-----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, VD0tlFhmWH3sCbY0p7NGflETElkZQxCqcXQgPd+pxYXBbvTqHP8PHTEbfbh5pDOG CDIJMjO3Tmp3e3GC8zf6Hg== 0001104659-00-000082.txt : 20010514 0001104659-00-000082.hdr.sgml : 20010514 ACCESSION NUMBER: 0001104659-00-000082 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 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-K SEC ACT: SEC FILE NUMBER: 001-14364 FILM NUMBER: 583889 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-K 1 ANNUAL REPORT 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 For the fiscal year ended December 31, 1999 OR |X| 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 (IRS 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 22, 2000, the aggregate market value of the 1,081,185 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 353,338 shares held by all directors and executive officers of the Registrant as a group, was approximately $16.2 million. This figure was based on the closing sale price of $15 per share of the Registrant's Common Stock on March 22, 2000. Number of shares of Common Stock outstanding as of December 31, 1999: 1,494,523 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, 1999 are incorporated into Part II, Items 5 through 8 of this Form 10-K. (2) Portions of the definitive proxy statement for the 1999 Annual Meeting of Stockholders to be filed within 120 days of Registrant's fiscal year end are incorporated into Part III, Items 9 through 13 of this Form 10-K. PART I. In addition to historical information, this Annual Report on Form 10K includes certain "forward-looking statements," as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, based on current management expectations. The Company's actual results could differ materially from those management expectations. Such forward-looking statements include statements regarding the Company's intentions, beliefs or current expectations as well as the assumptions on which such statements are based. Stockholders and potential stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company's loan and investment portfolios, changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and fees. The company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. 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 15, 1996. The only significant asset of the Company is the capital stock of the Bank. The Company's common stock trades on the AMEX under the symbol "ANA". At December 31, 1999, the Company had total assets of $305.7million, total deposits of $213.2 million, and stockholders' equity of $27.8 million. 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 Federal Deposit Insurance Corporation ("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 Bank is a Savings Association Insurance Fund ("SAIF") -insured, Louisiana chartered, stock savings bank 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 executive office is located at 101 West Vermilion Street, Lafayette, Louisiana, 70501, and its telephone number is (337) 232-4631. Through its continuing operation of the Bank, 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. At December 31, 1999, the Company's net loan portfolio totaled $245.0 million, or 80.1% of the Company's assets. In addition to its lending activities, the Company also invests in investment securities. The Company's investment securities portfolio amounted to $38.0 million, or 12.4%, of the Company's total assets at December 31, 1999. At December 31, 1999, the Company had total deposits of $213.2 million, of which $61.6 million, or 28.9% consisted of core deposits which include savings deposits, money market deposits ("MMDA"), negotiable order of withdrawal ("NOW") and non-interest-bearing accounts. At that same date $151.6 million, or 71.1%, consisted of certificates of deposit, including $43.5 million of deposit accounts equal to or exceeding $100,000. The Company does not accept broker deposits. Traditionally, the Company's principal source of funds has come from deposits raised in the local market; however, FHLB borrowings provide the Company with an alternative source of funds. The Company, like many other financial institutions, has experienced increasing difficulty in attracting net new deposits in amounts necessary to fully fund new loan demand. The FHLB has provided an important funding source that, when used together with deposits, is expected to be an adequate source of funds to meet anticipated loan demand. At December 31, 1999, borrowings from the FHLB totaled $6.0 million of short-term advances and $57.9 million of long-term advances. Total advances were 20.9% of total assets at December 31, 1999. 2 Stockholders' equity provides a permanent source of funding to the Company, allows for future growth, and provides the Company with a cushion to withstand unforeseen, adverse developments. At December 31, 1999, stockholders' equity totaled $27.8 million, or 9.1% of total assets at such date. Federal regulations impose minimum regulatory capital requirements on all institutions with deposits insured by the FDIC. At December 31, 1999, the Company and the Bank significantly exceeded all applicable regulatory capital ratio requirements. 3 Lending Activities Loan Portfolio Composition. The following table sets forth the composition of the Company's loan portfolio at the dates indicated.
At December 31, ---------------------------------------------------------------------------- 1999 1998 1997 ------------------------- ------------------------ ------------------------ Percent Percent Percent Balance of Total Balance of Total Balance of Total -------------- ---------- ------------- ---------- ------------- ---------- (Dollars in Thousands) Type of loan: Mortgage Loans: Single-family residential $ 179,109 73.10% $ 169,362 75.02% $ 169,694 79.72% Construction 12,612 5.15% 12,588 5.58% 10,286 4.83% Multi-family residential 425 0.17% 481 0.21% 546 0.26% Commercial real estate 18,798 7.67% 16,887 7.48% 13,900 6.53% Equity lines of credit 3,406 1.39% 2,040 0.90% 587 0.28% -------------- ---------- ------------- ---------- ------------- ---------- Total mortgage loans 214,350 87.48% 201,358 89.19% 195,013 91.62% Commercial business loans 18,144 7.41% 13,861 6.14% 9,821 4.61% Consumer loans 21,803 8.90% 19,348 8.57% 15,768 7.41% -------------- ---------- ------------- ---------- ------------- ---------- Total loans 254,297 103.79% 234,567 103.90% 220,602 103.64% Less: Allowance for loan losses (2,747) -1.12% (2,726) -1.21% (2,760) -1.30% Unearned discounts 13 0.01% 57 0.03% 162 0.08% Net deferred loan fees (235) -0.10% (357) -0.16% (535) -0.25% Unadvanced loan funds (6,332) -2.58% (5,789) -2.56% (4,629) -2.17% -------------- ---------- ------------- ---------- ------------- ---------- Total loans, net $ 244,996 100.00% $ 225,752 100.00% $ 212,840 100.00% ============== ========== ============= ========== ============= ========== At December 31, ------------------------------------------------- 1996 1995 ------------------------ ------------------------ Percent Percent Balance of Total Balance of Total ------------- ---------- ------------ ---------- Type of loan: Mortgage Loans: Single-family residential $ 142,774 78.15% $ 127,565 80.90% Construction 10,581 5.79% 7,597 4.82% Multi-family residential 862 0.47% 1,202 0.76% Commercial real estate 14,744 8.07% 13,168 8.35% Equity lines of credit 132 0.07% - 0.00% ------------- ---------- ------------ ---------- Total mortgage loans 169,093 92.55% 149,532 94.83% Commercial business loans 5,535 3.03% 1,358 0.86% Consumer loans 16,727 9.15% 13,704 8.69% ------------- ---------- ------------ ---------- Total loans 191,355 104.73% 164,594 104.38% Less: Allowance for loan losses (2,592) -1.42% (2,329) -1.48% Unearned discounts 331 0.18% 206 0.13% Net deferred loan fees (471) -0.26% (488) -0.31% Unadvanced loan funds (5,899) -3.23% (4,292) -2.72% ------------- ---------- ------------ ---------- Total loans, net $ 182,724 100.00% $ 157,691 100.00% ============= ========== ============ ==========
4 The Company's primary source of income is from loans. Total loans receivable grew $19.7 million, or 8.4%, during the year ended December 31, 1999. Changes in types of loans during 1999 are as follows: single-family residential loans increased $9.7 million or 5.8%; construction loans grew $24,000, or 0.2%; multi-family residential loans decreased $56,000, or 11.6%; commercial real estate loans grew $1.9 million, or 11.3%; equity lines of credit grew $1.4 million, or 67.0%; commercial business loans grew $4.3 million, or 30.9%; and consumer loans grew $2.5 million, or 12.7%. Contractual Maturities. The following table sets forth the time to contractual maturity of the Company's loan portfolio at December 31, 1999.
Over One Less than Through Five Over Five One Year Years Years Total --------------- --------------- ---------------- --------------- (Dollars in Thousands) Single-family residential $ 6,494 $ 34,599 $ 138,016 $ 179,109 Construction 982 171 11,459 12,612 Multi-family residential 278 57 90 425 Commercial real estate 2,661 6,856 9,281 18,798 Equity lines of credit 3,406 - - 3,406 Commercial business loans 8,748 4,736 4,660 18,144 Consumer loans 5,808 10,456 5,539 21,803 --------------- --------------- ---------------- --------------- Total $ 28,377 $ 56,875 $ 169,045 $ 254,297 =============== =============== ================ ===============
Contractual maturities of the company's loan portfolio do not reflect the expected timing of loan repayments. The average life of its loans is substantially less than contractual terms because of loan prepayments and due on sale clauses. Prepayments occur when loan repayments are made before they are contractually due. Prepayment amounts are expected to be higher when competing loan rates are lower than actual loan rates. Prepayment amounts are expected to be lower when competing loan rates are higher than actual loan rates. A due-on-sale clause requires a loan to be paid in full upon sale of the underlying collateral. The following table sets forth the dollar amount at December 31, 1999 of all loans contractually maturing after December 31, 2000 by fixed and adjustable interest rates. Fixed Adjustable Rates Rates --------------- ---------------- (In thousands) Single-family residential $ 93,960 $ 78,655 Construction 11,630 - Multi-family residential - 147 Commercial real estate 7,891 8,246 Equity lines of credit - - Commercial business loans 5,174 4,222 Consumer loans 15,995 - --------------- ---------------- $ 134,650 $ 91,270 =============== ================ 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. 5
Years Ended December 31, ---------------------------------------------------- 1999 1998 1997 ---------------- ---------------- ---------------- (Dollars in Thousands) Loans receivable, net beginning of period $ 225,752 $ 212,840 $ 182,724 Loan originations: Single-family residential 37,154 41,007 36,800 Construction 14,704 15,306 18,982 Multi-family residential - - - Commercial real estate 5,803 - 3,824 Commercial business loans 22,395 31,624 13,260 Consumer loans 16,642 16,664 10,762 ---------------- ---------------- ---------------- Total loan originations 96,698 104,601 83,628 ---------------- ---------------- ---------------- Loan reductions: Loan sales (8,565) (19,479) (878) Loan participation (2,471) Principal repayments (73,417) (65,964) (53,168) Other changes, net (1) 6,999 (6,246) 534 ---------------- ---------------- ---------------- Total loan reductions (77,454) (91,689) (53,512) ---------------- ---------------- ---------------- Loans receivable, net end of period $ 244,996 $ 225,752 $ 212,840 ================ ================ ================
- - ------------------ (1) Includes changes in net deferred loan fees, allowance for loan losses, and unadvanced loan funds. 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 lending 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 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. The Company 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 developed primarily from advertising, referrals from real estate brokers and builders, existing customers and walk-in customers. Commercial real estate and commercial business loan applications are obtained primarily from previous borrowers, direct solicitations by Company personnel, as well as referrals. Consumer loans originated by the Company are obtained primarily from advertising, direct mail campaigns 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 appropriate Loan Officers, the Loan Committee of the Company's Board of Directors, and the full Board of Directors, depending on the amount of the request. 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. 6 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") nor 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"), or the Federal National Mortgage Association ("FNMA"). As of December 31, 1999, $179.1 million, or 73.1%, of the Company's total loan portfolio consisted of single-family residential mortgage loans. The Company's residential mortgage loans either have 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, 1999, $98.3 million, or 54.8%, of the Company's single-family residential mortgage loans were fixed-rate loans. At December 31, 1999, the weighted average remaining term to maturity of the Company's fixed-rate, single-family residential mortgage loans was approximately 19 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 United States Treasury securities adjusted to a constant maturity of one year), plus a stipulated margin. The Company's adjustable-rate, single-family residential real estate loans generally have a cap of 2% on any increase or decrease in the interest rate at any adjustment date, and include a specified cap on the maximum interest rate over the life of the loan, which cap generally is 4% to 6% above the initial rate. The Company's adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate of an adjustable-rate loan be sufficient to result in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, or so-called negative amortization. From time-to-time, based on prevailing market conditions, the Company may offer adjustable-rate loans with "teaser" rates, i.e., initial rates below the fully indexed rate. At December 31, 1999, the weighted average remaining term to maturity of the Company's adjustable-rate, single-family residential mortgage loans were approximately 25 years. At December 31, 1999, $81.0 million or 45.2%, of the Company's single-family residential mortgage loans were adjustable-rate loans. 7 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 Real Estate Loans and Multi-Family Residential Loans. At December 31, 1999, the Company had $18.8 million in outstanding loans secured by commercial real estate. Such commercial real estate loans, which comprised 7.7% of the Company's total loan portfolio at December 31, 1999, 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 rate 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, 1999, the Company had $425,000 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. 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. 8 Construction Loans. Substantially all of the Company's construction loans have consisted of loans to construct single-family residences. As of December 31, 1999, the Company's construction loans amounted to $12.6 million, or 5.2% 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 only 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 $13.4 million of single-family construction loans to individuals during the year ended December 31, 1999. 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. During the year ended December 31, 1999, the Company originated $550,000 in such loans to builders. 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, an independent inspector periodically inspects the project. 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, 1999, none of the Company's construction loans was 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, 1999, $21.8 million, or 8.9% 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 $16.6 million in 1999 compared to $16.7 million and $10.8 million in 1998 and 1997, respectively. 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. 9 Consumer finance loans generally involve more credit risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral. In addition, consumer-lending collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In many cases, any repossessed collateral for a defaulted consumer finance loan will not provide an adequate source of repayment of the outstanding loan balance because of improper repair and maintenance of the underlying security. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. As of December 31, 1999, $49,000, or 0.2% of the Company's total consumer loans were considered non-performing. Commercial Business Loans. At December 31, 1999, the Company's commercial business loans amounted to $18.1 million, or 7.4% of the Company's total loan portfolio. Prior to 1996, the Company had not been an active originator of commercial business loans. 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 $22.4 million in 1999, compared to $31.6 million, and $13.3 million in 1998 and 1997, 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; and (v) mandatory convertible debt up to 20% of categories (i) through (iv). Readily marketable collateral consists of financial instruments or bullion, which are salable under ordinary circumstances with reasonable promptness at fair market value or on an auction or a similarly available daily bid and ask price market. At December 31, 1999, the Company's limit on loans-to-one borrower under LSBA was approximately $4.1 million. At December 31, 1999, the Company's five largest loans or groups of loans-to-one borrower ranged from $1.2 million to $2.6 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 Audit Committee of the Board of Directors reviews the classifications on at least a quarterly basis. 10 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 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 is classified as real estate owned until sold. Pursuant to Statement of Procedure ("SOP") 92-3 issued by the American Institute of Certified Public Accountants ("AICPA") in April 1992, which provides guidance on determining the balance sheet treatment of foreclosed assets in annual financial statements for periods ending on or after December 15, 1992, there is a refutable presumption that foreclosed assets are held for sale and such assets are recommended to be carried at the lower of fair value minus estimated costs to sell the property, or cost (generally the balance of the loan on the property at the date of acquisition). After the date of acquisition, all costs incurred in maintaining the property are expensed and costs incurred for the improvement or development of such property are capitalized up to the extent of their net realizable value. The Company's accounting for its real estate owned complies with the guidance set forth in SOP 92-3. 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 $453,000 of loans deemed troubled debt restructurings as of December 31, 1999. The interest income that would have been recognized if those loans had been current with their original terms was approximately $107,000 for the year ended December 31, 1999. Interest income totaling $58,000 was included in income for the year ended December 31, 1999. Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 1999, 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. 11
At December 31, 1999 ----------------------------------------------------------- 30-59 Days 60-89 Days ---------------------------- ---------------------------- Percent of Percent of Amount Loan Category Amount Loan Category ------------ ------------- ------------ -------------- (Dollars in Thousands) Mortgage loans: Single-family residential $ 424 0.24% $ 96 0.05% Construction - - - - Multi-family residential - - - - Commercial real estate 105 0.56 38 0.20 Equity lines of credit 103 3.02 - - Commercial business loans 25 0.14 48 0.26 Consumer loans 7 0.03 1 - ------------ ------------- ------------ -------------- Total $ 664 0.26% $ 183 0.07% ============ ============= ============ ==============
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. 12
At December 31, ---------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Accruing loans 90 days or more past due: Single-family residential $ - $ - $ - $ - $ - Construction - - - - - Multi-family residential - - - - - Commercial real estate - - - - - Equity lines of credit - - - - - Commercial business loans - - - - - Consumer loans - - - - - ---------- ---------- ---------- ---------- ---------- Total accruing loans - - - - - ---------- ---------- ---------- ---------- ---------- Non-accrual loans: Single-family residential 33 140 285 632 527 Construction - - - - - Multi-family residential - - - - - Commercial real estate - - - 145 197 Equity lines of credit 18 - - - - Commercial business loans - - - - - Consumer loans 49 50 129 96 16 ---------- ---------- ---------- ---------- ---------- Total non-accrual loans 100 190 414 873 740 ---------- ---------- ---------- ---------- ---------- Total non-performing loans 100 190 414 873 740 ---------- ---------- ---------- ---------- ---------- Other real estate owned, and repossessed assets - 7 204 75 845 ---------- ---------- ---------- ---------- ---------- Total non-performing assets 100 197 618 948 1,585 ========== ========== ========== ========== ========== Performing troubled debt restructurings $ 453 $ 490 $ 515 $ 536 $ 878 ========== ========== ========== ========== ========== Total non-performing assets and troubled debt $ 553 $ 687 $1,133 $1,484 $2,463 ========== ========== ========== ========== ========== restructurings Non-performing assets to total loans 0.04% 0.08% 0.29% 0.52% 0.96% Non-performing assets to total assets 0.03 0.07 0.22 0.36 0.70 Non-performing loans to total loans 0.04 0.08 0.19 0.48 0.45 Non-performing loans to total assets 0.03 0.07 0.15 0.33 0.33 Total non-performing assets and troubled debt restructurings to total assets 0.18 0.24 0.41 0.56 1.09
Other Classified Assets. Federal regulations require that the Company classify its assets on a regular basis. In addition, concerning 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, based on currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. At December 31, 1999, the Company had $1.8 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 0.6% of total assets. 13 Potential Problem Loans. The Company has identified a group of residential mortgage loans which were originated during several years prior to 1996 under its discontinued program of making loans to facilitate the sale of real estate owned, and which, at December 31, 1999, totaled $2.2 million, or 0.9%, 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 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 $994,000 at December 31, 1999, or 0.4% 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. In addition, 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. Provisions for loan losses, which are charged against income, increase the allowance. As shown in the table below, at December 31, 1999, the Company's allowance for loan losses amounted to 496.75% and 1.08% 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 Company's policy for establishing its estimated allowance for loan and lease losses is not inconsistent with the Policy Statement.] The Policy Statement, which reflects the position of the issuing regulatory agencies and does not necessarily constitute GAAP, includes guidance (i) on the responsibilities of management for the assessment and establishment of an adequate allowance and (ii) for the agencies' examiners to use in evaluating the adequacy of such allowance and the policies utilized to determine such allowance. The Policy Statement also sets forth quantitative measures for the allowance with respect to assets classified substandard and doubtful and with respect to the remaining portion of an institution's loan portfolio. Specifically, the Policy Statement also sets forth quantitative measures which examiners may use to determine the reasonableness of an allowance; (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the portfolio that is classified substandard; and (iii) for the portions of the portfolio that have not been classified (including loans designated special mention), estimated credit losses over the upcoming 12 months based on facts and circumstances available on the evaluation date. While the Policy Statement sets forth this quantitative measure, such guidance is not intended as a "floor" or "ceiling." 14 The following table describes the activity related to the Company's allowance for possible loan losses for the periods indicated.
