EXHIBIT 13
<PAGE>
TECHE HOLDING COMPANY
2000
ANNUAL
REPORT
<PAGE>
Teche Holding Company
211 Willow Street
Franklin, LA 70538
Teche Federal Savings Bank
211 Willow Street
Franklin, LA 70538
Telephone: (337)828-3212
LA WATS (800)256-1500
FAX (337)828-0110
Call Center (800)897-0315
Franklin Drive Thru
1823 Main St.
Franklin, LA 70538
(337)828-4177
Morgan City
1001 7th St.
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 70560
(337)364-5145
Lafayette
Broadmoor
5121 Johnston Street
Lafayette, LA 70503
(337)981-1887
Lafayette
Downtown
1001 Johnston
Lafayette, LA 70501
(337)232-6463
Lafayette
2306 W. Pinhook Rd.
Lafayette, LA 70508
(337)232-3419
Lafayette
Marketing/Auditing
606 Lee Avenue
Lafayette, LA 70501
(337)237-8066
Breaux Bridge
601 E. Bridge Street
Breaux Bridge, LA 70517
(337)332-2149
Houma
706 Barrow St.
Houma, LA 70360
(504)868-8766
Houma
1983 Prospect Blvd.
Houma, LA 70363
(504)857-9990
Houma
Winn Dixie Market Place
1218 St. Charles St.
Houma, LA 70360
(504)873-5799
Thibodaux
Winn Dixie Market Place
375 North Canal Blvd
Thibodaux, LA 70301
(504)446-6707
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 10
Consolidated Balance Sheets 11
Consolidated Statements of Income 12
Consolidated Statements of Stockholders' Equity 13
Consolidated Statements of Cash Flows 14
Notes to Consolidated Financial Statements 16
Directors and Officers 29
General Information 29
<PAGE>
[LOGO]
TECHE HOLDING
COMPANY
President's Message
--------------------------------------------------------------------------------
Dear Fellow Shareholders,
The year 2000 was a milestone in the growth of Teche Holding Company and
our wholly owned subsidiary, Teche Federal Savings Bank. We have made remarkable
progress this year and since we became a public company in 1994. We are
currently the 4th largest publicly traded bank based in Louisiana and the 15th
largest bank operating in Louisiana. We have added an average of one branch
office each year for the last eight years and currently have 14 locations in
South Louisiana. Our branching strategy enables us to offer exceptional customer
service to our growing customer base. Over 1,000 individuals open new accounts
each month, a testimony to our outstanding customer service, products and
marketing.
Some highlights in our growth include:
2000 Growth 5-year growth
Operating Revenue 6% 58%
Non Interest Income 26% 445%
Assets 9% 47%
Number of Checking Accounts 16% 163%
Core Earnings Per Share 21% 85%
We have achieved considerable growth while maintaining profitability and we
intend to continue this course in 2001. Our goal is SmartGrowth - growth with
profitability. This strategy guides our day to day management decisions. In
balancing growth initiatives with profitability over the past five years, we
have seen our non interest income increase 445%, while our non interest expense
has increased only 115% over the same period.
We are investing in a platform for growth through our branching strategy
and centralizing our operations in a new operations center which will open in
New Iberia in the spring of 2000. We are also investing in technology which is a
business essential in the 21st Century.
One of our key goals is to continue to grow our consumer loan portfolio,
including our successful home equity loan program. Nearly half of our checking
account customers are homeowners and we are able to serve them with their home
loan needs. Consumer and commercial loans were 17.3% of our total loans in 2000,
up from 12.7% in 1999. While consumer and commercial loans are a small part of
our loan portfolio, this growth represents SmartGrowth. We are very proud of our
progress and of our loan officers who are building our success in these areas.
Increased earnings and continued stock repurchases resulted in a 21%
increase in core earnings per share (excludes gains and losses on sales of
securities) this year. Uppermost in our priorities is a return for our
shareholders now and into the future.
Wishing you a Merry Christmas and a prosperous New Year!
Sincerely,
/s/Patrick O. Little
----------------------------------------
Patrick O. Little
1
<PAGE>
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At or for the Year Ended September 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Assets ............................ $474,527 $434,265 $408,823 $404,097 $379,590
Loans Receivable, Net ............. 386,512 342,986 345,172 346,875 316,216
Securities-Available for Sale ..... 54,635 63,460 36,769 37,854 44,496
Securities-Held to Maturity ....... 2,574 -- -- -- --
Cash and cash equivalents ......... 10,384 10,292 10,680 5,868 7,072
Deposits .......................... 309,896 303,084 279,265 280,302 254,723
FHLB Advances ..................... 111,853 78,682 67,721 65,398 66,900
Stockholders' Equity .............. 48,621 48,700 52,527 54,359 52,282
Summary of Operations
Interest Income ................... $ 32,976 $30,275 $30,357 $ 29,788 $ 26,591
Interest Expense .................. 19,098 16,356 16,712 16,681 14,003
-------- -------- -------- -------- --------
Net Interest Income ............... 13,878 13,919 13,645 13,107 12,588
Provision for Loan Losses ......... 120 150 180 240 300
-------- -------- -------- -------- --------
Net Interest Income after
provision for Loan Losses ........ 13,758 13,769 13,465 12,867 12,288
Non-Interest Income ............... 5,608 4,452 3,475 2,590 1,852
SAIF Special Assessment ........... -- -- -- -- 1,824
Non-Interest Expenses ............. 13,778 12,837 11,198 9,867 8,616
-------- -------- -------- -------- --------
Income Before Gains on Sales
of Securities and Income Taxes .. 5,588 5,384 5,742 5,590 3,700
Gains on Sales of Securities ...... -- 14 138 274 91
Income Tax Expense ................ 1,928 1,889 2,067 1,997 1,270
-------- -------- -------- -------- --------
Net Income
Actual .......................... $ 3,660 $ 3,509 $ 3,813 $ 3,867 $ 2,521
======== ======== ======== ======== ========
Before SAIF Special Assessment .. $ 3,725
========
Selected Financial Ratios
Ratio of Equity to Assets ......... 10.2% 11.2% 12.8% 13.5% 13.8%
Book Value/Common Share ........... $ 19.43 $ 17.79 $ 16.97 $ 15.81 $ 14.76
Dividends declared per Share ...... $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50
Basic Income per Common Share
Actual .......................... $ 1.56 $ 1.32 $ 1.23 $ 1.26 $ 0.70
