-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IVGgllwo8atQwVLfmKrLAgderCWvrcRfBn/p9kjF6Yq1makqxsqdAOOXOs03EDKN Sphm+p1qJeCESx4/NM7QbQ== 0000912057-97-011273.txt : 20010514 0000912057-97-011273.hdr.sgml : 20010514 ACCESSION NUMBER: 0000912057-97-011273 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACADIANA BANCSHARES INC /LA CENTRAL INDEX KEY: 0001011024 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 721317124 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-14364 FILM NUMBER: 97570048 BUSINESS ADDRESS: STREET 1: 107 WAEST VERMILION ST CITY: LAFAYETTE STATE: LA ZIP: 70501 BUSINESS PHONE: 3182324631 MAIL ADDRESS: STREET 1: 107 W VERMILION ST CITY: LAFAYETTE STATE: LA ZIP: 70501 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K / / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______ to ________ Commission File No.: 1-14364 Acadiana Bancshares, Inc. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Louisiana 72-1317124 - - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 107 West Vermilion Street Lafayette, Louisiana 70502 ------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (318) 232-4631 Securities registered pursuant to Section 12(b) of the Act: Common Stock (par value $0.01 per share) ---------------------------------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Not Applicable Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of March 27, 1997, the aggregate market value of the 2,731,250 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 105,887 shares held by all directors and officers of the Registrant as a group, was approximately $50.5 million. This figure is based on the closing sale price of $19.25 per share of the Registrant's Common Stock on March 27, 1997. Number of shares of Common Stock outstanding as of December 31, 1996: 2,731,250 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated. (1) Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1996 are incorporated into Part II, Items 5 through 8 of this Form 10-K. (2) Portions of the definitive proxy statement for the 1997 Annual Meeting of Stockholders to be filed within 120 days of Registrant's fiscal year end are incorporated into Part III, Items 9 through 13 of this Form 10-K. PART I. Item 1. Business. General Acadiana Bancshares, Inc., ("the Company) is a Louisiana corporation organized in February 1996 by LBA Savings Bank (the "Bank" or the "Savings Bank") for the purpose of acquiring all of the capital stock of the Bank to be issued by the Bank in the conversion (the "Conversion") of the Bank from the mutual to stock form, which was completed on July 16, 1996. The only significant assets of the Company are the capital stock of the Bank, the Company's loan to an employee stock ownership plan ("ESOP"), and the net Conversion proceeds retained by the Company. To date, the business of the Company has consisted of the business of the Bank. The Company's common stock trades on the American Stock Exchange under the symbol "ANA." At December 31, 1996, the Company had total assets of $264.4 million, total deposits of $193.5 million, and stockholders' equity of $47.1 million. The Bank is a Louisiana chartered, stock savings bank conducting business from its main office and three branch offices, all located in Lafayette, Louisiana and one loan production office in Eunice, Louisiana. Deposits at the Bank are insured, up to applicable limits, by the Savings Association Insurance Fund ("SAIF") which is administered by the Federal Deposit Insurance Corporation ("FDIC"). The Company's principal business has been, and continues to be, attracting deposits from its customers and investing such funds in residential real estate loans and other loans through its continuing operation of the Bank. At December 31, 1996, the Company's loan portfolio totaled $182.7 million, or 69.1% of the Company's assets. In addition to its lending activities, the Company also invests in mortgage-backed securities and investment securities. The Company's mortgage-backed securities portfolio totaled $34.7 million, or 13.1% of the Company's total assets at December 31, 1996, and its investment securities portfolio amounted to $20.5 million, or 7.8% of total assets at such date. Traditionally, the Company's principal source of funds has come from deposits. At December 31, 1996, the Company had total deposits of $193.5 million, of which $46.7 million, or 24.1%, consisted of core deposits which include passbook, money market deposits ("MMDA"), negotiable order of withdrawal ("NOW") and noninterest-bearing accounts and $146.8 million, or 75.9%, consisted of certificates of deposit, including $36.0 million of deposit accounts equal to or exceeding $100,000. The Company, as a bank holding company, is subject to regulation and supervision by the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "FRB"). The Bank is subject to examination and comprehensive regulation by the Office of Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's chartering authority and primary regulator. The Bank is also subject to regulation by the FDIC, as the 2 administrator of the SAIF, and to certain reserve requirements established by the FRB. The Bank is a member of the Federal Home Loan Bank ("FHLB") of Dallas which is one of twelve regional banks comprising the FHLB System. The Company's executive office is located at 101 West Vermilion Street, Lafayette, Louisiana, 70501, and its telephone number is (318) 232-4631. 3 Lending Activities Loan Portfolio Composition. The following table sets forth the composition of the Company's loan portfolio by type of loan at the dates indicated.
At December 31, ---------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 -------------------- ------------------ ----------------- ------------------ ------------------ Percent of Percent Percent Percent Percent Balance Total Balance of Total Balance of Total Balance of Total Balance of Total ------- ---------- ------- -------- ------- -------- ------- -------- ------- -------- (Dollars in thousands) Type of loan: Real estate loans: Residential single family.......... $142,965 78.24% $127,656 80.96% $120,483 79.71% $115,308 75.22% $110,332 71.54% Construction..... 10,565 5.78% 7,304 4.63 6,908 4.57 5,339 3.48 7,902 5.12 Multi-family residential..... 862 0.47% 1,202 0.76 1,638 1.08 2,049 1.34 2,380 1.54 Commercial and other real estate.......... 12,873 7.05% 13,370 8.48 13,505 8.93 15,973 10.42 17,447 11.31 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total real estate loans............ 167,265 91.54% 149,532 94.83 142,534 94.29 138,669 90.46 138,061 89.51 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Non-real estate loans: Consumer...... 16,727 9.15% 13,704 8.69 12,749 8.43 17,793 11.61 21,030 13.64 Commercial business..... 7,363 4.03% 1,358 0.86 1,479 0.98 1,394 0.91 1,478 0.96 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total non-real estate loans........... 24,090 13.18% 15,062 9.55 14,228 9.41 19,187 12.52 22,508 14.60 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans...... 191,355 104.72% 164,594 104.38 156,762 103.70 157,856 102.98 160,569 104.11 Less: Undisbursed loan funds.......... 5,899 3.23% 4,292 2.72 3,593 2.37 2,929 1.91 5,004 3.24 Unearned discounts...... (331) (-0.18)% (206) -0.13 498 0.33 600 0.39 673 0.44 Allowance for loan losses.... 2,592 1.42% 2,329 1.48 1,087 0.72 1,015 0.66 981 0.64 Net deferred fees (cost).... 471 0.26% 488 0.31 423 0.28 28 0.02 (322) (0.21) -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans, net.. $182,724 100.0% $157,691 100.00% $151,161 100.00% $153,284 100.00% $154,233 100.00% -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
4 Contractual Maturities. The following table sets forth the time to contractual maturity of the Company's loan portfolio at December 31, 1996. Over One Less than Through Over Five One Year Five Years Years Total --------- ---------- ---------- ----- (Dollars in Thousands) Residential single-family mortgage loans............ $5,070 $22,845 $115,050 $142,965 Multi-family residential... 49 246 567 862 Commercial and other real estate............... 820 3,782 8,271 12,873 Construction loans......... 10,565 -- -- 10,565 Commercial business loans.. 2,335 2,577 2,451 7,363 All Other loans............ 2,593 10,522 3,612 16,727 ------- ------- -------- --------- Total...................... $21,432 $39,972 $129,951 $191,355 ------- ------- -------- --------- ------- ------- -------- --------- The following table sets forth the dollar amount at December 31, 1996 of all loans maturing after December 31, 1997 by fixed and adjustable interest rates. Fixed Adjustable Rates Rates ----- ---------- (In thousands) Loans secured by 1-4 family residential property.......... $63,870 $74,025 All other loans secured by real estate................ 3,957 8,909 All other loans................ 17,609 1,553 ------- ------- $85,436 $84,487 ------- ------- ------- ------- Scheduled amortization does not reflect the expected term of the Company's loan portfolio. The average life of loans is substantially less than their contractual terms because of prepayments and due-on-sale clauses, which give the Company the right to declare a conventional loan immediately due and payable in the event, among other things that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are lower than current mortgage loan rates (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstances, the weighted average yield on loans decreases as higher-yielding loans are repaid or refinanced at lower rates. 5 Loan Origination and Sales Activity. The table below sets forth the Company's total loan origination and loan reduction experience during the periods indicated. The Company historically has not made any loan purchases. Years Ended December 31, ------------------------------- 1996 1995 1994 ---- ---- ---- (In Thousands) Loans receivable, net beginning of period............ $157,691 $151,161 $153,284 Loan originations: Residential single family...... 27,612 16,172 21,679 Construction loans............. 20,059 7,810 8,015 Multi-family residential....... -- -- -- Commercial and other real estate................... 15 870 1,073 Commercial business loans...... 7,334 723 815 Consumer loans................. 13,078 10,162 5,792 -------- -------- ------- Total loan originations...... 68,098 35,737 37,374 -------- -------- ------- Loan reductions: Loan sales..................... (6,460) (1,551) (557) Principal repayments........... (34,611) (26,219) (38,098) Other changes, net(1).......... (1,994) (1,437) (842) -------- -------- ------- Total loan reductions........ (43,065) (29,207) (39,497) -------- -------- ------- Loans receivable, net end of period...................... $182,724 $157,691 $151,161 -------- -------- ------- -------- -------- ------- - - ---------------------------- (1) Includes changes in net deferred loan fees, allowance for loan losses, unearned discounts and loans in process. The lending activities of the Company are subject to written underwriting standards and loan origination procedures established by the Company's Board of Directors and management. Applications for residential mortgage loans are taken by one of the Company's mortgage officers, while the Company's designated consumer lenders have primary responsibility for taking consumer loan applications, and its commercial lending officers have primary responsibility for taking commercial business and commercial real estate loan applications. The Company's loan originators will take loan applications at any of the Company's offices and, on occasion, outside of the Company's offices at the customer's convenience. The process of underwriting loans and obtaining appropriate documentation, such as credit reports, appraisals and other documentation is centralized in the Company's main office. The Company's commercial loan officers are responsible for overseeing the underwriting of all commercial business and commercial real estate loans. The Company generally requires that a property appraisal be obtained in connection with 6 all new mortgage loans. Property appraisals generally are performed by an independent appraiser from a list approved by the Company's Board of Directors. LBA Savings requires that title insurance or a title opinion (other than with respect to home equity loans) and hazard insurance be maintained on all security properties and that flood insurance be maintained if the property is within a designated flood plain. Residential mortgage loan applications are primarily developed from advertising, referrals from real estate brokers and builders, existing customers and walk-in customers. Commercial real estate and commercial business loan applications are obtained primarily from previous borrowers, direct solicitations by Company personnel, as well as referrals. Consumer loans originated by the Company are obtained primarily from advertising, and through existing and walk-in customers. Applications for real estate mortgage loans, construction loans and commercial business loans must be reviewed and approved by the Loan Committee of the Company's Board of Directors. Unsecured consumer loans in amounts up to $25,000 and secured consumer loans in amounts up to $50,000 may be approved by designated senior loan officers of the Company. The Company's Commercial Lending Manager has authority to approve secured commercial business loans in amounts up to $100,000. The Company's President and Chief Executive Officer has authority to approve loans in amounts up to $250,000. Loans exceeding the above-described amounts but which are less than $500,000 must be approved by the Loan Committee of the Company's Board of Directors. Loans in excess of $500,000 must be reviewed and approved by the full Board of Directors of the Company. Single-Family Residential Loans. Substantially all of the Company's single-family residential mortgage loans consist of conventional loans. Conventional loans are loans that are neither insured by the Federal Housing Administration ("FHA") or partially guaranteed by the Department of Veterans Affairs ("VA"). The vast majority of the Company's single-family residential mortgage loans are secured by properties located in Lafayette, Louisiana and the Louisiana parishes immediately contiguous to Lafayette Parish, and are originated under terms and documentation which permit their sale to the Federal Home Loan Mortgage Corporation ("FHLMC"), the FHA, or the Federal National Mortgage Association ("FNMA"). Sales of residential mortgage loans have been insignificant to date. As of December 31, 1996, $143.0 million, or 78.2%, of the Company's total loans consisted of single-family residential mortgage loans. The Company's residential mortgage loans have either fixed rates of interest or interest rates which adjust periodically during the term of the loan. Fixed-rate loans generally have maturities ranging from 15 to 30 years and are fully amortizing with monthly loan payments sufficient to repay the total amount of the loan with interest by the end of the loan term. The Company's fixed-rate loans generally are originated under terms, conditions, and documentation which permit them to be sold to U.S. Government-sponsored agencies, such as the FNMA and the FHLMC, and other investors in the secondary market 7 for single-family residential mortgages. At December 31, 1996, $67.5 million, or 47.2%, of the Company's single-family residential mortgage loans were fixed-rate loans. At December 31, 1996, the weighted average remaining term to maturity of the Company's fixed-rate, single-family residential mortgage loans was approximately 15 years. Substantially all of the Company's fixed-rate, single family residential mortgage loans contain due-on-sale clauses, which permit the Company to declare the unpaid balance to be due and payable upon the sale or transfer of any interest in the property securing the loan. The Company enforces such due-on-sale clauses. The adjustable-rate loans currently offered by the Company have interest rates which adjust on an annual basis from the closing date of the loan or an annual basis commencing after an initial fixed-rate period of one, three, five, seven or ten years in accordance with a designated index (the primary index utilized by the Company is the Eleventh District Cost of Funds for SAIF-Insured Institutions), plus a stipulated margin. The Company's adjustable-rate single-family residential real estate loans generally have a cap of 2% on any increase or decrease in the interest rate at any adjustment date, and include a specified cap on the maximum interest rate over the life of the loan, which cap generally is 4% to 6% above the initial rate. The Company's adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate of an adjustable-rate loan be sufficient to result in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, or so-called negative amortization. From time-to-time, based on prevailing market conditions, the Company may offer adjustable-rate loans with "teaser" rates, i.e., initial rates below the fully indexed rate. At December 31, 1996, $75.5 million or 52.8%, of the Company's single-family residential mortgage loans were adjustable-rate loans. Adjustable-rate loans decrease the risks associated with changes in interest rates but involve other risks, primarily because as interest rates increase, the loan payment by the borrower increases to the extent permitted by the terms of the loan, thereby increasing the potential for default. Moreover, as with fixed-rate loans, as interest rates increase, the marketability of the underlying collateral property may be adversely affected by higher interest rates. The Company believes these risks, which have not had a material adverse effect on the Company to date because of the generally declining or flat interest rate environment in recent years, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. For conventional residential mortgage loans held in the portfolio and also for those loans originated for sale in the secondary market, the Company's maximum loan-to-value ("LTV") ratio is 80%, and is based on the lesser of sales price or appraised value. Generally on loans with a LTV ratio of over 80%, private mortgage insurance ("PMI") is required on the amount of the loan in excess of 80% of value. However, the Loan Committee may approve loans with LTV ratios of up to 89.5% without PMI. 8 Commercial and Other Real Estate Loans and Multi-Family Residential Loans. At December 31, 1996, the Company had $12.9 million in outstanding loans secured by commercial and other real estate. Such commercial and other real estate loans, which comprised 7.0% of the Company's total loan portfolio at December 31, 1996, are secured primarily by office and other commercial buildings, retail and manufacturing properties and church properties. At such date, 145,000, or 1.1%, of the Company's commercial and other real estate loans were non-performing loans. The Company's commercial real estate loans generally are one-year adjustable loans indexed to the New York Prime Rate, as quoted in The Wall Street Journal, plus a margin. Generally, fees of 50 basis points to 2% of the principal loan balances are charged to the borrower upon closing. Although terms for multi-family residential and commercial real estate loans may vary, the Company's underwriting standards generally provide for terms of up to ten years, with amortization of principal over the term of the loan and LTV ratios of not more than 75%. Generally, the Company obtains personal guarantees of the principals as additional security for any commercial real estate and multi-family residential loans. At December 31, 1996, the Company had $862,000 of multi-family residential real estate loans. The Company has not originated any new multi-family residential loans during the past two years, and does not anticipate becoming an active originator of multi-family residential loans. The Company evaluates various aspects of commercial and multi-family residential real estate loan transactions in an effort to mitigate risk to the extent possible. In underwriting these loans, consideration is given to the stability of the property's cash flow history, future operating projections, current and projected occupancy, position in the market, location and physical condition. In recent periods, the Company has also generally imposed a debt coverage ratio (the ratio of net cash from operations before payment of debt service to debt service) of not less than 150%. The underwriting analysis also includes credit checks and a review of the financial condition of the borrower and guarantor, if applicable. An appraisal report is prepared by a state-licensed or certified appraiser (generally Master Appraisal Institute ("MAI") certified) commissioned by the Company to substantiate values for every commercial real estate and multi-family loan transaction. All appraisal reports are reviewed by the Company prior to the approval of the loan. On occasion the Company also retains a second independent appraiser to review an appraisal report. Commercial real estate and multi-family residential lending entails different and significant risks when compared to single-family residential lending because such loans often involve large loan balances to single borrowers and because the payment experience on such loans is typically dependent on the successful operation of the project or the borrower's business. These risks can also be significantly affected by supply and demand conditions in the local market for apartments, offices, warehouses or other commercial space. The 9 Company attempts to minimize its risk exposure by limiting such lending to proven businesses, only considering properties with existing operating performance which can be analyzed, requiring conservative debt coverage ratios, and periodically monitoring the operation and physical condition of the collateral. Construction Loans. Substantially all of the Company's construction loans have consisted of loans to construct single-family residences. As of December 31, 1996, the Company's construction loans amounted to $10.6 million, or 5.8% of the Company's total loan portfolio. The Company makes construction loans both to individuals and to builders. Construction loans made to individuals for one-to-four family residences normally are construction/permanent loans which provide for the payment of interest during the construction period, after which the loan converts to a permanent loan at fixed or adjustable interest rates with monthly amortization of principal and interest. Construction loans to individuals for single-family residential properties generally have a maximum LTV ratio of 80% of the sales price or appraised value of the property, whichever is less. Higher ratios require PMI. The Company originated $14.9 million of single-family construction loans to individuals during the year ended December 31, 1996. The Company's policies permit loans to builders constructing single-family residential properties on a speculative basis; however, such policies generally limit a builder to two such loans. Other builder loans are made to finance construction of residences which have been pre-sold prior to loan closing. Loans made to builders generally require the payment of interest during the construction period and the payment of the principal in full at the end of the construction period. Construction loans to builders made on a speculative basis are generally limited to 85% of the appraised value of the property. The Company originated $4.7 million in single family construction loans to builders during the year ended December 31, 1996. Prior to making a commitment to fund a construction loan, the Company requires an appraisal of the property by an independent state-licensed or qualified appraiser approved by the Board of Directors. In addition, during the term of the construction loan, the project periodically is inspected by an independent inspector. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of value proves to be inaccurate, the Company may be confronted, at or prior to maturity of the loan, with a project, when completed, having a value which is insufficient to assure full repayment. Loans on lots may run the risk of adverse zoning changes, environmental or other restrictions on future use. 10 As of December 31, 1996, none of the Company's construction loans were considered non-performing. Consumer Loans. The Company offers consumer loans in order to provide a full range of retail financial services to its customers. At December 31, 1996, $16.7 million, or 9.2% of the Company's total loan portfolio was comprised of consumer loans. The Company originates substantially all of such loans in its primary market area. Origination of consumer loans by the Company amounted to $13.1 million in 1996 compared to $10.2 million and $5.8 million in 1995 and 1994, respectively. The primary reason for the increase in consumer loans originated in 1996 and 1995 were the result of the Company's determination to increase its portfolio of automobile loans due to their generally higher yields and shorter terms to maturity compared to mortgage loans. During 1996, the Company discontinued its indirect automobile loan origination program which it had initiated during 1995. Indirect automobile loans originated accounted for approximately 43.6% and 39.3% of the Company's total consumer loans originated during 1996 and 1995, respectively. Although applications for such loans are taken by employees of the dealer, the loans are made pursuant to the Company's underwriting standards using the Company's documentation, and all such indirect loans must be approved by a loan officer of the Company before disbursement of loan proceeds. The Company also originates automobile loans directly, primarily to existing customers. During the years ended December 31, 1996, 1995, and 1994, the Company directly originated $2.2 million, $1.9 million, and $1.3 million, respectively, in automobile loans. Consumer finance loans generally involve more credit risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral. In addition, consumer lending collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In many cases, any repossessed collateral for a defaulted consumer finance loan will not provide an adequate source of repayment of the outstanding loan balance because of improper repair and maintenance of the underlying security. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. As of December 31, 1996, $45,000, or 0.6% of the Company's consumer loans from indirect origination activities were considered non-performing. As of December 31, 1996, $96,000, or 0.6% of the Company's total consumer loans were considered non-performing. Commercial Business Loans. At December 31, 1996, the Company's commercial business loans amounted to $7.4 million, or 4.0% of the Company's net loan portfolio. Prior to 1996, the Company had not been an active originator of commercial business loans, and, the Company's outstanding commercial business loans at December 31, 1995 were comprised entirely of an existing line of credit to one Lafayette, Louisiana automobile leasing company. 11 Due to the generally higher yields available and/or adjustable interest rates, the Company resolved to increase its emphasis on originated commercial business loans. In February 1996, the Company hired a new Senior Vice President--Commercial Lending Manager with extensive experience in commercial lending in southwestern Louisiana. The Company intends to concentrate its commercial lending activities among small- to mid-size businesses in Lafayette, Louisiana and contiguous parishes in a manner consistent with its current underwriting standards. Commercial business lending generally involves more credit risk than traditional, single-family residential mortgage lending. Origination of commercial business loans by the Company amounted to $7.3 million in 1996, compared to $723,000, and $815,000 in 1995 and 1994, respectively. The primary reason for the increase in commercial business loans originated in 1996 was the hiring of the new commercial loan officer in February 1996. As of December 31, 1996, the Company had no non-performing commercial business loans. Loans-to-One Borrower Limitations. The Louisiana Savings Bank Act of 1990 (the "LSBA") imposes limitations on the aggregate amount of loans that a Louisiana chartered savings bank can make to any one borrower. Under the LSBA, the permissible amount of loans-to-one borrower may not exceed 15% of a savings bank's total net worth. In addition, a savings bank may make loans in an amount equal to an additional 10% of a savings bank's net worth if the loans are 100% secured by readily marketable collateral. A savings bank's net worth shall be calculated based on its last quarterly call report and consists of (i) outstanding and unimpaired common stock; (ii) outstanding and unimpaired perpetual preferred stock; (iii) unimpaired capital surplus, undivided profits, capital reserves, minus intangible assets; (iv) purchased mortgage servicing rights; and (v) mandatory convertible debt up to 20% of categories (i) through (iv). Readily marketable collateral consists of financial instruments or bullion which are salable under ordinary circumstances with reasonable promptness at fair market value or on an auction or a similarly available daily bid and ask price market. At December 31, 1996, the Company's limit on loans-to-one borrower under LSBA was approximately $5.1 million. At December 31, 1996, the Company's five largest loans or groups of loans-to-one borrower ranged from $1.0 million to $2.3 million, and all such loans were performing in accordance with their terms. Asset Quality General. As part of the Company's efforts to improve its asset quality, it has developed and implemented an asset classification system. All of the Company's assets are subject to review under the classification system. All assets of the Company are periodically reviewed and the classifications are reviewed by the Audit Committee of the Board of Directors on at least a quarterly basis. When a borrower fails to make a required payment on a loan, the Company attempts to cure the deficiency by contacting the borrower and seeking payment. Contacts are 12 generally made 16 days after a payment is due. In most cases, deficiencies are cured promptly. If a delinquency continues, late charges are assessed and additional efforts are made to collect the loan. While the Company generally prefers to work with borrowers to resolve such problems, when the account becomes 90 days delinquent, the Company institutes foreclosure or other proceedings, as necessary, to minimize any potential loss. Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. As a matter of policy, the Company does not accrue interest on loans past due 90 days or more. Real estate acquired by the Company as a result of foreclosure or by deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed under generally accepted accounting principles ("GAAP") are classified as real estate owned until sold. Pursuant to Statement of Procedure ("SOP") 92-3 issued by the American Institute of Certified Public Accountants ("AICPA") in April 1992, which provides guidance on determining the balance sheet treatment of foreclosed assets in annual financial statements for periods ending on or after December 15, 1992, there is a refutable presumption that foreclosed assets are held for sale and such assets are recommended to be carried at the lower of fair value minus estimated costs to sell the property, or cost (generally the balance of the loan on the property at the date of acquisition). After the date of acquisition, all costs incurred in maintaining the property are expensed and costs incurred for the improvement or development of such property are capitalized up to the extent of their net realizable value. The Company's accounting for its real estate owned complies with the guidance set forth in SOP 92-3. At December 31, 1996 the net carrying value of the Company's real estate owned was $75,000. Under GAAP, the Company is required to account for certain loan modifications or restructurings as "troubled debt restructurings". In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that the Company would not otherwise consider under current market conditions. Debt restructurings, however, and troubled debt restructurings do not necessarily result in non-accrual loans. The Company had $535,600 of loans deemed to be troubled debt restructurings as of December 31, 1996. 13 Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 1996, in dollar amounts and as a percentage of each category of the Company's loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts which are past due. December 31, 1996 ---------------------------------------------------- 30-59 Days 60-89 Days -------------------------- ---------------------- Percent of Percent of Amount Loan Category Amount Loan Category ------ ------------- ------ ------------- (Dollars in Thousands) Mortgage loans: Residential: Single-family....... $550 0.38% $181 0.13% Multi-family........ -- 0.00 -- 0.00 Commercial and other real estate.. 28 0.22 -- 0.00 Construction........ -- 0.00 -- 0.00 Consumer............ 326 1.92 52 0.31 Commercial business........... -- -- -- -- ---- ---- Total Loans....... $904 .49% $233 .15% ---- ---- ---- ---- 14 Non-Performing Assets and Troubled Debt Restructurings. The following table sets forth information with respect to non-performing assets identified by the Company, including non-accrual loans, other real estate owned, and non-performing investments in real estate at the dates indicated.
