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, 1998
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, 1998
were $2,411,105.
As of March 30, 1999, there were issued and outstanding 266,622 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, 1998.
Part III of Form 10-KSB - Portions of Proxy Statement for 1999 Annual
Meeting of Stockholders.
2
<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, 1998, the Company had total assets of
$38.7 million, deposits of $33.6 million and stockholders' equity of $4.8
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,
1998, 81.2% 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, 1998,
consumer and other loans constituted 31.5% 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, 1998, the Association's mortgage-backed securities
portfolio totaled $16.2 million, or 41.9% 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. A newly constructed full service branch completed in November
1998 is located at 110 North Fifth Street, Oberlin, Louisiana and a loan
production office was opened in 1998 located at 531 North Ninth Street, Kinder,
Louisiana.
<PAGE>
Market Area and Competition
- ---------------------------
First Federal serves Allen Parish, Louisiana and the surrounding
parishes, from its offices in Oakdale, Oberlin and Kinder, 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.
3
<PAGE>
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,
1998, the Association's gross loans totaled $16.8 million, of which $8.8 million
or 52.8% were one-to four-family residential mortgage loans. Of the one- to
four-family mortgage loans outstanding at that date, 32.7% were fixed-rate
loans, and 67.3% were adjustable-rate loans. At December 31, 1998, $2.1 million
or 12.4% of gross loans were secured by commercial real estate properties
consisting of retail shops and churches, $394,000, or 2.3%, of gross loans were
construction loans for the construction of owner-occupied homes, and $483,000,
or 2.9% of gross loans consisted of land loans. At that date, consumer and other
loans totaled $4.7 million or 27.8% of the Association's gross loan portfolio,
of which $774,000, or 4.6%, consisted of share loans, $702,000, or 4.2%,
consisted of automobile loans, $2.2 million, or 13.3%, consisted of lines of
credit to small farms and businesses, $40,000 or 0.2% consisted of loans on
manufactured homes and $935,000 or 5.5% consisted of other loans (consisting of
personal loans, disaster relief loans, and loans to governmental entities and
non-profit organizations).
The Association also invests in mortgage-backed securities. At December
31, 1998, mortgage-backed and related securities totaled $16.2 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, 1998, the
maximum amount which the Association could have lent under this limit to any one
borrower and the borrower's related entities was approximately $585,000. At
December 31, 1998, the Association had one borrower that exceeded this maximum
limit; however the Association is currently working with this borrower to reduce
its loan below the required limit. The Association's largest lending
relationship at December 31, 1998 was $824,000 in loans to one borrower which
was comprised of six loans, three 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, 1998 was $533,000 in loans to one borrower
which was comprised of ten loans, seven of which were secured by real estate,
one of which was secured by a certificate of deposit and two of which were
unsecured commercial loans. The Association's third largest lending relationship
totaled $326,000, which consisted of four loans, two of which were secured by
real estate, one of which was secured by an automobile, and one of which was an
unsecured commercial loan. At December 31, 1998, all of these loans were
performing in accordance with their terms.
4
<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,
-----------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential $8,884 59.64% $ 8,376 61.38% $7,279 60.97%
Commercial real estate loans.. 2,084 13.99 1,467 10.75 1,519 12.73
Construction.................. 394 2.65 353 2.59 487 4.08
Land loans.................... 483 3.24 612 4.49 451 3.78
Other real estate loans....... 256 1.72 280 2.05 237 1.99
------ ------ ------- ------ ------ ------
Total first mortgage loans..... 12,101 81.24 11,088 81.25 9,973 83.55
------ ------ ------- ------ ------ ------
Consumer and other loans:
Automobile.................... 702 4.71 526 3.85 475 3.97
Manufactured homes............ 40 0.27 24 0.18 22 0.19
Share loans................... 774 5.19 735 5.39 795 6.66
Lines of credit............... 2,248 15.10 1,321 9.68 1,003 8.41
Other loans................... 935 6.27 970 7.11 721 6.04
------ ------ ------- ------ ------ ------
Total consumer and other loans 4,699 31.54 3,576 26.21 3,016 25.27
------ ------ ------- ------ ------ ------
Total loans receivable..... 16,800 112.78 14,664 107.46 12,989 108.82
Less:
Undisbursed loan proceeds..... (1,579) (10.60) (710) (5.20) (755) (6.34)
Unearned discounts............ (21) (0.14) (8) (0.06) -- --
Allowance for loan losses..... (304) (2.04) (300) (2.20) (296) (2.48)
------- ------- -------- ------- ------- -------
Total loans receivable,
net ..................... $14,896 100.00% $13,646 100.00% $11,938 100.00%
======= ====== ======= ====== ======= ======
</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, 1998, the Association had $8.8 million, or 52.8% 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 67.3% of the Association's
total one- to four-family residential real estate loans receivable at December
31, 1998. 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
5
<PAGE>
environment, borrowers may prefer fixed-rate loans to ARM loans. During the year
ended December 31, 1998, the Association originated $804,000 in fixed-rate
residential mortgage loans and $1.0 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
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).
<PAGE>
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.).
6
<PAGE>
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
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, 1998, $2.1 million, or 12.4% of the Association's
gross loan portfolio consisted of commercial real estate loans. At December 31,
1998, 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, 1998, the largest commercial real estate loan had a principal balance of
$334,000, and was secured by commercial real estate. The loan was performing in
accordance with its terms at December 31, 1998.
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.
<PAGE>
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, 1998, $483,000, or 2.9% 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.
7
<PAGE>
Construction Lending. At December 31, 1998, the Association had
$394,000 or 2.3% 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
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, 1998, 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, 1998, the Association's consumer and other loan portfolio
totaled $4.7 million, or 27.8% of its gross loan portfolio.
The Association offers loans secured by the borrower's savings deposits
("share loans"). At December 31, 1998, share loans totaled $774,000, or 4.6% 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, 1998, home improvement loans amounted to $46,000, which represented
0.28% 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 $2.2 million at December 31, 1998, which represented 13.3% 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, 1998, the Association's
automobile loans totaled $702,000 or 4.2% 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
8
<PAGE>
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, 1998, $9,685 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,
1998, 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 $ 799,182 $ 185,617 $ 357,912 $2,579,434 $3,887,744 $1,074,489 $8,884,378
Other properties............. 318,130 95,641 256,664 967,211 1,143,434 41,788 2,822,868
Construction................. 287,298 106,703 -- -- -- -- 394,001
Consumer and other loans....... 3,239,557 647,343 567,960 149,210 94,598 -- 4,698,668
---------- ---------- --------- ---------- ---------- ---------- ----------
Total..................... $4,644,167 $1,035,304 $1,182,536 $3,695,855 $5,125,776 $1,116,277 $16,799,915
========== ========== ========== ========== ========== ========== ===========
</TABLE>
The following table sets forth the dollar amount of all loans at
December 31, 1998 that have predetermined interest rates and have floating or
adjustable interest rates and which are due after December 31, 1999.
<TABLE>
<CAPTION>
Floating or
Fixed-Rates Adjustable Rates Total
<S> <C> <C> <C>
First mortgage loans:
One- to four-family residential........................... $2,371,341 $5,713,855 $8,085,196
Other properties.......................................... 1,879,079 625,659 2,504,738
Construction.............................................. 106,703 -- 106,703
Consumer and other loans.................................... 1,459,111 -- 1,459,111
---------- ---------- ----------
Total.................................................. $5,816,234 $6,339,514 $12,155,748
========== ========== ===========
</TABLE>
9
<PAGE>
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,
1998, the Association originated $5.5 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.
Set forth below is a table showing the Association's loan originations
and repayments for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996
-------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Total loans receivable at beginning of period $ 14,664 $12,989 $ 11,883
-------- ------- --------
Originations:
First mortgage loans -
One- to four-family residential........... 1,803 2,199 590
Construction.............................. 1,104 306 664
Other properties.......................... 500 618 1,025
Consumer and other loans:
Automobile................................ 632 389 308
Manufactured home......................... 24 6 5
Other..................................... 2,778 2,200 2,564
Refinancing................................ 1,682 1,388 755
-------- ------- --------
Total originations...................... 8,523 7,106 5,911
Transfer of mortgage loans
to foreclosed real estate............... -- (28) (74)
Repayments................................ (6,387) (5,403) (4,731)
--------- -------- ---------
Net loan activity........................... 2,136 1,675 1,106
-------- ------- --------
Total loans receivable
at end of period.................... $ 16,800 $14,664 $ 12,989
======== ======= ========
</TABLE>
<PAGE>
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, 1998, 1997 and 1996 the
percentage of total loans delinquent 90 days or more to net loans receivable
were 0%, 0%, and 0%, respectively.
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
10
<PAGE>
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, 1998, 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, 1998.
