ZACHARY BANCSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
President's Message...................................... 1 - 2
Independent Auditor's Report............................. 3
Consolidated Balance Sheets
December 31, 1997 and 1996............................. 4
Consolidated Statements of Income
for the years ended December 31, 1997 and 1996......... 5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997
and 1996............................................... 6
Consolidated Statements of Cash Flows for the
years ended December 31, 1997 and 1996................. 7-8
Notes to Consolidated Financial Statements
December 31, 1997 and 1996............................. 9-25
Condensed Consolidated Balance Sheets
December 31, 1997, 1996, 1995, 1994 and 1993........... 26
Condensed Consolidated Statements of Income
for the years ended December 31, 1997, 1996, 1995,
1994 and 1993.......................................... 26
Average Balance Sheets and Interest Rate Analysis
for the years ended December 31, 1997 and 1996......... 27
Interest Differential
for the year ended December 31, 1997................... 28
Condensed Consolidated Statements of Income
for the quarter periods in the years ended
December 31, 1997 and 1996............................. 28
Management's Discussion and Results of Operation......... 29-33
Officers................................................. 34
Board of Directors....................................... 34
Bank Locations........................................... 34
ZACHARY BANCSHARES, INC.
March 17, 1998
Dear Shareholders:
Zachary Bancshares, Inc. had income of $927,240 in 1997 as
compared to $819,326 in 1996. Our Board of Directors paid a cash
dividend of $1.75 in 1997 as compared to $1.65 in 1996 and our
return on average equity was 11.71%.
The Bank's total assets increased from $76,027,427 as of
December 31, 1996 to $77,805,680 as of December 31, 1997. Our
loan to deposit ratio increased from 53.45% in 1996 to 65.58% in
1997. Total loans grew from $36,439,826 to $45,369,723 in 1997.
Zachary has continued to grow in 1997. Judge Lonny Myles
opened a new attorney office. Lane Memorial Hospital has
finished the new construction on their emergency room and the
Bank of Zachary has added an ATM for the convenience of the
employees and customers of the hospital. Lane Memorial has also
just completed the construction of several new doctors' offices
at the corner of Hwy 64 and McHugh Road.
Dr. Eddie Annison opened the Plains Veterinary Hospital on Hwy
64. Zachary Realty has just about completed the construction on
Plainsland Estates Subdivision on the corner of Hwy 964 and
Plains Port Hudson Road. Gaines Builders has just purchased land
for a new subdivision south of Zachary on 964. We also have a
new 80 room retirement center under construction on McHugh Road
behind the hospital. A new Texaco Station is to be built at the
corner of Hwy 64 and 964. Winn Dixie has purchased five acres on
Hwy 19 to build a new Market Place Winn Dixie. Home Builders
Center, Inc. should soon finish construction of its 12,000 sq.
ft. store and lumber yard on Hwy 64 near Plank Road.
We broke ground March 03, 1998 for our new two story, 15,874
sq. ft. main office, a six lane drive up area, a drive up ATM
with a night depository and an 1800 sq. ft. storage building.
All of our banking services will be housed in this one building
which will take about 48 weeks to construct. The Bank will be
built by H.B.E. Financial Facilities, a leading nationwide
financial institution design/build firm, a division of St. Louis
based H.B.E. Corporation.
In 1997, Michael Word, the Specialized Investment Division
Broker, located in the Bank lobby, was 8th in production out of
the 100 brokers for Specialized Investments in financial
institutions across the country. We are the smallest financial
institution where they have a broker.
Back in 1904 seventy-one original stockholders, out of a town
of less than 400 people, had a dream of starting their own bank
and
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making Zachary a better place to live. They were mainly from
agricultural backgrounds who, when giving you their word, looked
you straight in the eye and gave you a firm hand shake. When it
came time to integrate the schools we worked together, black and
white, to make things work. As a result, we ended up having one
of the best community schools in the parish. This started
drawing more families to Zachary.
As acquisitions and mergers of East Baton Rouge Parish banks to
state and regional banks have occurred, Bank of Zachary has
remained the only original independent community bank still
serving its local market. Zachary has become the fastest growing
city of its size in the state. The Bank of Zachary along with
city officials and local business leaders is proud to be a part
of this growth. We are very thankful for the successes that
Zachary has achieved.
We thank you, the shareholders, as well as the directors,
officers and employees for your continued support and in forty
eight weeks, we will have a new bank building which will say
across the front:
BANK OF ZACHARY
SERVING YOU SINCE 1904
Sincerely,
Harry S. Morris, Jr.
President
3
HANNIS T. BOURGEOIS & CO., L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
2322 TREMONT DRIVE, SUITE 200
BATON ROUGE, LA 70809
1 (504) 928 4770
January 10, 1998
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, 1997
and 1996, and the related Consolidated Statements of Income,
Changes in Stockholders' Equity and Cash Flows for the years
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 estimates made by management, as well as
evaluating the overall financial statement 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, 1997 and 1996, and the results of their
operations, changes in their stockholders' equity and their
cash flows for the years then ended, in conformity with gener
ally accepted accounting principles.
