10-Q 1 abi.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to____________ Commission file number 1-14364 Acadiana Bancshares, Inc. ------------------------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Louisiana 72-1317124 ---------------------------------------- ---------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 200 West Congress Street Lafayette, Louisiana 70501 ---------------------------------------- ---------------------------- (Address of Principal Executive Offices) (Zip Code) (337) 232-4631 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 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 period Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of August 8, 2001, 1,183,721 shares of the Registrant's common stock were issued and outstanding. Of that total, 204,607 shares were held by the Registrant's Employee Stock Ownership Plan, of which 106,720 were not committed to be released. 1 ACADIANA BANCSHARES, INC. TABLE OF CONTENTS Page ---- Part I. Financial Information ------- --------------------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets (As of June 30, 2001 and December 31, 2000) 3 Consolidated Income Statements (For the three month and six months ended June 30, 2001 and 2000) 4 Consolidated Statements of Stockholders' Equity (For the six months ended June30, 2001 and 2000) 5 Consolidated Statements of Cash Flows (For the six months ended June 30, 2001 and 2000) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3 Quantitative and Qualitative Disclosures About Market Risk 23 Part II. Other Information Item 1. Legal Proceedings 25 Item 2. Changes in Securities 25 Item 3. Defaults Upon Senior Securities 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 5. Other Information 25 Item 6. Exhibits and Reports on Form 8-K 25 Signatures 27 2 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED June 30, 2001 and December 31, 2000 (In Thousands, except share data) Assets June 30, December 31, 2001 2000 -------- ------------ Cash and Cash Equivalents: Cash and Amounts Due from Banks $ 3,473 $ 2,950 Interest-Bearing Demand Deposits 11,103 5,517 -------- -------- Total Cash and Cash Equivalents 14,576 8,467 Trading Securities, at Fair Value 67 162 Securities Available for Sale, at Fair Value 19,512 24,230 Securities Held to Maturity (Fair Value of $11,732 and $11,814, respectively) 11,508 11,682 Federal Home Loan Bank Stock, at Cost 4,250 4,147 Loans Held for Sale 2,550 1,852 Loans Receivable, Net of Allowance for Loan Losses of $2,541 and $2,714, respectively 251,595 264,805 Investment in Limited Liability Company 822 792 Premises and Equipment, Net 6,224 5,019 Accrued Interest Receivable 1,566 1,708 Other Assets 1,598 1,603 -------- -------- Total Assets $314,268 $324,467 ======== ======== Liabilities and Stockholders' Equity Deposits: Non-interest Bearing $ 14,610 $ 10,929 Interest Bearing 202,805 213,602 -------- -------- Total Deposits 217,415 224,531 Securities Sold Under Agreements to Repurchase 1,929 128 Accrued Interest Payable 611 593 Long-Term Debt 67,744 69,628 Accrued and Other Liabilities 1,143 805 ------- ------- Total Liabilities 288,842 295,685 ------- ------- Commitments and Contingencies Stockholders' Equity: Preferred Stock of $.01 Par Value; 5,000,000 shares authorized, -0- shares issued or outstanding - - Common Stock of $.01 Par Value; 20,000,000 shares authorized, 2,731,250 shares issued 27 27 Additional Paid-in Capital 32,504 32,410 Retained Earnings 24,644 23,863 Unearned Common Stock Held by ESOP Trust (1,308) (1,440) Unearned Common Stock Held by RRP Trust (598) (749) Accumulated Other Comprehensive Income (Loss) 1 (51) Treasury Stock, at Cost; 1,547,529 and 1,328,929 Shares, at June 30, 2001 and December 31, 2000, respectively (29,844) (25,278) ------- ------- Total Stockholders' Equity 25,426 28,782 ------- ------- Total Liabilities and Stockholders' Equity $314,268 $324,467 ======= ======= The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

3 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS UNAUDITED Three and Six Months Ended June 30, 2001 and 2000 (In Thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, ------------------------------------------------------ 2001 2000 2001 2000 -------- ---------- ------ ------ Interest and Dividend Income: Loans, including fees $ 5,124 $ 5,130 $10,386 $ 10,031 Debt Securities 510 654 1,117 1,311 Dividends 46 122 103 178 Trading Account Securities 1 - 3 5 Interest Bearing Deposits 149 109 283 202 -------- ---------- ------ -------- Total Interest and Dividend Income 5,830 6,015 11,892 11,727 -------- ---------- ------ -------- Interest Expense: Deposits 2,564 2,613 5,325 5,146 Securities Sold Under Agreements to Repurchase 18 - 25 - Borrowings 974 1,079 1,955 1,971 -------- ---------- ------ -------- Total Interest Expense 3,556 3,692 7,305 7,117 -------- ---------- ------ -------- Net Interest Income 2,274 2,323 4,587 4,610 Provision (credit) for Loan Losses (45) - (176) - -------- ---------- ------ -------- Net Interest Income After Provision for Loan Losses 2,319 2,323 4,763 4,610 -------- ---------- ------ -------- Non-Interest Income: Customer Service Fees 220 213 436 434 Loan Servicing Fees 11 13 23 25 Gain on Sale of Loans, Net 185 - 462 - Trading Account Gains (Losses) , Net 22 18 27 (6) Gain (Loss) from Investment in Limited Liability Company 3 (12) 30 (13) Other 23 22 50 48 -------- ---------- ------ -------- Total Non-Interest Income 464 254 1,028 488 -------- ---------- ------ -------- Non-Interest Expense: Salaries and Employee Benefits 1,108 946 2,222 1,920 Occupancy 103 61 226 150 Depreciation 89 82 158 164 Data Processing 85 75 180 146 Foreclosed Assets, net 9 4 19 (76) Deposit Insurance Premium 10 11 21 22 Advertising 79 53 119 125 Bank Shares and Franchise Tax Expense 81 82 162 172 Impairment Loss on Long-Lived Assets 1 323 1 323 Other 499 419 919 795 -------- ---------- ------ -------- Total Non-Interest Expense 2,064 2,056 4,027 3,741 -------- ---------- ------ -------- Income Before Income Taxes 719 521 1,764 1,357 Income Tax Expense 265 188 636 483 -------- ---------- ------ -------- Net Income $ 454 $ 333 $ 1,128 $ 874 ======== ========== ====== ======== Earnings Per Share - basic $ 0.42 $ 0.27 $ 0.98 $ 0.70 ======== ========== ====== ======== Earnings Per Share - diluted $ 0.40 $ 0.27 $ 0.94 $ 0.70 ======== ========== ====== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

4 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY UNAUDITED Six Months Ended June 30, 2001, and 2000 (In Thousands, except share data) Unearned Unearned Common Common Accumulated Total Additional Stock Held Stock Other Stock- Common Paid-In Retained By ESOP Held By Comprehensive Treasury holders' Stock Capital Earnings Trust RRP Trust Income Stock Equity ------ --------- -------- -------- --------- ----------- --------- ------ Balance, January 1, 2000 $ 27 $ 32,322 $ 22,404 $ (1,703) $(1,048) $ (364) $(23,888) $27,750 Comprehensive Income: Net Income 874 874 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 71 71 ------ Total Comprehensive Income 945 Common Stock Released by ESOP Trust 39 132 171 Common Stock Earned by Participants of Recognition and Retention Plan Trust 6 149 155 Purchase of Treasury Stock (60,000 shares) (1,176) (1,176) Cash Dividends Declared ($.30 per share) (385) (385) --- ------ ------ ----- --- --- ------ ------ Balance, June 30, 2000 $ 27 $ 32,367 $ 22,893 $ (1,571) $ (899) $ (293) $(25,064) $27,460 === ====== ====== ===== === === ====== ====== Balance, January 1, 2001 $ 27 $ 32,410 $ 23,863 $ (1,440) $ (749) $ (51) $(25,278) $28,782 Comprehensive Income: Net Income 1,128 1,128 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 52 52 ------ Total Comprehensive Income 1,180 Common Stock Released by ESOP Trust 84 132 216 Common Stock Earned by Participants of Recognition and Retention Plan Trust 10 151 161 Purchase of Treasury Stock (218,600 shares) (4,566) (4,566) Cash Dividends Declared ($.30 per share) (347) (347) --- ------ ------ ----- --- --- ------ ------ Balance, June 30, 2001 $ 27 $ 32,504 $ 24,644 $ (1,308) $ (598) $ 1 $(29,844) $25,426 === ====== ====== ===== === === ====== ====== The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