Before SAIF Special Assessment .. $ 1.03
Diluted Income per Common Share
Actual .......................... $ 1.55 $ 1.29 $ 1.17 $ 1.23 $ 0.70
Before SAIF Special Assessment .. $ 1.03
Annualized Return on Average Assets
Actual .......................... 0.81% 0.84% 0.94% 0.99% 0.72%
Before SAIF Special Assessment .. 1.07%
Annualized Return on Average Equity
Actual .......................... 7.70% 6.90% 6.79% 7.34% 4.29%
Before SAIF Special Assessment .. 6.33%
Net Interest Margin ............... 3.21% 3.46% 3.45% 3.42% 3.68%
Non-Interest Expense/Average Assets
Actual .......................... 3.06% 3.06% 2.75% 2.52% 3.00%
Before SAIF Special Assessment .. 2.48%
Non-Interest Income/Average Assets 1.24% 1.06% 0.85% 0.66% 0.53%
Non Performing Loans/Loans (1) .... 0.28% 0.24% 0.21% 0.32% 0.17%
Allowance for Loan Losses/Loans (1) 0.93% 1.02% 1.01% 0.96% 1.00%
Dividend Payout
Actual .......................... 32.05% 37.88% 40.65% 39.68% 71.43%
Before SAIF Special Assessment .. 48.54%
</TABLE>
(1) 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 to remain an independent community savings bank
serving the local banking needs of its primary market area, which presently
includes fourteen 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>
2000 1999
----------------------------------------------------------------------
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 ................ $7,828 $8,043 $8,387 $8,718 $7,420 $7,499 $7,564 $7,792
Interest Expense ............... 4,358 4,529 4,906 5,305 4,146 3,999 4,056 4,155
Net Interest Income ............ 3,470 3,514 3,481 3,413 3,274 3,500 3,508 3,637
Provision for Loan Losses ...... 30 30 30 30 45 45 30 30
Income Before Income Taxes...... 1,330 1,373 1,489 1,396 1,370 1,312 1,372 1,344
Net Income ..................... 864 920 962 914 890 853 892 874
Basic Income Per Common Share .. 0.36 0.40 0.41 0.39 0.32 0.32 0.34 0.34
Diluted Income Per Common Share 0.36 0.39 0.41 0.39 0.32 0.31 0.33 0.34
</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 fiscal years.
<TABLE>
<CAPTION>
Quarter ended Sales Price Period End Close Cash Dividend Declared Date Declared
High Low
<S> <C> <C> <C> <C> <C>
December 31, 1998 $15.750 $13.000 $15.375 $0.125 November 18, 1998
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
December 31, 1999 $14.875 $13.000 $13.250 $0.125 November 18,, 1999
March 31, 2000 $14.000 $10.625 $12.500 $0.125 February 17, 2000
June 30, 2000 $13.500 $11.875 $12.8125 $0.125 May 24, 2000
September 30, 2000 $13.625 $12.125 $13.500 $0.125 August 24, 2000
</TABLE>
According to the records of the Company's transfer agent, there were 601
registered stockholders of record at November 20, 2000. 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, 2000 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 rate risks associated with the effect of opening new
branches, the ability to control costs and expenses, and general economic
conditions. The 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 operations are primarily dependent on the
Bank's net interest income, or the difference between the interest income earned
on its loan, mortgage-backed securities and investment securities portfolios,
and the interest expense paid on its savings deposits and other borrowings. Net
interest income is affected not only by the difference between the yields earned
on interest-earning assets and the costs incurred on interest-bearing
liabilities, but also by the relative amounts of such interest-earning assets
and interest-bearing liabilities.
Other components of net income include: provisions for losses on loans and other
assets; noninterest income (primarily, service charges on deposit accounts and
other fees, 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. In recent
years, management has placed added emphasis on the origination of home equity
loans and other consumer types of loans. In addition, the Bank supplements its
home lending operations with the origination of commercial 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>
The Bank 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, consumer, and home equity loans and the investment of excess
liquidity in purchased loans, adjustable rate mortgage-backed securities and
other securities with relatively short terms to maturity. Furthermore, the Bank
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, 2000, the
weighted average term to repricing of Teche Federal's ARM loan and
mortgage-backed securities portfolio was approximately 25 months. In contrast,
at September 30, 2000, $127.5 million of the Bank's certificate accounts and
$90.7 million of the Bank's regular deposit accounts (e.g. demand, NOW, money
market, savings), out of $309.9 million of total deposits, were scheduled to
mature or reprice within one year or sooner. Based on past experience, however,
management believes that much of the Bank's deposits will remain at the Bank.
Furthermore, at September 30, 2000, the Bank had approximately $57.5 million in
short-term advances and $16.4 million in adjustable rate mortgage-backed and
other securities.
Management believes that it has adequate capital to accept a certain degree of
interest rate risk. Should interest rates rise further, management believes the
Bank's capital position will enable it to withstand the negative impact on
earnings.
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,
2000 vs 1999 1999 vs 1998
--------------------------------------------------------------------
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) $ 832 $ 257 $ 1,089 $ 691 $ (97) $ 594
Loans receivable, net 1,840 170 2,010 (722) (209) (931)
Other interest-earning assets (2) (335) (63) (398) 291 (36) 255
------- ------- ------ ------ ------- -------
Total Interest Earning Assets 2,337 364 2,701 260 (342) (82)
------- ------- ------ ------ ------- -------
Interest-bearing liabilities
Deposits 683 (55) 628 555 (899) (344)
FHLB advances and other borrowings 1,507 607 2,114 117 (129) (12)
------- ------- ------ ------ ------- -------
Total interest-bearing liabilities 2,190 552 2,742 672 (1,028) (356)
------- ------- ------ ------ ------- -------
Net change in net interest income $ 147 $ (188) $ (41) $ (412) $ 686 $ 274
======= ======= ====== ====== ======= =======
</TABLE>
(1) Includes investment securities and FHLB stock.
