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, 1999
_______ 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, 1999 were $3.1
million.
As of March 10, 2000, the aggregate market value of the 397,086 shares of
Common Stock of the Issuer held by non-affiliates, which excludes 109,262
shares held by all directors, executive officers and employee benefit plans
of the Issuer, was approximately $3.0 million. This figure is based on the
average of the bid and asked prices of $7.50 per share of the Issuer's
Common Stock on March 10, 2000.
Number of shares of Common Stock outstanding on March 10, 2000: 506,348
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2000 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, 1999
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
<PAGE>
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 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, a branch office in
Terrytown, Louisiana, and a third branch in New Orleans, Louisiana that was
opened during the first quarter of 1999. At December 31, 1999, the Company
had $46.8 million of total assets, $39.7 million of total liabilities,
including $38.4 million of deposits, and $7.1 million of total
stockholders' equity (representing 15.2% 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 $26.1 million of mortgage-backed securities at December 31,
1999, representing 55.8% of the Company's total assets. At December 31,
1999, the Company's net loans receivable totaled $9.8 million or 20.9% of
the Company's total assets. Conventional first mortgage, one- to
four-family residential loans (excluding construction loans) amounted to
$8.5 million or 84.0% of the Company's total loan portfolio at December 31,
1999. To a lesser extent, the Company also originates consumer loans,
construction loans and commercial real estate loans. The Company had $5.5
million of investment securities (excluding FHLB stock) at December 31,
1999, representing 11.8% of total assets. Of the $5.5 million of
investment securities, $1,020,000 or 18.5% mature within five years of
December 31, 1999.
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, 1999, the Association had total
stockholder's equity of $6.5 million and exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
15.1%, 15.1% and 64.1%, respectively, as compared to the minimum
requirements of 1.5%, 3.0% and 8.0%, respectively.
* PROFITABILITY. Although the Company had a net loss for the year ended
December 31, 1999, it was profitable in each of the prior two years. Net
income decreased from $161,000 in 1998 to a net loss of $367,000 in 1999,
including a net loss of $286,000 sustained by the Company's subsidiary,
Algiers Homestead Association and a $37,000 loss sustained by the Company's
subsidiary Algiers.Com. Net income decreased in 1998 to $161,000 from
$211,000 in 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<PAGE>
* 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 $428,000 or .9% of total assets at December 31, 1999, compared
to $805,000 or 1.7% of total assets at December 31, 1998 due to the
delinquency of a commercial loan with a balance of $500,000. See "-Asset
Quality-Classified Assets." At December 31, 1999, the Company's
allowance for loan losses amounted to $230,000 or 2.3% 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, 1999, ARMs amounted to $6.6 million or 65.5%
of the total loan portfolio. In addition, of the $26.1 million of
mortgage-backed securities at December 31, 1999, $23.6 million or 90.6%
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, 1999, 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, 1999, the Company's net loan
portfolio totaled $9.8 million, representing approximately 20.9% of the
Company's $46.8 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, 1999, conventional first mortgage, one-
to four-family residential loans (excluding construction loans) amounted to
$8.5 million or 84.0% 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, 1999, there were $117,000
in construction loans amounting to 1.2% of the total loan portfolio,
commercial real estate loans totaled $200,000 or 2.0% of the total loan
portfolio, and consumer loans amounted to $1.3 million or 12.7% 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,
1999 1998 1997
Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to-Four Family
Residential:
Conventional $ 8,492 84.0% $ 7,816 79.3% $ 8,018 79.3%
FHA and VA 13 0.1 27 0.3 41 0.4
Construction 117 1.2 -- -- 43 0.4
Commercial Real Estate 200 2.0 686 6.9 738 7.3
-------- ----- -------- ----- -------- -----
Total Real Estate Loans 8,822 87.3 8,529 86.5 8,840 87.4
Consumer Loans:
Second Mortgage 338 3.3 360 3.7 189 1.9
Other Consumer Loans 356 3.5 400 4.1 325 3.2
Loans on Deposits 594 5.9 566 5.7 758 7.5
-------- ----- -------- ----- -------- -----
Total Consumer Loans 1,288 12.7 1,326 13.5 1,272 12.6
Total Loans 10,110 100.0% 9,855 100.0% 10,112 100.0%
======== ===== ======== ===== ======== =====
Less:
Unearned Interest 10 -- 73
Undisbursed Portion of Loans -- -- 301
Deferred Loan Fees 82 52 55
Allowance for Loan Losses 230 506 485
-------- -------- --------
Net Loans $ 9,788 $ 9,297 $ 9,198
======== ======== ========
</TABLE>
CONTRACTUAL TERMS TO FINAL MATURITIES. The following table sets forth
certain information as of December 31, 1999 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, 1999 is shown in the appropriate year
of the loan's final maturity.
<PAGE>
<TABLE>
<CAPTION>
One-to-Four Commercial
Family Real
Residential Construction Estate Consumer Total
----------- ------------ ---------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Amounts Due After December 31, 1999 in:
One year or less $ 8 $ 6 $ 16 $ 124 $ 154
After one year through two years 16 -- -- 31 47
After two years through three years 449 -- -- 80 529
After three years through five years 715 -- -- 153 868
After five years through ten years 1,758 -- 46 167 1,971
After ten years through fifteen years 1,425 -- 38 215 1,678
After fifteen years 4,134 111 100 518 4,863
-------- -------- -------- -------- --------
Total (1) $ 8,505 $ 117 $ 200 $ 1,288 $ 10,110
======== ======== ======== ======== ========
</TABLE>
<PAGE>
_______________________________
(1) Gross of loans in process, deferred loan fees, unearned discounts and
interest, and allowance for loan losses.
The following table sets forth the dollar amount of all loans, before
net items, due after one year from December 31, 1999 as shown in the
preceding table, which have fixed interest rates or which have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed- Adjustable
Rate Rate Total
-------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
One-to-Four Family Residential $ 2,472 $ 6,150 $ 8,622
Commercial Real Estate -- 200 200
Consumer 1,019 269 1,288
-------- -------- --------
Total $ 3,491 $ 6,619 $ 10,110
======== ======== ========
</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,
----------------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Loan Originations:
One-to-Four Family Residential $ 2,760 $ 1,709 $ 1,167
Construction 218 405 43
Commercial Real Estate 40 -- 28
Consumer 119 804 1,105
-------- -------- --------
Total Originations 3,137 2,918 2,343
Loan Principal Payments (2,601) (2,714) (2,042)
Other Increases (Decreases), Net(1) 206 (105) (323)
-------- -------- --------
Net Increase (Decrease) in
Loan Portfolio $ 742 $ 99 $ (22)
======== ======== ========
</TABLE>
___________________________
(1) Other items consist of loans in process, deferred loan fees,
unearned discounts and interest, and allowance for loan losses.
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, 1999, 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, 1999, 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 $429,000, $268,000, $261,000,
$249,000 and $195,000, respectively, at such date. All of these loans were
current at December 31, 1999.
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,
1999, $8.5 million or 84.0% 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, 1999, one-to-four family residential ARMs represented $6.6 million or
65.5% 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, 1999, the Association's non-accruing residential
loans were $177,000. 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, 1999, construction loans are not
being actively marketed and are offered primarily as a service to existing
customers. There were four construction loans in the Association's
portfolio at December 31, 1999 totaling $117,000 or 1.2% of the total
portfolio.
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 $200,000 or 2.0% of the total loan portfolio at December 31, 1999. The
largest commercial real estate loan at December 31, 1999 was $100,000 and
the remaining commercial real estate loan portfolio at December 31, 1999
consisted of three loans with an average balance of $33,000.
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 $40,000 in commercial real estate loans
in 1999 and none in 1998.
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, 1999, loans on deposits amounted to
$594,000, representing 56.2% of total consumer loans and 5.9% 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 $338,000 or 3.3% of
the total loan portfolio at December 31, 1999. 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 $356,000 or 3.5% of the total loan portfolio at
December 31, 1999. The largest of these loans, in the amount of $66,000 or
.6% of the total loan portfolio at December 31, 1999, is secured by a boat.
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, 1999, the Association had four commissioned loan originators 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, 1999, the Company had approximately $82,000 of loan fees which had been
deferred. The deferred loan fees are being recognized as income over the
lives of the related loans.
<PAGE>
ASSET QUALITY
DELINQUENT LOANS. The following table sets forth information
concerning delinquent loans at December 31, 1999, 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, 1999
-----------------------------------------------------------------
30 - 59 60 - 89 90 or More
Days Overdue Days Overdue Days Overdue
------------ ------------ ------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
One-to-Four Family Residential $ 767 7.59% $ 208 2.06% $ 161 1.59%
Commercial Real Estate 2 0.02 -- -- 16 0.16
Consumer 198 1.96 75 0.74 261 2.58
-------- -------- -------- -------- -------- --------
Total Delinquent Loans $ 967 9.56% $ 283 2.80% $ 438 4.33%
======== ======== ======== ======== ======== ========
</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, 1999, the
Association had two loans to facilitate.
The Company generally places loans on non-accrual status when the
payment of interest becomes more than 90 days past due or when interest
payments are otherwise deemed uncollectible.
The following table sets forth the amount of the Company's nonperforming
assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Nonperforming Assets:
Non-Accruing Loans $ 177 $ 737 $ 636
Real Estate Owned, Net (1) 251 62 --
-------- -------- --------
Total Nonperforming Assets $ 428 $ 799 $ 636
======== ======== ========
Troubled Debt Restructurings $ -- $ 6 $ 18
======== ======== ========
Total Nonperforming Loans and
Troubled Debt Restructurings
as a Percent of Total Loans 1.75% 8.20% 6.47%
Total Nonperforming Assets and
Troubled Debt Restructurings
as a Percent of Total Assets 0.92% 1.70% 1.44%
</TABLE>
(1) Net of related loss allowances as of each date shown, which allowances
at December 31, 1999, 1998 and 1997 amounted to $311,000, $35,000 and
$90,000, respectively, for real estate owned.
