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, 2000 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 (Zip Code)
offices)
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, 2,647,138 shares outstanding as of
August 11, 2000.
<PAGE> 1
Form 10-Q Index
Part I
Financial Information
Financial Statements
Consolidated Balance Sheets,
June 30, 2000, December 31, 1999, and June 30, 1999 3
Consolidated Statements of Income
for the three and six month periods ended June 30, 2000 and 4
1999
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 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, 2000, December
31, 1999,
and June 30, 1999 25
Interest Differentials
for the three and six months ended June 30, 2000, December
31, 1999,
and June 30, 1999 26
Part II
Other Information 27
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
Review by Independent Public Accountant 30
Signatures 31
<PAGE> 2
<TABLE>
<CAPTION>
Consolidated Balance Sheets Unaudited Unaudited
One American Corp. and Subsidiaries June 30, December 31, June 30,
In thousands 2000 1999 1999
<S> <C> <C> <C>
Assets
Cash and Due From Banks $13,491 $16,494 $13,051
Interest Bearing Deposits in Other Banks 2,206 1,529 996
Federal Funds Sold and Securities
Purchased Under Resale Agreements 5,350 5,700 7,750
Securities Available for Sale (Amortized Cost of $92,186, $91,695,
and $108,689, respectively) 91,021 90,608 108,234
Loans 235,819 215,286 199,368
Less: Allowance for Loan Losses (4,066) (4,155) (3,537)
Loans, Net 231,753 211,131 195,831
Bank Premises and Equipment 13,381 12,598 12,448
Other Real Estate 80 19 350
Accrued Interest Receivable 2,252 2,007 2,060
Other Assets 4,328 3,689 3,119
Total Assets $363,862 $343,775 $343,839
Liabilities
Deposits:
Noninterest Bearing $60,534 $56,208 $58,142
Interest Bearing 256,478 245,683 244,024
Total Deposits 317,012 301,891 302,166
Accrued Interest Payable 1,204 968 870
Other Liabilities 5,672 1,950 2,371
Total Liabilities 323,888 304,809 305,407
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 30,268 28,745 27,688
Accumulated Other Comprehensive Income (769) (718) (300)
Treasury Stock - 350,723, 334,140 and 330,254 shares at cost (2,025) (1,561) (1,456)
Total Stockholders' Equity 39,974 38,966 38,432
Total Liabilities and Stockholders' Equity $363,862 $343,775 $343,839
<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, 2000 and 1999 Unaudited Unaudited Unaudited Unaudited
In thousands, except per share data 2,000 1,999 2,000 1,999
Interest Income
<S> <C> <C> <C> <C>
Interest and Fees on Loans $5,078 $4,244 $9,864 8,219
Interest on Securities:
Taxable Interest 1,280 1,313 2,476 2,555
Nontaxable Interest 124 122 246 260
Total Interest on Securities 1,404 1,435 2,722 2,815
Other Interest Income 154 240 353 506
Total Interest Income 6,636 5,919 12,939 11,540
Interest Expense on Deposits 2,702 2,214 5,215 4,339
Net Interest Income 3,934 3,705 7,724 7,201
Provision for Loan Losses 225 225 375 450
Net Interest Income After
Provision for Loan Losses 3,709 3,480 7,349 6,751
Other Income
Service Charges on Deposit Accounts 560 533 1,093 1,031
Gain on Securities 0 0 7 0
Gain on Purchased Assets 54 679 420 741
Other Operating Income 302 282 667 560
Total Other Income 916 1,494 2,187 2,332
Income Before Other Expenses 4,625 4,974 9,536 9,083
Other Expenses
Salaries and Employee Benefits 1,498 1,405 2,898 2,667
Net Occupancy Expense 403 342 797 668
Net ORE and Repossession Expense 0 (1) (3) 17
Other Operating Expenses 1,202 1,058 2,172 1,955
Total Other Expenses 3,103 2,804 5,864 5,307
Income Before Income Taxes 1,522 2,170 3,672 3,776
Applicable Income Taxes 465 714 1,168 1,237
Net Income $1,057 $1,456 $2,504 $2,539
Net Income Per Share $0.40 $0.55 $0.94 $0.95
Cash Dividends Per Share $0.185 $0.180 $0.370 $0.360
<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, 2000 and 1999
Unaudited Accumulated
Other Total
Common Retained ComprehensiveTreasury Stockholders'
In thousands Stock Surplus Earnings Income Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000 $7,500 $5,000 $28,745 $(718) $(1,561) $38,966
Comprehensive Income:
Net Income 2,504 2,504
Other Comprehensive Income,
Net of Tax:
Net Change in Unrealized Gain (Loss)
on Securities Available-for-Sale (44) (44)
Less: Reclassification Adjustments (7) (7)
Total Comprehensive Income 2,453
Treasury Stock Purchased (464) (464)
Cash Dividends (981) (981)
Balances, June 30, 2000 7,500 5,000 30,268 (769) (2,025) 39,974
<CAPTION>
<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)
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
<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, 2000 and 1999 Unaudited Unaudited
In thousands 2000 1999
Cash Flows From Operating Activities
<S> <C> <C>
Net Income $2,504 $2,539
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Gain on Purchased Assets (420) (741)
Provision for Depreciation 462 465
Provision for Loan Losses 375 450
Net Amortization (Accretion) on Securities (35) (104)
Provision (Credit) for Deferred Income Taxes 189 358
(Gain) Loss on Sale of Other Real Estate and Repossessions 0 (3)
