SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14364
Acadiana Bancshares, Inc.
(Exact Name of Registrant as Specified in Its Charter)
LOUISIANA 72-1317124
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
101 West Vermilion Street
Lafayette, Louisiana 70501
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(Address of Principal Executive Offices) (Zip Code)
(337)232-4631
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of October 31, 2000,
1,414,821 shares of the Registrant's common stock were issued and outstanding.
Of that total, 211,085 shares were held by the Registrant's Employee Stock
Ownership Plan, of which 123,615 were not committed to be released.
ACADIANA BANCSHARES, INC.
1
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TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets (As of September 30, 2000
and December 31, 1999) 3
Consolidated Income Statements (For the three and nine
months ended September 30, 2000 and 1999) 4
Consolidated Statements of Stockholders' Equity (For
the nine months ended September 30, 2000 and 1999) 5
Consolidated Statements of Cash Flows (For the nine
months ended September 30, 2000 and 1999) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market
Risk 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 27
2
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ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
2000 1999
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<S> <C> <C>
Cash and Cash Equivalents:
Cash and Amounts Due from Banks $ 3,254 $ 3,668
Interest Bearing Demand Deposits 10,183 8,254
-------------- --------------
Total Cash and Cash Equivalents 13,437 11,922
Trading Securities 365 285
Securities Available for Sale, at Fair Value 24,568 26,060
Securities Held to Maturity (Fair Value of $11,799 and $11,958,
respectively) 11,764 11,921
Federal Home Loan Bank Stock, at Cost 4,080 3,689
Loans Receivable, Net of Allowance for Loan Losses of $2,805
and $2,747, respectively 263,338 244,996
Investment in Limited Liability Company 797 811
Premises and Equipment, Net 5,086 2,657
Accrued Interest Receivable 1,663 1,543
Other Assets 1,872 1,812
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TOTAL ASSETS $ 326,970 $ 305,696
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest Bearing $ 11,433 $ 10,382
Interest Bearing 216,340 202,830
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Total Deposits 227,773 213,212
Short-Term Borrowings 10 6,000
Accrued Interest Payable 437 345
Long-Term Debt 69,237 57,850
Accrued and Other Liabilities 1,354 539
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TOTAL LIABILITIES 298,811 277,946
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Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Preferred Stock of $.01 Par Value; 5,000,000 shares authorized,
-0- shares issued or outstanding - -
Common Stock of $.01 Par Value; 20,000,000 shares authorized,
2,731,250 shares issued 27 27
Additional Paid-in Capital 32,383 32,322
Retained Earnings 23,289 22,404
Unearned Common Stock Held by ESOP Trust (1,506) (1,703)
Unearned Common Stock Held by RRP Trust (824) (1,048)
Accumulated Other Comprehensive Income (146) (364)
Treasury Stock, at Cost; 1,316,429 and 1,236,727 Shares,
respectively (25,064) (23,888)
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TOTAL STOCKHOLDERS' EQUITY 28,159 27,750
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 326,970 $ 305,696
============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
3
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ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
UNAUDITED
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- ---------------------------------
2000 1999 2000 1999
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans, including fees $ 5,293 $ 4,640 15,324 $ 13,493
Debt Securities 651 497 1,962 1,461
Dividends 66 165 244 498
Trading Account Securities 3 - 8 -
Interest Bearing Deposits 129 89 331 319
-------- -------- -------- --------
Total Interest and Dividend Income 6,142 5,391 17,869 15,771
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 2,833 2,468 7,979 7,005
Borrowings 1,033 631 3,004 1,878
-------- -------- -------- --------
Total Interest Expense 3,866 3,099 10,983 8,883
-------- -------- -------- --------
Net Interest Income 2,276 2,292 6,886 6,888
Provision for Loan Losses - - - -
-------- -------- -------- --------
Net Interest Income After Provision for
Loan Losses 2,276 2,292 6,886 6,888
-------- -------- -------- --------
NON-INTEREST INCOME:
Customer Service Fees 223 233 657 678
Loan Servicing Fees 11 15 36 43
Gain on Sale of Loans, Net 8 - 8 89
Trading Account (Losses) Gains, Net 24 (13) 18 (6)
Loss from Investment in Limited Liability -
Company (1) (36) (14) (124)
Other 118 19 166 70
-------- -------- -------- --------
Total Non-Interest Income 383 218 871 750
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 991 885 2,911 2,637
Occupancy 99 91 249 241
Depreciation 80 93 244 271
Data Processing 82 72 228 179
Foreclosed Assets, net 7 10 (69) 34
Deposit Insurance Premium 11 29 33 89
Advertising 38 50 163 116
Bank Shares and Franchise Tax Expense 81 78 253 268
Impairment Loss on Long-Lived Assets - - 323 -
Other 364 400 1,159 1,254
-------- -------- -------- --------
Total Non-Interest Expense 1,753 1,708 5,494 5,089
-------- -------- -------- --------
Income Before Income Taxes 906 802 2,263 2,549
Income Tax Expense 319 277 802 902
-------- -------- -------- --------
Net Income $ 587 $ 525 $ 1,461 1,647
======== ======== ======== ========
Earnings Per Share - basic $ 0.48 $ 0.40 $ 1.18 $ 1.17
======== ======== ======== ========
Earnings Per Share - diluted $ 0.48 $ 0.39 $ 1.17 $ 1.13
======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
4
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ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER 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>
BALANCE, JANUARY 1, 1999 $ 27 $ 32,192 $20,932 $ (1,965) $ (1,335) $ 258 $ (17,935) $ 32,174
Comprehensive Income:
Net Income 1,647 1,647
Change in Unrealized Gain (Loss) on
Securities Available for Sale,
Net of Deferred Taxes (421) (421)
--------
Total Comprehensive Income 1,226
Common Stock Released by ESOP Trust 102 197 299
Common Stock Earned by Participants of
Recognition and Retention Plan Trust (8) 215 207