(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 actual and average balance sheet and reflects the
actual and average yield on assets and actual and average cost of liabilities
for the periods indicated. Such yields and costs are derived by dividing income
or expenses by the average balance of assets or liabilities, respectively, for
the periods presented. Average balances are derived from daily average balances.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- -----------------------------
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) $ 67,113 $ 4,365 6.50% $ 54,139 $ 3,276 6.05% $ 42,769 $ 2,682 6.27%
Loans receivable (2) (3) 364,237 28,419 7.84% 340,540 26,539 7.79% 349,769 27,470 7.85%
Other Interest-earning
assets(4) 1,210 192 5.12% 7,527 460 6.11% 2,475 205 8.28%
-------- ------- -------- ------- -------- -------
Total interest-earning assets 432,560 $32,926 7.62% 402,206 $30,275 7.53% 395,013 $30,357 7.69%
======= ======= =======
Non-interest earning assets 18,268 17,232 12,436
-------- -------- --------
Total assets $450,828 $419,438 $407,449
======== ======== ========
Liabilities and Equity
Interest-bearing Liabilities
NOW accounts $ 38,747 $ 784 2.02% $ 25,198 $ 473 1.88% $ 22,545 $ 397 1.76%
Statement & regular
savings accounts 23,357 444 1.90% 26,553 582 2.19% 25,861 663 2.56%
Money funds accounts 11,424 435 3.81% 8,343 307 3.68% 9,342 343 3.67%
Certificates of Deposit 216,694 11,533 5.32% 215,157 11,206 5.21% 207,722 11,509 5.54%
-------- ------- -------- ------- -------- -------
Total Deposits 290,222 13,196 4.55% 275,251 12,568 4.57% 265,470 12,912 4.86%
FHLB advances and
other borrowings 95,753 5,902 6.16% 70,401 3,788 5.38% 68,306 3,800 5.56%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 385,975 $19,098 4.95% 345,652 $16,356 4.73% 333,776 $16,712 5.01%
======= ======= =======
Non-interest-bearing
liabilities 17,311 22,954 17,488
-------- -------- --------
Total liabilities 403,286 368,606 351,264
Stockholders' Equity 47,542 50,832 56,185
-------- -------- --------
Total liabilities and
Stockholders' Equity $450,828 $419,438 $407,449
======== ======== ========
Net interest income/interest
rate spread (5) $13,828 2.67% $13,919 2.80% $13,645 2.68%
======= ======= =======
Net interest margin (6) 3.21% 3.46% 3.45%
Interest-earning assets/
Interest bearing liabilities 112.07% 116.36% 118.35%
</TABLE>
(1) Includes securities 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 $151,000 in 2000,
$102,000 in 1999, $86,000 in 1998.
(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, 1999 to September 30, 2000
General. Total assets increased $40.2 million, or 9.3% to $ 474.5 million at
September 30, 2000 from $434.3 million at September 30, 1999, primarily as a
result of an increase in home equity loans.
Loans Receivable, Net. The Bank's net loans receivable increased $43.5 million
or 12.7% to $386.5 million from $343.0 million at September 30, 1999 due
primarily to an increase in home equity loans. Of all real estate loans
originated in fiscal 2000, 71.8% had adjustable rates.
Deposits. The Bank's deposits, after interest credited, increased $6.8 million
or 2.2% to $309.9 million from $ 303.1 million at September 30, 1999.
Advances From FHLB. Advances from the Federal Home Loan Bank of Dallas increased
$33.2 million, or 42.2% to $111.9 million from $78.7 million at September 30,
1999, and were primarily used to fund loan growth during the year. Stockholders'
Equity.
Stockholders' equity decreased $79,000, or 0.2% from $48.7 million at September
30, 1999, to $48.6 million, due primarily to the repurchase of common stock for
the treasury pursuant to the Company's stock repurchase program, offset somewhat
by earnings.
Comparison of Operating Results for Years ended September 30, 2000, 1999 and
1998.
Analysis of Net Income
General. The Bank reported net income of $3.7 million, $3.5 million and $3.8
million for fiscal 2000, 1999 and 1998. The $151,000, or 4.3% increase during
fiscal 2000 compared to fiscal 1999 was primarily due to increased fee income
offset somewhat by increased non-interest expense. The decrease of $304,000 or
8.0% during fiscal 1999 compared to fiscal 1998 was primarily due to increased
net non-interest expense.
Interest Income. Interest income amounted to $33.0 million, $30.3 million and
$30.4 million for the years ended 2000, 1999 and 1998, respectively. The $2.7
million or 8.9% increase in fiscal 2000 was primarily due to increased yields
and higher average balances of loans and securities. The $82,000 or 0.3%
decrease in fiscal 1999 was primarily due to decreased yields on loans and
securities
Interest Expense. Interest expense totaled $19.1 million, $16.4 million and
$16.7 million for the years ended September 2000, 1999 and 1998, respectively.
The $2.7 million or 16.5% increase in fiscal 2000 was primarily due to a $15.0
million increase in the average balance of deposits and a $23.3 million increase
in the average balance of advances and a 78 basis point increase in the average
rate paid on advances.
Net Interest Income. Net interest income amounted to $ 13.9 million, $13.9
million and $13.6 million for the years ended September 30, 2000, 1999 and 1998.
Provision for Loan Losses. The Bank provided $120,000, $150,000 and $180,000 to
the allowance for loan losses for the years ended September 30, 2000, 1999 and
1998, respectively. The allowance for loan losses was $3,630,000 at 2000 fiscal
year end, $3,537,000 at 1999 fiscal year end and $3,515,000 at 1998 fiscal year
end. The decrease in the provisions for loan losses in 2000 as compared to 1999
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,
2000, 1999 and 1998 amounted to $5.6 million, $4.5 million and $3.5 million
respectively. The increases in both fiscal 2000 and fiscal 1999 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 $13.8 million, $12.8 million and $11.2 million during the
years ended September 30, 2000, 1999 and 1998. The increases in both fiscal 2000
and 1999 were 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. Other operating expenses increased from $1.7
million to $2.1 million to $2.2 million for the years ended September 30, 1998,
1999 and 2000, respectively.
On January 1, 1996, Teche became subject to the Louisiana Shares Tax and the
Louisiana Franchise Tax. This amounted to an expense of $669,000, $680,000 and
$541,000 in the years ended September 30, 2000, 1999 and 1998, respectively.
