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
For the fiscal year ended December 31, 1998
___ 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) (Zip Code)
Issuer's telephone number: (504) 367-8221
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock (par value $.01 per share)
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. _ X_
Issuer's revenues for the fiscal year ended December 31, 1998 were $3.3 million
As of April 20, 1999, the aggregate market value of the 453,817 shares of
Common Stock of the Issuer held by non-affiliates, which excludes 63,431 shares
held by all directors, executive officers and employee benefit plans of the
Issuer, was approximately $4.7 million. This figure is based on the average
of the bid and asked prices of $10.25 per share of the Issuer's Common Stock
on April 20, 1999.
Number of shares of Common Stock outstanding on April 20, 1999: 517,248
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1999 Annual Meeting of
Stockholders have been incorporated into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes_____ No _ X_
<PAGE>
ALGIERS BANCORP, INC.
ANNUAL REPORT ON FORM 10-KSB FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business 1
Item 2. Description of Properties 33
Item 3. Legal Proceedings 33
Item 4. Submission of Matters to a Vote of Security Holders 33
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 33
Item 6. Management's Discussion and Analysis or Plan of Operation 34
Item 7. Financial Statements 43
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 82
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a)
of the Exchange Act 82
Item 10. Executive Compensation 82
Item 11. Security Ownership of Certain Beneficial Owners
and Management 82
Item 12. Certain Relationships and Related Transactions 82
Item 13. Exhibits and Reports on Form 8-K 82
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
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 currently
conducts business from its main office in New Orleans, Louisiana and a branch
office in Terrytown, Louisiana, with a third branch opening during the first
quarter of 1999. At December 31, 1998, the Company had $48.6 million of total
assets, $40.0 million of total liabilities, including $39.5 million of
deposits, and $8.6 million of total stockholders' equity (representing 17.6% 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 Association sells into the secondary market
the majority of the loans which it originates. The Company had $27.4 million
of mortgage-backed securities at December 31, 1998, representing 56.3% of the
Company's total assets. At December 31, 1998, the Company's net loans
receivable totalled $9.3 million or 19.1% of the Company's total assets.
Conventional first mortgage, one- to four-family residential loans (excluding
construction loans) amounted to $7.8 million or 79.6% of the Company's total
loan portfolio at December 31, 1998. To a lesser extent, the Company also
originates consumer loans, construction loans and commercial real estate loans.
The Company had $5.3 million of investment securities (excluding FHLB stock) at
December 31, 1998, representing 10.9% of total assets. Of the $5.3 million of
investment securities, $117,000 or 2.2% mature within five years of December
31, 1998.
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.
* Capital Position. As of December 31, 1998, the Association had total
stockholder's equity of $7.6 million and exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 15.6%, 15.6%
and 53.3%, respectively, as compared to the minimum requirements of 1.5%, 3.0%
and 8.0%, respectively.
* Profitability. The Company has been profitable in each of the last
three years. Net income decreased from $211,000 in 1997 to $161,000 in 1998,
including a net loss of $29,000 sustained by the Company's 70% owned subsidiary
Jefferson Community Lending, LLC ("Jefferson Lending"). Net income increased
in 1997 to $211 ,000 from $157,000 in 1996.
* 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 $805,000
or 1.7% of total assets at December 31, 1998, compared to $636,000 or 1.4% of
total assets at December 31, 1997 due to the delinquency of a commercial loan
with a balance of $500,000. See "-Asset Quality-Classified Assets." At
December 31, 1998, the Company's allowance for loan losses amounted to $506,000
or 5.1% of the total loan portfolio.
* 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, 1998, ARMs amounted to $7.1 million or 71.9% of
the total loan portfolio. In addition, of the $27.4 million of mortgage-backed
securities at December 31, 1998, $22.8 million or 83.2% have adjustable
interest rates.
* 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, 1998, most of the Association's loans were to
residents of its primary market area. The Association intends to continue its
practice of investing in loans in its primary market area in accordance with
its underwriting standards, subject to economic conditions and the availability
of reasonable investment alternatives.
The Association is subject to examination and comprehensive regulation by
the Louisiana Office of Financial Institutions ("OFI"), which is the
Association's chartering authority, and by the Office of Thrift Supervision
("OTS"), which is the Association's primary federal regulator. The Association
is also regulated by the Federal Deposit Insurance Corporation ("FDIC"), the
administrator of the Savings Association Insurance Fund ("SAIF"). The
Association is also subject to certain reserve requirements established by the
Board of Governors of the Federal Reserve System ("FRB") and is a member of the
Federal Home Loan Bank ("FHLB") of Dallas, which is one of the 12 regional
banks comprising the FHLB System.
The executive office for the Company and the Association is located at
1 Westbank Expressway, New Orleans, Louisiana 70114, and its telephone number
is (504) 367-8221.
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.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. At December 31, 1998, the Company's net loan
portfolio totalled $9.3 million, representing approximately 19.2% of the
Company's $48.6 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, 1998, conventional first mortgage, one- to four-family
residential loans (excluding construction loans) amounted to $7.8 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, 1998, there were no construction loans,
commercial real estate loans totalled $686,000 or 6.9% of the total loan
portfolio, and consumer loans amounted to $1.3 million or 13.5% of the total
loan portfolio, in each case before net items.
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
------------------------------------------------------------
1998 1997 1996
---------------- ------------------ -----------------
Amount % Amount % Amount %
-------- ----- ------- ------ ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family
residential:
Conventional $ 7,816 79.3% $ 8,018 79.3% $ 8,134 82.9%
FHA and VA 27 .3 41 0.4 51 0.5
Construction - - 43 0.4 89 0.9
Commercial real estate 686 6.9 738 7.3 668 6.8
-------- ----- ------- ------ ------- -----
Total real estate loans 8,529 86.5 8,840 87.4 8,942 91.1
-------- ----- ------- ------ ------- -----
Consumer loans:
Second mortgage 360 3.7 189 1.9 175 1.8
Other consumer loans 400 4.1 325 3.2 - -
Loans on deposits 566 5.7 758 7.5 694 7.1
-------- ----- ------- ------ ------- -----
Total consumer loans 1,326 13.5 1,272 12.6 869 8.9
-------- ----- ------- ------ ------- -----
Total loans 9,855 100.0% 10,112 100.0% 9,811 100.0%
======== ===== ======= ====== ======= =====
Less:
Unearned discounts and interest - 73 7
Undisbursed portion of loans - 301 7
Deferred loan fees 52 55 47
Allowance for loan losses 506 485 530
-------- ------- -------
Net loans $ 9,297 $ 9,198 $ 9,220
======== ======= =======
</TABLE>
CONTRACTUAL TERMS TO FINAL MATURITIES. The following table sets forth
certain information as of December 31, 1998 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, 1998 is shown in the appropriate year
of the loan's final maturity.
<TABLE>
<CAPTION>
One-to
four family Commercial
Residentail Construction Real Estate Consumer Total
----------- ------------ ----------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due after December 31, 1998 in:
One year or less $ 3,827 $ - $ 13 $ 337 $ 4,177
After one year through two years - - - - -
After two years through three years 24 - - 19 43
After three years through five years 34 - - 37 71
After five years through ten years 956 - 668 77 1,701
After ten years through fifteen years 1,527 - 5 288 1,820
After fifteen years 1,475 - - 568 2,043
-------- -------- ------ -------- ---------
Total <F1> $ 7,843 $ - $ 686 $ 1,326 $ 9,855
======== ======== ====== ======== =========
<FN>
<F1> Gross of loans in process, deferred loan fees, unearned discounts and
interest, and allowance for loan losses.
</FN>
</TABLE>
The following table sets forth the dollar amount of all loans, before
net items, due after one year from December 31, 1998 as shown in the
preceding table, which have fixed interest rates or which have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In Thousands)
<S> <C> <C> <C>
One-to four-family residential $ 1,701 $ 2,315 $ 4,016
Commercial real estate - 673 673
Consumer 471 518 989
------- ------- -------
Total $ 2,172 $ 3,506 $ 5,678
======= ======= =======
</TABLE>
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.
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.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Loan originations:
One-to four-family residential $ 1,709 $ 1,167 $ 802
Construction 405 43 89
Commercial real estate - 28 108
Consumer 804 1,105 1,166
-------- ------- -------
Total loan originations: 2,918 2,343 2,165
Loan principal repayments (2,714) (2,042) (2,844)
Increase (decrease) due to other
items, net <F1> (105) (323) 216
-------- ------- -------
Net increase (decrease) in
loan portfolio $ 99 $ (22) $ (463)
======== ======= =======
<FN>
<F1> Other items consist of loans in process, deferred loan fees
unearned discounts and interest, and allowance for loan losses.
</FN>
</TABLE>
REAL ESTATE LENDING STANDARDS AND UNDERWRITING POLICIES. Effective
March 19, 1993, all financial institutions were required to adopt and
maintain comprehensive written real estate lending policies that are
consistent with safe and sound banking practices. These lending policies
must reflect consideration of the Interagency Guidelines for Real Estate
Lending Policies adopted by the federal banking agencies, including the
OTS, in December 1992 ("Guidelines"). The Guidelines set forth uniform
regulations prescribing standards for real estate lending. Real estate
lending is defined as extensions of credit secured by liens on interests in
real estate or made for the purpose of financing the construction of a
building or other improvements to real estate, regardless of whether a lien
has been taken on the property.
An institution's lending policy must address certain lending
considerations set forth in the Guidelines, including loan-to-value ("LTV")
limits, loan administration procedures, underwriting standards, portfolio
diversification standards, and documentation, approval and reporting
requirements. The policy must also be appropriate to the size of the
institution and the nature and scope of its operations, and must be
reviewed and approved by the institution's board of directors at least
annually. The LTV ratio framework, with the LTV ratio being the total
amount of credit to be extended divided by the appraised value or purchase
price of the property at the time the credit is originated, must be
established for each category of real estate loans. If a loan is not
secured by a first lien, the lender must combine all senior liens when
calculating this ratio. The Guidelines, among other things, establish the
following supervisory LTV limits: raw land (65%); land development (75%);
construction (commercial, multi-family and nonresidential) (80%); improved
property and one- to four-family residential construction (85%); and one-
to four-family (owner occupied) and home equity (no maximum ratio; however,
any LTV ratio in excess of 90% should require appropriate insurance or
readily marketable collateral).
Certain institutions can make real estate loans that do not conform
with the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one-to-four family residential
properties should not exceed 30% of total capital. An institution will
come under increased supervisory scrutiny as the total of such loans
approaches these levels. Certain loans are exempt from the LTV ratios
(e.g., those guaranteed by a government agency, loans to facilitate the
sale of real estate owned, loans renewed, refinanced or restructured by the
original lender(s) to the same borrower(s) where there is no advancement of
new funds, etc.).
The Association is in compliance with the above standards.
Although Louisiana laws and regulations permit state-chartered
savings institutions, such as the Association, to originate and purchase
loans secured by real estate located throughout the United States, the
Association's present lending is done primarily within its primary market
area, which consists of Orleans, Jefferson and Plaquemines Parishes in
Louisiana. Subject to the Association's loans-to-one borrower limitation,
the Association is permitted to invest without limitation in residential
mortgage loans and up to 400% of its capital in loans secured by non-
residential or commercial real estate. The Association may also invest in
secured and unsecured consumer loans in an amount not exceeding 35% of the
Association's total assets. This 35% limitation may be exceeded for
certain types of consumer loans, such as home equity and property
improvement loans secured by residential real property. In addition, the
Association may invest up to 10% of its total assets in secured and
unsecured loans for commercial, corporate, business or agricultural
purposes. At December 31, 1998, 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, 1998,
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, $434,000, $265,000,
$225,000 and $210,000, 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, 1998. All of these loans
were current at December 31, 1998, 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,
1998, $7.8 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, 1998, one- to four-family residential ARMs represented $6.1 million or
61.9% of the total loan portfolio, before net items.
The Association's one- to four-family residential ARMs are fully
amortizing loans with contractual maturities of up to 30 years. These
loans have interest rates which are scheduled to adjust periodically in
accordance with a designated index. The Association currently offers ARMs
on which the interest rate adjusts every year based upon the monthly median
cost of funds for SAIF-insured institutions, plus a specified margin. The
margin above the cost of funds index is generally 2.65%. There is a 2% cap
on the rate adjustment per period and a 6% cap on the rate adjustment over
the life of the loan. The Association has originated ARMs using other
indexes in the past. The adjustable-rate loans in the Association's loan
portfolio are not convertible by their terms into fixed-rate loans, are not
assumable without the Association's consent, do not contain prepayment
penalties and do not produce negative amortization.
