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
For the fiscal year ended September 30, 1999
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- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 72-1287456
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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: (337) 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
--- ---
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. [X]
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 28, 1999, was
$26.8 million (2,062,045 shares at $13.00 per share).
As of December 28, 1999 there were issued and outstanding 2,545,016
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, 1999. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders. (Part III)
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I Page
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<S> <C> <C>
Item 1. Business......................................................................................... 1
Item 2. Properties...................................................................................... 28
Item 3. Legal Proceedings............................................................................... 28
Item 4. Submission of Matters to a Vote of Security-Holders............................................. 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 29
Item 6. Selected Financial Data......................................................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................... 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................... 29
Item 8. Financial Statements and Supplementary Data..................................................... 29
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................................... 29
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 30
Item 11. Executive Compensation.......................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 30
Item 13. Certain Relationships and Related Transactions.................................................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 30
</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"). References to the "Bank" or "Teche
Federal" herein, unless the context requires otherwise, refer to the Company on
a consolidated basis.
The Bank is a community-oriented federal savings bank 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 twelve branch offices located in Morgan City, Bayou
Vista, New Iberia (two offices), Lafayette (two offices), Breaux Bridge and
Houma (three offices), and Thibodeaux, Louisiana. In the first quarter of 2000,
the Bank expects to break ground on a $3.8 million retail banking, operations
and administrative center in New Iberia as well as a new drive-thru branch
office in Franklin. When completed, the facility in New Iberia will house all
administrative offices and consolidate various other departments of the Bank.
The cost of the facility and the new branch will be amortized as a charge
against earnings over approximately 35 years.
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").
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.
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 Louisiana at
Lafayette, 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 and
affiliations with mortgage originators, secured by properties throughout its
Primary Market Area and other locations in Louisiana.
1
<PAGE>
Lending Activities
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,
------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ -------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate mortgage loans:
One- to four-family.............. $294,605 82.25% $ 301,071 84.27% $310,306 86.25% $288,109 87.03% $234,329 87.49%
Construction/permanent loans..... 7,585 2.12 11,867 3.32 11,067 3.08 13,740 4.15 8,097 3.02
Multi-family..................... 1,444 .40 1,934 .54 2,839 .79 3,006 .91 2,871 1.07
Commercial real estate loans....... 4,601 1.28 6,261 1.75 6,897 1.92 7,346 2.22 7,540 2.82
Land loans......................... 1,109 .31 1,604 .45 2,634 .73 2,844 .86 2,288 .85
Consumer loans:
Loans on savings accounts........ 5,157 1.44 5,881 1.65 5,984 1.66 5,657 1.71 6,260 2.34
Other............................ 43,690 12.20 28,643 8.02 20,049 5.57 10,343 3.12 6,441 2.41
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans................. 358,191 100.00% 357,261 100.00% 359,776 100.00% 331,045 100.00% 267,826 100.00%
====== ====== ====== ====== ======
Less:
Allowance for loan losses........ 3,537 3,515 3,355 3,182 2,966
Deferred loan fees, net.......... 658 580 860 1,122 1,266
Undisbursed portion of loans-
in-process..................... 11,010 7,994 8,686 10,525 5,725
-------- -------- -------- --------- --------
Net loans.................. $342,986 $345,172 $346,875 $ 316,216 $257,869
======= ======= ======= ======== =======
</TABLE>
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.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans receivable
at beginning of year .................. $ 357,261 $ 359,776 $ 331,045 $ 267,826 $ 247,263
========= ========= ========= ========= =========
Loans originated and purchased:
One- to four-family residential ..... 49,670 43,142 49,705 70,730 33,010
Residential construction/permanent(1) 11,935 17,118 18,968 23,049 15,110
Multi-family residential ............ -- 70 167 -- --
Land and non-residential real estate 4,122 1,901 1,271 3,579 1,970
Consumer loans ...................... 29,347 24,393 16,889 11,402 11,280
--------- --------- --------- --------- ---------
Total loans originated .......... 95,074 86,624 87,000 108,760 61,370
--------- --------- --------- --------- ---------
Reductions in principal - primarily due
to loan repayments and prepayments .... (94,144) (89,139) (58,269) (45,541) (40,807)
--------- --------- --------- --------- ---------
Net loan activity ..................... $ 930 $ (2,515) $ 28,731 $ 63,219 $ 20,563
========= ========= ========= ========= =========
Total gross loans receivable at end of
year .................................. $ 358,191 $ 357,261 $ 359,776 $ 331,045 $ 267,826
========= ========= ========= ========= =========
</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.
2
<PAGE>
Loan Purchases. While the Bank primarily focuses on the origination of
one- to four-family residential mortgages, in 1999 and 1998 the Bank purchased
$0.0 and $2.7 million of performing fixed-rate mortgage loans from financial
institutions in south Louisiana.
Loan Maturity Tables. The following table sets forth the maturity of
the Bank's loan portfolio at September 30, 1999. The table does not include
prepayments or scheduled principal repayments. Adjustable-rate mortgage loans
are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Residential All
One- to Construction/ Commercial Other
Four-Family Permanent Multi-Family Real Estate Land Loans Total
----------- --------- ------------ ----------- ---- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
1 year or less......................... $ 155 $ -- $ -- $ -- $ 4 $ 1,776 $ 1,935
-------- -------- ------ -------- ------- ------ --------
After 1 year:
More than 1 year to 3 years.......... 1,350 -- -- 397 53 4,748 6,548
More than 3 years to 5 years......... 4,556 -- 94 454 177 7,796 13,077
More than 5 years to 10 years........ 54,411 -- 466 776 526 9,557 65,736
More than 10 years to 20 years....... 90,686 2,588 138 2,876 282 1,616 98,186
More than 20 years................... 143,447 4,997 746 98 67 23,354 172,709
------- ----- ----- ----- ----- ------ -------
Total due after September 30,
2000............................ 294,450 7,585 1,444 4,601 1,105 47,071 356,256
------- ----- ----- ----- ----- ------ -------
Total amount due................... $294,605 $7,585 $1,444 $4,601 $1,109 $48,847 $358,191
======= ===== ===== ===== ===== ====== =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 2000, 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..................... $152,352 $142,098 $294,450
Residential construction/permanent...... 3,775 3,810 7,585
Other................................... 48,685 5,536 54,221
------ ----- ------
Total............................. $204,812 $151,444 $356,256
======= ======= ========
</TABLE>
- --------------------
(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."
3
<PAGE>
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.
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
$24.4 million of ARMs during the year ended September 30, 1999, of which $5.7
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%.
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 most of 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 $20.9 million of fixed-rate
mortgage loans during the year ended September 30, 1999.
The Bank offers home equity loans on single family residences. At
September 30, 1999, home equity mortgage loans totaled $19,655 million. While
the Bank does offer adjustable rate home equity lines of credit, the majority of
the home equity portfolio have fixed rates with a maximum term of 30 years. A
variety of home equity loan programs are offered including combined loan to
values up to 125.00% of collateral, however, such loans are generally for
shorter terms. Creditworthiness, capacity, and loan to value are the primary
factors considered during underwriting. To offset additional credit risk and
higher combined loan to values, the Bank reduces loan terms and increases loan
yields.
Residential Construction/Permanent Loans. The Bank's construction loans
have primarily been made to finance the construction of 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
4
<PAGE>
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
nine months at the end of which time the loan converts to a permanent mortgage.
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.
The Bank generally originates multi-family and commercial real estate
loans up to 80% of the appraised value of the property securing the loan
depending upon the type of collateral. 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,
1999 the aggregate balance of the five largest multi-family and commercial real
estate loans totaled $2.0 million with no single loan larger than $745,131.
Land Loans. At September 30, 1999, the Bank had $5.0 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 made up to 100% of the
deposit and at an interest rate ranging from 2 to 3% above the rate paid on the
deposit. At September 30, 1999, the Bank had $5.2 million of loans secured by
deposits.
Teche Federal also originates automobile and mobile home loans. At
September 30, 1999, $4.2 million and $0.6 million consisted of automobile and
mobile home loans, respectively.
5
<PAGE>
The Bank has 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, 1999, 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 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.
Loan Approval Authority and Underwriting. All mortgage loans greater
than $240,000, including sale & assumptions and loans to facilitate the sale of
REO, must be approved by a minimum of two members of the Senior Loan Committee.
All mortgage loans up to and including $240,000 must be approved by one member
of the Loan Committee.
Certain loan officers and members of management approved by the Board
are authorized to approve consumer loans. The amounts which any one person may
approve for a secured consumer loan range from $25,000 to $100,000. The range of
lending authority for unsecured loans is $5,000 to $25,000. Secured loans in
excess of $100,000 and unsecured loans in excess of $25,000 must be approved by
two members of the Loan Committee.
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 determines the stage of completion based upon his physical inspection
of the construction.
The Bank generally requires title insurance for its 1-4 family
residential loans with loan amounts of $150,000 or greater. 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.
6
<PAGE>
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.
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, 1999, the Bank had $15.4 million of commitments to originate
mortgage loans, including $11.0 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 $6.6 million as of September 30, 1999.
At September 30, 1999, the Bank's largest lending relationship
consisted of a $745,132 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, 1999 ranged from $286,000 to
$342,000 and were secured primarily by apartment complexes and commercial
properties located in the Bank's Primary Market Area. Of these loans, a $311,305
loan secured by an office building was on the Bank's watch list because of the
amount of exposure and previous delinquencies. 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.
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
7
<PAGE>
investment. Any real estate acquired in settlement of loans is initially
recorded at 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.
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,
-------------------------------------------------
1999 1998 1997 1996 1995
------- ------ --------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by one- to four-family
residences ........................................ $ 609 $ 640 $ 1,028 $ 544 $ 584
All other mortgage loans ............................ -- -- -- -- 59
Consumer .............................................. 51 83 88 15 19
------- ------ --------- ------- -------
Total ............................................ $ 660 $ 723 $ 1,116 $ 559 $ 662
======= ====== ========= ======= =======
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 ............................. $ 660 $ 723 $ 1,116 $ 559 $ 662
======= ====== ========= ======= =======
Real estate owned ...................................... $ 178 $ 331 $ 33 $ 46 $ 253
======= ====== ========= ======= =======
Total non-performing assets ............................ $ 838 $1,054 $ 1,149 $ 605 $ 915
======= ====== ========= ======= =======
Total non-performing loans to total loans
outstanding before allowance ......................... .19% .20% .31% .17% .25%
======= ====== ========= ======= =======
Total non-performing loans to total assets ............. .15% .18% .27% .15% .20%
======= ====== ========= ======= =======
Total non-performing assets to total assets ............ .19% .26% .28% .16% .28%
======= ====== ========= ======= =======
</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, 1999.
8
<PAGE>
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, 1999:
At
September 30, 1999
------------------
(In Thousands)
Residential mortgage loans......................... $ 942
Non-residential real estate loans.................. --
Land loans......................................... --
Consumer loans..................................... 600
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, 1999, the Bank had REO with a net
balance of $178,000.
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.
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.
9
<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 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)
-----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------ --------------------- ------------------- -------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of year allocated to:
One- to four-family.......... $2,664 82.25% $2,600 84.27% $2,558 86.25% $2,426 87.03% $2,201 87.49%
Multi-family and commercial
real estate................ 121 1.68 246 2.29 437 2.71 414 3.13 510 3.89
Construction................. 15 2.12 24 3.32 26 3.08 25 4.15 25 3.02
Consumer and other loans..... 737 13.95 645 10.12 334 7.96 317 5.69 230 5.60
------ ------ ------ ----- ------ ------ ------ ------ ------ ------
Total allowance(1)........... $3,537 100.00% $3,515 100.00% $3,355 100.00% $3,182 100.00% $2,966 100.00%
====== ====== ===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
- ------------------------
(1) Includes specific reserves for assets classified as loss.
