-----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, U3uC6hBxUgKk5h09D+UYhzjSNU9o92Xw1Rq93XZc04vPOQW5eHIc8RpaGRnnZXOp 9Gp01NMxKwgV/7pFMUwP5Q== 0001116502-02-000357.txt : 20020415 0001116502-02-000357.hdr.sgml : 20020415 ACCESSION NUMBER: 0001116502-02-000357 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALGIERS BANCORP INC CENTRAL INDEX KEY: 0001011296 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 721317594 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 000-20911 FILM NUMBER: 02589492 BUSINESS ADDRESS: STREET 1: 1 WESTBANK EXPRESSWAY CITY: NEW ORLEANS STATE: LA ZIP: 70114 BUSINESS PHONE: 5043678221 10KSB40 1 algiers-10ksb40.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-20911 ALGIERS BANCORP, INC. (Name of small business issuer as specified in its charter) Louisiana 72 - 1317594 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) #1 Westbank Expressway, New Orleans, Louisiana 70114 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (504) 367-8221 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (par value $.01 per share) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB. X Issuer's revenues for the fiscal year ended December 31, 2001 were $3.9 million. As of March 14, 2002, the aggregate market value of the 430,375 shares of Common Stock of the Issuer held by non-affiliates, which excludes 76,148 shares held by all directors, executive officers and employee benefit plans of the Issuer, was approximately $3.7 million. This figure is based on the average of the bid and asked prices of $8.55 per share of the Issuer's Common Stock on March 14, 2002. Number of shares of Common Stock outstanding on March 14, 2002: 506,523 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the 2002 Annual Meeting of Stockholders have been incorporated into Part III of this Form 10-KSB. Transitional Small Business Disclosure Format (check one): Yes No X ----- ----- ALGIERS BANCORP, INC. Annual Report on Form 10-KSB for the Fiscal Year Ended December 31, 2001
TABLE OF CONTENTS Page ---- PART I Item 1. Description of Business........................................................................ 1 Item 2. Description of Properties...................................................................... 29 Item 3. Legal Proceedings.............................................................................. 30 Item 4. Submission of Matters to a Vote of Security Holders............................................ 30 PART II Item 5. Market for Common Equity and Related Stockholder Matters....................................... 30 Item 6. Management's Discussion and Analysis or Plan of Operation...................................... 30 Item 7. Financial Statements........................................................................... 39 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 76 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act....................................................................... 76 Item 10. Executive Compensation......................................................................... 76 Item 11. Security Ownership of Certain Beneficial Owners and Management................................. 76 Item 12. Certain Relationships and Related Transactions................................................. 76 Item 13. Exhibits and Reports on Form 8-K............................................................... 76
(i) PART I. Item 1. Description of Business. - -------------------------------- General Algiers Bancorp, Inc. (the "Company") is a Louisiana corporation organized in February 1996 by Algiers Bank and Trust, formerly Algiers Homestead Association, ("Algiers" or the "Bank") for the purpose of becoming a unitary holding company of the Bank. The only significant assets of the Company are the capital stock of the Bank, the Company's loan to its Employee Stock Ownership Plan (the "ESOP"), and the remainder of the net proceeds retained by the Company in connection with the conversion of the Bank from mutual to stock form on July 8, 1996 (the "Conversion"). The business and management of the Company primarily consists of the business and management of the Bank. The Company neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. The Company does not employ any persons other than officers of the Bank, and the Company utilizes the support staff of the Bank from time to time. Additional employees will be hired as appropriate to the extent the Company expands or changes its business in the future. The Bank is a Louisiana-chartered stock savings and loan association that was originally formed in 1926. The Bank currently conducts business from its main office in New Orleans, Louisiana, a branch office in Terrytown, Louisiana, and a third branch in New Orleans, Louisiana that was opened during the first quarter of 1999. At December 31, 2001, the Company had $51.9 million of total assets, $45.1 million of total liabilities, including $44.9 million of deposits, and $6.8 million of total stockholders' equity (representing 13.0% of total assets). The Bank is primarily engaged in attracting deposits from the general public through its branches and using those and other available sources of funds to originate loans throughout the Greater New Orleans, Louisiana metropolitan area. The Bank originates commercial, construction, home improvement, consumer and one-to-four family residential mortgage loans. The Bank sells the majority of its fixed rate residential mortgage loans in the secondary market. At December 31, 2001, the Company's net loans receivable totaled $28.1 million or 54.2% of the Company's total assets. Conventional first mortgage, one- to four-family residential loans (excluding construction loans) amounted to $11.7 million or 40.8% of the Company's total loan portfolio at December 31, 2001. The Company had $14.4 million of mortgage-backed securities at December 31, 2001, representing 27.7% of the Company's total assets. The Company had $367,000 of investment securities (excluding FHLB stock) at December 31, 2001, representing .7% of total assets. The Bank is a community-oriented financial institution which emphasizes customer service and convenience. It generally has sought to enhance its net income by, among other things, maintaining strong asset quality. In pursuit of these goals, the Bank has adopted a new business strategy that emphasizes lending and deposit products and services traditionally offered by commercial banks, and is less reliant on purchasing mortgage-backed securities. The start-up costs associated with this new strategy are reflected in the loss briefly noted below. Capital Position. As of December 31, 2001, the Bank had total stockholder's equity of $6.4 million and exceeded all of its regulatory capital requirements, with tangible, core and risk-based capital ratios of 12.5%, 12.5% and 24.8%, respectively, as compared to the minimum requirements of 1.5%, 3.0% and 8.0%, respectively. Profitability. The Company had a net loss for the years ended December 31, 2001, 2000 and 1999. Net loss decreased from $568,000 in 2000 to a net loss of $548,000 in 2001, including a net loss of $402,000 sustained by the Company's subsidiary, Algiers Bank and Trust and a $95,000 loss sustained by the Company's subsidiary Algiers.Com. Net loss increased from $367,000 in 1999 to a net loss of $568,000 in 2000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 1 Asset Quality. Management believes that good asset quality is important to the Company's long-term profitability. The Company's total non-performing assets, which consist of non-accruing loans and net real estate owned ("REO"), together with troubled debt restructurings, amounted to $318,000 or .6% of total assets at December 31, 2001, compared to $462,000 or .9% of total assets at December 31, 2000. See "-Asset Quality-Classified Assets." At December 31, 2001, the Company's allowance for loan losses amounted to $415,000 or 1.5% of the total loan portfolio. Interest Rate Risk. The Company attempts to manage its exposure to interest rate risk by maintaining a high percentage of its assets in variable-rate loans, shorter term fixed rate loans, and adjustable-rate mortgage-backed securities. At December 31, 2001, variable-rate loans amounted to $12.7 million or 44.3% of the total loan portfolio. In addition, of the $14.4 million of mortgage-backed securities at December 31, 2001, $10.1 million or 70.2% have adjustable interest rates. Community Orientation. The Bank is committed to meeting the financial needs of the communities in which it operates. Management believes the Bank is large enough to provide a full range of financial services, yet small enough to be able to provide services on a personalized and efficient basis. At December 31, 2001, most of the Bank's loans were located in its primary market area. The Bank intends to continue its practice of investing in loans in its primary market area in accordance with its underwriting standards, subject to economic conditions and the availability of reasonable investment alternatives. The Bank is subject to examination and comprehensive regulation by the Louisiana Office of Financial Institutions ("OFI"), which is the Bank's chartering authority, and by the Office of Thrift Supervision ("OTS"), which is the Bank's primary federal regulator. The Bank is also regulated by the Federal Deposit Insurance Corporation ("FDIC"), the administrator of the Savings Association Insurance Fund ("SAIF"). The Bank is also subject to certain reserve requirements established by the Board of Governors of the Federal Reserve System ("FRB") and is a member of the Federal Home Loan Bank ("FHLB") of Dallas, which is one of the 12 regional banks comprising the FHLB System. The executive office for the Company and the Bank is located at 1 Westbank Expressway, New Orleans, Louisiana 70114, and its telephone number is (504) 367-8221. Market Area The Company's market area consists of seven parishes in the Greater New Orleans area. These include Orleans, Jefferson, Plaquemines, St. Bernard, St. Tammany, St. Charles and St. John Parishes. The traditional components of the area's economic base have consisted of tourism, the port of New Orleans and related shipbuilding, and the petroleum industry. Slowdowns in the petroleum industry had a material negative impact on the area's economy in the early 1980s, which were compounded by defense-related cutbacks in recent years. The area's economy has stabilized in recent years due to development of tourism and convention activities and related service-oriented companies, as well as the gaming industry. In addition, the New Orleans economic base has diversified into areas such as health services, the aerospace industry and research and technology. However, there is still a significant degree of volatility in the local economy due to a continued heavy reliance on the same industries that led to the decline in the 1980s, and there has been a decline in the population since the early 1980s. Competition for deposits and lending in the Greater New Orleans area is substantial, with most of the current competition being from commercial banks. Lending Activities Loan Portfolio Composition. At December 31, 2001, the Company's net loan portfolio totaled $28.1 million, representing approximately 54.2% of the Company's $51.9 million of total assets at that date. The majority of lending activity had been the origination of one-to-four family residential mortgage loans. A greater emphasis is now being placed on the origination of construction loans, commercial loans, home improvement loans, and consumer loans. At December 31, 2001, conventional first mortgage, one- to four-family residential loans 2 (excluding construction loans) amounted to $11.7 million or 40.8% of the total loan portfolio, before net items. In addition, the Company originates construction loans, commercial real estate loans, commercial non-mortgage loans and consumer loans. At December 31, 2001, there were $2.2 million in construction loans amounting to 7.7% of the total loan portfolio, commercial real estate loans totaled $11.7 million or 40.8% of the total loan portfolio, commercial non-mortgage loans totaled $1.1 million or 3.8% of the total loan portfolio and consumer loans amounted to $1.9 million or 6.7% of the total loan portfolio, in each case before net items. Loan Portfolio Composition. The following table sets forth the composition of the Company's loan portfolio by type of loan at the dates indicated.
December 31, 2001 2000 1999 Amount % Amount % Amount % ------- ------- ------- ------- ------- ------- (Dollars in Thousands) Real Estate Loans: Residential: Conventional $ 11,697 40.8% $ 8,719 49.5% $ 8,492 84.0% FHA and VA -- -- -- -- 13 0.1 Construction 2,217 7.7 1,302 7.4 117 1.2 Commercial Real Estate 11,701 40.8 5,740 32.6 200 2.0 ------- ------- ------- ------- ------- ------- Total Real Estate Loans 25,615 89.4 15,761 89.5 8,822 87.3 Commercial - Other 1,098 3.8 -- -- -- -- Consumer Loans: Second Mortgage 239 0.8 351 2.0 338 3.3 Other Consumer Loans 902 3.1 859 4.9 356 3.5 Loans on Deposits 792 2.8 638 3.6 594 5.9 ------- ------- ------- ------- ------- ------- Total Consumer Loans 1,933 6.7 1,848 10.5 1,288 12.7 Total Loans 28,646 100.0% 17,609 100.0% 10,110 100.0% ======= ======= ======= ======= ======= ======= Less: Unearned Interest 20 22 10 Deferred Loan Fees 99 101 882 Allowance for Loan Losses 415 262 230 ------- ------- ------- Net Loans $ 28,112 $ 17,224 $ 9,788 ======= ======= =======
Contractual Terms to Final Maturities. The following table sets forth certain information as of December 31, 2001 regarding the dollar amount of loans maturing in the Bank's portfolio, based on the contractual date of the loan's final maturity, before giving effect to net items. Demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. The amounts shown below do not reflect normal principal amortization; rather, the balance of each loan outstanding at December 31, 2001 is shown in the appropriate year of the loan's final maturity. 3
Commercial Real Commercial Residential Construction Estate Other Consumer Total ------- ------- ------- ------- ------- ------- (Dollars in Thousands) Amounts Due After December 31, 2001 in: One year or less $ 7,892 $ 2,217 $ 3,915 $ 808 $ 318 $15,150 After one year through two years -- -- -- -- 3 3 After two years through three years -- -- -- -- -- -- After three years through five years -- -- 1,357 39 242 1,638 After five years through ten years 915 -- 2,193 53 311 3,472 After ten years through fifteen years 790 -- 1,927 147 544 3,408 After fifteen years 2,100 -- 2,309 51 515 4,975 ------- ------- ------- ------- ------- ------- Total (1) $11,697 $ 2,217 $11,701 $ 1,098 $ 1,933 $28,646 ======= ======= ======= ======= ======= =======
- ------------------------------------ (1) Gross of loans in process, deferred loan fees, unearned discounts and interest, and allowance for loan losses. ------------------------------------ The following table sets forth the dollar amount of all loans, before net items, due after one year from December 31, 2001 as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates. Floating or Fixed- Adjustable Rate Rate Total ------- ------- ------- (Dollars in Thousands) Residential $ 6,102 $ 5,595 $11,697 Commercial Real Estate 6,822 4,879 11,701 Commercial - Other 748 349 1,097 Construction 522 1,695 2,217 Consumer 1,763 171 1,934 ------- ------- ------- Total $15,957 $12,689 $28,646 ======= ======= ======= Scheduled contractual maturities of loans do not necessarily reflect the actual term of the Company's loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of loan prepayments and enforcement of due-on-sale clauses, which give the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan rates substantially exceed rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans substantially exceed current mortgage loan rates. Origination of Loans. The lending activities of the Bank are subject to the written underwriting standards and loan origination procedures established by the Bank's Board of Directors and management. Loan originations are obtained through a variety of sources, including an aggressive officer call program, new marketing strategies, and referrals from real estate brokers, builders and existing customers. Written loan applications are taken by lending personnel, and the loan department supervises the procurement of credit reports, appraisals and other documentation involved with a loan. Property valuations are performed by independent outside appraisers approved by the Bank's Board of Directors or a committee thereof. Under the Bank's real estate lending policy, either a title opinion signed by an approved attorney or a title insurance policy must be obtained for each real estate loan. The Bank also requires fire and extended coverage 4 casualty insurance, in order to protect the properties securing its real estate loans. Borrowers must also obtain flood insurance policies when the property is in a flood hazard area as designated by the Department of Housing and Urban Development. Borrowers may be required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage loan account from which the Bank makes disbursements for items such as real estate taxes, hazard insurance premiums and private mortgage insurance premiums as they become due. The Bank's loan approval process is intended to assess the borrower's ability to repay the loan, the viability of the loan and the adequacy of the value of the property that will secure the loan. The Bank's lending policies require that most loans to be originated by the Bank be approved in advance by the Board of Directors or the Loan Committee. The following table shows total loans originated and repaid during the periods indicated. Year Ended December 31, 2001 2000 1999 -------- -------- -------- (In Thousands) Loan Originations: Residential $ 1,983 $ 1,364 $ 2,760 Construction 4,651 3,003 218 Commercial Real Estate 12,794 6,002 40 Commercial - Other 1,215 -- -- Consumer 1,418 1,468 119 -------- -------- -------- Total Originations 22,061 11,837 3,137 Loan Principal Payments (11,322) (4,464) (2,601) Other Increases, Net (1) 149 63 206 -------- -------- -------- Net Increase in Loan Portfolio $ 10,888 $ 7,436 $ 742 ======== ======== ======== - ------------------------------------ (1) Other items consist of loans in process, deferred loan fees, unearned discounts and interest, and allowance for loan losses. ------------------------------------ Real Estate Lending Standards and Underwriting Policies. Effective March 19, 1993, all financial institutions were required to adopt and maintain comprehensive written real estate lending policies that are consistent with safe and sound banking practices. These lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies adopted by the federal banking agencies, including the OTS, in December 1992 ("Guidelines"). The Guidelines set forth uniform regulations prescribing standards for real estate lending. Real estate lending is defined as extensions of credit secured by liens on interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate, regardless of whether a lien has been taken on the property. An institution's lending policy must address certain lending considerations set forth in the Guidelines, including loan-to-value ("LTV") limits, loan administration procedures, underwriting standards, portfolio diversification standards, and documentation, approval and reporting requirements. The policy must also be appropriate to the size of the institution and the nature and scope of its operations, and must be reviewed and approved by the institution's board of directors at least annually. The LTV ratio framework, with the LTV ratio being the total amount of credit to be extended divided by the appraised value or purchase price of the property at the time the credit is originated, must be established for each category of real estate loans. If a loan is not secured by a first lien, the lender must combine all senior liens when calculating this ratio. The Guidelines, among other things, establish the 5 following supervisory LTV limits: raw land (65%); land development (75%); construction (commercial, multi-family and nonresidential) (80%); improved property and one- to four-family residential construction (85%); and one- to four-family (owner occupied) and home equity (no maximum ratio; however, any LTV ratio in excess of 90% should require appropriate insurance or readily marketable collateral). Certain institutions can make real estate loans that do not conform with the established LTV ratio limits up to 100% of the institution's total capital. Within this aggregate limit, total loans for all commercial, agricultural, multi-family and other non-one-to-four family residential properties should not exceed 30% of total capital. An institution will come under increased supervisory scrutiny as the total of such loans approaches these levels. Certain loans are exempt from the LTV ratios (e.g., those guaranteed by a government agency, loans to facilitate the sale of real estate owned, loans renewed, refinanced or restructured by the original lender(s) to the same borrower(s) where there is no advancement of new funds, etc.). The Bank is in compliance with the above standards. Although Louisiana laws and regulations permit state-chartered savings institutions, such as the Bank, to originate and purchase loans secured by real estate located throughout the United States, the Bank's present lending is done primarily within its primary market area, which consists of Orleans, Jefferson, Plaquemines, St. Bernard, St. Tammany, St. Charles, and St. John Parishes in Louisiana. Subject to the Bank's loans-to-one borrower limitation, the Bank is permitted to invest without limitation in residential mortgage loans and up to 400% of its capital in loans secured by non-residential or commercial real estate. The Bank may also invest in secured and unsecured consumer loans in an amount not exceeding 35% of the Bank's total assets. This 35% limitation may be exceeded for certain types of consumer loans, such as home equity and property improvement loans secured by residential real property. In addition, the Bank may invest up to 10% of its total assets in secured and unsecured loans for commercial, corporate, business or agricultural purposes. At December 31, 2001, the Bank was well within each of the above lending limits. A savings institution generally may not make loans to one borrower and related entities in an amount which exceeds 15% of its unimpaired capital and surplus, although loans in an amount equal to an additional 10% of unimpaired capital and surplus may be made to a borrower if the loans are fully secured by readily marketable securities. At December 31, 2001, the Bank's limit on loans-to-one borrower was $500,000 and its five largest loans or groups of loans-to-one borrower, including persons or entities related to the borrower, amounted