UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

OR

 

 

For the transition period from _________________________ to_________________________

 

Commission file number 1-13712

 

 

 

 

 

Registrant’s telephone number, including area code (337) 365-0366

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 9, 2010.

 

 

 

 

TECHE HOLDING COMPANY

 

QUARTERLY REPORT ON FORM 10-Q

 

INDEX

 

 

 

 

 

TECHE HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

* derived from audited financial statements

 

TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

TECHE HOLDING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements as of December 31, 2009 and September 30, 2009 and for the three month periods ended December 31, 2009 and 2008, include the accounts of Teche Holding Company (the “Company”) and its subsidiary, Teche Federal Bank (the “Bank”). The Company’s business is conducted principally through the Bank. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

NOTE 2 - BASIS OF PRESENTATION

 

The accompanying consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2009. Certain items related to the financial statements dated September 30, 2009 and December 31, 2008 were reclassified to conform to the December 31, 2009 financial statements. The items reclassified were immaterial. The reclassification had no impact on net income or stockholders’ equity.

 

NOTE 3 - INCOME PER SHARE

 

Basic and diluted net income per share is computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised, resulting in the issuance of common stock that then shared in the net income of the Company.

 

Following is a summary of the information used in the computation of basic and diluted income per common share for the three months ended December 31, 2009 and 2008 (in thousands).

 

 

 

For the three month periods ending December 31, 2009 and 2008, net income for determining diluted earnings per share was equivalent to net income. Options to purchase shares that have been excluded from the determination of diluted earnings per share because they are antidilutive (the exercise price is higher than the current market price) amount to approximately 192,000 for the three months ended December 31, 2009 and 197,000 for the three months ended December 31, 2008.

 

NOTE 4 - COMPREHENSIVE INCOME

 

Comprehensive income includes net income and other comprehensive income which includes unrealized gains and losses on securities. Following is a summary of the Company’s comprehensive income for the three months ended December 31, 2009 and 2008 (in thousands).

 

 

 

NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS

 

On June 29, 2009, the FASB issued an accounting pronouncement establishing the FASB Accounting Standards CodificationTM (the “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities. This pronouncement was effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards were superceded. The Company adopted this new accounting pronouncement for the year ended September 30, 2009, as required, and adoption did not have a material impact on the Company’s financial statements taken as a whole.

ASC (805) – Business Combinations, changes the way that acquiring entities will account for business combinations. Some of the more significant changes are that the equity securities issued as consideration will be valued at the date that the acquirer takes control of assets and assumes liabilities of the acquired company (typically would be the date of closing), and that direct costs of the acquisition will be expensed as incurred rather than capitalized. This statement was effective for the Company beginning October 1, 2009. Adoption of this standard did not have an impact on the consolidated financial statements but will impact the accounting for future business combinations.

ASC (810) – Non-controlling Interests in Consolidated Financial Statements, which improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. Moreover, this guidance eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. This statement is effective for fiscal years, and interim periods within those fiscal

 

years, beginning on or after December 15, 2008. Earlier adoption is prohibited. This statement shall be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. Adoption of this standard had no impact on the consolidated financial statements.

ASC (860) Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. This guidance also eliminates the concept of a qualifying special-purpose entity, and changes the requirements for derecognizing financial assets and requires additional disclosures.

ASC (810) Consolidation of Variable Interest Entities, changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Both ASC (860) and ASC (810) will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions shall be applied to transfers that occur on or after the effective date. Adoption of these standards had no impact on the consolidated financial statements.

NOTE 6 – FAIR VALUE MEASUREMENTS

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as securities held-to-maturity, loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting, other than temporary impairment accounting or impairments of individual assets.

A three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - Observable inputs such as quoted prices in active markets;

 

Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Following is a description of valuation methodologies used for assets recorded at fair value.

Investment Securities

Securities available for sale are valued at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S.

