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, 1997
----------------------------
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 12, 1997, THERE WERE 707,482 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, 1997
INDEX PAGE
- ----- ----
PART I-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited) 1
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 2
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 3-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 5-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------
(Unaudited)
MARCH 31, SEPTEMBER 30,
1997 1996
-------- --------
ASSETS (Dollars in thousands)
Cash and cash equivalents, including
interest-bearing accounts of $3,764 $ 4,327 $ 8,853
at March 31 and $8,202 at September 30
Certificates of deposit 1,494 2,598
Investment securities available-for-sale,
at fair value 240 925
Investment securities held-to-maturity
(estimated market value of $13,117 at March 31
and $11,480 at September 30) 13,267 11,554
Mortgage-backed securities held-to-maturity
(estimated market value of $5,113 at March 31
and $5,448 at September 30) 5,025 5,342
Loans receivable, net (reserves for loan losses of
$42 at March 31 and $41 at September 30) 31,982 31,051
Accrued interest receivable 413 391
Property and equipment, less accumulated
depreciation 1,146 868
Other assets 195 225
-------- --------
Total assets $ 58,089 $ 61,807
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $ 42,637 $ 48,444
Advances from FHLB 3,000 --
Advances from borrowers for taxes
and insurance 192 314
Income taxes payable - current 101 22
Deferred income taxes 326 291
Other liabilities 259 558
-------- --------
Total liabilities 46,515 49,629
-------- --------
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, issued 886,314 at March 31 and
887,814 at September 30, outstanding 707,582 at
March 31 and 759,082 at September 30 9 9
Paid-in capital 8,413 8,416
Retained earnings - substantially restricted 6,432 6,363
Treasury Stock - at cost; 178,732 shares at
March 31 and 128,732 at September 30 (2,467) (1,676)
Unearned compensation (851) (953)
Unrealized gain on investment securities available-
for-sale, net of applicable deferred income taxes 38 19
-------- --------
Total stockholders' equity 11,574 12,178
-------- --------
Total liabilities and stockholders' equity $ 58,089 $ 61,807
====== ========
See accompanying notes to Consolidated Financial Statements.
1
PAGE
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------
(Unaudited) (Unaudited)
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
1997 1996 1997 1996
-------- -------- -------- --------
(Dollars in thousands) (Dollars in thousands)
Interest Income:
Loans receivable $ 582 $ 502 $ 1,153 $ 1,001
Investment securities 221 158 438 387
Mortgage-backed and related securities 89 108 186 216
Other interest-earning assets 61 146 139 249
-------- -------- -------- --------
Total interest income 953 914 1,916 1,853
-------- -------- -------- --------
Interest Expense:
Customer deposits 464 473 953 930
Borrowed funds 42 -- 67 --
-------- -------- -------- --------
Total interest expense 506 473 1,020 930
-------- -------- -------- --------
Net interest income 447 441 896 923
Provision for loan losses -- 5 1 5
Net interest income after -------- -------- -------- --------
provision for loan losses 447 436 895 918
Noninterest Income:
Gain on sale of investments 13 35 37 55
Banking service charges and fees 36 33 77 70
Loan late charges 2 2 4 4
Other 9 1 13 4
-------- -------- -------- --------
Total noninterest income 60 71 131 133
-------- -------- -------- --------
Noninterest Expense:
Compensation and employee benefits 183 167 360 321
Occupancy and equipment 40 35 75 70
Deposit insurance premium 2 27 25 51
Data processing 23 25 46 48
Printing, postage, stationery and supplies 17 15 33 30
Professional fees 14 19 30 42
Other 51 34 98 79
-------- -------- -------- --------
Total noninterest expense 330 322 667 641
-------- -------- -------- --------
Income before taxes 177 185 359 410
Income Taxes 52 52 110 126
-------- -------- -------- --------
Net income $ 125 $ 133 $ 249 $ 284
======== ======== ======== ========
Earnings per share $ .19 $ .14 $ .34 $ .33
Dividends per share $ .125 $ .125 $ .25 $ .225
See accompanying notes to Consolidated Financial Statements.
