SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25538
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TECHE HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
Louisiana 72-128746
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
211 Willow Street, Franklin, Louisiana 70538
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (337) 828-3212
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N/A
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 9, 2002.
Class Outstanding
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$.01 par value common stock 2,372,487
TECHE HOLDING COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
Page
Number
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PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Materially Important Events 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
TECHE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
At At
June 30, September 30,
2002 2001*
----------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents............................................. $ 29,080 $ 24,108
Securities available-for-sale, at estimated
fair value (amortized cost of $72,725 and $40,164).................. 73,461 41,230
Securities held to maturity........................................... 22,806 --
Loans receivable, net of allowance for loan losses
of $3,447 and $3,436)............................................... 356,557 380,830
Accrued interest receivable........................................... 2,635 2,387
Investment in Federal Home Loan Bank stock, at cost................... 4,884 4,776
Real estate owned, net................................................ 423 282
Prepaid expenses and other assets..................................... 5,712 734
Premises and equipment, at cost less accumulated depreciation......... 14,058 13,184
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TOTAL ASSETS.................................................... $509,616 $467,531
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.............................................................. $355,840 $342,917
Advances from Federal Home Loan Bank.................................. 94,471 67,120
Advance payments by borrowers for taxes and insurance................. 1,172 1,642
Accrued interest payable.............................................. 653 964
Accounts payable and other liabilities................................ 2,622 2,776
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Total liabilities............................................... 454,758 415,419
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares
authorized; 4,354,875 shares issued............................... 43 43
Preferred stock, 5,000,000 shares authorized;
none issued....................................................... -- --
Additional paid in capital.......................................... 44,161 43,374
Retained earnings................................................... 40,417 36,609
Unearned ESOP shares................................................ (840) (1,089)
Treasury stock - 1,982,488 and 1,894,748 shares, at cost............ (29,402) (27,518)
Unrealized gain on securities available-for-sale, net of
deferred income taxes............................................. 479 693
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Total stockholders' equity...................................... 54,858 52,112
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $509,616 $467,531
======== ========
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* The consolidated balance sheet at September 30, 2001 has been taken from
the audited balance sheet at that date.
See notes to unaudited consolidated financial statements.
1
TECHE HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
For the Three Months For the Nine Months
Ended June 30 Ended June 30,
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2002 2001 2002 2001
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INTEREST INCOME
Interest and fees on loans.................. $ 7,080 $ 7,926 $ 21,867 $ 23,618
Interest and dividends on investments....... 1,259 800 3,394 2,757
Other interest income....................... 65 93 242 202
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8,404 8,819 25,503 26,577
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INTEREST EXPENSE:
Deposits.................................... 2,566 3,621 8,366 10,840
Advances from Federal Home Loan Bank........ 1,378 1,472 4,099 5,014
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3,944 5,093 12,465 15,854
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NET INTEREST INCOME........................... 4,460 3,726 13,038 10,723
PROVISION FOR LOAN LOSSES..................... 55 15 145 45
------- ------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES............................. 4,405 3,711 12,893 10,678
------- ------- -------- --------
NON-INTEREST INCOME:
Service charges and other................... 1,878 1,693 5,607 4,753
Gain on sale of real estate owned........... -- 17 20 20
Gain on sale of fixed assets................ 3 19 -- 19
Other income................................ 146 34 229 109
------- ------- -------- --------
TOTAL NON-INTEREST INCOME..................... 2,027 1,763 5,856 4,901
------- ------- -------- --------
Gain on sale of securities ................... -- 29 86 95
NON-INTEREST EXPENSE:
Compensation and employee benefits.......... 1,865 1,630 5,514 4,981
Occupancy expense........................... 796 944 2,522 2,562
Marketing and professional.................. 606 384 1,594 1,113
Other operating expenses.................... 705 772 2,092 2,436
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TOTAL NON-INTEREST EXPENSE.............. 3,972 3,730 11,722 11,092
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INCOME BEFORE INCOME TAXES.................... 2,460 1,773 7,113 4,582
INCOME TAXES.................................. 834 612 2,454 1,581
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NET INCOME.................................... $ 1,626 $ 1,161 $ 4,659 $ 3,001
======= ======= ======== ========
BASIC EARNINGS PER COMMON SHARE............... $ 0.71 $ 0.50 $ 2.04 $ 1.27
DILUTED EARNINGS PER COMMON SHARE............. $ 0.67 $ 0.48 $ 1.93 $ 1.25
SHARES OUTSTANDING FOR EPS
CALCULATIONS
BASIC............................... 2,293,000 2,341,000 2,289,000 2,359,000
DILUTED............................. 2,434,000 2,416,000 2,410,000 2,410,000
See notes to unaudited consolidated financial statements.