The Association qualifies borrowers based on the initial interest
rate on the ARM rather than the fully indexed rate. In a rising interest
rate environment, the interest rate on the ARM will increase on the next
adjustment date, resulting in an increase in the borrower's monthly
payment. To the extent the increased rate adversely affects the borrower's
ability to repay his loan, the Association is exposed to increased credit
risk. As of December 31, 1998, the Association's non-accruing residential
loans were $237,000. 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. The Association currently offers fixed
rate products with maturities up to 30 years.
CONSTRUCTION LOANS. At December 31, 1998, construction loans are not
being actively marketed and are offered primarily as a service to existing
customers. There are no construction loans in the Association's portfolio
at December 31, 1998.
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 $686,000 or 6.9% of the total loan portfolio at December 31, 1998. The
largest commercial real estate loan at December 31, 1998 was $500,000
(gross of a $261,000 reserve), and the balance of such loan at December
31, 1998 was $500,000. See "-Asset Quality - Nonperforming Assets." The
remaining commercial real estate loan portfolio at December 31, 1998
consisted of five loans with an average balance of $37,000.
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 location of the real estate and the quality of the property
management. The Company originated no commercial real estate loans in 1998
and $28,000 in 1997.
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, automobile 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, 1998, loans on deposits amounted to
$566,000, representing 49.2% of total consumer loans and 5.7% 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 $360,000 or 3.7% of
the total loan portfolio at December 31, 1998. 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.
The Company's other consumer loans consisted of eleven loans in the
aggregate amount of $400,000 or 4.1% of the total loan portfolio at
December 31, 1998. The largest of these loans in the amount of $225,000 or
2.3% of the total loan portfolio at December 31, 1998 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 received approval
as an FHA Lender. This designation authorizes the Association to make all
types of government loans for sale in the secondary market. In addition,
the Association offers FHA Title I home improvement loans. As of December
31, 1998, the Association had two commissioned loan originator and a loan
processor on its staff. 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 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, 1998, the Company had approximately $52,000 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, 1998, 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 31,1998
---------------------------------------------------------------------------
30-59 60-89 90 or more Days
Days Overdue 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 $ 834 8.46% $ 183 1.86% $ 431 4.37%
Commercial real estate loans - - - - 508 5.15
Consumer loans 88 0.89 14 0.14 429 4.35
-------- ---- ------- ---- ------- -----
Total delinquent loans $ 922 9.35% $ 197 2.00% $ 1,368 13.87%
======== ==== ======= ==== ======= =====
</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, 1998, the
Association had one loan 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.
The following table sets forth the amount of the Company's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
------- ------ ------
(Dollars In Thousands)
<S> <C> <C> <C>
Total nonperforming assets:
Non-accruing loans $ 737 $ 636 $ 52
Real estate owned, net <F1> 62 - 45
------ ------- ------
Total nonperforming assets $ 799 $ 636 $ 97
====== ======= ======
Troubled debt restructurings $ 6 $ 18 $ -
====== ======= ======
Total nonperforming loans and
troubled debt restructurings
as a percentage of total loans 8.20% 6.47% 0.53%
Total nonperforming loans and
troubled debt restructurings
as a percentage of total assets 1.70% 1.44% 0.20%
======= ======== =======
<FN>
<F1> Net of related loss allowances as of each date shown, which allowances
at December 31, 1998 and 1997 amounted to $35,000 and $90,000,
respectively, for real estate owned.
</FN>
</TABLE>
The $737,000 of non-accruing loans at December 31, 1998 consisted of
two one-to four- family residential loans for $237,000 and one commercial
real estate loan for $500,000. The largest non-accruing loan at December
31, 1998 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, 1998. The collateral was
previously foreclosed upon by the Association, and the borrower repurchased
the real estate owned property rom 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 1998, 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, 1998 was
classified as substandard. The Company's management is closely monitoring
this loan and has placed the loan in the hands of the Company's attorney
for foreclosure. 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, 1998 the Company's real estate owned
consisted of one one- to four-family residential property and unimproved
land. The $62,000 of real estate owned at December 31, 1998 is net of a
$35,000 allowance for loss. See Note H of Notes to Consolidated Financial
Statements.
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, 1998 (excluding loss assets specifically reserved
for amounted to $1,005,000, of which $38,000 was classified as special
mention and $967,000 was classified as substandard. The largest classified
asset at December 31, 1998 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 $467,000 of substandard assets at December 31, 1998
consisted of (1) residential mortgage loans totalling $232,000, of which
the largest loan had a balance of $107,000 at December 31, 1998, (2) one
commercial loan with a balance of $10,000 which is fully reserved and (3)
one consumer loan with a balance of $225,000 secured by a boat. The
$107,000 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, 1998, the Company's
allowance for loan losses amounted to $506,000 or 5.1% 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.
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,
1998 1997 1996
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Total loans outstanding $ 9,885 $ 10,112 $ 9,811
======== ======== ========
Allowance for loan losses, beginning of period $ 482 $ 527 531
Provision (credit) for loan losses 24 (45) (4)
Loans charged-off (recovered) <F1> - - -
-------- -------- --------
Allowance for loan losses, end of period $ 506 $ 482 $ 527
======== ======== ========
Allowance for loan losses as a percent of
total loans outstanding 5.10% 4.80% 5.37%
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings 68.1% 74.16% 1,011.54%
<FN>
<F1> There were no loan charge-off or recoveries in 1998, 1997 and 1996.
</FN>
</TABLE>
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,
----------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------ -----------------------
Loan Loan Loan
Category Category Category
Amount as a % of Amount as a % of Amount as a % of
of Total of Total of Total
Allowance Loans Allowance Loans Allowance Loans
------------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
One-to four-family residential $ 214 81.4% $ 211 79.7% 299 83.4%
Construction - - - 0.4 3 0.9
Commercial real estate 272 6.9 271 7.3 229 6.8
Consumer 20 11.7 - 12.6 - 8.9
------- -------- ------- --------- ------- ---------
Total $ 506 100.0% $ 482 100.0% $ 531 100.0%
======= ======== ======= ========= ======= =========
</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.
The $27.4 million of mortgage-backed securities at December 31, 1998
were 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 F of Notes to Consolidated Financial
Statements.
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,
-------------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities held to maturity:
FNMA $ - $ 15,256 $ 16,684
FHLMC - 3,773 3,927
GNMA - 2,801 3,199
-------- -------- --------
Subtotal - 21,830 23,810
-------- -------- --------
Mortgage-backed securities available for sale:
FNMA 16,476 4,963 5,415
FHLMC 3,941 1,142 2,761
GNMA 6,975 510 901
-------- -------- --------
Subtotal 27,392 6,615 9,077
-------- -------- --------
Total $ 27,392 $ 28,445 $ 32,887
======== ======== ========
</TABLE>
Information regarding the contractual maturities and weighted average
yield of the Company's mortgage-backed securities portfolio at December 31,
1998 is presented below. Due to repayments of the underlying loans, the
actual maturities of mortgage-backed securities generally are substantially
less than the scheduled maturities.
<TABLE>
<CAPTION>
Amounts at December 31, 1998 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 $ - $ - $ - $ - $ -
GHLMC - - - - -
GNMA - - - - -
------- --------- ------- --------- --------
Total $ - $ - $ - $ - $ -
======= ========= ======= ========= ========
Weighted average yield - % - % - % - % - %
======= ========= ======= ========= ========
Available for sale:
FNMA $ 53 $ 1,435 $ 28 $ 14,960 $ 16,476
FHLMC - 12 62 3,867 3,941
GNMA - 162 12 6,801 6,975
------- --------- ------- --------- --------
Total $ 53 $ 1,609 $ 102 $ 25,628 $ 27,392
======= ========= ======= ========= ========
Weighted average yield 6.61% 6.97% 9.41% 6.49% 6.53%
======== ========== ======== ========== ========
Total mortgage-backed
securities
FNMA $ 53 $ 1,435 $ 28 $ 14,960 $ 16,476
FHLMC - 12 62 3,867 3,941
GNMA - 162 12 6,801 6,975
------- --------- ------- ---------
Total $ 53 $ 1,609 $ 102 $ 25,628 $ 27,392
======= ========= ======= ========= ========
Weighted average yield 6.61% 6.97% 9.41% 6.49% 6.53%
======= ========= ======= ========= ========
</TABLE>
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,
-------------------------------------------
1998 1997 1996
--------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage-backed securities
at beginning of period $ 28,445 $ 32,918 $ 28,149
Purchases 5,538 969 8,360
Repayments (5,578) (3,769) (3,719)
Sales (1,136) (1,650) -
Mark to market adjustment 197 54 -
Amortizations of premiums and
discounts, net (74) (77) 128
--------- --------- --------
Mortgage-backed securities at
end of period $ 27,392 $ 28,445 $ 32,918
========= ========= ========
Weighted average yield at
end of period 6.53% 6.58% 6.59%
========= ========= =========
</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 $5.3 million
or 10.9% of total assets at December 31, 1998. All $5.3 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 $5.3 million of investment securities, $117,000 or
2.2% mature within five years of December 31, 1998.
The following table sets forth certain information relating to the
Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ---------------------
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 $ - $ - $ - $ - $ - $ -
FHLB notes 2,749 2,749 2,787 2,785 1,999 1,992
FNMA notes 734 734 200 200 325 325
FHLMC notes 1,454 1,454 1,100 1,100 150 151
Other 367 367 - - - -
Southeast Texas Housing Finance
Authority <F1> - - - - 43 43
Louisiana Agricultural Finance
Authority <F1> - - - - 19 19
-------- -------- -------- -------- -------- --------
Subtotal 5,304 5,304 4,087 4,085 2,536 2,530
Less:
Allowance for loss - - - - 62 62
Discount on securities - - - - 2 2
-------- -------- -------- -------- -------- --------
Total available for sale 5,304 5,304 4,087 4,085 2,472 2,466
-------- -------- -------- -------- -------- --------
Held to maturity
Louisiana Public Facility
Authority - - - - - -
FHLB notes - - - - 425 425
Federal Farm Credit Bank - - - - 200 200
Certificates of deposit - - - - - -
Sallie Mae - - - - 200 200
FHLB stock 512 512 483 483 455 455
-------- -------- -------- -------- -------- --------
Total held to maturity 512 512 483 483 1,280 1,280
-------- -------- -------- -------- -------- --------
Total $ 5,816 $ 5,816 $ 4,570 $ 4,568 $ 3,752 $ 3,746
======== ======== ======== ======== ======== ========
<FN>
<F1> Gross of a related allowance for loss.
</FN>
</TABLE>
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, 1998. No tax-exempt
yields have been adjusted to a tax-equivalent basis.
<TABLE>
<CAPTION>
Amounts at December 31, 1998 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 $ - - $ - - $ 2,749 6.45%
FNMA notes - - - - 735 6.96
FHLMC notes - - - - 1,453 6.52
Other - - - - 250 6.75
--------- ----------- ---------- --------- ---------- ------------
Subtotal - - - - 5,187 6.56
Equity securities: - - - - - -
Other 117 - - - - -
FHLB stock <F1> - - - - 512 6.00
--------- ----------- ---------- --------- ---------- ------------
Total $ 117 - % $ - - % $ 5,699 6.51%
========= =========== ========== ========= ========== ==========
<FN>
<F1> As a member of the FHLB of Dallas, the Association is required to
maintain its investment in FHLB stock, which has no stated
maturity.
</FN>
</TABLE>
At December 31, 1998, 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 $2.7 million at December 31, 1998 and FHLMC notes which had both a
carrying value and a market value of $1.5 million at December 31, 1998
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.
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
$4.3 million or 10.9% of total deposits at December 31, 1998. Deposit
account terms vary, with the principal differences being the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate.
