Company. At December 31, 1999, the
capital of the Bank and the capital of the Company exceeded all minimum
regulatory requirements as shown in Note 12 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
General - The Company does not operate in more than one segment of business - it
operates within the financial services industry. The Company is primarily
engaged in residential mortgage lending, and commercial and consumer banking.
The Company reported net income of $2.2 million, $2.5 million and $2.9 million
for the years ended December 31, 1999, 1998 and 1997, respectively. The $299,000
decrease in net income in 1999 compared to 1998 was due primarily to a decrease
in net interest income of $406,000, a decrease in non-interest income of
$65,000, and an increase in non-interest expense of $116,000, all of which were
partially offset by a decrease in provision for loan losses of $90,000, and a
decrease in income tax expense of $198,000. The decline of $406,000 in net
interest income is attributed to narrower interest rate margins during 1999, as
compared to 1998; the declining net interest margin is influenced partly by the
effect of changes in market interest rates throughout much of 1999 and partly by
the increased leverage of the Company's assets. The Company increased its
leverage by increasing liabilities (deposits and borrowings) and, during the
same periods, decreasing stockholders' equity. The Company's average
interest-bearing liabilities increased from $212.1 million for the year ended
December 31, 1997, to $235.8 million for the year ended December 31, 1998, and
to $249.0 million for the year ended December 31, 1999, while average
stockholders' equity decreased from $46.2 million, to $41.4 million, to $29.1
million at December 31, 1997, 1998, and 1999, respectively.
The $442,000 decrease in net income in 1998 compared to 1997 was due primarily
to an increase in non-interest expense of $777,000, which was partially offset
by an increase in net interest income of $14,000, an increase in non-interest
income of $26,000, a decrease in provision for loan losses of $90,000, and a
decrease in income tax expense of $205,000.
Net Interest Income - Net interest income is determined by the combined effects
of interest rate spread (i.e., the difference between the yields earned on
interest-earning assets and the rates paid on interest-bearing liabilities) and
changes in the average amounts of interest-earning assets and interest-bearing
liabilities. The Company's average interest rate spread was 2.72%, 2.59%, and
2.69%, during the years ended December 31, 1999, 1998, and 1997, respectively.
Both rates (average yield on interest-bearing assets and average cost of
interest-bearing liabilities) and volumes (the average balances on
interest-bearing assets and average balances of interest-bearing liabilities)
influence net interest margin. The Company's interest rate margin (i.e., the
difference between interest income and interest expense multiplied by average
earning assets) was 3.28%, 3.41%, and 3.66%, during the years ended December 31,
1999, 1998, and 1997, respectively. The declining net interest margin in 1999
compared to 1998 was primarily the result of decreased yields earned on the
Company's loans and increases in the average balances of certificates of deposit
and borrowings, which were partially offset by increases in the average balance
of loans outstanding and decreases in the average rates paid on deposits and
borrowings. The Company's net interest income decreased $406,000, from $9.6
million for the year ended December 31, 1998, to $9.2 million for the year ended
December 31, 1999. Net changes in rates, primarily reflecting the effects of
changes in market interest rates, accounted for $188,000 of such decrease, and
net changes in volume, reflecting changes in the Company's leveraging, accounted
for $249,000 of such decrease, both of which were partially offset by an
increase in net interest income related to changes in both rate and volume of
$31,000. The Company's net interest income increased slightly by $14,000,
remaining relatively stable at $9.6 million for the years ended December 31,
1998, and 1997; however, changes in the volume component caused an increase in
net interest income of $410,000, while changes in rate component caused a
decrease of $423,000 in net interest income, and changes in the combined rate
and volume component caused an increase of $27,000 in net interest income.
7
<PAGE>
The Company's largest group of interest-earning assets is residential mortgage
loans, comprising 61.0% of total average interest-earning assets for the year
ended December 31, 1999. Market rates on residential mortgage loans are heavily
influenced by competition and on the rates of interest on longer term U.S.
Treasury Bonds, such as the 10-year and 30-year bonds. Significant changes in
longer term U.S. Government Treasury Bond rates likely translate to similar
changes in offering rates for residential mortgage loans. The Company's largest
source of funds is certificates of deposit, which funded 58.5% of total average
interest-bearing liabilities for the year ended December 31, 1999. Market rates
on certificates of deposit are heavily influenced by competition and by shorter
term U.S. Government Notes and Bonds. Significant changes in shorter term U.S.
Government Notes and Bonds may translate into somewhat similar changes in
offering rates for certificates of deposit. If longer term U.S. Government
Treasury Bond rates fall, and during the same time period, shorter term U.S.
Government Treasury Notes and Bond rates rise, the Company's net interest margin
will likely decrease.
Interest and Dividend Income - Interest and dividend income totaled $21.4
million for the year ended December 31, 1999, compared to $21.6 million for the
year ended December 31, 1998, a decrease of $146,000, or 0.7%. This decrease was
mainly due to a decrease in the Company's average interest-earning assets of
$652,000, or 0.2%, together with a three basis point (with 100 basis points
being equal to 1%) decrease in the yield earned. Interest earned on loans
increased $571,000, or 3.2%, from $17.7 million for the year ended December 31,
1998, to $18.3 million for the year ended December 31, 1999. This increase was
due to an increase in the Company's average balance of loans for the year ended
December 31, 1999, of $11.7 million, or 5.3%, which was partially offset by a 16
basis point decrease in the yield earned. Interest and dividends earned on
investment securities decreased $56,000, or 2.1%, remaining at $2.7 million for
the years ended December 31, 1998 and December 31, 1999. This decrease was due
to a 16 basis point decrease in the Company's yield earned on investment
securities for the year ended December 31, 1999, which was partially offset by
an increase in the Company's average balance of investment securities of
$117,000. Interest earned on other earning assets decreased $661,000, or 59.4%,
from $1.1 million for the year ended December 31, 1998, to $452,000 for the year
ended December 31, 1999. This decrease was due to a decrease in the Company's
average balance of other earning assets of $12.4 million, or 56.3%, from $22.1
million for the year ended December 31, 1998, to $9.6 million at December 31,
1999; it was also due to a 36 basis point decrease in the Company's average
yield earned on other earning assets.
8
<PAGE>
Interest and dividend income totaled $21.6 million for the year ended December
31, 1998, compared to $20.5 million for the year ended December 31, 1997, an
increase of $1.1 million, or 5.3%. This increase was mainly due to an increase
in the Company's average balance of interest-earning assets of $19.8 million, or
7.6%, which was partially offset by a 16 basis point decrease in the average
yield earned. Interest earned on loans increased $1.7 million, or 10.4%, from
$16.1 million for the year ended December 31, 1997, to $17.7 million for the
year ended December 31, 1998. This increase was due to an increase in the
Company's average balance of loans for the year ended December 31, 1998, of
$23.6 million, or 12.1%, which was partially offset by a 13 basis point decrease
in the average yield earned. Interest and dividends earned on investment
securities decreased $1.1 million, or 29.1%, from $3.8 million for the year
ended December 31, 1997, to $2.7 million for the year ended December 31, 1998.
This decrease was due to a $13.8 million decrease in the Company's average
balance of investment securities for the year ended December 31, 1998, together
with a 35 basis point decrease in the Company's average yield earned on
investment securities. Interest earned on other earning assets increased
$539,000, or 93.9%, from $574,000 for the year ended December 31, 1997, to $1.1
million for the year ended December 31, 1998. This increase was due to an
increase in the Company's average other earning assets of $10.1 million, from
$12.0 million for the year ended December 31, 1997, to $22.1 million for the
year ended December 31, 1998 together with a 27 basis point increase in the
Company's average yield earned on other earning assets.
