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 September 30, 1999 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.)
4743 Main Street
Post Office Box 497
Zachary, LA 70791-0497
(Address of principal executive office) (Zipcode)
Registrant's telephone number, including area code 225 654 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 September
30, 1999.
I N D E X
Financial Statements:
Consolidated Balance Sheets -
September 30, 1999, December 31, 1998 and September 30, 1998 2
Consolidated Statements of Income -
for the three and nine months ended September 30, 1999 and 1998 3
Consolidated Statements of Changes in Stockholders' Equity -
for the nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows -
for the nine months ended September 30, 1999 and 1998 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
Management's Responsibility for Financial Reporting 17
1
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
September 30, 1999, December 31, &
September 30, 1998
ASSETS
(UNAUDITED) (UNAUDITED) (UNAUDITED)
September 30, DECEMBER 31, September 30,
1999 1998 1998
Cash and Due from Banks $ 3,875,416 $ 2,815,507 $ 2,694,650
Interest Bearing Deposits
in Other Institutions 58,031 1,701,873 1,685,233
Reserve Funds Sold 1,975,000 6,175,000 4,100,000
Securities Available for Sale
(Amortized Cost $16,842,186,
$17,563,961 and $20,545,751) 16,442,066 17,572,539 20,607,858
Loans 59,935,564 52,372,002 50,459,315
Less: Allowance for Loan
Losses (949,843) (858,856) (791,373)
$58,985,721 $51,513,146 $49,667,942
Bank Premises and Equipment 4,235,914 3,067,869 2,517,947
Other Real Estate 45 191,592 194,805
Accrued Interest Receivable 595,308 518,258 563,422
Other Assets 256,954 231,935 226,193
Total Assets $86,424,455 $83,787,719 $82,258,050
Deposits
Noninterest Bearing $18,440,942 $17,636,206 $16,101,756
Interest Bearing 58,102,419 56,814,190 56,664,086
76,543,361 74,450,396 72,765,842
Accrued Interest Payable 182,696 231,360 217,425
Other Liabilities 236,948 203,202 448,554
Total Liabilities $76,963,005 $74,884,958 $73,431,821
Common Stock - $10 Par Value;
Authorized 2,000,000 Shares;
Issued 216,000 Shares 2,160,000 2,160,000 2,160,000
Surplus 1,480,000 1,480,000 1,480,000
Retained Earnings 6,532,188 5,703,759 5,591,898
Unrealized Gain (Loss) on Securities
Available for Sale, Net (264,078) 5,662 40,991
Treasury Stock-22,333 Shares,
at Cost (446,660) (446,660) (446,660)
Total Stockholders'Equity 9,461,450 8,902,761 8,826,229
Total Liabilities and
Stockholders' Equity $86,424,455 $83,787,719 $82,258,050
The accompanying notes are an integral part of these financial statements.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and nine months ended
September 30, 1999 and 1998
(UNAUDITED) (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
Interest Income:
Interest and Fees on Loans $1,333,416 $1,124,829 $3,762,058 $3,219,363
Interest on Securities 257,635 328,454 780,381 1,062,324
Other Interest Income 50,394 81,581 200,358 209,790
Total Interest Income $1,641,445 $1,534,864 $4,742,797 $4,491,477
Interest Expense:
Interest Expense on Deposits $ 575,687 $ 592,846 $1,682,818 $1,748,353
Interest Expense on Borrowings (0) 80 233 521
Total Interest Expense $ 575,687 $ 592,926 $1,683,051 $1,748,874
Net Interest Income 1,065,758 941,938 3,059,746 2,742,603
Provision for Loan Losses 45,370 52,134 134,630 127,486
Net Interest Income After
Provision for Loan Losses $1,020,388 $ 889,804 $2,925,116 $2,615,117
Other Income:
Service Charges on Deposit
Accounts 137,483 124,979 376,005 363,975
Gain on Sale of Assets 386,937 - 386,937 -
Other Operating Income 36,287 50,655 119,498 131,921
Total Other Income $ 560,707 $ 175,634 $ 882,440 $ 495,896
Income before Other Expenses 1,581,095 $1,065,438 $3,807,556 $3,111,013
Other Expenses:
Salaries and Employee Benefits $ 420,920 $ 381,257 $1,190,014 $1,125,121
Occupancy Expense 79,950 41,468 176,499 122,583
Net Other Real Estate Expense (24,579) 756 57,627 6,435
Other Operating Expenses 288,300 271,010 836,147 737,847
Total Other Expenses 764,591 694,491 2,260,287 1,991,986
Income before Income Taxes 816,504 370,947 1,547,269 1,119,027
Applicable Income Tax 277,657 131,760 525,173 376,895
Net Income $ 538,847 $ 239,187 $1,022,096 $ 742,132
Per Share
Net Income $ 2.78 $ 1.23 $ 5.28 $ 3.83
Cash Dividends $ 1.00 $ 0.90 $ 1.00 $ 0.90
The accompanying notes are an integral part of these financial statements.
