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 December 31, 1997.
[ ] 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.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 61-1297318
- ------------------------------- ------------------
(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 X No
----- -----
As of January, 1998, the issuer had 958,812 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
CONTENTS
PART 1. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 (unaudited) and June 30, 1997 2
Consolidated Statements of Income for the Three Months and Six Months
Ended December 31, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1997 and 1996 (unaudited) 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security-Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Exhibit 27 16
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS DECEMBER 31, JUNE 30,
1997 1997
-------------- --------------
Cash $ 562,379 $ 670,998
Interest-bearing cash deposits in other depository institutions 1,331,280 1,437,113
Investment securities available-for-sale, at market value (amortized cost
$24,158 at December 31, 1997 and June 30, 1997) 1,034,682 863,520
Mortgage-backed securities, held to maturity 487,818 540,408
Investments in nonmarketable equity securities, at cost 609,305 342,700
Loans receivable, net 44,615,241 38,283,591
Accrued interest receivable 413,608 260,227
Office property and equipment, at cost, less accumulated depreciation 389,202 400,523
Real estate acquired by foreclosure 429,200
Other assets 7,104 8,563
-------------- --------------
Total assets $ 49,879,819 $ 42,807,643
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings accounts and certificates $ 23,077,434 $ 22,127,687
Advance payments by borrowers for taxes and insurance 16,718 28,421
Accrued interest payable 64,862 35,583
Federal Home Loan Bank advances 11,885,740 5,926,928
Accounts payable and other liabilities 367,657 293,672
Income tax payable 7,385 70,849
Deferred income tax payable 241,773 216,416
-------------- --------------
Total liabilities 35,661,569 28,699,556
-------------- --------------
Preferred stock, 500,000 shares authorized
Common stock, $.01 par value; 3,000,000 shares authorized;
888,500 shares issued; 886,229 and 888,500 outstanding at
December 31, 1997 and June 30, 1997, respectively 9,588 9,588
Additional paid-in capital 9,129,847 9,110,683
Treasury stock (88,363)
Employee stock ownership plan (669,501) (703,121)
Unrealized gain on securities available-for-sale (net
of deferred tax liability of $343,578 and $285,383, respectively) 666,946 553,979
Retained earnings, substantially restricted 5,169,733 5,136,958
-------------- --------------
Total stockholders' equity 14,218,250 14,108,087
-------------- --------------
Total liabilities and stockholders' equity $ 49,879,819 $ 42,807,643
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
2
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the three months and six months ended December 31, 1997 and (Unaudited) 1996
THREE MONTHS ENDED SIX MONTHS ENDED
1997 1996 1997 1996
Interest on loans and mortgage-backed securities $ 987,730 $724,306 $1,900,304 $1,453,616
Interest and dividends on investments and deposits in
other depository institutions 28,722 43,809 57,270 119,704
---------- -------- ---------- ----------
Total interest income 1,016,452 768,115 1,957,574 1,573,320
Interest on savings accounts and certificates 312,980 302,522 615,426 576,978
Interest on other borrowings 171,916 22,734 289,458 63,896
---------- -------- ---------- ----------
Total interest expense 484,896 325,256 904,884 640,874
---------- -------- ---------- ----------
Net interest income 531,556 442,859 1,052,690 932,446
Provision for loan losses 28,047 7,907 53,047 13,560
---------- -------- ---------- ----------
Net interest income after provision for
loan losses 503,509 434,952 999,643 918,886
---------- -------- ---------- ----------
Other expenses:
Compensation 88,511 71,537 166,159 140,079
Employee retirement and other benefits 82,228 50,540 163,196 94,194
State franchise taxes 6,434 7,146 12,868 14,292
SAIF deposit insurance premium 3,508 16,312 13,982 190,037
Depreciation 20,757 10,176 40,260 20,351
Data processing 11,048 9,303 24,007 20,620
Other 68,550 50,087 185,453 132,471
---------- -------- ---------- ----------
Total other expenses 281,036 215,101 605,925 612,044
---------- -------- ---------- ----------
Income before income taxes 222,473 219,851 393,718 306,842
Provision for income taxes 76,399 77,489 136,961 109,152
---------- -------- ---------- ----------
Net income $ 146,074 $142,362 $ 256,757 $ 197,690
========== ======== ========== ==========
Weighted shares outstanding for basic earnings
per share 885,069 884,507 886,575 883,707
Basic earnings per share 0.17 0.16 0.29 0.22
Weighted shares outstanding for diluted earnings
per share 907,792 884,507 909,253 883,707
Diluted earnings per share 0.16 0.16 0.28 0.22
The accompanying notes are an integral part of the
consolidated financial statements.
