UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the
Quarter Ended June 30, 1999 Commission File Number:
0-12437
One American Corp.
(Exact name of registrant as specified in its charter)
Louisiana 72-0948181
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation of Organization)
2785 LA Hwy. 20 West
P. O. Box 550
Vacherie, Louisiana 70090-0550
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code:(225) 265-2265
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common stock $2.50 Par Value, 2,669,624 shares outstanding
as of August 12,1999.
<PAGE> 1
Form 10-Q Index
Part I
Financial Information
Financial Statements
Consolidated Balance Sheets,
June 30, 1999, December 31, 1998, and June 30, 1998 3
Consolidated Statements of Income
for the three and six month periods ended June 30, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Average Balance Sheets and Interest Rate Analysis
for the three and six months ended June 30, 1999,
December 31, 1998, and June 30, 1998 25
Interest Differentials
for the three and six months ended June 30, 1999,
December 31, 1998, and June 30, 1998 26
Part II
Other Information
Legal Proceedings 27
Submission of Matters to a Vote of Security Holders 27
Other Information 28
Exhibits and Reports on Form 8-K 28
Management's Responsibility for Financial Reporting 29
Signatures 30
<PAGE> 2
<TABLE>
<CAPTION>
Consolidated Balance Sheets Unaudited Unaudited
One American Corp. and Subsidiaries June 30, December 31June 30,
In thousands 1999 1998 1998
<S> <C> <C> <C>
Assets
Cash and Due From Banks $13,051 $12,126 $12,258
Interest Bearing Deposits in Other Banks 996 10,629 3,438
Federal Funds Sold and Securities
Purchased Under Resale Agreements 7,750 11,525 2,775
Securities Available for Sale (Amortized Cost of $108,689, $98,588,
and $113,505, respectively) 108,234 99,510 114,124
Loans 199,368 181,992 163,509
Less: Allowance for Loan Losses (3,537) (3,530) (3,010)
Loans, Net 195,831 178,462 160,499
Bank Premises and Equipment 12,448 11,997 11,008
Other Real Estate 350 73 36
Accrued Interest Receivable 2,060 2,133 2,146
Other Assets 3,119 2,921 2,431
Total Assets $343,839 $329,376 $308,715
Liabilities
Deposits:
Noninterest Bearing $58,142 $58,406 $52,224
Interest Bearing 244,024 230,785 216,699
Total Deposits 302,166 289,191 268,923
Accrued Interest Payable 870 825 798
Other Liabilities 2,371 1,560 1,858
Total Liabilities 305,407 291,576 271,579
Stockholders' Equity
Common Stock-$2.50 par value;
Authorized-10,000,000 shares;
Issued-3,000,000 shares 7,500 7,500 7,500
Surplus 5,000 5,000 5,000
Retained Earnings 27,688 26,111 25,021
Accumulated Other Comprehensive Income (300) 609 409
Treasury Stock - 330,254, 328,922 and 303,910 shares at cost (1,456) (1,420) (794)
Total Stockholders' Equity 38,432 37,800 37,136
Total Liabilities and Stockholders' Equity $343,839 $329,376 $308,715
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Consolidated Statements of Income
One American Corp. and Subsidiaries Three Months Ended Six Months Ended
for the three and six month periods ended June 30, 1999 and 1998 Unaudited Unaudited Unaudited Unaudited
In thousands, except per share data 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans $4,244 $3,665 $8,219 $7,169
Interest on Securities:
Taxable Interest 1,313 1,551 2,555 3,015
Nontaxable Interest 122 144 260 294
Total Interest on Securities 1,435 1,695 2,815 3,309
Other Interest Income 240 196 506 425
Total Interest Income 5,919 5,556 11,540 10,903
Interest Expense on Deposits 2,214 2,046 4,339 4,054
Net Interest Income 3,705 3,510 7,201 6,849
Provision for Loan Losses 225 300 450 750
Net Interest Income After
Provision for Loan Losses 3,480 3,210 6,751 6,099
Other Income
Service Charges on Deposit Accounts 533 498 1,031 1,019
Gain on Securities 0 0 0 0
Gain on Purchased Assets 679 165 741 425
Other Operating Income 282 267 560 484
Total Other Income 1,494 930 2,332 1,928
Income Before Other Expenses 4,974 4,140 9,083 8,027
Other Expenses
Salaries and Employee Benefits 1,405 1,294 2,667 2,517
Net Occupancy Expense 342 309 668 629
Net ORE and Repossession Expense (1) 14 17 (20)
Other Operating Expenses 1,058 975 1,955 1,886
Total Other Expenses 2,804 2,592 5,307 5,012
Income Before Income Taxes 2,170 1,548 3,776 3,015
Applicable Income Taxes 714 490 1,237 992
Net Income $1,456 $1,058 $2,539 $2,023
Net Income Per Share $0.54 $0.39 $0.95 $0.75
Cash Dividends Per Share $0.18 $0.17 $0.36 $0.35
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
One American Corp. and Subsidiaries
for the six months ended June 30, 1999 and 1998
Unaudited Accumulated
Other Total
Common Retained Comprehensive Treasury Stockholders'
In thousands Stock Surplus Earnings Income Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1999 $7,500 $5,000 $26,111 $609 ($1,420) $37,800
Comprehensive Income:
Net Income 2,539 2,539
Other Comprehensive Income,
Net of Tax:
Net Change in Unrealized Gain (Loss)
on Securities Available-for-Sale (909) (909)
Less: Reclassification Adjustments 0 0
Total Comprehensive Income 1,630
Treasury Stock Purchased (36) (36)
Cash Dividends (962) (962)
Balances, June 30, 1999 7,500 5,000 27,688 (300) (1,456) 38,432
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 7,500 5,000 23,943 439 (627) 36,255
Comprehensive Income:
Net Income 2,023 2,023
Other Comprehensive Income,
Net of Tax:
Net Change in Unrealized Gain (Loss)
on Securities Available-for-Sale (30) (30)
Less: Reclassification Adjustments 0 0
Total Comprehensive Income 1,993
Treasury Stock Purchased (167) (167)
Cash Dividends (945) (945)
Balances, June 30, 1998 $7,500 $5,000 $25,021 $409 ($794) $37,136
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
One American Corp. and Subsidiaries
for the six months ended June 30, 1999 and 1998 Unaudited Unaudited
In thousands 1999 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $2,539 $2,023
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Gain on Purchased Assets (741) (425)
Provision for Depreciation 465 399
Provision for Loan Losses 450 750
Net Amortization (Accretion) on Securities (104) (164)
Provision (Credit) for Deferred Income Taxes 358 (201)
(Gain) Loss on Sale of Other Real Estate and Repossessions (3) (23)
Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable 73 30
(Increase) Decrease in Other Assets (89) 139
Increase (Decrease) in Accrued Interest Payable 45 21
Increase (Decrease) in Other Liabilities 319 57
Net Cash Provided by Operating Activities 3,312 2,606
Cash Flows From Investing Activities
Maturities or Calls of Securities Available for Sale 33,936 35,520
Purchases of Securities Available for Sale (43,934) (34,650)
Proceeds from Sale of Securities Available for Sale 0 0
Net (Increase) Decrease in Federal Funds Sold 3,775 9,375
Net (Increase) Decrease in Loans (17,409) (13,883)
Proceeds from Sale of Other Real Estate and Repossessions 57 99
Purchases of Premises and Equipment (916) (570)
Proceeds from Other Borrowings 570 0
Repayments of Amounts Borrowed (77) (70)
Net Cash Used in Investing Activities (23,998) (4,179)
Cash Flows From Financing Activities
Net Increase (Decrease) in Demand Deposits, NOW
and Savings Accounts 3,133 3,329
Net Increase (Decrease) in Certificates of Deposits 9,843 1,937
Dividends Paid (962) (945)
Treasury Stock Purchased (36) (167)
Net Cash Provided By Financing Activities 11,978 4,154
Increase (Decrease) in Cash and Cash Equivalents (8,708) 2,581
Cash and Cash Equivalents - Beginning of Year 22,755 13,115
Cash and Cash Equivalents - End of Year $14,047 $15,696
<FN>
Continued on next page
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
One American Corp. and Subsidiaries
for the six months ended June 30, 1999 and 1998 Unaudited Unaudited
In thousands 1999 1998
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Income Tax Payments $1,029 $1,167
Interest Paid on Deposits $4,294 $4,032
Noncash Investing Activities:
Other Real Estate Acquired in Settlement of Loans $331 $34
Change in Unrealized Gain (Loss) on
Securities Available for Sale ($1,377) ($45)
Change in Deferred Tax Effect on
Unrealized Gain (Loss) on Securities Available for Sale ($468) ($15)
Noncash Financing Activities:
Dividends Declared and Not Paid $481 $472
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 7
Notes to Consolidated Financial Statements
June 30, 1999
(UNAUDITED)
Summary of Significant Accounting Policies
The accounting principles followed by One American Corp.