<TABLE>
<CAPTION>
At December 31, 1998
----------------------------
Balance Number
------- ------
(In Thousands)
<S> <C> <C>
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............................ 31 1
Loans 90 days or more delinquent.......................... -- --
Construction:
Loans 60 to 89 days delinquent............................ 50 2
Loans 90 days or more delinquent.......................... -- --
Consumer and other loans:
Loans 60 to 89 days delinquent............................ 43 4
Loans 90 days or more delinquent.......................... -- --
Foreclosed real estate and repossessions...................... -- --
Other nonperforming assets.................................... -- --
Restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15 (not included
in other nonperforming categories above).................. 107 5
Loans to facilitate sale of real estate owned................. 393 16
</TABLE>
11
<PAGE>
The following table sets forth information regarding delinquent loans
and real estate owned by the Association at the dates indicated. At December 31,
1998, the Association had $107,000 in restructured loans within the meaning of
SFAS 15.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1998 1997 1996
-------- ------- ---------
(Dollars In Thousands)
<S> <C> <C> <C>
Non-accruing loans:
First mortgage loans:
One- to four-family residential.................. $ 66 $ 76 $ 44
Other properties................................. -- -- --
Commercial....................................... 42 49 --
Construction..................................... -- -- --
Consumer and other loans........................... 9 1 --
-------- ------- ---------
Total non-accruing loans......................... 117 126 44
-------- ------- ---------
Accruing loans past due 90 days or more:
First mortgage loans:
One- to four-family residential.................. -- -- $ --
Other properties................................. -- -- --
Construction..................................... -- -- --
Consumer and other loans........................... -- -- --
-------- ------- ---------
Total accruing loans delinquent
90 days or more.............................. -- -- --
-------- ------- ---------
Total non-performing loans................. 117 126 44
-------- ------- ---------
Total real estate owned............................ -- -- 75
-------- ------- ---------
Total non-performing assets................... $ 117 $ -- $ 119
======== ======= =========
Performing troubled debt restructurings............. $ 107 $ 199 $ 154
======== ======= =========
Total non-performing assets and troubled
debt restructurings.............................. $ 224 $ 325 $ 273
======== ======= =========
Total loans delinquent 90 days or more to
net loans receivable............................... 0.00% 0.00% 0.00%
-------- ------- ---------
Total loans delinquent 90 days or more to
total assets....................................... 0.00% 0.00% 0.00%
-------- ------- ---------
Total non-performing loans and REO
to total assets.................................... 0.30% 0.37% 0.38%
-------- ------- ---------
Total non-performing assets and troubled
debt restructurings to total assets................ 0.58% 0.97% 0.87%
-------- ------- ---------
</TABLE>
12
<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,
------------------------------------------
1998 1997 1996
-------- ------- ---------
(In Thousands)
<S> <C> <C> <C>
Loans past due 60-89 days:
First mortgage loans:
One- to four-family residential.................. $ -- $ -- $ 105
Other properties................................. 31 -- 5
Construction..................................... 50 54 --
Consumer and other loans........................... 43 23 5
</TABLE>
For the year ended December 31, 1998 gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $10,000. The amount that was included in
interest income on such loans was $8,000 for the year ended December 31, 1998.
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
of management's review of its assets, at December 31, 1998, the Association had
classified a total of $326,000 of its assets as substandard, $0 as doubtful, and
$15,000 as loss. At December 31, 1998, total classified assets comprised
$341,000, or 7.1% of the Association's capital, or .88% of the Association's
total assets.
<PAGE>
Other Loans of Concern. Other than the non-performing loans set forth
in the tables above, as of December 31, 1998, 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.
13
<PAGE>
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, 1998, 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, 1998, the Association had a total
allowance for loan losses of $304,000, representing 259.8% of total
non-performing loans and 2.0% of the Association's loans, net. See Note 4 of the
Notes to Consolidated Financial Statements.
14
<PAGE>
The following table sets forth the allocation for loan losses by
category for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1998 1997 1996
------------------- ------------------- --------------------
% 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................ $ 228 52.88% $ 225 57.12% $ 217 56.04%
Other properties............................... 38 16.80 37 16.08 37 16.99
Construction................................... -- 2.35 -- 2.41 -- 3.75
Consumer and other loans......................... 38 27.97 38 24.39 42 23.22
------- -------- ------ -------- ----- -------
Balance, end of period....................... $ 304 100.00% $ 300 100.00% $ 296 100.00%
======= ======== ====== ======== ===== =======
</TABLE>
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,
------------------------------------------------------------
1998 1997 1996
-------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period................... $ 300 $ 296 $ 317
Charge-offs:
First mortgage loans........................... -- -- (10)
Consumer and other loans....................... (59) (33) (8)
Recoveries:
First mortgage loans........................... -- 7 --
Consumer and other loans....................... 4 27 5
--------- ---- -------
Net charge-offs.............................. (55) 1 (13)
Provision for loan losses (recoveries)..... 59 3 (8)
Balance, at end of period........................ $ 304 $ 300 $ 296
========= ====== =======
Allowance for loan losses as a per-
cent of net loans receivable at
end of period.................................. 2.00% 2.20% 2.48%
Ratio of net loans charged off during
the period to average loans outstanding
during the period.............................. (0.39)% 0.00% (0.11)%
Ratio of allowance for loan losses
to total non-performing loans
at end of period............................... 259.83% 238.70% 670.81%
Ratio of allowance for loan losses
to total non-performing loans
and REO at end of period....................... 259.83% 238.70% 249.02%
</TABLE>
15
<PAGE>
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, 1998,
the Association's liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 11.8%. 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
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, 1998, the
Association's investment in mortgage-backed and related securities totaled $16.2
million or 41.9% of its total assets. At December 31, 1998, $9.7 million of the
Association's mortgage-backed and related securities were classified as
held-to-maturity and $6.4 million were classified as available for sale. See
Note 3 of the Notes to Consolidated Financial Statements.
<PAGE>
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.
16
<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 did not sell any mortgage-backed securities during 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
-------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning
of period................................. $ 17,147 $ 17,186 $ 15,391
Purchases................................. 2,444 2,870 3,915
Sales..................................... -- (382) --
Repayments................................ (3,405) (2,470) (2,078)
Discount (premium) amortization............. 9 (57) (42)
-------- ---------- ---------
Mortgage-backed securities
at end of period.......................... $ 16,195 $ 17,147 $ 17,186
======== ========= ========
</TABLE>
At December 31, 1998, the Association's investment securities consisted
solely of FHLB stock totaling $263,000. 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, 1998, 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, 1998, the market value of the Association's mortgage-backed portfolios and
investment securities was approximately $16.2 million and $263,000,
respectively.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1998 1997 1996
----------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities......................... $ 16,195 $ 17,147 $ 17,186
Federal Home Loan Bank stock....................... 263 259 259
---------- --------- ---------
Total investments.............................. $ 16,458 $ 17,406 $ 17,448
========== ========= =========
</TABLE>
17
<PAGE>
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, 1998.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years
--------------------- ---------------------- --------------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed and
investment securities held
to maturity:
GNMA certificates........... -- -- $ 2 6.50% $ 5 8.00% $ 234 6.46%
Freddie Mac certificates.... -- -- 7 7.25 76 8.25 3,203 6.12%
FNMA certificates........... -- -- 97 6.63 -- -- 5,892 6.34%
Collateralized mortgage
obligations............... -- -- -- -- -- -- 39 7.25%
FHLB Stock.................. -- -- -- -- -- -- 263 5.81%
Municipal bonds............. -- -- -- -- -- -- 189 8.25%
Total..................... -- -- 106 6.67% 81 8.24% 9,820 6.30%
Mortgage-backed and investment
securities available for sale:
GNMA certificates........... -- -- -- -- -- -- 388 6.66%
Freddie Mac certificates.... -- -- 6 7.38% -- -- 2,221 6.39%
FNMA certificates........... -- -- -- -- -- -- 3,271 6.34%
SBA certificates............. -- -- -- -- -- -- 552 6.13%
Total..................... -- -- $ 6 7.38% $ -- --% $ 6,432 6.36%
<CAPTION>
Total Investment Portfolio
-----------------------------------
Carrying Market Average
Value Value Yield
----- ----- -----
<S> <C> <C> <C>
Mortgage-backed and
investment securities held
to maturity:
GNMA certificates........... $ 241 $ 243 6.49%
Freddie Mac certificates.... 3,286 3,290 6.17%
FNMA certificates........... 5,989 5,999 6.34%
Collateralized mortgage
obligations............... 39 36 7.25%
FHLB Stock.................. 263 263 5.81%
Municipal bonds............. 189 202 8.25%
Total..................... 10,007 10,033 6.32%
Mortgage-backed and investment
securities available for sale:
GNMA certificates........... 388 383 6.66%
Freddie Mac certificates.... 2,228 2,231 6.39%
FNMA certificates........... 3,271 3,287 6.34%
SBA certificates............. 552 550 6.13%
Total..................... $ 6,438 $ 6,451 6.36%
</TABLE>
18
<PAGE>
The Association's investment securities portfolio at December 31, 1998,
contained $188,561 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, 1998, 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.
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, 1998, $17.2
million or 51.2% 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.
19
<PAGE>
Savings Portfolio
- -----------------
Deposits in the Association as of December 31, 1998, 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> <C>
0.00% None Non interest-bearing demand $ 5,000 $ 1,299 3.87%
2.00 None Passbook accounts 50 2,253 6.71
2.75 None Money market 2,500 604 1.80
2.02 None NOW accounts 100 8,809 26.25
Certificates of Deposit
-----------------------
5.14% 1-5 months Fixed term, fixed rate 2,500 12,369 36.86%
5.12 6-11 months Fixed term, fixed rate 2,500 4,825 14.38
5.33 12-17 months Fixed term, fixed rate 1,000 1,427 4.25
4.95 18-23 months Fixed term, fixed rate 1,000 1,279 3.81
5.84 24-29 months Fixed term, fixed rate 1,000 289 .86
5.97 30-35 months Fixed term, fixed rate 1,000 260 .77
6.00 36-47 months Fixed term, fixed rate 1,000 74 .22
5.82 48-53 months Fixed term, fixed rate 1,000 30 .09
5.67 54-59 months Fixed term, fixed rate 1,000 35 .13
5.25 60 months
or greater Fixed term, fixed rate 1,000 33,553 100.00%
</TABLE>
Deposit Activity
- ----------------
The following table sets forth the deposit activities of the Association
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Deposits, beginning of period......................... $ 28,656 $ 25,750 $ 26,583
Deposits.............................................. 85,306 64,833 55,778
Withdrawals........................................... (81,599) (63,138) (57,752)
----------- ----------- -----------
Net increase (decrease) before
interest credited................................. 3,707 1,695 (1,974)
Interest credited..................................... 1,190 1,211 1,141
---------- ---------- ----------
Net increase (decrease) in deposits................ 4,897 2,906 (833)
---------- ---------- -----------
Deposits, end of period............................... $ 33,553 $ 28,656 $ 25,750
========== ========== ==========
</TABLE>
20
<PAGE>
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,
---------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------ ------------------------------
Balance Percent Change Balance Percent Change Balance Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non interest-bearing demand $1,299 3.87% $ 387 $ 912 3.18% $ 456 $ 456 1.77%
NOW Accounts............. 8,809 26.25 5,035 3,774 13.17 552 3,222 12.51
Passbook savings......... 2,253 6.71 (331) 2,584 9.02 (174) 2,758 10.71
Money market deposit
accounts............... 604 1.80 (118) 722 2.52 (111) 833 3.24
Time deposits:
which mature
within 12 months....... 17,194 51.24 (648) 17,842 62.26 2,894 14,948 58.05
within 12-24 months.... 2,706 8.06 593 2,113 7.37 (1,130) 3,249 12.62
beyond 24 months....... 688 2.07 (21) 709 2.48 425 284 1.10
------ ----- --------- ------- ----- -------- ------- ------
Total........... $33,553 100.00% $ 4,897 $28,656 100.00% $ 2,906 $25.750 100.00%
======= ------ ======== ======= ====== ======== ======= ======
</TABLE>
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, 1998.