to $500,000, $494,000, $492,000, $487,000 and $483,000, respectively, at such date. All of these loans were current at December 31, 2001. Loans on Existing Residential and Commercial Properties. The primary real estate lending activity of the Company is the origination of loans secured by first mortgage liens on residential and commercial property. At December 31, 2001, $23.4 million or 81.6% of the Company's total loan portfolio, before net items, consisted of first mortgage real estate loans (excluding construction loans). The loan-to-value ratio, maturity and other provisions of the loans made by the Bank generally have reflected the policy of making less than the maximum loan permissible under applicable regulations, in accordance with sound lending practices, market conditions and underwriting standards established by the Bank. The Bank's lending policies on one- to four-family residential mortgage loans generally limit the maximum loan-to-value ratio to 95% of the lesser of the appraised value or purchase price of the property, and generally one- to four-family residential loans in excess of an 80% loan-to-value ratio require private mortgage insurance. Residential mortgage loans are amortized on a monthly basis with principal and interest due each month and customarily include "due-on-sale" clauses, which are provisions giving the Bank the right to declare a loan immediately due and payable in the event the borrower sells or otherwise disposes of the real property subject to the mortgage or the loan is not repaid. The Bank enforces due-on-sale clauses to the extent permitted under applicable laws. Various legislative and regulatory changes have given the Bank the authority to originate and purchase mortgage loans which provide for periodic interest rate adjustments subject to certain limitations. The Bank has been 6 actively marketing ARMs in order to decrease the vulnerability of its operations to changes in interest rates. At December 31, 2001, one-to-four family residential ARMs represented $5.6 million or 19.5% of the total loan portfolio, before net items. The Bank's one- to four-family residential ARMs are fully amortizing loans with contractual maturities of up to 30 years. These loans have interest rates which are scheduled to adjust periodically in accordance with a designated index. The margin above the cost of funds index is generally 2.65%. There is a 2% cap on the rate adjustment per period and a 6% cap on the rate adjustment over the life of the loan. The Bank has originated ARMs using other indexes in the past. The adjustable-rate loans in the Bank's loan portfolio are not convertible by their terms into fixed-rate loans, are not assumable without the Bank's consent, do not contain prepayment penalties and do not produce negative amortization. The Bank qualifies borrowers based on the initial interest rate on the ARM rather than the fully indexed rate. In a rising interest rate environment, the interest rate on the ARM will increase on the next adjustment date, resulting in an increase in the borrower's monthly payment. To the extent the increased rate adversely affects the borrower's ability to repay his loan, the Bank is exposed to increased credit risk. As of December 31, 2001, the Bank's non-accruing loans were $115,000. See "Asset Quality." The demand for adjustable-rate loans in the Bank's primary market area has been a function of several factors, including the level of interest rates, and the difference between the interest rates offered by competitors for fixed-rate loans and adjustable-rate loans. Due to the generally lower rates of interest prevailing in recent periods, the market demand for adjustable-rate loans has decreased as consumer preference for fixed-rate loans has increased. The Bank currently offers fixed rate products with maturities up to 30 years. The Bank is an approved FHA/VA Lender. This designation authorizes the Bank to make certain types of government loans for sale in the secondary market. In addition, the Bank offers FHA Title I home improvement loans. As of December 31, 2001, the Bank had three lending officers on its staff. Loans which meet the Bank's underwriting criteria will be kept in the Bank's loan portfolio. Loans may be sold in the secondary market as determined by management. Construction Loans. Construction lending is generally considered to involve a higher degree of risk of loss than long-term financing on improved, owner-occupied real estate because of the uncertainties of construction, including the possibility of costs exceeding the initial estimates and the need to obtain a tenant or purchaser if the property will not be owner-occupied. The Company generally attempts to mitigate the risks associated with construction lending by, among other things, lending primarily in its market area, using conservative underwriting guidelines, and closely monitoring the construction process. There were 23 construction loans in the Bank's portfolio at December 31, 2001 totaling $2.2 million or 7.7% of the total portfolio. Commercial Real Estate Loans. The Company's commercial real estate loan portfolio primarily consists of loans secured by office buildings, retail establishments, churches and multi-family dwellings located within the Company's primary market area. Commercial real estate loans amounted to $11.7 million or 40.8% of the total loan portfolio at December 31, 2001. The largest commercial real estate loan at December 31, 2001 was $500,000 and the remaining commercial real estate loan portfolio at December 31, 2001 consisted of 26 loans with an average balance of $431,000. Nonresidential real estate loans may have terms up to 30 years and generally have adjustable rates of interest. As part of its commitment to loan quality, the Company's senior management reviews each nonresidential loan prior to approval by the Board of Directors. All loans are based on the appraised value of the secured property and loans are generally not made in amounts in excess of 70% of the appraised value of the secured property. All appraisals are performed by an independent appraiser designated by the Company and are reviewed by management. In originating nonresidential loans, the Company considers the quality of the property, the credit of the borrower, the historical and projected cash flow of the project, the location of the real estate and the quality of the property management. The Company originated $2,174,000 and purchased participations totaling $9,762,000 in commercial real estate loans in 2001 and originated $1,019,000 and purchased participations totaling $4,551,000 in commercial real estate loans in 2000. 7 Commercial real estate lending is generally considered to involve a higher degree of risk than single-family residential lending. Such lending typically involves large loan balances concentrated in a single borrower or groups of related borrowers for rental or business properties. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. The Company generally attempts to mitigate the risks associated with commercial real estate lending by, among other things, lending primarily in its market area and using low LTV ratios in the underwriting process. Commercial - Other. The Company's other commercial loan portfolio primarily consists of loans secured by receivables and equipment. Other commercial loans amounted to $1.1 million or 3.8% of the total loan portfolio at December 31, 2001. The largest other commercial loan not secured by real estate at December 31, 2001 was $349,000 and the remaining other commercial loan portfolio at December 31, 2001 consisted of 24 loans with an average balance of $31,000. Consumer Loans. The Company's consumer loans consist of loans on deposits, boat, automobile and second mortgage loans. At December 31, 2001, loans on deposits amounted to $792,000, representing 41.0% of total consumer loans and 2.8% of the total loan portfolio, before net items. Loans secured by deposit accounts are generally offered with an interest rate equal to 2% above the rate on the deposit account. The Company's second mortgage loans amounted to $239,000 or .8% of the total loan portfolio at December 31, 2001. The second mortgages are secured by one-to-four family residences, are for a fixed amount and a fixed term, and are made to individuals for a variety of purposes. The Company's other consumer loans consisted of 102 loans in the aggregate amount of $902,000 or 3.1% of the total loan portfolio at December 31, 2001. The largest of these loans, in the amount of $29,000 or .1% of the total loan portfolio at December 31, 2001, is secured by an automobile. Loan Fees and Servicing Income. In addition to interest earned on loans, the Company receives income through the servicing of loans and loan fees charged in connection with loan originations and modifications, late payments, prepayments, changes of property ownership and for miscellaneous services related to its loans. Income from these activities varies from period-to-period with the volume and type of loans made. Loan origination fees or "points" are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. The Company's loan origination fees are offset against direct loan origination costs, and the resulting net amount is deferred and amortized as interest income over the contractual life of the related loans as an adjustment to the yield of such loans. At December 31, 2001, the Company had approximately $99,000 of loan fees which had been deferred. The deferred loan fees are being recognized as income over the lives of the related loans. 8 Asset Quality Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 2001, in dollar amounts and as a percentage of the Company's total loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts which are past due.
December 31, 2001 ----------------------------------------------------------------------- 30 - 59 60 - 89 90 or More Days Overdue Days Overdue Days Overdue Percent Percent Percent of Total of Total of Total Amount Loans Amount Loans Amount Loans ------ -------- ------ -------- ------ -------- Residential $ -- --% $240 1.36% $428 2.43% Commercial Real Estate -- -- -- -- 316 1.79 Commercial - Other 23 0.13 -- -- -- -- Construction -- -- 178 1.01 78 0.44 Consumer 162 0.92 4 0.02 78 0.44 ---- ---- ---- ---- ---- ----- Total Delinquent Loans $185 1.05% $422 2.40% $900 5.11% ==== ==== ==== ==== ==== ====
Nonperforming Assets. When a borrower fails to make a required loan payment, the Company attempts to cause the default to be cured by contacting the borrower. In general, contacts are made after a payment is more than 15 days past due. A significant portion of the Company's loans provide for a 45 day grace period, and no late charge is assessed on these loans until the payment is 46 days past due. Defaults are cured promptly in most cases. If the delinquency on a mortgage loan exceeds 90 days and is not cured through the Company's normal collection procedures, or an acceptable arrangement is not worked out with the borrower, the Company will commence foreclosure action. If foreclosure is effected, the property is sold at a sheriff's sale. If the Company is the successful bidder, the acquired real estate property is then included in the Company's "real estate owned" account until it is sold. The Bank is permitted under applicable regulations to finance sales of real estate owned by "loans to facilitate" which may involve more favorable interest rates and terms than generally would be granted under the Bank's underwriting guidelines. At December 31, 2001, the Bank had one loan to facilitate. The Company generally places loans on non-accrual status when the payment of interest becomes more than 90 days past due or when interest payments are otherwise deemed uncollectible. The following table sets forth the amount of the Company's non-performing assets at the dates indicated. 9 December 31, 2001 2000 1999 ---- ---- ---- (Dollars in Thousands) Nonperforming Assets: Non-Accruing Loans $115 $211 $177 Real Estate Owned, Net (1) 203 251 251 ---- ---- ---- Total Nonperforming Assets $318 $462 $428 ==== ==== ==== Troubled Debt Restructurings $ -- $ -- $ -- ==== ==== ==== Total Nonperforming Loans and Troubled Debt Restructurings as a Percent of Total Loans 0.40% 1.20% 1.75% Total Nonperforming Assets and Troubled Debt Restructurings as a Percent of Total Assets 0.61% 0.94% 0.92% - ------------------------------------ (1) Net of related loss allowances as of each date shown, which allowances at December 31, 2001, 2000 and 1999 amounted to $272,000, $312,000 and $312,000, respectively, for real estate owned. ------------------------------------ The $115,000 of non-accruing loans at December 31, 2001 consisted of two one-to four-family residential loans for $32,000, five consumer loans for $33,000, and one construction loan for $50,000. The largest non-accruing loan at December 31, 2001 consisted of a $50,000 fixed-rate construction loan secured by a residence. The Company's real estate owned at December 31, 2001 consisted of a former furniture store and warehouse and a one-to-four family residential property. The $203,000 of real estate owned at December 31, 2001 is net of a $272,000 allowance for loss. See Note G of Notes to Consolidated Financial Statements. Classified Assets. All loans are reviewed on a regular basis under the Company's asset classification policy. The Company's total classified assets at December 31, 2001 (excluding loss assets specifically reserved for) amounted to $1.2 million, of which $0 was classified as special mention and $1.2 million was classified as substandard. The largest classified asset at December 31, 2001 consisted of other real estate totaling $464,000. The Company has established reserves of $261,000 on this former furniture store and warehouse. See "Asset Quality-Classified Assets." The remaining $982,000 of substandard assets at December 31, 2001 consisted of (1) residential mortgage loans totaling $513,000, of which the largest loan had a balance of $189,000 at December 31, 2001, (2) other real estate property with a balance of $11,000 which is fully reserved, (3) commercial real estate loans totaling $316,000, of which the largest loan had a balance of $300,000 at December 31, 2001, (4) construction loans totaling $78,000 and (5) consumer loans totaling $77,000. The $300,000 substandard commercial real estate loan is secured by land and the $189,000 residential mortgage loan is secured by a one-to-four family residence. See "Regulation - The Bank - Classified Assets." Allowance for Loan Losses. At December 31, 2001, the Company's allowance for loan losses amounted to $415,000 or 1.5% of the total loan portfolio. The Company's loan portfolio consists of one-to-four family residential loans, commercial real estate loans, commercial non-mortgage loans, construction loans, home improvement loans and consumer loans. The loan loss allowance is maintained by management at a level considered adequate to cover possible losses that are currently anticipated based on prior loan loss experience, known and inherent risks in the portfolio, adverse situations that 10 may affect the borrower's ability to repay, the estimated value of any underlying collateral, general economic conditions, and other factors and estimates which are subject to change over time. Although management believes that it uses the best information available to make such determinations, future adjustments to allowances may be necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations. The following table summarizes changes in the allowance for loan losses and other selected statistics for the periods presented: At or for the Year Ended December 31, 2001 2000 1999 -------- -------- -------- (Dollars in Thousands) Total Loans Outstanding $ 28,646 $ 17,609 $ 10,110 Allowance for Loan Losses Beginning Balance $ 262 $ 230 $ 506 Provision (Credit) for Loan Losses 167 39 -- Loans (Charged-Off) Recovered (14) (7) (276) -------- -------- -------- Ending Balance $ 415 $ 262 $ 230 ======== ======== ======== Allowance for Loan Losses as a Percent of Total Loans Outstanding 1.45 % 1.49 % 2.27 % Allowance for Loan Losses as a Percent of Nonperforming Loans and Troubled Debt Restructurings 360.87 % 124.17 % 129.94 % The following table presents the allocation of the Company's allowance for loan losses by type of loan at each of the dates indicated.
December 31, ---------------------------------------------------------------------------- 2001 2000 1999 -------------------- -------------------- ---------------------- Loan Loan Loan Category Category Category Amount as a % of Amount as a % of Amount as a % of of Total of Total of Total Allowance Loans Allowance Loans Allowance Loans -------- --------- --------- -------- --------- -------- Residential $207 49.9% $177 67.6% $200 87.0% Construction 4 1.0 -- -- -- -- Commercial Real Estate 131 31.6 70 26.7 -- -- Commercial - Other 11 2.7 -- -- -- -- Consumer 62 14.9 15 5.7 30 13.0 ---- ----- ---- ----- ---- ----- Total $415 100.0% $262 100.0% $230 100.0% ==== ===== ==== ===== ==== =====
11 Mortgage-Backed Securities The Company has invested in a portfolio of mortgage-backed securities that are insured or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") or the Government National Mortgage Association ("GNMA"). Mortgage-backed securities (which also are known as mortgage participation certificates or pass-through certificates) represent a participation interest in a pool of one- to four-family or multi-family residential mortgages, the principal and interest payments on which are passed from the mortgage originators, through intermediaries (generally U.S. government agencies and government sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors such as the Company. FHLMC is a public corporation chartered by the U.S. government and guarantees the timely payment of interest and the ultimate return of principal. FHLMC mortgage-backed securities are not backed by the full faith and credit of the United States, but because FHLMC is a U.S. government sponsored enterprise, these securities are considered high 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. The GNMA guarantees the timely payment of principal and interest, and GNMA securities are backed by the full faith and credit of the U.S. Government. The FNMA guarantees the timely payment of principal and interest, and FNMA securities are indirect obligations of the U.S. government. The $14.4 million of mortgage-backed securities at December 31, 2001 were accounted for as available for sale and are thus carried at market value. For additional information relating to the Company's mortgage-backed securities, see Note E of Notes to Consolidated Financial Statements. Mortgage-backed securities generally yield less than the loans that underlie such securities, because of the cost of payment guarantees or credit enhancements that result in nominal credit risk. In addition, mortgage-backed securities are more liquid than individual mortgage loans and may be used to collateralize obligations of the Company. In general, mortgage-backed pass-through securities are weighted at no more than 20% for risk-based capital purposes, compared to an assigned risk weighting of 50% to 100% for whole residential mortgage loans. As a result, these types of securities allow the Company to optimize regulatory capital to a greater extent than non-securitized whole loans. While mortgage-backed securities carry a reduced credit risk as compared to whole loans, such securities remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both the prepayment speed and value of such securities. The following table sets forth the composition of the Company's mortgage-backed securities at each of the dates indicated. December 31, ----------------------------------------- 2001 2000 1999 ------- ------- ------- (In Thousands) Mortgage-Backed Securities Available for Sale: FNMA $10,390 $12,840 $14,284 FHLMC 2,576 3,366 5,052 GNMA 1,395 5,820 6,718 ------- ------- ------- Total $14,361 $22,026 $26,054 ======= ======= ======= Information regarding the contractual maturities and weighted average yield of the Company's mortgage-backed securities portfolio at December 31, 2001 is presented below. Due to repayments of the underlying loans, the actual maturities of mortgage-backed securities generally are substantially less than the scheduled maturities. 12
Amounts at December 31, 2001 Which Mature in ------------------------------------------------------------------------------- One Year After One to After Five to Over 10 Or Less Five Years 10 Years Years Total ------- ------- ------- ------- ------- (Dollars In Thousands) Available for Sale: FNMA $ 1,184 $ 2,602 $ 2,402 $ 4,202 $10,390 FHLMC 654 953 508 461 2,576 GNMA 298 651 305 141 1,395 ------- ------- ------- ------- ------- Total $ 2,136 $ 4,206 $ 3,215 $ 4,804 $14,361 ======= ======= ======= ======= ======= Weighted Average Yield 4.84% 5.47% 5.69% 5.84% 5.56% ======= ======= ======= ======= =======
The following table sets forth the purchases, sales and principal repayments of the Company's mortgage-backed securities during the periods indicated. At or For the Year Ended December 31, ------------------------------------ 2001 2000 1999 -------- -------- -------- (Dollars in Thousands) Mortgage- Backed Securities at Beginning of Period $ 22,026 $ 26,054 $ 27,392 Purchases 3,762 2,773 6,003 Repayments (3,356) (4,156) (6,195) Sales (8,305) (3,071) -- Mark to Market Adjustments 284 459 (1,054) Amortizations of Premiums and Discounts, Net (50) (33) (92) -------- -------- -------- Mortgage- Backed Securities at End of Period $ 14,361 $ 22,026 $ 26,054 ======== ======== ======== Weighted Average Yield at End of Period 5.56% 6.56% 5.74% ======== ======== ======== Investment Securities The investment policy of the Company, which is established by the Board of Directors, is designed to maintain liquidity within regulatory limits, maintain a balance of high-quality investments to minimize risk, provide collateral for pledging requirements, provide alternative investments when loan demand is low, maximize returns while preserving liquidity and safety, and manage interest rate risk. The Bank maintains certain liquidity ratios, based on its requirements, and does so by investing in securities that qualify as liquid assets. Such securities include obligations issued or fully guaranteed by the United States Government and certain federal agency obligations. Investment securities (excluding FHLB stock) totaled $367,000 or .7% of total assets at December 31, 2001. All $367,000 of investment securities, which consists of U.S. Government and agency securities, are accounted for as available for sale and are carried at market value. Of the $367,000 of investment securities, $102,000 or 27.8% mature within five years of December 31, 2001. 13 The following table sets forth certain information relating to the Company's investment securities portfolio at the dates indicated.
