UNITED STATES
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 ending March 31, 1999
-------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to_______________
Commission File Number 0-25814
-----------------------------------------
N S & L Bancorp, Inc.
---------------------
(Exact name of registrant as specified in its charter)
Missouri 43-1709446
- ----------------------------------- -------------------
(State or other jurisdiction of I.R.S. (I.R.S. Employer
Employer Incorporation or organization) Identification No.)
P.O. Box 369, Neosho, MO 64850
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(417) 451-0429
- --------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 MAY 11, 1999, THERE WERE 741,866 SHARES OF THE REGISTRANT'S COMMON STOCK,
$.01 PAR VALUE PER SHARE, OUTSTANDING.
N S & L BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1999
INDEX PAGE
- ----- ----
PART I-FINANCIAL INFORMATION
- ----------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited) 1-2
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 3-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 6-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 8-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-17
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES
HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES
N S &L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
MARCH 31, SEPTEMBER 30,
1999 1998
----------- -------------
(Dollars in thousands)
ASSETS
------
Cash and cash equivalents, including
interest-bearing accounts of $7,515 at $ 8,195 $10,383
March 31 and $9,698 at September 30
Certificates of deposit 575 674
Investment securities available-for-sale, at fair value 188 204
Investment securities held-to-maturity
(estimated market value of $15,295 at March 31
and $9,702 at September 30) 15,242 9,401
Investment in Federal Home Loan Bank stock, at cost 365 365
Mortgage-backed securities held-to-maturity
(estimated market value of $2,949 at March 31
and $3,206 at September 30.) 2,900 3,122
Loans held for sale 525 86
Loans receivable, net (reserves for loan losses of $53
at March 31 and $52 at September 30) 37,988 37,421
Accrued interest receivable 372 360
Property and equipment, less accumulated
depreciation 1,143 1,130
Intangible assets 79 81
Other assets 213 140
------- -------
Total assets $67,785 $63,367
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Customer deposits $52,377 $47,945
Advances from FHLB 3,922 3,986
Advances from borrowers for taxes
and insurance 184 305
Income taxes payable - current 42 11
Deferred income taxes 380 340
Other liabilities 387 375
------- -------
Total liabilities 57,292 52,962
------- -------
Commitments and contingencies -- --
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 8,000,000 shares
authorized, 1,012,441 issued and 741,866 outstanding
at March 31 and 886,314 issued and 616,839
outstanding at September 30 10 9
Paid-in capital 10,397 8,514
See accompanying notes to Consolidated Financial Statements.
1
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
(Unaudited)
MARCH 31, SEPTEMBER 30,
1999 1998
----------- --------------
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)
- ------------------------------------------------
Retained earnings - substantially restricted 4,838 6,648
Treasury Stock - at cost; 270,575 shares at March 31,
1999 and 269,475 at September 30, 1998 (4,175) (4,160)
Unearned compensation (598) (637)
Accumulated other comprehensive income 21 31
------- -------
Total stockholders' equity 10,493 10,405
------- -------
Total liabilities and stockholders' equity $67,785 $63,367
======= =======
See accompanying notes to Consolidated Financial Statements.