2
PAGE
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
-------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 249 $ 284
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 42 41
Premiums and discounts on mortgage-backed
securities and investment securities (47) (63)
Loss on loans, net of recoveries 1 5
Income reinvested FHLB stock -- (8)
Release of ESOP shares 51 30
Vesting of MRDP shares 36 17
Gain on sale of investments, available-for-sale (37) (55)
Net change in operating accounts:
Accrued interest receivable (22) 88
Other assets 30 (23)
Other liabilities (291) 18
Income taxes payable - deferred 24 (36)
Income taxes payable - current 79 106
-------- --------
Net cash from operating activities 115 404
-------- --------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (1,995) (7,136)
Purchase of investment securities available-for-sale -- (420)
Proceeds from maturities of investment securities
held-to-maturity 325 9,278
Proceeds from maturities of investment securities
available-for-sale 500 --
Proceeds from sale of investment securities
available-for-sale 252 255
Net change in certificates of deposit 1,104 316
Net change in loans receivable (932) (2,422)
Proceeds from principal payments and maturities
of mortgage-backed securities held-to-maturity 636 396
Purchase of mortgage-backed securities held-to-maturity (315) (371)
Purchases of property and equipment (320) (16)
-------- --------
Net cash used in investing activities $ (745) $ (120)
-------- --------
See accompanying notes to Consolidated Financial Statements.
3
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
-------- --------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings
accounts, and certificates of deposit $ (5,807) $ 223
Net decrease in mortgage escrow funds (121) (118)
Cash dividends paid (190) (171)
Purchase of treasury stock (791) --
Proceeds from stock options exercised 13 --
Cash advances from FHLB 3,000 --
-------- --------
Net cash used in financing activities (3,896) (66)
-------- --------
Net increase (decrease) in cash and cash equivalents (4,526) 218
Cash and cash equivalents - beginning of period 8,853 10,240
-------- --------
Cash and cash equivalents - end of period $ 4,327 $ 10,458
======== ========
4
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, 1997 included in
this report have been prepared by N S & L Bancorp, Inc. (the "Company")
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, 1997 interim financial statements. The results of operations
for the periods ended March 31, 1997 and 1996 are not necessarily indicative
of the operating results for the full year. The September 30, 1996
Consolidated Statement of Financial Condition presented with the interim
financial statements was audited and received an unqualified opinion.
NOTE B - Earnings per Share
- ---------------------------
Earnings per share are presented based on the average shares issued and
outstanding during the periods. Common stock equivalents, composed of stock
options outstanding, are not included in the calculations since the effect is
immaterial to the periods presented.
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). The 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 nine 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 compensation in the consolidated
balance sheets. Contributions to the ESOP shall be sufficient to pay principal
and interest currently due under the loan agreement.
5
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE C Employee Stock Ownership Plan (continued)
- ------------------------------------------------
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 $26, 809
and $14,816 for the three months ended March 31, 1997 and 1996 respectively
and $50,533 and $45,223 for the six months ended March 31, 1997 and 1996
respectively.
A summary of ESOP shares at March 31, 1997 is as follows:
Shares allocated 8,816
Shares committed for release 3,426
Unreleased shares 56,086
------
Total 68,328
======
Fair value of unreleased shares $918,408
NOTE D - Accounting Changes
- ---------------------------
On October 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which established three
classifications of investment securities: held-to-maturity, trading and
available-for-sale. Trading securities are acquired principally for the
purpose of near term sales. Such securities are reported at fair value and
unrealized gains and losses are included in income. Securities which are
designated as held-to-maturity are designated as such because the investor has
the ability and the intent to hold these securities to maturity. Such
securities are reported at amortized cost.
All other securities are designated as available-for-sale, a designation which
provides the investor with certain flexibility in managing its investment
portfolio. Such securities are reported at fair value: net unrealized gains
and losses are excluded from income and reported net of applicable income
taxes as a separate component of stockholders' equity.
