U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1999.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from ____ to ____
Commission File Number 0-20899
FIRST LANCASTER BANCSHARES, INC.
--------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 61-1297318
---------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
208 LEXINGTON STREET, LANCASTER, KENTUCKY 40444-1131
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(Address of Principal Executive Offices)
(606) 792-3368
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of May 12, 1999, the issuer had 910,872 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ______ No X
------
CONTENTS
PART 1. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and June 30, 1998 2
Consolidated Statements of Income and Comprehensive Income for
the Three Months and Nine Months Ended March 31, 1999 and 1998
(unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1999 and 1998 (unaudited) 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis or Plan of Operation 10-14
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT 27 17
1
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, JUNE 30,
1999 1998
(Unaudited)
Cash $ 1,241,220 $ 516,199
Interest-bearing cash deposits in other depository institutions 1,899,223 2,186,921
Investment securities available-for-sale, at market value (amortized cost
$24,158 at March 31, 1999 and June 30, 1998) 1,414,014 1,161,126
Mortgage-backed securities, held to maturity 342,246 434,635
Investments in nonmarketable equity securities, at cost 750,900 725,300
Loans receivable, net 47,323,609 47,593,855
Real estate acquired by foreclosure 270,200
Accrued interest receivable 434,894 465,527
Office property and equipment, at cost, less accumulated depreciation 374,440 379,490
Other assets 8,275 13,411
-------------- --------------
Total assets $ 53,788,821 $ 53,746,664
============== ==============
LIABILITIES
Savings accounts and certificates $ 30,146,489 $ 25,416,711
Advance payments by borrowers for taxes and insurance 19,284 28,802
Accrued interest payable 53,443 70,974
Federal Home Loan Bank advances 9,642,517 13,461,167
Accounts payable and other liabilities 381,137 365,827
Income tax payable 7,944 997
Deferred income tax payable 186,195 278,821
-------------- --------------
Total liabilities 40,437,009 39,623,299
-------------- --------------
Common stock owned by ESOP subject to put option 416,082 485,988
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized
Common stock, $.01 par value; 3,000,000 shares authorized;
830,797 and 872,656 shares issued and outstanding at
March 31, 1999 and June 30, 1998, respectively 9,588 9,588
Additional paid-in capital 9,176,626 9,152,891
Treasury stock (73,410 and 23,534 shares at March 31, 1999
and June 30, 1998, respectively) (997,673) (350,871)
Unearned employee stock ownership plan shares (543,381) (626,221)
Common Stock owned by ESOP subject to put option (416,082) (485,988)
Accumulated comprehensive income 917,305 750,399
Retained earnings, substantially restricted 4,789,347 5,187,579
-------------- --------------
Total stockholders' equity 12,935,730 13,637,377
-------------- --------------
Total liabilities and stockholders' equity $ 53,788,821 $ 53,746,664
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
2
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
for the three months and nine months ended March 31, 1999 and 1998
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
1999 1998 1999 1998
Interest on loans and mortgage-backed securities $ 1,051,340 $ 969,993 $ 3,174,558 $ 2,860,878
Interest and dividends on investments and deposits in
other depository institutions 41,635 46,577 123,228 103,847
------------- ------------ ------------- ------------
Total interest income 1,092,975 1,016,570 3,297,786 2,964,725
------------- ------------ ------------- ------------
Interest on savings accounts and certificates 401,064 318,773 1,156,999 934,199
Interest on other borrowings 160,036 192,154 547,809 481,612
------------- ------------ ------------- ------------
Total interest expense 561,100 510,927 1,704,808 1,415,811
------------- ------------ ------------- ------------
Net interest income 531,875 505,643 1,592,978 1,548,914
Provision for loan losses 66,000 31,507 501,000 84,554