(the Company), its wholly-owned subsidiary, First American Bank
and Trust (the Bank), and its wholly-owned subsidiary, First
American Agency, L.L.C. (the Agency), are those which are
generally practiced within the banking industry. The methods of
applying those principles conform to generally accepted
accounting principles and have been applied on a consistent
basis. The principles that significantly affect the
determination of financial position, results of operations,
changes in stockholders' equity, and cash flows are summarized
below.
Presentation - The accompanying unaudited consolidated
interim financial statements do not include all of the
information and footnotes required by generally accepting
accounting principles. Management is of the opinion that the
unaudited interim financial statements reflect all normal,
recurring accrual adjustments necessary to provide a fair
statement of the results for the interim periods presented. It
is noted that the results of the six-month period ended June 30,
1999 are no indication of the expected results for the annual
period that ends December 31, 1999. Additional information
concerning the audited financial statements and notes can be
obtained from One American Corp.'s annual report and Form 10-K
filed for the period ended December 31, 1998.
Principles of Consolidation - The consolidated financial
statements include the accounts of One American Corp. (the
Company), its wholly-owned subsidiary, First American Bank and
Trust (the Bank), and its wholly-owned subsidiary, First American
Agency, L.L.C. (the Agency). All significant intercompany
balances and transactions have been eliminated. Certain
reclassifications to previously published financial statements
have been made to comply with current reporting requirements.
Estimates - The preparation of financial statements that
conform to generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the period. Actual results could differ from those
estimates.
The determination of the adequacy of the allowance for loan
losses is based on estimates that are particularly susceptible to
significant changes in the economic environment and market
conditions. In connection with the determination of estimated
losses on loans, management obtains independent appraisals for
significant collateral. The Bank's loans are generally secured
by specific items of collateral including real property, consumer
assets, and business assets. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on local conditions in the
area. While management uses available information to recognize
losses on loans, further reductions in the carrying amounts of
loans 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
estimated losses on loans. Such agencies may require the Bank to
recognize additional losses based on their judgements about
information available to them at the time of their examination.
<PAGE> 8
Because of these factors, it is reasonably possible that the
estimated losses on loans may change materially in the near term.
However, the amount of the change that is reasonably possible
cannot be estimated.
Securities - Management determines the appropriate
classification of debt securities (Held to Maturity, Available
for Sale, or Trading) at the time of purchase and re-evaluates
this classification periodically. Securities that management has
both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in
general economic conditions are classified as securities held to
maturity. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by
various methods approximating the interest method over their
contractual lives.
Securities that may be sold prior to maturity are classified
as securities available for sale. Any decision to sell a
security classified as available for sale would be based on
various factors, including significant movements in interest
rates, changes in the maturity mix of the Bank's assets and
liabilities, liquidity needs, regulatory capital considerations,
and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains or losses are reported
as increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities sold,
are included in earnings. The Bank had no securities classified
as held to maturity or trading at June 30, 1999 or 1998.
Securities purchased for trading purposes are classified as
trading securities and are carried at market value with market
adjustments included in non-interest income.
Loans - Loans are stated at principal amounts outstanding,
less unearned income and allowance for loan losses. Interest on
commercial and individual loans is accrued daily based on the
principal outstanding.
Generally, the Bank discontinues the accrual of interest
income when a loan becomes 90 days past due as to principal or
interest. When a loan is placed on non-accrual status,
previously recognized but uncollected interest is reversed to
income or charged to the allowance for loan losses. Interest
income is subsequently recognized only to the extent cash
payments are received. The Bank classifies loans as impaired if,
based on current information and events, it is possible that the
Bank will be unable to collect the scheduled payments of
principal and interest when due according to the contractual
terms of the loan agreement. The measurement of impaired loans
is based on the present value of the expected future cash flows
discounted at the loan's effective interest rate or the loan's
observable market price or based on the fair value of the
collateral if the loan is collateral-dependent.
Allowance for Loan Losses - The allowance for loan losses is
maintained at a level which, in management's judgement, is
adequate to absorb credit losses inherent in the loan portfolio.
The allowance for loan losses is based upon management's review
and evaluation of the loan portfolio. Factors considered in the
establishment of the allowance for loan losses include
management's evaluation of specific loans; the level and
composition of classified loans; historical loss experience;
results of examination by regulatory agencies; an internal asset
review process; expectations of future economic conditions and
their impact on particular borrowers; and other judgmental
factors. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash
flows. Although management uses available information to
recognize losses on loans, because of uncertainties associated
<PAGE> 9
with local economic conditions, collateral values, and future
cash flows on impaired loans, it is reasonably possible that a
material change could occur in the allowance for loan losses in
the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
The allowance for loan losses is based on estimates of
potential future losses, and ultimate losses may vary from the
current estimates. These estimates are reviewed periodically and
as adjustments become necessary, the effect of the change in
estimate is charged to operating expenses in the period incurred.
All losses are charged to the allowance for loan losses when the
loss actually occurs or when management believes that the
collectability of the principal is unlikely. Recoveries are
credited to the allowance at the time of recovery.
Bank Premises and Equipment - Bank premises and equipment
are stated at cost less accumulated depreciation. Depreciation
is provided at rates based upon estimated useful service lives
(ten to thirty years for buildings, three to ten years for
equipment) using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes.
The cost of assets retired or otherwise disposed of and the
related accumulated depreciation are eliminated from the accounts
in the year of disposal and the resulting gains or losses are
included in current operations.
Expenditures for maintenance and repairs are charged to
operations as incurred. Costs of major additions and
improvements are capitalized.
Other Real Estate - Other real estate is comprised of
properties acquired through foreclosure or negotiated settlement.
The carrying value of these properties is lower of cost or fair
value less estimated selling expenses. Loan losses arising from
the acquisition of these properties are charged against the
allowance for loan losses. Any subsequent market reductions
required are charged to other real estate expense. Revenues and
expenses associated with maintaining or disposing of foreclosed
properties are recorded during the period in which they are
incurred.
Income Taxes - The provision for income taxes is based on
income as reported in the financial statements after interest
income from state and municipal securities is excluded. 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 timing differences.
Deferred taxes are provided utilizing a liability method
whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit
carryforwards 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 subsidiaries file a consolidated federal
income tax return. In addition, state income tax returns are
filed individually by the Companies in accordance with state
statutes.
