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 March 31, 1996 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.)
4700 Main Street
Post Office Box 497
Zachary, LA 70791-0497
(Address of principal executive office) (Zipcode)
Registrant's telephone number, including area code 504 654 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 March 31,
1996.
I N D E X
Financial Statements:
Consolidated Balance Sheets -
March 31, 1996, December 31, 1995 and March 31, 1995 2
Consolidated Statements of Income -
for the three months ended March 31, 1996 and 1995 3
Consolidated Statements of Changes in Stockholders' Equity -
for the three months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
for the three months ended March 31, 1996 and 1995 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 14
Report of Independent Accountant 15
Management's Responsibility for Financial Reporting 16
1
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
March 31, 1996, December 31, 1995 and March 31, 1995
ASSETS
(UNAUDITED) (UNAUDITED)
MARCH 31, DECEMBER 31, MARCH 31,
1996 1995 1995
Cash and Due from Banks $ 2,839,834 $ 2,312,940 $ 2,897,855
Interest Bearing Deposits in
Other Institutions 1,105,255 100,102 -
Reserve Funds Sold 5,800,000 2,700,000 4,300,000
Securities Available for Sale
(Amortized Cost $31,333,679,
$30,016,679 and $29,962,977) 31,227,248 30,074,648 29,225,343
Loans $31,577,859 $30,427,051 $29,908,522
Less: Allowance for Loan Losses (822,481) (820,000) (828,579)
$30,755,378 $29,607,051 $29,079,943
Bank Premises and Equipment 921,562 935,552 915,496
Other Real Estate 454,374 451,770 563,369
Accrued Interest Receivable 542,250 584,547 448,659
Other Assets 124,736 103,825 377,296
Total Assets $73,770,637 $66,870,435 $67,807,961
LIABILITIES
Deposits:
Noninterest Bearing $12,451,227 $11,980,278 $11,836,607
Interest Bearing 53,557,318 47,376,247 49,179,263
$66,008,545 $59,356,525 $61,015,870
Accrued Interest Payable 171,778 170,278 143,051
Other Liabilities 328,201 176,225 303,994
Total Liabilities $66,508,524 $59,703,028 $61,462,915
STOCKHOLDERS' EQUITY
Common Stock - $10 Par Value;
Authorized 2,000,000 Shares;
Issued 216,000 Shares,
Respectively $ 2,160,000 $ 2,160,000 $ 2,160,000
Surplus 1,480,000 1,480,000 1,480,000
Retained Earnings 4,142,317 3,935,807 3,638,545
Unrealized Gain (Loss) on Securities
Available for Sale, Net (73,544) 38,260 (486,839)
Treasury Stock - 22,333 Shares,
at Cost (446,660) (446,660) (446,660)
Total Stockholders' Equity $ 7,262,113 $ 7,167,407 $ 6,345,046
Total Liabilities and
Stockholders' Equity $73,770,637 $66,870,435 $67,807,961
See accountant's report and accompanying notes.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1996 and 1995
(UNAUDITED)
MARCH 31,
1996 1995
Interest Income:
Interest and Fees on Loans $ 656,087 $ 608,464
Interest on Securities 461,944 474,091
Other Interest Income 61,844 64,347
Total Interest Income $1,179,875 $1,146,902
Interest Expense on Deposits 475,357 424,187
Net Interest Income $ 704,518 $ 722,715
Provision for Loan Losses - -
Net Interest Income after
Provision for Loan Losses $ 704,518 $ 722,715
Other Income:
Service Charges on Deposit Accounts $ 121,855 $ 128,764
Gain (Loss) on Securities - (11,537)
Other Operating Income 21,323 16,745
Total Other Income $ 143,178 $ 133,972
Income before Other Expenses $ 847,696 $ 856,687
Other Expenses:
Salaries and Employee Benefits $ 326,748 $ 320,197
Occupancy Expense 43,758 38,962
Net Other Real Estate Expense (11,018) 5,693
Other Operating Expenses 186,770 226,403
Total Other Expenses $ 546,258 $ 591,255
Income before Income Taxes $ 301,438 $ 265,432
Applicable Income Taxes 94,928 87,412
Net Income $ 206,510 $ 178,020
Per Share:
Net Income $ 1.07 $ .92
See accountant's report and accompanying notes.
