UNITED STATES
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 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-21165
FIRST ALLEN PARISH BANCORP, INC.
(Name of small business issuer in its charter)
Delaware 72-1331593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 South 10th Street, Oakdale, Louisiana 71463
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 335-2031
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
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31, 1997
were $2,302,404.
As of March 23, 1998, there were issued and outstanding 264,506 shares
of the Registrant's Common Stock. The Registrant's voting stock is not regularly
and actively traded, and there are no regularly quoted bid and asked prices for
the Registrant's voting stock. Accordingly, the Registrant is unable to
determine the aggregate market value of the voting stock held by non-affiliates.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and III of Form 10-KSB - Portions of Annual Report to
Stockholders for the fiscal year ended December 31, 1997.
Part III of Form 10-KSB - Portions of Proxy Statement for 1998 Annual
Meeting of Stockholders.
<PAGE>
PART I
Item 1. Description of Business
General
First Allen Parish Bancorp, Inc. ("First Allen Parish Bancorp" and,
with its subsidiaries, the "Company") was formed in June 1996 at the direction
of First Federal Savings and Loan Association of Allen Parish ("First Federal"
or the "Association") for the purpose of owning all of the outstanding stock of
the Association issued upon the conversion of the Association from the mutual to
stock form (the "Conversion"). On September 27, 1996, First Allen Parish Bancorp
acquired all of the shares of the Association in connection with the completion
of the Conversion. All references to the Company, unless otherwise indicated, at
or before September 27, 1996 refer to the Association. The Company's common
stock is quoted on the National Security Quotation System "Pink Sheets" under
the symbol "FALN".
First Federal is a federally-chartered stock savings and loan
association headquartered in Oakdale, Louisiana. First Federal was originally
chartered in 1962. Its deposits are insured up to the maximum allowable amount
by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC"). Through its office in Oakdale, First Federal
serves communities located in Allen Parish and in the surrounding parishes in
the State of Louisiana. At December 31, 1997, the Company had total assets of
$33.5 million, deposits of $28.7 million and stockholders' equity of $4.5
million.
The Association has been, and intends to continue to be, a
community-oriented financial institution offering selected financial services to
meet the needs of the communities it serves. The Association attracts deposits
from the general public and historically has used such deposits, together with
other funds, to originate loans secured by real estate, including one- to
four-family residential mortgage loans, commercial real estate loans, land
loans, construction loans and loans secured by other properties. At December 31,
1997, 81.3% of the Association's gross loan portfolio consisted of loans secured
by real estate. The Association also originates consumer and other loans
consisting primarily of loans secured by automobiles, manufactured homes, loans
secured by deposits ("share loans") and lines of credit. At December 31, 1997,
consumer and other loans constituted 26.2% of the Association's gross loan
portfolio. In order to supplement its loan originations, the Association has
invested a significant portion of its assets in mortgage-backed securities,
which are insured or guaranteed by federal agencies, as well as other
investments. At December 31, 1997, the Association's mortgage-backed securities
portfolio totaled $17.1 million, or 51.2% of total assets. See "- Investment
Activities."
The executive office of the Company and the Association is located at
222 South 10th Street, Oakdale, Louisiana 71463 and its telephone number is
(318) 335-2031.
<PAGE>
Market Area and Competition
First Federal serves Allen Parish, Louisiana and the surrounding
parishes, from its office in Oakdale, Louisiana. Allen Parish consists of small
farms and residential communities of predominantly one- to four-family
residences. The Association's market for deposits is concentrated in Allen
Parish. The Association is the only independent financial institution
headquartered in Allen Parish.
The economy of the Association's market area consists primarily of
small farming communities, the timber and wood industry and state and local
government. The largest employers in the Association's market area are the
Federal Bureau of Prisons, which operates a corrections facility, Boise Cascade
Corporation, a wood manufacturer, Arizona Chemical, a division of International
Paper Co., Grand Casino, which is operated by the Coushatta Indians and the
Allen Parish School Board. In recent years the oil and gas industry has become a
growing segment of the Association's economy.
The Association's business and operating results are significantly
affected by the general economic conditions in the Association's market area.
Management believes that the population in the Association's market area will
remain stable in the foreseeable future.
The Association faces significant competition in attracting deposits
from commercial banks, other savings institutions and credit unions. The
Association faces additional competition for deposits from short-term money
market funds, from other corporate and government securities funds and from
brokerage funds and insurance companies. The Association also faces significant
competition in the origination of loans from savings institutions, mortgage
banking companies, credit unions and commercial banks.
Lending Activities
General. The Association's loan portfolio consists primarily of loans
secured by real estate which consist primarily of loans secured by one- to
four-family residences, commercial real estate loans, construction loans and
loans secured by other properties. The Association also originates consumer and
other loans consisting primarily of loans secured by automobiles, manufactured
homes, share loans, lines of credit and other consumer loans. At December 31,
1997, the Association's gross loans totaled $14.7 million, of which $8.4 million
or 57.1% were one-to four-family residential mortgage loans. Of the one- to
four-family mortgage loans outstanding at that date, 28.2% were fixed-rate
loans, and 71.8% were adjustable-rate loans. At December 31, 1997, $1.5 million
or 10.0% of gross loans were secured by commercial real estate properties
consisting of retail shops and churches, $353,000, or 2.4%, of gross loans were
construction loans for the construction of owner-occupied homes, and $612,000,
or 4.2% of gross loans consisted of land loans. At that date, consumer and other
loans totaled $3.6 million or 24.4% of the Association's gross loan portfolio,
of which $735,000, or 5.0%, consisted of share loans, $526,000, or 3.6%,
consisted of automobile loans, $1,321,000, or 9.0%, consisted of lines of credit
to small farms and businesses, $24,000 or .2% consisted of loans on manufactured
homes and $970,000 or 6.6% consisted of other loans (consisting of personal
loans, disaster relief loans, and loans to governmental entities and non-profit
organizations).
<PAGE>
The Association also invests in mortgage-backed securities. At December
31, 1997, mortgage-backed and related securities totaled $17.1 million. See "-
Investment Activities."
The Association's loans-to-one borrower limit is generally the greater
of 15% of unimpaired capital and surplus or $500,000. At December 31, 1997, the
maximum amount which the Association could have lent under this limit to any one
borrower and the borrower's related entities was approximately $708,000. At
December 31, 1997, the Association had no loans or groups of loans to related
borrowers with outstanding balances in excess of this amount. The Association's
largest lending relationship at December 31, 1997 was $469,000 in loans to one
borrower which was comprised of five loans, two of which were secured by real
estate and three of which were unsecured commercial loans. The Association's
second largest lending relationship at December 31, 1997 was $365,000 in loans
to one borrower which was comprised of seven loans, six of which were secured by
real estate and one of which was secured by a certificate of deposit. The
Association's third largest lending relationship totaled $261,000, which
consisted of three commercial real estate loans. At December 31, 1997, all of
these loans were performing in accordance with their terms.
<PAGE>
Loan Portfolio Composition. Set forth below is data relating to the
composition of the Association's loan portfolio by type of loan as of the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995
------------------ ------------------- -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential $8,376 61.38% $ 7,279 60.97% $7,918 70.50%
Commercial real estate loans.. 1,467 10.75 1,519 12.73 1,208 10.76
Construction.................. 353 2.59 487 4.08 260 2.32
Land loans.................... 612 4.49 451 3.78 203 1.81
Other real estate loans....... 280 2.05 237 1.99 131 1.17
------ ------ ------- ------ ------ ------
Total first mortgage loans..... 11,088 81.25 9,973 83.55 9,720 86.55
------ ------ ------- ------ ------ ------
Consumer and other loans:
Automobile.................... 526 3.85 475 3.97 496 4.42
Manufactured homes............ 24 0.18 22 0.19 12 0.11
Share loans................... 735 5.39 795 6.66 800 7.12
Lines of credit............... 1,321 9.68 1,003 8.41 440 3.92
Other loans................... 970 7.11 721 6.04 415 3.70
------ ------ ------- ------ ------ ------
Total consumer and other loans 3,576 26.21 3,016 25.27 2,163 19.26
------ ------ ------- ------ ------ ------
Total loans receivable..... 14,664 107.46 12,989 108.82 11,883 105.82
Less:
Undisbursed loan proceeds..... (710) (5.20) (755) (6.34) (335) (2.98)
Unearned discounts............ (8) (0.06) -- -- -- --
Allowance for loan losses..... (300) (2.20) (296) (2.48) (317) (2.82)
------- ------- -------- ------- ------ ------
Total loans receivable,
net ..................... $13,646 100.00% $11,938 100.00% $11,231 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
One- to Four-Family Mortgage Loans. The Association's primary lending
activity is the origination of one-to four-family, owner-occupied, residential
mortgage loans secured by property located in the Association's market area.
Loans are generated through the Association's marketing efforts, its existing
customers and referrals, real estate brokers, builders and local businesses. The
Association generally has limited its real estate loan originations to the
financing of properties located within its market area and will not make out of
state loans. At December 31, 1997, the Association had $8.4 million, or 57.1% of
its gross loan portfolio, invested in mortgage loans secured by one- to
four-family residences.
<PAGE>
The Association originates for retention in its portfolio fixed-rate
residential one- to four-family loans with terms of up to 15 years. The
Association's fixed-rate mortgage loans amortize monthly with principal and
interest due each month. Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
may refinance or prepay loans at their option.
The Association currently offers ARM loans with amortization periods
ranging up to 30 years. The Association generally offers ARM loans that either
adjust every year or every three years from the date of origination, with
interest rate adjustment limitations up to two percentage points per adjustment
and with a cap of up to six percentage points on total interest rate increases
over the life of the loan. Currently, ARM loans are originated with a minimum
interest rate of five percent and a maximum rate of 15% regardless of the
initial rate. In a rising interest rate environment, such rate limitations may
prevent ARM loans from repricing to market interest rates, which would have an
adverse effect on net interest income. The Association has used different
interest indices for ARM loans in the past, and currently uses the National
Average Contract Interest Rate for Major Lenders on the Purchase of Previously
Occupied Loans as its index. ARM loans secured by residential one- to
four-family real estate totaled $6.0 million, or 71.8% of the Association's
total one- to four-family residential real estate loans receivable at December
31, 1997. The origination of fixed-rate mortgage loans versus ARM loans is
monitored on an ongoing basis and is affected significantly by the level of
market interest rates, customer preference, the Association's interest rate gap
position and loan products offered by the Association's competitors.
Particularly in a relatively low interest rate environment, borrowers may prefer
fixed-rate loans to ARM loans. During the year ended December 31, 1997, the
Association originated $191,000 in fixed-rate residential mortgage loans and
$2.0 million of ARM loans.
The primary purpose of offering ARM loans is to make the Association's
loan portfolio more interest rate sensitive. However, as the interest income
earned on ARM loans varies with prevailing interest rates, such loans do not
offer the Association predictable cash flows as would long-term, fixed-rate
loans. ARM loans carry increased credit risk associated with potentially higher
monthly payments by borrowers as general market interest rates increase. It is
possible, therefore, during periods of rising interest rates, that the risk of
delinquencies and defaults on ARM loans may increase due to the upward
adjustment of interest costs to the borrower, resulting in increased loan
losses.
The Association's residential first mortgage loans 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, among other things,
that the borrower sells or otherwise disposes of the underlying real property
serving as security for the loan. Due-on-sale clauses are a means of imposing
assumption fees and increasing the interest rate on the Association's mortgage
portfolio during periods of rising interest rates.
Pursuant to federal regulations, all financial institutions are
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, pursuant to
<PAGE>
the mandates of the FDICIA, uniform regulations prescribing standards for real
estate lending. Real estate lending is defined as extension 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.
The policies 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. These policies must also be
appropriate based upon 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 an LTV ratio being
the total amount of credit to be extended divided by the appraised value of the
property at the time the credit is originated, must be established for each
category of real estate loans. If not 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 (85%); and owner occupied one- to four-family residential (no
maximum ratio, however, any LTV ratio in excess of 90% requires appropriate
insurance or readily marketable collateral).
Certain institutions are permitted to 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.).
Regulations limit the amount that a savings association may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum LTV ratio of 95% for residential property (and 100% for loans
guaranteed by the Veterans Administration) and 90% for all other real estate
loans. The Association's lending policies, however, generally limit the maximum
LTV ratio on fixed-rate and ARM loans to 95% of the lesser of the appraised
value or the purchase price of the property securing the loan in the case of
loans secured by one- to four-family owner-occupied properties. The maximum LTV
ratio on other types of real estate loans is generally the lesser of 80% of the
appraisal value or the purchase price of the property.
When underwriting residential real estate loans, the Association
reviews and verifies each loan applicant's employment, income and credit
history. Management believes that stability of income and past credit history
are integral parts in the underwriting process. Generally, the applicant's total
monthly mortgage payment, including all escrow amounts, is limited to 28% of the
applicant's total monthly income. In addition, total monthly obligations of the
applicant, including mortgage payments, should not generally exceed 42% of total
<PAGE>
monthly income. Written appraisals are generally required on real estate
property offered to secure an applicant's loan. For real estate loans with LTV
ratios of between 80% and 95%, the Association requires private mortgage
insurance. The Association requires fire, casualty and where necessary flood
insurance on all properties securing real estate loans. The Association requires
title insurance, and an attorney's title opinion.
Commercial Real Estate Loans. The Association originates commercial
real estate loans typically secured by retail facilities, churches and office
buildings. At December 31, 1997, $1.5 million, or 10.0% of the Association's
gross loan portfolio consisted of commercial real estate loans. At December 31,
1997, all of the Association's commercial real estate loans were secured by
properties within the State of Louisiana. The maximum loan to value ratio for
commercial real estate loans originated by the Association is 80%. At December
31, 1997, the largest commercial real estate loan had a principal balance of
$227,000, and was secured by commercial real estate. The loan was performing in
accordance with its terms at December 31, 1997.
The underwriting standards employed by the Association for commercial
real estate loans include a determination of the applicant's credit history and
an assessment of the applicant's ability to meet existing obligations and
payments on the proposed loan. Written appraisals are obtained on all commercial
real estate loans. The Association assesses the creditworthiness of the
applicant by reviewing a credit report, financial statements and tax returns on
the applicant.
Loans secured by commercial real estate generally involve a greater
degree of credit risk than one- to four-family mortgage loans. The increased
risk is the result of several factors, including the effects of general economic
conditions in income producing properties and the successful operation or
management of the properties securing the loans. Furthermore, the repayment of
loans secured by commercial real estate is typically dependent upon the
successful operation of the related business and real estate property. If the
cash flow from the project is reduced, the borrower's ability to repay the loan
may be impaired.
Land Loans. The Association offers land loans, primarily loans to
purchase and develop single family homesites, which may consist of individual
lots or large acreage tracts. At December 31, 1997, $612,000, or 4.2% of the
Association's gross loan portfolio consisted of land loans. The maximum loan
amount generally does not exceed 75% of the appraised value of the property. The
terms of land loans are negotiated on a case by case basis; however, fixed rate
loans are typically originated for terms of 5 years or less; adjustable rate
land loans are originated for terms up to 15 years and will either adjust at a
premium over the prime rate or will be based upon the National Average Contract
Interest Rate for Major Lenders on the Purchase of Previously Occupied Loans.
The Association will make a limited number of land loans for speculation
purposes. Land loans are typically made to companies or individuals with whom
the Association has had a prior business relationship.
Construction Lending. At December 31, 1997, the Association had
$353,000 or 2.4% of its gross loan portfolio, invested in construction loans.
First Federal offers loans to both builders and individuals for the construction
of one- to four-family residences. Currently, such loans are offered with fixed-
or adjustable-rates of interest, with loan terms of six months. The interest
rates of construction loans are typically at a margin over the prime rate or the
<PAGE>
National Average Contract Interest Rate for Major Lenders on the Purchase of
Previously Owned Homes. The maximum loan amount will not exceed 80% of the
appraised value of the project. The Association requires the builder to submit
plans, specifications and cost projections. In addition, the Association reviews
the borrower's existing financial condition, including total outstanding debt.
Funds are dispersed as the construction project progresses. Following the
construction period, these loans may convert to permanent loans, generally with
terms for up to 15 years if the interest rate is fixed and up to 30 years if the
interest rate is adjustable. At December 31, 1997, none of the Association's
construction loans were non-performing.
Construction lending and land loans are generally considered to involve
a higher level of credit risk than one-to four-family residential lending since
the risk of loss on construction loans is dependent largely upon the accuracy of
the initial estimate of the individual property's value upon completion of the
project and the estimated cost (including interest) of the project. If the cost
estimate proves to be inaccurate, the Association may be required to advance
funds beyond the amount originally committed to permit completion of the
project.
Consumer and Other Lending. First Federal offers a variety of consumer
loans, including loans secured by deposits, lines of credit, automobile and home
improvement loans. The Association currently originates substantially all of its
consumer loans in its primary market area generally to its existing customers.
At December 31, 1997, the Association's consumer and other loan portfolio
totaled $3.6 million, or 24.4% of its gross loan portfolio.
The Association offers loans secured by the borrower's savings deposits
("share loans"). At December 31, 1997, share loans totaled $735,000, or 5.0% of
the Association's gross loan portfolio.
First Federal originates home improvement loans. Home equity and home
improvement loans secured by second mortgages, together with loans secured by
all prior liens, are generally limited to 80% or less of the appraised value of
the home. Generally, such loans have a maximum term of up to 15 years. As of
December 31, 1997, home improvement loans amounted to $66,000, which represented
.45% of the Association's gross loan portfolio.
The Association also originates lines of credit for businesses. These
loans are made on both a secured and unsecured basis. Lines of credit may be
secured by real estate, equipment and inventory. They are generally originated
with interest rates that adjust at a premium above the prime rate. All lines of
credit are reviewed annually by the Association. Lines of credit loans amounted
to approximately $1.3 million at December 31, 1997, which represented 9.0% of
the Association's gross loan portfolio.
Another component of the Association's consumer loan portfolio consists
of automobile loans. The Association originates automobile loans on a direct
basis, where the Association extends credit directly to the borrower. These
loans generally have terms that do not exceed five years and carry a fixed-rate
of interest. Generally, loans on new vehicles are made in amounts up to 80% of
dealer cost and loans on used vehicles are made in amounts up to 80% of the
vehicle's published NADA value. At December 31, 1997, the Association's
automobile loans totaled $526,000 or 3.6% of the Association's gross loan
portfolio.
<PAGE>
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Association for consumer loans include an application,
a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, such as automobiles. Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Management believes that its level of delinquencies is relatively
low in comparison with other financial institutions, and that its low level of
consumer loan delinquencies is attributable to the Association's policy of
aggressively contacting borrowers who become delinquent in repaying their loans.
At December 31, 1997, $1,375 in consumer loans were non-performing. See "-
Delinquencies and Classified Assets." There can be no assurances, however, that
delinquencies will not increase in the future.
Loan Maturity Schedule
The following table sets forth certain information at December 31,
1997, regarding the dollar amount of loans maturing in the Association's
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
One Three Five Ten Twenty
Within Through Through Through Through Years
One Year Three Years Five Years Ten Years Twenty Years Or More Total
---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans:
One- to four-family residential$ 274,235 $ 451,480 $ 428,679 $2,293,801 $2,982,128 $1,945,801 $8,376,124
Other properties............. 341,084 288,147 342,635 638,934 420,073 328,118 2,358,991
Construction................. 0 0 0 0 227,800 125,000 352,800
Consumer and other loans....... 2,388,442 818,695 188,118 181,257 0 0 3,576,512
---------- ---------- --------- ---------- ---------- ---------- ----------
Total..................... $3,003,761 $1,558,322 $ 959,432 $3,113,992 $3,630,001 $2,398,919 $14,664,427
========== ========== ========= ========== ========== ========== ===========
</TABLE>
<PAGE>
The following table sets forth the dollar amount of all loans at
December 31, 1997 that have predetermined interest rates and have floating or
adjustable interest rates and which are due after December 31, 1998.
<TABLE>
<CAPTION>
Floating or
Fixed-Rates Adjustable Rates Total
---------- ---------- ----------
<S> <C> <C> <C>
First mortgage loans:
One- to four-family residential........................... $2,076,986 $6,024,903 $8,101,889
Other properties.......................................... 1,312,464 705,443 2,017,907
Construction.............................................. 352,800 0 352,800
Consumer and other loans.................................... 1,188,070 0 1,188,070
---------- ---------- ----------
Total.................................................. $4,930,300 $6,730,346 $11,660,666
========== ========== ===========
</TABLE>
Origination of Loans
Loan originations are developed from continuing business with
depositors and borrowers, soliciting realtors, builders, walk-in customers and
third-party sources. All real estate loans must be approved by the Association's
board of directors. Consumer and other loans up to $15,000 may be approved by
the Association's President. All other consumer and other loans must be approved
by the Board of Directors.
While the Association originates both adjustable-rate and fixed-rate
loans, its ability to originate loans to a certain extent is dependent upon the
relative customer demand for loans in its market, which is affected by the
interest rate environment, among other factors. For the year ended December 31,
1997, the Association originated $3.6 million in fixed-rate loans and $3.0
million in adjustable rate loans.
In recent years the Association has neither purchased, nor sold loans.
All loans originated by the Association are retained in the Association's
portfolio.
