-----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, AAl/+2N1fKsRapeNgd6kFubDaNyTtCHWGKN1129ggM8jkXCDR6BP2W7kuhNh+AB5 +YYIbhePrcnVkWVLOAKgUA== 0000950133-98-001175.txt : 20010514 0000950133-98-001175.hdr.sgml : 20010514 ACCESSION NUMBER: 0000950133-98-001175 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACADIANA BANCSHARES INC /LA CENTRAL INDEX KEY: 0001011024 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 721317124 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-14364 FILM NUMBER: 98582203 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 FORM 10K DATED DECEMBER 31 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] 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, 1997 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) 101 WEST VERMILION STREET LAFAYETTE, LOUISIANA 70501 ---------------------------------------- ------------ (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 $.01 PER SHARE) --------------------------------------- (TITLE OF CLASS) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NOT APPLICABLE Indicate by check mark whether 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 20, 1998, the aggregate market value of the 2,333,066 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 242,184 shares held by all directors and officers of the Registrant as a group, was approximately $51.6 million. This figure is based on the closing sale price of $22.125 per share of the Registrant's Common Stock on March 20, 1998. Number of shares of Common Stock outstanding as of December 31, 1997: 2,581,250 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, 1997 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. 1 2 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 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, and the net conversion proceeds retained by the Company. The Company's common stock trades on the AMEX under the symbol "ANA". At December 31, 1997, the Company had total assets of $277.1 million, total deposits of $193.4 million, and stockholders' equity of $44.6 million. The Bank is a Savings Association Insurance Fund ("SAIF") -insured, Louisiana chartered, stock savings Company conducting business from its main office and three branch offices, located in Lafayette, Louisiana, one branch office located in New Iberia, Louisiana and one loan production office in Eunice, Louisiana. 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, 1997, the Company's loan portfolio totaled $212.8 million, or 76.8% 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 $30.7 million, or 11.1% of the Company's total assets at December 31, 1997, and its investment securities portfolio amounted to $11.9 million, or 4.3% of total assets at such date. Traditionally, the Company's principal source of funds has come from deposits. At December 31, 1997, the Company had total deposits of $193.4 million, of which $49.9 million, or 25.8%, consisted of core deposits which include passbook, money market deposits ("MMDA"), negotiable order of withdrawal ("NOW") and noninterest-bearing accounts and $143.5 million, or 74.2%, consisted of certificates of deposit, including $36.8 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 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. 2 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, ----------------------------------------------------------------------------------- 1997 1996 1995 --------------------------- -------------------------- ---------------------------- Percent Percent Percent Balance of Total Balance of Total Balance of Total -------------- ------------ ------------- ------------ --------------- ------------ Type of loan: Real estate loans: Residential single family $ 169,637 79.70% $ 142,833 78.24% $ 127,656 80.96% Construction 9,301 4.37% 10,565 5.78% 7,304 4.63% Multi-family residential 546 0.26% 862 0.47% 1,202 0.76% Commercial and other real estate 9,363 4.40% 12,873 7.05% 13,370 8.48% -------------- ------------ ------------- ------------ --------------- ------------ Total real estate loans 188,847 88.73% 167,133 91.47% 149,532 94.83% -------------- ------------ ------------- ------------ --------------- ------------ Non-real estate loans: Consumer 16,355 7.67% 16,859 9.23% 13,704 8.69% Commercial business 15,400 7.24% 7,363 4.03% 1,358 0.86% -------------- ------------ ------------- ------------ --------------- ------------ Total non-real estate loans 31,755 14.91% 24,222 13.26% 15,062 9.55% -------------- ------------ ------------- ------------ --------------- ------------ Total loans 220,602 103.64% 191,355 104.73% 164,594 104.38% Less: Undisbursed loan funds 4,629 2.17% 5,899 3.23% 4,292 2.72% Unearned discounts (162) -0.08% (331) -0.18% (206) -0.13% Allowance for loan losses 2,760 1.30% 2,592 1.42% 2,329 1.48% Net deferred fees (cost) 535 0.25% 471 0.26% 488 0.31% -------------- ------------ ------------- ------------ --------------- ------------ Total loans, net $ 212,840 100.00% $ 182,724 100.00% $ 157,691 100.00% ============== ============ ============= ============ =============== ============
At December 31, -------------------------------------------------------- 1994 1993 --------------------------- ---------------------------- Percent Percent Balance of Total Balance of Total -------------- ------------ --------------- ------------ Type of loan: Real estate loans: Residential single family $ 120,483 79.71% $ 115,308 75.22% Construction 6,908 4.57% 5,339 3.48% Multi-family residential 1,638 1.08% 2,049 1.34% Commercial and other real estate 13,505 8.93% 15,973 10.42% -------------- ------------ --------------- ------------ Total real estate loans 142,534 94.29% 138,669 90.46% -------------- ------------ --------------- ------------ Non-real estate loans: Consumer 12,749 8.43% 17,793 11.61% Commercial business 1,479 0.98% 1,394 0.91% -------------- ------------ --------------- ------------ Total non-real estate loans 14,228 9.41% 19,187 12.52% -------------- ------------ --------------- ------------ Total loans 156,762 103.70% 157,856 102.98% Less: Undisbursed loan funds 3,593 2.37% 2,929 1.91% Unearned discounts 498 0.33% 600 0.39% Allowance for loan losses 1,087 0.72% 1,015 0.66% Net deferred fees (cost) 423 0.28% 28 0.02% -------------- ------------ --------------- ------------ Total loans, net $ 151,161 100.00% $ 153,284 100.00% ============== ============ =============== ============
3 4 Contractual Maturities. The following table sets forth the time to contractual maturity of the Company's loan portfolio at December 31, 1997.
Over One Less than Through Five Over Five One Year Years Years Total ----------- ----------- ----------- ---------- (Dollars in Thousands) Residential single-family mortgage loans $ 5,451 $ 25,209 $ 138,977 $ 169,637 Multi-family residential 44 223 279 546 Commercial and other real estate 610 2,888 5,865 9,363 Construction loans 9,301 - - 9,301 Commercial business loans 5,109 5,216 5,075 15,400 All Other loans 5,068 8,127 3,160 16,355 ------- --------- --------- --------- Total $25,583 $ 41,663 $ 153,356 $ 220,602 ======= ========= ========= =========
The following table sets forth the dollar amount at December 31, 1997 of all loans maturing after December 31, 1998 by fixed and adjustable interest rates.
Fixed Adjustable Rates Rates ---------- ------------ (In thousands) Loans secured by 1-4 family residential property $ 76,325 $ 87,861 All other loans secured by real estate 1,732 7,523 All other loans 17,392 4,185 ---------- ----------- $ 95,450 $ 99,569 ========== ===========
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. 4 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, --------------------------------------------------------------- 1997 1996 1995 ------------------- -------------------- ------------------- Loans receivable, net beginning of period $ 182,724 $ 157,691 $ 151,161 Loan originations: Residential single-family 36,688 27,612 16,172 Construction loans 17,375 20,059 7,810 Multi-family residential - - - Commercial and other real estate - 15 870 Commercial business loans 18,803 7,334 723 Consumer loans 10,762 13,078 10,162 ------------------- -------------------- ------------------- Total loan originations 83,628 68,098 35,737 ------------------- -------------------- ------------------- Loan reductions: Loan sales (878) (6,460) (1,551) Principal repayments (53,168) (34,611) (26,219) Other changes, net(1) 534 (1,994) (1,437) ------------------- -------------------- ------------------- Total loan reductions (53,512) (43,065) (29,207) ------------------- -------------------- ------------------- Loans receivable, net end of period $ 212,840 $ 182,724 $ 157,691 =================== ==================== ===================
- - ---------------------- (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 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 5 6 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, 1997, $169.6 million, or 79.7%, 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 for single-family residential mortgages. At December 31, 1997, $80.0 million, or 47.2%, of the Company's single-family residential mortgage loans were fixed-rate loans. At December 31, 1997, 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 6 7 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, 1997, $89.6 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. Commercial and Other Real Estate Loans and Multi-Family Residential Loans. At December 31, 1997, the Company had $9.4 million in outstanding loans secured by commercial and other real estate. Such commercial and other real estate loans, which comprised 4.4% of the Company's total loan portfolio at December 31, 1997, are secured primarily by office and other commercial buildings, retail and manufacturing properties and church properties. None of the Company's commercial and other real estate loans were non-performing loans at such date. 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, 1997, the Company had $0.5 million of multi-family residential real estate loans. The Company has not originated any new multi-family residential loans during the past three years, and does not anticipate becoming an active originator of multi-family residential loans. 7 8 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 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, 1997, the Company's construction loans amounted to $9.3 million, or 4.4% 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 $14.1 million of single-family construction loans to individuals during the year ended December 31, 1997. 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 $3.3 million in single family construction loans to builders during the year ended December 31, 1997. 8 9 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. 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, 1997, $16.4 million, or 7.7% 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 $10.8 million in 1997 compared to $13.1 million and $10.2 million in 1996 and 1995, 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 were taken by employees of the dealer, the loans were made pursuant to the Company's underwriting standards using the Company's documentation, and all such indirect loans had to be approved by a loan officer of the Company before disbursement of loan proceeds. 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 financial 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, 1997, $99,000, or 2.2% of the Company's consumer loans from indirect origination activities were considered non-performing. As of December 31, 1997, $129,000, or 0.6% of the Company's total consumer loans were considered non-performing. Commercial Business Loans. At December 31, 1997, the Company's commercial business loans amounted to $15.4 million, or 7.2% of the Company's gross loan portfolio. Prior to 1996, the Company had not been an active originator of commercial business loans. 9 10 The Company concentrates 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 $18.8 million in 1997, compared to $9.2 million, and $723,000 thousand in 1996 and 1995, respectively. 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; or (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, 1997, the Company's limit on loans-to-one borrower under LSBA was approximately $5.1 million. At December 31, 1997, the Company's five largest loans or groups of loans-to-one borrower ranged from $1.1 million to $2.2 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 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 are classified as real estate owned until sold. Pursuant to Statement of Procedure 10 11 ("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. 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 $515,000 of loans deemed to be troubled debt restructurings as of December 31, 1997. Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 1997, 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.
At December 31, 1997 --------------------------------------------------------------------------- 30-59 Days 60-89 Days ----------------------------------------- -------------------------------- Percent of Percent of Amount Loan Category Amount Loan Category ------------------- -------------------- -------------- ---------------- (Dollars in Thousands) Mortgage loans: Residential: Single family $ 342 0.39% $ 157 0.13% Multi-family 114 0.00% - 0.00% Commercial and other real estate - 0.22% - 0.00% Construction - 0.00% - 0.00% Consumer 174 1.92% 46 0.31% Commercial business - 0.00% - 0.00% ------------------- -------------------- -------------- ---------------- Total $ 630 2.53% $ 203 0.44% =================== ==================== ============== ================
11 12 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, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ----------- ------------- ----------- ------------ (Dollars in Thousands) Accruing loans 90 days or more past due: Residential single-family $ - $ - $ - $ 377 $ 1,543 Construction - - - - - Multi-family residential - - - - 76 Commercial and other real estate - - - - 240 Consumer - - - 96 152 Commercial business - - - - - ------------- ----------- ------------- ----------- ------------ Total accruing loans - - - 473 2,011 ------------- ----------- ------------- ----------- ------------ Non-accrual loans: Residential single-family 285 632 527 72 229 Construction - - - - - Multi-family residential - - - - - Commercial and other real estate - 145 197 - 452 Consumer 129 96 16 21 105 Commercial business - - - - - ------------- ----------- ------------- ----------- ------------ Total non-accrual loans 414 873 740 93 786 ------------- ----------- ------------- ----------- ------------ Total non-performing loans 414 873 740 566 2,797 ------------- ----------- ------------- ----------- ------------ Other real estate owned, and repossessed assets 204 75 845 2,449 2,693 ------------- ----------- ------------- ----------- ------------ Total non-performing assets 618 948 1,585 3,015 5,490 ============= =========== ============= =========== ============ Performing troubled debt restructurings $ 515 $ 536 $ 878 $ 954 $ 996 ============= =========== ============= =========== ============ Total non-performing assets and troubled debt restructurings $ 1,133 $ 1,484 $ 2,463 $ 3,969 $ 6,486 ============= =========== ============= =========== ============ Non-performing assets to total loans 0.29% 0.52% 0.96% 1.92% 3.48% Non-performing assets to total assets 0.22 0.36 0.70 1.35 2.35 Non-performing loans to total loans 0.19 0.48 0.45 0.36 1.77 Non-performing loans to total assets 0.15 0.33 0.33 0.25 1.20 Total non-performing assets and troubled debt restructurings to total assets 0.41 0.56 1.09 1.78 2.78
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, 12 13 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, 1997, 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, 1997, totaled $5.0 million, or 2.3% 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 $4.5 million at December 31, 1997, or 2.1% 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 experience 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. 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, 1997, the Company's allowance for loan losses amounted to 297.09% and 1.25% 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' 13 14 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. The following table describes the activity related to the Company's allowance for possible loan losses for the periods indicated.