December 31, --------------------------------------------------------------------------------- 2001 2000 1999 --------------------- --------------------- ---------------------- Carrying Market Carrying Market Carrying Market Value Value Value Value Value Value ------ ------ ------ ------ ------ ------ (In Thousands) Available for Sale: FHLB Notes $ -- $ -- $2,699 $2,699 $2,591 $2,591 FNMA Notes -- -- 263 263 216 216 FHLMC Notes -- -- 1,428 1,428 1,372 1,372 SBA 367 367 507 507 983 983 Other -- -- 286 286 348 348 ------ ------ ------ ------ ------ ------ Total Available for Sale 367 367 5,183 5,183 5,510 5,510 ------ ------ ------ ------ ------ ------ Held to Maturity FHLB Stock 609 609 585 585 541 541 ------ ------ ------ ------ ------ ------ Total Held to Maturity 609 609 585 585 541 541 ------ ------ ------ ------ ------ ------ Total $ 976 $ 976 $5,768 $5,768 $6,051 $6,051 ====== ====== ====== ====== ====== ======
The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2001. No tax-exempt yields have been adjusted to a tax-equivalent basis.
Amounts at December 31, 2001 Which Mature in -------------------------------------------------------------------------- One Year After One to After Five to Over 10 Or Less Five Years 10 Years Years Total ------- ---------- ------------ ------ ------- (Dollars In Thousands) Bonds and Other Debt Securities Available for Sale: SBA $ 19 $ 83 $ 126 $ 139 $ 367 ==== ==== ===== ===== ======= Weighted Average Yield 3.99% 3.99% 3.99% 3.99% 3.99% ==== ==== ===== ===== ======= Equity Securities: FHLB Stock (1) $ -- $ -- $ -- $ 609 $ 609 ==== ==== ===== ===== ======= Weighted Average Yield --% --% --% 4.13% 4.13% ==== ==== ===== ===== =======
(1) As a member of the FHLB of Dallas, the Bank is required to maintain its investment in FHLB stock, which has no stated maturity. ------------------------------------ 14 Sources of Funds General. Deposits are the primary source of the Company's funds for lending and other investment purposes. In addition to deposits, the Company derives funds from principal and interest payments on loans and 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. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They may also be used on a longer-term basis for general business purposes. Deposits. The Company's deposits are attracted principally from within the Company's primary market area through the offering of a broad selection of deposit instruments, including non-interest bearing demand deposits, negotiable order of withdrawal ("NOW") accounts, money market deposit accounts ("MMDA's"), regular savings accounts, and term certificate accounts. Included among these deposit products are individual retirement account certificates of approximately $3.8 million or 8.5% of total deposits at December 31, 2001. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit and the interest rate. The large variety of deposit accounts offered by the Bank has increased the Bank's ability to retain deposits and allowed it to be more competitive in obtaining new funds, but has not eliminated the threat of disintermediation (the flow of funds away from savings institutions into direct investment vehicles such as government and corporate securities). During periods of high interest rates, deposit accounts that have adjustable interest rates have been more costly than traditional passbook accounts. In addition, the Bank is subject to short-term fluctuations in deposit flows because funds in transaction accounts can be withdrawn at any time and because 72.0% of the certificates of deposit at December 31, 2001 mature in one year or less. The Bank's ability to attract and maintain deposits is affected by the rate consciousness of its customers and their willingness to move funds into higher-yielding accounts. The Bank's cost of funds has been, and will continue to be, affected by money market conditions. The following table shows the distribution of, and certain other information relating to, the Company's deposits by type of deposit, as of the dates indicated.
December 31, ------------------------------------------------------------- 2001 2000 1999 ----------------- ---------------- ---------------- (Dollars in Thousands) Amount % Amount % Amount % -------- ----- ------- ----- ------- ----- Certificate Accounts: 2.00% - 2.99% $ 5,368 12.0 % $ -- - % $ 22 0.1 % 3.00% - 3.99% 2,252 5.0 -- - 9 0.0 4.00% - 4.99% 8,577 19.1 1,334 3.4 7,738 20.2 5.00% - 5.99% 6,178 13.8 6,456 16.7 17,844 46.5 6.00% - 6.99% 12,284 27.4 21,589 55.7 4,255 11.1 7.00% - 7.99% 488 2.3 571 2.3 882 2.3 8.00% or more -- -- -- -- -- -- -------- ----- ------- ----- ------- ----- Total Certificate Accounts 35,147 78.3 29,950 77.3 30,750 80.1 -------- ----- ------- ----- ------- ----- Transaction Accounts: Savings 4,155 9.3 4,178 10.8 4,680 12.2 MMDAs 2,388 5.3 2,312 6.0 693 1.8 Demand and NOW Accounts 3,171 7.1 2,290 5.9 2,245 5.9 -------- ----- ------- ----- ------- ----- Total Transaction Accounts 9,714 21.7 8,780 22.7 7,618 19.9 -------- ----- ------- ----- ------- ----- Total Deposits $ 44,861 100.0 % $38,730 100.0 % $38,368 100.0 % ======== ===== ======= ===== ======= =====
15 The following table presents the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.
Year Ended December 31, -------------------------------------------------------------- 2001 2000 1999 ------------------ ----------------- ----------------- Average Average Average Average Rate Average Rate Average Rate Balance Paid Balance Paid Balance Paid ------- ----- -------- ---- -------- ---- (Dollars in Thousands) Savings Accounts $ 4,046 2.50 % $ 4,454 2.69 % $ 4,689 2.62 % Demand and NOW Accounts 2,604 1.81 1,888 1.75 1,624 1.85 MMDAs 2,366 3.80 1,194 2.35 717 2.55 Certificates of Deposit 33,728 5.65 29,860 5.80 34,857 5.37 ------- ----- -------- ---- -------- ---- Total Interest-Bearing Deposit $ 42,744 4.91 % $ 37,396 5.11 % $ 41,887 4.88 % ======== ==== ======== ==== ======== ====
The following table sets forth the savings flows of the Company during the periods indicated. Year Ended December 31, ---------------------------- 2001 2000 1999 ------- ------- ------- (In Thousands) Increase (Decrease) Before Interest Credited (1) $ 3,993 $(1,581) $(2,990) Interest Credited 2,138 1,943 1,863 ------- ------- ------- Net Increase (Decrease) in Deposits $ 6,131 $ 362 $(1,127) ======= ======= ======= (1) The information provided is net of deposits and withdrawals because the gross amount of deposits and withdrawals is not readily available. ------------------------------------ The Bank attempts to control the flow of deposits by pricing its accounts to remain generally competitive with other financial institutions in its market area, but does not necessarily seek to match the highest rates paid by competing institutions. The Bank has generally not taken a position of price leadership in its markets, except when there has been an opportunity to market longer term deposits. The principal methods used by the Bank to attract deposits include an aggressive officer call program, new marketing strategies, and the offering of a wide variety of services and accounts, competitive interest rates and convenient office locations. The Bank does not advertise for deposits outside of its primary market area. At December 31, 2001, the Bank had no deposits that were obtained through deposit brokers. The Bank does not actively solicit broker deposits and does not pay fees to such brokers. The following table presents, by various interest rate categories, the amount of certificates of deposit at December 31, 2001 which mature during the periods indicated. 16 Balance at December 31, 2001 Maturing in the 12 Months Ending December 31, ----------------------------------------------- 2002 2003 2004 Thereafter Total ------- ------- ------- ------- ------- Certificates of Deposit (In Thousands) 2.00% - 2.99% $ 5,287 $ 81 $ -- $ -- $ 5,368 3.00% - 3.99% 1,346 389 498 19 2,252 4.00% - 4.99% 7,172 793 609 3 8,577 5.00% - 5.99% 4,865 661 504 148 6,178 6.00% - 6.99% 6,406 4,293 661 924 12,284 7.00% - 7.99% 245 134 109 -- 488 ------- ------- ------- ------- ------- Total Certificate Accounts $25,321 $ 6,351 $ 2,381 $ 1,094 $35,147 ======= ======= ======= ======= ======= The following table sets forth the maturities of the Company's certificates of deposit of $100,000 or more at December 31, 2001 by time remaining to maturity. Maturing During Quarter Ending Amounts - ------------------------------ ------ (In Thousands) March 31, 2002 $ 402 June 30, 2002 312 September 30, 2002 1,323 December 31, 2002 1,408 After December 31, 2002 1,697 ------ Total Certificates of Deposit With Balances of $100,000 or More $5,142 ====== Borrowings The Bank may obtain advances from the FHLB of Dallas upon the security of the common stock it owns in that bank and certain of its residential mortgage loans, investment securities and mortgage-backed securities, provided certain standards related to credit worthiness have been met. See "Regulation - The Bank - - Federal Home Loan Bank System." Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Such advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending. At December 1, 2001, the Bank had no advances from the FHLB. At December 31, 2000, outstanding advances from FHLB totaled $3,000,000, at 6.598%, which matured February 20, 2001, collateralized by mortgage-backed securities. Subsidiaries The Bank is a wholly-owned subsidiary of the Company. At December 31, 2001, the Bank had no subsidiaries. Under Louisiana law, a state-chartered association may invest up to 10% of its assets in service organizations or corporations. In January 1998, the Company formed Algiers.Com, Inc. Algiers.Com, Inc. owns a 51% interest in Planet Mortgage, L.L.C. ("Planet Mortgage"), which was formed during 1998. Planet Mortgage is engaged in the solicitation of mortgage loans through its internet site at www.planetmortgage.com. 17 On December 31, 2001, the Company entered into an agreement to sell its interest in Planet Mortgage, Inc. for $10,000 cash by June 30, 2002. The transaction will result in a gain, which will be included in operations during the second quarter of 2002. Competition The Company faces significant competition both in attracting deposits and in making loans. Its most direct competition for deposits has come historically from commercial banks, credit unions and other savings institutions located in its primary market area, including many large financial institutions which have greater financial and marketing resources available to them. Some of the Company's major competitors include Bank One, Hibernia National Bank, Whitney National Bank and a number of local banks and savings and loans. In addition, the Company faces additional significant competition for investors' funds from short-term money market mutual funds and issuers of corporate and government securities. The Company competes for deposits principally by offering depositors a variety of deposit programs. The Company does not rely upon any individual group or entity for a material portion of its deposits. The Company estimates that its market share of total deposits in Orleans parish and Jefferson parish, Louisiana is less than 1.0%. Factors which affect competition in lending include general and local economic conditions, current interest rate levels and volatility in the lending markets. Employees The Company and its subsidiaries had 24 full-time employees at December 31, 2001. None of these employees are represented by a collective bargaining agent, and the Company believes that it enjoys good relations with its personnel. REGULATION The Company General. The Company, as a registered savings and loan holding company within the meaning of the Home Owners' Loan Act, as amended ("HOLA"), is subject to OTS regulations, examinations, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, the Bank is subject to certain restrictions in its dealings with the Company and affiliates thereof. Activities Restrictions. There are generally no restrictions on the activities of a savings and loan holding company which holds only one subsidiary savings institution. However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings institution, the Director may impose such restrictions as deemed necessary to address such risk, including limiting (i) payment of dividends by the savings institution; (ii) transactions between the savings institution and its affiliates; and (iii) any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings institution subsidiary of such a holding company fails to meet the QTL test, as discussed under "The Bank - Qualified Thrift Lender Test," then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings institution requalifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. See "The Bank - Qualified Thrift Lender Test." If the Company were to acquire control of another savings institution, other than through merger or other business combination with the Bank, the Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency 18 thrift acquisitions and where each subsidiary savings institution meets the QTL test, as set forth below, the activities of the Company and any of its subsidiaries (other than the Bank or other subsidiary savings institutions) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings institution shall commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof any business activity, except upon prior notice to and no objection by the OTS, other than: (i) furnishing or performing management services for a subsidiary savings institution; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies, those activities authorized by the FRB as permissible for bank holding companies. Those activities described in (vii) above also must be approved by the Director of the OTS prior to being engaged in by a multiple savings and loan holding company. Limitations on Transactions with Affiliates. Transactions between savings institutions and any affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and OTS regulations. 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, such provisions (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 such provisions, 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 and 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. At December 31, 2001, the Bank was in compliance with the above restrictions. Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i) control of any other savings institution or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings institution or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock, may acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company. The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings institutions in more than one state if (i) the multiple savings and loan holding company involved controls a savings institution which operated a home or branch office located in the state of the institution to be acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire control of the savings institution pursuant to the emergency acquisition provisions of the Federal 19 Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the institution to be acquired is located specifically permit institutions to be acquired by the state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). Under the Bank Holding Company Act of 1956, the FRB is authorized to approve an application by a bank holding company to acquire control of a savings institution. In addition, a bank holding company that controls a savings institution may merge or consolidate the assets and liabilities of the savings institution with, or transfer assets and liabilities to, any subsidiary bank which is a member of the Bank Insurance Fund ("BIF") with the approval of the appropriate federal banking agency and the FRB. As a result of these provisions, there have been a number of acquisitions of savings institutions by bank holding companies in recent years. The Bank General. The OFI is the Bank's chartering authority, and the OTS is the Bank's primary federal regulator. The OTS and the OFI have extensive authority over the operations of Louisiana-chartered savings institutions. As part of this authority, savings institutions are required to file periodic reports with the OTS and the OFI and are subject to periodic examinations by the OTS, the OFI and the FDIC. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors. The OTS' enforcement authority over all savings institutions and their holding companies includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe and unsound practices. Other actions or inactions may provide the basis for enforcement actions, including misleading or untimely reports filed with the OTS. Insurance of Accounts. The deposits of the Bank are insured to the maximum extent permitted by the SAIF, which is administered by the FDIC, and are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings institutions, after giving the OTS an opportunity to take such action. Under current FDIC regulations, institutions are assigned to one of three capital groups which are based solely on the level of an institution's capital--"well capitalized," "adequately capitalized," and "undercapitalized"--which are defined in the same manner as the regulations establishing the prompt corrective action system discussed below. These three groups are then divided into three subgroups which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial supervisory concern. The deposits of the Bank are currently insured by the SAIF. Both the SAIF and the BIF, the federal deposit insurance fund that covers commercial bank deposits, are required by law to attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. In the fourth quarter of 1996, the FDIC lowered the assessment rates for SAIF members to reduce the disparity in the assessment rates paid by BIF and SAIF members. Beginning October 1, 1996, effective SAIF rates generally range from zero basis points to 27 basis points. From 1998 through 1999, SAIF members will pay 6.4 basis points to fund the FICO, while BIF member institutions will pay approximately 1.3 basis points. The Bank's insurance premiums, which had amounted to 23 basis points, were thus reduced to 6.4 basis points effective January 1, 1998. 20 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 which would result in termination of the Bank's deposit insurance. Regulatory Capital Requirements. Federally insured savings institutions are required to maintain minimum levels of regulatory capital. The OTS has established capital standards applicable to all savings institutions. These standards generally must be as stringent as the comparable capital requirements imposed on national banks. The OTS also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. Current OTS capital standards require savings institutions to satisfy three different capital requirements. Under these standards, savings institutions must maintain "tangible" capital equal to at least 1.5% of adjusted total assets, "core" capital equal to at least 3.0% of adjusted total assets and "total" capital (a combination of core and "supplementary" capital) equal to at least 8.0% of "risk-weighted" assets. For purposes of the regulation, core capital generally consists of common stockholders' equity (including retained earnings). Tangible capital is given the same definition as core capital but is reduced by the amount of all the savings institution's intangible assets, with only a limited exception for purchased mortgage servicing rights. At December 31, 2001, the Bank had no intangible assets which are deducted in computing its tangible capital. Both core and tangible capital are further reduced by an amount equal to a savings institution's debt and equity investments in subsidiaries engaged in activities not permissible to national banks (other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies). At December 31, 2001, the Bank had no subsidiaries. In determining compliance with the risk-based capital requirement, a savings institution is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the savings institution's core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk weight based on the risks inherent in the type of assets. The risk weights assigned by the OTS for principal categories of assets are (i) 0% for cash and securities issued by the U.S. Government or unconditionally backed by the full faith and credit of the U.S. Government; (ii) 20% for securities (other than equity securities) issued by U.S. Government-sponsored agencies and mortgage-backed securities issued by, or fully guaranteed as to principal and interest by, the FNMA or the FHLMC, except for those classes with residual characteristics or stripped mortgage-related securities; (iii) 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by the FNMA or the FHLMC, qualifying residential bridge loans made directly for the construction of one- to four-family residences, and qualifying multi-family residential loans; and (iv) 100% for all other loans and investments, including consumer loans, commercial loans, and one- to four-family residential real estate loans more than 90 days delinquent, and for repossessed assets. In August 1993, the OTS adopted a final rule incorporating an interest-rate risk component into the risk-based capital regulation. Under the rule, an institution with a greater than "normal" level of interest rate risk will be subject to a deduction of its interest rate risk component from total capital for purposes of calculating its risk-based capital. As a result, such an institution will be required to maintain additional capital in order to comply with the risk-based capital requirement. An institution with a greater than "normal" interest rate risk is defined as an institution that would suffer a loss of net portfolio value exceeding 2.0% of the estimated economic value of its assets in the event of a 200 basis point increase or decrease (with certain minor exceptions) in interest rates. The interest rate risk component will be calculated, on a quarterly basis, as one-half of the difference between an institution's measured interest rate risk and 2.0%, multiplied by the economic 21 value of its assets. The rule also authorizes the Director of the OTS, or his designee, to waive or defer an institution's interest rate risk component on a case-by-case basis. The final rule was originally effective as of January 1, 1994, subject however to a two quarter "lag" time between the reporting date of the data used to calculate an institution's interest rate risk and the effective date of each quarter's interest rate risk component. However, in October 1994 the Director of the OTS indicated that it would waive the capital deductions for institutions with a greater than "normal" risk until the OTS published an appeals process. On August 21, 1995, the OTS released Thrift Bulletin 67 which established (i) an appeals process to handle "requests for adjustments" to the interest rate risk component and (ii) a process by which "well-capitalized" institutions may obtain authorization to use their own interest rate risk model to determine their interest rate risk component. The Director of the OTS indicated, concurrent with the release of Thrift Bulletin 67, that the OTS will continue to delay the implementation of the capital deduction for interest rate risk pending the testing of the appeals process set forth in Thrift Bulletin 67. At December 31, 2001, the Bank exceeded all of its regulatory capital requirements, with tangible, core and risk-based capital ratios of 12.5%, 12.5% and 24.8%, respectively. The following table sets forth the Bank's compliance with each of the above-described capital requirements as of December 31, 2001.
