SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 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 Number: 1-13712
TECHE HOLDING COMPANY
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(Exact name of Registrant as specified in its Charter)
Louisiana 72-1287456
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
211 Willow Street 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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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
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Common Stock, par value American Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based on the closing price of the Registrant's Common Stock
as quoted on the American Stock Exchange on December 16, 2002, was $51.6 million
(1,902,469 shares at $27.12 per share).
As of December 16, 2002 there were issued and outstanding 2,336,748
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
September 30, 2002. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 2003 Annual Meeting of
Stockholders. (Part III)
PART I
Teche Holding Company (the "Company" or the "Registrant") may from time
to time make written or oral "forward-looking statements," including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-K and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that 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 economy 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 rates, market and monetary fluctuations; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes; and
the success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Item 1. Business
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General
The Company is a Louisiana corporation organized in December 1994 at
the direction of Teche Federal Savings Bank (the "Bank" or "Teche Federal") to
acquire all of the capital stock that the Bank issued in its conversion from the
mutual to stock form of ownership (the "Conversion"). References to the "Bank"
or "Teche Federal" herein, unless the context requires otherwise, refer to the
Company on a consolidated basis.
The Bank is a community-oriented federal savings bank offering a
variety of financial services to meet the local banking needs of St. Mary,
Lafayette, Iberia, St. Martin, Terrebonne and upper Lafourche Parishes,
Louisiana (the "primary market area"). Teche Federal conducts its business from
its main office and two branch offices in New Iberia, Louisiana, and twelve
branch offices located in Morgan City, Bayou Vista, Lafayette (three offices),
Breaux Bridge and Houma (three offices), Thibodaux and Franklin, Louisiana.
The Company and the Bank are subject to regulation by the Office of
Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC")
and the Securities and Exchange Commission ("SEC").
Market Area/Competition
Teche Federal's home office is located in Franklin, St. Mary Parish,
Louisiana. The Bank also has branch offices in the contiguous Parishes of
Iberia, St. Martin, Lafayette, Terrebonne and Lafourche.
1
The local economy is dependent to a certain extent on the oil and gas,
seafood and agricultural (primarily sugar cane) industries. These industries are
cyclical in nature and have a direct impact on the level and performance of the
Bank's loan portfolio. Economic downturns in the past have caused a decrease in
loan originations and an increase in nonperforming assets. However, the
metropolitan Lafayette area, which is the fourth largest city in Louisiana, has
experienced sustained growth and is the home to the University of Louisiana at
Lafayette, several hospitals and various small-to medium-size businesses, and
has provided the Bank with increased lending opportunities.
The Bank encounters strong competition both in the attraction of
deposits and origination of real estate and other loans. Competition comes
primarily from other financial institutions in its primary market area,
including savings banks, commercial banks and savings associations, credit
unions and investment and mortgage brokers in serving its primary market area.
The Bank also originates mortgage loans through its branch offices and
affiliations with mortgage originators, secured by properties throughout its
primary market area and other locations in Louisiana.
Lending Activities
The Bank's lending strategy has historically focused on the origination
of traditional one-to-four- family mortgage loans with the primary emphasis on
single family residences in the Bank's primary market area. Additionally,
management emphasizes the origination of consumer loans (primarily home equity
loans), alternative mortgage loans, commercial loans and commercial real estate
loans for retention in the Company's loan portfolio. Alternative mortgage loans
originated by the Bank are residential real estate loans that do not meet all of
the Bank's standard loan underwriting criteria.
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Bank's loan portfolio at the dates indicated.
At September 30,
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2002 2001 2000 1999 1998
------------------- ------------------- ------------------- ---------------- ---------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Residential real estate mortgage
loans:
One- to four-family.......... $253,668 71.60% $293,435 76.21% $310,505 79.47% $296,602 85.43% $301,071 86.20%
Construction/permanent loans. 8,814 2.49 8,908 2.31 10,821 2.77 4,620 1.33 3,873 1.11
Multi-family................. 5,804 1.64 1,107 0.29 1,186 0.30 1,318 0.38 1,934 0.55
Commercial real estate loans... 7,792 2.20 10,775 2.80 5,465 1.40 5,207 1.50 6,261 1.79
Commercial non-real estate loans 3,295 0.93 -- -- -- -- -- -- -- --
Land loans..................... 8,750 2.47 9,161 2.38 8,173 2.09 5,501 1.58 1,604 0.46
Consumer loans:
Home equity loans ........... 40,779 11.51 36,039 9.36 33,007 8.45 19,655 5.66 20,186 5.78
Loans on savings accounts.... 3,978 1.12 4,536 1.18 4,960 1.27 5,166 1.49 5,881 1.69
Other........................ 21,409 6.04 21,051 5.47 16,617 4.25 9,112 2.63 8,458 2.42
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans............. 354,289 100.00% 385,012 100.00% 390,734 100.00% 347,181 100.00% 349,267 100.00%
====== ====== ====== ====== ======
Less:
Allowance for loan losses.... 3,459 3,436 3,630 3,537 3,515
Deferred loan fees, net...... 207 746 592 658 580
-------- -------- -------- -------- --------
Net loans.............. $350,623 $380,830 $386,512 $342,986 $345,172
======== ======== ======== ======== ========
2
Loan Maturity Tables. The following table sets forth the maturity of
the Bank's residential construction and commercial real estate loan portfolio at
September 30, 2002. The table does not include prepayments or scheduled
principal repayments. Adjustable-rate loans are shown as maturing based on
contractual maturities.
Residential
Construction/ Commercial
Permanent Real Estate
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Amounts due:
1 year or less............................... $1,934 $1,692
------ ------
After 1 year:
1 year to 5 years.......................... - 3,601
More than 5 years.......................... 6,880 2,499
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Total due after September 30, 2003....... 6,880 6,100
------ ------
Total amount due......................... $8,814 $7,792
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The following table sets forth the dollar amount of residential
construction/permanent loans and commercial real estate loans due after
September 30, 2003 that have pre-determined interest rates and that have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
----- --------- -----
(In Thousands)
Residential construction/permanent........ $ 6,880 $ - $ 6,880
Commercial real estate.................... 4,690 1,410 6,100
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Total............................... $11,570 $1,410 $12,980
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One- to Four-Family Residential Loans. Teche Federal generally
originates single-family owner occupied residential mortgage loans in amounts up
to 80% of the lower of the appraised value or selling price of the property
securing the loan. The Bank also originates such loans in amounts up to 100% of
the lower of the appraised value or selling price of the mortgaged property,
provided that private mortgage insurance is provided on the amount in excess of
90% of the lesser of the appraised value or selling price.