Gain on Sale of Securities. In the years ended September 30, 2000, 1999 and
1998, gains on the sale of securities amounted to $0, $14,000 and $138,000,
respectively.
Income Tax Expense. For the years ended September 30, 2000, 1999 and 1998, the
Bank incurred income tax expense of $1.9 million, $1.9 million and $2.1 million,
respectively. The varying amounts were caused primarily by the varied pre-tax
income of the Bank.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of "liquid assets," as defined
by the OTS regulations. This requirement, which may be varied from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required minimum ratio at September
30, 2000 was 4.0 percent. The Bank's average liquidity ratio was approximately
13.8 percent during September 2000. The Bank manages its average liquidity ratio
to meet its funding needs, including: deposit outflows; disbursement of payments
collected from borrowers for taxes and insurance; repayment of Federal Home Loan
Bank advances and other borrowings; and loan principal disbursements. The Bank
also monitors its liquidity position in accordance with its asset/liability
management objectives.
In addition to funds provided from operations, the Bank's primary sources of
funds are: savings deposits; principal repayments on loans and mortgage-backed
securities; and matured or called investment securities. The Bank also borrows
funds from the Federal Home Loan Bank of Dallas (the "FHLB").
Scheduled loan repayments and maturing investment securities are a relatively
predictable source of funds. However, saving deposit flows and prepayments on
loans and mortgage-backed securities are significantly influenced by changes in
market interest rates, economic conditions and competition. The Bank strives to
manage the pricing of its deposits to maintain a balanced stream of cash flows
commensurate with its loan commitments and other predictable funding needs.
The Bank usually maintains a portion of its cash on hand in interest-bearing
demand deposits with the FHLB to meet immediate loan commitment and savings
withdrawal funding requirements. When applicable, cash in excess of immediate
funding needs is invested into longer-term investment and mortgage-backed
securities, some of which may also qualify as liquid investments under current
OTS regulations.
The Bank has other sources of liquidity if a need for additional funds arises,
such as FHLB of Dallas advances and the ability to borrow against
mortgage-backed and other securities. On September 30, 2000, the Bank had total
FHLB borrowings of $111.9 million, or 23.6% of the Bank's assets.
Management believes the Bank has sufficient resources available to meet its
foreseeable funding requirements. At September 30, 2000, the Bank had
outstanding loan commitments of $10.7 million, and certificates of deposit
scheduled to mature within one year of $127.5 million, substantially all of
which management expects, based on past experience, will remain with the Bank.
Regulations of the OTS require the Bank to meet or exceed three separate
standards of capital adequacy. These regulations require financial institutions
to have minimum tangible capital equal to 1.5 percent of total adjusted assets;
minimum core capital equal to 4.0 percent of total adjusted assets; and
risk-based capital equal to 8.0 percent of total risk-weighted assets. At
September 30, 2000, Teche Federal exceeded all regulatory capital requirements.
See Note 17 to the Consolidated Financial Statements.
8
<PAGE>
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.
New Accounting Standards
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, as amended by SFAS No. 137, applies to all entities and is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt this accounting standard on October 1, 2000 and does not
presently believe that the adoption of it will have a significant effect upon
its financial position, results of operations or cash flows as of the date of
adoption.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" which establishes accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
Under this Statement, after a transfer of financial assets, a company recognizes
the financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.
SFAS No. 140 is generally effective for periods after March 31, 2001. The
Company will adopt this accounting standard on April 1, 2001. The Company is
presently studying the effects this statement will have on the Company, but
based on a preliminary analysis, does not believe that the adoption of it will
have a significant effect on its financial position, results of operations or
cash flows as of the date of adoption.
9
<PAGE>
[LOGO] Deloitte &
Touche
----------------- -----------------------------------------------------------
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, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Teche Holding Company and
subsidiary as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America.
/s/Deloitte & Touche LLP
------------------------
DELOITTE & TOUCHE LLP
November 10, 2000
[LOGO]
---------------------
Deloitte Touche
Tohmatsu
---------------------
10
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,384 $ 10,292
Securities available-for-sale, at estimated market
value (amortized cost of $56,097 in 2000 and $64,832 in 1999) 54,635 63,460
Securities held-to-maturity, at cost (estimated market value of $2,607) 2,574 --
Loans receivable, net of allowance for loan losses of
$3,630 in 2000 and $3,537 in 1999 386,512 342,986
Accrued interest receivable 2,404 2,159
Investment in Federal Home Loan Bank stock, at cost 5,781 4,229
Real estate owned, net 232 178
Prepaid expenses and other assets 649 621
Premises and equipment, at cost, less accumulated depreciation 11,356 10,340
-------- --------
TOTAL ASSETS $474,527 $434,265
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $309,896 $303,084
Advances from Federal Home Loan Bank 111,853 78,682
Advance payments by borrowers for taxes and insurance 1,625 1,578
Accrued interest payable 685 432
Accounts payable and other liabilities 1,847 1,789
-------- --------
Total liabilities 425,906 385,565
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 42,221 42,153
Retained earnings 33,417 30,928
Unearned ESOP shares (1,421) (1,754)
Unearned compensation - Management Stock Plan (41) (390)
Treasury stock - 1,731,000 and 1,496,000 shares, at cost (24,652) (21,387)
Unrealized loss on securities available-for-sale, net
of deferred income taxes (945) (892)
-------- --------
Total stockholders' equity 48,621 48,700
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $474,527 $434,265
======== ========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999 1998
INTEREST INCOME:
Interest and fees on loans $28,549 $26,539 $27,470
Interest and dividends on securities 4,365 3,276 2,682
Other interest income 62 460 205
------- ------- -------
32,976 30,275 30,357
------- ------- -------
INTEREST EXPENSE:
Deposits 13,196 12,568 12,912
Advances from Federal Home Loan Bank 5,902 3,676 3,800
Other borrowed money -- 112 --
------- ------- -------
19,098 16,356 16,712
------- ------- -------
NET INTEREST INCOME 13,878 13,919 13,645
PROVISION FOR LOAN LOSSES 120 150 180
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 13,758 13,769 13,465
------- ------- -------
NON-INTEREST INCOME:
Service charges 5,230 4,246 3,033
Gain on sale of real estate owned 51 79 13
Other income 327 127 429
------- ------- -------
Total non-interest income 5,608 4,452 3,475
------- ------- -------
GAIN ON SALE OF SECURITIES -- 14 138
------- ------- -------
NON-INTEREST EXPENSE:
Compensation and employee benefits 6,685 5,955 5,697
Occupancy, equipment and data processing expense 3,085 2,804 2,377
Marketing 1,072 1,031 737
SAIF deposit insurance premiums 92 168 172
Louisiana shares tax 669 680 541
Other operating expenses 2,175 2,199 1,674
------- ------- -------
Total non-interest expense 13,778 12,837 11,198
------- ------- -------
INCOME BEFORE INCOME TAXES 5,588 5,398 5,880
INCOME TAXES 1,928 1,889 2,067
------- ------- -------
NET INCOME $ 3,660 $ 3,509 $ 3,813
======= ======= =======
BASIC INCOME PER COMMON SHARE $ 1.56 $ 1.32 $ 1.23
======= ======= =======
DILUTED INCOME PER COMMON SHARE $ 1.55 $ 1.29 $ 1.17
======= ======= =======
See notes to consolidated financial statements.
