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, 2002 Commission File Number 2-89559
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, Louisiana 70791-0497
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code 225 654 2701
None
(Former name, former address and former fiscal
year if changed 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, $10 par value, 193,667 shares outstanding as of June 30, 2002.
I N D E X
Financial Statements:
Consolidated Balance Sheets - June 30, 2002,
December 31, 2001 and June 30, 2001 2
Consolidated Statements of Income - for the three and
six months ended June 30, 2002 and 2001 3
Consolidated Statements of Changes in Stockholders'
Equity - for the six months ended June 30,
2002 and 2001 4
Consolidated Statements of Cash Flows -
for the six months ended June 30, 2002 and 2001 5-6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-12
Part II - Other Information 13
Signatures 13
Management's Responsibility for Financial Reporting 14
Independent Accountant's Report 15
1
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
June 30, 2002, December 31, 2001 and June 30, 2001
($ in Thousands)
(UNAUDITED) (UNAUDITED)
June 31, December 31, June 31,
2002 2001 2001
ASSETS
Cash and Due from Banks $ 2,715 $ 2,719 $ 2,923
Interest Bearing Deposits in
Other Institutions 23 33 36
Reserve Funds Sold 2,850 925 5,450
Securities Available for Sale
(Amortized Cost $38,027,
$31,025 and $21,234 37,638 31,249 21,447
Total Loans 55,345 58,720 61,598
Less: Allowance for Loan Losses (1,237) (1,297) (1,257)
Net Loans 54,108 57,423 60,341
Bank Premises and Equipment 3,570 3,557 3,746
Other Real Estate Owned 114 28 -
Accrued Interest Receivable 609 602 566
Other Assets 60 178 171
Total Assets $101,687 $96,714 $94,680
LIABILITIES
Deposits:
Noninterest Bearing $18,889 $18,370 $19,674
Interest Bearing 70,576 66,704 63,755
Total Deposits 89,465 85,074 83,429
Accrued Interest Payable 172 207 247
Other Liabilities 279 116 203
Total Liabilities 89,916 85,397 83,879
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 8,321 7,976 7,467
Accumulated Other Comprehensive
Income (Loss) 257 148 141
Treasury Stock (22,333 Shares at Cost) (447) (447) (447)
Total Stockholders' Equity 11,771 11,317 10,801
Total Liabilities and
Stockholders' Equity $101,687 $96,714 $94,680
The accompanying notes are an integral part of these financial statements.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and six months ended June 30, 2002 and 2001
($ in Thousands) except per share data
(UNAUDITED) (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Interest Income:
Interest and Fees on Loans $1,091 $1,367 $2,301 $2,762
Interest on Securities 463 256 898 488
Other Interest Income 26 111 53 221
Total Interest Income 1,580 1,734 3,252 3,471
Interest Expense:
Interest Expense on Deposits 480 704 1,002 1,413
Interest Expense on Borrowings - - - -
Total Interest Expense 480 704 1,002 1,413
Net Interest Income 1,100 1,030 2,250 2,058
Provision for Loan Losses 92 60 166 119
Net Interest Income After
Provision for Loan Losses 1,008 970 2,084 1,939
Non Interest Income:
Service Charges on Deposit Accounts 179 169 350 329
Gain (Loss) on Sale of Assets - 4 - 4
Other Operating Income 78 50 146 103
Total Other Income 257 223 496 436
Income before Other Expenses 1,265 1,193 2,580 2,375
Other Expenses:
Salaries and Employee Benefits 468 451 927 893
Occupancy Expense 74 70 128 126
Equipment Expense 156 100 240 196
Net Other Real Estate Expense 1 (12) (22) (12)
Other Operating Expenses 168 245 419 458
Total Other Expenses 867 854 1,692 1,661
Income before Income Taxes 398 339 888 714
Applicable Income Taxes 136 118 300 244
Net Income $ 262 $ 221 $ 588 $ 470
Per Share:
Net Income $ 1.35 $ 1.14 $3.04 $2.43
The accompanying notes are an integral part of these financial statements.
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the six months ended June 31, 2002 and 2001
($ in Thousands)
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE TREASURY TOTAL
STOCK SURPLUS EARNINGS INCOME(LOSS) STOCK EQUITY
Balances,
January 1, 2001 $2,160 $1,480 $7,219 $ (9) $(447) $10,403
Comprehensive Income:
Net Income 470 470
Change in Unrealized
Gain (Loss) on Securities
Available for Sale 154 154
Less: Reclassification Adjustment (4) (4)
Total Comprehensive Income 620
Cash Dividends (222) (222)
Balances,(Unaudited)
June 30, 2001 $2,160 $1,480 $7,467 $ 141 $(447) $10,801
Balances,
January 1, 2002 $2,160 $1,480 $7,976 $ 148 $(447) $11,317
Comprehensive Income:
Net Income 588 588
Change in Unrealized
Gain (Loss) on Securities
Available for Sale 109 109
Less: Reclassification Adjustment - -
Total Comprehensive Income 697
Cash Dividends (243) (243)
Balances, (Unaudited)
June 30, 2002 $2,160 $1,480 $8,321 $ 257 $(447) $11,771
The accompanying notes are an integral part of these financial statements.