The large variety of deposit accounts offered by the Association has
increased the Association's ability to retain deposits and allowed it to be
more competitive in obtaining new funds, but has not eliminated the threat
of disintermediation (the flow of funds away from savings institutions
into direct investment vehicles such as government and corporate
securities). During periods of high interest rates, deposit accounts that
have adjustable interest rates have been more costly than traditional
passbook accounts. In addition, the Association is subject to short-term
fluctuations in deposit flows because funds in transaction accounts can be
withdrawn at any time and because 58.6% of the certificates of deposit at
December 31, 1998 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,
-----------------------------------------------------------------------------
1998 1997 1996
----------------------- ---------------------- ----------------------
Amount % Amount % Amount %
------------ -------- ----------- -------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2.00% - 2.99% $ - - % $ - - % $ 94 0.3%
3.00% - 3.99% - - 33 - - -
4.00% - 4.99% - - - - 6,957 19.0
5.00% - 5.99% 24,873 63.0 23,644 66.6 13,347 36.4
6.00% - 6.99% 5,942 15.0 2,293 6.5 5,544 15.1
7.00% - 7.99% - - 1,068 3.0 1,990 5.4
8.00% or more - - - - - -
-------- -------- -------- -------- ------- --------
Total certificate accounts 30,815 78.0 27,038 76.1 27,932 76.2
-------- -------- -------- -------- ------- --------
Transaction accounts:
Passbook savings 5,128 13.0 5,483 15.4 5,774 15.8
MMDAs 802 2.0 1,915 5.4 1,216 3.3
Demand and NOW accounts 2,750 7.0 1,098 3.1 1,713 4.7
-------- -------- -------- -------- ------- --------
Total transaction accounts 8,680 22.0 8,496 23.9 8,703 23.8
-------- -------- -------- -------- ------- --------
Total deposits $ 39,495 100.0% $ 35,534 100.0% $36,635 100.0%
======== ======== ======== ======== ======= ========
</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.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------ -----------------------
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 $ 5,295 2.63% $ 5,602 2.60% $ 6,856 2.56%
Demand and NOW accounts 1,413 2.10 1,893 2.20 1,716 2.20
MMDAs 993 2.55 1,210 2.40 1,475 2.41
Certificates of deposit 32,054 5.50 27,242 5.53 28,706 5.47
------------ ----------- ----------- ---------- ---------- ----------
Total interest-bearing deposits $ 39,755 4.92% $ 35,947 4.79% $38,753 4.69%
============ =========== =========== ========== ========== ==========
</TABLE>
The following table sets forth the savings flows of the Company
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) before interest credited <F1> 2,077 $ (2,657) $(3,001)
Interest credited 1,471 1,556 1,433
--------- --------- --------
Net increase (decrease) in deposits $ 3,548 $ (1,101) $(1,568)
========= ========= ========
<FN>
<F1> The information provided is net of deposits and withdrawals
because the gross amount of deposits and withdrawals is not readily
available.
</FN>
</TABLE>
The Association attempts to control the flow of deposits by pricing
its accounts to remain generally competitive with other financial
institutions in its market area, but does not necessarily seek to match the
highest rates paid by competing institutions. The Association has
generally not taken a position of price leadership in its markets, except
when there has been an opportunity to market longer term deposits.
The principal methods used by the Association to attract deposits
include the offering of a wide variety of services and accounts,
competitive interest rates and convenient office locations.
The Association does not advertise for deposits outside of its
primary market area. At December 31, 1998, 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, 1998 which mature
during the periods indicated.
<TABLE>
<CAPTION>
Balance at December 31, 1998
Maturing in the 12 Months Ending December 31,
---------------------------------------------
Certificates of Deposit 1999 2000 2001 THEREAFTER TOTAL
- ----------------------- -------- --------- -------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
3.00% - 3.99% $ 35 $ - - $ - $ 35
4.00% - 4.99% 4,535 238 350 33 5,156
5.00% - 5.99% 13,302 5,624 901 867 20,694
6.00% - 6.99% 127 512 426 2,941 4,006
7.00% - 7.99% 58 461 167 238 924
-------- -------- ------- ------- --------
Total certificate accounts $ 18,057 $ 6,835 $ 1,844 $ 4,079 $ 30,815
======== ======== ======= ======= ========
</TABLE>
The following table sets forth the maturities of the Company's
certificates of deposit of $100,000 or more at December 31, 1998 by time
remaining to maturity.
<TABLE>
<CAPTION>
Maturing During Quarter Ending: Amounts
- ------------------------------- -------
(In Thousands)
<S> <C>
March 31, 1999 $ 206
June 30, 1999 305
September 30, 1999 221
December 31, 1999 203
After December 31, 1999 1,628
Total certificates of deposit with ------------
balances of $100,000 or more $ 2,563
</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, 1998.
SUBSIDIARY
The Association is a wholly-owned subsidiary of the Company. At
December 31, 1998, 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 23, 1996, the Company acquired a 70% interest in
Jefferson Community Lending, which was engaged in the business of mortgage
lending. During 1998, the Company continued a restructuring plan to reduce
costs and increase future operating efficiencies by consolidating the
operations of Jefferson Community Lending into those of the Association
and commencing the dissolution of Jefferson Community Lending.
In January 1998, the Company formed Algiers.Com, Inc. Algiers.Com,
Inc. owns a 51% interest in Planet Mortgage, L.L.C. ("Planet Mortgage"),
which was formed during 1998. Planet Mortgage is engaged in the
solicitation of mortgage loans through its internet site at
www.planetmortgage.com.
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 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 17 full-time employees at
December 31, 1998, and has added three additional employees since that date
to staff the Association's new branch location which opened March 18, 1999.
None of these employees are represented by a collective bargaining agent,
and the Company believes that it enjoys good relations with its personnel.
REGULATION
THE COMPANY
GENERAL. The Company, as a registered savings and loan holding
company within the meaning of the Home Owners' Loan Act, as amended
("HOLA"), is subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding
company, the Association is subject to certain restrictions in its dealings
with the Company and affiliates thereof.
ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one
subsidiary savings institution. However, if the Director of the OTS
determines that there is reasonable cause to believe that the continuation
by a savings and loan holding company of an activity constitutes a serious
risk to the financial safety, soundness or stability of its subsidiary
savings institution, the Director may impose such restrictions as deemed
necessary to address such risk, including limiting (i) payment of dividends
by the savings institution; (ii) transactions between the savings
institution and its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings
institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the QTL
test, as discussed under "-The Association - Qualified Thrift Lender Test,"
then such unitary holding company also shall become subject to the
activities restrictions applicable to multiple savings and loan holding
companies and, unless the savings institution requalifies 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 affiliates are governed by Sections 23A and
23B of the Federal Reserve Act and OTS regulations. An affiliate of a
savings institution is any company or entity which controls, is controlled
by or is under common control with the savings institution. In a holding
company context, the parent holding company of a savings institution (such
as the Company) and any companies which are controlled by such parent
holding company are affiliates of the savings institution. Generally, such
provisions (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to
an amount equal to 10% of such institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates to
an amount equal to 20% of such capital stock and surplus and (ii) require
that all such transactions be on terms substantially the same, or at least
as favorable, to the institution or subsidiary as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions.
In addition to the restrictions imposed by such provisions, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except
for any affiliate which engages only in activities which are permissible
for bank holding companies, or (ii) purchase or invest in any stocks,
bonds, debentures, notes or similar obligations of any affiliate, except
for affiliates which are subsidiaries of the savings institution.
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, 1998, the Association was in compliance with the above
restrictions.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without
prior approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of a savings
institution or holding company thereof which is not a subsidiary. Except
with the prior approval of the Director of the OTS, no director or officer
of a savings and loan holding company or person owning or controlling by
proxy or otherwise more than 25% of such company's stock, may acquire
control of any savings institution, other than a subsidiary savings
institution, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in
the formation of a multiple savings and loan holding company which controls
savings institutions in more than one state if (i) the multiple savings and
loan holding company involved controls a savings institution which operated
a home or branch office located in the state of the institution to be
acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire
control of the savings institution pursuant to the emergency acquisition
provisions of the Federal Deposit Insurance Act ("FDIA"); or (iii) the
statutes of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by the state-chartered
institutions or savings and loan holding companies located in the state
where the acquiring entity is located (or by a holding company that
controls such state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, the FRB is authorized to
approve an application by a bank holding company to acquire control of a
savings institution. In addition, a bank holding company that controls a
savings institution may merge or consolidate the assets and liabilities of
the savings institution with, or transfer assets and liabilities to, any
subsidiary bank which is a member of the Bank Insurance Fund ("BIF") with
the approval of the appropriate federal banking agency and the FRB. As a
result of these provisions, there have been a number of acquisitions of
savings institutions by bank holding companies in recent years.
THE ASSOCIATION
GENERAL. The OFI is the Association's chartering authority, and the
OTS is the Association's primary federal regulator. The OTS and the OFI
have extensive authority over the operations of Louisiana-chartered savings
institutions. As part of this authority, savings institutions are required
to file periodic reports with the OTS and the OFI and are subject to
periodic examinations by the OTS, the OFI and the FDIC. The investment and
lending authority of savings institutions are prescribed by federal laws
and regulations, and such institutions are prohibited from engaging in any
activities not permitted by such laws and regulations. Such regulation and
supervision is primarily intended for the protection of depositors.
The OTS' enforcement authority over all savings institutions and
their holding companies includes, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe and unsound
practices. Other actions or inactions may provide the basis for
enforcement actions, including misleading or untimely reports filed with
the OTS.
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 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 1998 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, 1998. 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.
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, 1998, 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, 1998, 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
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest rate risk and 2.0%, multiplied by the
economic value of its assets. The rule also authorizes the Director of the
OTS, or his designee, to waive or defer an institution's interest rate risk
component on a case-by-case basis. The final rule was originally effective
as of January 1, 1994, subject however to a two quarter "lag" time between
the reporting date of the data used to calculate an institution's interest
rate risk and the effective date of each quarter's interest rate risk
component. However, in October 1994 the Director of the OTS indicated that
it would waive the capital deductions for institutions with a greater than
"normal" risk until the OTS published an appeals process. On August 21,
1995, the OTS released Thrift Bulletin 67 which established (i) an appeals
process to handle "requests for adjustments" to the interest rate risk
component and (ii) a process by which "well-capitalized" institutions may
obtain authorization to use their own interest rate risk model to determine
their interest rate risk component. The Director of the OTS indicated,
concurrent with the release of Thrift Bulletin 67, that the OTS will
continue to delay the implementation of the capital deduction for interest
rate risk pending the testing of the appeals process set forth in Thrift
Bulletin 67.
At December 31, 1998, the Association exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
15.6%, 15.6% and 53.3%, respectively. The following table sets forth the
Association's compliance with each of the above-described capital
requirements as of December 31, 1998.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital<F1> Capital<F2>
------------ -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Capital under GAAP $ 7,623 $ 7,623 $ 7,623
Additional capital items:
General valuation allowances<F3> - - 151
Net realized gain on securities available
for sale (207) (207) (207)
------------- -------------- --------------
Regulatory capital 7,416 7,416 7,567
Minimum required regulatory capital<F4> 714 1,428 1,136
------------- -------------- --------------
Excess regulatory capital $ 6,702 $ 5,988 $ 6,431
============= ============== ==============
Regulatory capital as a percentage 15.58% 15.58% 53.28%
Minimum capital required as a percentage<F4> 1.50% 3.00% 8.00%
------------- -------------- --------------
Regulatory capital as a percentage in excess
of requirements 14.08% 12.58% 45.28%
============= ============== ==============
<FN>
<F1> Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized." See " -Prompt
Corrective Action."
<F2> 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.
<F3> General valuation allowances are only used in the calculation
of risk-based capital. Such allowances are limited to 1.25% of
risk-weighted assets.
<F4> Tangible and core capital are computed as a percentage of
adjusted total assets of $47.6 million. Risk-based capital is
computed as a percentage of adjusted risk-weighted assets of
$14.2 million.
</FN>
</TABLE>
Effective November 28, 1994, the OTS revised its interim policy
issued in August 1993 under which savings institutions computed their
regulatory capital in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under the revised OTS policy,
savings institutions must value securities available for sale at amortized
cost for regulatory capital purposes. This means that in computing
regulatory capital, savings institutions should add back any unrealized
losses and deduct any unrealized gains, net of income taxes, on debt
securities reported as a separate component of GAAP capital. This change
in policy decreased the Association's regulatory capital at December 31,
1998 by approximately $207,000.
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, 1998, the Association was deemed a well capitalized
institution for purposes of the above regulations and as such is not
subject to the above mentioned restrictions.
SAFETY AND SOUNDNESS. 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, 1998, the Association's liquidity ratio was 13.0%.
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, 1998, the Association was a Tier 1 institution for
purposes of this regulation.