The $177,000 of non-accruing loans at December 31, 1999 consisted of
three one-to four- family residential loans for $161,000 and one commercial
real estate loan for $16,000. The largest non-accruing loan at December
31, 1999 consisted of a $106,000 adjustable-rate real estate loan secured
by a residence.
The Company's real estate owned at December 31, 1999 consisted of a
former furniture store and warehouse, a one-to-four family residential
property and unimproved land. The $251,000 of real estate owned at
December 31, 1999 is net of a $311,000 allowance for loss. See Note G 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, 1999 (excluding loss assets specifically reserved
for amounted to $716,000, of which $0 was classified as special mention and
$389,000 was classified as substandard. The largest classified asset at
December 31, 1999 consisted of other real estate totaling $512,000. The
Company has established reserves of $261,000 on this former furniture store
and warehouse. See "-Asset Quality-Classified Assets."
The remaining $216,000 of substandard assets at December 31, 1999
consisted of (1) residential mortgage loans totaling $138,000, of which the
largest loan had a balance of $45,000 at December 31, 1999, (2) other real
estate property with a balance of $50,000 which is fully reserved and (3)
consumer loans totaling $16,000. The $45,000 substandard residential
mortgage loan is secured by a one-to-four family residence. See
"Regulation - The Association - Classified Assets."
ALLOWANCE FOR LOAN LOSSES. At December 31, 1999, the Company's
allowance for loan losses amounted to $230,000 or 2.3% 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,
---------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Total Loans Outstanding $ 10,110 $ 9,885 $ 10,112
======== ======== ========
Allowance for Loan Losses
- -------------------------
Beginning Balance $ 506 $ 482 $ 527
Provision (Credit) for Loan Losses -- 24 (45)
Loans Charged-Off (Recovered) (1) (276) -- --
-------- -------- --------
Ending Balance $ 230 $ 506 $ 482
======== ======== ========
Allowance for Loan Losses as a Percent of
Total Loans Outstanding 2.27% 5.10% 4.80%
Allowance for Loan Losses as a Percent of
Nonperforming Loans and Troubled
Debt Restructurings 129.94% 68.10% 74.16%
</TABLE>
________________________
(1) There were no loan charge-off or recoveries in 1998 or 1997.
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,
-------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ -----------------------
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 $ 200 87.0% $ 214 81.4% $ 211 79.7%
Construction -- -- -- -- -- 0.4
Commercial Real Estate -- -- 272 6.9 271 7.3
Consumer 30 13.0 20 11.7 -- 12.6
--------- --------- --------- --------- --------- ---------
Total $ 230 100.0% $ 506 100.0% $ 482 100.0%
========= ========= ========= ========= ========= =========
</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 $26.1 million of mortgage-backed securities at December 31, 1999
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 E 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,
------------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Mortgage- Backed Securities Held to Maturity:
FNMA $ -- $ -- $ 15,256
FHLMC -- -- 3,773
GNMA -- -- 2,801
-------- -------- --------
Subtotal -- -- 21,830
-------- -------- --------
Mortgage- Backed Securities Available for Sale:
FNMA $ 14,284 $ 16,476 $ 4,963
FHLMC 5,052 3,941 1,142
GNMA 6,718 6,975 510
-------- -------- --------
Subtotal 26,054 27,392 6,615
-------- -------- --------
Total $ 26,054 $ 27,392 $ 28,445
======== ======== ========
</TABLE>
Information regarding the contractual maturities and weighted average
yield of the Company's mortgage-backed securities portfolio at December 31,
1999 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, 1999 Which Mature in
--------------------------------------------------------------------
One Year After One to After Five to Over 10
Or Less Five Years 10 Years Years Total
--------- ------------ ------------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Held to Maturity:
FNMA $ -- $ -- $ -- $ -- $ --
FHLMC -- -- -- -- --
GNMA -- -- -- -- --
--------- --------- --------- --------- ---------
Total $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Weighted Average Yield --% --% --% --% --%
========= ========= ========= ========= =========
Available for Sale:
FNMA $ 1,560 $ 4,085 $ 3,238 $ 5,401 $ 14,284
FHLMC 752 1,471 956 1,860 5,039
GNMA 966 2,405 1,421 1,939 6,731
--------- --------- --------- --------- ---------
Total $ 3,278 $ 7,961 $ 5,615 $ 9,200 $ 26,054
========= ========= ========= ========= =========
Weighted Average Yield 5.34% 5.68% 5.83% 5.84% 5.74%
========= ========= ========= ========= =========
Total Mortgage-Backed Securities:
FNMA $ 1,560 $ 4,085 $ 3,238 $ 5,401 $ 14,284
FHLMC 752 1,471 956 1,860 5,039
GNMA 966 2,405 1,421 1,939 6,731
--------- --------- --------- --------- ---------
Total $ 3,278 $ 7,961 $ 5,615 $ 9,200 $ 26,054
========= ========= ========= ========= =========
Weighted Average Yield 5.34% 5.68% 5.83% 5.84% 5.74%
========= ========= ========= ========= =========
</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,
--------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage- Backed Securities at
Beginning of Period $ 27,392 $ 28,445 $ 32,918
Purchases 6,003 5,538 969
Repayments (6,195) (5,578) (3,769)
Sales -- (1,136) (1,650)
Mark to Market Adjustments (1,054) 197 54
Amortizations of Premiums and
Discounts, Net (92) (74) (77)
-------- -------- --------
Mortgage- Backed Securities at
End of Period $ 26,054 $ 27,392 $ 28,445
======== ======== ========
Weighted Average Yield at
End of Period 5.74% 6.53% 6.58%
======== ======== ========
</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) totaled $5.5 million or
11.8% of total assets at December 31, 1999. All $5.5 million of investment
securities, which consists of U.S. Government and agency securities, and
equity securities are accounted for as available for sale and are carried
at market value. Of the $5.5 million of investment securities, $1,020,000
or 18.5% mature within five years of December 31, 1999.
The following table sets forth certain information relating to the
Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1999 1998 1997
----------------------- ---------------------- -----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
FHLB Notes $ 2,591 $ 2,591 $ 2,749 $ 2,749 $ 2,787 $ 2,785
FNMA Notes 216 216 734 734 200 200
FHLMC Notes 1,372 1,372 1,454 1,454 1,100 1,100
SBA 983 983 -- -- -- --
Other 348 348 367 367 -- --
-------- -------- -------- -------- -------- --------
Total Available for Sale 5,510 5,510 5,304 5,304 4,087 4,085
-------- -------- -------- -------- -------- --------
Held to Maturity
FHLB Stock 541 541 512 512 483 483
-------- -------- -------- -------- -------- --------
Total Held to Maturity 541 541 512 512 483 483
-------- -------- -------- -------- -------- --------
Total $ 6,051 $ 6,051 $ 5,816 $ 5,816 $ 4,570 $ 4,568
======== ======== ======== ======== ======== ========
</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, 1999. No tax-exempt yields
have been adjusted to a tax-equivalent basis.
<TABLE>
<CAPTION>
Amounts at December 31, 1999 Which Mature in
--------------------------------------------------------------------
One Year After One to After Five to Over 10
Or Less Five Years 10 Years Years Total
--------- ------------ ------------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Bonds and Other Debt Securities
Available for Sale:
FNMA $ -- $ 216 $ -- $ -- $ 216
FHLMC -- 477 2,565 920 3,962
GNMA -- -- -- -- --
SBA 38 163 271 512 984
Other -- -- -- 222 222
--------- --------- --------- --------- ---------
Total $ 38 $ 856 $ 2,836 $ 1,654 $ 5,384
========= ========= ========= ========= =========
Weighted Average Yield 6.23% 5.85% 6.54% 6.67% 6.73%
========= ========= ========= ========= =========
Equity Securities:
Other 126 -- -- -- 126
FHLB Stock (1) -- -- -- 541 541
--------- --------- --------- --------- ---------
Total $ 126 $ -- $ -- $ 541 $ 667
========= ========= ========= ========= =========
Weighted Average Yield --% --% --% 6.00% 6.00%
========= ========= ========= ========= =========
</TABLE>
________________________
(1) As a member of the FHLB of Dallas, the Association is required to
maintain its investment in FHLB stock, which has no stated maturity.
At December 31, 1999, the Company's investments in any one issuer which
exceeded more than 10% of the Company's total stockholders' equity were
FHLB notes which had both a carrying value and a market value of $2.6
million at December 31, 1999, FHLMC notes which had both a carrying value
and a market value of $1.5 million at December 31, 1999, and FNMA notes
which had both a carrying value and a market value of $734,000 at December
31, 1999.
