SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _____________________
Commission file number 1-25538
TECHE HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Louisiana 72-128746
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
211 Willow Street, Franklin, Louisiana 70538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (318) 828-3212
N/A
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date August 5, 1996.
Class Outstanding
$.01 par value common stock 3,819,000 shares
<PAGE>
TECHE HOLDING COMPANY
FORM 10-Q
FOR THE QUARTER ENDED June 30, 1996
INDEX
Page
Number
PART I - CONSOLIDATED FINANCIAL INFORMATION OF TECHE
HOLDING COMPANY
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Materially Important Events 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
TECHE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, September 30,
1996 1995*
--------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ............................................ $ 8,366 $ 6,400
Certificates of deposit .............................................. 620 590
Investment securities available-for-sale, at estimated
market value (amortized cost of $18,605 and $200) .................. 18,833 200
Investment securities held-to-maturity (estimated
market value of $0 and $21,820) .................................... -- 21,299
Mortgage-backed securities available-for-sale, at estimated
market value (amortized cost of $33,307 and $5,100) ................ 33,549 5,213
Mortgage-backed securities held-to-maturity (estimated market value of
$0 and $23,492) .................................................... -- 22,910
Loans receivable, net of allowance for loan losses
of $3,127 and $2,966) .............................................. 298,855 257,869
Accrued interest receivable .......................................... 1,890 1,752
Investment in Federal Home Loan Bank stock, at cost .................. 3,418 2,671
Real estate owned, net ............................................... 121 253
Prepaid expenses and other assets .................................... 616 560
Premises and equipment, at cost less accumulated depreciation......... 4,454 4,135
------- -------
TOTAL ASSETS ................................................... $ 370,722 $ 323,852
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................. $ 242,460 233,805
Advances from Federal Home Loan Bank ................................. 67,536 24,200
Advance payments by borrowers for taxes and insurance ................ 1,772 1,935
Accrued interest payable ............................................. 328 327
Accounts payable and other liabilities ............................... 1,648 1,677
------- -------
Total liabilities .............................................. 313,744 261,944
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 5,000,000 shares;
none outstanding ................................................. -- --
Common stock $.01 par value; authorized 10,000,000;
3,871,000 and 4,232,000 issued and outstanding ................... $ 42 $ 42
Additional paid in capital ......................................... 41,413 41,324
Retained earnings .................................................. 24,914 23,555
Unearned Compensation (MSP) ........................................ (2,014) --
Unearned ESOP shares ............................................... (2,834) (3,083)
Treasury stock - 361,000 ........................................... (4,853)
Unrealized gain on securities available-for-sale, net of
deferred income taxes ............................................ 310 70
------- -------
Total stockholders' equity ..................................... 56,978 61,908
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
CAPITAL ....................................................... $ 370,722 $ 323,852
======= =======
</TABLE>
- - ---------------------
* The consolidated balance sheet at September 30, 1995 has been taken from
the audited balance sheet at that date.