12
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(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, 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
Contribution to ESOP 71 333 404
Amortization of MSP 349 349
Tax expense from vesting
of MSP shares (3) (3)
Purchase of common stock
for treasury (3,265) (3,265)
Dividends declared - $.50 per share (1,171) (1,171)
Comprehensive income:
Net income 3,660 3,660
Change in unrealized gain
(loss) on securities
available-for-sale, net (53) (53)
--------
Total comprehensive income 3,607
--- ------- ------- ------- ------- -------- ----- -------
BALANCE, September 30, 2000 $42 $42,221 $33,417 $(1,421) $ (41) $(24,652) $(945) $48,621
=== ======= ======= ======= ======= ======== ===== =======
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,660 $ 3,509 $ 3,813
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 (78) (73) 12
Provision for loan losses 120 150 180
ESOP expense 353 436 617
MSP expense 349 400 468
Deferred income taxes (credit) (308) 175 (75)
Gain on sale of premises (85) -- --
Gain on sale of securities -- (14) (138)
Gain on sale of real estate owned (51) (79) (13)
Depreciation 1,098 926 704
Accretion of deferred loan fees and other (89) (3) (86)
Accretion of discount on loans (35) (325) (272)
Change in accrued interest receivable (245) (94) (14)
Change in accrued interest payable 253 (53) 176
Change in accounts payable and other liabilities 366 281 100
Other - net 54 123 (173)
------- ------- -------
Net cash provided by operating activities 5,362 5,359 5,299
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available-for-sale 1,108 20 3,000
Proceeds from sale of investment securities available-for-sale -- 484 413
Purchase of investment securities available-for-sale (1,995) (40,908) (12,856)
Principal repayments on mortgaged-backed securities available-for-sale 9,700 11,888 10,627
Purchase of mortgaged-backed securities held-to-maturity (3,416) -- --
Principal repayments on mortgaged-backed securities held-to-maturity 842 -- --
Net (increase) decrease in certificates of deposit -- 658 (24)
Net loan (origination) repayments (43,522) 2,364 1,881
Investment in FHLB stock (1,552) (345) 43
Proceeds from sale of premises 595 -- --
Purchase of premises and equipment (2,624) (2,502) (3,114)
------- ------- -------
Net cash used in investing activities (40,864) (28,341) (30)
------- ------- -------
</TABLE>
(Continued)
14
<PAGE>
TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Dividends paid (1,171) (1,338) (1,592)
Net increase (decrease) in deposits 6,812 23,819 (1,037)
Net increase in FHLB advances 33,171 10,961 2,323
Cash paid for purchase of common stock for treasury (3,265) (10,435) (400)
Borrowings under loan agreement -- 6,767 347
Repayment of borrowings under loan agreement -- (7,114) --
Increase (decrease) in advance payments by
borrowers for taxes and insurance 47 (66) (98)
-------- -------- --------
Net cash (used in) provided by financing activities 35,594 22,594 (457)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 92 (388) 4,812
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,292 10,680 5,868
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,384 $ 10,292 $ 10,680
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 19,188 $16,504 $16,810
======== ======== ========
Income taxes paid $ 1,970 $ 1,932 $ 1,877
======== ======== ========
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.
15
<PAGE>
TECHE holding company and subsidiary
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(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, 2000 or 1999.
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.
16
<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 $78 and $95 in the years ended September 30, 2000 and 1999,
respectively.
Real Estate Owned - Real estate acquired through, or in lieu of, foreclosure is
initially recorded at the fair value at the time of foreclosure, less estimated
cost to dispose, and any related writedown is charged to the allowance for loan
losses. The fair values have not exceeded the balances of the related loans.
Valuations are periodically performed by management and provisions for estimated
losses on real estate owned are charged to operations when any significant and
permanent decline reduces the fair value, less sales costs, to less than the
carrying value. The ability of the Company to recover the carrying value of real
estate is based upon future sales of the real estate owned. The ability to
effect such sales is subject to market conditions and other factors, many of
which are beyond the Company's control. Operating income of such properties, net
of related expenses, and gains and losses on their disposition are included in
the accompanying consolidated statements of income.
Income Taxes - Income taxes are accounted for using 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 - 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.
Reclassifications - Certain reclassifications have been made to the 1998 and
1999 consolidated financial statements in order to conform to the
classifications adopted for reporting in 2000.