Earnings per Common Share - In February 1997, Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS
NO. 128") was issued which establishes standards for computing
and presenting earnings per share (EPS). Under SFAS No. 128,
<PAGE> 10
primary EPS is replaced with basic EPS. Basic EPS is computed by
dividing income applicable to common shares by the weighted
average shares outstanding; no dilution for any potentially
convertible shares is included in the calculation. Fully diluted
EPS, now called diluted EPS, reflects the potential dilution that
could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings
of the company. At June 30, 1999, the company had no convertible
shares or other contracts to issue common stock. The weighted
average number of shares of common stock used to calculate basic
EPS was 2,669,785 and 2,669,960 for the three months ended June
30, 1999 and 1998, respectively, and 2,670,103 and 2,701,077 for
the six month periods ended June 30, 1999 and 1998, respectively.
On April 22, 1998, the organization reduced the par value of
its common shares from $5.00 to $2.50 per share to effect a 2 -
for - 1 stock split issued May 8, 1998. The earnings per common
share for the three and six month periods ending June 30, 1998
have been retroactively restated for this stock split.
Statements of Cash Flows - For purposes of reporting cash
flows, cash and cash equivalents includes cash on hand and
amounts due from banks (including cash items in process of
clearing).
Comprehensive Income - The Financial Accounting Standards
Board issued Statement No. 130 "Reporting Comprehensive Income",
which became effective for fiscal years beginning after December
31, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components which are
revenues, expenses, gains, and losses that under GAAP are
included in comprehensive income but excluded from net income.
The Company adopted this statement in 1998. The components of
comprehensive income are disclosed in the Statements of Changes
in Stockholders Equity for all periods presented.
<PAGE> 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations
June 30, 1999
The purpose of this discussion and analysis is to focus on
significant changes in the financial condition of the Company and
its results of operations during the three-month and six-month
periods ending June 30, 1999 and 1998. This discussion and
analysis is intended to highlight and supplement information
contained elsewhere in this Quarterly Report on Form 10-Q,
particularly the preceding Consolidated Financial Statements and
Notes to Consolidated Financial Statements. This should be read
in conjunction with the Consolidated Financial Statements, Notes
to Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations in
the 1998 Annual Report on Form 10-K.
This quarterly report on Form 10-Q includes statements that
may constitute forward-looking statements, usually containing the
words "believe", "estimate", "expect", "intend", or similar
expressions. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from
current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and
more specifically in the markets in which the Company operates),
changes in interest rates, deposit flows, and loan demand,
changes in real estate values, changes in competition; changes in
accounting principles, policies, or guidelines, and changes in
government legislation and regulation (which change from time to
time and over which the Company has no control), and other risks
detailed in this quarterly report on Form 10-Q and the Company's
other Securities and Exchange Commission filings. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
Second Quarter in Review
For the second quarter of 1999, net income was $1.5 million
compared to $1.1 million for the same quarter of 1998. An
increase in gain on purchased assets primarily accounted for the
increase in net income. Earnings per common share were $0.54 and
$0.39 for the second quarters of 1999 and 1998, respectively.
Return on average assets on an annualized basis was 1.71% for the
current quarter, and 1.37% for the same quarter of 1998. For the
second quarters of 1999 and 1998, return on average equity on an
annualized basis was 15.22% and 11.59%, respectively. Cash
dividends were $.18 per share for the current quarter and $.17
per share for the same quarter of 1998.
For the first six months of 1999, net income was $2.5
million compared to $2.0 million for the same period of 1998.
The reasons for the increase in net income for the first six
months of 1999 compared to 1998 are an increase in net interest
income, a decrease in provision for loan losses, and an increase
in gain on purchased assets. Earnings per common share were $.95
and $.75 for the first six months of 1999 and 1998, respectively.
Return on average assets on an annualized basis was 1.52% and
<PAGE> 12
1.32% for the first six months of 1999 and 1998, respectively.
For the first six months of 1999 and 1998, return on average
equity on an annualized basis was 13.50% and 11.22%,
respectively. Cash dividends were $.36 per share and $.35 per
share for the first six months of 1999 and 1998, respectively.
Net interest income (FTE) for the current quarter was $3.8
million, $184 thousand greater than that of the second quarter of
1998. The net interest margin (FTE) was 4.80% for the current
quarter and 5.04% for the same quarter of 1998. For the first
six months of 1999, net interest income (FTE) was $7.3 million
compared to $7.0 million for the same period of 1998. The
resulting net interest margin (FTE) for the first six months of
1999 was 4.78% compared to 4.99% for the same period of 1998.
During the second quarter of 1999, in comparison with the
same quarter of 1998, average loans outstanding increased $36.4
million or 23.4% to $192.2 million. Average total deposits for
the current quarter increased $29.2 million or 10.8% to $299.9
million when compared to the average total deposits for the same
quarter of 1998. Average total assets for the current quarter
increased $31.3 million or 10.1% to $341.0 million when compared
to the total average assets of the second quarter of 1998. For
the first six months of 1999, in comparison with the same period
of 1998, average loans outstanding increased $35.3 million or
23.2% to $187.7 million. Average total deposits for the current
six-month period increased $26.3 million or 9.8% to $295.0
million when compared to the average total deposits for the same
period of 1998. Average total assets for the current six-month
period increased $28.0 million or 9.1% to $335.2 million when
respectively compared to the total average assets of the same
period of 1998.
Earnings Analysis
Net Interest Income - The primary source of earnings for the
Bank is net interest income; the difference between interest and
fees generated from interest earning assets less interest expense
for interest bearing liabilities. For analytical purposes, net
interest income is presented on a tax equivalent basis, using a
34% tax rate. Certain earning assets are exempt from income
taxes, therefore a tax equivalent adjustment is included so that
tax exempt earning assets are tax equivalent and comparable with
other taxable earning assets. The primary factors that affect
net interest income are changes in volume and mix of earning
assets and interest-bearing liabilities, along with changes in
market rates.
Net interest income on a fully tax equivalent basis (FTE)
for the current quarter of 1999 was $3.8 million, 5.1% greater
than the same quarter of 1998. The improvement in net interest
income can be primarily attributed to the change in volume of
loans that provided an increase of $579 thousand in interest
income when comparing the second quarter of 1999 to the
second quarter of 1998. Net interest income (FTE) for the first
six months of 1999 was $7.3 million, an increase of $334 thousand
or 4.8% over the same period of 1998. The improvement in net
interest income for the first six months of 1999 over the same
period of 1998 can also be attributed to an increase in the
volume of loans.
Earning Assets, Interest Bearing Liabilities, and Net
Interest Spread - During the current quarter of 1999, average
earning assets were $314.7 million, an increase of $29.3 million
<PAGE> 13
or 10.3% over the second quarter of 1998. The trend in earning
assets over the quarters compared continues to show a shift in
the mix of earning assets toward the loan portfolio from the
securities portfolio as shown in the table Earning Asset
Structure. Management's continued strategy is to increase the
Bank's earning asset mix to include a greater percentage of
higher yielding loans over lower yielding securities. The Bank's
primary market area continues to produce levels of loan demand
that has enhanced the Bank's earning asset structure. Management
continues to believe that greater levels of loan demand will
exist in the near future due to opportunities that were non-
existent in the Bank's primary market area. However, there is no
guarantee that the Bank will continue to experience the loan
growth enjoyed over the last twelve months. The current loan
demand, in the Bank's primary market area, appears to be the
result of a strong economic climate.
The trend over the quarters compared shows an increase in
interest bearing liabilities with the largest growth in
certificates of deposit and money market accounts. The Bank also
benefited from an increase in volume of non-interest bearing
deposits, even though its relationship as a percentage of total
deposits remained relatively stable. The growth is attributed to a
concertive effort by the Bank to attract a broader core deposit
base consisting of commercial and personal customers.
