SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 0-20911
ALGIERS BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
LOUISIANA 72 - 1317594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#1 WESTBANK EXPRESSWAY, NEW ORLEANS, LOUISIANA 70114
(Address of principal executive offices)
Issuer's telephone number, including area code: (504)367-8221
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. Yes [X] No [ ]
Issuer's revenues for the fiscal year ended December 31, 1996: $3.1 million
As of March 19, 1997, the aggregate market value of the 594,080 shares of Common
Stock of the Issuer held by non-affiliates, which excludes 53,945 shares held by
all directors and officers of the Issuer as a group, was approximately $8.3
million. This figure is based on the average of the bid and asked prices of
$14.00 per share of the Issuer's Common Stock on March 19, 1997.
Number of shares of Common Stock outstanding on March 19, 1997: 648,025
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for the year ended December
31, 1996 are incorporated into Part II, Items 5 through 8 and Part III, Item 13
of this Form 10-KSB.
(2) Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders filed on April 7, 1997 are incorporated into Part III, Items 9
through 12 of this Form 10-KSB.
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PART I.
Item 1. Description of Business
Algiers Bancorp, Inc. (the "Company") is a Louisiana corporation
organized in February 1996 by Algiers Homestead Association ("Algiers" or the
"Association") for the purpose of becoming a unitary holding company of the
Association. The only significant assets of the Company are the capital stock of
the Association, the Company's loan to its Employee Stock Ownership Plan (the
"ESOP"), and the remainder of the net proceeds retained by the Company in
connection with the conversion of the Association from mutual to stock form on
July 8, 1996 (the "Conversion"). The business and management of the Company
primarily consists of the business and management of the Association. The
Company neither owns nor leases any property, but instead uses the premises,
equipment and furniture of the Association. The Company does not intend to
employ any persons other than officers of the Association, and the Company
utilizes the support staff of the Association from time to time. Additional
employees will be hired as appropriate to the extent the Company expands or
changes its business in the future.
The Association is a Louisiana-chartered stock savings and loan
association that was originally formed in 1926. The Association conducts
business from its main office in New Orleans, Louisiana and a branch office in
Terrytown, Louisiana. At December 31, 1996, the Company had $48.2 million of
total assets, $38.4 million of total liabilities, including $36.6 million of
deposits, and $9.8 million of total stockholders' equity (representing 20.3 % of
total assets).
The Association is primarily engaged in attracting deposits from the
general public through its offices and using those and other available sources
of funds to purchase mortgage-backed securities and to originate loans secured
primarily by one- to four-family residences located in the New Orleans,
Louisiana metropolitan area. Algiers had $32.9 million of mortgage-backed
securities at December 31, 1996, representing 68.2% of the Company's total
assets. At December 31, 1996, Algiers' net loans receivable totalled $9.2
million or 19.1% of the Company's total assets. Conventional first mortgage,
one- to four-family residential loans (excluding construction loans) amounted to
$8.1 million or 82.9% of Algiers' total loan portfolio at December 31, 1996. To
a lesser extent, the Association also originates consumer loans, construction
loans and commercial real estate loans. The Company had $3.3 million of
investment securities (excluding FHLB stock) at December 31, 1996, representing
6.8% of total assets. Of the $3.3 million of investment securities, $825,000 or
25.1 % mature within one year of December 31, 1996.
The Association is a community-oriented savings institution which
emphasizes customer service and convenience. It generally has sought to enhance
its net income by, among other things, maintaining strong asset quality. In
pursuit of these goals, the Association has adopted a business strategy that
emphasizes the purchase of mortgage-backed securities, as well as lending and
deposit products and services traditionally offered by savings institutions.
Certain results of the implementation of the Association's business strategy,
briefly noted below, have enabled the Association to be profitable and to exceed
regulatory capital requirements.
o Capital Position. As of December 31, 1996, the Association had total
stockholder's equity of $9.8 million and exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 14.83%,
14.83% and 54.24%, respectively, as compared to the minimum requirements of
1.5%, 3.0% and 8.0%, respectively.
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o Profitability. The Company has been profitable in each of the last
three years. Net income declined in 1996 to $156,000 from $169,000 in 1995 due
to a special assessment paid for SAIF insurance which amounted to $159,000 on an
after-tax basis. Net income declined from $249,000 in 1994 to $169,000 in 1995,
as the Association's average interest rate spread declined, resulting in a
$137,000 decrease in net interest income.
o Asset Quality. Management believes that good asset quality is
important to the Company's long-term profitability. The Association's total
nonperforming assets, which consist of non-accruing loans, net real estate owned
("REO") and net non-accruing investment securities, together with troubled debt
restructurings, amounted to $97,000 or .2% of total assets at December 31, 1996,
compared to $234,000 or .55% of total assets at December 31, 1995. At December
31, 1996, the Association's allowance for loan losses amounted to $530,000 or
5.4% of the total loan portfolio, and its allowance on investment securities
amounted to $62,400 or 100.0% of the total non-accruing investment securities.
o Interest Rate Risk. The Association attempts to manage its exposure
to interest rate risk by maintaining a high percentage of its assets in
adjustable-rate mortgages ("ARMs") and adjustable-rate mortgage-backed
securities. At December 31, 1996, ARMs amounted to $7.0 million or 71.6% of the
total loan portfolio. In addition, of the $32.9 million of mortgage-backed
securities at December 31, 1996, $28.0 million or 85.1% have adjustable interest
rates.
o Community Orientation. The Association is committed to meeting the
financial needs of the communities in which it operates. Management believes the
Association is large enough to provide a full range of personal financial
services, yet small enough to be able to provide services on a personalized and
efficient basis. At December 31, 1996, most of the Association's loans were to
residents of its primary market area. The Association intends to continue its
practice of investing in loans in its primary market area in accordance with its
underwriting standards, subject to economic conditions and the availability of
reasonable investment alternatives.
The Association is subject to examination and comprehensive regulation
by the Louisiana Office of Financial Institutions ("OFI"), which is the
Association's chartering authority, and by the Office of Thrift Supervision
("OTS"), which is the Association's primary federal regulator. The Association
is also regulated by the Federal Deposit Insurance Corporation ("FDIC"), the
administrator of the Savings Association Insurance Fund ("SAIF"). The
Association is also subject to certain reserve requirements established by the
Board of Governors of the Federal Reserve System ("FRB") and is a member of the
Federal Home Loan Bank ("FHLB") of Dallas, which is one of the 12 regional banks
comprising the FHLB System.
The executive office for the Company and the Association is located at
1 Westbank Expressway, New Orleans, Louisiana 70114, and its telephone number is
(504) 367-8221.
<PAGE>
Market Area
The Company's market area consists of Orleans, Jefferson and
Plaquemines Parishes in the New Orleans, Louisiana metropolitan statistical
area. The traditional components of the area's economic base have consisted of
tourism, the port of New Orleans and related shipbuilding, and the petroleum
industry. Slowdowns in the petroleum industry had a material negative impact on
the area's economy in the early 1980s, which were compounded by defense-related
cutbacks in recent years. The area's economy has stabilized in recent years due
to development of tourism and convention activities and related service-oriented
companies, as well as the gaming industry.
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In addition, the New Orleans economic base has diversified into areas such as
health services, the aerospace industry and research and technology. However,
there is still a significant degree of volatility in the local economy due to a
continued heavy reliance on the same industries that led to the decline in the
1980s, and there has been a decline in the population since the early 1980s.
Competition for deposits and lending in Orleans, Jefferson and Plaquemines
Parishes is substantial, with most of the current competition being from
commercial banks.
New Orleans serves as the headquarters for several Fortune 500
companies, including Avondale Industries, Freeport-McMoRan, Louisiana Land and
Exploration and McDermott, Inc. Major employers in the area include Avondale
Industries, Inc., Tulane University, Ochsner Medical Institutions, Tenet
Healthcare Corp., Schwegmann Brothers Giant Super Markets, Hibernia National
Bank, South Central Bell Telephone Company and First Commerce Corp.
Lending Activities
Loan Portfolio Composition. At December 31, 1996, the Association's net
loan portfolio totalled $9.2 million, representing approximately 19.1 % of the
Company's $48.2 million of total assets at that date. The principal lending
activity of the Association is the origination of one- to four-family
residential loans. At December 31, 1996, conventional first mortgage, one- to
four-family residential loans (excluding construction loans) amounted to $8.1
million or 82.9% of the total loan portfolio, before net items. To a lesser
extent, the Association originates construction loans, commercial real estate
loans and consumer loans. At December 31, 1996, construction loans amounted to
$89,000 or 0.9% of the total loan portfolio, commercial real estate loans
totalled $668,000 or 6.8% of the total loan portfolio, and consumer loans
amounted to $869,000 or 8.9% of the total loan portfolio, in each case before
net items.
Loan Portfolio Composition. The following table sets forth the
composition of the Association's loan portfolio by type of loan at the dates
indicated.
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<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
Amount % Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family residential:
Conventional ................ $ 8,135 82.9% $ 7,978 76.0% $ 8,738 80.6%
FHA and VA .................. 51 0.5 72 0.7 90 0.8
Construction .................. 89 0.9 491 4.7 -- --
Commercial real estate ........ 668 6.8 858 8.1 879 8.1
------- ----- ------- ----- ------- -----
Total real estate loans .. 8,943 91.1 9,399 89.5 9,707 89.5
------- ----- ------- ----- ------- -----
Consumer loans:
Second mortgage ............. 175 1.8 111 1.1 111 1.0
Loans on deposits .......... 694 7.1 986 9.4 1,025 9.5
------- ----- ------- ----- ------- -----
Total consumer loans ..... 869 8.9 1,097 10.5 1,136 10.5
------- ----- ------- ----- ------- -----
Total loans ............ 9,812 100.0% 10,496 100.0% 10,843 100.0%
===== ===== =====
Less:
Unearned discounts and interest 8 6 12
Undisbursed portion of
construction loans ......... 7 224 --
Deferred loan fees ............ 47 42 32
Allowance for loan losses ..... 530 534 558
------- ------- ---------
Net loans ................... $ 9,220 $ 9,690 $ 10,241
======= ======= =========
</TABLE>
<PAGE>
Contractual Terms to Final Maturities. The following table sets forth
certain information as of December 31, 1996 regarding the dollar amount of loans
maturing in the Association's portfolio, based on the contractual date of the
loan's final maturity, before giving effect to net items. Demand loans and loans
having no stated schedule of repayments and no stated maturity are reported as
due in one year or less. The amounts shown below do not reflect normal principal
amortization; rather, the balance of each loan outstanding at December 31, 1996
is shown in the appropriate year of the loan's final maturity.
<TABLE>
<CAPTION>
One-to
four-family Commercial
residential Construction real estate Consumer Total
----------- ------------ ----------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due after December 31, 1996 in:
One year or less .................... $ -- $ 89 $ -- $ 694 $ 783
After one year through two years .... -- -- -- -- --
After two years through three years . -- -- -- -- --
After three years through five years 71 -- 56 9 136
After five years through ten years .. 855 -- 6 12 873
After ten years through fifteen years 2,800 -- 13 154 2,967
After fifteen years ................. 4,460 -- 593 -- 5,053
------ ------ ------ ------ ------
Total (1) ......................... $8,186 $ 89 $ 668 $ 869 $9,812
====== ====== ====== ====== ======
(1) Gross of loans in process, deferred fees, unearned discounts and interest,
and allowance for loan losses.
</TABLE>
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The following table sets forth the dollar amount of all loans, before
net items, due after one year from December 31, 1996 as shown in the preceding
table, which have fixed interest rates or which have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In thousands)
<S> <C> <C> <C>
One-to four-family residential ....... $1,999 $6,195 $8,194
Commercial real estate ............... -- 660 660
Consumer ............................. -- 175 175
------ ------ ------
Total ............................. $1,999 $7,030 $9,029
====== ====== ======
</TABLE>
Scheduled contractual maturities of loans do not necessarily reflect
the actual term of the Association's portfolio. The average life of mortgage
loans is substantially less than their average contractual terms because of loan
prepayments and enforcement of due-on-sale clauses, which give the Association
the right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells the real property subject to the mortgage
and the loan is not repaid. The average life of mortgage loans tends to
increase, however, when current mortgage loan rates substantially exceed rates
on existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans substantially exceed current mortgage loan rates.
Origination of Loans. The lending activities of the Association are
subject to the written underwriting standards and loan origination procedures
established by the Association's Board of Directors and management. Loan
originations are obtained through a variety of sources, including referrals from
real estate brokers, builders and existing customers. Written loan applications
are taken by lending personnel, and the loan department supervises the
procurement of credit reports, appraisals and other documentation involved with
a loan. Property valuations are performed by independent outside appraisers
approved by the Association's Board of Directors or a committee thereof.
Under the Association's real estate lending policy, either a title
opinion signed by an approved attorney or a title insurance policy must be
obtained for each real estate loan. The Association also requires fire and
extended coverage casualty insurance, in order to protect the properties
securing its real estate loans. Borrowers must also obtain flood insurance
policies when the property is in a flood hazard area as designated by the
Department of Housing and Urban Development. Borrowers may be required to
advance funds on a monthly basis together with each payment of principal and
interest to a mortgage loan account from which the Association makes
disbursements for items such as real estate taxes, hazard insurance premiums and
private mortgage insurance premiums as they become due.
The Association's loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. The Association's
lending policies require that most loans to be originated by the Association be
approved in advance by the Board of Directors, except that the President and the
Chief Operating Officer are each authorized to approve second mortgage loans not
to exceed $5,000.
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The following table shows total loans originated and repaid during the
periods indicated. No loans were purchased or sold during the periods shown.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Loan originations:
One-to four-family residential .... $ 802 $ 583 $ 1,039
Construction ...................... 89 491 --
Commercial real estate ............ 108 -- 66
Consumer .......................... 1,166 425 666
------- ------- -------
Total loan originations ...... 2,165 1,499 1,771
Loan principal repayments ............ (2,844) (1,847) (1,547)
Increase (decrease) due to other
items, net (1) .................... 209 (203) (13)
------- ------- -------
Net increase (decrease) in
loan portfolio .................... $ (470) $ (551) $ 211
======= ======= =======
(1) Other items consist of loans in process, deferred fees and discounts, and
allowance for loan losses.
</TABLE>
Real Estate Lending Standards and Underwriting Policies. Effective
March 19, 1993, all financial institutions were required to adopt and maintain
comprehensive written real estate lending policies that are consistent with safe
and sound banking practices. These lending policies must reflect consideration
of the Interagency Guidelines for Real Estate Lending Policies adopted by the
federal banking agencies, including the OTS, in December 1992 ("Guidelines").
The Guidelines set forth uniform regulations prescribing standards for real
estate lending. Real estate lending is defined as extensions of credit secured
by liens on interests in real estate or made for the purpose of financing the
construction of a building or other improvements to real estate, regardless of
whether a lien has been taken on the property.
An institution's lending policy must address certain lending
considerations set forth in the Guidelines, including loan-to-value ("LTV")
limits, loan administration procedures, underwriting standards, portfolio
diversification standards, and documentation, approval and reporting
requirements. The policy must also be appropriate to the size of the institution
and the nature and scope of its operations, and must be reviewed and approved by
the institution's board of directors at least annually. The LTV ratio framework,
with the LTV ratio being the total amount of credit to be extended divided by
the appraised value or purchase price of the property at the time the credit is
originated, must be established for each category of real estate loans. If a
loan is not secured by a first lien, the lender must combine all senior liens
when calculating this ratio. The Guidelines, among other things, establish the
following supervisory LTV limits: raw land (65%); land development (75%);
construction (commercial, multi-family and nonresidential) (80%); improved
property and one- to four-family residential construction (85%); and one- to
four-family (owner occupied) and home equity (no maximum ratio; however, any LTV
ratio in excess of 90% should require appropriate insurance or readily
marketable collateral).
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Certain institutions can make real estate loans that do not conform
with the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one-to-four family residential
properties should not exceed 30% of total capital. An institution will come
under increased supervisory scrutiny as the total of such loans approaches these
levels. Certain loans are exempt from the LTV ratios (e.g., those guaranteed by
a government agency, loans to facilitate the sale of real estate owned, loans
renewed, refinanced or restructured by the original lender(s) to the same
borrower(s) where there is no advancement of new funds, etc.).
The Association is in compliance with the above standards.
Although Louisiana laws and regulations permit state-chartered savings
institutions, such as the Association, to originate and purchase loans secured
by real estate located throughout the United States, the Association's present
lending is done primarily within its primary market area, which consists of
Orleans, Jefferson and Plaquemines Parishes in Louisiana. Subject to the
Association's loans-to-one borrower limitation, the Association is permitted to
invest without limitation in residential mortgage loans and up to 400% of its
capital in loans secured by non-residential or commercial real estate. The
Association may also invest in secured and unsecured consumer loans in an amount
not exceeding 35% of the Association's total assets. This 35% limitation may be
exceeded for certain types of consumer loans, such as home equity and property
improvement loans secured by residential real property. In addition, the
Association may invest up to 10% of its total assets in secured and unsecured
loans for commercial, corporate, business or agricultural purposes. At December
31, 1996, the Association was well within each of the above lending limits.
As required by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), a savings institution generally may not make
loans to one borrower and related entities in an amount which exceeds 15% of its
unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities. At December 31,
1996, the Association's limit on loans-to-one borrower was $500,000 and its five
largest loans or groups of loans-to-one borrower, including persons or entities
related to the borrower, amounted to $538,000, $495,000, $274,000, $223,000 and
$223,000, respectively, at such date. The $538,000 borrowing relationship
consists of a $504,000 commercial real estate loan which is treated as a
classified asset at December 31, 1996 and a $34,000 loan to a corporation
affiliated with the borrower and secured by a boathouse. All of these loans were
current at December 31, 1996, including the $504,000 loan treated as a
classified asset. See "-Asset Quality-Classified Assets."
Loans on Existing Residential Properties. The primary real estate
lending activity of the Association is the origination of loans secured by first
mortgage liens on one- to four-family residences. At December 31, 1996, $8.1
million or 82.9% of the Association's total loan portfolio, before net items,
consisted of conventional first mortgage, one-to four-family residential loans
(excluding construction loans).
<PAGE>
The loan-to-value ratio, maturity and other provisions of the loans
made by the Association generally have reflected the policy of making less than
the maximum loan permissible under applicable regulations, in accordance with
sound lending practices, market conditions and underwriting standards
established by the Association. The Association's lending policies on one- to
four-family residential mortgage loans generally limit the maximum loan-to-value
ratio to 95%
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of the lesser of the appraised value or purchase price of the property, and
generally one- to four-family residential loans in excess of an 80%
loan-to-value ratio require private mortgage insurance. Residential mortgage
loans are amortized on a monthly basis with principal and interest due each
month and customarily include "due-on-sale" clauses, which are provisions giving
the Association the right to declare a loan immediately due and payable in the
event the borrower sells or otherwise disposes of the real property subject to
the mortgage or the loan is not repaid. The Association enforces due-on-sale
clauses to the extent permitted under applicable laws.
Various legislative and regulatory changes have given the Association
the authority to originate and purchase mortgage loans which provide for
periodic interest rate adjustments subject to certain limitations. the
Association has been actively marketing ARMs in order to decrease the
vulnerability of its operations to changes in interest rates. At December 31,
1996, one- to four-family residential ARMs represented $6.2 million or 63.1% of
the total loan portfolio, before net items.
The Association's one- to four-family residential ARMs are fully
amortizing loans with contractual maturities of up to 30 years. These loans have
interest rates which are scheduled to adjust periodically in accordance with a
designated index. The Association currently offers ARMs on which the interest
rate adjusts every year based upon the monthly median cost of funds for
SAIF-insured institutions, plus a specified margin. The margin above the cost of
funds index is generally 2.65%. There is a 2% cap on the rate adjustment per
period and a 6% cap on the rate adjustment over the life of the loan. The
Association has originated ARMs using other indexes in the past. The
adjustable-rate loans in the Association's loan portfolio are not convertible by
their terms into fixed-rate loans, are not assumable without the Association's
consent, do not contain prepayment penalties and do not produce negative
amortization.
The Association qualifies borrowers based on the initial interest rate
on the ARM rather than the fully indexed rate. In a rising interest rate
environment, the interest rate on the ARM will increase on the next adjustment
date, resulting in an increase in the borrower's monthly payment. To the extent
the increased rate adversely affects the borrower's ability to repay his loan,
the Association is exposed to increased credit risk. As of December 31, 1996,
the Association's non-accruing loans were $52,000. See "-Asset Quality."
The demand for adjustable-rate loans in the Association's primary
market area has been a function of several factors, including the level of
interest rates, and the difference between the interest rates offered by
competitors for fixed-rate loans and adjustable-rate loans. Due to the generally
lower rates of interest prevailing in recent periods, the market demand for
adjustable-rate loans has decreased as consumer preference for fixed-rate loans
has increased.
Construction Loans. At December 31, 1996, $89,000 or 0.9% of the
Association's total loan portfolio, before net items, consisted of two loans for
the construction of one- to four-family residences. Construction loans are not
being actively marketed and are offered primarily as a service to existing
customers. The two construction loans each bear a fixed interest rate during the
construction phase and are structured to be converted to adjustable-rate
permanent loans at the end of the construction phase.
Construction lending is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real estate
because of the uncertainties of construction, including the possibility of costs
exceeding the initial estimates and the need to
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<PAGE>
obtain a tenant or purchaser if the property will not be owner-occupied. The
Association generally attempts to mitigate the risks associated with
construction lending by, among other things, lending primarily in its market
area, using conservative underwriting guidelines, and closely monitoring the
construction process.
Commercial Real Estate Loans. The Association's commercial real estate
loan portfolio primarily consists of loans secured by office buildings, retail
establishments, churches and multi-family dwellings located within the
Association's primary market area. Commercial real estate loans amounted to
$668,000 or 6.8% of the total loan portfolio at December 31, 1996. The largest
commercial real estate loan at December 31, 1996 was $504,000 (gross of a
$190,000 reserve), and the average balance of such loans at December 31, 1996
was $82,000.
Nonresidential real estate loans may have terms up to 30 years and
generally have adjustable rates of interest. As part of its commitment to loan
quality, the Association's senior management reviews each nonresidential loan
prior to approval by the Board of Directors. All loans are based on the
appraised value of the secured property and loans are generally not made in
amounts in excess of 70% of the appraised value of the secured property. All
appraisals are performed by an independent appraiser designated by the
Association and are reviewed by management. In originating nonresidential loans,
the Association considers the quality of the property, the credit of the
borrower, the historical and projected cash flow of the project, the location of
the real estate and the quality of the property management. A total of $108,000
of commercial real estate loans were originated in 1996, and none were
originated in 1995.
Commercial real estate lending is generally considered to involve a
higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition, the
payment experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy. The Association generally attempts to mitigate the risks associated
with commercial real estate lending by, among other things, lending primarily in
its market area and using low LTV ratios in the underwriting process.
Consumer Loans. The Association's consumer loans consist of loans on
deposits and second mortgage loans. The consumer loans are not being actively
marketed and are offered primarily as a service to existing customers. At
December 31, 1996, loans on deposits amounted to $694,000, representing 79.9% of
total consumer loans and 7.1% of the total loan portfolio, before net items.
Loans secured by deposit accounts are generally offered with an interest rate
equal to 2% above the rate on the deposit account.
The Association's second mortgage loans amounted to $175,000 or 1.8% of
the total loan portfolio at December 31, 1996. The second mortgages are secured
by one- to four-family residences, are for a fixed amount and a fixed term, and
are made to individuals for a variety of purposes. All of the second mortgages
at December 31, 1996 have adjustable interest rates.
The Association is considering expanding the types of loans it offers
to include equity lines of credit and mobile home loans. The mobile home loans
would be sold to another institution without recourse. The Association is also
considering purchasing loan participation interests through another financial
institution.
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<PAGE>
Loan Fees and Servicing Income. In addition to interest earned on
loans, the Association receives income through the servicing of loans and loan
fees charged in connection with loan originations and modifications, late
payments, prepayments, changes of property ownership and for miscellaneous
services related to its loans. Income from these activities varies from
period-to-period with the volume and type of loans made.
