Item 1. Business
The Registrant
One American Corp., (the "Company") was incorporated in Louisiana on May 14, 1982. At a special meeting on December 14, 1982, the stockholders of First American Bank and Trust, (the "Bank") approved a Joint Agreement of Merger and Plan of Reorganization by and among the Bank, First American Interim Bank, ("FAIB") and One American Corp. On January 21, 1983, the Bank was merged into FAIB and the surviving Bank, First American Bank and Trust became a wholly-owned subsidiary of the Company through a one-for-one exchange for all of the outstanding common stock (150,000 shares) of the Bank. The reorganization has been accounted for as a pooling-of-interests. The Company is now engaged, through its subsidiary, in the banking business. The Bank is the Company's principal asset and primary source of revenue.
On July 14, 1983, One American Agency, Inc. (the "Agency") was incorporated under the laws of the State of Louisiana. The Agency issued all of its outstanding common stock (100 shares) to the Company, and became a wholly-owned subsidiary of the Company. Through its subsidiary, the Company is now engaged in the insurance agency business. The Agency is neither the Company's principal asset, nor a primary source of revenue.
The Bank
The Bank (formerly Bank of Vacherie) was incorporated under the laws of the State of Louisiana on December 3, 1910, and was licensed by the Louisiana State Banking Department and commenced operations as a Louisiana State chartered bank on February 11, 1911. The name of the bank was changed from Bank of Vacherie to First American Bank and Trust on January 17, 1978. The Bank's securities consist of one class of common stock of which there were 150,000 shares held 100% by its parent, the Company, as of March 12, 1998.
The Bank presently has a main office at LA Highway 20 West, Vacherie, St. James Parish, Louisiana, and sixteen (16) branch offices and one (1) loan production office. Four branches are located in St. James Parish in the cities of Vacherie (2), Gramercy, and Lutcher. One branch is located in Lafourche Parish in the city of Thibodaux. Five branches are located in St. Charles Parish in the cities of Boutte, Des Allemands, Luling, Norco, and St. Rose (2). Two branches are located in Jefferson Parish, one in the city of Kenner, the other in Metairie. One branch is located in St. John Parish in the city of LaPlace. One branch is located in Tangipahoa, Parish in the city of Hammond One branch is located in Assumption Parish, in the city of Napoleonville. One loan production office is lcoated in St. Tammany Parish in the city of Mandeville. The branches located in St. James Parish were approved on July 9, 1969, November 11, 1974, July 30, 1979, April 16, 1984, respectively, by the Commissioner of Financial Institutions of the State of Louisiana and by the Federal Deposit Insurance Corporation. The Thibodaux branch was approved on July 7, 1988, by the Commissioner of Financial Institutions of the State of Louisiana, and on July 5, 1988, by the Federal Deposit Insurance Corporation. The five branches located in St. Charles Parish were acquired from the Federal Deposit Insurance Corporation on November 2, 1989, and were approved on this date by the Commissioner of Financial Institutions of the State of Louisiana, and the Federal Deposit Insurance Corporation. The two branches located in Jefferson Parish were acquired from the Federal Deposit Insurance Corporation on February 14, 1991, and were approved on this date by the Commissioner of Financial Institutions of the State of Louisiana, and the Federal Deposit Insurance Corporation. The one branch located in St. John Parish was acquired from the Resolution Trust Corporation on August 26, 1994, and was approved on this date by the Commissioner of Financial Institutions of the State of Louisiana, and the Federal Deposit Insurance Corporation. The one branch located in Tangipahoa Parish was acquired from First American Bank of Tangipahoa on September 23, 1996 , and was approved on this date by the Commissioner of Financial Institutions of the State of Louisiana, and the Federal Deposit Insurance Corporation. The Napoleonville branch was approved on August 4, 1997, by the Commissioner of Financial Institutions of the State of Louisiana, and on July 24, 1997, by the Federal Deposit Insurance Corporation. The Mandeville loan production office was approved on October 2, 1997, by the Commissioner of Financial Institutions of the State of Louisiana.
The Bank is engaged in primarily the same business operations as any independent commercial bank, with special emphasis in retail banking, including the acceptance of checking and saving deposits, and the making of commercial, real estate, personal, home improvement, automobile and other installment and term loans. The Bank also offers, among services, travelers' cheques, safe deposit boxes, note collection, escrow and other customary bank services to its customers, with the exception of trust services. In addition, the Bank offers drive-up teller services, automated teller machines and night depository facilities. First American Bank and Trust is insured under the Federal Deposit Insurance Act; but, is not a member of the Federal Reserve System. The three main areas in which the Bank has directed its lending activity are (1) real estate loans; (2) loans to individuals for household, family and other consumer expenditures; and (3) commercial loans. As of December 31, 1997, these three categories accounted for approximately 80.0%, 9.4% and 10.6%, respectively, of the Bank's loan portfolio. (See Note E in the 1997 Form 10-K section titled "Financial Statements and Supplementary Data" for a detailed analysis of the loan portfolio.)
The majority of the Bank's deposits are from individuals, farmers, and small business-related sources. The average deposit balance is relatively small. This makes the Bank less subject to the adverse effects from the loss of a substantial depositor who may be seeking higher yields in other markets, or have need of money on deposit in the Bank. In addition to the deposits mentioned above, the Bank is a depository for some governmental agencies. At December 31, 1997, State and Political Subdivisions, maintained time deposits and money market deposits account balances of $7.7 million, interest bearing demand deposits of $6.8 million, and non-interest bearing demand deposits of $2.4 million. Although no agreement or understanding exist between these customers and the Bank, management has no reason to believe that these time deposit balances will substantially decrease or increase. In connection with the deposits of these State and Political Subdivisions, the Bank is required to pledge securities to secure such deposits (except for the first $100,000 of such deposits, which is insured by the Federal Deposit Insurance Corporation).
As of December 31, 1997, the Bank had 13,994 demand deposit accounts with a total balance of $51.7 million; 1,179 NOW and Super NOW accounts with a total balance of $24.6 million; 2,459 Insured Money Market Accounts with a balance of $51.4 million; 14,033 savings accounts with a total balance of $31.8 million; and 7,125 other time deposit accounts with a total balance of $104.2 million.
There are no securities held by the Bank that are subject to repurchase agreements.
The Bank holds no patents, registered trademarks, licenses (other than licenses required to be obtained from appropriate bank regulatory agencies), franchises or concessions. There has been no significant change in the kinds of services offered by the Bank during the last three fiscal years.
The Bank has not engaged in any research activities relating to the development of new services or the improvement of existing services except in the normal course of the business activities. The Bank presently has no plans for any new line of business requiring the investment of a material amount to total assets.
Most of the Bank's business originates from within the parishes of St. James, St. Charles, Jefferson, Lafourche, St. John, Tangipahoa and Assumption Parish, Louisiana; however, some business is obtained from the parishes immediately surrounding these parishes. There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state, or local environmental regulations.
On February 26, 1998, First American Agency, L.L.C., a subsidiary of First American Bank and Trust, was formed. First American Agency, L.L.C. was formed to provide insrurance needs for the Bank's market area. On March 5, 1998, First American Agency, L.L.C. acquired Riverbend Insurance Agency, Inc. of Destrehan, St Charles Parish, Louisiana.
The Agency
The Agency was incorporated under the laws of the State of Louisiana on July 14, 1983. The Agency was approved and began operations on November 25, 1983. The Agency's securities consist of one class, common stock, of which there were 100 shares held 100% by its parent, One American Corp., as of March 13, 1997. The Agency operates out of the main office of the Bank at LA Highway 20 West, Vacherie, St. James Parish, Louisiana.
The Agency provides general insurance agent services for the Company and its subsidiaries. The Agency also provides agent services in relation to credit life and accident and health insurance that is directly related to the extension of credit of other financial services of the Bank.
Competition
The Company's general market area contains approximately 147 thousand households. It's primary market place consists of St. James Parish, St. John Parish, St. Charles Parish, the northern portion of Lafourche Parish, the east bank of the Mississippi river in Jefferson Parish, the south central portion of Tangipahoa Parish , Assumption Parish and St. Tammany Parish, all located in Louisiana. These parishes have experienced moderate population growth over the last several years.
In the primary market area, there are several banks and branches of savings and loan institutions aggressively pursuing loans, deposits and other accounts.
Interest rates on loans made and deposits received were mostly deregulated by law in 1983, but are substantially the same among banks operating in the area served. Competition among banks for loan customers is generally governed by such factors as loan terms other than interest charges, restrictions on borrowers and compensating balances, and the services offered by the bank. Competition for deposits is governed primarily by the services offered, including convenience of location.
In addition federal regulations have significantly broadened the powers of savings and loan institutions with the result that such institutions may now engage in certain activities formerly permitted only to banks. The Company has experienced no major effects from this legislation at this time.
Employees
The Company has approximately 155 full time employees, and 12 part-time employees. Management considers its relationship with the employees to be good.
Supervision and Regulation
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "Act"), as amended, is subject to the provisions of the Act and to regulation by the Board of Governors of the Federal Reserve System (the "Board").
The Act requires the Company to file with the Board annual reports containing such information as the Board may require. The Board is authorized by the Act to examine the Company and all of its activities. The activities that may be engaged in by the Company and its subsidiaries are limited by the Act to those closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to banking or managing or controlling banks, the Board must consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public, such as convenience, increased competition, or gains in efficiency that outweigh possible adverse effects, such as undue concentration of resources, unfair competition, conflicts of interest, or unsound banking practices.