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the nine months ended September 30,1999 and 1998
ACCUMULATED TOTAL
OTHER STOCK-
COMMON RETAINED COMPREHENSIVE TREASURY HOLDERS'
STOCK SURPLUS EARNINGS INCOME STOCK EQUITY
Balances, (Unaudited)
January 1, 1999 $2,160,000 $1,480,000 $5,703,759$ 5,662 $(446,660)$8,902,761
Comprehensive Income:
Net Income 1,022,096 1,022,096
Change in Unrealized
Gain (Loss) on Securities
Available for Sale (269,740) (269,740)
Less: Reclassification
Adjustment - -
Total Comprehensive
Income 752,356
Cash Dividends (193,667) (193,667)
Balances, (Unaudited)
September 30, 1999$2,160,000$1,480,000$6,532,188$ (264,078)$(446,660)$9,461,450
Balances, (Unaudited)
January 1, 1998 $2,160,000$1,480,000$5,024,066$ (2,671)$(446,660)$8,214,735
Comprehensive Income:
Net Income 742,132 742,132
Change in Unrealized
Gain (Loss) on Securities
Available for Sale 43,662 43,662
Less: Reclassification
Adjustment - -
Total Comprehensive _________
Income 785,794
Cash Dividends (174,300) (174,300)
Balances, (Unaudited)
September 30, 1998 $2,160,000$1,480,000$5,591,898$ 40,991 $(446,660) $8,826,229
The accompanying notes are an integral part of these financial statements.
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(UNAUDITED)
SEPTEMBER 30
1999 1998
Cash Flows From Operating Activities:
Net Income $ 1,022,096 $ 742,132
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Loan Losses 134,630 127,486
Provision for Depreciation and Amortization 187,066 152,988
Stock Dividends - Federal Home Loan Bank (13,700) (12,600)
Net Amortization Securities Premium 26,535 (2,107)
Charge Off of Other Real Estate 92,613 -
Gain on Sale of Real Estate (36,702) -
Gain on Sale of Bank Property (386,937) -
(Increase) in Accrued Interest Receivable (77,050) (4,921)
(Increase) Decrease in Other Assets 113,939 (157,054)
Increase (Decrease) in Accrued Interest Payable (48,664) 29,237
Increase (Decrease) in Other Liabilities 33,746 204,077
Net Cash Provided by Operating
Activities 1,047,572 1,079,238
Cash Flows From Investing Activities:
Net (Increase) Decrease in Reserve Funds Sold 4,200,000 (2,400,000)
Purchase of Securities Available for Sale (8,786,186) (51,300)
Maturities or Calls of Securities Available
for Sale 7,000,000 2,500,000
Principal Payments on Mortgaged Back
Securities 2,495,126 2,644,417
Net (Increase) in Loans (7,607,205) (4,425,705)
Purchases of Premises and Equipment (1,542,174) (977,048)
Proceeds from Sales of Other Real Estate 135,636 22,596
Proceeds from Sales of Bank Property 574,000 -
Net Cash Used in Investing Activities (3,530,803) (2,687,040)
(CONTINUED)
5
(UNAUDITED)
SEPTEMBER 30,
1999 1998
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and
Savings Accounts 2,920,566 2,904,206
Net Increase (Decrease) in Certificate
of Deposit (827,601) 680,864
Cash Dividends (193,667) (174,300)
Net Cash Provided by Financing Activities 1,899,298 3,410,770
Increase (Decrease) in Cash and Interest
Bearing Deposits (583,933) 1,802,968
Cash and Interest Bearing Deposits -
Beginning of Period 4,517,380 2,576,915
Cash and Interest Bearing Deposits -
End of Period $ 3,933,447 $ 4,379,883
Supplemental Disclosures of Cash Flow
Information:
Noncash Investing Activities:
Change in Unrealized Gain or (Loss)
on Securities Available for Sale $ (408,698) $ 66,154
Change in Deferred Tax Effect on
Unrealized Gain or (Loss) on Securities
Available for Sale $ 138,958 $ (22,492)
Cash Payments For:
Interest Paid on Deposits $ 1,731,482 $ 1,719,116
Income Tax
$ 613,000 $ 374,500
The accompanying notes are an integral part of these financial statements.
