Item 1. Business
General -
Teche Bancshares, Inc. (Company) was organized during 1984 for the purpose of operating as a one bank holding company. As a result, Teche Bank and Trust Company (Bank) was acquired by Teche Bancshares, Inc. in a business combination accounted for as a pooling of interests. Teche Bancshares, Inc.'s sole source of income is derived from the earnings and dividends of its subsidiary, Teche Bank & Trust Company.
Teche Bank and Trust Company is a Louisiana chartered state bank engaged in the general banking business since September 27, 1969. The Bank's main office is located in the primary business district of St. Martinville, Louisiana. The Bank has two branches. One is located on the north side of town on the main thoroughfare. The other branch is in Coteau, Louisiana. The population of both areas is largely rural and the economy is based on agriculture, textiles and tourism.
The City of St. Martinville is located in the south central part of Louisiana. The Bank's primary market area, the City of St. Martinville, had a population of 7,965 in 1990. Its general market area, St. Martin Parish, Louisiana, had a population of 40,214 and has not experienced substantial population growth over the past several years.
The community of Coteau is located twelve miles south of St. Martinville in Iberia Parish. The primary market area of the Coteau Branch is the six mile circular radius from the branch that is within Iberia Parish. The population of the primary market area is approximately 6,450 people. There are no banks or branches of other financial institutions located within the primary market area.
Competition -
There are two other banks and one savings and loan in the Bank's primary market area. Competition for loans and deposits is intense among the financial institutions in the area.
In the Bank's general market area there are five other banks and two domestic savings and loan institutions aggressively pursuing loans, deposits and other accounts. Below is a list of banks and savings institutions having offices in St. Martin Parish with their total deposits as of December 31, 1997:
Bank Thousands of Dollars
Farmers-Merchants Bank and Trust $ 96,891 First Louisiana National Bank 46,286 Iberia Bank 12,480 MidSouth National Bank 51,749 St. Martin Bank and Trust 59,653 Teche Bank and Trust Co. 33,721 Teche Federal Savings Bank 23,920
Total parish bank deposits $324,700 ========
Regulation -
As a bank holding company, Teche Bancshares, Inc. is subject to the Bank Holding Company Act of 1956, as amended (the "Act"). The Act subjects Teche Bancshares, Inc. to supervision and regulation by the Federal Reserve Board, which includes periodic examinations and the obligation of Teche Bancshares, Inc. to file semi-annual and annual reports with the Federal Reserve Board. The Act requires prior approval by the Federal Reserve Board for acquisitions of more than 5 percent of the voting shares or substantially all of the assets of any bank or bank holding company. The Act prohibits Teche Bancshares, Inc. from engaging in any business other than banking or bank-related activities specifically allowed by the Federal Reserve Board. The Act also prohibits Teche Bancshares, Inc. and its subsidiary from engaging in certain tie-in arrangements in connection with the extension of credit, the lease or sale of property or the provision of any services. Under Title VI of the Financial Institutions, Reform, Recovery and Enforcement Act of 1989, the Act has been amended to authorize bank holding companies to acquire savings and thrift institutions without tandem operations restrictions. Teche Bancshares, Inc.'s one banking subsidiary ("The Bank") is subject to a variety of regulations concerning the maintenance of reserves against deposits, limitations on the rates that can be charged on loans or paid on deposits, branching, restrictions on the nature and amounts of loans and investments that can be made and limits on daylight overdrafts. The Bank is regulated by the Federal Deposit Insurance Corporation.
The Bank is limited in the amount of dividends they may declare. Prior approval must be obtained from the appropriate regulatory authorities before dividends can be paid by the Bank to Teche Bancshares, Inc. if the amount of adjusted capital, surplus and retained earnings is below defined regulatory limits. The Bank is also restricted from extending credit or making loans to or investments in Teche Bancshares, Inc. and certain other affiliates as defined in the Federal Reserve Act. Furthermore, loans and extensions of credit are subject to certain other collateral requirements.
The Federal Reserve Board has established guidelines with respect to the maintenance of appropriate levels of capital by registered bank holding companies and banks.
"Primary capital" for this purpose includes common stock, surplus, undivided profits, contingency and other capital reserves, and the allowance for loan losses. "Total capital" consists of primary capital plus secondary capital, which includes certain limited-life preferred stock and long-term debt that meets certain maturity and preference ranking criteria.
In January, 1989, the Federal Reserve Board issued risk-based capital guidelines to assist in the assessment of the capital adequacy of bank holding companies and banks. These guidelines include a new definition of capital and a framework for calculating risk-weighted assets by assigning assets and off-balance sheet items to broad risk categories. The risk-based capital guidelines also establish a schedule for achieving the minimum supervisory standards and provide for transitional arrangements during a phase-in-period (beginning year end 1990) to facilitate adoption and implementation of the measure at the end of 1997.
The table below indicates the Bank's capital measures at December 31, 1997. The bank meets the risk-based capital guidelines at December 31, 1997 as follows:
Regulatory Bank's Requirement Capital
Risk-based capital ratios: Tier 1 4.0% 18.4% ===== ===== Tier 2 - % 1.0% ===== ===== Total risk-based capital ratio 8.0% 19.4% ===== =====
Additional Financial Information - Average Balance Sheets: (in thousands) December 31, 1997 1996 1995 ASSETS ------ ----- ------
Cash and due from banks $ 1,725 $ 1,641 $ 1,416 Interest-bearing deposits in banks 0 0 390 Investments securities: U. S. Treasury securities 903 1,058 1,581 Federal agency securities 17,465 16,301 13,067 States and political subdivisions 1,026 420 52 Other securities 320 278 256 ------ ------ ------ Total investment securities 19,714 18,057 14,956
Federal funds sold 911 1,315 1,672 Loans, net of allowance for losses 13,365 11,269 10,802 Bank premises, and equipment 720 713 829 Accrued interest receivable 303 259 250 Other real estate owned 103 83 215 Other assets 466 351 380 --------- --------- --------- Total assets $37,307 $33,688 $30,910 ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: Deposits - Demand $ 5,709 $ 5,243 $ 4,528 NOW and MMDA accounts 6,511 5,119 4,980 Savings 3,434 3,227 3,185 Time (100,000 and over) 7,440 6,400 5,472 Other time 10,443 10,430 9,695 ------ ------ ------ Total deposits 33,537 30,419 27,860 Federal funds purchased 38 5 1 Securities repurchased 26 57 23 Accrued interest payable 141 134 119 Notes payable - stockholders 0 94 280 Other liabilities & accrued expense 564 281 67 ------ ------ ------ Total liabilities 34,306 30,990 28,350 ------ ------ ------ Stockholders' equity: Common stock ($10 par value, 100,000 shares authorized, 28,125 shares issued and outstanding) 281 281 281 Surplus 1,139 1,139 1,139 Undivided profits 1,602 1,299 1,161 Total stockholders' equity 3,022 2,719 2,581 Less: Treasury stock, at cost (21) (21) (21) -------- -------- -------- Net stockholders' equity 3,001 2,698 2,560 -------- -------- --------
Total liabilities and stockholders' equity $37,307 $33,688 $30,910 ======== ======== ========
Additional Financial Information (continued) -
Analysis of Net Interest Earnings Based on Average Amounts Outstanding: (in thousands) Year Ended December 31, 1997 1996 1995 Interest earning assets: Interest-bearing deposits, in banks $ 0 $ 0 $ 390 Interest earned on interest- bearing deposits 0 0 27 Yield on interest-bearing deposits 0.0% 0.0% 7.0% ====== ====== ======
U. S. Treasury and federal agency securities $18,368 $17,359 $14,648 Interest earned on U. S. Treasury and federal agency securities 1,182 1,098 957 Yield on U. S. Treasury and federal agency securities 6.4% 6.3% 6.5% ====== ====== ======
Obligations of states and political subdivisions $1,026 $420 $52 Interest earned on obligations of states and political subdivisions 45 17 3 Yield on obligations of states and political subdivisions 4.4% 4.1% 5.3% ====== ====== ======
Other securities $320 $278 $256 Interest/dividends earned on other securities 15 5 5 Yield on other securities 4.5% 1.9% 2.0% ====== ====== ======
Federal funds sold $ 911 $ 1,315 $1,672 Interest earned on federal funds sold 48 69 98 Yield on federal funds sold 5.3% 5.3% 5.8% ====== ====== ======
Net loans $13,365 $11,269 $10,802 Interest and fees earned on net loans 1,322 1,161 1,138 Yield on net loans 9.9% 10.3% 10.5% ====== ====== ======
Total interest earning assets $33,990 $30,641 $27,820 Interest earned on total interest-earning assets 2,612 2,351 2,229 Yield on total interest-earning assets 7.7% 7.7% 8.0% ====== ====== ======
Interest bearing liabilities: NOW and MMDA accounts $6,511 $ 5,119 $4,980 Interest paid on NOW AND MMDA accounts 147 115 114 Average rate on NOW AND MMDA accounts 2.3% 2.2% 2.3% ====== ====== ======
Additional Financial Information (continued) -
Analysis of Net Interest Earnings Based on Average Amounts Outstanding (continued): (in thousands) Year Ended December 31, 1997 1996 1995
Savings $ 3,434 $ 3,227 $3,185 Interest paid on savings 68 64 63 Average rate paid on savings 2.0% 2.0% 2.0% ====== ====== ======
Time deposits - $100,000 and over $ 7,440 $ 6,400 $ 5,472 Interest paid on time deposits, $100,000 and over 387 330 287 Average rate paid on time deposits, $100,000 and over 5.2% 5.2% 5.2% ====== ====== ======
Other time deposits $10,443 $10,430 $ 9,695 Interest paid on other time deposits 526 519 457 Average rate paid on other time deposits 5.0% 5.0% 4.7% ====== ====== ======
Federal funds purchase $ 38 $ 5 $ 1 Interest paid on federal funds purchased 3 - - Average rate paid on federal funds purchased 6.9% 5.5% 3.3% ====== ====== ======
Securities repurchased $ 26 $ 56 $ 23 Interest paid on securities repurchased 2 3 1 Average rate paid on securities repurchased 6.5% 5.8% 5.6% ====== ====== ======
Notes payable - stockholders $ - $ 94 $ 280 Interest paid on notes payable - stockholders - 5 14 Average rate paid on notes payable - stockholders 0.0% 4.9% 5.1% ====== ====== ======
Total interest bearing liabilities $27,891 $25,332 23,636 Interest paid on total interest bearing liabilities 1,132 1,036 936 Average rate on total interest bearing liabilities 4.1% 4.1% 4.0% ====== ====== ======
Net yield on interest-earning assets (net interest- earnings divided by total interest-earning assets 4.3% 4.3% 4.0% ====== ====== ======
Changes in Interest Income and Expenses -
The following table shows, for the periods indicated, the change in interest income and interest expense for each major component of interest-earning assets and interest-bearing liabilities attributable to (i) changes in volume (change in volume multiplied by old rate), (ii) changes in rates (change in rate multiplied by old volume) and (iii) changes in rate/volume (change in rate multiplied by the change in volume). The change in interest income or expense attributable to the combination of rate variance and volume variance is included in the table, but such amount has also been allocated between, and included in the amounts shown as, changes due to rate and changes due to volume. The allocation of the change due to rate/volume variance was made in proportion to the amounts due solely to rate variance and solely to volume variance, which amounts are not included in the table. Balances of non-accrual loans and related income recognized have been included for computational purposes. Yields of tax exempt securities have not been computed on a tax equivalent basis.