Years Ended December 31, -------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------- ----------------- ---------------- --------------- ------------- (Dollars in Thousands) Balance, beginning of period $ 2,592 $ 2,329 $ 1,087 $ 1,015 $ 2,760 Provision for loan losses 180 355 1,274 63 235 Charge-offs: Residential single-family (14) - (70) (37) (42) Construction - - - - - Multi-family residential - - (7) - - Commercial and other real estate - (67) - - - Commercial business - - - (11) - Consumer (221) (210) (50) (135) (211) ---------------- ----------------- ---------------- --------------- ------------- Total charge-offs (235) (277) (127) (183) (253) ---------------- ----------------- ---------------- --------------- ------------- Recoveries: Residential single-family 76 87 10 72 29 Construction - - - - - Multi-family residential - - - - - Commercial and other real estate 56 10 - 55 - Commercial business - - - - - Consumer 91 88 85 65 23 ---------------- ----------------- ---------------- --------------- ------------- Total recoveries 223 185 95 192 52 ---------------- ----------------- ---------------- --------------- ------------- Net (charge-offs) / recoveries (12) (92) (32) 9 (201) ---------------- ----------------- ---------------- --------------- ------------- Balance, end of period 2,760 2,592 2,329 1,087 2,794 ================ ================= ================ =============== ============= Allowance for loan losses to total non-performing loans and troubled debt restructurings at end of period 297.09% 183.96% 143.94% 71.51% 26.76% ================ ================= ================ =============== ============= Allowance for loan losses to total loans at end of period 1.25% 1.35% 1.41% 0.69% 0.64% ================ ================= ================ =============== =============
14 15 The following table presents an allocation of the allowance for losses on loans by the categories indicated 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 of Loans of Loans of Loans 1997 to Gross 1996 to Gross 1995 to Gross Amount Loans Amount Loans Amount Loans ------------- ------------- ------------ ------------- ------------- -------------- Real estate loans: Residential single family $ 1,739 76.90% $ 1,565 74.64% $ 1,773 77.55% Construction 64 4.22% 58 5.52% 22 4.44% Multi-family residential 5 0.25% 7 0.45% 80 0.73% Commercial and other real estate 350 4.24% 460 6.73% 331 8.13% ------------- ------------- ------------ ------------- ------------- -------------- Total real estate loans 2,158 85.61% 2,090 87.34% 2,206 90.85% ------------- ------------- ------------ ------------- ------------- -------------- Non-real estate loans: Commercial business 274 6.98% 163 3.85% 26 0.82% Consumer 328 7.41% 339 8.81% 97 8.33% ------------- ------------- ------------ ------------- ------------- -------------- Total non-real estate loans 602 14.39% 502 12.66% 123 9.15% ------------- ------------- ------------ ------------- ------------- -------------- Total allowance for loans $ 2,760 100.00% $ 2,592 100.00% $ 2,329 100.00% ============= ============= ============ ============= ============= ==============
At December 31, --------------------------------------------------------- Percent Percent of Loans of Loans 1994 to Gross 1993 to Gross Amount Loans Amount Loans ------------- -------------- ----------- ------------- Real estate loans: Residential single family $ 597 76.86% $ 542 73.05% Construction 15 4.41% 15 3.38% Multi-family residential 30 1.04% 33 1.30% Commercial and other real estate 277 8.62% 245 10.12% ------------- -------------- ----------- ------------- Total real estate loans 919 90.93% 835 87.85% ------------- -------------- ----------- ------------- Non-real estate loans: Commercial business - 0.94% - 0.88% Consumer 168 8.13% 180 11.27% ------------- -------------- ----------- ------------- Total non-real estate loans 168 9.07% 180 12.15% ------------- -------------- ----------- ------------- Total allowance for loans $ 1,087 100.00% $ 1,015 100.00% ============= ============== =========== =============
15 16 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, 1997, the Company's mortgage-backed securities and investment securities portfolio amounted to $30.7 million and $11.0 million, respectively. At such date, the Company had an unrealized gain of $450,000, net of deferred taxes, with respect to its securities available for sale. Mortgage-Backed Securities. As of December 31, 1997, the Company's mortgage-backed securities amounted to $30.7 million, or 11.1%, 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 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 $227,150. 16 17 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, 1997, the Company's investment in CMOs amounted to $11.2 million, all of which consisted of regular interests. As of December 31, 1997, the Company's CMOs did not include any residual interests or interest-only or principal-only securities. As 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, 1997, $12.8 million of the Company's mortgage-backed securities were classified as held to maturity and $17.8 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. 17 18 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, 1997, the weighted average contractual maturity of the Company's fixed-rate mortgage-backed securities was approximately 10.5 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. 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. 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, 1997, of the $30.7 million of mortgage-backed securities, an aggregate of $17.8 million were secured by fixed-rate securities and classified as available for sale, and an aggregate of $12.7 million were secured by adjustable-rate securities and classified as held to maturity. 18 19 The following table sets forth certain information regarding the Company's mortgage-backed securities at the dates indicated.
December 31, ----------------------------------------------------------------------------------------------- 1997 1996 1995 --------------------------------- ----------------------------- ----------------------------- 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 $ 750 $ 5,463 $ 822 $ 6,853 $ 936 $ 8,361 FNMA 206 10,487 232 12,449 259 15,185 GNMA 1,121 1,399 1,320 1,776 1,585 1,981 FNMA CMO 4,736 497 4,733 488 4,733 495 FHLMC CMO 5,993 - 5,980 - 5,979 - --------------- --------------- -------------- ------------ ----------- ---------------- Total mortgage-backed securities 12,806 17,846 13,087 21,566 13,492 26,022 =============== =============== ============== ============ =========== ================
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, 1997, the Company's entire portfolio of investment securities was classified available for sale and amounted to $11.0 million, net of gross unrealized gains of $121,000. 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, 1997, the estimated weighted average life of the Company's investment securities portfolio was 3.6 years. The following table sets forth certain information regarding the Company's investment securities at the dates indicated.
December 31, -------------------------------------------------------------------------------------------- 1997 1996 1995 ----------------------------- ----------------------------- ----------------------------- Carrying Market Carrying Market Carrying Market Value Value Value Value Value Value ------------- ------------- ------------- ------------- ------------- ------------- (Dollars in Thousands) U.S. Government and federal agency obligations $ 11,021 $ 11,021 $ 20,524 $ 20,524 $ 4,018 $ 4,018 Equity securities 826 826 -- -- -- -- Marketable equity securities 23 23 15 15 12 12 ------------- ------------- ------------- ------------- ------------- ------------- Total 11,870 11,870 20,539 20,539 4,030 4,030 ============= ============= ============= ============= ============= =============
The following table sets forth certain information regarding the maturities of the Company's investment securities at December 31, 1997.
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 $ - 0.00% $ 9,016 7.08% $ 2,005 7.38% - 0.00%
19 20 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, 1997, the Bank's investment in stock of the FHLB of Dallas amounted to $1.9 million. During the year ended December 31, 1997, the Bank received $109,000 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 and advances from the FHLB of Dallas. 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. 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. 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(R). 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. 20 21 The following table sets forth certain information relating to the Company's Deposits.
December 31, -------------------------------------------------------------------------- 1997 1996 ------------------------------------ ----------------------------------- Percent of Percent of Amount Total Deposits Amount Total Deposits ------------------ ---------------- ------------------ ---------------- (Dollars in Thousands) (Dollars in Thousands) NOW accounts $ 8,177 4.23% $ 11,528 5.96% Money market accounts 9,436 4.88% 5,101 2.64% Noninterest-bearing checking accounts 8,941 4.62% 4,954 2.56% ------------------ ---------------- ------------------ ---------------- Total demand deposits 26,554 13.73% 21,583 11.16% ------------------ ---------------- ------------------ ---------------- Passbook savings deposits 23,343 12.07% 25,071 12.96% ------------------ ---------------- ------------------ ---------------- Certificate of Deposit accounts: Less than 6 months 41,898 21.66% 44,256 22.88% 6-11 months 25,020 12.94% 31,148 16.10% 12-35 months 59,246 30.63% 53,329 27.57% More than 35 months 17,361 8.98% 18,063 9.34% ------------------ ---------------- ------------------ ---------------- Total certificates 143,525 74.20% 146,796 75.88% ------------------ ---------------- ------------------ ---------------- Total Deposits $ 193,422 100.00% $ 193,450 100.00% ================== ================ ================== ================
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, ------------------------------------------------------------------ 1997 1996 1995 ------------------- -------------------- ---------------------- (Dollars in Thousands) 0.00% to 2.99% $ 226 $ 100 $ 323 3.00% to 3.99% - - - 4.00% to 4.99% 13,474 17,031 14,845 5.00% to 5.99% 79,702 71,021 54,116 6.00% to 6.99% 34,172 34,364 51,650 7.00% to 8.99% 15,056 23,434 36,600 9.00% and over 895 846 895 ------------------- -------------------- ---------------------- $ 143,525 $ 146,796 $ 158,429 =================== ==================== ======================
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, ------------------------------------------------------------------ 1997 1996 1995 -------------------- --------------------- --------------------- (Dollars in Thousands) Total deposits, beginning of period $ 193,450 $ 206,343 $ 204,088 Net increase (decrease) before interest credited (6,143) (19,616) (4,331) Interest credited 6,115 6,723 6,586 -------------------- --------------------- --------------------- Total deposits, end of period $ 193,422 $ 193,450 $ 206,343 ==================== ===================== =====================
21 22 The following table sets forth the amount and maturities of the Company's certificates of deposit at December 31,1997.
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 2.99% $ 226 $ - $ - $ - $ - $ - $ 226 3.00% to 3.99% - - - - - - - 4.00% to 4.99% 8,852 3,438 1,184 - - - 13,474 5.00% to 5.99% 27,327 22,264 20,815 6,539 2,076 681 79,702 6.00% to 6.99% 3,420 1,778 11,597 11,270 2,062 4,045 34,172 7.00% to 8.99% 2,073 1,468 2,292 941 6,849 1,433 15,056 9.00% and over - 25 870 - - - 895 ------------ --------------- ----------------- ---------------- ------------- ------------- -------------- $ 41,898 $ 28,973 $ 36,758 $ 18,750 $ 10,987 $ 6,159 $ 143,525 ============ =============== ================= ================ ============= ============== ==============
As of December 31, 1997, the aggregate amount of outstanding time certificates of deposit in amounts greater than or equal to $100,000 was approximately $36.8 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) $ 4,953 $ 3,580 $ 7,363 $ 20,937 $ 36,833 ================== ================== ================= ================== ================
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. 22 23 The following table sets forth the amount of the Company's borrowings and the weighted average rates for the periods indicated.
At December 31, ---------------------------------------------------------------------------------------------------- 1997 1996 1995 -------------------------------- -------------------------------- ------------------------------- Percent Percent Percent Amount Rate Amount Rate Amount Rate --------------- -------------- -------------- --------------- -------------- --------------- (Dollars in Thousands) FHLB advances $ 36,378 5.82% $ 22,250 5.50% $ 250 8.70% =========== =========== ======= Maximum amount outstanding at any month- end during the period $ 36,378 $ 22,250 $ 250 =========== =========== ======= Average balance outstanding during the period $ 29,648 $ 10,388 $ 250 =========== =========== ======= Weighted average interest rates on average balance during the period 5.67% 5.59% 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 Company 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 financial institutions, which have greater financial and marketing resources available to them. In addition, during times of high interest rates, the Company 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 Company 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 Company 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 23 24 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 83 full-time employees and 5 part-time employees as of December 31, 1997. None of these employees is represented by a collective bargaining agreement. The Bank believes that it enjoys excellent relations with its personnel. The officers of the Company are officers of the Bank. 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 "BCHA"). 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 BCHA 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 BCHA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting share 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 24 25 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 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. Limitation 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. 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 25 26 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, 1997, 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 in 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. 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, 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 26 27 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 eliminated the premium differential between SAIF-insured institutions and BIF-insured institutions by re-capitalizing the SAIF's reserves to the required ratio. The legislation provided that all SAIF member institutions pay a one-time special assessment to recapitalize the SAIF, which in the aggregate was 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 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 had amounted to 23 basis points, were reduced to 6.4 basis points. 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 27 28 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), non-cumulative perpetual preferred stock and related surplus, and 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, 1997, 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 28 29 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 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 29 30 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 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. 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, is no longer permitted to make additions to its tax bad debt reserve under the percentage of taxable Income method. The Bank experience method must be used. In addition, the institution is required to recapture (i.e. take into 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 reserves using the experience method. The recapture requirement is 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. The amount of reserves of the Savings Bank that is subject to recapture is not material. 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 of the 30 31 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. At December 31, 1997, 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). NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net operating losses ("NOLs") to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. At December 31, 1997, the Savings Bank had 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 31 32 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 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 the Savings Bank. The Savings Bank's federal income tax returns for the tax years ended 1994 and 1995 and 1996 are open under the statute of limitations and are subject to review by the IRS. STATE TAXATION. The Company is subject to the Louisiana Corporation Income Tax based on its separate Louisiana taxable income, and it is also subject to 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, the Savings Bank is subject to the Louisiana Shares Tax which is imposed on the assesseds 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 are also subtracted in calculating a company's capitalized earnings. 32 33 ITEM 2. PROPERTIES. OFFICES AND PROPERTIES At December 31, 1997, the Bank conducted business from its main office and four branch offices, three of which are located in Lafayette, Louisiana and one located in New Iberia, Louisiana. The Bank also conducted business from its one loan production office in Eunice, Louisiana. The following table sets forth certain information relating to the Company's offices at December 31, 1997.
