March 05, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Britton & Koontz Capital Corporation
Ladies and Gentlemen:
Pursuant to Rule 14a-3(c), enclosed is the Annual Report of Britton
& Koontz Capital Corporation.
If you have any questions or comments concerning this material, please
contact me at (601) 445-5576.
Yours sincerely,
William M. Salters
Enclosure
cc: Gary Meringer, Esq. (w/enclosure)
<PAGE>
Britton & Koontz Capital Corporation and Subsidiary
Message to Shareholders
The financial results for 1997 were among the best ever for the Corporation.
Net after-tax earnings were $2,397,560. Cash dividends amounted to $989,556,
a payout of 41%. Earnings per share rose to $1.36 from $1.15. Returns on
average equity and assets were 13.67% and 1.53% respectively. Equity capital
at year-end stood at $17,981,744, or 11.1% of assets.
The strong earnings reflected significant growth of the bank in several key
areas. For example, loans increased over 11% and demand deposits jumped over
25%. Our increase in loans occurred across the board with commercial,
mortgage, and installment loans increasing. Clearly, the bank is growing
and helping our community to grow.
As in lending, our bank has consistently shown leadership in the area of
technology. We are unique among community banks in providing Internet access
for our community. In 1997 we added to our electronic services by launching
Internet-based electronic banking, which allows customers to access their
account information daily and to see images of cleared checks. The community
is responding strongly to these novel product offerings, and the bank has
been spotlighted for its innovation in a number of banking industry
publications. At B&K we believe good service means friendly person-to-person
delivery and up-to-date banking services.
Late in 1996, the Corporation's stock was listed under the symbol BKBK in the
Nasdaq SmallCap Market. During 1997, the listing significantly increased the
exposure and corresponding liquidity of the stock. During the year 154,479
shares were traded. At the beginning of the year the price was at $14 and it
closed out at $22 per share. In the spring, we completed a 4:1 stock split.
The public markets were very favorable for bank stocks throughout the year.
We are gratified to know that our shareholders participated in such a bull
market.
A number of immediate challenges face us. Chief among them will be dealing
with a flat yield curve, which has the effect of narrowing the bank's net
interest margin. There is also the possibility of economic difficulties from
Asian markets filtering down to local economies. We remain vigilant with
regard to these matters and dedicated to keeping your bank vibrant and growing.
You can be pleased with the board and employees for their hard work. As
always, we appreciate your continued interest and support.
Yours truly,
/s/ W. J. Feltus III /s/ W. Page Ogden
_____________________ _________________
Chairman of the Board President & CEO
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION
AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1997 and 1996
with
Independent Auditor's Report
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Page
Number
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS 2
Consolidated Statements of Financial Condition 3-4
Consolidated Statements of Income 5-6
Consolidated Statements of Changes in Stockholders' Equity 7
Consolidated Statements of Cash Flows 8-9
Notes to the Consolidated Financial Statements 10-39
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Britton & Koontz Capital Corporation and Subsidiary
We have audited the accompanying consolidated statements of
financial condition of Britton & Koontz Capital Corporation and
Subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Britton & Koontz Capital Corporation and
Subsidiary at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting
principles.
Vicksburg, Mississippi
January 14, 1998
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
<S> ____________ ____________
ASSETS: <C> <C>
Cash and due from banks:
Non-interest bearing $ 5,807,501 $ 4,656,684
Interest bearing 123,283 449,801
____________ ____________
Total cash and due from banks 5,930,784 5,106,485
Federal funds sold - 700,000
Investment securities:
Held-to-maturity (market value of $39,371,180 and
$43,595,368, respectively) 38,727,543 43,412,008
Available for sale (amortized cost of $3,969,053
and $-0-, respectively) 4,031,005 -
Equity securities 1,197,850 1,197,650
Loans, less unearned income of $246,813 in 1997 and
$252,625 in 1996, and allowance for loan losses of
$676,745 in 1997 and $622,975 in 1996 106,156,237 95,322,179
Bank premises and equipment, net 3,947,207 3,674,397
Other real estate, net 74,038 78,928
Accrued interest receivable 1,233,181 1,058,111
Cash surrender value of life insurance 679,925 634,930
Other assets 152,360 117,974
____________ ____________
TOTAL ASSETS $162,130,130 $151,302,662
============ ============
See accompanying notes to the consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
LIABILITIES: ____________ ____________
Deposits:
Non-interest bearing $ 20,568,295 $ 16,065,133
Interest bearing 112,068,906 110,375,292
____________ ____________
Total deposits 132,637,201 126,440,425
Federal Home Loan Bank advances 3,000,000 2,000,000
Federal funds purchased 1,650,000 -
Securities sold under repurchase agreements 2,133,977 1,664,139
Accrued interest payable 956,016 839,461
Negative goodwill, net of accumulated amortization
of $1,833,810 in 1997 and $1,543,680 in 1996 1,226,612 1,516,742
Advances from borrowers for taxes and insurance 370,228 367,734
Accrued taxes and other liabilities 2,174,352 1,952,779
____________ ____________
Total liabilities 144,148,386 134,781,280
____________ ____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $2.50 (1997) and $10.00 (1996)
par value per share; 12,000,000 (1997) and
3,000,000 (1996) shares authorized;
1,767,064 (1997) and 441,072 (1996) shares
issued and outstanding 4,417,660 4,410,720
Additional paid-in capital 3,414,927 3,395,617
Retained earnings 10,110,313 8,715,045
Unrealized gains on securities available-for-sale, net
of applicable deferred income taxes 38,844 -
____________ ____________
Total stockholders' equity 17,981,744 16,521,382
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $162,130,130 $151,302,662
============ ============
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
___________ ___________
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 8,990,804 $ 8,172,215
Interest on investment securities:
Taxable interest income 2,997,906 3,194,276
Exempt from federal income taxes 85,912 77,365
Interest on federal funds sold 47,501 67,586
___________ ___________
Total interest income 12,122,123 11,511,442
___________ ___________
INTEREST EXPENSE:
Interest on deposits 5,011,690 4,980,904
Interest on federal funds purchased 69,596 38,063
Interest on securities sold under
repurchase agreements 152,386 138,185
___________ ___________
Total interest expense 5,233,672 5,157,152
___________ ___________
NET INTEREST INCOME 6,888,451 6,354,290
PROVISION FOR LOAN LOSSES 160,000 50,000
NET INTEREST INCOME AFTER PROVISION ___________ ___________
FOR LOAN LOSSES 6,728,451 6,304,290
OTHER INCOME:
Service charges on deposit accounts 669,619 646,521
Income from fiduciary activities 58,721 57,181
Insurance premiums and commissions 34,320 45,057
Other real estate income 5,511 6,339
Amortization of negative goodwill 290,130 347,650
Other 386,818 274,418
___________ ___________
Total other income 1,445,119 1,377,166
___________ ___________
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
___________ ___________
<S> <C> <C>
OTHER EXPENSES:
Salaries 2,144,159 2,009,480
Director fees 112,205 137,400
Employee benefits 357,449 296,174
Net occupancy expense 358,675 360,388
Equipment expense 493,172 494,151
FDIC assessment 36,902 345,229
Stationery and supplies 108,975 116,468
Loss on sale of other real estate - 7,086
Other 954,338 1,022,181
___________ ___________
Total other expenses 4,565,875 4,788,557
___________ ___________
INCOME BEFORE INCOME TAX EXPENSE 3,607,695 2,892,899
INCOME TAX EXPENSE 1,210,135 860,610
___________ ___________
NET INCOME $ 2,397,560 $ 2,032,289
=========== ===========
EARNINGS PER SHARE DATA:
Basic earnings per share $ 1.36 $ 1.15
=========== ===========
Diluted earnings per share $ 1.36 $ 1.15
=========== ===========
See accompanying notes to the consolidated financial statements.