 

Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets. Securities held to maturity are valued using discounted cash flow models that use assumptions about prepayment speeds, coupon default rates, discount rates and timing and other assumptions that may affect the amounts of cash flows.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC (310), “Accounting by Creditors for Impairment of a Loan”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2009, substantially all of the impaired loans were evaluated based on the fair value of the collateral less estimated costs to sell. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

 

 

 

 

 

 

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

 

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

 

Cash - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

 

Investment Securities – See discussion in the beginning of Note 6 on the evaluation of fair value of investment securities. Investment securities’ fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

Loans - See discussion in the beginning of Note 6 on the evaluation of fair value of impaired loans. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities.

 

Federal Home Loan Bank Stock - Federal Home Loan Bank (FHLB) stock is recorded at cost and is periodically reviewed for impairment. No ready market exists for the FHLB stock. It has no quoted market value and is carried at cost. Cost approximates fair market value based upon the redemption requirements of the FHLB, and this investment is not considered impaired at December 31, 2009. FHLB of Dallas is still redeeming stock.

 

Bank owned life insurance- The carrying amounts of bank owned life insurance contracts approximate fair value.

 

Accrued Interest - The carrying amounts of accrued interest receivable and payable approximate fair value.

 

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-maturities certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Advances from Federal Home Loan Bank - The fair value of advances is estimated using rates currently available for advances of similar remaining maturities.

 

Commitments - The fair value of commitments to extend credit was not significant.

 

The estimated fair values of the Company’s financial instruments are as follows at December 31, 2009 and September 30, 2009:

 

 

NOTE 7 – SECURITIES

 

The amortized cost and estimated fair values of securities available-for-sale are as follows:

 

 

 

 

 

 

 

 

The amortized cost and estimated fair values of securities held-to-maturity are as follows:

 

 

 

 

 

 

 

Details concerning securities with unrealized losses as of December 31, 2009 are as follows:

 

 

 

 

Details concerning securities with unrealized losses as of December 31, 2009 are as follows:

 

 

 

 

Details concerning securities with unrealized losses as of September 30, 2009 are as follows:

 

 

 

 

 

Details concerning securities with unrealized losses as of September 30, 2009 are as follows:

 

 

 

The Bank had a total of 42 securities classified as held-to-maturity in an unrealized loss position; with total gross unrealized losses of $442,000 as of December 31, 2009. Gross unrealized losses of $399,000 in the held-to-maturity category are private label CMO securities.

 

Management of the Company has asserted that they have no intent to sell impaired securities and it is more likely than not that impaired securities will not be sold. These unrealized losses generally result from changes in market interest rates and as a result of the disruption in the existing mortgage securities market due to illiquidity in certain sectors of that market. The unrealized losses associated with investment securities issued by government sponsored enterprises (GSE) are caused by changes in interest rates and are not considered credit related since the contractual cash flows of these investments are guaranteed by these agencies. GSE’s have access to additional capital and liquidity resources from the U.S. Treasury, which indicates that they will be able to honor their guarantees, related to the contractual cash flows of the MBS that they have issued. In the case of securities issued by the Government National Mortgage Association, the securities are fully guaranteed by the U.S. Government. The private label mortgage backed securities and CMOs are not backed in some manner by the full faith and credit of the U.S. Government.

 

For each private label security, duration of the impairment, credit support and cash flows were assessed to determine whether the security was temporarily or other than temporarily impaired. Management evaluates the actual mortgage delinquencies, foreclosures, and real estate owned for each security, as well as future expected losses in the underlying mortgage collateral to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further recognition of impairment. Based upon such evaluation, it was determined that some securities have been other-than-temporarily impaired and a corresponding charge to earnings for credit related impairment was recognized with the non-credit related impairment recognized in other comprehensive income. Private label securities contain realized credit losses of $104,000 for the quarter ended December 31, 2009. In

 

the performance of cash flow analysis on private label securities, management determined impaired securities had non-credit losses that were recognized in other comprehensive income in the amount of $262,000. All private label securities that have not been written down have been determined to have sufficient credit support and cash flows to recover the amortized cost of the related securities.

 

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at December 31, 2009, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at December 31, 2009, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

Equity securities incurred impairment losses of $33,000 for the three months ended December 31, 2009. Management will continue to monitor the equity securities and make an impairment adjustment if deemed necessary based upon the prospects for recovery and the duration and severity of the unrealized losses.

