ZACHARY BANCSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
President's Message...................................... 2
Independent Auditor's Report............................. 3
Consolidated Balance Sheets
December 31, 1996 and 1995.............................
4
Consolidated Statements of Income
for the years ended December 31, 1996 and 1995.........
5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996
and 1995............................................... 6
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995................. 7-8
Notes to Consolidated Financial Statements
December 31, 1996 and 1995............................. 9-22
Condensed Consolidated Balance Sheets
December 31, 1996, 1995, 1994, 1993 and 1992...........
23
Condensed Consolidated Statements of Income
for the years ended December 31, 1996, 1995, 1994,
1993 and 1992.......................................... 23
Average Balance Sheets and Interest Rate Analysis
for the years ended December 31, 1996 and 1995.........
24
Interest Differential
for the year ended December 31, 1996...................
25
Condensed Consolidated Statements of Income
for the quarter periods in the years ended
December 31, 1996 and 1995............................. 25
Management's Discussion and Results of Operation......... 26-30
Officers................................................. 31
Board of Directors....................................... 31
Bank Locations........................................... 31
1
ZACHARY BANCSHARES, INC.
March 18, 1997
Dear Shareholders:
Zachary Bancshares, Inc. had income of $819,326 in 1996 as compared to
$765,783 in 1995. Our Board of Directors again increased our cash dividend
per share from $1.50 to $1.65 in 1996 and our return on average equity was
11.50%.
The Bank's total assets increased from $66,870,435 as of December 31, 1995
to $76,027,427 as of December 31, 1996. Our loan to deposit ratio increased
from 49.88% in 1995 to 53.45% in 1996. Total loans grew from $29,607,051
to $36,439,826 in 1996.
On April 11, 1996, Chairman of the Board, Leonard F. Aguillard, retired
after having served on the Board for nearly fourteen years. We thank Mr.
Aguillard for his many years of loyal and dedicated service. Mr. Russell
Bankston was elected our new Board Chairman.
Zachary's Super Wal-Mart and Payless Shoes opened this past year as well as
Blockbuster Video, Radio Shack, Friedman's Jewelry, and Romancing the
Home having recently opened. Ryan's Steakhouse, Adobe Western Store, a
Tobacco Shop, China Wok, and a General Nutritional Center will be opening
soon. There are three new golf courses that are considering building in and
around Zachary. There is also a motel and movie theater looking at possible
locations in Zachary.
In 1996, the Bank made available brokerage services through Specialized
Investments. Michael Word, Specialized Investment Division Broker, has
gotten off to a good start in 1996. This service has help increase Bank
profits and put us in a situation to offer services even better than the large
bank competitors.
The Bank, with all the growth in our area, has decided to sell our present
land and buildings to the City of Zachary and build a new two story building
on our three acres across the street from our present main office. We hope
these new facilities will help us better serve our customers and allow us to
grow with Zachary, Central and the Feliciana's.
Thank you for your support of the Bank and its employees. When you are
near the Bank, stop by and let us tell you about our many new services, and
show you what the new Bank will look like.
Sincerely,
Harry S. Morris, Jr.
President
2
HANNIS T. BOURGEOIS & CO., L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
2322 TREMONT DRIVE, SUITE 200
BATON ROUGE, LA 70809
1 (504) 928 4770
January 14, 1997
To the Shareholders
and Board of Directors
Zachary Bancshares, Inc. and Subsidiary
Zachary, Louisiana
We have audited the accompanying Consolidated Balance Sheets of Zachary
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related Consolidated Statements of Income, Changes in Stockholders' Equity
and Cash Flows for the yea rs then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant esti
mates made by management, as well as evaluating the overall financial state
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Zachary Bancshares, Inc. and
Subsidiary as of December 31, 1996 and 1995, and the results of their
operations, changes in their stockholders' equity and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Respectfully submitted,
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
Cash and Due from Banks - Note B $ 3,654,801 $ 2,312,940
Interest Bearing Deposits in Other
Institutions 111,469 100,102
Reserve Funds Sold 850,000 2,700,000
Securities Available for Sale (Amortized
Cost of $32,554,647 and $30,016,679) -
Note C: 32,528,819 30,074,648
Loans - Note D $37,260,053 $30,427,051
Less: Allowance for Loan Losses - Note E (820,227) (820,000)
$36,439,826 $29,607,051
Bank Premises and Equipment - Note F 1,339,439 935,552
Other Real Estate 408,181 451,770
Accrued Interest Receivable 612,568 584,547
Other Assets 82,324 103,825
Total Assets $76,027,427 $66,870,435
LIABILITIES
Deposits - Note G:
Noninterest Bearing $12,327,349 $11,980,278
Interest Bearing 55,841,920 47,376,247
$68,169,269 $59,356,525
Accrued Interest Payable 185,288 170,278
Other Liabilities 60,994 176,225
Total Liabilities $68,415,551 $59,703,028
STOCKHOLDERS' EQUITY
Common Stock - $10 par value;
authorized 2,000,000 shares;
issued 216,000 shares - Note H $ 2,160,000 $ 2,160,000
Surplus 1,480,000 1,480,000
Retained Earnings 4,435,582 3,935,807
Unrealized Gain (Loss) on Securities
Available for Sale, Net - Note C (17,046) 38,260
Treasury Stock - 22,333 Shares,
at Cost (446,660) (446,660)
Total Stockholders' Equity 7,611,876 7,167,407
Total Liabilities and Stockholders'
Equity $76,027,427 $66,870,435
The accompanying notes are an integral part of these financial statements.