10
<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,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- --------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net ................ $ 342,986 $ 345,172 $ 346,875 $ 316,216 $ 257,869
========= ========= ========= ========= =========
Average loans outstanding ................... 340,540 $ 349,769 $ 336,509 $ 283,962 $ 245,567
========= ========= ========= ========= =========
Allowance balances (at beginning of year) ... $ 3,515 $ 3,355 $ 3,182 $ 2,966 $ 2,778
--------- --------- --------- --------- ---------
Provision ................................... 150 180 240 300 360
--------- --------- --------- --------- ---------
Charge offs:
Residential real estate mortgage loans:
One- to four-family units ............... (60) (56) (7) (28) (81)
Construction loans ........................ -- -- -- -- --
Multi-family and commercial real estate
loans ................................... -- -- -- -- (72)
Land loans ................................ -- -- -- -- --
Other ..................................... (112) (8) (69) (59) (32)
--------- --------- --------- --------- ---------
Total charge-offs ..................... (172) (64) (76) (87) (185)
Recoveries
Residential real estate mortgage loans:
One- to four-family units ............... 38 18 9 3 12
Construction loans ........................ -- -- -- -- --
Multi-family and commercial real estate
loans ................................... -- 22 -- -- --
Land loans ................................ -- -- -- -- --
Other ..................................... 6 4 -- -- 1
--------- --------- --------- --------- ---------
Total recoveries ...................... 44 44 9 3 13
--------- --------- --------- --------- ---------
Net (charge-offs) ......................... (128) (20) (67) (84) (172)
--------- --------- --------- --------- ---------
Allowance balance (at end of year) .......... $ 3,537 $ 3,515 $ 3,355 $ 3,182 $ 2,966
========= ========= ========= ========= =========
Allowance for loan losses to total loans
outstanding before allowance .............. 1.02% 1.01% .96% 1.00% 1.14%
Net loans charged off as a percent of average
loans outstanding before allowance ........ .04% .01% .02% .03% .07%
</TABLE>
11
<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.
At September 30,
--------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
(Dollars in Thousands)
Total real estate owned, net .. $ 178 $ 331 $ 33 $ 46 $ 253
===== ===== ===== ===== =====
Allowance - beginning ......... $ 112 112 108 131 $ 163
Provision ..................... 35 -- 4 -- --
Charge-offs ................... -- -- -- (23) (32)
----- ----- ----- ----- -----
Allowance - ending ............ $ 147 $ 112 $ 112 $ 108 $ 131
===== ===== ===== ===== =====
Allowance for losses on
real estate owned to real
estate owned before allowance 45% 25% 77% 70% 34%
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, 1999 the Bank's regulatory liquidity was 10.0% is
in excess of 4% required by OTS regulations. See "Regulation -- Regulation of
the Bank -- Federal Home Loan Bank System."
12
<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. 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.
At September 30,
---------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
Investment securities issued by U.S.
Government agencies and corporations... $ 4,375 $ 4,478 $ 7,312
FHLB Stock .............................. 4,229 3,884 3,927
Mortgage-backed securities .............. 26,277 26,526 30,378
CMO's ................................... 32,042 4,694 --
Common stock and municipal obligations... 766 1,071 164
------- ------- -------
Total investment and mortgage-backed
securities ........................ 67,689 40,653 41,781
Interest-bearing deposits ............... 1,829 5,260 4,510
------- ------- -------
Total investments .................... $69,518 $45,913 $46,291
======= ======= =======
13
<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.
The Bank also purchases mortgage-backed securities and CMOs issued by
government agencies, private issuers and financial institutions, some of which
are qualified under the Code as Real Estate Mortgage Investment Conduits
("REMICs"). CMOs and REMICs (collectively CMOs) have been developed in response
to investor concerns regarding the uncertainty of cash flows associated with the
prepayment option of the underlying mortgagor and are typically issued by
governmental agencies, governmental sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar institutions. Some CMO and REMIC instruments are
most like traditional debt instruments because they have stated principal
amounts and traditionally defined interest-rate terms. Purchasers of certain
other CMO and REMIC instruments are entitled to the excess, if any, of the
issuer's cash inflows, including reinvestment earnings, over the cash outflows
for debt service and administrative expenses. These mortgage related instruments
may include instruments designated as residual interests, which represent an
equity ownership interest in the underlying collateral, subject to the first
lien of the investors in the other classes of the CMO. Certain residual CMO
interests may be riskier than many regular CMO interests to the extent that they
could result in the loss of a portion of the original investment. Moreover, cash
flows from residual interests are very sensitive to prepayments and, thus,
contain a high degree of interest-rate risk.
At September 30, 1999, all of the Bank's investment in CMOs consisted
of regular interests. As of September 30, 1999, the Bank's CMOs did not include
any residual interest or interest-only or principal-only securities. As a matter
of policy, the Bank does not invest in residual interests of CMOs or
interest-only and principal-only securities. The CMOs and REMICs held by the
Bank at September 30, 1999 consisted of floating rate and fixed rate tranches.
The interest rate of a majority of the Bank's floating-rate securities adjusts
monthly and provides the institution with net interest margin protection in an
increasing market interest rate environment. The securities are- backed by
mortgages on one- to four-family residential real estate and have contractual
maturities up to 30 years. The securities are primarily PACs and TACs (Planned
and Targeted Amortization Classes) are designed to provide a specific principal
and interest cash-flow.
Private issued CMOs tend to have greater prepayment and credit risk
than those issued by government agencies or government sponsored enterprises
(e.g., FHLMC, FNMA and GNMA) generally because they often are secured by jumbo
loans (currently, loans with an aggregate outstanding balances
14
<PAGE>
of greater than $203,150). At September 30, 1999, the Bank had CMOs with an
aggregate estimated market value of $32.0 million, of which $22.7 million, or
70.9% were privately issued. At September 30, 1999 the amortized cost of the
CMO's was approximately $33.3 million. To minimize the risk of private issued
CMOs, the Bank only purchases those CMOs rated AA or better by one of the rating
agencies.
At September 30, 1999, the Bank had mortgage-backed securities
available for sale with an amortized cost of $26.4 million and an estimated
market value of $26.3 million.
At September 30, 1999, Teche Federal had an investment securities
portfolio with an amortized cost of approximately $4.4 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, 1999 (excluding FHLB stock and interest-bearing accounts), was
$4.4 million. Teche Federal will continue to seek high quality investments with
short to intermediate maturities.
Interest-Bearing Accounts Held at Other Financial Institutions. At
September 30, 1999, the Bank held $1.8 million in the FHLB and interest-bearing
deposits in other financial institutions. The Bank maintains these accounts in
order to maintain liquidity.
15
<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, 1999.
<TABLE>
<CAPTION>
As of September 30, 1999
-------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investements
------------------ ----------------- ------------------ ----------------- -----------------------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Carrying Market
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value Value
--------- ------ ------ ------ ------- ------ ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Investment Securities
available for sale..... $ 1,000 7.45% $ 3,362 5.35% $ -- N/A% $ -- N/A% $ 4,362 6.51% $ 4,375 $ 4,375
Mortgage-backed
Securities available
for sale(1)............ -- N/A 8,382 6.06 151 8.26 17,904 5.82 26,437 5.91 26,277 26,277
CMO's (1) ............. -- -- 555 6.85 -- N/A 32,738 6.56 33,293 6.56 32,042 32,042
FHLB Stock ............ -- N/A -- N/A -- N/A -- N/A 4,227 5.50 4,229 4,229
Municipal Obligations . 34 4.72 167 5.30 -- N/A -- N/A 201 5.20 201 201
Equity Securities ..... -- N/A N/A N/A -- N/A -- N/A 539 N/A 565 565
------- ------- ------- ------- ------- ------- -------
Total ........... $ 1,034 7.37% $12,466 5.84% $ 151 8.26% $50,642 6.30% $69,061 6.24% $67,689 $67,689
======= ==== ======= ==== ======= ==== ======= ==== ======= ==== ======= =======
</TABLE>
- -------------
(1) Does not assume prepayments.
16
<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 $80.7 million, or 26.6% of the Bank's deposit portfolio at September
30, 1999. Certificates of deposit constituted $222.3 million or 73.4% of the
deposit portfolio, including $48.9 million of which had balances of $100,000 and
over. As of September 30, 1999, the Bank had no brokered deposits.
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, 1999.
<TABLE>
<CAPTION>
Period to Maturity from September 30, 1999
--------------------------------------------------------------------------
Less than One to Two to Over Three
One Year Two Years Three Years Years Total
-------- --------- ----------- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts:
2.00 to 2.99%............. $ 830 $ -- $ -- $ -- $ 830
3.00 to 3.99%............. 19,819 2,291 -- 2 22,112
4.00 to 4.99%............. 47,295 9,737 1,282 831 59,145
5.00 to 5.99%............. 62,817 28,274 5,552 9,558 106,201
6.00 to 6.99%............. 17,014 6,241 6,752 1,160 31,167
7.00 to 7.99%............. 2,442 100 351 -- 2,893
------- -------- -------- -------- ---------
Total $150,217 $ 46,643 $ 13,937 $ 11,551 $ 222,348
======= ====== ====== ====== =======
</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, 1999, those with balances of $100 would yield 4.00% those with
balances of $25,000 would yield 4.25% those with balances of $99,000 would yield
4.45%. 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
17
<PAGE>
$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,
1999.
Certificates Weighted
of Deposit Interest Rate
---------- -------------
(In Thousands)
Maturity Period:
3 months or less ....... $10,165 5.15%
Over 3 through 6 months 12,799 5.28
Over 6 through 12 months 11,894 5.17
Over 12 months ......... 14,012 5.49
-------
Totals ................. $48,870 5.29%
=======
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
At September 30,
------------------------------------
1999 1998 1997
--------- --------- ---------
(In Thousands)
Beginning balance ..................... $ 279,265 $ 280,302 $ 254,723
Net deposits (withdrawals) ........... 11,251 (13,949) 12,545
Interest credited on deposits ......... 12.568 12,912 13,034
--------- --------- ---------
Ending balance ........................ $ 303,084 $ 279,265 $ 280,302
========= =========
Total increase (decrease) in deposits.. $ 23,819 $ (1,037) $ 25,579
========= ========= =========
Percentage increase (decrease) ........ 8.53% (.37)% 10.04%
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, 1999, Teche Federal had
$78.7 million in advances outstanding from the FHLB of Dallas.
18
<PAGE>
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,
--------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding .................... $68,988 $68,306 $64,685
Maximum amount outstanding at any
month-end during the year ........................ 78,682 77,335 72,684
Balance outstanding at end of year ............. 78,682 67,721 65,398
Weighted average interest rate during the year.. 5.33% 5.56% 5.64%
Weighted average interest rate at end of year... 5.35% 5.34% 5.73%
</TABLE>
Subsidiary Activity
The only subsidiary of the Company is Teche Federal.
As of September 30, 1999, the Bank had one subsidiary: Family
Investment Services, Inc. ("FISI") and the net book value of the Bank's
investment in stock, unsecured loans and conforming loans in its service
corporation was $113,000. FISI was inactive at September 30, 1999.
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, 1999, Teche Federal was authorized to invest up to
approximately $8.7 million in the stock of, or loans to, service corporations
(based upon the 2% limitation).
Personnel
As of September 30, 1999, the Bank had 153 full-time and 60 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
19
<PAGE>
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.
Recent Developments -- Financial Modernization. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") which
will, effective March 11, 2000, permit qualifying bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. The Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the Board has determined to be closely related to banking. A
qualifying national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or from affiliating with a nonfinancial
entity. As a grandfathered unitary thrift holding company, the Company will
retain its authority to engage in nonfinancial activities.
