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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999
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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: 0-25538
TECHE HOLDING COMPANY
-------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Louisiana 72-1287456
- ------------------------------------------------- --------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
211 Willow Street 70538
- ------------------------------------------------------------- ------------------
(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
------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
--------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) 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, Inc., on December 28, 1999, was
$26.8 million (2,062,045 shares at $13.00 per share).
As of December 28, 1999 there were issued and outstanding 2,545,016
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, 1999. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders. (Part III)
INDEX
PART I Page
----
Item 1. Business......................................................................................... 1
Item 2. Properties...................................................................................... 28
Item 3. Legal Proceedings............................................................................... 28
Item 4. Submission of Matters to a Vote of Security-Holders............................................. 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 29
Item 6. Selected Financial Data......................................................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................... 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................... 29
Item 8. Financial Statements and Supplementary Data..................................................... 29
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................................... 29
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 30
Item 11. Executive Compensation.......................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 30
Item 13. Certain Relationships and Related Transactions.................................................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 30
PART I
Item 1. Business
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General
Teche Holding Company (the "Company" or the "Registrant") 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 and Terrebonne Parishes, Louisiana (the "Primary
Market Area"). Teche Federal conducts its business from its main office in
Franklin, Louisiana and twelve branch offices located in Morgan City, Bayou
Vista, New Iberia (two offices), Lafayette (two offices), Breaux Bridge and
Houma (three offices), and Thibodeaux, Louisiana. In the first quarter of 2000,
the Bank expects to break ground on a $3.8 million retail banking, operations
and administrative center in New Iberia as well as a new drive-thru branch
office in Franklin. When completed, the facility in New Iberia will house all
administrative offices and consolidate various other departments of the Bank.
The cost of the facility and the new branch will be amortized as a charge
against earnings over approximately 35 years.
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, which is approximately 50 miles southeast of Lafayette, 90 miles
south of Baton Rouge and 120 miles west of New Orleans. The limited population
of Franklin and St. Mary Parish (approximately 9,000 and 64,000, respectively)
has, over the years, caused the Bank to expand through the establishment of
branch offices in the contiguous Parishes of Iberia, St. Martin, Lafayette and
Terrebonne.
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.
1
Lending Activities
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,
------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ -------------
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.............. $294,605 82.25% $ 301,071 84.27% $310,306 86.25% $288,109 87.03% $234,329 87.49%
Construction/permanent loans..... 7,585 2.12 11,867 3.32 11,067 3.08 13,740 4.15 8,097 3.02
Multi-family..................... 1,444 .40 1,934 .54 2,839 .79 3,006 .91 2,871 1.07
Commercial real estate loans....... 4,601 1.28 6,261 1.75 6,897 1.92 7,346 2.22 7,540 2.82
Land loans......................... 1,109 .31 1,604 .45 2,634 .73 2,844 .86 2,288 .85
Consumer loans:
Loans on savings accounts........ 5,157 1.44 5,881 1.65 5,984 1.66 5,657 1.71 6,260 2.34
Other............................ 43,690 12.20 28,643 8.02 20,049 5.57 10,343 3.12 6,441 2.41
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans................. 358,191 100.00% 357,261 100.00% 359,776 100.00% 331,045 100.00% 267,826 100.00%
====== ====== ====== ====== ======
Less:
Allowance for loan losses........ 3,537 3,515 3,355 3,182 2,966
Deferred loan fees, net.......... 658 580 860 1,122 1,266
Undisbursed portion of loans-
in-process..................... 11,010 7,994 8,686 10,525 5,725
-------- -------- -------- --------- --------
Net loans.................. $342,986 $345,172 $346,875 $ 316,216 $257,869
======= ======= ======= ======== =======
Origination, Purchase and Repayment of Loans. The following table sets
forth the Bank's loan originations and loan purchases and principal repayments
for the periods indicated.
Year Ended September 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In Thousands)
Total gross loans receivable
at beginning of year .................. $ 357,261 $ 359,776 $ 331,045 $ 267,826 $ 247,263
========= ========= ========= ========= =========
Loans originated and purchased:
One- to four-family residential ..... 49,670 43,142 49,705 70,730 33,010
Residential construction/permanent(1) 11,935 17,118 18,968 23,049 15,110
Multi-family residential ............ -- 70 167 -- --
Land and non-residential real estate 4,122 1,901 1,271 3,579 1,970
Consumer loans ...................... 29,347 24,393 16,889 11,402 11,280
--------- --------- --------- --------- ---------
Total loans originated .......... 95,074 86,624 87,000 108,760 61,370
--------- --------- --------- --------- ---------
Reductions in principal - primarily due
to loan repayments and prepayments .... (94,144) (89,139) (58,269) (45,541) (40,807)
--------- --------- --------- --------- ---------
Net loan activity ..................... $ 930 $ (2,515) $ 28,731 $ 63,219 $ 20,563
========= ========= ========= ========= =========
Total gross loans receivable at end of
year .................................. $ 358,191 $ 357,261 $ 359,776 $ 331,045 $ 267,826
========= ========= ========= ========= =========
- -------------
(1) Construction/permanent loans are primarily originated for permanent
financing to individuals. See "-- Residential Construction/Permanent
Loans." These loans generally do not pay off at completion, but are
automatically transferred to the one- to four-family residential loan
portfolio.
2
Loan Purchases. While the Bank primarily focuses on the origination of
one- to four-family residential mortgages, in 1999 and 1998 the Bank purchased
$0.0 and $2.7 million of performing fixed-rate mortgage loans from financial
institutions in south Louisiana.