The Bank offers fixed-rate and adjustable-rate mortgage loans with
terms of up to 30 years, which amortize monthly. Interest rates charged on
mortgage loans are competitively priced based on market conditions and the
Bank's cost of funds. The Bank originates and holds most of its fixed-rate
mortgage loans as long term investments. Most loans are originated in
conformance with the Federal Home Loan Mortgage Corporation ("FHLMC") and the
Federal National Mortgage Association ("FNMA") guidelines and can therefore be
sold in the secondary market should management deem it necessary. The Bank
originated $41.1 million of fixed-rate mortgage loans during the year ended
September 30, 2002.
Alternative mortgage loans originated by the Bank are residential real
estate loans that do not meet the Bank's standard loan underwriting criteria due
to, among other things, higher loan to value ratios, lack
3
of private mortgage insurance, weaker credit characteristics of the borrower,
absence of credit history or the non-conforming nature of the property securing
the loan. Because these loans may have higher credit risks, they also provide
higher yields to the Bank. The Bank attempts to minimize the credit risk by
ensuring that the borrowers meet some of the Bank's standard underwriting
criteria and securing such loans only by residential real estate. At September
30, 2002, alternative mortgage loans comprised $31.6 million or 8.9% of the
total loan portfolio.
Residential Construction/Permanent Loans. The Bank's construction loans
have primarily been made to finance the construction of single-family owner
occupied residential properties and, to a limited extent, single family housing
for sale by contractors. Construction/permanent loans generally are made to
customers of the Bank in its primary market area. The Bank offers
construction/permanent loans in amounts up to 80% of the appraised value of the
property securing the loan. Loan proceeds are disbursed in increments as
construction progresses and as inspections warrant. Construction/permanent loans
to individuals generally do not pay off at completion of the construction phase,
but are automatically transferred to the Bank's one- to four-family residential
portfolio. These single-family residential loans are structured to allow the
borrower to pay interest only on the funds advanced for the construction for a
period of up to nine months at the end of which time the loan converts to a
permanent mortgage.
Multi-Family and Commercial Real Estate Loans. The Bank has
historically originated a limited amount of loans secured by multi-family and
commercial real estate, including non-owner occupied residential multi-family
dwelling units (more than four units), as well as professional office buildings
and apartment complexes.
The Bank generally originates multi-family and commercial real estate
loans up to 80% of the appraised value of the property securing the loan
depending upon the type of collateral. The Bank's philosophy is to originate
commercial real estate and multi-family loans only to borrowers known to the
Bank and on properties in its market area. The multi-family and commercial real
estate loans in the Bank's portfolio generally consist of fixed-rate and ARMs
which were originated at prevailing market rates for terms up to 15 years.
Loans secured by multi-family and commercial real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in multi- family and commercial real estate
lending is the borrower's creditworthiness, the feasibility and cash flow
potential of the project, and the outlook for successful operation or management
of the properties. As a result, repayment of such loans may be subject to a
greater extent than residential real estate loans to adverse conditions in the
real estate market or the economy. In accordance with the Bank's classification
of assets policy and procedure, the Bank requests annual financial statements on
major loans secured by multi-family and commercial real estate. At September 30,
2002 the aggregate balance of the five largest multi-family and commercial real
estate loans totaled $6.1 million with no single loan larger than $1.9 million.
Commercial Non-real Estate Loans. At September 30, 2002, the Bank had
$3.3 million invested in commercial non-real estate loans. Such loans are
commercial business loans primarily to small business owners in the Bank's
market area. These loans are typically secured by equipment, machinery and other
business assets and generally have terms of three to five years. This portfolio
grew during the 2002 fiscal year, and the Bank anticipates that this portfolio
will continue to grow. Commercial business loans generally have higher interest
rates and shorter terms than one- to four-family residential mortgage loans, but
also involve a greater degree of risk. These loans may have higher average
balances, increased difficulty of loan monitoring and a higher risk of default
since their repayment generally depends on the
4
successful operation of the borrower's business. The Bank tries to minimize its
risk exposure by limiting these loans to proven businesses and obtaining
personal guarantees from the borrowers whenever possible.
Land Loans. At September 30, 2002, the Bank had $8.8 million invested
in residential lot loans to individuals.
Home Equity Loans. The Bank also offers home equity loans on single
family residences. At September 30, 2002, home equity mortgage loans totaled
$40.8 million. While the Bank does offer adjustable rate home equity lines of
credit, the majority of the home equity portfolio have fixed rates with a
maximum term of 30 years. A variety of home equity loan programs are offered
including combined loan to values up to 125.00% of collateral, however, such
loans are generally for shorter terms. Creditworthiness, capacity, and loan to
value are the primary factors considered during underwriting. To offset
additional credit risk and higher combined loan to values, the Bank reduces loan
terms and increases loan yields.
Consumer Loans. The Bank also offers loans in the form of loans secured
by deposits, home equity loans, automobile loans, mobile home loans, credit card
loans and unsecured personal consumer loans. Federal regulations allow the Bank
to make secured and unsecured consumer loans of up to 35% of the Bank's assets.
Loans secured by deposits at the Bank are made up to 100% of the
deposit. At September 30, 2002, the Bank had $4.0 million of loans secured by
deposits.
Teche Federal also originates automobile and mobile home loans. At
September 30, 2002, the Bank had $4.1 million and $13.0 million of automobile
and mobile home loans, respectively.
The Bank has a credit card program whereby customers are offered
revolving credit through Teche Federal credit cards which are serviced by a
third-party vender. At September 30, 2002, such credit cards had a balance of
$1.3 million. The Bank sold this portfolio in November 2002.
Consumer loans tend to be originated at higher interest rates than
conventional residential mortgage loans and for shorter terms which benefits the
Bank's interest rate risk management. However, consumer loans generally involve
more risk than first mortgage one- to four-family residential real estate loans.
Repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Further, the application of various state and federal laws,
including federal and state bankruptcy and insolvency law, may limit the amount
which may be recovered. These loans may also give rise to defenses by the
borrower against the Bank and a borrower may be able to assert against the Bank
claims and defenses which it has against the seller of the underlying
collateral. In underwriting consumer loans, the Bank considers the borrower's
credit history, an analysis of the borrower's income and ability to repay the
loan, and the value of the collateral.
Loans-to-One Borrower. Savings associations cannot make any loans to
one borrower in an amount that exceeds in the aggregate 15% of unimpaired
capital and retained income on an unsecured basis and an additional amount equal
to 10% of unimpaired capital and retained income if the loan is secured by
readily marketable collateral (generally, financial instruments, not real
estate) or $500,000, whichever
5
is higher. The Bank's maximum loan-to-one borrower limit was approximately $6.9
million as of September 30, 2002.
Non-Performing and Problem Assets
General. Teche Federal's primary market area is dependent, to a certain
extent, on the oil and gas, seafood and agricultural (primarily sugar cane)
industries. These industries are cyclical in nature and have a direct impact on
the level and performance of the Bank's loan portfolio. Management continually
monitors its loan portfolio for appropriate underwriting standards.
Non-Performing Assets and Delinquencies. When a borrower fails to make
a required payment on a loan and does not cure the delinquency promptly, the
loan is classified as delinquent. In this event, the normal procedure followed
by the Bank is to make contact with the borrower at prescribed intervals in an
effort to bring the loan to a current status. In most cases, delinquencies are
cured promptly. If a delinquency is not cured, the Bank normally, subject to any
required prior notice to the borrower, commences foreclosure proceedings, in
which the property may be sold. In a foreclosure sale, the Bank may acquire
title to the property through foreclosure, in which case the property so
acquired is offered for sale and may be financed by a loan involving terms more
favorable to the borrower than those normally offered. Any property acquired as
a result of foreclosure or by deed in lieu of foreclosure is classified as real
estate owned until such time as it is sold or otherwise disposed of by the Bank
to recover its investment. Any real estate acquired in settlement of loans is
initially recorded at the estimated fair value at the time of acquisition and is
subsequently reduced by additional allowances which are charged to earnings if
the estimated fair value of the property declines below its initial value.
Subsequent costs directly relating to development and improvement of property
are capitalized (not to exceed fair value), whereas costs related to holding
property are expensed.
The Bank's general policy is to place a loan on nonaccrual status when
the loan becomes 90 days delinquent or otherwise demonstrates other risks of
collectibility. Interest on loans that are contractually 90 days or more past
due is reserved through an allowance account. The allowance is established by a
charge to interest income equal to all interest previously accrued, and interest
is subsequently recognized only to the extent cash payments are received until,
in management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.
6
The following table sets forth information regarding non-accrual loans,
real estate owned ("REO"), and loans that are 90 days or more delinquent but on
which the Bank was accruing interest at the dates indicated and restructured
loans. There are no restructured loans other than those included in the table.
At September 30,
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2002 2001 2000 1999 1998
------ -------- -------- ------- ------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by one- to four-family
residences ................................. $ 919 $ 294 $ 793 $ 609 $ 640
All other mortgage loans ..................... 216 71 76 -- --
Consumer ....................................... 440 300 144 51 83
------ -------- -------- ------- ------
Total ..................................... $1,575 $ 665 $ 1,013 $ 660 $ 723
====== ======== ======== ======= ======
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Permanent loans secured by one- to
four-family residences ..................... $ -- $ -- $ -- $ -- $ --
All other mortgage loans ..................... 736 -- -- -- --
Consumer ....................................... -- -- -- -- --
------ -------- -------- ------- ------
Total ..................................... $ 736 $ -- $ -- $ -- $ --
====== ======== ======== ======= ======
Total non-performing loans ...................... $2,311 $ 665 $ 1,013 $ 660 $ 723
====== ======== ======== ======= ======
Real estate owned ............................... $ 580 $ 282 $ 232 $ 178 $ 331
====== ======== ======== ======= ======
Total non-performing assets ..................... $2,891 $ 947 $ 1,245 $ 838 $1,054
====== ======== ======== ======= ======
Total non-performing loans to total loans
outstanding before allowance .................. .65% .18% .28% .24% .21%
====== ======== ======== ======= ======
Total non-performing loans to total assets ...... .45% .14% .21% .15% .18%
====== ======== ======== ======= ======
Total non-performing assets to total assets ..... .56% .21% .26% .19% .26%
====== ======== ======== ======= ======
Interest income that would have been recorded on loans accounted for on
a non-accrual basis under the original terms of such loans was not significant
for the year ended September 30, 2002.
Real Estate Owned. Real estate acquired by the Bank as the result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the fair value at
the date of foreclosure. At September 30, 2002, the Bank had REO with a net
balance of $580,000.
Allowances for Loan Losses and Real Estate Owned. Management
periodically estimates the likely level of losses on loans and foreclosed REO to
determine whether the allowance for loan losses is adequate to absorb losses in
the existing portfolio. Based on these estimates, a provision for loan losses is
charged to operations 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.
Management's judgment as to the level of the allowance for loan losses
involves the consideration of the following factors: current and anticipated
economic conditions and their potential effects on borrowers, an evaluation of
the existing relationships among borrowers and loans, the present level of the
allowance, the Bank's historical loss experience, the historical charge-off
percentages for state and national savings banks, the results of examinations of
the loan portfolio by regulatory agencies and management's internal review of
the loan portfolio. In addition, management considers changes in loan
concentrations
7
by type of loan that occurred during the period. Because certain types of loans
have higher credit risk, greater concentrations of such loans may result in an
increase to the allowance. In determining the collectibility of certain loans,
the estimated value of any underlying collateral is considered. Management also
takes into account the total amount of past due loans and within such group, the
amount that is thirty, sixty, ninety or one-hundred twenty days past due.
Nonperforming loans are evaluated individually, based primarily on the value of
the underlying collateral securing the loan. Larger loans, such as multi-family
mortgages and commercial loans are also generally evaluated for impairment
individually.
In 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 state and national charge-off percentages. There can be
no assurance that the allowance for losses will be adequate to cover losses
which may in fact be realized in the future and that additional provisions for
losses will not be required.
8
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for losses which may occur
within the loan category since the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio. The change in allocation from
September 30, 2001 to September 30, 2002 reflects the relative balances at year
end of each loan category as well as management's assessment at year end of the
risk characteristics of each loan category.