In adopting SFAS No. 115, the Company modified its accounting policies and
designated its securities in accordance with the three classifications. The
Company's adoption of SFAS No. 115 resulted in the classification of all
securities to the held-to-maturity portfolio. Purchases since the adoption of
SFAS No. 115 have resulted in the designation of some securities as
available-for-sale. At March 31, 1997, the Company had securities designated
as available-for-sale with a face value of $180,000.
6
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE D - Accounting Changes (continued)
- ---------------------------------------
Effective June 7, 1995, the Company adopted Statement of Position ("SOP")
93-6, "Employers' Accounting for Employee Stock Ownership Plans". SOP 93-6
applies to shares acquired by employee stock ownership plans after December
31, 1992 but not yet committed to be released as of the beginning of the year
SOP 93-6 is adopted. SOP 93-6 changes the measure of compensation expense
recorded by employers for leveraged employee stock ownership plans from the
cost of the ESOP shares to the fair value of the ESOP shares. Under SOP 93-6,
the Company recognizes the compensation cost equal to the fair value of the
ESOP shares during the periods in which they become committed to be released.
To the extent that fair value of the Association's employee stock ownership
plan share differ from the cost of such shares, this differential will be
charged or credited to equity. Employers with internally leveraged employee
stock ownership plans such as the Company will not report the loans receivable
from the ESOP as an asset and will not report the ESOP debt from the employer
as a liability.
Effective October 1, 1995, the association implemented SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement requires a
lender to consider a loan to be impaired if the lender believes it is probable
it will be unable to collect all principal and interest due according to the
contractual terms of the loan. If a loan is impaired, the lender will be
required to record a loan valuation allowance equal to the present value of
the estimated future cash flows discounted at the loan's effective rate. Also
implemented was SFAS No. 118, "Accounting for Creditors for Impairment of a
Loan - Income Recognition and Disclosures,: which amends SFAS No. 114 to allow
a creditor to use existing methods for recognizing interest income on impaired
loans and eliminates the income recognition provisions in SFAS No. 114. The
association monitors and evaluates all loans monthly. Any loans over 90 days
are non accrual loans but not necessarily impaired. An impaired loan is
considered by management , based on current information and events, to be
probable that all amounts due according to the contractual terms of the loan
agreement will be uncollectable. The probability of uncollectability is based
on management's normal review procedures. All insignificant delays and short
falls in the amount of payments are not considered to impair a loan. At the
period ending March 31, 1997, the Association considered none of its loans to
be impaired.
NOTE E - Management Recognition and Development Plan and Stock Option Plan
- --------------------------------------------------------------------------
The 1995 Management Recognition and Development Plan ("MRDP") was adopted on
January 17, 1996. The MRDP is administered by the Board of Directors of the
Company. Collectively, the Board issued 34,258 shares of the Company's common
stock, of which currently there are 28,865 shares awarded to employees at a
cost of $383,370. The MRDP shares will vest and be 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 $16,095 and $16,989 for the three months ended March
31, 1997 and 1996 respectively and $36,482 and $16,989 for the six months
ended March 31, 1997 and 1996 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
7
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (UNAUDITED)
(CONTINUED)
NOTE E - Management Recognition and Development Plan and Stock Option Plan
(continued)
- --------------------------------------------------------------------------
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. As of May 12, 1997, 1,000 shares have been exercised at the option
price of $12.9375 per share.
NOTE F - Stock Repurchase Program
- ---------------------------------
The Company, Inc. received approval from the Office of the Thrift Supervision
to begin its third stock repurchase program to acquire up to approximately
75,908 shares, or approximately 10% of the Corporation's outstanding common
stock. The repurchases are conducted through open market purchases, although
unsolicited negotiated transactions or other types of repurchases could be
effected. The price paid for the shares purchased in the open market does not
exceed the lowest current independent offer quotation reported on the NASDAQ
Small-Cap Market. The number of shares purchased in the open market during any
day generally was not to exceed 25% of the average daily trading volume of the
common stock over the preceding four weeks, except for block purchases. As of
May 12, 1997, 50,100 of the 75,908 shares have been repurchased at a cost of
$793,035.00. In all three repurchases, 178,832 shares have been repurchased at
a cost of $2,468,977.76.