On December 5, 1994, the OTS published a notice of proposed
rulemaking to amend its capital distribution regulation. Under the
proposal, institutions would be permitted to only make capital
distributions that would not result in their capital being reduced below
the level required to remain "adequately capitalized," as defined above
under "-Prompt Corrective Action." Because the Association will be a
subsidiary of a holding company, the proposal would require the Association
to provide notice to the OTS of its intent to make a capital distribution.
The Association does not believe that the proposal will adversely affect
its ability to make capital distributions if it is adopted substantially as
proposed.
LOANS TO ONE BORROWER. The permissible amount of loans-to-one
borrower now generally follows the national bank standard for all loans
made by savings institutions. The national bank standard generally does
not permit loans-to-one borrower to exceed the greater of $500,000 or 15%
of unimpaired capital and surplus. Loans in an amount equal to an
additional 10% of unimpaired capital and surplus also may be made to a
borrower if the loans are fully secured by readily marketable securities.
For information about the largest borrowers from the Association, see
"Business - Lending Activities - Real Estate Lending Standards and
Underwriting Policies."
CLASSIFIED ASSETS. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition,
in connection with examinations of insured institutions, federal examiners
have authority to identify problem assets and, if appropriate, classify
them. There are three classifications for problem assets: "substandard,"
"doubtful" and "loss." Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets, with
the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently 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.
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, 1998,
the qualified thrift investments of the Association were approximately
81.72% 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 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, 1998,
the Association had $512,000 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, 1998, 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.
The Association is required by Louisiana law and regulations to
comply with certain reserve and capital requirements. At December 31,
1998, 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, 1998, 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, 1998, 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-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 1998
and 1999, the Company and the Association intend to file a consolidated
tax return.
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,
1998, 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, 1998, 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, 1998, 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-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,
1998, 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, 1995 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 1998, 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.
ITEM 2. DESCRIPTION OF PROPERTY.
At December 31, 1998, 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, 1998.
<TABLE>
<CAPTION>
Net Book Value of
DESCRIPTION/ADDRESS LEASED/OWNED PROPERTY
- ------------------- ------------ -----------------
<S> <C> <C>
Main Office:(In thousands)
# 1 Westbank Expressway
New Orleans, Louisiana 70114 Leased $ 478
Branch Office:
2021 Carol Sue Avenue
Terrytown, Louisiana 70056 Owned 184
---------
Total $ 662
=========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Association are involved in routine legal
proceedings occurring in the ordinary course of business which, in the
aggregate, are believed by management to be immaterial to the consolidated
financial condition and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's stock is not listed on any security exchange.
Therefore, the Company does not have exchange data that provides high and
low stock prices. The most recent sale of the Company's stock was on April
20, 1999 at $10.25 per share.
The payment of dividends on the common stock is subject to
determination and declaration by the Board of Directors of the Company.
The Board of Directors has adopted a policy of paying quarterly cash
dividends at a rate of $0.05 per share commencing with the Company's first
dividend paid in January 1997. The payment of future dividends will be
subject to the requirements of applicable law and the determination by the
Board of Directors that the Company's net income, capital and financial
condition, banking industry trends and general economic conditions justify
the payment of dividends, and it cannot be assured that dividends will
continue to be paid by the Company in the future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-
looking statements, including statements contained in the Company's filings
with the Securities and Exchange Commission and its reports to
stockholders. Statements made in this Annual Report, other than those
concerning historical information, should be considered forward-looking and
subject to various risks and uncertainties. Words such as "believe,"
"estimate," "project," "expect," "intend" and variations of such words and
similar expressions are intended to identify such forward-looking
statements. 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.
GENERAL
The profitability of Algiers Bancorp, Inc. (the "Company") and
Algiers Homestead Association (the "Association") depends primarily on net
interest income, which is the difference between interest and dividend
income on interest-earning assets, principally mortgage-backed securities,
loans and investment securities and interest expense on interest-bearing
deposits. Net interest income is dependent upon the level of interest
rates and the extent to which such rates are changing. Profitability also
is dependent, to a lesser extent, on the level of its noninterest income,
provision (credit) for loan losses, noninterest expense and income taxes.
Noninterest expense consists of general, administrative and other expenses,
such as compensation and benefits, occupancy and equipment expense, federal
insurance premiums, and miscellaneous other expenses.
ASSET AND LIABILITY MANAGEMENT
Consistent net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained
during periods of fluctuating market interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-
earning assets and interest-bearing liabilities which either reprice or
mature within a given period of time. The difference, or the interest rate
repricing "gap", provides an indication of the extent to which an
institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate
sensitive assets repricing or maturing within a specified period exceeds
the amount of interest-rate sensitive liabilities repricing or maturing
within such period, and is considered negative when the amount of interest-
rate sensitive liabilities repricing or maturing within a specified period
exceeds the amount of interest-rate sensitive assets repricing or maturing
within such period. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase
in net interest income while a positive gap within shorter maturities would
have the opposite effect. However, the effects of a positive or 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, 1998, the Association's
fixed-rate mortgage-backed securities amounted to $4.6 million or 9.5% of
total assets, its ARMs amounted to $7.1 million or 14.6% of total assets
and its adjustable-rate mortgage-backed securities amounted to $22.8
million or 46.9% 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, 1998, the Company would
not have been subject to any capital deduction as of December 31, 1998 if
the regulation had been effective as of such date. The following table
presents the Company's NPV as of December 31, 1998, as calculated by the
OTS, based on information provided to the OTS by the Association.
<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 <F1>
- --------------- -------- ---------- ---------- ---------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $ 6,067 $ (1,615) -21% 13.4 -2.43%
300 6,470 (1,211) -16% 14.1 -1.79%
200 6,855 (826) -11% 14.7 -1.20%
100 7,243 (439) -6% 15.2 -0.63%
Static 7,682 -- -- 15.9 --
(100) 8,226 544 7% 16.7 0.78%
(200) 8,835 1,153 15% 17.5 1.64%
(300) 9,574 1,892 25% 18.5 2.66%
(400) 10,270 2,588 34% 19.4 3.56%
<FN>
<F1> Based on the portfolio value of the Company's assets assuming no
change in interest rates.
</FN>
</TABLE>
CHANGES IN FINANCIAL CONDITION
ASSETS. Total assets increased to $48.6 million at December 31, 1998
from $45.3 million at December 31, 1997.
Mortgage-backed securities as a percentage of total assets decreased
to 56.3% at December 31, 1998 from 62.7% at December 31, 1997. 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.
At December 31, 1998, net loans receivable totalled $9.3 million or
19.1% of total assets. Of the total loan portfolio, $7.8 million or 79.6%
consisted of one-to-four family residential loans. Consumer loans
accounted for $1.3 million or 13.5% of the total loan portfolio, and 6.9%
of the portfolio consisted of commercial real estate loans.
Mortgage-backed securities and investment securities were 56.3% and
10.9% of total assets, respectively, at December 31, 1998. Of such amount,
$117,000 or 0.2% of total assets mature within one year of December 31,
1998. See Notes C, D and F to the Consolidated Financial Statements. Cash
and cash equivalents amounted to 10.0% of total assets at such date.
Non-performing assets have increased from 1.44% of total assets at
December 31, 1997 to 1.7% of total assets at December 31, 1998. Non-
accruing single-family residential loans represented 29.7% of the $799,000
of total non-performing assets at December 31, 1998. The balance of non-
performing assets included one commercial loan accounting for 62.6%. At
December 31, 1998, the Company's allowance for loan losses equalled
$506,000 or 5.1% 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, 1998 is not current as of
March 31, 1999. 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 increased during 1998 to $39.5 million
at December 31, 1998 from $35.5 million at December 31, 1997. Certificates
accounts increased by $3.8 million or 14.0% from December 31, 1997 to
December 31, 1998, while transaction accounts increased by $184,000 or 2.2%
during the period.
Total stockholders' equity was $8.6 million at December 31, 1998, a
decrease of $900,000 from December 31, 1997. The decrease was due to a
$1.2 million purchase of treasury stock, $60,000 purchase of shares for the
MRP Trust and dividends of $122,000. These decreases were partially
offset by increases from net income of $161,000, a $72,000 allocation to
the Employee Stock Ownership Plan, a $12,000 allocation to the Management
Retention Plan Trust and a $177,000 increase in Accumulated Other
Comprehensive Income.
RESULTS OF OPERATIONS
NET INCOME. The Company's net income decreased by $50,000 or 23.7%
in 1998 and increased by $54,000 or 34.4% in 1997. The decrease in 1998 is
attributable to a decrease of $52,000 in net interest income, a $69,000
increase in the provision for loan losses and a decrease of $99,000 in non-
interest income related primarily to the recapture of an allowance for
securities losses in 1997. Also contributing to the reduction was a
decrease of $178,000 in non-interest expenses and an increase in income
taxes of $55,000 and an increase in minority interest in loss of an
unconsolidated subsidiary.
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 decreased by $52,000 or 3.7% in 1998, and increased
$181,000 or 14.8% in 1997. The decrease in 1998 was due to a decrease in
the ratio of average interest-earning assets to average interest-bearing
liabilities and to a lesser extent the increase in the interest rate
spread. Interest rate spread is the yield on interest-earning assets minus
the costs of interest-bearing liabilities.
The Company's average interest rate spread decreased to 2.24% for
1998 from 2.27% for 1997 after increasing from 2.21% for 1996. In
addition, its ratio of average interest-earning assets to average interest-
bearing liabilities decreased to 119.26% for 1998 from 122.45% for 1997,
which represented an increase from the 113.29% for 1996. The decrease in
the average interest rate spread was due to the average rate paid on
interest-bearing liabilities increasing, while the average yield on
interest-earning assets decreased.
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.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ----------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate<F1> Balance Interest Rate(1) Balance Interest Rate<F1>
------- -------- ------ ------- -------- ------ ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable<F2>...... $ 9,983 $ 916 9.18% $ 9,298 837 9.00% $ 9,581 $ 776 8.10%
Mortgage-backed securities 27,918 1,747 6.26 30,912 1,993 6.45 30,872 2,008 6.50
Investment securities<F3>. 4,695 364 7.75 2,576 219 8.50 1,772 166 9.37
Other interest-earning
assets................... 2,145 137 6.39 1,796 106 5.90 2,025 109 5.38
------- ------ ----- ------ ----- ----- ------- ------- -----
Total interest-earning
assets................... 44,741 3,164 7.07% 44,582 3,155 7.08% 44,250 3,059 6.91%
------- ------ ----- ------ ----- ----- ------- ------- -----
Noninterest-earning
assets.................... 2,228 2,346 1,406
------- ------ -------
Total assets............. $46,969 $46,928 $45,656
======= ======= =======
Interest-bearing
liabilities:
Passbook, NOW and money
market accounts....... $ 8,588 196 2.28% $ 8,705 216 2.48% $10,047 249 2.48%
Certificates of deposit... 28,926 1,616 5.59 27,242 1,506 5.53 28,706 1,569 5.47
------- ----- ----- ------- ----- ----- ------ ------ -----
Total deposits........ 37,514 1,812 4.83 35,947 1,722 4.79 38,753 1,818 4.69
FHLB advances............. - - 0.00 462 29 6.28 307 18 5.86
------- ----- ----- ------- ----- ----- ------ ------ -----
Total interest-bearing
liabilities........... 37,514 1,812 4.83% 36,409 1,751 4.81% 39,060 1,836 4.70%
------- ----- ----- ------- ----- ----- ------ ------ -----
Noninterest-bearing
liabilities<F4>............. 395 851 1,870
------- ------- ------
Total liabilities..... 37,909 37,260 40,930
Stockholders' equity...... 9,060 9,668 4,726
------- ------- ------
Total liabililites and
stockholders'equity.. $46,969 $46,928 $45,656
======= ======= =======
Net interest-earning assets. $ 7,227 $ 8,173 $ 5,190
======= ======= =======
Net interest income; average
interest rate spread..... $1,352 2.24% $1,404 2.27% $1,223 2.21%
------ ----- ------ ----- ------ -----
Net interest margin<F5>..... 3.02% 3.15% 2.76%
===== ===== =====
Average interest-earning
assets to average
interest-bearing liabilities 119.26% 122.45% 113.29%
======= ======= =======
<FN>
<F1> At December 31, 1998, the weighted average yields earned and rates paid
were as follows: loans receivable, 9.18%; mortgage-backed securities,
6.26%; investment securities, 7.75%; other interest-earning assets,
6.39%; total interest-earning assets 7.07%; deposits, 4.83%; FHLB
advances 0.00%; and interest rate spread, 2.24%.