Changes in Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable (245) 73
(Increase) Decrease in Other Assets (802) (89)
Increase (Decrease) in Accrued Interest Payable 236 45
Increase (Decrease) in Other Liabilities 329 319
Net Cash Provided by Operating Activities 2,593 3,312
Cash Flows From Investing Activities
Maturities or Calls of Securities Available for Sale 19,923 33,936
Purchases of Securities Available for Sale (20,378) (43,934)
Proceeds from Sale of Securities Available for Sale 0 0
Net (Increase) Decrease in Federal Funds Sold 350 3,775
Net (Increase) Decrease in Loans (20,639) (17,409)
Proceeds from Sale of Other Real Estate and Repossessions 0 57
Purchases of Premises and Equipment (1,245) (916)
Net Cash Used in Investing Activities (21,989) (24,491)
Cash Flows From Financing Activities
Net Increase (Decrease) in Demand Deposits, NOW
and Savings Accounts 3,638 3,133
Net Increase (Decrease) in Certificates of Deposits 11,483 9,843
Proceeds from Other Borrowings 5,000 570
Repayments of Amounts Borrowed (1,602) (77)
Dividends Paid (985) (962)
Treasury Stock Purchased (464) (36)
Net Cash Provided By Financing Activities 17,070 12,471
Increase (Decrease) in Cash and Cash Equivalents (2,326) (8,708)
Cash and Cash Equivalents - Beginning of Period 18,023 22,755
Cash and Cash Equivalents - End of Period $15,697 $14,047
<FN>
Continued on next page
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
One American Corp. and Subsidiaries
for the six months ended June 30, 2000 and 1999 Unaudited Unaudited
In thousands 2000 1999
Supplemental Disclosure of Cash Flow Information:
<S> <C> <C>
Income Tax Payments $1,057 $1,029
Interest Paid on Deposits $4,979 $4,294
Noncash Investing Activities:
Other Real Estate Acquired in Settlement of Loans $62 $331
Change in Unrealized Gain (Loss) on
Securities Available for Sale ($78) ($1,377)
Change in Deferred Tax Effect on
Unrealized Gain (Loss) on Securities Available for Sale ($27) ($468)
Noncash Financing Activities:
Dividends Declared and Not Paid $490 $481
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 7
Notes to Consolidated Financial Statements
June 30, 2000
(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 the Bank's 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,
2000 are not an indication of the expected results for the
annual period that ends December 31, 2000. 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, 1999.
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 the Bank's 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
<PAGE> 8
recognize additional losses based on their judgements about
information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the
estimated losses on loans 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. Securities purchased for trading
purposes are classified as trading securities and are carried at
market value with market adjustments included in non-interest
income. The Bank had no securities classified as held to
maturity or trading at June 30, 2000 or 1999.
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. Actual 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 principal
repayment 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 for by 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 - 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. Diluted EPS,
<PAGE> 10
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,
2000 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 2,650,436 and
2,669,785 for the three months ended June 30, 2000 and 1999,
respectively, and 2,653,099 and 2,670,103 for the six months
ended June 30, 2000 and 1999, respectively.
Statements of Cash Flows - For purposes of reporting cash
flows, cash and cash equivalents includes cash and due from banks
and interest bearing deposits in other banks.
Comprehensive Income - Components of comprehensive income
are revenues, expenses, gains, and losses that under GAAP are
included in comprehensive income but excluded from net income.
The components of comprehensive income are disclosed in the
Statements of Changes in Stockholders Equity for all periods
presented.
<PAGE> 11
One American Corp. and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
June 30, 2000
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 ended June 30, 2000 and 1999. 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 1999 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 2000, net income was $1.1 million
compared to $1.5 million for the same quarter of 1999. Net
interest income increased $229 thousand, other non-interest
income decreased $578, other expenses increased $299 thousand,
and, accordingly, income taxes decreased $249 thousand. Earnings
per common share were $0.40 and $0.55 for the second quarters of
2000 and 1999, respectively. Return on average assets on an
annualized basis was 1.20% for the current quarter, and 1.71% for
the same quarter of 1999. Cash dividends were $.185 per share
for the current quarter and $.180 per share for the same quarter
of 1999.
For the first six months of 2000, net income was $2.5
million compared to $2.5 million for the same period of 1999.