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
$4.2 million or 10.8% of total deposits at December 31, 1999. 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 65.4% of the certificates of deposit at
December 31, 1999 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,
-----------------------------------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
Amount % Amount % Amount %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Certificate Accounts:
2.00% - 2.99% $ 22 0.1% $ -- --% $ -- --%
3.00% - 3.99% 9 0.0 -- -- 33 --
4.00% - 4.99% 7,738 20.2 -- -- -- --
5.00% - 5.99% 17,844 46.5 24,873 63.0 23,644 66.6
6.00% - 6.99% 4,255 11.1 5,942 15.0 2,293 6.5
7.00% - 7.99% 882 2.3 -- -- 1,068 3.0
8.00% or more -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Certificate Accounts 30,750 80.1 30,815 78.0 27,038 76.1
-------- -------- -------- -------- -------- --------
Transaction Accounts:
Passbook Savings 4,680 12.2 5,128 13.0 5,483 15.4
MMDAs 693 1.8 802 2.0 1,915 5.4
Demand and NOW accounts 2,245 5.9 2,750 7.0 1,098 3.1
-------- -------- -------- -------- -------- --------
Total Transaction Accounts 7,618 19.9 8,680 22.0 8,496 23.9
-------- -------- -------- -------- -------- --------
Total Deposits $ 38,368 100.0% $ 39,495 100.0% $ 35,534 100.0%
======== ======== ======== ======== ======== ========
</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,
----------------------------------------------------------------------------
1999 1998 1997
-------- -------- --------
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 $ 4,689 2.62% $ 5,295 2.63% $ 5,602 2.60%
Demand and NOW Accounts 1,624 1.85 1,413 2.10 1,893 2.20
MMDAs 717 2.55 993 2.55 1,210 2.40
Certificates of Deposit 34,857 5.37 32,054 5.50 27,242 5.53
-------- -------- -------- -------- -------- --------
Total Interest-Bearing Deposits $ 41,887 4.88% $ 39,755 4.92% $ 35,947 4.79%
======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the savings flows of the Company during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Increase (Decrease) Before Interest Credited(1) $ (2,990) $ 2,077 $ (2,657)
Interest Credited 1,863 1,471 1,556
-------- -------- --------
Net Increase (Decrease) in Deposits $ (1,127) $ 3,548 $ (1,101)
======== ======== ========
</TABLE>
________________________
(1) The information provided is net of deposits and withdrawals because
the gross amount of deposits and withdrawals is not readily available.
The Association attempts to control the flow of deposits by pricing
its accounts to remain generally competitive with other financial
institutions in its market area, but does not necessarily seek to match the
highest rates paid by competing institutions. The Association has
generally not taken a position of price leadership in its markets, except
when there has been an opportunity to market longer term deposits.
The principal methods used by the Association to attract deposits
include the offering of a wide variety of services and accounts,
competitive interest rates and convenient office locations.
The Association does not advertise for deposits outside of its primary
market area. At December 31, 1999, 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, 1999 which mature during
the periods indicated.
<TABLE>
<CAPTION>
Balance at December 31, 1999,
Maturing in the 12 Months Ending December 31,
--------------------------------------------------------------
2000 2001 2002 Thereafter Total
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of Deposit
- -----------------------
2.00% - 2.99% $ 22 $ -- $ -- $ -- $ 22
3.00% - 3.99% 9 -- -- -- 9
4.00% - 4.99% 6,267 1,262 148 61 7,738
5.00% - 5.99% 12,864 2,385 2,463 131 17,843
6.00% - 6.99% 536 555 662 2,502 4,255
7.00% - 7.99% 410 245 228 -- 883
---------- ---------- ---------- ---------- ----------
Total Certificate Accounts $ 20,108 $ 4,447 $ 3,501 $ 2,694 $ 30,750
========== ========== ========== ========== ==========
</TABLE>
The following table sets forth the maturities of the Company's
certificates of deposit of $100,000 or more at December 31, 1999 by time
remaining to maturity.
<TABLE>
<CAPTION>
Maturing During Quarter Ending Amounts
- ------------------------------ -----------
(In Thousands)
<S> <C>
March 31, 2000 $ 203
June 30, 2000 305
September 30, 2000 734
December 31, 2000 --
After December 31, 2000 1,888
-----------
Total Certificates of Deposit With
Balances of $100,000 or More $ 3,130
===========
</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. At December 31, 1999,
outstanding advances from FHLB totaled $1,000,000, at 5.923%, maturing
January 20, 2000. The Association did not have any advances from the FHLB
at December 31, 1998.
SUBSIDIARIES
The Association is a wholly-owned subsidiary of the Company. At
December 31, 1999, 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 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 19 full-time employees at
December 31, 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, 1999, 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 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.
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. 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.
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, 1999, 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, 1999, 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, 1999, the Association exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
15.1%, 15.1% and 64.1%, respectively. The following table sets forth the
Association's compliance with each of the above-described capital
requirements as of December 31, 1999.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital(1) Capital(2)
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Capital Under GAAP $ 6,480 $ 6,480 $ 6,480
Additional Capital Items:
General Valuation Allowances (3) -- -- 151
Net Realized Loss on Securities
Available for Sale 711 711 711
---------- ---------- ----------
Regualtory Capital 7,191 7,191 7,342
Minimum Required Regulatory Capital (4) 713 1,425 916
---------- ---------- ----------
Excess Regulatory Capital $ 6,478 $ 5,766 $ 6,426
========== ========== ==========
Regulatory Capital as a Percentage 15.13% 15.13% 64.14%
Minimum Capital Required as a Percentage (4) 1.50 3.00 8.00
---------- ---------- ----------
Regulatory Capital as a Percentage
in Excess of Requirements 13.63% 12.13% 56.14%
========== ========== ==========
</TABLE>
________________________
(1) Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized." See " -Prompt
Corrective Action."
(2) Does not reflect the interest-rate risk component in the risk-based
capital requirement, the effective date of which has been postponed
as discussed above.
(3) General valuation allowances are only used in the calculation of
risk-based capital. Such allowances are limited to 1.25% of risk-
weighted assets.
(4) Tangible and core capital are computed as a percentage of adjusted
total assets of $47.5 million. Risk-based capital is computed as a
percentage of adjusted risk-weighted assets of $11.4 million.
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.
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, 1999, 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, 1999, the Association's liquidity ratio was 7.47%.
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, 1999, 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 every 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, 1999,
the qualified thrift investments of the Association were approximately
84.08% 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, 1999,
the Association had $541,000 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, 1999, no reserves were required to be maintained on the first
$4.7 million of transaction accounts, reserves of 3% were required to be
maintained against the next $47.8 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.
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, 1999, 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, 1999, 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, 1999, 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 1999 and 2000,
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,
1999, 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, 1999, 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,
1999, the Company had $261,000 in 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 Company's federal income tax returns for the tax years ended
December 31, 1996 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, 1999, the Company and the Association conducted their
business from the Association's main office and two branch offices 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, 1999.
<TABLE>
<CAPTION>
Net Book Value
Description/Address Leased/Owned of Property
- ------------------- ------------ --------------
<S> <C> <C>
Main Office:
#1 Westbank Expressway
New Orleans, LA 70114 Leased $ 212
Branch Offices:
2021 Carol Sue Ave.
Terrytown, LA 70056 Owned 213
3008 Holiday Drive
New Orleans, LA 70131 Leased 200
---------
Total $ 625
=========
</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 March
10, 2000 at $7.50 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 paid quarterly cash dividends at a rate of $0.05
per share since 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 CONDITION 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 the Company and 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
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 products would better insulate the Association
from periods of rate fluctuation. At December 31, 1999, the Association's
fixed-rate mortgage-backed securities amounted to $2.4 million or 5.2% of
total assets, its ARMs amounted to $6.6 million or 14.2% of total assets
and its adjustable-rate mortgage-backed securities amounted to $23.6
million or 50.5% of total assets. The interest rates on the ARMs and on a
portion of the adjustable-rate mortgage-backed securities, however, adjust
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, 1999, the Company would
not have been subject to any capital deduction as of December 31, 1999 if
the regulation had been effective as of such date. The following table
presents the Company's NPV as of December 31, 1999, as calculated by the
OTS, based on information provided to the OTS by the Association.
<TABLE>
<CAPTION>
Change in NPV as % of Change in
Interest Rates Net Portfolio Value Portfolio NPV as % of
in Basis Point ------------------- Value of Portfolio Value
(Rate Shock) Amount $ Change % Change Assets (1) of Assets
- -------------- ------------ ---------- ---------- ----------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $ -- $ -- -- % -- % -- %
300 7,205 (1,311) (15)% 15.73 % (1.97)%
200 7,709 (806) (9)% 16.53 % (1.17)%
100 8,152 (364) (4)% 17.20 % (0.50)%
Static 8,515 -- -- % 17.70 % -- %
(100) 8,731 215 3 % 17.94 % 0.24 %
(200) 8,801 285 3 % 17.92 % 0.22 %
(300) 8,930 414 5 % 18.00 % 0.30 %
(400) -- -- -- % -- % -- %
</TABLE>
________________________
(1) Based on the portfolio value of the Company's assets assuming no
change in interest rates.
CHANGES IN FINANCIAL CONDITION
ASSETS. Total assets decreased to $46.8 million at December 31, 1999
from $48.6 million at December 31, 1998.
Mortgage-backed securities as a percentage of total assets decreased
to 55.7% at December 31, 1999 from 56.3% at December 31, 1998. 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
mortgage loans.
At December 31, 1999, net loans receivable totaled $9.8 million or
20.9% of total assets. Of the total loan portfolio, $8.5 million or 84.0%
consisted of one-to-four family residential loans. Consumer loans
accounted for $1.3 million or 12.7% of the total loan portfolio, and 2.0%
of the portfolio consisted of commercial real estate loans.
Mortgage-backed securities and investment securities were 55.7% and
11.8% of total assets, respectively, at December 31, 1999. Of such amount,
$3.4 million or 7.4% of total assets mature within one year of December 31,
1999. See Notes B and E to the Consolidated Financial Statements. Cash
and cash equivalents amounted to 6.1% of total assets at such date.
Non-performing assets have decreased from 1.7% of total assets at
December 31, 1998 to .9% of total assets at December 31, 1999. Non-
accruing single-family residential loans represented 37.6% of the $428,000
of total non-performing assets at December 31, 1999. The balance of non-
performing assets included one commercial loan accounting for 3.7%. At
December 31, 1999, the Company's allowance for loan losses equaled $230,000
or 2.3% of total loans outstanding.
The Company's total deposits decreased during 1999 to $38.4 million at
December 31, 1999 from $39.5 million at December 31, 1998. Certificates
accounts decreased by $64,000 or .2% from December 31, 1998 to December 31,
1999, while transaction accounts decreased by $1.1 million or 12.2% during
the period.