------------- ------------ ------------- ------------
Net interest income after provision for loan
losses 465,875 474,136 1,091,978 1,464,360
------------- ------------ ------------- ------------
Other expenses:
Compensation 111,135 116,736 323,428 289,677
Employee retirement and other benefits 62,414 79,061 220,348 247,013
State franchise taxes 7,458 6,999 20,750 19,867
SAIF deposit insurance premium 17,967 11,658 34,542 25,640
Loss on sale of real estate acquired by foreclosure 9,401
Occupancy expense 28,017 15,177 75,534 47,177
Data processing 15,292 9,128 51,845 33,135
Other 41,025 45,782 163,780 218,538
------------- ------------ ------------- ------------
Total other expenses 283,308 284,541 899,628 881,047
------------- ------------ ------------- ------------
Income before income taxes 182,567 189,595 192,350 583,313
Provision for income taxes 64,511 67,681 73,216 204,642
------------- ------------ ------------- ------------
Net income 118,056 121,914 119,134 378,671
Other comprehensive income (loss), net of income tax:
Unrealized gain (loss) on securities available for sale
arising in period (116,020) 89,559 166,906 202,526
-------------- ----------- ------------- ------------
Comprehensive income $ 2,036 $ 211,473 $ 286,040 $ 581,197
============= ============ ============= ============
Weighted shares outstanding for basic earnings
per share 833,802 881,602 854,143 884,917
Basic earnings per share $ 0.14 $ 0.14 $ 0.14 $ 0.43
Weighted shares outstanding for diluted earnings
per share 846,146 902,501 868,059 907,002
Diluted earnings per share $ 0.14 $ 0.14 $ 0.14 $ 0.42
The accompanying notes are an integral part of the consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
Cash flows from operating activities:
Net income $ 119,134 $ 378,671
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 28,642 23,771
Provision for loan losses 501,000 84,554
Stock dividend, Federal Home Loan Bank stock (25,878) (28,600)
Deferred income taxes (178,608)
Net loan origination fees 24,418 19,145
Employee Stock Ownership Plan benefit expense 106,575 81,331
Management Retirement Plan benefit expense 68,472 69,842
Loss on sale of real estate acquired by foreclosure 9,401
Loss on disposition of property and equipment 10,336
Change in assets and liabilities:
Accrued interest receivable 30,511 (127,075)
Other assets 5,136 (7,658)
Income tax receivable (37,772)
Accrued interest payable (17,531) 39,212
Accounts payable and other liabilities 32,576 65,634
Income tax payable 6,947 (70,849)
-------------- ---------------
Net cash provided by operating activities 721,131 490,206
-------------- ---------------
Cash flows from investing activities:
Proceeds from sale of real estate acquired by foreclosure 396,000
Purchase of property and equipment (33,928) (5,656)
Purchase of Federal Home Loan Bank common stock (341,400)
Mortgage-backed securities principal repayments 92,389 74,419
Net increase in loans receivable (390,374) (9,549,640)
-------------- ---------------
Net cash provided by (used in) investing activities 64,087 (9,822,277)
-------------- ---------------
Cash flows from financing activities:
Net increase in savings accounts and certificates 4,729,778 2,289,272
Net decrease in advance payments by borrowers for taxes and insurance (9,518) (4,819)
Purchase of treasury stock (734,938) (307,441)
Dividends paid (514,567) (445,750)
Federal Home Loan Bank advances 2,500,000 19,750,000
Federal Home Loan Bank advance principal repayments (6,318,650) (11,957,867)
-------------- ---------------
Net cash provided by (used in) financing activities (347,895) 9,323,395
-------------- ---------------
Net (decrease) increase in cash and cash equivalents 437,323 (8,676)
Cash and cash equivalents at beginning of period 2,703,120 2,108,101
-------------- ---------------
Cash and cash equivalents at end of period $ 3,140,443 $ 2,099,425
============== ===============
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain on securities available for sale, net of deferred tax liability
of $85,982 and $104,332 at March 31, 1999 and 1998, respectively $ 166,906 $ 202,526
Loan transferred to real estate acquired by foreclosure $ - $ 290,200
Renewed Federal Home Loan Bank advances $ 4,000,000 $ -
The accompanying notes are an integral part of the consolidated financial
statements.