5 ACADIANA BANCSHARES, INC CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED For the Six Months Ended June 30, 2001 and 2000 (In Thousands) 2001 2000 ------- ------- Cash Flows from Operating Activities: Net Income $ 1,128 $ 874 Adjustments to Reconcile Net Income to Net Cash ----- --- Provided by Operating Activities: Depreciation and Amortization 158 175 Provision (Credit) for Loan Losses (176) - Noncash Compensation Expenses 365 315 Other (gains) losses, net 25 224 (Gain) Loss from Investment in Limited Liability Company (30) 13 Accretion of Discounts, Net of Premium Amortization on Securities (1) (2) Amortization of Deferred Revenues and Unearned Income on Loans 41 84 FHLB Stock Dividend Received (103) (178) Net Changes in : Securities Classified as Trading 95 (56) Loans Held for Sale (698) - Accrued Interest Receivable 142 (83) Other Assets (5) (113) Other Liabilities 397 560 ----- ----- Total Adjustments 210 939 ----- ----- Net Cash Provided by Operating Activities 1,338 1,813 ----- ----- Cash Flows from Investing Activities: Activity in Available for Sale Securities: Proceeds from Calls, Maturities and Prepayments 6,814 1,236 Purchases (2,013) Activity in Held to Maturity Securities: Proceeds from Calls, Maturities and Prepayments 171 104 Purchase of FHLB Stock - (147) Net Repayments (Advances) on Loans 13,305 (16,692) Purchase of Premises and Equipment (1,388) (2,879) Proceeds from Sale of Foreclosed Assets 24 102 Capital Costs Incurred on Foreclosed Assets (1) (2) ----- ----- Net Cash Provided by (Used in) Investing Activities 16,912 (18,278) ----- ----- Cash Flows from Financing Activities: Net Change in Deposits (7,116) 5,623 Net Change in Securities Sold Under Agreements to Repurchase 1,801 - Net Change in Short-term Borrowings - 510 Proceeds from Long-term Debt 662 11,391 Repayment of Long-term Debt (2,546) (2) Dividends Paid to Shareholders (376) (367) Purchase of Treasury Stock (4,566) (1,176) ----- ----- Net Cash Provided by (Used in) Financing Activities (12,141) 15,979 ----- ----- Net Increase (Decrease) in Cash and Cash Equivalents 6,109 (486) Cash and Cash Equivalents, Beginning of Period 8,467 11,922 ----- ----- Cash and Cash Equivalents, End of Period $ 14,576 $ 11,436 ====== ====== Supplemental Schedule of Noncash Activities: Acquisition of Foreclosed Assets in Settlement of Loans $ 50 $ 13 Supplemental Disclosures: Cash Paid For: Interest on Deposits and Borrowings $ 7,287 $ 7,095 Income Taxes $ 430 $ 300 The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

6 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Basis of Financial Statement Presentation The accompanying consolidated financial statements are unaudited and were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all normal, recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of financial statements, have been included. These interim unaudited financial statements should be read in conjunction with the audited financial statements and the notes thereto for Acadiana Bancshares, Inc. (the "Company") previously filed with the Securities and Exchange Commission in the Company's Annual Report and Form 10-K for the year ended December 31, 2000. You may also review financial information posted on the website of LBA Savings Bank, (the "Bank"), at www.lbabank.com. The Company also owns Acadiana Holdings, L.L.C., ("Holdings") which was formed in May 2000 for the purposes of acquiring a new facility for the Company headquarters and the Bank's main office. Business The Company's principal business is conducted through its wholly owned subsidiary, LBA Savings Bank, (the "Bank") which conducts business from its main office and three branch offices, all located in Lafayette, Louisiana, one branch office in New Iberia, Louisiana, and one loan production office in Eunice, Louisiana. Through its continuing operation of the Bank, the Company's principal business has been, and continues to be, attracting deposits from its customers and investing such funds in residential real estate loans and other loans. The Company, as a bank holding company, is subject to regulation and supervision by the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "FRB"). The Bank is subject to examination and comprehensive regulation by the Office of Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's chartering authority and primary regulator. The Bank is also subject to regulation by the Federal Deposit Insurance Corporation ("FDIC"), as the administrator of the SAIF, and to certain reserve requirements established by the FRB. The Bank is a member of the Federal Home Loan Bank ("FHLB") of Dallas, which is one of twelve regional banks comprising the FHLB System. The Bank is an FDIC-insured, Louisiana chartered, stock savings bank. Principles of Consolidation The consolidated financial statements include the accounts of the Company, the Bank, and Holdings. All significant intercompany balances and transactions have been eliminated in consolidation. 7 (2) Loans Receivable Loans receivable at June 30, 2001 and December 31, 2000 are summarized as follows (in thousands): June 30, December 31, 2001 2000 ----------------------------------------------------------- Mortgage Loans: Single-Family Residential $166,122 $ 188,133 Construction 5,293 3,912 Multi-Family Residential 317 346 Commercial Real Estate 34,338 28,851 Equity Lines of Credit 4,659 4,227 ------- ------- Total Mortgage Loans 210,729 225,469 Commerical Business Loans 22,311 19,702 Consumer Loans 24,867 24,398 ------- ------- Total Loans 257,907 269,569 Less: Allowance for Loan Losses (2,541) (2,714) Net Deferred Loan Fees (181) (197) Unadvanced Loan Funds (3,590) (1,853) ------- ------- Loans, net $251,595 $ 264,805 ======= ======= The following is an analysis of the allowance for possible loan losses for the six months ended June 30, 2001 and for the year ended December 31, 2000 (in thousands): June 30, December 31, 2001 2000 ----------------------------------------------------------- Balance, Beginning $ 2,714 $ 2,747 Provision Charged (Credited) to Income (176) (83) Loans Charged Off (94) (170) Loans Recovered 97 220 ----- ----- Balance, Ending $ 2,541 $ 2,714 ===== ===== (3) Earnings Per Share Weighted average shares of common stock outstanding for basic EPS excludes the weighted average shares unreleased by the Employee Stock Ownership Plan ("ESOP") (111,746 and 133,638 shares for the quarters ending June 30, 2001 and June 30, 2000, respectively) and the weighted average unvested shares in the Recognition and Retention Plan ("RRP") (45,205 and 63,149 for the quarters ending June 30, 2001 and June 30, 2000, respectively). The effect on diluted EPS of stock option shares outstanding and unvested 8 RRP shares are calculated using the treasury stock method. The following is a reconcilement of the numerator and denominator for basic and diluted Earnings Per Share: Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 2001 2000 2001 2000 ------ ------ ------ ------ Numerator: Income Applicable to Common Shares $ 454,000 $ 333,000 $1,128,000 $ 874,000 ======= ======= ========= ======= Denominator: Weighted Average Common Shares Outstanding 1,085,360 1,219,107 1,153,583 1,244,410 Effect of Dilutive Securities: Stock Options Outstanding 53,358 4,045 42,811 2,023 RRP Grants 10,017 3,140 7,437 4,817 --------- --------- --------- --------- Weighted Average Common Shares Outstanding Assuming Dilution 1,148,735 1,226,292 1,203,831 1,251,250 ========= ========= ========= ========= Earnings per Share $ 0.42 $ 0.27 $ 0.98 $ 0.70 ==== ==== ==== ==== Earnings per Share - Assuming Dilution $ 0.40 $ 0.27 $ 0.94 $ 0.70 ==== ==== ==== ====