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
</TABLE>
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Other Total
________ ____________ ____________ ____________ _______ ____________
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 441,072 $ 4,410,720 $ 3,395,617 $ 7,564,900 $ - $ 15,371,237
Net income - - - 2,032,289 - 2,032,289
Cash dividends declared
($2.00 per share) - - - (882,144) - (882,144)
________ ____________ ____________ ____________ _______ ____________
BALANCE, December 31, 1996 441,072 4,410,720 3,395,617 8,715,045 - 16,521,382
Net income - - - 2,397,560 - 2,397,560
Cash dividends declared
($.56 per share) - - - (989,556) - (989,556)
New shares issued 2,776 6,940 19,310 (12,736) - 13,514
Net change in unrealized gain
on securities available for
sale, net of taxes of $23,108 - - - - 38,844 38,844
Four-for-one stock split 1,323,216 - - - - -
_________ ____________ ____________ ____________ _______ ____________
BALANCE, December 31, 1997 1,767,064 $ 4,417,660 $ 3,414,927 $ 10,110,313 $38,844 $ 17,981,744
========= ============ ============ ============ ======= ============
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
____________ ____________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,397,560 $ 2,032,289
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred taxes (36,014) (134,841)
Provision for loan losses 160,000 50,000
Provision for depreciation 381,616 315,167
Gain on sale of mortgage loans (9,589) (5,340)
Loss on sale of other real estate - 7,086
Stock dividends received (56,200) (56,100)
Amortization (accretion) of investment
security premiums (discounts), net (58,799) 77,530
Amortization of valuation adjustment on acquired loans 71,160 111,410
Amortization of valuation adjustment on acquired deposits (10,510) (68,760)
Amortization of negative goodwill (290,130) (347,650)
(Increase) decrease in accrued interest receivable (175,070) 79,226
Increase in cash surrender value of life insurance (44,995) (35,284)
Increase in other assets (34,386) (40,529)
Increase in accrued interest payable 116,555 22,342
Increase in accrued taxes and other liabilities 234,479 24,895
____________ ____________
Net cash provided by operating activities 2,645,677 2,031,441
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in federal funds sold 700,000 750,000
Proceeds from maturities and paydowns
of investment securities 11,181,192 11,321,271
Redemption of securities 56,000 57,400
Purchases of investment securities (10,406,981) (8,016,529)
Net increase in loans (11,050,739) (3,595,775)
Purchases of premises and equipment (654,426) (419,978)
Proceeds from sale of other real estate - 289,014
____________ ____________
Net cash provided by (used in) investing activities (10,174,954) 385,403
____________ ____________
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
____________ ____________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits 6,762,054 40,239
Net decrease in time deposits (554,768) (2,098,294)
Increase in Federal Home Loan Bank advances 1,000,000 2,000,000
Increase in federal funds purchased 1,650,000 -
Net increase (decrease) in securities sold under
repurchase agreements 469,838 (1,058,743)
Increase (decrease) in advances
from borrowers for taxes and insurance 2,494 (13,910)
Cash dividends paid (989,556) (882,144)
Proceeds from the sale of common stock, net 13,514 -
____________ ____________
Net cash provided by (used in) financing activities 8,353,576 (2,012,852)
____________ ____________
NET INCREASE IN CASH AND DUE FROM BANKS 824,299 403,992
CASH AND DUE FROM BANKS AT
BEGINNING OF YEAR 5,106,485 4,702,493
CASH AND DUE FROM BANKS AT ____________ ____________
END OF YEAR $ 5,930,784 $ 5,106,485
============ ============
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer of loans foreclosed to other real estate $ 19,038 $ 116,492
============ ============
Transfer of other real estate to loans $ (23,928) $ -
============ ============
Total increase in unrealized gains on
securities available-for-sale $ 61,952 $ -
============ ============
Deferred income taxes on unrealized gains on
securities available-for-sale $ (23,108) $ -
============ ============
See accompanying notes to the consolidated financial statements.
<PAGE>
</TABLE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Britton & Koontz Capital Corporation and its wholly-owned
subsidiary, Britton & Koontz First National Bank ("the Bank").
All material intercompany profits, balances and transactions
have been eliminated.
Nature of Operations
The Company operates under a national bank charter and
provides full banking services, including trust services. The
primary area served by the Company is the southwest region of
Mississippi and services are provided at three locations in
Natchez, Mississippi.
Use of Estimates
The preparation of consolidated 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 revenues
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. In addition, regulatory agencies, as an
integral part of their examination process, periodically
review the Bank's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Bank to
recognize additions to the allowances based on their judgments
about information available to them at the time of their
examination. Because of these factors, it is reasonably
possible that the allowances for losses on loans and
foreclosed real estate may change materially.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Investment Securities
Management determines the appropriate classification of
securities at the time of purchase. If management has the
intent and the Bank has the ability at the time of purchase to
hold debt securities until maturity, they are classified as
held-to-maturity and carried at cost, adjusted for
amortization of premiums and accretion of discounts using
methods approximating the interest method. Available-for-sale
securities include securities that management intends to use
as part of its asset and liability management strategy and
that may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to
interest rates and resultant prepayment risk changes. These
securities are carried at fair value. Equity securities
include stock in the Federal Reserve Bank and the Federal Home
Loan Bank, which are restricted and are carried at cost.
Realized gains and losses on dispositions are based on the net
proceeds and the adjusted book value of the securities sold,
using the specific identification method. Unrealized gains and
losses on investment securities available-for-sale are based
on the difference between book value and fair value of each
security. These gains and losses are credited or charged to
stockholders' equity, net of applicable taxes. Realized gains
and losses flow through the Company's yearly operations. The
Bank does not engage in trading account activities.
Loans
Loans are stated at the amount of principal outstanding,
reduced by unearned income and an allowance for loan losses.
Unearned income on certain installment loans is recognized as
income over the terms of the loans by a method which
approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily
balances of the principal amount outstanding. Loans are
ordinarily placed on nonaccrual when a loan is specifically
determined to be impaired or when principal or interest is
delinquent for 90 days or more; however, management may elect
to continue the accrual when the estimated net realizable
value of collateral is sufficient to cover the principal
balance and the accrued interest. Any unpaid interest
previously accrued on nonaccrual 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 balance.
Interest income on other nonaccrual loans is recognized only
to the extent of interest payments received.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Allowance for Loan Losses
The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current
economic conditions that may affect the borrower's ability to
pay. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated
cash flows. Credits deemed uncollectible are charged to the
allowance. Provisions for loan losses and recoveries on loans
previously charged off are added to the allowance.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less
accumulated depreciation. Depreciation expense is computed by
the straight-line method and is charged to expense over the
estimated useful lives of the assets.
Other Real Estate
Other real estate consists primarily of foreclosed property.
Properties acquired through foreclosure or in settlement of
loans and in-substance foreclosures are classified as
foreclosed properties and are valued at the lower of the loan
value or estimated fair value of the property acquired less
estimated selling costs. At the time of foreclosure, the
excess, if any, of the loan value over the estimated fair
value of the property acquired less estimated selling costs is
charged to the allowance for loan losses. Additional
decreases in the carrying values of foreclosed properties or
changes in estimated selling costs, subsequent to the time of
foreclosure, are recognized through provisions charged to
operations. A valuation reserve is maintained for estimated
selling costs and to record the excess of the carrying values
over the fair market values of properties if changes in the
carrying value are judged to be temporary. Revenues and
expenses associated with owning and operating other real
estate, and gains and losses on dispositions of such assets
are recorded in earnings in the period incurred.
The fair value of foreclosed properties is determined based
upon appraised value, utilizing either the estimated
replacement cost, the selling price of properties utilized for
similar purposes or discounted cash flow analyses of the
properties' operations.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Other Real Estate - Continued
Changes in the reserve for other real estate are as follows:
1997 1996
_________ _________
Balance at January 1 $ - $ 11,658
Losses charged against the reserve - (11,658)
_________ _________
Balance at December 31 $ - $ -
========= =========
Compensated Absences
Employees of the Bank are entitled to paid vacation, emergency
and sick days off, depending on length of service in the
banking industry. Vacation, emergency and sick days are
granted on an annual basis to eligible employees. Unused
vacation and emergency days expire on December 31 of each
year. Unused sick days expire on each related employee's
employment anniversary date each year.
The estimated amount of compensation for future absences is
deemed immaterial to the consolidated financial statements,
and, accordingly, no liability has been recorded in the
accompanying financial statements. The Bank's policy is to
recognize the costs of compensated absences when actually paid
to employees.
Income Taxes
The provision for income taxes is based on amounts reported in
the statements of income after exclusion of nontaxable income
such as interest on state and municipal securities. Also,
certain items of income and expenses are recognized in
different time periods for financial statement purposes than
for income tax purposes. Thus, provisions for deferred taxes
are recorded in recognition of such temporary differences.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes - Continued
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
The Company and its wholly-owned subsidiary file a
consolidated federal income tax return. Consolidated income
tax expense is allocated on the basis of each company's income
adjusted for permanent differences.
Earnings Per Share
Basic earnings per share is the income available to the
weighted average number of shares of common stock outstanding
for each period presented. All per share amounts reflect the
effects of the 1997 four-for-one stock split. All shares held
by the Employee Stock Ownership Plan (ESOP) are treated as
outstanding in computing the earnings per share. Stock
options are used in the calculation of diluted earnings per
share if they are dilutive (i.e., the average market price
exceeds the exercise price). The following table reconciles
the basic and diluted earnings per share amounts:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
___________ _____________ _________
<S> <C> <C> <C>
Basic earnings per share:
Income available to common
shareholders $ 2,397,560 1,766,007 $ 1.36
Diluted earnings per share: =========
Options - 1,101
___________ ____________
Income available to common
shareholders assuming conversion $ 2,397,560 1,767,108 $ 1.36
$1.36 =========== ============ =========
Options to purchase 30,000 share of common stock at $19.94 per
share were granted on November 18, 1997. These options were
not included in the computation of diluted earnings per share
because the options' exercise price was greater than the
average market price of the common shares. The options, which
expire on November 18, 2007, were still outstanding at
December 31, 1997.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of interest-
rate swap agreements, commitments to extend credit and
commercial letters of credit. Financial instruments related
to loans are recorded in the financial statements when they
become payable.
Cash Flows
For purposes of the statements of cash flows, the Company
considers only cash and due from banks to be cash equivalents.
The Company paid income taxes of $1,019,185 in 1997 and
$931,744 in 1996. Interest paid on deposit liabilities and
other borrowings was $5,117,117 in 1997 and $5,134,810 in
1996.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes new standards for reporting comprehensive income
and its components (revenues, expenses, gains and losses) in a
full set of general-purpose financial statements. This
statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the adoption
of SFAS No. 130 to have a material effect on its financial
statements.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Recent Accounting Pronouncements - Continued
In June 1997, the Financial Accounting Standards Board also
issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes
new standards for the way public business enterprises report
information about operating segments in financial statements.
This statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the adoption
of SFAS No. 131 to have a material effect on its financial
statements.
Advertising Costs
Advertising and marketing costs are recorded as expenses in
the year in which they are incurred. Advertising and
marketing costs charged to operations during 1997 and 1996
were $83,155 and $73,995, respectively.
