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, 1997 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 issurer's classes
of common stock, as of the latest practicable date.
Common Stock, $10 par value, 193,667 shares outstanding as of September
30, 1997.
I N D E X
Financial Statements:
Consolidated Balance Sheets - September 30, 1997,
December 31, 1996 and September 30, 1996 2
Consolidated Statements of Income - for the three and
nine months ended September 30, 1997 and 1996 3
Consolidated Statements of Changes in Stockholders'
Equity - for the nine months ended September 30,
1997 and 1996 4
Consolidated Statements of Cash Flows -
for the nine months ended September 30, 1997 and 1996 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
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
September 30, 1997, December 31, 1996 and September 30, 1996
ASSETS
(UNAUDITED) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
Cash and Due from Banks $ 3,756,635 $ 3,654,801 $ 2,659,566
Interest Bearing Deposits in
Other Institutions 93,716 111,469 109,998
Reserve Funds Sold 1,950,000 850,000 1,000,000
Securities Available for Sale
(Amortized Cost $26,078,695,
$32,554,647 and $32,656,590) 26,150,163 32,528,819 32,407,357
Loans 42,414,396 37,260,053 36,129,291
Less: Allowance for Loan Losses (784,060) (820,227) (821,673)
41,630,336 36,439,826 35,307,618
Bank Premises and Equipment 1,525,351 1,339,439 1,275,971
Other Real Estate 241,595 408,181 408,181
Accrued Interest Receivable 517,274 612,568 549,432
Other Assets 82,419 82,324 252,147
Total Assets $75,947,489 $76,027,427 $73,970,270
LIABILITIES
Deposits:
Noninterest Bearing $13,535,456 $12,327,349 $12,114,141
Interest Bearing 53,666,229 55,841,920 53,874,633
67,201,685 68,169,269 65,988,774
Accrued Interest Payable 183,745 185,288 176,507
Other Liabilities 338,990 60,994 367,006
Total Liabilities 67,724,420 68,415,551 66,532,287
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 4,982,560 4,435,582 4,409,137
Unrealized Gain (Loss) on Secur-
ities Available for Sale, Net 47,169 (17,046) (164,494)
Treasury Stock (22,333 Shares
at Cost) (446,660) (446,660) (446,660)
Total Stockholders' Equity 8,223,069 7,611,876 7,437,983
Total Liabilities and
Stockholders' Equity $75,947,489 $76,027,427 $73,970,270
See accountant's report and accompanying notes.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and nine months ended
September 30, 1997 and 1996
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
Interest Income:
Interest and Fees on
Loans $ 958,249 $ 759,907 $2,612,869 $2,113,922
Interest on Securities 427,272 534,075 1,356,009 1,521,876
Other Interest Income 24,917 13,137 83,145 114,056
Total Interest Income 1,410,438 1,307,119 4,052,023 3,749,854
Interest Expense on
Deposits 534,827 544,562 1,598,857 1,558,404
Net Interest Income 875,611 762,557 2,453,166 2,191,450
Provision for (Recovery of)
Loan Losses 8,245 0 23,459 0
Net Interest Income
After Provision for
(Recovery of)
Loan Losses 867,366 762,557 2,429,707 2,191,450
Other Income:
Service Charges on Deposit
Accounts 125,309 120,109 381,668 372,285
Gain (Loss) on Securities - (64) (5,391) (64)
Other Operating Income 55,851 21,293 117,278 57,659
Total Other Income 181,160 141,338 493,555 429,880
Income before Other
Expenses 1,048,526 903,895 2,923,262 2,621,330
Other Expenses:
Salaries and Employee
Benefits 376,543 337,900 1,062,930 1,007,486
Occupancy Expense 52,360 4,796 152,793 139,538
Net Other Real Estate
Expense (11,684) 2,863 (10,484) (10,122)
Other Operating Expenses 236,895 249,949 677,833 564,379
Total Other Expenses 654,114 595,508 1,883,072 1,701,281
Income before Income Taxes 394,412 308,387 1,040,190 920,049
Applicable Income Taxes 124,500 104,100 338,278 301,469
Net Income $ 269,912 $ 204,287 $ 701,912 $ 618,580
Per Share:
Net Income $ 1.39 $ 1.05 $ 3.62 $ 3.19
Cash Dividends $ - $ - $ .80 $ .75
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, 1997 and 1996
(UNAUDITED)
SEPTEMBER 30,
1997 1996
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 $4,435,582 $3,935,807
Net Income 701,912 618,580
Cash Dividends (154,934) (145,250)
Balance - End of Period $4,982,560 $4,409,137
Net Unrealized Gain (Loss) on Securities
Available for Sale:
Balance - Beginning of Period $ (17,046) $ 38,260
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale 64,215 (202,754)
Balance - End of Period $ 47,169 $ (164,494)
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, 1997 and 1996
(UNAUDITED)
SEPTEMBER 30,
1997 1996
Cash Flows From Operating Activities:
Net Income $ 701,912 $ 618,580
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Provision for (Recovery of) Loan Losses 23,459 -
Provision for Depreciation and Amortization 128,220 74,143
Stock Dividends on Federal Home Loan
Bank Stock (32,300) (9,800)
Net (Accretion) Amortization of
Securities (Discounts) Premiums (14,803) 22,901
(Gain) Loss on Sale of Securities 5,391 64
Gain on Sale of Other Real Estate (11,684) (12,971)
(Increase) Decrease in Accrued
Interest Receivable 95,294 35,115
(Increase) Decrease in Other Assets (95) (43,877)
Increase (Decrease) in Accrued
Interest Payable (1,543) 6,229
Increase (Decrease) in Other Liabilities 244,915 190,781
Net Cash Provided by Operating
Activities 1,138,766 881,165
Cash Flows From Investing Activities:
(Increase) Decrease in Interest Bearing