Common Stock Issued (24) 39 15
Purchase of Treasury Stock
(322,969 shares) (5,896) (5,896)
Cash Dividends Declared
($.39 per share) (561) (561)
--------- ---------- -------- --------- ---------- ------------ --------- --------
BALANCE, SEPTEMBER 30, 1999 $ 27 $ 32,262 $22,018 $ (1,768) $ (1,120) $ (163) $ (23,792)- $ 27,464
========= =========== ======== ========= ========== ============ ========= =========
BALANCE, JANUARY 1, 2000 $ 27 $ 32,322 $22,404 $ (1,703) $ (1,048) $ (364) $ (23,888) $ 27,750
Comprehensive Income:
Net Income 1,461 1,461
Change in Unrealized Gain (Loss) on
Securities Available for Sale,
Net of Deferred Taxes 218 218
-----
Total Comprehensive Income 1,679
Common Stock Released by ESOP Trust 57 197 254
Common Stock Earned by Participants of
Recognition and Retention Plan
Trust 4 224 228
Purchase of Treasury Stock
(79,702 shares) (1,176) (1,176)
Cash Dividends Declared
($.45 per share) (576) (576)
--------- ---------- -------- --------- ---------- ------------ --------- --------
BALANCE, SEPTEMBER 30, 2000 $ 27 $ 32,383 $23,289 $ (1,506) $ (824) $ (146) $ (25,064) $ 28,159
========= =========== ======== ========= ========== ============ ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
5
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ACADIANA BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
------------------------------------------------------
2000 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,461 $ 1,647
------- -------
Adjustments to Reconcile Net Income to Net Cash 0
Provided by Operating Activities:
Depreciation and Amortization 263 282
Provision for Deferred Income Taxes - (30)
Compensation Expense Recognized on RRP 216 207
ESOP Contribution 255 299
Other (gains) losses, net 246 (15)
Loss from Investment in Limited Liability Company 14 124
Net Change in Securities Classified as Trading (80) 266
Accretion of Discounts, Net of Premium Amortization on Securities (4) (6)
Amortization of Deferred Revenues and Unearned Income on Loans 77 88
FHLB Stock Dividend Received (244) (120)
Other Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable (120) (202)
(Increase) Decrease in Other Assets (182) (327)
(Decrease) Increase in Other Liabilities 901 (85)
------- -------
Total Adjustments 1,342 481
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Net Cash Provided by Operating Activities 2,803 2,128
------- -------
Cash Flows from Investing Activities:
Activity in Available for Sale Securities:
Proceeds from Calls, Maturities and Prepayments 1,829 23,455
Purchases - (24,976)
Activity in Held to Maturity Securities:
Proceeds from Calls, Maturities and Prepayments 154 373
Purchase of FHLB stock (147) -
Net Advances on Loans (18,485) (13,720)
Purchase of Premises and Equipment (3,024) (99)
Proceeds from Sale of Premises and Equipment 163 8
Proceeds from Sale of Foreclosed Assets - 46
Capital Costs Incurred on Foreclosed Assets (2) (10)
------- -------
Net Cash Provided by (Used in) Investing Activities (19,512) (14,923)
------- -------
Cash Flows from Financing Activities:
Net Change in Deposits 14,561 14,487
Net Change in Short-term Borrowings (5,990) 8,500
Proceeds from Long-term Debt 11,391 12,500
Repayment of Long-term Debt (4) (14,378)
Proceeds from Issuance of Common Stock - 15
Dividends Paid to Shareholders (558) (567)
Purchase of Treasury Stock (1,176) (5,896)
------- -------
Net Cash Used in Financing Activities 18,224 14,661
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 1,515 1,866
Cash and Cash Equivalents, Beginning of Period 11,922 7,578
------- -------
Cash and Cash Equivalents, End of Period $ 13,437 $ 9,444
======== =======
Supplemental Schedule of Noncash Activities:
Acquisition of Foreclosed Assets in Settlement of Loans $ 65 $ 183
Supplemental Disclosures:
Cash Paid For:
Interest on Deposits and Borrowings $ 10,891 $ 8,827
Income Taxes $ 740 $ 878
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
6
<PAGE>
ACADIANA BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements are unaudited and were
prepared in accordance with instructions to Form 10-Q, and therefore, do not
include information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, all normal, recurring
adjustments, which, in the opinion of management, are necessary for a fair
presentation of financial statements, have been included. These interim
unaudited financial statements should be read in conjunction with the audited
financial statements and the notes thereto for Acadiana Bancshares, Inc. (the
"Company") previously filed with the Securities and Exchange Commission in the
Company's Annual Report and Form 10-K for the year ended December 31, 1999.
BUSINESS
The Company's principal business is conducted through its wholly owned
subsidiary, LBA Savings Bank, (the "Bank") which conducts business from its main
office and three branch offices, all located in Lafayette, Louisiana, one branch
office in New Iberia, Louisiana, and one loan production office in Eunice,
Louisiana. Through its continuing operation of the Bank, the Company's principal
business has been, and continues to be, attracting deposits from its customers
and investing such funds in residential real estate loans and other loans. The
Company recently formed a non-bank wholly owned subsidiary, Acadiana Holdings,
L.L.C., whose purpose is to hold a commercial office building which will serve
as the new headquarters for the Company and the Bank. The Company, as a bank
holding company, is subject to regulation and supervision by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board" or "FRB"). The
Bank is subject to examination and comprehensive regulation by the Office of
Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's
chartering authority and primary regulator. The Bank is also subject to
regulation by the Federal Deposit Insurance Corporation ("FDIC"), as the
administrator of the SAIF, and to certain reserve requirements established by
the FRB. The Bank is a member of the Federal Home Loan Bank ("FHLB") of Dallas,
which is one of twelve regional banks comprising the FHLB System. The Bank is a
Savings Association Insurance Fund ("SAIF") -insured, Louisiana chartered, stock
savings bank.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, namely, the Bank, and Acadiana Holdings,
L.L.C. All significant intercompany balances and transactions have been
eliminated in consolidation.
