10-Q 1 acadiana.txt 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 September 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 Identification No.) Incorporation or Organization) 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 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 --- --- 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 November 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 101,247 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 September 30, 2001 and December 31, 2000) 3 Consolidated Income Statements (For the three month and nine months ended September 30, 2001 and 2000) 4 Consolidated Statements of Stockholders' Equity (For the nine months ended September 30, 2001 and 2000) 5 Consolidated Statements of Cash Flows (For the nine months ended September 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 26 2 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED September 30, 2001 and December 31, 2000 (In Thousands, except share data) Assets September 30, December 31, 2001 2000 ------------- ------------ Cash and Cash Equivalents: Cash and Amounts Due from Banks $ 4,779 $ 2,950 Interest-Bearing Demand Deposits 13,195 5,517 ------------- ------------ Total Cash and Cash Equivalents 17,974 8,467 Time Deposits in Other Banks 2,951 - Trading Securities, at Fair Value - 162 Securities Available for Sale, at Fair Value 18,536 24,230 Securities Held to Maturity (Fair Value of $11,539 and $11,814, respectively) 11,362 11,682 Federal Home Loan Bank Stock, at Cost 4,289 4,147 Loans Held for Sale 1,731 1,852 Loans Receivable, Net of Allowance for Loan Losses of $2,501 and $2,714, respectively 247,587 264,805 Investment in Limited Liability Company 825 792 Premises and Equipment, Net 6,298 5,019 Accrued Interest Receivable 1,436 1,708 Other Assets 1,658 1,603 ------------- ------------ Total Assets $ 314,647 $ 324,467 ============= ============ Liabilities and Stockholders' Equity Deposits: Non-interest Bearing $ 14,892 $ 10,929 Interest Bearing 199,216 213,602 ------------- ------------ Total Deposits 214,108 224,531 Securities Sold Under Agreements to Repurchase 3,045 128 Accrued Interest Payable 716 593 Long-Term Debt 69,056 69,628 Accrued and Other Liabilities 1,423 805 ------------- ------------ Total Liabilities 288,348 295,685 ------------- ------------ 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 32,561 32,410 Retained Earnings 25,059 23,863 Unearned Common Stock Held by ESOP Trust (1,243) (1,440) Unearned Common Stock Held by RRP Trust (520) (749) Accumulated Other Comprehensive Income (Loss) 259 (51) Treasury Stock, at Cost; 1,547,529 and 1,328,929 Shares, at September 30, 2001 and December 31, 2000, respectively (29,844) (25,278) ------------- ------------ Total Stockholders' Equity 26,299 28,782 ------------- ------------ Total Liabilities and Stockholders' Equity $ 314,647 $ 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 Nine Months Ended September 30, 2001 and 2000 (In Thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, --------------------------------- -------------------------------- 2001 2000 2001 2000 --------------- -------------- ------------- ---------------- Interest and Dividend Income: Loans, including fees $ 5,000 $ 5,293 $ 15,386 $ 15,324 Debt Securities 435 651 1,552 1,962 Dividends 40 66 143 244 Trading Account Securities - 3 3 8 Interest Bearing Deposits 106 129 389 331 --------------- -------------- ------------- ---------------- Total Interest and Dividend Income 5,581 6,142 17,473 17,869 --------------- -------------- ------------- ---------------- Interest Expense: Deposits 2,214 2,833 7,539 7,979 Securities Sold Under Agreements to Repurchase 17 - 42 - Borrowings 998 1,033 2,953 3,004 --------------- -------------- ------------- ---------------- Total Interest Expense 3,229 3,866 10,534 10,983 --------------- -------------- ------------- ---------------- Net Interest Income 2,352 2,276 6,939 6,886 Provision (credit) for Loan Losses 3 - (173) - --------------- -------------- ------------- ---------------- Net Interest Income After Provision for Loan Losses 2,349 2,276 7,112 6,886 --------------- -------------- ------------- ---------------- Non-Interest Income: Customer Service Fees 220 223 656 657 Loan Servicing Fees 10 11 33 36 Gain on Sale of Loans, Net 206 8 668 8 Trading Account Gains, Net 5 24 32 18 Gain (Loss) from Investment in Limited Liability Company 3 (1) 33 (14) Other 22 118 72 166 --------------- -------------- ------------- ---------------- Total Non-Interest Income 466 383 1,494 871 --------------- -------------- ------------- ---------------- Non-Interest Expense: Salaries and Employee Benefits 1,119 991 3,341 2,911 Occupancy 46 99 272 249 Depreciation 93 80 251 244 Data Processing 57 82 237 228 Foreclosed Assets, net 15 7 34 (69) Deposit Insurance Premium 11 11 32 33 Advertising 33 38 152 163 Bank Shares and Franchise Tax Expense 81 81 243 253 Impairment Loss on Long-Lived Assets - - 1 323 Other 454 364 1,373 1,159 --------------- -------------- ------------- ---------------- Total Non-Interest Expense 1,909 1,753 5,936 5,494 --------------- -------------- ------------- ---------------- Income Before Income Taxes 906 906 2,670 2,263 Income Tax Expense 332 319 968 802 --------------- -------------- ------------- ---------------- Net Income $ 574 $ 587 $ 1,702 $ 1,461 =============== ============== ============= ================ Earnings Per Share - basic $ 0.56 $ 0.48 $ 1.53 $ 1.17 =============== ============== ============= ================ Earnings Per Share - diluted $ 0.52 $ 0.48 $ 1.45 $ 1.17 =============== ============== ============= ================