See notes to unaudited consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
TECHE HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
For Three Months For the Nine Months
Ended June 30, Ended June 30,
----------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ........... $ 5,764 $ 5,107 $ 16,587 $ 14,858
Interest and dividends on investments 413 435 1,304 1,376
Interest on mortgage-backed securities 559 377 1,476 918
Other interest income ................ 44 24 103 63
----- ----- ------ ------
TOTAL INTEREST INCOME ............ 6,780 5,943 19,470 17,215
----- ----- ------ ------
INTEREST EXPENSE:
Deposits ............................. 2,876 2,816 8,694 8,119
Advances from Federal Home Loan Bank . 706 75 1,411 858
----- ----- ------ ------
TOTAL INTEREST EXPENSE ........... 3,582 2,891 10,105 8,977
----- ----- ------ ------
NET INTEREST INCOME .................... 3,198 3,052 9,365 8,238
PROVISION FOR LOAN LOSSES .............. 75 90 225 270
----- ----- ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ............ 3,123 2,962 9,140 7,968
----- ----- ------ ------
NON-INTEREST INCOME:
Service charges and other ............ 398 249 1,058 648
Gain on sale of real estate owned .... 4 5 10 35
Other income ......................... 215 70 308 134
----- ----- ------ ------
TOTAL NON-INTEREST INCOME .............. 617 324 1,376 817
----- ----- ------ ------
GAIN (LOSS) ON SALE OF SECURITIES ...... 15 -- 87 (844)
----- ----- ------ ------
NON-INTEREST EXPENSE:
Compensation and employee benefits ... 1,088 833 3,167 2,315
Occupancy expense .................... 359 294 1,063 804
Marketing and professional ........... 152 124 434 365
Other operating expenses ............. 641 392 1,704 1,071
----- ----- ------ ------
Total non-interest expense ......... 2,240 1,643 6,368 4,555
----- ----- ------ ------
INCOME BEFORE INCOME TAXES ............. 1,515 1,643 4,235 3,386
INCOME TAXES ........................... 525 577 1,455 1,150
----- ----- ------ ------
NET INCOME ............................. $ 990 $ 1,066 $ 2,780 $ 2,236
===== ===== ====== ======
EARNINGS PER COMMON SHARE .............. $ .27 $ .23 $ .72 $ .23
===== ===== ====== ======
DIVIDENDS DECLARED PER
COMMON SHARE ......................... $ .125 $ .125 $ .375 $ .125
===== ===== ====== ======
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
TECHE HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Nine Months
Ended June 30,
-------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income ......................................................... $ 2,780 $ 2,236
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion of discount and amortization of premium on investments
and mortgage-backed securities ............................... (521) (574)
Provision for loan losses ...................................... 225 270
(Gain) Loss on sale of securities .............................. (87) 844
Depreciation ................................................... 261 180
Accretion of deferred loan fees and other ...................... (158) (166)
Accretion of discounts on loans ................................ (130) (215)
Other items - net .............................................. 575 431
------- -------
Net cash provided by operating activities .................. 2,945 3,006
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale ................. (648) --
Purchase of mortgage-backed securities available-for-sale............. (12,075) --
Purchase of mortgage-backed securities held-to-maturity .............. -- (18,327)
Purchase of investment securities held-to-maturity ................... -- (7,370)
Proceeds from maturities of investment securities
available-for-sale ................................................ 3,000 --
Proceeds from maturities of investment securities
held to maturity .................................................. -- 1,000
Principal repayments on mortgaged-backed securities
available-for-sale ................................................ 5,004 362
Principal repayments on mortgage-backed securities
held-to-maturity .................................................. 1,966 893
Loans originated, net of repayments .................................. (40,923) (15,831)
Investment in FHLB stock ............................................. (747) (717)
Proceeds from sale of real estate owned .............................. 340 35
Purchase of premises and equipment ................................... (580) (1,212)
Sales of mortgage-backed securities available-for-sale ............... -- 1,406
Sales of investment securities available-for-sale .................... 935 12,282
------- -------
Net cash used in investing activities ............................. (43,728) (27,479)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offering .................................. -- 37,961
Net increase (decrease) in deposits ................................ 8,655 (3,430)
Net increase (decrease) in FHLB advances ........................... 43,336 (9,600)
Net decrease in advance payments by borrowers for
taxes and insurance .............................................. (163) (28)
Dividends paid ..................................................... (1,906) --
Repurchase of common stock for MSP ................................. (2,320) --
Purchase of common stock for treasury .............................. (4,853) --
------- -------
Net cash provided by financing activities ...................... 42,749 24,903
------- -------
1,966 430
NET INCREASE (DECREASE) IN CASH
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................... 6,400 6,604
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR ............................... $ 8,366 $ 7,034
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
TECHE HOLDING COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the three and nine
month periods ended June 30, 1996 and 1995 include the accounts of Teche
Holding Company (the "Corporation") and its subsidiary, Teche Federal
Savings Bank (the "Bank") which, as discussed in Note 3, became the wholly
owned subsidiary of the Corporation on April 17, 1995. The Corporation's
business is conducted principally through the Bank. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
all information necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. However, all adjustments,
consisting of normal recurring accruals, which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial statements have been included. The results of operations for the
periods ended June 30, 1996 are not necessarily indicative of the results
which may be expected for the entire fiscal year or any other period.