2
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------
(Unaudited) (Unaudited)
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
1999 1998 1999 1998
------ ------ ------ ------
(Dollars in thousands) (Dollars in thousands)
Interest Income:
Loans receivable $ 725 $ 667 $1,440 $1,310
Investment securities 196 156 348 364
Mortgage-backed and
related securities 61 78 123 160
Other interest-earning assets 89 83 213 153
------ ------ ------ ------
Total interest income 1,071 984 2,124 1,987
------ ------ ------ ------
Interest Expense:
Customer deposits 521 503 1,055 999
Borrowed funds 54 15 112 39
------ ------ ------ ------
Total interest expense 575 518 1,167 1,038
------ ----- ------ ------
Net interest income 496 466 957 949
Provision for loan losses (1) 1 2 6
------ ----- ------ ------
Net interest income after
provision for loan losses 497 465 955 943
------ ----- ------ ------
Noninterest Income:
Gain on sale of loans 16 -- 33 --
Banking service charges
and fees 47 37 95 76
Loan late charges 3 2 5 4
Mortgage banking fees 28 63 81 109
Other 4 1 7 1
------ ----- ------ ------
Total noninterest
income 98 103 221 190
------ ----- ------ ------
Noninterest Expense:
Compensation and
employee benefits 239 230 473 451
Occupancy and equipment 51 51 99 94
Deposit insurance premium 7 7 14 14
Data processing 32 26 61 50
Printing, postage,
stationery
and supplies 11 14 37 34
Professional fees 23 15 35 34
Other 44 57 119 136
------ ----- ------ ------
Total noninterest expense 407 400 838 813
------ ----- ------ ------
Income before taxes 188 168 338 320
Income Taxes 63 62 108 120
------ ----- ------ ------
Net income $ 125 $ 106 $ 230 $ 200
====== ===== ====== ======
See accompanying notes to Consolidated Financial Statements.
3
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
-----------------------------
(Unaudited) (Unaudited)
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
1999 1998 1999 1998
------ ------ ------ ------
(Dollars in thousands) (Dollars in thousands)
Basic earnings per share $ .18 $ .14 $ .34 $ .26
====== ===== ====== ======
Diluted earnings per share $ .18 $ .14 $ .33 $ .25
====== ===== ====== ======
Dividends per share $ .16 $.125 $ .32 $ .25
====== ===== ====== ======
See accompanying notes to Consolidated Financial Statements.
4
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
___________________________
(Unaudited) (Unaudited)
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
1999 1998 1999 1998
--------- ---------- ---------- ---------
(Dollars in thousands) (Dollars in thousands)
Net income 125 106 230 200
Other comprehensive Income:
Unrealized gains on investment
securities available-for-sale,
net of tax (5) 4 (10) 13
---- ----- ----- ------
Comprehensive income $120 $ 110 $ 220 $ 213
==== ===== ===== ======
See accompanying notes to Consolidated Financial Statements.
5
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
1999 1998
---------- ----------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 230 $ 200
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 44 45
Amortization 2 2
Premiums and discounts on mortgage-backed
securities and investment securities (50) (47)
Origination of loans held for sale (3,071) --
Proceeds from sale of loans held for sale 2,666 --
Loss on loans, net of recoveries 2 6
Release of ESOP shares 41 63
Vesting of MRDP shares 38 37
Gain on call of investments -- (15)
Gain on sale of loans (34) --
Net change in operating accounts:
Accrued interest receivable (12) 139
Other assets (73) (50)
Other liabilities (7) (12)
Income taxes payable - deferred 46 (43)
Income taxes payable - current 31 2
-------- --------
Net cash from (used in) operating activities (147) 327
------- --------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (9,339) (3,495)
Proceeds from maturity of investment securities
held-to-maturity 3,534 6,925
Net change in certificates of deposit 99 (396)
Net change in loans receivable (569) (2,460)
Proceeds from principal payments and maturities
of mortgage-backed securities held-to-maturity 791 582
Purchase of mortgage-backed securities held-to-maturity (555) --
Purchases of property and equipment (57) (47)
------- -------
Net cash from (used in) investing activities $(6,096) $ 1,109
------- -------
See accompanying notes to Consolidated Financial Statements.
6
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
1999 1998
----------- ------------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings
accounts, and certificates of deposit $ 4,432 $ 3,875
Net decrease in mortgage escrow funds (121) (160)
Repayment of cash advances from FHLB (64) (2,000)
Purchase of treasury stock (15) (481)
Cash dividends paid (177) (175)
-------- ---------
Net cash from financing activities 4,055 1,059
-------- ---------
Net increase (decrease) in cash and
cash equivalents (2,188) 2,495
Cash and cash equivalents -
beginning of period 10,383 5,521
-------- ---------
Cash and cash equivalents -
end of period $ 8,195 $ 8,016
======== =========
See accompanying notes to Consolidated Financial Statements.