At September 30,
-----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------------- ------------------ ------------------- ------------------ --------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
At end of year allocated to:
One- to four-family........... $1,866 71.60% $2,595 76.21% $2,742 79.47% $2,664 85.43% $2,600 86.20%
Multi-family and commercial
real estate................. 350 3.84 114 3.09 121 1.70 121 1.88 246 2.34
Construction.................. 5 2.49 15 2.31 16 2.77 15 1.33 24 1.11
Home equity................... 562 11.51 386 9.36 429 8.45 423 5.66 430 5.78
Consumer and other loans...... 676 10.56 326 9.03 322 7.61 314 5.70 215 4.57
------ ------ ------ ------ ------ ----- ------ ----- ----- ------
Total allowance(1)............ $3,459 100.00% $3,436 100.00% $3,630 100.00% $3,537 100.00% $3,515 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ===== ======
- ------------------------
(1) Includes specific reserves for assets classified as loss.
9
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses for the
periods indicated:
At September 30,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
(Dollars in Thousands)
Total loans outstanding, net ................ $ 350,623 $ 380,830 $ 386,512 $ 342,986 $ 345,172
========= ========= ========= ========= =========
Average loans outstanding ................... $ 364,676 $ 389,963 $ 382,173 $ 340,540 $ 349,769
========= ========= ========= ========= =========
Allowance balances (at beginning of year) ... $ 3,436 $ 3,630 $ 3,537 $ 3,515 $ 3,355
--------- --------- --------- --------- ---------
Provision ................................... 205 80 120 150 180
--------- --------- --------- --------- ---------
Charge offs:
Residential real estate mortgage loans:
One- to four-family units ............... (99) (91) (23) (60) (56)
Construction loans ........................ -- -- -- -- --
Multi-family and commercial
real estate loans ....................... (1) (10) -- -- --
Land loans ................................ (1) -- -- -- --
Other ..................................... (114) (185) (66) (112) (8)
--------- --------- --------- --------- ---------
Total charge-offs ..................... (215) (286) (89) (172) (64)
Recoveries
Residential real estate mortgage loans:
One- to four-family units ............... 5 1 19 38 18
Construction loans ........................ -- -- -- -- --
Multi-family and commercial
real estate loans ...................... -- -- -- -- 22
Land loans ................................ -- -- -- -- --
Other ..................................... 28 11 43 6 4
--------- --------- --------- --------- ---------
Total recoveries ...................... 33 12 62 44 44
--------- --------- --------- --------- ---------
Net (charge-offs) ......................... (182) (274) (27) (128) (20)
--------- --------- --------- --------- ---------
Allowance balance (at end of year) .......... $ 3,459 $ 3,436 $ 3,630 $ 3,537 $ 3,515
========= ========= ========= ========= =========
Allowance for loan losses to total loans
outstanding before allowance .............. .98% .89% .93% 1.02% 1.01%
Net loans charged off as a percent of average
loans outstanding before allowance .......... .05% .07% .01% .04% .01%
Investment Activities
General. To supplement lending activities, the Company invests in
residential mortgage-backed securities, including collateralized mortgage
obligations ("CMO's"), investment securities and interest- bearing deposits.
These investments have historically consisted of investment securities issued by
U.S. government agencies and government-sponsored corporations. Such securities
can serve as collateral for borrowings and, through repayments and maturities,
as a source of liquidity.
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The Company is authorized to invest in various types of assets,
including U.S. Treasury obligations, securities of various federal agencies and
government-sponsored corporations, including securities issued by FHLMC, FNMA,
and the Government National Mortgage Association, securities of state and
municipal governments, deposits at the FHLB of Dallas, certificates of deposit
of federally insured institutions, certain bankers' acceptances and federal
funds. Subject to various restrictions, the Company also has the authority to
invest in commercial paper, corporate debt and/or equity securities and ARM
funds, the assets of which conform to the investments that federally chartered
savings institutions are otherwise authorized to make directly.
The Company's investments in mortgage-backed securities and CMO's
includes securities issued by government agencies, private issuers and financial
institutions. At September 30, 2002, the Company's investment in CMO's did not
include any residual interest or interest-only or principal-only securities. As
a matter of policy, the Company does not invest in residual interests of CMO's
or interest-only and principal-only securities. The CMO's held by the Company at
September 30, 2002 consisted of floating rate and fixed rate tranches.
Generally, private issued CMO's tend to have greater prepayment and credit risk
than those issued by government agencies or government-sponsored corporations,
such as the FHLMC, FNMA and GNMA, because they often are secured by jumbo loans.
At September 30, 2002, the Bank had CMO's with an aggregate estimated market
value of $10.7 million, all of which were privately issued. To minimize the risk
of private issued CMO's, the Bank only purchases those CMOs rated AA or better
by one of the rating agencies.
The following table sets forth the carrying value of the Company's
investment portfolio, short-term investments and FHLB stock at the dates
indicated.
At September 30,
------------------------------
2002 2001 2000
-------- -------- --------
(In Thousands)
Investment securities issued by U.S.
government agencies and corporations..... $ -- $ -- $ 3,385
FHLB Stock ................................ 5,211 4,776 5,781
Mortgage-backed securities ................ 84,034 21,532 30,949
CMO's ..................................... 10,744 19,395 22,181
Municipal obligations ..................... 59 70 93
Equity securities ......................... 170 233 601
-------- -------- --------
Total investment and mortgage-backed
securities .......................... 100,218 46,006 62,990
Interest-bearing deposits ................. 24,767 13,777 860
-------- -------- --------
Total investments ...................... $124,985 $ 59,783 $ 63,850
======== ======== ========
11
Investment Portfolio Maturities. The following table sets forth certain
information regarding the amortized cost, carrying value, market value, weighted
average yields and maturities of the Bank's investment and mortgage-backed
securities portfolio at September 30, 2002.