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996 and 1995
1996 1995
Interest Income:
Interest and Fees on Loans $2,938,522 $2,626,956
Interest on Securities 2,033,691 1,832,056
Other Interest Income 147,658 225,118
Total Interest Income $5,119,871 $4,684,130
Interest Expense on Deposits -
Note G 2,125,503 1,795,453
Interest Expense on Borrowings 777 1,406
Total Interest Expense $2,126,280 $1,826,859
Net Interest Income 2,993,591 2,857,271
Provision (Credit) for Loan
Losses - Note E - (77,374)
Net Interest Income after
Provision for Loan Losses $2,993,591 $2,934,645
Other Income:
Service Charges on Deposit
Accounts $ 501,746 $ 512,017
Gain (Loss) on Securities - Note C (64) (22,950)
Other Operating Income 99,311 53,597
Total Other Income $ 600,993 $ 542,664
Income before Other Expenses $ 3,594,584 $3,477,309
Other Expenses:
Salaries and Employee Benefits -
Note I $1,375,678 $1,360,468
Occupancy Expense 195,399 162,470
Net Other Real Estate Expense (1,053) (5,147)
Other Operating Expenses - Note J 792,365 808,223
Total Other Expenses $2,362,389 $2,326,014
Income before Income Taxes $1,232,195 $1,151,295
Applicable Income Tax - Note K 412,869 385,512
Net Income $ 819,326 $ 765,783
Per Share - Note H:
Net Income $ 4.23 $ 3.95
Cash Dividends $ 1.65 $ 1.50
The accompanying notes are an integral part of these financial statements.
5
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
1996 1995
Common Stock:
Balance - Beginning and End
of Year $ 2,160,000 $ 2,160,000
Surplus:
Balance - Beginning and End
of Year $ 1,480,000 $ 1,480,000
Retained Earnings:
Balance - Beginning of Year $ 3,935,807 $ 3,460,525
Net Income 819,326 765,783
Cash Dividends (319,551) (290,501)
Balance - End of Year $ 4,435,582 $3,935,807
Net Unrealized Gain (Loss) on Securities
Available for Sale:
Balance - Beginning of Year $ 38,260 $ (975,394)
Net Change in Unrealized Gain
on Securities Available for Sale (55,306) 1,013,654
Balance - End of Year $ (17,046) $ 38,260
Treasury Stock:
Balance - Beginning and End of Year $ (446,660) $ (446,660)
The accompanying notes are an integral part of these financial statements.
6
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
1996 1995
Cash Flows From Operating Activities:
Net Income $ 819,326 $ 765,783
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision (Credit) for Loan Losses - (77,374)
Provision for Depreciation 104,763 112,122
Provision (Credit) for Deferred Tax 108,776 (8,267)
Amortization (Accretion) of Securities
Premiums (Discounts) 16,195 60,613
Dividends on FHLB Stock (13,100) (5,300)
(Gain) Loss on Sale of Securities 64 22,950
Gain on Sale of Other Real Estate (12,971) (21,344)
(Increase) Decrease in Interest
Receivable (28,021) (31,130)
(Increase) Decrease in Other Assets 2,210 (34,409)
Increase (Decrease) in Interest Payable 15,010 45,167
Increase (Decrease) in Other Liabilities (176,225) (23,418)
Net Cash Provided by Operating
Activities $ 836,027 $ 805,393
Cash Flows From Investing Activities:
Net (Increase) Decrease in Interest Bearing
Deposits in Other Institutions $ (11,367) $ (100,102)
Net (Increase) Decrease in Reserve
Funds Sold 1,850,000 (600,000)
Purchases of Securities (13,412,708) (4,252,138)
Proceeds from Maturities of Securities 8,847,206 2,809,145
Proceeds from Sale of Securities 2,024,375 2,510,920
Net (Increase) Decrease in Loans (6,852,379) (2,108,280)
Purchases of Premises and Equipment (508,650) (138,209)
Sales of Other Real Estate 76,164 132,943
Net Cash Used in Investing
Activities $ (7,987,359) $(1,745,721)
(CONTINUED)
7
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
for the years ended December 31, 1996 and 1995
1996 1995
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and Savings
Accounts $ 6,565,247 $(1,608,097)
Net Increase in Certificates of
Deposit 2,247,497 2,559,801
Cash Dividends (319,551 (290,501)
Net Cash Provided by Financing
Activities $ 8,493,193 $ 661,203
Increase (Decrease) in Cash and Due
from Banks $ 1,341,861 $ (279,125)
Cash and Due from Banks - Beginning of 2,312,940 2,592,065
Cash and Due from Banks - End of Year $ 3,654,801 $ 2,312,940
Supplemental Disclosures of Cash Flow
Information:
Noncash Investing Activities:
Other Real Estate Acquired
(Disposed) in Settlement of Loans $ 19,604 $ -
Change in Unrealized Gain (Loss) on
Securities Available for Sale $ (83,797) $ 1,535,838
Change in Deferred Tax Effect on
Unrealized Gain (Loss) on Securities
Available for Sale $ 28,491 $ 522,184
Cash Payments for:
Interest Paid on Deposits $ 2,110,493 $ 1,750,286
Income Tax Payments $ 329,000 $ 440,093
The accompanying notes are an integral part of these financial statements.
8
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 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 principles which significantly affect
the determination of financial position, results of operations, changes in
stockholders' equity and cash flows are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts of
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 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.
Securities
Securities are being accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Investments in Debt and Equity Securities," which requires the classification
of securities as held to maturity, trading, or available for sale.
Securities classified as held to maturity are those debt securities the
Bank has both the intent and ability to hold to maturity regardless of changes
in market conditions, liquidity needs or changes in general economic
conditions. 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 December 31, 1996.
9
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 lia
bilities, 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 stock
holders' 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 allowance
for loan losses. Interest on commercial loans is accrued daily based on the
principal outstanding.
Impaired loans are being accounted for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors
for Impairment of a Loan" as amended by Statement No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure".
The statements generally require impaired loans to be measured on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or as an expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent.
A loan is impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due in accordance with
the terms of the loan agreement. Interest on impaired loans is discounted
when, in management's opinion, the borrower may be unable to meet payments
as they become due. Generally, the Bank discontinues the accrual of interest
income when a loan becomes 90 days past due as to principal or interest. When
a loan is placed on non-accrual status, previously recognized but uncollected
interest is reversed to income or charged to the allowance for loan losses.