For the current quarter of 1999, the average yield on
earning assets was 7.62%, while the average cost of interest
bearing liabilities was 3.66%, producing a net interest spread
(FTE) of 3.96%. The net interest margin (FTE) was 4.80% for the
current quarter of 1999. In comparison, the net interest margin
(FTE) for the same quarter of 1998 was 5.04%. The cost of
interest bearing liabilities during the second quarter of 1998
was 3.78%, while the yield on average earning assets was 7.91%,
producing a net interest spread of 4.13%. For the six-month
period ending June 30, 1999, the average yield on earning assets
was 7.61%, while the average cost of interest bearing liabilities
was 3.67%, producing a net interest spread (FTE) of 3.94%. The
net interest margin (FTE) was 4.78% for the six-month period
ending June 30, 1999. In comparison, the net interest margin
(FTE) for the same six-month period of 1998 was 4.99%. The cost
of interest bearing liabilities during the first six-months of
1998 was 3.79%, while the yield on average earning assets was
7.88%, producing a net interest spread of 4.09%.
The table of Average Balance Sheets and Interest Rate
Analysis for the quarterly periods ended June 30, 1999, December
31, 1998, and June 30, 1998, and the corresponding table of
Interest Differentials details the effects changes in average
balance outstanding of assets and liabilities and changes in
interest yield and interest costs have had on net interest income
for the respective periods. Also, the tables of Earning Asset
Structure and Deposit Structure show a more condensed,
descriptive analysis of the common size percentage changes in
earning assets and deposit mix over the quarterly periods
analyzed.
<PAGE> 14
<TABLE>
<CAPTION>
Average Earning Asset Structure Second First Second
In thousands Quarter 1999 Quarter 1999 Quarter 1998
% of % of % of
Average Earning Average Earning Average Earning
Balances Assets Balances Assets Balances Assets
<S> <C> <C> <C> <C> <C> <C>
Interest Bearing Deposits $6,604 2.1% $9,922 3.3% $2,844 1.0%
Federal Funds Sold 9,904 3.1% 12,859 4.2% 9,925 3.4%
Securities
Taxable 97,128 30.9% 88,046 29.0% 106,643 37.4%
Non-Taxable 8,885 2.8% 9,731 3.2% 10,147 3.6%
Loans - Net 192,186 61.1% 183,078 60.3% 155,801 54.6%
Total Average Earning Assets $314,707 100.0% $303,636 100.0% $285,360 100.0%
<CAPTION>
Average Deposit Structure Second First Second
In thousands Quarter 1999 Quarter 1999 Quarter 1998
Average % of Average % of Average % of
Balances Deposits Balances Deposits Balances Deposits
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing Deposits $58,803 19.6% $57,450 19.8% $55,090 20.3%
NOW Accounts 25,036 8.3% 26,566 9.1% 23,587 8.7%
Savings Accounts 32,551 10.9% 31,979 11.0% 31,650 11.7%
Money Market Deposit Accounts 63,839 21.3% 61,648 21.2% 54,780 20.2%
Certificates of Deposits less than $100,000 106,765 35.6% 100,975 34.8% 94,303 34.9%
Total Average Core Deposits 286,994 95.7% 278,618 95.9% 259,410 95.8%
Certificates of Deposits greater than $100,000 12,915 4.3% 11,854 4.1% 11,345 4.2%
Total Average Deposits $299,909 100.0% $290,472 100.0% $270,755 100.0%
Average Interest Bearing Deposits
as a percentage of Earning Assets 76.6% 76.7% 75.6%
Average Core Deposits
as a percentage of Total Average Assets 84.2% 84.4% 83.8%
</TABLE>
<PAGE> 15
Provision for Loan Losses
Provision for Loan Losses was $225 thousand and $300
thousand for the second quarters of 1999 and 1998, respectively.
For the six-month periods ended June 30, 1999 and 1998, Provision
for Loan Losses was $450 thousand and $750 thousand,
respectively. See the discussion of "Allowance for Loan Losses".
Other Income
Other income for the current quarter was $1.5 million, an
increase of $564 thousand or 60.6% compared to $930 thousand for
the same quarter of 1998. The primary cause of this increase was
gain on purchased assets, which increased $514 thousand in the
second quarter of 1999 when compared to the same period of 1998.
For the first six months of 1999 other income was $2.3 million,
an increase of $404 thousand or 21.0% from the first six months
of 1998. Again, the main cause for this increase was gain on
purchased assets, which grew $316 thousand when compared to the
first six months of 1998.
Gain on purchased assets was $679 thousand for the current
quarter and $165 thousand for the same period of 1998. For the
first six months of 1999 gain on purchased assets was $741
thousand, an increase of $316 thousand or 74.4% when compared to
$425 thousand for the same period of 1998. These gains are
recognition of the collection of principal on certain loans
acquired as a result of past bank acquisitions. The Bank
continues to pursue the collection of these loans. However, the
amount of future gains, if any, are indeterminable.
The Bank did not experience any gains from security
transactions involving Available for Sale securities during both
the current quarter and the current six month period and the same
respective periods in 1998.
Other Expenses
Other expenses were $2.8 million for the first quarter of
1999, an increase of $212 thousand or 8.2% over the same quarter
of 1998. Salaries and employee benefits were $1.4 million for
the current quarter compared to $1.3 million for the same of
quarter of 1998. Net occupancy expense was $342 thousand for the
current quarter, compared to $309 thousand for the second quarter
of 1998. Other operating expenses were $1.1 million for the
current quarter, an increase of $83 thousand or 8.5% compared to
the same quarter of 1998.
For the first six months of 1999, other expenses were $5.3
million, an increase of $295 thousand or 5.9% from the same
period of 1998. Salaries and employee benefits were $2.7 million
for the six-month period compared to $2.5 million for the same
period of 1998. Net occupancy expense was $668 thousand for the
first six months of 1999, compared to $629 thousand for the same
period of 1998. Other operating expenses were $2.0 million for
the first six months of 1999, an increase of $69 thousand
compared to the same period of 1998.
<PAGE> 16
Applicable Income Taxes
Applicable income taxes for the current quarter were $714
thousand compared to $490 thousand for the second quarter of
1998. Effective tax rates were 32.9% for the second quarter of
1999 and 31.7% for the quarter ended June 30, 1998. Effective
tax rates were 32.8% and 33.0% for the first six months of 1999
and 1998. The Company's effective income tax expense as a
percentage of pretax income is different from statutory rates due
to tax-exempt interest income earned from investments in state
and municipal bonds. Interest income from state and municipal
bonds is generally exempt from federal income taxes.
Liquidity
Liquidity management is the process of ensuring that the
Company's asset and liability structure is the proper mix to meet
the withdrawals of its depositors, fund loan commitments, and
other funding requirements. Management's primary source of funds
is the Bank's core deposit base. During the quarter, average
core deposits were approximately $287.0 million or 95.7% of total
average deposits and 84.2% of total average assets. For a
comparison with prior period quarters see the table entitled
Deposit Structure. Other sources of liquidity are maturities in
the investment portfolio, loan maturities and repayments, and
sources of short-term borrowings. Management continually
evaluates the maturities and mix of its earning assets and
interest bearing liabilities to monitor its ability to meet
current and future obligations and to achieve maximum net
interest income. Due to the stability of the core deposit base
as noted above, the maturities of the investment portfolio, cash
flows from the loan portfolio, and the ability of short-term
borrowings, management does not anticipate any difficulties in
meeting the needs of its depositors or in funding future loan
commitments.
Interest Rate Sensitivity
Interest rate risk is the measurement of risk exposure or
changes in net interest income and subsequently net income given
changes in the external interest rate markets. This possible
risk exposure is produced by the different repricing intervals of
interest earning assets and interest bearing liabilities, changes
in the mix of such assets and liabilities, and the growth of such
assets and liabilities. One measurement of interest rate risk is
gap analysis. The gap matches the repricing of interest rate
sensitive assets and liabilities for selective intervals. Gap
analysis is a static measurement based on an individual point in
time. This interest rate risk measurement process may not
indicate actual rate exposure given contractual maturity and
repricing period inconsistencies.