Net Book Value of Premises and Owned or Equipment at Deposits at Leased December 31, 1997 December 31, 1997 -------------- ---------------------- ----------------------- (In Thousands) Main Office: 101 West Vermilion Street Owned $ 1,565 89,780 Lafayette, Louisiana 70501 Branch Offices: Northside Office Owned 265 33,108 2601 Moss Street Lafayette, Louisiana 70501 Southside Office Owned 180 37,541 3701 Johnston Street Lafayette, Louisiana 70503 Broadmoor Office Owned 243 27,136 5301 Johnston Street Lafayette, Louisiana 70503 New Iberia Office Owned 548 5,857 230 West Main Street New Iberia, Louisiana 70560 Eunice Loan Production Office Leased 5 - ---------------------- ----------------------- 136 South Third Street Eunice, Louisiana 70535 $ 2,806 $ 193,422 ====================== =======================
33 34 ITEM 3. LEGAL PROCEEDINGS. The Company and the Bank are not involved in any pending legal proceedings other than non-material legal proceedings occurring in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On April 1, 1997, the Company commenced a proxy solicitation of its stockholders with respect to the Annual Meeting of Stockholders held April 30, 1997 ("Annual Meeting"). There were two matters considered at the Annual Meeting, the election of two directors, and the ratification of the appointment of Castaing, Hussey & Lolan, L.L.P. as the Company's independent auditors for the fiscal year ending December 31, 1997. Proposal to elect Directors of the Company: BROKER FOR WITHHOLD NON-VOTES Lawrence Gankendorff 2,415,772 13,982 301,496 Don J. O'Rourke, Sr. 2,415,917 13,837 301,496 Proposal to ratify the appointment by the Board of Directors of Castaing, Hussey & Lolan, L.L.P. as the Company's independent auditors for the fiscal year ending December 31, 1997: BROKER FOR AGAINST ABSTAIN NON-VOTES 2,415,836 12,427 1,491 301,496 34 35 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 51 of the Registrant's 1997 Annual Report to Stockholders ("Annual Report"). ITEM 6. SELECTED FINANCIAL DATA. The Information required herein is incorporated by reference from pages 7 of the Registrant's 1997 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 21 of the Registrant's 1997 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Information required herein is incorporated by reference from pages 23 to 49 of the Registrant's 1997 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. Not Applicable. 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 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. 35 36 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, 1997 and 1996 Consolidated Statements of Income for the Fiscal Periods Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Periods Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Fiscal Periods Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (2) All schedules for which provisions 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 LBS 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 1997 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 27.0 Financial Data Schedule - - --------------- (*) 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) (***) Incorporated herein by reference to the Annual Report on Form 10-K (File No. 1-14364) filed by the Registrant with the SEC on March 31, 1997. 36 37 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 25, 1998 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 25, 1998 - - ------------------------ Officer and Director Gerald G. Reaux, Jr. /s/ Lawrence E. Gankendorff Chairman of the Board March 25, 1998 - - -------------------------- Lawrence E. Gankendorff /s/ Albert W. Beacham Director March 25, 1998 - - -------------------------- Albert W. Beacham, M.D. /s/ James J. Montelaro Executive Vice President March 25, 1998 - - -------------------------- and Director James J. Montelaro /s/ John H. DeJean Director March 25, 1998 - - -------------------------- John H. DeJean /s/ Thomas S. Ortego Director March 25, 1998 - - -------------------------- Thomas S. Ortego /s/ William H. Mouton Director March 25, 1998 - - -------------------------- William H. Mouton /s/ Donald J. O'Rourke, Sr. Director March 25, 1998 - - --------------------------- Donald J. O'Rourke, Sr. /s/ Kaliste J. Saloom, Jr. Director March 25, 1998 - - --------------------------- Kaliste J. Saloom, Jr. /s/ Emile E. Soulier, III Vice President and Chief March 25, 1998 - - --------------------------- Financial Officer Emile E. Soulier, III (principal financial and accounting officer) EX-13 2 PORTIONS OF THE 1997 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 [ACADIANA BANCSHARES, INC. LOGO] 1997 ANNUAL REPORT 2 3 [PHOTO] L. GANKENDORFF, Chairman of the Board JERRY REAUX, President and Chief Executive Officer DEAR FELLOW SHAREHOLDERS: WE ARE PROUD TO REPORT THAT 1997 WAS THE MOST PROFITABLE YEAR IN OUR HISTORY. On behalf of the directors, management and staff of our Company, we are pleased to provide you with our 1997 Annual Report. Our results for 1997 reflect our continued strategic commitment to transition our traditional thrift institution into a fully integrated banking organization. Although we successfully accomplished a number of our 1997 strategic goals, there is still much work to be done in order to achieve this long-term objective. Expansion Into New Iberia Market On September 8, 1997, the bank successfully completed its branch bank expansion into neighboring New Iberia, Louisiana. New Iberia is a wonderful community with a strong economic base that offers our bank the opportunity to expand both loan and deposit market share on a regional basis within Acadiana. As large super-regional banks continue to consolidate this market, we are optimistic our community bank approach will be embraced by our many friends and neighbors in the New Iberia area. Mortgage Lending During 1997, the bank maintained its position as the dominant single-family mortgage lender within the Acadiana region, originating a record $54.1 million in new single-familymortgage loans. Mortgage loans outstanding grew by $25.5 million from year-end 1996 to 1997. This growth contributed to a $1.7 million increase in interest income for the same period. Our longstanding commitment to the housing needs of Acadiana and a strong economic environment have continued to be the catalyst for continued strong loan demand within our market. Capital Improvements The Bank successfully completed the demolition of our former main office building, which was severely damaged by fire in 1992. In our ongoing efforts to improve customer convenience, additional customer parking was installed at the main office location. The Bank also completed renovations and interior improvements to all branch banking facilities during the year. The management of our Company will continue its commitment to manage fixed-asset investments and operating overhead in a conservative and efficient manner. Commercial Banking The 1997 year brought significant growth in our commercial loan market share as evidenced by a 109% increase in commercial loans outstanding from year-end 1996 to 1997. This portfolio growth is consistent with our strategy to take certain actions in an effort to desensitize [LOGO] 3 4 MARKET MANAGERS [PHOTO] JAMES J. MONTELARO Executive Vice President - Mortgage Banking MARY ANNE S. BERTRAND Vice President - Retail Banking BRADY COMO Senior Vice President - Commercial Banking the interest rate risk of our balance sheet while diversifying credit risk away from our historic dependence on mortgage loan assets. To complement our commercial loan growth in 1997, the bank introduced the Fleur de Lis Commercial Money Market Account, which contributed to the $4.3 million increase in money market accounts from year-end 1996 to 1997. Asset Quality While the bank experienced net loan growth of 16% during 1997, our asset quality ratios continued to improve with non-performing assets of .22% of total assets and an allowance for loan loss of 297% of non-performing loans and troubled debt restructurings. Our commitment to controlled growth, coupled with prudent underwriting standards, continues to be important in the management of loan portfolio risk. It is our sincere hope we can maintain this level of asset quality as we continue our banking transition. ADMINISTRATIVE SUPPORT [PHOTO] DENNIS SULLIVAN Marketing and Investor Relations Manager THOMAS DEBAILLON Vice President - Operations BAVO GALL Data Processing Manager EMILE E. SOULIER, III Vice President and Chief Financial Officer GREGORY KING Vice President and Compliance Officer Retail Banking During the past year, a number of retail product innovations were implemented in an effort to improve customer convenience and increase retail market share. Some of our specific retail initiatives completed during 1997 are as follows: - Successfully installed a 24-hour automated banking system to enhance customer convenience. - Implemented an ATM system to reimburse our checking customers for foreign ATM charges which received both local and national recognition. While total bank consumer loans and deposits remained relatively stable, we did experience over 80% growth in both non-interest bearing checking accounts and money market accounts from year-end 1996 to 1997. This shift in our deposit mix is consistent with our ongoing strategy to transition the balance sheet into a more bank-like structure. [LOGO] 4 5 Expanded Board of Directors It gives us great pleasure to report that, during 1997, the Company elected two new board members to assist in the implementation of our strategic plan. Both John DeJean and Thomas Ortego bring strong resources and extensive business and financial institution experience to our Company. We are very fortunate to have individuals of their caliber serving; they are an excellent complement to the energy and resources of our existing Board of Directors. Dividend Increase On December 18, 1997, our Board of Directors approved a 22% increase in annual dividends from 36 cents to 44 cents per share. Our continued financial success has permitted the Company to increase our dividend rate, and we hope to continue providing superior financial results on behalf of our shareholders. Our Community Dedication to the concept of community banking requires the members of our Board of Directors, management and staff to continue a strong commitment to the community we call home. During 1997, we supported a wide range of very important community organizations, and we are pleased to report that both lba Savings Bank and our staff led all financial institutions in our region in per capita giving to the United Way of Acadiana during the year. The Year Ahead Although we enjoyed much success during 1997, the coming year will pose several challenges for our Company. Our local market continues to experience fierce competition from a wide range of financial institutions and financial service competitors, especially in the area of deposit growth opportunities. The broader financial markets represent an environment of historically low long-term interest rates and declining oil commodity prices which will pose management challenges should these economic factors continue their current downward trend. We are confident we will meet these and other challenges head-on in the year to come. We thank you for your confidence in our Company and look forward to reporting continued success in the future. Sincerely, /s/ L. GANKENDORFF /s/ JERRY REAUX L. Gankendorff Jerry Reaux Chairman of the Board President and Chief Executive Officer
[LOGO] 5 6 DIRECTORS OF ACADIANA BANCSHARES, INC. [PHOTO] Front, left to right KALISTE J. SALOOM, JR. Attorney and retired City Judge WILLIAM H. MOUTON Attorney JERRY REAUX President and Chief Executive Officer, Acadiana Bancshares, Inc., and LBA Savings Bank LAWRENCE GANKENDORFF Chairman of the Board, Acadiana Bancshares, Inc., and LBA Savings Bank Rear, left to right JOHN H. DEJEAN Retired JAMES J. MONTELARO Executive Vice President - Mortgage Banking, LBA Savings Bank THOMAS S. ORTEGO Self-employed Accountant AL W. BEACHAM, M.D. Urologist DON J. O'ROURKE, SR. Architect [LOGO] 6 7 SELECTED CONSOLIDATED FINANCIAL INFORMATION - - -------------------------------------------------------------------------------- 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.
(Dollars in Thousands, except per share data) At December 31, ---------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- SELECTED FINANCIAL CONDITION DATA: Total Assets $ 277,066 $ 264,374 $ 225,574 $ 223,166 $ 223,143 Cash and cash equivalents 14,157 19,784 16,481 10,384 24,097 Loans receivable, net 212,840 182,724 157,691 151,161 153,284 Investment securities 11,870 20,539 4,030 19,386 16,910 Mortgage-backed securities 30,652 34,653 39,514 33,349 30,254 Deposit accounts 193,422 193,450 206,343 204,088 215,889 Borrowings 36,628 22,250 250 - - Equity 44,562 47,091 17,697 17,845 15,869
Year Ended December 31, ---------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- SELECTED OPERATING DATA: Interest Income $ 20,328 $ 18,703 $ 16,975 $ 16,922 $ 17,885 Interest Expense 10,860 10,762 10,134 9,378 10,021 ------- ------- ------- ------- ------- Net interest income 9,468 7,941 6,841 7,544 7,864 Provision for loan losses 180 355 1,274 63 235 ------- ------- ------- ------- ------- Net interest income after provision for loan losses 9,288 7,586 5,567 7,481 7,629 Non-interest income 1,169 954 802 943 1,039 Non-interest expense (5,878) (7,301) (7,812)(1) (5,274) (5,510) ------- ------- ------- ------- ------- Income (loss) before taxes and extraordinary item 4,579 1,239 (1,443) 3,150 3,158 Income tax expense (benefit) 1,632 439 (477) 1,057 1,074 Extraordinary item(2) - - - - (54) ------- ------- ------- ------- ------- Net Income (loss) 2,947 800 (966) 2,093 2,030 ======= ======= ======= ======= ======= Net income per share - basic(3) $ 1.22 $ 0.07 N/A N/A N/A Net income per share - diluted(3) $ 1.20 $ 0.07 N/A N/A N/A Dividends declared per share $ 0.38 $ 0.18 N/A N/A N/A
At or For the Year Ended December 31, --------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- OTHER DATA: Profitability: Return on average assets 1.10% 0.32% (0.43)% 0.91% 0.87% Return on average equity 6.38 2.55 (5.23) 12.19 13.36 Interest rate spread for period(4) 2.64 2.68 2.80 3.15 3.35 Net interest margin(5) 3.61 3.34 3.16 3.41 3.55 Efficiency ratio(6) 55.26 82.08 88.45 62.14 61.88 Other expenses to average assets 2.19 2.95 3.49 2.30 2.37 Capital Ratios: Average equity to average assets 17.23 12.71 8.25 7.48 6.54 Total capital to risk-weighted assets 31.39 36.69 16.20 16.29 13.90 Asset Quality: Non-performing assets to total assets(7) 0.22 0.36 0.70 1.35 2.35 Allowance for loan losses to total loans 1.25 1.35 1.41 0.69 0.64 Allowance for loan losses to non-performing loans and troubled debt restructuring 297.09 183.96 143.94 71.51 26.76