8
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, 1996, as well as certain changes in results of operations during the three
and six month periods ended March 31, 1997 and 1996.
The following should be read in conjunction with the Company's 10-KSB
for the year ended September 30, 1996, 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, 1996, and for the year then ended. Therefore, only material changes in
financial condition and results of operations are discussed herein.
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Cash and cash equivalents decreased $4.5 million during the six
months ended March 31, 1997. The decrease was primarily from the maturity of
$6 million in short-term customer deposits in October of 1996 and was
partially offset by an increase in other customer deposits of $200,000 and the
maturity of $1.1 million in certificates of deposit. Net loans increased
$900,000 during the six month period to $32 million as of March 31, 1997 from
$31.1 million at September 30, 1996. Loans for 1 to 4 family dwellings
comprised the majority of the increase in loans. Investment securities
increased $1.1 million to $13.5 million and property and equipment increased
$300,000 due to the purchase of a building lot in a commercial development in
the south part of Neosho, Missouri for a possible future expansion site for
the Association. Cash was also used to purchase treasury stock at a cost of
$791,000 in the six months ended march 31, 1997. Cash advances of $3 million
from Federal Home Loan Bank of Des Moines Iowa funded the majority of the
growth in loans and investment securities.
Nonperforming assets were $33,000 or .06% of total assets at March
31, 1997, compared to $22,000, or .04% of total assets at September 30, 1996.
There were no nonaccrual loans at March 31, 1997, decreasing from $3,000 at
September 30, 1996.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
NET INCOME. Net income was $125,000 for the quarter ended March 31,
1997 compared to $133,000 for the quarter ended March 31, 1996. Net interest
income after provision for loan losses increased $11,000, noninterest income
decreased $11,000 and noninterest expense increased $8,000. Income tax expense
was unchanged for the two periods.
NET INTEREST INCOME. Net interest income of $447,000 for the quarter
ended March 31, 1997 increased by $6,000, or 1.4% from $441,000 for the
quarter ended March 31, 1996. Interest income increased $39,000 while interest
expense increased $33,000.
INTEREST INCOME. Interest income increased by $39,000 or 4.3% to
$953,000 for the quarter ended March 31, 1997 from $914,000 for the quarter
ended March 31, 1996. Interest income from loans receivable increased $80,000
to $582,000 for the quarter ended March 31, 1997 from $502,000 for the quarter
ended March 31, 1996. 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. Interest income from investment securities
increased
9
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
by $63,000 to $221,000 for the quarter ended March 31, 1997 from $158,000 for
the quarter ended March 31, 1996. This increase was due to an increase in the
balances and average rates in investment securities. Interest income from
mortgage-backed securities decreased by $19,000 to $89,000 for the quarter
ended March 31, 1997 from $108,000 for the quarter ended March 31, 1996. The
decrease was due to a decrease in the average balances in mortgage-backed
securities. Interest income from other interest-earning assets decreased by
$85,000 to $61,000 for the quarter ended March 31, 1997 from $146,000 for the
quarter ended March 31, 1996. This decrease was primarily due to a decrease
in cash on hand as more funds have been used to repurchase stock, pay
dividends and finance loan activity since the period ending March 31, 1996.
INTEREST EXPENSE. Interest expense of $506,000 for the quarter ended
March 31, 1997 increased $33,000, or 7%, from $473,000 for the quarter ended
March 31, 1996. The increase is attributable to interest paid on FHLB
advances.
PROVISION FOR LOAN LOSSES. Loan loss provisions were zero for the
period ending March 31, 1997 compared to $5,000 for the period ending March
31, 1996. Actual loan losses net of recoveries were zero for both quarters.