The Board has adopted regulations implementing the provisions of the Act with respect to the activities of bank holding companies. Such regulations reflect a determination by the Board that the following activities are permissible for bank holding companies: (1) making, for its own account or for the account of others, loans such as would be made, for example, by a mortgage, finance or factoring company; (2) operating as an industrial bank; (3) servicing loans; (4) acting as a fiduciary; (5) acting as an investment or financial advisor, including acting in such capacity for a mortgage investment trust or real estate investment trust; (6) leasing personal or real property, where the lease is to serve as the functional equivalent of an extension of credit to the lessee of the property; (7) investing in community welfare corporations or projects; (8) providing bookkeeping and data processing services for a bank holding company and its subsidiaries, or storing and processing certain other banking, financial, or related economic data; (9) acting as an insurance agent, principally insurance issued in connection with extensions of credit by the holding company or any of its subsidiaries' (10) underwriting credit life and credit accident and health insurance related to extensions of credit; (11) providing courier services for documents and papers related to banking transaction; (12) providing management consulting advice to non-affiliated banks; and (13) selling money orders, travelers cheques and U.S. Savings Bonds. In each case, the Company must secure the approval of the Board prior to engaging in any of these activities.
Whether or not a particular non-banking activity is permitted under the Act, the Board is authorized to require a holding company to terminate any activity or divest itself of any non-banking subsidiary if in its judgment the activity or subsidiaries would be unsound.
Under the Act and the Board's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extensions of credit or provision of any property or services.
In addition to the limitation of Louisiana law with respect to the ownership of banks, as described below, the ownership or control of voting shares of a second bank by a bank holding company, such as One American Corp., is restricted by the Act unless the prior approval of the Board is obtained. The Act prohibits the Board from approving an application from a bank holding company to acquire shares of a bank located outside the state in which the operations of the holding company's subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statue of the state in which the bank whose shares are to be acquired is located.
Under the Louisiana Bank Holding Company Act of 1962, as amended (the "Louisiana Act"), one-bank holding companies are authorized to operate in Louisiana provided the activities of the nonbank subsidiaries are limited to the ownership of real estate and improvements, computer services, equipment leasing and other directly related banking activities. The Louisiana Act, as amended in 1984, authorized multi-banking holding companies within the state. Certain limitations and restrictions were set, which expired July 1, 1989. These restrictions limit acquisitions of additional banks to those which have been in existence for at least five years. The State Commissioner of Financial Institutions is authorized to administer the Louisiana Act by issuance of orders and regulations.
In addition, Louisiana banking laws were changed in 1985 and 1986 to allow interparish banking, limited statewide branching beginning January 1, 1987, and regional banking beginning July 1, 1987. These changes have allowed Louisiana and the regional banks and other financial institutions to engage in a wider range of activities than were previously allowed to such institutions. The restrictions on state banking were repealed in 1988, with the intention of allowing state charted banks to branch bank state wide.
Also effective January 1, 1991, Louisiana's reciprocal interstate banking laws allowed bank holding companies domiciled in any state of the United States to acquire Louisiana banks and bank holding companies, if the state in which the bank holding company is domiciled allows Louisiana banks and bank holding companies the same opportunities.
Additional information regarding supervision and regulation can be found in the 1997 Form 10-K in the Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and incorporated herein by reference.
Regulatory Matters
The capital ratios for the Company and the Bank currently exceed the regulatory capital requirements at December 31, 1997. The capital ratios are included in the 1997 Form 10-K in the Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and incorporated herein by reference.
Capital Adequacy
The Company's dividends are determined by its Board of Directors. The current policy is to maintain dividends at a level which ensures the Company and Bank are able to maintain sufficient regulatory capital levels. The Company's primary source of funds is the dividend received from the Bank. Under current regulatory limitations the Bank could pay in dividends without regulatory approval approximately $5.2 million. The Company carries no debt, therefore future liquidity needs are limited to the payment of any declared dividends. The Company maintains sufficient liquidity to maintain its operations should a regulatory agency limit the Bank from paying dividends.
The Bank is subject to regulation and regular examination by the Federal Deposit Insurance Corporation, and the Office of Financial Institutions of the State of Louisiana. Applicable regulations relate to reserves, investments, loans, issuance of securities, the level of capital, establishment of branches and other aspects of its operations. Should the Bank fail to comply with current regulations, the Federal Deposit Insurance Corporation may initiate sanctions and other administrative proceedings for failure to comply with current regulations and may cease deposit insurance.
Statistical Information
The following data contains information concerning the business and operations of One American Corp. and its subsidiaries, First American Bank and Trust, and One American Agency, Inc. This information should be read in conjunction with Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
Average Balance Sheets and Interest Yield Analysis
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Average Balance Sheets and Interest Rate Analysis for the years ended December 31, 1997, 1996, and 1995
Interest Differential
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Interest Differentials for the years ended December 31, 1997 and 1996
Securities Portfolio
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Securities
Also, the following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Notes to Consolidated Financial Statements" and is incorporated herein by reference.
See Note D titled Securities in the 1997 Form 10-K for a detailed analysis of the security portfolio.
There were no securities held by the Company at December 31, 1997, that exceeded, in aggregate by issuer, 10% of Stockholders' Equity.
Loan Portfolio
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Loans for the years ended December 31, 1997, 1996, 1995, 1994, and 1993
Non-Performing Loans
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Non-Performing Loans for the years ended December 31, 1997, 1996, 1995, 1994, and 1993
Summary of Loan Loss Experience
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Summary of Loan Loss Experience for the years ended December 31, 1997, 1996, 1995, 1994, and 1993
Deposits
The following information called for by Item 1 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Average Balance Sheets and Interest Rate Analysis for the years ended December 31, 1997, 1996, and 1995
Maturities of time deposits of $100,000 or more at December 31, 1997, are summarized below: In thousands
3 Months or Less $6,178 Over 3 through 6 Months 2,173 Over 6 through 12 Months 2,751 Over 12 Months 2,596 $13,698 Return on Equity and Assets
The following information called for by Item 1 is included in the 1997 Form 10-K in the Section titled Item 6. "Selected Financial Data" and is incorporated herein by reference.
Average Total Assets December 31, 1997, 1996, 1995, 1994, and 1993 Average Stockholders' Equity December 31, 1997, 1996, 1995, 1994, and 1993 Selected Ratios for the years ended December 31, 1997, 1996, 1995, 1994, and 1993 Per Share for the years ended December 31, 1997, 1996, 1995, 1994, and 1993
Item 2.
Item 2. Description of Properties
One American Corp. is located in Vacherie, Louisiana in the main office building of First American Bank and Trust. Through its subsidiary First American Bank and Trust the Company owns the premises in which its main office, operation center, and thirteen of its branches are located and holds a lease for the one remaining branch. The Company also leases the office from which its Loan Production Office operates.
The Company considers all properties to be suitable and adequate for their intended purposes and its lease to be fair and reasonable.
Item 3.
Item 3. Legal Proceedings
The following information called for by Item 3 is included in the 1997 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" Subsection titled "Allowance for Loan Losses" and is incorporated herein by reference.
In addition, during the normal course of business, the Company is involved in various other legal proceedings. In the opinion of management and counsel, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1997.
Part II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Security Holder's Matters
Common Stock - One American Corp.'s (the Company) stock is not listed on any security exchange. Due to the lack of an active trading market, One American Corp. does not have the available information to furnish the high and low sales price or the range of bid and ask quotations for its stock. Based upon limited inquiries by management, it is believed that the stock of the Company traded at the following amounts:
1997 1996
First Quarter $31.00 $28.00 Second Quarter $32.00 $30.00 Third Quarter $32.00 $31.00 Fourth Quarter $32.00 $31.00
There can be no assurance that these limited inquiries adequately reflect the actual high and low bids or prices for the stock of the Company.
Information - Request for additional information or copies of Form 10-K filed with the Securities and Exchange Commission in Washington, DC should be directed to:
J. B. Falgoust Chairman One American Corp. P. O. Box 550 Vacherie, LA 70090-0550
Transfer Agent and Registrar
First American Bank and Trust P. O. Box 550 Vacherie, LA 70090-0550
General Counsel
Martin, Himel, Peytavin & Nobile P. O. Box 278 Lutcher, LA 70071-0278
Independent Accountants
Hannis T. Bourgeois, L. L. P. 2322 Tremont Drive, Suite 200 Baton Rouge, LA 70809
Item 6.
Item 6. Selected Financial Data
SELECTED QUARTERLY DATA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
One American Corp. and Subsidiaries for the quarter periods in the years ended December 31, 1997 and 1996
1997 FOURTH THIRD SECOND FIRST ($ in thousands, except per share data) QUARTER QUARTER QUARTER QUARTER
Interest Income $5,418 $5,208 $5,124 $5,007 Interest Expense 2,035 1,940 1,882 1,855 Net Interest Income 3,383 3,268 3,242 3,152
Provision for Loan Losses 500 300 150 75
Net Interest Income after Provision for Loan Losses 2,883 2,968 3,092 3,077 Other Income 929 902 1,063 846 Other Expenses 2,476 2,416 2,387 2,394
Income before Income Taxes 1,336 1,454 1,768 1,529
Applicable Income Taxes 456 460 577 557
Net Income $880 $994 $1,191 $972
Per Share: Net Income $0.65 $0.74 $0.88 $0.72 Dividends $0.35 $0.30 $0.30 $0.30
1996 FOURTH THIRD SECOND FIRST ($ in thousands, except per share data) QUARTER QUARTER QUARTER QUARTER
Interest Income $5,034 $4,949 $4,916 $4,818 Interest Expense 1,864 1,809 1,791 1,780 Net Interest Income 3,170 3,140 3,125 3,038
Provision for Loan Losses (75) 75 60 30
Net Interest Income after Provision for Loan Losses 3,245 3,065 3,065 3,008 Other Income 871 883 1,211 1,014 Other Expenses 2,697 2,223 2,066 2,045
Income before Income Taxes 1,419 1,725 2,210 1,977
Applicable Income Taxes 394 536 693 658
Net Income $1,025 $1,189 $1,517 $1,319
Per Share: Net Income $0.76 $0.88 $1.12 $0.98 Dividends $0.30 $0.25 $0.25 $0.25
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations One American Corp. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations
The Businesses of One American Corp.