As of September 30, 2002
------------------------------------------------------------------------------------------------------------
More than
One Year or Less One to Five Years Five to Ten Years Ten Years Total Investments
------------------ ----------------- ----------------- ----------------- -----------------------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Carrying Market
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value Value
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------- ------
(Dollars in Thousands)
Mortgage-backed
securities available
for sale(1)............. $ 513 7.78% $ 12 9.00% $ 56 9.00% $51,588 5.05% $52,169 5.08% $ 53,137 $ 53,137
Mortgage-backed
securities held-to-
maturity................ - - - - - - 30,897 5.45 30,897 5.49 30,897 31,188
CMO's held to
maturity(1)............. - - - - - - 10,630 5.30 10,630 5.30 10,744 10,744
FHLB stock................ - - - - - - - - 5,211 3.00 5,211 5,211
Municipal obligations(2).. 59 4.37 - - - - - - 59 4.37 59 59
Equity securities......... - - - - - - - - 151 - 170 170
----- ---- ---- ------- ------- -------- --------
Total............... $ 572 7.43% $ 12 9.00% $ 56 9.00% $93,115 5.20% $99,117 5.09% $100,218 $100,509
===== ==== ==== ======= ======= ======== ========
- ------------------------
(1) Does not assume prepayments.
(2) Yields on municipal obligations have not been computed on a tax equivalent
basis.
12
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. Teche Federal also derives funds from
amortization and prepayment of loans and mortgage- backed securities, maturities
of investment securities and operations. Scheduled loan principal and interest
payments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and market conditions. Teche Federal also utilizes advances from the FHLB
of Dallas.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a broad
selection of deposit instruments including regular savings, demand and NOW
accounts and certificates of deposit. Deposit account terms vary according to
the minimum balance required, the time period the funds must remain on deposit
and the interest rate, among other factors.
The interest rates paid by the Bank on deposits can be set daily at the
direction of senior management. Senior management determines the interest rate
to offer the public on new and maturing accounts. Senior management obtains the
interest rates being offered by other financial institutions within its market
area. This data along with a report showing the dollar value of certificates of
deposit maturing is reviewed and interest rates are determined.
Non-interest bearing demand accounts constituted $25.2 million, or 7.2%
of the Bank's deposit portfolio at September 30, 2002. Money market accounts and
NOW accounts constituted $101.8 million, or 29.2% of the Bank's deposit
portfolio at September 30, 2002. Regular savings accounts constituted $26.2
million, or 7.5% of the Bank's deposit portfolio at September 30, 2002.
Certificates of deposit constituted $195.9 million or 56.1% of the deposit
portfolio, including $57.7 million of which had balances of $100,000 and over.
As of September 30, 2002, the Bank had no brokered deposits.
Certificate Accounts of $100,000 or More. Teche Federal maintains a
policy of offering higher interest rates on certificates with larger balances.
As a result, to some extent, Teche Federal customers tend to consolidate
accounts to earn the highest possible interest. This enables the Bank to
effectively compete in the marketplace, reduce the number of accounts and
associated costs, and increase, to some extent the number of accounts with
balances of $100,000 or more. The following table indicates the amount of the
Bank's certificates of deposit of $100,000 or more by time remaining until
maturity as of September 30, 2002.
Certificates Weighted
of Deposit Interest Rate
---------- -------------
(In Thousands)
Maturity Period:
- ---------------
3 months or less....................... $ 7,737 3.39%
Over 3 through 6 months................ 7,610 3.31
Over 6 through 12 months............... 12,985 3.20
Over 12 months......................... 29,336 4.72
------- ----
Totals................................. $57,668 4.01%
======= ====
13
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Dallas to supplement its supply of lendable funds.
Advances from the FHLB of Dallas are typically secured by a pledge of the Bank's
stock in the FHLB of Dallas and a portion of the Bank's first mortgage loans and
certain other assets. The Bank, if the need arises, may also access the Federal
Reserve Bank discount window to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. At September 30, 2002, Teche Federal had
$103.5 million in advances outstanding from the FHLB of Dallas.
The following table sets forth certain information regarding the Bank's
short term advances at or for the years ended on the dates indicated:
At or For the Year Ended September 30,
--------------------------------------
2002 2001 2000
------- ------- -------
(Dollars in Thousands)
FHLB advances:
Average balance outstanding .................. $ 167 $25,946 $52,500
Maximum amount outstanding at any
month-end during the year ................. 8,000 60,700 60,700
Balance outstanding at end of year ........... - - 57,500
Weighted average interest rate during the year 2.68% 6.26% 6.00%
Weighted average interest rate at end of year -% -% 6.60%
Subsidiary Activity
The only subsidiary of the Company is Teche Federal Savings Bank.
As of September 30, 2002, the Bank had one subsidiary: Family
Investment Services, Inc. ("FISI") and the net book value of the Bank's
investment in stock, unsecured loans and conforming loans in its service
corporation was $104,473. FISI was inactive at September 30, 2002.
Personnel
As of September 30, 2002, the Bank had 205 full-time and 50 part-time
employees. None of the Bank's employees is represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation
Set forth below is a brief description of all material laws and
regulations which relate to the regulation of the Bank and the Company. The
description does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
14
Recent Legislation to Curtail Corporate Accounting Irregularities.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002 (the "Act"). The Securities and Exchange Commission (the "SEC")
promulgated certain regulations pursuant to the Act which were effective August
29, 2002, and will continue to propose additional implementing or clarifying
regulations as necessary in furtherance of the Act.
The passage of the Act and the regulations implemented by the SEC
subject publicly-traded companies to additional and more cumbersome reporting
regulations and disclosure. These new regulations, which are intended to curtail
corporate fraud, require the chief executive officer and chief financial officer
of the Company to personally certify certain SEC filings and financial
statements and to certify as to the existence of disclosure controls and
procedures within the Company are designed to ensure that information required
to be disclosed by the Company in its SEC filings is processed, summarized and
reported accurately.
The Act and regulations promulgated thereunder by the SEC also impose
additional measures to be taken by the Company's officers, directors and outside
auditors and impose accelerated reporting requirements by officers and directors
of the Company in connection with certain changes in their equity holdings of
the Company. Implementation of and compliance with the Act and corresponding
regulations will likely increase the Company's expenses.
Holding Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
The Company is also required to file certain reports with, and otherwise comply
with, the rules and regulations of the OTS and the SEC.