Total stockholders' equity was $7.1 million at December 31, 1999, a
decrease of $1.5 million from December 31, 1998. The decrease was due to a
$148,000 purchase of treasury stock, a $911,000 decrease in Accumulated
Other Comprehensive Income, dividends of $102,000 and net loss for the year
of $367,000. These decreases were partially offset by increases from a
$49,000 allocation to the Employee Stock Ownership Plan, and a $12,000
allocation to the Management Retention Plan Trust.
RESULTS OF OPERATIONS
NET INCOME. The Company's net income decreased by $528,000 or 327.9%
from a net income of $161,000 in 1998 to a net loss of $367,000 in 1999
and decreased by $50,000 or 23.7% in 1998 from net income of $211,000 in
1997. The decrease in 1999 is attributable to a decrease of $275,000 in
net interest income, an increase of $575,000 in non-interest expenses, and
a decrease in minority interest in loss of an unconsolidated subsidiary of
$8,000, partially offset by an increase of $9,000 in non-interest income,
an increase in income taxes benefit of $297,000, and a decrease in the
provision for loan losses of $24,000.
NET INTEREST INCOME. The primary source of earnings is net interest
income, which is the difference between income generated from interest-
earning assets and interest expense from interest-bearing liabilities. Net
interest income decreased by $275,000 or 20.3% in 1999, and decreased
$52,000 or 3.7% in 1998. The decrease in 1999 was due to a decrease in the
interest rate spread and to a lesser extent the decrease in the ratio of
average interest-earning assets to average interest-bearing liabilities.
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 1.86% for 1999
from 2.24% for 1998 after decreasing from 2.27% for 1997. In addition, its
ratio of average interest-earning assets to average interest-bearing
liabilities decreased to 114.25% for 1999 from 119.26% for 1998, which
represented a decrease from the 122.45% for 1997. 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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest- Earning Assets:
Loans Receivable (1) $ 9,543 $ 881 9.23% $ 9,983 $ 916 9.18% $ 9,298 $ 837 9.00%
Mortgage-Backed Securities 26,723 1,595 5.97 27,918 1,747 6.26 30,912 1,993 6.45
Investment Securities (2) 5,407 327 6.05 4,695 364 7.75 2,576 219 8.50
Other Interest-Earning Assets 1,931 137 7.09 2,145 137 6.39 1,796 106 5.90
------- -------- ------- ------- -------- ------- ------- -------- -------
Total Interest-Earning Assets 43,604 2,940 6.74% 44,741 3,164 7.07% 44,582 3,155 7.08%
------- -------- ------- ------- -------- ------- ------- -------- -------
Non-Interest Earning Assets 4,088 2,228 2,348
------- ------- -------
Total Assets $47,691 $46,969 $46,928
======= ======= =======
Interest-Bearing Liabilities:
Passbook, NOW and Money
Market Accounts $ 7,215 $ 181 2.51% $ 8,588 $ 196 2.28% $ 8,705 $ 216 2.48%
Certificates of Deposit 30,783 1,675 5.44 28,926 1,616 5.59 27,242 1,506 5.53
------- -------- ------- ------- -------- ------- ------- -------- -------
Total Deposits 37,997 1,856 4.88 37,514 1,812 4.83 35,947 1,722 4.79
FHLB Advances 167 7 4.19 -- -- -- 462 29 6.25
------- -------- ------- ------- -------- ------- ------- -------- -------
Total Interest-Bearing Liabilities 38,164 1,863 4.88% 37,514 1,812 4.83% 36,409 1,751 4.81%
------- -------- ------- ------- -------- ------- ------- -------- -------
Non-Interest Bearing Liabilities (3) 1,678 395 851
------- ------- -------
Total Liabilities 39,842 37,909 37,260
Stockholders' Equity 7,849 9,060 9,668
------- ------- -------
Total Liabilities and
Stockholders' Equity $47,691 $46,969 $46,928
======= ======= =======
Net Interest-Earning Assets $ 5,440 $ 7,227 $ 8,173
======= ======= =======
Net Interest Income; Average
Interest Rate Spread $ 1,077 1.86% $ 1,352 2.24% $ 1,404 2.27%
======== ------- ======== ------- ======== -------
Net Interest Margin (4) 2.47% 3.02% 3.15%
======= ======= =======
Average Interest-Earning Assets
to Average Interest-Bearing
Liabilities 114.25% 119.26% 122.45%
======= ======= =======
</TABLE>
________________________
(1) Includes nonaccrual loans during the respective periods. Calculated
net of deferred fees and discount, loans in process and allowance for
loan losses.
(2) Includes non-accruing investment securities during the respective
periods.
(3) Includes non-interest-bearing deposits.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
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 current
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>
1999 vs. 1998 1998 vs. 1997
--------------------------------- --------------------------------
Increase (Decrease) Due to Increase (Decrease) 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 $ 5 $ (40) $ (35) $ 16 $ 63 $ 79
Mortgage- Backed Securities (77) (75) (152) (58) (188) (246)
Investment Securities (92) 55 (37) (17) 162 145
Other Interest-Earning Assets 14 (14) -- 9 22 31
-------- -------- -------- -------- -------- --------
Total Interest Income (150) (74) (224) (50) 59 9
-------- -------- -------- -------- -------- --------
Interest Expense:
Passbook, NOW and Money
Market Accounts 17 (32) (15) (18) (2) (20)
Certificates of Deposit (46) 105 59 16 94 110
-------- -------- -------- -------- -------- --------
Total Deposits (29) 73 44 (2) 92 90
FHLB Advances -- 7 7 (14) (15) (29)
-------- -------- -------- -------- -------- --------
Total Interest Expense (29) 80 51 (16) 77 61
-------- -------- -------- -------- -------- --------
Increase (Decrease) in Net
Interest Income $ (121) $ (154) $ (275) $ (34) $ (18) $ (52)
======== ======== ======== ======== ======== ========
</TABLE>
INTEREST INCOME. Interest on loans decreased $35,000 or 3.8% in 1999
due to a decrease in the average outstanding balances of $440,000,
partially offset by an increase in the weighted average yields on loans
receivable to 9.23% from 9.18%. 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 $152,000 or 8.7%
in 1999 from 1998, due to a $1.2 million or 4.3% decrease in the average
balance and a decrease in the average yield to 5.97% in 1999 from 6.26% in
1998. The average balance decreased as the market value adjustment for
unrealized losses increased by $1.1 million in 1999 from a $197,000 gain
adjustment 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 1999.
Interest on investment securities decreased by $37,000 or 10.2% in
1999 from 1998, due to a decrease in the average rate to 6.05% in 1999 from
7.75% in 1998, which was partially offset by an increase in the average
balance of $712,000 from 1998.
Other interest income, which consists of dividends on FHLB stock and
interest on overnight deposits at the FHLB, remained the same from 1998 to
1999. The $214,000 decrease in the average balance was offset by an
increase in the average yield to 7.09% in 1999 from 6.39% in 1998.
Total interest income decreased by $224,000 or 7.1% in 1999 from 1998,
due to a $1.1 million or 2.5% decrease in the average balance of total
interest-earning assets and a decrease in the average yield to 6.74% in
1999 from 7.07% in 1998.
INTEREST EXPENSE. Interest on deposits increased by $44,000 or 2.4%
in 1999 over 1998, due to a $483,000 or 1.3% increase in the average
balance and an increase in the average rate to 4.88% in 1999 from 4.83% in
1998. The increase in the average balance was primarily due to an increase
in the average balance of certificates of deposit. The average rate paid
on certificates of deposit decreased to 5.44% in 1999 from 5.59% in 1998,
which decrease was partially offset by an increase in the average rate paid
by the Company on its transaction accounts to 2.51% in 1999 from 2.28% in
1998.
Interest on FHLB advances increased by $7,000 or 100.0% in 1999 from
1998, primarily due to an increase in the average balance of FHLB advances
of $167,000 in 1999.
Total interest expense increased by $51,000 or 2.8% in 1999 over 1998,
primarily due to the increase in the average balance of certificates of
deposit.
PROVISION (CREDIT) FOR LOAN LOSSES. The Company provided (recovered)
$0, $24,000, and ($4,000) of its allowance for loan losses in 1999, 1998
and 1997, respectively. The allowance for loan losses amounted to $230,000
or 2.3% of the total loan portfolio at December 31, 1999.
NON-INTEREST INCOME. Service charges and fees, which primarily
consist of charges for ATM usage, checking accounts, overdrafts and late
payments, increased by $46,000 or 85.2% in 1999 from 1998. This increase
was primarily due to the addition of an ATM to one of the Association's
branch locations.
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, $5,000 during
1998 and $10,000 during 1999. See Note C 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 and which resulted in a
gain of $17,000. There were no sales of mortgage-backed securities during
1999.
Other non-interest income amounted to $21,000 and $14,000 in 1999 and
1998, respectively.
Total non-interest income increased by $9,000 or 7.3% in 1999 from
1998, primarily due to an increase of $46,000 in service charges and fees,
partially offset by a decrease of $34,000 in gain on sale of other real
estate and a decrease of $17,000 in gain on the sale of investments from
1998.
NON-INTEREST EXPENSE. Compensation and benefits increased by $109,000
or 19.5% in 1999 over 1998, due to an increase in the Company's workforce
related to the opening of a new branch.
Occupancy and equipment expenses increased by $220,000 or 120.2% in
1999 over 1998, primarily due to an increase in the Association's rent
expense and other costs related to the opening of a new branch, and an
increase in depreciation expense related to the new branch and a new
computer system.
Federal insurance premiums increased by $8,000 or 33.3% in 1999 from
1998.
Computer expenses increased by $17,000 or 28.3% in 1999 from 1998,
primarily due to technical support for the new computer system.
