U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ______ to ______
Commission File Number: 0-20899
FIRST LANCASTER BANCSHARES, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter
DELAWARE 61-1297318
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
208 LEXINGTON STREET, LANCASTER, KENTUCKY 40444-1131
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(Address of Principal Executive Offices)
(606) 792-3368
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Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
No X The issuer has not been subject to such filing requirements
- ------ ------
for the past 90 days.
As of September 25, 1996, the issuer had 958,812 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and
June 30, 1996 (unaudited).................................. 2
Consolidated Statement of Income for the Three Months
Ended September 30, 1996 and 1995 (unaudited).............. 3
Consolidated Statement of Cash Flows for the Three Months
Ended September 30, 1996 and 1995 (unaudited).............. 4
Notes to Financial Statements.............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 8
Item 2. Changes in Securities...................................... 8
Item 3. Defaults Upon Senior Securities............................ 8
Item 4. Submission of Matters to a Vote of Security-Holders........ 8
Item 5. Other Information.......................................... 8
Item 6. Exhibits and Reports on Form 8-K........................... 8
SIGNATURES.......................................................... 9
First Lancaster Bancshares, Inc.
Consolidated Balance Sheets
(Unaudited)
September 30, June 30,
1996 1996
ASSETS
Cash $ 364,297 $ 339,445
Interest bearing deposits in other depository institutions 3,132,791 7,285,412
Investment securities available-for-sale, at market value (amortized cost
$24,158 at September 30, 1996 and June 30 1996) 602,151 527,364
Mortgage-backed securities, held to maturity 602,381 114,979
Investments in nonmarketable equity securities, at cost 320,800 315,600
Loans receivable, net 32,205,928 31,385,400
Real estate acquired by foreclosure - 168,965
Accrued interest receivable 173,803 138,213
Office property and equipment, at cost, less accumulated depreciation 417,214 427,390
Other assets 22,323 23,870
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Total Assets $37,841,687 $40,726,638
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings accounts and certificates $21,797,217 $23,482,589
Advance payments by borrowers for taxes and insurance 31,828 24,840
Accrued interest payable 30,737 45,961
Federal Home Loan Bank advances 1,973,722 3,480,410
Accrued SAIF premium 152,500
Accounts payable and other liabilities 142,281 113,958
Income tax payable 22,894 2,230
Deferred income tax payable 188,890 163,463
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Total liabilities 24,340,069 27,313,451
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Preferred stock, 500,000 shares authorized
Common stock, $.01 par value; 9,588,120 shares authorized;
883,707 and 882,108 shares issued and outstanding at
September 30, 1996 and June 30, 1996, respectively 9,588 9,588
Additional paid-in-capital 9,117,167 9,149,403
Employee stock ownership plan (751,060) (767,040)
Unrealized gain on securities available for sale (net of deferred
tax liability of $196,517 and $171,090, respectively) 381,475 332,116
Retained earnings, substantially restricted 4,744,448 4,689,120
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Total stockholders' equity 13,501,618 13,413,187
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Total liabilities and stockholders' equity $37,841,687 $40,726,638
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See accompanying notes to consolidated financial statements
2
First Lancaster Bancshares, Inc.
Consolidated Statements of Income
For the three months ended September 30, 1996 and 1995
(Unaudited)
SEPTMEBER SEPTEMBER
1996 1995
Interest on loans and mortgage-backed securities $729,310 $665,880
Interest and dividends on investments and deposits in other
depository institutions 75,895 44,168
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Total interest income 805,205 710,048
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Interest on savings accounts and certificates 274,456 349,727
Interest on borrowings 41,162 77,211
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Total interest expense 315,618 426,938
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Net interest income 489,587 283,110
Provision for loan losses 5,653
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Net interest income after provision for loan losses 483,934 283,110
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Other expense:
Compensation 68,542 72,372
Employee retirement and other benefits 43,654 6,973
State franchise taxes 7,146 6,615
SAIF deposit insurance premium 173,725 19,005
Depreciation 10,175 8,468
Data processing 11,317 11,153
Loss on disposal of other real estate owned 3,133
Other 79,251 33,043
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Total other expenses 396,943 157,629
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Income before income taxes 86,991 125,481
Provision for income taxes 31,663 42,664
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Net income 55,328 82,817
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Weighted shares outstanding 882,908
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Earnings per share 0.06
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See accompanying notes to consolidated financial statements
3
First Lancaster Bancshares, Inc.