Year Ended December 31, (dollars in thousands)
1994 v. 1995 Increase (Decrease) Due to Volume Rate Rate/Volume Total
Interest earnings assets: Increase (decrease) - Interest bearing deposits in banks (38) (7) 4 (41) U. S. Treasury & Federal Agency Sec. 70 121 11 202 State and political subdivisions - - - - Federal Funds sold 29 19 16 64 Net loans 47 31 1 79 Total interest earning assets 108 164 32 304
Interest-bearing liabilities: Increase (decrease) - NOW and MMDA accounts (4) 10 - 6 Savings (9) - - (9) Time deposits, $100,000 and over 55 57 20 132 Other time deposits 34 88 9 131 Federal funds purchased (1) - - (1) Securities repurchased (6) (3) 2 (7) Notes payable - stockholder (7) - - (7) Total interest-bearing liabilities 62 152 31 245
Increase (decrease) in net interest income 46 12 1 59 ===== ===== ===== =====
1995 v. 1996 Increase (Decrease) Due to Volume Rate Rate/Volume Total
Interest earnings assets: Increase (decrease) - Interest bearing deposits in banks (27) (27) 27 (27) U. S. Treasury & Federal Agency Sec. 176 (29) (5) 142 State and political subdivisions - - - - Federal Funds sold (21) (8) 2 (27) Net loans 49 (22) (1) 26 Total interest earning assets 177 (86) 23 114
Interest-bearing liabilities: Increase (decrease) - NOW and MMDA accounts 3 (5) - (2) Savings 1 - - 1 Time deposits, $100,000 and over 48 - - 48 Other time deposits 35 29 2 66 Federal funds purchased - - - - Securities repurchased 2 - - 2 Notes payable - stockholder (9) - - (9) Total interest-bearing liabilities 80 24 2 106
Increase (decrease) in net interest income 97 (110) 21 8 ===== ===== ===== =====
1996 v. 1997 Increase (Decrease) Due to Volume Rate Rate/Volume Total
Interest earnings assets: Increase (decrease) - Interest bearing deposits in banks - - - - U. S. Treasury & Federal Agency Sec. 64 17 1 82 State and political subdivisions - 18 27 45 Federal Funds sold (21) - - (21) Net loans 216 (45) (8) 163 Total interest earning assets 259 (10) 20 269
Interest-bearing liabilities: Increase (decrease) - NOW and MMDA accounts 31 5 1 37 Savings 4 - - 4 Time deposits, $100,000 and over 54 - - 54 Other time deposits 1 - - 1 Federal funds purchased 3 - (1) 2 Securities repurchased (2) 1 - (1) Notes payable - stockholder (5) (5) 5 (5) Total interest-bearing liabilities 86 1 5 92 Increase (decrease) in net interest income 173 (11) 15 177 ===== ==== ===== =====
Interest Sensitivity -
The Company's policy for interest-rate sensitivity management is to control the exposure of net interest income to interest rate movements. The relationship or gap between repricing dates of interest-earning assets and interest-bearing liabilities must be actively monitored and flexible enough to take advantage of changes in market rates. The Company follows such a policy and responds to market change by adjusting the structure of the assets and liabilities repricing within comparable time intervals. This enables the Company to respond to the volatility of interest rates, and thereby capitalize on profit opportunities while minimizing adverse changes in earnings.
The following table reflects the year-end position (in thousands) of the Company's interest-earning assets and interest-bearing liabilities which can either reprice or mature within the designated time periods. The interest sensitivity gaps can vary day-to-day and are not necessarily a reflection of the future. In addition, certain assets and liabilities within the same designated time period may nonetheless reprice at different times and at different levels.
After 1 Within Year But After 5 Non-interest 1 year Within 5 Years Earnings Total
ASSETS
Cash and due from banks $ - $ - $ - $ 1,633 $ 1,633 Securities available for sale 2,021 8,456 4,281 - 14,758 Securities held to maturity 1,623 2,375 479 - 4,477 Other securities - - - 342 342 Federal funds sold 1,050 - - - 1,050 Loans 5,503 4,676 3,503 25 13,707 Other assets - - - 1,338 1,338 ------- ------- ------ ------- ------- Total assets $10,197 $15,507 $8,263 $ 3,338 $37,305 ======= ======= ====== ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Demand deposits $ - $ - $ - $ 6,636 $ 6,636 Interest-bearing deposits: NOW and MMDA's 2,149 3,374 - - 5,523 Savings 1,443 2,148 - - 3,591 Time, $100,000 and over 6,883 905 - - 7,788 Other time 8,260 1,918 4 - 10,182 Other liabilities - - - 342 342 Stockholder's equity - - - 3,243 3,243
------- ------- ------ ------- ------- Total liabilities and stockholder's equity $18,735 $ 8,345 $ 4 $10,221 $37,305 ======= ======= ====== ======= ======= Interest rate sensitivity gap $(8,538) $ 7,162 $8,259 $(6,883) ======= ======= ====== =======
Investment Portfolio -
The following table indicates the composition of the Company's investments (in thousands) at December 31, 1997, 1996 and 1995 and shows the maturity distribution by carrying amount and yield (not on a taxable equivalent basis) of the Company's investment portfolio at December 31:
Amortized Unrealized Unrealized Fair Cost Gains Losses Value
Securities available for sale: U.S. Government and Agency Securities $ 3,322 $ 35 $ (1) $ 3,356 Mortgage-backed securities 11,258 154 (10) 11,402 ------- --- ---- ------
Totals 14,580 189 (11) 14,758
Securities held to maturity: U.S. Government and Agency Securities 383 - - 383 State and Municipal Securities 1,176 18 - 1,194 Mortgage-backed Securities 2,918 16 (13) 2,921 ------- --- ---- ------ Totals 4,477 34 (13) 4,498
Other Securities 343 - - 343 Less: Reserve for unrealized loss on corporate stock - - - - ------- --- ---- ------ Totals 343 - - 343
Total securities $19,400 $223 $(24) $19,599 ========= ==== ===== =======
Investment Portfolio (Continued) - (in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value
Securities available for sale: U.S. Government and Agency Securities $ 1,194 $ 2 $ (2) $ 1,194 Mortgage-backed securities 12,654 95 (29) 12,720 ------- --- ---- ------
Totals 13,848 97 (31) 13,914
Securities held to maturity: U.S. Government and Agency Securities 687 1 (1) 687 State and Municipal Securities 538 1 (1) 538 Mortgage-backed Securities 3,535 19 (20) 3,534 ------- --- ---- ------ Totals 4,760 21 (22) 4,759
Other Securities 286 - - 286 Less: Reserve for unrealized loss on corporate stock - - - - ------- --- ---- ------ Totals 286 - - 286
Total securities $18,894 $118 $(53) $18,959 ========= ==== ===== ========
Investment Portfolio (Continued) - (in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value
Securities available for sale: U.S. Government and Agency Securities $ 2,922 $ 9 $ (2) $ 2,929 Mortgage-backed securities 8,995 50 (32) 9,013 ------- --- ---- ------
Totals 11,917 59 (34) 11,942
Securities held to maturity: U.S. Government and Agency Securities 813 3 - 816 State and Municipal Securities 208 - (8) 200 Mortgage-backed Securities 4,252 34 (27) 4,259 ------- --- ---- ------ Totals 5,273 37 (35) 5,275
Other Securities 258 - - 258 Less: Reserve for unrealized loss on corporate stock - - - - ------- --- ---- ------ Totals 258 - - 258
Total securities $17,448 $96 $(69) $17,475 ========= ==== ===== ========
Investment Portfolio (Continued) -
Due After Due After Due in One Year Five Years One Year But Before But Before Due After or Less Five Years Ten Years Ten Years
Securities available for sale: U.S. Government and Agency Securities $ 699 $2,262 $ 395 $ - Mortgage-backed securities 1,321 6,194 841 3,046 ------ ----- ----- ----- Totals 2,020 8,456 1,236 3,046
Securities to be held to maturity: U.S. Government and Agency Securities 383 - - - State and municipal securities 82 678 416 - Mortgage-backed securities 1,158 1,697 - 63 ------ ----- ----- ----- Totals 1,623 2,375 416 63
Other securities - - - 343
Total $3,643 $10,831 $1,652 $3,452 ======= ======= ======= ======
Weighted Average Yield
Securities available for sale: U.S. Government and Agency Securities 5.9% 6.7% 6.6% - ====== ====== ====== =====
Mortgage-backed securities 6.5% 6.9% 7.0% 7.0% ====== ====== ====== =====
Securities to be held to maturity: U.S. Government and Agency Securities 6.0% - - - ====== ====== ====== ======
State and municipal securities 4.5% 4.4% 4.4% - ====== ====== ====== ======
Mortgage-backed securities 7.7% 6.9% - % 1.0% ====== ====== ====== ======
Other securities - - - 4.5% ====== ====== ====== ======
Yields on tax exempt obligations have not yet been computed on a tax-equivalent basis.