2
TECHE HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Nine Months
Ended June 30,
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................ $ 4,659 $ 3,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses........................................... 145 45
Depreciation........................................................ 836 895
Other items - net................................................... (574) 920
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Net cash provided by operating activities........................... 5,066 4,861
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale.................... (55,460) --
Proceeds from maturities of investment securities available for sale.... -- 3,411
Principal repayments on mortgage-backed securities available
for sale.............................................................. 22,572 10,483
Loans repayments (originated) net....................................... 24,220 (479)
(Increase) decrease in investment in FHLB stock......................... (108) 1,048
Purchase of premises and equipment ................................ (1,710) (2,957)
Sales of investment securities available-for-sale....................... 342 429
Purchase of mortgage-backed securities held to maturity................. (25,772) --
Purchase of life insurance contracts.................................... (5,000) --
Principal repayments on mortgage-backed securities held to maturity..... 2,966 --
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Net cash (used in) provided by investing activities................. (37,950) 11,935
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits................................................ 12,923 23,247
Net increase (decrease) in FHLB advances................................ 27,351 (33,259)
Net decrease in advance payments by borrowers for
taxes and insurance................................................... (470) (153)
Dividends paid.......................................................... (851) (879)
Purchase of common stock for treasury................................... (1,884) (2,019)
Exercise of stock options............................................... 787 855
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Net cash provided by (used in) financing activities................. 37,856 (12,208)
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NET INCREASE IN CASH...................................................... 4,972 4,588
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................ 24,108 10,384
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CASH AND CASH EQUIVALENTS, END OF PERIOD.................................. $ 29,080 $ 14,972
======== ========
See notes to unaudited consolidated financial statements.
3
TECHE HOLDING COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the three and nine
month periods ended June 30, 2002 and 2001 include the accounts of
Teche Holding Company (the "Company") and its subsidiary, Teche Federal
Savings Bank (the "Bank"). The Company's business is conducted
principally through the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not
include all information necessary for a complete presentation of
consolidated financial condition, results of operations, and cash flows
in conformity with generally accepted accounting principles. However,
all adjustments, consisting of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of the
consolidated financial statements have been included. The results of
operations for the period ended June 30, 2002 are not necessarily
indicative of the results which may be expected for the entire fiscal
year or any other period.
NOTE 3 - EARNINGS PER SHARE
Following is a summary of the information used in the computation of
basic and diluted income per common share for the three and nine months
ended June 30, 2002 and 2001.
Three Months Ended Nine Months Ended
June 30, June 30,
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2002 2001 2002 2001
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(In thousands)
Weighted average number of common
shares outstanding - used in computation
of basic earnings per common share.................. 2,293 2,341 2,289 2,359
Effect of dilutive securities:
Stock options....................................... 141 75 121 46
MSP stock grants.................................... -- -- -- 5
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Weighted average number of common shares
outstanding plus effect of dilutive
securities - used in computation of diluted
earnings per common share........................... 2,434 2,416 2,410 2,410
======== ======== ======== ========
4
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income which,
in the case of the Corporation, only includes unrealized gains and losses on
securities available-for-sale. Following is a summary of the Corporation's
comprehensive income for the nine months ended June 30, 2002 and 2001.
2002 2001
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Net income $ 4,659 $ 3,001
Other comprehensive (loss) income, net of tax (214) 968
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Total Comprehensive Income $ 4,445 $ 3,969
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5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company may from time to time make written or oral "forward-looking
statements" including statements contained in this Report and in other
communications by the Company which are made in good faith pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements, such as statements of the Company's plans,
objectives, expectations, estimates and intentions, involve risks and
uncertainties and are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
Comparison of Financial Condition at June 30, 2002 and September 30, 2001
The Company's total assets at June 30, 2002 and September 30, 2001 totaled
$509.6 and $467.5 million, respectively, an increase of $42.1 million or 9.0%.