Respectfully submitted,
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
Cash and Due from Banks $ 2,481,869 $3,654,801
Interest Bearing Deposits in Other
Institutions 95,046 111,469
Reserve Funds Sold 1,700,000 850,000
Securities Available for Sale (Amortized
Cost of $25,624,161 and $32,554,647) - 25,620,114 32,528,819
Loans $46,141,573 $37,260,053
Less: Allowance for Loan Losses (771,850) (820,227)
$45,369,723 $36,439,826
Bank Premises and Equipment 1,693,887 1,339,439
Other Real Estate 217,401 408,181
Accrued Interest Receivable 558,501 612,568
Other Assets 69,139 82,324
Total Assets $77,805,680 $76,027,427
LIABILITIES
Deposits
Noninterest Bearing $14,418,082 $12,327,349
Interest Bearing 54,762,690 55,841,920
$69,180,772 $68,169,269
Accrued Interest Payable 188,188 185,288
Other Liabilities 221,985 60,994
Total Liabilities $69,590,945 $68,415,551
STOCKHOLDERS' EQUITY
Common Stock - $10 par value;
authorized 2,000,000 shares;
issued 216,000 shares $ 2,160,000 $ 2,160,000
Surplus 1,480,000 1,480,000
Retained Earnings 5,024,066 4,435,582
Unrealized Gain (Loss) on Securities
Available for Sale, Net ( 2,671) (17,046)
Treasury Stock - 22,333 Shares, at Cost (446,660) (446,660)
Total Stockholders' Equity 8,214,735 7,611,876
Total Liabilities and Stockholders'
Equity $77,805,680 $76,027,427
The accompanying notes are an integral part of these financial
statements.
5
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1997 and 1996
1997 1996
Interest Income:
Interest and Fees on Loans $3,601,644 $2,938,522
Interest on Securities 1,758,344 2,033,691
Other Interest Income 112,694 147,658
Total Interest Income $5,472,682 $5,119,871
Interest Expense on Deposits 2,148,247 2,125,503
Interest Expense on Borrowings - 777
Total Interest Expense $2,148,247 $2,126,280
Net Interest Income 3,324,435 2,993,591
Provision for Loan Losses 30,854 -
Net Interest Income after
Provision for Loan Losses $3,293,581 $2,993,591
Other Income:
Service Charges on
Deposit Accounts $ 505,552 501,746
Gain(Loss) on Securities (5,391) (64)
Other Operating Income 158,307 99,311
Total Other Income $ 658,468 600,993
Income before Other Expenses $3,925,049 $3,594,584
Other Expenses:
Salaries and Employee Benefits $1,462,089 $1,375,678
Occupancy Expense 162,977 195,399
Net Other Real Estate Expense 5,648 (1,053)
Other Operating Expenses 924,521 792,365
Total Other Expenses $2,555,235 $2,362,389
Income before Income Taxes $1,396,814 $1,232,195
Applicable Income Tax 469,412 412,869
Net Income $ 927,402 $ 819,326
Per Share
Net Income $ 4.79 $ 4.23
Cash Dividends $ 1.75 $ 1.65
The accompanying notes are an integral part of these financial
statements.
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Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
1997 1996
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 $ 4,435,582 $ 3,935,807
Net Income 927,402 819,326
Cash Dividends (338,918) (319,551)
Balance - End of Year $ 5,024,066 $ 4,435,582
Net Unrealized Gain (Loss) on Securities
Available for Sale:
Balance - Beginning of Year $ (17,046) $ 38,260
Net Change in Unrealized Gain
on Securities Available for Sale 14,375 (55,306)
Balance - End of Year $ (2,671) $ (17,046)
Treasury Stock:
Balance - Beginning and
End of Year $ (446,660) $ (446,660)
The accompanying notes are an integral part of these financial
statements.
7
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
1997 1996
Cash Flows From Operating Activities:
Net Income $ 927,402 $ 819,326
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision (Credit) for Loan Losses 30,854 -
Provision for Depreciation 180,180 104,763
Provision (Credit) for Deferred Tax (8,198) 108,776
Amortization (Accretion) of Securities
Premiums (Discounts) (14,016) 16,195
Dividends on FHLB Stock (36,200) (13,100)
(Gain) Loss on Sale of Securities 5,391 64
Gain on Sale of Other Real Estate (11,685) (12,971)
(Increase) Decrease in Interest
Receivable 54,067 (28,021)
(Increase) Decrease in Other Assets 13,185 2,210
Increase (Decrease) in Interest Payable 2,900 15,010
Increase (Decrease) in Other Liabilities 161,783 (176,225)
Net Cash Provided by Operating
Activities $ 1,305,663 $ 836,027
Cash Flows From Investing Activities:
Net (Increase) Decrease in Interest Bearing
Deposits in Other Institutions $ 16,423 $ (11,367)
Net (Increase) Decrease in Reserve
Funds Sold (850,000) 1,850,000
Purchases of Securities (7,033,096)(13,412,708)
Proceeds from Maturities of Securities 5,078,682 8,847,206
Proceeds from Sale of Securities 8,929,725 2,024,375
Net (Increase) Decrease in Loans (8,960,751) (6,852,379)
Purchases of Premises and Equipment (534,628) (508,650)
Sales of Other Real Estate 202,465 76,164
Net Cash Used in Investing
Activities (3,151,180) (7,987,359)
(CONTINUED)
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Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
for the years ended December 31, 1997 and 1996
1997 1996
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and Savings
Accounts $(1,556,661) $ 6,565,247
Net Increase in Certificates of
Deposit 2,568,164 2,247,497
Cash Dividends (338,918) (319,551)
Net Cash Provided by Financing
Activities $ 672,585 $8,493,193
Increase (Decrease) in Cash and Due
from Banks $(1,172,932) $ 1,341,861
Cash and Due from Banks - Beginning
of Year 3,654,801 2,312,940
Cash and Due from Banks - End of Year $ 2,481,869 $ 3,654,801
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 $ 21,781 $ (83,797)
Change in Deferred Tax Effect on
Unrealized Gain (Loss) on Securities
Available for Sale $ (7,406) $ 28,491
Cash Payments for:
Interest Paid on Deposits $ 2,145,347 $ 2,110,493
Income Tax Payments $ 475,000 $ 329,000
The accompanying notes are an integral part of these financial
statements.