<PAGE>
Set forth below is a table showing the Association's loan originations
and repayments for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1996 1995
-------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Total loans receivable at beginning of period $ 12,989 $11,883 $ 11,926
-------- ------- --------
Originations:
First mortgage loans -
One- to four-family residential........... 2,199 590 482
Construction.............................. 306 664 243
Other properties.......................... 618 1,025 257
Consumer and other loans:
Automobile................................ 389 308 359
Manufactured home......................... 6 5 38
Other..................................... 2,200 2,564 773
Refinancing................................ 1,388 755 764
-------- ------- --------
Total originations...................... 7,106 5,911 2,916
Transfer of mortgage loans
to foreclosed real estate............... (28) (74) --
Repayments................................ (5,403) (4,731) (2,959)
--------- -------- --------
Net loan activity........................... 1,675 1,106 (42)
-------- ------- --------
Total loans receivable
at end of period.................... $ 14,664 $12,989 $ 11,883
======== ======= ========
</TABLE>
Delinquencies and Classified Assets
The Association's collection procedures provide that when a loan is 15
days past due, a computer-generated late charge notice is sent to the borrower
requesting payment plus a late charge. If the loan remains delinquent a
telephone call is made or a letter is sent to the borrower stressing the
importance of reinstating the loan and obtaining reasons for the delinquency
before the loan becomes delinquent after 30 days. After 45 days a written
commitment to bring the loan current is required. When a loan continues in a
delinquent status for 90 days or more, and a repayment schedule has not been
made or adhered to by the borrower, a notice of intent to foreclose upon the
underlying property is sent to the borrower by the Association's attorney,
giving the borrower 10 days to cure the delinquency. If not cured, foreclosure
proceedings are initiated.
In recent years the Association has increased its collection efforts by
more closely monitoring delinquent loans and employing diligent collection
efforts. Management believes that these efforts have contributed to the loan
portfolio's low delinquency levels. At December 31, 1997, 1996 and 1995 the
percentage of total loans delinquent 90 days or more to net loans receivable
were $0%, 0%, and .06%, respectively.
<PAGE>
Delinquent Loans and Nonperforming Assets. Generally, when a loan
becomes more than 90 days delinquent, the Association will place the loan on
non-accrual status and previously accrued interest income on the loan is charged
against current income. The loan will remain on a non-accrual status as long as
the loan is more than 90 days delinquent.
Real estate acquired through foreclosure or by deed-in-lieu of
foreclosure is classified as real estate owned until such time as it is sold.
When real estate owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan, or its fair market value, less estimated
selling expenses. Any further write-down of real estate owned is charged against
earnings. At December 31, 1997, the Association owned approximately $0 of
property classified as real estate owned.
Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. The
Association's procedures for repossession and sale of consumer collateral are
subject to various requirements under Louisiana and federal consumer protection
laws.
The following table sets forth information with respect to the
Association's delinquent loans and other problem assets at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
--------------------
Balance Number
------- ------
<S> <C> <C>
(In Thousands)
One- to four-family residential real estate:
Loans 60 to 89 days delinquent ......................... $-- --
Loans 90 days or more delinquent ....................... -- --
Other properties:
Loans 60 to 89 days delinquent ......................... -- --
Loans 90 days or more delinquent ....................... -- --
Construction:
Loans 60 to 89 days delinquent ......................... 54 2
Loans 90 days or more delinquent ....................... -- --
Consumer and other loans:
Loans 60 to 89 days delinquent ......................... 23 2
Loans 90 days or more delinquent ....................... -- --
Foreclosed real estate and repossessions ................... 0 --
Other nonperforming assets ................................. -- --
Restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15 (not included
in other nonperforming categories above) ............... 199 9
Loans to facilitate sale of real estate owned .............. $563 20
</TABLE>
<PAGE>
The following table sets forth information regarding delinquent loans
and real estate owned by the Association at the dates indicated. At December 31,
1997, the Association had $199,000 in restructured loans within the meaning of
SFAS 15.
<TABLE>
<CAPTION>
At December 31,
------------------------
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Non-accruing loans:
First mortgage loans:
One- to four-family residential .............. $ 76 $ 44 $144
Other properties ............................. -- -- --
Commercial ................................... 49 -- --
Construction ................................. -- -- --
Consumer and other loans ....................... 1 -- 11
---- ---- ----
Total non-accruing loans ..................... 126 44 155
---- ---- ----
Accruing loans past due 90 days or more:
First mortgage loans:
One- to four-family residential .............. -- $-- --
Other properties ............................. -- -- --
Construction ................................. -- -- --
Consumer and other loans ....................... -- -- 6
---- ---- ----
Total accruing loans delinquent
90 days or more .......................... -- -- 6
---- ---- ----
Total non-performing loans ............. 126 44 161
---- ---- ----
Total real estate owned ........................ -- 75 39
---- ---- ----
Total non-performing assets ............... -- $119 $200
==== ==== ====
Performing troubled debt restructurings ......... $199 $154 $191
==== ==== ====
Total non-performing assets and troubled
debt restructurings .......................... $325 $273 $391
==== ==== ====
Total loans delinquent 90 days or more to
net loans receivable ........................... 0.00% 0.00% 0.06%
---- ---- ----
Total loans delinquent 90 days or more to
total assets ................................... 0.00% 0.00% 0.02%
---- ---- ----
Total non-performing loans and REO
to total assets ................................ 0.37% 0.38% 0.69%
---- ---- ----
Total non-performing assets and troubled
debt restructurings to total assets ............ 0.97% 0.87% 1.35%
---- ---- ----
</TABLE>
<PAGE>
Delinquent Loans
The following table sets forth information with respect to loans past
due 60-89 days in the Association's portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Loans past due 60-89 days:
First mortgage loans:
One- to four-family residential ........ $-- $105 $ 15
Other properties ....................... -- 5 --
Construction ........................... 54 -- --
Consumer and other loans ................. 23 5 10
</TABLE>
For the year ended December 31, 1997 gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $12,000. The amount that was included in
interest income on such loans was $5,000 for the year ended December 31, 1997.
Classified Assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Association
regularly reviews loans in its portfolio to determine whether such assets
require classification in accordance with applicable regulations. On the basis
<PAGE>
of management's review of its assets, at December 31, 1997, the Association had
classified a total of $251,000 of its assets as substandard, $0 as doubtful, and
$21,000 as loss. At December 31, 1997, total classified assets comprised
$272,000, or 6.0% of the Association's capital, or .81% of the Association's
total assets.
Other Loans of Concern. Other than the non-performing loans set forth
in the tables above, as of December 31, 1997, there were no loans classified by
the Association with respect to which known information about the possible
credit problems of the borrowers or the cash flows of the security properties
have caused management to have some doubts as to the ability of the borrowers to
comply with present loan repayment terms and which may result in the future
inclusion of such items in the non-performing asset categories.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations. At December 31, 1997, the Association had properties with
a net book value of $0 which were acquired through foreclosure.
Although management believes that it uses the best information
available to determine the allowance, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Association's allowance for loan losses
will be the result of periodic loan, property and collateral reviews and thus
cannot be predicted in advance. In addition, federal regulatory agencies, as an
integral part of the examination process, periodically review the Association's
allowance for loan losses. Such agencies may require the Association to increase
the allowance based upon their judgment of the information available to them at
the time of their examination. At December 31, 1997, the Association had a total
allowance for loan losses of $300,000, representing 238.9% of total
non-performing loans and 2.2% of the Association's loans, net. See Note 4 of the
Notes to Consolidated Financial Statements.
<PAGE>
The following table sets forth the allocation for loan losses by
category for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1997 1996 1995
------------------- ------------------- ---------------------
% of Loans % of Loans % of Loans
In Each In Each In Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
First mortgage loans
One- to four-family residential................ $ 225 57.12% $ 217 56.04% $ 230 66.63%
Other properties............................... 37 16.08 37 16.99 37 12.98
Construction................................... -- 2.41 -- 3.75 -- 2.19
Consumer and other loans......................... 38 24.39 42 23.22 50 18.20
------- -------- ------ -------- ----- -------
Balance, end of period....................... $ 300 100.00% $ 296 100.00% $ 317 100.00%
======= ======== ====== ======== ===== =======
</TABLE>
<PAGE>
The following table sets forth information with respect to the
Association's allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period ............. $ 296 $ 317 $ 328
Charge-offs:
First mortgage loans ..................... -- (10) --
Consumer and other loans ................. (33) (8) (7)
Recoveries:
First mortgage loans ..................... 7 -- --
Consumer and other loans ................. 27 5 17
----- ----- -----
Net charge-offs ........................ 1 (13) 10
Provision for loan losses (recoveries) 3 (8) (21)
Balance, at end of period .................. $ 300 $ 296 $ 317
===== ===== =====
Allowance for loan losses as a per-
cent of net loans receivable at
end of period ............................ 2.20% 2.48% 2.83%
Ratio of net loans charged off during
the period to average loans outstanding
during the period ........................ 0.00% (0.11)% 0.09%
Ratio of allowance for loan losses
to total non-performing loans
at end of period ......................... 238.70% 670.81% 196.90%
Ratio of allowance for loan losses
to total non-performing loans
and REO at end of period ................. 238.70% 249.02% 158.50%
</TABLE>
Investment Activities
General. First Federal must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Association
has generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At December 31, 1997,
the Association's liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 8.2%. See"Regulation -
Liquidity."
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
<PAGE>
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Association, as established by
the Board of Directors, is to invest funds among various categories of
investments and maturities based upon the Association's liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives.
Mortgage-backed and Related Securities. The Association purchases
mortgage-backed and related securities to supplement residential loan production
and as part of its asset/liability strategy. The type of securities purchased is
based upon the Association's asset/liability management strategy and balance
sheet objectives. For instance, substantially all of the mortgage-backed and
related investments purchased by the Association over the last several years
have had adjustable rates of interest. Management believes that the adjustable
rate feature of the mortgages underlying adjustable rate mortgage-backed and
related securities generally will help to reduce changes in the value of the
mortgage-backed and related security in response to normal interest rate
fluctuations. As the interest rates on the mortgages underlying the adjustable
rate mortgage-backed and related securities are reset periodically, the yields
of such securities will gradually align themselves to reflect changes in the
market rates so that the market value of such securities will remain relatively
constant as compared to fixed rate instruments. The Association has invested
primarily in federal agency securities, principally Freddie Mac (formerly the
Federal Home Loan Mortgage Corporation), Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Small
Business Association ("SBA") obligations. At December 31, 1997, the
Association's investment in mortgage-backed and related securities totaled $17.1
million or 51.2% of its total assets. At December 31, 1997, $11.7 million of the
Association's mortgage-backed and related securities were classified as
held-to-maturity and $5.5 million were classified as available for sale. See
Note 3 of the Notes to Consolidated Financial Statements.
The FNMA, Freddie Mac and GNMA certificates are modified pass-through
mortgage-backed and related securities that represent undivided interests in
underlying pools of fixed-rate, or certain types of adjustable-rate,
single-family residential mortgages issued by these government-sponsored
entities. As a result, the interest rate risk characteristics of the underlying
pool of mortgages, i.e., fixed rate or adjustable rate, as well as prepayment
risk, are passed on to the certificate holder. FNMA and Freddie Mac provide the
certificate holder a guarantee of timely payments of interest and ultimate
collection of principal, whether or not they have been collected. GNMA's
guarantee to the holder timely payments of principal and interest and are backed
by the full faith and credit of the U.S. government. The FNMA, Freddie Mac, GNMA
and SBA certificates are modified pass-through mortgage-backed and related
securities that represent undivided interests in underlying pools of fixed-rate,
or certain types of adjustable-rate, single-family residential mortgages, or in
the case of the SBA certificates, the portion of commercial and/or real estate
loans guaranteed by the SBA. As a result, the interest rate characteristics of
the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well
as prepayment risk, are passed on to the certificate holder. FNMA and Freddie
Mac provide the certificate holder a guarantee of timely payments of interest
and ultimate collection of principal, whether or not they have been collected.
<PAGE>
Mortgage-backed and related securities generally yield less than the
loans that underlie such securities, because of the cost of payment guarantees
or credit enhancements that reduce credit risk. In addition, mortgage-backed and
related securities are more liquid than individual mortgage loans and may be
used to collateralize obligations of the Association. In general,
mortgage-backed securities issued or guaranteed by FNMA and Freddie Mac are
weighted at no more than 20% for risk-based capital purposes, and
mortgage-backed securities issued or guaranteed by GNMA are weighted at 0% for
risk-based capital purposes, compared to an assigned risk weighting of 50% to
100% for whole residential mortgage loans. These types of securities thus allow
the Association to optimize regulatory capital to a greater extent than
non-securitized whole loans. The Association has sought to improve the yield on
its mortgage-backed securities portfolio by investing in mortgage-backed
securities with maturities in excess of 10 years.
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.
Set forth below is a table showing the Association's purchases and
repayments of mortgage-backed securities for the periods indicated. The
Association sold $382,000 of available for sale mortgage-backed securities
during 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning
of period................................. $ 17,186 $ 15,391 $ 13,257
Purchases................................. 2,870 3,915 4,275
Sales..................................... (382) -- --
Repayments................................ (2,470) (2,078) (2,069)
Discount (premium) amortization............. (57) (42) (72)
--------- ---------- --------
Mortgage-backed securities
at end of period.......................... $ 17,147 $ 17,186 $ 15,391
======== ========= ========
</TABLE>
At December 31, 1997, the Association's investment securities consisted
solely of FHLB stock totaling $259,300. The Association invests excess liquidity
in FHLB overnight deposits.
OTS regulations restrict investments in corporate debt and equity
securities by the Association. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Association's unimpaired capital and unimpaired surplus as defined by federal
regulations, plus an additional 10% if the investments are fully secured by
readily marketable collateral. At December 31, 1997, the Association was in
compliance with this regulation. See "Regulation - Federal Regulation of Savings
Associations" for a discussion of additional restrictions on the Association's
investment activities.
<PAGE>
The following table sets forth the carrying value of the Association's
FHLB stock and mortgage-backed securities at the dates indicated. At December
31, 1997, the market value of the Association's mortgage-backed portfolios and
investment securities was approximately $17.1 million and $259,300,
respectively.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1997 1996 1995
---------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities......................... $ 17,147 $ 17,186 $ 15,391
Federal Home Loan Bank stock....................... 259 259 260
---------- --------- ---------
Total investments.............................. $ 17,406 $ 17,448 $ 15,651
========== ========= =========
</TABLE>
Mortgage-Backed and Investment Portfolio Maturities. The following
table sets forth the scheduled maturities, carrying values, market values and
average yields for the Association's investment securities at December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years
--------------------- --------------------------------- ------------------
Carrying Average Carrying Average Carrying Average Carrying
Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
investment securities held
to maturity:
GNMA certificates........... -- -- $ 3 6.46% $ 6 8.00% $ 293
Freddie Mac certificates.... -- -- -- -- 10 7.25% 3,911
FNMA certificates........... -- -- -- -- -- -- 7,204
Collateralized mortgage
obligations............... -- -- -- -- -- -- 55
FHLB Stock.................. -- -- -- -- -- -- 259
Municipal bonds............. -- -- -- -- -- -- 187
Total..................... -- -- 3 6.46% 16 7.54% 11,909
Mortgage-backed and investment
securities available for sale:
GNMA certificates........... -- -- -- -- -- -- 466
Freddie Mac certificates.... -- -- -- -- 8 7.38% 1,797
FNMA certificates........... -- -- 28 7.61% -- -- 2,359
SBA certificates............. -- -- -- -- -- -- 820
Total..................... -- -- $ 28 7.61% $ 8 7.38% $ 5,442
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
More than Ten Years Total Investment Portfolio
Average Carrying Market Average
Yield Value Value Yield
----- ----- ----- -----
<S> <C> <C> <C> <C>
Mortgage-backed and
investment securities held
to maturity:
GNMA certificates........... 6.71% $ 302 $ 308 6.74%
Freddie Mac certificates.... 6.08% 3,921 3,909 6.10%
FNMA certificates........... 6.27% 7,204 7,146 6.27%
Collateralized mortgage
obligations............... 7.25% 55 52 7.25%
FHLB Stock.................. 5.87% 259 259 5.87%
Municipal bonds............. 8.25% 187 195 8.25%
Total..................... 6.25% 11,928 11,869 6.12%
Mortgage-backed and investment
securities available for sale:
GNMA certificates........... 6.99% 466 466 6.99%
Freddie Mac certificates.... 6.40% 1,805 1,805 6.40%
FNMA certificates........... 6.46% 2,387 2,387 6.47%
SBA certificates............. 6.13% 820 820 6.13%
Total..................... 6.43% $ 5,478 $ 5,478 6.44%
</TABLE>
The Association's investment securities portfolio at December 31, 1997,
contained $186,994 of tax exempt securities and no securities of any issuer with
an aggregate book value in excess of 10% of the Association's retained earnings,
excluding those issued by the U.S. government, or its agencies.
Sources of Funds
General. The Association's primary sources of funds are deposits,
receipt of principal and interest on loans and securities, interest-earning
deposits with other banks, FHLB advances, and other funds provided from
operations.
FHLB advances are used to support lending activities and to assist in
the Association's asset/liability management strategy. See "- Asset/Liability
Management." Typically, the Association does not use other forms of borrowings.
At December 31, 1997, the Association had $0 in FHLB advances.
Deposits. First Federal offers a variety of deposit accounts having a
wide range of interest rates and terms. The Association's deposits consist of
passbook, commercial demand, NOW, money market deposit and certificate accounts.
The certificate accounts currently range in terms from 30 days to five years.
The Association relies primarily on advertising, competitive pricing
policies and customer service to attract and retain these deposits. Currently,
First Federal solicits deposits from its market area only, and does not use
brokers to obtain deposits. The flow of deposits is influenced significantly by
general economic conditions, changes in money market and prevailing interest
rates and competition.
<PAGE>
The Association has become more susceptible to short-term fluctuations
in deposit flows as customers have become more interest rate conscious. The
Association endeavors to manage the pricing of its deposits in keeping with its
profitability objectives giving consideration to its asset/liability management.
Notwithstanding the foregoing, a significant percentage of the Association's
deposits are for terms of less than one year. At December 31, 1997, $17.8
million or 62.0% of the Association's deposits were in certificates of deposits
with terms of 11 months or less. The Association believes that upon maturity
most of these deposits will remain at the Association. The ability of the
Association to attract and maintain savings accounts and certificates of
deposit, and the rates paid on these deposits, has been and will continue to be
significantly affected by market conditions.
<PAGE>
Savings Portfolio
Deposits in the Association as of December 31, 1997, were represented
by the various types of deposit programs described below.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum Checking and Minimum of Total
Rate Term Savings Amount Balances Savings
---- ---- ------- ------ -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
0.00% None Non interest-bearing demand $ 5,000 $ 912 3.18%
2.08 None Passbook accounts 50 2,584 9.02
2.38 None Money market 2,500 722 2.52
2.06 None NOW accounts 100 3,774 13.17
Certificates of Deposit
5.14% 1-5 months Fixed term, fixed rate 2,500 10,519 36.71%
5.60 6-11 months Fixed term, fixed rate 2,500 7,323 25.55
5.74 12-17 months Fixed term, fixed rate 1,000 1,775 6.19
5.82 18-23 months Fixed term, fixed rate 1,000 338 1.18
6.40 24-29 months Fixed term, fixed rate 1,000 427 1.49
5.89 30-35 months Fixed term, fixed rate 1,000 128 0.45
5.92 36-47 months Fixed term, fixed rate 1,000 82 0.29
0.00 48-53 months Fixed term, fixed rate 1,000 0 0.00
6.00 54-59 months Fixed term, fixed rate 1,000 72 0.25
60 months
6.00 or greater Fixed term, fixed rate 1,000 -- --
-------- ---------
28,656 100.00%
======== =========
</TABLE>
<PAGE>
Deposit Activity
The following table sets forth the deposit activities of the Association
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
----------- ----------- ----------
(In Thousands)
<S> <C> <C> <C>
Deposits, beginning of period......................... $ 25,750 $ 26,583 $ 24,523
Deposits.............................................. 64,833 55,778 57,787
Withdrawals........................................... (63,138) (57,752) (56,808)
----------- ----------- ----------
Net increase (decrease) before
interest credited................................. 1,695 (1,974) 979
Interest credited..................................... 1,211 1,141 1,081
---------- ---------- ----------
Net increase (decrease) in deposits................ 2,906 (833) 2,060
---------- ----------- ----------
Deposits, end of period............................... $ 28,656 $ 25,750 $ 26,583
========== ========== ==========
</TABLE>
Deposit Flow
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by the Association
between the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- ------------------------------- -------------------
Balance Percent Change Balance Percent Change Balance Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non interest-bearing demand $ 912 3.18% $ 456 $ 456 1.77% $ 125 $ 331 1.25%
NOW Accounts............. 3,774 13.17 552 3,222 12.51 249 2,973 11.18
Passbook savings......... 2,584 9.02 (174) 2,758 10.71 (156) 2,914 10.96
Money market deposit
accounts............... 722 2.52 (111) 833 3.24 (174) 1,007 3.79
Time deposits:
which mature
within 12 months....... 17,842 62.26 2,894 14,948 58.05 (1,122) 16,070 60.45
within 12-24 months.... 2,113 7.37 (1,130) 3,249 12.62 659 2,590 9.74
beyond 24 months....... 709 2.48 425 284 1.10 (414) 698 2.64
------ ----- -------- ------- ----- --------- ------- ------
Total........... $28,656 100.00% $ 2,906 $25.750 100.00% $ (833) $26,583 100.00%
======= ====== ======== ======= ====== ========= ======= ======
</TABLE>
<PAGE>
The following table indicates the amount of the Association's
certificates of deposit of $100,000 or more by time remaining until maturity at
December 31, 1997.