4
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying unaudited consolidated financial statements of First
Lancaster Bancshares, Inc. and Subsidiary (the Company) have been
prepared in accordance with the instructions for Form 10-QSB and
therefore do not include certain information or footnotes necessary for
the presentation of complete consolidated financial statements in
accordance with generally accepted accounting principles. However, in the
opinion of management, the consolidated financial statements reflect all
adjustments (which consist of normal recurring accruals) necessary for a
fair presentation of the results for the unaudited periods. The results
of the operations for the three months and nine months ended March 31,
1999 are not necessarily indicative of the results which may be expected
for the entire year. The consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and the
notes thereto for the year ended June 30, 1998.
2. INVESTMENT SECURITIES:
Investment securities are summarized as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
MARCH 31, 1999 COST GAINS LOSSES VALUE
------------- -------------- ------------ --------------
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 1,389,856 $ $ 1,414,014
============= ============== ============ ==============
JUNE 30, 1998
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 1,136,968 $ $ 1,161,126
============= ============== ============ ==============
3. ALLOWANCE FOR LOAN LOSSES:
An analysis of the changes in the loan loss allowance for the three
months and nine months ended March 31 follows:
THREE MONTHS ENDED NINE MONTHS ENDED
1999 1998 1999 1998
------------- -------------- ------------ --------------
Balance at beginning of period $ 635,000 $ 150,000 $ 200,000 $ 125,000
Provision charged to operations 66,000 31,507 501,000 84,554
Loans charged off (11,507) (39,554)
------------- -------------- ------------ --------------
Balance at end of period $ 701,000 $ 170,000 $ 701,000 $ 170,000
============= ============== ============ ==============
The significant increase in the allowance for loan losses relates
primarily to a specific construction loan which became doubtful for
collection in December, 1998. Nonaccrual loans amounted to $1,685,815 and
$608,973 at March 31, 1999 and 1998, respectively.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances at March 31, 1999 and June 30, 1998 are
as follows:
MARCH 31, JUNE 30,
1999 1998
------------- -------------
DATE OF INTEREST
ISSUE YEAR OF MATURITY AMOUNT AMOUNT RATE
10/27/94 11/01/04 $ 72,163 $ 107,242 8.45
1/31/95 1/30/15 650,000 650,000 5.75
5/09/95 6/01/05 87,578 116,095 7.35
3/25/97 3/24/00 500,000 500,000 6.75
7/31/97 7/31/98 1,000,000 5.88
8/14/97 8/14/98 500,000 5.95
10/22/97 10/22/98 250,000 6.05
1/27/98 1/22/99 1,000,000 5.75
1/28/98 2/01/08 82,776 87,830 6.37
2/17/98 8/14/98 500,000 5.61
2/20/98 2/20/99 500,000 5.67
3/03/98 3/03/99 1,000,000 5.75
3/13/98 3/12/99 1,250,000 5.74
3/20/98 3/19/99 750,000 5.77
3/25/98 3/25/99 2,000,000 5.81
3/31/98 9/25/98 500,000 5.71
4/24/98 4/23/99 1,750,000 1,750,000 5.84
4/28/98 10/23/98 250,000 5.74
5/13/98 11/09/98 500,000 5.72
5/22/98 11/18/98 250,000 5.72
7/31/98 7/30/99 1,000,000 5.80
8/14/98 8/13/99 500,000 5.73
8/24/98 8/24/99 250,000 5.69
8/25/98 8/24/99 250,000 5.69
11/9/98 5/07/99 500,000 5.17
3/12/99 3/10/00 750,000 5.32
3/19/99 3/17/00 750,000 5.23
3/24/99 9/20/99 500,000 5.07
3/25/99 3/24/00 2,000,000 5.33
------------ -------------
$ 9,642,517 $ 13,461,167
============ =============
5. LINE OF CREDIT:
On March 5, 1999, First Lancaster Bancshares, Inc. entered into a line of
credit for $2.5 million with an interest rate of prime less 1/2 basis
point. Any outstanding balance on this line of credit is collateralized
by 100% of the Bank's stock. As of March 31, 1999, there is no
outstanding balance.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The purpose of reporting
comprehensive income is to present a measure of all changes in equity
that result from recognized transactions and other economic events of the
period other than transactions with owners in their capacity as owners.