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 Nine Months Ended September 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 1,461 1,461 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 218 218 -------- Total Comprehensive Income 1,679 Common Stock Released by ESOP Trust 57 197 254 Common Stock Earned by Participants of Recognition and Retention Plan Trust 4 224 228 Purchase of Treasury Stock (79,702 shares) (1,176) (1,176) Cash Dividends Declared ($.45 per share) (576) (576) ------- ---------- -------- ---------- ---------- ------------- --------- -------- Balance, September 30, 2000 $ 27 $ 32,383 $ 23,289 $ (1,506) $ (824) $ (146) $(25,064) $ 28,159 ======= ========== ======== ========== ========== ============= ========= ======== Balance, January 1, 2001 $ 27 $ 32,410 $ 23,863 $ (1,440) $ (749) $ (51) $(25,278) $ 28,782 Comprehensive Income: Net Income 1,702 1,702 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 310 310 -------- Total Comprehensive Income 2,012 Common Stock Released by ESOP Trust 143 197 340 Common Stock Earned by Participants of Recognition and Retention Plan Trust 8 229 237 Purchase of Treasury Stock (218,600 shares) (4,566) (4,566) Cash Dividends Declared ($.45 per share) (506) (506) ------- ---------- -------- ---------- ---------- ------------- --------- -------- Balance, September 30, 2001 $ 27 $ 32,561 $ 25,059 $ (1,243) $ (520) $ 259 $(29,844) $ 26,299 ======= ========== ======== ========== ========== ============= ========= ========

The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 5 ACADIANA BANCSHARES, INC CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED For the Nine Months Ended September 30, 2001 and 2000 (In Thousands) ------------------------------------------------------------------------------------------------------------ September 30, September 30, 2001 2000 ------------- ------------- Cash Flows from Operating Activities: Net Income $ 1,702 $ 1,461 ------------- ------------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 265 263 Provision for Loan Losses (173) - Noncash Compensation Expenses 577 471 Other (gains) losses, net 35 246 (Gain) Loss from Investment in Limited Liability Company (33) 14 Accretion of Discounts, Net of Premium Amortization on Securities 3 (4) Amortization of Deferred Revenues and Unearned Income on Loans 40 77 FHLB Stock Dividend Received (142) (244) Other Changes in Assets and Liabilities: Securities Classified as Trading 162 (80) Loans Held for Sale 121 - Accrued Interest Receivable 272 (120) Other Assets (63) (182) Other Liabilities 781 901 ------------- ------------- Total Adjustments 1,845 1,342 ------------- ------------- Net Cash Provided by Operating Activities 3,547 2,803 ------------- ------------- Cash Flows from Investing Activities: Purchase of Time Deposits in Other Banks (2,951) - Activity in Available for Sale Securities: Proceeds from Calls, Maturities and Prepayments 12,278 1,829 Purchases (6,111) - Activity in Held to Maturity Securities: Proceeds from Calls, Maturities and Prepayments 315 154 Purchase of FHLB Stock - (147) Net Repayments (Advances) on Loans 17,113 (18,485) Purchase of Premises and Equipment (1,555) (3,024) Proceeds from Sale of Premises and Equipment - 163 Proceeds from Sale of Foreclosed Assets 60 - Capital Costs Incurred on Foreclosed Assets (10) (2) ------------- ------------- Net Cash Provided by (Used in) Investing Activities 19,139 (19,512) ------------- ------------- Cash Flows from Financing Activities: Net Change in Deposits (10,423) 14,561 Net Change in Securities Sold Under Agreements to Repurchase 2,917 - Net Change in Short-term Borrowings - (5,990) Proceeds from Long-term Debt 4,432 11,391 Repayment of Long-term Debt (5,004) (4) Dividends Paid to Shareholders (535) (558) Purchase of Treasury Stock (4,566) (1,176) ------------- ------------- Net Cash (Used in) and Provided By Financing Activities (13,179) 18,224 ------------- ------------- Net Increase in Cash and Cash Equivalents 9,507 1,515 Cash and Cash Equivalents, Beginning of Period 8,467 11,922 ------------- ------------- Cash and Cash Equivalents, End of Period $ 17,974 $ 13,437 ============= ============= Supplemental Schedule of Noncash Activities: Acquisition of Foreclosed Assets in Settlement of Loans $ 238 $ 65 Supplemental Disclosures: Cash Paid For: Interest on Deposits and Borrowings $ 10,411 $ 10,891 Income Taxes $ 650 $ 740

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, 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. 7 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. (2) Loans Receivable Loans receivable at September 30, 2001 and December 31, 2000 are summarized as follows (in thousands): September 30, December 31, 2001 2000 --------------------------------------------------------------------------- Mortgage Loans: Single-Family Residential $ 157,220 $ 188,133 Construction 5,978 3,912 Multi-Family Residential 301 346 Commercial Real Estate 38,389 28,851 Equity Lines of Credit 4,431 4,227 ------------- ------------ Total Mortgage Loans 206,319 225,469 Commerical Business Loans 22,348 19,702 Consumer Loans 25,075 24,398 ------------- ------------ Total Loans 253,742 269,569 Less: Allowance for Loan Losses (2,501) (2,714) Net Deferred Loan Fees (164) (197) Unadvanced Loan Funds (3,490) (1,853) ------------- ------------ Loans, net $ 247,587 $ 264,805 ============= ============ The following is an analysis of