Professional services increased $162,000 or 155.8% in 1999 from 1998,
due to an increase in legal and accounting fees.
Bank service charge expense increased $22,000 or 146.7% in 1999 from
1998, due to the volume of transactions related to the addition of a new
branch in 1999.
The Association's real estate owned expense, net increased by $6,000
in 1999 from 1998, primarily due to the number of real estate owned
properties that were owned by the Association at December 31, 1999. The
real estate owned at December 31, 1999 consisted of a former furniture
store and warehouse, a one-to-four family residential property and
unimproved land.
Other non-interest expense, which primarily consists of insurance and
bond premiums, postage and supplies, and other operating expenses increased
by $31,000 or 11.0% in 1999 from 1998. The increase was primarily due to
costs related to the opening of a new branch during 1999.
Total non-interest expense increased by $575,000 or 46.6% in 1999 from
1998, primarily due to increases of $109,000 in compensation and benefits,
$220,000 in occupancy and equipment, $162,000 in professional services,
$31,000 in other expenses, $22,000 in bank services charges, $17,000 of
computer expenses, $8,000 in SAIF assessment and insurance premiums and
$6,000 in real estate owned expenses. Total non-interest expense as a
percent of average assets was 3.8% in 1999 compared to 2.6% in 1998.
FEDERAL INCOME TAX EXPENSE(BENEFIT). The Company's federal income tax
expense decreased by $297,000 or 376.5% in 1999 from 1998. The effective
tax rate for 1999, 1998 and 1997 was 36.4%, 39.5% and 18.5%, 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 $184,000, $182,000
and $194,000 at December 31, 1999, 1998 and 1997, respectively. Other
components of the valuation reserve consist of allowances for loan losses
and real estate owned losses. For additional information, see Note I 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 or
less, of which short-term liquid assets must consist of not less than 1%.
At December 31, 1999, Algiers' liquidity was 7.47% or $1.3 million in
excess of the minimum OTS requirement.
Cash was used in Algiers' operating activities during 1999 primarily
as a result of the net loss for the period. Cash was generated by Algiers'
operating activities during 1998 primarily as a result of net income for
the 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 1999 and 1998 primarily because the
amount of mortgage-backed securities and investments purchased exceeded the
amount matured. Financing activities used net cash in 1999 due to the
purchases of treasury stock of $148,000, and a decrease in deposits of $1.1
million, partially offset by an increase of $1 million in FHLB advances.
The primary financing activity consists of the purchases of treasury stock
of $1.2 million in 1998 and deposit increases of $4.0 million in 1998.
Total cash and cash equivalents amounted to $2.8 million at December 31,
1999. See the Consolidated Statements of Cash Flows in the Consolidated
Financial Statements.
At December 31, 1999, Algiers had outstanding commitments to originate
$527,000 of one-to four-family residential loans (including undisbursed
construction loans) and $60,000 undisbursed lines of credit. At the same
date, the total amount of certificates of deposit which were scheduled to
mature in the following 12 months was $20.1 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, 1999, Algiers exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 15.13%,
15.13% and 64.14%, 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.
ITEM 7. FINANCIAL STATEMENTS.
ALGIERS BANCORP, INC.
& SUBSIDIARIES
DECEMBER 31, 1999
Audits of Financial Statements
December 31, 1999
and
December 31, 1998
<PAGE>
C O N T E N T S
Independent Auditor's Report 1
Consolidated Statements of Financial Condition 2
Consolidated Statements of Operations 3 - 4
Consolidated Statements of Comprehensive Income (Loss) 5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows 7 - 8
Notes to Consolidated Financial Statements 9 - 34
<PAGE>
The Board of Directors
Algiers Bancorp, Inc. & Subsidiaries
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated statements of financial
condition of ALGIERS BANCORP, INC. AND SUBSIDIARIES, as of December 31,
1999 and 1998, and the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999.
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, 1999 and 1998,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
A Professional Accounting Corporation
March 10, 2000
Metairie, Louisiana
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash and Amounts Due from Depository Institutions $ 1,374 $ 3,659
Interest-Bearing Deposits in Other Banks 1,465 1,222
Investments Available-for-Sale, at Fair Value 5,510 5,304
Loans Receivable - Net 9,788 9,297
Mortgage-Backed Securities - Available-for-Sale,
at Fair Value 26,054 27,392
Loans Held for Sale 130 -
Stock in Federal Home Loan Bank 541 512
Accrued Interest Receivable 324 369
Real Estate Owned - Net 251 62
Office Property and Equipment, (Net
of Depreciation and Amortization) 795 662
Prepaid Expenses 46 87
Deferred Taxes 374 -
Income Tax Receivable 105 28
Other Assets 7 32
-------- --------
Total Assets $ 46,764 $ 48,626
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
LIABILITIES
Deposits:
Interest Bearing $ 37,844 $ 38,150
Non-Interest Bearing 524 1,345
FHLB Advances 1,000 -
Advance Payments from Borrowers for
Insurance and Taxes 84 114
Accrued Interest Payable on Depositors' Accounts 16 23
Dividends Payable 25 32
Deferred Tax Liability - 212
Other Liabilities 104 84
-------- --------
39,597 39,960
Minority Interest in Subsidiary 48 87
-------- --------
Total Liabilities 39,645 40,047
-------- --------
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 - 506,348 Outstanding at
December 31, 1999 and 519,248 Outstanding at
December 31, 1998 6 6
Additional Paid-in Capital 6,132 6,137
Unearned ESOP Shares (322) (376)
Unearned MRP Shares (36) (48)
Retained Earnings 3,882 4,344
Treasury Stock - 141,677 Shares in 1999 and
128,777 Shares in 1998, at Cost (1,823) (1,675)
Accumulated Other Comprehensive Income (Loss) (720) 191
-------- --------
Total Stockholders' Equity 7,119 8,579
-------- --------
Total Liabilities and Stockholders' Equity $ 46,764 $ 48,626
======== ========
</TABLE>
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 881 $ 916 $ 837
Mortgage-Backed Securities 1,595 1,747 1,993
Investment Securities 327 364 219
Other Interest-Earning Assets 137 137 106
-------- -------- --------
Total Interest Income 2,940 3,164 3,155
-------- -------- --------
INTEREST EXPENSE
Deposits 1,856 1,812 1,722
FHLB Advances 7 - 29
-------- -------- --------
Total Interest Expense 1,863 1,812 1,751
-------- -------- --------
NET INTEREST INCOME 1,077 1,352 1,404
(PROVISION) CREDIT FOR LOAN LOSSES - (24) 45
-------- -------- --------
NET INTEREST INCOME AFTER
(PROVISION) CREDIT FOR LOAN LOSSES 1,077 1,328 1,449
-------- -------- --------
NON-INTEREST INCOME
Service Charges and Fees 100 54 52
Recapture of Allowance on GIC Bonds 10 5 116
Gain on Sale of REO 2 34 -
Gain on Sale of Investments - 17 11
Other Income 21 14 44
-------- -------- --------
Total Non-Interest Income 133 124 223
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NON-INTEREST EXPENSES
Compensation and Benefits 669 560 765
Occupancy and Equipment 403 183 173
Computer 77 60 34
Deposit Insurance Premium 32 24 18
Professional Services 266 104 138
Bank Service Charges 37 15 25
Provision for Possible Real Estate
Write-Downs - - 45
Real Estate Owned Expense - Net 13 7 2
Other 313 282 213
-------- -------- --------
1,810 1,235 1,413
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (600) 217 259
INCOME TAX EXPENSE (BENEFIT) (194) 103 48
-------- -------- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST IN SUBSIDIARY (406) 114 211
MINORITY INTEREST IN SUBSIDIARY 39 47 -
-------- -------- --------
NET INCOME (LOSS) $ (367) $ 161 $ 211
======== ======== ========
EARNINGS (LOSS) PER SHARE $ (0.79) $ 0.29 $ 0.37
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INCOME (LOSS) $ (367) $ 161 $ 211
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized Holding Gains (Losses) Arising
During the Period (911) 237 4
Reclassification Adjustment for (Gains)
Losses Included in Net Income - (60) 34
-------- -------- --------
Total Other Comprehensive Income (Loss) (911) 177 38
-------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ (1,278) $ 338 $ 249
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 Comprehensive Treasury Stockholders'
Stock Capital Shares Shares Earnings Income (Loss) Stock Equity
------- ---------- -------- -------- -------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net Loss - - - - (367) - - (367)
Dividends Declared - - - - (95) - - (95)
Common Stock Released by MRP Trust - - - 12 - - - 12
ESOP Shares Released for Allocation - (5) 54 - - - - 49
Purchase of Treasury Stock - - - - - - (148) (148)
Other Comprehensive Income (Loss) Net -
of Applicable Deferred Income Taxes - - - - - (911) - (911)
------- ---------- ------- -------- -------- ------------- -------- -------------
BALANCE - December 31, 1999 $ 6 $ 6,132 $ (322) $ (36) $ 3,882 $ (720) $ (1,823) $ 7,119
======= ========== ======= ======== ======== ============= ======== =============
</TABLE>
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (367) 161 $ 211
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 170 48 24
Provision (Credit) for Loan Losses - 24 (45)
Provision for Losses on Real Estate Owned - - 45
Premium Amortization Net of Discount Accretion 47 (74) 62
Gain on Sale of Real Estate Owned (2) (34) -
Gain on Sale of Mortgage-Backed Securities - (17) (11)
ESOP and MRP Expense 61 84 70
(Increase) Decrease in Accrued Interest Receivable 45 (100) (4)
(Increase) Decrease in Prepaid Expenses 41 (68) (1)
(Increase) Decrease in Prepaid Income Taxes (77) (28) 75
Originations of Loans Held-for-Sale (2,165) - -
Proceeds from Sale of Loans Held-for-Sale 2,035 - -
(Increase) Decrease in Other Assets 25 (29) 2
Increase (Decrease) in Accrued Interest Payable (7) 22 -
Increase (Decrease) in Income Tax Payable - (17) 17
Increase (Decrease) in Other Liabilities 20 38 18
Increase (Decrease) in Minority Interest (39) 87 -
(Increase) Decrease in Deferred Income Taxes (116) 93 51
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities (329) 190 514
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of Investment Securities - Held-to-Maturity - - 825
Purchases of Investment Securities - Available-for-Sale (1,009) (5,083) (3,094)
Maturities of Investment Securities - Available-for-Sale 520 3,885 1,539
Purchases of Mortgage-Backed Securities - Held-to-Maturity - (1,406) (185)
Maturities of Mortgage-Backed Securities - Held-to-Maturity - 3,399 2,119
Purchases of Mortgage-Backed Securities - Available-for-Sale (6,003) (4,132) (784)
Maturities of Mortgage-Backed Securities - Available-for-Sale 6,195 2,378 1,600
Proceeds From Sale of Mortgage-Backed Securities - AFS - 1,153 1,661
Net (Increase) Decrease in Loans (742) (228) 22
Non-Cash Dividend - FHLB (29) (29) (27)
Purchase of Office Properties and Equipment (302) (457) (46)
Proceeds from Sales of Real Estate Owned 64 77 -
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities (1,306) (443) 3,630
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALGIERS BANCORP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits (1,127) 3,961 (1,101)
Net Increase (Decrease) in Advances from Borrowers
for Taxes and Insurance (30) 2 (125)
Proceeds from Federal Home Loan Bank Advance 1,000 - 3,900
Repayment of Federal Home Loan Bank Advance - - (5,400)
Dividends Paid (102) (121) (113)
Purchase of Treasury Stock (148) (1,203) (472)
Purchases of MRP Shares - (60) -
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (407) 2,579 (3,311)
-------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (2,042) 2,326 833
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 4,881 2,555 1,722
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,839 $ 4,881 $ 2,555
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest $ 1,870 $ 1,790 $ 1,751
Income Taxes $ - $ 139 $ 31
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Dividends Declared $ 25 $ 32 $ 31
Real Estate Owned Acquired Through Foreclosure $ 251 $ 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.
