SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[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
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- 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
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Commission Number: 0-25538
TECHE HOLDING COMPANY
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(Exact name of Registrant as specified in its Charter)
Louisiana 72-128746
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
211 Willow Street 70538
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Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (318) 828-3212
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
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Common Stock, par value American Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of the Registrant's Common Stock as
quoted on the American Stock Exchange, Inc., on December 18, 1996, was $37.5
million (2,778,310 shares at $13.50 per share).
As of December 18, 1996 there were issued and outstanding 3,437,530
shares of the Registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
September 30, 1996. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 1996 Annual Meeting of
Stockholders. (Part III)
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1. Business......................................................................... 1
Item 2. Properties....................................................................... 33
Item 3. Legal Proceedings................................................................ 34
Item 4. Submission of Matters to a Vote of Security-Holders.............................. 34
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............ 34
Item 6. Selected Financial Data.......................................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 34
Item 8. Financial Statements and Supplementary Data...................................... 34
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant................................ 35
Item 11. Executive Compensation............................................................ 35
Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 35
Item 13. Certain Relationships and Related Transactions.................................... 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 36
</TABLE>
<PAGE>
PART I
Item 1. Business
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General
Teche Holding Company (the "Company" or the "Registrant") is a Louisiana
corporation organized in December 1994 at the direction of Teche Federal Savings
Bank (the "Bank" or "Teche Federal") to acquire all of the capital stock that
the Bank issued in its conversion from the mutual to stock form of ownership
(the "Conversion"). On April 17, 1995, the Registrant sold 4,232,000 shares of
its common stock, par value $.01 per share (the "Common Stock") in a
subscription offering as part of the Conversion. The Company is a unitary
savings and loan holding company which, under existing laws, generally is not
restricted in the types of business activities in which it may engage provided
that the Bank retains a specified amount of its assets in housing-related
investments. References to the "Bank" or "Teche Federal" herein, unless the
context requires otherwise, refer to the Company on a consolidated basis. The
net conversion proceeds, including the ESOP, totalled $41.3 million of which
$20.6 million was invested in the Bank. At September 30, 1996, the Company had
total consolidated assets of $379.6 million and stockholders' equity of $52.3
million.
Teche Federal is a federally chartered stock savings bank headquartered
in Franklin, Louisiana. The Bank was founded in 1934 under the name "Teche
Federal Savings and Loan Association" and became a federally chartered mutual
savings bank in 1989 operating under its current name. The Bank's deposits have
been federally insured by the Savings Association Insurance Fund ("SAIF") and
its predecessor, the Federal Savings and Loan Insurance Corporation, since 1934,
and the Bank is a member of the FHLB System.
The Company and the Bank are subject to regulation by the Office of
Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC")
and the Securities and Exchange Commission ("SEC").
The Bank is a community-oriented savings institution offering a variety
of financial services to meet the local banking needs of St. Mary, Lafayette,
Iberia, St. Martin and Terrebonne Parishes, Louisiana (the "Primary Market
Area"). Teche Federal conducts its business from its main office in Franklin,
Louisiana and eight full service branch offices located in Morgan City, Bayou
Vista, New Iberia (two offices), Lafayette (two offices), Breaux Bridge and
Houma, Louisiana. The Bank also maintains a loan production office in
Lafayette.
The Bank attracts deposits from the general public and uses such
deposits primarily to originate loans secured by first mortgages on one- to
four-family residences in its market area. To a lesser extent, the Bank
purchases loans and originates residential construction, multi-family and
commercial real estate loans and consumer loans, and invests in mortgage-backed
and investment securities. At September 30, 1996, mortgage loans secured by one-
to four-family residences totaled $288.1 million or 87.0% of the Bank's total
loan portfolio. At that same date the Bank had approximately $32.1 million or
8.5% of total assets invested in mortgage-backed securities (including those
available for sale) and $11.5 million or 3.0% of total assets in investment
securities (including those available for sale).
1
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The principal sources of funds for the Bank's lending activities are
deposits and the amortization, repayment and maturity of loans, investment
securities and mortgage-backed securities. Principal sources of income are
interest on loans, mortgage-backed securities, investment securities and
deposits held in other financial institutions. The Bank's principal expense is
interest paid on deposits.
Market Area/Competition
Teche Federal's home office is located in Franklin, St. Mary Parish,
Louisiana, which is approximately 50 miles southeast of Lafayette, 90 miles
south of Baton Rouge and 120 miles west of New Orleans. The limited population
of Franklin and St. Mary Parish (approximately 9,000 and 64,000, respectively)
has, over the years, caused the Bank to expand through the establishment of
branch offices in the contiguous Parishes of Iberia, St. Martin, Lafayette and
Terrebonne. In a June 1991 transaction with the RTC, the Bank purchased
approximately $4.7 million of loans and assumed approximately $17.9 million of
deposits of First Federal Savings and Loan Association of Breaux Bridge, Breaux
Bridge, Louisiana. The transaction was accounted for as a "purchase."
Furthermore, in December 1992, Community Homestead Association of Houma, Houma,
Louisiana, merged with and into Teche Federal, adding approximately $18.9
million in loans and $20.8 million in savings deposits to the Bank. The
transaction was accounted for as a "pooling of interests."
The local economy is dependent to a certain extent on the oil and gas,
seafood and agricultural (primarily sugar cane) industries. These industries are
cyclical in nature and have a direct impact on the level and performance of the
Bank's loan portfolio. Economic downturns in the past have caused a decrease in
loan originations and an increase in nonperforming assets. However, the
metropolitan Lafayette area, which is the fourth largest city in Louisiana, has
experienced sustained growth and is the home to the University of Southwestern
Louisiana, several hospitals and various small-to medium-size businesses, and
has provided the Bank with increased lending opportunities.
The Bank encounters strong competition both in the attraction of
deposits and origination of real estate and other loans. Competition comes
primarily from other financial institutions in its Primary Market Area,
including savings banks, commercial banks and savings associations, credit
unions and investment and mortgage brokers in serving its Primary Market Area.
The Bank also originates mortgage loans through its branch offices, one
origination office and affiliations with mortgage originators, secured by
properties throughout its Primary Market Area and other locations in Louisiana.
Lending Activities
General. Teche Federal's loan portfolio predominantly consists of
adjustable-rate and fixed-rate mortgage loans secured by one- to four-family
residences and, to a lesser extent, residential construction and land loans.
Virtually all of the Bank's mortgage loans are secured by properties located in
Louisiana. Teche Federal also makes multi-family and non-residential mortgage
loans consisting primarily of commercial real estate loans and consumer loans,
which include home equity, savings account, automobile, personal, mobile home
and consumer credit card loans.
As of September 30, 1996 approximately $185 million of the loan
portfolio was fixed-rate (including consumer loans) and approximately $146
million was adjustable rate (including 3-10 year adjustable loans).
2
<PAGE>
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993
----------------------- ---------------------- ---------------------- --------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Residential real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family............. $288,109 87.03% $234,329 87.49% $213,325 86.27% $187,185 85.47%
Construction/permanent loans.... 13,740 4.15 8,097 3.02 11,676 4.72 10,976 5.01
Multi-family.................... 3,006 .91 2,871 1.07 2,144 .87 2,126 .97
Commercial real estate loans...... 7,346 2.22 7,540 2.82 7,152 2.89 7,627 3.48
Land loans........................ 2,844 .86 2,288 .85 1,858 .75 1,778 .81
Consumer loans:
Loans on savings accounts....... 5,657 1.71 6,260 2.34 5,312 2.15 4,912 2.24
Other........................... 10,343 3.12 6,441 2.41 5,796 2.35 4,403 2.02
-------- ------ ------- ------ -------- ------ -------- ------
331,045 100.00% 267,826 100.00% 247,263 100.00% 219,007 100.00%
====== ====== ====== ======
Less:
Allowance for loan losses....... 3,182 2,966 2,778 2,193
Deferred loan fees.............. 1,122 1,266 1,308 1,120
Undisbursed portion of
loans-in-process ............. 10,525 5,725 9,633 8,310
------- -------- -------- --------
$316,216 $257,869 $233,544 $207,384
======== ======= ======= =======
</TABLE>
3
<PAGE>
Origination, Purchase and Repayment of Loans. The following table sets
forth the Bank's loan originations and loan purchases and principal repayments
for the periods indicated. The Bank originates loans for retention in its
portfolio and did not sell loans during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Total gross loans receivable at beginning of $267,826 $247,263 $219,007 $198,488
======= ======= ======= =======
year...................................
Loans originated:
One- to four-family residential........ 10,730 33,010 $ 36,702 $ 27,434
Residential construction/permanent(1).. 23,049 15,110 22,933 18,379
Multi-family residential............... -- -- 268 982
Land and non-residential real estate... 3,579 1,970 1,601 1,149
Consumer loans......................... 11,402 11,280 8,108 4,393
------ ------ ----- ------
Total loans originated............. 108,760 61,370 69,612 52,337
------- ------ ------ ------
Reductions in principal - primarily due to
loan repayments and prepayments ....... (45,541) (40,807) (41,356) (31,818)
------- ------- ------- -------
Net loan activity........................ $ 63,219 $ 20,563 $ 28,256 $ 20,519
======= ======= ======= =======
Total gross loans receivable at end of year $331,045 $267,826 $247,263 $219,007
======= ======= ======= =======
</TABLE>
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(1) Construction/permanent loans are primarily originated for permanent
financing to individuals. See "-- Residential Construction/Permanent
Loans." These loans generally do not pay off at completion, but are
automatically transferred to the one- to four-family residential loan
portfolio.
Loan Purchases. While the Bank primarily focuses on the origination of
one- to four-family residential mortgages, in 1992 the Bank purchased $4.7
million of performing adjustable and fixed-rate mortgage loans from the RTC at a
$200,000 discount. The Bank has not purchased any loans since 1992.
4
<PAGE>
Loan Maturity Tables. The following table sets forth the maturity of the
Bank's loan portfolio at September 30, 1996. The table does not include
prepayments or scheduled principal repayments. Adjustable-rate mortgage loans
are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
One- to Residential All
Four- Construction/ Multi- Commercial Other
Family Permanent Family Real Estate Land Loans Total
------ --------- ------ ----------- ---- ----- -----
(In Thousands)
Amounts due:
<S> <C> <C> <C> <C> <C> <C> <C>
1 year or less................. $ 316 $ -- $ -- $ -- $ 6 $ 4,570 $ 4,892
------ ------- ------ ------ ----- ------ -------
After 1 year:
More than 1 year to 3 years.. 1,652 -- 124 59 159 4,848 6,842
More than 3 years to 5 years. 3,713 -- -- 894 264 5,603 10,474
More than 5 years to 10 years 31,654 -- 640 2,177 1,365 666 36,502
More than 10 years to 20 years 125,450 3,184 1,063 3,928 1,050 77 134,752
More than 20 years........... 125,324 10,556 1,179 288 -- 236 137,583
-------- ------ ----- ------ ------- ------ --------
Total due after September 30,
1997.................... 287,793 13,740 3,006 7,346 2,838 11,430 326,153
------- ------ ----- ----- ----- ------ -------
Total amount due........... $288,109 $13,740 $3,006 $7,346 $2,844 $16,000 $331,045
======= ====== ===== ===== ===== ====== =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 1997, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Adjustable
Rates Rates (1) Total
----- --------- -----
(In Thousands)
<S> <C> <C> <C>
One- to four-family....................... $ 155,526 $132,583 $288,109
Residential construction/permanent........ 7,573 6,167 13,740
Other..................................... 21,878 7,318 29,196
-------- ------ -------
Total............................... $ 184,977 $146,068 $331,045
======== ======= =======
</TABLE>
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(1) Many of these adjustable-rate loans have initial fixed terms of three to
ten years, with rates adjusting annually thereafter. See "-- One- to
Four-Family Residential Loans."
One- to Four-Family Residential Loans. The primary lending activity of
Teche Federal is the origination of one- to four-family owner-occupied,
residential mortgage loans, secured by property located in the Bank's Primary
Market Area.
Teche Federal generally originates single-family owner occupied
residential mortgage loans in amounts up to 80% of the lower of the appraised
value or selling price of the property securing the loan. The Bank also
originates such loans in amounts up to 95% of the lower of the appraised value
or selling price of the mortgaged property, provided that private mortgage
insurance is provided on the amount in excess of 80% of the lesser of the
appraised value or selling price.
5
<PAGE>
The Bank currently offers ARMs with terms of up to 30 years that
initially adjust on the first, third, fifth or tenth year after origination and
annually thereafter. The Bank began offering ARMs in 1981. The Bank originated
$49.2 million of ARMs during the year ended September 30, 1996, of which $8.0
million will first adjust annually after five years. The initial rate is
determined by the Bank in accordance with market and competitive factors.
Historically, the predominant index was based on the monthly median cost of
funds at all SAIF insured financial institutions. For ARMs originated after
December 31, 1994, the Bank uses an index based on the one-year U.S. Treasury
Bill rate adjusted to constant maturity. The terms and conditions of the ARM
loans held by the Bank are varied, partially due to changing market conditions
and partially due to the acquisition by the Bank of loans of First Federal in
Breaux Bridge from the RTC, Community Homestead in Houma and other loan
purchases. The Bank's current ARM originations adjust by a maximum of 2.0% per
adjustment, with a current lifetime cap of 11.875%. At September 30, 1996, the
Bank's ARM loan and mortgage-backed securities portfolio had a weighted average
term to repricing of approximately 37 months.
The Bank offers fixed-rate mortgages with terms of up to 30 years, which
amortize monthly. Interest rates charged on fixed-rate mortgage loans are
competitively priced based on market conditions and the Bank's cost of funds.
The Bank originates and holds its fixed-rate mortgage loans as long term
investments. Most loans are originated in conformance with the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA") guidelines and can therefore be sold in the secondary market should
management deem it necessary. The Bank originated $48.2 million of fixed-rate
mortgage loans during the year ended September 30, 1996. Of these loans, 78.2%
had maturities of 15 years or less.
The Bank offers home equity loans on single family owner-occupied
residences. At September 30, 1996, home equity mortgage loans totaled $3.2
million. Home equity loans are offered as fixed-rate loans for a term not to
exceed 15 years or ARMs for terms up to 30 years. The underwriting standards for
second mortgage loans are the same as the Bank's standards applicable to one- to
four-family residences.
Residential Construction/Permanent Loans. The Bank's construction loans
have primarily been made to finance the construction of owner-occupied
single-family owner occupied residential properties and, to a limited extent,
single family housing for sale by contractors. Construction/permanent loans
generally are made to customers of the Bank in its Primary Market Area. The Bank
offers construction/permanent loans in amounts up to 80% of the appraised value
of the property securing the loan. Loan proceeds are disbursed in increments as
construction progresses and as inspections warrant. Construction/permanent loans
to individuals generally do not pay off at completion of the construction phase,
but are automatically transferred to the Bank's one- to four-family residential
portfolio. These single-family residential loans are structured to allow the
borrower to pay interest only on the funds advanced for the construction for a
period of up to six months at the end of which time the loan converts to a
permanent mortgage. While construction lending is generally considered to
involve a higher degree of risk than financing of existing residential
properties, at September 30, 1996, no construction/permanent loans were
delinquent.
Multi-Family and Commercial Real Estate Loans. The Bank has historically
originated a limited amount of loans secured by multi-family and commercial real
estate, including non-owner occupied residential multi-family dwelling units
(more than four units), as well as professional office buildings and apartment
complexes.
6
<PAGE>
The Bank generally originates multi-family and commercial real estate
loans up to 70% of the appraised value of the property securing the loan. The
Bank's philosophy to originate commercial real estate and multi-family loans
only to borrowers known to the Bank and on properties in its market area. The
multi-family and commercial real estate loans in the Bank's portfolio generally
consist of fixed-rate and ARMs which were originated at prevailing market rates
for terms up to 15 years.
Loans secured by multi-family and commercial real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in multi-family and commercial real estate
lending is the borrower's creditworthiness, the feasibility and cash flow
potential of the project, and the outlook for successful operation or management
of the properties. As a result, repayment of such loans may be subject to a
greater extent than residential real estate loans to adverse conditions in the
real estate market or the economy. In accordance with the Bank's classification
of assets policy and procedure, the Bank requests annual financial statements on
major loans secured by multi-family and commercial real estate. At September 30,
1996 the aggregate balance of the five largest multi-family and commercial real
estate loans totaled $2.5 million with no single loan larger than $752,000.
Land Loans. At September 30, 1996, the Bank had $2.8 million invested in
residential lot loans to individuals.
Consumer Loans. The Bank also offers loans in the form of loans secured
by deposits, home equity loans, automobile loans, mobile home loans, credit card
loans and unsecured personal consumer loans. Federal regulations allow the Bank
to make secured and unsecured consumer loans of up to 35% of the Bank's assets.
The Bank originates consumer loans in order to provide a wide range of
financial services to its customers and because the shorter terms and normally
higher interest rates on such loans help maintain a profitable spread between
its average loan yield and its cost of funds. In connection with consumer loan
applications, the Bank verifies the borrower's income and reviews a credit
bureau report. In addition, the relationship of the loan to the value of the
collateral is considered.