Loan Portfolio Information -
Types of Loans: 1997 1996 1995 1994 1993
Real estate loans $ 8,474 $ 7,292 $ 5,858 $ 6,710 $ 5,420 Commercial and industrial loans 2,560 2,630 2,412 1,779 1,854 Personal and consumer loans 2,897 3,006 2,702 2,679 2,649 All other loans 12 27 24 39 13 ------ ------ ----- ----- ----- Totals 13,943 12,955 10,996 11,207 9,936 Less: Unearned income (65) (88) (62) (59) (73) Allowance for loan losses (171) (158) (161) (180) (181) ------ ------ ----- ----- ----- Net loans $13,707 $12,709 $10,773 $10,968 $ 9,682 ======= ======= ======= ======= =======
Maturities and Sensitivities of Loans to Changes in Interest Rates (in thousands)
Repricing Repricing Repricing Repricing in one After one After five After Year or But Before but Before Ten 1997 less five Years Ten Years
Real estate $8,474 $3,413 $2,187 $2,314 $560 Commercial and industrial 2,560 1,037 923 582 18 Personal and consumer 2,897 1,224 1,646 21 6 All other 12 12 - - - -------- -------- ------- ------ ------ Totals $13,943 $5,686 $4,756 $2,917 $584 ======== ======== ======= ====== ======
Non-accrual, Past Due and Restructured Loans: (in thousands) December 31, December 31, 1997 1996
Non-accrual loans $ 25 $238 ===== ===== Restructured loans $ - $ 58 ===== ===== Impaired loans $ - $216 ===== ===== Accruing loans past due 90 days or more at year end $ 42 $ 60 ===== =====
The Bank's policy is to place loans on non-accrual whenever it appears that interest will not be collected. Management's list of potential problem loans indicated a principal balance of $230,951 as of December 31, 1997.
At December 31, 1997, management believes that potential problem loans with credit problems have been adequately reserved for in the allowance for loan loss accounts.
The Bank has taken an aggressive approach to consumer lending yet management is still very conservative in making credit decisions. Management feels that by increasing the Bank's consumer loan base, it can spread risk in the loan portfolio and increase loan demand and profit margin at the same time.
Summary of Loan Loss Experience: December 31, 1997 1996 Balance, beginning of year $ 158 $ 161
Provision added to operations 10 - --- --- Charge-offs: Installment loans 2 5 Commercial loans 1 4 --- --- Total Charge off's 3 9 Recoveries: Real estate loans - - Installment loans 1 3 Commercial loans 5 3 --- --- Total Recoveries 6 6
Net allowance activity 13 3
Balance, end of year $ 171 $ 158 ===== ===== Ratio of net charge-offs during the period to average loans outstanding during the period .10% .03% ===== =====
In determining the adjustments charged in operations, management considered the overall risk of loan losses in its loan portfolio, as well as considering the potential losses that might be incurred on specific loans.
Management does not allocate its allowance for loan loss by asset category; however, in determining the balance of the allowance for loan loss account, management considers the various risks inherent with the Bank's loan portfolio, as well as specific risk of certain loans. The allowance for loans losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problems loans and current economic conditions that may affect the borrower's ability to pay.
Management approximates that the amount of charge-offs during the next full year of operation will be as follows:
(in thousands) Real estate loans $ - Commercial & industrial - Personal & consumer - All other loans - ------ Total $ - ======
Deposits -
See analysis of net interest earnings for average deposits and average rate paid. Non-interest bearing demand deposits have not been included in the net interest earnings, because they do not pay interest. Therefore, the average interest rate paid would be zero. The average balances for the past three years can be found on the average balance sheets.
Maturities of Time Certificates over $100,000 or More:
December Three Over Three Over Six Over 31, Months Through Through Twelve 1997 or less Six Twelve Months
Time Certificates - $100,000 or more $7,788 $1,704 $2,980 $2,198 $906 ====== ====== ====== ====== ====
Return on Average Equity and Assets -
December 31, December 31, December 31, 1997 1996 1995
Return on average assets 1.0% 1.0% 1.0% ===== ===== =====
Return on average equity 11.9% 12.1% 15.4% ===== ===== =====
Dividend payout ratio 11.6% 11.6% 10.4% ===== ===== =====
Equity to asset ratio 8.4% 8.0% 7.1% ===== ===== =====
Capital adequacy ratio 9.1% 8.4% 8.0% ===== ===== =====
Item 2.
Item 2. Properties
The main banking house is made of concrete and brick and has 3,200 square feet of working area. The main banking house and concrete parking lot are situated on three adjoining pieces of property on the outskirts of St. Martinville, Louisiana. The Bank also owns a piece of property on the outskirts of St. Martinville, Louisiana, on which they have a branch made of concrete and brick which has 1,660 square feet of working area. The Coteau Branch is constructed of brick with 1,170 square feet of working area. None of these properties carry a mortgage.
Item 3.
Item 3. Legal Proceedings
The Company is not involved in any legal actions.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise during the fourth quarter for calendar year ended December 31, 1997.
FORM 10-K
TECHE BANCSHARES, INC. PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Teche Bancshares, Inc.'s stock is not listed on any security exchange, and is not registered with the National Association of Security Dealers. Due to the lack of an active trading market, the Company does not have available information to furnish the high and low sales price on the range of bid and asked quotations for its stock. However, based upon stock sales during the fourth quarter of 1997, it is believed that the stock of the Company trades for approximately $70.00 per share. There can be no assurance that the limited inquiries adequately reflect the high and low bids on prices for the Holding Company's stock.
At December 31, 1997, Teche Bancshares, Inc. had approximately 386 stock-holders.
Teche Bancshares, Inc. paid a dividend of $1.50 per share in 1997. In 1996, the bank paid $1.35 per share. In 1995, the bank paid $1.25 per share. Future dividends paid by the Holding Company will depend upon the Bank's ability to pay dividends, which is restricted by applicable federal and state statutes.
Teche Bank & Trust Company is a Louisiana state banking corporation. Applicable Louisiana law prohibits a state bank from paying a dividend if its surplus remaining after payment of the dividend would be less than half the aggregate par value of its outstanding stock. In addition, a state bank is required to obtain the prior approval of the Louisiana Commissioner of Financial Institutions before declaring or paying a dividend in a given year if the total of all dividends declared and paid by the state bank during the year would exceed the total of its net profit for that year combined with the net profit from the immediately preceding year.
Item 6.
Item 6. Selected Financial Data (in thousands except per share)
1997 1996 1995 1994 1993
Investment securities $19,578 $18,961 $17,474 $15,368 $13,650
Loans 13,707 12,709 10,773 10,968 9,682
Deposits 33,721 32,375 30,516 29,165 27,334
Stockholders equity 3,242 2,847 2,533 1,965 1,997
Operating revenues 2,933 2,665 2,551 2,179 2,125
Net interest income 1,476 1,310 1,288 1,223 1,209
Provision for loan losses (10) - - - -
Net income 363 325 337 246 421
Earnings per share 12.98 11.65 12.07 8.81 15.09
Total assets 37,305 33,552 33,470 31,816 29,875
Cash dividend: Per share 1.50 1.35 1.25 1.25 1.25 Total 41 38 35 35 35
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
1997 IN REVIEW
Our net income for the years ended December 31, 1997, 1996 and 1995 was $362,550, $325,387 and $337,024, respectively. Net income increased $37,163 in 1997 from $325,387 for the year ended 1996. Net income for 1996 decreased $11,637 from $337,024 in 1995. Earnings per common share were $12.98 for 1997, $11.65 for 1996, and $12.07 for 1995. Return on average assets and return on equity was 1.0% and 11.9% for 1997. Return on average assets and return on equity was 1.0% and 12.1% for 1996. For 1995, return on average assets was 1.0% and return on equity was 15.4%.
Highlights for 1997 were as follows:
1. For the year ended 1997, we increased our average total assets by 10.8%. Total loans at the end of 1997 were up 7.8% as compared to the end of the year in 1996. This positive trend marks the sixth consecutive year of asset growth for Teche Bank.
2. For the year ended 1997, we increased our net income 11.4% over that of 1996.
3. We increased our dividend to stockholders 11% over the dividend paid in the prior year.
4. After two years of operations, our Coteau office continues to be a thriving source of growth and profitability for the bank. We have exceeded our projections and expectations for this office and are excited about the future of this location.
EARNINGS ANALYSIS
Net Interest income
Net interest income was $1,466,454 in 1997, compared to $1,309,536 in 1996. This change represents an increase of $156,918 over the previous year. We were able to increase our net interest income for the year ended 1997 because of growth in the bank's total loans and investments. Over the past two years, we have begun to experience growth in the bank's total loans and assets.
Net interest income was $1,309,536, compared to $1,287,894 in 1995, an increase of $21,642 over the previous year. We were able to increase our net interest income for the year ended 1996 as the result of growth in the bank's total loans.
Provision for Loan Losses
The provision for loan losses is the amount charged against current earnings which management believes is necessary to maintain the allowance at an adequate level at the time the charge is taken, considering the watch list trends, net charge-off experience, size of the loan portfolio and general economic conditions and trends. During 1997, we added $9,999 to our reserve for loan losses. During 1996, and 1995 we maintained our reserve for loan loss account at a level that was adequate without making any additions to the provision account. The allowance for loan losses at December 1997 was $171,354 or 1.23% of gross loans.
Other Income
Other income was $321,136 for 1997 as compared to $314,406 in 1996. The majority of the change in other income was due to an increase in commissions on credit life insurance.
Other income was $314,406 for 1996 as compared to $322,247 in 1995. The majority of the decrease in other income was due to a nonrecurring recovery in 1995 of $39,753 on a loss from the sale of Louisiana Agricultural Finance (LAFA) Bonds. Excluding the one time income received in 1995, other income for the year ended 1996 was higher than that of the previous year.
Other Expenses
Other expenses were $1,268,905 for 1997 compared to $1,160,908 in 1996. The increase in other expenses was the result of increases in salaries and employee benefits and other operating expenses. Salaries and benefits expense increased due to compensation increases made at the end of 1996. Other operating expenses increased due to increases in directors fees, correspondent bank charges and a provision to charge down other real estate owned.
Other expenses were $1,160,908 for 1996 compared to $1,122,806 in 1995. The increase in other expenses was the result of increases in salaries and employee benefits, occupancy expense, and furniture and fixtures expenses. The increase in salaries and employee benefits was due to an increase in the compensation of our employees and the addition of two new Coteau Branch employees for a full year in 1996. The increase in occupancy expenses and furniture and fixtures was due primarily to the expenses of operating the Coteau Branch for an entire year.
FINANCIAL CONDITION ANALYSIS
Investments
During the first quarter of 1994 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). This pronouncement provides guidance regarding the appropriate classification of debt and equity securities in a company's balance sheet and also provides for the recognition of unrealized holding gains and losses as a result of changes in the fair value of securities available for sale. The carrying value of securities held to maturity continues to be amortized cost. Securities available for sale are now carried at their estimated fair value in accordance with SFAS 115.
The carrying value of securities available for sale at the end of 1997 was adjusted upward by $178,374 to reflect an increase in market value over their amortized cost at that date. Securities held to maturity had a market value in excess of carrying value of $21,410 at year end. Management considers the increase in value of the securities portfolio to be temporary in nature.