Tangible Core Risk-Based Capital Capital (1) Capital (2) -------- ------ ------ (Dollars in Thousands) Capital Under GAAP $ 6,448 $ 6,448 $ 6,448 Additional Capital Items: General Valuation Allowances (3) -- -- 343 Net Realized Loss on Securities Available for Sale 25 25 25 -------- ------ ------ Regualtory Capital 6,473 6,473 6,816 Minimum Required Regulatory Capital (4) 776 1,552 2,195 -------- ------ ------- Excess Regulatory Capital $ 5,697 $ 4,921 $ 4,621 ======== ======= ======= Regulatory Capital as a Percentage 12.51 % 12.51 % 24.84 % Minimum Capital Required as a Percentage (4) 1.50 3.00 8.00 -------- ------- ------- Regulatory Capital as a Percentage in Excess of Requirements 11.01 % 9.51 % 16.84 % ======== ======= =======
(1) Does not reflect the 4.0% requirement to be met in order for an institution to be "adequately capitalized." See "Prompt Corrective Action." (2) Does not reflect the interest-rate risk component in the risk-based capital requirement, the effective date of which has been postponed as discussed above. (3) General valuation allowances are only used in the calculation of risk-based capital. Such allowances are limited to 1.25% of risk-weighted assets. (4) Tangible and core capital are computed as a percentage of adjusted total assets of $51.7 million. Risk-based capital is computed as a percentage of adjusted risk-weighted assets of $27.4 million. ------------------------------------ Effective November 28, 1994, the OTS revised its interim policy issued in August 1993 under which savings institutions computed their regulatory capital in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under the revised OTS policy, savings institutions must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, savings institutions should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on debt securities reported as a separate component of GAAP capital. 22 Any savings institution that fails any of the capital requirements is subject to possible enforcement actions by the OTS or the FDIC. Such actions could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution's operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The OTS' capital regulation provides that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. Prompt Corrective Action. Under the prompt corrective action regulations of the OTS, an institution is deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not subject to any order or final capital directive to meet and maintain a specific capital level for any capital measure, (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized," (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). An institution generally must file a written capital restoration plan which meets specified requirements with its appropriate federal banking agency within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions. At December 31, 2001, the Bank was deemed a well capitalized institution for purposes of the above regulations and as such is not subject to the above mentioned restrictions. Safety and Soundness. The OTS and other federal banking agencies have established guidelines for safety and soundness, addressing operational and managerial standards, as well as compensation matters for insured financial institutions. Institutions failing to meet these standards are required to submit compliance plans to their appropriate federal regulators. The OTS and the other agencies have also established guidelines regarding asset quality and earnings standards for insured institutions. The Bank believes that it is in compliance with these guidelines and standards. Liquidity Requirements. All savings institutions are required to maintain an average daily balance of liquid assets in accordance with management's policy. The average daily balance is based on a certain percentage of the sum of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. The liquidity requirement may vary from time to time depending upon economic conditions and savings flows of the savings institution. At December 31, 2001, the Bank's liquidity ratio was 50.8%. Capital Distributions. OTS regulations govern capital distributions by savings institutions, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and 23 other transactions charged to the capital account of a savings institution to make capital distributions. Generally, the regulation creates a safe harbor for specified levels of capital distributions from institutions meeting at least their minimum capital requirements, so long as such institutions notify the OTS and receive no objection to the distribution from the OTS. Savings institutions and distributions that do not qualify for the safe harbor are required to obtain prior OTS approval before making any capital distributions. Generally, a savings institution that before and after the proposed distribution meets or exceeds its fully phased-in capital requirements (Tier 1 institutions) may make capital distributions during any calendar year equal to the higher of (i) 100% of net income for the calendar year-to-date plus 50% of its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of net income over the most recent four-quarter period. The "surplus capital ratio" is defined to mean the percentage by which the institution's tangible, core or risk-based capital ratio exceeds its tangible, core or risk-based capital requirement. Failure to meet minimum capital requirements will result in further restrictions on capital distributions, including possible prohibition without explicit OTS approval. See "Regulatory Capital Requirements." In order to make distributions under these safe harbors, Tier 1 and Tier 2 institutions must submit 30 days written notice to the OTS prior to making the distribution. The OTS may object to the distribution during that 30-day period based on safety and soundness concerns. In addition, a Tier 1 institution deemed to be in need of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3 institution as a result of such a determination. At December 31, 2001, the Bank was a Tier 1 institution for purposes of this regulation. Loans to One Borrower. The permissible amount of loans-to-one borrower now generally follows the national bank standard for all loans made by savings institutions. The national bank standard generally does not permit loans-to-one borrower to exceed the greater of $500,000 or 15% of unimpaired capital and surplus. Loans in an amount equal to an additional 10% of unimpaired capital and surplus also may be made to a borrower if the loans are fully secured by readily marketable securities. For information about the largest borrowers from the Bank, see "Business - Lending Activities - Real Estate Lending Standards and Underwriting Policies." Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: "substandard," "doubtful" and "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets, with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated "special mention" also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital up to certain amounts, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution's classifications and amounts reserved. See "Business - Asset Quality - Classified Assets." Branching by Federal Savings Institutions. OTS policy permits interstate branching to the full extent permitted by statute (which is essentially unlimited). Generally, federal law prohibits federal savings institutions from establishing, retaining or operating a branch outside the state in which the federal institution has its home office unless the institution meets the Internal Revenue Service's domestic building and loan test (generally, 60% of a thrift's assets must be housing-related) ("IRS Test"). The IRS Test requirement does not apply if: (i) the branch(es) result(s) from an emergency acquisition of a troubled savings institution (however, if the troubled savings institution is acquired by a bank holding company, does not 24 have its home office in the state of the bank holding company bank subsidiary and does not qualify under the IRS Test, its branching is limited to the branching laws for state-chartered banks in the state where the savings institution is located); (ii) the law of the state where the branch would be located would permit the branch to be established if the federal savings institution were chartered by the state in which its home office is located; or (iii) the branch was operated lawfully as a branch under state law prior to the savings institution's conversion to a federal charter. Furthermore, the OTS will evaluate a branching applicant's record of compliance with the Community Reinvestment Act of 1977 ("CRA"). An unsatisfactory CRA record may be the basis for denial of a branching application. Community Reinvestment Act and the Fair Lending Laws. Savings institutions have a responsibility under the CRA and related regulations of the OTS to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws") prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution's failure to comply with the provisions of CRA could, at a minimum, result in regulatory restrictions on its activities, and failure to comply with the Fair Lending Laws could result in enforcement actions by the OTS, as well as other federal regulatory agencies and the Department of Justice. Qualified Thrift Lender Test. All savings institutions are required to meet a QTL test in order to avoid certain restrictions on their operations. Under Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, a savings institution can comply with the QTL test by either qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended ("Code") or meeting the second prong of the QTL test set forth in Section 10(m) of the HOLA. A savings institution that does not meet the QTL test must either convert to a bank charter or comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. Upon the expiration of three years from the date the savings institution ceases to meet the QTL test, it must cease any activity and not retain any investment not permissible for a national bank and immediately repay any outstanding FHLB advances (subject to safety and soundness considerations). Currently, the prong of the QTL test that is not based on the Code requires that 65% of an institution's "portfolio assets" (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every 12 months. Assets that qualify without limit for inclusion as part of the 65% requirement are loans made to purchase, refinance, construct, improve or repair domestic residential housing and manufactured housing; home equity loans; mortgage-backed securities (where the mortgages are secured by domestic residential housing or manufactured housing); stock issued by the FHLB of Dallas; and direct or indirect obligations of the FDIC. In addition, the following assets, among others, may be included in meeting the test subject to an overall limit of 20% of the savings institution's portfolio assets: 50% of residential mortgage loans originated and sold within 90 days of origination; 100% of consumer and educational loans (limited to 10% of total portfolio assets); and stock issued by the FHLMC or the FNMA. Portfolio assets consist of total assets minus the sum of (i) goodwill and other intangible assets, (ii) property used by the savings institution to conduct its business, and (iii) liquid assets up to 20% of the institution's total assets. At December 31, 2001, the qualified thrift investments of the Bank were approximately 86.3% of its portfolio assets. Federal Home Loan Bank System. The Bank is a member of the FHLB of Dallas, which is one of 12 regional FHLBs that administers the home financing credit function of savings institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. As a member, the Bank is required to purchase and maintain stock in the FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at 25 the beginning of each year. At December 31, 2001, the Bank had $609,000 in FHLB stock, which was in compliance with this requirement. The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low-and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid in the past and could continue to do so in the future. These contributions also could have an adverse effect on the value of FHLB stock in the future. Federal Reserve System. The FRB requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. As of December 31, 2001, no reserves were required to be maintained on the first $5.7 million of transaction accounts, reserves of 3% were required to be maintained against the next $35.6 million of net transaction accounts (with such dollar amounts subject to adjustment by the FRB), and a reserve of 10% (which is subject to adjustment by the FRB to a level between 8% and 14%), is required against all remaining net transaction accounts. Because required reserves must be maintained in the form of vault cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce an institution's earning assets. Louisiana Regulation As a Louisiana-chartered savings association, the Bank also is subject to regulation and supervision by the OFI. The Bank is required to file periodic reports with and is subject to periodic examinations at least once every three years by the OFI. The lending and investment authority of the Bank is prescribed by Louisiana laws and regulations, as well as applicable federal laws and regulations, and the Bank is prohibited from engaging in any activities not permitted by such law and regulations. The Bank is required by Louisiana law and regulations to comply with certain reserve and capital requirements. At December 31, 2001, the Bank was in compliance with all applicable reserve and capital requirements. Louisiana law and regulations also restrict the lending and investment authority of Louisiana-chartered savings institutions. Such laws and regulations restrict the amount a Louisiana-chartered savings association can lend to any one borrower to an amount which, in the aggregate, does not exceed the lesser of (i) 10% of the association's savings deposits or (ii) the sum of the association's paid-in capital, surplus, reserves for losses, and undivided profits. Federal law imposes more restrictive limitations. See "Business-Lending Activities." Notwithstanding the foregoing, Louisiana and federal law permits any such association to lend to any one borrower an aggregate amount of at least $500,000. In addition, Louisiana law restricts the ability of Louisiana-chartered savings associations to invest in, among other things, (i) commercial real estate loans (including commercial construction real estate loans) up to 40% of total assets; (ii) real estate investments for other than the association's offices up to 10% of total assets; (iii) consumer loans, commercial paper and corporate debt securities up to 30% of total assets; (iv) commercial, corporate, business or agricultural loans up to 10% of total assets; and (v) capital stock, obligations and other securities of service organizations up to 10% of total assets. Louisiana law also sets forth maximum loan-to-value ratios with respect to various types of loans. Applicable federal regulations impose more restrictive limitations in certain instances. See "Business-Lending Activities-Real Estate Lending Standards and Underwriting Policies." 26 The investment authority of Louisiana-chartered savings associations is broader in many respects than that of federally-chartered savings and loan associations. However, state-chartered savings associations, such as the Bank, are generally prohibited from acquiring or retaining any equity investment, other than certain investments in service corporations, of a type or in an amount that is not permitted for a federally-chartered savings association. This prohibition applies to equity investments in real estate, investments in equity securities and any other investment or transaction that is in substance an equity investment, even if the transaction is nominally a loan or other permissible transaction. At December 31, 2001, the Bank was in compliance with such provisions. Furthermore, effective January 1, 1990, a state-chartered savings association may not engage as principal in any activity not permitted for federal associations unless the FDIC has determined that such activity would pose no significant risk to the affected deposit insurance fund and the Bank is in compliance with the fully phased-in capital standards prescribed under FIRREA. When certain activities are permissible for a federal association, the state association may engage in the activity in a higher amount if the FDIC has not determined that such activity would pose a significant risk of loss to the affected deposit insurance fund and the Bank meets the fully phased-in capital requirements. This increased investment authority does not apply to investments in nonresidential real estate loans. At December 31, 2001, the Bank had no investments which were affected by the foregoing limitations. Under Louisiana law, a Louisiana-chartered savings association may establish or maintain a branch office anywhere in Louisiana with prior regulatory approval. In addition, an out-of-state savings association or holding company may acquire a Louisiana-chartered savings association or holding company if the OFI determines that the laws of such other state permit a Louisiana-chartered savings association or holding company to acquire a savings association or holding company in such other state. Any such acquisition would require the out-of-state entity to apply to the OFI and receive OFI approval. As previously reported in the Company's Form 10-QSB for the quarterly period ended September 30, 2000, on October 4, 2000, the Office of Thrift Supervision (OTS) issued an order to "Cease and Desist" (the "Order") to the Bank. The Order was issued by the OTS as a result of their examination of the Bank as of April 10, 2000. The Order is an arrangement between the Bank and the OTS in which the Bank agrees to perform, among other things, the following within specified time periods: (a) the Bank shall appoint a permanent compliance officer; (b) the Bank shall develop written policies and procedures for compliance in consumer lending, and for training lending personnel in these policies and procedures and in consumer compliance laws; (c) the Bank shall establish a plan for internal controls and procedures to ensure compliance with compliance regulations, and provide an ongoing monitoring program to assess the effectiveness and progress of compliance controls; (d) the Bank shall review all outstanding loans made since the last OTS compliance examination, dated June 23, 1997 to determine certain compliance matters for reporting to the OTS. As previously reported in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, on March 1, 2000 the Office of Thrift Supervision (OTS) and the Office of Financial Institutions (OFI) issued a preliminary supervisory agreement (the "Agreement") as a result of their examination of the Bank as of November 29, 1999. On April 17, 2000 the Company signed the Agreement, which, among other things, calls for the following actions to be taken within specified time periods: (a) the Bank shall appoint a new Chief Executive Officer, two new directors and a compliance officer; (b) the Bank must formulate a revised three year business plan; (c) the Bank must adopt written policy and procedures for non-real estate commercial and consumer lending; and (d) the Bank must obtain written approval from the regional director for any contractual arrangements with employees or third parties outside of the normal course of business and for any capital distributions. 27 Management believes it has taken affirmative action toward complying with the provisions of the Order and the Agreement. TAXATION Federal Taxation General. The Company and the Bank are subject to the generally applicable corporate tax provisions of the Code, and the Bank is subject to certain additional provisions of the Code which apply to thrifts and other types of financial institutions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters material to the taxation of the Company and the Bank and is not a comprehensive discussion of the tax rules applicable to the Company and the Bank. Year. The Company and the Bank file federal income tax returns on the basis of a calendar year ending on December 31. For 2001 and 2000, the Company and the Bank intend to file a consolidated tax return. Bad Debt Reserves. In August 1966, legislation was enacted that repeals the reserve method of accounting (including the percentage of taxable income method) previously used by many savings institutions to calculate their bad debt reserve for federal income tax purposes. Savings institutions with $500 million or less in assets may, however, continue to use the experience method. As a result, the Bank must recapture that portion of its reserve which exceeds the amount that could have been taken under the experience method for post-1987 tax years. At December 31, 2001, the Bank's post -1987 excess reserves amounted to approximately $445,000. The recapture will occur over a six-year period, the commencement of which was delayed until the first taxable year beginning after December 31, 1998, since the Bank met certain residential lending requirements. The legislation also requires savings institutions to account for bad debts for federal income tax purposes on the same basis as commercial banks for tax years beginning after December 31, 1995. This change in accounting method and reversal and excess bad debt reserves is adequately provided for in the Bank's deferred tax liability. At December 31, 2001, the federal income tax reserves of the Bank included $1.3 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 are 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). 28 Net Operating Loss Carryovers. A financial institution may carry back net operating losses ("NOLs") to the preceding three taxable years and forward to the succeeding 15 taxable years. This provision applies to losses incurred in taxable years beginning after 1986. At December 31, 2001, the Company had $1.7 million in 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 35%. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. However, a corporation may deduct 100% of dividends from a member of the same affiliated group of corporations. Other Matters. Federal legislation is introduced from time to time that would limit the ability of individuals to deduct interest paid on mortgage loans. Individuals are currently 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 Company's federal income tax returns for the tax years ended December 31, 1998 forward 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 Louisiana taxable income, as well as franchise taxes. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana taxable income" means net income which is earned within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction and an allowance for net operating losses, if any. In addition, beginning in 1998, 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 may also be subtracted in calculating a company's capitalized earnings. Item 2. Description of Property. - -------------------------------- At December 31, 2001, the Company and the Bank conducted their business from the Bank's main office and two branch offices in the New Orleans, Louisiana area. The following table sets forth the net book value (including furnishings and equipment) and certain other information with respect to the offices and other properties of the Company at December 31, 2001. 29 Net Book Value Description/Address Leased/Owned of Property - ------------------- ------------ ----------- Main Office: #1 Westbank Expressway New Orleans, LA 70114 Leased $ 172 Branch Offices: 2021 Carol Sue Ave. Terrytown, LA 70056 Owned 352 3008 Holiday Drive New Orleans, LA 70131 Leased 166 ----- Total $ 690 ===== Item 3. Legal Proceedings. - -------------------------- The Company and the Bank are 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 consolidated financial condition and results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. PART II. Item 5. Market for Common Equity and Related Stockholder Matters. - ------------------------------------------------------------------- The Company's stock is not listed on any security exchange. Therefore, the Company does not have exchange data that provides high and low stock prices. The most recent sale of the Company's stock was on March 14, 2002 at $8.55 per share. The payment of dividends on the common stock is subject to determination and declaration by the Board of Directors of the Company. The Board of Directors had previously adopted a policy of paying quarterly cash dividends at a rate of $0.05 per share since the Company's first dividend paid in January 1997. The Board of Directors, responding to regulatory requirements, has elected to suspend the payment of quarterly dividends effective the third quarter of 2000. The payment of future dividends will be subject to the requirements of applicable law and the determination by the Board of Directors that the Company's net income, capital and financial condition, banking industry trends and general economic conditions justify the payment of dividends, and it cannot be assured that dividends will continue to be paid by the Company in the future. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operation - -------------------------------------------------------------------------------- Forward-Looking Statements The Company may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and its reports to stockholders. Statements 30 made in this Annual Report, other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties. Words such as "believe," "estimate," "project," "expect," "intend" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause future results to vary from current expectations include, but are not limited to, the following: changes in economic conditions (both generally and more specifically in the markets in which the Company operates); changes in interest rates, deposit flows, loan demand, real estate values and competition; changes in accounting principles, policies or guidelines and in government legislation and regulation (which change from time to time and over which the Company has no control); and other risks detailed in this Annual Report and in the Company's other public filings. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. General The profitability of the Company and the Bank depend primarily on net interest income, which is the difference between interest and dividend income on interest-earning assets, principally mortgage-backed securities, loans and investment securities and interest expense on interest-bearing deposits. Net interest income is dependent upon the level of interest rates and the extent to which such rates are changing. Profitability also is dependent, to a lesser extent, on the level of its noninterest income, provision (credit) for loan losses, noninterest expense and income taxes. Noninterest expense consists of general, administrative and other expenses, such as compensation and benefits, occupancy and equipment expense, federal insurance premiums, and miscellaneous other expenses. Asset and Liability Management Consistent net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained during periods of fluctuating market interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing "gap", provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets repricing or maturing within a specified period exceeds the amount of interest-rate sensitive liabilities repricing or maturing within such period, and is considered negative when the amount of interest-rate sensitive liabilities repricing or maturing within a specified period exceeds the amount of interest-rate sensitive assets repricing or maturing within such period. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income, and during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would have the opposite effect. However, the effects of a positive or negative gap are impacted, to a large extent, by consumer demand and by discretionary pricing by the Bank's management. The Bank attempts to manage its interest rate risk by maintaining a high percentage of its assets in adjustable-rate mortgage-backed securities and in variable-rate loans and shorter term fixed rate loans. From 1985 to 1995, the only residential mortgages originated by the Bank were ARMs. During 1996, the Bank started offering fixed rate mortgage loans. It was the opinion of management that a mix of fixed rate and adjustable-rate mortgage products would better insulate the Bank from periods of rate fluctuation. At December 31, 2001, the Bank's fixed-rate mortgage-backed securities amounted to $4.3 million or 8.3% of total assets, its variable rate loans amounted to $12.7 million or 24.5% of total assets and its adjustable-rate mortgage-backed securities amounted to $10.1 million or 19.4% of total assets. The interest rates on the variable rate loans and on a portion of the adjustable-rate mortgage-backed securities, however, adjust no more frequently than once a year, with the amount of the change subject to annual limitations, whereas the interest rates on deposits can change more frequently and are not subject to annual limitations. A portion of the Bank's adjustable-rate mortgage-backed securities have interest rates which adjust monthly or semi-annually with limitations on the amount of the increase. 31 Management also monitors and evaluates the potential impact of interest rate changes upon the market value of the Company's portfolio equity on a quarterly basis, in an attempt to ensure that interest rate risk is maintained within limits established by the Board of Directors. In August 1993 the OTS adopted a final rule incorporating an interest rate risk component into the risk-based capital rules. Under the rule, an institution with a greater than "normal" level of interest rate risk will be subject to a deduction of its interest rate risk component from total capital for purposes of calculating the risk-based capital requirement. An institution with a greater than "normal" interest rate risk is defined as an institution that would suffer a loss of net portfolio value ("NPV") exceeding 2.0% of the estimated market value of its assets in the event of a 200 basis point increase or decrease in interest rates. NPV is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. A resulting change in NPV of more than 2% of the estimated market value of an institution's assets will require the institution to deduct 50% of that excess change. The rule provides that the OTS will calculate the interest rate risk component quarterly for each institution. The OTS has recently indicated that no institution will be required to deduct capital for interest rate risk until further notice. Because a 200 basis point increase in interest rates would have decreased the Company's NPV by less than 2% as a percentage of the estimated market value of it assets at December 31, 2001, the Company would not have been subject to any capital deduction as of December 31, 2001 if the regulation had been effective as of such date. The following table presents the Company's NPV as of December 31, 2001, as calculated by the OTS, based on information provided to the OTS by the Bank.