Years Ended December 31, ----------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ -------------- ------------ ------------ ------------- (Dollars in Thousands) Balance, beginning of period $ 2,726 $ 2,760 $ 2,592 $ 2,329 $ 1,087 Provision for loan losses - 90 180 355 1,274 Charge-offs: Single-family residential (4) (40) (14) - (70) Construction - - - - - Multi-family residential - - - - (7) Commercial real estate - - - (67) - Equity lines of credit - - - - - Commercial business loans (25) (169) - - - Consumer loans (156) (104) (221) (210) (50) ------------ ------------- ------------ ------------ ------------- Total charge-offs (185) (313) (235) (277) (127) ------------ ------------- ------------ ------------ ------------- Recoveries: Single-family residential 40 36 76 87 10 Construction - - - - - Multi-family residential - - - - - Commercial real estate - - 56 10 - Equity lines of credit - - - - - Commercial business loans 47 22 - - - Consumer loans 119 131 91 88 85 ------------ ------------- ------------ ------------ ------------- Total recoveries 206 189 223 185 95 ------------ ------------- ------------ ------------ ------------- Net (charge-offs) / recoveries 21 (124) (12) (92) (32) ------------ ------------- ------------ ------------ ------------- Balance, end of period 2,747 2,726 2,760 2,592 2,329 ============ ============= ============ ============ ============= Allowance for loan losses to total non-performing loans and troubled debt restructurings at end of period 496.75% 396.80% 297.09% 183.96% 143.94% ============ ============= ============ ============ ============= Allowance for loan losses to total loans at end of period 1.08% 1.16% 1.25% 1.35% 1.41% ============ ============= ============ ============ ============= Net (charge-offs) / recoveries to average loans outstanding 0.01% -0.06% -0.01% -0.05% -0.02% ============ ============= ============ ============ =============
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 impact of economic conditions on the loan portfolio taken as a whole. Losses on loans made to consumers are reasonably predictable based on prior loss experience and a review of current economic conditions. 15
At December 31, --------------------------------------------------------------------- Percent Percent Percent of Loans of Loans of Loans 1999 to Gross 1998 to Gross 1997 to Gross Amount Loans Amount Loans Amount Loans ---------------------- ----------- ---------- ----------- ---------- (Dollars in Thousands) Mortgage loans: Single-family residential $ 992 70.43% $ 1,591 72.20% $ 1,739 76.92% Construction 74 4.96% 80 5.37% 64 4.66% Multi-family residential 3 0.17% 3 0.20% 5 0.25% Commercial real estate 505 7.39% 397 7.20% 350 6.30% Equity lines of credit 81 1.34% 31 0.87% 9 0.27% ----------- ---------- ----------- ---------- ----------- ---------- Total mortgage loans 1,655 84.29% 2,102 85.84% 2,167 88.40% ----------- ---------- ----------- ---------- ----------- ---------- Commercial business loans 737 7.14% 346 5.91% 274 4.45% Consumer loans 355 8.57% 278 8.25% 319 7.15% ----------- ---------- ----------- ---------- ----------- ---------- Total non-mortgage loans 1,092 15.71% 624 14.16% 593 11.60% ----------- ---------- ----------- ---------- ----------- ---------- Total allowance for loans $ 2,747 100.00% $ 2,726 100.00% $ 2,760 100.00% =========== ========== =========== ========== =========== ========== At December 31, --------------------------------------------- Percent Percent of Loans of Loans 1996 to Gross 1995 to Gross Amount Loans Amount Loans ----------- ---------- ----------- ---------- (Dollars in Thousands) Mortgage loans: Single-family residential $ 1,565 74.61% $ 1,773 77.50% Construction 58 5.53% 22 4.62% Multi-family residential 7 0.45% 80 0.73% Commercial real estate 460 7.71% 331 8.00% Equity lines of credit 2 0.07% - 0.00% ----------- ---------- ----------- ---------- Total mortgage loans 2,092 88.37% 2,206 90.85% ----------- ---------- ----------- ---------- Commercial business loans 163 2.89% 26 0.82% Consumer loans 337 8.74% 97 8.33% ----------- ---------- ----------- ---------- Total non-mortgage loans 500 11.63% 123 9.15% ----------- ---------- ----------- ---------- Total allowance for loans $ 2,592 100.00% $ 2,329 100.00% =========== ========== =========== ==========
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. 16 Investment Activities General. Interest and dividend income from investments in debt and equity 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 obligations, obligations of the FHLB, and debt of U.S. government agencies such as the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), and government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"), and the Federal National Mortgage Association ("FNMA" or "Fannie Mae") representing mortgage-backed securities. The Company also invests in certain highly rated privately issued mortgage-backed securities. Additionally, the Company holds certain equity securities in its trading and available for sale portfolios. The Company's objective is to use such investments to reduce interest rate risk, provide liquidity and enhance yields on assets. Mortgage-backed securities provide 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) represent a participation interest in a pool of single-family or multi-family mortgages. The servicers, 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 FHLMC, FNMA and GNMA. The FHLMC is a public corporation chartered by the U.S. Government and owned by the 12 FHLB's 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 $240,000. Typically mortgage-backed securities are created by pooling a group of similar mortgages. Most mortgage-backed securities are issued with a stated minimum principal amount, and a stated interest rate and represent a pro rata share in the principal and interest cash flows to be received as the underlying mortgages are repaid by the mortgagors. The interest and principal payments representing cash flows from the underlying pool of mortgages, (i.e., fixed rate or adjustable rate) are passed on to the certificate holder, as is prepayment risk. 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 fixed rate mortgages and adjustable rate mortgages ("ARMs"), collateralized by single-family real estate mortgages. 17 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. 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 (including CMOs) generally yield less than the loans that underlie such securities because of their payment guarantees or credit enhancements, which offer nominal credit risk. 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. 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. During periods of falling mortgage interest rates, if the coupon rates of the underlying mortgages are more than the prevailing interest rates offered for mortgage loans, refinancings generally increase and accelerate 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. 18 Trading Securities. As of December 31, 1999, the Company's trading securities amounted to $285,000. The Company has no intention to increase its trading securities portfolio significantly. Securities Available for Sale. The Company's securities available for sale amounted to $26.1 million, and $26.4 million, respectively, at December 31, 1999 and 1998. The following table sets forth certain information regarding the Company's securities available for sale at the dates indicated. The Company's mortgage-backed securities include interests in collateralized mortgage obligations ("CMOs").
At December 31, ------------------------------------------------------------------------------ 1999 1998 1997 ------------------------- ------------------------ ------------------------ Carrying Market Carrying Market Carrying Market Value Value Value Value Value Value ----------- ------------ ----------- ----------- ----------- ----------- (Dollars in Thousands) Debt securities: Commercial Paper $ - S - $ 5,992 5,992 $ - $ - U.S. Government and Federal Agencies 10,255 10,255 8,973 8,973 11,021 11,021 Mortgage-backed 15,780 15,780 11,409 11,409 17,846 17,846 ----------- ------------ ----------- ----------- ----------- ----------- Total debt securities 26,035 26,035 26,374 26,374 28,867 28,867 Marketable equity securities 25 25 30 30 23 23 ----------- ------------ ----------- ----------- ----------- ----------- Total $26,060 $26,060 $26,404 $26,404 $28,890 $28,890 =========== ============ =========== =========== =========== ===========
At December 31, 1999, the Company's investments in U.S. Treasuries, agency obligations, mortgage-backed securities, and CMOs were 1.9%, 37.5%, 40.8%, and 19.8%, respectively, of the total securities available for sale. Securities classified as available for sale are carried at fair value. Unrealized gains and losses on such securities are recognized as direct increases or decreases in equity, net of applicable income taxes. At December 31, 1999, the Company had net unrealized losses of $364,000, net of deferred taxes, with respect to its securities available-for-sale. At December 31, 1999, the weighted average contractual maturity of the Company's mortgage-backed securities available for sale was approximately 16.7 years, and the weighted average contractual maturity of the Company's CMOs available for sale was approximately 28.9 years. The following table sets forth certain other information regarding the maturities of the Company's debt securities available for sale. Maturity distributions of mortgage-backed securities are based on the estimated average life at the projected speed.
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) Debt securities: U.S. Government and Federal Agencies $ - 0.00% $10,255 6.36% $ - 0.00% $ - 0.00% Mortgage-backed securities 97 8.51% 6,368 7.93% 2,114 6.53% 7,201 6.56% ---------- --------- ----------- --------- ---------- -------- --------- -------- Total $ 97 8.51% $16,623 6.96% $ 2,114 6.53% $7,201 6.56% ========== ========= =========== ========= ========== ======== ========= ========
19 Securities Held to Maturity. The Company's securities held to maturity amounted to $11.9 million, and $12.4 million, respectively, at December 31, 1999 and 1998. The following table sets forth certain information regarding the Company's securities held to maturity at the dates indicated. The Company's mortgage-backed securities include interests in collateralized mortgage obligations ("CMOs").
December 31, ------------------------------------------------------------------------------ 1999 1998 1997 ------------------------- ------------------------ ------------------------ Carrying Market Carrying Market Carrying Market Value Value Value Value Value Value ----------- ------------ ----------- ----------- ----------- ----------- (Dollars in Thousands) Debt securities: Mortgage-backed $ 11,921 $ 11,958 $ 12,360 $ 12,694 $ 12,806 $ 12,736 =========== ============ =========== =========== =========== ===========
All such mortgage-backed securities 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. At December 31, 1999, the Company's investments in mortgage-backed securities, and CMOs were 89.4% and 10.6%, respectively, of the total securities held to maturity. At December 31, 1999, the weighted average contractual maturity of the Company's mortgage-backed securities held to maturity was approximately 24.1 years, and the weighted average contractual maturity of the Company's CMOs held to maturity was approximately 23.3 years. The following table sets forth certain other information regarding the maturities of the Company's debt securities held to maturity. Maturity distributions are based on the average life at the projected speed.
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) Debt securities: Mortgage-backed $5,657 7.11% $ 1,264 5.62% $ - 0.00% $5,000 7.06% ---------- --------- ----------- --------- ---------- -------- --------- -------- Total $5,657 7.11% $ 1,264 5.62% $ - 0.00% $5,000 7.06% ========== ========= =========== ========= ========== ======== ========= ========
Federal Home Loan Bank Stock. 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, 1999, the Bank's investment in stock of the FHLB of Dallas amounted to $3.7 million. During the year ended December 31, 1999, the Bank received $167,000 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. 20 Deposits. The Company's current deposit products include passbook accounts, NOW accounts, MMDA, certificates of deposit ranging in terms from 90 days to five 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 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 four 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.