(4) Recent Accounting Pronouncements In June of 2001 the Financial Accounting Standards Board ("FASB") issued Statement No. 141, Business Combinations. It supercedes APB Opinion No. 16 of the same name. FAS 141 requires that all business combinations be accounted for by a single method - the purchase method. Use of the pooling of interests method of accounting is no longer permissible. FAS 141 also establishes criteria for the identification of acquired intangibles separate from goodwill, and adds additional disclosure requirements. The provisions of this statement apply to all business transactions initiated after June 30, 2001. This statement also applied to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. In June of 2001 the FASB also issued Statement No. 142, Goodwill and Other Intangible Assets. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not acquired in a business combination) should be accounted for in financial statements upon their acquisition. The Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. Specific guidance for determining impairment is provided. Goodwill will be tested for impairment at least annually using a two-step process that begins with an estimation of the fair value of a reporting unit.. Additional disclosures are also required under the Statement. The provisions of FAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001. The statement is required to be applied at the beginning of an entity's fiscal year, and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. The Company will be required to apply FAS 142 effective January 1, 2002. The Company currently has no goodwill or other intangible 9 assets, and does not expect application of this statement to have a significant effect on the Company's financial position or results of operations. PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT In addition to historical information, this Form 10-Q includes certain "forward-looking statements," as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, based on current management expectations. The Company's actual results could differ materially from those management expectations. Such forward-looking statements include statements regarding our intentions, beliefs or current expectations as well as the assumptions on which such statements are based. Stockholders and potential stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company's loan and investment portfolios, changes in accounting principles, policies or guidelines, and the Company's ability to lease additional space to third parties at its headquarters, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and fees. The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CHANGES IN FINANCIAL CONDITION At June 30, 2001, the consolidated assets of the Company totaled $314.3 million, a decrease of $10.2 million, or 3.1%, from December 31, 2000. During the three and six months ended June 30, 2001, the Company sold $13.4 million and $25.6 million, respectfully, of residential mortgage loans; this strategy is intended to reduce the Company's historical dependence on residential mortgage loan assets while increasing fee income. Loans receivable, net, decreased $13.2 million, or 5.0%. The Company increased its cash position to meet anticipated higher demand for deposit withdrawals related to certain maturing certificates of deposits with rates higher than currently offered rates. Cash and cash equivalents increased $6.1 million, from $8.5 million at December 31, 2000, to $14.6 million at June 30, 2001. Total deposits decreased $7.1 million, or 3.2%, from $224.5 million at December 31, 2000 to $217.4 million at June 30, 2001. Stockholders' equity decreased $3.4 million, or 11.7%, from $28.8 million at December 31, 2000 to $25.4 million at June 30, 2001. The decrease was due primarily to the Company's aggregate repurchases of $4.6 million of shares of its own common stock together with $347,000 of declared dividends, all of which was partially offset by net income of $1.1 million, an increase in accumulated other comprehensive income of $52,000, and from the release of common stock related to the Company's stock benefit plans of $377,000. 10 ASSETS Cash and cash equivalents increased $6.1 million, or 72.2%, to $14.6 million at June 30, 2001, compared with $8.5 million at December 31, 2000. Net cash provided by (used in) operating activities, investing activities, and financing activities amounted to $1.3 million, $16.9 million, and ($12.1 million), respectively, for the six months ended June 30, 2001. As of June 30, 2001, cash and cash equivalents funded 4.6% of total assets, compared with 2.6% at December 31, 2000. The Company owned $67,000 of trading securities as of June 30, 2001 compared with $162,000 at December 31, 2000. The Company has no intention to significantly increase its trading securities portfolio. Trading securities are carried at fair value. Securities available for sale decreased $4.7 million, or 19.5%, to $19.5 million at June 30, 2001, compared with $24.2 million at December 31, 2000. The primary reason for such decrease was principal repayments of $6.8 million of investment securities, which was partially offset by an increase in fair value of the remaining securities of $79,000, and by the purchase of new securities of $2.0 million. Securities available for sale include U.S. Treasury notes and bonds, federal agency bonds, mortgage- backed securities, and corporate obligations. Unrealized gains and losses on securities available for sale are excluded from earnings and reported, net of applicable income taxes, as a component of comprehensive income. As of June 30, 2001, investment securities available for sale amounted to 6.2% of total assets, compared to 7.5% of total assets at December 31, 2000. Securities held to maturity decreased $174,000, or 1.5%, from $11.7 million at December 31, 2000 to $11.5 million at June 30, 2001. Securities held to maturity consist of mortgage-backed securities. At June 30, 2001, securities held to maturity amounted to 3.7% of total assets. Federal Home Loan Bank stock represents an equity interest in the FHLB that does not have a readily determinable fair value (for purposes of Federal Accounting Standards Board Statement No. 115) because its ownership is restricted and there is no market for such stock. It can be sold only to the FHLB or to another member institution. FHLB stock is carried at cost. Both cash dividends and stock dividends are received on FHLB stock and are reported as income. At June 30, 2001, Federal Home Loan Bank stock amounted to $4.3 million, or 1.4% of total assets. Loans held for sale amounted to $2.6 million at June 30, 2001, compared to $1.9 million at December 31, 2000, which consist entirely of residential mortgage loans. Loans originated and intended for sale in the secondary market are carried at the lower of cost or market value determined on an aggregate basis. The Company sold $25.6 million of residential mortgage loans during the six months ended June 30, 2001. Loans receivable, net, decreased $13.2 million, or 5.0%, to $251.6 million at June 30, 2001, compared to $264.8 million at December 31, 2000. Single-family residential loans decreased $22.0 million, or 11.7%, from $188.1 million at December 31, 2000, to $166.1 million at June 30, 2001. Construction loans increased from $3.9 million at December 31, 2000 to $5.3 million at June 30, 2001. Commercial real estate loans increased $5.5 million, or 19.0%, from $28.9 million at December 31, 2000, to $34.3 million at June 30, 2001. Equity lines of credit increased $432,000, or 10.2%, from $4.2 million at December 31, 2000 to $4.7 11 million at June 30, 2001. Commercial