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, 1997
[ ] 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.
(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)367-8222
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. [ ]
Issuer's revenues for the fiscal year ended December 31, 1997: $3.4 million
As of March 19, 1998, the aggregate market value of the 497,221 shares of Common
Stock of the Issuer held by non-affiliates, which excludes 109,903 shares held
by all directors, executive officers and employee benefit plans of the Issuer,
was approximately $7.4 million. This figure is based on the average of the bid
and asked prices of $14.88 per share of the Issuer's Common Stock on March 19,
1998
Number of shares of Common Stock outstanding on March 19, 1998 607,124
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, 1997 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 1998 Annual
Meeting of Stockholders to be filed on or about April 7, 1998 are incorporated
into Part III, Items 9 through 12 of this Form 10-KSB.
<PAGE>
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, 1997, the Company had $45.4 million of
total assets, $35.9 million of total liabilities, including $35.6 million of
deposits, and $9.5 million of total stockholders' equity (representing 21.0% 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. The Company had $28.4 million of mortgage-backed
securities at December 31, 1997, representing 62.7% of the Company's total
assets. At December 31, 1997, The Company's net loans receivable totalled $9.2
million or 20.3% of the Company's total assets. Conventional first mortgage,
one- to four-family residential loans (excluding construction loans) amounted to
$8.1 million or 79.6% of the Company's total loan portfolio at December 31,
1997. To a lesser extent, the Company also originates consumer loans,
construction loans and commercial real estate loans. The Company had $4.1
million of investment securities (excluding FHLB stock) at December 31, 1997,
representing 9.1% of total assets. Of the $4.1 million of investment securities,
$701,000 or 17.1% mature within five years of December 31, 1997.
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, 1997, the Association had total
stockholder's equity of $ 7.2 million and exceeded all of its regulatory capital
requirements, with tangible, core
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and risk-based capital ratios of 16.5%, 16.5% and 65.3 %, respectively, as
compared to the minimum requirements of 1.5%, 3.0% and 8.0%, respectively.
o Profitability. The Company has been profitable in each of the last
three years. Net income increased from $157,000 in 1996 to $211,000 in 1997,
including a net loss of $178,000 sustained by the Company's 70% owned subsidiary
Jefferson Community Lending, LLC ("Jefferson"). Net income declined in 1996 to
$157,000 from $169,000 in 1995 due to a special assessment paid for SAIF
insurance which amounted to $159,000 on an after-tax basis.
o Asset Quality. Management believes that good asset quality is
important to the Company's long-term profitability. The Company's total
nonperforming assets, which consist of non-accruing loans and net real estate
owned ("REO"), together with troubled debt restructurings, amounted to $636,000
or 1.4% of total assets at December 31, 1997, compared to $97,000 or .2% of
total assets at December 31, 1996 due to the delinquency of a commercial loan
with a balance of $500,000. See "-Asset Quality-Classified Assets." At December
31, 1997, the Company's allowance for loan losses amounted to $482,000 or 4.8%
of the total loan portfolio.
o Interest Rate Risk. The Company 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, 1997, ARMs amounted to $7.6 million or 75.2% of the
total loan portfolio. In addition, of the $28.4 million of mortgage-backed
securities at December 31, 1997, $26.9 million or 97.5% 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, 1997, 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) 367-8222.
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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. 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, 1997, the Company's net
loan portfolio totalled $9.2 million, representing approximately 20.3% of the
Company's $45.3 million of total assets at that date. The principal lending
activity of the Company is the origination of one- to four-family residential
loans. At December 31, 1997, conventional first mortgage, one- to four-family
residential loans (excluding construction loans) amounted to $8.1 million or
79.6% of the total loan portfolio, before net items. To a lesser extent, the
Company originates construction loans, commercial real estate loans and consumer
loans. At December 31, 1997, construction loans amounted to $43,000 or 0.4% of
the total loan portfolio, commercial real estate loans totalled $738,000 or 7.8%
of the total loan portfolio, and consumer loans amounted to $1.3 million or
12.6% of the total loan portfolio, in each case before net items.
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Loan Portfolio Composition. The following table sets forth the
composition of the Company's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1997 1996 1995
---------------------- -------------------- -------------------
Amount % Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family residential:
Conventional $ 8,018 79.3% $ 8,134 82.9% $ 7,978 76.0%
FHA and VA 41 0.4 51 0.5 72 0.7
Construction 43 0.4 89 0.9 491 4.7
Commercial real estate 738 7.3 668 6.8 858 8.1
------ ----- ------- ----- ------- -----
Total real estate loans 8,840 87.4 8,942 91.1 9,399 89.5
------ ----- ------- ----- ------- -----
Consumer loans:
Second mortgage 189 1.9 175 1.8 111 1.1
Other consumer loans 325 3.2 - - - -
Loans on deposits 758 7.5 694 7.1 986 9.4
------ ----- ------- ----- ------- -----
Total consumer loans 1,272 12.6 869 8.9 1,097 10.5
------ ----- ------- ----- ------- -----
Total loans 10,112 100.0% 9,811 100.0% 10,496 100.0%
===== ===== =====
Less:
Unearned discounts and interest 73 7 6
Undisbursed portion of loans 301 7 224
Deferred loan fees 55 47 42
Allowance for loan losses 485 530 534
------- ------- -------
Net loans $ 9,198 $ 9,220 $ 9,690
======= ======= =======
</TABLE>
5
<PAGE>
Contractual Terms to Final Maturities. The following table sets forth
certain information as of December 31, 1997 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, 1997
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, 1997 in:
One year or less $ 50 $ 43 $ 8 $ 496 $ 597
After one year through two years - - - 36 36
After two years through three years 56 - 2 92 150
After three years through five years 199 - 6 387 592
After five years through ten years 1,929 - 71 47 2,047
After ten years through fifteen years 1,793 - - 214 2,007
After fifteen years 4,032 - 651 - 4,683
------- ---- ----- ------- --------
Total (1) $ 8,059 $ 43 $ 738 $ 1,272 $ 10,112
======= ==== ===== ======= ========
</TABLE>
(1) Gross of loans in process, deferred loan fees, unearned discounts and
interest, and allowance for loan losses.
The following table sets forth the dollar amount of all loans, before
net items, due after one year from December 31, 1997 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 $ 2,234 $ 5,775 $ 8,009
Commercial real estate - 730 730
Consumer 300 476 776
------- ------- -------
Total $ 2,534 $ 6,981 $ 9,515
======= ======= =======
</TABLE>
<PAGE>
Scheduled contractual maturities of loans do not necessarily reflect
the actual term of the Company's loan 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 Company 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.
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<PAGE>
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.
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,
---------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C>
Loan originations:
One-to four-family residential $ 1,167 $ 802 $ 583
Construction 43 89 491
Commercial real estate 28 108 -
Consumer 1,105 1,166 425
------- ------ ------
Total loan originations 2,343 2,165 1,499
Loan principal repayments (2,042) (2,844) (1,847)
Increase (decrease) due to other
items, net (1) (323) 216 (203)
------- ------ ------
Net increase (decrease) in
loan portfolio $ (22) $ (463) $ (551)
======= ====== ======
</TABLE>
(1) Other items consist of loans in process, deferred loan fees, unearned
discounts and interest, and allowance for loan losses.
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<PAGE>
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).
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,
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corporate, business or agricultural purposes. At December 31, 1997, the
Association was well within each of the above lending limits.
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, 1997, 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 $500,000, $439,000, $300,000, $270,000 and $256,000, respectively,
at such date. The $500,000 borrowing relationship consists of a $500,000
commercial real estate loan which is treated as a classified asset at December
31, 1997 All of these loans were current at December 31, 1997, except the
$500,000 loan treated as a classified asset. See "-Asset Quality-Classified
Assets."
Loans on Existing Residential Properties. The primary real estate
lending activity of the Company is the origination of loans secured by first
mortgage liens on one- to four-family residences. At December 31, 1997, $8.1
million or 79.6% of the Company's total loan portfolio, before net items,
consisted of conventional first mortgage, one-to four-family residential loans
(excluding construction loans).
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% 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,
1997, one- to four-family residential ARMs represented $5.9 million or 58.4% 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
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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, 1997,
the Association's non-accruing residential loans were $126,000. 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, 1997, $43,000 or 0.4% of the
Company's total loan portfolio, before net items, consisted of one loan 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 obtain a tenant or purchaser if
the property will not be owner-occupied. The Company 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 Company's commercial real estate loan
portfolio primarily consists of loans secured by office buildings, retail
establishments, churches and multi-family dwellings located within the Company's
primary market area. Commercial real estate loans amounted to $738,000 or 7.4%
of the total loan portfolio at December 31, 1997. The largest commercial real
estate loan at December 31, 1997 was $500,000 (gross of a $261,000 reserve), and
the balance of such loan at December 31, 1997 was $500,000. See "-Asset Quality
Nonperforming Assets." The remaining commercial real estate loan portfolio at
December 31, 1997 consisted of 7 loans with an average balance of $34,000.
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 Company'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 Company and are reviewed
by management. In originating nonresidential loans, the Company considers the
quality of the property, the credit of the borrower, the historical and
projected cash flow of the project, the
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location of the real estate and the quality of the property management. The
Company orginated $28,000 in commercial real estate loans in 1997 and $108,000
in 1996.
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 Company 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 Company's consumer loans consist of loans on
deposits, boat loans 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, 1997, loans on deposits amounted to $758,000, representing 59.6%
of total consumer loans and 7.5% 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 Company's second mortgage loans amounted to $189,000 or 1.9% of the
total loan portfolio at December 31, 1997. 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, 1997 have adjustable interest rates.
The Company's other consumer loans consisted of three loans in the
amount of $325,000 or 3.2% of the total loan portfolio at December 31, 1997. The
largest of these loans in the amount of $300,000 or 3.0% of the total loan
portfolio at December 31, 1997 is secured by a boat and other collateral.
The Association is considering expanding the types of loans it offers
to include equity lines of credit. The Association has applied for an FHA Lender
Number. This number would authorize the Association to make all types of
government loans for sale in the secondary market. In addition, the Association
could offer FHA Title I home improvement loans. As of January 2, 1998, the
Association had three commissioned loan originators and a loan processor on its
staff. The Association has made an arrangement with a home improvement dealer to
purchase home improvement loans. Loans which meet the Association's underwriting
criteria will be kept in the Association's loan portfolio. Loans that do not
meet the Association's underwriting criteria will be sold in the secondary
market to investors who have committed to the purchase of the loan prior to the
loan closing.
Loan Fees and Servicing Income. In addition to interest earned on
loans, the Company 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 Company's loan origination fees are offset
against direct loan origination costs, and the
11
<PAGE>
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, 1997, the Company had approximately $55,000 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, 1997, in dollar amounts and as a percentage of
the Company'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, 1997
------------------------------------------------------------------------------
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 $ 459 4.54% $ 62 0.61% $ 275 2.72%
Commercial real estate
loans - - 45 0.45 508 5.02
Consumer loans 121 1.20 16 0.16 16 0.16
----- ---- ----- ---- ----- ----
Total delinquent loans $ 580 5.74% $ 123 1.22% $ 799 7.90%
===== ==== ===== ==== ===== ====
</TABLE>
Nonperforming Assets. When a borrower fails to make a required loan payment, the
Company 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 Company'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 Company's normal collection
procedures, or an acceptable arrangement is not worked out with the borrower,
the Company will commence foreclosure action.
If foreclosure is effected, the property is sold at a sheriff's sale.
If the Company is the successful bidder, the acquired real estate property is
then included in the Company'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, 1997, the Association had no loans to
facilitate.
