1998
Annual Report
First Allen Parish Bancorp, Inc.
TABLE OF CONTENTS
Page
President's Message 1
General Information 3
Selected Consolidated Financial and Other Data of the Company 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Consolidated Financial Statements 16
Stockholder Information 48
Corporate Information 49
March 30, 1999
Dear Stockholder,
We are pleased to provide you with the Annual Report on the Consolidated
Financial statements of First Allen Parish Bancorp, Inc., (The Company), holding
company of First Federal Savings & Loan Association of Allen Parish (First
Federal), for the year ended December 31, 1998.
Consolidated assets of First Allen Parish Bancorp, Inc., increased $5.2 million,
or 15.4 %, to $38.7 million at December 31, 1998, from $33.5 million at December
31, 1997.
Net loans receivable increased $1.2 million, or $9.2%, to $14.9 million at
December 31, 1998, from $13.6 million at December 31, 1997, due to an increase
in real estate loans, consumer loans and other loans.
Deposits increased $4.9 million, or 17.1%, to $33.6 million at December 31,
1998, from $28.7 million at December 31, 1997. There were no Federal Home Loan
Bank (FHLB) advances outstanding at December 31, 1998 and 1997.
Total stockholders' equity increased $248,000 to $4.8 million at December 31,
1998, from $4.5 million at December 31, 1997. Earnings for the year provided a
$222,000 increase, which was offset by dividends paid to stockholders at 30
cents per share, or $80,000. Allocation of ESOP shares and RRP shares increased
equity by $45,000 and $51,000, respectively.
The Company has a strong capital base and exceeds all regulatory capital
requirements. This strong capital base has enabled us to invest in the expansion
of our market area and increase our market share. In November 1998, a newly
constructed full-service branch was opened in Oberlin, Louisiana, the Parish
Seat, staffed with a Manager and a Loan Assistant and two tellers, and offering
a full range of banking services. We are very pleased with the positive response
from the community. A Loan Production Office (LPO) was also opened in Kinder,
Louisiana, staffed with a Loan Officer, and offering a full range of loan
products and services. Community response has been very positive, with
increasing demands for a full-service banking facility at this location.
Expansion efforts have created additional expense items, but this should be
offset by increased future income and growth.
1
Since its origination in 1962, First Federal Savings & Loan Association of Allen
Parish has been, and intends to continue to be, a community-oriented financial
institution, offering a full range of banking services aimed at meeting the
financial needs of the families and communities it serves. Our customers
appreciate the fact that we are the only hometown financial institution in Allen
Parish, easily accessible and here for them. In the years ahead, the Company's
Board of Directors, management and staff will remain committed to the continued
growth of First Federal, offering a wide variety of banking services, meeting
the financial needs of its customers and building a strong stockholder value.
Thank you for your investment in First Allen Parish Bancorp, Inc., and First
Federal Savings & Loan Association of Allen Parish.
Sincerely,
/s/Charles L. Galligan
----------------------
Charles L. Galligan
President & CEO
2
GENERAL INFORMATION
First Allen Parish Bancorp, Inc. (the Company) is a Delaware Corporation
which is the holding company for First Federal Savings and Loan Association of
Allen Parish (the Association). The Company was organized by the Association for
the purpose of acquiring all of the capital stock of the Association in
connection with the conversion of the Association from mutual to stock form,
which was completed on September 27, 1996 (the Conversion). The only significant
assets of the Company are the capital stock of the Association, the Company's
loan to an employee stock ownership plan, and investment securities in United
States government and agency obligations. The business of the Company initially
consists of the business of the Association.
The Association, which was originally chartered in 1962 as a federal
chartered mutual savings and loan association, is headquartered in Oakdale,
Louisiana. Its deposits are insured up to the maximum allowable amount by the
Federal Deposit Insurance Corporation (FDIC). The Association serves communities
located in Allen Parish and in the surrounding parishes in Louisiana through its
main office located at 222 South 10th Street, Oakdale, Louisiana, a full service
branch located at 110 North Fifth St., Oberlin, Louisiana and a loan production
office located at 531 North Ninth St., Suite A, Kinder, Louisiana.
The Association has been and intends to continue to be, a
community-oriented financial institution offering financial services to meet the
needs of the market area it serves. The Association attracts deposits from the
general public and uses such funds together with FHLB advances to originate
loans secured by real estate, including one-to-four family residential mortgage
loans, commercial real estate loans, land loans, construction loans and loans
secured by other properties. The Association also originates consumer and other
loans consisting primarily of loans secured by automobiles, manufactured homes,
share loans and lines of credit. The Association has also invested a significant
portion of its assets in mortgage-backed and related securities and other
investments.
3
SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA OF THE COMPANY
Set forth below are selected consolidated financial and other data of
the Company. The financial data is derived in part from, and should be read in
connection with, the Consolidated Financial Statements, and Notes thereto
presented elsewhere in this Annual Report.
At
December 31,
-------------------
1998 1997
------- --------
(In thousands)
Selected Financial Condition Data:
Total assets $38,694 $33,519
Cash and cash equivalents 6,319 1,884
Loans receivable, net
Real estate 11,676 10,702
Consumer and other 3,220 2,944
Mortgage-backed and related securities 16,195 17,147
FHLB stock 263 259
Premises and equipment, at cost, net of
accumulated depreciation 705 262
Deposits 33,553 28,657
Total stockholders' equity 4,784 4,535
Years Ended
December 31,
-------------------
1998 1997
------- --------
(In thousands, except
share information)
Selected Operating Data:
Interest income $ 2,411 $ 2,302
Interest expense 1,244 1,226
------- --------
Net interest income 1,167 1,076
Provision for loan losses 59 3
------- --------
Net interest income after provision for
loan losses 1,018 1,073
------- --------
Total non-interest income 312 276
------- --------
Total non-interest expense 1,092 947
------- --------
Income before income taxes 328 402
------- --------
Income tax expense 106 148
------- --------
Net income $ 222 $ 254
======== ========
Net income per common share - basic $ .90 $ 1.04
======== ========
Net income per common share - diluted $ .90 $ 1.04
======== ========
Average common shares outstanding 247,401 244,669
======== ========
4
At or For the Years
Ended December 31,
-------------------
1998 1997
------- -------
Key Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (net income divided
by average total assets) .65% .80%
Return on average equity (net income divided
by average equity) 4.76% 5.75%
Net interest rate spread (difference between
average yield on interest-earning assets
and average cost of interest-bearing liabilities) 3.11% 3.09%
Net interest margin (net interest income as a
percentage of average interest-earning assets) 3.56% 3.49%
Net interest income to non-interest expense 106.82% 113.55%
Average interest-earning assets to average interest
bearing liabilities 112.03% 109.99%
Net interest income after provision for
loan losses, to total non-interest expense 101.45% 113.23%
Non-interest expense to average assets 3.22% 2.97%
Asset Quality Ratios:
Non-performing loans to total loans .70% .92%
Non-performing assets to total assets .30% .37%
Allowance for loan losses to non-performing loans 259.38% 238.91%
Allowance for loan losses to non-performing assets 259.38% 238.91%
Capital Ratios (1):
Equity to assets at year end 12.36% 13.53%
Equity to average assets ratio
(Average equity divided by average total
assets) 13.71% 13.89%
Other Data:
Number of full-service offices 2 1
Number of loan production offices 1 1
(1) For a discussion of the Company's regulatory capital ratios, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
First Allen Parish Bancorp, Inc. was formed in June, 1996 by First
Federal Savings and Loan Association of Allen Parish to become the holding
company of the Association. The acquisition of the Association by First Allen
Parish Bancorp, Inc. was consummated on September 27, 1996 in connection with
the Association's conversion from the mutual to the stock form.
The Company's results of operations depend primarily on its level of net
interest income, which is the difference between interest earned on
interest-earning assets, consisting primarily of mortgage and consumer loans and
investments, and the interest paid on interest-bearing liabilities, consisting
primarily of deposits and Federal Home Loan Bank (FHLB) advances. Net interest
income is a function of the Company's "interest rate spread," which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities, as well as a function of the
average balance of interest-bearing assets as compared to interest-bearing
liabilities. The interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. The Company, like other financial institutions, is subject to
interest-rate risk to the degree that its interest-earning assets mature or
reprice at different times, or on a different basis, than its interest-bearing
liabilities. The Company's operating results are also affected by the amount of
its non-interest income, including loan fees and service charges and other
income. Non-interest expense consists principally of employee compensation and
employee benefits, occupancy expenses, data processing, federal deposit
insurance premiums, stationery and printing and other operating expenses. The
Company's operating results are affected by general economic and competitive
conditions, in particular, the changes in market interest rates, government
policies and actions by regulatory authorities.
During 1998, the Company's board of directors, with approval from the
Office of Thrift Supervision, authorized the construction of a full-service
branch in Oberlin, Louisiana and a loan production office in Kinder, Louisiana.
The Company invested approximately $405,000 in premises and equipment for these
facilities. Management believes this investment will increase future earnings
because of the competitive edge the new branch and loan production office allow
in these market areas.
Financial Condition
Total assets increased $5.2 million, or 15.4%, to $38.7 million at
December 31, 1998 from $33.5 million at December 31, 1997. The increase was
primarily funded by an increase in deposits of $4.9 million to $33.6 million at
December 31, 1998 from $28.7 million at December 31, 1997. The proceeds from the
increase in deposits were used to finance a $1.2 million increase in net loans
receivable, a $4.4 million increase in cash and cash equivalents and $400,000 in
construction of a full-service branch in Oberlin, Louisiana.