7
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(2) LOANS RECEIVABLE
Loans receivable at September 30, 2000 and December 31, 1999 are summarized
as follows (in thousands):
<TABLE>
<S> <C> <C>
Mortgage Loans:
Single-Family Residential 190,868 $179,109
Construction 6,166 12,612
Multi-Family Residential 360 425
Commercial Real Estate 27,712 18,798
Equity Lines of Credit 4,127 3,406
-------- --------
Total Mortgage Loans 229,233 214,350
Commerical Business Loans 16,718 18,144
Consumer Loans 23,489 21,803
-------- --------
Total Loans 269,440 254,297
Less:
Allowance for Loan Losses (2,805) (2,747)
Net Deferred Loan Fees (208) (222)
Unadvanced Loan Funds (3,089) (6,332)
-------- --------
Loans, net $263,338 $244,996
========= =========
</TABLE>
(3) EARNINGS PER SHARE
Weighted average shares of common stock outstanding for basic earnings per
share ("EPS") calculations exclude the weighted average shares unreleased by the
Employee Stock Ownership Plan ("ESOP") (128,166 and 150,028 shares for the
quarters ending September 30, 2000 and September 30, 1999, respectively) and the
weighted average unvested shares in the Recognition and Retention Plan ("RRP")
(62,936 and 79,353 for the quarters ending September 30, 2000 and September 30,
1999, respectively). The effect on diluted EPS of stock option shares
outstanding and unvested RRP shares are calculated using the treasury stock
method. The following is a reconcilement of the numerator and denominator for
basic and diluted Earnings Per Share:
8
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Income Applicable to Common Shares $587,000 $525,000 $ 1,461,000 $ 1,647,000
============ ============ ============= =============
Denominator:
Weighted Average Common Shares Outstanding 1,223,719 1,305,738 1,237,513 1,412,448
Effect of Dilutive Securities:
Stock Options Outstanding - 31,525 1,348 28,361
RRP Grants 9,837 14,404 6,490 10,871
--------- --------- --------- ---------
Weighted Average Common Shares Outstanding
Assuming Dilution 1,233,556 1,351,667 1,245,351 1,451,680
========= ========= ========= =========
Earnings per Share $ 0.48 $ 0.40 $ 1.18 $ 1.17
========= ========= ========= =========
Earnings per Share - Assuming Dilution $ 0.48 $ 0.39 $ 1.17 $ 1.13
========= ========= ========= =========
</TABLE>
(4) SIGNIFICANT EVENTS
On May 12, 2000, the Company, through its wholly owned subsidiary, Acadiana
Holdings, L.L.C., purchased an office building to be used as its new corporate
headquarters and new main office branch banking facility for the Bank, located
at 200 West Congress Street, Lafayette, Louisiana. Management believes that this
facility will provide a platform to support the future growth of the Bank and
the Company, and expects to move its headquarters to its new location during the
first quarter of 2001. The acquisition price associated with the purchase was
$2.5 million and the Company anticipates additional renovation costs of
approximately $1.3 million prior to occupancy. The Company expects to utilize
one-third of the facility and will seek to lease the remaining commercial office
space. Currently, approximately one-third of the building space is leased.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2000 the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards ("FAS") Statement No. 138, ACCOUNTING FOR CERTAIN
DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FAS
STATEMENT NO. 133. The new statement addresses a limited number of issues
causing implementation difficulties for a large number of entities getting ready
to apply FAS Statement No.133. There are no conflicts with or modifications to
the basic model of FAS Statement No. 133, and there is no delay in the effective
date of FAS Statement No. 133. FAS Statement No. 138 is effective for fiscal
quarters of all fiscal years beginning after September 15, 2000. The Company has
no derivative financial instruments and no hedging activities at this time.
Implementation of this standard is not expected to have a material impact on
financial position or results of operations.
9
<PAGE>
In September 2000 the FASB issued FAS Statement No. 140, ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
This statement replaces FAS Statement No. 125 of the same name. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statement No. 125's provisions without reconsideration. This statement is
effective generally for transactions occurring after March 31, 2001. Disclosures
are effective for years ending after December 15, 2000. Implementation of this
standard is not expected to have a material impact on the Company's financial
position or results of operations.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
In addition to historical information, this Form 10-Q 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, the actual
costs incurred in connection with the Company's planned relocation of its
headquarters and the Company's ability to lease additional space to third
parties in such new headquarters building, 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CHANGES IN FINANCIAL CONDITION
At September 30, 2000, the consolidated assets of the Company totaled
$327.0 million, an increase of $21.3 million, or 7.0%, from December 31, 1999.
The primary reasons for the increase in consolidated assets were an increase in
loans receivable, net, of $18.3 million, or 7.5%, an increase in premises and
equipment, net, of $2.4 million, or 91.4%, and an increase in cash and cash
equivalents of $1.5 million, or 12.7%, all of which was partially offset by a
decrease in investment securities available for sale of $1.5 million, or 5.7%.
Asset growth was funded primarily by a $14.6 million, or 6.8%, increase in total
deposits, together with an $11.4 million, or 19.7%, increase in long-term debt,
all of which was partially offset by a an decrease in short-term borrowings of
$6.0 million, or 99.8%.
10
<PAGE>
ASSETS
Cash and cash equivalents increased $1.5 million, or 12.7, to $13.4 million
at September 30, 2000, compared with $11.9 million at December 31, 1999. Net
cash provided by (used in) operating activities, investing activities, and
financing activities amounted to $2.8 million, ($19.5) million, and $18.2
million, respectively, for the nine months ended September 30, 2000. As of
September 30, 2000, cash and cash equivalents funded 4.1% of total assets,
compared with 3.9% at December 31, 1999.
The Company owned $365,000 of trading securities as of September 30, 2000
compared with $285,000 at December 31, 1999. Trading account securities are
carried at fair value. The Company has no intention to significantly increase
its trading securities portfolio.
Securities available for sale decreased $1.5 million, or 5.7%, to $24.6
million at September 30, 2000, compared with $26.1 million at December 31, 1999.
The primary reason for such decrease was principal repayments of $1.8 million of
investment securities, which were partially offset by an increase in fair value
of the remaining securities of $330,000. 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 AAA 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. As of September 30, 2000, investment securities available
for sale amounted to 7.5% of total assets, compared to 8.5% of total assets at
December 31, 1999.