If used with related disclosures and other information in the
consolidated financial statements, the FASB believes that the information
provided by reporting comprehensive income should help investors,
creditors, and others in assessing an enterprise's activities and the
timing and magnitude of its future cash flows. The statement requires
that an enterprise classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of
financial condition. This statement is effective for fiscal years
beginning after December 31, 1997 and reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The only transactions that meet the definition of other
comprehensive income for the Company include the unrealized gains on
securities available for sale. The Company adopted the provision of SFAS
No. 130 on July 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards
for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. This statement also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement requires
the reporting of financial and descriptive information about an
enterprise's reportable operating segments. This statement is effective
for financial statements for periods beginning after December 15, 1997.
This statement need not be applied to interim financial
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS, CONTINUED:
statements in the initial year of its application. As a result, the
Company will adopt the provision of SFAS No. 131 with the presentation of
the annual financial statements for the year ended June 30, 1999.
In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132
standardizes the disclosure requirements for pensions and other
postretirement benefits. This statement is effective for financial
statements for fiscal periods beginning after December 15, 1997. The
Company adopted the provisions of the statement on July 1, 1998. The
adoption of the statement did not materially affect the Company's
financial position or operating results.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 established
a new model for accounting for derivatives and hedging activities and
supersedes and amends a number of existing standards. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999, but earlier
applications is permitted as of the beginning of any fiscal quarters
subsequent to June 15, 1998. Upon the statements initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133. Adoption of SFAS
No. 133 is not expected to have a material financial statement impact on
the Company.
In October, 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Banking Enterprise". SFAS No. 134 amends SFAS 65
and SFAS 115. The Company adopted the provisions of the statement on
January 1, 1999. The adoption of the statement did not materially affect
the Company's financial position or operating results.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. EARNINGS PER SHARE
For the nine months ended March 31, 1999 For the nine months ended March 31, 1998
------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
shareholders $ 119,134 854,143 $ 0.14 $ 378,671 884,917 $ 0.43
Effect of dilutive securities
Stock options 5,126
Management recognition plan 13,916 16,958
Diluted earnings per share
Income available to common
shareholders plus assumed
conversions $ 119,134 868,059 $ 0.14 $ 378,671 907,002 $ 0.42
For the three months ended March 31, 1999 For the three months ended March 31, 1998
------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
shareholders $ 118,056 833,802 $ 0.14 $ 121,914 881,602 $ 0.14
Effect of dilutive securities
Stock options 6,724
Management recognition plan 12,344 14,175
Diluted earnings per share
Income available to common
shareholders plus assumed
conversions $ 118,056 846,146 $ 0.14 $ 121,914 902,501 $ 0.14
There were no preferred dividends that would effect the computation of earnings
per share.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowings. The
Company's operating expenses consist primarily of employee compensation,
occupancy expenses, federal deposit insurance premiums and other general and
administrative expenses. The Company's results of operations are significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of regulatory agencies.
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to" "will continue," "is anticipated," "estimate," "project" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties including changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
YEAR 2000 READINESS DISCLOSURE
The following information constitutes "Year 2000 Readiness Disclosure" under the
Year 2000 Readiness and Disclosure Act.
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operations of the Company. Data
processing is also essential to most other financial institutions and many other
companies.
Data processing of the Company is provided by a third party service bureau. The
service bureau of the Company has advised the Company that it expects to resolve
this potential problem before the year 2000. However, if the service bureau is
unable to resolve this potential problem in time, the Company would likely
experience significant data processing delays, mistakes or failures. These
delays, mistakes or failures could have a significant adverse impact on the
financial condition and
10
results of operations of the Company.
