10-Q 1 tenq.txt QUARTERLY REPORT 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, 2002 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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- 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 4, 2002, 1,180,542 shares of the Registrant's common stock were issued and outstanding. Of that total, 202,666 shares were held by the Registrant's Employee Stock Ownership Plan, of which 79,587 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, 2002 and December 31, 2001) 3 Consolidated Income Statements (For the three and nine months ended September 30, 2002 and 2001) 4 Consolidated Statements of Stockholders' Equity (For the nine months ended September 30, 2002 and 2001) 5 Consolidated Statements of Cash Flows (For the nine months ended September 30, 2002 and 2001) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 Item 4. Controls and Procedures 27 Part II. Other Information -------- ----------------- Item 1. Legal Proceedings 28 Item 2. Changes in Securities and Use of Proceeds 28 Item 3. Defaults Upon Senior Securities 28 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 5. Other Information 28 Item 6. Exhibits and Reports on Form 8-K 28 Signatures 30 2 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED September 30, 2002 and December 31, 2001 (In Thousands, except share data) Assets September 30, December 31, 2002 2001 ------------- ------------ Cash and Cash Equivalents: Cash and Amounts Due from Banks $ 1,334 $ 3,097 Interest-Bearing Demand Deposits 19,404 8,198 ------------- ------------ Total Cash and Cash Equivalents 20,738 11,295 Time Deposits in Other Banks 2,452 3,048 Securities Available for Sale, at Fair Value 32,391 19,712 Securities Held to Maturity (Fair Value of $24,567 and $32,048 respectively) 21,972 31,989 Federal Home Loan Bank Stock, at Cost 4,419 4,321 Loans Held for Sale 3,272 4,827 Loans Receivable, Net of Allowance for Loan Losses of $2,392 and $2,710, respectively 207,027 229,891 Investment in Limited Liability Company 852 833 Premises and Equipment, Net 6,292 6,303 Accrued Interest Receivable 1,358 1,398 Cash Surrender Value of Life Insurance 6,409 135 Other Assets 1,724 1,753 ------------- ------------ Total Assets $ 308,906 $ 315,505 ============= ============ Liabilities and Stockholders' Equity Deposits: Non-interest Bearing $ 14,546 $ 14,395 Interest Bearing 193,873 201,174 ------------- ------------ Total Deposits 208,419 215,569 Securities Sold Under Agreements to Repurchase 1,605 2,758 Accrued Interest Payable 452 524 Long-Term Debt 68,211 68,971 Accrued and Other Liabilities 1,394 871 ------------- ------------ Total Liabilities 280,081 288,693 ------------- ------------ 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 32,986 32,626 Retained Earnings 26,602 25,515 Unearned Common Stock Held by ESOP Trust (980) (1,177) Unearned Common Stock Held by RRP Trust (342) (434) Accumulated Other Comprehensive Income 780 99 Treasury Stock, at Cost; 1,550,708 and 1,547,529 Shares, respectively (30,248) (29,844) ------------- ------------ Total Stockholders' Equity 28,825 26,812 ------------- ------------ Total Liabilities and Stockholders' Equity $ 308,906 $ 315,505 ============= ============

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, 2002 and 2001 (In Thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Interest and Dividend Income: Loans, including fees $4,022 $ 4,997 $ 12,382 $ 15,379 Debt Securities 632 435 1,935 1,552 Dividends 33 40 98 143 Trading Account Securities - - - 3 Interest Bearing Deposits 67 106 194 389 ---------- ---------- ---------- ---------- Total Interest and Dividend Income 4,754 5,578 14,609 17,466 ---------- ---------- ---------- ---------- Interest Expense: Deposits 1,492 2,212 4,717 7,538 Securities Sold Under Agreements to Repurchase 9 17 30 42 Borrowings 973 999 2,906 2,954 ---------- ---------- ---------- ---------- Total Interest Expense 2,474 3,228 7,653 10,534 ---------- ---------- ---------- ---------- Net Interest Income 2,280 2,350 6,956 6,932 Provision (credit) for Loan Losses - 3 - (173) ---------- ---------- ---------- ---------- Net Interest Income After Provision for Loan Losses 2,280 2,347 6,956 7,105 ---------- ---------- ---------- ---------- Non-Interest Income: Deposit Service Fees 182 212 590 632 Other Service Fees 55 40 140 127 Gain on Sale of Loans, Net 202 126 525 488 Gain (loss) on Sale of Other Assets (1) (9) 110 (10) Trading Account Gains, Net - 5 - 32 Income (Loss) From Investment in Limited Liability Company (3) 3 19 33 Earnings on Cash Surrender Value of Life Insurance 99 - 206 - Other 6 3 20 7 ---------- ---------- ---------- ---------- Total Non-Interest Income 540 380 1,610 1,309 ---------- ---------- ---------- ---------- Non-Interest Expense: Salaries and Employee Benefits 1,146 1,034 3,483 3,141 Occupancy 77 90 215 403 Depreciation 109 93 302 254 Data Processing 136 58 267 238 Advertising & Public Relations 38 34 165 153 Operating Expenses 125 111 385 345 Professional Fees 76 48 199 163 Merger Expenses 137 - 137 - Deposit Expenses 57 74 196 203 Bank Share Tax Expense 78 81 235 243 Directors' Fees 29 48 89 146 Other General & Administrative Expenses 131 150 484 455 ---------- ---------- ---------- ---------- Total Non-Interest Expense 2,139 1,821 6,157 5,744 ---------- ---------- ---------- ---------- Income Before Income Taxes 681 906 2,409 2,670 Income Tax Expense 233 332 842 968 ========== ========== ========== ========== Net Income $ 448 $ 574 $ 1,567 $ 1,702 ========== ========== ========== ========== Earnings Per Share - basic $ 0.42 $ 0.56 $ 1.49 $ 1.53 ========== ========== ========== ========== Earnings Per Share - diluted $ 0.39 $ 0.52 $ 1.38 $ 1.45 ========== ========== ========== ==========

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, 2002 and 2001 (In Thousands, except share data) Accumu- Unearned Unearned lated Common Common Other Total Additional Stock Held Stock Compre- Stock- Common Paid-In Retained By ESOP Held By hensive Treasury holders' Stock Capital Earnings Trust RRP Trust Income Stock Equity ------ ---------- --------- ---------- --------- ------- ---------- -------- 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 ====== ========== ========= ========== ========= ======= ========== ======== Balance, January 1, 2002 $ 27 $ 32,626 $ 25,515 $(1,177) $ (434) $ 99 $ (29,844) $ 26,812 Comprehensive Income: Net Income 1,567 1,567 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Deferred Taxes 681 681 -------- Total Comprehensive Income 2,248 Common Stock Released by ESOP Trust 231 197 428 Common Stock Earned by Participants of Recognition and Retention Plan Trust 68 92 160 Reissuance of treasury stock under stock option plan (42,978 shares) 61 834 895 Purchase of Treasury Stock (46,157 shares) (1,238) (1,238) Cash Dividends Declared ($.45 per share) (480) (480) ------ ---------- --------- ---------- --------- ------- ---------- -------- Balance, September 30, 2002 $ 27 $ 32,986 $ 26,602 $ (980) $ (342) $ 780 $ (30,248) $ 28,825 ====== ========== ========= ========== ========= ======= ========== ========