business loans increased $2.6 million, or 13.2%, from $19.7 million at December 31, 2000, to $22.3 million at June 30, 2001. Consumer loans increased $469,000, or 1.9%, from $24.4 million at December 31, 2000, to $24.9 million at June 30, 2001. Total gross loans decreased $11.7 million, or 4.3%, from $269.6 million at December 31, 2000, to $257.9 million at June 30, 2001. Loans receivable, net, amounted to 80.1% of total assets at June 30, 2001, compared to 81.6% of total assets at December 31, 2000. LIABILITIES AND STOCKHOLDERS' EQUITY The Company's primary funding sources include deposits, borrowings from the FHLB and stockholders' equity. The discussion that follows focuses on the major changes in this mix during the six months ended June 30, 2001. The Company's deposits decreased by $7.1 million, or 3.2%, to $217.4 million at June 30, 2001, compared to $224.5 million at December 31, 2000. Interest bearing deposits decreased $10.8 million, or 5.1%, while non- interest bearing deposits increased $3.7 million, or 33.7%. Certificates of deposit, comprising the largest portion of interest-bearing deposits, amounted to $157.9 million at June 30, 2001, a decrease of $7.3 million, or 4.3%, from $165.2 million at December 31, 2000. Total deposits funded 69.2% of total assets at June 30, 2001 and at December 31, 2000. The Company's borrowings generally include both short-term borrowings (amounts maturing in one year or less from date of inception) and long-term debt (amounts maturing more than one year from date of inception). Short- term borrowings in the form of securities sold under agreements to repurchase increased $1.8 million, from $128,000 at December 31, 2000 to $1.9 million at June 30, 2001, all of which are overnight borrowings. The Company had no other short-term borrowings at June 30, 2001 or December 31, 2000. Long-term debt decreased $1.9 million, or 2.7%, from $69.6 million at December 31, 2000 to $67.7 million at June 30, 2001. Long-term debt funded 21.6% of assets at June 30, 2001, compared to 21.5% at December 31, 2000. Advances from the FHLB amounted to $65.4 million of long-term debt at June 30, 2001, a substantial portion of which is callable by the FHLB of Dallas. In the current interest rate environment, management does not believe it is likely that such advances will be called. Advances from the FHLB have been, and are expected to continue to be, an important source of funding for both existing assets and new asset growth. Stockholders' equity provides a source of permanent funding, allows for future growth, and provides the Company with a cushion to withstand unforeseen, adverse developments. At June 30, 2001, stockholders' equity totaled $25.4 million, a decrease of $3.4 million, or 11.7%, compared to $28.8 million at December 31, 2000. The decrease was primarily attributable to $4.6 million of aggregate repurchases of common stock for treasury, together with $347,000 of dividends declared on the Company's common stock, all of which was partially offset by net income for the six months ended June 30, 2001, of $1.1 million, an increase in the value of securities available for sale, net of deferred taxes, of $52,000, from the release of common stock related to the Company's employee stock ownership plan (the "ESOP") trust of $216,000, and from the release of common stock related to the Company's recognition plan (the "RRP") trust of $161,000. Stockholders' equity funded 8.1% of assets at June 30, 2001, compared to 8.9% at December 31, 2000. 12 Federal regulations impose minimum regulatory capital requirements on all financial institutions with deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"), which requirements directly affect the minimum capital levels at the Bank. The Board of Governors of the Federal Reserve System (the "FRB") also imposes minimum regulatory capital requirements, which directly affect the minimum capital levels at the Company. At June 30, 2001 the capital of the Bank and the capital of the Company exceeded all minimum regulatory requirements. RESULTS OF OPERATIONS The Company reported earnings per share of $0.42 (basic) and $0.40 (diluted) for the three months ended June 30, 2001, compared to earnings per share of $0.27 (basic) and $0.27 (diluted) for the three months ended June 30, 2000. Net income for the second quarter of both 2001 and 2000 was affected by non-recurring charges related to the Company's determination to relocate its headquarters. Such non-recurring charges amounted to $21,000, or approximately 2 cents per share, in the current quarter and were primarily related to costs incurred in the Company's move and opening of its new headquarters. For the quarter ended June 30, 2000, the Company recognized a non-cash charge of $323,000, or approximately 17 cents per share, as a result of its write-down of the carrying value of its previous headquarters office. Excluding such non-recurring charges, the Company's core earnings would have been relatively stable and would have amounted to $475,000, or 44 cents per share (42 cents per diluted share), for the quarter ended June 30, 2001 compared to $546,000, or 44 cents per share (basic and diluted) for the quarter ended June 30, 2000. Year to date earnings were similarly impacted. The Company earned $1.1 million, or 98 cents per share basic, and 94 cents per share diluted, for the six month period ended June 30, 2001, compared to $874,000, or 70 cents per share, basic and diluted, for the six month period ended June 30, 2000. Adjusting both periods to exclude the non-recurring charges described above, earnings for the current six month period ended June 2001 would have been $1.02 per share basic, and 98 cents per share diluted, and earnings for the year ago six month period ended June 30, 2000 would have been 87 cents per share, basic and diluted. See Note 3 to the financial statements. The Company reported net income of $454,000, and $333,000 for the three months ended June 30, 2001 and 2000, respectively. The Company reported net income of $1.1 million, and $874,000 for the six months ended June 30, 2001 and 2000, respectively. Included in non-interest expenses for the current year three and six-month periods were $31,000 and $79,000, respectively, of non-recurring expenses related to the Company's move and change of headquarters. Included in non-interest expenses for the prior year three and six-month periods were $323,000 of non-recurring expenses related to the Company's move and change of headquarters. Net Interest Income Net interest income is determined by the combined effects of interest rate spread (i.e., the difference between the yields earned on interest- earning assets and the rates paid on interest-bearing liabilities) and changes in the average amounts of interest-earning assets and interest- bearing liabilities. The Company's average interest rate spread was 2.49% and 2.51% during the three months ended June 30, 2001 and 2000, respectively. Both rates (the average yield on interest-earning assets and average cost of interest-bearing liabilities) and 13 volumes (the average balances of interest-earning assets and average balances of interest-bearing liabilities) influence net interest margin. The Company's interest rate margin (i.e., the difference between interest income and interest expense multiplied by average interest-earning assets) was 2.96%, and 3.03%, during the three months ended June 30, 2001 and 2000, respectively. The declining net interest margin in the second quarter of 2001 compared to 2000 was primarily the result of faster decreases in the yields earned on the Company's loans, investment securities, and other interest-earning assets, which were not completely offset by decreases in the average rates paid on the average balances of interest-bearing deposits and borrowings. Additionally, the increase in the average