The Company generally places loans on non-accrual status when the
payment of interest becomes more than 90 days past due or when interest payments
are otherwise deemed uncollectible.
12
<PAGE>
The following table sets forth the amount of the Company's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Total nonperforming assets:
Non-accruing loans $ 636 $ 52 $ 76
Real estate owned, net (1) - 45 92
-- --- --
Total nonperforming assets $ 636 $ 97 $168
===== ==== ====
Troubled debt restructurings $ 18 $ - $ 66
===== ==== ====
Total nonperforming loans and
troubled debt restructurings
as a percentage of total loans 6.47% 0.53% 1.35%
==== ==== ====
Total nonperforming loans and
troubled debt restructurings
as a percentage of total assets 1.44% 0.20% 0.55%
==== ==== ====
</TABLE>
(1) Net of related loss allowances as of each date shown, which allowances at
December 31, 1997 amounted to $90,000 for real estate owned.
The $636,000 of non-accruing loans at December 31, 1997 consisted of
three one-to four- family residential loans for $126,000 and two commercial real
estate loans for $510,000. The largest non-accruing loan at December 31, 1997
consisted of a $500,000 adjustable-rate commercial real estate loan secured by a
furniture store and a warehouse, on which the Company has established reserves
of $261,000 at December 31, 1997. 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. In
1997, an appraisal of the property indicated a value of $469,000. It was
management's decision to leave the reserve at $261,000 until the property is
disposed of. The entire $500,000 balance at December 31, 1997 was classified as
substandard. The Company's management is closely monitoring this loan and is
discussing its status with the borrower. 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 Company's real estate owned has steadily declined over the last
three years, and at December 31, 1997 the Company's real estate owned consisted
of two one- to four-family residential properties and one vacant lot in the New
Orleans metropolitan area. During 1997 the specific reserves on the Company's
real estate owned was increased to an amount that resulted in the real estate
being fully reserved. The $90,000 of real estate owned at December 31, 1997 is
net of a $90,000 allowance for loss. See Note I of Notes to Consolidated
Financial Statements
13
<PAGE>
contained in the 1997 Annual Report to Stockholders, which is filed as Exhibit
13 hereto (the "Annual Report").
Classified Assets. All loans are reviewed on a regular basis under the
Company's asset classification policy. The Company's total classified assets at
December 31, 1997 excluding loss assets specifically reserved for, amounted to
$799,000, of which $38,000 was classified as as special mention and $744,000 was
classified as substandard. The largest classified asset at December 31, 1997
consisted of a $500,000, adjustable-rate commercial real estate loan secured by
a furniture store and a warehouse, on which the Company has established reserves
of $261,000. See "-Asset Quality-Classified Assets."
The remaining $261,000 of substandard assets at December 31, 1997
consisted of (1) residential mortgage loans totalling $235,000, of which the
largest loan had a balance of $109,000 at December 31, 1997, and (2) one
commercial loan with a balance of $10,000 which is fully reserved and (3)
consumer loans totalling $16,000. The $109,000 substandard residential mortgage
loan is secured by a duplex and a $20,000 certificate of deposit at the
Association. See "Regulation - The Association - Classified Assets."
Allowance for Loan Losses. At December 31, 1997, the Company's
allowance for loan losses amounted to $482,000 or 4.8% of the total loan
portfolio. The Company'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.
<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,
--------------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Total loans outstanding ...................... $ 10,112 $ 9,811 $ 10,496
======== ======== ========
Allowance for loan losses, beginning of period $ 530 $ 534 $ 558
Provision (credit) for loan losses ........... (45) (4) (24)
Loans charged-off (recovered)(1) ............. -- -- --
-------- -------- --------
Allowance for loan losses, end of period ..... $ 485 $ 530 $ 534
======== ======== ========
Allowance for loan losses as a percent of
total loans outstanding ................... 4.8% 5.4% 5.9%
======== ======== ========
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings ............................ 74.16% 1,019.23% 702.63%
======== ======== ========
</TABLE>
(1) There were no loan charge-off or recoveries in 1997, 1996 and 1995.
14
<PAGE>
The following table presents the allocation of the Company's allowance
for loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1997 1996 1995
---------------------- ----------------------- ---------------------
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 $ 214 79.7% $ 298 83.4% $ 338 76.7%
Construction - 0.4 3 0.9 - 4.7
Commercial real estate 271 7.3 229 6.8 196 8.1
Consumer - 12.6 - 8.9 - 10.5
----- ----- ----- ----- ----- -----
Total $ 485 100.0% $ 530 100.0% $ 534 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
Mortgage-Backed Securities
The Company 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 Company. FHLMC is a public corporation chartered by the U.S.
government and guarantees the 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.
15
<PAGE>
Of the $28.4 million of mortgage-backed securities at December 31, 1997,
$21.8 million were accounted for as held to maturity and had an aggregate market
value of $21.6 million at such date. The remaining $6.6 million of
mortgage-backed securities at December 31, 1997 are accounted for as available
for sale and are thus carried at market value. For additional information
relating to the Company'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 Company. 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
Company 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.
The following table sets forth the composition of the Company's
mortgage-backed securities at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed
securities held to
maturity:
FNMA $ 15,256 $ 16,684 $ 13,971
FHLMC 3,773 3,927 2,771
GNMA 2,801 3,199 3,719
-------- -------- --------
Subtotal 21,830 23,810 20,461
-------- -------- --------
Mortgage-backed
securities available
for sale:
FNMA 4,963 5,415 3,293
FHLMC 1,142 2,761 3,237
GNMA 510 901 1,158
-------- -------- --------
Subtotal 6,615 9,077 7,688
-------- -------- --------
Total $ 28,445 $ 32,887 $ 28,149
======== ======== ========
</TABLE>
<PAGE>
Information regarding the contractual maturities and weighted average
yield of the Company's mortgage-backed securities portfolio at December 31, 1997
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.
16
<PAGE>
<TABLE>
<CAPTION>
Amounts at December 31, 1997 Which Mature In
------------------------------------------------------------------
After Five
One Year After One to to Over 10
or Less Five Years 10 Years Years Total
------- ---------- -------- ----- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Held to maturity:
FNMA ........................ $ 47 $ 808 $ 743 $13,658 $15,256
FHLMC ....................... -- -- -- 3,773 3,773
GNMA ........................ -- -- -- 2,801 2,801
------- ------- ------- ------- -------
Total ......................... $ 47 $ 808 $ 743 $20,232 $21,830
======= ======= ======= ======= =======
Weighted average
yield .................... 6.00% 6.12% 6.25% 6.45% 6.43%
======= ======= ======= ======= =======
Available for sale:
FNMA ........................ $ -- $ 41 $ 97 $ 4,825 $ 4,963
FHLMC ....................... -- 70 -- 1,073 1,143
GNMA ........................ 5 124 115 265 509
------- ------- ------- ------- -------
Total ......................... $ 5 $ 235 $ 212 $ 6,163 $ 6,615
======= ======= ======= ======= =======
Weighted average
yield .................... 11.25% 11.25% 9.23% 6.98% 7.20%
======= ======= ======= ======= =======
Total mortgage-backed securities:
FNMA ........................ $ 47 $ 849 $ 840 $18,483 $20,219
FHLMC ....................... -- 70 -- 4,846 4,916
GNMA ........................ 5 124 115 3,066 3,310
------- ------- ------- ------- -------
Total ......................... $ 52 $ 1,043 $ 955 $26,395 $28,445
======= ======= ======= ======= =======
Weighted average
yield .................... 6.01% 9.78% 6.91% 6.57% 6.58%
======= ======= ======= ======= =======
</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,
----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage-backed securities
at beginning of period $ 32,918 $ 28,149 $ 27,357
Purchases 969 8,360 4,170
Repayments (3,769) (3,719) (3,653)
Sales (1,650) - -
Mark to market adjustment 54 - 408
Amortizations of premiums
and discounts, net (77) 128 (133)
-------- -------- --------
Mortgage-backed securities at
end of period $ 28,445 $ 32,918 $ 28,149
========= ======== ========
Weighted average yield at
end of period 6.58% 6.59% 6.96%
======== ======== ========
</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 $4.1 million or
9.1% of total assets at December 31, 1997. All $4.1 million of investment
securities, which consists of U.S. Government and agency securities, are
accounted for as available for sale and are carried at market value. Of the $4.1
million of investment securities, $701,000 or 17.1% mature within five years of
December 31, 1997.
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,
-------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------
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
FHLB notes ............. 2,787 2,785 1,999 1,992 -- --
FNMA notes ............. 200 200 325 325 -- --
FHLMC notes ............ 1,100 1,100 150 151 -- --
Southeast Texas
Housing Finance
Authority(1) .......... -- -- 43 43 83 83
Louisiana Agricultural
Finance Authority(1) .. -- -- 19 19 46 46
------ ------ ------ ------ ------ ------
Subtotal ............... 4,087 4,085 2,536 2,530 826 826
Less:
Allowance for loss ..... -- -- 62 62 129 129
Discount on securities . -- -- 2 2 -- --
------ ------ ------ ------ ------ ------
Total available for sale .. 4,087 4,085 2,472 2,466 697 697
------ ------ ------ ------ ------ ------
Held to maturity
Louisiana Public
Facility Authority .... -- -- -- -- 300 300
FHLB notes ............. -- -- 425 425 925 904
Federal Farm Credit Bank -- -- 200 200 -- --
Certificates of deposit -- -- -- -- -- --
Sallie Mae ............. -- -- 200 200 -- --
FHLB stock ............. 483 483 455 455 430 430
------ ------ ------ ------ ------ ------
Total held to maturity .... 483 483 1,280 1,280 1,655 1,634
------ ------ ------ ------ ------ ------
Total ................. $4,570 $4,568 $3,752 $3,746 $2,352 $2,331
====== ====== ====== ====== ====== ======
</TABLE>
(1) Gross of a related allowance for loss.
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, 1997. No tax-exempt yields
have been adjusted to a tax-equivalent basis.
<TABLE>
<CAPTION>
Amounts at December 31, 1997 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 $ - - % $ 500 6.50% $ 2,287 7.55%
FNMA notes 200 7.09 - - - -
FHLMC notes - - - - 1,100 7.15
----- ---- ----- ---- ------- ----
Subtotal 200 7.09 500 6.50 3,387 7.42
Equity securities held to :
maturity:
FHLB stock (1) - - - - 483 6.00
----- ---- ----- ---- ------- ----
Total $ 200 7.09% $ 500 6.50% $ 3,870 7.24%
===== ==== ===== ==== ======= ====
</TABLE>
(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.
At December 31, 1997, 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 $2.6
million at December 31, 1997 and FHLMC notes which had both a carrying value and
a market value of $1.1 million at December 31, 1997
Sources of Funds
General. Deposits are the primary source of the Company'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.
<PAGE>
Deposits. The Company's deposits are attracted principally from within
the Company's primary market area through the offering of a broad selection of
deposit instruments, including negotiable order of withdrawal ("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 $4.5 million or 12.6% of total
deposits at December 31, 1997. 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.