Deposits in Other Institutions 17,753 (9,896)
Net (Increase) Decrease in Reserve
Funds Sold (1,100,000) 1,700,000
Purchases of Securities Available for Sale (7,033,099) (11,348,331)
Maturities or Calls of Securities Available
for Sale 4,000,000 6,000,000
Principal Paydowns on Mortgage-Backed
Securities 605,612 670,883
Proceeds from Sales of Securities 8,945,151 2,024,375
Net (Increase) Decrease in Loans (5,213,969) (5,720,171)
Purchases of Premises and Equipment (314,132) (414,562)
Proceeds from Sales of Other
Real Estate 178,270 76,164
Net Cash Provided by (Used in)
Investing Activities 85,586 (7,021,538)
(CONTINUED)
5
(UNAUDITED)
SEPTEMBER 30,
1997 1996
Cash Flows From Financing Activities:
Increase in FHLB Borrowings - -
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and
Savings Accounts 38,091 5,108,134
Net Increase (Decrease) in Certificates
of Deposit (1,005,675) 1,524,115
Cash Dividends (154,934) (145,250)
Net Cash Provided by (Used in)
Financing Activities (1,122,518) 6,486,999
Increase (Decrease) in Cash and Due
from Banks 101,834 346,626
Cash and Due from Banks - Beginning of
Period 3,654,801 2,312,940
Cash and Due from Banks - End of Period $ 3,756,635 $ 2,659,566
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 $ 97,296 $ (307,202)
Increase (Decrease) in Deferred Tax
Effect on Unrealized Gain on
Securities Available for Sale $ (33,081) $ 104,448
Cash Payments For:
Interest Paid on Deposits $ 536,370 $ 1,552,175
Income Tax Payments $ 333,000 $ 284,000
See accountant's report and accompanying notes.
6
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1997 and 1996
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.
Presentation
The accompanying unaudited consolidated interim financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles. Management is of the opinion that the unaudited
interim financial statements reflect all normal, recurring accrual adjust
ments 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, 1997 are no indication of the expected results for the
annual period which ends December 31, 1997. 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, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of Zachary Banc
shares, 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
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 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 holds no securities
classified 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 security classified as available for sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of the Bank's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. Unrealized gains
or losses are reported as increases or decreases in stockholders' equity, net
of the 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 recog
nized 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 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 man-agement's evaluation of specific loans; the level and
composition of classified loans; historical loss experience; results of exam
inations by regulatory agencies; an internal asset review process; expecta
tions of future economic conditions and their impact on particular borrowers;
and other judgmental factors.
8
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 collect
ibility of the principal is unlikely. Recoveries are credited to the 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 acceler
ated methods for income tax purposes.
The cost of assets retired or otherwise disposed of and the related accumu
lated 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 incur
red. 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 value. Loan losses arising from the acquisition of these pro
perties 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 finan
cial statements after interest income from state and municipal securities is
excluded. Also certain items of income and expenses are recognized in differ
ent time periods for financial statement purposes than for income tax pur
poses. 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 differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valua
tion 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.
9
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 out
standing 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 includes cash
on hand and amounts due from banks (including cash items in process of clear
ing).
10
Zachary Bancshares, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION
September 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONDITION AND RESULTS OF OPERTIONS
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 ened September 30, 1997 and 1996. This informa
tion should be read in conjunction with the financial statements and notes
relating thereto. The Company is unaware of any trends, uncertainties or
events which would or could have a material impact on future operating
results, liquidity, or capital.
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 OVER 1996
Net income for the nine month period ended September 30, 1997 increased 13%
or $83,332 as compared to the respective period in 1996. Net income at Sept
ember 30, 1997 was $701,912 compared to $618,580 at September 30, 1996. The
Company's increased net income resulted from higher net interest income, due
to increased loan volume over the prior period.