Interest Expense - Interest expense increased $260,000, or 2.2%, from $11.9
million for the year ended December 31, 1998, to $12.2 million for the year
ended December 31, 1999. This increase was mainly due to an increase in the
average interest-bearing balance of liabilities, which was partially offset by a
decrease in the cost of such liabilities. The average balance of
interest-bearing liabilities increased $13.2 million, or 5.6%, from $235.8
million for the year ended December 31, 1998, to $249.0 million for the year
ended December 31, 1999, while the cost of such interest-bearing liabilities
decreased 16 basis points.
Interest expense on deposits increased $83,000, or 0.9%, from $9.4 million for
the year ended December 31, 1998, to $9.5 million for the year ended December
31, 1999. The increase was primarily due to an increase in the average balance
of interest-bearing deposits, which was partially offset by a decrease in the
cost of such deposits. The average balance of interest-bearing deposits
increased $8.1 million, or 4.2%, from $189.5 million at December 31, 1998, to
$197.6 million at December 31, 1999, while the cost of interest-bearing deposits
decreased 16 basis points. Interest expense on advances from the FHLB increased
$177,000, or 7.0%, from $2.5 million for the year ended December 31, 1998, to
$2.7 million for the year ended December 31, 1999. The primary reason for the
increase was a $5.2 million increase in the average balance of FHLB advances,
which was partially offset by a decrease in the cost of obtaining such advances
of 21 basis points.
Interest expense increased $1.1 million, or 9.9%, from $10.9 million for the
year ended December 31, 1997, to $11.9 million for the year ended December 31,
1998. This increase was mainly due to an increase in the average balance of
interest-bearing liabilities, which was partially offset by a decrease in the
cost of such liabilities. The average balance of interest-bearing liabilities
increased $23.7 million, or 11.2%, from $212.1 million for the year ended
December 31, 1997, to $235.8 million for the year ended December 31, 1998, while
the cost of such interest-bearing liabilities decreased six basis points.
9
<PAGE>
Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The
following table sets forth, for the periods indicated, information regarding (i)
the dollar amount of interest income of the 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 were actually
received.
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 were
actually received.
<TABLE>
<CAPTION>
Year Ended December 31,
- - ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1999 1998 1997
---------------------------- ------------------------------ ----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- -------
Interest-earning assets:
Loans receivable:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans $ 171,516 $ 12,976 7.57% $ 173,161 $ 13,436 7.76% $ 158,169 $ 12,452 7.87%
Commercial business loans 36,220 3,168 8.75 27,388 2,501 9.13 21,295 2,068 9.71
Consumer and other loans 22,792 2,144 9.41 18,325 1,780 9.71 15,974 1,531 9.58
--------- -------- --------- -------- --------- --------
Total loans 230,528 18,288 7.93 218,874 17,717 8.09 195,438 16,051 8.21
Mortgage-backed securities 28,903 1,948 6.74 27,478 1,910 6.74 32,711 2,329 6.74
Investment securities (1) 12,034 719 5.97 13,342 813 5.97 21,958 1,510 5.97
Investment securities (1) 40,937 2,667 6.51 40,820 2,723 6.67 54,669 3,839 7.02
Other earning assets 9,634 452 4.69 22,057 1,113 5.05 12,002 574 4.78
--------- -------- ------ --------- -------- ------ --------- --------
Total interest-earning assets 281,099 21,407 7.62 281,751 21,553 7.65 262,109 20,464 7.81
-------- --------
Noninterest-earning assets 9,375 6,691 5,975
--------- --------- ---------
Total Assets $ 290,474 $ 288,442 $ 268,084
========= ========= =========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 34,777 1,198 3.44 $ 24,891 790 3.17 $ 14,033 273 1.95
Savings deposits 17,207 300 1.74 21,529 453 2.10 23,539 510 2.17
Certificates of deposit 145,613 7,990 5.49 143,122 8,162 5.70 144,921 8,396 5.79
--------- -------- ------ --------- -------- ------ ---------
Total deposits 197,597 9,488 4.80 189,542 9,405 4.96 182,493 9,179 5.03
Borrowings 51,430 2,707 5.26 46,277 2,530 5.47 29,648 1,681 5.67
--------- -------- ------ --------- -------- ------ ---------
Total interest-bearing liabilities 249,027 12,195 4.90 235,819 11,935 5.06 212,141 10,860 5.12
--------- -------- --------
Noninterest-bearing demand deposits 10,677 9,688 8,168
Other noninterest-bearing liabilities 1,627 1,556 1,585
--------- --------- ---------
Total liabilities 261,331 247,063 221,894
Stockholders' equity 29,143 41,379 46,190
--------- --------- ---------
Total liabilities and stockholders'
equity $ 290,474 $ 288,442 $ 268,084
========= ========= =========
Net interest-earning assets $ 32,072 $ 45,932 $ 49,968
========= ========= =========
Net interest income/interest rate spread $ 9,212 2.72% $ 9,618 2.59% $ 9,604 2.69%
======== ====== ======== ====== ======== ======
Net interest margin 3.28% 3.41% 3.66%
====== ====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 112.88% 119.48% 123.55%
======== ========= ========
(1) Includes FHLB stock.
</TABLE>
10
<PAGE>
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,
---------------------------------------------------------------------------------------
1999 compared to 1998 1998 compared to 1997
-------------------------------------------- ---------------------------------------
Increase (decrease) due to Increase (decrease) due to
-------------------------------------------- ---------------------------------------
Total Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
--------- --------- -------- ---------- -------- --------- --------- ---------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $ 943 $ (354) $ (18) $ 571 $ 1,925 $ (231) $ (28) $ 1,666
Investment securities 8 (64) - (56) (973) (192) 49 (1,116)
Other earning assets (627) (78) 44 (661) 481 32 26 539
--------- --------- -------- ---------- -------- --------- --------- ---------
Total net change in income on
Interest-earning asset 324 (496) 26 (146) 1,433 (391) 47 1,089
--------- --------- -------- ---------- -------- --------- --------- ---------
Interest-bearing liabilities:
Interest-bearing deposits
Demand and savings deposits 149 95 11 255 184 223 53 460
Certificates of deposit 142 (309) (5) (172) (104) (131) 1 (234)
Advance from FHLB 282 (94) (11) 177 943 (60) (34) 849
--------- --------- -------- ---------- -------- --------- --------- ---------
Total net change in expense on
Interest-bearing liabilities 573 (308) (5) 260 1,023 32 20 1,075
--------- --------- -------- ---------- -------- --------- --------- ---------
Net change in net interest income $ (249) $ (188) $ 31 $ (406) $ 410 $ (423) $ 27 $ 14
========= ========= ======== ========== ======== ========= ========= =========
</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 any 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 no provision for
loan losses in 1999, compared to a provision of $90,000 in 1998, and $180,000 in
1997.
11
<PAGE>
At December 31, 1999, the Company's allowance for loan losses amounted to $2.7
million, or 1.1% of total loans and 496.7% of non-performing loans and troubled
debt restructurings. 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.
Non-Interest Income - For the year ended December 31, 1999, the Company reported
non-interest income of $994,000, a decrease of $65,000 from 1998. The primary
reasons for the decrease were a decrease in net gains on the sale of loans of
$144,000, and an increase in the loss from investment in a limited liability
company of $121,000. These decreases were partially offset by an increase in
customer service fees of $82,000, an increase in loan servicing fees of $3,000,
an increase in other income of $12,000, and a decrease in trading account losses
of $103,000.
For the years ended December 31, 1998, and 1997, the Company reported
non-interest income of $1.1 million and $1.0 million, respectively. During 1998,
the Company reported increases in customer service fees of $83,000, and a
$234,000 increase in gains on the sale of loans, all of which were partially
offset by a decrease in loan servicing fees of $7,000, a net difference in
trading gains and losses of $248,000, a loss from an investment in a limited
liability company of $34,000, and decrease in other income of $2,000.
Non-Interest Expense - Non-interest expense includes salaries and employee
benefits, occupancy, depreciation, data processing, net costs related to
foreclosed assets, deposit insurance premiums, advertising and marketing, bank
shares and franchise tax, and other expense items.
