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 June 30, 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
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N S & L Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Missouri 43-1709446
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(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
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(Address of principal executive offices) (Zip Code)
(417) 451-0429
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(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 AUGUST 4, 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
JUNE 30, 1997
INDEX PAGE
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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) 5-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-12
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 VOTE OF SECURITIES
HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------
(Unaudited)
JUNE 30, SEPTEMBER 30,
1997 1996
-------- --------
ASSETS (Dollars in thousands)
Cash and cash equivalents, including
interest-bearing accounts of $4,004 $ 4,652 $ 8,853
at June 30 and $8,202 at September 30
Certificates of deposit 1,493 2,598
Investment securities available-for-sale, at fair value 254 925
Investment securities held-to-maturity
(estimated market value of $13,220 at June 30
and $11,480 at September 30) 13,639 11,554
Mortgage-backed securities held-to-maturity
(estimated market value of $4,888 at June 30
and $5,448 at September 30) 4,750 5,342
Loans receivable, net (reserves for loan losses of $42
at June 30 and $41 at September 30) 33,238 31,051
Accrued interest receivable 404 391
Property and equipment, less accumulated depreciation 1,127 868
Other assets 154 225
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Total assets $ 59,711 $ 61,807
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $ 44,018 $ 48,444
Advances from FHLB 3,000 --
Advances from borrowers for taxes and insurance 250 314
Income taxes payable - current 157 22
Deferred income taxes 321 291
Other liabilities 286 558
------------ ----------
Total liabilities 48,032 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 June 30 and 887,814 at September 30,
outstanding 707,482 at June 30 and 759,082 at September 30 9 9
Paid-in capital 8,424 8,416
Retained earnings - substantially restricted 6,484 6,363
Treasury Stock - at cost; 178,832 shares at
June 30 and 128,732 at September 30 (2,469) (1,676)
Unearned compensation (815) (953)
Unrealized gain on investment securities available-for-
sale, net of applicable deferred income taxes 46 19
------------ ----------
Total stockholders' equity 11,679 12,178
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Total liabilities and stockholders' equity $ 59,711 $ 61,807
============ ==========
See accompanying notes to Consolidated Financial Statements.
1
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------- ------ ------ ------
(Dollars in thousands)
Interest Income:
Loans receivable $ 606 $ 526 $ 1,759 $ 1,527
Investment securities 222 166 660 553
Mortgage-backed and related securities 89 106 275 322
Other interest-earning assets 58 136 197 385
------- ------ ------ ------
Total interest income 975 934 2,891 2,787
Interest Expense:
Customer deposits 470 472 1,423 1,402
Borrowed funds 43 -- 110 --
------- ------ ------ ------
Total interest expense 513 472 1,533 1,402
------- ------ ------ ------
Net interest income 462 462 1,358 1,385
Provision for loan losses -- -- 1 5
------- ------ ------ ------
Net interest income after
provision for loan losses 462 462 1,357 1,380
------- ------ ------ ------
Noninterest Income:
Gain on sale of investments -- -- 37 55
Banking service charges and fees 31 37 108 107
Loan late charges 1 1 5 5
Other 4 31 17 35
------- ------ ------ ------
Total noninterest income 36 69 167 202
------- ------ ------ ------
Noninterest Expense:
Compensation and employee benefits 175 162 535 483
Occupancy and equipment 36 34 111 104
Deposit insurance premium 7 24 32 75
Data processing 15 22 61 70
Printing, postage, stationery
and supplies 14 16 47 46
Professional fees 13 11 43 53
Other 29 43 127 122
------- ------ ------ ------
Total noninterest expense 289 312 956 953
------- ------ ------ ------
Income before taxes 209 219 568 629
Income Taxes 70 78 180 204
------- ------ ------ ------
Net income $ 139 $ 141 $ 388 $ 425
======= ====== ====== ======
Earnings per share $ .19 $ .19 $ .53 $ .52
======= ====== ====== ======
Dividends per share $ .125 $ .125 $ .375 $ .35
======= ====== ====== ======
See accompanying notes to Consolidated Financial Statements.