December 31, ------------------------------------------------------------------- 1999 1998 1997 --------------------- --------------------- --------------------- Percent of Percent of Percent of Total Total Total Amount Deposits Amount Deposits Amount Deposits ---------- ---------- ---------- ---------- ---------- --------- (Dollars in Thousands) Demand accounts $ 18,354 8.61% $ 9,023 4.47% $ 8,177 4.19% Money market accounts 18,491 8.67% 19,364 9.60% 9,436 4.83% Noninterest-bearing demand accounts 10,382 4.87% 12,518 6.21% 10,562 5.42% ---------- ---------- ---------- ---------- ---------- --------- Total demand deposits 47,227 22.15% 40,905 20.28% 28,175 14.44% ---------- ---------- ---------- ---------- ---------- --------- Savings deposits 14,364 6.74% 19,706 9.77% 23,343 11.97% ---------- ---------- ---------- ---------- ---------- --------- Certificate of Deposit accounts: Six months and less 35,581 16.69% 41,357 20.51% 35,802 18.36% Over six months through one year 28,851 13.53% 36,453 18.08% 30,131 15.45% Over one year through two years 67,029 31.44% 32,239 15.99% 25,255 12.95% Over two years through three years 12,601 5.91% 14,199 7.04% 15,772 8.09% Over three years through five years 7,330 3.44% 15,823 7.85% 12,400 6.36% Over five years 229 0.10% 972 0.48% 24,165 12.38% ---------- ---------- ---------- ---------- ---------- --------- Total certificates 151,621 71.11% 141,043 69.95% 143,525 73.59% ---------- ---------- ---------- ---------- ---------- --------- Total Deposits $ 213,212 100.00% $ 201,654 100.00% $ 195,043 100.00% ========== ========== ========== ========== ========== =========
The following table sets forth certain information relating to the Company's deposits. 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. 21 December 31, ---------------------------------------------------- 1999 1998 1997 --------------- ---------------- ---------------- (Dollars in Thousands) 0.00% to 2.99% $ 83 $ 122 $ 226 3.00% to 3.99% 1,854 347 - 4.00% to 4.99% 42,260 38,636 13,474 5.00% to 5.99% 64,549 57,020 79,702 5.00% to 6.99% 33,738 32,493 34,172 7.00% to 8.99% 9,137 11,533 15,056 9.00% and over - 892 895 --------------- ---------------- ---------------- $ 151,621 $ 141,043 $ 143,525 =============== ================ ================ 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, ------------------------------------------------ 1999 1998 1997 -------------- -------------- --------------- (In Thousands) Total deposits, beginning of period $ 201,654 $ 195,043 $ 194,192 Net increase (decrease) before interest credited 4,771 209 (5,264) Interest credited 6,787 6,402 6,115 -------------- -------------- --------------- Total deposits, end of period $ 213,212 $ 201,654 $ 195,043 ============== ============== ===============
As of December 31, 1999, the aggregate amount of time certificates of deposit in amounts greater than or equal to $100,000 was approximately $43.5 million. The following table presents the maturity of these time certificates of deposit at such dates.
Over Three Over Six Over One Over Two Over Three Three Months Months Year Years Years Over Months Through Through Through Through Through Five and Less Six Months One Year Two Years Three Years Five Years Years Total - - ------------ ------------ -------------- ------------ ------------- ------------ ------- ---------- (Dollars in Thousands) $ 3,731 $ 4,101 $ 9,863 $ 21,577 $ 2,712 $ 1,489 $ - $ 43,473 ============ ============ ============== ============ ============= ============ ======= ==========
Borrowings. The Company may obtain advances from the FHLB of Dallas upon the security of the common stock it owns in the FHLB and certain of its residential mortgage loans, investment securities and mortgage-backed securities 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. The following table sets forth the amount of the Company's borrowings and the weighted average rates for the periods indicated. 22
December 31, --------------------------------------------------------------------- 1999 1998 1997 ---------------------- --------------------- ---------------------- Percent Percent Percent Amount Rate Amount Rate Amount Rate ----------- --------- ---------- -------- ----------- --------- (Dollars in Thousands) FHLB Advances $ 63,850 5.51% $ 47,228 5.17% $ 36,628 5.82% =========== ========= ========== ======== =========== ========= Maximum amount outstanding at any month-end during the period $ 63,850 $ 56,728 $ 36,628 =========== ========== =========== Average balance outstanding during the period $ 51,430 $ 46,277 $ 29,648 =========== ========== =========== Weighted average interest rates on average balance during the period 5.26% 5.47% 5.67% ========= ======== =========
Advances at December 31, 1999 have maturities in future years as follows (dollars in thousands): (Dollars in Thousands) Year Ending DecembeAmount ---------------------------------------------- 2000 $ 6,000 2001 2,500 2003 3,100 2005 250 2008 17,000 2009 35,000 -------------- -------------- Total $ 63,850 ============== A significant portion of the advances contains a quarterly call feature beginning between one and three years after the date of issuance; therefore, actual repayments could vary from contractual maturities. Subsidiaries The Bank is a wholly owned subsidiary of the Company. The Bank currently has no subsidiaries. The Company has no other subsidiaries; however, the Company owns a 40 percent interest in Cadence Holdings, LLC ("Cadence"), an affiliate in the financial services industry, which is accounted for under the equity method. A limited liability company ("LLC") is a legal form of doing business that combines partnership and corporate attributes. The Company's share of Cadence's net loss for the year ended December 31, 1999 was $155,000. The Company is a guarantor in the amount of $400,000 for a $1.0 million bank line of credit to Cadence dated in January, 1999. 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. 23 Competition The Company faces strong competition in both 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, the Company faces 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 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 80 full-time employees and 11 part-time employees as of December 31, 1999. 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, do 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. 24 The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company, factoring company, trust company or savings association; performing certain data processing operations; providing limited securities brokerage services; acting as an investment or financial advisor; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full pay-out, 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 engage 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. 25 Capital Requirements. The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve Board capital adequacy guidelines generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets, with at least one-half of that amount consisting of Tier I or core capital and up to one-half of that amount consisting of Tier II or supplementary capital. Tier I capital for bank holding companies generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital), less goodwill and, with certain exceptions, intangibles. Tier II capital generally consists of hybrid capital instruments; perpetual preferred stock, which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets such as cash to 100% for the bulk of assets which are typically held by a bank holding company, including multi-family residential and commercial real estate loans, commercial business loans and consumer loans. Single-family residential first mortgage loans which are not past-due (90 days or more) or non-performing and which have been made in accordance with prudent underwriting standards are assigned a 50% level in the risk-weighing system, as are certain privately-issued mortgage-backed securities representing indirect ownership of such loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics. In addition to the risk-based capital requirements, the Federal Reserve Board requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose does not include goodwill and any other intangible assets and investments that the Federal Reserve Board determines should be deducted from Tier I capital. The Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio requirement is the minimum for the top-rated bank holding companies without any supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. Other bank holding companies will be expected to maintain Tier I leverage capital ratios of at least 4.0% to 5.0% or more, depending on their overall condition. At December 31, 1998, the Company believes it complies 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. Financial Modernization. Under the Gramm-Leach-Bliley Act enacted into law on November 12, 1999, no company may acquire control of a savings and loan holding company after May 4, 1999, unless the company is engaged only in activities traditionally permitted to a multiple savings and loan holding company or newly permitted to a financial holding company under Section 4(k) of the Bank Holding Company Act. Existing savings and loan holding companies and those formed pursuant to an application filed with the OTS before May 4, 1999, may engage in any activity including non-financial or commercial activities provided such companies control only one savings and loan association that meets the Qualified Thrift Lender test. Corporate reorganizations are permitted, but the transfer of grandfathered unitary thrift holding company status through acquisition is not permitted. 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. 26 The Bank. The Bank is subject to extensive regulation and examination by the OFI and by the FDIC and is 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 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 Bank are currently insured by the SAIF. During the year ended December 31, 1999, the Bank paid $120,000 in SAIF deposit insurance premiums. The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that would result in termination of the deposit insurance of the Bank. 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 a savings bank 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, 1998, the Bank met each of its capital requirements. 27 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 capital adequacy of a bank. In addition, in August 1995, the FDIC and the other federal banking agencies published a joint policy statement for public comment that describes the process the banking agencies will use to measure and assess the exposure of a bank's net economic value to changes in interest rates. Under the policy statement, the FDIC will consider results of supervisory and internal interest rate risk models as one factor in evaluating capital adequacy. The FDIC intends, at a future date, to incorporate explicit minimum requirements for interest rate risk in its risk-based capital standards through the use of a model developed from the policy statement, a future proposed rule and the public comments received therefrom. Activities and Investments of Insured State-Chartered Banks. The activities and equity investments of FDIC-insured, state-chartered banks are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured 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. 28 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 Bank is being conducted in a fraudulent, illegal, unsafe or unsound manner or could lead to insolvency or substantial dissipation of assets, earnings or impairment of capital, such order must be complied with immediately and may be enforced by the OFI through a court of competent jurisdiction. Regulatory Enforcement Authority. Applicable banking laws include substantial enforcement powers available to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other action or inaction 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 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 Bank. Method of Accounting. The 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 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 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 Bank during its six taxable years preceding 1996. The amount of reserves of the Bank that is subject to recapture is not material. 29 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 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, 1999, the federal income tax reserves of the 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 Bank in connection with the conversion of the Bank to stock form, the retained earnings of the Bank is substantially restricted. Distributions. If the 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 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 1997. At December 31, 1999, the 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 their behalf. However, a corporation may deduct 100% of dividends from a member of the same affiliated group of corporations. 30 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 Bank. The Bank's federal income tax returns for the tax years ended 1996, 1997, 1998 and 1999 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 subject to franchise tax. 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 Bank is subject to the Louisiana Shares Tax, which is imposed on the assessed value of its stock. The formula for deriving the assessed value is to calculate 15% of the sum of (a) 20% of the company's capitalized earnings, plus (b) 80% of the company's taxable stockholders equity, and to subtract from that figure 50% of the company's real and personal property assessment. Various items are also subtracted in calculating a company's capitalized earnings. Item 2. Properties. Offices and Properties At December 31, 1999, 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, 1999. 31
Net Book Value of Premises and Owned or Equipment at Deposits at Leased December 31, 1999 December 31, 1999 ----------- -------------------- ------------------- (In Thousands) Main Office 101 West Vermilion Street Lafayette, Louisiana 70501 Owned $ 1,414 $ 85,493 Branch Offices: Northside Office 2601 Moss Street Lafayette, Louisiana 70501 Owned 366 38,515 Southside Office 3701 Johnston Street Lafayette, Louisiana 70503 Owned 157 43,523 Broadmoor Office 5301 Johnston Street Lafayette, Louisiana 70503 Owned 220 33,606 New Iberia Office 230 West Main Street New Iberia, Louisiana 70560 Owned 496 12,075 Loan Production Offices: Eunice Loan Production Office 136 South Third Street Eunice, Louisiana 70535 Leased 4 - -------------------- ------------------- $ 2,657 $ 213,212 ==================== ===================
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. Not Applicable. 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 43 of the Registrant's 1999 Annual Report to Stockholders ("Annual Report"). Item 6. Selected Financial Data. The Information required herein is incorporated by reference from page 6 of the Registrant's 1999 Annual Report. 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Information required herein is incorporated by reference from pages 7 through 17 of the Registrant's 1999 Annual Report. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The information required herein is incorporated by reference from pages 14 through 17 of the registrant's 1999 Annual Report. Item 8. Financial Statements and Supplementary Data. The information required herein is incorporated by reference from pages 18 through 39 of the Registrant's 1999 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 1999 Annual Meeting of Stockholders ("Proxy Statement"). Item 11. Executive Compensation. The information required herein is incorporated by reference from the Registrant's Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required herein is incorporated by reference from the Registrant's Proxy Statement. Item 13. Certain Relationships and Related Transactions. The information required herein is incorporated by reference from the Registrant's Proxy Statement. PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Documents Filed as Part of this Report. (1) The following financial statements are incorporated by reference from Item 8 hereof (see Exhibit 13): Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the Fiscal Periods Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Periods ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Fiscal Periods Ended December 31, 1999, 1998 and 1997 Notes to consolidated Financial Statements 30 (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 LBA Savings Bank and Gerald G. Reaux, Jr. 10.4* Form of Severance Agreement between Acadiana Bancshares, Inc., LBA Savings Bank and Lawrence Gankendorff, James J. Montelaro, Gregory King, Mary Anne Bertrand, Wayne Bares, Emile E. Soulier, III and Thomas F. Debaillon. 10.5 Form of Amendment No. 1 to Severance Agreements 13.0 1999 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 & Dauterive, 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. 34 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 29, 2000 By: /s/ Gerald G. Reaux, Jr. ------------------------ Gerald G. Reaux, Jr. President and Chief Executive Officer and Director Pursuant to the requirements of the Securities and 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 29, 2000 ----------------------- Gerald G. Reaux, Jr. Officer and Director /s/ Lawrence E. Gankendorff Chairman of the Board March 29, 2000 ---------------------------- Lawrence E. Gankendorff /s/ Albert W. Beacham Director March 29, 2000 --------------------- Albert W. Beacham, M.D. /s/ James J. Montelaro Executive Vice President March 29, 2000 ----------------------- and Director James J. Montelaro /s/ John H. DeJean Director March 29, 2000 ------------------ John H. DeJean /s/ Thomas S. Ortego Director March 29, 2000 -------------------- Thomas S. Ortego /s/ William H. Mouton Director March 29, 2000 --------------------- William H. Mouton /s/ Donald J. O'Rourke, Sr. Director March 29, 2000 --------------------------- Donald J. O'Rourke, Sr. /s/ Kaliste J. Saloom, Jr. Director March 29, 2000 -------------------------- Kaliste J. Saloom, Jr. /s/ Emile E. Soulier, III. Vice President and Chief March 29, 2000 ------------------------- Emile E. Soulier, III Financial Officer (principal financial and accounting officer)