Loan Maturity Tables. The following table sets forth the maturity of
the Bank's loan portfolio at September 30, 1999. The table does not include
prepayments or scheduled principal repayments. Adjustable-rate mortgage loans
are shown as maturing based on contractual maturities.
Residential All
One- to Construction/ Commercial Other
Four-Family Permanent Multi-Family Real Estate Land Loans Total
----------- --------- ------------ ----------- ---- ---------- -----
(In Thousands)
Amounts due:
1 year or less......................... $ 155 $ -- $ -- $ -- $ 4 $ 1,776 $ 1,935
-------- -------- ------ -------- ------- ------ --------
After 1 year:
More than 1 year to 3 years.......... 1,350 -- -- 397 53 4,748 6,548
More than 3 years to 5 years......... 4,556 -- 94 454 177 7,796 13,077
More than 5 years to 10 years........ 54,411 -- 466 776 526 9,557 65,736
More than 10 years to 20 years....... 90,686 2,588 138 2,876 282 1,616 98,186
More than 20 years................... 143,447 4,997 746 98 67 23,354 172,709
------- ----- ----- ----- ----- ------ -------
Total due after September 30,
2000............................ 294,450 7,585 1,444 4,601 1,105 47,071 356,256
------- ----- ----- ----- ----- ------ -------
Total amount due................... $294,605 $7,585 $1,444 $4,601 $1,109 $48,847 $358,191
======= ===== ===== ===== ===== ====== =======
The following table sets forth the dollar amount of all loans due after
September 30, 2000, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates (1) Total
----- --------- -----
(In Thousands)
One- to four-family..................... $152,352 $142,098 $294,450
Residential construction/permanent...... 3,775 3,810 7,585
Other................................... 48,685 5,536 54,221
------ ----- ------
Total............................. $204,812 $151,444 $356,256
======= ======= ========
- --------------------
(1) Many of these adjustable-rate loans have initial fixed terms of three to
ten years, with rates adjusting annually thereafter. See "-- One- to
Four-Family Residential Loans."
3
One- to Four-Family Residential Loans. The primary lending activity of
Teche Federal is the origination of one- to four-family owner-occupied,
residential mortgage loans, secured by property located in the Bank's Primary
Market Area.
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 95% 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 80% of the lesser of the
appraised value or selling price.
The Bank currently offers ARMs with terms of up to 30 years that
initially adjust on the first, third, fifth or tenth year after origination and
annually thereafter. The Bank began offering ARMs in 1981. The Bank originated
$24.4 million of ARMs during the year ended September 30, 1999, of which $5.7
million will first adjust annually after five years. The initial rate is
determined by the Bank in accordance with market and competitive factors.
Historically, the predominant index was based on the monthly median cost of
funds at all SAIF insured financial institutions. For ARMs originated after
December 31, 1994, the Bank uses an index based on the one-year U.S. Treasury
Bill rate adjusted to constant maturity. The terms and conditions of the ARM
loans held by the Bank are varied, partially due to changing market conditions
and partially due to the acquisition by the Bank of loans of First Federal in
Breaux Bridge from the RTC, Community Homestead in Houma and other loan
purchases. The Bank's current ARM originations adjust by a maximum of 2.0% per
adjustment, with a current lifetime cap of 11.875%.
The Bank offers fixed-rate mortgages with terms of up to 30 years,
which amortize monthly. Interest rates charged on fixed-rate 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 $20.9 million of fixed-rate
mortgage loans during the year ended September 30, 1999.
The Bank offers home equity loans on single family residences. At
September 30, 1999, home equity mortgage loans totaled $19,655 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.
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
4
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 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,
1999 the aggregate balance of the five largest multi-family and commercial real
estate loans totaled $2.0 million with no single loan larger than $745,131.
Land Loans. At September 30, 1999, the Bank had $5.0 million invested
in residential lot loans to individuals.
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.
The Bank originates consumer loans in order to provide a wide range of
financial services to its customers and because the shorter terms and normally
higher interest rates on such loans help maintain a profitable spread between
its average loan yield and its cost of funds. In connection with consumer loan
applications, the Bank verifies the borrower's income and reviews a credit
bureau report. In addition, the relationship of the loan to the value of the
collateral is considered.
Loans secured by deposits at the Bank are made up to 100% of the
deposit and at an interest rate ranging from 2 to 3% above the rate paid on the
deposit. At September 30, 1999, the Bank had $5.2 million of loans secured by
deposits.
Teche Federal also originates automobile and mobile home loans. At
September 30, 1999, $4.2 million and $0.6 million consisted of automobile and
mobile home loans, respectively.
5
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, 1999, such credit cards had a balance of
$1.5 million.
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. The Bank's risks associated with consumer
loans have been further limited by the modest amount of consumer loans made by
the Bank.
Loan Approval Authority and Underwriting. All mortgage loans greater
than $240,000, including sale & assumptions and loans to facilitate the sale of
REO, must be approved by a minimum of two members of the Senior Loan Committee.
All mortgage loans up to and including $240,000 must be approved by one member
of the Loan Committee.
Certain loan officers and members of management approved by the Board
are authorized to approve consumer loans. The amounts which any one person may
approve for a secured consumer loan range from $25,000 to $100,000. The range of
lending authority for unsecured loans is $5,000 to $25,000. Secured loans in
excess of $100,000 and unsecured loans in excess of $25,000 must be approved by
two members of the Loan Committee.
One- to four-family residential mortgage loans are generally
underwritten according to FHLMC and FNMA guidelines, generally utilizing their
approved mortgage documents. For all loans originated by the Bank, upon receipt
of a completed loan application from a prospective borrower, a credit report is
ordered, income and certain other information is verified and, if necessary,
additional financial information is requested. An appraisal of the real estate
intended to secure the proposed loan is required which typically is performed by
an independent appraiser designated and approved by the Board of Directors of
the Bank. The Bank makes construction/permanent loans on individual properties.
