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, 1998
-----------------------
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, 1998, there were 685,858 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, 1998
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 CASH FLOWS (unaudited) 5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-14
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES
HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------
(Unaudited)
March 31, September 30,
1998 1997
--------- -------------
(Dollars in thousands)
ASSETS
------
Cash and cash equivalents, including
interest-bearing accounts of $7,401 at $ 8,016 $ 5,521
March 31 and $4,844 at September 30
Certificates of deposit 773 377
Investment securities available-for-sale,
at fair value 288 267
Investment securities held-to-maturity
(estimated market value of $9,756 at
March 31 and $13,460 at September 30) 10,117 13,473
Mortgage-backed securities held-to-maturity
(estimated market value of $3,992 at March
31 and $4,608 at September 30.) 3,879 4,473
Loans receivable, net (reserves for loan
losses of $50 at March 31 and $44 at
September 30) 36,333 33,879
Accrued interest receivable 315 454
Property and equipment, less accumulated
depreciation 1,150 1,148
Intangible assets 82 84
Other assets 191 141
------- -------
Total assets $61,144 $59,817
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Customer deposits $47,767 $43,892
Advances from FHLB 1,000 3,000
Advances from borrowers for taxes
and insurance 157 317
Income taxes payable - current 37 35
Deferred income taxes 378 413
Other liabilities 319 335
------ ------
Total liabilities 49,658 47,992
------ ------
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, 886,314 issued and
685,858 outstanding at March 31 and
711,666 at September 30 9 9
Paid-in capital 8,489 8,461
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,
1998 1997
--------- ------------
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)
- ------------------------------------------------
Retained earnings - substantially restricted 6,523 6,494
Treasury Stock - at cost; 200,456 shares at
March 31, 1998 and 174,648 at September
30, 1997 (2,895) (2,414)
Unearned compensation (708) (780)
Unrealized gain on investment securities
available-for-sale, net of applicable deferred
income taxes 68 55
------- -------
Total stockholders' equity 11,486 11,825
------- -------
Total liabilities and stockholders' equity $61,144 $59,817
======= =======
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,
1998 1997 1998 1997
-------- -------- -------- --------
(Dollars in thousands) (Dollars in thousands)
Interest Income:
Loans receivable $ 667 $ 582 $1,310 $1,153
Investment securities 156 221 364 438
Mortgage-backed and
related securities 78 89 160 186
Other interest-earning
assets 83 61 153 139
----- ----- ------ ------
Total interest income 984 953 1,987 1,916
----- ----- ------ ------
Interest Expense:
Customer deposits 503 464 999 953
Borrowed funds 15 42 39 67
----- ----- ------ ------
Total interest expense 518 506 1,038 1,020
----- ----- ------ ------
Net interest income 466 447 949 896
Provision for loan losses 1 -- 6 1
----- ----- ------ ------
Net interest income after
provision for loan losses 465 447 943 895
----- ----- ------ ------
Noninterest Income:
Gain on sale of investments -- 13 -- 37
Banking service charges
and fees 37 36 76 77
Loan late charges 2 2 4 4
Mortgage banking fees 63 -- 109
Other 1 9 1 13
----- ----- ------ ------
Total noninterest income 103 60 190 131
----- ----- ------ ------
Noninterest Expense:
Compensation and
employee benefits 230 183 451 360
Occupancy and equipment 51 40 94 75
Deposit insurance premium 7 2 14 25
Data processing 26 23 50 46
Printing, postage,
stationery and supplies 14 17 34 33
Professional fees 15 14 34 30
Other 57 51 136 98
----- ----- ------ ------
Total noninterest expense 400 330 813 667
----- ----- ------ ------
Income before taxes 168 177 320 359
Income Taxes 62 52 120 110
----- ----- ------ ------
Net income $ 106 $ 125 $ 200 $ 249
===== ===== ===== =====
See accompanying notes to Consolidated Financial Statements.