NOTE 3 - CONVERSION FROM MUTUAL SAVINGS BANK TO STOCK SAVINGS BANK AND
FORMATION OF SAVINGS AND LOAN HOLDING COMPANY
On April 17, 1995, the Bank consummated its conversion from a federally
chartered mutual savings bank to a stock savings bank pursuant to a Plan
of Conversion (the "Conversion") via the issuance of common stock. In
connection with the Conversion, the Corporation sold 4,232,000 shares of
common stock which, after giving effect to offering expenses of $1.0
million and 332,000 shares issued to the Bank's Employee Stock Ownership
Plan ("ESOP"), resulted in net proceeds of $38.0 million. Pursuant to the
Conversion, the Bank transferred all of its outstanding shares to a newly
organized holding company, Teche Holding Company, in exchange for 50% of
the net proceeds.
Upon consummation of the Conversion, the preexisting liquidation rights of
the depositors of the Bank were unchanged. Specifically, such rights were
retained and will be accounted for by the Bank for the benefit of such
depositors in proportion to their liquidation interests as of the
Eligibility Record Date.
NOTE 4 - EARNINGS PER SHARE
Earnings per share for the three and nine month periods ended June 30,
1996 are calculated by dividing the net earnings for the periods by the
average shares outstanding of 3,720,000 shares for the three months ended
June 30, 1996 and 3,844,000 shares for the nine months ended June 30,
1996. Earnings per share for the three and nine months ended June 30, 1995
are calculated by dividing net earnings from April 17, 1995 (date of
conversion) to June 30, 1995 by the average shares outstanding that same
period of 3,906,000 shares.
4
<PAGE>
NOTE 5 - SECURITIES RECLASSIFICATION
On November 15, 1995, the Financial Accounting Standards Board ("FASB")
issued implementation guidance with respect to SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities." This guidance
allowed a company to reassess its designation of securities as
held-to-maturity and, if deemed appropriate, make a one time
reclassification of held-to-maturity securities between November 15, 1995
and December 31, 1995. During this period, the Bank reclassified
mortgage-backed and investment securities with an amortized cost of $42.0
million and a net unrealized gain of $1,018,000 ($672,000 net of income
taxes) from securities held-to-maturity to securities available-for-sale.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
Effective October 1, 1995, the Bank adopted FASB Statement Nos. 114,
"Accounting by Creditors for Impairment of a Loan" and 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
The provision of these statements are applicable to all loans,
uncollateralized as well as collateralized, except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment and loans that are measured at fair value or at the lower of
cost or fair value. Additionally, such provisions apply to all loans that
are renegotiated in troubled debt restructurings involving a modification
of terms.
Statement No. 114 requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent, except that loans renegotiated as part of a troubled
debt restructuring subsequent to the adoption of Statement Nos. 114 and
118 must be measured for impairment by discounting the total expected cash
flow under the renegotiated terms at each loan's original effective
interest rate.
A loan evaluated for impairment pursuant to Statement No. 114 is deemed to
be impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due according to the
contractual terms of the loan agreement. An insignificant payment delay,
which is defined by the Bank as up to ninety days, will not cause a loan
to be classified as impaired. A loan is not impaired during the period of
delay in payment if the Bank expects to collect all amounts due, including
interest accrued at the contractual interest rate for the period of delay.