Consolidated Statement of Cash Flows
For the three months ended September 30, 1996 and 1995
(Unaudited)
September 30 September 30
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1996 1995
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Cash flows from operating activities:
Net income $55,328 $82,817
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,175 8,468
Provision for loan losses 5,653
Stock dividend,FHLB stock (5,200) (1,000)
Net loan origination fees deferred 7,565 7,463
Amortization of deferred loan fees (4,303) (4,202)
Noncash compensation related to ESOP 22,116
Loss on sale of real estate acquired by foreclosure 2,633
Change in assets and liabilities:
Accrued interest receivable (35,590) (28,012)
Other assets 1,547 2,396
Income tax receivable (23,289)
Accrued interest payable (15,224) (12,460)
Accounts payable, other liabilities and accrued SAIF premium 180,823 17,189
Income taxes payable 20,664
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Net cash provided by operating activities 246,187 49,370
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Cash flows from investing activities:
Proceeds from sale of real estate aquired
by foreclosure 166,332
Purchase of mortgage-backed securities (500,420)
Mortgage-backed securities principal
repayments 13,018 6,871
Net increase in loans receivable (829,442) (493,206)
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Net cash used in investing activities (1,150,512) (486,335)
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Cash flows from financing activities:
Net (decrease)increase in savings
accounts and certificates (1,685,372) 1,079,130
Advance payments by borrowers for
taxes and insurance 6,988 6,193
Federal Home Loan Bank advance
principal repayments (1,506,688) (6,521)
Stock conversion costs (38,372)
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Net cash (used in) provided by financing activities (3,223,444) 1,078,802
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Net (decrease) increase in cash and
cash equivalents (4,127,769) 641,837
Cash and cash equivalents at beginning of period 7,624,857 2,351,894
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Cash and cash equivalents at end of period $3,497,088 $2,993,731
=========== ============
Supplemental disclosure of cash flow information:
Interest paid $330,842 $439,398
Income taxes paid $11,000 $65,953
Supplemental disclosure of non-cash investing
activities:
Unrealized gain on securities available for sale,
net of deferred tax liability of $$60,554 at
September 30, 1996 and $134,915 at
September 30, 1995 $117,547 $261,893
See accompanying notes to consolidated financial statements
4
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. GENERAL:
The accompanying consolidated financial statements of First Lancaster
Bancshares, Inc. and Subsidiary 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 financial
position 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
ended September 30, 1996 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,
1996. Prior to its acquisition of the Bank on June 28, 1996, the Company
had not issued any stock, had no assets or liabilities, and had not engaged
in any business activities other than that of an organizational nature.
Accordingly, the unaudited consolidated financial statements included
herein as of dates or for periods ended prior to June 28, 1996, reflect the
operations of the Bank only.
2. ALLOWANCE FOR LOAN LOSSES:
An analysis of the changes in the loan loss allowance for the three months
ended September 30 follows:
THREE MONTHS ENDED
1996 1995
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Beginning balance.... $100,000 $70,000
Provision............ 5,653
Charge offs.......... (5,653)
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Ending balance....... $100,000 $70,000
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5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMPACT ON RESULTS OF OPERATIONS BASED ON RECENTLY ENACTED FEDERAL GOVERNMENT
LEGISLATION.
On September 30, 1996, Federal legislation was enacted and signed into
law which provides a resolution to the disparity in the Bank Insurance Fund and
SAIF premiums. In particular, the SAIF-insured institutions, such as the Bank,
will pay a one-time assessment of 65.7 cents on every $100 of deposits held at
March 31, 1995. Such payment is due no later than November 27, 1996. As a
result of the new law the Company will be required to pay approximately
$153,000. Assuming the special assessment is tax deductible, the cost, net of
income tax benefits, will be approximately $101,000. The Company recorded
the one-time charge to earnings during the quarter ended September 30, 1996.
Also, beginning January 1, 1997, the current annual minimum SAIF premium of 23
basis points will be reduced to approximately 6.5 basis points.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996 AND JUNE 30, 1996
The Bank's total assets decreased by approximately $2.9 million, or
7.1%, from $40.7 million at June 30, 1996 to $37.8 million at September 30,
1996. The decrease resulted primarily from a decrease in interest-bearing
deposits in other depository institutions of $4.1 million from $7.3 million at
June 30, 1996 to $3.2 million at September 30, 1996 offset by an increase in net
loans receivable of $820,000, or 2.6%, from $31.4 million at June 30, 1996 to
$32.2 million at September 30, 1996 and an increase in mortgage backed
securities held to maturity of $487,000, or 423.9%, from $115,000 at June 30,
1996, to $602,000 at September 30, 1996. The Bank's savings accounts decreased
by $1.7 million, or 7.2%, from $23.5 million at June 30, 1996 to $21.8 million
at September 30, 1996. The Bank's FHLB advances decreased by $1.5 million, or
43.3%, from $3.5 million at June 30, 1996 to $2.0 million at September 30, 1996,
as the Bank utilized excess liquidity to reduce outstanding FHLB advances which
carried high interest rates.