balance of interest-bearing liabilities of $2.9 million more than offset the increase in interest- earning assets of $1.3 million for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000. The Company's net interest income decreased $49,000, or 2.1%, remaining relatively stable at $2.3 million for the quarters ended June 30, 2001, and 2000. The Company's average interest rate spread was 2.47% and 2.53% during the six months ended June 30, 2001 and 2000, respectively. The Company's interest rate margin was 2.97%, and 3.06%, during the six months ended June 30, 2001 and 2000, respectively. The declining net interest margin in the six month period ended June 30, 2001 compared to 2000 was primarily the result of faster decreases in the yields earned on the Company's loans, investment securities, and other interest-earning assets, which were not completely offset by decreases in the average rates paid on the average balances of interest-bearing deposits and borrowings. Additionally, the increase in the average balance of interest-bearing liabilities of $8.9 million more than offset the increase in interest-earning assets of $8.0 million for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The Company's net interest income decreased $23,000, or 0.5%, remaining relatively stable at $4.6 million for the six month periods ended June 30, 2001, and 2000. The Company's largest group of interest-earning assets is residential mortgage loans, comprising 58.0% of total average interest-earning assets for the six months ended June 30, 2001. Market rates on residential mortgage loans are heavily influenced by competition and on the rates of interest on longer term U.S. Treasury Bonds, such as the 10-year and 30- year bonds. Significant changes in longer term U.S. Government Treasury Bond rates likely translate to similar changes in offering rates for residential mortgage loans. The Company's largest source of funds is certificates of deposit, which for the six months ended June 30, 2001, funded 58.7% of total average interest-bearing liabilities. Market rates on shorter term U.S. Government Notes and Bonds and offering rates by competition, heavily influence the Company's offering rates on certificates of deposit. Significant changes in shorter term U.S. Government Notes and Bonds may translate into somewhat similar changes in offering rates for certificates of deposit. If longer term U.S. Government Treasury Bond rates fall, and during the same time period, shorter term U.S. Government Treasury Notes and Bond rates rise, the Company's net interest margin would likely decrease. Interest and Dividend Income Interest and dividend income totaled $5.8 million for the three months ended June 30, 2001, compared to $6.0 million for the three months ended June 30, 2000, a decrease of $185,000, or 3.1%. This decrease was mainly due to a decrease of 28 basis-points (with 100 basis points being equal to 1%) in the yield earned on the Company's average interest-earning assets, which was partially offset by an increase in the average balances of interest-earning assets of $1.3 million, or 0.4%. 14 Interest earned on loans decreased slightly, by $6,000, or 0.1%, remaining stable at $5.1 million for the three-month periods ended June 30, 2001 and 2000. This decrease was due to a decrease in the Company's average balance of loans for the three months ended June 30, 2001, of $343,000, or 0.1%, compared to the three months ended June 30, 2000. The average balance of residential mortgage loans decreased $13.5 million, while the average balance of commercial loans increased $10.1 million, and the average balance consumer and other loans increased $3.1 million. The average yield earned on the loan portfolio was 7.96% for the three months ended June 30, 2001, matching the yield earned on the loan portfolio for the three months ended June 30, 2000. The changes in average loan balances reflect the results thus far of the Company's strategy to reduce its historical dependence on residential mortgage loans. Interest and dividends earned on investment securities decreased $219,000, or 28.2%, from $776,000 for the three months ended June 30, 2000 to $557,000 for the three months ended June 30, 2001. This decrease was due to a 137 basis point decrease in the Company's average yield earned on investment securities for the three months ended June 30, 2001, and by a decrease in the Company's average balance of investment securities of $5.0 million, or 12.2%. Interest earned on other interest-earning assets increased $40,000, or 36.7%, from $109,000 for the three months ended June 30, 2000, to $149,000 for the three months ended June 30, 2001. This increase was primarily due to an increase in the Company's average balance of other interest-earning assets of $6.7 million, or 91.1%, from $7.3 million for the three months ended June 30, 2000, to $14.0 million at June 30, 2001, which was partially offset by a 169 basis point decrease in the Company's average yield earned on other interest-earning assets. Other earning assets consist primarily of cash invested overnight. Interest and dividend income totaled $11.9 million for the six months ended June 30, 2001, compared to $11.7 million for the six months ended June 30, 2000, an increase of $165,000, or 1.4%. This increase was mainly due to an increase in the average balances of interest-earning assets of $8.0 million, or 2.7%, which was partially offset by an decrease of nine basis-points in the yield earned on the Company's average interest-earning assets. Interest earned on loans increased $355,000, or 3.5%, from $10.0 million for the six months ended June 30, 2000 to $10.4 million for the six months ended June 30, 2001. This increase was due to an increase in the Company's average balance of loans for the six months ended June 30, 2001, of $6.4 million, or 2.5%, compared to the six months ended June 30, 2000, together with an eight basis point increase in the average yield on loans. The average balance of residential mortgage loans decreased $6.9 million, while the average balance of commercial loans increased $9.9 million, and the average balance consumer and other loans increased $3.3 million. The average yield earned on the loan portfolio increased from 7.94% for the six months ended June 30, 2000, to 8.02% for the six months ended June 30, 2001. The changes in average loan balances reflect the results thus far of the Company's strategy to reduce its historical dependence on residential mortgage loans. Interest and dividends earned on investment securities decreased $271,000, or 18.1%, from $1.5 million for the six months ended June 30, 2000 to $1.2 million for the six months ended June 30, 2001. This decrease was due to a 78 basis point decrease in the Company's average yield earned on investment securities for the six months ended June 30, 2001, and by 15 a decrease in the Company's average balance of investment securities of $3.4 million, or 8.1%. Interest earned on other interest-earning assets increased $81,000, or 40.1%, from $202,000 for the six months ended June 30, 2000, to $283,000 for the six months ended June 30, 2001. This increase was primarily due to an increase in the Company's average balance of other interest-earning assets of $5.0 million, or 70.4%, from $7.1 million for the six months ended June 30, 2000, to $12.2 million at June 30, 2001, which was partially offset by a 100 basis point decrease in the Company's average yield earned on other interest-earning assets. Other earning assets consist primarily of cash invested overnight. Interest Expense Interest expense decreased $136,000, or 3.7%, from $3.7 million for the three months ended June 30, 2000, to $3.6 million for the three months ended June 30, 2001. This decrease was due to a decrease in the cost of such liabilities which was partially offset by an increase in the