<F2> Includes nonaccrual loans during the respective periods. Calculated net
of deferred fees and discount, loans in process and allowance for loan
losses.
<F3> Includes non-accruing investment securities during the respective
periods.
<F4> Includes noninterest-bearing deposits.
<F5> Net interest margin is net interest income divided by average interest-
earning assets.
</FN>
</TABLE>
RATE/VOLUME ANALYSIS. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected Algiers' interest income and expense during the
periods indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (i)
changes in rate (change in rate multiplied by prior year volume), (ii) changes
in volume (change in volume multiplied by prior year rate), and (iii) total
change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
1998 VS. 1997 1997 VS. 1996
------------------------------------------- -----------------------------------
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 $ 16 $ 63 $ 79 $ 71 $ (25) $ 46
Mortgage-backed securities (58) (188) (246) (15) - (15)
Investment securities (17) 162 145 (15) 68 53
Other interest-earning assets 9 22 31 10 (13) (3)
------ ------ ------ ----- ------ -----
Total interest income (50) 59 9 51 30 81
------ ------ ------ ----- ------ -----
Interest expense:
Passbook, NOW and
money market accounts (18) (2) (20) 2 (34) (32)
Certificates of deposits 16 94 110 20 (83) (63)
------ ------ ------ ----- ------ -----
Total deposits (2) 92 90 22 (117) (95)
FHLB advances (14) (15) (29) 1 10 11
------ ------ ------ ----- ------ -----
Total interest expense (16) 77 61 23 (107) (84)
------ ------ ------ ----- ------ -----
Increase (decrease) in net
interest income $ (34) $ (18) $ (52) $ 28 $ 137 $ 165
====== ====== ====== ===== ====== ======
</TABLE>
INTEREST INCOME. Interest on loans increased $79,000 or 9.4% in 1998 due
to an increase in the average outstanding balances of $685,000 and an increase
in the weighted average yields on loans receivable to 9.18% from 9.00%. A
substantial portion of the loans have adjustable interest rates, and the
change in the average yields reflects the general change in market interest
rates.
Interest on mortgage-backed securities decreased by $246,000 or 12.3% in
1998 from 1997, due to a $3.0 million or 9.7% decrease in the average balance
and a decrease in the average yield to 6.26% in 1998 from 6.45% in 1997. The
average balance decreased as the amount of mortgage-backed securities purchased
in 1998 decreased by $3.7 million from 1997. The lower purchases in 1998 were
partially offset by higher repayments and the sale of $1.2 million in 1998.
The decreased yield was due to the interest rate on a large portion of the
adjustable-rate mortgage-backed securities adjusting downward in 1998.
Interest on investment securities increased by $145,000 or 66.2% in 1998
from 1997, due to an increase in the average balance of $2.1 million from 1997,
which was partially offset by a decrease in the average rate to 7.75% in 1998
from 8.50% in 1997. During 1998 the Company purchased $4.9 million of callable
notes and bonds issued by various government agencies which had interest rates
of 5.63% to 6.75%. These notes and bonds partially accounted for the increase
in the average yield on investment securities.
Other interest income, which consists of dividends on FHLB stock and
interest on overnight deposits at the FHLB, increased by $31,000 or 29.2% in
1998 over 1997, due to a $300,000 or 16.7% increase in the average balance. The
average yield increased to 6.39% in 1998 from 5.90% in 1997 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 1998.
Total interest income increased by $9,000 or 0.3% in 1998 from 1997, due
to a $159,000 or 0.4% increase in the average balance of total interest-earning
assets and a decrease in the average yield to 7.07% in 1998 from 7.08% in 1997.
INTEREST EXPENSE. Interest on deposits increased by $90,000 or 5.2% in
1998 over 1997, due to a $1.6 million or 4.5% decrease in the average balance
and an increase in the average rate to 4.83% in 1998 from 4.79% in 1997. The
increase in the average balance was mostly due to an increase in the average
balance of certificates of deposit. The average rate paid on certificates of
deposit increased to 5.59% in 1998 from 5.53% in 1997, which increase was
mostly offset by a decrease in the average rate paid by the Company on its
transaction accounts to 2.28% in 1998 from 2.48% in 1997.
Interest on FHLB advances decreased by $29,000 or 100.0% in 1998 from
1997, primarily due to a decrease in the average balance of FHLB advances of
$462,000 in 1998.
Total interest expense increased by $61,000 or 3.5% in 1998 over 1997,
primarily due to the increase in the average balance of certificates of
deposit.
PROVISION (CREDIT) FOR LOAN LOSSES. The Company provided (recovered)
$24,000, ($4,000) and ($24,000) of its allowance for loan losses in 1998, 1997
and 1996, respectively. Approximately $7,000 of the credit in 1996 was due to
continued principal payments on the Company's largest outstanding commercial
real estate loan, which amounted to $500,000 at December 31, 1998. A portion
of this loan is classified substandard because the carrying value exceeds the
appraised value of the property securing the loan, and the amount of the
allowance allocated to this loan ($261,000 at December 31, 1998) is reduced as
principal payments are made. The allowance for loan losses amounted to
$506,000 or 5.1% of the total loan portfolio at December 31, 1998.
NONINTEREST INCOME. Service charges and fees, which primarily consist of
charges for checking accounts, overdrafts and late payments, increased by
$2,000 or 3.8% in 1998 from 1997.
The gross carrying value of the Company's Guaranteed Investment Contracts
(the "GIC bonds") was reduced in 1997 by $62,000 of principal payments.
Additionally, the Company recaptured $116,000 of its provision for security
losses related to this investment during 1997 and $5,000 during 1998. See Note
D of Notes to Consolidated Financial Statements.
In 1998 the Company sold $1.2 million of mortgage-backed securities which
were part of the available for sale portfolio which resulted in a gain of
$17,000.
Other noninterest income amounted to $14,000 and $44,000 in 1998 and
1997, respectively.
Total noninterest income decreased by $99,000 or 44.4% in 1998 from 1997,
primarily due to a decrease of $111,000 in recapture of allowance on GIC bonds
and an increase of $34,000 in gain on sale of other real estate in 1998.
Algiers considers these items to be non-recurring in nature.
NONINTEREST EXPENSE. Compensation and benefits decreased by $205,000 or
26.8% in 1998 over 1997, due to a reduction in the Company's workforce related
to the closing of Jefferson Community Lending.
Occupancy and equipment expenses increased by $10,000 or 5.8% in 1998
over 1997, primarily due to an increase in the Association's repairs and
maintenance of its facilities.
Federal insurance premiums increased by $6,000 or 33.3% in 1998 from
1997, primarily due to an increase in the deposit base. 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 in that year.
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 increased by $26,000 or 76.5% in 1998 from 1997,
primarily due to a buy-out of the Association's old computer contract for it's
on-line computer system.
Professional services decreased $34,000 or 24.6% in 1998 from 1997, due
to a reduction in legal and accounting fees.
FHLB service charges decreased $10,000 or 40.0% in 1998 from 1997, due to
a decrease in the number of mortgage-backed securities which the Company owned
in 1998.
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 $45,000 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 H of Notes to Consolidated Financial Statements. The real estate owned at
December 31, 1998 consisted of one one- to four-family residential property and
unimproved land.
The Association's real estate owned expense, net increased by $5,000 in
1998 from 1997, primarily due to the number of real estate owned properties
that were owned by the Association at December 31, 1998.
Other noninterest expense, which primarily consists of insurance and bond
premiums, postage and supplies, and other operating expenses increased by
$69,000 or 32.4% in 1998 from 1997. The increase was primarily due to the
settlement of a lawsuit in the amount of $30,000 and an increase in other
operating expenses of $39,000.
Total noninterest expense decreased by $178,000 or 12.6% in 1998 from
1997, primarily due to decreases of $205,000 in compensation and benefits,
$34,000 in professional services, $45,000 in provision for possible real estate
write-downs, $52,000 in other expenses and $10,000 in FHLB services charges
partially offset by increases of $10,000 in occupancy and equipment, $26,000 of
computer expenses, $6,000 in SAIF assessment and insurance premiums and $5,000
on real estate owned expenses. Total noninterest expense as a percent of
average assets was 2.6% in 1998 compared to 2.8% in 1997.
FEDERAL INCOME TAX EXPENSE. The Company's federal income tax expense
increased by $55,000 or 114.6% in 1998 from 1997. The effective tax rate for
1998, 1997 and 1996 was 39.5%, 18.5% and 29.7%, 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 Community
Lending for the year ending December 31, 1997.
The Company had a deferred tax valuation reserve of $182,000, $194,000
and $194,000 at December 31, 1998, 1997 and 1996, respectively. Other
components of the valuation reserve consist of allowances for loan losses and
real estate owned losses. For additional information, see Note J of Notes to
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Algiers is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five
years or less. Current OTS regulations require that a savings institution
maintain liquid assets of not less than 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, 1998, Algiers' liquidity was 13.0% or $3.4 million in excess of the minimum
OTS requirement.
Cash was generated by Algiers' operating activities during 1998 and 1997
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 1998 primarily because the amount of mortgage-
backed securities and investments purchased exceeded the amount matured. In
1997, 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 purchases of treasury stock of
$1.2 million in 1998 and of deposit increases of 4.0 million in 1998.
Financing activities used net cash in 1997 due to the repayment of $1,500,000
of FHLB advances. Total cash and cash equivalents amounted to $4.9 million at
December 31, 1998. See the Consolidated Statements of Cash Flows in the
Consolidated Financial Statements.
At December 31, 1998, Algiers had outstanding commitments to originate
$57,000 of one-to four-family residential loans (including undisbursed
construction loans). At the same date, the total amount of certificates of
deposit which were scheduled to mature in the following 12 months was $18.1
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, 1998, Algiers exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 15.58%,
15.58% and 53.28%, respectively. See Note N of Notes to Consolidated Financial
Statements.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which generally require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of Algiers' assets and
liabilities are monetary in nature. As a result, interest rates generally have
a more significant impact on Algiers' performance than do the effects of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
THE YEAR 2000
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The approach of the Year 2000 presents a
problem in that many computer programs have been written using two digits
rather than four digits to define the appropriate year. Computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the Year 2000. For example, computer systems may compute payment,
interest, delinquency or other figures important to the operations of the
Company based on the wrong date. This could result in internal system failure
or miscalculations, and also creates risks for the Company from third parties
with whom the Company deals on financial transactions.
Risks to the Company if its computer system is not Year 2000 compliant
include the inability to process customer deposits or checks drawn on the
Association, inaccurate interest accruals, and maturity dates of loans and time
deposits, and the inability to update accounts for daily transactions. Other
risks to the Company exist if certain of its vendors', suppliers' and
customers' computer systems are not Year 2000 compliant. These risks include
the interruption of business in the event of power outages, the inability of
loan customers to comply with repayment terms if their businesses are
interrupted, the inability to make payment for checks drawn on the Association,
receive payment for checks deposited by the Association's customers, or invest
excess funds if the FHLB or correspondent banks are not Year 2000 compliant.
The Company has structured its Year 2000 compliance plans in accordance
with the OTS and FDIC guidelines. As part of its Year 2000 compliance plan,
the Company has identified mission critical systems and is developing
contingency plans relating to a "worst case scenario" relative to the Year 2000
issue. The Company's most important mission critical system is the software
and hardware responsible for maintaining and processing the general ledger,
deposits and loan accounts. This system and other internal systems used by the
Company have been tested as part of the Company's Year 2000 compliance plan
and have been certified Year 2000 compliant. The Company's Year 2000 plan also
addresses contingencies related to increased liquidity and currency demands
which may arise in the latter part of 1999.
The Company has communicated with its key vendors and suppliers to
determine their Year 2000 compliance and to determine the potential impact of
such third parties' failure to remediate their own Year 2000 issues. The
Company has been assured that such third parties either are already Year 2000
compliant or are in the process of modifying, upgrading or replacing their
computer applications to ensure Year 2000 compliance.
In light of its compliance efforts, the Company does not believe that the
Year 2000 issue is likely to have a material adverse effect on the Company's
liquidity, capital resources or results of operations. However, there can be
no assurance that all of the Company's systems will be Year 2000 compliant, or
that the failure of any such system will not have a material adverse effect on
the Company's business, financial condition or operating results. In addition,
to the extent that the Year 2000 issue has a material adverse effect on the
business, financial condition or operating results of third parties with whom
the Company has material relationship, such as other financial institutions,
the Year 2000 issue could have a material adverse effect on the Company's
business, financial condition and operating results.