Securities available-for-sale totaled $73.5 million and securities held to
maturity totaled $22.8 million at June 30, 2002, which represents an increase of
$55.0 million or 133% as compared to September 30, 2001. As part of a leveraging
strategy, and to secure longer-term low cost funding in the current low interest
rate environment, the Company purchased $49.7 million of mortgage-backed
securities in November 2001 at an average yield of 5.42% and a projected average
life of 4.7 years, which were funded in part by a $30 million FHLB advance.
Additionally, the Company purchased $32.1 million of mortgage- backed securities
at fixed rates for 5 years and annually adjusting thereafter.
Loans receivable totaled $356.6 million at June 30, 2002, which represented a
decrease of $24.3 million or 6.4% compared to September 30, 2001. During the
quarter and the nine months ended June 30, 2002, the Company de-emphasized
long-term fixed-rate mortgage loans in view of the low interest rate
environment, which resulted in repayments exceeding loan originations. While
conventional mortgage loans decreased during the quarter and the nine month
periods, consumer and commercial loans increased.
Total deposits increased to $355.8 million at June 30, 2002, an increase of
$12.9 million or 3.8% as compared to September 30, 2001.
Advances increased $27.4 million or 40.8% as compared to the amount at September
30, 2001. Advances have fixed interest rates and are amortizing over
approximately 15 years.
6
Stockholders' equity increased to $54.9 million at June 30, 2002, from $52.1
million at September 30, 2001, primarily as a result of net income and the
proceeds from the exercise of stock options, offset somewhat by stock
repurchased and cash dividends paid. During the nine month period, the Company
repurchased 87,740 shares at an average price of $21.46 per share.
Comparison of Operating Results for the Three and Nine Months Ended June 30,
2002 and 2001
Net Income. The Company had net income of $1,626,000 and $4,659,000 for the
three and nine months ended June 30, 2002 as compared to net income of
$1,161,000 and $3,001,000 for the three and nine month periods ended June 30,
2001, respectively. The increases during both periods were due primarily to
increases in net interest income.
Total Interest Income. Total interest income decreased by $415,000 or 4.7% and
$1,074,000 or 4.0% for the three and nine months ended June 30, 2002,
respectively, as compared to the same periods ended June 30, 2001 due primarily
to a decrease in the mortgage loan portfolio. The average yield on loans
decreased to 7.84% for the nine months ended June 30, 2002 from 8.05% in 2001,
while the average yield on investments decreased to 4.99% for the nine months
ended June 30, 2002, from 6.36% in 2001.
Total Interest Expense. Total interest expense decreased $1,149,000 or 22.6% and
$3,389,000 or 21.4% for the three and nine month periods primarily due to a
decrease in interest rates paid on deposits.
Net Interest Income. Net interest income increased by $734,000 or 19.7% and
$2,315,000 or 21.6% for the three and nine months ended June 30, 2002,
respectively, as compared to same periods ended June 30, 2001 due primarily to
an increase in loan yield resulting from an increase in consumer loans.
Provision for Loan Losses. The provision for loan losses increased $40,000 for
the three months ended June 30, 2002 and $100,000 for the nine months ended June
30, 2002, as compared to the same periods in 2001.
Management periodically estimates the likely level of losses to determine
whether the allowance for loan losses is adequate to absorb possible losses in
the existing portfolio. Based on these estimates, an amount is charged or
credited to the provision for loan losses and credited or charged to the
allowance for loan losses in order to adjust the allowance to a level determined
to be adequate to absorb anticipated future losses. These estimates are made at
least every quarter and there has been no significant change in the company's
estimation methods during the current period.
Management's judgment as to the level of the allowance for loan losses involves
the consideration of current and anticipated economic conditions and their
potential effects on specific borrowers, an evaluation of the existing
relationships among loans, known and inherent risks in the loan portfolio and
the present level of the allowance, results of examination of the loan portfolio
by regulatory agencies and management's internal review of the loan portfolio.
