10-Q 1 f10q_033102-0123.txt 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 ----------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ -------------------- Commission file number 0-25538 ------- TECHE HOLDING COMPANY ---------------------------------------------------- (Exact name of registrant as specified in its charter) Louisiana 72-128746 -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation (I.R.S. employer or organization) identification no.) 211 Willow Street, Franklin, Louisiana 70538 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (337) 828-3212 -------------- N/A -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check X whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 10, 2002. Class Outstanding --------------------------- ----------- $.01 par value common stock 2,386,587 TECHE HOLDING COMPANY FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002 INDEX Page Number ------ PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial 6 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Materially Important Events 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 TECHE HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
At At March 31, September 30, 2002 2001* --------- ------------ (unaudited) ASSETS Cash and cash equivalents $ 20,579 $ 24,108 Securities available-for-sale, at estimated market value (amortized cost of $75,833 and $40,164) 75,978 41,230 Securities held to maturity (estimated market value of $23,208) 23,832 -- Loans receivable, net of allowance for loan losses of $3,480 and $ 3,436) 358,697 380,830 Accrued interest receivable 2,718 2,387 Investment in Federal Home Loan Bank stock, at cost 4,848 4,776 Real estate owned, net 192 282 Prepaid expenses and other assets 5,701 734 Premises and equipment, at cost less accumulated depreciation 14,379 13,184 -------- -------- TOTAL ASSETS $506,924 $467,531 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $358,367 $342,917 Advances from Federal Home Loan Bank 91,561 67,120 Advance payments by borrowers for taxes and insurance 983 1,642 Accrued interest payable 719 964 Accounts payable and other liabilities 2,203 2,776 -------- -------- Total liabilities 453,833 415,419 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 10,000,000 shares authorized; 4,336,075 shares issued 43 43 Preferred stock, 5,000,000 shares authorized; none issued -- -- Additional paid in capital 43,704 43,374 Retained earnings 39,076 36,609 Unearned ESOP shares (923) (1,089) Treasury stock - 1,962,988 and 1,894,748 shares, at cost (28,903) (27,518) Unrealized gain on securities available-for-sale, net of deferred income taxes 94 693 -------- -------- Total stockholders' equity 53,091 52,112 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $506,924 $467,531 ======== ========
_____________________ * The consolidated balance sheet at September 30, 2001 has been taken from the audited balance sheet at that date. See notes to unaudited consolidated financial statements. 1 TECHE HOLDING COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
For Three Months For Six Months Ended March 31, Ended March 31, ----------------------- -------------------------- 2002 2001 2002 2001 ---- ---- ---- ---- INTEREST INCOME Interest and fees on loans $7,222 $7,879 $14,787 $15,692 Interest and dividends on investments 1,188 938 2,135 1,957 Other interest income 93 53 177 109 ------ ------ ------- ------- 8,503 8,870 17,099 17,758 ------ ------ ------- ------- INTEREST EXPENSE: Deposits 2,707 3,587 5,800 7,219 Advances from Federal Home Loan Bank 1,410 1,691 2,721 3,542 ------ ------ ------- ------- 4,117 5,278 8,521 10,761 ------ ------ ------- ------- NET INTEREST INCOME 4,386 3,592 8,578 6,997 PROVISION FOR LOAN LOSSES 45 15 90 30 ------ ------ ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,341 3,577 8,488 6,967 ------ ------ ------- ------- NON-INTEREST INCOME: Service charges and other 1,811 1,562 3,729 3,060 Gain on sale of real estate owned 23 1 20 3 Gain on sale of fixed assets -- -- (3) -- Other income 46 42 83 75 ------ ------ ------- ------- TOTAL NON-INTEREST INCOME 1,880 1,605 3,829 3,138 ------ ------ ------- ------- Gain on sale of securities 86 66 86 66 NON-INTEREST EXPENSE: Compensation and employee benefits 1,846 1,694 3,649 3,351 Occupancy expense 828 805 1,726 1,618 Marketing and professional 488 347 988 729 Other operating expenses 724 921 1,387 1,663 ------ ------ ------- ------- TOTAL NON-INTEREST EXPENSE 3,886 3,767 7,750 7,361 ------ ------ ------- ------- INCOME BEFORE INCOME TAXES 2,421 1,481 4,653 2,810 ------ ------ ------- ------- INCOME TAXES 850 511 1,620 970 ------ ------ ------- ------- NET INCOME $1,571 $ 970 $ 3,033 $ 1,840 ====== ====== ======= ======= BASIC EARNINGS PER COMMON SHARE $ .69 $ .41 $ 1.33 $ .78 ====== ====== ======= ======= DILUTED EARNINGS PER COMMON SHARE $ .65 $ .40 $ 1.27 $ .77 ====== ====== ======= ======= SHARES OUTSTANDING FOR EPS CALCULATIONS BASIC 2,283,000 2,374,000 2,287,000 2,360,000 DILUTED 2,400,000 2,430,000 2,393,000 2,396,000