<TABLE>
<CAPTION>
Certificates
of Deposits
-----------
(In thousands)
<S> <C>
Three months or less.................................. $ 1,517
Over three through six months......................... 1,282
Over six through twelve months........................ 900
Over twelve months.................................... 752
---------
Total............................................. $ 4,451
=========
</TABLE>
Time Deposits by Rates
The following table sets forth the time deposits in the Association
classified by rates as of the dates indicated.
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
3.99% or Less......................................... $ 313 $ -- $ 5
4.00 - 5.99%.......................................... 15,342 16,919 18,409
6.00 - 7.99%.......................................... 4,811 3,627 --
8.00 - 9.99%.......................................... 122 118 67
--------- -------- --------
$ 20,588 $ 20,664 $ 18,481
========= ======== ========
</TABLE>
21
<PAGE>
Time Deposit Maturity Schedule
- ------------------------------
The following table sets forth the amount and maturities of time deposits
at December 31, 1998.
<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>
Rate
3.99 or less........ $ -- $ 313 $ -- $ -- $ -- -- $ 313
4.00 - 5.99%........ 13,988 1,055 160 74 65 -- 15,342
6.00 - 7.99%........ 3,206 1,216 389 -- -- -- 4,811
8.00 - 9.99%........ -- 122 -- -- -- 122
-------- ------- ------ ------ ------- ------ --------
$ 17,194 $ 2,706 $ 549 $ 74 $ 65 -- $ 20,588
======== ======= ====== ====== ======= ====== ========
</TABLE>
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, 1998, the Association had $0 million in
advances from the FHLB. The Association has the ability to purchase additional
capital stock from the FHLB.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
FHLB advances
Maximum balance............. $ 1,000 $ 2,000 $ 1,500
Average balance............. $ 119 $ 282 $ 175
</TABLE>
<PAGE>
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.
22
<PAGE>
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 December 1998. 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.
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, 1998, was approximately $11,300.
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 not in compliance with the
loans to one borrower limitation; however, the Association is currently working
with the borrower to reduce its loans below the required limit.
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.
<PAGE>
Insurance of Deposits
---------------------
Deposit Insurance. The FDIC is an independent federal agency that
insures deposits of banks and thrift institutions up to certain specified limits
and regulates such institutions for safety and soundness. The FDIC administers
two separate insurance funds, the Bank Insurance Fund ("BIF") for commercial
banks and state savings banks, and the SAIF for savings associations such as the
Association and banks that have acquired deposits from savings associations.
The FDIC is required to maintain designated levels of reserves in each fund.
23
<PAGE>
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time, and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital levels, and the FDIC's level of supervisory
concern about the institution.
In 1996, federal legislation was enacted to recapitalize the SAIF and
eliminate the significant premium disparity between the BIF and the SAIF. Under
that law, the Association and other institutions with SAIF-insured deposits were
charged a one-time special assessment equal to $0.657 per $100 of assessable
deposits at March 31,1995. The Association recognized this special assessment as
a charge to noninterest expense of $170,000 (or $112,000 when adjusted for
taxes) during the year ended December 31, 1996. The assessment was fully
deductible for both federal and state income tax purposes. Assessment rates for
regular ongoing, deposit insurance premiums currently range from 0.0% of
deposits for an institution in the highest category (i.e., well-capitalized and
financially sound, with no more than a few minor weaknesses) to 0.27% of
deposits for an institution in the lowest category (i.e., undercapitalized and
substantial supervisory consent). The Association's assessment rate for deposit
insurance was 0.23% of deposits for 1996, and it was reduced to 0.0% of deposits
beginning on January 1, 1997. The FDIC is authorized to raise the assessment
rates as necessary to maintain the required reserve ratio of 1.25%, and both the
BIF and the SAIF currently satisfy the reserve ratio requirement. The annual
rate of assessments on SAIF-assessable deposits for the payments on the FICO
bonds was 0.0648% for the semi-annual period beginning on January 1, 1997;
0.0630% for the semi-annual period beginning on July 1, 1997; and 0.0622%
currently. The 1996 law also provides for the merger of the SAIF and the BIF by
1999, but not until such time as bank and thrift charters are combined. Until
the charters are combined, savings associations with SAIF deposits may not
transfer deposits to the BIF without paying various exit and entrance fees, and
SAIF institutions will continue to pay higher FICO assessments. Such exit and
entrance fees need not be paid if a SAIF institution converts to a bank charter
or merges with a bank, as long as the resulting bank continues to pay applicable
insurance assessments to the SAIF, and as long as certain other conditions are
met.
While the legislation has reduced the disparity between premiums paid
on BIF deposits and SAIF deposits, and has relieved the thrift industry of a
portion of the contingent liability represented by the FICO bonds, the premium
disparity between SAIF-insured institutions, such as the Association, and
BIF-insured institutions will continue until at least January 1, 1999.
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.
<PAGE>
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, 1998, the
Association had no intangible assets and an unrealized gain on investment
securities available for sale net of tax of $8,447.
24
<PAGE>
At December 31, 1998, the Association had tangible capital of $3.7
million, or 9.88% 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, 1998, the
Association had no intangible assets which were subject to these tests.
At December 31, 1998, the Association had core capital equal to $3.7
million, or 9.88% of adjusted total assets, which is $2.6 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, 1998, the
Association had no capital instruments that qualify as supplementary capital and
$198,000 of general loss reserves, which was less than 1.25% of risk-weighted
assets.
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, 1998 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,
<PAGE>
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, 1998, the Association had total capital of $3.7 million
(including $3.7 million in core capital and $198,000 in qualifying supplementary
capital) and risk-weighted assets of $15.8 million (including $0 in converted
off-balance sheet assets); or total capital of 24.8% of risk-weighted assets.
This amount was 16.8% above the 8% requirement in effect on that date.
Thrift Charter
Congress has been considering legislation in various forms that would
require federal thrifts, such as the Bank, to convert their charters to national
or state bank charters. Legislation enacted in 1996 required the Treasury
Department to prepare for Congress a comprehensive study on development of a
common charter for federal savings associations
25
<PAGE>
and commercial banks; and provided for the merger of the BIF and the SAIF into a
single deposit insurance fund on January 1, 1999 provided the thrift charter was
eliminated. The Association cannot determine whether, or in what form, such
legislation may eventually be enacted and there can be no assurance that any
legislation that is enacted would not adversely affect the Association and the
Company.
Prompt Corrective Regulatory Action
Under the OTS Prompt Corrective Action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of
less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized," and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS may also take any one
of a number of discretionary supervisory actions, including the issuance of a
capital directive and the replacement of senior executive officers and
directors.
At December 31, 1998, the Association was categorized as "well
capitalized," meaning that the Association's total risk-based capital ratio
exceeded 10.0%, Tier I risk-based capital ratio exceeded 6.0%, leverage capital
ratio exceeded 5.0%, and the Association was not subject to a regulatory order,
agreement or directive to meet and maintain a specific capital level for any
capital measure.
Dividend Limitations
An OTS regulation imposes limitations upon all "capital distributions"
by savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility given to well-capitalized associations. A savings
association which has total capital (immediately prior to and after giving
effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An association that has total capital at least equal to its
minimum capital requirements, but less than its capital requirements, would be a
Tier 2 institution ("Tier 2 Institution"). An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution"). However, an institution which otherwise qualifies as a
Tier 1 Institution may be designated by the OTS as a Tier 2 or Tier 3
Institution if the OTS determines that the institution is "in need of more than
normal supervision." The Association is currently a Tier 1 Institution.
<PAGE>
A Tier 1 Institution may, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the greater
of (a) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" at the beginning of
the calendar year (the smallest excess over its capital requirements), or (b)
75% of its net income over the most recent four-quarter period. Any additional
amount of capital distributions would require prior regulatory approval.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
26
<PAGE>
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, 1998, the Association was in compliance with
both requirements, with an overall liquid asset ratio of 11.8% and a short-term
liquid assets ratio of 11.5%.
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, 1998, 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
<PAGE>
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
27
<PAGE>
requirements or programs for financial institutions nor does it 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 June 3, 1998.
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.
28
<PAGE>
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, 1998, 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.
As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas. At December 31, 1998, the Association had $263,000 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 5.25% and were 5.94% for the year
ended December 31, 1998. 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.