2
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
------------ ----------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 388 $ 425
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 63 62
Premiums and discounts on mortgage-backed
securities and investment securities (74) (92)
Loss on loans, net of recoveries 1 5
Income reinvested FHLB stock -- (8)
Release of ESOP shares 79 45
Vesting of MRDP shares 55 37
Gain on sale of investments, available-for-sale (37) (55)
Net change in operating accounts:
Accrued interest receivable (13) 41
Other assets 71 26
Other liabilities (262) 23
Income taxes payable - deferred 14 (26)
Income taxes payable - current 135 100
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Net cash from operating activities 420 583
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Cash flows from investing activities:
Purchase of investment securities held-to-
maturity (2,495) (7,786)
Purchase of investment securities available-
for-sale -- (1,080)
Proceeds from maturities of investment securities
held-to-maturity 475 9,528
Proceeds from maturities of investment securities
available-for-sale 500 --
Proceeds from sale of investment securities
available-for-sale 251 266
Net change in certificates of deposit 1,105 (377)
Proceeds from sale of loans 57 --
Net change in loans receivable (2,245) (3,786)
Proceeds from principal payments and maturities
of mortgage-backed securities held-to-maturity 916 648
Purchase of mortgage-backed securities held-to-
maturity (315) (371)
Purchases of property and equipment (322) (19)
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Net cash used in investing activities $ (2,073) $ (2,977)
------------ ----------
3
See accompanying notes to Consolidated Financial Statements.
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
----------------------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 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 $ (4,426) $ (1,090)
Net decrease in mortgage escrow funds (64) (52)
Cash dividends paid (278) (282)
Purchase of treasury stock (793) (585)
Proceeds from stock options exercised 13 --
Cash advances from FHLB 3,000 --
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Net cash used in financing activities (2,548) (2,009)
------------ ----------
Net increase (decrease) in cash and
cash equivalents (4,201) (4,403)
Cash and cash equivalents - beginning of period 8,853 10,240
------------ ----------
Cash and cash equivalents - end of period $ 4,652 $ 5,837
============ ==========
See accompanying notes to Consolidated Financial Statements.
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 June 30, 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 June
30, 1997 interim financial statements. The results of operations for the period
ended June 30, 1997 is 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 $28, 485
and $14,816 for the three months ended June 30, 1997 and 1996 respectively and
$79,019 and $45,223 for the nine months ended June 30, 1997 and 1996
respectively.
A summary of ESOP shares at June 30, 1997 is as follows:
Shares allocated 8,816
Shares committed for release 5,139
Unreleased shares 54,373
------
Total 68,328
======
Fair value of unreleased shares $937,934
NOTE D - Accounting Changes
- ---------------------------
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 June 30, 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
6
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)
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 $18,519 and $20,388 for the three months ended
June 30, 1997 and 1996 respectively and $55,000 and $37,377 for the nine months
ended June 30, 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 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 August 4, 1997, 1,000 shares have been exercised
at the exercise price of $12.9375 per share.
NOTE F - Stock Repurchase Program
- ---------------------------------
The Company 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 is 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 August 4,
1997, 50,100 of the 75,908 shares have been repurchased at a cost of $793,035.
In all three repurchases, 178,832 shares have been repurchased at a cost of
$2,468,978.
NOTE G - Business Acquisition
- -----------------------------
On June 25, 1997, the Association entered into a contract to purchase all of the
outstanding stock of Crawford Mortgage and Financial Services, Inc. The
acquisition is anticipated to be completed in August 1997. Crawford Mortgage is
located in Joplin, Missouri. The purchase price is based on the book value of
Crawford Mortgage and will not exceed $150,000. The acquisition is anticipated
to be accounted for under the purchase method.