The Company has installed a new teller computer network system which is Year
2000 compliant and has established a Year 2000 committee to monitor the progress
of achieving and certifying overall Year 2000 compliance. The Company's current
plan is to complete the Year 2000 project by June 30, 1999. Final validation
testing with the Company's third party service bureau was completed in November,
1998, with favorable results showing that all transactions ran successfully in a
Year 2000 sequence. Based upon preliminary analysis by the Company, the total
costs of the new computer network system and for the services of the third party
service bureau will not exceed $100,000 and the majority of these costs have
been incurred as of March 31, 1999. The Company will seek out other third party
data processing bureaus to prevent interruption of the Company's data
processing. The Company has developed a contingency plan in the event there is
an interruption of its on-line system, whereby transaction processing will be
done in a store and forward mode for short term interruptions, and for extended
interruptions, manual processing or the use of a local database will be used.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND JUNE 30, 1998
The Company's total assets remained fairly consistent with an increase of $42
thousand, or .2%, from $53.747 million at June 30, 1998 to $53.789 million at
March 31, 1999. This increase is a result of several offsetting items. Cash
increased $.4 million, or 16.2% from $2.7 million at June 30, 1998 to $3.1
million at March 31, 1999, primarily due to loan repayments and an increase in
certificates of deposit. Investment securities increased approximately $.3
million, or 21.8%, due to increased market prices. Net loans receivable
decreased approximately $.3 million, or .6%, from $47.6 million at June 30, 1998
to $47.3 million at March 31, 1999, and real estate acquired by foreclosure of
approximately $.3 million at June 30, 1998 was subsequently sold. During the
quarter ended March 31, 1999 the Bank did not hold any real estate acquired by
foreclosure. The Company's total liabilities increased by approximately $.8
million, or 2.1%, from $39.6 million at June 30, 1998 to $40.4 million at March
31, 1999. This increase primarily results from an increase in certificates of
approximately $4.4 million, or 23.5%, from $18.8 million at June 30, 1998 to
$23.2 million at March 31, 1999 offset by a decrease in Federal Home Loan Bank
advances of approximately $3.8 million, or 28.4%, due to the Bank's repayment of
several of these advances. During the nine month period ended March 31, 1999
the Company acquired 47,940 common shares for a purchase price of $622 thousand.
These purchases completed the Company's 5% stock repurchase program.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998
NET INCOME/LOSS: The Company's net income decreased approximately $4 thousand,
or 3.2%, from $122 thousand for the quarter ended March 31, 1998 to $118
thousand for the quarter ended March 31, 1999. Such decrease was due primarily
to the increase in the provision for loan losses of $34 thousand, offset by an
increase in net interest income of $26 thousand.
NET INTEREST INCOME: Net interest income increased by $26 thousand, or 5.2%,
from $506 thousand for the quarter ended March 31, 1998 to $532 thousand for the
quarter ended March 31, 1999. This increase is attributed to an increase in
interest income of $76 thousand and an increase in interest expense of $50
thousand. These increases in interest income and expense were primarily caused
by increasing volumes of loans, savings accounts and certificates.
INTEREST INCOME: Total interest income increased by $76 thousand, or 7.5%, to
$1.1 million for the
11
quarter ended March 31, 1999 from $1 million for the quarter ended March 31,
1998. Interest on loans and mortgage backed securities increased by $81
thousand, or 8.4%, during the quarter ended March 31, 1999, as compared to the
quarter ended March 31, 1998. This increase primarily reflects an increase in
interest income on loans as the Bank continued its policy of loan growth through
originations.
INTEREST EXPENSE: Total interest expense increased by $50 thousand, or 9.8%, to
$561 thousand for the quarter ended March 31, 1999 from $511 thousand for the
quarter ended March 31, 1998. Interest on savings accounts and certificates
increased by $82 thousand, or 25.8%, to $401 thousand for the quarter ended
March 31, 1999 from $319 thousand for the quarter ended March 31, 1998 due to
the increase in these deposits, primarily certificates, from an average of $24
million to $30 million for the quarters ended March 31, 1998 and 1999,
respectively. This increase is offset by a decrease in interest expense on other
borrowings due to a decrease in the average balance of FHLB advances from $13.1
million to $11.3 million for the quarters ended March 31, 1998 and 1999,
respectively.