See notes to unaudited consolidated financial statements. 2 TECHE HOLDING COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the Six Months Ended March 31, -------------------- 2002 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,033 $ 1,840 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of discount and amortization of premium on investments and mortgage-backed securities 57 (36) Provision for loan losses 90 30 Depreciation 576 582 Other items - net (36) 742 ------- ------- Net cash provided by operating activities 3,720 3,158 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of securities available for sale (50,260) -- Proceeds from maturities of securities available for sale -- 3,391 Principal repayments on mortgage-backed securities available for sale 13,397 5,499 Loan repayments (originations), net 22,074 (1,928) Investment in FHLB stock (72) (177) Purchase of premises and equipment (1,771) (1,832) Sales of investment securities available-for-sale 309 270 Purchase of securities held to maturity (25,772) -- Purchase of life insurance contracts (5,000) -- Principal repayments on mortgage-backed securities held to maturity 2,564 -- ------- ------- Net cash (used in) provided by investing activities (44,531) 5,223 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 15,450 13,038 Net increase (decrease) in FHLB advances 24,441 (12,075) Net decrease in advance payments by borrowers for taxes and insurance (657) (263) Dividends paid (567) (590) Purchase of common stock for treasury (1,385) (1,409) ------- ------- Net cash provided by (used in) financing activities 37,282 (1,299) ------- ------- NET DECREASE (INCREASE) IN CASH (3,529) 7,082 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,108 10,384 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $20,579 $17,466 ======= =======
See notes to unaudited consolidated financial statements. 3 TECHE HOLDING COMPANY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of and for the three and six month periods ended March 31, 2002 and 2001 include the accounts of Teche Holding Company (the "Company") and its subsidiary, Teche Federal Savings Bank (the "Bank"). The Company's business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2 - BASIS OF PRESENTATION The accompanying consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the period ended March 31, 2002 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. NOTE 3 - EARNINGS PER SHARE Following is a summary of the information used in the computation of basic and diluted income per common share for the three and six months ended March 31, 2002 and 2001.
Three Months Ended Six Months Ended March 31, March 31, ----------------- ----------------- 2002 2001 2002 2001 ---- ---- ---- ---- (In thousands) Weighted average number of common shares outstanding - used in computation of basic income per common share 2,283 2,374 2,287 2,360 Effect of dilutive securities: Stock options 117 -- 106 28 MSP stock grants -- 56 -- 8 ----- ----- ----- ----- Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted net income per common share 2,400 2,430 2,393 2,396 ===== ===== ===== =====
4 NOTE 4 - COMPREHENSIVE INCOME Comprehensive income includes net income and other comprehensive income which, in the case of the Company, only includes unrealized gains and losses on securities available-for-sale. Following is a summary of the Company's comprehensive income for the six months ended March 31, 2002 and 2001. 2002 2001 ---- ---- Net income $3,033 $1,840 Other comprehensive income (loss), net of tax (599) 1,105 ------ ------ Total comprehensive income $2,434 $2,945 ====== ====== 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company may from time to time make written or oral "forward-looking statements" including statements contained in this Report and in other communications by the Company which are made in good faith pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, such as statements of the Company's plans, objectives, expectations, estimates and intentions, involve risks and uncertainties and are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing. Comparison of Financial Condition at March 31, 2002 and September 30, 2001 The Company's total assets at March 31, 2002 and September 30, 2001 totaled $506.9 million and $467.5 million, respectively, an increase of $39.4 million or 8.4%. Securities available-for-sale totaled $76.0 million and securities held to maturity totaled $23.8 million at March 31, 2002, which represents an increase of $58.6 million or 142% as compared to September 30, 2001. As part of a leveraging strategy, and to secure longer-term low cost funding in the current low interest rate environment, the Company purchased $49.7 million of mortgage-backed securities in November 2001 at an average yield of 5.42% and a projected average life of 4.7 years, which were funded, in part, by a $30 million FHLB advance. Additionally, the Company purchased $26.4 million of mortgage-backed securities at a yield of 5.60% fixed for the first five years and annually adjusted thereafter. Loans receivable totaled $358.7 million at March 31, 2002, which represented a $22.1 million or 5.8% decrease compared to September 30, 2001. During the quarter and six months ended March 31, 2002, the Company de-emphasized long-term fixed rate mortgage loans in view of the low interest rate environment, which resulted in repayments exceeding loan originations. While mortgage loans decreased during the quarter and six month periods, consumer and commercial loans increased. During the quarter, the Company purchased bank owned life insurance (BOLI) contracts totaling $5,000,000. Cash value yields are set by the insurance carrier annually and are currently 7.16% through December 31, 2002. 