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Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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.
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, 1997 and 1996.
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
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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 stockhold
ers' equity, net of the related deferred tax effect. Realized
gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
Loans
Loans are stated at principal amounts outstanding, less the
allowance for loan losses. Interest on commercial loans is ac
crued 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.
11
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 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 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 acquisition of these
properties are charged against the allowance for loan
losses. Any subsequent market reductions required are
charged to Net Other Real Estate Expense. Revenues and
expenses associated with maintaining or disposing of foreclosed
properties are recorded during the period in which they
are incurred.
Income Taxes
The provision for income taxes is based on income as
reported in the financial statements after interest income from
state and municipal securities is excluded. Also certain
items of income and expenses are recognized in different
time periods for financial statement purposes than for income
tax purposes. Thus provisions for deferred taxes are
recorded in recognition of such timing differences.
Deferred taxes are provided on a liability method in
accordance with SFAS No. 109 whereby deferred tax assets are
recognized for deductible temporary differences and operating
loss and tax credit
12
carry-forwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and
liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
The corporation and its subsidiary file a consolidated fed
eral income tax return. In addition, state income tax returns
are filed individually by Company in accordance with state stat
utes.
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 1997 and 1996.
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 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 recognize financial assets when control
has been extinguished. The application of this statement has
no effect on the financial statements as of December 31, 1997.
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, 1997 and 1996 were approximately $572,000 and
$655,000, respectively.
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Note C - Securities -
Amortized cost amounts and fair values of securities
available for sale at December 31, 1997 and 1996 are summarized
as follows:
1997
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
U.S. Treasury
Securities $ 1,980,063 $ 10,562 $ - $ 1,990,625
Securities of Other
U.S. Government
Agencies 12,519,211 59,201 (3,674) 12,574,738
Mortgage-Backed
Securities 5,694,931 50,409 (971) 5,744,369
1997
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Collateralized Mortgage
Obligations $ 5,166,656 $ - $ (119,574) $5,047,082
Equity Securities 263,300 - - 263,300
Total $25,624,161 $ 120,172 $ (124,219) $5,620,114
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
1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Collaterized Mortgage
Obligations 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
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The amortized cost and fair values of securities available for
sale as of December 31, 1997 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.
AMORTIZED FAIR
COST VALUE
Within One Year $ 4,479,100 $ 4,485,987
One to Five Years 6,984,476 7,021,376
Five to Ten Years 2,001,852 2,016,000
Ten to Fifteen Years 1,033,846 1,042,000
$14,499,274 $14,565,363
Securities available for sale with a fair value of
$20,360,176 and $18,104,735 at December 31, 1997 and 1996,
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 $263,300 with no
unrealized gains or loss at December 31, 1997.
Gross realized gains and losses from the sale of
securities for the years ended December 31, 1997 and 1996
are as follows:
1997 1996
Realized Gains $ 4,449 $ 23,686
Realized Losses (9,840) (23,750)
$ (5,391) $ (64)
Note D - Loans -
An analysis of the loan portfolio at December 31, 1997 and
1996, is as follows:
1997 1996
Real Estate Loans - Construction $ 4,014,705 $ 3,646,767
Real Estate Loans - Mortgage 33,865,106 27,004,473
Loans to Farmers 81,779 65,163
Commercial and Industrial Loans 5,112,686 2,210,904
Loans to Individuals 2,832,383 3,752,088
All Other Loans 234,914 580,658
Total Loans $46,141,573 $37,260,053
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The Bank had non-performing loans on a non-accrual basis
totaling approximately $216,598 and $181,800 at December
31, 1997 and 1996, respectively. The Bank recognized
$4,962 and $4,736 in interest income relating to these
loans during the years ended December 31, 1997 and 1996.
Had the loans been performing, approximately $18,035 and
$18,154 of additional interest income would have been
recognized for the years ended December 31, 1997 and 1996.
Loans contractually past due 90 days or more, in addition
to loans on non-accrual, were -0- at December 31, 1997
and 1996, respectively. The Company has no impaired loans
at December 31, 1997, in accordance with SFAS No. 114.