 

The following table presents a roll-forward of the amount of credit losses on the Bank’s investment securities recognized in earnings for the three months ended December 31, 2009 (in thousands).

 

 

 

The assumptions used to estimate credit related losses are based on estimates obtained from third parties and cash flow projections. The assumptions used to determine the cash flows were based on estimates of loss severity, credit default, and prepayment speeds developed from third party servicers’ reports.

 

Gains on equity securities of $105,000 were realized on sales of securities in the three months ended December 31, 2009. Proceeds of $355,000 were received from the sale of securities during the three months ended December 31, 2009.

 

NOTE 8 – SUBSEQUENT EVENTS

 

Subsequent events have been evaluated through February 12, 2010 the date of the issuance of these financial statements. Non-performing assets increased to $11.9 million at December 31, 2009 from $9.1 million at September 30, 2009. The increase was primarily due to an increase in past due and non-accrual commercial real estate and residential loans, offset somewhat by an $0.8 million decrease in the portfolio of foreclosed real estate. Non-performing assets are expected to increase during the quarter ending March 31, 2010 due to the default, subsequent to December 31, 2009, of a commercial credit relationship involving a residential land development with total outstanding loans of approximately $6.4 million as of December 31, 2009.

 

ITEM 2.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

GENERAL

 

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words “believe”, “anticipates”, “contemplates”, “expects”, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Those risks and uncertainties include financial market volatility, changes in interest rates, risk associated with the effect of opening new branches, the ability to control costs and expenses, potential changes in regulation which could result in increased expenses and general economic conditions. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. The Company is a “smaller reporting company” as defined by Item 10 of Regulation S-K and its financial statements were prepared in accordance with instructions applicable for such companies.

 

The Company’s consolidated results of operations are primarily dependent on the Bank’s net interest income, or the difference between the interest income earned on its loan, mortgage-backed securities and investment securities portfolios, and the interest expense paid on its savings deposits and other borrowings. Net interest income is affected not only by the difference between the yields earned on interest-earning assets and the costs incurred on interest-bearing liabilities, but also by the relative amounts of such interest-earning assets and interest-bearing liabilities.

 

Other components of net income include: provisions for losses on loans; non-interest income (primarily, service charges on deposit accounts and other fees, net rental income, and gains and losses on investment activities); non-interest expenses (primarily, compensation and employee benefits, federal insurance premiums, office occupancy expense, marketing expense and expenses associated with foreclosed real estate) and income taxes.

 

Earnings of the Company also are significantly affected by economic and competitive conditions, particularly changes in interest rates, government policies and regulations of regulatory authorities. References to the “Bank” herein, unless the context requires otherwise, refer to the Company on a consolidated basis.

 

The Federal Deposit Insurance Corporation Initiatives

 

On October 14, 2008, the Federal Deposit Insurance Corporation (“the FDIC”) announced the Temporary Liquidity Guarantee Program (“TLG Program”) to strengthen confidence and encourage liquidity in the banking system. The TLG Program consists of two components: a temporary guarantee of newly-issued senior unsecured debt of a bank or its holding company (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in non-interest-bearing transaction accounts at FDIC-insured institutions (the Transaction Account Guarantee Program). Institutions that did not opt out of the program by December 5, 2008 are assessed ten basis points for non-interest-bearing transaction account balances in excess of $250,000 and 75 basis points of the amount of debt issued. The rate on the transaction account guarantee program will increase to 15 to 25 basis points after December 31, 2009. Participating holding companies that have not issued FDIC-guaranteed debt prior to April 1, 2009 must apply to remain in the Debt Guarantee Program. Participating institutions will be subject to surcharges for debt issued after that date. The Company opted to participate in both components of the TLG Program.