The carrying value of securities available for sale at the end of 1996 was adjusted upward by $66,421 to reflect an increase in market value over their amortized cost at that date. Securities held to maturity had a market value in excess of carrying value of $1,282 at year end. Management considers the increase in value of the securities portfolio to be temporary in nature.
Loans
At December 31, 1997, loans, net of allowance for loan losses and unearned discount, were $13,706,864. This was an increase of $997,962 over $12,708,902 at the end of 1996. Average loans during the year 1997 were $13,364,950, up approximately $2,096,344 from 1996.
Loans, net of allowance for loan losses and unearned discount, were $12,708,902 at December 31, 1996. Net loans increased by $1,936,002 from $10,772,900 at the end of 1995. Average loans during the year 1996 were $11,268,606 up approximately $466,408 from 1995.
Deposits
At December 31, 1997 total deposits were $33,720,628, an increase of $1,345,085 over that of the prior year end balance. Average deposits for the year ended 1997 were $33,537,170 as compared to $30,418,843 in 1996. Average deposits are up due to the growth of the Coteau Branch, and growth attributed to the offering of our ATM's, voice line and Saturday Banking Services. We did not have as much public funds deposits this year as we had in the prior year.
At December 31, 1996 total deposits were $32,375,543, an increase of $1,859,740 over 1995. Average deposits for the year ended 1996 were $30,418,843 as compared to $27,859,434 in 1995. The increase in deposits at year end was due to having the public fund deposits of the St. Martin Parish Sheriff's Department property tax collections. These funds were distributed to the various public bodies during the first quarter of 1997. Average deposits are up due to the growth of the Coteau Branch, and growth attributed to the offering of our ATM's, Voice line and Saturday Banking services.
Time deposits of $100,000 and greater were $7,787,730 at the end of 1997, an increase of $726,138 over that of the prior year. The increase was due to increases in Public Funds from bids won during the year and from general growth in deposits. We bid aggressively to get Public Funds when we can earn a spread on these incremental funds. We continue to hold $1,000,000 in jumbo certificates from the State of Louisiana that were added in 1994. Rates on these funds are still attractive compared to alternatives for funding.
Time deposits of $100,000 and greater were $7,061,592 at the end of 1996, an increase of $1,806,921 over that of the prior year. The increase was due to increases in Public Funds from bids won during the year.
Asset/Liability Management
The objective of asset/liability management is to maximize net interest income while balancing liquidity and capital needs and minimizing interest rate risk. The Asset/Liability Committee (ALCO) develops and reviews strategies which assist in the achievement of the Bank's goals. Strategies may include purchases and sales of securities to alter maturities and yields, and changes in the mix of earning assets and funding sources.
Changes in interest rates create interest rate risk. Interest rate risk is measured each month by using a static gap analysis. Based on the results of this model the ALCO committee determines the appropriate strategies and goals to follow.
Liquidity is needed to meet the cash requirements for deposit withdrawals and the funding of loans. A stable base of funding sources and an adequate level of assets readily convertible into cash provide liquidity. In order to maintain adequate liquidity, management attempts to ladder the maturities and cash flows of its investment portfolio so that cash flows will be available each year to reinvest or to meet the liquidity demands of the bank.
Credit Risk Management
Teche Bancshares, Inc. manages its credit risk by maintaining high credit underwriting standards and providing an adequate allowance for loan losses. We concentrate our lending to areas within our geographic market in order to keep the cost of managing assets low and in order to be informed of developments affecting our credits. Our credit underwriting standards emphasize cash flow and repayment ability and ensure that loans are properly structured and collateralized. An adequate allowance for loan losses provides for losses inherent in the loan portfolio.
Nonperforming Assets
Nonaccrual loans and other real estate owned are included in nonperforming assets. As of December 31, 1997, nonperforming assets were $254,709, a decrease of $39,353 from 1996. As of December 31, 1996, nonperforming assets were $294,062, a decrease of $56,851 from 1995. Nonaccrual loans at December 31, 1997, 1996 and 1995 were $24,988, $238,843, and $238,294, respectively. Other real estate owned was $229,721, $55,219, and $112,619 at December 31, 1997, 1996, and 1995, respectively.
Watch List
The Bank's watch list includes loans which, for management purposes, have been identified as requiring a higher level of monitoring. These loans require monitoring due to conditions which, if not corrected, could increase credit risk. Watch list loans totaled $230,951 and $507,869 at December 31, 1997 and 1996.
Capital and Dividends
The Company's risk based capital ratios at December 31, 1997 significantly exceeded the minimum regulatory guidelines. The Company's leverage ratio was 8.41% and risk based capital was 19.41%, well above the regulatory minimums of 3%-5% and 8%. The Company's capital to asset ratio including the effect on capital of mark to market changes in value of investments was 8.69% at December 31, 1997. Teche Bancshares, Inc.'s sole source of funds from which to pay dividends to stockholders is Teche Bank & Trust Company. During 1997 Teche Bank & Trust Company declared and paid a dividend to Teche Bancshares, Inc. of $41,887 which was paid to stockholders in the form of a dividend.
Fourth Quarter Results
Net income for the fourth quarter of 1997, 1996, and 1995, was $83,933, $101,262, and $96,781, respectively. The decrease in income for the quarter was mostly due to the Other Real Estate devaluation adjustment of $20,549 made in the last quarter of 1997. Income before income tax for the quarter ended December 31, 1997 was $114,452 as compared to $130,703 for the same quarter ended 1996.
Year 2000 Preparation
Teche Bancshares, Inc. relies on automation to manage information. Since the earliest days of electronic computers, programmers have used two digits to represent the year in date fields (YYMMDD). In the 1960s when this convention became standard, the two-digit representation made economic sense because it economized computer memory and saved storage space. The Year 2000 problem exists because a two-digit representation of the year will be interpreted in many applications to mean the year 1900, not 2000, unless the date or program logic is modified. Without modification, many date sensitive software applications will provide illogical or erroneous data.
We have inventoried our software, hardware and environmental systems. We have identified those products that will need modification in our business. We do not anticipate that the modifications that we will be required to make to be functional in the year 2000 will be material to the financial statements or operations of Teche Bancshares, Inc.
Item 8.
Item 8. Financial Statements and Supplementary Data
The audited financial statements of Teche Bancshares, Inc. are presented on pages 29 to 63.
TECHE BANCSHARES, INC. AND SUBSIDIARY
Financial Report
Years Ended December 31, 1997 and 1996
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS Consolidated balance sheets 2 Consolidated statements of income 3 Consolidated statements of changes in stockholders' equity 4 Consolidated statements of cash flows 5 Notes to consolidated financial statements 6-27
SUPPLEMENTARY INFORMATION
Consolidated schedules of other operating expenses 29 Consolidating schedules - Consolidating balance sheet 31 Consolidating statement of income 32 Consolidating statement of cash flows 33
INDEPENDENT AUDITOR'S REPORT
The Board of Directors Teche Bancshares, Inc. and Subsidiary St. Martinville, Louisiana
We have audited the accompanying consolidated balance sheets of Teche Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teche Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made primarily to form an opinion on the basic consolidated financial statements, as stated in the preceding paragraph. The supplementary information contained on pages 28-33 is presented for purposes of additional analysis and, although not required for a fair presentation of consolidated financial position, results of operations, and cash flows, was subjected to the audit procedures applied in the audits of the basic consolidated financial statements. In our opinion, the supplementary information is fairly presented in all material respects in relation to the basic consolidated financial statements taken as a whole.
Darnall, Sikes, Kolder, Frederick & Rainey A Corporation of Certified Public Accountants Breaux Bridge, Louisiana January 21, 1998
TECHE BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets December 31, 1997 and 1996 (in thousands)
1997 1996 ASSETS
Cash and due from banks $ 1,632 $ 1,476 Securities available for sale 14,758 13,915 Securities to be held to maturity 4,477 4,760 Other securities 343 286 Federal funds sold 1,050 1,225 Loans, net of allowance for loan losses and unearned discount on loans 13,707 12,709 Bank premises, furniture, fixtures and equipment 674 708 Accrued interest receivable 314 268 Other real estate owned 230 55 Other assets 120 150 --------- --------- Total assets $37,305 $35,552 ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES Deposits - Non-interest demand $ 6,637 $ 5,675 Interest bearing - NOW and MMDA accounts 5,523 6,029 Savings 3,591 3,256 Time, $100,000 and over 7,788 7,062 Other time 10,182 10,354 --------- -------- Total deposits 33,721 32,376
Accrued interest payable 137 134 Other liabilities and accrued expenses 205 195 --------- -------- Total liabilities 34,063 32,705
STOCKHOLDERS' EQUITY Common stock ($10 par value, 100,000 shares authorized, 28,125 shares issued and outstanding) 281 281 Surplus 1,144 1,144 Retained earnings 1,719 1,397 Less: 200 shares of treasury stock (19) (19) Net unrealized gain (loss) on securities available for sale, net of tax of $61 in 1997 and $23 in 1996 117 44 --------- -------- Total stockholders' equity 3,242 2,847
Total liabilities and stockholders' equity $37,305 $35,552 =========== ===========
The accompanying notes are an integral part of this statement.
TECHE BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
INTEREST INCOME Interest and fees on loans $1,322 $1,162 $1,138 Interest on investment securities: Interest on securities available for sale 894 791 677 Interest on securities to be held to maturity 288 307 280 Obligations of state and political subdivisions 45 17 3 Interest and dividends on other securities 15 5 5 Interest on federal funds sold 48 69 98 Interest on deposits in banks - - 27 ----- ----- ----- Total interest income 2,612 2,351 2,228
INTEREST EXPENSE Interest on deposits 1,127 1,028 920 Federal funds purchased 3 1 - Interest on securities repurchased 2 3 1 Other interest 4 5 5 Stockholder loans - 4 14 ----- ----- ----- Total interest expense 1,136 1,041 940
Net interest income before recovery of possible loan losses 1,476 1,310 1,288
PROVISION FOR POSSIBLE LOAN LOSSES (10) - - ----- ----- ----- Net interest income after recovery of possible loan losses 1,466 1,310 1,288
OTHER INCOME Service charges on deposit accounts 258 256 228 Commissions income 30 21 25 ATM income 10 9 8 Net gain on security transactions 2 4 - Recovery of investment loss - - 40 Other operating revenue 21 24 21 ----- ----- ----- Total other income 321 314 322
Income before other expenses 1,787 1,624 1,610
OTHER EXPENSES Salaries and employee benefits 645 600 541 Occupancy expenses 184 187 175 Furniture and equipment expenses 35 35 24 Data processing expenses 33 34 41 Net loss on security transactions - - 3 Net other real estate loss 3 1 36 Other operating expenses 368 304 303 ----- ----- ----- Total other expenses 1,268 1,161 1,123
Income before income taxes 519 463 487
INCOME TAXES BENEFIT (EXPENSE) (156) (138) (150) ----- ------ ----- Net Income $ 363 $ 325 $ 337 ======= ======= =======
Earnings per share $12.98 $11.65 $12.07 ======= ======= =======
The accompanying notes are an integral part of this statement.