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 $631,701 and $792,412 at December 31, 1997 and
1996, respectively. An analysis of the aggregate of these
loans for 1997, is as follows:
Balance - Beginning of Year $ 792,412
New Loans 450,578
Repayments (611,289)
Balance - End of Year $ 631,701
Note E - Allowance for Loan Losses -
Following is a summary of the activity in the allowance
for loan losses:
1997 1996
Balance - Beginning of Year $ 820,227 $ 820,000
Current Provision from Income 30,854 -
Recoveries of Amounts Previously
Charged Off 16,569 20,055
Amounts Charged Off (95,800) (19,828)
Balance - End of Year $ 771,850 $ 820,227
Ratio of Reserve for Possible Loan
Losses to Non-Performing Loans
at End of Year 356.35% 451.08%
Ratio of Reserve for Possible Loan
Losses to Loans Outstanding at
at End of Year 1.67% 2.20%
Ratio of Net Loans Charged Off to
Average Loans Outstanding for
the year .19% (.01)%
16
Note F - Bank Premises and Equipment -
Bank premises and equipment costs and the related
accumulated depreciation at December 31, 1997 and 1996,
are as follows:
ACCUMULATED
ASSET COST DEPRECIATION NET
December 31, 1997:
Land $ 450,908 $ - $ 450,908
Bank Premises 743,265 475,118 268,147
Furniture and Equipment 1,651,862 928,691 723,171
Construction in Progress 251,661 - 251,661
$ 3,097,696 $ 1,403,809 $1,693,887
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
The provision for depreciation charged to operating
expenses was $180,180 and $104,763, respectively, for the
years ended December 31, 1997 and 1996.
Note G - Deposits -
Following is a detail of deposits:
1997 1996
Demand Deposit Accounts $14,418,082 $12,327,349
NOW and Super NOW Accounts 10,341,151 14,442,373
Money Market Accounts 4,639,948 4,498,050
Savings Accounts 7,809,647 7,497,717
Certificates of Deposit Over $100,000 15,437,497 11,257,527
Certificates of Deposit 16,534,447 18,146,253
$69,180,772 $68,169,269
Interest expense on certificates of deposit over $100,000
for the years ended December 31, 1997 and 1996, amounted to
$610,768 and $573,747, respectively.
Public fund deposits at December 31, 1997 and 1996, were
$14,664,896 and $14,543,810, respectively.
Note H - Stockholders' Equity and Regulatory Matters -
Stockholders' Equity of the Company includes the
undistributed earnings of the Bank. 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.
17
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
profits for the preceding year. As of January 1, 1998, the Bank
had retained earnings of $5,614,153 of which $1,006,189 was
available for distribution without prior regulatory approval.
The Company and the Bank are subject to various regulatory
capital requirements administered by federal and state banking
agencies. Failure to meet minimum regulatory capital
requirements can initiate certain mandatory, and possible
additional discretionary actions by regulators, that if
undertaken, could have a direct material affect on the Company's
financial statements. Under the capital adequacy guidelines and
the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines
involving quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company and the Bank's capital amounts
and classification under the prompt corrective action guidelines
are also subject to qualitative judgments by regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company to maintain minimum amounts
and ratios. As detailed below, as of December 31, 1997 and 1996,
the Company met all of the capital requirements to which it is
subject.
As of December 31, 1997 and 1996, the Company was categorized
as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since the
most recent notification the management believes have changed the
prompt corrective action category.
Following is a summary of capital levels at December 31, 1997
and 1996:
TO BE WELL
CAPITALIZED UNDER
ACTUAL REQUIRED FOR CAPITAL PROMPT CORRECTIVE
RATIOS ADEQUACY PURPOSES ACTION PROVISIONS
As of December 31,
1997:
Total Capital (to
Risk- Weighted
Assets) 19.22% 8.00% 10.00%
Tier I Capital(to
Risk-Weighted
Assets) 18.14% 4.00% 6.00%
Tier I Leveraged
Capital (to
Average Assets) 10.38% 4.00% 5.00%
18
As of December 31,
1996:
Total Capital(to
Risk- Weighted
Assets) 22.28% 8.00% 10.00%
Tier I Capital(to
Risk- Weighted
Assets) 21.02% 4.00% 6.00%
Tier I Leveraged
Capital(to
Average Assets) 9.48% 4.00% 5.00%
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, 1997 and 1996.
Note I - Employee Benefit Plans -
The Bank of Zachary has a defined contribution Profit Shar
ing 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 $56,839 and $50,572 for the years ended December 31,
1997 and 1996.
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 con
tribution to a maximum of 7% of gross pay in 1997 and 1996.
Contributions charged to expense for this plan were $28,161
and $34,428 for the years ended December 31, 1997 and 1996,
respectively.
Note J - Other Operating Expenses -
An analysis of Other Operating Expenses for the years
ended December 31, 1997 and 1996, is as follows:
1997 1996
Data Processing $ 29,093 $ 87,058
Computer and Office Expenses 320,221 175,929
Professional Fees 100,270 132,271
Other 474,937 397,107
$ 924,521 $ 792,365
Note K - Income Tax -
The total provision for income taxes charged to income
amounted to $469,412 and $412,869 for 1997 and 1996,
respectively. The provisions represent effective tax
rates of 34% in 1997 and 1996.
