SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10 - QSB Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter ended June 30, 2000 Commission File Number 13397 Zachary Bancshares, Inc. (Exact name of registrant as specified in its charter) Louisiana 72-0981148 (State of or other jurisdiction (I.R.S. Employer Incorporation of organization) or Identification No.) 4743 Main Street Post Office Box 497 Zachary, LA 70791-0497 (Address of principal executive office) (Zipcode) Registrant's telephone number, including area code 225 654 2701 NONE (Former name, former address and former fiscal year of change since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $10 par value, 193,667 shares outstanding as of June 30, 2000. I N D E X Financial Statements: Consolidated Balance Sheets - June 30, 2000, December 31, 1999 and June 30, 1999 2 Consolidated Statements of Income - for the three and six months ended June 30, 2000 and 1999 3 Consolidated Statements of Changes in Stockholders' Equity - for the six months ended June 30, 2000 and 1999 4 Consolidated Statements of Cash Flows - for the six months ended June 30, 2000 and 1999 5-6 Notes to Consolidated Financial Statements 7-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 Part II - Other Information 14 Signatures 15 Management's Responsibility for Financial Reporting 16 Independent Accountant's Report 17 1 Zachary Bancshares, Inc. and Subsidiary CONSOLIDATED BALANCE SHEETS June 30, 2000, December 31, 1999 and June 30, 1999 ($ in Thousands) ASSETS (UNAUDITED) (UNAUDITED) JUNE 30, DECEMBER 31, JUNE 30, 2000 1999 1999 Cash and Due from Banks $2,954 $ 3,161 $ 3,227 Interest Bearing Deposits in Other Institutions 11 29 1,740 Reserve Funds Sold 2,100 1,425 2,950 Securities Available for Sale (Amortized Cost $15,789, $15,876 and $18,371) 15,320 15,433 18,132 Loans 63,014 61,252 56,656 Less: Allowance for Loan Losses (1,078) (965) (913) 61,936 60,287 55,743 Bank Premises and Equipment 4,025 4,157 4,271 Accrued Interest Receivable 517 502 537 Other Assets 346 301 168 Total Assets $ 87,209 $85,295 $86,768 LIABILITIES Deposits: Noninterest Bearing $ 19,566 $17,848 $18,997 Interest Bearing 56,417 55,718 58,388 75,983 73,566 77,385 Borrowed Funds 1,000 2,000 - Accrued Interest Payable 202 194 196 Other Liabilities 242 122 159 Total Liabilities 77,427 75,882 77,740 STOCKHOLDERS' EQUITY Common Stock - $10 Par Value; Authorized 2,000,000 Shares; Issued 216,000 Shares, Respectively 2,160 2,160 2,160 Surplus 1,480 1,480 1,480 Retained Earnings 6,899 6,513 5,993 Accumulated Other Comprehensive Income (310) (293) (158) Treasury Stock (22,333 Shares at Cost) (447) (447) (447) Total Stockholders' Equity 9,782 9,413 9,028 Total Liabilities and Stockholders' Equity $87,209 $85,295 $86,768 The accompanying notes are an integral part of these financial statements. 2 Zachary Bancshares, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF INCOME for the three and six months ended June 30, 2000 and 1999 ($ in Thousands, except per share data) (UNAUDITED) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 Interest Income: Interest and Fees on Loans $1,413 $1,248 $2,817 $2,428 Interest on Securities 259 261 508 523 Other Interest Income 31 78 79 150 Total Interest Income 1,703 1,587 3,404 3,101 Interest Expense: Interest Expense on Deposits 587 563 1,147 1,107 Interest Expense on Borrowings 18 - 42 - Total Interest Expense 605 563 1,189 1,107 Net Interest Income 1,098 1,024 2,215 1,994 Provision for Loan Losses 70 45 129 89 Net Interest Income After Provision for Loan Losses 1,028 979 2,086 1,905 Other Income: Service Charges on Deposit Accounts 154 122 297 239 Other Operating Income 51 43 97 83 Total Other Income 205 165 394 322 Income before Other Expenses 1,233 1,144 2,480 2,227 Other Expenses: Salaries and Employee Benefits 449 391 901 769 Occupancy Expense 83 49 161 97 Net Other Real Estate Expense (60) 1 (82) 82 Other Operating Expenses 291 286 593 548 Total Other Expenses 763 727 1,573 1,496 Income before Income Taxes 470 417 907 731 Applicable Income Taxes 160 142 308 248 Net Income $ 310 $ 275 $ 599 $ 483 Per Share: Net Income $ 1.60 $ 1.42 $ 3.09 $ 2.49 Cash Dividends $ 1.10 $ 1.00 $ 1.10 $ 1.00 The accompanying notes are an integral part of these financial statements. 3 Zachary Bancshares, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the six months ended June 30, 2000 and 1999 ($ in Thousands) ACCUMULATED OTHER TOTAL COMMON RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS' STOCK SURPLUS EARNINGS INCOME STOCK EQUITY Balances, January 1, 1999 $2,160 $1,480 $5,704 $ 6 $(447) $8,903 Comprehensive Income: Net Income 483 483 Change in Unrealized Gain (Loss) on Securities Available for Sale (164) (164) Less: Reclassification Adjustment - - Total Comprehensive Income 319 Cash Dividends (194) (194) Balances, (Unaudited) June 30, 1999 $2,160 $1,480 $5,993 $ (158) $(447) $9,028 Balances, January 1, 2000 $2,160 $1,480 $6,513 $ (293) $(447) $9,413 Comprehensive Income: Net Income 599 599 Change in Unrealized Gain (Loss) on Securities Available for Sale (17) (17) Less: Reclassification Adjustment - - Total Comprehensive Income 582 Cash Dividends (213) (213) Balances, (Unaudited) June 30, 2000 $2,160 $1,480 $6,899 $ (310) $(447) $9,782 The accompanying notes are an integral part of these financial statements. 