Item 1. Business
The Registrant
One American Corp., (the "Company") was incorporated in Louisiana on May 14, 1982. At a special meeting on December 14, 1982, the stockholders of First American Bank and Trust, (the "Bank") approved a Joint Agreement of Merger and Plan of Reorganization by and among the Bank, First American Interim Bank, ("FAIB") and One American Corp. On January 21, 1983, the Bank was merged into FAIB and the surviving Bank, First American Bank and Trust became a wholly-owned subsidiary of the Company through a one-for-one exchange for all of the outstanding common stock (150,000 shares) of the Bank. The reorganization has been accounted for as a pooling-of-interests. The Company is now engaged, through its subsidiary, in the banking business. The Bank is the Company's principal asset and primary source of revenue.
The Bank
The Bank (formerly Bank of Vacherie) was incorporated under the laws of the State of Louisiana on December 3, 1910, and was licensed by the Louisiana State Banking Department and commenced operations as a Louisiana State chartered bank on February 11, 1911. The name of the bank was changed from Bank of Vacherie to First American Bank and Trust on January 17, 1978. The Bank's securities consist of one class of common stock of which there were 150,000 shares held 100% by its parent, the Company, as of March 11, 1999.
The Bank presently has a main office at LA Highway 20 West, Vacherie, St. James Parish, Louisiana and eighteen (18) branch offices and one (1) loan production office. Four branches are located in St. James Parish in the cities of Vacherie (2), Gramercy, and Lutcher. Two branches are located in Lafourche Parish in the city of Thibodaux. One is currently in operation and a second branch is under construction and scheduled to open in the first quarter of 1999. Five branches are located in St. Charles Parish in the cities of Boutte, Des Allemands, Luling, Norco, and St. Rose (2). Two branches are located in Jefferson Parish, one in the city of Kenner, the other in Metairie. One branch is located in St. John Parish in the city of LaPlace. One branch is located in Tangipahoa Parish in the city of Hammond. Two branches are located in Assumption Parish, one in the in the city of Napoleonville, and one in the city of Pierre Part. One loan production office is located in St. Tammany Parish in the city of Mandeville. The branches located in St. James Parish were approved on July 9, 1969, November 11, 1974, July 30, 1979, April 16, 1984, respectively, by the Commissioner of Financial Institutions of the State of Louisiana and by the Federal Deposit Insurance Corporation. The original Thibodaux branch, located on North Canal Boulevard, was approved on July 7, 1988 by the Commissioner of Financial Institutions of the State of Louisiana and on July 5, 1988 by the Federal Deposit Insurance Corporation. The new Thibodaux branch, located on Audubon Avenue, was approved by the Commissioner of Financial Institutions of the State of Louisiana and the Federal Deposit Insurance Corpoartion on September 2, 1997 and August 29, 1997, respectively. The five branches located in St. Charles Parish were acquired from the Federal Deposit Insurance Corporation on November 2, 1989 and were approved on that date by the Commissioner of Financial Institutions of the State of Louisiana and the Federal Deposit Insurance Corporation. The two branches located in Jefferson Parish were acquired from the Federal Deposit Insurance Corporation on February 14, 1991 and were approved on that date by the Commissioner of Financial Institutions of the State of Louisiana and the Federal Deposit Insurance Corporation. The one branch located in St. John Parish was acquired from the Resolution Trust Corporation on August 26, 1994 and was approved on that date by the Commissioner of Financial Institutions of the State of Louisiana and the Federal Deposit Insurance Corporation. The one branch located in Tangipahoa Parish was acquired from First American Bank of Tangipahoa on September 23, 1996, and was approved on that date by the Commissioner of Financial Institutions of the State of Louisiana and the Federal Deposit Insurance Corporation. The Napoleonville branch was approved on August 4, 1997 by the Commissioner of Financial Institutions of the State of Louisiana and on July 24, 1997 by the Federal Deposit Insurance Corporation. The Pierre Part branch was approved by the Commissioner of Financial Institutions of the State of Louisiana and the Federal Deposit Insurance Corporation on April 24, 1998 and April 23, 1998, respectively. The Mandeville loan production office was approved on October 2, 1997 by the Commissioner of Financial Institutions of the State of Louisiana.
The Bank is engaged in primarily the same business operations as any independent commercial bank, with special emphasis in retail banking, including the acceptance of checking and saving deposits, and the making of commercial, real estate, personal, home improvement, automobile and other installment and term loans. The Bank also offers travelers' cheques, safe deposit boxes, note collection, escrow and other customary bank services to its customers with the exception of trust services. In addition, the Bank offers drive-up teller services, automated teller machines and night depository facilities. Through its wholly-owned subsidiary, First American Agency, L.L.C. (the Agency), the Bank provides general insurance agent services related to property and casualty, credit life, accident and health, and general liability insurance as well. First American Bank and Trust is insured under the Federal Deposit Insurance Act, but is not a member of the Federal Reserve System. The three main areas in which the Bank has directed its lending activity are (1) real estate loans; (2) loans to individuals for household, family, and other consumer expenditures; and (3) commercial loans. As of December 31, 1998, these three categories accounted for approximately 82.1%, 8.3% and 9.6%, respectively, of the Bank's loan portfolio. (See Note E in the 1998 Form 10-K section titled "Financial Statements and Supplementary Data" for a detailed analysis of the loan portfolio.)
The majority of the Bank's deposits are from individuals, farmers, and small business-related sources. The average deposit balance is relatively small. This makes the Bank less subject to the adverse effects from the loss of a substantial depositor who may be seeking higher yields in other markets, or have need of money on deposit in the Bank. In addition to the deposits mentioned above, the Bank is a depository for some governmental agencies. At December 31, 1998, State and Political Subdivisions maintained time deposits and money market deposits account balances of $7.6 million, interest bearing demand deposits of $7.7 million, and non-interest bearing demand deposits of $1.5 million. Although no agreement or understanding exist between these particular customers and the Bank regarding time deposits, management has no reason to believe that these time deposit balances will substantially decrease or increase. In connection with the deposits of these State and Political Subdivisions, the Bank is required to pledge securities to secure such deposits (except for the first $100,000 of such deposits, which is insured by the Federal Deposit Insurance Corporation).
As of December 31, 1998, the Bank had 14,851 demand deposit accounts with a total balance of $58.4 million; 1,096 NOW and Super NOW accounts with a total balance of $26.7 million; 2,588 Insured Money Market Accounts with a balance of $60.6 million; 14,608 savings accounts with a total balance of $31.9 million; and 7,435 other time deposit accounts with a total balance of $111.6 million.
There are no securities held by the Bank that are subject to repurchase agreements.
The Bank holds no patents, registered trademarks, licenses (other than licenses required to be obtained from appropriate bank regulatory agencies), franchises or concessions. In 1998, First American Agency, L.L.C., a wholly-owned subsidiary of the Bank, was formed. Through this subsidiary the Bank provides insurance services in its market area. Other than this entry into the insurance business, there has been no significant change in the kinds of services offered by the Bank during the last three fiscal years.
The Bank has not engaged in any research activities relating to the development of new services or the improvement of existing services except in the normal course of the business activities. The Bank presently has no plans for any new line of business requiring the investment of a material amount to total assets.
Most of the Bank's business originates from within the parishes of St. James, St. Charles, Jefferson, Lafourche, St. John, Tangipahoa and Assumption Parish, Louisiana; however, some business is obtained from the parishes immediately surrounding these parishes. There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state, or local environmental regulations.
The Agency
On February 28, 1998, First American Agency, L.L.C. (the "Agency"), a wholly-owned subsidiary of the Bank was formed. On March 5, 1998, the Agency acquired Riverbend Insurance Agency, Inc. of Destrehan, St Charles Parish, Louisiana. Through this subsidiary, the Bank is engaged in the insurance agency business.
As a result of this acquisition, the Company's Board of Directors voted to dissolve One American Agency, Inc., the Company's former insurance agency subsidiary. One Amercian Agency, Inc. previously provided limited insurance products as dictated by Federal regulations. Effective December 31, 1998, the assets of One American Agency, Inc., which were insignificant, were merged into the Company.