Loan origination fees or "points" are a percentage of the principal
amount of the mortgage loan and are charged to the borrower in connection with
the origination of the loan. The Association's loan origination fees are offset
against direct loan origination costs, and the resulting net amount is deferred
and amortized as interest income over the contractual life of the related loans
as an adjustment to the yield of such loans. At December 31, 1996, the
Association had approximately $47,000 of loan fees which had been deferred. The
deferred loan fees are being recognized as income over the lives of the related
loans.
Asset Quality
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1996, in dollar amounts and as a percentage of
the Association's total loan portfolio. The amounts presented represent the
total outstanding principal balances of the related loans, rather than the
actual payment amounts which are past due.
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------
30-59 90 or More Days
Days overdue 60-89 Days overdue Overdue
--------------------------------------------------------------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family
residential real estate
loans ................. $652 6.64% $193 1.97% $ 97 0.99%
commercial real estate
loans ................. 58 0.59 -- -- -- --
Consumer loans ........... 206 2.10 3 0.03 6 0.06
---- ---- ---- ---- ---- ----
Total delinquent loans $916 9.33% $196 2.00% $103 1.05%
==== ==== ==== ==== ==== =====
</TABLE>
Nonperforming Assets. When a borrower fails to make a required loan
payment, the Association attempts to cause the default to be cured by contacting
the borrower. In general, contacts are made after a payment is more than 15 days
past due. A significant portion of the Association's loans provide for a 45 day
grace period, and no late charge is assessed on these loans until the payment is
46 days past due. Defaults are cured promptly in most cases. If the delinquency
on a mortgage loan exceeds 90 days and is not cured through the Association's
normal collection procedures, or an acceptable arrangement is not worked out
with the borrower, the Association will commence foreclosure action.
11
<PAGE>
If foreclosure is effected, the property is sold at a sheriff's sale.
If the Association is the successful bidder, the acquired real estate property
is then included in the Association's "real estate owned" account until it is
sold. The Association is permitted under applicable regulations to finance sales
of real estate owned by "loans to facilitate" which may involve more favorable
interest rates and terms than generally would be granted under the Association's
underwriting guidelines. At December 31, 1996, the Association had no loans to
facilitate.
The Association generally places loans on non-accrual status when the
payment of interest becomes 90 days past due or when interest payments are
otherwise deemed uncollectible.
The following table sets forth the amount of the Association's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995 1994
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Total nonperforming assets:
Non-accruing loans .................... $ 52 $ 76 $ 31
Real estate owned, net (1) ............ 45 92 161
Non-accruing investment
securities, net (1) ................ -- -- 265
------ ---- ----
Total nonperforming assets ............ $ 97 $168 $457
====== ==== ====
Troubled debt restructurings ............. $ -- $ 66 $ 64
====== ==== ====
Total nonperforming loans and
troubled debt restructurings
as a percentage of total loans ......... 0.53% 1.35% 0.88%
====== ==== ====
Total nonperforming loans and
troubled debt restructurings
as a percentage of total assets ........ 0.20% 0.55% 1.24%
====== ==== ====
- -----------------
(1) Net of related loss allowances as of each date shown, which allowances at
December 31, 1996 amounted to $46,000 for real estate owned and $62,000 for
non-accruing GIC bonds.
</TABLE>
The $52,000 of non-accruing loans at December 31, 1996 consisted of a
one-to four- family residential loan for $44,000 and a commercial real estate
loan for $8,000.
The Association's real estate owned has steadily declined over the last
three years, and at December 31, 1996 the Association's real estate owned
consisted of two one- to four-family residential properties and one vacant lot
in the New Orleans metropolitan area. The real estate owned at December 31, 1996
consisted of a single-family residential property for $45,000, net of reserves,
plus two other properties that were fully reserved. The $45,000 of real estate
owned at December 31, 1996 is net of a $46,000 allowance for loss. See Note I of
Notes to Consolidated Financial Statements contained in the 1996 Annual Report
to Stockholders, which is filed as Exhibit 13 hereto (the "Annual Report").
12
<PAGE>
The non-accruing investment securities at December 31, 1996 consisted
of the Association's Guaranteed Investment Contract Bonds (the "GIC Bonds"), and
the amount of the securities are shown net of the related allowance for loss.
The allowance for loss equalled the remaining $62,000 principal balance at
December 31, 1996. The GIC bonds matured in 1996 and the remaining fully
reserved balance is an estimate of the amount that the Association expects to
receive based on the reports of the GIC bond trustees.
Classified Assets. All loans are reviewed on a regular basis under the
Association's asset classification policy. The Association's total classified
assets at December 31, 1996 (excluding loss assets specifically reserved for)
amounted to $850,000, of which $314,000 was classified as special mention,
$536,000 was classified as substandard, and $ 0 was classified as doubtful. The
largest classified asset at December 31, 1996 consisted of a $504,000
adjustable-rate commercial real estate loan secured by a furniture store and a
warehouse, on which the Association has established reserves of $190,000 at
December 31, 1996. The collateral was previously foreclosed upon by the
Association, and the borrower repurchased the real estate owned property from
the Association in June 1991 at the Association's total carrying value. Until
recently, the loan had been performing in accordance with its terms since June
1992, and the reserve was established solely because the appraised value of the
collateral in April 1992 was less than the principal balance of the loan. Of the
$504,000 balance at December 31, 1996, $314,000 was classified as special
mention and $190,000 was classified as substandard. As of March 31, 1997, there
are two payments due for principal, interest and escrow totalling $9,400, and
the loan is thus not current as of such date. The Association's management is
closely monitoring this loan and is discussing its status with the borrower. The
borrower has pledged to the Association a deposit account with a balance of
$15,000 to be used to make monthly payments if necessary. It is the opinion of
management that the property securing this loan has a value adequate to cover
the net amount of the loan.
The remaining $346,000 of substandard assets at December 31, 1996
consisted of (1) residential mortgage loans totalling $193,000, of which the
largest loan had a balance of $111,000 at December 31, 1996, and (2) the $91,000
of gross real estate owned, which is included in the above table net of a
$46,000 reserve. The $111,000 substandard residential mortgage loan is secured
by a duplex and a $20,000 certificate of deposit at the Association. The $62,000
of substandard investment securities consist of the Association's GIC bonds,
which are fully reserved at December 31, 1996. The GIC bonds matured in 1996 and
the remaining fully reserved balance is an estimate of the amount that the
Association expects to receive based on the reports of the GIC bond trustees.
Allowance for Loan Losses. At December 31, 1996, the Association's
allowance for loan losses amounted to $530,000 or 5.4% of the total loan
portfolio. The Association's loan portfolio consists primarily of one- to
four-family residential loans and, to a lesser extent, commercial real estate
loans, construction loans and consumer loans. The loan loss allowance is
maintained by management at a level considered adequate to cover possible losses
that are currently anticipated based on prior loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
general economic conditions, and other factors and estimates which are subject
to change over time. Although management believes that it uses the best
information available to make such determinations, future adjustments to
allowances may be necessary, and net income could be significantly affected, if
circumstances differ substantially from the assumptions used in making the
initial determinations.
13
<PAGE>
The following table summarizes changes in the allowance for loan
losses and other selected statistics for the periods presented:
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
1996 1995 1994
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Total loans outstanding ...................... $ 9,812 $ 10,496 $ 10,843
======== ======== ========
Allowance for loan losses, beginning of period $ 534 $ 558 $ 573
Provision (credit) for loan losses ........... (4) (24) (15)
New loans charged-off (recovered)(1) ......... -- -- --
-------- -------- --------
Allowance for loan losses, end of period ..... $ 530 $ 534 $ 558
======== ======== ========
Allowance for loan losses as a percent of
total loans outstanding ................... 5.4% 5.90% 5.3%
======== ======== ========
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings ............................ 1,019.23% 702.63% 1,800.00%
======== ======== ========
- -----------------
(1) There were no loan charge-offs or recoveries in 1996, 1995 and 1994.
</TABLE>
The following table presents the allocation of the Association's
allowance for loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ---------------------
Loan Loan Loan
Category Category Category
Amount as a % Amount as a % Amount as a %
of of Total of of Total of of Total
Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
One-to four-family residential $298 83.4% $338 76.7% $355 81.4%
Construction ................. 3 0.9 -- 4.7 -- --
Commercial real estate ....... 229 6.8 196 8.1 203 8.1
Consumer ..................... -- 8.9 -- 10.5 -- 10.5
---- ----- ---- ----- ---- -----
Total ........................ $530 100.0% $534 100.0% $558 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
<PAGE>
Mortgage-Backed Securities
Algiers has invested in a portfolio of mortgage-backed securities that
are insured or guaranteed by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA") or the Government
National Mortgage Association ("GNMA"). Mortgage-backed securities (which also
are known as mortgage participation certificates or pass-through certificates)
represent a participation interest in a pool of one- to four-family or
multi-family residential mortgages, the principal and interest payments on which
are passed from the mortgage originators, through intermediaries (generally U.S.
government agencies and government sponsored enterprises) that pool and
repackage the participation interests in the form of securities, to investors
such as the Association. FHLMC is a public corporation chartered by the U.S.
government and guarantees the
14
<PAGE>
timely payment of interest and the ultimate return of principal. FHLMC
mortgage-backed securities are not backed by the full faith and credit of the
United States, but because FHLMC is a U.S. government sponsored enterprise,
these securities are considered high 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. The GNMA guarantees the timely payment of principal and interest, and
GNMA securities are backed by the full faith and credit of the U.S. Government.
The FNMA guarantees the timely payment of principal and interest, and FNMA
securities are indirect obligations of the U.S. government.
Of the $32.9 million of mortgage-backed securities at December 31, 1996,
$23.8 million were accounted for as held to maturity and had an aggregate market
value of $23.2 million at such date. The remaining $9.1 million of
mortgage-backed securities at December 31, 1996 are accounted for as available
for sale and are thus carried at market value. For additional information
relating to the Association's mortgage-backed securities, see Note G of Notes to
Consolidated Financial Statements in the Annual Report.
Mortgage-backed securities generally yield less than the loans that
underlie such securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize obligations of the Association. In general, mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, compared to an assigned risk weighting of 50% to 100% for whole
residential mortgage loans. As a result, these types of securities allow the
Association to optimize regulatory capital to a greater extent than
non-securitized whole loans. While mortgage-backed securities carry a reduced
credit risk as compared to whole loans, such securities remain subject to the
risk that a fluctuating interest rate environment, along with other factors such
as the geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities.
15
<PAGE>
The following table sets forth the composition of the Company's
mortgage-backed securities at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed
securities held to
maturity:
FNMA ........................ $16,684 $13,971 $11,626
FHLMC ....................... 3,927 2,771 3,568
GNMA ........................ 3,199 3,719 2,470
------- ------- -------
Subtotal .................. 23,810 20,461 17,664
------- ------- -------
Mortgage-backed
securities available
for sale:
FNMA ........................ 5,415 3,293 4,837
FHLMC ....................... 2,761 3,237 3,092
GNMA ........................ 1,158 1,764
------- ------- -------
901
Subtotal .................. 9,077 7,688 9,693
------- ------- -------
Total ............................. $32,887 $28,149 $27,357
======= ======= =======
</TABLE>
16
<PAGE>
Information regarding the contractual maturities and weighted average
yield of the Company's mortgage-backed securities portfolio at December 31, 1996
is presented below. Due to repayments of the underlying loans, the actual
maturities of mortgage-backed securities generally are substantially less than
the scheduled maturities.
<TABLE>
<CAPTION>
Amounts at December 31, 1996 Which Mature In
---------------------------------------------------------------------
After Five
One Year After One to to Over 10
or Less Five Years 10 Years Years Total
------- ---------- -------- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Held to maturity:
FNMA ........................ $ -- $ 229 $ 1,819 $14,636 $16,684
FHLMC ....................... -- -- -- 3,927 3,927
GNMA ........................ -- -- -- 3,199 3,199
------- ------- ------- ------- -------
Total .................... -- 229 1,819 21,762 23,810
------- ------- ------- ------- -------
Weighted average
yield ................... 0.00% 6.08% 6.12% 6.31% 6.30%
======= ======= ======= ======= =======
Available for sale:
FNMA ........................ 35 29 605 4,746 5,415
FHLMC ....................... -- 163 -- 2,598 2,761
GNMA ........................ 8 211 148 534 901
------- ------- ------- ------- -------
Total .................... 43 403 753 7,878 9,077
------- ------- ------- ------- -------
Weighted average
yield ................... 12.43% 10.20% 8.40% 7.16% 7.45%
======= ======= ======= ======= =======
Total mortgage-backed securities:
FNMA ........................ 35 258 2,424 19,382 22,099
FHLMC ....................... -- 163 -- 6,525 6,688
GNMA ........................ 8 211 148 3,733 4,100
------- ------- ------- ------- -------
Total .................... $ 43 $ 632 $ 2,572 $29,640 $32,887
======= ======= ======= ======= =======
Weighted average
yield ................... 12.43% 8.71% 6.79% 6.51% 6.59%
======= ======= ======= ======= =======
</TABLE>
17
<PAGE>
The following table sets forth the purchases, sales and principal
repayments of the Company's mortgage-backed securities during the periods
indicated.
<TABLE>
<CAPTION>
At or For the
Year Ended December 31,
---------------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage-backed securities
at beginning of period .......... $ 28,149 $ 27,357 $ 28,002
Purchases ......................... 9,228 4,170 6,237
Repayments ........................ (3,676) (3,653) (6,338)
Sales
(638) -- --
Mark to market adjustment ......... (31) 408 (464)
Amortizations of premiums
and discounts, net............... (145) (133) (80)
-------- -------- --------
Mortgage-backed securities at
end of period ................... $ 32,887 $ 28,149 $ 27,357
======== ======== ========
Weighted average yield at
end of period ................... 6.59% 6.96% 6.25%
======== ======== ========
</TABLE>
Investment Securities
The investment policy of the Company, which is established by the Board
of Directors, is designed to maintain liquidity within regulatory limits,
maintain a balance of high-quality investments to minimize risk, provide
collateral for pledging requirements, provide alternative investments when loan
demand is low, maximize returns while preserving liquidity and safety, and
manage interest rate risk. The Association is required to maintain certain
liquidity ratios and does so by investing in securities that qualify as liquid
assets under OTS regulations. Such securities include obligations issued or
fully guaranteed by the United States Government and certain federal agency
obligations.
Investment securities (excluding FHLB stock) totalled $3.3 million or
6.8% of total assets at December 31, 1996. Of the $3.3 million of investment
securities, which consists of U.S. Government and agency securities, $2.5
million are accounted for as available for sale and $825,000 are accounted for
as held to maturity. The aggregate market value of the securities that are
accounted for as held to maturity was $824,000 at December 31, 1996. The
investment securities that are accounted for as available for sale and are thus
carried at market value. At December 31, 1996, $868,000 of investment securities
were scheduled to mature in one year or less, and $2.5 million of investment
securities were scheduled to mature in more than five years.
18
<PAGE>
The following table sets forth certain information relating to the
Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury .......... $ -- $ -- $ 697 $ 697 $1,150 $1,150
FHLB notes ............. 1,999 1,993 -- -- -- --
FNMA notes ............. 325 325
FHLMC notes ............ 150 151
Southeast Texas
Housing Finance
Authority(1) .......... 43 43 83 83 408 408
Louisiana Agricultural
Finance Authority(1) .. 19 19 46 46 216 216
------ ------ ------ ------ ------ ------
Subtotal ............... 2,536 2,531 826 826 1,774 1,774
Less:
Allowance for loss ..... 66 60 129 129 339 339
Discount on securities . 2 2 -- -- 20 20
------ ------ ------ ------ ------ ------
Total available for sale .. 2,468 2,469 697 697 1,415 1,415
------ ------ ------ ------ ------ ------
Held to maturity
Louisiana Public
Facility Authority .... -- -- 300 300 300 300
FHLB notes ............. 425 425 925 904 925 916
Federal Farm Credit Bank 200 200 -- -- -- --
Certificates of deposit -- -- -- -- 99 99
Sallie Mae ............. 200 200 -- -- -- --
FHLB stock ............. 455 455 430 430 403 403
------ ------ ------ ------ ------ ------
Total Held to Maturity .... 1,280 1,280 1,655 1,634 1,727 1,718
------ ------ ------ ------ ------ ------
Total ................. $3,748 $3,749 $2,352 $2,331 $3,142 $3,133
====== ====== ====== ====== ====== ======
(1) Gross of a related allowance for loss, which allowance equalled the full
amount shown at December 31, 1996.
</TABLE>
19
<PAGE>
The following table sets forth the amount of investment securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1996. No tax-exempt yields
have been adjusted to a tax-equivlaent basis.
<TABLE>
<CAPTION>
Amounts at December 31, 1996 Which Mature In
--------------------------------------------------------------------------------------
Over One
Weighted Year Weighted Over Weighted
One Year Average Through Average Five Average
or Less Yield Five Years Yield Years Yield
------- ----- ---------- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Bonds and other debt
securities available for sale:
FHLB notes
and federal agencies $ - - % $ - - % $ 1,999 7.83%
FNMA notes 325
FHLMC notes 150 7.50
Southeast Texas Housing 8.00
Finance Authority(1) 43 - - -
Louisiana Agricultural
Finance Authority(1) 19 - - - - -
---------- ---- ---------- ------- --------- ----
Subtotal 62 - - - 2,474 7.79
---------- ---- ---------- ------- --------- ----
Bonds and other debt
securities held to maturity:
Federal Farm Credit Bank 200 3.94 - - - -
Sallie Mae 200 3.92 - - - -
FHLB notes(1) 425 4.29 - - - -
---------- ---- ---------- ------- --------- ----
Subtotal 825 4.11 - - - -
---------- ---- ---------- ------- --------- ----
Equity securities held to:
maturity:
FHLB stock(2) - - - - 455 5.85
---------- ---- ---------- ------- --------- ----
Total $ 887 3.82% $ - - % $ 2,929 7.49%
========== ==== ========== ======= ========= ====
(1) As a member of the FHLB of Dallas, the Association is required to maintain
its investment in FHLB stock, which has no stated maturity.
</TABLE>
At December 31, 1996, the Company did not have investments in any one
issuer which exceeded more than 10% of the Company's total stockholders' equity,
except for FHLB notes which had both a carrying value and a market value of $2.0
million at December 31, 1996.
<PAGE>
Sources of Funds
General. Deposits are the primary source of the Association's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from principal and interest payments on loans and mortgage-backed
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. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources.
They may also be used on a longer-term basis for general business purposes.
20
<PAGE>
Deposits. The Association's deposits are attracted principally from
within the Association's primary market area through the offering of a broad
selection of deposit instruments, including NOW accounts, money market deposit
accounts ("MMDA's"), regular savings accounts, and term certificate accounts.
Included among these deposit products are individual retirement account
certificates of approximately $6.0 million or 16.0% of total deposits at
December 31, 1996. Deposit account terms vary, with the principal differences
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate.
The large variety of deposit accounts offered by the Association has
increased the Association's ability to retain deposits and allowed it to be more
competitive in obtaining new funds, but has not eliminated the threat of
disintermediation (the flow of funds away from savings institutions into direct
investment vehicles such as government and corporate securities). During periods
of high interest rates, deposit accounts that have adjustable interest rates
have been more costly than traditional passbook accounts. In addition, the
Association is subject to short-term fluctuations in deposit flows because funds
in transaction accounts can be withdrawn at any time and because 64.2 % of the
certificates of deposit at December 31, 1996 mature in one year or less. The
Association's ability to attract and maintain deposits is affected by the rate
consciousness of its customers and their willingness to move funds into
higher-yielding accounts. The Association's cost of funds has been, and will
continue to be, affected by money market conditions.
The following table shows the distribution of , and certain other
information relating to, the Association's deposits by type of deposit, as of
the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------
Amount % Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2.00% - 2.99% ....... $ 94 0.3% $ 169 0.5% $ 349 0.9%
3.00% - 3.99% ....... -- 0 12 0 6360 16.8
4.00% - 4.99% ....... 6,957 19.0 10,058 26.3 10,118 26.7
5.00% - 5.99% ....... 13,347 36.4 10,505 27.5 6,946 18.4
6.00% - 6.99% ....... 5,544 15.1 5,704 14.9 3,209 8.5
7.00% - 7.99% ....... 1,990 5.4 2,091 5.5 10 0.1
8.00% or more ....... -- -- 4 -- 4 --
------- ----- ------- ----- -------- -----
Total certificate
accounts ...... 27,932 76.2 28,543 74.7 26,996 71.4
------- ----- ------- ----- -------- -----
Transaction accounts:
Passbook savings ..... 5,774 15.8 6,431 16.8 7,603 20.1
MMDAs ................ 1,216 3.3 1,530 4.0 1,909 5.0
Demand and NOW
accounts(1) ......... 1,713 4.7 1,699 4.5 1,317 3.5
------- ----- ------- ----- -------- -----
Total transaction
accounts ........ 8,703 23.8 9,660 25.3 10,829 28.6
------- ----- ------- ----- -------- -----
Total deposits .... $36,635 100.0% $38,203 100.0% $37,825 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
21
<PAGE>
The following table presents the average balance of each type of
deposit and the average rate paid on each type of deposit for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
------- ---- ------- ---- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook savings accounts $ 6,856 2.56% $ 6,662 2.73% $ 8,953 2.84%
Demand and NOW accounts 1,716 2.20 1,453 2.36 1,200 2.49
MMDAs 1,475 2.41 1,829 2.56 2,452 2.57
Certificates of deposit 28,706 5.47 27,296 5.39 27,306 4.21
--------- ---- --------- ---- --------- ----
Total interest-bearing
deposits $ 38,753 4.69% $ 37,240 4.66% $ 39,911 3.75%
========= ==== ========= ==== ========= ====
</TABLE>
The following table sets forth the savings flows of the Association
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) before interest ........ $(3,001) $ (834) $(4,581)
credited
Interest credited .......................... 1,433 1,212 1,056
------- ------- -------
Net increase (decrease) in deposits ..... $(1,568) $ 378 $(3,525)
======= ======= =======
(1) The information provided is net of deposits and withdrawals because the
gross amount of deposits and withdrawals is not readily available.
</TABLE>
The Association attempts to control the flow of deposits by pricing its
accounts to remain generally competitive with other financial institutions in
its market area, but does not necessarily seek to match the highest rates paid
by competing institutions. The Association has generally not taken a position of
price leadership in its markets, except when there has been an opportunity to
market longer term deposits.
The principal methods used by the Association to attract deposits
include the offering of a wide variety of services and accounts, competitive
interest rates and convenient office locations.
<PAGE>
The Association does not advertise for deposits outside of its primary
market area. At December 31, 1996, the Association had no deposits that were
obtained through deposit brokers. The Association does not actively solicit
broker deposits and does not pay fees to such brokers.
22
<PAGE>
The following table presents, by various interest rate categories, the
amount of certificates of deposit at December 31, 1996 and the amounts at
December 31, 1996 which mature during the periods indicated.
<TABLE>
<CAPTION>
Balance at December 31, 1996
Maturing in the 12 Months Ending December 31,
-----------------------------------------------------
Certificates of Deposit 1997 1998 1999 Thereafter Total
- ----------------------- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
Certificate accounts:
2.00% - 2.99% ....... $ 94 $ -- $ -- $ -- $ 94
3.00% - 3.99% ....... -- -- -- -- --
4.00% - 4.99% ....... 6,957 -- -- -- 6,957
5.00% - 5.99% ....... 5,975 5,551 1,730 91 13,347
6.00% - 6.99% ....... 4,039 452 26 1,027 5,544
7.00% - 7.99% ....... 876 124 51 939 1,990
8.00% or more ....... -- -- -- -- --
------- ------ ------ ------ -------
Total certificate
accounts ...... 17,941 $6,127 $1,807 $2,057 $27,932
======= ====== ====== ====== =======
</TABLE>
The following table sets forth the maturities of the Association's
certificates of deposit of $100,000 or more at December 31, 1996 by time
remaining to maturity.