Financial Modernization. The Gramm-Leach-Bliley Act, (the "GLB
Act"), which became effective in March 2000, permits greater affiliation among
banks, securities firms, insurance companies, and other companies under a new
type of financial services company known as a "financial holding company." A
financial holding company essentially is a bank holding company with
significantly expanded powers. Financial holding companies are authorized by
statute to engage in a number of financial activities previously impermissible
for bank holding companies, including securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; and merchant banking activities. The GLB Act also
permits the Federal Reserve and the Treasury Department to authorize additional
activities for financial holding companies if they are "financial in nature" or
"incidental" to financial activities. A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized,
well managed, and has at least a "satisfactory" CRA rating. A financial holding
company must provide notice to the Federal Reserve within 30 days after
commencing activities previously determined by statute or by the Federal Reserve
and Department of the Treasury to be permissible. The Company has not submitted
notice to the Federal Reserve to be deemed a financial holding company.
15
The GLB Act repeals the "unitary savings and loan holding company
exemption" from the restrictions imposed by the Home Owners' Loan Act on the
business activities of savings and loan holding companies. However, the GLB Act
grandfathers from this provision companies that were already unitary savings and
loan holding companies before May 4, 1999 or that result from an internal
reorganization of such preexisting unitary holding companies. Since the Company
was a unitary savings and loan holding company before May 4, 1999, it qualifies
as a grandfathered unitary savings and loan holding company. Grandfathered
unitary savings and loan holding companies have no restrictions on their
activities at the holding company level. However, non-grandfathered unitary
savings and loan holding companies may engage only in activities authorized for
savings and loan holding companies under the Home Owners' Loan Act and in
banking, securities, insurance and merchant banking activities permitted for
financial holding companies under the GLB Act.
The GLB Act imposes significant new financial privacy obligations and
reporting requirements on all financial institutions, including federal savings
associations. Specifically, the statute, among other things, will require
financial institutions (a) to establish privacy policies and disclose them to
customers both at the commencement of a customer relationship and on an annual
basis and (b) to permit customers to opt out of a financial institution's
disclosure of financial information to nonaffiliated third parties. The federal
financial regulators have promulgated final regulations implementing these
provisions, which became effective July 1, 2001.
The GLB Act also enacts significant changes to the Federal Home Loan
Bank System. The GLB Act expands the permissible uses of Federal Home Loan Bank
advances by community financial institutions (under $500 million in assets) to
include funding loans to small businesses, small farms and small agri-
businesses. In addition, the GLB Act makes membership in a regional Federal Home
Loan Bank voluntary for federal savings associations.
Activities Restrictions. As a grandfathered unitary savings and loan
holding company under the GLB Act, the Company is generally not subject to any
restrictions on its business activities or those of its non-savings institution
subsidiaries. However, if the Company were to fail to meet the Qualified Thrift
Lender Test, then it would become subject to the activities restrictions of the
Home Owners' Loan Act applicable to multiple holding companies. See "Regulation
of the Bank -- Qualified Thrift Lender Test."
If the Company were to acquire control of another savings association,
it would lose its grandfathered status under the GLB Act and its business
activities would be restricted to certain activities specified by OTS
regulation, which include performing services and holding properties used by a
savings institution subsidiary, certain activities authorized for savings and
loan holding companies as of March 5, 1987, and nonbanking activities
permissible for bank holding companies pursuant to the Bank Holding Company Act
of 1956 (the "BHC Act") or authorized for financial holding companies pursuant
to the GLB Act. Furthermore, no company may acquire control of the Company
unless the acquiring company was a unitary savings and loan holding company on
May 4, 1999 (or became a unitary savings and loan holding company pursuant to an
application pending as of that date) or the acquiring company is only engaged in
activities that are permitted for multiple savings and loan holding companies or
for financial holding companies under the BHC Act as amended by the GLB Act.
Regulation of the Bank
General. As a federally chartered, FDIC-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with
16
various federal statutory and regulatory requirements. The Bank is also subject
to certain reserve requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the FDIC and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.
Insurance of Deposit Accounts. The FDIC administers two separate
deposit insurance funds. Generally, the Bank Insurance Fund (the "BIF") insures
the deposits of commercial banks and the Savings Association Insurance Fund (the
"SAIF") insures the deposits of savings institutions. The FDIC is authorized to
increase deposit insurance premiums if it determines such increases are
appropriate to maintain the reserves of either the SAIF or BIF or to fund the
administration of the FDIC. In addition, the FDIC is authorized to levy
emergency special assessments on BIF and SAIF members.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets for savings associations that receive the
highest supervision rating for safety and soundness and 4% of total adjusted
assets for all other associations, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets. The Bank's capital levels can be
found at Note 17 to the Consolidated Financial Statements included as part of
Exhibit 13 to this report.
Savings associations with a greater than "normal" level of interest
rate exposure will, in the future, be subject to a deduction for an interest
rate risk ("IRR") component may be from capital for purposes of calculating
their risk-based capital requirement. See "-- Net Portfolio Value Analysis."
The Bank is not under any agreement with regulatory authorities nor is
it aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have a material effect on liquidity, capital
resources or operations of the Bank or the Company.
Net Portfolio Value Analysis - Interest Rate Risk. The Bank is subject
to interest rate risk to the degree that its interest-bearing liabilities,
primarily deposits with short- and medium-term maturities, mature or reprice at
different rates than our interest-earning assets. Although having liabilities
that mature or reprice less frequently on average than assets will be beneficial
in times of rising interest rates, such an asset/liability structure will result
in lower net income during periods of declining interest rates, unless offset by
other factors.
17
The Bank believes it is critical to manage the relationship between
interest rates and the effect on its net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance sheet contracts. The Bank manages assets and
liabilities within the context of the marketplace, regulatory limitations and
within its limits on the amount of change in NPV which is acceptable given
certain interest rate changes.
The OTS requires all regulated thrift institutions to calculate the
estimated change in the institution's NPV assuming instantaneous parallel shifts
in the Treasury yield curve of 100 to 300 basis points either up or down in 100
basis point increments. The NPV is defined as the present value of expected cash
flows from existing assets less the present value of expected cash flows from
existing liabilities plus the present value of net expected cash inflows from
existing off-balance sheet contracts.