Funds advanced during the construction phase are held in a loan-in-process
account and disbursed based upon various stages of completion. The independent
appraiser determines the stage of completion based upon his physical inspection
of the construction.
The Bank generally requires title insurance for its 1-4 family
residential loans with loan amounts of $150,000 or greater. The Bank requires
that fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount at least equal to the outstanding loan
balance.
It is the Bank's policy to require borrowers to advance funds on a
monthly basis together with each payment of principal and interest to an escrow
account from which the Bank makes disbursements for items such as real estate
taxes and hazard insurance premiums.
6
Mortgage loans originated by the Bank generally include due-on-sale
clauses which provide the Bank with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers ownership
of the property without the Bank's consent.
Loan Commitments. Teche Federal issues written, formal commitments to
prospective borrowers on all real estate approved loans. The commitment requires
acceptance within 30 days of the date of issuance. Commitments for consumer
loans, which are not given in writing, expire 30 days after issuance. At
September 30, 1999, the Bank had $15.4 million of commitments to originate
mortgage loans, including $11.0 million of the undisbursed portion of
loans-in-process.
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 is higher. The Bank's maximum loan-to-one
borrower limit was approximately $6.6 million as of September 30, 1999.
At September 30, 1999, the Bank's largest lending relationship
consisted of a $745,132 construction/permanent loan to a non-profit corporation
for the construction of a 60-apartment complex for the elderly and low income
families in Alexandria, Louisiana. This project was funded with a $1.2 million
grant from the Affordable Housing Program of the FHLB of Dallas and a $755,000
loan from the Bank which is fully guaranteed by the U.S. Department of Housing
and Urban Development ("HUD"). The project is currently in use. The next five
largest lending relationships at September 30, 1999 ranged from $286,000 to
$342,000 and were secured primarily by apartment complexes and commercial
properties located in the Bank's Primary Market Area. Of these loans, a $311,305
loan secured by an office building was on the Bank's watch list because of the
amount of exposure and previous delinquencies. See "-- Non-performing and
Problem Assets --Classified Assets."
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. In the mid-1980s, after
sharp increases in interest rates, oil prices fell, causing severe economic
problems in Louisiana and the Bank's Primary Market Area. During this time, the
Bank experienced a sharp increase in non-performing assets and real estate owned
("REO"). The Bank's Primary Market Area has, to a certain extent, diversified
somewhat since the mid-1980's, however, management continues to monitor its loan
portfolio and has instituted various underwriting standards to address any
future economic downturns.
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 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
7
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.
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,
-------------------------------------------------
1999 1998 1997 1996 1995
------- ------ --------- ------- -------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by one- to four-family
residences ........................................ $ 609 $ 640 $ 1,028 $ 544 $ 584
All other mortgage loans ............................ -- -- -- -- 59
Consumer .............................................. 51 83 88 15 19
------- ------ --------- ------- -------
Total ............................................ $ 660 $ 723 $ 1,116 $ 559 $ 662
======= ====== ========= ======= =======
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 ............................ -- -- -- -- --
Consumer .............................................. -- -- -- -- --
------- ------ --------- ------- -------
Total ............................................ $ -- $ -- $ -- $ -- $ --
======= ====== ========= ======= =======
Total non-performing loans ............................. $ 660 $ 723 $ 1,116 $ 559 $ 662
======= ====== ========= ======= =======
Real estate owned ...................................... $ 178 $ 331 $ 33 $ 46 $ 253
======= ====== ========= ======= =======
Total non-performing assets ............................ $ 838 $1,054 $ 1,149 $ 605 $ 915
======= ====== ========= ======= =======
Total non-performing loans to total loans
outstanding before allowance ......................... .19% .20% .31% .17% .25%
======= ====== ========= ======= =======
Total non-performing loans to total assets ............. .15% .18% .27% .15% .20%
======= ====== ========= ======= =======
Total non-performing assets to total assets ............ .19% .26% .28% .16% .28%
======= ====== ========= ======= =======
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, 1999.
8
The following table sets forth the types and dollar amounts of the
Bank's loans which were more than 60 days delinquent as of September 30, 1999:
At
September 30, 1999
------------------
(In Thousands)
Residential mortgage loans......................... $ 942
Non-residential real estate loans.................. --
Land loans......................................... --
Consumer loans..................................... 600
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, 1999, the Bank had REO with a net
balance of $178,000.
Allowances for Loan Losses and Real Estate Owned. It is management's
policy to provide for losses on loans in its loan portfolio and foreclosed REO.
A provision for loan losses is charged to operations based on management's
evaluation of the losses that may be incurred in the Bank's loan portfolio. Such
evaluation, which includes a review of all loans of which full collectibility of
interest and principal may not be reasonably assured, considers, among other
matters, the estimated net realizable value of the underlying collateral.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. 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.
9
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.
At September 30,(1)
-----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------ --------------------- ------------------- -------------------
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.......... $2,664 82.25% $2,600 84.27% $2,558 86.25% $2,426 87.03% $2,201 87.49%
Multi-family and commercial
real estate................ 121 1.68 246 2.29 437 2.71 414 3.13 510 3.89
Construction................. 15 2.12 24 3.32 26 3.08 25 4.15 25 3.02
Consumer and other loans..... 737 13.95 645 10.12 334 7.96 317 5.69 230 5.60
------ ------ ------ ----- ------ ------ ------ ------ ------ ------
Total allowance(1)........... $3,537 100.00% $3,515 100.00% $3,355 100.00% $3,182 100.00% $2,966 100.00%
====== ====== ===== ====== ===== ====== ===== ====== ===== ======
- ------------------------
(1) Includes specific reserves for assets classified as loss.