3
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------
(Unaudited) (Unaudited)
Quarter Ended March 31, Six Months Ended March 31,
1998 1997 1998 1997
-------- -------- -------- --------
(Dollars in thousands) (Dollars in thousands)
Basic earnings per share $ .17 $ .19 $ .31 $ .36
===== ===== ===== =====
Diluted earnings per share $ .16 $ .18 $ .30 $ .36
===== ===== ===== =====
Dividends per share $.125 $.125 $ .25 $ .25
===== ===== ===== =====
See accompanying notes to Consolidated Financial Statements.
4
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------
Six Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---------- ---------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 200 $ 249
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 45 42
Amortization 2 --
Premiums and discounts on mortgage-backed
securities and investment securities (47) (47)
Loss on loans, net of recoveries 6 1
Release of ESOP shares 63 51
Vesting of MRDP shares 37 36
Gain on call of investments (15) --
Gain on sale of investments -- (37)
Net change in operating accounts:
Accrued interest receivable 139 (22)
Other assets (50) 30
Other liabilities (12) (291)
Income taxes payable - deferred (43) 24
Income taxes payable - current 2 79
------ ------
Net cash from operating activities 327 115
------ ------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (3,495) (1,995)
Proceeds from maturity of investment securities
held-to-maturity 6,925 325
Proceeds from maturity of investment securities
available-for-sale -- 500
Proceeds from sale of investment securities
available-for-sale -- 252
Net change in certificates of deposit (396) 1,104
Net change in loans receivable (2,460) (932)
Proceeds from principal payments and maturities
of mortgage-backed securities held-to-maturity 582 636
Purchase of mortgage-backed securities held-to-maturity -- (315)
Purchases of property and equipment (47) (320)
------ ------
Net cash from (used in) investing activities $1,109 $ (745)
------ ------
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, 1998 and 1997
(Unaudited)
1998 1997
----------- ---------
(Dollars in thousands)
Cash flows from financing activities:
Net change in demand deposits, savings
accounts, and certificates of deposit $3,875 $(5,807)
Net decrease in mortgage escrow funds (160) (121)
Cash advances from FHLB -- 3,000
Repayment of cash advances from FHLB (2,000) --
Purchase of treasury stock (481) (791)
Proceeds from stock options exercised -- 13
Cash dividends paid (175) (190)
------ ------
Net cash from (used in) financing activities 1,059 (3,896)
------ ------
Net increase(decrease) in cash and
cash equivalents 2,495 (4,526)
Cash and cash equivalents -
beginning of period 5,521 8,853
------ ------
Cash and cash equivalents -
end of period $8,016 $4,327
====== ======
See accompanying notes to Consolidated Financial Statements.
6
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, 1998 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,
1998 interim financial statements. The results of operations for the periods
ended March 31, 1998 and 1997 are not necessarily indicative of the operating
results for the full year. The September 30, 1997 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,
1998 1997
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Income
available
to Common
Stockholders $106,000 635,478 $.17 $125,000 676,532 $.19
==== ====
Effect of
dilutive
securities:
Stock option -- 16,444 -- 10,715
-------- ------- -------- -------
Diluted EPS:
Income
available to
common
stockholders
plus stock
options $106,000 651,922 $.16 $125,000 687,247 $.18
======== ======= ==== ======== ======= ====
For the Three Months Ended March 31,
1998 1997
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Income
available
to Common
Stockholders $200,000 644,489 $.31 $249,000 688,466 $.36
==== ====
Effect of
dilutive
securities:
Stock option -- 17,613 -- 6,436
------- ------- ------- ------
Diluted EPS:
Income
available
to common
stockholders
plus stock
options $200,000 662,102 $.30 $249,000 694,902 $.36
======== ======= ==== ======== ======= ====
7
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). 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 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 $30,473 and $26,809
for the three months ended March 31, 1998 and 1997 and $62,565 and $50,533
for the six months ended March 31, 1998 and 1997 respectively.