Management also measures interest rate risk exposure by the
process of dynamic income simulation. This process measures
possible levels of exposure more accurately given the ability to
better identify contractual maturities and repricing periods.
Key assumptions used in the simulation model include the relative
timing of prepayments on mortgage-related assets and the cash
flows and maturities of other financial instruments. These
assumptions are intrinsically uncertain and, as a result, the
model cannot specifically estimate net interest income or
precisely predict the impact of a change in interest rates on net
income or stockholders' equity. Actual results will differ from
the simulated results due to the timing, magnitude, and frequency
of interest rate changes and changes in market conditions and
management strategies, among other factors.
<PAGE> 17
The Bank's objective is to limit the impact on net interest
income from a gradual change in interest rates of 200 basis
points over twelve months to 10% of projected net interest
income. Based on the results of a dynamic income simulation, at
June 30, 1999, the Bank would expect a decrease in net interest
income of $68 thousand in the event of a gradual 200 basis point
increase in interest rates, and a decrease of $8 thousand in the
event of a gradual 200 basis point decrease in interest rates.
Both of these changes are well within the Bank's interest rate
risk policy limits.
For gap analysis, prepayment assumptions are applied to
loans reflective of historical experience and employing a "flat-
rate" interest rate change scenario. Decay rate methodology is
applied to non-fixed rate deposit accounts to arrive at the
principal and interest cash flows used in the market value
calculations given FDIC regulatory guidelines as set forth in
FDICIA 305. First, rate sensitive and non-rate sensitive
balances are separated. Higher decay rates force rate sensitive
cash flows to occur within one year. Decay rates are then input
for the non-rate sensitive funds. These decay rates spread the
non-rate sensitive deposit balances out as far as the FDIC
regulatory guidelines allow in FDICIA 305. Decay rate
assumptions implemented are based on a flat rate environment and
at management's discretion.
The Bank has established decay rate assumptions based on
historical data collection on MMDA, Savings Accounts, Now
Accounts, and Non-Interest Bearing Accounts. The assumptions are
based on account type sensitivity patterns given the change in
the Bank's benchmark for pricing and the change in the
relationship each account type has to total deposits. Decay
rates are updated at each modeling session if warranted by rate
changes in the market or changes in non rate sensitivity patterns
given the account type. The identification of the non rate
sensitive portion of such accounts provides a more complete
picture of the actual core deposit base which may not reprice in
the same manner as the rate sensitive portion.
The Interest Rate Sensitivity Table, on page 19 presents the
Bank's interest rate sensitivity position at June 30, 1999, using
gap analysis, based on the expected maturity intervals of
interest rate sensitive assets and liabilities. The table
indicates that the Company's interest earning assets exceed its
interest bearing liabilities at the one year point in time
suggesting the Bank is positively rate sensitive. This table
does not necessarily reflect the impact of interest rate
movements on the Bank's net income because the effective
maturities or repricing of certain assets and liabilities is
subject to competition and other limitations. As a result,
certain assets and liabilities indicated as maturing or repricing
within a stated period may in fact mature or reprice at different
times and at different volumes.
The Bank is a member of the Federal Home Loan Bank of Dallas
(FHLB). The FHLB provides the Bank the ability to further match
the rates and maturities of its funding with those of earning
assets. Also, the FHLB provides the Bank the ability to offer
long term, fixed rate loans to its customer base with minimal
additional interest rate risk exposure.
<PAGE> 18
<TABLE>
<CAPTION>
Interest Rate Sensitivity Table
June 30, 1999
In thousands
Expected Maturity, Years Ended:
Non- Fair
06/30/00 06/30/01 06/30/02 06/30/03 06/30/04ThereafterSensitiveTotal Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits in
Assets
Investments -
Fixed-Rate Securities $49,706 $32,028 $7,676 $5,647 $2,207 $5,087 $0 $102,351 $102,351
Average Interest Rates 5.65% 5.45% 5.93% 6.24% 6.02% 5.35% 0.00% 5.63%
Variable-Rate Securities 3,774 513 423 228 155 790 0 5,883 5,883
Average Interest Rates 5.45% 6.57% 6.57% 6.61% 6.64% 6.64% 0.00% 5.86%
Total Investments 53,480 32,541 8,099 5,875 2,362 5,877 0 108,234 108,234
Average Interest Rates 5.64% 5.46% 5.96% 6.26% 6.06% 5.52% 0.00% 5.65%
Loans -
Fixed-Rate Loans, Net 68,595 25,004 24,218 13,214 15,816 27,135 1,848 175,830 181,669
Average Interest Rates 8.56% 8.61% 8.57% 8.46% 8.37% 7.77% 0.00% 8.33%
Variable-Rate Loans, Net 9,414 3,172 2,667 1,507 1,122 2,119 0 20,001 20,008
Average Interest Rates 7.74% 7.74% 7.88% 7.99% 8.06% 8.14% 0.00% 7.84%
Total Loans 78,009 28,176 26,885 14,721 16,938 29,254 1,848 195,831 201,677
Average Interest Rates 8.46% 8.51% 8.50% 8.41% 8.35% 7.79% 0.00% 8.28%
Interest-Bearing Deposits in
Other Banks 996 0 0 0 0 0 0 996 996
Average Interest Rates 5.78% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0
Federal Funds Sold 7,750 0 0 0 0 0 0 7,750 7,750
Average Interest Rates 5.44% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.44%
Other Assets 31,028 31,028
Total Assets $140,235 $60,717 $34,984 $20,596 $19,300 $35,131 $32,876 $343,839
Liabilities
NOW and Super NOW Deposits $1,852 $6,634 $6,634 $2,512 $2,512 $5,025 $0 $25,169 $23,184
Average Interest Rates 2.24% 2.24% 2.24% 2.24% 2.24% 2.24% 0.00% 2.24%
Insured Money Market Accounts 31,047 16,746 16,746 0 0 0 0 64,539 65,502
Average Interest Rates 3.32% 3.32% 3.32% 0.00% 0.00% 0.00% 0.00% 3.32%
Savings Deposits 3,650 7,982 7,982 3,265 3,265 6,530 0 32,674 30,887
Average Interest Rates 2.54% 2.54% 2.54% 2.54% 2.54% 2.54% 0.00% 2.54%
Variable-Rate Certificates of Deposit 1,081 2,361 2,361 966 966 1,932 0 9,667 9,453
Average Interest Rates 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 0.00% 4.46%
Certificates of Deposits 73,013 34,790 1,533 1,475 1,164 0 0 111,975 111,531
Average Interest Rates 4.35% 4.95% 5.38% 5.70% 5.68% 0.00% 0.00% 4.58%
Noninterest Bearing Deposits 21,521 13,503 8,477 5,327 3,353 5,961 0 58,142 58,142
Other Interest-Bearing Liabilities 199 212 225 239 254 390 0 1,519 1,527
Average Interest Rates 0 0 0 0 0 0 0 0
Other Liabilities 0 0 0 0 0 0 1,722 1,722
Stockholders' Equity 0 0 0 0 0 0 38,432 38,432
Total Liabilities and
Stockholders' Equity $132,363 $82,228 $43,958 $13,784 $11,514 $19,838 $40,154 $343,839
Interest Rate Sensitivity Gap $7,872 ($21,511) ($8,974) $6,812 $7,786 $15,293 ($7,278) $0
Cumulative Interest Rate
Sensitivity Gap $7,872 ($13,639)($22,613)($15,801) ($8,015) $7,278 $0
GAP / Assets 2.29% -6.26% -2.61% 1.98% 2.26% 4.45% -2.12%
Cumulative GAP / Assets 2.29% -3.97% -6.58% -4.60% -2.33% 2.12% 0.00%
</TABLE>
<PAGE> 19
Financial Instruments
In the normal course of business the Company enters into
agreements which, for accounting purposes, are considered off -
balance sheet activities. These agreements are loans and lines
of credit commitments to customers to extend credit at specified
rates, duration, and purpose. The commitments adhere to normal
lending policy, collateral requirements, and credit reviews.