Securities held to maturity decreased $157,000, or 1.3%, from $11.9 million
at December 31, 1999 to $11.8 million at September 30, 2000. Securities held to
maturity include mortgage-backed securities issued by GNMA, FNMA, and FHLMC. At
September 30, 2000, securities held to maturity amounted to 3.6% of total
assets, compared to 3.9% of total assets at December 31,1999.
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 there is no market for such stock. It can be sold only to the
FHLB or to another member institution. It is carried at cost. Both cash
dividends and stock dividends are received on FHLB stock and are reported as
income. The stock dividends are redeemable at par value. At September 30, 2000,
Federal Home Loan Bank stock amounted to $4.1 million, or 1.2% of total assets.
Loans receivable, net, increased $18.3 million, or 7.5%, to $263.3 million
at September 30, 2000, compared to $245.0 million at December 31, 1999.
Single-family residential loans increased $11.8 million, or 6.6%, from $179.1
million at December 31, 1999, to $190.9 million at September 30, 2000.
Construction loans decreased $6.4 million, or 51.1%, from $12.6 million at
December 31, 1999 to $6.2 million at September 30, 2000. Commercial real estate
loans increased $8.9 million, or 47.4%, from $18.8 million at December 31, 1999,
to $27.7 million at September 30, 2000. Equity lines of credit increased
$721,000, or 21.2%, from $3.4 million at December 31, 1999 to $4.1 million at
September 30, 2000. Commercial business loans decreased $1.4 million, or 7.9%,
from $18.1 million at December 31, 1999, to $16.7
11
<PAGE>
million at September 30, 2000. Consumer loans increased $1.7 million, or 7.7%,
from $21.8 million at December 31, 1999, to $23.5 million at September 30, 2000.
Total loans increased $15.1 million, or 6.0%, from $254.3 million at December
31, 1999, to $269.4 million at September 30, 2000. Loans receivable, net,
amounted to 80.5% of total assets at September 30, 2000, compared to 80.1% of
total assets at December 31, 1999.
Premises and equipment, net, increased $2.4 million, or 91.4%, from $2.7
million at December 31, 1999 to $5.1 million at September 30, 2000. Such
increase is primarily the result of the acquisition of an office building to be
used as its new corporate headquarters and new main office branch banking
facility for the Bank, as disclosed in Note 4 to the consolidated financial
statements. Premises and equipment, net, amounted to 1.6% and 0.9% of total
assets at September 30, 2000 and December 31, 1999, respectively.
LIABILITIES AND STOCKHOLDERS' EQUITY
The Company's primary funding sources include deposits, borrowings from the
FHLB and stockholders' equity. The discussion that follows summarizes on the
significant changes in this mix during the nine months ended September 30, 2000.
The Company's deposits increased by $14.6 million, or 6.8%, to $227.8
million at September 30, 2000, compared to $213.2 million at December 31, 1999.
Interest bearing deposits increased $13.5 million, or 6.7% while non-interest
bearing deposits increased $1.1 million, or 10.1%. Certificates of deposit,
comprising the largest portion of interest-bearing deposits, amounted to $167.7
million at September 30, 2000 compared to $151.6 million at December 31, 1999.
Total deposits funded 69.7% of total assets at December 31, 1999, and at
September 30, 2000.
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 $6.0 million, or 99.8%, from $6.0 million at December 31, 1999, to
$10,000 at September 30, 2000. Long-term debt increased $11.4 million, or 19.7%,
to $69.2 million at September 30, 2000 compared to $57.9 million at December 31,
1999. Long-term debt funded 21.2% of assets at September 30, 2000. Borrowings
are composed primarily of advances from the FHLB. 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.
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 September 30, 2000, stockholders' equity totaled $28.2
million, an increase of $409,000, or 1.5%, compared to $27.8 million at December
31, 1999. The increase was primarily attributable to net income for the nine
months ended September 30, 2000, of $1.5 million, common stock earned by
participants in the Company's Recognition and Retention Plan (the "RRP") trust
of $228,000, common stock released by the Company's Employee Stock Ownership
Plan (the "ESOP") trust of $254,000, and, a $218,000 increase in the value of
securities available for sale, net of deferred taxes, all of which was partially
offset by $1.2 million of repurchases of the Company's common stock for
treasury, together with $576,000 of dividends declared on the Company's common
stock. Stockholders' equity funded 8.6% of assets at September 30, 2000,
compared to 9.1% at December 31, 1999.
12
<PAGE>
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 September 30, 2000 the
capital of the Bank and the capital of the Company exceeded all minimum
regulatory requirements.
RESULTS OF OPERATIONS
The Company reported an increase in earnings per share for the quarter
ended September 30, 2000 primarily due to the effect of the Company's stock
repurchase program as well as improved non-interest income. The Company earned
48 cents per share (basic and diluted) for the quarter ended September 30, 2000,
compared to 40 cents per share (39 cents per share diluted) for the quarter
ended September 30, 1999. This represents an increase of 20.0% (23.1% diluted)
per common share when compared with the same quarter last year.
The Company reported earnings per share of $1.18 per share ($1.17 per share
diluted) for the nine months ended September 30, 2000 compared to $1.17 per
share ($1.13 per share diluted) for the nine months ended September 30, 1999.
The Company reported net income of $587,000, and $525,000 for the three
months ended September 30, 2000 and 1999, respectively. The $62,000 increase in
net income for the three months ended September 30, 2000 compared to the three
months ended September 30, 1999 was due primarily to an increase in non-interest
income. Total interest and dividend income for the three months ended September
30, 2000 increased $751,000, or 13.9%, from $5.4 million for the three months
ended September 30, 1999 to $6.1 million for the three months ended September
30, 2000. Total interest expense increased $767,000, or 24.7%, from $3.1 million
for the three months ended September 30, 1999 to $3.9 million for the three
months ended September 30, 2000. Net interest income decreased $16,000, or 0.7%,
remaining relatively stable at $2.3 million for both the three months ended
September 30, 2000 and 1999. Non-interest income increased $165,000, or 75.7%,
from $218,000 for the three months ended September 30, 1999 to $383,000 for the
three months ended September 30, 2000. Non-interest expenses increased $45,000,
or 2.6%, from $1.7 million for the three months ended September 30, 1999 to $1.8
million for the three months ended September 30, 2000.
