REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
First Lancaster Bancshares, Inc.
Lancaster, Kentucky
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income and comprehensive income, of
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of First Lancaster Bancshares, Inc. and its subsidiary at
June 30, 2000 and 1999, and the results of their operations and their cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
August 11, 2000
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 and 1999
ASSETS 2000 1999
------------- -------------
Cash $ 494,317 $ 474,513
Interest-bearing cash deposits in other depository
institutions 1,450,316 2,231,109
Investment securities available-for-sale at market value
(amortized cost $24,158 at June 30, 2000 and 1999) 999,216 1,430,976
Mortgage-backed securities, held to maturity (market
value of $251,000 and $317,000 at June 30, 2000 and
1999, respectively) 255,488 318,160
Income tax receivable 45,633 33,727
Investments in nonmarketable equity securities at cost 832,500 776,600
Loans receivable, net 49,373,865 46,192,315
Real estate acquired by foreclosure 952,333 456,000
Accrued interest receivable 341,453 365,697
Office property and equipment, at cost, less
accumulated depreciation 393,538 383,340
Other assets 82,548 89,397
------------- ------------
Total assets $ 55,221,207 $ 52,751,834
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Saving accounts and certificates $ 29,078,551 $ 29,653,246
Advance payments by borrowers for taxes and insurance 29,976 23,437
Accrued interest on savings accounts and certificates 72,003 42,007
Federal Home Loan Bank advances 12,835,361 8,831,037
Accounts payable and other liabilities 421,557 379,673
Deferred income tax payable 168,160 241,079
------------- ------------
Total liabilities 42,605,608 39,170,479
------------- ------------
Common stock owned by ESOP subject to put option 386,949 310,614
------------- ------------
Preferred stock, 500,000 shares authorized and unissued Common stock, $.01 par
value; 3,000,000 shares authorized; 780,087 and 834,022 shares issued and
outstanding at June 30, 2000 and 1999, respectively 9,588 9,588
Additional paid-in capital 9,204,136 9,181,318
Treasury stock, at cost; 138,338 and 73,410 shares in
2000 and 1999, respectively (1,793,951) (997,672)
Unearned employee stock ownership plan shares (403,871) (513,801)
Common stock owned by ESOP subject to put option (386,949) (310,614)
Unrealized gain on securities available-for-sale (net of
deferred tax liability of $331,520 and $478,318 at
June 30, 2000 and 1999, respectively) 643,538 928,500
Retained earnings, substantially restricted 4,956,159 4,973,422
------------- ------------
Total stockholders' equity 12,228,650 13,270,741
------------- ------------
Total liabilities and stockholders' equity $ 55,221,207 $ 52,751,834
============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
for the years ended June 30, 2000 and 1999
2000 1999
----------- -----------
Interest on loans and mortgage-backed securities $ 4,071,643 $ 4,173,701
Interest and dividends on investments and
deposits in other depository institutions 160,825 161,445
----------- -----------
Total interest income 4,232,468 4,335,146
----------- -----------
Interest on savings accounts and certificates 1,503,865 1,548,226
Interest on other borrowings 683,788 668,132
----------- -----------
Total interest expenses 2,187,653 2,216,358
----------- -----------
Net interest income 2,044,815 2,118,788
Provision for loan losses 39,000 501,000
----------- -----------
Net interest income after provision
for loan losses 2,005,815 1,617,788
----------- -----------
Non-interest income:
Service charges and fees 35,693 19,724
Gain on real estate acquired by foreclosure - 12,952
Other 2,444 8,518
----------- -----------
Total non-interest income 38,137 41,194
Non-interest expense:
Compensation 446,293 418,295
Employee retirement and other benefits 279,785 280,567
State franchise taxes 57,717 54,121
SAIF deposit insurance premium 38,918 34,542
Occupancy expense 81,801 90,691
Data processing 73,691 69,074
Legal, accounting and filing fees 148,923 121,479
Other 179,395 127,971
----------- -----------
Total non-interest expenses 1,306,523 1,196,740
----------- -----------
Income before income taxes 737,429 462,242
Provision for income taxes 255,157 161,298
----------- -----------
Net income 482,272 300,944
Other comprehensive income net of income tax:
Unrealized (loss) gain on securities available-for-sale arising
in period (284,962) 178,101
----------- -----------
Comprehensive income $ 197,310 $ 479,045
=========== ===========
Basic earnings per share 0.60 0.35
Weighted average shares outstanding for basic
earnings per share 810,251 849,364
Diluted earnings per share 0.59 0.35
Weighted average shares outstanding for
diluted earnings per share 820,857 862,713
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 2000 and 1999
Additional Employee Common Stock
Common Paid In Treasury Stock Owned By
Shares Stock Capital Stock Ownership ESOP
------ ------- ---------- -------- --------- ------------
Balance, June 30, 1998 872,923 $ 9,588 $ 9,152,891 $ (350,871) $(626,221) $ (485,988)
Treasury stock issued to
Management Recognition Plan
(MRP) 5,597 88,137
Employee Stock Ownership Plan
(ESOP) 11,242 28,427 112,420 112,420
Market value adjustment 62,954
Net income
Dividends paid to shareholders
($.60 per share)
Purchase of treasury stock (55,740) (734,938)
Change in unrealized gain on
securities, net of deferred tax
liability of $91,749
------- ------- ---------- ----------- ---------- ----------
Balance, June 30, 1999 834,022 $ 9,588 $ 9,181,318 $ (997,672) $(513,801) $ (310,614)
Treasury stock issued to
Management Recognition Plan
(MRP) 5,616 88,452
Employee Stock Ownership Plan
(ESOP) 10,993 22,818 109,930 109,930
Market value adjustment (186,265)
Net income
Dividends paid to shareholders
($.60 per share)
Purchase of treasury stock (70,544) (884,731)
Change in unrealized gain on
securities, net of deferred tax
liability of $146,798
------- ------- ---------- ----------- ---------- ----------
Balance, June 30, 2000 780,087 $ 9,588 $9,204,136 $(1,793,951) $ (403,871) $ (386,949)
======= ======= ========== =========== ========== ==========
Unrealized Total
Gains on Retained Stockholders'
Securities Earnings Equity
---------- -------- ------------
Balance, June 30, 1998 $ 750,399 $ 5,187,579 $ 13,637,377
Treasury stock issued to
Management Recognition Plan
(MRP) (6,078) 82,059
Employee Stock Ownership Plan
(ESOP) 253,267
Market value adjustment 62,954
Net income 300,944 300,944
Dividends paid to shareholders
($.60 per share) (509,023) (509,023)
Purchase of treasury stock (734,938)
Change in unrealized gain on
securities, net of deferred tax
liability of $91,749 178,101 178,101
-------- ---------- -----------
Balance, June 30, 1999 $ 928,500 $ 4,973,422 $ 13,270,741
Treasury stock issued to
Management Recognition Plan
(MRP) (6,350) 82,102
Employee Stock Ownership Plan
(ESOP) 242,678
Market value adjustment (186,265)
Net income 482,272 482,272
Dividends paid to shareholders
($.60 per share) (493,185) (493,185)
Purchase of treasury stock (884,731)
Change in unrealized gain on
securities, net of deferred tax
liability of $146,798 (284,962) (284,962)
-------- ---------- -----------
Balance, June 30, 2000 $643,538 $4,956,159 $12,228,650
======== ========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2000 and 1999
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 482,272 $ 300,944
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 40,371 32,915
Loss on disposal of equipment - 10,336
Provision for loan losses 39,000 501,000
ESOP benefit expense 132,749 140,847
MRP benefit expense 95,191 89,008
Stock dividend, FHLB stock (55,900) (51,300)
Deferred income taxes 73,879 (129,491)
Net loan origination fees 5,531 24,354
Gain on sale of real estate acquired by foreclosure - (12,952)
Change in assets and liabilities:
Accrued interest receivable 24,244 99,830
Other assets 6,849 (75,986)
Accrued interest on savings accounts and certificates 29,996 (28,967)
Accounts payable and other liabilities 33,850 10,174
Income tax receivable/payable (11,906) (34,724)
----------- -----------
Net cash provided by operating activities 896,126 875,988
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate acquired by foreclosure - 396,000
Mortgage-backed securities principal repayments 62,672 116,475
Real estate acquired by foreclosure and improvements (72,333) (456,000)
Net (increase) decrease in loans receivable (3,650,083) 763,338
Purchase of office property and equipment (50,569) (47,101)
----------- -----------
Net cash (used in) provided by investing activities (3,710,313) 772,712
----------- -----------
Cash flows from financing activities:
Net (decrease) increase in savings accounts and certificates (574,695) 4,236,535
Net increase (decrease) in advance payments by borrowers for
taxes and insurance 6,539 (5,365)
Federal Home Loan Bank advances 5,583,000 1,100,000
Federal Home Loan Bank advances principal repayments (1,578,676) (5,730,130)
Purchase of treasury stock (884,731) (734,938)
Dividends paid (498,239) (512,300)
----------- -----------
Net cash provided by (used in) financing activities 2,053,198 (1,646,198)