In determining the collectibility of certain loans, management also considers
the fair value of any underlying collateral. In addition, management considers
changes in loan concentrations, quality and terms that occurred during the
period in determining the appropriate amount of the allowance for loan losses.
Because certain types of loans have higher credit risk, greater concentrations
of such loans may result in an increase to the allowance. For this reason,
management segregates the loan portfolio by type of loan and number of days of
past due loans. Management also considers qualitative factors in determining the
amount of the allowance such as the level of and trends in non-performing loans
during the period, the Bank's historical loss experience and historical
charge-off percentages for state and national savings associations for similar
types of loans. In
7
recent years, the Bank's charge-offs have been low and, consequently, additions
to the allowance have been more reflective of other qualitative factors such as
the types of loans added during the period and statistical analysis of local and
national charge-off percentages.
Non-interest Income. Total non-interest income increased $264,000 and $955,000
for the three and nine month periods ended June 30, 2002, primarily due to
increased service charges.
Non-interest Expense. Total non-interest expense increased $242,000 and
$630,000, respectively, during the three and nine months ended June 30, 2002, as
compared to the same periods in 2001 due primarily to increases in compensation
and benefit expenses attributable to the Company's improved financial and market
performance during the periods. Compensation and ESOP expense increased during
the three and nine month periods as a result of higher incentive based
compensation and the higher market value of the Company's common stock, which
increased expenses associated with the Company's ESOP.
Income Tax Expense. Income taxes remained relatively unchanged as a percentage
of income before income taxes.
Liquidity and Capital Resources
Under current Office of Thrift Supervision ("OTS") regulations, the Bank is
required to maintain certain levels of capital. At June 30, 2002 the Bank was in
compliance with its three regulatory capital requirements as follows:
Amount Percent
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(In thousands)
Tangible capital.......................... $44,892 8.84%
Tangible capital requirement.............. 10,160 2.00
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Excess over requirement................... $34,732 6.84%
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Core capital.............................. $44,892 8.84%
Core capital requirement.................. 20,320 4.00
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Excess over requirement................... $24,572 4.84%
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Risk based capital........................ $48,199 17.17%
Risk based capital requirement............ 22,464 8.00
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Excess over requirement................... $25,735 9.17%
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Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
The Bank's liquidity is a measure of its ability to fund loans, pay withdrawals
of deposits, and other cash outflows in an efficient, cost effective manner. The
Bank's primary source of funds are deposits and scheduled amortization and
prepayment of loan and mortgage-backed principal. The Bank also utilizes
advances from the Federal Home Loan Bank of Dallas for its investment and
lending activities. As of June 30, 2002, such borrowed funds totaled $94.5
million. Loan payments, maturing investments and
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mortgage-backed security prepayments are greatly influenced by general interest
rates, economic conditions and competition.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the information regarding market risk
disclosed under the heading "Asset and Liability Management" in the Company's
Annual Report for the year ended September 30, 2001.
Key Operating Ratios
At or For the Three Months At or For the Nine Months
Ended June 30, Ended June 30,
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2002(1) 2001(1) 2002(1) 2001(1)
------- ------- ------- -------
(Unaudited) (Unaudited)
Return on average assets............... 1.29% .99% 1.25% .85%
Return on average equity............... 12.03% 9.15% 11.69% 8.04%
Average interest rate spread........... 3.31% 2.75% 3.21% 2.58%
Nonperforming assets to total assets... .31% .22% .31% .22%
Nonperforming loans to total loans..... .33% .23% .33% .23%
Average net interest margin............ 3.75% 3.32% 3.68% 3.16%
Tangible book value per share.......... $23.13 $20.75 $23.13 $20.75
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(1) Annualized where appropriate.
9
TECHE HOLDING COMPANY AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal
proceeding of a material nature at June 30, 2002. From time to
time, the Company is a party to legal proceedings in the
ordinary course of business wherein it enforces its security
interest in loans.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1-- Certification Pursuant to 12 U.S.C. Section 1350
(b) Reports on Form 8-K
None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHE HOLDING COMPANY
Date: August 13, 2002 By: /s/ Patrick O. Little
-----------------------------------------
Patrick O. Little
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2002 By: /s/ J. L. Chauvin
-----------------------------------------
J. L. Chauvin
Vice President and Chief Financial Officer
(Principal Accounting Officer)
11