TECHE BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1997, 1996 and 1995 (in thousands)
Allowance Unrealized Loss on Gain (Loss) Common Stk Marketable on Treas. Stk Equity AFS Surplus Securities Securities Total
BALANCES, DECEMBER 31, 1994 $2,211 $(4) (242) $1,965
Net income 337 - - 337 Cash Dividend, $1.25 per share (35) - - (35) Sale of 25 shares Treasury Stock 2 - - 2 Net change in unrealized gain on AFS securities - - 259 259 Sale of Marketable Securities - 4 - 4 ------- ----- ------ ------- BALANCES, DECEMBER 31, 1995 $2,515 $ - 17 $2,532
Net income 325 - - 325
Cash Dividend, $1.35 per share (37) - - (37)
Net change in unrealized gain on AFS securities - - 27 27 ------- ----- ------ ------- BALANCES, DECEMBER 31, 1996 $2,803 $ - $ 44 $2,847
Net income 363 - - 363
Cash Dividend, $1.35 per share (41) - - (41)
Net change in unrealized gain on AFS securities - - 73 73 ------- ----- ------ ------- BALANCES, DECEMBER 31, 1997 $3,125 $ - $117 $3,242 ====== ===== ====== ======= The accompanying notes are an integral part of this statement.
TECHE BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 363 $ 325 $ 337 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of bank premises and equipment 85 85 87 (Gain) loss on other real estate owned - 3 38 (Increase) decrease in: other assets 21 39 (18) deferred tax asset - - 76 accrued interest receivable (45) 1 (17) accrued interest payable 2 24 33 other liabilities 10 21 (157) ----- ----- ----- Net cash provided by operating activities 436 498 379 ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in interest-bearing deposits in banks - - 882 (Increase) decrease in federal funds sold 175 1,575 (2,800) Proceeds from sales of securities available for sale 400 800 4,045 Proceeds from maturities of securities available for sale 250 1,925 1,941 Proceeds from maturities of securities held to maturity 6,718 5,830 1,272 Purchases of securities to be held to maturity (2,953) (3,023) (2,330) Purchases of securities available for sale (4,949) (6,976) (6,770) Net (increase) decrease in loans (998) (1,936) 194 Capital expenditures for bank premises and equipment (51) (48) (161) (Increase) decrease in other real estate owned (175) 52 260 ----- ----- -----
Net cash provided by (used in)investing activities (1,583) (1,801) (3,467) ------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in - Demand deposits 962 393 903 NOW and MMDA (506) (770) (1,207) Savings deposits 335 55 (251) Time deposits, >= $100,000 727 1,806 932 Other time deposits (172) 375 974 Dividends paid (42) (37) (35) Decrease in treasury stock - - 2 Decrease in notes payable - stockholders - (151) (141) ----- ----- ----- Net cash provided by financing activities 1,304 1,671 1,177 ------- ------- -----
Net increase (decrease) in cash and cash equivalents 157 368 (1,911)
CASH AND CASH EQUIVALENTS, beginning of year 1,476 1,108 3,019
CASH AND CASH EQUIVALENTS, end of year $ 1,633 $ 1,476 $ 1,108 ======= ======= =======
CASH PAID DURING THE YEAR
Interest $1,133 $ 1,017 $ 908 ====== ======= ======= Income taxes $ 170 $ 117 $ 153 ====== ======= =======
The accompanying notes are an integral part of this statement.
TECHE BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
A. Principles of Consolidation
The accompanying consolidated financial statements dated December 31, 1997, 1996 and 1995, include the accounts of Teche Bancshares, Inc. (Company) and Teche Bank and Trust Company (Bank), its wholly-owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation.
B. Nature of Operations
Teche Bank and Trust Company is a Louisiana chartered state bank engaged in the general banking business since September 27, 1969. The Bank's main office is located in the primary business district of St. Martinville, Louisiana. The Bank also has two branches. One is located on the north side of town on the main thoroughfare. The other branch is located in Coteau, Louisiana, which is in Iberia Parish. This branch was opened in 1995. The population of both areas is largely rural and the economy is based on agriculture, textiles and tourism.
The City of St. Martinville and the Town of Coteau are both located in the south central part of Louisiana. The Bank's primary market area is the City of St. Martinville and its general market area is St. Martin Parish, Louisiana.
C. Basis of Accounting
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and in conformity with practices within the banking industry.
D. Cash and Cash Equivalents
For the purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash, cash equivalents and due from banks at December 31 included the following:
1997 1996 1995 Cash and due from banks $1,633 $1,476 $1,108 ========== ========== ==========
E. Investment Securities
The Bank's investments in securities are classified in three categories and accounted for as follows:
Trading Securities -
Government Bonds held principally for resale in the near term and mortgage-backed securities held for sale in conjunction with the Bank's mortgage banking activities are classified as trading securities and recorded at their fair values. Unrealized gains and losses on trading securities are included in other income.
Securities Available for Sale -
Securities available for sale consist of bonds, notes, debentures and certain equity securities not classified as trading securities nor as securities to be held to maturity.
Securities to be Held to Maturity -
Bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest income using the interest method over the period to maturity.
At December 31, 1997 and 1996, the Bank did not own any trading securities.
Declines in the fair value of individual held-to-maturity securities below their costs that are other than temporary result in write-downs of the individual securities to their fair value. The related write-downs will be included in earnings as realized losses.
Unrealized holding gains and losses, net of tax, on securities available for sale are reported as a net amount in a separate component of shareholders' equity until realized.
Gains and losses on the sale of securities available for sale are determined using the specific-identification method.
F. Loans, Allowance for Loan Losses and Interest Income
Loans are stated at the amount of unpaid principal reduced by unearned discount and an allowance for loan losses. Unearned discount on installment loans is recognized as income over the terms of the loans by the sum-of-months digits method which approximates the interest method. Interest on other loans is calculated and accrued by using the simple interest method on daily balances of the principal amount outstanding.
The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrowers' ability to pay.
Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrowers' financial condition is such that collection of interest is doubtful.
G. Loan Origination Fees and Costs
The Bank charges minimal loan fees and direct origination costs. These charges are recognized as income at the time the loan is made.
H. Bank Premises, Furniture, Fixtures and Equipment
Bank premises, furniture, fixtures and equipment are carried at historical cost less accumulated depreciation. For book purposes, depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to thirty-three years. For income tax purposes, depreciation of assets acquired prior to January 1, 1981, is calculated on the straight-line method and depreciation of assets acquired after December 31, 1980, is calculated using the Accelerated Cost Recovery (ACRS) or Modified Accelerated Cost Recovery (MACRS) System of the Internal Revenue Service. Maintenance and repairs which do not extend the life of banking premises and equipment are charged to operating expenses.
I. Other Real Estate Owned
Assets acquired through the default of loans are recorded at the lower of the outstanding loan amounts plus accrued interest or fair market value of the assets acquired. Reductions from outstanding loan amounts to fair market value are charged against the reserve for possible loan losses. Subsequent valuation reductions, if any, are charged to operating expenses.
J. Income Taxes
Provisions for income taxes are based on amounts reported in the statements of income (after exclusion of non-taxable income such as interest on state and municipal securities) and include deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Deferred taxes are computed as prescribed in Financial Accounting Standards Board (FASB) Statement No. 109, Accounting for Income Taxes.
K. Post-Retirement Health Care and Life Insurance Benefits
The Bank does not pay the costs of providing continuing health care and life insurance benefits for its retired employees. Those benefits for retirees are made available and are provided through an insurance company whose monthly premiums are paid by the retired employee.
L. Compensated Absences
Employees of the bank are entitled to paid vacation depending upon length of service. Vacation must be taken in the year accrued and cannot be carried over. Sick leave accumulates on a monthly basis according to the years of service and is available for employees when needed. However, it does not vest nor is it payable at termination of employment. The bank's policy is to recognize the costs of compensated absences when actually paid to employees.
M. Financial Instruments
In the ordinary course of business the Company has entered into off balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.
The following methods and assumptions were used by the Bank in estimating fair values of financial instruments as disclosed herein:
Cash and cash equivalents -- The carrying amount of cash and short-term instruments approximate their fair value.
Securities to be held to maturity and securities available for sale -- Fair values for investment securities are based on quoted market prices.
Loans receivable -- Fair values for variable and fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
Deposit liabilities -- The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Accrued interest -- The carrying amounts of accrued interest approximate their fair values.
Off-balance-sheet instruments -- Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.
(2) Investment Securities
The carrying amounts of investment securities as shown in the consolidated balance sheets of the Bank and their approximate fair values at December 31 were as follows: (in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value
(in thousands) Securities available for sale: December 31, 1997 - U.S. Government and agency securities $ 3,322 $35 $ (1) $ 3,356 Mortgage-backed securities 11,258 154 (10) 11,402 ------- --- ------ ------- $14,580 $189 $(11) $14,758 ======= === ====== =======
Securities available for sale: December 31, 1996 - U.S. Government and agency securities $ 1,194 $ 2 $ (2) $ 1,194 Mortgage-backed securities 12,654 95 (29) 12,720 ------- --- ------ ------- $13,848 $97 $(31) $13,914 ======= === ====== ======= (in thousands) Securities to be held to maturity: December 31, 1997 - U.S. Government and agency securities $ 383 $ 1 $ - $ 384 State and municipal securities 1,176 17 - 1,193 Mortgage-backed securities 2,918 16 (13) 2,921 ------- --- ------ ------- $ 4,477 $34 $ (13) $ 4,498 ======= === ====== =======
Securities to be held to maturity: December 31, 1996 - U.S. Government and agency securities $ 687 $ 1 $ (1) $ 687 State and municipal securities 539 1 (1) 539 Mortgage-backed securities 3,534 19 (20) 3,533 ------- --- ------ ------- $ 4,760 $21 $ (22) $ 4,759 ======= === ====== =======
Investment securities carried at approximately $4,447,750 at December 31, 1997 and $5,888,788 at December 31, 1996 were pledged to secure public deposits and for other purposes required or permitted by law.