(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) 1996 net income per share is for the six months ended December 31, 1996, because of the Bank's conversion from mutual to stock form in July, 1996. (4) The interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. (5) The net interest margin represents net interest income divided by average interest-earning assets. (6) 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. (7) Non-performing assets include non-accrual loans, accruing loans delinquent 90 days or more and real estate owned. [LOGO] 7 8 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, 1995 through 1997. 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 loans receivable, net, of the Company increased $30.1 million, or 16.5%, from $182.7 million at December 31, 1996, to $218.8 million at December 31, 1997, outpacing growth in total assets of the Company of $12.7 million, or 4.8%, from $264.4 million at December 31, 1996, to $277.1 million at December 31, 1997. The growth in total loans was primarily funded by a $14.4 million increase in advances from the Federal Home Loan Bank of Dallas (the "FHLB"), an $8.7 million decrease in investment securities and a $4.0 million decrease in mortgage-backed securities. CASH AND CASH EQUIVALENTS - Cash and cash equivalents, which consist of interest-bearing and noninterest-bearing deposits and cash on hand, decreased by $5.6 million, or 28.4%, to $14.2 million at December 31, 1997, compared to $19.8 million at December 31, 1996. The decrease in cash and cash equivalents was primarily due to funding the Recognition and Retention Plan Trust (the "RRP") and the purchase of 150,000 shares of treasury stock. At December 31, 1997, cash and cash equivalents amounted to 5.1% of total assets. INVESTMENT SECURITIES - Investment securities decreased by $8.7 million, or 42.2%, to $11.9 million at December 31, 1997, compared to $20.5 at December 31, 1996. The decrease in investment securities was used primarily to fund new loans. During 1997 the Company purchased $13.0 million of securities available for sale and had $22.5 million called away. At December 31, 1997, investment securities amounted to 4.3% of total assets. At December 31, 1997, $826,000 of the Company's investment securities were classified as held for trading, or .3% of total assets, and consisted entirely of marketable equity securities. At December 31, 1997, $11.0 million of the Company's investment securities were classified as available for sale and had a pre-tax effected net unrealized gain of $121,000 at such date. In addition, at such date, substantially all of the Company's investment securities classified as available for sale consisted of U.S. Government and Federal agency obligations. Note 3 to the Consolidated Financial Statements provides further information on the Company's investment securities. MORTGAGE-BACKED SECURITIES - Mortgage-backed securities decreased $4.0 million, or 11.5%, to $30.7 million at December 31, 1997, compared to $34.7 million at December 31, 1996. The decrease in mortgage-backed securities of $4.0 million was the result of $4.2 million of principal repayments net of a $126,000 increase in the carrying value of the mortgage-backed securities available for sale portfolio. At December 31, 1997, the Company's adjustable rate mortgage-backed securities amounted to $12.8 million and were classified as held to maturity. At that same date, the Company's fixed-rate mortgage-backed securities amounted to $17.8 million and were classified as available for sale. At December 31, 1997, 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 $30.1 million, or 16.5%, to $212.8 million at December 31, 1997, compared to $182.7 million at December 31, 1996. Total real estate loans [LOGO] 8 9 increased $21.6 million, or 12.9%, during 1997, primarily as the result of a $25.5 million, or 16.6%, increase in total single-family residential mortgage loans, which was partially offset by a $316,000, or 36.7%, decrease in total multi-family loans, and a $3.5 million, or 27.3%, decrease in total commercial and other real estate loans. Total consumer and commercial loans increased $7.5 million, or 31.1%, during 1997 primarily as the result of an $8.0 million, or 109.2%, increase in total commercial loans which was partially offset by a $504,000, or 3.0%, decrease in total consumer loans. Undisbursed loan funds, unearned discounts, allowance for loan losses, and net deferred fees decreased $545,000, or 6.3%, to $8.1 million at December 31, 1997, compared to $8.6 million at December 31, 1996. Loans receivable, net, amounted to 76.8% of total assets at December 31, 1997, compared to 69.1% at December 31, 1996. Note 5 to the Consolidated Financial Statements provides further information on the Company's loans. LIABILITIES AND STOCKHOLDERS' EQUITY GENERAL - The Company's primary funding sources include deposits, borrowings from the FHLB and stockholders' equity. The discussion that follows focuses on the major changes in this mix during 1997. DEPOSITS - The Company's deposits decreased by $28,000 to $193.4 million at December 31, 1997, compared to $193.5 million at December 31, 1996. Deposits at December 31, 1997, funded 69.8% of total assets, compared to 73.2% at December 31, 1996. Interest credited during the 1997 year increased deposits by $6.1 million, and was offset by net withdrawals during the year of $6.1 million. Additional information regarding deposits is provided in Note 8 to the Consolidated Financial Statements. BORROWINGS - The Company's borrowings are composed of advances from the FHLB, which increased $14.4 million, to $36.6 million at December 31, 1997, compared 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 that from time to time may be a cheaper source of funds because of interest rates in general. Borrowings at December 31, 1997, funded 13.2% of total assets, compared to 8.4% at December 31, 1996. The increase in borrowings was used to fund loan growth during 1997. Using single-family mortgage loans as collateral, the Company has the ability to borrow total advances up to $127.7 million from the FHLB. Of total outstanding borrowings at December 31, 1997, $36.4 million had variable rate interest rate features indexed to the London International Bank Offering Rate ("LIBOR"). All borrowings at December 31, 1997, were non-amortizing advances of which $22.0 million was scheduled to mature in 1998. 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, 1997, stockholders' equity totaled $44.6 million, a decrease of $2.5 million, or 5.4%, compared to December 31, 1996, which decrease was primarily attributable to a $3.4 - - ------------------------------------------------------------------------------- "Through the good times and the bad, LBA Savings Bank has always been there for us." RED LERILLE Red Lerille's Health & Racquet Club [PHOTO] - - ------------------------------------------------------------------------------- [LOGO] 9 10 ACADIANA BANCSHARES, INC., AND SUBSIDIARY million purchase of treasury common stock, a $1.8 million purchase of common stock for the RRP and $936,000 of dividends declared, all of which was partially offset by net income for the year ended December 31, 1997, of $2.9 million and $440,000 of stock released by the Employee Stock Ownership Plan. Stockholders' equity at December 31, 1997 funded 16.1% of total assets, compared to 17.8% at December 31, 1996. Additional information regarding stockholders' equity is included in the Consolidated Statements of Stockholders' Equity and Note 12 to the Consolidated Financial Statements. Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"). At December 31, 1997, the Bank significantly exceeded all regulatory capital ratio requirements with a tier 1 leverage capital ratio of 12.46%, a tier 1 risk-based capital ratio of 23.18% and a total risk-based capital ratio of 24.43%. 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. At December 31, 1997, the Company also significantly exceeded all applicable regulatory capital requirements with a tier 1 leverage capital ratio of 16.00%, a tier 1 risk-based capital ratio of 30.14% and a total risk-based capital ratio of 31.39%. RESULTS OF OPERATIONS GENERAL - The Company reported net income of $2.9 million and $800,000 for the years ended December 31, 1997 and 1996, respectively, and a net loss of $966,000 for the year ended December 31, 1995. The $2.1 million increase in net income in 1997 was due primarily to an increase in net interest income of $1.5 million, an increase in non-interest income of $215,000 and a decrease in non-interest expense of $1.4 million, all of which was partially offset by an increase in income tax expense of $1.2 million. The Company reported net income of $800,000 for the year ended December 31, 1996, 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 non-interest income, a $919,000 decrease in provision for loan losses and a $511,000 decrease in non-interest expense, all of which was partially offset by a $916,000 increase in income tax expense. NET INTEREST INCOME - Net interest income is determined by interest rate spread (i.e., the difference between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's average interest rate spread was 2.64%, 2.68%, and 2.80%, during the years ended December 31, 1997, 1996 and 1995, respectively. - - ------------------------------------------------------------------------------- "LBA has always had a strong commitment to the housing industry throughout South Louisiana." [PHOTO] MIKE THOMPSON BOB AUSTIN Thompson Home Building Co. Bob Austin Homes - - ------------------------------------------------------------------------------- [LOGO] 10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Net interest income increased $1.5 million, or 19.2%, in 1997 to $9.5 million compared to $7.9 million in 1996. The increase was primarily due to a $1.6 million increase in interest income, which was partially offset by a $98,000 increase in interest expense during 1997. Average net interest-earning assets (interest-earning assets less interest-bearing liabilities) increased $19.8 million, or 65.9%, to $50.0 million for the year ended December 31, 1997, compared to $30.1 million for the year ended December 31, 1996. - - ------------------------------------------------------------------------------- AVERAGE ASSETS Year ended December 31, 1997 [CHART] - - ------------------------------------------------------------------------------- INTEREST INCOME - Interest income totaled $20.3 million for the year ended December 31, 1997, an increase of $1.6 million, or 8.7%, over the $18.7 million for the year ended December 31, 1996. This improvement was mainly due to an increase in the Company's average interest-earning assets of $24.0 million, or 10.1%, to $262.1 million at December 31, 1997, as compared to $238.1 million at December 31, 1996. Interest earned on loans increased $1.7 million, or 11.9%, in 1997. The increase was due to a $24.3 million increase in the average balance of loans which was partially offset by a 17 basis point (with 100 basis points being equal to 1%) decrease in the yield earned. Interest earned on mortgage-backed securities decreased $280,000, or 10.7%, during 1997. This decrease was due to a $4.2 million, or 11.3%, decrease in the average balances of mortgage-backed securities partially offset by a 4 basis point increase in the yield earned. Interest earned on investment securities increased $325,000, or 27.4%, during 1997. The increase was due to a $4.9 million, or 28.9%, increase in the average balances of investment securities which was partially offset by an 8 basis point decrease in the yield earned. Interest income on other earning assets, primarily interest-bearing deposits, decreased $117,000 in 1997. The decrease was due to a $1.1 million, or 8.2%, decrease in the average balances of other earning assets together with a 51 basis point decrease in the yield earned. Interest income totaled $18.7 million for the year ended December 31, 1996, an increase of $1.7 million, or 10.2%, 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. 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 decrease in the yield earned. Interest earned on mortgage- [LOGO] 11 12 ACADIANA BANCSHARES, INC., AND SUBSIDIARY 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, or 4.8%, in 1996. INTEREST EXPENSE - Interest expense increased $98,000, or .9%, in 1997 compared to 1996. The reason for such increase was a $4.2 million, or 2.0%, increase in average interest-bearing liabilities, which was partially offset by a 5 basis point decrease in interest rates on interest-bearing liabilities. Interest expense on deposits decreased $1.0 million, or 9.9%, to $9.2 million for 1997 compared to $10.2 million for 1996. The reason for such decrease was a $15.2 million, or 7.7%, decrease in average balances of interest-bearing deposits combined with a 12 basis point decrease in interest rates on interest-bearing 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 1997, the average balance of certificates of deposit amounted to 79.4% of the average balance of all interest-bearing deposits, compared to 78.0% during 1996. The average rate paid on certificates of deposit was 5.79% during 1997, representing an 18 basis point decrease over the average rate in 1996, compared to average rates of 1.95% and 2.17%, respectively, on interest-bearing demand deposits and savings deposits in 1997. Interest expense on advances from the FHLB increased $1.1 million, or 190.8%, to $1.7 million for the year ended December 31, 1997, compared to $578,000 for 1996. The reason for such increase was a $19.3 million increase in average balances on advances from the FHLB combined with an 8 basis point increase in the average interest rate. - - ------------------------------------------------------------------------------- "LBA's Branch Manager had the authority to approve and fund my car loan all in the same day." [PHOTO] JEWELENE TAYLOR, with daughter Chelsey - - ------------------------------------------------------------------------------- [LOGO] 12 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 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 Company 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.
(Dollars in Thousands) Year Ended December 31, -------------------------------------------------------------- 1997 1996 ------------------------------ ------------------------------ Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ---- ------- -------- ---- Interest-earning assets: Loans receivable: Real estate mortgage loans $ 168,437 $ 13,365 7.93% $ 150,541 $ 12,438 8.26% Commercial business loans 11,027 1,056 9.58% 3,818 349 9.14% Consumer and other loans 15,974 1,494 9.35% 16,780 1,431 8.53% ------- ------- ----- ------- ------- ----- Total loans 195,438 15,915 8.14% 171,139 14,218 8.31% Mortgage-backed securities 32,711 2,329 7.12% 36,869 2,609 7.08% Investment securities(1) 21,958 1,510 6.88% 17,032 1,185 6.96% Other earning assets 12,002 574 4.78% 13,067 691 5.29% ------- ------- ----- ------- ------- ----- Total interest-earning assets 262,109 20,328 7.76% 238,107 18,703 7.85% Noninterest-earning assets 5,975 9,238 ------- ------- Total Assets $ 268,084 $ 247,345 ======= ======= Interest-bearing liabilities: Deposits: Demand deposits $ 14,033 273 1.95% $ 15,953 291 1.82% Savings deposits 23,539 510 2.17% 27,506 692 2.52% Certificates of deposit 144,921 8,396 5.79% 154,187 9,201 5.97% ------- ------- ----- ------- ------- ----- Total deposits 182,493 9,179 5.03% 197,646 10,184 5.15% Advances from FHLB 29,648 1,681 5.67% 10,338 578 5.59% ------- ------- ----- ------- ------- ----- Total interest-bearing liabilities 212,141 10,860 5.12% 207,984 10,762 5.17% Noninterest-bearing demand deposits 7,182 3,342 Other noninterest-bearing liabilities 2,571 4,592 ------- ------- Total liabilities 221,894 215,918 Equity 46,190 31,427 ------- ------- Total liabilities and equity $ 268,084 $ 247,345 ======= ======= Net interest-earning assets $ 49,968 $ 30,123 ======= ======= Net interest income/interest rate spread $ 9,468 2.64% $ 7,941 2.68% ======= ===== ======= ===== Net interest margin 3.61% 3.34% ===== ===== Ratio of average interest-earning assets to average interest-bearing liabilities 123.55% 114.48% ======= ======= (Dollars in Thousands) Year Ended December 31, -------------------------------- 1995 -------------------------------- Average Average Yield/ Balance Interest Cost ------- -------- ---- Interest-earning assets: Loans receivable: Real estate mortgage loans $ 140,597 $ 11,652 8.29% Commercial business loans 1,467 128 8.73% Consumer and other loans 11,674 1,053 9.02% ------- ------- ----- Total loans 153,738 12,833 8.35% Mortgage-backed securities 34,681 2,536 7.31% Investment securities(1) 14,525 880 6.06% Other earning assets 13,242 726 5.48% ------- ------- ----- Total interest-earning assets 216,186 16,975 7.85% Noninterest-earning assets 7,782 ------- Total Assets $ 223,968 ======= Interest-bearing liabilities: Deposits: Demand deposits $ 15,909 283 1.78% Savings deposits 29,442 737 2.50% Certificates of deposit 155,173 9,092 5.86% ------- ------- ----- Total deposits 200,524 10,112 5.04% Advances from FHLB 250 22 8.80% ------- ------- ----- Total interest-bearing liabilities 200,774 10,134 5.05% Noninterest-bearing demand deposits 2,642 Other noninterest-bearing liabilities 2,080 ------- Total liabilities 205,496 Equity 18,472 ------- Total liabilities and equity $ 223,968 ======= Net interest-earning assets $ 15,412 ======= Net interest income/interest rate spread $ 6,841 2.80% ======= ===== Net interest margin 3.16% ===== Ratio of average interest-earning assets to average interest-bearing liabilities 107.68% =======
(1) Includes FHLB stock. [LOGO] 13 14 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on net interest income of the Company. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume).
