SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 December 31, 2003
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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 ______________
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
incorporation or organization) identification no.)
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) 365-0366
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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 the latest practicable date: February 5, 2004
Class 2,262,726
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$.01 par value common stock Outstanding Shares
TECHE HOLDING COMPANY
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2003
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
Item 4. Controls and Procedures 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
CERTIFICATIONS 13
TECHE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
At At
December 31, September 30,
2003 2003*
------------ -------------
(unaudited)
ASSETS
Cash and cash equivalents........................................................... $ 14,151 $ 14,439
Securities available-for-sale, at estimated
market value (amortized cost of $113,050 and $100,302)............................ 111,944 99,378
Securities held to maturity (estimated market value of $27,878 and $30,714)......... 27,601 30,269
Loans receivable, net of allowance for loan losses
of $3,404 and $3,397.............................................................. 373,968 357,130
Accrued interest receivable......................................................... 2,211 2,251
Investment in Federal Home Loan Bank stock, at cost................................. 7,604 6,477
Real estate owned, net.............................................................. 103 268
Prepaid expenses and other assets................................................... 1,065 877
Life insurance contracts............................................................ 9,454 9,324
Premises and equipment, at cost less accumulated depreciation....................... 17,654 16,533
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TOTAL ASSETS.................................................................. $565,755 $536,946
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits............................................................................ $351,287 $349,268
Advances from Federal Home Loan Bank................................................ 153,810 126,310
Advance payments by borrowers for taxes and insurance............................... 609 1,385
Accrued interest payable............................................................ 621 624
Accounts payable and other liabilities.............................................. 2,390 2,363
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Total liabilities............................................................. 508,717 479,950
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COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares
authorized; 4,445,254 and 4,395,603 shares issued............................... 44 44
Preferred stock, 5,000,000 shares authorized;
none issued..................................................................... - -
Additional paid in capital........................................................ 45,829 45,701
Retained earnings................................................................. 47,832 46,598
Unearned ESOP shares.............................................................. (388) (424)
Treasury stock (2,182,240 and 2,148,000 shares, at cost).......................... (35,560) (34,322)
Unrealized gain on securities available-for-sale, net of
deferred income taxes........................................................... (719) (601)
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Total stockholders' equity.................................................... 57,038 56,996
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $565,755 $536,946
======== ========
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* The consolidated balance sheet at September 30, 2003 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)
For Three Months ended
December 31,
----------------------
2003 2002
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INTEREST INCOME:
Interest and fees on loans.................................... $ 6,051 $ 6,667
Interest and dividends on investments......................... 1,204 1,001
Other interest income......................................... 5 95
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7,260 7,763
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INTEREST EXPENSE:
Deposits...................................................... 1,640 2,184
Advances from Federal Home Loan Bank.......................... 1,528 1,509
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3,168 3,693
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NET INTEREST INCOME............................................. 4,092 4,070
PROVISION FOR LOAN LOSSES....................................... 15 30
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES............................................... 4,077 4,040
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NON-INTEREST INCOME:
Service charges and other..................................... 2,236 2,002
Other income.................................................. 309 300
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TOTAL NON-INTEREST INCOME....................................... 2,545 2,302
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NON-INTEREST EXPENSE:
Compensation and employee benefits............................ 2,102 1,914
Occupancy expense............................................. 928 828
Marketing and professional.................................... 526 479
Other operating expenses...................................... 662 659
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Total non-interest expense................................ 4,218 3,880
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INCOME BEFORE INCOME TAXES...................................... 2,404 2,462
INCOME TAXES.................................................... 769 849
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NET INCOME...................................................... $ 1,635 $ 1,613
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BASIC INCOME PER COMMON SHARE .................................. $ .74 $ .71
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DILUTED INCOME PER COMMON SHARE................................. $ .68 $ .67
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DIVIDENDS DECLARED PER COMMON SHARE............................. $ .18 $ .125
====== ======
See Notes to Unaudited Consolidated Financial Statements.