7
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - Basis of Presentation
- ------------------------------
The consolidated interim financial statements as of March 31, 1999 included in
this report have been prepared by the Registrant without audit. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation are reflected in the March 31, 1999 interim
financial statements. The results of operations for the periods ended March 31,
1999 and 1998 are not necessarily indicative of the operating results for the
full year. The September 30, 1998 Consolidated Statement of Financial Condition
presented with the interim financial statements was audited and received an
unqualified opinion.
NOTE B - Earnings per Share
- ---------------------------
The following information shows the amounts used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock.
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS:
Income available to
Common Stockholders $125,000 688,151 $.18 $106,000 762,934 $.14
==== ====
Effect of dilutive securities:
Stock option -- 6,833 -- 19,716
-------- ------- -------- -------
Diluted EPS:
Income available to common
stockholders plus stock
options $125,000 694,984 $.18 $106,000 782,650 $.14
======== ======= ==== ======== ======= ====
FOR THE SIX MONTHS ENDED MARCH 31,
1999 1998
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS:
Income available to
Common Stockholders $230,000 687,429 $.34 $200,000 773,387 $.26
==== ====
Effect of dilutive securities:
Stock option -- 4,172 -- 21,085
-------- ------- -------- -------
Diluted EPS:
Income available to common
stockholders plus stock
options $230,000 691,601 $.33 $200,000 794,472 $.25
======== ======= ==== ======== ======= ====
8
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE C - Employee Stock Ownership Plan
- --------------------------------------
The Association (Neosho Savings & Loan Association, F.A.) established an ESOP
for the exclusive benefit of participating employees (all salaried employees who
have completed at least 1000 hours of service in a twelve-month period and have
attained the age of 21). The ESOP borrowed funds from the Company in an amount
sufficient to purchase 68,516 shares (8% of the Common Stock issued in the
Conversion). An additional 13,665 shares were issued with the 20% stock
dividend declared March 24, 1999 resulting in a total of 82,181 ESOP shares.
The ESOP loan is secured by the shares purchased and will be repaid by the ESOP
with funds from contributions made by the Association, dividends received by the
ESOP and any other earnings on ESOP assets. The Association presently expects
to contribute approximately $106,762 including interest annually to the ESOP.
Contributions will be applied to repay interest on the loan first, then the
remainder will be applied to principal. The loan is expected to be repaid in
approximately six years.
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the ESOP
and shares released from the suspense account are allocated among participants
in proportion to their compensation relative to total compensation of all active
participants. Benefits generally become 25% vested after each year of credited
service beyond one year. Vesting is accelerated upon retirement, death or
disability of the participant. Forfeitures are returned to the Association or
reallocated to other participants to reduce future funding costs. Benefits may
be payable upon retirement, death, disability or separation from service. Since
the Association's annual contributions are discretionary, benefits payable under
the ESOP cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position 93-6,
Employers Accounting for Employee Stock Ownership Plans. Accordingly, the debt
of the ESOP is eliminated in consolidation and the shares pledged as collateral
are reported as a part of unearned ESOP shares in the consolidated balance
sheets. Contributions to the ESOP shall be sufficient to pay principal and
interest currently due under the loan agreement. As shares are committed to be
released from collateral, the Company reports compensation expense equal to the
average market price of the shares for the respective period, 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. ESOP compensation expense was $19,261 and $30,473 for the three
months ended March 31, 1999 and 1998 and $41,283 and $62,565 for the six months
ended March 31, 1999 and 1998 respectively.