The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements. 5 ACADIANA BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED For the Nine Months Ended September 30, 2002 and 2001 (In Thousands) 2002 2001 ----------- ------------ Cash Flows from Operating Activities: Net Income $ 1,567 $ 1,702 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 316 265 Provision (Credit) for Losses on Loans - (173) Noncash Compensation Expenses 533 577 Other (gains) losses, net (111) 35 Income from Investment in Limited Liability Company (19) (33) Accretion of Discounts, Net of Premium Amortization on Securities 289 3 Amortization of Deferred Revenues and Unearned Income on Loans 7 40 FHLB Stock Dividend Received (98) (142) Net Changes in: Securities Classified as Trading - 162 Loans Held for Sale 1,555 121 Accrued Interest Receivable 40 272 Cash Surrender Value of Life Insurance (6,274) - Other Assets (509) (63) Other Liabilities 727 781 ----------- ------------ Total Adjustments (3,544) 1,845 ----------- ------------ Net Cash (Used in) Provided by Operating Activities (1,977) 3,547 ----------- ------------ Cash Flows from Investing Activities: Activity in Available for Sale Securities: Proceeds from Calls, Maturities and Prepayments 1,549 12,278 Purchases (13,297) (6,111) Activity in Held to Maturity Securities: Proceeds from Calls, Maturities and Prepayments 9,828 315 Net change in Certificate of Deposit 596 (2,951) Net Repayments on Loans 23,059 17,113 Proceeds from Sale of Premises and Equipment 209 - Purchase of Premises and Equipment (391) (1,555) Proceeds from Sale of Foreclosed Assets 228 60 Capital Costs Incurred on Foreclosed Assets (14) (10) ----------- ------------ Net Cash Provided by Investing Activities 21,767 19,139 ----------- ------------ Cash Flows from Financing Activities: Net Change in Deposits (7,150) (10,423) Net Change in Repurchase Agreements (1,153) 2,917 Proceeds from Long-term Debt - 4,432 Repayment of Long-term Debt (1,000) (5,004) Dividends Paid to Shareholders (480) (535) Proceeds from sale of treasury stock for stock options exercised 365 - Purchase of Treasury Stock (929) (4,566) ----------- ------------ Net Cash Used in Financing Activities (10,347) (13,179) ----------- ------------ Net Increase in Cash and Cash Equivalents 9,443 9,507 Cash and Cash Equivalents, Beginning of Period 11,295 8,467 ----------- ------------ Cash and Cash Equivalents, End of Period $ 20,738 $ 17,974 =========== ============ Supplemental Schedule of Noncash Activities: Acquisition of Foreclosed Assets in Settlement of Loans $ 38 $ 238 Supplemental Disclosures: Cash Paid For: Interest on Deposits and Borrowings $ 7,725 $ 10,411 Income Taxes $ 690 $ 650

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 to Shareholders and its Annual Report on Form 10-K for the year ended December 31, 2001, and its Quarterly Reports on form 10-Q and Current Report on Form 8-K filled subsequent thereto. The results for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. You may also review financial information posted on the website at www.acadianabancshares.com. Business The Company is a Louisiana corporation organized in February 1996 for the purpose of becoming the bank holding company for LBA Savings Bank (the "Bank"). The Company became a financial holding company in April 2000 operating from its headquarters in Lafayette, Louisiana. 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. The Company's marketing area is primarily in the parish of Lafayette, Louisiana and secondarily in other surrounding parishes in southwest Louisiana. The Company's principal business is the holding company for the Bank which conducts business from its main office and four branch offices, of which three branches are located in Lafayette, Louisiana, and one branch is located in New Iberia, Louisiana. Additionally, the Bank operates one loan production office in Eunice, Louisiana. The Bank provides a variety of financial services primarily to individuals, but also to commercial business customers. The primary activities of the Bank are making loans and investments and attracting deposits. Borrowings provide an alternative source of funds to support lending and investing activities, and the operation of the Bank. The banking industry is extensively regulated under both federal and state law. The Company, as a financial holding company, is subject to regulation and supervision under the Bank Holding Company Act of 1956 ("BHCA") by the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "FRB"). The BHCA requires the Company to obtain the prior approval of the FRB for bank and non-bank acquisitions and prescribes certain limitations in connection with acquisitions and the non-banking activities of the Company. The Company's banking activities are subject to regulation and examination by the Office of Financial Institutions of the State of Louisiana ("OFI"), which is the Bank's chartering authority and primary regulator, and the Federal Deposit Insurance Corporation ("FDIC"), the insurer of the Bank's deposits. The Bank is also subject to 7 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. Other supervisory and regulatory issues are discussed in the Company's 2001 Annual Report and its Form 10-K for the year ended December 31, 2001. 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, 2002 and December 31, 2001 are summarized as follows (in thousands): September 30, December 31, 2002 2001 ------------------------------------ -------------- --------------- Mortgage Loans: Single-Family Residential $ 109,188 $ 139,739 Construction 10,678 6,093 Multi-Family Residential 510 166 Commercial Real Estate 45,136 40,119 Equity Lines of Credit 5,492 4,421 -------------- --------------- Total Mortgage Loans 171,004 190,538 Commercial Business Loans 18,607 20,468 Other Consumer Loans 27,365 25,287 -------------- --------------- Total Loans 216,976 236,293 Less: Allowance for loan losses (2,392) (2,710) Net deferred loan fees (170) (161) Unadvanced loan funds (7,387) (3,531) -------------- --------------- Loans, net $ 207,027 $ 229,891 ============== =============== The following is an analysis of the allowance for possible loan losses for the nine months ended September 30, 2002 and for the year ended December 31, 2001 (in thousands): September 30, December 31, 2002 2001 ---------------------------------- -------------- --------------- Balance, Beginning $ 2,710 $ 2,714 Provision Charged to Income - 20 Loans Charged Off (424) (243) Loans Recovered 106 219 -------------- --------------- Balance, Ending $ 2,392 $ 2,710 ============== =============== 8 (3) Earnings Per Share Weighted average shares of common stock outstanding for basic earnings per share ("EPS") excludes the weighted average shares unreleased by the Employee Stock Ownership Plan ("ESOP") Trust (84,377 and 106,274 shares for the quarters ending September 30, 2002 and September 30, 2001, respectively) and the weighted average unvested shares held in the Recognition and Retention Plan ("RRP") Trust (26,460 and 44,917 for the quarters ending September 30, 2002 and September 30, 2001, respectively). The effect on diluted EPS of stock options outstanding and unvested RRP shares is calculated using the treasury stock method. The following is a reconcilement of the numerator and denominator for basic and diluted EPS: For the Three Months For the Nine Months Ended September 30, Ended September 30, ----------------------------- ---------------------------- 2002 2001 2002 2001 ----------- ------------- ----------- ------------ Numerator: Income Applicable to Common Shares $ 448,000 $ 574,000 $ 1,567,000 $ 1,702,000 =========== ============= =========== ============ Denominator: Weighted Average Common Shares Outstanding 1,057,231 1,032,530 1,053,208 1,113,232 Effect of Dilutive Securities: Stock Options Outstanding 80,678 65,510 79,808 50,377 RRP Grants 7,035 13,442 6,232 9,439 ----------- ------------- ----------- ------------ Weighted Average Common Shares Outstanding Assuming Dilution 1,144,945 1,111,482 1,139,248 1,173,048 =========== ============= =========== ============ Earnings per Share $ 0.42 $ 0.56 $ 1.49 $ 1.53 =========== ============= =========== ============ Earnings per Share - Assuming Dilution $ 0.39 $ 0.52 $ 1.38 $ 1.45 =========== ============= =========== ============