7
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 nine
month periods ended June 30, 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 $4.2 million during the nine months
ended June 30, 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 $1.5 million and the maturity of $1.1
million in certificates of deposit. Net loans increased $2.2 million during the
nine month period to $33.2 million as of June 30, 1997 from $31 million at
September 30, 1996. Loans for 1 to 4 family dwellings comprised the majority of
the increase in loans. Investment securities increased $1.4 million to $13.9
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 $793,000 in the nine months ended June 30,
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 $20,000 or .03% of total assets at June 30,
1997, compared to $22,000, or .04% of total assets at September 30, 1996. There
was $9,000 in nonaccrual loans at June 30, 1997, increasing from $3,000 at
September 30, 1996.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996
- ----------------------------------------------------------------------------
NET INCOME. Net income was $139,000 for the quarter ended June 30, 1997
compared to $141,000 for the quarter ended June 30, 1996. Net interest income
after provision for loan losses was unchanged at $462,000, noninterest income
decreased $33,000 and noninterest expense decreased $23,000. Income tax expense
decreased $8,000.
NET INTEREST INCOME. Net interest income of $462,000 for the quarter
ended June 30, 1997 was unchanged from the quarter ended June 30, 1996.
Interest income and interest expense both increased $41,000.
INTEREST INCOME. Interest income increased by $41,000 or 4.4% to $975,000
for the quarter ended June 30, 1997 from $934,000 for the quarter ended June 30,
1996. Interest income from loans receivable increased $80,000 to $606,000 for
the quarter ended June 30, 1997 from $526,000 for the quarter ended June 30,
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 by
$56,000 to
8
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
$222,000 for the quarter ended June 30, 1997 from $166,000 for the quarter ended
June 30, 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 $17,000 to $89,000 for the quarter ended June 30, 1997 from
$106,000 for the quarter ended June 30, 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 $78,000 to $58,000 for the quarter
ended June 30, 1997 from $136,000 for the quarter ended June 30, 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 June 30, 1996.
INTEREST EXPENSE. Interest expense of $513,000 for the quarter ended June
30, 1997 increased $41,000, or 8.7%, from $472,000 for the quarter ended June
30, 1996. The increase is attributable to interest paid on FHLB advances.
PROVISION FOR LOAN LOSSES. Loan loss provisions were zero for the period
ending June 30, 1997 and the period ending June 30, 1996. Actual loan losses net
of recoveries were zero for both quarters.
NONINTEREST INCOME. Noninterest income of $36,000 for the quarter ended
June 30, 1997 decreased $33,000 from $69,000 for the quarter ended June 30,
1996. This decrease was primarily due to a gain on the sale of equity in assets
sold by the Association's data processor in the quarter ending June 30, 1996.
NONINTEREST EXPENSE. Noninterest expense decreased $23,000, or 7.4%, to
$289,000 for the quarter ended June 30, 1997 from $312,000 for the quarter ended
June 30, 1996. This decrease was largely due to a $17,000 decrease in deposit
insurance premiums for the period ending June 30, 1997 as a result of new rates
after the one-time special FDIC assessment of September 30, 1996. Other
operating expenses decreased $14,000 and was partially offset by an increase of
$13,000 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.
NET INTEREST MARGIN. Net interest margin decreased to 3.15% for the three
months ended June 30, 1997 compared to 3.29% for the three months ended June 30,
1996. Income from earning assets increased by $41,000, or 4.4%, between the two
quarters and interest expense also increased by $41,000, or 8.7%. The average
earning asset base increased by $2.4 million, or 4.3%. The average
interest-bearing liability base increased by $3 million, or 6.9%.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1997 TO THE NINE MONTHS ENDED
JUNE 30, 1996
- ---------------------------------------------------------------------------
NET INCOME. Net income decreased $37,000 to $388,000 for the nine months
ended June 30, 1997 from $425,000 for the nine months ended June 30, 1996. Net
interest income after provision for loan losses decreased by $23,000 to $1.36
million for the nine months ended June 30, 1997 from $1.38 million for the nine
months ended June 30, 1996. Noninterest income decreased by $35,000, noninterest
expense increased by $3,000 and income taxes decreased by $24,000 due to the
decrease in income before income tax expense.