<TABLE>
<CAPTION>
Certificates
of Deposits
-----------
(In thousands)
<S> <C>
Three months or less.................................. $ 982
Over three through six months......................... 614
Over six through twelve months........................ 647
Over twelve months.................................... 422
---------
Total............................................. $ 2,665
=========
</TABLE>
Time Deposits by Rates
The following table sets forth the time deposits in the Association
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1997 1996 1995
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
3.99% or Less............... $ -- $ 5 $ 172
4.00 - 5.99%................ 16,919 18,409 17,180
6.00 - 7.99%................ 3,627 -- 1,961
8.00 - 9.99%................ 118 67 45
--------- -------- --------
$ 20,664 $ 18,481 $ 19,358
========= ======== ========
</TABLE>
Time Deposit Maturity Schedule
The following table sets forth the amount and maturities of time deposits
at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------------------
Less Than 1-2 2-3 3-4 4-5 After
1 Year Years Years Years Years 5 Years Total
--------- ----- ----- ------- ------- ------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Rate
4.00 - 5.99%........ $ 15,424 $ 1,163 $ 177 $ 82 $ 72 -- $ 16,919
6.00 - 7.99%........ 2,418 917 293 -- -- -- 3,628
8.00 - 9.99%........ -- 33 85 -- -- -- 118
-------- ------- ------ ------ ------- ------ --------
$ 17,842 $ 2,113 $ 555 $ 82 $ 72 -- $ 20,664
======== ======= ====== ====== ======= ====== ========
</TABLE>
<PAGE>
Borrowings. First Federal's borrowings historically have consisted of
advances from the FHLB of Dallas. Such advances may be made pursuant to
different credit programs, each of which has its own interest rate and range of
maturities. Federal law limits an institution's borrowings from the FHLB to 20
times the amount paid for capital stock in the FHLB, subject to regulatory
collateral requirements. At December 31, 1997, the Association had $0 million in
advances from the FHLB. The Association has the ability to purchase additional
capital stock from the FHLB. For additional information regarding the term to
maturity and average rate paid on FHLB advances, see Note 10 of the Notes to
Financial Statements.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
FHLB advances
Maximum balance............. $ 2,000 $ 1,500 $ --
Average balance............. $ 282 $ 175 $ 62
</TABLE>
Regulation
General
As a federally chartered savings institution, the Association is
subject to extensive regulation by the OTS. Both the OTS and FDIC, as insurer of
deposit accounts, periodically examine the Association for compliance with
various regulatory requirements. The Association must file reports with the OTS
describing its activities and financial condition. The Association is also
subject to certain reserve requirements promulgated by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"). This supervision and
regulation is intended primarily for the protection of depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the OTS, the FDIC or the Congress could
have a material adverse impact on the Company, the Association and their
operations. As a savings association holding company, the Company is subject to
OTS regulation, examination, supervision and reporting requirements.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Association is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of the Association were
as of March 1997. When these examinations are conducted by the OTS and the FDIC,
the examiners may require the Association to provide for higher general or
specific loan loss reserves.
<PAGE>
All savings associations are subject to a semi-annual assessment, based
upon the savings association's total assets. The Association's OTS assessment
for the fiscal year ended December 31, 1997, was approximately $10,800.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Association and the
Holding Company. This enforcement authority 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 or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws, and regulations, and it is prohibited
from engaging in any activities not permitted by such laws and regulations. For
instance, no savings institution may invest in non-investment grade corporate
debt securities. In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. The Association
is in compliance with the noted restrictions.
The Association's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). The Association is in compliance with the loans
to one borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a capital compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the institution to further enforcement action. The OTS and the other federal
banking agencies have also proposed additional guidelines on asset quality and
earnings standards. No assurance can be given as to whether or in what form the
proposed regulations will be adopted. The guidelines are not expected to
materially effect the Association.
Insurance of Accounts and Regulation by the FDIC
First Federal is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and 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 risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged or is engaging in unsafe or unsound practices, or is in
an unsafe or unsound condition.
<PAGE>
The FDIC's deposit insurance premiums for SAIF-insured institutions are
assessed through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums, based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized (i.e., a core capital
ratio of at least 5%, a ratio of core capital to risk-weighted assets of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
would pay the lowest premium while institutions that are less than adequately
capitalized (i.e., a core capital or core capital to risk-based capital ratios
of less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern would pay the highest premium. Risk
classification of all insured institutions will be made by the FDIC for each
semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
In September 1996, Congress enacted legislation to recapitalize the
SAIF by a one-time assessment on all SAIF-insured deposits held as of March 31,
1995. The assessment was 65.7 basis points per $100 in deposits, payable on
November 30, 1996. For the Association, the assessment amounted to $170,000 (or
$112,000 when adjusted for taxes), based on the Association's deposits on March
31, 1995. In addition, beginning January 1, 1997, pursuant to the legislation,
interest payments on FICO bonds issued in the late 1980's by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation will be paid jointly by BIF-insured institutions and SAIF-insured
institutions. The FICO assessment will be 1.29 basis points per $100 in BIF
deposits and 6.44 basis points per $100 in SAIF deposits. Beginning January 1,
2000, the FICO interest payments will be paid pro rata by banks and thrifts
based on deposits (approximately 2.4 basis points per $100 in deposits).
The legislation further provides that the BIF and SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in Congress that would eliminate the federal
thrift charter and OTS. The bills would require that all federal savings
associations convert to national banks or state depository institutions by
specified dates and would treat all state savings associations as state banks
for purposes of federal banking laws. Subject to a narrow grandfathering, all
savings and loan holding companies would become subject to the same regulation
as bank holding companies under the pending legislative proposals. Under such
proposals, any lawful activity in which a savings association participates would
be permitted for up to two years following the effective date of its conversion
to the new charter, with two additional one-year extensions which may be granted
as the discretion of the regulator. The legislative proposals would also abolish
the OTS and transfer its functions to the federal bank regulators with respect
to the institutions and to the Federal Reserve Board with respect to the
regulation of holding companies. The Association is unable to predict whether
the legislation will be enacted or, given such uncertainty, determine the extent
to which the legislation, if enacted, would affect its business. The Association
is also unable to predict whether the SAIF and BIF funds will eventually be
merged.
<PAGE>
Regulatory Capital Requirements
Federally insured savings associations, such as the Association, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. Generally, these capital
requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. Further, the valuation allowance applicable to the write-down
of investments and mortgage-backed securities in accordance with SFAS No. 115 is
excluded from the regulatory capital calculation. At December 31, 1997, the
Association had no intangible assets and an unrealized loss on investment
securities available for sale net of tax of $2,284.
At December 31, 1997, the Association had tangible capital of $3.6
million, or 11.2% of adjusted total assets, which is approximately $3.2 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital of at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At December 31, 1997, the
Association had no intangible assets which were subject to these tests.
At December 31, 1997, the Association had core capital equal to $3.6
million, or 11.2% of adjusted total assets, which is $2.7 million above the
minimum leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1997, the
Association had no capital instruments that qualify as supplementary capital and
$178,000 of general loss reserves, which was less than 1.25% of risk-weighted
assets.
<PAGE>
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Association had
exclusions from capital and assets at December 31, 1997 of $18,500.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 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 FHLMC.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. Any savings association with less than $300 million in assets and a
total risk-based capital ratio in excess of 12% is exempt from this requirement
unless the OTS determines otherwise.
On December 31, 1997, the Association had total capital of $3.6 million
(including $3.6 million in core capital and $178,000 in qualifying supplementary
capital) and risk-weighted assets of $14.1 million (including $0 in converted
off-balance sheet assets); or total capital of 26.9% of risk-weighted assets.
This amount was 18.9% above the 8% requirement in effect on that date.
OTS regulations also authorize the OTS to require a depository
institution to maintain additional total capital to account for concentration of
credit risk or risks arising from non-traditional activities.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. Effective December 19, 1992, the federal banking
agencies, including the OTS, were given additional enforcement authority over
undercapitalized depository institutions. The OTS is generally required to take
action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core capital ratio, a 4%
Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
<PAGE>
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions, which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement activity of the OTS and the FDIC, including
the appointment of a receiver or conservator.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose restrictions applicable to such category if
the institution is engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Federal may have a substantial adverse effect on the Association's operations
and profitability and the value of the Company's common stock purchased in the
Conversion. The Company's shareholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Company of the Company's shareholders.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions or requirements on
associations with respect to their ability to pay dividends or make other
distributions of capital. OTS regulations prohibit an association from declaring
or paying any dividends or from repurchasing any of its stock if, as a result,
the regulatory capital of the association would be reduced below the amount
required to be maintained for the liquidation account established in connection
with its mutual to stock conversion.
The OTS utilizes a three-tiered approach to permit associations, based
on their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "- Regulatory Capital
Requirements."
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Association meets the
requirements for a Tier 1 association and has not been notified of a need for
more than normal supervision. Tier 2 associations, which are associations that
before and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over the
most recent four quarter period.
<PAGE>
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of the Holding Company, the Association will
also be required to give the OTS 30 days' notice prior to declaring any dividend
on its stock. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. See "Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. Under the proposal a savings
association may make a capital distribution without notice to the OTS (unless it
is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2
rating, is not in troubled condition and would remain adequately capitalized (as
defined by regulation) following the proposed distribution. Savings associations
that would remain adequately capitalized following the proposed distribution but
do not meet the other noted requirements must notify the OTS 30 days prior to
declaring a capital distribution. The OTS stated it will generally regard as
permissible that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a distribution. A savings association will be considered in
troubled condition if it has a CAMEL rating of 4 or 5, is subject to an
enforcement action relating to its safety and soundness or financial viability
or has been informed in writing by the OTS that it is in troubled condition. As
under the current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including the Association, 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. For a discussion of what the Association
includes in liquid assets, see "Business - Investment Activities." This liquid
asset ratio requirement may vary from time to time (between 4% and 10%)
depending upon economic conditions and savings flows of all savings
associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At December 31, 1997, the Association was in compliance with
both requirements, with an overall liquid asset ratio of 8.2% and a short-term
liquid assets ratio of 8.0%.
<PAGE>
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held for investment, sale or
trading) with appropriate documentation.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS. The Association is in compliance
with these amended rules.
Qualified Thrift Lender Test
All savings associations, including the Association, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans and
investments. At December 31, 1997, the Association complied with the QTL
requirement.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
<PAGE>
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of the
Association, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the
Association. An unsatisfactory rating may be used as the basis for the denial of
an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Association may be required to devote additional
funds for investment and lending in its local community. The Association was
examined for CRA compliance in 1996 and received a rating of "Satisfactory", as
indicated in the OTS Community Reinvestment Act Performance Evaluation public
disclosure dated April 1, 1996.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of the Association include the Holding
Company and any company which is under common control with the Association. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Association or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.
<PAGE>
If the Association fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At December 31, 1997, the Association was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
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
associations. 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. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
<PAGE>
As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas. At December 31, 1997, the Association had $259,300 of
FHLB stock, which was in compliance with this requirement. In past years, the
Association has received substantial dividends on its FHLB stock. Over the past
five fiscal years such dividends have averaged 5.0% and were 5.96% for the year
ended December 31, 1997. No assurance can be given that such dividends will
continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Association's FHLB stock may result in a corresponding
reduction in the Association's capital.
Federal and State Taxation
Federal Taxation. Savings associations such as the Association that
meet certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. For tax years beginning before December 31, 1995,
the amount of the bad debt reserve deduction for "qualifying real property
loans" (generally, loans secured by improved real estate) may be computed under
either the experience method or the percentage of taxable income method (based
on an annual election). If a savings association elected the latter method, it
could claim, each year, a deduction based on a percentage of taxable income,
without regard to actual bad debt experience.
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
Under recently enacted legislation, the percentage of taxable income
method has been repealed for years beginning after December 31, 1995, and
"large" associations, i.e., the quarterly average of the association's total
assets or of the consolidated group of which it is a member, exceeds $500
million for the year, may no longer be entitled to use the experience method of
computing additions to their bad debt reserve. A "large" association must use
the direct write-off method for deducting bad debts, under which charge-offs are
deducted and recoveries are taken into taxable income as incurred. If the
Association is not a "large" association, the Association will continue to be
permitted to use the experience method. The Association will be required to
recapture (i.e., take into income) over a six-year period its applicable excess
reserves, i.e, the balance of its reserves for losses on qualifying loans and
nonqualifying loans, as of the close of the last tax year beginning before
January 1, 1996, over the greater of (a) the balance of such reserves as of
<PAGE>
December 31, 1987 (pre-1988 reserves) or (b) in the case of a bank which is not
a "large" association, an amount that would have been the balance of such
reserves as of the close of the last tax year beginning before January 1, 1996,
had the bank always computed the additions to its reserves using the experience
method. Postponement of the recapture is possible for a two-year period if an
association meets a minimum level of mortgage lending for 1996 and 1997. As of
December 31, 1997, the Association's bad debt reserve subject to recapture over
a six-year period totaled approximately $123,000.
If an association ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and the
supplemental reserve are restored to income ratably over a six-year period,
beginning in the tax year the association no longer qualifies as a bank. The
balance of the pre-1988 reserves are also subject to recapture in the case of
certain excess distributions to (including distributions on liquidation and
dissolution), or redemptions of, shareholders.
In addition to the regular federal income tax, corporations, including
savings associations such as the Association, generally are subject to a minimum
tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income. For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as the Association, are also subject to an environmental tax
equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the Association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1997, the Association's excess for tax purposes
totaled approximately $368,000.
The Association files federal income tax returns on a calendar year
basis using the cash method of accounting. The Company has filed a separate
federal income tax return from the Association. Savings associations, such as
the Association, that file federal income tax returns as part of a consolidated
group are required by applicable Treasury regulations to reduce their taxable
income for purposes of computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association members of the
consolidated group that are functionally related to the activities of the
savings association member.
The Association was audited by the IRS in 1997 with respect to federal
income tax returns. The audit did not result in material changes that affected
the financial condition of the Association.
<PAGE>
State Taxation. The Louisiana Corporation Income Tax Act provides for
an exemption from the Louisiana Corporation Income Tax for mutual savings banks
and for banking corporations, which includes stock association (e.g., the
Association). However, this exemption does not extend to non-banking entities
such as the Company. The non-banking subsidiaries of the Association (as well as
the Company) are subject to the Louisiana Corporate Income Tax based on their
Louisiana taxable income, as well as franchise taxes. The Louisiana 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, the
Association is subject to the Louisiana Shares Tax which is imposed on the
assessed value of the Association's stock. The formula for deriving the assessed
value is to calculate 15% of the sum of (i) 20% of a corporation's capitalized
earnings, plus (ii) 80% of a corporation's taxable stockholders' equity, and to
subtract from that amount 50% of a corporation's real and personal property
assessment. Other various items may also be subtracted in calculating a
corporation's capitalized earnings.
Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.
Employees
At December 31, 1997, the Association had a total of 15 full-time and 3
part-time employees. The Association's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
excellent.
Executive Officers of the Association and the Company Who Are Not Directors
Betty Jean Parker. Mrs. Parker, age 53, is the Treasurer and Chief
Financial Officer of the Association. Until June 1996, Mrs. Parker was also
Corporate Secretary of the Association. Mrs. Parker is responsible for the
supervision of the accounting department and reporting to the regulatory
authorities.
<PAGE>
Item 2. Description of Property
The Company conducts its business through two offices, located in
Oakdale, Louisiana and Oberlin, Louisiana in Allen Parish. The following table
sets forth information relating to the Association's office as of December 31,
1997. The total net book value of the Company's premises and equipment
(including land, buildings and leasehold improvements and furniture, fixtures
and equipment) at December 31, 1997 was approximately $262,000.
<TABLE>
<CAPTION>
Total
Approximate
Year Square Net Book Value at
Location Opened Footage December 31, 1997
-------- ------ ------- -----------------
<S> <C> <C> <C>
Main Office: 1975 4,100 $262,000
222 South 10th Street
Oakdale, Louisiana
Loan Production Office: 1997 1,000 --
215 Sixth Avenue
Oberlin, Louisiana 70655
</TABLE>
Item 3. Legal Proceedings
The Company is involved, from time to time, as plaintiff or defendant
in various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel representing the
Company in the proceedings, that the resolution of these proceedings should not
have a material effect on the Company's financial position or results of
operations on a consolidated basis.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1997.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
Pages 48 to 49 of the attached 1997 Annual Report to Shareholders is
herein incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 6 to 16 of the attached 1997 Annual Report to Shareholders are
herein incorporated by reference.
Item 7. Financial Statements
Pages 17 to 47 of the attached 1997 Annual Report to Shareholders are
herein incorporated by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
Item 9. Directors and Executive Officers of the Registrant
Information concerning Directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on April 30, 1998.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders scheduled to be held on April 30, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
April 30, 1998.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders scheduled to be held on April 30, 1998.
<PAGE>
Item 13. Exhibits List and Reports on Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Registrant's Annual Report
to Shareholders for the year ended December 31, 1997, is incorporated by
reference in this Form 10-KSB Annual Report as Exhibit 13.
<TABLE>
<CAPTION>
Page in
Annual
Annual Report Section Report
--------------------- ------
<S> <C>
Report of Independent Auditors........................................................ 17
Consolidated Statements of Financial Condition at December 31, 1997 and 1996.......... 18
Consolidated Statements of Income for the Years ended December 31, 1997 and 1996...... 19
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1997 and 1996......................................................... 20
Consolidated Statements of Cash Flows for the Years ended December 31, 1997 and 1996.. 21-22
Notes to Consolidated Financial Statements............................................ 23-47
</TABLE>
(a)(2) Financial Statement Schedules - All financial statement
schedules have been omitted as the information is either inapplicable or not
required under the related instructions.
(a)(3) Exhibits - The following exhibits are either filed or attached
as part of this report or are incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3 Certificate of Incorporation and Bylaws *
4 Instruments defining the rights of *
security holders, including indentures
9 Voting trust agreement None
10.1 Employment Agreement with Charles L. Galligan *
Employment Agreement with Betty Jean Parker *
10.2
10.3 Employee Stock Ownership Plan *
10.4 Proposed 1998 Stock Option and Incentive Plan 10.4
10.5 Proposed Recognition and Retention Plan 10.5
11 Statement re: computation of per None
share earnings
12 Statement re: computation or ratios Not required
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
<S> <C> <C>
13 Annual Report to Security Holders 13
16 Letter re: change in certifying None
accountant
18 Letter re: change in accounting None
principles
21 Subsidiaries of Registrant 21
22 Published report regarding matters None
submitted to vote of security holders
23 Consent of experts and counsel None
24 Power of Attorney Not Required
27 Financial Data Schedule 27
28 Information from reports furnished to None
State insurance regulatory authorities
99 Additional exhibits None
</TABLE>
- -------------------
*Filed on June 25, 1996, as exhibits to the Registrant's Form SB-2
registration statement (Registration No. 333-6803), pursuant to the Securities
Act of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
(b) Reports on Form 8-K - No Form 8-K was filed during the last quarter
of the year covered by this Form 10-KSB.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST ALLEN PARISH BANCORP, INC.
Date: March 27, 1998 By: /s/ Charles L. Galligan
-----------------------
Charles L. Galligan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Charles L. Galligan By: /s/ Betty Jean Parker
----------------------- ---------------------
Charles L. Galligan, President and Betty Jean Parker, Treasurer
Chief Executive Officer (Principal Financial and
(Principal Executive Officer) Accounting Officer)
Date: March 27, 1998 Date: March 27, 1998
By: /s/ Dr. James D. Sandefur By: /s/ Jesse Boyd, Jr.
------------------------- -------------------
Dr. James D. Sandefur, Chairman Jesse Boyd, Jr., Director
Date: March 27, 1998 Date: March 27, 1998
By: /s/ James E. Riley By: /s/ J. C. Smith
------------------ ----------------
James E. Riley, Director J. C. Smith, Director
Date: March 27, 1998 Date: March 27, 1998
By: /s/ Leslie A. Smith
-------------------
Leslie A. Smith, Director
Date: March 27, 1998
<PAGE>
Index to Exhibits
Exhibit 10.4 Proposed 1998 Stock Option and Incentive Plan
Exhibit 10.5 Proposed Recognition and Retention Plan
Exhibit 13 1997 Annual Report to Stockholders
Exhibit 21 Subsidiaries of the Registrant
Exhibit 27 Financial Data Schedule
APPENDIX A
FIRST ALLEN PARISH BANCORP, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose.
The purpose of the Plan is to promote the long-term interests of
the Corporation and its stockholders by providing a means for attracting and
retaining directors, advisory directors, directors emeriti, officers and
employees of the Corporation and its Affiliates. It is intended that designated
Options granted pursuant to the provisions of this Plan to persons employed by
the Corporation or its Affiliates will qualify as Incentive Stock Options.
Options granted to persons who are not employees will be Non-Qualified Stock
Options.
2. Definitions.
The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Award" - means the grant of an Incentive Stock Option, a
Non-Qualified Stock Option, a Stock Appreciation Right, a Limited Stock
Appreciation Right, or any combination thereof, as provided in the Plan.