(4) Other Events - Agreement and Plan of Merger On September 22, 2002, the Company entered into an Agreement and Plan of Merger (the "Agreement") with IBERIABANK Corporation ("IBKC"), New Iberia, Louisiana, pursuant to which the Company will be merged with and into a wholly owned subsidiary of IBKC (the "Merger"). The Agreement calls for IBKC to pay total consideration of $39.38 for each outstanding common share of the Company, subject to adjustments, which consideration will consist of a combination of IBKC common stock and cash, as described below. The Agreement provides that upon consummation of the Merger, and subject to certain further terms, conditions, limitations, procedures and adjustments set forth in the Agreement, each issued and outstanding share of common stock, par value $0.01 per share, of the Company ("Company Common Stock") shall, by virtue of the Merger be converted into and represent the right to receive the following consideration, subject to adjustments (the "Merger Consideration"): (i) $7.88 in cash and (ii) a number of shares of IBKC common stock, par value $0.01 per share ("IBKC Common Stock"), with a value of $31.50 (the "Exchange Ratio") based upon the average closing price of IBKC Common Stock during a defined pre-closing period (the "Market Value"); provided, however that (A) if the Market Value is greater than $46.00, the Exchange Ratio will be fixed at 0.6848 and (b) if the Market Value is less than $34.00, the Exchange 9 Ratio will be fixed at 0.9265. All options to purchase Company Common Stock outstanding upon consummation of the Merger will be cancelled and in consideration of such cancellation, the option holders will receive a cash payment equal to the difference between the Merger Consideration and the exercise price of the options. In addition, the Bank will merge with IBERIABANK, the wholly owned subsidiary of IBKC. The Merger is subject to various conditions, including the approval of the Agreement by the Company's stockholders and the receipt of approvals of state and federal regulatory authorities. The Merger is currently expected to close during the first quarter of 2003. In connection with execution of the definitive agreement with IBKC, the Company granted IBKC an option, exercisable under certain conditions, to purchase up to 4.9% of the outstanding common shares of the Company at a price of $23.76 per share, payable in cash. These contingently issuable shares are not included in the calculation of diluted earnings per share because the conditions necessary for exercise have not been met. Recent Accounting Pronouncements In April of 2002 the Financial Accounting Standards Board ("FASB") issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The statement updates, clarifies and simplifies existing accounting pronouncements on several specific, specialized matters, including extinguishments of debt and sale- leaseback transactions. The adoption of this statement is not expected to have a material effect on the Company's financial position or results of operation. In July of 2002 the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. In many cases costs will be recognized as liabilities in periods following a commitment to a plan, not at the date of the commitment. Statement No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this statement is not expected to have a material effect on the Company's financial position or results of operation. In October of 2002 the FASB issued Statement No. 147, Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement No. 72 and Interpretation No. 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141 and 142. This statement also clarifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination, otherwise the transaction should be accounted for as an acquisition of net assts that does not result in the recognition of goodwill. Under transition guidance previously recognized unidentifiable intangible assets recognized in a transaction that was a business combination shall be reclassified to goodwill as of the date of the adoption of FAS 142, and any interim financial statements issued for periods after the adoption of 10 Statement No. 142 that reflect amortization of the unidentifiable intangible asset shall be restated to remove such amortization. The provisions of this statement are effective on October 1, 2002. The transition guidance for previously recognized unidentifiable intangible assets is effective on October 1, 2002, with earlier application permitted. The Company does not expect the adoption of Statement No. 147 to have any effect on the financial position or results of operations of the Company. Item 2. Management's Discussion and Analysis of Financial Condition and 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. OVERVIEW The discussion and analysis of financial condition and results of operations provided below, including descriptions of management's efforts, intentions, and expectations, is prepared and presented without taking into account the Company's Agreement and Plan of Merger, dated September 22, 2002, which agreement and plan of merger is more fully described in the Company's Current Report on Form 8-K dated September 22, 2002 (see also Note 4 of the Notes to Consolidated Financial Statements above). During the nine months ended September 30, 2002, management continued its effort to reduce the Company's historical dependence on interest income from long-term residential mortgage loans while increasing its commercial and consumer loan business; however, this strategy 11 has slowed short-term earnings growth in the current yield curve environment. The average balance of residential loans, as a percentage of average interest- earning assets, declined from 55.6% for the year ended December 31, 2001 and to 44.2% for the nine months ended September 30, 2002, and 41.8% for the three months ended September 30, 2002. During those same periods, the Company's average balance of commercial and consumer loans increased as a percentage of average earning assets, from 27.5% for the year ended December 31, 2001, to 30.7% for the nine months ended September 30, 2002, and 32.5% for the three months ended September 30, 2002. The Company's average balance of investments and other earning assets increased from 16.9% for the year ended December 31, 2001 to 25.1% for the nine months ended September 30, 2002, and 25.8% for the three months ended September 30, 2002. Though the Company's earning asset mix continues to change from a heavier weighting in long-term residential loans toward shorter term commercial and consumer loans and shorter term investments and other earning assets, the average yield on interest-earning assets declined from 7.53% for the year ended December 31, 2001, to 6.64% for the nine months ended September 30, 2002, and 6.47% for the three months ended September 30, 2002. The significant drop in prime rate and other short term market rates together with the shift in loan product mix are reflected in the decline in average yields on the Company's assets. During the nine months ended September 30, 2002, the Company's single- family residential loan portfolio decreased by $30.6 million from December 31, 2001, primarily as a result of prepayments on residential loans combined with the effects of the sale of $38.4 million of newly originated residential mortgage loans (which total includes completed residential construction loans) in the secondary market during that period. The Company's originations of new commercial and consumer loans more than offset the repayments resulting in an increase in the combined commercial and consumer loan portfolios by a total of $6.3 million. During the nine months ended September 30, 2002, the Company purchased $13.3 million of securities available for sale. Management has also made an effort to maintain net interest income by lowering its offering rates on deposits and thereby attempting to reduce the Company's cost of deposits sufficiently to offset the drop in interest income due to the lower yields on the Company's interest-earning assets. We believe the Company's pricing strategy resulted in lowering the cost of deposits. The Company's primary deposit funding source is from certificates of deposit. The average cost of certificates of deposit decreased from 5.34% for the year ended December 31, 2001, to 3.88% for the nine months ended September 30, 2002, and 3.74% for the three months ended September 30, 2002. Management has also made an effort to lengthen the maturities of its time deposits as they become due thereby lessening the sensitivity of such costs in a changing interest rate environment. At December 31, 2001, 39.6% of the Company's time deposits were scheduled to mature or reprice in more than one year. At September 30, 2002, 47.6% of the Company's time deposits were scheduled to mature or reprice in more than one year. We believe the current interest rate environment and other local market conditions make it unlikely to expect further significant lengthening of such repricing terms. At September 30, 2002, the consolidated assets of the Company were $308.9 million, a decrease of $6.6 million, or 2.1%, compared with $315.5 million at December 31, 2001. The decline in total assets is primarily attributable to the decrease in the single-family residential loan portfolio. The Company had total liabilities of $280.1 million at September 30, 2002, compared to $288.7 million at December 31, 2001. 