<PAGE>
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Algiers Bancorp, Inc. (the "Company") was organized as a
Louisiana corporation on February 5, 1996 for the purpose of engaging
in any lawful act or activity for which a corporation may be formed
under the Louisiana Business Corporation Law, as amended. Other than
steps related to the reorganization described below, the Company
was essentially inactive until July 8, 1996, when it acquired Algiers
Homestead Association (the "Association") in a business reorganization
of entities under common control in a manner similar to a pooling
of interest. The Association is engaged in the savings and loan
industry. The acquired Association became a wholly-owned subsidiary
of the Company through the issuance of 1,000 shares of common stock
to the Company in exchange for 50% of the net proceeds received by
the Company in the reorganization.
On December 23, 1996, the Company entered into a limited
liability company partnership when it acquired a majority interest
in Jefferson Community Lending, LLC. Jefferson Community Lending,
LLC was engaged in the business of consumer lending. During 1998, the
Company initiated a restructuring plan to reduce costs and increase
future operating efficiency by consolidating the operations of
Jefferson Community Lending, LLC into those of the Association and
commenced the dissolution 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 Company 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 in 1998 and 1997, 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. 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 the 1999 presentation. Such
reclassifications had no effect on net income.
<PAGE>
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 restructuring.
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.
<PAGE>
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.
The 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, 1999 and 1998 included
the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash $ 1,374 $ 3,659
Interest-Bearing Deposits
in Other Institutions 1,465 1,222
-------- --------
$ 2,839 $ 4,881
======== ========
</TABLE>
NON-DIRECT RESPONSE ADVERTISING
The Corporation expenses advertising costs as incurred.
Advertising for 1999, 1998 and 1997 was $11,000, $1,000 and $2,000,
respectively.
<PAGE>
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to income.
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 Company 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. 137 (SFAS 137),
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES", an
amendment extending the effective date of SFAS 133, is effective for
the quarter beginning after June 15, 2000. 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.
<PAGE>
NOTE B
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale at December 31, 1999
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 $ 251 $ - $ 35 $ 216
FHLMC Callable Note 1,444 - 72 1,372
FHLB Callable Notes 2,749 - 158 2,591
SBA 989 - 6 983
Other Securities 393 - 45 348
--------- ---------- ---------- --------
$ 5,826 $ - $ 316 $ 5,510
========= ========== ========== ========
</TABLE>
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>
The following is a summary of contractual maturities of
investment securities available-for-sale as of December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Due in One Year or Less $ 181 $ 164
Due from One to Five Years 914 856
Due from Five to Ten Years 2,966 2,836
Due After Ten Years 1,765 1,654
--------- --------
$ 5,826 $ 5,510
========= ========
</TABLE>
<PAGE>
NOTE B
INVESTMENT SECURITIES AVAILABLE-FOR-SALE (CONTINUED)
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, 1999 and 1998 was $540,700 and $512,200,
respectively, with no provision for unrealized losses necessary.
NOTE C
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.
The activity in the carrying value and the reserve account is
summarized as follows for the years ended December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
Carrying Reserve
Value Balance
-------- --------
<S> <C> <C>
Balance at December 31, 1997 - -
Recovery of Previous Charge - Offs - (5)
Recapture of Provision
for Investment Losses - 5
-------- --------
Balance at December 31, 1998 - -
Recovery of Previous Charge - Offs - (10)
Recapture of Provision
for Investment Losses - 10
-------- --------
Balance at December 31, 1999 $ - $ -
======== ========
</TABLE>
<PAGE>
NOTE D
LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Loans Secured by First Mortgages on Real Estate:
1-4 Family Residential $ 8,492 $ 7,816
Commercial 200 686
Construction Loans - 1-4 Family 117 -
Partially-Guaranteed by VA
or Insured by FHA Loans - 1-4 Family 13 27
-------- --------
Total Real Estate Loans 8,822 8,529
-------- --------
Consumer Loans:
Second Mortgage Loans - 1-4 Family 338 360
Consumer Loans 356 400
Share Loans 594 566
-------- --------
Total Consumer Loans 1,288 1,326
-------- --------
10,110 9,855
-------- --------
Less:
Allowance for Losses 230 506
Unearned Interest on Mortgage Loans 10 -
Net Deferred Loan Origination Fees 82 52
-------- --------
322 558
-------- --------
$ 9,788 $ 9,297
======== ========
</TABLE>
An approximate schedule of loan maturities or repricing
opportunities at December 31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Variable Fixed
Maturities Rate Rate Total
------------- -------- ------- -------
<S> <C> <C> <C>
Three Months or Less $ 5 $ 77 $ 82
Three Months - One Year 19 53 72
One Year - Five Years 823 621 1,444
Over Five Years 5,772 2,740 8,512
------- ------- -------
$ 6,619 $ 3,491 $10,110
======= ======= =======
</TABLE>
<PAGE>
NOTE D
LOANS RECEIVABLE (CONTINUED)
Activity in the allowance for loan losses is summarized as
follows for the years ended December 31, 1999, 1998, and 1997 (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $ 506 $ 482 $ 527
Charge-Offs (276) - -
Recoveries - - -
Provision (Credit) for Loan Losses - 24 (45)
-------- -------- --------
Balance at End of Year $ 230 $ 506 $ 482
======== ======== ========
</TABLE>
At December 31, 1999 and 1998, the Association had loans totaling
approximately $0 and $505,800, respectively, for which impairment had
been recognized. The allowance for loan losses related to these loans
totaled $0 and $261,000 at December 31, 1999 and 1998, respectively.
There was no interest income recognized on these loans during the
years ended December 31, 1999, 1998 and 1997.
At December 31, 1999 and 1998, the Association had non-performing
loans of approximately $177,000 and $737,000, respectively. The
amount of interest foregone for the years ended December 31, 1999,
1998 and 1997 was approximately $23,000, $62,000 and $1,000,
respectively.
The Association does not service any loans for others.
In the normal course of business, the Association originates
consumer loans to members of the Board of Directors and officers.
Loans to such borrowers are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Balance at Beginning of Year $ 37 $ 84
Additions 89 39
Payments and Renewals (52) (86)
-------- --------
Balance at End of Year $ 74 $ 37
======== ========
</TABLE>
<PAGE>
NOTE E
MORTGAGE-BACKED SECURITIES
Fixed and variable rate mortgage-backed securities available-for-
sale at December 31, 1999 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
GNMA Certificates $ 6,877 $ - $ 146 $ 6,731
FNMA Certificates 14,756 - 472 14,284
FHLMC Certificates 5,198 - 159 5,039
--------- ---------- ---------- ---------
$ 26,831 $ - $ 777 $ 26,054
========= ========== ========== =========
</TABLE>
Fixed and variable rate mortgage-backed securities available-for-
sale at December 31, 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------
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>
The amortized cost and fair value of mortgage-backed securities
at December 31, 1999, 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 $ 3,370 $ 3,278
Due After One Year Thru Five Years 8,194 7,961
Due After Five Years Thru Ten Years 5,779 5,615
Due After Ten Years 9,488 9,200
--------- --------
$ 26,831 $ 26,054
========= ========
</TABLE>
<PAGE>
NOTE E
MORTGAGE-BACKED SECURITIES (Continued)
During 1998 and 1997, the Association sold mortgage-backed
securities for approximately $1,153,000 and 1,661,000, respectively.
These sales resulted in realized gains of $17,000 and $11,000 during
1998 and 1997, respectively. There were no sales of mortgage-backed
securities during 1999.