4 Zachary Bancshares, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS for the six months ended June 30, 2000 and 1999 ($ in Thousands) (UNAUDITED) JUNE 30 2000 1999 Cash Flows From Operating Activities: Net Income $ 599 $ 483 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses 129 89 Provision for Depreciation and Amortization 165 104 Stock Dividends - Federal Home Loan Bank (21) (5) Net Amortization (Accretion) of Securities (11) 16 Charge Off of Other Real Estate - 93 Gain on Sale of Other Real Estate (85) (11) (Increase) in Accrued Interest Receivable (15) (19) (Increase) Decrease in Other Assets (35) 145 Increase (Decrease) in Accrued Interest Payable 8 (36) Increase (Decrease) in Other Liabilities 120 (42) Net Cash Provided by Operating Activities 854 817 Cash Flows From Investing Activities: Net(Increase)Decrease in Reserve Funds Sold (675) 3,225 Purchase of Securities Available for Sale (969) (8,786) Maturities or Calls of Securities Available for Sale 500 6,000 Principal Payments on Mortgaged Back Securities 588 1,968 Net Increase in Loans (1,778) (4,319) Purchases of Premises and Equipment (33) (1,307) Proceeds from Sales of Other Real Estate 85 110 Net Cash Used in Investing Activities (2,282) (3,109) (CONTINUED) 5 (UNAUDITED) JUNE 30, 2000 1999 Cash Flows From Financing Activities: Decrease in Borrowed Funds (1,000) - Net Increase in Demand Deposits, NOW Accounts and Savings Accounts 2,352 3,637 Net Increase in Certificate of Deposit 64 (702) Cash Dividends (213) (194) Net Cash Provided by Financing Activities 1,203 2,741 Increase (Decrease) in Cash and Cash Equivalents (225) 449 Cash and Cash Equivalents - Beginning of Period 3,190 4,518 Cash and Cash Equivalents - End of Period $ 2,965 $ 4,967 Supplemental Disclosures of Cash Flow Information: Noncash Investing Activities: Change in Unrealized Gain or (Loss) on Securities Available for Sale $ (26) $ (248) Change in Deferred Tax Effect on Unrealized Gain or (Loss) on Securities Available for Sale $ ( 9) $ 84 Cash Payments For: Interest Paid on Deposits $ 1,139 $ 1,143 Income Tax $ 334 $ 315 The accompanying notes are an integral part of these financial statements. 6 Zachary Bancshares, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2000 and 1999 Summary of Significant Accounting Policies - The accounting principles followed by Zachary Bancshares, Inc. and its wholly-owned Subsidiary, Bank of Zachary, 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. Presentation The accompanying unaudited consolidated interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles. Management is of the opinion that the unaudited interim financial statements reflect all normal, recurring accrual adjustments necessary to provide a fair statement of the results for the interim periods presented. It is noted that the results for the first six months ended June 30, 2000 are no indication of the expected results for the annual period which ends December 31, 2000. Additional information concerning the audited financial statements and notes can be obtained from Zachary Bancshares, Inc.'s annual report and Form 10-KSB filed for the period ended December 31, 1999. Principles of Consolidation The consolidated financial statements include the accounts of Zachary Bancshares, Inc. (the Company), and its wholly-owned subsidiary, Bank of Zachary (the Bank). All material intercompany accounts 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 gener ally accepted accounting principles requires management to make esti mates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank's loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent on local economic conditions. 7 While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated. Securities 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 gen eral economic conditions. Securities classified as trading are those securities held for resale in anticipation of short-term market move ments. The Bank had no securities classified as held to maturity or trading at June 30, 2000 or 1999. Securities classified as available for sale are those debt securi ties 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. Secu rities 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. Loans Loans are stated at principal amounts outstanding, less the allow ance for loan losses. Interest on commercial and individual loans is accrued daily based on the principal outstanding. 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. The Bank classifies loans as impaired if, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the loan's observable market price or based on the fair value of the collateral if the loan is collateral- dependent. Allowance for Loan Losses The allowance for loan losses is maintained at a level which in management's judgment is adequate to absorb credit losses inherent in the loan portfolio. The 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 8 factors. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. 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 un likely. 