Thus, a demand loan or other loan with no stated maturity is not impaired
if the Bank expects to collect all amounts due, including interest accrued
at the contractual interest rate, during the period the loan is
outstanding. All loans identified as impaired are evaluated independently.
The Bank does not aggregate such loans for evaluation purposes.
The adoption of Statement Nos. 114 and 118 did not have a material adverse
impact on financial condition or operations.
Payments received on impaired loans are applied first to interest
receivable and then to principal.
The FASB has recently issued Statement No. 123 "Accounting for Stock-Based
Compensation" which the Company must adopt in its year ended September 30,
1997 with earlier adoption permitted. Management is currently studying the
requirements of the Statement but does not currently anticipate adopting
this Statement prior to fiscal year 1997.
5
<PAGE>
TECHE HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Total assets increased to $370.7 million at June 30, 1996, from $323.9
million at September 30, 1995, reflecting increases in loans, savings and
borrowings.
Total loans increased $41 million due primarily to loan originations in
excess of repayments.
Investment securities and mortgage backed securities available for sale
increased $47.0 million primarily due to the Company reclassifying all of its
mortgage-backed and investment securities with an amortized cost of $42.0
million from held to maturity to available-for-sale. See Note 5 to the Unaudited
Consolidated Financial Statements. Furthermore, the Company utilized excess
liquidity to purchase additional available-for-sale securities.
Investment and mortgage-backed securities held to maturity decreased $44.2
million principally due the Company reclassifying such securities as discussed
above.
Deposits increased $8.7 million due to increases in demand deposits and
certificates of deposit.
Advances from the Federal Home Loan Bank ("FHLB") increased $43.3 million
due to additional funding needed for increased loan originations and stock
repurchases.
Total stockholders' equity decreased $4.9 million due to stock repurchases
pursuant to a stock repurchase plan coupled with purchases of shares of the
Company's common stock by the Company for a stock compensation plan adopted by
the shareholders at a special meeting in October, 1995. Such repurchases were
offset somewhat by earnings during the first nine months of fiscal 1996.
Non-performing Assets
The following table sets forth information regarding non-performing loans
and real estate owned. During the periods indicated, the Company had no
restructured loans within the meaning of SFAS No. 15.
At At
June 30, 1996 September 30, 1996
------------ -----------------
(Dollars in Thousands)
Total non-performing loans ................. $ 444 $ 661
Real estate owned .......................... 121 253
----- -----
Total non-performing assets ................ $ 565 $ 914
===== =====
Total non-performing loans to net loans..... 15% .26%
===== =====
Total non-performing loans to total assets.. 12% .20%
===== =====
Total non-performing assets to total assets. 15% .28%
===== =====
Allowance for credit losses to
nonperforming assets ..................... 553.5% 324.5%
===== =====
6
<PAGE>
During the nine months ended June 30, 1996, non-performing assets
decreased by $349,000. The decrease was primarily due to the sale of real estate
owned combined with a decrease in nonperforming loans.
Comparison of Earnings for the Three and Nine Months Ended June 30, 1996 and
1995
Net Income. Net income for the three months ended June 30, 1996 decreased
$76,000 or 7.1% over the same period ended June 30, 1995. Net income for the
nine month period ended June 30, 1996 was $2.8 million, an increase of $544,000
or 24.3% above the same period ending June 30, 1995. The decrease during the
third quarter of fiscal 1996 was primarily due to an increase in total
non-interest expenses offset somewhat by an increase in net interest income. The
increase over the prior nine month period ended June 30, 1995 was due primarily
to a loss of $844,000 on the sale of securities during the quarter ended
December 31, 1994 which was not present in the first nine months of fiscal 1995,
coupled with a gain on the sale of an unused office site in fiscal 1996.
Total Interest Income. Interest income increased $837,000 or 14.1% and
$2.3 million or 13.1% during the three and nine month periods, respectively, due
to an increase in both the average balances of the loan and mortgage-backed
securities portfolios due to the investment of proceeds from the Conversion and
increased loan demand.