At December 31, ------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (Dollars in Thousands) Accruing loans 90 days or more past due: Residential single-family..... $-- $-- $377 $1,543 $1,236 Construction.................. -- -- -- -- -- Multi-family residential...... -- -- -- 76 -- Commercial and other real estate.................. -- -- -- 240 121 Consumer...................... -- -- 96 152 125 Commercial business........... -- -- -- -- -- ---- ----- ----- -------- -------- Total accruing loans........ -- -- 473 2,011 1,482 ---- ----- ----- -------- -------- Non-accrual loans: Residential single-family..... 632 527 72 229 97 Construction.................. -- -- -- -- -- Multi-family residential...... -- -- -- -- -- Commercial and other real estate.................. 145 197 -- 452 405 Consumer...................... 96 16 21 105 131 Commercial business........... -- -- -- -- -- ---- ----- ----- -------- -------- Total non-accrual loans........ 873 740 93 786 633 ---- ----- ----- -------- -------- Total non-performing loans..... 873 740 566 2,797 2,115 Other real estate owned, and repossessed assets............ 75 845 2,449 2,693 3,554 ---- ----- ----- -------- -------- Total non-performing assets.... $948 $1,585 $3,015 $5,490 $5,669 ---- ----- ----- -------- -------- ---- ----- ----- -------- -------- Performing troubled debt restructurings................ $536 $878 $954 $996 $1,044 ---- ----- ----- -------- -------- ---- ----- ----- -------- -------- Total non-performing assets and troubled debt restructurings... $1,484 $2,463 $3,969 $6,486 $6,713 ---- ----- ----- -------- -------- ---- ----- ----- -------- -------- Non-performing assets to total loans.......................... 0.52% 1.01% 1.92% 3.48% 3.53% Non-performing assets to total assets......................... 0.36% 0.70% 1.35% 2.35% 2.45% Non-performing loans to total loans.......................... 0.48% 0.45% 0.36% 1.77% 1.32% Non-performing loans to total assets......................... 0.33% 0.33% 0.25% 1.20% 0.91% Total non-performing assets and troubled debt restructurings to total assets................ 0.56% 1.03% 1.78% 2.78% 2.90%
For the year ended December 31, 1996, approximately $131,000 in gross interest income would have been recorded on loans accounted for on a non-accrual basis and troubled debt restructurings if such loans had been current in accordance with their original terms and had been outstanding throughout the year or since origination if held for part of the year. For the year ended December 31, 1996, $78,000 was included in net income for these loans. 15 Other Classified Assets. Federal regulations require that the Company classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them in their reports of examination. There are three classifications for problem assets: "substandard,", "doubtful" and "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. At December 31, 1996, the Company had $2.1 million of assets classified substandard and no assets classified as doubtful or loss. At such date, the aggregate of the Company's classified assets amounted to .8% of total assets. Potential Problem Loans. The Company has identified a group of residential mortgage loans which were originated under its discontinued program of making loans to facilitate the sale of real estate owned, and which, at December 31, 1996, totaled $6.0 million, or 3.3% of the Company's gross loan portfolio. Loans in this portfolio were originated at 90% to 100% of collateral value, without credit enhancements such as private mortgage insurance. Although the portfolio is not currently demonstrating credit problems evidenced by delinquent loan payments, the Company recognizes that these loans are secured primarily by residential real estate which generally became severely depressed during the most recent economic downturn. In that regard, the Company has serious concerns that the collateral values would again become severely adversely affected in the next economic downturn. Accordingly, the Company believes the relative credit risk with regard to this group of loans to be higher than that of its other residential mortgage loans, taken as a whole. Also, during 1995, the Company commenced a program of originating automobile loans indirectly through a network of approximately 12 new and used automobile dealers located in Lafayette, Louisiana, and in nearby parishes. Although the Company determined to discontinue this program (see "Business--Consumer Loans") in 1996, the outstanding portfolio totaled $7.4 million at December 31, 1996, or 4.1% of the Company's net loans. This group of loans has demonstrated much higher delinquency ratios than that of the Company's other secured consumer loans. Several of the loans in this portfolio demonstrated serious credit problems such as first payment default. Also, the Company's recent experience during the fourth quarter of 1996 indicates that the collateral values securing those loans which became delinquent are generally insufficient to cover the amounts due the Company. Accordingly, the Company believes this indirect loan portfolio has higher relative credit risks than that of its other consumer loans, taken as a whole. 16 Allowance for Loan Losses. The Company's policy is to establish reserves for estimated losses on loans when it determines that losses are expected to be incurred on such loans. The allowance for losses on loans is maintained at a level believed adequate by management to absorb potential losses in the portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loss experience, current economic conditions, volume, growth, and composition of the portfolio, and other relevant factors. The allowance is increased by provisions for loan losses which are charged against income. As shown in the table below, at December 31, 1996, the Company's allowance for loan losses amounted to 183.96% and 1.35% of the Company's non-performing loans and troubled debt restructurings, and gross loans, respectively. Effective December 21, 1993, the FDIC, in conjunction with the Office of the Comptroller of the Currency, the Office of Thrift Supervision ("OTS") and the Federal Reserve Board, issued the Policy Statement regarding an institution's allowance for loan and lease losses. The Policy Statement, which reflects the position of the issuing regulatory agencies and does not necessarily constitute GAAP, includes guidance (i) on the responsibilities of management for the assessment and establishment of an adequate allowance and (ii) for the agencies' examiners to use in evaluating the adequacy of such allowance and the policies utilized to determine such allowance. The Policy Statement also sets forth quantitative measures for the allowance with respect to assets classified substandard and doubtful and with respect to the remaining portion of an institution's loan portfolio. Specifically, the Policy Statement also sets forth quantitative measures which examiners may use to determine the reasonableness of an allowance; (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the portfolio that is classified substandard; and (iii) for the portions of the portfolio that have not been classified (including loans designated special mention), estimated credit losses over the upcoming 12 months based on facts and circumstances available on the evaluation date. While the Policy Statement sets forth this quantitative measure, such guidance is not intended as a "floor" or "ceiling." The review of the Policy Statement did not result in a material adjustment to the Company's policy for establishing loan losses. 17 The following table describes the activity related to the Company's allowance for possible loan losses for the periods indicated.
Years Ended December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (Dollars in Thousands) Balance, beginning of period..... $2,329 $1,087 $1,015 $981 $208 Provision for loan losses........ 355 1,274 63 235 1,293 Charge-offs: Residential single-family....... -- (70) (37) (42) (231) Construction.................... -- -- -- -- -- Multi-family residential........ -- (7) -- -- -- Commercial and other real estate.................... (67) -- -- -- (98) Commercial business............. -- -- (11) -- -- Consumer........................ (210) (50) (135) (211) (240) ------- ----- ------ ----- ------ Total charge-offs............. (277) (127) (183) (253) (569) ------- ----- ------ ----- ------ Recoveries: Residential single-family....... 87 10 72 29 46 Construction.................... -- -- -- -- -- Multi-family residential........ -- -- -- -- -- Commercial and other real estate................... 10 -- 55 -- -- Commercial business............. -- -- -- -- -- Consumer........................ 88 85 65 23 3 ------- ----- ------ ----- ------ Total recoveries.............. 185 95 192 52 49 ------- ----- ------ ----- ------ Net (charge-offs)/recoveries..... (92) (32) 9 (201) (520) ------- ----- ------ ----- ------ Balance, end of period........... 2,592 2,329 1,087 1,015 981 ------- ----- ------ ----- ------ ------- ----- ------ ----- ------ Allowance for loan losses to total non-performing loans and troubled debtrestructurings at end of period................ 183.96% 143.94% 73.10% 26.76% 31.05% ------- ----- ------ ----- ------ ------- ----- ------ ----- ------ Allowance for loan losses to total loans at end of period.. 1.35% 1.41% 0.69% 0.64% 0.61% ------- ----- ------ ----- ------ ------- ----- ------ ----- ------
18 The following table presents an allocation of the allowance for losses on loans by the categories indicted and the percentage that loans in each category bear to the total loans. This allocation is used by management to assist in its evaluation of the Company's loan portfolio. It should be noted that allocations are no more than estimates and are subject to revisions as conditions change. Based upon historical loss experience and the Company's assessment of its loan portfolio, all of the Company's allowances for losses on loans have been allocated to the categories indicated. Allocations of these loans are based primarily on the creditworthiness of each borrower. In addition, general allocations are also made to each category based upon, among other things, the current and future impact of economic conditions on the loan portfolio taken as a whole. Losses on loans made to consumers are reasonably predictable based on the prior loss experience and a review of current economic conditions.
At December 31, --------------------------------------------------------------------------------------------------------- Percent Percent Percent Percent Percent of Loans of Loans of Loans of Loans of Loans 1996 to Gross 1995 to Gross 1994 to Gross 1993 to Gross 1992 to Gross Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ -------- ------ -------- ------ -------- ------ -------- ------- --------- (Dollars in thousands) Real estate loans: Residential single-family....... $1,565 74.71% $1,773 77.56% $597 76.86% $542 73.05% $677 68.91% Construction......... 58 5.52 22 4.44 15 4.41 15 3.38 18 4.92 Multi-family residential......... 7 0.45 80 0.73 30 1.04 33 1.30 15 1.48 Commercial and other real estate......... 460 6.73 331 8.12 277 8.62 245 10.12 102 10.87 ------ ----- ------ ----- ---- ----- ---- ----- ---- ----- Total real estate loans................ 2,090 89.41 2,206 90.85 919 90.93 835 87.85 812 85.98 ------ ----- ------ ----- ---- ----- ---- ----- ---- ----- Non-real estate loans: Commercial business... 163 3.85 26 0.82 -- 0.94 -- 0.88 -- 0.92 Consumer.............. 339 8.74 97 8.33 168 8.13 180 11.27 169 13.10 ------ ----- ------ ----- ---- ----- ---- ----- ---- ----- Total non-real estate loans......... 502 12.59 123 9.15 168 9.07 180 12.15 169 14.02 ------ ----- ------ ----- ---- ----- ---- ----- ---- ----- Total allowance for loan losses.......... $2,592 100.00% $2,329 100.00% $1,087 100.00% $1,015 100.0% $981 100.00% ------ ----- ------ ----- ---- ----- ---- ----- ---- ----- ------ ----- ------ ----- ---- ----- ---- ----- ---- -----
19 Management of the Company presently believes that its allowance for loan losses is adequate to cover any potential losses in the Company's loan portfolio. However, future adjustments to this allowance may be necessary, and the Company's results of operations could be adversely affected if circumstances differ substantially from the assumptions used by management in making its determinations in this regard. Investment Activities General. Interest income from mortgage-backed securities and investment securities generally provides the second largest source of income to the Company after interest on loans. The Company's Board of Directors has authorized investments in U.S. Government and agency securities, obligations of the FHLB, and mortgage-backed securities issued by FNMA and FHLMC. The Company's objective is to use such investments to reduce interest rate risk, enhance yields on assets and provide liquidity. On December 31, 1996, the Company's mortgage-backed securities and investment securities portfolio amounted to $34.7 million and $20.5 million, respectively. At such date, the Company had an unrealized gain of $383,100, net of deferred taxes, with respect to its securities available for sale. Mortgage-Backed Securities. As of December 31, 1996, the Company's mortgage-backed securities amounted to $34.7 million, or 13.1% of total assets. The Company's mortgage-backed securities portfolio provides a means of investing in housing-related mortgage instruments without the costs associated with originating mortgage loans for portfolio retention and with limited credit risk of default which arises in holding a portfolio of loans to maturity. Mortgage-backed securities (which also are known as mortgage participation certificates or pass-through certificates) represents a participation interest in a pool of single-family or multi-family mortgages. The servicer, through intermediaries (generally U.S. Government agencies and government-sponsored enterprises) pool and repackage the participation interests in the form of securities, to investors such as the Company. Such U.S. Government agencies and government sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include the FHLMC, the FNMA and the Government National Mortgage Association ("GNMA"). The FHLMC is a public corporation chartered by the U.S. Government and owned by the 12 FHLBs and federally insured savings institutions. The FHLMC issues participation certificates backed principally by conventional mortgage loans. The FHLMC guarantees the timely payment of interest and the ultimate return of principal on participation certificates. The FNMA is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. The FNMA guarantees the timely payment of principal and interest on FNMA securities. FHLMC and FNMA securities are not backed by the full faith and credit of the United States, but because the FHLMC and FNMA are U.S. Government-sponsored enterprises, these securities are considered to be among the highest quality investments with minimal credit risks. The GNMA is a government agency within the Department of Housing and Urban 20 Development which is intended to help finance government-assisted housing programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans, and the timely payment of principal and interest on GNMA securities are guaranteed by the GNMA and backed by the full faith and credit of the U.S. Government. Because the FHLMC, The FNMA and the GNMA were established to provide support for low- and middle-income housing, there are limits to the maximum size of loans that qualify for these programs which limit is currently $214,600. Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages, (i.e., fixed rate or adjustable rate) as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security thus approximates the life of the underlying mortgages. The Company's mortgage-backed securities portfolio includes investments in mortgage-backed securities backed by adjustable rate mortgages ("ARMs") or securities which otherwise have an adjustable rate feature. The Company's mortgage-backed securities include interests in collateralized mortgage obligations ("CMOs"). CMOs have been developed in response to investor concerns regarding the uncertainty of cash flows associated with the prepayment option of the underlying mortgagor and are typically issued by governmental agencies, governmental sponsored enterprises and special purpose entities, such as trusts, corporations or partnerships, established by financial institutions or other similar institutions. A CMO can be collateralized by loans or securities which are insured or guaranteed by the FNMA, the FHLMC or the GNMA. In contrast to pass-through mortgage-backed securities, in which cash flow is received pro rata by all security holders, the cash flow from the mortgages underlying a CMO is segmented and paid in accordance with a predetermined priority to investors holding various CMO classes. By allocating the principal and interest cash flows from the underlying collateral among the separate CMO classes, different classes of bonds are created, each with its own stated maturity, estimated average life, coupon rate and prepayment characteristics. The regular interests of some CMOs are like traditional debt instruments because they have stated principal amounts and traditionally defined interest rate terms. Purchasers of certain other CMOs are entitled to the excess, if any, of the issuer's cash inflows, including reinvestment earnings, over the cash outflows for debt service and administrative expenses. These CMOs may include instruments designated as residual interests, which represent an equity ownership interest in the underlying collateral, subject to the first lien of the investors in the other classes of the CMO. Certain residual CMO interests may be riskier than many regular CMO interests to the extent that they could result in the loss of a portion of the original investment. Moreover, cash flows from residual interests are very sensitive to prepayments and thus, contain a high degree of interest rate risk. At December 31, 1996, the Company's investment in CMOs amounted to $11.2 million, all of which consisted of regular interests. As of December 31, 1996, the Company's CMOs did not include any residual interests or interest-only or principal-only securities. As 21 a matter of policy, the Company does not invest in residual interests of CMOs or interest-only and principal-only securities. Mortgage-backed securities generally yield less than the loans which underlie such securities because of their payment guarantees or credit enhancements which offer nominal credit risk. In addition, mortgage-backed securities issued or guaranteed by the FNMA or the FHLMC (except interest-only securities or the residual interests in CMOs) are weighted at no more than 20.0% for risk-based capital purposes, compared to a weight of 50.0% to 100.0% for residential loans. As of December 31, 1996, $13.1 million of the Company's mortgage-backed securities were classified as held to maturity and $21.6 million were classified as available for sale. Mortgage-backed securities which are held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using a method which approximates a level yield. Mortgage-backed securities classified as available for sale are carried at fair value. Unrealized gains and losses on available for sale mortgage-backed securities are recognized as direct increases or decreases in equity, net of applicable income taxes. During 1995, the Company reviewed its entire portfolio of mortgage-backed securities, all of which previously had been classified as held to maturity, and designated all of its fixed-rate mortgage-backed securities as available for sale. The designation of such mortgage-backed securities as available for sale provides the Company with additional flexibility to sell such securities if deemed appropriate in response to, among other things, changes in interest rates. At December 31, 1996, the weighted average contractual maturity of the Company's fixed-rate mortgage-backed securities was approximately 11.3 years. The actual maturity of a mortgage-backed security may be less than its stated maturity due to prepayments of the underlying mortgages. Prepayments that are faster than anticipated may shorten the life of the security and adversely affect its yield to maturity. The yield is based upon the interest income and the amortization of any premium or discount related to the mortgage-backed security. In accordance with GAAP, premiums and discounts are amortized over the estimated lives of the loans, which decrease and increase interest income, respectively. The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of the mortgage-backed security, and these assumptions are reviewed periodically to reflect actual prepayments. Although prepayments of underlying mortgages depend on many factors, including the type of mortgages, the coupon rate, the age of mortgages, the geographical location of the underlying real estate collateralizing the mortgages and general levels of market interest rates, the difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates generally is the most significant determinant of the rate of prepayments. 22 During periods of rising mortgage interest rates, if the coupon rates of the underlying mortgages are less than the prevailing market interest rates offered for mortgage loans, refinancings generally decrease and slow the prepayment of the underlying mortgages and the related securities. Conversely, during periods of falling mortgage interest rates, if the coupon rates of the underlying mortgages exceed the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related securities. Under such circumstances, the Company may be subject to reinvestment risk because to the extent that the Company's mortgage-related securities amortize or prepay faster than anticipated, the Company may not be able to reinvest the proceeds of such repayments and prepayments at a comparable rate. At December 31, 1996, of the $34.7 million of mortgage-backed securities, an aggregate of $21.6 million were secured by fixed-rate securities and classified as available for sale, and an aggregate of $13.1 million were secured by adjustable-rate securities and classified as held to maturity. The following table sets forth certain information regarding the Company's mortgage-backed securities at the dates indicated.
December 31, ------------------------------------------------------------------------- 1996 1995 1994 ----------------------- -------------------- --------------------- Held to Available Held to Available Held to Available Maturity for Sale Maturity for Sale Maturity for Sale -------- --------- -------- --------- -------- --------- (Dollars in Thousands) Mortgage-backed securities: FHLMC....................... $822 $6,853 $936 $8,361 $10,323 -- FNMA........................ 232 12,449 259 15,185 17,113 -- GNMA........................ 1,320 1,776 1,585 1,981 3,916 -- FNMA CMO.................... 4,733 488 4,733 495 503 -- FHLMC CMO................... 5,980 -- 5,979 -- 1,494 -- ----- ------ ----- ------ ------- ----- Total mortgage-backed securities..................$13,087 $21,566 $13,492 $26,022 $33,349 $-- ----- ------ ----- ------ ------- ----- ----- ------ ----- ------ ------- -----
Investment Securities. The Company's investments in investment securities consist primarily of securities issued by the U.S. Treasury and federal government agency obligations. As of December 31, 1996, the Company's entire portfolio of investment securities was classified available for sale and amounted to $20.5 million, net of gross unrealized gains of $148,700. The Company attempts to maintain a high degree of liquidity in its investment securities portfolio and generally does not invest in securities with terms to maturity exceeding ten years. As of December 31, 1996, the estimated weighted average life of the Company's investment securities portfolio was 4.0 years. 23 The following table sets forth certain information regarding the Company's investment securities at the dates indicated.
December 31, ------------------------------------------------------------------ 1996 1995 1994 -------------------- ------------------ ------------------ Carrying Market Carrying Market Carrying Market Value Value Value Value Value Value -------- ------ --------- ------ -------- ------- (Dollars in Thousands) U.S. Government and Federal agency obligations........... $20,524 $20,524 $4,018 $4,018 $19,372 $18,875 Marketable equity securities.. 15 15 12 12 14 14 ------- ------- ------ ------ ------- ------- Total...................... $20,539 $20,539 $4,030 $4,030 $19,386 $18,889 ------- ------- ------ ------ ------- ------- ------- ------- ------ ------ ------- -------
The following table sets forth certain information regarding the maturities of the Company's investment securities at December 31, 1996.
Contractually Maturing ---------------------------------------------------------------------------------------- Weighted Weighted Weighted Weighted Under 1 Average 1-5 Average 6-10 Average Over 10 Average Year Yield Years Yield Years Yield Years Yield ------- -------- ----- -------- ----- -------- ------- --------- (Dollars in Thousands) U.S. Government and federal agency obligations..... $1,001 5.74% $17,532 7.16% $1,991 7.38% -- 0.00%
In addition, as a member of the FHLB of Dallas, the Bank is required to maintain an investment in stock of the FHLB of Dallas equal to the greater of 1% of the Bank's outstanding home mortgage related assets or 5% of its outstanding advances from the FHLB of Dallas. As of December 31, 1996, the Bank's investment in stock of the FHLB of Dallas amounted to $1.8 million. During the year ended December 31, 1996, the Bank received $101,100 in dividends on its FHLB stock. No ready market exists for such stock, which is carried at par value. Sources of Funds General. The Company's principal source of funds for use in lending and for other general business purposes has traditionally come from deposits obtained through the Company's branch offices. The Company also derives funds from amortization and prepayments of outstanding loans and mortgage-related securities, and from maturing investment securities. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. While available, until 1995, the Company made limited use of borrowings to supplement its deposits as a source of funds. Deposits. The Company's current deposit products include passbook accounts, NOW accounts, MMDA, certificates of deposit ranging in terms from 90 days to ten years and noninterest-bearing personal and business checking accounts. The Company's deposit products also include Individual Retirement Accounts ("IRA") certificates and Keogh accounts. 24 noninterest-bearing personal and business checking accounts. The Company's deposit products also include Individual Retirement Accounts ("IRA") certificates and Keogh accounts. The Company's deposits are obtained primarily from residents in its Primary Market Area. The Company attracts local deposit accounts by offering a wide variety of accounts, competitive interest rates, and convenient branch office locations and service hours. The Company utilizes traditional marketing methods to attract new customers and savings deposits, including print and broadcast advertising and direct mailings. However, the Company does not solicit funds through deposit brokers nor does it pay any brokerage fees if it accepts such deposits. The Company operates two automated teller machines ("ATMs") and participates in the regional ATM network known as CIRRUS-Registered Trademark-. The Company has been competitive in the types of accounts and in interest rates it has offered on its deposit products but does not necessarily seek to match the highest rates paid by competing institutions. With the significant decline in interest rates paid on deposit products, the Company in recent years has experienced disintermediation of deposits into competing investment products. The following table sets forth certain information relating to the Company's Deposits at December 31, 1996.