The Agency operates out of the offices of the former Riverbend Insurance Agency at 1972 Ormond Blvd., Suite C, Destrehan, St. Charles Parish, Louisiana. Plans are in effect to relocate this office to Luling, St. Charles Parish, Louisiana sometime in 1999. The Agency provides general insurance agent services for the Company and its subsidiary. The Agency also provides agent services in relation to property and casualty, credit life, accident and health, and general liability insurance that maybe related to the extension of credit or other financial services of the Bank.
Competition
The Company's general market area contains approximately 204 thousand households. It's primary market place consists of St. James Parish, St. John Parish, St. Charles Parish, the northern portion of Lafourche Parish, the east bank of the Mississippi river in Jefferson Parish, the south central portion of Tangipahoa Parish , Assumption Parish and St. Tammany Parish, all located in Louisiana. These parishes have experienced moderate population growth over the last several years.
In the primary market area, there are several banks, credit unions, and branches of savings and loan institutions aggressively pursuing loans, deposits and other accounts.
Interest rates on loans made and deposits received were mostly deregulated by law in 1983, but are substantially the same among banks operating in the area served. Competition among banks for loan customers is generally governed by such factors as loan terms other than interest charges, restrictions on borrowers and compensating balances, and the services offered by the bank. Competition for deposits is governed primarily by the services offered, including convenience of location.
In addition federal regulations have significantly broadened the powers of savings and loan institutions with the result that such institutions may now engage in certain activities formerly permitted only to banks. The Company has experienced no major effects from this legislation at this time.
Employees
The Company has approximately 164 full time employees, and 7 part-time employees. Management considers its relationship with the employees to be good.
Supervision and Regulation
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "Act"), as amended, is subject to the provisions of the Act and to regulation by the Board of Governors of the Federal Reserve System (the "Board").
The Act requires the Company to file with the Board annual reports containing such information as the Board may require. The Board is authorized by the Act to examine the Company and all of its activities. The activities that may be engaged in by the Company and its subsidiaries are limited by the Act to those closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular
activity is a proper incident to banking or managing or controlling banks, the Board must consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public, such as convenience, increased competition, or gains in efficiency that outweigh possible adverse effects, such as undue concentration of resources, unfair competition, conflicts of interest, or unsound banking practices.
The Board has adopted regulations implementing the provisions of the Act with respect to the activities of bank holding companies. Such regulations reflect a determination by the Board that the following activities are permissible for bank holding companies: (1) making, for its own account or for the account of others, loans such as would be made, for example, by a mortgage, finance or factoring company; (2) operating as an industrial bank; (3) servicing loans; (4) acting as a fiduciary; (5) acting as an investment or financial advisor, including acting in such capacity for a mortgage investment trust or real estate investment trust; (6) leasing personal or real property, where the lease is to serve as the functional equivalent of an extension of credit to the lessee of the property; (7) investing in community welfare corporations or projects; (8) providing bookkeeping and data processing services for a bank holding company and its subsidiaries, or storing and processing certain other banking, financial, or related economic data; (9) acting as an insurance agent, principally insurance issued in connection with extensions of credit by the holding company or any of its subsidiaries; (10) underwriting credit life and credit accident and health insurance related to extensions of credit; (11) providing courier services for documents and papers related to banking transaction; (12) providing management consulting advice to non-affiliated banks; and (13) selling money orders, travelers cheques and U.S. Savings Bonds. In each case, the Company must secure the approval of the Board prior to engaging in any of these activities.
Whether or not a particular non-banking activity is permitted under the Act, the Board is authorized to require a holding company to terminate any activity or divest itself of any non-banking subsidiary if in its judgment the activity or subsidiaries would be unsound.
Under the Act and the Board's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extensions of credit or provision of any property or services.
In addition to the limitation of Louisiana law with respect to the ownership of banks, as described below, the ownership or control of voting shares of a second bank by a bank holding company, such as One American Corp., is restricted by the Act unless the prior approval of the Board is obtained. The Act prohibits the Board from approving an application from a bank holding company to acquire shares of a bank located outside the state in which the operations of the holding company's subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statue of the state in which the bank whose shares are to be acquired is located.
The Louisiana Bank Holding Company Act, as amended in 1984, authorized multi-banking holding companies within the state. Certain limitations and restrictions were set, which expired July 1, 1989. These restrictions limit acquisitions of additional banks to those which have been in existence for at least five years. The State Commissioner of Financial Institutions is authorized to administer the Louisiana Act by issuance of orders and regulations.
In addition, Louisiana banking laws were changed in 1985 and 1986 to allow interparish banking, limited statewide branching beginning January 1, 1987, and regional banking beginning July 1, 1987. These changes have allowed Louisiana and the regional banks and other financial institutions to engage in a wider range of activities than were previously allowed to such institutions. The restrictions on state banking were repealed in 1988, with the intention of allowing state charted banks to branch bank state wide.
Also effective January 1, 1991, Louisiana's reciprocal interstate banking laws allowed bank holding companies domiciled in any state of the United States to acquire Louisiana banks and bank holding companies, if the state in which the bank holding company is domiciled allows Louisiana banks and bank holding companies the same opportunities.
In 1997, the State of Louisiana enacted the Financial Institution Insurance Sales Law. The Financial Institution Sales Law made it possible for the Bank to sell all forms of insurance through its newly formed subsidiary, First American Agency, L.L.C.
Additional information regarding supervision and regulation can be found in the 1998 Form 10-K in the Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and incorporated herein by reference.
Regulatory Matters
The capital ratios for the Company and the Bank currently exceed the regulatory capital requirements at December 31, 1998. The capital ratios are included in the 1998 Form 10-K in the Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and incorporated herein by reference.
Capital Adequacy
The Company's dividends are determined by its Board of Directors. The current policy is to maintain dividends at a level which ensures the Company and Bank are able to maintain sufficient regulatory capital levels. The Company's primary source of funds is the dividend received from the Bank. Under current regulatory limitations the Bank could pay in dividends without regulatory approval approximately $3.6 million. The Company carries no debt, therefore future liquidity needs are limited to the payment of any declared dividends. The Company maintains sufficient liquidity to maintain its operations should a regulatory agency limit the Bank from paying dividends.
The Bank is subject to regulation and regular examination by the Federal Deposit Insurance Corporation, and the Office of Financial Institutions of the State of Louisiana. Applicable regulations relate to reserves, investments, loans, issuance of securities, the level of capital, establishment of branches and other aspects of its operations. Should the Bank fail to comply with current regulations, the Federal Deposit Insurance Corporation may initiate sanctions and other administrative proceedings for failure to comply with current regulations and may cease deposit insurance.
Statistical Information
The following data contains information concerning the business and operations of One American Corp., its subsidiaries, First American Bank and Trust, and One American Agency, Inc. This information should be read in conjunction with Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
Average Balance Sheets and Interest Yield Analysis
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Average Balance Sheets and Interest Rate Analysis for the years ended December 31, 1998, 1997, and 1996
Interest Differential
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Interest Differentials for the years ended December 31, 1998 and 1997
Securities Portfolio
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Securities
Also, the following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Notes to Consolidated Financial Statements" and is incorporated herein by reference.
See Note D titled Securities in the 1998 Form 10-K for a detailed analysis of the security portfolio.
There were no securities held by the Company at December 31, 1998, that exceeded, in aggregate by issuer, 10% of Stockholders' Equity.