----------- -----------
Net (decrease) increase in cash and cash equivalents (760,989) 2,502
Cash and cash equivalents at beginning of year 2,705,622 2,703,120
----------- -----------
Cash and cash equivalents at end of year $ 1,944,633 $ 2,705,622
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid 2,157,657 2,245,210
Income taxes paid 193,182 319,464
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain on securities available-for-sale, net of deferred tax
liability of $146,798 and $91,749 284,961 178,101
Real estate acquired by foreclosure 424,000 112,848
Renewed Federal Home Loan Bank advances 11,350,000 6,500,000
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a description of the more significant accounting
policies which First Lancaster Bancshares, Inc. (the Corporation) and its
wholly-owned subsidiary, First Lancaster Federal Savings Bank (the Bank),
follow in preparing and presenting the consolidated financial statements.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Corporation, the Bank and the Bank's wholly-owned subsidiary, First
Lancaster Corporation. All significant intercompany accounts and
transactions have been eliminated.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statements of
financial condition and income and expenses for the period. Actual
results could differ significantly from those estimates. Estimates used
in the preparation of the consolidated financial statements are based on
various factors including the current interest rate environment and the
general strength of the local economy. Changes in the overall interest
rate environment can significantly affect the Bank's net interest income
and the value of its recorded assets and liabilities. Material estimates
that are particularly susceptible to significant change in the near-term
relate to the determination of the allowance for loan losses. In
connection with this determination, management obtains independent
appraisals for significant properties and prepares fair value analyses as
appropriate.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize such losses, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in Lancaster and the State of Kentucky. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at
the time of their examination.
ORGANIZATION
The Bank is a federally chartered savings bank and a member of the
Federal Home Loan Bank System. As a member of this system, the Bank is
required to maintain an investment in capital stock of the Federal Home
Loan Bank of Cincinnati.
The Corporation's purpose is to act as a holding company with the Bank as
its sole subsidiary. The Corporation's principal business is the business
of the Bank, and the Bank is predominately engaged in the business of
receiving deposits from and making first mortgage loans to borrowers on
one to four family residential properties domiciled in Central Kentucky.
Lending activities are carried out from the main office in Lancaster,
Kentucky and the loan production office in Nicholasville, Kentucky.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED):
ORGANIZATION, (CONTINUED)
Savings deposits of the Bank are insured by the Federal Deposit Insurance
Corporation (FDIC) up to certain limitations. The Bank pays a premium to
the FDIC for the insurance of such savings deposits.
CASH AND CASH EQUIVALENTS
For purposes of reporting consolidated cash flows, the Corporation
considers cash, balances with banks and interest-bearing cash deposits in
other depository institutions with maturities of three months or less to
be cash equivalents.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
All investments in debt securities and all investments in equity
securities that have readily determinable fair values are classified into
three categories. Debt securities that management has the positive intent
and ability to hold until maturity are classified as held to maturity.
Securities that are bought and held specifically for the purpose of
selling in the near future are classified as trading securities. All
other securities are classified as available-for-sale. Securities
classified as trading and available-for-sale are carried at market value.
Unrealized holding gains and losses for trading securities are included
in current income. Unrealized holding gains and losses for
available-for-sale securities are reported as a net amount in a separate
component of stockholders' equity until realized. Investments classified
as held to maturity are carried at amortized cost.
The Bank has analyzed its debt securities portfolio, and based on this
analysis, the Bank has determined to classify all debt securities as held
to maturity due to management's intent and ability to hold all debt
securities so classified until maturity. Equity securities are classified
as available-for-sale. Premiums and discounts on investment and
mortgage-backed securities are amortized over the term of the security
using the interest method. Gain or loss on sale of investments
available-for-sale is reflected in income at the time of sale using the
specific identification method.
No active market exists for Federal Home Loan Bank (FHLB) capital stock.
The carrying value is estimated to be fair value since, if the Bank
withdraws membership in the Federal Home Loan Bank, the stock must be
redeemed for face value. As a member of the Federal Home Loan Bank
System, the Bank is required to maintain an investment in FHLB capital
stock in an amount equal to at least 1% of outstanding residential
mortgages, or 5% of outstanding FHLB advances, whichever is greater. The
Bank met this requirement at June 30, 2000 and 1999.
Regulations require the Bank to maintain in each calendar quarter an
average daily balance of cash and U.S. government and other approved
securities equal to a prescribed percentage (4% at June 30, 1999 and
1998) of its liquidity base at the end of the preceding quarter. The
Bank's liquidity base is comprised of its deposits accounts (net of loans
on deposits) plus short-term borrowings. At June 30, 2000 and 1999, the
Bank met these requirements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
DEPRECIATION
Depreciation of office property and equipment is calculated using the
straight-line and accelerated methods over the estimated useful lives of
such property. Estimated useful lives of office buildings and
improvements range from 32 to 39 years and useful lives of furniture and
equipment range from 5 to 7 years. The gain or loss on the sale of office
property and equipment is recorded in the year of disposition.
LOANS
Loans are stated at the principal amount outstanding. Interest income on
loans is recognized based on loan principal amounts outstanding during
the period. Interest earned on loans receivable is recorded in the period
earned.
LOAN FEES
Loan fees are accounted for in accordance with Statement of Financial
Accounting Standard (SFAS) No. 91. SFAS No. 91 requires that loan
origination fees and certain related direct loan origination costs be
offset and the resulting net amount be deferred and amortized over the
contractual life of the related loans as an adjustment to the yield of
such loans.
PROVISION FOR LOAN LOSSES
The Bank has established an allowance for loan losses for the purpose of
absorbing losses associated with the Bank's loan portfolio. All actual
loan losses are charged to the related allowance and all recoveries are
credited to it. Additions to the allowance for loan losses are provided
by charges to operations based on various factors, including the market
value of the underlying collateral, growth and composition of the loan
portfolios, the relationship of the allowance for loan losses to
outstanding loans, historical loss experience, delinquency trends and
prevailing and projected economic conditions. Management evaluates the
carrying value of loans periodically in order to evaluate the adequacy of
the allowance. While management uses the best information available to
make these evaluations, future adjustments to the allowance may be
necessary if the assumptions used in making the evaluations require
material revision.
When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance and
subsequent recoveries, if any, are credited to the allowance.
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate properties acquired through, or in lieu of, loan foreclosure
are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at
the lower of cost or fair value minus estimated cost to sell. Any
reduction to fair value from the new cost basis recorded at the time of
acquisition is accounted for as a valuation reserve. Revenue and expenses
from operations and additions to the valuation allowance are included in
noninterest expense.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS
Loans, including impaired loans, are generally classified as non-accrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. Loans that are on a current payment status or past
due less than 90 days may also be classified as non-accrual if repayment in
full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained
period of repayment performance by the borrower, in accordance with the
contractual terms of interest and principal.