Stock Split
During 1997, the Company effected a four-for-one stock split.
To effect the split, the Company's authorized shares increased
from 3,000,000 to 12,000,000, and issued and outstanding
shares increased from 441,072 to 1,764,288.
Negative Goodwill
During 1993, the Company purchased Natchez First Federal
Savings Bank in a business combination accounted for as a
purchase. The combination created negative goodwill of
$3,060,422. This amount is being amortized into income over
the life of the acquired, long-term, interest-bearing assets
which is approximately fifteen years.
Reclassifications
Certain 1996 amounts have been reclassified to conform with the
1997 presentation.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE B. INVESTMENT SECURITIES
The amortized cost and approximate market value of investment
securities classified as held-to-maturity at December 31,
1997, are summarized as follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
___________ __________ __________ ___________
<S> <C> <C> <C> <C>
U. S. Treasury obligations $ 1,997,265 $ 6,914 $ - $ 2,004,179
Obligations of other U. S.
Government agencies and
corporations 34,528,790 704,558 (177,415) 35,055,933
Obligations of states and
political subdivisions 1,123,872 44,740 - 1,168,612
Privately issued collateralized
mortgage obligations 1,077,616 64,840 - 1,142,456
___________ __________ __________ ___________
$38,727,543 $ 821,052 $ (177,415) $39,371,180
=========== ========== ========== ===========
<PAGE>
The amortized cost and approximate market value of investment
securities classified as available-for-sale at December 31,
1997, are summarized as follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
___________ __________ __________ ___________
U. S. Treasury obligations $ 3,969,053 $ 61,952 $ - $ 4,031,005
___________ __________ __________ ___________
$ 3,969,053 $ 61,952 $ - $ 4,031,005
=========== ========== ========== ===========
The amortized cost and approximate market value of investment
securities classified as held-to-maturity at December 31,
1996, are summarized as follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
___________ __________ __________ ___________
U. S. Treasury obligations $ 6,509,679 $ 18,648 $ (6,327) $ 6,522,000
Obligations of other U. S.
Government agencies and
corporations 34,693,508 464,846 (389,459) 34,768,895
Obligations of states and
political subdivisions 778,155 28,204 - 806,359
Privately issued collateralized
mortgage obligations 1,430,666 67,461 (13) 1,498,114
___________ __________ __________ ___________
$43,412,008 $ 579,159 $ (395,799) $43,595,368
=========== ========== ========== ===========
</TABLE>
Proceeds from maturities of investment securities held-to-
maturity were $4,530,000 and $3,000,000 during 1997 and 1996,
respectively. The Bank purchased $6,449,168 and $8,016,529 of
investment securities held-to-maturity and received $6,651,192
and $8,321,271 from principal paydowns during 1997 and 1996,
respectively. The Bank also purchased $3,957,813 of
investment securities available for sale during 1997. There
were no available-for-sale securities during 1996.
Equity securities include the Bank's investment in the Federal
Home Loan Bank and the Federal Reserve Bank. The Bank
acquired $56,200 and $56,100 of additional stock in the
Federal Home Loan Bank and no additional stock in the Federal
Reserve Bank during 1997 and 1996, respectively. The Bank
subsequently redeemed $56,000 and $57,400 of stock in the
Federal Home Loan Bank during 1997 and 1996, respectively.
This stock is considered a restricted stock as only banks
which are members of these organizations may acquire or redeem
the stock. The stock is redeemable at its face value;
therefore, there are no gross unrealized gains or gross
unrealized losses associated with these investments.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE B. INVESTMENT SECURITIES - CONTINUED
Investment securities carried at approximately $19,040,000
(approximate market value $19,289,000) at December 31, 1997,
and approximately $16,900,000 (approximate market value
$16,821,000) at December 31, 1996, were pledged to
collateralize public deposits, and for other purposes as
required by law or agreement.
The amortized cost and approximate market value of investment
debt securities at December 31, 1997, by contractual maturity
(including mortgage-backed securities), are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Securities held-to-maturity
___________________________
Approximate
Amortized Market
Cost Value
___________ ___________
Due in one year or less $ 2,597,062 $ 2,589,926
Due after one year through five years 1,421,895 1,434,943
Due after five years through ten years 10,530,913 10,512,017
Due after ten years 24,177,673 24,834,294
___________ ___________
$38,727,543 $39,371,180
=========== ===========
Securities available-for-sale
_____________________________
Approximate
Amortized Market
Cost Value
___________ ____________
Due in one year or less $ - $ -
Due after one year through five years 3,969,053 4,031,005
Due after five years through ten years - -
Due after ten years - -
___________ ____________
$ 3,969,053 $ 4,031,005
============ ============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE C. SALES-TYPE LEASE INVESTMENT
During 1994, the Bank entered into a sales-type lease
agreement with the City of Natchez. In this agreement, the
Bank sold the City certain land and buildings included in
other real estate and certain land, buildings and improvements
included in bank premises and equipment for a contract price
of $830,000. The City agreed to make annual lease payments
and semi-annual interest payments. The interest will accrue
at 6.25 percent per year. The Bank will retain title to the
property until the end of the lease. Upon receipt of the
final lease payment in May 2004, the title will pass to the
City of Natchez. The obligation of the City to the Bank is
evidenced by a series of Certificates of Participation. Each
Certificate represents an annual principal payment. The
Certificates do not represent a legal obligation of the City
and are contingent and expressly limited to the extent of any
specific, annual appropriation made by the City to fund the
lease. The Bank currently carries these Certificates in its
investment portfolio as held-to-maturity.
The following is a summary of the components of the Bank's net
investment in sales-type leases at December 31, 1997:
Total minimum lease payments to be received $ 730,781
Portion of payments representing interest (175,781)
__________
Net investment $ 555,000
==========
Minimum lease payments to be received as of December 31, 1997,
for each of the next five years are:
1998 $ 75,000
1999 -
2000 85,000
2001 90,000
2002 95,000
Thereafter 210,000
__________
$ 555,000
==========
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE D. LOANS
The Bank's loan portfolio at December 31, 1997 and 1996,
consists of the following:
1997 1996
_____________ _____________
Commercial, financial and agricultural $ 20,869,265 $ 17,453,750
Real estate - construction 1,252,872 827,314
Real estate - mortgage 70,672,806 64,831,842
Installment 14,202,884 12,923,032
Overdrafts 81,968 161,841
_____________ _____________
Total loans $ 107,079,795 $ 96,197,779
============= =============
Loans on which accrual of interest has been discontinued or
reduced amount to approximately $29,000 and $235,000 at
December 31, 1997 and 1996, respectively. If interest on such
loans had been accrued, the income would have approximated
$420 and $48,000 in 1997 and 1996, respectively.
In the ordinary course of business, the Bank makes loans to
its executive officers, principal stockholders, directors and
to companies in which these borrowers are principal owners.
Loans outstanding to such borrowers (including companies in
which they are principal owners) amounted to $1,641,355 and
$1,387,135 at December 31, 1997 and 1996, respectively. These
loans were made on substantially the same terms, including
interest rate and collateral, as those prevailing at the time
for comparable transactions with other persons and did not
involve more than normal risk of collectibility or present
other unfavorable features.
Changes in these loans are as follows:
Balance at January 1, 1997 $ 1,387,135
New loans 814,193
Repayments (559,973)
____________
Balance at December 31, 1997 $ 1,641,355
============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE E. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
1997 1996
_________ _________
Balance at January 1 $ 622,975 $ 723,641
_________ _________
Credits charged off (133,764) (169,572)
Recoveries 27,534 18,906
_________ _________
Net credits charged off (106,230) (150,666)
_________ _________
Provision for loan losses 160,000 50,000
_________ _________
Balance at December 31 $ 676,745 $ 622,975
========= =========
NOTE F. LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying consolidated statements of financial condition.
The unpaid principal balances of these loans are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
___________ ___________
<S> <C> <C>
Mortgage loans serviced for:
Federal National Mortgage Association (FNMA) $ 6,338,432 $ 7,832,038
=========== ===========
Custodial escrow balances maintained in connection with the
foregoing loan servicing and included in advances from
borrowers for taxes and insurance in the accompanying
consolidated statements of financial condition were $73,889
and $ 85,639 at December 31, 1997 and 1996, respectively.
Continued
</TABLE>
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE G. BANK PREMISES AND EQUIPMENT
A summary of Bank premises and equipment is as follows:
1997 1996
___________ ___________
Land $ 442,675 $ 442,675
Buildings 3,719,251 3,719,250
Furniture and equipment 3,192,804 2,538,379
7,354,730 6,700,304
Less accumulated depreciation 3,407,523 3,025,907
___________ ___________
Bank premises and equipment, net $ 3,947,207 $ 3,674,397
=========== ===========
NOTE H. TRUST DEPARTMENT ASSETS
Property (other than cash deposits) held by the Bank in
fiduciary or agency capacities for its customers is not
included in the accompanying consolidated statements of
financial condition as such items are not assets of the Bank.
Trust fees are reported on the cash basis. The difference
between cash basis and the accrual basis is immaterial.