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.
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, 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.
20
<PAGE>
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 six 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-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, 1999, amounted to approximately
$168,428.
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
21
<PAGE>
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, 1999 totaled
approximately $85,171.
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. The Bank's capital levels can be
found at Note 18 to the Consolidated Financial Statements included as Exhibit 13
to this report.
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."
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 - Interest Rate Risk. The Bank is subject
to interest rate risk to the degree that its interest-bearing liabilities,
primarily deposits with short- and medium-term maturities, mature or reprice at
different rates than our interest-earning assets. Although having liabilities
that mature or reprice less frequently on average than assets will be beneficial
in times of rising interest rates, such an asset/liability structure will result
in lower net income during periods of declining interest rates, unless offset by
other factors.
The Bank believes it is critical to manage the relationship between
interest rates and the effect on its net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from assets and the present
value of expected cash flows from liabilities, as well as cash flows from
off-balance sheet contracts. The Bank manages assets and liabilities within the
context of the marketplace, regulatory limitations and within its limits on the
amount of change in NPV which is acceptable given certain interest rate changes.
The OTS requires all regulated thrift institutions to calculate the
estimated change in the institution's NPV assuming instantaneous parallel shifts
in the Treasury yield curve of 100 to 300 basis points either up or down in 100
basis point increments. The NPV is defined as the present value of expected cash
flows from existing assets less the present value of expected cash flows from
existing liabilities plus the present value of net expected cash inflows from
existing off-balance sheet contracts.
The OTS provides all institutions that file a schedule entitled the
Consolidated Maturity & Rate Schedule ("CMR") as a part of their quarterly
Thrift Financial Report with an interest rate sensitivity report of NPV. The OTS
simulation model uses a discounted cash flow analysis and an option-based
pricing approach to measuring the interest rate sensitivity of NPV. The OTS
model estimates the economic value of each type of asset, liability, and
off-balance sheet contract under the assumption that the Treasury yield curve
shifts instantaneous and parallel up and down 100 to 300 basis points in 100
basis points increments. The OTS allows thrifts under $500 million in total
assets to use the results of their interest rate sensitivity model, which is
based on information provided by the institution, to estimate the sensitivity of
NPV.
The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage loans. The most significant embedded option in these
types of assets is the prepayment option of the
22
<PAGE>
borrowers. The OTS model uses various price indications and prepayment
assumptions to estimate sensitivity of mortgage loans.
In the OTS model, the value of deposit accounts appears on the asset
and liability side of the NPV analysis. In estimating the value of certificates
of deposit accounts ("CD"), the liability portion of the CD is represented by
the implied value when comparing the difference between the CD face rate and
available wholesale CD rates. On the asset side of the NPV calculation, the
value of the "customer relationship" due to the rollover of retail CD deposits
represents an intangible asset in the NPV calculation.
Other deposit accounts such as NOW accounts, money market demand
accounts, passbook accounts, and non-interest-bearing accounts also are included
on the asset and liability side of the NPV calculation in the OTS model. These
accounts are valued at 100% of the respective account balances on the liability
side. On the asset side of the analysis, the value of the "customer
relationship" of the various types of deposit accounts is reflected as a deposit
intangible.
The NPV sensitivity of borrowed funds is estimated by the OTS model
based on a discounted cash flow approach.
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.
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 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, and 300 basis points from the level
of interest rates at September 30, 1999.
<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>
+300 bp 21,457 -26,327 -55% 5.30% -559 bp
+200 bp 30,872 -16,912 -35% 7.41% -348 bp
+100 bp 39,972 -7,812 -16% 9.33% -156 bp
0 bp 47,784 10.89%
-100 bp 52,868 5,085 +11% 11.84% +95 bp
-200 bp 55,091 7,307 +15% 12.20% +131 bp
-300 bp 56,874 9,091 +19% 12.47% +157 bp
</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.
23
<PAGE>
September 30, September 30,
1999 1998
------------- -------------
*** RISK MEASURES: 200 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets... 10.89% 14.84%
Exposure Measure: Post-Shock NPV Ratio ......... 7.41% 13.00%
Sensitivity Measure: Change in NPV Ratio ....... -3.48 bp -184 bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in NPV as % of PV of Assets ............. 3.86% 2.31%
Interest Rate Risk Capital Component ($000)..... $ 0 $ 0
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. (The Bank's NPV decreases by 3.5% 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, 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
24
<PAGE>
leverage capital ratio that 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. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
capital distributions including cash dividends.
A savings association that is a subsidiary of a savings and loan
holding company, such as the Bank, must file an application or a notice with the
OTS at least 30 days before making a capital distribution. Savings associations
are not required to file an application for permission to make a capital
distribution and need only file a notice if the following conditions are met:
(1) they are eligible for expedited treatment under OTS regulations, (2) they
would remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year to date
added to retained net income for the two preceding years, and (4) the capital
distribution would not violate any agreements between the OTS and the savings
association or any OTS regulations. Any other situation would require an
application to the OTS.
In addition, the OTS could prohibit a proposed capital distribution if,
after making the distribution, by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that the distribution would
constitute an unsafe or unsound practice.
A federal savings institutions is prohibited from making a capital
distribution if, after making the distribution the savings institution would be
unable to meet any one of its minimum regulatory capital requirements. Further,
a federal savings institution cannot distribute regulatory capital that is
needed for its liquidation account.
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
QTIs. As of September 30, 1999, the Bank was in compliance with its QTL
requirement with 89.6% of its assets invested in QTIs.
25
<PAGE>
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 a "satisfactory record of meeting community credit
needs," in its last examination dated January 5, 1998. 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
26
<PAGE>
Bank's capital position, and require certain approval procedures to be followed.
OTS regulations, with minor variation, apply Regulation O to savings
associations.
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 4%. At September 30, 1999, the Bank's liquidity ratio was 14.0%.
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, 1999, the Bank had $78.7 million borrowed from the FHLB of Dallas
to fund operations; however, there can be no assurances that additional
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, 1999, the Bank had $4.2 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, 1999, dividends paid by
the FHLB of Dallas to the Bank totaled $220,021.
27
<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, 1999, 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, 1999.
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 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 was approximately $441,889 (net of taxes) for the
year ended September 30, 1999.
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 $15.3 million with a net book value of $10.3
million at September 30, 1999. 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.
28
<PAGE>
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, 1999 ("Annual Report") on page 3, and is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The above-captioned information appears under "Selected Financial
Information" 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 10 and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
See Net Portfolio Value Analysis on pages 22 through 24.
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 29 and are incorporated herein by
reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
29
<PAGE>
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 19, 2000 (the
"Proxy Statement"), which was filed with the Commission on December 10, 1999 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 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 Proxy Statement
at pages 2 through 5.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information relating to certain relationships and related
transactions is incorporated herein by reference to the Proxy Statement on pages
12 and 13.
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, 1999 and 1998 12
Consolidated Statements of Income For the Years Ended
September 30, 1999, 1998 and 1997 ......................... 13
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1999, 1998 and 1997 ..... 14
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997 ......................... 15-16
Notes to Consolidated Financial Statements .................. 17-29
30
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C> <C>
(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**
10.3 Employment Agreement with Patrick O. Little
11.0 Statement regarding computation of earnings per share
(see Note 14 to the Notes to Consolidated Financial Statements
in the Annual Report)
13.0 Annual Report to Stockholders for the fiscal year ended September 30, 1999
21.0 Subsidiary of the Registrant (see "Item 1 Business - Subsidiary Activity" herein)
23.0 Independent Auditors' Consent
27.0 Financial Data Schedule***
(b)......Reports on Form 8-K.
On August 20, 1999, the Company filed a Current Report on Form
8-K with the Commission announcing the adoption of a 10% stock
repurchase plan.
</TABLE>
- -----------------
* 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.
<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 29, 1999 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 December 29, 1999.
<TABLE>
<CAPTION>
<S> <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)
By:/s/W. Ross Little By:
---------------------------------------- --------------------------------
W. Ross Little Robert Earl Mouton
Chairman of the Board Director
By:/s/Mary Coon Biggs By:/s/Christian L. Olivier
---------------------------------------- --------------------------------
Mary Coon Biggs Christian L. Olivier
Director Director
By:/s/Virginia Kyle Hine By:
---------------------------------------- --------------------------------
Virginia Kyle Hine W. Ross Little, Jr.
Director Director and Secretary
By:/s/Henry L. Friedman By:
---------------------------------------- --------------------------------
Henry L. Friedman Thomas F. Kramer, M.D.
Director Director
By:/s/Donelson T. Caffery, Jr.
----------------------------------------
Donelson T. Caffery, Jr.
Director
</TABLE>
EXHIBIT 13
<PAGE>
Teche Holding Company
211 Willow Street
Franklin, LA 70538
Teche Federal Savings Bank Offices
Franklin
211 Willow Street
Franklin, LA 70538
Telephone: (337)828-3212
LA WATS (800)256-1500
FAX (337)828-0110
www.teche.com
Morgan City
1001 Seventh Street
Morgan City, LA 70380
(504)384-0653
Bayou Vista
206 Arlington
Bayou Vista, LA 70380
(504)395-5244
New Iberia
529 N. Lewis
New Iberia, LA 70560
(337)364-5528
New Iberia
142 W. St. Peter Street
New Iberia, LA 70503
(337)364-5145
Lafayette
Broadmoor
5121 Johnston Street
Lafayette, LA 70560
(337)981-1887
Lafayette
Downtown
1001 Johnston
Lafayette, LA 70501
(337)232-6463
Lafayette
2306 W. Pinhook
Lafayette, LA 70508
(337)232-3419
Lafayette
Marketing/Auditing
606 Lee Avenue
Lafayette, LA 70501
(337)237-8066
<PAGE>
Breaux Bridge
601 E. Bridge Street
Breaux Bridge, LA 70517
(337)332-2149
Houma
706 Barrow
Houma, LA 70360
(504)868-8766
Houma
1983 Prospect Street
Houma, LA 70363
(504)857-9990
Houma
Winn Dixie Market Place
1218 St. Charles
Houma, LA 70360
(504)873-5799
Thibodaux
Winn Dixie Market Place
375 North Canal Blvd
Thibodaux, LA 70302
(504)446-6707
<PAGE>
Table of Contents
Page
President's Message 1
Selected Financial Information 2
Business of The Company & Business of the Bank 3
Market and Dividend Information 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
Independent Auditors' Report 11
Consolidated Balance Sheets 12
Consolidated Statements of Income 13
Consolidated Statements of Stockholders' Equity 14
Consolidated Statements of Cash Flows 15
Notes to Consolidated Financial Statements 17
Directors and Officers 30
General Information 30
<PAGE>
[LOGO]
------------------
TECHE HOLDING
COMPANY
------------------
President's Message
- --------------------------------------------------------------------------------
Dear Fellow Shareholders,
1999 was a year of growth in several important areas of Teche Holding
Company and our wholly owned subsidiary, Teche Federal Savings Bank. Some
highlights in our growth include:
o Growth in earnings per share was over 10% in 1999. Since 1996 the
annual rate of growth in earnings per share has been 8.4%.
o Non-interest income accounts for 24% of total revenue (net
interest income plus noninterest income), up from 20% in 1998,
12.8% in 1997 and 6.5% in 1996.
o We experienced growth in checking accounts and consumer loan
balances.
o We originated over $105 million in loans.
o We opened a new office in Lafayette in the Broadmoor area. This
follows three new offices opened in the Lafourche/Terrebonne area
in 1998. We now service our six parish area with 13 offices
including two supermarket branches.