The Company reported net income of $1.5 million, and $1.6 million for the
nine months ended September 30, 2000 and 1999, respectively. The $186,000
decrease in net income for the nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999 was due primarily to non-cash charges
related to the write-down of certain long-lived assets (the Company's current
headquarters office) during the quarter ended June 30, 2000 of $323,000
($213,000 after taxes). Total interest and dividend income for the nine months
ended September 30, 2000 increased $2.1 million, or 13.3%, from $15.8 million
for the nine months ended September 30, 1999 to $17.9 million for the nine
months ended September 30, 2000. Total interest expense increased $2.1 million,
or 23.6%, from $8.9 million for the nine months ended September 30, 1999 to
$11.0 million for the nine months ended September 30, 2000. Net interest income
decreased $2,000, remaining relatively stable at $6.9 million for
13
<PAGE>
both the nine months ended September 30, 2000 and 1999. Non-interest income
increased $121,000, or 16.1%, from $750,000 for the nine months ended September
30, 1999 to $871,000 for the nine months ended September 30, 2000. Non-interest
expenses increased $405,000, or 8.0%, from $5.1 million for the nine months
ended September 30, 1999 to $5.5 million for the nine months ended September 30,
2000 (which increase is inclusive of the $323,000 non-cash write-down of certain
long-lived assets).
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 2.42% and 2.73% for the three months
ended September 30, 2000 and 1999, respectively. Both rates (the 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 interest-earning assets) was 2.93%, and 3.26%,
during the three months ended September 30, 2000 and 1999, respectively. The
declining net interest margin in 2000 compared to 1999 was primarily the result
of the average rates paid on the average balances of interest-bearing deposits
and borrowings increasing faster and more than offsetting the increased average
yields earned on the Company's loans, investment securities, and other earning
assets. Additionally, the increase in average interest-bearing liabilities of
$31.6 million more than offset the increase in average interest-earning assets
of $30.2 million for the three months ended September 30, 2000 as compared to
the three months ended September 30, 1999. The Company's net interest income
decreased slightly, by $16,000, remaining relatively stable at $2.3 million for
the quarters ended September 30, 2000, and 1999.
The Company's average interest rate spread was 2.49% and 2.74% for the nine
months ended September 30, 2000 and 1999, respectively. The Company's interest
rate margin was 3.01%, and 3.31%, during the nine months ended September 30,
2000 and 1999, respectively. The declining net interest margin in 2000 compared
to 1999 was primarily the result of the average rates paid on the average
balances of interest-bearing deposits and borrowings increasing faster and more
than offsetting the increased average yields earned on the Company's loans,
investment securities, and other earning assets. Additionally, the increase in
average interest-bearing liabilities of $30.6 million more than offset the
increase in average interest-earning assets of $27.4 million for the nine months
ended September 30, 2000 as compared to the nine months ended September 30,
1999. The Company's net interest income decreased slightly, by $2,000, remaining
relatively stable at $6.9 million for the nine months ended September 30, 2000,
and 1999.
INTEREST AND DIVIDEND INCOME
Interest and dividend income totaled $6.1 million for the three months
ended September 30, 2000, compared to $5.4 million for the three months ended
September 30, 1999, an increase of $751,000, or 13.9%. This increase was mainly
due to an increase in the Company's average interest-earning assets of $30.2
million, or 10.7%, together with a 23 basis point (with 100 basis points being
equal to 1%) increase in the average yield earned.
14
<PAGE>
Interest earned on loans increased $653,000, or 14.1%, from $4.6 million for the
three months ended September 30, 1999, to $5.3 million for the three months
ended September 30, 2000. This increase was due to an increase in the Company's
average balance of loans for the three months ended September 30, 2000 of $28.5
million, or 12.2%, and a 13 basis point increase in the yield earned. Interest
and dividends earned on investment securities increased $58,000, or 8.8%, from
$662,000 for the three months ended September 30, 1999 to $720,000 for the three
months ended September 30, 2000. This increase was due to a 46 basis point
increase in the Company's yield earned on investment securities for the three
months ended September 30, 2000, together with an increase in the Company's
average balance of investment securities of $648,000, or 1.6%. Interest earned
on other earning assets increased $40,000, or 44.9%, from $89,000 for the three
months ended September 30, 1999, to $129,000 for the three months ended
September 30, 2000. This increase was primarily due to an increase in the
Company's average balance of other earning assets of $998,000, or 13.4%, from
$7.4 million for the three months ended September 30, 1999, to $8.4 million at
September 30, 2000, together with a134 basis point increase in the Company's
average yield earned.
Interest and dividend income totaled $17.9 million for the nine months
ended September 30, 2000, compared to $15.8 million for the nine months ended
September 30, 1999, an increase of $2.1 million, or 13.3%. This increase was
mainly due to an increase in the Company's average interest-earning assets of
$27.4 million, or 9.9%, together with a 23 basis point (with 100 basis points
being equal to 1%) increase in the yield earned. Interest earned on loans
increased $1.8 million, or 13.6%, from $13.5 million for the nine months ended
September 30, 1999, to $15.3 million for the nine months ended September 30,
2000. This increase was due to an increase in the Company's average balance of
loans for the nine months ended September 30, 2000, of $28.8 million, or 12.7%,
and a six basis point increase in the yield earned. Interest and dividends
earned on investment securities increased $255,000, or 13.0%, from $2.0 million
for the nine months ended September 30, 1999 to $2.2 million for the nine months
ended September 30, 2000. This increase was due to a 71 basis point increase in
the Company's yield earned on investment securities for the nine months ended
September 30, 2000, together with an increase in the Company's average balance
of investment securities of $749,000. Interest earned on other earning assets
increased $12,000, or 3.8%, from $319,000 for the nine months ended September
30, 1999, to $331,000 for the nine months ended September 30, 2000. This
increase was primarily due to a 146 basis point increase in the Company's
average yield earned on other earning assets, which was partially offset by a
decrease in the Company's average balance of other earning assets of $2.1
million, or 22.1%, from $9.7 million for the nine months ended September 30,
1999, to $7.5 million at September 30, 2000.