"Bank" - means First Federal Savings and Loan Association of Allen
Parish and any successor entity.
"Board" or "Board of Directors"- means the board of directors of
the Corporation or its Affiliate, as applicable.
"Change in Control" of the Bank or the Corporation means a change
in control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Corporation within the meaning of the Bank Holding Company Act of 1956, as
amended ("BHCA"), and applicable rules and regulations promulgated thereunder,
as in effect at the time of the Change in Control; or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (a)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 25% or more of the combined voting power of Corporation's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan or trust; or (b) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however, that this subsection
(b) shall not apply if the Incumbent Board is replaced by the appointment by a
<PAGE>
Federal banking agency of a conservator or receiver for the Bank and, provided
further that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least two-thirds of the directors
comprising the Incumbent Board, or whose nomination for election by the
Corporation's stockholders was approved by the same nominating committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Corporation or similar transaction in which the Bank
or Corporation is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Corporation, by someone other than
the current management of the Corporation, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Corporation or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are to be exchanged for or converted into cash or property or
securities not issued by the Bank or Corporation shall be distributed and the
requisite number of proxies approving such plan of reorganization, merger or
consolidation of the Corporation or Bank are received and voted in favor of such
transactions; or (e) a tender offer is made for 25% or more of the outstanding
securities of the Bank or Corporation and the shareholders owning beneficially
or of record 25% or more of the outstanding securities of the Bank or
Corporation have tendered or offered to sell their shares pursuant to such
tender offer and such tendered shares have been accepted by the tender offeror.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or an Affiliate, except that when used
with respect to persons granted an Incentive Option means the absence of any
interruption or termination of service as an employee of the Corporation or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Corporation" - means First Allen Parish Bancorp, Inc., a Delaware
corporation.
"Disability" - means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board must advise the committee that it is either not possible to
determine whether such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said
Participant's lifetime.
"Employee" - means any person, including an officer or director,
who is employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of
1974, as amended.
<PAGE>
"Exercise Price" - means (i) in the case of an Option, the price
per Share at which the Shares subject to such Option may be purchased upon
exercise of such Option and (ii) in the case of a Right, the price per Share
(other than the Market Value per Share on the date of exercise and the Offer
Price per Share as defined in Section 10 hereof) which, upon grant, the
Committee determines shall be utilized in calculating the aggregate value which
a Participant shall be entitled to receive pursuant to Sections 9, 10 or 12
hereof upon exercise of such Right.
"Incentive Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422 of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation
right with respect to Shares granted by the Committee pursuant to Sections 6 and
10 hereof.
"Market Value" - means the average of the high and low quoted sales
price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall reasonably determine.
"Non-Employee Director" - means a Director who (a) is not employed
by the Corporation or an Affiliate; (b) does not receive compensation directly
or indirectly as a consultant (or in any other capacity than as a director)
greater than $60,000; (c) does not have an interest in a transaction requiring
disclosure under Item 404(a) of Regulation
S-K; or (d) is not engaged in a business relationship for which disclosure would
be required pursuant to Item 404(b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof to (i) a Director who is
not an employee of the Corporation or Affiliate or (ii) to any other Participant
and such Option is either (A) not designated by the Committee as an Incentive
Stock Option, or (B) fails to satisfy the requirements of an Incentive Stock
Option as set forth in Section 422 of the Code and the regulations thereunder.
"Normal Retirement" means retirement after reaching 65 years of
age.
"Option" - means an Incentive Stock Option or a Non-Qualified
Stock Option.
"Outside Director" - means a director of the Corporation or an
Affiliate who is not an employee of the Corporation or an Affiliate.
"Participant" - means any director, advisory director, director
emeritus, officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award.
<PAGE>
"Plan" - means the 1998 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is
granted in connection with, and to the extent exercisable, in whole or in part,
in lieu of, an Option or another Right and (ii) in the case of an Option, an
Option with respect to which and to the extent a Right is exercisable, in whole
or in part, in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Termination for Cause" - means the termination of employment or
termination of service on the Board caused by the individual's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses), or a final cease-and-desist order, any of which results in material
loss to the Corporation or one of its Affiliates.
3. Administration.
The Plan shall be administered by a Committee of the Board
consisting of either (i) at least two Non-Employee Directors of the Corporation,
or (ii) the entire Board of the Corporation. Except as limited by the express
provisions of the Plan, the Committee shall have sole and complete authority and
discretion, to (i) select Participants and grant Awards; (ii) determine the
number of Shares to be subject to types of Awards generally, as well as to
individual Awards granted under the Plan; (iii) determine the terms and
conditions upon which Awards shall be granted under the Plan; (iv) describe the
form and terms of instruments evidencing such grants; and (v) establish from
time to time regulations for the administration of the Plan, interpret the Plan,
and make all determinations deemed necessary or advisable for the administration
of the Plan.
A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee without a
meeting, shall be acts of the Committee.
4. Participation in Committee Awards.
The Committee may select from time to time Participants in the Plan
from those directors, advisory directors, directors emeriti, officers and
employees, of the Corporation or its Affiliates who, in the opinion of the
Committee, have the capacity for contributing to the successful performance of
the Corporation or its Affiliates.
<PAGE>
5. Shares Subject to Plan.
Subject to adjustment by the operation of Section 11 hereof, the
maximum number of Shares with respect to which Awards may be made under the Plan
is 26,450 Shares. The Shares with respect to which Awards may be made under the
Plan may be either authorized and unissued shares or issued shares heretofore or
hereafter reacquired and held as treasury shares. Shares which are subject to
Related Rights and Related Options shall be counted only once in determining
whether the maximum number of Shares with respect to which Awards may be granted
under the Plan has been exceeded. An Award shall not be considered to have been
made under the Plan with respect to any Option or Right which terminates and new
Awards may be granted under the Plan with respect to the number of Shares as to
which such termination has occurred.
6. General Terms and Conditions of Options and Rights.
The Committee shall have full and complete authority and
discretion, except as expressly limited by the Plan, to grant Options and/or
Rights and to provide the terms and conditions (which need not be identical
among Participants) thereof. In particular, the Committee shall prescribe the
following terms and conditions: (i) the Exercise Price of any Option or Right,
which shall not be less than the Market Value per Share at the date of grant of
such Option or Right, (ii) the number of Shares subject to, and the expiration
date of, any Option or Right, which expiration date shall not exceed ten years
from the date of grant, (iii) the manner, time and rate (cumulative or
otherwise) of exercise of such Option or Right, and (iv) the restrictions, if
any, to be placed upon such Option or Right or upon Shares which may be issued
upon exercise of such Option or Right.
Furthermore, at the time of any Award, the Participant shall enter
into an agreement with the Corporation in a form specified by the Committee,
agreeing to the terms and conditions of the Award and such other matters as the
Committee, in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Incentive Stock Option or
Related Right granted under the Plan shall be exercisable
during the lifetime of the Participant to whom such
Incentive Stock Option or Related Right was granted only by
such Participant. Except as provided in paragraphs (c) and
(d) of this Section 7, no Option or Right may be exercised
unless at the time such Participant exercises such Option or
Right, such Participant has maintained Continuous Service
since the date of grant of such Option or Right.
(b) To exercise an Option or Right under the Plan, the
Participant to whom such Option or Right was granted shall
give written notice to the Corporation in form satisfactory
to the Committee (and, if partial exercises have been
permitted by the Committee, by specifying the number of
Shares with respect to which such Participant elects to
exercise such Option or Right) together with full payment of
the Exercise Price, if any and to the extent required. The
date of exercise shall be the date on which such notice is
received by the Corporation. Payment, if any is required,
shall be made either (I) in cash (including check, bank
<PAGE>
draft or money order) or (ii) if permitted by the Committee,
(A) by delivering Shares already owned by the Participant
and having a fair market value equal to the applicable
exercise price, such fair market value to be determined in
such appropriate manner as may be provided by the Committee
or as may be required in order to comply with or to conform
to requirements of any applicable laws or regulations, (B)
by delivering a combination of cash and such Shares, or (C)
by a "cashless exercise". Upon a cashless exercise, the
Participant shall give the Corporation written notice of the
exercise of the Option together with an order to a
registered broker-dealer or equivalent third party, to sell
part or all of the Common Stock subject to the Option and to
deliver enough of the proceeds to the Corporation to pay the
Option exercise price and any applicable withholding taxes.
If the Participant does not sell the Common Stock subject to
the Option through a registered broker-dealer or equivalent
third party, the Optionee can give the Corporation written
notice of the exercise of the Option and the third party
purchaser of the Common Stock subject to the Option shall
pay the Option exercise price plus applicable withholding
taxes to the Corporation.
(c) If a Participant to whom an Option or Right was granted
shall cease to maintain Continuous Service for any reason
(excluding death, Disability, Normal Retirement, following a
Change in Control, or Termination For Cause), such
Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service
and in no event after the expiration date of such Option or
Right, exercise such Option or Right to the extent that such
Participant was entitled to exercise such Option or Right at
the date of such cessation, provided, however, that such
right of exercise shall not be available to a Participant if
the Committee otherwise determines and so provides in the
applicable instrument or instruments evidencing the grant of
such Option or Right. If a Participant to whom an Option or
Right was granted shall cease to maintain Continuous Service
by reason of death, Disability, Normal Retirement or
following a Change in Control, then, unless the Committee
shall have otherwise provided in the instrument evidencing
the grant of an Option or Right, all Options and Rights
granted, whether or not fully exercisable, shall become
exercisable in full upon the happening of such event and
shall remain so exercisable for a period of one year
following the date of his cessation of Continuous Service,
provided, however, that any such Option shall not be
eligible for treatment as an Incentive Stock Option in the
event such Option is exercised more than three months
following the date of his Normal Retirement or Change in
Control; and provided further, that no Option shall be
eligible for treatment as an Incentive Stock Option in the
event such Option is exercised more than one year following
cessation of Continuous Service due to Disability and
provided further, in order to obtain Incentive Stock Option
treatment for Options exercised by heirs or devisees of an
<PAGE>
Optionee, the Optionee's death must have occurred while
employed or within three (3) months of termination of
employment. In no event shall the exercise period extend
beyond the expiration of the Incentive Stock Option term. If
the Continuous Service of a Participant to whom an Option or
Right was granted by the Corporation is terminated in a
Termination for Cause, all rights under any Option or Right
of such Participant shall expire immediately upon the
effective date of such termination.
(d) In the event of the death of a Participant while in the
Continuous Service of the Corporation or an Affiliate or
within the one-year period referred to in paragraph (c) of
this Section 7, the person to whom any Option or Right held
by the Participant at the time of his death is transferred
by will or the laws of descent and distribution, may, but
only to the extent such Participant was entitled to exercise
such Option or Right immediately prior to his death,
exercise such Option or Right at any time within a period of
one year succeeding the date of death of such Participant,
but in no event later than ten years from the date of grant
of such Option or Right. Following the death of any
Participant to whom an Option was granted under the Plan,
irrespective of whether any Related Right shall have
theretofore been granted to the Participant or whether the
person entitled to exercise such Related Right desires to do
so, the Committee may, as an alternative means of settlement
of such Option, elect to pay to the person to whom such
Option is transferred by will or by the laws of descent and
distribution, the amount by which the Market Value per Share
on the date of exercise of such Option shall exceed the
Exercise Price of such Option, multiplied by the number of
Shares with respect to which such Option is properly
exercised. Any such settlement of an Option shall be
considered an exercise of such Option for all purposes of
the Plan.
(e) Notwithstanding the provisions of subparagraphs (c) and (d)
above, the Committee may, in its sole discretion, establish
different terms and conditions pertaining to the effect of
termination to the extent permitted by applicable federal
and state law.
8. Incentive Stock Options.
Incentive Stock Options may be granted only to Participants who
are Employees. Any provision of the Plan to the contrary notwithstanding, (i) no
Incentive Stock Option shall be granted more than ten years from the date the
Plan is adopted by the Board of Directors of the Corporation and no Incentive
Stock Option shall be exercisable more than ten years from the date such
Incentive Stock Option is granted, (ii) the Exercise Price of any Incentive
Stock Option shall not be less than the Market Value per Share on the date such
Incentive Stock Option is granted, (iii) any Incentive Stock Option shall not be
transferable by the Participant to whom such Incentive Stock Option is granted
other than by will or the laws of descent and distribution, and shall be
exercisable during such Participant's lifetime only by such Participant, (iv) no
Incentive Stock Option shall be granted to any individual who, at the time such
Incentive Stock Option is granted, owns stock possessing more than ten percent
<PAGE>
of the total combined voting power of all classes of stock of the Corporation or
any Affiliate unless the Exercise Price of such Incentive Stock Option is at
least 110 percent of the Market Value per Share at the date of grant and such
Incentive Stock Option is not exercisable after the expiration of five years
from the date such Incentive Stock Option is granted, and (v) the aggregate
Market Value (determined as of the time any Incentive Stock Option is granted)
of the Shares with respect to which Incentive Stock Options are ex ercisable for
the first time by a Participant in any calendar year shall not exceed $100,000.
In the event paragraph (v) hereof is exceeded, the first $100,000 of Incentive
Stock Options (determined as of the date of grant) shall be exercisable as
Incentive Stock Options and any excess shall be exercisable as Non-Qualified
Stock Options, but shall remain subject to the provisions of this Section 8 to
the extent permitted.
9. Stock Appreciation Rights.
A Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Stock Appreciation Right was granted to receive a
number of Shares or cash or combination thereof, as the Committee in its
discretion shall determine, the aggregate value of which (i.e., the sum of the
amount of cash and/or Market Value of such Shares on date of exercise) shall
equal (as nearly as possible, it being understood that the Corporation shall not
issue any fractional shares) the amount by which the Market Value per Share on
the date of such exercise shall exceed the Exercise Price of such Stock
Appreciation Right, multiplied by the number of Shares with respect of which
such Stock Appreciation Right shall have been exercised. A Stock Appreciation
Right may be Related to an Option or may be granted independently of any Option
as the Committee shall from time to time in each case determine. At the time of
grant of an Option the Committee shall determine whether and to what extent a
Related Stock Appreciation Right shall be grant ed with respect thereto;
provided, however, and notwithstanding any other provision of the Plan, that if
the Related Option is an Incentive Stock Option, the Related Stock Appreciation
Right shall satisfy all the restrictions and limitations of Section 8 hereof as
if such Related Stock Appreciation Right were an Incentive Stock Option and as
if other rights which are Related to Incentive Stock Options were Incentive
Stock Options. In the case of a Related Option, such Related Option shall cease
to be exercisable to the extent of the Shares with respect to which the Related
Stock Appreciation Right was exercised. Upon the exercise or termination of a
Related Option, any Related Stock Apprecia tion Right shall terminate to the
extent of the Shares with respect to which the Related Option was exercised or
terminated.
10. Limited Stock Appreciation Rights.
At the time of grant of an Option or Stock Appreciation Right to
any Participant, the Committee shall have full and complete authority and
discretion to also grant to such Participant a Limited Stock Appreciation Right
which is Related to such Option or Stock Appreciation Right; provided, however
and notwithstanding any other provision of the Plan, that if the Related Option
is an Incentive Stock Option, the Related Limited Stock Appreciation Right shall
satisfy all the restrictions and limitations of Section 8 hereof as if such
Related Limited Stock Appreciation Right were an Incentive Stock Option and as
if all other Rights which are Related to Incentive Stock Options were Incentive
Stock Options. In no event shall a Limited Stock Appreciation Right be
exercisable in whole or in part before the expiration of six months from the
date of grant of the Limited Rights. A Limited Right may be exercised only in
the event of a Change in Control of the Corporation.
<PAGE>
A Limited Stock Appreciation Right shall, upon its exercise,
entitle the Participant to whom such Limited Stock Appreciation Right was
granted to receive an amount of cash equal to the amount by which the Market
Value on the date of such exercise, as shall have been provided by the Committee
in its discretion at the time of grant, shall exceed the Exercise Price of such
Limited Stock Appreciation Right, multiplied by the number of Shares with
respect to which such Limited Stock Appreciation Right shall have been
exercised. Upon the exercise of a Limited Stock Appreciation Right, any Related
Option and/or Related Stock Appreciation Right shall cease to be exercisable to
the extent of the Shares with respect to which such Limited Stock Appreciation
Right was exercised. Upon the exercise or termination of a Related Option or
Related Stock Appreciation Right, any Related Limited Stock Appreciation Right
shall terminate to the extent of the Shares with respect to which such Related
Option or Related Stock Appreciation Right was exercised or terminated. In the
event of a Change in Control in which pooling accounting treatment is a
condition to the transaction, the Limited Right shall be exercised solely for
shares of stock of the Corporation, or in the event of a merger transaction, for
shares of the acquiring corporation or its parent, as applicable. The number of
shares to be received on the exercise of such Limited Right shall be determined
by dividing the amount of cash that would have been available under the first
sentence above by the Market Value at the time of exercise of the shares
underlying the Option subject to the Limited Right.
11. Adjustments Upon Changes in Capitalization.
In the event of any change in the outstanding Shares subsequent to
the effective date of the Plan by reason of any reorganization,
recapitalization, stock split, stock dividend, pro rata return of capital to all
shareholders, combination or exchange of shares, or any merger, consolidation or
any change in the corporate structure or Shares of the Corporation, without
receipt or payment of consideration by the Corporation, the maximum aggregate
number and class of shares as to which Awards may be granted under the Plan and
the number, class and exercise price of shares with respect to which Awards have
been granted under the Plan shall be appropriately adjusted by the Committee,
whose determination shall be conclusive; provided, however, that no such
adjustments may be made which will change materially the value of benefits
available to a Participant under a previously granted Award. With respect to
Incentive Stock Options, no such adjustment shall be made if it would be deemed
a "modification" of the Award under Section 424 of the Code.
12. Effect of Merger.
In the event of any merger, consolidation or combination of the
Corporation (other than a merger, consolidation or combination in which the
Corporation is the continuing entity and which does not result in the
outstanding Shares being converted into or exchanged for different securities,
cash or other property, or any combination thereof) pursuant to a plan or
agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate of
incorporation, to receive the appraised or fair value of their holdings), any
Participant to whom an Option or Right has been granted at least six months
prior to such event shall have the right (subject to the provisions of the Plan
and any limitation or vesting period applicable to such Option or Right),
thereafter and during the term of each such Option or Right, to receive upon
exercise of any such Option or Right an amount equal to the excess of the fair
<PAGE>
market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers.
No Award of Incentive Stock Options nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award of Incentive
Stock Options under the Plan may be assigned, encumbered or transferred except,
in the event of the death of a Participant, by will or the laws of descent and
distribution. In the discretion of the Board, all or any Non-Qualified Stock
Options granted hereunder may be transferable by the Participant, provided,
however, that the Board may limit the transferability of such Option or Options
to a designated class or classes of persons.
14. Employee Rights Under the Plan.
No director, officer or employee shall have a right to be selected
as a Participant nor, having been so selected, to be selected again as a
Participant and no director, officer, employee or other person shall have any
claim or right to be granted an Award under the Plan or under any other
incentive or similar plan of the Corporation or any Affiliate. Neither the Plan
nor any action taken thereunder shall be construed as giving any employee any
right to be retained in the employ of the Corporation or any Affiliate.
15. Delivery and Registration of Stock.
The Corporation's obligation to deliver Shares with respect to an
Award shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (I) the admission of such shares to listing on any stock exchange or other
system on which Shares may then be listed, and (ii) the completion of such
registration or other qualification of such Shares under any state or Federal
law, rule or regulation, as the Committee shall determine to be necessary or
advisable.
This Plan is intended to comply with Rule 16b-3 under the
Securities Exchange Act of 1934. Any provision of the Plan which is inconsistent
with said Rule shall, to the extent of such inconsistency, be inoperative and
shall not affect the validity of the remaining provisions of the Plan.
16. Withholding Tax.
The Corporation shall have the right to deduct from all amounts
paid in cash with respect to the exercise of a Right under the Plan any taxes
required by law to be withheld with respect to such cash payments. Where a
<PAGE>
Participant or other person is entitled to receive Shares pursuant to the
exercise of an Option or Right pursuant to the Plan, the Corporation shall have
the right to require the Participant or such other person to pay the Corporation
the amount of any taxes which the Corporation is required to withhold with
respect to such Shares, and may, in its sole discretion, withhold sufficient
Shares to cover the amount of taxes which the Corporation is required to
withhold.
17. Amendment or Termination.
The Board of Directors of the Corporation may amend, suspend or
terminate the Plan or any portion thereof at any time, provided, however, that
no such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award made pursuant to the Plan. Any
amendment or modification of the Plan or an outstanding Award under the Plan,
including but not limited to the acceleration of vesting of an outstanding Award
for reasons other than death, Disability, Normal Retirement or a Change in
Control, shall be approved by the Committee or the full Board of the
Corporation.
18. Effective Date and Term of Plan.
The Plan shall become effective upon its ratification by
stockholders of the Corporation. It shall continue in effect for a term of ten
years unless sooner terminated under Section 17 hereof.
APPENDIX B
FIRST ALLEN PARISH BANCORP, INC.
RECOGNITION AND RETENTION PLAN
1. Plan Purpose.
The purpose of the Plan is to promote the long-term interests of the
Corporation and its stockholders by providing a means for attracting and
retaining directors, advisory directors and officers of the Corporation and its
Affiliates.