A summary of ESOP shares at March 31, 1999 is as follows:
Shares allocated 27,240
Shares committed for release 4,111
Unreleased shares 50,830
--------
Total 82,181
========
Fair value of unreleased shares $688,340
9
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE D - Management Recognition and Development Plan and Stock Option Plan
- --------------------------------------------------------------------------
The 1995 Management Recognition and Development Plan ("MRDP") was approved by
stockholders on January 17, 1996. The MRDP is administered by the Board of
Directors of the Company. Collectively, the Board issued 41,109 shares of the
Company's common stock, of which currently there are 37,535 shares awarded to
employees at a cost of $410,620. The MRDP shares are vesting and being expensed
over a five-year period which began on January 17, 1996. The value of the
common stock contributed to the MRDP is amortized to compensation expense as the
shares vest. MRDP expense was $19,643 and $18,518 for the three months ended
March 31, 1999 and 1998 and $38,162 and $37,037 for the six months ended March
31, 1999 and 1998 respectively.
Also adopted on January 17, 1996 was a Stock Option plan whereby 85,645 shares
of the Company's common stock have been reserved to be awarded to certain
officers, employees and directors. The Stock Option Plan is administered by a
committee of the Board of Directors. All options expire no later than ten years
from the date of grant. At May 11, 1999, 1,000 shares had been exercised.
NOTE E - Stock Repurchase Program
- ---------------------------------
The Company completed its fourth stock repurchase program of the Corporation's
outstanding stock. At May 11, 1999, 270,575 shares have been repurchased at a
cost of $4,174,612.
NOTE F - New Accounting Pronouncements
- --------------------------------------
The Company adopted SFAS 130, "Reporting Comprehensive Income," during the
quarter ending December 31, 1998. Accounting Principles generally require that
recognized revenue, expenses gains and losses be included in net income.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of
the equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS 130 had no effect on
the Company's net income or shareholders' equity.
NOTE G - Stock Dividend
- -----------------------
On March 24, 1999, the Company declared a 20% stock dividend on all outstanding
shares of record as of April 15, 1999. A total of 123,627 shares were issued
and cash in lieu of stock was issued for all partial shares. The total number
of outstanding shares after the stock dividend was 741,866. All per share
amounts and average shares outstanding have been restated to reflect the
aforementioned stock dividend.
10
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material changes
in liquidity and capital resources that have occurred since September 30, 1998,
as well as certain changes in results of operations during the three and six
month periods ended March 31, 1999 and 1998.
The following should be read in conjunction with the Company's 10-KSB for
the year ended September 30, 1998, which contains the latest audited financial
statements and notes thereto, together with Management's Discussion and Analysis
of Financial Condition and Results of Operations as of September 30, 1998, and
for the year then ended. Therefore, only material changes in financial
condition and results of operations are discussed herein.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Total assets increased $4.4 million from September 30, 1998. Cash and cash
equivalents decreased $2.2 million during the six months ended March 31, 1999.
The decrease resulted from the purchase of $5.8 million in investment securities
and an increase of $1.0 million in loans. These uses of cash were partially
offset by an increase in customer deposits of $4.4 million, primarily as a
result of some special rate offerings and a short term deposit of $2 million.
The increase in investments was to obtain higher rate of returns for available
cash on hand. Loans for 1 to 4 family dwellings comprised the majority of the
increase in loans.
Nonperforming assets were $73,000 or .1% of total assets at March 31, 1999,
compared to $21,000, or .03% of total assets at September 30, 1998. There were
no nonaccrual loans at March 31, 1999 and $21,000 at September 30, 1998.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED
- ------------------------------------------------------------------------------
MARCH 31, 1998
- --------------
NET INCOME. Net income was $125,000 for the quarter ended March 31, 1999
compared to $106,000 for the quarter ended March 31, 1998. Net interest income
after provision for loan losses was $497,000 at March 31, 1999 compared to
$465,000 at March 31, 1998. Noninterest income increased $26,000 and
noninterest expense increased $38,000. Income tax expense increased $1,000.
NET INTEREST INCOME. Net interest income of $496,000 for the quarter ended
March 31, 1999 increased from $466,000 for the quarter ended March 31, 1998.