6
Net loans receivable increased by $1.2 million, or 9.2%, to $14.9
million at December 31, 1998 from $13.6 million at December 31, 1997 due to an
increase in real estate and consumer and other loans.
Mortgage-backed and related securities and cash equivalents increased
$3.5 million or 18.2% to $22.5 million at December 31, 1998 from $19.0 million
at December 31, 1997. This increase was financed from the increase in deposits
as mentioned above.
Deposits increased $4.9 million or 17.1% to $33.6 million at December
31, 1998 from $28.7 million at December 31, 1997. There were no FHLB advances
outstanding at December 31, 1998 and December 31, 1997.
Total equity increased $248,000 to $4.8 million at December 31, 1998
from $4.5 million at December 31, 1997. Earnings for the year provided a
$222,000 increase, which was offset by dividends paid to stockholders of
$80,000. Allocation of ESOP shares and RRP shares increased equity by $45,000
and $51,000, respectively.
The Company's capital exceeded all of the capital requirements imposed
by FIRREA. OTS regulations provide that an institution that exceeds all capital
requirements before and after a proposed capital distribution and, like the
Company, has not been notified of a need for more than normal supervision could,
after prior notice but without approval by the OTS, make capital distributions
during the calendar year of up to 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its capital requirements) at the beginning of
the calendar year. Any additional capital distributions would require prior
regulatory approval.
The Association declared dividends in 1998 of $80,000 or 30 cents per
share.
Results of Operations
The Company's results of operations depend primarily on the level of its
net interest income and non-interest income and its control of operating
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them.
The Company's non-interest income consists primarily of fees charged on
transaction accounts and fees charged for delinquent payments received on
mortgage and consumer loans. In addition, non-interest income is derived from
insurance commissions, loan origination and servicing fees and other operating
revenues.
The schedule on the following page presents, for the periods indicated,
the total dollar amount of interest income from average interest-earning assets
and the resultant yields, as well as the total dollar amount of interest expense
on average interest-bearing liabilities and resultant rates. All average
balances are monthly average balances. Management does not believe that the use
of monthly balances instead of daily balances has caused a material difference
in the information presented. Nonaccruing loans have been included as loans
carrying a zero yield.
7
Years Ended December 31,
-----------------------------------------------------------
1998 1997
--------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- ------ ----- ------- ------ ----
(Dollars in thousands)
Interest-earning assets:
Mortgage loans(1) $11,014 $949 8.61% $10,037 $ 911 9.08%
Consumer and other loans 3,204 329 10.27 2,731 255 9.36
Mortgage-backed securities 16,337 1,047 6.41 15,975 1,042 6.48
FHLB stock 258 16 5.94 256 15 5.95
Other interest-bearing deposits 1,956 70 3.62 1,828 79 4.66
------- ------ ----- ------- ------ ----
Total interest-earning assets 32,769 2,411 7.36 30,827 2,302 7.47
Non-interest earning assets 1,208 - 0.00 1,051 - 0.00
------- ------ ----- ------- ------ ----
Total average assets $33,977 $2,411 7.10% $31,878 $2,302 7.22%
======= ====== ===== ======= ====== =====
Interest-bearing liabilities:
Passbook accounts $ 2,450 $ 50 2.05% $ 2,641 $ 53 2.01%
NOW and money market accounts 6,117 102 1.67 6,643 90 1.36
Certificates 20,563 1,087 5.29 18,460 1,068 5.79
FHLB advances 119 5 4.13 282 16 5.64
------- ------ ----- ------- ------ ----
Total interest-bearing liabilities 29,249 1,244 4.25 28,026 1,227 4.38
Non-interest bearing liabilities 616 - 0.00 699 - 0.00
------- ------ ----- ------- ------ ----
Total average liabilities $29,865 $1,244 4.17% $28,725 $1,227 4.27%
======= ====== ===== ======= ====== =====
Net interest income $1,167 $1,075
Net interest rate spread(2) ====== 3.11% ====== 3.09%
=====
Net interest margin(3) 3.56% 3.49%
Average interest-earning assets to average interest-bearing =====
liabilities 112.03% 109.99%
====== ======
(1) Average balances include non-accrual loans.
(2) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
8
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (change in rate
multiplied by old volume); and the net change. For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated, have
been allocated proportionally to the changes due to volume and the changes due
to rate.
Years Ended December 31,
1998 vs. 1997
------------------------------
Increase/(Decrease)
Due to Total
----------------- Increase
Volume Rate (Decrease)
------ ------ ------
(Dollars in thousands)
Interest-earning assets:
Mortgage loans $ 80 $ (42) $ 38
Consumer and other loans 47 27 74
Mortgage-backed securities 11 (5) 6
FHLB stock - - -
Other 4 (11) (7)
------ ------ ------
Total interest-earning assets $ 142 $ (31) $ 111
------ ------ ------
Interest-bearing liabilities:
Passbook accounts $ (4) $ 1 $ (3)
NOW and money market accounts (6) 63 57
Certificate accounts 77 (59) 18
Federal Home Loan Bank advances (8) (4) (12)
------ ------ ------
Total interest-bearing liabilities 59 1 60
------ ------ ------
Net change in interest income $ 83 $ (32) $ 51
====== ====== ======
9
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. Net income for the year ended December 31, 1998 decreased by
$32,000 or 12.7% to $222,000 or $.90 per share from $254,000 or $1.04 per share
for the year ended December 31, 1997. The decrease was due to the combined
effects of a $35,000 increase in net interest income after provision for loan
losses, a $42,000 increase in service charges on deposits, a $5,000 increase in
loan origination and servicing fees, a $17,000 decrease in other expenses, a
$42,000 decrease in income taxes and a $3,000 decrease in net other real estate
expenses offset by a $2,000 decrease in insurance commissions earned, a $6,000
decrease in gain on foreclosed real estate, a $7,000 decrease in other operating
revenues, a $100,000 increase in compensation and employee benefits, a $16,000
increase in occupancy and equipment expenses, a $20,000 increase in stationery
and printing and a $26,000 increase in data processing.
Interest Income. For the year ended December 31, 1998, net interest
income increased by $91,000 to $1.17 million from $1.08 million for the year
ended December 31, 1997. This reflects an increase of $109,000 in interest
income to $2.4 million from $2.3 million and an increase of $18,000 in interest
expense to $1.24 million from $1.23 million. The small increase in interest
income was due primarily to an increase in total interest-earning assets offset
by decreased rates earned. The small increase in interest expense was also due
primarily to an increase in total interest-bearing liabilities.
Interest income on loans increased $111,000 or 9.4% to $1.3 million
for the year ended December 31, 1998 from $1.2 million for the year ended
December 31, 1997. Interest income on mortgage-backed and related securities
increased slightly by $6,000 for the year ended December 31, 1998 from the year
ended December 31, 1997.
Interest Expense. Interest expense for the year ended December 31,
1998 increased $18,000 to $1.24 million from $1.22 million for the year ended
December 31, 1997. Average balances in certificates of deposit increased $2.1
million to $20.6 million at December 31, 1998 from $18.5 million at December 31,
1997; however, the decline in rates paid resulted in a slightly lower cost of
funds. Average non-certificate balances decreased $717,000 to $8.6 million from
$9.3 million from 1997 to 1998. Interest expense on FHLB advances decreased to
$5,000 for the year ended December 31, 1998 from $16,000 for the prior year.
Provision for Loan Losses. The Association maintains an allowance for
loan losses based upon management's periodic evaluation of known and inherent
risks in the loan, the Association's past loss experience, adverse conditions
that may affect the borrower's ability to repay loans, estimated value of the
underlying collateral and current and expected market conditions. The allowance
for loan losses was $304,057 at December 31, 1998 and $300,260 at December 31,
1997. The provision for loan losses is the method by which the allowance for
losses is adjusted during the period. The Association's provision for loan
losses for the year ended December 31, 1998 was $58,664, and $3,000 for the year
ended December 31, 1997. Management's focus on asset quality has resulted in an
allowance for loan losses to non-performing assets of 259.3%. The ratio of
nonperforming loans to total loans remains low at .70% at December 31, 1998.
10
Management believes its allowance for loan losses is at a level that is
considered to be adequate to provide for estimated losses; however; there can be
no assurance that further additions will not be made to the loss allowance and
that such losses will not exceed the estimated amount.
Non-interest Income. For the year ended December 31, 1998,
non-interest income was $312,000 compared to $277,000 for the year ended
December 31, 1997. The increase of $35,000 was due to increases of $42,000 in
service charges on deposits, $5,000 in loan origination and servicing fees,
$3,000 decrease in net other real estate expenses offset by decreases of $6,000
in gain in foreclosed real estate, $7,000 in other operating revenues and $2,000
in insurance commissions earned.
Non-interest Expense. Non-interest expense increased $145,000
or 15.3% to $1.1 million for the year ended December 31, 1998 from $947,000 for
the year ended December 31, 1997. This increase was the result of a $100,000
increase in compensation and employee benefits primarily from additional
salaries associated with the new branch, loan production office and stock
benefit plans, a $16,000 increase in occupancy and equipment expenses, a $20,000
increase in stationery and printing and a $26,000 increase in data processing
offset by a $17,000 decrease in other expenses. The increases in occupancy and
equipment and stationery and printing were directly related to increased costs
associated with the new branch and loan production office. Data processing
expenses increased primarily because of efforts to upgrade computers and
software to "year 2000" compliance (see Note 24 in the consolidated financial
statements). Other expenses decreased primarily due to a reduction in
professional fees.