17
<PAGE>
2. INTEREST RATE RISK
The Company is engaged principally in providing first mortgage loans to
individuals. At September 30, 2000 the Company had interest earning assets of
approximately $450,000, most of which will not mature or be repriced until after
five years. Interest bearing liabilities totaled approximately $405,000, 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, 2000
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment securities:
Federal Home Loan Bank bond due in February 2001 $ 3,391 $ -- $ (6) $ 3,385
Municipal obligations 93 -- -- 93
-------- ------ ------- -------
3,484 -- (6) 3,478
-------- ------ ------- -------
Mortgage-backed securities:
Government National Mortgage Corporation 11,643 23 (54) 11,612
Federal Home Loan Mortgage Corporation 8,019 16 (75) 7,960
Federal National Mortgage Association 11,758 17 (398) 11,377
-------- ------ ------- -------
31,420 56 (527) 30,949
Collateralized mortgage obligations ("CMOs") 20,654 -- (1,047) 19,607
Equity securities 539 62 -- 601
-------- ------ ------- -------
$ 56,097 $ 118 $(1,580) $54,635
======== ====== ======= =======
</TABLE>
<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>
The amortized cost and estimated market values of securities held-to-maturity
are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Collateralized mortgage obligations ("CMOs") $ 2,574 $ 33 $ -- $ 2,607
======= ==== ======= =======
</TABLE>
18
<PAGE>
Gross gains of $55 and $138 were realized on sales of securities in the years
ended September 30, 1999 and 1998, respectively. Gross losses of $41 were
realized on sales of securities in the year ended September 30, 1999. There were
no gains or losses on sale of securities in 2000.
At September 30, 2000 securities with a cost of approximately $8,600 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,
-------------------
2000 1999
<S> <C> <C>
Residential real estate mortgage loans:
One-to-four family units $310,505 $296,602
Multi-family 1,186 1,318
Land loans 8,173 5,501
Construction loans (net of loans in process) 10,821 4,620
Non-residential real estate loans 5,465 5,207
Home improvement and equity loans 30,702 18,865
Loans on savings accounts 4,960 5,166
Auto loans 5,358 4,199
Mobile home loans 6,446 631
Credit card loans 1,581 1,516
Other secured and unsecured 5,537 3,556
-------- --------
390,734 347,181
Less:
Allowance for loan losses 3,630 3,537
Deferred loan fees 592 658
-------- --------
$386,512 $342,986
======== ========
</TABLE>
Changes in the allowance for loan losses are as follows (in thousands):
Year Ended
September 30,
--------------------------------
2000 1999 1998
Beginning balance, October 1 $ 3,537 $ 3,515 $ 3,355
Provision charged to operating expense 120 150 180
Recoveries 62 44 44
Loans charged off (89) (172) (64)
------- ------- -------
Ending balance, September 30 $ 3,630 $ 3,537 $ 3,515
======= ======= =======
Substantially all of the Company's loans receivable are with customers in
southern Louisiana.
At September 30, 2000 and 1999 there were unamortized discounts on loans
purchased of approximately $525 and $560, respectively. These unamortized
discounts have been deducted from the related loan balances in the table above.
The amount of nonaccrual loans at September 30, 2000 and 1999 was not
significant. The amount of interest not accrued on these loans did not have a
significant effect on net income in 2000, 1999 or 1998.
The Company has collateralized its advances from the Federal Home Loan Bank with
a blanket floating lien on its first mortgage loans.
19
<PAGE>
5. REAL ESTATE OWNED
Real estate owned consisted of the following (in thousands):
September 30,
-------------------
2000 1999
Real estate acquired through foreclosure $ 344 $ 325
Less allowance for losses (112) (147)
----- -----
Real estate owned, net $ 232 $ 178
===== =====
Changes in the allowance for losses on real estate owned are as follows (in
thousands):
Year Ended
September 30,
-----------------------
2000 1999 1998
Beginning balance, October 1 $ 147 $ 112 $ 112
Provision charged to operating expense -- 35 --
Reduction of allowance at date of sale (35) -- --
----- ----- -----
Ending balance, September 30 $ 112 $ 147 $ 112
===== ===== =====
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
September 30,
-------------------------
2000 1999
Land $ 3,091 $ 3,687
Buildings and improvements 8,146 5,714
Furniture, fixtures and equipment 5,782 5,884
-------- ----------
17,019 15,285
Less accumulated depreciation (5,663) (4,945)
-------- ----------
$ 11,356 $ 10,340
======== ==========
Included in buildings and improvements at September 30, 2000, is construction in
progress of approximately $2,000,000.
7. DEPOSITS Deposits are summarized as follows (in thousands):
September 30,
----------------------
2000 1999
Non-interest bearing demand accounts $ 18,708 $ 14,820
Interest bearing:
NOW accounts 36,708 33,008
Passbook and regular savings 21,901 25,867
Money funds accounts 13,363 7,041
Certificates of deposit 219,218 222,348
-------- --------
$309,898 $303,084
======== ========
Certificates of deposit of $100 and over amounted to $50,600 and $48,900 at
September 30, 2000 and 1999, respectively.
Certificates of deposits at September 30, 2000 mature as follows (in thousands):
Less than one year $127,505
1-2 years 63,684
2-3 years 11,576
3-4 years 8,758
4-5 years 6,370
Over 5 years 1,325
--------
TOTAL $219,218
========
20
<PAGE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK AND CASH RESERVE REQUIREMENTS
At September 30, 2000, the Company was indebted to the FHLB for $111,853 of
advances bearing interest at a weighted average rate of 6.66% which are due as
follows (in thousands):
Year Ended
September 30,
2001 $ 69,388
2002 7,794
2003 8,185
2004 2,961
2005 883
Thereafter 22,642
--------
$111,853
========
These advances are collateralized by a blanket floating lien on the Company's
first mortgage loans.
Included in the table above is a $5,000 advance callable in the year ended
September 30, 2003. This advance has been included in the above table based upon
its call date rather than its stated due date of 2008.