Gross realized gains and losses on sales of investment securities for the years ended December 31, were as follows: (in thousands) 1997 1996 Gross realized gains: Mortgage backed securities $ - $ 2 Other securities 2 2 --- ---- Total realized gains $ 2 $ 4 === ====
Gross realized losses: U.S. government & agency securities $ - $ - Other securities - - --- ---- Total realized losses $ - $ - === ====
The maturities of debt securities at December 31, 1997 were as follows: (in thousands)
Securities to be Securities Held to Maturity Available for Sale ---------------- ---------------- Amortized Fair Amortized Fair Cost Value Cost Value --------- ----- -------- ----- Due in one year or less $1,623 $1,625 $ 2,014 $ 2,020 Due from one to five years 2,375 2,399 8,402 8,456 Due from five to ten years 416 422 1,194 1,236 Due after ten years 63 52 2,970 3,046 ------ ------ ------- ------- $4,477 $4,498 $14,580 $14,758 ====== ====== ======= =======
(3) Other Securities
Other securities at December 31 consist of the following stock in industry-related financial institutions:
1997 1996 Shares Amount Shares Amount
Federal Home Loan Bank Dallas 1,926 $192,600 1,363 $136,300 Louisiana Independent Bancshares, Inc. 600 150,000 600 150,000 -------- ------ $342,600 $286,300 ======== ========
These securities are valued at cost.
(4) Loans
Major classifications of loans are as follows: (in thousands) 1997 1996
Real estate loans $ 8,474 $ 7,292 Commercial and industrial loans 2,560 2,630 Personal and consumer loans 2,897 3,006 All other loans (including overdrafts) 12 27 ------- ------- 13,943 12,955 Less: Unearned discount (65) (88) Allowance for loan losses (171) (158) ------- ------- Loans, net $13,707 $12,709 ======= =======
Concentrations of credit risk arising from financial instruments exist in relation to certain groups of customers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Bank does not have a significant exposure to any individual customer or counterparty. A geographic concentration arises because the Bank operates primarily in the south central part of Louisiana.
The amount of credit risk (which approximates carrying value) represents the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. The bank has experienced little difficulty in accessing collateral (described in Note 17) when required.
Loans on which the accrual of interest has been discontinued or reduced amounted to $24,988 and $238,843 at December 31, 1997 and 1996, respectively. If interest on those loans had been accrued, such income would have approximated $2,250, $24,801 and $4,964 for 1997, 1996 and 1994 respectively. The Bank did not recognize any interest income on nonaccrual loans during 1996.
Impairment of a loan having a recorded investment of $ -0- and $215,987 at December 31, 1997 and December 31, 1996 has been recognized in conformity with Financial Accounting Standards Board (FASB) Statement No. 114, as amended by FASB Statement No. 118. In 1997, this loan was foreclosed on and is now reflected in other real estate owned. There was no allowance for loan losses as it related to this loan at December 31, 1996.
Changes in the allowance for loan losses are as follows: (in thousands) 1997 1996 1995
Balance, beginning of period $158 $161 $180 Provision added to operations 10 - - Loans charged off (3) (9) (21) Recoveries 6 6 2 ---- ---- ---- Balance, end of period $171 $158 $161 ==== ==== ====
Management is of the opinion that the allowance for loan losses account at December 31, 1997 is sufficient to cover any possible loan losses.
(5) Bank Premises, Furniture, Fixtures and Equipment
The following is a summary of fixed assets and accumulated depreciation as of December 31, 1997 and 1996: (in thousands) 1997 1996
Land $ 266 $ 266 Bank buildings and improvements 761 750 Furniture, fixtures and equipment 635 596 ----- ----- 1,662 1,612 ===== ===== Accumulated depreciation and amortization (988) (904) ----- ----- $ 674 $ 708 ===== =====
Depreciation expense for the periods ended December 31, 1997, 1996 and 1995, amounted to $85,413, $84,826 and $85,479, respectively.
(6) Other Real Estate Owned
Other real estate owned consists of real estate acquired through the foreclosure of loans. It is valued at the lower of its fair value or recorded investment in the related loan at the date of foreclosure. Other real estate owned at December 31, 1997 and 1996 is composed of the following: (in thousands) 1997 1996
Other real estate owned, acquisition value $ 263 $ 68 Less: Allowance for other real estate losses (33) (13) ----- ----- Net value $ 230 $ 55 ===== =====
Changes in the allowance for losses on other real estate are as follows: (in thousands) 1997 1996 1995
Balances, beginning of period $ 13 $ 38 $ 207 Provision charged to operations 20 - - Sales of properties - (25) (169) ----- ----- ----- Balances, end of period $ 33 $ 13 $ 38 ===== ===== =====
(7) Deposits
The aggregate amount of short-term jumbo CDs, each with a minimum denomination of $100,000, was approximately $1,703,833 and $2,791,626 in 1997 and 1996 respectively.
At December 31, 1997, the scheduled maturities of CDs are as follows: (in thousands)
Year Ended December 31, Maturities
1998 $15,149 1999 2,415 2000 351 2001 10 2002 and thereafter 45 ------ $17,970 ====== Members of the board of directors had $2,800,673 of deposits at December 31, 1997.
(8) Contingent Liabilities and Commitments
A. The consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are described in Note 15 - Financial Instruments.
B. The Bank is not involved in any legal actions arising from normal business activities.
(9) Concentration of Credit
All of the Bank's loans, commitments, and standby letters of credit have been granted to customers in the Bank's market area as described in Note 1, Item B. The concentration of credit by type of loan is set forth in Note 4. Investments in state and municipal securities also involve governmental entities within the Bank's market area. The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of $697,000.
(10) Income Taxes
The Bank utilizes FASB Statement 109 to account for income taxes.
The components of income tax expense for the years ended December 31, 1997, 1996 and 1995 are as follows: (in thousands) 1997 1996 1995
Income taxes currently payable: Federal $ 171 $(128) $(102)
Deferred tax asset (liability) due to timing differences (15) (10) (48) ----- ---- -----
Total income tax benefit (expense) $ 156 $(138) $(150) ===== ===== =====
The effective tax rate of 30.2 percent in 1997, 29.7 percent in 1996, and 30.8 percent in 1995 differ from the statutory rate of 34 percent principally because of the utilization of net operating loss carryforwards and temporary differences giving rise to deferred taxes.
A reconciliation of income tax expense at the statutory rate to the effective rate follows:
Percent of Earnings Before Taxes
1997 1996 1995
Computed at the expected statutory rate 34.0% 34.0% 34.0% Temporary differences giving rise to deferred tax amounts (2.8) 2.1 9.8 Temporary difference recognized this year - (10.1) (12.2) Other (1.0) 3.7 (.8) ----- ----- -----
Income tax expense-effective rate 30.2% 29.7% 30.8% ===== ===== =====
Temporary differences giving rise to the deferred tax amounts consist primarily of the excess of allowance for loan losses for tax purposes over the amount for financial reporting purposes, write-downs in carrying value of certain assets for financial reporting purposes, and the excess of accumulated depreciation for tax purposes over accumulated depreciation for financial reporting purposes.
Amounts for deferred tax assets and liabilities are as follows: (in thousands) 1997 1996
Deferred tax asset $ 11 $ 4 Deferred tax liability (164) (133) ----- ----- Net deferred tax asset (liability) $(153) $(129) ===== ===== (11) Earnings Per Share
Earnings per share amounts are computed based on the weighted average number of shares actually outstanding. The number of shares used in the computations was 27,925 in 1997, 1996 and 1995.
(12) Pension Plan
The Bank has a non-contributory, money-purchase pension plan that covers any employee that has completed one (1) year of service and has attained age 21. Pension costs include certain service costs, which are accrued and funded currently. Pension expenses charged to operations in 1997, 1996 and 1995 were $44,038, $42,614, and $32,875, respectively.
(13) Related Party Transactions
A. At December 31, 1997 and 1996, certain officers, directors and related companies were indebted to the Bank in the aggregate amount of $1,432,691 and $1,277,726, respectively. These loans were made at prevailing interest rates.
B. The Bank had notes payable to stockholders in the aggregate amount of $150,836 at December 31, 1995. The notes were paid out during the year ended December 31, 1996. Accordingly there was no interest expense during the year ended December 31, 1997. The note accrued interest at a rate of 5% of principal and accrued interest. Interest expense of $4,636 and $14,245 was incurred during 1996 and 1995, respectively.
C. The Bank leases an automobile from one of the directors in the amount of approximately $6,000 per year.
(14) Regulatory Restrictions
Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agency. Prior approval shall be required if the total of all dividends declared and paid by the Bank during any one year would exceed the total of its net profits of that year combined with the net profits from the immediate preceding year.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain a minimum total risk based, Tier I risk- based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that time that management believes have changed the institution's category.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provision Amount Ratio Amount Ratio Amount Ratio As of December 31, 1997: Total Capital (to risk weighted assets) $3,296 19.4% $1,358 >=8% $1,698 >=10%
Tier I Capital (to risk weighted assets) $3,124 18.4% $ 679 >=4% $1,019 >= 6%
Tier I Capital (to average assets $3,124 8.4% $1,492 >=4% $1,865 >= 5%
As of December 31, 1996: Total Capital (to risk weighted assets) $2,961 18.5% $1,278 >=8% $1,598 >=10%
Tier I Capital (to risk weighted assets) $2,804 17.5% $ 639 >=4% $ 959 >= 6%
Tier I Capital (to average assets $2,804 8.3% $1,348 >=4% $1,684 >= 5%
(15) Financial Instruments
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 and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, credit card arrangements, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the statement of financial position. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit is presented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and that, in accordance with the requirements of FASB Statement No. 105, "Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk," collateral or other security is of no value. The bank's policy is to require customers to provide collateral prior to the disbursement of approved loans. Collateral is either in the form of a security interest or a mortgage on the underlying property. At December 31, 1997, the Bank was exposed to credit risk on commitments to extend credit having contract amounts of $1,428,496, summarized as follows: (in thousands)
Commitments to extend credit $ 1,273 Credit Card arrangements - Standby letters of credit 205 -------- $ 1,428 ========
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 amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable; inventory, property, plant and equipment; and income-producing commercial properties.
Commitments to extend credit, credit card arrangements, and standby letters of credit all include exposure to some credit loss in the event of nonperformance by the customer. The Bank's credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the consolidated statements of condition. The Bank does not anticipate any material losses as a result of the contingent liabilities and commitments.