Income Taxes. Income taxes decreased $42,000 or 28.6% to $106,000 for
the year ended December 31, 1998 from $148,000 for the year ended December 31,
1997. The decrease in income taxes was the result of the relatively smaller
increases in net interest income after provision for loan losses and
non-interest income offset by the increase in non-interest expenses.
Interest Rate Sensitivity
Net Portfolio Value. In order to encourage associations to reduce
their interest rate risk, the OTS adopted a rule incorporating an interest rate
risk ("IRR") component into the risk-based capital rules. The IRR component is a
dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated market value of its assets will
require the institution to deduct from its capital 50% of that excess change.
The rules provide that the OTS will calculate the IRR component quarterly for
each institution. The Company, based on asset size and risk-based capital, has
11
been informed by the OTS that it is exempt from this rule. Nevertheless, the
following table presents the Company's NPV at December 31, 1998 as calculated by
the OTS, based on information provided to the OTS by the Company.
Change in December 31, 1998
Interest Rates Net Portfolio Value
In Basis Points ------------------------------
(Rate Shock) Amount Change
------------ ------ ------
(Dollars in thousands)
400 3,867 (11)%
300 4,114 (6)
200 4,265 (2)
100 4,331 (1)
Static 4,355 -
(100) 4,422 2
(200) 4,615 6
(300) 5,040 16
(400) 5,472 26
As shown in the above table, increase in interest rates will result in
net decreases in the Company's NPV, while decrease in interest rates will result
in smaller net increases in the NPV. For example, the table reflects the
Company's NPV decreasing 6% if interest rates increased by 300bp, whereas the
NPV would increase by 16% if interest rates decreased by 300bp.
Certain shortcomings are inherent in the method of analysis presented
in both the computation of NPV and in the analysis of the maturing and repricing
of interest-earning assets and interest-bearing liabilities. Although certain
assets and liabilities may have similar maturities or periods within which they
will reprice, they may react differently to changes in market interest rates.
The interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, adjustable-rate mortgages
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. The proportion of adjustable-rate loans could be
reduced in future periods if market interest rates would decrease and remain at
lower levels for a sustained period, due to increased refinancing activity.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in the
table. Finally, the ability of many borrowers to service their adjustable-rate
debt may decrease in the event of a sustained interest rate increase.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings and
principal and interest payments on loans and mortgage-backed and investment
securities. In the event that the Company should require funds beyond its
ability to generate them internally, additional sources of funds are available
through the use of FHLB advances. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic conditions and
competition.
12
Federal regulations require the Association to maintain minimum levels
of liquid assets. The required percentage has varied from time to time based
upon economic conditions and savings flows and is currently 4 percent of net
withdrawable savings deposits and borrowings payable on demand in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U. S. Government, government agency
and other securities and obligations generally having remaining maturities of
less than five years. The Association's most liquid assets are cash and cash
equivalents, short-term investments and mortgage-backed and related securities.
The levels of these assets are dependent on the Association's operating,
financing, lending and investing activities during any given period. At December
31, 1998 and 1997, liquidity eligible assets totaled $6.5 million and $2.1
million, respectively. At those dates, the Association's liquidity ratios were
11.8% and 8.2%, respectively, in excess of the 5% minimum regulatory
requirement.
The Company uses its liquid resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity
and to meet operating expenses. At December 31, 1998, the Association had
outstanding commitments to extend credit which amounted to $1.1 million.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Company's foreseeable liquidity needs.
At December 31, 1998, the Association had $17.2 million in
certificates of deposit due within one year and $12.4 million in savings and
checking accounts. Based on past experience, management expects that most of the
deposits will be retained or replaced by new deposits.
The primary investment activities of the Company are the origination
of one- to four- family residential, commercial real estate, one- to four-
family construction, land and consumer loans, and the purchase of investment and
mortgage-backed securities. During the years ended December 31, 1998 and 1997,
the Company originated loans totaling $8.5 million and $7.1 million,
respectively. During those same periods, the Company purchased mortgage-backed
securities totaling $2.4 million and $2.9 million, respectively. These
activities were funded primarily by deposits and principal repayments on loans
and mortgage-backed securities.
In connection with its conversion on September 27, 1996 from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association, the Association's capital structure
increased substantially with the issuance of stock and the formation of its
holding company, First Allen Parish Bancorp, Inc.
The Company issued 264,506 shares of common stock that resulted in
$2,645 of common stock and $2,298,842 of additional paid-in capital net of
conversion costs of $345,577. Capital ratios (see Note 21 in the consolidated
financial statements) at December 31, 1998 were significantly higher than
regulatory minimum requirements. The Association had tangible capital of $3.7
million or 9.88% of total assets, which is approximately $3.2 million above the
minimum requirement of 1.5% of total assets. The Association had core capital of
$3.7 million or 9.88% of total assets, which is $2.6 million above the minimum
leverage ratio of 3.0%. The Association had total risk-based capital of $3.9
million and total risk-weighted assets of $15.8 million, or total capital of
24.81% of risk-weighted assets. This was $2.7 million above the 8.0%
requirement.
13
Capability of the Company's Data Processing Hardware to Accommodate the Year
2000
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium (year "2000") approaches.
The "year 2000" problem is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two-digit year
value of zero. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the "year 2000"
compliance. It is anticipated that all reprogramming efforts will be complete
March 31, 1999, allowing adequate time for testing. To date, confirmations have
been received from the Company's primary processing vendors that plans are being
developed to address processing of transactions in the "year 2000". Management
has assessed the "year 2000" compliance expense and related potential effect on
the Company's earnings, and the board has approved $75,000 to be dedicated to
this project which is to be expended during years ended December 31, 1998 and
1999.
Recent Accounting Developments
SFAS No. 128, Earnings per Share, supersedes APB opinion No. 15 and
AICPA Accounting Interpretation's 1-102 of Opinion No. 15 and is effective for
financial statements issued for periods ending after December 31, 1997. It
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This statement simplifies the standards for computing earnings per share found
in APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. It replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator of the diluted
earnings per share.
SFAS No. 129, Disclosure of Information about Capital Structure,
supersedes specific disclosure requirements of APB opinions No. 10 and No. 15
and FASB Statement No. 47 and consolidates them in this statement. It is
effective for financial statements issued for periods ending after December 15,
1997. This statement continues the previous requirements to disclose certain
information about an entity's capital structure found in APB opinions No. 10,
Omnibus Opinion - 1996, and No. 15, Earnings per Share, and FASB Statement No.
47, Disclosure of Long-Term Obligations, for entities that were subject to the
requirements of those standards. It eliminates the exemption of nonpublic
entities from certain disclosure requirements of Opinion No. 15 as provided by
FASB Statement No. 21, Suspension of the Reporting of Earnings Per Share and
Segment Information of Nonpublic Enterprises.
SFAS No. 130, Reporting Comprehensive Income, establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and is effective for fiscal years beginning after December 31, 1997.
It requires that all items that are required to be recognized under accounting
standards as
14
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This statement
does not require a specific format of that financial statement but requires that
an enterprise display an amount representing total comprehensive income for the
period in that financial statement. An enterprise is required to classify items
of other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, established standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This Statement supersedes FASB Statement
No. 14, Financial Reporting for Segments of a Business Enterprise, but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
This Statement does not apply to nonpublic business enterprises or to
not-for-profit organizations. This statement is effective for financial
statements for periods beginning after December 15, 1997.
Management believes adoption of SFAS Nos. 128, 129, 130 and 131 will
not have a material effect on the financial position or results of operations,
nor will adoption require additional capital resources.
Impact of Inflation and Changing Prices
The audited Consolidated Financial Statements and Notes thereto
presented herein have been prepared in accordance with generally accepted
accounting principles. These principles generally require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
The primary assets and liabilities of the Company and savings
institutions such as the Association are monetary in nature. As a result,
interest rates have a more significant impact on the Company's performance than
the effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the prices
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturity structure of the
Company's assets and liabilities are critical to the maintenance of acceptable
performance levels.
The principal effect of inflation, as distinct from levels of interest
rates, on the Company's earnings is in the area of non-interest expense. Expense
items such as employee compensation and benefits, occupancy and equipment costs
may be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by the Company. The Company is unable to determine the
extent, if any, to which the properties securing its loans have appreciated in
dollar value due to inflation.