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the three months ended March 31, 1996 and 1995
(UNAUDITED)
MARCH 31,
1996 1995
Common Stock:
Balance - Beginning and End of Period $2,160,000 $2,160,000
Surplus:
Balance - Beginning and End of Period $1,480,000 $1,480,000
Retained Earnings:
Balance - Beginning of Period $3,935,807 $3,460,525
Net Income 206,510 178,020
Balance - End of Period $4,142,317 $3,638,545
Net Unrealized Gain (Loss) on Securities
Available for Sale:
Balance - Beginning of Period $ 38,260 $ (975,394)
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale (111,804) 488,555
Balance - End of Period $ (73,544) $ (486,839)
Treasury Stock:
Balance - Beginning and End of Period $ (446,660) $ (446,660)
See accountant's report and accompanying notes.
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(UNAUDITED)
MARCH 31,
1996 1995
Cash Flows From Operating Activities:
Net Income $ 206,510 $ 178,020
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Provision for Depreciation and
Amortization 23,675 29,355
Stock Dividends on Federal Home Loan
Bank Stock (3,400) -
Amortization (Accretion) of
Securities Premiums (Discounts) 15,681 17,578
Loss on Sale of Securities - 11,537
Gain on Sale of Other Real Estate (12,971) -
(Increase) Decrease in Interest
Receivable 42,297 104,758
(Increase) Decrease in Other Assets 36,685 (45,643)
Increase (Decrease) in Interest
Payable 1,500 17,940
Increase (Decrease) in Other
Liabilities 151,976 104,351
Net Cash Provided by Operating
Activities $ 461,953 $ 417,896
Cash Flows From Investing Activities:
Net (Increase) Decrease in Reserve
Funds Sold $(3,100,000) $(2,200,000)
Purchases of Securities (1,487,109) -
Proceeds from Maturities of Securities 152,828 153,277
Proceeds from Sales of Securities - 1,017,500
Net Increase in Loans (1,167,931) (1,658,546)
Purchases of Premises and Equipment (9,685) (35,386)
Proceeds from Sales of Other Real Estate 29,971 -
Net Cash Used in Investing
Activities $(5,581,926) $(2,723,155)
(CONTINUED)
5
(UNAUDITED)
MARCH 31,
1996 1995
Cash Flows From Financing Activities:
Net Increase in Demand Deposits,
NOW Accounts and Savings Accounts $ 7,492,123 $ 1,009,953
Net Increase (Decrease) in Certificates
of Deposit (840,103) 1,601,096
Net Cash Provided by Financing
Activities $ 6,652,020 $ 2,611,049
Increase in Cash and Due from Banks $ 1,532,047 $ 305,790
Cash and Due from Banks - Beginning of
Period 2,413,042 2,592,065
Cash and Due from Banks - End of Period $ 3,945,089 $ 2,897,855
Supplemental Disclosures of Cash Flow
Information:
Noncash Investing Activities:
Other Real Estate Acquired in
Settlement of Loans $ 19,604 $ -
Increase (Decrease) in Unrealized
Gain (Loss) on Securities Available
for Sale $ (169,400) $ 740,235
Increase (Decrease) in Deferred Tax
Effect on Unrealized Gain on
Securities Available for Sale $ (57,596) $ 251,680
Cash Payments for:
Interest Paid on Deposits $ 473,857 $ 406,247
See accountant's report and accompanying notes.
6
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996 and 1995
Note A - 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 princi-
ples which significantly affect the determination of financial posi-
tion, results of operations, changes in stockholders' equity and cash
flows are summarized below.
Presentation
The accompanying unaudited consolidated interim financial state-
ments do not include all of the information and footnotes required by
generally accepted accounting principles. Management is of the opin-
ion that the following 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 of the first three months ended March 31, 1996
are no indication of the expected results for the annual period which
ends December 31, 1996. Additional information concerning the audit-
ed financial statements and notes can be obtained from Zachary
Bancshares, Inc.s annual report and Form 10-K filed for the period
ended December 31, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of
Zachary Bancshares, Inc. (the Company), and its wholly-owned subsid-
iary, 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 general-
ly 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 reported amounts of revenues
and expenses during the period. Actual results could differ from
those estimates.
7
Securities
Securities are being accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for In-
vestments in Debt and Equity Securities, which requires the classi-
fication 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 regard-
less of changes in 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 holds no securities classified as held to matu-
rity or trading.
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 stockhold-
ers' 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 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.
The Bank discontinues the accrual of interest income when a loan
becomes 90 days past due as to principal or interest. Interest on
impaired loans is discontinued when, in managements opinion the
borrower may be unable to meet payments as they become due. When a
loan is placed on non-accrual status, previously recognized but uncol
lected 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 port-
folio. 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 man-
agement's evaluation of specific loans; the level and composition of
classified loans; historical loss experience; results of examinations
8
by regulatory agencies; an internal asset review process; expecta-
tions 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 esti-
mates. 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 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. Cost of major additions and improvements are capital-
ized.