One American Corp. is comprised of two subsidiaries, First American Bank and Trust (the Bank) and One American Agency.
First American Bank and Trust is engaged in primarily the same business operations as any independent commercial bank, with special emphasis in retail banking, including the acceptance of checking and saving deposits, and the making of commercial, real estate, personal, home improvement, automobile and other installment and term loans. The Bank also offers, among services, travelers' cheques, safe deposit boxes, note collection, escrow and other customary bank services to its customers, with the exception of trust services. In addition, the Bank offers drive-up teller services, automated teller machines and night depository facilities. First American Bank and Trust is insured under the Federal Deposit Insurance Act; but, is not a member of the Federal Reserve System.
One American Agency provides general insurance agent services for the Company and its subsidiaries. The Agency also provides agent services in relation to credit life and accident and health insurance that is directly related to the extension of credit of other financial services of the Bank.
Overview of 1997
Net income for the year 1997 was $4.0 million compared to $5.1 million for the year 1996. For the year ended 1997, earnings per share were $2.99 compared to $3.74 in 1996. Return on average assets was 1.38% and 1.82% for the years ended 1997 and 1996, respectively. For the years ended 1997 and 1996, return on average stockholders' equity was 11.52% and 15.64%, respectively. The reduction in net income, which resulted in a reduction in earnings per share, return on average assets, and return on average stockholders' equity from 1996 to 1997 was primarily due to an increase in other expenses and a decision by management to increase the provision for loan losses. Net interest income for 1997 was $13.0 million, 5% greater than $12.5 million from the year 1996, due to a greater volume of loans. The net interest margin on a fully tax equivalent basis (FTE) was 4.96% for the current year and 4.95% for the same period of 1996. During the year 1997, in comparison with the same period of 1996, average loans outstanding increased $22.4 million or 19% due to management's effort to increase the percentage of earning assets represented by loans and increased loan demand. Average total deposits for the year 1997 increased $11.3 million or 5% when compared to the average total deposits for the same period of 1996. Average total assets for the current year increased $14.1 million or 5% when compared to the total average assets of the year 1996. Average stockholders' equity for 1997 was $35.0 million, an increase of 8% over the average stockholders' equity for 1996. The Bank opened a full service office in Napoleonville, Assumption Parish, Louisiana on September 2, 1997. The opening of this office increases the Bank's full service offices to sixteen. This office currently operates from a temporary facility, however renovation of a permanent facility will begin within the first quarter of 1998. Management anticipates the completion of the permanent facility during the second quarter of 1998. The Assumption Parish trade area is very similar to the Bank's other rural trade areas. On September 18, 1997, the Bank purchased real estate in Hammond, Tangipahoa Parish, Louisiana. This real estate is intended for a future branch site in Hammond with plans to build a new office at a later date. This will provide the Bank its second office in Hammond, one of the fastest growing areas of the State.
Earnings Analysis
Net Interest Income - Net interest income is the difference between interest and fees generated from interest earning assets and the interest expense for interest bearing liabilities and is the primary source of earnings for the Bank. For analytical purposes, net interest income is presented on a tax equivalent basis. A 34% tax rate is used for 1997, 1996, and 1995. Certain
earning assets are exempt from income taxes, therefore, a tax equivalent adjustment is included so that tax exempt earning assets will be compatible with other earning assets. The primary factors that affect net interest income are the changes in volume and mix of earning assets and interest-bearing liabilities, along with the change in market rates. Net interest income on a fully tax equivalent basis (FTE) increased $581 thousand or 5%. Net interest income (FTE) for 1997 was $13.3 million compared to $12.8 million for the prior year. Net interest income (FTE) for 1995 was $12.0 million.
Earning Assets, Interest Bearing Liabilities, and Net Interest Spread - Average earning assets increased $12.0 million or 5% to $269.1 million during 1997. Average earning assets were $257.1 million in 1996 and $241.4 million in 1995. The trend in earning assets over the years compared shows a shift in the mix of earning assets toward the loan portfolio from the securities portfolio as shown in the table Earning Asset Structure on page 17. Management's continued strategy is to increase the Bank's earning asset mix to include a greater percentage of higher yielding loans over lower yielding securities. The Bank's primary market area continues to produce levels of loan demand which has enhanced the Bank's earning asset structure. Management continues to believe that greater levels of loan demand will exist in the near future due to opportunities that were non-existent in the Bank's primary market area. However, there is no guarantee that the Bank will continue to experience the loan growth enjoyed over the last twelve months. The current loan demand, in the Bank's primary market area, appears to be the result of an improving economic climate. The trend over the years compared shows the mix of interest bearing liabilities shifting to higher interest bearing certificates of deposit from lower interest bearing money market accounts. As an additional note, the Bank continues to benefit from the increase in non-interest bearing deposits while at the same time improving the relationship as a percentage of total deposits. The growth is attributed to a concertive effort by the Bank to attract a broader core deposit base consisting of commercial and personal customers.
For the year ended 1997, the average yield on earning assets was 7.82%, while the average cost of interest bearing funds was 3.72%, producing a net interest spread (FTE) of 4.10%. The net interest margin (FTE) was 4.96% for the year ended 1997. In comparison, the net interest margin (FTE) for the year ended 1996 was 4.95%. The slight increase in net interest margin resulted from earning assets growing at a faster rate than interest bearing deposits, further supported by a greater volume of non- interest bearing deposits. The table of Average Balance Sheets and Interest Rate Analysis for the periods ended December 31, 1997, 1996, and 1995 on pages 26, and the corresponding table of Interest Differentials on page 27 detail the effect a change in average balances outstanding and the change in interest yield and costs have on net interest income for the respective periods. Also, the tables of Earning Asset Structure and Deposit Structure on page 17 show a more condensed, descriptive analysis of the common size percentage changes in average earning assets and average deposit mix over the annual periods analyzed.
Provision for Loan Losses
Provision for loan losses was $1.025 million for 1997, an increase of $935 thousand from the provision for loan losses of $90 thousand for 1996. The provision for loan losses in 1995 was $0. Management feels a need to increase the unallocated portion of the Allowance for Loan Losses. The need to increase the funding of Allowance for Loan Losses was created due to a non- domestic credit which utilized a portion of the unallocated Allowance for Loan Losses during 1997. More specifics can be found in the sections entitled Allowance for Loan Losses and Non- performing Assets.
Other Income
Other income was $3.7 million for 1997 and $4.0 million for 1996. Exclusive of security transactions other income decreased $143 thousand. Service charges on deposit accounts were $2.1 million for 1997 and 1996. Gain on purchased assets decreased $205 thousand to $607 thousand for 1997 when compared to the prior year. These gains are recognition of collection of principal on certain loans acquired in past Bank acquisitions. The Bank continues to pursue the collection of these loans. However, the amount of future gains, if any, are indeterminable.
Other operating income for 1997 was $851 thousand compared to $746 thousand in 1996. Included in other operating income are fees from bankcard services, safe deposit box rentals, and other operating fees associated with the daily operations of the Bank. Net gains on investment securities decreased by $95 thousand for 1997, compared to a net gain on investment securities of $285 thousand for 1996. The Bank netted $190 thousand as gains from security transactions during the year 1997. These securities included Louisiana Agricultural Finance Authority Bonds and Louisiana Housing Finance Authority Bonds that were partially written off in accordance with regulatory directives in May of 1992. More specifics can be found on the gains recognized from the Guaranteed Investment Contracts in the discussion section entitled Non-performing Assets.
Other Expenses
Other expenses totaled $9.7 million in 1997, a 7% increase over the 1996 total of $9.0 million. Salaries and employee benefits increased $314 thousand or 7%, to $4.7 million for 1997 compared to 1996. The increase in salaries is due to an increase in personnel from two full service offices which were not reflected in salaries and employee benefits during 1996. Net occupancy expense was $1.2 million for 1997 and 1996. Other operating expenses totaled $3.9 million for 1997 compared to $3.4 million for 1996, an increase of $444 thousand or 13%. Other operating expenses primarily increased due to legal and professional expenses which were a one time association with a non-domestic impaired credit. Also, property taxes increased substantially due in part to a re-assessment of property values and new physical locations. For a further analysis of other operating expenses see Note K. Net other real estate and repossession expense produced a benefit of $180 thousand for 1997 which was an increase of $167 thousand from the $13 thousand benefit in 1996. Net other real estate and repossession expense is the operating expense of other real estate and repossessed assets less the income generated by other real estate and the net gains from the sale of other real estate and repossessed assets. Expenses from other real estate and repossessed assets totaled $142 thousand, which were offset by the income generated from the operations of other real estate of $17 thousand, and net gains on the sale of other real estate and repossessed assets of $305 thousand. For 1996, net other real estate and repossession expense produced a benefit of $13 thousand. Expenses from other real estate totaled $5 thousand, which were offset by income from the operations of other real estate of $9 thousand, and net gains on the sale of other real estate and repossessed assets of $9 thousand. Management continues to convert these non-performing assets to investable funds at a value which management feels is beneficial to the earnings of the Bank. Also, management recognizes that the contribution of the non-recurring income offset by net gains on the sale of other real estate is going to be less in years to come due to the reduction of such assets.
Applicable Income Taxes
Applicable income taxes for 1997, 1996, and 1995 were $2.1 million, $2.3 million, and $2.4 million, respectively, producing an effective tax rate of 34%, 31%, and 31%, respectively. The Company's effective income tax expense as a percentage of pretax income is different from statutory rates because of tax-exempt income and the related nondeductible interest expense. A portion of the Company's interest income is from investments in state and municipal bonds and is generally exempt from federal income taxes. Interest expense on funds used for tax-exempt investments is generally nondeductible for federal income taxes.