DECEMBER 31, 1996 DECEMBER 31, 1995 -------------------------------------- ------------------------- PERCENT OF PERCENT OF TOTAL AMOUNT TOTAL DEPOSITS AMOUNT DEPOSITS -------- ---------------- -------- ------------ (DOLLARS IN THOUSANDS) Now accounts......................... $ 11,528 5.96% $ 10,689 5.18% Money market accounts................ 5,101 2.64 6,228 3.02 Noninterest-bearing checking accounts........................... 4,954 2.56 3,024 1.46 -------- ------ -------- ------ Total demand deposits............ 21,583 11.16 19,941 9.66 -------- ------ -------- ------ Passbook savings deposits............ 25,071 12.96 27,973 13.56 -------- ------ -------- ------ Certificate of Deposit accounts: Less than 6 months................. 44,256 22.88 -- -- 6-11 months........................ 31,148 16.10 3,840 1.86 12-35 months....................... 53,329 27.57 74,979 36.34 More than 35 months................ 18,063 9.34 79,610 38.58 -------- ------ -------- ------ Total certificates................. 146,796 75.88 158,429 76.78 -------- ------ -------- ------ Total Deposits....................... $193,450 100.00% $206,343 100.00% -------- ------ -------- ------ -------- ------ -------- ------
25 The following table sets forth by various interest rate categories the certificates of deposit with the Company at the dates indicated. The Company had no "brokered" deposits during any of the periods reported below and has no intention to utilize brokered deposits in the future.
DECEMBER 31, 1996 --------------------------------------- 1996 1995 1994 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) 0.00% to 2.99% $ 100 $ 323 $ 205 3.00% to 3.99% -- -- 24,380 4.00% to 4.99% 17,031 14,845 34,327 5.00% to 6.99% 105,385 105,766 66,830 7.00% to 8.99% 23,434 36,600 23,776 9.00% and over 846 895 872 -------- --------- -------- $146,796 $158,429 $150,390 -------- -------- -------- -------- -------- --------
The following table sets forth information relating to the Company's deposit flows during the periods shown and total deposits at the end of the periods shown.
AT OR FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 1996 1995 1996 ----------- ---------- ---------- (DOLLARS IN THOUSANDS) Total deposits, beginning of period......................... $206,343 $204,088 $215,889 Net increase (decrease) before interest credited............ (19,616) (4,331) (17,882) Interest credited........................................... 6,723 6,586 6,081 -------- -------- -------- Total deposits, end of period............................... $193,450 $206,343 $204,088 -------- -------- -------- -------- -------- --------
26 The following table sets forth the amount and maturities of the Company's certificates of deposit at December 31,1996.
OVER SIX OVER ONE OVER TWO OVER THREE MONTHS YEAR YEARS YEARS OVER SIX MONTHS THROUGH THROUGH THROUGH THROUGH FIVE AND LESS ONE YEAR TWO YEARS THREE YEARS FIVE YEARS YEARS TOTAL ----------- --------- ----------- ----------- ----------- --------- ---------- (DOLLARS IN THOUSANDS) 0.00% to $ 100 $ -- $ -- $ -- $ -- $ -- $ 100 2.99% 3.00% to -- -- -- -- -- -- -- 3.99% 4.00% to 10,236 3,962 2,833 -- -- -- 17,031 24.99% 5.00% to 29,919 27,901 26,893 12,134 1,716 6,822 105,385 6.999% 7.00% to 4,001 4,165 3,628 2,277 1,419 7,944 23,434 8.99% 9.00% and -- -- 24 822 -- -- 846 over ------- ------- ------- ------- ------ ------- -------- $44,256 $36,028 $33,378 $15,233 $3,135 $14,766 $146,796 ------- ------- ------- ------- ------ ------- -------- ------- ------- ------- ------- ------ ------- --------
27 As of December 31, 1996, the aggregate amount of outstanding time certificates of deposit in amounts greater than or equal to $100,000, was approximately $36.0 million. The following table presents the maturity of these time certificates of deposit at such dates.
OVER THREE OVER SIX THREE MONTHS MONTHS OVER MONTHS THROUGH THROUGH TWELVE AND LESS SIX MONTHS TWELVE MONTHS MONTHS TOTAL -------- ---------- ------------- ------- --------- (DOLLARS IN THOUSANDS) $3,557 $5,317 $12,565 $14,598 $36,037 ----- ----- ------ ------ ------ ----- ----- ------ ------ ------
BORROWINGS. The Company may obtain advances from the FHLB of Dallas upon the security of the common stock it owns in that Company and certain of its residential mortgage loans and securities held to maturity, provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Until 1996, the Company had made nominal use of such borrowings. In 1996, a total of $22.0 million of two year maturity variable rate borrowings made to partially fund new mortgage loans originated. 28 The following table sets forth the amount of the Company's borrowings and the weighted average rates for the periods indicated.
AT DECEMBER 31, ----------------------------------------------------------------------- 1996 1995 1994 ---------------------- ----------------------- --------------------- PERCENT PERCENT PERCENT AMOUNT RATE AMOUNT RATE AMOUNT RATE --------- ----------- ----------- ----------- ----------- ---------- (DOLLARS IN THOUSANDS) FHLB advances....................... $22,250 5.50% $ 250 8.70% $ 250 8.70% ------ ----- ----- ------ ----- ----- Maximum amount outstanding at any month- end during the period.............. $22,250 $ 250 $ 250 ------ ----- ----- ------ ----- ----- Average balance outstanding during the period.................. $10,388 $ 250 $ 250 ------ ----- ----- ------ ----- ----- Weighted average interest rates on average balance during the period.................. 5.59% 8.70% 8.70% ---- ---- ---- ---- ---- ----
SUBSIDIARIES The Bank is a wholly owned subsidiary of the Company. The Company has no other subsidiaries. The Bank currently has no subsidiaries. A former subsidiary, Lafayette Land and Management, which held one parcel of real estate owned, was liquidated in December 1995. LEGAL PROCEEDINGS The Company is involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management to be immaterial to the financial condition of the Company. COMPETITION The Bank faces strong competition both in attracting deposits and making loans. Its most direct competition for deposits has historically come from other savings institutions, credit unions, and commercial banks located in its market area including many large 29 financial institutions which have greater financial and marketing resources available to them. In addition, during times of high interest rates, the Bank has faced additional significant competition for investors' funds from short- term money market securities, mutual funds and other corporate and government securities. The ability of the Bank to attract and retain savings deposits depends on its ability to generally provide a rate of return, liquidity and risk comparable to that offered by competing investment opportunities. The Bank experiences strong competition for real estate loans, commercial business loans, and consumer loans, principally from other savings institutions, commercial banks, and mortgage banking companies. The Bank competes for loans principally through the interest rates and loan fees it charges, the efficiency and quality of services it provides borrowers and the convenient locations of its branch office network. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions. EMPLOYEES The Bank had 74 full-time employees and 3 part-time employees as of December 31, 1996. None of these employees is represented by a collective bargaining agreement. The Bank believes that it enjoys excellent relations with its personnel. 30 REGULATION Set forth below is a brief description of certain laws and regulations which relate to the regulation of the Company and the Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. THE COMPANY. The Company is a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company, as a bank holding company, is subject to regulation and supervision by the Federal Reserve Board. The Company is required to file annually a report of its operations with, and will be subject to examination by, the Federal Reserve Board. BHCA ACTIVITIES AND OTHER LIMITATIONS. The BHCA prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, without prior approval of the Federal Reserve Board. The BHCA also generally prohibits a bank holding company from acquiring any bank located outside of the state in which the existing bank subsidiaries of the bank holding company are located unless specifically authorized by applicable state law. No approval under the BHCA is required, however, for a bank holding company already owning or controlling 50% of the voting shares of a bank to acquire additional shares of such bank. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to weigh the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company, factoring company, trust company or savings association; performing certain data processing operations; providing limited securities brokerage services; acting as an investment or financial advisor; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, non-operating basis; providing tax planning and preparation services; operating a collection agency; and providing certain courier services. The Federal 31 Reserve Board also has determined that certain other activities, including real estate brokerage and syndication, land development, property management and underwriting of life insurance not related to credit transactions, are not closely related to banking and a proper incident thereto. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transaction between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution is any company or entity which controls, is controlled by or is under common control with the savings institution. In a holding company context, the parent holding company of a savings institution (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engaged in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions. In addition to the restrictions imposed by Sections 23A and 23B, no savings institution may (i) loan or otherwise extend credit to an affiliate, except for any affiliate which engages only in activities which are permissible for bank holding companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings institution. In addition, Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution's loans to one borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institutions. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution's unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. 32 CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve Board capital adequacy guidelines generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets, with at least one-half of that amount consisting of Tier I or core capital and up to one-half of that amount consisting of Tier II or supplementary capital. Tier I capital for bank holding companies generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital), less goodwill and, with certain exceptions, intangibles. Tier II capital generally consists of hybrid capital instruments; perpetual preferred stock which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets such as cash to 100% for the bulk of assets which are typically held by a bank holding company, including multi-family residential and commercial real estate loans, commercial business loans and consumer loans. Single-family residential first mortgage loans which are not past-due (90 days or more) or non-performing and which have been made in accordance with prudent underwriting standards are assigned a 50% level in the risk-weighing system, as are certain privately-issued mortgage-backed securities representing indirect ownership of such loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics. In addition to the risk-based capital requirements, the Federal Reserve Board requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose does not include goodwill and any other intangible assets and investments that the Federal Reserve Board determines should be deducted from Tier I capital. The Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio requirement is the minimum for the top-rated bank holding companies without any supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. Other bank holding companies will be expected to maintain Tier I leverage capital ratios of at least 4.0% to 5.0% or more, depending on their overall condition. At December 31, 1996, the Company believes it is in compliance with the above-described Federal Reserve Board regulatory capital requirements. FINANCIAL SUPPORT OF AFFILIATED INSTITUTIONS. Under Federal Reserve Board policy, the Company will be expected to act as a source of financial strength to the Bank and to commit resources to support the Bank circumstances when it might not do so absent such policy. The legality and precise scope of this policy is unclear, however, in light of recent judicial precedent. 33 FEDERAL SECURITIES LAWS. The Company's common stock is registered with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. THE BANK. The Bank is subject to extensive regulation and examination by the OFI and by the FDIC and is also subject to certain requirements established by the Federal Reserve Board. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. There are periodic examinations by the OFI and the FDIC to test the Bank's compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the OFI, the FDIC or the Congress could have a material adverse impact on the Company, the Bank and their operations. FDIC INSURANCE PREMIUMS. The deposits of the Savings Bank are currently insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit insurance fund that covers commercial bank deposits, are required by law to attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The BIF fund met its target reserve level in September 1995, but the SAIF was not expected to meet its target reserve level until at least 2002. Consequently, in late 1995, the FDIC approved a final rule regarding deposit insurance premiums which, effective with respect to the semiannual premium assessment beginning January 1, 1996, reduced deposit insurance premiums for BIF member institutions to zero basis points (subject to an annual minimum of $2,000) for institutions in the lowest risk category. Deposit insurance premiums for SAIF members were maintained at their existing levels (23 basis points for institutions in the lowest risk category). On September 30, 1996, President Clinton signed into law legislation which will eliminate the premium differential between SAIF-insured institutions and BIF-insured institutions by recapitalizing the SAIF's reserves to the required ratio. The legislation provides that all SAIF member institutions pay a one-time special assessment to recapitalize the SAIF, which in the aggregate will be sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits. The legislation also provides for the merger of the BIF and the SAIF, with such merger being conditioned upon the prior elimination of the thrift charter. Effective October 8, 1996, FDIC regulations imposed a one-time special assessment of 65.7 basis points on SAIF-assessable deposits as of March 31, 1995, which was collected on 34 November 27, 1996. The Savings Bank's one-time special assessment amounted to $1.3 million pre-tax. The payment of such special assessment had the effect of immediately reducing the Savings Bank's capital by $883,000 after tax. On October 16, 1996, the FDIC proposed to lower assessment rates for SAIF members to reduce the disparity in the assessment rates paid by BIF and SAIF members. Beginning October 1, 1996, effective SAIF rates would range from zero basis points to 27 basis points. From 1997 through 1999, SAIF members will pay 6.4 basis points to fund the Financing Corporation while BIF member institutions will pay approximately 1.3 basis points. The Savings Bank's deposit insurance premiums, which have amounted to 23 basis points will be reduced to 6.4 basis points. Based upon the $193.6 million of assessable deposits at September 30, 1996, the Savings Bank would expect to pay $80,000 less in insurance premiums per quarter during 1997, or $.029 per share. The FDIC may terminate the deposit insurance of any insured depository institution, including the Savings Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Savings Bank's deposit insurance. CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks which, like the Bank, will not be members of the Federal Reserve System. These requirements are substantially similar to those adopted by the Federal Reserve Board regarding bank holding companies, as described above. The FDIC's capital regulations establish a minimum 3.0% Tier I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's regulation, highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the sum of common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and 35 minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights. The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based capital standard for savings banks requires the maintenance of total capital (which is defined as Tier I capital and supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier I capital are equivalent to those discussed above under the 3% leverage capital standard. The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 1995, the Bank met each of its capital requirements. In August 1995, the FDIC and other federal banking agencies published a final rule modifying their existing risk-based capital standards to provide for consideration of interest rate risk when assessing capital adequacy of a bank. Under the final rule, the FDIC must explicitly include a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor in evaluating a bank's capital adequacy. In addition, in August 1995, the FDIC and the other federal banking agencies published a joint policy statement for public comment that describes the process the banking agencies will use to measure and assess the exposure of a bank's net economic value to changes in interest rates. Under the policy statement, the FDIC will consider results of supervisory and internal interest rate risk models as one factor in evaluating capital adequacy. The FDIC intends, at a future date, to incorporate explicit minimum requirements for interest rate risk in its risk-based capital standards through the use of a model developed from the policy statement, a future proposed rule and the public comments received therefrom. ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. The activities and equity investments of FDIC-insured, state-chartered banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured 36 depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. In addition, an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as "principal" in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Any insured state-chartered bank directly or indirectly engaged in any activity that is not permitted for a national bank must cease the impermissible activity. LOUISIANA SAVINGS BANK LAW. As a Louisiana chartered savings bank, the Bank is subject to regulation and supervision by the OFI under LSBA. The LSBA contains provisions governing the incorporation and organization, location of offices, rights and responsibilities of directors, officers and members as well as the corporate powers, savings, lending, capital and investment requirements and other aspects of the Bank and its affairs. In addition, the OFI is given extensive rulemaking power and administrative discretion under the LSBA including authority to enact and promulgate rules and regulations governing the conversion of Louisiana chartered savings banks which convert from the mutual to the stock form. The Bank is required under the LSBA to comply with certain capital requirements established by the OFI. In addition, the LSBA prohibits the Bank from declaring dividends unless the Bank has a surplus equal to 20% of the outstanding common stock of the Bank both before and after the dividend is paid. The LSBA also restricts the amount the Bank can lend to one borrower to an amount which may not exceed 15% of the Bank's total net worth. The Bank may lend an amount equal to an additional 10% of the Bank's total net worth to one borrower if the loans are secured 100% by readily marketable collateral. The OFI generally examines the Bank once every year and the current practice is for the OFI to conduct a joint examination with the FDIC. The OFI may publish part of an examination of any savings bank which does not take corrective action to comply with comments received from the examiner within forty-five days after notice. In addition, the OFI may require corrective action be taken by directors, officers and employees of any savings bank and issue a formal order if corrective action is not taken. If the formal order contains a finding that the business of the savings bank is being conducted in a fraudulent, illegal, unsafe or unsound manner or could lead to insolvency or substantial dissipation of assets, earnings or impairment of capital, such order must be complied with immediately and may be enforced by the OFI through a court of competent jurisdiction. REGULATORY ENFORCEMENT AUTHORITY. Applicable banking laws include substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other 37 actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. FEDERAL AND STATE TAXATION GENERAL. The Company and the Savings Bank are subject to the corporate tax provisions of the Code, as well as certain additional provisions of the Code which apply to thrift and other types of financial institutions. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company and the Savings Bank. METHOD OF ACCOUNTING. The Savings Bank maintains its books and records for federal income tax purposes using the accrual method of accounting. The accrual method of accounting generally requires that items of income be recognized when all events have occurred that establish the right to receive the income and the amount of income can be determined with reasonable accuracy, and that items of expense be deducted at the later of (i) the time when all events have occurred that establish the liability to pay the expense and the amount of such liability can be determined with reasonable accuracy or (ii) the time when economic performance with respect to the item of expense has occurred. BAD DEBT RESERVES. Savings institutions, such as the Savings Bank, which meet certain definitional tests primarily relating to their assets and the nature of their businesses, are permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions may, within specified formula limits, be deducted in arriving at the institution's taxable income. For purposes of computing the deductible addition to its bad debt reserve, the institution's loans are separated into "qualifying real property loans" (i.e., generally those loans secured by certain interests in real property) and all other loans ("non-qualifying loans"). The deduction with respect to non-qualifying loans must be computed under the experience method as described below. The following formulas may be used to compute the bad debt deduction with respect to qualifying real property loans: (i) actual loss experience, or (ii) a percentage of taxable income. Reasonable additions to the reserve for losses on non-qualifying loans must be based upon actual loss experience and would reduce the current year's addition to the reserve for losses on qualifying real property loans, unless that addition is also determined under the experience method. The sum of the additions to each reserve for each year is the institution's annual bad debt deduction. Under the experience method, the deductible annual addition to the institution's bad debt reserves is the amount necessary to increase the balance of the reserve at the close of the taxable year to the greater of (a) the amount which bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained during the current and five preceding taxable years bear to the sum of the loans outstanding at the close of the six years, or (b) the lower of (i) the balance of the reserve account at the close 38 of the Savings Bank's "base year," which was its tax year ended December 31, 1987, or (ii) if the amount of loans outstanding at the close of the taxable year is less than the amount of loans outstanding at the close of the base year, the amount which bears the same ratio to loans outstanding at the close of the taxable year as the balance of the reserve at the close of the base year bears to the amount of loans outstanding at the close of the base year. Under the percentage of taxable income method, the bad debt deduction equals 8% of taxable income determined without regard to that deduction and with certain adjustments. The availability of the percentage of taxable income method permits a qualifying savings institution to be taxed at a lower effective federal income tax rate than that applicable to corporations in general. This resulted generally in an effective federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction permitted under the percentage of taxable income method, in the absence of other factors affecting taxable income, of 31.3% exclusive of any minimum tax or environmental tax (as compared to 34% for corporations generally). For tax years beginning on or after January 1, 1993, the maximum corporate tax rate was increased to 35%, which increased the maximum effective federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction to 32.2%. Any savings institution at least 60% of whose assets are qualifying assets, as described in the Code, will generally be eligible for the full deduction of 8% of taxable income. As of December 31, 1996, 90.85% of the assets of the Savings Bank were "qualifying assets" as defined in the Code, and the Savings Bank anticipates that at least 60% of its assets will continue to be qualifying assets in the immediate future. If this ceases to be the case, the institution may be required to restore some portion of its bad debt reserve to taxable income in the future. Under the percentage of taxable income method, the bad debt deduction for an addition to the reserve for qualifying real property loans cannot exceed the amount necessary to increase the balance in this reserve to an amount equal to 6% of such loans outstanding at the end of the taxable year. The bad debt deduction is also limited to the amount which, when added to the addition to the reserve for losses on non-qualifying loans, equals the amount by which 12% of deposits at the close of the year exceeds the sum of surplus, undivided profits and reserves at the beginning of the year. Based on experience, it is not expected that these restrictions will be a limiting factor for the Savings Bank in the foreseeable future. In addition, the deduction for qualifying real property loans is reduced by an amount equal to all or part of the deduction for non-qualifying loans. Pursuant to certain legislation which was recently enacted and which will be effective for tax years beginning after 1995, a small thrift institution (one with an adjusted basis of assets of less than $500 million), such as the Savings Bank, would no longer be permitted to make additions to its tax bad debt reserve under the percentage of taxable income method. Such institutions would be permitted to use the experience method in lieu of deducting bad debts only as they occur. Such legislation will require the Savings Bank to realize increased tax liability over a period of at least six years, beginning in 1996. Specifically, the legislation will require a small thrift institution to recapture (i.e., take into 39 income) over a multi-year period the balance of its bad debt reserves in excess of the lesser of (i) the balance of such reserves as of the end of its last taxable year ending before 1988 or (ii) an amount that would have been the balance of such reserves had the institution always computed its additions to its reserves using the experience method. The recapture requirement would be suspended for each of two successive taxable years beginning January 1, 1996 in which the Savings Bank originates an amount of certain kinds of residential loans which in the aggregate are equal to or greater than the average of the principal amounts of such loans made by the Savings Bank during its six taxable years preceding 1996. It is anticipated that any recapture of the Savings Bank's bad debt reserves accumulated after 1987 would not have a material adverse effect on the Savings Bank's financial condition and results of operations. At December 31, 1996, the federal income tax reserves of the Savings Bank included $7.1 million for which no federal income tax has been provided. Because of these federal income tax reserves and the liquidation account established for the benefit of certain depositors of the Savings Bank in connection with the conversion of the Savings Bank to stock form, the retained earnings of the Savings Bank is substantially restricted. DISTRIBUTIONS. If the Savings Bank were to distribute cash or property to its sole stockholder, and the distribution was treated as being from its accumulated bad debt reserves, the distribution would cause the Savings Bank to have additional taxable income. A distribution is deemed to have been made from accumulated bad debt reserves to the extent that (a) the reserves exceed the amount that would have been accumulated on the basis of actual loss experience, and (b) the distribution is a "non-qualified distribution." A distribution with respect to stock is a non-qualified distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together with all other such distributions during the taxable year, it exceeds the institution's current and post-1951 accumulated earnings and profits. The amount of additional taxable income created by a non-qualified distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution. MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally applies to a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI") and is payable to the extent such AMTI is in excess of an exemption amount. The Code provides that an item of tax preference is the excess of the bad debt deduction allowable for a taxable year pursuant to the percentage of taxable income method over the amount allowable under the experience method. Other items of tax preference that constitute AMTI include (a) tax-exempt interest on newly issued (generally, issued on or after August 8, 1986) private activity bonds other than certain qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). 40 NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net operating losses ("NOLs") to the preceding three taxable years and forward to the succeeding 15 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. At December 31, 1996, the Savings Bank had no NOL carryforwards for federal income tax purposes. AUDIT BY IRS. The Savings Bank's federal income tax returns for taxable years through December 31, 1992 have been closed for the purpose of examination by the Internal Revenue Service. Under the percentage of taxable income method, the bad debt deduction equals 8% of taxable income determined without regard to that deduction and with certain adjustments. The availability of the percentage of taxable income method permits a qualifying savings institution to be taxed at a lower effective federal income tax rate than that applicable to corporations in general. This resulted generally in an effective federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction permitted under the percentage of taxable income method, in the absence of other factors affecting taxable income, of 31.3% exclusive of any minimum tax or environmental tax (as compared to 34% for corporations generally). For tax years beginning on or after January 1, 1993, the maximum corporate tax rate was increased to 35%, which increased the maximum effective federal income tax rate payable by a qualifying savings institution fully able to use the maximum deduction to 32.2%. Any savings institution at least 60% of whose assets are qualifying assets, as described in the Code, will generally be eligible for the full deduction of 8% of taxable income. At least 60% of the assets of Iberia Savings are "qualifying assets" as defined in the Code, and Iberia Savings anticipates that at least 60% of its assets will continue to be qualifying assets in the immediate future. If this ceases to be the case, the institution may be required to restore some portion of its bad debt reserve to taxable income in the future. Under the percentage of taxable income method, the bad debt deduction for an addition to the reserve for qualifying real property loans cannot exceed the amount necessary to increase the balance in this reserve to an amount equal to 6% of such loans outstanding at the end of the taxable year. The bad debt deduction is also limited to the amount which, when added to the addition to the reserve for losses on non-qualifying loans, equals the amount by which 12% of deposits at the close of the year exceeds the sum of surplus, undivided profits and reserves at the beginning of the year. Based on experience, it is not expected that these restrictions will be a limiting factor for Iberia Savings in the foreseeable future. In addition, the deduction for qualifying real property loans is reduced by an amount equal to all or part of the deduction for non-qualifying loans. At December 31, 1995, the federal income tax reserves of the Savings Bank included $7.1 million for which no federal income tax has been provided. Because of these federal income tax reserves and the liquidation account established for the benefit of certain 41 depositors of the Savings Bank in connection with the Conversion, the retained earnings of the Savings Bank are substantially restricted. DISTRIBUTIONS. If the Savings Bank distributes cash or property to its stockholders, and the distribution is treated as being from its accumulated bad debt reserves, the distribution will cause the Savings Bank to have additional taxable income. A distribution is deemed to have been made from accumulated bad debt reserves to the extent that (a) the reserves exceed the amount that would have been accumulated on the basis of actual loss experience, and (b) the distribution is a "non-qualified distribution." A distribution with respect to stock is a non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together with all other such distributions during the taxable year, it exceeds the institution's current and post-1951 accumulated earnings and profits. The amount of additional taxable income created by a non-dividend distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution. MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally applies to a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI") and is calculated on the AMTI in excess of an exemption amount. The alternative minimum tax is assessed to the extent that it exceeds the tax on regular taxable income. The Code provides that an item of tax preference is the excess of the bad debt deduction allowable for a taxable year pursuant to the percentage of taxable income method over the amount allowable under the experience method. Other items of tax preference that constitute AMTI include (a) tax-exempt interest on newly issued (generally, issued on or after August 8, 1986) private activity bonds other than certain qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net operating losses ("NOLs") to the preceding three taxable years and forward to the succeeding 15 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. The Savings Bank has no NOL carryforwards for federal income tax purposes. CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net capital gains are taxed at a maximum rate of 34%. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. However, a corporation may deduct 100% of dividends from a member of the same affiliated group of corporations. OTHER MATTERS. Federal legislation is introduced from time to time that would limit the ability of individuals to deduct interest paid on mortgage loans. Individuals are currently 42 not permitted to deduct interest on consumer loans. Significant increases in tax rates or further restrictions on the deductibility of mortgage interest could adversely affect Iberia Savings. The Savings Bank's federal income tax returns for the tax years ended 1994 and 1995 are open under the statute of limitations and are subject to review by the IRS. STATE TAXATION The nonbanking subsidiaries of the Savings Bank and the Company are subject to the Louisiana Corporation Income Tax based on their Louisiana taxable income, as well as franchise taxes. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana taxable income" means net income which is earned within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law including a federal income tax deduction and an allowance for net operating losses, if any. In addition, following the Conversion the Savings Bank will be subject to the Louisiana Shares Tax which is imposed on the assessed value of its stock. The formula for deriving the assessed value is to calculate 15% of the sum of (a) 20% of the company's capitalized earnings, plus (b) 80% of the company's taxable stockholders' equity, and to subtract from that figure 50% of the company's real and personal property assessment. Various items may also be subtracted in calculating a company's capitalized earnings. 43 ITEM 2. PROPERTIES. The following table sets forth certain information relating to the Bank's offices at December 31, 1996.