20
<PAGE>
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 52.5% of the
certificates of deposit at December 31, 1997 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 Company's deposits by type of deposit, as of the
dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
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%
3.00% - 3.99% 33 - - - 12 -
4.00% - 4.99% - - 6,957 19.0 10,058 26.3
5.00% - 5.99% 23,644 66.6 13,347 36.4 10,505 27.5
6.00% - 6.99% 2,293 6.5 5,544 15.1 5,704 14.9
7.00% - 7.99% 1,068 3.0 1,990 5.4 2,091 5.5
8.00% or more - - - - 4 -
------- ---- ------- ----- ------- ---
Total certificate
accounts 27,038 76.1 27,932 76.2 28,543 74.7
------- ---- ------- ----- ------- ---
Transaction accounts:
Passbook savings 5,483 15.4 5,774 15.8 6,431 16.8
MMDAs 1,098 3.1 1,216 3.3 1,530 4.0
Demand and NOW
accounts(1) 1,915 5.4 1,713 4.7 1,699 4.5
------- ---- ------- ----- ------- ---
Total transaction
accounts 8,496 23.9 8,703 23.8 9,660 25.3
------- ---- ------- ----- ------- ---
Total deposits $ 35,534 100.0% $ 36,635 100.0% $ 38,203 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
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.
21
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995
-------------------- ---------------------- -----------------------
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 $ 5,602 2.60% $ 6,856 2.56% $ 6,662 2.73%
Demand and NOW accounts . 1,893 2.20 1,716 2.20 1,453 2.36
MMDAs ................... 1,210 2.40 1,475 2.41 1,829 2.56
Certificates of deposit . 27,242 5.53 28,706 5.47 27,296 5.39
Total interest-bearing
deposits ........... $35,947 4.79% $38,753 4.69% $ 37,240 4.66%
======= ==== ======= ==== ======== ====
</TABLE>
The following table sets forth the savings flows of the Company during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) before interest
credited (1) $ (2,657) $ (3,001) $ (834)
Interest credited 1,556 1,433 1,212
------ ------ ------
Net increase (decrease) in deposits $ (1,101) $ (1,568) $ 378
========= ========= ======
</TABLE>
(1) The information provided is net of deposits and withdrawals because the
gross amount of deposits and withdrawals is not readily available.
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, 1997, 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.
The following table presents, by various interest rate categories, the
amount of certificates of deposit at December 31, 1997 which mature during the
periods indicated.
22
<PAGE>
<TABLE>
<CAPTION>
Balance at December 31, 1996
Maturing in the 12 Months Ending December 31,
----------------------------------------------------------------
Certificates of Deposit 1998 1998 2000 Thereafter Total
- ----------------------- ---- ---- ---- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
3.00% - 3.99% $ 33 $ - $ - $ - $ 33
4.00% - 4.99% - - - - -
5.00% - 5.99% 13,905 5,179 4,399 161 23,644
6.00% - 6.99% 100 119 104 1,970 2,293
7.00% - 7.99% 134 55 474 405 1,068
Total certificate accounts $ 14,172 $ 5,353 $ 4,977 $ 2,536 $ 27,038
========== ======== ======== ======== ========
</TABLE>
The following table sets forth the maturities of the Company's
certificates of deposit of $100,000 or more at December 31, 1997 by time
remaining to maturity.
<TABLE>
<CAPTION>
Maturing During Quarter Ending: Amounts
- ------------------------------- -------
(In Thousands)
<S> <C>
March 31, 1998 $ 348
June 30, 1998 202
September 30, 1998 213
December 31, 1998 559
After December 31, 1998 424
-------
Total certificates of deposit with
balances of $100,000 or more $ 1,746
=======
</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 has 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. The
Association did not have any advances from the FHLB at December 31, 1997.
<PAGE>
Subsidiary
At December 31, 1997, 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. On December 26, 1996 the Company
formed a subsidiary corporation, Jefferson, along with Jefferson Community
Housing Foundation (the "Foundation"). Jefferson was formed to originate
mortgage loans for sale in the secondary market. For the year ending December
31, 1997, Jefferson had a net operating loss of approximately $178,000. Due to
the large loss sustained for the year it was the decision of the Board of
Directors to dissolve Jefferson effective December 31, 1997.
23
<PAGE>
The operations of Jefferson have been moved into the Association and
will be under the direct control of the Association's management. The
Association has applied for an FHA Lender Number and will originate loans for
sale in the secondary market. Until such time as the FHA number is obtained, the
Association will use sources it has identified to sell the loans it originates.
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 13 full-time employees at December
31, 1997, and has added four additional employees in the mortgage loan
department as of January 2, 1998. 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
24
<PAGE>
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 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, except 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
<PAGE>
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
25
<PAGE>
(i) loan or otherwise extend credit to an affiliate, except for any affiliate
which engages only in activities which are permissible for bank holding
companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or
similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons 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 exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 1997, 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.
26
<PAGE>
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.
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 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 nine months 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 achieved a fully funded status first
and, therefore, as discussed below, effective January 1, 1996 the FDIC recently
substantially reduced the average deposit insurance premium paid by commercial
banks.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule reduced 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
27
<PAGE>
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 eliminated 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
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.
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 paid
approximately $73,000 less in insurance premiums in 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.
28
<PAGE>
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). Tangible capital is given the same definition as core capital but 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, 1997, the Association had no 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
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, 1997, 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 general allowances for loan losses up to a maximum
of 1.25% of risk-weighted assets, together with certain other items. 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
<PAGE>
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
29
<PAGE>
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.
At December 31, 1997, the Association exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
16.5%, 16.5% and 65.3%, respectively. The following table sets forth the
Association's compliance with each of the above-described capital requirements
as of December 31, 1997.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital(1) Capital(2)
(Dollars in Thousands)
<S> <C> <C> <C>
Capital under GAAP ................... $ 7,185 $ 7,185 $ 7,185
Additional capital items:
General valuation
allowances(3) ..................... -- -- 142
Net unrealized gain on
securities available for sale ..... (1) (1) (1)
------- ------- -------
Regulatory capital ................... 7,184 7,184 7,326
Minimum required
regulatory capital(4) ............. 653 1,306 898
------- ------- -------
Excess regulatory capital ............ $ 6,531 $ 5,878 $ 6,428
======= ======= =======
Regulatory capital as a
percentage ........................ 16.51% 16.51% 65.29%
Minimum capital required
as a percentage(4) ................ 1.50% 3.0% 8.00%
Regulatory capital as a
percentage in excess of
requirements ...................... 15.01% 13.51% 57.29%
======= ======= =======
</TABLE>
(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 $43.5 million. Risk-based capital is computed as a percentage of
adjusted risk-weighted assets of $11.2 million.
30
<PAGE>
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, 1997 by approximately $1,000.
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 the prompt corrective action
regulations of the OTS, 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%. Under specified circumstances, 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 its 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
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.
At December 31, 1997, 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.
31
<PAGE>
Safety and Soundness. The OTS and other federal banking agencies have
established guidelines for safety and soundness, addressing operational and
managerial standards, as well as compensation matters for insured financial
institutions. Institutions failing to meet these standards are required to
submit compliance plans to their appropriate federal regulators. The OTS and the
other agencies have also established guidelines regarding asset quality and
earnings standards for insured institutions. The Association believes that it is
in compliance with these guidelines and standards.
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 4%. At December 31, 1997, the Association's liquidity
ratio was 7.43%.
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 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, 1997, the Association was a Tier 1 institution for
purposes of this regulation.
<PAGE>
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
32
<PAGE>
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
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. 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.
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<PAGE>
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.
Community Reinvestment Act and the Fair Lending Laws. Savings
institutions have a responsibility under the CRA and related regulations of the
OTS to help meet the credit needs of their communities, including low- and
moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and
the Fair Housing Act (together, the "Fair Lending Laws") prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of CRA could, at a minimum, result in regulatory restrictions on its
activities, and failure to comply with the Fair Lending Laws could result in
enforcement actions by the OTS, as well as other federal regulatory agencies and
the Department of Justice.
Qualified Thrift Lender Test. All savings institutions are required to
meet a QTL test 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).
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
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, 1997,
the qualified thrift investments of the Association were approximately 83.7% of
its portfolio assets.
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
34
<PAGE>
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.
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, 1997, the Association had $483,000
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, 1997,
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 $46.3 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.
Thrift Charter. Congress has been considering legislation in various
forms that would require federal thrifts, such as the Association, to convert
their charters to national or state bank charters. Recent legislation required
the Treasury Department to prepare for Congress a comprehensive study on
development of a common charter for federal savings institutions and commercial
banks; and, in the event that the thrift charter was eliminated by January 1,
1999, would require the merger of the BIF and the SAIF into a single Deposit
Insurance Fund on that date. The Association cannot determine whether, or in
what form, such legislation may eventually be enacted and there can be no
assurance that any legislation that is enacted would not adversely affect the
Association and its parent holding company.
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 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.
35
<PAGE>
The Association is required by Louisiana law and regulations to comply
with certain reserve and capital requirements. At December 31, 1997, 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. Federal law 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, 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, 1997, 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,
1997, the Association had no investments which were affected by the foregoing
limitations.
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-
36
<PAGE>
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 thrifts 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 1997 and 1998, the
Company and the Association intend to file separate tax returns.
Bad Debt Reserves. In August 1966, legislation was enacted that repeals
the reserve method of accounting (including the percentage of taxable income
method) previously used by many savings institutions to calculate their bad debt
reserve for federal income tax purposes. Savings institutions with $500 million
or less in assets may, however, continue to use the experience method. As a
result, the Association must recapture that portion of its reserve which exceeds
the amount that could have been taken under the experience method for post-1987
tax years. At December 31, 1997, the Association's post -1987 excess reserves
amounted to approximately $445,000. The recapture will occur over a six-year
period, the commencement of which was delayed until the first taxable year
beginning after December 31, 1997, since the Association met certain residential
lending requirements. The legislation also requires savings institutions to
account for bad debts for federal income tax purposes on the same basis as
commercial banks for tax years beginning after December 31, 1995. This change in
accounting method and reversal and excess bad debt reserves is adequately
provided for in the Association's deferred tax liability.
At December 31, 1997, 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 shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, it exceeds
the institution's current and post-1951 accumulated earnings and profits. The
amount of additional taxable income created by a non-
37
<PAGE>
qualified distribution is an amount that when reduced by the tax attributable to
it is equal to the amount of the distribution.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method.
Other items of tax preference that constitute AMTI include (a) tax-exempt
interest on newly issued (generally, issued on or after August 8, 1986) private
activity bonds other than certain qualified bonds and (b) 75% of the excess (if
any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI
(determined without regard to this preference and prior to reduction by net
operating losses).
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses ("NOLs") to the preceding 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, 1997, 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 35%. 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, 1994 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.
38
<PAGE>
Item 2. Description of Property.
At December 31, 1997, 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, 1997.
Net Book
Value of Amount of
Description/Address Leased/Owned Property Deposits
- ------------------- ------------ -------- --------
(In thousands)
Main Office:
# 1 Westbank Expressway
New Orleans, Louisiana 70114 Leased $ 60 $20,144
Branch Office:
2021 Carol Sue Avenue
Terrytown, Louisiana 70056 Owned 173 15,390
---- -------
Total $233 $35,534
==== =======
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. In addition, see
Note BB of Notes to Consolidated Financial Statements in the Annual Report.
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 1997
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 46 of the 1997 Annual Report.
Item 7. Financial Statements.
The information required herein is incorporated by reference from pages
1 to 36 of the 1997 Annual Report.
39
<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, 6, and 7 of the definitive proxy statement of the Company for the
Annual Meeting of Stockholders to be held on April 29, 1998, which will be filed
on or about April 7, 1997 ("Definitive Proxy Statement").
Item 10. Executive Compensation.
The information required herein is incorporated by reference from pages
8 to 11 the Definitive Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required herein is incorporated by reference from pages
6 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, 1997 and 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996
Notes to Consolidated Financial Statements
40
<PAGE>
(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.
(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 1997 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. (**) Incorporated herein by reference
from the Company's Form 10-KSB for the year ended December 31, 1996.