Change in NPV as % of Change in Interest Rates Portfolio NPV as % of in Basis Points Net Portfolio Value Value of Portfolio Value (Rate Shock) Amount $ Change % Change Assets (1) of Assets - ------------------- ------------ ------------ ------------ ---------------- ----------------- (Dollars in Thousands) 400 $ - $ - - % - % - % 300 4,629 (1,272) (22)% 9.35 % (2.08)% 200 5,045 (857) (15)% 10.05 % (1.38)% 100 5,456 (445) (8)% 10.72 % (0.71)% Static 5,901 - - % 11.43 % - % (100) 6,302 401 7 % 12.04 % 0.61 % (200) - - - % - % - % (300) - - - % - % - % (400) - - - % - % - %
(1) Based on the portfolio value of the Company's assets assuming no change in interest rates. ------------------------------------ Changes in Financial Condition Assets. Total assets increased to $51.9 million at December 31, 2001 from $48.9 million at December 31, 2000. Mortgage-backed securities as a percentage of total assets decreased to 27.7% at December 31, 2001 from 45.0% at December 31, 2000. All of the Company's mortgage-backed securities are either insured or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association (FNMA") or the Government National Mortgage Association ("GNMA"). Mortgage-backed securities increase the quality of the Company's assets by virtue of the guarantees that support them, require fewer personnel and overhead costs than individual residential mortgage loans, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of Algiers. However, mortgage-backed securities typically yield less than individual residential mortgage loans. 32 At December 31, 2001, net loans receivable totaled $28.1 million or 54.2% of total assets. Of the total loan portfolio, $11.7 million or 40.8% consisted of residential mortgage loans. Consumer loans accounted for $1.9 million or 6.7% of the total loan portfolio. Commercial real estate loans accounted for $11.7 million or 40.8% of the portfolio and commercial non-mortgage loans accounted for $1.1 million or 3.8% of the portfolio. Mortgage-backed securities and investment securities were 27.7% and .7% of total assets, respectively, at December 31, 2001. Of such amount, $2.2 million or 4.2% of total assets mature within one year of December 31, 2001. See Notes B and E to the Consolidated Financial Statements. Cash and cash equivalents amounted to 12.4% of total assets at such date. Non-performing assets have decreased to .6% at December 31, 2001 from .9% of total assets at December 31, 2000. Non-accruing single-family residential loans represented 10.1% of the $318,000 of total non-performing assets at December 31, 2001. The balance of non-performing assets included one construction loan accounting for 15.7%, consumer loans accounting for 10.4% and other real estate for 63.8%. At December 31, 2001, the Company's allowance for loan losses equaled $415,000 or 1.5% of total loans outstanding. The Company's total deposits increased during 2001 to $44.9 million at December 31, 2001 from $38.7 million at December 31, 2000. Certificates accounts increased by $5.2 million or 17.35% from December 31, 2000 to December 31, 2001, while transaction accounts increased by $934,000 or 10.6% during the period. Total stockholders' equity was $6.8 million at December 31, 2001, a decrease of $237,000 from December 31, 2000. The decrease was due to a net loss for the year of $548,000, partially offset by a $261,000 increase in Accumulated Other Comprehensive Income, a $43,000 allocation to the Employee Stock Ownership Plan, and a $7,000 allocation to the Management Retention Plan Trust. Results of Operations Net income. The Company's net income increased by $20,000 or 3.5% in 2001 and decreased by $201,000 or 54.8% in 2000. The decrease in 2001 is attributable to an increase of $312,000 in non-interest expenses, a decrease in minority interest in loss of a subsidiary of $5,000, and an increase in the provision for loan losses of $128,000, partially offset by an increase of $186,000 in net interest income, an increase of $271,000 in non-interest income, and an increase in income taxes benefit of $8,000. Net Interest Income. The primary source of earnings is net interest income, which is the difference between income generated from interest-earning assets and interest expense from interest-bearing liabilities. Net interest income increased by $186,000 or 17.6% in 2001, and decreased $21,000 or 1.9% in 2000. The increase in 2001 was due to an increase in the interest rate spread and to a lesser extent the decrease in the ratio of average interest-earning assets to average interest-bearing liabilities. Interest rate spread is the yield on interest-earning assets minus the costs of interest-bearing liabilities. The Company's average interest rate spread increased to 2.13% for 2001 from 1.74% for 2000 after decreasing from 1.86% for 1999. In addition, its ratio of average interest-earning assets to average interest-bearing liabilities decreased to 111.33% for 2001 from 113.32% for 2000, which represented a decrease from the 114.25% for 1999. The increase in the average interest rate spread was due to the average rate paid on interest-bearing liabilities decreasing, while the average yield on interest-earning assets increased. Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. 33
Year Ended December 31, ------------------------------------------------------------------------------------ 2001 2000 1999 ------------------------- ------------------------- ------------------------- Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- ------- ---- ------- ------- ---- ------- ------- ---- Interest- Earning Assets: Loans Receivable (1) $22,962 $ 2,060 8.97% $ 13,424 $ 1,111 8.28% $ 9,543 $ 881 9.23% Mortgage-Backed Securities 14,325 873 6.09 24,314 1,576 6.48 26,723 1,595 5.97 Investment Securities (2) 2,921 191 6.54 5,425 364 6.71 5,407 327 6.05 Other Interest-Earning Asset 6,729 269 4.00 1,765 80 4.53 1,931 137 7.09 ------- ------- ---- ------- ------- ---- ------- ------- ---- Total Interest-Earning As 46,937 3,393 7.23% 44,928 3,131 6.97% 43,604 2,940 6.74% ------- ------- ---- ------- ------- ---- ------- ------- ---- Non-Interest Earning Assets 3,707 2,443 4,088 ------- ------- ------- Total Assets $50,644 $ 47,371 $47,691 ======= ======== ======= Interest-Bearing Liabilities: Passbook, NOW and Money Market Accounts $ 8,014 $ 220 2.75% $ 7,536 $ 182 2.42% $ 7,215 $ 181 2.51% Certificates of Deposit 33,728 1,904 5.65 29,860 1,731 5.80 30,783 1,675 5.44 ------- ------- ---- ------- ------- ---- ------- ------- ---- Total Deposits 41,742 2,124 5.09 37,396 1,913 5.12 37,997 1,856 4.88 FHLB Advances 419 27 6.44 2,318 162 6.99 167 7 4.19 ------- ------- ---- ------- ------- ---- ------- ------- ---- Total Interest-Bearing Liabilities 42,161 2,151 5.10% 39,714 2,075 5.22% 38,164 1,863 4.88% ------- ------- ---- ------- ------- ---- ------- ------- ---- Non-Interest Bearing Liabilities 1,613 740 1,678 ------- ------- ------- Total Liabilities 43,774 40,454 39,842 Stockholders' Equity 6,870 6,917 7,849 ------- ------- ------- Total Liabilities and Stockholders' Equity $50,644 $ 47,371 $47,691 ======= ======== ======= Net Interest-Earning Assets $ 4,776 $ 5,214 $ 5,440 ======= ======== ======= Net Interest Income; Average Interest Rate Spread $ 1,242 2.13% $1,056 1.74% $1,077 1.86% ======= ---- ====== ---- ====== ---- Net Interest Margin (4) 2.65% 2.35% 2.47% ==== ==== ==== Average Interest-Earning Assets to Average Interest-Bearing Liabilities 111.33% 113.13% 114.25% ====== ====== ======
(1) Includes nonaccrual loans during the respective periods. Calculated net of deferred fees and discount, loans in process and allowance for loan losses. (2) Includes non-accruing investment securities during the respective periods. (3) Includes non-interest-bearing deposits. (4) Net interest margin is net interest income divided by average interest-earning assets. ------------------------------------ 34 Rate/Volume Analysis. The following table describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected Algiers' interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (change in rate multiplied by current year volume), (ii) changes in volume (change in volume multiplied by prior year rate), and (iii) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
2001 vs. 2000 2000 vs. 1999 --------------------------------- ---------------------------------- Increase (Decrease) Due to Increase (Decrease) Due to --------------------------------- ----------------------------------- Total Total Increase Increase Rate Volume (Decrease) Rate Volume (Decrease) ----- ------ --------- ----- ------ --------- (In Thousands) (In Thousands) Interest Income: Loans Receivable $ 160 $ 789 $ 949 $(128) $ 358 $ 230 Mortgage- Backed Securities (56) (647) (703) 125 (144) (19) Investment Securities (5) (168) (173) 36 1 37 Other Interest-Earning Assets (36) 225 189 (45) (12) (57) ----- ----- ----- ----- ----- ----- Total Interest Income 63 199 262 (13) 204 191 ----- ----- ----- ----- ----- ----- Interest Expense: Passbook, NOW and Money Market Accounts 26 11 37 (7) 7 -- Certificates of Deposit (51) 225 174 106 (49) 57 ----- ----- ----- ----- ----- ----- Total Deposits (25) 236 211 99 (42) 57 FHLB Advances (2) (133) (135) 65 90 155 ----- ----- ----- ----- ----- ----- Total Interest Expense (27) 103 76 164 48 212 ----- ----- ----- ----- ----- ----- Increase (Decrease) in Net Interest Income $ 90 $ 96 $ 186 $(177) $ 156 $ (21) ===== ===== ===== ===== ===== =====
35 Interest Income. Interest on loans increased $949,000 or 84.4% in 2001 due to an increase in the average outstanding balances of $9.5 million and an increase in the weighted average yields on loans receivable to 8.97% from 8.28%. A substantial portion of the loans have adjustable interest rates, and the change in the average yields reflects the general change in market interest rates. Interest on mortgage-backed securities decreased by $703,000 or 44.6% in 2001 from 2000, due to a $10.0 million or 41.1% decrease in the average balance and a decrease in the average yield to 6.09% in 2001 from 6.48% in 2000. The average balance decreased as $8.3 million of mortgage-backed securities were sold, partially offset by a market value adjustment for unrealized losses decrease of $284,000 in 2001 from a $459,000 loss adjustment in 2000. The decreased yield was due to the interest rate on a large portion of the adjustable-rate mortgage-backed securities adjusting downward in 2001. Interest on investment securities decreased by $173,000 or 47.5% in 2001 from 2000, due to a decrease in the average balance of $2.5 million from 2000 and a decrease in the average rate to 6.54% in 2001 from 6.71% in 2000. Other interest income, which consists of dividends on FHLB stock and interest on overnight deposits at the FHLB, increased by $189,000 or 236.3% in 2001 from 2000, due to an increase in the average balance of $5.0 million, partially offset by a decrease in the average yield to 4.00% in 2001 from 4.53% in 2000. Total interest income increased by $262,000 or 8.4% in 2001 from 2000, due to a $2.0 million or 4.5% increase in the average balance of total interest-earning assets and an increase in the average yield to 7.23% in 2001 from 6.97% in 2000. Interest Expense. Interest on deposits increased by $211,000 or 11.0% in 2001 over 2000, due to a $4.3 million or 11.6% increase in the average balance, partially offset a decrease in the average rate to 5.09% in 2001 from 5.12% in 2000. The increase in the average balance was primarily due to an increase in the average balance of certificates of deposit. The average rate paid on certificates of deposit decreased to 5.65% in 2001 from 5.80% in 2000, which decrease was partially offset by an increase in the average rate paid by the Company on its transaction accounts to 2.75% in 2001 from 2.42% in 2000. Interest on FHLB advances decreased by $135,000 or 83.3% in 2001 from 2000, primarily due to a decrease in the average balance of FHLB advances of $1.9 million in 2001. Total interest expense increased by $76,000 or 3.7% in 2001 over 2000, primarily due to the increase in the average balance of deposits. Provision (Credit) for Loan Losses. The Company provided $167,000, $39,000 and $0 of its allowance for loan losses in 2001, 2000 and 1999, respectively. The allowance for loan losses amounted to $415,000 or 1.5% of the total loan portfolio at December 31, 2001. 36 Non-Interest Income. Service charges and fees, which primarily consist of fees collected on loans sold in the secondary market and charges for ATM usage, checking accounts, overdrafts and late payments, increased by $219,000 or 111.2% in 2001 from 2000. This increase was primarily due to an increase in fees collected on loans sold in the secondary market. Other non-interest income amounted to $102,000 and $50,000 in 2001 and 2000, respectively. Included in other non-interest income for 2001 are $46,000 in gains from the sale of other real estate owned. Total non-interest income increased by $271,000 or 109.7% in 2001 from 2000, primarily due to an increase of $219,000 in service charges and fees, an increase of $46,000 in gains on the sale of other real estate owned, and an increase in other income of $6,000. Non-Interest Expense. Compensation and benefits increased by $348,000 or 34.1% in 2001 over 2000, due to an increase in the Company's workforce related to the increase in lending. Occupancy and equipment expenses decreased by $16,000 or 3.7% in 2001 over 2000, primarily due to a decrease in the office expenses related to the subsidiary, Algiers.Com. Federal insurance premiums decreased by $6,000 or 46.2% in 2001 from 2000. In 2001 the Company sold $8.3 million of mortgage-backed securities and $298,000 of investment securities which were part of the available for sale portfolio and which resulted in a loss of $7,000. In 2000 the Company sold $3.1 million of mortgage-backed securities and $71,000 of investment securities which were part of the available for sale portfolio and which resulted in a loss of $3,000. Computer expenses increased by $16,000 or 31.4% in 2001 from 2000, primarily due to technical support for the computer system and internet banking. Professional services decreased $106,000 or 38.5% in 2001 from 2000, due to a decrease in consulting fees. Bank service charge expense decreased $3,000 or 23.1% in 2001 from 2000. The Bank's real estate owned expense, net decreased by $39,000 in 2001 from 2000, primarily due to less repairs necessary on a large real estate owned property and maintenance work being performed by a rental tenant that was previously paid by the bank. The real estate owned at December 31, 2001 consisted of a former furniture store and warehouse and a one-to-four family residential property. 37 Other non-interest expense, which primarily consists of insurance and bond premiums, postage and supplies, and other operating expenses increased by $102,000 or 25.6% in 2001 from 2000. The increase was primarily due to an increase in other expenses related to the subsidiary, Algiers.Com. Total non-interest expense increased by $312,000 or 13.9% in 2001 from 2000, primarily due to increases of $348,000 in compensation and benefits, $16,000 of computer expenses, $102,000 in other expenses, and a $4,000 loss on sale of investments, and $6,000 in SAIF assessment and insurance premiums, partially offset by decreases of $16,000 in occupancy and equipment, $106,000 in professional services, $3,000 in bank services charges, and $39,000 in real estate owned expenses. Total non-interest expense as a percent of average assets was 5.06% in 2001 compared to 4.75% in 2000. Federal Income Tax Expense(Benefit). The Company's federal income tax benefit increased by $8,000 or 2.8% in 2001 from 2000. The effective tax rate for 2001, 2000 and 1999 was 34.9%, 33.5% and 36.4%, respectively The Company had a deferred tax valuation reserve of $194,000, $199,000 and $184,000 at December 31, 2001, 2000 and 1999, respectively. Other components of the valuation reserve consist of allowances for loan losses and real estate owned losses. For additional information, see Note I of Notes to Consolidated Financial Statements. Liquidity and Capital Resources Algiers is required to maintain specified levels of "liquid" investments in qualifying types of U.S. Government, federal agency and other investments having maturities of five years or less in accordance with management's policy. At December 31, 2001, Algiers' liquidity was 50.8%. Cash was used in Algiers' operating activities during 2001 and 2000 primarily as a result of the net loss for the periods. The adjustments to reconcile net income to net cash provided by operations during the periods presented consisted primarily of the provision for depreciation and amortization, accretion of the premiums on investments, recovery of loan losses, gains and losses on the sale of assets, and increases or decreases in various receivable and payable accounts. The primary investing activities of Algiers are the purchase of mortgage-backed securities and the origination of loans, which are primarily funded with the proceeds from repayments and prepayments on existing loans, investments and mortgage-backed securities and the maturity of mortgage-backed securities and investments. Investing activities provided net cash in 2001 primarily because the amount of mortgage-backed securities and investments maturing and sold exceeded the amount of purchases of mortgaged back securities and increases in loans. Investing activities used net cash in 2000 primarily due to the net increase in loans exceeding maturities and sales of mortgage backed securities. Financing activities provided net cash in 2001 primarily due to increases in deposits of $6.1 million, partially offset by repayment of FHLB advances of $3.0 million. Finance activities provided net cash in 2000 primarily due to advances from FHLB exceeding repayments and an increase in deposits of $362,000, partially offset by $75,000 in dividends paid. Total cash and cash equivalents amounted to $4.4 million at December 31, 2001. See the Consolidated Statements of Cash Flows in the Consolidated Financial Statements. 38 At December 31, 2001, Algiers had outstanding commitments to originate $3.4 million of commercial and one-to four-family residential loans (including undisbursed construction loans). At the same date, the total amount of certificates of deposit which were scheduled to mature in the following 12 months was $25.3 million. Algiers believes that it has adequate resources to fund all of its commitments and that it can adjust the rate on certificates of deposit to retain deposits to the extent desired. If Algiers requires funds beyond its internal funding capabilities, advances from the FHLB of Dallas are available as an additional source of funds. Algiers is required to maintain regulatory capital sufficient to meet tangible, core and risk-based capital ratios of 1.5%, 3.0% and 8.0% respectively. At December 31, 2001, Algiers exceeded each of its capital requirements, with tangible, core and risk-based capital ratios of 12.5%, 12.5% and 24.8%, respectively. See Note N of Notes to Consolidated Financial Statements. 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 operating 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 Algiers' assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on Algiers' performance than do the effects 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. Item 7. Financial Statements. - ------------------------------ 39 ALGIERS BANCORP, INC. & SUBSIDIARIES December 31, 2001 Audits of Financial Statements December 31, 2001 and December 31, 2000 C O N T E N T S