NOTE I. DEPOSITS
Maturities of certificates of deposit of $100,000 or more
outstanding at December 31, 1997 and 1996, are summarized as
follows:
1997 1996
____________ ____________
Time remaining until maturity:
Three months or less $ 5,053,918 $ 5,887,275
Over three through six months 7,329,803 6,962,831
Over six through twelve months 2,566,144 3,015,962
Over twelve months 5,456,053 2,138,026
____________ ____________
$ 20,405,918 $ 18,004,094
============ ============
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE I. DEPOSITS - CONTINUED
Approximate scheduled maturities of certificates of deposits
for each of the next five years are:
1998 $ 54,124,000
1999 8,016,000
2000 3,932,000
2001 3,081,000
2002 4,475,000
Thereafter 21,000
____________
$ 73,649,000
============
Deposits at December 31, 1997 and 1996, consisted of the following:
1997 1996
____________ ____________
Non-interest bearing demand deposits $ 20,568,295 $ 16,065,133
NOW accounts 19,792,486 17,798,875
Money market deposit accounts 7,933,842 7,854,890
Savings accounts 10,693,390 10,496,551
Certificates of deposit 73,649,188 74,224,976
____________ ____________
$132,637,201 $126,440,425
============ ============
NOTE J. FEDERAL HOME LOAN BANK ADVANCES
During 1997, the Bank received advances from and remitted
payments to the Federal Home Loan Bank. On December 23, 1997,
the Bank received a $3,000,000 advance which remained
outstanding at December 31, 1997. This advance accrues
interest at an annual rate of 5.87 percent and matures on
January 20, 1998. The advance is collateralized by a portion
of the Bank's one to four family residential mortgage
portfolio in accordance with the Advance Security and
Collateral Agreement with the Federal Home Loan Bank.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE K. EMPLOYEE BENEFIT PLANS
The Bank has an employee stock ownership plan which is
designed to invest primarily in employer stock. Essentially,
all employees of the Britton & Koontz Capital Corporation and
its wholly-owned subsidiary are covered under this plan, with
employees becoming fully vested in their benefits after seven
years of participation. Employer contributions are determined
by the Board of Directors each year and are allocated among
participants on the basis of their total annual compensation.
Dividends on the Company stock owned by the plan are recorded
as a reduction of retained earnings. Operating expenses
include contributions to the plan of $40,000 in 1997 and
$120,000 in 1996. This plan owned 213,070 and 214,336
(assuming stock split) shares of Britton & Koontz Capital
Corporation stock, as of December 31, 1997 and 1996,
respectively, at an overall cost to the plan of $4.79 and
$4.16 per share (assuming stock split).
Employees with one or more years of service are eligible to
participate in a 401(k) plan established by the Company
effective January 1, 1997. Under this plan, employees may
contribute up to 12% of their yearly salary, not to exceed
$7,000. These contributions are immediately 100% vested.
Employer contributions are vested 20% after three years of
service and an additional 20% for each additional year of
service, fully vested after seven years of service. Employer
contributions to the plan are made at the discretion of the
Board of Directors and aggregated $80,000 for the year ended
December 31, 1997.
During 1996, the Company adopted a long-term incentive plan in
which all employees of the Company and the Bank are eligible
to participate. The plan provides for discretionary grants of
various incentives including stock options; shares of common
stock subject to restrictions on transfer, forfeitability
provisions or other limitations; and shares of common stock,
the issuance and delivery of which may be subject to the
attainment of specified performance objectives. A maximum of
160,000 shares of common stock is available for grant under
the plan, subject to adjustment on account of stock dividends
or stock splits, recapitalizations, mergers, consolidations or
other corporate reorganizations. The plan is administered by
a committee of at least two non-employee directors as
appointed by the full Board of Directors. At December 31,
1997, options to purchase 30,000 shares had been granted as
part of this plan. These options
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE K. EMPLOYEE BENEFIT PLANS - CONTINUED
are exercisable in installments beginning six months after the
date of grant and become fully exercisable nine and one-half
years after the date of grant. All options expire 10 years
from the date of grant. As of December 31, 1997 and 1996,
there were no exercisable options. The summary of stock
option activity is shown below:
<TABLE>
<CAPTION>
Weighted
Options Average
Outstanding Exercise Price
___________ ______________
<S> <C> <C>
January 1, 1996 (assuming stock split) 24,000 $ 6.50
Purchase of option rights (assuming stock split) (24,000) $ 3.50
___________
December 31, 1996 - $ -
Options granted 36,000 $ 18.20
Stock options exercised 6,000 $ 9.50
___________
December 31, 1997 30,000 $ 19.94
___________
</TABLE>
<PAGE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
Exercise Price Options Outstanding Remaining Contractual Life
______________ ___________________ __________________________
$19.94 30,000 9.9 years
During fiscal 1997, the Company adopted SFAS No 123, Accounting
for Stock-Based Compensation, which requires companies to
estimate the fair value for stock options on date of grant.
Under SFAS No. 123, the Company is required to record the
estimated fair value of stock options issued as compensation
expense in its income statements over the related service
periods or, alternatively, continue to apply accounting
methodologies as prescribed by Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and disclose the pro forma effects of the estimated
fair value of stock options issued in the accompanying footnotes
to its financial statements. The determination of fair value is
only required for stock options issued beginning in 1996. In
adopting SFAS No. 123, the Company decided to continue to follow
the accounting methodologies as prescribed by APB Opinion No. 25.
The pro forma effects of the total compensation expense that
would have been recognized under SFAS No. 123 are as follows:
1997
___________
Net income, as reported $ 2,397,560
Pro forma net income $ 2,393,716
Basic earnings per share, as reported $ 1.36
Pro forma basic earnings per share $ 1.36
Diluted earnings per share $ 1.36
Pro forma diluted earnings per share $ 1.35
In adopting SFAS No. 123, the Company utilized the Black-
Scholes Option Pricing Model to estimate the fair value of
stock options granted using the following weighted average
assumptions:
1997
___________
Expected dividend yield 2.94%
Expected option life 7.25 years
Expected volatility 25.00%
Risk-free interest rates 5.85%
Based on the results of the model, the fair value of the stock
options issued on the date of grant are $5.57 per share for
the 30,000 shares granted in 1997.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE K. EMPLOYEE BENEFIT PLANS - CONTINUED
During 1994, the Bank entered into a nonqualified salary
continuation plan with its executive officers. These officers
will be entitled to agreed-upon benefits which will begin
vesting when each participant reaches the age of fifty-five.
The vested percentage will increase annually through the age
of sixty-five when the officers will be fully vested. Payment
of any benefits is contingent upon the officers' continued
employment with the Bank through the age of fifty-five. The
projected benefit to each officer at age sixty-five is
allocated through a present value calculation to each year
from inception of the plan through age sixty-five. The Plan
also includes a change of control benefit for these officers.
If any or all of the covered executives are terminated
from employment within 36 months of a sale or
acquisition of the Bank, the executive(s) may elect from the
acquirer to receive fully vested income benefits as stated
above, or to receive an agreed-upon lump-sum distribution,
which would total $640,000 if all covered executives selected
this option. The financial statements for the years ended
December 31, 1997 and 1996, respectively, include $28,230 and
$26,062 of expense related to this plan.
In addition to other benefits, the Company provides medical
insurance to its employees and makes medical insurance
available to its employees' families. The Company self-
insures up to $15,000 per person per year with a total annual
maximum of $118,588 for all covered employees. Claims
exceeding these annual limits are covered by traditional
insurance contracts.
NOTE L. LEASES
The Company had no material lease obligations or similar
commitments at December 31, 1997 or 1996. All leases
are of the normal cancelable operating type and generally
short-term in nature and not susceptible to capitalization
for financial accounting reporting purposes. Rent expense
charged to income was $4,915 and $7,277 in 1997 and 1996,
respectively.
NOTE M. INCOME TAX PROVISION
The provision for income taxes included in the consolidated
statements of income is as follows:
1997 1996
___________ __________
Current $ 1,246,149 $ 995,451
Deferred (36,014) (134,841)
___________ __________
$ 1,210,135 $ 860,610
=========== ==========
Income taxes payable of $273,887 in 1997 and $47,954 in 1996
are included in accrued taxes and other liabilities.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE M. INCOME TAX PROVISION - CONTINUED
Net deferred tax liabilities of $769,740 in 1997 and $782,646
in 1996, are included in accrued taxes and other liabilities.
Amounts comprising deferred tax assets and liabilities are as
follows:
1997 1996
________ _________
Deferred tax liability:
Bad debt recapture $ 61,549 $ 123,059
Insurance 33,234 21,481
Discount accretion 3,876 2,922
Depreciation 548,715 512,623
Federal Home Loan Bank dividends 118,146 103,664
Purchase accounting 50,178 78,430
Self-insured medical plan 5,616 -
Unrealized gain on
available-for-sale securities 23,108 -
_________ _________
Total gross deferred tax liability $ 844,422 $ 842,179
========= =========
1997 1996
Deferred tax asset: _________ _________
Bad debts $ 42,543 $ 22,486
Deferred compensation 32,139 21,609
Self-insured medical plan - 15,438
_________ _________
Total gross deferred tax asset, net
of valuation allowance of $-0- $ 74,682 $ 59,533
========= =========
The temporary differences resulting in deferred income taxes
and the tax effect of each are as follows:
1997 1996
________ _________
Accretion of discount $ 954 $ 1,218
Depreciation 36,092 10,220
FHLB stock dividend 14,482 11,148
Provision for loan losses (81,567) (29,654)
Amortization of purchase accounting adjustments (28,252) (118,507)
Valuation adjustment on other real estate - 4,547
Insurance 11,753 10,804
Deferred compensation (10,530) (9,179)
Self-insured medical plan 21,054 (15,438)
Unrealized gain on available-for-sale securities 23,108 -
________ _________
$(12,906) $(134,841)
======== =========
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE M. INCOME TAX PROVISION - CONTINUED
The provision for federal income taxes is less than that
computed by applying the federal statutory rate of 34% in 1997
and 1996, as indicated in the following analysis:
1997 1996
__________ _________
Tax based on statutory rate $1,226,616 $ 983,586
State taxes 149,494 114,738
Effect of tax-exempt income (31,789) (32,276)
Amortization of negative goodwill (98,644) (118,201)
Officers' life insurance 1,137 1,027
Other (36,679) (88,264)
__________ _________
$1,210,135 $ 860,610
========== =========
The income tax provision includes no amounts in 1997 and 1996,
resulting from securities transactions.