At September 30, 1999, the Company was indebted to the Federal Home Loan Bank
(FHLB) for $78,682 of advances bearing interest at an average rate of 5.34%,
$44,300 of which were due or callable in the year ended September 30, 2000,
$1,700 in 2001, $16,518 in 2002, $8,340 in 2003 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. INCOME TAXES
The Company was 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 had generally used the percentage of taxable
income method to calculate this addition. This addition differed from the bad
debt experience used for financial accounting purposes. Bad debt deductions for
income tax purposes were included in taxable income of later years only if the
bad debt reserve was used subsequently for purposes other than to absorb bad
debt losses. Because the Company did not intend to use the reserve for purposes
other than to absorb bad debt losses, generally accepted accounting principles
did not require that deferred income taxes be provided on that portion which
existed as of September 30, 1988. At September 30, 2000, retained earnings
included approximately $4,400 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
eliminated 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 required 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 components of
the Company's deferred tax assets and liabilities as of September 30, 2000 and
1999 are as follows (in thousands):
21
<PAGE>
2000 1999
Deferred tax assets:
MSP expense $ 120 $ 175
Allowance for loan losses 450 100
Unrealized loss on securities available-for-sale 517 480
Other 230 170
------- -------
Total deferred tax assets 1,317 925
------- -------
Deferred tax liabilities:
Deferred loan fees and costs, net 470 425
Tax over book depreciation 160 130
Dividends on FHLB stock 610 490
Other 17 165
------- -------
Total deferred tax assets (liabilities) 1,257 1,210
------- -------
Net deferred tax assets (liabilities) $ 60 $ (285)
======= =======
The components of income taxes are as follows (in thousands):
Year Ended
September 30,
---------------------------------
2000 1999 1998
Currently payable $2,236 $1,714 $2,142
Deferred (308) 175 (75)
------ ------ ------
$1,928 $1,889 $2,067
====== ====== ======
Income taxes differ from the amounts computed by applying the U.S. Federal
income tax rate of 34% to earnings before income taxes. The reasons for these
differences are as follows (in thousands):
Year Ended
September 30,
--------------------------
2000 1999 1998
Taxes computed at statutory rates $1,900 $1,835 $1,999
Increase in taxes due to miscellaneous items 28 54 68
------ ------ ------
$1,928 $1,889 $2,067
====== ====== ======
Actual tax rate 35% 35% 35%
====== ====== ======
10. NON-INTEREST EXPENSE
Occupancy, equipment and data processing expenses consisted of the following:
Year Ended
September 30,
-------------------------
2000 1999 1998
Occupancy, including depreciation, insurance,
rent, utilities, etc $ 879 $ 833 $ 751
Equipment, including depreciation, telephone, etc 1,569 1,408 1,155
Data processing 637 563 471
------ ------ ------
$3,085 $2,804 $2,377
====== ====== ======
Other operating expenses consisted of the following (in thousands):
Year Ended
September 30,
------------------------------
2000 1999 1998
Stationery, printing and postage $ 650 $ 696 $ 635
Other 1,525 1,503 1,039
------ ------ ------
$2,175 $2,199 $1,674
====== ====== ======
22
<PAGE>
11. OTHER COMPREHENSIVE INCOME
The adjustment to determine other comprehensive income as included in the
consolidated statements of changes in stockholders' equity consists of the
following for the years ended September 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Tax Net of
Before-Tax (Expense) Tax
Amount Credit Amount
<S> <C> <C> <C>
2000
----
Gross change in unrealized gain (loss) on
securities available-for-sale $ (79) $ 26 $ (53)
Less: Reclassification for gain included in net income -- -- --
------- ----- -------
Net change in unrealized gain (loss) on
securities available-for-sale $ (79) $ 26 $ (53)
======= ===== =======
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)
======= ===== =======
</TABLE>
12. RETIREMENT PLAN
The Company participates in a defined benefit multi-employer retirement plan
which covers substantially all employees. The plan is administered by the
Financial Institutions Retirement Fund. Charges to operations under the plan
include normal cost. There were no required payments in the years ended
September 30, 2000, 1999 and 1998. The market value of the net assets of the
retirement fund exceeds the liability of the present value of accrued benefits.
No separate information regarding the Company's share of the assets and
liabilities of this plan is available.
13. 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, 2000, 1999 and
1998:
Year Ended
September 30,
------------------------
2000 1999 1998
Weighted average number of common shares
outstanding - used in computation of basic
earnings per common share 2,346 2,660 3,106
Effect of dilutive securities:
Stock options -- 40 129
MSP stock grants 20 27 31
----- ----- -----
Weighted average number of common shares
outstanding plus effect of dilutive
securities - used in computation of
diluted earnings per common share 2,366 2,727 3,266
===== ===== =====
23
<PAGE>
14. 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 collateralized 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 $353, $436 and $617 for the years
ended September 30, 2000, 1999 and 1998, respectively. The following is a
summary of shares held in the ESOP Trust as of September 30, 2000 and 1999:
2000 1999
Shares released for allocation or committed to be released 178,306 146,101
Unreleased shares 142,167 175,401
-------- --------
Total ESOP shares 320,473 321,502
======== ========
Market value of unreleased shares $ 1,919 $ 2,653
======== ========
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 and 1998, 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 2000, 1999 or 1998. The following table summarizes activity
relating to the Plans:
Available Weighted
for Options Average
Grant Outstanding Price
Balance, October 1, 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
Reserved -- -- --
Granted -- -- --
------- ------- ------
Balance, September 30, 2000 3,200 526,332 $14.73
======= ======= ======
Exercisable at September 30, 1998 181,147 $13.95
======= ======
Exercisable at September 30, 1999 278,007 $14.20
======= ======
Exercisable at September 30, 2000 380,993 $14.35
======= ======
24
<PAGE>
Options exercisable at September 30, 2000 include 348,297 at $13.94 per share,
4,650 at $15.94 per share, 21,920 at $19.88 per share and 6,126 at $16.38 per
share. Outstanding options at September 30, 2000 include 432,200 at $13.94 per
share with an average remaining contractual life of 5 years, 8,650 at $15.94 and
6 years, 54,800 at $19.88 and 7 years and 30,682 at $16.31 and 9 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 $349, $400 and $468 for the
years ended September 30, 2000, 1999 and 1998, respectively. There were 32,502
unvested shares at September 30, 2000.
The Company applies APB Opinion No. 25 and related interpretations 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 and 1998 was $4.53 and $5.22, respectively.
Applying SFAS No. 123 would result in pro forma net income and income per share
amounts as follows:
2000 1999 1998
Net income:
As reported $ 3,660 $ 3,509 $ 3,813
Pro forma 3,285 3,115 3,428
Basic income per share:
As reported $ 1.56 $ 1.32 $ 1.23
Pro forma 1.40 1.17 1.10
Diluted income per share
As reported $ 1.55 $ 1.29 $ 1.17
Pro forma 1.39 1.16 1.06
The fair value of each option was 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.
15. 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, 2000, the Company had made various commitments to extend
credit totaling approximately $10,695 including $8,198 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 8.125% to 9.00% at September 30,
2000. The rates on variable rate loan commitments range from 6.875% to 8.50% at
September 30, 2000. As of September 30, 1999 such commitments totaled
approximately $15,400 including $11,010 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
25
<PAGE>
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.