10
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,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- --------- ---------- -----------
(Dollars in Thousands)
Total loans outstanding, net ................ $ 342,986 $ 345,172 $ 346,875 $ 316,216 $ 257,869
========= ========= ========= ========= =========
Average loans outstanding ................... 340,540 $ 349,769 $ 336,509 $ 283,962 $ 245,567
========= ========= ========= ========= =========
Allowance balances (at beginning of year) ... $ 3,515 $ 3,355 $ 3,182 $ 2,966 $ 2,778
--------- --------- --------- --------- ---------
Provision ................................... 150 180 240 300 360
--------- --------- --------- --------- ---------
Charge offs:
Residential real estate mortgage loans:
One- to four-family units ............... (60) (56) (7) (28) (81)
Construction loans ........................ -- -- -- -- --
Multi-family and commercial real estate
loans ................................... -- -- -- -- (72)
Land loans ................................ -- -- -- -- --
Other ..................................... (112) (8) (69) (59) (32)
--------- --------- --------- --------- ---------
Total charge-offs ..................... (172) (64) (76) (87) (185)
Recoveries
Residential real estate mortgage loans:
One- to four-family units ............... 38 18 9 3 12
Construction loans ........................ -- -- -- -- --
Multi-family and commercial real estate
loans ................................... -- 22 -- -- --
Land loans ................................ -- -- -- -- --
Other ..................................... 6 4 -- -- 1
--------- --------- --------- --------- ---------
Total recoveries ...................... 44 44 9 3 13
--------- --------- --------- --------- ---------
Net (charge-offs) ......................... (128) (20) (67) (84) (172)
--------- --------- --------- --------- ---------
Allowance balance (at end of year) .......... $ 3,537 $ 3,515 $ 3,355 $ 3,182 $ 2,966
========= ========= ========= ========= =========
Allowance for loan losses to total loans
outstanding before allowance .............. 1.02% 1.01% .96% 1.00% 1.14%
Net loans charged off as a percent of average
loans outstanding before allowance ........ .04% .01% .02% .03% .07%
11
Analysis of the Allowance for Losses on Real Estate Owned. The
following table sets forth information with respect to the Bank's allowance for
losses on real estate owned at the dates indicated.
At September 30,
--------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
(Dollars in Thousands)
Total real estate owned, net .. $ 178 $ 331 $ 33 $ 46 $ 253
===== ===== ===== ===== =====
Allowance - beginning ......... $ 112 112 108 131 $ 163
Provision ..................... 35 -- 4 -- --
Charge-offs ................... -- -- -- (23) (32)
----- ----- ----- ----- -----
Allowance - ending ............ $ 147 $ 112 $ 112 $ 108 $ 131
===== ===== ===== ===== =====
Allowance for losses on
real estate owned to real
estate owned before allowance 45% 25% 77% 70% 34%
Investment Activities
General. To supplement lending activities, Teche Federal invests in
residential mortgage-backed securities, investment securities and
interest-bearing deposits. These investments have historically consisted of
investment securities issued by U.S. Government agencies. Such securities can
serve as collateral for borrowings and, through repayments and maturities, as a
source of liquidity. Teche Federal anticipates having the ability to fund all of
its investing activities from funds held on deposit at FHLB of Dallas,
maturities, loan repayments and the Bank's borrowing capacity.
Federally chartered savings institutions have the authority to invest
in various types of assets, including U.S. Treasury obligations, securities of
various federal agencies and 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,
such institutions also have the authority to invest a portion of its assets in
commercial paper, corporate debt securities and ARM funds, the assets of which
conform to the investments that federally chartered savings institutions are
otherwise authorized to make directly. Savings institutions are also required to
maintain minimum levels of liquid assets which vary from time to time. The Bank
may decide to increase its liquidity above the required levels depending upon
the availability of funds and comparative yields on investments in relation to
return on loans.
The Bank is required under federal regulations to maintain a minimum
amount of liquid assets and is also permitted to make certain other securities
investments. At September 30, 1999 the Bank's regulatory liquidity was 10.0% is
in excess of 4% required by OTS regulations. See "Regulation -- Regulation of
the Bank -- Federal Home Loan Bank System."
12
The Boards of Directors of the Bank and the Company maintain Investment
Committees which are authorized to establish and implement investment policies
and to supervise the Bank's or the Company's investment activities. Pursuant to
its delegated authority, the Investment Committees have established permissible
types of investments, quality criteria, portfolio limits, procedures, controls
and committee and individual investment authorities. The investment policies
consider the Bank's and the Company's business plan, growth plans, current
economic environments, range of reasonably foreseeable economic environments,
the types of securities to be held and other safety and soundness
considerations.
Before being purchased, each investment is analyzed as to investment
intent. The Bank distinguishes between investment activities undertaken for
investment, for sale or for trading. Such activities are differentiated based
upon the Bank's desire to earn an interest yield (held to maturity), to realize
a holding gain from assets held for indefinite periods of time (available for
sale) or to earn a dealer's spread between the bid and asked prices (held for
trading). The Bank attempts to earn an acceptable spread between the cost of
funds used to purchase an investment and the return on that investment. Under
circumstances when credit risk, interest rate risk or prepayment risk is
significantly reduced, a lesser return may be considered acceptable.
Securities which are classified as "held to maturity" are accounted for
based on historical cost adjusted for amortization of premiums or discounts
using the level yield method. Securities that are classified as "available for
sale" are accounted for at their market value, with unrealized gains and losses
reported as a separate component of capital. Securities that are classified as
"held for trading" are accounted for at their fair market value, with unrealized
gains and losses included in earnings.