Earnings per common share were $0.94 and $0.95 for the first six
months of 2000 and 1999, respectively. Return on average assets
<PAGE> 12
on an annualized basis was 1.47% and 1.52% for the six-month
periods ended June 30, 2000 and 1999, respectively. For the same
periods, return on average equity on an annualized basis was
12.89% and 13.51%. Cash dividends were $0.37 and $0.36 per
share, respectively, for the six-month periods ended June 30,
2000 and 1999.
Net interest income on a fully tax equivalent basis (FTE)
for the current quarter was $4.0 million, $231 thousand greater
than that of the second quarter of 1999. The net interest margin
(FTE) was 4.77% for the current quarter and 4.80% for the same
quarter of 1999. For the six months ended June 30, 2000, net
interest income (FTE) was $7.9 million compared to $7.3 million
for the same period of 1999. The net interest margin (FTE) was
4.77% and 4.78%, respectively, for the six-month periods ended
June 30, 2000 and 1999.
During the second quarter of 2000, in comparison with the
same quarter of 1999, average loans outstanding increased $38.4
million or 20.0% to $230.5 million. Average total deposits for
the current quarter increased $16.7 million or 5.6% to $316.6
million when compared to the average total deposits for the same
quarter of 1999. Average total assets for the current quarter
increased $21.4 million or 6.3% to $362.4 million when compared
to the total average assets of the second quarter of 1999. For
the six months ended June 30, 2000, in comparison with the same
period in 1999, average loans outstanding increased $37.1 million
or 19.8% to $224.8 million. Average total deposits for the
current six-month period increased $18.4 million or 6.2% to
$313.4 million when compared to the average total deposits for
the same period of 1999. Average total assets at June 30, 2000
increased $22.3 million or 6.6% to $357.4 million when compared
to the total average assets at June 30, 1999.
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 (FTE) for the current quarter of 2000
was $3.9 million, 6.1% greater than the same quarter of 1999.
The improvement in net interest income can be primarily
attributed to the change in volume of loans that provided an
increase of $834 thousand in interest income when comparing the
second quarter of 2000 to the second quarter of 1999. Net
interest income (FTE) for the first six months of 2000 was $7.9
million, 7.0% greater than the same period of 1999. The
improvement in net interest income can be primarily attributed to
the change in volume of loans that provided an increase of $1.6
million in interest income when comparing the first half of 2000
to the first half of 1999.
<PAGE> 13
Earning Assets, Interest-Bearing Liabilities, and Net
Interest Spread - During the current quarter of 2000, average
earning assets were $336.0 million, an increase of $21.3 million
or 6.8% over the second quarter of 1999. 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 strategy continues to increase the level
of earning assets as well as to alter their mix by including a
greater percentage of higher yielding loans over lower yielding
securities and other short-term investments. The Bank's primary
market area currently enjoys a strong economic climate that
provides good lending opportunities. For the quarter ended June
30, 2000 the average loan portfolio grew $11.5 million or 5.3%.
During the second quarter of 1999, the average loan portfolio
grew $9.1 million or 5.0%. However, there is no guarantee that
either similar levels of growth or the current strong economic
climate will continue into the future.
The trend over the quarters compared shows an increase in
interest bearing liabilities with growth in certificates of
deposit and money market accounts. In addition, the use of
wholesale funding in the form of other borrowings increased from
the quarter ended June 30, 1999 to the quarter ended June 30,
2000. This enabled continued growth while simultaneously
controlling the cost of interest-bearing liabilities. The Bank
also benefited from an increase in volume of non-interest bearing
deposits, even though its relationship as a percentage of total
deposits decreased slightly. The Bank continually strives to
attract a broad core deposit base consisting of individual and
commercial customers.
For the current quarter of 2000, the average yield on
earning assets was 8.00% while the average cost of interest
bearing liabilities was 4.18%, producing a net interest spread
(FTE) of 3.82%. The net interest margin (FTE) was 4.77% for the
current quarter of 2000. In comparison, the net interest margin
(FTE) for the same quarter of 1999 was 4.80%. The cost of
interest-bearing liabilities during the second quarter of 1999
was 3.66%, while the yield on average earning assets was 7.62%,
producing a net interest spread of 3.96%. For the six-month
period ended June 30, 2000, the average yield on earning assets
was 7.94% while the average cost of interest bearing liabilities
was 4.09%, producing a net interest spread (FTE) of 3.85%. The
net interest margin (FTE) was 4.77% for the first six months of
2000. In comparison, the net interest margin (FTE) for the same
period of 1999 was 4.78%. The cost of interest-bearing
liabilities during the first six months of 1999 was 3.67%, while
the yield on average earning assets was 7.61%, producing a net
interest spread of 3.94%.
The table of Average Balance Sheets and Interest Rate
Analysis for the three-month periods ended June 30, 2000,
December 31, 1999, and June 30, 1999, the six-month periods ended
June 30, 2000 and 1999, and the corresponding table of Interest
Differentials detail the effects that the changes in the average
balances outstanding of assets and liabilities and the 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 being
analyzed.