19
Following is a reconciliation between income tax expense
based on the federal statutory tax rates and income taxes
reported in the statements of income.
1997 1996
Income Taxes Based on Statutory
Rate - 34% in 1997 and 1996 $ 474,917 $ 418,946
Other - Net (5,505) (6,077)
$ 469,412 $ 412,869
$ 469,412 $ 412,869
The components of consolidated income tax expense (benefits)
are:
Provision for Current Taxes $ 477,610 $ 304,093
Provision(Credit) for
Deferred Taxes (8,198) 108,776
$ 469,412 $ 412,869
A deferred income tax liability of $60,202 is included in
other liabilities at December 31, 1997. A deferred income tax
liability of $60,994 is included in other liabilities at
December 31, 1996.
The deferred tax provision consists of the following timing
differences:
1997 1996
Accumulated Depreciation for Tax
Reporting in Excess of Amount
for Financial Reporting $ 7,433 $ (1,454)
Provision for Loan Losses
for Tax Reporting in Excess
of Amount for Financial Reporting - 41,025
Provision for Loan Losses
for Financial Reporting in
Excess of Amount for Tax (9,594) -
Accretion Income for Financial
Reporting in Excess of
Tax Reporting - 21,338
Accretion Income for Tax Reporting in
Excess of Financial Reporting (9,320) -
Provision for Deferred Leave for
Financial Reporting in Excess of
the Amount for Tax Reporting - 58,756
Hospitalization Expense for Financial
Reporting in Excess of Amount for
Tax Reporting - (10,889)
20
Hospitalization Expense for Tax Reporting
in Excess of Amount for Financial
Reporting 3,283 -
$ (8,198) $ 108,776
The net deferred tax asset (liability) consist of the
following components at December 31, 1997 and 1996:
1997 1996
Depreciation $ (45,102) $ (37,669)
Provision for Loan Losses (6,115) (15,709)
Accretion Income (26,345) (35,665)
Self-Insured Hospitalization Plan 15,984 19,267
Unrealized (Gain) Loss on Securities
Available for Sale 1,376 8,782
Total Deferred Tax Asset (Liability) $(60,202) $(60,994)
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.
These instruments involve, to varying degrees, elements 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 $6,343,932 and $3,626,213 as of December
31, 1997 and 1996,respectively. Commitments as of December 31,
1997 include unfunded loan commitments aggregating $6,263,132 and
letters of credit of $80,800. Commitments as of December 31,1996
include unfunded loan commitments aggregating $3,567,295 and
letters of credit of $58,918.
The Bank has three lines of credit available to assist in the
management of short-term liquidity. Two lines are with other
financial institutions and total $3,500,000. The third is with
the Federal Home Loan Bank of Dallas and is for approximately
$5,344,000. Total available lines of credit as of December
31,1996 were $8,108,00. No funds were drawn on any of these
lines at December 31, 1997 or 1996.
21
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 discounted 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 do not differ significantly from the commitment
amount and are therefore omitted from this disclosure.
The estimated approximate fair values of the Bank's
financial instruments as of December 31, 1997 and 1996 are as
follows:
1997
CARRYING FAIR
AMOUNT VALUE
Financial Assets:
Cash and Short-Term Investments $ 4,276,915 $4,276,915
Securities 25,620,114 25,620,114
Loans-Net 45,369,723 45,915,000
$75,266,752 $75,812,029
Financial Liabilities:
Deposits $69,180,772 $69,025,828
22
1996
CARRYING FAIR
AMOUNT VALUE
Financial Assets:
Cash and Short-Term Investments $ 4,616,270 $ 4,616,270
Securitie s 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
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 - Commitments and Contingencies -
The Bank has entered into a contract for the construction of a
new main office facility to be located in Zachary, Louisiana.
The estimated construction cost of the facility per the contract
is $2,876,700. The project is scheduled to begin in the first
quarter of 1998 with completion anticipated in the first quarter
of 1999. The project is expected to have an impact on the
results of operations primarily through increased depreciation
expense. Financing alternatives are currently be evaluated.
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.