Non-interest expense amounted to $6.8 million for the year ended December 31,
1999, an increase of $116,000, or 1.7% compared to $6.7 million for the year
ended December 31, 1998. The primary reasons for the $116,000 increase were a
$183,000, or 5.5%, increase in salaries and employee benefits, a $57,000, or
20.4%, increase in occupancy expenses, an $82,000, or 49.7%, increase in data
processing expenses, an $18,000 increase in the net cost of foreclosed assets, a
$2,000 increase in deposit insurance premiums, and a $7,000 increase in other
expenses. All of such increases were partially offset by a decrease of $28,000
in depreciation, a decrease of $124,000 in advertising and marketing, and a
decrease of $81,000 in bank shares and franchise tax expense.
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 foreclosed assets of $8,000, 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 $22,000, or 15.4%, increase in data processing, a $71,000, or 22.0%,
increase in depreciation, a $79,000, or 22.5%, increase in bank shares and
franchise tax, and a $30,000, or 1.9%, increase in other expenses. Such
increases were partially offset by a decrease of $28,000, or 9.1%, in occupancy
expenses, a $31,000, or 9.5%, decrease in advertising and marketing, and a
$4,000, or 3.3%, decrease in deposit insurance premiums.
Income Taxes - For the years ended December 31, 1999, 1998, and 1997, the
Company incurred income tax expense of $1.2 million, $1.4 million, and $1.6
million, respectively. The Company's effective tax rate amounted to 35.8%,
36.3%, and 35.6% during 1999, 1998, and 1997, respectively. The difference
between the effective rate and the statutory tax rate is 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 10 of the Consolidated Financial Statements.
12
<PAGE>
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 securities available for sale portfolio. The Company's
primary sources of funds are deposits, borrowings, proceeds from sale of stock,
and amortization, prepayments and maturities from its loan portfolio and its
securities held to maturity portfolio, and other funds provided from operations.
While scheduled payments from the amortization of loans and securities and
maturing investment securities are relatively predictable sources of funds,
deposit flows, loan prepayments, and securities prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Company has the ability to borrow up to approximately $125.9 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, 1999, the total approved commitments to extend credit amounted to
$25.2 million. Certificates of deposit scheduled to mature in one year or less
at the same date totaled $64.4 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 are reviewed and approved annually. The Company's
actions with respect to interest rate risk and its asset/liability gap
management are taken under guidance of the Finance Committee of the Board of
Directors of the Bank, which is composed of Messrs. O'Rourke, Beacham, and
Ortego, and the Asset/Liability Management Committee ("ALCO"), which is composed
of six officers of the Bank. The Finance Committee meets jointly with the ALCO,
quarterly to 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 affecting the Company's asset/liability management related activities
based upon estimated market risk sensitivity, policy limits, and overall market
interest rate levels and trends.
13
<PAGE>
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"), which is 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,
1999, 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 $24.7 million, or 8.1%, of the
Company's total assets. The following table summarizes the anticipated
maturities or repricing of the Company's interest-rate sensitive assets and
interest-rate sensitive liabilities as of December 31, 1999, based upon the
information and assumptions set forth below:
14
<PAGE>
<TABLE>
<CAPTION>
More Than More Than
Three Months More Than Three Years
Within Three to Twelve One Year to to Five Over Five
Months Months Three Years Years Years Total
--------- ---------- ------------ ----------- --------- ---------
(Dollars in Thousands)
Interest-sensitive assets(1):
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(2) $ 35,935 $ 51,284 $ 70,224 $ 32,324 $ 55,229 $ 244,996
Investment securities(3) 11,936 - - 10,493 79 22,508
Mortgage-backed securities(4) 12,166 2,282 2,335 1,604 9,314 27,701
--------- ---------- ------------ ----------- --------- ---------
Total 60,037 53,566 72,559 44,421 64,622 295,205
--------- ---------- ------------ ----------- --------- ---------
Interest-sensitive liabilities:
Deposits:
Demand accounts(5) - - - - 18,354 18,354
Savings accounts(5) - 30 - - 14,334 14,364
Money market deposit accounts(18,491 - - - - 18,491
Certificates of deposit 20,015 44,417 79,630 6,528 1,031 151,621
Advances from FHLB 6,000 - 2,500 3,100 52,250 63,850
--------- ---------- ------------ ----------- --------- ---------
Total 44,506 44,447 82,130 9,628 85,969 266,680
--------- ---------- ------------ ----------- --------- ---------
Excess (deficiency) of interest-
sensitive assets over
interest-bearing $l15,531 $ 9,119 $ (9,571) $ 34,793 $ (21,347) $ 28,525
========= ========== ============ =========== ========= =========
Cumulative excess of
interest-sensitive assets
over interest-sensitive
liabilities $ 15,531 $ 24,650 $ 15,079 $ 49,872 $ 28,525
========= ========== ============ =========== =========
Cumulative excess of
interest-sensitive assets
over interest-sensitive
liabilities as a percent of
total assets 5.08% 8.06% 4.93% 16.31% 9.33%
========= ========== ============ =========== =========
</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 1999.
(2) Balances have been reduced for non-performing loans, which amounted to
$100,000 at December 31, 1999.
(3) Includes interest-bearing deposits and FHLB stock.
(4) Reflects estimated prepayments in the current interest rate
environment.
(5) Although the Company's demand 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 demand
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 $8.0
million, or 2.63% of 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,
1999:
15
<PAGE>
Estimated NII
Rate Change Sensitivity
------------------ ------------
+ 200 basis points - 0.11%
- 200 basis points + 0.82%
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 cash flows. While assumptions are developed based upon perceived
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to prepayment and refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes and other internal and external variables.
Furthermore, the sensitivity analysis does not reflect actions that the ALCO
might take in responding to or anticipating changes in interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
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 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. The statement was to be effective
for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
SFAS 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, which amended SFAS 133
to delay the effective date until all fiscal quarters for fiscal years beginning
after June 15, 2000. The Company currently has no derivatives and does not have
any hedging activities. The Company has not adopted SFAS 133 as of December 31,
1999. The adoption of this statement is not expected to have a material effect
on financial position and results of operations.