2. Definitions.
The following definitions are applicable to the Plan:
"Award" - means the grant by the Committee of Restricted Stock, as
provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Bank" - means First Federal Savings and Loan Association of Allen
Parish, a capital stock savings institution and its predecessors and successors.
"Board" or "Board of Directors" - means the board of directors of the
Corporation or its Affiliate, as applicable.
"Change in Control" of the Bank or the Corporation means a change in
control of a nature that: (I) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Corporation within the meaning of the Bank Holding Company Act of 1956, as
amended ("BHCA"), and applicable rules and regulations promulgated thereunder,
as in effect at the time of the Change in Control; or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (a)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 25% or more of the combined voting power of Corporation's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan or trust; or (b) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however, that this subsection
(b) shall not apply if the Incumbent Board is replaced by the appointment by a
Federal banking agency of a conservator or receiver for the Bank and, provided
further that any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least two-thirds of the directors
comprising the Incumbent Board, or whose nomination for election by the
Corporation's stockholders was approved by the same nominating committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
<PAGE>
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Corporation or similar transaction in which the Bank
or Corporation is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Corporation, by someone other than
the current management of the Corporation, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Corporation or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are to be exchanged for or converted into cash or property or
securities not issued by the Bank or Corporation shall be distributed and the
requisite number of proxies approving such plan of reorganization, merger or
consolidation of the Corporation or Bank are received and voted in favor of such
transactions; or (e) a tender offer is made for 25% or more of the outstanding
securities of the Bank or Corporation and the shareholders owning beneficially
or of record 25% or more of the outstanding securities of the Bank or
Corporation have tendered or offered to sell their shares pursuant to such
tender offer and such tendered shares have been accepted by the tender offeror.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or any Affiliate or in the case of
transfers between payroll locations of the Corporation or between the
Corporation, its subsidiaries or its successor. With respect to any advisory
director or director emeritus, continuous service shall mean availability to
perform such functions as may be required of such persons.
"Corporation" - means First Allen Parish Bancorp, Inc., a Delaware
corporation.
"Disability" - means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board must advise the committee that it is either not possible to
determine whether such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said
Participant's lifetime.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who (a) is not employed by
the Company or an Affiliate; (b) does not receive compensation directly or
indirectly as a consultant (or in any other capacity than as a director) greater
than $60,000; (c) does not have an interest in a transaction requiring
disclosure under Item 404(a) of Regulation S-K; or (d) is not engaged in a
business relationship for which disclosure would be required pursuant to Item
404(b) of Regulation S-K.
"Normal Retirement" means retirement after reaching 65 years of age.
<PAGE>
"Outside Director" - means a director of the Corporation or an
Affiliate who is not an employee of the Corporation or an Affiliate.
"Participant" - means any director, advisory director, director
emeritus, officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award.
"Plan" - means the Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 3 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded
to a Participant by the Committee subject to the restrictions referred to in
Section 3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock.
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock and, in addition to
the terms and conditions contained in paragraphs (a) through (f) of this Section
3, to provide such other terms and conditions (which need not be identical among
Participants) in respect of such Awards, and the vesting thereof, as the
Committee shall determine.
(a) At the time of an award of Restricted Stock, the Committee
shall establish for each Participant a Restricted Period
during which or at the expiration of which, as the Committee
shall determine and provide in the agreement referred to in
paragraph (d) of this Section 3, the Shares awarded as
Restricted Stock shall vest, and subject to any such other
terms and conditions as the Committee shall provide, shares of
Restricted Stock may not be sold, assigned, transferred,
pledged, voted or otherwise encumbered by the Participant,
except as hereinafter provided, during the Restricted Period.
Except for such restrictions, and subject to paragraphs (c)
and (e) of this Section 3 and Section 4 hereof, the
Participant as owner of such shares shall have all the rights
of a stockholder. The Committee shall have the authority, in
its discretion, to accelerate the time at which any or all of
the restrictions shall lapse with respect thereto, or to
remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes
in applicable tax or other laws or other changes in cir
cumstances occurring after the commencement of such Restricted
Period.
<PAGE>
(b) If a Participant ceases to maintain Continuous Service for any
reason (other than death, Disability, Normal Retirement, or
following a Change in Control), all Shares of Restricted Stock
awarded to such Participant and which at the time of such
termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall
upon such termination of Continuous Service be forfeited and
returned to the Corporation. If a Participant ceases to
maintain Continuous Service by reason of death, Disability,
Normal Retirement, or following a Change in Control,
Restricted Stock then still subject to restrictions imposed by
paragraph (a) of this Section 3 will be free of those
restrictions and shall be immediately vested.
(c) Each certificate in respect of Shares of Restricted Stock
awarded under the Plan shall be registered in the name of the
Participant or in the name of the Plan on behalf of the
Participant and deposited by the Participant, together with a
stock power endorsed in blank, with the Corporation and shall
bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the Recognition
and Retention Plan of First Allen Parish Bancorp, Inc. Copies
of such Plan are on file in the office of the Secretary of
First Allen Parish Bancorp, Inc., 222 South 10th Street,
Oakdale, Louisiana 71463."
(d) At the time of any Award, the Participant shall enter into an
agreement with the Corporation in a form specified by the
Committee, agreeing to the terms and conditions of the Award
and such other matters as the Committee, in its sole
discretion, shall determine (the "Restricted Stock
Agreement").
(e) After an Award has been granted but before such Award has been
earned, the Participant shall receive any cash dividends paid
with respect to such shares, or shall share in any pro-rata
return of capital to all shareholders with respect to the
Common Stock. Stock dividends declared by the Corporation and
paid on Awards that have not yet been earned shall be subject
to the same restrictions as the Restricted Stock and the
certificate(s) or other instruments representing or evidencing
such shares shall be legended in the manner provided in
paragraph 3(c) and shall be delivered to the Escrow Agent for
distribution to the Participant when the Restricted Stock upon
which such dividends were paid are earned. Unless the
Participant has made an election under Section 83(b) of the
Code, cash dividends or other amounts so paid on shares that
have not yet been earned by the Participant shall be treated
as compensation income to the Participant when paid. If
dividends are paid with respect to shares of Restricted Stock
under the Plan that have been issued but not awarded, or that
have been forfeited and returned to the Corporation or to a
trust established to hold issued and unawarded or forfeited
<PAGE>
shares, the Committee can determine to award such dividends to
any Participant or Participants under the Plan, to any other
employee or director of the Corporation or the Bank, or can
return such dividends to the Corporation.
(f) After an Award has been granted, the Participant as
conditional owner of the Restricted Stock shall have the right
to vote such shares.
(g) At the expiration of the restrictions imposed by paragraph (a)
of this Section 3, the Corporation shall redeliver to the
Participant (or where the relevant provision of paragraph (b)
of this Section 3 applies in the case of a deceased
Participant, to his legal representative, beneficiary or heir)
the certificate(s) and stock power deposited with it pursuant
to paragraph (c) of this Section 3 and the Shares represented
by such certificate(s) shall be free of the restrictions
referred to in paragraph (a) of this Section 3.
4. Adjustments Upon Changes in Capitalization.
In the event of any change in the outstanding Shares subsequent to the
effective date of the Plan by reason of any reorganization, recapitalization,
stock split, stock dividend, combination or exchange of shares, or any merger,
consolidation or any change in the corporate structure or Shares of the
Corporation, without receipt or payment of consideration of the Corporation, the
maximum aggregate number and class of shares as to which Awards may be granted
under the Plan and the number and class of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive. Any shares of stock or
other securities received, as a result of any of the foregoing, by a Participant
with respect to Restricted Stock shall be subject to the same restrictions and
the certificate(s) or other instruments representing or evidencing such shares
or securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers.
No Award nor any right or interest of a Participant under the Plan in
any instrument evidencing any Award under the Plan may be assigned, encumbered
or transferred except, in the event of the death of a Participant, by will or
the laws of descent and distribution or pursuant to a domestic relations order
as defined in the Code or Title I of ERISA or the rules thereunder.
6. Administration.
The Plan shall be administered by a Committee of the Board consisting
of either (i) at least two Non-Employee Directors of the Corporation, or (ii)
the entire Board of the Corporation. Except as limited by the express provisions
of the Plan, the Committee shall have sole and complete authority and
discretion, to (i) select Participants and grant Awards; (ii) determine the
number of shares to be subject to types of Awards generally, as well as to
individual Awards granted under the Plan; (iii) determine the terms and
conditions upon which Awards shall be granted under the Plan; (iv) prescribe the
form and terms of instruments evidencing such grants; and (v) establish from
time to time regulations for the administration of the Plan, interpret the Plan,
and make all determinations deemed necessary or advisable for the administration
of the Plan.
<PAGE>
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
7. Shares Subject to Plan.
Subject to adjustment by the operation of Section 4 hereof, the maximum
number of Shares with respect to which Awards may be made under the Plan is
10,580. The shares with respect to which Awards may be made under the Plan may
be either authorized and unissued shares or issued shares reacquired and held as
treasury shares. An Award shall not be considered to have been made under the
Plan with respect to Restricted Stock which is forfeited and new Awards may be
granted under the Plan with respect to the number of Shares as to which such
forfeiture has occurred.
8. Employee Rights Under the Plan.
No director, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, officer, employee or other person shall have any claim or right
to be granted an Award under the Plan or under any other incentive or similar
plan of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any employee any right to be retained in
the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax.
Upon the termination of the Restricted Period with respect to any
shares of Restricted Stock (or at any such earlier time, if any, that an
election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may withhold from any payment or distribution made
under this Plan sufficient Shares or may withhold or cause to be paid by
Participant sufficient cash to cover any applicable withholding and employment
taxes. The Corporation shall have the right to deduct from all dividends paid
with respect to shares of Restricted Stock the amount of any taxes which the
Corporation is required to withhold with respect to such dividend payments. No
discretion or choice shall be conferred upon any Participant with respect to the
form, timing or method of any such tax withholding.
10. Amendment or Termination.
The Board of Directors of the Corporation may amend, suspend or
terminate the Plan or any portion thereof at any time, provided, however, that
no such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan. Any amendment or modification of the Plan or an outstanding Award under
the Plan, including but not limited to the acceleration of vesting of an
outstanding Award for reasons other than death, Disability, Normal Retirement,
or termination following a Change in Control, shall be approved by the Committee
or the full Board of the Corporation.
11. Term of Plan.
The Plan shall become effective upon its ratification by stockholders
of the Corporation. It shall continue in effect until the earlier of (i) ten
years unless sooner terminated under Section 10 hereof, or (ii) the date on
which all shares of common stock available for award hereunder have vested in
the recipients of such Awards.
March 30, 1998
Dear Stockholder,
We are pleased to provide you with the Annual Report on the Consolidated
Financial statements of First Allen Parish Bancorp, Inc., (The Company), holding
company of First Federal Savings & Loan Association of Allen Parish (First
Federal), for the year ended December 31, 1997.
Consolidated assets of First Allen Parish Bancorp, Inc., increased $2.0 million,
or 6.4%, to $33.5 million at December 31, 1997, from $31.5 million at December
31, 1996.
Net loans receivable increased $1.7 million, or $14.3%, to $13.6 million at
December 31, 1997, from $11.9 million at December 31, 1996, due to an increase
in real estate loans, consumer loans and other loans.
Deposits increased $2.9 million, or 11.3%, to $28.7 million at December 31,
1997, from $25.7 million at December 31, 1996. There were no Federal Home Loan
Bank (FHLB) advances outstanding at December 31, 1997, compared to $1.2 million
at December 31, 1996.
Total stockholders' equity increased $215,000 to $4.5 million at December 31,
1997, from $4.3 million at December 31, 1996. Earnings for the year provided a
$254,000 increase, which was offset by dividends paid to stockholders at 30
cents per share, or $79,000.
The Company has a strong capital base and exceeds all regulatory capital
requirements. This strong capital base has enabled us to invest in the expansion
of our market area and increase our market share. In 1997, a Loan Production
Office (LPO) was opened in Oberlin, Louisiana, our Parish Seat, staffed with a
Manager and a Loan Assistant, and offering a full range of loan products and
services. Due to a positive community response and demands for a full-service
facility, First Federal has applied for, and received, approval from the Office
of Thrift Supervision (OTS) to open a full-service branch in Oberlin, Louisiana.
The expansion will create additional expense items, but this should be off-set
by increased future income and growth. Subsequently, a lot has been purchased,
and plans are being finalized to construct a new branch facility, projected to
be completed and in operation by mid-year 1998.
1
<PAGE>
Since its origination in 1962, First Federal Savings & Loan Association of Allen
Parish has been, and intends to continue to be, a community-oriented financial
institution, offering a full range of banking services aimed at meeting the
financial needs of the communities it serves. Our customers appreciate the fact
that we are a hometown financial institution, easily accessible and here for
them. In the years ahead, the Company's Board of Directors, management and staff
will remain committed to the continued growth of First Federal, offering a wide
variety of services, meeting the financial needs of its customers and building a
strong stockholder value.
Thank you for your investment in First Allen Parish Bancorp, Inc., and First
Federal Savings & Loan Association of Allen Parish.
Sincerely,
Charles L. Galligan
President & CEO
2
<PAGE>
TABLE OF CONTENTS
Page
----
President's Message 1
General Information 3
Selected Consolidated Financial and Other Data of the Company 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Consolidated Financial Statements 17
Stockholder Information 48
Corporate Information 49
<PAGE>
GENERAL INFORMATION
First Allen Parish Bancorp, Inc. (the Company) is a Delaware Corporation
which is the holding company for First Federal Savings and Loan Association of
Allen Parish (the Association). The Company was organized by the Association for
the purpose of acquiring all of the capital stock of the Association in
connection with the conversion of the Association from mutual to stock form,
which was completed on September 27, 1996 (the Conversion). The only significant
assets of the Company are the capital stock of the Association, the Company's
loan to an employee stock ownership plan, and investment securities in United
States government and agency obligations. The business of the Company initially
consists of the business of the Association.
The Association, which was originally chartered in 1962 as a federal
chartered mutual savings and loan association, is headquartered in Oakdale,
Louisiana. Its deposits are insured up to the maximum allowable amount by the
Federal Deposit Insurance Corporation (FDIC). The Association serves communities
located in Allen Parish and in the surrounding parishes in Louisiana through its
main office located at 222 South 10th Street, Oakdale, Louisiana and a loan
production office located at 215 Sixth Avenue, Oberlin, Louisiana.
The Association has been and intends to continue to be, a
community-oriented financial institution offering financial services to meet the
needs of the market area it serves. The Association attracts deposits from the
general public and uses such funds together with FHLB advances to originate
loans secured by real estate, including one-to-four family residential mortgage
loans, commercial real estate loans, land loans, construction loans and loans
secured by other properties. The Association also originates consumer and other
loans consisting primarily of loans secured by automobiles, manufactured homes,
share loans and lines of credit. The Association has also invested a significant
portion of its assets in mortgage-backed and related securities and other
investments.
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA OF THE COMPANY
Set forth below are selected consolidated financial and other data of
the Company. The financial data is derived in part from, and should be read in
connection with, the Consolidated Financial Statements, and Notes thereto
presented elsewhere in this Annual Report.
<TABLE>
<CAPTION>
At
December 31,
----------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets ................................... 33,519 $31,490
Cash and cash equivalents ...................... 1,884 1,474
Loans receivable, net
Real estate .................................. 10,702 9,410
Consumer and other ........................... 2,944 2,528
Mortgage-backed and related securities ......... 17,147 17,185
FHLB stock ..................................... 259 259
Deposits ....................................... 28,657 25,750
FHLB advances .................................. -- 1,200
Total stockholders' equity ..................... 4,535 4,319
<CAPTION>
Years Ended
December 31,
-------------------------
1997 1996
---- ----
(In thousands, except
share information)
Selected Operating Data:
Interest income ................................. $ 2,302 $ 2,135
Interest expense ................................ 1,226 1,151
Net interest income ........................... 1,076 984
(Provision for) recovery from loan losses ..... (3) 8
Net interest income after (provision for)
recovery from loan losses ................... 1,073 992
Total non-interest income ....................... 276 249
Total non-interest expense ...................... 947 986
Earnings before income taxes ................ 402 255
Income tax expense .............................. 148 88
Net earnings ................................ $ 254 $ 167
========= =========
Net earnings per share ...................... $ 1.04 $ 0.69
========= =========
Average common shares outstanding ........... 244,669 243,346
========= =========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
At or For the Years
Ended December 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Key Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (net income divided
by average total assets) ............................. .80% .55%
Return on average equity (net income divided
by average equity) ................................... 5.75% 6.29%
Net interest rate spread (difference between
average yield on interest-earning assets
and average cost of interest-bearing liabilities) .... 3.09% 3.08%
Net interest margin (net interest income as a
percentage of average interest-earning assets) ....... 3.49% 3.37%
Net interest income to non-interest expense ............ 113.55% 99.82%
Average interest-earning assets to average interest-
bearing liabilities .................................. 109.99% 107.50%
Net interest income after (provision for) recovery from
loan losses, to total non-interest expense ........... 113.23% 100.63%
Non-interest expense to average assets (1) ............. 2.97% 3.26%
Asset Quality Ratios:
Non-performing loans to total loans .................... .92% .37%
Non-performing assets to total assets .................. .37% .38%
Allowance for loan losses to non-performing loans ...... 238.91% 670.81%
Allowance for loan losses to non-performing assets ..... 238.91% 249.02%
Capital Ratios (2):
Equity to assets at year end ........................... 13.53% 13.71%
Equity to average assets ratio
(Average equity divided by average total
assets) ............................................ 13.89% 8.83%
Other Data:
Number of full-service offices ......................... 1 1
Number of loan production offices ...................... 1 0
</TABLE>
(1) Without the SAIF assessment of $170,000, non-interest expense would have
been $816,000 for 1996 or 2.7% of average total assets.
(2) For a discussion of the Company's regulatory capital ratios, see
Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
First Allen Parish Bancorp, Inc. was formed in June, 1996 by First
Federal Savings and Loan Association of Allen Parish to become the holding
company of the Association. The acquisition of the Association by First Allen
Parish Bancorp, Inc. was consummated on September 27, 1996 in connection with
the Association's conversion from the mutual to the stock form.
The Company's results of operations depend primarily on its level of net
interest income, which is the difference between interest earned on
interest-bearing assets, consisting primarily of mortgage and consumer loans and
investments, and the interest paid on interest-bearing liabilities, consisting
primarily of deposits and Federal Home Loan Bank (FHLB) advances. Net interest
income is a function of the Company's "interest rate spread," which is the
difference between the average yield earned on interest-bearing assets and the
average rate paid on interest-bearing liabilities, as well as a function of the
average balance of interest-bearing assets as compared to interest-bearing
liabilities. The interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. The Company, like other financial institutions, is subject to
interest-rate risk to the degree that its interest-earning assets mature or
reprice at different times, or on a different basis, than its interest-bearing
liabilities. The Company's operating results are also affected by the amount of
its non-interest income, including loan fees and service charges and other
income. Non-interest expense consists principally of employee compensation and
employee benefits, occupancy expenses, data processing, federal deposit
insurance premiums, stationery and printing and other operating expenses. The
Company's operating results are affected by general economic and competitive
conditions, in particular, the changes in market interest rates, government
policies and actions by regulatory authorities.
Financial Condition
Total assets increased $2.0 million, or 6.4%, to $33.5 million at
December 31, 1997 from $31.5 million at December 31, 1996. The increase was
primarily funded by an increase in deposits of $2.9 million to $28.7 million at
December 31, 1997 from $25.8 million at December 31, 1996. The proceeds from the
increase in deposits were used to finance a $1.7 million increase in net loans
receivable and a $409,000 increase in cash and cash equivalents.
Net loans receivable increased by $1.7 million, or 14.3%, to $13.6
million at December 31, 1997 from $11.9 million at December 31, 1996 due to an
increase in real estate and consumer and other loans.
Mortgage-backed and related securities and cash equivalents increased
$372,000 or 1.99% to $19.0 million at December 31, 1997 from $18.7 million at
December 31, 1996. This increase was financed from the increase in deposits as
mentioned above.
6
<PAGE>
Deposits increased $2.9 million or 11.3% to $28.7 million at December
31, 1997 from $25.7 million at December 31, 1996. There were no FHLB advances
outstanding at December 31, 1997 compared to $1.2 million at December 31, 1996.
Total equity increased $215,000 to $4.5 million at December 31, 1997
from $4.3 million at December 31, 1996. Earnings for the year provided a
$254,000 increase, which was offset by dividends paid to stockholders of
$79,000.
The Company's capital exceeded all of the capital requirements imposed
by FIRREA. OTS regulations provide that an institution that exceeds all capital
requirements before and after a proposed capital distribution and, like the
Company, has not been notified of a need for more than normal supervision could,
after prior notice but without approval by the OTS, make capital distributions
during the calendar year of up to 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its capital requirements) at the beginning of
the calendar year. Any additional capital distributions would require prior
regulatory approval.
The Association declared dividends in 1997 of $79,000 or 30 cents per
share.
Results of Operations
The Company's results of operations depend primarily on the level of its
net interest income and non-interest income and its control of operating
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them.
The Company's non-interest income consists primarily of fees charged on
transaction accounts and fees charged for delinquent payments received on
mortgage and consumer loans. In addition, non-interest income is derived from
insurance commissions, loan origination and servicing fees and other operating
revenues.