23
Note P - Financial Information - Parent Company Only -
The financial statements for Zachary Bancshares, Inc. (Parent
Company) are presented below:
BALANCE SHEETS
December 31, 1997 and 1996
1997 1996
Assets:
Cash $ 429,932 $ 383,339
Investment in Subsidiary 7,811,482 7,220,412
Other Assets - 37,577
Total Assets $ 8,241,414 $ 7,641,328
Liabilities:
Income Tax Payable $ 6,059 $ -
Due to Subsidiary 20,620 29,452
Total Liabilities $ 26,679 $ 29,452
Stockholders' Equity:
Common Stock $2,160,000 $2,160,000
Surplus 1,480,000 1,480,000
Retained Earnings 5,021,395 4,418,536
Treasury Stock (446,660) (446,660)
Total Stockholders' Equity $8,214,735 $7,611,876
Total Liabilities and Stockholders'
Equity $8,241,414 $7,641,328
STATEMENTS OF INCOME
for the years ended December 31, 1997 and 1996
1997 1996
Income:
Dividend from Subsidiary $ 360,000 $400,000
Expenses:
Operating Expenses 15,515 18,299
Income before Equity in Undistributed
Net Income of Subsidiary 344,485 381,701
Equity in Undistributed Net Income
of Subsidiary 576,695 429,494
Net Income before Income Taxes 921,180 811,195
Applicable Income Tax Expense (Benefit) (6,222) (8,131)
Net Income $ 927,402 $ 819,326
24
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
1997 1996
Cash Flows From Operating Activities:
Net Income $ 927,402 $ 819,326
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed Net Income
of Subsidiary (576,695) (429,494)
(Increase) Decrease in Other Assets 37,577 (24,901)
Increase (Decrease) in Due to Subsidiary (8,832) 16,776
Increase (Decrease) in Income Tax Payable 6,059 -
Net Cash Provided by Operating
Activities 385,511 381,707
Cash Flows From Financing Activities:
Dividends Paid (338,918) (319,551)
Net Cash Used in Financing
Activities (338,918) (319,551)
Net Increase (Decrease) in Cash 46,593 62,156
Cash - Beginning of Year 383,339 321,183
Cash - End of Year $ 429,932 $ 383,339
25
Zachary Bancshares, Inc. and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1997, 1996, 1995, 1994 and 1993
ASSETS
1997 1996 1995 1994 1993
Cash and Due
from Banks $ 2,576,915 $ 3,766,270 $ 2,413,042 $2,592,065 $ 2,446,066
Securities 27,320,114 33,378,819 32,774,648 31,785,000 39,529,128
Loans 45,369,723 36,439,826 29,607,051 27,421,397 20,031,325
Other Assets 2,538,928 2,442,512 2,075,694 2,609,584 2,448,210
Total Assets $77,805,680 $76,027,427 $66,870,435 $64,408,046 $64,454,729
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $69,180,772 $68,169,269 $59,356,525 $58,404,821 $57,796,596
Other Liabilities 410,173 246,282 346,503 324,754 339,691
Stockholders'
Equity 8,214,735 7,611,876 7,167,407 5,678,471 6,318,442
Total Liabilities
and Stockholders'
Equity $77,805,680 $76,027,427 $66,870,435 $64,408,046 $64,454,729
Selected Ratios:
Loans to Assets 58.31% 47.93% 44.27% 42.57% 31.08%
Loans to Deposits 65.58% 53.45% 49.88% 46.95% 34.66%
Deposits to Assets 88.91% 89.66% 88.76% 90.68% 89.67%
Equity to Assets 10.56% 10.01% 10.72% 8.82% 9.80%
Return on Average
Assets 1.23% 1.11% 1.14% 1.11% 1.36%
Return on Average
Equity 11.71% 11.50% 12.13% 12.19% 15.34%
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1997, 1996, 1995, 1994 and 1993
1997 1996 1995 1994 1993
Interest Income $ 5,472,682 $ 5,119,871 $ 4,684,130 $4,188,994 $ 4,165,960
Interest Expense 2,148,247 2,126,280 1,826,859 1,356,065 1,333,250
Net Interest
Income 3,324,435 2,993,591 2,857,859 2,832,929 2,832,710
Provision (Credit) for
Loan Losses 30 854 - (77,374) (42,338) -
Net Interest after
Provision for
Loan Losses 3,293,581 2,993,591 2,934,645 2,875,267 2,832,710
Other Income 658,468 600,993 542,664 445,561 658,679
Other Expenses 2,555,235 2,362,389 2,326,014 2,218,122 2,140,574
Income before
Income Taxes 1,396,814 1,232,195 1,151,295 1,102,706 1,350,815
Applicable Income
Tax Expense 469,412 412,869 385,512 388,470 460,478
Net Income $ 927,402 $ 819,326 $ 765,783 $ 725,236 $ 890,337
Per Share:
Net Income $ 4.79 $ 4.23 $ 3.95 $ 3.75 $ 4.60
Cash Dividends $ 1.75 $ 1.65 $ 1.50 $ 1.35 $ 1.20
Book Value -
End of Year $ 42.42 $ 39.30 $ 37.01 $ 29.32 $ 32.63
26
Zachary Bancshares, Inc. and Subsidiary
AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
for the years ended December 31, 1997 and 1996
1997
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
ASSETS
Interest Earning
Deposits and
Reserve Funds $ 2,773,000 $ 112,694 5.42% $ 2,773,000 $ 147,658 5.32%
Securities:
Taxable 28,156,000 1,758,344 6.25 33,224,000 2,033,691 6.12
Loans-Net 40,690,000 3,601,644 8.85 33,645,000 2,938,522 8.73
Total Earning
Assets 70,925,000 5,119,871 7.35% 69,642,000 5,119,871 7.35%
Allowance for
Loan Losses (809,000)
Nonearning
Assets 5,180,000
Total Assets $75,296,000
LIABILITIES AND STOCKHOLDERS' EQUITY
FHLB Borrowings $ - - - $ 13,000 $ 777 5.98%
Savings and NOW
Accounts 19,809,000 589,931 2.98 19,065,000 563,929 2.96
Insured Money