Independent Auditor's Report 41 Consolidated Statements of Financial Condition 41 - 43 Consolidated Statements of Operations 44 - 45 Consolidated Statements of Comprehensive Income (Loss) 46 Consolidated Statements of Changes in Stockholders' Equity 47 Consolidated Statements of Cash Flows 48 - 49 Notes to Consolidated Financial Statements 50 - 75
40 The Board of Directors Algiers Bancorp, Inc. & Subsidiaries Independent Auditor's Report ---------------------------- We have audited the accompanying consolidated statements of financial condition of ALGIERS BANCORP, INC. & SUBSIDIARIES, as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ALGIERS BANCORP, INC. & SUBSIDIARIES as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /S/ LaPorte, Sehrt, Romig and Hand A Professional Accounting Corporation February 15, 2002 Metairie, Louisiana 41 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in Thousands) ASSETS December 31, ------------------- 2001 2000 ------- ------- Cash and Amounts Due from Depository Institutions $ 1,964 $ 615 Interest-Bearing Deposits in Other Banks 4,473 1,428 Investments Available-for-Sale, at Fair Value 367 5,183 Loans Receivable - Net 28,112 17,224 Mortgage-Backed Securities - Available-for-Sale, at Fair Value 14,361 22,026 Stock in Federal Home Loan Bank 609 585 Accrued Interest Receivable 251 346 Real Estate Owned - Net 203 251 Office Property and Equipment, (Net of Depreciation and Amortization) 690 717 Prepaid Expenses 40 31 Deferred Taxes 623 463 Income Tax Receivable -- 54 Other Assets 199 9 ------- ------- Total Assets $51,892 $48,932 ======= ======= The accompanying notes are an integral part of these financial statements. 42 LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, -------------------- 2001 2000 -------- -------- LIABILITIES Deposits: Interest Bearing $ 43,411 $ 37,819 Non-Interest Bearing 1,450 911 Advance Payments from Borrowers for Insurance and Taxes 57 75 FHLB Advances -- 3,000 Accrued Interest Payable on Depositors' Accounts 9 13 Due to Affiliates 345 141 Other Liabilities 79 68 -------- -------- 45,351 42,027 -------- -------- Minority Interest in Subsidiary (210) (83) -------- -------- Total Liabilities 45,141 41,944 -------- -------- STOCKHOLDERS' EQUITY Preferred Stock - Par Value $.01 5,000,000 Shares Authorized; 0 Shares Issued and Outstanding -- -- Common Stock - Par Value $.01 648,025 Shares Issued - 506,523 Outstanding at December 31, 2001 506,348 Outstanding at December 31, 2000 6 6 Additional Paid-in Capital 6,108 6,118 Unearned ESOP Shares (214) (267) Unearned MRP Shares (19) (24) Retained Earnings 2,716 3,264 Treasury Stock - 141,502 Shares in 2001 and 141,677 Shares in 2000, at Cost (1,821) (1,823) Accumulated Other Comprehensive Loss (25) (286) -------- -------- Total Stockholders' Equity 6,751 6,988 -------- -------- Total Liabilities and Stockholders' Equity $ 51,892 $ 48,932 ======== ========
The accompanying notes are an integral part of these financial statements. 43 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands) For the Years Ended December 31, ------------------------------- 2001 2000 1999 ------- ------- ------- INTEREST INCOME Loans $ 2,060 $ 1,111 $ 881 Mortgage-Backed Securities 873 1,576 1,595 Investment Securities 191 364 327 Other Interest-Earning Assets 269 80 137 ------- ------- ------- Total Interest Income 3,393 3,131 2,940 ------- ------- ------- INTEREST EXPENSE Deposits 2,124 1,913 1,856 FHLB Advances 27 162 7 ------- ------- ------- Total Interest Expense 2,151 2,075 1,863 ------- ------- ------- NET INTEREST INCOME 1,242 1,056 1,077 PROVISION FOR LOAN LOSSES (167) (39) -- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,075 1,017 1,077 ------- ------- ------- NON-INTEREST INCOME Service Charges and Fees 416 197 100 Recapture of Allowance on GIC Bonds -- -- 10 Gain on Sale of Real Estate Owned 46 -- 2 Other Income 56 50 21 ------- ------- ------- Total Non-Interest Income 518 247 133 ------- ------- ------- The accompanying notes are an integral part of these financial statements. 44 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) (Dollars in Thousands) For the Years Ended December 31, --------------------------------- 2001 2000 1999 ------- ------- ------- NON-INTEREST EXPENSES Compensation and Benefits 1,370 1,022 669 Occupancy and Equipment 417 433 403 Computer 67 51 77 Professional Services 169 275 266 Loss on Sale of Investments 7 3 -- Real Estate Owned Expense - Net 2 41 13 Other 529 424 382 ------- ------- ------- 2,561 2,249 1,810 ------- ------- ------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (968) (985) (600) INCOME TAX BENEFIT (294) (286) (194) ------- ------- ------- NET LOSS BEFORE MINORITY INTEREST IN SUBSIDIARY (674) (699) (406) MINORITY INTEREST IN SUBSIDIARY 126 131 39 ------- ------- ------- NET LOSS $ (548) $ (568) $ (367) ------- ------- ------- LOSS PER SHARE $ (1.14) $ (1.20) $ (0.79) ------- ------- ------- The accompanying notes are an integral part of these financial statements. 45 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars in Thousands)
For The Years Ended December 31, ------- ------- ------- 2001 2000 1999 ------- ------- ------- NET LOSS $ (548) $ (568) $ (367) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Unrealized Holding Gains (Losses) Arising During the Period 266 436 (911) Reclassification Adjustment for Gains (Losses) Included in Net Income (5) (2) -- ------- ------- ------- Total Other Comprehensive Income (Loss) 261 434 (911) ------- ------- ------- COMPREHENSIVE LOSS $ (287) $ (134) $(1,278) ======= ======= =======
The accompanying notes are an integral part of these financial statements. 46 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in Thousands)
Accumulated Total Additional Unearned Unearned Compre- Other Stock- Common Paid-in ESOP MRP Retained hensive Treasury holders' Stock Capital Shares Shares Earnings Income (Loss) Stock Equity ------- ------- ------- ------- ------- ------- ------- ------- BALANCE - December 31, 1998 $ 6 $ 6,137 $ (376) $ (48) $ 4,344 $ 191 $(1,675) $ 8,579 Net Loss -- -- -- -- (367) -- -- (367) Dividends Declared ($.20 Per Share) -- -- -- -- (95) -- -- (95) Common Stock Released by MRP Trust -- -- -- 12 -- -- -- 12 ESOP Shares Released for Allocation -- (5) 54 -- -- -- -- 49 Purchase of Treasury Stock -- -- -- -- -- -- (148) (148) Other Comprehensive Income (Loss) Net of Applicable Deferred Income Taxes -- -- -- -- -- (911) -- (911) ------- ------- ------- ------- ------- ------- ------- ------- BALANCE - December 31, 1999 6 6,132 (322) (36) 3,882 (720) (1,823) 7,119 Net Loss -- -- -- -- (568) -- -- (568) Dividends Declared ($.10 Per Share) -- -- -- -- (50) -- -- (50) Common Stock Released by MRP Trust -- -- -- 12 -- -- -- 12 ESOP Shares Released for Allocation -- (14) 55 -- -- -- -- 41 Other Comprehensive Income (Loss) Net of Applicable Deferred Income Taxes -- -- -- -- -- 434 -- 434 ------- ------- ------- ------- ------- ------- ------- ------- BALANCE - December 31, 2000 6 6,118 (267) (24) 3,264 (286) (1,823) 6,988 Net Loss -- -- -- -- (548) -- -- (548) Common Stock Released by MRP Trust -- -- -- 5 -- -- -- 5 ESOP Shares Released for Allocation -- (10) 53 -- -- -- -- 43 Treasury Shares Acquired for MRP Trust -- -- -- -- -- -- 2 2 Other Comprehensive Income (Loss) Net of Applicable Deferred Income Taxes -- -- -- -- -- 261 -- 261 ------- ------- ------- ------- ------- ------- ------- ------- BALANCE - December 31, 2001 $ 6 $ 6,108 $ (214) $ (19) $ 2,716 $ (25) $(1,821) $ 6,751 ------- ------- ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of these financial statements. 47 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
For the Years Ended December 31, ------------------------------------------ 2001 2000 1999 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (548) $ (568) $ (367) Adjustments to Reconcile Net Loss to Net Cash (Used in) Operating Activities: Depreciation and Amortization 192 212 170 Provision for Loan Losses 167 39 -- Premium Amortization Net of Discount Accretion 34 19 47 Gain on Sale of Real Estate Owned (46) -- (2) Gain on Sale of Mortgage-Backed Securities (17) (9) -- Loss on Sale of Investment Securities 24 12 -- ESOP and MRP Expense 46 53 61 (Increase) Decrease in Accrued Interest Receivable 95 (22) 45 (Increase) Decrease in Prepaid Expenses (9) 15 41 (Increase) Decrease in Prepaid Income Taxes 54 51 (77) Originations of Loans Held-for-Sale -- (138) (2,165) Proceeds from Sale of Loans Held-for-Sale -- 268 2,035 (Increase) Decrease in Other Assets (174) (2) 25 Decrease in Accrued Interest Payable (4) (3) (7) Increase (Decrease) in Other Liabilities 11 (36) 20 Increase in Due to Affiliates 204 141 -- Decrease in Minority Interest (127) (131) (39) Increase in Deferred Income Taxes (294) (314) (116) -------- -------- -------- Net Cash Used in Operating Activities (392) (413) (329) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Investment Securities - Available-for-Sale -- -- (1,009) Maturities of Investment Securities - Available-for-Sale 4,623 470 520 Proceeds From Sale of Investment Securities - Available for-Sale 298 59 -- Purchases of Mortgage-Backed Securities - Available-for-Sale (3,762) (2,773) (6,003) Maturities of Mortgage-Backed Securities - Available-for-Sale 3,356 4,156 6,195 Proceeds From Sale of Mortgage-Backed Securities - Available for-Sale 8,322 3,080 -- Net Increase in Loans (11,136) (7,475) (742) Non-Cash Dividend - FHLB (24) (44) (29) Purchase of Office Properties and Equipment (165) (134) (302) Proceeds from Sales of Real Estate Owned 161 -- 64 -------- -------- -------- Net Cash Provided by (Used in) Investing Activities 1,673 (2,661) (1,306) -------- -------- --------
The accompanying notes are an integral part of these financial statements. 48 ALGIERS BANCORP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in Thousands)
For the Years Ended December 31, -------------------------------- 2001 2000 1999 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net Increase (Decrease) in Deposits 6,131 362 (1,127) Net Decrease in Advances from Borrowers for Taxes and Insurance (18) (9) (30) Proceeds from Federal Home Loan Bank Advance -- 12,750 1,000 Repayment of Federal Home Loan Bank Advance (3,000) (10,750) -- Dividends Paid -- (75) (102) Purchase of Treasury Stock -- -- (148) -------- -------- -------- Net Cash Provided by (Used in) Financing Activities 3,113 2,278 (407) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,394 (796) (2,042) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 2,043 2,839 4,881 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 6,437 $ 2,043 $ 2,839 -------- -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Year for: Interest $ 2,155 $ 2,078 $ 1,870 SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS Dividends Declared $ -- $ -- $ 25 Real Estate Owned Acquired Through Foreclosure $ 67 $ -- $ 251 Repossessed Assets $ 14 $ -- $ --
49 ALGIERS BANCORP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Algiers Bancorp, Inc. (the Company) was organized as a Louisiana corporation on February 5, 1996 for the purpose of engaging in any lawful act or activity for which a corporation may be formed under the Louisiana Business Corporation Law, as amended. Other than steps related to the reorganization described below, the Corporation was essentially inactive until July 8, 1996, when it acquired Algiers Bank and Trust (the Bank), formerly Algiers Homestead Association, in a business reorganization of entities under common control in a manner similar to a pooling of interest. Algiers Bank and Trust is engaged in the banking industry. The acquired Bank became a wholly-owned subsidiary of the Company through the issuance of 1,000 shares of common stock to the Company in exchange for 50% of the net proceeds received by the Company in the reorganization. During 1998, the Company formed Algiers.Com, Inc., a subsidiary that owns a 51% interest in Planet Mortgage, LLC. Planet Mortgage, LLC is engaged in the solicitation of mortgage loans through its internet site. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Algiers Bank and Trust and Algiers.Com, Inc. In consolidation, significant inter-company accounts, transactions, and profits have been eliminated. INVESTMENT SECURITIES Investment 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 premium and accretion of discounts using the interest method. Marketable securities classified as available-for-sale are carried at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in comprehensive income. Cost of securities sold is recognized using the specific identification method. MORTGAGE-BACKED SECURITIES Mortgage-backed securities represent participating interests in pools of first mortgage loans originated and serviced by issuers of the securities. Unrealized gains and losses on mortgage-backed securities are recognized as direct increases or decreases in comprehensive income. The cost of securities sold is recognized using the specific identification method. Premiums and discounts are being amortized over the life of the securities as a yield adjustment. 50 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) LOANS Loans are stated at unpaid principal balances, less the allowance for loan losses, net deferred loan fees, and unearned interest and discounts. Loan origination fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Commitment fees and costs relating to commitments, the likelihood of exercise of which is remote, are recognized over the commitment period on a straight-line basis, if material. If the commitment is subsequently exercised during the commitment period, the remaining unamortized commitment fee at the time of exercise is recognized over the life of the loan as an adjustment of yield. Loans are placed on non-accrual when management determines that the collection of interest is unlikely. Any unpaid interest previously accrued on those loans is reversed from income, and thereafter, interest is recognized only to the extent of payments received. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Interest payments on impaired loans are typically applied to principal unless collectibility of the principal amount is fully assured, in which case interest is recognized on the cash basis. Interest may be recognized on the accrual basis for certain troubled debt restructuring. The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb potential losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. FORECLOSED REAL ESTATE Foreclosed real estate includes formally foreclosed property. At the time of foreclosure, foreclosed real estate is recorded at the lower of the Bank's cost or the asset's fair value, less estimated costs to sell, which becomes the property's new basis. Any write-downs are charged to the allowance for losses on foreclosed real estate. Costs incurred in maintaining foreclosed real estate are included in income (loss) on foreclosed real estate. OFFICE PROPERTY AND EQUIPMENT Land is carried at cost; office property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using straight-line and accelerated methods. The depreciation under these methods does not differ materially from that calculated in accordance with generally accepted accounting principles. 51 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) OFFICE PROPERTY AND EQUIPMENT (Continued) When these assets are retired or otherwise disposed of, the cost and related accumulated depreciation or amortization is removed from the accounts, and any resulting gain or loss is reflected in income for the period. INCOME TAXES Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to differences between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. The Bank is exempt from Louisiana income tax. CASH EQUIVALENTS Cash equivalents consist of certificates of deposit purchased with a maturity of three months or less, and daily demand investment deposit accounts. Cash and cash equivalents at December 31, 2001 and 2000 included the following (in thousands): 2001 2000 ---------- ---------- Cash $ 1,964 $ 615 Interest-Bearing Deposits in Other Institutions 4,473 1,428 ---------- ---------- $ 6,437 $ 2,043 ========== ========== NON-DIRECT RESPONSE ADVERTISING The Corporation expenses advertising costs as incurred. Advertising for 2001, 2000 and 1999 was $60,000, $60,000 and $11,000, respectively. LOANS HELD FOR SALE Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. 52 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and foreclosed real estate, management obtains independent appraisals for all properties. While management uses available information to recognize losses on loans and foreclosed real estate, future reductions in the carrying amounts of loans and foreclosed assets may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowances for losses on loans and foreclosed real estate. Such agencies may require the Corporation to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed real estate may change materially in the near term, however the amount of the change that is reasonably possible cannot be estimated. ACCOUNTING STANDARDS NOT YET ADOPTED Statement of Financial Accounting Standards No. 140 (SFAS 140), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", a replacement of SFAS 125. This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for years ending after December 15, 2000. The adoption of this pronouncement had no effect on the financial position and results of operations of the Bank. 53 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ACCOUNTING STANDARDS NOT YET ADOPTED (Continued) Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations" supersedes APB Opinion 16 and FASB 38. This statement provides accounting for business combinations using the purchase method and eliminating the pooling of interest method. The adoption of this pronouncement had no effect on the financial position and results of operations of the Bank. Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets" supersedes APB Opinion 17. This statement provides accounting and reporting standards for intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination). The adoption of this pronouncement had no effect on the financial position and results of operations of the Bank. Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the Impairment of Disposal of Long-Lived Assets" a replacement of SFAS 121. This statement provides accounting and reporting standards for the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by abandonment or sale. This statement requires that long-lived assets (excluding goodwill) to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and requires a probability-weighted cash flow estimation approach, and introduces a "primary-asset" approach to determine the cash flow estimation period. In addition, this statement requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell, and includes accounting guidance for disposal of a segment of a business that is considered a discontinued operation. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this pronouncement had no effect on the financial position and results of operations of the Bank. NOTE B INVESTMENT SECURITIES AVAILABLE-FOR-SALE Investment securities available-for-sale at December 31, 2001 consist of the following (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- SBA $ 370 $-- $ 3 $ 367 ----- --- ---- ----- $ 370 $-- $ 3 $ 367 ===== === ==== ===== 54 NOTE B INVESTMENT SECURITIES AVAILABLE-FOR-SALE (Continued) Investment securities available-for-sale at December 31, 2000 consist of the following (in thousands):