1997 compared to 1996 1996 compared to 1995 -------------------------------------- -------------------------------------- Increase (decrease) due to Increase (decrease) due to ----------------------------- ---------------------------- Total Total Rate/ Increase Rate/ Increase Volume Rate Volume (Decrease) Volume Rate Volume (Decrease) ------ ---- ------ ---------- ------ ---- ------ ---------- Interest-earning assets: Loans receivable $ 2,019 $ (282) $ (40) $ 1,697 $1,453 $ (61) $ (7) $ 1,385 Mortgage-backed securities (294) 16 (2) (280) 160 (82) (5) 73 Investment securities 343 (14) (4) 325 152 131 22 305 Other earning assets (56) (66) 5 (117) (10) (26) 1 (35) ----- --- -- ----- ----- --- --- ----- Total net change in income on interest-earning assets 2,012 (346) (41) 1,625 1,755 (38) 11 1,728 ----- --- -- ----- ----- --- --- ----- Interest-bearing liabilities: Deposits: Demand deposits and passbook savings deposits (133) (77) 10 (200) (43) 6 0 (37) Certificates of deposit (553) (268) 16 (805) (58) 168 (1) 109 ----- --- -- ----- ----- --- --- ----- Total deposits (686) (345) 26 (1,005) (101) 174 (1) 72 Advance from FHLB 1,080 8 15 1,103 888 (8) (324) 556 ----- --- -- ----- ----- --- --- ----- Total net change in expense on interest-bearing liabilities 394 (337) 41 98 787 166 (325) 628 ----- --- -- ----- ----- --- --- ----- Net change in net interest income $ 1,618 $ (9) $ (82) $ 1,527 $ 968 $ (204) $ 336 $ 1,100 ===== === == ===== ===== === === =====
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 interest-bearing deposits. The increase in interest expense on borrowings during 1996 was due to a $10.1 million increase in the average balance of borrowings PROVISION FOR LOAN LOSSES - Provision for loan losses are charged to earnings in order to bring the total allowance for loan losses to a level considered appropriate by management based on methodology implemented by the Company, which is designed to assess, among other things, historical experience, the volume and type of lending conducted by the Company, the amount of the Company's 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 $180,000 in 1997, compared to $355,000 and $1.3 million in 1996 and 1995, 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 [LOGO] 14 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 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 1997 and 1996, the Company continued making provisions for loan losses in a manner consistent with its revised methodology of 1995. At December 31, 1997, the Bank's allowance for loan losses amounted to $2.8 million, or 1.25% of total loans and 297.09% of non-performing loans and troubled debt restructurings. 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. At December 31, 1995, the Bank's allowance for loan losses amounted to $2.3 million, or 1.41% of total loans and 143.94% of non-performing loans and troubled debt restructurings. NON-INTEREST INCOME - For 1997, the Company reported non-interest income of $1.2 million, compared to $954,000 for 1996. The primary reason for the $215,000, or 22.5%, increase was an increase of $180,000 in deposit fees and service charges and a $137,000 net gain on investment securities, both of which were partially offset by a $102,000 decrease in other income. Total non-interest income amounted to $954,000 and $802,000 for the years ended December 31, 1996 and 1995, respectively. 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. NON-INTEREST EXPENSE - Non-interest expense includes salaries and employee benefits, occupancy, depreciation, Savings Association Insurance Fund ("SAIF") deposit insurance premiums, advertising, contemplated merger/conversion expenses, bank shares and franchise tax, net cost of real estate owned and other expense items. Non-interest expense amounted to $5.9 million for the year ended December 31, 1997, a decrease of $1.4 million, or 19.5%, compared to $7.3 million for the year ended December 31, 1996. The primary reason for the $1.4 million decrease was the absence of a SAIF special assessment in 1997 compared to $1.3 million in 1996, together with net costs of real estate owned being a net recovery of $436,000 for 1997 compared to a net cost of $129,000 for 1996. Salaries and employee benefits, the largest component of non-interest expenses, increased $558,000, or 21.0%, in 1997 compared to 1996. The primary reason for such increase was a $460,000 increase in employee benefit plan expenses relating to the ESOP and the RRP, which expenses were partially offset due to discontinued matching contributions to the 401(k) Profit Sharing Plan. The ESOP was in effect for all of 1997 compared to only six months for 1996. In addition, the ESOP expense is directly related to the average stock price of the Company, which was higher in 1997 than 1996. The RRP began in 1997 and therefore had no comparable expense in 1996. Employee benefit plans are explained further in Note 13 of the Consolidated Financial Statements. Bank shares and franchise tax expense together amounted to $351,000 in 1997, the first year for which the Company was subject to these taxes on capital. There was no comparable expense in 1996. INCOME TAXES - For the years ended December 31, 1997 and 1996, the Company incurred income tax expense of $1.6 million and $439,000, 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 35.6%, 35.4% and (33.1)% during 1997, 1996, and 1995, 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 1997 and 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 10 to the Consolidated Financial Statements. [LOGO] 15 16 ACADIANA BANCSHARES, INC., AND SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Excess liquidity includes the Company's portfolios of investment securities held for sale and mortgage-backed securities 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 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 $127.7 million from the FHLB through its subsidiary Bank. - - ------------------------------------------------------------------------------- "We have been loyal LBA mortgage customers for two generations." [PHOTO] MR. AND MRS. PATRICK CONDON, SR. MR. AND MRS. PATRICK CONDON, JR. AND FAMILY - - ------------------------------------------------------------------------------- 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, 1997, the total approved commitments to extend credit amounted to $18.4 million. At that same date, certificates of deposit scheduled to mature in one year or less totaled $70.9 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, most of the Company's assets and liabilities are monetary in nature. Consequently, 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. [LOGO] 16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 MARKET RISK Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. 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 Bank, which is composed of Messrs. O'Rourke, Beacham, and Ortego, and the Asset/Liability Management Committee ("ALCO"), which is composed of five officers of the Bank. The Finance Committee meets jointly with the ALCO 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. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the ALCO. In its capacity, the ALCO develops guidelines and strategies impacting the Company's asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. INTEREST RATE RISK Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and interest expense streams associated with the Company's financial instruments also change, thereby impacting net interest income ("NII"), the primary component of the Company's earnings. 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 of interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities that either reprice or mature within a given period. 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 31, 1997, the amount of - - -------------------------------------------------------------------------------- NET INTEREST INCOME (IN MILLIONS) [GRAPH] - - -------------------------------------------------------------------------------- [LOGO] 17 18 ACADIANA BANCSHARES, INC., AND SUBSIDIARY the Company's interest-sensitive assets which were estimated to mature or reprice within one year exceeded the Company's interest-sensitive liabilities with the same characteristics by $6.6 million, or 2.4%, of the Company's total assets. The ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While the ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and the interest expense paid on all assets and liabilities reflected on the Company's statement of condition. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one-year horizon, assuming no balance sheet growth, given both a 200 basis point upward and downward shift in interest rates. A parallel and pro rate shift in rates over a 12-month period is assumed. The following reflects the Company's NII sensitivity analysis as of December 31, 1997:
Estimated NII Rate Change Sensitivity ----------- ----------- + 200 basis points -1.94% - 200 basis points 0.46%
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, but not limited to, the nature and timing of interest rate levels and yield curve shapes, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cashflows. While assumptions are developed based upon perceived current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that the alco might take in responding to or anticipating changes in interest rates. 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," 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, 1997, amounted to $11.0 million and $17.8 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 $96.7 million of long-term adjustable-rate mortgage loans, $92.2 million of long-term fixed-rate loans, $16.4 million of shorter-term consumer [LOGO] 18 Management's Discussion and Analysis of Financial Condition and Results of Operations 19 loans and $15.4 million of commercial loans. The Company's mortgage-backed securities in its held to maturity portfolio of $12.8 million is substantially composed 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. The following table summarizes the anticipated maturities or repricing of the Company's interest-sensitive assets and interest-sensitive liabilities as of December 31, 1997, based on the information and assumptions set forth in the notes below.
(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 assets(1): Loans receivable(2) $ 33,249 $ 47,116 $ 66,122 $ 42,855 $ 23,498 $ 212,840 Investment securities(3) 18,241 3,014 6,037 0 0 27,292 Mortgage-backed securities(4) 11,753 4,990 5,869 4,153 3,887 30,652 ------ ------ ------ ------ ------ ------- Total 63,243 55,120 78,028 47,008 27,385 270,784 ------ ------ ------ ------ ------ ------- Interest-sensitive liabilities: Deposits: NOW accounts(5) - - - - 8,177 8,177 Passbook savings accounts(5) - - - 63 23,280 23,343 Money market deposit accounts(5) 9,436 - - - - 9,436 Certificates of deposit 19,497 46,436 41,027 12,400 24,165 143,525 Advances from FHLB 36,378 - - - 250 36,628 ------ ------ ------ ------ ------ ------- Total 65,311 46,436 41,027 12,463 55,872 221,109 ------ ------ ------ ------ ------ ------- Excess (deficiency) of interest-sensitive assets over interest-bearing liabilities $ (2,068) $ 8,684 $ 37,001 $ 34,545 $ (28,487) $ 49,675 ====== ====== ====== ====== ====== ======= Cumulative excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities $ (2,068) $ 6,616 $ 43,617 $ 78,162 $ 49,675 ====== ====== ====== ====== ====== Cumulative excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities as a percent of total assets (0.75%) 2.39% 15.74% 28.21% 17.93% ====== ====== ====== ====== ======
(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 1997. (2) Balances have been reduced for non-performing loans, which amounted to $410,000 at December 31, 1997. (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 $36.0 million or 13.0% of total assets. [LOGO] 19 20 ACADIANA BANCSHARES, INC., AND SUBSIDIARY RECENT ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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. 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 FASB Statement No. 125, was issued in December 1996 and deferred application of many of the provisions of SFAS 125 until January 1, 1998. The adoption of SFAS 125 is not expected to have a material effect on the consolidated financial position or the consolidated results of operations of the Company. In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This statement establishes standards for computing and presenting earnings per share ("EPS"). It will require the presentation of basic EPS on the face of the income statement with dual presentation of both basic and diluted EPS for entities with complex capital structures. This statement was adopted by the Company on December 31, 1997. Restatement of earnings per share for all prior periods presented is required. The statement deals with reporting and disclosure and therefore adoption did not have an impact on the financial statements. For additional information on these and other FASB statements see Note 1 to the Consolidated Financial Statements. - - ------------------------------------------------------------------------------- "We are delighted to see LBA expand into the New Iberia area." [PHOTO] VANCE AND WARD BREAUX Breaux Brothers Enterprises, Inc. - - ------------------------------------------------------------------------------- [LOGO] 20 Management's Discussion and Analysis of Financial Condition and Results of Operations 21 YEAR 2000 The Company has developed plans to address issues related to the impact of the year 2000 on its computer systems. Financial and operational systems have been assessed and plans are being developed to address modification requirements. Many of the Company's essential financial and operations systems are provided by third-party vendors. Management of the Company has made preliminary assessments of the efforts of such third parties to bring the systems used by the Company and the Bank into compliance, and management continues to monitor such progress. The compliance process is ongoing and is expected to continue throughout 1998. The financial impact on the Company of making the required system changes compliant with the year 2000 is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. - - -------------------------------------------------------------------------------- HISTORICAL SHARE PRICE [GRAPH] - - -------------------------------------------------------------------------------- [LOGO] 21 22 INDEPENDENT AUDITORS' REPORT - - ------------------------------------------------------------------------------- [CASTAING, HUSSEY & LOLAN, LLP LETTERHEAD] 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ CASTAING, HUSSEY & LOLAN, LLP New Iberia, Louisiana January 30, 1998 [LOGO] 22 23 ACADIANA BANCSHARES, INC., AND SUBSIDIARY - - ------------------------------------------------------------------------------- Consolidated Statements of Financial Condition December 31, 1997 and 1996 (In Thousands, except share data)
