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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______ to _______
Commission file number 0-25486.
ST. LANDRY FINANCIAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 72-1284436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
459 East St. Landry Street, Opelousas, Louisiana 70570
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code: (318) 942-5748
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Issuer had $4.1 million in gross income for the year ended
September 30, 1996.
As of September 30, 1996, there were issued and outstanding 459,093
shares of the Issuer's Common Stock. The Issuer's voting stock is not regularly
and actively traded, and there are no regularly quoted bid and asked prices for
the Issuer's voting stock. Accordingly, the Issuer is unable to determine the
aggregate market value of the voting stock held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS II and IV of Form 10-KSB--1996 Annual Report to Stockholders.
PART III of Form 10-KSB--Proxy Statement for the 1996 Annual Meeting of
Stockholders.
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<PAGE>
PART I
Item 1. Description of Business
General
St. Landry Financial Corporation ("St. Landry" or the "Company") is a
Delaware corporation which was organized in 1995 by First Federal Savings and
Loan Association of Opelousas ("First Federal" or the "Association") for the
purpose of becoming a thrift institution holding company. First Federal,
headquartered in Opelousas, Louisiana, was founded in 1957 as a federally
chartered institution. Its deposits are insured up to applicable limits by the
FDIC. In April 1995, the Association converted to the stock form of organization
through the sale and issuance of 459,093 shares of its common stock to the
Company. The principal asset of the Company is the outstanding stock of the
Association, its wholly owned subsidiary. The Company presently has no separate
operations and its business consists only of the business of the Association.
All references to the Company, unless otherwise indicated, at or before April 5,
1995 refer to the Association.
First Federal has been, and intends to continue to be, a
community-based financial institution that offers a variety of selected
financial services to meet the needs of the community it serves. The Association
attracts retail deposits from the general public and primarily uses such
deposits to originate one- to four-family residential mortgages. To a lesser
extent the Association also originates commercial real estate, one- to
four-family construction and consumer loans. The Association also purchases
mortgage-backed securities and invests in U.S. Government and agency obligations
and other permissible investments. See "--Lending Activities" and "--Investment
Activities."
At September 30, 1996, the Association's loans receivable portfolio
totalled $41.2 million, which consisted of $35.6 million of one- to four-family
residential mortgage loans, $2.9 million of commercial real estate and land
loans, $1.3 million of construction or development loans and $1.4 million in
consumer loans.
First Federal's primary market area is St Landry Parish, Louisiana. At
September 30, 1996, the Company had total assets of $56.9 million, deposits of
$42.0 million and stockholders' equity of $6.7 million (12% of total assets).
The executive offices of the Company are located at 459 East Landry
Street, Opelousas, Louisiana 70570, and the telephone number at that address is
(318) 942-5748.
Lending Activities
General. Historically, the Association originated fixed-rate one- to
four-family mortgage loans for retention in its portfolio. In the early 1980's,
the Association began the origination of adjustable rate mortgage ("ARM") loans
for retention in its portfolio, in order to increase the percentage of loans in
its portfolio with more frequent repricing or shorter maturities than fixed-rate
mortgage loans. However, borrowers in the local market area traditionally have
favored fixed-rate products which has limited the Association's ability to
<PAGE>
originate ARMs. As a result, the Association has continued to originate
fixed-rate residential mortgage loans in response to consumer demand.
The Association's primary focus in lending activities is on the
origination of loans secured by first mortgages on owner-occupied one- to
four-family residences. To a lesser extent, the Association originates loans
secured by commercial real estate, one- to four-family construction and consumer
loans. At September 30, 1996, the Association's net loans held in portfolio
totalled $39.9 million, which constituted 70% of the Association's total assets.
The Loan Committee of the Association, comprised of Directors Roy,
Wolfe and Dunbar, has the responsibility for the supervision of the
Association's loan portfolio with an overview by the full Board of Directors.
Loans may be approved by the Loan Committee, depending on the size of the loan,
with all loans subject to ratification by the full Board of Directors. Loans in
excess of $250,000 require full board approval. In addition, foreclosure actions
or the taking of deeds-in-lieu of foreclosure are subject to oversight by the
Board of Directors.
The aggregate amount of loans that the Association is permitted to make
under applicable federal regulations to any one borrower, including related
entities, or the aggregate amount that the Association could have invested in
any one real estate project, is generally the greater of 15% of unimpaired
capital and surplus or $500,000. See "Regulation--Federal Regulation of Savings
Associations." At September 30, 1996, the maximum amount which the Association
could have lent to any one borrower and the borrower's related entities was
approximately $1.0 million. At September 30, 1996, the Association had no loans
or lending relationships with an outstanding balance in excess of this amount.
The Association's largest lending relationship was a loan to a single borrower
aggregating $576,000 at September 30, 1996, and was secured by an apartment
building under construction. The next largest lending relationships at that date
consisted of a $471,000 loan secured by one- to four- family residential
property and a $403,000 loan secured by a church. At September 30, 1996, all of
these loans was performing in accordance with their respective repayment terms.
<PAGE>
Loan Portfolio Composition. The following information concerning the
composition of the Association's rates loan portfolios in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------
1994 1995 1996
---------------- --------------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family ..................... $31,074 89.69% $34,665 89.52% $35,635 86.41%
Commercial .............................. 1,428 4.12 1,728 4.46 2,891 7.01
Construction ............................ 1,604 4.63 1,556 4.02 1,295 3.14
------- ----- ------- ----- ------- -----
Total real estate loans ............. 34,106 98.44 37,949 98.00 39,821 96.56
------- ----- ------- ----- ------- -----
Consumer Loans:
Deposit account ........................ 474 1.36 606 1.57 705 1.71
Automobile ............................. -- -- -- -- 479 1.16
Mobile homes ........................... 35 .10 74 .19 147 .36
Other .................................. 33 .10 91 .24 88 .21
----- ------ ----- ------ -----
Total consumer loans ................ 542 1.56 771 2.00 1,419 3.44
------- ----- ------ ----- ------ -----
Total loans ......................... 34,648 100.00% 38,720 100.00% 41,240 100.00%
------- ====== ------ ====== ------ ======
Less:
Loans in process ........................ 900 885 711
Deferred fees and discounts ............. 94 90 93
Allowance for losses .................... 351 389 580
------- ------ ------
Total loans receivable, net ............. $33,303 $37,356 $39,856
======= ======= =======
</TABLE>
<PAGE>
The following table shows the composition of the Association's loan
portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1994 1995 1996
----------------- ---------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family....................... $10,405 30.03% $11,891 30.71% $12,263 29.74%
Commercial................................ 61 .18 76 .19 34 .08
Construction.............................. 797 2.30 100 .26 409 .99
------- ------ ------- ------ ------- -----
Total real estate loans................ 11,263 32.51 12,067 31.16 12,706 30.81
Consumer................................... 35 .10 165 .42 714 1.73
------- ------ ------- ------ ------- -----
Total fixed-rate loans................. 11,298 32.61 12,232 31.58 13,420 32.54
------- ------ ------- ------ ------- -----
Adjustable-Rate Loans:
Real estate:
One- to four-family....................... 20,669 59.65 22,774 58.82 23,372 56.67
Commercial................................ 1,367 3.95 1,652 4.27 2,857 6.93
Construction.............................. 807 2.33 1,456 3.76 886 2.15
------- ------ ------- ------ ------- ------
Total real estate loans................ 22,843 65.93 25,882 66.85 27,115 65.75
Consumer................................... 507 1.46 606 1.57 705 1.71
------- ------ ------- ------ ------- ------
Total adjustable-rate loans............ 23,350 67.39 26,488 68.42 27,820 67.46
------- ------ ------- ------ ------- ------
Total loans............................ 34,648 100.00% 38,720 100.00% 41,240 100.00%
------- ====== ------- ====== ------- ======
Less:
Loans in process........................... 900 885 711
Deferred fees and discounts................ 94 90 93
Allowance for loan losses.................. 351 389 580
------- ------- -------
Total loans receivable, net............. $33,303 $37,356 $39,856
======= ======= =======
</TABLE>
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Association's loan portfolio at September 30, 1996. Mortgages which have
adjustable or renegotiable interest rates are shown as terms to repricing. The
Association is unable to provide this information based on contractual
maturities. The schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
----------------------------------------------------------------
One- to Four-Family Commercial Construction Consumer Total
------------------- ------------------ ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------- --------- ------- -------- ------- -------- ------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During
Periods Ending
September 30,
- --------------------
1997................ $24,655 7.29% $ 2,644 7.90% $ 1,295 7.86% $ 733 6.62% $29,327 7.35%
1998 and 1999....... 408 9.45 37 10.03 --- --- 167 9.62 612 9.53
2000 and 2001....... 268 9.87 24 11.93 --- --- 507 17.68 799 14.89
2002 to 2006........ 1,774 9.28 158 9.29 --- --- 12 17.00 1,944 9.33
2007 to 2021........ 5,909 8.74 28 9.42 --- --- --- --- 5,937 8.74
2022 and following.. 2,621 8.57 --- --- --- --- --- --- 2,621 8.57
------- ------- ------- ------ -------
$35,635 $ 2,891 $ 1,295 $1,419 $41,240
======= ======= ======= ====== =======
</TABLE>
The total amount of loans due to mature or reprice after September 30,
1996 which have predetermined interest rates is $13.4 million, and which have
floating or adjustable interest rates is $27.8 million.
<PAGE>
One- to Four-Family Residential Mortgage Lending. The Association
focuses its lending efforts primarily on the origination of conventional loans
for the acquisition of owner-occupied, one- to four-family residences. At
September 30, 1996, the Association's one- to four-family residential mortgage
loans totalled $35.6 million, or 86% of the Association's gross loan portfolio.
The Association originates these loans primarily from referrals from real estate
agents, existing customers and walk-in customers.
The Association currently offers adjustable-rate and fixed-rate loans.
During the year ended September 30, 1996, the Association originated $6.4
million of adjustable-rate real estate loans, 91% of which were secured by one-
to four-family residential real estate. During the same period, the Association
originated $1.7 million of fixed-rate real estate loans, virtually all of which
were secured by one- to four-family residential real estate. The Association's
one- to four-family residential mortgage originations are secured by properties
primarily located in its market area.
The Association currently originates one- to four-family residential
mortgage loans in amounts up to 90% of the appraised value of the security
property. The terms of such loans are generally for up to a maximum term of 30
years. Interest charged on these mortgage loans is competitively priced
according to local market conditions.
The Association currently offers ARMs with one year annual adjustments.
All of the ARM loans are generally offered at a margin over the 11th District's
cost of funds. ARM loans currently offered by the Association generally provided
for up to a two percent annual cap and a lifetime cap of 12 1/2%. As a
consequence of using caps, the interest rates on the ARMs may not be as rate
sensitive as the Association's cost of funds. Borrowers of adjustable rate loans
are qualified at the fully-indexed rate of interest.
In underwriting one- to four-family residential real estate loans, the
Association evaluates both the borrower's ability to make monthly payments and
the value of the property securing the loan. Properties securing real estate
loans made by First Federal are currently appraised by independent fee
appraisers approved and qualified by the Board of Directors. First Federal
generally requires borrowers to obtain an opinion of title and fire, property
and flood insurance (if required) in an amount not less than the amount of the
loan. Real estate loans originated by the Association generally contain a "due
on sale" clause allowing the Association to declare the unpaid principal balance
due and payable upon the sale of the security property.
Commercial Real Estate Lending. The Association engages in commercial
real estate lending, including permanent loans secured primarily by churches,
office buildings, apartment buildings and retail establishments in the
Association's primary market area. At September 30, 1996, the Association had
$2.9 million of commercial real estate loans which represented 7% of the
Association's gross loan portfolio. Included in commercial real estate is
approximately $461,000 of loans to individuals secured by vacant land located in
the Association's market area.
Generally, commercial real estate loans originated by First Federal are
adjustable-rate loans, with annual adjustments based upon the 11th District's
cost of funds, subject to limitations on the maximum annual and total interest
rate increase or decrease over the life of
<PAGE>
the loan. Commercial real estate loans typically do not exceed 75% of the
appraised value of the property securing the loan. First Federal analyzes the
financial condition of the borrower, the borrower's credit history, the
reliability and predictability of the net income generated by the property
securing the loan and the value of the property itself. The Association
generally requires personal guaranties of the borrowers, which are supported by
financial statements, in addition to the security property as collateral for
such loans. Appraisals on properties securing commercial real estate loans
originated by the Association are generally performed by independent fee
appraisers approved by the Board of Directors.
Loans secured by commercial real estate are generally larger and
involve a greater degree of credit risk than one- to four-family residential
mortgage loans. Commercial real estate loans typically involve large balances to
single borrowers or groups of related borrowers. Because payments on loans
secured by commercial real estate are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. If the
cash flow from the project is reduced (for example, if leases are not obtained
or renewed), the borrower's ability to repay the loan may be impaired.
Construction Lending. The Association engages in a limited amount of
construction lending, with $1.3 million or 3% of its gross loan portfolio in
construction loans as of September 30, 1996. Generally, such loans are made to
owner-occupants for the construction of one- to four-family residences.
Currently, such loans are offered with terms to maturity of up to six months and
in amounts generally up to 90% of the appraised value of the security property
which then convert to permanent loans at the end of the construction phase. At
September 30, 1996, the Association had a single non-residential construction
loan of $576,000 secured by an apartment building.
The Association's construction loans require the payment of
interest-only on a monthly basis. The Association makes the permanent loan on
the underlying property consistent with its underwriting standards for one- to
four-family residences. The Association usually disburses funds on construction
loans directly to the builder, or jointly to the individual and supplier if the
individual is acting as its own general contractor, at certain intervals based
upon the completed percentage of the project. Inspections of loans in process
are performed by the Association's staff.
Nevertheless, construction lending is generally considered to involve a
higher level of credit risk than one- to four-family residential lending since
the risk of loss on construction loans is dependent largely, upon the accuracy
of the initial estimate of the individual property's value upon completion of
the project and the estimated cost (including interest) of the project. If the
cost estimate proves to be inaccurate, the Association may be required to
advance funds beyond the amount originally committed to permit completion of the
project. In an effort to reduce these risks, the application process includes a
submission to the Association of accurate plans, specifications and costs of the
project to be constructed. These items are also used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus building).
<PAGE>
Consumer Lending. First Federal currently offers loans secured by
deposit accounts and mobile homes, as well as a limited number of unsecured
loans to existing customers. Substantially all of the Association's consumer
loans originated by the Association were originated in its primary market area.
At September 30, 1996, the Association's consumer loan portfolio totalled $1.4
million, or 3% of its total gross loan portfolio. The majority of consumer loans
are secured by savings accounts and automobiles.
During fiscal 1996, the Association purchased a group of consumer loans
secured by used automobiles totalling $503,000. These loans were purchased from
a loan broker which initially retained servicing rights. The Association has
experienced difficulties in obtaining information and payments from the servicer
and subsequent to September 30, 1996, a new servicer has taken over the
responsibility for servicing this portfolio. As a result, $314,000 of these
loans have been classified as substandard under the Association's classification
of assets system. In addition, the Association increased its provision for loan
losses during fiscal 1996 partially as a result of the performance of this
portfolio.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Association for consumer loans include an application,
a determination of the applicant's payment history on other debts, employment
stability and an assessment of ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by rapidly depreciable assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans. Such
loans may also give rise to claims and defenses by a consumer loan borrower
against an assignee of such loan such as the Association, and a borrower may be
able to assert against such assignee claims and defenses which it has against
the seller of the underlying collateral. Consumer loan delinquencies often
increase over time as the loans age.
Originations, Purchases, Sales and Servicing of Loans
Real estate loans are generally originated by First Federal's staff of
salaried loan officers. Loan applications are taken and processed at its office.
In fiscal 1996, the Association originated $8.7 million of loans, compared to
$10.1 million, $8.1 million and $5.9 million in fiscal 1995, 1994 and 1993,
respectively. Management attributes the increase in originations to sustained
low interest rates during fiscal 1994 and 1995. During fiscal
<PAGE>
1996, there was a slight decrease in the dollar amount of originations due
primarily to the fact that the loans were not as large and in part because of a
slight rise in interest rates.
In periods of economic uncertainty, including, rising interest rates,
depressed real estate values and slowing of economic activity, the Association's
ability to originate large dollar volumes of real estate loans may be
substantially reduced or restricted with a resultant decrease in related loan
origination fees, other fee income and operating earnings. The Association does
not currently purchase loans because there is sufficient product available for
origination but will consider favorable purchase opportunities as they arise.
The following table shows the loan origination, purchase, sale and
repayment activities of the Association for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1994 1995 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family......... $ 4,438 $ 5,561 $5,826
- commercial.................. 516 1,361 551
Consumer.................................. 218 613 459
------- ------- ------
Total adjustable-rate.............. 5,172 7,535 6,836
------- ------- ------
Fixed rate:
Real estate - one- to four-family......... 2,903 2,418 1,717
- commercial.................. --- 6 25
Consumer.................................. 31 94 76
------- ------- ------
Total fixed-rate................... 2,934 2,518 1,818
------- ------- ------
Total loans originated............. 8,106 10,053 8,654
------- ------- ------
Purchases:
Total purchased............................ --- --- 503
------- ------- ------
Sales and Repayments:
Total sales............................... --- --- ---
Principal repayments...................... 4,451 3,625 5,133
------- ------- ------
Total reductions................... 4,451 3,625 5,133
------- ------- ------
Increase (decrease) in other items,
net(1).................................. (2,596) (2,375) (1,523)
------- ------- ------
Net increase (decrease)............ $ 1,059 $ 4,053 $2,501
======= ======= ======
<FN>
- ------------------
(1) Primarily existing loans refinanced by the Association.