NONINTEREST INCOME. Noninterest income of $60,000 for the quarter
ended March 31, 1997 decreased $11,000 from $71,000 for the quarter ended
March 31, 1996. This decrease was primarily due to a decrease in the volume
and associated gain of securities sold by the Company in the quarter ending
March 31, 1997 compared to the quarter ended March 31, 1996.
NONINTEREST EXPENSE. Noninterest expense increased $8,000, or 2.5%,
to $330,000 for the quarter ended March 31, 1997 from $322,000 for the quarter
ended March 31, 1996. This increase was largely due to a $16,000 increase in
compensation and employee benefits which is due to increases in ESOP expense
as the price of the Company's stock has increased and annual salary increases
effective October 1, 1996 and a $17,000 increase in other operating expenses.
This was offset by a $25,000 decrease in deposit insurance premiums for the
period ending March 31, 1997 as a result of adjustments and new rates after
the one-time special FDIC assessment of September 30, 1996.
NET INTEREST MARGIN. Net interest margin increased to 3.17% for the
three months ended March 31, 1997 from 3.13% for the three months ended March
31, 1996. Income from earning assets increased by $39,000, or 4.3%, between
the two quarters while interest expense increased by $33,000, or 7%. The
average earning asset base increased by $71,000, or .1%. The average
interest-bearing liability base increased by $1.9 million, or 4.3%.
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1997 TO THE SIX MONTHS ENDED
MARCH 31, 1996
NET INCOME. Net income decreased $35,000 to $249,000 for the six
months ended March 31, 1997 from $284,000 for the six months ended March 31,
1996. Net interest income after provision for loan losses decreased by $23,000
to $895,000 for the six months ended March 31, 1997 from $918,000 for the six
months ended March 31, 1996. Noninterest income decreased by $2,000,
noninterest expense increased by $26,000 and income taxes decreased by $16,000
due to the decrease in income before income tax expense.
10
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NET INTEREST INCOME. Net interest income of $896,000 for the six
months ended March 31, 1997 decreased $27,000 from net interest income of
$923,000 for the six months ended March 31, 1996. Total interest income
increased by $63,000 while interest expense increased by $90,000.
INTEREST INCOME. Total interest income increased $63,000 to $1.92
million for the six months ended March 31, 1997 from $1.85 million for the six
months ended March 31, 1996. The increase was comprised of increases in income
from loans receivable and investment securities. The interest income from
loans increased by $150,000 to $1.15 million for the six months ended March
31, 1997 from $1 million for the six months ended March 31, 1996. This
increase was primarily due to the increase in the average outstanding loan
balances and increased average loan rates during the two periods. Income on
investment securities increased by $51,000 to $438,000 for the six months
ended March 31, 1997 from $387,000 for the six months ended March 31, 1996.
This increase was primarily due to the increase in the average balance of
investment securities. The increases in interest income were offset by a
decrease in income from other interest earning assets of $110,000 to $139,000
for the period ending March 31, 1997 from $249,000 for the period ending March
31, 1996. This decrease is a result of lower balances in cash in interest
bearing accounts as the funds have been used to pay dividends and the one time
special assessment for FDIC insurance as well as funding loan growth.
INTEREST EXPENSE. Total interest expense was $1.02 million for the
six months ended March 31, 1997, a $90,000 increase from $930,000 for the six
months ended March 31, 1996. An increase in the average rates paid on customer
deposits plus the interest paid on FHLB advances were responsible for the
increase.
PROVISION FOR LOAN LOSSES. Provision for loan losses decreased by
$4,000 to $1,000 for the six months ended March 31, 1997 from $5,000 for the
six months ended March 31, 1996. Actual loan losses, net of recoveries, were
zero for the six months ended March 31, 1997 and March 31, 1996.