The Company's largest group of interest-earning assets is residential
mortgage loans, comprising 61.7% and 61.8% of total average interest-earning
assets for the three- and nine-month periods ended September 30, 2000,
respectively. 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 usually translate to similar changes in market
rates of interest for residential mortgage loans. The average balance of
residential mortgage loans increased $20.0 million, or 11.6%, from $172.1
million for the three months ended September 30, 1999 to $192.0 million for the
three months ended September 30, 2000. The Company's average yield earned on
residential mortgage loans increased by eight basis points from
15
<PAGE>
7.57% for the three months ended September 30, 1999 to 7.65% for the three
months ended September 30, 2000. The average balance of residential mortgage
loans increased $18.6 million, or 11.0%, from $169.5 million for the nine months
ended September 30, 1999 to $188.1 million for the nine months ended September
30, 2000. The Company's average yield earned on residential mortgage loans
increased by two basis points from 7.58% for the nine months ended September 30,
1999 to 7.60% for the nine months ended September 30, 2000.
INTEREST EXPENSE
Interest expense increased $767,000, or 24.7%, from $3.1 million for the
three months ended September 30, 1999, to $3.9 million for the three months
ended September 30, 2000. This increase was due to an increase both in the
average balance of interest-bearing liabilities and in the cost of such
liabilities. The average balance of interest-bearing liabilities increased $31.6
million, or 12.6%, from $250.7 million for the three months ended September 30,
1999, to $282.4 million for the three months ended September 30, 2000, and the
cost of such interest-bearing liabilities increased 54 basis points from 4.94%
for the three months ended September 30, 1999 to 5.48% for the three months
ended September 30, 2000.
Interest expense increased $2.1 million, or 23.6%, from $8.9 million for
the nine months ended September 30, 1999, to $11.0 million for the nine months
ended September 30, 2000. This increase was due to an increase both in the
average balance of interest-bearing liabilities and in the cost of such
liabilities. The average balance of interest-bearing liabilities increased $30.6
million, or 12.5%, from $244.2 million for the nine months ended September 30,
1999, to $274.8 million for the nine months ended September 30, 2000, and the
cost of such interest-bearing liabilities increased 48 basis points from 4.85%
for the nine months ended September 30, 1999 to 5.33% for the nine months ended
September 30, 2000.
The Company's largest source of funds is certificates of deposit, which
funded 52.7% and 51.4% of total average interest-earning assets for the three-
and nine-month periods ended September 30, 2000, respectively. Market rates on
shorter term U.S. Government Notes and Bonds and rates offered by competing
depository institutions, heavily influence the Company's offering rates on
certificates of deposit. Significant changes in shorter term U.S. Government
Notes and Bonds may translate into somewhat similar changes in offering rates
for certificates of deposit.
The average balance of interest-bearing deposits increased $8.2 million, or
4.0%, from $203.0 million for the three months ended September 30, 1999, to
$211.2 million for the three months ended September 30, 2000. The cost of
interest-bearing deposits increased $365,000, or 14.8%, from $2.5 million for
the three months ended September 30, 1999 to $2.8 million for the three months
ended September 30, 2000. The cost of such average deposits increased 51 basis
points for the quarter ended September 30, 2000 as compared to the quarter ended
September 30, 1999. Interest expense on borrowings increased $402,000, or 63.7%,
from $631,000 for the three months ended September 30, 1999, to $1.0 million for
the three months ended September 30, 2000. The primary reasons for the increase
were a $23.4 million, or 49.0%, increase in the average balance of borrowings,
and an increase in the cost of borrowings of 52 basis points.
The average balance of interest-bearing deposits increased $8.8 million, or
4.5%, from $195.8 million for the nine months ended September 30, 1999, to
$204.6 million for the nine
16
<PAGE>
months ended September 30, 2000. The cost of interest-bearing deposits increased
$974,000, or 13.9%, from $7.0 million for the nine months ended September 30,
1999 to $8.0 million for the nine months ended September 30, 2000. The cost of
such average deposits increased 43 basis points for the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999.
Interest expense on borrowings increased $1.1 million, or 60.0%, from $1.9
million for the nine months ended September 30, 1999, to $3.0 million for the
nine months ended September 30, 2000. The primary reasons for the increase were
a $21.8 million, or 45.1%, increase in the average balance of borrowings, and an
increase in the cost of borrowings of 53 basis points.
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.