6 Total deposits, after interest credited, at March 31, 2002, were $358.4 million, which represents an increase of $15.5 million or 4.5% as compared to September 30, 2001. Advances increased $24.4 million or 36.4% as compared to the amount at September 30, 2001. The increase was primarily due to additional FHLB advances at a weighted average interest rate of 4.91% and an average life of 8.45 years used to partially fund purchases of mortgage-backed securities during the three months ended December 31, 2001. Stockholders' equity increased to $53.1 million at March 31, 2002, from $52.1 million at September 30, 2001, primarily due to earnings, offset somewhat by stock repurchased. During the six month period ended March 31, 2002, the Company repurchased 68,000 shares at an average price of approximately $20.29 per share. Comparison of Operating Results for the Three and Six Months Ended March 31, 2002 and 2001 Net Income. The Company had net income of $1,571,000 or $0.65 per diluted share, and $3,033,000 or $1.27 per share, for the three and six months ended March 31, 2002 as compared to net income of $970,000 or $0.40 per share, and $1,840,000 or $0.77 per share, for the three and six month periods ended March 31, 2001, respectively. Total Interest Income. Total interest income decreased by $367,000 or 4.1% and $659,000 or 3.7% for the three and six months ended March 31, 2002, respectively, as compared to the same periods ended March 31, 2001 due primarily to a decrease in the mortgage loan portfolio. The average yield on loans decreased to 7.98% for the six months ended March 31, 2002 from 8.00% for the same period in 2001. Total Interest Expense. Total interest expense decreased $1,161,000 or 22.0% and $2,240,000 or 20.8%, respectively, for the three and six month periods primarily due to a decrease in interest rates paid on deposits and advances. Net Interest Income. Net interest income increased $794,000 or 22.1% and $1,581,000 or 22.6% for the three and six month periods ended March 31, 2002, as compared to the same periods ended March 31, 2001. Interest rates paid on deposits and advances continued to decrease during the periods as a result of lower market interest rates. Additionally, the Company increased origination of consumer and commercial loans, which have higher interest rates than mortgage loans. Provision for Loan Losses. The provision for loan losses increased $30,000 and $60,000, respectively, for the three and six month periods ended March 31, 2002, as compared to the same periods in 2001, due primarily to management's assessment of the performance of the loan portfolio and the types and amount of loans made during the periods. Management periodically estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb possible losses in the existing portfolio. Based on these estimates, an amount is charged or credited to the provision for loan losses and credited or charged to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb anticipated future losses. These estimates are made at least every quarter and there has been no significant change in the company's estimation methods during the current period. Management's judgment as to the level of the allowance for loan losses involves the consideration of current economic conditions and their potential effects on specific borrowers, an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio and the present level of the 7 allowance, results of examination of the loan portfolio by regulatory agencies and management's internal review of the loan portfolio. In determining the collectibility of certain loans, management also considers the fair value of any underlying collateral. In addition, management considers changes in loan concentrations, quality and terms that occurred during the period in determining the appropriate amount of the allowance for loan losses. Because certain types of loans have higher credit risk, greater concentrations of such loans may result in an increase to the allowance. For this reason, management segregates the loan portfolio by type of loan and number of days of past due loans. Management also considers qualitative factors in determining the amount of the allowance such as the level of and trends in non-performing loans during the period, the Bank's historical loss experience and historical charge-off percentages for state and national savings associations for similar types of loans. In recent years, the Bank's charge-offs have been low and, consequently, additions to the allowance have been more reflective of other qualitative factors such as the types of loans added during the