(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, 1997.
41
<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 April 3, 1998
- ------------------------- and Chief Executive Officer
Hugh E. Humphrey, Jr.
/s/ Thu Dang Director April 3, 1998
- ------------
Thu Dang
/s/ John H. Gary, III Director April 3, 1998
- ---------------------
John H. Gary, III
/s/ Thomas L. Arnold, Sr. Director April 3, 1998
- -------------------------
Thomas L. Arnold, Sr.
/s/ Hugh E. Humphrey, III Director April 3, 1998
- --------------------------
Hugh E. Humphrey, III
/s/ Dennis J. McCluer Vice President and Chief Operating April 3, 1998
- --------------------- Officer
Dennis J. McCluer
/s/ Francis M. Minor, Jr. Chief Financial Officer April 3, 1998
- ------------------------
Francis M. Minor, Jr.
</TABLE>
42
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 $15.25 per share.
There was a cash dividend declared for the first quarter of 1998 in the
amount of $0.05 per share to stockholders of record on March 31, 1998 payable on
April, 15, 1998.
At December 31, 1997 Algiers Bancorp, Inc. had 607,124 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) 497-2300
10 Commerce Drive (800) 368-5948
Cranford, New Jersey 07016-3572 FAX (908) 497-2310
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) 367-8222.
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>
Algiers
Bancorp, Inc.
P.O. Box 6308
NEW ORLEANS, LA 70174-6308
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.
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.
<PAGE>
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,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total Assets ............................... $45,312 $48,239 $42,450
Cash and cash equivalents .................. 2,555 1,722 1,452
Investment securities ...................... 4,087 3,292 1,922
Mortgage-backed securities ................. 28,445 32,887 28,149
Loans receivable, net ...................... 9,198 9,220 9,690
Deposits ................................... 35,534 36,635 38,203
Federal Home Loan Bank Advances ............ -- 1,500 --
Stockholders Equity/Retained Earnings ...... 9,536 9,799 4,040
Book Value Per Share ....................... 15.71 15.12 --
Market Price Per Share ..................... 14.88 11.50 --
Full Service Offices ....................... 2 2 2
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Total Interest Income ................. $ 3,140 $ 3,059 $ 2,670
Total Interest Expense ................ 1,751 1,835 1,740
Net Interest Income ................... 1,389 1,223 930
Provision for (Recovery of) Loan Losses (45) (4) (23)
Net Interest Income after Provision
for (Recovery of)Loan Losses .... 1,434 1,227 953
Total Noninterest Income .............. 238 195 235
Total Noninterest Expense ............. 1,413 1,199 956
Income Before Income Taxes ............ 259 223 232
Income Taxes .......................... 48 66 62
Net Income ............................ 211 157 170
SELECTED OPERATING RATIOS:
Return on average assets .............. 0.42% 0.34% 0.41%
Return on average equity .............. 1.65% 2.86% 4.44%
Average equity to average assets ...... 25.60% 11.93% 9.20%
Dividend Payout Ratio** ............... 53.55% 20.38% --
Equity to Total Assets at End of Period 21.05% 20.31% 9.52%
Risk Based Capital Ratio .............. 57.29% 54.45% 35.06%
</TABLE>
** For 1996 Reflects one quarterly dividend since stock conversion on July 8,
1996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This Annual Report includes statements that may constitute
forward-looking statements, usually containing the words "believe," "estimate,"
"project," "expect," "intend" or similar expressions. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that could cause future
results to vary from current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and more specifically
in the markets in which the Company operates); changes in interest rates,
deposit flows, loan demand, real estate values and competition; changes in
accounting principles, policies or guidelines and in government legislation and
regulation (which change from time to time and over which the Company has no
control); and other risks detailed in this Annual Report and in the Company's
other public filings. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
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. Profitability for the Company's
70% owned subsidiary Jefferson Community Lending, L.L.C. ("Jefferson") is
dependent on fees received from the sale of mortgage loans in the secondary
market. 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
3
<PAGE>
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 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, 1997, the Association's fixed-rate mortgage-backed securities
amounted to $1.5 million or 3.3% of total assets, its ARMs amounted to $7.6
million or 16.8% of total assets and its adjustable-rate mortgage-backed
securities amounted to $26.9 million or 59.3% 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 Company'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 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 Company's NPV by
less than 2% as a percentage of the estimated market value of it assets at
December 31, 1997, the Company would not have been subject to any capital
deduction as of December 31, 1997 if the regulation had been effective as of
such date. The following table presents the Company's NPV as of December 31,
1997, as calculated by the OTS, based on information provided to the OTS by the
Association.
4
<PAGE>
<TABLE>
<CAPTION>
Change in Change in
Interest Rates Net Portfolio Value NPV as % of NPV as % of
in Basis Points -------------------------------- Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change % Change of Assets of Assets(1)
------------ ------ -------- -------- --------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $ 4,548 $ (921) -17% 11.4% (1.6)%
300 4,803 (666) -12% 11.9% (1.1)%
200 5,042 (426) -8% 12.3% (.7)%
100 5,264 (205) -4% 12.7% (.3)%
Static 5,469 -- -- 13.0% --
(100) 5,743 274 5% 13.5% .5%
(100) 5,743 274 5% 13.5% .5%
(200) 6,169 700 13% 14.2% 1.2%
(300) 6,732 1,263 23% 15.2% 2.2%
(400) 7.439 1,970 36% 16.4% 3.4%
</TABLE>
- -----------------
(1) Based on the portfolio value of the Company's assets assuming no
change in interest rates.
Changes in Financial Condition
Assets. Total assets decreased to $45.3 million at December 31, 1997
from $48.2 million at December 31, 1996.
Mortgage-backed securities as a percentage of total assets increased to 62.7% at
December 31, 1997 from 68.2% at December 31, 1996. 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").
Mortgage-backed securities increase the quality of the Company'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.
5
<PAGE>
At December 31, 1997, net loans receivable totalled $9.2 million or
20.3% of total assets. Of the total loan portfolio, $8.1 million or 79.6%
consisted of one-to-four family residential loans. Consumer loans accounted for
$1.3 million or 12.6% of the total loan portfolio, and 7.4% of the portfolio
consisted of commercial real estate loans.
Mortgage-backed securities and investment securities were 62.7% and
9.1% of total assets, respectively, at December 31, 1997 Of such amount, $52,000
or .1% of total assets mature within one year of December 31, 1997. See Notes C,
D and G to the Consolidated Financial Statements. Cash and cash equivalents
amounted to 5.6% of total assets at such date.
Non-performing assets have increased from .20% of total assets at
December 31, 1996 to 1.44% of total assets at December 31, 1997. Non-accruing
single-family residential loans represented 20.1% of the $636,000 of total
non-performing assets at December 31, 1997. The balance of non-performing assets
included two commercial loans accounting for 79.9%. At December 31, 1997, the
Company's allowance for loan losses equalled $482,000 or 4.8% of total loans
outstanding. The Company's largest commercial real estate loan with a principal
balance of $500,000 and a specific reserve of $261,000 as of December 31, 1997
is not current as of March 31, 1997. The Company's management is closely
monitoring this loan and is discussing its status with the borrower. 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 Company's total deposits decreased during 1997 to $35.5 million at
December 31, 1997 from $36.6 million at December 31, 1996. Certificates accounts
decreased by $895,000 or 3.2% from December 31, 1996 to December 31, 1997, while
transaction accounts decreased by $206,000 or 2.4% during the period.
Total stockholders' equity was $9.5 million at December 31, 1997, a
decrease of $263,000 from December 31, 1996. The decrease was due to a $472,000
purchase of treasury stock and dividends of $113,000 partially offset by
increases in net income of $211,000, a $73,000 allocation to the Employee Stock
Ownership Plan and an increase in unrealized gain on securities
available-for-sale.
Results of Operations
Net income. The Company's net income increased by $54,000 or 34.4% in
1997 and by $14,000 or 8.2% in 1996. The increase in 1997 is attributable to an
increase of $166,000 in net interest income, a $43,000 increase in non-interest
income and a reduction in federal income taxes of $18,000.
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 $166,000 or 13.6% in 1997, and increased $294,000 or 31.6%
in 1996. The increase in 1997 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.
6
<PAGE>
The Company's average interest rate spread increased to 2.23% for 1997
from 2.22% for 1996 after increasing from 2.06% for 1995. In addition, its ratio
of average interest-earning assets to average interest-bearing liabilities
increased to 126.5% for 1997 from 113.3% for 1996 and 106.4% for 1995. 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 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.
7
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ---------------------------- -------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- ------- ------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) .................. $ 9,298 $ 822 8.84% $ 9,581 $ 776 8.09% $10,024 $ 807 8.05%
Mortgage-backed securities ........... 30,912 1,993 6.45 30,872 2,008 6.50 27,196 1,702 6.26
Investment securities(3) ............. 2,576 219 8.50 1,772 166 9.37 2,127 134 6.30
Other interest-earning assets ........ 1,796 106 5.90 2,025 109 5.38 414 27 6.52
------- ------- ---- ------- ------- ---- ------- ------- ----
Total interest-earning assets ..... 44,582 3,140 7.04 44,250 3,059 6.91 39,761 2,670 6.72
------- ------- ---- ------- ------- ---- ------- ------- ----
Noninterest-earning assets .............. 2,346 1,406 1,772
------- ------- -------
Total assets ...................... $46,928 $45,656 $41,533
======= ======= =======
Interest-bearing liabilities:
Passbook, NOW and money
market accounts ................... $ 8,705 216 2.48 $ 10,047 248 2.46 $ 9,944 263 2.64
Certificates of deposit .............. 27,242 1,506 5.53 28,706 1,569 5.46 27,296 1,471 5.39
------- ------- ---- ------- ------- ---- ------- ------- ----
Total deposits .................... 35,947 1,722 4.79 38,753 1,817 4.68 37,240 1,734 4.66
FHLB advances ........................ 462 29 6.28 307 18 5.86 123 6 4.88
------- ------- ---- ------- ------- ---- ------- ------- ----
Total interest-bearing liabilities 36,409 1,751 4.81 39,060 1,835 4.69 37,363 1,740 4.66
------- ---- ------- ---- ------- ----
Noninterest-bearing liabilities(4) ...... 851 1,870 379
------- ------- -------
Total liabilities ................. 37,260 40,930 37,742
Stockholders' equity ................. 9,668 4,726 4,726
------- ------- -------
Total liabilities and stockholders'
equity ......................... $46,928 $45,656 $42,468
======= ======= =======
Net interest-earning assets ............. $ 8,173 $ 5,190 $ 2,398
======= ======= =======
Net interest income; average interest
rate spread .......................... $ 1,389 2.23% $1,224 2.22% $ 930 2.06%
======= ------ ====== ------ ======= ------
Net interest margin(5) .................. 3.12% 2.76% 2.34%
====== ====== ======
Average interest-earning assets to
average interest-bearing liabilities . 122.45% 113.28% 106.42%
====== ====== ======
</TABLE>
8
<PAGE>
(1) At December 31, 1997, the weighted average yields earned and rates paid
were as follows: loans receivable, 8.84%; mortgage-backed securities,
6.45%; investment securities, 8.50%; other interest-earning assets, 5.90%;
total interest-earning assets 7.04%; deposits, 4.81%; FHLB advances 6.28%;
and interest rate spread, 2.23%.
(2) Includes nonaccrual loans during the respective periods. Calculated net of
deferred fees and discount, loans in process and allowance for loan losses.
(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.
9
<PAGE>
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.