Accrued SAIF premiums increased as a result of the recently enacted
legislation to recapitalize the SAIF insurance fund. A one time assessment of
$152,500 was recorded as of September 30, 1996. This special assessment
represents 65.7 basis points of the Bank's deposits at March 31, 1995.
COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND
1995
Net Income. The Bank's net income decreased by $28,000, or 33.7%,
from $83,000 for the quarter ended September 30, 1995 to $55,000 for the quarter
ended September 30, 1996. Such decrease was due primarily to a $239,000, or
151.8% increase in noninterest expense offset by a $201,000, or 71.0%, increase
in net increase income.
Net Interest Income. Net interest income increased by $201,000, or
71.0%, from $283,000 for the quarter ended September 30, 1995 to $484,000 for
the quarter ended September 30, 1996, due primarily to an increase in loans and
investments which was funded by the conversion to a stock bank.
Interest Income. Total interest and dividend income increased by
$95,000 or 13.4%, to $805,000 for the quarter ended September 30, 1995 from
$710,000 for the quarter ended September 30, 1996. The increase primarily
reflects an increase in interest income on loans and an increase in interest and
dividends on investments and deposits in other depository institutions.
Interest on loans increased by $63,000, or 9.5%, during the quarter ended
September 30, 1996, as compared to the quarter ended September 30, 1995, as the
Bank continued its policy of loan growth through originations. Interest and
dividends on investments and deposits in other depository institutions increased
by $32,000 or 71.8%, during the quarter ended September 30, 1996, as compared to
the quarter ended September 30, 1995. Such increases reflect increases in the
average balance of such deposits as the Bank increased its liquidity through its
conversion to a stock bank.
Interest Expense. Total interest expense decreased by $111,000, or
26.0%, to $316,000 for the quarter ended September 30, 1996 from $427,000 for
the quarter ended September 30, 1995. Most of such decreases were due to
decreases in interest on savings accounts and certificates of deposit, as these
deposits were used to
6
purchase stock in the conversion. Interest on other borrowings decreased by
$36,000, or $46.7%, to $41,000 for the quarter ended September 30, 1996 from
$77,000 for the quarter ended September 30, 1995 due to repayments of debt
funded by proceeds from the conversion.
Provision for Loan Losses. The Bank established provisions for loan
losses of $6,000 in the quarter ended September 30, 1996. No provisions were
established for the comparable period in 1995. Management's determination to
increase the reserve during the quarter ended September 30, 1996 was based in
part on the general increases in loans outstanding of $1,758,000 or 5.8%. The
Bank's provision for loan losses is based on management's assessment of the
general risk inherent in the loan portfolio based on all relevant factors and
conditions.
Noninterest Expense. Total noninterest expense increased by $239,000,
or 151.8%, from $158,000 for the quarter ended September 30, 1995 to $397,000
for the quarter ended September 30, 1996. These increases were caused primarily
by increases of $155,000 and $37,000, respectively, in SAIF deposit premium and
employee benefits expense as a result of the $153,000 SAIF assessment and new
bonus and retirement programs.
Income Tax. The effective tax rates for the quarters ended September
30, 1996 and 1995 were 36.4% and 34.0%, respectively. The increase during the
quarter ended September 30, 1996 was caused by nondeductible expenses related to
the ESOP. Income tax expense decreased by $11,000, or 25.6%, from $43,000 for
the quarter ended September 30, 1995 to $32,000 for the quarter ended September
30, 1996. Such decreases reflected lower income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity and capital resources at September 30, 1996
remained relatively unchanged from June 30, 1996. The Bank anticipates that it
will have sufficient funds available to meet commitments outstanding at
September 30, 1996 to originate loans. As of September 30, 1996, the Bank's
ratios of tangible capital and core capital to adjusted total assets were 32.3%,
as compared to the required levels of 1.5% and 3.0%, respectively. The risk-
based capital ratio at that date was 61.4%, as compared to the requirement of
8.0%.
7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
FORM 8-K
None
EXHIBITS
Exhibit 27 Financial Data Schedule
8
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST LANCASTER BANCSHARES, INC.
Date: November 12, 1996 /s/ Virginia R. S. Stump
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Virginia R. S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12 , 1996 /s/ Tony A. Merida
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Tony A. Merida
Executive Vice President
(Principal Financial Officer)
9