16
<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
In addition to historical information, this Annual Report includes certain
"forward-looking statements," as defined in the Securities Act of 1933 and the
Securities Exchange Act of 1934, based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Such forward-looking statements include statements regarding our
intentions, beliefs or current expectations as well as the assumptions on which
such statements are based. Stockholders and potential stockholders are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and fees. The Company
undertakes no obligation to update or revise any forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results over time.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Acadiana Bancshares, Inc., and Subsidiary
Lafayette, Louisiana
We have audited the accompanying consolidated balance sheets of Acadiana
Bancshares, Inc., and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated income statements, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Castaing, Hussey, Lolan & Dauterive, L L P
New Iberia, Louisiana
February 1, 2000
18
<PAGE>
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In Thousands, except share data)
Assets
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
Cash and Cash Equivalents:
<S> <C> <C>
Cash and Amounts Due from Banks $ 3,668 $ 844
Interest Bearing Demand Deposits 8,254 6,734
-------------- --------------
Total Cash and Cash Equivalents 11,922 7,578
Trading Securities 285 575
Securities Available for Sale, at Fair Value 26,060 26,404
Securities Held to Maturity (Fair Value of $11,958 and $12,694, respectively) 11,921 12,360
Federal Home Loan Bank Stock, at Cost 3,689 2,920
Loans Receivable, Net of Allowance for Loan Losses of $2,747
and $2,726, respectively 244,996 225,752
Investment in Limited Liability Company 811 966
Premises and Equipment, Net 2,657 2,777
Accrued Interest Receivable 1,543 1,367
Other Assets 1,812 1,390
-------------- --------------
Total Assets $ 305,696 $ 282,089
============== ==============
Liabilities and Stockholders' Equity
Deposits:
Non-interest Bearing $ 10,382 $ 12,518
Interest Bearing 202,830 189,136
----------- -----------
Total Deposits 213,212 201,654
Short-Term Borrowings 6,000 7,500
Accrued Interest Payable 345 304
Long-Term Debt 57,850 39,728
Accrued and Other Liabilities 539 729
-------------- --------------
Total Liabilities 277,946 249,915
-------------- --------------
Commitments and Contingencies (Notes 14 and 15)
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 32,322 32,192
Retained Earnings 22,404 20,932
Unearned Common Stock Held by ESOP Trust (1,703) (1,965)
Unearned Common Stock Held by RRP Trust (1,048) (1,335)
Accumulated Other Comprehensive Income (364) 258
Treasury Stock, at Cost; 1,236,727 and 910,758 Shares, respectively (23,888) (17,935)
-------------- --------------
Total Stockholders' Equity 27,750 32,174
-------------- --------------
Total Liabilities and Stockholders' Equity $ 305,696 $ 282,089
============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
19
<PAGE>
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
(In Thousands, except per share data)
<TABLE>
1999 1998 1997
------------- -------------- -------------
Interest and Dividend Income:
<S> <C> <C> <C>
Loans, including fees $ 18,288 $ 17,717 $ 16,051
Debt Securities 2,491 2,558 3,725
Dividends 167 154 109
Trading Account Securities 9 11 5
Interest Bearing Deposits 452 1,113 574
------------- -------------- -------------
Total Interest and Dividend Income 21,407 21,553 20,464
------------- -------------- -------------
Interest Expense:
Deposits 9,488 9,405 9,179
Borrowings 2,707 2,530 1,681
------------- -------------- -------------
Total Interest Expense 12,195 11,935 10,860
------------- -------------- -------------
Net Interest Income 9,212 9,618 9,604
Provision for Loan Losses - 90 180
------------- -------------- -------------
Net Interest Income After Provision for
Loan Losses 9,212 9,528 9,424
------------- -------------- -------------
Non-Interest Income:
Customer Service Fees 914 832 749
Loan Servicing Fees 58 55 62
Gain (Loss) on Sale of Loans, Net 89 233 (1)
Trading Account (Losses) Gains, Net (8) (111) 137
Loss from Investment in Limited Liability
Company (155) (34) -
Other 96 84 86
------------- -------------- -------------
Total Non-Interest Income 994 1,059 1,033
------------- -------------- -------------
Non-Interest Expense:
Salaries and Employee Benefits 3,521 3,338 3,144
Occupancy 337 280 308
Depreciation 365 393 322
Data Processing 247 165 143
Foreclosed Assets, net 26 8 (436)
Deposit Insurance Premium 120 118 122
Advertising 173 297 328
Bank Shares and Franchise Tax Expense 349 430 351
Other 1,633 1,626 1,596
------------- -------------- -------------
Total Non-Interest Expense 6,771 6,655 5,878
------------- -------------- -------------
Income Before Income Taxes 3,435 3,932 4,579
Income Tax Expense 1,229 1,427 1,632
------------- -------------- -------------
Net Income $ 2,206 $ 2,505 $ 2,947
============= ============== =============
Earnings Per Share - basic $ 1.60 $ 1.20 $ 1.22
============= ============== =============
Earnings Per Share - diluted $ 1.55 $ 1.17 $ 1.20
============= ============== =============
</TABLE>
The accompanying Notes to Consolidated Financial Stateements are an
integral part of these Financial Statements.
20
<PAGE>
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(In Thousands, except share data)
<TABLE>
<CAPTION>
Unearned Unearned
Common Common Accumulated Total
Additional Stock Held Stock Other Stock-
Common Paid-In Retained By ESOP Held By Comprehensive Treasury holder's
Stock Capital Earnings Trust RRP Trust Income Stock Equity
-------- ---------- -------- --------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 27 $ 31,827 $17,344 $ (2,490) $ $ 383 $ $ 47,091
Comprehensive Income:
Net Income 2,947 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 178 262 440
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
Purchase of Treasury Stock (150,000 shares) (3,445) (3,445)
Cash Dividends Declared ($.38 per share) (936) (936)
-------- ---------- -------- --------- ---------- ----------- --------- ---------
Balance, December 31, 1997 27 32,005 19,355 (2,228) (1,602) 450 (3,445) 44,562
Comprehensive Income:
Net Income 2,505 2,505
Change in Unrealized Gain (Loss) on
Securities Available for Sale, Net of
Deferred Taxes (192) (192)
---------
---------
Total Comprehensive Income 2,313
Common Stock Released by ESOP Trust 192 263 455
Common Stock Earned by Participants of
Recognition and Retention Plan Trust (5) 267 262
Purchase of Treasury Stock (760,758 shares) (14,490) (14,490)
Cash Dividends Declared ($.44 per share) (928) (928)
-------- ---------- -------- --------- ---------- ----------- --------- ---------
Balance, December 31, 1998 27 32,192 20,932 (1,965) (1,335) 258 (17,935) 32,174
Comprehensive Income:
Net Income 2,206 2,206
Change in Unrealized Gain (Loss) on
Securities Available for Sale, Net of
Deferred Taxes (622) (622)
---------
---------
Total Comprehensive Income 1,584
Common Stock Released by ESOP Trust 146 262 408
Common Stock Earned by Participants of
Recognition and Retention Plan Trust 3 287 290
Common Stock Issued (2,000 shares) (19) 39 20
Purchase of Treasury Stock (327,969 shares) (5,992) (5,992)
Cash Dividends Declared ($.52 per share) (734) (734)
-------- ---------- -------- --------- ---------- ----------- --------- ---------
Balance, December 31, 1999 $ 27 $ 32,322 $ 22,404 $ (1,703) $ (1,048) $ (364) $ (23,888)$ 27,750
======== ========== ======== ========= ========== =========== ========= =========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of these Financial Statements.
21
<PAGE>
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended
December 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
------------ ------------ -------------
Cash Flows from Operating Activities:
Net Income $ 2,206 $ 2,505 $ 2,947
------------ ------------ -------------
------------ ------------ -------------
<S> <C> <C> <C>
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization 387 410 328
Provision for Deferred Income Taxes 52 (17) 2
Provision for Losses on Loans - 90 180
Compensation Expense Recognized on RRP 271 232 227
ESOP Contribution 408 455 440
Other Gains and Losses, Net (40) (19) (427)
Net Change in Securities Classified as Trading 290 251 (826)
Loss from Investment in Limited Liability Company 155 34 -
Accretion of Discounts, Net of Premium Amortization on Securities (7) (42) (63)
Amortization of Deferred Revenues and Unearned Income on Loans 116 (13) (60)
FHLB Stock Dividend Received (166) (153) (109)
Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable (176) 49 135
(Increase) Decrease in Other Assets (164) (21) 167
(Decrease) Increase in Accounts Payable and Accrued Expenses (142) 102 (42)
------------ ------------ -------------
Total Adjustments 984 1,358 (48)
------------ ------------ -------------
Net Cash Provided by Operating Activities $ 3,190 $ 3,863 $ 2,899
------------ ------------ -------------
Cash Flows from Investing Activities:
Activity in Available for Sale Securities:
Proceeds from Calls, Maturities and Prepayments $ 24,887 $ 46,161 $ 26,368
Purchases (25,470) (43,917) (12,998)
Activity in Held to Maturity Securities:
Proceeds from Calls, Maturities and Prepayments 431 440 290
Investment in Limited Liability Company . (1,000) -
Purchase of FHLB Stock (603) (880) -
Net Advances on Loans (19,548) (13,110) (30,739)
Purchase of Premises and Equipment (240) (364) (1,301)
Proceeds from Sale of Foreclosed Assets 238 350 801
Capital Costs Incurred on Foreclosed Assets (8) (13) -
------------ ------------ -------------
Net Cash Used in Investing Activities $ (20,313) $ (12,333) $ (17,579)
------------ ------------ -------------
Cash Flows from Financing Activities:
Net Change in Deposits $ 11,558 $ 6,611 $ 850
Net Change in Short-term Borrowings (1,500) 7,500 -
Proceeds from Long-term Debt 37,500 30,100 14,378
Payments on Long-term Debt (19,378) (27,000) -
Proceeds from Issuance of Common Stock 20 - -
Dividends Paid to Shareholders (741) (1,009) (901)
Acquisition of Common Stock by RRP Trust - - (1,829)
Purchase of Treasury Stock (5,992) (14,311) (3,445)
------------ ------------ -------------
Net Cash Provided by Financing Activities $ 21,467 $ 1,891 $ 9,053
------------ ------------ -------------
Net Increase (Decrease) in Cash and Cash Equivalents $ 4,344 $ (6,579) $ (5,627)
Cash and Cash Equivalents at Beginning of Year 7,578 14,157 19,784
------------ ------------ -------------
Cash and Cash Equivalents at End of Year $ 11,922 $ 7,578 $ 14,157
============ ============ =============
Supplemental Schedule of Noncash Activities:
Acquisition of Foreclosed Assets in Settlement of Loans $ 188 $ 121 $ 503
Supplemental Disclosures:
Cash Paid For:
Interest on Deposits and Borrowings $ 12,154 $ 11,861 $ 10,779
Income Taxes $ 1,203 $ 1,465 $ 1,541
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral
part of these Financial Statements.