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 using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting. 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. Cost of major additions and improvements are capitalized. Other Real Estate Other real estate is comprised of properties acquired through fore closure or negotiated settlement. The carrying value of these prop erties is lower of cost or fair value, minus estimated costs to sell. 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 Net 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. 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 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 9 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 corporation and its subsidiary file a consolidated federal income tax return. In addition, state income tax returns are filed in dividually by the Company in accordance with state statutes. Earnings per Common Share Basic EPS is computed by dividing income applicable to common shares by the weighted average shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At June 30, 2000, the Company had no convertible shares or other contracts to issue common stock. The weighted average number of shares of common stock used to calculate basic EPS was 193,667 for the periods ended June 30, 2000 and 1999, respectively. Statements of Cash Flows For purposes of reporting cash flows, cash and cash equivalents in cludes cash and due from banks and interest bearing deposits in other banks. Comprehensive Income Components of comprehensive income are revenues, expenses, gains, and losses that under GAAP are included in comprehensive income but excluded from net income. The components of comprehensive income are disclosed in the Statements of Changes in Stockholder's Equity for all periods presented. 10 Zachary Bancshares, Inc. and Subsidiary MANAGEMENT'S DISCUSSION June 30, 2000 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of the signifi cant changes in income and expenses in relation to the changes in fi nancial position for the six months ended June 30, 2000 and 1999. This information should be read in conjunction with the financial statements and the notes relating thereto. The Company is unaware of any trends, uncertainties or events which would or could have a material impact on future operating results, liquidity or capital. FINANCIAL CONDITION ANALYSIS - Unaudited - ($ in Thousands) Loans Total loans were $63,014 at June 30, 2000 compared to $56,656 at June 30, 1999. This represents an increase of $6,358 or 11%. Loan growth was funded from reallocation of investment securities as they matured and from deposit growth. Investment Securities Investment securities decreased 16% to $15,320 at June 30, 2000 compared to $18,132 at June 30, 1999. This decrease was due to the reallocation of these funds to the loan portfolio as the securities matured, and payments made on the building contract discussed below. Bank Premises and Equipment Total bank premises and equipment were $4,025 at June 30, 2000 compared to $4,271 at June 30, 1999. The Company completed a contract totaling $2,921 for the construction of a new main office facility located in Zachary, Louisiana. Construction began in March, 1998 and was completed during the second quarter of 1999. 11 Deposits Total deposits decreased $1,402 or 2% to $75,983 at June 30, 2000 compared to $77,385 at June 30, 1999 as the bank bid less aggressively on public funds that were renewing. RESULTS OF OPERATION For the Six Month Period Ended June 30, 2000 over 1999 Net Income Net Income was $599 for the six month period ended June 30, 2000 compared to $483 in the same period in 1999. This change was primarily due to an 11% increase in net interest income offset by a 5% increase in other overhead expense. The Company moved into their new building during the latter part of the second quarter of 1999 which has resulted in additional occupancy expenses primarily depreciation compared to the prior period. Interest Income Interest Income for the six month period ended June 30, 2000 increased 10% to $3,404 compared to $3,101 for the same period in 1999. The interest income increase resulted from the Company's continued asset mix reallocation from lower yielding securities to higher yielding loans. The bank's loan portfolio increased 11% to $63,014 while its investment portfolio decreased 16% to $15,320 in the time period under consideration. Interest Expense Interest Expense for the six months ended June 30, 2000 was $1,189 or an increase of 7% over the same period in 1999 at $1,107. Non-interest bearing deposits increased $569 to $19,566 at June 30, 2000 from $18,997 at June 30, 1999. Interest bearing deposits decreased to $56,417 at June 30, 2000 from $58,388 as the bank bid less aggressively on public fund CDs than in the past. Weighted average deposit rates increased to 3.10% at June 30, 2000 from 2.97% at June 30, 1999 as interest rate hikes in the general U.S. economy have led to higher rates in the local market for CDs. Provision for Loan Losses The Company included $129 for provision for loan losses during the six month period ended June 30, 2000 due to continued increases in the loan portfolio and the beginnings of tightening in the general economy. Loans are reviewed to facilitate identification and monitoring of potentially deteriorating credit. Management considers the current allowance adequate to absorb potential losses but continues to monitor the situation very closely. 