NET BOOK VALUE OF PREMISES AND OWNED OR EQUIPMENT AT DEPOSITS AT LEASED DECEMBER 31, 1996 DECEMBER 31, 1996 ------------------------------------------------------------ (DOLLARS IN THOUSANDS) Main Office: 101 West Vermilion Street Owned $ 1,279 $ 96,499 Lafayette, Louisiana 70501 Branch Offices: Northside Office Owned 123 34,129 2601 Moss Street Lafayette, Louisiana 70501 Southside Office Owned 187 37,217 3701 Johnston Street Lafayette, Louisiana 70503 Broadmoor Office Owned 229 25,605 5301 Johnston Street Lafayette, Louisiana 70503 Eunice Loan Production Office Leased 9 -- 136 South Third Street Eunice, Louisiana 70535 -------- ---------- $ 1,827 $ 193,450 -------- ---------- -------- ----------
ITEM 3. LEGAL PROCEEDINGS. The Company and the Bank are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On December 16, 1996, the Company commenced a proxy solicitation of its stockholders with respect to a Special Meeting of Stockholders held on January 21, 1997 ("Special Meeting"). There were two matters considered at the Special Meeting, consideration of the Company's Stock Option Plan and the Company's Recognition and Retention Plan and Trust. Both of such plans were approved by the Company's stockholders by the vote reflected below. 44 Approval of the Company's Stock Option Plan: Broker For Against Abstain Non-Votes --- ------- ------- --------- 1,906,276 132,460 11,996 423,471 Approval of the Company's Recognition and Retention Plan and Trust: Broker For Against Abstain Non-Votes --- ------- ------- --------- 1,886,670 186,764 7,454 393,315 45 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required herein, to the extent applicable, is incorporated by reference from page 9 of the Registrant's 1996 Annual Report to Stockholders ("Annual Report"). ITEM 6. SELECTED FINANCIAL DATA. The information required herein is incorporated by reference from page 7 of the Registrant's 1996 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required herein is incorporated by reference from pages 8 to 17 of the Registrant's 1996 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required herein is incorporated by reference from pages 19 to 41 of the Registrant's 1996 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 46 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required herein is incorporated by reference from the Registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders ("Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. The information required herein is incorporated by reference from the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required herein is incorporated by reference from the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required herein is incorporated by reference from the Registrant's Proxy Statement. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents Filed as Part of this Report. (1) The following financial statements are incorporated by reference from Item 8 hereof (see Exhibit 13): Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1996 and 1995. Consolidated Statements of Income for the Fiscal Periods Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Periods Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the Fiscal Periods ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. 47 (2) All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto. (3) The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index. Exhibit Index ------------- 3.1* Articles of Incorporation of Acadiana Bancshares, Inc. 3.2* Bylaws of Acadiana Bancshares, Inc. 4.0* Form of Stock Certificate of Acadiana Bancshares, Inc. 10.1** Stock Option Plan 10.2** 1996 Recognition and Retention Plan and Trust Agreement for Employees and Non-Employee Directors 10.3 Employment Agreement between LBA Savings Bank and Gerald G. Reaux, Jr. 10.4* Form of Severance Agreement between Acadiana Bancshares, Inc., LBA Savings Bank and Lawrence Gankendorff, James J. Montelaro, Mary Anne Bertrand, Brady Como, Thomas F. Debaillon and Emile E. Soulier, III 13.0 1996 Annual Report to Stockholders 22.0 Subsidiaries of the Registrant--Reference is made to "Item 2. "Business" for the required information 23.1 Consent of Castaing, Hussey & Lolan LLP - - ------------------------ (*) Incorporated herein by reference from the Registration Statement on Form S-1 (Registration No. 333-1396) filed by the Registrant with the SEC on February 15, 1996, as subsequently amended. (**) Incorporated herein by reference from the definitive proxy statement, dated December 16, 1996, filed by the Registrant with the SEC (Commission File No. 1-14364). 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACADIANA BANCSHARES, INC. MARCH 26, 1997 BY: /s/ Gerald G. Reaux, Jr. ----------------------------------------- GERALD G. REAUX, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER AND DIRECTOR Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE - - ------------------------------ --------------------------- ------------------- /s/ Gerald G. Reaux, Jr. - - ------------------------------ President, Chief Executive March 26, 1997 Gerald G. Reaux, Jr. Officer and Director /s/ Lawrence E. Gankendorff - - ------------------------------ Chairman Of The Board March 26, 1997 Lawrence E. Gankendorff /s/ Albert W. Beacham, M.D. - - ------------------------------ Director March 26, 1997 Albert W. Beacham, M.D. /s/ James J. Montelaro - - ------------------------------ Executive Vice President March 26, 1997 James J. Montelaro and Director /s/ William H. Mouton - - ------------------------------ Director March 26, 1997 William H. Mouton /s/Donald J. O'Rourke, Sr. - - ------------------------------ Director March 26, 1997 Donald J. O'Rourke, Sr. /s/ Kaliste J. Saloom, Jr. - - ------------------------------ Director March 26, 1997 Kaliste J. Saloom, Jr. /s/ Emile E. Soulier, III - - ------------------------------ Vice President And Chief March 26, 1997 Emile E. Soulier, III Financial Officer (principal financial and accounting officer)
EX-10.3 2 EX-10.3 AGREEMENT AGREEMENT, dated this 1st day of November, 1996, between Acadiana Bancshares, Inc. (the "Corporation"), a Louisiana-chartered corporation, LBA Savings Bank (the "Savings Bank"), a Louisiana-chartered savings bank and a wholly-owned subsidiary of the Corporation, and Gerald G. Reaux, Jr. (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of the Corporation and the Savings Bank (together the "Employers"); and WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive in the event that his employment with the Employers is terminated under specified circumstances; WHEREAS, the Savings Bank and the Executive previously entered into an Employment Agreement effective as of September 1, 1995 ("Prior Agreement"), and now desire to amend and restate such Prior Agreement in its entirety in order to, among other things, reflect the mutual-to-stock conversion of the Savings Bank and the Corporation's status as the parent holding company of the Savings Bank; NOW THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereby amend and restate the Prior Agreement in its entirety and agree as follows: 1. Definitions. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: (a) Base Salary. "Base Salary" shall have the meaning set forth in Section 3(a) hereof. (b) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement. For purposes of this paragraph, no act or failure to act on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Employers. Under the terms of this Agreement, a determination that "Cause" for termination of employment exists shall require a vote of all of the members (other than the Executive) of the Boards of Directors of each of the Employers, and such vote shall not be made prior to the expiration of a fifteen (15) day period following the date on which such Boards shall, by written notice to the Executive, furnish to him a statement of the grounds for proposing to make such determination, during which period the Executive shall be afforded a reasonable opportunity to make oral and written presentations to such Boards, and to be represented by his legal counsel at such presentations, to refute the grounds for the proposed determination. Regardless of the circumstances surrounding the termination for "Cause," the Executive shall continue to receive all compensation and benefits otherwise payable under this Agreement and otherwise during such fifteen (15) day period. (c) Change in Control of the Corporation. "Change in Control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act") or any successor thereto, whether or not any security of the Corporation is registered under Exchange Act; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (d) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. (f) Disability. Termination by the Employers of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. -2- (g) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive following a Change in Control of the Corporation based on: (i) without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of President and Chief Executive Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as President and Chief Executive Officer; (ii) without the Executive's express written consent, a reduction by the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 3(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; (iii) The principal executive office of the Employers is relocated outside of the Lafayette, Louisiana, area or, without the Executive's express written consent, the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; (iv) Any purported termination of the Executive's employment for Cause, Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (i) below; or (v) The failure by the Employers to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 8 hereof. (h) IRS. IRS shall mean the Internal Revenue Service. (i) Notice of Termination. Any purported termination of the Executive's employment by the Employers for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days -3- after such Notice of Termination is given, except in the case of the Employers' termination of Executive's employment for Cause (in which case such notice period shall be not less than fifteen (15) days and shall otherwise satisfy the provisions of Section 1(b) hereof); and (iv) is given in the manner specified in Section 9 hereof. (j) Parachute Payment. The term "Parachute Payment" has the meaning as set forth in Section 280G of the Code and applicable Treasury regulations (without regard to Section 280G(b)(2)(A)(ii) of the Code and the Treasury regulations thereunder). (k) Retirement. Termination by the Employers of the Executive's employment based on "Retirement" shall mean voluntary termination by the Employee in accordance with the Employers' retirement policies, including early retirement, generally applicable to their salaried employees. 2. Term of Employment. (a) The Employers hereby employ the Executive as President and Chief Executive Officer and Executive hereby accepts said employment and agrees to render such services to the Employers on the terms and conditions set forth in this Agreement. The term of employment under this Agreement shall be for three years, commencing on the date of this Agreement and, subject to the requirements of the succeeding sentence, shall be deemed automatically, without further action, to extend for an additional year on each annual anniversary of the date of this Agreement such that at any time the remaining term of this Agreement shall be from two to three years. Prior to November 1, 1997 and each annual anniversary thereafter, the Board of Directors of the Employers shall consider and review (with appropriate corporate documentation thereof, and after taking into account all relevant factors, including the Executive's performance hereunder) extension of the term under this Agreement, and the term shall continue to extend in the manner set forth above unless either the Boards of Directors of the Employers does not approve such extension and provides written notice to the Executive of such event or the Executive gives written notice to the Employers of the Executive's election not to extend the term, in each case with such written notice to be given not less than thirty (30) days prior to any such anniversary date. References herein to the term of this Agreement shall refer both to the initial term and successive terms. (b) During the term of this Agreement, the Executive shall perform such executive services for the Employers as may be consistent with his titles and from time to time assigned to him by the Employers' Board of Directors. 3. Compensation and Benefits. (a) The Employers shall compensate and pay Executive for his services during the term of this Agreement a minimum salary of $129,600 per year, which may be increased -4- from time to time in such amounts as may be determined by the Board of Directors of the Employers and may not be decreased without the Executive's express written consent (hereinafter, referred to as Executive's "Base Salary"). In addition, the Executive may receive bonus payments when, as, and if determined in the sole discretion of the Board of Directors of Employers. (b) During the term of the Agreement, Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Board of Directors of the Employers. The Employers shall not make any changes in such plans, benefits or privileges which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Employers and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of the Employers. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof. (c) During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Board of Directors of the Employers, which shall in no event be less than two weeks per annum. Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Board of Directors of the Employers. (d) In the event of termination by the Employers of the Executive's employment based on Disability (as defined herein): (A) the Executive shall continue to receive on a monthly basis, the Executive's annual compensation from the Employers at the rate in effect at the time of such termination for a period of twelve (12) months, and (B) the Employers shall provide continued medical insurance for the benefit of the Executive and his spouse until the Executive shall have attained the age of 65, and such insurance shall be comparable to that which is provided to the Executive as of the date of this Agreement notwithstanding anything to the contrary in this Agreement; provided further, in the event of the death of the Executive prior to the Executive attaining age 65, the Employers shall provide said medical insurance for the benefit of the Executive's spouse until the Executive's spouse attains the age of 65. -5- (e) In the event of the Executive's death during the term of this Agreement, his spouse, estate, legal representative or named beneficiaries (as directed by the Executive in writing) shall be paid on a monthly basis the Executive's annual compensation from the Employers at the rate in effect at the time of the Executive's death for a period of twelve (12) months from the date of the Executive's death. (f) The Executive shall receive the use, during the term of this Agreement, of an automobile of the make, year and model customarily furnished by the Savings Bank to executive officers. Executive shall have use of the automobile, and replacements thereof, at no cost and the Employers shall provide for all insurance maintenance, operating expenses and fuel. 4. Expenses. The Employers shall reimburse Executive or otherwise provide for or pay for all reasonable expenses incurred by Executive in furtherance of, or in connection with the business of the Employers, including, but not by way of limitation, automobile and traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Employers. If such expenses are paid in the first instance by Executive, the Employers shall reimburse the Executive therefor. 5. Termination. (a) The Employers shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. (b) In the event that (i) Executive's employment is terminated by the Employers for Cause, Disability or Retirement or in the event of the Executive's death, or (ii) Executive terminates his employment hereunder other than for Good Reason, Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination other than as enumerated in subsections 3(d) and 3(e) hereinabove. (c) In the event that Executive's employment is terminated by the Employers for other than Cause, Disability, Retirement or the Executive's death or such employment is terminated by the Executive due to a material breach of this Agreement by the Employers, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, then the Employers shall, subject to the provisions of Section 6 hereof, if applicable: -6- (A) pay to the Executive, in equal monthly installments during the period representing the term of this Agreement which would otherwise remain but for the Notice of Termination and beginning with the first business day of the month following the Date of Termination, a cash severance amount equal to the greater of (x) the Base Salary which the Executive would have earned over the remaining term of this Agreement as of his Date of Termination or (y) an amount equal to two (2) times the Executive's Base Salary as of his Date of Termination; and (B) maintain and provide for a period ending at the earlier of (x) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (y) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Date of Termination (other than stock option and restricted stock plans of the Employers), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced or such benefits are less than the benefits provided to Executive immediately prior to his termination of employment with the Employers, the Employers shall arrange to provide the Executive with benefits which (together with any benefits provided to Executive by another Employer in the event has accepted full-time employment with another employer) are substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. (d) In the event that Executive's employment is terminated for Good Reason subsequent to a Change in Control, then the Employers shall, subject to the provisions of Section 6 hereof, if applicable: (A) pay to the Executive, a lump sum cash severance payment equal to three (3) times the Executive's Base Salary as of his Date of Termination; and (B) maintain and provide for a period ending at the earlier of (x) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (y) the date of the Executive's -7- full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Date of Termination (other than stock option and restricted stock plans of the Employers), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced or such benefits are less than the benefits provided to Executive immediately prior to his termination of employment with the Employers, the Employers shall arrange to provide the Executive with benefits which (together with any benefits provided to Executive by another Employer in the event has accepted full-time employment with another employer) are substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. (e) If the Executive becomes liable, in any taxable year, for the payment of an excise tax under Section 4999 of the Code on account of any payments to the Executive pursuant to this Section 5, and the Employers choose not to contest the liability or have exhausted all administrative and judicial appeals contesting the liability, the Employers shall pay the Executive (i) an amount equal to the excise tax for which the Executive is liable under Section 4999 of the Code, (ii) the federal, state, and local income taxes, and interest if any, for which the Executive is liable on account of the payments pursuant to item (i), and (ii) any additional excise tax under Section 4999 of the Code and any federal, state and local income taxes for which the Executive is liable on account of payments made pursuant to items (i) and (ii). (f) This subsection 5(f) applies if the amount of payments to the Executive under subsection 5(e) has not been determined with finality by the exhaustion of administrative and judicial appeals. In such circumstances, the Employers and the Executive shall, as soon as practicable after the event or series of events has occurred giving rise to the imposition of the excise tax, cooperate in determining the amount of the Executive's excise tax liability for purposes of paying the estimated tax. The Executive shall thereafter furnish to the Employers or their successors a copy of each tax return which reflects a liability for an excise tax under Section 4999 of the Code at least 20 days before the date on which such return is required to be filed with the IRS. The liability reflected on such return shall be dispositive for the purposes hereof unless, within 15 days after such notice is given, the Employers furnish the Executive with a letter of the auditors or tax advisor selected by the Employers indicating a different liability or that the matter is not free from doubt under the -8- applicable laws and regulations and that the Executive may, in such auditor's or advisor's opinion, cogently take a different position, which shall be set forth in the letter with respect to the payments in question. Such letter shall be addressed to the Executive and state that he is entitled to rely thereon. If the Employers furnish such a letter to the Executive, the position reflected in such letter shall be dispositive for purposes of this Agreement, except as provided in subsection 5(g) below. (g) Notwithstanding anything in this Agreement to the contrary, if the Executive's liability for the excise tax under Section 4999 of the Code for a taxable year is subsequently determined to be less than the amount paid by the Employers pursuant to subsection 5(f), the Executive shall repay the Employers at the time that the amount of such excise tax liability is finally determined, the portion of such income and excise tax payments attributable to the reduction (plus interest on the amount of such repayment at the rate provided on Section 1274(b)(2)(B) of the Code and if the Executive's liability for the excise tax under Section 4999 of the Code for a taxable year is subsequently determined to exceed the amount paid by the Employers pursuant to Section 5, the Employers shall make an additional payment of income and excise taxes in the amount of such excess, as well as the amount of any penalty and interest assessed with respect thereto at the time that the amount of such excess and any penalty and interest is finally determined. 6. Mitigation; Exclusivity of Benefits. (a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. (b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 7. Withholding. All payments required to be made by the Employers hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Employers may reasonably determine should be withheld pursuant to any applicable law or regulation. 8. Assignability. The Employers may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Employers may hereafter merge or consolidate or to which the Employers may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Employers hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. -9- 9. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: To the Employers: Acadiana Bancshares, Inc. 107 W. Vermilion Street Lafayette, Louisiana 70501 To the Executive: Gerald G. Reaux, Jr. 533 Alonda Drive Lafayette, Louisiana 70503 10. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Employers to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 11. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the laws of the State of Louisiana. 12. Nature of Obligations. Nothing contained herein shall create or require the Employers to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Employers hereunder, such right shall be no greater than the right of any unsecured general creditor of the Employers. 13. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. -10- 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 16. Regulatory Prohibition. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)) and any regulations promulgated thereunder. -11- IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: ACADIANA BANCSHARES, INC. By: /s/ Mable D. Lantier /s/ Lawrence Gankendorff - - ------------------------------ ----------------------------------- Lawrence Gankendorff Chairman of the Board Attest: LBA SAVINGS BANK By: /s/ Mable D. Lantier /s/Lawrence Gankendorff - - ------------------------------ ---------------------------------- Lawrence Gankendorff Chairman of the Board Witness: GERALD G. REAUX, JR. By: /s/ Mable D. Lantier /s/Gerald G. Reaux, Jr., - - ------------------------------ ---------------------------------- Gerald G. Reaux, Jr., Individually -12- EX-13 3 EXHIBIT 13 ACADIANA BANCSHARES, INC. 1996 ANNUAL REPORT Service Philosophy LBA Savings Bank, a wholly owned subsidiary of Acadiana Bancshares, Inc., is Lafayette's largest locally owned and operated community bank, committed exclusively to serving the banking needs of the people of Acadiana. LBA's success is dependent upon: - Understanding and satisfying customer needs; - Meeting customers' perceptions of value; - Striving to place customers' interests first; - Tailoring products and services to meet the individual needs of each customer; - Serving customers personally with enthusiasm, energy and creativity, and especially with courtesy and good manners; and - Always respecting customers' confidentiality. All decisions concerning customer banking relationships are made in Lafayette, both at the bank and holding company level. This helps us to provide prompt and efficient response to customer requests. The mission of LBA Savings Bank is to provide the people of Acadiana the most friendly and efficient service in all banking areas. The bank's goals include being a market leader in providing full-service banking, and to consistently exceed our customers' expectations. 2 Dear Fellow Shareholders: On behalf of the directors, management and staff of our Company, we are pleased to provide you with our first annual report on Acadiana Bancshares, Inc. The 1996 year was characterized by significant changes to both our ownership structure and operating strategy. These changes are the catalyst for our transition from a traditional thrift institution into a full-service banking institution. THE CULTURE During 1996, we successfully completed the re-engineering of our operating structure and conducted extensive marketing research to support our new commercial banking focus. We were successful in attracting experienced banking personnel to complement our existing officers and employees. The adoption of a new logo was implemented for use by both the holding company and the bank in an effort to reposition our image in the marketplace. THE STOCK OFFERING Everyone worked very hard this year to ensure our stock offering and transition to public ownership was a success. Through the formation of our holding company, we established an Employee Stock Ownership Plan which aligns employees' interests with those of each and every shareholder. Our primary goal in developing our franchise will be to maintain our position as the dominant mortgage lender, while focusing on growth in consumer and commercial market share. We will also consider our opportunities to further leverage our capital position through acquisitions. THE PRODUCTS AND SERVICES Over the past year, we expanded into commercial lending, home equity lines of credit and credit card programs designed to complement our existing product mix. We discontinued our indirect automobile lending operation and redesigned our direct consumer loan and deposit offerings. THE SYSTEMS Our Bank made significant investments in technology as evidenced by the acquisition of a new mainframe computer, financial information software and loan documentation systems. Our loan approval process was streamlined to maximize prompt turnaround with a focus on local decision making. FINANCIAL RESULTS The Company posted improved financial performance over 1995 in both profitability and asset growth. Despite the payment of $1.3 million in the saif special assessment, our Company posted $800,000 in net income for the 1996 fiscal year. We are confident the trend of improved financial performance will continue during the coming year. THE COMMUNITY Our Company continued its strong support of the community we serve through participation in several worthwhile civic organizations. We are also currently participating in various housing grant programs designed to assist our low- to moderate-income neighbors. Since the successful completion of our stock conversion during 1996, we believe that Acadiana Bancshares, Inc. is well positioned to become the best banking franchise in our region. We thank you for your confidence in our company and look forward to reporting continued success in the future. SINCERELY, /s/ JERRY REAUX - - ------------------------------------- Jerry Reaux President and Chief Executive Officer 3 LBA SAVINGS BANK HISTORY The year was 1900. A group of businessmen in Lafayette, Louisiana, in the heart of "Cajun Country" in Southwestern Louisiana, saw the need for a savings and loan association to serve the increasing financial needs of the residents of the city and all of Lafayette Parish. Those financial needs consisted primarily of a ready source of mortgage funding for home construction and a safe depository for savings. On February 12, 1900, Lafayette Building Association -- the first savings and loan association in Lafayette -- was organized by Judge Julian Mouton, A.B. Denbo, C.O. Mouton, Charles D. Caffery, B.N. Coronna, B.J. Pellerin and J.E. Martin. The association's office was located in the heart of the Downtown Lafayette business district at 107 West Vermilion Street. LBA initially offered two basic types of savings accounts along with home mortgages. The association published its first financial statement in December 1900 citing assets of $6,289. The original building was completely renovated in 1959 and continued serving as LBA's main office until it was gutted by fire in late 1992. Following the fire, the association moved next door to offices at 101 West Vermilion Street that had been purchased in 1990. The original LBA office building has since been demolished. In 1973, to meet the needs of a rapidly growing Lafayette, LBA added the first of three branch offices in Lafayette, the Northside Branch at 2601 Moss Street. The Northside Branch was followed the next year by the Southside Branch at 3701 Johnston Street, and in 1980 by the Broadmoor Branch at 5301 Johnston Street. In 1992, a loan production office was opened in Eunice, Louisiana, 50 miles northwest of Lafayette. At the Annual Meeting held July 15, 1993, members of Lafayette Building Association approved the application with the Commissioner of Financial Institutions of the State of Louisiana for the conversion of Lafayette Building Association to a state-chartered savings bank. On August 2, 1993, Lafayette Building Association was authorized by the state Commissioner of Financial Institutions to begin operation as LBA Savings Bank. The next major event in the 97-year history of LBA Savings Bank occurred on November 15, 1995, when the Board of Directors approved a Plan of Conversion to convert the bank from a mutual savings bank to a stock savings bank and the creation of the bank's holding company, Acadiana Bancshares, Inc. LBA's eligible account holders overwhelmingly approved the Plan of Conversion on June 26, 1996. On July 16, 1996, shares of common stock of Acadiana Bancshares, Inc., began trading on the American Stock Exchange under the symbol "ANA." 4 DIRECTORS OF ACADIANA BANCSHARES, INC. Front, left to right Lawrence Gankendorff--Chairman of the Board, LBA Savings Bank Jerry Reaux-- President and Chief Executive Officer, LBA Savings Bank William H. Mouton--Attorney Rear, left to right Don J. O'Rourke, Sr.- Architect James J. Montelaro--Executive Vice President, LBA Savings Bank Kaliste J. Saloom, Jr.--Attorney and retired City Judge Not pictured Al W. Beacham, md--Urologist EXECUTIVE Lawrence Gankendorff--Chairman of the Board OFFICERS Jerry Reaux--President and Chief Executive Officer James J. Montelaro--Executive Vice President Brady Como--Senior Vice President Emile Soulier, iii--Vice President and Chief Financial Officer Thomas Debaillon--Vice President-Operations and Personnel Mary Anne Bertrand--Vice President-Retail 5 ABOUT THE COMPANY Acadiana Bancshares, Inc., (the "Company") is a Louisiana-chartered bank holding company with headquarters at 101 West Vermilion Street, Lafayette, Louisiana 70501. Its banking subsidiary, LBA Savings Bank, operates four full-service branches in Lafayette and a loan production office in Eunice, Louisiana. Addresses of LBA Savings Bank branches are: Main Office Branch 101 West Vermilion Street, Lafayette, Louisiana 70501 Southside Branch 3701 Johnston Street, Lafayette, Louisiana 70503 Broadmoor Branch 5301 Johnston Street, Lafayette, Louisiana 70503 Northside Branch 2601 Moss Street, Lafayette, Louisiana 70501 Eunice Loan Production Office 136 South 3rd Street, Eunice, Louisiana 70535 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of Shareholders of Acadiana Bancshares, Inc., will be held at 2:00 p.m. (Central Time) Wednesday, April 30, 1997, at a la carte, 301 Heymann Boulevard, Lafayette, Louisiana 70503. STOCK LISTING The common stock of Acadiana Bancshares, Inc., is traded on the American Stock Exchange under the symbol "ANA." Price and other column information are listed under the "ANA" symbol in The Wall Street Journal and under similar designations in other daily newspapers. The Company's common stock is held of record by 593 shareholders (as of March 20, 1997). Below is a table showing the high and low sales prices of the common stock since the commencement of trading on July 16, 1996:
QUARTER,ENDED HIGH LOW - - -------------- --------- ---------- September 30, 1996........................... $ 13 7/8 $ 11 11/14 December 31, 1996............................ 15 1/8 13 5/8
REGISTRAR AND TRANSFER AGENT Shareholders requesting a change of name, address, or ownership of stock, or to report a lost stock certificate should contact the transfer agent: Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 Toll-free (800) 368-5948 INVESTOR RELATIONS Shareholders, prospective shareholders, analysts or other interested parties seeking copies of the Company's annual report, Form 10-K (which the Company will furnish to shareholders upon request without charge), Form 10-Q, quarterly earnings reports or other financial information should contact: Jerry Reaux, President & CEO, or Emile E. Soulier, iii, Vice President & CFO Phone: (318) 232-4631 Fax: (318) 269-6233 ACADIANA BANCSHARES, INC. P.O. Box 3607 Lafayette, Louisiana 70502 6 SELECTED CONSOLIDATED FINANCIAL INFORMATION (Dollars in Thousands except per Share Data) The following selected consolidated financial and other data of the Company does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed financial information, including the Consolidated Financial Statements of the Company and Notes thereto, contained elsewhere herein.