A summary of ESOP shares at March 31, 1998 is as follows:
Shares allocated 15,852
Shares committed for release 3,426
Unreleased shares 49,238
--------
Total 68,516
========
Fair value of unreleased shares $866,293
8
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 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 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 $18,518 and $16,095 for the three months ended
March 31, 1998 and 1997 and $37,037 and $36,482 for the six months ended March
31, 1998 and 1997 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, 1998, 1,000 shares have been
exercised at the exercise price of $12.9375 per share.
NOTE E - Stock Repurchase Program
- ---------------------------------
The Company has completed three stock repurchase programs. At May 11, 1998,
204,640 shares have been repurchased at a cost of $2,949,551.
NOTE F - Business Acquisition
- -----------------------------
During 1997, the Association formed a new subsidiary, Crawford Acquisition
Company for the sole purpose of acquiring Crawford Mortgage and Financial
Services, Inc. On August 26, 1997, Crawford Acquisition Company acquired all
of the capital stock of Crawford Mortgage and Financial Services, Inc. and
became Crawford Mortgage, Inc.. Crawford Mortgage, Inc. is engaged in
originating mortgage loans primarily in Missouri. The results of operations
are included in the financial statements.
9
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, 1997, as well as certain changes in results of operations during the three
and six month periods ended March 31, 1998 and 1997.
The following should be read in conjunction with the Company's 10-
KSB for the year ended September 30, 1997, 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, 1997, 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 increased $2.5 million during the six
months ended March 31, 1998. The increase resulted from cash received from
the maturity or calling of several investment securities and an increase of
$3.9 million in customer deposits primarily as a result of some special rate
offerings. These increases were partially offset by an increase in loans of
$2.4 million, the repayment of $2 million in FHLB advances, the purchase of
treasury stock for $481,000, and an increase in investments in certificates of
deposit of $396,000. Net loans increased $2.4 million during the six month
period to $36.3 million as of March 31, 1998 from $33.9 million at September
30, 1997. Loans for 1 to 4 family dwellings comprised the majority of the
increase in loans. Cash on hand and maturities of securities were used to
fund the majority of the growth in loans, to purchase certificates, to repay
the cash advances and to purchase treasury stock.
Nonperforming assets were $68,000 or .1% of total assets at March
31, 1998, compared to $75,000, or .1% of total assets at September 30, 1997.
There was $8,000 in nonaccrual loans at March 31, 1998 and $9,000 at September
30, 1997.
Comparison of the Three Months Ended March 31, 1998 to the Three Months Ended
- -----------------------------------------------------------------------------
March 31, 1997
- --------------
Net Income. Net income was $106,000 for the quarter ended March 31,
1998 compared to $125,000 for the quarter ended March 31, 1997. Net interest
income after provision for loan losses was $465,000 at March 31, 1998 compared
to $447,000 at March 31, 1997. Noninterest income increased $43,000 and
noninterest expense increased $70,000. Income tax expense increased $10,000.
Net Interest Income. Net interest income of $466,000 for the
quarter ended March 31, 1998 increased from $447,000 for the quarter ended
March 31, 1997. Interest income increased $31,000 while interest expense
increased $12,000.
Interest Income. Interest income increased by $31,000 or 3.3% to
$984,000 for the quarter ended March 31, 1998 from $953,000 for the quarter
ended March 31, 1997. Interest income from loans receivable increased $85,000
to $667,000 for the quarter ended March 31, 1998 from $582,000 for the quarter
ended March 31, 1997. 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
decreased by $65,000 to $156,000 for the quarter ended March 31, 1998 from
$221,000 for the quarter
10
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
ended March 31, 1997. This decrease was due to a decrease in the balances and
average rates in investment securities. Interest income from mortgage-backed
securities decreased by $11,000 to $78,000 for the quarter ended March 31,
1998 from $89,000 for the quarter ended March 31, 1997. The decrease was due
to a decrease in the average balances in mortgage-backed securities. Interest
income from other interest-earning assets increased by $22,000 to $83,000 for
the quarter ended March 31, 1998 from $61,000 for the quarter ended March 31,
1997. 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 $518,000 for the quarter
ended March 31, 1998 increased $12,000, or 2.4%, from $506,000 for the quarter
ended March 31, 1997. The increase is attributable to an increase in the
average balances of customer deposits. The increase was partially offset by a
$27,000 decrease in interest expense on borrowed money as a result of smaller
average balances of borrowed funds.