35 EX-10.5 2 AMENDMENT NO. 1 TO SEVERANCE AGREEMENT EXHIBIT 10.5 FORM OF AMENDMENT NO. 1 TO SEVERANCE AGREEMENT AMENDMENT NO. 1 TO THE SEVERANCE AGREEMENT AMONG ACADIANA BANCSHARES, INC. LBA SAVINGS BANK AND EXECUTIVE Amendment, dated as of July 16, 1999, by and between Acadiana Bancshares, Inc., a Louisiana corporation (the "Corporation"), LBA Savings Bank, a Louisiana chartered savings bank and a wholly owned subsidiary of the Corporation (the "Savings Bank") and Executive (the "Executive") to the Severance Agreement (the "Agreement"), dated as of July 15, 1996. Hereinafter, the Corporation and the Savings Bank are referred to collectively as the "Employers." WHEREAS, in accordance with Section 8 of the Agreement, the Executive and the Employers desire to revise the Agreement to provide for a one year extension and automatic renewal for additional one year periods; and WHEREAS, the Executive and the Employers hereto desire to amend the Agreement in certain respects in order to reflect such revised structure. NOW, THEREFORE, in consideration of the foregoing, and intending to be legally bound hereby, the Executive and the Employers hereto agree as follows: Section 11 is hereby amended in its entirety to read as follows: "11. Term of Agreement. The term of this Agreement shall be to and through July 15, 2000, whereupon it shall be automatically renewed on an annual basis for additional one year periods unless the Employers give the Executive at least 30 days prior notice in writing, that the agreement shall end at 5:00 p.m. CST on the next succeeding July 15th following the date on which the notice is given." IN WITNESS WHEREOF, this Amendment has been executed by the Executive and the Employers' respective officers thereunto duly authorized as of the date first above written. Attest: ACADIANA BANCSHARES, INC. /s/ Donna H. Domec By: /s/ Gerald G. Reaux, Jr. - - --------------------- ------------------------ Donna H. Domec Gerald G. Reaux, Jr. President and Chief Executive Officer Attest: LBA SAVINGS BANK. /s/ Donna H. Domec By: /s/ Gerald G. Reaux, Jr. - - ------------------ ------------------------ Donna H. Domec Gerald G. Reaux, Jr. President and Chief Executive Officer Witness: /s/ witness By: /s/ Executive - - ------------------ -------------------------- Executive EX-13 3 ANNUAL REPORT EXHIBIT 13 Acadiana Bancshares, Inc 1999 Annual Report Letter to shareholders 2 Selected consolidated financial information 4 Management's discussion and analysis 5 Independent auditors' report 18 Consolidated balance sheets 19 Consolidated income statements 20 Consolidated statements of stockholders' equity 21 Consolidated statements of cash flows 22 Notes to consolidated financial statements 23 About the company 43 1 Dear Fellow Shareholders: On behalf of the directors, management and staff of our Company, we are pleased to provide you with our 1999 Annual Report. During 1999, we made great progress in our on-going commitment to expand our traditional thrift institution by increasing our offerings of commercial bank products and services while remaining dedicated to the principles of community banking. Overall, 1999 was another successful year as we continued to grow both loan and deposit market share. We successfully diversified our asset mix while continuing to leverage our capital structure, which resulted in a 33% increase in basic earnings per share. CAPITAL LEVERAGING We are pleased to report that during 1999 our Company successfully repurchased an additional 325,969 shares of Company common stock in an effort to enhance earnings per share and return on equity to our shareholders. Since going public in July of 1996, our Company has repurchased 45.3% of the original shares sold in connection with our initial public offering at an average price of 104% of book value. We believe this capital investment has enhanced shareholder value and effectively increased the ownership stake for all our current stockholders. MORTGAGE LENDING Our average mortgage loan assets remained stable during 1999. We maintained our position as the dominant mortgage lender within our local market. We continue to be committed to providing financing to support the housing needs of the people of Acadiana. Our strategic goal is to leverage our mortgage customer base by cross-selling additional products and services to enhance profitability. TECHNOLOGY During 1999, our technology efforts were focused on continuing to upgrade our operating systems while successfully meeting the demands of the Y2K operating environment. We are pleased to report we experienced no disruptions in our operations during this technologically challenging time. In addition, our Bank expanded into the internet via our newly established web site at www.lbabank.com. We expect that our web site will serve as a platform for future development of products and services. COMMERCIAL BANKING We are pleased to report a 32.2% increase in average commercial loan fundings during 1999. We are confident that our focus on delivering quality service supported by local decision making will continue to enhance our growth objectives within the commercial market sector. This growth is a logical extension of our strategy to diversify our balance sheet mix and reduce our historic dependence on residential mortgage lending assets. RETAIL BANKING The average interest-bearing demand deposit balances in the Bank increased 39.7% during the past year. Our retail Banking division also achieved a 24.4% increase in average consumer loan fundings during 1999. This growth was due in part to our on-going commitment to cross-selling additional products and services to new and existing customers. We are confident we can continue our growth in consumer loans and demand deposit market share by providing exceptional customer service. ASSET QUALITY Our asset quality indicators continued to improve during 1999 as evidenced by our non-performing assets to total loans ratio of 0.04%, the lowest in our history as a public Company. We are optimistic that continued improvement in oil and gas commodity prices will provide a stable economic environment in which to operate during the year 2000. We will continue to be committed to maintaining prudent underwriting standards in managing the credit risks associated with our lending activities. 2 THE YEAR AHEAD The coming year holds much excitement and anticipation for our Company as we begin our Centennial year of operation. Today our Company is the largest and strongest financial institution headquartered in Lafayette, Louisiana. We have met the challenges of our first hundred years and we look forward to our next century of commitment to community banking. 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 President and Chief Executive Officer 3 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, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------- ------------ Selected Financial Condition Data: Total assets $305,696 $282,089 $277,066 $264,374 $225,574 Cash and cash equivalents 11,922 7,578 14,157 19,784 16,481 Loans receivable, net 244,996 225,752 212,840 182,724 157,691 Trading securities 285 575 826 - - Investment securities 37,981 38,764 41,696 55,192 43,544 Deposit accounts 213,212 201,654 195,043 194,192 207,126 Borrowings 63,850 47,228 36,628 22,250 250 Equity 27,750 32,174 44,562 47,091 17,697 Year Ended December 31, ---------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------- ------------ Selected Operating Data: Interest income $ 21,407 $ 21,553 $ 20,464 $ 18,860 $ 17,094 Interest expense 12,195 11,935 10,860 10,762 10,134 ------------ ------------ ------------ ------------- ------------ Net interest income 9,212 9,618 9,604 8,098 6,960 Provision for loan losses - 90 180 355 1,274 ------------ ------------ ------------ ------------- ------------ Net interest income after provision for loan losses 9,212 9,528 9,424 7,743 5,686 Non-interest income 994 1,059 1,033 797 683 Non-interest expense (1) (6,771) (6,655) (5,878) (7,301) (7,812) ------------ ------------ ------------ ------------- ------------ Income (loss) before taxes 3,435 3,932 4,579 1,239 (1,443) Income tax expense (benefit) 1,229 1,427 1,632 439 (477) ------------ ------------ ------------ ------------- ------------ Net income (loss) 2,206 2,505 2,947 800 (966) ============ ============ ============ ============= =========== Earnings per share - basic (2) $ 1.60 $ 1.20 $ 1.22 $ 0.07 N/A Earnings per share - diluted (2) $ 1.55 $ 1.17 $ 1.20 $ 0.07 N/A Dividends declared per share $ 0.52 $ 0.44 $ 0.38 $ 0.18 N/A Dividend payout ratio 33.27% 37.05% 31.76% 267.46% N/A At or For the Year Ended December 31, --------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------- ------------ Other Data: Profitability: Return (loss) on average assets 0.76% 0.87% 1.10% 0.32% (0.43%) Return (loss) on average equity 7.57 6.05 6.38 2.55 (5.23) Interest rate spread for period (3) 0.03 0.03 0.03 2.75 2.86 Net interest margin (4) 0.03 0.03 0.04 3.40 3.22 Efficiency ratio (5) 66.34 62.33 55.26 82.08 88.45 Other expenses to average assets 2.33 2.31 2.19 2.95 3.49 Capital Ratios: Average equity to average assets 10.03 14.35 17.23 12.71 8.25 Total capital to risk-weighted assets 17.51 20.86 31.39 36.69 16.20 Asset Quality: Non-performing assets to total assets (6) 0.03 0.07 0.22 0.36 0.70 Allowance for loan losses to total loans 1.08 1.16 1.25 1.35 1.41 Allowance for loan losses to non-performing loans and troubled debt restructuring 496.75 396.80 297.09 183.96 143.94
(1) With respect to 1997, includes $436,000 recovery of net foreclosed assets; with respect to 1996, includes $1.3 million for a special SAIF assessment; with respect to 1995, includes $1.1 million of write-downs and expenses of foreclosed assets and $1.1 million of expenses of a previously contemplated merger/conversion. (2) 1996 earnings 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. (3) The interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. (4) The net interest margin represents net interest income divided by average interest-earning assets. (5) The efficiency ratio is non-interest expense (excluding, with respect to 1995, the write-off of expenses incurred in the previously contemplated merger/conversion transaction) divided by the sum of net interest income plus non-interest income. (6) Non-performing assets include non-accrual loans, accruing loans delinquent 90 days or more and foreclosed assets. 4 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, LBA Savings Bank (the "Bank") for the years ended December 31, 1997 through 1999. This review should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data included herein. FINANCIAL CONDITION ASSETS General - Total assets of the Company increased $23.6 million, or 8.4%, from $282.1 million at December 31, 1998, to $305.7 million at December 31, 1999. Net loans receivable of the Company increased $19.2 million, or 8.5%, from $225.8 million at December 31, 1998, to $245.0 million at December 31, 1999. Cash and cash equivalents increased $4.3 million, from $7.6 million at December 31, 1998, to $11.9 million at December 31, 1999. The growth in assets was funded by a $16.6 million net increase in advances from the Federal Home Loan Bank of Dallas (the "FHLB"), together with an $11.6 million net increase in deposits. The Company repurchased $6.0 million of its common stock, on the open market, during the year ended December 31, 1999, increasing its common shares held in treasury from 910,758 at December 31, 1998, to 1,236,727 shares at December 31, 1999. Retained earnings increased $1.5 million, or 7.0%, from $20.9 million at December 31, 1998, to $22.4 million at December 31, 1999. Cash and Cash Equivalents - Cash and cash equivalents, which consist of interest-bearing and noninterest-bearing demand deposits and cash on hand, increased by $4.3 million, or 57.3%, to $11.9 million at December 31, 1999, compared to $7.6 million at December 31, 1998. The increase in cash and cash equivalents occurred primarily during the fourth quarter of 1999, intended for meeting anticipated increased demands for cash by customers of the Bank at or near year-end. At December 31, 1999, cash and cash equivalents amounted to 3.9% of total assets. Trading Securities - At December 31, 1999, the Company held equity securities for trading of $285,000, compared to $575,000 at December 31, 1998. The Company has no intention to increase its trading securities portfolio significantly. Securities Available for Sale - Securities available for sale decreased $344,000, or 1.3%, to $26.1 million at December 31, 1999, compared to $26.4 million at December 31, 1998. Securities available for sale include U.S. Treasury notes and bonds, federal agency bonds, mortgage-backed securities issued by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), and triple A rated private issuers, and certain equity securities. Unrealized gains and losses on securities available for sale are excluded from earnings and reported, net of applicable income taxes, as other comprehensive income. At December 31, 1999, securities available for sale amounted to 8.5% of total assets. Note 3 to the Consolidated Financial Statements provides further information regarding the Company's securities available for sale. Securities Held to Maturity - Securities held to maturity decreased $439,000, or 3.6%, to $11.9 million at December 31, 1999, compared to $12.4 million at December 31, 1998. Securities held to maturity include mortgage-backed securities issued by GNMA, FNMA, and FHLMC. At December 31, 1999, securities held to maturity amounted to 3.9% of total assets. Note 3 to the Consolidated Financial Statements provides further information regarding the Company's securities held to maturity. 5 Federal Home Loan Bank Stock - Federal Home Loan Bank stock represents an equity interest in the FHLB that does not have a readily determinable fair value (for purposes of Federal Accounting Standards Board Statement No. 115) because its ownership is restricted and it lacks a market. It can be sold only to the FHLB or to another member institution. It is carried at cost. Both cash and stock dividends are received on FHLB stock and are reported as income. The stock dividends are redeemable at par value. At December 31, 1999, Federal Home Loan Bank stock amounted to 1.2% of total assets. Loans Receivable, Net - Loans receivable, net, increased $19.2 million, or 8.5%, to $245.0 million at December 31, 1999, compared to $225.8 million at December 31, 1998. Single-family residential loans increased $9.7 million, or 5.8%, from $169.4 million at December 31, 1998, to $179.1 million at December 31, 1999. Construction loans remained stable at $12.6 million. Commercial real estate loans increased $1.9 million, or 11.3%, from $16.9 million at December 31, 1998, to $18.8 million at December 31, 1999. Equity lines of credit increased $1.4 million, or 67.0%, from $2.0 million at December 31, 1998, to $3.4 million at December 31, 1999. Commercial business loans increased $4.3 million, or 30.9%, from $13.9 million at December 31, 1998, to $18.1 million at December 31, 1999. Consumer loans increased $2.5 million, or 12.7%, from $19.3 million at December 31, 1998, to $21.8 million at December 31, 1999. Total gross loans increased $19.7 million, or 8.4%, from $234.6 million at December 31, 1998, to $254.3 million at December 31, 1999. Loans receivable, net, amounted to 80.1% of total assets at December 31, 1999, compared to 80.0% of total assets at December 31, 1998. Note 4 to the Consolidated Financial Statements provides further information regarding 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 1999. Deposits - The Company's deposits increased by $11.6 million, or 5.7%, to $213.2 million at December 31, 1999, compared to $201.7 million at December 31, 1998. Interest bearing deposits increased $13.7 million, or 7.2% while non-interest bearing deposits decreased $2.1 million, or 17.1%. Certificates of deposit, comprising the largest portion of interest-bearing deposits, amounted to $151.6 million at December 31, 1999. Total deposits funded 69.7% of total assets at December 31, 1999, compared to 71.5% at December 31, 1998. Additional information regarding deposits is provided in Note 8 to the Consolidated Financial Statements. Borrowings - The Company's borrowings include both short-term borrowings (amounts maturing in one year or less from date of inception) and long-term debt (amounts maturing more than one year from date of inception). Short-term borrowings decreased $1.5 million, or 20.0%, from $7.5 million at December 31, 1998, to $6.0 million at December 31, 1999. Long-term debt increased $18.1 million, or 45.6%, from $39.7 million at December 31, 1998, to $57.9 million at December 31, 1999. Total borrowings are composed of advances from the FHLB, which increased $16.6 million, or 35.2%, to $63.9 million at December 31, 1999, compared to $47.2 million at December 31, 1998. Borrowings at December 31, 1999, funded 20.9% of total assets compared to 16.7% at December 31, 1998. Advances from the FHLB have been, and are expected to continue to be, an important source of funding for both existing assets and new asset growth. Additional information regarding borrowings is provided in Note 9 to the Consolidated Financial Statements. 