Interest income is subsequently recognized only to the extent cash payments
are received.
Allowance for Loan Losses
The allowance for loan losses is an amount which in management's
judgment is adequate to absorb potential losses in the loan portfolio. The
allowance for loan losses is based upon management's review and evaluation of
the loan portfolio. Factors considered in the establishment of the allowance
for loan losses include management's evaluation of specific loans; the level
and composition of classified loans; historical loss experience; results of
examinations by regulatory agencies; an internal asset review process;
expectations of future economic conditions and their impact on particular
borrowers; and other judgmental factors.
10
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 collecti
bility 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 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 capitalized.
Other Real Estate
Other real estate is comprised of properties acquired through
foreclosure or negotiated settlement. The carrying value of these properties
is lower of cost or fair market value. Loan losses arising from the acquisi
tion 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 tem
porary 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.
11
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
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
The Financial Accounting Standards Board has issued Statement No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement becomes effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The statement generally requires that after a
transfer of financial assets, an entity would recognize all financial assets
and servicing it controls and liabilities it has incurred, and would not re
cognize financial assets when control has been extinguished. The Bank
has not addressed the potential future impact of the application of this
statement.
Note B - Cash and Due from Banks -
The Bank is required by state law to maintain average cash reserve
balances. The amounts of those required reserves at December 31, 1996 and
1995 were approximately $655,000 and $480,000, respectively.
Note C - Securities -
Amortized cost amounts and fair values of securities available for sale at
December 31, 1996 and 1995 are summarized as follows:
(CONTINUED)
12
1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
U.S. Treasury
Securities $ 4,952,334 $ 27,067 $ (971) $ 4,978,430
Securities of Other
U.S. Government
Agencies 17,492,767 85,815 (22,743) 17,555,839
Mortgage-Backed
Securities 3,211,309 36,852 - 3,248,161
Collateralized
Mortgage Obliga-
tions 6,671,137 - (151,848) 6,519,289
Equity Securities 227,100 - - 227,100
Total $32,554,647 $ 149,734 $ (175,562) $32,528,819
1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
U.S. Treasury
Securities $ 3,999,167 $ 20,464 $ (13,061) $4 ,006,570
Securities of Other
U.S. Government
Agencies 14,073,850 142,885 (2,885) 14,213,850
Mortgage-Backed
Securities 3,936,765 71,047 - 4,007,812
Collaterized
Mortgage
Obligations 7,792,897 - (160,481) 7,632,416
Equity Securities 214,000 - - 214,000
Total $30,016,679 $ 234,396 $ (176,427) $30,074,648
The amortized cost and fair values of securities available for sale as of
December 31, 1996 by contractual maturity are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities and
collateralized mortgage obligations because the mortgages underlying the
securities may be called or repaid without any penalties. Therefore, these
securities are not included in the maturity categories in the following
maturity summary.
13
AMORTIZED FAIR
COST VALUE
Within One Year $ 6,996,486 $ 7,016,584
One to Five Years 15,448,615 15,517,685
$22,445,101 $22,534,269
Securities available for sale with a fair value of $18,104,735 and
$11,774,009 at December 31, 1996 and 1995, were pledged as collateral on
public deposits and for other purposes as required or permitted by law.
The Company has invested in Federal Home Loan Bank Stock which
is included in Equity Securities and is reflected at the lower of cost or
market in these financial statements. The cost of these securities was
$227,100 with unrealized gains of $-0- at December 31, 1996.
Gross realized gains and losses from the sale of securities for the years
ended December 31, 1996 and 1995 are as follows:
1996 1995
Realized Gains $ 23,686 $ 38,659
Realized Losses (23,750) (61,609)
$ (64) $ (22,950)
Note D - Loans -
An analysis of the loan portfolio at December 31, 1996 and 1995, is as
follows:
1996 1995
Real Estate Loans - Construction $ 3,646,767 $ 2,380,561
Real Estate Loans - Mortgage 27,004,473 22,117,255
Loans to Farmers 65,163 54,043
Commercial and Industrial Loans 2,210,904 2,298,901
Loans to Individuals 3,752,088 2,865,982
All Other Loans 580,658 710,309
Total Loans $37,260,053 $30,427,051
The Bank had non-performing loans on a non-accrual basis totaling
approximately $181,800 and $214,200 at December 31, 1996 and 1995,
respectively. The Bank recognized $37,782 and $16,002 in interest income
relating to these loans during the years ended December 31, 1996 and 1995.
Had the loans been performing, approximately $25,100 and $26,200 of
additional interest income would have been recognized for the years ended
December 31, 1996 and 1995. Loans contractually past due 90 days or more, in
addition to loans on non-accrual, were -0- at December 31, 1996 and 1995,
respectively. The Company has no impaired loans at December 31, 1996, in
accordance with SFAS No. 114.
