1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2001
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 0-32955
----------------
LSB CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3557612
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Massachusetts Ave., North Andover MA 01845
(Address of principal executive office) (Zip Code)
----------------
(978) 975-7500
(Registrant's telephone number, including area code)
----------------
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 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
---- ----
Class Outstanding as of August 8, 2001
- ----- --------------------------------
Common Stock, par value $0.10 per share 4,375,050
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FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, DC 20429
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _____ to _____
FDIC Certificate No. 23288
--------------------
LAWRENCE SAVINGS BANK
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-1528790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 MASSACHUSETTS AVENUE, NORTH ANDOVER, MA 01845
(Address of principal executive offices) (Zip Code)
--------------------
(978) 725-7500
(Registrant's telephone number, including area code)
--------------------
Indicated 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 12 months (or for such shorter period than the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of August 8, 2001
- ----- --------------------------------
Common Stock, par value $.10 per share 4,375,050 shares
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
Unaudited Audited
------------- ----------------
(In Thousands)
ASSETS
Assets:
Cash and due from banks $ 9,066 $ 7,086
Federal funds sold 95 15,427
------------ ---------------
Total cash and cash equivalents 9,161 22,513
Investment securities held to maturity (market value
of $150,114 in 2001 and $118,393 in 2000) 148,482 117,806
Investment securities available for sale (amortized cost
of $24,437 in 2001 and $32,840 in 2000) 24,827 33,027
Federal Home Loan Bank stock, at cost 5,950 5,950
Loans, net of allowance for loan losses (Notes 2 and 6) 229,644 218,360
Bank premises and equipment 3,290 3,337
Accrued interest receivable 2,774 2,969
Other real estate owned 27 32
Deferred income tax asset 6,636 7,511
Other assets 1,381 1,585
------------- ----------------
Total assets $ 432,172 $ 413,090
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits (Note 3) $ 265,830 $ 259,325
Non-interest bearing deposits 15,412 11,223
Federal Home Loan Bank advances 87,508 82,283
Securities sold under agreements to repurchase 2,375 --
Other borrowed funds 3,908 3,878
Advance payments by borrowers for taxes and insurance 529 513
Other liabilities 3,424 3,555
------------- ----------------
Total liabilities 378,986 360,777
------------- ----------------
Stockholders' equity:
Preferred stock, $.10 par value per share;
5,000,000 shares authorized, none issued. -- --
Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,371,500 and 4,364,800 shares issued and outstanding
at June 30, 2001 and December 31, 2000, respectively 437 436
Additional paid-in capital 57,740 57,711
Accumulated deficit (5,249) (5,956)
Accumulated other comprehensive income 258 122
------------- ----------------
Total stockholders' equity 53,186 52,313
------------- ----------------
Total liabilities and stockholders' equity $ 432,172 $ 413,090
============= ================
The accompanying notes are an integral part of these unaudited
financial statements.
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4
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months Six months
ended ended
June 30, June 30,
---------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(In thousands except share data)
Interest and dividend income:
Loans (Note 4) $ 4,552 $ 4,071 $ 9,080 $ 8,107
Investment securities held to maturity 2,141 2,083 4,183 4,102
Investment securities available for sale 408 823 847 1,652
Federal Home Loan Bank stock 93 111 199 215
Other interest and dividend income 88 18 371 45
--------- --------- --------- ---------
Total interest and dividend income 7,282 7,106 14,680 14,121
--------- --------- --------- ---------
Interest expense:
Deposits (Note 5) 2,716 2,363 5,482 4,574
Borrowed funds 1,194 1,007 2,535 2,122
Other borrowed funds 97 631 186 1,083
--------- --------- --------- ---------
Total interest expense 4,007 4,001 8,203 7,779
--------- --------- --------- ---------
Net interest income 3,275 3,105 6,477 6,342
Provision for loan losses 50 -- 50 --
--------- --------- --------- ---------
Net interest income after provision for loan losses 3,225 3,105 6,427 6,342
--------- --------- --------- ---------
Non-interest income:
Loan servicing fees 28 91 86 173
Deposit account fees 141 125 273 249
Gains on sales of mortgage loans 34 5 38 15
Other real estate owned income -- 51 -- 48
Other income 95 75 182 147
--------- --------- --------- ---------
Total non-interest income 298 347 579 632
--------- --------- --------- ---------
Non-interest expense:
Salaries and employee benefits 1,306 1,261 2,601 2,503
Occupancy and equipment expenses 209 195 423 390
Professional expenses 143 146 310 269
Data processing expenses 178 142 336 297
Other expenses 467 356 841 766
--------- --------- --------- ---------
Total non-interest expenses 2,303 2,100 4,511 4,225
--------- --------- --------- ---------
Income before income taxes 1,220 1,352 2,495 2,749
Income tax expense 430 456 914 953
--------- --------- --------- ---------
Net income $ 790 $ 896 $ 1,581 $ 1,796
========= ========= ========= =========
Average shares outstanding 4,371,500 4,356,954 4,370,529 4,356,877
Average diluted shares outstanding 4,532,275 4,416,809 4,524,479 4,417,032
========= ========= ========= =========
Basic earnings per share $ 0.18 $ 0.21 $ 0.36 $ 0.41
Diluted earnings per share $ 0.17 $ 0.20 $ 0.35 $ 0.40
========= ========= ========= =========
The accompanying notes are an integral part of these unaudited
financial statements.