</FN>
</TABLE>
Asset Quality
When a borrower fails to make a required payment on a loan, the
Association attempts to cause the delinquency to be cured by contacting the
borrower. Initially, a payment reminder is sent five and 20 days after the due
date, if payment has not been received. If the delinquency is not cured by the
30th day, contact with the borrower may be made by phone and by another letter.
Additional written and oral contacts may be made with the borrower between 30
and 60 days after the due date. If the delinquency continues for a period of 60
days, the Association usually sends a default letter to the borrower and, after
90
<PAGE>
days, institutes appropriate action to foreclose on the property. If foreclosed,
the property is sold at public auction and may be purchased by the Association.
Delinquent consumer loans are handled in a generally similar manner, except that
when the payment is 45 days past due, the loan is referred to the Association's
counsel for collection. The Association's procedures for repossession and sale
of consumer collateral are subject to various requirements under Louisiana
consumer protection laws.
Generally, when a loan becomes delinquent 90 days or more, or when the
collection of principal or interest becomes doubtful, the Association will place
the loan on a non-accrual status and, as a result, previously accrued interest
income on the loan is taken out of current income. Each account is handled on an
individual basis. The loan will be transferred back to an accrual status if the
borrower brings the loan current.
The following table sets forth the Association's loan delinquencies,
approximately $1.0 million are secured by one- to four-family residences,
$199,000 are secured by automobiles, and $12,000 are unsecured.
<TABLE>
<CAPTION>
Total Loans
Loans Delinquent For: Delinquent
60-89 Days 90 Days and Over 60 Days or More
--------------- ---------------- ---------------
Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total...... 19 $441 35 $802 77 $1,243
== ==== == ==== == ======
</TABLE>
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Association's loan portfolio. At all
dates presented, the Association had no accruing loans which were contractually
past due 90 days or more and no troubled debt restructurings (which involve
forgiving a portion of interest or principal on any loans or making loans at a
rate materially less than that of market rates). Foreclosed assets include
assets acquired in settlement of loans.
<TABLE>
<CAPTION>
September 30,
------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family .............. $ 662 $390 $561 $581 $618
Consumer ......................... -- -- -- 19 184
------ ---- ---- ---- ----
Total .......................... 662 390 561 600 802
------ ---- ---- ---- ----
Foreclosed assets:
One- to four-family ............... 565 274 69 56 131
------ ---- ---- ---- ----
Total .......................... 565 274 69 56 131
------ ---- ---- ---- ----
Total non-performing assets ........ $1,227 $664 $630 $656 $933
====== ==== ==== ==== ====
Total as a percentage of total
assets............................ 2.56% 1.38% 1.32% 1.23% 1.64%
====== ==== ==== ==== ====
</TABLE>
For the year ended September 30, 1996 gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $101,000. The amounts that were included in
interest income on such loans were $58,000 for the year ended September 30,
1996.
The majority of the Association's non-performing assets are secured by
one- to four-family residential property. No single loan or real estate owned
had an outstanding balance in excess of $145,000.
Classified Assets. Federal regulations provide for the classification
of loans and other assets such as debt and equity securities considered by the
OTS to be of lesser quality as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the savings association will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association
<PAGE>
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of that portion of the asset so
classified or to charge-off such amount. An association's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the association's Regional Director at the regional OTS
office, who may order the establishment of additional general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Association
regularly reviews the loans in its portfolio to determine whether any loans
require classification in accordance with applicable regulations. On the basis
of management's review of its assets, the following table presents classified
assets at the dates indicated.
September 30,
---------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In Thousands)
Classified Assets:
Substandard ................. $1,109 $1,440 $1,194 $1,171 $1,185
Doubtful .................... -- -- -- -- --
Loss ........................ 117 65 63 48 230
------ ------ ------ ------ ------
Total ................... $1,226 $1,505 $1,257 $1,219 $1,415
====== ====== ====== ====== ======
First Federal has recognized various levels of loan loss provisions due
to the impact of a large balance of delinquent and classified loans and the
uncertainty surrounding the Association's local market area.
Included in the Association's classified assets at September 30, 1996,
were $314,000 in automobile loans which were purchased in October 1995, and
$277,000 were loans made to facilitate the sale of real estate owned, which are
properties the Association has previously acquired through foreclosure or by
deed-in-lieu thereof. In an attempt to offset holding costs such as insurance,
taxes and maintenance, the Association may sell the properties by financing up
to 100% of the purchase price. All of such loans were made at fixed rates of
interest for terms of 20 years. Unlike troubled debt restructurings, the
Association did not forgive any interest or principal payments on these loans.
Under regulatory criteria, these loans are classified until the borrower can
demonstrate an ability to repay the loan. As of September 30, 1996, First
Federal had four loans to facilitate, all of which were performing in accordance
with their terms.
Other Assets of Concern. As of September 30, 1996, there was
approximately $486,000 in net book value of assets classified by the Association
because of known information about the possible credit problems of the borrowers
or the cash flows of the security property has caused management to have some
doubts as to the ability of the borrowers to comply with present loan repayment
terms and which may result in the future inclusion of such item in the
non-performing asset categories. Other assets of concern consist of ten one- to
four-family residences aggregating $341,000, $133,000 in automobile loans, and
$12,000 in unsecured loans at September 30, 1996 which have been designated as
special mention under OTS regulations and the loans to facilitate, discussed
above. All of these loans
<PAGE>
are being monitored by the Association due to periodic delinquencies. See
"--Allowance for Loan Losses."
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value, less estimated disposition costs. If fair value at
the date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations.
Although management believes that it uses the best information
available to determine the allowance, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Association's allowance will be the
result of periodic loan, property and collateral reviews and thus cannot be
predicted in advance. At September 30, 1996, the Association had a total
allowance for loan losses of $580,000 or 62.6% of non-performing loans. See Note
1 of the Notes to Consolidated Financial Statements.
The following table sets forth an analysis of the Association's
allowance for loan losses.
Year Ended September 30,
------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
Balance at beginning of period ...................... $256 $351 $389
---- ---- ----
Charge-offs:
One- to four-family ............................... 5 2 23
Recoveries:
One- to four-family ............................... -- -- --
---- ---- ----
Net charge-offs ..................................... 5 2 23
---- ---- ----
Additions charged to operations ..................... 100 40 214
---- ---- ----
Balance at end of period .......................... $351 $389 $580
==== ==== ====
Ratio of net charge-offs during the period to
average loans outstanding during the period ........ 0.02% 0.00% 0.05%
==== ==== ====
Ratio of net charge-offs during the period to
average non-accruing loans ......................... 1.05% 3.40% 3.28%
==== ==== ====
<PAGE>
The distribution of the Association's allowance for losses on loans at
the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------- ------------------------------- ------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- ----- --------- -------- -----
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ............. $341 $31,074 89.69% $378 $34,665 89.53% $327 $35,635 86.41%
Commercial real estate .......... 4 1,428 4.12 2 1,728 4.46 29 2,891 7.01
Construction .................... 4 1,604 4.63 4 1,556 4.02 3 1,295 3.14
Consumer ........................ 2 542 1.56 5 771 1.99 221 1,419 3.44
---- ------- ------ ---- ------- ------ ---- ------- ------
Total ...................... $351 $34,648 100.00% $389 $38,720 100.00% $580 $41,240 100.00%
==== ======= ====== ==== ======= ====== ==== ======= ======
</TABLE>
Investment Activities
Generally, the investment policy of the Association is to invest funds
among various categories of investments and maturities based upon the
Association's need for liquidity, asset/liability management policies,
investment quality and marketability, liquidity needs and performance
objectives.
At September 30, 1996, the Association had an investment portfolio,
consisting of mortgage-backed securities and U.S. Government obligations. These
investments were made in order to generate income and because these securities
carry a low risk weighting for OTS risk-based capital purposes and satisfy OTS
liquid-asset requirements. See "Regulation-- Capital Requirements" and
"--Liquidity."
At September 30, 1996, First Federal's investment securities, including
Federal Home Loan Bank ("FHLB") stock totalled $2.8 million, or 5% of total
assets and mortgage-backed securities totalled $12.3 million or 22% of total
assets. For information regarding the amortized cost and market values of First
Federal's investment securities portfolio, see Note 2 of the Notes to
Consolidated Financial Statements included in the Annual Report to Stockholders
filed as Exhibit 13 hereto. At September 30, 1996, the weighted average term to
maturity or repricing of the investment securities portfolio, excluding FHLB
stock, was 17 years.
Mortgage-Backed Securities. The Association purchases mortgage-backed
and related securities to complement and supplement its mortgage lending
activities when there is a lack of investment opportunities available in the
Association's market area. Management determined that such investments would
produce relatively higher risk-adjusted yields for the Association when compared
to other investment securities and substituted for loan originations, in light
of the competition for home mortgages in the Association's market area. The
Association has emphasized mortgage-backed and related securities with high
credit quality, high cash flow, low interest-rate risk, high liquidity and
acceptable prepayment risk. Accordingly, management believes that the
Association's mortgage-backed securities are
<PAGE>
generally resistant to credit problems. Because these securities represent a
passthrough of principal and interest from underlying individual thirty year
mortgages, such securities do present prepayment risk. Any such individual
security contains mortgages that can be prepaid at any time over the life of the
security. In a rising interest rate environment the underlying mortgages are
likely to extend their lives versus a stable or declining rate environment. A
declining rate environment can result in rapid prepayments. There is no
certainty as to the security life or speed of prepayment. The geographic makeup
and correlated economic conditions of the underlying mortgages also play an
important role in determining prepayment. In addition to prepayment risk,
interest rate risk is inherent in holding any debt security. As interest rates
rise the value of the security declines and conversely as interest rates decline
values rise. Adjustable rate mortgage-backed securities have the advantage of
moving their interest rate within limits with the contractual index used,
subject to the risk of prepayment. All of the adjustable rate mortgage-backed
securities in the portfolio are tied to the Eleventh District Cost of Funds
Index or the One Year Constant Maturity Treasury Index and all are considered
held for investment. The market valuation does not consequently present a direct
impact on equity.
The Association's mortgage-backed and related securities portfolio
consists primarily of securities issued under government-sponsored agency
programs, including those of Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). The certificates are modified pass-through
mortgage-backed securities that represent undivided interests in underlying
pools of fixed-rate, or certain types of adjustable rate, single-family
residential mortgages issued by these government-sponsored entities. FNMA and
FHLMC generally provide the certificate holder a guarantee of timely payments of
interest, whether or not collected. GNMA's guarantee to the holder is timely
payments of principal and interest, backed by the full faith and credit of the
U.S. Government. Private mortgage-backed securities acquired by the Association
have been pooled and sold by private issuers and generally underwritten by large
investment banking firms. These securities provide for the timely payment of
principal and interest either through insurance issued by a reputable insurer,
or by subordinating certain payments under other securities secured by the same
mortgage pool in a manner that is sufficient to have the senior mortgage-backed
securities earn either of the highest two credit ratings from one or more of the
nationally recognized securities rating agencies.
Mortgage-backed securities generally yield less than the loans that
underlie such securities, because of the cost of payment guarantees or credit
enhancements that reduce credit risk to holders. Mortgage-backed securities are
also more liquid than individual mortgage loans and may be used to collateralize
obligations of the Association. In general, mortgage-backed securities issued or
guaranteed by FNMA, FHLMC and certain AAA- or AA-rated mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, and mortgage-backed securities issued or guaranteed by GNMA are
weighted at 0% for risk-based capital purposes, compared to an assigned risk
weighting of 50% to 100% for whole residential mortgage loans. These types of
securities thus allow the Association to optimize regulatory capital to a
greater extent than non-securitized whole loans.
<PAGE>
The following table sets forth the contractual maturities of the
Association's mortgage-backed securities at September 30, 1996. For information
regarding the amortized cost and market values of First Federal's
mortgage-backed securities portfolio, see Note 3 of the Notes to Consolidated
Financial Statements included in the Annual Report to Stockholders filed as
Exhibit 13 hereto.
<TABLE>
<CAPTION>
Due in Septembet 30,
--------------------------------------------------- 1996
1 to 3 3 to 5 5 to 10 Over 10 Balance
Years Years Years Years Outstanding
----- ----- ----- ----- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation...................... $2,143 $--- $--- $3,457 $5,600
Federal National Mortgage
Association...................... 436 --- --- 4,656 5,092
Government National Mortgage
Association ..................... --- 50 224 1,280 1,554
----- ---- ---- ------ ------
Total............................ $2,579 $ 50 $224 $9,393 $12,246
====== ==== ==== ====== =======
</TABLE>
<PAGE>
The following table sets forth the composition of the Association's
investment and mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1994 1995 1996
---------------- ----------------- ----------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. government securities........................... $ 1,482 44.85% $ 1,485 44.82% $ 990 30.87%
FHLMC stock.......................................... 15 .45 15 .45 378 11.79
Adjustable-rate mortgage-backed securities (1)....... 1,400 42.37 1,400 42.26 1,395 43.50
------- ----- ------ ----- ------- -----
Subtotal.......................................... 2,897 87.68 2,900 87.53 2,763 86.16
FHLB stock............................................. 407 12.32 413 12.47 444 13.84
------- ----- ------ ----- ------- -----
Total investment securities and FHLB stock........ $ 3,304 100.00% $ 3,313 100.00% $ 3,207 100.00%
======= ====== ======= ====== ======= ======
Average remaining life of investment securities........ 2.7 years 2.1 years 1.1 years
Other interest-earning assets:
Interest-bearing deposits with other institutions.... $ 110 100.00% $ 13 100.00% $ 234 100.00%
------- ------ ------ ------- ------- ------
Total............................................. $ 110 100.00% $ 13 100.00% $ 234 100.00%
======= ====== ====== ======= ======= ======
Mortgage-backed securities:
GNMA................................................. $ 1,174 11.53% $ 1,042 9.27% $ 1,567 12.70%
FNMA................................................. 3,027 29.72 4,201 37.36 5,059 41.00
FHLMC................................................ 5,908 58.00 5,886 52.34 5,522 44.75
------- ------ -------- ------ ------- ------
10,109 99.25 11,129 98.97 12,148 98.45
Unamortized premium (discounts), net................... 77 .75 117 1.03 191 1.55
------- ------ -------- ------ ------- ------
Total mortgage-backed securities.................. $10,186 100.00% $11,246 100.00% $12,339 100.00%
======= ====== ======= ====== ======= ======
<FN>
- ----------
(1) Represents a mutual fund which invests in stock secured by adjustable-rate
mortgage-backed securities and other debt securities.
</FN>
</TABLE>
<PAGE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
1 to 5 Total Investment
Years Securities
----- ------------------------
Book Value Book Value Market Value
---------- ---------- ------------
(Dollars in Thousands)
U.S. government securities .............. $990 $990 $990
---- ---- ----
Total investment securities ............. $990 $990 $990
==== ==== ====
Weighted average yield .................. 4.99% 4.99% 4.99%
The OTS has issued guidelines regarding management oversight and
accounting treatment for securities, including investment securities, loans,
mortgage-backed securities and derivative securities. The guidelines require
thrift institutions to reduce the carrying value of securities to the lesser of
cost or market value unless it can be demonstrated that a class of securities is
intended to be held to maturity.
Sources of Funds
General. The Association's primary sources of funds are deposits,
amortization and prepayment of loan principal, borrowings, interest earned on,
and maturation of investment securities and short-term investments, and net
earnings.
Borrowings may be used on a short-term basis to compensate for seasonal
reductions in deposits or deposit inflows at less than projected levels, and may
be used on a longer-term basis to support expanded lending activities or to
increase the effectiveness of the Association's asset/liability management
program. In this regard, in order to enhance both the return on the capital
raised in the Conversion and its interest rate spread, the Association may
utilize advances from the FHLB of Dallas and attempt to match the maturities of
such liabilities with assets such as mortgage-backed securities having similar
effective maturities but higher yields compared to the rate paid on such
advances.
Deposits. First Federal offers the following types of deposit accounts:
passbook savings, money market deposit accounts, certificates of deposit and IRA
accounts. The Association solicits deposits from its market area and does not
accept brokered deposits. The Association relies primarily on competitive
pricing policies, advertising and customer service to attract and retain these
deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The Association currently offers competitive rates on longer term
certificates of deposit, the result of which is designed to extend the maturity
of its liabilities. The Association believes that this will have a positive
effect on its results of operations, both for asset/liability management
purposes and in the event market rates of interest increase.
<PAGE>
The variety of deposit accounts offered by the Association has allowed
it to be competitive in obtaining funds and to respond with flexibility to
changes in consumer demand. The Association has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious which can result in disintermediation, which is the flow of funds
away from savings institutions into direct investments, such as U.S. government
and corporate securities, and other investment vehicles which, because of the
absence of federal insurance premiums and reserve requirements, generally pay
higher rates of return than savings institutions. If interest rates continue to
increase, these sources of funds may become more costly than interest rate
regulated sources.
At September 30, 1996, First Federal's deposit base was $42.0 million.
The Association has been able to maintain its deposit base, due to the
stabilization of interest rates paid on deposits during fiscal 1996. Although
approximately 12% of the Association's total deposits are in certificates of
deposit of $100,000 or more, this level has historically been maintained and is
prevalent in the Association's market area. Based on its experience, the
Association believes that its deposits are relatively stable sources of funds.
However, the ability of the Association to attract and maintain certificates of
deposit, and the rates paid on these deposits, has been and will continue to be
significantly affected by market conditions.