Provision for Loan Losses. Loan loss provision was $1,000 for the
period ending March 31, 1998. Actual loan losses net of recoveries were zero
for both quarters.
Noninterest Income. Noninterest income of $103,000 for the quarter
ended March 31, 1998 increased $43,000 from $60,000 for the quarter ended
March 31, 1997. This increase was primarily due to mortgage banking fees of
$63,000 from Crawford Mortgage and no comparable income in the comparative
quarter since Crawford was not a subsidiary at that time. This increase was
partially offset by a gain of $13,000 on the sale of investments by the
Company in the quarter ending March 31, 1997 and no comparable sale in the
quarter ended March 31, 1998.
Noninterest Expense. Noninterest expense increased $70,000, or
21.2%, to $400,000 for the quarter ended March 31, 1998 from $330,000 for the
quarter ended March 31, 1997. This increase was largely due to a $47,000
increase in compensation and employee benefits for the period ending March 31,
1998. Compensation and employee benefits increased because of increased
personnel to operate Crawford Mortgage and annual salary increases effective
October 1, 1997 and an increase in ESOP expense as the price of the Company's
stock has increased. Occupancy and equipment increased $11,000 of which
$4,500 was for the lease payment for Crawford Mortgage and the balance was
from other normal operating expenses.
Net Interest Margin. Net interest margin increased to 3.21% for the
three months ended March 31, 1998 compared to 3.17% for the three months ended
March 31, 1997. Income from earning assets increased by $31,000, or 3.3%,
between the two quarters and interest expense increased by $12,000, or 2.4%.
The average earning asset base increased by $1.7 million, or 3%. The average
interest-bearing liability base increased by $2 million, or 4.5%.
Comparison of the Six Months Ended March 31, 1998 to the Six Months Ended
- -------------------------------------------------------------------------
March 31, 1997
- --------------
Net Income. Net income decreased $49,000 to $200,000 for the six
months ended March 31, 1998 from $249,000 for the six months ended March 31,
1997. Net interest income after provision for loan losses increased by
$48,000 to $943,000 for the six months ended March
11
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
31, 1998 from $895,000 for the six months ended March 31, 1997. Noninterest
income increased by $59,000, noninterest expense increased by $146,000 and
income taxes increased by $10,000.
Net Interest Income. Net interest income of $949,000 for the six
months ended March 31, 1998 increased $53,000 from net interest income of
$896,000 for the six months ended March 31, 1997. Total interest income
increased by $71,000 while interest expense increased by $18,000.
Interest Income. Total interest income increased $71,000 to $1.99
million for the six months ended March 31, 1998 from $1.92 million for the six
months ended March 31, 1997. The increase was comprised of increases in
income from loans receivable and other interest earning assets. The interest
income from loans increased by $157,000 to $1.31 million for the six months
ended March 31, 1998 from $1.15 million for the six months ended March 31,
1997. 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 $14,000 to $153,000 for the six months ended March
31, 1998 from $139,000 for the six months ended March 31, 1997. This increase
was primarily due to the increase in the average balance of other interest
earning assets. The increases in interest income were offset by decreases in
income from investment securities of $74,000 to $364,000 for the period ending
March 31, 1998 from $438,000 for the period ending March 31, 1997. Income
from mortgage-backed securities decreased $26,000 to $160,000 at March 31,
1998 from $186,000 for the period ending March 31, 1997. 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 $1.04 million for the
six months ended March 31, 1998, a $18,000 increase from $1.02 million for the
six months ended March 31, 1997. An increase in the average balances of
customer deposits increased interest paid on deposits by $46,000 and was
partially offset by a decrease in interest on FHLB advances of $28,000 as the
average balance of FHLB advances decreased.