 

Due to recent bank failures, the FDIC has determined that the reserve ratio was 1.01% as of June 30, 2008. In accordance with the Reform Act, the FDIC must establish and implement a plan within 90 days to restore the reserve ratio to 1.15% within five years (subject to extension due to extraordinary circumstances). For the quarter beginning January 1, 2009, the FDIC raised the base annual assessment rate for institutions in Risk Category I to between 12 and 14 basis points while the base annual assessment rates for institutions in Risk Categories II, III and IV were increased to 17, 35 and 50 basis points, respectively. For the quarter beginning April 1, 2009 the FDIC has set the base annual assessment rate for institutions in Risk Category I to between 12 and 16 basis points and the base annual assessment rates for institutions in Risk Categories II, III and IV at 22, 32 and 45 basis points, respectively. An institution’s assessment rate could be lowered by as much as five basis points based on the ratio of its long-term unsecured debt to deposits or, for smaller institutions based on the ratio of certain amounts of Tier 1 capital to deposits. The assessment rate would be adjusted for Risk Category I institutions that have a high level of brokered deposits and have experienced higher levels of asset growth (other than through acquisitions) and could be increased by as much as ten basis points for institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10% of assets. Reciprocal deposit arrangements like CDARS® would be treated as brokered deposits for Risk Category II, III and IV institutions but not for institutions in Risk Category I. An institution’s base assessment rate would also be increased if an institution’s ratio of secured liabilities (including FHLB advances and repurchase agreements) to deposits exceeds 25%. The maximum adjustment for secured liabilities for institutions in Risk Categories I, II, III and IV would be 8, 11, 16 and 22.5 basis points, respectively, provided that the adjustment may not increase an institution’s base assessment rate by more than 50%. The FDIC has further imposed a special assessment equal to five basis points of assets less Tier 1 capital as of June 30, 2009 payable on September 30, 2009 and may impose additional special assessments.

 

On November 12, 2009 the FDIC adopted a final rule to require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. The prepaid assessment was collected on December 30, 2009, along with each institution’s regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. For purposes of calculating the prepaid assessment, each institution’s assessment rate will be its total base assessment rate in effect on September 30, 2009. On September 29, 2009, the FDIC increased annual assessment rates uniformly by 3 basis points beginning in 2011. As a result, an institution’s total base assessment rate for purposes of calculating the prepayment was increased by an annualized 3 basis points beginning in 2011. For purposes of calculating the amount that an institution was required to prepay on December 30, 2009, an institution’s third quarter 2009 assessment base was increased quarterly at a 5 percent annual growth rate through the end of 2012. The FDIC will begin to draw down an institution’s prepaid assessments on March 30, 2010, representing payment for the regular quarterly risk-based assessment for the fourth quarter of 2009. The total prepaid assessment for the Bank was $3.2 million and was paid on December 30, 2009.

 

The standard insurance amount of $250,000 per depositor is in effect through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

 

COMPARISON OF FINANCIAL CONDITION

 

The Company’s total assets at December 31, 2009 totaled $757.3 million, a decrease of $7.8 million or 1.0% as compared to $765.0 million at September 30, 2009. The decrease was primarily due to reductions in cash and securities used to fund a decrease in total deposits.

 

Securities available-for-sale totaled $18.9 million and securities held to maturity totaled $62.5 million at December 31, 2009, which, combined, represented a decrease of $14.8 million or 15.4% as compared to September 30, 2009. The decrease was primarily due to maturities of certificates held at other banks totaling $9.7 million along with normal principal repayments on the existing portfolio. Also, for the three months ended December 31, 2009 other than temporary impairments of $740,000 were incurred related to certain private label mortgage backed investment securities. The $3.6 million carrying value of the held-to-maturity private label mortgage related securities amounts to 0.50% of total assets. Approximately 40% are rated AAA, AA or A at December 31, 2009. The following table provides additional information on this part of our investment portfolio:

 

 

The private label mortgage related securities have net unrealized losses of approximately $137,000.

 

 

Loans receivable totaled $594.5 million at December 31, 2009, which represented an increase of $6.0 million or 1.02% compared to September 30, 2009. The increase was due primarily to growth in the commercial loan, consumer loan and the one-to-four mortgage loan portfolio.

 

Total deposits, after interest credited, at December 31, 2009 were $575.5 million, which represented a decrease of $10.0 million or 1.7 % as compared to September 30, 2009. The decrease was due primarily to a decrease in time deposits and money market accounts offset somewhat by growth in checking and savings accounts.

 

Advances increased $2.8 million or 2.8% as compared to the amount at September 30, 2009. The increase was primarily due to additional Federal Home Loan Bank of Dallas (“FHLB”) advances offset by principal payments on existing advances.