15
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
First Allen Parish Bancorp, Inc. and Subsidiary
Oakdale, Louisiana
We have audited the accompanying consolidated statements of financial
condition of First Allen Parish Bancorp, Inc. and Subsidiary as of December 31,
1998 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Allen Parish Bancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/Kolder, Champagne, Slaven & Rainey, LLC
------------------------------------------
Kolder, Champagne, Slaven & Rainey, LLC
Certified Public Accountants
Lafayette, Louisiana
January 28, 1999
16
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
1998 1997
----------- -----------
ASSETS
Cash and cash equivalents:
Interest-bearing $ 5,506,432 $ 1,297,774
Non-interest bearing 812,796 586,468
Mortgage-backed and related securities - held-to-maturity (estimated
market value of $9,770,282 and $11,609,680) 9,743,993 11,668,946
Mortgage-backed and related securities - available-for-sale,
estimated market value 6,451,230 5,478,291
Loans receivable, net 14,896,198 13,645,908
Accrued interest receivable 235,545 229,363
Other receivables 43,925 62,895
Federal Home Loan Bank stock, at cost 263,000 259,300
Premises and equipment, at cost, less accumulated depreciation 705,495 262,447
Other assets 35,016 27,795
----------- -----------
Total assets $38,693,630 $33,519,187
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $33,553,066 $28,656,542
Advances by borrowers for taxes and insurance 20,402 23,212
Federal income taxes:
Current 24,263 54,956
Deferred 84,623 135,398
Dividends payable 40,311 39,676
Accrued expenses and other liabilities 141,542 27,620
Deferred income 46,279 47,065
----------- -----------
Total liabilities 33,910,486 28,984,469
=========== ===========
STOCKHOLDERS' EQUITY
Serial preferred stock (.01 par value,
100,000 shares authorized, none issued or outstanding) - -
Common stock (.01 par value, 900,000 shares
authorized, 266,622 and 264,506 shares issued and outstanding) 2,666 2,645
Additional paid-in capital 2,388,502 2,314,066
Retained earnings, substantially restricted 2,547,519 2,405,441
Accumulated other comprehensive income 8,447 (2,284)
Unearned employee benefits - ESOP (163,990) (185,150)
----------- -----------
Total stockholders' equity 4,783,144 4,534,718
----------- -----------
Total liabilities and stockholders' equity $38,693,630 $33,519,187
=========== ===========
The accompanying notes are an integral part of this statement.
17
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Interest income:
Loans receivable:
First mortgage loans $ 948,509 $ 911,296
Consumer and other loans 329,065 255,480
Mortgage-backed and related securities 1,047,424 1,041,868
Other interest earning assets 86,107 93,760
---------- ----------
Total interest income 2,411,105 2,302,404
---------- ----------
Interest expense:
Deposits 1,239,238 1,210,611
Borrowed funds 4,895 15,926
---------- ----------
Total interest expense 1,244,133 1,226,537
---------- ----------
Net interest income 1,166,972 1,075,867
Provision for loan losses 58,664 3,000
---------- ----------
Net interest income after provision for
loan losses 1,108,308 1,072,867
---------- ----------
Non-interest income:
Service charges on deposits 235,428 193,605
Insurance commissions earned 8,916 10,934
Loan origination and servicing fees 49,020 44,433
Net other real estate expenses 119 (3,227)
Gain on foreclosed real estate 314 6,417
Other operating revenues 17,979 24,657
---------- ----------
Total non-interest income 311,776 276,819
---------- ----------
1998 1997
---------- ----------
Non-interest expense:
Compensation and employee benefits 562,529 462,626
Occupancy and equipment expenses 82,925 66,935
SAIF deposit insurance premiums 17,326 17,160
Stationery and printing 71,630 51,966
Data processing 84,848 58,933
Other expenses 273,257 289,857
---------- ----------
Total non-interest expenses 1,092,515 947,477
---------- ----------
Income before income taxes 327,569 402,209
Income tax expense 105,503 147,709
---------- ----------
Net income $ 222,066 $ 254,500
========== ==========
Net income per common share - basic $ .90 $ 1.04
========== ==========
Net income per common share - diluted $ .90 $ 1.04
========== ==========
Average common shares outstanding 247,401 244,669
The accompanying notes are an integral part of this statement.
18
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
Accumulated
Additional Other Unearned Total
Common Paid-in Retained Comprehensive Employee Stockholders'
Stock Capital Earnings Income Benefits Equity
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1996 $2,645 $2,298,84 $2,230,294 $(6,004) $(206,310) $4,319,467
------ ---------- ---------- ------- --------- ----------
Comprehensive income:
Net income - - 254,500 - - -
Change in unrealized gain (loss)
on securities available-for-sale, net
of deferred taxes - - - 3,720 - -
Comprehensive income - - - - - 258,220
Dividends - - (79,353) - - (79,353)
Allocation of ESOP shares - 15,224 - - 21,160 36,384
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1997 2,64 2,314,066 2,405,441 (2,284) (185,150) 4,534,718
Comprehensive income:
Net income - - 222,066 - - -
Change in unrealized gain (loss) on
securities available-for-sale,
net of deferred taxes - - - 10,731 - -
Comprehensive income - - - - - 232,797
Dividends - - (79,988) - - (79,988)
Allocation of ESOP shares - 23,673 - - 21,160 44,833
Allocation of recognition and
retention plan shares 21 50,763 - - - 50,784
------ ---------- ---------- ------- --------- ----------
Balance, December 31, 1998 $2,666 $2,388,502 $2,547,519 $ 8,447 $(163,990) $4,783,144
====== ========== ========== ======= ========= ==========
The accompanying notes are an integral part of this statement.
19
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 222,066 $ 254,500
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of premises and equipment 46,603 36,267
Provision for loan losses 58,664 3,000
Gain on sale of foreclosed real estate (314) (6,417)
Gain on sale of mortgage-backed and related securities-
available-for-sale - (2,826)
Premium amortization net of discount accretion (4,173) (8,888)
Deferred income taxes (48,761) 13,133
Stock dividend on FHLB stock (15,100) (15,000)
Compensation RRP 50,784 -
Compensation ESOP 23,673 15,224
Changes in assets and liabilities -
Increase in accrued interest receivable (9,526) (22,906)
Increase in prepaid assets (8,969) (1,137)
Increase (decrease) in accrued expenses and other
liabilities 22,726 (17,004)
Increase (decrease) in current income taxes payable (30,693) 52,113
Increase (decrease) in deferred income (786) 28,247
(Increase) decrease in other receivables 18,970 (20,095)
----------- -----------
Total adjustments 103,098 53,711
----------- -----------
Net cash provided by operating activities 325,164 308,211
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayment of mortgage-backed and related
securities - held-to-maturity 1,917,679 1,876,561
Principal repayments of mortgage-backed and related
securities - available-for-sale 1,487,739 593,367
Purchase of mortgage-backed and related
securities - held-to-maturity - (328,438)
Purchase of mortgage-backed and related
securities - available-for-sale (2,444,007) (2,542,913)
Sale of mortgage-backed and related securities - available -
for-sale - 382,328
Net increase in loans made to customers (1,268,094) (1,710,918)
Proceeds from sale of foreclosed real estate - 147,500
Purchase of property and equipment (397,856) (16,336)
----------- -----------
Net cash used by investing activities (704,539) (1,598,849)
----------- -----------
(continued)
1998 1997
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts, passbook savings accounts, and
certificates of deposits 4,896,524 2,948,893
Decrease in advances from FHLB - (1,200,000)
Net decrease in advances by borrowers
for taxes and insurance (2,810) (8,642)
Dividends paid to shareholders (79,353) (39,676)
Net cash provided by financing
activities 4,814,361 1,700,575
----------- -----------
Net increase in cash and cash equivalents 4,434,986 409,937
CASH AND CASH EQUIVALENTS, beginning of period 1,884,242 1,474,305
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 6,319,228 $ 1,884,242
=========== ===========
(continued)
20
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 1998 and 1997
1998 1997
----------- -----------
Supplemental Disclosures
Cash paid for:
Interest on deposits, advances, and other borrowings $1,216,785 $1,226,767
Income taxes 176,177 134,956
Transfers from loans to real estate acquired through
foreclosure - 27,919
Proceeds from sales of foreclosed real estate financed
through loans - 147,500
Total (increase) decrease in unrealized loss on
mortgage-backed and related securities available-for-
sale, net of deferred taxes 10,731 3,720
The accompanying notes are an integral part of this statement.
21
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of First Allen Parish
Bancorp, Inc. and Subsidiary and the methods of applying those policies
conform with generally accepted accounting principles. The accounting
and reporting policies and the methods of applying those policies which
significantly affect the determination of financial position, results of
operations, and cash flows are summarized below.
A. The consolidated financial statements include the accounts of
the parent company, First Allen Parish Bancorp, Inc. (Company)
and its fully-owned subsidiary, First Federal Savings and Loan
Association of Allen Parish (Association). First Allen Parish
Bancorp, Inc. acquired all of the outstanding stock of the
Association effective September 27, 1996. All intercompany
accounts and transactions are eliminated.
B. Use of 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 income and expenses
during the reporting period. Actual results could differ from
those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses
on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to
the allowances may be necessary based on changes in local
economic conditions. Because of these factors, it is reasonably
possible that the allowances for losses on loans and foreclosed
real estate may change materially in the future.
C. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and
interest-bearing deposits due from other institutions. For
purposes of the statements of cash flows, the Company considers
all of these highly liquid financial instruments with original
maturities, when purchased of three months or less to be cash
equivalents.
22
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents at December 31 include the
following:
1998 1997
---------- ----------
Interest-bearing deposits
in other institutions $5,506,432 $1,297,774
Non-interest bearing deposits 812,796 586,468
---------- ----------
Total $6,319,228 $1,884,242
========== ==========
D. Mortgage-Backed and Related Securities
The Company follows Statement of Financial Accounting
Standards No. 115 regarding classification of all debt
securities and certain equity securities.
Mortgage-backed and related securities that management
has the ability and intent to hold to maturity are classified as
held-to-maturity and carried at cost, adjusted for amortization
of premium and accretion of discounts using methods
approximating the interest method. Other mortgage-backed and
related securities are classified as available-for-sale and are
carried at fair value. Unrealized holding gains and losses, net
of tax, on securities available-for-sale are recognized as
direct increases or decreases in retained earnings until
realized.