14
The Bank is permitted under the laws of the State of Louisiana to make
extensions of credit to its executive officers, directors and their affiliates
in the ordinary course of business. The amount of such related party loans
was $792,412 and $1,070,683 at December 31, 1996 and 1995, respectively. An
analysis of the aggregate of these loans for 1996, is as follows:
Balance - Beginning of Year $ 1,070,683
New Loans 166,514
Repayments (444,785)
Balance - End of Year $ 792,412
Note E - Allowance for Loan Losses -
Following is a summary of the activity in the allowance for loan
losses:
1996 1995
Balance - Beginning of Year $ 820,000 $ 820,000
Current Provision (Credit) from Income - (77,374)
Recoveries of Amounts Previously
Charged Off 20,055 96,858
Amounts Charged Off (19,828) (19,484)
Balance - End of Year $ 820,227 $ 820,000
Ratio of Reserve for Possible Loan
Losses to Non-Performing Loans
at End of Year 451.08% 382.82%
Ratio of Reserve for Possible Loan
Losses to Loans Outstanding at
at End of Year 2.20% 2.70%
Ratio of Net Loans Charged Off to
Average Loans Outstanding for
the Year (0.01)% (.26)%
Note F - Bank Premises and Equipment -
Bank premises and equipment costs and the related accumulated
depreciation at December 31, 1996 and 1995, are as follows:
ACCUMULATED
ASSET COST DEPRECIATION NET
December 31, 1996:
Land $ 450,908 $ - $ 450,908
Bank Premises 743,265 457,126 286,139
Furniture and Equipment 1,481,067 878,675 602,392
$ 2,675,240 $1,335,801 $1,339,439
15
ACCUMULATED
ASSET COST DEPRECIATION NET
December 31, 1995:
Land $ 450,908 $ - $ 450,908
Bank Premises 736,865 436,466 300,399
Furniture and Equipment 1,102,351 918,106 184,245
$2,290,124 $ 1,354,572 $ 935,552
The provision for depreciation charged to operating expenses was
$104,763 and $112,122, respectively, for the years ended December 31, 1996
and 1995.
Note G - Deposits -
Following is a detail of deposits:
1996 1995
Demand Deposit Accounts $12,327,349 $11,980,278
NOW and Super NOW Accounts 14,442,373 7,723,607
Money Market Accounts 4,498,050 5,390,808
Savings Accounts 7,497,717 7,105,549
Certificates of Deposit Over $100,000 11,257,527 9,581,163
Certificates of Deposit 18,146,253 17,575,120
$68,169,269 $59,356,525
Interest expense on certificates of deposit over $100,000 for the years
ended December 31, 1996 and 1995, amounted to $573,747 and $327,842,
respectively.
Public fund deposits at December 31, 1996 and 1995, were
$14,543,810 and $7,109,057, respectively.
Note H - Stockholders' Equity and Regulatory Matters -
Dividends are paid by the Company from its assets which are provided
primarily by dividends from the Bank. Dividends are payable only out of
retained earnings and current earnings of the Company. Certain restrictions
exist regarding the ability of the Bank to transfer funds to the Company in the
form of cash dividends. Louisiana statutes require approval to pay dividends
in excess of a state bank's earnings in the current year plus retained net pro
fits for the preceding year. As of January 1, 1996, the Bank had retained
earnings of $5,037,458 of which $840,204 was available for distribution
without prior regulatory approval.
The Bank is also required to maintain minimum amounts of capital to
total risk weighted assets, as required by banking regulators. At December 31,
1996, the Bank is required to have minimum Tier 1 and Total Capital ratios of
4.00% and 8.00%, respectively. The Bank's actual ratios at that date were
21.02% and 22.28%, respectively. The Bank's Leverage Ratio at December 31,
1996, was 9.48%.
16
Under current regulations, the Bank is limited in the amount it may
loan to its Parent. Loans to the Parent may not exceed 10% of the Bank's
capital and surplus. There were no loans outstanding at December 31, 1996
and 1995.
Note I - Employee Benefit Plans -
The Bank of Zachary has a defined contribution Profit Sharing Plan
and Trust for its qualified employees. Each year the Board of Directors of the
Bank determines the Bank's contribution. No contribution is required by
qualified participants. Contributions charged to expense for this plan were
$50,572 and $49,070 for the years ended December 31, 1996 and 1995.
In addition, the Bank has a 401(K) plan for those employees who meet
the necessary eligibility requirements. Covered employees may voluntarily
contribute 1% to 15% of gross pay to the plan. The Bank matched one-half of
the employee's contribution to a maximum of 7% of gross pay in 1996 and
1995. Contributions charged to expense for this plan were $34,428 and
$30,930 for the years ended December 31, 1996 and 1995, respectively.
Note J - Other Operating Expenses -
An analysis of Other Operating Expenses for the years ended
December 31, 1996 and 1995, is as follows:
1996 1995
Regulatory Assessments $ 19,094 $ 80,827
Computer Service Fees 87,058 87,796
Equipment 175,929 176,987
Professional Fees 132,271 90,770
Other 378,013 371,843
$ 792,365 $ 808,223
Note K - Income Tax -
The total provision for income taxes charged to income amounted to
$412,869 and $385,512 for 1996 and 1995, respectively. The provisions
represent effective tax rates of 34% in 1996 and 1995.
Following is a reconciliation between income tax expense based on the
federal statutory tax rates and income taxes reported in the statements of
income.
1996 1995
Income Taxes Based on Statutory
Rate - 34% in 1996 and 1995 $ 418,946 $ 391,440
Other - Net (6,077) (5,928)
$ 412,869 $ 385,512
17
The components of consolidated income tax expense (benefits) are:
Provision for Current Taxes $ 304,093 $ 393,779
Provision (Credit) for Deferred Taxes 108,776 (8,267)
$ 412,869 $ 385,512
A deferred income tax liability of $60,994 is included in other liabilities
at December 31, 1996. A deferred income tax asset of $19,219 is included in
other assets at December 31, 1995.
The deferred tax provision consists of the following timing differences:
1996 1995
Accumulated Depreciation for Tax Reporting
in Excess of Amount for Financial Reporting $ (1,454) $ (5,318)
Provision for Loan Losses for Tax Reporting
in Excess of Amount for Financial Reporting 41,025 -
Other Real Estate Write-offs for Financial
Reporting in Excess of Amount for Tax
Reporting - 3,536
Accretion Income for Financial
Reporting in Excess of Tax Reporting 21,338 9,883
Provision for Deferred Leave for
Financial Reporting in Excess of
the Amount for Tax Reporting 58,756 (7,990)
Hospitalization Expense for Financial
Reporting in Excess of Amount for
Tax Reporting (10,889) (8,378)
$ 108,776 $ (8,267)
The net deferred tax asset and liability consist of the following
components at December 31, 1996 and 1995:
1996 1995
Depreciation $ (37,669) $ (39,123)
Provision for Lo an Losses (15,709) 25,316
Other Real Estate - -
Accretion Income (35,665) (14,327)
Deferred Leave - 58,756
Self-Insured Hospitalization Plan 19,267 8,378
Unrealized (Gain) Loss on Securities
Available for Sale 8,782 (9,709)
Total Deferred Tax Asset (Liability) $ (60,994) $ 19,291
18
Note L - Off-Balance-Sheet Instruments -
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and letters of credit. Those instruments involve, to varying degrees, ele
ments of credit risk in excess of the amount recognized in the balance sheets.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as they do for on-balance-sheet instruments.