period and statistical analysis of local and national charge-off percentages. Non-Interest Income. Total non-interest income increased $275,000 and $691,000 for the three and six month periods ended March 31, 2002, primarily due to an increase in fee income from demand deposit accounts, as compared to the same periods in 2001. The increase is attributable to management's continuing focus on charging appropriate fees for the Bank's services and also to a higher volume of service charge transactions and accounts. Gain on Sale of Securities. The Company realized a gain of $86,000 in the three and six month periods ended March 31, 2002 from the sale of equity securities. Non-Interest Expense. Total non-interest expense increased $119,000 and $389,000, respectively, during the three and six months ended March 31, 2002, as compared to the same periods in 2001 due primarily to increases in occupancy expense, marketing and professional and other operating expenses. These increases are reflective of the Company's increased investment in branches, increased marketing activities and normal inflationary effects. Income Tax Expense. Income taxes remained relatively stable at approximately 34% to 35% of income before income taxes. Liquidity and Capital Resources Under current Office of Thrift Supervision ("OTS") regulations, the Bank is required to maintain certain levels of capital. As of March 31, 2002, the Bank was in compliance with its three regulatory capital requirements as follows: Amount Percent ------ ------- (In thousands) Tangible capital $43,790 8.65% Tangible capital requirement 10,129 2.00% ------ ----- Excess over requirement $33,661 6.65% ======= ===== Core capital $43,790 8.65% Core capital requirement 20,257 4.00% Excess over requirement $23,533 4.65% ======= ===== Risk based capital $47,079 16.48% Risk based capital requirement 22,855 8.00% ======= ===== Excess over requirement $24,224 8.48% ======= ===== 8 Management believes that under current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future. Events beyond the control of the Bank, such as increased interest rates or a downturn in the economy in areas in which the Bank operates could adversely affect future earnings and as a result, the ability of the Bank to meet its future minimum capital requirements. The Bank's liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost effective manner. The Bank's primary source of funds are deposits and scheduled amortization and repayments of loan and mortgage-backed principal. The Bank also utilizes advances from the Federal Home Loan Bank of Dallas for its investment and lending activities. As of March 31, 2002, such borrowed funds totaled $91.6 million. Loan payments, maturing investments and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes from the information regarding market risk disclosed under the heading "Asset and Liability Management" in the Company's Annual Report for the fiscal year ended September 30, 2001. Key Operating Ratios
At or For the At or For the Three Months Ended Six Months Ended March 31, March 31, ------------------------ ----------------------- 2002(1) 2001(1) 2002(1) 2001(1) ------- ------- ------- ------- (Unaudited) (Unaudited) Return on average assets 1.25% 0.86% 1.23% 0.81% Return on average equity 11.93% 8.17% 11.52% 7.61% Average interest rate spread 3.20% 2.53% 3.16% 2.44% Nonperforming assets to total assets 0.36% 0.30% 0.36% 0.30% Nonperforming loans to total loans 0.46% 0.29% 0.46% 0.29% Average net interest margin 3.66% 3.17% 3.65% 3.08% Tangible book value per share $22.37 $20.47 $22.37 $20.47
-------------------------------------- (1) Annualized where appropriate. 9 TECHE HOLDING COMPANY AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Neither the Company nor the Bank was engaged in any legal proceeding of a material nature at March 31, 2002. From time to time, the Company is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in loans. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On January 23, 2002, the Company held its annual meeting of stockholders and the following items were presented: Election of Directors: Mary Coon Biggs and Thomas F. Kramer, M.D. were reelected as directors for terms of three years ending in 2005 and until their successors are elected and qualified. Ms. Biggs received 2,162,630 votes in favor and 4,741 votes were withheld. Dr. Kramer received 2,162,959 votes in favor and 4,412 votes were withheld. Ratification of the appointment of Deloitte & Touche LLP as the Company's auditors for the 2002 fiscal year: Deloitte & Touche LLP was ratified as the Company's auditors with 2,156,371 votes for, 3,400 votes against, and 7,600 abstentions. ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) Reports on Form 8-K None. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECHE HOLDING COMPANY Date: May 13, 2002 By:/s/Patrick O. Little ----------------------- Patrick O. Little President and Chief Executive Officer (Principal Executive Officer) Date: May 13, 2002 By:/s/J.L. Chauvin ----------------------- J.L. Chauvin Vice President and Chief Financial Officer (Principal Accounting Officer) 11