Liquidity
Liquidity management is the process of ensuring that the Bank's asset and liability structure is the proper mix to meet the withdrawals of its depositors, and to fund loan commitments and other funding requirements. Management's primary source of funds is the Bank's core deposit base. At December 31, 1997, average core deposits were approximately $243.3 million or 95% of total average deposits and 83% of total average assets. For a comparison with prior period year ends, see the table entitled Average Deposit Structure. Other sources of liquidity are maturities in the investment portfolio and loan maturities and repayments. Management continually evaluates the maturities and mix of its earning assets and interest-bearing liabilities to monitor its ability to meet current and future obligations and to achieve maximum net interest income. Due to the stability of the core deposit base as noted above and the maturities of the investment portfolio, management does not anticipate any difficulties in meeting the needs of its depositors nor the ability to fund future loan commitments.
Interest Rate Risk
Interest rate risk is the measurement of risk exposure or changes in net interest income and subsequently net income given changes in the external interest rate markets. This possible risk exposure is produced by the different repricing intervals of interest earning assets and interest bearing liabilities, given changes in the mix of such assets and liabilities, and the growth of such assets and liabilities. One measurement of interest rate risk is gap analysis. The gap matches the repricing of interest rate sensitive assets and liabilities for selective intervals. GAP analysis, is a static measurement based on an individual point in time. This interest rate risk measurement process may not indicate actual rate exposure given contractual maturities and repricing period inconsistencies. Management also measures interest rate risk exposure by process of dynamic income simulation. The latter process measures possible levels of exposure more accurately given the ability to better identify contractual maturities and repricing periods. For gap analysis, a decay rate methodology is used to arrive at the principal and interest cash flows used in the market value calculations given FDIC regulatory guidelines as set forth in FDICIA 305. First, rate sensitive and non-rate sensitive balances are separated. Higher decay rates force rate sensitive cash flows to occur within one year. Decay rates are then input for the non-rate sensitive funds. These decay rates spread the non-rate sensitive balances out as far as the FDIC regulatory guidelines allow in FDICIA 305. Decay rate assumptions implemented are based on a flat rate environment and at management's discretion. The Bank has established decay rate assumptions given data collection over the last 10 or so years on MMDA, Savings Accounts, Now Accounts, and Non-interest Bearing Accounts. The assumptions are based on account type sensitivity patterns given the change in the Bank's benchmark for pricing and the change in relationship each account type has to total deposits. Decay rates are updated at each modeling session if warranted by rate changes in the market or changes in non-rate sensitivity patterns given the account type. The identification of the non-rate sensitive portion of such accounts provides a more complete picture of the actual core deposit base which may not reprice in the same manner as the rate sensitive portion. Table 2, Interest Rate Sensitivity Table, on page 19 presents the Bank's interest rate sensitivity position at December 31, 1997. Table 2 indicates that the Company's earning assets slightly exceed its interest bearing liabilities out to the one year point in time suggesting the Bank is positively rate sensitive. This may not be the case in reality given that mentioned above as it pertains to GAP analysis. The Bank is a member of the Federal Home Loan Bank of Dallas (FHLB). The FHLB provides the Bank the ability to further match the rates and maturities of its funding with those of earning assets. Also, the FHLB provides the Bank the ability to offer long term, fixed rate loans to its customer base with minimal additional interest rate risk exposure.
Financial Instruments
In the normal course of business the Bank enters into agreements which, for accounting purposes, are considered off - balance sheet activities. These agreements are loans and lines of credit commitments to customers to extend credit at specified rates, duration, and purpose. The commitments adhere to normal lending policy, collateral requirements, and credit reviews. Total commitments were $11.7 million and $14.4 million at December 31, 1997 and 1996, respectively. Available loan commitments at December 31, 1997, were $7.6 million and $10.0 million at December 31, 1996. The Bank had letters of credit of $562 thousand issued at December 31, 1997. Additionally, the Bank has deposit customers who have credit lines available to them through their deposit accounts. At December 31, 1997 the available portion of these credit lines was $329 thousand. These credit lines are immediately cancelable by the Bank. The credit lines provide a source of income to the Bank through service fees charged and interest earned on balances outstanding. The credit lines are reviewed regularly and do not pose a material credit risk to the Bank. To date, the Bank does not have instruments outstanding that can be specifically described as a financial guarantee which guarantees the performance of a customer to a third party other than the financial standby letters of credit described above. The Bank had credit cards with aggregate credit available of $3.2 million and $2.9 million at December 31, 1997 and 1996. Applicants are reviewed through normal lending policies and credit reviews. Additionally the Bank has privity to agreements to fund and sell long term mortgages to third party mortgage companies. The Bank is not a party to financial instruments defined as interest rate exchange agreements, financial futures, or financial
options. Therefore, the Bank is not exposed to interest rate risk in excess of the amount recognized in the consolidated balance sheets as that risk may apply to interest rate exchange agreements, financial futures, or financial options.
Table 2-
Loans
An analysis of the loan portfolio at December 31, 1997, 1996, 1995, 1994, and 1993, is as follows:
The following is the detail of maturities and sensitivity of loans to changes in interest rates at December 31, 1997:
($ in thousands) Amount Fixed Rate Loans Maturity 1 Year or Less $56,994 Over 1 through 5 Years 56,264 Over 5 Years 18,808 Total Fixed Rate Loans 132,066
Variable Rate Loans Repricing Frequency 1 Year or Less 16,851 Over 1 through 5 Years - Over 5 Years - Total Variable Rate Loans 16,851
Nonaccrual Loans (Various) 285
Total Loans $149,202
Note: The information necessary for a breakdown of maturity of the various types of loans is not readily available.
Securities
Included in the category of Securities of Other US Government Agencies at December 31, 1997 is $17.5 million par value of structured notes, with an amortized cost of $17.5 million and a fair value of $17.4 million, resulting in an unrealized loss in the amount of $70 thousand. The structured notes, which are issued by US government sponsored agencies, are debt securities whose cash flows are dependent on one or more indices which create interest rate risk. The majority of the securities held as structured notes are considered deleveraged bonds. The rate on these securities are 40 - 50% of the 10 year CMT plus 60 - 170 basis points. These securities are variable in nature and reprice on a monthly, quarterly, or semi-annual basis. However, the majority of the securities reprice quarterly. The majority of the securities mature during the first and second quarter of 1998. A fluctuation in interest rates should in no way effect the principal balance of these securities at maturity. Management understands the risks associated with these types of instruments and has the capability to effectively monitor the notes activity. Although classified in the available for sale category, it is management's intention to hold the structured notes until the notes mature at par value. Based on the variable nature of said securities and the securities percentage relationship to earning assets, a +/- 200 basis point interest rate shock and income simulation on the security class showed
minimal impact on earnings. Further, management is of the opinion that earnings trends indicate the ability to accept any adverse risk associated with the possible sale of said securities should the decision to hold the structured notes to maturity change.
Allowance for Loan Losses
The allowance for loan losses was $2.2 million at year end 1997 or 1.47% of net loans outstanding. At year end 1996, the allowance for loan losses was $3.1 million or 2.27% of net loans outstanding. The allowance for loan losses account represents amounts available for possible future losses based on modeling and management's evaluation of the loan portfolio. To ascertain the potential losses in the portfolio, management reviews past due loans on a monthly basis. Additionally, the loan review department performs an ongoing review of the loan portfolio. Loans are reviewed for compliance to the Bank's lending policy and the borrower's current financial condition and ability to meet scheduled repayment terms. Management reviews Allowance for Loan Losses on a monthly basis to ensure that it contains an adequate amount of reserves to absorb potential loan losses. The Bank has established the balances in Allowance for Loan Losses in order to accept any adverse loan relationships which have the potential to occur. As the Bank's loan - to - deposit relationship continues to increase, so does the potential to experience adverse loans at a rate uncommon to the Bank's historical loan loss basis given, the smaller loan - to - deposit relationships of the past. Net charge offs (recoveries) were $1.9 million for 1997, compared to $280 thousand for 1996. As a percentage of average loans, net charge offs (recoveries) were 1.35% in 1997 and .23% in 1996. Gross charge offs were 1.48% in 1997 and .43% in 1996. Recoveries as a percentage of gross charge offs were 8.62% in 1997 and 45.10% in 1996. The net charge off position of $1.9 million was caused primarily by a non-domestic credit which resulted in a charge off of $1.5 million. This individual credit significantly influenced the change in ratios between the two reporting periods.