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
--------------------------------- ----------------------------------
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 $ 71 $ (25) $ 46 $ 4 $ (35) $ (31)
Mortgage-backed securities (15) - (15) 68 238 306
Investment securities (15) 68 53 50 (27) 23
Other interest-earning assets 10 (13) (3) (3) 94 91
---- ------ ---- --- ----- -----
Total interest income 51 30 81 119 270 389
---- ------ ---- --- ----- -----
Interest expense:
Passbook, NOW and money
market accounts 2 (34) (32) (18) 3 (15)
Certificates of deposits 20 (83) (63) 20 78 98
---- ------ ---- --- ----- -----
Total deposits 22 (117) (95) 2 81 83
FHLB advances 1 10 11 2 10 12
---- ------ ---- --- ----- -----
Total interest expense 23 (107) (84) 4 91 95
---- ------ ---- --- ----- -----
Increase (decrease) in net
interest income $ 28 $ 137 $ 165 $ 115 $ 179 $ 294
==== ===== ===== ===== ===== =====
</TABLE>
Interest Income. Interest on loans increased $46,000 or 5.9% in 1997
due to an increase in the weighted average yields on loans receivable to 8.84%
from 8.09%. 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.
10
<PAGE>
Interest on mortgage-backed securities decreased by $15,000 or .7% in
1997 from 1996, due to a $40,000 or .1% increase in the average balance and an
decrease in the average yield to 6.45% in 1997 from 6.50% in 1996. The average
balance increased as the amount of mortgage-backed securities purchased in 1997
decreased by $4.4 million from 1996. The higher purchases in 1997 were partially
offset by higher repayments and the sale of $1.6 million in 1997. The increased
yield was due to the interest rate on a large portion of the adjustable-rate
mortgage-backed securities adjusting upward in 1997.
Interest on investment securities increased by $62,000 or 39.4% in 1997
from 1996, due to an increase in the average balance of $1.3 million from 1996,
which was partially offset by a decrease in the average rate to 7.09% in 1997
from 8.860% in 1996. During 1997 the Company purchased $2.7 million of callable
notes and bonds issued by various government agencies which had interest rates
of 6.50% to 8.00%. 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, decreased by $12,000 or 10.2% in
1997 over 1996, due to a $742,000 or 36.6% decrease in the average balance. The
average yield increased to 8.26% in 1997 from 5.82% in 1996 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 Company purchasing additional FHLB stock and
increasing overnight deposits in 1997.
Total interest income increased by $81,000 or 2.6% in 1997 from 1996,
due to a $332,000 or .8% increase in the average balance of total
interest-earning assets and an increase in the average yield to 7.04% in 1997
from 6.91% in 1996. The average yield on each category of interest-earning
assets (other than other mortgage-backed securities and investment securities)
increased in 1997 from 1996.
Interest Expense. Interest on deposits decreased by $95,000 or 5.2% in
1997 over 1996, due to a $2.8 million or 7.24% decrease in the average balance
and an increase in the average rate to 4.79% in 1997 from 4.68% in 1996. The
increase in the average balance was mostly due to an increase in the average
rate paid on certificates of deposit. The average rate paid on certificates of
deposit increased to 5.53% in 1997 from 5.46% in 1996, which increase was mostly
offset by a decrease in the average rate paid by the Company on its transaction
accounts to 2.48% in 1997 from 2.46% in 1996.
Interest on FHLB advances increased by $11,000 or 61.1% in 1997 from
1996, primarily due to an increase in the average balance of FHLB advances of
$155,000 or 50.5% in 1997.
Total interest expense increased by $84,000 or 4.6% in 1997 over 1996,
primarily due to the increase in the average balance of certificates of deposit.
Provision (Credit) for Loan Losses. The Company recovered $0, $4,000
and $24,000 of its allowance for loan losses in 1997, 1996 and 1995,
respectively. Approximately $7,000 of the credit in each of 1996 and 1995 was
due to continued principal payments on the Company's largest outstanding
commercial real estate loan, which amounted to $500,000 at December 31, 1997. A
portion of this loan is classified substandard because the carrying value
11
<PAGE>
exceeds the appraised value of the property securing the loan, and the amount of
the allowance allocated to this loan ($261,000 at December 31, 1997) 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 $482,000 or 4.8% of
the total loan portfolio at December 31, 1997.
Noninterest Income. Service charges and fees, which primarily consist
of charges for checking accounts, overdrafts and late payments, decreased by
$1,000 or 1.5% in 1997 from 1996.
The gross carrying value of the Company's Guaranteed Investment
Contracts (the "GIC bonds") was reduced in 1997 by $62,000 of principal
payments. See Note E of Notes to Consolidated Financial Statements.
In 1997 the Company sold $1.6 million of mortgage-backed securities
which were part of the available for sale portfolio which resulted in a gain of
$11,000.
Other noninterest income amounted to $44,000 and $31,000 in 1997 and
1996, respectively.
Total noninterest income increased by $43,000 or 22.1% in 1997 from
1996, primarily due to an increase of $49,000 in recapture of allowance on GIC
bonds and an increase of $18,000 in gain on sale of investments in 1997. Algiers
considers these items to be non-recurring in nature. After excluding these
items, total noninterest income increased by $12,000 or 12.1% in 1997 from 1996.
Noninterest Expense. Compensation and benefits increased by $309,000 or
67.7% in 1997 over 1996, due to payments to the Company's Employee Stock
Ownership Plan which resulted in $70,000 of compensation expense and $257,000 of
compensation expense in Jefferson.
Occupancy and equipment expenses increased by $55,000 or 46.6% in 1997
over 1996, primarily due to a $6,000 increase in the monthly rental of the
Association's main office and the rental of office space for Jefferson.
Federal insurance premiums increased by $72,000 or 80.0% in 1997 from
1996, primarily due to a decrease in the SAIF premium rate. 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.
Computer expenses decreased by $15,000 or 30.6% in 1997 from 1996,
primarily due to a reduction in the monthly billing for the Association's
on-line computer system.
Professional services increased $105,000 or 318.2% in 1997 from 1996,
due to an increase of $13,000 in specialized training for Jefferson, an increase
in legal fees of $92,000.
12
<PAGE>
FHLB service charges decreased $14,000 or 36.9% in 1997 from 1996, due
to a decrease in the number of mortgage-backed securities and investment
securities which the Company owned in 1997.
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 printing expenses associated with the Company's
reporting obligations, and annual listing fees.
The Association provided $0 of its allowance for real estate owned loss
in 1997 and $4,000 in 1996. The allowance for loss on real estate owned was
increased in 1997 by $45.000 for properties held more than five years. See Note
I of Notes to Consolidated Financial Statements. The real estate owned at
December 31, 1997 consisted of two one- to four-family residential properties
and one vacant lot.
The Association's real estate owned expense, net decreased by $1,000 or
33.3% in 1997 from 1996, primarily due to the low number of real estate owned
properties that were owned by the Association at December 31, 1997.
Other noninterest expense, which primarily consists of insurance and
bond premiums, postage and supplies, and other operating expenses increased by
$52,000 or 32.3% in 1997 from 1996. The increase 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 $214,000 or 17.8% in 1997 from
1996, primarily due to increases of $309,000 in compensation and benefits,
$55,000 in occupancy and equipment, $105,000 in professional services $41,000 in
provision for possible real estate write-downs and $52,000 in other expenses,
partially offset by decreases of $15,000 of computer expenses, $313,000 in SAIF
assessment and insurance premiums, $14,000 in FHLB service charges and $5,000
loss on sale of real estate owned. Total noninterest expense as a percent of
average assets was 2.8% in 1997 compared to 2.6% in 1996.
Federal Income Tax Expense. The Company's federal income tax expense
increased by $18,000 or 27.4% in 1997 from 1996. The effective tax rate for
1997, 1996 and 1995 was 18.5%, 29.7% and 27.2%, respectively. The effective tax
rate of 18.5% in 1997 was the result of the tax benefits from the gross
operating loss of $270,000 in the Company's subsidiary Jefferson for the year
ending December 31, 1997.
The Company had a deferred tax valuation reserve of $194,000, $194,000
and $230,000 at December 31, 1997, 1996 and 1995, respectively. Other components
of the valuation reserve consist of allowances for loan losses and real estate
owned losses, each of which decreased slightly in 1997. For additional
information, see Note K of Notes to Consolidated Financial Statements.
13
<PAGE>
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 4% 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, 1997, Algiers'
liquidity was 7.4% or $1.2 million 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. Financing activities used net cash in
1995 due to the repayment of $600,000 of FHLB advances. Total cash and cash
equivalents amounted to $2.6 million at December 31, 1997. See the Consolidated
Statements of Cash Flows in the Consolidated Financial Statements.
At December 31, 1997, Algiers had outstanding commitments to originate
$62,000 of one-to four-family residential loans (including undisbursed
construction loans) and $300,000 in boat loans. At the same date, the total
amount of certificates of deposit which were scheduled to mature in the
following 12 months was $14.2 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, 1997, Algiers exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 16.50%,
16.50% and 65.30%, 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.
14
<PAGE>
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.
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 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
15
<PAGE>
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 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.
16
<PAGE>
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. 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.
The Year 2000
The Company is currently addressing the computer and data processing
issues relating to the Year 2000. Management has completed the assessment phase
and do not believe that issues related to the Year 2000 are likely to have a
material adverse effect on the Company's liquidity, capital resources or results
of operations.