Interest income increased $87,000 while interest expense increased $57,000.
INTEREST INCOME. Interest income increased by $87,000 or 8.8% to $1.07
million for the quarter ended March 31, 1999 from $984,000 for the quarter ended
March 31, 1998. Interest income from loans receivable increased $58,000 to
$725,000 for the quarter ended March 31, 1999 from $667,000 for the quarter
ended March 31, 1998. The increase was primarily attributable to the increase
in average loans outstanding and to a lesser extent to interest rate increases
on existing adjustable rate loans.
11
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Interest income from investment securities increased by $40,000 to $196,000 for
the quarter ended March 31, 1999 from $156,000 for the quarter ended March 31,
1998. This increase was due to an increase in the balances in investment
securities. Interest income from mortgage-backed securities decreased by
$17,000 to $61,000 for the quarter ended March 31, 1999 from $78,000 for the
quarter ended March 31, 1998. The decrease was due to a decrease in the average
balances in mortgage-backed securities. Interest income from other interest-
earning assets increased by $6,000 to $89,000 for the quarter ended March 31,
1999 from $83,000 for the quarter ended March 31, 1998. This increase was
primarily due to an increase in the interest paid on larger average balances of
cash invested at Federal Home Loan Bank of Des Moines.
INTEREST EXPENSE. Interest expense of $575,000 for the quarter ended March
31, 1999 increased $57,000, or 11%, from $518,000 for the quarter ended March
31, 1998. The increase is attributable to an increase in the average balances
of customer deposits and some special rate offerings but primarily from expense
from a larger average balance in borrowed funds.
PROVISION FOR LOAN LOSSES. Loan loss provision decreased by 2,000 for the
quarter ending March 31, 1999 and actual loan losses net of recoveries were zero
for both quarters.
NONINTEREST INCOME. Noninterest income of $98,000 for the quarter ended
March 31, 1999 decreased $5,000 from $103,000 for the quarter ended March 31,
1998. This decrease was primarily due to a decrease in mortgage banking fees of
$35,000 and was partially offset by a $16,000 gain on the sale of loans as some
loans were funded by the parent Company and then sold and no loan sales in the
comparative quarter. In addition an increase in banking service charges and
fees of $10,000. resulted from growth of the deposit accounts in the quarter
ending March 31, 1999 compared to the quarter ending March 31, 1998.
NONINTEREST EXPENSE. Noninterest expense increased $7,000, or 1.8%, to
$407,000 for the quarter ended March 31, 1999 from $400,000 for the quarter
ended March 31, 1998. This increase was due to an increase of $9,000 increase
in compensation and employee benefits, $8,000 in professional fees, and $6,000
in data processing and was partially offset by a $13,000 decrease in other
operating expense for the period ending March 31, 1999.
NET INTEREST MARGIN. Net interest margin increased to 3.58% for the three
months ended March 31, 1999 compared to 3.01% for the three months ended March
31, 1998. Income from earning assets increased by $87,000, or 8.8%, between the
two quarters and interest expense increased by $57,000, or 11%. The average
earning asset base increased by $6.1 million, or 10.6%. The average interest-
bearing liability base increased by $6.8 million, or 14.5%.
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1999 TO THE SIX MONTHS ENDED
- -------------------------------------------------------------------------
MARCH 31, 1998
- --------------
NET INCOME. Net income increased $30,000 to $230,000 for the six months
ended March 31, 1999 from $200,000 for the six months ended March 31, 1998. Net
interest income after provision for loan losses increased by $12,000 to $955,000
for the six months ended March 31, 1999 from $943,000 for the six months ended
March 31, 1998. Noninterest income
12
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
increased by $31,000, noninterest expense increased by $25,000 and income taxes
decreased by $12,000.
NET INTEREST INCOME. Net interest income of $957,000 for the six months
ended March 31, 1999 increased $8,000 from net interest income of 949,000 for
the six months ended March 31, 1998. Total interest income increased by
$137,000 while interest expense increased by $129,000.