12 ASSETS Total cash and cash equivalents increased $9.4 million, or 83.6%, from $11.3 million at December 31, 2001 to $20.7 million at September 30, 2002. Net cash provided by (used in) operating activities, investing activities, and financing activities amounted to ($2.0 million), $21.8 million, and ($10.3 million), respectively, for the nine months ended September 30, 2002. Cash and cash equivalents funded 6.7% of total assets at September 30, 2002 and 3.6% of total assets at December 31, 2001. The Company had $2.5 million in time deposits in other banks as of September 30, 2002. 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 increased $12.7 million, or 64.3%, to $32.4 million at September 30, 2002, compared with $19.7 million at December 31, 2001. The primary reasons for such increase were the purchase of $13.3 million of new securities and an increase in fair value of the securities of $1.0 million, both of which were partially offset by principal repayments of $1.5 million of investment securities. Securities available for sale primarily 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 other comprehensive income. As of September 30, 2002, investment securities available for sale amounted to 10.5% of total assets, compared to 6.2% of total assets at December 31, 2001. Securities held to maturity decreased $10.0 million, or 31.3%, from $32.0 million at December 31, 2001 to $22.0 million at September 30, 2002. Securities held to maturity consist of mortgage-backed securities. At September 30, 2002 securities held to maturity amounted to 7.1% of total assets compared to 10.1% at December 31, 2001. Loans receivable, net, decreased $22.9 million, or 9.9%, to $207.0 million at September 30, 2002, compared to $229.9 million at December 31, 2001. Single- family residential loans decreased $30.6 million, or 21.9%, from $139.7 million at December 31, 2001, to $109.2 million at September 30, 2002. Construction loans (which include primarily single-family residential construction) increased $4.6 million, from $6.1 million at December 31, 2001 to $10.7 million at September 30, 2002. Multi-family residential mortgage loans increased $344,000, or 207.2%, from $166,000 at December 31, 2001, to $510,000 at September 30, 2002. Commercial real estate loans increased $5.0 million, or 12.5%, from $40.1 million at December 31, 2001, to $45.1 million at September 30, 2002. Equity lines of credit increased $1.1 million, or 24.2%, from $4.4 million at December 31, 2001 to $5.5 million at September 30, 2002. Commercial business loans decreased $1.9 million, or 9.1%, from $20.5 million at December 31, 2001, to $18.6 million at September 30, 2002. Other consumer loans increased $2.1 million, or 8.2%, from $25.3 million at December 31, 2001, to $27.4 million at September 30, 2002. Total gross loans decreased $19.3 million, or 8.2%, from $236.3 million at December 31, 2001, to $217.0 million at September 30, 2002. Loans receivable, net, amounted to 67.0% of total assets at September 30, 2002, compared to 72.9% of total assets at December 31, 2001. Note 2 to the Consolidated Financial Statements provides additional information regarding the Company's loan portfolio at September 30, 2002 and December 31, 2001. 13 The Company had $6.4 million in cash surrender value of life insurance as of September 30, 2002. Near the end of the quarter ended March 31, 2002, the Company purchased $6.0 million of bank owned life insurance insuring the lives of several of its officers. The Company's purpose for this investment is to generate other income to partially offset the rising costs of certain employee benefit plans. Increases in cash surrender value are included in non-interest income. 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, 2002. The Company's total deposits decreased by $7.2 million, or 3.3%, to $208.4 million at September 30, 2002, compared to $215.6 million at December 31, 2001. Interest bearing deposits decreased $7.3 million, or 3.6%, while non-interest bearing deposits increased $151,000, or 1.0%, all of which increase occurred during the third quarter of 2002. Certificates of deposit, comprising the largest portion of interest-bearing deposits, amounted to $143.0 million at September 30, 2002, a decrease of $9.7 million, or 6.4%, from $152.7 million at December 31, 2001. Total deposits funded 67.5% of total assets at September 30, 2002, compared to 68.3% at December 31, 2001. 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 repurchase amounted to $1.6 million at September 30, 2002, compared to $2.8 million at December 31, 2001. The Company had no other short-term borrowings at September 30, 2002 or at December 31, 2001. Long-term debt decreased $760,000, or 1.1%, from $69.0 million at December 31, 2001 to $68.2 million at September 30, 2002. Long-term debt funded 22.1% of assets at September 30, 2002 and 21.9% of assets at December 31, 2001. Long-term debt consists primarily of advances from the FHLB. Advances from the FHLB amounted to $65.4 million of long-term debt at September 30, 2002, 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. Such advances have substantial prepayment penalties and thus, except if called by the FHLB, management does not expect to repay such debt until final maturity. Without regard to callable features, at September 30, 2002, advances from the FHLB with a remaining maturity of one year or less, with a remaining maturity of more than one year through three years and with a remaining maturity of more than three years amounted to $3.1 million, $250,000, and $62.0 million, respectively. Advances from the FHLB have been, and are expected to continue to be, an important source of funding. 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, 2002, stockholders' equity totaled $28.8 million, an increase of $2.0 million, or 7.5%, compared to $26.8 million at December 31, 2001. The increase was primarily attributable to $1.6 14 million of net income for the nine months ended September 30, 2002, together with the reissuance of treasury stock under the Company's stock option plan of $895,000, an increase in other comprehensive income of $681,000, the release of common stock related to the Company's employee stock benefit plans totaling $588,000, all of which was partially offset by aggregate repurchases of common stock for treasury of $1.2 million and by $480,000 of aggregate cash dividends declared on the Company's common stock. Stockholders' equity funded 9.3% and 8.5% of assets at September 30, 2002 and at December 31, 2001, respectively. Federal regulations impose minimum regulatory capital requirements on all financial institutions with deposits insured by the FDIC, which requirements directly affect the minimum capital levels at the Bank. The FRB also imposes minimum regulatory capital requirements, which directly affect the minimum capital levels at the Company. At September 30, 2002 the capital of the Bank and the capital of the Company exceeded all minimum regulatory requirements. RESULTS OF OPERATIONS The Company reported net income of $448,000 and earnings per share of $0.42 (basic) and $0.39 (diluted) for the three months ended September 30, 2002, compared to net income of $574,000 and earnings per share of $0.56 (basic) and $0.52 (diluted) for the three months ended September 30, 2001. Net income decreased $126,000, or 22.0%, and basic earnings per share decreased 25.0% comparing the current quarter to the year ago quarter. The Company reported net income of $1.6 million and earnings per share of $1.49 (basic) and $1.38 (diluted) for the nine months ended September 30, 2002, compared to net income of $1.7 million and earnings per share of $1.53 (basic) and $1.45 (diluted) for the nine months ended September 30, 2001. Net income decreased $135,000, or 7.9%, and basic earnings per share decreased 2.6% comparing the current nine-month period to the year ago nine-month period. The Company continued selling substantially all newly originated single- family residential mortgage loan