22
<PAGE>
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 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 assets acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowances for losses on
loans and foreclosed assets, management obtains independent appraisals for
significant properties.
Concentration of Credit Risk
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 4. The distribution of commitments to extend credit
approximates the distribution of loans outstanding.
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.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (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 income. Unrealized gains and losses on securities available for sale
are recognized in other comprehensive income net of applicable income taxes. The
cost of securities sold is recognized using the specific identification method.
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. The Company holds one private issue CMO.
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, 1999 and 1998, 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, 1999 and 1998, 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.
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.
24
<PAGE>
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
A loan is considered impaired when, based on current information and events, it
is probable that the Corporation will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's obtainable market price, or the
fair value of the collateral if the loan is collateral dependent. Large groups
of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Corporation does not separately identify individual consumer
and residential loans for impairment disclosures.
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.
Loan Servicing
Loan servicing rights are recognized on loans sold when the institution has
retained the servicing rights on the loan. The cost of servicing rights is
amortized in proportion to, and over the period of, estimated net servicing
revenues. Impairment of 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.
Premises and Equipment
Land is carried at cost. Buildings and equipment are carried at cost, less
accumulated depreciation computed on either the straight-line method or
declining balance method. Depreciation is provided over the estimated useful
lives of the respective assets, 15 to 40 years for buildings and 3 to 15 years
for furniture, fixtures and equipment.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and
are initially recorded at fair value at the date of foreclosure, establishing a
new cost basis. Subsequent to foreclosure, valuations are periodically performed
by management and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expense from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
25
<PAGE>
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. 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.
Stock Compensation Plans
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plan have no intrinsic value at the grant date, and under
Opinion No. 25 no compensation cost is recognized for them. The Company has
elected to continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided proforma disclosures of net income and earnings per share
and other disclosures, as if the fair value based method of accounting had been
applied.
Earnings Per Share
Basic earnings per share represents income available to common stockholders
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate to outstanding
stock options and unvested restricted stock, and are determined using the
treasury stock method.
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
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
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 established standards for
reporting information about a company's operating segments using a "management
approach." The statement requires that reportable segments be identified based
upon those revenue-producing components for which separate financial information
is produced internally and are subject to evaluation by the chief operating
decision maker in deciding how to allocate resources to segments. The provisions
of SFAS No. 131 were effective for 1998.
The Company has applied the provisions of SFAS No. 131 during 1999 and has
evaluated its potential operating segments against the criteria specified in the
statement. Based upon that evaluation, the Company has determined that no
operating segment disclosures are required in 1999 because of the aggregation
concepts specified in the statement.
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 was
to be effective for fiscal years beginning after June 15, 1999. In June 1999,
the FASB issued SFAS 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, which
amended SFAS 133 to delay the effective date until all fiscal quarters for
fiscal years beginning after June 15, 2000. The Company currently has no
derivatives and does not have any hedging activities. The Company has not
adopted SFAS 133 as of December 31, 1999. The adoption of this statement is not
expected to have a material effect on financial position and results of
operations.
Reclassifications
Certain reclassifications have been made to the 1997 and 1998 Consolidated
Financial Statements in order to conform to the classifications adopted for
reporting in 1999.
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, 1999 and 1998 was approximately
$423,000 and $446,000, respectively, and the Company satisfied its reserve
requirements at both dates.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES:
Securities available for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------------------ ------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
Debt securities:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Paper $ - $ - $ - $ - $ 5,992 $ - $ - $ 5,992
U.S. Government and
Federal Agencies 10,493 - (238) 10,255 8,949 25 (1) 8,973
Mortgage-backed 16,114 99 (433) 15,780 11,067 345 (3) 11,409
---------- ---------- ---------- --------- ---------- ---------- ---------- ---------
Total debt securities 26,607 99 (671) 26,008 370 (4) 26,374
Marketable equity 5 20 - 25 5 25 - 30
securities
---------- ---------- ---------- --------- ---------- ---------- ---------- ---------
Total $ 26,612 $ 119 $ (671) $ 26,060 $ 26,013 $ 395 $ (4) $26,404
========== ========== ========== ========= ========== ========== ========== =========
</TABLE>
Securities held to maturity consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------------- ------------------------------------------
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>
Mortgage-backed $ 11,921 $ 55 $ (18) $ 11,958 $ 12,360 $ 350 $ (16) $ 12,694
---------- ---------- ---------- ------- ---------- ---------- ---------- ---------
Total $ 11,921 $ 55 $ (18) $ 11,958 $ 12,360 $ 350 $ (16) $ 12,694
========== ========== ========== ======= ========== ========== ========== =========
</TABLE>
The following is a summary of maturities of debt securities as of December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
Securities Available for Sale Held to Maturity
------------------------------------ --------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- --------------- -------------- -------------
Amounts maturing in:
<S> <C> <C> <C> <C>
One year or less $ 96 $ 97 $ 5,657 $ 5,698
After one year through five years 16,852 16,623 1,264 1,260
After five years through ten years 2,263 2,114 - -
After ten years 7,396 7,201 5,000 5,000
----------------- --------------- -------------- -------------
Total debt securities $ 26,607 $ 26,035 $ 11,921 $ 11,958
================= =============== ============== =============
</TABLE>
Securities other than mortgage-backed securities are classified according to
their contractual maturity without consideration of call features. Accordingly,
actual maturities may differ from contractual maturities. Maturity distributions
of mortgage-backed securities are based on the average life at the projected
speed.
During 1999, 1998 and 1997, proceeds from calls and maturities of securities
available for sale were NOTES TO CONSOLIDATED FINANCIAL STATEMENTS approximately
$19,925,000, $39,925,000, and $22,498,000 respectively, resulting in no realized
gain or loss. During 1999, 1998 and 1997, no securities available for sale were
sold.
28
<PAGE>
Investment securities with a carrying amount and fair value of approximately
$5,433,000 and $511,000 at December 31, 1999 and 1998, respectively, were
pledged to secure deposits and for other purposes as required or permitted by
law.
NOTE 4 - LOANS RECEIVABLE:
Loans Receivable at December 31, 1999 and 1998 are summarized as follows (in
thousands):
1999 1998
-------------- ------------
Mortgage Loans:
Single-Family Residential $ 179,109 $ 169,362
Construction 12,612 12,588
Multi-Family Residential 425 481
Commercial Real Estate 18,798 16,887
Equity Lines of Credit 3,406 2,040
------------- --------------
Total Mortgage Loans 214,350 201,358
Commercial Business Loans 18,144 13,861
Consumer Loans 21,803 19,348
-------------- ---------------
Total Loans 254,297 234,567
Less:
Allowance for Loan Losses (2,747) (2,726)
Net Deferred Loan Fees (222) (300)
Unadvanced Loan Funds (6,332) (5,789)
-------------- --------------
Loans, net $ 244,996 $ 225,752
============== ==============
At December 31, 1999 and 1998, the Company's loan portfolio included
$106,767,000 and $113,691,000 in adjustable-rate loans, respectively.