<PAGE> 14
<TABLE>
<CAPTION>
Average Earning Asset Structure Second First Second
In thousands Quarter 2000 Quarter 2000 Quarter 1999
% 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 $1,802 0.5% $2,898 0.9% $6,604 2.1%
Federal Funds Sold 7,860 2.3% 11,092 3.4% 9,904 3.2%
Securities
Taxable 86,099 25.7% 83,677 25.6% 97,128 30.8%
Non-Taxable 9,671 2.9% 9,327 2.9% 8,885 2.8%
Loans - Net 230,549 68.6% 219,049 67.2% 192,186 61.1%
Total Average Earning Assets $335,981 100.0% $326,043 100.0% $314,707 100.0%
<CAPTION>
Average Deposit Structure Second First Second
In thousands Quarter 2000 Quarter 2000 Quarter 1999
Average % of Average % of Average % of
Balances Deposits Balances Deposits Balances Deposits
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing Deposits $60,833 19.2% $58,817 19.0% $58,803 19.6%
NOW Accounts 22,442 7.1% 22,912 7.4% 25,036 8.4%
Savings Accounts 32,366 10.2% 32,193 10.4% 32,551 10.9%
Money Market Deposit Accounts 68,960 21.8% 69,544 22.4% 63,839 21.3%
Certificates of Deposits less than $100,000 108,685 34.3% 105,915 34.1% 101,823 33.8%
Total Average Core Deposits 293,286 92.6% 289,381 93.3% 282,052 94.0%
Certificates of Deposits greater than $100,000 23,339 7.4% 20,751 6.7% 17,857 6.0%
Total Average Deposits $316,625 100.0% $310,132 100.0% $299,909 100.0%
Average Interest Bearing Deposits
as a percentage of Average Earning Assets 76.1% 77.1% 76.6%
Average Core Deposits
as a percentage of Total Average Assets 80.9% 82.0% 82.7%
</TABLE>
<PAGE> 15
Provision for Loan Losses
Provision for Loan Losses were $225 thousand for both of the
second quarters of 2000 and 1999. For the six-month periods
ended June 30, 2000 and 1999, Provisions for Loan Losses were
$375 thousand and $450 thousand, respectively. See the
discussion of "Allowance for Loan Losses".
Other Income
Other income for the current quarter was $916 thousand, a
decrease of $578 thousand or 38.7% compared to $1.5 million for
the same quarter of 1999. The primary cause for this increase
was gain on purchased assets, which decreased $625 thousand when
compared to the three months ended June 30, 1999. For the six-
month period ended June 30, 2000, other income was $2.2 million,
a decrease of $145 thousand or 6.2% from the same period in 1999.
Again, the cause for this was gain on purchased assets, which
decreased $321 thousand when compared to the first six months of
1999.
Gain on purchased assets was $54 thousand for the current
quarter and $679 thousand for the same period of 1999. For the
six-month period ended June 30, 2000, gain on purchased assets
was $420 thousand, a reduction of $321 thousand or 43.2% when
compared to the same period of 1999. These gains are recognition
of the collection of principal on certain loans acquired in past
bank acquisitions. There was a greater than normal payment
activity on such loans in the comparable periods ended June 30,
1999. The Bank continues to pursue the collection of these
loans. Future gains on these assets, however, are
indeterminable.
Other Expenses
Other expenses were $3.1 million for the second quarter of
2000, an increase of $299 thousand or 10.6% over the same quarter
of 1999. Salaries and employee benefits were $1.5 million for
the current quarter compared to $1.4 million for the same of
quarter of 1999. Net occupancy expense was $403 thousand for the
current quarter, compared to $342 thousand for the first quarter
of 1999. Other operating expenses were $1.2 million for the
current quarter, an increase of $144 thousand or 13.5% compared
to the same quarter of 1999. Contributing to the increase in
other operating expenses was the donation of a vacated, obsolete
branch building to a local charity.
For the six-month period ended June 30, 2000, other expenses
were $5.9 million, an increase of $557 thousand or 10.5% over the
same period of 1999. Salaries and employee benefits were $2.9
million for the current period compared to $2.7 million for the
same period in 1999. Net occupancy expense was $797 thousand for
the current six months, compared to $668 thousand for the first
six months of 1999. Other operating expenses were $2.2 million
for the current period, an increase of $217 thousand or 11.1%
compared to the same period of 1999.