3
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended December 31, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ 256,757 $ 197,690
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 16,977 20,351
Provision for loan losses 53,047 13,560
Stock dividend, FHLB stock (6,900) (10,500)
Deferred income taxes (32,838)
Net loan origination fees deferred (42,936) 4,721
Noncash compensation related to ESOP 52,784 46,153
Loss on sale of real estate acquired by foreclosure 2,633
MRP benefit expense 50,214
Change in assets and liabilities:
Accrued interest receivable (153,381) (39,352)
Other assets 1,460 14,911
Income tax receivable
Accrued interest payable 29,279 (4,821)
Accounts payable and other liabilities 51,802 45,544
Income tax payable (63,464) 55,374
----------- -----------
Net cash provided by operating activities 212,801 346,264
----------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate acquired by foreclosure 166,332
Purchase of property, plant and equipment (5,656)
Purchase of FHLB stock (259,705)
Purchase mortgage backed securities (500,420)
Mortgage-backed securities principal repayments 52,590 31,284
Net increase in loans receivable (6,342,053) (1,066,481)
----------- -----------
Net cash used in investing activities (6,554,824) (1,369,285)
----------- -----------
Cash flows from financing activities:
Net (decrease) increase in savings accounts and certificates 949,747 (1,740,077)
Advance payments by borrowers for taxes and insurance (11,703) (11,710)
Purchase of treasury stock (118,441)
Cash dividends paid (221,940)
Federal Home Loan Bank advances 7,750,000
Federal Home Loan Bank advance principal repayments (1,791,188) (2,540,657)
Stock conversion costs (69,575)
----------- -----------
Net cash (used in) provided by financing activities 6,556,475 (4,362,019)
----------- -----------
Net (decrease) increase in cash and cash equivalents 214,452 (5,385,040)
Cash and cash equivalents at beginning of period 2,108,111 7,624,857
----------- -----------
Cash and cash equivalents at end of period $ 1,893,659 $ 2,239,817
=========== ===========
Supplemental disclosure of non-cash investing activities:
Unrealized gain on securities available for sale, $ 112,967 $ 101,263
4
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 six months ended December 31, 1997 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, 1997.
2. INVESTMENT SECURITIES:
Investment securities are summarized as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 COSTS GAINS LOSSES VALUE
--------- ----------- ---------- -----------
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 1,010,524 $ $ 1,034,682
========= =========== ========== ===========
JUNE 30, 1997
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 839,362 $ $ 863,520
========= =========== ========== ===========
3. ALLOWANCE FOR LOAN LOSSES:
An analysis of the changes in the loan loss allowance for the three months
ended December 31 follows:
THREE MONTHS ENDED SIX MONTHS ENDED
1997 1996 1997 1996
--------- --------- --------- ---------
Beginning balance $ 150,000 $ 100,000 $ 125,000 $ 100,000
Provision 28,047 7,907 53,047 13,560
Charge offs (28,047) (7,907) (28,047) (13,560)
--------- --------- --------- ---------
Ending balance $ 150,000 $ 100,000 $ 150,000 $ 100,000
========= ========= ========= =========
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Nonaccrual loans amounted to $692,479 and $131,781 at December 31 and June
30, 1997, respectively.
4. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances at December 31, 1997 and June 30, 1997 are
as follows:
DECEMBER 30, JUNE 30,
1997 1997
------------ --------------------
DATE OF INTEREST
ISSUE YEAR OF MATURITY AMOUNT AMOUNT RATE
------------ ---------------- -------------- ----------- --------
10/27/94 11/01/04 $ 113,413 $ 136,155 8.45
1/31/95 1/30/15 650,000 650,000 6.09
5/09/95 6/01/05 122,327 140,773 7.35
3/14/97 3/13/98 750,000 750,000 6.05
3/25/97 3/25/98 500,000 500,000 6.75
3/25/97 3/25/98 2,000,000 2,000,000 6.20
5/01/97 10/28/97 0 1,750,000 6.00
7/31/97 7/31/98 1,000,000 5.88
8/14/97 8/14/98 500,000 5.95
8/26/97 2/20/98 500,000 5.84
9/04/97 3/03/98 750,000 5.82
9/16/97 3/13/98 500,000 5.80
9/23/97 3/20/98 750,000 5.77
10/2/97 3/31/98 500,000 5.79
10/22/97 10/22/98 250,000 6.05
10/28/97 4/24/98 1,750,000 5.86
10/30/97 4/28/98 250,000 5.85
11/14/97 5/13/98 500,000 5.83
11/24/97 5/22/98 250,000 5.88
12/26/97 6/24/98 250,000 5.91
-------------- -----------
$11,885,740 $5,926,928
============== ===========
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS:
In June 1996, the FASB issued Statement of Financial Standards (SFAS) No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Under this standard, accounting for
transfers and servicing of financial assets and extinguishments of
liabilities is based on control. After a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished. This
statement applies prospectively in fiscal years beginning after December 31,
1996. The Corporation adopted the statement July 1, 1997 with no material
affect on the financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (EPS).