Market Accounts 4,964,000 107,307 2.16 5,155,000 102,286 1.98
Certificates of
Deposit 28,770,000 1,451,009 5.04 28,592,000 1,459,288 5.10
Total Interest
Bearing
Liabilities 53,543,000 2,148,247 4.01 52,825,000 2,126,280 4.03%
Demand Deposits 13,269,000 13,042,000
Other Lia
bilities 562,000 567,000
Stockholders'
Equity 7,922,000 7,122,000
Total Liabilities
and Stockholders'
Equity $75,296,000 $73,556,000
Net Interest Income $3,324,435 $2,993,591
Net Interest Income - Spread 3.71% 3.32%
Net Interest Income as a % of
Total Earning Assets 4.69% 4.30%
Zachary Bancshares, Inc. and Subsidiary
INTEREST DIFFERENTIAL
for the year ended December 31, 1997
1997 OVER 1996
CHANGE TOTAL
ATTRIBUTABLE TO INCREASE
VOLUME RATE (DECREASE)
Interest Earning Assets:
Reserve Funds Sold $ (37,329) $ 2,365) $ (34,964)
Securities (314,349) 39,002 (275,347)
Loans 618,888 44,234 663,122
Total Interest Income 267,210 85,601 352,811
Interest Bearing Liabilities:
Bank Borrowings (777) - (777)
Savings and NOW
Accounts 22,106 3,896 26,002
Insured Money
Market Accounts (4,020) 9,041 5,021
Certificates of Deposit 8,977 (17,256) (8,279)
Total Interest Expense 193,311 106,110 299,421
Increase (Decrease) in Interest
Differential $ 240,924 $ 89,920 $ 330,844
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the quarter periods in the years ended December 31, 1997
and 1996
1997
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
Interest Income $1,420,659 $1,410,438 $1,344,448 $1,297,137
Interest Expense 549,390 534,827 533,458 530,872
Net Interest Income 871,269 875,611 811,290 766,265
Provision for
Loan Losses 7,395 8,245 7,735 7,479
Net Interest Income
after Provision
for Loan Losses 863,874 867,366 803,555 758,786
Other Income 166,216 181,160 161,327 151,068
Other Expenses 673,466 654,114 618,991 609,967
Income before
Income Taxes 356,624 394,412 345,891 299,887
Applicable Income Tax
Expense 131,134 124,500 117,725 96,053
Net Income $ 225,490 $ 269,912 $ 228,166 $ 203,834
Per Share:
Net Income $ 1.17 $ 1.39 $ 1.18 $ 1.05
Cash Dividend $ .95 $ - $ .80 $ -
See auditor's report on the selected financial and statistical data.
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 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 Taxes 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 $ -
ApplicableIncome Tax
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 li
quidity. 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 1997 and 1996. 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 Capi
tal requirements for 1997 and 1996 were 8.0%. Regulatory Lever
age Ratio requirements were 4% for the same time period. The
Company's Equity to Assets Ratio (below) includes the effect of
the Unrealized Loss ($4,047) on Securities discussed in Note C.
The Company's ratios as of December 31 are as follow:
1997 1996
Risk Based Capital Ratio 18.14% 21.02%
Leverage Ratio 10.38% 9.48%
Equity to Assets Ratio 10.04% 10.01%
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 struc
ture. The Company's earnings retention ratios at December 31 are
as follows:
Shareholder Retention
Net Income Dividends Ratio
1997 $927,402 $338,918 63%
1996 $819,326 $319,550 61%
The Company distributed to shareholders, cash dividends of
$1.75 and $1.65 per share in 1997 and 1996, respectively.
LIQUIDITY
Liquidity management is the process of ensuring that the Ba
nk'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.
29
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.
RESULTS OF OPERATIONS
Overview
Zachary Bancshares, Inc.'s (ZBI) net income for 1997 was
$927,402 compared to $819,326 for 1996 or a 13.2% 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 %)
97 to 96 96 to 95
Stockholders' Equity $ 602,859 or 7.9% $ 444,469 or 6.2%
Average Assets $1,740,000 or 2.4% $6,391,000 or 9.5%
Earnings Analysis
The Company's 1997 Net Interest Income increased 11.1%. Net
Interest Income in 1996 was $3,324,435 compared to $2,993,591 for
1996.
Average earning assets were $70,925,000 in 1997 compared to
69,642,000 in 1996. The following table depicts the Company's
average earning assets components in thousands of dollars and the
respective percentage relationship.
1997 1996
Reserve & FHLB Funds $ 2,079 03% $ 2,773 04%
Securities 28,156 40% 33,224 48%
Loans (Net) 40,690 57% 33,645 48%
Average Earning Assets $70,925 100% $69,642 100%
The previous table indicates average earning assets growth.
Management actively pursued increases in the Company's loan
portfolio in 1997 and 1996. The majority of the Company's loans
are secured by local, single family dwellings, with a fixed rate
and 5 year balloon repricing terms.
30
Average deposit liabilities were $66,812,000 in 1997 compared
to
$65,867,000 in 1996. The following table depicts ZBI's average
deposit liabilities components and the respective percentage
relationship, dollars in thousands.