2
TECHE HOLDING COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For Three Months
Ended December 31,
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2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 1,635 $ 1,613
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion of discount and amortization of premium on investments
and mortgage-backed securities............................................. 163 283
Provision for loan losses.................................................... 15 30
Depreciation................................................................. 224 234
Other items - net............................................................ 37 632
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Net cash provided by operating activities................................ 2,074 2,792
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale........................................ (20,655) (30,354)
Principal repayments of securities available for sale............................ 7,742 5,094
Principal repayments of securities held to maturity.............................. 2,668 5,380
Net loan (originations/acquisitions) repayments.................................. (16,835) 11,853
Investment in FHLB stock......................................................... (1,127) (37)
Purchase of premises and equipment............................................... (1,345) (204)
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Net cash used in investing activities........................................ (29,552) (8,268)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits......................................................... 2,019 6,936
Net increase (decrease) in FHLB advances......................................... 27,500 (1,693)
Net decrease in advance payments by borrowers for
taxes and insurance............................................................ (776) (375)
Dividends paid................................................................... (315) (283)
Purchase of common stock for treasury............................................ (1,238) (1,217)
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Net cash provided by financing activities.................................... 27,190 3,368
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NET DECREASE IN CASH ............................................................. (288) (2,108)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................... 14,439 35,575
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CASH AND CASH EQUIVALENTS, END OF PERIOD........................................... $ 14,151 $ 33,467
======= =======
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 month
period ended December 31, 2003 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 inter-company 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 accounting principles generally accepted in the
United States of America. 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 December 31, 2003 are not necessarily indicative of the results
which may be expected for the entire fiscal year or any other period.
NOTE 3 - INCOME PER SHARE
Following is a summary of the information used in the computation of
basic and diluted income per common share for the three months ended
December 31, 2003 and 2002.
2003 2002
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Weighted average number of common
shares outstanding - used in computation
of basic income per common share ....................... 2,216,000 2,279,000
Effect of dilutive securities:
Stock options .......................................... 177,000 141,000
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Weighted average number of common shares
outstanding plus effect of dilutive securities - used in
computation of diluted net income per common share ..... 2,393,000 2,420,000
========= =========
4
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income
(loss) which, in the case of the Company, only includes unrealized
gains and losses on securities available-for-sale. Following is a
summary of the Company's comprehensive income for the three months
ended December 31, 2003 and 2002 (in thousands).
2003 2002
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Net income ....................................... $ 1,635 $ 1,613
Other comprehensive loss, net of tax ............. (118) (130)
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Total Comprehensive Income ....................... $ 1,517 $ 1,483
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NOTE 5 - STOCK BASED COMPENSATION
The Company applies the Accounting Practices Board (APB) Opinion No. 25
and related interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized. The Company has
adopted the disclosure-only option under SFAS No. 123. Had compensation
costs for the Company's stock options been determined based on the fair
value at the grant date, consistent with the method under SFAS No. 123,
the Company's net income and income per share would have been as
indicated below:
For Three Months
Ended December 31,
-------------------------
2003 2002
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Net Income (in thousands):
As reported .................................. $ 1,635 $ 1,613
Deduct total stock based compensation
determined under fair value method ......... (50) (25)
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Pro forma .................................... $ 1,585 $ 1,588
========= =========
Basic income per share:
As reported .................................. $ 0.74 $ 0.71
Pro forma .................................... $ 0.72 $ 0.70
Diluted income per share:
As reported .................................. $ 0.68 $ 0.67
Pro forma .................................... $ 0.66 $ 0.66
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Private Securities Litigation Reform act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believe", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risk associated with the effect of opening new
branches, the ability to control costs and expenses, and general economic
conditions. The Company undertakes no obligation to publicly release the results
of any revisions to those forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrences of
unanticipated events.