Table 3, Activity in Allowance for Loan Losses, below presents an analysis of activity in the allowance for loan losses for the past five years. Table 3-
($ in thousands) Year Ended December 31, Activity in Allowance for Loan Losses 1997 1996 1995 1994 1993
Beginning Balance $3,083 $3,273 $3,077 $2,717 $2,036
Loans Charged Off: Real Estate 312 78 295 54 451 Commercial, Financial, and Agricultural 1,631 392 103 47 61 Individual and Others 156 40 40 10 62 Total Charged Off 2,099 510 438 111 574
Loan Recoveries: Real Estate 22 24 98 40 39 Commercial, Financial, and Agricultural 130 185 523 58 234 Individual and Others 29 21 13 23 82 Total Recoveries 181 230 634 121 355 Net Loans Charged Off 1,918 280 (196) (10) 219 Provision charged to Expense 1,025 90 - 350 900 Ending Balance $2,190 $3,083 $3,273 $3,077 $2,717
The allowance for loan losses has been allocated according to the type of loan described in the table below, at December 31, 1997, 1996, 1995, 1994, and 1993:
($ in thousands) 1997 1996 1995 1994 1993
Real Estate $636 $1,231 $2,052 $2,433 $2,155 Commercial, Financial, and Agricultural 95 667 415 276 201 Individual and Others 117 79 23 368 361 Unallocated 1,342 1,106 783 - - Total Allowance $2,190 $3,083 $3,273 $3,077 $2,717
Non-performing Assets
Non-performing assets include nonaccrual and impaired loans and other real estate. Loans are considered nonaccrual when the principal or interest becomes 90 days past due or when there is uncertainty about the repayment of principal and interest in accordance with the terms of the loans. Nonaccrual loans at December 31, 1997 and 1996 were $285 thousand and $174 thousand, respectively. Loans past due 90 days and still accruing at December 31, 1997 and 1996 were $365 thousand and $395 thousand, respectively. At December 31, 1997, nonaccrual loans were .19% of gross loans outstanding and 13.01% of the allowance for loan losses. At December 31, 1996, these ratios were .13% and 5.64%, respectively. The following table presents information on the amount of non-performing loans at December 31, 1997, 1996, 1995, 1994 and 1993:
($ in thousands) 1997 1996 1995 1994 1993
Non-accrual $285 $174 $527 $432 $240 Past due 90 days or more 364 395 441 313 331 Restructured and Impaired 2,965 3,826 3,073 156 273 $3,614 $4,395 $4,041 $901 $844
In the process of reviewing the loan portfolio, management acknowledges certain potential problem loans which are not classified as impaired, non-accrual, greater than 90 days delinquent, or restructured. Management does not feel that any of these potential problem loans are reasonably likely to have or will have a material effect on the Company's liquidity, capital resources, or results of operations. Other real estate is properties held for sale acquired through foreclosure or negotiated settlements of debt. Other real estate increased $10 thousand during 1997. At December 31, 1997 and 1996, other real estate was $78 and $68 thousand, respectively. The Bank also has approximately $153 thousand in par value of Louisiana Agricultural Finance Authority Bonds and Louisiana Housing Finance Authority Bonds with a book value of $1, on nonaccrual status. Under a directive from state regulatory agencies the original $2.35 million in par value of the Guaranteed Investment Contracts were placed on nonaccrual status in May, 1992. Due to the directive, the bonds were written down to $.20 on the dollar or $470 thousand. While management has written down these bonds in accordance with regulatory policy as mentioned above, management continues to feel that the fair value was not representative of the potential liquidation value of these bonds. Management is of the opinion that the permanent impairment of the bonds was not in excess of the prescribed regulatory write downs. A class action suit was filed on behalf of the bondholders. In summary, the suit sought a determination of the priority treatment the bondholders would receive under California statutes in the liquidation of Executive Life Insurance Company. Under Priority 5 the Guaranteed Investment Contracts (GICs), which support the municipal bonds, would be treated as insurance policies and would have the same payout ratio as other policies. Under Priority 6, the GICs would have the status of a general unsecured creditor. On November 15, 1992, the Superior Court in California ruled the GICs were a Priority 5. As a result of pending litigation, continued settlement proposals are taking place between the guarantors of the bonds and the bondholders. To date, the Bank has recovered approximately $2.21 million as partial payments of the $2.35 million in original par value. Of the $2.21 million, $1.74 million was recognized as gains on securities available for sale since the original write down. The remaining $470 thousand was applied against the book value. Of the $1.74 million in gains recognized since the write down, $190 thousand was recognized in 1997 and $277 thousand was recognized in the year 1996. The Bank continues to pursue the collection of principal on these securities. However, the amount of any future fulfillment of these collection actions remain uncertain.
Regulatory Matters
The Bank is subject to various capital requirements administered by the federal Banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material effect on the Bank's financial statements. Various regulations require the Bank to meet specific capital adequacy 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 classification is also subject to qualitative judgments 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 as set forth in the section entitled Capital Adequacy below. Management is unaware, based on recent regulatory examinations or otherwise, of any known trends, events or uncertainties which are reasonably likely to have or will have a material effect on the Company's liquidity, capital resources, or results of operations.
Capital Adequacy
The strength of a company is measured by the company's capital, earnings history, asset quality, and management. Capital can be increased by the retention of earnings and issuance of equity stock. Management feels the current trend of earnings and dividend distribution is sufficient to maintain its capital adequacy requirements. The Company is required to maintain minimum amounts of capital to total risk-weighted assets, as defined by the regulators. The guidelines require total capital of 8.00%, half of which must be Tier 1 capital. The computation of risk- weighted ratios follow the transitional rule, which currently does not include the unrealized gain (loss) on securities available for sale in Tier 1 capital. The leverage ratio consists of Tier 1 capital as a percentage of average total assets. The minimum leverage ratio for all banks and bank holding companies is 3.00%. This minimum ratio is dependent upon the strength of the individual bank or holding company and may be increased by regulatory authorities on an individual basis. The 3.00% minimum was established to make certain that all banks have a minimum capital level to support their assets, regardless of risk profile. As shown in Table 4, Capital Adequacy Ratios, the Company's ratios for the reporting periods exceed regulatory minimums. The Company's dividends are determined by its Board of Directors. The current policy is to maintain dividends at a level which ensures the Company and Bank are able to maintain sufficient regulatory capital levels. The Company's primary source of funds is dividends received from the Bank. Under current dividend limitations the Bank could pay dividends of approximately $5.2 million without regulatory approval. The Company carries no debt; therefore, future liquidity needs are limited to the payment of any declared dividends. The Company maintains sufficient liquidity to maintain its operations should a regulatory agency limit the Bank from paying dividends.
Table 4- Capital Adequacy Ratios In Thousands December 31, December 31, 1997 1996 Tier 1 Capital: Stockholders' Equity $34,954 $32,549 Tier 2 Capital: Allowance for Loan Losses 1,833 1,706 Total Capital $36,787 $34,255
Risk-Weighted Ratios: Tier 1 Capital 23.9% 24.1% Total Capital 25.1% 25.3% Leverage Ratio 11.7% 11.8% Stockholders' Equity 11.6% 11.4%
Regulatory Risk-Based Capitalization Requirements
Capital Expenditures
The Bank made capital improvements to several offices during 1997. The Bank opened a full service office in Napoleonville, Assumption Parish, Louisiana on September 2, 1997. The opening of this office increases the Bank's full service offices to sixteen. This office currently operates from a temporary facility, however renovation of a permanent facility will begin within the first quarter of 1998. Management anticipates the completion of the permanent facility during the third quarter of 1998. The Assumption Parish trade area is very similar to the Bank's other rural trade areas. On September 18, 1997, the Bank purchased real estate in Hammond, Tangipahoa Parish, Louisiana. This real estate is intended for a future branch site in Hammond. This will provide the Bank its second office in Hammond, one of the fastest growing areas of the State.
The Year 2000
The Bank has formed a Year 2000 committee. The purpose of the committee is to identify potential costs and uncertainties relating to the Year 2000. To date the committee has written a policy which addresses the issues approaching the Year 2000 in five phases. The phases include awareness, assessment, renovation, validation, and implementation. The committee feels that the Bank is currently in the assessment phase. While only in the assessment phase, management does not feel that issues related to the Year 2000 are reasonably likely to have or will have a material effect on the Company's liquidity, capital resources, or results of operation. The costs expensed related to the Year 2000 issue during 1997 were immaterial.
Item 8.
Item 8. Financial Statements and Supplementary Data One American Corp. and Subsidiaries Management's Responsibility for Financial Reporting
The management of One American Corp. and Subsidiaries is responsible for the preparation of the financial statements, related financial data, and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include some amounts that are necessarily based on management's informed estimates and judgments, with consideration given to materiality. All financial information in this annual report is consistent with that in the financial statements.
Management fulfills its responsibility for the integrity, objectivity, consistency, and fair presentation of the financial statements, and the financial information through an accounting system and related internal accounting controls that are designed to provide reasonable assurance that assets are safeguarded and that transactions are authorized and recorded in accordance with established policies and procedures. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the related benefits. As an integral part of the system of internal accounting controls, One American Corp. and Subsidiaries has a professional staff who monitor compliance with and assess the effectiveness of the system of internal accounting controls while coordinating audit coverage with the independent public accountants.
The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with management, and the independent public accountants to review matters relating to financial reporting, internal accounting controls and the nature, extent and results of the audit effort. The independent public accountants have direct access to the Audit Committee with or without management present.
The financial statements as of December 31, 1997 and 1996, were audited by Hannis T. Bourgeois, L. L. P., independent public accountants, who rendered an independent professional opinion on the financial statements prepared by management.
Report of Independent Auditor
January 16, 1998
To the Shareholders and Board of Directors of One American Corp. and Subsidiaries Vacherie, Louisiana
We have audited the accompanying Consolidated Balance Sheets of One American Corp. and Subsidiaries 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 Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of One American Corp. and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations, changes in their stockholders' equity and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Respectfully submitted, /s/ Hannis T Bourgeois, L.L.P. Hannis T. Bourgeois, L. L. P. Baton Rouge, Louisiana
One American Corp. and Subsidiaries Notes to Consolidated Financial Statements December 31, 1997, 1996, and 1995
NOTE A Summary of Significant Accounting Policies
The accounting principles followed by One American Corp. (the Company) and its wholly-owned subsidiaries, First American Bank and Trust (the Bank), and One American Agency, Inc. are those which are generally practiced within the banking industry. The methods of applying those principles conform with generally accepted accounting principles and have been applied on a consistent basis. The principles which significantly affect the determination of financial position, results of operations, changes in stockholders' equity, and cash flows are summarized below.