Loan Portfolio
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Loans for the years ended December 31, 1998, 1997, 1996, 1995, and 1994
Non-Performing Loans
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Non-Performing Loans for the years ended December 31, 1998, 1997, 1996, 1995, and 1994
Summary of Loan Loss Experience
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Summary of Loan Loss Experience for the years ended December 31, 1998, 1997, 1996, 1995, and 1994
Deposits
The following information called for by Item 1 is included in the 1998 Form 10-K Section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
Average Balance Sheets and Interest Rate Analysis for the years ended December 31, 1998, 1997, and 1996
Maturities of time deposits of $100,000 or more at December 31, 1998, are summarized below: In thousands
3 Months or Less $6,143 Over 3 through 6 Months 3,849 Over 6 through 12 Months 2,824 Over 12 Months 2,341 $15,157
Return on Equity and Assets
The following information called for by Item 1 is included in the 1998 Form 10-K in the Section titled Item 6. "Selected Financial Data" and is incorporated herein by reference.
Average Total Assets December 31, 1998, 1997, 1996, 1995, and 1994 Average Stockholders' Equity December 31, 1998, 1997, 1996, 1995, and 1994 Selected Ratios for the years ended December 31, 1998, 1997, 1996, 1995, and 1994 Per Share for the years ended December 31, 1998, 1997, 1996, 1995, and 1994
Item 2.
Item 2. Description of Properties
One American Corp. is located in Vacherie, Louisiana in the main office building of First American Bank and Trust. Through its subsidiary First American Bank and Trust, the Company owns the premises in which its main office, operation center, and sixteen of its branches are located and holds a lease for the one remaining branch. The Bank also leases the premises from which its Loan Production Office and First American Agency, L.L.C. operate.
The Company considers all properties to be suitable and adequate for their intended purposes and its leases to be fair and reasonable.
Item 3.
Item 3. Legal Proceedings
During the normal course of business, the Company is involved in various legal proceedings. In the opinion of management and counsel, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1998.
Part II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Security Holder's Matters
Common Stock - One American Corp.'s (the Company) stock is not listed on any security exchange. Due to the lack of an active trading market, One American Corp. does not have the available information to furnish the high and low sales price or the range of bid and ask quotations for its stock. Based upon limited inquiries by management, it is believed that the stock of the Company traded at the following amounts:
1998 1997
First Quarter $18.50 $15.50 Second Quarter $25.00 $16.00 Third Quarter $25.00 $16.00 Fourth Quarter $27.00 $16.00
There can be no assurance that these limited inquiries adequately reflect the actual high and low bids or prices for the stock of the Company.
Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934, One American Corp filed a Issuer Tender Offer Statement with the Securities and Exchange Commission on July 20, 1998. Also pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934, One American Corp filed a Final Amendment Issuer Tender Offer Statement with the Securities and Exchange Commission on August 27, 1998. For specifics on these two filings, please refer to One American Corp's EDGAR filings with the Securities and Exchange Commission.
Information - Request for additional information or copies of Form 10-K filed with the Securities and Exchange Commission in Washington, DC should be directed to:
Frank J. Bourgeois General Counsel President Martin, Himel, Peytavin & Nobile One American Corp. P. O. Box 278 P. O. Box 550 Lutcher, LA 70071-0278 Vacherie, LA 70090-0550
Transfer Agent and Registrar Independent Accountants First American Bank and Trust Hannis T. Bourgeois, L.L.P. P. O. Box 550 2322 Tremont Drive, Suite Vacherie, LA 70090-0550 Baton Rouge, LA 70809
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
One American Corp. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations
The Businesses of One American Corp.
One American Corp. (the Company) is comprised of one subsidiary, First American Bank and Trust (the Bank). The company's operations relate principally to its investment in the Bank.
First American Bank and Trust is engaged in primarily the same business operations as any independent commercial bank, with special emphasis in retail banking, including the acceptance of checking and saving deposits, and the making of commercial, real estate, personal, home improvement, automobile and other installment and term loans. The Bank also offers travelers' cheques, safe deposit boxes, note collection, escrow and other customary bank services to its customers with the exception of trust services. In addition, the Bank offers drive-up teller services, automated teller machines and night depository facilities. Through its wholly-owned subsidiary, First American Agency, L.L.C. (the Agency), the Bank provides general insurance agent services related to property and casualty, credit life, accident and health, and general liability insurance as well.
Overview of 1998
Net income for the year 1998 was $4.1 million compared to $4.0 million for the year 1997. For the year ended 1998, earnings per share were $1.51 compared to $1.49 in 1997. Return on average assets was 1.30% and 1.38% for the years ended 1998 and 1997, respectively. For the years ended 1998 and 1997, return on average stockholders' equity was 11.06% and 11.52%, respectively. Net interest income for 1998 was $13.9 million, a 6.7% increase over the $13.0 million for 1997. The net interest margin on a fully tax equivalent basis (FTE) was 4.94% for the current year and 4.96% for the same period of 1997. During the year 1998, in comparison with the same period of 1997, average loans outstanding increased $21.1 million or 15% due to continued efforts to grow the percentage of earning assets represented by loans and taking advantage of an increased loan demand. Average total deposits for the year 1998 increased $18.0 million or 7% when compared to the average total deposits for the same period of 1997. Average total assets for the current year increased $20.2 million or 7% when compared to the total average assets of the year 1997. Average stockholders' equity for 1998 was $36.7 million, an increase of 5% over the average stockholders' equity for 1997. The Bank opened a full-service office in Pierre Part, Louisiana on September 9, 1998, increasing its presence in Assumption Parish, a trade area similar to the Bank's other rural trade areas. Under construction is a second full-service office in Thibodaux, Louisiana, with an opening planned in the first quarter of 1999. This office will provide access and convenience to customers in the Nicholls State University and the Thibodaux Regional Medical Center areas of the city. With the opening of the new Thibodaux branch, the Bank will have in operation a total of eighteen full-service offices and one loan production office. In the first quarter of 1998, First American Agency, L.L.C., a subsidiary of First American Bank and Trust, was formed. First American Agency, L.L.C. provides insurance services in the Bank's market area. Also in the first quarter of 1998, First American Agency, L.L.C. acquired Riverbend Insurance Agency, Inc. of Destrehan, St Charles Parish, Louisiana. The ability of the Bank's customers to purchase insurance from a subsidiary of the Bank provides an additional level of convenience and the ability for the Bank to increase non-interest income. Effective December 31, 1998, One American Agency, Inc., a subsidiary of the Company, was dissolved. One American Agency, Inc. previously provided limited insurance products as dictated by Federal regulations. On April 22, 1998, the organization reduced the par value of its common shares from $5.00 to $2.50 per share to effect a 2 - for - 1 stock split issued May 8, 1998. The earnings per common share for the annual periods ended December 31, 1998, and 1997, respectively, have been adjusted for this stock split.
Earnings Analysis
Net Interest Income - Net interest income is the difference between interest and fees generated from interest earning assets and the interest expense for interest bearing liabilities and is the primary source of earnings for the Bank. For analytical purposes, net interest income is presented on a tax equivalent basis. A 34% tax rate is used for 1998, 1997, and 1996. Certain earning assets are exempt from income taxes, therefore, a tax equivalent adjustment is included so that tax exempt earning assets will be compatible with other earning assets. The primary factors that affect net interest income are the changes in volume and mix of earning assets and interest-bearing liabilities, along with the change in market rates. Net interest income on a fully tax equivalent basis (FTE) increased $871 thousand or 7%. Net interest income (FTE) for 1998 was $14.2 million compared to $13.3 million for the prior year. Net interest income (FTE) for 1996 was $12.8 million.