Loans secured by deposits at the Bank are typically made for no more
than 90% of the deposit and at an interest rate 2% above the rate paid on the
deposit. At September 30, 1996, the Bank had $5.7 million of loans secured by
deposits.
Teche Federal also originates automobile and mobile home loans. At
September 30, 1996, $5.5 million and $.8 million consisted of automobile and
mobile home loans, respectively.
The Bank has recently instituted a credit card program whereby customers
are offered revolving credit through Teche Federal credit cards which are
serviced by a third-party vender. At September 30, 1996, such credit cards had a
balance of $1.5 million.
Consumer loans tend to be originated at higher interest rates than
conventional residential mortgage loans and for shorter terms which benefits the
Bank's interest rate risk management. However, consumer loans generally involve
more risk than first mortgage one- to four-family residential real estate loans.
Repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, 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. Further, the application of
7
<PAGE>
various state and federal laws, including federal and state bankruptcy and
insolvency law, may limit the amount which may be recovered. These loans may
also give rise to defenses by the borrower against the Bank and a borrower may
be able to assert against the Bank claims and defenses which it has against the
seller of the underlying collateral. In underwriting consumer loans, the Bank
considers the borrower's credit history, an analysis of the borrower's income
and ability to repay the loan, and the value of the collateral. The Bank's risks
associated with consumer loans have been further limited by the modest amount of
consumer loans made by the Bank. At September 30, 1996, the Bank had
approximately $10.6 in consumer loans delinquent more than 90 days.
Loan Approval Authority and Underwriting. All loans of $100,000 or more,
including second mortgage loans where the total of both the first and second
mortgages exceeds $100,000, assumptions and loans to facilitate the sale of REO,
must be approved by a minimum of two members of the senior loan committee and a
loan officer for the geographic area where the collateral for the loan is
located.
All loans of $30,000 to $100,000, including second mortgage loans where
the total of both the first and second mortgages exceed this amount, assumptions
and loan to facilitate the sale of REO, must be approved by a minimum of three
members of the loan committee or by two members of the loan committee, one of
which is a member of the senior loan committee. All loans of under $30,000 must
be approved by two loan committee members.
Certain officers approved by the Board are authorized to approve
consumer loans. The amounts which any one officer may approve for a secured
consumer loan range from $25,000 to $15,000. The maximum amounts for unsecured
consumer loans are $5,000 to $3,000. Any two loan officers may combine authority
for consumer loans up to their combined limits.
One- to four-family residential mortgage loans are generally
underwritten according to FHLMC and FNMA guidelines, generally utilizing their
approved mortgage documents. For all loans originated by the Bank, upon receipt
of a completed loan application from a prospective borrower, a credit report is
ordered, income and certain other information is verified and, if necessary,
additional financial information is requested. An appraisal of the real estate
intended to secure the proposed loan is required which typically is performed by
an independent appraiser designated and approved by the Board of Directors of
the Bank. The Bank makes construction/permanent loans on individual properties.
Funds advanced during the construction phase are held in a loan-in-process
account and disbursed based upon various stages of completion. The independent
appraiser or loan officer determines the stage of completion based upon its
physical inspection of the construction.
The Bank generally requires title insurance for its one- to four-family
residential loans, (except in St. Mary Parish, where an attorney's title opinion
is customarily considered sufficient). The Bank requires that fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.
It is the Bank's policy to require borrowers to advance funds on a
monthly basis together with each payment of principal and interest to an escrow
account from which the Bank makes disbursements for items such as real estate
taxes and hazard insurance premiums.
Mortgage loans originated by the Bank generally include due-on-sale
clauses which provide the Bank with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers ownership
of the property without the Bank's consent.
8
<PAGE>
Loan Commitments. Teche Federal issues written, formal commitments to
prospective borrowers on all real estate approved loans. The commitment requires
acceptance within 30 days of the date of issuance. Commitments for consumer
loans, which are not given in writing, expire 30 days after issuance. At
September 30, 1996, the Bank had $18.3 million of commitments to originate
mortgage loans, including $10.6 million of the undisbursed portion of
loans-in-process.
Loans-to-One Borrower. Savings associations cannot make any loans to one
borrower in an amount that exceeds in the aggregate 15% of unimpaired capital
and retained income on an unsecured basis and an additional amount equal to 10%
of unimpaired capital and retained income if the loan is secured by readily
marketable collateral (generally, financial instruments, not real estate) or
$500,000, whichever is higher. The Bank's maximum loan-to-one borrower limit was
approximately $6.5 million as of September 30, 1996.
At September 30, 1996, the Bank's largest lending relationship consisted
of a $752,000 construction/permanent loan to a non-profit corporation for the
construction of a 60-apartment complex for the elderly and low income families
in Alexandria, Louisiana. This project was funded with a $1.2 million grant from
the Affordable Housing Program of the FHLB of Dallas and a $755,000 loan from
the Bank which is fully guaranteed by the U.S. Department of Housing and Urban
Development ("HUD"). The project is currently in use. The next five largest
lending relationships at September 30, 1996 ranged from $364,000 to $511,000 and
were secured primarily by apartment complexes and commercial properties located
in the Bank's Primary Market Area. Of these loans, $1.3 million are classified
as substandard. See "-- Non-performing and Problem Assets --Classified Assets."
Non-Performing and Problem Assets
General. Teche Federal's Primary Market Area is dependent, to a certain
extent, on the oil and gas, seafood and agricultural (primarily sugar cane)
industries. These industries are cyclical in nature and have a direct impact on
the level and performance of the Bank's loan portfolio. In the mid-1980s, after
sharp increases in interest rates, oil prices fell, causing severe economic
problems in Louisiana and the Bank's Primary Market Area. During this time, the
Bank experienced a sharp increase in non-performing assets and real estate owned
("REO"). The Bank's Primary Market Area has, to a certain extent, diversified
somewhat since the mid-1980's, however, management continues to monitor its loan
portfolio and has instituted various underwriting standards to address any
future economic downturns.
9
<PAGE>
Non-Performing Assets and Delinquencies. When a borrower fails to make a
required payment on a loan and does not cure the delinquency promptly, the loan
is classified as delinquent. In this event, the normal procedure followed by the
Bank is to make contact with the borrower at prescribed intervals in an effort
to bring the loan to a current status. In most cases, delinquencies are cured
promptly. If a delinquency is not cured, the Bank normally, subject to any
required prior notice to the borrower, commences foreclosure proceedings, in
which the property may be sold. In foreclosure sale, the Bank may acquire title
to the property through foreclosure, in which case the property so acquired is
offered for sale and may be financed by a loan involving terms more favorable to
the borrower than those normally offered. Any property acquired as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until such time as it is sold or otherwise disposed of by the Bank to recover
its investment. As of September 30, 1996, the Bank held real estate owned in the
amount of $46,000 net of a $108,000 reserve. Any real estate acquired in
settlement of loans is initially recorded at the lower of the loan balance plus
unpaid accrued interest or the estimated fair value at the time of acquisition
and is subsequently reduced by additional allowances which are charged to
earnings if the estimated fair value of the property declines below its initial
value. Subsequent costs directly relating to development and improvement of
property are capitalized (not to exceed fair value), whereas costs related to
holding property are expensed.
The Bank's general policy is to place a loan on nonaccrual status when
the loan becomes 90 days delinquent or otherwise demonstrates other risks of
collectibility. Interest on loans that are contractually 90 days or more past
due is reserved through an allowance account. The allowance is established by a
charge to interest income equal to all interest previously accrued, and interest
is subsequently recognized only to the extent cash payments are received until,
in management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.
10
<PAGE>
The following table sets forth information regarding non-accrual loans,
real estate owned ("REO"), and loans that are 90 days or more delinquent but on
which the Bank was accruing interest at the dates indicated and restructured
loans. There are no restructured loans other than those included in the table.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by one- to four-family
residences..................................... $544 $584 $ 578 $ 189
All other mortgage loans......................... -- 59 198 139
Consumer........................................... 15 19 50 14
--- ---- ----- ------
Total......................................... $559 $662 $ 826 $ 342
=== ==== ===== =====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Permanent loans secured by one- to four-family
residences .................................... -- -- -- --
All other mortgage loans......................... -- -- -- --
Consumer........................................... -- -- -- --
---- ---- ------ -----
Total......................................... $ -- $ -- $ -- $ --
==== ==== ====== =====
Total non-performing loans.......................... $559 $662 $ 826 $ 342
==== ==== ===== =====
Real estate owned................................... $ 46 $253 $ 99 $ 267
==== ==== ===== =====
Total non-performing assets......................... $605 $915 $ 925 $ 609
==== ==== ===== =====
Total non-performing loans to total loans
outstanding before allowance...................... .17% .25% .35% .16%
===== === === ===
Total non-performing loans to total assets.......... .15% .20% .29% .14%
===== === === ===
Total non-performing assets to total assets......... .16% .28% .33% .25%
===== === === ===
</TABLE>
Interest income that would have been recorded on loans accounted for on
a non-accrual basis under the original terms of such loans was not significant
for the year ended September 30, 1996.
The following table sets forth the types and dollar amounts of the
Bank's loans which were more than 60 days delinquent as of September 30, 1996:
At
September 30,
1996
-------------
(In Thousands)
Residential mortgage loans.............. $649
Non-residential real estate loans....... --
Land loans.............................. --
Consumer loans.......................... 39
11
<PAGE>
Real Estate Owned. Real estate acquired by the Bank as the result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the fair value at
the date of foreclosure. At September 30, 1996, the Bank had REO with a net
balance of $46,000.
Allowances for Loan Losses and Real Estate Owned. It is management's
policy to provide for losses on loans in its loan portfolio and foreclosed REO.
A provision for loan losses is charged to operations based on management's
evaluation of the losses that may be incurred in the Bank's loan portfolio. Such
evaluation, which includes a review of all loans of which full collectibility of
interest and principal may not be reasonably assured, considers, among other
matters, the estimated net realizable value of the underlying collateral.
While the Bank's provision for loan losses has fluctuated, the amount of
provisions recorded in future periods may be significantly greater or lesser
than the provisions taken in the past. This allowance, as a ratio of total
loans, before the allowance, was 1.00% at September 30, 1996.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
12
<PAGE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for losses which may occur
within the loan category since the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At September 30,(1)
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- ------------------- --------------------- ------------------ ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
At end of year allocated to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family......... $3,426 87.03% $2,201 87.49% $2,050 86.27% $1,448 85.47% $1,520 86.81%
Multi-family and commercial
real estate............... 414 3.13 510 3.89 494 3.76 552 4.45 435 5.02
Construction................ 25 4.15 25 3.02 25 4.72 25 5.01 15 2.97
Consumer and other loans.... 317 5.69 230 5.60 209 5.25 168 5.07 72 5.20
----- ------ ----- ------ ----- ------ ------ ------ ------ ------
Total allowance(1).......... $3,182 100.00% $2,966 100.00% $2,778 100.00% $2,193 100.00% $2,042 100.00%
===== ====== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
- ------------------------
(1) Includes specific reserves for assets classified as loss.
13
<PAGE>
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses for the
periods indicated:
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net.......... $316,216 $257,869 $233,554 $207,384 $189,876
======= ======= ======= ======= =======
Average loans outstanding............. $283,962 $245,567 $219,393 $196,547 $190,479
======= ======= ======= ======= =======
Allowance balances (at beginning of year) $ 2,966 $ 2,778 $ 2,193 $ 2,042 $ 1,509
-------- -------- -------- -------- --------
Provision............................ 300 360 577 183 521
-------- -------- -------- -------- --------
Effect of pooling..................... -- -- -- 45
Charge offs:
Residential real estate mortgage loans:
One- to four-family units......... (28) (81) (63) (125) (16)
Construction loans.................. -- -- -- -- --
Multi-family and commercial real estate
loans............................. -- (72) -- -- --
Land loans......................... -- -- -- -- --
Other............................... (59) (32) (34) -- (77)
------- -------- -------- --------- --------
Total charge-offs............... (87) (185) (97) (125) (93)
Recoveries
Residential real estate mortgage loans 3 -- -- -- --
One- to four-family units......... -- 12 105 93 23
Construction loans.................. -- -- -- -- 37
Multi-family and commercial real estate
loans............................. -- -- -- -- --
Land loans.......................... -- -- -- -- --
Other............................... -- 1 -- -- --
------- -------- -------- -------- --------
Total recoveries................ 3 13 105 93 60
------- -------- -------- -------- --------
Net (charge-offs) recoveries........ (84) (172) 8 (32) (33)
------ ------- -------- ------- -------
Allowance balance (at end of year).... $ 3,182 $ 2,966 $ 2,778 $ 2,193 $ 2,042
======= ======== ======== ======== ========
Allowance for loan losses to total loans
outstanding before allowance........ 1.00% 1.14% 1.18% 1.05% 1.09%
Net loans charged off as a percent of average
loans outstanding before allowance.. .03% .07% --% .02% .02%
</TABLE>
14
<PAGE>
Analysis of the Allowance for Losses on Real Estate Owned. The following
table sets forth information with respect to the Bank's allowance for losses on
real estate owned at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total real estate owned, net..... $ 46 $253 $ 99 $ 267 $1,499
====== === ==== ==== =====
Allowance - beginning............ 131 $163 $186 $ 905 $1,511
Provision........................ -- -- -- 44 140
Charge-offs...................... (23) (32) (23) (763) (746)
------ ---- ---- ---- -----
Allowance - ending............... $ 108 $ 131 $ 163 $ 186 $ 905
====== ==== ==== ==== ======
Allowance for losses on
real estate owned to real
estate owned before allowance.. 70% 34% 62% 41% 38%
</TABLE>
Investment Activities
General. To supplement lending activities, Teche Federal invests in
residential mortgage-backed securities, investment securities and
interest-bearing deposits. These investments have historically consisted of
investment securities issued by U.S. Government agencies. Such securities can
serve as collateral for borrowings and, through repayments and maturities, as a
source of liquidity. Teche Federal anticipates having the ability to fund all of
its investing activities from funds held on deposit at FHLB of Dallas,
maturities, loan repayments and the Bank's borrowing capacity.
Federally chartered savings institutions have the authority to invest in
various types of assets, including U.S. Treasury obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
FHLB of Dallas, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
such institutions also have the authority to invest a portion of its assets in
commercial paper, corporate debt securities and ARM funds, the assets of which
conform to the investments that federally chartered savings institutions are
otherwise authorized to make directly. Savings institutions are also required to
maintain minimum levels of liquid assets which vary from time to time. The Bank
may decide to increase its liquidity above the required levels depending upon
the availability of funds and comparative yields on investments in relation to
return on loans.
The Bank is required under federal regulations to maintain a minimum
amount of liquid assets and is also permitted to make certain other securities
investments. At September 30, 1996 the Bank's regulatory liquidity was 6.03%,
which is in excess of 5% required by OTS regulations. See "Regulation --
Regulation of the Bank -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
15
<PAGE>
The Boards of Directors of the Bank and the Company maintain Investment
Committees which are authorized to establish and implement investment policies
and to supervise the Bank's or the Company's investment activities. Pursuant to
its delegated authority, the Investment Committees have established permissible
types of investments, quality criteria, portfolio limits, procedures, controls
and committee and individual investment authorities. The investment policies
consider the Bank's and the Company's business plan, growth plans, current
economic environments, range of reasonably foreseeable economic environments,
the types of securities to be held and other safety and soundness
considerations.
Before being purchased, each investment is analyzed as to investment
intent. The Bank distinguishes between investment activities undertaken for
investment, for sale or for trading. Such activities are differentiated based
upon the Bank's desire to earn an interest yield (held to maturity), to realize
a holding gain from assets held for indefinite periods of time (available for
sale) or to earn a dealer's spread between the bid and asked prices (held for
trading). The Bank attempts to earn an acceptable spread between the cost of
funds used to purchase an investment and the return on that investment. Under
circumstances when credit risk, interest rate risk or prepayment risk is
significantly reduced, a lesser return may be considered acceptable.
Securities which are classified as "held to maturity" are accounted for
based on historical cost adjusted for amortization of premiums or discounts
using the level yield method. The "held to maturity" portfolio consists
primarily of U.S. Government obligations and securities of various federal
agencies, municipal debt securities and mortgage-backed and related securities.
Securities that are classified as "available for sale" are accounted for at
their market value, with unrealized gains and losses reported as a separate
component of capital. Securities that are classified as "held for trading" are
accounted for at their fair market value, with unrealized gains and losses
included in earnings.
The following table sets forth the carrying value of the Company's
investment portfolio, short-term investments and FHLB stock at the dates
indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Investment securities issued by U.S.