The following is an analysis of the allowance for possible loan losses for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Balance, Beginning $ 2,726 $ 2,760 $ 2,592
Provision Charged to Income - 90 180
Loans Charged Off (185) (313) (235)
Loans Recovered 206 189 223
----------- ------------ -----------
Balance, Ending $ 2,747 $ 2,726 $ 2,760
=========== ============ ===========
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LOAN SERVICING:
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of loans serviced for others was
$20,841,000 and $23,346,000 at December 31, 1999 and 1998, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $207,000 and $367,000 at December 31, 1999 and
1998, respectively. Loan servicing rights of $8,000 and $91,000 were capitalized
in 1999 and 1998, respectively. Amortization of loan servicing rights was
$22,000, $17,000, and $6,000 in 1999, 1998 and 1997, respectively, and the
balance of loan servicing rights at December 31, 1999 and 1998 was $87,000 and
$101,000, respectively.
NOTE 6 - INVESTMENT IN LIMITED LIABILITY COMPANY:
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 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 7 - PREMISES AND EQUIPMENT:
Premises and equipment at December 31 is as follows (in thousands):
1999 1998
-------------- -------------
Land $ 930 $ 929
Office Buildings 1,963 1,832
Furniture, Fixtures and Equipment 3,311 3,241
Transportation Equipment 104 95
--------------- --------------
6,308 6,097
Accumulated Depreciation (3,651) (3,320)
---------------- --------------
Premises and Equipment, Net $ 2,657 $ 2,777
=============== ==============
NOTE 8 - DEPOSITS:
At December 31, 1999, scheduled maturities of certificates of deposit accounts
were as follows (in thousands):
Amount
------
2000 $ 64,432
2001 67,029
2002 12,601
2003 4,486
2004 2,042
Thereafter 1,031
------------
Total Certificates of Deposit $ 151,621
============
Certificates of deposit with a balance of $100,000 and over were $43,473,000 and
$37,492,000 at December 31, 1999 and 1998, respectively.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM DEBT:
Federal Home Loan Bank advances totaled $63,850,000 and $47,228,000 as of
December 31, 1999 and 1998, respectively, including $6,000,000 and $7,500,000,
respectively, in short-term borrowings, which are secured by mortgage loans
under an existing blanket collateral agreement and by FHLB stock. No payments
are scheduled prior to maturity. The Company has the ability to borrow total
advances up to $125,850,000 from the FHLB, which would also be secured by the
existing blanket collateral agreement and by FHLB stock. Long-term debt at
December 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Interest Rate 1999 1998
------------- ------------- -------------
<S> <C> <C>
Variable rate - 5.05% to 5.45% at December 31, 1998 $ - $ 9,378
Fixed rate - 4.93% to 8.70% at December 31, 1999 57,850 30,350
------------ -------------
Total Long-term Debt $ 57,850 $ 39,728
============ =============
</TABLE>
Advances at December 31, 1999 have maturities in future years as follows (in
thousands):
Year Ending December 31 Amount
----------------------- ------
2001 $ 2,500
2003 3,100
2005 250
2008 17,000
2009 35,000
----------
Total $ 57,850
============
No payments are scheduled prior to maturity; however 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
contractual maturities. Variable rates were indexed to LIBOR (London Inter-Bank
Offered Rate) and repriced either monthly or quarterly.
NOTE 10 - INCOME TAXES:
The provision for Income Tax Expense is as follows for the years ended December
31 (in thousands):
1999 1998 1996
---------- ---------- -----------
Current:
Federal $ 1,196 $ 1,431 $ 1,623
State - 13 7
Deferred Tax Expense (Benefit) 33 (17) 2
---------- ----------- -----------
Total Income Tax Expense $ 1,229 $ 1,427 $ 1,632
========== ========== ===========
There was an income tax receivable of $19,000 at December 31, 1999 and an income
tax payable of $12,000 at December 31, 1998.
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:
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (Continued):
1999 1998 1996
------------ ------------ -------------
Current:
Federal $ 1,196 $ 1,431 $ 1,623
State - 13 7
Deferred Tax Expense (Benefit) 33 (17) 2
------------ ------------ --------------
Total Income Tax Expense $ 1,229 $ 1,427 $ 1,632
============ ============ =============
There was an income tax receivable of $19,000 at December 31, 1999 and an income
tax payable of $12,000 at December 31, 1998.
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:
1999 1998 1997
------------ ------------ --------
Statutory Federal Income Tax Rate 34.0% 34.0% 34.0%
Increase in Taxes Resulting From:
State Income Tax on Non-Bank Entities - .3 0.2
Nondeductible ESOP 1.5 1.6 1.3
Other Items .3 0.4 0.1
------------ ------------ ---------
Effective Tax Rate 35.8 % 36.3% 35.6%
============ ============ =========
The tax effects of principal temporary differences at December 31 are as follows
(in thousands):
1999 1998
---- ----
Deferred Tax Assets:
Deferred loan fees $ 69 $ 86
Book provision for losses on loans and foreclosed assets 948 939
Depreciable property basis differences 32 30
ESOP and RRP expenses 156 141
Unrealized losses on Trading Securities 15 27
Unrealized losses on Securities Available for Sale 187 -
Other 29 39
----- -------
Subtotal 1,436 1,262
----- -------
Deferred Tax Liabilities:
Discount Accretion on Investment Securities - 40
FHLB stock 394 338
Unrealized gains on Securities Available for Sale - 133
Acquisition Costs 4 -
----- -------
Subtotal 398 511
----- -------
Net Deferred Tax Asset $1,038 $ 751
====== =======
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 1999 or 1998.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (Continued):
Retained earnings at December 31, 1999 and 1998, included approximately
$7,073,000 accumulated prior to January 1, 1987 for which no provision for
federal income taxes has been made. If this portion of retained earnings is used
in the future for any purpose other than to absorb bad debts, it will be added
to future taxable income.
NOTE 11 - EARNINGS PER SHARE:
Weighted average shares of common stock outstanding for basic EPS excludes the
weighted average shares unreleased by the Employee Stock Ownership Plan ("ESOP")
Trust (152,727, 174,618, and 196,578 shares at December 31, 1999, 1998, and 1997
respectively) and the weighted average unvested shares in the Recognition and
Retention Plan ("RRP") Trust (80,109, 95,493, and 96,769 shares at December 31,
1999, 1998 and 1997, respectively). The effect on diluted EPS of stock option
shares outstanding and unvested RRP shares is calculated using the treasury
stock method. The following is a reconcilement of the numerator and denominator
for basic and diluted Earnings Per Share:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Numerator:
<S> <C> <C> <C>
Income Applicable to Common Shares $2,206,000 $2,505,000 $2,947,000
========== ========== ==========
Denominator:
Weighted Average Common Shares
Outstanding 1,377,635 2,088,775 2,408,779
Effect of Dilutive Securities:
Stock Options Outstanding 12,584 44,649 38,315
RRP Grants 32,336 15,800 15,932
--------- --------- ---------
Weighted Average Common Shares
Outstanding Assuming Dilution 1,422,555 2,149,224 2,463,026
========= ========= =========
Earnings per Share $1.60 $1.20 $1.22
========= ========= =========
Earnings per Share - Assuming Dilution $1.55 $1.17 $1.20
========= ========= =========
</TABLE>
NOTE 12 - REGULATORY MATTERS:
The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
33
<PAGE>
Prompt corrective action provisions are not applicable to bank holding
companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999 and 1998, that the Company and the Bank met all capital adequacy
requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the following tables.