Earning Assets, Interest Bearing Liabilities, and Net Interest Spread - Average earning assets increased $18.7 million or 7% to $287.8 million during 1998. Average earning assets were $269.1 million in 1997 and $257.1 million in 1996. The trend in earning assets over the years compared shows a shift in the mix of earning assets toward the loan portfolio from the securities portfolio as shown in the table Earning Asset Structure on page 16. Management's continued strategy is to increase the Bank's earning asset mix to include a greater percentage of higher yielding loans over lower yielding securities. The Bank's primary market area continues to produce levels of loan demand which has enhanced the Bank's earning asset structure. Management continues to believe that greater levels of loan demand will exist in the near future due to the current economic environment in the Bank's market area. However, there is no guarantee that the Bank will continue to experience the loan growth enjoyed over the last twelve months. The current loan demand in the Bank's primary market area appears to be the result of an improving economic climate. The trend over the years compared shows the mix of interest bearing liabilities shifting to higher interest bearing certificates of deposit and interest bearing money market accounts. As an additional note, the Bank continues to benefit from the increase in non-interest bearing deposits , improving the relationship as a percentage of total deposits. The growth is attributed to a concertive effort by the Bank to attract a broader core deposit base consisting of commercial and personal customers. For the year ended 1998, the average yield on earning assets was 7.83%, while the average cost of interest bearing funds was 3.79%, producing a net interest spread (FTE) of 4.04%. The net interest margin (FTE) was 4.94% for the year ended 1998. The net interest margin remained relatively stable when compared to the net interest margins of 4.96% and 4.95% for the years ended 1997 and 1996, respectively. The table of Average Balance Sheets and Interest Rate Analysis for the periods ended December 31, 1998, 1997, and 1996 on page 24 and, and the corresponding table of Interest Differentials on page 25 detail the effect a change in average balances outstanding and the change in interest yield and costs have on net interest income for the respective periods. Also, the tables of Earning Asset Structure and Deposit Structure on page 16 show a more condensed, descriptive analysis of the common size percentage changes in average earning assets and average deposit mix over the annual periods analyzed.
Provision for Loan Losses
Provision for loan losses was $1.2 million in 1998, an increase of $175 thousand from the provision for loan losses of $1.0 million in 1997. The provision for loan losses in 1996 was $90 thousand. Management decided to increase the unallocated portion of the Allowance for Loan Losses to compensate for a non- domestic credit which utilized a portion of the unallocated Allowance for Loan Losses during 1997. See the sections entitled Allowance for Loan Losses and Non-Performing Assets for more details on the Provision for Loan Losses.
Other Income
Other income was $3.6 million for 1998 and $3.7 million for 1997. Exclusive of security transactions other income increased $83 thousand. Service charges on deposit accounts were $2.1 million for 1998 and 1997. Gain on purchased assets increased $2 thousand to $609 thousand for 1998 when compared to the prior year. These
gains are recognition of collection of principal on certain loans acquired in past Bank acquisitions. The Bank continues to pursue the collection of these loans. However, the amount of future gains, if any, are indeterminable. Other operating income for 1997 was $956 thousand compared to $851 thousand in 1997. Included in other operating income are fees from bankcard services, safe deposit box rentals, and other operating fees associated with the daily operations of the Bank. Net gain on investment securities decreased by $185 thousand for 1998, compared to a decrease of $95 thousand for 1997. The Bank recovered $5 thousand as gains from security transactions during the year 1998. These securities included Louisiana Agricultural Finance Authority Bonds and Louisiana Housing Finance Authority Bonds that were partially written off in accordance with regulatory directives in May of 1992.
Other Expenses
Other expenses totaled $10.4 million in 1998, an 8% increase over the 1997 total of $9.7 million. Salaries and employee benefits increased $556 thousand or 12%, to $5.3 million for 1998 compared to 1997. The increase in salaries is due to an increase in personnel from two full service offices which were not reflected in salaries and employee benefits during a portion of 1997. Net occupancy expense was $1.3 million for 1998 and $1.2 million for 1997. Other operating expenses totaled $3.8 million and $3.9 million, respectively, for 1998 and 1997, a decrease of $25 thousand or 1%. For a further analysis of other operating expenses see Note K. Net other real estate and repossession expense produced a benefit of $9 thousand for 1998, a decrease of $171 thousand from the $180 thousand benefit in 1997. Net other real estate and repossession expense is the operating expense of other real estate and repossessed assets less the income generated by other real estate and the net gains from the sale of other real estate and repossessed assets. During 1998, expenses from other real estate and repossessed assets totaled $24 thousand, which were offset by the income generated from the operations of other real estate of $10 thousand, and net gains on the sale of other real estate and repossessed assets of $23 thousand. For 1997, net other real estate and repossession expense produced a benefit of $180 thousand. Expenses from other real estate totaled $142 thousand, which were offset by income from the operations of other real estate of $17 thousand, and net gains on the sale of other real estate and repossessed assets of $305 thousand. Management continues to convert these non- performing assets to investable funds at a value which management feels is beneficial to the earnings of the Bank. Also, management recognizes that the contribution of the non-recurring income offset by net gains on the sale of other real estate is going to be less in years to come due to the reduction of such assets.
Applicable Income Taxes
Applicable income taxes for 1998, 1997, and 1996 were $1.9 million, $2.1 million, and $2.3 million, respectively, producing an effective tax rate of 32%, 33%, and 31%, respectively. The Company's effective income tax expense as a percentage of pretax income is different from statutory rates because of tax-exempt income and the related nondeductible interest expense. A portion of the Company's interest income is from investments in state and municipal bonds and is generally exempt from federal income taxes. Interest expense on funds used for tax-exempt investments is generally nondeductible for federal income taxes.
Liquidity
Liquidity management is the process of ensuring that the Bank's asset and liability structure is the proper mix to meet the withdrawals of its depositors, and to fund loan commitments and other funding requirements. Management's primary source of funds is the Bank's core deposit base. At December 31, 1998, average core deposits were approximately $261.7 million or 96% of total average deposits and 84% of total average assets. For a comparison with prior period year ends, see the table entitled Average Deposit Structure. Other sources of liquidity are maturities in the investment portfolio and loan maturities and repayments. Management continually evaluates the maturities and mix of its earning assets and interest-bearing liabilities to monitor its ability to meet current and future obligations and to achieve maximum net interest income. Due to the stability of the core deposit base as noted above and the maturities of the investment portfolio, management does not anticipate any difficulties in meeting the needs of its depositors nor the ability to fund future loan commitments.
Interest Rate Risk
Interest rate risk is the measurement of risk exposure or changes in net interest income and subsequently net income given changes in the external interest rate markets. This possible risk exposure is produced by the different repricing intervals of interest earning assets and interest bearing liabilities, changes in the mix of such assets and liabilities, and the growth of such assets and liabilities. One measurement of interest rate risk is gap analysis. The gap matches the repricing of interest rate sensitive assets and liabilities for selective intervals. Gap analysis is a static measurement based on an individual point in time. This interest rate risk measurement process may not indicate actual rate exposure given contractual maturity and repricing period inconsistencies. Management also measures interest rate risk exposure by the process of dynamic income simulation. This process measures possible levels of exposure more accurately given the ability to better identify contractual maturities and repricing periods. Key assumptions used in the simulation model include the relative timing of prepayments on mortgage related assets and the cash flows and maturities of other financial instruments. These assumptions are intrinsically uncertain and, as a result, the model cannot specifically estimate net interest income or precisely predict the impact of a change in interest rates on net income or stockholders' equity. Actual results will differ from the simulated results due to the timing, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. The Bank's objective is to limit the impact on net interest income from a gradual change in interest rates of 200 basis points over twelve months to 10% of projected net interest income. Based on the results of dynamic income simulation, at December 31, 1998 the Bank would expect a decrease in net interest income of $87,000 in the event of a gradual 200 basis point increase in interest rates and a decrease of $6,000 in the event of a gradual 200 basis point decrease in interest rates. Both of these changes are well within the Bank's interest rate risk policy limits. For gap analysis, prepayment assumptions are applied to loans reflective of historical experience and employing a "flat- rate" interest rate change scenario. Decay rate methodology is applied to non-fixed rate deposit accounts to arrive at the principal and interest cash flows used in the market value calculations given FDIC regulatory guidelines as set forth in FDICIA 305. First, rate sensitive and non-rate sensitive balances are separated. Higher decay rates force rate sensitive cash flows to occur within one year. Decay rates are then input for the non-rate sensitive funds. These decay rates spread the non-rate sensitive deposit balances out as far as the FDIC regulatory guidelines allow in FDICIA 305. Decay rate assumptions implemented are based on a flat rate environment and at management's discretion. The Bank has established decay rate assumptions based on historical data collection on MMDA, Savings Accounts, Now Accounts, and Non-Interest Bearing Accounts. The assumptions are based on account type sensitivity patterns given the change in the Bank's benchmark for pricing and the change in the relationship each account type has to total deposits. Decay rates are updated at each modeling session if warranted by rate changes in the market or changes in non-rate sensitivity patterns given the account type. The identification of the non-rate sensitive portion of such accounts provides a more complete picture of the actual core deposit base which may not reprice in the same manner as the rate sensitive portion. Table 2, Interest Rate Sensitivity Table, on page 18 presents the Bank's interest rate sensitivity position at December 31, 1998, using gap analysis, based on the expected maturity intervals of interest rate sensitive assets and liabilities. Table 2 indicates that the Company's interest bearing liabilities slightly exceed its interest earning assets at the one year point in time suggesting the Bank is slightly negatively rate sensitive. This table does not necessarily reflect the impact of interest rate movements on the Bank's net income because the effective maturities or repricing of certain assets and liabilities is subject to competition and other limitations. As a result, certain assets and liabilities indicated as maturing or repricing within a stated period may in fact mature or reprice at different times and at different volumes. The Bank is a member of the Federal Home Loan Bank of Dallas (FHLB). The FHLB provides the Bank the ability to further match the rates and maturities of its funding with those of earning assets. Also, the FHLB provides the Bank the ability to offer long term, fixed rate loans to its customer base with minimal additional interest rate risk exposure.