the allowance for possible loan losses for the nine months ended September 30, 2001 and for the year ended December 31, 2000 (in thousands): September 30, December 31, 2001 2000 --------------------------------------------------------------------------- Balance, Beginning $ 2,714 $ 2,747 Provision Charged (Credited) to Income (173) (83) Loans Charged Off (177) (170) Loans Recovered 137 220 ------------- ------------ Balance, Ending $ 2,501 $ 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") 8 (106,274 and 128,166 shares for the quarters ending September 30, 2001 and September 30, 2000, respectively) and the weighted average unvested shares in the Recognition and Retention Plan ("RRP") (44,915 and 62,934 for the quarters ending September 30, 2001 and September 30, 2000, respectively). The effect on diluted EPS of stock option shares outstanding and unvested 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 Nine months ended ------------------------ ----------------------- 2001 2000 2001 2000 ------------ --------- ---------- ---------- Numerator: Income Applicable to Common Shares $ 574,000 $ 587,000 $1,702,000 $1,461,000 ============ ========= ========== ========== Denominator: Weighted Average Common Shares Outstanding 1,032,530 1,219,107 1,113,232 1,244,410 Effect of Dilutive Securities: Stock Options Outstanding 65,510 4,045 50,377 2,023 RRP Grants 13,442 3,140 9,439 4,817 ------------ --------- ---------- ---------- Weighted Average Common Shares Outstanding Assuming Dilution 1,111,482 1,226,292 1,173,048 1,251,250 ============ ========= ========== ========== Earnings per Share $ 0.56 $ 0.48 $ 1.53 $ 1.17 ============ ========= ========== ========== Earnings per Share - Assuming Dilution $ 0.52 $ 0.48 $ 1.45 $ 1.17 ============ ========= ========== ==========

(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 September 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. 9 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 assets, and does not expect application of this statement to have a significant effect on the Company's financial position or results of operations. In August of 2001 the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. It supercedes FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). This statement also amends ARB No. 51, Consolidated Financial Statements, to eliminate exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The statement requires that one accounting model be used for long-lived assets to be disposed of, whether previously held and used or newly acquired, and applies to discontinued operations. The adoption of this statement is not expected to have a material 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. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations. Changes in Financial Condition At September 30, 2001, the consolidated assets of the Company totaled $314.6 million, a decrease of $9.8 million, or 3.0%, from December 31, 2000. During the three and nine months ended September 30, 2001, the Company sold $13.1 million and $38.7 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 $17.2 million, or 6.5%. 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 $9.5 million, from $8.5 million at December 31, 2000, to $18.0 million at September 30, 2001. Total deposits decreased $10.4 million, or 4.6%, from $224.5 million at December 31, 2000 to $214.1 million at September 30, 2001. Stockholders' equity decreased $2.5 million, or 8.6%, from $28.8 million at December 31, 2000 to $26.3 million at September 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 $506,000 of declared dividends, all of which was partially offset by net income of $1.7 million, an increase in accumulated other comprehensive income of $310,000, and from the release of common stock related to the Company's stock benefit plans of $577,000. ASSETS Cash and cash equivalents increased $9.5 million, or 112.3%, to $18.0 million at September 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 $3.5 million, $19.1 million, and ($13.2 million), respectively, for the nine months ended September 30, 2001. As of September 30, 2001, cash and cash equivalents funded 5.7% of total assets, compared with 2.6% at December 31, 2000. The Company invested $3.0 million in time deposits in other banks during the quarter ended and as of September 30, 2001. The Company has no more than $100,000 at any one bank, matching the expected insured limit of bank deposits by the Federal Deposit Insurance Corporation. The Company has no intention to invest more that $100,000 at any one bank. Securities available for sale decreased $5.7 million, or 23.5%, to $18.5 million at September 30, 2001, compared with $24.2 million at December 31, 2000. The primary reason for such decrease was principal repayments of $12.3 million of investment securities, which was partially offset by an increase in fair value of the remaining securities of $471,000, and by the purchase of new securities of $6.1 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 September 30, 2001, investment securities available for sale amounted to 5.9% of total assets, compared to 7.5% of total assets at December 31, 2000. Securities held to maturity decreased $320,000, or 2.7%, from $11.7 million at December 31, 2000 to $11.4 million at September 30, 2001. Securities held to maturity consist of mortgage-backed securities. At September 30, 2001 and at December 31, 2000, securities held to maturity amounted to 3.6% of total assets. 