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Association for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1995 1996 1996
---------------- ----------------- ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
- ----------------------------------
Passbook Accounts 3.00% ................ $ 4,847 11.33% $ 4,566 10.58% $4,540 10.81%
Money Market Accounts 3.05% ............ 7,869 18.40 7,725 17.90 6,244 14.87
------- ----- ------- ------ ----- -----
Total Non-Certificates ................. 12,716 29.73 12,291 28.48 10,784 25.68
------- ----- ------- ------ ------ -----
Certificates:
2.00 - 3.99%........................... 15,121 35.35 675 1.57 -- --
4.00 - 5.99%........................... 14,540 34.00 28,357 65.73 28,640 68.22
6.00 - 7.99%........................... 345 .81 1,820 4.22 2,562 6.10
8.00 - 9.99%........................... 48 .11 -- -- -- --
------- ------ ------ ----- ------ -----
Total Certificates ..................... 30,054 70.27 30,852 71.52 31,202 74.32
------- ------ ------ ----- ------ -----
Total Deposits ......................... $42,770 100.00% $43,143 100.00% $41,986 100.00%
======= ====== ======= ======= ======= ======
</TABLE>
<PAGE>
The following table sets forth the savings flows at the Association
during the periods indicated.
Year Ended September 30,
------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
Opening balance ................... $ 43,139 $ 42,770 $ 43,143
Deposits .......................... 10,727 17,676 9,763
Withdrawals ....................... (12,256) (18,590) (12,228)
Interest credited ................. 1,660 1,287 1,308
-------- -------- --------
Ending balance .................... $ 42,770 $ 43,143 $ 41,986
======== ======== ========
Net increase (decrease) ........... $ (369) $ 373 $ (1,157)
======== ======== ========
Percent increase (decrease) ....... (.86)% .87% (2.76)%
======== ======== ========
The following table shows rate and maturity information for the
Association's certificates of deposit as of September 30, 1996.
4.00- 6.00- Percent
5.99% 7.99% Total of Total
----- ----- ----- --------
Certificate accounts maturing
in quarter ending:
------------------
December 31, 1996 ............... $ 4,869 $ 418 $ 5,287 16.95%
March 31, 1997 .................. 8,481 -- 8,481 27.18
June 30, 1997 ................... 3,235 300 3,535 11.33
September 30, 1997 .............. 4,420 338 4,758 15.25
December 31, 1997 ............... 2,281 259 2,540 8.14
March 31, 1998 .................. 1,603 155 1,758 5.63
June 30, 1998 ................... 653 33 686 2.20
September 30, 1998 .............. 947 -- 947 3.04
December 31, 1998 ............... 1,018 -- 1,018 3.26
March 31, 1999 .................. 394 23 417 1.34
June 30, 1999 ................... 46 158 204 .65
September 30, 1999 .............. 30 283 313 1.00
Thereafter ...................... 663 595 1,258 4.03
------- ------ ------ -----
Total ........................ $28,640 $2,562 $31,202 100.00%
======= ====== ======= ======
Percent of total ............. 91.79% 8.21%
======= ======
<PAGE>
The following table indicates the amount of the Association's
certificates of deposit and other deposits by time remaining until maturity as
of September 30, 1996.
<TABLE>
<CAPTION>
Maturity
------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------ ------ --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less
than $100,000 .................. $ 633 $1,147 $1,480 $ 675 $ 3,935
Certificates of deposit of
$100,000 or more ............... 4,654 7,206 6,713 8,376 26,949
Public funds (1) ................. -- 128 100 90 318
------ ------ ------ ------ -------
Total certificates of deposit .... $5,287 $8,481 $8,293 $9,141 $31,202
====== ====== ====== ====== =======
<FN>
- ---------------
(1) Deposits from governmental and other public entities.
</FN>
</TABLE>
Borrowings. The Association has the ability to use advances from the
FHLB of Dallas to supplement its deposits when the rates are favorable. As a
member of the FHLB of Dallas, the Association is required to own capital stock
and is authorized to apply for advances. Each FHLB credit program has its own
interest rate, which may be fixed or variable, and includes a range of
maturities. The FHLB of Dallas may prescribe the acceptable uses to which these
advances may be put, as well as limitations on the size of the advances and
repayment provisions.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances, securities sold under agreements to repurchase
and other borrowings for the periods indicated.
Year Ended September 30,
------------------------
1994 1995 1996
---- ---- ----
(In Thousands)
Maximum Balance:
FHLB advances ................... $1,052 $2,538 $7,561
Average Balance:
FHLB advances ................... $ 543 $1,591 $4,809
<PAGE>
The following table sets forth certain information as to the
Association's borrowings at the dates indicated.
September 30,
--------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
FHLB advances .................................... $1,052 $2,538 $7,561
------ ------ ------
Total borrowings ............................ $1,052 $2,538 $7,561
====== ====== ======
Weighted average interest rate of FHLB advances .. 5.04% 6.11% 5.53%
Subsidiary Activities
As a federally chartered savings and loan association, First Federal is
permitted by OTS regulations to invest up to 2% of its assets or approximately
$1.1 million at September 30, 1996, in the stock of, or unsecured loans to,
service corporation subsidiaries. First Federal may invest an additional 1% of
its assets in service corporations where such additional funds are used for
inner-city or community development purposes. At September 30, 1996, the
Association did not have any subsidiaries.
Competition
First Federal faces strong competition, both in originating loans and
in attracting deposits. Competition in originating loans comes primarily from
other commercial banks, savings associations, credit unions and mortgage bankers
making loans secured by real estate located in the Association's market area.
The Association competes for loans principally on the basis of the quality of
services it provides to borrowers, interest rates and loan fees it charges, and
the types of loans it originates.
The Association attracts all of its deposits through its retail banking
office, primarily from the communities it serves. Therefore, competition for
those deposits is principally from other commercial banks, savings associations
and brokerage houses located in the same communities. The Association competes
for these deposits by offering deposit accounts at competitive rates and
convenient business hours.
The Association's primary market area covers the parish of St. Landry,
Louisiana. There are 13 commercial banks, one savings association and three
credit unions which have offices in and compete for deposits and loans in the
Association's primary market area. First Federal estimates its share of the
residential mortgage loan market and savings deposit base to be not more than
21% and 6%, respectively.
<PAGE>
Regulation
General. First Federal is a federally chartered savings and loan
association, the deposits of which are federally insured and backed by the full
faith and credit of the United States Government. Accordingly, the Association
is subject to broad federal regulation and oversight extending to all its
operations. First Federal is a member of the FHLB of Dallas and is subject to
certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As the savings and loan holding company of
First Federal, the Company also will be subject to federal regulation and
oversight. The purpose of the regulation of the Company and other holding
companies is to protect subsidiary savings associations. The Association is a
member of the Savings Association Insurance Fund ("SAIF"), which together with
the Bank Insurance Fund ("BIF") are the two deposit insurance funds administered
by the FDIC. The deposits of First Federal are insured by the FDIC. As a result,
the FDIC has certain regulatory and examination authority over the Association.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, First Federal is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and the FDIC. The last regular
OTS and FDIC examinations of First Federal were as of June 1995 and March 1993,
respectively. Under agency scheduling guidelines, it is likely that another
examination will be initiated in the near future. When these examinations are
conducted by the OTS and the FDIC, the examiners may require the Association to
provide for higher general or specific loan loss reserves. All savings
associations are subject to a semi-annual assessment, based upon the savings
association's total assets, to fund the operations of the OTS. The Association's
OTS assessment for the fiscal year ended September 30, 1996, was $18,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Association and the
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. The Association is in compliance with the noted
restrictions.
<PAGE>
The Association's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 1996, the Association's
lending limit under this restriction was $1.0 million. First Federal is in
compliance with the loans-to-one- borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action.
Insurance of Accounts and Regulation by the FDIC. First Federal is a
member of the SAIF, which is administered by the FDIC. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the SAIF or the BIF The FDIC also has the
authority to initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
For the first six months of 1995, the assessment schedule for BIF members and
SAIF members ranged from .23% to .31% of deposits.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
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As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF insured deposits.
As a result of the BIF reaching its statutory reserve ratio, the FDIC revised
the premium schedule for BIF insured institutions to provide a range of .04% to
.31% of deposits. The revisions became effective in the third quarter of 1995.
In addition, the BIF rates were further revised, effective January 1996, to
provide a range of 0% to .27% with a minimum annual assessment of $2,000.
In order to help eliminate this disparity and any competitive
disadvantage due to disparate deposit insurance premium schedules, legislation
to recapitalize the SAIF was enacted in September 1996. The legislation provides
for a one-time assessment to be imposed on all deposits assessed at the SAIF
rates, as of March 31, 1995, in order to recapitalize the SAIF. It also provides
for the merger of the BIF and the SAIF on January 1, 1999 provided no savings
associations then exist. The special assessment rate has been established at
.657% of deposits by the FDIC and the resulting assessment of $294,000 was paid
in November 1996. This special assessment significantly increased noninterest
expense and adversely affected the Company's results of operations for the year
ended September 30, 1996. Following the special assessment, and depending upon
capital level and supervisory rating, the Company's deposit insurance premiums
could decrease significantly for future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as the Company. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as
SAIF-member institutions. The rates to be established by the FDIC to implement
this requirement for all FDIC-insured institutions is uncertain at this time,
but are anticipated to be about a 6.5 basis points assessment on SAIF deposits
and 1.5 basis points on BIF deposits until BIF insured institutions participate
fully in the assessment.
Regulatory Capital Requirements. Federally insured savings
associations, such as First Federal, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income.
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In addition, all intangible assets, other than a limited amount of purchased
mortgage servicing rights, must be deducted from tangible capital. At September
30, 1996, the Association did not have any intangible assets for calculating
compliance with the requirement.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. The Association currently has no subsidiaries.
At September 30, 1996, the Association had tangible capital of $5.5
million, or 10% of adjusted total assets, which is approximately $4.7 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At September 30, 1996, the
Association had no intangibles which were subject to these tests.
At September 30, 1996, the Association had core capital equal to $5.5
million, or 10% of adjusted total assets, which is $3.8 million above the
minimum leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At September 30, 1996, the
Association had no capital instruments that qualify as supplementary capital and
$347,000 of general loss reserves, all of which qualified under the 1.25% of
risk-weighted assets limit.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments.
In determining the amount of risk-weighted assets, all assets,
including certain off- balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on
<PAGE>
the risk inherent in the type of asset. For example, the OTS has assigned a risk
weight of 50% for prudently underwritten permanent one- to four-family first
lien mortgage loans not more than 90 days delinquent and having a loan to value
ratio of not more than 80% at origination unless insured to such ratio by an
insurer approved by the FNMA or FHLMC.
On September 30, 1996, First Federal had total capital of $5.9 million
(including $5.5 million in core capital, $347,000 in qualifying supplementary
capital and risk-weighted assets of $30.1 million (including no converted
off-balance sheet assets); or total capital of 19% of risk-weighted assets. This
amount was $3.4 million above the 8% requirement in effect on that date.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk- based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further
<PAGE>
mandatory restrictions on its activities in addition to those applicable to
significantly undercapitalized associations. In addition, the OTS must appoint a
receiver (or conservator with the concurrence of the FDIC) for a savings
association, with certain limited exceptions, within 90 days after it becomes
critically undercapitalized.
Any undercapitalized association is also subject to the general
enforcement authority of the OTS and the FDIC including, the appointment of a
receiver or conservator.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Federal may have a substantial adverse effect on the Association's operations
and profitability and the value of the Common Stock purchased in the Conversion.
Company shareholders do not have preemptive rights, and therefore, if the
Company is directed by the OTS or the FDIC to issue additional shares of Common
Stock, such issuance may result in the dilution in the percentage of ownership
of the Company of those persons purchasing shares in the Conversion.
Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions on savings associations with respect to
their ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account. OTS regulations also prohibit a savings association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory capital of the association would be reduced below the
amount required to be maintained for the liquidation account established in
connection with its mutual to stock conversion.
Generally, savings associations, such as First Federal, that before and
after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. First Federal may
pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution
<PAGE>
without notice to the OTS (unless it is a subsidiary of a holding company)
provided that it has a CAMEL 1 or 2 rating, is not of supervisory concern, and
would remain adequately capitalized (as defined in the OTS prompt corrective
action regulations) following the proposed distribution. Savings associations
that would remain adequately capitalized following the proposed distribution but
do not meet the other noted requirements must notify the OTS 30 days prior to
declaring a capital distribution. The OTS stated it will generally regard as
permissible that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a distribution. As under the current rule, the OTS may object to
a capital distribution if it would constitute an unsafe or unsound practice. No
assurance may be given as to whether or in what form the regulations may be
adopted.
Liquidity. All savings associations, including First Federal, are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. For a discussion of
what the Association includes in liquid assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources" in the Annual Report to Stockholders filed as Exhibit 13
hereto. This liquid asset ratio requirement may vary from time to time (between
4% and 10%) depending upon economic conditions and savings flows of all savings
associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At September 30, 1996, the Association was in compliance with
both requirements, with an overall liquid asset ratio of 7% and a short-term
liquid assets ratio of 2%.
Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Association is in compliance
with these amended rules.
OTS accounting regulations, which may be made more stringent than GAAP
by the OTS, require that transactions be reported in a manner that best reflects
their underlying economic substance and inherent risk and that financial reports
must incorporate any other accounting regulations or orders prescribed by the
OTS.
Qualified Thrift Lender Test. All savings associations, including First
Federal, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio
<PAGE>
assets (as defined by regulation) in qualified thrift investments on a monthly
average for nine out of every 12 months on a rolling basis. Such assets
primarily consist of residential housing related loans and investments. At
September 30, 1996, the Association met the test and has always met the test
since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "--Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of First Federal, to assess
the institution's record of meeting the credit needs of its community and to
take such record into account in its evaluation of certain applications, such as
a merger or the establishment of a branch, by First Federal. An unsatisfactory
rating may be used as the basis for the denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Association may be required to devote additional
funds for investment and lending in its local community. The Association was
examined for CRA compliance in August 1994 and received a rating of
"satisfactory".
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of the
Association include the Company and any company which is under common control
with the Association. In addition, a savings association may not lend to any
affiliate engaged in activities not permissible for a bank holding company or
acquire the securities of most affiliates.
<PAGE>
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than First Federal or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If the Association fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law. The stock of the Company is registered with the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their
<PAGE>
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At September 30, 1996, First Federal was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "-- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. First Federal is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs, that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures, established by the board of directors of the FHLB, which are
subject to the oversight of the Federal Housing Finance Board. All advances from
the FHLB are required to be fully secured by sufficient collateral as determined
by the FHLB. In addition, all long-term advances are required to provide funds
for residential home financing.
As a member, First Federal is required to purchase and maintain stock
in the FHLB of Dallas. At September 30, 1996, First Federal had $444,000 in FHLB
stock, which was in compliance with this requirement. In past years, First
Federal has received substantial dividends on its FHLB stock. Over the past five
fiscal years such dividends have averaged 4.75% and were 5.82% for fiscal year
1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of First Federal's FHLB stock may result in a corresponding
reduction in First Federal's capital.
For the fiscal year ended September 30, 1996, dividends paid by the
FHLB of Dallas to First Federal totalled $26,000, which constituted a $2,000
increase over the amount of dividends received in fiscal year 1995.
Federal and State Taxation
Savings associations such as the Association that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), had
been permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The
<PAGE>
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that is used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At
September 30, 1996, the 6% and 12% limitations did not restrict the percentage
bad debt deduction available to the Association. It is not expected that these
limitations would be a limiting factor in the foreseeable future.
In August 1996, legislation was enacted that repeals the reserve method
of accounting (including the percentage of taxable income method) used by many
thrifts, including the Association, to calculate their bad debt reserve for
federal income tax purposes. As a result, large thrifts such as the Association
must recapture that portion of the reserve that exceeds the amount that could
have been taken under the specific charge-off method for post-1987 tax years.
The legislation also requires thrifts to account for bad debts for federal
income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995. The recapture will occur over a six-year
period, the commencement of which will be delayed until the first taxable year
beginning after December 31, 1997, provided the institution meets certain
residential lending requirements. The management of the Company does not believe
that the legislation will have a material impact on the Company or the
Association.
<PAGE>
In addition to the regular income tax, corporations, including savings
associations such as the Association, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Association, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of September 30, 1996, the Association's Excess for tax purposes
totalled approximately $965,000.
The Company files consolidated federal income tax returns on a fiscal
year basis using the accrual method of accounting. Savings associations, such as
the Association, that file federal income tax returns as part of a consolidated
group are required by applicable Treasury regulations to reduce their taxable
income for purposes of computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association members of the
consolidated group that are functionally related to the activities of the
savings association member.
The Company has not been audited by the IRS with respect to federal
income tax returns since its organization.
Louisiana Taxation. The Company is subject to the Louisiana Corporation
Income Tax based on its Louisiana taxable income, as well as franchise taxes.
The Corporation Income Tax applies at graduated rates from 4% upon the first
$25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in
excess of $200,000. For these purposes, "Louisiana taxable income" means net
income which is earned within or derived from sources within the State of
Louisiana, after adjustments permitted under Louisiana law including a federal
income tax deduction and an allowance for net operating losses, if any. In
addition, First Federal is subject to the Louisiana Shares Tax which is imposed
on the assessed value of its stock. The formula for deriving the assessed value
is to calculate 15% of the sum of (a) 20% of the Association's capitalized
earnings, plus (b) 80% of the Association's taxable stockholders' equity, and to
subtract from that figure 50% of the Association's real and personal property
assessment. Various items may also be subtracted in calculating the
Association's capitalized earnings.
Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an
<PAGE>
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
Executive Officers
The following information as to the business experience during the past
five years is supplied with respect to executive officers of the Company. Except
as otherwise indicated, the persons named have served as officers of the Company
since it became the holding company of the Association and all positions
described below are with the Association. There are no arrangements or
understandings between the persons named and any other person pursuant to which
such officers were selected.
Wayne McKinnon Gilmore. Mr. Gilmore, age 75, is Chairman of the Board,
President and Chief Executive Officer of the Association. He was elected as a
director and Chief Executive Officer in 1957, as President in 1987 and as
Chairman of the Board in 1994.
H. Andrew Myers, Jr. Mr. Myers, 47, joined the Association in 1989 as
Executive Vice President. He is responsible for overseeing the daily management
functions of the Association.