NOTE F
INTEREST RECEIVABLE
Interest receivable at December 31, 1999 and 1998 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Mortgage Loans $ 76 $ 75
Share Loans 6 7
Investment Securities 88 121
Mortgage-Backed Securities 154 166
-------- --------
$ 324 $ 369
======== ========
</TABLE>
NOTE G
REAL ESTATE OWNED
A summary of real estate owned at December 31, 1999 and 1998 is
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Real Estate Acquired in Settlement $ 563 $ 97
Less: Allowances for Losses 311 35
-------- --------
$ 252 $ 62
======== ========
</TABLE>
Activity in the allowance for losses for other real estate owned
for years ended December 31, 1999, 1998 and 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $ 35 $ 90 $ 45
Provision for REO Losses 276 - 45
Sale of REO - (55) -
-------- -------- --------
Balance at End of Year $ 311 $ 35 $ 90
======== ======== ========
</TABLE>
<PAGE>
NOTE H
OFFICE PROPERTY AND EQUIPMENT
Office property and equipment consist of the following at
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land $ 30 $ 30
Building 188 188
Furniture, Fixtures and Equipment 906 654
Leasehold Improvements 99 48
-------- --------
1,223 920
Less: Accumulated Depreciation and Amortization 428 258
-------- --------
$ 795 $ 662
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998
and 1997 was approximately $170,000, $48,000 and $24,000,
respectively.
NOTE I
FEDERAL INCOME TAXES
The provision for income taxes for 1999, 1998 and 1997 consists
of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current Federal Tax Expense (Benefit) $ (78) $ 10 $ 77
Deferred Federal Tax Expense (Benefit) (116) 93 (29)
-------- -------- --------
$ (194) $ 103 $ 48
======== ======== ========
</TABLE>
The provision (benefit) for federal income taxes differs from
that computed by applying Federal statutory rates to income (loss)
before Federal income tax expense, as indicated in the following
analysis (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected Tax Provision at 34% Rate $ (204) $ 74 $ 88
Effect of Net Loan, REO and
Investment Losses Charged Directly
to Tax Bad Debt Reserves - - (40)
Employee Stock Ownership Plan 2 5 -
Other 8 24 -
-------- -------- --------
$ (194) $ 103 $ 48
======== ======== ========
</TABLE>
<PAGE>
NOTE I
FEDERAL INCOME TAXES (CONTINUED)
At December 31, 1999, the Company had, for tax reporting
purposes, operating loss carryforwards of approximately $206,517,
which expire in 2015.
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>
1999 1998
-------- --------
<S> <C> <C>
Deferred Tax Assets
Allowance for Loan Losses $ 78 $ 170
Allowance for REO Losses 106 12
Employee Stock Option Plan 3 2
Management Retention Plan 2 2
Charitable Contribution Carryforward 4 4
Deferred Loan Fees 28 18
Market Value Adjustment for Available-for-Sale Securities 371 -
Net Operating Loss Carryforwad 88 -
Other - 1
-------- --------
Total Deferred Tax Assets 680 209
-------- --------
Deferred Tax Liabilities
Property and Equipment and Depreciation 64 95
Market Value Adjustment for Available-for-Sale Securities - 98
Section 481 Adjustment 5 5
FHLB Stock 51 41
Other 2 -
-------- --------
Total Deferred Tax Liabilities 122 239
-------- --------
Net Deferred Tax Assets (Liabilities) 558 (30)
Deferred Tax Valuation Reserve 184 182
-------- --------
Total Net Deferred Tax Asset (Liability) $ 374 $ (212)
======== ========
</TABLE>
<PAGE>
NOTE I
FEDERAL INCOME TAXES (CONTINUED)
Included in retained earnings at December 31, 1999 and 1998 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, 1999 and 1998.
NOTE K
DEPOSITS
Interest bearing deposits consist of the following at December
31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Weighted Years Ended
Average Rate at December 31,
-----------------------------------------------------------------
December 31, 1999 1998
-------------------- -------------------- -------------------
1999 1998 Amount Percent Amount Percent
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance by Interest Rate:
Regular Savings Accounts 2.62% 2.63% $ 4,680 12.37% $ 5,128 13.44%
NOW Accounts 1.86% 2.15% 1,721 4.55 1,405 3.68
Money Fund Accounts 2.55% 2.54% 693 1.83 802 2.10
Certificate of Deposit 5.42% 5.51% 30,750 81.25 30,815 80.77
-------- -------- -------- --------
$ 37,844 100.00% $ 38,150 100.00%
======== ======== ======== ========
Certificate Accounts Maturing
Under 12 months $ 20,108 65.39% $ 18,057 58.60%
12 months to 24 months 4,447 14.46 6,835 22.18
24 months to 36 months 3,501 11.39 1,844 5.98
Due after 36 months 2,694 8.76 4,079 13.24
-------- -------- -------- --------
$ 30,750 100.00% $ 30,815 100.00%
======== ======== ======== ========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately $3,130,000 and
$2,563,000 at December 31, 1999 and 1998, respectively.
<PAGE>
NOTE K
DEPOSITS (CONTINUED)
Interest expense on deposits consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Certificates $ 1,675 $ 1,616 $ 1,506
Passbook Savings 128 141 149
Money Fund Accounts 19 25 31
NOW Accounts 34 30 36
-------- -------- --------
$ 1,856 $ 1,812 $ 1,722
======== ======== ========
</TABLE>
In the normal course of business, the Association accepts
deposits from members of the Board of Directors and officers. As of
December 31, 1999 and 1998, these deposits totaled approximately
$402,000 and $444,000, 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. Total interest expense recognized in 1999, 1998 and
1997, respectively, was $7,000, $0 and $29,000.
As of December 31, 1999, outstanding advances from the FHLB
totaled $1,000,000, at 5.923%, maturing January 20, 2000.
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.
<PAGE>
NOTE M
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF
1989 (FIRREA) (CONTINUED)
FIRREA was signed into law on August 9, 1989. Regulations for
savings institutions' minimum capital requirements went into effect on
December 7, 1989. In addition to its capital requirements, FIRREA
includes provisions for changes in the federal regulatory structure
for institutions, including a new deposit insurance system, increased
deposit insurance premiums, and restricted investment activities with
respect to noninvestments grade corporate debt and certain other
investments. FIRREA also increases the required ratio of housing-
related assets in order to qualify as a savings institution.
The regulations require institutions to have a minimum regulatory
tangible capital equal to at least 1.5% of adjusted total assets, a
minimum 4% core/leverage capital ratio, a minimum 4% tier 1 risk-based
ratio, and a minimum 8% total risk-based capital ratio to be
considered "adequately capitalized." An institution is deemed to be
"critically undercapitalized" if it has a tangible equity ratio of 2%
or less. The ability to include qualifying supervisory goodwill for
purposes of the core/leverage requirements was phased out by January
1, 1995, and the ability to include investments in impermissible
activities in core/leverage capital and tangible capital was phased
out by July 1, 1994.
The following table sets out the Association's various regulatory
capital categories at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Dollars Percentage Dollars Percentage
---------- ---------- ---------- ----------
(thousands) (thousands)
<S> <C> <C> <C> <C>
Tangible Capital $ 7,191 15.13% $ 7,416 15.58%
Tangible Equity $ 7,191 15.13% $ 7,416 15.58%
Core/Leverage Capital $ 7,191 15.13% $ 7,416 15.58%
Tier 1 Risk-Based Capital $ 7,191 62.82% $ 7,416 52.22%
Total Risk-Based Capital $ 7,342 64.14% $ 7,567 53.28%
</TABLE>
<PAGE>
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, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
Per GAAP $ (286) $ 6,480
====== ========
Total Assets $ 46,438
========
Capital Ratio 13.95%
</TABLE>
<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 $ 6,480 $ 6,480 $ 6,480 $ 6,480 $ 6,480
Assets Required
to be Added
Unrealized Loss
on Securities
Available-
for-Sale 711 711 711 711 711
General Valuation
Allowance - - - - 151
---------- ---------- ---------- ---------- ----------
Regulatory Capital
Measure $ 7,191 $ 7,191 $ 7,191 $ 7,191 $ 7,342
========== ========== ========== ========== ==========
Adjusted Total
Assets $ 47,515 $ 47,515 $ 47,515
========== ========== ==========
Risk-Weighted
Assets $ 11,447 $ 11,447
========== ==========
Capital Ratio 15.13% 15.13% 15.13% 62.82% 64.14%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
Required Capital $ 713 $ 1,425 $ 916
========== ========== ==========
Excess Capital $ 6,478 $ 5,766 $ 6,426
========== ========== ==========
</TABLE>
<PAGE>
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.
NOTE P
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
During 1996, the Company sponsored an employee stock ownership
plan that covers all employees of the 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
$49,000, $72,000 and $76,000 for the years ended December 31, 1999,
1998 and 1997, respectively. The ESOP shares as of December 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Allocated Shares 14,269 8,546
Shares Released for Allocation 5,362 5,723
Unreleased Shares 32,211 37,573
--------- ---------
Total ESOP Shares 51,842 51,842
========= =========
Fair Value of Unreleased Shares $ 225,000 $ 418,000
========= =========
</TABLE>
In conjunction with the establishment of the ESOP, $518,420 was
borrowed from the Company 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.
<PAGE>
NOTE Q
RECOGNITION AND RETENTION PLAN
On July 18, 1997, the Company established a Recognition and
Retention Plan as an incentive to retain personnel of experience and
ability in key positions. The Company approved a total of 25,921
shares of Company 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.