average balance of interest-bearing liabilities. The average balance of interest- bearing liabilities increased $2.9 million, or 1.1%, from $276.3 million for the three months ended June 30, 2000, to $279.2 million for the three months ended June 30, 2001, while the cost of such interest-bearing liabilities decreased 26 basis points. The average balance of interest-bearing deposits increased $8.2 million, or 4.1%, from $201.2 million for the three months ended June 30, 2000, to $209.4 million for the three months ended June 30, 2001. The cost of interest-bearing deposits decreased $49,000, or 1.9%, remaining stable at $2.6 million for the three-month periods ended June 30, 2001 and 2000. The cost of such average deposits decreased 29 basis points for the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The average balance of securities sold under agreements to repurchase amounted to $2.1 million for the three months ended June 30, 2001; the Company had no securities sold under agreements to repurchase during the quarter ended June 30, 2000. The average cost of securities sold under agreements to repurchase was 3.44% for the quarter ended June 30, 2001. Interest expense on borrowings (consisting primarily of advances from the FHLB) decreased $105,000, or 9.7%, from $1.1 million for the three months ended June 30, 2000, to $974,000 for the three months ended June 30, 2001. The primary reason for the decrease was a $7.4 million, or 9.9%, decrease in the average balance of borrowings, which was partially offset by an increase in the average cost of such borrowings of one basis point. Interest expense increased $188,000, or 2.6%, from $7.1 million for the six months ended June 30, 2000, to $7.3 million for the six months ended June 30, 2001. This increase was due to an increase in the average balance of interest-bearing liabilities which was partially offset by a decrease in the cost of such liabilities. The average balance of interest- bearing liabilities increased $8.9 million, or 3.3%, from $271.0 million for the six months ended June 30, 2000, to $279.9 million for the six months ended June 30, 2001, while the cost of such interest-bearing liabilities decreased three basis points. The average balance of interest-bearing deposits increased $9.0 million, or 4.5%, from $201.3 million for the six months 16 ended June 30, 2000, to $210.3 million for the six months ended June 30, 2001. The average cost of interest-bearing deposits increased $179,000, or 3.5%, from $5.1 million for the six months ended June 30, 2000 to $5.3 million for the six months ended June 30, 2001. The average cost of such deposits decreased five basis points for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. The average balance of securities sold under agreements to repurchase amounted to $1.4 million for the six months ended June 30, 2001; the Company had no securities sold under agreements to repurchase during the six months ended June 30, 2000. The average cost of securities sold under agreements to repurchase for the six months ended June 30, 2001 was 3.59%. Interest expense on borrowings (consisting primarily of advances from the FHLB) decreased slightly, by $16,000, or 0.8%, remaining stable at $2.0 million the six-month periods ended June 30, 2001 and 2000. The primary reason for the decrease was a $1.4 million, or 2.1%, decrease in the average balance of borrowings, which was partially offset by an increase in the average cost of such borrowings of seven basis points. 17 Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table sets forth, for the periods indicated, information regarding (i) the dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Non-accrual loans have been included in the appropriate average balance loan category, but interest on non-accrual loans has been included for purposes of determining interest income only to the extent that cash payments were actually received. Three Months Ended June 30, --------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2001 2000 --------------------------- ---------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- Interest-earnings assets: Loans receivable: Residential mortgage loans $175,529 $3,363 7.66 % $189,023 $ 3,579 7.57 % Commercial business loans 52,793 1,126 8.53 42,700 970 9.09 Consumer and other loans 29,042 635 8.75 25,984 581 8.94 ------- ----- ------- ----- Total loans 257,364 5,124 7.96 257,707 5,130 7.96 Investment Securities(1) 36,166 557 6.16 41,200 776 7.53 Other earning assets 14,034 149 4.25 7,344 109 5.94 ------- ----- ------- ----- Total interest-earning assets 307,564 5,830 7.58 306,251 6,015 7.86 ----- ----- Noninterest-earning assets 12,679 10,938 ------- ------- Total Assets $320,243 $317,189 ======= ======= Interest-bearing liabilities: Deposits: Demand deposits $ 33,809 199 2.35 $ 34,160 335 3.92 Savings deposits 12,120 43 1.42 13,480 67 1.99 Certificates of deposit 163,515 2,322 5.68 153,558 2,211 5.76 ------- ----- ------- ----- Total deposits 209,444 2,564 4.90 201,198 2,613 5.19 Securities Sold Under Repurchase Agreements 2,095 18 3.44 - - 5.75 Borrowings 67,641 974 5.76 75,081 1,079 5.35 ------- ----- ------- ----- Total interest-bearing liabilities 279,180 3,556 5.09 276,279 3,692 5.35 ----- ----- Noninterest-bearing demand deposits 12,018 11,627 Other noninterest-bearing liabilities 2,462 1,934 ------- ------- Total liabilities 293,660 289,840 Stockholders' equity 26,583 27,349 ------- ------- Total liabilities and stockholders' equity $320,243 $317,189 ======= ======= Net interest-earning assets $ 28,384 $ 29,972 ======= ======= Net interest income/interest rate spread $2,274 2.49 % $ 2,323 2.51 % ====== ==== ===== ==== Net interest margin 2.96 % 3.03 % ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 110.17 % 110.85 % ====== ======

_______________________________________ (1) includes FHLB stock. 18 Six Months Ended June 30, --------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2001 2000 --------------------------- ---------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ------- ------- -------- ------- Interest-earnings assets: Loans receivable: Residential mortgage loans $179,292 $6,884 7.68 % $186,150 $ 7,046 7.57 % Commercial business loans 51,101 2,229 8.72 41,211 1,850 8.98 Consumer and other loans 28,753 1,273 8.85 25,415 1,135 8.93 ------- ----- ------- ----- Total loans 259,146 10,386 8.02 252,776 10,031 7.94 Investment Securities(1) 38,054 1,223 6.43 41,425 1,494 7.21 Other earning assets 12,179 283 4.65 7,148 202 5.65 ------- ----- ------- ----- Total interest-earning assets 309,379 11,892 7.69 301,349 11,727 7.78 ----- ----- Noninterest-earning assets 12,431 10,286 ------- ------- Total Assets $321,810 $311,635 ======= ======= Interest-bearing liabilities: Deposits: Demand deposits $ 33,806 481 2.85 $ 34,530 654 3.79 Savings deposits 12,095 102 1.69 13,721 137 2.00 Certificates of deposit 164,388 4,742 5.77 153,048 4,355 5.69 ------- ----- ------- ----- Total deposits 210,289 5,325 5.06 201,299 5,146 5.11 Securities Sold Under Repurchase Agreements 1,394 25 3.59 - - - Borrowings 68,234 1,955 5.73 69,670 1,971 5.66 ------- ----- ------- ----- Total interest-bearing liabilities 279,917 7,305 5.22 270,969 7,117 5.25 ----- ----- Noninterest-bearing demand deposits 11,575 11,277 Other noninterest-bearing liabilities 2,492 1,820 ------- ------- Total liabilities 293,984 284,066 Stockholders' equity 27,826 27,569 ------- ------- Total liabilities and stockholders' equity $321,810 $311,635 ======= ======= Net interest-earning assets $ 29,462 $ 30,380 ======= ======= Net interest income/interest rate spread $4,587 2.47 % $ 4,610 2.53 % ====== ==== ===== ==== Net interest margin 2.97 % 3.06 % ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 110.53 % 111.21 % ====== ======

_______________________________________ (1) includes FHLB stock. Provision