Kathryn Fontenot Chelette, CPA. Ms. Chelette, age 30, became the
Controller of the Association in 1991. From 1988 to 1991, she was a staff
accountant with John S. Dowling & Co., a corporation of certified public
accountants.
Employees
At September 30, 1996, the Company had a total of 15 employees,
including 2 part-time employee. The Company's employees are not represented by
any collective bargaining group. Management considers its employee relations to
be good.
<PAGE>
Item 2. Description of Property
The Company conducts its business at its main office located in
Opelousas, Louisiana. The following table sets forth information relating to
each of the Company's properties as of September 30, 1996.
Total
Owned Approximate September 30,
Year or Square 1996 Book
Location Acquired Leased Footage Value
- -------- -------- ------ --------- -----
(In Thousands)
Main Office:
459 East Landry Street 1969 Owned 5,516 $467
Opelousas, Louisiana
Storage Facility:
434 S. Lombard Street 1993 Owned 768 10
Opelousas, Louisiana
The Company believes that its current facilities are adequate to meet
the present and foreseeable needs of the Association and the Company, subject to
possible future expansion.
The Company maintains an on-line data base with a service bureau
servicing financial institutions. The net book value of the data processing and
computer equipment utilized by the Company at September 30, 1996 was $10,000.
Item 3. Legal Proceedings
The Company is involved from time to time as plaintiff or defendant in
various legal actions arising in the normal course of business. While the
ultimate outcome of these proceedings cannot be predicted with certainty, it is
the opinion of management, after consultation with counsel representing the
Company in the proceedings, that the resolution of these proceedings should not
have a material effect on the Company's results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters
Page 49 of the Company's 1996 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
Pages 4 through 15 of the Company's 1996 Annual Report to Stockholders
is herein incorporated by reference.
Item 7. Financial Statements
Pages 17 through 48 of the Company's 1996 Annual Report to Stockholders
are herein incorporated by reference.
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change in
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Information concerning directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for the 1996
Annual Meeting of Stockholders, a copy of which will be filed not later than 120
days after the close of the fiscal year.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1996 Annual
Meeting of Stockholders, a copy of which will be filed not later than 120 days
after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy Statement for the 1996 Annual Meeting of Stockholders, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the 1996 Annual Meeting of Stockholders, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
<PAGE>
PART IV
Item 13. Exhibits and Reports on 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Reference to
Prior Filing
Regulation or Exhibit
S-K Exhibit Number Attached
Number Document Hereto
- ----------- ------------------- ---------------
<S> <C> <C>
3 Articles of Incorporation and Bylaws.............................. *
4 Instruments defining the rights of security holders,
including indentures:
Common Stock Certificate........................................ *
10 Material contracts:
(a) Employee Stock Ownership Plan................................ *
(b) Stock Option and Incentive Plan.............................. *
(c) Employment Agreements:
Wayne McKinnon Gilmore....................................... *
H. Andrew Myers, Jr.......................................... *
Kathryn Fontenot Chelette.................................... *
(d) Recognition and Retention Plan............................... *
(e) Defined Contribution Plan.................................... *
11 Statement re computation of per share earnings.................... None
13 Annual Report to Security Holders for the last fiscal year, Form
10-Q or 10QSB or quarterly report to security holders........... 13
16 Letter on change in certifying accountant......................... *
21 Subsidiaries of Registrant........................................ None
23 Consent of Experts and Counsel.................................... 23
24 Power of Attorney................................................. Not required
27 Financial Data Schedule........................................... 27
99 Additional Exhibits............................................... None
<FN>
- --------------------
*Filed on December 13, 1994 as exhibits to the Registrant's
Registration Statement No. 33-87292 on Form S-1. All of such previously filed
documents are hereby incorporated herein by reference in accordance with Item
601 of Regulation S-B.
</FN>
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the three-month period
ended September 30, 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ST. LANDRY FINANCIAL CORPORATION
Date: December 23, 1996 By: /s/ Wayne McK. Gilmore
---------------------- -----------------------------------------
Wayne McK. Gilmore, Chairman of the Board
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Wayne McK. Gilmore /s/ H. Kent Aguillard
- ---------------------------- -----------------------------------------
Wayne McK. Gilmore H. Kent Aguillard, Director
Chairman of the Board
President and Chief Executive
Officer (Principal Executive
and Operating Officer)
Date: December 23, 1996 Date: December 23, 1996
-------------------- --------------------------------
/s/ Anna Lee Dunbar /s/ Lynette Young Feucht
- ---------------------------- -----------------------------------------
Anna Lee Dunbar, Director Lynette Young Feucht, Director
Date: December 23, 1996 Date: December 23, 1996
-------------------- --------------------------------
/s/ Patrick Fontenot /s/ Simon Howard Fournier
- ---------------------------- ------------------------------------------
Patrick Fontenot, Director Simon Howard Fournier, Director
Date: December 23, 1996 Date: December 23, 1996
-------------------- ---------------------------------
/s/ Morgan J. Goudeau /s/ H. Andrew Myers, Jr.
- ---------------------------- ------------------------------------------
Morgan J. Goudeau, III, H. Andrew Myers, Jr.,
Director Executive Vice President and Director
Date: December 23, 1996 Date: December 23, 1996
-------------------- ---------------------------------
/s/ Martin A. Roy, Jr. /s/ Marvin Schwartzenburg
- ---------------------------- ------------------------------------------
Martin A. Roy, Jr. Marvin Schwartzenburg, Director
Vice President, Treasurer
and Director
Date: December 23, 1996 Date: December 23, 1996
-------------------- ---------------------------------
/s/ Randy C. Tomlinson /s/ Robert L. Wolfe, Jr.
- ---------------------------- ------------------------------------------
Randy C. Tomlinson, Director Robert L. Wolfe, Jr., Director
Date: December 23, 1996 Date: December 23, 1996
-------------------- ---------------------------------
/s/ Kathryn Fontenot Date: December 23, 1996
- ---------------------------- ---------------------------------
Kathryn Fontenot Chelette,
Controller (Principal
Financial and Accounting
Officer)
ST. LANDRY
FINANCIAL CORPORATION
Annual Report 1996
<PAGE>
St. Landry Financial Corporation
TABLE OF CONTENTS
Letter to Stockholders.........................................1
Selected Financial Information.................................2
Management's Discussion and Analysis...........................4
Independent Auditors' Report..................................16
Consolidated Financial Statements.............................17
Stockholder Information.......................................49
Board of Directors and Executive Officers.....................50
FINANCIAL HIGHLIGHTS
September 30, 1996
(Dollars in Thousands)
Total Loans........................................... $39,857
Mortgage-Backed Securities............................ 12,339
Investment Securities................................. 2,763
Total Assets........................................ 56,857
Deposits.............................................. 41,986
Borrowings............................................ 7,561
Net Income............................................ 54
Stockholders' Equity.................................. 6,703
Stockholders' Equity as a Percent of
Assets............................................. 11.8%
<PAGE>
ST. LANDRY FINANCIAL CORPORATION
Post Office Box 72
Opelousas, Louisiana 70571-0072
Phone: 318-942-5748 Fax: 318-948-1563
To Our Stockholders:
We are pleased to present the year end report of St. Landry Financial
Corporation, (Company) for the fiscal year ending September 30, 1996. On behalf
of our Board of Directors, Officers, and Staff, thank you for being a
stockholder.
The mission of First Federal Savings and Loan Association of Opelousas
(Association), the wholly owned subsidiary of the Company, is to give the people
of South Central Louisiana a safe place to invest their funds and an affordable
place to finance their homes. This year has been very good in accomplishing
these two goals.
The Company continues to look for sound investments that will enable
it to grow and prosper. This year we have opened a couple of avenues that
promise to enhance our growth. Your Board and Management are committed to
continuing to build stockholder value.
Net income for the year was only $54,217 because of the special
assessment imposed on the savings and loan industry by Congress to bring the
Savings Association Insurance Fund up to strength. This was a one time
assessment and will greatly reduce our expenses for deposit insurance in the
future.
The Association increased the reserve for loan losses primarily
because of some automobile loans which the Association purchased. We were not
satisfied with the performance of the servicer of these loans and have made a
change to another servicer who has more experience in the field of auto loan
servicing.
The Association is continuing to strive to improve non-performing
loans. At this time the Association has three pieces of real estate owned. Two
of these pieces are residences and the third is a small commercial property.
These properties are rented with the expectation that the renters will purchase
them.
On behalf of the Board of Directors, thank you for your support and
your investment in St. Landry Financial Corporation.
Sincerely,
Wayne McK. Gilmore
Chairman of the Board
1
<PAGE>
SELECTED FINANCIAL INFORMATION
The following financial data does not purport to be complete and is
qualified in its entirety by reference to the more detailed financial
information contained elsewhere herein.
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets............................... $47,900 $48,102 $47,812 $53,206 $56,857
Loans receivable, net...................... 35,353 32,244 33,303 37,356 39,857
Mortgage-backed securities................. 10,753 10,586 10,186 11,246 12,339
Investment securities...................... 1,377 3,385 3,305 3,562 2,763
Deposits................................... 43,522 43,139 42,770 43,143 41,986
Total borrowings........................... 1,000 1,200 1,052 2,538 7,561
Stockholders' equity....................... 2,870 3,456 3,745 7,173 6,703
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income...................... $4,082 $ 3,560 $ 3,182 $3,401 $4,016
Total interest expense..................... 2,310 1,700 1,642 1,897 2,223
------- -------- -------- ------- -------
Net interest income........................ 1,772 1,860 1,541 1,504 1,793
Provision for loan losses.................. 41 58 100 40 214
-------- --------- -------- -------- --------
Net interest income after provision
for loan losses........................... 1,731 1,802 1,441 1,464 1,579
Service charges and other fees............. 11 20 25 24 23
Gain on sales of loans, mortgage-
backed securities and investment
securities................................ --- --- --- --- ---
Other non-interest income.................. 33 25 18 23 24
-------- --------- ---------- -------- --------
Total non-interest income.................. 44 45 43 47 47
Total non-interest expense................. 1,026 973 1,010 1,085 1,522
------- -------- --------- -------- -------
Income before taxes and extraordinary
item...................................... 749 874 474 426 104
Income tax provision (benefit)............. 273 288 185 153 50
------- --------- --------- -------- --------
Net income............................ $ 476 $ 586 $ 289 $ 273 $ 54
======= ======== ========= ======== =======
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
- -----------------------------------
Data:
-----
Performance Ratios:
Return on assets (ratio of net income
to average total assets)................ 1.00% 1.22% .60% .54% .10%
Return on equity (ratio of net
income to average equity)............... 18.09 18.52 8.02 5.00 .78
Interest rate spread information:
Average during period................... 3.58 3.80 3.05 2.57 2.74
End of period........................... 4.16 3.52 2.80 2.63 2.58
Net interest margin(1)................... 3.82 3.97 3.28 3.04 3.33
Ratio of operating expense to average
total assets............................ 2.15 2.03 2.11 2.15 2.77
Ratio of average interest-earning
assets to average interest-bearing 103.28 105.54 106.86 109.93 111.17
liabilities.............................
Asset Quality Ratios:
Non-performing assets to total assets
at end of period......................... 2.56 1.38 1.32 1.23 1.64
Allowance for loan losses to non-
performing loans......................... 18.80 38.63 55.78 59.30 62.20
Allowance for loan losses to loans
receivable, net.......................... .69 .80 1.05 1.04 1.46
Capital Ratios:
Equity to total assets at end of period... 5.99 7.18 7.83 13.48 11.79
Average equity to average assets.......... 5.52 6.59 7.51 10.81 12.61
Other Data:
Number of full-service offices............ 1 1 1 1 1
<FN>
- --------------
(1) Net interest income divided by average interest-earning assets.
</FN>
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
St. Landry Financial Corporation (the "Company") is a Delaware
corporation which became the savings and loan holding company of First Federal
Savings and Loan Association of Opelousas (the "Association") in April 1995. The
Company owns all of the outstanding stock of the Association issued in
connection with its conversion to stock form. All references to the Company,
unless otherwise indicated, at or before April 5, 1995 refer to the Association.
Unless the context otherwise requires, all references herein to the Association
or the Company include the Company and the Association on a consolidated basis.
The Company is principally engaged in the business of attracting
retail savings deposits from the general public and investing those funds in
owner occupied, one-to four-family residential mortgage loans and
mortgage-backed securities. To a lesser extent, the Company originates
residential construction, commercial real estate and consumer loans. The Company
also invests in U. S. Government and agency obligations and other permissible
investments.
The most significant outside factors influencing the operations of the
Company and other savings institutions include general economic conditions,
competition in the local market place and the related monetary and fiscal
policies of agencies that regulate financial institutions. More specifically,
the cost of funds, primarily consisting of deposits, is influenced by interest
rates on competing investments and general market rates of interest. Lending
activities are influenced by the demand for real estate financing and other
types of loans, which in turn is affected by the interest rates at which such
loans may be offered and other factors affecting loan demand and fund
availability.
Financial Condition
The Company's total assets were $53.2 million at September 30, 1995 as
compared to $56.8 million at September 30, 1996. The increase of $3.6 million
was primarily due to an increase in loans receivable and mortgage-backed
securities. Also, borrowings from the Federal Home Loan Bank were used to fund
loan originations and purchases of adjustable rate mortgage-backed securities.
Net loans receivable increased by $2.4 million to $39.9 million at
September 30, 1996 from $37.3 million at September 30, 1995. The increase was
due to an increase in originations, the majority of which with adjustable rates
of interest, and a decrease in principal repayments. Federal Home Loan Bank
advances were used to supplement funding of the loan originations.
Non-performing assets increased to $933,000 or 1.64% of total assets at
September 30, 1996, from $656,000 or 1.23% of total assets at September 30,
1995. The increase was a result of a $202,000 increase in non-accruing loans,
and an increase of $75,000 in foreclosed assets. At September 30, 1996, the
Company had 20 one-to four-family loans, 14 automobile and one unsecured loan
which were in a non-accruing status.
Total investments decreased by $355,000 from $3.6 million at September
30, 1995 to $3.2 million at September 30, 1996. An unrealized gain on
available-for-sale investment securities increased by $110,000 from September
30, 1995 to September 30, 1996. The unrealized gain in stock in Federal Home
Loan Mortgage Corporation ("FHLMC") of $363,000, was partially offset by a
$5,000 unrealized loss in equity securities. The decrease was caused by the
maturity of $500,000 in debt securities, partially offset by a $3,000
acquisition of stock
4
<PAGE>
in the Federal Home Loan Bank of Dallas and a $4,000 amortization of premiums
paid on investment securities.
The Company also experienced a $1.1 million increase in
mortgage-backed securities during fiscal 1996. Mortgage-backed securities in the
amount of $3.7 million were purchased during the fiscal year. These purchases
were partially funded with lower rate Federal Home Loan Bank advances. The
acquisitions were partially offset by principal repayments. The unrealized loss
on available for sale securities decreased by $19,000 from September 30, 1995 to
September 30, 1996.
Deposits decreased by $1.1 million from September 30, 1995 to
September 30, 1996, a decrease of 2.68%.
Federal Home Loan Bank advances increased by $5.0 million. Borrowing
proceeds were used to fund a portion of loan originations. Advances were also
used to supplement the purchase of adjustable rate mortgage-backed securities.
Total stockholders' equity decreased by $469,000 from $7.2 million at
September 30, 1995 to $6.7 million at September 30, 1996. Stockholder's equity
decreased by $351,000 because of the repurchase of Company stock which was used
to fund the Company's Recognition and Retention Plan, by $291,000 because of the
unearned compensation expense due to the adoption of the Recognition and
Retention Plan, and by the payment of a cash dividend in the amount of $22,000.
The decrease in stockholders' equity was partially offset by an after-tax net
unrealized gain on investment securities available for sale and mortgage-backed
securities available for sale in accordance with the implementation of SFAS No.
115, a reduction in the ESOP loan through loan payments and an increase in
retained earnings.
Asset/Liability Management
Financial institutions and their holding companies, like the Company,
are subject to interest rate risk to the extent that their interest-bearing
liabilities with short and intermediate- term maturities reprice more rapidly,
or on a different basis, than their interest-earning assets. Management of the
Company believes it is critical to manage the relationship between interest
rates and the effect on the Association's net portfolio value ("NPV"). This
approach calculates the difference between the present value of expected cash
flows from assets and the present value of expected cash flows from liabilities,
as well as cash flows from off-balance sheet contracts. Management of the
Association's assets and liabilities is done within the context of the
marketplace, but also within limits established by the Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The OTS uses a net market value methodology to measure the interest
rate risk exposure of thrift institutions. Under OTS regulations, an
institution's "normal" level of interest rate risk in the event of an assumed
change in interest rates is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Beginning July 1, 1994, thrift
institutions with greater than "normal" interest rate exposure must take a
deduction from their total capital available to meet their risk based capital
requirement. The amount of that deduction is one-half of the difference between
(a) the institution's actual calculated exposure to a 200 basis point interest
rate increase or decrease (whichever results in the greater pro forma decrease
in NPV) and (b) its "normal" level of exposure which is 2% of the present value
of its assets. The change indicated for September 30, 1996 exceeds the 2% norm.
As a result, the Association would be required to make a deduction from total
capital in calculating its risk-based capital requirement had this rule been
applicable to it. However, because the Association has total
5
<PAGE>
assets of less than $300 million and risk-based capital in excess of 12%, the
Association is exempt from this rule.
Presented below, as of September 30, 1996, is an analysis of the
Association's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments,
up and down 300 basis points and compared to Board policy limits and in
accordance with OTS regulations. Such limits have been established with
consideration of the dollar impact of various rate changes and the Association's
strong capital position. As illustrated in the table, NPV is more sensitive to
and may be negatively impacted by rising rates than declining rates. This occurs
principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments. When rates
decline, the Association does not experience a significant rise in market value
for these loans because borrowers prepay at relatively high rates. The value of
the Association's deposits and borrowings change in approximately the same
proportion in rising or falling rate scenarios.