NOTE N. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At December 31, 1997 and 1996, the Bank had sold various
investment securities with an agreement to repurchase these
securities at various times within one year. The underlying
securities are U.S. Government obligations and obligations of
other U.S. Government agencies and corporations. These
securities generally remain under the Bank's control and are
included in investment securities and the related liability to
repurchase these securities is included in securities sold
under repurchase agreements. These securities have coupon
rates ranging from 6.5% to 8.0% and maturity dates ranging
from 2003 to 2013. The maximum amount of outstanding
agreements at any month-end was $4,414,678 and $3,877,368
during 1997 and 1996, respectively. The monthly average
amount of outstanding agreements was $2,852,426 and $2,554,047
during 1997 and 1996, respectively.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE O. REGULATORY MATTERS
The primary sources of revenue of Britton & Koontz Capital
Corporation are dividends from its subsidiary, Britton &
Koontz First National Bank. On December 31, 1997,
approximately $3,755,000 was available for future distribution
by the Bank as dividends without prior approval of the banking
regulatory agencies. However, such distribution would be
subject to the requirements described in the following
paragraphs.
In accordance with Office of Thrift Supervision regulations, a
special "Liquidation Account" has been established for the
benefit of certain Qualifying Depositors of Natchez First
Federal Savings Bank (acquired by Britton & Koontz First
National Bank in 1993) in an amount of approximately $2.8
million. The Liquidation Account serves as a restriction on
the distribution of stockholders' equity in Britton & Koontz
First National Bank, and no cash dividend may be paid on its
capital stock if the effect thereof would be to cause the
regulatory capital of Britton & Koontz First National Bank to
be reduced below an amount equal to the adjusted Liquidation
Account balance.
In the event of a complete liquidation of Britton & Koontz
First National Bank, each Qualifying Depositor would be
entitled to his or her pro rata interest in the Liquidation
Account. Such claims would be paid before payment to Britton
& Koontz Capital Corporation as the Britton & Koontz First
National Bank's sole shareholder. A merger, consolidation,
purchase of assets and assumption of deposits and/or other
liabilities or similar transaction, with an FDIC-insured
institution, would not be a complete liquidation for the
purpose of paying the Liquidation Account. In such a
transaction, the Liquidation Account would be required to be
assumed by the surviving institution.
The Bank is subject to various regulatory capital requirements
administered by 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 Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices.
The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE O. REGULATORY MATTERS - CONTINUED
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I
capital (as defined in the regulation) to risk-weighted assets
(as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31,
1997, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent regulatory
notification categorized the Bank as well capitalized under
the regulatory capital framework. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage 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.
The Bank's actual capital amounts and ratios are also presented
in the table.
<TABLE>
<CAPTION>
To Be Adequately To Be Well
Actual Capitalized Capitalized
_________________ _________________ _______________
Amount Ratio Amount Ratio Amount Ratio
_______ _______ _______ _______ _______ ______
<S> <C> <C> <C> <C> <C> <C>
(amounts in thousands)
As of December 31, 1997
_______________________
Total Capital (to Risk-
Weighted Assets) $17,920 18.52% $ 7,741 8.00% $ 9,676 10.00%
Tier I Capital (to Risk-
Weighted Assets) $17,244 17.82% $ 3,871 4.00% $ 5,806 6.00%
Tier I Capital (to Average
Assets) $17,244 10.82% $ 6,375 4.00% $ 7,969 5.00%
As of December 31, 1996
_______________________
Total Capital (to Risk-
Weighted Assets) $16,489 18.73% $ 7,043 8.00% $ 8,804 10.00%
Tier I Capital (to Risk-
Weighted Assets) $15,866 18.03% $ 3,520 4.00% $ 5,280 6.00%
Tier I Capital (to Average
Assets) $15,866 10.52% $ 6,033 4.00% $ 7,541 5.00%
Continued
</TABLE>
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE P. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and commercial letters of
credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amounts recognized in the consolidated statements of financial
condition.
Commitments to extend credit are agreements to lend money with
fixed expiration dates or termination clauses. The Bank
applies the same credit standards used in the lending process
when extending these commitments, and periodically reassesses
the customer's creditworthiness through ongoing credit
reviews. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Collateral is
obtained based on the Bank's assessment of the transaction.
Commercial letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer
to a third party. The credit risk and collateralization
policy involved in issuing standby letters of credit is
essentially the same as that involved in extending loans to
customers.
The Bank's maximum exposure to credit loss is represented by
the contractual amount of the commitments to extend credit and
letters of credit as follows:
1997 1996
___________ ___________
Commitments to extend credit $15,756,588 $11,521,615
Commercial letters of credit $ 820,336 $ 646,995
The Bank is required to maintain average reserves at the
Federal Reserve Bank. This requirement approximated $275,000
at December 31, 1997 and 1996, respectively. The Bank is in
compliance with this requirement.
Britton & Koontz Capital Corporation and its wholly-owned
subsidiary, Britton & Koontz First National Bank, are involved
in certain litigation incurred in the normal course of
business. In the opinion of management and legal counsel,
liabilities arising from such claims, if any, would not have a
material effect upon the Bank's consolidated financial
statements.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE P. COMMITMENTS AND CONTINGENCIES - CONTINUED
On December 9, 1997, the Company agreed to purchase a new
electronic data processing system at a total cost of $316,310.
The Company had funded approximately $184,000 of this
obligation at December 31, 1997.
NOTE Q. CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments, and
commercial letters of credit have been granted to customers in
the Bank's market area. Investments in state and municipal
securities also involve governmental entities in and around
the Bank's market area. The concentrations of credit by type
of loan are set forth in Note D. The distribution of
commitments to extend credit approximates the distribution of
loans outstanding. Commercial letters of credit are granted
primarily to commercial borrowers.
NOTE R. DIVIDENDS
Britton & Koontz Capital Corporation's only subsidiary,
Britton & Koontz First National Bank, paid dividends to the
Capital Corporation amounting to $1,076,358; $952,858; and
$855,054 for the years 1997, 1996 and 1995, respectively.
NOTE S. FAIR VALUE OF FINANCIAL INSTRUMENTS
In December of 1991, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 107
relative to disclosures about fair values of financial
instruments. The statement requires disclosure of financial
instruments' fair values, as well as the methodology and
significant assumptions used in estimating fair values. These
requirements have been incorporated throughout the notes to
the consolidated financial statements. In cases where quoted
market prices are not available, fair values are based on
estimates using present value techniques. Those techniques
are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates for those assets or
liabilities cannot be substantiated by comparison to
independent markets and, in many cases, can not be realized in
immediate settlement of the instrument. All nonfinancial
instruments, by definition, have been excluded from these
disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value
of the Corporation and may not be indicative of amounts that
might ultimately be realized upon disposition or settlement of
those assets and liabilities.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE S. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The following methods and assumptions are used to estimate the
fair value of each class of financial instruments for which it
is possible to estimate that value:
Cash and Due From Banks
Fair value equals the carrying value of such assets.
Federal Funds Sold
Due to the short-term nature of this asset, the carrying value
of this item approximates its fair value.
Investment Securities
Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices
of comparable instruments.
Cash Surrender Value of Life Insurance
The fair value of this item approximates its carrying value.
Loans
For variable rate loans which are repricing immediately, fair
values are based on carrying values. Other variable rate
loans, fixed rate commercial loans, installment loans, and
mortgage loans are valued using discounted cash flows. The
discount rates used to determine the present value of these
loans are based on interest rates currently being charged by
the bank on comparable loans as to credit risk and term.
Deposit Liabilities
The fair values of demand deposits are equal to the carrying
value of such deposits. Demand deposits include non-interest
bearing demand deposits, savings accounts, NOW accounts, and
money market demand accounts. Discounted cash flows have been
used to value fixed rate term deposits. The discount rate
used is based on interest rates currently being offered by the
Bank on comparable deposits as to amount and term.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE S. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Federal Home Loan Bank Advance
Due to the short-term nature of this liability, the carrying
value of this item approximates its fair value.
Securities Sold Under Repurchase Agreements
The fair value of these items approximates their carrying
values.