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,
---------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
Investment securities issued by U.S.
Government agencies and corporations... $ 4,375 $ 4,478 $ 7,312
FHLB Stock .............................. 4,229 3,884 3,927
Mortgage-backed securities .............. 26,277 26,526 30,378
CMO's ................................... 32,042 4,694 --
Common stock and municipal obligations... 766 1,071 164
------- ------- -------
Total investment and mortgage-backed
securities ........................ 67,689 40,653 41,781
Interest-bearing deposits ............... 1,829 5,260 4,510
------- ------- -------
Total investments .................... $69,518 $45,913 $46,291
======= ======= =======
13
Mortgage-backed and Investment Securities. Mortgage-backed securities
represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the
mortgage originators, through intermediaries (generally quasi-governmental
agencies) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such quasi-governmental agencies,
which guarantee the payment of principal and interest to investors, primarily
include FHLMC, FNMA and Government National Mortgage Association ("GNMA").
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, i.e., fixed rate or adjustable rate, as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Mortgage-backed
securities issued by FHLMC, FNMA, and GNMA make up a majority of the
pass-through certificates market.
The Bank also purchases mortgage-backed securities and CMOs issued by
government agencies, private issuers and financial institutions, some of which
are qualified under the Code as Real Estate Mortgage Investment Conduits
("REMICs"). CMOs and REMICs (collectively CMOs) have been developed in response
to investor concerns regarding the uncertainty of cash flows associated with the
prepayment option of the underlying mortgagor and are typically issued by
governmental agencies, governmental sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar institutions. Some CMO and REMIC instruments are
most like traditional debt instruments because they have stated principal
amounts and traditionally defined interest-rate terms. Purchasers of certain
other CMO and REMIC instruments are entitled to the excess, if any, of the
issuer's cash inflows, including reinvestment earnings, over the cash outflows
for debt service and administrative expenses. These mortgage related instruments
may include instruments designated as residual interests, which represent an
equity ownership interest in the underlying collateral, subject to the first
lien of the investors in the other classes of the CMO. Certain residual CMO
interests may be riskier than many regular CMO interests to the extent that they
could result in the loss of a portion of the original investment. Moreover, cash
flows from residual interests are very sensitive to prepayments and, thus,
contain a high degree of interest-rate risk.
At September 30, 1999, all of the Bank's investment in CMOs consisted
of regular interests. As of September 30, 1999, the Bank's CMOs did not include
any residual interest or interest-only or principal-only securities. As a matter
of policy, the Bank does not invest in residual interests of CMOs or
interest-only and principal-only securities. The CMOs and REMICs held by the
Bank at September 30, 1999 consisted of floating rate and fixed rate tranches.
The interest rate of a majority of the Bank's floating-rate securities adjusts
monthly and provides the institution with net interest margin protection in an
increasing market interest rate environment. The securities are- backed by
mortgages on one- to four-family residential real estate and have contractual
maturities up to 30 years. The securities are primarily PACs and TACs (Planned
and Targeted Amortization Classes) are designed to provide a specific principal
and interest cash-flow.
Private issued CMOs tend to have greater prepayment and credit risk
than those issued by government agencies or government sponsored enterprises
(e.g., FHLMC, FNMA and GNMA) generally because they often are secured by jumbo
loans (currently, loans with an aggregate outstanding balances
14
of greater than $203,150). At September 30, 1999, the Bank had CMOs with an
aggregate estimated market value of $32.0 million, of which $22.7 million, or
70.9% were privately issued. At September 30, 1999 the amortized cost of the
CMO's was approximately $33.3 million. To minimize the risk of private issued
CMOs, the Bank only purchases those CMOs rated AA or better by one of the rating
agencies.
At September 30, 1999, the Bank had mortgage-backed securities
available for sale with an amortized cost of $26.4 million and an estimated
market value of $26.3 million.
At September 30, 1999, Teche Federal had an investment securities
portfolio with an amortized cost of approximately $4.4 million, consisting
primarily of obligations of U.S. government corporations and agencies, as
permitted by the OTS regulations. The market value of investment securities at
September 30, 1999 (excluding FHLB stock and interest-bearing accounts), was
$4.4 million. Teche Federal will continue to seek high quality investments with
short to intermediate maturities.
Interest-Bearing Accounts Held at Other Financial Institutions. At
September 30, 1999, the Bank held $1.8 million in the FHLB and interest-bearing
deposits in other financial institutions. The Bank maintains these accounts in
order to maintain liquidity.
15
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, 1999.
As of September 30, 1999
-------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investements
------------------ ----------------- ------------------ ----------------- -----------------------------------
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)
Investment Securities
available for sale..... $ 1,000 7.45% $ 3,362 5.35% $ -- N/A% $ -- N/A% $ 4,362 6.51% $ 4,375 $ 4,375
Mortgage-backed
Securities available
for sale(1)............ -- N/A 8,382 6.06 151 8.26 17,904 5.82 26,437 5.91 26,277 26,277
CMO's (1) ............. -- -- 555 6.85 -- N/A 32,738 6.56 33,293 6.56 32,042 32,042
FHLB Stock ............ -- N/A -- N/A -- N/A -- N/A 4,227 5.50 4,229 4,229
Municipal Obligations . 34 4.72 167 5.30 -- N/A -- N/A 201 5.20 201 201
Equity Securities ..... -- N/A N/A N/A -- N/A -- N/A 539 N/A 565 565
------- ------- ------- ------- ------- ------- -------
Total ........... $ 1,034 7.37% $12,466 5.84% $ 151 8.26% $50,642 6.30% $69,061 6.24% $67,689 $67,689
======= ==== ======= ==== ======= ==== ======= ==== ======= ==== ======= =======
- -------------
(1) Does not assume prepayments.
