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 September 30, 1996 Commission File Number 0-13397
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, Louisiana 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 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 September
30, 1996.
I N D E X
Financial Statements:
Consolidated Balance Sheets - September 30, 1996,
December 31, 1995 and September 30, 1995 2
Consolidated Statements of Income - for the three and
nine months ended September 30, 1996 and 1995 3
Consolidated Statements of Changes in Stockholders'
Equity - for the nine months ended September 30,
1996 and 1995 4
Consolidated Statements of Cash Flows - for the nine
months ended September 30, 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
September 30, 1996, December 31, 1995 and September 30, 1995
ASSETS
(UNAUDITED) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
Cash and Due from Banks $ 2,659,566 $ 2,312,940 $ 2,055,660
Interest Bearing Deposits in
Other Institutions 109,998 100,102 -
Reserve Funds Sold 1,000,000 2,700,000 4,300,000
Securities Available for Sale
(Amortized Cost $32,656,590,
$30,016,679 and $29,290,140) 32,407,357 30,074,648 29,093,865
Loans 36,129,291 30,427,051 30,843,988
Less: Allowance for Loan
Losses (821,673) (820,000) (834,927)
35,307,618 29,607,051 30,009,061
Bank Premises and Equipment 1,275,971 935,552 941,400
Other Real Estate 408,181 451,770 532,239
Accrued Interest Receivable 549,432 584,547 539,529
Other Assets 252,147 103,825 172,927
Total Assets $73,970,270 $66,870,435 $67,644,681
LIABILITIES
Deposits:
Noninterest Bearing $12,114,141 $11,980,278 $11,265,238
Interest Bearing 53,874,633 47,376,247 46,965,937
65,988,774 59,356,525 58,231,175
FHLB Borrowings - - 2,000,000
Accrued Interest Payable 176,507 170,278 170,155
Other Liabilities 367,006 176,225 323,020
Total Liabilities 66,532,287 59,703,028 60,724,350
STOCKHOLDERS' EQUITY
Common Stock - $10 Par Value;
Authorized 2,000,000 Shares;
Issued 216,000 Shares, Respec-
tively 2,160,000 2,160,000 2,160,000
Surplus 1,480,000 1,480,000 1,480,000
Retained Earnings 4,409,137 3,935,807 3,856,532
Unrealized Gain (Loss) on Secur-
ities Available for Sale, Net (164,494) 38,260 (129,541)
Treasury Stock (22,333 Shares
at Cost) (446,660) (446,660) (446,660)
Total Stockholders' Equity 7,437,983 7,167,407 6,920,331
Total Liabilities and
Stockholders' Equity $73,970,270 $66,870,435 $67,644,681
See accountant's report and accompanying notes.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and nine months and ended September 30, 1996 and 1995
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
Interest Income:
Interest and Fees on
Loans $ 759,907 $ 660,047 $2,113,922 $1,919,115
Interest on Securities 534,075 450,533 1,521,876 1,389,558
Other Interest Income 13,137 52,744 114,056 172,294
Total Interest Income 1,307,119 1,163,324 3,749,854 3,480,967
Interest Expense on Deposits 544,562 481,088 1,558,404 1,364,186
Net Interest Income 762,557 682,236 2,191,450 2,116,781
Provision for (Recovery of)
Loan Losses - - - (16,169)
Net Interest Income
After Provision for
(Recovery of)
Loan Losses 762,557 682,236 2,191,450 2,132,950
Other Income:
Service Charges on Deposit
Accounts 120,109 121,162 372,285 386,806
Gain (Loss) on Securities (64) - (64) (22,950)
Other Operating Income 21,293 15,144 57,659 43,809
Total Other Income 141,338 136,306 429,880 407,665
Income before Other
Expenses 903,895 818,542 2,621,330 2,540,615
Other Expenses:
Salaries and Employee
Benefits 337,900 314,571 1,007,486 983,411
Occupancy Expense 4,796 45,607 139,538 128,340
Net Other Real Estate
Expense 2,863 4,728 (10,122) 10,421
Other Operating Expenses 249,949 188,342 564,379 631,591
Total Other Expenses 595,508 553,248 1,701,281 1,753,763
Income before Income
Taxes 308,387 265,294 920,049 786,852
Applicable Income Taxes 104,100 91,175 301,469 264,962
Net Income $ 204,287 $ 174,119 $ 618,580 $ 521,890
Per Share:
Net Income $ 1.05 $ .90 $ 3.19 $ 2.69
Cash Dividends $ - $ - $ .75 $ .65
See accountant's report and accompanying notes.
