SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 - QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter ended March 31, 1998 Commission File Number 13397
Zachary Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-0981148
State of or other jurisdiction (I.R.S. Employer Incorporation
of organization) or Identification No.)
4700 Main Street
Post Office Box 497
Zachary, LA 70791-0497
(Address of principal executive office) (Zipcode)
Registrant's telephone number, including area code 504 654 2701
NONE
(Former name, former address and former fiscal
year of change since last report)
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, $10 par value, 193,667 shares outstanding as of March 31,
1998.
I N D E X
Financial Statements:
Consolidated Balance Sheets -
March 31, 1998, December 31, 1997 and March 31, 1997 2
Consolidated Statements of Income -
for the three months ended March 31, 1998 and 1997 3
Consolidated Statements of Changes in Stockholders' Equity -
for the three months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
for the three months ended March 31, 1998 and 1997 5-6
Notes to Consolidated Financial Statements 7-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
Part II - Other Information 15
Signatures 16
Report of Independent Accountant 17
Management's Responsibility for Financial Reporting 18
1
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
March 31, 1997, December 31, 1998 and March 31, 1997
ASSETS
(UNAUDITED) (UNAUDITED)
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
Cash and Due from Banks $ 3,280,870 $ 2,481,869 $ 3,628,342
Interest Bearing Deposits in
Other Institutions 45,123 95,046 91,063
Reserve Funds Sold 3,550,000 1,700,000 800,000
Securities Available for Sale
(Amortized Cost $23,482,871,
$25,624,161 and $29,536,576) 23,501,196 25,620,114 29,322,066
Loans 46,338,808 46,141,573 37,581,194
Less: Allowance for Loan Losses (782,205) (771,850) (825,339)
45,556,603 45,369,723 36,755,855
Bank Premises and Equipment 1,691,465 1,693,887 1,448,099
Other Real Estate 206,154 217,401 408,181
Accrued Interest Receivable 574,968 558,501 545,480
Other Assets 201,353 69,139 68,566
Total Assets $78,607,732 $77,805,680 $73,067,652
LIABILITIES
Deposits:
Noninterest Bearing $14,941,689 $14,418,082 $12,456,517
Interest Bearing 54,629,775 54,762,690 52,577,401
69,571,464 69,180,772 65,033,918
Accrued Interest Payable 200,240 188,188 178,912
Other Liabilities 359,343 221,985 163,643
Total Liabilities 70,131,047 69,590,945 65,376,473
STOCKHOLDERS' EQUITY
Common Stock - $10 Par Value; Author-
ized 2,000,000 Shares; Issued
216,000 Shares, Respectively 2,160,000 2,160,000 2,160,000
Surplus 1,480,000 1,480,000 1,480,000
Retained Earnings 5,271,251 5,024,066 4,639,416
Unrealized Gain (Loss) on Secur-
ities Available for Sale, Net 12,094 (2,671) (141,577)
Treasury Stock(22,333 Shares
at Cost) (446,660) (446,660) (446,660)
Total Stockholders' Equity 8,476,685 8,214,735 7,691,179
Total Liabilities and
Stockholders' Equity $78,607,732 $77,805,680 $73,067,652
See accountant's report and accompanying notes.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended
March 31, 1998 and 1997
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
Interest Income:
Interest and Fees on Loans $1,017,501 $ 798,961
Interest on Securities 378,627 473,627
Other Interest Income 49,097 24,549
Total Interest Income 1,445,225 1,297,137
Interest Expense on Deposits 564,337 530,872
Net Interest Income 880,888 766,265
Provision for Loan Losses 23,785 7,479
Net Interest Income After Provision for
Loan Losses 857,103 758,786
Other Income:
Service Charges on Deposit Accounts 118,166 124,487
Loss on Securities - (913)
Other Operating Income 40,130 27,494
Total Other Income 158,296 151,068
Income before Other Expenses 1,015,399 909,854
Other Expenses:
Salaries and Employee Benefits 364,989 332,266
Occupancy Expense 41,422 49,358
Net Other Real Estate Expense 4,922 1,200
Other Operating Expenses 234,656 227,143
Total Other Expenses 645,990 609,967
Income before Income Taxes 369,410 299,887
Applicable Income Taxes 122,225 96,053
Net Income $ 247,185 $ 203,834
Per Share:
Net Income $ 1.28 $ 1.05
See accountant's report and accompanying notes.