Financial Instruments
In the normal course of business the Bank enters into agreements which, for accounting purposes, are considered off - balance sheet activities. These agreements are loans and lines of credit commitments to customers to extend credit at specified rates, duration, and purpose. The commitments adhere to normal lending policy, collateral requirements, and credit reviews. Total commitments were $20.3 million and $11.7 million at December 31, 1998 and 1997, respectively. Available loan commitments at December 31, 1998, were $14.9 million and $7.6 million at December 31, 1997. The Bank had letters of credit of $646 thousand issued at December 31, 1998. Additionally, the Bank has deposit customers who have credit lines available to them through their deposit accounts. At December 31, 1998 the available portion of these credit lines was $345 thousand. These credit lines are immediately cancelable by the Bank. The credit lines provide a source of income to the Bank through service fees charged and interest earned on balances outstanding. The credit lines are reviewed regularly and do not pose a material credit risk to the Bank. To date, the Bank does not have instruments outstanding that can be specifically described as a financial guarantee which guarantees the performance of a customer to a third party other than the financial standby letters of credit described above. The Bank had credit cards with aggregate credit available of $4.3 million and $3.2 million at December 31, 1998 and 1997. Applicants are reviewed through normal lending policies and credit reviews. Additionally the Bank has privity to agreements to fund and sell long term mortgages to third party mortgage companies. The Bank is not a party to financial instruments defined as interest rate exchange agreements, financial futures, or financial options. Therefore, the Bank is not exposed to interest rate risk in excess of the amount recognized in the consolidated balance sheets as that risk may apply to interest rate exchange agreements, financial futures, or financial options.
Loans
Allowance for Loan Losses
The allowance for loan losses was $3.5 million at year end 1998 or 1.94% of net loans outstanding. At year end 1997, the allowance for loan losses was $2.2 million or 1.47% of net loans outstanding. The allowance for loan losses account represents amounts available for possible future losses based on modeling and management's evaluation of the loan portfolio. To ascertain the potential losses in the portfolio, management reviews past due loans on a monthly basis. Additionally, the loan review department performs an ongoing review of the loan portfolio. Loans are reviewed for compliance to the Bank's lending policy and the borrower's current financial condition and ability to meet scheduled repayment terms. Management reviews allowance for loan losses on a monthly basis to ensure that it contains an adequate amount of reserves to absorb potential loan losses. The Bank has established the balances in allowance for loan losses in order to accept any adverse loan relationships which have the potential to occur. As the Bank's loan - to - deposit relationship continues to increase,
so does the potential to experience adverse loans at a rate uncommon to the Bank's historical loan loss basis given the smaller loan - to - deposit relationships of the past. Net charge offs (recoveries) were ($140 thousand) for 1998, compared to $1.9 million for 1997. As a percentage of average loans, net charge offs (recoveries) were 0.09% in 1998 and 1.35% in 1997. Gross charge offs were 0.16% in 1998 and 1.48% in 1997. Recoveries as a percentage of gross charge offs were 154.05% in 1998 and 8.62% in 1997. The net charge off position of $1.9 million in 1997 was caused primarily by a non-domestic credit which resulted in a charge off of $1.5 million. This individual credit significantly influenced the change in ratios between the two reporting periods.
Table 3, Activity in Allowance for Loan Losses, below presents an analysis of activity in the allowance for loan losses for the past five years.
The allowance for loan losses has been allocated according to the type of loan described in the table below, at December 31, 1998, 1997, 1996, 1995, and 1994:
Non-Performing Assets
Non-performing assets include nonaccrual and impaired loans and other real estate. Loans are considered nonaccrual when the principal or interest becomes 90 days past due or when there is uncertainty about the repayment of principal and interest in accordance with the terms of the loans. Nonaccrual loans at December 31, 1998 and 1997 were $730 thousand and $285 thousand, respectively. Loans past due 90 days and still accruing at December 31, 1998 and 1997 were $242 thousand and $364 thousand, respectively. At December 31, 1998 nonaccrual loans were .40% of gross loans outstanding and 20.68% of the allowance for loan losses. At December 31, 1997, these ratios were .19% and 13.01%, respectively. The following table presents information on the amount of non-performing loans at December 31, 1998, 1997, 1996, 1995, and 1994:
In the process of reviewing the loan portfolio, management acknowledges certain potential problem loans which are not classified as impaired, non-accrual, greater than 90 days delinquent, or restructured. Management does not feel that any of these potential problem loans are reasonably likely to have or will have a material effect on the Company's liquidity, capital resources, or results of operations. Other real estate is properties held for sale acquired through foreclosure or negotiated settlements of debt. Other real estate decreased $5 thousand during 1998. At December 31, 1998 and 1997, other real estate was $73 and $78 thousand, respectively.
Regulatory Matters
The Bank is subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material effect on the Bank's financial statements. Various regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off - balance sheet items as calculated under regulatory accounting practices. The Bank's capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as set forth in the section entitled Capital Adequacy below. Management is unaware, based on recent regulatory examinations or otherwise, of any known trends, events or uncertainties which are reasonably likely to have or will have a material effect on the Company's liquidity, capital resources, or results of operations.
Capital Adequacy
The strength of a company is measured by the company's capital, earnings history, asset quality, and management. Capital can be increased by the retention of earnings and issuance of equity stock. Management feels the current trend of earnings and dividend distribution is sufficient to maintain its capital adequacy requirements. The Company is required to maintain minimum amounts of capital to total risk-weighted assets, as defined by the regulators. The guidelines require total capital of 8.00%, half of which must be Tier 1 capital. The computation of risk- weighted ratios follow the transitional rule, which currently does not include the unrealized gain (loss) on securities available for sale in Tier 1 capital. The leverage ratio consists of Tier 1 capital as a percentage of average total assets. The minimum leverage ratio for all banks and bank holding companies is 3.00%. This minimum ratio is dependent upon the strength of the individual bank or holding company and may be increased by regulatory authorities on an individual basis. The 3.00% minimum was established to make certain that all banks have a minimum capital level to support their assets, regardless of risk profile. As shown in Table 4, Capital Adequacy Ratios, the Company's ratios for the reporting periods exceed regulatory minimums. The Company's dividends are determined by its Board of Directors. The current policy is to maintain dividends at a level which ensures the Company and Bank are able to maintain sufficient regulatory capital levels. The Company's primary source of funds is dividends received from the Bank. Under current dividend limitations the Bank could pay dividends of approximately $3.6 million without regulatory approval. The Company carries no debt; therefore, future liquidity needs are limited to the payment of any declared dividends. The Company maintains sufficient liquidity to maintain its operations should a regulatory agency limit the Bank from paying dividends.