INTEREST INCOME. Total interest income increased $137,000 to $2.12 million
for the six months ended March 31, 1999 from $1.99 million for the six months
ended March 31, 1998. The increase was comprised of increases in income from
loans receivable and other interest earning assets. The interest income from
loans increased by $130,000 to $1.44 million for the six months ended March 31,
1999 from $1.31 million for the six months ended March 31, 1998. This increase
was primarily due to the increase in the average outstanding loan balances
during the two periods. Income on other interest earning assets increased by
$60,000 to $213,000 for the six months ended March 31, 1999 from $153,000 for
the six months ended March 31, 1998. This increase was primarily due to the
increase in the average balance of other interest earning assets invested at
FHLB of Des Moines. The increases in interest income were offset by decreases
in income from investment securities of $16,000 to $348,000 for the period
ending March 31, 1999 from $364,000 for the period ending March 31, 1998.
Income from mortgage-backed securities decreased $37,000 to $123,000 at March
31, 1999 from $160,000 for the period ending March 31, 1998. The decreases in
mortgage-backed and investment security income was a result of lower average
balances in those investments.
INTEREST EXPENSE. Total interest expense was $1.17 million for the six
months ended March 31, 1999, a $129,000 increase from $1.04 million for the six
months ended March 31, 1998. An increase in the average balances of customer
deposits increased interest paid on deposits by $56,000 and an increase in
interest on FHLB advances of $73,000 resulted from the average balance of FHLB
advances increasing.
PROVISION FOR LOAN LOSSES. Provision for loan losses decreased by $4,000
to $2,000 for the six months ended March 31, 1999 from $6,000 for the six months
ended March 31, 1998. Actual loan losses, net of recoveries, were $1,000 for
the six months ended March 31, 1999 and zero for the quarter ended March 31,
1998.
NONINTEREST INCOME. Noninterest income of $221,000 for the six months
ended March 31, 1999 increased by $31,000 from $190,000 for the six months ended
March 31, 1998. This increase was primarily attributable to the gain on sale of
loans originated by Crawford Mortgage of $33,000 for the six months ended March
31, 1999 and no loan sales for the comparable period. There was also an
increase in banking service charges and fees of $19,000 and $6,000 in other
income for the six months ended March 31, 1999. These increases were partially
offset by a decrease in mortgage banking fees of $28,000 by the Company's
subsidiary, Crawford Mortgage, as more loans were funded by the parent Company
and then sold to enhance income.
NONINTEREST EXPENSE. Noninterest expense increased by $25,000 to $838,000
for the six months ended March 31, 1999 from $813,000 for the six months ended
March 31, 1998. Compensation and employee benefits increased by $22,000 as a
result of annual salary increases
13
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
effective October 1, 1998. Data processing also increased by $11,000 and
occupancy and equipment increased $5,000 while other expenses decreased $17,000
as a result of normal operations of the Company.
NET INTEREST MARGIN. Net interest margin of 3.01% for the six months ended
March 31, 1999 decreased .31% from 3.32% for the six months ended March 31,
1998. Income from earning assets increased by $137,000, or 6.9% between the two
periods while interest expense increased by $129,000, or 12.4%. The average
earning asset base increased by $6.3 million or 11.1%. The average interest-
bearing liability base increased by $7 million or 15.2%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, mortgage-backed securities, investment
securities, net operating income and cash advances from Federal Home Loan Bank
of Des Moines when appropriate. While maturities and scheduled amortization of
loans and mortgage-backed securities are a somewhat predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Association must maintain an adequate level of liquidity to ensure
availability of sufficient funds to support loan growth and deposit withdrawals,
satisfy financial commitments and to take advantage of investment opportunities.