<TABLE>
<CAPTION>
Maturing During Quarter Ending: Amounts
- ---------------------------------------------------------------
(In Thousands)
<S> <C>
March 31, 1997 $ 315
June 30, 1997 108
September 30, 1997 412
December 31, 1997 122
After December 31, 1997 1,048
-----------
Total certificates of deposit with
balances of $100,000 or more $ 2,005
===========
</TABLE>
Borrowings. The Association may obtain advances from the FHLB of Dallas
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans, investment securities and mortgage-backed
securities, provided certain standards related to credit worthiness have been
met. See "Regulation - The Association - Federal Home Loan Bank System." Such
advances are made pursuant to several credit programs, each of which had its own
interest rate and range of maturities. Such advances are generally available to
meet seasonal and other withdrawals of deposit accounts and to permit increased
lending. At December 31, 1996, the Association had $1.5 million in advances from
the FHLB of Dallas.
Subsidiary
At December 31, 1996, the Association had no subsidiaries. Under
Louisiana law, a state-chartered association may invest up to 10% of its assets
in service organizations or corporations. One December 26, 1996 the Company
formed a subsidiary corporation, Jefferson Community Lending, LLC (the "LLC"),
along with Jefferson Community Housing Foundation (the "Foundation"). The LLC
was formed to originate mortgage loans for sale in the secondary market. As of
December 31, 1996 the LLC has an operating loss of approximately $ 14,000, which
was organizational costs.
23
<PAGE>
Competition
The Company faces significant competition both in attracting deposits
and in making loans. Its most direct competition for deposits has come
historically from commercial banks, credit unions and other savings institutions
located in its primary market area, including many large financial institutions
which have greater financial and marketing resources available to them. Some of
the Company's major competitors include Bank One, Hibernia National Bank,
Whitney National Bank, First National Bank of Commerce and Fifth District
Savings and Loan. In addition, the Company faces additional significant
competition for investors' funds from short-term money market mutual funds and
issuers of corporate and government securities. The Company competes for
deposits principally by offering depositors a variety of deposit programs. The
Company does not rely upon any individual group or entity for a material portion
of its deposits. The Company estimates that its market share of total deposits
in Orleans parish and Jefferson parish, Louisiana is less than 1.0%.
The Company's competition for real estate loans comes principally from
mortgage banking companies, commercial banks, other savings institutions and
credit unions. The Company competes for loan originations primarily through the
interest rates and loan fees it charges, and the efficiency and quality of
services it provides borrowers and real estate brokers. Factors which affect
competition include general and local economic conditions, current interest rate
levels and volatility in the mortgage markets.
Employees
The Company and its subsidiaries had 12 full-time employees at December
31, 1996. None of these employees are represented by a collective bargaining
agent, and the Company believes that it enjoys good relations with its
personnel.
REGULATION
The Company
General. The Company, as a registered savings and loan holding company
within the meaning of the Home Owners' Loan Act, as amended ("HOLA"), is subject
to OTS regulations, examinations, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Association is subject to
certain restrictions in its dealings with the Company and affiliates thereof.
Activities Restrictions. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings institution. However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its affiliates; and (iii) any
activities of the savings institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the QTL test, as
discussed under "-The Association - Qualified Thrift Lender Test," then such
unitary holding company also shall become subject to the activities restrictions
applicable to multiple savings and loan holding companies and, unless the
savings institution requalifies
24
<PAGE>
as a QTL within one year thereafter, shall register as, and become subject to
the restrictions applicable to, a bank holding company. See "-The Association -
Qualified Thrift Lender Test."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Association,
the Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, as set forth below, the activities of the Company and any of its
subsidiaries (other than the Association or other subsidiary savings
institutions) would thereafter be subject to further restrictions. Among other
things, no multiple savings and loan holding company or subsidiary thereof which
is not a savings institution shall commence or continue for a limited period of
time after becoming a multiple savings and loan holding company or subsidiary
thereof any business activity, upon prior notice to and no objection by the OTS,
other than: (i) furnishing or performing management services for a subsidiary
savings institution; (ii) conducting an insurance agency or escrow business;
(iii) holding, managing, or liquidating assets owned by or acquired from a
subsidiary savings institution; (iv) holding or managing properties used or
occupied by a subsidiary savings institution; (v) acting as trustee under deeds
of trust; (vi) those activities authorized by regulation as of March 5, 1987 to
be engaged in by multiple savings and loan holding companies; or (vii) unless
the Director of the OTS by regulation prohibits or limits such activities for
savings and loan holding companies, those activities authorized by the FRB as
permissible for bank holding companies. Those activities described in (vii)
above also must be approved by the Director of the OTS prior to being engaged in
by a multiple savings and loan holding company.
Limitations on Transactions with Affiliates. Transactions between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act and OTS regulations. 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, such provisions (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 such
provisions, 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.
<PAGE>
In addition, Sections 22(h) and (g) of the Federal Reserve Act places
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 and 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
25
<PAGE>
exceed the institution's unimpaired capital and surplus. Furthermore, Section
22(g) places additional restrictions on loans to executive officers. At December
31, 1996, the Association was in compliance with the above restrictions.
Restrictions on Acquisitions. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the Director of the OTS, no director or officer of a savings and
loan holding company or person owning or controlling by proxy or otherwise more
than 25% of such company's stock, may acquire control of any savings
institution, other than a subsidiary savings institution, or of any other
savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquirer is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, the FRB is authorized to
approve an application by a bank holding company to acquire control of a savings
institution. In addition, a bank holding company that controls a savings
institution may merge or consolidate the assets and liabilities of the savings
institution with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the Bank Insurance Fund ("BIF") with the approval of the
appropriate federal banking agency and the FRB. As a result of these provisions,
there have been a number of acquisitions of savings institutions by bank holding
companies in recent years.
The Association
General. The OFI is the Association's chartering authority, and the OTS
is the Association's primary federal regulator. The OTS and the OFI have
extensive authority over the operations of Louisiana-chartered savings
institutions. As part of this authority, savings institutions are required to
file periodic reports with the OTS and the OFI and are subject to periodic
examinations by the OTS, the OFI and the FDIC. The investment and lending
authority of savings institutions are prescribed by federal laws and
regulations, and such institutions are prohibited from engaging in any
activities not permitted by such laws and regulations. Such regulation and
supervision is primarily intended for the protection of depositors.
The OTS' enforcement authority over all savings institutions and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe and unsound practices. Other
actions or inactions may provide the basis for enforcement actions, including
misleading or untimely reports filed with the OTS.
26
<PAGE>
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted into law. The FDICIA provided
for, among other things, the recapitalization of the BIF; the authorization of
the FDIC to make emergency special assessments under certain circumstances
against BIF members and members of the SAIF; the establishment of risk-based
deposit insurance premiums; and improved examinations and reporting
requirements. The FDICIA also provided for enhanced federal supervision of
depository institutions based on, among other things, an institution's capital
level. See" - Prompt Corrective Action."
Insurance of Accounts. The deposits of the Association are insured to
the maximum extent permitted by the SAIF, which is administered by the FDIC, and
are backed by the full faith and credit of the U.S. Government. As insurer, the
FDIC is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings institutions, after giving the OTS an
opportunity to take such action.
Under current FDIC regulations, institutions are assigned to one of
three capital groups which are based solely on the level of an institution's
capital--"well capitalized," "adequately capitalized," and
"undercapitalized"--which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the FDIA,
as discussed below. These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging prior to September 30, 1996 from .23% for
well capitalized, healthy institutions to .31% for undercapitalized institutions
with substantial supervisory concerns. The insurance premiums for the
Association for the first half of 1994 were .26% (per annum) of insured deposits
and for each of the semi-annual periods from the second half of 1994 through the
first half of 1996 were .23% (per annum) of insured deposits.
The deposits of the Association are currently insured by the SAIF. Both
the SAIF and the BIF, the federal deposit insurance fund that covers commercial
bank deposits, are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF has achieved a fully funded status
and, therefore, as discussed below, the FDIC recently substantially reduced the
average deposit insurance premium paid by commercial banks to a level
approximately 75% below the average premium then paid by savings institutions.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule reduces deposit insurance premiums for BIF
member institutions to zero basis points (subject to a $2,000 minimum) for
institutions in the lowest risk category, while holding deposit insurance
premiums for SAIF members at their then current levels (23 basis points for
institutions in the lowest risk category). The reduction was effective with
respect to the semiannual premium assessment beginning January 1, 1996.
On September 30, 1996, President Clinton signed into law legislation
which eliminates the premium differential between SAIF-insured institutions and
BIF-insured institutions by recapitalizing the SAIF's reserves to the required
ratio. The legislation required all SAIF member institutions pay a one-time
special assessment to recapitalize the SAIF, with the aggregate amount to be
<PAGE>
sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits.
The legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
27
<PAGE>
Implementing FDIC regulations imposed a one-time special assessment
equal to 65.7 basis points for all SAIF-assessable deposits as of March 31,
1995, which was accrued as an expense on September 30, 1996. The one-time
special assessment for the Association amount to $241,000. Net of related tax
benefits, the one-time special assessment amounted to $159,000 or $.25 per
share. The payment of such special assessment had the effect of immediately
reducing the Association's capital by such amount. Nevertheless, management does
not believe that this one-time special assessment had a material adverse effect
on the Company's consolidated financial condition.
In the fourth quarter of 1996, the FDIC lowered the assessment rates
for SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates generally range
from zero basis points to 27 basis points, except that during the fourth quarter
of 1996, the rates for SAIF members ranged from 18 basis points to 27 basis
points in order to include assessments paid to the Financing Corporations
("FICO"). From 1997 through 1999, SAIF members will pay 6.4 basis points to fund
the FICO, while BIF member institutions will pay approximately 1.3 basis points.
The Association's insurance premiums, which had amounted to 23 basis points,
were thus reduced to 6.4 basis points effective January 1, 1997. Based on the
$36.5 million of assessable deposits at December 31, 1996, the Association will
pay $30,000 less in insurance premiums in the first half of 1997.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Association, 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 which would result in
termination of the Association's deposit insurance.
Regulatory Capital Requirements. Federally insured savings institutions
are required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual institutions on a
case-by-case basis.
Current OTS capital standards require savings institutions to satisfy
three different capital requirements. Under these standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3.0% of adjusted total assets and
"total" capital (a combination of core and "supplementary" capital) equal to at
least 8.0% of "risk-weighted" assets. For purposes of the regulation, core
capital generally consists of common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Tangible capital is given the same definition as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all the savings institution's intangible assets, with only a limited exception
for purchased mortgage servicing rights. At December 31, 1996, the Association
had no goodwill or other intangible assets which are deducted in computing its
tangible capital. Both core and tangible capital are further reduced by an
amount equal to a savings institution's debt and equity
28
<PAGE>
investments in subsidiaries engaged in activities not permissible to national
banks (other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies). At December 31, 1996, the Association
had no subsidiaries.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of hybrid capital instruments; perpetual preferred
stock which is not eligible to be included as core capital; subordinated debt
and intermediate-term preferred stock; and general allowances for loan losses up
to a maximum of 1.25% of risk-weighted assets. In determining the required
amount of risk-based capital, total assets, including certain off-balance sheet
items, are multiplied by a risk weight based on the risks inherent in the type
of assets. The risk weights assigned by the OTS for principal categories of
assets are (i) 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S. Government; (ii)
20% for securities (other than equity securities) issued by U.S.
Government-sponsored agencies and mortgage-backed securities issued by, or fully
guaranteed as to principal and interest by, the FNMA or the FHLMC, except for
those classes with residual characteristics or stripped mortgage-related
securities; (iii) 50% for prudently underwritten permanent one- to four-family
first lien mortgage loans not more than 90 days delinquent and having a
loan-to-value ratio of not more than 80% at origination unless insured to such
ratio by an insurer approved by the FNMA or the FHLMC, qualifying residential
bridge loans made directly for the construction of one- to four-family
residences, and qualifying multi-family residential loans; and (iv) 100% for all
other loans and investments, including consumer loans, commercial loans, and
one- to four-family residential real estate loans more than 90 days delinquent,
and for repossessed assets.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under the
rule, an institution with a greater than "normal" level of interest rate risk
will be subject to a deduction of its interest rate risk component from total
capital for purposes of calculating its risk-based capital. As a result, such an
institution will be required to maintain additional capital in order to comply
with the risk-based capital requirement. An institution with a greater than
"normal" interest rate risk is defined as an institution that would suffer a
loss of net portfolio value exceeding 2.0% of the estimated economic value of
its assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest rate risk component will be
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest rate risk and 2.0%, multiplied by the economic
value of its assets. The rule also authorizes the Director of the OTS, or his
designee, to waive or defer an institution's interest rate risk component on a
case-by-case basis. The final rule was originally effective as of January 1,
1994, subject however to a two quarter "lag" time between the reporting date of
the data used to calculate an institution's interest rate risk and the effective
date of each quarter's interest rate risk component. However, in October 1994
the Director of the OTS indicated that it would waive the capital deductions for
institutions with a greater than "normal" risk until the OTS published an
appeals process. On August 21, 1995, the OTS released Thrift Bulletin 67 which
established (i) an appeals process to handle "requests for adjustments" to the
interest rate risk component and (ii) a process by which "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to determine their interest rate risk component. The Director of the OTS
indicated, concurrent with the release of Thrift Bulletin 67, that the OTS will
continue to delay the implementation of the capital deduction for interest rate
risk pending the testing of the appeals process set forth in Thrift Bulletin 67.
29
<PAGE>
At December 31, 1996, the Association exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
14.83%, 14.83% and 54.24%, respectively. The following table sets forth the
Association's ' compliance with each of the above-described capital requirements
as of December 31, 1996.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital(1) Capital(2)
------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Capital under GAAP ................... $6,751 $6,751 $6,751
Additional capital items:
General valuation
allowances(3) ..................... -- -- 173
Net unrealized loss on
securities available for sale ..... 26 26 26
------ ------ ------
Regulatory capital ................... 6,777 6,777 6,950
Minimum required
regulatory capital(4) ............. 686 1,371 1,025
------ ------ ------
Excess regulatory capital ............ $6,091 $5,406 $5,925
====== ====== ======
Regulatory capital as a
percentage ........................... 14.83% 14.83% 54.24%
Minimum capital required
as a percentage(4) ................... 1.50 3.00 8.00
------ ------ ------
Regulatory capital as a
percentage in excess of
requirements ......................... 13.33% 11.83% 46.24%
====== ====== ======
- ------------
(1) Does not reflect the 4.0% requirement to be met in order for an institution
to be "adequately capitalized." See " -Prompt Corrective Action."
(2) Does not reflect the interest-rate risk component in the risk-based capital
requirement, the effective date of which has been postponed as discussed above.
(3) General valuation allowances are only used in the calculation of risk-based
capital. Such allowances are limited to 1.25% of risk-weighted assets.
(4) Tangible and core capital are computed as a percentage of adjusted total
assets of $45.7 million. Risk-based capital is computed as a percentage of
adjusted risk-weighted assets of $12.8 million.
</TABLE>
Effective November 28, 1994, the OTS revised its interim policy issued
in August 1993 under which savings institutions computed their regulatory
capital in accordance with SFAS No.115, "Accounting for Certain Investments in
Debt and Equity Securities." Under the revised OTS policy, savings institutions
must value securities available for sale at amortized cost for regulatory
capital purposes. This means that in computing regulatory capital, savings
institutions should add back any unrealized losses and deduct any unrealized
gains, net of income taxes, on debt securities reported as a separate component
of GAAP capital. This change in policy increased the Association's regulatory
capital at December 31, 1996 by approximately $26,000.
<PAGE>
A savings institution which is not in capital compliance or which is
otherwise deemed to require more than normal supervision is subject to
restrictions on its ability to grow pursuant to
30
<PAGE>
Regulatory Bulletin 3a-1. In addition, a provision of HOLA generally provides
that the Director of the OTS must restrict the asset growth of savings
institutions not in regulatory capital compliance, subject to a limited
exception for growth not exceeding interest credited.
A savings institution which is not in capital compliance is also
automatically subject to the following: (i) new directors and senior executive
officers and employment contracts for senior executive officers must be approved
by the OTS in advance; (ii) the savings institution may not accept or renew any
brokered deposits; (iii) the savings institution is subject to higher OTS
assessments as a capital-deficient institution; and (iv) the savings institution
may not make any capital distributions without prior written approval.
Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment of a conservator or
receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.
Prompt Corrective Action. Under Section 38 of the FDIA, as added by the
FDICIA, each federal banking agency was required to implement a system of prompt
corrective action for institutions which it regulates. The federal banking
agencies, including the OTS, adopted substantially similar regulations to
implement Section 38 of the FDIA, effective as of December 19, 1992. Under the
regulations, an institution is deemed to be (i) "well capitalized" if it has
total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio
of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital
ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or more (3.0%
under certain circumstances) and does not meet the definition of "well
capitalized," (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less
than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0% under
certain circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital
ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is less
than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. Section 38 of the
FDIA and the regulations promulgated thereunder also specify circumstances under
which a federal banking agency may reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the next lower category (except that the FDIC may not reclassify a
significantly undercapitalized institution as critically undercapitalized).
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. A federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after
<PAGE>
receiving a capital restoration plan, subject to extensions by the agency. An
institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. In addition, undercapitalized institutions are subject to various
regulatory restrictions, and the appropriate federal banking agency also may
take any number of discretionary supervisory actions.
31
<PAGE>
At December 31, 1996, the Association was deemed a well capitalized
institution for purposes of the above regulations and as such is not subject to
the above mentioned restrictions.
Safety and Soundness. On November 18, 1993, a joint notice of proposed
rulemaking was issued by the OTS, the FDIC, the Office of Comptroller of the
Currency and the FRB (collectively, the "agencies") concerning standards for
safety and soundness required to be prescribed by regulation pursuant to Section
39 of the FDIA. In general, the standards relate to (1) operational and
managerial matters; (2) asset quality and earnings; and (3) compensation. The
operational and managerial standards cover (a) internal controls and information
systems, (b) internal audit system, (c) loan documentation, (d) credit
underwriting, (e) interest rate risk exposure, (f) asset growth, and (g)
compensation, fees and benefits. Under the proposed asset quality and earnings
standards, the Association would be required to maintain (1) a maximum ratio of
classified assets (assets classified substandard, doubtful and to the extent
that related losses have not been recognized, assets classified loss) to total
capital of 1.0, and (2) minimum earnings sufficient to absorb losses without
impairing capital. The last ratio concerning market value to book value was
determined by the agencies not to be feasible. Finally, the proposed
compensation standard states that compensation will be considered excessive if
it is unreasonable or disproportionate to the services actually performed by the
individual being compensated. Legislation enacted in 1994: (1) authorizes the
agencies to establish safety and soundness standards by regulation or guideline
for all insured depository institutions; (2) gives the agencies greater
flexibility in prescribing asset quality and earnings standards by eliminating
the requirement that agencies establish quantitative standards; and (3)
eliminates the requirement that the standards referenced above apply to
depository institution holding companies. The agencies have published a final
rule and interagency guidelines ("Guidelines"), which were effective August 9,
1995, as well as asset quality and earning standards which were added to the
Guidelines effective October 1, 1996.
Under the Guidelines and final rule of the OTS, if an insured savings
institution fails to meet any of the standards promulgated by the Guidelines,
then the OTS may require such institution to submit a plan within 30 days (or
such different period specified by the OTS) specifying the steps it will take to
correct the deficiency. In the event that an institution fails to submit or
fails in any material respect to implement a compliance plan within the time
allowed by the OTS, the OTS must order the institution to correct the deficiency
and may (1) restrict asset growth; (2) require the institution to increase its
ratio of tangible equity to assets; (3) restrict the rates of interest that the
institution may pay; or (4) take any other action that would better carry out
the purpose of prompt corrective action. The Association believes that it is in
compliance with the Guidelines and final rule as adopted.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 5%. At December 31, 1996, the Association's liquidity
ratio was 9.4%.
<PAGE>
Capital Distributions. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other transactions charged to the capital account of a savings institution to
make capital distributions. Generally, the regulation creates a safe harbor for
specified levels of capital distributions from institutions meeting at least
their minimum capital requirements, so long as such institutions notify the OTS
and receive no objection to the distribution from the OTS. Savings
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institutions and distributions that do not qualify for the safe harbor are
required to obtain prior OTS approval before making any capital distributions.
Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements (Tier 1
institutions) may make capital distributions during any calendar year equal to
the higher of (i) 100% of net income for the calendar year-to-date plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of
net income over the most recent four-quarter period. The "surplus capital ratio"
is defined to mean the percentage by which the institution's tangible, core or
risk-based capital ratio exceeds its tangible, core or risk-based capital
requirement. Failure to meet minimum capital requirements will result in further
restrictions on capital distributions, including possible prohibition without
explicit OTS approval. See "-Regulatory Capital Requirements."
In order to make distributions under these safe harbors, Tier 1 and
Tier 2 institutions must submit 30 days written notice to the OTS prior to
making the distribution. The OTS may object to the distribution during that
30-day period based on safety and soundness concerns. In addition, a Tier 1
institution deemed to be in need of more than normal supervision by the OTS may
be downgraded to a Tier 2 or Tier 3 institution as a result of such a
determination.
At December 31, 1996, the Association was a Tier 1 institution for
purposes of this regulation.
On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation. Under the proposal, institutions
would be permitted to only make capital distributions that would not result in
their capital being reduced below the level required to remain "adequately
capitalized," as defined above under "-Prompt Corrective Action." Because the
Association will be a subsidiary of a holding company, the proposal would
require the Association to provide notice to the OTS of its intent to make a
capital distribution. The Association does not believe that the proposal will
adversely affect its ability to make capital distributions if it is adopted
substantially as proposed.
Loans to One Borrower. The permissible amount of loans-to-one borrower
now generally follows the national bank standard for all loans made by savings
institutions. The national bank standard generally does not permit loans-to-one
borrower to exceed the greater of $500,000 or 15% of unimpaired capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully secured by readily
marketable securities. For information about the largest borrowers from the
Association, see "Business - Lending Activities - Real Estate Lending Standards
and Underwriting Policies."
Classified Assets. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets, with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of currently
<PAGE>
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss.
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Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's regulatory capital up to certain
amounts, while specific valuation allowances for loan losses do not qualify as
regulatory capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved. See "Business - Asset Quality - Classified
Assets."
Branching by Federal Savings Institutions. OTS policy permits
interstate branching to the full extent permitted by statute (which is
essentially unlimited). Generally, federal law prohibits federal savings
institutions from establishing, retaining or operating a branch outside the
state in which the federal institution has its home office unless the
institution meets the Internal Revenue Service's domestic building and loan test
(generally, 60% of a thrift's assets must be housing-related) ("IRS Test"). The
IRS Test requirement does not apply if: (i) the branch(es) result(s) from an
emergency acquisition of a troubled savings institution (however, if the
troubled savings institution is acquired by a bank holding company, does not
have its home office in the state of the bank holding company bank subsidiary
and does not qualify under the IRS Test, its branching is limited to the
branching laws for state-chartered banks in the state where the savings
institution is located); (ii) the law of the state where the branch would be
located would permit the branch to be established if the federal savings
institution were chartered by the state in which its home office is located; or
(iii) the branch was operated lawfully as a branch under state law prior to the
savings institution's conversion to a federal charter.
Furthermore, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act of 1977 ("CRA"). An
unsatisfactory CRA record may be the basis for denial of a branching
application.
Qualified Thrift Lender Test. All savings institutions are required to
meet a QTL test set in order to avoid certain restrictions on their operations.
Under Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act
of 1996, a savings institution can comply with the QTL test by either qualifying
as a domestic building and loan association as defined in Section 7701(a)(19) of
the Internal Revenue Code of 1986, as amended ("Code") or meeting the second
prong of the QTL test set forth in Section 10(m) of the HOLA. A savings
institution that does not meet the QTL test must either convert to a bank
charter or comply with the following restrictions on its operations: (i) the
institution may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the institution shall be restricted
to those of a national bank; (iii) the institution shall not be eligible to
obtain any advances from its FHLB; and (iv) payment of dividends by the
institution shall be subject to the rules regarding payment of dividends by a
national bank. Upon the expiration of three years from the date the savings
institution ceases to meet the QTL test, it must cease any activity and not
retain any investment not permissible for a national bank and immediately repay
any outstanding FHLB advances (subject to safety and soundness considerations).