The schedule on the following page 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 total dollar amount of interest expense
on average interest-bearing liabilities and resultant rates. All average
balances are monthly average balances. Management does not believe that the use
of monthly balances instead of daily balances has caused a material difference
in the information presented. Nonaccruing loans have been included as loans
carrying a zero yield.
7
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1) $10,037 $ 911 9.08% $ 8,997 $ 839 9.32%
Consumer and other loans 2,731 255 9.36 2,392 210 8.77
Mortgage-backed securities 15,975 1,035 6.48 15,702 986 6.29
FHLB stock 256 15 5.95 256 15 5.90
Other interest-bearing deposits 1,828 85 4.66 1,817 85 4.68
Total interest-earning assets 30,827 2,301 7.47 29,164 2,135 7.32
Non-interest earning assets 1,051 - 0.00 1,016 - 0.00
Total average assets $31,878 $2,301 7.22% $30,180 $ 2,135 7.07%
======= ====== ===== ======= ======= =====
Interest-bearing liabilities:
Passbook accounts $ 2,641 $ 53 2.01% $ 3,005 $ 63 2.09%
NOW and money market accounts 6,643 90 1.36 6,000 88 1.46
Certificates 18,460 1,068 5.79 17,949 991 5.52
FHLB advances 282 16 5.64 175 9 5.14
Total interest-bearing liabilities 28,026 1,227 4.38 27,129 1,151 4.24
Non-interest bearing liabilities 699 - 0.00 592 - 0.00
Total average liabilities $28,725 $1,227 4.27% $27,721 $ 1,151 4.15%
======= ====== ===== ======= ======= =====
Net interest income $1,074 $ 984
Net interest rate spread(2) ====== 3.09% ======= 3.08%
===== =====
Net interest margin(3)
Average interest-earning assets to 3.49% 3.37%
average interest-bearing ===== =====
liabilities 109.99% 107.50%
====== ======
</TABLE>
(1) Average balances include non-accrual loans.
(2) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
8
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (change in rate
multiplied by old volume); and the net change. For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated, have
been allocated proportionally to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 vs. 1996
Increase/(Decrease)
Due to Total
------------------- Increase
Volume Rate (Decrease)
------ ---- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans ........................... $ 94 $ (21) $ 73
Consumer and other loans ................. 31 15 46
Mortgage-backed securities ............... 20 35 55
FHLB stock ............................... (1) 1 --
Other .................................... (15) 8 (7)
Total interest-earning assets .......... $ 129 $ 38 $ 167
Interest-bearing liabilities:
Passbook accounts ........................ $ (7) $ (2) $ (9)
NOW and money market accounts ............ 6 (5) 1
Certificate accounts ..................... 29 48 77
Federal Home Loan Bank advances .......... 6 1 7
Total interest-bearing liabilities ..... 34 42 76
Net change in interest income .............. $ 95 $ (4) $ 91
===== ===== =====
</TABLE>
9
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
General. Net earnings for the year ended December 31, 1997 increased
by $87,000 or 52.1% to $254,000 or $1.04 per share, from $167,000 or $0.69 per
share, for the year ended December 31, 1996. The increase was primarily due to
the combined effects of an $81,000 increase in net interest income after
provision/recovery from loan losses, a $13,000 increase in loan and origination
fees, a $5,000 increase in gain on foreclosed real estate, a $7,000 increase in
other operating revenues, and a $211,000 decrease in SAIF deposit insurance
premiums offset by a $69,000 increase in compensation and employee benefits, a
$102,000 increase in other expenses and a $60,000 increase in income taxes. For
the years ended December 31, 1997 and 1996, the returns on average assets were
.80% and .55%, respectively, while the returns on average equity were 5.75% and
6.29%, respectively.
A provision in the Omnibus Appropriations Bill passed by Congress and
signed by President Clinton on September 30, 1996 included an anticipated
special assessment to recapitalize the Savings Association Insurance Fund
(SAIF). The 65.7 cents per $100 of qualifying accounts as of March 31, 1995
created a pre-tax expense of $170,000 to the Company in 1996. Without the SAIF
assessment, net income would have been $280,000, return on average assets would
have been .92%, return on average equity would have been 10.5% and earnings per
share would have been $1.15 for the year ended December 31, 1996.
The recapitalization of SAIF reduced the future deposit insurance
premiums from 23 cents per $100 of deposits to 6.4 cents per $100 of deposits.
The 6.4 cent premium is projected for the years 1997 through 1999, then
decreasing further to 2.4 cents from 2000 until 2017, assuming a merger of SAIF
and the Bank Insurance Fund (BIF). The Association's insurance premium was
$17,000 for the year ended December 31, 1997.
Interest Income. For the year ended December 31, 1997, net interest
income increased by $92,000 to $1.08 million from $984,000 for the year ended
December 31, 1996. This reflects an increase of $167,000 in interest income to
$2.3 million from $2.1 million and an increase of $75,000 in interest expense to
$1.2 million from $1.1 million. The increase in interest income was due to both
an increase in total interest-earning assets and an increase in rates earned.
The increase in interest expense was due to both an increase in total
interest-bearing liabilities and increased rates paid.
Interest income on loans increased $118,500 or 11.3% to $1.2 million
for the year ended December 31, 1997 from $1.1 million for the year ended
December 31, 1996. Interest income on mortgage-backed and related securities
increased $55,000 or 5.6% to $1.04 million for the year ended December 31, 1997
from $987,000 for the year ended December 31, 1996. The increase in interest
income from mortgage-backed and related securities was due to both increased
rates earned and increase in volume of such securities while the increase in
interest income from loans was primarily due to the increase in volume of loans.
10
<PAGE>
Interest Expense. Interest expense for the year ended December 31,
1997 increased $68,000 to $1.2 million from $1.1 million for the year ended
December 31, 1996. The increase was primarily due to an increase in the average
rate paid on certificates of deposit. Certificates of deposit increased from
1996 to 1997 and interest rates paid on them increased resulting in a slightly
higher cost of funds. Average balances in certificates of deposit increased
$500,000 to $18.5 million at December 31, 1997 from $17.9 million at December
31, 1996. Average non-certificate balances increased $280,000 to $9.3 million
from $9.0 million from 1996 to 1997. Interest expense on FHLB advances increased
to $16,000 for the year ended December 31, 1997 from $9,000 for the prior year.
Provision for Loan Losses. The Association maintains an allowance for
loan losses based upon management's periodic evaluation of known and inherent
risks in the loan, the Association's past loss experience, adverse conditions
that may affect the borrower's ability to repay loans, estimated value of the
underlying collateral and current and expected market conditions. The allowance
for loan losses was $300,260 at December 31, 1997 and $296,452 at December 31,
1996. The provision for loan losses is the method by which the allowance for
losses is adjusted during the period. The Association's provision for loan
losses for the year ended December 31, 1997 was $3,000, as compared to a
recovery of $7,972 for the year ended December 31, 1996 on loans for which
reserves had previously been established. The recovery of $7,972 in 1996 was
primarily due to the payment of consumer loans for which provisions had been
made in prior periods. Management's focus on asset quality has resulted in an
allowance for loan losses to non-performing assets of 238.91%. The ratio of
nonperforming loans to total loans remains low at .92% at December 31, 1997.
Management believes its allowance for loan losses is at a level that is
considered to be adequate to provide for estimated losses; however; there can be
no assurance that further additions will not be made to the loss allowance and
that such losses will not exceed the estimated amount.
Non-interest Income. For the year ended December 31, 1997,
non-interest income was $277,000 compared to $249,000 for the year ended
December 31, 1996. The increase of $28,000 was due to increases of $4,000 in
service charges on deposits, $13,000 in loan origination and servicing fees,
$5,000 in gain in foreclosed real estate, and $7,000 in other operating
revenues.
Non-interest Expense. Non-interest expense decreased $39,000 or 4.0% to
$947,000 for the year ended December 31, 1997 from $986,000 for the year ended
December 31, 1996. This decrease was the result of a decrease of $212,000 in
SAIF deposit insurance premiums and a decrease of $6,000 in stationery and
printing offset by increases of $69,000 in compensation and employee benefits,
$8,000 in occupancy and equipment expenses and $102,000 in other expenses. Other
expenses increased $102,000 primarily because of increases of expenses in the
holding company of $36,000 in professional fees, $8,000 in advertising, $32,000
in franchise and shares taxes and $24,000 in other fees related to stock
transactions in the holding company.
Income Taxes. Income taxes increased $60,000 or 68.2% to $148,000 for
the year ended December 31, 1997 from $88,000 for the year ended December 31,
1996. The increase in income taxes was the result of the increase in net
interest income after provision/recovery from loan losses and increase in
non-interest income as well as the decrease in non-interest expense.
11
<PAGE>
Interest Rate Sensitivity
Net Portfolio Value. In order to encourage associations to reduce
their interest rate risk, the OTS adopted a rule incorporating an interest rate
risk ("IRR") component into the risk-based capital rules. The IRR component is a
dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated market value of its assets will
require the institution to deduct from its capital 50% of that excess change.
The rules provide that the OTS will calculate the IRR component quarterly for
each institution. The Company, based on asset size and risk-based capital, has
been informed by the OTS that it is exempt from this rule. Nevertheless, the
following table presents the Company's NPV at December 31, 1997 as calculated by
the OTS, based on information provided to the OTS by the Company.
<TABLE>
<CAPTION>
Change in
Interest Rates December 31, 1997
In Basis Points Net Portfolio Value
(Rate Shock) Amount Change
------------ ------ ------
(Dollars in thousands)
<S> <C> <C>
400 2,786 (27)%
300 3,168 (17)
200 3,471 (9)
100 3,689 (4)
Static 3,825 -
(100) 3,940 3
(200) 4,102 7
(300) 4,387 15
(400) 4,793 25
</TABLE>
As shown in the above table, increase in interest rates will result in
net decreases in the Company's NPV, while decrease in interest rates will result
in smaller net increases in the NPV. For example, the table reflects the
Company's NPV decreasing 17% if interest rates increased by 300bp, whereas the
NPV would increase by 15% if interest rates decreased by 300bp.
Certain shortcomings are inherent in the method of analysis presented
in both the computation of NPV and in the analysis of the maturing and repricing
of interest-earning assets and interest-bearing liabilities. Although certain
assets and liabilities may have similar maturities or periods within which they
will reprice, they may react differently to changes in market interest rates.
The interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, adjustable-rate mortgages
12
<PAGE>
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. The proportion of adjustable-rate loans could be
reduced in future periods if market interest rates would decrease and remain at
lower levels for a sustained period, due to increased refinancing activity.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in the
table. Finally, the ability of many borrowers to service their adjustable-rate
debt may decrease in the event of a sustained interest rate increase.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings and
principal and interest payments on loans and mortgage-backed and investment
securities. In the event that the Company should require funds beyond its
ability to generate them internally, additional sources of funds are available
through the use of FHLB advances. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic conditions and
competition.
Federal regulations require the Association to maintain minimum levels
of liquid assets. The required percentage has varied from time to time based
upon economic conditions and savings flows and is currently 5 percent of net
withdrawable savings deposits and borrowings payable on demand in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U. S. Government, government agency
and other securities and obligations generally having remaining maturities of
less than five years. The Association's most liquid assets are cash and cash
equivalents, short-term investments and mortgage-backed and related securities.
The levels of these assets are dependent on the Association's operating,
financing, lending and investing activities during any given period. At December
31, 1997 and 1996, liquidity eligible assets totaled $2.1 million and $2.0
million, respectively. At those dates, the Association's liquidity ratios were
8.2% and 7.8%, respectively, in excess of the 5% minimum regulatory requirement.
The Company uses its liquid resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity
and to meet operating expenses. At December 31, 1997, the Association had
outstanding commitments to extend credit which amounted to $509,075. Management
believes that loan repayments and other sources of funds will be adequate to
meet the Company's foreseeable liquidity needs.
At December 31, 1997, the Association had $17.8 million in
certificates of deposit due within one year and $8.0 million in savings and
checking accounts. Based on past experience, management expects that most of the
deposits will be retained or replaced by new deposits.
The primary investment activities of the Company are the origination
of one- to four- family residential, commercial real estate, one- to four-
family construction, land and consumer loans, and the purchase of investment and
mortgage-backed securities. During the years ended December 31, 1997 and 1996,
13
<PAGE>
the Company originated loans totaling $7.1 million and $5.9 million,
respectively. During those same periods, the Company purchased mortgage-backed
securities totaling $2.9 million and $3.9 million, respectively. These
activities were funded primarily by deposits and principal repayments on loans
and mortgage-backed securities.
In connection with its conversion on September 27, 1996 from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association, the Association's capital structure
increased substantially with the issuance of stock and the formation of its
holding company, First Allen Parish Bancorp, Inc.
The Company issued 264,506 shares of common stock that resulted in
$2,645 of common stock and $2,298,842 of additional paid-in capital net of
conversion costs of $345,577. Capital ratios (see Note 20 in the consolidated
financial statements) at December 31, 1997 were significantly higher than
regulatory minimum requirements. The Association had tangible capital of $3.6
million or 11.2% of total assets, which is approximately $3.2 million above the
minimum requirement of 1.5% of total assets. The Association had core capital of
$3.6 million or 11.2% of total assets, which is $2.7 million above the minimum
leverage ratio of 3.0%. The Association had total risk-based capital of $3.8
million and total risk-weighted assets of $14.1 million, or total capital of
26.9% of risk-weighted assets. This was $2.7 million above the 8.0% requirement.
The deposits of savings associations such as the Association are
presently insured by the SAIF which along with the BIF is one of the two
insurance funds administered by the FDIC. On September 30, 1996, President
Clinton signed into law the fiscal year 1997 Omnibus Appropriations Bill which
included the Deposit Insurance Funds Act of 1996. Provisions of the bill
included a one-time assessment on SAIF-insured deposits. The Company's
assessment of $170,000 was recorded in the 1996 consolidated financial
statements. Following the recapitalization, SAIF premiums will be reduced to the
same level as for BIF deposits.
Separately, Financing Corporation (FICO) bond payments will be shared
by SAIF and BIF-insured financial institutions with SAIF-insured institutions
paying 80% of the annual cost and BIF-insured institutions paying 20% of the
annual cost through December 31, 1999, after which assessments will be paid on a
pro rata basis. Until then, the FICO assessment will be 1.3 basis points for
banks versus 6.4 basis points for thrifts per $100 of deposits. Previously, the
minimum combined SAIF and FICO assessments for thrifts had been 23 basis points.
Although the special one-time assessment significantly increased non-interest
expense for 1996, the anticipated reduction in the premium schedule reduced the
Company's federal insurance premiums for 1997 to $17,000 from $229,000 in 1996.
Recent Accounting Developments
SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, supersedes SFAS No. 122 and is
effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings.
14
<PAGE>
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and recognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
SFAS No. 128, Earnings per Share, supersedes APB opinion No. 15 and
AICPA Accounting Interpretation's 1-102 of Opinion No. 15 and is effective for
financial statements issued for periods ending after December 31, 1997. It
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This statement simplifies the standards for computing earnings per share found
in APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. It replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator of the diluted
earnings per share.
SFAS No. 129, Disclosure of Information about Capital Structure,
supersedes specific disclosure requirements of APB opinions No. 10 and No. 15
and FASB Statement No. 47 and consolidates them in this statement. It is
effective for financial statements issued for periods ending after December 15,
1997. This statement continues the previous requirements to disclose certain
information about an entity's capital structure found in APB opinions No. 10,
Omnibus Opinion - 1996, and No. 15, Earnings per Share, and FASB Statement No.
47, Disclosure of Long-Term Obligations, for entities that were subject to the
requirements of those standards. It eliminates the exemption of nonpublic
entities from certain disclosure requirements of Opinion No. 15 as provided by
FASB Statement No. 21, Suspension of the Reporting of Earnings Per Share and
Segment Information of Nonpublic Enterprises.
SFAS No. 130, Reporting Comprehensive Income, establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and is effective for fiscal years beginning after December 31, 1997.
It requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement does not require a specific format of that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. An enterprise
is required to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position.
15
<PAGE>
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, established standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This Statement supersedes FASB Statement
No. 14, Financial Reporting for Segments of a Business Enterprise, but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
This Statement does not apply to nonpublic business enterprises or to
not-for-profit organizations. This statement is effective for financial
statements for periods beginning after December 15, 1997.
Management believes adoption of SFAS Nos. 125, 128, 129, 130 and 131
will not have a material effect on the financial position or results of
operations, nor will adoption require additional capital resources.
Impact of Inflation and Changing Prices
The audited Consolidated Financial Statements and Notes thereto
presented herein have been prepared in accordance with generally accepted
accounting principles. These principles generally require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
The primary assets and liabilities of the Company and savings
institutions such as the Association are monetary in nature. As a result,
interest rates have a more significant impact on the Company's performance than
the effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the prices
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturity structure of the
Company's assets and liabilities are critical to the maintenance of acceptable
performance levels.
The principal effect of inflation, as distinct from levels of interest
rates, on the Company's earnings is in the area of non-interest expense. Expense
items such as employee compensation and benefits, occupancy and equipment costs
may be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by the Company. The Company is unable to determine the
extent, if any, to which the properties securing its loans have appreciated in
dollar value due to inflation.