In the normal course of business the Bank has made commitments to extend
credit of $3,626,213 at December 31, 1996. This amount includes unfunded
loan commitments aggregating $3,567,295 and letters of credit of $58,918.
The Bank maintains an open line of credit with the Federal Home
Loan Bank of Dallas to assist in maintaining short-term liquidity. The total
line of credit available with the Federal Home Loan Bank at December 31,
1996 amounts to approximately $4,608,000. No funds were drawn on this line
at December 31, 1996.
Note M - Fair Value of Financial Instruments -
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Short-Term Investments - For those short-term instruments,
the carrying amount is a reasonable estimate of fair value.
Securities - Fair value of securities held to maturity and available for
sale is based on quoted market prices or dealer notes. If a quoted market
price is not available, fair value is estimated using quoted market prices
for similar securities.
Loans - The fair value for loans is estimated using discounted cash
flow analyses, with interest rates currently being offered for similar loans to
borrowers with similar credit rates. Loans with similar classifications are
aggregated for purposes of the calculations. The allowance for loan loss which
was used to measure the credit risk, is subtracted from loans.
Deposits - The fair value of demand deposits, savings account, and
certain money market deposits is the amount payable at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated using dis
counted cash flow analyses, with interest rates currently offered for deposits
of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit - The
fair values of commitments to extend credit and standby letters of credit were
not significant.
19
The estimated approximate fair values of the Bank's financial instruments
as of December 31, 1996 and 1995 are as follows:
1996
CARRYING FAIR
AMOUNT VALUE
Financial Assets:
Cash and Short-Term Investments $ 4,616,270 $ 4,616,270
Securities 32,528,819 32,528,819
Loans-Net 36,439,826 35,295,000
$73,584,915 $72,440,089
Financial Liabilities:
Deposits $68,169,269 $67,146,489
1995
CARRYING FAIR
AMOUNT VALUE
Financial Assets:
Cash and Short-Term Investments $ 5,113,042 $ 5,113,042
Securities 30,074,648 30,074,648
Loans-Net 29,607,051 30,226,000
$64,794,741 $65,413,690
Financial Liabilities:
Deposits $59,356,525 $57,524,278
Note N - Concentrations of Credit -
The majority of the Bank's business activities are with customers in the
Bank's market area, which consists primarily of East Baton Rouge and adjacent
parishes. The majority of such customers are depositors of the Bank. The
concentrations of credit by type of loan are shown in Note D. Most of the
Bank's credits are to individuals and small businesses secured by real estate.
The Bank, as a matter of policy, does not extend credit to any single borrower
or group of related borrowers in excess of $750,000.
Note O - Contingencies -
In 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.
20
Note P - Financial Information - Parent Company Only -
The financial statements for Zachary Bancshares, Inc. (Parent
Company) are presented below:
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
Assets:
Cash $ 383,339 $ 321,183
Investment in Subsidiary 7,220,412 6,846,224
Other Assets 37,577 12,676
Total Assets $7,641,328 $7,180,083
Liabilities:
Due to Subsidiary $ 29,452 $ 12,676
Total Liabilities $ 29,452 $ 12,676
Stockholders' Equity:
Common Stock $2,160,000 $2,160,000
Surplus 1,480,000 1,480,000
Retained Earnings 4,418,536 3,974,067
Treasury Stock (446,660) (446,660)
Total Stockholders' Equity $7,611,876 $7,167,407
Total Liabilities and Stockholders'
Equity $7,641,328 $7,180,083
21
STATEMENTS OF INCOME
for the years ended December 31, 1996 and 1995
1996 1995
Income:
Dividend from Subsidiary $ 400,000 $ 375,000
Expenses:
Operating Expenses 18,299 23,915
Income before Equity in Undistributed
Net Income of Subsidiary 381,701 351,085
Equity in Undistributed Net Income
of Subsidiary 429,494 410,710
Net Income before Income Taxes 811,195 761,795
Applicable Income Tax Expense (Benefit) (8,131) (3,988)
Net Income $ 819,326 $ 765,783
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
1996 1995
Cash Flows From Operating Activities:
Net Income $ 819,326 $ 765,783
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed Net Income
of Subsidiary (429,494) (410,710)
(Increase) Decrease in Receivable
From Subsidiary - 33,638
(Increase) Decrease in Other Assets (24,901) (12,676)
Increase (Decrease) in Due to Subsidiary 16,776 12,676
Increase (Decrease) in Income Tax Payable - (33,638)
Net Cash Provided by Operating
Activities 381,707 355,073
Cash Flows From Financing Activities:
Dividends Paid (319,551) (290,501)
Net Cash Used in Financing
Activities (319,551) (290,501)
Net Increase (Decrease) in Cash 62,156 64,572
Cash - Beginning of Year 321,183 256,611
Cash - End of Year $ 383,339 $ 321,183
22
Zachary Bancshares, Inc. and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996, 1995, 1994, 1993 and 1992
ASSETS
1996 1995
Cash and Due from Banks $ 3,766,270 $ 2,413,042
Securities 33,378,819 32,774,648
Loans 36,439,826 29,607,051
Other Assets 2,442,512 2,075,694
Total Assets $76,027,427 $66,870,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $68,169,269 $59,356,525
Other Liabilities 246,282 346,503
Stockholders' Equity 7,611,876 7,167,407
Total Liabilities
and Stockholders' Equity $76,027,427 $66,870,435
Selected Ratios:
Loans to Assets 47.93% 44.27%
Loans to Deposit 53.45% 49.88%
Deposits to Assets 89.66% 88.76%