September 30, 1996
------------------
Change in
Interest Rate $ Change % Change
(Basis Points) in NPV in NPV
- -------------------- -------------------- ------------------
(Dollars in Thousands)
+300 -3,304 -33%
+200 -2,247 -19%
+100 -1,297 -8%
-0-
-100 262 +4%
-200 261 +4%
-300 388 +6%
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate mortgage ("ARM")
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, expected rates of prepayments on loans and early withdrawals
from certificates could likely deviate significantly from those assumed in
calculating the table.
The Company seeks to maximize net interest income by attempting to
achieve a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. The Company's policies are designed
to reduce the impact of changes in interest rates on its net interest income by
maintaining a favorable match between the maturities or repricing dates of its
interest-earning assets and interest-bearing liabilities. In implementing these
policies, the Company has increased its loans receivable from $35.4 million at
September 30, 1992 to $39.9 million at September 30, 1996, an increase of 12.7%.
During 1994, the Company expanded its consumer loan portfolio to service
existing customers. During 1996, the Association purchased automobile loans
which are being serviced by a third party. Consumer loans are originated with
shorter terms and at higher interest rates than one- to four-family residential
loans and offer the Company the ability to improve asset/liability management.
However, consumer loans may
6
<PAGE>
entail greater credit risk than residential mortgage loans, therefore, no
assurance can be made that delinquencies will not increase in the future.
During the period from September 30, 1992 to September 30, 1995, the
Company also increased its mortgage-backed securities from $10.8 million to
$12.3 million. The composition of mortgage-backed securities consisted of fixed
rate and adjustable rate securities backed by FHLMC, Federal National Mortgage
Association and Government National Mortgage Association. Interest rate risk is
inherent in holding any debt security. As interest rates rise the value of the
security declines and conversely as interest rates decline values rise. All of
the adjustable rate mortgage-backed securities in the portfolio are tied to the
Eleventh District Cost of Funds Index or the One Year Constant Maturity Treasury
Index, and all are considered available for sale.
7
<PAGE>
Average Balances, Interest Rates and Yields. The following table
presents for the periods indicated the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates. No tax equivalent adjustments were made. All average balances
are monthly average balances. Non-accruing loans have been included in the table
as loans carrying a zero yield. If interest rates continue to increase (as they
have since the last quarter of fiscal 1994), the rates paid on liabilities will
generally be expected to increase at a faster pace than the rates charged on
assets, due to the nature of the timing of their repricing. In such an event,
the Company's interest rate spread will narrow. A narrowing of the Company's
interest rate spread may have the effect of reducing net interest income in
future periods.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------------
1994 1995 1996
----------------------------- ----------------------------- ------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1) ................ $32,196 $2,402 7.46 $35,970 $ 2,599 7.23 $39,186 $3,088 7.88%
Mortgage-backed securities .......... 10,295 585 5.68 9,947 597 6.00 11,774 738 6.26
Investment securities .............. 4,017 179 4.46 3,075 180 5.85 2,787 164 5.88
FHLB stock ......................... 385 16 4.16 413 26 6.30 444 26 5.86
------- ------ ------- ------- ------- -----
Total interest-earning assets(1) .. $46,893 3,182 6.79 $49,405 3,402 6.89 $54,191 4,016 7.41
======= ------ ======= ------- ======= -----
Interest-Bearing Liabilities:
Savings deposits ................... $12,517 368 2.94 $12,982 427 3.04 $11,596 267 2.30
Certificate accounts ............... 30,735 1,247 4.06 30,363 1,375 4.53 31,052 1,698 5.46
Borrowings ......................... 631 27 4.28 1,591 95 5.97 4,809 258 5.36
------- ------- ------- ------ ------- -----
Total interest-bearing liabilities $43,883 1,642 3.74 $44,936 1,897 4.22 $47,457 2,223 4.68
======= ------- ======= ------ ====== -----
Net interest income ................. $ 1,540 $1,505 $1,793
======= ====== ======
Net interest rate spread ............ 3.05% 2.67% 2.73%
==== ==== ====
Net earning assets .................. $ 3,010 $4,469 $ 6,734
======= ====== =======
Net yield on average interest-earning
assets ............................. 3.28% 3.05% 3.53%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities 106.86x 109.95x 111.21x
======= ====== =======
<FN>
- -----------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.
</FN>
</TABLE>
8
<PAGE>
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and due to the changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------
1994 vs. 1995 1995 vs. 1996
----------------------------------- -----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
------------------- Increase ------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable................... $ 261 $ (64) $ 197 $ 246 $ 243 $ 489
Mortgage-backed securities......... 9 2 11 146 (5) 141
Investment securities.............. --- 2 2 (15) (2) (17)
Other.............................. 1 8 9 2 --- 2
----------- ---------- ---------- ----------- ---------- ----------
Total interest-earning
assets........................... $ 271 $ (52) 219 $ 379 $ 236 615
========= ========= --------- ========= ========= ---------
Interest-bearing liabilities:
Savings deposits................... $ (16) $ (2) (18) $ (80) $ --- (80)
Borrowings......................... 52 16 68 173 (10) 163
Certificate accounts............... 27 178 205 114 129 243
--------- -------- --------- --------- -------- ---------
Total interest-bearing
liabilities..................... $ 63 $ 192 255 $ 207 $ 119 326
========= ======== --------- ========= ======== ---------
Net interest income................. $ (36) $ 289
========= =========
</TABLE>
9
<PAGE>
Interest Rate Spread
The following table presents the weighted average yields earned on
loans, investments and other interest-earning assets, and the weighted average
rates paid on savings deposits and borrowings and the resultant interest rate
spreads at the dates indicated.
At September 30,
----------------
1994 1995 1996
---- ---- ----
Weighted average yield on:
Loans receivable ................................ 7.15% 7.26% 7.94%
Mortgage-backed securities ...................... 5.82 6.09 6.64
Investment securities ........................... 4.92 5.25 5.23
Other interest-earning assets ................... 4.84 5.94 5.82
Combined weighted average yield on
interest-earning assets ...................... 6.70 7.22 7.58
Weighted average rate paid on:
Savings deposits ................................ 3.04 3.04 3.04
Certificate accounts ............................ 4.22 4.80 5.27
Borrowings ...................................... 5.04 6.06 5.73
Combined weighted average rate paid on
interest-bearing liabilities ................. 3.90 4.60 4.85
Spread ........................................... 2.80 2.63 2.73
Comparison of Operating Results For The Three Years Ended September 30, 1995
General. The Company had net income totalling $289,000, $273,000 and
$54,000, respectively, for the years ended September 30, 1994, 1995 and 1996.
Net income for the year ended September 30, 1995 declined $16,000 from fiscal
1994. The decline in fiscal year 1995 was primarily the result of the decline in
net interest income of $36,000 and the increase in non-interest expenses of
$75,000, which were partially offset by the reduction in the provision for loan
losses of $60,000, the decline in income tax expenses of $32,000, and the
increase in non-interest income of $4,000.
Net income for the year ended September 30, 1996 decreased $219,000
from fiscal 1995. The decrease in fiscal year 1996 was primarily the result of a
special FDIC assessment of $295,000, an increase in the provision for loan
losses of $174,000 and non-interest expense of $141,000. The increased expenses
were partially offset by increased net interest income of $288,000 and decreased
income tax expense of $104,000.
Net Interest Income. The Company's net income is dependent upon net
interest income. Net interest income is the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities. During the
year ended September 30, 1995, the Company experienced a decrease in net
interest income of $36,000, or 2.4%. Net interest income increased during the
year ended September 30, 1996 by $288,000 or 19%.
Economic and competitive factors influence interest rates, as well as
loan demand and savings activity. To the extent that interest-bearing
liabilities mature or reprice at different intervals from interest-earning
assets, interest rate risk also has an effect on the net interest income of the
Company.
10
<PAGE>
The Company's ability to attract and retain deposits has been and
continues to be significantly affected by the rates paid on such deposits.
Although management believes the rates paid on such deposits are currently
competitive with the rates paid on similar products offered by institutions in
the Company's market area, total deposits decreased from $43.1 million at
September 30, 1995 to $42.0 million at September 30, 1996. The Company's ability
to attract and retain such deposits will continue to be significantly affected
by market conditions. At times the Company may be required to utilize
alternative and potentially higher cost funding sources which may result in a
decrease in net interest income.
Total interest income was $4.0 million for the fiscal year ended
September 30, 1996. This was an increase of $615,000 or 18.1% over the previous
year. The increase in interest income was a direct result of an increase in
interest-earning assets for the year ended September 30, 1995. In conjunction
with the increase in interest income, however, interest expense also inclined.
Interest expense increased by $326,000 for the year ended September 30, 1996
from the prior year. Average interest-bearing liabilities increased for the year
ended September 30, 1996 in order to partially fund the increase in assets.
Federal Home Loan Bank advances increased, and these borrowings were generally
at higher rates of interest than deposit accounts.
The Company's vulnerability to rising interest rates can be seen in its
historical performance. For the fiscal year 1996, the Company's interest rate
spread showed a moderate inclination and its interest margin widened to 3.5%
during the 1996 fiscal year because the Company's yield on assets inclined at a
faster pace than its cost of funds. Interest margins fell for the fiscal years
ended September 30, 1994 and 1995. During these periods of rising rates the
yields on assets were declining due to the lag in adjustment periods on such
assets as a result of an increase in market rates of interest, while the cost of
funds were increasing.
Allowance for Loan Losses. For the fiscal year ended September 30,
1995, the Company recorded a provision for loan losses of $40,000 as compared to
$100,000 for fiscal 1994. At September 30, 1995, the Company's allowance for
loan losses totaled $580,000. A provision for loan loss of $214,000 was recorded
for the fiscal year ended September 30, 1996. At September 30, 1996, the
Company's allowance for loan losses was 1.44% of total loans and 69.6% of
non-performing assets as compared to 1.04% and 59.3%, respectively, at September
30, 1995 and to 1.03% and 55.7%, respectively, at September 30, 1994. The
Company's ratio of net charge-offs to average loans outstanding during the years
ended September 30, 1994, 1995 and 1996 were 0.02%, 0.01% and 0.00%,
respectively and its ratio of net charge-offs to average non-performing assets
during the same periods were 1.05%, 0.16% and 2.89%, respectively. Although net
charge-offs have increased from $2,000 at September 30, 1995 to $23,000 at
September 30, 1996, the allowance for loan losses is established based on
management's evaluation of the risk inherent in its loan activity. Such
evaluation, which includes a review of loans for which full collectibility may
not be reasonably assured, considers, among other matters, the estimated fair
value of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance. See Note 4 of the Notes to Consolidated Financial
Statements.
The increase in the allowance from fiscal 1995 to fiscal 1996 reflects,
among other things, the 67% increase in the Company's commercial real estate
portfolio, the 84% increase in consumer loans (predominantly loans on used
automobiles purchased from a loan broker which initially retained servicing
rights) and the 7% overall increase in the total loan portfolio into different
types of lending which generally involve increased risk from that of one- to
four-family residential lending, the increased level of the Company's problem
loans and their estimated value, and the levels of the allowance for loan losses
established by the Company's peers in assessing the adequacy of the loan loss
allowance. Although the Company maintains
11
<PAGE>
its allowance for loan losses at a level which it considers to be adequate to
provide for losses, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods.
Non-Interest Income. Late charges and insurance commissions are the
focus of non-interest income for the Company. Non-interest income totaled
$47,000 for the fiscal year ended September 30, 1996, as compared to $47,000 for
fiscal 1995 and $43,000 for fiscal 1994. The totals for all three years were
comparable due to the limited amount of service the Company provides its
customer base. As a result, the Company's ability to increase non-interest
income in the future may be limited.
Non-Interest Expense. Non-interest expense totaled $1.5 million for the
fiscal year ended September 30, 1996 as compared to approximately $1.1 million
for each of the fiscal years ended September 30, 1995 and 1994. This $436,000,
or 40%, increase was mainly the result of a $295,000 one-time special assessment
required by legislation enacted on September 30, 1996. The federal legislation,
which affects all savings associations nationwide, is designed to recapitalize
the SAIF of the FDIC. As of October 1, 1996, deposit insurance premiums for
highly rated institutions have been eliminated. However, the Board will continue
to be subject to a 6.5 cents per $100 of deposit assessment to fund repayment of
the FICO obligations. Compensation and benefit expenses increased due to the
establishment of the Company's Recognition and Retention Plan, normal increases
in salaries in recent periods and increases in directors fees.
Provision for Income Taxes. The Company's income tax expense for the
fiscal year ended September 30, 1996 was $49,000 as compared to $153,000 for the
previous year end, and $185,000 for fiscal 1994. The decrease in taxes from
fiscal 1994 to fiscal 1995, and from fiscal 1995 to fiscal 1996 was the result
of the decrease in pre-tax income. Pre-tax income was $474,000, $426,000 and
$103,000 for the years ended September 30, 1994, 1995 and 1996, respectively.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings,
principal and interest payments on loans, mortgage-backed and investment
securities. In the event that the Company should require funds beyond its
ability to generate them internally, additional sources of funds are available
through the use of FHLB advances. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic conditions and
competition.
Federal regulations have required the Association to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and other securities and obligations generally having remaining maturities of
less than five years. The Association's most liquid assets are cash and cash
equivalents, short-term investments and mortgage-backed and related securities.
The levels of these assets are dependent on the Association's operating,
financing, lending and investing activities during any given period. The low
level of liquid investments has required the Association to utilize FHLB
advances in order to meet liquidity needs. At September 30, 1996, 1995 and 1994,
liquidity eligible assets totalled $3.6 million, $4.8 million and $5.4 million,
respectively. At those same
12
<PAGE>
dates, the Association's liquidity ratios were 6.5%, 10.6% and 13.4%,
respectively, all in excess of the 5% minimum regulatory requirement.
The Company uses its liquid resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity
and to meet operating expenses. At September 30, 1996, the Company had
outstanding commitments to extend credit which amounted to $1.3 million.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Company's foreseeable liquidity needs.
At September 30, 1996, the Company had $14.0 million in certificates of
deposit due within one year and $13.7 million in other deposits without specific
maturity. Based on past experience, management expects that most of the deposits
will be retained or replaced by new deposits.
The primary investment activities of the Company are the origination of
one- to four-family, commercial real estate, one- to four-family construction,
and consumer loans, and the purchase of investment and mortgage-backed
securities. During the years ended September 30, 1996, 1995 and 1994, the
Company originated loans totalling $8.7 million, $9.4 million and $8.1 million,
respectively. During those same periods, the Company purchased investment and
mortgage-backed securities totalling $3.3 million, $3.0 million and $4.0
million, respectively. These activities were funded primarily by deposits,
principal repayments on loans and investments and mortgage-backed securities.
The Company decreased its purchases of mortgage-backed securities as the demand
for new loans increased. To the extent such loan demand continues, this would be
expected to have a positive effect on the Company's results of operations.
Management expects loan demand to be negatively effected, however, if interest
rates rise, which would require management to again seek alternative sources of
investment (such as mortgage-backed securities) which could adversely effect the
Company's interest rate spreads.
13
<PAGE>
At September 30, 1996, the Association exceeded all of its regulatory
capital requirements. The following table sets forth the Association's
compliance with its capital requirements at September 30, 1996.
At September 30, 1996
---------------------
Amount Percent(1)
------ ----------
(Dollars in Thousands)
(Unaudited)
Tangible Capital:
Capital level ............................... $5,513 9.73%
Requirement ................................. 850 1.50
------ -----
Excess ...................................... $4,663 8.23%
====== =====
Core Capital:
Capital level ............................... $5,513 9.73%
Requirement ................................. 1,701 3.00
------ -----
Excess ...................................... $3,812 6.73%
====== =====
Current Risk-Based Capital:
Capital level ............................... $5,860 19.14%
Requirement ................................. 2,449 8.00
------ -----
Excess ...................................... $3,411 11.14%
====== =====
- -----------------
(1) Tangible and core capital levels are shown as a percentage of adjusted total
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
Impact of Inflation
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Association is reflected in increased operating costs. Unlike
most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates,
generally, have a more significant impact on a financial institution's
performance than does inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services. In the
current interest rate environment, liquidity and maturity structure of the
Association's assets and liabilities are critical to the maintenance of
acceptable performance levels.
Impact of New Accounting Pronouncements
In May 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting For Mortgage Servicing
Rights (SFAS 122)". SFAS 122 amends SFAS 65 to require mortgage banking
enterprises to recognize as separate assets rights to service mortgage loans for
others, however those mortgage servicing rights are acquired. SFAS 122 also
requires that mortgage banking enterprises assess the impairment of capitalized
mortgage servicing rights based on the fair value of those rights on a
desegregated basis with the impairment recognized through a valuation allowance.
SFAS 122 is effective for fiscal years beginning after December 15, 1995 and
applies prospectively to retained servicing rights including purchases prior to
the adoption of the statement. The Association intends to adopt SFAS 122, in the
fiscal year beginning October 1, 1996, however, since the Company has
14
<PAGE>
not sold loans, the Company does not anticipate any impact on its operations or
financial position from its implementation.
In December 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting For Stock Based
Compensation Plans (SFAS 123)". SFAS 123 allows a company the option of
continuing to follow existing accounting principles for employee stock option
plans or to adopt the new principles set forth. Generally, existing accounting
principles do not require a company to record compensation expense as long as it
issues stock options with an exercise price equal to the existing market price
of the stock at the grant date. The new accounting principles set forth in SFAS
123 would require a company to record compensation expense regardless of the
exercise price at the grant date. If a company chooses to continue to apply
existing accounting principles, it will have to include detailed disclosures of
the effect on net income had it followed the new accounting principles set forth
in SFAS 123. The Company will continue to follow existing accounting principles
and accordingly, will include the detailed disclosures required by SFAS 123 in
its annual report for the year ending September 30, 1997.