Principles of Consolidation - The consolidated financial statements include the accounts of One American Corp. and its wholly-owned subsidiaries, First American Bank and Trust, and One American Agency, Inc. All significant intercompany balances and transactions have been eliminated. Certain reclassifications to previously published financial statements have been made to comply with current reporting requirements.
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Securities - Securities are being accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Investments in Debt and Equity Securities," which requires the classification of securities as held to maturity, trading, or available for sale. Securities classified as held to maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by various methods approximating the interest method over their contractual lives. Securities classified as available for sale are those debt securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for sale are carried at fair value. Unrealized gains or losses are reported as increases or decreases in stockholders' equity, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. The Bank had no securities classified as held to maturity or trading at December 31, 1997 or 1996.
Loans - Loans are stated at principal amounts outstanding, less unearned income and allowance for loan losses. Interest on commercial loans is accrued daily based on the principal outstanding. Interest on installment loans is recognized and included in interest income using the sum-of-the-digits method, which does not differ materially from the interest method. Impaired loans are being accounted for in accordance with Statement of Financial Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." The statements generally require impaired loans to be measured on the present value of expected future cash flows discounted at the loan's effective interest rate, or as an expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. Generally, the Bank discontinues the accrual of interest income when a loan becomes 90 days past due as to principal or interest.
When a loan is placed on non-accrual status, previously recognized but uncollected interest is reversed to income or charged to the allowance for loan losses. Interest income is subsequently recognized only to the extent cash payments are received.
Allowance for Loan Losses - The allowance for loan losses is an amount which in management's judgment is adequate to absorb potential losses in the loan portfolio. The allowance for loan losses is based upon management's review and evaluation of the loan portfolio. Factors considered in the establishment of the allowance for loan losses include management's evaluation of specific loans, the level and composition of classified loans, historical loss experience, results of examinations by regulatory agencies, an internal asset review process, expectations of future economic conditions and their impact on particular borrowers, and other judgmental factors. The allowance for loan losses is based on estimates of potential future losses, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and as adjustments become necessary, the effect of the change in estimate is charged to operating expenses in the period incurred. All losses are charged to the allowance for loan losses when the loss actually occurs or when management believes that the collectibility of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.
Bank Premises and Equipment - Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided at rates based upon estimated useful service lives (ten to thirty years for buildings, three to ten years for equipment) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal and the resulting gains or losses are included in current operations. Expenditures for maintenance and repairs are charged to operations as incurred. Costs of major additions and improvements are capitalized.
Other Real Estate - Other real estate is comprised of properties acquired through foreclosure or negotiated settlement. The carrying value of these properties is lower of cost or fair value less estimated selling expenses. Loan losses arising from the acquisition of these properties are charged against the allowance for loan losses. Any subsequent market reductions required are charged to other real estate expense. Revenues and expenses associated with maintaining or disposing of foreclosed properties are recorded during the period in which they are incurred.
Income Taxes - The provision for income taxes is based on income as reported in the financial statements after interest income from state and municipal securities is excluded. Also certain items of income and expenses are recognized in different time periods for financial statement purposes than for income tax purposes. Thus, provisions for deferred taxes are recorded in recognition of such timing differences. Deferred taxes are provided utilizing a liability method in accordance with SFAS No. 109 whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company and its subsidiaries file a consolidated federal income tax return. In addition, state income tax returns are filed individually by the Companies in accordance with state statutes.
Earnings per Common Share - The computation of earnings per share and other per share amounts of common stock is based on the weighted average number of shares of common stock outstanding during each year, which is 1,351,615 for all periods presented.
Statements of Cash Flows - For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks (including cash items in process of clearing).
Current Accounting Developments - The Financial Accounting Standards Board has issued Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement becomes effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The statement generally requires that after a transfer of financial assets, an entity would recognize all financial assets and servicing it controls and liabilities it has incurred , and would not recognize financial assets when control has been surrendered or liabilities when they have been extinguished. The application of this statement had no effect on the financial statements as of December 31, 1997.
NOTE B Acquisitions
On September 23, 1996, the Bank acquired the First American Bank of Tangipahoa located in Hammond, Tangipahoa Parish, Louisiana for a purchase price of $1.8 million. Pursuant to a Merger and Acquisition Agreement, the Bank acquired assets with a fair value of $6.9 million and assumed $5.7 million in deposits and specific liabilities as disclosed in the table below. The excess of the purchase price over the value of the net tangible assets has been assigned to goodwill and is being amortized over fifteen years. This acquisition was accounted for using the purchase method of accounting, and the results of operations are included in the consolidated financial statements from the date of acquisition.
In thousands 09/23/96 Assets: Cash and due From Banks $727 Federal Funds Sold 1,825 Securities 235 Loans, Net 4,044 Bank Premises 6 Other Real Estate 22 Accrued Interest Receivable 44 Other Assets 5 Total Assets $6,908
Liabilities and Stockholders Equity: Deposits $5,659 Accrued Interest Payable 19 Other Liabilites 17 Stockholders' Equity 1,213 Total Liabities and Stockholders Equity $6,908
Gain on purchased assets is recognized from acquired loans from previous bank acquisitions on a cost recovery method as principal payments are made and is included in the financial statements as Gain on Purchased Assets.
NOTE C Cash and Due from Banks
The Bank is required to maintain average cash reserve balances. The amounts of those reserves at December 31, 1997 and 1996, were approximately $3.6 million and $3.0 million, respectively.
NOTE D Securities
Amortized costs and fair values of securities available for sale as of December 31, 1997 and 1996 are summarized as follows:
Included in the category of Securities of Other US Government Agencies at December 31, 1997 is $17.5 million par value of structured notes, with an amortized cost of $17.5 million and a fair value of $17.4 million. At December 31, 1996, the Bank held $21.5 million of par value of these notes with an amortized cost of $21.5 million with a fair value of $21.5 million. The structured notes, which are issued by US Government Agencies, are debt securities whose cash flows are dependent on one or more indices in ways that create interest rate risk. Management understands the risks associated with these types of instruments and has the capability to effectively monitor the notes activity. Although classified in the available for sale category, it is management's intention to hold the structured notes until the notes mature at par value. Based on the variable nature of said securities and the securities percentage relationship to earning assets, a +/- 200 basis point interest rate shock and income simulation on the security class showed minimal impact on earnings. Further, management is of the opinion that earning trends indicate the ability to accept any adverse risk associated with the possible sale of said securities should the decision to hold the structured notes to maturity change. The Bank also has approximately $342 thousand in par value of Louisiana Agricultural Finance Authority Bonds and Louisiana Housing Finance Authority Bonds with a book value of $1, on nonaccrual status. Under a directive from state regulatory agencies the original $2.35 million in par value of the Guaranteed Investment Contracts were placed on nonaccrual status in May, 1992. Due to the directive, the bonds were written down to $.20 on the dollar or $470 thousand. While management has written down these bonds in accordance with regulatory policy as mentioned above, management continues to feel that the fair value was not representative of the potential liquidation value of these bonds. Management is of the opinion that the permanent impairment of the bonds was not in excess of the prescribed regulatory write downs. A class action suit was filed on behalf of the bondholders. In summary, the suit sought a determination of the priority treatment the bondholders would receive under California statutes in the liquidation of Executive Life Insurance Company. Under Priority 5 the Guaranteed Investment Contracts (GICs), which support the municipal bonds, would be treated as insurance policies and would have the same payout ratio as other policies. Under Priority 6, the GICs would have the status of a general unsecured creditor. On November 15, 1992, the Superior Court in California ruled the GICs were a
Priority 5. As a result of pending litigation, continued settlement proposals are taking place between the guarantors of the bonds and the bondholders. To date, the Bank has recovered approximately $2.2 million as partial payments of the $2.35 million in original par value. Of the $2.2 million, $1.8 million was recognized as gains on securities available for sale since the original write down. The remaining $470 thousand was applied against the book value. Of the $1.8 million in gains recognized since the write down, $190 thousand was recognized in 1997 and $277 thousand was recognized in 1996. The Bank continues to pursue the collection of principal on these securities. However, the amount of any future fulfillment of these collection actions remain uncertain. The following table shows the amortized cost, fair value, maturity distribution, and weighted average yield of the securities available for sale as of December 31, 1997. Maturities may differ from contractual maturities in mortgage- backed securities because the mortgages underlying the securities may be called or repaid without any penalties. ($ in thousands) Amortized Fair Average Cost Value Yield U. S. Treasury Securities Within 1 Year $18,352 $18,374 5.58% After 1 but Within 5 Years 19,996 20,095 5.99% After 5 but Within 10 Years - - - After 10 Years - - - 38,348 38,469 5.79% Securities of Other U. S. Government Agencies Within 1 Year 24,339 24,292 5.16% After 1 but Within 5 Years 29,984 30,004 5.94% After 5 but Within 10 Years - - - After 10 Years - - - 54,323 54,296 5.59% Mortgage-Backed Securities Within 1 Year 5 5 9.72% After 1 but Within 5 Years 320 332 9.30% After 5 but Within 10 Years 4,456 4,511 7.13% After 10 Years 4,981 5,026 6.64% 9,762 9,874 6.95% Obligations of State and Political Subdivisions* Within 1 Year 536 538 8.38% After 1 but Within 5 Years 6,408 6,671 8.35% After 5 but Within 10 Years 3,340 3,498 7.47% After 10 Years 593 629 7.94% 10,877 11,336 8.06%
Equity Securities 902 902 5.57% 902 902 5.57%
Totals $114,212 $114,877 6.02%
* Tax Equivalent Basis - 34%
Securities available for sale with a carrying amount of $33.4 million and $38.2 million at December 31, 1997 and 1996, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law. The Bank has invested in Federal Home Loan Bank of Dallas stock which is included in Equity Securities and is reflected at the lower of cost or fair value in these financial statements. The cost of these securities was $902 thousand and $851 thousand, which approximates fair value, at December 31, 1997 and 1996, respectively.