Total Interest Expense. Interest expense increased $691,000 or 23.9% and
$1.1 million or 12.6% during the three and nine month periods, respectively,
primarily to an increase in the cost of deposits due to an increase in market
interest rates and the Bank emphasizing longer term deposit products as well as
increases in the average balance of advances from the FHLB. Advances tend to
have higher rates of interest than traditional deposit products.
Net Interest Income. Net interest income increased $146,000 or 4.8% and
$1.1 million or 13.7% for the three and nine month periods ending June 30, 1996,
respectively, as compared to the same periods ended June 30, 1995. These
increases were the result of total interest income increasing more rapidly than
total interest expense due to the factors mentioned earlier, despite decreases
in the average interest rate spread and margin during these periods.
Provision for Loan Losses. The provision for loan losses remained
relatively stable, decreasing $15,000 and $45,000, respectively, due to the
leveling of nonperforming loans.
Management periodically estimates the likely level of losses to determine
whether the allowance for loan losses is adequate to absorb possible losses in
the existing portfolio. Based on these estimates, an amount is charged or
credited to the provision for loan losses and credited or charged to the
allowance for loan losses in order to adjust the allowance to a level determined
to be adequate to absorb anticipated future losses.
Management's judgment as to the level of losses on existing loans involves
the consideration of current and anticipated economic conditions and their
potential effects on specific borrowers, an evaluation of the existing
relationships among loans, known and inherent risks in the loan portfolio and
the present level of the allowance, results of examination of the loan portfolio
by regulatory agencies and management's internal review of the loan portfolio.
In determining the collectibility of certain loans, management also considers
the fair value of any underlying collateral.
Non-interest Income. Non-interest income increased by $293,000 and
$559,000 during the three and nine month periods ending June 30, 1996,
respectively, as compared to the three and nine month
7
<PAGE>
periods ending June 30, 1995. These increases were due primarily to the increase
in service fee income associated with increased demand account volume and the
continued expansion of office facilities. Other income for the three and nine
month periods ended June 30, 1996 included a gain on the sale of an unused
office building site in the amount of $149,000 ($98,000 net of taxes) which was
not present in 1995.
Non-interest Expense. Non-interest expense increased $597,000 and
$1,813,000, respectively, due to increased compensation costs and new products
offered by the Bank and the continued expansion of office facilities. Expenses
increased as a result of increased costs of being a public company and higher
compensation expense, including the cost of stock benefit plans (costing
$224,000 and $644,000 for the three and nine months ended June 30, 1996,
respectively) adopted in connection with the Bank's mutual to stock conversion.
The Company became subject to the Louisiana "Share Tax" beginning January 1,
1996, and accrued approximately $290,000 through June 30, 1996. Both the shares
tax and the stock compensation plans were not present during the three months
ended June 30, 1995 as the Bank had not yet completed the Conversion.
Gain (Loss) on Sale of Securities. The Company recognized gains of $15,000
and $87,000 on the sale of securities during the three and nine months ended
June 30, 1996, respectively, compared to no activity during the three months
ended June 30, 1995 and a loss of $844,000 during the nine months ended June 30,
1995 due to the sale of $14.5 million of its "available for sale" portfolio in
December 1994.
Income Tax Expense. Income tax expense remained relatively constant as a
percentage of income before income taxes during each of the periods.
LIQUIDITY AND CAPITAL RESOURCES
Under current Office of Thrift Supervision ("OTS") regulations, the Bank
must have core capital equal to 3% of total assets and risk-based capital equal
to 8% of risk-weighted assets, of which 1.5% must be tangible capital, excluding
goodwill. In measuring the Bank's compliance with its regulatory capital
requirements, the Bank must deduct from its regulatory capital calculation
investments in, and advances to subsidiaries engaged in activities not
permissible for national banks. The Bank has no such subsidiaries. The OTS has
proposed amending its regulations in such a manner that would increase the core
capital requirements for most thrift institutions from 3% to 4% or 5%, depending
upon the institutions financial condition and other factors. Although the final
form of the regulation cannot be foreseen, if adopted as proposed, the Bank
would expect its core capital requirements to increase to at least 4%.