NONINTEREST INCOME. Noninterest income of $131,000 for the six
months ended March 31, 1997 remained relatively stable with a decrease of
$2,000 from $133,000 for the six months ended March 31, 1996
NONINTEREST EXPENSE. Noninterest expense increased by $26,000 to
$667,000 for the six months ended March 31, 1997 from $641,000 for the six
months ended March 31, 1996. Compensation and employee benefits increased by
$39,000 due to the implementation of the MRDP and annual salary increases
effective October 1, 1996. Other operating expenses increased $19,000 to
$98,000 for the six months ended March 31, 1997 from $79,000 for the six
months ended March 31, 1996 as a result of expenses necessary in the normal
operations of the Company. These expenses were partially offset by a decrease
in deposit insurance premiums of $26,000 for the six months ended March 31,
1997 as a result of adjustments and new rates after the one-time special FDIC
assessment of September 30, 1996.
11
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NET INTEREST MARGIN. Net interest margin of 3.17% for the six months
ended March 31, 1997 decreased .15% from 3.32% for the six months ended March
31, 1996. Income from earning assets increased by $63,000, or 3.4% between the
two periods while interest expense increased by $90,000, or 9.7%. The average
earning asset base increased by $990,000 or 1.8%. The average interest-bearing
liability base increased by $2.9 million or 6.8%.
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 fiscal years 1996 and 1995, Neosho Savings and Loan
used its sources of funds primarily to fund loan commitments, pay maturing
savings certificates and deposit withdrawals. At March 31, 1997, Neosho
Savings and Loan had approved loan commitments totaling $462,000 and
undisbursed loans in process of $349,000.
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 2.3% is
expected to remain basically constant. Interest expense is expected to
gradually increase as the rates on transaction accounts are increased and
maturing certificates of deposit are reinvested at currently higher interest
rates. Overall interest expense will increase because interest is now being
paid on cash advances. However, those 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 rates on
adjustable-rate loans continue to gradually rise as those loans reprice at the
annual adjustment dates. Customer deposits are expected to remain stable.
At March 31, 1997, certificates of deposit amounted to $28 million,
or 65% of Neosho Savings and Loan's total deposits, including $21.2 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
12
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 5% of the average daily balance of its net
withdrawable deposits and short-term borrowings. In addition, short-term
liquid assets currently must constitute 1% of the sum of net withdrawable
deposit accounts plus short-term borrowings. Neosho Savings and Loan liquidity
ratio was 37.12% and its short-term liquidity ratio was 11.17% at March
31,1997. 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, 1997.
Percent of
Adjusted
Amount Total Assets
(Unaudited)
(Dollars in thousands)
------ --------
Tangible capital $ 8,475 15.0%
Tangible capital requirement 848 1.5
------ --------
Excess $ 7,627 13.5%
====== ========
Core capital $ 8,475 15.0%
Core capital requirement 1,695 3.0
------ -------
Excess $ 6,780 12.0%
====== =======
Risk-based capital $ 8,518 35.4%
Risk-based capital requirement 1,926 8.0
------ -------
Excess $ 6,592 27.4%
====== =======
13
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 Stockholder of the Company ("Meeting") was held on
January 15, 1997. 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
C.R. Butler 621,644 10,900
--------- --------
Ralph J. Haas 621,644 10,900
--------- --------
The terms of Directors Robert J. Johnson, George A. Henry,
Jon C. Genisio and John D. Mills 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, 1997 was ratified by stockholders by the
following vote:
For 630,944 ; Against 400 ; Abstain 1,200
----------- -------- ----------
Broker non-votes totaled 0 .
ITEM 5, OTHER INFORMATION
None.
14
N S & L BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
In a Form 8-K filed on January 17, 1997, the Company announced it had
received approval from the OTS to commence a stock repurchase program to
acquire up to approximately 75,908 shares, or approximately 10% of its
outstanding common stock over a twelve month period.
15
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 12, 1997. By:/s/C.R. "RICK" BUTLER
---------------------
C. R. 'Rick' Butler
President
CEO
By:/s/CAROL GUEST
---------------
Carol Guest
Treasurer