11 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 September 30, 2001, Federal Home Loan Bank stock amounted to $4.3 million, or 1.4% of total assets. Loans held for sale amounted to $1.7 million at September 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 $38.7 million of residential mortgage loans during the nine months ended September 30, 2001. Loans receivable, net, decreased $17.2 million, or 6.5%, to $247.6 million at September 30, 2001, compared to $264.8 million at December 31, 2000. Single-family residential loans decreased $30.9 million, or 16.4%, from $188.1 million at December 31, 2000, to $157.2 million at September 30, 2001. Construction loans increased $2.1 million, from $3.9 million at December 31, 2000 to $6.0 million at September 30, 2001. Commercial real estate loans increased $9.5 million, or 33.1%, from $28.9 million at December 31, 2000, to $38.4 million at September 30, 2001. Equity lines of credit increased $204,000, or 4.8%, from $4.2 million at December 31, 2000 to $4.4 million at September 30, 2001. Commercial business loans increased $2.6 million, or 13.4%, from $19.7 million at December 31, 2000, to $22.3 million at September 30, 2001. Consumer loans increased $677,000, or 2.8%, from $24.4 million at December 31, 2000, to $25.1 million at September 30, 2001. Total gross loans decreased $15.8 million, or 5.9%, from $269.6 million at December 31, 2000, to $253.7 million at September 30, 2001. Loans receivable, net, amounted to 78.7% of total assets at September 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, securities sold under agreements to repurchase, borrowings from the FHLB and other banks, and stockholders' equity. The discussion that follows focuses on the major changes in this mix during the nine months ended September 30, 2001. The Company's deposits decreased by $10.4 million, or 4.6%, to $214.1 million at September 30, 2001, compared to $224.5 million at December 31, 2000. Interest bearing deposits decreased $14.4 million, or 6.7%, while non-interest bearing deposits increased $4.0 million, or 36.3%. Certificates of deposit, comprising the largest portion of interest-bearing deposits, amounted to $154.4 million at September 30, 2001, a decrease of $10.9 million, or 6.6%, from $165.2 million at December 31, 2000. Total deposits funded 68.0% of total assets at September 30, 2001, compared to 69.2% 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 consist of overnight borrowings, primarily from business entities who are also deposit customers of the Company. Securities sold under agreements to 12 repurchase amounted to $3.0 million at September 30, 2001, compared to $128,000 at December 31, 2000. The Company had no other short-term borrowings at September 30, 2001 or December 31, 2000. Long-term debt decreased $572,000, or 0.8%, from $69.6 million at December 31, 2000 to $69.1 million at September 30, 2001. Long-term debt funded 21.9% of assets at September 30, 2001, compared to 21.5% at December 31, 2000. Advances from the FHLB amounted to $65.4 million of long-term debt at September 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 September 30, 2001, stockholders' equity totaled $26.3 million, a decrease of $2.5 million, or 8.6%, 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 $506,000 of dividends declared on the Company's common stock, all of which was partially offset by net income for the nine months ended September 30, 2001, of $1.7 million, an increase in the value of securities available for sale, net of deferred taxes, of $310,000, from the release of common stock related to the Company's employee stock ownership plan (the "ESOP") trust of $340,000, and from the release of common stock related to the Company's recognition plan (the "RRP") trust of $237,000. Stockholders' equity funded 8.4% of assets at September 30, 2001, compared to 8.9% at December 31, 2000. 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 September 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 $0.56 (basic) and $0.52 (diluted) for the three months ended September 30, 2001, compared to earnings per share of $0.48 (basic and diluted) for the three months ended September 30, 2000. Basic earnings per share increased 16.7% comparing the current quarter to the year ago quarter, with such increase substantially attributable to the accretive effects of the Company's stock repurchase program. Net income was $574,000 for the three months ended September 30, 2001, compared to $587,000 for the three months ended September 30, 2000, reflecting a decrease of $13,000, or 2.2%. Income before taxes amounted to $906,000 for both the current and prior three-month periods. The Company reported net income of $1.7 million, and $1.5 million for the nine months ended September 30, 2001 and 2000, respectively. Included in non-interest expenses for the current year nine-month period was $79,000 of non- recurring expenses related to the Company's move and change of headquarters. Included in non-interest 13 expenses for the prior year nine-month period was $323,000 of non-recurring expenses related to the Company's move and change of headquarters. Year to date earnings for both 2001 and 2000 were affected by non- recurring charges related to the Company's determination to relocate its headquarters. The Company earned $1.7 million, or $1.53 per share basic, and $1.45 per share diluted, for the nine month period ended September 30, 2001, compared to $1.5 million, or $1.17 per share, basic and diluted, for the nine month period ended September 30, 2000. Adjusting both periods to exclude the non-recurring charges described above, earnings for the current nine month period ended September 30, 2001 would have been $1.58 per share basic, and $1.49 per share diluted, and earnings for the year ago nine month period ended September 30, 2000 would have been $1.34 per share, basic and diluted. See Note 3 to the financial statements. 