Equity to Assets 10.01% 10.72%
Return on Average Assets 1.11% 1.14%
Return on Average Equity 11.50% 12.13%
1994 1993 1992
$ 2,592,065 $ 2,446,066 $ 3,024,506
31,785,000 39,529,128 41,367,443
27,421,397 20,031,325 17,906,420
2,609,584 2,448,210 3,067,072
$64,408,046 $64,454,729 $65,365,441
$58,404,821 $57,796,596 $59,530,969
324,754 339,69 302,331
5,678,471 6,318,442 5,532,141
$64,408,046 $64,454,729 $65,365,441
42.57% 31.08% 27.39%
46.95% 34.66% 30.08%
90.68% 89.67% 91.07%
8.82% 9.80% 8.46%
1.11% 1.36% 1.19%
12.19% 15.34% 15.10%
Continued
23
Zachary Bancshares, Inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992
1996 1995
Interest Income $ 5,119,871 $ 4,684,130
Interest Expense 2,126,280 1,826,859
Net Interest Income 2,993,591 2,857,271
Provision (Credit) for Loan Losses - (77,374)
Net Interest Income after Provision
for Loan Losses 2,993,591 2,934,645
Other Income 600,993 542,664
Other Expenses 2,362,389 2,326,014
Income before Income Taxes 1,232,195 1,151,295
Applicable Income Tax Expense 412,869 385,512
Net Income $ 819,326 $ 765,783
Per Share:
Net Income $ 4.23 $ 3.95
Cash Dividends $ 1.65 $ 1.50
Book Value - End of Year $ 39.30 $ 37.01
1994 1993 1992
$ 4,188,994 $4,165,960 $ 4,636,137
1,356,065 1,333,250 1,832,414
2,832,929 2,832,710 2,803,723
(42,338) - 134,272
2,875,267 2,832,710 2,669,451
445,561 658,679 784,851
2,218,122 2,140,574 2,307,663
1,102,706 1,350,815 1,146,639
377,470 460,478 383,000
$ 725,236 $ 890,337 $ 763,639
$ 4.60 $ 3.94 $ 3.90
$ 1.20 $ 1.00 $ .60
$ 32.63 $ 28.57 $ 25.60
23
Zachary Bancshares, Inc. and Subsidiary
AVERAGE BALANCE SHEETS AND INTEREST RATE
ANALYSIS
for the years ended December 31, 1996 and 1995
1996
INTEREST AVERAGE
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
ASSETS
Interest Earning Deposits and
Reserve Funds Sold $ 2,773,000 $ 147,658 5.32%
Securities:
Taxable 33,224,000 2,033,691 6.12
Loans-Net 33,645,000 2,938,522 8.73
Total Earning Assets 69,642,000 5,119,871 7.35%
Allowance for Loan Losses (821,000)
Nonearning Assets 4,735,000
Total Assets $73,556,000
LIABILITIES AND STOCKHOLDERS' EQUITY
FHLB Borrowings $ 13,000 777 5.98%
Savings and NOW Accounts 19,065,000 563,929 2.96
Insured Money Market Accounts 5,155,000 102,286 1.98
Certificates of Deposit 28,592,000 1,459,288 5.10
Total Interest Bearing
Liabilities 52,825,000 2,126,280 4.03%
Demand Deposits 13,042,000
Other Liabilities 567,000
Stockholders' Equity 7,122,000
Total Liabilities and
Stockholders' Equity $73,556,000
Net Interest Income - Tax Equivalent
Basis 2,993,591
Net Interest Income $2,993,591
Net Interest Income - Spread 3.32%
Net Interest Income as a % of
Total Earning Assets 4.30%
Continued
24
1995
INTEREST AVERAGE
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
$ 3,941,000 $ 225,118 5.71%
28,991,000 1,832,056 6.32
30,284,000 2,626,956 8.67
63,216,000 4,684,130 7.41%
(830,000
4,779,000
$67,165,000
$ 500,000 31,406 6.28%
15,355,000 421,797 2.75
6,493,000 134,794 2.08
25,692,000 1,238,862 4.82
48,040,000 1,826,859 3.80%
12,259,000
554,000
6,312,000
$67,165,000
$2,857,271
3.61%
4.52%
24
Zachary Bancshares, Inc. and Subsidiary
INTEREST DIFFERENTIAL
for the year ended December 31, 1996
1996 OVER 1995
CHANGE TOTAL
ATTRIBUTABLE TO INCREASE
VOLUME RATE (DECREASE)
Interest Earning Assets:
Reserve Funds Sold $ (64,391) $ (13,069) $ (77,460)
Securities 263,571 (61,937) 201,634
Loans 292,398 19,169 311,567
Total Interest Income 491,578 (55,837) 435,741
Interest Bearing Liabilities:
Bank Borrowings (29,856) (773) (30,629)
Savings and NOW Accounts 105,956 36,176 142,132
Insured Money Market Accounts (26,923) (5,585) (32,508)
Certificates of Deposit 144,134 76,292 220,426
Total Interest Expense 193,311 106,110 299,421
Increase (Decrease) in Interest
Differential $ 298,267 $(161,947) $ 136,320
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the quarter periods in the years ended December 31, 1996 and 1995
1996
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
Interest Income $1,370,017 $1,307,119 $1,262,860 $1,179,875
Interest Expense 567,876 544,562 538,485 475,357
Net Interest Income 802,141 762,557 724,375 704,518
Provision (Credit) for
Loan Losses - - - -
Net Interest Income
after Provision
for Loan Losses 802,141 762,557 724,375 704,518
Other Income 171,113 141,338 145,364 143,178
Other Expenses 661,108 595,508 559,515 546,258
Income before
Income Ta 312,146 308,387 310,224 301,438
Applicable Income Tax
Expense 111,400 104,100 102,441 94,928
Net Income $ 200,746 $ 204,287 $ 207,783 $ 206,510
Per Share:
Net Income $ 1.04 $ 1.05 $ 1.07 $ 1.07
Cash Dividends $ .90 $ - $ .75 $ -
Continued
25
1995
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
$1,203,163 $1,163,324 $1,170,741 $1,146,902
462,673 481,088 458,911 424,187
740,490 682,236 711,830 722,715
(61,205) - (16,169) -
801,695 682,236 727,999 722,715
134,999 136,306 137,387 133,972
572,251 553,248 609,260 591,255
364,443 265,294 256,126 265,432
120,550 91,175 86,375 87,412
$ 243,893 $ 174,119 $ 169,751 $ 178,020
$ 1.25 $ .90 $ .88 $ .92
$ .85 $ - $ .65 $ -
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL OPERATIONS AND RESULTS OF OPERATIONS
The Company evaluates its financial strength through continual review of
management, asset quality, capital, earnings and liquidity. The Company
continuously addresses each area on an individual and corporate basis. The
following Management's Discussion and Analysis relates to the Company's
financial position for the years 1996 and 1995. This information is a part of
and should be read in conjunction with the Financial Statements and related
Notes. 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.