Net interest income continues to be strong. During a period of shrinking
margins in the banking industry, the net interest margin at Teche remained
stable. Our challenges, however, are to continue our growth in net interest
income while reducing expenses and managing the risk associated with increased
interest rates.
During 1999, Teche Holding Company continued its stock repurchase
program, consistent with sound financial management policies. This results in a
more efficient use of the assets of the Company and a better return on
investment for our stockholders.
Finally, as part of our continued dedication to providing convenient and
efficient service to our customers, the Franklin drive-thru branch and the New
Iberia retail/operations and administrative center are scheduled to break ground
for construction in early 2000.
Our staff has been diligently preparing for the Year 2000. We have
inventoried hardware, software and other items in this preparation. We look
forward to the new year and will be open and ready to continue conducting
business on Monday, January 3, 2000.
We will continue to sharpen our focus on both the opportunities and
challenges of banking in the new millennium. As the 1990's draw to a close, we
pledge to continue to build value for our stockholders and to provide
exceptional service to our customers.
Wishing you a Merry Christmas and a prosperous New Year!
Sincerely,
/s/Patrick O. Little
-------------------------
Patrick O. Little
1
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION (Dollars in thousands)
At or for the Year Ended September 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Assets .............................. $ 434,265 $ 408,823 $ 404,097 $ 379,590 $ 323,852
Loans Receivable, Net ............... 342,986 345,172 346,875 316,216 257,869
Securities-Available for Sale ....... 63,460 36,769 37,854 44,496 5,413
Securities-Held to Maturity ......... -- -- -- -- 44,209
Cash and cash equivalents ........... 10,292 10,680 5,868 7,072 6,400
Deposits ............................ 303,084 279,265 280,302 254,723 233,805
FHLB Advances ....................... 78,682 67,721 65,398 66,900 24,200
Stockholders' Equity ................ 48,700 52,527 54,359 52,282 61,908
Summary of Operations
Interest Income ..................... $ 30,275 $ 30,357 $ 29,788 $ 26,591 $ 23,380
Interest Expense .................... 16,356 16,712 16,681 14,003 12,053
----------- --------- --------- --------- ---------
Net Interest Income ................. 13,919 13,645 13,107 12,588 11,327
Provision for Loan Losses ........... 150 180 240 300 360
----------- --------- --------- --------- ---------
Net Interest Income after
Provision for Loan Losses ........... 13,769 13,465 12,867 12,288 10,967
Non-Interest Income ................. 4,452 3,475 2,590 1,852 1,029
SAIF Special Assessment ............. -- -- -- 1,824 --
Non-Interest Expenses ............... 12,837 11,198 9,867 8,616 6,405
----------- --------- --------- --------- ---------
Income Before Gains(Losses) on Sales
of Securities and Income Taxes .... 5,384 5,742 5,590 3,700 5,591
Gain (Loss)on Sale of Securities .... 14 138 274 91 (819)
Income Tax Expense .................. 1,889 2,067 1,997 1,270 1,635
----------- --------- --------- --------- ---------
Net Income
Actual ............................ $ 3,509 $ 3,813 $ 3,867 $ 2,521 $ 3,137
=========== ========= ========= ========= =========
Before Special Assessment ......... $ 3,725
=========
SELECTED FINANCIAL RATIOS
Ratio of Equity to Assets ........... 11.2% 12.8% 13.5% 13.8% 19.1%
Book Value/Common Share ............. $ 17.79 $ 16.97 $ 15.81 $ 14.76 $ 14.63
Dividends declared per Share ........ $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.25
Basic Income per Common Share (1)
Actual ............................ $ 1.32 $ 1.23 $ 1.26 $ 0.70 $ 0.46
Before SAIF Special Assessment .... $ 1.03
Diluted Income per Common Share (1)
Actual ............................ $ 1.29 $ 1.17 $ 1.23 $ 0.70 $ 0.46
Before SAIF Special Assessment .... $ 1.03
Annualized Return on Average Assets
Actual ............................ 0.84% 0.94% 0.99% 0.72% 1.04%
Before SAIF Special Assessment .... 1.07%
Annualized Return on Average Equity
Actual ............................ 6.90% 6.79% 7.34% 4.29% 7.87%
Before SAIF Special Assessment .... 6.33%
Net Interest Margin ................. 3.46% 3.45% 3.42% 3.68% 3.84%
Non-Interest Expense/Average Assets
Actual ............................ 3.06% 2.75% 2.52% 3.00% 2.12%
Before SAIF Special Assessment .... 2.48%
Non-Interest Income/Average Assets .. 1.06% 0.85% 0.66% 0.53% 0.34%
Non Performing Loans/Loans (2) ...... 0.24% 0.21% 0.32% 0.17% 0.26%
Allowance for Loan Losses/Loans (2) . 1.02% 1.01% 0.96% 1.00% 1.14%
Dividend Payout
Actual ............................ 37.88% 40.65% 39.68% 71.43% 54.35%
Before SAIF Special Assessment .... 48.54%
</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 thirteen full service
offices in the Louisiana Parishes of St. Mary, Iberia, Lafayette, St. Martin,
Terrebonne and upper Lafourche. 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").
Summary of Quarterly Operating Results
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------
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>
Interest Income $7,420 $7,499 $7,564 $7,792 $7,541 $7,595 $7,630 $7,591
Interest Expense 4,146 3,999 4,056 4,155 4,285 4,160 4,120 4,147
Net Interest Income 3,274 3,500 3,508 3,637 3,256 3,435 3,510 3,444
Provision for Loan Losses 45 45 30 30 45 45 45 45
Income Before Income Taxes 1,370 1,312 1,372 1,344 1,404 1,517 1,592 1,367
Net Income 890 853 892 874 913 996 1,014 890
Basic Income Per Common Share 0.32 0.32 0.34 0.34 0.30 0.32 0.33 0.29
Diluted Income Per Common Share 0.32 0.31 0.33 0.34 0.28 0.30 0.31 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 and cash
dividends declared for the common stock for the last two year period.
<TABLE>
<CAPTION>
Quarter ended Sales Price Period End Close Cash Dividend Declared Date Declared
------------- ----------- ---------------- ---------------------- -------------
High Low
---- ---
<S> <C> <C> <C> <C> <C>
December 31, 1997 $24.000 $20.000 $22.250 $0.125 December 17, 1997
March 31, 1998 $22.875 $20.000 $22.750 $0.125 February 18, 1998
June 30, 1998 $22.375 $18.125 $19.625 $0.125 May 19, 1998
September 30, 1998 $20.000 $14.375 $15.125 $0.125 August 19, 1998
December 31, 1998 $15.750 $13.000 $15.375 $0.125 November 18, 1999
March 31, 1999 $15.563 $14.000 $14.500 $0.125 February 19, 1999
June 30, 1999 $17.375 $14.375 $17.125 $0.125 May 19, 1999
September 30, 1999 $17.250 $14.500 $15.125 $0.125 August 18, 1999
</TABLE>
According to the records of the Company's transfer agent, there were 596
registered stockholders of record at November 22, 1999. This number does not
include any persons or entities who hold their stock in nominee or "street" name
through various brokerage firms.
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 18 and 19 of notes to Consolidated Financial
Statements. The Bank's total capital at September 30, 1999 exceeded the amounts
of its liquidation account and regulatory capital requirements.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
General
The Private Securities Litigation Reform act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believe", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with opening new branches, the
ability to control costs and expenses, and general economic conditions. Teche
Holding Company undertakes no obligation to publicly release the results of any
revisions to those forward looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrences of
unanticipated events.
The Company's consolidated results of operation are primarily dependent on the
Bank's net interest income, or the difference between the interest income earned
on its loan and securities portfolio, 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, net rental income, and gains and losses on investment activities);
noninterest expenses (primarily, compensation and employee benefits, federal
insurance premiums, office occupancy expense, marketing expense and expenses
associated with foreclosed real estate) and income taxes.
Earnings of the Company also are significantly affected by economic and
competitive conditions, particularly changes in interest rates, government
policies and regulations of regulatory authorities.
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 risk by making the value of the portfolio relatively
more susceptible to declines in real estate values in its market area. The Bank
supplements its home lending operations with the origination of home equity and
other consumer types of loans, and the purchase of loans, investments and
mortgage-backed securities.
Asset and Liability Management
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 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. At September 30, 1999, the weighted average term to repricing
of Teche Federal's ARM loan and mortgage-backed securities portfolio was
approximately 22 months. In contrast, $150.2 million of the Bank's certificate
accounts and $80.7 million of the Bank's regular deposit accounts (e.g. NOW,
money market, savings) out of $303.1 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 $44.3 million in short-term advances and $17.4 million in
adjustable rate 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 has been able
to increase its net interest income in the low interest rate environment that
has existed during earlier years. Should interest rates rise, management
believes the Bank's capital position will enable it to withstand a negative
impact on earnings while the Bank adds higher yielding assets.
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,
1999 vs 1998 1998 vs 1997
----------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Net Volume Rate Net
----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities (1) $ 691 $ (97) $ 594 $ (87) $(317) $(404)
Loans receivable, net (722) (209) (931) 1,066 (137) 929
Other interest-earning assets (2) 291 (36) 255 (23) 67 44
----- ------- ----- ----- ----- -----
Total Interest Earning Assets 260 (342) (82) 956 (387) 569
----- ------- ----- ----- ----- -----
Interest-bearing liabilities
Deposits 555 (899) (344) 185 (307) (122)
FHLB advances and other borrowings 117 (129) (12) 204 (51) 153
----- ------- ----- ----- ----- -----
Total interest-bearing liabilities 672 (1,028) (356) 389 (358) 31
----- ------- ----- ----- ----- -----
Net change in net interest income $(412) $ 686 $ 274 $ 567 $ (29) $ 538
===== ====== ===== ====== ===== =====
</TABLE>
(1) Includes investment securities available for sale
(2) Includes certificates of deposit and other interest-bearing accounts.
5
<PAGE>
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 and the
average yields earned and rates paid. 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 daily
average balances.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ---------------------------- ------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning Assets
Securities, Net (1) $ 54,139 $ 3,276 6.05% $ 42,769 $ 2,682 6.27% $ 44,038 $ 3,086 7.01%
Loans receivable (2) (3) 340,540 26,539 7.79% 349,769 27,470 7.85% 336,509 26,541 7.89%
Other Interest-earning
assets(4) 7,527 460 6.11% 2,475 205 8.28% 3,056 161 5.27%
-------- ------- -------- ------- -------- -------
Total interest-earning assets 402,206 $30,275 7.53% 395,013 $30,357 7.69% 383,603 $29,788 7.77%
======= ======== ======= =======
Non-interest earning assets 17,232 12,436 8,464
------ ------ -----
Total assets $419,438 $407,449 $392,067
======== ======== ========
Liabilities and Equity
Interest-bearing Liabilities
NOW accounts $ 25,198 $ 473 1.88% $ 22,545 $ 397 1.76% $ 20,244 $ 357 1.76%
Statement & regular
savings accounts 26,553 582 2.19% 25,861 663 2.56% 25,160 655 2.60%
Money funds accounts 8,343 307 3.68% 9,342 343 3.67% 9,696 346 3.57%
Certificates of Deposit 215,157 11,206 5.21% 207,722 11,509 5.54% 206,273 11,676 5.66%
-------- ------- -------- ------- -------- -------
Total Deposits 275,251 12,568 4.57% 265,470 12,912 4.86% 261,373 13,034 4.99%
FHLB advances and other 70,401 3,788 5.38% 68,306 3,800 5.56% 64,685 3,647 5.64%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 345,652 $16,356 4.73% 333,776 $16,712 5.01% 326,058 $16,681 5.12%
======= ======= =======
Non-interest-bearing
liabilities 22,954 17,488 13,351
------- ------- -------
Total liabilities 368,606 351,264 339,409
Stockholders' Equity 50,832 56,185 52,658
------- ------- -------
Total liabilities and
Stockholders' Equity $419,438 $407,449 $392,067
======== ======== ========
Net interest income/interest
rate spread (5) $13,919 2.80% $13,645 2.68% $13,107 2.65%
======= ======= =======
Net interest margin (6) 3.46% 3.45% 3.42%
Interest-earning assets/
Interest bearing liabilities 116.36% 118.35% 117.65%
</TABLE>
(1) Includes securities available for sale and unamortized discounts and
premiums and FHLB stock
(2) Amount is net of deferred loan fees, loan discounts and premiums,
loans-in-process and allowance for loan losses and includes non-accruing
loans.