Government agencies and corporations (1)............ $ 11,462 $20,927 $26,425
FHLB Stock............................................ 3,703 2,671 2,112
Mortgage-backed securities (1)........................ 32,099 28,123 9,651
Common stock and municipal obligations................ 935 572 --
-------- ------- ---------
Total investment and mortgage-backed
securities...................................... 48,199 52,293 38,188
Interest-bearing deposits............................. 6,064 5,293 6,350
-------- ------- -------
Total investments.................................. $ 54,263 $57,586 $44,538
======== ====== ======
</TABLE>
- --------------------
(1) Investment and mortgage-backed securities "available for sale" are
carried at fair market value, while investment and mortgage-backed
securities "held to maturity" are carried at cost.
16
<PAGE>
Mortgage-backed and Investment Securities. Mortgage-backed securities
represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the
mortgage originators, through intermediaries (generally quasi-governmental
agencies) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such quasi-governmental agencies,
which guarantee the payment of principal and interest to investors, primarily
include FHLMC, FNMA and Government National Mortgage Association ("GNMA").
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, i.e., fixed rate or adjustable rate, as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Mortgage-backed
securities issued by FHLMC, FNMA, and GNMA make up a majority of the
pass-through certificates market. At September 30, 1996, the Bank had
mortgage-backed securities available for sale with an amortized cost of $31.9
million and an estimated market value of $32.1 million.
At September 30, 1996, Teche Federal had an investment securities
portfolio with an amortized cost of approximately $11.3 million, consisting
primarily of obligations of U.S. government corporations and agencies, as
permitted by the OTS regulations. The market value of investment securities at
September 30, 1996 (excluding FHLB stock and interest-bearing accounts), was
$11.5 million. Teche Federal will continue to seek high quality investments with
short to intermediate maturities.
In accordance with SFAS 115, the Bank designated as "available for sale"
certain investment and mortgage-backed securities that could be sold prior to
their contractual maturity in the event of an unforeseen liquidity need. These
securities are reported at fair value on the consolidated balance sheets of the
Bank with any unrealized gains or losses reflected as an separate component of
equity capital, net of deferred taxes. Equity capital was increased $354,000 at
September 30, 1996 as the result of the designation of all of the Bank's
securities being designated as "available for sale."
Interest-Bearing Accounts Held at Other Financial Institutions. At September 30,
1996, the Bank held $6.1 million in the FHLB and interest-bearing deposits in
other financial institutions. The Bank maintains these accounts in order to
maintain liquidity.
17
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the amortized cost, carrying value, market value, weighted
average yields and maturities of the Bank's investment and mortgage-backed
securities portfolio at September 30, 1996.
<TABLE>
<CAPTION>
As of September 30, 1996
---------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years
-------------- ------------------- ----------------- ---------------------
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
------ ------- ------ ------- ------ ------- ------ --------
(Dollars in Thousands)
Investment Securities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
available for sale...... $ 7,522 7.70% $3,744 7.26% $ -- N/A $ -- N/A
Mortgage-backed Securities
available for sale(1).. -- N/A -- N/A -- N/A 31,862 6.56
FHLB Stock............... N/A N/A N/A N/A N/A N/A N/A N/A
Common Stock............. N/A N/A N/A N/A N/A N/A N/A N/A
Municipal Obligations.... 2.64 6.00 -- N/A -- N/A -- N/A
------ ---- ------ ----- --------
Total.............. $7,786 7.64% $3,744 7.26% $ -- N/A $ 31,862 6.56%
===== ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1996
--------------------------------------------
Total Investments
-----------------------------------------
Amortized Average Carrying Market
Cost Yield Value Value
------ ------- ----- ------
Investment Securities
<S> <C> <C> <C> <C>
available for sale...... $11,266 7.55% $11,462 $11,462
Mortgage-backed Securities
available for sale(1).. 31,862 6.56 32,099 32,099
FHLB Stock............... 3,703 6.05 3,703 3,703
Common Stock............. 568 -- 669 669
Municipal Obligations.... 264 6.00 266 266
------- ------- -------
Total.............. $47,663 6.67% $48,199 $48,199
====== ====== ======
</TABLE>
- ------------------------------
(1) Does not assume prepayments.
18
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. Teche Federal also derives funds from
amortization and prepayment of loans and mortgage-backed securities, maturities
of investment securities and operations. Scheduled loan principal and interest
payments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and market conditions. Teche Federal also utilizes advances from the FHLB
of Dallas.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's Primary Market Area through the offering of a broad
selection of deposit instruments including regular savings, demand and NOW
accounts and certificates of deposit. Deposit account terms vary according to
the minimum balance required, the time period the funds must remain on deposit
and the interest rate, among other factors.
The interest rates paid by the Bank on deposits can be set daily at the
direction of senior management. Senior management determines the interest rate
to offer the public on new and maturing accounts. Senior management obtains the
interest rates being offered by other financial institutions within its market
area. This data along with a report showing the dollar value of certificates of
deposit maturing is reviewed and interest rates are determined.
Regular savings accounts, money market accounts and NOW accounts
constituted $59.3 million, or 23.3% of the Bank's deposit portfolio at September
30, 1996. Certificates of deposit constituted $195.4 million or 76.7% of the
deposit portfolio, including $46.6 million of which had balances of $100,000 and
over. As of September 30, 1996, the Bank had no brokered deposits.
19
<PAGE>
Time Deposits by Rate. The following table presents, by various rate
categories, the amount of certificate accounts outstanding at the dates
indicated and the periods to maturity of the certificate accounts outstanding at
September 30, 1996.
<TABLE>
<CAPTION>
Period to Maturity from September 30, 1996
-------------------------------------------------------
Less than One to Two to Over Three
One Year Two Years Three Years Years
-------- --------- ----------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts:
3.00 to 3.99%....... $2,000 $ -- $ -- $ 2
4.00 to 4.99%....... 31,291 62 -- 40
5.00 to 5.99%....... 44,765 39,018 8,649 2,513
6.00 to 6.99%....... 22,892 17,606 5,741 15,731
7.00 to 7.99%....... 516 1,818 -- 2,805
-------- ------- -------- -------
Total........... $101,464 $58,504 $14,390 $21,091
======= ====== ====== ======
</TABLE>
Certificate Accounts of $100,000 and Above. Teche Federal maintains a
policy of offering higher interest rates on certificates with larger balances.
For example, for certificates with terms of 12 months which were purchased on
September 30, 1996, those with balances of $500 would yield 5.00%, those with
balances of $40,000 would yield 5.30%, those with balances of $75,000 would
yield 5.40% and those with balances of $99,000 would yield 5.50%. As a result,
to some extent, Teche Federal customers tend to consolidate accounts to earn the
highest possible interest. This enables the Bank to effectively compete in the
marketplace, reduce the number of accounts and associated costs, and increase,
to some extent the number of accounts with balances of $100,000. The following
table indicates the amount of the Bank's certificates of deposit of $100,000 or
more by time remaining until maturity as of September 30, 1996.
<TABLE>
<CAPTION>
Certificates Weighted
of Deposit Interest Rate
---------- -------------
(In Thousands)
<S> <C> <C>
Maturity Period:
3 months or less........................................ $ 7,977 5.58%
Over 3 through 6 months................................. 7,376 5.24
Over 6 through 12 months................................ 12,292 5.65
Over 12 months.......................................... 18,921 6.13
Totals.................................................. 46,566 5.77
</TABLE>
20
<PAGE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance......................... $233,805 $236,736 $212,996
Net deposits (withdrawals)................ 9,259 (13,896) 14,695
Interest credited on deposits............. 11,659 10,965 9,045
-------- ------- -------
Ending balance............................ $254,723 $233,805 $236,736
======= ======= =======
Total increase (decrease) in deposits..... $ 20,918 $ (2,931) $ 23,740
======= ======== =======
Percentage increase (decrease)............ 8.95% (1.24)% 11.15%
</TABLE>
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Dallas to supplement its supply of lendable funds.
Advances from the FHLB of Dallas are typically secured by a pledge of the Bank's
stock in the FHLB of Dallas and a portion of the Bank's first mortgage loans and
certain other assets. The Bank, if the need arises, may also access the Federal
Reserve Bank discount window to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. At September 30, 1996, Teche Federal had
$66.9 million in advances outstanding from the FHLB of Dallas.
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the years ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
-------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding.................. $42,405 $18,842 $ 17,900
Maximum amount outstanding at any
month-end during the year..................... 72,500 34,300 24,000
Balance outstanding at end of year........... 66,900 24,200 23,800
Weighted average interest rate during the year 5.53% 5.77% 3.70%
Weighted average interest rate at end of year 5.39% 5.71% 5.37%
</TABLE>
Subsidiary Activity
The only subsidiary of the Company is Teche Federal.
As of September 30, 1996, the Bank had one subsidiary: Appraisal
Services, Inc. ("ASI") and the net book value of the Bank's investment in stock,
unsecured loans and conforming loans in its service corporation was $166,970.
ASI was inactive at September 30, 1996 as a result of the sale of its 11.1%
interest in General Financial Life Insurance Company, which sold credit and
mortgage life insurance through an insured institution.
21
<PAGE>
Teche Federal is permitted to invest up to 2% of its assets in the
capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of September 30, 1996, Teche Federal was authorized to invest up to
approximately $7.6 million in the stock of, or loans to, service corporations
(based upon the 2% limitation).
Personnel
As of September 30, 1996 the Bank had 115 full-time and 51 part-time
employees. None of the Bank's employees is represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation
Set forth below is a brief description of all materials laws and
regulations which relate to the regulation of the Bank and the Company. The
description does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
Holding Company Regulation
General. 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, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
The Company is also required to file certain reports with, and otherwise comply
with, the rules and regulations of the OTS and the SEC.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. 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 the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "Regulation
of the Bank -- Qualified Thrift Lender Test."
Restrictions on Acquisitions. 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 law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
22
<PAGE>
Federal Securities Law. The Company is subject to filing and reporting
requirements by virtue of having its common stock registered under the
Securities Exchange Act of 1934. Furthermore, Holding 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.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may
be terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system, a bank or thrift pays within a range of 23 cents to 31 cents
per $100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is authorized
to increase such deposit insurance rates, on a semi-
23
<PAGE>
annual basis, if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC also may
impose special assessments on SAIF members to repay amounts borrowed from the
U.S. Treasury or for any other reason deemed necessary by the FDIC. The Bank's
federal deposit insurance premium expense for the fiscal year ended September
30, 1996, amounted to approximately $543,000.
The Bank recorded what they believe is a one-time assessment of
approximately 65.7 basis points on every $100 of deposits based on the Bank's
deposits at March 31, 1995 for a cost of approximately $1.2 million (net of
taxes). Future deposit insurance premiums are expected to be reduced from 0.23%
to approximately 0.06%. Based upon the Bank's deposits as of September 30, 1996,
the Bank's deposit insurance expense would decrease by approximately $276,000
per year after taxes. Management of the Bank is unable to predict whether
ongoing SAIF premiums will be reduced to a level comparable to that of BIF
premiums.
Examination Fees. In addition to federal deposit insurance premiums,
savings institutions like the Bank are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS. The general assessment
is paid on a semi-annual basis and is computed based on total assets of the
institution, including subsidiaries. The Bank's OTS assessment expense for the
fiscal year ended September 30, 1996 totalled approximately $84,000.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets.
Savings associations with a greater than "normal" level of interest rate
exposure will, in the future, be subject to a deduction for an interest rate
risk ("IRR") component may be from capital for purposes of calculating their
risk-based capital requirement. See "-- Net Portfolio Value Analysis."
24
<PAGE>
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of September 30, 1996:
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Actual capital.................. $42,816 11.3%
Regulatory requirement.......... 5,680 1.5
------ ----
Excess.......................... $37,136 9.8%
====== ====
Core Capital:
Actual capital.................. $42,816 11.3%
Regulatory requirement.......... 11,360 3.0
------ ----
Excess.......................... $31,456 8.3%
====== ====
Risk-Based Capital:
Actual capital.................. $45,186 21.9%
Regulatory requirement.......... 16,498 8.0
------ ----
Excess.......................... $28,688 13.9%
====== ====
The Bank is not under any agreement with regulatory authorities nor is
it aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have a material effect on liquidity, capital
resources or operations of the Bank or the Company.
Net Portfolio Value Analysis. In order to encourage associations to
reduce their interest rate risk, the OTS adopted a rule incorporating an
interest rate risk ("IRR") component into the risk-based capital rules. The IRR
component is a dollar amount that will be deducted from total capital for the
purpose of calculating an institution's risk-based capital requirement and is
measured in terms of the sensitivity of its Net Portfolio Value ("NPV") to
changes in interest rates. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated market value of its assets will
require the institution to deduct from its capital 50% of that excess change.
The rules provide that the OTS will calculate the IRR component quarterly for
each institution.
The OTS uses, as a critical point, a change of plus or minus 200 basis
points in order to set its "normal" institutional results and peer comparisons.
The greater the change, positive or negative, in NPV, the more interest rate
risk is assumed to exist with the institution. The following table lists the
Bank's latest percentage change in NPV assuming an immediate change of plus or
minus 100, 200, 300 and 400 basis points from the level of interest rates at
September 30, 1996.
25
<PAGE>
<TABLE>
<CAPTION>
NPV as % of PV
Net Portfolio Value of Assets
------------------------- ---------------------------
Change NPV
in Rates $ Amount $Change(1) %Change(2) Ratio(3) Change(4)
- -------- -------- ---------- ---------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+400 bp 16,106 -32,798 -67% 4.69% -802bp
+300 bp 24,486 -24,418 -50% 6.92% -579bp
+200 bp 32,943 -15,962 -33% 9.04% -367bp
+100 bp 41,253 -7,651 -16% 11.01% -171bp
0 bp 48,904 12.71%
-100 bp 55,057 +6,153 +13% 14.00% +129bp
-200 bp 58,516 +9,612 +20% 14.66% +195bp
-300 bp 60,389 11,485 +23% 14.95% +274bp
- 400 bp 62,788 +13,884 +28% 15.35% +264bp
</TABLE>
- ----------------
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by average total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming
no change in interest rates.
26
<PAGE>
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- --------------
<S> <C> <C>
*** RISK MEASURES: 200 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets............. 12.71% 14.85%
Exposure Measure: Post-Shock NPV Ratio.................... 9.04% 12.66%
Sensitivity Measure: Change in NPV Ratio.................. 367 bp -220 bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in NPV as % of PV of Assets........................ 4.15% -2.73%
Interest Rate Risk Capital Component ($000)............... $ 4,135 $ 1,218
</TABLE>
As the table shows, increases in interest rates would result in net
decreases in the Bank's NPV, while decreases in interest rates will result in
smaller net increases in the Bank's NPV. Based on these specific OTS
regulations, the Bank would be required to deduct $4.1 million from total
capital for purposes of calculating the Bank's risk-based capital requirement.
(The Bank's NPV decreases by 3.7% if interest rates increase by 200 basis
points.) Certain shortcomings are inherent in the methodology used in the above
table. Modeling changes in NPV requires the making of certain assumptions that
may tend to oversimplify the manner in which actual yields and costs respond to
changes in market interest rates. First, the models assume that the composition
of the Bank's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured. Second,
the models assume that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly, although the NPV
measurements do provide an indication of the Bank's interest rate risk exposure
at a particular point in time, such measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income.
In times of decreasing interest rates, the value of fixed-rate assets
could increase in value and the lag in repricing of interest rate sensitive
assets could be expected to have a positive effect on the Bank.
Prompt Corrective Action. The FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, which became effective December 19, 1992, the banking
regulators are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Under the OTS final rule implementing
the prompt corrective action provisions, an institution shall be deemed to be
(i) "well capitalized" if it has total risk-based capital of 10.0% or more, has
a Tier I risk- based capital ratio (core or leverage capital to risk-weighted
assets) of 6.0% or more, has a leverage capital of 5.0% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, a Tier I risked-based ratio of
4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized," (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 4.0% or a leverage
capital ratio that is less than 4.0% (3.0% in certain circumstances), (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
leverage capital ratio that
27
<PAGE>
is less than 3.0% and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. In addition,
under certain circumstances, a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). Immediately upon becoming undercapitalized, an
institution shall become subject to various restrictions and could be subject to
additional supervisory actions.
The Bank is currently a "well capitalized institution" as defined in
the prompt corrective action regulations and as such is not subject to any
prompt corrective action measures.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established in
connection with the Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
June 30, 1993, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Finally, under the FDICIA, a savings association is prohibited from
making a capital distribution if, after making the distribution, the savings
association would be "undercapitalized" (not meet any one of its minimum
regulatory capital requirements).
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a QTL test. If the Bank maintains
an appropriate level of Qualified Thrift Investments (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy full
borrowing privileges from the FHLB of Dallas. The required percentage of QTIs is
65% of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings associations may include shares of
stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The FDICIA also amended
the method for measuring compliance with the QTL test to be on a monthly basis
in nine out of every 12 months, as opposed to on a daily or weekly average of
28
<PAGE>
QTIs. As of September 30, 1996, the Bank was in compliance with its QTL
requirement with 93.07% of its assets invested in QTIs.
A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Loans-to-One Borrower. See "Business -- Lending Activities --
Loans-to-One Borrower."