CAPITAL
The Company's capital continues to exceed regulatory requirements and peer
group averages. Regulatory Risk Based Capital requirements for 1996 and
1995 were 8.0%. Regulatory Leverage Ratio requirements were 4% for the
same time period. The Company's Equity to Assets Ratio (below) includes the
effect of the Unrealized Loss ($25,828) on Securities discussed in Note C.
The Company's ratios as of December 31 are as follow:
1996 1995
Risk Based Capital Ratio 21.02% 24.52%
Leverage Ratio 9.48% 10.13%
Equity to Assets Ratio 10.01% 10.71%
Earnings will continue to be the Company's main source of capital growth.
Management is committed to capital growth through earnings retention. An
earnings retention ratio is the percentage of current earnings retained within
the capital structure. The Company's earnings retention ratios at December 31
are as follows:
Shareholder Retention
Net Income Dividends Ratio
1996 $819,326 $319,550 61%
1995 $765,783 $290,500 62%
The Company distributed to shareholders, cash dividends of $1.65 and $1.50
per share in 1996 and 1995, respectively.
LIQUIDITY
Liquidity management is the process of ensuring that the Bank's assets and
liabilities are appropriately structured. The Company's short-term and long-
term liquidity is provided by two sources: core deposits and an adequate level
of assets readily convertible to cash. Management continually monitors the
balance sheet to insure its ability to meet current and future depositor
requirements and loan funding commitments. The Company does not
anticipate difficulties in meeting funding obligations.
26
RESULTS OF OPERATIONS
Overview
Zachary Bancshares, Inc.'s (ZBI) net income for 1996 was $819,326
compared to $765,783 for 1995 or a 7% increase. ZBI's income stream is from
core banking products and services. ZBI continues to benefit from strong
regional and local economies and expects continued growth. The following
table indicates ZBI's equity position and balance sheet trends. The effect of
the Unrealized Loss on Securities discussed in Note C is included in the
Stockholders' Equity data.
Growth Trends
(year to year in $ and %)
96 to 95 95 to 94
Stockholders' Equity $ 444,469 or 6.2% $1,488,936 or 26.2%
Average Assets $6,391,000 or 9.5% $2,065,000 or 3.2%
Earnings Analysis
The Company's 1996 Net Interest Income increased 4.8%. Net Interest
Income in 1996 was $2,993,591 compared to $2,857,271 for 1995.
Average earning assets were $69,642,000 in 1996 compared to
63,216,000 in 1995. The following table depicts the Company's average
earning assets components in thousands of dollars and the respective
percentage relationship.
1996 1995
Reserve & FHLB Funds $ 2,773 04% $ 3,914 06%
Securities 33,224 48% 28,991 46%
Loans (Net) 33,645 48% 30,284 48%
Average Earning Assets $69,642 100% $63,216 100%
The previous table indicates average earning assets growth. Management
actively pursued increases in the Company's loan portfolio in 1996 and 1995.
The majority of the Company's loans are secured by local, single family
dwellings, with a fixed rate and 5 year balloon repricing terms.
Average deposit liabilities were $65,867,000 in 1996 compared to
$60,299,000 in 1995. The following table depicts ZBI's average deposit
liabilities components and the respective percentage relationship, dollars in
thousands.
27
1996 1995
FHLB Borrowings $ 13 0% $ 500 1%
Demand Deposits 13,042 20% 12,258 20%
Savings & NOW 19,065 28% 15,355 25%
Money Market 5,155 8% 6,493 11%
Certificates 28,592 43% 25,692 43%
Average Depositor Liability $65,867 100% $60,299 100%
As interest rates decreased in recent years, depositors have moved funds
from the longer maturities (Certificates) into shorter matur-ities. Manage
ment expects an increase in market rates may influence depositors to return
some funds to longer term Certificates. Management remains committed to
accepting only trade area deposits, which have core deposit characteristics.
The Company accepted approximately $4,000,000 in Public Funds deposits in the
second quarter of 1996. The Company anticipates these deposits will be with
drawn in early 1997.
The Company's Net Interest Spread and Margin are shown below. Net
Interest Spread is the difference between the yield on earning assets and the
cost of funding. Net Interest Margin is interest income as a percent of ave
rage earning assets.
1996 1995
Net Interest Spread 3.32% 3.61%
Net Interest Margin 4.30% 4.52%
The Company's interest rate sensitivity is measured monthly and considered
by the Board and Management. Interest rate sensitivity results from the timing
differences at which assets and liabilities may be repriced as market rates
change. The Company utilizes various measurement techniques to analyze and
predict interest rate sensitivity. The Company's cumulative GAP (Interest Rate
Sensitive Assets\Interest Rate Sensitive Liabilities) on December 31, 1996 was
86.09% at the one year time horizon and 83.79% at the 24 month time horizon.