17
<PAGE>
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, 1997 and 1996, 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, 1997 and 1996, and the results of their operations and their cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
/s/LaPorte, Sehrt, Romig & Hand
A Professional Accounting Corporation
March 9, 1998
Metairie, Louisiana
18
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
ASSETS
December 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Cash and Amounts Due from Depository Institutions ...... $ 482 $ 287
Interest-Bearing Deposits in Other Banks ............... 2,073 1,435
Investments Available-for-Sale - at Fair Value (Note D) 4,087 2,467
Investment Securities Held-to-Maturity -
Fair Value of $-0- and $823 at December 31, 1997
and 1996, Respectively (Note C) ................... -- 825
Loans Receivable - Net (Note F) ........................ 9,198 9,220
Mortgage-Backed Securities - Available-for-Sale -
at Fair Value (Note G) ............................. 6,615 9,077
Mortgage-Backed Securities - Held-to-Maturity - Fair
Value of $21,580 and $23,228 at December 31, 1997
and 1996, Respectively (Note G) .................... 21,830 23,810
Stock in Federal Home Loan Bank ........................ 483 456
Accrued Interest Receivable (Note H) ................... 269 265
Real Estate Owned - Net (Note I) ....................... -- 45
Office Properties and Equipment, at Cost - Furniture,
Fixtures and Equipment, Less Accumulated
Depreciation of $212 and $187 at December 31, 1997
and 1996, Respectively (Note J) .................... 253 231
Prepaid Expenses ....................................... 19 18
Deferred Tax Asset (Note K) ............................ -- 23
Income Tax Receivable .................................. -- 75
Other Assets ........................................... 3 5
------- -------
Total Assets ................................. $45,312 $48,239
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
LIABILITIES
Deposits (Note L) ...................................... $ 35,534 $ 36,635
Advance from Federal Home Loan Bank (Note M) ........... -- 1,500
Advance Payments from Borrowers for
Insurance and Taxes ................................. 112 237
Accrued Interest Payable on Depositors' Accounts ....... 1 1
Dividends Payable ...................................... 31 32
Deferred Tax Liability ................................. 28 --
Income Taxes Payable ................................... 17 --
Other Liabilities ...................................... 53 35
-------- --------
Total Liabilities ................................ 35,776 38,440
-------- --------
STOCKHOLDERS' EQUITY
Preferred Stock - Par Value $.01
0 Shares Issued and Outstanding at
December 31, 1997 and 1996 .......................... -- --
Common Stock - Par Value $.01
648,025 Shares Issued - 614,124 Outstanding at
December 31, 1997 and 648,025 Outstanding at
December 31, 1996 ................................... 6 6
Additional Paid-in Capital ............................. 6,122 6,108
Unearned ESOP Shares ................................... (433) (492)
Retained Earnings ...................................... 4,299 4,201
Treasury Stock - 33,901 Shares at Cost ................. (472) --
Unrealized Gain (Loss) on Securities Available-for-Sale,
Net of Applicable Deferred Taxes .................... 14 (24)
-------- --------
Total Stockholders' Equity ....................... 9,536 9,799
-------- --------
Total Liabilities and Stockholders' Equity ....... $ 45,312 $ 48,239
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
For The Years Ended
December 31,
--------------------
1997 1996
------ ------
<S> <C> <C>
INTEREST INCOME
Loans ............................................ $ 822 $ 776
Mortgage-Backed Securities ....................... 1,993 2,008
Investment Securities ............................ 219 166
Other Interest-Earning Assets .................... 106 109
------ ------
Total Interest Income ...................... 3,140 3,059
------ ------
INTEREST EXPENSE
Deposits ......................................... 1,722 1,818
FHLB Advances .................................... 29 18
------ ------
Total Interest Expense ..................... 1,751 1,836
------ ------
NET INTEREST INCOME BEFORE
CREDIT FOR LOAN LOSSES ........................... 1,389 1,223
CREDIT FOR LOAN LOSSES (Note F) ...................... 45 4
------ ------
NET INTEREST INCOME AFTER
CREDIT FOR LOAN LOSSES ........................... 1,434 1,227
------ ------
NON-INTEREST INCOME
Service Charges and Fees ......................... 67 68
Recapture of Allowance on GIC Bonds (Note E) ..... 116 67
Gain on Sale of Investments ...................... 11 29
Other Income ..................................... 44 31
------ ------
Total Non-Interest Income .................. 238 195
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in Thousands)
For The Years Ended
December 31,
---------------------
1997 1996
------ ------
<S> <C> <C>
NON-INTEREST EXPENSES
Compensation and Benefits .................... $ 765 $ 456
Occupancy and Equipment ...................... 173 118
Computer ..................................... 34 49
SAIF Assessment .............................. -- 241
Deposit Insurance Premium .................... 18 90
Professional Services ........................ 138 33
FHLB Service Charges ......................... 25 39
Provision for Possible Real Estate
45 4
Loss on Sale of Real Estate Owned ............ 5
Real Estate Owned Expense - Net .............. 2 3
Other ........................................ 213 161
------ ------
1,413 1,199
------ ------
INCOME BEFORE FEDERAL
INCOME TAX EXPENSE ........................... 259 223
FEDERAL INCOME TAX EXPENSE (Note K) .............. 48 66
------ ------
NET INCOME ....................................... $ 211 $ 157
====== ======
EARNINGS PER SHARE ............................... $ 0.37 $ 0.26
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1997 and 1996
(Dollars in Thousands)
Unrealized
Gain (Loss)
on Securities
Available-for-
Additional Unearned Sale - Net Total
Common Paid-in ESOP Retained of Applicable Treasury Retained
Stock Capital Shares Earnings Deferred Taxes Stock Earnings
----- ------- ------ -------- -------------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1995 ......... $ -- $ -- $ -- $ 4,076 $ (38) -- $ 4,038
Net Income .......................... -- -- -- 157 -- -- 157
Dividends Declared .................. -- -- -- (32) -- -- (32)
Common Stock Issuance - 648,025
Shares at $.01 Per Share Issued
at $10 Per Share ................. 6 6,474 -- -- -- -- 6,480
Costs of Conversion from a Mutual
Association to a Stock Association -- (370) -- -- -- -- (370)
Shares Allocated to the ESOP Plan ... -- -- (518) -- -- -- (518)
ESOP Shares Released for Allocation . -- 4 26 -- -- -- 30
Changes in Unrealized Gain on
Securities Available-for-Sale, Net
of Applicable Deferred Income
Taxes of $12,200 ................. -- -- -- -- 14 -- 14
------- ------- ------- -------- -------- ------- -------
BALANCE - December 31, 1996 ......... 6 6,108 (492) 4,201 (24) -- 9,799
Net Income .......................... -- -- -- 211 -- -- 211
Dividends Declared .................. -- -- -- (113) -- -- (113)
ESOP shares Released for Allocation . -- 14 59 -- -- -- 73
Purchase of Treasury Stock .......... -- -- -- -- -- (472) (472)
Changes in Unrealized Gain on
Securities Available-for-Sale, Net
of Applicable Deferred Income
Taxes of $7,302 .................. -- -- -- -- 38 -- 38
------- ------- ------- -------- -------- ------- -------
BALANCE - December 31, 1997 ......... $ 6 $ 6,122 $ (433) $ 4,299 $ 14 $ (472) $ 9,536
======= ======= ======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For The Years Ended
December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................. $ 211 $ 157
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization ......................... 24 22
Premium Amortization Net of Discount Accretion ........ 62 127
Loss on Sale of Real Estate ........................... -- 5
Gain on Sale of Mortgage-Backed Securities ............ (11) (29)
ESOP expense .......................................... 70 30
(Decrease) in Accrued Interest Payable ............... -- (2)
Increase (Decrease) in Other Liabilities .............. 18 (17)
(Increase) in Accrued Interest Receivable ............. (4) (36)
Credit for Loan Losses ................................ (45) (4)
Provision for Losses on Real Estate Owned ............. 45 4
(Increase) Decrease in Other Assets ................... 2 (4)
(Increase) in Prepaid Expenses ........................ (1) (13)
Decrease in Prepaid Income Taxes ...................... 75 117
Increase in Income Tax Payable ........................ 17 --
Decrease in Deferred Income Taxes ..................... 51 29
------- -------
Net Cash Provided by Operating Activities .......... 514 386
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of Investment Securities - Held-to-Maturity ...... 825 400
Purchases of Investment Securities - Available-for-Sale ..... (3,094) (3,022)
Maturities of Investment Securities - Available-for-Sale .... 1,539 1,247
Purchases of Mortgage-Backed Securities - Held-to-Maturity .. (185) (5,786)
Maturities of Mortgage-Backed Securities - Held-to-Maturity . 2,119 2,373
Purchases of Mortgage-Backed Securities - Available-for-Sale (784) (3,424)
Maturities of Mortgage-Backed Securities - Available-for-Sale 1,600 1,358
Proceeds From Sale of Mortgage-Backed Securities ............ 1,661 668
Net Decrease in Loans ....................................... 22 474
Non-Cash Dividend - FHLB .................................... (27) (26)
Purchase of Furniture and Fixtures .......................... (46) (26)
Proceeds from Sales of Foreclosed Real Estate ............... -- 39
------- -------
Net Cash Provided by (Used in) Investing Activities 3,630 (5,725)
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
For The Years Ended
December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits ..................................... (1,101) (1,568)
Net Increase (Decrease) in Advances from Borrowers
for Taxes and Insurance ................................... (125) 85
Proceeds from Federal Home Loan Bank Advance ................. 3,900 3,000
Repayment of Federal Home Loan Bank Advance .................. (5,400) (1,500)
Sale of Common Stock ......................................... -- 6
Contribution of Additonal Paid-in Capital .................... -- 6,104
Dividends Paid ............................................... (113) --
Purchase of Treasury Stock ................................... (472) --
Purchase of ESOP Shares ...................................... -- (518)
------- -------
Net Cash Provided by (Used in) Financing Activities . (3,311) 5,609
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 833 270
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR .................... 1,722 1,452
------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR .......................... $ 2,555 $ 1,722
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest ............................................... $ 1,751 $ 1,819
Income Taxes ........................................... $ 31 $ 30
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Dividends Declared ........................................ $ 31 $ 32
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<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
issuance of 1,000 shares of common stock to the Corporation in exchange
for 50% of the net proceeds received by the Corporation in the
reorganization. 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 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.
26
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 interest method. Marketable securities classified
as available-for-sale are carried at fair value in 1997 and 1996.
Unrealized gains and losses on securities available-for-sale are
recognized as direct increases or decreases in retained earnings
effective December 31, 1996 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 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.
27
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are depreciated using
accelerated methods. 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
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.
28
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 31,1997 and 1996
included the following (in thousands):
1997 1996
---------- ----------
Cash $ 482 $ 287
Interest-Bearing Deposits
in Other Institutions 2,073 1,435
---------- ----------
$ 2,555 $ 1,722
========== ==========
RECLASSIFICATIONS
Certain reclassifications of previously reported amounts have
been made to conform with 1997 presentation. Such reclassifications had
no effect on net income.
NON-DIRECT RESPONSE ADVERTISING
The Association expenses advertising costs as incurred.
Advertising for 1997 and 1996 was $2,000 and $6,000, respectively.
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income" is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. This statement
requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of a statement of financial condition. Adoption of this pronouncement
is not expected to have a material adverse effect on the financial
position and results of operations of the Company.
29
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTING STANDARDS NOT YET ADOPTED (Continued)
Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related
Information" is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. Adoption of this pronouncement is not expected to have
a material adverse effect on the financial position and results of
operations of the Company.
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 (in thousands):
Algiers
Algiers Homestead
Bancorp, Inc. Association
------------- -----------
Operating Income $ - $ 1,519
=========== ===========
Net Income $ - $ 173
=========== ===========
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 which would have occurred had the pooling
occurred at the beginning of the fiscal years, or of the results which
may occur in the future.
30
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C
INVESTMENT SECURITIES HELD-TO-MATURITY
The Association owned no held-to-maturity investment
securities at December 31, 1997. Investment securities held-to-maturity
at December 31, 1996 consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Federal Farm
Credit Banks ........... $200 $ -- $-- $200
SLMA ..................... 200 -- -- 200
Federal Home Loan
Bank Notes ............. 425 -- -- 425
---- ------ ---- ----
$825 $ -- $-- $825
==== ====== ==== ====
</TABLE>
NOTE D
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale at December 31, 1997
consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
FNMA Medium Term
Callable Note ........... $ 216 $ -- $ 16 $ 200
FHLMC Callable Note ........ 1,095 6 1 1,100
FHLB Callable Notes ........ 2,782 5 -- 2,787
------ ------ ------ ------
$4,093 $ 11 $ 17 $4,087
====== ====== ====== ======
</TABLE>
Algiers Homestead Association has invested in FHLB stock which
is reflected at cost and approximates market.