Payments received on a non-accrual loan are either applied to the
outstanding principal balance or recorded as interest income, depending on
management's assessment of the collectibility of the loan.
INCOME TAXES
Deferred income taxes are recognized for certain income and expenses that
are recognized in different periods for tax and financial statement
purposes.
EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends
accounting and reporting standards for certain activities of mortgage
banking enterprises that were established by SFAS No. 65. This statement is
effective for the first fiscal quarter beginning after December 15, 1998.
The Corporation adopted SFAS No. 134 on January 1, 1999 with no material
affect on the Corporation's financial position or operating results.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 (as amended by SFAS No.
137) established a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 15, 1998. Upon the statement's initial application, all
derivatives are required to be recognized in the statement of financial
condition as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed, and
documented pursuant to the provisions of SFAS No. 133. Adoption of SFAF No.
133 is not expected to have a material financial statement impact on the
Corporation's financial condition or operating results as the Corporation
did not hold derivative securities at June 30, 2000.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RECLASSIFICATIONS
Certain presentations of accounts previously reported have been
reclassified in these consolidated financial statements. Such
reclassification had no material effect on net income or stockholders'
equity as previously reported.
2. INVESTMENT SECURITIES:
Investment securities are summarized as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 2000 COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Available for Sale Equity Securities:
Federal Home Loan
Mortgage Corporation
Common Stock - 24,672 shares $ 24,158 $ 1,582,606 $ 607,548 $ 999,216
======== =========== ========= =========
JUNE 30, 1999
Available for Sale Equity Securities:
Federal Home Loan
Mortgage Corporation
Common Stock - 24,672 shares $ 24,158 $ 1,582,606 $ 175,788 $1,430,976
======== =========== ========= =========
3. MORTGAGED-BACKED SECURITIES:
Mortgage-backed securities are summarized as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 2000 COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
FHLMC certificates $ 255,386 $ 4,086 $ 251,300
GNMA certificates 102 2 100
--------- ---------- ------- ---------
$ 255,488 $ 4,088 $ 251,400
========= ========== ======= =========
JUNE 30, 1999
FHLMC certificates $ 317,545 $ 1,195 $ 316,350
GNMA certificate 615 2 613
--------- ---------- ------- ---------
$ 318,160 $ 1,197 $ 316,963
========= ========== ======= =========
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MORTGAGED-BACKED SECURITIES, CONTINUED:
There were no purchases or sales of mortgage-backed securities during 2000
or 1999.
Accrued interest receivable on held to maturity mortgage-backed securities
totaled $1,917 and $2,399 at June 30, 2000 and 1999, respectively.
Expected maturities will differ from contractual maturities because
borrowers may prepay obligations without prepayment penalties.
4. INVESTMENTS IN NON-MARKETABLE EQUITY SECURITIES:
JUNE 30,
---------------------------
2000 1999
-------- --------
Federal Home Loan Bank of Cincinnati capital
stock, 8,175 and 7,616 shares in 2000 and
1999, respectively $817,500 $761,600
Intrieve, Inc. capital stock, 10 shares 15,000 15,000
-------- --------
$832,500 $776,000
======== ========
5. LOANS RECEIVABLE, NET:
The Bank's loan portfolio consists principally of long-term conventional
loans collateralized by first mortgages on single-family residences. Loans
receivable, net at June 30, 2000 and 1999 consist of the following:
2000 1999
----------- -----------
Single-family residential $37,023,083 $34,707,075
Multi-family residential and commercial 4,446,741 1,771,968
Construction 5,774,985 8,999,631
Nonresidential 4,300,053 3,035,500
Consumer loans 631,217 528,104
----------- -----------
52,176,079 49,042,278
Less: Unearned loan origination fees 76,562 71,031
Undisbursed portion of construction loans 2,394,207 2,227,932
Allowance for loan losses 331,445 551,000
----------- -----------
$49,373,865 $46,192,315
=========== ===========
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LOANS RECEIVABLE, NET, CONTINUED:
Accrued interest receivable on loans totaled $339,536 and $363,234 at June
30, 2000 and 1999, respectively.
The following is a reconciliation of the allowance for loan losses:
2000 1999
--------- ---------
Balance at beginning of year $ 551,000 $ 200,000
Provision charged to operations 39,000 501,000
Loans charged off (258,555) (150,000)
--------- ---------
Balance at end of year $ 331,445 $ 551,000
========= =========
The following is a summary of non-performing loans:
2000 1999
--------- ---------
Accruing loan 90 days past due $ -- $ --
Nonaccrual loans 314,167 1,359,133
---------- ----------
Total non-performing loans at year end 314,167 1,359,133
========== ==========
Non-performing loans as a percentage of total loans, net 0.64% 2.94%
At June 30, 2000 and 1999, the amount of interest income that would have
been recorded on loans in non-accrual status, had such loans performed in
accordance with their terms, would have been approximately $14,662 and
$74,000, respectively.
At June 30, 2000 and 1999, the Bank had loans outstanding to directors or
executive officers of $69,116 and $0, respectively.
At June 30, 2000 the Bank had $128,666 in impaired loans with related
allowances for loan losses of $22,700. At June 30, 1999 the Bank had
$665,295 in impaired loans with related allowances for loan losses of
$235,000. There are no impaired loans for which there is no related
allowance for loan losses.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK:
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include mortgage commitments which amounted to
$878,200 and $1,253,500 at June 30, 2000 and 1999, respectively. These
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated statements
of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments is represented
by the contractual amount of those commitments. The Bank uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments. The Bank evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but primarily
includes residential real estate.
The Bank has no significant concentrations of credit risk with any
individual counterparty to originate loans. The Bank's lending is
concentrated in residential real estate mortgages in the local Garrard,
Jessamine and Fayette County, Kentucky market.
The Bank has $1,450,316 and $2,231,109 of cash on deposit with one
financial institution at June 30, 2000 and 1999, respectively.