production, which sales amounted to $38.4 million for the nine months ended September 30, 2002, compared to $38.7 million for the nine months ended September 30, 2001. Net gains from such sales are included in non-interest income and amounted to $202,000 and $126,000 for the three months ended September 30, 2002 and 2001, respectively, and $525,000 and $488,000 for the nine months ended September 30, 2002 and 2001, respectively. Non-interest income was $540,000 for the three months ended September 30, 2002, compared to $380,000 for the three months ended September 30, 2001, representing an increase of $160,000. The primary reasons for this increase in non-interest income were the earnings of $99,000 during the current quarter on the cash surrender value of life insurance, which the Company did not own in the 2001 fiscal year, and the $76,000 increase in net gain from sale of loans. Non-interest income was $1.6 million for the nine months ended September 30, 2002 compared to $1.3 million for the nine months ended September 30, 2001. The primary reasons for the $301,000 increase in non-interest income during the current year compared to the year ago period are the earnings of $206,000 during the current year on the cash surrender value of life insurance, which the Company did not own in the 2001 fiscal year, and a net gain on sale of other assets of $110,000 in the current year versus a $10,000 net loss on the sale of other assets during 15 the same period in 2001. The gain on sale of assets during this year is primarily from the settlement of an expropriation of property, which is not expected to be recurring income. Net Interest Income Net interest income is determined by the combined effects of interest rate spread (i.e., the difference between the average yields earned on interest- earning assets and the average 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 2.77% and 2.61% during the three months ended September 30, 2002 and 2001, 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 net interest margin (i.e., the difference between interest income and interest expense multiplied by average interest- earning assets) was 3.10%, and 3.03%, during the three months ended September 30, 2002 and 2001, respectively. The seven basis point (with 100 basis points being equal to 1%) increase in net interest margin in the third quarter of 2002 compared to 2001 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 slightly faster decreases in the average rates paid on the average balances of interest- bearing deposits and borrowings than in the average yields earned on the Company's loans, investment securities, and other interest-earning assets. Counteracting the effects of such efforts was the decrease in the average balance of interest-earning assets of $16.2 million, more than offsetting the decrease in the average balance of interest-bearing liabilities of $13.9 million, for the three months ended September 30, 2002 as compared to the three months ended September 30, 2001. The Company's net interest income decreased $70,000, or 3.0%, from $2.4 million for the quarter ended September 30, 2001 to $2.3 million for the quarter ended September 30, 2002. The Company's average interest rate spread was 2.83% and 2.52% during the nine months ended September 30, 2002 and 2001, respectively. The Company's net interest margin was 3.16%, and 3.00%, during the nine months ended September 30, 2002 and 2001, respectively. The 16 basis point increase in net interest margin in the first nine months of 2002 compared to 2001 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 average yields earned on the Company's loans, investment securities, and other interest-earning assets. As a result of such efforts and not withstanding the decrease in the ratio of average interest-earning assets to average interest- bearing liabilities for the nine months ended September 30, 2002 compared to the prior year period, the Company's net interest income increased $24,000, or 0.3%, from $6.9 million for the nine months ended September 30, 2001, to $7.0 million for the nine months ended September 30, 2002. Interest and Dividend Income Interest and dividend income totaled $4.8 million for the three months ended September 30, 2002, compared to $5.6 million for the three months ended September 30, 2001, a decrease of $824,000, or 14.8%. This decrease was mainly due to a decrease in the average balances of interest-earning assets of $16.2 million, or 5.3%, together with a decrease of 73 basis points in the 16 yield earned on the Company's average interest-earning assets during the quarter ended September 30, 2002 compared to the prior year period. Interest and dividend income totaled $14.6 million for the nine months ended September 30, 2002, compared to $17.5 million for the nine months ended September 30, 2001, a decrease of $2.9 million, or 16.4%. This decrease was mainly due to a decrease in the average balance of interest-earning assets of $15.0 million, or 4.9%, together with a decrease of 91 basis points in the yield earned on the Company's average interest-earning assets during the nine months ended September 30, 2002 compared to the prior year period. Interest income earned on loans decreased $975,000, or 19.5%, from $5.0 million for the three months ended September 30, 2001 to $4.0 million for the three months ended September 30, 2002. This decrease was due to a decrease in the Company's average balance of loans for the three months ended September 30, 2002, of $41.0 million, or 15.9%, compared to the three months ended September 30, 2001, together with a decrease of 32 basis points in the yield earned on the Company's average balance of loans. The average balance of residential mortgage loans decreased $53.9 million, or 30.7%, while the average balance of commercial loans increased $10.1 million, or 19.2%, and the average balance of consumer and other loans increased $2.7 million, or 9.4%. The average yield earned on the loan portfolio was 7.38% for the three months ended September 30, 2002, which was a decrease of 32 basis points from the 7.70% yield earned on the loan portfolio for the three months ended September 30, 2001. The net downward changes in average loan balances reflect the results of the Company's continuing strategy to reduce its historical dependence on residential mortgage loans, which is occurring at a faster pace than growth in commercial and consumer loans. Interest income earned on loans decreased $3.0 million, or 19.5%, from $15.4 million for the nine months ended September 30, 2001 to $12.4 million for the nine months ended September 30, 2002. This decrease was due to a decrease in the Company's average balance of loans for the nine months ended September 30, 2002, of $38.7 million, or 14.9%, compared to the nine months ended September 30, 2001, together with a decrease of 42 basis points in the yield earned on the Company's average balance of loans. The average balance of residential mortgage loans decreased $49.3 million, or 27.5%, while the average balance of commercial loans increased $9.0 million, or 17.6%, and the average balance of consumer and other loans increased $1.6 million, or 5.6%. The average yield earned on the loan portfolio was 7.51% for the nine months ended September 30, 2002, which was a decrease of 42 basis points from the 7.93% yield earned on the loan portfolio for the nine months ended September 30, 2001. Interest and dividend income earned on investment securities increased $190,000, or 40.0%, from $475,000 for the three months ended September 30, 2001 to $665,000 for the three months ended September 30, 2002. This increase was due to an increase in the Company's average balance of investment securities of $25.4 million, or 70.2%, which was partially offset by a 92 basis point decrease in the Company's average yield earned on investment securities for the three months ended September 30, 2002 compared to the Company's average yield earned on investment securities for the three months ended September 30, 2001. Interest and dividend income earned on investment securities increased $338,000, or 19.9%, from $1.7 million for the nine months ended September 30, 2001 to $2.0 million for the nine months ended