There are no conditions or events since the notification that management
believes have changed the Bank's category. The Company's and the Bank's actual
capital amounts and ratios as of December 31, 1999 and 1998 are also presented
in the table.
<TABLE>
<CAPTION>
Minimum to be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars in thousands)
December 31, 1999:
- - ------------------
Total Capital to Risk Weighted Assets:
<S> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares, Inc. $30,232 17.5% $13,810 8.0% $ N/A N/A%
LBA Savings Bank 26,858 15.7% 13,687 8.0% 17,108 10.0%
Tier 1 Capital to Risk Weighted Assets:
Acadiana Bancshares, Inc. 28,058 16.3% 6,905 4.0% N/A N/A%
LBA Savings Bank 24,703 14.4% 6,843 4.0% 10,265 6.0%
Tier 1 Capital to Average Assets:
Acadiana Bancshares, Inc. 28,058 9.2% 12,144 4.0% N/A N/A%
LBA Savings Bank 24,703 8.2% 11,999 4.0% 14,999 5.0%
December 31, 1998:
- - ------------------
Total Capital to Risk Weighted Assets:
Acadiana Bancshares, Inc. 33,971 20.9% 13,026 8.0% N/A N/A%
LBA Savings Bank 26,082 16.8% 12,392 8.0% 15,490 10.0%
Tier 1 Capital to Risk Weighted Assets:
Acadiana Bancshares, Inc. 31,916 19.6% 6,513 4.0% N/A N/A%
LBA Savings Bank 24,125 15.6% 6,196 4.0% 9,294 6.0%
Tier 1 Capital to Average Assets:
Acadiana Bancshares, Inc. 31,916 11.3% 11,271 4.0% N/A N/A%
LBA Savings Bank 24,125 8.9% 10,839 4.0% 13,549 5.0%
</TABLE>
LBA Savings Bank is restricted under applicable laws in the payment of dividends
to an amount NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Dividends payable without permission by LBA Savings Bank
in 2000 will be limited to 2000 earnings plus an additional $182,000.
34
<PAGE>
NOTE 13 - EMPLOYEE BENEFITS:
401(k) Plan
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. All employees are eligible after completing one year of
service and attaining age 21.
Employee Stock Ownership Plan
In connection with the conversion from mutual to stock form, the Company
established an Employee Stock Ownership Plan ("ESOP") Trust for the benefit of
employees of the Company and the Bank. The ESOP purchased 218,500 shares, or 8
percent of the total stock sold in the subscription offering, 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 are held in a
suspense account and released on a pro-rata basis as debt service payments are
made. Shares released are allocated among participants on the basis of
compensation. Participants 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 the cost
of which 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.
Compensation cost of the ESOP for the year ended December 31, 1999, was $408,000
based on the release of 21,892 shares. For the year ended December 31, 1998,
compensation cost of the ESOP was $455,000 based on the release of 21,892
shares. For the year ended December 31, 1997, compensation cost of the ESOP was
$440,000 based on the release of 21,892 shares. There were 73,423, 53,793 and
32,707 allocated and 141,878, 163,770 and 185,662 shares held in suspense by
the ESOP for the years ended December 31, 1999, 1998 and 1997, respectively. The
fair value of the unearned ESOP shares at December 31, 1999 and 1998, using the
quoted market closing price per share, was approximately $2,784,000 and
$2,866,000, respectively.
35
<PAGE>
Recognition and Retention Plan
The Company established the Recognition and Retention Plan (RRP) Trust 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 years ended December 31, 1999, 1998 and 1997, the recognition and
retention plan expense was $271,000, $232,000 and $227,000, respectively. The
weighted-average grant-date fair value of the restricted stock granted under the
RRP during the years ended December 31, 1999, 1998 and 1997 was $20.50, $17.36
and $15.50, respectively. A summary of the changes in restricted stock follows:
Unawarded Awarded
Shares Shares
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
Granted (7,000) 7,000
Forfeited - -
Earned and Issued - (17,223)
-------- ---------
Balance, December 31, 1999 18,748 58,640
======== =========
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.
36
<PAGE>
The following table summarizes the activity related to stock options:
Weighted-
Available Options Average
for Grant Outstanding Exercise Price
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
Granted (10,000) 10,000 $ 20.05
Canceled 2,000 (2,000) $ 15.50
Exercised - (7,000) $ 15.50
---------- ---------
At December 31, 1999 6,424 259,701 $ 16.05
========== =========
Exercisable at December 31, 1997 -
=========
Exercisable at December 31, 1998 42,340 $ 15.50
=========
Exercisable at December 31, 1999 89,279 $ 15.72
=========
The weighted-average remaining life of the outstanding options at December 31,
1999 is 7.5 years.
The weighted-average grant-date fair value of options granted during the years
ended December 31, 1999, 1998 and 1997 was $3.91, $5.66 and $4.32, respectively.
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 (in thousands, except per share data):
1999 1998 1997
---- ---- ----
Net income
As reported $ 2,206 $ 2,505 $ 2,947
Pro forma $ 2,003 $ 2,344 $ 2,804
Earnings per share
As reported - Basic $ 1.60 $ 1.20 $ 1.22
- Diluted $ 1.55 $ 1.17 $ 1.20
Pro forma - Basic $ 1.45 $ 1.12 $ 1.16
- Diluted $ 1.41 $ 1.09 $ 1.14
37
<PAGE>
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
1999, 1998 and 1997 grants: dividend yields of 2.79, 2.15 and 2.20 percent;
expected volatility of 11.26, 27.7 and 16.91 percent; risk-free interest rate of
5.90, 5.48 and 6.51 percent; and expected lives of 7.5 years for all options.
NOTE 14 - RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Bank has granted loans to principal
officers and directors and their affiliates amounting to $613,000 at December
31, 1999 and $506,000 at December 31, 1998. During the year ended December 31,
1999, total principal additions were $296,000 and total principal payments were
$189,000.
Deposits from related parties held by the Bank at December 31, 1999 amounted to
$1,690,000.
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, 2000. The Company has also entered into severance
agreements with seven officers. The total commitments under the severance
agreements at December 31, 1999 was $992,000.
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company is subject to claims and lawsuits which arise primarily in the
ordinary course of business. Based on information presently available and advice
received from legal counsel representing the Company in connection with such
claims and lawsuits, it is the opinion of management that the disposition or
ultimate determination of such claims and lawsuits will not have a material
adverse effect on the consolidated financial condition or results of operations
of the Company.
NOTE 16 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
Consolidated Balance Sheets. 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.
38
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1999, financial instruments for which the Contract or Notional
contract amounts were as follows represent credit risk: Amount (in thousands)
<S> <C>
Unadvanced Loan Funds $ 6,332
Commitments to Extend Credit $ 18,915
Standby Letters of Credit $ 1
</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
issued primarily to support public and private borrowing arrangements, including
commercial paper, bonding financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
NOTE 17 - ESTIMATED FAIR VALUE 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 Consolidated Balance Sheets. 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 non-financial 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 Consolidated
Balance Sheets 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.
Federal Home Loan Bank Stock: The carrying value of FHLB stock approximates fair
value based on the redemption provisions of the Federal Home Loan Bank.
39
<PAGE>
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.
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.
FHLB Advances: Maturities are discounted to the Dallas FHLB's Advance yield
curve.
Accrued Interest: The carrying amounts of accrued interest approximate fair
value.
Off-Balance Sheet Items: The Company has outstanding commitments to extend
credit and stand-by letters of credit. These off-balance sheet financial
instruments are generally exerciseable at the market rate prevailing at the date
the underlying transaction will be completed and, therefore, have no current
value.