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
First Allen Parish Bancorp, Inc. and Subsidiary
Oakdale, Louisiana
We have audited the accompanying consolidated statements of financial
condition of First Allen Parish Bancorp, Inc. and Subsidiary as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Allen Parish Bancorp, Inc. and Subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Kolder, Champagne, Slaven & Rainey, LLC
-------------------------------------------
Kolder, Champagne, Slaven & Rainey, LLC
Certified Public Accountants
Lafayette, Louisiana
January 29, 1998
17
<PAGE>
<TABLE>
<CAPTION>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Interest-bearing ................................................... $ 1,297,774 $ 847,896
Non-interest bearing ............................................... 586,468 626,409
Mortgage-backed and related securities - held-to-maturity (estimated
market value of $11,609,680 and $12,979,395) ....................... 11,668,946 13,238,771
Mortgage-backed and related securities - available-for-sale,
estimated market value ............................................. 5,478,291 3,946,564
Loans receivable, net ................................................ 13,645,908 11,937,990
Accrued interest receivable .......................................... 229,363 206,457
Other receivables .................................................... 62,895 42,800
Foreclosed real estate, net of allowance for losses of $ - and $25,807 -- 74,856
Federal Home Loan Bank stock, at cost ................................ 259,300 259,200
Premises and equipment, at cost, less accumulated depreciation ....... 262,447 282,353
Other assets ......................................................... 27,795 26,574
------------ ------------
Total assets ..................................................... $ 33,519,187 $ 31,489,870
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ............................................................. $ 28,656,542 $ 25,749,999
Advances from Federal Home Loan Bank ................................. -- 1,200,000
Advances by borrowers for taxes and insurance ........................ 23,212 31,854
Federal income taxes:
Current ............................................................ 54,956 2,843
Deferred ........................................................... 135,398 122,265
Dividends payable .................................................... 39,676 --
Accrued expenses and other liabilities ............................... 27,620 44,624
Deferred income ...................................................... 47,065 18,818
------------ ------------
Total liabilities ................................................ 28,984,469 27,170,403
STOCKHOLDERS' EQUITY
Serial preferred stock (.01 par value,
100,000 shares authorized, none issued or outstanding) ............. -- --
Common stock (.01 par value, 900,000 shares
authorized, 264,506 shares issued and outstanding) ................. 2,645 2,645
Additional paid-in capital ........................................... 2,314,066 2,298,842
Retained earnings, substantially restricted .......................... 2,405,441 2,230,294
Unrealized loss on mortgage-backed and related securities held
available-for-sale, net of tax benefit at $1,117 and $3,093 ........ (2,284) (6,004)
Unearned employee benefits ........................................... (185,150) (206,310)
------------ ------------
Total stockholders' equity ....................................... 4,534,718 4,319,467
------------ ------------
Total liabilities and stockholders' equity ....................... $ 33,519,187 $ 31,489,870
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
18
<PAGE>
<TABLE>
<CAPTION>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
Interest income:
Loans receivable:
First mortgage loans ..................... $ 911,296 $ 838,531
Consumer and other loans ................. 255,480 209,692
Mortgage-backed and related securities ..... 1,041,868 987,064
Other interest earning assets .............. 93,760 100,071
----------- -----------
Total interest income .................. 2,302,404 2,135,358
----------- -----------
Interest expense:
Deposits ................................... 1,210,611 1,142,332
Borrowed funds ............................. 15,926 8,909
----------- -----------
Total interest expense ................. 1,226,537 1,151,241
----------- -----------
Net interest income .......................... 1,075,867 984,117
(Provision for) recovery from loan losses .... (3,000) 7,972
----------- -----------
Net interest income after (provision for)
recovery from loan losses ................. 1,072,867 992,089
----------- -----------
Non-interest income:
Service charges on deposits ................ 193,605 190,176
Insurance commissions earned ............... 10,934 11,512
Loan origination and servicing fees ........ 44,433 31,329
Net other real estate expenses ............. (3,227) (3,502)
Gain on foreclosed real estate ............. 6,417 1,408
Other operating revenues ................... 24,657 17,890
----------- -----------
Total non-interest income .............. 276,819 248,813
----------- -----------
Non-interest expense:
Compensation and employee benefits ......... 462,626 394,039
Occupancy and equipment expenses ........... 66,935 58,565
SAIF deposit insurance premiums ............ 17,160 228,542
Stationery and printing .................... 51,966 58,250
Data processing ............................ 58,933 58,575
Other expenses ............................. 289,857 187,906
----------- -----------
Total non-interest expenses ............ 947,477 985,877
----------- -----------
Earnings before income taxes ........... 402,209 255,025
Income tax expense ........................... 147,709 88,098
----------- -----------
Net earnings ........................... $ 254,500 $ 166,927
=========== ===========
Net earnings per share ....................... $ 1.04 $ 0.69
=========== ===========
Average common shares outstanding ............ 244,669 243,346
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
<TABLE>
<CAPTION>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
Unrealized loss on
Mortgage-backed and
Additional Related Securities Unearned
Common Paid-in Retained Available-for-sale, Employee
Stock Capital Earnings Net of Tax Benefit Benefits Total
----- ------- -------- ------------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ - $ - $2,063,367 $(4,781) $ - $2,058,586
Sale of common stock, net of offering
costs of $345,577 2,645 2,296,839 - - - 2,299,484
Unearned ESOP shares - - - - (211,600) (211,600)
Net earnings - - 166,927 - - 166,927
Allocation of ESOP shares - 2,003 - - 5,290 7,293
Change in unrealized loss on securities
available-for-sale (net of
tax benefit of $630) - - - (1,223) - (1,223)
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1996 2,645 2,298,842 2,230,294 (6,004) (206,310) 4,319,467
Net earnings - - 254,500 - - 254,500
Dividends - - (79,353) - - (79,353)
Allocation of ESOP shares - 15,224 - - 21,160 36,384
Change in unrealized loss on securities
available-for-sale
(net of tax expense of $1,916) - - - 3,720 - 3,720
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1997 $2,645 $2,314,066 $2,405,441 $(2,284) $(185,150) $4,534,718
====== ========== ========== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
<TABLE>
<CAPTION>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................... $ 254,500 $ 166,927
----------- -----------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation of premises and equipment ................. 36,267 36,332
Provision for (recovery from) loan losses .............. 3,000 (7,972)
Gain on sale of foreclosed real estate ................. (6,417) (1,408)
Gain on sale of mortgage-backed and related securities-
available-for-sale ................................... (2,826) --
Premium amortization net of discount accretion ......... 62,830 43,481
Deferred income taxes .................................. 13,133 5,787
Stock dividend on FHLB stock ........................... (15,000) (14,800)
Changes in assets and liabilities -
Increase in accrued interest receivable .............. (22,906) (7,873)
Increase in prepaid assets ........................... (1,137) (3,358)
Increase (decrease) in accrued expenses and other
liabilities ........................................ (17,004) 3,162
Increase in current income taxes payable ............. 52,113 2,843
(Increase) decrease in deferred income ............... (28,247) 3,646
(Increase) decrease in other receivables ............. (20,095) 4,320
----------- -----------
Total adjustments ................................ 53,711 64,160
----------- -----------
Net cash provided by operating activities ........ 308,211 231,087
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayment of mortgage-backed and related
securities - held-to-maturity ............................ 1,876,561 1,700,147
Principal repayments of mortgage-backed and related
securities - available-for-sale .......................... 593,367 385,904
Purchase of mortgage-backed and related
securities - held-to-maturity ............................ (328,438) (2,699,731)
Purchase of mortgage-backed and related
securities - available-for-sale .......................... (2,542,913) (1,468,195)
Sale of mortgage-backed and related securities - available -
for-sale ................................................. 382,328 --
Net increase in loans made to customers .................... (1,710,918) (699,290)
Proceeds from sale of foreclosed real estate ............... 147,500 30,000
Purchase of property and equipment ......................... (16,336) (8,890)
Improvements on foreclosed real estate ..................... -- (14,746)
----------- -----------
Net cash used by investing
activities ..................................... (1,598,849) (2,774,801)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts, passbook savings accounts, and
certificates of deposits ................................. 2,948,893 (832,880)
Increase (decrease) in advances from FHLB .................. (1,200,000) 1,200,000
Net decrease in advances by borrowers
for taxes and insurance .................................. (8,642) (11,179)
Issuance of common stock ................................... -- 2,299,483
Dividends paid to shareholders ............................. (39,676) --
----------- -----------
Net cash provided by financing
activities ..................................... 1,700,575 2,655,424
----------- -----------
Net increase in cash and cash equivalents ........ 409,937 111,710
CASH AND CASH EQUIVALENTS, beginning of period ............... 1,474,305 1,362,595
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ..................... $ 1,884,242 $ 1,474,305
=========== ===========
</TABLE>
(continued)
21
<PAGE>
<TABLE>
<CAPTION>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Supplemental Disclosures
Cash paid for:
Interest on deposits, advances, and other borrowings $ 1,226,767 $ 1,151,362
Income taxes ........................................ 134,956 82,811
Transfers from loans to real estate acquired through
foreclosure ......................................... 27,919 74,252
Proceeds from sales of foreclosed real estate financed
through loans ....................................... 147,500 30,000
Total (increase) decrease in unrealized loss on
mortgage-backed and related securities available-for-
sale, net of tax expense (benefit) .................. 3,720 (1,223)
Issuance of unearned ESOP shares ...................... -- 211,600
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First Allen Parish
Bancorp, Inc. and Subsidiary and the methods of applying those policies
conform with generally accepted accounting principles. The accounting
and reporting policies and the methods of applying those policies which
significantly affect the determination of financial position, results of
operations, and cash flows are summarized below.
A. The consolidated financial statements include the accounts of
the parent company, First Allen Parish Bancorp, Inc. (Company)
and its fully-owned subsidiary, First Federal Savings and Loan
Association of Allen Parish (Association). First Allen Parish
Bancorp, Inc. acquired all of the outstanding stock of the
Association effective September 27, 1996. All intercompany
accounts and transactions are eliminated.
B. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and
interest-bearing deposits due from other institutions. For
purposes of the statements of cash flows, the Company considers
all of these highly liquid financial instruments with original
maturities, when purchased of three months or less to be cash
equivalents.
Cash and cash equivalents at December 31 include the
following:
1997 1996
Interest-bearing deposits
in other institutions $1,297,774 $ 847,896
Non-interest bearing deposits 586,468 626,409
Total $1,884,242 $1,474,305
========== ==========
C. Mortgage-Backed and Related Securities
The Company follows Statement of Financial Accounting
Standards No. 115 regarding classification of all debt
securities and certain equity securities.
23
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Mortgage-backed and related 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 methods
approximating the interest method. Other mortgage-backed and
related securities are classified as available-for-sale and are
carried at fair value. Unrealized holding gains and losses, net
of tax, on securities available-for-sale are recognized as
direct increases or decreases in retained earnings until
realized.
At December 31, 1997, the Company had no outstanding
commitments to sell securities. Gains of $2,826 were realized in
1997 on the sale of mortgage-backed and related securities held
available-for-sale by using the specific identification method.
All sales are made without recourse. Gross unrealized losses in
the held-to-maturity portfolio and in the available-for-sale
portfolio are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
Gross Gross
Unrealized Unrealized
Loss Loss
---- ----
<S> <C> <C>
Held-to-maturity
securities $59,266 $259,376
Available-for-sale
securities 3,460 9,097
</TABLE>
D. Loans Receivable
Loans receivable are stated at unpaid principal
balances, less the allowance for loan losses, and net deferred
loan origination fees and discounts.
Discounts on consumer loans are recognized over the
lives of the loans using the interest method.
A loan (including a loan defined as impaired under SFAS
114) is classified as nonaccrual when the loan becomes 90 days
or more past due. Any unpaid interest previously accrued on
those loans is reversed from income. Interest income generally
is not recognized on specific impaired loans unless the
likelihood of further loss is remote. Interest payments received
on such loans are applied as a reduction of the loan principal
balances. Interest income on other nonaccrual loans is
recognized only to the extent of interest payments received.
24
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
The allowance for loan losses is established through a
provision for loan losses based on management's evaluation of
the risk inherent in its loan portfolio and changes in the
nature and volume of its loan activity, including those loans
which are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among
other matters, the loan classifications discussed above, the
estimated fair value of the underlying collateral, economic
conditions, historical loan loss experience, the amount of loans
outstanding and other factors that warrant recognition in
providing for an adequate loan loss allowance. Allowances for
impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The Company
applies FASB Statement No. 114 Accounting by Creditors for
Impairment of a Loan, which requires that impaired loans that
are within the scope of this statement be measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's market price or
the fair value of the collateral if the loan is collateral
dependent. The Company uses the loan-by-loan measurement method
for all loans, however, residential mortgage loans and consumer
installment loans are considered to be groups of smaller balance
homogenous loans and are collectively evaluated for impairment
and are not subject to SFAS 114 measurement criteria. A loan is
considered impaired when it is probable that all contractual
amounts due will not be collected in accordance with the terms
of the loan. A loan is not deemed to be impaired if a delay in
receipt of payment is expected to be less than 60 days or if,
during a longer period of delay, the Company expects to collect
all amounts due, including interest accrued at the contractual
rate during the period of the delay. Factors considered by
management include the property location, economic conditions
and any unique circumstances affecting the loan. Due to the
composition of the Company's loan portfolio, the fair value of
collateral is utilized to measure virtually all of the Company's
impaired loans. If the fair value of an impaired loan is less
than the related recorded amount, a valuation allowance is
established or the writedown is charged against the allowance
for loan losses if the impairment is considered to be permanent.
FASB Statement No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures, amended
SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest income on impaired loans. The Company has
elected to continue to use its existing nonaccrual methods for
recognizing interest on impaired loans.
25
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
E. Loan Origination Fees, Commitment Fees and Related Costs
FASB Statement No. 91, Accounting for Non-refundable
Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases, states that loan fees and
certain direct loan origination costs are normally deferred and
the net fee or cost is recognized as an adjustment to interest
income using a method which does not differ materially from the
interest method, over the contractual life of the loans,
adjusted for estimated prepayments based on the Company's
historical prepayment experience. Commitment fees and costs
relating to commitments whose likelihood of exercise is remote
should be recognized over the commitment period on a
straight-line basis. If the commitment is subsequently exercised
during the commitment period, the remaining unamortized
commitment fee at the time of exercise should be recognized over
the life of the loan as an adjustment of yield. Loan fees and
certain direct loan origination costs are not deferred at the
Company, however, due to immateriality. These fees are
recognized in the period collected. The Company does not charge
commitment fees.
F. Foreclosed Real Estate
Real estate properties acquired through, or in lieu of
loan foreclosures are initially recorded at the lower of cost or
fair value minus estimated costs to sell at the date of
foreclosure. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding
of property are expensed.
Valuations are periodically performed by management, and
an allowance for losses is established by a charge to operations
if the carrying value of a property exceeds its estimated net
realizable value.
G. Federal Home Loan Bank Stock
Federal Home Loan Bank (FHLB) stock is carried at cost
due to its lack of marketability and restricted ownership. FHLB
stock can be sold back only at its par value and only to FHLB or
other member institutions. FHLB stock is evaluated annually for
impairment.
26
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
H. Income Taxes
Provisions for income taxes are based on taxes payable
for the current year and include deferred income taxes on
temporary differences in the recognition of income and expenses
for tax and financial statement purposes, primarily from
preparing tax returns on the cash basis of accounting and
preparing the financial statements on the accrual basis.
Deferred taxes are computed utilizing the method prescribed in
FASB Statement 109, Accounting for Income Taxes.
I. Premises and Equipment
Land is carried at cost. Buildings, furniture, fixtures,
and equipment are carried at cost, less accumulated
depreciation. Maintenance, repairs, and minor renewals are
expensed as incurred. Property retired or sold, and the
accumulated depreciation is removed from the accounts in the
year of sale or retirement. Gains or losses on disposition are
taken into income.
The Company computes depreciation by use of the
straight-line method over the following estimated useful lives:
Buildings 40 years
Furniture and fixtures 7-10 years
Automobiles 5 years
For income tax purposes, depreciation of assets acquired
prior to January 1, 1981 is calculated on the straight-line
method, and depreciation of assets acquired after December 31,
1980 is calculated using the Accelerated Cost Recovery System
(ACRS) and Modified Accelerated Cost Recovery System (MACRS) of
the Internal Revenue Service. Provision is made for deferred
income taxes applicable to the difference in depreciation
charges.
J. Deferred Income
Interest on loans collected in advance is deferred and
is recognized to interest income over the contractual life of
the loans. Profits from repossessed real estate sale
transactions for which the proceeds were financed by the Company
are deferred and recognized to income based upon the amount,
composition, and source of the down payment made by the buyer
and periodic cash payments by the buyer.
27
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
K. Earnings Per Share
Earnings per share is based upon the weighted average
common and common equivalent shares outstanding, less
unallocated ESOP shares.
L. Use of Estimates
Management of the Association has made a number of
estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
M. New Accounting Pronouncements
SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, supersedes
SFAS No. 122 and is effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring
after December 31, 1996. This statement provides accounting and
reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings.
Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial
and servicing assets it controls and liabilities it has incurred
and recognizes financial assets it no longer controls and
liabilities that have been extinguished. The
financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets
and liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the criteria
for a sale, the transfer is accounted for as a secured borrowing
with pledge of collateral.
SFAS No. 128, Earnings per Share, supersedes APB opinion
No. 15 and AICPA Accounting Interpretation's 1-102 of Opinion
No. 15 and is effective for financial statements issued for
periods ending after December 31, 1997. It establishes standards
for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, Earnings per
Share, and makes them comparable to international earnings per
share standards. It replaces the presentation of
28
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and
diluted earnings per share on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator
of the diluted earnings per share.
SFAS No. 129, Disclosure of Information about Capital
Structure, supersedes specific disclosure requirements of APB
opinions No. 10 and No. 15 and FASB Statement No. 47 and
consolidates them in this statement. It is effective for
financial statements issued for periods ending after December
15, 1997. This statement continues the previous requirements to
disclose certain information about an entity's capital structure
found in APB opinions No. 10, Omnibus Opinion - 1996, and No.
15, Earnings per Share, and FASB Statement No. 47, Disclosure of
Long-Term Obligations, for entities that were subject to the
requirements of those standards. It eliminates the exemption of
nonpublic entities from certain disclosure requirements of
Opinion No. 15 as provided by FASB Statement No. 21, Suspension
of the Reporting of Earnings Per Share and Segment Information
of Nonpublic Enterprises.
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements and is
effective for fiscal years beginning after December 31, 1997. It
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement
does not require a specific format of that financial statement
but requires that an enterprise display an amount representing
total comprehensive income for the period in that financial
statement. An enterprise is required to classify items of other
comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial
position.
29
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, established standards for
the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. This Statement supersedes FASB Statement No.
14, Financial Reporting for Segments of a Business Enterprise,
but retains the requirement to report information about major
customers. It amends FASB Statement No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure
requirements for previously unconsolidated subsidiaries. This
Statement does not apply to nonpublic business enterprises or to
not-for-profit organizations. This statement is effective for
financial statements for periods beginning after December 15,
1997.
Management believes adoption of SFAS Nos. 125, 128, 129,
130 and 131 will not have a material effect on the financial
position or results of operations, nor will adoption require
additional capital resources.
N. Reclassified Items
Certain items of the prior years have been reclassified
in order to conform to current presentation.
(2) Federal Home Loan Bank Stock
The carrying values of the FHLB stock at December 31, 1997 and
1996 are $259,300 and $259,200, respectively. FHLB stock was not
considered impaired at December 31, 1997 or 1996 and was carried at
cost.
30
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(3) Mortgage-Backed and Related Securities
The carrying values and estimated market values of
mortgage-backed and related securities at December 31 are summarized as
follows:
<TABLE>
<CAPTION>
Held-to-Maturity Securities December 31, 1997
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
GNMA
certificates $ 301,615 $ 136 $ 301,751 $ 5,395 $ 307,146
----------- -------- ----------- -------- -----------
FHLMC
certificates 3,939,519 (18,365) 3,921,154 (11,991) 3,909,163
FNMA
certificates 7,161,015 43,141 7,204,156 (58,208) 7,145,948
Collateralized
mortgage
obligations 50,899 3,992 54,891 (2,948) 51,943
Municipal bond 200,000 (13,006) 186,994 8,486 195,480
----------- -------- ----------- -------- -----------
$11,653,048 $ 15,898 $11,668,946 $(59,266) $11,609,680
=========== ======== =========== ======== ===========
<CAPTION>
Available-for-Sale Securities December 31, 1997
----------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
GNMA
certificates $ 459,059 $10,243 $ 469,302 $(3,119) $ 466,183
FHLMC
certificates 1,819,144 (18,176) 1,800,968 4,071 1,805,039
FNMA
certificates 2,392,250 (4,276) 2,387,974 (1,371) 2,386,603
SBA
certificates 815,353 8,154 823,507 (3,041) 820,466
----------- -------- ----------- -------- -----------
$5,485,806 $(4,055) $5,481,751 $(3,460) $5,478,291
========== ======= ========== ======= ==========
</TABLE>
31
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Held-to-Maturity Securities December 31, 1996
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
<S> <C> <C> <C> <C> <C>
GNMA
certificates $ 369,772 $ 562 $ 370,334 $ 1,178 $ 371,512
FHLMC
certificates 4,530,875 (19,200) 4,511,675 (82,826) 4,428,849
FNMA
certificates 8,234,043 51,024 8,285,067 (170,188) 8,114,879
Collateralized
mortgage
obligations 66,481 5,214 71,695 (7,540) 64,155
----------- -------- ----------- -------- -----------
$13,201,171 $ 37,600 $13,238,771 $(259,376) $12,979,395
=========== ======== =========== ========= ===========
<CAPTION>
Available-for-Sale Securities December 31, 1996
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
GNMA
certificates $ 530,391 $11,902 $ 542,293 $(6,560) $ 535,733
FHLMC
certificates 721,216 3,136 724,352 4,944 729,296
FNMA
certificates 1,303,828 8,622 1,312,450 (4,073) 1,308,377
SBA
certificates 1,363,155 13,411 1,376,566 (3,408) 1,373,158
---------- ------- ---------- -------- ----------
$3,918,590 $37,071 $3,955,661 $(9,097) $3,946,564
========== ======= ========== ======= ==========
</TABLE>
During 1997, the Association sold securities available-for-sale
for total proceeds of $382,328 resulting in gross realized gains of
$2,826, determined by specific identification. During 1996, there were
no sales of securities available-for-sale.
Investment securities with a carrying amount of approximately
$802,000 and $457,000 were pledged to secure deposits as required or
permitted by law at December 31, 1997 and 1996, respectively.
32
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
The following is a summary of maturities of mortgage-backed and
related securities held-to-maturity and available-for-sale as of
December 31, 1997:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Amounts maturing:
After one year
through five
years $ 3,134 $ 3,444 $ 28,175 $ 27,536
After five years
through ten years 16,573 17,365 8,167 7,994
After ten years 11,649,239 11,588,871 5,445,409 5,442,761
----------- ----------- ---------- ----------
$11,668,946 $11,609,680 $5,481,751 $5,478,291
=========== =========== ========== ==========
</TABLE>
(4) Loans Receivable
Major classification of loans at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
First mortgage loans (principally conventional):
Principal balances -
Secured by one-to-four family residences ... $ 8,376,124 $ 7,278,520
Land loans ................................. 612,187 450,955
Commercial loans ........................... 1,467,219 1,519,441
Construction loans ......................... 352,800 486,815
Other real estate loans .................... 279,585 237,293
------------ ------------
11,087,915 9,973,024
Less: Undisbursed portion of first mortgage
loans ..................................... (124,612) (308,529)
------------ ------------
Total first mortgage loans .............. 10,963,303 9,664,495
------------ ------------
</TABLE>
33
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Consumer and other loans:
Principal balances -
Automobile ............................ 525,835 474,424
Manufactured home ..................... 24,017 22,093
Share loans ........................... 734,844 795,101
Lines of credit ....................... 1,321,178 1,003,407
Other consumer loans .................. 970,638 721,446
------------ ------------
3,576,512 3,016,471
Less: Undisbursed portion of consumer loans (585,478) (446,524)
Unearned discounts .................. (8,169) --
Total consumer and other loans . 2,982,865 2,569,947
Less: Allowance for loan losses ........... (300,260) (296,452)
Loans receivable, net ............ $ 13,645,908 $ 11,937,990
============ ============
</TABLE>
Activity in the allowance for loan losses for the years ended
December 31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of year $296,452 $317,406
Provision for (recovery) from operations 3,000 (7,972)
Charge offs less recoveries 808 (12,982)
-------- --------
Balance, end of year $300,260 $296,452
======== ========
</TABLE>
The Company had loans with unpaid principal balances totaling
$125,679 and $44,193 at December 31, 1997 and 1996, respectively, upon
which interest was no longer being accrued due to their delinquent
status. Had the accrual of interest not been discontinued on these
loans, interest income would have been increased by approximately $6,756
and $2,818, respectively. The Company is not committed to lend
additional funds to debtors whose loans have been modified.