The Company's consolidated results of operations are primarily dependent on the
Bank's net interest income, or the difference between the interest incomes
earned on its loan, mortgage-backed securities and investment securities
portfolios, and the interest expense paid on its savings deposits and other
borrowings. Net interest income is affected not only by the difference between
the yields earned on interest-earning assets and the costs incurred on
interest-bearing liabilities, but also by the relative amounts of such
interest-earning assets and interest-bearing liabilities.
Other components of net income include: provisions for losses on loans and other
assets; non-interest income (primarily, service charges on deposit accounts and
other fees, net rental income, and gains and losses on investment activities);
non-interest expenses (primarily, compensation and employee benefits, federal
insurance premiums, office occupancy expense, marketing expense and expenses
associated with foreclosed real estate) and income taxes.
Earnings of the Company also are significantly affected by economic and
competitive conditions, particularly changes in interest rates, government
policies and regulations of regulatory authorities.
References to the "Bank" herein, unless the context requires otherwise, refer to
the Company on a consolidated basis.
COMPARISON OF FINANCIAL CONDITION
The Company's total assets at December 31, 2003 and September 30, 2003 totaled
$565.8 million and $536.9 million, respectively, an increase of $28.9 million or
5.4%.
Securities available-for-sale totaled $111.9 million and securities held to
maturity totaled $27.6 million at December 31, 2003, which combined represents
an increase of $9.9 million or 7.6% as compared to September 30, 2003. The
Company purchased United States government and agency mortgage-backed securities
with cash available from loan and investment repayments and funds from FHLB
advances.
Loans receivable totaled $374.0 million at December 31, 2003 which represented a
$16.8 million or a 4.7% increase compared to September 30, 2003. The increase in
loans receivable was due primarily to
6
origination of commercial mortgage loans and, additionally, to the purchase of
$8.3 million of performing consumer loans secured by automobiles and a guarantee
by the underwriting federal savings bank.
Total deposits, after interest credited, at December 31, 2003 were $351.3
million which represents an increase of $2.0 million or 0.6% as compared to
September 30, 2003.
Advances increased $27.5 million or 21.8% as compared to the amount at September
30, 2003. The increase was due primarily to fund new loans and to purchase loans
and investments during the quarter.
Stockholders' equity was $57.0 million at December 31, 2003 and September 30,
2003. Earnings for the quarter were offset by dividends and stock repurchases.
COMPARISON OF EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND
2002
NET INCOME. The Company had net income of $1,635,000 for the three months ended
December 31, 2003, as compared to net income of $1,613,000 for the three month
period ended December 31, 2002 Earnings for the three months ended December 31,
2003 represent an increase of 1.4% compared to 2002.
TOTAL INTEREST INCOME. Total interest income decreased by $503,000 or 6.5% to
$7.3 million for the three months ended December 31, 2003, from $7.8 million for
the three months ended December 31, 2002, as a $18.9 million increase in average
earning assets was offset by a decrease in average yields to 5.77% in 2003 from
6.46% in 2002. Interest income on loans decreased $616,000 to $6.1 million for
the three months ended December 31, 2003 from $6.7 million for the same period
ended December 31, 2002. The average yield on loans decreased to 6.63% for the
three months ended December 31, 2003 from 7.69% for the same period in 2002, and
the average yield on investment and mortgage-backed securities decreased to
3.54% for the three months ended December 31, 2003 from 3.70% for the same
quarter in 2002.
TOTAL INTEREST EXPENSE. Total interest expense decreased $525,000 or 14.2%, to
$3.2 million for the 2003 period from $3.7 million for the December 2002 period,
due to a decrease in average rates paid from 3.46% in 2002 to 2.83% in 2003.
NET INTEREST INCOME. Net interest income increased $22,000 for the three month
period ended December 31, 2003 as compared to the same period ended December 31,
2002 due primarily to a decrease in the average interest rate spread from 3.00%
in 2002 to 2.95% in 2003.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $15,000 and $30,000
for the three month periods ended December 31, 2003 and 2002, respectively.