The estimated fair value of the Company's financial instruments as of December
31 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Estimated Recorded Estimated Recorded
Fair Book Fair Book
Assets Value Balance Value Balance
- - ------------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash $ 11,922 $ 11,922 $ 7,578 $ 7,578
Trading Securities 285 285 575 575
Investment Securities 38,017 37,981 39,098 38,764
Federal Home Loan Bank Stock 3,689 3,689 2,920 2,920
Loans Receivable 241,068 244,996 229,840 225,752
Accrued Interest Receivable 1,543 1,543 1,367 1,367
Liabilities
- - -------------------
Deposits 214,548 213,212 204,027 201,654
Borrowings 57,863 63,850 47,374 47,228
Accrued Interest Payable 345 345 304 304
</TABLE>
40
<PAGE>
The following is a summary of the components of other comprehensive income (in
thousands):
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------------------------
1999 1998 1997
------------ ------------ -------------
Unrealized Gain (Loss) on Securities
<S> <C> <C> <C>
Available for Sale, Net $ (942) $ (290) $ 101
Reclassification Adjustment for Net Gains
Realized in Net Income - - -
------------- ------------ ------------
Other Comprehensive Income (942) (290) 101
Income Tax (Expense) Benefit Related to Other
Comprehensive Income 320 98 (34)
------------- ------------ ------------
Other Comprehensive Income, Net of Income
Taxes $ (622) $ (192) $ 67
============= ============ ============
</TABLE>
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
(In Thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Year Ended December 31, 1999:
<S> <C> <C> <C> <C>
Total Interest Income $ 5,166 $ 5,214 $5,391 $5,636
Total Interest Expense 2,857 2,927 3,099 3,312
-------- -------- -------- --------
Net Interest Income 2,309 2,287 2,292 2,324
Provision for Loan Losses - - - -
---------- ----------- ----------- -----------
Net Interest Income After Provision
for Loan Losses 2,309 2,287 2,292 2,324
Non-interest Income 255 275 218 246
Non-interest Expense 1,718 1,661 1,708 1,684
-------- -------- -------- --------
Income Before Income Taxes 846 901 802 886
Income Tax Expense 300 325 277 327
-------- -------- -------- --------
Net Income 546 576 525 559
======== ======== ======== ========
Earnings per Share - basic $ .36 $ .41 $ .40 $ .43
======== ======== ======== ========
Earnings per Share - diluted $ .35 $ .40 $ .39 $ .41
======== ======== ======== ========
Year Ended December 31, 1998 :
Total Interest Income $ 5,342 $ 5,508 $ 5,454 $ 5,249
Total Interest Expense 2,876 3,028 3,111 2,920
-------- -------- -------- --------
Net Interest Income 2,466 2,480 2,343 2,329
Provision for Loan Losses 45 45 - -
--------- --------- ----------- -----------
Net Interest Income After Provision
for Loan Losses 2,421 2,435 2,343 2,329
Non-interest Income 349 264 135 311
Non-interest Expense 1,574 1,707 1,648 1,726
-------- -------- -------- --------
Income Before Income Taxes 1,196 992 830 914
Income Tax Expense 432 365 310 320
Net Income 764 627 520 594
======== ======== ======== ========
Earnings per Share - basic $ .33 $ .28 $ .25 $ .34
======== ======== ======== ========
Earnings per Share - diluted $ .32 $ .27 $ .24 $ .34
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ABOUT THE COMPANY
- - -----------------------------------------------------------------------------------------------------------------------------------
Acadiana Bancshares, Inc., (the "Company") is a Louisiana-chartered bank holding company with headquarters
at 101 West Vermilion Street, Lafayette, Louisiana 70501. Its banking subsidiary, LBA Savings Bank, operates five
full-service branches in Lafayette and New Iberia and a loan production office in Eunice, Louisiana. Addresses of
LBA Savings Bank branches are:
<S> <C>
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 3rd Street, Eunice, Louisiana 70535
DIRECTORS
- - ------------------------------------------------------------------------------------------------------------------------------------
Al W. Beacham, M.D. Don O'Rourke, Sr.
President, Beacham Urology Group, Inc. President, Don J. O'Rourke & Associates, Ltd.
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, Of Counsel, Saloom & Saloom, Attorneys-at-Law
LBA Savings Bank
William H. Mouton
Retired Attorney, William H. Mouton Law Offices
EXECUTIVE OFFICERS
- - ------------------------------------------------------------------------------------------------------------------------------------
Lawrence Gankendorff Wayne Bares
Chairman of the Board of the Company and the Bank Senior Vice President - Commercial Lending, of the Bank
Jerry Reaux Mary Anne S. Bertrand
President and Chief Executive Officer of the Company Senior Vice President - Retail Lending,
and the Bank Of the Bank
James J. Montelaro Emile E. Soulier, III
Executive Vice President - Mortgage Banking, Vice President and Chief Financial Officer,
Of the Bank Of the Company and the Bank
Gregory King Thomas Debaillon
Executive Vice President - Chief Operating Officer, Vice President - Operations, of the Bank
Of the Company and the Bank
</TABLE>
43
<PAGE>
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 26, 2000, at `a la carte, 301 Heymann
Boulevard, Lafayette, Louisiana 70503.
STOCK LISTING
The common stock of Acadiana Bancshares, Inc., is traded on the American Stock
Exchange under the symbol "ANA." Price and other column information are listed
under the "ANA" symbol in The Wall Street Journal and under similar designations
in other daily news sources. Below is a table showing the high and low sales
prices of the common stock and cash dividends declared during each quarter of
1999 and 1998:
<TABLE>
<CAPTION>
1999
Quarter Ended High Low Dividends Declared
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1999 $18 3/8 $17 3/8 $0.13
June 30, 1999 $18 7/8 $17 5/8 $0.13
September 30, 1999 $18 7/8 $18 1/4 $0.13
December 31, 1999 $20 7/8 $18 5/8 $0.13
1998
Quarter Ended High Low Dividends 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
</TABLE>
REGISTRAR AND TRANSFER AGENT
Shareholders requesting a change of name, address, or ownership of stock, or to
report a lost stock certificate should contact the transfer agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Toll-free (800) 368-5948
INVESTOR INFORMATION
Shareholders, prospective shareholders, analysts or other interested parties
seeking copies of the Company's annual report, Form 10-K (which the Company will
furnish to shareholders upon request without charge), Form 10-Q, quarterly
earnings reports or other financial information should contact:
Jerry Reaux, President & CEO, or
Emile E. Soulier, III, Vice President & CFO
Phone: (337) 232-4631
Fax: (337) 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
44
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 333-10647, 333-64213 and 333-81185) of our report dated
February 1, 2000 appearing in the Annual Report on Form 10-K of Acadiana
Bancshares, Inc. and Subsidiary for the year ended December 31, 1999.
/s/ Castaing, Hussey, Lolan & Dauterive, LLP
New Iberia, Louisiana
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001011024
<NAME> ARCADIANA BANCSHARES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,668
<INT-BEARING-DEPOSITS> 8,254
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 285
<INVESTMENTS-HELD-FOR-SALE> 26,060
<INVESTMENTS-CARRYING> 11,921
<INVESTMENTS-MARKET> 11,958
<LOANS> 247,743
<ALLOWANCE> 2,747
<TOTAL-ASSETS> 305,696
<DEPOSITS> 213,212
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 884
<LONG-TERM> 57,850
0
0
<COMMON> 27
<OTHER-SE> 27,723
<TOTAL-LIABILITIES-AND-EQUITY> 305,696
<INTEREST-LOAN> 18,288
<INTEREST-INVEST> 2,667
<INTEREST-OTHER> 452
<INTEREST-TOTAL> 21,407
<INTEREST-DEPOSIT> 9,488
<INTEREST-EXPENSE> 12,195
<INTEREST-INCOME-NET> 9,212
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 6,771
<INCOME-PRETAX> 3,435
<INCOME-PRE-EXTRAORDINARY> 3,435
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,435
<EPS-BASIC> 1.60
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 3.28
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 453
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,726
<CHARGE-OFFS> (185)
<RECOVERIES> 206
<ALLOWANCE-CLOSE> 2,747
<ALLOWANCE-DOMESTIC> 2,747
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