PROVISION FOR LOAN LOSSES: The Bank established loan loss provisions of $66,000
and $31,507 for the quarters ended March 31, 1999 and 1998, respectively. The
Bank's provision for loan losses is based on management's assessment of specific
risk and general risk inherent in the loan portfolio based on all relevant
factors and conditions including the general increases and decreases in the
overall loan balance.
OTHER EXPENSE: Total other expense decreased by approximately $1 thousand, or
.4%, from $284 thousand for the quarter ended March 31, 1998 to $283 thousand
for the quarter ended March 31, 1999. This decrease was caused by several
offsetting increases and decreases. Increases include $6 thousand in SAIF
deposit insurance premiums, $13 thousand in occupancy expense for depreciation
on new teller computer terminals installed in December 1998 and $6 thousand in
data processing fees also related to these new terminals. These increases were
offset by reductions in compensation and benefits expenses of $22 thousand and
other expenses of $5 thousand. Benefit expense decreased due to the Directors'
Retirement Plan being fully accrued for the three months ended March 31, 1999,
and other expenses decreased primarily due to a decrease in professional fees.
INCOME TAX: The effective tax rates for the quarters ended March 31, 1999 and
1998 were 35.3% and 35.7%, respectively. The provision for income taxes
decreased by $3 thousand, or 4.6%, from $68 thousand for the quarter ended March
31, 1998 to $65 thousand for the quarter ended March 31, 1999. The provision for
income taxes decreased as a result of the decrease in income before taxes.
OTHER COMPREHENSIVE INCOME (LOSS): There was an other comprehensive loss for the
quarter ended March 31, 1999 due to the market price of available-for-sale
securities decreasing as compared to the market price at December 31, 1998.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
1998
NET INCOME: The Company's net income for the nine months ended March 31, 1999
was $119 thousand as compared to $379 thousand for the nine months ended March
31, 1998, a decrease of $260 thousand. This decrease in net income was due
primarily to an increase in the provision for loan losses of $416 thousand,
offset by a corresponding decrease in the provision for income taxes of
approximately $142 thousand.
NET INTEREST INCOME: Net interest income increased by $44 thousand, or 2.8%,
from $1.549 million for the nine months ended March 31, 1998 to $1.593 million
for the nine months ended March 31,
12
1999. This increase is attributed to an increase in interest income of $333
thousand offset by an increase in interest expense of $289 thousand. These
increases in interest income and expense were primarily caused by increasing
volumes of loans, savings accounts and certificates.
INTEREST INCOME: Total interest income increased by $333 thousand, or 11.2%, to
$3.3 million for the nine months ended March 31, 1999 from $3 million for the
nine months ended March 31, 1998. Interest on loans and mortgage backed
securities increased by $314 thousand, or 11%, during the nine months ended
March 31, 1999, as compared to the nine months ended March 31, 1998. This
increase primarily reflects an increase in interest income on loans as the Bank
continued its policy of loan growth through originations. Interest and dividends
on investments and deposits in other depository institutions increased by $19
thousand, or 18.7%, during the nine months ended March 31, 1999, as compared to
the nine months ended March 31, 1998.
INTEREST EXPENSE: Total interest expense increased by $289 thousand, or 20.4%,
to $1.7 million for the nine months ended March 31, 1999 from $1.4 million for
the nine months ended March 31, 1998. Interest on savings accounts and
certificates increased by $223 thousand, or 23.8%, to $1.2 million for the nine
months ended March 31, 1999 from $934 thousand for the nine months ended March
31, 1998 due to the increase in these deposits from an average of $23.2 million
to $28.1 million for the nine months ended March 31, 1998 and 1999,
respectively. Also contributing to the increase in interest expense was the
increase in average balance of FHLB advances from $10.6 million to $12.5 million
for the nine months ended March 31, 1998 and 1999, respectively.