Table 4-
Capital Expenditures
The Bank continued to expand its branch network with the opening of a full-service office in Pierre Part, Assumption Parish, Louisiana on September 9, 1998. Under construction is a second full-service office in Thibodaux, Lafourche Parish, Louisiana, with an opening planned in the first quarter of 1999. With the opening of the new Thibodaux branch, the Bank will have in operation a total of eighteen full-service offices and one loan production office.
The Year 2000
The Bank has formed a Year 2000 committee. The purpose of the committee is to identify potential costs and uncertainties relating to the Year 2000. The committee has adopted a policy which addresses the issues approaching the Year 2000 in five phases. The phases include awareness, assessment, renovation, validation, and implementation. The Bank is currently in the implementation phase. Management does not believe that issues related to the Year 2000 are reasonably likely to have or will have a material effect on the Company's liquidity, capital resources, or results of operation. The costs expensed related to the Year 2000 issue during 1998 were not material. The discussion entitled "Year 2000" includes certain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). This statement is included for the purpose of availing the Company of the protections of the safe harbor provisions of the PSLRA. Management's ability to predict the results or the effects of Year 2000 issues is inherently uncertain and subject to factors that may cause actual results to materially differ from those anticipated. Factors that could affect actual results include the possibility that contingency plans and remediation efforts will not operate as intended, the Bank's failure to timely or completely identify all software and hardware applications that require remediation, unexpected costs, and the general uncertainty associated with the impact of Year 2000 issues on the banking industry, the Bank's customers, vendors, and others with whom it conducts business. Readers are cautioned not to place undue reliance on these forward looking statements.
Table 5 -
Table 6 -
Item 8.
Item 8. Financial Statements and Supplementary Data One American Corp. and Subsidiaries Management's Responsibility for Financial Reporting
The management of One American Corp. and Subsidiaries is responsible for the preparation of the financial statements, related financial data, and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include some amounts that are necessarily based on management's informed estimates and judgments, with consideration given to materiality. All financial information in this annual report is consistent with that in the financial statements.
Management fulfills its responsibility for the integrity, objectivity, consistency, and fair presentation of the financial statements, and the financial information through an accounting system and related internal accounting controls that are designed to provide reasonable assurance that assets are safeguarded and that transactions are authorized and recorded in accordance with established policies and procedures. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the related benefits. As an integral part of the system of internal accounting controls, One American Corp. and Subsidiaries has a professional staff who monitor compliance with and assess the effectiveness of the system of internal accounting controls while coordinating audit coverage with the independent public accountants.
The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with management, and the independent public accountants to review matters relating to financial reporting, internal accounting controls and the nature, extent and results of the audit effort. The independent public accountants have direct access to the Audit Committee with or without management present.
The financial statements as of December 31, 1998 and 1997, were audited by Hannis T. Bourgeois, L.L.P., independent public accountants, who rendered an independent professional opinion on the financial statements prepared by management.
Report of Independent Auditor
January 15, 1999
To the Shareholders and Board of Directors of One American Corp. and Subsidiaries Vacherie, Louisiana
We have audited the accompanying Consolidated Balance Sheets of One American Corp. and Subsidiaries as of December 31, 1998 and 1997, and the related Consolidated Statements of Income, Changes in Stockholders' Equity, and Cash Flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of One American Corp. and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations, changes in their stockholders' equity and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ Hannis T. Bourgeois, L.L.P.
Hannis T. Bourgeois, L. L. P. Baton Rouge, Louisiana
Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996
NOTE A Summary of Significant Accounting Policies
The accounting principles followed by One American Corp. (the Company), its wholly-owned subsidiary, First American Bank and Trust (the Bank), and its wholly-owned subsidiary, First American Agency, L.L.C. (the Agency), and One American Agency, Inc. are those which are generally practiced within the banking industry. First American Agency, L.L.C. was formed in March, 1998 and One American Agency, Inc. was liquidated in December, 1998. The methods of applying those principles conform with generally accepted accounting principles and have been applied on a consistent basis. The principles which significantly affect the determination of financial position, results of operations, changes in stockholders' equity, and cash flows are summarized below.
Principles of Consolidation - The consolidated financial statements include the accounts of One American Corp. (the Company), its wholly-owned subsidiary, First American Bank and Trust (the Bank), and its wholly-owned subsidiary, First American Agency, L.L.C. (the Agency), and One American Agency, Inc. All significant intercompany balances and transactions have been eliminated. Certain reclassifications to previously published financial statements have been made to comply with current reporting requirements.
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank's loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent on local conditions in the area. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgements about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Securities - Management determines the appropriate classification of debt securities (Held to Maturity, Available for Sale, or Trading) at the time of purchase and re-evaluates this classification periodically. Securities that management has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions are classified as securities held to maturity. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by various methods approximating the interest method over their contractual lives. Securities that may be sold prior to maturity are classified as securities available for sale. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for sale are carried at fair value. Unrealized gains or losses are reported as increases or decreases in stockholders' equity, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. The Bank had no securities classified as held to maturity or trading at December 31, 1998 or 1997. Securities purchased for trading purposes are classified as trading securities and are carried at market value with market adjustments included in non-interest income.
Loans - Loans are stated at principal amounts outstanding, less unearned income and allowance for loan losses. Interest on commercial and individual loans is accrued daily based on the principal outstanding. Interest on installment loans is recognized and included in interest income using the sum-of-the- digits method, which does not differ materially from the interest method. Gain on purchased assets is recognized on acquired loans from previous bank acquisitions on a cost recovery method as principal payments are made. Generally, the Bank discontinues the accrual of interest income when a loan becomes 90 days past due as to principal or interest. When a loan is placed on non-accrual status, previously recognized but uncollected interest is reversed to income or charged to the allowance for loan losses. Interest income is subsequently recognized only to the extent cash payments are received. The Bank classifies loans as impaired if, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the loan's observable market price or based on the fair value of the collateral if the loan is collateral-dependent.
Allowance for Loan Losses - The allowance for loan losses is maintained at a level which, in management's judgement, is adequate to absorb credit losses inherent in the loan portfolio. The allowance for loan losses is based upon management's review and evaluation of the loan portfolio. Factors considered in the establishment of the allowance for loan losses include management's evaluation of specific loans; the level and composition of classified loans; historical loss experience; results of examination by regulatory agencies; an internal asset review process; expectations of future economic conditions and their impact on particular borrowers; and other judgmental factors. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The allowance for loan losses is based on estimates of potential future losses, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and as adjustments become necessary, the effect of the change in estimate is charged to operating expenses in the period incurred. All losses are charged to the allowance for loan losses when the loss actually occurs or when management believes that the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.
Bank Premises and Equipment - Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided at rates based upon estimated useful service lives (ten to thirty years for buildings, three to ten years for equipment) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal and the resulting gains or losses are included in current operations. Expenditures for maintenance and repairs are charged to operations as incurred. Costs of major additions and improvements are capitalized.
Other Real Estate - Other real estate is comprised of properties acquired through foreclosure or negotiated settlement. The carrying value of these properties is lower of cost or fair value less estimated selling expenses. Loan losses arising from the acquisition of these properties are charged against the allowance for loan losses. Any subsequent market reductions required are charged to other real estate expense. Revenues and expenses associated with maintaining or disposing of foreclosed properties are recorded during the period in which they are incurred.
Income Taxes - The provision for income taxes is based on income as reported in the financial statements after interest income from state and municipal securities is excluded. Also certain items of income and expenses are recognized in different time periods for financial statement purposes than for income tax purposes. Thus, provisions for deferred taxes are recorded in recognition of such timing differences. Deferred taxes are provided utilizing a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company and its subsidiaries file a consolidated federal income tax return. In addition, state income tax returns are filed individually by the Companies in accordance with state statutes.