At December 31, 1998, the Company had no outstanding
commitments to sell securities. Gains of $ -0- and $2,826 were
realized in 1998 and 1997, respectively on the sale of
mortgage-backed and related securities held available-for-sale
by using the specific identification method. All sales are made
without recourse. Gross unrealized losses in the
held-to-maturity portfolio and in the available-for-sale
portfolio are as follows:
December 31,
-----------------------
1998 1997
Gross Gross
Unrealized Unrealized
Gain Loss
---------- ----------
Held-to-maturity
securities $26,289 $59,266
Available-for-sale
securities 12,997 3,460
23
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
E. Loans Receivable
Loans receivable are stated at unpaid principal
balances, less the allowance for loan losses, and net deferred
loan origination fees and discounts.
Discounts on consumer loans are recognized over the
lives of the loans using the interest method.
A loan (including a loan defined as impaired under SFAS
114) is classified as nonaccrual when the loan becomes 90 days
or more past due. Any unpaid interest previously accrued on
those loans is reversed from income. Interest income generally
is not recognized on specific impaired loans unless the
likelihood of further loss is remote. Interest payments received
on such loans are applied as a reduction of the loan principal
balances. Interest income on other nonaccrual loans is
recognized only to the extent of interest payments received.
The allowance for loan losses is established through a
provision for loan losses based on management's evaluation of
the risk inherent in its loan portfolio and changes in the
nature and volume of its loan activity, including those loans
which are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among
other matters, the loan classifications discussed above, the
estimated fair value of the underlying collateral, economic
conditions, historical loan loss experience, the amount of loans
outstanding and other factors that warrant recognition in
providing for an adequate loan loss allowance. Allowances for
impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The Company
applies FASB Statement No. 114 Accounting by Creditors for
Impairment of a Loan, which requires that impaired loans that
are within the scope of this statement be measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's market price or
the fair value of the collateral if the loan is collateral
dependent. The Company uses the loan-by-loan measurement method
for all loans, however, residential mortgage loans and consumer
installment loans are considered to be groups of smaller balance
homogenous loans and are collectively evaluated for impairment
and are not subject to SFAS No. 114 measurement criteria. A loan
is considered impaired when it is probable that all contractual
amounts due will not be collected in accordance with the terms
of the loan. A loan is not deemed
24
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
to be impaired if a delay in receipt of payment is expected to
be less than 60 days or if, during a longer period of delay, the
Company expects to collect all amounts due, including interest
accrued at the contractual rate during the period of the delay.
Factors considered by management include the property location,
economic conditions and any unique circumstances affecting the
loan. Due to the composition of the Company's loan portfolio,
the fair value of collateral is utilized to measure virtually
all of the Company's impaired loans. If the fair value of an
impaired loan is less than the related recorded amount, a
valuation allowance is established or the writedown is charged
against the allowance for loan losses if the impairment is
considered to be permanent.
FASB Statement No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures, amended
SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest income on impaired loans. The Company has
elected to continue to use its existing nonaccrual methods for
recognizing interest on impaired loans.
F. Loan Origination Fees, Commitment Fees and Related Costs
FASB Statement No. 91, Accounting for Non-refundable
Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases, states that loan fees and
certain direct loan origination costs are normally deferred and
the net fee or cost is recognized as an adjustment to interest
income using a method which does not differ materially from the
interest method, over the contractual life of the loans,
adjusted for estimated prepayments based on the Company's
historical prepayment experience. Commitment fees and costs
relating to commitments whose likelihood of exercise is remote
should be recognized over the commitment period on a
straight-line basis. If the commitment is subsequently exercised
during the commitment period, the remaining unamortized
commitment fee at the time of exercise should be recognized over
the life of the loan as an adjustment of yield. Loan fees and
certain direct loan origination costs are not deferred at the
Company, however, due to immateriality. These fees are
recognized in the period collected. The Company does not charge
commitment fees.
G. Foreclosed Real Estate
Real estate properties acquired through, or in lieu of
loan foreclosures are initially recorded at the lower of cost or
fair value minus estimated costs to sell at the date of
foreclosure. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding
of property are expensed.
25
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Valuations are periodically performed by management, and
an allowance for losses is established by a charge to operations
if the carrying value of a property exceeds its estimated net
realizable value.
H. Federal Home Loan Bank Stock
Federal Home Loan Bank (FHLB) stock is carried at cost
due to its lack of marketability and restricted ownership. FHLB
stock can be sold back only at its par value and only to FHLB or
other member institutions. FHLB stock is evaluated annually for
impairment.
I. Income Taxes
Provisions for income taxes are based on taxes payable
for the current year and include deferred income taxes on
temporary differences in the recognition of income and expenses
for tax and financial statement purposes, primarily from
preparing tax returns on the cash basis of accounting and
preparing the financial statements on the accrual basis.
Deferred taxes are computed utilizing the method prescribed in
FASB Statement 109, Accounting for Income Taxes.
J. Premises and Equipment
Land is carried at cost. Buildings, furniture, fixtures,
and equipment are carried at cost, less accumulated
depreciation. Maintenance, repairs, and minor renewals are
expensed as incurred. Property retired or sold, and the
accumulated depreciation is removed from the accounts in the
year of sale or retirement. Gains or losses on disposition are
taken into income.
The Company computes depreciation by use of the
straight-line method over the following estimated useful lives:
Buildings 40 years
Furniture and fixtures 7-10 years
Automobiles 5 years
For income tax purposes, depreciation of assets acquired
prior to January 1, 1981 is calculated on the straight-line
method, and depreciation of assets acquired after December 31,
1980 is calculated using the Accelerated Cost Recovery System
(ACRS) and Modified Accelerated Cost Recovery System (MACRS) of
the Internal Revenue Service. Provision is made for deferred
income taxes applicable to the difference in depreciation
charges.
26
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
K. Deferred Income
Interest on loans collected in advance is deferred and
is recognized to interest income over the contractual life of
the loans. Profits from repossessed real estate sale
transactions for which the proceeds were financed by the Company
are deferred and recognized to income based upon the amount,
composition, and source of the down payment made by the buyer
and periodic cash payments by the buyer.
L. New Accounting Pronouncements
SFAS No. 128, Earnings per Share, supersedes APB opinion
No. 15 and AICPA Accounting Interpretation's 1-102 of Opinion
No. 15 and is effective for financial statements issued for
periods ending after December 31, 1997. It establishes standards
for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, Earnings per
Share, and makes them comparable to international earnings per
share standards. It replaces the presentation of primary
earnings per share with a presentation of basic earnings per
share. It also requires dual presentation of basic and diluted
earnings per share on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator
of the diluted earnings per share.
SFAS No. 129, Disclosure of Information about Capital
Structure, supersedes specific disclosure requirements of APB
opinions No. 10 and No. 15 and FASB Statement No. 47 and
consolidates them in this statement. It is effective for
financial statements issued for periods ending after December
15, 1997. This statement continues the previous requirements to
disclose certain information about an entity's capital structure
found in APB opinions No. 10, Omnibus Opinion - 1996, and No.
15, Earnings per Share, and FASB Statement No. 47, Disclosure of
Long-Term Obligations, for entities that were subject to the
requirements of those standards. It eliminates the exemption of
nonpublic entities from certain disclosure requirements of
Opinion No. 15 as provided by FASB Statement No. 21, Suspension
of the Reporting of Earnings Per Share and Segment Information
of Nonpublic Enterprises.
27
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements and is
effective for fiscal years beginning after December 31, 1997. It
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement
does not require a specific format of that financial statement
but requires that an enterprise display an amount representing
total comprehensive income for the period in that financial
statement. An enterprise is required to classify items of other
comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial
position.
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, established standards for
the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. This Statement supersedes FASB Statement No.
14, Financial Reporting for Segments of a Business Enterprise,
but retains the requirement to report information about major
customers. It amends FASB Statement No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure
requirements for previously unconsolidated subsidiaries. This
Statement does not apply to nonpublic business enterprises or to
not-for-profit organizations. This statement is effective for
financial statements for periods beginning after December 15,
1997.
Management believes adoption of SFAS Nos. 128, 129, 130
and 131 will not have a material effect on the financial
position or results of operations, nor will adoption require
additional capital resources.
M. Reclassified Items
Certain items of the prior years have been reclassified
in order to conform to current presentation.
28
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(2) Federal Home Loan Bank Stock
The carrying values of the FHLB stock at December 31, 1998 and
1997 are $263,000 and $259,300, respectively. FHLB stock was not
considered impaired at December 31, 1998 or 1997 and was carried at
cost.