The OTS provides an interest rate sensitivity report of NPV to all
institutions that file with the OTS a Consolidated Maturity & Rate Schedule
("CMR") as a part of the institution's quarterly Thrift Financial Report. The
OTS simulation model uses a discounted cash flow analysis and an option-based
pricing approach to measuring the interest rate sensitivity of NPV. The OTS
model estimates the economic value of each type of asset, liability, and
off-balance sheet contract under the assumption that the Treasury yield curve
shifts instantaneous and parallel up and down 100 to 300 basis points in 100
basis points increments. The OTS allows thrifts with under $1 billion in total
assets to use the results of their interest rate sensitivity model, which is
based on information provided by the institution, to estimate the sensitivity of
NPV.
The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage loans. The most significant embedded option in these
types of assets is the prepayment option of the borrowers. The OTS model uses
various price indications and prepayment assumptions to estimate sensitivity of
mortgage loans.
In the OTS model, the value of deposit accounts appears on the asset
and liability side of the NPV analysis. In estimating the value of certificates
of deposit accounts ("CD"), the liability portion of the CD is represented by
the implied value when comparing the difference between the CD face rate and
available wholesale CD rates. On the asset side of the NPV calculation, the
value of the "customer relationship" due to the rollover of retail CD deposits
represents an intangible asset in the NPV calculation.
Other deposit accounts such as NOW accounts, money market demand
accounts, passbook accounts, and non-interest-bearing accounts also are included
on the asset and liability side of the NPV calculation in the OTS model. These
accounts are valued at 100% of the respective account balances on the liability
side. On the asset side of the analysis, the value of the "customer
relationship" of the various types of deposit accounts is reflected as a deposit
intangible.
The NPV sensitivity of borrowed funds is estimated by the OTS model
based on a discounted cash flow approach.
The OTS uses, as a critical point, a change of plus or minus 200 basis
points in order to set its "normal" institutional results and peer comparisons.
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 greater the change, positive or negative, in
NPV, the more interest rate risk is assumed to exist with the institution. The
following table lists the Bank's latest percentage change in NPV assuming an
18
immediate change of plus or minus 100, 200, and 300 basis points from the level
of interest rates at September 30, 2002.
NPV as % of PV
Net Portfolio Value of Assets
------------------- --------------------
Change NPV
in Rates(1) $ Amount $Change(2) %Change(3) Ratio(4) Change(5)
----------- -------- ---------- ---------- -------- ---------
(Dollars in Thousands)
+300 bp 60,626 5,616 +10% 11.77% +156 bp
+200 bp 61,247 6,237 +11 11.68 +146
+100 bp 59,837 4,827 + 9 11.23 +102
0 bp 55,010 - 10.21
-100 bp 47,740 -7,270 -13 8.79 -142
- -------------------
(1) The -200bp and -300bp scenarios are not shown due to low interest rate
environment.
(2) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(3) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(4) Calculated as the estimated NPV divided by average total assets.
(5) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
September 30, September 30,
2002 2001
------------- -------------
*** RISK MEASURES: -100 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets... 10.21% 12.44%
Exposure Measure: Post-Shock NPV Ratio ......... 8.79% 11.36%
Sensitivity Measure: Change in NPV Ratio ....... 142 bp 108bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in NPV as % of PV of Assets ............. 1.16% 1.61%
As the table shows, increases in interest rates would result in net
increases in the Bank's NPV, while decreases in interest rates will result in a
net decrease in the Bank's NPV. (The Bank's NPV decreases by 13.9% if interest
rates decrease by 100 basis points.) Certain shortcomings are inherent in the
methodology used in the above table. Modeling changes in NPV requires the making
of certain assumptions that may tend to oversimplify the manner in which actual
yields and costs respond to changes in market interest rates. First, the models
assume that the composition of the Bank's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. Second, the models assume that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and liabilities.
Accordingly, although the NPV measurements do provide an indication of the
Bank's interest rate risk exposure at a
19
particular point in time, such measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income.
In times of decreasing interest rates, the value of fixed-rate assets
could increase in value and the lag in repricing of interest rate sensitive
assets could be expected to have a positive effect on the Bank.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions including cash dividends.
A savings association that is a subsidiary of a savings and loan
holding company, such as the Bank, must file an application or a notice with the
OTS at least 30 days before making a capital distribution. Savings associations
are not required to file an application for permission to make a capital
distribution and need only file a notice if the following conditions are met:
(1) they are eligible for expedited treatment under OTS regulations, (2) they
would remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year to date
added to retained net income for the two preceding years, and (4) the capital
distribution would not violate any agreements between the OTS and the savings
association or any OTS regulations. Any other situation would require an
application to the OTS.
In addition, the OTS could prohibit a proposed capital distribution if,
after making the distribution, by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that the distribution would
constitute an unsafe or unsound practice.
A federal savings institutions is prohibited from making a capital
distribution if, after making the distribution the savings institution would be
unable to meet any one of its minimum regulatory capital requirements. Further,
a federal savings institution cannot distribute regulatory capital that is
needed for its liquidation account.
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a Qualified Thrift Lender ("QTL")
test. If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Dallas. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. The FDICIA also amended the method for measuring compliance
with the QTL test to be on a monthly basis in nine out of every 12 months, as
opposed to on a daily or weekly average of QTIs. As of September 30, 2002, the
Bank was in compliance with its QTL requirement with 93.8% of its assets
invested in QTIs.
A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible
20
for a national bank and immediately repay any outstanding FHLB advances (subject
to safety and soundness considerations).
Item 2. Description of Properties
- ------- -------------------------
Properties
The Bank operates from its main office located at 1120 Jefferson
Terrace, New Iberia, Louisiana and fourteen offices. The Bank's total investment
in office property and equipment was $22.2 million with a net book value of
$15.2 million at September 30, 2002. The Bank currently operates automated
teller machines at most of its branch offices.
Item 3. Legal Proceedings
- ------- ----------------
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------- ---------------------------------------------------
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------- --------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under the heading "Market and Dividend
Information" in the Registrant's Annual Report to Stockholders for the fiscal
year ended September 30, 2002 ("Annual Report") and is incorporated herein by
reference.
Item 6. Selected Financial Data
- ------- -----------------------
The above-captioned information appears under the heading "Selected
Financial Information" in the Annual Report and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The above-captioned information appears under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
See the information that appears under the heading "Net Portfolio Value
Analysis - Interest Rate Risk" in this Annual Report on Form 10-K.