6 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, 1999, stockholders' equity totaled $27.8 million, a decrease of $4.4 million, or 13.8%, compared to $32.2 million at December 31, 1998. The decrease was primarily attributable to $6.0 million of repurchases of common stock for the treasury, a $622,000 decrease in unrealized gain (loss) on securities available for sale, net of deferred taxes, together with $734,000 of dividends declared on the Company's common stock, all of which was partially offset by net income for the year ended December 31, 1999, of $2.2 million, common stock released by the Company's employee stock ownership plan (the "ESOP") trust of $408,000, and common stock earned by participants in the Company's recognition plan (the "RRP") trust of $290,000. Stockholders' equity funded 9.1% of assets at December 31, 1999, compared to 11.4% at December 31, 1998. 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 financial institutions with deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"), which requirements directly affect the minimum capital levels at the Bank. The Board of Governors of the Federal Reserve System (the "FRB") also imposes minimum regulatory capital requirements, which directly affect the minimum capital levels at the Company. At December 31, 1999, the capital of the Bank and the capital of the Company exceeded all minimum regulatory requirements as shown in Note 12 to the Consolidated Financial Statements. RESULTS OF OPERATIONS General - The Company does not operate in more than one segment of business - it operates within the financial services industry. The Company is primarily engaged in residential mortgage lending, and commercial and consumer banking. The Company reported net income of $2.2 million, $2.5 million and $2.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The $299,000 decrease in net income in 1999 compared to 1998 was due primarily to a decrease in net interest income of $406,000, a decrease in non-interest income of $65,000, and an increase in non-interest expense of $116,000, all of which were partially offset by a decrease in provision for loan losses of $90,000, and a decrease in income tax expense of $198,000. The decline of $406,000 in net interest income is attributed to narrower interest rate margins during 1999, as compared to 1998; the declining net interest margin is influenced partly by the effect of changes in market interest rates throughout much of 1999 and partly by the increased leverage of the Company's assets. The Company increased its leverage by increasing liabilities (deposits and borrowings) and, during the same periods, decreasing stockholders' equity. The Company's average interest-bearing liabilities increased from $212.1 million for the year ended December 31, 1997, to $235.8 million for the year ended December 31, 1998, and to $249.0 million for the year ended December 31, 1999, while average stockholders' equity decreased from $46.2 million, to $41.4 million, to $29.1 million at December 31, 1997, 1998, and 1999, respectively. The $442,000 decrease in net income in 1998 compared to 1997 was due primarily to an increase in non-interest expense of $777,000, which was partially offset by an increase in net interest income of $14,000, an increase in non-interest income of $26,000, a decrease in provision for loan losses of $90,000, and a decrease in income tax expense of $205,000. Net Interest Income - Net interest income is determined by the combined effects of interest rate spread (i.e., the difference between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities) and changes in the average amounts of interest-earning assets and interest-bearing liabilities. The Company's average interest rate spread was 2.72%, 2.59%, and 2.69%, during the years ended December 31, 1999, 1998, and 1997, respectively. Both rates (average yield on interest-bearing assets and average cost of interest-bearing liabilities) and volumes (the average balances on interest-bearing assets and average balances of interest-bearing liabilities) influence net interest margin. The Company's interest rate margin (i.e., the difference between interest income and interest expense multiplied by average earning assets) was 3.28%, 3.41%, and 3.66%, during the years ended December 31, 1999, 1998, and 1997, respectively. The declining net interest margin in 1999 compared to 1998 was primarily the result of decreased yields earned on the Company's loans and increases in the average balances of certificates of deposit and borrowings, which were partially offset by increases in the average balance of loans outstanding and decreases in the average rates paid on deposits and borrowings. The Company's net interest income decreased $406,000, from $9.6 million for the year ended December 31, 1998, to $9.2 million for the year ended December 31, 1999. Net changes in rates, primarily reflecting the effects of changes in market interest rates, accounted for $188,000 of such decrease, and net changes in volume, reflecting changes in the Company's leveraging, accounted for $249,000 of such decrease, both of which were partially offset by an increase in net interest income related to changes in both rate and volume of $31,000. The Company's net interest income increased slightly by $14,000, remaining relatively stable at $9.6 million for the years ended December 31, 1998, and 1997; however, changes in the volume component caused an increase in net interest income of $410,000, while changes in rate component caused a decrease of $423,000 in net interest income, and changes in the combined rate and volume component caused an increase of $27,000 in net interest income. 7 The Company's largest group of interest-earning assets is residential mortgage loans, comprising 61.0% of total average interest-earning assets for the year ended December 31, 1999. Market rates on residential mortgage loans are heavily influenced by competition and on the rates of interest on longer term U.S. Treasury Bonds, such as the 10-year and 30-year bonds. Significant changes in longer term U.S. Government Treasury Bond rates likely translate to similar changes in offering rates for residential mortgage loans. The Company's largest source of funds is certificates of deposit, which funded 58.5% of total average interest-bearing liabilities for the year ended December 31, 1999. Market rates on certificates of deposit are heavily influenced by competition and by shorter term U.S. Government Notes and Bonds. Significant changes in shorter term U.S. Government Notes and Bonds may translate into somewhat similar changes in offering rates for certificates of deposit. If longer term U.S. Government Treasury Bond rates fall, and during the same time period, shorter term U.S. Government Treasury Notes and Bond rates rise, the Company's net interest margin will likely decrease. Interest and Dividend Income - Interest and dividend income totaled $21.4 million for the year ended December 31, 1999, compared to $21.6 million for the year ended December 31, 1998, a decrease of $146,000, or 0.7%. This decrease was mainly due to a decrease in the Company's average interest-earning assets of $652,000, or 0.2%, together with a three basis point (with 100 basis points being equal to 1%) decrease in the yield earned. Interest earned on loans increased $571,000, or 3.2%, from $17.7 million for the year ended December 31, 1998, to $18.3 million for the year ended December 31, 1999. This increase was due to an increase in the Company's average balance of loans for the year ended December 31, 1999, of $11.7 million, or 5.3%, which was partially offset by a 16 basis point decrease in the yield earned. Interest and dividends earned on investment securities decreased $56,000, or 2.1%, remaining at $2.7 million for the years ended December 31, 1998 and December 31, 1999. This decrease was due to a 16 basis point decrease in the Company's yield earned on investment securities for the year ended December 31, 1999, which was partially offset by an increase in the Company's average balance of investment securities of $117,000. Interest earned on other earning assets decreased $661,000, or 59.4%, from $1.1 million for the year ended December 31, 1998, to $452,000 for the year ended December 31, 1999. This decrease was due to a decrease in the Company's average balance of other earning assets of $12.4 million, or 56.3%, from $22.1 million for the year ended December 31, 1998, to $9.6 million at December 31, 1999; it was also due to a 36 basis point decrease in the Company's average yield earned on other earning assets. 8 Interest and dividend income totaled $21.6 million for the year ended December 31, 1998, compared to $20.5 million for the year ended December 31, 1997, an increase of $1.1 million, or 5.3%. This increase was mainly due to an increase in the Company's average balance of interest-earning assets of $19.8 million, or 7.6%, which was partially offset by a 16 basis point decrease in the average yield earned. Interest earned on loans increased $1.7 million, or 10.4%, from $16.1 million for the year ended December 31, 1997, to $17.7 million for the year ended December 31, 1998. This increase was due to an increase in the Company's average balance of loans for the year ended December 31, 1998, of $23.6 million, or 12.1%, which was partially offset by a 13 basis point decrease in the average yield earned. Interest and dividends earned on investment securities decreased $1.1 million, or 29.1%, from $3.8 million for the year ended December 31, 1997, to $2.7 million for the year ended December 31, 1998. This decrease was due to a $13.8 million decrease in the Company's average balance of investment securities for the year ended December 31, 1998, together with a 35 basis point decrease in the Company's average yield earned on investment securities. Interest earned on other earning assets increased $539,000, or 93.9%, from $574,000 for the year ended December 31, 1997, to $1.1 million for the year ended December 31, 1998. This increase was due to an increase in the Company's average other earning assets of $10.1 million, from $12.0 million for the year ended December 31, 1997, to $22.1 million for the year ended December 31, 1998 together with a 27 basis point increase in the Company's average yield earned on other earning assets. Interest Expense - Interest expense increased $260,000, or 2.2%, from $11.9 million for the year ended December 31, 1998, to $12.2 million for the year ended December 31, 1999. This increase was mainly due to an increase in the average interest-bearing balance of liabilities, which was partially offset by a decrease in the cost of such liabilities. The average balance of interest-bearing liabilities increased $13.2 million, or 5.6%, from $235.8 million for the year ended December 31, 1998, to $249.0 million for the year ended December 31, 1999, while the cost of such interest-bearing liabilities decreased 16 basis points. Interest expense on deposits increased $83,000, or 0.9%, from $9.4 million for the year ended December 31, 1998, to $9.5 million for the year ended December 31, 1999. The increase was primarily due to an increase in the average balance of interest-bearing deposits, which was partially offset by a decrease in the cost of such deposits. The average balance of interest-bearing deposits increased $8.1 million, or 4.2%, from $189.5 million at December 31, 1998, to $197.6 million at December 31, 1999, while the cost of interest-bearing deposits decreased 16 basis points. Interest expense on advances from the FHLB increased $177,000, or 7.0%, from $2.5 million for the year ended December 31, 1998, to $2.7 million for the year ended December 31, 1999. The primary reason for the increase was a $5.2 million increase in the average balance of FHLB advances, which was partially offset by a decrease in the cost of obtaining such advances of 21 basis points. Interest expense increased $1.1 million, or 9.9%, from $10.9 million for the year ended December 31, 1997, to $11.9 million for the year ended December 31, 1998. This increase was mainly due to an increase in the average balance of interest-bearing liabilities, which was partially offset by a decrease in the cost of such liabilities. The average balance of interest-bearing liabilities increased $23.7 million, or 11.2%, from $212.1 million for the year ended December 31, 1997, to $235.8 million for the year ended December 31, 1998, while the cost of such interest-bearing liabilities decreased six basis points. 9 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 cost; (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 were actually received. 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 cost; (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 were actually received.
Year Ended December 31, - - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) 1999 1998 1997 ---------------------------- ------------------------------ ---------------------------- Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- ------- -------- ------- Interest-earning assets: Loans receivable: Residential mortgage loans $ 171,516 $ 12,976 7.57% $ 173,161 $ 13,436 7.76% $ 158,169 $ 12,452 7.87% Commercial business loans 36,220 3,168 8.75 27,388 2,501 9.13 21,295 2,068 9.71 Consumer and other loans 22,792 2,144 9.41 18,325 1,780 9.71 15,974 1,531 9.58 --------- -------- --------- -------- --------- -------- Total loans 230,528 18,288 7.93 218,874 17,717 8.09 195,438 16,051 8.21 Mortgage-backed securities 28,903 1,948 6.74 27,478 1,910 6.74 32,711 2,329 6.74 Investment securities (1) 12,034 719 5.97 13,342 813 5.97 21,958 1,510 5.97 Investment securities (1) 40,937 2,667 6.51 40,820 2,723 6.67 54,669 3,839 7.02 Other earning assets 9,634 452 4.69 22,057 1,113 5.05 12,002 574 4.78 --------- -------- ------ --------- -------- ------ --------- -------- Total interest-earning assets 281,099 21,407 7.62 281,751 21,553 7.65 262,109 20,464 7.81 -------- -------- Noninterest-earning assets 9,375 6,691 5,975 --------- --------- --------- Total Assets $ 290,474 $ 288,442 $ 268,084 ========= ========= ========= Interest-bearing liabilities: Deposits: Demand deposits $ 34,777 1,198 3.44 $ 24,891 790 3.17 $ 14,033 273 1.95 Savings deposits 17,207 300 1.74 21,529 453 2.10 23,539 510 2.17 Certificates of deposit 145,613 7,990 5.49 143,122 8,162 5.70 144,921 8,396 5.79 --------- -------- ------ --------- -------- ------ --------- Total deposits 197,597 9,488 4.80 189,542 9,405 4.96 182,493 9,179 5.03 Borrowings 51,430 2,707 5.26 46,277 2,530 5.47 29,648 1,681 5.67 --------- -------- ------ --------- -------- ------ --------- Total interest-bearing liabilities 249,027 12,195 4.90 235,819 11,935 5.06 212,141 10,860 5.12 --------- -------- -------- Noninterest-bearing demand deposits 10,677 9,688 8,168 Other noninterest-bearing liabilities 1,627 1,556 1,585 --------- --------- --------- Total liabilities 261,331 247,063 221,894 Stockholders' equity 29,143 41,379 46,190 --------- --------- --------- Total liabilities and stockholders' equity $ 290,474 $ 288,442 $ 268,084 ========= ========= ========= Net interest-earning assets $ 32,072 $ 45,932 $ 49,968 ========= ========= ========= Net interest income/interest rate spread $ 9,212 2.72% $ 9,618 2.59% $ 9,604 2.69% ======== ====== ======== ====== ======== ====== Net interest margin 3.28% 3.41% 3.66% ====== ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 112.88% 119.48% 123.55% ======== ========= ======== (1) Includes FHLB stock.
10 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).