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
or the three months ended March 31, 1998 and 1997
(UNAUDITED)
MARCH 31
1998 1997
Common Stock:
Balance - Beginning and End of Period $2,160,000 $2,160,000
Surplus:
Balance - Beginning and End of Period $1,480,000 $1,480,000
Retained Earnings:
Balance - Beginning of Period $5,024,066 $4,435,582
Net Income 247,185 203,834
Balance - End of Period $5,271,251 $4,639,416
Net Unrealized Gain (Loss) on Securities
Available for Sale:
Balance - Beginning of Period $ (2,671) $ (17,046)
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale 14,765 (124,531)
Balance - End of Period $ 12,094 $ (141,577)
Treasury Stock:
Balance - Beginning and End of Period $ (446,660) $ (446,660)
See accountant's report and accompanying notes.
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(UNAUDITED)
MARCH 31
1998 1997
Cash Flows From Operating Activities:
Net Income $ 247,185 $ 203,834
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 23,785 7,479
Provision for Depreciation 52,691 34,097
Amortization (Accretion) of Securities
Premiums (Discounts) 1,671 (8,035)
Dividends on FHLB Stock (3,900) (3,300)
Loss on Sale of Securities - 913
(Increase) Decrease in Interest Receivable (16,467) 67,088
(Increase) Decrease in Other Assets (132,214) 86,691
Increase (Decrease) in Interest Payable 12,052 (6,376)
Increase in Other Liabilities 129,751 93,867
Net Cash Provided by Operating
Activities 314,554 476,258
Cash Flows From Investing Activities:
Net Decrease in Interest Bearing
Deposits in Other Institutions 49,923 20,406
Net(Increase)Decrease in Reserve
Funds Sold (1,850,000) 50,000
Purchase of Federal Home Loan Bank Stock (51,300) (21,900)
Purchases of Securities - (2,030,544)
Principal Payments on Mortgaged Back
Securities 694,819 98,698
Proceeds from Maturities of Securities 1,500,000 -
Proceeds from Sale of Securities - 4,982,239
Net Increase in Loans (210,665) (323,508)
Purchases of Premises and Equipment (50,269) (142,757)
Proceeds from Sales of Other Real Estate 1,247 -
Net Cash Provided by Investing
Activities 93,755 2,632,634
(CONTINUED)
5
(UNAUDITED)
MARCH 31
1998 1997
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and
Savings Accounts 892,201 (3,155,438)
Net Increase (Decrease) in Certificate
of Deposit (501,509) 20,087
Net Cash Provided by Financing
Activities 390,692 (3,135,351)
Increase (Decrease) in Cash and Due
from Banks 799,001 (26,459)
Cash and Due from Banks - Beginning of
Period 2,481,869 3,654,801
Cash and Due from Banks - End of Period $3,280,870 $3,628,342
Supplemental Disclosures of Cash Flow
Information:
Noncash Investing Activities:
Increase (Decrease) in Unrealized
Gain (Loss) on Securities Available
for Sale $ 22,372 $ (188,682)
Increase (Decrease) in Deferred Tax
Effect on Unrealized Gain (Loss)
on Securities Available for Sale $ (7,607) $ 64,151
Cash Payments For:
Interest Paid on Deposits $ 564,336 $ 537,248
Income Tax Payments (Refunds) $ 127,500 $ (14,719)
See accountant's report and accompanying notes.
6
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies -
The accounting principles followed by Zachary Bancshares, Inc. and
its wholly-owned Subsidiary, Bank of Zachary, are those which are
generally practiced within the banking industry. The methods of
applying those principles conform with generally accepted accounting
principles and have been applied on a consistent basis. The principles
which 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 accepted 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 for the first three months ended March 31,
1998 are no indication of the expected results for the annual period
which ends December 31, 1998. Additional information concerning
the audited financial statements and notes can be obtained from
Zachary Bancshares, Inc.'s annual report and Form 10-KSB filed for
the period ended December 31, 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of Zachary
Bancshares, Inc. (the Company), and its wholly-owned subsidiary,
Bank of Zachary (the Bank). All material intercompany accounts
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 in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
7
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the period. Actual results could differ from
those estimates.
Securities
Securities are being accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Investments in Debt and Equity Securities," which requires the
classification of securities as held to maturity, trading, or
available for sale.
Securities classified as held to maturity are those debt securities
the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. Securities classified as
trading are those securities held for resale in anticipation of
short-term market movements. The Bank holds no securities classified
as held to maturity or trading.