1997 1996
FHLB Borrowings $ 0 0% $ 13 0%
Demand Deposits 13,269 20% 13,042 20%
Savings & NOW 19,809 30% 19,065 28%
Money Market 4,964 7% 5,155 8%
Certificates 28,770 43% 28,592 44%
Average Depositor Liability $66,812 100% $65,854 100%
As interest rates decreased in recent years, depositors have
moved funds from the longer maturities (Certificates) into
shorter maturities. Management 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 $3,000,000 in Public Funds
deposits in the fourth quarter of 1997 which have an average
maturity of one year.
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 average earning assets.
1997 1996
Net Interest Spread 3.71% 3.32%
Net Interest Margin 4.69% 4.30%
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, 1997 was 101.72% at the one year
time horizon and 115.00% at the 24 month time horizon. The 12
month GAP of 101.72% indicates $565,000 more assets will reprice
than liabilities. The 24 month horizon will reprice $6,078,000
more assets than liabilities.
The Company uses computer simulation to predict the net
interest margin change at various interest rate shifts. The
December 1997 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.
31
The Company sold Securities in 1997 resulting in a $5,391
cumulative loss; sales in 1996 resulted in a $64 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 provide 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 following table reflects year end Allowance and
Provision totals:
1997 1996
Allowance for Losses $771,850 $820,227
Provision for Losses $ 30,854 $ -
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 identification and monitoring of
potentially deteriorating credits. Management 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 financial position has weakened or the ability
to comply with contractual agreements becomes reasonably
doubtful. Restructured loans have had original contractual
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:
1997 1996
Non-Accrual Loans $216,598 $181,800
Restructured Loans - 58,231
Other Real Estate 217,401 408,181
Total $433,999 $648,212
32
The Company maintains an internal Watch List for Management
purposes for loans (both performing and non-performing) that have
been identified 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:
1997 1996
$1,316,800 $1,600,000
In 1997, the Company realized a $11,684 Gain on Sale of Other
Real Estate, similar 1996 sales resulted in a $12,971 Gain on
Sale.
Other Income
Service Charges on Deposit Accounts were flat for the years
under consideration as the Company offered new products which
included reduced monthly service fees which offset higher
volumes. Other Income increased 59.4% or $58,996 in 1997, this
increase included fee income from investment sales which the
Company received under the terms of a contract with a third party
which offers discount brokerage service at the Company's
facility.
Other Expense
Salaries and Employee benefits increased 6.3% to $1,462,089
compared to $1,375,678 in 1997 due primarily to an employee
performance bonus plan which was implemented in 1997. Occupancy
expense decreased 16.6% to $162,977 from $195,399 in 1996. 1996
included facilities improvements which were not necessary in
1997. Other Operating Expenses increased 16.7% as the Company
converted to an inhouse computer system from a service bureau
environment which resulted in increased equipment and software
depreciation. In addition, there was an increase in supplies and
printing and other one time costs as a result of this computer
conversion.
Income Tax
The Company was fully taxable in both 1997 and 1996 and
expects to remain so in 1998.
33
ZACHARY BANCHARES, INC. ZACHARY BANCSHARES, INC. BANK LOCATIONS
OFFICERS AND BANK OF ZACHARY
DIRECTORS MAIN OFFICE
Harry S. Morris, Jr. 4700 Main Street
President & C.E.O. Russell Bankston
Chairman of the Board
Winston E. Canning The Plaza
Secretary Rodney S. Johnson 2210 Hwy 64, Zachary
Vice Chairman
Larry Bellard
Treasurer Hardee M. Brian
Winston E. Canning Central Branch
Howard L. Martin, M.D. 13444 Hooper Road
Albert C. Mills, III, PhD. Baton Rouge
BANK OF ZACHARY Harry S. Morris, Jr.
OFFICERS
Harry S. Morris, Jr. Director Emeritus
President & C.E.O. A. C. Mills, Jr. INFORMATION
Leonard Aguillard
Winston E. Canning Request for additional
Executive Vice President information or copies
and Cashier of Form 10KSB filed
with the Securities
Larry Bellard and Exchange Com
Vice President mission in Washington,
D.C. should be directed
Gerard R. "Bubba" Beatty to:
Vice President
Chief Financial Officer
Warren Couvillion STOCK INFORMATION Zachary Bancshares,Inc.
Vice President Post Office Box 497
The Company's stock is not Zachary, LA 70791-0497
Kathleen Parker listed on any security
Vice President exchange. Therefore, TRANSFER AGENT
Zachary Bancshares, Inc. & REGISTRAR
Judy Andrews does not have exchange
AssistantVice President data that provides high and Bank of Zachary
low stock prices. The Post Office Box 497
Ethel Mae Womack Company did not have stock Zachary, LA 70791-497
Assistant Vice President trades in 1996.
INDEPENDENT ACCOUNTANTS
Laura Steen There was a cash dividend Hannis T.Bourgeois
Operations Officer paid in 1997 of $1.75 per & Co., L.L.P.
share and $1.65 in 1996. 2322 Tremont Dr.
Melinda White Baton Rouge, LA 70809
Note Supervisor
& Compliance Officer
Sandra Worthy
Operations Officer
34