6
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 and 1998
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 nine months ended September 30, 1999 are no
indication of the expected results for the annual period which ends
December 31, 1999. 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, 1998.
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 gener
ally accepted accounting principles requires management to make esti
mates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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 the 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 economic conditions.
7
While management uses available information to recognize losses on
loans, further reductions in the carrying amounts of loans may be
necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on
loans. Such agencies may require the Bank to recognize additional
losses based on their judgments 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
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 move
ments. The Bank had no securities classified as held to maturity or
trading at September 30, 1999 or 1998.
Securities classified as available for sale are those debt securi
ties 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. Secu
rities available for sale are carried at fair value. Unrealized gains
or losses are reported as increases or decreases in stockholders' eq
uity, net of the related deferred tax effect. Realized gains or losse
s, determined on the basis of the cost of specific securities sold, are
included in earnings.
Loans
Loans are stated at principal amounts outstanding, less the allow
ance 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 probable
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 judgment 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
examinations by regulatory agencies; an internal asset review process;
expectations of future economic conditions and their impact on
particular borrowers; and other judgmental
8
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 with local economic
conditions, collateral values, and future cash flows on impaired loans,
it is reasonably possible that a material change could occur in the
allowance for loan losses in the near term. However, the amount of the
change that is reasonably possible cannot be estimated.
The allowance for loan losses is based on estimates of potential
future losses, and ultimate losses may vary from the current estimates.
These estimates are reviewed periodically and as adjustments become
necessary, the effect of the change in estimate is charged to operating
expenses in the period incurred. All losses are charged to the
allowance for loan losses when the loss actually occurs or when
management believes that the 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 reporting.
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. 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, minus estimated costs to sell.
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. Also certain items of income and expenses
are recognized in different time periods for financial statement
purposes than for income taxes purposes. Thus provisions for deferred
taxes are recorded in recognition of such timing differences.
Deferred taxes are provided utilizing a liability method whereby
deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation
9
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 in
dividually by the Company in accordance with state statutes.
Earnings per Common Share
In February 1997, Statement of Financial Accounting Standard No.
128 "Earnings Per Share" ("SFAS No. 128") was issued which establishes
standards for computing and presenting earnings per share (EPS). Under
SFAS No. 128, 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 September 30,
1999, the Company had no convertible shares or other contracts to issue
common stock. The weighted average number of shares of common stock
used to calculate basic EPS was 193,667 for the periods ended September
30, 1999 and 1998, respectively.
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).
Comprehensive Income
The Financial Accounting Standards Board (FASB) issued Statement
No. 130 "Reporting Comprehensive Income." which became effective for
fiscal years beginning after December 15, 1997. This statement
established standards for the reporting and display of comprehensive
income and its components which are revenues, expenses, gains, and
losses that under GAAP are included in comprehensive income but
excluded from net income. The Company adopted this statement in 1998.
The components of comprehensive income are disclosed in the Statements
of Changes in Stockholder's Equity for all periods presented.
10
Zachary Bancshares, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION
September 30, 1999
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 nine months ended September 30, 1999 and 1998.
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 $59,935,564 at September 30, 1999 compared to
$50,459,315 at September 30, 1998. This represents an increase of
$9,476,249 or 19%. Loan growth was funded from reallocation of
investment securities as they matured and from deposit growth.
Investment Securities
Investment securities decreased 20% to $16,442,066 at September 30,
1999 compared to $20,607,858 at September 30, 1998. This decrease was
due to the reallocation of funds to the loan portfolio as securities
matured; the funding of the new main office facility, and the buildup
of vault cash for Y2K currency needs.
Bank Premises and Equipment
Total bank premises and equipment were $4,235,914 at September 30, 1999
compared to $2,517,947 at September 30, 1998. The Company entered into
a contract totaling $2,923,721 for the construction of a new main
office facility to be located in Zachary, Louisiana. Construction
began in March, 1998 and was completed during the second quarter of
1999. Under the terms of the contract, disbursements totaling
$2,896,666 have been made as of September 30, 1999. The operations of
the Bank were moved to the new location on June 14, 1999 and the Bank's
former headquarters were sold to the City of Zachary for the sale price
of $570,000 July 30, 1999.
11
Deposits
Total deposits increased $3,777,519 or 5% to $76,543,361 at September
30, 1999 compared to $72,765,842 at September 30, 1998.
RESULTS OF OPERATION
For the Nine Month Period Ended September 30, 1999 over 1998
Net Income
Net Income was $1,022,096 for the nine month period ended September 30,
1999 compared to $742,132 in the same period in 1998. This net income
increase included a non-recurring gain of $386,937 on the sale of bank
property previously occupied as the Bank's main office and operations
annex.