Securities classified as available for sale are those debt securities
that the Bank intends to hold for an indefinite period of time but
not necessarily to maturity. 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 reported deferred tax effect.
Realized gains or losses, determined on the basis of the costs of
specific securities sold, are included in earnings.
Loans
Loans are stated at principal amounts outstanding, less unearned
income and allowance for loan losses. Interest on commercial loans
is accrued daily based on the principal outstanding. Interest on
installment loans is recognized and included in interest income
using the sum-of-the-digits method, which does not differ materially
from the interest method.
8
The Bank discontinues the accrual of interest income when a loan
becomes 90 days past due as to principal or interest. Interest on
impaired loans is discontinued when, in management's opinion the
borrower may be unable to meet payments as they become due. When a
loan is placed on non-accrual status, previously recognized but un-
collected interest is reversed to income or charged to the allowance
for loan losses. Interest income is subsequently recognized only to
the extent that cash payments are received.
Allowance for Loan Losses
The allowance for loan losses is an amount which in management's
judgment is adequate to absorb potential losses 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 examinations by regulatory agencies; an internal
asset review process; expectations of future economic conditions and their
impact on particular borrowers; and other judgmental factors.
The allowance for loan losses is based on estimates of potential
future losses, and ultimate losses may vary from the current esti-
mates. 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 collectibility of the principal is un-
likely. 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 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.
9
Expenditures for maintenance and repairs are charged to operations as
incurred. Cost of major additions and improvements are capitalized.
Other Real Estate
Other real estate is comprised of properties acquired through fore-
closure or negotiated settlement. The carrying value of these prop-
erties is lower of cost or fair value. 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 Net 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 on a liability method in accordance with
SFAS No. 109 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 corporation and its subsidiary file a consolidated federal income
tax return. In addition, state income tax returns are filed individ-
ually by the Company in accordance with state statutes.
Comprehensive Income
The Financial Accounting Standards Board issued Statement No. 130
"Reporting Comprehensive Income", which has become effective for
years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its
10
components which are revenues, expenses, gains, and losses that under
GAAP are included in comprehensive income but excluded from net
income. The Bank adopted this statement in 1998. The only component
of comprehensive income included in the financial statements was the
unrealized gain (loss) on securities available for sale, which was
immaterial at March 31, 1998 and 1997.
Earnings per Common Share
In February 1997, Statement of Financial Accounting Standards 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, 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
March 31, 1998 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 193,667 for
the first quarter of 1998 and 1997.
Statements of Cash Flows
For purposes of reporting cash flows, cash and due from banks in-
cludes cash on hand and amounts due from banks (including cash items
in process of clearing).
11
Zachary Bancshares, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION
March 31, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the signifi-
cant changes in income and expenses in relation to the changes in fi-
nancial position for the three months ended March 31, 1998 and 1997
This information should be read in conjunction with the financial
statements and the notes relating thereto. The Company is unaware of
any trends, uncertainties or events which would or could have a
material impact on future operating results, liquidity or capital.
FINANCIAL CONDITION ANALYSIS
Loans
Total loans were $46,338,808 at March 31, 1998 compared to $37,581,194
at March 31, 1997. This represents an increase of $8,757,614 or 24%.
Loan growth was funded from reallocation of investment securities as
they matured and from deposit growth.
Investment Securities
Investment securities decreased 20% to $23,501,196 at March 31, 1998
compared to $29,322,066 at March 31, 1997. This decrease was due to
the reallocation of these funds to the loan portfolio as the securities
matured.
Bank Premises and Equipment
Total bank premises and equipment was $1,691,465 at March 31, 1998
compared to $1,448,099 at March 31, 1997. A contract for $2,876,000
for the construction of a new Company headquarters was signed on
December 31, 1997 and foundation work started for the project during
March 1998. As work continues on the project, the Bank premises and
equipment totals will increase to reflect the construction in progress.
Completion of the project is anticipated to be in the first quarter of
1999.
12
Deposits
Total deposits increased $4,537,546 or 7% to $69,571,464 at March 31,
1998 compared to $65,033,918 at March 31, 1997.
RESULTS OF OPERATION
For the Three Month Period Ended March 31, 1998 over 1997
Net Income
Net Income was $247,185 for the three month period ended March 31, 1998
compared to $203,834 in the same period in 1997. This change was
primarily due to an increase in total interest income.