ASSETS 1997 1996 ---- ---- Cash and Cash Equivalents: Cash and Amounts Due from Banks $ 622 $ 1,234 Interest Bearing Deposits-Federal Home Loan Bank 13,535 18,550 ------- ------- Total 14,157 19,784 Investment Securities: Equity Securities Held for Trading 826 -- Available for Sale, at fair value 11,044 20,539 Mortgage-Backed Securities: Held to Maturity (fair value of $12,736 and $12,938, respectively) 12,806 13,087 Available for Sale, at fair value 17,846 21,566 Loans Receivable, net of Allowance for Loan Losses of $2,760 and $2,592, respectively 212,840 182,724 Federal Home Loan Bank Stock, at Cost 1,887 1,778 Real Estate Owned, Net 204 75 Premises and Equipment, Net 2,806 1,827 Accrued Interest Receivable 1,416 1,551 Other Assets 1,234 1,443 ------- ------- TOTAL ASSETS $ 277,066 $ 264,374 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $ 193,422 $ 193,450 Advances from Federal Home Loan Bank 36,628 22,250 Accrued Interest Payable on Deposits 49 46 Advance Payments by Borrowers for Taxes and Insurance 431 441 Accrued and Other Liabilities 1,974 1,096 ------- ------- TOTAL LIABILITIES 232,504 217,283 ------- ------- 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 27 27 Additional Paid-in Capital 32,005 31,827 Retained Earnings (Substantially Restricted) 19,355 17,344 Unearned Common Stock Held by ESOP (2,228) (2,490) Unearned Common Stock Held by RRP Trust (1,602) -- Treasury Stock, at Cost; 150,000 Shares (3,445) -- Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes 450 383 ------- ------- TOTAL STOCKHOLDERS' EQUITY 44,562 47,091 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 277,066 $ 264,374 ======= =======
The accompanying Notes to the Consolidated Financial Statements are an integral part of these Financial Statements. [LOGO] 23 24 ACADIANA BANCSHARES, INC., AND SUBSIDIARY - - ------------------------------------------------------------------------------- Consolidated Statements of Operations Years Ended December 31, 1997, 1996 and 1995 (In Thousands, except per share data)
1997 1996 1995 ---- ---- ---- INTEREST INCOME: Loans $ 15,914 $ 14,218 $ 12,833 Mortgage-Backed Securities 2,329 2,609 2,536 Investment Securities 1,510 1,185 880 Interest Bearing Deposits 575 691 726 ------ ------ ------ Total Interest Income 20,328 18,703 16,975 ------ ------ ------ INTEREST EXPENSE: Deposits 9,179 10,184 10,112 Advances from Federal Home Loan Bank 1,681 578 22 ------ ------ ------ Total Interest Expense 10,860 10,762 10,134 ------ ------ ------ Net Interest Income 9,468 7,941 6,841 Provision for Loan Losses 180 355 1,274 ------ ------ ------ Net Interest Income After Provision for Loan Losses 9,288 7,586 5,567 ------ ------ ------ NON-INTEREST INCOME: Loan Fees and Service Charges 136 157 119 Servicing Fees on Loans Sold 62 60 68 Deposit Fees and Service Charges 749 569 583 Investment Securities Gains (Losses), Net 137 -- (64) Gain (Loss) on Sale of Fixed Rate Loans, Net (1) (20) 11 Other 86 188 85 ------ ------ ------ Total Non-Interest Income 1,169 954 802 ------ ------ ------ NON-INTEREST EXPENSES: Salaries and Employee Benefits 3,212 2,654 2,666 Occupancy 308 285 222 Depreciation 322 320 259 Net Costs of Real Estate Owned (436) 129 1,144 SAIF Deposit Insurance Premium 122 354 469 SAIF Special Assessment -- 1,338 -- Merger/Conversion Expenses - Withdrawn Transaction -- -- 1,052 Advertising 328 307 237 Consulting 82 193 306 Bank Shares and Franchise Tax Expense 351 -- -- Other 1,589 1,721 1,457 ------ ------ ------ Total Non-Interest Expenses 5,878 7,301 7,812 ------ ------ ------ Income (Loss) Before Income Taxes 4,579 1,239 (1,443) Income Tax Expense (Benefit) 1,632 439 (477) ------ ------ ------ Net Income (Loss) $ 2,947 $ 800 $ (966) ====== ====== ====== Net Income Per Common Share* - basic $ 1.22 $ .07 N/A ====== ====== ====== Net Income Per Common Share - diluted $ 1.20 $ .07 N/A ====== ====== ======
*Includes 3rd and 4th quarters only, for 1996. The accompanying Notes to the Consolidated Financial Statements are an integral part of these Financial Statements. [LOGO] 24 25 ACADIANA BANCSHARES, INC., AND SUBSIDIARY - - ------------------------------------------------------------------------------- Consolidated Statements of Stockholders' Equity Years Ended December 31, 1997, 1996 and 1995 (In Thousands)
Unearned Retained Unearned Common Additional Earnings - Common Stock Common Paid-In (Substantially Stock Held Held By Stock Capital Restricted) By ESOP RRP Trust ----- ------- ----------- ------- --------- Balance, January 1, 1995 $ -- $ -- $ 17,962 $ -- $ -- Net Income (966) Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes -- ------ ------ ----- ----- Balance, December 31, 1995 16,996 Net Income 800 Common Stock Issued in Conversion 27 31,811 (2,622) Common Stock Released by ESOP Trust 16 132 Cash Dividends Declared (452) Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes -- ------ ------ ----- ----- Balance, December 31, 1996 27 31,827 17,344 (2,490) Net Income 2,947 Common Stock Released by ESOP Trust 178 262 Common Stock Acquired by Recognition and Retention Plan Trust (1,829) Common Stock Earned by Participants of Recognition and Retention Plan Trust 227 Repurchase of Common Stock Cash Dividends Declared (936) Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes -- ------ ------ ----- ----- Balance, December 31, 1997 $ 27 $ 32,005 $ 19,355 $ (2,228) $ (1,602) == ====== ====== ===== ===== (In Thousands) Unrealized Gain (Loss) Total on Securities, Stock- Treasury Net of holders' Stock Deferred Taxes Equity ----- -------------- ------ Balance, January 1, 1995 $ -- $ (117) $ 17,845 Net Income (966) Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 818 818 ----- ------ ------ Balance, December 31, 1995 701 17,697 Net Income 800 Common Stock Issued in Conversion 29,216 Common Stock Released by ESOP Trust 148 Cash Dividends Declared (452) Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes (318) (318) ----- ------ ------ Balance, December 31, 1996 383 47,091 Net Income 2,947 Common Stock Released by ESOP Trust 440 Common Stock Acquired by Recognition and Retention Plan Trust (1,829) Common Stock Earned by Participants of Recognition and Retention Plan Trust 227 Repurchase of Common Stock (3,445) (3,445) Cash Dividends Declared (936) Change in Unrealized Gain on Securities Available for Sale, Net of Deferred Taxes 667 67 ----- ------ ------ Balance, December 31, 1997 $ (3,445) $ 450 $ 44,562 ===== ====== ======
The accompanying Notes to the Consolidated Financial Statements are an integral part of these Financial Statements. [LOGO] 25 26 ACADIANA BANCSHARES, INC., AND SUBSIDIARY - - ------------------------------------------------------------------------------- Consolidated Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 (In Thousands)
1997 1996 1995 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 2,947 $ 800 $ (966) ------ ------ ------ Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization 328 320 259 Provision for Deferred Income Taxes 2 (43) (344) Provision for Losses on Loans 180 355 1,274 Provision for Losses on Real Estate Owned and Other Property Acquired -- 256 1,169 Compensation Expense Recognized on RRP 227 -- -- ESOP Contribution 440 148 -- Other Gains and Losses, Net (427) (121) (139) Net Change in Securities Classified as Trading (826) -- -- Loss (Gain) on Sale of Loans Held for Sale 1 20 (11) Proceeds from Sale of Loans Held for Sale 921 6,353 1,553 Originations of Loans Held for Sale (922) (6,373) (1,542) Abandonment of Construction Work in Progress -- -- 202 Accretion of Discounts, Net of Premium Amortization On Securities (63) (46) (57) Amortization of Deferred Revenues and Unearned Income on Loans (60) (161) (146) FHLB Stock Dividend Received (109) (101) (104) Changes in Assets and Liabilities: Decrease (Increase) in Accrued Interest Receivable 135 (364) 58 Decrease (Increase) in Other Assets 167 1,139 (723) Increase (Decrease) in Accounts Payable and Accrued Expenses 846 133 (36) ------ ------ ------ Total Adjustments 840 1,515 1,413 ------ ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,787 $ 2,315 $ 447 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sale of Securities Available for Sale $ -- $ -- $ 2,719 Proceeds from Calls and Maturities of Securities Available for Sale 22,498 3,000 2,500 Proceeds from Maturities of Securities Held to Maturity -- -- 10,500 Purchases of Securities Available for Sale (12,998) (19,500) -- Net Advances on Loans (30,739) (25,416) (7,404) Proceeds from Sale of Premises and Equipment -- 11 6 Purchase of Premises and Equipment (1,301) (416) (337) Proceeds from Sale of Real Estate Owned and Other Property Acquired 801 874 908 Capital Costs Incurred on Real Estate Owned and Other Property Acquired -- (35) (131) Proceeds from Sale of Mortgage-Backed Securities -- -- 467 Principal Collections on Mortgage-Backed Securities Available for Sale 3,870 4,020 -- Principal Collections on Mortgage-Backed Securities Held to Maturity 290 397 3,955 Purchase of Mortgage-Backed Securities Held to Maturity -- -- (9,718) ------ ------ ------ NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (17,579) $ (37,065) $ 3,465 ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net Change in Demand, NOW and Savings Deposits $ (3,271) $ (1,260) $ (5,784) Net Change in Time Deposits 3,243 (11,633) 8,039 Net Change in Mortgage Escrow Funds (10) (44) (70) Proceeds from FHLB Advances 14,378 22,000 -- Proceeds from Issuance of Common Stock -- 30,153 -- Dividends Paid to Shareholders (901) (226) -- Acquisition of Common Stock by RRP (1,829) -- -- Purchase of Treasury Stock (3,445) -- -- Stock Conversion Costs Incurred -- (937) -- ------ ------ ------ NET CASH PROVIDED BY FINANCING ACTIVITIES $ 8,165 $ 38,053 $ 2,185 ------ ------ ------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (5,627) $ 3,303 $ 6,097 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,784 16,481 10,384 ------ ------ ------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,157 $ 19,784 $ 16,481 ====== ====== ====== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Acquisition of Real Estate in Settlement of Loans $ 503 $ 189 $ 252 Unrealized (Loss) Appreciation on Securities $ (101) $ (481) $ 1,239 Loans Made to Facilitate Sales of Real Estate Owned $ -- $ -- $ 317 SUPPLEMENTAL DISCLOSURES: Cash Paid For: Interest on Deposits and Borrowings $ 10,779 $ 10,747 $ 10,136 Income Taxes $ 1,541 $ 526 $ 915
The Accompanying Notes to the Consolidated Financial Statements are an integral part of these Financial Statements. [LOGO] 26 27 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, its full-service facility in New Iberia, 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 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. Future downturns in the oil and gas industry could result in an adverse impact on the Company's real estate loans. 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. 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. Continues [LOGO] 27 28 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 1 continued 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 equity, net of applicable income taxes. 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 types of MBSS as available for sale securities, which are carried at fair value. Management also classifies certain 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. FEDERAL HOME LOAN BANK STOCK The Bank is required, as a member of the Federal Home Loan Bank of Dallas, to maintain an amount of stock equal to the greater of 1% of the Bank's outstanding home mortgage-related assets or 5% of its outstanding advances from the FHLB. Stock held in excess of required amounts is redeemable at par. At December 31, 1997 and 1996, the Bank held more than the required amount of stock. 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, 1997 and 1996, the Company 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. Continues [LOGO] 28 Notes to Consolidated Financial Statements 29 Note 1 continued 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 using the loan's effective interest rate. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. 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. 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 smaller-balance homogenous loans and are collectively evaluated for impairment and are not subject to SFAS 114 measurement criteria. 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. A loan (including an impaired loan) 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. PREMISES AND EQUIPMENT Depreciation and amortization are provided over the estimated useful lives of the respective assets, 15 to 30 years for buildings and 3 to 15 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. Continues [LOGO] 29 30 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 1 continued LOAN SERVICING Mortgage servicing rights are recognized on mortgage loans sold when the institution has retained the servicing rights on the loan. 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. ADVERTISING COSTS The Company incurred no direct-response advertising costs and expenses all advertising costs as incurred. 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, more likely than not will be unrealized. 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 Statements 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 include judgments regarding future expected loss experi- Continues [LOGO] 30 Notes to Consolidated Financial Statements 31 Note 1 continued ence 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 exercisable 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 transferors 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 1997 and deferred application of many of the provisions of SFAS 125 until January 1, 1998. Management believes adoption of SFAS 125 will not have a material effect on financial position and the results of operations. In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This statement establishes standards for computing and presenting earnings per share ("EPS"). It requires the presentation of basic EPS on the face of the income statement with dual presentation of both basic and diluted EPS for Continues [LOGO] 31 32 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 1 continued entities with complex capital structures. Basic EPS excludes the dilutive effect that could occur if any securities or other contracts to issue common stock were exercised or converted into or resulted in the issuance of common stock. Basic EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted EPS is similar to the computation of basic EPS except the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In the case of certain convertible securities, the numerator may also be increased by related interest or dividends. This statement was adopted by the company effective December 31, 1997. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains and losses). This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income (including, for example, unrealized holding gains and losses on available for sale securities) be reported in a financial statement similar to the statement of income and retained income. The accumulated balance of other comprehensive income will be disclosed separately from retained income in the shareholders' equity section of the balance sheet. This statement is effective for the Company for the year beginning January 1, 1998. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This statement establishes standards for the way public business enterprises report information about operating segments and establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Information required to be disclosed includes segment profit or loss, certain specific revenue and expense items, segment assets and certain other information. This statement is effective for the Company for financial statements issued for the year beginning January 1, 1998. Management has not determined the effects of adopting SFAS No. 130 and 131, but their adoption will not impact financial condition or results of operations because they deal with reporting and disclosures. RECLASSIFICATIONS Certain reclassifications have been made to the 1995 and 1996 Consolidated Financial Statements in order to conform to the classifications adopted for reporting in 1997. 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, 1997 and 1996 was approximately $298,000 and $281,000, respectively. [LOGO] 32 Notes to Consolidated Financial Statements 33 NOTE 3 - INVESTMENT SECURITIES: Securities available for sale consist of the following (in thousands):