Available loan commitments at June 30, 1999 and 1998, were $20.3
million and $6.5 million, respectively. The Bank had letters of
credit of $625 thousand issued at June 30, 1999 compared to $553
thousand at June 30, 1998. Additionally, the Bank has deposit
customers who have credit lines available to them through their
deposit accounts. At June 30, 1999 the available portion of
these credit lines was $390 thousand compared to $349 thousand at
June 30, 1998. These credit lines are immediately cancelable by
the Bank. The credit lines provide a source of income to the
Bank through service fees charged and interest earned on balances
outstanding. The credit lines are reviewed regularly and do not
pose a material credit risk to the Bank. To date the Bank does
not have instruments outstanding that can be specifically
described as a financial guarantee which guarantees the
performance of a customer to a third party other than the
financial standby letters of credit described above. The Bank
issues credit cards. The aggregate credit available was $5.1
million at June 30, 1999 and $3.4 million at June 30, 1998.
Applicants are reviewed through normal lending policies and
credit reviews.
The Bank is not a party to financial instruments defined as
interest rate exchange agreements, financial futures, or
financial options. Therefore, the Bank is not exposed to
interest rate risk in excess of the amount recognized in the
consolidated balance sheets as that risk may apply to interest
rate exchange agreements, financial futures, or financial
options.
Allowance for Loan Losses
The Allowance for Loan Losses was $3.5 million at June 30,
1999, or 1.8%, of loans outstanding. At June 30, 1998 the
Allowance for Loan Losses was $3.0 million, or 1.8%, of loans
outstanding. Net charge-offs (recoveries) were $14 thousand for
the current quarter, versus $(89) thousand for the same quarter
of 1998. Gross charge-offs as a percentage of average loans were
.02% and .03% in the second quarters of 1999 and 1998,
respectively. Recoveries as a percentage of gross charge-offs
for the current quarter were 58% versus 323% for the same quarter
of 1998. Net charge-offs (recoveries) for the first half of 1999
were $443 thousand, versus $70 thousand for the same period in
1998. For the first six months of 1999, gross charge-offs as a
percentage of average loans was .24%. For the comparable period
of 1998, gross charge-offs as a percentage of average loans was
.07%. For the first six months of 1999, recoveries as a
percentage of gross charge-offs were 7.1%, compared to 169.3% for
the same period in 1998.
The Allowance for Loan Losses account represents amounts
available for possible future losses based on modeling and
management's evaluation of the loan portfolio. To ascertain the
potential losses in the portfolio, management reviews past due
loans on a monthly basis. Additionally, the loan review
department performs an ongoing review of the loan portfolio.
Loans are reviewed for compliance to the Bank's lending policy
and the borrower's current financial condition and ability to
meet scheduled repayment terms.
<PAGE> 20
The Bank maintains the balance in the Allowance for Loan
Losses in order to accept any adverse loan relationships that
have the potential to occur in the future. Impaired loans are
individually evaluated and specific portions of the allowance are
allocated to each loan, based on collateral values and the
present value of estimated cash flows. The remainder of the
allowance is unallocated and is tested for adequacy by comparing
its level to the sum of: a percentage of the balances of loans
graded substandard plus the sum of the non-impaired, non-
substandard remainder of the loan portfolio multiplied by a model-
generated "potential default" factor. The model analyzes various
classes of loans by industry to determine the inherent default
risk in each class. These risks are then quantified into
potential default factors, which are applied to each class of
loans in the Bank's portfolio. As the process applies the
"potential default' factor to the non classified portion of the
loan portfolio, additional reserves necessary because of loan
growth are accounted for.
Also in determining the level of Allowance for Loan Losses,
management considers the uncertainty in estimating loan losses,
including the possibility of improper risk ratings and specific
reserve allocations, as well as the uncertainty in predicting the
future performance of the economy in the Bank's market area. As
the Bank's ratio of loans - to - deposits continues to increase,
so does the potential for problem loans to occur at a rate
uncommon to the Bank's historical loan loss basis given smaller
loan - to - deposit ratios of the past.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, impaired
loans, repossessions and other real estate. Generally, loans are
considered nonaccrual when the interest becomes 90 days past due
or when there is uncertainty about the repayment of principal and
interest in accordance with the terms of the loans. Loans past
due 90 days and still accruing at June 30, 1999 and 1998 were
$248 thousand and $262 thousand, respectively. Impaired loans
having recorded investments of $4.0 million at June 30, 1999
compared to $4.1 million at June 30, 1998 have been recognized in
conformity with SFAS No. 114 as amended by SFAS No. 118. The
total Allowance for Loan Losses related to these loans was $946
thousand at June 30, 1999 compared to $1.1 million at June 30,
1998. Interest received on impaired loans amounted to $151
thousand at June 30, 1999 compared to $217 thousand at June 30,
1998. Non-accrual loans not included in impaired loans were
immaterial at June 30, 1999 and 1998.
Other real estate is properties held for sale acquired
through foreclosure or negotiated settlement of debt. Other real
estate was $350 thousand at June 30, 1999 and $36 thousand at the
close of the second quarter of 1998. Repossessions are movable
assets acquired through foreclosure or negotiated settlement of
debt. Repossessions at June 30, 1999 were insignificant.
In the process of reviewing the loan portfolio, management
acknowledges certain potential problem loans that are not
classified as impaired, non-accrual, greater than 90 days
delinquent, or restructured. Management does not feel that any
of these potential problem loans are reasonably likely to have or
will have a material effect on the Company's liquidity, capital
resources, or results of operations.
<PAGE> 21
Regulatory Matters
The Bank is subject to various capital requirements
administered by the Federal Banking Agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly discretionary actions by regulators that, if undertaken,
could have a material effect on the Bank's financial statements.
Various regulations require the Bank to meet specific capital
adequacy 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 classification is also subject to qualitative
judgments by the regulators about components, risk weightings,
and other factors. Quantitative measures established by
regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios as set forth in the section
entitled Capital Adequacy below.
Management is unaware, regulatory or otherwise, of any known
trends, events or uncertainties which are reasonably likely to
have or will have a material effect on the Company's liquidity,
capital resources, or results of operations.
Capital Adequacy
The strength of a company is in its capital, earnings
history, asset quality, and management. Capital can be increased
through the retention of earnings and the issuance of equity
stock. Management feels the current trend of earnings and
dividend distribution is sufficient to maintain its capital
adequacy requirements.
The Bank is required to maintain minimum amounts of capital
to total risk-weighted assets, as defined by the regulators. The
guidelines require total capital of 8.00%, half of which must be
Tier 1 capital. The computation of risk-weighted ratios follow
the transitional rule, which currently does not include the
unrealized gain (loss) on securities available for sale in Tier 1
capital.
The leverage ratio consists of Tier 1 capital as a
percentage of average total assets. The minimum leverage ratio
for all banks and bank holding companies is 3.00%. This minimum
ratio is dependent upon the strength of the individual bank or
holding company and may be increased by regulatory authorities on
an individual basis. The 3.00% minimum was established to make
certain that all banks have a minimum capital level to support
their assets, regardless of risk profile. As shown in the table
Capital Adequacy Ratios below, the Company's ratios for the
reporting periods exceed regulatory minimums.