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation 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 its examination of a savings institution,
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
by such institution. Current law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
in lieu of the existing five-tiered numerical rating system. The OTS reported
that Teche Federal had an "outstanding record of meeting community credit
needs," in its last examination dated November 1995. The OTS further stated that
"an institution in this group has an outstanding record of, and is a leader in,
ascertaining and helping to meet the credit needs of its entire delineated
community, including low- and moderate-income neighborhoods, in a manner
consistent with its resources and capabilities."
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital;
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. 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 any
affiliate which is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Bank's authority to extend credit to its officers, directors and 10%
shareholders, as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the Bank may make
to such persons based, in part, on the Bank's capital position, and require
certain approval procedures to be followed. OTS regulations, with minor
variation, apply Regulation O to savings associations.
29
<PAGE>
Branching by Federal Savings Banks. Effective May 11, 1992, the OTS
amended its Policy Statement on Branching by Federal Savings Associations to
permit interstate branching to the full extent permitted by statute (which is
essentially unlimited). This permits savings associations with interstate
networks to diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
associations. However, the OTS will evaluate a branching applicant's record of
compliance with the CRA. A poor CRA record may be the basis for denial of a
branching application.
Liquidity Requirements. All savings associations 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. The liquidity 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 required liquid
asset ratio is 5%. At September 30, 1996, the Bank's liquidity ratio was 6.01%.
Liquid assets for purposes of this ratio include specified short-term
assets (e.g., cash, certain time deposits, certain banker's acceptances and
short-term U.S. Government obligations), and long-term assets (e.g., U.S.
Government obligations of more than one and less than five years and state
agency obligations with a minimum term of 18 months). The regulations governing
liquidity requirements include as liquid assets debt securities hedged with
forward commitments obtained from, or debt securities subject to repurchase
agreements with, members of the Bank of Primary Dealers in United States
Government Securities or banks whose accounts are insured by the FDIC, debt
securities directly hedged with a short financial future position, and debt
securities that provide the holder with a right to redeem the security at par
value, regardless of the stated maturities of the securities. FIRREA also
authorized the OTS to designate as liquid assets certain mortgage-related
securities with less than one year to maturity. Short- term liquid assets
currently must constitute at least 1% of an association's average daily balance
of net withdrawable deposit accounts and current borrowings. Monetary penalties
may be imposed upon associations for violations of liquidity requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administer 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. As of
September 30, 1996, the Bank had $66.9 million borrowed from the FHLB of Dallas
to fund operations; however, there can be no assurances that borrowings will not
be made in the future.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. As of September 30, 1996, the Bank had $3.7 million
in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended September 30, 1996, dividends paid by
the FHLB of Dallas to the Bank totalled $178,310.
30
<PAGE>
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At September
30, 1996, the Bank's total transaction accounts were in compliance with the
Federal Reserve Board requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all OTS sources before borrowing from the Federal
Reserve System. The Bank had no such borrowings at September 30, 1996.
Recapture of Post-1987 Bad-Debt Reserves. Prior to the enactment of the
Small Business Jobs Protection Act (the "Small Business Act"), which was signed
into law on August 21, 1996, certain thrift institutions such as the Bank were
allowed income tax deductions for bad debts under methods more favorable than
those granted to other taxpayers. The Small Business Act repealed the Code
Section 593 reserve method of accounting for bad debts by thrift institutions,
effective for tax years beginning after 1995. Thrift institutions that are
treated as small banks are allowed to utilize the experience method applicable
to such institutions, while thrift institutions that are treated as large banks
(banks with assets of more than $500 million) are required to use only the
specific charge off method.
The amount of a thrift institution's applicable excess reserves will be
included in taxable income ratably over a six taxable year period, beginning
with the first taxable year beginning after 1995. However, because the Company
meets certain residential loan requirements it will defer the beginning of such
six year period for two years.
For the Bank, a small bank, the amount of the institution's applicable
excess reserves generally is the excess of (i) the balances of its reserve for
losses on qualifying real property loans and its reserve for losses on
nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988
reserves or (b) what the Bank's reserves would have been at the close of its
last tax year beginning before January 1, 1996, had the Bank always used the
experience method. At September 30, 1996, the Bank's applicable excesss reserves
were approximately $2.8 million. Since the percentage of taxable income method
for tax bad debt deduction and the corresponding increase in the tax bad debt
reserve in excess of the base year have been recorded as temporary differences
pursuant to SFAS No. 109, this change in the tax law will not have a material
effect on the Company's financial statements.
Federal Taxation
The Bank files its tax return on a September 30 year basis. Savings
associations are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
However, for tax years beginning before 1996, savings associations such as the
Bank, which met certain definitional tests and other conditions prescribed by
the Code benefitted from certain favorable provisions regarding their deductions
from taxable income for annual additions to their bad debt reserve. For purposes
of the bad debt reserve deduction, loans are separated into "qualifying real
property loans," which generally are loans secured by interests in real
property, and nonqualifying loans, which are all other loans. The bad debt
reserve deduction with respect to nonqualifying loans must be based on actual
loss experience. The amount of the bad debt reserve deduction with respect to
qualifying real property loans may be based upon actual loss experience (the
"experience method") or a percentage of taxable income determined without regard
to such actual experience (the "percentage of taxable income method"). The Bank
will review the most favorable way
31
<PAGE>
to calculate the deduction attributable to an addition to its bad debt reserve
on an annual basis. See Note 10 of Notes to Consolidated Financial Statements.
Under the experience method, the bad debt deduction may be based on the
greater of (i) a six-year moving average of actual losses on qualifying and
non-qualifying loans, or (ii) the amount required in order for the current
year's ending bad debt reserve to equal the institution's base year reserve
amount. The base year amount is equal to the tax bad debt reserve determined as
of December 31, 1987. Subsequently, the Bank switched its tax year from a
calendar year to a fiscal year ending September 30.
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 of 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 qualifying 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. As of September 30,
1996, at least 60% of the Bank's assets were qualifying assets as defined in the
Code. No assurance can be given that the Bank will meet the 60% test for
subsequent taxable years.
Earnings appropriated to the Bank's bad debt reserve and claimed as a
tax deduction will not be available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless the Bank includes the amount in income, along with the
amount deemed necessary to pay the resulting federal income tax. As of September
30, 1996, the Bank had approximately $4.2 million of accumulated earnings for
which federal income taxes have not been provided. If such amount is used for
any purpose other than bad debt losses, including a dividend distribution or a
distribution in liquidation, it will be subject to federal income tax at the
then current rate.
As discussed in more detail in "Regulation of the Bank - Recapture of
Post-1987 Bad-Debt Reserves," the Small Business Act modified the method used by
the Bank in calculating its annual addition to the bad debt reserve for tax
years beginning after 1995.
The Company files a separate U.S. corporate income tax return on a
calendar year basis.
State Taxation
The Louisiana Corporation Income Tax Act provides for an exemption from
the Louisiana Corporation Income Tax for mutual savings banks and for banking
corporations, which includes stock associations (e.g., the Bank). However, this
exemption does not extend to non-banking entities such as the Company. The
non-banking subsidiaries of the Bank (as well as the Company) are subject to the
Louisiana Corporate Income Tax based on their Louisiana taxable income, as well
as franchise taxes. The Louisiana 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. Beginning January 1, 1996, the Company became subject to the
Louisiana Shares Tax and the Louisiana Franchise Tax. The Louisiana
32
<PAGE>
Shares Tax is imposed on the assessed value of the Bank's stock. The formula for
deriving the assessed value is to calculate 15% of the sum of (i) 20% of a
corporation's capitalized earnings, plus (ii) 80% of a corporation's taxable
stockholders' equity, and to subtract from that amount 50% of a corporation's
real and personal property assessment. Other various items may also be
subtracted in calculating a corporation's capitalized earnings. The Louisiana
Shares Tax and the Louisiana Franchise Tax increased expense by approximately
$300,000 (net of taxes) for the nine months ended September 30, 1996 which is
approximately $400,000 (net of taxes) on an annualized basis.
Item 2. Description of Properties
- -----------------------------------
Properties
The Bank operates from its main office located at 211 Willow Street,
Franklin, Louisiana and eight branch offices. The Bank's total investment in
office property and equipment is $7.4 million with a net book value of $4.5
million at September 30, 1996. The Bank currently operates automated teller
machines at most of its branch offices.
Item 3. Legal Proceedings
- --------------------------
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Market and Dividend Information" in
the Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1996 ("Annual Report") on page 3, and is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The above-captioned information appears under "Selected Financial and
Other Data" in the Annual Report on page 2, and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The above-captioned information appears under Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Annual
Report on pages 4 through 9 and is incorporated herein by reference.
33
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Consolidated Financial Statements of Teche Holding and its
subsidiaries, together with the report thereon by Deloitte & Touche, LLP appears
in the Annual Report on pages 11 through 31 and are incorporated herein by
reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "Information with
Respect to Nominees for Director, Directors Continuing in Office and Executive
Officers" at pages 3 to 8 of the Registrant's definitive proxy statement for the
Registrant's Annual Meeting of Stockholders to be held on January 22, 1997 (the
"Proxy Statement"), which was filed with the Commission on December 23, 1996 and
incorporated herein by reference. See also "Item 1. Business of the Bank --
Personnel" included herein.
Item 11. Executive Compensation
- --------------------------------
The information relating to executive compensation is incorporated
herein by reference to the Registrant's Proxy Statement at pages 8 through 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement at pages 1 through 3.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information relating to certain relationships and related
transactions is incorporated herein by reference to the Registrant's Proxy
Statement at pages 13 and 14.
34
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements of the Company are incorporated by reference to the
following indicated pages of the Annual Report.
PAGE
----
Independent Auditors' Report....................................... 11
Consolidated Balance Sheets as of September 30, 1996 and 1995...... 12
Consolidated Statements of Income For the Years Ended
September 30, 1996, 1995 and 1994................................ 13
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1996, 1995 and 1994............ 14
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994................................ 15-16
Notes to Consolidated Financial Statements......................... 17
The remaining information appearing in the Annual Report is not deemed
to be filed as part of this report, except as expressly provided herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Articles of Incorporation of Teche Holding Company*
3.2 Bylaws of Teche Holding Company*
4.0 Stock Certificate of Teche Holding Company*
10.1 Form of Teche Federal Savings Bank Management Stock Plan**
10.2 Form of Teche Holding Company 1995 Stock Option Plan**
11.0 Statement regarding computation of earnings per share
(see Note 1 to the Notes to Consolidated Financial Statements
in the Annual Report)
13.0 Annual Report to Stockholders for the fiscal year ended
September 30, 1996
21.0 Subsidiary of the Registrant
(see "Item 1 Business - Subsidiary Activity" herein)
23.0 Consent of Accountants
27.0 Financial Data Schedule***
(b) Reports on Form 8-K.
None
- --------------------
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, initially filed with the Commission on
December 16, 1994, Registration No. 33- 87486.
** Incorporated herein by reference into this document from the Exhibits to
the Registrant's Form 10-K for the fiscal year ended September 30, 1995,
filed with the Commission.
*** Only in electronic filing.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: December 30, 1996 By: /s/Patrick O. Little
--------------------
Patrick O. Little
President, Chief Executive
Officer and Director
(Duly Authorized Representative)
Pursuant to the requirement 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/Patrick O. Little By: /s/J.L. Chauvin
Patrick O. Little J. L. Chauvin
President, Chief Executive Officer Vice President and Treasurer
and Director (Principal Financial Officer)
(Principal Executive Officer)
Date: December 30, 1996 Date: December 30, 1996
By: ___________________________ By: /s/Robert Earl Mouton
W. Ross Little Robert Earl Mouton
Chairman of the Board and Secretary Director
Date: December __, 1996 Date: December 30, 1996
By: /s/Mary Coon Biggs By: _______________________
Mary Coon Biggs Christian L. Olivier
Director Director
Date: December 30, 1996 Date: December __, 1996
By: ____________________________ By: /s/H. Ross Little, Jr.
Virginia Kyle Hine H. Ross Little, Jr.
Director Director
Date: December __, 1996 Date: December 30, 1996
By: /s/Henry L. Friedman By: /s/Thomas F. Kramer, M.D.
Henry L. Friedman Thomas F. Kramer, M.D.
Director Director
Date: December 30, 1996 Date: December 30, 1996
</TABLE>
EXHIBIT 13
<PAGE>
1996
ANNUAL
REPORT
TECHE HOLDING COMPANY
FRANKLIN, LOUISIANA
<PAGE>
Teche Holding Company
211 Willow Street
Franklin, LA 70538
Teche Federal Savings Bank
211 Willow Street
Franklin, LA 70538
Telephone: (318) 828-3212
LA WATS (800) 256-1500
FAX (318) 828-0110
Morgan City
1001 7th St.
Morgan City, LA 70380 Table of Contents
(504) 384-0653 Page
Bayou Vista President's Message............................ 1
1003 Southeast Boulevard
Bayou Vista, LA 70380 Selected Financial Information................. 2
(504) 395-5244
Business of The Company & Business of the Bank. 3
New Iberia
529 N. Lewis Market and Dividend Information................ 3
New Iberia, LA 70560
(318) 367-2516 Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 4
New Iberia
142 W. St. Peter St. Independent Auditor's Report................... 11
New Iberia, LA 70560
(318) 364-5145 Consolidated Balance Sheets.................... 12
Layayette Consolidated Statements of Income.............. 13
1001 Johnston
Lafayette, LA 70501 Consolidated Statements of Stockholders' Equity 14
(318) 232-6463
Consolidated Statements of Cash Flows.......... 15
Lafayette
2306 W. Pinhook Notes to Consolidated Financial Statements..... 17
Lafayette, LA 70508
(318) 232-3419 Directors and Officers......................... 32
Breaux Bridge General Information............................ 32
601 E. Bridge St.
Breaux Bridge, LA 70517
(318) 332-2149
Houma
706 Barrow
Houma, LA 70360
(504) 868-8766
<PAGE>
[LOGO]
President's Message
- --------------------------------------------------------------------------------
On behalf of our dedicated and hardworking staff, we are pleased to present
our second annual report to our shareholders.
This report covers the first full year of operations since the successful
completion of the conversion of Teche Federal Savings Bank from a federally
chartered mutual savings association to a federally chartered stock savings bank
on April 17, 1995 and the acquisition of all of the issued and outstanding
capital stock of the Bank by Teche Holding Company.
On September 30, 1996, legislation was enacted to recapitalize the Savings
Association Insurance Fund which requires The Bank to pay a one time special
assessment of $1,824,000 ($1.2 million net of income taxes.) Due to the SAIF
special assessment the Company reported diminished earnings for fiscal 1996. Net
income for the year end would have been $3,725,000 had the special assessment
not occurred. In spite of the short term effect on earnings, the one time
special assessment should ultimately be beneficial to Teche Holding Company's
stockholders and depositors. Beginning January 1, 1997, the Bank's annual
deposit insurance costs should be significantly reduced, and the financial
integrity of the federal deposit insurance fund should be maintained.
The year proved to be a bittersweet one for Teche Holding Company. While
the Company made a record $97 million in loans, we lost our friend and Board
member, Dr. Lee J. Sonnier, who died suddenly on October 10, 1996. We will all
greatly miss his valuable insights and his charming personality.
Your Board of Directors recognizes the challenge of effectively managing
capital in a manner designed to both maximize value and provide an optimal
return to the shareholders. This year we completed stock repurchases of 691,000
shares of the Company's common stock and we instituted a dividend reinvestment
plan. In each of these programs, we purchased shares of the Company's common
stock in open market transactions. This, combined with earnings, resulted in an
increase in book value per common share to $14.76 at fiscal year end, up from
$14.63 a year ago. The $.50 dividend to shareholders offered a consistent cash
return for investors.
As part of our continuing effort to increase customer convenience, in
October 1995 we opened our second New Iberia full service office at 142 West St.
Peter. We now have nine full service locations serving five parishes. We will
continue to explore other areas for expansion. In August 1996 we offered 24 hour
telephone banking and in November 1996 we offered the ATM Check Card and the
response has been overwhelming. Furthermore, Teche Federal now has 17 Automated
Teller Machines and is on line with Cirrus, Pulse, and other co-operating
networks, allowing our customers to receive cash from over 11,000 locations
world-wide.
In 1996, we were again honored to receive the prestigious Five Star Bauer
rating, which has been awarded to the Bank for 14 consecutive quarters.
Our goals for the coming year will focus on increased lending, particularly
in the residential mortgage and consumer loan area, increased savings and
improved efficiency of operations.
As we move further into the 1990's, we remain focused on satisfying the
financial needs of our customers and communities, plus growing the earnings of
the Company. To accomplish this we will employ the following strategies:
o Continue our tradition as a leader in financing the home lending needs of
our communities
o Help local families prepare for the future by offering and exploring
competitive products and services
On behalf of the Board of Directors, Officers and Staff of Teche Holding
Company and Teche Federal Savings Bank, please allow me to wish you a happy
holiday season and a prosperous and fulfilling New Year.