The estimated fair values of the Bank's financial instruments
are as follows:
<TABLE>
<CAPTION>
1997
_____________________________
Carrying Fair
Amount Value
____________ ____________
<S> <C> <C>
Financial assets:
Cash and due from banks $ 5,931,000 $ 5,931,000
Federal funds sold $ - $ -
Investment securities:
Held-to-maturity $ 38,728,000 $ 39,371,000
Available for sale $ 4,031,000 $ 4,031,000
Equity securities $ 1,198,000 $ 1,198,000
Cash surrender value of life insurance $ 680,000 $ 680,000
Loans $107,080,000 $107,538,000
Financial liabilities:
Deposits $132,637,000 $132,963,000
Federal Home Loan Bank advances $ 3,000,000 $ 3,000,000
Federal funds purchased $ 2,134,000 $ 2,134,000
Securities sold under repurchase agreements $ 1,650,000 $ 1,650,000
Face Fair
Amount Value
____________ ____________
Other:
Commitments to extend credit $ 15,757,000 $ 15,757,000
Commercial letters of credit $ 820,000 $ 820,000
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE S. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
1996
_____________________________
Carrying Fair
Amount Value
____________ ____________
<S> <C> <C>
Financial assets:
Cash and due from banks $ 5,106,000 $ 5,106,000
Federal funds sold $ 700,000 $ 700,000
Investment securities:
Held-to-maturity $ 43,412,000 $ 43,595,000
Equity securities $ 1,198,000 $ 1,198,000
Cash surrender value of life insurance $ 635,000 $ 635,000
Loans $ 96,198,000 $ 95,848,000
Financial liabilities:
Deposits $126,440,000 $126,609,000
Federal Home Loan Bank advances $ 2,000,000 $ 2,000,000
Securities sold under repurchase agreements $ 1,664,000 $ 1,664,000
Face Fair
Amount Value
____________ ____________
Other:
Commitments to extend credit $ 11,522,000 $ 11,522,000
Commercial letters of credit $ 647,000 $ 647,000
Off-Balance-Sheet Instruments
Loan commitments are negotiated at current market rates and
are relatively short-term in nature. Therefore, the estimated
value of loan commitments approximates the face amount.
Continued
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE T. SUMMARIZED FINANCIAL INFORMATION OF BRITTON & KOONTZ CAPITAL
CORPORATION
Summarized financial information of Britton & Koontz Capital
Corporation, parent company only, is as follows:
STATEMENTS OF FINANCIAL CONDITION
December 31,
__________________________
1997 1996
____________ ___________
<S> <C> <C>
ASSETS:
Cash $ 620,535 $ 557,850
Investments in:
Britton & Koontz First National Bank 17,282,517 15,900,842
Cash surrender value of life insurance 65,825 52,339
Other assets 12,867 10,351
___________ ___________
TOTAL ASSETS $17,981,744 $16,521,382
=========== ===========
STOCKHOLDERS' EQUITY $17,981,744 $16,521,382
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
____________________________
1997 1996
___________ ___________
<S> <C> <C>
REVENUE:
Dividends received:
Britton & Koontz First National Bank $ 1,076,358 $ 952,858
Interest and other income earned 14,129 10,040
___________ __________
1,090,487 962,898
EXPENSES 35,758 69,911
___________ __________
1,054,729 892,987
EQUITY IN UNDISTRIBUTED EARNINGS:
Britton & Koontz First National Bank 1,342,831 1,139,302
___________ ___________
NET INCOME $ 2,397,560 $ 2,032,289
=========== ===========
Continued
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE T. SUMMARIZED FINANCIAL INFORMATION OF BRITTON & KOONTZ CAPITAL
CORPORATION - CONTINUED
STATEMENTS OF CASH FLOWS
Years Ended December 31,
__________________________
1997 1996
____________ ____________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,397,560 $ 2,032,289
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of affiliate (1,342,831) (1,139,302)
Increase in cash surrender value of life insurance (13,486) (5,069)
Increase in other assets (2,516) (6,928)
____________ ____________
Net cash provided by operating activities 1,038,727 880,990
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (989,556) (882,144)
Proceeds from sale of common stock 13,514 -
____________ ____________
Net cash used in financing activities (976,042) (882,144)
____________ ____________
NET INCREASE (DECREASE) IN CASH 62,685 (1,154)
CASH AT BEGINNING OF YEAR 557,850 559,004
____________ ____________
CASH AT END OF YEAR $ 620,535 $ 557,850
============ ============
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Change in unrealized gain on securities
available-for-sale, net of deferred
income taxes $ 38,844 $ -
============ ============
</TABLE>
<PAGE>
Britton & Koontz Capital Corporation (the "Company") was
organized in July, 1982, under the Mississippi Business
Corporation Act, and became a one-bank holding company when it
acquired all of the outstanding shares of Britton & Koontz First
National Bank (the "Bank") in 1982. In July, 1993, the Company
acquired Natchez First Federal Savings Bank ("Natchez First
Federal") located in Natchez, Mississippi, and merged it into
the Bank, increasing total assets by approximately $48 million.
The Company's major sources of income are dividends from the
Bank and interest on its deposits in the Bank. The Bank's main
office and its two branch offices are located in Natchez,
Mississippi, providing commercial and consumer banking and trust
services in Adams County, Mississippi, and in adjoining counties
and parishes of Mississippi and Louisiana. These services
include personal and commercial checking, savings and time
deposits, money market deposit accounts, money transfer, safe
deposit facilities, access to automated teller machines,
short-term and long-term credit facilities, and residential and
commercial mortgages to individuals and businesses. The bank
also sells local internet access and provides online banking
services over the internet which includes account access and the
ability to retrieve check images along with other transaction
capabilities.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion is intended to supplement the consolidated
financial statements, to explain material changes in financial
condition and to compare the operating results of Britton &
Koontz Capital Corporation for the year ended December 31, 1997,
to the same period in 1996.
Results of Operations
Analysis of Net Income. Net income and net income per share
increased from $2.0 million and $1.15 per share for the year
ending December 31, 1996, to $2.4 million and $1.36 per share
for the year ended December 31, 1997. The returns on average
assets and average equity for 1997 increased to 1.53% and
13.67%, respectively, compared to 1.33% and 12.53% in 1996. The
increase in earnings is primarily due to an increase in interest
income from loan growth and a reduction in non-interest expense
related to a non-recurring 1996 deposit insurance assessment.
The Company has deposits acquired from thrifts on which the
assessment for the SAIF recapitalization is based.
Analysis of Net Interest Income. Net interest income
increased $534 thousand or 8.4% to $6.9 million in 1997.
Interest income increased $611 thousand or 5.3% primarily due to
a 7.4% increase in average loan volumes combined with a slight
increase in overall interest rates and yields. Loans
contributed $819 thousand to the increase in interest income, of
which $618 thousand was due to an increase in volume and $201
thousand was due to an increase in yield. The increase in
income attributable to loans was partially offset by a decrease
in income from investment securities. Net interest margin
increased significantly to 4.66% from 4.39%. Interest expense
increased $77 thousand which was in line with market rate
increases. A closer look at the changes due to volume and
rates is in table, Summary of Changes in Net Interest Income.
The following Average Balance Yield Analysis presents average
balances, interest earned or paid, and average rates earned or
paid. Yields and costs are derived by dividing income or expense
by the average balance of assets or liabilities, respectively.
Average balances are derived from average monthly balances.
<PAGE>
<TABLE>
<CAPTION>
Average Balance Yield Analysis
(dollars in thousands)
Twelve Months Ended December 31,
_______________________________________________________________
1997 1996
______________________________ ______________________________
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
________ _______ __________ ________ _______ ___________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1)(2) $101,249 $8,991 8.88% $94,247 $8,172 8.67%
Investment securities:
U.S. Government & other 43,411 2,955 6.81% 46,839 3,147 6.72%
State & municipal 863 47 5.46% 779 44 5.66%
________ _______ _______ _______
Total investment securities 44,274 3,002 6.78% 47,618 3,191 6.70%
Interest bearing bank balances 825 42 5.09% 897 47 5.25%
Federal funds sold 920 48 5.16% 1,277 68 5.29%
Other (Cash Value Life Insurance) 660 39 5.87% 619 33 5.37%
________ _______ _______ _______
Total earning assets 147,928 12,122 8.19% 144,658 11,511 7.96%
Allowance for loan losses (653) (687)
Cash & due from banks, non-interest
bearing 4,214 3,838
Bank premises & equipment 3,751 3,643
Other assets 1,493 1,558
________ ________
TOTAL ASSETS $156,733 $153,010
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings $10,708 $268 2.50% $10,532 $268 2.55%
Interest bearing checking 19,858 498 2.51% 18,353 471 2.57%
Money rate savings 7,947 216 2.72% 8,056 232 2.88%
Certificates of deposit and other
time deposits 73,931 4,030 5.45% 75,474 4,010 5.31%
________ _______ ________ _______
Total interest bearing deposits 112,444 5,012 4.46% 112,415 4,981 4.43%
Short term borrowed funds 4,247 222 5.23% 3,352 176 5.26%
________ _______ ________ _______
Total interest bearing
liabilities 116,691 5,234 4.49% 115,767 5,157 4.45%
________ _______ ________ _______
Non-interest bearing deposits 16,726 15,885
Other liabilities 5,774 5,147
Shareholders' equity 17,542 16,211
________ _______ ________ _______
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $156,733 $5,234 $153,010 $5,157
======== ======= ======== =======
Interest income and rate earned $12,122 8.19% $11,511 7.96%
Interest expense and rate paid 5,234 4.49% 5,157 4.45%
_______ _____ _______ _____
Interest rate spread 3.70% 3.51%
===== =====
NET INTEREST INCOME & NET YIELD
ON AVERAGE EARNING ASSETS $6,888 4.66% $6,354 4.39%
======= ===== ======= =====
(1) Nonaccrual loans are included in average balances for yield computations.
(2) Includes loan fees and late charges in both interest income and yield
computations.