<PAGE> 22
<TABLE>
<CAPTION>
Capital Adequacy Ratios
In Thousands June 30, December 31, June 30,
1999 1998 1998
<S> <C> <C> <C>
Tier 1 Capital:
Stockholders' Equity $37,972 $36,397 $35,900
Tier 2 Capital:
Allowance for Loan Losses 2,371 2,145 1,922
Total Capital $40,343 $38,542 $37,822
Risk-Weighted Ratios:
Tier 1 Capital 20.1% 21.4% 23.5%
Total Capital 21.4% 22.6% 24.8%
Leverage Ratio 11.1% 11.3% 11.6%
Stockholders' Equity 11.0% 11.1% 11.6%
<CAPTION>
Regulatory Risk-Based Capitalization Requirements
SignificantlyCritically
Well Adequately Under Under Under Under
CapitalizedCapitalizedCapitalized Capitalized Capitalized Capitalized
Risk-Weighted Ratios:
Tier 1 Capital 6.0% 4.0% < 4.0% < 4.0% < 3.0%
Total Capital 10.0% 8.0% < 8.0% < 8.0% < 6.0%
Leverage Ratio 5.0% 4.0% < 4.0% < 4.0% < 3.0% <= 2.0% tangible
equity
</TABLE>
The Company's dividend policy is determined by its Board of
Directors. The current policy is to maintain dividends at a
level which ensures that the Company is able to maintain
sufficient regulatory capital levels. The Company's primary
source of funds is the dividends received from the Bank. Under
current dividend limitations, the Bank could pay, without
regulatory approval, dividends of approximately $3.7 million.
The Company carries no debt, therefore future liquidity needs are
limited to the payment of any declared dividends. Should a
regulatory agency limit the Bank from paying dividends, the
Company maintains sufficient liquidity to maintain its
operations.
The Year 2000
The Bank has formed a Year 2000 committee. The purpose of
the committee is to identify potential costs and uncertainties
relating to the Year 2000. The committee has adopted a policy
which addresses the issues approaching the Year 2000 in five
phases. The phases include awareness, assessment, renovation,
validation, and implementation. The Bank is currently in the
implementation phase. The testing of "mission-critical" systems
is complete and the implementation of "mission-critical" systems
is substantially complete. Also substantially complete are the
Bank's business-resumption contingency plans and the validation
method that tests the plans for effectiveness and viability.
Management does not believe that issues related to the Year 2000
will have a material effect on the Company's liquidity, capital
resources, or results of operation. The amount of expenses
related to the Year 2000 issue during the first six months of
1999 were not material.
The discussion entitled "Year 2000" includes certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Relief Act of 1995 (PSLRA). This statement
is included for the purpose of availing the Company of the
protections of the safe harbor provisions of the PSLRA.
<PAGE> 23
Management's ability to predict the results or the effects of
Year 2000 issues is inherently uncertain and subject to factors
that may cause actual results to materially differ from those
anticipated. Factors that could affect actual results include:
the possibility that contingency plans and remediation efforts
will not operate as intended, the Bank's failure to timely or
completely identify all software and hardware applications that
require remediation, unexpected costs, and the general
uncertainty associated with the impact of Year 2000 issues on the
banking industry, the Bank's customers, vendors, and others with
whom it conducts business. Readers are cautioned not to place
undue reliance on these forward-looking statements.
<PAGE> 24
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
In thousands
Second Quarter 1999 First Quarter 1999 Second Quarter 1998
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest Bearing Deposit Accounts $6,604 $114.5 6.95% $9,922 $122.2 5.00% $2,844 $55.1 7.77%
Federal Funds Sold and Securities
Purchased under Resale Agreements 9,904 125.3 5.07% 12,859 143.7 4.53% 9,925 140.3 5.67%
Securities:
Taxable 97,128 1,312.6 5.42% 88,046 1,242.1 5.72% 106,643 1,550.6 5.83%
Non-Taxable* 8,885 185.0 8.35% 9,731 208.9 8.71% 10,147 217.6 8.60%
Loans - Net 192,186 4,244.1 8.86% 183,078 3,975.1 8.81% 155,801 3,664.9 9.44%
Total Earning Assets 314,707 5,981.5 7.62% 303,636 5,692.0 7.61% 285,360 5,628.5 7.91%
Allowance for Loan Losses (3,397) (3,595) (2,742)
Nonearning Assets 29,725 30,205 27,107
Total Assets $341,035 $330,246 $309,725
Liabilities and Stockholders' Equity
NOW Accounts $25,036 129.2 2.07% $26,566 136.9 2.09% $23,587 119.4 2.03%
Savings Accounts 32,551 205.3 2.53% 31,979 198.1 2.51% 31,650 200.3 2.54%
Money Market Deposit Accounts 63,839 508.0 3.19% 61,648 476.5 3.13% 54,780 421.9 3.09%
Certificates of Deposits less than $100,000 106,765 1,212.6 4.56% 100,975 1,129.1 4.53% 94,303 1,148.8 4.89%
Certificates of Deposits greater than $100,000 12,915 139.2 4.32% 11,854 168.2 5.75% 11,345 136.4 4.82%
Total Interest Bearing Deposits 241,106 2,194.3 3.65% 233,022 2,108.8 3.67% 215,665 2,026.8 3.77%
Other Borrowings 1,468 19.7 5.38% 1,005 15.7 6.34% 1,111 17.8 6.43%
Total Interest Bearing Liabilities 242,574 2,214.0 3.66% 234,027 2,124.5 3.67% 216,776 2,044.6 3.78%
Noninterest Bearing Deposits 58,803 57,450 55,090
Other Liabilities 1,409 1,290 1,349
Stockholders' Equity 38,249 37,479 36,510
Total Liabilities and Stockholders' Equity $341,035 $330,246 $309,725
Net Interest Income - Tax Equivalent Basis* 3,767.5 3,567.5 3,583.9
Tax Equivalent Adjustment (62.9) (71.0) (74.0)
Net Interest Income $3,704.6 $3,496.5 $3,509.9
Net Interest Income - Spread* 3.96% 3.94% 4.13%
Net Interest Income as a % of Total Earning Assets* 4.80% 4.77% 5.04%
*Tax Equivalent Basis - 34% Rate for the periods dated
<CAPTION>
AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
In thousands
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Bearing Deposit Accounts $8,254 $236.7 5.78% $3,760 $98.6 5.29%
Federal Funds Sold and Securities
Purchased under Resale Agreements 11,373 269.1 4.77% 12,061 325.6 5.44%
Securities:
Taxable 92,613 2,554.6 5.56% 104,237 3,014.9 5.83%
Non-Taxable* 9,305 393.9 8.54% 10,389 445.5 8.65%
Loans - Net 187,657 8,219.2 8.83% 152,313 7,168.9 9.49%
Total Earning Assets 309,202 11,673.5 7.61% 282,760 11,053.5 7.88%
Allowance for Loan Losses (3,495) (2,537)
Nonearning Assets 29,476 26,970
Total Assets $335,183 $307,193
Liabilities and Stockholders' Equity
NOW Accounts $25,797 $266.1 2.08% $24,608 $253.5 2.08%
Savings Accounts 32,267 403.5 2.52% 31,391 394.9 2.54%
Money Market Deposit Accounts 62,655 984.9 3.17% 53,575 812.5 3.06%
Certificates of Deposits less than $100,000 103,886 2,341.5 4.55% 93,140 2,276.5 4.93%
Certificates of Deposits greater than $100,000 12,387 307.4 5.00% 11,999 280.1 4.71%
Total Interest Bearing Deposits 236,992 4,303.4 3.66% 214,713 4,017.5 3.77%
Other Borrowings 1,238 35.5 5.78% 1,129 35.7 6.38%
Total Interest Bearing Liabilities 238,230 4,338.9 3.67% 215,842 4,053.2 3.79%
Noninterest Bearing Deposits 58,005 54,003
Other Liabilities 1,349 1,286
Stockholders' Equity 37,599 36,062
Total Liabilities and Stockholders' Equity $335,183 $307,193
Net Interest Income - Tax Equivalent Basis* 7,334.6 7,000.3