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and 2001
($ in Thousands)
(UNAUDITED)
June 30,
2002 2001
Cash Flows From Operating Activities:
Net Income $ 588 $ 470
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Deferred Tax Benefit (Increase) - (2)
Provision for Loan Losses 166 119
Provision for Depreciation and Amortization 141 158
Stock Dividends - Federal Home Loan Bank (3) (5)
Net Amortization of Securities 35 1
(Gain) on Sale of Other Real Estate (24) (13)
(Gain) on Call of Securities - (4)
(Increase) in Accrued Interest Receivable (7) (18)
(Increase)Decrease in Other Assets 73 (31)
Increase (Decrease) in Accrued Interest Payable (35) (11)
Increase in Other Liabilities 152 9
Net Cash Provided by Operating Activities 1,086 673
Cash Flows From Investing Activities:
Net (Increase)Decrease in Reserve Funds Sold (1,925) 1,500
Purchases of Securities Available for Sale (13,614) (13,141)
Purchase of FNBB Equity Stock (105) -
Maturities or Calls of Securities Available for Sale 5,600 5,500
Principal Payments on Mortgage-Backed Securities 1,863 761
Net (Increase) Decrease in Loans 3,043 920
Purchases of Premises and Equipment (154) (16)
Proceeds from Sales of Other Real Estate 44 13
Net Cash Provided by (Used in)
Investing Activities (5,248) (4,463)
(CONTINUED)
5
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
For the six months ended June 30, 2002 and 2001
($ in Thousands)
(UNAUDITED)
June 30,
2002 2001
Cash Flows From Financing Activities:
Net Increase in Demand Deposits,
NOW Accounts and Savings Accounts 1,434 1,552
Net Increase in Certificates of Deposits 2,957 2,610
Cash Dividends (243) (222)
Net Cash Provided by Financing Activities 4,148 3,940
Increase (Decrease) in Cash and Cash Equivalents (14) 150
Cash and Cash Equivalents -
Beginning of Period 2,752 2,809
Cash and Cash Equivalents -
End of Period $2,738 $2,959
Supplemental Disclosures of Cash Flow Information:
Noncash Investing Activities:
Change in Unrealized Gain or (Loss)
on Securities Available for Sale $ 165 $ 226
Change in Deferred Tax Effect on
Unrealized Gain or (Loss) on Securities
Available for Sale $ 56 $ 77
Other Real Estate Acquired in
Settlement of Loans $ 106 $ -
Cash Payments For:
Interest Paid on Deposits $1,037 $1,423
Income Tax $ 364 $ 268
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, 2002 and 2001
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, 2002 are no indication of the expected results for the annual
period which ends December 31, 2002. Additional information concerning the
audited financial statements and notes can be obtained from Zachary Bancshares,
Inc's annual report and Form 10KSB filed for the period ended December 31, 2001.
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 inter-company 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 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
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.
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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
the market conditions, liquidity needs or changes in general economic
conditions. Securities classified as trading are those securities held
for resale in anticipation of short-term market movements. The Bank had
no securities classified as held to maturity or trading at June 30, 2002 or
2001.
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 amortized cost of specific securities sold, are included in
earnings.
LOANS
Loans are stated at principal amounts outstanding, less the allowance 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. Subsequent cash
receipts on non-accrual loans are accounted for on the cost recovery method,
until principal and interest amounts contractually due are brought current
and future payments are reasonably assured. 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. Impairment
is measured on a loan by loan basis by either 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.
8
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 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 collection
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
using the straight-line methods 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 foreclosure or
negotiated settlement. The carrying value of these properties is the 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
9
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 carry forwards 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 subsidiary file a consolidated federal income tax return.
In addition, the Company in accordance with state statutes files a Louisiana
state income tax return.
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, 2002, 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 basis EPS was 193,667 for the periods ended June 30,
2002 and 2001, respectively.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents includes 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 Statement
of Changes in Stockholder's Equity for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2002, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 01-6. SOP 01-6 provides industry
specific guidance and disclosure requirements regarding the accounting for
certain transactions by banks, savings institutions and other entities that lend
to or finance the activities of others. This pronouncement provides guidance
concerning the recognition and measurement of loans, credit losses, investments
in Federal Home Loan Bank or Federal Reserve Bank stock, deposit accounts, and
purchases and sales of securities. SOP 01-6 is effective for annual and interim
financial statements for fiscal years beginning after December 15, 2001. The
Company has adopted the provisions of SOP 01-6 effective January 1, 2002. The
adoption of SOP 01-6 did not have a material impact on the Company's financial
position or results of operations as of June 30, 2002.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ($ in Thousands)
June 30, 2002
The following is management's discussion and analysis of the significant
changes in income and expenses in relation to the changes in financial
position for the six months ended June 30, 2002 and 2001. This information
should be read in conjunction with the financial statements and 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
LOANS
Total loans were $55,345 at June 30, 2002 compared to $61,598 at June
30, 2001. This represents a decrease of $6,253 or 10%. Interim loan
repayments and loans being refinanced accounted for the decrease in total
loans along with a slowdown in the general economy.