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 2.71% and 2.42% during the three months ended September 30, 2001 and 2000, respectively. Both rates (the average yield on interest-earning assets and average cost of interest-bearing liabilities) and 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 3.16%, and 2.93%, during the three months ended September 30, 2001 and 2000, respectively. The 23 basis point (with 100 basis points being equal to 1%) increase in net interest margin in the third quarter of 2001 compared to 2000 was primarily the result of the Company's effort to reduce its average cost of deposits to help offset the declining average yields on the Company's loans and investment securities, which resulted in faster decreases in the average rates paid on the average balances of interest- bearing deposits and borrowings than in the yields earned on the Company's loans, investment securities, and other interest-earning assets. Lessening the effects of such efforts, the decrease in the average balance of interest-earning assets of $13.1 million more than offset the decrease in the average balance of interest-bearing liabilities of $12.0 million, for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. The Company's net interest income increased $76,000, or 3.3%, from $2.3 million for the quarter ended September 30, 2000, to $2.4 million for the quarter ended September 30, 2001. The Company's average interest rate spread was 2.54% and 2.49% during the nine months ended September 30, 2001 and 2000, respectively. The Company's interest rate margin was 3.03%, and 3.01%, during the nine months ended September 30, 2001 and 2000, respectively. The slight increase in net interest margin in the nine month period ended September 30, 2001 compared to 2000 was primarily the result of the Company's effort to reduce its average cost of deposits to help offset the declining average yields on the Company's loans and investment securities, which resulted in faster decreases in the average rates paid on the average balances of interest- bearing deposits and borrowings than in the yields earned on the Company's loans, investment securities, and other interest-earning assets. Lessening the effect of such efforts, the increase in the average balance of interest- bearing liabilities of $1.9 million more than offset the increase in the average balance of 14 interest-earning assets of $942,000, for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. The Company's net interest income increased $53,000, or 0.8%, remaining relatively stable at $6.9 million for the nine month periods ended September 30, 2001 and 2000. The Company's largest group of interest-earning assets is residential mortgage loans, comprising 57.2% of total average interest-earning assets for the nine months ended September 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 nine months ended September 30, 2001, funded 58.1% 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 $5.6 million for the three months ended September 30, 2001, compared to $6.1 million for the three months ended September 30, 2000, a decrease of $561,000, or 9.1%. This decrease was mainly due to a decrease of 41 basis points in the yield earned on the Company's average interest-earning assets, together with a decrease in the average balances of interest-earning assets of $13.1 million, or 4.2%. Interest income earned on loans decreased $293,000, or 5.5%, from $5.3 million for the three months ended September 30, 2000 to $5.0 million for the three months ended September 30, 2001. This decrease was due to a decrease in the Company's average balance of loans for the three months ended September 30, 2001, of $10.2 million, or 3.9%, compared to the three months ended September 30, 2000, together with a decrease of 14 basis points in the yield earned on the Company's average balance of loans. The average balance of residential mortgage loans decreased $26.4 million, while the average balance of commercial loans increased $13.7 million, and the average balance of consumer and other loans increased $2.6 million. The average yield earned on the loan portfolio was 7.94% for the three months ended September 30, 2001, a decrease of 14 basis points from the 8.08% yield earned on the loan portfolio for the three months ended September 30, 2000. The changes in average loan balances reflect the results of the Company's continuing strategy to reduce its historical dependence on residential mortgage loans. Interest and dividend income earned on investment securities decreased $245,000, or 34.0%, from $720,000 for the three months ended September 30, 2000 to $475,000 for the three months ended September 30, 2001. This decrease was due to a 133 basis point decrease in the Company's average yield earned on investment securities for the three months ended September 30, 2001, together with a decrease in the Company's average balance of investment securities of $7.6 million, or 18.7%. 