PROVISION FOR LOAN LOSSES: The Bank established loan loss provisions of $501
thousand and $85 thousand for the nine months ended March 31, 1999 and 1998,
respectively. The increase of $416 thousand in the provision for loan losses for
the nine months ended December 31, 1998 results primarily from a specific
construction loan which became doubtful for collection in December, 1998. The
Bank's provision for loan losses is based on management's assessment of specific
risk and general risk inherent in the loan portfolio based on all relevant
factors and conditions including the general increases and decreases in the
overall loan balance outstanding. Nonaccrual loans increased approximately $1.0
million primarily due to this doubtful construction loan.
OTHER EXPENSE: Total other expense increased by $19 thousand, or 2.1%, from $881
thousand for the nine months ended March 31, 1998 to $900 thousand for the nine
months ended March 31, 1999. The increase was caused primarily by increases of
$33 thousand in compensation, $9 thousand in SAIF deposit insurance premium, $28
thousand in occupancy expense and $19 thousand in data processing fees. These
increases were a result of general pay increases, the addition of employees, and
the purchase and installation of a new teller computer network. The Company also
incurred a $9 thousand loss on sale of real estate owned in the nine months
ended March 31, 1999. These increases were offset by reductions in benefit
expense of $27 thousand and other expenses of $55 thousand. Benefit expense
decreased due to the Directors' Retirement Plan being fully accrued for the nine
months ended March 31, 1999 and other expense decreased primarily due to a
decrease in professional fees.
INCOME TAX: The effective tax rates for the nine months ended March 31, 1999 and
1998 were 38% and 35.1%, respectively. The effective rate increased as a result
of nondeductability of the market value portion of certain ESOP expenses. Income
tax expense decreased by $132 thousand from $205 thousand for the nine months
ended March 31, 1998 to $73 thousand for the nine months ended March 31, 1999.
This decrease was a result of the decrease in income before taxes caused
primarily by the increase in the provision for loan losses.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits; principal and interest
payments on loans and mortgage-backed securities; proceeds from the sale of
available-for-sale securities; proceeds from maturing debt securities; advances
from the FHLB; and other borrowed funds. While scheduled maturities of
securities and amortization of loans are predictable sources of funds, deposit
flows and prepayments on mortgage loans and mortgage-backed securities are
greatly influenced by the general level of interest rates, economic conditions
and competition.
On March 5, 1999, First Lancaster Bancshares, Inc. entered into a line of credit
for $2.5 million to be used for general funding needs. As of March 31, 1999,
there had been no draws on this line of credit.
The Bank is required to maintain an average daily balance of liquid assets
(generally cash, certain time deposits, bankers' acceptances, highly rated
corporate debt and commercial paper, securities of certain mutual funds, and
specified United States government, state or federal agency obligations) equal
to 4% of its net withdrawal accounts plus short term borrowings either at the
end of the preceding calendar quarter or on an average daily basis during the
preceding quarter. The Bank is also required to maintain sufficient liquidity to
ensure its safe and sound operation. Monetary penalties may be imposed for
failure to meet liquidity requirements. The average daily balance of liquid
assets for the quarter ended March 31, 1999 was 7.9%.
At March 31, 1999, the Company had outstanding commitments to originate first
mortgage loans totaling $642 thousand. The Company anticipates that it will have
significant funds to meet its current origination commitments.
The Bank is required by federal regulations to maintain minimum amounts and
ratios of capital. At March 31, 1999, the Bank met all capital adequacy
requirements to which it is subject.
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PART 11 OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter ended March 31, 1999.
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST LANCASTER BANCSHARES, INC.
Date: May 12, 1999 /s/ Virginia R.S. Stump
-------------------------------------
Virginia R.S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1999 /s/ Julia G. Taylor
-------------------------------------
Julia G. Taylor, CPA
Comptroller
(Principal Financial Officer)
16