INTEREST INCOME
Interest income for the nine month period ended September 30, 1997 was
$4,052,023, an increase of $302,169 over the same period in 1996.
Net loans for the nine month period ended September 30, 1997 as compared to
the respective period in 1996, increased $6,322,718 to $41,630,336. Loan
income increased $498,947 or 24% to $2,612,869 for the nine months ended
September 30, 1997 from $2,113,922 for the nine months ended September 30,
1996. Increased loan volume resulted in the 1997 loan income increase.
Securities and other interest bearing assets (excluding loans) as of Septem
ber 30, 1997 decreased $5,323,476 compared to the similar time period in 1996.
Securities and other interest bearing accounts interest income in the first
nine months of 1997 decreased $196,778. The income decrease is a result of
decreased volume in securities.
INTEREST EXPENSE
Interest Bearing Liabilities decreased by $208,404 or .4% from September 30,
1996 to September 30, 1997. Interest expense in the similar time period
increased $40,453 or 3%. The Subsidiary's deposit liabilities are short-term;
therefore, reflective of current market rates.
11
PROVISION FOR LOSSES
In the first nine months of 1997, the Company had loan loss provision of
$23,459 compared to no loan loss provision in the similar time period of 1996.
The substantial increase in loan volume influenced the Company's decision to
make a 1997 provision. Management's Watch List (assets identified as weak or
potentially deteriorating indicates the current Allowance for Loan Losses is
adequate to absorb potential losses.
OTHER INCOME
Total Other Income for the time period under consideration increased $63,675
or 15%. Service Charges on Deposit Accounts remained constant while the fee
income received from the sale of traditional non banking products (mutual
funds, annuities, equities etc.) accounted for the majority of the Other
Operating Income increase.
OTHER EXPENSES
Total Other Expenses increased $181,791 or 11% totaling $1,883,072 in 1997.
Components of 1997 Other Expenses and the percentage change in the specific
categories are: employee benefits (insurance, salaries and retirement) up 6%
and general operating expenses (postage, telephone, data processing, printing,
supplies, etc) up 20% and occupancy expense up 9%. The increase in General
Operating Expenses is a result of the Company installing a new data processing
system in February, 1997 which created increased depreciation expense and non-
recurring conversion expenses.
APPLICABLE INCOME TAXES
The Company is fully taxable in both 1997 and 1996. Amounts expensed in the
referenced time periods are $338,278 and $301,469 respectively. The Company
expects to be fully taxable in the future.
EARNINGS PER SHARE
The Company's earnings per share at September 30, 1997 was $3.62 an increase
of 13% or $.43 per share over the previous year.
DIVIDENDS
The Company's cash dividend for the quarter ended September 30, 1997 was $.80
per share compared to $.75 per share at September 30, 1996, an increase of
.067%
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 6, 1997 /s/Harry S. Morris, Jr.
Harry S. Morris, Jr.
President
/s/Winston E. Canning
Winston E. Canning
Secretary
14
October 27, 1997
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, 1997 and 1996, 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 Public Accountants.
We previously audited and expressed our unqualified opinion in our report
dated January 14, 1997, on the Consolidated Balance Sheet of Zachary Banc
shares, Inc. and Subsidiary as of December 31, 1996.
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 take
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ HANNIS T. BOURGEOIS & 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 principles and include some amounts that
are necessarily based on management's informed estimates and judgements, with
consideration given to materiality. All financial information contained in
this quarterly report is consistent with that in
Management fulfills its responsibility for the integrity, objectivity, con
sistency and fair presentation of the financial statements and financial
information through an accounting system and related internal accounting con
trols that are designed to provide reasonable assurance that assets are safe
guarded and that transactions are authorized and recorded in accordance with
established policies and procedures. The concept of reasonable assurance is
based on the recognition that the cost of a system of internal accounting con
trols, Zachary Bancshares, Inc. has a professional staff who monitors com
pliance with and assesses the effectiveness of the system of internal account
ing controls and coordiantes audit coverage with the independent public
accountants.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with management, and the independent public
accountants to review matters relating to financial reporting, internal
accounting control and the nature, extent and results of the audit effort.
The independent public accountants have direct access to the Audit Committee
with or without management present.
The financial statement as of December 31, 1996 were examined by Hannis T.
Bourgeois & Co., L.L.P., independent public accountants, who rendered an
independent professional opinion on the financial statements prepared by
management. The financial statements as of September 30, 1997 have been
reviewed by Hannis T. Bourgeois & Co., L.L.P. in accordance with standards
established by the American Institute of Certified Public Accountants.
/s/Winston E. Canning
Winston E. Canning
Secretary
16