7. OFFICE PROPERTY AND EQUIPMENT, AT COST:
2000 1999
-------- --------
Land $ 30,000 $ 30,000
Office building and improvements 393,002 388,067
Furniture and equipment 211,123 165,489
-------- --------
634,125 583,556
Less accumulated depreciation 240,587 200,216
-------- --------
$393,538 $383,340
======== ========
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS:
Deposit accounts are summarized as follows:
2000 1999
----------- -----------
Demand deposit accounts $ 1,482,700 $ 1,553,723
NOW and MMDA deposits with a weighted average
rate of 2.70% and 2.86% at June 30, 2000 and
1999, respectively 1,896,616 2,140,479
----------- -----------
Savings deposits 3,379,316 3,694,202
Certificates of deposits with a weighted average
rate of 5.91% and 5.55% at June 30, 2000
and 1999, respectively 25,699,235 25,959,044
----------- -----------
Total deposits $29,078,551 $29,653,246
=========== ===========
Certificates of deposit by maturity at June 30, 2000 and 1999 are as
follows:
2000 1999
----------- -----------
1 year or less $17,476,213 $19,130,650
1 year - 3 years 6,434,315 5,920,123
Maturing in years thereafter 1,788,707 908,271
----------- -----------
$25,699,235 $25,959,044
=========== ===========
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS (CONTINUED):
Certificates of deposit by maturity and interest rate category at June 30,
2000 and 1999 are as follows:
AMOUNT DUE JUNE 30, 2000
(In Thousands)
LESS THAN AFTER
ONE YEAR 1-2 YEARS 2-3 YEARS 3 YEARS TOTAL
--------- --------- --------- ------- -----
2.00-3.99% $ -- $ -- $ -- $ 14 $ 14
4.00-5.99% 11,308 1,307 -- 178 12,793
6.00-7.99% 6,168 3,266 1,330 2,128 12,892
------- ------- ------- ------- -------
$17,476 $ 4,573 $ 1,330 $ 2,320 $25,699
======= ======= ======= ======= =======
AMOUNT DUE JUNE 30, 1999
(In Thousands)
LESS THAN AFTER
ONE YEAR 1-2 YEARS 2-3 YEARS 3 YEARS TOTAL
--------- --------- --------- ------- -----
2.00-3.99% $ 405 $ -- $ 16 $ -- $ 421
4.00-5.99% 13,693 2,063 324 195 16,275
6.00-7.99% 5,033 3,410 107 713 9,263
------- ------- ------ ----- -------
$19,131 $ 5,473 $ 447 $ 908 $25,959
======= ======= ====== ===== =======
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances at June 30, 2000 and 1999 are as follows:
JUNE 30, JUNE 30,
DATE OF 2000 1999 INTEREST
DATE OF ISSUE MATURITY AMOUNT AMOUNT RATE
------------- -------- -------- --------- --------
1/31/95 1/30/15 650,000 650,000 5.75
3/25/97 3/24/00 -- 500,000 6.75
1/28/98 2/1/08 73,798 81,037 6.37
7/31/98 7/30/99 -- 1,000,000 5.80
8/14/98 8/13/99 -- 500,000 5.73
8/24/98 8/24/99 -- 250,000 5.69
8/25/98 8/24/99 -- 250,000 5.69
3/12/99 3/10/00 -- 750,000 5.32
3/19/99 3/17/00 -- 750,000 5.23
3/24/99 9/20/99 -- 500,000 5.07
3/25/99 3/24/00 -- 2,000,000 5.33
4/23/99 4/21/00 -- 1,000,000 5.29
6/24/99 10/22/99 -- 600,000 5.37
7/2/99 8/1/19 159,124 6.55
7/30/99 7/28/00 500,000 5.96
8/13/99 8/11/00 500,000 6.18
8/24/99 8/24/00 500,000 6.06
9/20/99 9/20/00 750,000 6.12
11/8/99 12/1/04 963,885 6.50
12/20/99 1/1/03 787,209 6.93
12/20/99 1/1/05 506,345 7.08
12/20/99 12/20/00 1,175,000 6.59
3/17/00 9/13/00 750,000 6.43
3/24/00 9/20/00 2,500,000 6.48
4/21/00 10/18/00 1,000,000 6.57
5/17/00 11/13/00 350,000 7.06
6/15/00 7/5/00 250,000 6.73
6/16/00 9/14/00 270,000 7.35
6/16/00 9/14/00 1,150,000 6.78
----------- -----------
$12,835,361 $ 8,831,037
=========== ===========
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. FEDERAL HOME LOAN BANK ADVANCES (CONTINUED):
The scheduled maturities of Federal Home Loan Bank advances for the five
fiscal years subsequent to June 30, 2000 are as follows:
2001 $ 9,695,000
2003 787,209
2005 1,470,230
After 2005 882,922
-----------
$12,835,361
===========
As collateral for the advances, the Bank has pledged $19,253,041 of one to
four family residential mortgages, which represents 150% of the amount of
the advances.
As of June 30, 2000 the Corporation had a borrowing capacity with the FHLB
of $16,350,000.
10. LINE OF CREDIT:
On March 5, 1999, the Corporation entered into a line of credit with
Community Trust Bank N.A. for $2.5 million with an interest rate of prime
less .5%. Any outstanding balance on this line of credit is collateralized
by 100% of the Bank's stock. As of June 30, 2000 and 1999, there was no
outstanding balance.
11. REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements administered
by the OTS. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by the
OTS that, if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgements by the OTS about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table on the following page) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), core/leverage capital
(as defined) to adjusted total assets, and tangible capital to adjusted
total assets. Management believes, as of June 30, 2000 that the Bank meets
all capital adequacy requirements to which it is subject.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. REGULATORY MATTERS (CONTINUED):
As of April 2000, the most recent notification from the OTS categorized the
Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and core/leverage
ratios as set forth in the table below. There have been no conditions or
events since that notification that management believes have changed the
institution's category.
Amounts are in the thousands.
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
----------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
As of June 30, 2000:
Total Capital (to Risk
Weighted Assets) $ 11,941 32% $ 2,986 8% $3,732 10%
Tier I Capital (to Risk
Weighted Assets) $ 11,624 31% N/A $2,239 6%
Core/Leverage Capital (to
Adjusted Total Assets) $ 11,624 21% $ 2,192 4% $2,740 5%
Tangible Capital Equity (to
Tangible Assets) $ 11,624 21% $ 822 1.5% $1,096 2% (A)
As of June 30, 1999:
Total Capital (to Risk
Weighted Assets) $ 12,579 38% $ 2,669 8% $3,337 10%
Tier I Capital (to Risk
Weighted Assets) $ 12,263 37% N/A $2,002 6%
Core/Leverage Capital
(to Adjusted Total Assets) $ 12,263 24% $ 2,086 4% $2,607 5%
Tangible Capital Equity (to
Tangible Assets) $ 12,263 24% $ 782 1.5% $1,043 2% (A)
<FN>
(A) To be "other than critically undercapitalized" under prompt corrective
action provisions
</FN>
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES:
Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying
future statutory tax rates to differences between the financial
statements carrying amounts and the tax basis of existing assets and
liabilities.
The provision for income taxes consists of:
JUNE 30,
2000 1999
--------- ---------
Current $ 181,278 $ 290,789
Deferred 73,879 (129,491)
--------- ---------
$ 255,157 $ 161,298
========= =========
Deferred income taxes result from temporary differences in the
recognition of income and expenses for tax and financial statement
purposes. The source of these temporary differences and the tax effect of
each are as follows:
JUNE 30,
2000 1999
--------- ---------
Stock dividends on FHLB stock $ 19,006 $ 17,442
Provision for loan losses 74,649 (119,340)
Provision for uncollected interest 1,689 (674)
Depreciation 2,822 (316)
Deferred fees (1,881) (8,280)
Directors retirement expense (1,700) 2,890
Supplemental executive retirement expense (11,424) (11,359)
Management recognition plan expense (2,732) (1,248)
ESOP expense (5,870) (7,756)
Bonus expense (680) (850)
--------- ---------
$ 73,879 $(129,491)
========= =========
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES (CONTINUED):
The following tabulation reconciles the federal statutory tax rate to the
effective rate of taxes provided for income before taxes:
JUNE 30,
--------
2000 1999
--------------------- -----------------------
Tax at statutory rate $250,726 34.0% $157,162 34.0%
Increases (decreases) in taxes
resulting from:
ESOP adjustments 7,758 1.0% 9,665 2.1%
Other, net (3,327) (0.4%) (5,529) (1.2%)
-------- ----- -------- -----
Effective rate $255,157 34.6% $161,298 34.9%
======== ===== ======== =====
The tax effect of temporary differences giving rise to the Corporation's
consolidated deferred income tax asset (liability) at June 30, 2000 and
1999 are as follows:
2000 1999
Deferred tax assets
Allowance for loan losses $ 112,691 $ 187,340
Uncollected interest 4,985 6,674
Deferred loan fees 26,031 24,150
Directors retirement expense 45,317 43,617
Supplemental executive retirement expense 45,298 33,874
Management recognition plan expense 21,724 18,992
ESOP expense 15,693 9,823
Bonus expense 15,130 14,450
--------- ---------
286,869 338,920
Deferred tax liabilities:
FHLB stock dividends (109,853) (90,847)
Depreciation on office property and
equipment (13,656) (10,834)
Unrealized gain on available-for-sale
securities (331,520) (478,318)
--------- ---------
Deferred income tax liability $(168,160) $(241,079)
========= =========
As of June 30, 2000, the Bank's bad debt reserve for federal tax purposes
was approximately $816,000 which represents the base year amount. A
deferred tax liability has not been recognized for the base year amount.