Provision for Loan Losses. Provision for loan losses increased by
$5,000 to $6,000 for the six months ended March 31, 1998 from $1,000 for the
six months ended March 31, 1997. Actual loan losses, net of recoveries, were
zero for the six months ended March 31, 1998 and March 31, 1997.
Noninterest Income. Noninterest income of $190,000 for the six
months ended March 31, 1998 increased by $59,000 from $131,000 for the six
months ended March 31, 1997. This increase was primarily attributable to
mortgage banking fees from Crawford Mortgage of $109,000 for the six months
ended March 31, 1998 and no mortgage banking fees for the comparable period
since Crawford was not acquired until August 1997. This increase was
partially offset by the gain on the sale of investments of $37,000 by the
Company in the prior period and no sales in the current period. There was
also a decrease of $12,000 in other noninterest income as a result of
distributions from the data service center in the prior period and no
distribution this period.
12
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Noninterest Expense. Noninterest expense increased by $146,000 to
$813,000 for the six months ended March 31, 1998 from $667,000 for the six
months ended March 31, 1997. Compensation and employee benefits increased by
$91,000 due to the acquisition of Crawford Mortgage and additional personnel
at both the Company and Crawford, increased expenses associated with the
employee benefits package, and annual salary increases effective October 1,
1997. Occupancy and equipment also increased by $19,000 and other expenses
increased $38,000 as a result of normal operations of the Company.
Net Interest Margin. Net interest margin of 3.32% for the six
months ended March 31, 1998 increased .15% from 3.17% for the six months ended
March, 1997. Income from earning assets increased by $71,000, or 3.7% between
the two periods while interest expense increased by $18,000, or 1.8%. The
average earning asset base increased by $648,000 or 1.1%. The average
interest-bearing liability base increased by $1.3 million or 2.8%.
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, Neosho Savings and Loan used its
sources of funds primarily to fund loan commitments, pay maturing savings
certificates and deposit withdrawals. During the fiscal year 1997, Neosho
Savings & Loan began using cash advances from Federal Home Loan Bank of Des
Moines. At March 31, 1998, Neosho Savings & Loan had an FHLB advance of $1
million that was used to purchase mortgage loans and had approved loan
commitments totaling $234,000 and undisbursed loans in process of $178,000.
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 2.8% 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
13
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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.
At March 31, 1998, certificates of deposit amounted to $31 million,
or 64% 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
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 38.48% and its short-term liquidity ratio was 23.57% at
March 31,1998. 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, 1998.
Percent of Adjusted
Amount Total Assets
------------------------------
(Unaudited)
(Dollars in thousands)
Tangible capital $ 9,087 15.07%
Tangible capital requirement 904 1.50
-------- -----
Excess $ 8,183 13.57%
======== =====
Core capital $ 9,087 15.07%
Core capital requirement 2,411 4.00
-------- -----
Excess $ 6,676 11.07%
======== =====
Risk-based capital $ 9,137 34.45%
Risk-based capital requirement 2,122 8.0
-------- -----
Excess $ 7,015 26.45%
======== =====
14
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 14, 1998. 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
-------- -------------
Robert J. Johnson 584,824 7,050
------- -----
George A. Henry 584,774 7,100
------- -----
The terms of Directors C.R. Butler, Ralph J. Haas, 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, 1998 was ratified by stockholders by the following vote:
For 586,290 ; Against 650 ; Abstain 4,934
------------ ----- ------------
Broker non-votes totaled 0
---
ITEM 5, OTHER INFORMATION
None.
15
PART II - OTHER INFORMATION (continued)
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
None.
16
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, 1998 By: /s/ C. R. Butler
---------------- --------------------------
C. R. 'Rick' Butler
President
CEO
By: /s/ Carol Guest
------------------------
Carol Guest
Treasurer