Management periodically estimates the likely level of losses to determine
whether the allowance for loan losses is adequate to absorb probable 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 probable losses.
Management's judgment as to the level of losses on existing loans involves the
consideration of current 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
7
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.
NON-INTEREST INCOME. Total non-interest income increased by $243,000 from $2.3
million in the three month period ended December 31, 2002 to $2.5 million in the
three month period ended December 31, 2003. This increase is due primarily to
the increase in service fee income associated with increased demand account
volume.
NON-INTEREST EXPENSE. Total non-interest expense increased $338,000 due
primarily to an increase in compensation expense resulting from a new branch
opened during the quarter.
GAIN ON SALE OF SECURITIES. The Company had no gains on the sale of securities
during the periods.
INCOME TAX EXPENSE. Income taxes were approximately 32% of income before income
tax in fiscal 2003 and 34% in fiscal 2002. The decrease in fiscal 2003 was due
primarily to a reduction in non-deductable items for the three months ended
December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Under current Office of Thrift Supervision ("OTS") regulations, the Bank
maintains certain levels of capital. At December 31, 2003, the Bank was in
compliance with its three regulatory capital requirements as follows:
Amount Percent
------ -------
(In thousands)
Tangible capital ................................ $50,331 8.92%
Tangible capital requirement .................... 8,462 1.50
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Excess over requirement ........................ $41,869 7.42%
======= =====
Core capital .................................... $50,331 8.92%
Core capital requirement ........................ 22,564 4.00
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Excess over requirement ......................... $27,767 4.92%
======= =====
Risk based capital .............................. $53,648 16.39%
Risk based capital requirement .................. 26,191 8.00
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Excess over requirement ......................... $27,457 8.39%
======= =====
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, scheduled
8
amortization and prepayments on loan and mortgage-backed securities, and
advances from the Federal Home Loan Bank of Dallas ("FHLB"). As of December 31,
2003, FHLB borrowed funds totaled $153.8 million. Loan repayments, maturing
investments and mortgage-backed securities prepayments are greatly influenced by
general interest rates and economic conditions.
The Bank is required under federal regulations to maintain sufficient liquidity
for its safe and sound operation. The Bank believes that it maintains sufficient
liquidity to operate the Bank in a safe and sound manner.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 fiscal year ended September 30, 2003.
ADDITIONAL KEY OPERATING RATIOS
At or For the Three
Months Ended
December 31,
------------------------
2003(1) 2002(1)
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(Unaudited)
Return on average assets ......................... 1.21% 1.25%
Return on average equity ......................... 11.47% 11.40%
Average interest rate spread ..................... 2.95% 3.00%
Nonperforming assets to total assets ............. 0.19% 0.40%
Nonperforming loans to total loans ............... 0.28% 0.42%
Average net interest margin ...................... 3.25% 3.39%
Tangible book value per share .................... $ 25.20 $ 24.31
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(1) Annualized where appropriate.
9
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
-----------------------------------------------
of the Company's disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")),
the Company's principal executive officer and principal financial officer
have concluded that as of the end of the period covered by this Quarterly
Report on Form 10-Q such disclosure controls and procedures 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 control over financial reporting. During the quarter
------------------------------------------------------
under report, there was no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial
reporting.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal
proceeding of a material nature at December 31, 2003. 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 AND USE OF PROCEEDS
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 INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
. During the quarter ended December 31, 2003, the Company
filed the following reports on Form 8-K:
. Current Report on Form 8-K dated October 23, 2003 to
report earnings for the year ended September 30, 2003.
(Items 7 and 12).
. Current Report on Form 8-K dated December 18, 2003 to
report the adoption of a plan to repurchase up to 5% of
the outstanding shares of the Company. (Items 5 and 7).
11
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: February 17, 2004 By: /s/ Patrick O. Little
------------------------------------
Patrick O. Little
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 17, 2004 By: /s/ J. L. Chauvin
-------------------------------------
J. L. Chauvin
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
12