(3) Interest income includes loan fees of approximately $102,000 in 1999,
$86,000 in 1998 and $106,000 in 1997.
(4) Amount includes certificates of deposit and other interest-bearing deposits
(5) Interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing
liabilities
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
6
<PAGE>
Changes in Financial Condition From September 30, 1998 to September 30, 1999
General. Total assets increased $25.4 million, or 6.2% to $434.3 million at
September 30, 1999 from $ 408.8 million at September 30, 1998, as a result of
continued branch expansion and the purchase of property for construction of a
central operations center.
Loans Receivable, Net. The Bank's net loans receivable decreased $2.2 million or
0.6% to $343.0 million from $345.2 million at September 30, 1998 due primarily
to reduced loan volume and repayments. Of all real estate loans originated in
fiscal 1999, approximately 46% had adjustable rates.
Securities. Securities available for sale increased $26.7 million, as excess
liquidity was invested during the year in fixed and adjustable rate mortgage
backed securities and collateralized mortgage obligations.
Deposits. The Bank's deposits, after interest credited, increased $23.8 million
or 8.5% to $ 303.1 million at September 30, 1999 from $279.3 million at
September 30, 1998.
Advances From FHLB. Advances from the Federal Home Loan Bank of Dallas ("FHLB")
increased $11.0 million, or 16.2% to $78.7 million at September 30, 1999 from
$67.7 million at September 30, 1998, primarily due to the purchase of Investment
Securities.
Stockholders' Equity. Stockholders' equity decreased $3.8 million, or 7.3% from
$52.5 million at September 30, 1998 to $48.7 million at September 30, 1999, due
primarily to the repurchase of common stock for the treasury pursuant to the
Company's stock repurchase program.
Comparison of Operating Results for Years ended September 30, 1999, 1998 and
1997.
Analysis of Net Income
General. The Bank reported net income of $3.5 million, $3.8 million and $3.9
million for fiscal 1999, 1998 and 1997. The decreases of $304,000 or 8.0% during
fiscal 1999 and $59,000 or 1.4% during fiscal 1998 were primarily due to
increased non interest expense as well as reduced gains on sales of securities.
Interest Income. Interest income amounted to $30.3 million, $30.4 million and
$29.8 million for the years ended 1999, 1998 and 1997, respectively. The $82,000
or 0.3% decrease in fiscal 1999 was primarily due to decreased yields on
interest earning assets, offset somewhat by increased average balances of
securities. The $0.6 million or 1.9% increase in fiscal 1998 was primarily due
to increased average home equity loan balances, offset somewhat by decreased
yields on mortgage loans and securities.
Interest Expense. Interest expense totaled $16.4 million, $16.7 million and
$16.7 million for the years ended September 1999, 1998 and 1997, respectively.
Interest expense remained relatively stable with an increase in average deposit
balances somewhat offset by a general decrease in rates paid on deposits.
Net Interest Income. Net interest income amounted to $13.9 million, $13.6
million and $13.1 million for the years ended September 30, 1999, 1998 and 1997.
The $0.3 million, or 2.0% increase in fiscal 1999 was primarily due to an
increase in average home equity balances. The increase of $0.5 million or 4.1%
from fiscal 1997 to fiscal 1998 was primarily due to increased average loan
balances.
Provision for Loan Losses. The Bank provided $150,000, $180,000 and $240,000 to
the reserve for loan losses for the years ended September 30, 1999, 1998 and
1997, respectively. The allowance for loan losses was $3,515,000 at 1998 fiscal
year end and $3,537,000 at 1999 fiscal year end. The decrease in the provisions
for loan losses in 1999 and 1998 resulted from management's evaluation of the
adequacy of the allowance for loan losses.
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 to Consolidated Financial
Statements.
Non-Interest Income. Non-interest income during the years ended September 30,
1999, 1998 and 1997 amounted to $4.5 million, $3.5 million and $2.6 million
respectively. The increases in both fiscal 1999 and fiscal 1998 were primarily
due to increased fee income due to an increase in transaction accounts.
7
<PAGE>
Non-Interest Expense. Non-interest expense increased steadily over the three
periods, totaling $12.8 million, $11.2 million and $9.9 million during the years
ended September 30, 1999, 1998 and 1997. The increases in both fiscal 1999 and
1998 were primarily due to continued expansion of office facilities, increased
marketing expenses and increased investment in new technology. The principal
component of non-interest expense, compensation and employee benefits, increased
in each of the last three years due primarily to the expansion of the branch
network. Other operating expenses increased from $1.6 million to $1.7 million to
$2.1 million for the years ended September 30, 1997, 1998 and 1999,
respectively.
In the first quarter of 2000, the Bank expects to break ground on a $3.8 million
retail banking, operations and administrative center in New Iberia as well as a
new drive-thru branch office in Franklin. When completed, the facility in New
Iberia will house all administrative offices and consolidate various other
departments of the bank. The cost of the facility and the new branch will be
amortized as a charge against earnings over approximately 35 years.
On January 1, 1996, Teche became subject to the Louisiana Shares Tax and the
Louisiana Franchise Tax. This amounted to an expense of $680,000, $541,000 and
$493,000 in the years ended September 30, 1999, 1998 and 1997, respectively.
Gain on Sale of Securities. In the years ended September 30, 1999, 1998 and
1997, gains on the sale of securities amounted to $14,000, $274,000 and $91,000,
respectively.
Income Tax Expense. For the years ended September 30, 1999, 1998 and 1997, the
Bank incurred income tax expense of $1.9, $2.1 million and $2.0 million,
respectively. The varying amounts were caused primarily by the varied pre-tax
income of the Bank.
Year 2000 Readiness
The Year 2000 problem exists because many computer programs use only the last
two digits to refer to a year. This convention could affect date-sensitive
calculations that treat "00" as the year 1900, rather than 2000. An additional
issue is that 1900 was not a leap year, whereas the year 2000 is. Therefore,
some programs may not properly provide for February 29, 2000. This anomaly could
result in miscalculations when processing critical date-sensitive information
after December 31, 1999.
The following discussion of the implications of the Year 2000 problem for the
Bank, contains numerous forward looking statements based on inherently uncertain
information. The cost of the project and the date on which the Bank plans to
complete the internal Year 2000 modifications are based on management's best
estimates, which are derived utilizing a number of assumptions of future events
including the continued availability of internal and external resources, third
party modifications and other factors. However, there can be no guarantee that
these statements will be achieved and actual results could differ. Moreover,
although management believes it will be able to make the necessary modifications
in advance, there can be no guarantee that failure to modify the systems would
not have a material adverse effect on the Bank.
Year 2000 issues expose the Company to a number of risks, any one of which, if
realized, could have a material adverse effect on the Bank's business, results
of operations or financial condition. These risks include the possibility that,
to the extent certain vendors fail to adequately address Year 2000 issues, the
Bank may suffer disruptions in important services on which the Bank depends,
such as telecommunications, electrical power, and data processing. Year 2000
issues could affect the Bank's liquidity if customer withdrawals in anticipation
of the Year 2000 are greater than expected or if the Bank's lenders are unable
to provide the Bank with funds when and as needed by the Company. Year 2000
issues also create additional credit risk to the Company insofar as the failure
of the Company's customers and the counterparties to adequately address Year
2000 issues could increase the likelihood that these customers and
counterparties become delinquent or default on the obligations to the Bank. In
addition to increasing the Bank's risk exposure to problem loans, credit losses
and liquidity problems, Year 2000 issues expose the Bank to increased risk of
litigation losses and expenses relating to the foregoing. There are other Year
2000 risks besides those described above that may impact the Bank's business,
results of operations and financial condition.
The Bank places a high degree of reliance on computer systems of third parties,
such as customers, suppliers, and other financial and governmental institutions.
Although the Bank is assessing the readiness of these third parties and
preparing contingency plans, there can be no guarantee that the failure of these
third parties to modify their systems in advance of December 31, 1999 would not
have a material adverse effect on the Bank.
8
<PAGE>
The Bank has a Year 2000 committee that is addressing potential year 2000 issues
with its internal and external software and computer systems. The committee has
assessed the Bank's automated systems and has contacted third party vendors to
provide appropriate assurances regarding their ability to address any Year 2000
issues.
Most of the critical data processing of the Bank is provided by a third party
national service bureau. This service bureau began renovations to their software
applications in the early 1990's to address Year 2000 issues. The Bank and its
service bureau completed internal core system testing in December 1998. The Bank
is currently testing its internal systems compatibility with that of the service
bureau in live data tests.
Total costs associated with required modifications to existing systems have not
been material to the Company's financial position. No additional outside
personnel are expected to be needed to resolve any Year 2000 issues at this
time. The estimated costs to replace some hardware and software systems was
approximately $250,000, some of which was capitalized and is being depreciated
over approximately three years. The Bank does not separately track the internal
costs incurred for the Year 2000 project because such costs are principally the
related payroll costs.
The Bank has contacted all material customers, vendors, and non-information
technology suppliers (i.e. utility systems, telephone systems and security
systems) regarding their Year 2000 state of readiness. Testing has been
completed on significant vendor applications, except the utilities as noted
below. The Bank has developed and tested contingency plans and procedures if
unforseen Year 2000 problems occur.
We are unable to test the Year 2000 readiness of our significant suppliers of
utilities. We are relying on the utility companies' internal testing and
representations to provide the required services that drive our data systems.
Any failure of the utilities to adequately address the Year 2000 issues could
result in the Bank being unable to service its customers on a timely basis. The
Bank has installed a generator at a central location which should provide
electric power in the event any local electric utilities experience problems.
As a practical matter, mortgage, consumer and commercial loan customers were not
contacted regarding their Year 2000 readiness. It was deemed to be beyond the
scope of our testing parameters to contact these borrowers. Further, most of
these are individuals with adequate collateral for their loans.
The most likely worst case Year 2000 scenario is that data processing would be
temporarily interrupted (as much as 2 to 3 days) which would increase the time
necessary to service customers and may prevent some customers from being
serviced until the problem is corrected. The Bank believes that completed
modifications to its internal systems will allow it to be ready for the Year
2000. However, factors outside of the Bank's control and unexpected service
bureau and other third party problems could impact the Bank's ability to process
data which could have a significant adverse impact on the financial condition
and results of operations of the Bank.
Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Bank, such as customers, vendors, payment systems providers and other financial
institutions, makes it impossible to assure that a failure to achieve compliance
by one or more of these entities would not have a material adverse impact on the
operations 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 at September
30, 1999 was four percent. The Bank's average liquidity ratio was approximately
14.0 % during September 1999. 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 investment securities. The Bank also borrows funds from
time to time from 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
9
<PAGE>
the pricing of its deposits to maintain a balanced stream of cash flows
commensurate with its loan commitments and other predictable funding needs.
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 advances and the ability to borrow against mortgage-backed and
other securities. On September 30, 1999, the Bank had total FHLB borrowings of
$78.7 million, or 18.1% of the Bank's assets.