16. 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 significant financial instruments are
as follows at September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
---------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and certificates of deposit $ 10,384 $ 10,384 $ 10,292 $ 10,292
Investment securities 57,209 57,242 63,460 63,460
Loans 390,142 386,000 346,523 342,000
Less: allowance for loan losses 3,630 3,630 3,537 3,537
------- ------- ------- -------
Loans, net of allowance 386,512 382,370 342,097 338,463
------- ------- ------- -------
Financial liabilities:
Deposits 309,896 308,400 303,084 301,600
Advances from Federal Home Loan Bank 111,853 112,600 78,682 78,300
</TABLE>
17. REGULATORY CAPITAL
The Bank's actual capital and its statutorially required capital levels based on
the consolidated financial statements accompanying these notes were as follows
(in thousands):
September 30, 2000
-----------------------------------------------------
To be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
----------------- -----------------
Actual Required Required
-------------- ----------------- -----------------
Amount % Amount % Amount %
Core capital $43,140 9.1% $18,982 4.0% $28,473 6.1%
Tangible capital $43,140 9.1% $ 7,118 1.5% N/A N/A
Total Risk based capital $46,588 16.8% $22,147 8.0% $27,683 10.0%
Leverage $43,140 9.1% N/A N/A $23,727 5.0%
26
<PAGE>
September 30, 1999
-----------------------------------------------------
To be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
----------------- -----------------
Actual Required Required
-------------- ----------------- -----------------
Amount % Amount % Amount %
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%
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires 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, 2000 and 1999 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.
18. SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY
(PARENT COMPANY ONLY)
Balance Sheets
2000 1999
Assets:
Investment in subsidiary $42,270 $40,277
Cash held by subsidiary 3,838 5,358
Due from ESOP 1,421 1,754
Other 1,092 1,311
------- -------
$48,621 $48,700
======= =======
Liabilities and stockholders' equity:
Stockholders' equity $48,621 $48,700
------- -------
$48,621 $48,700
======= =======
Statements of Earnings
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------
2000 1999 1998
<S> <C> <C> <C>
Dividends received from subsidiary $ 2,500 $ 17,000 $ --
Equity in earnings of subsidiary greater than
(less than) dividends received 1,152 (13,351) 3,871
Interest income from subsidiary 109 237 264
Management fees and other expenses allocated
to the Parent (150) (252) (252)
Other income (expenses), net 63 (195) (38)
Income tax (expense) credit (14) 70 (32)
------- ------- -------
Net income $ 3,660 $ 3,509 $ 3,813
======= ======= =======
</TABLE>
27
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------
2000 1999 1998
<S> <C> <C> <C>
Cash Flows from Operating Activities $ 2,484 $ 16,903 $ 1,273
-------- -------- --------
Cash Flows from Investing Activities:
Repayment of loan by subsidiary 333 332 364
-------- -------- --------
Net cash provided by investing activities 333 332 364
-------- -------- --------
Cash Flows from Financing Activities:
Borrowings under note payable agreement -- 6,767 347
Repayment of borrowings under loan agreement -- (7,114) --
Dividends paid (1,171) (1,338) (1,592)
Cash paid for purchase of common stock for treasury (3,265) (10,435) (400)
-------- -------- --------
Net cash used in financing activities (4,436) (12,120) (1,645)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,619) 5,115 (8)
Cash and cash equivalents, beginning of year 6,007 892 900
-------- -------- --------
Cash and cash equivalents, end of year $ 4,388 $ 6,007 $ 892
======== ======== ========
</TABLE>
Cash dividends of $2,500 and $17,000 were paid by Teche Federal Savings Bank to
Teche Holding Company in the years ended September 30, 2000 and 1999,
respectively.
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, 2000 was approximately $14,700.
19. NEW ACCOUNTING STANDARDS
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, as amended by SFAS No. 137, applies to all entities and is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt this accounting standard on October 1, 2000 and does not
presently believe that the adoption of it will have a significant effect upon
its financial position, results of operations or cash flows as of the date of
adoption.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
"Accounting for Transfers and Serving of Financial Assets and Extinguishments of
Liabilities" which establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Under this
Statement, after a transfer of financial assets, a company recognizes the
financial and serving assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This Statement provides consistent
standards for distinguished transfers of financial assets that are sales from
transfers that are secured borrowings.
SFAS No. 140 is generally effective for periods after March 31, 2001. The
Company will adopt this accounting standard on April 1, 2001. The Company is
presently studying the effect this statement will have on the Company, but based
on a preliminary analysis, does not believe that the adoption of it will have a
significant effect on its financial position, results of operations or cash
flows as of the date of adoption.
28
<PAGE>
[GRAPHIC OMITTED]
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
Donelson T. Caffery, Jr.
Henry L. Friedman
Mrs. Virginia Kyle Hine
Robert Judice, Jr. -
Advisory
Dr. Thomas F. Kramer
W. Ross Little, Jr.
Robert E. Mouton
Christian L. Olivier, Jr.
Mrs. Maunetta B. Risher -
Advisory
INDEPENDENT AUDITORS
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Deloitte & Touche, LLP
One Shell Square
701 Poydras Street
New Orleans, LA 70139
LEGAL COUNSEL
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Biggs, Trowbridge, Supple,
Cremaldi and Curet, L.L.P.
Lawless Building
Willow Street
Franklin, LA 70538
SPECIAL COUNSEL
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Malizia Spidi & Fisch, PC
1100 New York Avenue, N.W.,
Suite 340 West
Washington, D.C. 20005
REGISTRAR AND STOCK
TRANSFER AGENT
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Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 525-7686
Fax (908) 272-1006
Officers of Teche Federal Savings Bank
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Patrick O. Little Chairman, President/CEO
Robert E. Mouton Executive Vice President
Scott Sutton Senior Vice-President/
Operations
Faye L. Ibert Senior Vice-President
J.L. Chauvin Senior Vice-President/Treasurer
Chief Financial Officer
Darryl Broussard Senior Vice-President
Chief Lending Officer
Stanley Plessela Vice-President
D. Ross Landry Vice-President
W. Ross Little, Jr. Vice-President, Secretary
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
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
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