Earnings per Common Share - In February 1997, Statement of Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS NO. 128") was issued which establishes standards for computing and presenting earnings per share (EPS). Under SFAS No. 128, primary EPS is replaced with basic EPS. Basic EPS is computed by dividing income applicable to common shares by the weighted average shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Fully diluted EPS, now called diluted EPS, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the company. At December 31, 1998, the company had no convertible shares or other contracts to issue common stock. The weighted average number of shares of common stock used to calculate basic EPS was 2,686,389 for the year ended December 31, 1998 and 2,703,230 for the years ended December 31, 1997 and 1996, respectively.
On April 22, 1998, the organization reduced the par value of its common shares from $5.00 to $2.50 per share to effect a 2 - for - 1 stock split issued May 8, 1998. The earnings per common share for the years ended December 31, 1997 and December 31, 1996 have been retroactively restated for this stock split.
Statements of Cash Flows - For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks (including cash items in process of clearing).
Comprehensive Income - The Financial Accounting Standards Board issued Statement No. 130 "Reporting Comprehensive Income", which became effective for fiscal years beginning after December 31, 1997. This statement establishes standards for reporting and display of comprehensive income and its components which are revenues, expenses, gains, and losses that under GAAP are included in comprehensive income but excluded from net income. The Company adopted this statement in 1998. The components of comprehensive income are disclosed in the Statements of Changes in Stockholders Equity for all periods presented.
Current Accounting Developments - In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the reporting of financial information from operating segments in annual and interim financial statements. SFAS No. 131 requires that financial information be reported on the same basis that it is reported internally for evaluating segment performance and allocating resources to segments. The adoption of this statement had no material effect on the financial statements as of December 31, 1998.
In February, 1998 the FASB issued Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." FASB Statement No. 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits. The adoption of this statement in 1998 had no material impact on the Company's financial position or results of operations.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The provisions of this statement are effective for the Company's year ended December 31, 1998. The impact of adopting this statement did not have a material effect on the Company's financial statements.
In early 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP"). The SOP is effective for fiscal years beginning after December 15, 1998 and will require the costs of start-up activities and organization costs to be expensed as incurred. Any such unamortized costs on the date of adoption of the new standard will be written off and be reflected as a cumulative effect of a change in accounting principle. The adoption of this statement in 1999 should not have a material impact on the financial statements of the company.
NOTE B Acquisitions On March 5, 1998, First American Agency, L.L.C., a subsidiary of First American Bank and Trust, acquired Riverbend Insurance Agency, Inc. of Destrehan, St Charles Parish, Louisiana. Equity earnings from First American Agency, L.L.C. in the amount of $54 thousand are included in Other Income of the Company for the year ended December 31, 1998. The net equity of $639 thousand in First American Agency, L.L.C. is reflected in Other Assets in the Balance Sheet as of December 31, 1998. As a result of this acquisition, the Company's Board of Directors voted to dissolve One American Agency, Inc. The assets of One American Agency, Inc., which were insignificant, were merged into its Parent Company effective December 31, 1998.
NOTE C Cash and Due from Banks
The Bank is required to maintain average cash reserve balances. The amounts of those reserves at December 31, 1998 and 1997, were approximately $4.2 million and $3.6 million, respectively.
NOTE D Securities
Amortized costs and fair values of securities available for sale as of December 31, 1998 and 1997 are summarized as follows:
The following table shows the amortized cost, fair value, maturity distribution, and weighted average yield of the securities available for sale as of December 31, 1998. Maturities may differ from contractual maturities in mortgage- backed securities because the mortgages underlying the securities may be called or repaid without any penalties.
Securities available for sale with a carrying amount of $42.1 million and $33.4 million at December 31, 1998 and 1997, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law. The Bank has invested in Federal Home Loan Bank of Dallas stock which is included in Equity Securities and is reflected at the lower of cost or fair value in these financial statements. The cost of these securities was $958 thousand and $902 thousand, which approximates fair value, at December 31, 1998 and 1997, respectively.
Gross realized gains and losses from the sale of securities for the years ended December 31, 1998, 1997, and 1996 are as follows:
Note E Loans
An analysis of the loan portfolio at December 31, 1998 and 1997, is as follows:
Impaired loans having recorded investments of $4.4 million at December 31, 1998 have been recognized in conformity with FASB Statement No. 114 as amended by FASB Statement No. 118. The average recorded investment in impaired loans during the year ended December 31, 1998 was approximately $3.8 million. Impaired loans at December 31, 1997 were $3.2 million. The allowance for loan losses related to these loans was $1.4 million at December 31, 1998 and $849 thousand at December 31, 1997. Interest received on impaired loans amounted to $430 thousand and $348 thousand at December 31, 1998 and 1997, respectively. All non-accrual loans were considered impaired at December 31, 1998 and 1997. The Bank is permitted, under the laws of the State of Louisiana, to make extensions of credit to its executive officers and directors and their affiliates in the ordinary course of business. An analysis of the aggregate loans, for December 31, 1998 and 1997, are as follows:
NOTE F Allowance for Loan Losses
Following is a summary of the activity in the allowance for loan losses:
NOTE G Bank Premises and Equipment
Bank premises and equipment costs and the related accumulated depreciation at December 31, 1998 and 1997, are as follows:
Depreciation charged to operating expenses for the three years ended December 31, 1998, 1997, and 1996, respectively, was $828 thousand, $762 thousand, and $679 thousand.
NOTE H Deposits
Following is a detail of deposits as of December 31, 1998 and 1997:
Following is a detail of certificate of deposit maturities as of December 31, 1998:
Interest expense on Certificates of Deposit over $100 thousand at December 31, 1998, 1997, and 1996, amounted to $561 thousand, $542 thousand and $472 thousand, respectively. Public Fund deposits at December 31, 1998 and 1997, were $16.8 million and $16.2 million, respectively.
NOTE I Stockholders' Equity and Regulatory Matters
Stockholders' Equity of the Company includes the undistributed earnings of the Bank. Dividends are paid by the Company from its assets which are provided primarily by dividends from the Bank. Dividends are payable only out of retained earnings and current earnings of the Company. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. Louisiana statutes require approval to pay dividends in excess of a state bank's earnings in the current year plus retained net profits for the preceding year. As of January 1, 1999, the Bank had retained earnings of $19.6 million of which $3.6 million was available for distribution without prior regulatory approval.
The company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators, that if undertaken, could have a direct material affect on the Company's financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines involving quantitative measures of assets, liabilities, and certain, off-balance-sheet items as calculated under regulatory accounting practices. The Company and the Bank's capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios. As detailed below, as of December 31, 1998 and 1997, the Company met all of the capital adequacy requirements to which it is subject.
As of December 31, 1998 and 1997, the Company was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed the prompt corrective action category.
Following is a summary of capital levels at December 31, 1998 and 1997:
Under current regulations, the Bank is limited in the amount it may loan to its Parent. Loans to the Parent may not exceed 10% of the Bank's capital and surplus. There were no loans outstanding at December 31, 1998 and 1997.
NOTE J Employee Benefit Plans
The Bank maintains a Salary Deferral Plan qualified under Internal Revenue Service Code Section 401(k) for all employees who are 21 years of age and have completed one year of service. Covered employees may elect to contribute 1% to 15% of gross pay to the plan. The majority of the plans assets are invested in mutual funds. As part of the plan, the Bank has, at its discretion, the ability to match the contributions or make supplemental contributions. No amounts were contributed by the Bank for either 1998 or 1997. The Bank maintains a noncontributory defined benefit pension plan covering all employees who qualify as to age and length of service. Current policy is to fund annual pension costs as they accrue. The majority of the plans assets are invested in money market funds or mutual funds. The following table sets forth the plan's funded status at December 31, 1998 and 1997.