(3) Mortgage-Backed and Related Securities
The carrying values and estimated market values of
mortgage-backed and related securities at December 31 are summarized as
follows:
Held-to-Maturity Securities December 31, 1998
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
---------- --------- ---------- ----------- ----------
GNMA
certificates $ 240,926 $ 141 $ 241,067 $ 2,331 $ 243,398
FHLMC
certificates 3,303,815 (17,417) 3,286,398 3,744 3,290,142
FNMA
certificates 5,954,919 34,537 5,989,456 9,370 5,998,826
Collateralized
mortgage
obligations 35,710 2,801 38,511 (2,737) 35,774
Municipal bond 200,000 (11,439) 188,561 13,581 202,142
---------- -------- ---------- ------- ----------
$9,735,370 $ 8,623 $9,743,993 $26,289 $9,770,282
========== ======== ========== ======= ==========
(continued)
Available-for-Sale Securities December 31, 1998
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
---------- --------- ---------- ----------- ----------
GNMA
certificates $ 379,394 $ 8,495 $ 387,889 $(4,695) $ 383,194
FHLMC
certificates 2,241,232 (13,588) 2,227,644 3,663 2,231,307
FNMA
certificates 3,275,008 (4,015) 3,270,993 15,878 3,286,871
SBA
certificates 546,442 5,465 551,907 (2,049) 549,858
---------- ------- ---------- ------- ----------
$6,442,076 $(3,643) $6,438,433 $12,797 $6,451,230
========== ======= ========== ======= ==========
29
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Held-to-Maturity Securities December 31, 1997
------------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
----------- -------- ----------- -------- -----------
GNMA
certificates $ 301,615 $ 136 $ 301,751 $ 5,395 $ 307,146
FHLMC
certificates 3,939,519 (18,365) 3,921,154 (11,991) 3,909,163
FNMA
certificates 7,161,015 43,141 7,204,156 (58,208) 7,145,948
Collateralized
mortgage
obligations 50,899 3,992 54,981 (2,948) 51,943
Municipal bond 200,000 (13,006) 186,994 8,486 195,480
----------- -------- ----------- -------- -----------
$11,653,048 $ 15,898 $11,668,946 $(59,266) $11,609,680
=========== ======== =========== ======== ===========
Available-for-Sale Securities December 31, 1997
-----------------------------------------------------------
Net
Unamortized
Premium Gross Estimated
Principal (Unearned Carrying Unrealized Market
Balance Discounts) Value Gain (Loss) Value
---------- -------- ---------- ------- ----------
GNMA
certificates $ 459,059 $ 10,243 $ 469,302 $(3,119) $ 466,183
FHLMC
certificates 1,819,144 (18,176) 1,800,968 4,071 1,805,039
FNMA
certificates 2,392,250 (4,276) 2,387,974 (1,371) 2,386,603
SBA
certificates 815,353 8,154 823,507 (3,041) 820,466
---------- -------- ---------- ------- ----------
$5,485,806 $ (4,055) $5,481,751 $(3,460) $5,478,291
========== ======== ========== ======== ==========
During 1998, there were no sales of securities
available-for-sale. During 1997, the Association sold securities
available-for-sale for total proceeds of $382,328 resulting in gross
realized gains of $2,826, determined by specific identification.
Investment securities with a carrying amount of approximately
$6,749,000 and $802,000 were pledged to secure deposits as required or
permitted by law at December 31, 1998 and 1997, respectively.
30
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
The following is a summary of maturities of mortgage-backed and
related securities held-to-maturity and available-for-sale as of
December 31, 1998:
Held-to-Maturity Available-for-Sale
-------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
---------- ---------- ---------- ----------
Amounts maturing:
After one year
through five
years $ 106,200 $ 106,109 $ 6,416 $ 6,281
After five years
through ten years 80,700 81,814 - -
After ten years 9,557,093 9,582,359 6,432,017 6,444,949
---------- ---------- ---------- ----------
$9,743,993 $9,770,282 $6,438,433 $6,451,230
========== =========== ========== ==========
(4) Loans Receivable
Major classification of loans at December 31 are as follows:
1998 1997
----------- -----------
First mortgage loans (principally conventional):
Principal balances -
Secured by one-to-four family residences $ 8,884,378 $ 8,376,124
Land loans 483,376 612,187
Commercial loans 2,083,735 1,467,219
Construction loans 394,001 352,800
Other real estate loans 255,757 279,585
----------- -----------
12,101,247 11,087,915
Less: Undisbursed portion of first mortgage
loans (163,694) (124,612)
----------- -----------
Total first mortgage loans 11,937,553 10,963,303
Consumer and other loans:
Principal balances -
Automobile 701 ,718 525,835
Manufactured home 39,733 24,017
Share loans 773,817 734,844
Lines of credit 2,248,622 1,321,178
Other consumer loans 934,779 970,638
----------- -----------
4,698,669 3,576,512
31
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Less: Undisbursed portion of consumer loans (1,415,291) (585,478)
Unearned discounts (20,676) (8,169)
Total consumer and other loans 3,262,702 2,982,865
Less: Allowance for loan losses (304,057) (300,260)
Loans receivable, net $14,896,198 $13,645,908
=========== ===========
Activity in the allowance for loan losses for the years ended
December 31 is summarized as follows:
1998 1997
-------- --------
Balance, beginning of year $300,260 $296,452
Provision for loan losses 58,664 3,000
Charge offs less recoveries (54,867) 808
-------- --------
Balance, end of year $304,057 $300,260
======== ========
The Company had loans with unpaid principal balances totaling
$117,208 and $125,679 at December 31, 1998 and 1997, respectively, upon
which interest was no longer being accrued due to their delinquent
status. Had the accrual of interest not been discontinued on these
loans, interest income would have been increased by approximately $6,381
and $6,756, respectively. The Company is not committed to lend
additional funds to debtors whose loans have been modified.
(5) Troubled Debt Restructuring
In accordance with FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by FASB Statement No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures, management has classified loans receivable at December
31, 1998 and 1997, in the amounts of $106,730 and $198,646,
respectively, as troubled debt restructuring due to modification of
terms. The interest income that would have been recognized if those
loans had been current with their original terms was $10,475 and $18,595
for the years ended December 31, 1998 and 1997, respectively. Interest
income totalling $7,672 and $13,712 was included in income for the years
ended December 31, 1998 and 1997, respectively. The Company is not
committed to lend additional funds to debtors whose loans have been
restructured. No impaired loans existed at December 31, 1998 and 1997.
32
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(6) Accrued Interest Receivable
Accrued interest receivable at December 31 is summarized as
follows:
1998 1997
-------- --------
Mortgage-backed and related securities $128,867 $132,058
Loans receivable 106,678 97,305
-------- --------
$235,545 $229,363
======== ========
(7) Allowance for Losses on Foreclosed Real Estate
Activity in the allowance for losses for foreclosed real estate
for the years ended December 31 is as follows:
1998 1997
-------- --------
Balance, beginning of year $ - $ 25,807
Provisions charged to operations -
Charge-offs less recoveries - (25,807)
Balance, end of year $ - $ -
======== ========
(8) Premises and Equipment
Premises and equipment at December 31 consisted of the
following:
1998 1997
---------- ----------
Land and buildings $ 685,508 $ 342,138
Furniture, fixtures and equipment 440,285 294,004
---------- ----------
1,125,793 636,142
Less: Accumulated depreciation (420,298) (373,695)
---------- ----------
$ 705,495 $ 262,447
========== ==========
33
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Depreciation for the years ended December 31, 1998 and 1997 was
$46,603 and $36,267, respectively.
(9) Deposits
Deposits at December 31 are summarized as follows:
Weighted
Average 1998 1997
Rate at ------------------ -----------------
12/31/98 Amount Percent Amount Percent
-------- ------ ------- ------ -------
Demand and NOW
accounts,
including
non-interest
bearing deposits
of $1,299,481 and
$912,169 1.76% $10,107,457 30.12% $ 4,685,827 16.35%
Money market 2.75% 603,651 1.80% 722,090 2.52%
Passbook savings 2.08% 2,253,347 6.72% 2,584,113 9.02%
----- ----------- ------ ----------- ------
12,964,455 38.64% 7,992,030 27.89%
----------- ------ ----------- ------
Certificates
of deposit:
3.99% or less 2.00% 312,451 .93% - 0.00%
4.00% to 5.99% 4.87% 15,342,596 45.73% 16,919,400 59.05%
6.00% to 7.99% 6.02% 4,811,215 14.34% 3,627,464 12.66%
8.00% to 9.99% 8.00% 122,349 .36% 117,648 0.40%
----- ----------- ------ ----------- ------
20,588,611 61.36% 20,664,512 72.11%
----------- ------ ----------- ------
$33,553,066 100.00% $28,656,542 100.00%
=========== ====== =========== ======
The aggregate amount of short-term jumbo certificates of deposit
with a minimum denomination of $100,000 was approximately, $4,450,784
and $2,664,532 at December 31, 1998 and 1997, respectively.
At December 31, 1998 scheduled maturities of certificates of
deposit are as follows:
Year Ending December 31,
-------------------------------------------------------
1999 2000 2001 2002 2003
----------- ---------- -------- ------- -------
3.00 to 3.99 percent $ - $ 312,451 $ - $ - $ -
4.00 to 5.99 percent 13,987,716 1,054,702 160,518 74,365 65,295
6.00 to 7.99 percent 3,206,593 1,216,065 388,557 - -
8.00 to 8.99 percent - 122,349 - - -
$17,194,309 $2,705,567 $549,075 $74,365 $65,295
=========== ========== ======== ======= =======
Deposits for directors, officers and employees totaled $763,291
and $670,698 at December 31, 1998 and 1997, respectively.
34
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Interest expense on deposits for the years ended December 31 is
summarized as follows:
1998 1997
---------- ----------
Money market and NOW
accounts $ 102,288 $ 92,541
Passbook savings 50,124 53,326
Certificates of
deposits 1,086,826 1,064,744
---------- ----------
$1,239,238 $1,210,611
========== ==========
Income from early withdrawal penalties amounted to $504 and
$4,005 for the years ended December 31, 1998 and 1997, respectively.