Sincerely,
/s/Patrick Little
Patrick Little
1
<PAGE>
SELECTED FINANCIAL AND OTHER DATA (dollars in thousands)
<TABLE>
<CAPTION>
At or for the Year Ended September 30,
- ------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Assets $379,590 $323,852 $284,570 $245,737 $226,893
Loans Receivable, Net 316,216 257,869 233,554 207,384 189,876
Securities-Available for Sale 44,496 5,413 19,866 -- --
Securities-Held to Maturity -- 44,209 16,210 25,942 20,921
Cash and cash equivalents 7,072 6,400 6,604 5,337 7,780
Savings Deposits 254,723 233,805 236,736 212,996 211,407
FHLB Advances 66,900 24,200 23,800 12,200 --
Shareholders' Equity 52,282 61,908 20,963 17,448 12,827
Number of:
Real Estate Loans Outstanding 6,355 5,762 5,530 5,190 4,927
Deposit Accounts 30,440 25,466 20,435 17,928 17,987
Full Service Offices 9 8 8 7 7
SUMMARY OF OPERATIONS
Interest Income $26,591 $ 23,380 $20,770 $19,985 $20,540
------- -------- ------- ------- -------
Interest Expense 14,003 12,053 9,708 9,171 11,336
------- -------- ------- ------- -------
Net Interest Income 12,588 11,327 11,062 10,814 9,204
Provision for Loan Losses 300 360 577 183 521
------- -------- ------- ------- -------
Net Interest Income after
provision for Loan Losses 12,288 10,967 10,485 10,63 18,683
Non-Interest Income 1,852 1,029 844 992 830
SAIF Special Assessment 1,824
Other Non-Interest Expenses 8,616 6,405 5,414 4,812 4,583
------- -------- ------- ------- -------
Income Before Losses on Sales of
Securities and Income Taxes 3,700 5,591 5,915 6,811 4,930
Gain (Loss)on Sale of Securities 91 (819) -- -- --
Income Tax Expense 1,270 1,635 1,970 2,190 1,600
------- -------- ------- ------- -------
Net Income
Actual $ 2,521 $ 3,137 $ 3,945 $ 4,621 $ 3,330
=======
Before Special Assessment $ 3,725
=======
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS
<S> <C> <C> <C> <C> <C>
Ratio of Equity to Assets 13.8% 19.1% 7.4% 7.1% 5.7%
Book Value/Common Share $ 14.76 $ 14.63 N/A(1) N/A(1) N/A(1)
Dividends declared per Share $ .50 $ 0.25 N/A(1) N/A(1) N/A(1)
Earnings per Common Share
Actual $ 0.68 $ 0.46 N/A(1) N/A(1) N/A(1)
Before SAIF Special Assessment $ 1.00
Annualized Return on Average Assets
Actual 0.72% 1.04% 1.51% 1.96% 1.49%
Before SAIF Special Assessment 1.07%
Annualized Return on Average Equity
Actual 4.29% 7.87% 20.19% 31.13% 30.02%
Before SAIF Special Assessment 6.33%
Net Interest Margin 3.68% 3.84% 4.35% 4.76% 4.28%
Other Non-Interest Expenses/Avg Assets
Actual 3.00% 2.12% 2.07% 2.04% 2.05%
Before SAIF Special Assessment 2.48%
Other Non-Interest Income/Avg Assets 0.53% 0.34% 0.32% 0.42% 0.87%
Non-Performing loans/Loans (2) 0.17% 0.26% .35% .16% .50%
Allowance for Loan Losses/Loans (2) 1.00% 1.14% 1.18% 1.05% 1.09%
Dividend Payout Ratio
Actual 73.52% 54.35%
Before SAIF Special Assessment 50.00%
</TABLE>
(1) There were no shares outstanding prior to April 17, 1995
(2) Total loans before allowance for loan losses
2
<PAGE>
Business of the Bank
Teche Federal Savings Bank (the "Bank") attracts savings deposits from the
general public and uses such deposits primarily to originate loans secured by
first mortgages on owner-occupied, one- to four-family residences in its primary
market area. To a lesser extent, the Bank purchases loans and originates
residential construction, multi-family and commercial real estate loans and
consumer loans, and invests in mortgage-backed and investment securities.
It is the Bank's intention, subject to the Board of Directors' fiduciary duties,
to remain an independent community savings bank serving the local banking needs
of its primary market area, which presently includes nine full service offices
in the Louisiana Parishes of St. Mary, Iberia, Lafayette, St. Martin and
Terrebonne. Deposits at Teche Federal are insured up to the maximum legal amount
by the FDIC.
Business of the Company
Teche Holding Company (the "Company") is a Louisiana corporation organized in
December 1994 at the direction of the Board of Directors of the Bank to acquire
all of the capital stock that the Bank issued upon its conversion from the
mutual to stock form of organization (the "Conversion"). On April 17, 1995, the
Company completed the sale of 4,232,000 shares of common stock, $.10 par value
at $10.00 per share. Net proceeds of the Conversion, after recognizing
Conversion expenses and underwriting costs of $1.0 million were $38.0 million.
The Company used $20.6 million to purchase all of the capital stock of the
savings bank and $3.3 million to fund a loan for the purchase of 332,337 shares
of the Company's stock by the Employees Stock Ownership Plan.
During fiscal 1996 the Company completed two stock purchase programs in which
the company purchased 413,000 shares at an average price per share of $13.38 per
share. On August 7, 1996, the Company received the necessary approvals to
repurchase 382,000 shares, or 10% of the Company's Common Stock, of which
278,000 were purchased by September 30, 1996 at an average price of $13.00 per
share.
Summary of Quarterly Operating Results
<TABLE>
<CAPTION>
1996 1995
------------------------------ -----------------------------
First Second Third Fourth First Second Third Fourth
(Amounts in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest Income 2,975 $3,192 $3,198 $3,223 $2,630 $2,582 $3,052 $3,063
Provision for Loan Losses 75 75 75 75 90 90 90 90
Earnings(loss) before Income Taxes 1,388 1,332 1,515 (444) 490 1,253 1,643 1,386
Net Earnings(loss) 910 879 990 (258) 343 827 1,066 901
Net earnings(loss) per share
Actual 0.23 0.23 0.27 (0.08) N/A N/A .23 .23
Before Special Assessment 0.28
</TABLE>
Market and Dividend Information
Teche Holding Company's common stock trades on the American Stock Exchange under
the symbol "TSH". The following sets forth the high and low sale prices based on
reports from the American Stock Exchange, for the common stock from April 19,
1995 (the date the common stock began trading) through September 30, 1996:
<TABLE>
<CAPTION>
Quarter ended Sales Price Period End Close Date Declared Cash Dividend Declared
High Low
<S> <C> <C> <C> <C> <C>
June 30, 1995 $12.250 $11.375 $12.125 June 21, 1995 $0.125
September 30, 1995 $14.000 $11.750 $13.875 September 21, 1995 $0.125
December 31, 1995 $14.625 $13.250 $13.500 December 20, 1995 $0.125
March 31, 1996 $14.250 $13.000 $13.625 February 22, 1996 $0.125
June 30, 1996 $13.625 $12.625 $13.125 May 15, 1996 $0.125
September 30, 1996 $13.625 $12.000 $13.500 August 28, 1996 $0.125
</TABLE>
According to the records of the Company's transfer agent, there were 731
registered stockholders of record at November 25, 1996. This number does not
include any persons or entities who hold their stock in nominee or "street" name
through various brokerage firms.
3
<PAGE>
The Company's ability to pay dividends is substantially dependent upon the
dividends it receives from the Bank. Under current regulations, the Bank is not
permitted to pay dividends if its regulatory capital would thereby be reduced
below (1) the amount then required for the liquidation account established in
connection with the Bank's conversion from mutual to stock form, or (2) the
regulatory capital requirements imposed by the Office of Thrift Supervision
("OTS"). Capital distributions are also subject to certain limitations based on
the Bank's net income. See Notes 2 and 17 of notes to consolidated financial
statements. The Bank's total capital at September 30, 1996, exceeded the amounts
of its liquidation account and regulatory capital requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
General
The Company's consolidated results of operations are primarily dependent on the
Bank's net interest income, or the difference between the interest income earned
on its loan, mortgage-backed securities and investment securities portfolios,
and the interest expense paid on its savings deposits and other borrowings. Net
interest income is affected not only by the difference between the yields earned
on interest-earning assets and the costs incurred on interest-bearing
liabilities, but also by the relative amounts of such interest-earning assets
and interest-bearing liabilities.
Other components of net income include: provisions for losses on loans and other
assets; noninterest income (primarily, service charges on deposit accounts and
other fees; and gains and losses on investments activities); noninterest
expenses (primarily, compensation and employee benefits; deposit insurance
premiums; office occupancy expense; marketing expense; professional fees and
expenses associated with foreclosed real estate); and income taxes.
Earnings of the Company are significantly affected by economic, competitive, and
regulatory conditions, particularly changes in interest rates, and government
policies and regulations.
References to the "Bank" herein, unless the context requires otherwise, refer to
the Company on a consolidated basis.
Management Strategy
Management's strategy has been to maximize earnings and profitability through
steady growth while maintaining asset quality. The Bank's lending strategy has
historically focused on the origination of traditional one- to four-family
mortgage loans with the primary emphasis on single family residences in the
Bank's primary market area. This focus, because home mortgage lending is
typically considered to be one of the safer forms of lending, is designed to
reduce the risk of loss on the Bank's loan portfolio. However, the relative lack
of diversification in its loan portfolio structure does increase the Bank's
portfolio concentration and interest rate risk by making the value of the
portfolio relatively more susceptible to changing market rates of interest and
declines in real estate values in its market area. The Bank supplements its
lending operations with the purchase of loans, investments and mortgage-backed
securities.
Interest Rate Sensitivity Analysis
Net interest income, the primary component of the Bank's net income, is derived
from the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. The Bank has sought to manage its exposure to
changes in interest rates by monitoring the effective maturities or repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
The matching of the Bank's assets and liabilities may be analyzed by examining
the extent to which its assets and liabilities are interest rate sensitive and
by monitoring the expected effects of interest rate changes on its net interest
income and net portfolio value.
The ability to maximize net interest income is largely dependent upon achieving
a positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates. The Bank is exposed to interest rate risk as a result
of the difference in the maturity of interest-bearing liabilities and
interest-earning assets and the volatility of interest rates. Since most deposit
accounts react more quickly to market interest rate movements than do
traditional mortgage loans because of their shorter terms to maturity, increases
in interest rates may have an adverse effect on the Bank's earnings. Conversely,
this same mismatch will generally benefit the Bank's earnings during periods of
declining or stable interest rates.
4
<PAGE>
Teche Federal attempts to manage its interest rate exposure by shortening the
maturities of its interest-earning assets by emphasizing adjustable rate
mortgages ("ARMs"), originating shorter term loans such as residential
construction and consumer loans and the investment of excess liquidity in
purchased loans, adjustable rate mortgage-backed securities and other securities
with relatively short terms to maturity. Furthermore, Teche Federal works to
manage the interest rates it pays on deposits while maintaining a stable deposit
base and providing quality services to its customers. In recent years, the Bank
has increased its short-term borrowings while continuing to rely primarily upon
deposits as its source of funds. As of September 30, 1996 approximately $185.0
million of the Bank's gross loan portfolio consisted of fixed rate loans and
approximately $146.0 million had adjustable rates. Many of Teche Federal's ARM
loans have initial fixed terms of 3-10 years with annual adjustments after the
expiration of the initial period. At September 30, 1996, the weighted average
term to repricing of Teche Federal's ARM loan and mortgage-backed securities
portfolio was approximately 30 months. In contrast, $101.5 million of the Bank's
certificate accounts and $59.3 million of the Bank's regular deposit accounts
(e.g. NOW, money market, savings) out of $254.7 million of total deposits mature
or reprice within one year or less. Based on past experience, however,
management believes that much of the Bank's deposits will remain at the Bank.
Furthermore, the Bank has approximately $66.9 million in short-term borrowings
and $26.5 million in adjustable rate mortgage-backed securities and $8.6 million
in short-term investment securities.
Management believes that it has adequate capital to accept a certain degree of
interest rate risk. In accepting some interest rate risk, the Bank was able to
increase its net interest income in the low interest rate environment that
existed during earlier years. Should interest rates rise, management believes
the Bank's capital position will enable it to withstand such a negative impact
on earnings while the Bank adds higher yielding assets.
Analysis of Net Interest Income
Rate/Volume Analysis. The table below sets forth certain information regarding
changes in interest income and interest expense of the Bank for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); and (iii) the net change.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Year Ended September 30,
1996 vs 1995 1995 vs 1994
--------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Net Volume Rate Net
------ ---- ------ ------ --- ------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Securities(1) $ 519 $ 75 $ 594 $ 931 $ 1 $ 932
Loans receivable, net 3,089 (474) 2,615 2,150 (562) 1,588
Other interest-earning assets(2) 21 (19) 2 (2) 92 90
------ ---- ------ ------ --- ------
Total Interest Earning Assets 3,629 (418) 3,211 3,079 (469) 2,610
Interest-bearing liabilities
Deposits (57) 751 694 880 1,040 1,920
FHLB advances 1,303 (47) 1,256 37 388 425
------ ---- ------ ------ --- ------
Total interest-bearing liabilities 1,246 704 1,950 917 1,428 2,345
------ ---- ------ ------ --- ------
Net change in net interest in come $2,383 $(1,122) $1,261 $2,162 $(1,897) $ 265
====== ======= ====== ====== ======= ======
</TABLE>
(1) Includes investment and mortgage-backed securities held to maturity and
available for sale
(2) Includes certificates of deposit and other interest-bearing accounts.
Average Balance Sheet. The following table sets forth certain information
relating to the Company's average balance sheet and reflects the average yield
on assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expenses by the average balance of
assets or liabilities, respectively, for the periods presented. Average balances
are derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------------
1996 1995 1994
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
(Dollars in Thousands)
Assets
Interest Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities, Net (1) $53,072 $3,743 7.05% $45,702 $3,149 6.89% $30,822 $2,217 7.19%
Loans receivable (3)(6) 283,962 22,702 7.99 245,567 20,087 8.18 219,393 18,499 8.43
Other Interest-earning assets (2) 4,724 146 3.09 4,072 144 3.54 4,213 54 1.28
------- ------- ------ ------- ------- ------ ------- ------- ------
Total interest-earning assets 341,758 $26,591 7.78% 295,341 $23,380 7.92% 254,428 $20,770 8.16%
======= ======= =======
Non-interest earning assets 6,543 7,385 6,830
-------- -------- --------
Total assets $348,301 $302,726 $261,258
======== ======== ========
Liabilities and Equity
Interest-bearing Liabilities
NOW accounts $20,347 $320 1.57% $19,235 $202 1.05% $10,096 $148 1.47%
Statement & regular
savings account 25,815 708 2.74 32,901 900 2.74 36,771 1,046 2.84
Money funds accounts 10,615 391 3.68 12,847 479 3.73 15,963 491 3.08
Certificates of Deposit 182,518 10,240 5.61 175,571 9,384 5.34 157,276 7,360 4.68
------- ------- ------- ------- ------- -------
Total Deposits 239,295 11,659 4.87 240,554 10,965 4.56 220,106 9,045 4.11
FHLB advances 42,405 2,344 5.53 18,842 1,088 5.77 17,900 663 3.70
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 281,700 $14,003 4.97 259,396 $12,053 4.65 238,006 $9,708 4.08
======= ======= =======
Non-interest-bearing liabilities 7,801 3,493 3,715
------- ------- -------
Total liabilities 289,501 262,889 241,721
Equity 58,800 39,837 19,537
------- ------- -------
Total liabilities and Equity $348,301 $302,726 $261,258
======== ======== ========
Net interest income/interest
rate spread (4) $12,588 2.81% $11,327 3.27% $11,062 4.08%
======= ======= =======
Net interest margin (5) 3.68% 3.84% 4.35%
Interest-earning assets/
Interest bearing liabilities 121.32% 113.86% 106.90%
</TABLE>
(1) Includes securities held to maturity and securities availa ble for sale and
unamortized discounts and premiums and FHLB stock
(2) Amount includes certificates of deposit and other interest-bearing deposits
(3) Amount is net of deferred loan fees, loan discounts and premiums,
loans-in-process and includes non-accruing loans.
(4) Interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
(6) Interest income includes loan fees of approximately $87,000 in 1996,
$180,000 in 1995, and $295,000 in 1994.
Changes in Financial Condition From September 30, 1995 to September 30, 1996
General. Total assets increased $55.7 million, or 17.2% to $379.6 million at
September 30, 1996 from $323.9 million at September 30, 1995, reflecting
increases in loans, deposits, and advances.
Investment Securities. Investment securities, including those available for sale
decreased $5.1 million in fiscal 1996 as compared to fiscal 1995. The decrease
was primarily due to maturities during the year and management's decision to
invest the proceeds in its loan portfolio. Furthermore, in fiscal 1996,
securities available for sale increased $39.1 million while securities held to
maturity decreased $44.2 million. These changes were primarily due to a
reclassification of securities in accordance with changes in accounting
policies. See Note 4 of Notes to the Consolidated Financial Statements.