Gross realized gains and losses from the sale of securities for the years ended December 31, 1997, 1996, and 1995 are as follows: ($ in thousands) 1997 1996 1995
Realized gains $190 $285 $442 Realized losses - - - $190 $285 $442
NOTE E Loans
An analysis of the loan portfolio at December 31, 1997 and 1996, is as follows: ($ in thousands) 1997 1996
Commercial, Financial, and Agricultural $15,811 $10,442 Real Estate - Construction 3,987 3,184 Real Estate - Mortgage 113,117 105,800 Individuals 13,892 13,559 Foreign - 1,361 All Other Loans 2,395 1,578 Total Loans 149,202 135,924 Unearned Income (37) (65) Total Loans, net of Unearned Income $149,165 $135,859
Impaired loans having recorded investments of $3.2 million at December 31, 1997 have been recognized in conformity with FASB Statement No. 114 as amended by FASB Statement No. 118. The average recorded investment in impaired loans during the year ended December 31, 1997 was approximately $3.5 million. Impaired loans at December 31, 1996 were $4.0 million. The allowance for loan losses related to these loans was $849 thousand at December 31, 1997 and $1.9 million at December 31, 1996. Interest received on impaired loans amounted to $348 thousand and $458 thousand at December 31, 1997 and 1996, respectively. All non-accrual loans were considered impaired at December 31, 1997. Non-accrual loans not included in impaired loans were immaterial at December 31, 1996. The Bank is permitted, under the laws of the State of Louisiana, to make extensions of credit to its executive officers and directors and their affiliates in the ordinary course of business. An analysis of the aggregate loans, for December 31, 1997 and 1996, are as follows: ($ in thousands) 1997 1996
Balance - Beginning of Year $2,698 $1,955 New Loans 3,455 2,672
Repayments (1,085) (1,929) Balance - End of Year $5,068 $2,698
Maximum Balance During the Year $5,694 $2,796
NOTE F Allowance for Loan Losses
Following is a summary of the activity in the allowance for loan losses:
($ in thousands) 1997 1996 1995
Balance - Beginning of Year $3,083 $3,273 $3,077 Current Provision from Income 1,025 90 - Recoveries on Loans Charged-Off 181 230 634 Loans Charged-Off (2,099) (510) (438) Balance - End of Year $2,190 $3,083 $3,273
Ratio of Allowance for Loan Losses to Impaired Loans at End of Year 67.39% 74.91% 90.92%
Ratio of Allowance for Loan Losses to Loans Outstanding at End of Year 1.47% 2.27% 3.04%
Ratio of Net Loans Charged-Off to Loans Outstanding at End of Year 1.29% 0.20% (.18%)
NOTE G Bank Premises and Equipment
Bank premises and equipment costs and the related accumulated depreciation at December 31, 1997 and 1996, are as follows: ($ in thousands) 1997 1996
Land $3,115 $2,645 Bank Premises 8,743 8,008 Furniture and Equipment 5,588 4,839 17,446 15,492 Accumulated Depreciation (6,609) (5,847) $10,837 $9,645
Depreciation charged to operating expenses for the three years ended December 31, 1997, 1996, and 1995, respectively, was $762 thousand, $679 thousand, and $686 thousand.
NOTE H Deposits
Following is a detail of deposits as of December 31, 1997 and 1996: ($ in thousands) 1997 1996
Non-interest Bearing Accounts $52,015 $45,907 NOW and Super NOW Accounts 24,585 24,273 Insured Money Market Accounts 51,355 56,535 Savings Accounts 31,417 32,181 Certificates of Deposit over $100,000 12,528 12,352 Other Certificates of Deposit 91,757 79,456 Total Deposits $263,657 $250,704
Interest expense on Certificates of Deposit over $100 thousand at December 31, 1997, 1996, and 1995, amounted to $542 thousand, $472 thousand and $387 thousand, respectively. Public Fund deposits at December 31, 1997 and 1996, were $16.2 million and $18.3 million, respectively.
NOTE I Stockholders' Equity and Regulatory Matters
Stockholders' Equity of the Company includes the undistributed earnings of the Bank. Dividends are paid by the Company from its assets which are provided primarily by dividends from the Bank. Dividends are payable only out of retained earnings and current earnings of the Company. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. Louisiana statutes require approval to pay dividends in excess of a state bank's earnings in the current year plus retained net profits for the preceding year. As of January 1, 1998, the Bank had retained earnings of $17.5 million of which $5.2 million was available for distribution without prior regulatory approval.
The company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators, that if undertaken, could have a direct material affect on the Company's financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines involving quantitative measures of assets, liabilities, and certain, off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank's capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios. As detailed below, as of December 31, 1997 and 1996, the Company met all of the capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the Company was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed the prompt corrective action category.
Following is a summary of capital levels at December 31, 1997 and 1996:
Under current regulations, the Bank is limited in the amount it may loan to its parent. Loans to the Parent may not exceed 10% of the Bank's capital and surplus. There were no loans outstanding at December 31, 1997 and 1996.
NOTE J Employee Benefit Plans
The Bank maintains a Salary Deferral Plan qualified under Internal Revenue Service Code Section 401(k) for all employees who are 21 years of age and have completed one year of service. Covered employees may elect to contribute 1% to 15% of gross pay to the plan. The majority of the plans assets are invested in mutual funds. As part of the plan, the Bank has, at its discretion, the ability to match the contributions or make supplemental contributions. No amounts were contributed by the Bank for either 1997 or 1996. The Bank maintains a noncontributory defined benefit pension plan covering all employees who qualify as to age and length of service. Current policy is to fund annual pension costs as they accrue. Pension expense was $151 thousand, $127 thousand and $164 thousand for the years ended December 31, 1997, 1996, and 1995, respectively. The majority of the plans assets are invested in money market funds or mutual funds. The following table sets forth the plan's funded status at December 31, 1997 and 1996.
($ in thousands) 1997 1996 Actuarial Present Value of Benefit Obligations: Vested Benefits $4,266 $3,448 Accumulated Benefits $4,584 $3,681
Projected Benefits ($6,146) ($4,842) Plan Assets at Fair Value 6,204 5,346
Projected Benefit Obligation Less Than (In Excess Of) Plan Assets 58 504 Unrecognized Net (Gain) Loss 336 (1) Unrecognized Net Obligation (Asset) (217) (236) Prepaid Pension Expense $177 $267
Assumptions used in the determination of pension plan information consisted of the following: 1997 1996
Discount Rate 7.00% 7.50% Rate of Increase in Compensation Levels 5.50% 5.50% Expected Long-Term Rate of Return on Plan Assets 9.00% 9.00%
Net pension expense for 1997, 1996, and 1995 included the following components:
The Bank's employee benefit program also includes self- funded health and dental insurance plans for all full-time employees. The costs of these plans are completely funded by the Bank. The employees can also elect to purchase dependent coverage under the plans. The Bank pays a premium to a reinsurer for coverage on losses and claims that exceed $20,000 per individual per plan year. Amounts paid by the Bank in association with these plans totaled $548 thousand and $530 thousand for the years ended December 31, 1997 and 1996, respectively. The Bank had set aside reserves in the amount of $647 thousand for payment of unreported claims with dates of service through December 31, 1997.
NOTE K Other Operating Expenses
The analysis of other operating expenses for the years ended December 31, 1997, 1996, and 1995, are as follows:
NOTE L Income Taxes
The total provision for income taxes charged to income amounted to $2.0 million for 1997, $2.3 million for 1996, and
$2.4 million for 1995. The provisions represent effective tax rates of 33% for 1997 and 31% for 1996 and 1995. Following is a reconciliation between income tax expense based on the federal statutory tax rates and income taxes reported in the statements of income.
The components of consolidated income tax expense (benefits) are:
A deferred income tax asset of $25 thousand and $630 thousand is included in other assets at December 31, 1997 and 1996, respectively. The deferred tax provision (credit) consists of the following timing differences:
The net deferred tax asset consists of the following components at December 31, 1997 and 1996:
($ in thousands) 1997 1996
Depreciation ($346) ($349) Provision for Loan Losses 566 993 Accretion Income (35) (21) Insurance Reserve 178 168 Prepaid Pension (112) (128) Unrealized (Gain) Loss on Securities Available for Sale (226) (33) Total Deferred Tax Asset $25 $630
NOTE M Short-Term Borrowings The Bank maintains an open line of credit with the Federal Home Loan Bank of Dallas. The total line of credit available with Federal Home Loan Bank of Dallas amounts to approximately $9.6 million at December 31, 1997. This amount is computed based on the Bank's stock position less current advances, not to exceed 65% of the Bank's outstanding 1-4 family mortgage loans. The agreement provides for interest based upon the federal funds rate on outstanding balances for short term purposes and a certain spread above the treasury yield curve for longer term advances.
Drawings on the line included in other liabilities, were $1.2 million and $761 thousand at December 31, 1997 and 1996 respectively. The line is collateralized by a blanket lien on 1- 4 family mortgage loans.
NOTE N Off-Balance Sheet Instruments
The Company is a party to financial instruments with off- balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, financial guarantees, and letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. In the normal course of business the Company has made commitments to extend credit of $11.7 million at December 31, 1997. This amount includes unfunded commitments aggregating $11.1 million and letters of credit of $562 thousand.
NOTE O Concentrations of Credit
The Bank's business activities are with customers in the Bank's market area, which consists primarily of the southeast region of the State of Louisiana. Investments in state and municipal securities also involve governmental entities within the Bank's market area. The concentrations of credit by type of loan are shown in Note E. Most of the Bank's credits are to individuals and small businesses secured by real estate. The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of $4 million.