(Dollars in thousands) Year Ended December 31, --------------------------------------------------------------------------------------- 1999 compared to 1998 1998 compared to 1997 -------------------------------------------- --------------------------------------- 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 $ 943 $ (354) $ (18) $ 571 $ 1,925 $ (231) $ (28) $ 1,666 Investment securities 8 (64) - (56) (973) (192) 49 (1,116) Other earning assets (627) (78) 44 (661) 481 32 26 539 --------- --------- -------- ---------- -------- --------- --------- --------- Total net change in income on Interest-earning asset 324 (496) 26 (146) 1,433 (391) 47 1,089 --------- --------- -------- ---------- -------- --------- --------- --------- Interest-bearing liabilities: Interest-bearing deposits Demand and savings deposits 149 95 11 255 184 223 53 460 Certificates of deposit 142 (309) (5) (172) (104) (131) 1 (234) Advance from FHLB 282 (94) (11) 177 943 (60) (34) 849 --------- --------- -------- ---------- -------- --------- --------- --------- Total net change in expense on Interest-bearing liabilities 573 (308) (5) 260 1,023 32 20 1,075 --------- --------- -------- ---------- -------- --------- --------- --------- Net change in net interest income $ (249) $ (188) $ 31 $ (406) $ 410 $ (423) $ 27 $ 14 ========= ========= ======== ========== ======== ========= ========= =========
Provision for Loan Losses - Provisions 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 loan loss 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 any other factors related to the collectibility of the Company's loan portfolio. Management of the Company assesses the allowance for loan losses on at least 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 no provision for loan losses in 1999, compared to a provision of $90,000 in 1998, and $180,000 in 1997. 11 At December 31, 1999, the Company's allowance for loan losses amounted to $2.7 million, or 1.1% of total loans and 496.7% of non-performing loans and troubled debt restructurings. At December 31, 1998, the Company's allowance for loan losses amounted to $2.7 million, or 1.2% of total loans and 400.9% of non-performing loans and troubled debt restructurings. At December 31, 1997, the Company's allowance for loan losses amounted to $2.8 million, or 1.3%, of total loans and 297.1% of non-performing loans and troubled debt restructurings. Non-Interest Income - For the year ended December 31, 1999, the Company reported non-interest income of $994,000, a decrease of $65,000 from 1998. The primary reasons for the decrease were a decrease in net gains on the sale of loans of $144,000, and an increase in the loss from investment in a limited liability company of $121,000. These decreases were partially offset by an increase in customer service fees of $82,000, an increase in loan servicing fees of $3,000, an increase in other income of $12,000, and a decrease in trading account losses of $103,000. For the years ended December 31, 1998, and 1997, the Company reported non-interest income of $1.1 million and $1.0 million, respectively. During 1998, the Company reported increases in customer service fees of $83,000, and a $234,000 increase in gains on the sale of loans, all of which were partially offset by a decrease in loan servicing fees of $7,000, a net difference in trading gains and losses of $248,000, a loss from an investment in a limited liability company of $34,000, and decrease in other income of $2,000. Non-Interest Expense - Non-interest expense includes salaries and employee benefits, occupancy, depreciation, data processing, net costs related to foreclosed assets, deposit insurance premiums, advertising and marketing, bank shares and franchise tax, and other expense items. Non-interest expense amounted to $6.8 million for the year ended December 31, 1999, an increase of $116,000, or 1.7% compared to $6.7 million for the year ended December 31, 1998. The primary reasons for the $116,000 increase were a $183,000, or 5.5%, increase in salaries and employee benefits, a $57,000, or 20.4%, increase in occupancy expenses, an $82,000, or 49.7%, increase in data processing expenses, an $18,000 increase in the net cost of foreclosed assets, a $2,000 increase in deposit insurance premiums, and a $7,000 increase in other expenses. All of such increases were partially offset by a decrease of $28,000 in depreciation, a decrease of $124,000 in advertising and marketing, and a decrease of $81,000 in bank shares and franchise tax expense. Non-interest expense amounted to $6.7 million for the year ended December 31, 1998, an increase of $777,000, or 13.2%, compared to $5.9 million for the year ended December 31, 1997. The primary reasons for the $777,000 increase were the net cost of foreclosed assets of $8,000, compared to a net recovery of $436,000 in 1997, together with a $194,000, or 6.2%, increase in salaries and employee benefits, a $22,000, or 15.4%, increase in data processing, a $71,000, or 22.0%, increase in depreciation, a $79,000, or 22.5%, increase in bank shares and franchise tax, and a $30,000, or 1.9%, increase in other expenses. Such increases were partially offset by a decrease of $28,000, or 9.1%, in occupancy expenses, a $31,000, or 9.5%, decrease in advertising and marketing, and a $4,000, or 3.3%, decrease in deposit insurance premiums. Income Taxes - For the years ended December 31, 1999, 1998, and 1997, the Company incurred income tax expense of $1.2 million, $1.4 million, and $1.6 million, respectively. The Company's effective tax rate amounted to 35.8%, 36.3%, and 35.6% during 1999, 1998, and 1997, respectively. The difference between the effective rate and the statutory tax rate is primarily related to variances in the items that are either non-taxable or non-deductible, and because state income tax is included on the Company's income, exclusive of the income derived from the Bank. For more information on income taxes, refer to Note 10 of the Consolidated Financial Statements. 12 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 securities available for sale portfolio. The Company's primary sources of funds are deposits, borrowings, proceeds from sale of stock, and amortization, prepayments and maturities from its loan portfolio and its securities held to maturity portfolio, and other funds provided from operations. While scheduled payments from the amortization of loans and securities and maturing investment securities are relatively predictable sources of funds, deposit flows, loan prepayments, and securities prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has the ability to borrow up to approximately $125.9 million from the FHLB through its subsidiary Bank. Liquidity management is both a daily and long-term function of business management. The Company uses its primary liquidity to meet its ongoing commitments, to pay maturing certificates of deposit and deposit withdrawals, and to fund loan commitments. The Company's excess liquidity and borrowing capacity provide added readiness to meet ongoing commitments and growth. At December 31, 1999, the total approved commitments to extend credit amounted to $25.2 million. Certificates of deposit scheduled to mature in one year or less at the same date totaled $64.4 million. Management believes that a significant portion of maturing deposits will remain with the Company. The Company anticipates it will continue to have sufficient funds together with available borrowings to meet its current commitments. IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which generally require the measurement of financial position and operation results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature. 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. 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 six officers of the Bank. The Finance Committee meets jointly with the ALCO, quarterly to 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 affecting the Company's asset/liability management related activities based upon estimated market risk sensitivity, policy limits, and overall market interest rate levels and trends. 13 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 affecting net interest income ("NII"), which is 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 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. 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, 1999, the amount of 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 $24.7 million, or 8.1%, of the Company's total assets. The following table summarizes the anticipated maturities or repricing of the Company's interest-rate sensitive assets and interest-rate sensitive liabilities as of December 31, 1999, based upon the information and assumptions set forth below: 14
More Than More Than Three Months More Than Three Years Within Three to Twelve One Year to to Five Over Five Months Months Three Years Years Years Total --------- ---------- ------------ ----------- --------- --------- (Dollars in Thousands) Interest-sensitive assets(1): Loans receivable(2) $ 35,935 $ 51,284 $ 70,224 $ 32,324 $ 55,229 $ 244,996 Investment securities(3) 11,936 - - 10,493 79 22,508 Mortgage-backed securities(4) 12,166 2,282 2,335 1,604 9,314 27,701 --------- ---------- ------------ ----------- --------- --------- Total 60,037 53,566 72,559 44,421 64,622 295,205 --------- ---------- ------------ ----------- --------- --------- Interest-sensitive liabilities: Deposits: Demand accounts(5) - - - - 18,354 18,354 Savings accounts(5) - 30 - - 14,334 14,364 Money market deposit accounts(18,491 - - - - 18,491 Certificates of deposit 20,015 44,417 79,630 6,528 1,031 151,621 Advances from FHLB 6,000 - 2,500 3,100 52,250 63,850 --------- ---------- ------------ ----------- --------- --------- Total 44,506 44,447 82,130 9,628 85,969 266,680 --------- ---------- ------------ ----------- --------- --------- Excess (deficiency) of interest- sensitive assets over interest-bearing $l15,531 $ 9,119 $ (9,571) $ 34,793 $ (21,347) $ 28,525 ========= ========== ============ =========== ========= ========= Cumulative excess of interest-sensitive assets over interest-sensitive liabilities $ 15,531 $ 24,650 $ 15,079 $ 49,872 $ 28,525 ========= ========== ============ =========== ========= Cumulative excess of interest-sensitive assets over interest-sensitive liabilities as a percent of total assets 5.08% 8.06% 4.93% 16.31% 9.33% ========= ========== ============ =========== =========
(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 1999. (2) Balances have been reduced for non-performing loans, which amounted to $100,000 at December 31, 1999. (3) Includes interest-bearing deposits and FHLB stock. (4) Reflects estimated prepayments in the current interest rate environment. (5) Although the Company's demand accounts and savings accounts are generally 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 demand accounts and 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 $8.0 million, or 2.63% of total assets. The ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure to 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 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 rata shift in rates over a 12-month period is assumed. The following reflects the Company's NII sensitivity analysis as of December 31, 1999: 15 Estimated NII Rate Change Sensitivity ------------------ ------------ + 200 basis points - 0.11% - 200 basis points + 0.82% 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 cash flows. 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. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts. It requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of derivatives (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. The statement was to be effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, which amended SFAS 133 to delay the effective date until all fiscal quarters for fiscal years beginning after June 15, 2000. The Company currently has no derivatives and does not have any hedging activities. The Company has not adopted SFAS 133 as of December 31, 1999. The adoption of this statement is not expected to have a material effect on financial position and results of operations. 16 PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT In addition to historical information, this Annual Report includes certain "forward-looking statements," as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, based on current management expectations. The Company's actual results could differ materially from those management expectations. Such forward-looking statements include statements regarding our intentions, beliefs or current expectations as well as the assumptions on which such statements are based. Stockholders and potential stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company's loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and fees. The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors Acadiana Bancshares, Inc., and Subsidiary Lafayette, Louisiana We have audited the accompanying consolidated balance sheets of Acadiana Bancshares, Inc., and Subsidiary as of December 31, 1999 and 1998, and the related consolidated income statements, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ Castaing, Hussey, Lolan & Dauterive, L L P New Iberia, Louisiana February 1, 2000 18 ACADIANA BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (In Thousands, except share data) Assets
1999 1998 -------------- -------------- Cash and Cash Equivalents: Cash and Amounts Due from Banks $ 3,668 $ 844 Interest Bearing Demand Deposits 8,254 6,734 -------------- -------------- Total Cash and Cash Equivalents 11,922 7,578 Trading Securities 285 575 Securities Available for Sale, at Fair Value 26,060 26,404 Securities Held to Maturity (Fair Value of $11,958 and $12,694, respectively) 11,921 12,360 Federal Home Loan Bank Stock, at Cost 3,689 2,920 Loans Receivable, Net of Allowance for Loan Losses of $2,747 and $2,726, respectively 244,996 225,752 Investment in Limited Liability Company 811 966 Premises and Equipment, Net 2,657 2,777 Accrued Interest Receivable 1,543 1,367 Other Assets 1,812 1,390 -------------- -------------- Total Assets $ 305,696 $ 282,089 ============== ============== Liabilities and Stockholders' Equity Deposits: Non-interest Bearing $ 10,382 $ 12,518 Interest Bearing 202,830 189,136 ----------- ----------- Total Deposits 213,212 201,654 Short-Term Borrowings 6,000 7,500 Accrued Interest Payable 345 304 Long-Term Debt 57,850 39,728 Accrued and Other Liabilities 539 729 -------------- -------------- Total Liabilities 277,946 249,915 -------------- -------------- Commitments and Contingencies (Notes 14 and 15) 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 32,322 32,192 Retained Earnings 22,404 20,932 Unearned Common Stock Held by ESOP Trust (1,703) (1,965) Unearned Common Stock Held by RRP Trust (1,048) (1,335) Accumulated Other Comprehensive Income (364) 258 Treasury Stock, at Cost; 1,236,727 and 910,758 Shares, respectively (23,888) (17,935) -------------- -------------- Total Stockholders' Equity 27,750 32,174 -------------- -------------- Total Liabilities and Stockholders' Equity $ 305,696 $ 282,089 ============== ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 19 ACADIANA BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED INCOME STATEMENTS Years Ended December 31, 1999, 1998 and 1997 (In Thousands, except per share data) 1999 1998 1997 ------------- -------------- ------------- Interest and Dividend Income: Loans, including fees $ 18,288 $ 17,717 $ 16,051 Debt Securities 2,491 2,558 3,725 Dividends 167 154 109 Trading Account Securities 9 11 5 Interest Bearing Deposits 452 1,113 574 ------------- -------------- ------------- Total Interest and Dividend Income 21,407 21,553 20,464 ------------- -------------- ------------- Interest Expense: Deposits 9,488 9,405 9,179 Borrowings 2,707 2,530 1,681 ------------- -------------- ------------- Total Interest Expense 12,195 11,935 10,860 ------------- -------------- ------------- Net Interest Income 9,212 9,618 9,604 Provision for Loan Losses - 90 180 ------------- -------------- ------------- Net Interest Income After Provision for Loan Losses 9,212 9,528 9,424 ------------- -------------- ------------- Non-Interest Income: Customer Service Fees 914 832 749 Loan Servicing Fees 58 55 62 Gain (Loss) on Sale of Loans, Net 89 233 (1) Trading Account (Losses) Gains, Net (8) (111) 137 Loss from Investment in Limited Liability Company (155) (34) - Other 96 84 86 ------------- -------------- ------------- Total Non-Interest Income 994 1,059 1,033 ------------- -------------- ------------- Non-Interest Expense: Salaries and Employee Benefits 3,521 3,338 3,144 Occupancy 337 280 308 Depreciation 365 393 322 Data Processing 247 165 143 Foreclosed Assets, net 26 8 (436) Deposit Insurance Premium 120 118 122 Advertising 173 297 328 Bank Shares and Franchise Tax Expense 349 430 351 Other 1,633 1,626 1,596 ------------- -------------- ------------- Total Non-Interest Expense 6,771 6,655 5,878 ------------- -------------- ------------- Income Before Income Taxes 3,435 3,932 4,579 Income Tax Expense 1,229 1,427 1,632 ------------- -------------- ------------- Net Income $ 2,206 $ 2,505 $ 2,947 ============= ============== ============= Earnings Per Share - basic $ 1.60 $ 1.20 $ 1.22 ============= ============== ============= Earnings Per Share - diluted $ 1.55 $ 1.17 $ 1.20 ============= ============== =============
The accompanying Notes to Consolidated Financial Stateements are an integral part of these Financial Statements. 20 ACADIANA BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1999, 1998 and 1997 (In Thousands, except share data)
Unearned Unearned Common Common Accumulated Total Additional Stock Held Stock Other Stock- Common Paid-In Retained By ESOP Held By Comprehensive Treasury holder's Stock Capital Earnings Trust RRP Trust Income Stock Equity -------- ---------- -------- --------- ---------- ------------- --------- --------- Balance, January 1, 1997 $ 27 $ 31,827 $17,344 $ (2,490) $ $ 383 $ $ 47,091 Comprehensive Income: Net Income 2,947 2,947 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 67 67 --------- --------- Total Comprehensive Income 3,014 Common Stock Released by ESOP Trust 178 262 440 Common Stock Acquired by Recognition and Retention Plan Trust (1,829) (1,829) Common Stock Earned by Participants of Recognition and Retention Plan Trust 227 227 Purchase of Treasury Stock (150,000 shares) (3,445) (3,445) Cash Dividends Declared ($.38 per share) (936) (936) -------- ---------- -------- --------- ---------- ----------- --------- --------- Balance, December 31, 1997 27 32,005 19,355 (2,228) (1,602) 450 (3,445) 44,562 Comprehensive Income: Net Income 2,505 2,505 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes (192) (192) --------- --------- Total Comprehensive Income 2,313 Common Stock Released by ESOP Trust 192 263 455 Common Stock Earned by Participants of Recognition and Retention Plan Trust (5) 267 262 Purchase of Treasury Stock (760,758 shares) (14,490) (14,490) Cash Dividends Declared ($.44 per share) (928) (928) -------- ---------- -------- --------- ---------- ----------- --------- --------- Balance, December 31, 1998 27 32,192 20,932 (1,965) (1,335) 258 (17,935) 32,174 Comprehensive Income: Net Income 2,206 2,206 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes (622) (622) --------- --------- Total Comprehensive Income 1,584 Common Stock Released by ESOP Trust 146 262 408 Common Stock Earned by Participants of Recognition and Retention Plan Trust 3 287 290 Common Stock Issued (2,000 shares) (19) 39 20 Purchase of Treasury Stock (327,969 shares) (5,992) (5,992) Cash Dividends Declared ($.52 per share) (734) (734) -------- ---------- -------- --------- ---------- ----------- --------- --------- Balance, December 31, 1999 $ 27 $ 32,322 $ 22,404 $ (1,703) $ (1,048) $ (364) $ (23,888)$ 27,750 ======== ========== ======== ========= ========== =========== ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 21 ACADIANA BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997 (In Thousands)