16
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.
Regular savings accounts, money market accounts and NOW accounts
constituted $80.7 million, or 26.6% of the Bank's deposit portfolio at September
30, 1999. Certificates of deposit constituted $222.3 million or 73.4% of the
deposit portfolio, including $48.9 million of which had balances of $100,000 and
over. As of September 30, 1999, the Bank had no brokered deposits.
Time Deposits by Rate. The following table presents, by various rate
categories, the amount of certificate accounts outstanding at the dates
indicated and the periods to maturity of the certificate accounts outstanding at
September 30, 1999.
Period to Maturity from September 30, 1999
--------------------------------------------------------------------------
Less than One to Two to Over Three
One Year Two Years Three Years Years Total
-------- --------- ----------- ----- -----
(In Thousands)
Certificate accounts:
2.00 to 2.99%............. $ 830 $ -- $ -- $ -- $ 830
3.00 to 3.99%............. 19,819 2,291 -- 2 22,112
4.00 to 4.99%............. 47,295 9,737 1,282 831 59,145
5.00 to 5.99%............. 62,817 28,274 5,552 9,558 106,201
6.00 to 6.99%............. 17,014 6,241 6,752 1,160 31,167
7.00 to 7.99%............. 2,442 100 351 -- 2,893
------- -------- -------- -------- ---------
Total $150,217 $ 46,643 $ 13,937 $ 11,551 $ 222,348
======= ====== ====== ====== =======
Certificate Accounts of $100,000 and Above. Teche Federal maintains a
policy of offering higher interest rates on certificates with larger balances.
For example, for certificates with terms of 12 months which were purchased on
September 30, 1999, those with balances of $100 would yield 4.00% those with
balances of $25,000 would yield 4.25% those with balances of $99,000 would yield
4.45%. 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
17
$100,000. 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,
1999.
Certificates Weighted
of Deposit Interest Rate
---------- -------------
(In Thousands)
Maturity Period:
3 months or less ....... $10,165 5.15%
Over 3 through 6 months 12,799 5.28
Over 6 through 12 months 11,894 5.17
Over 12 months ......... 14,012 5.49
-------
Totals ................. $48,870 5.29%
=======
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
At September 30,
------------------------------------
1999 1998 1997
--------- --------- ---------
(In Thousands)
Beginning balance ..................... $ 279,265 $ 280,302 $ 254,723
Net deposits (withdrawals) ........... 11,251 (13,949) 12,545
Interest credited on deposits ......... 12.568 12,912 13,034
--------- --------- ---------
Ending balance ........................ $ 303,084 $ 279,265 $ 280,302
========= =========
Total increase (decrease) in deposits.. $ 23,819 $ (1,037) $ 25,579
========= ========= =========
Percentage increase (decrease) ........ 8.53% (.37)% 10.04%
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, 1999, Teche Federal had
$78.7 million in advances outstanding from the FHLB of Dallas.
18
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the years ended on the dates indicated:
At or For the Year Ended September 30,
--------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
FHLB advances:
Average balance outstanding .................... $68,988 $68,306 $64,685
Maximum amount outstanding at any
month-end during the year ........................ 78,682 77,335 72,684
Balance outstanding at end of year ............. 78,682 67,721 65,398
Weighted average interest rate during the year.. 5.33% 5.56% 5.64%
Weighted average interest rate at end of year... 5.35% 5.34% 5.73%
Subsidiary Activity
The only subsidiary of the Company is Teche Federal.
As of September 30, 1999, 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 $113,000. FISI was inactive at September 30, 1999.
Teche Federal is permitted to invest up to 2% of its assets in the
capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of September 30, 1999, Teche Federal was authorized to invest up to
approximately $8.7 million in the stock of, or loans to, service corporations
(based upon the 2% limitation).
Personnel
As of September 30, 1999, the Bank had 153 full-time and 60 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 materials 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.
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
19
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.
Recent Developments -- Financial Modernization. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") which
will, effective March 11, 2000, permit qualifying bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. The Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the Board has determined to be closely related to banking. A
qualifying national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or from affiliating with a nonfinancial
entity. As a grandfathered unitary thrift holding company, the Company will
retain its authority to engage in nonfinancial activities.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "Regulation
of the Bank -- Qualified Thrift Lender Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
Federal Securities Law. The Company is subject to filing and reporting
requirements by virtue of having its common stock registered under the
Securities Exchange Act of 1934. Furthermore, Company stock held by persons who
are affiliates (generally officers, directors and principal stockholders) of the
Company may not be resold without registration or unless sold in accordance with
certain resale restrictions. If the Company meets specified current public
information requirements, each affiliate of the Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
20
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with 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 SAIF 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 Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may
be terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system, a bank or thrift pays within a range of six cents to 31 cents
per $100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is authorized
to increase such deposit insurance rates, on a semi-annual basis, if it
determines that such action is necessary to cause the balance in the SAIF to
reach the designated reserve ratio of 1.25% of SAIF-insured deposits within a
reasonable period of time. The FDIC also may impose special assessments on SAIF
members to repay amounts borrowed from the U.S. Treasury or for any other reason
deemed necessary by the FDIC. The Bank's federal deposit insurance premium
expense for the fiscal year ended September 30, 1999, amounted to approximately
$168,428.