 

Stockholders’ equity was $72.3 million at December 31, 2009 and $71.5 million at September 30, 2009. The increase was due primarily to net income less dividend payments of $733,000.

 

COMPARISON OF EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

 

Net Income. The Company had net income of $1.7 million or $0.82 per diluted share for the three months ended December 31, 2009 as compared to net income of $1.8 million or $0.83 per diluted share for the three months ended December 31, 2008. The decrease in income is due primarily to an increase in loan loss provision in the amount of $1.0 million.

 

Total Interest Income. Total interest income decreased $714,000 or 6.4% for the three months ended December 31, 2009. The average balance of loans increased in the 2009 period as compared to the 2008 period. However, the higher average balance for the 2009 period was offset by a decrease in the average yield on loans to 6.50% for the three months ended December 31, 2009, from 6.81% for the same period in 2008.

 

Total Interest Expense. Total interest expense decreased $1.3 million or 29.9% for the three month period ended December 31, 2009. The decrease was due mainly to average cost of deposits decreasing to 1.51% for the three months ended December 31, 2009 compared to 2.41% for the same period in 2008 along with a reduction in average deposit balances.

 

Net Interest Income. Net interest income increased $597,000 or 8.7% for the three month period ended December 31, 2009, as compared to the same period ended December 31, 2008. The increase in net interest income was primarily due to a decrease in rates paid on interest-bearing deposits.

 

Provision for Loan Losses. Management recorded a $1.2 million provision for loan loss this quarter primarily due to an increase in past due residential real estate loans and to two credit relationships involving commercial real estate loans totaling approximately $7.5 million. One of the commercial relationships with loan balances of $6.4 million included a residential land development loan of $5.6 million located in Baton Rouge which was determined to be impaired at December 31, 2009. In January 2010 the loans became non-performing after the borrower declared bankruptcy.

 

Management periodically estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb probable losses in the existing portfolio. Based on these estimates, an amount is charged or credited to the provision for loan losses and credited or charged to the allowance for loan

 

losses in order to adjust the allowance to a level determined to be adequate to absorb anticipated future losses. These estimates are made at least every quarter, and there have been no significant changes in the Company’s estimation methods during the current period.

 

Management’s judgment as to the level of the allowance for loan losses involves the consideration of current economic conditions and their potential effects on specific borrowers, an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio and the present level of the allowance, results of examination of the loan portfolio by regulatory agencies and management’s internal review of the loan portfolio. In determining the collectibility of certain loans, management also considers the fair value of any underlying collateral. In addition, management considers changes in loan concentrations, quality and terms that occurred during the period in determining the appropriate amount of the allowance for loan losses. Because certain types of loans have higher credit risk, greater concentrations of such loans may result in an increase to the allowance. For this reason, management segregates the loan portfolio by type of loan and number of days of past due loans. Management also considers qualitative factors in determining the amount of the allowance such as the level of and trends in non-performing loans during the period, the Bank’s historical loss experience and historical charge-off percentages for state and national savings associations for similar types of loans. Non-performing loans as a percent of total loans were 1.81% at December 31, 2009, compared to 1.21% at September 30, 2009 and 1.08% at December 31, 2008. Charge-offs for the quarter amounted to 0.04% of average loans at December 31, 2009, 0.22% at September 30, 2009 and 0.01% at December 31, 2008.

 

Non-Performing Assets. Non-performing assets increased to $11.9 million at December 31, 2009 from $9.1 million at September 30, 2009. The increase was primarily due to an increase in past due and non-accrual commercial real estate and residential loans, offset somewhat by an $0.8 million decrease in the portfolio of foreclosed real estate. Non-performing assets are expected to increase during the quarter ending March 31, 2010 due to the default, subsequent to December 31, 2009, of a commercial credit relationship involving a residential land development with total outstanding loans of approximately $6.4 million as of December 31, 2009.

 

Non-Interest Income. Total non-interest income increased $462,000 for the three month period ended December 31, 2009 as compared to the same period in 2008. The increase was attributable to an impairment write down on securities in the amount of $436,000 for the quarter ended December 31, 2008, compared to an impairment write down on securities in the amount of $136,000 for the quarter ended December 31, 2009.