31
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D
INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Continued)
Investment securities available-for-sale at December 31, 1996
consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
FNMA Medium Term
Callable Note ............. $ 324 $ 1 $ -- $ 325
FHLMC Callable Note .......... 650 6 -- 656
FHLB Callable Notes .......... 1,498 1 13 1,486
Louisiana Agricultural
Finance Authority ......... 19 -- -- 19
Southeast Texas Housing
Finance Authority ......... 43 -- -- 43
------- ------- ------- -------
2,534 8 13 2,529
Allowance for Loss .......... (62) -- -- (62)
------- ------- ------- -------
$ 2,472 $ 8 $ 13 $ 2,467
======= ======= ======= =======
</TABLE>
The following is a summary of contractual maturities of
investment securities available-for-sale as of December 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
Fair
Cost Value
------ ------
<S> <C> <C>
Due in One Year or Less .......................... $ 200 $ 200
Due After One Year Thru Five Years ............... 500 500
Due After Five Years Thru Ten Years .............. 1,780 1,785
Due After Ten Years .............................. 1,613 1,602
------ ------
$4,093 $4,087
====== ======
</TABLE>
32
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 had estimated that the ultimate
collectibility of the bonds would approximate 88% of their original
carrying value. As such, the Association has applied all proceeds
received during 1996 and 1997 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 years ended December 31, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
Carrying Reserve
Value Balance
----- -------
<S> <C> <C>
Balance at December 31, 1995 ..................... $ 129 $(129)
Principal Repayment ........................... (67) --
Recapture of Provision
for Investment Losses ..................... -- 67
----- -----
Balance at December 31, 1996 ..................... 62 (62)
Principal Repayment ........................... (62) --
Recovery of Previous Charge - Offs ............ -- (54)
Recapture of Provision
for Investment Losses ..................... -- 116
----- -----
Balance at December 31, 1997 ..................... $ -- $ --
===== =====
</TABLE>
33
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F
LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Principal Balances -
First Mortgage Loans - 1-4 Family ................. $8,018 $8,134
Commercial ........................................ 738 668
Construction Loans - 1-4 Family ................... 43 89
Partially-Guaranteed by VA
or Insured by FHA Loans - 1-4 Family .......... 41 51
------ ------
8,840 8,942
------ ------
Principal Balances -
Second Mortgage Loans - 1-4 Family ................ 189 175
Consumer Loans .................................... 325 --
Share Loans ....................................... 758 694
------ ------
1,272 869
------ ------
Less:
Allowance for Losses .............................. 485 530
Unearned Interest on Mortgage Loans ............... 73 7
Undisbursed Portion of Construction Loans ......... 301 7
Net Deferred Loan Origination Fees ................ 55 47
------ ------
914 591
------ ------
$9,198 $9,220
====== ======
</TABLE>
Activity in the allowance for loan losses is summarized as
follows for the years ended December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
----- ------
<S> <C> <C>
Balance at Beginning of Year ................. $ 530 $ 534
Charge-Offs ............................... --
Recoveries ................................ -- --
Credit for Loan Losses .................... (45) (4)
----- -----
Balance at End of Year ....................... $ 485 $ 530
===== =====
</TABLE>
34
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F
LOANS RECEIVABLE (Continued)
At December 31, 1997 and December 31, 1996, the Association
had loans totaling approximately $10,000 and $8,000, respectively, for
which impairment had been recognized. The allowance for loan losses
related to these loans totaled $10,000 and $8,000 at December 31, 1997
and December 31, 1996, respectively. During the year ended December 31,
1996, the amount of interest income that would have been recorded on
loans in nonaccrual status at December 31, 1996, had such loans
performed in accordance with their terms, was approximately $1,000. The
actual interest income recorded on these loans during the year ended
December 31, 1996 was approximately $-0-. Such interest foregone for
the year ended December 31, 1997 was approximately $1,000.
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 (in thousands):
Balance at Beginning of Year $ 17
Additional Borrowings 88
Repayments (21)
-----------
Balance at End of Year $ 84
===========
An approximate schedule of loan maturities or repricing
opportunities is as follows (in thousands):
<TABLE>
<CAPTION>
Variable Fixed
Maturities Rate Rate Total
---------- ---- ---- -----
<S> <C> <C> <C>
Three Months or Less .............. $ 292 $ 51 $ 343
Three Months - One Year ........... 247 7 254
One Year - Five Years ............. 474 304 778
Over Five Years ................... 6,507 2,230 8,737
------- ------- -------
$ 7,520 $ 2,592 $10,112
======= ======= =======
</TABLE>
35
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G
MORTGAGE-BACKED SECURITIES
Fixed and variable rate mortgage-backed securities
available-for-sale at December 31, 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA Certificates .......... $ 502 $ 9 $ 1 $ 510
FNMA Certificates .......... 4,902 96 35 4,963
FHLMC Certificates ......... 1,132 18 8 1,142
------ ------ ------ ------
$6,536 $ 123 $ 44 $6,615
====== ====== ====== ======
</TABLE>
Fixed and variable rate mortgage-backed securities
held-to-maturity at December 31, 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA Certificates .......... $ 2,801 $ 34 $ 2 $ 2,833
FNMA Certificates .......... 15,256 21 226 15,051
FHLMC Certificates ......... 3,773 2 79 3,696
------- ------- ------- -------
$21,830 $ 57 $ 307 $21,580
======= ======= ======= =======
</TABLE>
Fixed and variable rate mortgage-backed securities
available-for-sale at December 31, 1996 are summarized as follows (in
thousands):
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA Certificates .......... $ 885 $ 19 $ 3 $ 901
FNMA Certificates .......... 5,397 64 46 5,415
FHLMC Certificates ......... 2,770 19 28 2,761
------ ------ ------ ------
$9,052 $ 102 $ 77 $9,077
====== ====== ====== ======
</TABLE>
36
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G
MORTGAGE-BACKED SECURITIES (Continued)
Fixed and variable rate mortgage-backed securities
held-to-maturity at December 31, 1996 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA Certificates .......... $ 3,199 $ 25 $ 5 $ 3,219
FNMA Certificates .......... 16,684 15 511 16,188
FHLMC Certificates ......... 3,927 1 107 3,821
------- ------- ------- -------
$23,810 $ 41 $ 623 $23,228
======= ======= ======= =======
</TABLE>
The amortized cost and fair value of mortgage-backed
securities at December 31, 1997, by contractual maturity, are shown
below (in thousands). 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 ..................... $ 2 $ 2
Due After One Year Thru Five Years .......... 719 691
Due After Five Years Thru Ten Years ......... 1,435 1,409
Due After Ten Years ......................... 26,210 26,093
------- -------
$28,366 $28,195
======= =======
</TABLE>
<PAGE>
NOTE H
INTEREST RECEIVABLE
Interest receivable at December 31, 1997 and 1996 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage Loans ............................... $ 29 $ 14
Share Loans .................................. 3 3
Investment Securities ........................ 52 24
Mortgage-Backed Securities ................... 185 224
---- ----
$269 $265
==== ====
</TABLE>
37
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I
REAL ESTATE OWNED
A summary of real estate owned at December 31, 1997 and 1996
is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real Estate Acquired in Settlement ................. $90 $90
Less: Allowances for Losses ....................... 90 45
--- ---
$-- $45
=== ===
</TABLE>
Activity in the allowance for losses for other real estate
owned for years ended December 31, 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at Beginning of Year .................. $ 45 $ 47
Provision for REO Losses .................. 45 4
Charge-Offs ............................... -- (6)
---- ----
Balance at End of Year ........................ $ 90 $ 45
==== ====
</TABLE>
<PAGE>
NOTE J
OFFICE PROPERTY AND EQUIPMENT
Office property and equipment consist of the following at
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land ............................................. $ 30 $ 30
Building ......................................... 185 162
Furniture, Fixtures and Equipment ................ 205 186
Leasehold Improvements ........................... 45 40
---- ----
465 418
Less: Accumulated Depreciation
and Amortization ............................. 212 187
---- ----
$253 $231
==== ====
</TABLE>
Depreciation expense for the years ended December 31, 1997 and
1996 was approximately $22,000 and $24,000, respectively.
38
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K
FEDERAL INCOME TAXES
The provision for income taxes for 1997 and 1996 consists of
the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Current Federal Tax Expense ......................... $ 77 $ 48
Deferred Federal Tax Expense (Benefit) .............. (29) 18
---- ----
$ 48 $ 66
==== ====
</TABLE>
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 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Expected Tax Provision at 34% Rate ................. $ 88 $ 76
Effect of Net Loan, REO and Investment
Losses Charged Directly to Tax
Bad Debt Reserves .............................. (40) 26
(Decrease) in Deferred Tax Asset
Valuation Allowance ............................ -- (36)
---- ----
$ 48 $ 66
==== ====
</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 Company and its wholly- owned subsidiary file separate
company returns for federal income tax purposes. As a result the
Company has available a net operating loss carryforward which is
approximately $181,000 which expires in 2012.
39
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K
FEDERAL INCOME TAXES (Continued)
The net deferred tax assets or liabilities in the accompanying
statements of financial condition include the following components (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets
Market Value Adjustment for Available-for-
Sale Securities ................................ $-- $ 12
Allowance for Loan Losses .......................... 164 173
Allowance for REO Losses ........................... 31 16
Allowance for Unrealized Loss on Investments ....... -- 21
Employee Stock Option Plan ......................... 7 --
Charitable Contribution Carryforward ............... -- 8
Deferred Loan Fees ................................. 19 16
Other .............................................. 2 3
----- -----
Total Deferred Tax Assets ...................... 223 249
----- -----
Deferred Tax Liabilities
Fixed Assets and Depreciation ...................... 13 10
Market Value Adjustment for Available-for-
Sale Securities ................................ 7 --
Section 481 Adjustment ............................. 5 --
FHLB Stock ..................................... 32 22
----- -----
Total Deferred Tax Liabilities ................. 57 32
----- -----
Net Deferred Tax Assets ............................... 166 217
Deferred Tax Valuation Reserve ........................ 194 194
----- -----
Total Net Deferred Tax Asset (Liability) ........... $ (28) $ 23
===== =====
</TABLE>
Included in retained earnings at December 31, 1997 and 1996 is
approximately $1,309,000 and $1,307,000, 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
$445,000 and $444,000 for December 31, 1997 and 1996.
40
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L
DEPOSITS
Deposits consist of the following at December 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
Weighted
Average
Rate at 1997 1996
------------------- ---------------------
12/31/97 Amount Percent Amount Percent
-------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
NOW Accounts 2.40% $ 1,098 3.09 $ 1,713 4.67
Passbook 2.69% 5,483 15.43 5,774 15.76
Money Fund 2.58% 1,915 5.39 1,216 3.32
Certificates of Deposit:
2% to 2.99% - - - 94 0.26
3% to 3.99% 3.50% 33 0.10 - -
4% to 4.99% - - - 6,958 18.99
5% to 5.99% 5.46% 23,644 66.54 13,346 36.44
6% to 6.99% 6.28% 2,293 6.45 5,544 15.13
7% to 7.99% 7.09% 1,068 3.00 1,990 5.43
$35,534 100.00% $ 36,63 100.00%
======= ====== ======= ======
Due on Demand $ 8,496 $ 8,703
Due Within -
6 Months 7,589 10,892
7 to 12 Months 6,583 6,311
13 to 24 Months 5,353 6,127
25 to 36 Months 4,977 1,807
Due After 36 Months 2,536 2,795
------- --------
$35,534 $ 36,635
======= ========
</TABLE>
The aggregate amount of short-term jumbo certificates of
deposit with a minimum denomination of $100,000 was approximately
$1,746,000 and $2,005,000 at December 31, 1997 and 1996, respectively.
41
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L
DEPOSITS (Continued)
Interest expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
NOW Accounts ............................... $ 36 $ 40
Passbook ................................... 149 175
Money Fund ................................. 31 33
Certificates of Deposits ................... 1,506 1,569
------ ------
Total ................................... $1,722 $1,817
====== ======
</TABLE>
In the normal course of business, the Association accepts
deposits from members of the Board of Directors and officers. As of
December 31, 1997, these deposits totalled approximately $567,000.
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 1997 and 1996, respectively, was $29,000 and $18,000.
There were no advances from the FHLB outstanding as of
December 31, 1997.
NOTE N
FEDERAL DEPOSIT INSURANCE CORPORATION 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.