Examination Fees. In addition to federal deposit insurance premiums,
savings institutions like the Bank are required by OTS regulations to pay
assessments to the OTS to fund the operations of the
21
OTS. The general assessment is paid on a semi-annual basis and is computed based
on total assets of the institution, including subsidiaries. The Bank's OTS
assessment expense for the fiscal year ended September 30, 1999 totaled
approximately $85,171.
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, 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 18 to the Consolidated Financial Statements included as 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.
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 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 all institutions that file a schedule entitled the
Consolidated Maturity & Rate Schedule ("CMR") as a part of their quarterly
Thrift Financial Report with an interest rate sensitivity report of NPV. 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 under $500 million 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
22
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
immediate change of plus or minus 100, 200, and 300 basis points from the level
of interest rates at September 30, 1999.
NPV as % of PV
Net Portfolio Value of Assets
------------------------------------------------- ------------------------------
Change NPV
in Rates $ Amount $Change(1) %Change(2) Ratio(3) Change(4)
- -------- -------- ---------- ---------- -------- ---------
(Dollars in Thousands)
+300 bp 21,457 -26,327 -55% 5.30% -559 bp
+200 bp 30,872 -16,912 -35% 7.41% -348 bp
+100 bp 39,972 -7,812 -16% 9.33% -156 bp
0 bp 47,784 10.89%
-100 bp 52,868 5,085 +11% 11.84% +95 bp
-200 bp 55,091 7,307 +15% 12.20% +131 bp
-300 bp 56,874 9,091 +19% 12.47% +157 bp
- ---------------
(1) 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.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by average total assets.
(4) 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.
23
September 30, September 30,
1999 1998
------------- -------------
*** RISK MEASURES: 200 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets... 10.89% 14.84%
Exposure Measure: Post-Shock NPV Ratio ......... 7.41% 13.00%
Sensitivity Measure: Change in NPV Ratio ....... -3.48 bp -184 bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in NPV as % of PV of Assets ............. 3.86% 2.31%
Interest Rate Risk Capital Component ($000)..... $ 0 $ 0
As the table shows, increases in interest rates would result in net
decreases in the Bank's NPV, while decreases in interest rates will result in
smaller net increases in the Bank's NPV. (The Bank's NPV decreases by 3.5% if
interest rates increase by 200 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 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.
Prompt Corrective Action. The FDICIA also established a system of
prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, the banking regulators are required to take
certain supervisory actions against undercapitalized institutions, the severity
of which depends upon the institution's degree of capitalization. Under the OTS
final rule implementing the prompt corrective action provisions, an institution
shall be deemed to be (i) "well capitalized" if it has total risk-based capital
of 10.0% or more, has a Tier I risk-based capital ratio (core or leverage
capital to risk-weighted assets) of 6.0% or more, has a leverage capital of 5.0%
or more and is not subject to any order or final capital directive to meet and
maintain a specific capital level for any capital measure, (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risked-based ratio of 4.0% or more and a leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a leverage capital ratio that is less than 4.0% (3.0% in
certain circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a
24
leverage capital ratio that is less than 3.0% and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. In addition, under certain circumstances, a federal
banking agency may reclassify a well capitalized institution as adequately
capitalized and may require an adequately capitalized institution or an
undercapitalized institution to comply with supervisory actions as if it were in
the next lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized). Immediately upon
becoming undercapitalized, an institution shall become subject to various
restrictions and could be subject to additional supervisory actions.
The Bank is currently a "well capitalized institution" as defined in
the prompt corrective action regulations and as such is not subject to any
prompt corrective action measures.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
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 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, 1999, the Bank was in compliance with its QTL
requirement with 89.6% of its assets invested in QTIs.
25
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 for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Loans-to-One Borrower. See "Business -- Lending Activities --
Loans-to-One Borrower."
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. Current law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
in lieu of the existing five-tiered numerical rating system. The OTS reported
that Teche Federal had a "satisfactory record of meeting community credit
needs," in its last examination dated January 5, 1998. The OTS further stated
that "an institution in this group has an outstanding record of, and is a leader
in, ascertaining and helping to meet the credit needs of its entire delineated
community, including low- and moderate-income neighborhoods, in a manner
consistent with its resources and capabilities."
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital;
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate which is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Bank's authority to extend credit to its officers, directors and
10% shareholders, as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the Bank may make
to such persons based, in part, on the
26
Bank's capital position, and require certain approval procedures to be followed.
OTS regulations, with minor variation, apply Regulation O to savings
associations.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 4%. At September 30, 1999, the Bank's liquidity ratio was 14.0%.
Liquid assets for purposes of this ratio include specified short-term
assets (e.g., cash, certain time deposits, certain banker's acceptances and
short-term U.S. Government obligations), and long-term assets (e.g., U.S.
Government obligations of more than one and less than five years and state
agency obligations with a minimum term of 18 months). The regulations governing
liquidity requirements include as liquid assets debt securities hedged with
forward commitments obtained from, or debt securities subject to repurchase
agreements with, members of the Bank of Primary Dealers in United States
Government Securities or banks whose accounts are insured by the FDIC, debt
securities directly hedged with a short financial future position, and debt
securities that provide the holder with a right to redeem the security at par
value, regardless of the stated maturities of the securities. FIRREA also
authorized the OTS to designate as liquid assets certain mortgage-related
securities with less than one year to maturity. Short-term liquid assets
currently must constitute at least 1% of an association's average daily balance
of net withdrawable deposit accounts and current borrowings. Monetary penalties
may be imposed upon associations for violations of liquidity requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. As of
September 30, 1999, the Bank had $78.7 million borrowed from the FHLB of Dallas
to fund operations; however, there can be no assurances that additional
borrowings will not be made in the future.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. As of September 30, 1999, the Bank had $4.2 million
in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended September 30, 1999, dividends paid by
the FHLB of Dallas to the Bank totaled $220,021.