15 Interest income earned on other interest-earning assets decreased $23,000, or 17.8%, from $129,000 for the three months ended September 30, 2000, to $106,000 for the three months ended September 30, 2001. This decrease was primarily due to a decrease in the Company's average yield earned on other interest-earning assets by 294 basis points, from 6.18% to 3.24%, which was partially offset by an increase in the Company's average balance of other interest-earning assets of $4.7 million, or 56.5%, from $8.4 million for the three months ended September 30, 2000, to $13.1 million at September 30, 2001. Other earning assets consist primarily of cash invested overnight. Interest and dividend income totaled $17.5 million for the nine months ended September 30, 2001, compared to $17.9 million for the nine months ended September 30, 2000, an increase of $396,000, or 2.2%. This decrease was mainly due to decrease of 20 basis-points 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 $942,000, or 0.3%. Interest income earned on loans increased $62,000, or 0.4%, from $15.3 million for the nine months ended September 30, 2000 to $15.4 million for the nine months ended September 30, 2001. This increase was due to an increase in the Company's average balance of loans for the nine months ended September 30, 2001, of $819,000, or 0.3%. The yield earned on the Company's average balance of loans remained at 7.99% for both of the nine month periods ended September 30, 2001 and 2000. The average balance of residential mortgage loans decreased $13.4 million, while the average balance of commercial loans increased $11.2 million, and the average balance of consumer and other loans increased $3.1 million. The changes in average loan balances reflect the results of the Company's continuing strategy to reduce its historical dependence on residential mortgage loans. Interest and dividend income earned on investment securities decreased $516,000, or 23.3%, from $2.2 million for the nine months ended September 30, 2000 to $1.7 million for the nine months ended September 30, 2001. This decrease was due to a 95 basis point decrease in the Company's average yield earned on investment securities for the nine months ended September 30, 2001, and by a decrease in the Company's average balance of investment securities of $4.8 million, or 11.7%. Interest income earned on other interest-earning assets increased $58,000, or 17.5%, from $331,000 for the nine months ended September 30, 2000, to $389,000 for the nine months ended September 30, 2001. This increase was primarily due to an increase in the Company's average balance of other interest-earning assets of $4.9 million, or 65.3%, from $7.5 million for the nine months ended September 30, 2000, to $12.5 million at September 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 Expense Interest expense decreased $637,000, or 16.5%, from $3.9 million for the three months ended September 30, 2000, to $3.2 million for the three months ended September 30, 2001. This decrease was due to a decrease in both the cost of such liabilities and by a decrease in the average balance of interest-bearing liabilities. The average balance of interest-bearing liabilities decreased $12.0 million, or 4.3%, from $282.4 million for the three months ended 16 September 30, 2000, to $270.3 million for the three months ended September 30, 2001. The cost of such interest-bearing liabilities decreased 70 basis points. The average balance of interest-bearing deposits decreased $12.4 million, or 5.8%, from $211.2 million for the three months ended September 30, 2000, to $198.9 million for the three months ended September 30, 2001. The interest expense on average interest-bearing deposits decreased $619,000, or 21.8%, from $2.8 million for the three months ended September 30, 2000 to $2.2 million for the three months ended September 30, 2001. The cost of such average deposits decreased from 5.36% to 4.45%, or 91 basis points for the quarter ended September 30, 2001 as compared to the quarter ended September 30, 2000. The average balance of securities sold under agreements to repurchase amounted to $2.7 million for the three months ended September 30, 2001; the Company had no securities sold under agreements to repurchase during the quarter ended September 30, 2000. The average cost of securities sold under agreements to repurchase was 2.56% for the quarter ended September 30, 2001. Interest expense on borrowings (consisting primarily of advances from the FHLB) decreased $35,000, or 3.4%, from $1.0 million for the three months ended September 30, 2000, to $998,000 for the three months ended September 30, 2001. The primary reason for the decrease was a $2.3 million, or 3.3%, decrease in the average balance of borrowings, and a decrease in the average cost of such borrowings of one basis point. Interest expense decreased $449,000, or 4.1%, from $11.0 million for the nine months ended September 30, 2000, to $10.5 million for the nine months ended September 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 cost of such interest-bearing liabilities decreased 25 basis points while the average balance of interest-bearing liabilities increased $1.9 million, or 0.7%, from $274.8 million for the nine months ended September 30, 2000, to $276.7 million for the nine months ended September 30, 2001,. The average balance of interest-bearing deposits increased $1.8 million, or 0.9%, from $204.6 million for the nine months ended September 30, 2000, to $206.4 million for the nine months ended September 30, 2001. The interest expense on average interest-bearing deposits decreased $440,000, or 5.5%, from $8.0 million for the nine months ended September 30, 2000 to $7.5 million for the nine months ended September 