<PAGE> 16
Applicable Income Taxes
Applicable income taxes for the current quarter were $465
thousand compared to $714 thousand for the second quarter of
1999. Effective tax rates were 30.6% for the second quarter of
2000 and 32.9% for the quarter ended June 30, 1999. For the six
months ended June 30, 2000 and 1999 effective tax rates were
31.8% and 32.8%, respectively. 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 liabilities are properly structured to meet
the withdrawals of its depositors, fund loan commitments, and
satisfy other funding requirements. The Company's primary source
of funds is the Bank's core deposit base. During the quarter,
average core deposits were approximately $293.3 million or 92.6%
of total average deposits and 80.9% 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, maturities and repayments in the loan
portfolio, and advances from the Federal Reserve Bank of Atlanta,
the Federal Home Loan Bank of Dallas, and other wholesale funding
entities. 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
availability of wholesale funding, management does not anticipate
any difficulties in meeting the needs of its depositors and 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, the
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 selected 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
<PAGE> 17
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.
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, 2000; the Bank would expect a decrease in net interest
income of $141 thousand in the event of a gradual 200 basis point
increase in interest rates, and an increase of $146 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, 2000, using
gap analysis, based on the expected maturity intervals of
interest rate sensitive assets and liabilities. The table
indicates that the Company's interest-bearing liabilities exceed
its interest-earning assets at the one year point in time
suggesting the Bank is negatively 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, 2000
In thousands
Expected Maturity, Years Ended:
Non- Fair
06/30/01 06/30/02 06/30/03 06/30/04 06/30/05 Thereafter Sensitive Total Value
Interest-Bearing Deposits in
Assets
Investments -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Securities $40,294 $24,723 $7,872 $4,023 $2,943 $7,717 $0 $87,572 $87,572
Average Interest Rates 5.62% 6.02% 6.34% 6.53% 6.53% 5.58% 0.00% 5.87%
Variable-Rate Securities 1,809 466 233 151 129 661 0 3,449 3,449
Average Interest Rates 6.07% 6.78% 6.97% 7.11% 7.11% 7.12% 0.00% 6.51%
Total Investments 42,103 25,189 8,105 4,174 3,072 8,378 0 91,021 91,021
Average Interest Rates 5.64% 6.04% 6.35% 6.55% 6.56% 5.70% 0.00% 5.89%
Loans -
Fixed-Rate Loans, Net 95,635 33,711 24,822 17,802 14,990 13,759 1,175 201,894 198,862
Average Interest Rates 8.77% 8.55% 8.48% 8.35% 8.15% 7.77% 0.00% 8.49%
Variable-Rate Loans, Net 18,838 3,168 1,721 1,225 579 4,328 0 29,859 29,474
Average Interest Rates 8.53% 9.04% 9.21% 9.28% 9.05% 9.49% 0.00% 8.80%
Total Loans 114,473 36,879 26,543 19,027 15,569 18,087 1,175 231,753 228,336
Average Interest Rates 8.73% 8.60% 8.53% 8.41% 8.18% 8.18% 0.00% 8.53%
Interest Bearing Deposits in
Other Banks 2,206 0 0 0 0 0 0 2,206 2,206
Average Interest Rates 6.49% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 6.49%
Federal Funds Sold 5,350 0 0 0 0 0 0 5,350 5,350
Average Interest Rates 5.87% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.87%
Other Assets 33,532 33,532
Total Assets $164,132 $62,068 $34,648 $23,201 $18,641 $26,465 $34,707 $363,862
Liabilities
NOW and Super NOW Deposits $2,635 $5,257 $5,257 $2,194 $2,194 $4,389 $0 $21,926 $19,789
Average Interest Rates 2.16% 2.16% 2.16% 2.16% 2.16% 2.16% 0.00% 2.16%
Insured Money Market Accounts 32,976 17,646 17,646 0 0 0 0 68,268 66,426
Average Interest Rates 3.90% 3.90% 3.90% 0.00% 0.00% 0.00% 0.00% 3.90%
Savings Deposits 3,174 7,995 7,995 3,192 3,192 6,385 0 31,933 29,601
Average Interest Rates 2.54% 2.54% 2.54% 2.54% 2.54% 2.54% 0.00% 2.54%
Variable-Rate Certificates of Deposit 837 2,109 2,109 842 842 1,684 0 8,423 8,078
Average Interest Rates 4.53% 4.53% 4.53% 4.53% 4.53% 4.53% 0.00% 4.53%
Certificates of Deposits 114,836 8,280 1,457 1,109 246 0 0 125,928 125,203
Average Interest Rates 5.14% 5.24% 5.69% 5.63% 5.71% 0.00% 0.00% 5.16%
Non Interest Bearing Deposits 22,422 6,948 6,948 6,054 6,054 12,108 0 60,534 60,534
Other Interest Bearing Liabilities 3,673 184 196 208 221 338 0 4,820 4,797
Average Interest Rates 6.66% 6.01% 6.01% 6.01% 6.01% 6.01% 0.00% 6.50%
Other Liabilities 0 0 0 0 0 0 2,056 2,056
Stockholders' Equity 0 0 0 0 0 0 39,974 39,974
Total Liabilities and
Stockholders' Equity $180,553 $48,419 $41,608 $13,599 $12,749 $24,904 $42,030 $363,862
Interest Rate Sensitivity Gap ($16,421) $13,649 ($6,960) $9,602 $5,892 $1,561 ($7,323) $0
Cumulative Interest Rate
Sensitivity Gap ($16,421) ($2,772) ($9,732) ($130) $5,762 $7,323 $0
GAP / Assets -4.51% 3.75% -1.91% 2.64% 1.62% 0.43% -2.01%
Cumulative GAP / Assets -4.51% -0.76% -2.67% -0.04% 1.58% 2.01% 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, 2000 and 1999, were $17.7
million and $20.3 million, respectively. The Bank had letters of
credit of $458 thousand issued at June 30, 2000 compared to $625
thousand at June 30, 1999. Additionally, the Bank has deposit
customers who have credit lines available to them through their
deposit accounts. At June 30, 2000 the available portion of
these credit lines was $274 thousand compared to $390 thousand at
June 30, 1999. 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 financial guarantees which guarantee the performance
of a customer to a third party other than the financial standby
letters of credit described above. The Bank also issues credit
cards. The aggregate credit available was $5.6 million at June
30, 2000 and $5.1 million at June 30, 1999. 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 the
additional interest rate risk inherent in those instruments.