The 12 month GAP of 86.09% indicates $3,883,000 more liabilities will reprice
than assets. The 24 month horizon will reprice $6,201,000 more liabilities than
assets.
The Company uses computer simulation to predict the net interest margin
change at various interest rate shifts. The December 1996 simulation indicates
the Company's net interest margin will change by less than 5% if interest rates
move up or down 3% at the 12 month horizon.
28
The Company sold Securities in 1996 resulting in a $64 cumulative loss; sales
in 1995 resulted in a $22,950 cumulative loss. In both years, the Company was
repositioning the Securities portfolio to either effect future earnings, sell
less marketable items or effect the Asset-Liability position.
Allowance and Provision for Loan Losses
The Allowance for Loan Losses is the amount Management determines
necessary to reduce loans to their estimated collectible amounts and to pro
vide for future losses in certain loans which are currently unidentified. The
Provision for Loan Losses is the amount charged to current earnings which are
contributed to the Allowance, hereby maintaining the Allowance's integrity.
The Company had a negative 1995 Provision of $77,374, (see Note E). The
following table reflects year end Allowance and Provision totals:
1996 1995
Allowance for Losses $820,227 $820,000
Provision for Losses 0 $(77,374)
Management utilizes diversification by loan type, borrower, purpose and
industry in combination with individual credit standards to balance the
Company's credit risks. Loans are reviewed to facilitate identi-fication and
monitoring of potentially deteriorating credits. Manage-ment considers the
current Allowance adequate to absorb potential losses.
Non-Performing Assets
Non-performing assets include non-accrual loans, restructured loans and
foreclosed assets. Loans are placed on non-accrual when a borrower's fin
ancial position has weakened or the ability to comply with contractual agree
ments becomes reasonably doubtful. Restructured loans have had original con
tractual agreements renegotiated because of the borrower's apparent inability
to fulfill the contract. Other Real Estate, by State Law, is carried
at the lower of cost or current market value for any asset appraised in excess
of $40,000.
The following table represents non-performing and renegotiated
assets at year end:
1996 1995
Non-Accrual Loans $181,800 $214,200
Restructured Loans 58,231 69,572
Other Real Estate 408,181 451,770
Total $648,212 $735,542
The Company maintains an internal Watch List for Management purposes
for loans (both performing and non-performing) that have been iden-tified as
requiring special monitoring. The Watch List consists of accruing, non-
accruing and restructured loans. These loans have characteristics resulting
in Management's concern of the borrower's current ability to meet the loan
contract. Watch List totals at December 31 are:
1996 1995
$1,600,000 $1,209,000
In 1996, the Company realized a $12,971 Gain on Sale of Other Real Estate,
similar 1995 sales resulted in a $21,344 Gain on Sale.
Other Income
Service Charges on Deposit Accounts is flat for the years under
consideration. The Company reduced service charge rates in the second
quarter of 1995; however, volume increases were sufficient to offset the rate
decrease. Other Income has increased 85% or $45,714 in 1996, this increase
included fee income from investment sales which the Company contracted from
a third party at approximately mid year 1996.
Other Expense
Salaries and Employee benefits increased 1.1% in 1996. The 1996 Salary
Expense did not increase. In 1995, the Company established a partially self-
funded medical plan which may decrease the rate of future cost increases.
Occupancy expense increased 20% in 1996, as a result of facility improvement.
Regulatory Assessment decreased 68% to $19,093 as a result of legislative
required reductions in FDIC premiums. The Company expects the 1997
assessment expense to not exceed $25,000.
Income Tax
The Company was fully taxable in both 1996 and 1995 and expects to remain
so in 1997.
30
ZACHARY BANCHARES, INC. ZACHARY BANCSHARES, INC. BANK LOCATIONS
OFFICERS AND BANK OF ZACHARY
DIRECTORS MAIN OFFICE
4700 Main Street
Harry S. Morris, Jr.
President and C.E.O. Russell Bankston
Chairman of the Board The Plaza
Winston E. Canning 2210 Hwy 64
Secretary Rodney S. Johnson Zachary
Vice Chairman
Mark Thompson Central Branch
Treasurer Hardee M. Brian 13444 Hooper Road
Winston E. Canning Baton Rouge
Howard L. Martin, M.D.
Albert C. Mills, III, PhD.
BANK OF ZACHARY Harry S. Morris, Jr.
OFFICERS
Harry S. Morris, Jr. Director Emeritus
President & C.E.O. A. C. Mills, Jr. INFORMATION
Winston E. Canning Request for additional
Executive Vice President information or copies
of Form 10KSB filed
Mark Thompson with the Securities
Vice President & Cashier and Exchange Com-
mission in Washing-
Gerard R. "Bubba" Beatty ton, D. C. should be
Vice President directed to:
STOCK INFORMATION
Warren Couvillion Chief Financial Officer
Vice President The Companys stock is not Zachary Bancshares,Inc
listed on any security exchange Post Office Box 497
Kathleen Parker Therefore, Zachary Bancshares, Zachary, LA 70791
Vice President Inc. does not have exchange
data that provides high and low
Judy W. Andrews stock prices. The Company TRANSFER AGENT
Assistant Vice President did not have stock trades in & REGISTRAR
1996.
Ethel Mae Womack Bank of Zachary
Assistant Vice President Post Office Box 497
There was a cash dividend Zachary, LA 70791
Laura Steen paid in 1996 of $1.65 per
Operations Officer share and $1.50 in 1995.
INDEPENDENT
Melinda White ACCOUNTANT
Note Supervisor
& Compliance Officer Hannis T. Bourgeois
& Co., L.L. P.
Sandra Worthy 2322 Tremont Drive
Operation Officer Suite 200
Baton Rouge,LA 70809
31