Tax Equivalent Adjustment (133.9) (151.5)
Net Interest Income $7,200.7 $6,848.8
Net Interest Income - Spread* 3.94% 4.09%
Net Interest Income as a % of Total Earning Assets* 4.78% 4.99%
*Tax Equivalent Basis - 34% Rate for the periods dated
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
INTEREST DIFFERENTIALS
In thousands
Six Months Ended
Second Quarter 1999 Second Quarter 1999 June 30, 1999
vs vs vs
First Quarter 1999 Second Quarter 1998 June 30, 1998
Change due to Total Change due to Total Change due to Total
Volume Rate Change Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposit Accounts ($40.7)$33.0 ($7.7) $72.8 ($13.4) $59.4 $117.8 $20.3 $138.1
Federal Funds Sold (33.0) 14.6 (18.4) (0.3) (14.7) (15.0) (18.6) (37.9) (56.5)
Securities:
Taxable 128.1 (57.6) 70.5 (138.3) (99.7) (238.0) (336.2) (124.1) (460.3)
Non-Taxable* (18.2) (5.7) (23.9) (27.1) (5.5) (32.6) (46.5) (5.1) (51.6)
Loans 197.8 71.2 269.0 855.9 (276.7) 579.2 1,663.5 (613.2)1,050.3
Total Interest Income $234.0 $55.5 $289.5 $763.0 ($410.0) $353.0 $1,380.0 ($760.0) $620.0
Interest Bearing Liabilities:
NOW Accounts (7.8) 0.1 (7.7) 7.3 2.5 9.8 12.2 0.4 12.6
Savings Accounts 3.5 3.7 7.2 5.7 (0.7) 5.0 11.0 (2.4) 8.6
Money Market Deposit Accounts 16.9 14.6 31.5 69.8 16.3 86.1 137.7 34.7 172.4
Certificates of Deposits less than $100,000 64.7 18.8 83.5 151.8 (88.0) 63.8 262.7 (197.7) 65.0
Certificates of Deposits greater than $100,000 15.1 (44.1) (29.0) 18.9 (16.1) 2.8 9.1 18.2 27.3
Other Borrowings 7.2 (3.2) 4.0 5.7 (3.8) 1.9 3.4 (3.6) (0.2)
Total Interest Expense 99.6 (10.1) 89.5 259.2 (89.8) 169.4 436.1 (150.4) 285.7
Increase (Decrease) in
Interest Differential $134.4 $65.6 $200.0 $503.8 ($320.2) $183.6 $943.9 ($609.6) $334.3
*Tax Equivalent Basis - 34% Rate for the periods dated
</TABLE>
<PAGE> 26
Part II
Item 1. Legal Proceedings
During the normal course of business, the Company is
involved in various legal proceedings. In the opinion of
management and counsel, any liability resulting from such
proceedings would not have a material adverse effect on the
Company's financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual shareholders' meeting of the Company held on
April 21, 1999, the following matters were submitted for a vote:
(1) Election of Directors.
(a) The election of six (6) Class II directors to serve until
the 2002 Annual Meeting of Shareholders and until their
successors are elected and qualified.
Set out below is the list of nominees submitted to the
shareholders for approval as directors as well as the resulting
votes that were cast:
Name Total Votes For Total Votes Total Votes
Against Abstaining
Steven G. Cazenave 2,241,849 50 20
Preston L. Falgoust 2,241,899 0 20
Marcel T. Graugnard, Jr. 2,241,399 500 20
Ozane J. Gravois, III 2,241,899 0 20
Debra Dufresne Vial 2,241,899 0 20
Craig A. Vitrano, M.D. 2,241,899 0 20
Set out below is a list of directors whose term of office
continued after the meeting:
Name Class Year of Term
Expiration
Frank J. Bourgeois III 2000
A. Earle Cefalu, Jr. III 2000
Honora F. Gravois III 2000
Gloria A. Kliebert III 2000
Anthony J. Nobile III 2000
Carl J. Poche, M.D. III 2000
Craig G. Brazan I 2001
Michael J. Cazenave I 2001
Dean T. Falgoust I 2001
Clarence J. Savoie, II I 2001
Albert J. Waguespack I 2001
<PAGE> 27
Item 5. Other Information
Effective July 9, 1999, Mr. Clarence J. Savoie II resigned
his positions as a director of One American Corp. and First
American Bank and Trust. Mr. Savoie's reasons for resignation
were personal.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None
<PAGE> 28
Management's Responsibility for Financial Reporting
The management of One American Corp. and Subsidiaries is
responsible for the preparation of the financial statements,
related financial data, and other information in this quarterly
report. The financial statements are prepared in accordance with
generally accepted accounting principles and include some amounts
that are necessarily based on management's informed estimates and
judgments, with consideration given to materiality. All
financial information contained in this quarterly report is
consistent with that in the financial statements.
Management fulfills its responsibility for the integrity,
objectivity, consistency, and fair presentation of the financial
statements and financial information through an accounting system
and related internal accounting controls that are designed to
provide reasonable assurance that assets are safeguarded and that
transactions are authorized and recorded in accordance with
established policies and procedures. The concept of reasonable
assurance is based on the recognition that the cost of a system
of internal accounting controls should not exceed the related
benefits. As an integral part of the system of internal
accounting controls, One American Corp. and Subsidiaries has a
professional staff who monitors compliance with and assesses the
effectiveness of the system of internal accounting controls and
coordinates audit coverage with the independent public
accountant.
The Audit Committee of the Board of Directors, composed
solely of outside directors, meets periodically with management,
and the independent public accountant to review matters relating
to financial reporting, internal accounting control and the
nature, extent and results of the audit effort. The independent
public accountant has direct access to the Audit Committee with
or without the presence of management.
The financial statements as of December 31, 1998 were
examined by Hannis T. Bourgeois, L. L. P., independent public
accountants, who rendered an independent professional opinion.
Hannis T. Bourgeois, L. L. P has not reviewed the financial
statements as of June 30, 1999.
<PAGE> 29
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
One American Corp.
By: /s/ Frank J. Bourgeois
Frank J. Bourgeois, President
August 12, 1999
Date
<PAGE> 30
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<PERIOD-TYPE> 6-MOS
<CASH> 13051
<INT-BEARING-DEPOSITS> 996
<FED-FUNDS-SOLD> 7750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108234
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 199368
<ALLOWANCE> 3537
<TOTAL-ASSETS> 343839
<DEPOSITS> 302166
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3241
<LONG-TERM> 0
<COMMON> 7500
0
0
<OTHER-SE> 30932
<TOTAL-LIABILITIES-AND-EQUITY> 343839
<INTEREST-LOAN> 8219
<INTEREST-INVEST> 2815
<INTEREST-OTHER> 506
<INTEREST-TOTAL> 11540
<INTEREST-DEPOSIT> 4339
<INTEREST-EXPENSE> 4339
<INTEREST-INCOME-NET> 7201
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5307
<INCOME-PRETAX> 3776
<INCOME-PRE-EXTRAORDINARY> 3776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2539
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.95
<YIELD-ACTUAL> 7.61
<LOANS-NON> 1170
<LOANS-PAST> 262
<LOANS-TROUBLED> 112
<LOANS-PROBLEM> 2938
<ALLOWANCE-OPEN> 3530
<CHARGE-OFFS> 477
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 3537
<ALLOWANCE-DOMESTIC> 946
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2591
</TABLE>