 

Non-Interest Expense. Total non-interest expense increased $46,000 during the three month period ended December 31, 2009, as compared to the same period in 2008 due primarily to increased FDIC premiums that was offset by reductions in marketing and professional expenses.

 

Income Tax Expense. Income tax expense decreased $3,000 for the quarter ended December 31, 2009 as compared to the same period in 2008. The Company’s effective tax rate remained relatively the same at 32% for the quarters ending December 31, 2009 and December 31, 2008.

 

 

 

 

 

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Under current Office of Thrift Supervision regulations, the Bank maintains certain levels of capital. At December 31, 2009 the Bank was in compliance with its three regulatory capital requirements as follows:

 

(000’s)

 

 

For the Bank to be well capitalized under current risk-based capital standards, all banks are required to have Tier I capital of at least 6% and total risk-based capital of 10%. Based on these standards, Teche Federal Bank is categorized as well capitalized at December 31, 2009. Management believes that under current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future. Events beyond the control of the Bank, such as increased interest rates or a downturn in the economy in areas in which the Bank operates could adversely affect future earnings and as a result, the ability of the Bank to meet its future minimum capital requirements.

 

The Bank’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost effective manner. The Bank’s primary source of funds are deposits, scheduled amortization and prepayments on loan and mortgage-backed securities, and advances from the FHLB. As of December 31, 2009, FHLB borrowed funds totaled $103.5 million. Advances are collateralized by a blanket-floating lien on the Company’s residential real estate first mortgage loans. Additional borrowing capacity is available from FHLB which totals $153.1 million, based on current collateral levels. The Bank, if the need arises, may also access a line of credit provided by a large commercial bank to supplement its supply of lendable funds and to meet deposit withdrawal requirements. Loan repayments, maturing investments and mortgage-backed securities prepayments are greatly influenced by general interest rates and economic conditions.

 

The Bank is required under federal regulations to maintain sufficient liquidity for its safe and sound operation. The Bank believes that it maintains sufficient liquidity to operate the Bank in a safe and sound manner.

 

ADDITIONAL KEY RATIOS

 

 

 

 

At December 31, 2009 the Company was in a liability sensitive position. [Confirm and/or update] Generally, an asset sensitive position will result in enhanced earnings in a rising interest rate environment and declining earnings in a falling interest rate environment because larger volumes of assets than liabilities will reprice. Conversely, a liability sensitive position will be detrimental to earnings in a rising interest rate environment and will enhance earnings in a falling interest rate environment.

 

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item.

 

 

 

 

PART II - OTHER INFORMATION

 

 

Neither the Company nor the Bank was engaged in any legal proceeding of a material nature at December 31, 2009. From time to time, the Company is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in loans.

 

 

ITEM 1A. RISK FACTORS

 

Not applicable as the Company is a smaller reporting company.

 

 

The following table provides information on repurchases by the Company of its common stock in each month of the quarter ended December 31, 2009:

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

The repurchase plan announced February 18, 2009, authorizing the repurchase of up to 63,000 shares has no expiration date for the authorized repurchase under this plan.

 

 

Not applicable.

 

 

On January 27, 2010, the Company held its annual meeting of stockholder and the following items were presented:

 

Election of Directors: Donelson T. Caffery was elected as a director for a three year term ending in 2013 and until his successor is elected and qualified with 1,052,803 votes in favor and 66,218 votes withheld. Ernest Freyou was elected as a director for a three year term ending in 2013 and until his successor is elected and qualified with 891,484 votes in favor and 227,537 votes withheld. Robert Judice, Jr. was elected as a director for a three year term ending in 2013 and until his successor is elected and qualified with 1,052,803 votes in favor and 66,218 votes withheld. Patrick Little was elected as a director for a three year term ending in 2013 and until his successor is elected and qualified with 924,310 votes in favor and 194,711 votes withheld.

 

Ratification of the appointment of Dixon Hughes PLLC as the Company’s auditors for the 2010 fiscal year: Dixon Hughes PLLC was ratified as the Company’s auditors with 1,694,737 votes for, 1,296 votes against, and 28,672 abstentions.

 

 

 

Not applicable.