Interest Income
Interest Income for the nine month period ended September 30, 1999 was
$4,742,797 or a 6% increase over the same period in 1998. The interest
income increase resulted from the Company's continued asset mix
reallocation from lower yielding securities to higher yielding loans.
The Subsidiary's loan portfolio increased 19% to $59,935,564 while its
investment portfolio decreased 20% to $16,442,066 in the time period
under consideration.
Interest Expense
Interest Expense for the nine months ended September 30, 1999 was
$1,683,051 or a decrease of 4% over the same period in 1998 at
$1,748,874. Non-interest bearing deposits increased $2,339,186 to
$18,440,942 at September 30, 1999 from $16,101,756 at September 30,
1998. Interest bearing deposits also increased to $58,102,419 at
September 30, 1999 from $56,664,086. Weighted average deposit rates
decreased to 2.98% at September 30, 1999 from 3.26% at September 30,
1998.
Provision for Loan Losses
The Company included $134,630 for provision for loan losses during the
nine month period ended September 30, 1999 due to continued increases
in the loan portfolio. During the last several years, with the periods
of rather stable mortgage interest rates, the Bank's Watch List has not
increased in volume. Indications are that this trend will continue
with a slight increase possible due to the increased volume of loans.
12
Total Other Expense
Total Other Expenses increased 13% or $268,301 to $2,260,287 at
September 30, 1999 from $1,991,986 at September 30, 1998. $92,613 of
this increase was due to the write-off of Other Real Estate Owned
property which had been on the books of the Company for ten years.
After ten years Louisiana State Law requires that property in this
situation be written off. The amount represented 42 lots in an
existing residential subdivision. Subsequent to the writedown, three
of these lots were sold resulting in gains totaling $36,702.
Employee salaries and benefits increased 6% for the nine month period
under consideration. Other expenses increased 13% or $98,300 to
$836,147 from $737,847 at September 30,1998. This increase was
primarily due to expenditures of $36,154 for Year 2000 expenses and
expenses related to moving into the Company's new Main Office in June.
Income Tax
The Company's income is fully taxable at the maximum rate (34%) both in
1999 and 1998 and expects to remain taxable at the current rate
throughout 1999.
Earnings Per Share
The Company's 1999 earnings per share at September 30, 1999 were $5.28
compared to $3.83 per share the previous year.
Year 2000 Issues
Management does not feel that the issues related to Y2K are reasonably
likely to have or will have a material effect on the Company's
liquidity, capital resources, or results of operation. The following
information is given regarding this determination.
The Bank has satisfactorily passed all FDIC Y2K readiness exams during
the last nine months and continues to review its plans and procedures
for the coming year end situations.
Approximately $15,000 was expensed during 1998 for software upgrades
and testing. For 1999, $60,000 has been budgeted for these types of
expenses, of which $36,154 has been expensed through September 30,
1999.
13
The Board of Directors of the Bank have been given monthly updates on
the status of our Y2K readiness and have approved the following
policies: (a) Policy for responding to Customer Inquiries Regarding
Y2K; (b) Bank of Zachary 2000 Test Plan; (c) Bank of Zachary Emergency
Operating Procedures; Y2K Business Resumption Plan, and a Y2K Liquidity
Contingency plan. The liquidity plan includes approval by the Board of
Directors to pledge 1-4 family loans as collateral to secure $6,000,000
line of credit from the Federal Reserve Bank of Atlanta Discount Window
program. This credit is in addition to the Bank's regular correspondent
bank $2,100,000 line of credit and a $7,010,000 line of credit at the
Federal Home Loan Bank of Dallas secured by the Bank's FHLB Stock.
Customer liquidity issues have been analyzed and additional amounts of
vault cash have been accumulated in preparation for year end liquidity
needs.
This discussion entitled "Year 2000 Issues" includes certain "forward
looking statements" within the meaning of the Private Securities
Litigation Act of 1995 (PSLA). This statement is included for the
purpose of availing the Company of the protections of the safe harbor
provisions of the PSLA. Management's ability to predict the results of
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.
14
PART II
Item l. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. None
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: November 8, 1999 _______________________
Harry S. Morris, Jr.
President
Larry Bellard
Treasurer
16
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, 1998 were examined by
Hannis T. Bourgeois, L.L.P., independent public accountants, who
rendered an independent professional opinion on the financial state
ments prepared by management. Hannis T. Bourgeois, L.L.P. has not
reviewed the financial statements as of September 30, 1999.
Larry Bellard, Treasurer
17
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