<PAGE>
Summary of Changes in Net Interest Income
1997 compared to 1996
____________________________________
Increase (Decrease) Due to Change In
Total Volume Rates
________ ________ _________
<S> <C> <C> <C>
INTEREST EARNED ON:
Loans $819 $618 $201
Investment securities:
U.S. Government & other (192) (234) 42
State & municipal 3 5 (2)
Interest bearing bank balances (5) (4) (1)
Federal funds sold (20) (18) (2)
Other (Cash Surrender Value Life Insur 6 3 3
________ ________ _________
Total earning assets 611 370 241
________ ________ _________
INTEREST PAID ON:
Savings 0 4 (5)
Interest bearing checking 27 38 (12)
Money rate savings (16) (3) (13)
Certificates of deposit and other
time deposits 20 (83) 105
Short-term borrowed funds 46 47 (1)
________ ________ _________
Total interest bearing liabilities 77 3 74
________ ________ _________
NET INTEREST INCOME $534 $367 $167
======== ======== =========
</TABLE>
Provision for Loan Losses. The provision for loan losses
increased from $50 thousand in 1996 to $160 thousand in 1997.
To determine the provision amount, management considers factors
such as historical trends of charge-offs and recoveries, past
due loans and economic conditions along with additional analysis
of individual loans and pools of loans for exposure. After
allocating the existing reserves to estimated exposures,
management then adds to the reserve through a loan loss
provision to cover potential losses in the portfolio.
Management is of the opinion that the reserve at year end is
adequate to cover estimated exposures.
Non-Interest Income. Non-interest income grew 4.9% to $1.4
million for the year ended December 31, 1997 compared to the
same period in 1996. The Company's internet providership
services contributed $93 thousand to the total along with $107
thousand for the recovery of prior year non-accrued interest.
<PAGE>
Non-Interest Expense. Non-interest expense decreased $223
thousand to $4.6 million in 1997, as compared to $4.8 million in
1996. This decrease is primarily attributable to a $257
thousand one-time FDIC assessment to recapitalize the Savings
Association Insurance Fund, in 1996.
The Company is actively addressing concerns regarding the
effects that the year 2000 will have on its computer systems.
Conversion to a new core accounting system is scheduled for mid
1998. The system, which is part of a three year capital plan
to upgrade the Company's technology, is year 2000 compliant. We
are currently evaluating and testing all systems to determine
overall compliance. Management does not expect the cost of
compliance with the year 2000 to have a material effect on the
financial statements of the Company.
The combination of all the above factors produced a pretax
income of $3.6 million in 1997, as compared to $2.9 million in
1996.
Income Taxes. Income taxes for 1996 increased $350 thousand to
$1.2 million compared to $861 thousand in 1996. The change in
income taxes is detailed in Note M to the financial statements.
<PAGE>
Financial Condition
Total assets increased 7.2% to $162.1 million at December 31,
1997, from $151.3 million at year end 1996. Loans, net of
unearned interest and allowance for loan losses, increased 11.4%
to $106.2 million at December 31, 1997, compared to $95.3
million at December 31, 1996. Loan growth was funded primarily
by a $6.2 million increase in deposits along with $2.6 million
from current operations. A further analysis of the Bank's loan
portfolio is shown in Note D to the financial statements.
Nonperforming loans at December 31, 1997, decreased to $272
thousand from $617 thousand at December 31, 1996. Nonperforming
loans consisted of nonaccrual loans of $29 thousand and loans
past due ninety days or more of $243 thousand compared to $234
thousand and $383 thousand, respectively, for the year ended
December 31, 1996. Nonperforming loans as a percent of loans,
net of unearned income, and loans held for sale decreased to
.25% at December 31, 1997, from .64% at December 31, 1996. The
table below presents additional information on nonperforming
assets as of December 31, 1997 and 1996.
1997 1996
________ ________
(dollars in thousands)
Nonaccrual loans by type
Real estate $ 23 $ 157
Installment 6 2
Commercial and all other loan 0 75
_____ _____
Total nonaccrual loans 29 234
Loans past due 90 days or more 243 383
_____ _____
Total nonperforming loans 272 617
Other real estate 74 79
_____ _____
Total nonperforming assets $ 346 $ 696
===== =====
Nonperforming loans as a
percent of loans, net of
unearned interest and loans
held for sale 0.25% 0.64%
===== =====
The allowance for loan losses was $677 thousand at December 31,
1997, compared to $623 thousand at December 31, 1996. The ratio
of the allowance for loan losses to loans, net of unearned
income and loans held for sale remained stable at .63% at
December 31, 1997, as compared to .65% at December 31, 1996.
Approximately half of the loan portfolio is invested in 1-4
family residential mortgage loans. A smaller portion of the
allowance is allocated to these loans due to their generally
higher credit quality. Management regularly reviews the level
of the allowance for loan losses and is of the opinion that it
is adequate at December 31, 1997. Activity in the allowance for
loan losses for the period ended December 31, 1997 and 1996 is
presented in Note E to the financial statements.
<PAGE>
The allocation of the allowance for loan losses between 1-4
family residential first mortgage loans and other loans, net of
unearned interest and loans held for sale, as of December 31,
1997 and 1996 is presented below.
1997 1996
____________ ____________
1-4 Family Residential 1st Mortgage Loans
Volume $ 52,594,153 $ 49,686,763
Allocated reserve 144,461 175,628
Reserves as a percent of volume 0.27% 0.35%
Other Loans
Volume $ 54,238,829 $ 46,258,391
Allocated reserve 532,284 447,347
Reserves as a percent of volume 0.98% 0.97%
Total Loans
Volume $106,832,982 $ 95,945,154
Allocated reserve 676,745 622,975
Reserves as a percent of volume 0.63% 0.65%
Other real estate remained stable at $74 thousand at December
31 1997, compared to $79 thousand at December 31, 1996.
Premises and equipment increased by $654 thousand in 1997
pursuant to a capital expenditure plan to upgrade and replace
existing communications, data and check processing systems.
Major components of the capital plan include replacement of the
Bank's core accounting hardware and software, acquisition of a
new check processing system with imaging capabilities, and
upgrades or replacement of ancillary systems. Check imaging
technology will allow bank customers to view check images daily
on the Bank's electronic banking system, as well as provide
operating efficiencies to support future growth.
Management determines the classification of its investment
securities at the time of acquisition. Securities that are
deemed to be held-to-maturity are accounted for by the amortized
cost method while securities that are purchased as
available-for-sale are accounted for at fair value. Securities
held-to-maturity decreased $4.7 million to $38.7 million at
December 31, 1997, compared to $43.4 million at December 31,
1996. However the bank purchased available-for-sale securities
with a market value at December 31, 1997, of $4.0 million. Net
unrealized gains after tax effecting the available-for-sale
securities amounted to $39 thousand. Equity securities remained
stable at $1.2 million at December 31, 1997.
The Company's cash and cash equivalents ended the year at $5.9
million, an increase of $824 thousand over 1996. Due to the
$11.1 million increase in loans, investing activities used $10.2
million. The increase in investing activities was provided for
by $8.4 million in financing activities, most of which came from
an increase in demand deposits along with operating activities
providing $2.6 million.
Total deposits, used to finance additional loan growth,
increased $6.2 million to $132.6 million at December 31, 1997.
<PAGE>
Net-interest income benefited from changes in the Company's
sources and uses of funds, with an increase in loans offset by a
decrease in investment securities. A further analysis is
reflected in the table below.
<TABLE>
<CAPTION>
Average Balances Percent of Total
________________ ________________
1997 1996 1997 1996
_______ _______ _______ _______
(dollars in thousands)
<S> <C> <C> <C> <C>
Funding Uses
Loans, less unearned income $101,249 $94,247 64.6% 61.6%
Investments 44,274 47,618 28.2% 31.1%
Federal funds sold 920 1,277 0.6% 0.8%
Other 10,290 9,868 6.6% 6.5%
________ ________ ______ ______
Total $156,733 $153,010 100.0% 100.0%
======== ======== ====== ======
Funding Sources
Non-interest bearing deposi $ 16,726 $ 15,885 10.7% 10.4%
Interest bearing deposits 112,444 112,415 71.7% 73.4%
Short-term borrowings 4,247 3,352 2.7% 2.2%
Other 5,774 5,147 3.7% 3.4%
Equity 17,542 16,211 11.2% 10.6%
________ ________ ______ ______
Total $156,733 $153,010 100.0% 100.0%
======== ======== ====== ======
</TABLE>
Liquidity. Principal sources of liquidity for the Company are
asset cash flows and the ability to borrow against investment
securities and loans. Principal and interest cash flows from
investment securities exceeded $14 million, or 9% of average
assets, in 1997. The portfolio primarily includes investments
in obligations of the U.S. Treasury, government agency
obligations and mortgage-backed securities. Management of the
Company anticipates that future capital expenditure requirements
will be funded with internally generated cash flows.
Asset liquidity is provided by scheduled maturities within the
loan portfolio, although the probability of conversion is not as
certain as with investment securities. At the end of 1997, over
$19.9 million, or 18.8% of the loan portfolio, was scheduled to
mature within one year.
Liability liquidity is provided by sizable core deposits and
other sources of funds generated from the normal customer base.
Substantially all the funds utilized by the Company are
generated from the normal customer base. Brokered deposits are
not solicited; however, national market deposits have been
utilized from time to time to meet funding needs.
<PAGE>
In addition to the liquidity provided by the balance sheet, the
Company maintains a capacity to borrow additional funds when the
need arises through federal funds purchased lines with
correspondent banks and broker repurchase agreements.
Additional borrowing capacity is available on 1-4 family
residential first mortgage loans through the Federal Home Loan Bank.