42
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND EN-FORCEMENT ACT OF
1989 (FIRREA) (Continued)
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 ratio 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 at least 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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
----------------------------- ---------------------------
Dollars Percentage Dollars Percentage
------------ ---------- ------------ ----------
(thousands) (thousands)
<S> <C> <C> <C> <C>
Tangible Capital $ 7,184 16.51% $ 6,777 14.83%
Tangible Equity $ 7,184 16.51% $ 6,777 14.83%
Core/Leverage Capital $ 7,184 16.51% $ 6,777 14.83%
Tier 1 Risk-Based Capital $ 7,184 64.02% $ 6,777 52.29%
Total Risk-Based Capital $ 7,326 65.29% $ 6,950 54.24%
</TABLE>
43
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (in thousands).
<TABLE>
<CAPTION>
Net Income Capital
Year Ended as of
December 31, 1997 December 31, 1997
----------------- -----------------
<S> <C> <C>
Per GAAP $ 332 $ 7,185
======== =======
Total Assets $43,518
Capital Ratio 16.51%
<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 $ 7,185 $ 7,185 $ 7,185 $ 7,185 $ 7,185
Assets required
to be added
Unrealized Loss
on Securities
Available-
for-Sale 1 1 1 1 1
General valuation
allowance - - - - 142
---------- ---------- --------- ---------- ---------
Regulatory capital
measure $ 7,184 $ 7,184 $ 7,184 $ 7,184 $ 7,326
========== ========== ========= ========== =========
Adjusted total
assets $ 43,517 $ 43,517 $ 43,517
========== ========== =========
Risk-weighted
assets $ 11,221 $ 11,221
========== =========
Capital Ratio 16.51% 16.51% 16.51% 64.02% 65.29%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
===== ===== ===== ===== =====
Required Capital $ 653 $ 1,306 $ 898
========== ========= =========
Excess Capital $ 6,531 $ 5,878 $ 6,428
========== ========= =========
</TABLE>
44
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 $70,311 for 1997. The ESOP
shares as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Allocated Shares ............................................... 2,592
Shares Released for Allocation ................................. 5,954
Unreleased Shares .............................................. 43,296
--------
Total ESOP Shares .............................................. 51,842
Fair Value of Unreleased Shares at December 31, 1997 ........... $726,000
========
</TABLE>
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.
45
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R
RECOGNITION AND RETENTION PLAN
On July 18, 1997, the Associated established a Recognition and
Retention Plan as an incentive to retain personnel of experience and
ability in key positions. The Association approved a total of 25,921
shares of stock to be acquired for the plan. As of December 31, 1997,
no shares have been acquired nor awarded.
Plan share awards are earned by recipients at a rate of 20% of
the aggregate number of shares covered by the plan over five years. If
the employment of an employee or service as a non-employee director is
terminated prior to the fifth anniversary of the date of grant of plan
share award for any reason, the recipient shall forfeit the right to
any shares subject to the award which have not been earned. The total
cost associated with the plan is based on the market price of the stock
as of the date on which the plan shares were granted. For 1997,
compensation expense pertaining to the Recognition and Retention plan
was $0 as no shares were granted.
As shares are acquired for the plan, the purchase price of
these shares is recorded as unearned compensation, a contra equity
account. As the shares are distributed, the contra equity account is
reduced.
NOTE S
STOCK OPTION PLAN
In 1997, the Association adopted a stock option plan for the
benefit of directors, officers, and other key employees. The number of
shares of common stock reserved for issuance under the stock option
plan was equal to 64,802 shares, or ten percent, of the total number of
shares of common shares sold in the Association's initial public
offering of its common stock. The option exercise price cannot be less
than the fair value of the underlying common stock as of the date of
the option grant and the maximum option term cannot exceed ten years.
The stock option plan also permits the granting of Stock
Appreciation Rights ("SAR's"). SAR's entitle the holder to receive, in
the form of cash or stock, the increase in the fair value of Company
stock from the date of grant to the date of exercise. No SAR's have
been issued under the plan.
<PAGE>
The following table summarizes the activity related to stock
options:
<TABLE>
<CAPTION>
Exercise Available Options
Price for Grant Outstanding
----- --------- -----------
<S> <C> <C> <C>
At Inception ...................... $ -- 64,802 --
Granted ........................... -- --
Canceled .......................... -- --
Exercised ......................... -- --
------- ------
At December 31, 1997 .............. 64,802 --
======= ======
</TABLE>
46
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T
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
Association's financial statements. Management does not anticipate any
material loss as a result of these transactions. Commitments to extend
credit totaled approximately $62,000 on one to four family mortgage
loans, and stand-by letters of credit totaled $40,000 at December 31,
1997.
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
Association 's Statement of Financial Conditon.
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.
47
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE U
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, the 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 (in thousands):
<TABLE>
<CAPTION>
December 31, 1997
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Financial Assets
Cash and Short-Term Investment ............... $ 2,555 $ 2,555
Investment Securities ........................ 4,093 4,087
Loans and Mortgage Backed Securities ......... 37,643 34,868
Financial Liabilities
Deposits ..................................... $35,534 $35,661
</TABLE>
48
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V
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 initially
reserved for 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 W
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 well capitalized
financial institution which exceed the federally insured limits by
$376,000.
NOTE X
DIVIDEND DECLARED
On December 16, 1997, the board of directors of Algiers
Bancorp declared a $.05 per share dividend to stockholders of record at
January 3, 1998 to be payable on January 16, 1998. The total dividend
payable recorded is $31,000.
NOTE Y
STOCKHOLDERS' EQUITY
Common Stock - Par value $.01; 10,000,000 shares authorized,
648,025 shares issued and 614,624 are outstanding as of December 31,
1997.
Preferred Stock - Par value $.01; 5,000,000 shares authorized,
0 shares issued and outstanding in 1997.
Treasury Stock - Par value $.01; 33,901 shares at December 31,
1997.
NOTE Z
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average
number of shares outstanding which was 574,423 in 1997. Common stock
dividends of $.05 per share were paid on January 16, 1998 to
stockholders of record as of January 3, 1998.
49
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE AA
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 $241,000. Net of related tax benefits
the one-time special assessment amounted to $159,000 or $.26 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 Association.
NOTE BB
COMMITMENTS AND CONTINGENCIES
The Association is currently involved in litigation concerning
a labor and personnel dispute, which has not yet been resolved. As of
the date of this report, it is not possible to determine the outcome of
this dispute; however, management and the Association's legal counsel
believe that any outcome would have an insignificant impact on the
Association's financial statements.
50
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
CONDENSED BALANCE SHEET
December 31, 1997 and 1996
(Dollars in Thousands)
December 31,
------------------
1997 1996
------ ------
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 879 $1,025
Investments Available-for-Sale - at Fair Value 2 476
Loans Receivable 116 --
Mortgage-Backed Securities - Available-for-Sale -
at Fair Value 841 1,048
Investment in Subsidiaries 7,341 3,038
ESOP Loan Receivable 455 518
Due from Subsidiaries -- 7
Accrued Interest Receivable 10 33
Fixed Assets 21 --
Deferred Tax Asset -- 1
------ ------
Total Assets $9,665 $6,146
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to Subsidiary $ 51 $ 20
Dividends Payable 31 32
Deferred Tax Liability 4 --
Advance Payments for Taxes & Insurance 19 --
Income Tax Payable 17 21
------ ------
Total Liabilities 122 73
------ ------
Total Stockholders' Equity 9,543 6,073
------ ------
Total Liabilities and Stockholders' Equity $9,665 $6,146
====== ======
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
For The For The Six
Year Ended Months Ended
December 31, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Mortgage-Backed Securities $ 75 $ 4
ESOP Loan 41
Investment Securities 57 31
Loans and Fees 13 21
----- -----
Total Interest Income 186 56
----- -----
Income (Loss) in Subsidiary-Algiers Homestead
Association 332 (39)
Loss in Subsidiary-Jefferson Community Lending (179) (7)
Miscellaneous Income 10 3
----- -----
Total Non-Interest Income 163 (43)
----- -----
General and Administrative 122 5
----- -----
INCOME TAX EXPENSE 227 8
16 18
----- -----
$ 211 $ (10)
===== =====
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
ALGIERS BANCORP, INC.
STATEMENTS OF CASH FLOWS
For The For The Six
Year Ended Months Ended
December 31, December 31,
1997 1996
------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 211 $ (10)
Adjustments to Reconcile Net Income (Loss) to Net
Cash (Used in) by Operating Activities:
Increase in Due to Subsidiaries 31 20
Decrease (Increase) in Accrued Interest Receivable 23 (33)
Decrease (Increase) in Due from Subsidiaries 7 (7)
Increase in Advance Payments for Taxes & Insurance 19 --
(Decrease) Increase in Income Tax Payable (4) 21
Decrease (Increase) in Deferred Income Taxes 5 (2)
------- -------
Net Cash Provided by (Used in) Operating Activities 292 (11)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Loans Receivable - Net (116) --
Purchases of Investment Securities - Available-for-Sale (2) (474)
Maturities of Investment Securities - Available-for-Sale 476 --
Purchases of Mortgage-Backed Securities - Available-for-Sale -- (1,058)
Maturities of Mortgage-Backed Securities - Available-for-Sale 207 12
Investments in Subsidiaries (4,303) (3,038)
------- -------
Net Cash (Used in) Investing Activities (3,738) (4,558)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock -- 6
Contribution of Additonal Paid-in Capital 3,346 6,108
Dividends Paid (112) --
Loan to Subsidiary for ESOP -- (518)
Repayments of ESOP Loan 64 --
------- -------
Net Cash Provided by Financing Activities 3,298 5,596
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (148) 1,027
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1,027 --
------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 879 $ 1,027
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest $ -- $ --
Income Taxes $ 45 $ --
</TABLE>
53
<PAGE>
BOARD OF DIRECTORS
ALGIERS BANCORP, INC.
NEW ORLEANS, LOUISIANA
Thomas M. Arnold, Sr.
Assessor, Orleans Parish
Thu Dang
Travel Agent
Self - employed
John H. Gary, III
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
54
<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 504-367-8222 504-367-8223 (FAX)
Dennis J. McCluer BANKING OFFICES
Vice President and
Chief Operating Officer # 1 Westbank Expressway
New Orleans, LA 70114
Hugh E. Humphrey, III 504-367-8222 504-367-8223 (FAX)
Secretary and Treasurer
2021 Carol Sue Avenue
Francis M. Minor, Jr. Terrytown, LA 70056
Chief Financial Officer 504-362-4567 504-362-9145 (FAX)
55
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 482
<INT-BEARING-DEPOSITS> 2,073
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,702
<INVESTMENTS-CARRYING> 21,830
<INVESTMENTS-MARKET> 21,580
<LOANS> 9,198
<ALLOWANCE> 485
<TOTAL-ASSETS> 45,312
<DEPOSITS> 35,534
<SHORT-TERM> 0
<LIABILITIES-OTHER> 242
<LONG-TERM> 0
0
0
<COMMON> 6
<OTHER-SE> 9,530
<TOTAL-LIABILITIES-AND-EQUITY> 45,312
<INTEREST-LOAN> 822
<INTEREST-INVEST> 2,212
<INTEREST-OTHER> 106
<INTEREST-TOTAL> 3,140
<INTEREST-DEPOSIT> 1,722
<INTEREST-EXPENSE> 1,751
<INTEREST-INCOME-NET> 1,389
<LOAN-LOSSES> (45)
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 1,413
<INCOME-PRETAX> 259
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> 0
<LOANS-NON> 636
<LOANS-PAST> 799
<LOANS-TROUBLED> 18
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 530
<CHARGE-OFFS> (45)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 485
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 197
</TABLE>