6
<PAGE>
Mortgage-backed Securities. The Bank's investment in mortgage-backed securities,
including those available for sale, increased $4.0 million $28.1 million at
September 30, 1995 to $32.1 million at September 30, 1996, due to purchases of
$12.1 million offset somewhat by repayments of $8.4 million.
Loans Receivable, Net. The Bank's net loans receivable increased $58.3 million
or 22.6% to $316.2 million from $257.9 million at September 30, 1995 due
primarily to originations of $97.3 million in fiscal 1996 caused by increased
demand for mortgage loans in Teche Federal's primary market.
Deposits. The Bank's deposits, after interest credited, increased $20.9 million
or 8.9%, to $254.7 million at September 30, 1996 from $233.8 million at
September 30, 1995 primarily due to increases in certificates and checking
account balances offset somewhat by decreases in savings and money market
account balances.
Advances From FHLB. Advances from the Federal Home Loan Bank of Dallas increased
$42.7 million to $66.9 from $24.2 million at September 30, 1995, in order to
fund loan demand.
Stockholders' Equity. Stockholders' equity decreased $9.6 million, from $61.9
million at September 30, 1995 to $52.3 million at September 30, 1996, due
primarily to stock repurchases of approximately 691,000 shares of the Company's
Common Stock.
Comparison of Operating Results for Years Ended September 30, 1994, 1995 and
1996
Analysis of Net Income
General. The Bank reported net income of $2.5 million, $3.1 million and $3.9
million for fiscal 1996, 1995 and 1994, respectively. The $616,000 or 19.6%
decrease in fiscal 1996 was primarily due to the one time special assessment of
$1.8 million ($1.2 million net of income taxes) as a result of legislation
enacted on September 30,1996 to recapitalize the Savings Association Insurance
Fund ("SAIF"). The decrease of $808,000 or 20.5% during fiscal 1995 compared to
fiscal 1994 was caused primarily by the loss on the sale of securities of
$819,000 in December 1994.
Interest Income. Interest income amounted to $26.6 million, $23.4 million and
$20.8 million for the years ended 1996, 1995 and 1994, respectively. The $3.2
million or 13.7% increase in fiscal 1996 was primarily due to increased loans.
The $2.6 million, or 12.6% increase in 1995 as compared to 1994 was primarily
due to a $40.9 million increase in the average balance of interest earning
assets primarily caused by the receipt of net proceeds from common stock in the
Conversion despite a 24 basis point decrease in the average yield due to the net
proceeds being initially invested in short term, lower yielding investments.
Interest Expense. Interest expense totalled $14.0 million, $12.1 million and
$9.7 million for the years ended September 1996, 1995 and 1994, respectively.
Interest expense increased $2 million or 16.2% in fiscal 1996 due primarily to
increased balances and rates paid on deposits coupled with a significant
increase in the average balance of advances. Interest expense increased $2.3
million or 24.2% in fiscal 1995 primarily due to an increase in market rates of
interest and a $20.4 million increase in the average balance of deposits,
particularly higher costing certificate accounts.
Net Interest Income. Net interest income amounted to $12.6 million, $11.3
million and $11.1 million for the years ended September 30, 1996, 1995 and 1994,
respectively. The increase of $1.3 million or 11.1% in fiscal 1996 was primarily
due to increased loan balances during the year. The increase of $265,000, or
2.4%, from fiscal 1994 to fiscal 1995 was primarily due to the increase in
interest income compared to the lesser increase in interest expense. The
increase in interest income was attributable to an increase in interest-earning
assets resulting primarily from the increase in loans and the investment of the
net proceeds of $38.0 million from the Company's stock offering in fiscal 1995,
along with advances from the Federal Home Loan Bank.
Provision for Loan Losses. The Bank provided $300,000, $360,000, and $577,000
for the years ended September 30, 1996, 1995 and 1994, respectively. The
allowance for loan losses was $2,966,000 at 1995 fiscal year end and $3,182,000
at 1996 fiscal year end. The decrease in the provision for loan losses in both
fiscal 1996 and fiscal 1995 resulted from management's evaluation of the
adequacy of the allowance for loan losses.
7
<PAGE>
While the Bank maintains its allowance for losses at a level which it considers
to be adequate to provide for potential losses, there can be no assurance that
further additions will not be made to the loss allowances and that such losses
will not exceed the estimated amounts. See Note 1 of Notes to Consolidated
Financial Statements.
Non-Interest Income. Non-interest income during the years ended September 30,
1996, 1995 and 1994 amounted to $1.85 million, $1.03 million and $844,000. The
increase in fiscal 1996 was due to, increased fee income and the sale of an
unused branch site. The increase in fiscal 1995 was primarily due to new
products offered by the Bank.
Non-Interest Expense. Absent the one-time SAIF special assessment in fiscal
1996, non-interest expense increased steadily over the three periods, totalling
$8.6 million, $6.4 million, $5.4 million, during the years ended September 30,
1996, 1995 and 1994. The increases in both fiscal 1996 and 1995 were due to
continued expansion of office facilities, increased marketing expenses,
increased investment in new technology and increased costs due to being a public
company and higher compensation expense, including the cost of stock benefit
plans adopted in connection which the Bank's mutual to stock conversion and
company growth. It is expected that the ESOP will be expensed over 10 years. The
principal component of non-interest expense, compensation and employee benefits,
remained relatively stable between fiscal 1994 and 1993. Other operating
expenses increased from $1.1 million to $1.4 million for the years ended
September 30, 1995 and 1996, respectively.
The Bank's deposits are insured up to the legal maximum by the SAIF as
administered by the FDIC. In the past, SAIF members have paid an annual
insurance premium of between .23% and .31% of total deposits held. On the other
hand, a vast majority of the members of the Bank Insurance Fund ("BIF"),
primarily commercial banks, paid insurance premiums at or near the legal minimum
of $2,000 per year. Recently passed legislation required the FDIC to impose a
one-time assessment on all members of the SAIF in order to recapitalize the SAIF
to its federally mandated level of 1.25%. The assessment equalled approximately
.65% of an institution's domestic deposits as of March 31, 1995 and was
approximately $1.2 million net of taxes for the Bank. It is anticipated that
future SAIF premiums will be lowered, which will reduce somewhat the competitive
advantage commercial banks have had regarding deposit insurance premiums.
Gain on Sale of Securities. In the year ended September 30, 1996, gain on the
sale of securities amounted to $91,000. In fiscal 1995, the Bank sold $14.7
million of securities available for sale as part of management's effort to
restructure its balance sheet to help control the Bank's interest rate risk,
which sale resulted in a loss of $819,000.
Income Tax Expense. For the years ended September 30, 1996, 1995 and 1994, the
Bank incurred income tax expense of $1.3 million, $1.6 million, and $2.0
million, respectively. The varying amounts were caused primarily by the varied
pre-tax income of the Bank.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of "liquid assets," as defined
by the OTS regulations. This requirement, which may be varied from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required minimum ratio is currently 5
percent. The Bank's average liquidity ratio was approximately 6 percent during
the month of September 1996. The Bank manages its average liquidity ratio to
meet its funding needs, including: deposit outflows; disbursement of payments
collected from borrowers for taxes and insurance; repayment of Federal Home Loan
Bank advances and other borrowings; and loan principal disbursements. The Bank
also monitors its liquidity position in accordance with its asset/liability
management objectives.
In addition to funds provided from operations, the Bank's primary sources of
funds are: savings deposits; principal repayments on loans and mortgage-backed
securities; and matured or called investment securities. The Bank also borrows
funds from time to time from the Federal Home Loan Bank of Dallas (the "FHLB").
Scheduled loan repayments and maturing investment securities are a relatively
predictable source of funds. However, saving deposit flows and prepayments on
loans and mortgage-backed securities are significantly influenced by changes in
market interest rates, economic conditions and competition. The Bank strives to
manage the pricing of its deposits to maintain a balanced stream of cash flows
commensurate with its loan commitments and other predictable funding needs.
8
<PAGE>
The Bank usually maintains a portion of its cash on hand in interest-bearing
demand deposits with the FHLB to meet immediate loan commitment and savings
withdrawal funding requirements. When applicable, cash in excess of immediate
funding needs is invested into longer-term investment and mortgage-backed
securities, some of which may also qualify as liquid investments under current
OTS regulations.
The Bank has other sources of liquidity if a need for additional funds arises,
such as FHLB of Dallas advances and the ability to borrow against
mortgage-backed and other securities. On September 30, 1996, the Bank had total
FHLB borrowings of $66.9 million, or 17.6% of the Bank's assets.
Management believes the Bank has sufficient resources available to meet its
foreseeable funding requirements. At September 30, 1996, the Bank had
outstanding loan commitments of $18.7 million, and certificates of deposit
scheduled to mature within one year of $101.5 million, substantially all of
which management expects, based on past experience, will remain with the Bank.
Regulations of the OTS require the Bank to meet or exceed three separate
standards of capital adequacy. These regulations require savings institutions to
have minimum tangible capital equal to 1.50 percent of total adjusted assets;
minimum core capital equal to 3.00 percent of total adjusted assets; and
risk-based capital equal to 8.00 percent of total risk-weighted assets. At
September 30, 1996, Teche Federal exceeded all regulatory capital requirements.
See Note 17 of Notes to Consolidated Financial Statements.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with Generally
Accepted Accounting Principles, 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 and
due to inflation. The impact of inflation is reflected in the increased cost of
the Bank's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Bank are financial. As a result, interest rates have a
greater impact on the Bank'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.
9
<PAGE>
10
<PAGE>
Deloite &
Touche LLP
- ---------- ---------------------------------------------------------
[LOGO] Suite 3700 Telephone:(504)581-2727
One Shell Square Facsimile:(504)561-7293
701 Polydras Street
New Orleans, Louisiana 70139-3700
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Teche Holding Company
Franklin, Louisiana
We have audited the accompanying consolidated balance sheets of Teche Holding
Company and subsidiary as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Teche Holding Company and
subsidiary as of September 30, 1996 and 1995, 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.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
October 31, 1996
- ---------------
Deloitte Touche
Tohmatsu
International
- -------------
11
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
Cash and cash equivalents $ 7,072 $ 6,400
Certificates of deposit 914 590
Securities available-for-sale, at estimated market
value (amortized cost of $43,960 in 1996 and $5,310 in 1995) 44,496 5,413
Securities held-to-maturity (estimated
market value of $45,312 in 1995) -- 44,209
Loans receivable, net of allowance for loan losses of
$3,182 in 1996 and $2,966 in 1995 316,216 257,869
Accrued interest receivable 1,868 1,752
Investment in Federal Home Loan Bank stock, at cost 3,703 2,671
Real estate owned, net 46 253
Prepaid expenses and other assets 783 560
Premises and equipment, at cost less accumulated depreciation 4,492 4,135
--------- ---------
TOTAL ASSETS $ 379,590 $ 323,852
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 254,723 $ 233,805
Advances from Federal Home Loan Bank 66,900 24,200
Advance payments by borrowers for taxes and insurance 1,923 1,935
Accrued interest payable 283 327
Accounts payable and other liabilities 1,595 736
SAIF special assessment 1,824 --
Deferred income taxes 60 454
Dividends payable -- 487
--------- ---------
Total liabilities 327,308 261,944
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares authorized;
4,232,000 shares issued 42 42
Preferred stock, 5,000,000 shares authorized, none issued -- --
Additional paid-in capital 41,436 41,324
Retained earnings 24,250 23,555
Unearned ESOP shares (2,751) (3,083)
Unearned Compensation (MSP) (1,900) --
Treasury stock - 691,000 shares, at cost (9,149) --
Unrealized gain on securities available-for-sale, net
of deferred income taxes 354 70
Total stockholders' equity 52,282 61,908
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 379,590 $ 323,852
========= =========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on loans $ 22,702 $ 20,087 $ 18,499
Interest and dividends on investment securities 1,699 1,814 1,746
Interest on mortgage backed securities 2,044 1,335 471
Other interest income 146 144 54
----------- ----------- -----------
26,591 23,380 20,770
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 11,659 10,965 9,045
Advances from Federal Home Loan Bank 2,344 1,088 663
----------- ----------- -----------
14,003 12,053 9,708
----------- ----------- -----------
NET INTEREST INCOME 12,588 11,327 11,062
PROVISION FOR LOAN LOSSES 300 360 577
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,288 10,967 10,485
----------- ----------- -----------
NON-INTEREST INCOME:
Service charges 1,477 895 535
Gain on sale of real estate owned 19 37 158
Other income 356 97 151
----------- ----------- -----------
Total non-interest income 1,852 1,029 844
----------- ----------- -----------
GAIN (LOSS) ON SALE OF SECURITIES 91 (819) --
----------- ----------- -----------
NON-INTEREST EXPENSE:
Compensation and employee benefits 4,272 3,261 2,501
Occupancy, equipment and data processing expense 1,477 1,141 978
Marketing 580 403 344
SAIF deposit insurance premiums 543 532 494
SAIF special assessment 1,824 -- --
Louisiana shares tax 387 -- --
Other operating expenses 1,357 1,068 1,097
----------- ----------- -----------
Total non-interest expense 10,440 6,405 5,414
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,791 4,772 5,915
INCOME TAXES 1,270 1,635 1,970
----------- ----------- -----------
NET INCOME $ 2,521 $ 3,137 $ 3,945
=========== =========== ===========
EARNINGS PER COMMON SHARE SINCE
CONVERSION $ .68 $ .46 N/A
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING
SINCE CONVERSION 3,730,000 3,910,000 N/A
========= =========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
------------- -------------- ------------
<S> <C> <C> <C>
BALANCE, October 1, 1993 $ - $ - $ 17,448
Net income 3,945
Unrealized loss on securities available-for-sale, net
------------- -------------- ------------
BALANCE, September 30, 1994 21,393
Issuance of common stock 42 41,258
Contribution to ESOP 66
Dividends declared - $.25 per share (975)
Net income 3,137
Unrealized gain on securities available-for-sale, net
------------- -------------- ------------
BALANCE, September 30, 1995 42 41,324 23,555
Contribution to ESOP 112
Purchase of stock for Management Stock Plan ("MSP")
Amortization of MSP
Purchase of common stock for treasury
Dividends declared - $.50 per share (1,826)
Net income 2,521
Unrealized gain on securities available-for-sale, net
------------- -------------- ------------
BALANCE, September 30, 1996 $ 42 $ 41,436 $ 24,250
============= ============== ============
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Unearned Unearned Securities
ESOP Compensation Treasury Available-
hares (MSP) Stock for-Sale, net Total
----------- --------------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, October 1, 1993 $ - $ - $ - $ - 17,448
Net income 3,945
Unrealized loss on securities available-for-sale, net (430) (430)
----------- --------------- ---------------- -------------- ----------
BALANCE, September 30, 1994 (430) 20,963
Issuance of common stock (3,323) 37,977
Contribution to ESOP 240 306
Dividends declared - $.25 per share (975)
Net income 3,137
Unrealized gain on securities available-for-sale, net 500 500
----------- --------------- ---------------- -------------- ----------
BALANCE, September 30, 1995 (3,083) 70 61,908
Contribution to ESOP 332 444
Purchase of stock for Management Stock Plan ("MSP") (2,320) (2,320)
Amortization of MSP 420 420
Purchase of common stock for treasury (9,149) (9,149)
Dividends declared - $.50 per share (1,826)
Net income 2,521
Unrealized gain on securities available-for-sale, net 284 284
----------- --------------- ---------------- -------------- ----------
BALANCE, September 30, 1996 $ (2,751) $ (1,900) $ (9,149) $ 354 $ 52,282
=========== =============== ================ ============== ==========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,521 $ 3,137 $ 3,945
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 (657) (667) (574)
Provision for loan losses 300 360 577
ESOP expense 432 306 -
MSP expense 420 - -
Write-down of land - - 282
Deferred income taxes (394) 628 (200)
(Gain) loss on sale of securities (91) 819 -
Gain on sale of real estate owned (19) (37) (158)
Gain on sale of other real estate (149) - -
Depreciation 404 280 204
Accretion of deferred loan fees and other (87) (179) (295)
Accretion of discount on loans (194) (319) (450)
Change in accrued interest receivable (116) (100) (319)
Change in prepaid expenses and other assets (264) 35 71
Change in accrued interest payable (44) 80 83
Change in accounts payable and other liabilities 859 (255) (196)
SAIF special assessment payable 1,824 - -
Other - net (137) - -
-------- -------- --------
Net cash provided by operating activities 4,608 4,088 2,970
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
available-for-sale 10,300 - -
Proceeds from maturities of investment securities
held-to-maturity - 1,000 -
Proceeds from sale of investment securities
available-for-sale 1,100 12,458 -
Proceeds from sale of mortgage-backed securities
available-for-sale - 1,406 -
Purchase of investment securities available-for-sale (1,377) (200) -
Purchase of mortgage-backed securities
available-for-sale (12,075) - -
Purchase of investment securities held-to-maturity - (7,865) (5,800)
Purchase of mortgage-backed securities held-to-maturity - (22,028) (6,015)
Principal repayments on mortgaged-backed securities
available-for-sale 6,385 923 -
Principal repayments on mortgage backed securities
held-to-maturity 1,966 1,364 1,603
Net increase in certificates of deposit (324) - (590)
Loans originated, net of repayments (58,366) (24,350) (25,808)
Investment in FHLB stock (1,032) (559) (169)
Proceeds from sale of real estate 424 56 27
Purchase of premises and equipment (761) (1,557) (487)
-------- -------- --------
Net cash used in investing activities (53,760) (39,352) (37,239)
-------- -------- --------
</TABLE>
(Continued)
15
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offering -- 37,977 --
Dividends paid (2,313) (488) --
Net increase (decrease) in deposits 20,918 (2,931) 23,740
Net increase in FHLB advances 42,700 400 11,600
Purchase of common stock for MSP (2,320) -- --
Purchase of common stock for treasury (9,149) -- --
(Decrease) increase in advance payments by borrowers
for taxes and insurance (12) 102 196
-------- -------- --------
Net cash provided by financing activities 49,824 35,060 35,536
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 672 (204) 1,267
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 6,400 6,604 5,337
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 7,072 $ 6,400 $ 6,604
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 14,047 $ 11,973 $ 9,625
======== ======== ========
Income taxes paid $ 1,690 $ 1,135 $ 1,919
======== ======= ========
Investing activities not requiring the outflow
of cash:
Additions to real estate owned $ 51 $ 233 $ 46
======== ======= ========
Reclassification of securities from held-to-maturity
to available-for-sale $ 42,000 $ -- $ 20,519
======== ======= ========
</TABLE>
16
See notes to consolidated financial statements.