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.125, "Accounting For Transfers of
Assets" (SFAS 125). SFAS 125 establishes guidelines on accounting for
transactions such as loan syndications, repurchase agreements, securitizations,
repurchase agreements, securitizations and other similar transactions. The focus
of SFAS 125 is whether companies should record such transactions as sales or
collateralized financing arrangements. Based on an initial reading of SFAS 125
and an analysis of the Company's recurring asset transfer transactions, it does
not appear that adoption of SFAS 125, beginning October 1, 1996, will have a
material effect on its financial statements or operating activities.
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
St. Landry Financial Corporation and Subsidiary
Opelousas, Louisiana
We have audited the accompanying consolidated statements of financial condition
of St. Landry Financial Corporation and its wholly owned subsidiary, First
Federal Savings and Loan Association as of September 30, 1995 and 1996, and the
related consolidated statements of income, retained earnings, and cash flows for
each of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Landry Financial
Corporation and Subsidiary as of September 30, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for debt and equity securities for the year ended September
30, 1995, as required by the provisions of Statement of Financial Accounting
Standards No. 115, and changed its method of accounting for income taxes for the
year ended September 30, 1995, as required by Statement of Financial Accounting
Standards No. 109.
/s/ JOHN S. DOWLING & COMPANY
Opelousas, Louisiana
November 13, 1996
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND 1996
ASSETS 1995 1996
------ ---- ----
Cash and equivalents $140,139 $ 385,363
Investment securities
Securities held-to-maturity, (fair value
of $1,476,650 in 1995 and $989,450 in 1996) 1,485,983 989,595
Securities available-for-sale, at fair value 1,662,984 1,773,450
Mortgage-backed securities
Securities held-to-maturity (fair value of
$3,870,925 in 1995 and $2,787,272 in 1996) 3,895,944 2,854,260
Securities available-for-sale, at fair value 7,349,837 9,484,872
Loans receivable, net 37,355,664 39,856,672
Accrued interest receivable 251,981 264,365
Foreclosed real estate, net 42,997 97,827
Premises and equipment, net 525,534 605,178
Investment required by law - Stock in Federal
Home Loan Bank, at cost 413,300 444,300
Other assets 81,894 100,774
--------- ----------
Total assets 53,206,257 56,856,656
========== ==========
See accompanying notes to financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
Deposits $43,142,857 $41,985,963
Borrowed funds 2,537,938 7,561,322
Advances by borrowers for taxes and insurance 106,822 92,468
Federal income taxes
Currently payable
Deferred payable 68,694 37,127
Accrued expenses and other liabilities 177,070 476,528
---------- ---------
Total liabilities 46,033,381 50,153,408
---------- ----------
STOCKHOLDERS' EQUITY
Common stock $.01 par value, 1,500,000 shares
authorized; 459,093 shares outstanding 4,591 4,591
Preferred stock, $.01 par value, 500,000 shares
authorized; 0 shares outstanding
Additional paid in capital 3,329,657 3,347,621
Treasury stock (350,561)
Unearned ESOP shares (264,552) (228,624)
Unearned RRP shares (291,153)
Retained earnings, substantially restricted 4,017,478 4,049,776
Unrealized gain on securities available-for-sale
net of applicable deferred income taxes 85,702 171,598
--------- ----------
Total stockholders' equity 7,172,876 6,703,248
--------- ----------
Total liabilities and stockholders'
equity 53,206,257 56,856,656
========== ===========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
1994 1995 1996
---- ---- ----
INTEREST INCOME
Loans receivable
First mortgage loans $ 2,367,956 $ 2,556,966 $ 2,946,211
Savings account loans 32,632 30,930 41,996
Consumer loans 1,116 10,643 99,796
Investment securities 195,639 205,679 190,065
Mortgage-backed securities 585,111 596,801 737,726
----------- ----------- -----------
Total interest income 3,182,454 3,401,019 4,015,794
----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,614,930 1,801,810 1,964,963
Borrowed funds 26,938 94,963 258,123
----------- ----------- -----------
Total interest expense 1,641,868 1,896,773 2,223,086
----------- ----------- -----------
Net interest income 1,540,586 1,504,246 1,792,708
-----------
PROVISION FOR LOAN LOSSES 100,000 40,000 214,000
----------- ----------- -----------
Net interest income after
provision for loan losses 1,440,586 1,464,246 1,578,708
----------- ----------- -----------
NON-INTEREST INCOME
Service charges and other fees 25,313 23,847 23,253
Insurance commissions 17,728 22,920 21,986
Other 418 722 1,362
----------- ----------- -----------
Total non-interest income 43,459 47,489 46,601
----------- ----------- -----------
NON-INTEREST EXPENSE
General and administrative
Compensation and benefits 557,042 655,165 724,526
Occupancy and equipment 117,710 120,585 123,883
Marketing and other services 78,114 77,603 118,208
Deposit insurance premium 102,001 99,547 395,241
Net loss (gain) on foreclosed
real estate (2,338) (2,739) (2,595)
Real estate owned expense 26,232 7,670 9,047
Other 131,591 127,765 153,327
----------- ----------- -----------
Total non-interest expense 1,010,352 1,085,596 1,521,637
----------- ----------- -----------
Income before income taxes 473,693 426,139 103,672
INCOME TAX EXPENSE 185,104 153,322 49,455
----------- ----------- -----------
NET INCOME 288,589 272,817 54,217
=========== =========== ===========
NET INCOME PER COMMON SHARE $ .13
====
See accompanying notes to financial statements.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
UNREALIZED GAIN (LOSS)
ADDITIONAL UNEARNED UNEARNED ON SECURITIES AVAILABLE- TOTAL
COMMON PREFERRED PAID-IN ESOP RRP RETAINED FOR-SALE, NET OF APPLICABLE TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL SHARES SHARES EARNINGS DEFERRED INCOME TAXES STOCK EQUITY
------ --------- ---------- -------- -------- -------- --------------------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, September 30,
1993 $3,456,072 $3,456,072
Net income 288,589 288,589
------ --- ---------- -------- -------- --------- ------- -------- ----------
BALANCES, September 30,
1994 3,744,661 3,744,661
Net income 272,817 272,817
Sale of stock $4,591 4,591
Contribution of additional
paid-in capital $3,316,854 3,316,854
Acquisition of ESOP shares $(293,816) (293,816)
Allocation of earned ESOP
shares at fair value 12,803 29,264 42,067
Change in unrealized gain
(loss) on securities
available-for-sale, net
of applicable deferred
income taxes of $44,150 $85,702 85,702
------ --- ---------- -------- -------- --------- ------- -------- ----------
BALANCES, September 30,
1995 $4,591 3,329,657 (264,552) 4,017,478 85,702 7,172,876
Net income 54,217 54,217
Stock issued for adoption
of recognition and
retention plan 184 247,730 $(247,914)
Purchase of treasury stock $(641,714) (641,714)
Retirement of treasury
stock to be used for
recognition and
retention plan (184) (247,730) (43,239) 291,153
Allocation of earned ESOP
shares at fair value 17,964 35,928 53,892
Dividend paid (21,919) (21,919)
Change in unrealized gain
(loss) on securities
available-for-sale, net
of applicable deferred
income taxes of $44,249 85,896 85,896
------ --- ---------- -------- -------- --------- ------- -------- ----------
BALANCES, September 30,
1996 4,591 -0- 3,347,621 (228,624)(291,153)4,049,776 171,598 (350,561) 6,703,248
====== === ========== ======== ======== ========= ======= ======== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $288,589 $272,817 $54,217
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of premiums and discounts
on loans and mortgage-backed and related
securities 13,751 4,359 10,534
Stock dividend on FHLB stock (16,000) (25,400) (25,600)
Provision for loan losses 100,000 40,000 214,000
Deferred loan fees (1,357) (1,553)
Depreciation of premises and equipment 27,465 24,104 31,249
Depreciation of real estate owned 1,186
Net loss (gain) on sale of real estate
owned (2,338) (2,739) (2,595)
Net loss (gain) on sale of fixed assets (182)
Allocation of ESOP shares 42,067 53,892
(Increase) decrease in accrued interest
receivable 23,279 (44,060) (12,384)
(Increase) decrease in other assets (43,548 ) 41,484 (18,880)
Increase (decrease) in income taxes payable (15,796)
Increase (decrease) in deferred income taxes 2,630 7,391 (75,816)
Increase (decrease) in accrued expenses and
other liabilities 2,551 25,422 305,216
--------- --------- ---------
Net cash provided by
operating activities 380,412 383,710 533,833
-------------------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations net of principal
repayments (1,014,636) (4,073,751) (2,787,262)
Purchases of certificates of deposit (196,497)
Maturities of certificates of deposit 589,111
Purchase of investment securities
held-to-maturity (1,880,234)
Proceeds from maturities of investment
securities held-to-maturity 2,000,000 500,000
Purchases of mortgage-backed securities
held-to-maturity (2,044,098)
Principal repayments of mortgage-backed
securities held-to-maturity 2,432,295 703,953 1,047,072
Purchases of mortgage-backed securities
available-for-sale (2,987,138) (3,687,922)
Principal repayments of mortgage-backed
securities available-for-sale 1,095,720 1,546,079
Purchase of FHLB stock (42,600) (4,100) (31,100)
</TABLE>
This statement continued on next page.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES (Continued)
Proceeds from sale of FHLB stock $ 14,300 $ 23,600 $25,700
Investment in foreclosed real estate (7,719) (6,106)
Proceeds from sale of foreclosed real
estate 55,165 2,250 27,320
Proceeds from sale of premises and
equipment 275
Purchases of premises and equipment (24,734) (100,291) (110,893)
--------- --------- ---------
Net cash (used) by
investing activities (119,647) (5,339,482) (3,477,112)
-------------------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (368,908) 372,371 (1,156,894)
Increase (decrease) in advances
from FHLB (148,083) 1,486,021 5,023,384
Increase (decrease) in mortgage
escrow funds (50,166) 28,615 (14,354)
Dividend paid (21,919)
Purchase of treasury stock (641,714)
Net proceeds from issuance of stock 3,027,629
--------- --------- ---------
Net cash provided (used) by
financing activities (567,157) 4,914,636 3,188,503
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (306,392) (41,136) 245,224
----------------
CASH AND CASH EQUIVALENTS, beginning of year 487,667 181,275 140,139
- ------------------------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year 181,275 140,139 385,363
- ------------------------- ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Loans originated to facilitate the sale
of real estate owned $190,985 $42,750 $68,580
========= ========= =========
Loan principal reductions resulting from
foreclosures on real estate owned $50,932 $26,462 $147,787
========= ========= =========
Increase in unrealized gain (loss) on
securities available-for-sale net of
applicable deferred income taxes $85,702 $85,896
========= =========
</TABLE>
This statement continued on next page.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Retirement of treasury stock used to
fund recognition and retention plan $291,153
==========
SUPPLEMENTAL SCHEDULE OF INTEREST AND
TAXES PAID
Interest paid $1,649,802 $1,916,017 $2,221,567
========== ========== ==========
Taxes paid $215,296 $145,240 $145,960
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF FINANCIAL STATEMENT PRESENTATION
St. Landry Financial Corporation, (the "Company"), was formed in
December 1994 for the purpose of acquiring all of the common stock
of First Federal Savings and Loan Association of Opelousas, (the
"Association"), concurrent with its conversion from mutual to stock
ownership. St. Landry Financial Corporation completed its initial
public stock offering of 459,093 shares of $.01 par value stock on
April 5, 1995. The Company utilized one half of the net stock sale
proceeds to acquire all of the common stock issued by the
Association. The conversion was an internal reorganization with
historical balances carried forward without adjustment.
The financial statements included in this report reflect the
consolidated financial condition and results of operations of the
Company and its subsidiary for the years ended September 30, 1995
and 1996. All material intercompany balances and transactions have
been eliminated in consolidation.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statement of
financial condition and revenues and expenses for the year. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on
loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for losses on loans and foreclosed
real estate, management obtains independent appraisals for
significant properties.
A substantial portion of the Association's loans are secured by real
estate in local depressed markets. In addition, foreclosed real
estate is located in this same depressed market. Accordingly, the
ultimate collectibility of a substantial portion of the
Association's loan portfolio and the recovery of the carrying amount
of foreclosed real estate are susceptible to changes in local market
conditions.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances
may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Association's
allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association to recognize additions to the
allowances based on their judgments about information available to
them at the time of their examination.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. BUSINESS
The Company, through its subsidiary, provides financial services to
individuals and corporate customers, and is subject to competition
from other financial institutions. The Association's primary deposit
products are passbooks, money market accounts and certificates of
deposit. Its primary lending products are single-family residential
loans. The Company and its subsidiary are also subject to the
regulations of certain federal agencies and undergo periodic
examinations by those regulatory authorities.
C. CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash, interest-bearing deposits in other institutions
including certificates of deposit with original maturities of three
months or less and short-term debt securities purchased with
original maturities of three months or less.
Cash and cash equivalents at September 30, included the following:
1995 1996
---- ----
Cash $127,511 $151,081
Interest-bearing deposits in
other institutions 12,628 234,282
-------- --------
140,139 385,363
======== ========
D. INVESTMENT SECURITIES
The Association adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," for the year ended September 30, 1996. Under the
provisions of Statement No. 115, investment securities that are held
for short-term resale are classified as trading securities and
carried at fair value. Debt securities that management has the
ability and intent to hold to maturity are classified as
held-to-maturity and carried at cost, adjusted for amortization of
premium and accretion of discounts using a method that approximates
the interest method. Other marketable securities are classified as
available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases
in stockholders' equity. Equity securities that are nonmarketable or
that have mandatory sinking funds are carried at cost. Gains and
losses on the sale of investment securities are determined using the
specific identification method.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INVESTMENT SECURITIES - Continued
The effect of this change in accounting principle was an increase of
$163,550 (net of related deferred income tax expense of $84,253) in
equity capital to record unrealized gain on investment securities
available-for-sale. FASB 115 does not allow retroactive restatement
of prior period financial statements.
Prior to adoption of Statement No. 115, bonds, notes and debentures
were carried at cost, adjusted for premiums and discounts that were
recognized in interest income using the interest method, or
straight-line method if not materially different, over the period to
maturity.
Equity securities that were nonmarketable or that had mandatory
sinking funds were carried at cost. All other equity securities were
carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses were recognized through a valuation
allowance that was shown as a reduction in the carrying value of the
related securities and as a corresponding reduction in stockholders'
equity.
Gains and losses on the sale of investment securities were
determined using the specific-identification method.
E. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments
in dept securities.
Mortgage-backed securities that are held for short-term resale are
classified as trading securities and carried at fair value.
Mortgage-backed securities that management has the ability and
intent to hold to maturity are classified as held-to- maturity and
carried at cost, adjusted for amortization of premium and accretion
of discounts using a method that approximates the interest method.
Other mortgage-backed securities are classified as
available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses on mortgage-backed
securities available-for-sale are recognized as direct increases or
decreases in stockholders' equity. Gains and losses are recognized
based on the specific-identification method.
The Association adopted Statement of Financial Accounting Standards
No. 115 for the year ended September 30, 1995. The effect of this
change in accounting principle was a decrease of $77,848 (net of
related deferred income taxes of $40,103) in equity capital to
recognize unrealized losses on mortgage-backed available-for-sale.
FASB 115 does not allow retroactive restatement of prior period
financial statements. Prior to adoption of Statement No. 115,
investments in mortgage-backed securities were stated at cost,
adjusted for amortization of premiums and accretion of fees and
discount using a method that approximates level yield.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan-origination fees
and discounts.
Discounts on first mortgage loans are amortized to income using the
interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments.
Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest
payments received on such loans are applied as a reduction of the
loan principal balance. Interest income on other impaired loans is
recognized only to the extent of interest payments received.
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 amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends
in historical loss experience, specific impaired loans, economic
conditions and other risks inherent in the portfolio. Allowances for
impaired loans are generally determined based on collateral values
or the present value of estimated cash flows. The allowance is
increased by a provision for loan losses, which is charged to
expense, and reduced by charge-offs, net of recoveries.
G. LOAN ORIGINATION FEES, COMMITMENT FEES, AND RELATED COSTS
Loan fees are accounted for in accordance with FASB Statement No.
91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases."
Loan fees and certain direct loan origination costs are deferred,
and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the
loans.
The Association does not charge commitment fees.
H. FORECLOSED REAL ESTATE
Real estate properties acquired through, or in lieu of, loan
foreclosures are initially recorded at fair value at the date of
foreclosure. After foreclosure, foreclosed assets are carried at the
lower of (a) fair value minus estimated costs to sell or (b) cost.
Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are
expensed.
I. PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, furniture, fixtures, and
equipment are carried at cost, less accumulated depreciation.
Buildings and furniture, fixtures, and equipment are depreciated
over their estimated useful lives using the straight-line or
declining balance methods.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. INCOME TAXES
Deferred income taxes are provided in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred taxes are provided for accumulated temporary
differences due to basis differences for assets and liabilities for
financial reporting and income tax purposes. The Association's
temporary differences related primarily to differences between the
basis of FHLB stock, unrealized gains and losses on
available-for-sale securities, prepaid interest, and deferred loan
fees, for financial and income tax reporting.
Investment tax credits are accounted for as a reduction of income
tax expense in the year taxes payable are reduced.
K. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of
fair value information about financial instruments, whether or not
recognized in the statement of financial condition. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many
cases, could not be realized in immediate settlement of the
instruments, Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Association.
The following methods and assumptions were used by the Association
in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statements of financial condition for cash and cash equivalents
approximate those assets' fair values.