September 30, 2002. This increase was due to an increase in the Company's average 17 balance of investment securities of $23.4 million, or 61.5%, which was partially offset by a 154 basis point decrease in the Company's average yield earned on investment securities for the nine months ended September 30, 2002 compared to the Company's average yield earned on investment securities for the nine months ended September 30, 2001. Interest income earned on other interest-earning assets decreased $39,000, or 36.8%, from $106,000 for the three months ended September 30, 2001, to $67,000 for the three months ended September 30, 2002. This decrease was primarily due to a decrease in the Company's average yield earned on other interest-earning assets of 103 basis points, from 3.00% to 1.97%, together with a decrease in the Company's average balance of other interest-earning assets of $540,000, or 3.8%, from $14.0 million for the three months ended September 30, 2001, to $13.5 million at September 30, 2002. Other earning assets consist of cash invested overnight and time deposits in other banks. Interest income earned on other interest-earning assets decreased $198,000, or 50.5%, from $392,000 for the nine months ended September 30, 2001, to $194,000 for the nine months ended September 30, 2002. This decrease was primarily due to a decrease in the Company's average yield earned on other interest-earning assets of 222 basis points, from 4.30% to 2.08%, which was partially offset by an increase in the Company's average balance of other interest-earning assets of $282,000, or 2.3%, from $12.2 million for the nine months ended September 30, 2001, to $12.5 million at September 30, 2002. Interest Expense Interest expense decreased $754,000, or 23.4%, from $3.2 million for the three months ended September 30, 2001, to $2.5 million for the three months ended September 30, 2002. This decrease was due to a decrease in both the cost of interest-bearing liabilities and by a decrease in the average balance of interest-bearing liabilities. The average balance of interest-bearing liabilities decreased $13.9 million, or 5.0%, from $279.2 million for the three months ended September 30, 2001, to $265.2 million for the three months ended September 30, 2002. The cost of such interest-bearing liabilities decreased 89 basis points for the three months ended September 30, 2002 as compared to the three months ended September 30, 2001. Interest expense decreased $2.9 million, or 27.3%, from $10.5 million for the nine months ended September 30, 2001, to $7.7 million for the nine months ended September 30, 2002. 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 $11.7 million, or 4.2%, from $279.9 million for the nine months ended September 30, 2001, to $268.2 million for the nine months ended September 30, 2002. The cost of such interest-bearing liabilities decreased 122 basis points for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001. The average balance of interest-bearing deposits decreased $14.8 million, or 7.1%, from $209.4 million for the three months ended September 30, 2001, to $194.7 million for the three months ended September 30, 2002. The interest expense on average interest-bearing deposits decreased $720,000, or 32.5%, from $2.2 million for the three months ended September 30, 2001 to $1.5 million for the three months ended September 30, 2002. The cost of such average deposits 18 decreased from 4.19% to 3.04%, or 115 basis points, for the three months ended September 30, 2002 as compared to the three months ended September 30, 2001. The average balance of interest-bearing deposits decreased $13.5 million, or 6.4%, from $210.3 million for the nine months ended September 30, 2001, to $196.8 million for the nine months ended September 30, 2002. The interest expense on average interest-bearing deposits decreased $2.8 million, or 37.4%, from $7.5 million for the nine months ended September 30, 2001 to $4.7 million for the nine months ended September 30, 2002. The cost of such average deposits decreased from 4.79% to 3.21%, or 158 basis points, for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001. The average balance of securities sold under agreements to repurchase was essentially unchanged at $2.1 million for the three months ended September 30, 2002 and 2001. The average cost of securities sold under agreements to repurchase was 1.69% for the three months ended September 30, 2002 compared to 3.22% for the three months ended September 30, 2001. The average balance of securities sold under agreements to repurchase amounted to $2.4 million for the nine months ended September 30, 2002 compared to $1.4 million for the nine months ended September 30, 2001. The average cost of securities sold under agreements to repurchase was 1.69% for the nine months ended September 30, 2002 compared to 4.03% for the nine months ended September 30, 2001. Interest expense on borrowings (consisting primarily of fixed rate advances from the FHLB) decreased $26,000, or 2.6%, from $999,000 for the three months ended September 30, 2001, to $973,000 for the three months ended September 30, 2002. The primary reason for the decrease was a 22 basis point decrease in the average cost of such borrowings, which was partially offset by a $806,000, or 1.2%, increase in the average balance of such borrowings. Interest expense on borrowings (consisting primarily of fixed rate advances from the FHLB) decreased $48,000, or 1.6%, from $3.0 million for the nine months ended September 30, 2001, to $2.9 million for the nine months ended September 30, 2002. The primary reason for the decrease was a 17 basis point decrease in the average cost of such borrowings, which was partially offset by a $866,000, or 1.3%, increase in the average balance of such borrowings. 19 Average Balances, Net Interest Income, 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 average 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 Three Months Ended September 30, 2002 September 30, 2001 ---------------------------------- ----------------------------------- Average Average Average Average (Dollars in Thousands) Balance Interest Yield/cost Balance Interest Yield/cost -------- -------- ---------- -------- -------- ---------- Interest-earning assets: Loans receivable: Residential mortgage loans (1) $121,663 $2,287 7.46% $175,529 $ 3,187 7.20% Commercial loans 62,923 1,112 7.01 52,793 1,176 8.84 Consumer and other loans 31,777 623 7.78 29,042 634 8.66 -------- ------ -------- ------- Total loans 216,363 4,022 7.38 257,364 4,997 7.70 Investment securities (2) 61,546 665 4.29 36,166 475 5.21 Other earning assets 13,494 67 1.97 14,034 106 3.00 -------- ------ -------- ------- Total interest-earning assets 291,403 4,754 6.47 307,564 5,578 7.20 ------ ---- ------- ---- Noninterest-earning assets 17,403 12,679 -------- -------- Total Assets $308,806 $320,243 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits $ 37,338 103 1.09% $ 33,809 171 2.01 Savings deposits 13,438 31 0.92 12,120 40 1.31 Certificates of deposit 143,892 1,358 3.74 163,515 2,001 4.86 -------- ----- -------- ------- Total interest-bearing deposits 194,668 1,492 3.04 209,444 2,212 4.19 Securities sold under Repurchase Agreements 2,119 9 1.69 2,095 17 3.22 Borrowings 68,447 973 5.64 67,641 999 5.86 -------- ----- -------- ------- Total interest-bearing liabilities 265,234 2,474 3.70 279,180 3,228 4.59 ----- ---- ------- ---- Noninterest-bearing demand deposits 13,619 12,018 Other noninterest-bearing liabilities 1,781 2,462 -------- -------- Total liabilities 280,634 293,660 -------- -------- Stockholders' equity 28,172 26,583 -------- -------- Total liabilities and stockholders' equity $308,806 $320,243 ======== ======== Net interest-earning assets $ 26,169 $ 28,384 ======== ======== Net interest income/interest rate spread $2,280 2.77% $ 2,350 2.61% ====== ==== ======= ==== Net interest margin 3.10% 3.03% ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 109.87% 110.17% ====== ======= ___________________________________________