ITEM 7. FINANCIAL STATEMENTS.
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 SUBSIDIARIES, as of December 31, 1998
and 1997, and the related consolidated statements of operations, comprehensive
income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. 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 SUBSIDIARIES as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ LaPorte, Sehrt, Romig & Hand
A Professional Accounting Corporation
March 26, 1999
Metairie, Louisiana
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
ASSETS
<CAPTION>
December 31,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
Cash and Amounts Due from Depository Institutions $ 3,659 $ 482
Interest-Bearing Deposits in Other Banks 1,222 2,073
Investments Available-for-Sale, at Fair Value 5,304 4,087
Loans Receivable - Net 9,297 9,198
Mortgage-Backed Securities - Available-for-Sale,
at Fair Value 27,392 6,615
Mortgage-Backed Securities - Held-to-Maturity
(Fair Value of $21,580 at December 31, 1997) - 21,830
Stock in Federal Home Loan Bank 512 483
Accrued Interest Receivable 369 269
Real Estate Owned - Net 62 -
Office Property and Equipment, (Net of Depreciation
and Amortization) 662 253
Prepaid Expenses 87 19
Income Tax Receivable 28 -
Other Assets 32 3
--------- --------
Total Assets $ 48,626 $ 45,312
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
LIABILITIES
Deposits $ 39,495 $ 35,534
Advance Payments from Borrowers for
Insurance and Taxes 114 112
Accrued Interest Payable on Depositors' Accounts 23 1
Dividends Payable 32 31
Deferred Tax Liability 212 28
Income Taxes Payable - 17
Other Liabilities 84 47
39,960 35,770
Minority Interest in Subsidiary 87 -
------ ------
Total Liabilities 40,047 35,770
------ ------
STOCKHOLDERS' EQUITY
Preferred Stock - Par Value $.01
5,000,000 Shares Authorized; 0 Shares
Issued and Outstanding - -
Common Stock - Par Value $.01
648,025 Shares Issued - 519,248 Outstanding at
December 31, 1998 and 614,124 Outstanding at
December 31, 1997 6 6
Additional Paid-in Capital 6,137 6,122
Unearned ESOP Shares (376) (433)
Unearned MRP Shares (48) -
Retained Earnings 4,344 4,305
Treasury Stock - 128,777 Shares in 1998 and
33,901 Shares in 1997, at Cost (1,675) (472)
Accumulated Other Comprehensive Income 191 14
-------- --------
Total Stockholders' Equity 8,579 9,542
-------- --------
Total Liabilities and Stockholders' Equity $ 48,626 $ 45,312
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 916 $ 837 $ 776
Mortgage-Backed Securities 1,747 1,993 2,008
Investment Securities 364 219 166
Other Interest-Earning Assets 137 106 109
------- ------- -------
Total Interest Income 3,164 3,155 3,059
------- ------- -------
INTEREST EXPENSE
Deposits 1,812 1,722 1,818
FHLB Advances - 29 18
------- ------- -------
Total Interest Expense 1,812 1,751 1,836
------- ------- -------
NET INTEREST INCOME 1,352 1,404 1,223
(PROVISION) CREDIT FOR LOAN LOSSES (24) 45 4
------- ------- -------
NET INTEREST INCOME AFTER
(PROVISION) CREDIT FOR LOAN LOSSES 1,328 1,449 1,227
------- ------- -------
NON-INTEREST INCOME
Service Charges and Fees 54 52 68
Recapture of Allowance on GIC Bonds 5 116 67
Gain on Sale of REO 34 - -
Gain on Sale of Investments 17 11 29
Other Income 14 44 31
------- ------- -------
Total Non-Interest Income 124 223 195
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1998 1997 1996
------- -------- ------
<S> <C> <C> <C>
NON-INTEREST EXPENSES
Compensation and Benefits 560 765 456
Occupancy and Equipment 183 173 118
Computer 60 34 49
SAIF Assessment - - 241
Deposit Insurance Premium 24 18 90
Professional Services 104 138 33
FHLB Service Charges 15 25 39
Provision for Possible Real Estate
Write-Downs - 45 4
Loss of Sale of Real Estate Owned - - 5
Real Estate Owned Expense - Net 7 2 3
Other 282 213 161
------ ------- -------
1,235 1,413 1,199
------ ------- -------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 217 259 223
INCOME TAX EXPENSE 103 48 66
------ ------- -------
NET INCOME BEFORE MINORITY
INTEREST IN SUBSIDIARY 114 211 157
MINORITY INTEREST IN SUBSIDIARY 47 - -
------ -------- --------
NET INCOME $ 161 $ 211 $ 157
====== ======== ========
EARNINGS PER SHARE $ 0.29 $ 0.37 $ 0.26
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For The Years Ended
December 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
NET INCOME $ 161 $ 211 $ 157
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized Holding Gains (Losses) Arising
During the Period 237 4 (51)
Reclassification Adjustment for (Gains)
Losses Included in Net Income (60) 34 65
------ ------ -----
Total Other Comprehensive Income 177 38 14
------ ------ -----
COMPREHENSIVE INCOME $ 338 $ 249 $ 171
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> Accumulated
Additional Unearned Unearned Other Total
Common Paid-in ESOP MRP Retained Comprehnsive Treasury Retained
Stock Capital Shares Shares Earnings Income Stock Earnings
------ --------- -------- -------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1995 $ - $ - $ - $ - $ 4,082 $ (38) $ - $ 4,044
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
Other Comprehensive Income Net
of Applicable Deferred Income Taxes - - - - - 14 - 14
------ -------- -------- ------- ------- --------- ------- -------
BALANCE - DECEMBER 31, 1996 6 6,108 (492) - 4,207 (24) - 9,805
Net Income - - - - 211 - - 211
Dividends Declared - - - - (113) - - (113)
ESOP Shares Released for Allocation - 14 59 - - - - 73
Purchase of Treasury Stock - - - - - - (472) (472)
Other Comprehensive Income Net
of Applicable Deferred Income Taxes - - - - - 38 - 38
------ -------- -------- ------- ------- --------- ------- -------
BALANCE - DECEMBER 31, 1997 6 6,122 (433) - 4,305 14 (472) 9,542
Net Income - - - - 161 - - 161
Dividends Declared - - - - (122) - - (122)
Common Stock Acquired by MRP Trust - - - (60) - - - (60)
Common Stock Released by MRP Trust - - - 12 - - - 12
ESOP Shares Released for Allocation - 15 57 - - - - 72
Purchase of Treasury Stock - - - - - - (1,203) (1,203)
Other Comprehensive Income Net
of Applicable Deferred Income Taxes - - - - - 177 - 177
------ -------- -------- ------- ------- --------- ------- -------
BALANCE - DECEMBER 31, 1998 $ 6 $ 6,137 $ (376) $ (48) $ 4,344 $ 191 $(1,675) $ 8,579
====== ======== ======== ======= ======= ========= ======= =======
</TABLE>
The accompanying notes are an integrel part of these financial statements.
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 161 $ 211 $ 157
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 48 24 22
Provision (Credit) for Loan Losses 24 (45) (4)
Provision for Losses on Real Estate Owned - 45 4
Premium Amortization Net of Discount Accretion (74) 62 127
(Gain) Loss on Sale of Real Estate Owned (34) - 5
Gain on Sale of Mortgage-Backed Securities (17) (11) (29)
ESOP and MRP Expense 84 70 30
Increase in Accrued Interest Receivable (100) (4) (36)
Increase in Prepaid Expenses (68) (1) (13)
(Increase) Decrease in Prepaid Income Taxes (28) 75 117
(Increase) Decrease in Other Assets (29) 2 (4)
Increase (Decrease) in Accrued Interest Payable 22 - (2)
Increase (Decrease) in Income Tax Payable (17) 17 -
Increase (Decrease) in Other Liabilities 38 18 (17)
Increase in Minority Interest 87 - -
Increase in Deferred Income Taxes 93 51 29
------ ------ ------
Net Cash Provided by Operating Activities 190 514 386
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of Investment Securities - Held-to-Maturity - 825 400
Purchases of Investment Securities - Available-for-Sale (5,083) (3,094) (3,022)
Maturities of Investment Securities - Available-for-Sale 3,885 1,539 1,247
Purchases of Mortgage-Backed Securities - Held-to-Maturity (1,406) (185) (5,786)
Maturities of Mortgage-Backed Securities - Held-to-Maturity 3,399 2,119 2,373
Purchases of Mortgage-Backed Securities - Available-for-Sale (4,132) (784) (3,424)
Maturities of Mortgage-Backed Securities - Available-for-Sale 2,378 1,600 1,358
Proceeds From Sale of Mortgage-Backed Securities - AFS 1,153 1,661 668
Net (Increase) Decrease in Loans (228) 22 474
Non-Cash Dividend - FHLB (29) (27) (26)
Purchase of Office Properties and Equipment (457) (46) (26)
Proceeds from Sales of Real Estate Owned 77 - 39
------ ------ ------
Net Cash Provided by (Used in) Investing Activities (443) 3,630 (5,725)
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits 3,961 (1,101) (1,568)
Net Increase (Decrease) in Advances from Borrowers
for Taxes and Insurance 2 (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 (121) (113) -
Purchase of Treasury Stock (1,203) (472) -
Purchases of ESOP Shares - - (518)
Purchases of MRP Shares (60) - -
------- ------- ------
Net Cash Provided by (Used in) Financing Activities 2,579 (3,311) 5,609
------- ------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,326 833 270
------- ------- ------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 2,555 1,722 1,452
CASH AND CASH EQUIVALENTS - END OF YEAR $4,881 $2,555 $1,722
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest $ 1,790 $ 1,751 $ 1,819
Income Taxes $ 139 $ 31 $ 30
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Dividends Declared $ 32 $ 31 $ 32
Real Estate Owned Acquired Through Foreclosure $ 105 $ - $ -
Transfer of Mortgage-Backed Securities from Held-
to-Maturity to Available-for-Sale $ 19,837 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 Corporation 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, LLC is
engaged in the business of consumer lending. During 1998, the Corporation
initiated a restructuring plan to reduce costs and increase future
operating efficiency by consolidating the operations of Jefferson
Community Lending, LLC. Accordingly, net assets of Jefferson Community
Lending, LLC have been reduced to $-0- at December 31, 1998.
During 1998, the Algiers Bancorp, Inc. formed Algiers.Com, Inc., a
subsidiary that owns a 51% interest in Planet Mortgage, LLC. Planet
Mortgage, LLC is engaged in the solicitation of mortgage loans through its
internet site.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, Algiers
Homestead Association and Algiers.Com, Inc. and its majority-owned
subsidiary, Jefferson Community Lending, LLC. In consolidation,
significant inter-company accounts, transactions, and profits have been
eliminated.
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 1998 and 1997. Unrealized gains and losses
on securities available-for-sale are recognized as direct increases or
decreases in comprehensive income. Cost of securities sold is recognized
using the specific identification method.
RECLASSIFICATIONS
Certain reclassifications of previously reported amounts have been
made to conform with 1998 presentation. Such reclassifications had no
effect on net income.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent participating interests in
pools of first mortgage loans originated and serviced by issuers of the
securities. During 1998, the Association transferred securities from the
held-to-maturity category to the available-for-sale category. Unrealized
gains and losses on mortgage-backed securities are recognized as direct
increases or decreases in comprehensive income. The cost of securities
sold is recognized using the specific identification method. Premiums and
discounts are being amortized over the life of the securities as a yield
adjustment.
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.
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.
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.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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.
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, 1998 and 1997 included the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Cash $ 3,659 $ 482
Interest-Bearing Deposits
in Other Institutions 1,222 2,073
-------- -------
$ 4,881 $ 2,555
======== =======
</TABLE>
NON-DIRECT RESPONSE ADVERTISING
The Corporation expenses advertising costs as incurred. Advertising
for 1998, 1997 and 1996 was $1,000, $2,000 and $6,000, respectively.
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 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.
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 loans and 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 reductions in the carrying
amounts of loans and foreclosed assets 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
allowances for losses on loans and foreclosed real estate. Such agencies
may require the Corporation to recognize additions to the allowances based
on their judgments about information available to them at the time of
their examination. Because of these factors, it is reasonably possible
that the estimated losses on loans and foreclosed real estate may change
materially in the near term, however the amount of the change that is
reasonably possible cannot be estimated.