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ---------- ---------- -------------- FNMA Medium Term Callable Note $ 271 $ -- $ 8 $ 263 FHLMC Callable Note 1,444 -- 16 1,428 FHLB Callable Notes 2,749 -- 50 2,699 SBA 513 -- 6 507 Other Securities 322 -- 36 286 ------------ ---------- ---------- -------------- $ 5,299 $ -- $ 116 $ 5,183 ============ ========== ========== ==============
The following is a summary of contractual maturities of investment securities available-for-sale as of December 31, 2001 (in thousands): Amortized Fair Cost Value ---------- ----------- Due in One Year or Less $ 19 $ 19 Due from One to Five Years 84 83 Due from Five to Ten Years 127 126 Due After Ten Years 140 139 ---------- ----------- $ 370 $ 367 ========== =========== During 2001, the Company sold investment securities for approximately $298,000 resulting in realized losses of $24,000. During 2000, the Company sold investment securities for approximately $59,000 resulting in realized losses of $12,000. There were no sales of investment securities during 1999. Investment in stock of the Federal Home Loan Bank is carried at cost, which approximates market. The carrying value of this investment at December 31, 2001 and 2000 was $609,000 and $585,000, respectively, with no provision for unrealized losses necessary. NOTE C COMMITMENTS On December 31, 2001 the Company entered into an agreement to sell its interest in Planet Mortgage, Inc. for $10,000 cash by June 30, 2002. The transaction will result in a gain, which will be included in operations during the second quarter of 2002. 55 NOTE D LOANS RECEIVABLE Loans receivable consist of the following (in thousands):
2001 2000 ----------- ----------- Loans Secured by First Mortgages on Real Estate: Family Residential $ 11,697 $ 8,719 Commercial 11,701 5,740 Construction Loans - 1-4 Family 2,217 1,302 ----------- ----------- Total Real Estate Loans 25,615 15,761 ----------- ----------- Commercial - Non Mortgage 1,098 -- ----------- ----------- Consumer Loans: Second Mortgage Loans - 1-4 Family 239 351 Consumer Loans 902 859 Share Loans 792 638 ----------- ----------- Total Consumer Loans 1,933 1,848 ----------- ----------- 28,646 17,609 ----------- ----------- Less: Allowance for Losses 415 262 Unearned Interest on Mortgage Loans 20 22 Net Deferred Loan Origination Fees 99 101 ----------- ----------- 534 385 ----------- ----------- $ 28,112 $ 17,224 =========== ===========
An approximate schedule of loan maturities or repricing opportunities at December 31, 2001 is as follows (in thousands):
Variable Fixed Maturities Rate Rate Total -------------------- ----------- ----------- ------------ Three Months or Less $ 1,520 $ 1,073 $ 2,593 Three Months - One Year 1,653 2,388 4,041 One Year - Five Years 112 5,441 5,553 Over Five Years 9,404 7,055 16,459 ----------- ----------- ------------ $ 12,689 $ 15,957 $ 28,646 =========== =========== ============
56 NOTE D LOANS RECEIVABLE (Continued) Activity in the allowance for loan losses is summarized as follows for the years ended December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 ----------- ----------- ------------ Balance at Beginning of Year $ 262 $ 230 $ 506 Charge-Offs (14) (7) (276) Recoveries -- -- -- Provision (Credit) for Loan Losses 167 39 -- ----------- ----------- ------------ Balance at End of Year $ 415 $ 262 $ 230 =========== =========== ============
At December 31, 2001 and 2000, the Bank had loans totaling approximately $881,158 and $245,728, respectively, for which impairment had been recognized. The allowance for loan losses related to these loans totaled $107,253 and $49,603 at December 31, 2001 and 2000, respectively. At December 31, 2001 and 2000, the Bank had non-performing loans of approximately $115,000 and $211,000, respectively. The amount of interest foregone for the years ended December 31, 2001, 2000 and 1999 was approximately $7,000, $23,000 and $62,000, respectively. The Bank does not service any loans for others. In the normal course of business, the Bank originates consumer loans to members of the Board of Directors and officers. Loans to such borrowers are summarized as follows (in thousands): 2001 2000 ----------- ----------- Balance at Beginning of Year $ 106 $ 74 Additions 36 76 Payments and Renewals (9) (44) ----------- ----------- Balance at End of Year $ 133 $ 106 =========== =========== 57 NOTE E MORTGAGE-BACKED SECURITIES Fixed and variable rate mortgage-backed securities available-for-sale at December 31, 2001 are summarized as follows (in thousands):
December 31, 2001 ---------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ---------- ---------- -------------- GNMA Certificates $ 1,391 $ 8 $ 4 $ 1,395 FNMA Certificates 10,412 43 65 10,390 FHLMC Certificates 2,592 2 18 2,576 ------------ ---------- ---------- -------------- $ 14,395 $ 53 $ 87 $ 14,361 ============ ========== ========== ==============
Fixed and variable rate mortgage-backed securities available-for-sale at December 31, 2000 are summarized as follows (in thousands):
December 31, 2000 ---------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ---------- ---------- -------------- GNMA Certificates $ 5,868 $ 4 $ 52 $ 5,820 FNMA Certificates 13,038 45 243 12,840 FHLMC Certificates 3,438 2 74 3,366 ------------ ---------- ---------- -------------- $ 22,344 $ 51 $ 369 $ 22,026 ============ ========== ========== ==============
The amortized cost and fair value of mortgage-backed securities at December 31, 2001, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.
Amortized Fair Cost Value ------------- -------------- Mortgage-Backed Securities Maturing: Less than One Year $ 2,145 $ 2,136 Due After One Year Thru Five Years 4,220 4,206 Due After Five Years Thru Ten Years 3,221 3,215 Due After Ten Years 4,809 4,804 ------------- -------------- $ 14,395 $ 14,361 ============= ==============
58 NOTE E MORTGAGE-BACKED SECURITIES (Continued) During 2001 and 2000, the Company sold mortgage-backed securities for approximately $8,322,000 and $3,080,000, respectively. These sales resulted in realized gains of $17,000 and $9,000 during 2001 and 2000, respectively. There were no sales of mortgage-backed securities during 1999. NOTE F INTEREST RECEIVABLE Interest receivable at December 31, 2001 and 2000 is summarized as follows (in thousands):
2001 2000 ---------- ---------- Loans $ 165 $ 118 Mortgage-Backed Securities 83 144 Investment Securities 3 84 ---------- ---------- $ 251 $ 346 ========== ==========
NOTE G REAL ESTATE OWNED A summary of real estate owned at December 31, 2001 and 2000 is as follows (in thousands):
2001 2000 ---------- ---------- Real Estate Acquired in Settlement $ 475 $ 563 Less: Allowances for Losses 272 312 ---------- ---------- $ 203 $ 251 ========== ==========
Activity in the allowance for losses for other real estate owned for years ended December 31, 2001, 2000 and 1999 is as follows (in thousands):
2001 2000 1999 ----------- ----------- ----------- Balance at Beginning of Year $ 312 $ 312 $ 35 Provision for REO Losses 1 -- 277 Sale of REO (41) -- -- ------------ ----------- ---------- Balance at End of Year $ 272 $ 312 $ 312 =========== =========== ==========
59 NOTE H OFFICE PROPERTY AND EQUIPMENT Office property and equipment consist of the following at December 31, 2001 and 2000 (in thousands):
2001 2000 ---------- ---------- Land $ 30 $ 30 Building 188 188 Furniture, Fixtures and Equipment 1,048 947 Leasehold Improvements 255 193 ---------- ---------- 1,521 1,358 Less: Accumulated Depreciation and Amortization 831 641 ---------- ---------- $ 690 $ 717 ========== ==========
Depreciation expense for the years ended December 31, 2001, 2000 and 1999 was approximately $192,000, $212,000 and $170,000, respectively. NOTE I DEPOSITS Interest bearing deposits consist of the following at December 31, 2001 and 2000 (in thousands):
Weighted Years Ended Average Rate at December 31, ------------------ --------------------------------------------- December 31, 2001 2000 ------------------ ------------------- ------------------- 2001 2000 Amount Percent Amount Percent ---- ---- ------ ------- ------ ------- Balance by Interest Rate: Regular Savings Accounts 2.50% 2.69% $ 4,155 9.57% $ 4,178 11.05% NOW Accounts 1.50% 1.75% 1,721 3.96 1,379 3.65 Money Fund Accounts 2.55% 2.35% 2,388 5.50 2,312 6.11 Certificate of Deposit 4.92% 5.80% 35,147 80.96 29,950 79.19 ------- ------ ------- ------ $43,411 100.00% $37,819 100.00% ======= ====== ======= ====== Certificate Accounts Maturing Under 12 months $25,321 72.04% $17,472 58.34% 12 months to 24 months 6,351 18.07 7,616 25.43 24 months to 36 months 2,381 6.77 3,576 11.94 Due after 36 months 1,094 3.11 1,286 4.29 ------- ------ ------- ------ $35,147 100.00% $29,950 100.00% ======= ====== ======= ======
60 NOTE I DEPOSITS (Continued) The aggregate amount of short-term jumbo certificates of deposit with a minimum denomination of $100,000 was approximately $5,142,000 and $3,361,000 at December 31, 2001 and 2000, respectively. Interest expense on deposits consisted of the following (in thousands):
Years Ended December 31, ----------------------------------------- 2001 2000 1999 ---------- ---------- ---------- Certificates $ 1,904 $ 1,739 $ 1,675 Passbook Savings 101 119 128 Money Fund Accounts 90 22 19 NOW Accounts 29 33 34 ---------- ---------- ---------- $ 2,124 $ 1,913 $ 1,856 ========== ========== ==========
In the normal course of business, the Bank accepts deposits from members of the Board of Directors and officers. As of December 31, 2001 and 2000, these deposits totaled approximately $320,000 and $233,000, respectively. NOTE J FEDERAL INCOME TAXES The provision for income taxes for 2001, 2000 and 1999 consists of the following (in thousands):
2001 2000 1999 ----------- ----------- ----------- Current Federal Tax Expense (Benefit) $ -- $ -- $ (78) Deferred Federal Tax Expense (Benefit) (294) (286) (116) ----------- ----------- ----------- $ (294) $ (286) $ (194) =========== =========== ==========
The provision (benefit) for federal income taxes differs from that computed by applying Federal statutory rates to income (loss) before Federal income tax expense, as indicated in the following analysis (in thousands):
2001 2000 1999 ----------- ----------- ----------- Expected Tax Provision at 34% Rate $ (287) $ (290) $ (204) Employee Stock Ownership Plan 3 5 2 Other (10) (1) 8 ----------- ------------ ---------- $ (294) $ (286) $ (194) =========== =========== ===========
61 NOTE J FEDERAL INCOME TAXES (Continued) At December 31, 2001, the Company had, for tax reporting purposes, operating loss carryforwards of approximately $1,658,682, which expire in 2019 through 2021. Deferred tax liabilities have been provided for taxable or deductible temporary differences related to depreciation and non-cash Federal Home Loan Bank dividends. Deferred tax assets have been provided for taxable or deductible temporary differences related to the reserves for uncollected interest and late charges, deferred loan fees, unrealized gains on available-for-sale securities, allowance for loan losses, the allowance for losses on foreclosed real estate and the allowance for losses on real estate held-for-investment. The net deferred tax assets or liabilities in the accompanying statements of financial condition include the following components (in thousands):
2001 2000 ----------- ----------- Deferred Tax Assets Allowance for Loan Losses $ 141 $ 89 Allowance for REO Losses 93 106 Deferred Loan Fees 34 34 Market Value Adjustment for Available-for-Sale Securities 13 148 Net Operating Loss Carryforward 564 346 Other 49 31 ----------- ---------- Total Deferred Tax Assets 894 754 ----------- ---------- Deferred Tax Liabilities Property and Equipment and Depreciation 3 26 FHLB Stock 74 66 Other -- -- ----------- ---------- Total Deferred Tax Liabilities 77 92 ----------- ---------- Net Deferred Tax Assets (Liabilities) 817 662 Deferred Tax Valuation Reserve 194 199 ----------- ---------- Total Net Deferred Tax Asset (Liability) $ 623 $ 463 =========== ==========
Included in retained earnings at December 31, 2001 and 2000 is approximately $1,309,000 in bad debt reserves for, which no deferred Federal income tax liability has been recorded. These amounts represent allocations of income to bad debt deductions for tax purposes only. Reduction of these reserves for purposes other than tax bad-debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes, which would be subject to the then current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately $445,000 for December 31, 2001 and 2000. 62 NOTE K COMPREHENSIVE INCOME Comprehensive income was comprised of changes in the Company's unrealized holding gains or losses on securities available-for-sale during 2001, 2000 and 1999. The following represents the tax effects associated with the components of comprehensive income.
Years Ended December 31, ------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Gross Unrealized Holding Gains (Losses) Arising During the Period $ 403 $ 661 $ (1,381) Tax (Expense) Benefit (137) (225) 470 ------------- ------------- ------------ 266 436 (911) ------------ ------------ ------------- Reclassification Adjustment for Gains (Losses) Included in Net Income (7) (3) -- Tax (Expense) Benefit 2 1 -- ------------ ------------ ------------ (5) (2) (911) ------------- ------------- ------------ Net Unrealized Holding Gains (Losses) Arising During the Period $ 261 $ 434 $ (911) ============ ============ =============
NOTE L ADVANCES FROM FEDERAL HOME LOAN BANK Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB), advances are secured by a blanket floating lien on mortgage backed securities held in safekeeping. Total interest expense recognized in 2001, 2000 and 1999, respectively, was $27,000, $162,000 and $7,000. There were no outstanding advances from the FHLB as of December 31, 2001. As of December 31, 2000, outstanding advances from the FHLB totaled $3,000,000 at 6.598%, maturing February 20, 2001. NOTE M FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND EN-FORCEMENT ACT OF 1989 (FIRREA) FDICIA was signed into law on December 19, 1991. Regulations implementing the prompt corrective action provisions of FDICIA became effective on December 19, 1992. In addition to the prompt corrective action requirements, FDICIA includes significant changes to the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervision by the federal regulatory agencies, increased reporting requirements for insured institutions, and new regulations concerning internal controls, accounting and operations. 63 NOTE M FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND EN-FORCEMENT ACT OF 1989 (FIRREA) (Continued) FIRREA was signed into law on August 9, 1989. Regulations for savings institutions' minimum capital requirements went into effect on December 7, 1989. In addition to its capital requirements, FIRREA includes provisions for changes in the federal regulatory structure for institutions, including a new deposit insurance system, increased deposit insurance premiums, and restricted investment activities with respect to noninvestments grade corporate debt and certain other investments. FIRREA also increases the required ratio of housing-related assets in order to qualify as a savings institution. The regulations require institutions to have a minimum regulatory tangible capital equal to at least 1.5% of adjusted total assets, a minimum 4% core/leverage capital ratio, a minimum 4% tier 1 risk-based ratio, and a minimum 8% total risk-based capital ratio to be considered "adequately capitalized." An institution is deemed to be "critically undercapitalized" if it has a tangible equity ratio of 2% or less. The ability to include qualifying supervisory goodwill for purposes of the core/leverage requirements was phased out by January 1, 1995, and the ability to include investments in impermissible activities in core/leverage capital and tangible capital was phased out by July 1, 1994. The following table sets out the Bank's various regulatory capital categories at December 31, 2001 and 2000.