During the fiscal year 1998 and 1997, Neosho Savings & Loan began using cash
advances from Federal Home Loan Bank of Des Moines. At March 31, 1999, Neosho
Savings & Loan had FHLB advances of $3.9 million that were used to offset fixes
rate mortgage loans and had approved loan commitments totaling $1.8 million and
undisbursed loans in process of $515,000.
Liquid funds necessary for normal daily operations of the Association are
maintained in a working checking account and a daily time account with the
Federal Home Loan Bank of Des Moines. It is the Association's current policy to
maintain adequate collected balances in those deposit accounts to meet daily
operating expense, customer withdrawals, and fund loan demand. Funds received
from daily operating activities are deposited, on a daily basis, in the checking
account and transferred, when appropriate, to the daily time account to enhance
income.
Normal daily operating expenses are not expected to significantly change.
Noninterest expense as a percentage of average assets at 2.7% is expected to
remain basically constant. Interest expense is expected to gradually increase
as the average balance of customer accounts has increased. However, overall
interest expense should remain stable because interest is now being paid on a
smaller cash advance. The cash advance expenses are being offset as the funds
have been invested at rates higher than the expense incurred by them. Loan
interest income is expected to continue to increase as the average balance of
loans increases and rates on adjustable-rate loans continue to rise as those
loans reprice at the annual adjustment dates. Although customer deposits have
increased in the past quarter as a result of some special rate offerings, they
are expected to remain stable in the future.
14
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
At March 31, 1999, certificates of deposit amounted to $34.2 million, or
65.4% of Neosho Savings and Loan's total deposits, including $26.4 million of
fixed rate certificates scheduled to mature within twelve months. Historically,
Neosho Savings and Loan has been able to retain a significant amount of its
deposits as they mature. Management believes it has adequate resources to fund
all loan commitments from savings deposits, loan payments and maturities of
investment securities.
The Office of Thrift Supervision requires a thrift institution to maintain
an average daily balance of liquid assets (cash and eligible investments) equal
to at least 4% of the average daily balance of its net withdrawable deposits and
short-term borrowings. Neosho Savings and Loan's liquidity ratio was 41.21% at
March 31, 1999. Neosho Savings and Loan consistently maintains liquidity levels
in excess of regulatory requirements, and believes this is an appropriate
strategy for proper asset and liability management.
The Office of Thrift Supervision requires institutions such as the
Association to meet certain tangible, core, and risk-based capital requirements.
Tangible capital generally consists of stockholders' equity minus certain
intangible assets. Core capital generally consists of stockholders' equity.
The risk-based capital requirements presently address risk related to both
recorded assets and off-balance sheet commitments and obligations. The
following table summarizes the Association's capital ratios at March 31, 1999.
Percent of Adjusted
Amount Total Assets
-----------------------------------
(Unaudited)
(Dollars in thousands)
Tangible capital $8,592 13.38
Minimum tangible capital requirement 129 1.50
------
Excess $8,463 11.88%
====== =====
Core capital $8,592 13.38%
Minimum core capital requirement 2,568 4.00
------ -----
Excess $6,024 9.38%
====== =====
Risk-based capital $8,646 29.77%
Minimum risk-based capital requirement 2,323 8.00
------ -----
Excess $6,323 21.77%
====== =====
15
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000 ISSUE
- ---------------
The Company has researched the "Year 2000" problem and developed a plan to
identify and correct any potential problems that may affect operations in
addition to developing a business resumption plan in the event unexpected major
problems develop at the change to the year 2000.
The Company's primary mission critical system is its data center, FISERV of Des
Moines, Iowa. FISERV has upgraded their systems for Y2K and proxy testing of
those systems has been completed. Results of the proxy testing have been
received and have been examined by appropriate Company personnel. Some problems
were noted in the proxy testing and have been corrected. On March 10, 1999, the
Company tested connectivity with FISERV and on April 10 and 11, 1999 overnight
reporting was completed with no noted problems. Total costs for proxy and
connectivity testing are estimated to be $6,600. payable over a twenty month
period that began in August 1998.