(10) Deferred Income
Deferred income at December 31 consisted of the following:
1998 1997
------- -------
Interest on loans collected in advance $ 6,038 $ 6,510
Unrealized profit from the sale of
repossessed property 40,241 40,555
------- -------
Totals $46,279 $47,065
======= =======
(11) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the
following:
1998 1997
-------- --------
Accrued interest $ 27,969 $ 620
Payroll taxes 1,735 2,177
Accounts payable 99,825 13,509
Other 12,013 11,314
-------- --------
$141,542 $ 27,620
======== ========
35
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(12) Interest Income on Other Interest Earning Assets
Details of interest income on other interest earning assets
included in interest income for the years ended December 31 are provided
below:
1998 1997
------- -------
Interest on demand account in other institutions $70,817 $78,539
Federal Home Loan Bank dividends 15,290 15,221
------- -------
Totals $86,107 $93,760
======= =======
(13) Other Noninterest Expenses
Details of other expenses included in noninterest expenses for
the years ended December 31 are provided below:
1998 1997
-------- --------
Bank clearing charges $ 74,401 $ 82,504
Insurance 22,279 22,505
Professional fees 50,657 73,506
Telephone 14,597 13,018
Advertising 16,629 23,418
Franchise and shares taxes 42,610 32,479
Registrar fees 5,493 4,635
Supervisory examination 11,263 3,471
ESOP expenses 2,050 1,950
Property taxes 6,058 7,693
Dues and subscriptions 7,882 5,947
Miscellaneous other
expenses 19,338 18,731
-------- --------
Total $273,257 $289,857
======== ========
(14) Retirement Plans
Profit Sharing Plan
In 1988, the Company adopted a contributory profit sharing plan
for all full time employees. No contributions were made in 1998 and 1997
due to contributions made on behalf of employees to the ESOP plan.
36
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Employee Stock Ownership Plan (ESOP)
All employees meeting age and service requirements are eligible
to participate in an ESOP. Under the terms of the ESOP, contributions
are allocated to participants using a formula based on compensation.
Participants vest over five years.
In 1996, the ESOP purchased 21,160 shares of Company common
stock. The remaining unamortized cost of such shares purchased is
reflected as unearned employee benefits in the accompanying balance
sheet. During 1998 and 1997, 2,116 shares were allocated to participants
each year. The fair value of such shares, $44,833 and $36,385 for 1998
and 1997, respectively, was charged to expense. The fair value of the
remaining unallocated shares at December 31, 1998 and 1997 totaled
$278,783 and $370,300, respectively.
(15) Officer's Deferred Compensation Contract
The Company has a deferred compensation contract with one member
of the Board of Directors. The agreement provides for payment of equal
annual installments over ten years to be made to the director upon
retirement or to his beneficiary in the event of death before
retirement. The agreement is terminated should the director resign
before the stated date of retirement.
At December 31, 1998 and 1997, $53,050 and $38,665,
respectively, had been accrued as deferred compensation payable.
(16) Income Taxes
The Company utilizes FASB Statement 109 to account for income
taxes.
The components of income tax expense for the years ended
December 31 are as follows:
1998 1997
-------- --------
Income taxes current:
Federal $159,223 $134,956
-------- --------
Deferred taxes due to
timing differences (53,720) 12,753
Total income tax
expense $105,503 $147,709
======== ========
37
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
The total provision for federal income taxes differs from that
computed by applying statutory corporate tax rates as follows for the
years ended December 31:
1998 1997
----- -----
Computed at the expected
statutory rate 34.0% 34.0%
Other (1.8) 2.7
32.2% 36.7%
===== =====
Temporary differences giving rise to the deferred tax amounts
consist primarily of converting the financial statements from accrual to
cash basis for tax purposes and by the excess of tax bad debts over book
bad debts since 1987.
Amounts for deferred tax liabilities at December 31 are as
follows:
1998 1997
-------- --------
Deferred tax assets $ 45,784 $ 26,467
Deferred tax liabilities 130,407 161,865
-------- --------
Net deferred tax liabilities $ 84,623 $135,398
======== ========
No valuation allowances were recorded against deferred tax
assets as of December 31, 1998 and 1997.
Under the Internal Revenue Code, the Company is allowed to
deduct an experience method bad debt deduction based on actual
charge-offs. This deduction is an addition to tax bad debt reserves
established for the purpose of absorbing losses. The Act also provides
that federal income tax bad debt reserves in excess of the base year
reserves will be included in taxable income. The Association had
postponed recapture of income from the excess of federal bad debt
reserves over base year reserves since 1996. Taxable income for 1998
included $119,038 of recapture of this bad debt reserve, thereby
decreasing the deferred tax liability and increasing current taxes by
$40,473.
38
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Retained earnings of the Company at December 31, 1998 and 1997
includes approximately $368,500, for which provision for federal income
tax has been made. This amount represents allocations of income to bad
debt deductions for tax purposes only. Reduction of amounts allocated
for purposes other than tax bad debt losses will create income for tax
purposes only, which will be subject to the then current corporate
income tax rate.
(17) Earnings Per Share
The Company adopted FAS 128, Earnings Per Share, as of December
31, 1997. Weighted average shares of common stock outstanding for basic
EPS excludes the weighted average shares unreleased by the Employee
Stock Ownership Plan ("ESOP") (16,399 and 18,515 shares at December 31,
1998 and 1997, respectively) and the weighted average unvested shares in
the Recognition and Retention Plan (RRP) (8,464 and -0- shares at
December 31, 1998 and 1997, respectively). The effect on diluted EPS of
stock option shares outstanding and unvested RRP shares is calculated
using the treasury stock method. The following is a reconcilement of the
numerator and denominator for basic and diluted Earnings Per Share.
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Year Ended December 31, 1998
--------------------------------------
Basic EPS
Income available to common
stockholders $222,066 247,401 $.90
====
Effect of dilutive securities
Stock options outstanding - -
Restricted stock grants - -
-------- -------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $222,066 247,401 $.90
======== ======= ====
39
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Year Ended December 31, 1997
------------------------------------
Basic EPS
Income available to common
stockholders $254,500 244,669 $1.04
=====
Effect of dilutive securities
Stock options outstanding - -
Restricted stock grants - -
--------- ------- -----
Diluted EPS
Income available to common
stockholders plus assumed
conversions $254,500 249,669 $1.04
======== ======= =====
(18) Other Employee Benefits
Recognition and Retention Plan
The Company established the Recognition and Retention Plan (RRP)
for certain officers and directors on April 30, 1998. During 1998, the
Company issued 2,116 shares of common stock to fund the vested portion
of the RRP. The excess of fair value over par value of the common stock
issued increased additional paid-in capital by $50,763. The fair value
of the shares on the date of award is recognized ratably as compensation
expense over the vesting period, which is five years. The grantees of
the restricted stock have the right to vote the shares awarded.
Dividends on unvested shares are held in trust and distributed when the
related shares vest. For the year ended December 31, 1998, the amount
included in compensation expense was $50,784. A summary of the changes
in restricted stock follows:
Unvested Vested
Shares Shares
Balance, January 1, 1998 - -
Approved by the plan 10,580 -
Vested (2,116) -
Forfeited - -
Earned and issued - 2,116
Balance, December 31, 1998 8,464 2,116
====== ======
40
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Stock Option Plan
In 1998, the Company adopted a stock option plan for the benefit
of directors and officers. The number of shares of common stock reserved
for issuance under the stock option plan was equal to 26,450 shares, or
10.0 percent, of the total number of common shares sold in the Company's
initial public offering of its common stock upon the mutual-to-stock
conversion of First Allen Parish Bancorp, Inc. The option exercise price
cannot be less than the fair value of the underlying common stock as of
the date of the option grant and the maximum option term cannot exceed
10 years. The stock options granted to directors and officers in 1998
are exercisable in five equal annual installments. Under APB No. 25,
because the exercise price of the Company's stock options equals the
market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
The following table summarizes the activity related to stock
options:
Available Options
for Grant Outstanding
------- -------
At inception 26,450 -
Granted (22,483) -
Vested - 4,497
Canceled - -
Exercised - -
------- -------
At December 31, 1998 3,967 4,497
======= =======
The 4,497 vested outstanding options were issued on April 30,
1998 at an exercise price equal to the market value of $24.00 and were
exercisable at December 31, 1998. The weighted-average grant-date fair
value of options granted during the year ended December 31, 1998 was
$7.15.
In October 1995, the FASB issued SFAS 123, Accounting of
Stock-Based Compensation. SFAS 123 requires disclosure of the
compensation cost for stock-based incentives granted after January 31,
1995, based on the fair value at grant date for awards. Applying SFAS
123 would result in pro forma net income and earnings per share amounts
as follows:
1998
--------
Net income
As reported $222,066
Pro forma $197,102
Earnings per share
As reported - Basic $.90
- Diluted $.90
Pro forma - Basic $.80
- Diluted $.80
41
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(19) Related Party Transactions
In the ordinary course of business, the Company makes loans to
its directors, officers, and employees. These loans are made on the same
terms as loans to other customers. The activity of such loans
outstanding for the years ended December 31 are as follows:
1998 1997
--------- ---------
Balance, beginning of year $ 249,429 $ 214,721
--------- ---------
Additions 118,266 70,562
Payments (139,395) (35,854)
--------- ---------
Balance, end of year $ 228,300 $ 249,429
========= =========
(20) Concentration of Credit
The majority of the Company's loans and its standby letters of
credit have been granted to customers in the Company's market area,
which is primarily Allen Parish, Louisiana. The Parish is largely a
rural area and relies heavily on the agricultural industry and
government employment. The concentrations of credit by type of loan are
set forth in the note on loans receivable as presented earlier in this
report. The Company, as a matter of policy, does not extend credit to
any borrower or group of related borrowers in excess of its legal
lending limit of approximately $584,516.