2001 2000 ----------------------------- ---------------------------- Dollars Percentage Dollars Percentage ------------ ---------- ------------- ---------- (thousands) (thousands) Tangible Capital $ 6,473 12.51% $ 6,827 13.85% Tangible Equity $ 6,473 12.51% $ 6,827 13.85% Core/Leverage Capital $ 6,473 12.51% $ 6,827 13.85% Tier 1 Risk-Based Capital $ 6,473 23.59% $ 6,827 36.83% Total Risk-Based Capital $ 6,816 24.84% $ 7,065 38.12%
64 NOTE N REGULATORY CAPITAL The following is a reconciliation of generally accepted accounting principles (GAAP) net income and capital to regulatory capital for the Bank. The following reconciliation also compares the capital requirements as computed to the minimum capital requirements for the Bank (in thousands).
Net Loss Capital Year Ended as of December 31, 2001 December 31, 2001 ----------------- ----------------- Per GAAP $ (402) $ 6,448 ========= ======= Total Assets $51,716 ======= Capital Ratio 12.47%
Core/ Tier 1 Total Tangible Tangible Leverage Risk-Based Risk-Based Capital Equity Equity Capital Capital --------- -------- -------- --------- --------- Per GAAP $ 6,448 $ 6,448 $ 6,448 $ 6,448 $ 6,448 Assets Required to be Added Unrealized Loss on Securities Available- for-Sale 25 25 25 25 25 General Valuation Allowance -- -- -- -- 343 ---------- ---------- --------- ---------- --------- Regulatory Capital Measure $ 6,473 $ 6,473 $ 6,473 $ 6,473 $ 6,816 ========== ========== ========= ========== ========= Adjusted Total Assets $ 51,741 $ 51,741 $ 51,741 ========== ========== ========= Risk-Weighted Assets $ 27,436 $ 27,436 ========== ========= Capital Ratio 12.51% 12.51% 12.51% 23.59% 24.84% Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00% Required Capital $ 776 $ 1,552 $ 2,195 ========== ========= ========= Excess Capital $ 5,697 $ 4,921 $ 4,621 ========== ========= =========
65 NOTE O RELATED PARTY TRANSACTIONS The Company leases its main office from one of its shareholders under an operating lease expiring April 1, 2006. The annual rental payment through April 1, 2002 is $51,000. The annual rental payment is adjusted by changes in the Consumer Price Index but in no case will be less than $45,000 per year. NOTE P EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) During 1996, the Company sponsored an employee stock ownership plan that covers all employees of the Bank who have completed one year of service and have attained the age of 21. The Bank may contribute to the Plan such amount as shall be determined by the Bank. All dividends received by the ESOP are either used to pay debt service or credited to the participant accounts at the discretion of the administrator. The ESOP shares are pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. Dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. ESOP compensation expense was approximately $43,000, $38,000 and $49,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The ESOP shares as of December 31, 2001 and 2000 were as follows: 2001 2000 ----------- ----------- Allocated Shares 25,153 19,815 Shares Released for Allocation 5,338 5,338 Unreleased Shares 21,351 26,689 ----------- ----------- Total ESOP Shares 51,842 51,842 =========== =========== Fair Value of Unreleased Shares $ 184,000 $ 204,000 =========== =========== In conjunction with the establishment of the ESOP, $518,420 was borrowed from the Company to purchase the shares of stock for the ESOP. The corresponding note is to be paid back in 40 equal quarterly payments of $19,202 on the last business day of each calendar quarter beginning September 30, 1996 at the rate of 8.25%. The note payable and corresponding note receivable have been eliminated for consolidation purposes. 66 NOTE Q RECOGNITION AND RETENTION PLAN On July 18, 1997, the Company established a Recognition and Retention Plan as an incentive to retain personnel of experience and ability in key positions. The Bank approved a total of 25,921 shares of stock of the Company to be acquired for the Plan, of which 4,555 have been allocated for distribution to key employees and directors. As shares are acquired for the plan, the purchase price of these shares is recorded as unearned compensation, a contra equity account. As the shares are distributed, the contra equity account is reduced. Plan share awards are earned by recipients at a rate of 20% of the aggregate number of shares covered by the plan over five years. If the employment of an employee or service as a non-employee director is terminated prior to the fifth anniversary of the date of grant of plan share award for any reason, the recipient shall forfeit the right to any shares subject to the award which have not been earned. The total cost associated with the plan is based on the market price of the stock as of the date on which the plan shares were granted. Compensation expense pertaining to the Recognition and Retention plan was $6,000 and $12,000 for the years ended December 31, 2001 and 2000, respectively. A summary of the changes in restricted stock follows: Unawarded Awarded Shares Shares ----------- ------------ Balance January 1, 2000 22,452 1,773 Forfeited -- -- Earned and Issued -- (871) ----------- ------------ Balance December 31, 2000 22,452 902 Forfeited 280 (280) Awarded (350) 350 Earned and Issued -- (486) ----------- ------------ Balance December 31, 2001 22,382 486 =========== ============ NOTE R STOCK OPTION PLAN In 1997, the Company adopted a stock option plan for the benefit of directors, officers, and other key employees. The number of shares of common stock reserved for issuance under the stock option plan was equal to 64,802 shares, or ten percent, of the total number of shares of common shares sold in the Company's initial public offering of its common stock. 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 option plan also permits the granting of Stock Appreciation Rights ("SAR's"). SAR's entitle the holder to receive, in the form of cash or stock, the increase in the fair value of Company stock from the date of grant to the date of exercise. No SAR's have been issued under the plan. 67 NOTE R STOCK OPTION PLAN (Continued) The following table summarizes the activity related to stock options:
Exercise Available Options Price for Grant Outstanding ----- --------- ----------- At Inception $ -- 64,802 -- Granted -- -- Canceled -- -- Exercised -- -- ------------ ----------- At December 31, 2001 64,802 -- ============ ===========
NOTE S FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, various commitments and contingent liabilities are outstanding, such as commitments to extend credit and stand-by letters of credit which are not reflected on the Bank's financial statements. Management does not anticipate any material loss as a result of these transactions. Commitments to extend credit totaled approximately $3,357,000 and $3,395,000, and stand-by letters of credit totaled $-0- and $-0- at December 31, 2001 and 2000, respectively. The Bank 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 consist of commitments to extend credit and stand-by letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Bank's Statement of Financial Condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to these financial instruments for commitments to extend credit and stand-by letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies making commitments as it does for on-balance sheet instruments. 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 many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Bank upon extension of credit, varies and is based on management's credit evaluation of the counterparty. 68 NOTE S FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Continued) Stand-by letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Stand-by letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially non-existent, as the letters of credit are secured by pledged certificates of deposit of the Bank. NOTE T DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has adopted SFAS 107, "Disclosures about Fair Value of Financial Instruments," which requires the disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition, for which it is practicable to estimate the value. Quoted market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present value estimates or other valuation techniques. These derived fair values are significantly affected by assumptions used, principally the timing of future cash flows and the discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values would not necessarily be realized in an immediate sale or settlement of the instrument. The disclosure requirements of SFAS 107 exclude certain financial instruments and all nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent management's estimation of the underlying value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value: The carrying amount of cash and short-term investments approximate the fair value. For investment securities, the fair value is based on quoted market prices. For mortgage loan receivables, the fair values are based on discounted cash flows using current rates at which similar loans with similar maturities would be made to borrowers with similar credit risk. The fair value of deposits is equal to the amount payable at the financial statement date. For certificates of deposit, fair value is estimated based on current rates for deposits of similar remaining maturities. The fair value of loan commitments is estimated using fees that would be charged to enter similar agreements, taking into account (1) the remaining terms of the agreement, (2) the creditworthiness of the borrowers, and (3) for fixed rate commitments, the difference between current interest rates and committed rates. 69 NOTE T DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Estimated fair values of the financial instruments are as follows (in thousands):
December 31, 2001 ----------------------------------- Carrying Fair Amount Value --------------- ---------------- Financial Assets Cash and Short-Term Investment $ 6,437 $ 6,437 Investment Securities 367 367 Loans and Mortgage Backed Securities 42,473 41,602 Financial Liabilities Deposits $ 44,861 $ 45,644 Commitments to Extend Credit $ 3,357 $ 3,357
December 31, 2000 ----------------------------------- Carrying Fair Amount Value --------------- ---------------- Financial Assets Cash and Short-Term Investment $ 2,043 $ 2,043 Investment Securities 5,183 5,183 Loans and Mortgage Backed Securities 39,250 38,410 Financial Liabilities Deposits $ 38,730 $ 39,043 Advances from FHLB 3,000 3,000 Commitments to Extend Credit $ 3,395 $ 3,395
NOTE U CONCENTRATION OF CREDIT RISK All of the Bank's loans and commitments have been granted to customers in the greater New Orleans area. The Bank also had deposits in other well-capitalized financial institutions which exceed the federally insured limits. 70 NOTE V LEASES The Bank leases one of its branch locations from non-related parties. The lease is for a five-year term, with a monthly rental of $4,400. The lease provides for two five-year renewal options. Total minimum rental commitment at December 31, 2001 is as follows: December 31, 2002 $ 52,800 2003 52,800 2004 11,000 -------------- $ 116,600 ============== For the years ended December 31, 2001, 2000 and 1999, $102,000, $100,000 and $87,000 was charged to rent expense, respectively. The Bank is the lessor of an other real estate property under a non-cancelable lease expiring in July, 2002. Total minimum future rental income as of December 31, 2001 is $12,000. NOTE W EARNINGS PER COMMON SHARE Earnings per share are computed using the weighted average number of shares outstanding, which was 479,000 in 2001 and 472,707 in 2000. NOTE X REGULATORY MATTERS On October 4, 2000, the Office of Thrift Supervision (OTS) issued an order to "Cease and Desist" (the Order) to the Bank. The Order was issued by the OTS as a result of their examination of the Bank as of April 10, 2000. The Order is an arrangement between the Bank and the OTS in which the Bank agrees to perform, among other things, the following within specified time periods: (e) the Bank shall appoint a permanent compliance officer; (f) the Bank shall develop written policies and procedures for compliance in consumer lending, and for training lending personnel in these policies and procedures and in consumer compliance laws; (g) the Bank shall establish a plan for internal controls and procedures to ensure compliance with compliance regulations, and provide an ongoing monitoring program to assess the effectiveness and progress of compliance controls; (h) the Bank shall review all outstanding loans made since the last OTS compliance examination, dated June 23, 1997 to determine certain compliance matters for reporting to the OTS. 71 NOTE X REGULATORY MATTERS (Continued) On March 1, 2000, the Office of Thrift Supervision (OTS) and the Office of Financial Institutions (OFI) issued a preliminary supervisory agreement as a result of their examination of the Bank as of November 29, 1999, which, among other things, calls for the following within specified time periods: a) The Bank shall appoint a new Chief Executive Officer, two new directors, and a compliance officer, b) The Bank must formulate a revised three-year business plan, c) The Bank must adopt a written policy and procedures for non-real estate commercial and consumer lending, d) The Bank must obtain written approval from the regional director for any contractual arrangements with employees or third parties, outside of the normal course of business, and for any capital distributions. While no assurance can be given, the Bank's Board of Directors believes it has taken action toward complying with the provisions of the Order and the Agreement. It is not presently determinable what actions, if any, the regulators might take if requirements of the Order or the Agreement are not complied with in the specified time periods. 72 NOTE Y CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
ALGIERS BANCORP, INC. CONDENSED BALANCE SHEET (Dollars in Thousands) ASSETS December 31, ----------------- 2001 2000 ------ ------ Cash and Cash Equivalents $ 16 $ 135 Investments Available-for-Sale, at Fair Value -- 51 Investment in Subsidiaries 6,334 6,536 ESOP Loan Receivable 256 309 Receivable from Subsidiaries 82 134 Income Tax Receivable -- -- Other Assets 174 363 ------ ------ Total Assets $6,862 $7,528 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Due to Subsidiary $ 105 $ 534 Other Liabilities 6 6 Total Liabilities 111 540 Total Stockholders' Equity 6,751 6,988 ------ ------ Total Liabilities and Stockholders' Equity $6,862 $7,528 ====== ======
73 NOTE Y CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
ALGIERS BANCORP, INC. STATEMENTS OF OPERATIONS (Dollars in Thousands) For The Years Ended December 31, --------------------------- 2001 2000 1999 ----- ----- ----- INTEREST INCOME Mortgage-Backed Securities $-- $-- $ 1 ESOP Loan 24 28 33 Investment Securities 1 3 7 Loans and Fees -- 1 9 ----- ----- ----- Total Interest Income 25 32 50 ----- ----- ----- INTEREST EXPENSE Bank Advances -- -- 5 ----- ----- ----- Total Interest Expense -- -- 5 ----- ----- ----- NET INTEREST INCOME 25 32 45 NON-INTEREST INCOME Income (Loss) in Subsidiary-Algiers Bank & Trust (402) (417) (286) Loss in Subsidiary-Algiers.com, Inc. (95) (100) (37) Miscellaneous Income 5 1 4 ----- ----- ----- Total Non-Interest Income (Loss) (492) (516) (319) ----- ----- ----- NON-INTEREST EXPENSES Loss on Sale of Investment Securities 24 12 -- General and Administrative 107 82 116 ----- ----- ----- Total Non-Interest Expenses 131 94 116 ----- ----- ----- LOSS BEFORE FEDERAL INCOME TAX BENEFIT (574) (578) (390) FEDERAL INCOME TAX BENEFIT (26) (10) (23) ----- ----- ----- NET LOSS $(548) $(568) $(367) ===== ===== =====
74 NOTE Y CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
ALGIERS BANCORP, INC. STATEMENTS OF CASH FLOWS For The Years Ended December 31, --------------------------------- 2001 2000 1999 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (548) $ (568) $ (367) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Increase (Decrease) in Due to Subsidiaries (429) 362 (572) Gain on Sale of Real Estate Owned -- -- (2) Loss on Sale of Investment Securities - Available-for-Sale 23 12 -- (Increase) Decrease in Income Tax Receivable -- 105 (77) (Increase) Decrease in Other Assets 183 (255) (61) Increase (Decrease) in Due from Subsidiaries 52 (93) (41) Increase (Decrease) in Other Liabilities -- 3 (7) ------- ------- ------- Net Cash Used in Operating Activities (719) (434) (1,127) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in Loans Receivable - Net -- -- 121 Proceeds from Sales of Investment Securities - Available-for-Sale 48 59 -- Maturities of Mortgage-Backed Securities - Available-for-Sale -- -- 67 Proceeds from Sales of Real Estate Owned -- -- 64 Investment in Subsidiaries 497 517 323 ------- ------- ------- Net Cash Provided by Investing Activities 545 576 575 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Contribution of Additional Paid-in Capital -- -- (5) Dividends Paid -- (75) (102) MRP Trust Shares Aquired from Treasury 2 -- -- Purchases of Treasury Stock -- -- (148) Repayments of ESOP Loan 53 49 46 ------- ------- ------- Net Cash Provided by (Used in) Financing Activities 55 (26) (209) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (119) 116 (761) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 135 19 780 ------- ------- ------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 16 $ 135 $ 19 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Year for Interest $ -- $ -- $ 5
75 Item 8. Changes in and Disagreements With Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure. --------------------- None. PART III. Item 9. Directors, Executive Officers, Promoters and Control Persons; - ---------------------------------------------------------------------- Compliance with Section 16(a) of the Exchange Act. -------------------------------------------------- The information required by this item will be included in the Company's definitive proxy statement in connection with its 2002 Annual Meeting of Stockholders and is incorporated herein by reference. Item 10. Executive Compensation. - -------------------------------- The information required by this item will be included in the Company's definitive proxy statement in connection with its 2002 Annual Meeting of Stockholders and is incorporated herein by reference. Item 11. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------- The information required by this item will be included in the Company's definitive proxy statement in connection with its 2002 Annual Meeting of Stockholders and is incorporated herein by reference. Item 12. Certain Relationships and Related Transactions. - --------------------------------------------------------- The information required by this item will be included in the Company's definitive proxy statement in connection with its 2002 Annual Meeting of Stockholders and is incorporated herein by reference. Item 13. Exhibits, List and Reports on Form 8-K. - ------------------------------------------------- (a) Exhibits. Reference is made to the Exhibit Index beginning on page E-1 hereof. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the fourth quarter of the year ended December 31, 2001. 76 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALGIERS BANCORP, INC. By: /S/ Thomas L. Arnold, Sr. ---------------------------------------- Thomas L. Arnold, Sr. Chairman of the Board Date: March 27, 2002 In accordance with the Exchange Act, 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/ Thomas L. Arnold, Sr. Chairman of the Board March 27, 2002 - ----------------------------------------- Thomas L. Arnold, Sr.. /S/ Eugene J. Harris Acting President, Chief Financial Officer, - ----------------------------------------- and Director March 27, 2002 Eugene J. Harris /S/ Thu Dang Director March 27, 2002 - ----------------------------------------- Thu Dang /S/ John H. Gary, III Director March 27, 2002 - ----------------------------------------- John H. Gary, III /S/ Francis M. Minor Executive Vice-President and Director March 27, 2002 - -------------------------------- Francis M. Minor /S/ Janice H. Ray Corporate Secretary and Director March 27, 2002 - ----------------------------------------- Janice H. Ray
77 EXHIBIT INDEX 2.1* Plan of Conversion 3.1* Articles of Incorporation of Algiers Bancorp, Inc. 3.2* Bylaws of Algiers Bancorp, Inc. 4.1* Stock Certificate of Algiers Bancorp, Inc. 10.1** Supervisory Agreement dated April 17, 2000 10.2*** Order to Cease and Desist dated October 4, 2000 10.3* Lease for main office building 21.1 Subsidiaries of the Registrant (*) Incorporated herein by reference to the Company's Form SB-2 (Registration No. 333-2770) filed by the Company with the SEC on March 26, 1996, as subsequently amended. (**) Incorporated herein by reference from the Company's Form 10QSB for the quarterly period ended June 30, 2000, filed by the Company with the SEC on August 14, 2000. (***) Incorporated herein by reference from the Company's Form 10QSB for the quarterly period ended September 30, 2000, filed by the Company with the SEC on November 14, 2000. E-1 EX-21 3 ex-21.txt SUBSIDIARIES OF ALGIERS BANCORP EXHIBIT 21 SUBSIDIARIES OF ALGIERS BANCORP, INC. STATE OF SUBSIDIARY INCORPORATION/ORGANIZATION ---------- -------------------------- Algiers Bank and Trust Louisiana Algiers.COM, Inc. Louisiana Planet Mortgage, L.L.C.(1) Louisiana (1) Algiers.Com, Inc., a wholly-owned subsidiary of the Company, owns 51% of Planet Mortgage, L.L.C. -----END PRIVACY-ENHANCED MESSAGE-----