Management believes the Bank has sufficient resources available to meet its
foreseeable funding requirements. At September 30, 1999, the Bank had
outstanding loan commitments of $15.4 million, and certificates of deposit
scheduled to mature within one year of $150.2 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 financial institutions
to have minimum tangible capital equal to 1.50 percent of total adjusted assets;
minimum core capital equal to 4.00 percent of total adjusted assets; and
risk-based capital equal to 8.0% of total risk-weighted assets. At September 30,
1999, Teche Federal exceeded all regulatory capital requirements. See Note 18 to
the 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.
10
<PAGE>
Deloitte &
Touche
- ------------ -----------------------------------------------------------------
[LOGO] Deloitte & Touche LLP Telephone: (504) 581-2727
Suite 3700 Facsimile: (504) 561-7293
One Shell Square
701 Poydras 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, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 1999. 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 signficant 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
November 9, 1999
- ---------------
Deloitte Touche
Tohmatsu
- ---------------
11
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,292 $ 10,680
Certificates of deposit -- 658
Securities available-for-sale, at estimated market
value (amortized cost of $64,832 in 1999 and $36,239 in 1998) 63,460 36,769
Loans receivable, net of allowance for loan losses of
$3,537 in 1999 and $3,515 in 1998 342,986 345,172
Accrued interest receivable 2,159 2,065
Investment in Federal Home Loan Bank stock, at cost 4,229 3,884
Real estate owned, net 178 331
Prepaid expenses and other assets 621 500
Premises and equipment, at cost, less accumulated depreciation 10,340 8,764
-------- --------
TOTAL ASSETS $434,265 $408,823
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $303,084 $279,265
Advances from Federal Home Loan Bank 78,682 67,721
Borrowings for common stock repurchase - 5,178
Advance payments by borrowers for taxes and insurance 1,578 1,644
Accrued interest payable 432 485
Accounts payable and other liabilities 1,504 1,223
Deferred income taxes 285 780
-------- --------
Total liabilities 385,565 356,296
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares authorized;
4,233,350 shares issued 42 42
Preferred stock, 5,000,000 shares authorized, none issued -- --
Additional paid-in capital 42,153 42,037
Retained earnings 30,928 28,757
Unearned ESOP shares (1,754) (2,086)
Unearned compensation - Management Stock Plan (390) (790)
Treasury stock - 1,496,000 and 1,138,000 shares, at cost (21,387) (15,783)
Unrealized gain (loss) on securities available-for-sale, net
of deferred income taxes (892) 350
-------- --------
Total stockholders' equity 48,700 52,527
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $434,265 $408,823
======== ========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $26,539 $27,470 $26,541
Interest and dividends on securities 3,276 2,682 3,086
Other interest income 460 205 161
------- ------- -------
30,275 30,357 29,788
------- ------- -------
INTEREST EXPENSE:
Deposits 12,568 12,912 13,034
Advances from Federal Home Loan Bank 3,676 3,800 3,647
Other borrowed money 112 -- --
------- ------- -------
16,356 16,712 16,681
------- ------- -------
NET INTEREST INCOME 13,919 13,645 13,107
PROVISION FOR LOAN LOSSES 150 180 240
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 13,769 13,465 12,867
------- ------- -------
NON-INTEREST INCOME:
Service charges 4,246 3,033 2,278
Gain on sale of real estate owned 79 13 94
Other income 127 429 218
------- ------- -------
Total non-interest income 4,452 3,475 2,590
------- ------- -------
GAIN ON SALE OF SECURITIES 14 138 274
------- ------- -------
NON-INTEREST EXPENSE:
Compensation and employee benefits 5,955 5,697 5,093
Occupancy, equipment and data processing expense 2,804 2,377 1,819
Marketing 1,031 737 602
SAIF deposit insurance premiums 168 172 225
Louisiana shares tax 680 541 493
Other operating expenses 2,199 1,674 1,635
------- ------- -------
Total non-interest expense 12,837 11,198 9,867
------- ------- -------
INCOME BEFORE INCOME TAXES 5,398 5,880 5,864
INCOME TAXES 1,889 2,067 1,997
------- ------- -------
NET INCOME $ 3,509 $ 3,813 $ 3,867
======= ======= =======
BASIC INCOME PER COMMON SHARE $ 1.32 $ 1.23 $ 1.26
====== ====== ======
DILUTED INCOME PER COMMON SHARE $ 1.29 $ 1.17 $ 1.23
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Additional Unearned Unearned Securities
Common Paid-In Retained ESOP Compensation Treasury Available-
Stock Capital Earnings Shares (MSP) Stock for-Sale, net Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, October 1, 1996 $42 $41,436 $24,250 $(2,751) $(1,900) $ (9,149) $ 354 $52,282
Contribution to ESOP 206 332 538
Amortization of MSP 642 642
Purchase of common stock
for treasury (1,403) (1,403)
Dividends declared -
$.50 per share (1,581) (1,581)
Comprehensive income:
Net income 3,867 3,867
Change in unrealized gains on
securities available-for-sale, net 14 14
-------
Total comprehensive income 3,881
--- ------- ------- ------- ------- -------- ----- -------
BALANCE, September 30, 1997 42 41,642 26,536 (2,419) (1,258) (10,552) 368 54,359
Contribution to ESOP 284 333 617
Amortization of MSP 468 468
Tax benefit from vesting
of MSP shares 87 87
Exercise of stock options 24 24
Purchase of common stock
for treasury (5,231) (5,231)
Dividends declared -
$.50 per share (1,592) (1,592)
Comprehensive income:
Net income 3,813 3,813
Change in unrealized gains on
securities available-for-sale, net (18) (18)
-------
Total comprehensive income 3,795
--- ------- ------- ------- ------- -------- ----- -------
BALANCE, September 30, 1998 42 42,037 28,757 (2,086) (790) (15,783) 350 52,527
Contribution to ESOP 104 332 436
Amortization of MSP 400 400
Tax benefit from vesting
of MSP shares 12 12
Purchase of common stock
for treasury (5,604) (5,604)
Dividends declared - $.50 per share (1,338) (1,338)
Comprehensive income:
Net income 3,509 3,509
Change in unrealized gain
(loss) on securities
available-for-sale, net (1,242) (1,242)
-------
Total comprehensive income 2,267
--- ------- ------- ------- ------- -------- ----- -------
BALANCE, September 30, 1999 $42 $42,153 $30,928 $(1,754) $ (390) $(21,387) $ (892) $48,700
=== ======= ======= ======= ======= ======== ====== =======
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,509 $ 3,813 $ 3,867
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 (73) 12 (207)
Provision for loan losses 150 180 240
ESOP expense 436 617 509
MSP expense 400 468 642
Deferred income taxes (credit) 175 (75) 797
Gain on sale of securities (14) (138) (274)
Gain on sale of real estate owned (79) (13) (94)
Depreciation 926 704 513
Accretion of deferred loan fees and other (3) (86) (106)
Accretion of discount on loans (325) (272) (212)
Change in accrued interest receivable (94) (14) (183)
Change in prepaid expenses and other assets (121) 1 282
Change in accrued interest payable (53) 176 26
Change in accounts payable and other liabilities 281 100 (472)
SAIF special assessment payable -- -- (1,824)
Other - net 244 (174) 96
------- ------- -------
Net cash provided by operating activities 5,359 5,299 3,600
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available-for-sale 20 3,000 7,550
Proceeds from sale of investment securities available-for-sale 484 413 881
Purchase of investment securities available-for-sale (40,908) (12,856) (8,389)
Principal repayments on mortgaged-backed securities available-for-sale 11,888 10,627 7,102
Net (increase) decrease in certificates of deposit 658 (24) 280
Net loan repayments (origination) 2,364 1,881 (30,581)
Investment in FHLB stock (345) 43 (224)
Other -- -- 40
Purchase of premises and equipment (2,502) (3,114) (2,375)
------- ------- -------
Net cash used in investing activities (28,341) (30) (25,716)
------- ------- -------
</TABLE>
(Continued)
15
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,338) (1,592) (1,581)
Net increase (decrease) in deposits 23,819 (1,037) 25,579
Net increase (decrease) in FHLB advances 10,961 2,323 (1,502)
Cash paid for purchase of common stock for treasury (10,435) (400) (1,403)
Borrowings under loan agreement 6,767 347 --
Repayment of borrowings under loan agreement (7,114) -- --
Decrease in advance payments by borrowers for taxes and insurance (66) (98) (181)
------- ------- -------
Net cash (used in) provided by financing activities 22,594 (457) 20,912
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (388) 4,812 (1,204)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,680 5,868 7,072
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $10,292 $10,680 $ 5,868
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $16,504 $16,810 $16,655
======= ======= =======
Income taxes paid $ 1,932 $ 1,877 $ 1,515
======= ======= =======
Financing activities not requiring the outflow of cash:
Purchase of common stock for treasury financed by seller $ -- $ 4,831 $ --
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 operates
principally in the community savings bank segment by attracting deposits from
the general public and using 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 and interest bearing demand deposits with other financial
institutions.
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.
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 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.
The Company considers a loan to be impaired when, based upon current information
and events, it believes it is possible that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company's impaired loans include troubled debt restructurings,
and performing and non-performing major loans in which full payment of principal
or interest is not expected. The Company calculates a reserve required for
impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or the loan's observable
market price or the fair value of its collateral. The Company did not have a
significant amount of impaired loans at September 30, 1999 or 1998.
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.
17
<PAGE>
Periodically during the year management estimates the likely level of losses to
determine whether the allowance for loan losses is adequate to absorb 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 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. Interest is capitalized on major construction programs and
amounted to $95 in the year ended September 30, 1999.
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 accounted for using
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 are the liability method.
Income Per Share - Basic income per common share (EPS) excludes dilution and is
computed by dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the net income of the Company. Diluted EPS is computed
by dividing net income by the total of the weighted-average number of shares
outstanding plus the effect of outstanding options and Management Stock Plan
("MSP") grants. 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.
Comprehensive Income - The Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) effective
October 1, 1998 and has provided the required information for all periods
presented. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its major components. Comprehensive income includes net
income and other comprehensive income which, in the case of the Company,
includes only unrealized gains and losses on securities available-for-sale.
18
<PAGE>
2. INTEREST RATE RISK
The Company is engaged principally in providing first mortgage loans to
individuals. At September 30, 1999 the Company had interest earning assets of
approximately $416,000, most of which will not mature or be repriced until after
five years. Interest bearing liabilities totaled approximately $367,000, 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.
3. SECURITIES
The amortized cost and estimated market values of securities available-for-sale
are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------------------
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 $ 4,362 $ 13 $-- $ 4,375
Municipal obligations 201 -- -- 201
------- ---- ------- -------
4,563 13 -- 4,576
------- ---- ------- -------
Mortgage-backed securities:
Government National Mortgage Corporation 10,452 34 (86) 10,400
Federal Home Loan Mortgage Corporation 10,718 17 (79) 10,656
Federal National Mortgage Association 5,267 18 (64) 5,221
------- ---- ------- -------
26,437 69 (229) 26,277
Collateralized mortgage obligations ("CMOs") 33,293 (1,251) 32,042
Equity securities 539 47 (21) 565
------- ---- ------- -------
$64,832 $129 $(1,501) $63,460
======= ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------------------
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 $4,332 $146 $ -- $ 4,478
Municipal obligations 246 -- 246
------- ---- ------- -------
4,578 146 -- 4,724
------- ---- ------- -------
Mortgage-backed securities:
Government National Mortgage Corporation 965 77 -- 1,042
Federal Home Loan Mortgage Corporation 20,275 225 (1) 20,499
Federal National Mortgage Association 9,664 59 (44) 9,679
------- ---- ------- -------
30,904 361 (45) 31,220
Equity securities 757 104 (36) 825
------- ---- ------- -------
$36,239 $611 $ (81) $36,769
======= ==== ====== =======
</TABLE>
19
<PAGE>
The amortized cost and estimated market value of securities available-for-sale
at September 30, 1999, by contractual maturity, are shown below (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Investment securities:
Due in one year or less $ 1,034 $ 1,035
Due after one year through five years 3,529 3,541
Mortgage-backed securities 26,437 26,277
CMOs 33,293 32,042
Equity securities 539 565
------- -------
$64,832 $63,460
======= =======
</TABLE>
Gross gains of $55, $138 and $274 were realized on sales of securities in the
years ended September 30, 1999, 1998 and 1997 , respectively. Gross losses of
$41 were realized on sales of securities in the year ended September 30, 1999.