1999 1998 1997 ------------ ------------ ------------- ------------ ------------ ------------- Cash Flows from Operating Activities: Net Income $ 2,206 $ 2,505 $ 2,947 ------------ ------------ ------------- ------------ ------------ ------------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 387 410 328 Provision for Deferred Income Taxes 52 (17) 2 Provision for Losses on Loans - 90 180 Compensation Expense Recognized on RRP 271 232 227 ESOP Contribution 408 455 440 Other Gains and Losses, Net (40) (19) (427) Net Change in Securities Classified as Trading 290 251 (826) Loss from Investment in Limited Liability Company 155 34 - Accretion of Discounts, Net of Premium Amortization on Securities (7) (42) (63) Amortization of Deferred Revenues and Unearned Income on Loans 116 (13) (60) FHLB Stock Dividend Received (166) (153) (109) Changes in Assets and Liabilities: (Increase) Decrease in Accrued Interest Receivable (176) 49 135 (Increase) Decrease in Other Assets (164) (21) 167 (Decrease) Increase in Accounts Payable and Accrued Expenses (142) 102 (42) ------------ ------------ ------------- Total Adjustments 984 1,358 (48) ------------ ------------ ------------- Net Cash Provided by Operating Activities $ 3,190 $ 3,863 $ 2,899 ------------ ------------ ------------- Cash Flows from Investing Activities: Activity in Available for Sale Securities: Proceeds from Calls, Maturities and Prepayments $ 24,887 $ 46,161 $ 26,368 Purchases (25,470) (43,917) (12,998) Activity in Held to Maturity Securities: Proceeds from Calls, Maturities and Prepayments 431 440 290 Investment in Limited Liability Company . (1,000) - Purchase of FHLB Stock (603) (880) - Net Advances on Loans (19,548) (13,110) (30,739) Purchase of Premises and Equipment (240) (364) (1,301) Proceeds from Sale of Foreclosed Assets 238 350 801 Capital Costs Incurred on Foreclosed Assets (8) (13) - ------------ ------------ ------------- Net Cash Used in Investing Activities $ (20,313) $ (12,333) $ (17,579) ------------ ------------ ------------- Cash Flows from Financing Activities: Net Change in Deposits $ 11,558 $ 6,611 $ 850 Net Change in Short-term Borrowings (1,500) 7,500 - Proceeds from Long-term Debt 37,500 30,100 14,378 Payments on Long-term Debt (19,378) (27,000) - Proceeds from Issuance of Common Stock 20 - - Dividends Paid to Shareholders (741) (1,009) (901) Acquisition of Common Stock by RRP Trust - - (1,829) Purchase of Treasury Stock (5,992) (14,311) (3,445) ------------ ------------ ------------- Net Cash Provided by Financing Activities $ 21,467 $ 1,891 $ 9,053 ------------ ------------ ------------- Net Increase (Decrease) in Cash and Cash Equivalents $ 4,344 $ (6,579) $ (5,627) Cash and Cash Equivalents at Beginning of Year 7,578 14,157 19,784 ------------ ------------ ------------- Cash and Cash Equivalents at End of Year $ 11,922 $ 7,578 $ 14,157 ============ ============ ============= Supplemental Schedule of Noncash Activities: Acquisition of Foreclosed Assets in Settlement of Loans $ 188 $ 121 $ 503 Supplemental Disclosures: Cash Paid For: Interest on Deposits and Borrowings $ 12,154 $ 11,861 $ 10,779 Income Taxes $ 1,203 $ 1,465 $ 1,541
The Accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 22 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 mutual 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, consumer 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. 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 assets acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and foreclosed assets, management obtains independent appraisals for significant properties. Concentration of Credit Risk 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 4. The distribution of commitments to extend credit approximates the distribution of loans outstanding. 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. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (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 income. Unrealized gains and losses on securities available for sale are recognized in other comprehensive income net of applicable income taxes. The cost of securities sold is recognized using the specific identification method. 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. The Company holds one private issue CMO. 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 one percent of the Bank's outstanding home mortgage-related assets or five percent of its outstanding advances from the FHLB. Any stock held in excess of required amounts is redeemable at par. At December 31, 1999 and 1998, the Bank held 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, 1999 and 1998, 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. 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. 24 ACADIANA BANCSHARES, INC., AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued): A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures. 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. Loan Servicing Loan servicing rights are recognized on loans sold when the institution has retained the servicing rights on the loan. The cost of servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of 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. Premises and Equipment Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on either the straight-line method or declining balance method. Depreciation is provided over the estimated useful lives of the respective assets, 15 to 40 years for buildings and 3 to 15 years for furniture, fixtures and equipment. Foreclosed Assets Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expense from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. 25 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. 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. Stock Compensation Plans Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company's stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided proforma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied. Earnings Per Share Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and unvested restricted stock, and are determined using the treasury stock method. Effects of New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("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 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued): 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. Adoption of this statement did not have a material impact on the financial condition or results of operations because it addresses reporting and disclosure issues. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This statement established standards for reporting information about a company's operating segments using a "management approach." The statement requires that reportable segments be identified based upon those revenue-producing components for which separate financial information is produced internally and are subject to evaluation by the chief operating decision maker in deciding how to allocate resources to segments. The provisions of SFAS No. 131 were effective for 1998. The Company has applied the provisions of SFAS No. 131 during 1999 and has evaluated its potential operating segments against the criteria specified in the statement. Based upon that evaluation, the Company has determined that no operating segment disclosures are required in 1999 because of the aggregation concepts specified in the statement. In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of derivatives (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. The statement was to be effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, which amended SFAS 133 to delay the effective date until all fiscal quarters for fiscal years beginning after June 15, 2000. The Company currently has no derivatives and does not have any hedging activities. The Company has not adopted SFAS 133 as of December 31, 1999. The adoption of this statement is not expected to have a material effect on financial position and results of operations. Reclassifications Certain reclassifications have been made to the 1997 and 1998 Consolidated Financial Statements in order to conform to the classifications adopted for reporting in 1999. 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 reserve balance required at December 31, 1999 and 1998 was approximately $423,000 and $446,000, respectively, and the Company satisfied its reserve requirements at both dates. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - INVESTMENT SECURITIES: Securities available for sale consist of the following (in thousands):
December 31, 1999 December 31, 1998 ------------------------------------------ ------------------------------------------ Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value Debt securities: Commercial Paper $ - $ - $ - $ - $ 5,992 $ - $ - $ 5,992 U.S. Government and Federal Agencies 10,493 - (238) 10,255 8,949 25 (1) 8,973 Mortgage-backed 16,114 99 (433) 15,780 11,067 345 (3) 11,409 ---------- ---------- ---------- --------- ---------- ---------- ---------- --------- Total debt securities 26,607 99 (671) 26,008 370 (4) 26,374 Marketable equity 5 20 - 25 5 25 - 30 securities ---------- ---------- ---------- --------- ---------- ---------- ---------- --------- Total $ 26,612 $ 119 $ (671) $ 26,060 $ 26,013 $ 395 $ (4) $26,404 ========== ========== ========== ========= ========== ========== ========== =========
Securities held to maturity consist of the following (in thousands):
December 31, 1999 December 31, 1998 ---------------------------------------- ------------------------------------------ Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value Mortgage-backed $ 11,921 $ 55 $ (18) $ 11,958 $ 12,360 $ 350 $ (16) $ 12,694 ---------- ---------- ---------- ------- ---------- ---------- ---------- --------- Total $ 11,921 $ 55 $ (18) $ 11,958 $ 12,360 $ 350 $ (16) $ 12,694 ========== ========== ========== ======= ========== ========== ========== =========
The following is a summary of maturities of debt securities as of December 31, 1999 (in thousands):
Securities Available for Sale Held to Maturity ------------------------------------ -------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value ----------------- --------------- -------------- ------------- Amounts maturing in: One year or less $ 96 $ 97 $ 5,657 $ 5,698 After one year through five years 16,852 16,623 1,264 1,260 After five years through ten years 2,263 2,114 - - After ten years 7,396 7,201 5,000 5,000 ----------------- --------------- -------------- ------------- Total debt securities $ 26,607 $ 26,035 $ 11,921 $ 11,958 ================= =============== ============== =============
Securities other than mortgage-backed securities are classified according to their contractual maturity without consideration of call features. Accordingly, actual maturities may differ from contractual maturities. Maturity distributions of mortgage-backed securities are based on the average life at the projected speed. During 1999, 1998 and 1997, proceeds from calls and maturities of securities available for sale were NOTES TO CONSOLIDATED FINANCIAL STATEMENTS approximately $19,925,000, $39,925,000, and $22,498,000 respectively, resulting in no realized gain or loss. During 1999, 1998 and 1997, no securities available for sale were sold. 28 Investment securities with a carrying amount and fair value of approximately $5,433,000 and $511,000 at December 31, 1999 and 1998, respectively, were pledged to secure deposits and for other purposes as required or permitted by law. NOTE 4 - LOANS RECEIVABLE: Loans Receivable at December 31, 1999 and 1998 are summarized as follows (in thousands): 1999 1998 -------------- ------------ Mortgage Loans: Single-Family Residential $ 179,109 $ 169,362 Construction 12,612 12,588 Multi-Family Residential 425 481 Commercial Real Estate 18,798 16,887 Equity Lines of Credit 3,406 2,040 ------------- -------------- Total Mortgage Loans 214,350 201,358 Commercial Business Loans 18,144 13,861 Consumer Loans 21,803 19,348 -------------- --------------- Total Loans 254,297 234,567 Less: Allowance for Loan Losses (2,747) (2,726) Net Deferred Loan Fees (222) (300) Unadvanced Loan Funds (6,332) (5,789) -------------- -------------- Loans, net $ 244,996 $ 225,752 ============== ============== At December 31, 1999 and 1998, the Company's loan portfolio included $106,767,000 and $113,691,000 in adjustable-rate loans, respectively. The following is an analysis of the allowance for possible loan losses for the years ended December 31 (in thousands):
1999 1998 1997 ------------ ------------- ------------- Balance, Beginning $ 2,726 $ 2,760 $ 2,592 Provision Charged to Income - 90 180 Loans Charged Off (185) (313) (235) Loans Recovered 206 189 223 ----------- ------------ ----------- Balance, Ending $ 2,747 $ 2,726 $ 2,760 =========== ============ ===========
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - LOAN SERVICING: Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others was $20,841,000 and $23,346,000 at December 31, 1999 and 1998, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing were approximately $207,000 and $367,000 at December 31, 1999 and 1998, respectively. Loan servicing rights of $8,000 and $91,000 were capitalized in 1999 and 1998, respectively. Amortization of loan servicing rights was $22,000, $17,000, and $6,000 in 1999, 1998 and 1997, respectively, and the balance of loan servicing rights at December 31, 1999 and 1998 was $87,000 and $101,000, respectively. NOTE 6 - INVESTMENT IN LIMITED LIABILITY COMPANY: The Company owns a 40 percent investment in Cadence Holdings, LLC ("Cadence"), an affiliate in the financial services industry, which is accounted for under the equity method. A limited liability company (LLC) is a legal form of doing business that combines partnership and corporate attributes. The Company is a guarantor in the amount of $400,000 for a $1,000,000 bank line of credit to Cadence which is dated January 1999. NOTE 7 - PREMISES AND EQUIPMENT: Premises and equipment at December 31 is as follows (in thousands): 1999 1998 -------------- ------------- Land $ 930 $ 929 Office Buildings 1,963 1,832 Furniture, Fixtures and Equipment 3,311 3,241 Transportation Equipment 104 95 --------------- -------------- 6,308 6,097 Accumulated Depreciation (3,651) (3,320) ---------------- -------------- Premises and Equipment, Net $ 2,657 $ 2,777 =============== ============== NOTE 8 - DEPOSITS: At December 31, 1999, scheduled maturities of certificates of deposit accounts were as follows (in thousands): Amount ------ 2000 $ 64,432 2001 67,029 2002 12,601 2003 4,486 2004 2,042 Thereafter 1,031 ------------ Total Certificates of Deposit $ 151,621 ============ Certificates of deposit with a balance of $100,000 and over were $43,473,000 and $37,492,000 at December 31, 1999 and 1998, respectively. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - LONG-TERM DEBT: Federal Home Loan Bank advances totaled $63,850,000 and $47,228,000 as of December 31, 1999 and 1998, respectively, including $6,000,000 and $7,500,000, respectively, in short-term borrowings, which are secured by mortgage loans under an existing blanket collateral agreement and by FHLB stock. No payments are scheduled prior to maturity. The Company has the ability to borrow total advances up to $125,850,000 from the FHLB, which would also be secured by the existing blanket collateral agreement and by FHLB stock. Long-term debt at December 31, 1999 and 1998 is as follows (in thousands):
Interest Rate 1999 1998 ------------- ------------- ------------- Variable rate - 5.05% to 5.45% at December 31, 1998 $ - $ 9,378 Fixed rate - 4.93% to 8.70% at December 31, 1999 57,850 30,350 ------------ ------------- Total Long-term Debt $ 57,850 $ 39,728 ============ =============
Advances at December 31, 1999 have maturities in future years as follows (in thousands): Year Ending December 31 Amount ----------------------- ------ 2001 $ 2,500 2003 3,100 2005 250 2008 17,000 2009 35,000 ---------- Total $ 57,850 ============ No payments are scheduled prior to maturity; however a significant portion of the advances contain a quarterly call feature beginning between one and three years after the date of issuance, therefore, actual repayments could vary from contractual maturities. Variable rates were indexed to LIBOR (London Inter-Bank Offered Rate) and repriced either monthly or quarterly. NOTE 10 - INCOME TAXES: The provision for Income Tax Expense is as follows for the years ended December 31 (in thousands): 1999 1998 1996 ---------- ---------- ----------- Current: Federal $ 1,196 $ 1,431 $ 1,623 State - 13 7 Deferred Tax Expense (Benefit) 33 (17) 2 ---------- ----------- ----------- Total Income Tax Expense $ 1,229 $ 1,427 $ 1,632 ========== ========== =========== There was an income tax receivable of $19,000 at December 31, 1999 and an income tax payable of $12,000 at December 31, 1998. 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: 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - INCOME TAXES (Continued): 1999 1998 1996 ------------ ------------ ------------- Current: Federal $ 1,196 $ 1,431 $ 1,623 State - 13 7 Deferred Tax Expense (Benefit) 33 (17) 2 ------------ ------------ -------------- Total Income Tax Expense $ 1,229 $ 1,427 $ 1,632 ============ ============ ============= There was an income tax receivable of $19,000 at December 31, 1999 and an income tax payable of $12,000 at December 31, 1998. 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: 1999 1998 1997 ------------ ------------ -------- Statutory Federal Income Tax Rate 34.0% 34.0% 34.0% Increase in Taxes Resulting From: State Income Tax on Non-Bank Entities - .3 0.2 Nondeductible ESOP 1.5 1.6 1.3 Other Items .3 0.4 0.1 ------------ ------------ --------- Effective Tax Rate 35.8 % 36.3% 35.6% ============ ============ ========= The tax effects of principal temporary differences at December 31 are as follows (in thousands): 1999 1998 ---- ---- Deferred Tax Assets: Deferred loan fees $ 69 $ 86 Book provision for losses on loans and foreclosed assets 948 939 Depreciable property basis differences 32 30 ESOP and RRP expenses 156 141 Unrealized losses on Trading Securities 15 27 Unrealized losses on Securities Available for Sale 187 - Other 29 39 ----- ------- Subtotal 1,436 1,262 ----- ------- Deferred Tax Liabilities: Discount Accretion on Investment Securities - 40 FHLB stock 394 338 Unrealized gains on Securities Available for Sale - 133 Acquisition Costs 4 - ----- ------- Subtotal 398 511 ----- ------- Net Deferred Tax Asset $1,038 $ 751 ====== ======= 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 1999 or 1998. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - INCOME TAXES (Continued): Retained earnings at December 31, 1999 and 1998, included approximately $7,073,000 accumulated prior to January 1, 1987 for which no provision for federal income taxes has been made. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, it will be added to future taxable income. NOTE 11 - EARNINGS PER SHARE: Weighted average shares of common stock outstanding for basic EPS excludes the weighted average shares unreleased by the Employee Stock Ownership Plan ("ESOP") Trust (152,727, 174,618, and 196,578 shares at December 31, 1999, 1998, and 1997 respectively) and the weighted average unvested shares in the Recognition and Retention Plan ("RRP") Trust (80,109, 95,493, and 96,769 shares at December 31, 1999, 1998 and 1997, respectively). The effect on diluted EPS of stock option shares outstanding and unvested RRP shares is calculated using the treasury stock method. The following is a reconcilement of the numerator and denominator for basic and diluted Earnings Per Share:
For the Years Ended December 31, -------------------------------- 1999 1998 1997 ---- ---- ---- Numerator: Income Applicable to Common Shares $2,206,000 $2,505,000 $2,947,000 ========== ========== ========== Denominator: Weighted Average Common Shares Outstanding 1,377,635 2,088,775 2,408,779 Effect of Dilutive Securities: Stock Options Outstanding 12,584 44,649 38,315 RRP Grants 32,336 15,800 15,932 --------- --------- --------- Weighted Average Common Shares Outstanding Assuming Dilution 1,422,555 2,149,224 2,463,026 ========= ========= ========= Earnings per Share $1.60 $1.20 $1.22 ========= ========= ========= Earnings per Share - Assuming Dilution $1.55 $1.17 $1.20 ========= ========= =========
NOTE 12 - REGULATORY MATTERS: The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's and Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. 33 Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 1999 and 1998, that the Company and the Bank met all capital adequacy requirements to which they are subject. As of December 31, 1999, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank's category. The Company's and the Bank's actual capital amounts and ratios as of December 31, 1999 and 1998 are also presented in the table.