AT DECEMBER 31, ------------------------------------------------- 1996 1995 1994 1993 1992 -------- --------- --------- --------- -------- Selected Financial Condition Data: Total assets................................ $264,374 $225,574 $223,166 $223,143 $231,122 Cash and cash equivalents................... 19,784 16,481 10,384 24,097 26,488 Loans receivable, net....................... 182,724 157,691 151,161 153,284 154,233 Investment securities....................... 20,539 4,030 19,386 16,910 4,753 Mortgage-backed securities.................. 34,653 39,514 33,349 30,254 34,836 Deposit accounts............................ 193,450 206,343 204,088 215,889 215,435 Borrowings.................................. 22,250 250 -- -- -- Equity...................................... 47,091 17,697 17,845 15,869 13,839 YEAR ENDED DECEMBER 31, ------------------------------------------------- 1996 1995 1994 1993 1992 -------- --------- --------- --------- ------- Selected Operating Data: Interest Income............................ $ 18,703 $ 16,975 $ 16,922 $ 17,885 $ 19,887 Interest expense........................... 10,762 10,134 9,378 10,021 11,725 --------- --------- --------- --------- -------- Net interest income........................ 7,941 6,841 7,544 7,864 8,162 Provision for loan losses.................. 355 1,274 63 235 1,293 --------- --------- --------- --------- ------- Net interest income after provision for loan losses................. 7,586 5,567 7,481 7,629 6,869 Non-interest income........................ 954 802 943 1,039 1,348 Non-interest expense....................... (7,301) (7,812)(1) (5,274) (5,510) (5,723) --------- --------- --------- --------- -------- Income (loss) before taxes and extraordinary item...................... 1,239 (1,443) 3,150 3,158 2,494 Income tax expense (benefit)................. 439 (477) 1,057 1,074 591 Extraordinary item(2)........................ -- -- -- (54) 526 -------- --------- --------- --------- -------- Net income (loss)............................ $ 800 $ (966) $ 2,093 $ 2,030 2,429 -------- --------- --------- --------- -------- -------- --------- --------- --------- -------- Net income per share......................... $ 0.07 N/A N/A N/A N/A Dividends declared per share................. $ 0.18 N/A N/A N/A N/A AT OR FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------- 1996 1995 1994 1993 1992 -------- --------- --------- --------- -------- Other Data: Profitability: Return on average assets................... 0.32% (0.43)% 0.91% 0.87% 1.04% Return on average equity................... 2.55 (5.23) 12.19 13.36 18.75 Interest rate spread for period(3)......... 2.68 2.80 3.15 3.35 3.53 Net interest margin(4)..................... 3.34 3.16 3.41 3.55 3.66 Efficiency ratio(5)........................ 82.08 88.45 62.14 61.88 60.18 Other expenses to average assets........... 2.95 3.49 2.30 2.37 2.44 Capital ratios: Average equity to average assets........... 12.71 8.25 7.48 6.54 5.53 Total capital to risk-weighted assets...... 36.69 16.20 16.29 13.90 11.37 Asset Quality: Non-performing assets to total assets(6)... 0.36 0.70 1.35 2.35 2.45 Allowance for loan losses to total loans... 1.35 1.41 0.69 0.64 0.61 Allowance for loan losses to non-performing loans and troubled debt restructuring............... 183.96 143.94 71.51 26.76 31.05
- - ------------------------ (1) Includes $1.1 million of write-downs and expenses of real estate owned and $1.1 million of expenses of a previously contemplated merger/conversion. (2) An extraordinary gain was recorded in 1992 and an extraordinary (loss) in 1993, both relating to the receipt of insurance proceeds from the loss, by fire, of the Bank's former main office. (3) The interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. (4) The net interest margin represents net interest income divided by average interest-earning assets. (5) The efficiency ratio is non-interest expense (excluding, with respect to 1995, the write-off of expenses incurred in the previously contemplated merger/conversion transaction) divided by the sum of net interest income plus non-interest income. (6) Non-performing assets include non-accrual loans, accruing loans delinquent 90 days or more and real estate owned. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to assist readers in understanding the financial condition and results of operations of Acadiana Bancshares, Inc. (the "Company") and its subsidiary for the years ended December 31, 1994 through 1996. This review should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data included herein. FINANCIAL CONDITION ASSETS General--Total assets of the Company increased by $38.8 million, or 17.2%, from $225.6 million at December 31, 1995, to $264.4 million at December 31, 1996. The increase was primarily due to a $25.0 million increase in net loans and a $16.5 million increase in investments securities available for sale. Such increases were funded primarily by the $29.2 million of net proceeds received in the Company's July 1996 offering of common stock and a $22.0 million increase in advances from the Federal Home Loan Bank of Dallas (the "FHLB"). Cash and Cash Equivalents--Cash and cash equivalents, which consist of interest-bearing and noninterest-bearing deposits and cash on hand, increased by $3.3 million or 20.0% at December 31, 1996 compared to $16.5 million at December 31, 1995. The increase in cash and cash equivalents was primarily due to repayments of mortgage-backed securities. At December 31, 1996 cash and cash equivalents amounted to 7.5% of total assets. Investment Securities--Investment securities increased by $16.5 million, or 409.7%, to $20.5 million at December 31, 1996 compared to $4.0 million at December 31, 1995. The increased level of investment securities was primarily funded by the net proceeds of the mutual to stock conversion of the Company's wholly owned subsidiary, LBA Savings Bank (the "Bank"), and the concurrent initial public offering of the Company's common stock completed during July 1996. At December 31, 1996, all $20.5 million of the Company's investment securities were classified as available for sale and had a pre-tax effected net unrealized gain of $145,000 at such date. In addition, at such date, substantially all of the Company's investment securities consisted of U.S. Government and Federal agency obligations. At December 31, 1996, $9.5 million, or 46.3%, of the Company's investment securities held for sale were either scheduled to mature or were callable within one year. Note 3 to the Consolidated Financial Statements provides further information on the Company's investment securities. Mortgage-Backed Securities--Mortgage-backed securities decreased $4.9 million, or 12.3%, to $34.7 million at December 31, 1996 compared to $39.5 million at December 31, 1995. The decrease in mortgage-backed securities of $4.9 million was the result of $4.4 million of principal repayments and a $462,000 decrease in the carrying value of the mortgage-backed securities available for sale portfolio. At December 31, 1996, the Company's adjustable rate mortgage-backed securities amounted to $13.1 million and were classified as held to maturity. At that same date, the Company's fixed rate mortgage-backed securities amounted to $21.6 million and were classified as available for sale. At December 31, 1996 and 1995, substantially all of the Company's mortgage-backed securities consisted of securities issued or guaranteed by Federal agencies and government sponsored enterprises. Loans Receivable, Net--Loans receivable, net, increased by $25.0 million, or 15.9%, to $182.7 million at December 31, 1996 compared to $157.7 million at December 31, 1995. Total mortgage loans increased $17.7 million, or 11.9%, during 1996, primarily as the result of a $15.3 million increase in single-family residential mortgage loans, net of undisbursed funds. In addition, commercial business loans increased $6.0 million, or 442.2%, during 1996 and consumer loans increased $3.0 million, or 22.1%, during 1996. The increase in mortgage loans was funded primarily by borrowings from the FHLB, while the increases in commercial and consumer loans were primarily funded by a portion of the net proceeds of the Company's July 1996 offering of common stock. 8 LIABILITIES AND STOCKHOLDERS' EQUITY General--The Company's primary funding sources include deposits, borrowings from the FHLB and stockholders' equity. The discussion which follows focuses on the major changes in this mix during 1996. Deposits--The Company's deposits decreased by $12.9 million, or 6.2%, from $206.3 million at December 31, 1995, to $193.5 million at December 31, 1996. The decrease was the result of $19.6 million in net cash withdrawals, $6.4 million of which were withdrawn to purchase stock in the Bank's mutual to stock conversion, which was partially offset by $6.7 million in interest credited during the year. Additionally, the Bank chose not to renew certain higher yielding certificates of deposit that matured during 1996. Additional information regarding deposits is provided in Note 9 to the Consolidated Financial Statements. Borrowings--The Company's borrowings are composed of advances from the FHLB which increased by $22.0 million, from $250,000 at December 31, 1995 to $22.3 million at December 31, 1996. FHLB borrowings provide the Company with an alternative source of funds compared to raising deposits in the local market which from time to time may be a cheaper source of funds because of interest rates in general and because of competitive pressures on interest rates of deposits in local markets. The Company has significantly increased the amount of outstanding FHLB advances to fund origination of mortgage loans. The $22.0 million of new advances are non-amortizing, variable rate advances tied to the London International Bank Offering Rate ("libor"), and are due within two years from the date of origination. For additional information see Note 10 to the Consolidated Financial Statements. Stockholders' Equity--Stockholders' equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen, adverse developments. At December 31, 1996 stockholders' equity totaled $47.1 million, an increase of $29.4 million from the previous year-end level, primarily as a result of the infusion of $29.2 million of net proceeds from the conversion of the Bank from mutual to stock ownership and its reorganization into the holding company form of ownership. The increase in stockholders' equity during 1996 was also due to net income of $800,000 and $148,000 in common stock released by the Company's Employee Stock Ownership Plan (the "esop") trust. These increases were partially offset by a decrease in the net unrealized gain on securities of $318,000 and dividends declared on the Company's common stock of $452,000. Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the Federal Deposit Insurance Corporation (the "fdic"). At December 31, 1996, the Bank significantly exceeded all regulatory capital ratio requirements with a tier 1 leverage capital ratio of 13.4%, a tier 1 risk-based capital ratio of 25.9%, and a total risk-based capital ratio of 27.2%. These compared to regulatory requirements of 4.0%, 4.0%, and 8.0%, respectively. The Company is required to comply with similar regulatory capital requirements and at December 31, 1996, it also significantly exceeded all applicable regulatory capital requirements with a tier 1 leverage capital ratio of 17.7% a tier 1 risk-based capital ratio of 35.4%, and a total risk-based capital ratio of 36.7%. RESULTS OF OPERATIONS General--The Company reported net income of $800,000 and $2.1 million for the years ended December 31, 1996 and 1994, respectively, and a net loss of $966,000 for the year ended December 31, 1995. The $1.8 million increase in net income in 1996 compared to the prior year net loss was due primarily to an increase in net interest income of $1.1 million, a $152,000 increase in noninterest income, a $919,000 decrease in provision for loan losses, and a $511,000 decrease in noninterest expense, which was partially offset by a $916,000 increase in income tax expense. The Company reported a net loss of $966,000 during the year ended December 31, 1995 and net income of $2.1 million during the year ended December 31, 1994. The primary reasons for the net loss reported in 1995 were a $1.3 million provision for loan losses, compared to $63,000 in 1994, $1.1 million in write-downs and expenses related to real estate owned, and the recognition of $1.1 million of expenses related to the merger/conversion transaction previously contemplated by the Bank but which was abandoned during 1995. Net Interest Income--Net interest income is determined by interest rate spread (i.e., the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the 9 relative amounts of interest-earning assets and interest-bearing liabilities. The Company's average interest rate spread was 2.68%, 2.80%, and 3.15%, during the years ended December 31, 1996, 1995, and 1994, respectively. Net interest income increased $1.1 million, or 16.1%, in 1996 to $7.9 million compared to $6.8 million in 1995. The reason for the increase was a $1.7 million increase in interest income, which was partially offset by a $628,000 increase in interest expense. Net interest income decreased $703,000, or 9.3%, in 1995 compared to 1994. Such decrease was due to a $756,000 increase in interest expense which more than offset a $53,000 increase in interest income. Interest Income--Interest income totaled $18.7 million for the year ended December 31, 1996, an increase of $1.7 million over the total of $17.0 million for the year ended December 31, 1995. This improvement was mainly due to an increase in the Company's average interest-earning assets by $21.9 million, or 10.1%, to $238.1 million for the year ended December 31, 1996 as the Company began to leverage the capital raised as a result of the Bank's mutual-to-stock conversion and the Company's initial public common stock offering which was completed in July 1996. The increase in interest earning assets produced additional interest income of $1.7 million. Interest earned on loans increased $1.4 million, or 10.8%, in 1996. The increase was due to a $17.4 million, or 11.3%, increase in the average balance of loans which was partially offset by a 4 basis point (with 100 basis points being equal to 1%) decrease in the yield earned. Interest earned on mortgage-backed securities increased $73,000, or 2.9%, during 1996. This increase was due to a $2.2 million, or 6.3%, increase in the average balance of mortgage-backed securities partially offset by a 23 basis point decrease in the yield earned on mortgage-backed securities. Interest earned on investment securities increased $305,000, or 34.7%, during 1996. The increase was due to a $2.5 million, or 17.3%, increase in the average balance of investment securities combined with a 90 basis point increase in the yield earned. Interest income on other earning assets, primarily interest-bearing deposits, decreased $35,000 in 1996. Interest income was stable for the years ended December 31, 1995, and 1994, amounting to $17.0 million and $16.9 million, respectively. The $53,000, or .3%, increase in interest income in 1995 compared to 1994 was due primarily to a $200,000, or 8.6%, increase in interest earned on mortgage-backed securities as a result of a $2.6 million, or 8.2%, increase in the average balance of mortgage-backed securities, accompanied by a 2 basis point increase in the yield earned on mortgage-backed securities, which was partially offset by a $105,000 decrease in interest earned on investments, a $23,000 decrease in interest earned on interest bearing deposits, and a $19,000 decrease in interest earned on loans. The $105,000 decrease in interest earned on investments was the result of a $4.8 million decrease in the average balance of investment securities, which was partially offset by a 96 basis point increase in the yield earned in investment securities. Interest Expense--Interest expense increased $628,000, or 6.2%, in 1996 compared to 1995. The reason for such increase was a $72,000 increase in interest expense on deposits and a $556,000 increase in interest expense on borrowings. The increase in interest expense on deposits was due to an 11 basis point increase in the average cost of deposits, partially offset by a $2.9 million, or 1.4%, decrease in the average balance of deposits. Traditionally, deposits have included a relatively high amount of certificates of deposit, including "jumbo" certificates with balances in excess of $100,000. Such certificates generally are higher costing and more interest rate sensitive than "core" deposits. During 1996, the average balance of certificates of deposit amounted to 78.0% of the average balance of all deposits, compared to 77.4% during 1995. The average rate paid on certificates of deposit was 5.97% during 1996, representing an 11 basis point increase over the average rate in 1995, compared to average rates of 1.82% and 2.52%, respectively, on demand deposits and regular savings accounts in 1996. The increase in interest expense on borrowings was due to a $10.1 million increase in the average balance of borrowings. Total interest expense amounted to $10.1 million and $9.4 million for the years ended December 31, 1995 and 1994, respectively. The $756,000, or 8.1%, increase in interest expense in 1995 compared to 1994 was due to a 55 basis point increase in average rates on deposits, which was partially offset by a $7.9 million, or 3.8%, decrease in the average balances of deposits. 10 Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table sets forth, for the periods indicated, information regarding (i) the dollar amount of interest income of the Bank from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant rate; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Non-accrual loans have been included in the appropriate average balance loan category, but interest on non-accrual loans has been included for purposes of determining interest income only to the extent that cash payments are actually received.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1996 1995 1994 YIELD/ ------------------------- ------------------------ ------------------------- COST AT AVERAGE AVERAGE AVERAGE DECEMBER 31, AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ 1996 BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST ---- ------- -------- ---- ------- -------- ---- ------- -------- ---- Interest-earning assets: Loans receivable: Real estate mortgage loans......... 7.86% $ 150,541 $12,438 8.26% $140,597 $11,652 8.29% $133,262 $11,334 8.51% Commercial business loans.......... 9.45% 3,818 349 9.14% 1,467 128 8.73% 1,434 135 9.41% Consumer and other loans........... 9.19% 16,780 1,431 8.53% 11,674 1,053 9.02% 14,855 1,383 9.31% ------- ------ ----- ------- ------- ----- -------- ------- Total loans....................... 8.04% 171,139 14,218 8.31% 153,738 12,833 8.35% 149,551 12,852 8.59% Mortgage-backed securities.......... 7.30% 36,869 2,609 7.08% 34,681 2,536 7.31% 32,055 2,336 7.29% Investment securities(1)............ 6.99% 17,032 1,185 6.96% 14,525 880 6.06% 19,299 985 5.10% Other earning assets................ 5.21% 13,067 691 5.29% 13,242 726 5.48% 20,590 740 3.64% ------- ------ ----- ------- ------- ----- -------- ------- ----- Total interest-earning assets..... 7.77% 238,107 18,703 7.85% 216,186 16,975 7.85% 221,495 16,922 7.64% ------ ------- ------- Noninterest-earning assets.......... 9,238 7,782 7,978 ------- -------- ------ Total Assets...................... $247,345 $223,968 $229,473 ------- -------- ------- ------- -------- ------- Interest-bearing liabilities: Deposits: Demand deposits................... 1.92% $15,953 291 1.82% $15,909 283 1.78% $18,458 342 1.85% Passbook savings deposits........... 2.57% 27,506 692 2.52% 29,442 737 2.50% 37,081 928 2.50% Certificates of deposit............. 5.95% 154,187 9,201 5.97% 155,173 9,092 5.86% 152,872 8,086 5.29% ------- ------ ----- ------- ------- ----- -------- ------- Total deposits.................... 5.14% 197,646 10,184 5.15% 200,524 10,112 5.04% 208,411 9,356 4.49% Advance from FHLB................... 5.50% 10,338 578 5.59% 250 22 8.80% 250 22 8.80% ------- ------ ----- ------- ------- -------- ------- Total interest-bearing liabilities...................... 5.18% 207,984 10,762 5.17% 200,774 10,134 5.05% 208,661 9,378 4.49% ------ ------ ----- Noninterest-bearing demand deposits.................... 3,342 2,642 1,923 Other noninterest-bearing liabilities......................... 4,592 2,080 1,723 ------- ------- ----- Total liabilities................. 215,918 205,496 212,307 Equity................................ 31,427 18,472 17,166 ------- -------- ------- Total liabilities and equity...... $247,345 $223,968 $229,473 ------- -------- ------- ------- -------- ------- Net interest-earning assets........... $30,123 $15,412 $12,834 ------- -------- ------- ------- -------- ------- Net interest income/interest rate spread......................... 2.59% $7,941 2.68% $6,841 2.80% 7,544 3.15% ------ ----- ------- ----- ------- ----- ------ ----- ------- ----- ------- ----- Net interest margin................... 3.34% 3.16% 3.41% ----- ----- ----- ----- ----- ----- Ratio of average interest- earning assets to average interest-bearing liabilities.......... 114.48% 107.68% 106.15% ------- ------- ------- ------- ------- -------
- - ------------------------ (1) Includes FHLB stock 11 MANAGEMENT'S Rate/Volume Analysis. The following table set forth the DISCUSSION effects of changing rates and volumes on net interest AND ANALYSIS income of the Company. Information is provided with respect OF FINANCIAL to (i) effects on interest income attributable to changes CONDITION in volume (changes in volume multiplied by prior rate); AND RESULTS OF (ii) effects on interest income attributable to changes in OPERATIONS rate (changes in rate multiplied by prior volume); and (iii) (Dollars in changes in rate/volume (change in rate multiplied by change Thousands) in volume).