At September 30, 1999 securities with a cost of approximately $4,384 were
pledged to secure deposits and advances from the Federal Home Loan Bank as
required or permitted by law.
4. LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
--------------------------------
1999 1998
<S> <C> <C>
Residential real estate mortgage loans:
One-to-four family units $294,605 $301,071
Multi-family 1,444 1,934
Land loans 1,109 1,604
Construction loans 7,585 11,867
Non-residential real estate loans 4,601 6,261
Loans on savings accounts 5,157 5,881
Other consumer loans 43,690 28,643
-------- --------
358,191 357,261
Less:
Allowance for loan losses 3,537 3,515
Deferred loan fees 658 580
Undisbursed portion of loans in process 11,010 7,994
-------- --------
$342,986 $345,172
======== ========
</TABLE>
Changes in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Beginning balance, October 1 $3,515 $3,355 $3,182
Provision charged to operating expense 150 180 240
Recoveries 44 44 9
Loans charged off (172) (64) (76)
------ ------ ------
Ending balance, September 30 $3,537 $3,515 $3,355
====== ====== ======
</TABLE>
Substantially all of the Company's loans receivable are with customers in
southern Louisiana.
At September 30, 1999 and 1998 there were unamortized discounts on loans
purchased of approximately $560 and $900 , respectively. These unamortized
discounts have been deducted from the related loan balances in the table above.
20
<PAGE>
The amount of nonaccrual loans at September 30, 1999 and 1998 was not
significant. The amount of interest not accrued on these loans did not have a
significant effect on net income in 1999, 1998 or 1997.
The Company has collateralized its advances from the Federal Home Loan Bank by a
blanket floating lien on its first mortgage loans.
5. REAL ESTATE OWNED
Real estate owned consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
<S> <C> <C>
Real estate acquired through foreclosure $ 325 $ 443
Less allowance for losses (147) (112)
----- -----
Real estate owned, net $ 178 $ 331
===== =====
</TABLE>
Changes in the allowance for losses on real estate owned are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
September 30,
---------------------------------------------------------
<S> <C> <C> <C>
Beginning balance, October 1 $112 $ 112 $ 108
Provision charged to operating expense 35 -- 4
---- ----- -----
Ending balance, September 30 $147 $ 112 $ 112
==== ===== =====
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
1999 1998
<S> <C> <C>
Land $ 3,687 $ 3,571
Buildings and improvements 5,714 4,406
Furniture, fixtures and equipment 5,884 4,851
------- -------
15,285 12,828
Less accumulated depreciation (4,945) (4,064)
------- -------
$ 10,340 $ 8,764
======== =======
</TABLE>
7. DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
1999 1998
<S> <C> <C>
NOW accounts $ 47,828 $ 37,000
Passbook and regular savings 25,867 25,791
Money funds accounts 7,041 8,711
Certificates of deposit 222,348 207,763
-------- --------
$303,084 $279,265
======== ========
</TABLE>
Certificates of deposit of $100 and over amounted to $48,900 and $46,500 at
September 30, 1999 and 1998, respectively.
Certificates of deposits at September 30, 1999 mature as follows (in thousands):
Less than one year $150,217
1-2 years 46,643
2-3 years 13,937
3-4 years 5,988
4-5 years 4,978
Over 5 years 585
--------
TOTAL $222,348
========
21
<PAGE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK AND CASH RESERVE REQUIREMENTS
At September 30, 1999, the Company was indebted to the FHLB for $78,682 of
advances bearing interest at a weighted average rate of 5.34% which are due as
follows (in thousands):
Year Ended
September 30,
2000 $44,300
2001 1,700
2002 16,518
2003 8,340
2004 2,824
2005 5,000
-------
$78,682
=======
These advances are collateralized by a blanket floating lien on the Company's
first mortgage loans.
Included in the table above are $35,000 of advances callable in the year ended
September 30, 2000, $5,000 callable in the year ended September 30, 2003. These
advances have been included in the above table based upon their call dates
rather than their stated due dates of between December 1999 and May 2003.
At September 30, 1998, the Company was indebted to the Federal Home Loan Bank
(FHLB) for $67,721 of advances bearing interest at an average rate of 5.34%,
$36,740 of which were due or callable in the year ended September 30, 1999,
$12,155 in 2000 and the balance thereafter.
The Company is required to maintain certain cash reserves relating to its
deposit liabilities. This requirement is ordinarily satisfied by cash on hand.
9. BORROWINGS FOR COMMON STOCK REPURCHASES
The Company borrowed $5,178 at September 30, 1998 in connection with repurchases
of common stock for the treasury. Approximately $4,800 was due to brokers on the
settlement date of such purchases and $347 was due under a loan agreement. The
loan agreement provided maximum borrowings of $8,000 for dividend payments and
common stock repurchases with interest at 2% above the LIBOR rate and was due
September 30, 1999. This note was repaid in January 1999.
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, generally accepted accounting principles
do not require that deferred income taxes be provided on that portion which
existed as of September 30, 1988. At September 30, 1999, retained earnings
included approximately $4,200 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 was
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 at September 30, 1997 and is being included in taxable
income in annual installments of approximately $470 beginning October 1, 1998.
As the taxes with respect to this allowance are paid they are 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
22
<PAGE>
components of the Company's deferred tax assets and liabilities as of September
30, 1999 and 1998 are as follows (in thousands):
1999 1998
Deferred tax assets:
MSP expense $ 175 $ 185
Allowance for loan losses 100 90
Unrealized loss on securities available-for-sale 480 --
Other 170 145
------- -------
Total deferred tax assets 925 420
------- -------
Deferred tax liabilities:
Deferred loan fees and costs, net 425 319
Tax over book depreciation 130 210
Dividends on FHLB stock 490 345
Unrealized gain on securities available-for-sale -- 180
Other 165 146
Total deferred tax liabilities 1,210 1,200
------- -------
Net deferred tax liabilities $ (285) $ (780)
======= =======
The components of income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Currently payable $1,714 $2,142 $1,200
Deferred 175 (75) 797
------ ------ ------
$1,889 $2,067 $1,997
====== ====== ======
</TABLE>
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):
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Taxes computed at statutory rates $1,889 $1,999 $1,994
Increase (decrease) in taxes due to
miscellaneous items -- 68 3
------ ------ ------
$1,889 $2,067 $1,997
====== ====== ======
Actual tax rate 35% 35% 34%
== == ==
</TABLE>
11. NON-INTEREST EXPENSE
Occupancy, equipment and data processing expenses consisted of the following:
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Occupancy, including depreciation, insurance,
rent, utilities, etc. $ 833 $ 751 $ 610
Equipment, including depreciation, telephone, etc. 1,408 1,155 811
Data processing 563 471 398
------ ------ ------
$2,804 $2,377 $1,819
====== ====== ======
</TABLE>
Other operating expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Stationery, printing and postage $ 696 $ 635 $ 591
Other 1,503 1,039 1,044
------ ------ ------
$2,199 $1,674 $1,635
====== ====== ======
</TABLE>
23
<PAGE>
12. OTHER COMPREHENSIVE INCOME
Other comprehensive income included in the consolidated statements of changes in
stockholders' equity consists of the following for the years ended September 30,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
Tax Net of
Before-Tax (Expense) Tax
Amount Credit Amount
<S> <C> <C> <C>
1999
- ----
Gross change in unrealized gain (loss) on
securities available-for-sale $(1,898) $ 665 $(1,233)
Less: Reclassification for gain included in net income 14 (5) 9
------- ----- -------
Net change in unrealized gain (loss) on
securities available-for-sale $(1,912) $ 670 $(1,242)
======= ===== =======
1998
- ----
Gross change in unrealized gain (loss) on
securities available-for-sale $ 111 $ (39) $ 72
Less: Reclassification for gain included in net income 138 (48) 90
------- ----- -------
Net change in unrealized gain (loss) on
securities available-for-sale $ (27) $ 9 $ (18)
====== === =====
1997
- ----
Gross change in unrealized gain (loss) on
securities available-for-sale $ 296 $(104) $ 192
Less: Reclassification for gain included in net income 274 (96) 178
------- ----- -------
Net change in unrealized gain (loss) on
securities available-for-sale $ 22 $ (8) $ 14
====== ==== ======
</TABLE>
13. 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, 1999, 1998 and 1997. 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.
14. INCOME PER SHARE
Following is a summary of the information used in the computation of basic and
diluted income per common share for the years ended September 30, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Year Ended
September 30,
---------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Weighted average number of common shares
outstanding - used in computation of basic
earnings per common share 2,660 3,106 3,060
Effect of dilutive securities:
Stock options 40 129 61
MSP stock grants 27 31 28
----- ----- -----
Weighted average number of common shares
outstanding plus effect of dilutive
securities used in computation of diluted
earnings per common share 2,727 3,266 3,149
===== ===== =====
</TABLE>
24
<PAGE>
15. 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 income 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 $436, $617 and $509 for the years
ended September 30, 1999, 1998 and 1997, respectively. The following is a
summary of shares held in the ESOP Trust as of September 30, 1999 and 1998 :
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Shares released for allocation or committed to be released 146,101 117,324
Unreleased shares 175,401 208,635
------- -------
Total ESOP shares 321,502 325,959
------- -------
Market value of unreleased shares $ 2,653 $ 3,156
======= =======
</TABLE>
In the year ended September 30, 1996, 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 reserved and granted to executive
employees and directors of Teche Federal Savings Bank. In the years ended
September 30, 1999, 1998 and 1997, the issuance of additional options were
authorized. The exercise prices are equal to the market price on the date of
grant and 20% of the options are generally exercisable within the first
anniversary date after the date of grant and 20% annually thereafter. All
unexercised options expire ten years from the date of grant. No compensation
expense was recognized under the Plans in 1999, 1998 or 1997. The following
table summarizes activity relating to the Plans:
<TABLE>
<CAPTION>
Available Weighted
for Options Average
Grant Outstanding Price
<S> <C> <C> <C>
Balance, October 1, 1996 -- 432,200 $13.94
Reserved 34,000 -- --
Granted (10,000) 10,000 15.94
------- ------ -----
Balance, September 30, 1997 24,000 442,200 13.98
Reserved 34,000
Granted (54,800) 54,800 19.88
Exercised -- (1,350) 15.94
------- ------ -----
Balance, September 30, 1998 3,200 495,650 14.63
Reserved 30,682 -- --
Granted (30,682) 30,682 16.34
------- ------ -----
Balance, September 30, 1999 3,200 526,332 $14.73
===== ======= ======
Exercisable at September 30, 1997 96,597 $13.94
====== ======
Exercisable at September 30, 1998 181,147 $13.95
======= ======
Exercisable at September 30, 1999 278,007 $14.20
======= ======
</TABLE>
25
<PAGE>
Options exercisable at September 30, 1999 include 264,397 at $13.94 per share,
2,650 at $15.94 per share and 10,960 at $19.88 per share. Outstanding options at
September 30, 1999 include 432,200 at $13.94 per share with an average remaining
contractual life of 6 years, 8,650 at $15.94 and 7 years, 54,800 at $19.88 and 8
years and 30,682 at $16.31 and 10 years.