27
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At September
30, 1999, the Bank's total transaction accounts were in compliance with the
Federal Reserve Board requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all OTS sources before borrowing from the Federal
Reserve System. The Bank had no such borrowings at September 30, 1999.
State Taxation
The Louisiana Corporation Income Tax Act provides for an exemption from
the Louisiana Corporation Income Tax for mutual savings banks and for banking
corporations, which includes stock associations (e.g., the Bank). However, this
exemption does not extend to non-banking entities such as the Company. The
non-banking subsidiaries of the Bank (as well as the Company) are subject to the
Louisiana Corporate Income Tax based on their Louisiana taxable income, as well
as franchise taxes. The Louisiana Corporation Income Tax applies at graduated
rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all
Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana
taxable income" means net income which is earned within or derived from sources
within the State of Louisiana, after adjustments permitted under Louisiana law
including a federal income tax deduction and an allowance for net operating
losses, if any. Beginning January 1, 1996, the Company became subject to the
Louisiana Shares Tax and the Louisiana Franchise Tax. The Louisiana Shares Tax
is imposed on the assessed value of the Bank's stock. The formula for deriving
the assessed value is to calculate 15% of the sum of (i) 20% of a corporation's
capitalized earnings, plus (ii) 80% of a corporation's taxable stockholders'
equity, and to subtract from that amount 50% of a corporation's real and
personal property assessment. Other various items may also be subtracted in
calculating a corporation's capitalized earnings. The Louisiana Shares Tax and
the Louisiana Franchise Tax was approximately $441,889 (net of taxes) for the
year ended September 30, 1999.
Item 2. Description of Properties
- -----------------------------------
Properties
The Bank operates from its main office located at 211 Willow Street,
Franklin, Louisiana and eight branch offices. The Bank's total investment in
office property and equipment is $15.3 million with a net book value of $10.3
million at September 30, 1999. 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.
28
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 "Market and Dividend Information" in
the Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1999 ("Annual Report") on page 3, and is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The above-captioned information appears under "Selected Financial
Information" in the Annual Report on page 2, and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The above-captioned information appears under Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Annual
Report on pages 4 through 10 and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
See Net Portfolio Value Analysis on pages 22 through 24.
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 appears
in the Annual Report on pages 11 through 29 and are incorporated herein by
reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
None.
29
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "Information with
Respect to Nominees for Director, Directors Continuing in Office, and Executive
Officers" at pages 3 to 8 of the Registrant's definitive proxy statement for the
Registrant's Annual Meeting of Stockholders to be held on January 19, 2000 (the
"Proxy Statement"), which was filed with the Commission on December 10, 1999 and
incorporated herein by reference. See also "Item 1. Business of the Bank --
Personnel" included herein.
Item 11. Executive Compensation
- --------------------------------
The information relating to executive compensation is incorporated
herein by reference to the Proxy Statement at pages 8 through 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Proxy Statement
at pages 2 through 5.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information relating to certain relationships and related
transactions is incorporated herein by reference to the Proxy Statement on pages
12 and 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements of the Company are incorporated by reference to the
following indicated pages of the Annual Report.
PAGE
----
Independent Auditors' Report ................................ 11
Consolidated Balance Sheets as of September 30, 1999 and 1998 12
Consolidated Statements of Income For the Years Ended
September 30, 1999, 1998 and 1997 ......................... 13
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1999, 1998 and 1997 ..... 14
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997 ......................... 15-16
Notes to Consolidated Financial Statements .................. 17-29
30
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 Form of Teche Federal Savings Bank Management Stock Plan**
10.2 Form of Teche Holding Company 1995 Stock Option Plan**
10.3 Employment Agreement with Patrick O. Little
11.0 Statement regarding computation of earnings per share
(see Note 14 to the Notes to Consolidated Financial Statements
in the Annual Report)
13.0 Annual Report to Stockholders for the fiscal year ended September 30, 1999
21.0 Subsidiary of the Registrant (see "Item 1 Business - Subsidiary Activity" herein)
23.0 Independent Auditors' Consent
27.0 Financial Data Schedule***
(b)......Reports on Form 8-K.
On August 20, 1999, the Company filed a Current Report on Form
8-K with the Commission announcing the adoption of a 10% stock
repurchase plan.
- -----------------
* Incorporated herein by reference into this document from the Exhibits
to Form S-1, Registration Statement, initially filed with the
Commission on December 16, 1994, Registration No. 33-87486.
** Incorporated herein by reference into this document from the Exhibits
to the Registrant's Form 10-K for the fiscal year ended September 30,
1995, filed with the Commission.
*** Only in electronic filing.
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 29, 1999 By: /s/Patrick O. Little
-------------------------------
Patrick O. Little
President, Chief Executive
Officer and Director
(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 29, 1999.
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 Director (Principal Financial Officer)
(Principal Executive Officer)
By:/s/W. Ross Little By:
---------------------------------------- --------------------------------
W. Ross Little Robert Earl Mouton
Chairman of the Board Director
By:/s/Mary Coon Biggs By:/s/Christian L. Olivier
---------------------------------------- --------------------------------
Mary Coon Biggs Christian L. Olivier
Director Director
By:/s/Virginia Kyle Hine By:
---------------------------------------- --------------------------------
Virginia Kyle Hine W. Ross Little, Jr.
Director Director and Secretary
By:/s/Henry L. Friedman By:
---------------------------------------- --------------------------------
Henry L. Friedman Thomas F. Kramer, M.D.
Director Director
By:/s/Donelson T. Caffery, Jr.
----------------------------------------
Donelson T. Caffery, Jr.
Director