(Concluded)
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are described below.
Principles of Consolidation - The consolidated financial statements include
the accounts of Teche Holding Company and its wholly-owned subsidiary,
Teche Federal Savings Bank (collectively "the Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company is a retail savings bank which attracts deposits
from the general public and uses such deposits primarily to originate loans
secured by first mortgages on owner-occupied, family residences.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - Cash and cash equivalents comprise cash and
non-interest bearing demand deposits with other financial institutions
(approximating $1,922,000 and $1,697,000 at September 30, 1996 and 1995,
respectively), and interest bearing demand deposits with other financial
institutions (approximating $5,150,000 and $4,703,000 at September 30, 1996
and 1995, respectively).
Securities - Securities designated as held-to-maturity are stated at cost
adjusted for amortization of the related premiums and accretion of
discounts, computed using the level yield method. The Company has the
positive intent and ability to hold these securities to maturity.
Securities designated as available-for-sale are stated at estimated market
value. Unrealized gains and losses are aggregated and reported as a
separate component of stockholders' equity, net of deferred income taxes.
These securities are acquired with the intent to hold them to maturity, but
they are available for disposal in the event of unforeseen liquidity needs.
Gains and losses on security transactions are determined on the specific
identification method. The related income tax expense (benefit) on
securities gains (losses) was $7,000 and ($280,000) in the years ended
September 30, 1996 and 1995, respectively.
Loans Receivable - Loans receivable are stated at the unpaid principal
balances, less the allowance for loan losses and net deferred loan fees,
and unearned discount. Unearned discount relates principally to installment
loans. Interest on loans is credited to operations based on the principal
amount outstanding using the interest method.
When the payment of principal or interest on a loan is delinquent for 90
days, or earlier in some cases, the loan is placed on non-accrual status.
When a loan is placed on non-accrual status, interest accrued during the
current year prior to the judgment of uncollectibility is charged to
operations. Interest accrued during prior periods is charged to the
allowance for loan losses. Loans are returned to an accruing status only as
17
<PAGE>
payments are received and if collection of all principal and interest is
not in doubt. If doubt exists, any payments received on such non-accrual
loans are applied first to outstanding loan amounts and next to the
recovery of charged-off loan amounts. Any excess is treated as recovery of
lost interest.
Allowance for Loan Losses - The allowance for loan losses is a valuation
allowance available for losses incurred on loans. Any losses are charged to
the allowance for loan losses when the loss actually occurs or when a
determination is made that a loss is likely to occur. Recoveries are
credited to the allowance at the time of recovery.
Periodically during the year management 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 to the provision for loan losses and credited to the
allowance for loan losses in order to adjust the allowance to a level
determined to be adequate to absorb such 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.
It should be understood that estimates of loan losses involve an exercise
of judgment. While it is possible that in particular periods the Company
may sustain losses which are substantial relative to the allowance for loan
losses, it is the judgment of management that the allowance for loan losses
reflected in the consolidated balance sheets is adequate to absorb possible
losses in the existing loan portfolio.
Loan Fees, Loan Costs, Discounts and Premiums - Loan origination and
commitment fees, and certain direct loan origination costs are deferred and
amortized as an adjustment to the related loan's yield using the interest
method over the contractual life of the loan.
Discounts received in connection with mortgage loans purchased are
amortized to income over the contractual term of the loan using the
interest method. These discounts have been deducted from the related loan
balances.
Premises and Equipment - The Company computes depreciation generally on the
straight-line method for both financial reporting and federal income tax
purposes. The estimated useful lives used to compute depreciation are:
buildings and improvements, twenty to forty years; and furniture, fixtures
and equipment, three to ten years.
Real Estate Owned - Real estate acquired through, or in lieu of,
foreclosure is initially recorded at the fair value at the time of
foreclosure, less estimated cost to dispose, and any related writedown is
charged to the allowance for loan losses. The fair values have not exceeded
the balances of the related loans. Valuations are periodically performed by
management and provisions for estimated losses on real estate owned are
charged to operations when any significant and permanent decline reduces
the fair value, less sales costs, to less than the carrying value. The
ability of the Company to recover the carrying value of real estate is
based upon future sales of the real estate owned. The ability to effect
such sales is subject to market conditions and other factors, many of which
are beyond the Company's control. Operating income of such properties, net
of related expenses, and gains and losses on their disposition are included
in the accompanying consolidated statements of income.
Income Taxes - Income taxes were accounted for using the liability method
in 1996 and 1995. In prior years, income taxes were accounted for using the
deferred method.
18
<PAGE>
Earnings Per Share - Earnings per share for the year ended September 30,
1996 was calculated by dividing net earnings for the year by the average
shares outstanding during the year net of treasury shares. Earnings per
share for the year ended September 30, 1995 was calculated by dividing the
net earnings for the period from April 17, 1995 (date of conversion) to
September 30, 1995 of $1,791,000 by the average shares outstanding during
that same period of 3,910,000 shares. The Company accounts for the shares
acquired by the ESOP in accordance with Statement of Position 93-6 and,
therefore, shares controlled by the ESOP are not considered in the weighted
average shares outstanding until the shares are committed for allocation to
an employee's individual account. The effect of the assumed exercise of
stock options was not significant.
Reclassifications - Certain reclassifications have been made to the prior
years finanical statements in order to conform to the classifications
adopted for reporting in 1996.
2. CONVERSION FROM MUTUAL SAVINGS BANK TO STOCK SAVINGS BANK AND FORMATION OF
TECHE HOLDING COMPANY
On April 17, 1995, the Teche Federal Savings Bank converted 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, Teche Holding Company sold 4,232,000
shares of common stock which, after giving effect to offering expenses of
$1.0 million and 332,337 shares issued to the Employee Stock Ownership Plan
("ESOP"), resulted in net proceeds of $38.0 million. Pursuant to the
Conversion, Teche Federal Savings Bank transferred all of its outstanding
shares to Teche Holding Company, in exchange for 50% of the net proceeds.
This business combination has been accounted for at historical cost in a
manner similar to the accounting method known as the "pooling of interests"
method.
At the time of Conversion, Teche Federal Savings Bank segregated and
restricted approximately $23,000,000 of retained earnings, in a liquidation
account for the benefit of eligible account holders who continue to
maintain their deposit accounts in Teche Federal Savings Bank after
conversion. In the event of a complete liquidation of Teche Federal Savings
Bank (and only in such an event), eligible depositors who continue to
maintain accounts shall be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
balances of all qualifying deposits then held. The liquidation account will
be reduced annually to the extent that eligible account holders have
reduced their qualifying deposits.
Subsequent to the Conversion, the Company or Teche Federal Savings Bank may
not declare or pay a cash dividend on any of its shares of common stock if
the effect would reduce stockholders' equity below either the amount
required for the liquidation account discussed above or the applicable
regulatory capital requirements, or if such declaration and payment would
otherwise violate regulatory requirements.
3. INTEREST RATE RISK
The Company is engaged principally in providing first mortgage loans to
individuals. At September 30, 1996 the Company had interest earning assets
of approximately $370,000,000, most of which will not mature or be repriced
until after five years. Interest bearing liabilities totaled approximately
$322,000,000, most of which will mature or can be repriced within one year.
The shorter duration of interest-sensitive liabilities indicates that in a
rising rate environment the Company is exposed to interest rate risk
because liabilities may be repricing faster at higher interest rates,
thereby reducing the market value of long-term assets and net interest
income. In a falling rate environment the market value of long-term assets
and net interest income may be increased.
19
<PAGE>
4. SECURITIES
Beginning September 30, 1994, in accordance with Statement of Financial
Accounting Standard No. 115 ("FAS No. 115"), the Company began designating
as available-for-sale certain securities that might be sold prior to their
contractual maturity. These securities are reported at fair value in the
consolidated balance sheets with unrealized gains and losses listed as a
separate component of stockholders' equity, net of deferred income taxes.
At September 30, 1994, the Company reclassified securities with an
unamortized cost of approximately $20,519,000 and an unrealized loss of
approximately $653,000 ($430,000 net of income taxes) from securities
held-to-maturity to securities available-for-sale.
The amortized cost and estimated market values of securities
available-for-sale are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1996
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
<S> <C> <C> <C> <C>
Common stock $ 568 $ 101 $ -- $ 669
Obligations of U.S. government
corporations and obligations 11,266 196 -- 11,462
Municipal obligations 264 2 -- 266
------- ------- ------- -------
12,098 299 -- 12,397
------- ------- ------- -------
Mortgage-backed securities:
Government National Mortgage
Corporation 1,389 80 -- 1,469
Federal Home Loan Mortgage
Corporation 9,891 111 50 9,952
Federal National Mortgage
Association 20,582 259 163 20,678
------- ------- ------- -------
31,862 450 213 32,099
------- ------- ------- -------
$43,960 $ 749 $ 213 $44,496
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment securities:
<S> <C> <C> <C> <C>
Common stock $ 200 $ -- $ -- $ 200
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation 5,110 103 -- 5,213
------ ------ ---- ------
$5,310 $ 103 $ -- $5,413
====== ====== ==== ======
</TABLE>
20
<PAGE>
The amortized cost and estimated market values of securities
available-for-sale are as follows (in thousands):
Estimated
Amortized Market
Cost Value
Investment securities:
Due in one year or less $ 8,354 $ 8,570
Due after one year through five years 3,744 3,827
Mortgage-backed securities 31,862 32,099
------- -------
$43,960 $44,496
======= =======
The amortized cost and estimated market values of securities
held-to-maturity are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment securities:
Obligations of U.S. government
corporations and agencies $20,927 $ 1,204 $ 683 $21,448
Municipal obligations 372 -- -- 372
------- ------- ------- -------
21,299 1,204 683 21,820
------- ------- ------- -------
Mortgage-backed securities:
Government National Mortgage
Corporation 1,740 104 -- 1,844
Federal Home Loan Mortgage
Corporation 2,435 13 3 2,445
Federal National Mortgage
Association 18,735 518 50 19,203
------- ------- ------- -------
22,910 635 53 23,492
------- ------- ------- -------
$44,209 $ 1,839 $ 736 $45,312
======= ======= ======= =======
</TABLE>
Gross gains of $91,000 were realized on sales of securities in the year
ended September 30, 1996.
Gross gains of $25,000 and gross losses of $844,000 were realized on sales
of securities in the year ended September 30, 1995.
At September 30, 1996 securities with a cost of approximately $40,000,000
were pledged to secure deposits and advances from the Federal Home Loan
Bank as required or permitted by law.
On November 15, 1995, the Financial Accounting Standards Board issued
implementation guidance with respect to FAS No. 115. 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 Company reclassified securities with an
amortized cost of approximately $42,000,000 and an unrealized gain of
approximately $1,018,000 ($672,000 net of income taxes) from securities
held-to-maturity to securities available-for-sale.
21
<PAGE>
5. LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
September 30,
--------------------
1996 1995
Residential real estate mortgage loans:
One-to-four family units $288,109 $234,329
Multi-family 3,006 2,871
Land loans 2,844 2,288
Construction loans 13,740 8,097
Non-residential real estate loans 7,346 7,540
Loans on savings accounts 5,657 6,260
Other 10,343 6,441
-------- --------
331,045 267,826
Less:
Allowance for loan losses 3,182 2,966
Deferred loan fees 1,122 1,266
Undisbursed portion of loans in process 10,525 5,725
-------- --------
$316,216 $257,869
======== ========
Changes in the allowance for loan losses are as follows (in thousands):
Year Ended
September 30,
------------------------------
1996 1995 1994
Beginning balance, October 1 $ 2,966 $ 2,778 $ 2,193
Provision charged to operating expense 300 360 577
Recoveries 3 13 105
Loans charged off (87) (185) (97)
------- ------- -------
Ending balance, September 30 $ 3,182 $ 2,966 $ 2,778
======= ======= =======
Substantially all of the Company's loans receivable are with customers in
southern Louisiana.
At September 30, 1996 and 1995 there were unamortized discounts on loans
purchased of approximately $1,400,000 and $1,590,000, respectively. These
unamortized discounts have been deducted from the related loan balances in
the table above.
The amount of nonaccrual loans at September 30, 1996 and 1995 was not
significant. The amount of interest not accrued on these loans did not have
a significant effect on net income in 1996, 1995 or 1994.
22
<PAGE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of
Certain Loans, which requires that the present value of expected future
cash flows of impaired loans be discounted at the loan's effective interest
rate. The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures, which allows a
creditor to use existing methods for recognizing interest income on
impaired loans. The adoption of these Statements in 1996 did not have a
significant effect on the Company's financial condition or results of
operations.
6. REAL ESTATE OWNED
Real estate owned consisted of the following (in thousands):
September 30,
---------------
1996 1995
Real estate acquired through foreclosure $ 154 $ 384
Less allowance for losses (108) (131)
----- -----
Real estate owned, net $ 46 $ 253
===== =====
Changes in the allowance for losses on real estate owned are as follows (in
thousands):
Year Ended
September 30,
------------------------
1996 1995 1994
Beginning balance, October 1 $ 131 $ 163 $ 186
Provision charged to operating expense -- -- --
Allowance related to real estate sold (23) (32) (23)
----- ----- -----
Ending balance, September 30 $ 108 $ 131 $ 163
===== ===== =====
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
September 30,
------------------
1996 1995
Land $ 1,119 $ 1,003
Buildings and improvements 3,124 3,046
Furniture, fixtures and equipment 3,142 2,615
------- -------
7,385 6,664
Less accumulated depreciation (2,893) (2,529)
------- -------
$ 4,492 $ 4,135
======= =======
23
<PAGE>
8. DEPOSITS
Deposits are summarized as follows (in thousands):
September 30,
-------------------
1996 1995
NOW accounts $ 24,222 $ 18,374
Passbook and
regular savings 25,306 26,723
Money funds accounts 9,746 10,483
Certificates of deposit 195,449 178,225
-------- --------
$254,723 $233,805
======== ========
Certificates of deposit of $100,000 and over amounted to $46,600,000 and
$41,000,000 at September 30, 1996 and 1995, respectively.
Certificates of deposits at September 30, 1996, mature as follows (in
thousands):
Less than one year $101,464
1-2 years 58,504
2-3 years 14,390
3-4 years 11,271
4-5 years 7,828
over 5 years 1,992
--------
TOTAL $195,449
========
9. ADVANCES FROM FEDERAL HOME LOAN BANK AND CASH RESERVE
REQUIREMENTS
At September 30, 1996 the Company was indebted to the Federal Home Loan
Bank (FHLB) for $64,510,000 of advances bearing interest at an average rate
of 5.39% which were due October 4, 1996 and $2,390,000 of advances bearing
interest at an average rate of 5.36% which were due between October 1, 1996
and October 8, 1996. These advances were renewed upon maturity.
At September 30, 1995, the Company was indebted to the FHLB for $7,200,000
and $500,000 advances due October 2, 1995 bearing interest rates of 5.57%
and 5.83%, respectively, and $15,000,000 and $1,500,000 advances due
October 3, 1995 bearing interest rates of 5.7% and 5.76%, respectively.
These advances were renewed upon maturity.
The Company is required to maintain certain cash reserves relating to its
deposit liabilities. This requirement is ordinarily satisfied by cash on
hand.