Allowance for Loan Losses
The Allowance for Loan Losses was $4.1 million at June 30,
2000, or 1.7%, of loans outstanding. At June 30, 1999 the
Allowance for Loan Losses was $3.5 million, or 1.8%, of loans
outstanding. Net charge-offs (recoveries) were $9 thousand for
the current quarter, versus $14 thousand for the same quarter of
1999. Gross charge-offs as a percentage of average loans were
.01% and .02% in the second quarters of 2000 and 1999,
respectively. Recoveries as a percentage of gross charge-offs
for the current quarter were 72.7% versus 58.1% for the same
quarter of 1999. For the six months ended June 30, 2000, net
charge-offs (recoveries) were $464 thousand, versus $444 thousand
for the same period of 1999. Gross charge-offs as a percentage
of average loans were 0.45% and 0.24% in the first six months of
2000 and 1999, respectively. Recoveries as a percentage of gross
charge-offs were 8.7% versus 7.1%, respectively, for the six-
month periods ended June 30, 2000 and 1999.
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 total
"potential default'' factor to the non classified portion of the
loan portfolio, it accounts for additional reserves necessary
because of loan growth.
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
will the potential for problem loans increase at a rate uncommon
to the Bank's historical loan loss experience given the smaller
loan to deposit ratios of the past.
Non-performing Assets
Non-performing assets include non-accrual loans, impaired
loans, repossessions and other real estate. Generally, loans are
considered non-accrual 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, 2000 and 1999 were
$112 thousand and $248 thousand, respectively. Impaired loans
having recorded investments of $5.0 million at June 30, 2000
compared to $4.0 million at June 30, 1999 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 $962
thousand at June 30, 2000 compared to $946 thousand at June 30,
1999. Interest received on impaired loans amounted to $207
thousand at June 30, 2000 compared to $151 thousand at June 30,
1999. Non-accrual loans not included in impaired loans were
immaterial at June 30, 2000 and 1999.
Other real estate is properties held for sale acquired
through foreclosure or negotiated settlement of debt. Other real
estate was $80 thousand at June 30, 2000 and $350 thousand at the
close of the second quarter of 1999. Repossessions are movable
assets acquired through foreclosure or negotiated settlement of
debt. There were no repossessions at June 30, 2000 and 1999.
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,
2000 1999 1999
Tier 1 Capital:
<S> <C> <C> <C> <C>
Stockholders' Equity $40,047 $38,957 $37,972
Tier 2 Capital:
Allowance for Loan Losses 2,800 2,505 2,371
Total Capital $42,847 $41,462 $40,343
Risk-Weighted Ratios:
Tier 1 Capital 18.0% 19.6% 20.1%
Total Capital 19.2% 20.9% 21.4%
Leverage Ratio 11.0% 11.3% 11.1%
Stockholders' Equity 11.0% 11.3% 11.0%
Regulatory Risk-Based Capitalization Requirements
SignificantlyCritically
Well Adequately Under Under Under
CapitalizedCapitalizedCapitalized Capitalized Capitalized
Risk-Weighted Ratios:
Tier 1 Capital 6.0% 4.0% < 4.0% < 3.0%
Total Capital 10.0% 8.0% < 8.0% < 6.0%
Leverage Ratio 5.0% 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 $4.1 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 formed a Year 2000 committee to identify and
provide for potential costs and uncertainties related to the Year
2000 date change. "Mission-critical" systems as well as business-
resumption contingency plans were implemented and tested. The
Year 2000 threshold was crossed with no problems encountered to
date that effected significantly the Company's liquidity, capital
resources, or results of operation. The Bank will remain
vigilant for the remainder of the year 2000 for any undiscovered
date-change problems.