1996 COMPARED TO 1995 1995 COMPARED TO 1994 ---------------------------------- -------------------------------- INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO ---------------------------- -------------------------- TOTAL RATE/ INCREASE RATE/ TOTAL VOLUME RATE VOLUME (DECREASE) VOLUME RATE VOLUME INCREASE ------ ---- ------ ---------- ------ ---- ------ -------- (Decrease) Interest-earning assets: Loans receivable....................... $ 1,453 $(61) $ (7) $1,385 $ 360 $(369) $ (10) $ (19) Mortgage-backed securities............. 160 (82) (5) 73 191 8 1 200 Investment securities.................. 144 138 26 308 (250) 156 (43) (137) Other earning assets................... (3) (35) -- (38) (262) 406 (135) 9 -------- ---- --- ------ ----- ----- ----- ------ Total net change in income on interest-earning assets............... 1,754 (40) 14 1,728 39 201 (187) 53 -------- ---- --- ------ ----- ----- ----- ------ Interest-bearing liabilities: Deposits: Demand deposits and passbook savings deposits................................ (43) 6 -- (37) (233) (21) 4 (250) Certificates of deposit................... (58) 168 (1) 109 122 871 13 1,006 ------- ---- --- ------ ----- ---- ---- ----- Total deposits............................ (101) 174 (1) 72 (111) 850 17 756 Advance from FHLB......................... 888 (8) (324) 556 -- -- -- -- ------- ---- ---- ----- ----- ---- ---- ----- Total net change in expense on interest-bearing liabilities............ 787 166 (325) 628 (111) 850 17 756 ------- ---- ---- ----- ----- ---- ---- ----- Net change in net interest income......... $ 967 $(206) $339 $1,100 $150 $(649) $(204) $(703) ------- ----- ---- ------ ----- ----- ----- ----- ------- ----- ---- ------ ----- ----- ----- -----
12 Provision for Loan Losses--Provision for loan losses are MANAGEMENT'S charged to earnings in order to bring the total allowance DISCUSSION for loan losses to a level considered appropriate by AND ANALYSIS management based on methodology implemented by the OF FINANCIAL Company, which is designed to assess, among other things, CONDITION historical experience, the volume and type of lending AND RESULTS OF conducted by the Company, the amount of the Company's OPERATIONS classified assets, the status of past due principal and interest payments, loan-to-value ratios of loans in the portfolio, general economic conditions, particularly as they relate to the Company's market area, and other factors related to the collectibility of the Company's loan portfolio. Management of the Company assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as deemed appropriate in order to maintain the adequacy of the allowance for loan losses. The Company made a provision for loan losses of $355,000 in 1996, compared to $1.3 million and $63,000 in 1995, and 1994, respectively. During 1995 the Company revised its methodology for making provisions for loan losses and made certain adjustments thereto. New management instituted new policies regarding loan origination, supervision and review, and determined to increase its collection and foreclosure efforts with respect to delinquent loans. The Company also determined that it would no longer continue its prior practice of making relatively high loan-to-value loans to finance sales of its foreclosed property. During 1996, the Company continued making provisions for loan losses in a manner consistent with its revised methodology of 1995. The Company increased its provision for loan losses from $45,000 per quarter during the first three quarters of 1996, to $220,000 for the fourth quarter of 1996, primarily due to management's continuing assessment of the asset quality in the Bank's portfolio of indirect automobile loans. The Bank recently abandoned its program of originating indirect automobile loans through a network of local dealers which it had begun in August of 1995. Indirect dealer loans outstanding amounted to $7.4 million at December 31, 1996. During the third and fourth quarters of 1996, the Bank charged-off $46,000 and $122,000, respectively, of indirect auto loans. At December 31, 1996, $45,000 remained 90 days or more past due. At December 31, 1996, the Bank's allowance for loan losses amounted to $2.6 million, or 1.35% of total loans, and 183.96% of non-performing loans and troubled debt restructurings. Non-performing loans (non-accrual loans and accruing loans 90 days or more overdue) were $873,000 and $740,000 at December 31, 1996 and December 31, 1995, respectfully. The Company's real estate owned, which consists of real estate acquired through foreclosure or by deed-in-lieu of foreclosure, amounted to $75,000 and $845,000 at December 31, 1996 and December 31, 1995, respectively. As a percentage of total assets, the Company's total non-performing assets amounted to .36% and .70%, at December 31, 1996 and 1995, respectively. Although management of the Company believes that the allowance for loan losses was adequate at December 31, 1996, based on facts and circumstances available to it, there can be no assurances that additions to such allowance will not be necessary in future periods, which would adversely affect the Company's results of operations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's provision for loan losses and the carrying value of its other non-performing assets based on their judgments about information available to them at the time of their examination. No assurance can be given whether any of such agencies might require the Bank to make additional provisions for loan losses in the future. Non-interest Income--For 1996, the Company reported non-interest income of $954,000 compared to $802,000 of non-interest income for 1995. The primary reason for the $152,000, or 19.0%, increase in non-interest income for 1996 was an increase of $103,000 in other miscellaneous income and the absence of losses on sales of investment securities during 1996 compared to a $64,000 loss in 1995. Total non-interest income amounted to $802,000 and $943,000 for the years ended December 31, 1995 and 1994, respectively. The primary reason for the $141,000, or 15.0%, decrease in non-interest income in 1995 compared to 1994 was a $64,000 loss on the sale of investment securities, and a $57,000 decrease in deposit fees and service charges reflecting a decrease in deposit accounts. Non-Interest Expense--Non-interest expense includes salaries and employee benefits, occupancy, depreciation, Savings Association Insurance Fund ("SAIF") deposit insurance premiums, advertising, merger/conversion 13 MANAGEMENT'S expenses-withdrawn transaction, and other items. DISCUSSION Non-interest expense amounted to $7.3 million for the year AND ANALYSIS ended December 31, 1996, a decrease of $511,000, or 6.5%, OF FINANCIAL over the total of $7.8 million for the year ended December CONDITION 31, 1995. The primary reason for the $511,000 was a decrease AND RESULTS OF of $1.0 million in net costs of real estate owned, and the OPERATIONS recognition in 1995 of cost incurred in connection with a merger/conversion transaction which the Bank had previously contemplated, and which was partially offset by a one-time special assessment to recapitalize the SAIF deposit insurance fund of $1.3 million (pre-tax) incurred at the end of the third quarter of 1996. Salaries and employee benefits, the largest component of non-interest expenses, decreased by $12,000, or .5%, in 1996 compared to 1995. In connection with the conversion from mutual to stock form, the Company established the ESOP for the benefit of the employees of the Company and the Bank, as further described in Note 13 to the Consolidated Financial Statements. Compensation expenses related to the ESOP amounted to $148,000 for the year ended December 31, 1996, which expenses began in July 1996. The Company also maintains a 401(k) Profit Sharing Plan which provided for up to 3% matching of employee contributions and additional discretionary contributions, annually, as further described in Note 13 to the Consolidated Financial Statements. During 1996, the Company amended the plan by discontinuing matching employee contributions after December 31, 1996. On January 21, 1997, at a special meeting the stockholders of the Company approved adoption of the Stock Option Plan and Recognition and Retention Plan ("rrp") and Trust Agreement for the benefit of directors, officers and key employees, as more fully described in Note 21 to the Consolidated Financial Statements. The Company expects the annual expenses related to the rrp for the shares granted to be approximately $227,000. The $1.0 million decrease in net cost of real estate owned in 1996 compared to 1995 was due primarily to the charges to income taken in 1995, as the result of new appraisals and management's reassessment of the carrying value of several parcels of real estate owned. The Bank's deposits are insured by the FDIC through the SAIF, and as such, the Bank incurred a one-time special assessment of $1.3 million on September 30, 1996 in connection with an immediate recapitalization of the SAIF. As a result of such recapitalization, the Bank's regular and recurring SAIF premiums are expected to decrease from 23 basis points per $100 of insured deposits at and prior to September 30, 1996, to 6.5 basis points in 1997, 1998, and 1999. The Bank incurred no deposit insurance premium expense for the period beginning October 1, 1996 and ending December 31, 1996, which is unusual and is not expected to reoccur. Beginning in 1997, the Company will incur a state tax which is based on the stockholders' equity of the Bank. The Company expects this tax to amount to $304,000 in 1997. Income Taxes-For the years ended December 31, 1996 and 1994, the Company incurred income tax expense of $439,000 and $1.1 million, respectively. For the year ended December 31, 1995, the Company reported an income tax benefit of $477,000. The Company's effective tax rate amounted to 35.4%, (33.1)%, and 33.6% during 1996, 1995, and 1994, respectively. The difference between the effective rate and the statutory tax rate primarily related to variances in the items that are either non-taxable or non-deductible. In 1996 the difference also included state income tax on the Company's income, exclusive of the income derived from the Bank. For more information on income taxes, see Note 11 to the Consolidated Financial Statements. ASSET AND LIABILITY MANAGEMENT The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained during fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing "gap", provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets, in a given time period. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income, and during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would have the opposite effect. As of December 14 31, 1996, the amount of the Company's MANAGEMENT'S interest-sensitive assets which were estimated to mature DISCUSSION or reprice within one year exceeded the Company's AND ANALYSIS interest-sensitive liabilities with the same OF FINANCIAL characteristics by $7.6 million or 2.9% of the Company's CONDITION total assets. AND RESULTS OF OPERATIONS The Company's actions with respect to interest rate risk and its asset/liability gap management are taken under guidance of the Finance Committee of the Board of Directors of the Company, which is composed of Messrs. O'Rourke, Beacham, and Montelaro, and the Asset/Liability Management Committee ("ALCO"), which is comprised of ten officers of the Bank. This joint committee meets quarterly to, among other things, set interest rate risk targets and review the Company's current composition of assets and liabilities in light of the prevailing interest rate environment. The committee assesses its interest rate risk strategy quarterly, which is then reviewed by the full Board of Directors. As a part of the Company's asset/liability management strategies, the Company intends to increase its emphasis on originating commercial business loans, which generally have variable or adjustable rates of interest, and to increase its emphasis on originating consumer loans, which have relatively short terms to maturity. The Company also intends to increase the amount of non-interest bearing demand deposits, which are considered "core deposits" and which is expected to lessen the effects of changes in interest rates on the Company's net interest margin. Additionally, the Company maintains substantially all of its fixed-rate investment securities, and its fixed-rate mortgage-backed securities in its held for sale portfolios, which at December 31, 1996 amounted to $20.5 million and $21.6 million, respectively, as further described in Notes 3 and 4 to the Consolidated Financial Statements, and which are carried at fair value and could be liquidated in response to rapid changes in interest rates, if deemed appropriate. As more fully described in Note 5 to the Consolidated Financial Statements, the Company's loan portfolio includes approximately $86.6 million of long-term adjustable-rate mortgage loans, $80.7 million of long-term fixed-rate loans, $16.7 million of shorter term consumer loans, and $7.4 million of commercial loans. The Company's mortgage-backed securities held to maturity portfolio of $13.1 million is substantially comprised of adjustable-rate securities. The Company's asset/liability strategy with respect to these portfolios includes an attempt to balance the effects of rising and falling interest rates on the projected interest income from these assets. 15 MANAGEMENT'S The following table summarizes the anticipated maturities DISCUSSION or repricing of the Company's interest-sensitive assets AND ANALYSIS and interest-sensitive liabilities as of December 31, OF FINANCIAL 1996 based on the information and assumption set forth in CONDITION the notes below. AND RESULTS OF OPERATIONS (Dollars in Thousands)
MORE THAN THREE TO MORE THAN THREE YEARS WITHIN THREE TWELVE ONE YEAR TO TO FIVE OVER FIVE MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL ------------ --------- ----------- ----------- ----------- ---------- Interest-sensitive assets1: Loans receivable2......... $ 24,279 $ 45,849 $ 43,109 $ 27,837 $ 41,650 $ 182,724 Investment securities3.... 23,828 6,000 10,889 -- 150 40,867 Mortgage-backed securities4............. 12,033 3,698 9,252 3,442 6,228 34,653 ------------ --------- ----------- ----------- ----------- ---------- Total..................... 60,140 55,547 63,250 31,279 48,028 258,244 ------------ --------- ----------- ----------- ----------- ---------- Interest-sensitive liabilities: Deposits: NOW accounts5............. -- -- -- -- 11,528 11,528 Passbook savings accounts5............... -- -- -- -- 25,071 25,071 Money market deposit account5................ 5,101 -- -- -- -- 5,101 Certificates of deposit... 22,748 58,197 48,101 3,208 14,542 146,796 Advances from FHLB........ 22,000 -- -- -- 250 22,250 ------------ --------- ----------- ----------- ----------- ---------- Total..................... 49,849 58,197 48,101 3,208 51,391 210,746 - ------------ --------- ----------- ----------- ----------- ---------- Excess (deficiency) of interest-sensitive assets over interest- sensitive liabilities... $ 10,291 $ (2,650) $ 15,149 $ 28,071 $ (3,363) $ 47,498 ------------ --------- ----------- ----------- ----------- ---------- ------------ --------- ----------- ----------- ----------- ---------- Cumulative excess (deficiency) of interest-sensitive assets over interest- sensitive liabilities... $ 10,291 $ 7,641 $ 22,790 $ 50,861 $ 47,498 ------------ --------- ----------- ----------- ----------- ------------ --------- ----------- ----------- ----------- Cumulative excess (deficiency) of interest-sensitive assets over interest- sensitive liabilities as a percent of total assets.................. 3.89% 2.89% 8.62% 19.24% 17.97% ------------ --------- ----------- ----------- ----------- ------------ --------- ----------- ----------- -----------
- - ------------------------ (1) Adjustable-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due, and fixed-rate assets are included in the periods in which they are scheduled to be repaid, based on scheduled amortization, in each case as adjusted to take into account estimated prepayments. The Company has estimated the prepayments based upon its experience in the interest rate environment prevailing during 1996. (2) Balances have been reduced for non-performing loans, which amounted to $873,000 at December 31, 1996. (3) Includes interest-bearing deposits and fhlb stock. (4) Reflects estimated prepayments in the current interest rate environment. (5) Although the Company's NOW accounts and passbook savings accounts are subject to immediate withdrawal, management considers substantially all of such accounts to be core deposits having significantly longer effective maturities. The Company generally has retained a relatively consistent amount of such deposits under widely varying interest rate environments. If all of the Company's NOW accounts and passbook savings accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-sensitive assets with comparable characteristics by $29.0 million or 11.0% of total assets. LIQUIDITY AND CAPITAL RESOURCES MANAGEMENT'S DISCUSSION The Company's primary liquidity, represented by cash and AND ANALYSIS cash equivalents, is a product of its operating, OF FINANCIAL investing and financing activities. Excess liquidity CONDITION includes the Company's portfolios of investment AND RESULTS OF securities held for sale and mortgage-backed securities OPERATIONS held for sale. The Company's primary sources of funds are deposits, borrowings, proceeds from sale of stock, and amortization, prepayments and maturities from its loan portfolio and its held to maturity investment securities and mortgage-backed securities portfolios, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows, loan prepayments, and mortgage-backed securities prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has the ability to borrow up to approximately $126.0 million from the FHLB through its subsidiary Bank. Liquidity management is both a daily and long-term function of business management. The Company uses its primary liquidity to meet its ongoing commitments, to pay maturing certificates of deposit and deposit withdrawals, and to fund loan commitments. The Company's excess liquidity and borrowing capacity provide added readiness to meet ongoing commitments and growth. At December 31, 1996, the total approved commitments to extend credit amounted to $10.1 million. Certificates of deposit scheduled to mature in one year or less at that same date totaled $80.3 million. Management believes that a significant portion of maturing deposits will stay with the Company. The Company anticipates it will continue to have sufficient funds together with available borrowings to meet its current commitments. IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which generally require the measurement of financial position and operation results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company's performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. EFFECT ON NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the Federal Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 123, Accounting for Stock-Based Compensation. The statement establishes a fair value based method of accounting for stock-based compensation plans. It encourages entities to adopt that method in place of the provisions of Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees, for all arrangements under which employees receive shares of stock or other equity instruments of the employer if the employer incurs liabilities to employees in amounts based on the price of its stock. The Company will continue using the accounting methods prescribed by APB Opinion 25 and will disclose in the footnotes information on a fair value basis for its stock-based compensation plans. In June 1996, the FASB issued SFAS 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the consistent application of the financial-components approach. This approach requires the recognition of financial assets and servicing assets that are controlled by the reporting entity, and the de-recognition of financial assets and liabilities when control is extinguished. Liabilities and derivatives incurred or obtained by transfers in conjunction with the transfer of financial assets are required to be measured at fair value, if practicable. Servicing assets and other retained interests in transferred assets are required to be measured by allocating the previous carrying amount between the assets sold, if any, and the interest that is retained, if any, based on the relative fair value of the assets at the date of transfer. SFAS 127, Deferral of the Effective Date of Certain Provisions of SFAS 125, was issued in December 1995 and deferred application of many of the provisions of SFAS 125 until after December 31, 1997. 17 INDEPENDENT CHARLES E. CASTAING MEMBERS AUDITORS' ROGER E. HUSSEY AMERICAN INSTITUTE OF REPORT SAMUEL R. LOLAN CERTIFIED PUBLIC ACCOUNTANTS CAROLINE C. BOUDREAUX SOCIETY OF PATRICK J. DAUTERIVE LOUISIANA CERTIFIED PUBLIC ACCOUNTANTS LORI D. PERCLE DEBBIE B. TAYLOR KATHERINE H. ARMENTOR --------------------- ROBIN G. FREYOU DAWN K. GONSOULIN CASTAING, HUSSEY & LOLAN, LLP CERTIFIED PUBLIC ACCOUNTANTS 525 WEEKS STREET--P.O. BOX 14240 NEW IBERIA, LA. 70562-4240 -------------------------- PH: (318) 364-7221 FAX: (318) 364-7235 To the Board of Directors Acadiana Bancshares, Inc. and Subsidiary Lafayette, Louisiana We have audited the accompanying consolidated statements of financial condition of Acadiana Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Acadiana Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ CASTAING, HUSSEY & LOLAN, LLP --------------------------------- New Iberia, Louisiana January 31, 1997 18
ASSETS 1996 1995 ACADIANA --------------------------------------------------- ---------- ---------- BANCSHARES, INC. AND Cash and Cash Equivalents: SUBSIDIARY Cash and Amounts Due from Banks.................... $ 1,234 $ 802 Interest Bearing Deposits-Federal Home Loan Bank... 18,550 15,679 Consolidated ---------- ---------- Statements of Total.............................................. 19,784 16,481 Operations Investment Securities: Years Ended Available for Sale, at fair value.................. 20,539 4,030 December 31, Mortgage-Backed Securities: 1995 and 1996 Held to Maturity (fair value of $12,938 and $13,539, respectively)....................... 13,087 13,492 (In Thousands, Available for Sale, at fair value.................. 21,566 26,022 except per share Loans Receivable, Net.............................. 182,724 157,691 data) Real Estate Owned, Net............................. 75 845 Premises and Equipment, Net........................ 1,827 1,799 The accompanying Federal Home Loan Bank Stock, at Cost.............. 1,778 1,677 Notes to Accrued Interest Receivable........................ 1,551 1,187 Consolidated Other Assets....................................... 1,443 2,350 Financial ---------- ---------- Statements are an Total Assets....................................... $ 264,374 $ 225,574 integral part of ---------- ---------- these Financial ---------- ---------- Statements. Liabilities and Stockholders' Equity Liabilities: Deposits........................................... $ 193,450 $ 206,343 Advances from Federal Home Loan Bank............... 22,250 250 Accrued Interest Payable on Deposits............... 46 31 Advance Payments by Borrowers for Taxes and Insurance........................................ 441 485 Accrued and Other Liabilities...................... 1,096 768 ---------- ---------- Total Liabilities.................................. 217,283 207,877 ---------- ---------- Commitments and Contingencies Stockholders' Equity: Preferred Stock of $.01 Par Value; 5,000,000 shares authorized, -0-shares issued or outstanding................................... -- -- Common Stock of $.01 Par Value; 20,000,000 shares authorized, 2,731,250 shares issued and outstanding.................................. 27 -- Additional Paid-in Capital......................... 31,827 -- Retained Earnings (Substantially Restricted)....... 17,344 16,996 Unearned Common Stock Held by ESOP................. (2,490) -- Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes.. ................... 383 701 ---------- ---------- Total Stockholders' Equity......................... 47,091 17,697 ---------- ---------- Total Liabilities and Stockholders' Equity......... $ 264,374 $ 225,574 ---------- ---------- ---------- ----------
19 ACADIANA BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations Years Ended December 31, 1996, 1995 and 1994 (In Thousands, except per share data) The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 1996 1995 1994 --------- --------- --------- Interest Income: Loans........................................ $ 14,218 $ 12,833 $ 12,852 Mortgage-Backed Securities................... 2,609 2,536 2,336 Investment Securities........................ 1,185 880 985 Interest Bearing Deposits.................... 691 726 749 --------- --------- --------- Total Interest Income........................ 18,703 16,975 16,922 --------- --------- --------- Interest Expense: Deposits..................................... 10,184 10,112 9,356 Advances from Federal Home Loan Bank......... 578 22 22 --------- --------- --------- Total Interest Expense....................... 10,762 10,134 9,378 --------- --------- --------- Net Interest Income.......................... 7,941 6,841 7,544 Provision for Loan Losses.................... 355 1,274 63 --------- --------- --------- Net Interest Income After Provision for Loan Losses................................ 7,586 5,567 7,481 --------- --------- --------- Non-Interest Income: Loan Fees and Service Charges................ 157 119 136 Servicing Fees on Loans Sold................. 60 68 86 Deposit Fees and Service Charges............. 569 583 640 Investment Securities Losses, Net............ -- (64) -- Gain (Loss) on Sale of Fixed Rate Loans...... (20) 11 3 Other........................................ 188 85 78 --------- --------- --------- Total Non-Interest Income.................... 954 802 943 --------- --------- --------- Non-Interest Expenses: Salaries and Employee Benefits............... 2,654 2,666 2,517 Occupancy.................................... 285 222 193 Depreciation................................. 320 259 349 Net Costs of Real Estate Owned............... 129 1,144 182 SAIF Deposit Insurance Premium............... 354 469 523 SAIF Special Assessment...................... 1,338 -- -- Merger/Conversion Expenses--Withdrawn Transaction................................ -- 1,052 -- Advertising.................................. 307 237 168 Consulting................................... 193 306 72 Other........................................ 1,721 1,457 1,270 --------- --------- --------- Total Non-Interest Expenses.................. 7,301 7,812 5,274 --------- --------- --------- Income (Loss) Before Income Taxes............ 1,239 (1,443) 3,150 Income Tax Expense (Benefit)................. 439 (477) 1,057 --------- --------- --------- Net Income (Loss)............................ $ 800 $ (966) $ 2,093 --------- --------- --------- --------- --------- --------- Net Income Per Common Share*................. $ .07 N/A N/A --------- --------- --------- --------- --------- ---------
- - ------------------------ * Includes 3rd and 4th quarters only, for 1996. 20 ACADIANA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT SHARE DATA) NET UNREALIZED GAIN (LOSS) ON RETAINED UNEARNED SECURITIES, COMMON STOCK ADDITIONAL EARNINGS COMMON NET --------------------- PAID-IN (SUBSTANTIALLY STOCK HELD OF DEFERRED SHARES AMOUNT CAPITAL RESTRICTED) BY ESOP TAXES TOTAL ---------- --------- ----------- ------------- ----------- ------------- --------- Balance, January 1, 1994............. $-- $ -- $15,869 $ -- $ -- $15,869 Net Income........................... 2,093 2,093 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes........ (117) (117) --- ------- ------- ------- ----- ------- Balance, December 31, 1994........... -- -- 17,962 -- (117) 17,845 Net Loss............................. (966) (966) Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes........ 818 818 --- ------- ------- ------- ----- ------- Balance, December 31, 1995........... -- -- 16,996 -- 701 17,697 Net Income........................... 800 800 Common Stock Issued in Conversion.... 2,731,250 27 31,811 (2,622) 29,216 Common Stock Released by ESOP Trust.. 16 132 148 Cash Dividends Declared.............. (452) (452) Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes....... (318) (318) --------- --- ------- ------- ------- ----- ------- Balance, December 31, 1996........... 2,731,250 $27 $31,827 $17,344 $(2,490) $ 383 $47,091 --------- --- ------- ------- ------- ----- ------- --------- --- ------- ------- ------- ----- -------
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 21 ACADIANA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