This statement specifies the computation, presentation, and disclosure
requirements for EPS. SFAS No. 128 is designed to improve the EPS
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international basis. Some of
the changes made to simplify the EPS computations include: (a) eliminating
the presentation of primary EPS and replacing it with basic EPS, with the
principal difference being that common stock equivalents are not considered
in computing basic EPS, (b) eliminating the modified treasury stock method
and three percent materiality provision, and (c) revising the contingent
share provisions and the supplemental EPS data requirements. SFAS No. 128
requires presentation of basic EPS amounts from income for continuing
operations and net income on the face of the income statement for entities
with simple capital structures and dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex
capital structures regardless of whether basic and diluted EPS are the same.
The statement also requires a reconciliation of the numerator and
denominator used on computing basic and diluted EPS and is applicable to all
entities with publicly held common stock or potential common stock.
SFAS No. 128 was adopted as of December 31, 1997. EPS calculated under SFAS
No. 128 are not materially different from EPS calculated under the previous
method.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The purpose of reporting comprehensive income is to
present a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. If used with related disclosures
and other information in the consolidated financial statements, the FASB
believes that the information provided by reporting comprehensive income
should help investors, creditors, and others in assessing an enterprise's
activities and the timing and magnitude of its future cash flows. The
statement requires that an enterprise classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of
financial condition. This statement is effective for fiscal years beginning
after December 31, 1997 and
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS, CONTINUED:
reclassification of financial statements for earlier periods provided for
comparative purposes is required. The only transactions that meet the
definition of comprehensive income for the Corporation include the
unrealized gains on securities available for sale. These unrealized gains
are currently reported separately in the equity section of the statement of
financial condition. Therefore, there should not be any impact on the
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the
manner in which public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. This statement also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable
operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. The Company does not
anticipate that the adoption of SFAS No. 131 will have a material effect on
the Company.
6. EARNINGS PER SHARE
For the three months ended December 31, 1997 For the six months ended December 31, 1997
-------------------------------------------- ------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
shareholders $ 146,074 885,069 $ 0.17 $ 256,757 886,575 $ 0.29
Effect of dilutive securities
Stock options 5,006 4,328
Management recognition plan 17,717 18,350
Diluted earnings per share
Income available to common
shareholders plus assumed
conversions $ 146,074 907,792 $ 0.16 $ 256,757 909,253 $ 0.28
There were no preferred dividends or antidultive securities that would effect
the computation of earnings per share.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowings. The
Company's operating expenses consist primarily of employee compensation,
occupancy expenses, federal deposit insurance premiums and other general and
administrative expenses. The Company's results of operations are significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of regulatory agencies.
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
POSSIBLE YEAR 2000 COMPUTER PROGRAM PROBLEMS
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 190-0 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operations of the Company.
Data processing is also essential to most other financial institutions and manu
other companies.
All of the material data processing of the Company that could be affected by
this problem is provided by a third party service bureau. The service bureau of
the Company has advised the Company that it expects to resolve this potential
problem before the year 2000. However, if the service bureau is unable to
resolve this potential problem in time, the Company would likely experience
significant data processing delays, mistakes or failures. These delays,
mistakes or failures could have a significant adverse impact on the financial
condition and results of operation of the Company.
9
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE 30, 1997
The Bank's total assets increased by approximately $7.1 million, or 16.5%, from
$42.8 million at June 30, 1997 to $49.9 million at December 31, 1997. The
increase resulted primarily from an increase in net loans receivable of $6.3
million, or 16.5%, from $38.3 million at June 30, 1997 to $44.6 million at
December 31, 1997, an increase in nonmarketable investment securities (due to
purchases of FHLB stock) of $266 thousand from $343 thousand at June 30, 1997,
to $609 thousand at December 31, 1997. This was offset by a decrease in
interest-bearing deposits in other depository institutions of $106 thousand from
$1.4 million at June 30, 1997 to $1.3 million at December 31, 1997. During the
quarter ended December 31, 1997 the Bank acquired residential property through
foreclosure and the property was included in other real estate at its current
fair market value. The Bank's savings accounts increased by $950 thousand, or
4.3%, from $22.1 million at June 30, 1997 to $23.1 million at December 31, 1997.