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
<PAGE> 23
is included for the purpose of availing the Company of the
protections of the safe harbor provisions of the PSLRA.
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 2000 First Quarter 2000 Second Quarter 1999
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposit Accounts $1,802 $28.0 6.23% $2,898 $48.0 6.64% $6,604 $114.5 6.95%
Federal Funds Sold and Securities
Purchased under Resale Agreements 7,860 125.4 6.40% 11,092 151.0 5.48% 9,904 125.3 5.07%
Securities:
Taxable 86,099 1,280.4 5.96% 83,677 1,196.0 5.75% 97,128 1,312.6 5.42%
Non-Taxable* 9,671 188.2 7.80% 9,327 185.0 7.98% 8,885 185.0 8.35%
Loans - Net 230,549 5,078.0 8.83% 219,049 4,786.0 8.79% 192,186 4,244.1 8.86%
Total Earning Assets 335,981 6,700.0 8.00% 326,043 6,366.0 7.85% 314,707 5,981.5 7.62%
Allowance for Loan Losses (3,923) (4,153) (3,397)
Nonearning Assets 30,361 31,056 29,725
Total Assets $362,419 $352,946 $341,035
Liabilities and Stockholders' Equity
NOW Accounts $22,442 120.6 2.16% $22,912 117.0 2.06% $25,036 129.2 2.07%
Savings Accounts 32,366 203.8 2.53% 32,193 203.0 2.53% 32,551 205.3 2.53%
Money Market Deposit Accounts 68,960 681.7 3.97% 69,544 657.0 3.80% 63,839 508.0 3.19%
Certificates of Deposits less than $100,000 108,685 1,347.8 4.97% 105,915 1,264.0 4.80% 101,823 1,154.5 4.55%
Certificates of Deposits greater than $100,000 23,339 292.9 5.03% 20,751 251.0 4.86% 17,857 197.3 4.43%
Total Interest-Bearing Deposits 255,792 2,646.8 4.15% 251,315 2,492.0 3.99% 241,106 2,194.3 3.65%
Other Borrowings 3,523 55.2 6.28% 1,392 21.0 6.03% 1,468 19.7 5.38%
Total Interest-Bearing Liabilities 259,315 2,702.0 4.18% 252,707 2,513.0 4.00% 242,574 2,214.0 3.66%
Non Interest-Bearing Deposits 60,833 58,817 58,803
Other Liabilities 1,774 1,454 1,409
Stockholders' Equity 40,497 39,968 38,249
Total Liabilities and Stockholders' Equity $362,419 $352,946 $341,035
Net Interest Income - Tax Equivalent Basis* 3,998.0 3,853.0 3,767.5
Tax Equivalent Adjustment (64.0) (62.9) (62.9)
Net Interest Income $3,934.0 $3,790.1 $3,704.6
Net Interest Income - Spread* 3.82% 3.85% 3.96%
Net Interest Income as a % of Total Earning Assets* 4.77% 4.75% 4.80%
*Tax Equivalent Basis - 34% Rate for the periods dated
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
Assets
<S> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposit Accounts $2,350 $75.9 6.50% $8,254 $237 5.78%
Federal Funds Sold and Securities
Purchased under Resale Agreements 9,476 276.6 5.87% 11,373 269 4.77%
Securities:
Taxable 84,887 2,476.5 5.87% 92,613 2,555 5.56%
Non-Taxable* 9,499 372.7 7.89% 9,305 394 8.54%
Loans - Net 224,799 9,864.0 8.82% 187,657 8,219 8.83%
Total Earning Assets 331,011 13,065.7 7.94% 309,202 11,674 7.61%
Allowance for Loan Losses (4,038) (3,495)
Nonearning Assets 30,465 29,476
Total Assets $357,438 $335,183
Liabilities and Stockholders' Equity
NOW Accounts $22,676 237.9 2.11% $25,797 266 2.08%
Savings Accounts 32,279 406.4 2.53% 32,267 404 2.52%
Money Market Deposit Accounts 69,252 1,339.3 3.89% 62,655 985 3.17%
Certificates of Deposits less than $100,000 107,821 2,616.9 4.88% 99,405 2,273 4.61%
Certificates of Deposits greater than $100,000 22,045 541.4 4.94% 16,868 376 4.49%
Total Interest-Bearing Deposits 254,073 5,141.9 4.07% 236,992 4,303 3.66%
Other Borrowings 2,458 73.1 5.98% 1,238 36 5.78%
Total Interest-Bearing Liabilities 256,531 5,215.0 4.09% 238,230 4,339 3.67%
Non Interest-Bearing Deposits 59,306 58,005
Other Liabilities 1,614 1,349
Stockholders' Equity 39,987 37,599
Total Liabilities and Stockholders' Equity $357,438 $335,183
Net Interest Income - Tax Equivalent Basis* 7,850.7 7,335
Tax Equivalent Adjustment (126.7) (134)
Net Interest Income $7,724.0 $7,201
Net Interest Income - Spread* 3.85% 3.94%
Net Interest Income as a % of Total Earning Assets* 4.77% 4.78%
*Tax Equivalent Basis - 34% Rate for the periods dated
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
INTEREST DIFFERENTIALS
In thousands