29
<PAGE>
Federal and State Taxation
Federal Taxation. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). As of December 31, 1998,
the Association's bad debt reserve subject to recapture over a six year period
totaled approximately $119,000. For taxable years beginning after December 31,
1995, the Association's bad debt deduction will be determined under the
experience method using a formula based on actual bad debt experience over a
period of years or, if the Association is a "large" association (assets in
excess of $500 million) on the basis of net charge-offs during the taxable year.
The new rules allow an institution to suspend bad debt reserve recapture for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institution's average mortgage lending activity for
the six taxable years preceding 1996 adjusted for inflation. For this purpose,
only home purchase or home improvements loans are included and the institution
can elect to have the tax years with the highest and lowest lending activity
removed from the average calculation. If an institution is permitted to postpone
the reserve recapture, it must begin its six year recapture no later than the
1998 tax year. The unrecaptured base year reserves will not be subject to
recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continue to
be subject to provisions of present law referred to below that require recapture
in the case of certain excess distributions to shareholders.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividend paid out of the Association's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Association's bad debt reserve. The amount of additional taxable income created
from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus, if
<PAGE>
the Association makes a "nondividend distribution," then approximately one and
one-half the times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). The Association does not presently intend
to pay dividends that wold result in a recapture of any portion of its tax bad
debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the
tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax is paid.
30
<PAGE>
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.
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, 1998, the Association had a total of 19 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 54, 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.
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,
1998. 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, 1998 was approximately $705,000.
31
<PAGE>
<TABLE>
<CAPTION>
Total
Approximate
Year Square Net Book Value at
Location Opened Footage December 31, 1998
- --------------------------------- ------ ------- -----------------
<S> <C> <C> <C>
Main Office: 1975 4,100 $311,000
222 South 10th Street
Oakdale, Louisiana
Branch Office: 1997 3,000 $389,000
110 North Fifth Street
Oberlin, Louisiana 70655
Loan Production Office: 1998 1,000 $5,000
531 North Ninth Street, Suite A
Kinder, 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, 1998.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
- ----------------------------------------------------------------------
Pages 48 to 49 of the attached 1998 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 15 of the attached 1998 Annual Report to Shareholders are
herein incorporated by reference.
<PAGE>
Item 7. Financial Statements
- ------- --------------------
Pages 16 to 47 of the attached 1998 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.
32
<PAGE>
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, 1999.
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, 1999.
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, 1999.
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, 1999.
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, 1998, is incorporated by
reference in this Form 10-KSB Annual Report as Exhibit 13.
33
<PAGE>
Page in
Annual
Annual Report Section Report
--------------------- ------
Report of Independent Auditors.......................................... 16
Consolidated Statements of Financial Condition at
December 31, 1998 and 1997....................................... 17
Consolidated Statements of Income for the Years
ended December 31, 1998 and 1997................................. 18
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1998 and 1997....................................... 19
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998 and 1997........................................ 20-21
Notes to Consolidated Financial Statements............................... 22-47
(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.
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
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 *
10.2 Employment Agreement with Betty Jean Parker *
10.3 Employee Stock Ownership Plan *
10.4 Proposed 1998 Stock Option and Incentive Plan **
10.5 Proposed Recognition and Retention Plan **
11 Statement re: computation of per None
share earnings
12 Statement re: computation or ratios Not required
34
<PAGE>
Reference to
Regulation Prior Filing or
S-B Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
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 23
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
- -------------------
*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.
**Filed on March 30, 1998, as exhibits to the Registrant's Annual
Report on Form 10-KSB. 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.
35
<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 29, 1999 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 29, 1999 Date: March 29, 1999
By: /s/ Dr. James D. Sandefur By: /s/ Jesse Boyd, Jr.
------------------------- -------------------
Dr. James D. Sandefur, Chairman Jesse Boyd, Jr., Director
Date: March 29, 1999 Date: March 29, 1999
By: /s/ James E. Riley By: /s/ J. C. Smith
------------------ ---------------
James E. Riley, Director J. C. Smith, Director
Date: March 29, 1999 Date: March 29, 1999
By: /s/ Leslie A. Smith
-------------------
Leslie A. Smith, Director
Date: March 29, 1999
36
<PAGE>
Index to Exhibits
Exhibit 13 1998 Annual Report to Stockholders
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Accountants
Exhibit 27 Financial Data Schedule
37
1998
Annual Report
First Allen Parish Bancorp, Inc.
<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 16
Stockholder Information 48
Corporate Information 49
<PAGE>
March 30, 1999
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, 1998.
Consolidated assets of First Allen Parish Bancorp, Inc., increased $5.2 million,
or 15.4 %, to $38.7 million at December 31, 1998, from $33.5 million at December
31, 1997.
Net loans receivable increased $1.2 million, or $9.2%, to $14.9 million at
December 31, 1998, from $13.6 million at December 31, 1997, due to an increase
in real estate loans, consumer loans and other loans.
Deposits increased $4.9 million, or 17.1%, to $33.6 million at December 31,
1998, from $28.7 million at December 31, 1997. There were no Federal Home Loan
Bank (FHLB) advances outstanding at December 31, 1998 and 1997.
Total stockholders' equity increased $248,000 to $4.8 million at December 31,
1998, from $4.5 million at December 31, 1997. Earnings for the year provided a
$222,000 increase, which was offset by dividends paid to stockholders at 30
cents per share, or $80,000. Allocation of ESOP shares and RRP shares increased
equity by $45,000 and $51,000, respectively.
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 November 1998, a newly
constructed full-service branch was opened in Oberlin, Louisiana, the Parish
Seat, staffed with a Manager and a Loan Assistant and two tellers, and offering
a full range of banking services. We are very pleased with the positive response
from the community. A Loan Production Office (LPO) was also opened in Kinder,
Louisiana, staffed with a Loan Officer, and offering a full range of loan
products and services. Community response has been very positive, with
increasing demands for a full-service banking facility at this location.
Expansion efforts have created additional expense items, but this should be
offset by increased future income and growth.
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 families and communities it serves. Our customers
appreciate the fact that we are the only hometown financial institution in Allen
Parish, 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 banking 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,
/s/Charles L. Galligan
----------------------
Charles L. Galligan
President & CEO
2
<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, a full service
branch located at 110 North Fifth St., Oberlin, Louisiana and a loan production
office located at 531 North Ninth St., Suite A, Kinder, 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,
-------------------
1998 1997
------- --------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets $38,694 $33,519
Cash and cash equivalents 6,319 1,884
Loans receivable, net
Real estate 11,676 10,702
Consumer and other 3,220 2,944
Mortgage-backed and related securities 16,195 17,147
FHLB stock 263 259
Premises and equipment, at cost, net of
accumulated depreciation 705 262
Deposits 33,553 28,657
Total stockholders' equity 4,784 4,535
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1998 1997
------- --------
(In thousands, except
share information)
<S> <C> <C>
Selected Operating Data:
Interest income $ 2,411 $ 2,302
Interest expense 1,244 1,226
------- --------
Net interest income 1,167 1,076
Provision for loan losses 59 3
------- --------
Net interest income after provision for
loan losses 1,018 1,073
------- --------
Total non-interest income 312 276
------- --------
Total non-interest expense 1,092 947
------- --------
Income before income taxes 328 402
------- --------
Income tax expense 106 148
------- --------
Net income $ 222 $ 254
======== ========
Net income per common share - basic $ .90 $ 1.04
======== ========
Net income per common share - diluted $ .90 $ 1.04
======== ========
Average common shares outstanding 247,401 244,669
======== ========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
At or For the Years
Ended December 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Key Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (net income divided
by average total assets) .65% .80%
Return on average equity (net income divided
by average equity) 4.76% 5.75%
Net interest rate spread (difference between
average yield on interest-earning assets
and average cost of interest-bearing liabilities) 3.11% 3.09%
Net interest margin (net interest income as a
percentage of average interest-earning assets) 3.56% 3.49%
Net interest income to non-interest expense 106.82% 113.55%
Average interest-earning assets to average interest
bearing liabilities 112.03% 109.99%
Net interest income after provision for
loan losses, to total non-interest expense 101.45% 113.23%
Non-interest expense to average assets 3.22% 2.97%
Asset Quality Ratios:
Non-performing loans to total loans .70% .92%
Non-performing assets to total assets .30% .37%
Allowance for loan losses to non-performing loans 259.38% 238.91%
Allowance for loan losses to non-performing assets 259.38% 238.91%
Capital Ratios (1):
Equity to assets at year end 12.36% 13.53%
Equity to average assets ratio
(Average equity divided by average total
assets) 13.71% 13.89%
Other Data:
Number of full-service offices 2 1
Number of loan production offices 1 1
</TABLE>
<PAGE>
(1) 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-earning 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-earning 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.
During 1998, the Company's board of directors, with approval from the
Office of Thrift Supervision, authorized the construction of a full-service
branch in Oberlin, Louisiana and a loan production office in Kinder, Louisiana.
The Company invested approximately $405,000 in premises and equipment for these
facilities. Management believes this investment will increase future earnings
because of the competitive edge the new branch and loan production office allow
in these market areas.
Financial Condition
Total assets increased $5.2 million, or 15.4%, to $38.7 million at
December 31, 1998 from $33.5 million at December 31, 1997. The increase was
primarily funded by an increase in deposits of $4.9 million to $33.6 million at
December 31, 1998 from $28.7 million at December 31, 1997. The proceeds from the
increase in deposits were used to finance a $1.2 million increase in net loans
receivable, a $4.4 million increase in cash and cash equivalents and $400,000 in
construction of a full-service branch in Oberlin, Louisiana.
6
<PAGE>
Net loans receivable increased by $1.2 million, or 9.2%, to $14.9
million at December 31, 1998 from $13.6 million at December 31, 1997 due to an
increase in real estate and consumer and other loans.
Mortgage-backed and related securities and cash equivalents increased
$3.5 million or 18.2% to $22.5 million at December 31, 1998 from $19.0 million
at December 31, 1997. This increase was financed from the increase in deposits
as mentioned above.