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the nine months ended September 30, 1996 and 1995
(UNAUDITED)
SEPTEMBER 30,
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 618,580 521,890
Cash Dividends (145,250) (125,883)
Balance - End of Period $4,409,137 $3,856,532
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 (202,754) 845,853
Balance - End of Period $ (164,494) $ (129,541)
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 nine months ended September 30, 1996 and 1995
(UNAUDITED)
SEPTEMBER 30,
1996 1995
Cash Flows From Operating Activities:
Net Income $ 618,580 $ 521,890
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Provision for (Recovery of) Loan
Losses - (16,169)
Provision for Depreciation and
Amortization 74,143 88,498
Stock Dividends on Federal Home Loan
Bank Stock (9,800) -
Net (Accretion) Amortization of
Securities (Discounts) Premiums 22,901 42,738
(Gain) Loss on Sale of Securities 64 22,950
Gain on Sale of Other Real Estate (12,971) -
(Increase) Decrease in Accrued
Interest Receivable 35,115 13,888
(Increase) Decrease in Other
Assets (43,877) (25,335)
Increase (Decrease) in Accrued
Interest Payable 6,229 45,044
Increase (Decrease) in Other
Liabilities 190,781 123,377
Net Cash Provided by Operating
Activities 881,165 816,881
Cash Flows From Investing Activities:
(Increase) Decrease in Interest Bearing
Deposits in Other Institutions (9,896) -
Net (Increase) Decrease in Reserve
Funds Sold 1,700,000 (2,200,000)
Purchases of Securities Available for
Sale (11,348,331) (2,234,194)
Maturities or Calls of Securities Available
for Sale 6,000,000 1,530,315
Principal Paydowns on Mortgage-Backed
Securities 670,883 -
Proceeds from Sales of Securities 2,024,375 2,510,920
Net (Increase) Decrease in Loans (5,720,171) (2,571,495)
Purchases of Premises and
Equipment (414,562) (120,433)
Proceeds from Sales of Other
Real Estate 76,164 31,130
Net Cash Used in Investing
Activities (7,021,538) 3,053,757
(CONTINUED)
5
(UNAUDITED)
SEPTEMBER 30,
1996 1995
Cash Flows From Financing Activities:
Increase in FHLB Borrowings - 2,000,000
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and
Savings Accounts 5,108,134 (1,036,303)
Net Increase (Decrease) in Certificates
of Deposit 1,524,115 862,657
Cash Dividends (145,250) (125,883)
Net Cash Provided by Financing
Activities 6,486,999 1,700,471
Increase (Decrease) in Cash and Due
from Banks 346,626 (536,405)
Cash and Due from Banks - Beginning of
Period 2,312,940 2,592,065
Cash and Due from Banks - End of Period $ 2,659,566 $ 2,055,660
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 $ (307,202) $ 1,281,594
Increase (Decrease) in Deferred Tax
Effect on Unrealized Gain on
Securities Available for Sale $ 104,448 $ (437,947)
Cash Payments For:
Interest Paid on Deposits $ 1,552,175 $ 1,319,142
Income Tax Payments $ 284,000 $ 294,081
See accountant's report and accompanying notes.
6
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 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
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 nine months ended September
30, 1996 are no indication of the expected results for the annual
period which ends December 31, 1996. Additional information con-
cerning 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, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of
Zachary Bancshares, Inc. (the Company), and its wholly-owned sub-
sidiary, 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
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 dif-
fer from those estimates.
7
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 securi-
ties 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. Securities classified as
trading are those securities held for resale in anticipation of
short-term market movements. The Bank holds no securities classi-
fied as held to maturity or trading.
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 secu-
rity classified as available for sale would be based on various fac
tors, 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 stockhold
ers' equity, net of the reported deferred tax effect. Realized
gains or losses, determined on the basis of the costs 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 management's 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
uncollected interest is reversed to income or charged to the allow-
ance 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
8
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 by regulatory agencies; an internal asset review pro-
cess; 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 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
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 estimat-
ed useful service lives using the straight-line method for financial
reporting purposes and accelerated methods for income tax purpos-
es.