Six Months Ended
Second Quarter 2000 Second Quarter 2000 June 30, 2000
vs vs vs
First Quarter 2000 Second Quarter 1999 June 30, 1999
Change due to Total Change due to Total Change due to Total
Volume Rate Change Volume Rate Change Volume Rate Change
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposit Accounts ($18.2) ($1.8) ($20.0) ($83.3) ($3.2) ($86.5) ($169.3) $8.5 ($160.8)
Federal Funds Sold (44.0) 18.4 (25.6) (25.9) 26.0 0.1 (44.9) 52.4 7.5
Securities:
Taxable 34.6 49.8 84.4 (149.0) 116.8 (32.2) (213.1) 135.0 (78.1)
Non-Taxable* 6.8 (3.6) 3.2 16.4 (13.2) 3.2 8.2 (29.4) (21.2)
Loans 251.3 40.7 292.0 847.2 (13.3) 833.9 1,626.8 18.0 1,644.8
Total Interest Income 230.5 103.5 334.0 605.4 113.1 718.5 1,207.7 184.5 1,392.2
Interest-Bearing Liabilities:
NOW Accounts (1.8) 5.4 3.6 (13.4) 4.8 (8.6) (32.2) 4.0 (28.2)
Savings Accounts 0.3 0.5 0.8 (1.2) (0.3) (1.5) 0.2 2.7 2.9
Money Market Deposit Accounts (5.5) 30.2 24.7 40.8 132.9 173.7 103.7 250.7 354.4
Certificates of Deposits less than $100,000 33.1 50.7 83.8 77.8 115.5 193.3 192.4 151.5 343.9
Certificates of Deposits greater than $100,000 31.5 10.4 41.9 60.6 35.0 95.6 115.4 50.1 165.5
Other Borrowings 32.0 2.2 34.2 27.6 7.9 35.5 35.0 2.6 37.6
Total Interest Expense 89.6 99.4 189.0 192.2 295.8 488.0 414.5 461.6 876.1
Increase (Decrease) in
Interest Differential $140.9 $4.1 $145.0 $413.2 ($182.7) $230.5 $793.2 ($277.1) $516.1
*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 26, 2000, the following matters were submitted for a vote:
(1) Election of Directors.
(a) The election of five (5) Class III directors to
serve until the 2003 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
Frank J. Bourgeois 2,214,916 0 1,688
A. Earle Cefalu, Jr. 2,153,726 0 62,878
Gloria A. Kliebert 2,214,916 0 1,688
Anthony J. Nobile 2,214,916 0 1,688
Carl J. Poche, M.D. 2,214,916 0 1,688
Set out below is a list of directors whose term of office
continued after the meeting:
Name Class Year of Term
Expiration
Steven G. Cazenave II 2002
Preston L. Falgoust II 2002
Marcel T. Graugnard, Jr. II 2002
Ozane J. Gravois, III II 2002
Debra Dufresne Vial II 2002
Craig A. Vitrano, M.D. II 2002
Craig G. Brazan I 2001
Michael J. Cazenave I 2001
Dean T. Falgoust I 2001
Albert J. Waguespack I 2001
<PAGE> 27
Item 5. Other Information
Effective July 6, 2000, Dr. Craig A. Vitrano resigned his
positions as a director of One American Corp. and First American
Bank and Trust. Dr. Vitrano'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
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, 1999 were
examined by Hannis T. Bourgeois, L L P, independent public
accountants, who rendered an independent professional opinion.
The financial statements as of June 30, 2000 were reviewed by
Hannis T. Bourgeois, L L P.
<PAGE> 29
Independent Accountant's Report
July 31, 2000
To the Shareholders and Board of Directors
One American Corp. and Subsidiaries
Vacherie, Louisiana
We have reviewed the accompanying Consolidated Balance
Sheets of One American Corp. and Subsidiaries as of June 30, 2000
and 1999, the related Consolidated Statements of Income and
Cash Flows for the three and six month periods then ended, and the
related Consolidated Statements of Changes in Stockholders' Equity
and Cash Flows fir the six month periods then ended.
We previously audited and expressed our unqualified opinion
in our report dated January 14, 2000 on the Consolidated Balance
Sheet of One American Corp. and Subsidiaries as of December 31,
1999.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of obtaining an understanding of the system for the
preparation of interim financial information, applying analytical
review procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an examination in accordance
with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
Respectfully submitted,
/s/ Hannis T. Bourgeois
HANNIS T. BOURGEOIS, LLP
Baton Rouge, Louisiana
<PAGE> 30
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 11, 2000
Date
<PAGE> 31