In the year ended September 30, 1996, 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. In the year ended September 30, 1999 the
Board of Directors authorized restricted grants of 6,000 shares to a new
executive employee. The recipients vest 20% annually as long as they remain as
Teche Federal Savings Bank directors or employees. 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. Compensation expense related to the MSP was $400, $468 and $642 for the
years ended September 30, 1999, 1998 and 1997, respectively.
There were 65,005 unvested shares at September 30, 1999.
The Company applies APB Opinion No. 25 and related interpretation in accounting
for its stock options. Accordingly, no compensation cost has been recognized. In
October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires disclosure of the compensation cost for
stock-based incentives granted by the Company based on the fair value at grant
date for awards. The weighted average fair value of options granted during the
years ended September 30, 1999, 1998 and 1997 was $4.53, $5.22 and $4.41,
respectively. Applying SFAS No. 123 would result in pro forma net income and
income per share amounts as follows:
1999 1998 1997
Net income:
As reported $3,509 $3,813 $3,867
Pro forma 3,115 3,428 3,370
Basic income per share:
As reported $1.32 $1.23 $1.26
Pro forma 1.17 1.10 1.10
Diluted income per share
As reported $1.29 $1.17 $1.23
Pro forma 1.16 1.06 1.09
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted-average assumptions used for
grants: dividend yield of 2.5%; expected volatility of 20 percent; risk-free
interest rate of 5.5 to 6.0 percent; and expected lives of 8 years for all
options.
16. 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, 1999, the Company had made various commitments to extend
credit totaling approximately $15,400 including $11,010 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 6.75% to 8.75% at September 30,
1999. The rates on variable rate loan commitments range from 5.50% to 8.00% at
September 30, 1999. As of September 30, 1998 such commitments totaled
approximately $13,900 including $7,994 of the undisbursed portion of loans in
process.
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.
26
<PAGE>
17. 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 fair value of advances is estimated
using rates currently available for advances of similar remaining maturities.
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, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and certificates of deposit $ 10,292 $ 10,292 $ 11,338 $ 11,338
Investments and mortgage-backed securities 63,460 63,460 36,769 36,769
Loans 346,523 342,000 348,687 352,000
Less: allowance for loan losses 3,537 3,537 3,515 3,515
-------- -------- -------- --------
Loans, net of allowance 342,986 338,463 345,172 348,485
-------- -------- -------- --------
Financial liabilities:
Deposits 303,084 301,600 279,265 279,800
Advances from Federal Home Loan Bank 78,682 78,300 67,721 67,600
Borrowings for common stock repurchases -- -- 5,178 5,178
</TABLE>
18. REGULATORY CAPITAL
The Bank's actual capital and its statutorially required capital levels based on
the consolidated financial statements accompanying these notes was as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------------------------------------------------
To be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
--------------------------- -------------------------- -------------------------------
Actual Required Required
--------------------------- -------------------------- -------------------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Core capital $41,092 9.5% $17,353 4.0% $25,982 6.0%
Tangible capital $41,092 9.5% $ 6,495 1.5% N/A N/A
Total Risk based capital $44,128 18.2% $19,403 8.0% $24,255 10.0%
Leverage $41,092 9.5% N/A N/A $21,652 5.0%
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
September 30, 1998
--------------------------------------------------------------------------------------------
To be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
--------------------------- -------------------------- -------------------------------
Actual Required Required
--------------------------- -------------------------- -------------------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Core capital $53,415 13.1% $16,268 4.0% $24,402 6.0%
Tangible capital $53,415 13.1% $ 6,100 1.5% N/A N/A
Total Risk based capital $56,195 25.3% $17,748 8.0% $22,185 10.0%
Leverage $53,415 13.1% N/A N/A $20,335 5.0%
</TABLE>
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 was deemed to be "well capitalized" as of
September 30, 1999 and 1998 based upon the most recent notifications from its
regulators. There are no conditions or events since those notifications that
management believes would change its classifications.
19. SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
Balance Sheets
1999 1998
<S> <C> <C>
Assets:
Investment in subsidiary $40,277 $53,832
Cash held by subsidiary 5,358 --
Due from ESOP 1,754 2,086
Other 1,311 1,787
------- -------
$48,700 $57,705
======= =======
Liabilities and stockholders' equity:
Borrowings for common stock repurchase $ -- $ 5,178
Stockholders' equity 48,700 52,527
------- -------
$48,700 $57,705
======= =======
</TABLE>
Statements of Earnings
<TABLE>
<CAPTION>
Year Ended September 30
------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Dividends received from subsidiary $17,000 $ -- $ --
Equity in earnings of subsidiary greater than
(less than) dividends received (13,351) 3,871 3,938
Interest income from subsidiary 237 264 429
Management fees and other expenses allocated
to the Parent (252) (252) (799)
Other income (expenses), net (195) (38) 312
Income tax (expense) credit 70 (32) (13)
------- ------- -------
Net income $ 3,509 $ 3,813 $ 3,867
======= ======= =======
</TABLE>
28
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended September 30
------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities $16,903 $ 1,273 $ 3,019
------- ------- -------
Cash Flows from Investing Activities:
Repayment of loan by subsidiary 332 364 382
------- ------- -------
Net cash provided by investing activities 332 364 382
------- ------- -------
Cash Flows from Financing Activities:
Borrowings under note payable agreement 6,767 347 --
Repayment of borrowings under loan agreement (7,114) -- --
Dividends paid (1,338) (1,592) (1,581)
Cash paid for purchase of common stock for treasury (10,435) (400) (1,403)
------- ------- -------
Net cash used in financing activities (12,120) (1,645) (2,984)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 5,115 (8) 417
Cash and cash equivalents, beginning of year 892 900 483
Cash and cash equivalents, end of year $ 6,007 $ 892 $ 900
</TABLE>
A cash dividend of $17,000 was paid by Teche Federal Savings Bank to Teche
Holding Company in the year ended September 30, 1999.
Stockholder's equity of the Company includes the undistributed earnings of Teche
Federal Savings Bank. Dividends are payable only out of retained earnings or
current net income. Moreover, dividends to the Company's stockholders can
generally be paid only from liquid assets of Teche Holding Company and dividends
paid to the Company by the Bank. The amount of capital of the Bank available for
dividends at September 30, 1999 was approximately $15,000.
20. NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
Under this Statement, a company that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. At the date of
initial application, a company may transfer any held-to-maturity security into
the available-for-sale category or the trading category. A company will then be
able in the future to designate a security transferred into the
available-for-sale category as the hedged item. The unrealized holding gain or
loss on a held-to-maturity security transferred to another category at the date
of the initial application will be reported in net income or accumulated other
comprehensive income consistent with the requirements of SFAS No. 115. Such
transfers from the held-to-maturity category at the date of initial adoption
will not call into question a company's intent to hold other debt securities to
maturity in the future.
SFAS No. 133 applies to all entities and is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Earlier adoption of this Statement
is permitted. The Company expects to adopt this accounting standard on October
1, 2000.
29
<PAGE>
Directors of Teche Holding Company
and Teche Federal Savings Bank
W. Ross Little, Chairman,
Teche Holding Company
Patrick O. Little, Chairman,
Teche Federal Savings Bank
Mrs. Mary Coon Biggs
[PICTURE OMITTED] Donelson T. Caffery, Jr.
Henry L. Friedman
Mrs. Virginia Kyle Hine
Dr. Thomas F. Kramer
Robert E. Mouton
Christian L. Olivier, Jr.
W. Ross Little, Jr.
Advisory Directors of
Teche Federal Savings Bank
Charles H. Davidson
Nelson D. Henry
Robert Judice, Jr.
Maunette B. Risher
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Deloitte & Touche LLP
One Shell Square
701 Poydras Street
New Orleans, LA 70139
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Biggs, Trowbridge, Supple,
Cremaldi and Curet, L.L.P.
Lawless Building
Willow Street
Franklin, LA 70538
SPECIAL COUNSEL
- --------------------------------------------------------------------------------
Malizia Spidi & Fisch, PC
One Franklin Square
1301 K. Street, N.W., Suite 700 East
Washington, D.C. 20005
REGISTRAR AND STOCK
TRANSFER AGENT
- --------------------------------------------------------------------------------
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-5948
Fax (908) 497-2312
<PAGE>
Officers of Teche Federal Savings Bank
Patrick O. Little Chairman, President/CEO
Robert E. Mouton Executive Vice President
Scott Sutton Senior Vice-President
Chief Operating Officer
Faye L. Ibert Senior Vice-President
J.L. Chauvin Senior Vice-President/Treasurer
Chief Financial Officer
Daryl Broussard Senior Vice-President
Chief Lending Officer
Stanley Plessala Vice-President
D. Ross Landry Vice-President
W. Ross Little, Jr. Vice-President, Secretary
Nancy Terrell Vice-President
Angela Badeaux Vice President
Glen Brown Vice-President
James P. Hamilton Assistant Vice-President
Elaine G. Cockerham Assistant Vice-President
Lydia B. Hebert Assistant Vice-President
Carol Nini Assistant Vice-President
Eddie LeBlanc Assistant Vice-President,
Internal Auditor
Brenda Henson Assistant Vice-President
Karen Verret Assistant Vice-President
Wendy Frederick Assistant Vice-President
Tamaria B. Lecompte Assistant Vice-President
Gwen Doucet Assistant Vice-President
Lavergne Boutte Assistant Vice-President
Vicky Landry Assistant Vice-President
Mary Beth Brady Assistant Vice-President
Donna Cheely Assistant Vice-President
Irma Nell Bourque Assistant Vice-President
Andy Magers Assistant Vice-President
Beverly Adams Assistant Vice-President
Gerry Mouton Assistant Vice-President
Debbie Stevens Assistant Vice-President
Dalie Eldridge Assistant Vice-President
Bill Babineaux Assistant Vice-President
Lucille Wattigny Assistant Vice-President
Susan Simoneaux Assistant Vice-President
Theresa Landry Assistant Vice-President
Lynn Blanchard Assistant Vice-President
EXHIBIT 23
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-2342 and 333-55913 of Teche Holding Company on Form S-8 of our report dated
November 9, 1999, incorporated by reference in the Annual Report on Form 10-K of
Teche Holding Company for the year ended September 30, 1999.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New Orleans, Louisiana
December 27, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,112
<INT-BEARING-DEPOSITS> 1,180
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,460
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 346,523
<ALLOWANCE> 3,537
<TOTAL-ASSETS> 434,265
<DEPOSITS> 303,084
<SHORT-TERM> 44,300
<LIABILITIES-OTHER> 3,799
<LONG-TERM> 34,382
0
0
<COMMON> 42
<OTHER-SE> 48,658
<TOTAL-LIABILITIES-AND-EQUITY> 434,265
<INTEREST-LOAN> 26,539
<INTEREST-INVEST> 3,276
<INTEREST-OTHER> 460
<INTEREST-TOTAL> 30,275
<INTEREST-DEPOSIT> 12,568
<INTEREST-EXPENSE> 16,356
<INTEREST-INCOME-NET> 13,919
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 12,837
<INCOME-PRETAX> 5,398
<INCOME-PRE-EXTRAORDINARY> 5,398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,509
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 2.87
<LOANS-NON> 659
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,552
<CHARGE-OFFS> 55
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 3,537
<ALLOWANCE-DOMESTIC> 3,537
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>