8
<PAGE>
On June 30, 1996, the Bank was in compliance with its three regulatory capital
requirements as follows:
Amount Percent
-------- -------
(Dollars in thousands)
Tangible capital............... $42,709 11.5%
Tangible capital requirement... 5,544 1.5
------ ----
Excess over requirement........ $37,165 10.1%
====== ====
Core capital................... 42,709 11.5%
Core capital requirement....... 11,088 3.0
------ ----
Excess over requirement........ $31,621 8.5%
====== ====
Risk based capital............. $44,857 22.7%
Risk based capital requirement. 15,787 8.0
------ ----
Excess over requirement........ $29,070 14.7%
====== ====
Management believes that under current regulations, the Bank will continue
to meet its minimum capital requirements in the foreseeable future. Events
beyond the control of the Bank, such as increased interest rates or a downturn
in the economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Bank's primary source of funds are deposits and scheduled
amortization and prepayment of loan and mortgage-backed principal. During the
past several years, the Bank has used such funds primarily to fund maturing time
deposits, pay savings withdrawals, fund lending commitments, purchase new
investments, and increase liquidity. The Bank historically has been able to fund
its operations internally but has, recently, borrowed funds from the Federal
Home Loan Bank of Dallas. As of June 30, 1996, such borrowed funds totaled $67.5
million. Loan payments, maturing investments and mortgage-backed security
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Bank is required under federal regulations to maintain certain
specified levels of "liquid investments", which include certain United States
government obligations and other approved investments. Current regulations
require the Bank to maintain liquid assets of not less than 5% of its net
withdrawable accounts plus short term borrowings. Short term liquid assets must
consist of not less than 1% of such accounts and borrowings, which amount is
also included within the 5% requirement. Those levels may be changed from time
to time by the regulators to reflect current economic conditions. The Bank has
maintained liquidity in excess of regulatory requirements. Furthermore, from
time to time, the Bank utilizes FHLB advances to the extent necessary to
maintain its liquidity.
9
<PAGE>
Impact of Inflation
The consolidated financial statements of the Corporation and notes
thereto, presented elsewhere herein, have been prepared in accordance with GAAP,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Corporation's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Corporation
are financial. As a result, interest rates have a greater impact on the
Corporation's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
Additional Key Operating Ratios
<TABLE>
<CAPTION>
At or For the Three At or For the Nine Months
Months Ended Ended
June 30, June 30,
-------------------- -------------------------
1996(1) 1995(1) 1996(1) 1995
--------- --------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Return on average assets .............. 1.11% 1.39% 1.08% 1.00%(2)
Return on average equity .............. 6.81% 9.11% 6.17% 8.40%(2)
Average interest rate spread .......... 2.93% 3.51% 2.95% 3.34%
Average net interest margin ........... 3.68% 4.09% 3.75% 3.77%
Tangible book value per share.......... $14.72(3) $14.43(4) $14.72(3) $14.43(4)
</TABLE>
- - ----------------
(1) The ratios for the three- and nine-month periods are annualized.
(2) Includes effect of $844,000 loss on sale of securities. The Company's
return on average assets and equity before the loss would have been 1.25%
and 10.49%, respectively.
(3) The number of shares issued and outstanding as of June 30, 1996, was
3,871,000.
(4) The number of shares issued and outstanding as of June 30, 1995, was
4,232,000.