NOTE P Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Short-Term Investments - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities - Fair value of securities held to maturity and available for sale is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans - The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses which was used to measure the credit risk, is subtracted from loans.
Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed- maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the parties. For fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements at the reporting date. The estimated approximate fair values of the Bank's financial instruments as of December 31, 1997 and 1996 are as follows:
($ in thousands) 1997 1996 Carrying Carrying Financial Assets: Amount Fair Value Amount Fair Value Cash and Short-Term Investments $25,265 $25,265 $27,271 $27,271 Securities 114,877 114,877 111,894 111,894 Loans - Net 146,975 147,511 132,776 132,683 $287,117 $287,653 $271,941 $271,848
Financial Liabilities: Deposits $263,657 $263,259 $250,704 $250,175
Unrecognized Financial Instruments Commitments to Extend Credit and Letters of Credit $- $- $- $-
NOTE Q Litigation and Contingencies
During the normal course of business, the Company is involved in various legal proceedings. In the opinion of management and counsel, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements.
NOTE R Parent Company Financial Statements The financial statements for One American Corp. (Parent Company Only) are presented below: BALANCE SHEETS December 31, 1997 and 1996
($ in thousands) 1997 1996 Assets Cash $2,107 $1,699 Receivables from Subsidiaries 20 18 Income Tax Receivable 12 122 Investment in Subsidiaries: First American Bank and Trust 34,397 32,044 One American Agency, Inc. 233 194 34,630 32,238 Total Assets $36,769 $34,077
Liabilities Accrued Dividend Payable $472 $135 Payables to Subsidiaries 42 407 514 542
Stockholders' Equity Common Stock 7,500 7,500 Surplus 5,000 5,000 Retained Earnings 24,382 21,660 Treasury Stock - 148,450 and 148,385 shares at cost (627) (625) Total Stockholders' Equity 36,255 33,535 Total Liabilities and Stockholders' Equity $36,769 $34,077
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosures
Not Applicable.
Part III
Items 10, 11, 12, and 13.
The information required by items 10, 11, 12 and 13 is included in the Company's Proxy Statement, for the 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) Financial Statements
1. The financial statements of One American Corp. in the Company's 1997 Form 10-K are incorporated by reference in Item 8.
2. Other financial statement schedules are either omitted because they are inapplicable or included in the financial statements or related notes.
(b) Reports on Form 8-K
There were no Forms 8-K filed in the quarter ended December 31, 1997.
(c) Exhibits
3. Articles of Incorporation and by-laws of One American Corp. are incorporated by reference to the Company's Registration Statement on Form S-14 filed October 29, 1982, with the Security and Exchange Commission.
22. Subsidiaries of the Registrant First American Bank and Trust, incorporated under the laws of the State of Louisiana
One American Agency, Inc., incorporated under the laws of the State of Louisiana
23. Definitive Proxy Statement for the 1998 Annual Meeting of Stockholders' of One American Corp.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ONE AMERICAN CORP.
/s/ J. B. Falgoust J. B. Falgoust Chairman
Dated March 12, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on March 12, 1998:
/s/ J. B. Falgoust, Chairman (principal executive, financial, and J. B. Falgoust accounting officer) and Director
/s/ Frank J. Bourgeois, President and Director Frank J. Bourgeois
/s/ Craig G. Brazan, Director Craig G. Brazan
/s/ E. V. Cazenave, Jr., Director E. V. Cazenave, Jr.
/s/ Michael J. Cazenave, Director Michael J. Cazenave
/s/ A. Earle Cefalu, Director A. Earle Cefalu
/s/ Dean T. Falgoust, Director Dean T. Falgoust
/s/ Preston L. Falgoust, Director Preston L. Falgoust
/s/ Marcel T. Graugnard, Jr., Director Marcel T. Graugnard, Jr.
/s/ Honora F. Gravois, Director Honora F. Gravois
/s/ Ozane J. Gravois III, Director Ozane J. Gravois III
/s/ Gloria A. Kliebert, Secretary / Treasurer and Director Gloria A. Kliebert
/s/ Anthony J. Nobile, Director Anthony J. Nobile
/s/ Carl J. Poche, M.D., Director Carl J. Poche, M.D.
/s/ David J. Vial, M.D., Director David J. Vial, M.D.
/s/ Craig A. Vitrano, M.D., Director Craig A. Vitrano, M.D.
/s/ Albert J. Waguespack, Director Albert J. Waguespack
One American Corp. Board of Directors
Frank J. Bourgeois Honora F. Gravois 1997 1993 President and CEO, One American President, M & H Builders, Inc. Corp. President and CEO, First Contractor American Bank and Trust
Craig G. Brazan O. J. Gravois III 1986 1996 Marathon Oil Company President, Gravois Farms, Inc. Petroleum Engineer Farmer
E. V. Cazenave. Jr. Gloria A. Kliebert 1986 1997 President, Cazenave Motor Secretary / Treasurer, One company, Inc. American Corp. Retailer Secretary to the Board and Senior Vice President, First American Bank and Trust Michael J. Cazenave 1992 Anthony J. Nobile Eckerd Drugs 1992 Pharmacist Martin, Himel, Peytavin & Nobile Attorney A. Earle Cefalu, Jr. 1997 Carl J. Poche, M.D. Dealer Principal, Hood - Cefalu 1986 Co., Inc. Retailer Coroner of St. James Parish Physician Dean T. Falgoust 1992 David J. Vial, M.D. Freeport-McMoran, Inc. 1991 Director of Taxes, Legal and Coroner of St. Charles Parish Planning Attorney Physician
J. B. Falgoust Craig A. Vitrano, M.D. 1961 1993 Chairman, One American Corp. Physician Chairman, First American Bank and Trust Albert J. Waguespack Preston L. Falgoust 1993 1975 Waguespack Oil Co. and AJW Farms President, Chauvin Business Oil Distributor and Farmer Systems, Inc. Retailer
Marcel T. Graugnard, Jr. President, Graugnard, Inc. Retailer
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) Financial Statements
1. The financial statements of One American Corp. in the Company's 1997 Form 10-K are incorporated by reference in Item 8.
2. Other financial statement schedules are either omitted because they are inapplicable or included in the financial statements or related notes.
(b) Reports on Form 8-K
There were no Forms 8-K filed in the quarter ended December 31, 1997.
(c) Exhibits
3. Articles of Incorporation and by-laws of One American Corp. are incorporated by reference to the Company's Registration Statement on Form S-14 filed October 29, 1982, with the Security and Exchange Commission.
22. Subsidiaries of the Registrant First American Bank and Trust, incorporated under the laws of the State of Louisiana
One American Agency, Inc., incorporated under the laws of the State of Louisiana
23. Definitive Proxy Statement for the 1998 Annual Meeting of Stockholders' of One American Corp.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ONE AMERICAN CORP.
/s/ J. B. Falgoust J. B. Falgoust Chairman
Dated March 12, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on March 12, 1998:
/s/ J. B. Falgoust, Chairman (principal executive, financial, and J. B. Falgoust accounting officer) and Director
/s/ Frank J. Bourgeois, President and Director Frank J. Bourgeois
/s/ Craig G. Brazan, Director Craig G. Brazan
/s/ E. V. Cazenave, Jr., Director E. V. Cazenave, Jr.
/s/ Michael J. Cazenave, Director Michael J. Cazenave
/s/ A. Earle Cefalu, Director A. Earle Cefalu
/s/ Dean T. Falgoust, Director Dean T. Falgoust
/s/ Preston L. Falgoust, Director Preston L. Falgoust
/s/ Marcel T. Graugnard, Jr., Director Marcel T. Graugnard, Jr.
/s/ Honora F. Gravois, Director Honora F. Gravois
/s/ Ozane J. Gravois III, Director Ozane J. Gravois III
/s/ Gloria A. Kliebert, Secretary / Treasurer and Director Gloria A. Kliebert
/s/ Anthony J. Nobile, Director Anthony J. Nobile
/s/ Carl J. Poche, M.D., Director Carl J. Poche, M.D.
/s/ David J. Vial, M.D., Director David J. Vial, M.D.
/s/ Craig A. Vitrano, M.D., Director Craig A. Vitrano, M.D.
/s/ Albert J. Waguespack, Director Albert J. Waguespack
One American Corp. Board of Directors
Frank J. Bourgeois Honora F. Gravois 1997 1993 President and CEO, One American President, M & H Builders, Inc. Corp. President and CEO, First Contractor American Bank and Trust
Craig G. Brazan O. J. Gravois III 1986 1996 Marathon Oil Company President, Gravois Farms, Inc. Petroleum Engineer Farmer
E. V. Cazenave. Jr. Gloria A. Kliebert 1986 1997 President, Cazenave Motor Secretary / Treasurer, One company, Inc. American Corp. Retailer Secretary to the Board and Senior Vice President, First American Bank and Trust Michael J. Cazenave 1992 Anthony J. Nobile Eckerd Drugs 1992 Pharmacist Martin, Himel, Peytavin & Nobile Attorney A. Earle Cefalu, Jr. 1997 Carl J. Poche, M.D. Dealer Principal, Hood - Cefalu 1986 Co., Inc. Retailer Coroner of St. James Parish Physician Dean T. Falgoust 1992 David J. Vial, M.D. Freeport-McMoran, Inc. 1991 Director of Taxes, Legal and Coroner of St. Charles Parish Planning Attorney Physician
J. B. Falgoust Craig A. Vitrano, M.D. 1961 1993 Chairman, One American Corp. Physician Chairman, First American Bank and Trust Albert J. Waguespack Preston L. Falgoust 1993 1975 Waguespack Oil Co. and AJW Farms President, Chauvin Business Oil Distributor and Farmer Systems, Inc. Retailer
Marcel T. Graugnard, Jr. President, Graugnard, Inc. Retailer