December 31, 1997 December 31, 1996 ----------------------------------------------- ----------------------------------------------------- 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 $ 10,918 $ 103 $ -- $ 11,021 $ 20,389 $ 149 $ (14) $ 20,524 Marketable Equity Security 5 18 -- 23 5 10 -- 15 ------ --- -- ------ ------ --- -- ------ Total $ 10,923 $ 121 $ -- $ 11,044 $ 20,394 $ 159 $ (14) $ 20,539 ====== === == ====== ====== === == ======
The following is a summary of maturities of securities available for sale as of December 31, 1997 (in thousands):
Securities Available for Sale ------------------------------- Amortized Fair Cost Value ---- ----- Amounts maturing in: One year or less $ -- $ -- After one year through five years 8,918 9,016 After five years through ten years 2,000 2,005 After ten years -- -- ------ ------ 10,918 11,021 Marketable Equity Security 5 23 ------ ------ Total $ 10,923 $ 11,044 ====== ======
Securities are classified according to their contractual maturity without consideration of call features. Accordingly, actual maturities may differ from contractual maturities. During 1997, proceeds from calls of securities available for sale were approximately $22,498,000, resulting in no realized gain or loss. During 1997 and 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. Investment securities with a carrying amount and fair value of approximately $516,000 at December 31, 1997, were pledged to secure deposits as required or permitted by law. Certain equity securities are classified as trading securities. Unrealized gains of $130,000 were recognized in 1997 on such securities. [LOGO] 33 34 ACADIANA BANCSHARES, INC., AND SUBSIDIARY NOTE 4 - MORTGAGE-BACKED SECURITIES: Mortgage-Backed Securities available for sale consist of the following (in thousands):
December 31, 1997 December 31, 1996 ------------------------------------------- ------------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ---- ----- ------ ----- ---- ----- ------ ----- GNMA $ 1,366 $ 33 $ -- $ 1,399 $ 1,760 $ 16 $ -- $ 1,776 FNMA 9,978 509 -- 10,487 11,976 483 (10) 12,449 FHLMC 5,439 42 (18) 5,463 6,893 45 (85) 6,853 FNMA CMO 502 -- (5) 497 502 -- (14) 488 ------ --- -- ------ ------ --- --- ------ $ 17,285 $ 584 $ (23) $ 17,846 $ 21,131 $ 544 $ (109) $21,566 ====== === == ====== ====== === === ======
Mortgage-Backed Securities held to maturity consist of the following (in thousands):
December 31, 1997 December 31, 1996 -------------------------------------------- --------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ---- ----- ------ ----- ---- ----- ------ ----- GNMA $ 1,121 $ 26 $ -- $ 1,147 $ 1,320 $ 21 $ -- $ 1,341 FNMA 206 -- (2) 204 232 -- (3) 229 FHLMC 750 -- (29) 721 822 -- (30) 792 FNMA CMO 4,736 -- (8) 4,728 4,733 -- (21) 4,712 FHLMC CMO 5,993 19 (76) 5,936 5,980 -- (116) 5,864 ------ -- --- ------ ------ -- --- ------ $ 12,806 $ 45 $ (115) $ 12,736 $ 13,087 $ 21 $ (170) $12,938 ====== == === ====== ====== == === ======
The following is a summary of maturities of Mortgage-Backed Securities available for sale and held to maturity as of December 31, 1997 (in thousands):
Available for Sale Held to Maturity ---------------------- ---------------------- Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Amounts maturing in: One year or less $ 3,926 $ 4,053 $ 229 $ 228 After one year through five years 10,577 10,920 796 792 After five years through ten years 1,955 2,018 536 533 After ten years 827 855 11,245 11,183 ------ ------ ------ ------ Total $ 17,285 $ 17,846 $ 12,806 $ 12,736 ====== ====== ====== ======
Maturities are based on the average life at the currently projected prepayment speed. During 1997 and 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 $467,000 resulting in a realized loss of approximately $33,000. There were no sales of held to maturity Mortgage-Backed Securities in 1997, 1996 or 1995. [LOGO] 34 Notes to Consolidated Financial Statements 35 NOTE 5 - LOANS RECEIVABLE: Loans Receivable at December 31, 1997 and 1996, are summarized as follows (in thousands):
1997 1996 ---- ---- Mortgage Loans: Single-Family Residential $ 169,637 $ 142,833 Single-Family Construction 9,301 10,565 Multi-Family Residential 546 862 Commercial Real Estate 9,363 12,873 ------- ------- Total Mortgage Loans 188,847 167,133 Commercial Business Loans 15,400 7,363 Consumer Loans: Savings 2,046 2,709 Indirect Automobile Dealer 4,526 7,424 Other 9,783 6,726 ------- ------- Total Loans 220,602 191,355 Less: Allowance for Loan Losses (2,760) (2,592) Unearned Discounts and Prepaid Dealer Reserve 162 331 Net Deferred Loan Origination Fees (535) (471) Loans in Process and Undisbursed Funds (4,629) (5,899) ------- ------- Net Loans $ 212,840 $ 182,724 ======= =======
At December 31, 1997 and 1996, the Company's loan portfolio included $96,690,000 and $86,565,000 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):
1997 1996 1995 ---- ---- ---- Balance, Beginning $ 2,592 $ 2,329 $ 1,087 Provision Charged to Income 180 355 1,274 Loans Charged Off (235) (277) (127) Loans Recovered 223 185 95 ----- ----- ----- Balance, Ending $ 2,760 $ 2,592 $ 2,329 ===== ===== =====
[LOGO] 35 36 ACADIANA BANCSHARES, INC., AND SUBSIDIARY 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 $21,186,000 and $24,453,000 at December 31, 1997 and 1996, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing were approximately $602,000 and $378,000 at December 31, 1997 and 1996, respectively. Mortgage loan servicing rights of $1,000 and $35,000 were capitalized in 1997 and 1996, respectively. Amortization of mortgage servicing rights was $6,000 and $3,000 in 1997 and 1996, respectively, and the balance of mortgage servicing rights at December 31, 1997 and 1996, was $27,000 and $32,000, respectively. NOTE 7- PREMISES AND EQUIPMENT: Premises and equipment at December 31 is as follows (in thousands):
1997 1996 ---- ---- Land $ 929 $ 738 Office Buildings 1,736 1,237 Furniture, Fixtures and Equipment 2,973 2,381 Transportation Equipment 95 95 ----- ----- 5,733 4,451 Accumulated Depreciation (2,927) (2,624) ----- ----- Premises and Equipment, Net $ 2,806 $ 1,827 ===== =====
NOTE 8 - DEPOSITS: Deposit account balances at December 31 are summarized as follows (dollars in thousands):
Weighted 1997 1996 Average Rate at ----------------------- ------------------------ December 31, 1997 Amount % Amount % ----------------- ------ - ------ - NOW Accounts 1.7% $ 8,177 4.2% $ 11,528 6.0% Money Market Accounts 4.0% 9,436 4.9% 5,101 2.6% Non-interest Bearing Checking Accounts --% 8,941 4.6% 4,954 2.6% ------- ------ ------- ------ Total Demand Deposits 26,554 13.7% 21,583 11.2% ------- ------ ------- ------ Passbook Savings Deposits 2.5% 23,343 12.1% 25,071 12.9% ------- ------ ------- ------ Certificate of Deposit Accounts: Less than 4.00% 226 .1% 100 .1% 4.0% to 4.99% 13,474 7.0% 17,031 8.8% 5.0% to 5.99% 79,702 41.2% 71,021 36.7% 6.0% to 6.99% 34,172 17.7% 34,364 17.8% 7.0% to 8.99% 15,056 7.8% 23,434 12.1% 9.0% and over 895 .4% 846 .4% ------- ------ ------- ------ Total Certificates of Deposit 5.7% 143,525 74.2% 146,796 75.9% ------- ------ ------- ------ Total Deposits 4.8% $193,422 100.0% $193,450 100.0% ======= ====== ======= ======
Continues [LOGO] 36 Notes to Consolidated Financial Statements 37 Note 8 continued At December 31, 1997, scheduled maturities of certificates of deposit accounts were as follows (in thousands):
Amount ------ One year or less $ 70,871 Over one year through two years 36,758 Over two years through three years 18,750 Over three years through five years 10,987 Over five years through ten years 6,159 ------- Total Certificates of Deposit $ 143,525 =======
Certificates of deposit with a balance of $100,000 and over were $36,833,000 and $36,037,000 at December 31, 1997 and 1996, respectively. Interest expense on deposits for the following years ended December 31 is as follows (in thousands):
1997 1996 1995 ---- ---- ---- NOW Accounts $ 109 $ 160 $ 144 Money Market 163 131 139 Passbook Savings 589 692 737 Certificates of Deposits 8,318 9,201 9,092 ----- ------ ------ Total Interest Expense on Deposits $ 9,179 $ 10,184 $ 10,112 ===== ====== ======
Income from early withdrawal penalties on certificate accounts was $79,000, $63,000 and $53,000 for the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES: Federal Home Loan Bank advances totaled $36,628,000 and $22,250,000 as of December 31, 1997 and 1996, respectively, which are secured by mortgage loans under an existing blanket collateral agreement and by FHLB stock. The advances have variable interest rates that are indexed to LIBOR (London International Bank Offering Rate) and reprice either monthly or quarterly. No payments are scheduled prior to maturity. The Company has the ability to borrow total advances up to $127,746,000 from the FHLB which would also be secured by the existing blanket collateral agreement and by FHLB stock. Advances at December 31, 1997 and 1996 are as follows (in thousands):
Interest Rate 1997 1996 ---- ---- Variable rate - 5.63% to 5.99% at December 31, 1997 $ 36,378 $ 22,000 8.70% 250 250 ------ ------ Total Advances $ 36,628 $ 22,250 ====== ======
Continues [LOGO] 37 38 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 9 continued Advances at December 31, 1997, have maturities in future years as follows (in thousands):
Year Ending December 31 Amount ----------------------- ------ 1998 $ 22,000 1999 14,378 2005 250 $ 36,628 ------
NOTE 10 - INCOME TAXES: The provision for Income Tax Expense (Benefit) is as follows for the years ended December 31 (in thousands):
1997 1996 1995 Current: Federal $ 1,623 $ 468 $ (134) State 7 14 -- Deferred Tax Expense 2 (43) (343) ----- --- --- Total Income Tax Expense (Benefit) $ 1,632 $ 439 $ (477) ----- --- ---
There was an income tax payable of $173,000 at December 31, 1997, and an income tax refund receivable of $16,000 at December 31, 1996. Income tax expense or benefit is allocated between the Company and its subsidiary based on each member's taxable income or loss in relation to total consolidated taxable income at the effective tax rate. 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:
1997 1996 1995 ---- ---- ---- Statutory Federal Income Tax Rate 34.0% 34.0% (34.0)% Increase (Decrease) in Taxes Resulting From: State Income Tax on Non-Bank Entities .2 1.1 -- Nondeductible ESOP 1.3 .4 -- Other Items .1 (.1) .9 ---- ---- ---- Effective Tax Rate 35.6% 35.4% (33.1)% ==== ==== ====
Continues [LOGO] 38 Notes to Consolidated Financial Statements 39 Note 10 continued The tax effects of principal temporary differences at December 31 is as follows (in thousands):
1997 1996 ---- ---- Deferred Tax Assets: Deferred loan fees $ 108 $ 90 Book provision for losses on loans and real estate owned 949 879 Real estate owned basis differences 5 74 Deferred gains on loans 18 49 Depreciable property basis differences 20 25 ESOP and RRP 118 14 Other 13 7 ----- ----- Subtotal 1,231 1,138 Deferred Tax Liabilities: Discount Accretion on Investment Securities 29 19 FHLB stock 286 249 Unrealized gains on Securities Available for Sale 232 198 Unrealized gains on Trading Securities 44 -- ----- ----- Subtotal 591 466 ----- ----- Net Deferred Tax Asset $ 640 $ 672 ----- -----
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 1997 and 1996. The net deferred tax asset is included in Other Assets on the Statements of Financial Condition. Included in retained earnings at December 31, 1997 and 1996 is approximately $7,073,000 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 11 - EARNINGS PER SHARE: The Company adopted FAS 128, Earning Per Share, as of December 31, 1997. Restatement of earnings per share for all prior periods presented is required. Weighted average shares of common stock outstanding for basic EPS excludes the weighted average shares unreleased by the Employee Stock Ownership Plan ("ESOP") (196,578 and 213,026 shares at December 31, 1997 and 1996, respectively) and the weighted average unvested shares in the Recognition and Retention Plan ("RRP") (96,769 and -0- shares at December 31, 1997 and 1996, respectively). The effect on diluted EPS of stock option shares outstanding and unvested RRP shares is calculated using the treasury stock method. EPS for periods preceding the third quarter of 1996 are not applicable, as the Company's conversion from mutual-to-stock form and reorganization into a holding company format was not completed until July 15, 1996. The following is a reconcilement of the numerator and denominator for basic and diluted Earnings Per Share. Continues [LOGO] 39 40 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 11 continued
Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Year ended December 31, 1997 ----------------------------------------------- Basic EPS Income Available to Common Stockholders $ 2,947,000 2,408,779 $ 1.22 ==== Effect of Dilutive Securities Stock Options Outstanding -- 38,315 Restricted Stock Grants -- 15,932 --------- --------- Diluted EPS Income Available to Common Stockholders Plus Assumed Conversions $ 2,947,000 2,463,026 $ 1.20 ========= ========= ==== Six months ended December 31, 1996 ----------------------------------------------- Basic EPS Income Available to Common Stockholders $ 169,000 2,518,224 $ 0.07 ======= ========= ====