10
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TECHE HOLDING COMPANY AND SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor the Bank was engaged in any legal
proceeding of a material nature at June 30, 1996. From time to time,
the Corporation is a party to legal proceedings in the ordinary
course of business wherein it enforces its security interest in
loans.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Potential One-Time Assessment. Currently, the Bank pays an insurance
premium to the Federal Deposit Insurance Corporation ("FDIC") equal
to .23% of its total deposits. In August, 1995, the FDIC announced
that it will lower the insurance premium for members of the Bank
Insurance Fund ("BIF"), primarily commercial banks, to a range of
between 0.04% and 0.31% of deposits, with the result that most
commercial banks will pay the lowest rate of 0.04%. This reduction
in insurance premiums for BIF members could place Savings
Association Insurance Fund ("SAIF") members, primarily savings
associations, such as the Bank, at a material competitive
disadvantage to BIF members and, for the reasons set forth below,
could have a material adverse effect on the results of operations
and financial condition of the Bank in future periods.
The disparity in insurance premiums between those required for the
Bank and BIF members could allow BIF members to attract and retain
deposits at a lower effective cost than that possible for the Bank
and put competitive pressure on the Bank to raise its interest rates
paid on deposits thus increasing its cost of funds and possibly
reducing net interest income. The resultant competitive disadvantage
could result in the Bank losing deposits to BIF members who have a
lower cost of funds and are therefore able to pay higher rates of
interest on deposits. Although the Bank has other sources of funds,
these other sources may have higher costs than those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF
insurance premium disparity have recently been proposed by the U.S.
Congress, federal regulators, industry lobbyists and the
Administration. One plan that has gained support of several sponsors
would require all SAIF member institutions, including the Bank, to
pay a one-time fee of up to 85 basis points on the amount of
deposits held by the member institution to recapitalize
11
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the SAIF. If this proposal is enacted by Congress, the effect would
be to immediately reduce the capital of the SAIF-member institutions
by the amount of the fee, and such amount would be immediately
charged to earnings, unless the institutions are permitted to
amortize the expense of the fee over a period of years. Management
of the Bank is unable to predict whether this proposal or any
similar proposal will be enacted or whether ongoing SAIF premiums
will be reduced to a level equal to that of BIF premiums.
Recent Legislation - Recapture of Post-1987 Bad-Debt Reserves. On
August 2, 1996, both the U.S. House of Representatives and the U.S.
Senate passed the Small Business Job Protection Act of 1996. This
bill will, if signed by the President, among other things, equalize
the taxation of thrifts and banks. Previously, thrifts had been able
to deduct a portion of their bad-debt reserves set aside to cover
potential loan losses ("bad-debt reserves"). Furthermore, the bill
will repeal current law mandating recapture of thrifts' bad debt
reserves if they convert to banks. Bad debt reserves set aside
through 1987 will not be taxed, however, any reserves taken since
January 1, 1988 will be taxed over a six year period beginning in
1997. Institutions can delay these taxes for two years if they meet
a residential-lending test. At June 30, 1996, the Bank had
approximately $2.6 million of post 1987 bad-debt reserves for which
deferred income taxes have been provided. Any recapture of the
Bank's bad-debt reserves may, but is not expected to, have an
adverse effect on net income. The Bank is currently evaluating this
legislation to determine the effect on the Bank's financial
condition.
Stock Repurchase Program. On August 7, 1996, the Company announced
that it had received the necessary approvals from the OTS to
repurchase up to 10% of the Company's common stock. It is
anticipated that the Company will purchase up to 381,945 shares of
its common stock in open market transactions from time to time
during the next 12 months.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On May 3, 1996, the Corporation filed a current report on Form
8-K with the Commission announcing that it had received
non-objection from the OTS to purchase up to 5% or 201,025
shares of the Corporation's common stock.
12
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TECHE HOLDING COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHE HOLDING COMPANY
Date: August 14, 1996 By: /s/ Patrick O. Little, Jr.
Patrick O. Little, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1996 By: /s/ J. L. Chauvin
J. L. Chauvin
Senior Vice President and
Chief Financial Officer
(Principal Officer)
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