30, 2001. The average cost of such deposits decreased 33 basis points for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. The average balance of securities sold under agreements to repurchase amounted to $1.8 million for the nine months ended September 30, 2001; the Company had no securities sold under agreements to repurchase during the nine months ended September 30, 2000. The average cost of securities sold under agreements to repurchase for the nine months ended September 30, 2001 was 3.08%. Interest expense on borrowings (consisting primarily of advances from the FHLB) decreased slightly, by $51,000, or 1.7%, remaining stable at $3.0 million the nine-month periods ended September 30, 2001 and 2000. The primary reason for the decrease was a $1.7 million, or 2.5%, decrease in the average balance of borrowings, which was partially offset by an increase in the average cost of such borrowings of four basis points. 17 Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following tables set 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 September 30, ------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) 2001 2000 ----------------------------- ------------------------------ Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost -------- -------- ------- -------- -------- ------- Interest-earning assets: Loans receivable: Residential mortgage loans $165,595 $ 3,188 7.70 % $192,038 $ 3,675 7.65 % Commercial business loans 56,730 1,177 8.30 43,066 1,004 9.33 Consumer and other loans 29,409 635 8.64 26,832 614 9.15 -------- ------- -------- ------- Total loans 251,734 5,000 7.94 261,936 5,293 8.08 Investment securities (1) 33,263 475 5.71 40,893 720 7.04 Other earning assets 13,068 106 3.24 8,350 129 6.18 -------- ------- -------- ------- Total interest-earning assets 298,065 5,581 7.49 311,179 6,142 7.90 ------- ------- Noninterest-earning assets 13,163 11,815 -------- -------- Total Assets $311,228 $322,994 ======== ======== Interest-bearing liabilities Deposits Demand deposits $ 33,088 173 2.09 $ 34,874 363 4.16 Savings deposits 12,249 40 1.31 12,414 62 2.00 Certificates of deposit 153,532 2,001 5.21 163,934 2,408 5.88 -------- ------- -------- ------- Total deposits 198,869 2,214 4.45 211,222 2,833 5.36 Securities Sold Under Repurchase Agreements 2,654 17 2.56 - - Borrowings 68,823 998 5.80 71,135 1,033 5.81 -------- ------- -------- ------- Total interest-bearing liabilities 270,346 3,229 4.78 282,357 3,866 5.48 ------- ------- Noninterest-bearing demand deposits 12,749 10,481 Other noninterest-bearing liabilities 2,499 2,355 -------- -------- Total liabilities 285,594 295,193 Stockholders' equity 25,634 27,801 -------- -------- Total liabilities and stockholders' equity $311,228 $322,994 ======== ======== Net interest-earning assets $ 27,719 $ 28,822 ======== ======== Net interest income/interest rate spread $ 2,352 2.71 % $ 2,276 2.42 % ======= ====== ======= ====== Net interest margin 3.16 % 2.93 % ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 110.25 % 110.21 % ======= ======= _______________________________ (1) Includes FHLB stock.

18 Nine Months Ended September 30, ------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) 2001 2000 --------------------------- --------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost -------- -------- ------- -------- -------- ------- Interest-earning assets: Loans receivable: Residential mortgage loans $174,676 $10,072 7.69 % $188,113 $10,721 7.60 % Commercial business loans 52,998 3,406 8.57 41,829 2,854 9.10 Consumer and other loans 28,974 1,908 8.78 25,887 1,749 9.01 -------- ------- -------- ------- Total loans 256,648 15,386 7.99 255,829 15,324 7.99 Investment securities (1) 36,440 1,698 6.21 41,247 2,214 7.16 Other earning assets 12,478 389 4.16 7,548 331 5.85 -------- ------- -------- ------- Total interest-earning assets 305,566 17,473 7.62 304,624 17,869 7.82 ------- ------- Noninterest-earning assets 12,678 10,796 -------- -------- Total Assets $318,244 $315,420 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits $ 33,564 654 2.60 $ 34,645 1,017 3.91 Savings deposits 12,147 142 1.56 13,285 199 2.00 Certificates of deposit 160,729 6,743 5.59 156,676 6,763 5.76 -------- ------- -------- ------- Total deposits 206,440 7,539 4.87 204,606 7,979 5.20 Securities Sold Under Repurchase Agreements 1,819 42 3.08 - - - Borrowings 68,432 2,953 5.75 70,158 3,004 5.71 -------- ------- -------- ------- Total interest-bearing liabilities 276,691 10,534 5.08 274,764 10,983 5.33 ------- ------- Noninterest-bearing demand deposits 11,971 11,012 Other noninterest-bearing liabilities 2,494 1,998 -------- -------- Total liabilities 291,156 287,774 Stockholders' equity 27,088 27,646 -------- -------- Total liabilities and stockholders' equity $318,244 $315,420 ======== ======== Net interest-earning assets $ 28,875 $ 29,860 ======== ======== Net interest income/interest rate spread $ 6,939 2.54 % $ 6,886 2.49 % ======= ====== ======= ====== Net interest margin 3.03 % 3.01 % ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 110.44 % 110.87 % ======= ======= __________________________________________________________ (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 $3,000 provision for 19 loan losses for the three months ended September 30, 2001, and a credit of $173,000 in the provision for loan losses for the nine months ended September 30, 2001. The Company made no provision for loan losses in the three and nine-month periods ended September 30, 2000. At September 30, 2001, the Company's allowance for loan losses amounted to $2.5 million, or 0.99% of total loans and 229.0% of non- performing loans. 