INVESTMENT SECURITIES
Investment securities increased 75% to $37,638 at June 30, 2002 compared
to $21,447 at June 30, 2001. A combination of reinvesting short term funds
into longer securities, the decrease in loan volume and an increase in deposits
all contributed to this increase.
FED FUNDS SOLD/INTEREST BEARING DEPOSITS
Fed funds sold decreased to $2,850 at June 30, 2002 from $5,450 at
June 30, 2001. Interest bearing deposits at other banks decreased from
$36 at June 30, 2001 to $23 at June 30, 2002. Both of these accounts
decreased as the funds were reinvested in long term investment securities in
order to lower the excess liquidity.
DEPOSITS
Total deposits increased $6,036 to $89,465 at June 30, 2002 compared to
$83,429 at June 30, 2001 as the bank was able to attract new checking, savings
and certificate accounts from individuals and commercial customers. The
general decline in the market value of equity stock portfolios during 2001 and
2002 led some customers to deposit funds in FDIC insured accounts instead of
keeping those funds in the stock market.
RESULTS OF OPERATION
For the six month period ended June 30, 2002 over 2001
NET INCOME
Net Income was $588 for the six month period ended June 30, 2002
compared to $470 in the same period in 2001. This change was primarily due
to an decrease in interest expense to $1,002 at June 30, 2002 from $1,413 at
June 30, 2001 offset by a decrease in interest income.
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INTEREST INCOME
Interest Income for the six month period ended June 30, 2002 decreased
6% to $3,252 compared to $3,471 for the same period in 2001. The interest
income decrease resulted primarily from the Company's decrease in loan volume
and the general reduction in investment interest rates during 2001 and 2002.
INTEREST EXPENSE
Total interest expense for the six months ended June 30, 2002 was
$1,002, compared to $1,413 for the six month period ended June 30, 2001.
NonInterest bearing deposits decreased 4% to $18,889 at June 30, 2002 from
$19,674 at June 30, 2001. Interest bearing deposits increased $6,821 or 11% to
$70,576 at June 30, 2002 from $63,755 at June 30, 2001.
PROVISION FOR LOAN LOSSES
The Company included $166 for provision for loan losses during the six
month period ended June 30, 2002 compared to $119 at June 30, 2001. Loans are
reviewed monthly to facilitate identification and monitoring of potentially
deteriorating credit. Management considers the current allowance adequate to
absorb potential losses but continues to closely monitor the situation.
TOTAL OTHER INCOME
Total other income for the six month period ended June 30, 2002
increased $60 compared to June 30, 2001. The 2002 results included an
increase in service charges on deposit accounts of $11 and other operating
income increased $43.
TOTAL OTHER EXPENSE
Total other expenses increased slightly to $1,692 at June 30, 2002
from $1,661 at June 30, 2001. Employee salaries and benefits increased $34 for
the six month period under consideration as the Bank increased pay 5% for
all non officer employees at January 1, 2002 and hospitalization insurance
expense increased $19. Net other real estate owned expense showed a credit
balance of $22 at June 30, 2002 resulting from the gain on sale of three
properties compared to a credit of $12 at June 30, 2001.
INCOME TAX
The Company is fully taxable at the maximum rate (34%) in both 2002 and
2001 and expects to remain taxable throughout 2002.
EARNINGS PER SHARE
The Company's 2002 earnings per share at June 30, 2002 were $3.04 compared to
$2.43 per share the previous year, primarily due to lower interest expense on
deposits incurred thus far in the present year.
DIVIDENDS
The Company paid a cash dividend on June 24, 2002 of $1.25 per share compared
to the $1.15 per share paid at the same time in 2001.
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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
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 07, 2002 /s/Harry S. Morris, Jr.
Harry S. Morris, Jr.
President
/s/J. Larry Bellard
J. Larry Bellard
Treasurer
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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 principles and include some
amounts that are necessarily based on management'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, objectivity,
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 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, Zachary Bancshares, Inc.
has a professional 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 independent public
accountants to review matters relating to financial reporting, 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, 2001, were examined by Hannis T.
Bourgeois, LLP, independent public accountants, who rendered an independent
professional opinion on the financial statements prepared by management. The
financial statements, as of June 30, 2002, have been reviewed by Hannis T.
Bourgeois, LLP.
/s/J. Larry Bellard
J. Larry Bellard
Treasurer
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INDEPENDENT ACCOUNTANT'S REPORT
August 7, 2002
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, 2002 and 2001, and the
related Consolidated Statements of Income for the three and six month periods
then ended, and the related Consolidated Statement 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 9, 2002 on the Consolidated Balance Sheet of Zachary
Bancshares, Inc. and Subsidiary as of December 31, 2001.
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,
/s/HANNIS T. BOURGEOIS, LLP
HANNIS T. BOURGEOIS, LLP
Baton Rouge, Louisiana
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