1996 1995 1994 ---------- ----------------- ---------- Cash Flows from Operating Activities: Net Income (Loss)............................... $ 800 $ (966) $ 2,093 -------- ------- -------- Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation.................................... 320 259 349 Provision for Deferred Income Taxes............. (43) (344) (54) Provision for Losses on Loans................... 355 1,274 63 Provision for Losses on Real Estate Owned and Other Property Acquired....................... 256 1,169 94 Other Gains and Losses, Net..................... (121) (139) (92) Loss (Gain) on Sale of Loans Held for Sale...... 52 (11) (3) Proceeds from Sale of Loans Held for Sale....... 6,353 1,553 554 Originations of Loans Held for Sale............. (6,405) (1,542) (551) Abandonment of Construction Work in Progress.... -- 202 -- Accretion of Discounts, Net of Premium Amortization On Securities.................... (46) (57) (150) Amortization of Deferred Revenues and Unearned Income on Loans............................... (161) (146) (193) FHLB Stock Dividend Received.................... (101) (104) (72) ESOP Contribution............................... 148 -- -- Changes in Assets and Liabilities: (Increase) Decrease in Accrued Interest Receivable.................................... (364) 58 52 Decrease (Increase) in Other Assets............. 1,139 (723) (514) Increase (Decrease) in Accounts Payable and Accrued Expenses.............................. 133 (36) (368) -------- ------- -------- Total Adjustments............................... 1,515 1,413 (885) -------- ------- -------- Net Cash Provided by Operating Activities....... $ 2,315 $ 447 $ 1,208 -------- ------- -------- Cash Flows from Investing Activities: Proceeds from Sale of Securities Available for Sale.......................................... $ -- $ 2,719 $ -- Proceeds from Maturities of Securities Available for Sale...................................... 3,000 2,500 16,250 Proceeds from Maturities of Securities Held to Maturity...................................... -- 10,500 -- Purchases of Securities Held to Maturity........ -- -- (18,217) Purchases of Securities Available for Sale...... (19,500) -- (500) Net Advances on Loans........................... (25,416) (7,404) 1,453 Proceeds from Sale of Premises and Equipment.... 11 6 2 Purchase of Premises and Equipment.............. (416) (337) (183) Proceeds from Sale of Real Estate Owned and Other Property Acquired................... 874 908 1,241 Capital Costs Incurred on Real Estate Owned and Other Property Acquired....................... (35) (131) (71) Proceeds from Sale of Mortgage-Backed Securities.................................... -- 467 -- Principal Collections on Mortgage-Backed Securities Available for Sale................. 4,020 -- -- Principal Collections on Mortgage-Backed Securities Held to Maturity................... 397 3,955 5,341 Purchase of Mortgage-Backed Securities Held to Maturity...................................... -- (9,718) (8,471) Purchase of FHLB Stock.......................... -- -- (53) Net Cash Provided By (Used In) Investing Activities.................................... $(37,065) $ 3,465 $ (3,208) -------- ------- -------- Cash Flows From Financing Activities: Net Change in Demand, now and Savings Deposits...................................... $ (1,260) $(5,784) $(6,808) Net Change in Time Deposits..................... (11,633) 8,039 (4,993) Net Change in Mortgage Escrow Funds............. (44) (70) 88 Proceeds from FHLB Advances..................... 22,000 -- -- Proceeds from Issuance of Common Stock.......... 30,153 -- -- Dividends Paid to Shareholders.................. (226) -- -- Stock Conversion Costs Incurred................. (937) -- -- -------- ------- -------- Net Cash Provided By (Used In) Financing Activities.................................... $ 38,053 $ 2,185 $(11,713) -------- ------- -------- Net Increase (Decrease) in Cash and Cash Equivalents................................... $ 3,303 $ 6,097 $(13,713) Cash and Cash Equivalents at Beginning of Year.......................................... 16,481 10,384 24,097 -------- ------- -------- Cash and Cash Equivalents at End of Year........ $ 19,784 $16,481 $ 10,384 -------- ------- -------- -------- ------- -------- Supplemental Schedule of Noncash Activities: Acquisition of Real Estate in Settlement of Loans......................................... $ 189 $ 252 $ 955 Unrealized Appreciation (Loss) on Securities.... $ (481) $ 1,239 $ (177) Loans Made to Facilitate Sales of Real Estate Owned......................................... $ -- $ 317 $ 764 Supplemental Disclosures: Cash Paid For: Interest on Deposits and Borrowings............. $ 10,747 $10,136 $ 9,371 Income Taxes.................................... $ 526 $ 915 $ 951
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 22 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATIONS Acadiana Bancshares, Inc. (the "Company") is a Louisiana Corporation organized in February 1996 for the purpose of becoming the bank holding company for lba Savings Bank (the "Bank"). The Board of Directors of the Bank adopted the Plan of Conversion pursuant to which the Bank converted from a Louisiana chartered savings bank to a Louisiana chartered stock savings bank. The Company completed its subscription and community offering in July 1996, and with a portion of the net proceeds, acquired the capital stock of the Bank. The Company provides a variety of financial services primarily to individuals, but also to commercial business customers through its four full service branches in Lafayette, Louisiana and its loan production office in Eunice, Louisiana. The Bank's primary deposit products are interest bearing checking accounts and certificates of deposit. Its primary lending products are single family residential loans, commercial real estate loans and commercial loans. BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Acadiana Bancshares, Inc. and its wholly owned subsidiary, lba Savings Bank. All material intercompany balances and transactions have been eliminated in consolidation. The 1995 and 1994 financial statements contained herein are those of LBA Savings Bank (and Subsidiary) as the predecessor entity. 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 income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties. A majority of the Company's loan portfolio consists of single family residential loans in the Lafayette area. The regional economy has demonstrated heavy dependence on the oil and gas industry, which was in severe economic decline in the 1980's. Real estate prices in this market were substantially depressed. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans and foreclosed real estate may change materially in the near term. CASH AND CASH EQUIVALENTS The Company considers all cash and amounts due from depository institutions and interest bearing demand deposits in other banks to be cash equivalents for purposes of the statements of cash flows. INVESTMENT SECURITIES Investment securities that are held for short-term resale are classified as trading securities and carried at fair value. Debt securities that management has the ability and intent to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. Other investment securities are classified as available for sale and are carried at fair value. Realized and unrealized gains and losses on trading securities are included in net income. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in Continued 23 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: CONTINUED equity, net of applicable income taxes. No investments have been classified as trading securities. The cost of securities sold is recognized using the specific identification method. MORTGAGE-BACKED SECURITIES Mortgage-Backed securities, or MBSS, owned by the Company represent participating interests in pools of underlying long-term first mortgage loans issued by one of three agencies: GNMA, FNMA, and FHLMC. Collateralized mortgage obligations, or CMOS, owned by the Company represent participating interests in a multiclass security that is secured by one or more pools of mortgage pass-through pools. Management classifies certain of both types of MBSS as available for sale securities, which are carried at fair value. These securities may be sold in the future; however, it is not anticipated they will be sold in the near future. Management also classifies certain of both types of MBSS as held to maturity, which are carried at cost, adjusted for amortization of premiums and accretion of discounts using methods approximating the interest method. The Company has both the intent and ability to hold such securities to maturity. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in equity, net of applicable income taxes. The cost of mortgage-backed securities sold is recognized using the specific identification method. REDESIGNATIONS REGARDING INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES On November 15, 1995, the Financial Accounting Standards Board issued a "Special Report", A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. In connection with the "Special Report", accounting principles allowed the Company a one-time opportunity to reassess the appropriateness of the designations of all its securities held upon the initial application of the "Special Report". In December 1995, the Company elected to redesignate certain of its investment securities and its mortgage-backed securities; such redesignations were accounted for at fair value in accordance with SFAS 115. LOANS HELD FOR SALE Mortgage loans originated and held for sale in the secondary market are carried at the lower of cost or market value determined on an aggregate basis. Net unrealized losses are recognized in a valuation allowance through charges to income. Gains and losses on the sale of loans held for sale are determined using the specific identification method. At December 31, 1996 and 1995, the bank had no loans held for sale. LOANS RECEIVABLE Loans are stated at unpaid principal balances, less the allowance for loan losses, net deferred loan fees and unearned discounts. Loan origination fees and certain direct loan origination costs, including dealer participation fees paid on indirect financing, are deferred and amortized as an adjustment to the related loan's yield using the interest method. Interest on loans is recognized using the simple interest method. A loan (including a loan defined as impaired under SFAS 114) is classified as nonaccrual when the loan becomes 90 days or more past due. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of cash payments received. The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of various factors, including the collectibility of the loan portfolio, the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In May 1993, the FASB issued SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that impaired loans that are within the scope of this statement be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's market price or the fair value of the collateral if the loan is collateral dependent. The Company uses the loan-by-loan measurement method for all loans; however, residential mortgage loans and consumer installment loans are considered to be groups of Continued 24 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: CONTINUED smaller balance homogenous loans and are collectively evaluated for impairment and are not subject to SFAS 114 measurement criteria. A loan is considered impaired when it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. A loan is not deemed to be impaired if a delay in receipt of payment is expected to be less than 60 days or if, during a longer period of delay, the Company expects to collect all amounts due, including interest accrued at the contractual rate during the period of the delay. Factors considered by management include the property location, economic conditions and any unique circumstances affecting the loan. Due to the composition of the Company's loan portfolio, the fair value of collateral is utilized to measure virtually all of the Company's impaired loans. If the fair value of an impaired loan is less than the related recorded amount, a valuation allowance is established or the writedown is charged against the allowance for loan losses if the impairment is considered to be permanent. The standard is to be adopted prospectively with the effect of initially applying the standard to be reflected as an adjustment to the Company's provision for loan losses in the year of adoption. The Company adopted the standard effective January 1, 1995. PREMISES AND EQUIPMENT Depreciation and amortization are provided over the estimated useful lives of the respective assets, 15 to 40 years for buildings and 3 to 12 years for furniture, fixtures and equipment. All premises and equipment are recorded at cost and are depreciated on either the straight line method or declining balance method. REAL ESTATE AND OTHER PROPERTY ACQUIRED IN SETTLEMENT OF LOANS Real estate and other property acquired in settlement of loans are recorded at the balance of the loan or at estimated fair value minus estimated costs to sell, whichever is less, at the date acquired, plus capital improvements made thereafter to facilitate sale. Writedowns based on fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value minus estimated costs to sell. Costs of holding real estate acquired in settlement of loans and subsequent writedowns to reflect fair value are shown as charges against income currently. Gains on sales of such real estate are taken into income based on the buyer's initial and continuing investment in the property. Other property acquired in settlement of loans consists primarily of automobiles. LOAN SERVICING The Company adopted SFAS 122, Accounting for Mortgage Servicing Rights, prospectively as of January 1, 1996. Issued in May 1995, SFAS 122 amends certain provisions of SFAS 65 to eliminate the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and rights acquired through purchase transactions. The statement requires a mortgage banking enterprise, which sells or securitizes loans and retains the related mortgage servicing rights, to allocate the total cost of the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. When participating interests in loans sold have an average contractual interest rate, adjusted for normal servicing fees, that differs from the agreed yield to the purchaser, gains or losses are recognized equal to the present value of such differential over the estimated remaining life of such loans. The resulting "excess servicing receivable" or "deferred servicing revenue" is amortized over the estimated life using a method approximating the interest method. The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. The effect of adopting SFAS 122 did not have a material impact on the Company's financial condition or the results of operations. ADVERTISING COSTS The Company incurred no direct-response advertising costs and expenses all advertising costs as incurred. Continued 25 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: CONTINUED LONG-LIVED ASSETS The Company adopted SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, in 1996. This statement requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. Impairment would be considered when the undiscounted cash flows estimated to be generated by those assets are less then the assets' carrying amount. Implementation of this statement had no material effect on the consolidated financial statements. EMPLOYEE BENEFITS SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, which is effective for fiscal years beginning after December 15, 1992, requires recognition of estimated future postretirement costs over employees' periods of service. SFAS 112, Employers' Accounting for Postemployment Benefits, which is effective for fiscal years beginning after December 15, 1993, requires recognition of estimated future postemployment costs over employees' periods of service. The Company offers no postretirement health or medical benefits or postemployment benefits to any of its employees or former employees. INCOME TAXES The Company and its subsidiary file a consolidated federal income tax return on a calendar year basis. Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities in accordance with SFAS 109, Accounting for Income Taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. EARNINGS PER SHARE Net income per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during each year. The weighted average number of common shares outstanding excludes the weighted average unreleased shares owned by the ESOP of 213,026. Earnings per share for periods preceding the third quarter of 1996 are not applicable, as the Bank's conversion from mutual-to-stock form and reorganization into a holding company format was not completed until July 15, 1996. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets' fair values. Investment securities (including equity securities and mortgage-backed securities): Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate and mortgage loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates 26 Continued ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: CONTINUED include judgments regarding future expected loss experience and risk characteristics. The carrying amount of accrued interest receivable approximates its fair value. Deposits: The fair value disclosed for demand deposits (for example, interest bearing checking accounts and passbook accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits. The carrying amount of accrued interest payable approximates fair value. Off-Balance Sheet Items: The Company has outstanding commitments to extend credit and stand-by letters of credit. These off-balance sheet financial instruments are generally exerciseable at the market rate prevailing at the date the underlying transaction will be completed and, therefore, have no current value. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS In October 1995, FASB issued SFAS 123, Accounting for Stock-Based Compensation. The Company adopted SFAS 123 effective January 1, 1996. The statement establishes a fair value based method of accounting for stock-based compensation plans. It encourages entities to adopt that method in place of the provisions of Accounting Principles Board ("apb") Opinion 25, Accounting for Stock Issued to Employees, for all arrangements under which employees receive shares of stock or other equity instruments of the employer if the employer incurs liabilities to employees in amounts based on the price of its stock. The Company will continue using the accounting methods prescribed by apb Opinion 25 and will disclose in the footnotes information on a fair value basis for its stock-based compensation plans. In June 1996, the FASB issued SFAS 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the consistent application of the financial-components approach. This approach requires the recognition of financial assets and servicing assets that are controlled by the reporting entity, and the derecognition of financial assets and liabilities when control is extinguished. Liabilities and derivatives incurred or obtained by transfers in conjunction with the transfer of financial assets are required to be measured at fair value, if practicable. Servicing assets and other retained interests in transferred assets are required to be measured by allocating the previous carrying amount between the assets sold, if any and the interest that is retained, if any, based on the relative fair value of the assets at the date of transfer. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. SFAS 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125, was issued in December 1996 and deferred application of many of the provisions of SFAS 125 until after December 31, 1997. Management believes adoption of SFAS 125 will not have a material effect on financial position and the results of operations. RECLASSIFICATIONS Certain reclassifications have been made to the 1995 and 1994 consolidated financial statements in order to conform to the classifications adopted for reporting in 1996. NOTE 2--CASH AND AMOUNTS DUE FROM BANKS: The Company is required by the Federal Reserve Bank to maintain a reserve of vault cash or cash on deposit based on a percentage of deposits. The amount of the reserves at December 31, 1996 and 1995 was approximately $281,000 and $223,000, respectively. Continued 27 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3--INVESTMENT SECURITIES: Securities available for sale consist of the following (in thousands):
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------------------------------ ------------------------------------------------ GROSS GROSS GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- U.S. Government and Federal Agencies....... $20,389 $149 $(14) 20,524 $3,861 $157 $ -- $4,018 Marketable Equity Security... 5 10 -- 15 5 7 -- 12 ------- ---- ---- ------- ------ ---- ----- ------ Total........................ $20,394 $159 $(14) $20,539 $3,866 $164 $ -- $4,030 ------- ---- ---- ------- ------ ---- ----- ------ ------- ---- ---- ------- ------ ---- ----- ------
The following is a summary of maturities of securities available for sale as of December 31, 1996 (in thousands): SECURITIES AVAILABLE FOR SALE ---------------------- AMORTIZED FAIR COST VALUE ----------- --------- Amounts maturing in: One year or less............................... $ 1,000 $ 1,001 After one year through five years.............. 17,389 17,532 After five years through ten years............. 2,000 1,991 After ten years................................ -- -- ----------- --------- 20,389 20,524 Marketable Equity Security..................... 5 15 ----------- --------- Total.......................................... $20,394 $20,539 ----------- --------- ----------- --------- Securities are classified according to their contractual maturity without consideration of call options. Accordingly, actual maturities may differ from contractual maturities. During 1996, no securities available for sale were sold. During 1995, the Company sold securities available for sale for total proceeds of approximately $2,719,000, resulting in realized losses of approximately $31,000. There were no sales of securities in 1994. As described above in Note 1, in 1995 the Company was permitted to make transfers from the held to maturity to available for sale classifications. In December 1995, investment securities with an amortized cost of approximately $3,859,000 and market value of approximately $4,004,000 were transferred from held to maturity to available for sale. Investment securities with a carrying amount and fair value of approximately $519,000 at December 31, 1996 were pledged to secure deposits as required or permitted by law. 28 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4--MORTGAGE-BACKED SECURITIES: Mortgage-backed securities available for sale consist of the following (in thousands):
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------------------------------ ------------------------------------------------ GROSS GROSS GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- GNMA..... $ 1,760 $ 16 $ -- $ 1,776 $ 1,924 $ 57 $ -- $ 1,981 FNMA..... 11,976 483 (10) 12,449 14,418 767 -- 15,185 FHLMC.... 6,893 45 (85) 6,853 8,281 111 (31) 8,361 FNMA CMO.... 502 -- (14) 488 502 -- (7) 495 ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- $ 21,131 $ 544 $ (109) $ 21,566 $ 25,125 $ 935 $ (38) $ 26,022 ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Mortgage-backed securities held to maturity consist of the following (in thousands): DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------------------------------ ------------------------------------------------ GROSS GROSS GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- GNMA..... $ 1,320 $ 21 $ -- $ 1,341 $ 1,585 $ -- $ (9) $ 1,576 FNMA..... 232 -- (3) 229 259 1 -- 260 FHLMC.... 822 -- (30) 792 936 -- (27) 909 FNMA CMO.... 4,733 -- (21) 4,712 4,733 58 -- 4,791 FHLMC CMO.... 5,980 -- (116) 5,864 5,979 79 (55) 6,003 ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- $ 13,087 $ 21 $ (170) $ 12,938 $ 13,492 $ 138 $ (91) $ 13,539 ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
The following is a summary of maturities of mortgage-backed securities available for sale and held to maturity as of December 31, 1996 (in thousands): AVAILABLE FOR SALE HELD TO MATURITY ---------------------- ---------------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ----------- --------- ----------- --------- Amounts maturing in: One year or less.............. $ 3,441 $ 3,511 $ 304 $ 301 After one year through five years................. 14,460 14,758 874 864 After five years through ten years.................. 2,873 2,932 600 593 After ten years............... 357 365 11,309 11,180 ----------- --------- ----------- --------- Total......................... $ 21,131 $ 21,566 $ 13,087 $ 12,938 ----------- --------- ----------- --------- ----------- --------- ----------- --------- Maturities are based on the average life at the currently projected prepayment speed. During 1996, no mortgage-backed securities available for sale were sold. During 1995, the Company sold one available for sale mortgage-backed security for total proceeds of approximately $468,000 resulting in a realized loss of approximately $33,000. There were no sales of mortgage-backed securities available for sale in 1994. There were no sales of held to maturity mortgage-backed securities in 1996, 1995 or 1994. As described above in Note 1, in 1995 the Company was permitted to make transfers from the held to maturity to available for sale classifications. In December 1995, mortgage-backed securities with an amortized cost of approximately $25,921,000 and market value of approximately $26,737,000 were transferred from held to maturity to available for sale. Continued 29 ACADIANA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5--LOANS RECEIVABLE: Loans Receivable at December 31, 1996 and 1995 are summarized as follows (in thousands): 1996 1995 ---------- ---------- Mortgage Loans: Single Family Residential......................... $ 142,965 $ 127,656 Single Family Construction........................ 10,565 7,304 Multi-family Residential.......................... 862 1,202 Commercial Real Estate............................ 12,873 13,370 ---------- ---------- Total Mortgage Loans.............................. 167,265 149,532 Commercial Business Loans......................... 7,363 1,358 Consumer Loans: Savings........................................... 2,709 2,632 Indirect Automobile Dealer........................ 7,424 5,472 Other............................................. 6,594 5,600 ---------- ---------- Total Loans....................................... 191,355 164,594 Less: Allowance for Loan Losses......................... (2,592) (2,329) Unearned Discounts and Prepaid Dealer Reserve..... 331 206 Net Deferred Loan Origination Fees................ (471) (488) Loans in Process and Undisbursed Funds............ (5,899) (4,292) ---------- ---------- Net Loans......................................... $ 182,724 $ 157,691 ---------- ---------- ---------- ---------- At December 31, 1996 and 1995, the Company's loan portfolio included $86,565,000 and $69,991,000 in adjustable rate mortgages, respectively. The following is an analysis of the allowance for possible loan losses for the years ended December 31 (in thousands): 1996 1995 1994 --------- --------- --------- Balance, Beginning................... $2,329 $1,087 $1,015 Provision Charged to Income.......... 355 1,274 63 Loans Charged Off.................... (277) (127) (183) Loans Recovered...................... 185 95 192 --------- --------- --------- Balance, Ending...................... $ 2,592 $ 2,329 $ 1,087 --------- --------- --------- --------- --------- --------- The total recorded investment in impaired loans as of December 31, 1996 and 1995 was $197,000 which consisted of one loan. The total allowance for impaired loans attributable to this loan was $65,000 as of December 31, 1996 and 1995. The average recorded investment in the impaired loan during 1996 and 1995 was $197,000. No interest income was recognized in 1996 on the impaired loan. No interest income was recognized in 1995 on the impaired loan during the period it was considered impaired. At December 31, 1996 and 1995, the Company had loans totaling $536,000 (5 loans) and $747,000 (6 loans), respectively, whose terms had been modified as a troubled debt restructuring. The interest income that would have been recognized if those loans had been current with their original terms was $131,000, $147,000 and $154,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Interest income totaling $78,000, $89,000 and $96,000 was included in income for the years ended December 31, 1996, 1995 and 1994, respectively. The Company is not committed to lend additional funds to debtors whose loans have been restructured. 30 NOTE 6--LOAN SERVICING: Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of mortgage loans serviced for others was $24,453,000 and $24,033,000 at December 31, 1996 and 1995, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing were approximately $378,000 and $295,000 at December 31, 1996 and 1995, respectively. Mortgage loan servicing rights of $35,000 were capitalized in 1996. Amortization of mortgage servicing rights was $3,000 in 1996, and the balance of mortgage servicing rights at December 31, 1996 was $32,000. NOTE 7- PREMISES AND EQUIPMENT: Premises and equipment at December 31 is as follows (in thousands):