Deposits increased $4.9 million or 17.1% to $33.6 million at December
31, 1998 from $28.7 million at December 31, 1997. There were no FHLB advances
outstanding at December 31, 1998 and December 31, 1997.
Total equity increased $248,000 to $4.8 million at December 31, 1998
from $4.5 million at December 31, 1997. Earnings for the year provided a
$222,000 increase, which was offset by dividends paid to stockholders of
$80,000. Allocation of ESOP shares and RRP shares increased equity by $45,000
and $51,000, respectively.
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 1998 of $80,000 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,
-----------------------------------------------------------
1998 1997
--------------------------- ----------------------------
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) $11,014 $949 8.61% $10,037 $ 911 9.08%
Consumer and other loans 3,204 329 10.27 2,731 255 9.36
Mortgage-backed securities 16,337 1,047 6.41 15,975 1,042 6.48
FHLB stock 258 16 5.94 256 15 5.95
Other interest-bearing deposits 1,956 70 3.62 1,828 79 4.66
------- ------ ----- ------- ------ ----
Total interest-earning assets 32,769 2,411 7.36 30,827 2,302 7.47
Non-interest earning assets 1,208 - 0.00 1,051 - 0.00
------- ------ ----- ------- ------ ----
Total average assets $33,977 $2,411 7.10% $31,878 $2,302 7.22%
======= ====== ===== ======= ====== =====
Interest-bearing liabilities:
Passbook accounts $ 2,450 $ 50 2.05% $ 2,641 $ 53 2.01%
NOW and money market accounts 6,117 102 1.67 6,643 90 1.36
Certificates 20,563 1,087 5.29 18,460 1,068 5.79
FHLB advances 119 5 4.13 282 16 5.64
------- ------ ----- ------- ------ ----
Total interest-bearing liabilities 29,249 1,244 4.25 28,026 1,227 4.38
Non-interest bearing liabilities 616 - 0.00 699 - 0.00
------- ------ ----- ------- ------ ----
Total average liabilities $29,865 $1,244 4.17% $28,725 $1,227 4.27%
======= ====== ===== ======= ====== =====
Net interest income $1,167 $1,075
Net interest rate spread(2) ====== 3.11% ====== 3.09%
=====
Net interest margin(3) 3.56% 3.49%
Average interest-earning assets to average interest-bearing =====
liabilities 112.03% 109.99%
====== ======
</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,
1998 vs. 1997
------------------------------
Increase/(Decrease)
Due to Total
----------------- Increase
Volume Rate (Decrease)
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans $ 80 $ (42) $ 38
Consumer and other loans 47 27 74
Mortgage-backed securities 11 (5) 6
FHLB stock - - -
Other 4 (11) (7)
------ ------ ------
Total interest-earning assets $ 142 $ (31) $ 111
------ ------ ------
Interest-bearing liabilities:
Passbook accounts $ (4) $ 1 $ (3)
NOW and money market accounts (6) 63 57
Certificate accounts 77 (59) 18
Federal Home Loan Bank advances (8) (4) (12)
------ ------ ------
Total interest-bearing liabilities 59 1 60
------ ------ ------
Net change in interest income $ 83 $ (32) $ 51
====== ====== ======
</TABLE>
9
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. Net income for the year ended December 31, 1998 decreased by
$32,000 or 12.7% to $222,000 or $.90 per share from $254,000 or $1.04 per share
for the year ended December 31, 1997. The decrease was due to the combined
effects of a $35,000 increase in net interest income after provision for loan
losses, a $42,000 increase in service charges on deposits, a $5,000 increase in
loan origination and servicing fees, a $17,000 decrease in other expenses, a
$42,000 decrease in income taxes and a $3,000 decrease in net other real estate
expenses offset by a $2,000 decrease in insurance commissions earned, a $6,000
decrease in gain on foreclosed real estate, a $7,000 decrease in other operating
revenues, a $100,000 increase in compensation and employee benefits, a $16,000
increase in occupancy and equipment expenses, a $20,000 increase in stationery
and printing and a $26,000 increase in data processing.
Interest Income. For the year ended December 31, 1998, net interest
income increased by $91,000 to $1.17 million from $1.08 million for the year
ended December 31, 1997. This reflects an increase of $109,000 in interest
income to $2.4 million from $2.3 million and an increase of $18,000 in interest
expense to $1.24 million from $1.23 million. The small increase in interest
income was due primarily to an increase in total interest-earning assets offset
by decreased rates earned. The small increase in interest expense was also due
primarily to an increase in total interest-bearing liabilities.
Interest income on loans increased $111,000 or 9.4% to $1.3 million
for the year ended December 31, 1998 from $1.2 million for the year ended
December 31, 1997. Interest income on mortgage-backed and related securities
increased slightly by $6,000 for the year ended December 31, 1998 from the year
ended December 31, 1997.
Interest Expense. Interest expense for the year ended December 31,
1998 increased $18,000 to $1.24 million from $1.22 million for the year ended
December 31, 1997. Average balances in certificates of deposit increased $2.1
million to $20.6 million at December 31, 1998 from $18.5 million at December 31,
1997; however, the decline in rates paid resulted in a slightly lower cost of
funds. Average non-certificate balances decreased $717,000 to $8.6 million from
$9.3 million from 1997 to 1998. Interest expense on FHLB advances decreased to
$5,000 for the year ended December 31, 1998 from $16,000 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 $304,057 at December 31, 1998 and $300,260 at December 31,
1997. 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, 1998 was $58,664, and $3,000 for the year
ended December 31, 1997. Management's focus on asset quality has resulted in an
allowance for loan losses to non-performing assets of 259.3%. The ratio of
nonperforming loans to total loans remains low at .70% at December 31, 1998.
10
<PAGE>
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, 1998,
non-interest income was $312,000 compared to $277,000 for the year ended
December 31, 1997. The increase of $35,000 was due to increases of $42,000 in
service charges on deposits, $5,000 in loan origination and servicing fees,
$3,000 decrease in net other real estate expenses offset by decreases of $6,000
in gain in foreclosed real estate, $7,000 in other operating revenues and $2,000
in insurance commissions earned.
Non-interest Expense. Non-interest expense increased $145,000
or 15.3% to $1.1 million for the year ended December 31, 1998 from $947,000 for
the year ended December 31, 1997. This increase was the result of a $100,000
increase in compensation and employee benefits primarily from additional
salaries associated with the new branch, loan production office and stock
benefit plans, a $16,000 increase in occupancy and equipment expenses, a $20,000
increase in stationery and printing and a $26,000 increase in data processing
offset by a $17,000 decrease in other expenses. The increases in occupancy and
equipment and stationery and printing were directly related to increased costs
associated with the new branch and loan production office. Data processing
expenses increased primarily because of efforts to upgrade computers and
software to "year 2000" compliance (see Note 24 in the consolidated financial
statements). Other expenses decreased primarily due to a reduction in
professional fees.
Income Taxes. Income taxes decreased $42,000 or 28.6% to $106,000 for
the year ended December 31, 1998 from $148,000 for the year ended December 31,
1997. The decrease in income taxes was the result of the relatively smaller
increases in net interest income after provision for loan losses and
non-interest income offset by the increase in non-interest expenses.
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
11
<PAGE>
been informed by the OTS that it is exempt from this rule. Nevertheless, the
following table presents the Company's NPV at December 31, 1998 as calculated by
the OTS, based on information provided to the OTS by the Company.
<TABLE>
<CAPTION>
Change in December 31, 1998
Interest Rates Net Portfolio Value
In Basis Points ------------------------------
(Rate Shock) Amount Change
------------ ------ ------
(Dollars in thousands)
<S> <C> <C>
400 3,867 (11)%
300 4,114 (6)
200 4,265 (2)
100 4,331 (1)
Static 4,355 -
(100) 4,422 2
(200) 4,615 6
(300) 5,040 16
(400) 5,472 26
</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 6% if interest rates increased by 300bp, whereas the
NPV would increase by 16% 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
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.
12
<PAGE>
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 4 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, 1998 and 1997, liquidity eligible assets totaled $6.5 million and $2.1
million, respectively. At those dates, the Association's liquidity ratios were
11.8% and 8.2%, 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, 1998, the Association had
outstanding commitments to extend credit which amounted to $1.1 million.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Company's foreseeable liquidity needs.
At December 31, 1998, the Association had $17.2 million in
certificates of deposit due within one year and $12.4 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, 1998 and 1997,
the Company originated loans totaling $8.5 million and $7.1 million,
respectively. During those same periods, the Company purchased mortgage-backed
securities totaling $2.4 million and $2.9 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 21 in the consolidated
financial statements) at December 31, 1998 were significantly higher than
regulatory minimum requirements. The Association had tangible capital of $3.7
million or 9.88% 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
$3.7 million or 9.88% of total assets, which is $2.6 million above the minimum
leverage ratio of 3.0%. The Association had total risk-based capital of $3.9
million and total risk-weighted assets of $15.8 million, or total capital of
24.81% of risk-weighted assets. This was $2.7 million above the 8.0%
requirement.
13
<PAGE>
Capability of the Company's Data Processing Hardware to Accommodate the Year
2000
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium (year "2000") approaches.
The "year 2000" problem is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two-digit year
value of zero. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the "year 2000"
compliance. It is anticipated that all reprogramming efforts will be complete
March 31, 1999, allowing adequate time for testing. To date, confirmations have
been received from the Company's primary processing vendors that plans are being
developed to address processing of transactions in the "year 2000". Management
has assessed the "year 2000" compliance expense and related potential effect on
the Company's earnings, and the board has approved $75,000 to be dedicated to
this project which is to be expended during years ended December 31, 1998 and
1999.
Recent Accounting Developments
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
14
<PAGE>
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.