If the Bank uses the base year reserve for any reason other than to
absorb loan losses, a tax liability could be incurred. It is not
anticipated that the reserve will be used for any other purpose.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. TREASURY STOCK:
During the year ended June 30, 1999 the Corporation repurchased 7,800
shares in conjunction with the Management Recognition Plan at $14.48 per
share for an aggregate cost of approximately $113,000. No additional
shares were purchased during the year ended June 30, 2000. After
distributions, treasury stock owned in conjunction with the MRP plan was
19,854 and 25,470 shares at June 30, 2000 and 1999, respectively.
In November 1998, the Corporation began a series of 5% stock repurchases
of its Common Stock. The Corporation's Board of Directors authorized a 5%
repurchase in November 1998 which was completed March 1999, authorized a
5% repurchase in July 1999 which was completed in March 2000 and
authorized a 5% repurchase in March 2000 which is approximately 50%
complete at June 30, 2000. The repurchase authority allows the
Corporation at management's discretion to selectively repurchase its
stock from time to time in the open market or in privately negotiated
transactions depending upon market price and other factors. During the
year ended June 30, 1999, the Corporation repurchased 47,940 shares at
prices ranging from $12.56 to $13.13 per share for an aggregate cost of
approximately $622,000. During the year ended June 30, 2000, the
Corporation repurchased 70,544 shares at prices ranging from $11.50 to
$13.38 for an aggregate cost of approximately $885,000.
14. EMPLOYEE BENEFIT PLANS:
RETIREMENT PLAN
The Bank is a participant in the Financial Institution's Retirement Fund,
a multi-employer defined benefit retirement plan. The plan is
noncontributory and covers all employees who meet certain requirements as
to age and length of service. The Bank's policy is to fund retirement
costs accrued. No contributions were made to the plan for the years ended
June 30, 2000 and 1999; however, administrative expenses were paid to the
plan in the amounts of $1,176 and $992 for the years ended June 30, 2000
and 1999, respectively.
Because the Bank participates in a multi-employer plan, the actuarial
present value of accumulated plan benefits and plan net assets available
for benefits are not determinable and therefore not disclosed.
PROFIT-SHARING PLAN
The Bank is a participant in the profit-sharing feature of the Financial
Institutions Thrift Plan. The plan is contributory and covers all
salaried employees who meet certain requirements as to age and length of
service. Employees become vested upon completion of five years of
service. Contributions are at the discretion of the Board of Directors
and are computed as a percentage of eligible employees' compensation. The
Board of Directors authorized contributions equal to 4% of eligible
employees' compensation for 2000 and 1999, which amounted to $14,024 and
$12,937 for 2000 and 1999, respectively.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYEE BENEFIT PLANS (CONTINUED):
EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation sponsors an employee stock ownership plan (ESOP) that
covers all employees. During 1996 the Corporation loaned $767,040 to the
ESOP for the purchase of 76,704 shares of the Corporation's stock. The
Corporation makes annual contributions to the ESOP equal to total debt
service less dividends received by the ESOP. All dividends on unallocated
shares are used to pay debt service. As the debt is repaid, First
Lancaster Bancshares, Inc. common shares are allocated to employees. The
Corporation accounts for its ESOP in accordance with Statement of
Position 93-6. Accordingly, the shares represented by outstanding debt
are reported as unearned ESOP shares in the statement of financial
condition. As shares are earned, the Corporation reports compensation
expense equal to the current market price of the shares, and the shares
become outstanding for earnings per share computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares are recorded as a reduction of debt
and accrued interest.
Compensation expense for the ESOP was $110,240 and $140,847 for the years
ended June 30, 2000 and 1999, respectively. Interest on the debt is not
considered compensation expense by the Corporation. The ESOP shares were
as follows as of June 30:
2000 1999
-------- --------
Allocated Shares 35,700 25,320
Unearned Shares 40,391 51,384
-------- --------
Total ESOP Shares 76,091 76,704
======== ========
Fair Value of Unearned Shares at June 30 $444,301 $571,647
Market Price per share $ 11.000 $ 11.125
In the case of a distribution of ESOP shares which are not readily
tradable on an established securities market, the plan provides the
participant with a put option that complies with the requirements of
Section 490(h) of the Internal Revenue Code. The Corporation has
classified outside of permanent equity the fair value of earned and
unearned ESOP shares (net of the debit balance representing unearned ESOP
shares) subject to the put option in accordance with the Securities and
Exchange Commission Accounting Series Release #268.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYEE BENEFIT PLANS (CONTINUED):
STOCK AWARD PLANS
MANAGEMENT RECOGNITION PLAN (MRP)
In connection with the conversion, the Corporation adopted the First
Lancaster Bancshares, Inc. Management Recognition Plan, the objective
of which is to enable the Corporation to retain personnel of
experience and ability in key positions of responsibility. Those
eligible to receive benefits under the MRP include certain directors
and executive officers of the Corporation and First Lancaster Federal
Savings Bank as determined by members of a committee appointed by the
Board of Directors. On January 9, 1997, 28,761 shares were awarded.
The fair market value of the common stock at that date was $14.625
and there is no exercise price for the stock. Awards to directors and
eligible employees will vest 20% on each anniversary date of the
award. On July 3, 1997, July 6, 1998 and July 8, 1999 additional
shares of 231, 1,251 and 1,534 were granted, respectively. Shares are
held by the trustee and are voted by the MRP trustee in the same
proportion as the trustee of the Corporation's ESOP plan vote shares
held therein. Assets of the trust are subject to the general
creditors of the Corporation. All shares vest immediately in the case
of a participant's death or disability. The Corporation applied APB
Opinion 25 and related Interpretations in accounting for the MRP.
Compensation cost charged to operations for the MRP totaled $95,191
and $89,008 for the years ended June 30, 2000 and 1999, respectively.
STOCK OPTION PLAN
The Corporation granted stock options under the 1996 Stock Option and
Incentive Plan. Under the plan the Corporation is authorized to issue
shares of common stock pursuant to "Awards" granted in various forms,
including incentive stock options (intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended), non-qualified
stock options, and other similar stock-based awards. The Corporation
granted stock options to employees and directors in 1997 under the
plan in the form of incentive and non-qualified stock options. The
stock options granted in 1997 have contractual terms of 10 years. All
options granted to the employees and directors have an exercise price
no less than the fair market value of the stock at grant date. The
option price is equal to 110% of the fair market value on the grant
date in the case of Incentive Stock Options (ISO) granted to persons
owning more than 10% of the outstanding common shares. Each option
will become exercisable with respect to 20% of the optioned shares
upon an optionee's completion of each of five years of future service
as an employee, director or advisory or emeritus director, provided
that an option shall become 100% exercisable immediately if an
optionee's continuous service terminates due to death or disability.
The options expire ten years after the date of grant. The Corporation
granted 71,910 options in 1997 and 3,834 options in 2000.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYEE BENEFIT PLANS (CONTINUED):
STOCK AWARD PLANS, (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Corporation's stock options as of June
30, 2000 and the changes during the year ended on that date is
presented below.
WEIGHTED
# SHARES OF AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICE
----------- --------
Outstanding, July 1, 1999 67,116 $ 14.625
Granted during the year 3,834 11.063
Expired during the year 0
Exercised during the year 0
-------
Outstanding, June 30, 2000 70,950 $ 14.433
=======
Eligible for exercise at year-end 40,260
=======
Weighted average fair value of options
granted at a discount $3.10
The Corporation applies APB Opinion 25 and related Interpretations in
accounting for the Plan. In 1995, the FASB issued FASB Statement No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) which, if
fully adopted by the Corporation, would change the methods the
Corporation applies in recognizing the cost of the plan. Adoption of
the cost recognition provisions of SFAS 123 is optional and the
Corporation has decided not to elect these provisions of SFAS 123.
However, pro forma disclosures as if the Corporation adopted the cost
recognition provisions of SFAS 123 in 1996 are required by SFAS 123
and are presented below.