(21) Regulatory Capital Requirements
The Association is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Association
must meet specific capital guidelines that involve quantitative measures
of the Association's assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.
42
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Quantitative measures established by regulation to ensure
capital adequacy require the Association to maintain minimum amounts and
ratios (set forth in the table below) of risk-based capital, as defined
in the regulations, to risk-weighted assets, as defined, and of tangible
and core capital, as defined, to total assets, as defined. Management
believes, as of December 31, 1998, that the Association meets all
capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the
Office of Thrift Supervision (OTS), categorized the Association as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Association must maintain
minimum total risk-based, tangible and core capital ratios as set forth
in the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
Tangible Core Risk-based
---------- ---------- ----------
Regulatory capital $3,732,780 $3,732,780 $3,912,280
Minimum capital requirement 566,489 1,132,979 1,261,280
---------- ---------- ----------
Regulatory capital in excess of
of minimum capital
requirements $3,166,291 $2,599,801 $2,651,000
========== ========== ==========
Minimum capital requirement 1.5% 3.0% 8.0%
========== ========== ==========
The Association's regulatory
capital 9.88% 9.88% 24.81%
========== ========== ==========
(22) Financial Instruments with Off-Balance-Sheet Risk/Commitments
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 and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of
financial position. The contract or notional amount of those instruments
reflect the extent of the Company's involvement in particular classes of
financial instruments.
43
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for loan
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Company does not require collateral
or other security to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or
other termination clauses. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts
receivable; inventory, property, plant, and equipment; and
income-producing commercial properties. In addition to undisbursed loan
proceeds, outstanding mortgage commitments amounted to:
Ranges
--------------------------
Variable Interest Commitment
Rate Rates Terms
---------------------------------------
December 31, 1998 $755,861 8.5% - 10.5% 182 days
December 31, 1997 $194,550 8.5% - 9.0% 10-182 days
Ranges
--------------------------
Fixed Interest Commitment
Rate Rates Terms
---------------------------------------
December 31, 1998 $343,600 8.5% - 12.0% 182 days
December 31, 1997 $314,525 8.0% - 9.0% 120-182 days
44
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The Company had short-term standby letters of
credit outstanding of $5,100 and $1,000 at December 31, 1998 and 1997,
respectively.
(23) Estimated Fair Value of Financial Instruments
The following methods and assumptions were used by the Company
in estimating fair values of financial instruments as disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and
short-term instruments approximate their fair value.
Securities to be held to maturity and securities
available-for-sale - Fair values for investment securities,
excluding restricted equity securities, are based on quoted
market prices. The carrying values of restricted equity
securities approximate fair values.
Loans receivable - Fair values for variable and fixed rate loans
are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Deposit liabilities - The fair values disclosed for demand
deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts).
The carrying amounts of variable-rate, fixed-term money market
accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on the certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term borrowings - Fair values of borrowed funds are
estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rates for similar types
of borrowing arrangements.
Accrued interest - The carrying amounts of accrued interest
approximate their fair values.
45
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Off-balance sheet items - The fair value of these items
approximate their contractual amounts.
The estimated fair values of the Company's financial instruments
were as follows:
December 31, 1998 December 31, 1997
---------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
Financial assets:
Cash and due from
banks $6,319,228 $6,319,228 $ 1,884,242 $ 1,884,242
Securities to be held-
to-maturity 9,743,993 9,770,282 11,668,946 11,609,680
Securities available-
for-sale 6,451,230 6,451,230 5,478,291 5,478,291
Loans 14,896,198 14,886,904 13,645,908 13,495,448
Accrued interest
receivable 235,545 235,545 229,363 229,363
Other receivables 43,925 43,925 62,895 62,895
Federal Home Loan Bank
stock, at cost 263,000 263,000 259,300 259,300
December 31, 1998 December 31, 1997
---------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
Financial liabilities:
Deposit liabilities $33,553,066 $32,471,617 $28,656,542 $27,732,897
Advances by borrowers
for taxes and insurance 20,402 20,402 23,212 23,212
Current federal income
taxes payable 24,263 24,263 54,956 54,956
Accrued expenses and
other liabilities 141,542 141,542 27,620 27,620
Off-balance sheet items
Standby letters of
credit 5,100 5,100 1,000 1,000
Commitments to extend
credit 1,099,461 1,099,461 509,075 509,075
46
FIRST ALLEN PARISH BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(24) Capability of the Company's Data Processing Hardware to Accommodate the
Year 2000 (Unaudited)
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium (year
"2000") approaches. The "year 2000" problem is pervasive and complex, as
virtually every computer operation will be affected in some way by the
rollover of the two-digit year value of zero. The issue is whether
computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the "year 2000"
compliance. It is anticipated that all reprogramming efforts will be
complete March 31, 1999, allowing adequate time for testing. To date,
confirmations have been received from the Company's primary processing
vendors that plans are being developed to address processing of
transactions in the "year 2000". Management has assessed the "year 2000"
compliance expense and related potential effect on the Company's
earnings, and the board has approved $75,000 to be dedicated to this
project which is to be expended during years ended December 31, 1998 and
1999.
47
FIRST ALLEN PARISH BANCORP, INC.
Stockholder Information
ANNUAL MEETING:
The Annual Meeting of Stockholders will be held at 2:00 p.m., Oakdale,
Louisiana time on Friday, April 30, 1999, at the main office of First Allen
Parish Bancorp, Inc., 222 South 10th Street, Oakdale, Louisiana 71463.
STOCK LISTING:
First Allen Parish Bancorp, Inc. common stock is traded on the National
Association of Securities Dealers, Inc. (NASDAQ) "Pink Sheets" under the symbol
"FALN".
PRICE RANGE OF COMMON STOCK:
The per share price range of the common stock for 1998 was as follows:
High Low Dividends
------ ------ ---------
$24.50 $17.00 $79,988
The stock price information set forth in the table above was provided by
Trident Securities, Inc., 1275 Peachtree Street N. E., Suite 460, Atlanta,
Georgia 30309. The common stock traded infrequently and the share price
information reflected stock trades known to management of the Company.
At December 31, 1998, there were 266,622 shares of First Allen Parish
Bancorp, Inc. common stock issued and outstanding (including unallocated ESOP
shares) and there were 91 registered holders of record.
STOCKHOLDERS AND GENERAL INQUIRIES:
Charles L. Galligan, President/CEO
First Allen Parish Bancorp, Inc.
222 South 10th Street
Oakdale, Louisiana 71463
(318) 335-2031
TRANSFER AGENT:
Registrar and Transfer Co.
10 Commerce Drive
Cranford, New Jersey 07016
(800) 368-5948
ANNUAL AND OTHER REPORTS:
A copy of the First Allen Parish Bancorp, Inc. Annual Report on Form
10-K for the year ended December 31, 1998, as filed with the Securities and
Exchange Commission (SEC), may be obtained without charge by contacting Charles
L. Galligan, President and Chief Executive Officer, First Allen Parish Bancorp,
Inc., 222 South 10th Street (Post Office Box 706), Oakdale, Louisiana 71463.
The Company paid semiannual dividends of 15 cents per share in June and
December of 1998.
48
FIRST ALLEN PARISH BANCORP, INC.
Corporate Information
COMPANY AND ASSOCIATION ADDRESS:
First Allen Parish Bancorp, Inc.
222 South 10th Street
Post Office Box 706 Telephone: (318) 335-2031
Oakdale, Louisiana 71463 Telefax: (318) 335-2941
OFFICERS:
Dr. James D. Sandefur, Chairman of the Board
Charles L. Galligan, President and Chief Executive Officer
Leslie A. Smith, Secretary
Betty Jean Parker, Treasurer and Chief Financial Officer
BOARD OF DIRECTORS:
Dr. James D. Sandefur. Dr. Sandefur has served as Chairman of the Board
since January 1996. Dr. Sandefur was a practicing optometrist, and was
the owner of the Vision Clinic located in Oakdale, Louisiana from March
1968 until June 1996. Dr. Sandefur is currently semi-retired and works
as a consultant for the Vision Clinic.
Charles L. Galligan. Mr. Galligan has served as the President and Chief
Executive Officer since joining the Association in 1991. In these
capacities, he is responsible for overseeing the day-to-day operations
of the Association.
Jesse Boyd, Jr. Mr. Boyd is the owner and president of Boyd Buick-
Cadillac-Chevrolet-Pontiac-Olds-GMC, Inc., a car dealership, and Boyd
Oil Company, a bulk oil distributorship, located in Oakdale and
Glenmora, Louisiana, respectively.
James E. Riley. Mr. Riley owned and operated a pharmacy in Oberlin,
Louisiana until his retirement in 1990.
J. C. Smith. Mr. Smith's principal business is farming. He is also
involved in J. C. Smith & Sons, Partnership, a farming operation, and J.
C. Smith & Sons Auto and Home Service Center, a retail hardware store,
both located in Oberlin, Louisiana.
Leslie A. Smith. Mr. Smith is a retired principal from the Allen Parish
School Board.
INDEPENDENT AUDITORS:
Conrad Chapman, CPA
Kolder, Champagne, Slaven & Rainey, LLC
234 Rue Beauregard
Lafayette, Louisiana 70508
(318) 232-4141
SPECIAL COUNSEL:
Robert I. Lipsher, Esq.
Luse, Lehman, Gorman, Pomerenk & Schick
5335 Wisconsin Avenue, N. W.
Suite 400
Washington, DC 20015
(202) 274-2000
49