(1)Includes loans held for sale. (2)Includes FHLB stock. 20 Nine Months Ended Nine Months Ended September 30, 2002 September 30, 2001 ---------------------------------- ----------------------------------- Average Average Average Average (Dollars in Thousands) Balance Interest Yield/cost Balance Interest Yield/cost -------- -------- ---------- -------- -------- ---------- Interest-earning assets: Loans receivable: Residential mortgage loans (1) $129,982 $7,372 7.58% $179,292 $10,071 7.51% Commercial loans 60,084 3,229 7.19 51,101 3,405 8.91 Consumer and other loans 30,357 1,781 7.84 28,753 1,903 8.85 -------- ------ -------- ------- Total loans 220,423 12,382 7.51 259,146 15,379 7.93 Investment securities (2) 61,446 2,033 4.42 38,054 1,695 5.96 Other earning assets 12,461 194 2.08 12,179 392 4.30 -------- ------ -------- ------- Total interest-earning assets 294,330 14,609 6.64 309,379 17,466 7.55 ------ ---- ------- ---- Noninterest-earning assets 16,641 12,431 -------- -------- Total Assets $310,971 $321,810 ======== ======== Interest-bearing liabilities: Deposits: Demand deposits $ 37,232 381 1.37 $ 33,806 653 2.58 Savings deposits 13,364 97 0.97 12,095 142 1.57 Certificates of deposit 146,174 4,239 3.88 164,388 6,743 5.48 -------- ----- -------- ------- Total interest-bearing deposits 196,770 4,717 3.21 210,289 7,538 4.79 Securities sold under Repurchase Agreements 2,370 30 1.69 1,394 42 4.03 Borrowings 69,100 2,906 5.62 68,234 2,954 5.79 -------- ----- -------- ------- Total interest-bearing liabilities 268,240 7,653 3.81 279,917 10,534 5.03 ----- ---- ------- ---- Noninterest-bearing demand deposits 13,347 11,575 Other noninterest-bearing liabilities 1,809 2,492 -------- -------- Total liabilities 283,396 293,984 -------- -------- Stockholders' equity 27,575 27,826 -------- -------- Total liabilities and stockholders' equity $310,971 $321,810 ======== ======== Net interest-earning assets $ 26,090 $ 29,462 ======== ======== Net interest income/interest rate spread $6,956 2.83% $ 6,932 2.52% ====== ==== ======= ==== Net interest margin 3.16% 3.00% ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 109.73% 110.53% ====== ======= ____________________________________________

(1)Includes loans held for sale. (2)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 21 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 no provision for loan losses for the three and nine months ended September 30, 2002, and a provision of $3,000 and credit of $173,000 in the provision for loan losses for the three and nine months ended September 30, 2001, respectively. At September 30, 2002, the Company's allowance for loan losses amounted to $2.4 million, or 1.1% of total loans and 289.2% of the total of non-performing loans and loans considered troubled debt restructurings. At December 31, 2001, the Company's allowance for loan losses amounted to $2.7 million, or 1.1% of total loans and 586.7% of the total of non-performing loans and loans considered troubled debt restructurings. Non-Interest Income In an effort to reduce its historical dependence on interest income from long-term residential loans the Company continued selling substantially all newly originated single-family residential mortgage loan production, which sales amounted to $38.4 million for the nine months ended September 30, 2002, compared to $38.7 million for the nine months ended September 30, 2001. Net gains from such sales are included in non-interest income and amounted to $202,000 and $126,000 for the three months ended September 30, 2002 and 2001, respectively, and $525,000 and $488,000 for the nine months ended September 30, 2002 and 2001, respectively. Non-interest income was $540,000 for the three months ended September 30, 2002, compared to $380,000 for the three months ended September 30, 2001, representing an increase of $160,000, or 42.1%. The primary reasons for this increase in non-interest income were the earnings of $99,000 during the three months ended September 30, 2002 on the cash surrender value of life insurance, which the Company did not own in the 2001 fiscal year, and an increase of $76,000 in the net gain on sale of loans during the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Non-interest income was $1.6 million for the nine months ended September 30, 2002 compared to $1.3 million for the nine months ended September 30, 2001, representing an increase of $301,000, or 23.0%. The primary reasons for this increase in non-interest income were the earnings of $206,000 during the nine months ended September 30, 2002 on the cash surrender value of life insurance, which the Company did not own in the 2001 fiscal year, and a $120,000 increase in gain on the sale of assets. The gain on sale of assets during this year is primarily from the settlement of an expropriation of property, which is not expected to be recurring income. Non-Interest Expense Non-interest expense includes salaries and employee benefits, occupancy, depreciation, data processing, advertising and public relations, professional fees, deposit related expenses, bank share tax expense, directors' fees, certain operating expenses, and other general and administrative expenses and other expense items. The Company also incurred merger related expenses in the quarter ended September 30, 2002. Non-interest expense increased $318,000, or 17.5%, from $1.8 million for the three months ended September 30, 2001 to $2.1 million for the three months ended September 30, 2002. 22 Salaries and employee benefits increased $112,000, or 10.8%; occupancy expense decreased $13,000, or 14.4%, depreciation expense increased $16,000, or 17.2%; data processing expense increased $78,000, or 134.5%; advertising and public relations expense increased $4,000, or 11.8%; operating expenses increased $14,000, or 12.6%, professional fees increased $28,000, or 58.3%, deposit expenses decreased $17,000, or 23.0%, bank share tax expenses decreased $3,000, or 3.7%, directors' fees decreased $19,000, or 39.6%, and other general and administrative expenses decreased $19,000, or 12.7%. The Company also incurred $137,000 of merger expenses during the three months ended September 30, 2002. Non-interest expense increased $413,000, or 7.2%, from $5.7 million for the nine months ended September 30, 2001 to $6.2 million for the nine months ended September 30, 2002. Salaries and employee benefits increased $342,000, or 10.9%; occupancy expense decreased $188,000, or 46.7%, depreciation expense increased $48,000, or 18.9%; data processing expense increased $29,000, or 12.2%; advertising and public relations expense increased $12,000, or 7.8%; operating expenses increased $40,000, or 11.6%, professional fees increased $36,000, or 22.1%, deposit expenses decreased $7,000, or 3.4%, bank share tax expenses decreased $8,000, or 3.3%, directors' fees decreased $57,000, or 39.0%, and other general and administrative expenses increased $29,000, or 6.4%. The Company also incurred $137,000 of merger expenses during the nine months ended September 30, 2002. Salaries and employee benefits increased $112,000 and $342,000 for the three and nine months ended September 30, 2002, respectively, as compared to the three and nine months ended September 30, 2001. Included in such costs are the costs of group health insurance and the costs associated with the Company's employee stock benefit program. The cost of the Company's group health insurance was $150,000 and $429,000 for the three and nine month periods ended September 30, 2002, respectively, as compared to $71,000 and $223,000 for the three and nine month periods ended September 30, 2001, respectively. The increases in the cost of group health insurance of $79,000 and $206,000 for the three and nine months ended September 30, 2002, respectively, as compared to the three and nine months ended September 30, 2001, relate directly to the increase in health insurance claims experienced by the Company's employees. The cost of the employee stock benefit plan was $151,000 and $428,000 for the three and nine month periods ended September 30, 2002, respectively, as compared to $124,000 and $339,000 for the three and nine month periods ended September 30, 2001, respectively. The increases in the cost of the employee stock benefit plan of $61,000 and $89,000 for the three and nine months ended September 30, 2002, respectively, as compared to the three and nine months ended September 30, 