<PAGE>
Currently, the prong of the QTL test that is not based on the Code
requires that 65% of an institution's "portfolio assets" (as defined) consist of
certain housing and consumer-related assets on a monthly average basis in nine
out of very 12 months. Assets that qualify without limit for inclusion as part
of the 65% requirement are loans made to purchase, refinance, construct, improve
or repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); stock issued by the FHLB of
Dallas; and direct or indirect obligations of the FDIC. In addition, the
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following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer and educational loans (limited to 10% of total portfolio
assets); and stock issued by the FHLMC or the FNMA. Portfolio assets consist of
total assets minus the sum of (i) goodwill and other intangible assets, (ii)
property used by the savings institution to conduct its business, and (iii)
liquid assets up to 20% of the institution's total assets. At December 31, 1996,
the qualified thrift investments of the Association were approximately 89.9% of
its portfolio assets.
Accounting Requirements. FIRREA required the OTS to establish
accounting standards to be applicable to all savings institutions for purposes
of complying with regulations, except to the extent otherwise specified in the
capital standards. Such standards must incorporate GAAP to the same degree as is
prescribed by the federal banking agencies for banks or may be more stringent
than such requirements.
Effective October 2, 1992, the OTS amended a number of its accounting
regulations and reporting requirements to adopt the following standards: (i)
regulatory reports will incorporate GAAP when GAAP is used by federal banking
agencies; (ii) savings institution transactions, financial condition and
regulatory capital must be reported and disclosed in accordance with OTS
regulatory reporting requirements that will be at least as stringent as for
national banks; and (iii) the Director of the OTS may prescribe regulatory
reporting requirements more stringent than GAAP whenever the Director determines
that such requirements are necessary to ensure the safe and sound reporting and
operation of savings institutions.
Effective February 10, 1992, the OTS adopted a statement of policy
("Statement") set forth in Thrift Bulletin 52 concerning (i) procedures to be
used in the selection of a securities dealer, (ii) the need to document and
implement prudent policies and strategies for securities, whether held for
investment, trading or for sale, and to establish systems and internal controls
to ensure that securities activities are consistent with the financial
institution's policies and strategies, (iii) securities trading and sales
practices that may be unsuitable in connection with securities held in an
investment portion, (iv) high-risk mortgage securities that are not suitable for
investment portfolio holdings for financial institutions, and (v)
disproportionately large holdings of long-term, zero-coupon bonds that may
constitute an imprudent investment practice. The Statement applies to investment
securities, high-yield, corporate debt securities, loans, mortgage-backed
securities and derivative securities, and provides guidance concerning the
proper classification of and accounting for securities held for investment, sale
and trading. Securities held for investment, sale or trading may be
differentiated based upon an institution's desire to earn an interest yield
(held for investment), to realize a holding gain from assets held for indefinite
periods of time (held for sale), or to earn a dealer's spread between the bid
and asked prices (held for trading). Depository institution investment
portfolios are maintained to provide earnings consistent with the safety factors
of quality, maturity, marketability and risk diversification. Securities that
are purchased to accomplish these objectives may be reported at their amortized
cost only when the depository institution has both the intent and ability to
hold the assets for long-term investment purposes. Securities held for
investment purposes may be accounted for at amortized cost, securities held for
sale are to be accounted for at the lower of cost or market, and securities held
for trading are to be accounted for at market. The Association believes that its
investment activities have been and will continue to be conducted in accordance
with the requirements of OTS policies and GAAP.
<PAGE>
The Omnibus Reconciliation Act of 1993 added a new Section 475 to the
Code, which provides that certain financial institutions must recognize gain or
loss annually with regard to any
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security held by them as inventory for resale. Gain or loss is not required to
be recognized with regard to securities which are intended to be held until
their maturity. The Association believes that it is not a "dealer" as a result
of its sales of investment and mortgage -backed securities available for sale
during the last three years, and that it is currently not subject to the
provisions of Section 475 of the Code.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." Pursuant
to SFAS No. 125, after a transfer of financial assets, an entity would be
required to recognize all financial assets and servicing it controls and
liabilities it has incurred and, conversely, would not be required to recognize
either financial assets when control has been surrendered or liabilities when
extinguished. SFAS No. 125 provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No. 125 will be effective with respect to the transfer and servicing of
financial assets and the extinguishment of liabilities occurring after December
31, 1996, with earlier application prohibited. The adoption of this Statement
will be prospective, and the Company anticipates no material adverse effect on
its consolidated financial statements.
Federal Home Loan Bank System. The Association is a member of the FHLB
of Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. At December
31, 1996, the Association had $1.5 million in FHLB advances.
As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 1996, the Association had $455,500
in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have adversely
affected the level of FHLB dividends paid in the past and could continue to do
so in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future.
Federal Reserve System. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. As of December 31, 1996,
no reserves were required to be maintained on the first $4.4 million of
transaction accounts, reserves of 3% were required to be maintained against the
next $44.9 million of net transaction accounts (with such dollar amounts subject
to adjustment by the FRB), and a reserve of 10% (which is subject to adjustment
by the FRB to a level between 8% and 14%, is required against all remaining net
transaction accounts. Because required reserves must be maintained in the form
of vault cash or a noninterest-bearing account at a Federal Reserve Bank, the
effect of this reserve requirement is to reduce an institution's earning assets.
<PAGE>
Louisiana Regulation
As a Louisiana-chartered savings association, the Association also is
subject to regulation and supervision by the OFI. The Association is required to
file periodic reports with and is subject to
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periodic examinations at least once every three years by the OFI. The lending
and investment authority of the Association is prescribed by Louisiana laws and
regulations, as well as applicable federal laws and regulations, and the
Association is prohibited from engaging in any activities not permitted by such
law and regulations.
The Association is required by Louisiana law and regulations to comply
with certain reserve and capital requirements. At December 31, 1996, the
Association was in compliance with all applicable reserve and capital
requirements.
Louisiana law and regulations also restrict the lending and investment
authority of Louisiana-chartered savings institutions. Such laws and regulations
restrict the amount a Louisiana-chartered savings association can lend to any
one borrower to an amount which, in the aggregate, does not exceed the lesser of
(I) 10% of the association's savings deposits or (ii) the sum of the
association's paid-in capital, surplus, reserves for losses, and undivided
profits. FIRREA imposes more restrictive limitations. See "Business-Lending
Activities." Notwithstanding the foregoing, Louisiana and federal law permits
any such association to lend to any one borrower an aggregate amount of at least
$500,000.
In addition, Louisiana law restricts the ability of Louisiana-chartered
savings associations to invest in, among other things, (i) commercial real
estate loans (including commercial construction real estate loans) up to 40% of
total assets; (ii) real estate investments for other than the association's
offices up to 10% of total assets; (iii) consumer loans, commercial paper and
corporate debt securities up to 30% of total assets; (iv) commercial, corporate,
business or agricultural loans up to 10% of total assets; and (v) capital stock,
obligations and other securities of service organizations up to 10% of total
assets. Louisiana law also sets forth maximum loan-to-value ratios with respect
to various types of loans. Applicable federal regulations impose more
restrictive limitations in certain instances. See "Business-Lending
Activities-Real Estate Lending Standards and Underwriting Policies."
The investment authority of Louisiana-chartered savings associations is
broader in many respects than that of federally-chartered savings and loan
associations. However, since the enactment of FIRREA, state-chartered savings
associations, such as the Association, are generally prohibited from acquiring
or retaining any equity investment, other than certain investments in service
corporations, of a type or in an amount that is not permitted for a
federally-chartered savings association. This prohibition applies to equity
investments in real estate, investments in equity securities and any other
investment or transaction that is in substance an equity investment, even if the
transaction is nominally a loan or other permissible transaction. At December
31, 1996, the Association was in compliance with such provisions.
Furthermore, effective January 1, 1990, a state-chartered savings
association may not engage as principal in any activity not permitted for
federal associations unless the FDIC has determined that such activity would
pose no significant risk to the affected deposit insurance fund and the
association is in compliance with the fully phased-in capital standards
prescribed under FIRREA. When certain activities are permissible for a federal
association, the state association may engage in the activity in a higher amount
if the FDIC has not determined that such activity would pose a significant risk
of loss to the affected deposit insurance fund and the association meets the
fully phased-in capital requirements. This increased investment authority does
not apply to investments in nonresidential real estate loans. At December 31,
1996, the Association had no investments which were affected by the foregoing
limitations.
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Under Louisiana law, a Louisiana-chartered savings association may
establish or maintain a branch office anywhere in Louisiana with prior
regulatory approval. In addition, an out-of-state savings association or holding
company may acquire a Louisiana-chartered savings association or holding company
if the OFI determines that the laws of such other state permit a
Louisiana-chartered savings association or holding company to acquire a savings
association or holding company in such other state. Any such acquisition would
require the out-of-state entity to apply to the OFI and receive OFI approval.
TAXATION
Federal Taxation
General. The Company and the Association are subject to the generally
applicable corporate tax provisions of the Code, and the Association is subject
to certain additional provisions of the Code which apply to thrift and other
types of financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters material
to the taxation of the Company and the Association and is not a comprehensive
discussion of the tax rules applicable to the Company and the Association.
Year. The Company and the Association file federal income tax returns
on the basis of a calendar year ending on December 31. For 1996 and 1997, the
Company and the Association intend to file separate tax returns.
Bad Debt Reserves. Savings institutions, such as the Association, which
meet certain definitional tests primarily relating to their assets and the
nature of their businesses, are permitted to establish a reserve for bad debts
and to make annual additions to the reserve. These additions may, within
specified formula limits, be deducted in arriving at the institution's taxable
income. For purposes of computing the deductible addition to its bad debt
reserve, the institution's loans are separated into "qualifying real property
loans" (i.e., generally those loans secured by certain interests in real
property) and all other loans ("non-qualifying loans"). The deduction with
respect to non-qualifying loans must be computed under the experience method as
described below. The following formulas may be used to compute the bad debt
deduction with respect to qualifying real property loans: (i) actual loss
experience, or (ii) for tax years beginning before 1996, a percentage of taxable
income. Reasonable additions to the reserve for losses on non-qualifying loans
must be based upon actual loss experience and would reduce the current year's
addition to the reserve for losses on qualifying real property loans, unless
that addition is also determined under the experience method. The sum of the
additions to each reserve for each year is the institution's annual bad debt
deduction.
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 Association'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.
<PAGE>
Under the percentage of taxable income method, the bad debt deduction
equalled 8% of taxable income determined without regard to that deduction and
with certain adjustments. The
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availability of the percentage of taxable income method permitted a qualifying
savings institution to be taxed at a lower effective federal income tax rate
than that applicable to corporations in general. This resulted generally in an
effective federal income tax rate payable by a qualifying savings institution
fully able to use the maximum deduction permitted under the percentage of
taxable income method, in the absence of other factors affecting taxable income,
of 31.3% exclusive of any minimum tax or environmental tax (as compared to 34%
for corporations generally). For tax years beginning on or after January 1,
1993, the maximum corporate tax rate was increased to 35%, which increased the
maximum effective federal income tax rate payable by a qualifying savings
institution fully able to use the maximum deduction to 32.2% for tax years
beginning before 1996. Any savings institution at least 60% of whose assets are
qualifying assets, as described in the Code, was generally eligible for the full
deduction of 8% of taxable income.
Pursuant to legislation effective for tax years beginning after 1995,
savings institutions are no longer permitted to make additions to their tax bad
debt reserve under the percentage of taxable income method. Such institutions
are permitted to use the experience method in lieu of deducting bad debts only
as they occur. Such legislation requires the Association to realize increased
tax liability over a period of six years, which period was to begin in 1996
until it was suspended as set forth below. Specifically, the legislation
requires each savings institution 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 additions to its reserves using
the experience method. The recapture requirement will be suspended for each of
two successive taxable years beginning January 1, 1996 in which the Association
originates an amount of certain kinds of residential loans which in the
aggregate are equal to or greater than the average of the pricipal amounts of
such loans made by the Association during its six taxable years preceding 1996,
and the recapture requirement was suspended for 1996. It is anticipated that any
recapture of the Association's bad debt reserves accumulated after 1987 will not
have a material adverse effect on the Company's consolidated financial condition
or results of operations.
At December 31, 1996, the federal income tax reserves of the
Association included $1.3 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 Association in
connection with the conversion of the Association to stock form, the retained
earnings of the Association are substantially restricted.
Distributions. If the Association 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 Association 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 share, (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.
<PAGE>
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
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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 three taxable years and forward
to the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1996, the Association 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.
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 Association.
The Association's federal income tax returns for the tax years ended
December 31, 1993 forward 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 Louisiana taxable income, as well as franchise taxes. The Corporation Income
Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana
taxable income to 8% on all Louisiana taxable income in excess of $200,000. For
these purposes, "Louisiana taxable income" means net income which is earned
within or derived from sources within the State of Louisiana, after adjustments
permitted under Louisiana law including a federal income tax deduction and an
allowance for net operating losses, if any. In addition, beginning in 1997, the
Association 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
may also be subtracted in calculating a company's capitalized earnings.
40
<PAGE>
Item 2. Description of Property.
At December 31, 1996, the Company and the Association conducted their
business from the Association's main office and one branch office in the New
Orleans, Louisiana area. The following table sets forth the net book value
(including furnishings and equipment) and certain other information with respect
to the offices and other properties of the Company at December 31, 1996.
<TABLE>
<CAPTION>
Net Book
Value of Amount of
Description/Address Leased/Owned Property Deposits
- ------------------- ------------ -------- --------
<S> <C> <C> <C>
Main Office: (In thousands)
# 1 Westbank Expressway
New Orleans, Louisiana 70114 Leased $ 54 $21,038
Branch Office:
2021 Carol Sue Avenue
Terrytown, Louisiana 70056 Owned 177 15,597
------ -------
Total $ 231 $36,635
====== =======
</TABLE>
Item 3. Legal Proceedings.
The Company and the Association are 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 consolidated
financial condition and results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.
The information required herein, to the extent applicable, is
incorporated by reference from the inside front cover page of the Company's 1996
Annual Report.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The information required herein is incorporated by reference from pages
37 to 54 of the 1996 Annual Report.
Item 7. Financial Statements.
The information required herein is incorporated by reference from pages
1 to 35 of the 1996 Annual Report.
41
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information required herein is incorporated by reference from pages
2, 3, 5, and 7 of the definitive proxy statement of the Company for the Annual
Meeting of Stockholders to be held on April 30, 1997, which was filed on April
7, 1997 ("Definitive Proxy Statement").
Item 10. Executive Compensation.
The information required herein is incorporated by reference from pages
7 to 10 the Definitive Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required herein is incorporated by reference from pages
5 to 7 the Definitive Proxy Statement.
Item 12. Certain Relationships and Related Transactions.
The information required herein is incorporated by reference from pages
10 to 11 the Definitive Proxy Statement.
Item 13. Exhibits, List 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 7 hereof (see Exhibit 13):
Independent Auditor's Report
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1996 and
1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission ("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.
42
<PAGE>
(3) The following exhibits are filed as part of this Form 10-KSB, and
this list includes the Exhibit Index.
Exhibit Index
2.1* Plan of Conversion
3.1* Articles of Incorporation of Algiers Bancorp, Inc.
3.2* Bylaws of Algiers Bancorp, Inc.
4.1* Stock Certificate of Algiers Bancorp, Inc.
10.1* Employment Agreement among Algiers Bancorp, Inc.,
Algiers Homestead Association and Hugh E.
Humphrey, Jr., dated July 8, 1996
10.2* Employment Agreement among Algiers Bancorp, Inc.,
Algiers Homestead Association and Dennis J.
McCluer, dated July 8, 1996
10.3 Employment Agreement among Algiers Bancorp, Inc.,
Algiers Homestead Association and Hugh E.
Humphrey, III, dated July 8, 1996
10.4* Lease for main office building
13.0 1996 Annual Report to Stockholders
21.0 Subsidiaries of the Registrant - Reference is made to Item 2.
"Business" for the required information
27.0 Financial Data Schedule
(*) Incorporated herein by reference from the Company's Registration Statement
on Form SB-2 (Registration No. 333-2770) filed by the Company with the SEC on
March 26, 1996, as subsequently amended.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of the year ended December 31, 1996.
43
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALGIERS BANCORP, INC.
By: /s/ Hugh E. Humphrey, Jr.
------------------------
Hugh E. Humphrey, Jr.
Chairman of the Board, President
and Chief Executive Officer
In accordance with the Exchange Act, 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/ Hugh E. Humphrey, Jr. Chairman of the Board, President March 31, 1997
- -------------------------- and Chief Executive Officer
Hugh E. Humphrey, Jr.
/s/ Thu Dang Director March 31, 1997
- ------------
Thu Dang
- ------------
John H. Gary Director March 31, 1997
/s/ Eugene LeBoeuf Director March 31, 1997
- ------------------
Eugene LeBouef
/s/ Hugh E. Humphrey, III Director March 31, 1997
- -------------------------
Hugh E. Humphrey, III
/s/ Dennis J. McCluer Vice President and Chief Operating March 31, 1997
- --------------------- Officer (also principal financial
Dennis J. McCluer and accounting officer)
44
</TABLE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 8th day of July 1996, between Algiers
Bancorp, Inc., a Louisiana corporation (the "Corporation"), Algiers Homestead
Association, a Louisiana-chartered savings and loan association and a wholly
owned subsidiary of the Corporation (the "Association"), and Hugh E. Humphrey,
III (the "Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation and
the Association (together the "Employers");
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Average Annual Compensation. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of compensation paid to the Executive by the Employers or any subsidiary
thereof during the most recent five taxable years preceding the Date of
Termination (or such shorter period as the Executive was employed), including
Base Salary and bonuses under any employee benefit plans of the Employers.
(b) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) Cause. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of this Agreement.
For
<PAGE>
purposes of this paragraph, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers.
(d) Change in Control of the Corporation. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or any successor thereto, whether or not the Corporation is registered
under Exchange Act; provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(e) Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(g) Disability. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(h) Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the failure to
elect or to re-elect or to appoint or to re-appoint the Executive to
the offices of Secretary and Treasurer of the Employers or a
material adverse change made by the Employers in the Executive's
functions, duties or responsibilities as Secretary and Treasurer of
the Employers;
2
<PAGE>
(ii) Without the Executive's express written consent, a material
reduction by the Employers in the Executive's Base Salary as the
same may be increased from time to time or, except to the extent
permitted by Section 3(b) hereof, a material reduction in the
package of fringe benefits provided to the Executive, taken as a
whole;
(iii) Without the Executive's express written consent, the Employers
require the Executive to work in an office which is more than 30
miles from the location of the Employers' current principal
executive office, except for required travel on business of the
Employers to an extent substantially consistent with the Executive's
present business travel obligations;
(iv) Any purported termination of the Executive's employment for
Cause, Disability or Retirement which is not effected pursuant to a
Notice of Termination satisfying the requirements of paragraph (j)
below; or
(v) The failure by the Employers to obtain the assumption of and
agreement to perform this Agreement by any successor as contemplated
in Section 9 hereof.
(i) IRS. IRS shall mean the Internal Revenue Service.
(j) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated,
(iii) specifies a Date of Termination, which shall be not less than thirty (30)
nor more than ninety (90) days after such Notice of Termination is given, except
in the case of the Employers' termination of the Executive's employment for
Cause; and (iv) is given in the manner specified in Section 10 hereof.
(k) Retirement. "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including early
retirement, generally applicable to the Employers' salaried employees.
3
<PAGE>
2. Term of Employment.
(a) The Employers hereby employ the Executive as Secretary and
Treasurer and the Executive hereby accepts said employment and agrees to render
such services to the Employers on the terms and conditions set forth in this
Agreement. Unless extended as provided in this Section 2, this Agreement shall
terminate one (1) year after the date first above written. Prior to the first
annual anniversary of the date first above written and each annual anniversary
thereafter, the Boards of Directors of the Employers shall consider, review
(with appropriate corporate documentation thereof, and after taking into account
all relevant factors, including the Executive's performance) and, if
appropriate, explicitly approve a one-year extension of the remaining term of
this Agreement. The term of this Agreement shall continue to extend each year if
the Boards of Directors so approve such extension unless the Executive gives
written notice to the Employers of the Executive's election not to extend the
term, with such notice to be given not less than thirty (30) days prior to any
such anniversary date. If the Boards of Directors elect not to extend the term,
they shall give written notice of such decision to the Executive not less than
thirty (30) days prior to any such anniversary date. If any party gives timely
notice that the term will not be extended as of any annual anniversary date,
then this Agreement shall terminate at the conclusion of its remaining term.
References herein to the term of this Agreement shall refer both to the initial
term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as is consistent with his title of
Secretary and Treasurer.
3. Compensation and Benefits.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $42,600 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Boards of Directors of the Employers. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Boards of Directors of
the Employers.
(b) During the term of the Agreement, the Executive shall be entitled
to participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Boards of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect the Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to the Executive as compared with any other executive officer of the
Employers. Nothing paid to the Executive under any plan or arrangement presently
in effect or made available in the
4
<PAGE>
future shall be deemed to be in lieu of the salary payable to the Executive
pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, the Executive shall be entitled
to paid annual vacation in accordance with the policies as established from time
to time by the Boards of Directors of the Employers. The Executive shall not be
entitled to receive any additional compensation from the Employers for failure
to take a vacation, nor shall the Executive be able to accumulate unused
vacation time from one year to the next, except to the extent authorized by the
Boards of Directors of the Employers.
4. Expenses. The Employers shall reimburse the Executive or otherwise
provide for or pay for all reasonable expenses incurred by the Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Boards of
Directors of the Employers. If such expenses are paid in the first instance by
the Executive, the Employers shall reimburse the Executive therefor.
5. Termination.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement, and the Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event that the (i) the Executive's employment is terminated
by the Employers for Cause, Disability or Retirement or in the event of the
Executive's death, or (ii) the Executive terminates his employment hereunder
other than for Good Reason, the Executive shall have no right pursuant to this
Agreement to compensation or other benefits for any period after the applicable
Date of Termination.
(c) In the event that (i) the Executive's employment is terminated by
the Employers for other than Cause, Disability, Retirement or the Executive's
death or (ii) such employment is terminated by the Executive (a) due to a
material breach of this Agreement by the Employers, which breach has not been
cured within fifteen (15) days after a written notice of non-compliance has been
given by the Executive to the Employers, or (b) for Good Reason, then the
Employers shall, subject to the provisions of Section 6 hereof, if applicable,
(A) Pay to the Executive, in twelve (12) equal monthly installments
beginning with the first business day of the month following the Date of
Termination, a cash severance
5
<PAGE>
amount equal to one (1) times the Executive's Average Annual Compensation over
the most recent five taxable years, and
(B) Maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of employment pursuant hereto prior to the
Notice of Termination or (ii) the date of the Executive's full-time employment
by another employer (provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those described in this
subparagraph (B)), at no cost to the Executive, the Executive's continued
participation in all group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and arrangements in which
the Executive was entitled to participate immediately prior to the Date of
Termination (other than stock option and restricted stock plans of the
Employers), provided that in the event that the Executive's participation in any
plan, program or arrangement as provided in this subparagraph (B) is barred or
during such period any such plan, program or arrangement is discontinued or the
benefits thereunder are materially reduced, the Employers shall arrange to
provide the Executive with benefits substantially similar to those which the
Executive was entitled to receive under such plans, programs and arrangements
immediately prior to the Date of Termination.