21
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The Consolidated Financial Statements of Teche Holding and its
subsidiaries, together with the report thereon by Deloitte & Touche LLP, appear
in the Annual Report and are incorporated herein by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The information that appears under the headings "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Proposal I - Election of
Directors" in the Registrant's definitive proxy statement for the Registrant's
Annual Meeting of Stockholders to be held on January 22, 2003 (the "Proxy
Statement"), which was filed with the Commission on December 16, 2002, is
incorporated herein by reference. See also "Item 1. Business of the Bank --
Personnel" included herein.
Item 11. Executive Compensation
- -------- ----------------------
The above-captioned information appears under the heading "Director and
Executive Officer Compensation" in the Proxy Statement and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the Section captioned "Voting Securities and
Principal Holders Thereof" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of
Directors" of the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the registrant.
(d) Securities Authorized for Issuance Under Equity Compensation
Plans
22
Set forth below is information as of September 30, 2002 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding equity compensation
outstanding options, options, warrants plans (excluding securities
warrants and rights and rights reflected in column (a))
-------------------- ----------- ------------------------
Equity compensation plans
approved by shareholders(1)............ 280,261 $14.47 210,402 (3)
Equity compensation plans
not approved by shareholders(2)........ 65,778 19.52 5,944
------- ----- -------
TOTAL.............................. 346,039 $15.43 216,346
======= ===== =======
- --------------------
(1) Plans approved by stockholders include the Teche Holding Company 1995 Stock
Option Plan and the Teche Holding Company 2001 Stock-Based Incentive Plan.
(2) Plans not approved by stockholders include the Teche Holding Company 1997
Stock Option Plan, the Teche Holding Company 1998 Stock Option Plan, the
Teche Holding Company Stock Option Agreement with Scott Sutton and the
Teche Federal Savings Bank Restricted Stock Agreement with Scott Sutton.
For information regarding the material features of these plans, see Note 14
to the Consolidated Financial Statements included as part of Exhibit 13 to
this report.
(3) Includes 32,813 shares remaining available for grant under the Teche
Holding Company 2001 Stock-Based Incentive Plan, which permits up to 15% of
the 250,000 shares reserved for issuance under the plan to be awarded as
restricted stock instead of options. During the year ended September 30,
2002, awards of 4,687 shares were made under this plan.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The above-captioned information appears under the heading "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
Item 14. Controls and Procedures
- -------- -----------------------
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls. There were no significant changes in
the Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
23
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------- ---------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) The following financial statements and the independent auditors'
report included in the Annual Report are incorporated herein by reference.
Independent Auditors' Report
Consolidated Balance Sheets as of September 30, 2002 and 2001
Consolidated Statements of Income For the Years Ended
September 30, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
The remaining information appearing in the Annual Report is not deemed
to be filed as part of this report, except as expressly provided herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Articles of Incorporation of Teche Holding Company*
3.2 Bylaws of Teche Holding Company*
4.0 Stock Certificate of Teche Holding Company*
10.1 Teche Federal Savings Bank Management Stock Plan**
10.2 Teche Holding Company 1995 Stock Option Plan**
10.3 Teche Holding Company 1997 Stock Option Plan***
10.4 Teche Holding Company 1998 Stock Option Plan***
10.5 Teche Holding Company Stock Option Agreement with Scott
Sutton****
10.6 Teche Federal Savings Bank Restricted Stock Agreement with
Scott Sutton****
10.7 Teche Holding Company 2001 Stock-Based Incentive Plan*****
11.0 Statement regarding computation of earnings per share
(see Note 13 to the Consolidated Financial Statements in the
Annual Report)
13.0 Annual Report to Stockholders for the fiscal year ended
September 30, 2002
21.0 Subsidiary of the Registrant
(see "Item 1 Business - Subsidiary Activity" herein)
23.0 Independent Auditors' Consent
99.0 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
24
- -----------------
* Incorporated herein by reference to the identically numbered exhibits to
the Registrant's Registration Statement on Form S-1, filed with the
Commission on December 16, 1994, Registration No. 333-87486.
** Incorporated herein by reference to Exhibits 10.1 and 10.2 to the
Registrant's Form 10-K for the fiscal year ended September 30, 1995.
*** Incorporated herein by reference to Exhibits 4.1 and 4.2 to the
Registrant's Registration Statement on Form S-8, filed with the Commission
on June 3, 1998, Registration No. 333-55913.
**** Incorporated herein by reference to Exhibits 4.1 and 4.2 to the
Registrant's Registration Statement on Form S-8, filed with the Commission
on January 28, 2000, Registration No. 333-95583.
*****Incorporated herein by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8, filed with the Commission on May 1,
2002, Registration No. 333-87354.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of
the 2002 fiscal year.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: December 30, 2002 By: /s/Patrick O. Little
-----------------------------------
Patrick O. Little
President, Chief Executive Officer
and Chairman of the Board
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on December 30, 2002.
By: /s/Patrick O. Little By: /s/J. L. Chauvin
----------------------------------- -----------------------------
Patrick O. Little J. L. Chauvin
President, Chief Executive Officer Vice President and Treasurer
and Chairman of the Board (Principal Financial Officer)
(Principal Executive Officer)
By: /s/Robert Earl Mouton By: /s/Donelson T. Caffery, Jr.
----------------------------------- -----------------------------
Robert Earl Mouton Donelson T. Caffery, Jr.
Director Director
By: /s/Mary Coon Biggs By: /s/Christian L. Olivier
----------------------------------- -----------------------------
Mary Coon Biggs Christian L. Olivier
Director Director
By: /s/ W. Ross Little, Jr. By: /s/Henry L. Friedman
----------------------------------- -----------------------------
W. Ross Little, Jr. Henry L. Friedman
Director and Secretary Director
By: /s/ Thomas F. Kramer MD By: /s/Robert Judice, Jr.
----------------------------------- -----------------------------
Thomas F. Kramer, M.D. Robert Judice, Jr.
Director Director
SECTION 302 CERTIFICATION
I, Patrick O. Little, President and Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Teche Holding Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 30, 2002 /s/Patrick O. Little
---------------------------------------
Patrick O. Little
President and Chief Executive Officer
SECTION 302 CERTIFICATION
I, J.L. Chauvin, Vice President and Treasurer, certify that:
1. I have reviewed this annual report on Form 10-K of Teche Holding Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 30, 2002 /s/J.L. Chauvin
--------------------------------------
J.L. Chauvin
Vice President and Treasurer