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities" is
effective for the quarter ended September 30, 1999. This statement will
require all derivatives to be recognized at fair value as either assets or
liabilities in the consolidated balance sheets. Changes in the fair value
of derivatives not designated as hedging instruments are to be recognized
currently in earnings. Gains or losses on derivatives designated as
hedging instruments are either to be recognized currently in earnings or
are to be recognized as a component of other comprehensive income,
depending on the intended use of the derivatives and the resulting
designation. The Company currently has no derivatives; therefore,
adoption of this pronouncement is not expected to have an effect on the
financial position and results of operations of the Company.
Statement of Financial Accounting Standards No. 134 (SFAS
134), "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held-for-Sale by a Mortgage Banking
Enterprise" is effective for the first fiscal quarter beginning after
December 15, 1998. This statement establishes standards for the way that
mortgage banking enterprises classify mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments, after the securitization of mortgage loans held-for-sale.
Adoption of this pronouncement is not expected to have an effect on the
financial position and results of operations of the Company.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
<TABLE>
<CAPTION>
Algiers Algiers Homestead
Bancorp, Inc. Association
------------- -----------------
<S> <C> <C>
Operating Income $ - $ 1,519
======== ===========
Net Income $ - $ 173
======== ===========
</TABLE>
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.
NOTE C
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale at December 31, 1998
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 $ 706 $ 28 $ - $ 734
FHLMC Callable Note 1,443 11 - 1,454
FHLB Callable Notes 2,750 - 1 2,749
Other Securities 393 - 26 367
------- ------ ---- -------
$ 5,292 $ 39 $ 27 $ 5,304
======= ====== ==== =======
</TABLE>
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 BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C
INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Continued)
The following is a summary of contractual maturities of
investment securities available-for-sale as of December 31, 1998 (in
thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -------
<S> <C> <C>
Due in One Year or Less $ 142 $ 117
Due from One to Five Years - -
Due from Five to Ten Years 3,694 3,703
Due After Ten Years 1,456 1,484
--------- -------
$ 5,292 $ 5,304
========= =======
</TABLE>
Investment in stock of the Federal Home Loan Bank is carried
at cost, which approximates market. The carrying value of this investment
at December 31, 1998 and 1997 was $512,200 and $483,000, respectively,
with no provision for unrealized losses necessary.
NOTE D
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 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.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D
GUARANTEED INSURANCE CONTRACT (GIC) BONDS (CONTINUED)
The activity in the carrying value and the reserve account
is summarized as follows for the years ended December 31, 1998 and 1997
(in thousands):
<TABLE>
<CAPTION>
Carrying Reserve
Value Balance
-------- -------
<S> <C> <C>
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 - -
Recovery of Previous Charge - Offs - (5)
Recapture of Provision for Investment Losses - 5
-------- -------
Balance at December 31, 1998 $ - $ -
======== =======
</TABLE>
NOTE E
LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Loans Secured by First Mortgages on Real Estate:
1-4 Family Residential $ 7,816 $ 8,018
Commercial 686 738
Construction Loans - 1- 4 Family - 43
Partially-Guaranteed by VA
or Insured by FHA Loans - 1-4 Family 27 41
-------- -------
8,529 8,840
-------- -------
Consumer Loans:
Second Mortgage Loans - 1- 4 Family 360 189
Consumer Loans 400 325
Share Loans 566 758
-------- -------
1,326 1,272
-------- -------
Less:
Allowance for Losses 506 485
Unearned Interest on Mortgage Loans - 73
Undisbursed Portion of Construction Loans - 301
Net Deferred Loan Origination Fees 52 55
-------- -------
558 914
-------- -------
$ 9,297 $ 9,198
======== =======
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E
LOANS RECEIVABLE (CONTINUED)
An approximate schedule of loan maturities or repricing
opportunities at December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Variable Fixed
Maturities Rate Rate Total
--------------- -------- ------ -----
<S> <C> <C> <C>
Three Months or Less $ 1,374 $ 415 $ 1,789
Three Months - One Year 2,209 179 2,388
One Year - Five Years 91 23 114
Over Five Years 3,415 2,149 5,564
-------- ------- --------
$ 7,089 $ 2,766 $ 9,855
======== ======= ========
</TABLE>
Activity in the allowance for loan losses is summarized as follows
for the years ended December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Balance at Beginning of Year $ 482 $ 527 $ 531
Charge-Offs - - -
Recoveries - - -
Provision (Credit)
for Loan Losses 24 (45) (4)
------ ------ ------
Balance at End of Year $ 506 $ 482 $ 527
====== ====== ======
</TABLE>
At December 31, 1998 and 1997, the Association had loans totaling
approximately $505,800 and $10,000, respectively, for which impairment had
been recognized. The allowance for loan losses related to these loans
totaled $261,000 and $10,000 at December 31, 1998 and 1997, respectively.
There was no interest income recognized on these loans during the years
ended December 31, 1998, 1997 and 1996.
At December 31, 1998 and 1997, the Association had non-performing
loans of approximately $737,000 and $10,000, respectively. The amount of
interest foregone for the years ended December 31, 1998, 1997 and 1996 was
approximately $62,000, $1,000 and $1,000, respectively.
The Association does not service any loans for others.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E
LOANS RECEIVABLE (CONTINUED)
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):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Balance at Beginning of Year $ 84 $ 17
Additions 28 88
Payments and Renewals (86) (21)
------ ------
Balance at End of Year $ 26 $ 84
====== ======
</TABLE>
NOTE F
MORTGAGE-BACKED SECURITIES
Fixed and variable rate mortgage-backed securities available-for-
sale at December 31, 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
GNMA Certificates $ 6,885 $ 90 $ - $ 6,975
FNMA Certificates 16,320 156 - 16,476
FHLMC Certificates 3,911 30 - 3,941
--------- --------- --------- ---------
$ 27,116 $ 276 $ - $ 27,392
========= ========= ========= =========
</TABLE>
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>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F
MORTGAGE-BACKED SECURITIES (CONTINUED)
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>
The amortized cost and fair value of mortgage-backed securities at
December 31, 1998, 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:
Less than One Year $ 53 $ 53
Due After One Year Thru Five Years 1,599 1,609
Due After Five Years Thru Ten Years 95 102
Due After Ten Years 25,369 25,628
--------- --------
$ 27,116 $ 27,392
========= ========
</TABLE>
During 1998, 1997 and 1996, the Association sold mortgage-backed
securities for approximately $1,153,000, 1,661,000 and 668,000,
respectively. These sales resulted in realized gains of $17,000, $11,000
and $29,000 during 1998, 1997 and 1996, respectively.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G
INTEREST RECEIVABLE
Interest receivable at December 31, 1998 and 1997 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Mortgage Loans $ 75 $ 29
Share Loans 7 3
Investment Securities 121 52
Mortgage-Backed Securities 166 185
------ ------
$ 369 $ 269
====== ======
</TABLE>
NOTE H
REAL ESTATE OWNED
A summary of real estate owned at December 31, 1998 and 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Real Estate Acquired in Settlement $ 97 $ 90
Less: Allowances for Losses 35 90
------ -----
$ 62 $ -
====== =====
</TABLE>
Activity in the allowance for losses for other real estate owned
for years ended December 31, 1998, 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Balance at Beginning of Year $ 90 $ 45 $ 47
Provision for REO Losses - 45 4
Sale of REO (55) - (6)
----- ----- -----
Balance at End of Year $ 35 $ 90 $ 45
===== ===== =====
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I
OFFICE PROPERTY AND EQUIPMENT
Office property and equipment consist of the following at December
31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Land $ 30 $ 30
Building 188 185
Furniture, Fixtures and Equipment 654 205
Leasehold Improvements 48 45
------ ------
920 465
Less: Accumulated Depreciation and Amortization 258 212
------ -----
$ 662 $ 253
====== =====
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and
1996 was approximately $48,000, $24,000 and $22,000, respectively.
NOTE J
FEDERAL INCOME TAXES
The provision for income taxes for 1998, 1997 and 1996 consists of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current Federal Tax Expense $ 10 $ 77 $ 48
Deferred Federal Tax Expense (Benefit) 93 (29) 18
----- ---- ----
Balance at End of Year $ 103 $ 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>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Expected Tax Provision at 34% Rate $ 74 $ 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)
Employee Stock Ownership Plan 5 - -
Other 24 - -
------ ------ -----
Balance at End of Year $ 103 $ 48 $ 66
====== ====== =====
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J
FEDERAL INCOME TAXES (CONTINUED)
Deferred tax liabilities have been provided for taxable or
deductible temporary differences related to unrealized gains on available-
for-sale securities, deferred loan costs, depreciation and non-cash
Federal Home Loan Bank dividends. Deferred tax assets have been provided
for taxable or deductible temporary differences related to the reserves
for uncollected interest and late charges, deferred loan fees, allowance
for loan losses, the allowance for losses on foreclosed real estate and
the allowance for losses on real estate held-for-investment.
The net deferred tax assets or liabilities in the accompanying
statements of financial condition include the following components (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Deferred Tax Assets
Allowance for Loan Losses $ 170 $ 164
Allowance for REO Losses 12 31
Employee Stock Option Plan 2 7
Management Retention Plan 2 -
Charitable Contribution Carryforward 4 -
Deferred Loan Fees 18 19
Other 1 2
----- ------
Total Deferred Tax Assets 209 223
----- ------
Deferred Tax Liabilities
Property and Equipment and Depreciation 95 13
Market Value Adjustment for
Available-for-Sale Securities 98 7
Section 481 Adjustment 5 5
FHLB Stock 41 32
----- ------
Total Deferred Tax Liabilities 239 57
----- ------
Net Deferred Tax Assets (Liabilities) (30) 166
Deferred Tax Valuation Reserve 182 194
----- ------
Total Net Deferred Tax Liability $ (212) $ (28)
====== ======
</TABLE>
Included in retained earnings at December 31, 1998 and 1997 is
approximately $1,309,000 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 for December 31, 1998 and 1997.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K
DEPOSITS
Deposits consist of the following at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
Weighted Years Ended
Average Rate at December 31,
--------------------- -----------------------------------------------------
December 31, 1998 1997
--------------------- -------------------------- -----------------------
1998 1997 Amount Percent Amount Percent
-------- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance by Interest Rate:
Regular Savings Accounts 2.63 % 2.69 % $ 5,128 12.98 % $ 5,483 15.43 %
NOW Accounts 2.15 % 2.4 % 2,750 6.96 1,098 3.09
Money Fund Accounts 2.54 % 2.58 % 802 2.03 1,915 5.39
Certificate of Deposit 5.51 % 5.59 % 30,815 78.03 27,038 76.09
--------- ------ -------- ------
$ 39,495 100.00 % $ 35,534 100.00 %
========= ====== ======== ======
Certificate Accounts Maturing
Under 12 months $ 18,057 58.60 % $ 14,172 52.42 %
12 months to 24 months 6,835 22.18 5,353 19.80
24 months to 36 months 1,844 5.98 4,977 18.41
Due after 36 months 4,079 13.24 2,536 9.37
--------- ------- -------- ------
$ 30,815 100.00 % $ 27,038 100.00 %
========= ======= ======== ======
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit
with a minimum denomination of $100,000 was approximately $2,563,000 and
$1,746,000 at December 31, 1998 and 1997, respectively.
Interest expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Certificates $ 1,616 $ 1,506 $ 1,569
Passbook Savings 141 149 175
Money Fund Accounts 25 31 33
NOW Accounts 30 36 41
------- ------- -------
$ 1,812 $ 1,722 $ 1,818
======= ======= =======
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K
DEPOSITS (Continued)
In the normal course of business, the Association accepts deposits
from members of the Board of Directors and officers. As of December
31, 1998 and 1997, these deposits totaled approximately $444,000 and
$567,000, respectively.
NOTE L
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 1998, 1997 and 1996, respectively, was $-0-, $29,000 and $18,000.
There were no advances from the FHLB outstanding as of
December 31, 1998.
NOTE M
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.