Investment and mortgage-backed securities: Fair values for
investment and mortgage-backed securities are based on quoted market
prices.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans are estimated using
discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality. Loan fair value estimates include judgments
regarding future expected loss experience and risk characteristics.
Fair values for impaired loans are estimated using discounted cash
flow analysis or underlying collateral values, where applicable. The
carrying amount of accrued interest receivable approximates its fair
value.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K. FAIR VALUES OF FINANCIAL INSTRUMENTS - Continued
Deposits: The carrying amounts of variable-rate, fixed-term
money-market accounts and certificates of deposit approximate their
fair values. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits. The
carrying amount of accrued interest payable approximates fair value.
Accrued interest: The carrying amounts of accrued interest
approximate the fair values.
Borrowed funds: Fair values for advances from the Federal Home Loan
Bank are estimated using a discounted cash flow calculation with
interest rates currently offered on similar instruments.
Advance payments by borrowers for taxes and insurance (escrows): The
carrying amount of escrow accounts approximate fair value.
L. RECLASSIFIED ITEMS
Certain items of the prior years have been reclassified in order to
conform to the current year's presentation.
2. INVESTMENT SECURITIES
Securities held-to-maturity consist of the following at September 30:
1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
U.S. Government obligations $1,485,983 -0- $(9,333) $1,476,650
========== === ======= ==========
1996
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
U.S. Government obligations $ 989,595 -0- $ (145) $ 989,450
========== === ======= ==========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES (CONTINUED)
Securities available-for-sale consist of the following at September 30:
1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
Equity securities $1,415,181 $252,767 $(4,964) $1,662,984
========== ======== ======= ==========
1996
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
Equity securities $1,415,181 $363,233 $(4,964) $1,773,450
========== ======== ======= ==========
The following is a summary of maturities of debt securities
held-to-maturity at September 30, 1996:
Amortized Fair
Amounts maturing in: Cost Value
--------- -----
One year or less $499,878 $499,295
After one year through five years 489,717 490,155
After five years through ten years
After ten years
-------- --------
989,595 989,450
======== ========
There were no sales of investment securities during the years ended
September 30, 1994, 1995, or 1996.
No investment securities were pledged at September 30, 1996.
3. MORTGAGED-BACKED SECURITIES
Mortgage-backed securities held-to-maturity consist of the following at
September 30:
1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
GNMA $ 338,615 $14,933 $ 353,548
FHLMC 3,105,134 27,675 $(51,364) 3,081,445
FNMA 452,195 (16,263) 435,932
---------- ------- ------- ----------
3,895,944 42,608 (67,627) 3,870,925
========== ======= ======= ==========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MORTGAGED-BACKED SECURITIES (CONTINUED)
1996
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
GNMA $ 273,588 $10,930 $ 284,518
FHLMC 2,137,980 6,090 $(62,627) 2,081,443
FNMA 442,692 (21,381) 421,311
---------- ------- ------- ----------
2,854,260 17,020 (84,008) 2,787,272
========== ======= ======= ==========
Mortgaged-backed securities available-for-sale consist of the following at
September 30:
1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
GNMA $ 670,786 $26,904 $ 697,690
FHLMC 2,925,686 $(110,750) 2,814,936
FNMA 3,871,316 3,493 (37,598) 3,837,211
---------- ------- ------- ----------
7,467,788 30,397 (148,348) 7,349,837
========== ======= ======= ==========
1996
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
GNMA $1,281,916 $19,967 $(7,144) $1,294,739
FHLMC 3,552,220 1,451 (79,884) 3,473,787
FNMA 4,749,008 9,592 (42,254) 4,716,346
---------- ------- ------- ----------
9,583,144 31,010 (129,282) 9,484,872
========== ======= ======= ==========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MORTGAGED-BACKED SECURITIES (CONTINUED)
The amortized cost and fair value of mortgaged-backed securities at
September 30, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations without call or prepayment
penalties.
Securities Securities
Held-to-Maturity Available-for-Sale
------------------- -------------------
Amortized Fair Amortized Fair
Amounts maturing in: Cost Value Cost Value
--------- ----- --------- -----
One year or less $1,000,442 $997,646
After one year through
five years 1,631,867 1,557,506
After five years through
ten years 221,951 232,120
After ten years $9,583,144 $9,484,872
---------- --------- ---------- ----------
2,854,260 2,787,272 9,583,144 9,484,872
========== ========= ========== ==========
At September 30, 1996, mortgaged-backed securities with amortized cost of
$6,622,997 and fair value of $6,492,077 were specifically pledged to
secure a short-term advance from the Federal Home Loan Bank of Dallas.
4. LOANS RECEIVABLE
Loans receivable at September 30 are summarized as follows:
1995 1996
---- ----
First mortgage loans (principally conventional)
Principal balance:
Secured by one to four family residences $34,664,343 $35,634,888
Secured by other properties 1,728,200 2,890,583
Construction loans 1,556,000 1,295,700
----------- -----------
37,948,543 39,821,171
Less:
Net deferred loan fees (23,122) (21,912)
Undisbursed portion of construction loans (884,830) (710,612)
Unearned discounts (67,632) (71,209)
----------- -----------
Total first mortgage loans 36,972,959 39,017,438
Consumer and other loans
Automobile loans 478,616
Mobile homes 73,877 147,350
Other consumer loans 91,479 88,214
Savings account loans 606,440 705,412
----------- -----------
Total loans 37,744,755 40,437,030
Less allowance for loan losses (389,091) (580,358)
----------- -----------
37,355,664 39,856,672
=========== ===========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS RECEIVABLE (CONTINUED)
Activity in the allowance for loan losses is summarized as follows for the
years ended September 30:
1994 1995 1996
---- ---- ----
BALANCE, beginning of year $256,487 $351,383 $389,091
Provision charged to income 100,000 40,000 214,000
Charge-offs, net of recoveries (5,104) (2,292) (22,733)
-------- -------- --------
BALANCE, end of year 351,383 389,091 580,358
======== ======== ========
The Association adopted Statements of Financial Accounting Standards No.
114 and No. 118 for the year ended September 30, 1996. At September 30,
1996, the total recorded investment in impaired loans, all of which had
allowances determined in accordance with SFAS No. 114 and No. 118,
amounted to approximately $801,977. The average recorded investment in
impaired loans amounted to approximately $793,815 for the year ended
September 30, 1996. The allowance for loan losses related to impaired
loans amounted to approximately $272,236 at September 30, 1996. Interest
income on impaired loans of $58,591 was recognized for cash received
during the year ended September 30, 1996.
For the years ended September 30, 1994 and 1995 the Association had loans
on which the accrual of interest had been discontinued totaling
approximately $561,245 and $600,636, respectively. Had the accrual of
interest not been discontinued on these loans, interest income would have
increased by approximately $18,950 and $17,026 for the years ended
September 30, 1994 and 1995, respectively.
The Association is not committed to lend any additional funds on these
loans.
In the ordinary course of business, the Association has and expects to
continue to have transactions, including borrowings, with its officers,
directors, employees and their affiliates. In the opinion of management,
such transactions were on substantially the same terms, including interest
rates and collateral, as those prevailing at the time of comparable
transactions with other persons and did not involve more than a normal
risk of collectibility or present any other unfavorable features to the
Association. Loans to such borrowers, at September 30, are summarized as
follows:
1994 1995 1996
---- ---- ----
BALANCE, beginning of year $398,305 $619,733 $657,198
Origination 405,864 119,858 273,355
Repayments (184,436) (82,393) (102,138)
-------- -------- --------
BALANCE, end of year 619,733 657,198 828,415
======== ======== ========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30 is summarized as follows:
1995 1996
---- ----
Investment securities $33,854 $ 22,431
Mortgage-backed securities 78,369 87,671
Loans receivable 139,758 154,263
------- -------
251,981 264,365
======= =======
6. FORECLOSED REAL ESTATE
Foreclosed real estate at September 30 is summarized as follows:
1995 1996
---- ----
Real estate owned at cost or fair
value at foreclosure $56,320 $130,884
Less allowance for losses (13,323) (33,057)
------- -------
42,997 97,827
======= =======
Set forth below is an analysis of the activity in the allowance for losses
on real estate owned.
1994 1995 1996
---- ---- ----
BALANCE, beginning of year $30,778 $11,031 $ 13,323
Provision charged to income 2,968 4,362
Charge-offs, net of recoveries (22,715) 2,292 15,372
------- ------- -------
BALANCE, end of year 11,031 13,323 33,057
======= ======= =======
7. PREMISES AND EQUIPMENT
Premises and equipment at September 30 are summarized as follows:
1995 1996
---- ----
Cost:
Land $80,210 $80,710
Buildings 576,263 640,259
Furniture, fixtures, and equipment 234,385 269,369
------- -------
890,858 990,338
Less accumulated depreciation (365,324) (385,160)
------- -------
525,534 605,178
======= =======
Depreciation amounted to $27,465, $24,104, and $31,249 for the years ended
September 30, 1994, 1995 and 1996, respectively.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS
Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 Weighted
-------------------- -------------------- Average Rate at
Amount Percent Amount Percent September 30, 1996
------ ------- ------ ------- ------------------
<S> <C> <C> <C> <C> <C>
Money market $7,725,451 17.90 $6,243,478 14.87 3.05
Regular passbook 3,754,953 8.70 3,829,181 9.12 3.00
90 day passbook 810,758 1.88 711,110 1.69 3.00
---------- ------ ---------- ------
12,291,162 28.48 10,783,769 25.68
---------- ------ ---------- ------
Certificates of deposit:
2.00% - 3.99% 675,197 1.57
4.00% - 5.99% 28,356,705 65.73 28,640,490 68.22 5.19
6.00% - 7.99% 1,819,793 4.22 2,561,704 6.10 6.14
---------- ------ ---------- ------
30,851,695 71.52 31,202,194 74.32
---------- ------ ---------- ------
43,142,857 100.00 41,985,963 100.00 4.72
========== ====== ========== ======
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $3,935,480 and $5,129,340 at
September 30, 1995 and 1996, respectively.
At September 30, 1996, scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
Year Ending September 30
-------------------------------------------------------------------------
1997 1998 1999 2000 2001 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
4.00% - 5.99% $21,005,689 $5,483,800 $1,488,032 $ 622,969 $40,000
6.00% - 7.99% 1,055,935 446,577 464,168 595,024
---------- --------- --------- --------- ------ ---
22,061,624 5,930,377 1,952,200 1,217,993 40,000 -0-
========== ========= ========= ========= ====== ===
</TABLE>
Interest expense on deposits for the years ended September 30 is
summarized as follows:
1994 1995 1996
---- ---- ----
Money market $ 226,178 $ 208,075 $175,524
Regular passbook 112,451 115,063 75,681
90 day passbook 27,040 24,632 15,916
Certificates of deposit 1,249,261 1,454,040 1,697,842
--------- --------- ---------
1,614,930 1,801,810 1,964,963
========= ========= =========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BORROWED FUNDS
Borrowed funds at September 30 are summarized as follows:
Rate 1995 1996
----------- ---- ----
Advance from the Federal Home Loan Bank 5.00%-6.99% $2,537,938 $7,561,322
---------- ----------
2,537,938 7,561,322
========== ==========
Scheduled maturities of the advances at September 30, 1996 are as follows:
October 23, 1996 $6,300,000
November 3, 1997 299,190
June 1, 2005 454,716
August 1, 2005 460,184
March 2, 2009 47,232
---------
7,561,322
=========
Pursuant to a blanket floating lien with the Federal Home Loan Bank, the
advances at September 30, 1995 and 1996 were secured by permanent mortgage
loans, mortgage pool securities, and U.S. Government and agency
securities. Specific mortgage-backed securities with an amortized cost of
$6,622,997 and a fair value of $6,492,077 were pledged to secure the
short-term advance maturing in October, 1996.
10. FEDERAL INCOME TAXES
Thrift institutions that meet certain tests prescribed by the Internal
Revenue Code are allowed a bad debt deduction for federal income tax
purposes based on either a percentage of taxable income (8 percent for
years beginning in 1987 and thereafter) or the Thrift's loss experience.
The Association uses the method which produces the larger deduction to
determine its provision for federal income tax. For the years ended
September 30, 1994 and 1995, the Association used its loss experience, and
the percentage-of-taxable income method, respectively. The Association
anticipates using the experience method for the year ended September 30,
1996.
As a result of legislation enacted on September 30, 1996, the
percentage-of-taxable income method of computing bad debts has been
repealed for tax years beginning after December 31, 1995.
Consolidated income tax expense for the years ended September 30 is
summarized as follows:
1994 1995 1996
---- ---- ----
Federal:
Current $182,474 $145,931 $125,271
Deferred 2,630 7,391 (75,816)
-------- -------- --------
185,104 153,322 49,455
======== ======== ========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. FEDERAL INCOME TAXES (CONTINUED)
Total income tax expense differed from the amounts computed by applying
the U.S. federal tax rates of 34 percent for the years ended September 30,
1994, 1995 and 1996, to income before income taxes as a result of the
following:
1994 1995 1996
---- ---- ----
Federal taxes at statutory rates $161,056 $144,887 $35,248
Tax effects of
Provisions for losses on loans and real
estate owned 43,717 13,600 72,760
Bad debt deduction (19,246) (11,928) (87,642)
Other (423) 6,763 29,089
-------- -------- -------
Income tax expense 185,104 153,322 49,455
======== ======== =======
Deferred tax liabilities have been provided for taxable temporary
differences related to FHLB stock dividends, recapture of bad debt
reserves and unrealized gains on available-for- sale securities. Deferred
tax assets have been provided for deductible temporary differences related
to the federal insurance premium, prepaid interest and deferred loan fees.
The net deferred tax liability in the accompanying statements of financial
condition include the following components:
1995 1996
---- ----
Deferred tax liabilities $(79,842) $(150,317)
Deferred tax assets 11,148 113,190
-------- ---------
Net deferred tax liability (68,694) (37,127)
======== =========
Retained earnings at September 30, 1995 and 1996, include approximately
$1,022,113 and $965,154, respectively, for which no deferred federal
income tax liability has been recognized. These amounts represent an
allocation of income to bad-debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad-debt
losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the
then-current corporate income-tax rate. The unrecorded deferred income-tax
liability on the above amounts was approximately $347,518 and $328,152, at
September 30, 1995 and 1996, respectively.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RETIREMENT PLAN
All eligible employees of the Association are covered by a defined
benefit, multiemployer pension plan, "The Financial Institutions
Retirement Fund," a tax-qualified pension trust. Employers participating
in a multiemployer plan are required to recognize as net pension cost the
required contribution for the period and shall recognize as a liability
any contributions due and unpaid. As of and for the years ended September
30, 1994, 1995 and 1996, the Association was in an overfunded position and
was not required to make any contributions. The Association will continue
to use its excess designated "Future Employer Contribution Offset" to
absorb future contribution requirements. Administrative fees paid to the
fund for the years ended September 30, 1994, 1995 and 1996, amounted to
$1,685, $840 and $740, respectively.
In January of 1994, the Association established a noncontributory 401(k)
plan for all eligible employees. Administrative fees paid related to this
plan amounted to $1,259, $2,239 and $2,143 for the years ended September
30, 1994, 1995 and 1996, respectively. Employees participating in the plan
are allowed to contribute from 2 percent to 15 percent of their annual
salary.
12. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company sponsors a leveraged Employee Stock Ownership Plan (ESOP). The
plan covers full time, salaried employees of the Association who have
obtained age 21. All full time, salaried employees become eligible to
participate on the "entity date" after they complete 12 consecutive months
of service, provided they complete 1,000 hours during those 12 consecutive
months. The Company makes annual contributions to the ESOP equal to the
ESOP's debt service less dividends received by the ESOP. All dividends
received by the ESOP are used to pay debt service. The ESOP shares
initially were pledged as collateral for its debt. As the debt is repaid,
shares are released from collateral and allocated to active employees
based on compensation. The Company accounts for its ESOP in accordance
with Statement of Position 93-6. Accordingly, the debt of the ESOP is
recorded as debt and the shares pledged as collateral are reported as
unearned ESOP shares in the consolidated statement of financial condition.
As shares are released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares
become outstanding for earnings-per-share (EPS) computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares are recorded as a reduction of debt
and accrued interest. ESOP compensation expense was $60,629 for the year
ended September 30, 1996.
ESOP shares were as follows at September 30:
1995 1996
---- ----
Allocated shares 3,658 8,149
Unreleased shares 33,069 28,578
------ ------
Total ESOP shares 36,727 36,727
====== ======
Fair value of unreleased shares at
September 30 $380,294 $342,936
======== ========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OTHER EMPLOYEE BENEFIT PLANS
The Company's Board of Directors adopted a Stock Option and Incentive Plan
(SOP) and a Recognition and Retention Plan (RRP), which were approved by
the shareholders at the annual meeting held in January, 1996. The SOP and
RRP are administered by a committee of directors of the Company. Under the
terms of the stock option plan, stock options representing an aggregate of
up to 10 percent of the shares of common stock outstanding after
conversion may be granted to directors and officers of the holding company
or its subsidiary. The exercise price of stock options granted under the
stock option plan is required to be at least equal to the fair market
value per share of the stock on the date of grant. Pursuant to the terms
of the RRP, restricted stock awards covering shares representing an
aggregate of up to 4 percent of the shares of common stock outstanding
after completion of the conversion may be granted to directors and
executive officers of the holding company. The SOP is to be funded by the
issuance of authorized but unissued shares of the holding company stock,
which will result in the dilution of existing stockholders' ownership
interest. The RRP has been funded through the issuance of authorized but
unissued stock and the subsequent purchase and retirement of treasury
stock of an equal number of shares resulting in no dilution of existing
stockholders' ownership interest. The unallocated RRP shares are reported
as a contra-equity account in the consolidated statement of financial
condition. There were no options granted under either plan for the year
ended September 30, 1996.
14. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA) AND
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT (FIRREA) OF
1989
FDICIA was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provisions of FDICIA became effective on
December 19, 1992. In addition to the prompt corrective action
requirements, FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits, increased
supervision by the federal regulatory agencies, increased reporting
requirements for insured institutions, and new regulations concerning
internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions, including
the requirement to file a capital plan with their primary federal
regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory
monitoring, among other things. Other restrictions may be imposed on the
institution either by its primary federal regulator, the Office of Thrift
Supervision (OTS), or by the Federal Deposit Insurance Corporation (FDIC),
including requirements to raise additional capital, sell assets, or sell
the entire institution. Once an institution becomes "critically
undercapitalized," it must generally be placed in receivership or
conservatorship within 90 days.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA) AND
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT (FIRREA) OF
1989 (CONTINUED)
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7,
1989. In addition to its capital requirements, FIRREA includes provisions
for changes in the federal regulatory structure for institutions,
including a new deposit insurance system, increased deposit insurance
premiums, and restricted investment activities with respect to
noninvestment grade corporate debt and certain other investments. FIRREA
also increases the required ratio of housing-related assets in order to
qualify as a savings institution.
The regulations require institutions to have a minimum regulatory tangible
capital equal to 1.5 percent of adjusted total assets, a minimum 4 percent
core/leverage capital ratio, a minimum 4 percent tier 1 risk-based ratio,
and a minimum 8 percent total risk-based capital ratio to be considered
"adequately capitalized." An institution is deemed to be "critically
undercapitalized" if it has a tangible equity ratio of 2 percent or less.
The ability to include qualifying supervisory goodwill for purposes of the
core/leverage capital requirements was phased out January 1, 1996, and the
ability to include investments in impermissible activities in
core/leverage capital and tangible capital was phased out July 1, 1995.
At September 30, 1996, the Association was considered to be "well
capitalized."
The following table sets out the Associations's various regulatory capital
categories at September 30, 1996:
<TABLE>
<CAPTION>
Required Actual Required Actual
Ratio Ratio Excess $ Amount $ Amount Excess
-------- ------ ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital 1.50% 9.73% 8.23% $850,368 $5,513,410 $4,663,042
Core capital 3.00% 9.73% 6.73% 1,700,735 5,513,410 3,812,675
Risk based capital 8.00% 19.14% 11.14% 2,448,860 5,860,304 3,411,444
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Association has various
outstanding commitments and contingent liabilities that are not reflected
in the accompanying financial statements. In the opinion of management,
the ultimate disposition of these matters is not expected to have a
material adverse effect on the financial statements. The principal
commitments of the Association are as follows:
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At September 30, the Association had the following loan commitments:
1995 1996
---- ----
Variable rate first mortgage loans $ 957,375 $177,800
Fixed rate first mortgage loans 164,860 443,700
--------- -------
Total loan commitments 1,122,235 621,500
========= =======
The Association does not charge commitment fees.
Unused lines-of-credit amounted to $250,000 and $250,000 at September 30,
1995 and 1996, respectively.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amounts
recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of the
Association's involvement in particular classes of instruments.
The Association's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit or standby letters of credit is represented by the contractual
notional amount of those instruments. The Association uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Contract or
Notional Amount
---------------
Financial instruments the contract amounts of
which represent credit risk:
Commitments to extend credit $621,500
========
Standby letters of credit $250,000
========
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since some of the commitments may possibly expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Association evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Association upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral usually consists of a first mortgage on the underlying
properties.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
Standby letters of credit are conditional commitments issued by the
Association to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support private borrowing
arrangements and are secured by first mortgages on the underlying
properties. All letters of credit are required to be renewed annually, if
applicable. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
17. OTHER NON-INTEREST INCOME AND EXPENSE
Other non-interest income and expense amounts are summarized as follows
for the years ended September 30:
1994 1995 1996
---- ---- ----
Other non-interest income:
Miscellaneous $ 418 $ 722 $1,362
====== ====== ======
Other non-interest expense:
Expense account of officers, employees,
and directors $4,961 $4,460 $6,611
Food service expense 4,788 5,926 5,461
Stationery and printing 19,279 20,320 22,034
Telephone 11,834 12,968 12,521
Postage and express 14,772 15,860 15,874
Insurance and surety bond premiums 29,366 27,172 24,038
Supervisory examinations 16,538 16,658 19,904
Organizational dues and subscriptions 17,138 16,155 15,730
Loan expense 6,848 907 2,579
Service charges 5,195 6,008 7,952
Franchise taxes 16,094
Other 872 1,331 4,529
------- ------- -------
131,591 127,765 153,327
======= ======= =======
18. CONCENTRATIONS OF CREDIT
The majority of the Association's loans and its standby letters of credit
have been granted to customers in the Association's market area, which is
primarily St. Landry Parish, Louisiana. The Parish is largely a rural area
and relies heavily on the agricultural and oil industries. The
concentrations of credit by type of loan are set forth in the note on
loans receivable presented earlier in this report. The Association as a
matter of policy does not extend credit to any one borrower or group of
related borrowers in excess of its legal lending limit.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data are presented below by quarter for the
years ended September 30, 1995 and 1996.
1995
------------------------------------------------
December 31, March 31, June 30, September 30,
1994 1995 1995 1995
------------ --------- -------- -------------
Total interest income $790,970 $834,056 $849,567 $926,426
Total interest expense (445,757) (471,943) (464,013) (515,060)
-------- -------- -------- --------
Net interest income 345,213 362,113 385,554 411,366
Provision for loan losses 15,000 10,000 5,000 10,000
-------- -------- -------- --------
Net interest income
after provision for
loan losses 330,213 352,113 380,554 401,366
Total non-interest income 13,533 13,122 13,588 7,246
Total non-interest expense (271,952) (248,708) (253,648) (311,288)
-------- -------- -------- --------
Income before income
taxes 71,794 116,527 140,494 97,324
Income tax expense (26,000) (41,000) (34,000) (52,322)
-------- -------- -------- --------
Net income 45,794 75,527 106,494 45,002
======== ======== ======== ========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
1996
------------------------------------------------
December 31, March 31, June 30, September 30,
1995 1996 1996 1996
------------ --------- -------- -------------
Total interest income $976,766 $995,428 $1,024,118 $1,019,482
Total interest expense (535,508) (543,919) (560,906) (582,753)
-------- -------- -------- --------
Net interest income 441,258 451,509 463,212 436,729
Provision for loan losses 20,000 5,000 189,000
-------- -------- -------- --------
Net interest income
after provision for
loan losses 421,258 446,509 463,212 247,729
Total non-interest income 10,841 9,487 12,590 13,683
Total non-interest expense (294,742) (320,697) (284,812) (621,386)
-------- -------- -------- --------
Income before income
taxes 137,357 135,299 190,990 (359,974)
Income tax expense 40,000 55,000 73,000 (118,545)
-------- -------- -------- --------
Net income 97,357 80,299 117,990 (241,429)
======== ======== ======== ========
Net income per common
share $.23 $.19 $.29 $(.58)
==== ==== ==== =====
20. EARNINGS PER SHARE
Earnings per share are calculated based upon the weighted average number
of shares of outstanding common and common equivalent shares during the
period subsequent to the Association's conversion to a stock association
on April 5, 1995. Net income per share information for the year ended
September 30, 1995 is not considered meaningful, and therefore, has not
been presented. Net income per share is based on $413,568 weighted average
number of shares outstanding, adjusted for unallocated RRP and ESOP
shares, for the year ended September 30, 1996.
21. PLAN OF CONVERSION
As discussed in Note 1, the Company was formed in December, 1994, pursuant
to a plan of conversion adopted by the Board of Directors of the
Association on August 25, 1994. Conversion proceeds amounted to
$3,027,629, net of $351,299 of conversion costs.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. PLAN OF CONVERSION (CONTINUED)
For the purpose of granting eligible members of the Association a priority
in the event of future liquidation, the Association, at the time of
conversion, established a liquidation account in the amount of $3,744,661
which was equal to its regulatory capital as of the date of the latest
balance sheet used in the final conversion offering circular. In the event
(and only in such event) of future liquidation of the converted
Association, an eligible savings account holder who continues to maintain
a savings account shall be entitled to receive a distribution from the
liquidation account, in the proportionate amount of the then-current
adjusted balance of the savings deposits then held, before any
distributions may be made with respect to capital stock.
Present regulations provide that the Association may not declare or pay a
cash dividend on or repurchase any of its capital stock if the result
thereof would be to reduce the regulatory capital of the Association below
the amount required for the liquidation account or the regulatory capital
requirement. Further, any dividend declared or paid on or repurchase of,
the Association's capital stock shall be in compliance with the rules and
regulations of the Office of Thrift Supervision, or other applicable
regulations.
22. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of St. Landry Financial Corporation is as
follows:
Condensed Balance Sheet
September 30,
Assets 1995 1996
------ ---- ----
Cash and cash equivalents $1,382,081 $ 789,307
Investment in subsidiary 5,495,875 5,685,008
Note receivable - First Federal 293,816 235,053
Accrued interest receivable - ESOP loan 11,268
---------- ----------
Total assets 7,183,040 6,709,368
Liabilities and Stockholders' Equity
Liabilities $ 10,164 $ 6,120
Stockholders' Equity 7,172,876 6,703,248
---------- ----------
Total liabilities and stockholders'
equity 7,183,040 6,709,368
========== ==========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Condensed Statement of Income
-----------------------------
April 5, 1995
Thru
September 30, 1995 1996
------------------ ----
Interest income
Interest on savings account $25,116 $39,198
Interest on ESOP loan 11,268 20,507
--------- ---------
Total interest income 36,384 59,705
Expenses 11,719 52,325
--------- ---------
Income Before Income Tax and Undistributed
Earnings of Subsidiary 24,665 7,380
Income Tax Expense 8,386 2,509
--------- ---------
Income Before Undistributed Earnings of
Subsidiary 16,279 4,871
Undistributed Earnings of Subsidiary 135,217 49,346
--------- ---------
Net income 151,496 54,217
========= =========
Condensed Statement of Cash Flows
---------------------------------
Cash Flows from Operating Activities
Net income $151,496 $54,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiary (135,217) (49,346)
(Increase) decrease in accrued interest
receivable - First Federal (11,268) 11,268
Increase (decrease) in due to
First Federal 10,164 (4,044)
--------- ---------
Net cash provided by operating
activities 15,175 12,095
--------- ---------
Cash Flows from Investing Activities
ESOP loan origination (repayment) (293,816) 58,764
Purchase of subsidiary stock (1,660,723)
--------- ---------
Net cash provided (used) by
investing activities (1,954,539) 58,764
--------- ---------
Cash Flows from Financing Activities
Net proceeds from issuance of stock 3,321,445
Dividend paid (21,919)
Purchase of treasury stock (641,714)
--------- ---------
Net cash provided (used) by
financing activities 3,321,445 (663,633)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 1,382,081 (592,774)
Cash and cash equivalents at
beginning of period 1,382,081
--------- ---------
Cash and cash equivalents at end
of period 1,382,081 789,307
========= =========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Condensed Statement of Cash Flows (Continued)
---------------------------------------------
April 5, 1995
Thru
September 30, 1995 1996
------------------ ----
Supplemental Schedule of Income Taxes Paid
Income taxes paid -0- $8,386
========= =========
Supplemental Schedule of Noncash Investing and
Financing Activities
Retirement of treasury stock to be used for
recognition and retention plan $291,153
=========
Stock issued for recognition and retention
plan $291,153
=========
Allocation of unearned ESOP shares at
fair value $42,067 $53,892
========= =========
Total increase in unrealized gain (loss) on
available-for-sale securities $129,852 $130,145
========= =========
<PAGE>
ST. LANDRY FINANCIAL CORPORATION AND SUBSIDIARY
OPELOUSAS, LOUISIANA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
September 30, 1996
-----------------------------
Carrying Fair
Amount Value
-------- -----
Financial assets:
Cash and cash equivalents $385,363 $385,363
Investment securities
Held-to-maturity 989,595 989,450
Available-for-sale 1,773,450 1,773,450
Mortgage-backed securities
Held-to-maturity 2,854,260 2,787,272
Available-for-sale 9,484,872 9,484,872
Loans receivable, net 39,856,672 39,326,909
Accrued interest receivable 264,365 264,365
Financial liabilities:
Deposits 41,985,962 42,252,383
Borrowed funds 7,561,322 7,524,383
Advances by borrowers for taxes
and insurance 92,468 92,468
Accrued interest payable 11,336 11,336
The carrying amounts in the preceding table are included in the statement
of financial condition under the applicable captions. The contract or
notional amounts of the Association's financial instruments with
off-balance-sheet risk are disclosed in Note 16. It is not practicable to
estimate the fair value of Federal Home Loan Bank (FHLB) stock because it
is not marketable. The carrying amount of that investment is reported in
the consolidated statements of financial condition.
<PAGE>
STOCKHOLDER INFORMATION
Corporate Office Annual Meeting
459 East Landry Street The Annual Meeting of Stockholders will be
Opelousas, Louisiana 70570 held at 2:30 p.m., Opelousas, Louisiana time
(318) 942-5748 on January 28, 1997, at the Company's office
located at 459 East Landry Street,
Opelousas, Louisiana.
Annual Report on Form 10-KSB Registrar/Transfer Agent
A copy of St. Landry Financial Corporation's Communications regarding change of
Annual Report on Form 10-KSB as filed with address, transfer of stock and lost
the Securities and Exchange Commission may certificates should be sent to:
be obtained without charge upon written request
to H. Andrew Myers, Jr., St. Landry Financial American Securities Transfer,
Corporation, 459 East Landry Street, Opelousas, Incorporated
Louisiana 70570. 1825 Lawrence Street
Denver Colorado 80202
Local Counsel Special Counsel
Young, Hoychick and Aguillard Silver, Freedman & Taff, L.L.P.
P.O. Box 341 1100 New York Avenue, N.W.
Eunice, Louisiana 70535 Washington, D.C. 20005
Accountants
Morgan J. Goudeau, III John S. Dowling & Company
A Professional Law Corporation Interstate-49 South
P.O. Box 1419 P.O. Box 433
Opelousas, Louisiana 70571 Opelousas, Louisiana 70571
Common Stock
There is no established market in which the Company's Common Stock is regularly
traded, nor any uniformly quoted price for such shares. At September 30, 1996,
the Company had 111 holders of record of its Common Stock.
Dividends
The Company paid a cash dividend of $.05 per share, on June 17, 1996 to
stockholders as of May 31, 1996. The Board of Directors may consider the payment
of future cash dividends, dependent on the results of operations and financial
condition of the Company, tax considerations, industry standards, economic
conditions, general business practices and other factors. The Company's ability
to pay dividends is dependent on the dividend payments it receives from its
subsidiary, First Federal Savings and Loan Association of Opelousas, which are
subject to regulations and the Association's continued compliance with all
regulatory capital requirements.
<PAGE>
ST. LANDRY FINANCIAL CORPORATION
and
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
Directors
Wayne McKinnon Gilmore Martin A. Roy, Jr.
Chairman of the Board, President, Roy Motors
President and Chief Execu-
tive Officer of the Company Marvin J. Schwartzenburg
and the Association Administrator, Bayon Vista Manor
H. Andrew Myers, Jr.
Executive Vice President Randy C. Tomlinson
of the Company and President, Magic Wand South
the Association
Robert L. Wolfe, Jr.
H. Kent Aguillard President, Morgan Goudeau & Associates,
Partner, law firm Inc., a civil engineering corporation
Anna Lee O. Dunbar
Retired from the Executive Officers
Association
Lynette Young Feucht Wayne McKinnon Gilmore
City Court Judge Chairman of the Board, President and Chief
Executive Officer
Patrick Fontenot
Executive Vice President, H. Andrew Myers, Jr.
Williams-Progressive Life Executive Vice President
Insurance Co.
Kathryn F. Chelette
Simon Howard Fournier Controller
Employed by St. Landry
Parish Assessor's Office
Morgan J. Goudeau, III
District Attorney
JOHN S. DOWLING & COMPANY
Board of Directors
St. Landry Financial Corporation
459 East Landry Street
Opelousas, Louisiana 70570
Members of the Board:
We consent to the incorporation by reference in the Registration Statement on
Form S-8 of St. Landry Financial Corporation (the "Company") of our report on
the financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended September 30, 1996 filed pursuant to the Securities and
Exchange Act of 1934, as amended.
/S/ JOHN S. DOWLING & COMPANY
Opelousas, Louisiana
December 19, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 151,081
<INT-BEARING-DEPOSITS> 234,282
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,258,322
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 39,856,672
<ALLOWANCE> 580,358
<TOTAL-ASSETS> 56,856,656
<DEPOSITS> 41,985,963
<SHORT-TERM> 6,300,000
<LIABILITIES-OTHER> 606,123
<LONG-TERM> 1,261,322
0
0
<COMMON> 2,481,874
<OTHER-SE> 4,221,374
<TOTAL-LIABILITIES-AND-EQUITY> 56,856,656
<INTEREST-LOAN> 3,088,003
<INTEREST-INVEST> 927,791
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,015,794
<INTEREST-DEPOSIT> 1,964,963
<INTEREST-EXPENSE> 258,123
<INTEREST-INCOME-NET> 1,792,708
<LOAN-LOSSES> 214,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,521,637
<INCOME-PRETAX> 103,672
<INCOME-PRE-EXTRAORDINARY> 103,672
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,217
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<YIELD-ACTUAL> 0
<LOANS-NON> 802,651
<LOANS-PAST> 1,243,429
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 487,000
<ALLOWANCE-OPEN> 389,091
<CHARGE-OFFS> 22,733
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 580,358
<ALLOWANCE-DOMESTIC> 580,358
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