for Loan Losses Provisions for loan losses are charged to earnings in order to bring the total allowance for loan losses to a level considered appropriate by management based on methodology implemented by the Company, which is designed to assess, among other things, historical loan loss experience, the volume and type of lending conducted by the Company, the amount of the Company's classified assets, the status of past due principal and interest payments, loan-to-value ratios of loans in the portfolio, general economic conditions, particularly as they relate to the Company's market area, and any other factors related to the collectibility of the Company's loan portfolio. Management of the Company assesses the allowance for loan losses on at least a quarterly basis and makes provisions for loan losses as deemed appropriate in order to maintain the adequacy of the allowance for loan losses. Based on its overall assessment of the allowance for loan losses, the Company had a credit of $45,000 in the provision for loan losses for the three months ended June 30, 2001, and a credit of $176,000 in the provision for loan losses for the six months ended June 30, 2001. The 19 Company made no provision for loan losses in the three and six-month periods ended June 30, 2000. At June 30, 2001, the Company's allowance for loan losses amounted to $2.5 million, or 0.99% of total loans and 206.5% of non-performing loans and troubled debt restructurings. At December 31, 2000, the Company's allowance for loan losses amounted to $2.7 million, or 1.0% of total loans and 441.3% of non-performing loans and troubled debt restructurings. Non-Interest Income For the three months ended June 30, 2001, the Company reported non- interest income of $464,000, an increase of $210,000 from $254,000 for the three months ended June 30, 2000. The primary reasons for the increase were an increase in net gains on the sale of loans of $185,000, an increase in customer service fees of $7,000, an increase in trading gains of $4,000 and an increase in income from investment in a limited liability company of $15,000, all of which were partially offset by a reduction in loan servicing fees of $2,000. For the six months ended June 30, 2001, the Company reported non- interest income of $1.0 million, an increase of $540,000 from $488,000 for the six months ended June 30, 2000. The primary reasons for the increase were a increase in net gains on the sale of loans of $462,000, an increase in customer service fees of $2,000, an increase in trading gains of $33,000 and an increase in income from investment in a limited liability company of $43,000, all of which were partially offset by a reduction in the customer service fees of $2,000. The increases in non-interest income from net gains on the sale of loans for the three and six-month periods ended June 30, 2001 are a result of the Company's strategy to reduce its historical dependence on residential mortgage loan assets while increasing its fee income. Non-Interest Expense Non-interest expense includes salaries and employee benefits, occupancy, depreciation, data processing, net costs related to foreclosed assets, deposit insurance premiums, advertising and marketing, bank shares and franchise tax, and other expense items. Non-interest expense amounted to $2.1 million for the three month periods ended June 30, 2001 and 2000, increasing slightly by $8,000, or 0.4%. Salaries and employee benefits increased $162,000, or 17.1%, occupancy expense increased $42,000, or 68.9%, depreciation expense increased $7,000, or 8.5%, data processing expense increased $10,000, or 13.3%, the net cost of foreclosed assets increased $5,000, or 125.0%, advertising increased $26,000, or 49.1%, and all other expenses increased $80,000, or 19.1%. Partially offsetting such increases were a decrease in impairment loss on long-lived assets of $322,000, or 99.7%, a decrease in deposit insurance premiums of $1,000, or 9.1%, and a decrease in bank shares and franchise tax expense of $1,000, or 1.2%. Included in non-interest expenses for the three months ended June 30, 2001 was $31,000 of one-time expenses related to the Company's relocation and opening of its headquarters and the Bank's main office facilities. Included in non-interest expenses for the three months ended June 30, 2000 was a $323,000 one-time expense related to the 20 abandonment of the prior location of the Company's headquarters and the Bank's main office facilities. Non-interest expense increased $286,000, or 7.6%, from $3.7 million for the six months ended June 30, 2000 to $4.0 million for the six months ended June 30, 2001. Salaries and employee benefits increased $302,000, or 15.7%, occupancy expense increased $76,000, or 50.7%, data processing expense increased $34,000, or 23.3%, the net cost of foreclosed assets increased $95,000, or 125.0%, from a prior gain of $76,000 to a current cost of $19,000; and all other expenses increased $124,000, or 15.6%. Partially offsetting such increases were a decrease in depreciation expense of $6,000, or 3.7%, a decrease impairment loss on long-lived assets of $322,000, or 99.7%, a decrease in deposit insurance premiums of $1,000, or 4.5%, a decrease in advertising of $6,000, or 4.8%, and a decrease in bank shares and franchise tax expense of $10,000, or 5.8%. Included in non-interest expenses for the six months ended June 30, 2001 was $79,000 of one-time expenses related to the Company's relocation and opening of its headquarters and the Bank's main office facilities. Included in non-interest expenses for the six months ended June 30, 2000 was a $323,000 one-time expense related to the abandonment of the prior location of the Company's headquarters and the Bank's main office facilities. The Company actively engages in leasing space that it has available. Income from leases from third parties for the three and six months ended June 30, 2001 was $162,000 and $301,000, respectively. Such leasing income reduces the Company's reported occupancy expense. Because the Company has occupied its new headquarters for only a short period of time, no assurance can be given that lease income from third parties will remain at this level or that occupancy expenses may not increase in the future due to, among other factors, utility costs and repair and maintenance expenses. Income Taxes For the quarters ended June 30, 2001 and June 30, 2000, the Company incurred income tax expense of $265,000 and $188,000, respectively. The Company's effective tax rate amounted to 36.9% and 36.1% during the second quarter of 2001 and 2000, respectively. The difference between the effective rate and the statutory tax rate is primarily related to variances in the items that are either non-taxable or non-deductible. For the six month periods ended June 30, 2001 and June 30, 2000, the Company incurred income tax expense of $636,000 and $483,000, respectively. The Company's effective tax rate amounted to 36.1% and 35.6% during the first six months of 2001 and 2000, respectively. The difference between the effective rate and the statutory tax rate is primarily related to variances in the items that are either non-taxable or non-deductible. LIQUIDITY RESOURCES The Company's primary liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Excess liquidity includes the Company's securities available for sale portfolio. The Company's primary sources of funds are deposits, borrowings, proceeds from sale of stock, and amortization, prepayments and maturities from its loan portfolio and its securities held to maturity portfolio, and other funds 21 provided from operations. While scheduled payments from the amortization of loans and securities and maturing investment securities are relatively predictable sources of funds, deposit flows, loan prepayments, and securities prepayments are greatly influenced by general