1996 1995 --------- --------- Land....................................................................... $ 738 $ 738 Office Buildings........................................................... 1,237 1,510 Furniture, Fixtures and Equipment.......................................... 2,381 2,267 Transportation Equipment................................................... 95 81 --------- --------- 4,451 4,596 Accumulated Depreciation................................................... (2,624) (2,797) --------- --------- Premises and Equipment, Net................................................ $ 1,827 $ 1,799 --------- --------- --------- ---------
NOTE 8--REAL ESTATE OWNED: Real estate owned at December 31 is as follows (in thousands):
1996 1995 --------- --------- Real Estate and Other Property Acquired.....................................$ 75 $ 855 Allowance for Losses........................................................ -- (10) ---------- --------- Real Estate Owned, Net......................................................$ 75 $ 845 ---------- --------- ---------- ---------
The changes in real estate and other property acquired for the years ended December 31 is as follows (in thousands):
1996 1995 --------- --------- Balance, Beginning...........................................................$ 855 $ 2,753 Real Estate and Other Property acquired in settlement of loans.............. 281 252 Capitalized Costs............................................................ 34 131 Dispositions................................................................. (737) (818) Losses and Writedowns Charged to Allowance................................... (358) (1,463) --------- --------- Balance, Ending..............................................................$ 75 $ 855 --------- --------- --------- ---------
Continued 31 NOTE 8: Continued The changes in the allowance for losses on real estate and other property acquired in settlement of loans for the years ended December 31 is as follows (in thousands):
1996 1995 1994 --------- --------- --------- Balance, Beginning............................ $ 10 $ 304 $ 314 Provision Charged to Income.................. 1,169 94 Losses and Writedowns Charged to Allowance... (10) (1,463) (104) --------- --------- --------- Balance, Ending................................ $ -- $ 10 $ 304 --------- --------- --------- --------- --------- ---------
During 1996, the Company switched from the allowance method to the direct charge-off method for Real Estate Owned and Other Repossessed Assets. NOTE 9--DEPOSITS: Deposit account balances at December 31 are summarized as follows (dollars in thousands):
WEIGHTED 1996 1995 AVERAGE RATE AT --------------------- ------------------------- DECEMBER 31,,1996 AMOUNT % AMOUNT % ----------------- ---------- --------- -------------- --------- NOW Accounts................................... 1.8% $ 11,528 6.0% $ 10,689 5.2% Money Market Accounts.......................... 2.3% 5,101 2.6% 6,228 3.0% Non-interest Bearing Checking Accounts......... --% 4,954 2.6% 3,024 1.5% Total Demand Deposits.......................... 21,583 11.2% 19,941 9.7% ---------- --------- -------------- --------- Passbook Savings Deposits...................... 2.5% 25,071 12.9% 27,973 13.5% ---------- --------- -------------- --------- ---------- --------- -------------- --------- Certificate of Deposit Accounts: Less than 4.00%................................ 100 .1% 323 .2% 4.0% to 4.99% 17,031 8.8% 14,845 7.2% 5.0% to 6.99% 105,385 54.5% 105,766 51.2% 7.0% to 8.99% 23,434 12.1% 36,600 17.8% 9.0% and over 846 .4% 895 .4% ---------- --------- -------------- --------- Total Certificates of Deposit.................. 5.8% 146,796 75.9% 158,429 76.8% ---------- --------- -------------- --------- Total Deposits................................. 4.9% $ 193,450 100.0% $ 206,343 100.0% ---------- --------- -------------- --------- ---------- --------- -------------- ---------
At December 31, 1996, scheduled maturities of certificates of deposit accounts were as follows (in thousands):
AMOUNT ---------- One year or less........................................ $ 80,284 Over one year through two years...................................... 33,378 Over two years through three years................................... 15,233 Over three years through five years................................. 3,135 Over five years through ten years................................... 14,766 ---------- Total Certificates of Deposit...................................... $ 146,796 ---------- ----------
Certificates of deposit with a balance of $100,000 and over were $36,037,000 and $39,604,000 at December 31, 1996 and 1995, respectively. 32 Continued NOTE 9: Continued Interest expense on deposits for the following years ended December 31 is as follows (in thousands):
1996 1995 1994 --------- --------- --------- NOW Accounts............................................................. $ 160 $ 144 $ 153 Money Market............................................................. 131 139 189 Passbook Savings......................................................... 692 737 928 Certificates of Deposits................................................. 9,201 9,092 8,086 --------- --------- --------- Total Interest Expense on Deposits....................................... $ 10,184 $ 10,112 $ 9,356 --------- --------- --------- --------- --------- ---------
Income from early withdrawal penalties on certificate accounts was $63,000, $53,000 and $45,000 for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE 10--FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances totaled $22,250,000 and $250,000 as of December 31, 1996 and 1995, respectively, which are secured by mortgage loans under an existing blanket collateral agreement and by Federal Home Loan Bank stock. No payments are scheduled prior to maturity. The Company has the ability to borrow total advances up to $125,955,000 from the Federal Home Loan Bank which would also be secured by the existing blanket collateral agreement and by Federal Home Loan Bank stock. Advances at December 31, 1996 and 1995 are as follows (in thousands):
INTEREST RATE 1996 1995 - - ------------------------------------------- ----------------------- 5.350% to 5.566%, at floating libor $ 22,000 $ -- 8.700% 250 250 ----------- ---------- Total Advances............................. $ 22,250 $ 250 ----------- ---------- ----------- ----------
Advances at December 31, 1996 have maturities in future years as follows (in thousands):
YEAR ENDING DECEMBER 31 AMOUNT ----------------------- ------- 1998................. $22,000 2005.................. 250 ------- $22,250 ------- -------
NOTE 11--INCOME TAXES: The provision for Income Tax Expense (Benefit) is as follows for the years ended December 31 (in thousands):
1996 1995 1994 -------- --------- --------- Current: Federal.......................... $ 468 $(134) $1,111 State.............................. 14 -- -- Deferred: Federal........................... (43) (343) (54) -------- --------- --------- Total Income Tax Expense (Benefit)..... $439 $(477) $1,057 -------- --------- --------- -------- --------- ---------
There was an income tax refund receivable of $16,000 at December 31, 1996 and $1,090,000 at December 31, 1995. Continued 33 NOTE 11: CONTINUED The total provision for federal income taxes differs from that computed by applying statutory corporate tax rates, as follows for the years ended December 31:
1996 1995 1994 --------- --------- --------- Statutory Federal Income Tax Rate.......................................................... 34.0% (34.0)% 34.0% Increase (Decrease) in Taxes Resulting From: State Income Tax on Non-Bank Entities...................................................... 1.1 -- -- Other Items................................................................................ .3 .9 (.4) Effective Tax Rate......................................................................... 35.4% (33.1)% 33.6% --------- --------- --------- --------- --------- ---------
The tax effects of principal temporary differences at December 31 is as follows (in thousands):
1996 1995 --------- --------- Deferred Tax Assets: Deferred loan fees................................................................ $ 90 $ 166 Book provision for losses on loans and real estate owned.......................... 878 797 Real estate owned basis differences............................................... 74 -- Deferred gains on loans........................................................... 49 73 Depreciable property basis differences............................................ 25 -- Other............................................................................. 21 5 --------- --------- Subtotal....................................................................... 1,137 1,041 --------- --------- Deferred Tax Liabilities: Discount Accretion on Investment.................................................. 19 -- FHLB stock........................................................................ 249 215 Unrealized gains on Securities Available for Sale................................. 193 361 --------- --------- Subtotal....................................................................... 461 576 --------- --------- Net Deferred Tax Asset............................................................ $ 676 $ 465 --------- --------- --------- ---------
The likelihood of realization of the entire amount of the deferred tax asset is considered to be more likely than not; therefore, no valuation allowance has been provided for 1996 and 1995. The net deferred tax asset is included in Other Assets on the statement of financial condition. Included in retained earnings at December 31, 1996 and 1995, is approximately $7,073,000 and $7,064,000, respectively, in bad debt reserves for which no deferred federal income tax liability has been recorded. These amounts represent allocations of income to bad debt deductions for tax purposes only for tax years prior to 1987. Reduction of these reserves for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes, which would be subject to the then current corporate income tax rate. NOTE 12--REGULATORY MATTERS: The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Financial institutions are segmented into one of five classifications ranging from "well capitalized" to "critically undercapitalized." Should a financial institution's ratios decline below the predetermined minimum ratios, the institution would be subject to increasingly restrictive regulatory action. 34 Continued Note 12: CONTINUED The regulations require institutions to have a minimum regulatory tangible capital equal to 1.5 percent of adjusted total assets, a minimum 4.0 percent core/leverage capital ratio, a minimum 4.0 percent tier one risk-based ratio, and a minimum 8.0 percent total risk-based capital ratio to be considered "adequately capitalized." An institution is deemed to be "critically undercapitalized" if it has a tangible equity ratio of two percent or less. At December 31, 1996, the Bank was classified as "well capitalized". As of December 31, the Company met all regulatory capital requirements as follows (dollars in thousands):
December 31, 1996 ----------------------- Required Actual Amount Percent Amount Percent -------- ------- -------- ------- Tier 1 leverage capital: Acadiana Bancshares, Inc. $ 10,545 4.00% $ 46,676 17.71% LBA Savings Bank 10,007 4.00% 33,451 13.37% Tier 1 risk-based capital: Acadiana Bancshares, Inc. 5,270 4.00% 46,676 35.43% LBA Savings Bank 5,161 4.00% 33,451 25.93% Total risk-based capital: Acadiana Bancshares, Inc. 10,539 8.00% 48,334 36.69% LBA Savings Bank 10,322 8.00% 35,076 27.19%
December 31, 1995 ----------------------- Required Actual Amount Percent Amount Percent -------- ------- -------- ------- Tier 1 leverage capital: LBA Savings Bank $ 8,986 4.00% $ 16,996 7.57% Tier 1 risk-based capital: LBA Savings Bank 4,550 4.00% 16,996 14.94% Total risk-based capital: LBA Savings Bank 9,099 8.00% 18,429 16.20%
LBA Savings Bank is restricted under applicable laws in the payment of dividends to an amount equal to current year earnings plus undistributed earnings for the immediately preceding year, unless prior permission is received from the Commissioner of Financial Institutions. Undistributed earnings of the Bank for 1996 that are available for dividend distribution to the Company in 1997 are $547,000. NOTE 13--EMPLOYEE BENEFITS: 401(k) and Money Purchase Pension Plans The Company maintains a 401(k) Profit Sharing Plan to provide retirement benefits for substantially all employees. Eligible employees may defer up to ten percent of compensation and the Company contributes a matching contribution of 100 percent of employee deferrals up to three percent of compensation. The board of directors determines the amount of an additional discretionary contribution, if any, annually. All employees are eligible after completing one year of service and attaining age 21. The Company terminated the Money Purchase Pension Plan, which required a two percent contribution, effective January 1, 1996. Employer contributions made to the plans were $52,000, $146,000 and $189,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Continued 35 NOTE 13: CONTINUED EMPLOYEE STOCK OWNERSHIP PLAN In connection with the conversion from mutual to stock form, the Company established an Employee Stock Ownership Plan ("ESOP") for the benefit of employees of the Company and the Bank. The ESOP purchased 218,500 shares, or 8 percent of the total stock sold in the subscription, for $2,622,000, financed by a loan from the Company. The leveraged ESOP is accounted for in accordance with AICPA SOP 93-6, Employers' Accounting for Employee Stock Ownership Plans. The ESOP was effective upon completion of the conversion. Full-time employees of the Company and the Bank who have been credited with at least 1,000 hours of service during a 12 month period and who have attained age 21 are eligible to participate in the ESOP. It is anticipated that contributions will be made to the plan in amounts necessary to amortize the debt to the Company over a period of 10 years. Shares purchased by the ESOP with the proceeds of the loan will be held in a suspense account and released on a pro-rata basis as debt service payments are made. Shares released will be allocated among participants on the basis of compensation. Participants will vest in their right to receive their account balances within the ESOP at the rate of 20 percent per year starting after one year of service. In the case of a "change of control," as defined in the plan, participants will become immediately and fully vested in their account balances. Under SOP 93-6, unearned ESOP shares are not considered outstanding and are shown as a reduction of stockholders' equity. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the Company's ESOP shares differ from the cost of such shares, this differential will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released. The loan receivable from the ESOP to the Company is not shown as an asset and the debt of the ESOP is not shown as a Company liability. Dividends on allocated shares will be used to pay the ESOP debt. Compensation cost for the year ended December 31, 1996 was $148,000 based on the release of 10,946 shares. At December 31, 1996, there were 10,946 allocated shares and 207,554 shares were held in suspense by the ESOP. The fair value of the unearned ESOP shares at December 31, 1996, using the quoted market closing price per share was approximately $3,087,000. NOTE 14--RELATED PARTY TRANSACTIONS: In the ordinary course of business, the Company makes loans to its employees, officers and directors. Such loans to employees, officers and directors are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. The Company has an employment agreement with an executive officer under which the Company agreed to pay compensation of $130,000 annually through October 31, 1999. The Company has also entered into severance agreements with six officers. The total commitments under the severance agreements at December 31, 1996 were $728,000. NOTE 15--COMMITMENTS AND CONTINGENT LIABILITIES: The Company is subject to claims and lawsuits which arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Company in connection with such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits will not have a material adverse effect on the consolidated financial condition or results of operations of the Company. NOTE 16--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments 36 Continued NOTE 16: CONTINUED to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition. The contract or notional amounts of those instruments reflect the extent of the Company's involvement in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
AS OF DECEMBER 31, 1996, FINANCIAL INSTRUMENTS FOR WHICH THE CONTRACT OR NOTIONAL CONTRACT AMOUNTS WERE AS FOLLOWS REPRESENT CREDIT RISK: AMOUNT (IN THOUSANDS) - - ----------------------------------------------------------------------- --------------------- Undisbursed Loans in Process........................................... $ 5,899 Commitments to Extend Credit........................................... $ 10,105 Standby Letters of Credit.............................................. $ 598
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 drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counter party. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bonding financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. NOTE 17--CONCENTRATION OF CREDIT: All of the Company's loans, commitments, and letters of credit have been granted to customers in the Company's market area. The concentration of credit by type of loan is set forth in Note 5. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Letters of credit were granted primarily to borrowers who develop real estate properties. NOTE 18--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair value of the Company's financial instruments as of December 31 is as follows (in thousands):
1996 1995 ---------------------- ---------------------- ESTIMATED RECORDED ESTIMATED RECORDED FAIR BOOK FAIR BOOK VALUE BALANCE VALUE BALANCE ----------- --------- ----------- --------- ASSETS Cash................................................................. $ 19,784 $ 19,784 $ 16,481 $ 16,481 Investment Securities................................................ 20,539 20,539 4,030 4,030 Mortgage-Backed Securities........................................... 34,504 34,653 39,561 39,514 Loans Receivable..................................................... 184,289 182,724 163,636 157,691 LIABILITIES Deposits: Regular Savings, NOW Accounts, and Money Market Deposits............. $ 46,654 $ 46,654 $ 47,913 $ 47,913 Certificates of Deposit.............................................. 149,155 146,796 160,842 158,430 Advances from Federal Home Loan Bank................................. 22,250 22,250 292 250
37 NOTE 19--CONVERSION FROM MUTUAL TO STOCK ASSOCIATION: In 1996, the Bank converted from a Louisiana chartered mutual savings bank to a Louisiana chartered stock savings bank, pursuant to its Plan of Conversion. The Company issued 2,731,250 shares of common stock at $12.00 per share. The Company's ESOP purchased 218,500 shares, financed by a loan from the Company. The net proceeds received from the conversion was $30,153,000. Total conversion costs approximated $937,000. In accordance with regulations, at the time that the Bank converted from a mutual savings bank to a stock savings bank, the Bank established a liquidation account in the amount of $17,697,000. The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that eligible account holders and supplemental eligible account holders have reduced their qualifying deposits. Subsequent increases in deposits will not restore an eligible account holder's or supplemental eligible account holder's interest in the liquidation account. In the event of a complete liquidation of the Bank, each account holder and supplemental eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. The Bank may not pay a dividend on its capital stock if the dividend would bring regulatory capital below the balance of the liquidation account. The Bank is restricted from declaring or paying cash dividends or repurchasing any of its shares of common stock if the effect thereof would cause equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements. The Bank continues to be a member of the Federal Home Loan Bank System and all insured savings deposits continue to be insured by the fdic up to the maximum provided by law. NOTE 20--LAFAYETTE LAND AND MANAGEMENT: Lafayette Land and Management (LLM), a wholly owned subsidiary of the Bank, was liquidated into the Bank in December 1995. At the time of liquidation its principal assets consisted of cash ($93,000) and one tract of real estate ($859,000) that had previously been acquired by the Bank through foreclosure. The liquidation was a tax-free reorganization for tax purposes. For the year ended December 31, 1995, total revenues of LLM were $100,000 and its expenses were $48,000. For the year ended December 31, 1994, total revenues of LLM were $28,000 and its expenses were $41,000. These amounts are included in the consolidated statements of operations. NOTE 21--SUBSEQUENT EVENTS: On January 21, 1997, at a special meeting the stockholders of the Company approved adoption of the Stock Option Plan and Recognition and Retention Plan and Trust Agreement for the benefit of directors, officers and key employees. The stock option plan authorizes grants totaling 273,125 shares, or 10 percent of the total number of common shares sold in the Company's initial public offering of its common stock upon the mutual-to-stock conversion of lba Savings Bank. The option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum term cannot exceed ten years. On January 22, 1997, the Board of Directors granted a total of 211,701 options to directors and officers at an exercise price of $15.50 per share. The Recognition and Retention Plan (RRP) is a restricted stock plan. The plan authorizes the granting of up to 109,250 shares, or 4 percent of the total number of common shares sold in the Company's initial public offering. The Company intends to repurchase shares in the open market to fund the plan and Trust. On January 22, 1997, the Board of Directors granted 73,202 shares of restricted stock with a vesting period of 5 years. 38 NOTE 22--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS: Condensed financial statements of Acadiana Bancshares, Inc. (parent company) are shown below. The parent company has no significant operating activities. CONDENSED BALANCE SHEET (In thousands)
DECEMBER 31, 1996 ------------ ASSETS Cash in Bank.......................................................... $ 11,561 Securities Available for Sale......................................... 2,014 Investment in Subsidiary.............................................. 33,856 Other Assets.......................................................... 60 ------------ Total Assets.......................................................... $ 47,491 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities........................................................... $ 400 ------------ Stockholders' Equity.................................................. 47,091 ------------ Total Liabilities and Stockholders' Equity............................ $ 47,491 ------------ ------------
CONDENSED STATEMENT OF INCOME (In thousands)
PERIOD FROM JULY 15, 1996 TO DECEMBER 31,,1996 ----------------- Operating Income: Dividends from Subsidiary Bank.................................... $ 50 Interest Income................................................... 335 ------------- Total Operating Income............................................ 385 Operating Expenses................................................ 14 ------------- Income Before Income Tax Expense and Decrease in Equity in Undistributed Earnings of Subsidiary............................ 371 Income Tax Expense................................................ 119 Income Before Decrease in Equity in Undistributed Earnings of ------------- Subsidiary...................................................... 252 Decrease in Equity in Undistributed Earnings of Subsidiary........ (83) ------------- Net Income........................................................ $ 169 ------------- -------------
39 NOTE 22:CONTINUED CONDENSED STATEMENT OF CASH FLOWS (In thousands)
PERIOD FROM JULY 15, 1996 TO DECEMBER 31, 1996 ----------------- Cash Flows from Operating Activities: Net Income................................................................. $ 169 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Decrease in Equity in Net Income of Subsidiary............................. 83 Increase in Other Assets................................................... (60) Increase in Other Liabilities.............................................. 124 ------------ Net Cash Provided by Operating Activities.................................. 316 ------------ Cash Flows from Investing Activities: Purchase of Securities Available for Sale.................................. (2,000) Purchase of Capital Stock of Subsidiary.................................... (15,919) ------------ Net Cash Used In Investing Activities...................................... (17,919) Cash Flows from Financing Activities: Dividends Paid to Shareholders............................................. (226) Capital Contributed to Subsidiary.......................................... (20) Payments Received From esop................................................ 194 Net Proceeds From Issuance of Common Stock................................. 30,153 Stock Conversion Costs Incurred............................................ (937) ------------ Net Cash Provided by Financing Activities.................................. 29,164 ------------ Net Increase in Cash and Cash Equivalents.................................. 11,561 Cash and Cash Equivalents, Beginning of Period............................. -- ------------ Cash and Cash Equivalents, End of Period................................... $ 11,561 ------------ ------------
Other Disclosures: At December 31, 1996, the Company owed the Bank $119,000 for estimated tax payments made on behalf of the Company. 40 NOTE 23--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
YEAR ENDED DECEMBER 31, 1996 -------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- Total Interest Income........................................ $ 4,310 $ 4,458 $ 4,958 $ 4,977 Total Interest Expense....................................... 2,652 2,699 2,739 2,672 ----------- ----------- ----------- ----------- Net Interest Income.......................................... 1,658 1,759 2,219 2,305 Provision for Loan Losses.................................... 45 45 45 220 ----------- ----------- ----------- ----------- Net Interest Income After Provision for Loan Losses.......... 1,613 1,714 2,174 2,085 Noninterest Income........................................... 254 247 165 288 Noninterest Expense.......................................... 1,452 1,414 2,864 1,571 ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes............................ 415 547 (525) 802 Income Tax Expense (Benefit)................................. 132 200 (173) 280 ----------- ----------- ----------- ----------- Net Income (Loss)............................................ $ 283 $ 347 $ (352) $ 522 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss) per Common Share........................... N/A N/A $ (.14) $ .21 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED DECEMBER 31, 1996 -------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- Total Interest Income........................................ $ 4,209 $ 4,246 $ 4,263 $ 4,257 Total Interest Expense....................................... 2,343 2,509 2,613 2,669 ----------- ----------- ----------- ----------- Net Interest Income.......................................... 1,866 1,737 1,650 1,588 Provision for Loan Losses.................................... -- -- -- 1,274 ----------- ----------- ----------- ----------- Net Interest Income After Provision for Loan Losses.......... 1,866 1,737 1,650 314 Noninterest Income........................................... 217 222 203 160 Noninterest Expense.......................................... 1,273 1,245 1,472 3,822 ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes............................ 810 714 381 (3,348) Income Tax Expense (Benefit)................................. 273 245 130 (1,125) ----------- ----------- ----------- ----------- Net Income (Loss)............................................ $ 537 $ 469 $ 251 $ (2,223) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss) per Common Share........................... N/A N/A $ N/A $ N/A ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
41 EX-23.1 4 EX-23.1 CASTAING, HUSSEY & LOLAN, LLP CERTIFIED PUBLIC ACCOUNTANTS 525 WEEKS STREET - P.O. BOX 14240 NEW IBERIA, LA 70582-4240 ------------------------- PH: (318) 364-7221 FAX: (318) 364-7235 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 1-14364) of our report dated January 31, 1997 appearing in this Annual Report on Form 10-K of Acadiana Bancshares, Inc. and Subsidiary for the year ended December 31, 1996. New Iberia, Louisiana March 26, 1997 EX-27 5 EXHIBIT 27 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 1996 AND 1995 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 1,234 18,550 0 0 42,105 13,087 12,938 185,316 2,592 264,374 193,450 0 1,583 22,250 0 0 27 47,064 264,374 14,218 1,185 3,300 18,703 10,184 10,762 7,941 355 0 7,301 1,239 0 0 0 800 .07 0 7.77 873 0 536 0 2,329 277 185 2,592 335 0 2,257
-----END PRIVACY-ENHANCED MESSAGE-----