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
foreclosure or negotiated settlement. The carrying value of these
properties is lower of cost or fair value. Loan losses arising from
the acquisition of these properties are charged against the allow-
ance 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 munic-
ipal securities is excluded. Also certain items of income and ex-
penses are recognized in different time periods for financial state-
ment purposes than for income tax purposes. Thus provisions for
deferred taxes are recorded in recognition of such timing differenc-
es.
9
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 tax-
able temporary differences. Temporary differences are the differ-
ences 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 corporation and its subsidiary file a consolidated federal
income tax return. In addition, state income tax returns are filed
individually by the 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 for all
periods presented.
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).
10
Zachary Bancshares, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION
September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 nine months ended September 30, 1996 and
1995. This information should be read in conjunction with the finan-
cial statements and 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 NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
OVER 1995
NET INCOME
Net Income for the nine month period ended September 30, 1996,
as compared to the respective period of 1995, increased 18% or $96,690.
The Company's increased income resulted from increased net interest
income and lower operating expenses.
INTEREST INCOME
Interest Income for the nine month period ended September 30,
1996 was $3,749,854, an increase of $268,887 over the same period in
1995.
Net loans for the nine month period ended September 30, 1996, as
compared to the respective period in 1995, increased $5,298,557 to
$35,307,618. Loan income increased $194,807 or 10% to $3,113,925 for
the nine months ended September 30, 1996 from $1,919,115 for the nine
months ended September 30, 1995. Loan volume resulted in the 1996
income increase.
Securities and other interest bearing assets (excluding loans)
as of September 30, 1996 increased $123,490 compared to the similar
time period in 1995. Securities and other interest bearing accounts
interest income in the first nine months of 1996 increased $74,080.
The income increase is a result of increased yield.
INTEREST EXPENSE
Interest Bearing Liabilities increased by $6,908,696 or 15% from
September 30, 1995 to September 30, 1996. Interest Expense in the
similar time period increased $194,218 or 14%. The Subsidiary's depos-
it liabilities are short-term; therefore, reflective of current market
rates. The Subsidiary borrowed $2,000,000 from the Federal Home Loan
Bank of Dallas in July 1995 and repaid the loan on October 3, 1995.
This loan was to satisfy short funding requirements.
11
PROVISION FOR LOSSES
In the first nine months of 1996, the Company had no loan loss
provision, compared to a $16,169 negative loan loss provision in the
similar time period in 1995.
OTHER INCOME
Total Other Income for the time period under consideration in-
creased $22,215 or 5%. The 1995 Loss on Sale of Securities was $22,950,
compared to the current year's loss on sale of $64.07. Management vol-
untarily sold securities at a loss in both periods, to either improve
asset quality and/or to enhance future earnings. Other components of
Other Income experienced little change.
OTHER EXPENSES
Total Other Expenses have decreased $52,482 or 3%, totaling
$1,701,281 in 1996. Components of 1996 Other Expenses and the percent-
age change in the specific categories are: employee benefits (insur-
ance, salaries and retirement) up 2% and general operating expenses
(postage, telephone, data processing, printing, supplies, etc) down 11%
and occupancy expense up 9%. The Subsidiary's Federal Deposit Insur-
ance Corp. premium decreased $70,444 in 1995. This decrease is
reflected in the general operating expense category.
APPLICABLE INCOME TAXES
The Company is fully taxable in both 1996 and 1995. Amounts
expensed in the referenced time periods are $301,469 and $264,962 re-
spectively. The Company expects to be fully taxable in the future.
12
PART II
Item 6. EXHIBITS AND REPORTS
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: November 11, 1996
Harry S. Morris, Jr.
President
Mark Thompson
Treasurer
14
October 9, 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 September 30, 1996 and
1995, and the related Consolidated Statements of Income and Cash
Flows for the nine month periods then ended all in accordance with
standards established by the American Institute of Certified Pub-
lic 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 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 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,
/s/ HANNIS T. BOURGEOIS & CO., L.L.P.
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
autho-
ized and recorded in accordance with established policies and proce-
dures. The concept of reasonable assurance is based on the recogni-
tion 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
inde-
pendent 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 pres-
ent.
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
September 30, 1996 have been reviewed by Hannis T. Bourgeois & Co.,
L.L.P. in accordance with standards established by the American In-
stitute of Certified Public Accountants.
Mark Thompson, Treasurer
and Chief Financial Officer
16