The estimated fair values of the Bank's financial instruments were as follows: (in thousands) Carrying Fair Value Value December 31, 1997: Financial assets: Cash and due from banks $ 1,633 $ 1,633 Securities available for sale 14,759 14,759 Securities to be held to maturity 4,477 4,477 Federal funds sold 1,050 1,050 Loans 13,708 13,622 Accrued interest receivable 314 314
Financial liabilities: Deposit liabilities 33,721 33,754 Accrued interest payable 137 137 Other liabilities 205 205
Off balance sheet instruments: Commitments to extend credit - 1,273 Credit card arrangements - - Stand by letter of credit - 205
December 31, 1996: Financial assets: Cash and due from banks $ 1,476 $ 1,476 Securities available for sale 13,914 13,914 Securities to be held to maturity 4,760 4,759 Federal funds sold 1,225 1,225 Loans 12,709 12,620 Accrued interest receivable 268 268
Financial liabilities: Deposit liabilities 32,376 32,399 Accrued interest payable 135 135 Notes payable-stockholders - - Other liabilities 195 195
Off balance sheet instruments: Commitments to extend credit - 1,764 Credit card arrangements - - Stand by letter of credit - 156
(16) Parent Company Only Financial Statements
BALANCE SHEETS December 31, 1997 and 1996 (in thousands)
1997 1996 ASSETS
Current assets: Cash $ 1 $ 1 Investment in Teche Bank & Trust Co. 3,232 2,837 Other assets 9 9 ----- ----- Total assets $3,242 $2,847 ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: $ - $ - --- --- Stockholders' equity: Common stock, $10 par value, 100,000 shares authorized, 28,125 shares issued and outstanding 281 281 Surplus 1,144 1,144 Retained earnings 1,719 1,397 Treasury stock (19) (19) Unrealized gain (loss) on securities available for sale, net of tax of $22,573 and $18,660, respectively 117 44 ----- ----- Total stockholders' equity 3,242 2,847 ----- ----- Total liabilities and stockholders' equity $3,242 $2,847 ====== ======
STATEMENTS OF INCOME Years Ended December 31, 1997, 1996 and 1995 (in thousands) 1997 1996 1995
Income: Income from subsidiary $321 $136 $154 Interest and dividends on corporate securities 42 193 193 Other income 1 2 7 --- --- --- Total income 364 331 354 --- --- --- Operating expenses: Legal and professional fees - - 2 FDIC and state assessments 1 1 1 Miscellaneous expense - - - Interest on stockholder loans - 5 14 --- --- --- Total operating expenses 1 6 17 --- --- --- Net income $363 $325 $337 ==== ==== ====
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 1997, 1996 and 1995 (in thousands) Allowance Unrealized Loss on Gain (Loss) Common Stk Marketable on Treas. Stk Equity AFS Surplus Securities Securities Total
BALANCES, DECEMBER 31, 1994 $2,211 $(4) (242) $1,965
Net income 337 - - 337 Cash Dividend, $1.25 per share (35) - - (35) Sale of 25 shares Treasury Stock 2 - - 2 Net change in unrealized gain on AFS securities - - 259 259 Sale of Marketable Securities - 4 - 4 ------- ----- ------ ------- BALANCES, DECEMBER 31, 1995 $2,515 $ - 17 $2,532
Net income 325 - - 325 Cash Dividend, $1.35 per share (37) - - (37) Net change in unrealized gain on AFS securities - - 27 27 ------- ----- ------ ------- BALANCES, DECEMBER 31, 1996 $2,803 $ - 44 $2,847
Net income 363 - - 363
Cash Dividend, $1.35 per share (41) - - (41)
Net change in unrealized gain on AFS securities - - 73 73 ------- ----- ------ ------- BALANCES, DECEMBER 31, 1997 $3,125 $ - $117 $3,242 ====== ===== ====== =======
STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1996 and 1995 (in thousands) 1997 1996 1995
Cash flows from operating activities: Net income $ 363 $ 325 $ 337 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiary bank (321) (136) (154) Changes in: Due to subsidiary - - - Other assets (1) (2) (7) Accrued interest payable - - - ---- ---- ----- Net cash provided by operating activities 41 187 176 ---- ---- ----
Cash flows from financing activities: Dividends paid (41) (37) (35) Decrease in treasury stock - - 2 Decrease in notes payable - (151) (141) ---- ---- ---- Net cash used in financing activities (41) (188) (174) ---- ----- ---- Net increase (decrease) in cash - (1) 2
Cash, beginning of period 1 2 - ---- ---- ---- Cash, end of period $ 1 $ 1 $ 2 ==== ==== ====
SUPPLEMENTARY INFORMATION TECHE BANCSHARES, INC. AND SUBSIDIARY
Consolidated Schedules of Other Operating Expenses Years Ended December 31, 1997, 1996 and 1995 (in thousands)
1997 1996 1995
Advertising $ 20 $ 23 $ 22 Armored car service 4 4 2 Audits and examinations 18 18 18 ATM expense 21 22 20 Cash short 4 4 3 Club account fees 18 15 12 Collections 3 2 2 Committee fees 2 2 3 Consulting fees - - 12 Conventions and seminar 7 10 7 Correspondent bank service charges 38 28 27 Courier service 2 3 3 Directors' fees 56 43 45 Donations 4 3 3 Dues and subscriptions 4 5 6 FDIC and state assessments 18 12 8 Insurance 33 32 35 Lease expense 6 5 5 Legal and professional fees 8 1 2 Miscellaneous 10 10 9 Office expense 36 32 31 Postage and freight 27 23 21 Other taxes and licenses 1 1 1 Travel and entertainment 7 6 6 ORE Devaluation 21 - - ---- ---- ---- $368 $303 $303 ==== ==== ====
CONSOLIDATING SCHEDULES TECHE BANCSHARES, INC. AND SUBSIDIARY Consolidating Balance Sheet December 31, 1997 (in thousands) Teche Teche Bancshares, Elimination Teche Bank and Inc. and Entries Bancshares, Trust Subsidiary Dr (Cr) Inc. Company
ASSETS Cash and due from banks $ 1,632 $(1) $1 $1,632 Securities available for sale 14,758 - - 14,758 Securities to be held to maturity 4,477 - - 4,477 Other securities 343 - - 343 Federal funds sold 1,050 - - 1,050 Loans 13,943 - - 13,943 Less: Allowance for loan losses (171) - - (171) Unearned discount on loans (65) - - (65)
Bank premises, furniture, fixtures and equipment 674 - - 674 Accrued interest receivable 314 - - 314 Other real estate owned 230 - - 230 Investment in subsidiary - (3,232) 3,232 - Other assets 120 (9) 9 120 ----- ---- --- ----- Total assets $37,305 $(3,242) $3,242 $37,305 ======= ======== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS Non-interest demand $ 6,637 $ 1 $ - $ 6,638 Interest-bearing - NOW and MMDA accounts 5,523 - - 5,523 Savings 3,591 - - 3,591 Time,$100,000 and over 7,788 - - 7,788 Other time 10,182 - - 10,182 ------ --- --- ------ Total deposits 33,721 1 - 33,722
Accrued interest payable 137 - - 137 Other liabilities and accrued expenses 205 9 - 214 ------ --- --- ------ Total liabilities 34,063 10 - 34,073 ------ --- --- ------ STOCKHOLDERS' EQUITY Common stock 281 281 281 281 Surplus 1,144 1,519 1,144 1,519 Retained earnings 1,719 1,315 1,719 1,315 Less: 200 shares of treasury stock (19) - (19) - Net unrealized gain on securities available for sale, 117 117 117 117 ----- ---- ----- ----- Total stockholders' equity 3,242 3,232 3,242 3,232 ----- ----- ----- ----- Total liabilities and stockholders' equity $37,305 $3,242 $3,242 $37,305 ======= ====== ====== =======
TECHE BANCSHARES, INC. AND SUBSIDIARY Consolidating Statement of Income For the Year Ended December 31, 1997
Teche Teche Bancshares, Elimination Teche Bank and Inc. and Entries Bancshares, Trust Subsidiary Dr (Cr) Inc. Company
INTEREST INCOME Interest and fees on loans $1,322 $ - $ - $1,322 Interest on investment securities - Interest on securities available for sale 894 - - 894 Interest on securities held to maturity 288 - - 288 State and municipal obligations 45 - - 45 Interest and dividends on other securities 15 43 43 15 Interest on federal funds sold 48 - - 48 ----- --- --- ----- Total interest income 2,612 43 43 2,612 ----- --- --- ----- INTEREST EXPENSE Interest on deposits 1,127 - - 1,127 Interest on federal funds purchased 3 - - 3 Interest on securities repurchased 2 - - 2 Other interest 4 - - 4 Interest on stockholder loans - - - - --- --- --- ---- Total interest expense 1,136 - - 1,136 --- --- --- ----- Net interest income 1,476 43 43 1,476
Provision for loan losses 10 - - 10 ----- --- --- ----- Net interest income after provision for loan losses 1,466 - - 1,466
OTHER INCOME Service charges, collection and exchange charges 258 - - 258 Commissions income 30 - - 30 ATM income 10 - - 10 Recovery of investment loss 2 - - 2 Other operating revenue 21 1 1 21 ---- --- --- ---- Total other income 321 1 1 321 ---- --- --- ---- Income before other expenses 1,787 44 44 1,787
OTHER EXPENSES Salaries and employee benefit 645 - - 645 Occupancy expenses 184 - - 184 Furniture and equipment 35 - - 35 Data processing expenses 33 - - 33 Net other real estate loss 3 - - 3 Other operating expenses 368 - 2 366 ---- ---- ---- ----- Total other expenses 1,268 - 2 1,266 ----- ---- ---- ----- Income before income tax expense and equity in earnings of subsidiary 519 44 42 521
INCOME TAX EXPENSE (156) 1 - (157) ------ ---- ---- ----- Income before equity in earnings of subsidiary 363 43 42 364
EQUITY IN EARNINGS OF SUBSIDIARY - 320 320 - ----- ----- ----- ----- Net income $ 363 $ 363 $ 362 $ 364 ===== ===== ===== =====
TECHE BANCSHARES, INC. AND SUBSIDIARY Consolidating Statement of Cash Flows For the Year Ended December 31, 1997
Teche Teche Bancshares, Elimination Teche Bank and Inc. and Entries Bancshares, Trust Subsidiary Dr (Cr) Inc. Company
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 363 $(364) $ 363 $ 364
Adjustments to reconcile net income to net cash provided by operating activities - Equity in earnings of subsidiary - 321 (321) - Depreciation of bank premises and equipment 85 - - 85 Net loss on other real estate owned - - - - Decrease in other assets 21 1 (1) 21 Decrease in accrued interest receivable (45) - - (45) Increase (decrease) in accrued interest payable 2 - - 2 Increase in other liabilities 10 (1) - 11 ----- --- --- ----- Net cash provided by operating activities 436 (43) 41 438
CASH FLOWS FROM INVESTING ACTIVITIES Increase in federal funds sold 175 - - 175 Proceeds from sales of securities available for sale 400 - - 400 Proceeds from maturities of securities available for sale 250 - - 250 Proceeds from maturities of securities held to maturity 6,718 - - 6,718 Purchases of securities to be held to maturity (2,953) - - (2,953) Purchases of securities available for sale (4,949) - - (4,949) Net increase in loans (998) - - (998) Capital expenditures for bank premises and equipment (51) - - (51) Decrease in other real estate owned (175) - - (175) ------ ---- ---- ------ Net cash used in investing activities (1,583) - - (1,583) ------ ---- ---- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in - Demand deposits 962 1 - 961 NOW and MMDA (506) - - (506) Savings deposits 335 - - 335 Time deposits $100,000 and over 727 - - 727 Other time (172) - - (172) Dividends paid (42) 43 (42) (43) ------ ---- ---- ----- Net cash provided by (used in) financing activities 1,304 44 (42) 1,302 ------ ---- ---- ----- Net increase (decrease) in cash and cash equivalents 157 (1) 1 157
CASH AND CASH EQUIVALENTS, beginning of year 1,476 - - 1,476 ------- ----- ----- ------- CASH AND CASH EQUIVALENTS, end of year $ 1,633 $ (1) $ 1 $ 1,633 ======= ===== ==== =======
FORM 10-K
TECHE BANCSHARES, INC. PART II (CONTINUED)
Item (9) Disagreements on Accounting and Financial Disclosure
There were no reporting disagreements on any matter of accounting principle or financial statement disclosure.