Interest Income
Interest Income for the three month period ended March 31, 1998 was
$1,445,225 or a 12% increase over the same period in 1997. The
interest income increase resulted from the Company's continued asset
reallocation from lower yielding securities to higher yielding loans.
The Subsidiary's loan portfolio increased 24% to $46,338,808 while its
investment portfolio decreased 20% to $23,501,196 in the time period
under consideration.
Interest Expense
Interest Expense for the quarter ended March 31, 1998 was $564,337 or a
7% increase over the same quarter in 1997 at $530,872. Interest
bearing deposits increased 4% to $54,629,775 from $52,577,401 at March
1997. Both volume and rate increases contributed to the net interest
expense change.
Provision for Loan Losses
The Company included $23,785 for provision for loan losses during the
three month period ended March 31, 1998 due to continued increases in
the loan portfolio. The Company's Watch List volumes were stable in
the last half of 1997 and to date in 1998. Management does not
anticipate any unusual Watch List changes and remains committed to
providing for losses in a timely manner.
Total Other Income
Total other income for the time period under consideration increased
$7,228 or 5%. Service charges on Deposit Accounts decreased $6,321 or
13
5% as the Company offered new products during the latter part of 1997
which included reduced monthly service fees. Other income increased
$12,636 or 32% primarily from fee income on investment sales which the
Company received under the terms of a contract with a third party which
offers discount brokerage service at the Company's facility.
Total Other Expense
Total Other Expenses increased 6% or $36,023 to $645,990 at March 31,
1998 from $609,967 at March 31, 1997. Employee salaries and benefits
increased 10% for the three month period under consideration.
Occupancy expense decreased 16% for the 1998 three month time period as
1997's period had one time expenses of approximately $15,000 related to
the Company's data processing conversion in February 1997.
Income Tax
The Company's income is fully taxable at the maximum rate (34%) both in
1998 and 1997 and expects to remain taxable at the current rate
throughout 1998.
14
PART II
Item 6. EXHIBITS AND REPORT
a. The following exhibit is filed as a part of this report.
EXHIBIT 15 - Report of Independent Accountants
15
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized
ZACHARY BANCSHARES, INC.
Date: MAY 6, 1998 /s/ Harry S. Morris, Jr.
Harry S. Morris, Jr.
President
/s/ Larry Bellard
Larry Bellard
Treasurer
16
April 30, 1998
Independent Accountant's Report
To the Board of Directors
Zachary Bancshares, Inc. and Subsidiary
Zachary, Louisiana
We have reviewed the accompanying Consolidated Balance Sheets of
Zachary Bancshares, Inc. and Subsidiary as of March 31, 1998 and 1997,
and the related Consolidated Statements of Income and Cash Flows for
the three month periods then ended in accordance with Statements on
Standards for Accounting and Review Services issued by the American
Institute of Certified Public Accountants.
We previously audited and expressed our unqualified opinion in our
report dated January 10, 1998, on the Consolidated Balance Sheet of
Zachary Bancshares, Inc. and Subsidiary as of December 31, 1997.
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 finan-
cial 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 state-
ments for them to be in conformity with generally accepted accounting
principles.
Respectfully submitted,
/s/ HANNIS T. BOURGEOIS & CO., L.L.P.
17
Management's Responsibility for Financial Reporting
The management of Zachary Bancshares, Inc. 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 princi-
ples and include some amounts that are necessarily based on manage-
ment'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, objec-
tivity, 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 author-
ized and recorded in accordance with established policies and proce-
dures. 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, Zachary Bancshares, Inc. has a profes-
sional staff who monitors compliance with and assesses the
effectiveness of the system of internal accounting controls and
coordinates audit coverage with the independent public accountants.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with management, and the indepen-
dent public accountants to review matters relating to financial report-
ing, internal accounting control and the nature, extent and results of
the audit effort. The independent public accountants have direct
access to the Audit Committee with or without management present.
The financial statements as of December 31, 1997 were examined by
Hannis T. Bourgeois & Co., L.L.P., independent public accountants, who
rendered an independent professional opinion on the financial state-
ments prepared by management. The financial statements as of March 31,
1998 have been reviewed by Hannis T. Bourgeois & Co., L.L.P. in accor-
dance with standards established by the American Institute of Certified
Public Accountants.
/s/ Larry Bellard
Larry Bellard, Treasurer
18
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