12 Total Other Expense Total Other Expenses increased 5% or $77 to $1,573 at June 30, 2000 from $1,496 at June 30, 1999. Employee salaries and benefits increased $132 for the six months ended June 30, 2000 compared to the same period in 1999. Salary increases, new hires, and increased hospitalization insurance and retirement expenses all contributed to this increase. Occupancy expense increased $64 for the period reviewed as the Company occupied its new building resulting in additional depreciation expense along with other overhead expenses relating to a larger facility. Income Tax The Company's income is fully taxable at the maximum rate (34%) both in 2000 and 1999 and expects to remain taxable at the current rate throughout 2000. Earnings Per Share The Company's 2000 earnings per share at June 30, 2000 was $3.09 compared to $2.49 per share the previous year. Year 2000 Issues The Year 2000 threshold was crossed without any problems encountered to date that effected significantly the Company's liquidity, capital resources, or results of operation. The Company will remain vigilant for the remainder of the year 2000 for any undiscovered date change problems. This discussion entitled "Year 2000 Issues" includes certain "forward looking statements" within the meaning of the Private Securities Litigation Act of 1995 (PSLA). This statement is included for the purpose of availing the Company of the protections of the safe harbor provisions of the PSLA. Management's ability to predict the results of the effects of Year 2000 issues is inherently uncertain and subject to factors that may cause actual results to materially differ from those anticipated. Factors that could affect actual results include the possibility that contingency plans and remediation efforts will not operate as intended, the Bank's failure to timely or completely identify all software and hardware applications that require remediation, unexpected costs, and the general uncertainty associated with the impact of Year 2000 issues on the banking industry, the Bank's customers, vendors, and others with whom it conducts business. Readers are cautioned not to place undue reliance on these forward looking statements. 13 PART II Item l. LEGAL PROCEEDINGS 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. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. None 14 SIGNATURES Pursuant to the requirement of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZACHARY BANCSHARES, INC. Date: August 11, 2000 /s/ Harry S. Morris, Jr. Harry S. Morris, Jr. President /s/ Larry Bellard Larry Bellard Treasurer 15 Management's Responsibility for Financial Reporting The management of Zachary Bancshares, Inc. is responsible for the preparation of the financial statements, related financial data and other information in this quarterly report. The financial statements are prepared in accordance with generally accepted accounting princi ples and include some amounts that are necessarily based on manage ment's informed estimates and judgments, with consideration given to materiality. All financial information contained in this quarterly report is consistent with that in the financial statements. Management fulfills its responsibility for the integrity, objec tivity, consistency and fair presentation of the financial statements and 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 author ized and recorded in accordance with established policies and proce dures. 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, Zachary Bancshares, Inc. has a profes sional staff who monitors compliance with and assesses the effectiveness of the system of internal accounting controls and coordinates 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 indepen dent public accountants to review matters relating to financial report ing, internal accounting control 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, 1999 were examined by Hannis T. Bourgeois, LLP, independent public accountants, who rendered an independent professional opinion. The financial statements as of June 30, 2000 were reviewed by Hannis T. Bourgeois, LLP. Larry Bellard, Treasurer 16 INDEPENDENT ACCOUNTANT'S REPORT August 08, 2000 To the Shareholders and Board of Directors Zachary Bancshares, Inc. and Subsidiary Zachary, Louisiana We have reviewed the accompanying Consolidated Balance Sheets of Zachary Bancshares, Inc. and Subsidiary as of June 30, 2000 and 1999, and the related Consolidated Statements of Income for the three and six month periods then ended, and the related Consolidated Statements of Changes in Stockholders' Equity and Cash Flows for the six month periods then ended. We previously audited and expressed our unqualified opinion in our report dated January 7, 2000 on the Consolidated Balance Sheet of Zachary Bancshares, Inc. and Subsidiary as of December 31, 1999. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. Respectfully submitted, HANNIS T. BOURGEOIS, LLP Baton Rouge, Louisiana 17