9
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 $1.36 million for the nine
months ended June 30, 1997 decreased $23,000 from net interest income of $1.38
million for the nine months ended June 30, 1996. Total interest income increased
by $104,000 while interest expense increased by $131,000.
INTEREST INCOME. Total interest income increased $104,000 to $2.89 million
for the nine months ended June 30, 1997 from $2.79 million for the nine months
ended June 30, 1996. The increase was comprised of increases in income from
loans receivable and investment securities. The interest income from loans
increased by $232,000 to $1.76 million for the nine months ended June 30, 1997
from $1.53 million for the nine months ended June 30, 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 $107,000 to $660,000 for the nine months ended June 30,
1997 from $553,000 for the nine months ended June 30, 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 $188,000 to $197,000 for the period ending June 30,
1997 from $385,000 for the period ending June 30, 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 the purchase of treasury stock.
INTEREST EXPENSE. Total interest expense was $1.53 million for the nine
months ended June 30, 1997, a $131,000 increase from $1.4 million for the nine
months ended June 30, 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 nine months ended June 30, 1997 from $5,000 for the nine
months ended June 30, 1996. Actual loan losses, net of recoveries, were zero for
the nine months ended June 30, 1997 and June 30, 1996.
NONINTEREST INCOME. Noninterest income of $167,000 for the nine months
ended June 30, 1997 decreased by $35,000 from $202,000 for the nine months ended
June 30, 1996. There was a decrease on the gain on the sale of investments of
$18,000 between the two periods and there was $27,000 in equity in assets sold
by the Association's data processor in the prior period.
NONINTEREST EXPENSE. Noninterest expense increased by $3,000 to $956,000
for the nine months ended June 30, 1997 from $953,000 for the nine months ended
June 30, 1996. Compensation and employee benefits increased by $52,000 due to
the implementation of the MRDP and annual salary increases effective October 1,
1996. This expense was partially offset by a decrease in deposit insurance
premiums of $43,000 for the nine months ended June 30, 1997 as a result of
adjustments and new rates after the one-time special FDIC assessment of
September 30, 1996.
10
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 3.19% for the nine months
ended June 30, 1997 decreased .12% from 3.31% for the nine months ended June 30,
1996. Income from earning assets increased by $104,000, or 3.7% between the two
periods while interest expense increased by $131,000, or 9.3%. The average
earning asset base increased by $921,000 or 1.6%. 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 June 30, 1997, Neosho Savings and Loan had approved loan
commitments totaling $297,000 and undisbursed loans in process of $83,000.
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 2.2% 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 June 30, 1997, certificates of deposit amounted to $28 million, or 64%
of Neosho Savings and Loan's total deposits, including $21.5 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
11
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's liquidity ratio was 33.98% and its
short-term liquidity ratio was 11.99% at June 30,1997. 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 June 30, 1997.
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in thousands)
------- -------
Tangible capital $ 8,650 15.0%
Tangible capital requirement 872 1.5
------- -------
Excess $ 7,778 13.5%
======== ====
Core capital $ 8,650 15.0%
Core capital requirement 1,745 3.0
------- ----
Excess $ 6,905 12.0%
======== ====
Risk-based capital $ 8,692 35.1%
Risk-based capital requirement 1,983 8.0
-------- -----
Excess $ 6,709 27.1%
======== ====
12
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
None.
ITEM 5, OTHER INFORMATION
None.
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
None.
13
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: August 4, 1997 By:/s/C.R."RICK" BUTLER
------------------------ ---------------------
C. R. 'Rick' Butler
President
CEO
By:/s/CAROL GUEST
---------------
Carol Guest
Treasurer