Assumptions used in the determination of pension plan information consisted of the following:
Net pension expense for 1998, 1997, and 1996 included the following components:
The Bank's employee benefit program also includes self- funded health and dental insurance plans for all full-time employees. The costs of these plans are completely funded by the Bank. The employees can also elect to purchase dependent coverage under the plans. The Bank pays a premium to a reinsurer for coverage on losses and claims that exceed $20,000 per individual per plan year. Amounts paid by the Bank in association with these plans totaled $582 thousand and $548 thousand for the years ended December 31, 1998 and 1997, respectively. The Bank had set aside reserves in the amount of $774 thousand for payment of unreported claims with dates of service through December 31, 1998.
NOTE K Other Operating Expenses
The analysis of other operating expenses for the years ended December 31, 1998, 1997, and 1996, are as follows:
NOTE L Income Taxes
The total provision for income taxes charged to income amounted to $1.9 million for 1998, $2.0 million for 1997, and $2.3 million for 1996. The provisions represent effective tax rates of 32% for 1998, 33% for 1997, and 31% for 1996. Following is a reconciliation between income tax expense based on the federal statutory tax rates and income taxes reported in the statements of income.
The components of consolidated income tax expense (benefits) are:
A deferred income tax asset of $370 thousand and $25 thousand is included in other assets at December 31, 1998 and 1997, respectively. The deferred tax provision (credit) consists of the following timing differences:
The net deferred tax asset consists of the following components at December 31, 1998 and 1997:
NOTE M Short-Term Borrowings
The Bank maintains an open line of credit with the Federal Home Loan Bank of Dallas. The total line of credit available with Federal Home Loan Bank of Dallas amounts to approximately $18.1 million at December 31, 1998. This amount is computed based on the Bank's stock position less current advances, not to exceed 65% of the Bank's outstanding 1-4 family mortgage loans. The agreement provides for interest based upon the federal funds rate on outstanding balances for short term purposes and a certain spread above the treasury yield curve for longer term advances. Drawings on the line included in other liabilities, were $1.0 million and $1.2 million at December 31, 1998 and 1997 respectively. The line is collateralized by a blanket lien on 1- 4 family mortgage loans.
The Bank also maintains an open line of credit with a correspondent to assist in maintaining short-term liquidity. The agreement provides for interest based upon the federal funds rate on outstanding balances. This line totaling $4.5 million was unfunded at December 31, 1998 and December 31, 1997.
NOTE N Off-Balance Sheet Instruments
The Company is a party to financial instruments with off- balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, financial guarantees, and letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. In the normal course of business the Company has made commitments to extend credit of $20.3 million at December 31, 1998. This amount includes unfunded commitments aggregating $19.6 million and letters of credit of $646 thousand.
NOTE O Concentrations of Credit
The Bank's business activities are with customers in the Bank's market area, which consists primarily of the southeast region of the State of Louisiana. Investments in state and municipal securities also involve governmental entities within the Bank's market area. The concentrations of credit by type of loan are shown in Note E. Most of the Bank's credits are to individuals and small businesses secured by real estate. The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of the Bank's legal lending limits.
NOTE P Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Short-Term Investments - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities - Fair value of securities held to maturity and available for sale is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans - The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses which was used to measure the credit risk, is subtracted from loans.
Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed- maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements at the reporting date.
The estimated approximate fair values of the Bank's financial instruments as of December 31, 1998 and 1997 are as follows:
Note Q Litigation and Contingencies
During the normal course of business, the Company is involved in various legal proceedings. In the opinion of management and counsel, any liability from such proceedings would not have a material adverse effect on the Company's financial statements.
Note R Parent Company Financial Statements
The financial statements for One American Corp. (Parent Company Only) are presented below:
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosures
Not Applicable.
Part III
Items 10, 11, 12, and 13.
The information required by items 10, 11, 12 and 13 is included in the Company's Proxy Statement, for the 1999 Annual Meeting of Stockholders and is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) Financial Statements
1. The financial statements of One American Corp. in the Company's 1998 Form 10-K are incorporated by reference in Item 8.
2. Other financial statement schedules are either omitted because they are inapplicable or included in the financial statements or related notes.
(b) Reports on Form 8-K
There were no Forms 8-K filed in the quarter ended December 31, 1998.
(c) Exhibits
3. Articles of Incorporation and by-laws of One American Corp. are incorporated by reference to the Company's Registration Statement on Form S-14 filed October 29, 1982, with the Securities and Exchange Commission.
22. Subsidiaries of the Registrant First American Bank and Trust, incorporated under the laws of the State of Louisiana
23. Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders' of One American Corp.
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.
ONE AMERICAN CORP.
/s/ Frank J. Bourgeois Frank J. Bourgeois President
Dated March 11, 1999
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on March 11, 1999:
/s/ Frank J. Bourgeois, President (principal executive, financial and accounting officer) and Director Frank J. Bourgeois
/s/ Craig G. Brazan, Director Craig G. Brazan
/s/ E. V. Cazenave, Jr., Director E. V. Cazenave, Jr.
/s/ Michael J. Cazenave, Director Michael J. Cazenave
/s/ A. Earle Cefalu, Director A. Earle Cefalu
/s/ Dean T. Falgoust, Director Dean T. Falgoust
/s/ Preston L. Falgoust, Director Preston L. Falgoust
/s/ Marcel T. Graugnard, Jr., Director Marcel T. Graugnard, Jr.
/s/ Honora F. Gravois, Director Honora F. Gravois
/s/ Ozane J. Gravois, III, Director Ozane J. Gravois, III
/s/ Gloria A. Kliebert, Secretary / Treasurer and Director Gloria A. Kliebert
/s/ Anthony J. Nobile, Director Anthony J. Nobile
/s/ Carl J. Poche, M.D., Director Carl J. Poche, M.D.
/s/ Clarence J. Savoie, II, Director Clarence J. Savoie, II
/s/ David J. Vial, M.D., Director David J. Vial, M.D.
/s/ Craig A. Vitrano, M.D., Director Craig A. Vitrano, M.D.
/s/ Albert J. Waguespack, Director Albert J. Waguespack
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) Financial Statements
1. The financial statements of One American Corp. in the Company's 1998 Form 10-K are incorporated by reference in Item 8.
2. Other financial statement schedules are either omitted because they are inapplicable or included in the financial statements or related notes.
(b) Reports on Form 8-K
There were no Forms 8-K filed in the quarter ended December 31, 1998.
(c) Exhibits
3. Articles of Incorporation and by-laws of One American Corp. are incorporated by reference to the Company's Registration Statement on Form S-14 filed October 29, 1982, with the Securities and Exchange Commission.
22. Subsidiaries of the Registrant First American Bank and Trust, incorporated under the laws of the State of Louisiana
23. Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders' of One American Corp.
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.
ONE AMERICAN CORP.
/s/ Frank J. Bourgeois Frank J. Bourgeois President
Dated March 11, 1999
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities indicated on March 11, 1999:
/s/ Frank J. Bourgeois, President (principal executive, financial and accounting officer) and Director Frank J. Bourgeois
/s/ Craig G. Brazan, Director Craig G. Brazan
/s/ E. V. Cazenave, Jr., Director E. V. Cazenave, Jr.
/s/ Michael J. Cazenave, Director Michael J. Cazenave
/s/ A. Earle Cefalu, Director A. Earle Cefalu
/s/ Dean T. Falgoust, Director Dean T. Falgoust
/s/ Preston L. Falgoust, Director Preston L. Falgoust
/s/ Marcel T. Graugnard, Jr., Director Marcel T. Graugnard, Jr.
/s/ Honora F. Gravois, Director Honora F. Gravois
/s/ Ozane J. Gravois, III, Director Ozane J. Gravois, III
/s/ Gloria A. Kliebert, Secretary / Treasurer and Director Gloria A. Kliebert
/s/ Anthony J. Nobile, Director Anthony J. Nobile
/s/ Carl J. Poche, M.D., Director Carl J. Poche, M.D.
/s/ Clarence J. Savoie, II, Director Clarence J. Savoie, II
/s/ David J. Vial, M.D., Director David J. Vial, M.D.
/s/ Craig A. Vitrano, M.D., Director Craig A. Vitrano, M.D.
/s/ Albert J. Waguespack, Director Albert J. Waguespack