17
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
---------------------------------- ---------------------------------
Average Average Average Average
(Dollars in Thousands) Balance Interest Yield/cost Balance Interest Yield/cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Residential mortgage loans $192,038 $ 3,675 7.65 % $172,054 $ 3,257 7.57%
Commercial loans 43,066 1,004 9.33 37,839 831 8.78
Consumer and other loans 26,832 614 9.15 23,494 552 9.40
-------- -------- -------- --------
Total loans 261,936 5,293 8.08 233,387 4,640 7.95
Investment securities (1) 40,893 720 7.04 40,245 662 6.58
Other earning assets 8,350 129 6.18 7,362 89 4.84
-------- -------- -------- --------
Total interest-earning assets 311,179 6,142 7.90 280,994 5,391 7.67
-------- --------
Noninterest-earning assets 11,815 9,780
-------- --------
Total Assets $322,994 $290,774
======== =========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 34,874 363 4.16 35,724 312 3.49
Savings deposits 12,414 62 2.00 16,512 72 1.74
Certificates of deposit 163,934 2,408 5.88 150,765 2,084 5.53
-------- -------- -------- --------
Total deposits 211,222 2,833 5.36 203,001 2,468 4.86
Borrowings 71,135 1,033 5.81 47,744 631 5.29
-------- -------- -------- --------
Total interest-bearing liabilities 282,357 3,866 5.48 250,745 3,099 4.94
-------- --------
Noninterest-bearing demand deposits 10,481 10,517
Other noninterest-bearing liabilitie 2,355 1,802
-------- --------
Total liabilities 295,193 263,064
-------- --------
Stockholders' equity 27,801 27,710
-------- --------
Total liabilities and stockholders'
equity $322,994 $290,774
======== ========
Net interest-earning assets $ 28,822 $ 30,249
======== ========
Net interest income/interest rate spread $ 2,276 2.42% $ 2,292 2.73%
======== ===== ======== =====
Net interest margin 2.93% 3.26%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities 110.21% 112.06%
======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------------- ---------------------------------
Average Average Average Average
(Dollars in Thousands) Balance Interest Yield/cost Balance Interest Yield/cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Residential mortgage loans $188,113 $ 10,721 7.60% $169,518 $ 9,639 7.58 %
Commercial loans 41,829 2,854 9.10 35,114 2,285 8.68
Consumer and other loans 25,887 1,749 9.01 22,360 1,569 9.36
------- -------- ------- --------
Total loans 255,829 15,324 7.99 226,992 13,493 7.93
Investment securities (1) 41,247 2,214 7.16 40,498 1,959 6.45
Other earning assets 7,548 331 5.85 9,689 319 4.39
------- -------- ------- --------
Total interest-earning assets 304,624 17,869 7.82 277,179 15,771 7.59
-------- --------
Noninterest-earning assets 10,796 8,887
------- -------
Total Assets $315,420 $286,066
======== ========
Interest-bearing liabilities:
Deposits:
Demand deposits $ 34,645 1,017 3.91 $ 34,253 870 3.39
Passbook savings deposits 13,285 199 2.00 17,933 231 1.72
Certificates of deposit 156,676 6,763 5.76 143,603 5,904 5.48
------- -------- ------- --------
Total deposits 204,606 7,979 5.20 195,789 7,005 4.77
Borrowings 70,158 3,004 5.71 48,366 1,878 5.18
------- -------- ------- --------
Total interest-bearing liabilities 274,764 10,983 5.33 244,155 8,883 4.85
-------- --------
Noninterest-bearing demand deposits 11,012 10,732
Other noninterest-bearing liabilitie 1,998 1,549
------- -------
Total liabilities 287,774 256,436
------- --------
Stockholders' equity 27,646 29,630
------- --------
Total liabilities and stockholders'
equity $315,420 $286,066
======== =========
Net interest-earning assets $ 29,860 $ 33,024
======== =========
Net interest income/interest rate spread $ 6,886 2.49 % 6,888 2.74 %
======== ===== ====== ====
Net interest margin 3.01 % 3.31 %
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities 110.87% 113.53%
======== ======
</TABLE>
-----------------
(1)Includes FHLB stock.
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
19
<PAGE>
appropriate in order to maintain the adequacy of the allowance for loan losses.
The Company made no provision for loan losses during the three- and nine-month
periods ended September 30, 2000 and 1999.
At September 30, 2000, the Company's allowance for loan losses amounted to
$2.8 million, or 1.05% of total loans and 529.3% of non-performing loans and
troubled debt restructurings. At December 31, 1999, the Company's allowance for
loan losses amounted to $2.7 million, or 1.11% of total loans and 496.7% of
non-performing loans and troubled debt restructurings.
NON-INTEREST INCOME
For the three months ended September 30, 2000, the Company reported an
increase of $165,000, or 75.7% in non-interest income from $218,000 for the
three months ended September 30, 1999 to $383,000, from the three months ended
September 30, 2000. The primary reasons for the increase were an increase in
other income of $99,000, an increase in trading account gains of $37,000, a
reduction in the loss from the Company's investment in a limited liability
company of $35,000, and net gains on the sale of loans of $8,000, all of which
were partially offset by a decrease in customer service fees of $10,000, and a
decrease in loan servicing fees of $4,000.
For the nine months ended September 30, 2000, the Company reported an
increase of $121,000, or 16.1% in non-interest income from $750,000 for the nine
months ended September 30, 1999 to $871,000, from the nine months ended
September 30, 2000. The primary reasons for the increase were a increase in
other income of $96,000, a reduction in the loss from the Company's investment
in a limited liability company of $110,000, and an increase in trading account
gains of $24,000, all of which were partially offset by a decrease in net gains
on the sale of loans of $81,000, decrease in customer service fees of $21,000,
and a decrease in loan servicing fees of $7,000.
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. As disclosed in Note 4, SIGNIFICANT EVENTS, of the
financial statements, the Company recently purchased an office building to be
used as its new corporate headquarters and new main office branch banking
facility for the Bank. Its current headquarters and main office facilities were
evaluated under current accounting standards regarding ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
resulting in the recognition of an impairment write-down on such facilities of
$323,000 before income taxes. This non-cash charge is included in non-interest
expenses for the nine-month period ended September 30, 2000.
Non-interest expense amounted to $1.8 million for the three months ended
September 30, 2000, compared to $1.7 million for the three months ended
September 30, 1999, reflecting an increase of $45,000, or 2.6%. The net increase
in non-interest expenses included an increase of $106,000, or 12.0%, in salaries
and employee benefits reflecting the cost of nine more employees, an increase of
$8,000, or 8.8%, in occupancy expenses, an increase of
20
<PAGE>
$10,000, or 13.9%, in data processing expenses, and an increase of
$3,000, or 3.8%, in bank shares and franchise tax expense, all of which were
partially offset by a decrease in depreciation expense of $13,000, or 14.0%, a
decrease in deposit insurance premiums of $18,000, or 62.1%, a decrease in
advertising expenses of $12,000, or 24.0%, a net reduction of $3,000, or 30.0%,
in the net costs of foreclosed assets and a decrease in other expenses of
$36,000, or 9.0%.
Non-interest expense amounted to $5.5 million for the nine months ended
September 30, 2000, compared to $5.1 million for the nine months ended September
30, 1999, reflecting an increase of $405,000, or 8.0%, which increase primarily
consisted of the $323,000 non-cash charge related to the impairment write-down.