Interest Rate Risk Management. The primary assets of banks are
portfolios of investment securities and loans, while liabilities
are primarily composed of interest bearing deposits and borrowed
funds. Assets and liabilities have varying maturities, and the
associated rates may be fixed or variable. Asset/liability
management techniques are used to maintain what are believed to
be appropriate levels and relationships between rate-sensitive
assets and liabilities. They represent the efforts to maximize
overall returns and to minimize the risk of loss associated with
significant, often unforseen, shifts in interest rates.
Management utilizes computerized interest rate simulation
analysis as its primary measure of interest rate sensitivity.
Management's analyses indicate that the Company is liability
sensitive within two years and asset sensitive thereafter. A
liability sensitive company will generally benefit from a
falling interest rate environment as the cost of interest
bearing liabilities falls faster than the yields on interest
earning assets, thus creating a widening of the net interest
margin. Conversely, an asset sensitive company will generally
benefit from a rising interest rate environment as the yields on
interest earning assets rise faster than the costs on interest
bearing liabilities.
A traditional measure of interest rate sensitivity is the
difference between the balances of assets and liabilities in the
Company's current portfolio that are subject to repricing at
various time horizons. These differences are known as interest
sensitivity gaps: Immediate to 3 months, 4 to 12 months, 1 to 3
years, 3 to 5 years, over 5 years and on a cumulative basis.
The Company's interest sensitivity analysis as of December 31,
1997 is shown in the table below.
<TABLE>
<CAPTION>
(dollars in thousands)
Immediate
to 3 4-12 1 to 3 3 to 5 Over 5
Months Months Years Years Years Totals
________ _______ _______ _______ ________ ________
<S> <C> <C> <C> <C> <C>
Interest Sensitive Assets $29,624 $34,801 $45,405 $20,503 $20,417 $150,750
Interest Sensitive Liabilit 35,561 44,159 11,658 7,559 42,038 $140,975
________ _______ _______ _______ ________ ________
Interest Sensitivity Gaps ($5,937) ($9,358) $33,747 $12,944 ($21,621) $9,775
======== ======= ======= ======= ======== ========
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities 0.83 0.81 1.20 1.32 1.07
======== ======= ======= ======= ========
</TABLE>
Changes in the mix of earning assets or supporting liabilities
can either increase or decrease the net interest margin without
affecting interest rate sensitivity. In addition, the interest
rate spread between an asset and its supporting liability can
vary significantly while the timing of repricing for both the
asset and the liability remains the same, thus impacting net
interest income. Varying interest rate environments can create
unexpected changes in prepayment levels of assets and
liabilities which are not reflected in the above interest
sensitivity analysis report. These prepayments may have
significant effects on the Company's net interest margin.
Because of these factors, the interest sensitivity analysis
contained in the above table does not provide a complete
assessment of the Company's exposure to changes in interest
rates.
<PAGE>
Management also evaluates the condition of the economy, the
pattern of market interest rates and other economic data in an
attempt to determine the appropriate mix and repricing
characteristics of assets and liabilities required to produce an
optimal net interest margin and thus maximize income.
In addition to the ongoing monitoring of its interest-sensitive
assets and liabilities, the Company from time to time utilizes
interest rate swaps to augment the management of its interest
rate sensitivity. The interest rate risk factor in these
contracts is considered in the overall interest income and
interest rate risk management strategies. The income or expense
associated with interest rate swaps are reflected as adjustments
to interest income or expense. At December 31, 1997, there were
no swap contracts outstanding.
Capital and Dividends. Stockholders' equity increased by 8.8%
to $18.0 million at December 31, 1997, compared to $16.5 million
at the end of 1996. The ratio of stockholder's equity to assets
increased to 11.09% at December 31, 1997, compared to 10.92% at
the end of 1996. The Company paid dividends of $.56 per share
in 1997 compared to $.50 in 1996.
The Company's wholly-owned subsidiary, Britton and Koontz First
National Bank, maintained a Tier 1 capital to risk weighted
assets ratio at December 31, 1997, of 17.82%, a total capital to
risk weighted assets ratio of 18.52% and a leverage ratio of
10.82%. These levels substantially exceed the minimum
requirements of the regulatory agencies of 4.00%, 8.00% and
3.00%, respectively, and place the Company in the
"well-capitalized" category under applicable regulatory
guidelines.
<PAGE>
Principal Market and Prices of the Company's Stock
On October 17, 1996, the Company listed its Common Stock on the
NASDAQ Small Cap Market. Prior to that date, there was no
established public trading market for the Common Stock.
The table below sets forth the high and low sale prices for the
Company's Common Stock for the periods indicated below. For
periods after October 17, 1996, the table sets forth the NASDAQ
Small Cap Market price ranges for the Common Stock. For all
prior periods, the table sets forth the high and low sales
prices for Common Stock based upon a small number of
transactions that were reported to the Company by a regional
securities broker who facilitated the trading of the Common
Stock during those periods. The quotations for these periods
reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not reflect actual transactions in the
Company's Common Stock.
Dividends
per Share High Low
_________ ______ ______
Period 1997
4th Quarter $ .29 $23.00 $18.25
3rd Quarter $19.75 $17.00
2nd Quarter $ .27 $23.00 $16.25
1st Quarter $18.75 $14.00
Period 1996
10/17/96-12/31/96 $ .30 $14.50 $11.25
10/01/96-10/16/96 $10.25 $10.25
3rd Quarter $10.00 $10.00
2nd Quarter $ .80 $10.00 $ 9.25
1st Quarter $ 9.75 $ 9.00
On December 31, 1997, there were 526 shareholders of record of
Britton & Koontz Capital Corporation Common Stock.
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
CORPORATE INFORMATION
Annual Meeting/Principal Office:
3:30 p.m., Tuesday, March 24, 1998
Britton & Koontz First National Bank
500 Main Street
Natchez, Mississippi 39120
Transfer Agent and Registrar:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
718-921-8200
Independent Auditors:
May & Company
110 Monument Place
P. O. Box 821568
Vicksburg, Mississippi 39182
For Additional Information Contact:
Bazile R. Lanneau, Jr.
Chief Financial Officer
601-445-5576
e-mail: [email protected]
web site: www.bkbank.com
For copies of the Annual Report on Form 10-K or Quarterly Reports on Form
10-Q filed with the Securities and Exchange Commission, Contact:
Bazile R. Lanneau, Jr.
Chief Financial Officer
500 Main Street
P. O. Box 1407
Natchez, Mississippi 39121
601-445-5576
e-mail: [email protected]
Questions regarding stock holdings, certificates, replacement, dividends, and
address changes should be addressed to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
718-921-8200
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
DIRECTORS AND EXECUTIVE OFFICERS
W. W. Allen, Jr.
President
Allen Petroleum Services, Inc.
Craig A. Bradford, D.M.D.
Pediatric Dentist
James J. Cole
Executive Vice-President
Britton & Koontz First National Bank
Wilton R. Dale
Petroleum Geologist
Co-Owner, Dale Exploration Company
W. J. Feltus III
President
Feltus Brothers, Ltd.
Chairman
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
A. J. Ferguson
Consulting Geologist
Owner, Mini-Storage Rentals
C. H. Kaiser, Jr.
Partner
Jordan, Kaiser & Sessions, Engineering
Vice-Chairman
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
Donald E. Killelea, M.D.
Pediatrician - retired
Bazile R. Lanneau
Life Insurance
Bazile R. Lanneau, Jr.
Vice-President, Assistant Secretary,
Treasurer & Chief Financial Officer
Britton & Koontz Capital Corporation and
Executive Vice-President & Trust Officer
Britton & Koontz First National Bank
Albert W. Metcalfe
President
Jordan Auto Company, Inc.
Secretary
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
W. Page Ogden
President & Chief Executive Officer
Britton & Koontz Capital Corporation and
Britton & Koontz First National Bank
Bethany L. Overton
President
Lambdin-Bisland Realty, Co.
Robert R. Punches
Partner
Gwin, Lewis & Punches, Attorneys
<PAGE>
BRITTON & KOONTZ CAPITAL CORPORATION AND SUBSIDIARY
OFFICERS
ADMINISTRATION
W. Page Ogden
President & Chief Executive Officer
Bazile R. Lanneau, Jr.
Executive Vice President,
Chief Financial Officer &
Trust Officer
James J. Cole
Executive Vice President
LENDING
Michael B. Ellard
Senior Vice President
Senior Lending Officer
Patricia J. Bonds
Vice President
Glynn A. Laird
Vice President
G. Mike Malone
Vice President
Barry L. Maxwell
Vice President
Eddie A. Hobson
Loan Officer
MORTGAGE LOANS
Frances B. Cothren
Vice President
Janet W. Bruce
Loan Officer
BRANCH ADMINISTRATION, HUMAN RESOURCES, MARKETING, & OPERATIONS
Rosemary I. Hall
Senior Vice President
Walter L. Reed
Senior Vice President
Curtis L. Moroney
Systems Administrator
Martha J. Seibert
Marketing Director
Dunbar B. Peale
Assistant Vice President
Barbara R. Rodriguez
Assistant Vice President,
Branch Manager
Dorothy A. Weadock
Assistant Vice President
Holly B. Sandifer
Branch Manager
R. Talmadge Anderson
Operations Officer
CONTROLLER
William M. Salters
Vice President
LOAN REVIEW AND ADMINISTRATION
Jarrett E. Nicholson
Loan Review Officer
Sandra J. Boyte
Collections
COMPLIANCE
Cliffie S. Anderson
Assistant Vice President
TRUST
Rene P. Maher
Trust Administration Officer