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. 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.
15
<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,
1998 and 1997, 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, 1998 and 1997, 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 28, 1999
16
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Interest-bearing $ 5,506,432 $ 1,297,774
Non-interest bearing 812,796 586,468
Mortgage-backed and related securities - held-to-maturity (estimated
market value of $9,770,282 and $11,609,680) 9,743,993 11,668,946
Mortgage-backed and related securities - available-for-sale,
estimated market value 6,451,230 5,478,291
Loans receivable, net 14,896,198 13,645,908
Accrued interest receivable 235,545 229,363
Other receivables 43,925 62,895
Federal Home Loan Bank stock, at cost 263,000 259,300
Premises and equipment, at cost, less accumulated depreciation 705,495 262,447
Other assets 35,016 27,795
----------- -----------
Total assets $38,693,630 $33,519,187
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $33,553,066 $28,656,542
Advances by borrowers for taxes and insurance 20,402 23,212
Federal income taxes:
Current 24,263 54,956
Deferred 84,623 135,398
Dividends payable 40,311 39,676
Accrued expenses and other liabilities 141,542 27,620
Deferred income 46,279 47,065
----------- -----------
Total liabilities 33,910,486 28,984,469
=========== ===========
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, 266,622 and 264,506 shares issued and outstanding) 2,666 2,645
Additional paid-in capital 2,388,502 2,314,066
Retained earnings, substantially restricted 2,547,519 2,405,441
Accumulated other comprehensive income 8,447 (2,284)
Unearned employee benefits - ESOP (163,990) (185,150)
----------- -----------
Total stockholders' equity 4,783,144 4,534,718
----------- -----------
Total liabilities and stockholders' equity $38,693,630 $33,519,187
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable:
First mortgage loans $ 948,509 $ 911,296
Consumer and other loans 329,065 255,480
Mortgage-backed and related securities 1,047,424 1,041,868
Other interest earning assets 86,107 93,760
---------- ----------
Total interest income 2,411,105 2,302,404
---------- ----------
Interest expense:
Deposits 1,239,238 1,210,611
Borrowed funds 4,895 15,926
---------- ----------
Total interest expense 1,244,133 1,226,537
---------- ----------
Net interest income 1,166,972 1,075,867
Provision for loan losses 58,664 3,000
---------- ----------
Net interest income after provision for
loan losses 1,108,308 1,072,867
---------- ----------
Non-interest income:
Service charges on deposits 235,428 193,605
Insurance commissions earned 8,916 10,934
Loan origination and servicing fees 49,020 44,433
Net other real estate expenses 119 (3,227)
Gain on foreclosed real estate 314 6,417
Other operating revenues 17,979 24,657
---------- ----------
Total non-interest income 311,776 276,819
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Non-interest expense:
Compensation and employee benefits 562,529 462,626
Occupancy and equipment expenses 82,925 66,935
SAIF deposit insurance premiums 17,326 17,160
Stationery and printing 71,630 51,966
Data processing 84,848 58,933
Other expenses 273,257 289,857
---------- ----------
Total non-interest expenses 1,092,515 947,477
---------- ----------
Income before income taxes 327,569 402,209
Income tax expense 105,503 147,709
---------- ----------
Net income $ 222,066 $ 254,500
========== ==========
Net income per common share - basic $ .90 $ 1.04
========== ==========
Net income per common share - diluted $ .90 $ 1.04
========== ==========
Average common shares outstanding 247,401 244,669
</TABLE>
The accompanying notes are an integral part of this statement.
18
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Total
Common Paid-in Retained Comprehensive Employee Stockholders'
Stock Capital Earnings Income Benefits Equity
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1996 $2,645 $2,298,84 $2,230,294 $(6,004) $(206,310) $4,319,467
------ ---------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Comprehensive income:
Net income - - 254,500 - - -
Change in unrealized gain (loss)
on securities available-for-sale, net
of deferred taxes - - - 3,720 - -
Comprehensive income - - - - - 258,220
Dividends - - (79,353) - - (79,353)
Allocation of ESOP shares - 15,224 - - 21,160 36,384
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1997 2,64 2,314,066 2,405,441 (2,284) (185,150) 4,534,718
Comprehensive income:
Net income - - 222,066 - - -
Change in unrealized gain (loss) on
securities available-for-sale,
net of deferred taxes - - - 10,731 - -
Comprehensive income - - - - - 232,797
Dividends - - (79,988) - - (79,988)
Allocation of ESOP shares - 23,673 - - 21,160 44,833
Allocation of recognition and
retention plan shares 21 50,763 - - - 50,784
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1998 $2,666 $2,388,502 $2,547,519 $ 8,447 $(163,990) $4,783,144
====== ========== ========== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 222,066 $ 254,500
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of premises and equipment 46,603 36,267
Provision for loan losses 58,664 3,000
Gain on sale of foreclosed real estate (314) (6,417)
Gain on sale of mortgage-backed and related securities-
available-for-sale - (2,826)
Premium amortization net of discount accretion (4,173) (8,888)
Deferred income taxes (48,761) 13,133
Stock dividend on FHLB stock (15,100) (15,000)
Compensation RRP 50,784 -
Compensation ESOP 23,673 15,224
Changes in assets and liabilities -
Increase in accrued interest receivable (9,526) (22,906)
Increase in prepaid assets (8,969) (1,137)
Increase (decrease) in accrued expenses and other
liabilities 22,726 (17,004)
Increase (decrease) in current income taxes payable (30,693) 52,113
Increase (decrease) in deferred income (786) 28,247
(Increase) decrease in other receivables 18,970 (20,095)
----------- -----------
Total adjustments 103,098 53,711
----------- -----------
Net cash provided by operating activities 325,164 308,211
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayment of mortgage-backed and related
securities - held-to-maturity 1,917,679 1,876,561
Principal repayments of mortgage-backed and related
securities - available-for-sale 1,487,739 593,367
Purchase of mortgage-backed and related
securities - held-to-maturity - (328,438)
Purchase of mortgage-backed and related
securities - available-for-sale (2,444,007) (2,542,913)
Sale of mortgage-backed and related securities - available -
for-sale - 382,328
Net increase in loans made to customers (1,268,094) (1,710,918)
Proceeds from sale of foreclosed real estate - 147,500
Purchase of property and equipment (397,856) (16,336)
----------- -----------
Net cash used by investing activities (704,539) (1,598,849)
----------- -----------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts, passbook savings accounts, and
certificates of deposits 4,896,524 2,948,893
Decrease in advances from FHLB - (1,200,000)
Net decrease in advances by borrowers
for taxes and insurance (2,810) (8,642)
Dividends paid to shareholders (79,353) (39,676)
Net cash provided by financing
activities 4,814,361 1,700,575
----------- -----------
Net increase in cash and cash equivalents 4,434,986 409,937
CASH AND CASH EQUIVALENTS, beginning of period 1,884,242 1,474,305
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 6,319,228 $ 1,884,242
=========== ===========
</TABLE>
(continued)
20
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
Supplemental Disclosures
<S> <C> <C>
Cash paid for:
Interest on deposits, advances, and other borrowings $1,216,785 $1,226,767
Income taxes 176,177 134,956
Transfers from loans to real estate acquired through
foreclosure - 27,919
Proceeds from sales of foreclosed real estate financed
through loans - 147,500
Total (increase) decrease in unrealized loss on
mortgage-backed and related securities available-for-
sale, net of deferred taxes 10,731 3,720
</TABLE>
The accompanying notes are an integral part of this statement.
21
<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. Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from
those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses
on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to
the allowances may be necessary based on changes in local
economic conditions. Because of these factors, it is reasonably
possible that the allowances for losses on loans and foreclosed
real estate may change materially in the future.
C. 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.
22
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents at December 31 include the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest-bearing deposits
in other institutions $5,506,432 $1,297,774
Non-interest bearing deposits 812,796 586,468
---------- ----------
Total $6,319,228 $1,884,242
========== ==========
</TABLE>
D. 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.
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, 1998, the Company had no outstanding
commitments to sell securities. Gains of $ -0- and $2,826 were
realized in 1998 and 1997, respectively 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:
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
Gross Gross
Unrealized Unrealized
Gain Loss
---------- ----------
<S> <C> <C>
Held-to-maturity
securities $26,289 $59,266
Available-for-sale
securities 12,997 3,460
</TABLE>
23
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
E. 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.
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 No. 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
24
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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.
F. 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.
G. 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.
25
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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.
H. 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.
I. 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.
J. 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:
<TABLE>
<CAPTION>
<S> <C>
Buildings 40 years
Furniture and fixtures 7-10 years
Automobiles 5 years
</TABLE>
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.
26
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
K. 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.
L. New Accounting Pronouncements
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.
27
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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.
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. 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.
M. Reclassified Items
Certain items of the prior years have been reclassified
in order to conform to current presentation.
28
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(2) Federal Home Loan Bank Stock
The carrying values of the FHLB stock at December 31, 1998 and
1997 are $263,000 and $259,300, respectively. FHLB stock was not
considered impaired at December 31, 1998 or 1997 and was carried at
cost.
(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, 1998
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
GNMA
certificates $ 240,926 $ 141 $ 241,067 $ 2,331 $ 243,398
FHLMC
certificates 3,303,815 (17,417) 3,286,398 3,744 3,290,142
FNMA
certificates 5,954,919 34,537 5,989,456 9,370 5,998,826
Collateralized
mortgage
obligations 35,710 2,801 38,511 (2,737) 35,774
Municipal bond 200,000 (11,439) 188,561 13,581 202,142
---------- -------- ---------- ------- ----------
$9,735,370 $ 8,623 $9,743,993 $26,289 $9,770,282
========== ======== ========== ======= ==========
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
Available-for-Sale Securities December 31, 1998
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
GNMA
certificates $ 379,394 $ 8,495 $ 387,889 $(4,695) $ 383,194
FHLMC
certificates 2,241,232 (13,588) 2,227,644 3,663 2,231,307
FNMA
certificates 3,275,008 (4,015) 3,270,993 15,878 3,286,871
SBA
certificates 546,442 5,465 551,907 (2,049) 549,858
---------- ------- ---------- ------- ----------
$6,442,076 $(3,643) $6,438,433 $12,797 $6,451,230
========== ======= ========== ======= ==========
</TABLE>
29
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
<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 54,981 (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>
<PAGE>
During 1998, there were no sales of securities
available-for-sale. 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.