Minimum to be Well Minimum Capitalized Under Capital Prompt Corrective Actual Requirement Action Provisions Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (dollars in thousands) December 31, 1999: - - ------------------ Total Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. $30,232 17.5% $13,810 8.0% $ N/A N/A% LBA Savings Bank 26,858 15.7% 13,687 8.0% 17,108 10.0% Tier 1 Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. 28,058 16.3% 6,905 4.0% N/A N/A% LBA Savings Bank 24,703 14.4% 6,843 4.0% 10,265 6.0% Tier 1 Capital to Average Assets: Acadiana Bancshares, Inc. 28,058 9.2% 12,144 4.0% N/A N/A% LBA Savings Bank 24,703 8.2% 11,999 4.0% 14,999 5.0% December 31, 1998: - - ------------------ Total Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. 33,971 20.9% 13,026 8.0% N/A N/A% LBA Savings Bank 26,082 16.8% 12,392 8.0% 15,490 10.0% Tier 1 Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. 31,916 19.6% 6,513 4.0% N/A N/A% LBA Savings Bank 24,125 15.6% 6,196 4.0% 9,294 6.0% Tier 1 Capital to Average Assets: Acadiana Bancshares, Inc. 31,916 11.3% 11,271 4.0% N/A N/A% LBA Savings Bank 24,125 8.9% 10,839 4.0% 13,549 5.0%
LBA Savings Bank is restricted under applicable laws in the payment of dividends to an amount NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Dividends payable without permission by LBA Savings Bank in 2000 will be limited to 2000 earnings plus an additional $182,000. 34 NOTE 13 - EMPLOYEE BENEFITS: 401(k) Plan The Company maintains a 401(k) Profit Sharing Plan to provide retirement benefits for substantially all employees. Eligible employees may defer up to ten percent of compensation. All employees are eligible after completing one year of service and attaining age 21. Employee Stock Ownership Plan In connection with the conversion from mutual to stock form, the Company established an Employee Stock Ownership Plan ("ESOP") Trust 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 offering, 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. Continuing its practice, the Company anticipates that contributions will be made to the plan in amounts necessary to amortize the debt to the Company over a period of ten years. Shares purchased by the ESOP with the proceeds of the loan are held in a suspense account and released on a pro-rata basis as debt service payments are made. Shares released are allocated among participants on the basis of compensation. Participants 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 the cost of which are shown as a reduction of stockholders' equity. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company recognizes 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 is credited to equity. The Company receives 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. Compensation cost of the ESOP for the year ended December 31, 1999, was $408,000 based on the release of 21,892 shares. For the year ended December 31, 1998, compensation cost of the ESOP was $455,000 based on the release of 21,892 shares. For the year ended December 31, 1997, compensation cost of the ESOP was $440,000 based on the release of 21,892 shares. There were 73,423, 53,793 and 32,707 allocated and 141,878, 163,770 and 185,662 shares held in suspense by the ESOP for the years ended December 31, 1999, 1998 and 1997, respectively. The fair value of the unearned ESOP shares at December 31, 1999 and 1998, using the quoted market closing price per share, was approximately $2,784,000 and $2,866,000, respectively. 35 Recognition and Retention Plan The Company established the Recognition and Retention Plan (RRP) Trust 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 years ended December 31, 1999, 1998 and 1997, the recognition and retention plan expense was $271,000, $232,000 and $227,000, respectively. The weighted-average grant-date fair value of the restricted stock granted under the RRP during the years ended December 31, 1999, 1998 and 1997 was $20.50, $17.36 and $15.50, respectively. 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 Granted (11,900) 11,900 Forfeited 1,600 (1,600) Earned and Issued - (14,639) -------- --------- Balance, December 31, 1998 25,748 68,863 Granted (7,000) 7,000 Forfeited - - Earned and Issued - (17,223) -------- --------- Balance, December 31, 1999 18,748 58,640 ======== ========= 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 ten years. The stock options granted to directors and officers are subject to 20 percent vesting per year and are exercisable upon vesting. 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 by the Company. 36 The following table summarizes the activity related to stock options: Weighted- Available Options Average for Grant Outstanding Exercise Price At inception - January 22, 1997 273,125 - Granted (211,701) 211,701 $ 15.50 Canceled - - Exercised - - ---------- --------- At December 31, 1997 61,424 211,701 $ 15.50 Granted (55,000) 55,000 $ 17.26 Canceled 8,000 (8,000) $ 15.50 Exercised - - ---------- --------- At December 31, 1998 14,424 258,701 $ 15.75 Granted (10,000) 10,000 $ 20.05 Canceled 2,000 (2,000) $ 15.50 Exercised - (7,000) $ 15.50 ---------- --------- At December 31, 1999 6,424 259,701 $ 16.05 ========== ========= Exercisable at December 31, 1997 - ========= Exercisable at December 31, 1998 42,340 $ 15.50 ========= Exercisable at December 31, 1999 89,279 $ 15.72 ========= The weighted-average remaining life of the outstanding options at December 31, 1999 is 7.5 years. The weighted-average grant-date fair value of options granted during the years ended December 31, 1999, 1998 and 1997 was $3.91, $5.66 and $4.32, respectively. In October 1995, the FASB issued 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 (in thousands, except per share data): 1999 1998 1997 ---- ---- ---- Net income As reported $ 2,206 $ 2,505 $ 2,947 Pro forma $ 2,003 $ 2,344 $ 2,804 Earnings per share As reported - Basic $ 1.60 $ 1.20 $ 1.22 - Diluted $ 1.55 $ 1.17 $ 1.20 Pro forma - Basic $ 1.45 $ 1.12 $ 1.16 - Diluted $ 1.41 $ 1.09 $ 1.14 37 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 1999, 1998 and 1997 grants: dividend yields of 2.79, 2.15 and 2.20 percent; expected volatility of 11.26, 27.7 and 16.91 percent; risk-free interest rate of 5.90, 5.48 and 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 Bank has granted loans to principal officers and directors and their affiliates amounting to $613,000 at December 31, 1999 and $506,000 at December 31, 1998. During the year ended December 31, 1999, total principal additions were $296,000 and total principal payments were $189,000. Deposits from related parties held by the Bank at December 31, 1999 amounted to $1,690,000. The Company has an employment agreement with an executive officer under which the Company agreed to pay compensation of $130,000 annually (plus merit increases) through October 31, 2000. The Company has also entered into severance agreements with seven officers. The total commitments under the severance agreements at December 31, 1999 was $992,000. 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 Consolidated Balance Sheets. 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. 38
As of December 31, 1999, financial instruments for which the Contract or Notional contract amounts were as follows represent credit risk: Amount (in thousands) Unadvanced Loan Funds $ 6,332 Commitments to Extend Credit $ 18,915 Standby Letters of Credit $ 1
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 issued primarily 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 - ESTIMATED FAIR VALUE 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 Consolidated Balance Sheets. 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. SFAS 107 excludes certain financial instruments and all non-financial 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 Consolidated Balance Sheets 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. Federal Home Loan Bank Stock: The carrying value of FHLB stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank. 39 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 experience and risk characteristics. Deposits: The fair value disclosed for demand deposits (for example, interest-bearing checking accounts and savings 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. FHLB Advances: Maturities are discounted to the Dallas FHLB's Advance yield curve. Accrued Interest: The carrying amounts of accrued interest approximate fair value. Off-Balance Sheet Items: The Company has outstanding commitments to extend credit and stand-by letters of credit. These off-balance sheet financial instruments are generally exerciseable at the market rate prevailing at the date the underlying transaction will be completed and, therefore, have no current value. The estimated fair value of the Company's financial instruments as of December 31 is as follows (in thousands):
1999 1998 ------------------------------ ------------------------------ Estimated Recorded Estimated Recorded Fair Book Fair Book Assets Value Balance Value Balance - - ------------------ ----------- --------- ----------- --------- Cash $ 11,922 $ 11,922 $ 7,578 $ 7,578 Trading Securities 285 285 575 575 Investment Securities 38,017 37,981 39,098 38,764 Federal Home Loan Bank Stock 3,689 3,689 2,920 2,920 Loans Receivable 241,068 244,996 229,840 225,752 Accrued Interest Receivable 1,543 1,543 1,367 1,367 Liabilities - - ------------------- Deposits 214,548 213,212 204,027 201,654 Borrowings 57,863 63,850 47,374 47,228 Accrued Interest Payable 345 345 304 304
40 The following is a summary of the components of other comprehensive income (in thousands):
For The Years Ended December 31, --------------------------------------------------- 1999 1998 1997 ------------ ------------ ------------- Unrealized Gain (Loss) on Securities Available for Sale, Net $ (942) $ (290) $ 101 Reclassification Adjustment for Net Gains Realized in Net Income - - - ------------- ------------ ------------ Other Comprehensive Income (942) (290) 101 Income Tax (Expense) Benefit Related to Other Comprehensive Income 320 98 (34) ------------- ------------ ------------ Other Comprehensive Income, Net of Income Taxes $ (622) $ (192) $ 67 ============= ============ ============
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
(In Thousands, except per share data) First Second Third Fourth Quarter Quarter Quarter Quarter Year Ended December 31, 1999: Total Interest Income $ 5,166 $ 5,214 $5,391 $5,636 Total Interest Expense 2,857 2,927 3,099 3,312 -------- -------- -------- -------- Net Interest Income 2,309 2,287 2,292 2,324 Provision for Loan Losses - - - - ---------- ----------- ----------- ----------- Net Interest Income After Provision for Loan Losses 2,309 2,287 2,292 2,324 Non-interest Income 255 275 218 246 Non-interest Expense 1,718 1,661 1,708 1,684 -------- -------- -------- -------- Income Before Income Taxes 846 901 802 886 Income Tax Expense 300 325 277 327 -------- -------- -------- -------- Net Income 546 576 525 559 ======== ======== ======== ======== Earnings per Share - basic $ .36 $ .41 $ .40 $ .43 ======== ======== ======== ======== Earnings per Share - diluted $ .35 $ .40 $ .39 $ .41 ======== ======== ======== ======== Year Ended December 31, 1998 : Total Interest Income $ 5,342 $ 5,508 $ 5,454 $ 5,249 Total Interest Expense 2,876 3,028 3,111 2,920 -------- -------- -------- -------- Net Interest Income 2,466 2,480 2,343 2,329 Provision for Loan Losses 45 45 - - --------- --------- ----------- ----------- Net Interest Income After Provision for Loan Losses 2,421 2,435 2,343 2,329 Non-interest Income 349 264 135 311 Non-interest Expense 1,574 1,707 1,648 1,726 -------- -------- -------- -------- Income Before Income Taxes 1,196 992 830 914 Income Tax Expense 432 365 310 320 Net Income 764 627 520 594 ======== ======== ======== ======== Earnings per Share - basic $ .33 $ .28 $ .25 $ .34 ======== ======== ======== ======== Earnings per Share - diluted $ .32 $ .27 $ .24 $ .34 ======== ======== ======== ========
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 Northside Branch 2601 Moss Street, Lafayette, Louisiana 70501 Southside Branch 3701 Johnston Street, Lafayette, Louisiana 70503 Broadmoor Branch 5301 Johnston Street, Lafayette, Louisiana 70503 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. Don O'Rourke, Sr. President, Beacham Urology Group, Inc. President, Don J. O'Rourke & Associates, Ltd. John H. DeJean Thomas S. Ortego Retired Self-employed Accountant Lawrence Gankendorff Jerry Reaux Chairman of the Board, President and Chief Executive Officer, Acadiana Bancshares, Inc., and Acadiana Bancshares, Inc., and LBA Savings Bank LBA Savings Bank James J. Montelaro Kaliste J. Saloom, Jr. Executive Vice President - Mortgage Banking, Of Counsel, Saloom & Saloom, Attorneys-at-Law LBA Savings Bank William H. Mouton Retired Attorney, William H. Mouton Law Offices EXECUTIVE OFFICERS - - ------------------------------------------------------------------------------------------------------------------------------------ Lawrence Gankendorff Wayne Bares Chairman of the Board of the Company and the Bank Senior Vice President - Commercial Lending, of the Bank Jerry Reaux Mary Anne S. Bertrand President and Chief Executive Officer of the Company Senior Vice President - Retail Lending, and the Bank Of the Bank James J. Montelaro Emile E. Soulier, III Executive Vice President - Mortgage Banking, Vice President and Chief Financial Officer, Of the Bank Of the Company and the Bank Gregory King Thomas Debaillon Executive Vice President - Chief Operating Officer, Vice President - Operations, of the Bank Of the Company and the Bank
43 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 26, 2000, 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 news sources. Below is a table showing the high and low sales prices of the common stock and cash dividends declared during each quarter of 1999 and 1998:
1999 Quarter Ended High Low Dividends Declared -------------------------------------------------------------------------------- March 31, 1999 $18 3/8 $17 3/8 $0.13 June 30, 1999 $18 7/8 $17 5/8 $0.13 September 30, 1999 $18 7/8 $18 1/4 $0.13 December 31, 1999 $20 7/8 $18 5/8 $0.13 1998 Quarter Ended High Low Dividends Declared -------------------------------------------------------------------------------- March 31, 1998 $23 5/8 $21 5/8 $0.11 June 30, 1998 $25 5/8 $22 $0.11 September 30, 1998 $22 1/2 $15 1/2 $0.11 December 31, 1998 $18 3/8 $15 $0.11
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: (337) 232-4631 Fax: (337) 269-6233 INDEPENDENT AUDITORS Castaing, Hussey, Lolan, & Dauterive, LLP 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 44 EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-10647, 333-64213 and 333-81185) of our report dated February 1, 2000 appearing in the Annual Report on Form 10-K of Acadiana Bancshares, Inc. and Subsidiary for the year ended December 31, 1999. /s/ Castaing, Hussey, Lolan & Dauterive, LLP New Iberia, Louisiana March 29, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
9 0001011024 ARCADIANA BANCSHARES, INC. 1,000 U.S. Dollars Year Dec-31-1999 Jan-01-1999 Dec-31-1999 1 3,668 8,254 0 285 26,060 11,921 11,958 247,743 2,747 305,696 213,212 6,000 884 57,850 0 0 27 27,723 305,696 18,288 2,667 452 21,407 9,488 12,195 9,212 0 (8) 6,771 3,435 3,435 0 0 3,435 1.60 1.55 3.28 0 0 453 0 2,726 (185) 206 2,747 2,747 0 0
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