No stock options or other potential common stock securities were outstanding for the six months ended December 31, 1996. 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. 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 2.0 percent or less. At December 31, 1997 and 1996, the Bank was classified as "well capitalized." There are no conditions or events since those dates that management believes have changed the Bank's category. Continues [LOGO] 40 Notes to Consolidated Financial Statements 41 Note 12 continued As of December 31, the Company met all regulatory capital requirements as follows (dollars in thousands):
December 31, 1997 --------------------------------------------- Required Actual Amount Percent Amount Percent ------ ------- ------ ------- Tier 1 leverage capital: Acadiana Bancshares, Inc. $ 11,029 4.00% $ 44,112 16.00% LBA Savings Bank 10,660 4.00% 33,214 12.46% Tier 1 risk-based capital: Acadiana Bancshares, Inc. 5,855 4.00% 44,112 30.14% LBA Savings Bank 5,732 4.00% 33,214 23.18% Total risk-based capital: Acadiana Bancshares, Inc. 11,710 8.00% 45,953 31.39% LBA Savings Bank 11,465 8.00% 35,017 24.43%
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%
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 for the State of Louisiana. There are no undistributed earnings of the Bank for 1997 that are available for dividend distribution to the Company in 1998. 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 10 percent of compensation. Until 1997, the Company contributed a matching contribution of 100 percent of employee deferrals up to 3 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 2% contribution, effective January 1, 1996. Employer contributions made to the plans were $-0- , $52,000 and $146,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Continues [LOGO] 41 42 ACADIANA BANCSHARES, INC., AND SUBSIDIARY 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, 1997, was $441,000 based on the release of 21,892 shares. For the year ended December 31, 1996, compensation cost was $148,000 based on the release of 10,946 shares. There were 32,838 and 10,946 shares allocated and 185,662 and 207,554 shares were held in suspense by the ESOP for the years ended December 31, 1997 and 1996, respectively. The fair value of the unearned ESOP shares at December 31, 1997 and 1996, using the quoted market closing price per share, was approximately $4,341,000 and $3,087,000, respectively. RECOGNITION AND RETENTION PLAN The Company established the Recognition and Retention Plan (RRP) for certain officers and directors on January 22, 1997. During 1997, the Company fully funded the trust with the purchase of 109,250 shares, or 4 percent, of the Company's common stock in the open market to be awarded in accordance with the provisions of the RRP. The cost of the shares of restricted stock awarded under these plans is recorded as unearned compensation, a contra equity account. The fair value of the shares on the date of award is recognized ratably as compensation expense over the vesting period, which is five years. The grantees of the restricted stock have the right to vote the shares awarded. Dividends on unvested shares are held in trust and distributed when the related shares vest. For the year ended December 31, 1997, the amount included in compensation expense was $227,000. The Continues [LOGO] 42 Notes to Consolidated Financial Statements 43 Note 13 continued weighted-average grant-date fair value of the restricted stock granted under the RRP during the year ended December 31, 1997, was $15.50. A summary of the changes in restricted stock follows:
Unawarded Awarded Shares Shares ------ ------ Balance, January 1, 1997 -- -- Purchased by Plan 109,250 -- Granted (73,202) 73,202 Forfeited -- -- Earned and Issued -- -- ------ ------ Balance, December 31, 1997 36,048 73,202 ====== ======
STOCK OPTION PLAN In 1997, the Company adopted a stock option plan for the benefit of directors and officers. The number of shares of common stock reserved for issuance under the stock option plan was equal to 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 option term cannot exceed 10 years. The stock options granted to directors and officers in 1997 are exercisable in five equal annual installments. Under APB No. 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The following table summarizes the activity related to stock options:
Available Options for Grant Outstanding --------- ----------- At inception 273,125 -- Granted (211,701) 211,701 Canceled -- -- Exercised -- -- ------ ------- At December 31, 1997 61,424 211,701 ====== =======
The 211,701 outstanding options were issued on January 22, 1997, at an exercise price of $15.50. No shares were exercisable at December 31, 1997. The weighted-average grant-date fair value of options granted during the year ended December 31, 1997 was $4.32. In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based Compensation. SFAS 123 requires disclosure of the compensation cost for stock-based incentives granted after January 31, 1995, based on the fair value at grant date for awards. Applying SFAS 123 would result in pro forma net income and earnings per share amounts as follows:
1997 ---- Net income As reported $ 2,947,000 Pro forma $ 2,804,000 Earnings per share As reported - Basic $ 1.22 - Diluted $ 1.20 Pro forma - Basic $ 1.16 - Diluted $ 1.14
Continues [LOGO] 43 44 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 13 continued The fair value of each option is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions used for 1997 grants: dividend yields of 2.20 percent; expected volatility of 16.91 percent; risk-free interest rate of 6.51 percent; and expected lives of 7.5 years for all options. 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, 1997, were $743,000. 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 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 Statements 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, 1997, financial instruments for which the Contract or Notional contract amounts were as follows represent credit risk: Amount (in thousands) ----------------------- Undisbursed Loans in Process $ 4,629 Commitments to Extend Credit $13,714 Standby Letters of Credit $ 58
Continues [LOGO] 44 Notes to Consolidated Financial Statements 45 Note 16 continued 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 creditworthiness 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):
1997 1996 ---------------------------- ------------------------------ Estimated Recorded Estimated Recorded Fair Book Fair Book ASSETS Value Balance Value Balance ----- ------- ----- ------- Cash $ 14,157 $ 14,157 $ 19,784 $ 19,784 Investment Securities 11,870 11,870 20,539 20,539 Mortgage-Backed Securities 30,582 30,652 34,504 34,653 Loans Receivable 212,282 212,840 184,289 182,724 LIABILITIES Deposits: Regular Savings, NOW Accounts, and Money Market Deposits 49,897 49,897 $ 46,654 $ 46,654 Certificates of Deposit 144,358 143,525 149,155 146,796 Advances from Federal Home Loan Bank 36,628 36,628 22,250 22,250
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 were $30,153,000. Total conversion costs approximated $937,000. Continues [LOGO] 45 46 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 19 continued 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 - 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, December 31, 1997 1996 ---- ---- ASSETS Cash in Bank $ 8,266 $ 11,561 Equity Securities Held for Trading 826 -- Securities Available for Sale 2,018 2,014 Investment in Subsidiary 33,652 33,856 Other Assets 116 60 ------ ------ Total Assets $ 44,878 $ 47,491 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities $ 316 $ 400 ------ ------ Stockholders' Equity 44,562 47,091 ------ ------ Total Liabilities and Stockholders' Equity $ 44,878 $ 47,491 ====== ======
Continues [LOGO] 46 Notes to Consolidated Financial Statements 47 Note 20 continued
Condensed Statement of Income (In thousands) For the Period from Year Ended July 15, 1996 to December 31, 1997 December 31, 1996 ----------------- ----------------- Operating Income: Dividends from Subsidiary Bank $ 3,274 $ 50 Interest Income 659 335 Investment Securities Gains 137 -- ----- --- Total Operating Income 4,070 385 Operating Expenses 411 14 ----- --- Income Before Income Tax Expense and Decrease in Equity in Undistributed Earnings of Subsidiary 3,659 371 Income Tax Expense 138 119 ----- --- Income Before Decrease in Equity in Undistributed Earnings of Subsidiary 3,521 252 Decrease in Equity in Undistributed Earnings of Subsidiary (574) (83) ----- --- Net Income $ 2,947 $ 169 ===== ===
Continues [LOGO] 47 48 ACADIANA BANCSHARES, INC., AND SUBSIDIARY Note 20 continued
Condensed Statement of Cash Flows (In thousands) For the Period from Year Ended July 15, 1996 to December 31, 1997 December 31, 1996 ----------------- ----------------- Cash Flows from Operating Activities: Net Income $ 2,947 $ 169 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Decrease in Equity in Net Income of Subsidiary 574 83 Provision for Deferred Income Taxes 49 -- Net Change in Securities Classified as Trading (826) -- Increase in Other Assets (56) (60) (Decrease) Increase in Other Liabilities (117) 124 ----- ------ Net Cash Provided by Operating Activities 2,571 316 ----- ------ Cash Flows from Investing Activities: Proceeds from Sale of Securities Available for Sale 6,998 -- Purchase of Securities Available for Sale (6,998) (2,000) Purchase of Capital Stock of Subsidiary -- (15,919) ------ ------ Net Cash Used In Investing Activities -- (17,919) ------ ------ Cash Flows from Financing Activities: Capital Contributed to Subsidiary (79) (20) Payments Received From ESOP 388 194 Net Proceeds From Issuance of Common Stock -- 30,153 Dividends Paid to Shareholders (901) (226) Acquisition of Common Stock by RRP (1,829) -- Repurchase of Common Stock (3,445) -- Stock Conversion Costs Incurred -- (937) ------ ------ Net Cash (Used) Provided by Financing Activities (5,866) 29,164 ------ ------ Net (Decrease) Increase in Cash and Cash Equivalents (3,295) 11,561 ------ ------ Cash and Cash Equivalents, Beginning of Period 11,561 -- ------ ------ Cash and Cash Equivalents, End of Period $ 8,266 $ 11,561 ====== ======
Other Disclosures: At December 31, 1997, the Bank owed the Company $56,000 for overpayment of estimated tax payments. At December 31, 1996, the Company owed the Bank $119,000 for estimated tax payments made on behalf of the Company. [LOGO] 48 Notes to Consolidated Financial Statements 49 NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
(In Thousands, except per share data) Year Ended December 31, 1997 ------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Total Interest Income $ 4,953 $ 5,036 $ 5,106 $ 5,232 Total Interest Expense 2,595 2,655 2,762 2,848 ----- ----- ----- ----- Net Interest Income 2,358 2,381 2,344 2,384 Provision for Loan Losses 45 45 45 45 ----- ----- ----- ----- Net Interest Income After Provision for Loan Losses 2,313 2,336 2,299 2,339 Noninterest Income 261 262 327 320 Noninterest Expense 1,403 1,632 1,570 1,272 ----- ----- ----- ----- Income Before Income Taxes 1,171 966 1,056 1,387 Income Tax Expense 400 341 362 529 ----- ----- ----- ----- Net Income $ 771 $ 625 $ 694 $ 858 ===== ===== ===== ===== Net Income per Common Share - basic $ .31 $ .26 $ .29 $ .37 ===== ===== ===== ===== Net Income per Common Share - diluted $ .31 $ .25 $ .28 $ .35 ===== ===== ===== =====
(In Thousands, except per share data) 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 - basic N/A N/A $ (.14) $ .21 ===== ===== ===== ===== Net Income (Loss) per Common Share - diluted N/A N/A $ (.14) $ .21 ===== ===== ===== =====
[LOGO] 49 50 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 five full-service branches in Lafayette and New Iberia 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 NEW IBERIA BRANCH 230 West Main Street, New Iberia, Louisiana 70560 EUNICE LOAN PRODUCTION OFFICE 136 South 3rd Street, Eunice, Louisiana 70535 DIRECTORS - - ------------------------------------------------------------------------------- AL W. BEACHAM, M.D. Urologist JOHN H. DEJEAN Retired LAWRENCE GANKENDORFF Chairman of the Board, Acadiana BancShares, Inc., and LBA Savings Bank JAMES J. MONTELARO Executive Vice President - Mortgage Banking, LBA Savings Bank WILLIAM H. MOUTON Attorney DON J. O'ROURKE, SR. Architect THOMAS S. ORTEGO Self-employed Accountant JERRY REAUX President and Chief Executive Officer, Acadiana BancShares, Inc., and LBA Savings Bank KALISTE J. SALOOM, JR. Attorney and retired City Judge EXECUTIVE OFFICERS - - ------------------------------------------------------------------------------- LAWRENCE GANKENDORFF Chairman of the Board JERRY REAUX President and Chief Executive Officer EMILE SOULIER, III Vice President and Chief Financial Officer JAMES J. MONTELARO Executive Vice President - Mortgage Banking BRADY COMO Senior Vice President - Commercial Banking THOMAS DEBAILLON Vice President - Operations MARY ANNE S. BERTRAND Vice President - Retail Banking [LOGO] 50 51 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 29, 1998, 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 525 shareholders (as of March 20, 1998). Below is a table showing the high and low sales prices of the common stock and cash dividends declared during each quarter of 1997 and the third and fourth quarters of 1996: - - -------------------------------------------------------------------------------
1997 Quarter Ended High Low Dividend Declared ---------------------------------------------------------- March 31, 1997 $191/4 $147/8 $0.09 June 30, 1997 $20 $171/2 $0.09 Sept. 30, 1997 $221/4 $193/4 $0.09 Dec. 31, 1997 $243/4 $221/4 $0.11
1996 Quarter Ended High Low Dividend Declared ---------------------------------------------------------- Sept. 30, 1996 $137/8 $1111/16 $0.09 Dec. 31, 1996 $151/8 $135/8 $0.09
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 INFORMATION 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 INDEPENDENT AUDITORS Castaing, Hussey & Lolan, L.L.P. 525 Weeks Street New Iberia, Louisiana 70560 SPECIAL COUNSEL Elias, Matz, Tiernan & Herrick, L.L.P. 734 15th Street N.W. Washington, D.C. 20005 GENERAL COUNSEL Mark Andrus Davidson, Meaux, Sonnier, McElligott & Swift 810 South Buchanan Street Lafayette, Louisiana 70501 [LOGO] EX-23.1 3 CONSENT OF CAISTING, HUSSEY & LOLAN LLP 1 EXHIBIT 23.1 [CASTAING, HUSSEY & LOLAN, LLP LETTERHEAD] 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 30, 1998 appearing in this Annual Report on Form 10-K of Acadiana Bancshares, Inc. and Subsidiary for the year ended December 31, 1997. /s/ CASTAING, HUSSEY & LOLAN LLP New Iberia, Louisiana March 24, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 622 13,535 0 826 28,890 12,806 12,736 215,599 2,759 277,066 193,422 0 2,454 36,628 0 0 27 44,535 277,066 15,915 1,510 2,903 20,328 9,179 10,860 9,468 180 137 5,878 4,579 0 0 0 2,947 1.22 1.20 7.70 414 0 515 0 2,592 235 222 2,759 0 0 2,759
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