Investment securities with a carrying amount of approximately
$6,749,000 and $802,000 were pledged to secure deposits as required or
permitted by law at December 31, 1998 and 1997, respectively.
30
<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, 1998:
<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 $ 106,200 $ 106,109 $ 6,416 $ 6,281
After five years
through ten years 80,700 81,814 - -
After ten years 9,557,093 9,582,359 6,432,017 6,444,949
---------- ---------- ---------- ----------
$9,743,993 $9,770,282 $6,438,433 $6,451,230
========== =========== ========== ==========
</TABLE>
(4) Loans Receivable
Major classification of loans at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
First mortgage loans (principally conventional):
Principal balances -
Secured by one-to-four family residences $ 8,884,378 $ 8,376,124
Land loans 483,376 612,187
Commercial loans 2,083,735 1,467,219
Construction loans 394,001 352,800
Other real estate loans 255,757 279,585
----------- -----------
12,101,247 11,087,915
Less: Undisbursed portion of first mortgage
loans (163,694) (124,612)
----------- -----------
Total first mortgage loans 11,937,553 10,963,303
Consumer and other loans:
Principal balances -
Automobile 701 ,718 525,835
Manufactured home 39,733 24,017
Share loans 773,817 734,844
Lines of credit 2,248,622 1,321,178
Other consumer loans 934,779 970,638
----------- -----------
4,698,669 3,576,512
</TABLE>
31
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Less: Undisbursed portion of consumer loans (1,415,291) (585,478)
Unearned discounts (20,676) (8,169)
Total consumer and other loans 3,262,702 2,982,865
Less: Allowance for loan losses (304,057) (300,260)
Loans receivable, net $14,896,198 $13,645,908
=========== ===========
</TABLE>
Activity in the allowance for loan losses for the years ended
December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of year $300,260 $296,452
Provision for loan losses 58,664 3,000
Charge offs less recoveries (54,867) 808
-------- --------
Balance, end of year $304,057 $300,260
======== ========
</TABLE>
The Company had loans with unpaid principal balances totaling
$117,208 and $125,679 at December 31, 1998 and 1997, 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 $6,381
and $6,756, respectively. The Company is not committed to lend
additional funds to debtors whose loans have been modified.
(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, 1998 and 1997, in the amounts of $106,730 and $198,646,
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 $10,475 and $18,595
for the years ended December 31, 1998 and 1997, respectively. Interest
income totalling $7,672 and $13,712 was included in income for the years
ended December 31, 1998 and 1997, respectively. The Company is not
committed to lend additional funds to debtors whose loans have been
restructured. No impaired loans existed at December 31, 1998 and 1997.
32
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(6) Accrued Interest Receivable
Accrued interest receivable at December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Mortgage-backed and related securities $128,867 $132,058
Loans receivable 106,678 97,305
-------- --------
$235,545 $229,363
======== ========
</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>
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of year $ - $ 25,807
Provisions charged to operations -
Charge-offs less recoveries - (25,807)
Balance, end of year $ - $ -
======== ========
</TABLE>
(8) Premises and Equipment
Premises and equipment at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and buildings $ 685,508 $ 342,138
Furniture, fixtures and equipment 440,285 294,004
---------- ----------
1,125,793 636,142
Less: Accumulated depreciation (420,298) (373,695)
---------- ----------
$ 705,495 $ 262,447
========== ==========
</TABLE>
33
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Depreciation for the years ended December 31, 1998 and 1997 was
$46,603 and $36,267, respectively.
(9) Deposits
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average 1998 1997
Rate at ------------------ -----------------
12/31/98 Amount Percent Amount Percent
-------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Demand and NOW
accounts,
including
non-interest
bearing deposits
of $1,299,481 and
$912,169 1.76% $10,107,457 30.12% $ 4,685,827 16.35%
Money market 2.75% 603,651 1.80% 722,090 2.52%
Passbook savings 2.08% 2,253,347 6.72% 2,584,113 9.02%
----- ----------- ------ ----------- ------
12,964,455 38.64% 7,992,030 27.89%
----------- ------ ----------- ------
Certificates
of deposit:
3.99% or less 2.00% 312,451 .93% - 0.00%
4.00% to 5.99% 4.87% 15,342,596 45.73% 16,919,400 59.05%
6.00% to 7.99% 6.02% 4,811,215 14.34% 3,627,464 12.66%
8.00% to 9.99% 8.00% 122,349 .36% 117,648 0.40%
----- ----------- ------ ----------- ------
20,588,611 61.36% 20,664,512 72.11%
----------- ------ ----------- ------
$33,553,066 100.00% $28,656,542 100.00%
=========== ====== =========== ======
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit
with a minimum denomination of $100,000 was approximately, $4,450,784
and $2,664,532 at December 31, 1998 and 1997, respectively.
<PAGE>
At December 31, 1998 scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
-------------------------------------------------------
1999 2000 2001 2002 2003
----------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
3.00 to 3.99 percent $ - $ 312,451 $ - $ - $ -
4.00 to 5.99 percent 13,987,716 1,054,702 160,518 74,365 65,295
6.00 to 7.99 percent 3,206,593 1,216,065 388,557 - -
8.00 to 8.99 percent - 122,349 - - -
$17,194,309 $2,705,567 $549,075 $74,365 $65,295
=========== ========== ======== ======= =======
</TABLE>
Deposits for directors, officers and employees totaled $763,291
and $670,698 at December 31, 1998 and 1997, respectively.
34
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Interest expense on deposits for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Money market and NOW
accounts $ 102,288 $ 92,541
Passbook savings 50,124 53,326
Certificates of
deposits 1,086,826 1,064,744
---------- ----------
$1,239,238 $1,210,611
========== ==========
</TABLE>
Income from early withdrawal penalties amounted to $504 and
$4,005 for the years ended December 31, 1998 and 1997, respectively.
(10) Deferred Income
Deferred income at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Interest on loans collected in advance $ 6,038 $ 6,510
Unrealized profit from the sale of
repossessed property 40,241 40,555
------- -------
Totals $46,279 $47,065
======= =======
</TABLE>
(11) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accrued interest $ 27,969 $ 620
Payroll taxes 1,735 2,177
Accounts payable 99,825 13,509
Other 12,013 11,314
-------- --------
$141,542 $ 27,620
======== ========
</TABLE>
35
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(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>
1998 1997
------- -------
<S> <C> <C>
Interest on demand account in other institutions $70,817 $78,539
Federal Home Loan Bank dividends 15,290 15,221
------- -------
Totals $86,107 $93,760
======= =======
</TABLE>
(13) Other Noninterest Expenses
Details of other expenses included in noninterest expenses for
the years ended December 31 are provided below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Bank clearing charges $ 74,401 $ 82,504
Insurance 22,279 22,505
Professional fees 50,657 73,506
Telephone 14,597 13,018
Advertising 16,629 23,418
Franchise and shares taxes 42,610 32,479
Registrar fees 5,493 4,635
Supervisory examination 11,263 3,471
ESOP expenses 2,050 1,950
Property taxes 6,058 7,693
Dues and subscriptions 7,882 5,947
Miscellaneous other
expenses 19,338 18,731
-------- --------
Total $273,257 $289,857
======== ========
</TABLE>
(14) Retirement Plans
Profit Sharing Plan
In 1988, the Company adopted a contributory profit sharing plan
for all full time employees. No contributions were made in 1998 and 1997
due to contributions made on behalf of employees to the ESOP plan.
36
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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 1998 and 1997, 2,116 shares were allocated to participants
each year. The fair value of such shares, $44,833 and $36,385 for 1998
and 1997, respectively, was charged to expense. The fair value of the
remaining unallocated shares at December 31, 1998 and 1997 totaled
$278,783 and $370,300, respectively.
(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, 1998 and 1997, $53,050 and $38,665,
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>
1998 1997
-------- --------
<S> <C> <C>
Income taxes current:
Federal $159,223 $134,956
-------- --------
Deferred taxes due to
timing differences (53,720) 12,753
Total income tax
expense $105,503 $147,709
======== ========
</TABLE>
37
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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>
1998 1997
----- -----
<S> <C> <C>
Computed at the expected
statutory rate 34.0% 34.0%
Other (1.8) 2.7
32.2% 36.7%
===== =====
</TABLE>
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>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets $ 45,784 $ 26,467
Deferred tax liabilities 130,407 161,865
-------- --------
Net deferred tax liabilities $ 84,623 $135,398
======== ========
</TABLE>
No valuation allowances were recorded against deferred tax
assets as of December 31, 1998 and 1997.
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. The Association had
postponed recapture of income from the excess of federal bad debt
reserves over base year reserves since 1996. Taxable income for 1998
included $119,038 of recapture of this bad debt reserve, thereby
decreasing the deferred tax liability and increasing current taxes by
$40,473.
38
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Retained earnings of the Company at December 31, 1998 and 1997
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.