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 $12,184 and $19,974 for the years ended December 31, 1999 and
1998, 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
Forfeited 736 (736)
Earned and Issued - (855)
--------- ---------
Balance December 31, 1999 22,452 1,773
========= =========
</TABLE>
NOTE R
STOCK OPTION PLAN
In 1997, the Company adopted a stock option plan for the
benefit of directors, officers, and other key employees. The number
of shares of common stock reserved for issuance under the stock option
plan was equal to 64,802 shares, or ten percent, of the total number
of shares of common shares sold in the Company's initial public
offering of its common stock. The option exercise price cannot be
less than the fair value of the underlying common stock as of the date
of the option grant and the maximum option term cannot exceed ten
years.
The stock option plan also permits the granting of Stock
Appreciation Rights ("SAR's"). SAR's entitle the holder to receive,
in the form of cash or stock, the increase in the fair value of
Company stock from the date of grant to the date of exercise. No
SAR's have been issued under the plan.
<PAGE>
NOTE R
STOCK OPTION PLAN (CONTINUED)
The following table summarizes the activity related to stock
options:
<TABLE>
<CAPTIONS>
Exercise Available Options
Price for Grant Outstanding
------------ ------------ ------------
<S> <C> <C> <C>
At Inception $ - 64,802 -
Granted - -
Canceled - -
Exercised - -
------------ ------------
At December 31, 1999 64,802 -
============ ============
</TABLE>
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 $587,000 and $57,000 on one to
four family mortgage loans, and stand-by letters of credit totaled $-
0- and $-0- at December 31, 1999 and 1998, respectively.
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.
<PAGE>
NOTE S
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
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
The Company has 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 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.
<PAGE>
NOTE T
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Estimated fair values of the financial instruments are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, 1999
------------------------
Carrying Fair
Amount Value
---------- ----------
<S> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term Investment $ 2,839 $ 2,839
Investment Securities 5,510 5,510
Loans and Mortgage Backed Securities 35,842 36,652
FINANCIAL LIABILITIES
Deposits $ 38,368 $ 39,483
Advances from FHLB 1,000 1,000
</TABLE>
<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>
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 1999, 1998, and 1997. The following represents the tax effects
associated with the components of comprehensive income.
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross Unrealized Holding Gains (Losses)
Arising During the Period $ (1,381) $ 359 $ 6
Tax (Expense) Benefit 470 (122) (2)
-------- -------- --------
(911) 237 4
-------- -------- --------
Reclassification Adjustment for Gains
(Losses) Included in Net Income - (91) 52
Tax (Expense) Benefit - 31 (18)
-------- -------- --------
- (60) 34
-------- -------- --------
Net Unrealized Holding Gains (Losses)
Arising During the Period $ (911) $ 177 $ 38
======== ======== ========
</TABLE>
<PAGE>
NOTE V
CONVERSION FROM A MUTUAL TO A STOCK ASSOCIATION
On July 8, 1996, the 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 the Company to become
the wholly-owned subsidiary of the Company. 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, 1999, the board of directors of the Company
declared a $.05 per share dividend to stockholders of record at
December 31, 1999 to be payable on January 15, 2000. The total
dividend payable recorded is $25,000.
NOTE Y
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average number
of shares outstanding which was 467,131 in 1999 and 548,891 in 1998.
NOTE Z
REGULATORY MATTERS
On March 1, 2000, the Office of Thrift Supervision (OTS) and the
Office of Financial Institutions (OFI) issued a preliminary supervisory
agreement as a result of their examination of the Association as of
November 29, 1999, which, among other things, calls for the following
within specified time periods:
(a) The Association shall appoint a new chief executive
officer, two new directors, and a compliance officer,
(b) Formulate a revised three-year business plan,
(c) Adopt a written policy and procedures for commercial
and consumer lending,
(d) Obtain written approval from the regional director for
any contractual arrangements with employees or third
parties, outside of the normal course of business,
and for any capital distributions.
In addition, on February 23, 2000, the Association received
notice from the OTS, directing them from making any non real estate
commercial or consumer loans, or from funding any existing commitments
for non real estate commercial or consumer loans, without their approval,
until the policy and procedures required above are completed.
As of March 30, 2000, the Board of the Association is still
negotiating certain elements with the OTS and OFI, and as such, has not
signed the Agreement. While no assurance can be give, the Association's
Board of Directors believes it has taken action toward complying with the
provisions of the Agreement. It is not presently determinable what
actions, if any, the regulators might take if requirements of the
Agreement are not complied with in the specified time periods.
<PAGE>
NOTE AA
LEASES
The Association leases one of its branch locations from an
unrelated third party. The lease is for a five-year term, with a
monthly rental of $4,400. The lease provides for two five year
renewal options. Total minimum rental commitment at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
2000 $ 52,800
2001 52,800
2002 52,800
2003 52,800
2004 11,000
---------
$ 222,200
=========
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, $86,800,
$45,000 and $45,000 was charged to rent expense, respectively.
<PAGE>
NOTE AB
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
ALGIERS BANCORP, INC.
CONDENSED BALANCE SHEET
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash and Cash Equivalents $ 19 $ 780
Investments Available-for-Sale, at Fair Value 126 117
Loans Receivable - 121
Mortgage-Backed Securities - Available-for-Sale -
at Fair Value - 64
Investment in Subsidiaries 6,561 7,741
ESOP Loan Receivable 358 404
Receivable from Subsidiaries 41 -
Income Tax Receivable 105 28
Other Assets 108 48
Real Estate Owned - Net - 62
-------- --------
Total Assets $ 7,318 $ 9,365
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Due to Subsidiary $ 172 $ 744
Dividends Payable 25 32
Other Liabilities 3 10
-------- --------
Total Liabilities 200 786
-------- --------
Total Stockholders' Equity 7,118 8,579
-------- --------
Total Liabilities and Stockholders' Equity $ 7,318 $ 9,365
======== ========
</TABLE>
<PAGE>
NOTE AB
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
ALGIERS BANCORP, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Mortgage-Backed Securities $ 1 $ 51 $ 75
ESOP Loan 33 32 41
Investment Securities 7 - 57
Loans and Fees 9 25 13
-------- -------- --------
Total Interest Income 50 108 186
-------- -------- --------
INTEREST EXPENSE
Homestead Advances 5 - -
-------- -------- --------
Total Interest Expense 5 - -
-------- -------- --------
NET INTEREST INCOME 45 108 186
NON-INTEREST INCOME
Income (Loss) in Subsidiary-Algiers Homestead
Association (286) 209 332
Loss in Subsidiary-Jefferson Community
Lending, LLC - (29) (179)
Loss in Subsidiary-Algiers.Com, Inc. (37) (22) -
Miscellaneous Income 4 - 10
-------- -------- --------
Total Non-Interest Income (Loss) (319) 158 163
-------- -------- --------
NON-INTEREST EXPENSES
General and Administrative 116 130 122
-------- -------- --------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAX EXPENSE (390) 136 227
FEDERAL INCOME TAX EXPENSE (BENEFIT) (23) (24) 16
-------- -------- --------
NET INCOME (LOSS) $ (367) $ 160 $ 211
======== ======== ========
</TABLE>
<PAGE>
NOTE AB
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
ALGIERS BANCORP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (367) $ 160 $ 211
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Increase (Decrease) in Due to Subsidiaries (572) 693 31
Gain on Sale of Real Estate Owned (2) - -
Increase in Income Tax Receivable (77) - -
(Increase) Decrease in Other Assets (61) (45) 23
(Increase) Decrease in Due from Subsidiaries (41) - 7
Increase (Decrease) in Other Liabilities (7) (30) 20
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities (1,127) 778 292
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) Decrease in Loans Receivable - Net 121 (67) (116)
Purchases of Investment Securities - Available-for-Sale - (140) (2)
Maturities of Investment Securities - Available-for-Sale - - 476
Purchases of Mortgage-Backed Securities - Available-for-Sale - (64) -
Maturities of Mortgage-Backed Securities - Available-for-Sale 67 821 207
Proceeds from Sales of Real Estate Owned 64 - -
Investments in Subsidiaries 323 (400) (4,303)
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities 575 150 (3,738)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock - - -
Contribution of Additonal Paid-in Capital (5) 246 3,818
Dividends Paid (102) (121) (112)
Purchases of Treasury Stock (148) (1,203) (472)
Repayments of ESOP Loan 46 51 64
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (209) (1,027) 3,298
-------- -------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (761) (99) (148)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 780 879 1,027
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 19 $ 780 $ 879
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for:
Interest $ 5 $ - $ -
Income Taxes $ - $ - $ 45
</TABLE>
<PAGE>
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 2000 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 2000 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 2000 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 2000 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, 1999.
<PAGE>
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: March 30, 2000
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.
NAME TITLE DATE
/s/ Hugh E. Humphrey, Jr. Chairman of the Board, President March 30, 2000
- -------------------------- and Chief Executive Officer
Hugh E. Humphrey, Jr.
/s/ Thu Dang Director March 30, 2000
- --------------------------
Thu Dang
/s/ John H. Gary, III Director March 30, 2000
- --------------------------
John H. Gary, III
/s/ Thomas L. Arnold, Sr. Director March 30, 2000
- --------------------------
Thomas L. Arnold, Sr.
/s/ Hugh E. Humphrey, III Director March 30, 2000
- --------------------------
Hugh E. Humphrey, III
/s/ Francis M. Minor, Jr. Chief Financial Officer March 30, 2000
- --------------------------
Francis M. Minor, Jr.
<PAGE>
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
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.
STATE OF
SUBSIDIARY INCORPORATION/ORGANIZATION
- ---------- --------------------------
Algiers Homestead Association Louisiana
Algiers.COM, Inc. Louisiana
Planet Mortgage, L.L.C. (1) Louisiana
(1) Algiers.Com, Inc., a wholly-owned subsidiary of the Company, owns 51%
of Planet Mortgage, L.L.C.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,374
<INT-BEARING-DEPOSITS> 1,465
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,564
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9,788
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0
0
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</TABLE>