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.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
(FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND EN-FORCEMENT ACT
OF 1989 (FIRREA) (CONTINUED)
The following table sets out the Association's various regulatory
capital categories at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE
------- ---------- ------- ----------
(thousands) (thousands)
<S> <C> <C> <C> <C>
Tangible Capital $ 7,716 15.58% $ 7,184 16.51 %
Tangible Equity $ 7,416 15.58% $ 7,184 16.51 %
Core/Leverage Capital $ 7,416 15.58% $ 7,184 16.51 %
Tier 1 Risk-Based Capital $ 7,416 52.22% $ 7,184 64.02 %
Total Risk-Based Capital $ 7,567 53.28% $ 7,326 65.29 %
</TABLE>
NOTE N
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, 1998 December 31, 1998
----------------- -----------------
<S> <C> <C>
Per GAAP $ 209 $ 7,623
======= =========
Total Assets $ 47,919
=========
Capital Ratio 15.91%
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N
REGULATORY CAPITAL (CONTINUED)
<TABLE>
<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 $ 7,623 $ 7,623 $ 7,623 $ 7,623 $ 7,623
Assets Required
to be Added
Unrealized Loss
on Securities
Available-
for-Sale (207) (207) (207) (207) (207)
General Valuation
Allowance - - - - 151
-------- -------- -------- -------- --------
Regulatory Capital
Measure $ 7,416 $ 7,416 $ 7,416 $ 7,416 $ 7,567
======== ======== ======== ======== ========
Adjusted Total Assets $ 47,606 $ 47,606 $ 47,606
======== ======== ========
Risk-Weighted Assets $ 14,201 $ 14,201
======== ========
Capital Ratio 15.58% 15.58% 15.58% 52.22% 53.28%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
Required Capital $ 714 $ 1,428 $ 1,136
========= ======== =======
Excess Capital $ 6,702 $ 5,988 $ 6,431
========= ======== =======
</TABLE>
NOTE O
RELATED PARTY TRANSACTIONS
The Association leases its main office from one of its officers
under an operating lease expiring April 1, 2006. The annual rental
payment through April 1, 2001 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.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P
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 approximately $72,000, $76,000 and $28,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. The ESOP shares as of
December 31, 1998 were as follows:
<TABLE>
<S> <C>
Allocated Shares 8,546
Shares Released for Allocation 5,723
Unreleased Shares 37,573
---------
Total ESOP Shares 51,842
=========
Fair Value of Unreleased Shares at December 31, 1998 $ 418,000
=========
</TABLE>
In conjunction with the establishment of the ESOP, $518,420
was borrowed from Algiers Bancorp, Inc. to purchase the shares of stock
for the ESOP. The corresponding note is to be paid back in 40 equal
quarterly payments of $19,202 on the last business day of each calendar
quarter beginning September 30, 1996 at the rate of 8.25%. The note
payable and corresponding note receivable have been eliminated for
consolidation purposes.
NOTE Q
RECOGNITION AND RETENTION PLAN
On July 18, 1997, the Association 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, of which 4,205 have been
allocated for distribution to key employees and directors. 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.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q
RECOGNITION AND RETENTION PLAN (CONTINUED)
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. Compensation expense
pertaining to the Recognition and Retention plan was $19,974 and $-0- for
the years ended December 31, 1998 and 1997, respectively.
A summary of the changes in restricted stock follows:
<TABLE>
<CAPTION>
Unawarded Awarded
Shares Shares
--------- -------
<S> <C> <C>
Balance January 1, 1998 $ - $ -
Purchased by Plan 25,921 -
Granted (4,205) 4,205
Earned and Issued - (841)
-------- --------
Balance December 31, 1998 $ 21,716 $ 3,364
======== ========
</TABLE>
NOTE R
STOCK OPTION PLAN
In 1997, the Association adopted a stock option plan for the benfit
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.
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, 1998 64,802 -
========= ===========
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as commitments to extend credit and
stand-by letters of credit which are not reflected on the Association's
financial statements. Management does not anticipate any material loss as
a result of these transactions. Commitments to extend credit totaled
approximately $57,000 and $62,000 on one to four family mortgage loans,
and stand-by letters of credit totaled $ -0- and $40,000 at December 31,
1998 and 1997, respectivley.
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 Condition.
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.
NOTE T
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
On January 1, 1995, the Company adopted SFAS 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
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 SFAS 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 Company.
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.
Estimated fair values of the financial instruments are as follows
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term Investment $ 4,881 $ 4,881
Investment Securities 5,304 5,304
Loans and Mortgage Backed Securities 36,689 36,490
FINANCIAL LIABILITIES
Deposits $ 39,495 $ 39,072
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<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>
NOTE U
COMPREHENSIVE INCOME
Comprehensive income was comprised of changes in the Company's
unrealized holding gains or losses on securities available-for-sale
during 1998, 1997, and 1996. The following represents the tax
effects associated with the components of comprehensive income.
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Gross Unrealized Holding Gains (Losses)
Arising During the Period $ 359 $ 6 $ (77)
Tax (Expense) Benefit (122) (2) 26
-------- -------- --------
237 4 (51)
-------- -------- --------
Reclassification Adjustment for Gains
(Losses) Included in Net Income (91) 52 98
Tax (Expense) Benefit 31 (18) (33)
-------- -------- --------
(60) 34 65
-------- -------- --------
Net Unrealized Holding Gains
Arising During the Period $ 177 $ 38 $ 14
======== ======== ========
</TABLE>
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, Inc. 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 other well capitalized
financial institutions which exceed the federally insured limits.
NOTE X
DIVIDEND DECLARED
On December 31, 1998, the board of directors of Algiers
Bancorp, Inc. declared a $.05 per share dividend to stockholders of
record at December 31, 1998 to be payable on January 15, 1999. The
total dividend payable recorded is $32,000.
NOTE Y
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average
number of shares outstanding which was 548,891 in 1998 and 574,423 in
1997.
NOTE Z
SAIF ASSESSMENT
The deposits of the Association are currently insured by the SAIF,
which is a federal deposit insurance fund that covers SAIF member
institutions. On September 30, 1996, legislation was passed which
required all SAIF member institutions to pay a one time special
assessment to recapitalize the SAIF. The one-time special assessment
for the Association amounted to $241,000. 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.
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
ALGIERS BANCORP, INC.
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
------ -------
<S> <C> <C>
Cash and Cash Equivalents $ 780 $ 879
Investments Available-for-Sale - at Fair Value 117 2
Loans Receivable 121 116
Mortgage-Backed Securities - Available-for-Sale -
at Fair Value 64 841
Investment in Subsidiaries 7,741 7,341
ESOP Loan Receivable 404 455
Other Assets 76 31
Real Estate Owned - Net 62 -
------- -------
Total Assets $ 9,365 $ 9,665
======= =======
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Due to Subsidiary $ 744 $ 51
Dividends Payable 32 31
Other Liabilities 10 40
------- -------
Total Liabilities 786 122
------- -------
Total Stockholders' Equity 8,579 9,543
------- -------
Total Liabilities and Stockholders' Equity $ 9,365 $ 9,665
======= =======
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
ALGIERS BANCORP, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, December 31,
------------------ ------------
1998 1997 1996
------ ------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Mortgage-Backed Securities $ 51 $ 75 $ 4
ESOP Loan 32 41 -
Investment Securities - 57 31
Loans and Fees 25 13 21
----- ------ ------------
Total Interest Income 108 186 56
----- ------ ------------
NON-INTEREST INCOME
Income (Loss) in Subsidiary-Algiers Homestead
Association 209 332 (39)
Loss in Subsidiary-Jefferson Community
Lending, LLC (29) (179) (7)
Loss in Subsidiary-Algiers.Com, Inc. (22) - -
Miscellaneous Income - 10 3
----- ------ ------------
Total Non-Interest Income 158 163 (43)
----- ------ ------------
NON-INTEREST EXPENSES
General and Administrative 130 122 5
----- ------ ------------
INCOME BEFORE FEDERAL
INCOME TAX EXPENSE 136 227 8
FEDERAL INCOME TAX EXPENSE (24) 16 18
----- ------ ------------
NET INCOME (LOSS) $ 160 $ 211 $ (10)
===== ====== ============
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
ALGIERS BANCORP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, December 31,
------------------ ------------
1998 1997 1996
------ ------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 160 $ 211 (10)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Increase in Due to Subsidiaries 693 31 20
(Increase) Decrease in Other Assets (45) 23 (33)
Decrease (Increase) in Due from Subsidiaries - 7 (7)
Increase (Decrease) in Other Liabilities (30) 20 19
------- ------- -------------
Net Cash Provided by (Used in) Operating Activities 778 292 (11)
------- ------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Loans Receivable - Net (67) (116) -
Purchases of Investment Securities - Available-for-Sale (140) (2) (474)
Maturities of Investment Securities - Available-for-Sale - 476 -
Purchases of Mortgage-Backed Securities - Available-for-Sale (64) - (1,058)
Maturities of Mortgage-Backed Securities - Available-for-Sale 821 207 12
Investments in Subsidiaries (400) (4,303) (3,038)
------- ------- -------------
Net Cash Provided by (Used in) Investing Activities 150 (3,738) (4,558)
------- ------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock - - 6
Contribution of Additonal Paid-in Capital 246 3,818 6,108
Dividends Paid (121) (112) -
Loan to Subsidiary for ESOP - - (518)
Purchases of Treasury Stock (1,203) (472) -
Repayments of ESOP Loan 51 64 -
------- ------- -------------
Net Cash Provided by (Used in) Financing Activities (1,027) 3,298 5,596
------- ------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (99) (148) 1,027
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 879 1,027 -
------- ------- -------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 780 $ 879 $ 1,027
======= ======= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest $ - $ - $ -
Income Taxes $ - $ 45 $ -
</TABLE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE BB
SUBSEQUENT EVENT
In March 1999, the Association entered into a lease for a new
branch location. The lease is for a five-year term, with a monthly rental
of $3,500. The lease provides for two five year renewal options.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this item will be included in the Company's
definitive proxy statement in connection with its 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item will be included in the Company's
definitive proxy statement in connection with its 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be included in the Company's
definitive proxy statement in connection with its 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be included in the Company's
definitive proxy statement in connection with its 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits. Reference is made to the Exhibit Index beginning on page
E-1 hereof.
(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,
1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has 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
Date: April 15, 1999
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 15, 1999
- -------------------------- and Chief Executive Officer
Hugh E. Humphrey, Jr.
/s/ Thu Dany Director April 15, 1999
- -------------------------
Thu Dang
/s/ John H. Gary, III Director April 15, 1999
- -------------------------
John H. Gary, III
/s/ Thomas L. Arnold, Sr. Director April 15, 1999
- --------------------------
Thomas L. Arnold, Sr.
/s/ Hugh E. Humphrey, III Director April 15, 1999
- --------------------------
Hugh E. Humphrey, III
/s/ Francis M. Minor, Jr. Chief Financial Officer April 15, 1999
- --------------------------
Francis M. Minor, Jr.
</TABLE>
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 Hugh E. Humphrey, III, dated July 8, 1996
10.3* Lease for main office building
21.1 Subsidiaries of the Registrant - Reference is made to Item 2. "Business"
for the required information
27.1 Financial Data Schedule
(*) Incorporated herein by reference to the Company's 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.
EXHIBIT 21
SUBSIDIARIES OF ALGIERS BANCORP, INC.
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION/ORGANIZATION
<S> <C>
Algiers Homestead Association Louisiana
Jefferson Community Lending, LLC <F1> Louisiana
Algiers.COM, Inc. Louisiana
Planet Mortgage, L.L.C.<F2> Louisiana
<FN>
<F1> The Company owns 70% of Jefferson Lending, LLC. A Notice of
Dissolution was filed for Jefferson Lending, LLC on May 1, 1998.
<F2> Algiers.Com, Inc., a wholly-owned subsidiary of the Company, owns
51% of Planet Mortgage, L.L.C.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,659
<INT-BEARING-DEPOSITS> 1,222
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,392
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9,297
<ALLOWANCE> 506
<TOTAL-ASSETS> 48,626
<DEPOSITS> 39,495
<SHORT-TERM> 0
<LIABILITIES-OTHER> 465
<LONG-TERM> 0
0
0
<COMMON> 6
<OTHER-SE> 8,573
<TOTAL-LIABILITIES-AND-EQUITY> 48,626
<INTEREST-LOAN> 916
<INTEREST-INVEST> 2,218
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 3,164
<INTEREST-DEPOSIT> 1,812
<INTEREST-EXPENSE> 1,812
<INTEREST-INCOME-NET> 1,352
<LOAN-LOSSES> (24)
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 1,235
<INCOME-PRETAX> 217
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 0
<LOANS-NON> 737
<LOANS-PAST> 799
<LOANS-TROUBLED> 6
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 482
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 506
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 220
</TABLE>