The Bank's FHLB advances increased by $6.0 million, or 100.5%, from $5.9 million
at June 30, 1997 to $11.9 million at December 31, 1997. During the six month
period ended December 31 1997 the Company acquired 7,550 of common shares for a
purchase price of $118,441. Such shares will be used to fulfill the obligation
under the Company's management recognition plan.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND
1996
NET INCOME: The Bank's net income increased by $4 thousand, or 2.6%, from $142
thousand for the quarter ended December 31, 1996 to $146 thousand for the
quarter ended December 31, 1997. The increase was due primarily to an increase
in total interest income of $248 thousand, or 32.3%, offset by an increase in
total interest expense of $160 thousand, or 49.1%, an increase in the provision
for loan loss of $20 thousand, and an increase in other expenses of $66
thousand.
NET INTEREST INCOME: Net interest income increased by $89 thousand, or 20%, from
$443 thousand for the quarter ended December 31, 1996 to $532 thousand for the
quarter ended December 31, 1997. The increase is attributed to an increase in
interest income of $248 thousand and an increase in interest expense of $160
thousand.
INTEREST INCOME: Total interest and dividend income increased by $248 thousand
or, 32.3%, to $1 million for the quarter ended December 31, 1997 from $768
thousand for the quarter ended December 31, 1996. The increase primarily
reflects an increase in interest income on loans. Interest on loans increased by
$263 thousand, or 36.4%, during the quarter ended December 31, 1997, as compared
to the quarter ended December 31, 1996, as the Bank continued its policy of loan
growth through originations. Interest and dividends on investments and deposits
in other depository institutions decreased by $15 thousand or, 34.4%, during the
quarter ended December 31, 1997, as compared to the quarter ended December 31,
1996. The decrease in dividends on investments and deposits in other depository
institutions is attributed to the use of these short term investments to fund
loan growth.
INTEREST EXPENSE: Total interest expense increased by $160 thousand, or 49.1%,
to $485 thousand for the quarters ended December 31, 1997 from $325 thousand for
the quarter ended December 31, 1996. Interest on other borrowings increased by
$149 thousand, or 657%, to $172 thousand for the quarter ended December 31, 1997
from $23 thousand for the quarter ended December 31, 1996 due to the increase in
FHLB advances from $5.9 million at December 31, 1996 to $11.9 million at
December 31, 1997. Due to competition for deposits in its market area, the
Company has utilized FHLB advances to fund loan growth.
10
PROVISION FOR LOAN LOSSES: The Bank established a $28,047 and $7,907 provision
for loan losses for the quarter ended December 31, 1997 and 1996, respectively.
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 including general increases in the overall loan balance outstanding
at December 31, 1997.
OTHER EXPENSE: Total other expense increased by $66 thousand, or 31%, from $215
thousand for the quarter ended December 31, 1996 to $281 thousand for the
quarter ended December 31, 1997. The increase was caused primarily by an
increase of $32 thousand in employee retirement expense as a result of
accounting for the ESOP plan, management recognition plan (MRP) and the
directors retirement program. Compensation expense increased $17 thousand as a
result of adding two full time employees. Other expense increased $20 due to the
costs associated with operating a public company.
INCOME TAX: The effective tax rates for the quarters ended December 31, 1997 and
1996 were 34.3% and 35.2%, respectively.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND
1996
NET INCOME: The Bank's net income increased by $59 thousand, or 29.9%, from $198
thousand for the six months ended December 31, 1996 to $257 thousand for the six
months ended December 31, 1997. The increase was due primarily to an increase in
total interest income of $384 thousand, or 24.4%, and an increase in total
interest expense of $264 thousand, or 41.2% and a decrease in other expenses of
$6 thousand.
NET INTEREST INCOME: Net interest income increased by $120 thousand, or 12.9%,
from $932 thousand for the six months ended December 31, 1996 to $1.05 million
for the six months ended December 31, 1997. This increase is composed of the
increases in interest income and offsetting increase in interest expense as
noted above.