FORM 10-K
TECHE BANCSHARES, INC PART III
Item (10) Directors and Executive Officers of the Registrant - ------------------------------------------------------------- Directors - ---------- Number of Shares Owned Ownership as Beneficially a Percent Including Direct of Total Name and Title and Term as and Indirect Outstanding Address Age Occupation Director Ownership Shares - -------- --- ---------- -------- ------------ ----------- Tilden A. Bonin, Jr. St. Martinville, LA 62 Retired Sept., 1969 1,576 5.6% to Present
James B. Bulliard, Sr. St. Martinville, LA 62 Owner & GM Sept., 1969 3,381 12.1% Manager Food to Present Processor
Gaston L. Dautreuil, Jr. St. Martinville, LA 67 Owner Sept., 1969 2,725 9.7% Electrical to Present Contractor
Larry C. Degeyter St. Martinville, LA 56 Owner, June, 1981 673 2.4% Building to Present Contractor
Alcee J. Durand, Jr. St. Martinville, LA 39 President March, 1991 803 2.8% Banking to Present
Charles A. Fuselier St. Martinville, LA 56 Sheriff June, 1981 383 1.3% to Present
Item 10.
Item 10. Directors and Executive Officers of the Registrant (continued)
Directors (continued) - ---------- Number of Shares Owned Ownership as Beneficially a Percent Including Direct of Total Name and Title and Term as and Indirect Outstanding Address Age Occupation Director Ownership Shares - -------- --- ---------- -------- ------------ ----------- Hubert Hulin, Sr. St. Martinville, LA 79 Retired June, 1981 1,800 6.5% to Present
Lawrence P. Melancon St. Martinville, LA 82 Retired Sept., 1969 708 2.5% to Present
Murphy Oubre St. Martinville, LA 71 Rice Sept., 1969 824 3.0% Farmer to Present
Stanley D. Stockstill St. Martinville, LA 83 Retired March, 1982 511 1.8% to Present
Darnell E. Fontenot New Iberia, LA 59 Owner, Aug., 1995 166 .6% Mobile to Present Home Co.
Harris J. Champagne, Jr. New Iberia, LA 35 Insurance October, 1996 188 .7% Sales to Present
Melvin Douet St. Martinville, LA 52 Owner, June, 1996 305 1.1% Douet to Present Motors, Inc.
FORM 10-K
TECHE BANCSHARES, INC. PART III (CONTINUED)
Executive Officers and Significant Employees - -------------------------------------------- Other Office Held Name Age Title with Bank Occupation - -------------- ---- ------- --------- ---------- Alcee J. Durand, Jr. 39 President/ - Banker more CEO than 5 years
Brian Friend 38 Cashier - CPA, Banker Vice-President more than 5 years
Charles M. Durand 35 Vice- - Banker more President than 5 years
Ave Laperouse 40 Assistant - Banker less Vice President than 5 years
Jackie C. Leblanc 44 Assistant - Banker more Vice President than 5 years
Jean L. Potier 54 Assistant - Banker more Vice-President than 5 years
Al Viator 43 Assistant - Banker more Vice-President than 5 years
Ruth Sweeney 49 Assistant - Banker more Vice-President than 5 years
Family Relationships
No family relationships exist between any members of the Board of Directors other than the following: Board Members Relationship --------------------------------------- ----------------- Charles A. Fuselier and Stanley D. Stockstill Nephew and Uncle
Item (11) Executive Compensation - Cash Compensation Number in Cash Group Group Title Compensation - --------- ------------- ------------ 1 President/CEO $75,310
2 Vice-President 78,785
5 Assistant Vice-Presidents 135,572
Compensation Pursuant to Plans
The Bank has a non-contributory money purchase pension plan that covers any employee that has completed one year of service and has attained age 21. The Bank contributes 10 percent of an employee's annual salary to the plan. During 1997, the Bank contributed $44,038 to the Plan on behalf of all officers and employees.
Item (12) Security Ownership of Certain Beneficial Owners and Mgmt
Security Ownership of Certain Beneficial Owners:
Title of Type of Country of Amount Percent Name and Address Class Ownership Citizenship Owned of Class - ---------------- ----- --------- ----------- ------ ------- Tilden A. Bonin, Jr. St. Martinville, LA Common Stock U.S.A. 1,576 5.6%
James B. Bulliard, Jr. St. Martinville, LA Common Stock U.S.A. 3,381 12.1%
Gaston L. Dautreuil, Jr. St. Martinville, LA Common Stock U.S.A. 2,725 9.7%
Hubert Hulin, Sr. St. Martinville, LA Common Stock U.S.A. 1,800 6.5%
Security Ownership of Management: Title of Type of Shares Percent Group Class Ownership Owned of Class - ---------------------- ----- --------- ----- -------- Directors and Officers Common Stock 14,043 50.3%
Item (13) Certain Relationship and Related Transactions
From time to time in the ordinary course of its business, the Bank has extended credit to its Officers and Directors and to businesses in which its Officers and Directors own an interest. The Bank intends to continue this policy because of the business deposits and income that these activities generate for the Bank. Such loans are made only with the approval of the Board of Directors; are judged by the same credit guidelines and standards as are applied to loans of a comparable nature made to others; are made on substantially the same terms, including interest rates, collateral and repayment terms as those prevailing at the time for comparable transactions with others; and do not involve more than the normal risk of collectibility or present other unfavorable features.
Largest Aggregate Amt. Outstanding Amount Average Relation Year Ending Outstanding Interest Name to Company 12/31/96 as of 12/31/96 Rate - ------------ ---------- --------- -------------- ------ Tilden A. Bonin, Jr. Director $ 97,118 $ 92,344 9.86%
Harris Champagne, Jr. Director 13,483 13,483 11.00%
Gaston L. Dautreuil, Jr. Director 351,151 216,318 9.26%
Larry C. Degeyter Director 439,963 314,479 9.47%
Melvin P. Douet Director 235,692 217,390 10.75%
Alcee J. Durand, Jr. Director 66,921 66,136 8.07%
Darnell Fontenot Director 31,613 30,898 12.6%
Charles Fuselier Director 596,620 594,738 9.08%
Lawrence Melancon Director 28,687 8,904 7.20%
Melvin P. Douet Director 267,292 237,284 10.69% Total outstanding at December 31, 1997 $1,554,690 =========
FORM 10-K
TECHE BANCSHARES, INC. PART IV
Item (14) Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements
The financial statements, including notes, are listed in the index to the financial statements filed as part of this annual report.
2. Exhibits
3. Reports on Form 8-K
No reports on Form 8-K were filed by Bancshares during quarter ended December 31, 1997.
Page Number Exhibit Number ------ -------------------------------------- ------- (3) Articles of Incorporation of Registrant as currently in effect incorporated herein by reference to Exhibit 3 Registrant Registration Statement on Form S-14, filed February 21, 1984
(11) Computation of Earnings Per Share 48
(12) Computation of Ratios 19
(21) Subsidiary of Registrant 71
(24) Consent of Experts and Council -
(22) Subsidiaries of the Registrant - ----- ------------------------------ Teche Bank and Trust Company Louisiana
FORM 10-K
TECHE BANCSHARES, INC. PART IV (CONTINUED)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TECHE BANCSHARES, INC.
Date: March 27, 1997 By:/s/ Alcee J. Durand, Jr. ----------------------- --------------------- Alcee J. Durand, Jr. President/Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By:/s/Tilden A. Bonin,Jr. By:/s/Darnell Fontenot __________________________ __________________________ Tilden A. Bonin, Jr Date Darnell Fontenot Date Director Director By:/s/James B. Bulliard, Sr. By:/s/Charles A. Fuselier __________________________ __________________________ James B. Bulliard, Sr.Date Charles A. Fuselier Date Director Director By:/s/Harris J. Champagne, Jr.By:/s/Hubert Hulin, Sr. __________________________ __________________________ Harris J. Champagne, Jr.Date Hubert Hulin, Sr. Date Director Director By:/s/Gaston L. Dautreuil,Jr. By:/s/Lawrence P. Melancon __________________________ __________________________ Gaston L. Dautreuil, Jr.Date Lawrence P. Melancon Date Director Director By:/s/Larry C. Degeyter By:/s/Murphy Oubre __________________________ __________________________ Larry C. Degeyter Date Murphy Oubre Date Director Director By:/s/Melvin Douet By:/s/Stanley D. Stockstill __________________________ __________________________ Melvin Douet Date Stanley D. Stockstill Date Director Director By:/s/Alcee J. Durand, Jr. __________________________ Alcee J. Durand, Jr. Date Director