Other non-interest expenses changed as follows: salaries and employee benefits
increased $274,000, or 10.4%, occupancy expenses increased $8,000, or 3.3%, data
processing expenses increased $49,000, or 27.4%, and advertising expense
(primarily related to the Bank's centennial celebration) increased $47,000, or
40.5%. All of such increases were partially offset by decreases of $56,000, or
62.9%, in deposit insurance premiums, $15,000, or 5.6%, in bank shares and
franchise tax expenses, $27,000, or 10.0%, in depreciation expenses, and
$95,000, or 7.6%, in all other expenses, together with net reduction of $103,000
in the net costs of foreclosed assets.
INCOME TAXES
For the three months ended September 30, 2000 and 1999, the Company
incurred income tax expense of $319,000 and $277,000, respectively. The
Company's effective tax rate amounted to 35.2% and 34.5% during the three months
ended September 30, 2000 and 1999, 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.
For the nine months ended September 30, 2000 and 1999, the Company incurred
income tax expense of $802,000 and $902,000, respectively. The Company's
effective tax rate amounted to 35.4% and 35.4% during the nine months of 2000
and 1999, 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.
LIQUIDITY 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. Under current agreements, the Company has the ability to borrow up
to approximately $132.3 million from the FHLB through its subsidiary Bank, and
$4.7 million from the Federal Reserve Bank. Additionally, using other
investments as collateral, the subsidiary Bank could borrow $8.7 million.
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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
September 30, 2000, the total approved commitments to extend credit amounted to
$19.5 million. Certificates of deposit scheduled to mature in one year or less
at the same date totaled $118.7 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.
CAPITAL RESOURCES
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. 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 to
average assets (as defined). Management believes, as of September 30, 2000, that
the Company and the Bank met all capital adequacy requirements to which they are
subject.
As of September 30, 2000, 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 September 30, 2000 are presented in the table
below:
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<TABLE>
<CAPTION>
Minumum to be
Minimum Well Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
----------------------------- ------------------- ----------------------
(Dollars in Thousands)
September 30, 2000 Amount Ratio Amount Ratio Amount Ratio
--------------------- ------------ ----------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets:
Acadiana Bancshares, Inc. $ 30,599 16.5% $ 14,872 8.0% N/A N/A %
LBA Savings Bank 26,341 14.4% 14,600 8.0% 18,590 10.0%
Tier 1 Capital to Risk Weighted Assets:
Acadiana Bancshares, Inc. 28,251 15.2% 12,921 4.0% N/A N/A %
LBA Savings Bank 24,035 13.2% 12,694 4.0% 19,381 6.0%
Tier 1 Capital to Average Assets:
Acadiana Bancshares, Inc. 28,251 8.7% 12,921 4.0% N/A N/A %
LBA Savings Bank 24,035 7.6% 12,694 4.0% 15,868 5.0%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The preparation of financial statements in accordance with generally
accepted accounting principles generally require the measurement of financial
position and operation results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Company's assets and
liabilities are monetary in nature. Consequently, interest rates generally have
a more significant impact on the Company's performance than does the effect of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
YEAR 2000 CONSIDERATIONS
As of the date hereof, the Company has not experienced any significant Year
2000 problems with respect to its computer systems or software or the systems
and software of third-party vendors. The Company also is not aware that Year
2000 issues have adversely affected the ability of its commercial customers to
meet their debt service obligations to the Company or otherwise. The Company
will continue to monitor systems for problems in the future, however, and costs
and/or issues related to that process are not expected to be significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND INTEREST
RATE RISK
MARKET RISK
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates or prices such as interest rates, foreign
currency exchange rates, commodity prices, and equity prices. The Company's
primary market risk exposure is interest rate risk. The ongoing monitoring and
management of this risk is an important component of the Company's
asset/liability management process, which is governed by policies established by
its Board of Directors that 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.
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DeJean, Saloom, and Beacham, 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. The Company's
1999 Annual Report to Stockholders' has further information relating to market
risk. Except as disclosed below, the Company does not believe that its exposure
to market risks has changed materially since December 31, 1999.
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. 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.
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. The Company's 1999
Annual Report to Stockholders' has further information relating to interest rate
risk. The Company believes that its exposure to interest rate risk has increased
moderately since December 31, 1999.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Not applicable.
Item 2. CHANGES IN SECURITIES.
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
Item 5. OTHER INFORMATION.
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
3.1* Articles of Incorporation of Acadiana Bancshares, Inc.
3.2* Bylaws of Acadiana Bancshares, Inc.
4.0* Form of Stock Certificate of Acadiana Bancshares, Inc.
10.1** Stock Option Plan
10.2** 1996 Recognition and Retention Plan and Trust Agreement for
Employees and Non Employee Directors
10.3** Employment Agreement between LBA Savings Bank and Gerald G.
Reaux, Jr.
10.4* Form of Severance Agreement between Acadiana Bancshares, Inc.,
LBA Savings Bank and Lawrence Gankendorff, James J. Montelaro,
Gregory King, Mary Anne Bertrand, Wayne Bares, Emile E.
Soulier, III and Thomas F. Debaillon.
27.0 Financial Date Schedule
(*) Incorporated herein by reference from the Registration
Statement on Form S-1 (Registration No. 333-1396) filed by the
Registrant with the SEC on February 15, 1996, as subsequently
amended.
(**) Incorporated herein by reference from the definitive proxy
statement, dated December 16, 1996, filed by the Registrant
with the SEC (Commission File No. 1-4364).
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(***) Incorporated herein by reference from the Annual Report on Form
10-K (File No. 1-14364) filed by the Registrant with the SEC on
March 31, 1997.
b) No Form 8-K reports were filed during the quarter.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACADIANA BANCSHARES, INC.
Date: November 13, 2000 By: /s/ GERALD G. REAUX, JR.
-----------------------------------
Gerald G. Reaux, Jr., President and
Chief Executive Officer
Date: November 13, 2000 By: /s/ EMILE E. SOULIER, III
-----------------------------------
Emile E. Soulier, III, Vice-President
and Chief Financial Officer