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 market value. 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 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 on 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 dif-
ferences. Temporary differences are the differences between the re-
ported amounts of assets and liabilities and their tax bases.
9
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 as
sets 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
individually by Company 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 193,667 in 1996
and 1995.
Statements of Cash Flows
For purposes of reporting cash flows, cash and due from banks in-
cludes cash on hand and amounts due from banks (including cash items
in process of clearing).
Current Accounting Developments
In December, 1991, the Financial Accounting Standards Board issued
Statement No. 107, "Disclosures about Fair Value of Financial Instru-
ments." This statement requires disclosure of the fair value of
financial instruments, both assets and liabilities, whether or not
such instruments are recognized in the balance sheet. As it relates
to the Company, financial instruments include primarily cash equiva-
lents, securities, loans, and deposits. SFAS No. 107 was adopted by
the Company for the fiscal year ended December 31, 1995.
During the first quarter of 1995 the Company adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan", and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures". The Statements generally
require impaired loans to be measured on the present value of expect-
ed 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 accor-
dance with the terms of the loan agreement. The effect of these
statements on the financial statements of the Company was immaterial.
10
Zachary Bancshares, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION
March 31, 1996
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 three months ended March 31, 1996 and 1995.
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 materi-
al impact on future operating results, liquidity or capital.
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 OVER 1995
NET INCOME
Net Income for the three month period ended March 31, 1996 as compared
to the respective period in 1995 increased $28,310 or 16% to $206,510
from $178,020. The increase is attributable to a 7.6% decrease in
operating expenses.
INTEREST INCOME
Interest Income for the three month period ended March 31, 1996 is
$1,179,875, a 28% increase over the same period in 1995. The interest
income increase resulted from the Corporation's asset mix reallocation
from lower yielding securities to higher yielding loans. The subsidia-
ry's loan portfolio increased 5.5% and the investment portfolio de-
creased 6.8% in the time period under consideration.
INTEREST EXPENSE
Interest Expense for the quarter ended March 31, 1996 was $475,357, a
12% increase over the same quarter in 1995. Interest bearing deposits
increased 8.8% from March 1995. Both volume and rates contributed to
the net interest expense change.
PROVISION FOR LOSSES
The Corporation did not make a first quarter provision for loss in 1996
or 1995. The Corporation's Watch List volumes were stable in the last
half of 1995 and to date in 19965. Management does not anticipate any
unusual Watch List changes. Management remains committed to providing
for losses in a timely manner.
11
TOTAL OTHER INCOME
Total Other Income for the time period under consideration increased
$9,206 or 6.8%. The Corporation in 1995, sold investment securities at
a net loss of $11,537; no similar gain or loss on sale of investment
securities occurred in the first quarter of 1996. The 1995 loss on
Security Sales allowed the Corporation to reinvest in assets that will
improve future earnings.
TOTAL OTHER EXPENSES
Expenses at March 1996, decreased 7.6% or $44,997 to $546,258 from
$591,255 at March 1995. Employee benefits increased 2% from March
1995 to 1996. Regulatory assessments decreased 89% or $35,206 in 1996.
INCOME TAXES
The Corporation is fully taxable at the maximum rate (34%) in both 1996
and 1995 and expects to remain taxable at the current rate throughout
1996.
12
PART II
Item 6. EXHIBITS AND REPORT
a. The following exhibit is filed as a part of this report.
EXHIBIT 15 - Report of Independent Accountants
13
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: May 09, 1996
Harry S. Morris, Jr.
President
Mark Thompson
Treasurer
14
April 30, 1996
Independent Accountant's Report
To the 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 March 31, 1996 and 1995,
and the related Consolidated Statements of Income and Cash Flows for
the three month periods then ended in accordance with Statements on
Standards for Accounting and Review Services issued by the American
Institute of Certified Public Accountants.
We previously audited and expressed our unqualified opinion in our
report dated January 12, 1996, on the Consolidated Balance Sheet of
Zachary Bancshares, Inc. and Subsidiary as of December 31, 1995.
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 finan-
cial 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 modifica-
tions that should be made to the accompanying consolidated financial
statements for them to be in conformity with generally accepted ac-
counting principles.
Respectfully submitted,
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 effective-
ness 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, 1995 were examined by
Hannis T. Bourgeois & Co., L.L.P., independent public accountants, who
rendered an independent professional opinion on the financial state-
ments prepared by management. The financial statements as of March 31,
1996 have been reviewed by Hannis T. Bourgeois & Co., L.L.P. in accor-
dance with standards established by the American Institute of Certified
Public Accountants.
_______________________________
Mark Thompson, Treasurer and
Chief Financial Officer
16