6. Limitation of Benefits under Certain Circumstances. If the payments
and benefits pursuant to Section 5 hereof, either alone or together with other
payments and benefits which the Executive has the right to receive from the
Employers, would constitute a "parachute payment" under Section 280G of the
Code, the payments and benefits pursuant to Section 5 hereof shall be reduced,
in the manner determined by the Executive, by the amount, if any, which is the
minimum necessary to result in no portion of the payments and benefits under
Section 5 being non-deductible to either of the Employers pursuant to Section
280G of the Code and subject to the excise tax imposed under Section 4999 of the
Code. The determination of any reduction in the payments and benefits to be made
pursuant to Section 5 shall be based upon the opinion of independent tax counsel
selected by the Employers and paid by the Employers. Such counsel shall be
reasonably acceptable to the Employers and the Executive; shall promptly prepare
the foregoing opinion, but in no event later than thirty (30) days from the Date
of Termination; and may use such actuaries as such counsel deems necessary or
advisable for the purpose. In the event that the Employers and/or the Executive
do not agree with the opinion of such counsel, (i) the Employers shall pay to
the Executive the maximum amount of payments and benefits pursuant to Section 5,
as selected by the Executive, which such opinion indicates that there is a high
probability do not result in any of such payments and benefits being
non-deductible to the Employers and subject to the imposition of the excise tax
imposed under Section 4999 of the Code and (ii) the Employers may request, and
the Executive shall have the right to demand that the Employers request, a
ruling from the IRS as to whether the disputed payments and benefits pursuant to
Section 5 hereof have such consequences. Any such request for a ruling from the
IRS shall be promptly prepared and filed by the Employers, but in no event later
than thirty (30) days from the date of the opinion of counsel referred to above,
and shall be subject to the Executive's approval prior to filing, which shall
not be
6
<PAGE>
unreasonably withheld. The Employers and the Executive agree to be bound by any
ruling received from the IRS and to make appropriate payments to each other to
reflect any such rulings, together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code. Nothing contained herein shall
result in a reduction of any payments or benefits to which the Executive may be
entitled upon termination of employment under any circumstances other than as
specified in this Section 6, or a reduction in the payments and benefits
specified in Section 5 below zero.
7. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
8. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. Assignability. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employers
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
7
<PAGE>
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: Board of Directors
Algiers Bancorp, Inc.
1 Westbank Expressway
New Orleans, Louisiana 70114
To the Executive: Hugh E. Humphrey, III
Algiers Bancorp, Inc.
1 Westbank Expressway
New Orleans, Louisiana 70114
11. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer or officers as may be
specifically designated by the Boards of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
12. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of
Louisiana.
13. Nature of Obligations. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
14. Interpretation and Headings. This agreement shall be interpreted in
order to achieve the purposes for which it was entered into. The section
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
15. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
8
<PAGE>
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Regulatory Actions. The following provisions shall be applicable to
the parties to the extent that they are required to be included in employment
agreements between a savings association and its employees pursuant to Section
563.39(b) of the Regulations Applicable to all Savings Associations, 12 C.F.R.
ss.563.39(b), or any successor thereto, and shall be controlling in the event of
a conflict with any other provision of this Agreement, including without
limitation Section 5 hereof.
(a) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Employers' affairs pursuant
to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit
Insurance Act ("FDIA") (12 U.S.C. ss.ss.1818(e)(3) and 1818(g)(1)), the
Employers' obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Employers may, in their discretion: (i) pay the Executive all
or part of the compensation withheld while its obligations under this Agreement
were suspended, and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
(b) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Employers' affairs by an
order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C.
ss.ss.1818(e)(4) and (g)(1)), all obligations of the Employers under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the Executive and the Employers as of the date of termination shall
not be affected.
(c) If the Association is in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. ss.1813(x)(1)), all obligations under this Agreement shall
terminate as of the date of default, but vested rights of the Executive and the
Employers as of the date of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant
to 12 C.F.R. ss.563.39(b)(5) (except to the extent that it is determined that
continuation of the Agreement for the continued operation of the Employers is
necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or
his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC")
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the FDIA (12
U.S.C. ss.1823(c)); or (ii) by the Director of the OTS, or his/her designee, at
the time the Director or his/her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the Association
is determined by the Director of the OTS to be in an unsafe or unsound
condition, but vested rights of the Executive and the Employers as of the date
of termination shall not be affected.
9
<PAGE>
18. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. ss.1828(k)) and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: ALGIERS BANCORP, INC.
__________________________ By:
-----------------------------
Attest: ALGIERS HOMESTEAD ASSOCIATION
__________________________ By:
----------------------------
EXECUTIVE
By:
------------------------------
Hugh E. Humphrey, III
10
STOCK INFORMATION
The Company's stock is not listed on any security exchange. Therefore,
Algiers Bancorp, Inc. does not have exchange data that provides high and low
stock prices. The most recent sale of the Company's stock was $11.50 per share.
There was a cash dividend declared for the fourth quarter of 1996 in
the amount of $0.05 per share to stockholders of record on January 7, 1997
payable on January 14, 1997.
At December 31, 1996 Algiers Bancorp, Inc. had 648,025 shares
outstanding.
REGISTRAR AND TRANSFER COMPANY
Shareholders requesting a change of address, records or information
about lost certificates should contact:
Registrar and Transfer Company Telephone (908) 272-8511
10 Commerce Drive (800) 346-6084-NYC
Cranford, New Jersey 07016-3572 FAX (908) 272-1006
LEGAL COUNSEL INDEPENDENT AUDITORS
Elias, Matz, Tiernan and Herrick, L.L.P. LaPorte, Sehrt, Romig & Hand
Suite 1200 A Professional Accounting Corporation
734 15th Street, N.W. 800 Two Lakeway Center
Washington, D.C. 20005 3850 N. Causeway Blvd.
Metairie, LA 70002
Buchler and Buchler
P.O. Box 127
Metairie, LA 70004
INFORMATION
Shareholders and other individuals seeking information about the
Company, should contact Dennis J. McCluer, Vice President at (504) 367-8221.
DUPLICATE MAILINGS
The Company is required to mail information to each name on its
shareholder list, even if it means sending duplicates. Shareholders wishing to
eliminate duplicate mailings should send a written request to Registrar and
Transfer Company at the address on this page indicating which names should be
removed. This will not affect dividend or proxy mailings.
<PAGE>
TO OUR FELLOW SHAREHOLDERS:
In 1926 Algiers Homestead Association was organized as a state
chartered mutual building and loan company. Its purpose was to receive public
deposits in the form of savings accounts and invest those funds in single family
residential mortgages. Management's conservative philosophy of operating the
association with this intended purpose and retaining earnings in the form of
reserves supported Algiers through the Great Depression as well as other
difficult economic times.
With all of the changes that impacted the banking and thrift industries
during the 1980's, Algiers continued to prosper and as a result is one of the
few surviving savings and loans in the New Orleans market. Recognizing the
continuing dynamics of the financial services industry, the Board of Directors
chose to convert Algiers from a state chartered mutual association to a state
chartered stock association. A holding company, Algiers Bancorp, Inc., was
formed to become the parent of the wholly owned subsidiary Algiers Homestead
Association.
Pursuant to the Plan of Conversion adopted by the Board of Directors on
January 16, 1996, the Company commenced a Subscription Offering with
nontransferable subscription rights being granted to depositors of the
association, together with a concurrent Community Offering of the common stock.
The conversion was completed on July 8, 1996 with 648,025 shares of common stock
being sold at $10 per share and began trading through selected brokers. This
resulted in additional capital, net of expenses, totaling $6,114,379. Given the
conversion proceeds, existing surplus and retained earnings for 1996, Algiers
Bancorp, Inc. shows total capital of $9,800,000 at December 31, 1996.
1995 was historic in nature to all thrifts that are insured by the
Savings Association Insurance Fund ("SAIF"). In order to bring the SAIF up to
its legally mandated level of reserves, each association was charged a one-time
assessment which in the case of Algiers amounted to $241,000 before taxes. Had
the association not been required to make this payment, income before federal
income tax expense would have been $463,000 and federal income taxes would have
been approximately $137,000, leaving a net income of $326,000. Net loan balances
outstanding decreased $470,000 or 4.85% during this 12 month period. Total
assets for the Company increased 13.63% from $42,450,000 to $ 48,239,000. The
Company's return on average assets was .34% compared to .41% in 1995.
<PAGE>
Algiers non-performing assets to total loans receivable and total
assets stood at .53% and .20% respectively, at December 31, 1996.
1997 will offer additional challenging opportunities for the banking
industry given the continuing legislation being considered in Washington.
We look forward to continuing our expansion of the loan program and
have dedicated additional resources to this effort. Also, we are selectively
implementing new financial products to maintain our competitive effectiveness.
Overall given Algiers' strong ties to the local community, the new
corporate structure and the overall outlook for the financial industry, Algiers
should continue to do well.
In making our first annual report to shareholders we take this
opportunity to express our deepest appreciation for your continued interest and
support.
Sincerely,
/s/Hugh E. Humphrey, Jr.
- ------------------------
Hugh E. Humphrey, Jr.
Chairman and President
<PAGE>
<TABLE>
<CAPTION>
Algiers Bancorp, Inc.
Financial Highlights
(Dollars in Thousands, except per share data)
At December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total Assets ....................................... $ 48,239 $ 42,450 $ 42,149
Cash and cash equivalents .......................... 1,722 1,452 1,452
Investment securities .............................. 3,292 1,922 2,739
Mortgage-backed securities ......................... 32,887 28,149 27,357
Loans receivable, net .............................. 9,220 9,690 10,241
Deposits ........................................... 36,635 38,203 37,825
Federal Home Loan Bank Advances .................... 1,500 -- 600
Stockholders Equity/Retained Earnings .............. 9,799 4,040 3,538
Book Value Per Share ............................... 15.12 -- --
Market Price Per Share ............................. 11.50 -- --
Full Service Offices ............................... 2 2 2
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Total Interest Income .............................. $ 3,059 $ 2,670 2,574
Total Interest Expense ............................. 1,835 1,740 1,507
Net Interest Income ................................ 1,223 930 1,067
Provision for (Recovery of) Loan Losses ............ (4) (23) (15)
Net Interest Income after Provision
for (Recovery of)Loan Losses ................. 1,227 953 1,083
Total Noninterest Income ........................... 195 235 152
Total Noninterest Expense .......................... 1,200 956 924
Income Before Income Taxes ......................... 222 232 311
Income Taxes ....................................... 66 62 62
Net Income ......................................... 156 170 249
SELECTED OPERATING RATIOS:
Return on average assets ........................... 0.34% 0.41% 0.56%
Return on average equity ........................... 2.86% 4.44% 6.66%
Average equity to average assets ................... 11.93% 9.20% 8.46%
Dividend Payout Ratio** ............................ 19.23% -- --
Equity to Total Assets at End of Period ............ 20.31% 9.52% 8.39%
Risk Based Capital Ratio ........................... 54.45% 35.06%
**Reflects one quarterly dividend since stock conversion on July 8, 1996
</TABLE>
<PAGE>
[LETTERHEAD LaPorte Sehrt Romig & Hand]
The Board of Directors
Algiers Bancorp, Inc. & Subsidiaries
Independent Auditor's Report
We have audited the accompanying consolidated statements of financial
condition of Algiers Bancorp, Inc. and its wholly-owned subsidiary, Algiers
Homestead Association and its majority-owned subsidiary Jefferson Community
Lending, LLC as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Algiers
Bancorp, Inc. and its wholly-owned subsidiary, Algiers Homestead Association and
its majority-owned subsidiary Jefferson Community Lending, LLC as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
/s/LaPorte Sehrt Romig & Hand
-----------------------------
LaPorte Sehrt Romig & Hand
A Professional Accounting Corporation
February 28, 1997
Metairie, Louisiana
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and Cash Equivalents (Note A) ....................... $ 1,721,810 $ 1,452,111
Investments Available-for-Sale - at Fair Value (Note D) .. 2,467,344 697,396
Investment Securities Held-to-Maturity -
Fair Value of $823,529 and $1,203,580 at
December 31, 1996 and 1995, Respectively (Note C) ... 825,000 1,225,000
Loans Receivable - Net (Note F) .......................... 9,219,933 9,690,308
Mortgage-Backed Securities - Available-for-Sale -
at Fair Value (Note G) ............................... 9,077,210 7,688,409
Mortgage-Backed Securities - Held-to-Maturity - Fair Value
of $23,229,360 and $19,883,326 at December 31, 1996
and 1995, Respectively (Note G) ...................... 23,810,104 20,460,589
Stock in Federal Home Loan Bank .......................... 455,500 429,800
Accrued Interest Receivable (Note H) ..................... 265,449 229,105
Real Estate Owned - Net (Note I) ......................... 44,713 92,316
Office Properties and Equipment, at Cost - Furniture,
Fixtures and Equipment, Less Accumulated
Depreciation of $187,210 and $165,267 at
December 31, 1996 and 1995, Respectively (Note J) .... 231,263 227,216
Deferred Charges ......................................... 18,059 5,110
Deferred Tax Asset (Note K) .............................. 22,855 59,337
Income Tax Receivable .................................... 74,640 191,780
Other Assets ............................................. 5,458 1,439
----------- -----------
Total Assets .................................. $48,239,338 $42,449,916
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
-------------------------------
1996 1995
------------ -------------
<S> <C> <C>
LIABILITIES
Deposits (Note L) ................................. $ 36,635,028 $ 38,203,050
Advance from Federal Home Loan Bank (Note M) ...... 1,500,000 --
Advance Payments from Borrowers for
Insurance and Taxes ............................ 237,010 152,227
Accrued Interest Payable on Depositors' Accounts .. 908 2,656
Dividends Payable ................................. 32,401 --
Other Liabilities ................................. 35,209 52,293
------------ ------------
Total Liabilities .......................... 38,440,556 38,410,226
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock - Par Value $.01
0 Shares Issued and Outstanding in 1996 and 1995 -- --
Common Stock - Par Value $.01
648,025 Shares Issued and Outstanding in 1996 .. 6,480 --
Additional Paid-in Capital ........................ 6,107,899 --
Unearned ESOP Shares .............................. (492,499) --
Retained Earnings ................................. 4,200,584 4,077,036
Unrealized Loss on Securities Available-for-Sale,
Net of Applicable Deferred Income Tax .......... (23,682) (37,346)
------------ ------------
Total Stockholders' Equity ................. 9,798,782 4,039,690
------------ ------------
Total Liabilities and Stockholders' Equity . $ 48,239,338 $ 42,449,916
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended
December 31,
--------------------------
1996 1995
---------- -----------
<S> <C> <C>
INTEREST INCOME
Loans ...................................... $ 775,762 $ 806,397
Mortgage-Backed Securities ................. 2,008,319 1,702,312
Investment Securities ...................... 248,637 134,183
Other Interest-Earning Assets .............. 25,934 26,771
---------- ----------
Total Interest Income ................ 3,058,652 2,669,663
---------- ----------
INTEREST EXPENSE
Deposits ................................... 1,817,072 1,734,511
FHLB Advances .............................. 18,189 5,632
---------- ----------
Total Interest Expense ............... 1,835,261 1,740,143
---------- ----------
NET INTEREST INCOME BEFORE
CREDIT FOR LOAN LOSSES ..................... 1,223,391 929,520
CREDIT FOR LOAN LOSSES (Note F) ................ 3,667 23,951
---------- ----------
NET INTEREST INCOME AFTER
CREDIT FOR LOAN LOSSES ..................... 1,227,058 953,471
---------- ----------
NON-INTEREST INCOME
Service Charges and Fees ................... 68,061 70,534
Lawsuit Proceeds ........................... -- 95,838
Recapture of Allowance on GIC Bonds (Note E) 66,537 61,566
Gain on Sale of Investments ................ 29,280 --
Miscellaneous Income ....................... 31,277 7,134
---------- ----------
Total Non-Interest Income ............ 195,155 235,072
---------- ----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
For The Years Ended
December 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
NON-INTEREST EXPENSES
Compensation and Benefits ................... $ 456,180 $ 435,457
Occupancy and Equipment ..................... 118,343 112,979
Computer .................................... 49,392 72,097
SAIF Assessment ............................. 241,146 --
Deposit Insurance Premium ................... 90,347 86,019
Professional Services ....................... 32,846 34,789
FHLB Service Charges ........................ 39,386 30,673
Provision (Credit) for Possible Real Estate
Write-Downs (Note I) ..................... 3,626 (13,064)
Loss on Sale of Real Estate Owned ........... 5,053 --
Real Estate Owned Expense - Net ............. 2,910 31,775
Other ....................................... 161,209 165,759
---------- ----------
1,200,438 956,484
INCOME BEFORE FEDERAL
INCOME TAX EXPENSE .......................... 221,775 232,059
FEDERAL INCOME TAX EXPENSE (Note K) ............. 65,826 62,548
---------- ----------
NET INCOME ...................................... $ 155,949 $ 169,511
========== ==========
EARNINGS PER SHARE .............................. $ 0.26 $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1996 and 1995
Additional Unearned Sale - Net Total
Common Paid-in ESOP Retained of Applicable Retained
Stock Capital Shares Earnings Deferred Taxes Earnings
----- ------- ------ -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1994 ................. $ -- $ -- $ -- $ 3,907,525 $ (339,469) $ 3,568,056
Net Income .................................. -- -- -- 169,511 -- 169,511
Changes in Unrealized (Loss) on
Securities Available-for-Sale, Net of
Applicable Deferred Income Taxes
of $190,178 ............................ -- -- -- -- 302,123 302,123
-------- ----------- ---------- ----------- ----------- -----------
BALANCE - December 31, 1995 ................. -- -- -- 4,077,036 (37,346) 4,039,690
Net Income .................................. -- -- -- 155,949 -- 155,949
Dividends Declared .......................... -- -- -- (32,401) -- (32,401)
Common Stock Issuance - 648,025 shares at
$.01 per share issued at $10 per share . 6,480 6,473,770 -- -- -- 6,480,250
Costs of Conversion from a Mutual Association
to a Stock Association ................. -- (369,759) -- -- -- (369,759)
Shares allocated to the ESOP Plan ........... -- -- (518,420) -- -- (518,420)
Shares released for allocation .............. -- 3,888 25,921 -- -- 29,809
Changes in Unrealized Gain on
Securities Available-for-Sale, Net of
Applicable Deferred Income Taxes
of $12,200 ............................. -- -- -- -- 13,664 13,664
-------- ----------- ---------- ----------- ----------- -----------
BALANCE - December 31, 1996 ................. $ 6,480 $ 6,107,899 $ (492,499) $ 4,200,584 $ (23,682) $ 9,798,782
======== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................. $ 155,949 $ 169,511
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization ......................... 21,943 20,127
Premium Amortization Net of Discount Accretion ........ 127,706 135,264
Loss on Sale of Real Estate ........................... 5,053 --
Gain on Sale of Investments ........................... (29,280) --
ESOP expense .......................................... 29,809 --
(Decrease) in Accrued Interest Payable ............... (1,748) (9,143)
Increase (Decrease) in Other Liabilities .............. (17,086) 5,346
(Increase) in Accrued Interest Receivable ............. (36,344) (6,057)
(Decrease) in Income Tax Payable ...................... -- (10,500)
Credit for Loan Losses ................................ (3,667) (23,951)
Provision (Credit) for Losses on Real Estate Owned .... 3,626 (13,064)
(Increase) Decrease in Other Assets ................... (4,020) 4,261
(Increase) Decrease in Deferred Loan Fees ............. (12,949) 3,583
Decrease (Increase) in Prepaid Income Taxes ........... 117,140 (191,780)
Decrease in Deferred Income Taxes ..................... 29,447 184,849
----------- -----------
Net Cash Provided by Operating Activities .......... 385,579 268,446
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of Investment Securities - Held-to-Maturity ...... 400,000 99,000
Purchases of Investment Securities - Available-for-Sale ..... (3,022,211) (197,336)
Maturities of Investment Securities - Available-for-Sale .... 1,247,396 914,040
Purchases of Mortgage-Backed Securities - Held-to-Maturity .. (5,785,902) (1,184,316)
Maturities of Mortgage-Backed Securities - Held-to-Maturity . 2,373,284 1,901,024
Purchases of Mortgage-Backed Securities - Available-for-Sale (3,424,131) (2,986,118)
Maturities of Mortgage-Backed Securities - Available-for-Sale 1,357,840 1,751,589
Proceeds From Sale of Investment ............................ 667,736 --
Principal Collected on Loans ................................ 2,631,328 1,846,352
Loans Made to Customers ..................................... (2,157,285) (1,274,887)
Non-Cash Dividend - FHLB .................................... (25,700) (26,500)
Purchase of Furniture and Fixtures .......................... (25,990) (32,443)
Proceeds from Sales of Foreclosed Real Estate ............... 38,923 58,041
----------- -----------
Net Cash Provided by (Used in) Investing Activities (5,724,712) 868,446
----------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits ........................ (1,568,022) 377,599
Net Increase in Advances from Borrowers
for Taxes and Insurance ................................. 84,783 36,643
Proceeds from Federal Home Loan Bank Advance ............... 3,000,000 --
Repayment of Federal Home Loan Bank Advance ................ (1,500,000) (600,000)
Sale of Common Stock ....................................... 6,480 --
Contribution of Additonal Paid-in Capital .................. 6,104,011 --
Loan to ESOP to purchase stock ............................. (518,420) --
----------- -----------
Net Cash Provided by (Used in) Financing Activities 5,608,832 (185,758)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 269,699 951,134
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR .................. 1,452,111 500,977
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR ........................ $ 1,721,810 $ 1,452,111
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest ............................................. $ 1,818,820 $ 1,743,654
Income Taxes ......................................... $ 30,000 $ 62,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Transfers from Loans to Real Estate
Acquired Through Foreclosure ......................... $ -- $ 6,000
Donation of Real Estate Owned ........................... $ -- $ 30,000
Dividends Declared ...................................... $ 32,401 $ --
The accompanying notes are an integral part of these financial statements.
</TABLE>
8
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Algiers Bancorp, Inc. was organized as a Louisiana corporation
on February 5, 1996 for the purpose of engaging in any lawful act or
activity for which a corporation may be formed under the Louisiana
Business Corporation Law, as amended. Other than steps related to the
reorganization described below, the Company was essentially inactive
until July 8, 1996, when it acquired Algiers Homestead Association in a
business reorganization of entities under common control in a manner
similar to a pooling of interest. Algiers Homestead Association is
engaged in the savings and loan industry. The acquired association
became a wholly owned subsidiary of the Corporation through the
exchange of 1,000 shares of common stock which was all the outstanding
stock of the acquired Association. On December 23, 1996, Algiers
Bancorp, Inc. entered into a limited liability company partnership when
it acquired a majority interest in Jefferson Community Lending, LLC.
Jefferson Community Lending is engaged in the business of consumer
lending. The accompanying financial statements for 1996 are based on
the assumption that the companies were combined for the full year, and
the financial statements of prior years have been restated to give
effect to the combination.
. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, Algiers
Homestead Association and its majority-owned subsidiary, Jefferson
Community Lending, LLC. In consolidation, significant inter-company
accounts, transactions, and profits have been eliminated.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with
generally accepted accounting principles.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for
losses on loans and valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for losses on foreclosed real estate,
management obtains independent appraisals for all properties.
While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Association's
allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association to recognize additions to the
allowances based on their judgments about information available to them
at the time of their examination.
9
<PAGE>
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENT SECURITIES
Investment 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 premium and accretion of
discounts using the straight-line method which is a departure from
generally accepted accounting principles, but the difference between
this method and the interest method required by generally accepted
accounting principles is not material. Marketable securities classified
as available-for-sale are carried at fair value in 1996 and 1995.
Unrealized gains and losses on securities available-for-sale are
recognized as direct increases or decreases in retained earnings
effective December 31, 1995 in accordance with the adoption of FAS 115.
Cost of securities sold is recognized using the specific identification
method.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent participating interests
in pools of first mortgage loans originated and serviced by issuers of
the securities. Mortgage-backed securities are carried at unpaid
principal balances, adjusted for unamortized premiums and unearned
discounts. Premiums and discounts are amortized using methods
approximating the interest method over the remaining period to
contractual maturity. Management intends and has the ability to hold
such securities, which management has classified as "held-to-maturity",
to maturity. Should any be sold, cost of securities sold is determined
using the specific identification method. Other mortgage-backed
securities are classified as available-for-sale and are carried at fair
value.