A review of loans by appropriate internal personnel determined the Company has
no major multi-family or commercial borrowers. The Company primarily makes
loans for 1-4 family residences which diversifies the borrowers and makes it
less likely a Y2K problem will affect repayments to the Company's loan
portfolio. It is management's decision that an outside analysis of the
Company's Year 2000 exposure is unnecessary since all data processing is done by
an external vendor and there are no major risk factors in the loan repayment
area.
The Company has had PC Teller on-line stations at both the Main and Branch
locations and the teller line was converted to PC Teller on March 16 and 17,
1999. PC Teller has been certified Y2K through testing by FISERV. In addition,
all personal computers have been upgraded and tested for compliance with Y2K.
If some of the personal computers should fail in the year 2000 despite the Y2K
certification, management feels a portion of these computers would probably work
and be utilized. If necessary, personnel could operate in a manual mode until
such time as corrections could be made.
A safe deposit box software program that was not Y2K and compliant has been
replaced at a cost of $1,500. Other noncritical, internal software programs
such as Windows 96 and 98 are being patched and upgraded as needed.
All ATM cards have a maturity date of December 1999 and will be replaced in a
mass reissuance planned for the third quarter of 1999. The Company has been
informed by SHAZAM, the ATM network provider, that replacement is not required
and the 1999 cards will continue to work into the Year 2000 on the Cirrus and
Plus networks. The replacement cards have been ordered and are on hand and the
Company does plan to reissue. Total cost of this project, including postage, is
expected to be less than $2,000 of which $650 has been spent. The Company's
three ATMs have had minor upgrades of software, which make them Y2K compliant.
The expense for these upgrades was $1,400.
Contingency plans include the possible use of another data center or an in-house
system. in the event the current data processor (FISERV) system fails. Two data
centers and two sources for "in-house" systems have been located as a part of
our contingency plan. In addition, as part of the business resumption plan, we
are ordering paper copies of all accounts at the end of 1999 to
16
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
enable us to perform manual calculations until a switch can be made to another
processor or FISERV can resume processing
Contacts have been made with third party vendors, such as the electric company,
and no Y2K problems have been noted. Although there are some expenditures
necessary as previously listed and scheduled to be completed within the next
three months, there are no known problems that are material to the Company's
business, operations or financial conditions. In the event that FISERV
operations fail in the century date change, backup operations include manual
processing of data until a satisfactory alternative can be established.
17
N S & L BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1, LEGAL PROCEEDINGS
Neither the Registrant nor the Association is a party to any material legal
proceedings at this time. From time to time the Association is involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2, CHANGES IN SECURITIES
Not applicable.
ITEM 3, DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company ("Meeting") was held on
January 13, 1999. The results of the vote on the matters presented at the
Meeting is as follows:
1. The following individuals were elected as directors, each for a three-
year term:
Vote For Vote Withheld
---------- ---------------
Jon C. Genisio 584,670 18,079
------- ------
John D. Mills 548,695 18,054
------- ------
The terms of Directors C.R. Butler, Ralph J. Haas, George A. Henry and
Robert J. Johnson continued after the meeting.
Broker non-votes totaled 0
-------
2. The Appointment of Kirkpatrick, Phillips & Miller, CPAs, P.C. as
auditors for the Company for the fiscal year ending September 30, 1999
was ratified by stockholders by the following vote:
For 545,151; Against 10,198 Abstain 11,400
------- ------ -------
Broker non-votes totaled 0
-------
ITEM 5, OTHER INFORMATION
None.
18
N S & L BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
A. Exhibits
Exhibit 27-Financial Data Schedule
B. Forms 8-K
The Company filed a Form 8-K on March 25, 1999 disclosing the declaration
of a 20% stock dividend.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
N S & L Bancorp, Inc.
Date May 11, 1999 By: /s/ C. R. Butler
------------- -------------------------
C. R. 'Rick' Butler
President
CEO
By: /s/ Carol Guest
---------------------
Carol Guest
Treasurer