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. Non-Interest Income For the three months ended September 30, 2001, the Company reported non-interest income of $466,000, an increase of $83,000 from $383,000 for the three months ended September 30, 2000. The primary reasons for the increase were an increase in net gains on the sale of loans of $198,000, which were partially offset by a reduction in other income of $96,000 and a reduction in trading gains of $19,000. For the nine months ended September 30, 2001, the Company reported non- interest income of $1.5 million, an increase of $623,000, or 71.5%, from $871,000 for the nine months ended September 30, 2000. The primary reasons for the increase were an increase in net gains on the sale of loans of $660,000, an increase in trading gains of $14,000 and an increase in income from investment in a limited liability company of $47,000, all of which were partially offset by a reduction in other income of $94,000, a reduction in customer service fees of $1,000 and a reduction in loan servicing fees of $3,000. The increases in non-interest income from net gains on the sale of loans for the three- and nine-month periods ended September 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, impairment loss on long-lived assets, and other expense items. Non-interest expense amounted to $1.9 million for the three months ended September 30, 2001, up $156,000, or 8.9%, from the three months ended September 30, 2000. Salaries and employee benefits increased $128,000, or 12.9%, depreciation expense increased $13,000, or 16.3%, and all other expenses increased $90,000, or 24.7%. Partially offsetting such increases were a decrease in occupancy expense of $53,000, or 53.5%, a decrease in data processing expense of $25,000, or 30.5%, and a decrease in advertising of $5,000, or 13.2%. Non-interest expense increased $442,000, or 8.0%, from $5.5 million for the nine months ended September 30, 2000 to $5.9 million for the nine months ended September 30, 2001. Salaries and employee benefits increased $430,000, or 14.8%, occupancy expense increased $23,000, or 9.2%, depreciation expense increased $7,000, or 2.9%, data 20 processing expense increased $9,000, or 3.9%, the net cost of foreclosed assets increased $103,000, from a prior gain of $69,000 to a current cost of $34,000; and all other expenses increased $214,000, or 18.5%. 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 3.0%, a decrease in advertising of $11,000, or 6.7%, and a decrease in bank shares and franchise tax expense of $10,000, or 4.0%. Included in non-interest expenses for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2001 was $170,000 and $471,000, 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 September 30, 2001 and September 30, 2000, the Company incurred income tax expense of $332,000 and $319,000, respectively. The Company's effective tax rate amounted to 36.6% and 35.0% during the third 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 nine month periods ended September 30, 2001 and September 30, 2000, the Company incurred income tax expense of $968,000 and $802,000, respectively. The Company's effective tax rate amounted to 36.3% and 35.3% during the first nine 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 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 $121.7 million from the FHLB through its subsidiary bank. Additionally, using other investments as collateral, the subsidiary bank 21 could borrow an additional $5.5 million. Altogether, these sources represent $68.7 million additional cash liquidity over and above amounts recorded as of September 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 September 30, 2001, the total approved commitments to extend credit amounted to $23.9 million. Certificates of deposit scheduled to mature in one year or less at the same date totaled $105.3 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 September 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 September 30, 2001 are presented in the table below: 22 Minumum to be Minimum Well Capitalized Capital Prompt Corrective (Dollars in Thousands) Actual Requirement Action Provisions ---------------- ---------------- ----------------- September 30, 2001 Amount Ratio Amount Ratio Amount Ratio --------------------------------------- --------- ----- --------- ----- -------- ------- Total Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. $ 28,375 15.0% $ 15,122 8.0% $ N/A N/A LBA Savings Bank 27,081 14.6% 14,790 8.0% 18,487 10.0% Tier 1 Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. 26,040 13.8% 7,561 4.0% N/A N/A LBA Savings Bank 24,746 13.4% 7,395 4.0% 11,092 6.0 % Tier 1 Capital to Average Assets: Acadiana Bancshares, Inc. 26,040 8.4% 12,461 4.0% N/A N/A LBA Savings Bank 24,746 8.1% 12,289 4.0% 15,361 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 based upon 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. Not applicable. 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. (*) 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: November 12, 2001 By: /s/ Gerald G. Reaux Jr. ----------------------------------------- Gerald G. Reaux, Jr., Chairman, President and Chief Executive Officer Date: November 12, 2001 By: /s/ Emile E. Soulier, III ----------------------------------------- Emile E. Soulier, III, Vice-President and Chief Financial Officer 26

ACADIANA BANCSHARES INC /LA 10-Q