The fair value of each stock option granted is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
GRANT DIVIDEND RISK-FREE EXPECTED LIFE
DATE YIELD INTEREST RATE OF OPTIONS VOLATILITY
- --------- -------- ------------- ------------- ----------
January 1997 4.10% 6.25% 6 years 21.69%
July 1999 5.42% 5.60% 6 years 15.20%
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYEE BENEFIT PLANS (CONTINUED):
STOCK AWARD PLANS, (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
As of June 30, 2000, 70,950 options are outstanding with a weighted-average
remaining contractual life of all stock options being 6.6 years.
Had the compensation cost for the Corporation's stock-based compensation
plan been determined consistent with SFAS 123, the Corporation's net income
and net income per common share for 2000 and 1999 would approximate the pro
forma amounts below:
AS REPORTED PRO FORMA
6/30/00 6/30/00
----------- ----------
Net Income $ 482,272 $ 435,407
Basic Earnings per Share $ 0.60 $ 0.54
Diluted Earnings per Share $ 0.59 $ 0.53
AS REPORTED PRO FORMA
6/30/99 6/30/99
----------- ----------
Net Income $ 300,944 $ 278,288
Basic and Diluted Earnings per Share $ 0.35 $ 0.32
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
Effective December 7, 1995, the Board of Directors of the Bank adopted the
First Lancaster Federal Savings Bank Directors' Retirement Plan for
Non-Employee Directors. A participant in the Plan will receive, on each of
the ten annual anniversary dates of leaving the Board, an amount equal to
the product of his "Benefit Percentage," "Vested Percentage," (as defined)
and 75% of the total fee he received for service on the Board during the
calendar year preceding his retirement. The amount charged to operations
under the plan totaled $5,000 and $0 for the years ended June 30, 2000 and
1999, respectively.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYEE BENEFIT PLANS (CONTINUED):
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)
Effective December 7, 1995 the Bank entered into supplemental retirement
agreements with two key executives of the Bank. Upon the executive's
termination of employment with the Bank, the executive will be entitled
to receive annual payments equal to the product of the executive's
"Vested Percentage" and "Average Annual Compensation," less the "Annual
Offset Amount," as defined in the plan. Vesting occurs at 10% per full
year of service with the Bank following December 31, 1995.
The Bank has established an irrevocable grantor trust to hold assets in
order to provide itself with a source of funds to assist the Bank in the
meeting of the SERP liability. The amount charged to operations under the
plan totaled $33,600 and $33,408 for the years ended June 30, 2000 and
1999, respectively.
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." This statement extends the existing fair
value disclosure practices for some instruments by requiring all entities
to disclose the fair value of financial instruments (as defined), both
assets and liabilities recognized and not recognized in the statements of
financial condition, for which it is practicable to estimate fair value.
There are inherent limitations in determining fair value estimates as
they relate only to specific data based on relevant information at that
time. As a significant percentage of the Bank's financial instruments do
not have an active trading market, fair value estimates are necessarily
based on future expected cash flows, credit losses and other related
factors. Such estimates are, accordingly, subjective in nature,
judgmental and involve imprecision. Future events will occur at levels
different from that in the assumptions, and such differences may
significantly affect the estimates.
The statement excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the
underlying value of the Corporation.
Additionally, the tax impact of the unrealized gains or losses has not
been presented or included in the estimates of fair value.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the statements of financial condition
for cash and short-term instruments approximate those assets' fair
values.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments. No active
market exists for the Federal Home Loan Bank capital stock. The carrying
value is estimated to be fair value since, if the Bank withdraws
membership in the Federal Home Loan Bank, the stock must be redeemed for
face value.
LOANS RECEIVABLE
For certain homogeneous categories of loans, such as residential
mortgages and other consumer loans, fair value is estimated using the
quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of
loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
REAL ESTATE ACQUIRED BY FORECLOSURE
Fair values for real estate acquired by foreclosure are based on
independent appraisals of fair market value, where available. If current
independent appraisals are not available, fair values are based on market
values for comparable properties.
DEPOSITS
The fair value of savings deposits and certain money market deposits is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank bear interest at fixed rates.
The carrying value of these borrowings is estimated using the current
rates at which similar loans would be made to borrowers for the same
maturities.
LOAN COMMITMENTS
The fair value of loan commitments is estimated to approximate the
contract values. The contract for each loan commitment has a current
market rate, the creditworthiness of the counterparties is presently
considered in the commitments, and the original fees charged do not vary
significantly from the fee structure at June 30, 2000.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
The estimated fair values of the Corporation's financial instruments are as
follows:
JUNE 30, JUNE 30,
2000 1999
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ------ -------- -----
(in thousands)
Financial Assets:
Cash $ 494 $ 494 $ 475 $ 475
Interest-bearing deposits in other
depository institutions 1,450 1,450 2,231 2,231
Investment securities 999 999 1,431 1,431
Investment in nonmarketable
equity securities 833 833 777 777
Mortgage-backed securities 255 251 318 317
Loans receivable, net allowance for
loan losses of $331 for 2000
and $551 for 1999 49,374 49,246 46,192 46,324
Real estate acquired by foreclosure 952 982 456 456
Financial Liabilities:
Savings accounts and certificates 29,079 29,118 29,653 29,826
Federal Home Loan Bank advances 12,835 12,618 8,831 8,743
16. DIVIDEND RESTRICTIONS:
On June 28, 1996, the Bank converted from a mutual savings bank to a
capital stock savings bank. On that date, the Bank established a
liquidation account in an amount of the Bank's net worth as of the latest
practicable date prior to conversion. The liquidation account is
maintained for the benefit of eligible deposit account holders who
maintain their deposit accounts in the Bank after conversion.
In the event of a complete liquidation (and only in such an event), each
eligible deposit account holder will be entitled to receive a liquidation
distribution from the liquidation account, in the proportionate amount of
the then current adjusted balance for deposit accounts held, before any
liquidation may be made with respect to capital stock. The Bank may not
declare or pay a cash dividend on or repurchase any of its common stock
if the effect thereof would cause its regulatory capital to be reduced
below the amount required for the liquidation account.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. DIVIDEND RESTRICTIONS (CONTINUED):
The OTS regulates payment of dividends and other capital distributions by
the Bank. The Bank may not make distributions to the Corporation for
dividends on or repurchase of any of its stock if the effect would be to
reduce retained earnings of the Bank below the capital requirements set
forth by the OTS. OTS regulations utilize certain criteria that require
notification of or application for distributions based primarily upon an
institution's net income and retained capital. Based upon current OTS
regulations, the bank must either (i) file notification with the OTS
because it is a subsidiary of a savings and loan holding company or (ii)
apply for distributions if the total amount of capital distributions for
the applicable calendar year exceeds net income for that year to date
plus retained net income for the preceding two years. The amount of
distributions cannot reduce the Bank's capital below the liquidation
account discussed above. As of June 30, 2000 the Bank is approved by the
OTS to make capital distributions to the Corporation in the amount of
$1.6 million through May 30, 2001.
17. PREFERRED STOCK:
The Corporation's Certificate of Incorporation authorizes 500,000 shares
of preferred stock of the Corporation, of $.01 par value. The
consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Corporation. The consideration
for the shares shall be cash, tangible or intangible property (to the
extent direct investment in such property would be permitted), labor or
services actually performed for the Corporation, or any combination of
the foregoing. Upon issuance of preferred stock or any series of
preferred stock, as established by the Board of Directors, the
Corporation shall file articles of amendment to the Corporate Certificate
of Incorporation with the Delaware Secretary of State establishing and
designating the series and fixing and determining the relative rights and
preferences thereof. The Corporation's Certificate of Incorporation
expressly vests in the Board of Directors of the Corporation the
authority to issue the preferred stock in one or more series and to
determine, to the extent permitted by law prior to the issuance of the
preferred stock (or any series of the preferred stock), the relative
rights, limitations and preferences of the preferred stock or any such
series.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. EARNINGS PER SHARE:
FOR THE YEAR ENDED JUNE 30, 2000 FOR THE YEAR ENDED JUNE 30, 1999
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- --------
Basic earnings per share
Income available to
common shareholders $482,272 810,251 $0.60 $300,944 849,364 $0.35
Effect of dilutive securities
Management recognition
plan 10,606 13,349
Diluted earnings per share
Income available to common
shareholders plus
assumed conversions $482,272 820,857 $0.59 $300,944 862,713 $0.35
There were no preferred dividends or antidilutive securities that would affect
the computation of earnings per share.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY):
The following condensed statements summarize the financial position,
operating results and cash flows of First Lancaster Bancshares, Inc.