2001, relate directly to the increase in average periodic price of the Company's stock. The average price of the Company's stock was $27.66 and $25.85 for the three and nine month periods ended September 30, 2002, respectively, compared to $22.59 and $20.84 for the three and nine month periods ended September 30, 2001, respectively. The announcement of the Company's Agreement and Plan of Merger, dated September 22, 2002, resulted in a significant increase in the price of the Company's stock on that day, which, if continuing, would result in significant increases in the cost of the Company's employee stock benefit plan during future periods and until the effective time of the merger, which is currently expected to close during the first quarter of 2003. Occupancy expenses decreased $13,000 and $188,000 for the three and nine months ended September 30, 2002 as compared to the three and nine months ended September 30, 2001. The Company actively engages in leasing space at its headquarters that it has available. Income from leases to third parties for the three months ended September 30, 2002 and 2001 was $188,000 and 23 $171,000, respectively. Income from leases to third parties for the nine months ended September 30, 2002 and 2001 was $542,000 and $472,000, respectively. Such leasing income reduces the Company's reported occupancy expense. Management offers no assurance 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. In connection with the Company's decision to upgrade and expand its core technology operating systems, the Company signed a long-term data processing agreement with a cooperative data processing center, owned by its customers. The agreement provides for service for a period of sixty months and currently the Company expects the monthly cost to be between $22,000 and $24,000 per month, or between $264,000 and $288,000 per year. The sixty month agreement began late in June of 2002 and runs through May of 2007. Income Taxes For the three months ended September 30, 2002 and September 30, 2001, the Company incurred income tax expense of $233,000 and $332,000, respectively. The Company's effective tax rate amounted to 34.2% and 36.6% during the first three months ended September 30, 2002 and 2001, 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 months ended September 30, 2002 and September 30, 2001, the Company incurred income tax expense of $842,000 and $968,000, respectively. The Company's effective tax rate amounted to 35.0% and 36.3% during the nine months ended September 30, 2002 and 2001, 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 $127.8 million from the FHLB through its subsidiary bank, with $62.5 million currently available for additional borrowing. Using other investments as collateral, the subsidiary bank could borrow an additional $28.6 million. Altogether, these sources represent $91.1 million additional cash liquidity which could be obtained through additional borrowings at September 30, 2002. 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 24 September 30, 2002, the total approved commitments to extend credit amounted to $40.1 million, including undisbursed funds related to construction loans of $7.2 million, unused approved lines of credit of $14.8 million, approved loan commitments of $18.0 million and standby letters of credit of $56,000. Certificates of deposit with a remaining maturity of one year or less at the same date totaled $31.3 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, 2002, 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, 2002 are presented in the table below: Minumum to be Minimum Well Capitalized Under Capital Prompt Corrective (Dollars in Thousands) Actual Requirement Action Provisions ---------------- ---------------- ---------------- September 30, 2002 Amount Ratio Amount Ratio Amount Ratio --------------------------------------- -------- ----- -------- ----- -------- ----- Total Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. $ 30,286 16.6% $ 14,578 8.0% N/A N/A LBA Savings Bank 27,511 15.5% 14,214 8.0% $ 17,767 10.0% Tier 1 Capital to Risk Weighted Assets: Acadiana Bancshares, Inc. 28,045 15.4% 7,289 4.0% N/A N/A LBA Savings Bank 25,270 14.2% 7,107 4.0% 10,660 6.0% Tier 1 Capital to Average Assets: Acadiana Bancshares, Inc. 28,045 9.1% 12,341 4.0% N/A N/A LBA Savings Bank 25,270 8.4% 12,088 4.0% 15,110 5.0%

25 IMPACT OF INFLATION AND CHANGING PRICES 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 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 2001 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, 2001. 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 26 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 2001 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, 2001. Item 4. Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this quarterly report, and based on their evaluation, our chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. 27 PART II - OTHER INFORMATION Item 1. Legal Proceedings. ------------------ Not applicable. Item 2. Changes in Securities and Use of Proceeds. ------------------------------------------ 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. 2.1(1) Agreement and Plan of Merger, dated as of September 22, 2002, by and between IBERIABANK Corporation and the Company 3.1(2) Articles of Incorporation of Acadiana Bancshares, Inc. 3.2(2) Bylaws of Acadiana Bancshares, Inc. 4.0(2) Form of Stock Certificate of Acadiana Bancshares, Inc. 10.1(3) Stock Option Plan 10.2(3) 1996 Recognition and Retention Plan and Trust Agreement for Employees and Non Employee Directors 10.3(4) Employment Agreement between LBA Savings Bank and Gerald G. Reaux, Jr. 10.4(2) Form of Severance Agreement between Acadiana Bancshares, Inc., LBA Savings Bank and James J. Montelaro, Gregory King, Mary Anne Bertrand, Wayne Bares, Emile E. Soulier, III and Thomas F. Debaillon. 10.5(5) 2002 Stock Option Plan. 99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ______________________________ (1) Incorporated herein by reference from Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed October 11, 2002 (File No. 1-14364). 28 (2) 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. (3) 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). (4) 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. (5) Incorporated by reference to the definitive proxy statement, dated March 22, 2002, filed by the Registrant with the SEC (Commission File No. 1-14364). b) Form 8-K. On October 11, 2002, the Company filed a Current Report on Form 8-K, indicating, with respect to Item 5, that the Company had entered into an Agreement and Plan of Merger, dated as of September 22, 2002 (the "Agreement"), by and between the Company and IBERIABANK Corporation ("IBKC"). The Agreement, a Stock Option Agreement, dated as of September 22, 2002, between the Company and IBKC, and a joint press release of the Company and IBKC regarding the transactions were included as exhibits to such Current Report. 29 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 14, 2002 By:/s/ Gerald G. Reaux, Jr. ----------------------------------------- Gerald G. Reaux, Jr., Chairman, President and Chief Executive Officer Date: November 14, 2002 By:/s/ Emile E. Soulier, III ----------------------------------------- Emile E. Soulier, III, Senior Vice President and Chief Financial Officer 30 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER I, Gerald G. Reaux, Jr., the Chairman, President, and Chief Executive Officer of Acadiana Bancshares, Inc, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Acadiana Bancshares, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Gerald G. Reaux, Jr. ----------------------------------------------- Gerald G. Reaux, Jr. Chairman, President and Chief Executive Officer 31 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER I, Emile E. Soulier, III, the Senior Vice President and Chief Financial Officer of Acadiana Bancshares, Inc, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Acadiana Bancshares, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Emile E. Soulier, III ----------------------------------------- Emile E. Soulier, III Senior Vice President and Chief Financial Officer 32

ACADIANA BANCSHARES INC /LA 10-Q