LOANS
Loans are stated at unpaid principal balances, less the
allowance for loan losses, net deferred loan fees, and unearned
interest and discounts.
Loan origination fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives
of the related loans using the interest method. Commitment fees and
costs relating to commitments, the likelihood of exercise of which is
remote, are recognized over the commitment period on a straight-line
basis, if material. If the commitment is subsequently exercised during
the commitment period, the remaining unamortized commitment fee at the
time of exercise is recognized over the life of the loan as an
adjustment of yield.
Loans are placed on non-accrual when principal or interest is
delinquent for 90 days or more. Any unpaid interest previously accrued
on those loans is reversed from income, and thereafter, interest is
recognized only to the extent of payments received.
A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. Interest payments on impaired loans are typically
applied to principal unless collectibility of the principal amount is
fully assured, in which case interest is recognized on the cash basis.
Interest may be recognized on the accrual basis for certain troubled
debt restructurings.
10
<PAGE>
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS (Continued)
The allowance for loan losses is maintained at a level which,
in management's judgment, is adequate to absorb potential losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic
conditions.
OFFICE PROPERTY AND EQUIPMENT
Land is carried at cost; office property and equipment are
carried at cost less accumulated depreciation. Depreciation is computed
using the straight-line method, over the estimated useful lives of
those properties and equipment acquired prior to 1981.
Property and equipment acquired after 1980, but before 1987,
are depreciated under the Accelerated Cost Recovery System. Properties
and equipment acquired after 1986 are depreciated under the Modified
Accelerated Cost Recovery System. The depreciation under these methods
does not differ materially from that calculated in accordance with
generally accepted accounting principles.
When these assets are retired or otherwise disposed of, the
cost and related accumulated depreciation or amortization is removed
from the accounts, and any resulting gain or loss is reflected in
income for the period.
FORECLOSED REAL ESTATE
Foreclosed real estate includes formally foreclosed property.
At the time of foreclosure, foreclosed real estate is recorded at the
lower of the Association's cost or the asset's fair value, less
estimated costs to sell, which becomes the property's new basis. Any
write-downs are charged to the allowance for losses on foreclosed real
estate. Costs incurred in maintaining foreclosed real estate are
included in income (loss) on foreclosed real estate.
INCOME TAXES
Effective January 1, 1994, the Company adopted FAS 109,
"Accounting for Income Taxes." Under FAS 109, the liability method is
used in accounting for income taxes.
Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to differences between the
basis of assets and liabilities for financial and income tax reporting.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment.
Algiers Homestead Association is exempt from Louisiana income
tax.
11
<PAGE>
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
CASH EQUIVALENTS
Cash equivalents consist of certificates of deposit purchased
with a maturity of three months or less, and daily demand investment
deposit accounts.
Cash and cash equivalents at December 31,1996 and 1995
included the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash ................................... $ 286,589 $ 212,362
Interest-Bearing Deposits
in Other Institutions .............. 1,435,221 1,239,749
---------- ----------
$1,721,810 $1,452,111
========== ==========
</TABLE>
RECLASSIFICATIONS
Certain reclassifications of previously reported amounts have
been made to conform with 1996 presentation. Such reclassifications had
no effect on net income.
NON-DIRECT RESPONSE ADVERTISING
The Association expenses advertising costs as incurred.
Advertising expense for 1996 and 1995 were $625 and $1,266,
respectively.
NOTE B
POOLING OF INTEREST
Details of the unaudited results of operations of the
previously separate entities for the periods prior to the combination
(January 1, 1996 - July 7, 1996) follows:
<TABLE>
<CAPTION>
Algiers
Algiers Homestead
Bancorp, Inc. Association
------------- -----------
<S> <C> <C>
Operating Income .................... $ -- $1,519,408
========== ==========
Net Income .......................... $ -- $ 173,484
========== ==========
</TABLE>
12
<PAGE>
NOTE B
POOLING OF INTEREST (Continued)
As discussed in Note A, Algiers Bancorp, Inc. had essentially
no activity prior to July 8, 1996, the acquisition date. The proforma
data reflects certain estimated values and assumptions. Proforma
results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the pooling occurred
at the beginning of the fiscal years, or of the results which may occur
in the future.
NOTE C
INVESTMENT SECURITIES HELD-TO-MATURITY
Investment securities held-to-maturity at December 31, 1996
consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Federal Farm
Credit Banks ......... $200,000 $ -- $ 500 $199,500
SLMA ................... 200,000 -- 512 199,488
Federal Home Loan
Bank Notes ........... 425,000 -- 459 424,541
-------- -------- -------- --------
$825,000 $ -- $ 1,471 $823,529
======== ======== ======== ========
</TABLE>
Investment securities held-to-maturity at December 31, 1995
consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Louisiana Public
Facility Authority $ 300,000 $ -- $ 240 $ 299,760
Federal Home Loan
Bank Notes ....... 925,000 -- 21,180 903,820
---------- ---------- ---------- ----------
$1,225,000 $ -- $ 21,420 $1,203,580
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated value of investment
securities held-to-maturity at December 31, 1996 by contractual
maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
13
<PAGE>
NOTE C
INVESTMENT SECURITIES HELD-TO-MATURITY (Continued)
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in One Year or Less ...................... $825,000 $823,529
Due After One Year Thru Five Years ........... -- --
Due After Five Years Thru Ten Years .......... -- --
Due After Ten Tears
-------- --------
$825,000 $823,529
======== ========
</TABLE>
Algiers Homestead Association has invested in FHLB stock which
is reflected at cost and approximates market.
NOTE D
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale at December 31, 1996
consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
FNMA Medium Term
Callable Note ...... $ 324,086 $ 914 $ -- $ 325,000
FHLMC Callable Note ... 650,000 6,094 -- 656,094
FHLB Callable Notes ... 1,498,125 625 12,500 1,486,250
Louisiana Agricultural
Finance Authority .. 19,237 -- -- 19,237
Southeast Texas Housing
Finance Authority .. 43,163 -- -- 43,163
----------- ----------- ----------- -----------
2,534,611 7,633 12,500 2,529,744
Allowance for Loss ... (62,400) -- -- (62,400)
----------- ----------- ----------- -----------
$ 2,472,211 $ 7,633 $ 12,500 $ 2,467,344
=========== =========== =========== ===========
</TABLE>
14
<PAGE>
NOTE D
INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Continued)
Investment securities available-for-sale at December 31, 1995
consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 697,396 $ -- $ -- $ 697,396
Louisiana Agricultural
Finance Authority .... 45,499 -- -- 45,499
Southeast Texas Housing
Finance Authority .... 83,438 -- -- 83,438
--------- ----- ------- ---------
826,333 -- -- 826,333
Allowance for Loss ..... (128,937) -- -- (128,937)
--------- ----- ------- ---------
$ 697,396 $ -- $ -- $ 697,396
========= ===== ======= =========
</TABLE>
The following is a summary of contractual maturities of
investment securities available-for-sale as of December 31, 1996:
<TABLE>
<CAPTION>
Fair
Cost Value
---------- ----------
<S> <C> <C>
Due in One Year or Less .................... $ -- $ --
Due After One Year Thru Five Years ......... -- --
Due After Five Years Thru Ten Years ........ 974,086 981,094
Due After Ten Years ........................ 1,498,125 1,486,250
---------- ----------
$2,472,211 $2,467,344
========== ==========
</TABLE>
NOTE E
GUARANTEED INSURANCE CONTRACT (GIC) BONDS
During 1987 and 1989, the Association invested in Louisiana
Agricultural Finance Authority Bonds and Southeast Texas Housing
Finance Authority Bonds which were backed by insurance contracts
guaranteed by Executive Life Insurance Company. A conservator was
subsequently appointed for Executive Life Insurance Company thus
impacting the ultimate collectibility of the entire bond proceeds.
Prior to 1996, the conservator was unable to determine the ultimate
amount of principal which would be recovered; therefore, the
Association set up reserves which amounted to $339,375 at December 31,
1993 based on its best estimate of what would be recovered. As of
December 31, 1996, the conservator has estimated that the ultimate
collectibility of the bonds will approximate 88% of their original
carrying value. As such, the
15
<PAGE>
NOTE E
GUARANTEED INSURANCE CONTRACT (GIC) BONDS (Continued)
Association has applied all proceeds received during 1995 and 1996
against the carrying value of the bonds. The Association has reserved
100% against the remaining principal value of the bonds given the
questionability of the proceeds to be collected.
The activity in the carrying value and the reserve account is
summarized as follows for the year ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Carrying Reserve
Value Balance
----------- -----------
<S> <C> <C>
Balance at December 31,1994 ............... $ 604,659 $ (339,375)
Principal Repayment ....................... (306,084) --
Write-Off of Discount ..................... (20,766) --
Write-Off of Principal .................... (148,872) 148,872
Recapture of Provision
for Investment Losses .................. -- 61,566
----------- -----------
Balance at December 31, 1995 .............. 128,937 (128,937)
Principal Repayment ....................... (66,537) --
Recapture of Provision
for Investment Losses .................. -- 66,537
----------- -----------
Balance at December 31, 1996 .............. $ 62,400 $ (62,400)
=========== ===========
</TABLE>
NOTE F
LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Principal Balances -
First Mortgage Loans
1-4 Family ......................... $ 8,134,400 $ 7,978,587
Commercial ......................... 667,926 857,847
Construction Loans - 1-4 Family ........ 89,260 490,550
Partially-Guaranteed by VA
or Insured by FHA Loans - 1-4 Family 51,052 71,598
----------- -----------
8,942,638 9,398,582
----------- -----------
Principal Balances -
Second Mortgage Loans - 1-4 Family ..... 175,016 111,257
Share Loans ............................ 693,585 985,686
----------- -----------
868,601 1,096,943
----------- -----------
</TABLE>
16
<PAGE>
NOTE F
LOANS RECEIVABLE (Continued)
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Less:
Allowance for Losses ...................................... 530,184 533,851
Unearned Interest on Mortgage Loans ....................... 6,913 6,102
Undisbursed Portion of Construction Loans ................. 7,044 223,627
Net Deferred Loan Origination Fees ........................ 47,125 41,637
----------- -----------
591,266 805,217
----------- -----------
$ 9,219,933 $ 9,690,308
=========== ===========
</TABLE>
Activity in the allowance for loan losses is summarized as
follows for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at Beginning of Year ................................. $ 533,851 $ 557,802
Charge-Offs .................................................. -- --
Recoveries ................................................... -- --
Credit for Loan Losses ....................................... (3,667) (23,951)
----------- -----------
Balance at End of Year ....................................... $ 530,184 $ 533,851
=========== ===========
</TABLE>
The Financial Accounting Standards Board issued FAS 114,
"Accounting by Creditors for Impairment of a Loan, as amended by FAS
118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," which is effective for fiscal years
beginning after December 15, 1994. This statement establishes
standards, including the use of discounted cash flow techniques, for
measuring the impairment of a loan when it is probable that the
contractual terms will not be met.
The Association adopted FAS 114 on January 1, 1995. Adoption
of this standard had no impact on the Association's net income,
retained earnings or total assets.
At December 31, 1996 and December 31, 1995, the Association
had loans totaling approximately $8,000 and $76,000, respectively, for
which impairment had been recognized. The allowance for loan losses
related to these loans totaled $8,000 and $13,600 at December 31, 1996
and December 31, 1995, respectively. During the year ended December 31,
1995, the amount of interest income that would have been recorded on
loans in nonaccrual status at December 31, 1995, had such loans
performed in accordance with their terms, was approximately $4,800. The
actual interest income recorded on these loans during the year ended
December 31, 1995 was approximately $5,600. Such interest foregone for
the year ended December 31, 1996 was approximately $1,300.
17
<PAGE>
NOTE F
LOANS RECEIVABLE (Continued)
The Association does not service any loans for others.
In the normal course of business, the Association originates
installment loans to members of the Board of Directors and officers.
Loans to such borrowers are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at Beginning of Year ............................ $ 59,806
Net Decrease ............................................ (42,580)
--------
Balance at End of Year .................................. $ 17,226
========
</TABLE>
An approximate schedule of loan maturities or repricing
opportunities is as follows:
<TABLE>
<CAPTION>
Variable Fixed
Maturities Rate Rate Total
---------- ---- ---- -----
<S> <C> <C> <C>
Three Months or Less ........ $1,438,963 $ -- $1,438,963
Three Months - One Year ..... 6,372,835 669 6,373,504
One Year - Five Years ....... -- 539,184 539,184
Over Five Years ............. -- 1,459,588 1,459,588
---------- ---------- ----------
$7,811,798 $1,999,441 $9,811,239
========== ========== ==========
</TABLE>
NOTE G
MORTGAGE-BACKED SECURITIES
Fixed and variable rate mortgage-backed securities
available-for-sale at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GNMA Certificates .. $ 884,955 $ 19,151 $ 2,766 $ 901,340
FNMA Certificates .. 5,397,253 63,957 46,560 5,414,650
FHLMC Certificates . 2,770,106 19,374 28,260 2,761,220
---------- ---------- ---------- ----------
$9,052,314 $ 102,482 $ 77,586 $9,077,210
========== ========== ========== ==========
</TABLE>
18
<PAGE>
NOTE G
MORTGAGE-BACKED SECURITIES (Continued)
Fixed and variable rate mortgage-backed securities
held-to-maturity at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 3,199,363 $ 25,378 $ 5,191 $ 3,219,550
FNMA Certificates 16,684,132 15,409 510,511 16,189,030
FHLMC Certificates 3,926,609 1,001 106,830 3,820,780
----------- ----------- ----------- -----------
$23,810,104 $ 41,788 $ 622,532 $23,229,360
=========== =========== =========== ===========
</TABLE>
Fixed and variable rate mortgage-backed securities
available-for-sale at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates .. $1,141,586 $ 19,477 $ 3,549 $1,157,514
FNMA Certificates .. 3,288,381 38,902 34,170 3,293,113
FHLMC Certificates . 3,254,411 13,551 30,180 3,237,782
---------- ----------- ----------- ----------
$7,684,378 $ 71,930 $ 67,899 $7,688,409
========== ========== ========== ==========
</TABLE>
Fixed and variable rate mortgage-backed securities
held-to-maturity at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 3,719,273 $ 25,545 $ 76,122 $ 3,668,696
FNMA Certificates 13,970,612 24,115 513,491 13,481,236
FHLMC Certificates 2,770,704 1,447 38,757 2,733,394
----------- ----------- ----------- -----------
$20,460,589 $ 51,107 $ 628,370 $19,883,326
=========== =========== =========== ===========
</TABLE>
19
<PAGE>
NOTE G
MORTGAGE-BACKED SECURITIES (Continued)
The amortized cost and fair value of mortgage-backed
securities at December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Mortgage-Backed Securities Maturing:
Due in One Year or Less ................. $ 43,431 $ 43,239
Due After One Year Thru Five Years ...... 631,997 564,592
Due After Five Years Thru Ten Years ..... 2,571,830 2,500,249
Due After Ten Years ..................... 29,615,160 29,198,490
----------- -----------
$32,862,418 $32,306,570
=========== ===========
</TABLE>
NOTE H
INTEREST RECEIVABLE
Interest receivable at December 31, 1996 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Mortgage Loans ........................... $ 14,436 $ --
Share Loans .............................. 2,597 20,473
Investment Securities .................... 24,313 27,957
Mortgage-Backed Securities ............... 224,103 180,675
-------- --------
$265,449 $229,105
======== ========
</TABLE>
NOTE I
REAL ESTATE OWNED
A summary of real estate owned at December 31, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Real Estate Acquired in Settlement ........... $ 90,455 $140,121
Less: Allowances for Losses ................. 45,742 47,805
-------- --------
$ 44,713 $ 92,316
======== ========
</TABLE>
20
<PAGE>
NOTE I
REAL ESTATE OWNED (Continued)
Activity in the allowance for losses for other real estate
owned for years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Balance at Beginning of Year ............... $ 47,805 $ 98,450
Provision (Credit) for REO Losses .......... 3,626 (13,064)
Charge-Offs ................................ (5,689)
Recoveries ................................. -- --
-------- --------
Balance at End of Year ..................... $ 45,742 $ 47,805
======== ========
</TABLE>
NOTE J
OFFICE PROPERTY AND EQUIPMENT
Office property and equipment consist of the following at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land ......................................... $ 30,000 $ 30,000
Building ..................................... 162,182 146,871
Furniture, Fixtures and Equipment ............ 185,886 176,162
Leasehold Improvements ....................... 40,405 39,450
-------- --------
418,473 392,483
Less: Accumulated Depreciation
and Amortization ......................... 187,210 165,267
-------- --------
$231,263 $227,216
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1996 and
1995 was $21,943 and $20,127, respectively.
NOTE K
FEDERAL INCOME TAXES
As discussed in Note A, the Company adopted FAS 109 effective
January 1, 1995. Prior year financial statements were restated with no
cumulative adjustment at adoption required.
The provision for income taxes for 1996 and 1995 consists of
the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Current Federal Tax Expense ................ $47,430 $ --
Deferred Federal Tax Expense ............... 18,396 62,548
------- -------
$65,826 $62,548
======= =======
</TABLE>
21
<PAGE>
NOTE K
FEDERAL INCOME TAXES (Continued)
The provision for federal income taxes differs from that
computed by applying federal statutory rates to income before federal
income tax expense, as indicated in the following analysis:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Expected Tax Provision at 34% Rate ............. $ 75,404 $ 78,900
Difference in Federal Bad Debt Deduction
For Book and Tax Purposes .................. 26,356 (23,634)
Increase (Decrease) in Deferred Tax Asset
Valuation Allowance ........................ (35,934) 7,282
-------- --------
$ 65,826 $ 62,548
======== ========
</TABLE>
Deferred tax liabilities have been provided for taxable or
deductible temporary differences related to unrealized gains on
available-for-sale securities, deferred loan costs, depreciation and
non-cash Federal Home Loan Bank dividends. Deferred tax assets have
been provided for taxable or deductible temporary differences related
to the reserves for uncollected interest and late charges, deferred
loan fees, allowance for loan losses, the allowance for losses on
foreclosed real estate and the allowance for losses on real estate
held-for-investment. The net deferred tax assets or liabilities in the
accompanying statements of financial condition include the following
components:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred Tax Assets
Uncollected Interest ............................ $ 1,341 $ 1,355
Market Value Adjustment to Available-for-
Sale Securities ............................. 12,200 19,238
Allowance for Loan Losses ....................... 178,922 180,154
Allowance for REO Losses ........................ 15,552 16,253
Allowance for Unrealized Loss on Investments .... 21,216 43,839
Net Operating Loss Carryforward ................. -- 34,000
Charitable Contribution Carryforward ............ 7,895 --
Amortization of Start Up Costs .................. 2,383 --
Deferred Loan Fees .............................. 16,023 14,157
-------- --------
Total Deferred Tax Assets ................... 255,532 308,996
-------- --------
Deferred Tax Liabilities
Fixed Assets and Depreciation ................... 9,871 5,922
FHLB Stock ...................................... 22,066 3,328
481A Adjustment ................................. 6,266 --
-------- --------
Total Deferred Tax Liabilities .............. 38,203 19,250
-------- --------
</TABLE>
22
<PAGE>
NOTE K
FEDERAL INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred Tax Assets - Net of Deferred
Tax Liabilities ............................. 217,329 289,746
Deferred Tax Valuation Reserve ................. 194,474 230,409
-------- --------
Total Net Deferred Tax Assets ........... $ 22,855 $ 59,337
======== ========
</TABLE>
Included in retained earnings at December 31, 1996 and 1995 is
approximately $1,307,000 and $1,309,000, respectively, in bad debt
reserves for which no deferred federal income tax liability has been
recorded. These amounts represent allocations of income to bad debt
deductions for tax purposes only. Reduction of these reserves for
purposes other than tax bad-debt losses or adjustments arising from
carryback of net operating losses would create income for tax purposes,
which would be subject to the then current corporate income tax rate.
The unrecorded deferred liability on these amounts was approximately
$444,000 and $445,000 for December 31, 1996 and 1995.
NOTE L
DEPOSITS
Deposits consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
Weighted
Average
Rate at 1996 1995
12/31/96 Amount Percent Amount Percent
-------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
NOW Accounts ..................... 2.16% $ 1,712,759 4.67 $ 1,698,788 4.45%
Passbook ......................... 2.65% 5,773,599 15.76 6,430,893 16.83
Money Fund ....................... 2.58% 1,216,463 3.32 1,530,637 4.01
Certificates of Deposit:
2% to 2.99% ................... 2.75% 93,762 .26 168,617 .44
3% to 3.99% ................... -- -- -- 11,712 .03
4% to 4.99% ................... 4.88% 6,957,524 18.99 10,057,671 26.43
5% to 5.99% ................... 5.27% 13,346,462 36.44 10,504,613 27.39
6% to 6.99% ................... 6.41% 5,544,141 15.13 5,704,880 14.93
7% to 7.99% ................... 7.05% 1,990,318 5.43 2,091,199 5.47
8% to 8.99% ................... -- -- -- 4,040 .02
----------- ------ ----------- ------
$36,635,028 100.00% $38,203,050 100.00%
=========== ====== =========== ======
</TABLE>
23
<PAGE>
NOTE L
DEPOSITS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Due on Demand ...................... $ 8,702,821 $ 9,660,318
Due Within -
6 Months ........................ 10,891,562 11,355,638
7 to 12 Months .................. 6,311,313 5,648,892
13 to 24 Months ................. 6,127,096 6,564,324
25 to 36 Months ................. 1,806,885 3,348,813
Due After 36 Months ................ 2,795,351 1,625,065
----------- -----------
$36,635,028 $38,203,050
=========== ===========
</TABLE>
The aggregate amount of short-term jumbo certificates of
deposit with a minimum denomination of $100,000 was approximately
$2,005,000 and $1,855,133 at December 31, 1996 and 1995, respectively.
Interest expense consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
NOW Accounts ........................... $ 39,907 $ 34,294
Passbook ............................... 174,558 181,578
Money Fund ............................. 33,468 46,761
Certificates of Deposits ............... 1,569,139 1,471,878
---------- ----------
Total ............................... $1,817,072 $1,734,511
========== ==========
</TABLE>
NOTE M
ADVANCES FROM FEDERAL HOME LOAN BANK
Pursuant to collateral agreements with the Federal Home Loan
Bank (FHLB), advances are secured by a blanket floating lien on first
mortgage loans and $106,000 of mortgage-backed securities which have
been pledged to the short-term FHLB advance. Total interest expense
recognized in 1996 and 1995, respectively, was $18,189 and $-0-.
Advances at December 31, 1996 consisted of the following
maturities:
<TABLE>
<CAPTION>
Maturity Date Advance Total Contract Rate
------------- ------------- -------------
<S> <C> <C>
January 7, 1997 .................. $ 500,000 5.61%
December 22, 2003 ................ 1,000,000 5.87%
----------
$1,500,000
==========
</TABLE>
Subsequent to December 31, 1996, Algiers Homestead Association
was advanced $1,700,000 from the Federal Home Loan Bank on a short-term
basis.
24
<PAGE>
NOTE N
FEDERAL DEPOSIT INSURANCE ASSOCIATION IMPROVEMENT ACT OF 1991
(FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND EN-FORCEMENT
ACT OF 1989 (FIRREA)
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA became
effective on December 19, 1992. In addition to the prompt corrective
action requirements, FDICIA includes significant changes to the legal
and regulatory environment for insured depository institutions,
including reductions in insurance coverage for certain kinds of
deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting and operations.
FIRREA was signed into law on August 9, 1989. Regulations for
savings institutions' minimum capital requirements went into effect on
December 7, 1989. In addition to its capital requirements, FIRREA
includes provisions for changes in the federal regulatory structure for
institutions, including a new deposit insurance system, increased
deposit insurance premiums, and restricted investment activities with
respect to noninvestments grade corporate debt and certain other
investments. FIRREA also increases the required ration of
housing-related assets in order to qualify as a savings institution.