INTEREST INCOME: Total interest and dividend income increased by $384 thousand
or, 24.4%, to $1.96 million for the six months ended December 31, 1997 from
$1.57 million for the six months ended December 31, 1996. The increase primarily
reflects an increase in interest income on loans. Interest on loans increased by
$447 thousand, or 30.7%, during the six months ended December 31, 1997, as
compared to the quarter ended December 31, 1996, as the Bank continued its
policy of loan growth through originations. Interest and dividends on
investments and deposits in other depository institutions decreased by $62
thousand or, 52.2%, during the six months ended December 31, 1997, as compared
to the quarter ended December 31, 1996. The decrease in dividends on investments
and deposits in other depository institutions is attributed to the use of these
short term investments to fund loan growth.
INTEREST EXPENSE: Total interest expense increased by $264 thousand, or 41.2%,
to $905 thousand for the six months ended December 31, 1997 from $641 thousand
for the six months ended December 31, 1996. Interest on other borrowings
increased by $226 thousand, or 353%, to $290 thousand for the six months ended
December 31, 1997 from $64 thousand for the six months ended December 31, 1996
due to the increase in FHLB advances from $940 thousand at December 31, 1996 to
$11.9 million at December 31, 1997. Due to competition for deposits in its
market area, the Company has utilized FHLB advances to fund loan growth.
11
PROVISION FOR LOAN LOSSES: The Bank established a $53,047 and $13,560 provision
for loan losses for the six months ended December 31, 1997 and 1996,
respectively. 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 including general increases in the overall
balance of loans outstanding at December 31, 1997.
OTHER EXPENSE: Total other expense decreased by $6 thousand, or 1%, from $612
thousand for the six months ended December 31, 1996 to $606 thousand for the six
months ended December 31, 1997. The decrease was caused primarily by a reduction
in the SAIF deposit insurance expense of $176 thousand, or 92.6% for the six
months ended December 31, 1997 due to the prior year one time assessment. This
was offset by an increase of $69 thousand in employee retirement expense as a
result of accounting for the ESOP plan, management recognition plan (MRP) and
the directors retirement program. Compensation expense increased $26 thousand as
a result of adding two full time employees. Other expense increased $53 due to
the costs associated with operating a public company.
INCOME TAX: The effective tax rates for the six month periods ended December 31,
1997 and 1996 were 34.8% and 35.6%, respectively. The provision for income tax
increased by $28 thousand , or 25.5%, from $109 thousand for the six months
ended December 31, 1996 to $137 thousand for the six months ended December 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits; principal and interest
payments on loans and mortgage-backed securities; proceeds from the sale of
available-for-sale securities; proceeds from maturing debt securities; advances
from the FHLB; and other borrowed funds. While scheduled maturities of
securities and amortization of loans are predictable sources of funds, deposit
flows and prepayments on mortgage loans and mortgage-backed securities are
greatly influenced by the general level of interest rates, economic conditions
and competition.
The Bank is required to maintain an average daily balance of liquid assets and
short-term liquid assets as a percentage of net withdrawable deposit accounts
plus short-term borrowings as defined by OTS regulations. The minimum required
liquidity and short-term liquidity ratios are currently 5% and 1%, respectively.
For December 31, 1997, the Bank had liquidity and short-term liquidity ratios of
6% and 6.9%, respectively.
At December 31, 1997, the Company had outstanding commitments to originate first
mortgage loans totaling $608 thousand. The Company anticipates that it will
borrow additional funds from the Federal Home Loan Bank to meet its current
origination commitments.
The Bank is required by federal regulations to maintain minimum amounts of
capital. Currently, the minimum required levels are tangible capital of 1.5% of
tangible assets, core capital of 3.0% of adjusted tangible assets, and risk-
based capital of 8.0% of risk-weighted assets. At December 31, 1997, the Bank
had tangible capital of 27.4% of tangible assets, core capital of 27.4% of
adjusted tangible assets, and risk-based capital of 39.8% of risk-weighted
assets.
12
PART 11 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
The Company's Annual Meeting of Stockholders was held on
November 10, 1997. 779,814 shares of the Company's common stock
were represented at the Annual Meeting in person or by proxy.
The stockholders voted in favor of the election of two nominees
for director. The voting results for each nominee were as
follows:
Votes in Favor
Nominee of Election Votes Withheld
- ---------------- --------------- --------------
Tony A. Merida 760,654 19,160
Jack Zanone 764,814 15,000
There were no broker nonvotes on the matter.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1997
13
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: February 12, 1998 /s/ Virginia R.S. Stump
-------------------------------------
Virginia R.S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 12, 1998 /s/ Tony A. Merida
-------------------------------------
Tony A. Merida
Executive Vice President
(Principal Financial Officer)
14