(17) Earnings Per Share
The Company adopted FAS 128, Earnings Per Share, as of December
31, 1997. Weighted average shares of common stock outstanding for basic
EPS excludes the weighted average shares unreleased by the Employee
Stock Ownership Plan ("ESOP") (16,399 and 18,515 shares at December 31,
1998 and 1997, respectively) and the weighted average unvested shares in
the Recognition and Retention Plan (RRP) (8,464 and -0- shares at
December 31, 1998 and 1997, respectively). The effect on diluted EPS of
stock option shares outstanding and unvested RRP shares is calculated
using the treasury stock method. The following is a reconcilement of the
numerator and denominator for basic and diluted Earnings Per Share.
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Year Ended December 31, 1998
--------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $222,066 247,401 $.90
====
Effect of dilutive securities
Stock options outstanding - -
Restricted stock grants - -
-------- -------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $222,066 247,401 $.90
======== ======= ====
</TABLE>
39
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Year Ended December 31, 1997
------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $254,500 244,669 $1.04
=====
Effect of dilutive securities
Stock options outstanding - -
Restricted stock grants - -
--------- ------- -----
Diluted EPS
Income available to common
stockholders plus assumed
conversions $254,500 249,669 $1.04
======== ======= =====
</TABLE>
(18) Other Employee Benefits
Recognition and Retention Plan
The Company established the Recognition and Retention Plan (RRP)
for certain officers and directors on April 30, 1998. During 1998, the
Company issued 2,116 shares of common stock to fund the vested portion
of the RRP. The excess of fair value over par value of the common stock
issued increased additional paid-in capital by $50,763. The fair value
of the shares on the date of award is recognized ratably as compensation
expense over the vesting period, which is five years. The grantees of
the restricted stock have the right to vote the shares awarded.
Dividends on unvested shares are held in trust and distributed when the
related shares vest. For the year ended December 31, 1998, the amount
included in compensation expense was $50,784. A summary of the changes
in restricted stock follows:
<TABLE>
<CAPTION>
Unvested Vested
Shares Shares
<S> <C> <C>
Balance, January 1, 1998 - -
Approved by the plan 10,580 -
Vested (2,116) -
Forfeited - -
Earned and issued - 2,116
Balance, December 31, 1998 8,464 2,116
====== ======
</TABLE>
40
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Stock Option Plan
In 1998, the Company adopted a stock option plan for the benefit
of directors and officers. The number of shares of common stock reserved
for issuance under the stock option plan was equal to 26,450 shares, or
10.0 percent, of the total number of common shares sold in the Company's
initial public offering of its common stock upon the mutual-to-stock
conversion of First Allen Parish Bancorp, Inc. The option exercise price
cannot be less than the fair value of the underlying common stock as of
the date of the option grant and the maximum option term cannot exceed
10 years. The stock options granted to directors and officers in 1998
are exercisable in five equal annual installments. Under APB No. 25,
because the exercise price of the Company's stock options equals the
market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
The following table summarizes the activity related to stock
options:
<TABLE>
<CAPTION>
Available Options
for Grant Outstanding
------- -------
<S> <C> <C>
At inception 26,450 -
Granted (22,483) -
Vested - 4,497
Canceled - -
Exercised - -
------- -------
At December 31, 1998 3,967 4,497
======= =======
</TABLE>
The 4,497 vested outstanding options were issued on April 30,
1998 at an exercise price equal to the market value of $24.00 and were
exercisable at December 31, 1998. The weighted-average grant-date fair
value of options granted during the year ended December 31, 1998 was
$7.15.
In October 1995, the FASB issued SFAS 123, Accounting of
Stock-Based Compensation. SFAS 123 requires disclosure of the
compensation cost for stock-based incentives granted after January 31,
1995, based on the fair value at grant date for awards. Applying SFAS
123 would result in pro forma net income and earnings per share amounts
as follows:
<PAGE>
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Net income
As reported $222,066
Pro forma $197,102
Earnings per share
As reported - Basic $.90
- Diluted $.90
Pro forma - Basic $.80
- Diluted $.80
</TABLE>
41
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(19) 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>
1998 1997
--------- ---------
<S> <C> <C>
Balance, beginning of year $ 249,429 $ 214,721
--------- ---------
Additions 118,266 70,562
Payments (139,395) (35,854)
--------- ---------
Balance, end of year $ 228,300 $ 249,429
========= =========
</TABLE>
(20) 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 $584,516.
(21) 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.
42
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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, 1998, that the Association meets all
capital adequacy requirements to which it is subject.
As of December 31, 1998, 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 $3,732,780 $3,732,780 $3,912,280
Minimum capital requirement 566,489 1,132,979 1,261,280
---------- ---------- ----------
Regulatory capital in excess of
of minimum capital
requirements $3,166,291 $2,599,801 $2,651,000
========== ========== ==========
Minimum capital requirement 1.5% 3.0% 8.0%
========== ========== ==========
The Association's regulatory
capital 9.88% 9.88% 24.81%
========== ========== ==========
</TABLE>
(22) 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.
43
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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> <C>
December 31, 1998 $755,861 8.5% - 10.5% 182 days
December 31, 1997 $194,550 8.5% - 9.0% 10-182 days
</TABLE>
Ranges
<TABLE>
<CAPTION>
--------------------------
Fixed Interest Commitment
Rate Rates Terms
---------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998 $343,600 8.5% - 12.0% 182 days
December 31, 1997 $314,525 8.0% - 9.0% 120-182 days
</TABLE>
44
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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 $5,100 and $1,000 at December 31, 1998 and 1997,
respectively.
(23) 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.
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.
45
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
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, 1998 December 31, 1997
---------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from
banks $6,319,228 $6,319,228 $ 1,884,242 $ 1,884,242
Securities to be held-
to-maturity 9,743,993 9,770,282 11,668,946 11,609,680
Securities available-
for-sale 6,451,230 6,451,230 5,478,291 5,478,291
Loans 14,896,198 14,886,904 13,645,908 13,495,448
Accrued interest
receivable 235,545 235,545 229,363 229,363
Other receivables 43,925 43,925 62,895 62,895
Federal Home Loan Bank
stock, at cost 263,000 263,000 259,300 259,300
<CAPTION>
December 31, 1998 December 31, 1997
---------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial liabilities:
Deposit liabilities $33,553,066 $32,471,617 $28,656,542 $27,732,897
Advances by borrowers
for taxes and insurance 20,402 20,402 23,212 23,212
Current federal income
taxes payable 24,263 24,263 54,956 54,956
Accrued expenses and
other liabilities 141,542 141,542 27,620 27,620
Off-balance sheet items
Standby letters of
credit 5,100 5,100 1,000 1,000
Commitments to extend
credit 1,099,461 1,099,461 509,075 509,075
</TABLE>
46
<PAGE>
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(24) Capability of the Company's Data Processing Hardware to Accommodate the
Year 2000 (Unaudited)
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium (year
"2000") approaches. The "year 2000" problem is pervasive and complex, as
virtually every computer operation will be affected in some way by the
rollover of the two-digit year value of zero. The issue is whether
computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the "year 2000"
compliance. It is anticipated that all reprogramming efforts will be
complete March 31, 1999, allowing adequate time for testing. To date,
confirmations have been received from the Company's primary processing
vendors that plans are being developed to address processing of
transactions in the "year 2000". Management has assessed the "year 2000"
compliance expense and related potential effect on the Company's
earnings, and the board has approved $75,000 to be dedicated to this
project which is to be expended during years ended December 31, 1998 and
1999.
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 Friday, April 30, 1999, 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 1998 was as follows:
<TABLE>
<CAPTION>
High Low Dividends
------ ------ ---------
<S> <C> <C>
$24.50 $17.00 $79,988
</TABLE>
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, 1998, there were 266,622 shares of First Allen Parish
Bancorp, Inc. common stock issued and outstanding (including unallocated ESOP
shares) and there were 91 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, 1998, 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 1998.
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.
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
<PAGE>
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
[LETTERHEAD OF KOLDER, CHAMPAGNE, SLAVEN & RAINEY, LLC]
Accountant's Consent
--------------------
The Board of Directors
First Allen Parish Bancorp, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-69939) on Form S-8 of our report dated January 28, 1999, relating to the
consolidated statements of financial condition of First Allen Parish Bancorp,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the two-year period ended December 31, 1998, which report
appears in the December 31, 1998 annual report on Form 10-KSB of First Allen
Parish Bancorp, Inc.
/s/ Kolder, Champagne, Slaven & Rainey, LLC
-------------------------------------------
KOLDER, CHAMPAGNE, SLAVEN & RAINEY,LLC
Lafayette, Louisiana
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998, CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 812,796
<INT-BEARING-DEPOSITS> 5,506,432
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,451,230
<INVESTMENTS-CARRYING> 9,743,993
<INVESTMENTS-MARKET> 9,735,546
<LOANS> 14,896,198
<ALLOWANCE> 304,016
<TOTAL-ASSETS> 38,693,630
<DEPOSITS> 33,553,006
<SHORT-TERM> 0
<LIABILITIES-OTHER> 376,785
<LONG-TERM> 0
0
0
<COMMON> 2,645
<OTHER-SE> 163,990
<TOTAL-LIABILITIES-AND-EQUITY> 38,693,630
<INTEREST-LOAN> 1,277,574
<INTEREST-INVEST> 1,047,424
<INTEREST-OTHER> 86,107
<INTEREST-TOTAL> 2,411,105
<INTEREST-DEPOSIT> 1,239,238
<INTEREST-EXPENSE> 4,895
<INTEREST-INCOME-NET> 1,244,133
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,092,515
<INCOME-PRETAX> 327,515
<INCOME-PRE-EXTRAORDINARY> 327,569
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,066
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
<YIELD-ACTUAL> 7.20
<LOANS-NON> 116,573
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 106,730
<ALLOWANCE-OPEN> 303,025
<CHARGE-OFFS> 0
<RECOVERIES> 991
<ALLOWANCE-CLOSE> 304,016
<ALLOWANCE-DOMESTIC> 21,085
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 28,293
</TABLE>