(Parent Company only).
CONDENSED STATEMENTS OF FINANCIAL CONDITION JUNE 30,
2000 1999
----------- -----------
ASSETS
Cash and balances with bank $ 44,923 $ 127,396
Investment in subsidiary 12,676,289 13,707,241
Income tax receivable 109,490 70,273
Accrued interest receivable 21,559 23,913
Due from subsidiary 12,438 7,346
----------- -----------
$12,864,699 $13,936,169
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 297 $ 297
Common stock owned by ESOP subject to put option 386,949 310,614
Stockholders' equity 12,477,453 13,625,258
----------- -----------
$12,864,699 $13,936,169
=========== ===========
CONDENSED STATEMENTS OF INCOME JUNE 30,
2000 1999
----------- -----------
Dividend from bank subsidiary $ 1,350,000 $ 1,088,263
Interest income 46,577 57,496
Legal, accounting and filing fees (144,197) (121,261)
State franchise taxes (17,720) (14,077)
----------- -----------
Net income before income taxes 1,234,660 1,010,421
Income tax benefit 39,217 26,466
Net income before equity in undistributed net income of
subsidiary 1,273,877 1,036,887
Dividends in excess of earnings of subsidiary (791,605) (735,943)
----------- -----------
Net income 482,272 300,944
Other comprehensive (loss) income (284,961) 178,101
----------- -----------
Comprehensive income $ 197,311 $ 479,045
=========== ============
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED):
CONDENSED STATEMENTS OF CASH FLOWS JUNE 30,
2000 1999
----------- -----------
OPERATING ACTIVITIES:
Net income $ 482,272 $ 300,944
Adjustment to reconcile net income to cash provided
by operating activities:
Dividends in excess of earnings of subsidiary 791,605 735,943
Increase in income tax receivable (39,217) (26,466)
Decrease in accrued interest receivable 2,354 7,792
Decrease in accounts payable - (3,147)
----------- -----------
Net cash provided by operating activities 1,237,014 1,015,066
INVESTING ACTIVITIES:
Payment on ESOP loan 63,483 53,698
----------- -----------
Net cash provided by investing activities 63,483 53,698
----------- -----------
FINANCING ACTIVITIES:
Purchase of treasury stock (884,731) (621,982)
Dividends paid (498,239) (512,300)
----------- -----------
Net cash used in financing activities (1,382,970) (1,134,282)
----------- -----------
Net decrease in cash (82,473) (65,518)
Cash, beginning of year 127,396 192,914
----------- -----------
Cash, end of year $ 44,923 $ 127,396
=========== ===========
20. SUBSEQUENT EVENT:
On July 6, 2000 the Corporation declared a dividend of $0.30 per share or
$252,098, to shareholders of record as of July 21, 2000. The dividends
were paid on July 31, 2000.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, JUNE 30,
2001 2000
(Unaudited)
Cash $ 950,305 $ 494,317
Interest-bearing cash deposits in other depository institutions 3,495,263 1,450,316
Investment securities available-for-sale, at market value (amortized cost
$24,158 at March 31, 2001 and June 30, 2000) 1,599,486 999,216
Mortgage-backed securities, held to maturity 212,232 255,488
Income tax receivable 37,865 45,633
Investments in nonmarketable equity securities, at cost 878,700 832,500
Loans receivable, net 47,253,763 49,373,865
Real estate acquired by foreclosure 1,112,392 952,333
Accrued interest receivable 306,506 341,453
Office property and equipment, less accumulated depreciation 367,590 393,538
Other assets 111,994 82,548
------------- -------------
Total assets $ 56,326,096 $ 55,221,207
============= =============
LIABILITIES
Savings accounts and certificates $ 29,667,377 $ 29,078,551
Advance payments by borrowers for taxes and insurance 27,528 29,976
Accrued interest payable 70,071 72,003
Federal Home Loan Bank advances 12,874,527 12,835,361
Accounts payable and other liabilities 416,560 421,557
Deferred income tax payable 432,200 168,160
------------- -------------
Total liabilities 43,488,263 42,605,608
------------- -------------
Common stock owned by ESOP subject to put option 838,040 386,949
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized Common stock, $.01 par value;
3,000,000 shares authorized;
784,656 and 780,087 shares issued and outstanding at
March 31, 2001 and June 30, 2000, respectively 9,588 9,588
Additional paid-in capital 9,228,173 9,204,136
Treasury stock (132,031 and 138,338 shares at March 31, 2001
and June 30, 2000, respectively) (1,702,370) (1,793,951)
Unearned employee stock ownership plan shares (321,591) (403,871)
Common stock owned by ESOP subject to put option (838,040) (386,949)
Accumulated comprehensive income 1,039,716 643,538
Retained earnings, substantially restricted 4,584,317 4,956,159
------------- -------------
Total stockholders' equity 11,999,793 12,228,650
------------- -------------
Total liabilities and stockholders' equity $ 56,326,096 $ 55,221,207
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
for the three and nine months ended March 31, 2001 and 2000 (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
2001 2000 2001 2000
------------- -------------- -------------- -------------
Interest on loans and mortgage-backed securities $ 1,060,968 $ 1,073,772 $ 3,328,653 $ 3,005,140
Interest and dividends on investments and deposits in
other depository institutions 48,758 40,681 136,013 118,953
------------ ------------- ------------- -----------
Total interest income 1,109,726 1,114,453 3,464,666 3,124,093
------------ ------------- ------------- -----------
Interest on savings accounts and certificates 432,726 377,530 1,248,012 1,115,015
Interest on other borrowings 206,486 198,997 705,096 474,504
------------ ------------- ------------- -----------
Total interest expense 639,212 576,527 1,953,108 1,589,519
------------ ------------- ------------- -----------
Net interest income 470,514 537,926 1,511,558 1,534,574
Provision for loan losses 10,000 20,000 30,000 35,000
------------ ------------- ------------- -----------
Net interest income after provision for loan
losses 460,514 517,926 1,481,558 1,499,574
------------ ------------- ------------- -----------
Non-interest income:
Service charges and fees 9,394 7,223 27,353 26,443
Other 1,107 1,184 2,973 2,985
------------ ------------- ------------- -----------
Total non-interest income 10,501 8,407 30,326 29,428
Non-interest expenses:
Compensation 127,033 131,074 374,234 324,534
Employee retirement and other benefits 67,370 74,818 208,302 201,563
State franchise taxes 14,105 13,333 41,223 40,783
SAIF deposit insurance premium 12,626 14,893 29,461 35,317
Loss on real estate acquired by foreclosure 7,412 9,050 32,270 27,271
Occupancy expense 20,301 22,318 67,081 61,332
Data processing 24,542 22,033 71,378 55,717
Merger related expenses 46,935 -- 219,529 --
Other 64,571 67,856 213,467 227,506
------------ ------------- ------------- -----------
Total non-interest expenses 384,895 355,375 1,256,945 974,023
------------ ------------- ------------- -----------
Income before income taxes 86,120 170,958 254,939 554,979
Provision for income taxes 49,157 61,007 154,656 191,838
------------ ------------- ------------- -----------
Net income 36,963 109,951 100,283 363,141
Other comprehensive (loss) income, net of income tax:
Unrealized (loss) gain on securities available-for-sale
arising in period (65,948) (46,815) 396,178 (224,916)
------------ ------------- ------------- -----------
Comprehensive (loss) income $ (28,985) $ 63,136 $ 496,461 $ 138,225
============ ============= ============= ===========
Weighted shares outstanding for basic earnings
per share 784,116 801,877 783,693 817,928
Basic earnings per share $ 0.05 $ 0.14 $ 0.13 $ 0.44