interest rates, economic conditions and competition. Under current agreements, the Company has the ability to borrow up to approximately $123.6 million from the FHLB through its subsidiary bank, and $4.8 million from the Federal Reserve Bank. Additionally, using other investments as collateral, the subsidiary bank could borrow an additional $8.0 million. Altogether, these sources represent $72.3 million additional cash liquidity over and above amounts recorded as of June 30, 2001. Liquidity management is both a daily and long-term function of business management. The Company uses its primary liquidity to meet its ongoing commitments, to pay maturing certificates of deposit and deposit withdrawals, and to fund loan commitments. The Company's excess liquidity and borrowing capacity provide added readiness to meet ongoing commitments and growth. At June 30, 2001, the total approved commitments to extend credit amounted to $25.2 million. Certificates of deposit scheduled to mature in one year or less at the same date totaled $114.8 million. Management believes that a significant portion of maturing deposits will remain with the Company. The Company anticipates it will continue to have sufficient funds together with available borrowings to meet its current commitments. CAPITAL RESOURCES The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of June 30, 2001, that the Company and the Bank met all capital adequacy requirements to which they are subject. The Company's and the Bank's actual capital amounts and ratios as of June 30, 2001 are presented in the table below: 22 Minumum to be Minimum Well Capitalized Under Capital Prompt Corrective Actual Requirement Action Provisions (Dollars in Thousands) ---------------- --------------- ------------------ June 30, 2001 Amount Ratio Amount Ratio Amount Ratio -------------------------------------- ------ ----- ------ ----- ------ ----- Total Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. $27,760 14.7% $ 15,067 8.0% N/A N/A % LBA Savings Bank 26,299 14.2% 14,784 8.0% 18,480 10.0% Tier 1 Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. 25,425 13.5% 7,534 4.0% N/A N/A % LBA Savings Bank 23,964 13.0% 7,392 4.0% 11,088 6.0% Tier 1 Capital to Average Assets: Acadiana Bancshares, Inc. 25,425 7.9% 12,939 4.0% N/A N/A % LBA Savings Bank 23,964 7.6% 12,599 4.0% 15,749 5.0%

IMPACT OF INFLATION AND CHANGING PRICES The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all normal, recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of financial statements, have been included. The preparation of financial statements in accordance with generally accepted accounting principles generally require the measurement of financial position and operation results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature. Consequently, interest rates generally have a more significant impact on the Company's performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. Item 3. Quantitative and Qualitative Disclosures about Market Risk MARKET RISK Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Company's actions with respect to interest rate risk and its asset/liability gap management are taken under guidance of the Finance Committee of the Board of Directors of the Bank, which is composed of Messrs. Beacham, DeJean and Saloom, and the Asset/Liability Management Committee ("ALCO"), which is composed of six officers of the Bank. The Finance Committee meets jointly with the 23 ALCO, quarterly to set interest rate risk targets and review the Company's current composition of assets and liabilities in light of the prevailing interest rate environment. The committee assesses its interest rate risk strategy quarterly, which is then reviewed by the full Board of Directors. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the ALCO. In its capacity, the ALCO develops guidelines and strategies affecting the Company's asset/liability management related activities basedupon estimated market risk sensitivity, policy limits, and overall market interest rate levels and trends. The Company's 2000 Annual Report has further information relating to market risk. The Company does not believe that its exposure to market risks has changed materially since December 31, 2000. INTEREST RATE RISK Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and interest expense streams associated with the Company's financial instruments also change, thereby affecting net interest income ("NII"), which is the primary component of the Company's earnings. The ability to maximize net interest income is largely dependent upon the achievement of a positive interest-rate spread that can be sustained during fluctuations of interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities that either reprice or mature within a given period. The difference, or the interest rate repricing "gap," provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets, in a given period. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income. During a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would have the opposite effect. The Company's 2000 Annual Report to Stockholders' has further information relating to interest rate risk. The Company does not believe that its exposure to interest rate risk has changed materially since December 31, 2000. 24 PART II - OTHER INFORMATION Item 1. Legal Proceedings. Not applicable. Item 2. Changes in Securities. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security-Holders. On April 25, 2001 the Company held the annual meeting of the stockholders for the following purposes: (1) to elect three directors (Kaliste J. Saloom, Jr., Al W. Beacham, M.D., and James J. Montelaro) for a three-year term expiring in 2004, and until their successors are elected and qualified; and (2) to ratify the appointment by the Board of Directors of Castaing, Hussey & Lolan, LLC as the Company's independent auditors for the fiscal year ending December 31, 2001. Votes were cast as follows: Kaliste J. Al W. James J. Castaing, Saloom, Beacham, Montelaro Hussey & Jr. M.D. Lolan, LLC For 1,228,886 1,228,886 1,226,697 1,232,189 Against 100 Abstain 37 Withheld 3,440 3,440 5,629 Total Votes Cast 1,232,326 1,232,326 1,232,326 1,232,326 Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits. 3.1* Articles of Incorporation of Acadiana Bancshares, Inc. 3.2* Bylaws of Acadiana Bancshares, Inc. 4.0* Form of Stock Certificate of Acadiana Bancshares, Inc. 10.1** Stock Option Plan 10.2** 1996 Recognition and Retention Plan and Trust Agreement for Employees and Non Employee Directors 10.3***Employment Agreement between LBA Savings Bank and Gerald G. Reaux, Jr. 10.4* Form of Severance Agreement between Acadiana Bancshares, Inc., LBA Savings Bank and Lawrence Gankendorff, James J. Montelaro, Gregory King, Mary Anne Bertrand, Wayne Bares, Emile E. Soulier, III and Thomas F. Debaillon. 25 (*) Incorporated herein by reference from the Registration Statement on Form S-1 (Registration No. 333-1396) filed by the Registrant with the SEC on February 15, 1996, as subsequently amended. (**) Incorporated herein by reference from the definitive proxy statement, dated December 16, 1996, filed by the Registrant with the SEC (Commission File No. 1-14364). (***) Incorporated herein by reference from the Annual Report on Form 10-K (File No. 1-14364) filed by the Registrant with the SEC on March 31, 1997. b) No Current Reports on Form 8-K were filed during the quarter. 26 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACADIANA BANCSHARES, INC. Date: August 13, 2001 By: /s/ Gerald G. Reaux, Jr. ___________________________________ Gerald G. Reaux, Jr., Chairman, President and Chief Executive Officer Date: August 13, 2001 By: /s/ Emile E. Soulier, III ________________________________ Emile E. Soulier, III, Vice-President and Chief Financial Officer 27

ACADIANA BANCSHARES INC /LA 10-Q