24
<PAGE>
10. INCOME TAXES
The Company is permitted under the Internal Revenue Code to deduct an
annual addition to an allowance for bad debts in determining taxable
income, subject to certain limitations. The Company has generally used the
percentage of taxable income method to calculate this addition. This
addition differs from the bad debt experience used for financial accounting
purposes. Bad debt deductions for income tax purposes are included in
taxable income of later years only if the bad debt reserve is used
subsequently for purposes other than to absorb bad debt losses. Because the
Company does not intend to use the reserve for purposes other than to
absorb bad debt losses, no deferred income taxes have been provided on that
portion which existed as of September 30, 1988. At September 30, 1996,
retained earnings included approximately $4,200,000 representing such bad
debt deductions for which no deferred income taxes have been provided.
During the year ended September 30, 1996 legislation was enacted which
eliminates the use of the percentage of taxable income method to calculate
the addition to the allowance for bad debts for income tax purposes. This
is effective October 1, 1996 with respect to the Company. In addition the
legislation requires that the Company include in taxable income the
allowance established subsequent to September 30, 1988. This allowance
amounted to approximately $2,800,000 at September 30, 1996 and will be
included in taxable income in annual installments of approximately $470,000
beginning October 1, 1998. As the taxes with respect to this allowance are
paid they will be added to deferred tax assets and, therefore, the payment
of these taxes should have no significant effect upon the Company's results
of operations.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of September 30, 1996 and 1995 are as follows (in thousands):
1996 1995
Deferred tax assets:
SAIF special assessment-deductible in 1997 $ 620 $--
MSP expense-deductible in 1997 143 --
Allowance for loan losses -- 23
Deferred loan fees and costs, net -- 36
Other 65 90
----- -----
Total deferred tax assets 828 149
----- -----
Deferred tax liabilities:
Deferred loan fees and costs, net 136 --
Allowance for loan losses 6 --
Tax over book depreciation 114 74
Dividends on FHLB stock 281 220
Unrealized gain on securities available-for-sale 182 35
Other 169 274
----- -----
Total deferred tax liabilities 888 603
----- -----
Net deferred tax liabilities $ (60) $(454)
===== =====
25
<PAGE>
The components of income taxes are as follows (in thousands):
Year Ended
September 30,
------------------------------
1996 1995 1994
Currently payable $ 1,664 $ 1,044 $ 2,170
Deferred (394) 591 (200)
------- ------- -------
$ 1,270 $ 1,635 $ 1,970
======= ======= =======
Income taxes differ from the amounts computed by applying the U.S. Federal
income tax rate of 34% to earnings before income taxes. The reasons for
these differences are as follows (in thousands):
Year Ended
September 30,
-----------------------------
1996 1995 1994
Taxes computed at statutory rates $ 1,289 $ 1,622 $ 2,011
Increase (decrease) in taxes due to
miscellaneous items (19) 13 (41)
------- ------- -------
$ 1,270 $ 1,635 $ 1,970
======= ======= =======
Actual tax rate 34 % 34 % 33 %
== == ==
11. NON-INTEREST EXPENSE
Occupancy, equipment and data processing expenses consisted of the
following:
Year Ended
September 30,
---------------------------
1996 1995 1994
Occupancy, including depreciation, insurance,
rent, utilities, etc $ 571 $ 425 $ 368
Equipment, including depreciation, telephone, etc 523 396 358
Data processing 383 320 252
------ ------ ------
$1,477 $1,141 $ 978
====== ====== ======
Other operating expenses consisted of the following (in thousands):
Year Ended
September 30,
------------------------
1996 1995 1994
Stationary, printing and postage $ 392 $ 331 $ 223
Write-down of land -- -- 282
Other 965 737 592
------ ------ ------
$1,357 $1,068 $1,097
====== ====== ======
26
<PAGE>
12. RETIREMENT PLAN
The Company participates in a defined benefit multi-employer retirement
plan which covers substantially all employees. The plan is administered by
the Financial Institutions Retirement Fund. Charges to operations under the
plan include normal cost. There were no required payments in the years
ended September 30, 1996, 1995 and 1994. The market value of the net assets
of the retirement fund exceeds the liability of the present value of
accrued benefits. No separate information regarding the Company's share of
the assets and liabilities of this plan is available.
13. EMPLOYEE STOCK PLANS
The Company maintains an ESOP for the benefit of Teche Federal Savings
Bank's employees who meet certain eligibility requirements. The ESOP Trust
acquired 332,337 shares of common stock in the Company's initial public
offering with proceeds from a loan from the Company. Teche Federal Savings
Bank makes cash contributions to the ESOP on a basis sufficient to enable
the ESOP to make the required loan payments to the Company.
The note payable referred to above bears interest at the prime rate
adjusted quarterly with interest payable quarterly and principal payable in
annual installments of at least $332,337. The loan is secured by the shares
of the stock purchased.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of principal paid in the year.
The Company accounts for its ESOP in accordance with Statement of Position
93-6. Accordingly, the shares pledged as collateral are reported as a
reduction of stockholders' equity in the consolidated balance sheets. 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 computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings and
dividends on unallocated ESOP shares are recorded as a reduction of debt.
Compensation expense related to the ESOP was $432,000 and $306,000 for the
years ended September 30, 1996 and 1995, respectively. Following is a
summary of shares held in the ESOP Trust as of September 30, 1996:
Shares released for allocation or committed to be released 57,234
Unreleased shares 275,103
Total ESOP shares 332,337
----------
Market value of unreleased shares at September 30, 1996 $4,487,000
==========
On October 25, 1995, the stockholders of the Company approved the Teche
Holding Company 1995 Stock Option Plan (the "Plan") under which options to
purchase 423,200 common shares were granted to executive employees and
directors of Teche Federal Savings Bank. The exercise price is equal to the
market price ($13.875 per share) on the date of grant and 20% of the
options are exercisable on the first anniversary date after the date of
grant and 20% annually thereafter. All unexercised options expire ten years
from the date of grant. All such options are outstanding at September 30,
1996.
On October 25, 1995, the stockholders of the Company approved the
Management Stock Plan ("MSP") under which restricted grants of 169,280
shares were made to executive employees and directors of Teche Federal
Savings Bank. Teche Federal Savings Bank acquired the Company's stock on
the open market for the benefit of the recipients. The recipients vest 20%
annually beginning October 25, 1995 as long as
27
<PAGE>
they remain as Teche Federal Savings Bank directors or employees. The Board
of Directors could terminate the MSP at anytime, and if it did so, any
nonvested shares would revert to the Company. The Company recognizes
compensation expense ratably over the vesting period and the cost of
unvested shares is reported as unearned compensation as a reduction of
stockholders' equity. All such grants are outstanding at September 30,
1996.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. The financial instruments include commitments to extend credit
and commitments to sell loans. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amounts recognized in the
consolidated balance sheets. The contract amounts of those instruments
reflect the extent of the involvement the Company has in particular classes
of financial instruments.
As of September 30, 1996, the Company had made various commitments to
extend credit totalling approximately $18,700,000 including $10,525,000 of
the undisbursed portion of loans in process. Most of these commitments are
at fixed rates. The rates on fixed rate loan commitments range from 6.50%
to 9.25% at September 30, 1996. The rates on variable rate loan commitments
range from 5.875% to 8.625% at September 30, 1996. As of September 30,
1995, such commitments totaled approximately $8,800,000 including
$5,725,000 of the undisbursed portion of loans in process. The Company's
management does not anticipate any material losses or gains as a result of
these transactions.
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 and may require payment of a fee. Since some of the commitments are
expected to expire without being fully drawn upon, the total commitment
amount disclosed above does not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if considered
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the customer.
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash - For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Investment and Mortgage-Backed Securities - For investment securities, fair
value equals quoted market price, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for
similar securities.
Loans - The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers for the same remaining maturities.
Deposits - The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturities certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
Advances from Federal Home Loan Bank - The face value of these advances is
a reasonable estimate of fair value.
28
<PAGE>
Commitments - The fair value of commitments to extend credit was not
significant.
The estimated fair values of the Company's financial instruments are as
follows at September 30, 1996 and 1995 (in thousands):
1996 1995
-------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and certificates of deposit $ 7,986 $ 7,986 $ 6,990 $ 6,990
Investment and mortgaged-backed
securities 44,496 44,496 49,622 50,725
Loans 319,398 316,000 260,835 265,500
Less: allowance for loan losses 3,182 3,182 2,966 2,966
-------- -------- -------- --------
Loans, net of allowance 316,216 312,818 257,869 262,534
-------- -------- -------- --------
Financial liabilities:
Deposits 254,723 254,900 233,805 234,900
Advances from Federal Home
Loan Bank 66,900 66,900 24,200 24,200
16. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to
executive officers and directors. These loans were made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. The
amounts of these loans were not significant at September 30, 1996 or 1995.
The Company has an employment agreement with an executive officer under
which the Company has agreed to pay the executive officer annual
compensation of $130,000 through December 31, 1997.
The Company has severance agreements with the executive officer referred to
above and certain other executive officers under which the Company has
agreed to aggregate payments of approximately $870,000 in the event
services of the executives are terminated following a "change in control"
of the Company.
17. SAIF SPECIAL ASSESSMENT AND REGULATORY CAPITAL
On September 30, 1996 legislation was enacted which requires that the
Company pay a SAIF special assessment based upon its deposits as of March
31, 1995. The $1,824,000 cost of this special assessment was recorded as of
September 30, 1996. It is expected that the assessment rate on future
regular SAIF insurance premiums will be reduced.
Teche Federal Savings Bank ("Bank") is required by law to maintain (i) core
capital equal to 3% of adjusted total assets, (ii) tangible capital equal
to 1.5% of adjusted total assets, and (iii) total capital equal to 8.0% of
risk-weighted assets.
29
<PAGE>
At September 30, 1996, the Bank's actual capital and its statutorily
required capital levels was as follows (in thousands):
Actual Required Excess
---------------- ----------------- -----------------
Amount % Amount % Amount %
Core capital $42,816 11.3 $11,360 3.0 $31,456 8.3
Tangible capital $42,816 11.3 $ 5,680 1.5 $37,136 9.8
Risk based capital $45,186 21.9 $16,498 8.0 $28,688 13.9
The Bank's core and tangible capital equal the amount of its stockholders'
equity ($43,103,000) less unrealized gains on securities available-for-sale
($287,000). The Bank's risk-based capital equals the amount of its
stockholder's equity ($43,103,000) plus a portion of its allowance for loan
losses ($2,578,000) and less unrealized gains on securities
available-for-sale ($287,000) and certain assets ($208,000).
The Company's management believes that, under the current regulations, the
Bank will continue to meet its minimum capital requirements in the
foreseeable future. However, events beyond the control of the Company, such
as increased interest rates or a downturn in the economy in the Company's
area could adversely affect future earnings and, consequently, the ability
of the Bank to continue to exceed its future minimum capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to implement prompt
corrective actions for institutions that it regulates. In response to this
requirement, OTS adopted final rules, based upon FDICIA's five capital
tiers. The rules provide that a savings bank is "well capitalized" if its
total risk-based capital ratio is 10% or greater, its Tier 1 risk-based
capital ratio is 6% or greater, its leverage is 5% or greater and the
institution is not subject to a capital directive. Under this regulation,
the Bank is deemed to be "well capitalized" as of September 30, 1996.
18. SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY
ONLY)
Balance Sheets
1996 1995
Assets:
Investment in subsidiary $43,103* $41,948*
Due from subsidiary 5,250* 15,597*
Due from ESOP 2,750* 3,128*
Other 1,242 1,775
------- -------
$52,345 $62,448
======= =======
Liabilities and stockholders' equity:
Accrued expenses $ 63 $ 540
Stockholders' equity 52,282 61,908
------- -------
$52,345 $62,448
======= =======
30
<PAGE>
Statements of Earnings
Year Ended September 30
1996 1995
Equity in earnings of subsidiary $2,194 * $ 2,817*
Interest income from subsidiary 937 * 499*
Management fee to subsidiary (373)* --
Other income (62) 7*
Income tax expense (175) (186)
------- -------
Net earnings $ 2,521 $ 3,137
======= =======
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended September 30
<S> <C> <C>
Cash Flows from Operating Activities $ 200 $ 239
Cash Flows from Investing Activities:
Investment in subsidiary -- (20,733)*
Loan to subsidiary -- (15,500)*
Repayment of loan by subsidiary 10,250* --
-------- --------
Net cash provided by (used in) investing activities 10,250 (36,233)
-------- --------
Cash Flows from Financing Activities:
Sale of common stock -- 37,977
Dividends paid (2,313) (488)
Purchase of common stock for treasury (9,149) --
-------- --------
Net cash provided by (used in) financing activities (11,462) 37,489
-------- --------
Net increase (decrease) in cash and cash equivalents (1,012) 1,495
Cash and cash equivalents, beginning of year 1,495 --
-------- --------
Cash and cash equivalents, end of year $ 483 $ 1,495
======== ========
</TABLE>
*Eliminated in consolidation
* * * * * *
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Directors of Teche Holding Company INDEPENDENT AUDITORS
and/or Teche Federal Savings Bank ----------------------------------------
- ----------------------------------------- Deloitte and Touche LLP
W. Ross Little, Chairman One Shell Square
Patrick O. Little, President 701 Poydras Street
Mrs. Mary Coon Biggs New Orleans, LA 70139
Donelson T. Caffery, Jr.
Henry L. Friedman LEGAL COUNSEL
Mrs. Virginia Kyle Hine ----------------------------------------
Dr. Thomas F. Kramer Biggs Trowbridge, Supple and Cremaldi
W. Ross Little, Jr. Lawless Building
Robert E. Mouton Willow Street
Christian L. Olivier, Jr. Franklin, LA 70538
SPECIAL COUNSEL
Advisory Directors of ---------------------------------------
Teche Federal Savings Bank Malizia, Spidi, Sloane & Fisch, P.C.
- ---------------------------------- One Franklin Square
1301 K. Street, N.W., Suite 700 East
Michel H. Claudet Washington, D.C. 20005
Charles H. Davidson
Nelson D. Henry REGISTRAR AND STOCK
H. Chris Ibert TRANSFER AGENT
Robert Judice, Jr. ---------------------------------------
W. Ross Little, Jr. Registrar and Transfer Company
Maunette B. Risher 10 Commerce Drive
Cranford, NJ 07016-3572
(800) 525-7686
Fax (908) 272-1006
</TABLE>
<TABLE>
<CAPTION>
Officers of Teche Federal Savings Bank
- --------------------------------------------------------------------------------
<S> <C>
W. Ross Little ................... Chairman
Patrick O. Little ................ President/CEO
Robert E. Mouton ................. Executive Vice President, Lafayette area Manager
Faye L. Ibert .................... Senior Vice-President
J.L. Chauvin ..................... Vice-President, Chief Financial Officer
Stanley Plessela ................. Vice-President, St Mary-Terrebonne Area Manager
Van E. Clements, III ............. Vice President, Morgan City Manager
D. Ross Landry ................... Vice-President, New Iberia Manager
Darryl Broussard ................. Vice-President, Lending
James P. Hamilton ................ Assistant Vice-President, Breaux Bridge Manager
Eddie LeBlanc .................... Internal Auditor
Angela Badeaux ................... Assistant Vice-President
Elaine G. Cockerham .............. Assistant Vice-President
Lydia B. Hebert .................. Assistant Vice-President
Brenda Henson .................... Assistant Vice-President
Carol Nini ....................... Assistant Vice-President
Nancy Terrell .................... Assistant Vice-President
Karen G. Verret .................. Assistant Vice-President
W. Ross Little, Jr. .............. Marketing Director, Secretary
32
</TABLE>
EXHIBIT 23
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-2342 of Teche Holding Company on Form S-8 of our report dated October 31,
1996 incorporated by reference in this Annual Report on Form 10-K for the year
ended September 30, 1996.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
New Orleans, Louisiana
December 26, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,072
<INT-BEARING-DEPOSITS> 914
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,496
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 319,398
<ALLOWANCE> 3,182
<TOTAL-ASSETS> 379,590
<DEPOSITS> 254,723
<SHORT-TERM> 66,900
<LIABILITIES-OTHER> 5,685
<LONG-TERM> 0
0
0
<COMMON> 42
<OTHER-SE> 52,240
<TOTAL-LIABILITIES-AND-EQUITY> 379,590
<INTEREST-LOAN> 22,702
<INTEREST-INVEST> 3,743
<INTEREST-OTHER> 146
<INTEREST-TOTAL> 26,591
<INTEREST-DEPOSIT> 11,654
<INTEREST-EXPENSE> 14,003
<INTEREST-INCOME-NET> 12,588
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 91
<EXPENSE-OTHER> 10,440
<INCOME-PRETAX> 3,791
<INCOME-PRE-EXTRAORDINARY> 3,791
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,521
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 2.81
<LOANS-NON> 559
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,966
<CHARGE-OFFS> 87
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 3,182
<ALLOWANCE-DOMESTIC> 3,182
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