34
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(5) Troubled Debt Restructuring
In accordance with FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by FASB Statement No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures, management has classified loans receivable at December
31, 1997 and 1996, in the amounts of $198,646 and $153,649,
respectively, as troubled debt restructuring due to modification of
terms. The interest income that would have been recognized if those
loans had been current with their original terms was $18,595 and $15,287
for the years ended December 31, 1997 and 1996, respectively. Interest
income totalling $13,712 and $13,933 was included in income for the
years ended December 31, 1997 and 1996, respectively. The Company is not
committed to lend additional funds to debtors whose loans have been
restructured. No impaired loans existed at December 31, 1997 and 1996.
(6) Accrued Interest Receivable
Accrued interest receivable at December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage-backed and related securities $132,058 $120,473
Loans receivable 97,305 85,984
-------- --------
$229,363 $206,457
======== ========
</TABLE>
(7) Allowance for Losses on Foreclosed Real Estate
Activity in the allowance for losses for foreclosed real estate
for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of year .............. $ 25,807 $ 25,807
Provisions charged to operations ...... -- --
Charge-offs less recoveries ........... (25,807) --
-------- --------
Balance, end of year .................... $ -- $ 25,807
======== ========
</TABLE>
35
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(8) Premises and Equipment
Premises and equipment at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land and buildings ......................... $ 342,138 $ 342,138
Furniture, fixtures and equipment .......... 294,004 277,668
--------- ---------
636,142 619,806
Less: Accumulated depreciation ............ (373,695) (337,453)
--------- ---------
$ 262,447 $ 282,353
========= =========
</TABLE>
Depreciation for the years ended December 31, 1997 and 1996 was
$36,267 and $36,332, respectively.
(9) Deposits
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Rate at 1997 1996
12/31/97 Amount Percent Amount Percent
-------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Demand and NOW
accounts,
including
non-interest
bearing deposits
of $912,169 and
$456,542 1,66% 4,685,827 16.35% $ 3,678,782 14.28
Money market 2.38% 722,090 2.52% 833,048 3.23
Passbook savings 2.08% 2,584,113 9.02% 2,757,739 10.70
---- ---------- ------ ----------- ------
7,992,030 27.89% 7,269,569 28.21
---------- ------ ----------- ------
Certificates
of deposit:
3.99% or less - - 0.00% 4,809 0.00
4.00% to 5.99% 5.26% 16,919,400 59.05% 18,408,487 71.76
6.00% to 7.99% 6.00% 3,627,464 12.66% - 0.00
8.00% to 9.99% 8.00% 117,648 0.40% 67,134 0.03
---- ---------- ------ ----------- ------
20,664,512 72.11% 18,480,430 71.79
---------- ------ ----------- ------
28,656,542 100.00% $25,749,999 100.00
=========== ====== =========== ======
</TABLE>
36
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
The aggregate amount of short-term jumbo certificates of deposit
with a minimum denomination of $100,000 was approximately, $2,664,532
and $3,179,379 at December 31, 1997 and 1996, respectively.
At December 31, 1997 scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
-------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
4.00 to 5.99 percent $15,424,339 $1,163,270 $177,139 $82,194 $72,458
6.00 to 7.99 percent 2,417,613 917,077 292,774 - -
8.00 to 8.99 percent - 32,642 85,006 - -
----------- ---------- -------- ------- -------
$17,841,952 $2,112,989 $554,919 $82,194 $72,458
=========== ========== ======== ======= =======
</TABLE>
Deposits for directors, officers and employees totaled $670,698
and $476,377 at December 31, 1997 and 1996, respectively.
Interest expense on deposits for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Money market and NOW
accounts ........................... $ 92,541 $ 88,399
Passbook savings ..................... 53,326 62,108
Certificates of
deposits ........................... 1,064,744 991,825
---------- ----------
$1,210,611 $1,142,332
========== ==========
</TABLE>
Income from early withdrawal penalties amounted to $4,005 and
$6,524 for the years ended December 31, 1997 and 1996, respectively.
37
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(10) Advances from Federal Home Loan Bank
Borrowed funds at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------------- -----------------
Rate Amount Rate Amount
---- ------ ---- ------
<S> <C> <C> <C> <C>
Advances from Federal Home Loan Bank - - 5.61% $1,200,000
</TABLE>
Pursuant to a blanket floating lien with the Federal Home Loan
Bank, the advance at December 31, 1996 was secured by $1,559,387 in
mortgage-backed securities. There were no advances from Federal Home
Loan Bank outstanding at December 31, 1997.
(11) Deferred Income
Deferred income at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Interest on loans collected in advance ......... $ 6,510 $ 4,976
Unrealized profit from the sale of
repossessed property ......................... 40,555 13,842
------- -------
Totals ..................................... $47,065 $18,818
======= =======
</TABLE>
(12) Interest Income on Other Interest Earning Assets
Details of interest income on other interest earning assets
included in interest income for the years ended December 31 are provided
below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Interest on demand account in other institutions ... $ 78,539 $ 84,976
Federal Home Loan Bank dividends ................... 15,221 15,095
-------- --------
Totals ......................................... $ 93,760 $100,071
======== ========
</TABLE>
38
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(13) Other Noninterest Expenses
Details of other expenses included in noninterest expenses for
the years ended December 31 are provided below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Bank clearing charges .................... $ 82,504 $ 87,335
Insurance ................................ 22,505 20,431
Professional fees ........................ 73,506 37,571
Telephone ................................ 13,018 12,274
Advertising .............................. 23,418 15,620
Franchise and shares taxes ............... 32,479 --
Registrar fees ........................... 4,635 --
Supervisory examination .................. 3,471 --
ESOP expenses ............................ 1,950 --
Property taxes ........................... 7,693 6,887
Dues and subscriptions ................... 5,947 5,000
Miscellaneous other
expenses ............................... 18,731 2,788
-------- --------
Total .................................. $289,857 $187,906
======== ========
</TABLE>
(14) Retirement Plans
Profit Sharing Plan
In 1988, the Company adopted a contributory profit sharing plan
for all full time employees. Contributions are to be made annually based
on participants' salaries. The contributions for the years ended
December 31, 1997 and 1996 included in compensation and employee
benefits expense were $ -0- and $31,711, respectively.
Employee Stock Ownership Plan (ESOP)
All employees meeting age and service requirements are eligible
to participate in an ESOP. Under the terms of the ESOP, contributions
are allocated to participants using a formula based on compensation.
Participants vest over five years.
In 1996, the ESOP purchased 21,160 shares of Company common
stock. The remaining unamortized cost of such shares purchased is
reflected as unearned employee benefits in the accompanying balance
sheet. During 1997, 2,116 shares were allocated to participants. The
fair value of such shares, $36,385, was charged to expense. The fair
value of the remaining unallocated shares at December 31, 1997 totalled
$370,300.
39
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(15) Officer's Deferred Compensation Contract
The Company has a deferred compensation contract with one member
of the Board of Directors. The agreement provides for payment of equal
annual installments over ten years to be made to the director upon
retirement or to his beneficiary in the event of death before
retirement. The agreement is terminated should the director resign
before the stated date of retirement.
At December 31, 1997 and 1996, $38,665 and $24,831,
respectively, had been accrued as deferred compensation payable.
(16) Income Taxes
The Company utilizes FASB Statement 109 to account for income
taxes.
The components of income tax expense for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Income taxes current:
Federal .............................. $134,956 $ 82,811
Deferred taxes due to
timing differences ................... 12,753 5,287
-------- --------
Total income tax
expense .......................... $147,709 $ 88,098
======== ========
</TABLE>
The total provision for federal income taxes differs from that
computed by applying statutory corporate tax rates as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed at the
expected statutory
rate ..................................... 34.0% 34.0%
Other ...................................... 2.7 .5
---- ----
36.7% 34.5%
==== ====
</TABLE>
40
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Temporary differences giving rise to the deferred tax amounts
consist primarily of converting the financial statements from accrual to
cash basis for tax purposes and by the excess of tax bad debts over book
bad debts since 1987.
Amounts for deferred tax liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets ........................ $ 26,467 $ 22,767
Deferred tax liabilities ................... 161,865 145,032
-------- --------
Net deferred tax liabilities ............. $135,398 $122,265
======== ========
</TABLE>
No valuation allowances were recorded against deferred tax
assets as of December 31, 1997 and December 31, 1996.
Under the Internal Revenue Code, the Company is allowed to
deduct an experience method bad debt deduction based on actual
charge-offs. This deduction is an addition to tax bad debt reserves
established for the purpose of absorbing losses. The Act also provides
that federal income tax bad debt reserves in excess of the base year
reserves will be included in taxable income over a six year inclusion
period. The Association has established a deferred tax liability of
approximately $41,670 for this recapture. Postponement of the recapture
is possible for a two-year period if an association meets a minimum
level of mortgage lending for 1996 and 1997.
Retained earnings of the Company at December 31, 1997 and 1996
includes approximately $368,500, for which provision for federal income
tax has been made. This amount represents allocations of income to bad
debt deductions for tax purposes only. Reduction of amounts allocated
for purposes other than tax bad debt losses will create income for tax
purposes only, which will be subject to the then current corporate
income tax rate.
41
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(17) Related Party Transactions
In the ordinary course of business, the Company makes loans to
its directors, officers, and employees. These loans are made on the same
terms as loans to other customers. The activity of such loans
outstanding for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Balance, beginning of year ............. $ 214,721 $ 293,138
Additions ............................ 70,562 14,657
Payments ............................. (35,854) (93,074)
--------- ---------
Balance, end of year ................... $ 249,429 $ 214,721
========= =========
</TABLE>
(18) Concentration of Credit
The majority of the Company's loans and its standby letters of
credit have been granted to customers in the Company's market area,
which is primarily Allen Parish, Louisiana. The Parish is largely a
rural area and relies heavily on the agricultural industry and
government employment. The concentrations of credit by type of loan are
set forth in the note on loans receivable as presented earlier in this
report. The Company, as a matter of policy, does not extend credit to
any borrower or group of related borrowers in excess of its legal
lending limit of approximately $708,000.
(19) Federal Deposit Insurance Premiums
The deposits of the Company are presently insured by the Savings
Association Insurance Fund (SAIF), which together with the Bank
Insurance Fund (BIF), are the two insurance funds administered by the
FDIC. In the third quarter of 1996, the FDIC lowered the premium
schedule for BIF-insured institutions in anticipation of the BIF
achieving its statutory reserve ratio. The reduced premium created a
significant disparity in deposit insurance expense, causing a
competitive advantage for BIF members. Legislation enacted on September
30, 1996 provided for a one-time special assessment of .657% of the
Company's SAIF insured deposits at March 31, 1995. The purpose of the
assessment was to bring the SAIF to its statutory reserve ratio. Based
on the above formula, the Company's SAIF assessment of $170,020 was
recorded in the 1996 consolidated financial statements. Although the
special one-time assessment significantly increased noninterest expense
for 1996 the SAIF premium declined significantly in 1997 to $17,160.
42
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(20) Regulatory Capital Requirements
The Association is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Association
must meet specific capital guidelines that involve quantitative measures
of the Association's assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Association to maintain minimum amounts and
ratios (set forth in the table below) of risk-based capital, as defined
in the regulations, to risk-weighted assets, as defined, and of tangible
and core capital, as defined, to total assets, as defined. Management
believes, as of December 31, 1997, that the Association meets all
capital adequacy requirements to which it is subject.
As of March 31, 1997, the most recent notification from the
Office of Thrift Supervision (OTS), categorized the Association as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Association must maintain
minimum total risk-based, tangible and core capital ratios as set forth
in the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
<TABLE>
<CAPTION>
Tangible Core Risk-based
---------- ---------- ----------
<S> <C> <C> <C>
Regulatory capital .............. $3,650,487 $3,650,487 $3,809,987
Minimum capital requirement ..... 489,145 978,291 1,131,680
---------- ---------- ----------
Regulatory capital in excess of
of minimum capital
requirements ................ $3,161,342 $2,672,196 $2,678,307
========== ========== ==========
Minimum capital requirement ..... 1.5% 3.0% 8.0%
========== ========== ==========
The Association's regulatory
capital ........................ 11.2% 11.2% 26.9%
========== ========== ==========
</TABLE>
43
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(21) Financial Instruments with Off-Balance-Sheet Risk/Commitments
The Company 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 and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of
financial position. The contract or notional amount of those instruments
reflect the extent of the Company's involvement in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for loan
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Company does not require collateral
or other security to support financial instruments with credit risk.
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. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts
receivable; inventory, property, plant, and equipment; and
income-producing commercial properties. In addition to undisbursed loan
proceeds, outstanding mortgage commitments amounted to:
<TABLE>
<CAPTION>
Ranges
-----------------------------
Variable Interest Commitment
Rate Rates Terms
---- ----- -----
<S> <C> <C> <C>
December 31, 1997 ......... $194,550 8.5%-9.00% 10-182 days
December 31, 1996 ......... $326,800 8.5%-9.25% 182 days
</TABLE>
44
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Ranges
--------------------------------
Fixed Interest Commitment
Rate Rates Terms
---- ----- -----
<S> <C> <C> <C>
December 31, 1997 ...... $314,525 8.00% -9.00% 120-182 days
December 31, 1996 ...... $ 89,750 8.00%-14.00% 159-182 days
</TABLE>
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The Company had short-term standby letters of
credit outstanding of $1,000 and $2,000 at December 31, 1997 and 1996,
respectively.
(22) Estimated Fair Value of Financial Instruments
The following methods and assumptions were used by the Company
in estimating fair values of financial instruments as disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and
short-term instruments approximate their fair value.
Securities to be held to maturity and securities
available-for-sale - Fair values for investment securities,
excluding restricted equity securities, are based on quoted
market prices. The carrying values of restricted equity
securities approximate fair values.
Loans receivable - Fair values for variable and fixed rate loans
are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Deposit liabilities - The fair values disclosed for demand
deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts).
The carrying amounts of variable-rate, fixed-term money market
accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on the certificates to a schedule of aggregated expected
monthly maturities on time deposits.
45
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Short-term borrowings - Fair values of borrowed funds are
estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rates for similar types
of borrowing arrangements.
Accrued interest - The carrying amounts of accrued interest
approximate their fair values.
Off-balance sheet items - The fair value of these items
approximate their contractual amounts.
The estimated fair values of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from
banks $ 1,884,242 $ 1,884,242 $ 1,474,305 $1,474,305
Securities to be held-
to-maturity 11,668,946 11,609,680 13,238,771 12,979,395
Securities available-
for-sale 5,478,291 5,478,291 3,946,564 3,946,564
Loans 13,645,908 13,495,448 11,937,990 11,794,550
Accrued interest
receivable 229,363 229,363 206,457 206,457
Other receivables 62,895 62,895 42,800 42,800
Federal Home Loan Bank
stock, at cost 259,300 259,300 259,200 259,200
<CAPTION>
December 31, 1997 December 31, 1996
--------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial liabilities:
Deposit liabilities 28,656,542 27,732,897 25,749,999 25,790,309
Borrowed funds - - 1,200,000 1,200,000
Advances by borrowers
for taxes and insurance 23,212 23,212 31,854 31,854
Current federal income
taxes payable 54,956 54,956 2,843 2,843
Accrued expenses and
other liabilities 27,620 27,620 44,624 44,624
Off-balance sheet items
Standby letters of
credit 1,000 1,000 2,000 2,000
Commitments to extend
credit 509,075 509,075 416,550 416,550
</TABLE>
46
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(23) Capability of the Company's Data Processing Hardware to Accommodate the
Year 2000
Like many financial institutions, the Company relies upon
computers for the daily conduct of its business and for data processing
generally. There is concern among industry experts that on January 1,
2000, computers will be unable to "read" the new year and there may be
widespread computer malfunctions. The Company generally relies on
independent third parties to provide data processing services to the
Company and has been advised by its data processing service center that
the issue has been addressed. The Company recognized that a
comprehensive and coordinated plan of action was needed to ensure
complete readiness to perform Year 2000 processing. A Year 2000
Committee has been formed to initiate and implement the Year 2000
project, policies, document readiness of the Company to accommodate Year
2000 processing and to track and test progress towards full compliance.
The Company contracts with service bureaus to provide the majority of
its data processing and is dependent upon purchased application
software. In-house applications are linked to wordprocessing and
spreadsheet functions. The Company is in the process of ensuring that
external vendors and servicers are adequately addressing the system and
software issues related to the Year 2000 by obtaining written system
certifications that the systems are fully Year 2000 compliant or that
the vendor has a plan to become fully compliant in the very near future.
The Company will coordinate end-to-end tests with primary servicers,
which allow the Company to simulate daily processing on sensitive
century dates. In the evaluation, the Company will ensure that critical
operations will continue if servicers or vendors are unable to achieve
the Year 2000 requirements. Upon the completion of the system inventory
and vendor certification, the committee will identify critical
applications and develop detailed plans for hardware/system upgrades and
system replacements where necessary. All upgrades are scheduled to be
implemented to allow full compliance.
47
<PAGE>
FIRST ALLEN PARISH BANCORP, INC.
Stockholder Information
ANNUAL MEETING:
The Annual Meeting of Stockholders will be held at 2:00 p.m., Oakdale,
Louisiana time on Thursday, April 30, 1998, at the main office of First Allen
Parish Bancorp, Inc., 222 South 10th Street, Oakdale, Louisiana 71463.
STOCK LISTING:
First Allen Parish Bancorp, Inc. common stock is traded on the National
Association of Securities Dealers, Inc. (NASDAQ) "Pink Sheets" under the symbol
"FALN".
PRICE RANGE OF COMMON STOCK:
The per share price range of the common stock for 1997 was as follows:
High Low Dividends
---- --- ---------
$20.00 $14.38 $79,353
The stock price information set forth in the table above was provided by
Trident Securities, Inc., 1275 Peachtree Street N. E., Suite 460, Atlanta,
Georgia 30309. The common stock traded infrequently and the share price
information reflected stock trades known to management of the Company.
At December 31, 1997, there were 264,506 shares of First Allen Parish
Bancorp, Inc. common stock issued and outstanding (including unallocated ESOP
shares) and there were 100 registered holders of record.
STOCKHOLDERS AND GENERAL INQUIRIES:
Charles L. Galligan, President/CEO
First Allen Parish Bancorp, Inc.
222 South 10th Street
Oakdale, Louisiana 71463
(318) 335-2031
TRANSFER AGENT:
Registrar and Transfer Co.
10 Commerce Drive
Cranford, New Jersey 07016
(800) 368-5948
ANNUAL AND OTHER REPORTS:
A copy of the First Allen Parish Bancorp, Inc. Annual Report on Form
10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission (SEC), may be obtained without charge by contacting Charles
L. Galligan, President and Chief Executive Officer, First Allen Parish Bancorp,
Inc., 222 South 10th Street (Post Office Box 706), Oakdale, Louisiana 71463.
The Company paid semiannual dividends of 15 cents per share in June and
December of 1997.
48
<PAGE>
FIRST ALLEN PARISH BANCORP, INC.
Corporate Information
COMPANY AND ASSOCIATION ADDRESS:
First Allen Parish Bancorp, Inc.
222 South 10th Street
Post Office Box 706 Telephone: (318) 335-2031
Oakdale, Louisiana 71463 Telefax: (318) 335-2941
OFFICERS:
Dr. James D. Sandefur, Chairman of the Board
Charles L. Galligan, President and Chief Executive Officer
Leslie A. Smith, Secretary
Betty Jean Parker, Treasurer and Chief Financial Officer
BOARD OF DIRECTORS:
Dr. James D. Sandefur. Dr. Sandefur has served as Chairman of the Board
since January 1996. Dr. Sandefur was a practicing optometrist, and was
the owner of the Vision Clinic located in Oakdale, Louisiana from March
1968 until June 1996. Dr. Sandefur is currently semi-retired and works
as a consultant for the Vision Clinic.
Charles L. Galligan. Mr. Galligan has served as the President and Chief
Executive Officer since joining the Association in 1991. In these
capacities, he is responsible for overseeing the day-to-day operations
of the Association. Prior to joining the Association, Mr. Galligan was
President of Vermilion Federal Savings Bank located in Abbeville,
Louisiana.
Jesse Boyd, Jr. Mr. Boyd is the owner and president of Boyd Buick-
Cadillac-Chevrolet-Pontiac-Olds-GMC, Inc., a car dealership, and Boyd
Oil Company, a bulk oil distributorship, located in Oakdale and
Glenmora, Louisiana, respectively.
James E. Riley. Mr. Riley owned and operated a pharmacy in Oberlin,
Louisiana until his retirement in 1990.
J. C. Smith. Mr. Smith's principal business is farming. He is also
involved in J. C. Smith & Sons, Partnership, a farming operation, and J.
C. Smith & Sons Auto and Home Service Center, a retail hardware store,
both located in Oberlin, Louisiana.
Leslie A. Smith. Mr. Smith is a retired principal from the Allen Parish
School Board.
INDEPENDENT AUDITORS:
Conrad Chapman, CPA
Kolder, Champagne, Slaven & Rainey, LLC
234 Rue Beauregard
Lafayette, Louisiana 70508
(318) 232-4141
SPECIAL COUNSEL:
Robert I. Lipsher, Esq.
Luse, Lehman, Gorman, Pomerenk & Schick
5335 Wisconsin Avenue, N. W.
Suite 400
Washington, DC 20015
(202) 274-2000
49
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
First Allen Parish Bancorp, Inc.
State of
Subsidiary* Percentage Owned Incorporation
First Federal Savings and Loan 100% Federal
Association of Allen Parish