Weighted shares outstanding for diluted earnings
per share 790,929 811,865 789,842 829,274
Diluted earnings per share $ 0.05 $ 0.14 $ 0.13 $ 0.44
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
------------- --------------
Cash flows from operating activities:
Net income $ 100,283 $ 363,141
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 31,319 29,624
Provision for loan losses 30,000
35,000
Stock dividend, Federal Home Loan Bank stock (46,200)
(41,200)
Deferred income taxes 59,948 92,551
Net loan origination fees 2,181 3,400
Employee Stock Ownership Plan benefit expense 106,317 98,670
Management Retirement Plan benefit expense 74,372 73,806
Supplemental Executive Retirement Plan benefit expense 14,066 25,200
Loss on sale of real estate acquired by foreclosure 7,281 --
Change in assets and liabilities:
Accrued interest receivable 34,947 56,757
Other assets (29,446) 7,388
Accrued interest payable (1,932) 30,454
Accounts payable and other liabilities 6,884 8,975
Income tax receivable 7,768 (92,680)
------------- --------------
Net cash provided by operating activities 397,788 691,086
------------- --------------
Cash flows from investing activities:
Improvements on real estate acquired by foreclosure (228,000) (22,332)
Proceeds from sale of OREO 20,619 --
Purchase of property and equipment (5,371) (46,942)
Mortgage-backed securities principal repayments 43,256 47,659
Net decrease (increase) in loans receivable 2,127,963 (3,487,669)
------------- --------------
Net cash provided (used) in investing activities 1,958,467 (3,509,284)
------------- --------------
Cash flows from financing activities:
Net increase (decrease) in savings accounts and certificates 588,826 (694,881)
Net decrease in advance payments by borrowers for taxes and insurance (2,448) (957)
Purchase of treasury stock -- (819,731)
Dividends paid (480,864) (498,239)
Federal Home Loan Bank advances 2,900,000 5,563,000
Federal Home Loan Bank advances principal repayments (2,860,834) (1,288,309)
------------- --------------
Net cash provided by financing activities 144,680 2,260,883
-------------- -------------
Net increase (decrease) in cash and cash equivalents 2,500,935 (557,315)
Cash and cash equivalents at beginning of period 1,944,633 2,705,622
------------- --------------
Cash and cash equivalents at end of period $ 4,445,568 $ 2,148,307
============= ==============
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale, net of deferred tax
liability (benefit) of $204,092 and ($115,866) at March 31, 2001 and
2000, respectively $ 396,178 $ (224,916)
Renewed Federal Home Loan Bank advances $ 6,975,000 $ 8,250,000
Real estate owned through foreclosure $ 49,959 $ 424,000
The accompanying notes are an integral part of the consolidated financial
statements.
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying unaudited consolidated financial statements of First
Lancaster Bancshares, Inc. and Subsidiary (the Company) have been prepared
in accordance with the instructions for Form 10-QSB and therefore do not
include certain information or footnotes necessary for the presentation of
complete consolidated financial statements in accordance with generally
accepted accounting principles. However, in the opinion of management, the
consolidated financial statements reflect all adjustments (which consist of
normal, recurring accruals) necessary for a fair presentation of the
results for the unaudited periods. The results of the operations for the
three months and nine months ended March 31, 2001 are not necessarily
indicative of the results which may be expected for the entire year. The
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto for the
year ended June 30, 2000.
2. INVESTMENT SECURITIES:
Investment securities are summarized as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
MARCH 31, 2001 COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 2,282,797 $ (707,469) $ 1,599,486
========== =========== ========= ===========
JUNE 30, 2000
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 1,582,606 $ (607,548) $ 999,216
========== =========== ========= ===========
3. ALLOWANCE FOR LOAN LOSSES:
An analysis of the changes in the loan loss allowance for the three and
nine months ended March 31 follows:
THREE MONTHS ENDED NINE MONTHS ENDED
2001 2000 2001 2000
------------ ------------- -------------- -------------
Balance at beginning of period $ 336,106 $ 435,432 $ 331,445 $ 551,000
Provision charged to operations 10,000 20,000 30,000 35,000
Loans charged off (90,000) (117,987) (105,339) (248,555)
----------- ----------- ------------ ------------
Balance at end of period $ 256,106 $ 337,445 $ 256,106 $ 337,445
=========== =========== ============ ============
Nonaccrual loans amounted to $875,499 and $314,167 at March 31, 2001 and
June 30, 2000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances at March 31, 2001 and June 30, 2000 are as
follows:
MARCH 31, JUNE 30,
2001 2000
------------------------------
DATE INTEREST
OF ISSUE YEAR OF MATURITY AMOUNT AMOUNT RATE
1/31/95 1/30/15 650,000 650,000 5.23
1/28/98 2/01/08 68,059 73,798 6.37
7/02/99 8/01/19 140,333 159,124 6.55
7/30/99 7/28/00 -- 500,000 5.96
8/13/99 8/11/00 -- 500,000 6.18
8/24/99 8/24/00 -- 500,000 6.06
9/20/99 9/20/00 -- 750,000 6.12
11/08/99 12/01/04 907,470 963,885 6.50
12/20/99 1/01/03 742,619 787,209 6.93
12/20/99 1/01/05 491,046 506,345 7.08
12/20/99 12/20/00 -- 1,175,000 6.59
3/17/00 9/13/00 -- 750,000 6.43
3/24/00 9/20/00 -- 2,500,000 6.48
4/21/00 10/18/00 -- 1,000,000 6.57
5/17/00 11/13/00 -- 350,000 7.06
6/15/00 7/05/00 -- 250,000 6.73
6/16/00 9/14/00 -- 270,000 7.35
6/16/00 9/14/00 -- 1,150,000 6.78
3/14/01 4/3/01 3,325,000 -- 5.48
3/28/01 4/27/01 6,550,000 -- 5.48
----------- -----------
$ 12,874,527 $ 12,835,361
=========== ===========
5. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS:
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (as amended by SFAS No. 137). SFAS No.
133 established a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000, but
earlier application is permitted as of the beginning of any fiscal quarters
subsequent to June 15, 1998. Upon the statement's initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions in SFAS No. 133. On July 1, 2000,
adoption of SFAS No. 133 did not have a material financial statement impact
on the Company's financial condition or operating results. The Company does
not hold derivative securities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
6. EARNINGS PER SHARE:
For the three months ended March 31, 2001 For the three months ended March 31, 2000
--------------------------------------------- ---------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
Shareholders $ 36,963 784,116 $ 0.05 $ 109,951 801,877 $ 0.14
Effect of dilutive
securities
Stock options 3,361 338
Management recognition plan 3,452 9,650
Diluted earnings per share
Income available to common
Shareholders plus
assumed Conversions $ 36,963 790,929 $ 0.05 $ 109,951 811,865 $ 0.14
For the nine months ended March 31, 2001 For the nine months ended March 31, 2000
--------------------------------------------- ---------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
Shareholders $ 100,283 783,693 $ 0.13 $ 363,141 817,928 $ 0.44
Effect of dilutive
securities
Stock options 1,372 187
Management recognition plan 4,777 11,159
Diluted earnings per share
Income available to common
Shareholders plus
assumed Conversions $ 100,283 789,842 $ 0.13 $ 363,141 829,274 $ 0.44
There were no preferred dividends that would effect the computation of
earnings per share.