The regulations require institutions to have a minimum
regulatory tangible capital equal to 1.5% of adjusted total assets, a
minimum 4% core/leverage capital ratio, a minimum 4% tier 1 risk-based
ratio, and a minimum 8% total risk-based capital ratio to be considered
"adequately capitalized." An institution is deemed to be "critically
undercapitalized" if it has a tangible equity ratio of 2% or less. The
ability to include qualifying supervisory goodwill for purposes of the
core/leverage requirements was phased out by January 1, 1995, and the
ability to include investments in impermissible activities in
core/leverage capital and tangible capital was phased out by July 1,
1994.
The following table sets out the Association's various
regulatory capital categories at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------------- --------------------------
Dollars Percentage Dollars Percentage
------- ---------- ------- ----------
(thousands) (thousands)
<S> <C> <C> <C> <C>
Tangible Capital ............... $6,777 14.83% $4,077 9.60%
Tangible Equity ................ $6,777 14.83% $4,077 9.60%
Core/Leverage Capital .......... $6,777 14.83% $4,077 9.60%
Tier 1 Risk-Based Capital ...... $6,777 52.29% $4,077 33.92%
Total Risk-Based Capital ....... $6,950 54.24% $4,214 35.06%
</TABLE>
25
<PAGE>
NOTE O
REGULATORY CAPITAL
The following is a reconciliation of generally accepted
accounting principles (GAAP) net income and capital to regulatory
capital for the Association. The following reconciliation also compares
the capital requirements as computed to the minimum capital
requirements for the Association.
<TABLE>
<CAPTION>
Net Income Capital
Year Ended as of
December 31, 1996 December 31, 1996
----------------- -----------------
<S> <C> <C>
Per GAAP ............................ $134,102 $ 6,751
======== ========
Total Assets ........................ $ 45,713
========
Capital Ratio ....................... 14.77%
<CAPTION>
Core/ Tier 1 Total
Tangible Tangible Leverage Risk-Based Risk-Based
Capital Equity Equity Capital Capital
------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Per GAAP .............. $ 6,751 $ 6,751 $ 6,751 $ 6,751 $ 6,751
Assets required
to be added
Unrealized Loss
on Securities
Available-
for-Sale ...... 26 26 26 26 26
General valuation
allowance ..... -- -- -- -- 173
------- ------- ------- ------- -------
Regulatory capital
measure ........... $ 6,777 $ 6,777 $ 6,777 $ 6,777 $ 6,950
======= ======= ======= ======= =======
Adjusted total
assets ............ $45,713 $45,713 $45,713
======= ======= =======
Risk-weighted
assets ............ $12,813 $12,813
======= =======
Capital Ratio ......... 14.83% 14.83% 14.83% 52.89% 54.24%
Required Ratio ........ 1.50% 2.00% 3.00% 4.00% 8.00%
==== ==== ==== ==== ====
Required Capital ...... $ 686 $ 1,371 $ 1,025
======= ======= =======
Excess Capital ........ $ 6,091 $ 5,406 $ 5,925
======= ======= =======
</TABLE>
26
<PAGE>
NOTE P
RELATED PARTY TRANSACTIONS
Until March 31, 1996, the Association leased its premises from
one of its officers. The lease commenced on September 19, 1967 for a
term of thirty years at $33,000 per year.
On March 20, 1996, the Association entered into a new lease
agreement with one of its officers for its main office which is for a
period of ten years beginning April 1, 1996. The annual rental payment
for the first five years is $45,000. The annual rental payment for the
next five years will be adjusted by changes in the Consumer Price Index
but in no case will be less than $45,000 per year.
NOTE Q
PENSION PLAN
The Association offered for 1995 a contributory plan for its
employees. Employees electing to participate in the plan are required
to make a minimum contribution, and may elect to contribute a maximum
of 15% of their salaries (including the employer's contribution).
The Association contributed $13,146 for the year ended
December 31, 1995. This Plan was terminated in 1996.
NOTE R
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
During 1996, Algiers Bancorp, Inc. sponsored an employee stock
ownership plan that covers all employees of Algiers Homestead
Association who have completed one year of service and have attained
the age of 21. The Association may contribute to the Plan such amount
as shall be determined by the Association. All dividends received by
the ESOP are either used to pay debt service or credited to the
participant accounts at the discretion of the administrator. The ESOP
shares are pledged as collateral for its debt. As the debt is repaid,
shares are released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year.. The shares
pledged as collateral are reported as unearned ESOP shares in the
statements of financial condition. As shares are released from
collateral, the Company reports compensation expense equal to the
current market price of the shares, and the shares become outstanding
for earnings per share computations. Dividends on allocated ESOP shares
are recorded as a reduction of retained earnings. Dividends on
unallocated ESOP shares are recorded as a reduction of debt and accrued
interest. ESOP compensation expense was $29,809 for 1996.
The ESOP shares as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Allocated Shares ............................................... --
Shares Released for Allocation ................................. 2,592
Unreleased Shares .............................................. 49,250
--------
Total ESOP Shares .............................................. 51,842
========
Fair Value of Unreleased Shares at December 31, 1996 ........... $566,375
========
</TABLE>
27
<PAGE>
NOTE R
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) (Continued)
In conjunction with the establishment of the ESOP, Plan,
Algiers Bancorp, Inc. loaned the ESOP the money to purchase the shares
of stock for the ESOP plan. The corresponding note is to be paid back
in 40 equal quarterly payments of $19,202 on the last business day of
each quarter beginning September 30, 1996 at the rate of 8.25%. The
note payable and corresponding note receivable have been eliminated for
consolidation purposes.
NOTE S
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, various commitments and
contingent liabilities are outstanding, such as commitments to extend
credit and stand-by letters of credit which are not reflected on the
Company's financial statements. Management does not anticipate any
material loss as a result of these transactions. Commitments to extend
credit totaled approximately $108,000 on one to four family mortgage
loans, and stand-by letters of credit totaled $90,000 at December 31,
1996.
The Association 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 consist
of commitments to extend credit and stand-by letters of credit. These
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the Company's
balance sheet.
The Association's exposure to credit loss in the event of
nonperformance by the other party to these financial instruments for
commitments to extend credit and stand-by letters of credit is
represented by the contractual notional amount of those instruments.
The Association uses the same credit policies making commitments as it
does for on-balance sheet instruments.
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 many
of the commitments are expected to expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. The Association evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of
collateral obtained, if deemed necessary by the Association upon
extension of credit, varies and is based on management's credit
evaluation of the counterparty.
Stand-by letters of credit are conditional commitments issued
by the Association to guarantee the performance of a customer to a
third party. Stand-by letters of credit generally have fixed expiration
dates or other termination clauses and may require payment of a fee.
The credit risk involved in issuing letters of credit is essentially
non-existent, as the letters of credit are secured by pledged
certificates of deposit of the Association.
28
<PAGE>
NOTE T
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
On January 1, 1995, the Association adopted FAS 107,
"Disclosures about Fair Value of Financial Instruments," which requires
the disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition, for
which it is practicable to estimate the value. Quoted market prices,
when available, are used as the measure of fair value. In cases where
quoted market prices are not available, fair values are based on
present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally
the timing of future cash flows and the discount rates. Because
assumptions are inherently subjective in nature, the estimated fair
values cannot be substantiated by comparison to independent market
quotes and, in many cases, the estimated fair values would not
necessarily be realized in an immediate sale or settlement of the
instrument. The disclosure requirements of FAS 107 exclude certain
financial instruments and all nonfinancial instruments. Accordingly,
the aggregate fair value amounts presented do not represent
management's estimation of the underlying value of the Association.
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate the value:
The carrying amount of cash and short-term investments
approximate the fair value. For investment securities fair value is
based on quoted market prices.
For mortgage loan receivables, the fair values are based on
discounted cash flows using current rates at which similar loans with
similar maturities would be made to borrowers with similar credit risk.
The fair value of deposits is equal to the amount payable at
the financial statement date.
For certificates of deposit, fair value is estimated based on
current rates for deposits of similar remaining maturities.
The fair value of loan commitments is estimated using fees
that would be charged to enter similar agreements, taking into account
(1) the remaining terms of the agreement, (2) the creditworthiness of
the borrowers, and (3) for fixed rate commitments, the difference
between current interest rates and committed rates.
<PAGE>
Estimated fair values of the financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Financial Assets
Cash and Short-Term Investment ......... $ 1,721,810 $ 1,721,810
Investment Securities .................. 36,179,658 35,597,443
Loans (Net of Loan Allowance) .......... 9,219,933 9,257,000
Financial Liabilities
Deposits ............................... $36,635,028 $36,784,000
</TABLE>
29
<PAGE>
NOTE U
CONVERSION FROM A MUTUAL TO A STOCK ASSOCIATION
On July 8, 1996, Algiers Homestead Association converted from
a Louisiana-chartered mutual savings and loan association to a
Louisiana-chartered stock savings and loan association known as
"Algiers Homestead Association" (the Association). The Association
issued and sold 1000 shares of stock at $.01 per share to Algiers
Bancorp to become the wholly owned subsidiary of Algiers Bancorp. The
Association received net proceeds from the sale of this stock of
$3,055,245. The costs associated with the stock conversion was
approximately $370,000. The amount of retained earnings appropriated as
a "liquidation account" is approximately $4,117,000 which is the amount
of retained earnings at March 31, 1996. This is the retained earnings
as of the latest date shown in the prospectus as per the plan of
conversion.
NOTE V
CONCENTRATION OF CREDIT RISK
All of the Association's loans and commitments have been
granted to customers in the greater New Orleans area.
The Association also had deposits in another financial
institution which exceed the federally insured limits by $376,121.
NOTE W
DIVIDEND DECLARED
On December 17, 1996, the board of directors of Algiers
Bancorp declared a $.05 per share dividend to stockholders of record at
January 7, 1997 to be payable on January 14, 1997. The total dividend
payable recorded is $32,401.
NOTE X
STOCKHOLDERS' EQUITY
Common Stock - Par value $.01; 10,000,000 shares authorized,
648,025 shares issued and outstanding in 1996.
Preferred Stock - Par value $.01; 5,000,000 shares authorized,
0 shares issued and outstanding in 1996.
30
<PAGE>
NOTE Y
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average
number of shares outstanding which was 598,775 in 1996. Common stock
dividends of $.05 per share were paid on January 14, 1997 to
stockholders of record as of January 7, 1997.
NOTE Z
SAIF ASSESSMENT
The deposits of the Association are currently insured by the
SAIF, which is a federal deposit insurance fund that covers SAIF member
institutions. On September 30, 1996, legislation was passed which
required all SAIF member institutions to pay a one time special
assessment to recapitalize the SAIF. The one-time special assessment
for the Association amounted to $241,146. Net of related tax benefits
the one-time special assessment amounted to $81,990 or $.14 per share.
The payment of such special assessment had the effect of immediately
reducing the Association's capital by such amount. Nevertheless, the
assessment did not have a material adverse effect on the Company.
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
CONDENSED FINANCIAL CONDITION
December 31, 1996
ASSETS
<S> <C>
Cash and Cash Equivalents ................................... $1,024,726
Investments Available-for-Sale - at Fair Value .............. 476,406
Mortgage-Backed Securities - Available-for-Sale -
at Fair Value ........................................... 1,047,869
Investment in Subsidiaries .................................. 3,037,740
Due from Subsidiaries ....................................... 6,923
Accrued Interest Receivable ................................. 33,402
Deferred Tax Asset .......................................... 1,021
----------
Total Assets ..................................... $5,628,087
==========
</TABLE>
31
<PAGE>
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
CONDENSED FINANCIAL CONDITION
December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Due to Subsidiary ........................................... $ 19,504
Dividends Payable ........................................... 32,401
Income Tax Payable .......................................... 20,779
-----------
Total Liabilities ................................ 72,684
-----------
Preferred Stock - Par Value $.01
0 Shares Issued and Outstanding in 1996 ................. --
Common Stock - Par Value $.01
648,025 Shares Issued and Outstanding in 1996 ........... 6,480
Additional Paid-in Capital .................................. 6,107,899
Retained Earnings ........................................... (43,199)
Less: Note Receivable ESOP ................................. (518,420)
Unrealized Loss on Securities Available-for-Sale,
Net of Applicable Deferred Income Tax ................... 2,643
-----------
Total Stockholders' Equity ....................... 5,555,403
------------
Total Liabilities and Stockholders' Equity ....... $ 5,628,087
===========
</TABLE>
32
<PAGE>
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
STATEMENTS OF OPERATIONS
For The Six Months Ended December 31, 1996
<S> <C>
INTEREST INCOME
Mortgage-Backed Securities ................................ $ 3,981
Investment Securities ..................................... 31,173
Loans ..................................................... 20,633
--------
Total Interest Income .............................. 55,787
--------
NON-INTEREST INCOME
Loss in Subsidiary-Algiers Homestead Association .......... (39,383)
Loss in Subsidiary-Jefferson Community Lending ............ (7,011)
Miscellaneous Income ...................................... 3,081
-------
Total Non-Interest Income .......................... (43,313)
--------
NON-INTEREST EXPENSES
General and Administrative ................................ 4,876
--------
4,876
INCOME BEFORE FEDERAL
INCOME TAX EXPENSE ........................................ 7,598
FEDERAL INCOME TAX EXPENSE .................................... 18,396
--------
NET LOSS ...................................................... $(10,798)
========
</TABLE>
33
<PAGE>
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For The Six Months Ended December 31, 1996
Unrealized
Gain (Loss)
on Securities
Available-for-
Additional Sale - Net Total
Common Paid-in Retained of Applicable Retained
Stock Capital Earnings Deferred Taxes Earnings
----- ------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
BALANCES AT ...................... $ -- $ -- $ -- $ -- $ --
DECEMBER 31, 1995
Net Loss ......................... -- -- (10,798) -- (10,798)
Dividends Declared ............... -- -- (32,401) -- (32,401)
Common Stock Issuance -
648,025 shares at $.01 per
share issued at $10 per share 6,480 6,473,770 -- -- 6,480,250
Costs of Conversion from a
Mutual Association ........... -- (369,759) -- -- (369,759)
to a Stock Association
Shares allocated to the ESOP Plan -- 3,888 -- -- 3,888
Changes in Unrealized Gain on
Securities Available-for-Sale,
Net of Applicable Deferred
Income Taxes of $1,361 ....... -- -- -- 2,643 2,643
----------- ----------- ----------- ----------- -----------
BALANCES AT
DECEMBER 31, 1996 ............ $ 6,480 $ 6,107,899 $ (43,199) $ 2,643 $ 6,073,823
=========== =========== =========== =========== ===========
</TABLE>
34
<PAGE>
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
STATEMENTS OF CASH FLOWS
For The Six Months Ended December 31, 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss .................................................... $ (10,798)
Adjustments to Reconcile Net Income to Net
Cash (Used in) by Operating Activities:
Increase in Accounts Payable ........................... 19,504
(Increase) in Accrued Interest Receivable .............. (33,402)
(Increase) in Due from Subsidiaries .................... (6,923)
Increase in Income Tax Payable ......................... 20,779
(Increase) in Deferred Income Taxes .................... (2,383)
-----------
Net Cash (Used in) Operating Activities .............. (13,223)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Investment Securities - Available-for-Sale ..... (474,086)
Purchases of Mortgage-Backed Securities - Available-for-Sale (1,058,199)
Maturities of Mortgage-Backed Securities - Available-for-Sale 12,015
Investments in Subsidiaries ................................. (3,037,740)
-----------
Net Cash (Used in) Investing Activities .............. (4,558,010)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock ........................................ 6,480
Contribution of Additonal Paid-in Capital ................... 6,107,899
Loan to Subsidiary for ESOP ................................. (518,420)
-----------
Net Cash Provided by Financing Activities ............ 5,595,959
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 1,024,726
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR ................... --
-----------
CASH AND CASH EQUIVALENTS - END OF YEAR ......................... $ 1,024,726
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest .................................................. $ --
Income Taxes .............................................. $ --
</TABLE>
35
<PAGE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The profitability of Algiers Bancorp, Inc. (the "Company") and Algiers
Homestead Association (the "Association") depends primarily on net interest
income, which is the difference between interest and dividend income on
interest-earning assets, principally mortgage-backed securities, loans and
investment securities and interest expense on interest-bearing deposits. Net
interest income is dependent upon the level of interest rates and the extent to
which such rates are changing. Profitability also is dependent, to a lesser
extent, on the level of its noninterest income, provision (credit) for loan
losses, noninterest expense and income taxes. Noninterest expense consists of
general, administrative and other expenses, such as compensation and benefits,
occupancy and equipment expense, federal insurance premiums, and miscellaneous
other expenses.
Asset and Liability Management
Consistent net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
periods of fluctuating market interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. 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 repricing or maturing within a
specified period exceeds the amount of interest-rate sensitive liabilities
repricing or maturing within such period, and is considered negative when the
amount of interest-rate sensitive liabilities repricing or maturing within a
specified period exceeds the amount of interest-rate sensitive assets repricing
or maturing within such period. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect. However, the effects of a positive or
37
<PAGE>
negative gap are impacted, to a large extent, by consumer demand and by
discretionary pricing by the Association's management.
The Association attempts to manage its interest rate risk by
maintaining a high percentage of its assets in adjustable-rate mortgage-backed
securities and in adjustable-rate mortgages ("ARMs"). From 1985 to 1995, the
only residential mortgages originated by the Association were ARMs. During 1996,
the Association started offering fixed rate mortgage loans. It was the opinion
of management that a mix of fixed rate and adjustable-rate mortgage product
would better insulate the Association from periods of rate fluctuation. At
December 31, 1996, the Association's fixed-rate mortgage-backed securities
amounted to $3.8 million or 7.9% of total assets, its ARMs amounted to $7.0
million or 14.5% of total assets and its adjustable-rate mortgage-backed
securities amounted to $28.0 million or 58.0% of total assets. The interest rate
on the ARMs and a portion of the adjustable-rate mortgage-backed securities,
however, adjusts no more frequently than once a year, with the amount of the
change subject to annual limitations, whereas the interest rates on deposits can
change more frequently and are not subject to annual limitations. A portion of
the Association's adjustable-rate mortgage-backed securities have interest rates
which adjust monthly or semi-annually with limitations on the amount of the
increase.
Management also monitors and evaluates the potential impact of interest
rate changes upon the market value of the Association's portfolio equity on a
quarterly basis, in an attempt to ensure that interest rate risk is maintained
within limits established by the Board of Directors. In August 1993 the OTS
adopted a final rule incorporating an interest rate risk component into the
risk-based capital rules. Under the rule, an institution with a greater than
"normal" level of interest rate risk will be subject to a deduction of its
interest rate risk component from total capital for purposes of calculating the
risk-based capital requirement. An institution with a greater than "normal"
interest rate risk is defined as an institution that would suffer a loss of net
portfolio value ("NPV") exceeding 2.0% of the estimated market value of its
assets in the event of a 200 basis point increase or decrease in interest rates.
NPV is the difference between incoming and outgoing discounted cash flows from
assets, liabilities, and off-balance sheet contracts. A resulting change in NPV
of more than 2% of the estimated market value of an institution's assets will
require the institution to deduct 50% of
38
<PAGE>
that excess change. The rule provides that the OTS will calculate the interest
rate risk component quarterly for each institution. The OTS has recently
indicated that no institution will be required to deduct capital for interest
rate risk until further notice. Because a 200 basis point increase in interest
rates would have decreased the Association's NPV by less than 2% as a percentage
of the estimated market value of it assets at December 31, 1996, the Association
would not have been subject to any capital deduction as of December 31, 1996 if
the regulation had been effective as of such date. The following table presents
the Association's NPV as of December 31, 1996, as calculated by the OTS, based
on information provided to the OTS by the Association.
<TABLE>
<CAPTION>
Change in Change in
Interest Rates NPV as % of NPV as % of
in Basis Points Net Portfolio Value Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change % Change of Assets of Assets(1)
------------ ------ -------- -------- --------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $ 3,476 $ (1,632) -32% 8.4% (3.2)%
300 3,903 (1,205) -24% 9.3% (2.3)%
200 4,318 (791) -15% 10.1% (1.5)%
100 4,719 (389) -8% 10.8% (.7)%
Static 5,108 - 0% 11.6% -
(100) 5,512 404 8% 12.3% .7%
(200) 6,018 910 18% 13.2% 1.6%
(300) 6,715 1,607 31% 14.4% 2.8%
(400) 7,575 2,467 48% 15.8% 4.3%
(1) Based on the portfolio value of the Association's assets assuming
no change in interest rates.
</TABLE>
Changes in Financial Condition
Assets. Total assets increased to $48.2 million at December 31, 1996
from $42.4 million at December 31, 1995. This increase is primarily due to the
mutual to stock conversion completed on July 8, 1996.
Mortgage-backed securities as a percentage of total assets increased to 68.2%
at December 31, 1996 from 66.3% at December 31, 1995. All of the Company's
mortgage-backed securities are either insured or guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
(FNMA") or the Government National Mortgage Association ("GNMA").
39
<PAGE>
Mortgage-backed securities increase the quality of the Association's assets by
virtue of the guarantees that support them, require fewer personnel and overhead
costs than individual residential mortgage loans, are more liquid than
individual mortgage loans and may be used to collateralize borrowings or other
obligations of Algiers. However, mortgage-backed securities typically yield less
than individual residential montage loans.
At December 31, 1996, net loans receivable totalled $9.2 million or
19.1% of total assets. Of the total loan portfolio, $8.1 million or 82.9%
consisted of one-to-four family residential loans. Consumer loans accounted for
$869,000 or 8.9% of the total loan portfolio, and 6.8% of the portfolio
consisted of commercial real estate loans.
Mortgage-backed securities and investment securities were 68.2% and
7.8% of total assets, respectively, at December 31, 1996 Of such amount,
$868,000 or 1.8% of total assets mature within one year of December 31, 1996.
See Notes C, D and G to the Consolidated Financial Statements. Cash and cash
equivalents amounted to 3.6% of total assets at such date.
Non-performing assets have decreased from .40% of total assets at
December 31, 1995 to .20% of total assets at December 31, 1996. Non-accruing
single-family residential loans represented 44.4% of the $97,000 of total
non-performing assets at December 31, 1996. The balance of non-performing assets
included a one-to-four family real estate owned property which accounted for
46.4%, and a commercial loan accounted for 8.2%. At December 31, 1996, the
Association's allowance for loan losses equalled $530,000 or 5.4% of total loans
outstanding. The Association's largest commercial real estate loan with a
principal balance of $504,000 and a specific reserve of $190,000 as of December
31, 1996 is not current as of March 31, 1997. As of March 31, 1997 there are two
payments due for principal, interest and escrow totalling $9,400. The
Association's management is closely monitoring this loan and is discussing its
status with the borrower. The borrower has pledged to the Association a deposit
account with a balance of $15,000 to be used to make monthly payments if
necessary. It is the opinion of management that the property securing this loan
has a value adequate to cover the net amount of the loan.
40
<PAGE>
The Association's total deposits decreased during 1996 to $36.6 million
at December 31, 1996 from $38.2 million at December 31, 1995. Certificates
accounts decreased by $611,000 or 2.1% from December 31, 1995 to December 31,
1996, while transaction accounts decreased by $957,000 or 2.5% during the
period.
Total stockholders' equity was $9.8 million at December 31, 1996, an
increase of $5.8 million from December 31, 1995. The increase was due to $6.1
million of net proceeds from the stock conversion and net income of $156,000 in
1996, less $492,000 allocated to the Employee Stock Ownership Plan and dividends
of $32,000.
Results of Operations
Net income. The Company's net income decreased by $14,000 or 8.2% in
1996 and by $80,00 or 31.9% in 1995. The decrease in 1996 is attributable
primarily to the special SAIF assessment of $241,000, which reduced net income
by $159,000.
Net Interest Income. The primary source of earnings is net interest
income, which is the difference between income generated from interest-earning
assets and interest expense from interest-bearing liabilities. Net interest
income increased by $294,000 or 31.6% in 1996, and decreased $137,000 or 12.8%
in 1995. The increase in 1996 was due to an increase in the ratio of average
interest-earning assets to average interest-bearing liabilities and to a lesser
extent the increase in the interest rate spread. Interest rate spread is the
yield on interest-earning assets minus the costs of interest-bearing
liabilities.
The Association's average interest rate spread increased to 2.22% for
1996 from 2.06% for 1995 after declining from 2.28% for 1994. In addition, its
ratio of average interest-earning assets to average interest-bearing liabilities
increased to 113.3% for 1996 from 106.4% for 1995 and 106.3% for 1994. The
increase in the average interest rate spread was due to the average yield on
interest-earning assets increasing by a higher amount than the average rate paid
on interest-bearing liabilities.
Average Balances, Net Interest Income, and Yields Earned and Rates
Paid. The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in
41
<PAGE>
dollars and rates, and the net interest margin. Tax-exempt income and yields
have not been adjusted to a tax-equivalent basis. All average balances are based
on monthly balances.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------
1996 1995
----------------------------------- ------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $ 9,581 $ 776 8.09% $10,024 $ 807 8.05%
Mortgage-backed securities 30,872 2,008 6.50 27,196 1,702 6.26
Investment securities(3) 1,772 157 8.86 2,127 134 6.30
Other interest-earning assets 2,025 118 5.82 414 27 6.52
------- ------ ------ ------- ------ ------
Total interest-earning assets 44,250 3,059 6.91 39,761 2,670 6.72
------ ------ ------ ------
Noninterest-earning assets 1,406 1,772
------- -------
Total assets $45,656 $41,533
======= =======
Interest-bearing liabilities:
Passbook, NOW and money
market accounts $10,047 248 2.46 $ 9,944 263 2.64
Certificates of deposit 28,706 1,569 5.46 27,296 1,471 5.39
------- ------ ------ ------- ------ ------
Total deposits 38,753 1,817 4.68 37,240 1,734 4.66
FHLB advances 307 18 5.86 123 6 4.88
------- ------ ------ ------- ------ ------
Total interest-bearing liabilities 39,060 1,835 4.69 37,363 1,740 4.66
------ ------ ------ ------
Noninterest-bearing liabilities(4) 1,870 379
------- -------
Total liabilities 40,930 37,742
Stockholders' equity 4,726 4,726
------- -------
Total liabilities and stockholders'
equity $45,656 $42,468
======= =======
Net interest-earning assets $ 5,190 $ 2,398
======= =======
Net interest income; average interest
rate spread $1,224 2.22% $ 930 2.06%
====== ------ ====== ------
Net interest margin(5) 2.76% 2.34%
====== ======
Average interest-earning assets to
average interest-bearing liabilities 113.28% 106.4%
====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1994
-----------------------------------
Average
Average Yield/
Balance Interest Rate(1)
------- -------- --------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $10,229 $ 830 8.11%
Mortgage-backed securities 28,884 1,571 5.44
Investment securities(3) 3,108 155 4.99
Other interest-earning assets 392 18 4.59
------- ------ ------
Total interest-earning assets 42,613 2,574 6.04
------ ------
Noninterest-earning assets 1,592
-------
Total assets $44,205
=======
Interest-bearing liabilities:
Passbook, NOW and money
market accounts $12,605 348 2.76
Certificates of deposit 27,306 1,150 4.21
------- ------ ------
Total deposits 39,911 1,498 3.75
FHLB advances 162 9 5.56
------- ------ ------
Total interest-bearing liabilities 40,073 1,507 3.76
------ ------
Noninterest-bearing liabilities(4) 417
-------
Total liabilities 40,490
Stockholders' equity 3,715
-------
Total liabilities and stockholders'
equity $44,205
=======
Net interest-earning assets $ 2,540
=======
Net interest income; average interest
rate spread $ 1,067 2.28%
========== ------
Net interest margin(5) 2.50%
======
Average interest-earning assets to
average interest-bearing liabilities 106.34%
======
-------------------------
(1) At December 31, 1996, the weighted average yields earned and rates paid were
as follows: loans receivable, 8.06%; mortgage- backed securities, 6.59%;
investment securities, 5.70%; other interest-earning assets, 5.85%; total
interest-earning assets 6.81%; deposits, 4.95%; and interest rate spread, 1.86%.
<PAGE>
(2) Includes nonaccrual loans during the respective periods. Calculated net of
deferred fees and discount, loans in process and allowance for loan losses.
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<PAGE>
(3) Includes non-accruing investment securities during the respective periods.
(4) Includes noninterest-bearing deposits.
(5) Net interest margin is net interest income divided by average
interest-earning assets.
</TABLE>
Rate/Volume Analysis. The following table describes the extent to which changes
in interest rates and changes in volume of interest-related assets and
liabilities have affected Algiers' interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in rate (change in rate multiplied by prior year volume), (ii)
changes in volume (change in volume multiplied by prior year rate), and (iii)
total change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume.
43
<PAGE>
<TABLE>
<CAPTION>
1996 vs 1995 1995 vs 1994
----------------------------------- ----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
----------------------------------- ----------------------------------
Total Total
Increase Increase
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ............ $ 4 $ (35) $ (31) $ (6) $ (17) $ (23)
Mortgage-backed securities .. 68 238 306 223 (92) 131
Investment securities ....... 50 (27) 23 28 (49) (21)
Other interest-earning assets (3) 94 91 8 1 9
----- ----- ----- ----- ----- -----
Total interest income .... 119 270 389 253 (157) 96
----- ----- ----- ----- ----- -----
Interest expense:
Passbook, NOW and money
market accounts .......... (18) 3 (15) (14) (71) (85)
Certificates of deposits .... 20 78 98 322 (1) 321
----- ----- ----- ----- ----- -----
Total deposits ........... 2 81 83 308 (72) 236
FHLB advances ............... 2 10 12 (1) (2) (3)
----- ----- ----- ----- ----- -----
Total interest expense ... 4 91 95 307 (74) 233
----- ----- ----- ----- ----- -----
Increase (decrease) in net
interest income ............. $ 115 $ 179 $ 294 $ (54) $ (83) $(137)
===== ===== ===== ===== ===== =====
</TABLE>
Interest Income. Interest on loans decreased $31,000 or 3.8% in 1996
due to a decrease of $443,000 or 4.4% in the average balance of loans
receivable, offset slightly by an increase in the average rate. The decreased
average balance is primarily due to a decrease in the amount of single-family
residential loans. A substantial portion of the loans have adjustable interest
rates, and the change in the average yields reflects the general change in
market interest rates.
Interest on mortgage-backed securities increased by $306,000 or 18.0%
in 1996 from 1995, due to a $3.7 million or 13.5% increase in the average
balance and an increase in the average yield to 6.50% in 1996 from 6.26% in
1995. The average balance increased as the amount of mortgage-backed securities
purchased in 1996 increased by $4.8 million from 1995. The higher purchases in
1996 were partially offset by higher repayments in 1996. The increased yield was
due to the interest rate on a large portion of the adjustable-rate
mortgage-backed securities adjusting upward in 1996.
44
<PAGE>
Interest on investment securities increased by $23,000 or 17.2% in 1996
from 1995, due to an increase in the average yield to 8.86% in 1996 from 6.30%
in 1995, which was partially offset by a $355,000 or 16.7% decrease in the
average balance. During the last half of 1996 the Company purchased $3.5 million
of callable notes and bonds issued by various government agencies which had
interest rates of 7.75% to 8.50%. These notes and bonds partially accounted for
the increase in the average yield on investment securities.
Other interest income, which consists of dividends on FHLB stock and
interest on overnight deposits at the FHLB, increased by $91,000 or 337.0% in
1996 over 1995, due to a $1.6 million or 389.1% increase in the average balance.
The average yield decreased to 5.82% in 1996 from 6.52% in 1995 due to a
decrease in the rate paid by the FHLB of Dallas on overnight deposits. The
increase in the average balance resulted from the Association purchasing
additional FHLB stock and increasing overnight deposits in 1996.
Total interest income increased by $389,000 or 14.6% in 1996 from 1995,
due to a $4.5 million or 11.3% increase in the average balance of total
interest-earning assets and an increase in the average yield to 6.91% in 1996
from 6.72% in 1995. The increase in the average balance of total
interest-earning assets was primarily due to the sale of common stock in 1996.
The average yield on each category of interest-earning assets (other than other
interest-earning assets) increased in 1996 from 1995.
Interest Expense. Interest on deposits increased by $83,000 or 4.8% in
1996 over 1995, due to a $1.5 million or 4.1% increase in the average balance
and an increase in the average rate to 4.68% in 1996 from 4.66% in 1995. The
increase in the average balance was mostly due to an increase in certificates of
deposit. The average rate paid on certificates of deposit increased to 5.46% in
1996 from 5.39% in 1995, which increase was mostly offset by a decrease in the
average rate paid by the Association on its transaction accounts to 2.46% in
1996 from 2.64% in 1995.
Interest on FHLB advances increased by $12,000 or 200.0% in 1996 from
1995, primarily due to an increase in the average balance of FHLB advances of
$184,000 or 149.6% in 1996.
45
<PAGE>
Total interest expense increased by $95,000 or 5.5% in 1996 over 1995,
primarily due to the increase in the average balance of certificates of deposit.
Provision (Credit) for Loan Losses. The Association recovered $4,000,
$24,000 and $15,000 of its allowance for loan losses in 1996, 1995 and 1994,
respectively. Approximately $7,000 of the credit in each of 1996, 1995 and 1994
was due to continued principal payments on the Association's largest outstanding
commercial real estate loan, which amounted to $504,000 at December 31, 1996. A
portion of this loan is classified substandard because the carrying value
exceeds the appraised value of the property securing the loan, and the amount of
the allowance allocated to this loan ($190,000 at December 31, 1996) is reduced
as principal payments are made. The remaining $17,000 credit in 1995 was due to
declines of $760,000 in one- to four-family residential loans and $193,000 in
substandard loans. The allowance for loan losses amounted to $530,000 or 5.4% of
the total loan portfolio at December 31, 1996.
Noninterest Income. Service charges and fees, which primarily consist
of charges for checking accounts, overdrafts and late payments, decreased by
$2,000 or 3.5% in 1996 from 1995.
The gross carrying value of the Association's Guaranteed Investment
Contracts (the "GIC bonds") was reduced in 1996 by $67,000 of principal
payments. See Note E of Notes to Consolidated Financial Statements.
In 1996 the Association sold a mortgage-backed security which was part
of the available for sale portfolio. This security was purchased in 1995 at a
10% discount. As interest rates declined in early 1996 the security was sold to
take advantage of the gain that was created.
Other noninterest income amounted to $31,000 and $7,000 in 1996 and
1995, respectively.
Total noninterest income decreased by $40,000 or 17.0% in 1996 from
1995, primarily due to the recognition of $95,000 of lawsuit proceeds in 1995.
This decrease was partially offset by a $29,000 gain on sale of investments in
1996. Algiers considers these items to be non-recurring in nature. After
excluding these items, total noninterest income increased by $27,000 or 19.1% in
1996 from 1995.
46
<PAGE>
Noninterest Expense. Compensation and benefits increased by $21,000 or
4.8% in 1996 over 1995, primarily due to the adoption of the Company's Employee
Stock Ownership Plan which resulted in $30,000 of compensation expense. This
amount was partially offset by a reduction in overtime compensation that was
paid in 1995 due to a computer conversion.
Occupancy and equipment expenses increased by $5,000 or 4.7% in 1996
over 1995, primarily due to a $6,000 increase in the monthly rental of the
Association's main office.
Federal insurance premiums increased by $245,000 or 385.4% in 1996 from
1995, primarily due to a special SAIF assessment of $241,000. Federal
legislation passed in 1996 required all SAIF member institutions to pay a
special one-time assessment to recapitalize the SAIF, and the amount of the
assessment for the Association amounted to $241,000, gross of related tax
benefits. The payment of such assessment reduced the Company's net income and
retained earnings in the period ending September 30, 1996. However, after the
recapitilization of the SAIF, the premiums to be paid by SAIF-insured
institutions were reduced to a level comparable to those currently being
assessed BIF-insured institutions, which will result in the special assessment
being recouped in approximately four years through the lower premiums.
Management does not believe that the special one-time assessment had a material
adverse effect on the Company's overall financial condition or liquidity.
Computer expenses decreased by $23,000 or 31.5% in 1996 from 1995,
primarily due to a switch to a new data processing service provider in 1995.
Professional services decreased $2,000 or 5.6% in 1996 from 1995, due
to a decrease in fees associated with a change in independent auditors.
FHLB service charges increased $9,000 or 28.4% in 1996 from 1995, due
to an increase in the number of mortgage-backed securities and investment
securities which the Company owned in 1996.
Beginning in 1996, the Company incurred additional expenses as a result
of becoming a public company. Such expenses will include, among other things,
increased professional fees and
47
<PAGE>
printing expenses associated with the Company's reporting obligations, and
annual listing fees.
The Association provided $4,000 of its allowance for real estate owned
loss in 1996 and recovered $13,000 in 1995. The allowance for loss was reduced
in 1996 by net charge-offs of real estate owned amounting to $6,000. See Note I
of Notes to Consolidated Financial Statements. The recovery of the allowance for
loss in 1995 was due to the gross carrying value of real estate owned decreasing
to $140,000 at December 31, 1995 from $260,000 at December 31, 1994. The real
estate owned at December 31, 1996 consisted of two one- to four-family
residential properties and one vacant lot.
The Association realized a $5,000 loss on the sale of real estate owned
in 1996 due to the sale of one property.
The Association's real estate owned expense, net decreased by $29,000
or 91.3% in 1996 from 1995, primarily due to a $32,000 decline in rental income
in 1996.
Other noninterest expense, which primarily consists of insurance and
bond premiums, postage and supplies, and other operating expenses decreased by
$5,000 or 2.8% in 1996 from 1995. The decrease was primarily due to a $17,00
decrease in other operating expenses. Amortization expense amounted to $22,000
and $22,000 for 1996 and 1995, respectively.
Total noninterest expense increased by $244,000 or 25.5% in 1996 from
1995, primarily due to increases of $241,000 in SAIF insurance premiums, $21,000
in compensation and benefits, and $6,000 in occupancy and equipment expense,
partially offset by decreases of $29,000 in net real estate owned expense and
$23,000 in computer expenses. Total noninterest expense as a percent of average
assets was 2.5% in 1996 compared to 2.3% in 1995.
Federal Income Tax Expense. The Company's federal income tax expense
increased by $3,000 or 5.2% in 1996 from 1995. The Association has filed an
amended tax return for 1994 and expects to receive a $74,640 tax refund, which
is shown as a receivable on the balance sheet as of December 31, 1996. The tax
return for 1994 was amended because payments received on the GIC bonds in 1994
were originally included in interest income rather than being treated as a
reduction of principal. The effective tax rate for 1996, 1995 and 1994 was
29.7%, 27.2% and 19.9%, respectively. The
48
<PAGE>
Company had a deferred tax valuation reserve of $194,000, $230,000 and $223,000
at December 31, 1996, 1995 and 1994, respectively. The increase in this reserve
in 1995 was due to the inclusion of $34,000 with respect to a net operating loss
carryforward recognized as a deferred tax asset in 1995, which carryforward was
primarily due to a bad debt deduction for tax purposes as a result of the GIC
bonds being classified as uncollectible in 1995. The other components of the
valuation reserve consist of allowances for loan losses and real estate owned
losses, each of which decreased slightly in 1996. For additional information,
see Note K of Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
Algiers is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings institution maintain liquid
assets of not less than 5% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year of less, of which short-term
liquid assets must consist of not less than 1%. At December 31, 1996, Algiers'
liquidity was 6.07% or $402,000 in excess of the minimum OTS requirement.
Cash was generated by Algiers' operating activities during 1996 and
1995 primarily as a result of net income in each period and the provision for
depreciation and amortization. The adjustments to reconcile net income to net
cash provided by operations during the periods presented consisted primarily of
the provision for depreciation and amortization, accretion of the premiums on
investments, recovery of loan losses, gains and losses on the sale of assets,
and increases or decreases in various receivable and payable accounts. The
primary investing activities of Algiers are the purchase of mortgage-backed
securities and the origination of loans, which are primarily funded with the
proceeds from repayments and prepayments on existing loans and mortgage-backed
securities and the maturity of mortgage-backed securities. Investing activities
used net cash in 1996 primarily because the amount of mortgage-backed securities
and investments purchased exceeded the amount matured. In 1995, investing
activities provided net cash as the amount of maturities of mortgage-backed
securities and investments exceeded the amount of purchases. The primary
financing activity consists of the issuance of capital stock of $6.1 million in
1996 and of deposits and FHLB advances.
49
<PAGE>
Financing activities used net cash in 1995 due to the repayment of $600,000 of
FHLB advances. Total cash and cash equivalents amounted to $1.7 million at
December 31, 1996. See the Consolidated Statements of Cash Flows in the
Consolidated Financial Statements.
At December 31, 1996, Algiers had outstanding commitments to originate
$108,000 of one-to four-family residential loans (including undisbursed
construction loans) and to purchase $185,000 in mortgage-backed securities. At
the same date, the total amount of certificates of deposit which were scheduled
to mature in the following 12 months was $17.2 million. Algiers believes that it
has adequate resources to fund all of its commitments and that it can adjust the
rate on certificates of deposit to retain deposits to the extent desired. If
Algiers requires funds beyond its internal funding capabilities, advances from
the FHLB of Dallas are available as an additional source of funds.
Algiers is required to maintain regulatory capital sufficient to meet
tangible, core and risk-based capital ratios of 1.5%, 3.0% and 8.0%
respectively. At December 31, 1996, Algiers exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 14.83%,
14.83% and 54.24%, respectively. See Note O of Notes to Consolidated Financial
Statements.
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 operating 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 Algiers' assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on Algiers' performance than do the effects 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.
50
<PAGE>
Recent Accounting Pronouncements
In December 1990, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." SFAS No. 106 requires that certain postretirement benefits
provided to former employees, their beneficiaries, and covered dependents be
recognized over those employees' service period. Postretirement benefits include
health care, life insurance and other welfare benefits. This statement became
effective for the Association for fiscal years beginning after December 15,
1994. The Association does not provide any of the benefits covered by SFAS No.
106.
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair
Value of Financial Investments." SFAS No. 107 requires all entities to disclose,
in financial statements or the notes thereto, the fair value of financial
instruments, both assets and liabilities recognized and not recognized in the
statement of financial condition, for which it is practicable to estimate fair
value. SFAS No. 107 is effective for financial statements of institutions with
assets greater than $150 million issued for years ending after December 15, 1992
(December 15, 1995 for smaller institutions). Substantially all of the assets
and liabilities of Algiers are financial instruments and, as a result, SFAS No.
107 requires the fair value of such assets and liabilities to be disclosed to
the extent the institution meets the size criteria specified in the statement.
Because such assets and liabilities are monetary in nature, their fair values
may fluctuate significantly over time.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting
for Post-Employment Benefits." SFAS No. 112 requires accrual of the expected
cost of providing post-employment benefits to an employee and employee's
beneficiaries and covered dependents during the years that the employee renders
the necessary services. Such benefits include salary continuation, supplemental
unemployment benefits, severance benefits, job training and counseling, and
continuation of health care benefits. SFAS No. 112 is effective for fiscal years
beginning after December 15, 1993. The Association does not provide any of the
benefits covered by SFAS No. 112.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is effective
51
<PAGE>
for years beginning after December 15, 1994, and earlier adoption was
encouraged. The Statement establishes accounting measurement, recognition and
reporting standards for impaired loans. SFAS No. 114 provides that a loan is
impaired when, based on current information and events, it is probable that the
creditor will be unable to collect all amounts due according to the contractual
terms (both principal and interest). SFAS No. 114 requires that when a loan is
impaired, impairment should be measured based on the present value of the
expected cash flows, discounted at the loan's effective interest rate. If the
loan is collateral dependent, as a practical expedient, impairment can be based
on a loan's observable market price or the fair value of the collateral. The
value of the loan is adjusted through a valuation allowance created through a
charge against income. Residential mortgages, consumer installment obligations
and credit cards are excluded. Loans that were treated as in-substance
foreclosures under previous accounting pronouncements are considered to be
impaired loans and remain in the loan portfolio under SFAS No. 114. SFAS No. 114
was amended in October 1994 by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 118 amended
SFAS No. 114 primarily to remove its income recognition requirements and add
some disclosure requirements. The adoption of SFAS No. 114, as amended by SFAS
No. 118, did not materially affect the Association's financial condition or
results of operations in 1996.
In November 1993, the AICPA issued SOP 93-6, Employers' Accounting for
Employee Stock Ownership Plans, which is effective for years beginning after
December 15, 1993. SOP 93-6 requires the application of its guidance for shares
acquired by ESOPs after December 31, 1992 but not yet committed to be released
as of the beginning of the year SOP 93-6 is adopted. Among other things, SOP
93-6 changed the measure of compensation expense recorded by employers for
leveraged ESOPs from the cost of ESOP shares to the fair value of ESOP shares.
The Company and the Association adopted an ESOP in connection with the
Conversion, which purchased 8% of the Common Stock sold in the Conversion. Under
SOP 93-6, 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 will be charged or credited to
equity. Employers with internally leveraged ESOPs such as the Company do
52
<PAGE>
not report the loan receivable from the ESOP as an asset and do not report the
ESOP debt from the employer as a liability.
In October 1994, the FASB issued SFAS No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments," which
is effective for years ending after December 15, 1994. SFAS No. 119 expands the
disclosure requirements for derivative financial instruments, which are defined
to include futures, forwards, swaps or options contracts or other instruments
with similar characteristics. It excludes all such instruments whose financial
effects are recorded on the balance sheet. SFAS No. 119 also makes certain
modifications to SFAS No. 107. In 1996, 1995 and 1994, the Association had no
financial instruments which would require additional disclosure under SFAS No.
119.
In December 1994, the AICPA issued SOP 94-6 "Disclosure of Certain
Significant Risks and Uncertainties," which addresses risks and uncertainties
that could significantly affect the amounts reported in the financial statements
in the near term or the near-term functioning of the reporting entity. The risks
and uncertainties the SOP addresses result from the nature of the entity's
operations, from the necessary use of estimates in the preparation of the
entity's financial statements and from significant concentrations in certain
aspects of the entity's operations. Near term is defined as a period of time not
to exceed one year from the date of the financial statements. This SOP is
effective for financial statements issued for fiscal years ending after December
15, 1995 and for financial statements for interim periods in fiscal years
subsequent to the year for which this SOP is to be first applied. Management has
implemented the SOP in the financial statement disclosures.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used for long-lived assets and certain identifiable intangibles
to be disposed of. This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset.
53
<PAGE>
This statement does not apply to financial instruments, long-term customer
relationships of a financial institution (for example, core deposit
intangibles), mortgage and other servicing rights, deferred policy acquisition
costs, or deferred tax assets. This statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The adoption of
SFAS No. 121 for 1996 did not have any significant impact on the financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for transactions entered into
after December 15, 1995. This Statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. This Statement
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. 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 Bulletin Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the fair value based method, 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. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock.
54
<PAGE>
BOARD OF DIRECTORS
ALGIERS BANCORP, INC.
New Orleans, Louisiana
Thu Dang
Travel Agent
Self-employed
John H. Gary
Convention Promoter
Self-employed
Hugh E. Humphrey, Jr.
Algiers Homestead Association
Chairman of the Board,
President and
Chief Executive Officer
Hugh E. Humphrey, III
Algiers Homestead Association
Secretary and Treasurer
Eugene J. LeBoeuf
Retired
55
<PAGE>
ALGIERS HOMESTEAD ASSOCIATION
New Orleans, Louisiana
EXECUTIVE OFFICERS CORPORATE OFFICE
Hugh E. Humphrey, Jr. # 1 Westbank Expressway
Chairman of the Board, Post Office Box 6308
President and New Orleans, LA 70174-6308
Chief Executive Officer 504-367-8221 504-367-8223 (FAX)
Dennis J. McCluer
Vice President and BANKING OFFICES
Chief Operating Officer # 1 Westbank Expressway
New Orleans, LA 70114
Hugh E. Humphrey, III 504-367-8221 504-367-8223 (FAX)
Secretary and Treasurer
2021 Carol Sue Avenue
Terrytown, LA 70056
504-362-4567 504-362-9145
56
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