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5
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Additional Other Total
Common Paid-In (Accumulated Comprehensive Stockholders'
Stock Capital Deficit) Income (Loss) Equity
------- ---------- ------------ ------------- -------------
(In Thousands)
Balance at December 31, 1999 $ 436 $57,668 $(9,145) $ (551) $ 48,408
Net income -- -- 1,796 -- 1,796
Other comprehensive income
unrealized loss on securities
available for sale (tax effect
$11) -- -- -- (17) (17)
--------
Total comprehensive income 1,779
Exercise of stock options -- 41 -- -- 41
Dividends declared and
paid ($0.12 per share) -- -- (523) -- (523)
----- ------- ------- ------ --------
Balance at June 30, 2000 $ 436 $57,709 $(7,872) $ (568) $ 49,705
===== ======= ======= ====== ========
Balance at December 31, 2000 $ 436 $57,711 $(5,956) $ 122 $ 52,313
Net income -- -- 1,581 -- 1,581
Other comprehensive income
unrealized gain on securities
available for sale (tax effect
$67) -- -- -- 136 136
--------
Total comprehensive income 1,717
Exercise of stock options 1 29 -- -- 30
Dividends declared and
paid ($0.20 per share) -- -- (874) -- (874)
----- ------- -------- ------ --------
Balance at June 30, 2001 $ 437 $57,740 $(5,249) $ 258 $ 53,186
===== ======= ======= ====== ========
The accompanying notes are an integral part of these unaudited
financial statements.
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6
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months
ended
June 30,
--------------------------
2001 2000
----------- ---------
(In Thousands)
Cash flows from operating activities:
Net income $ 1,581 $ 1,796
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 50 --
(Gains) losses on sales of mortgage loans and mortgage-backed securities (38) (15)
Net gains on sales of other real estate owned -- (39)
Depreciation and amortization of premises and equipment, investments and
other assets 119 380
Loans originated for sale (4,984) (933)
Proceeds from sales of mortgage loans 3,405 948
Decrease (increase) on accrued interest receivable 195 (163)
Decrease in deferred income tax asset 808 841
Decrease in other assets 204 36
Increase (decrease) in advance payments by borrowers 16 (158)
(Decrease) increase in other liabilities (131) 214
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,225 2,907
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of investment securities held to maturity 273,687 2,611
Proceeds from maturities of investment securities available for sale 6,118 --
Purchases of investment securities held to maturity (309,810) (16,430)
Purchases of mortgage-backed securities held to maturity (4,335) --
Proceeds from sale of investment securities available for sale -- 1,319
Principal payments of securities held to maturity 9,868 4,823
Principal payments of securities available for sale 2,366 1,432
Purchase of other equity securities (46) --
Increase in loans, net (9,717) (2,207)
Proceeds from sales/payments of OREO 5 521
Purchase of Bank premises and equipment (193) (266)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (32,057) (8,197)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 10,694 7,783
Additions to Federal Home Loan Bank advances 30,000 481,950
Payments on Federal Home Loan Bank advances (24,775) (497,156)
Net increase in agreements to repurchase securities 2,375 41,933
Increase (decrease) in other borrowed funds 30 (28,921)
Dividends paid (874) (523)
Proceeds from exercise of stock options 30 41
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,480 5,107
--------- ---------
Net decrease in cash and cash equivalents (13,352) (183)
Cash and cash equivalents, beginning of period 22,513 7,597
--------- ---------
Cash and cash equivalents end of period $ 9,161 $ 7,414
========= =========
Cash paid during the year for:
Interest on deposits $ 5,482 $ 4,572
Interest on borrowed funds 2,782 3,055
Supplemental schedule of non-cash activities:
Net change in valuation of investment securities available for sale 203 (28)
========= =========
The accompanying notes are an integral part of these unaudited
financial statements.
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7
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Lawrence
Savings Bank (the "Bank") and subsidiaries presented herein should be read in
conjunction with the consolidated financial statements of the Bank as of and for
the year ended December 31, 2000. In the opinion of management, the unaudited
financial statements reflect all adjustments necessary for a fair presentation.
Interim results are not necessarily indicative of results to be expected for the
entire year.
2. The following table reflects the loan portfolio at June 30, 2001
and December 31, 2000:
6/30/01 12/31/00
---------- ---------
(In thousands)
Residential mortgage loans $ 83,944 $ 77,926
Loans held for sale 1,617 --
Home equity loans 15,172 15,997
Construction loans 21,104 17,148
Commercial real estate loans 90,950 87,129
Commercial loans 19,323 22,602
Consumer loans 1,317 1,243
-------- --------
Total loans 233,427 222,045
Allowance for loan losses (3,783) (3,685)
-------- --------
Total loans, net $229,644 $218,360
======== ========
3. The following table reflects the components of inest bearing
deposits at June 30, 2001 and December 31, 2000:
6/30/01 12/31/00
-------- --------
(In thousands)
NOW and Super NOW accounts $ 33,097 $ 29,731
Savings deposit accounts 41,709 38,813
Money market investment accounts 51,176 51,344
Certificates of deposit 112,220 112,239
Retirement accounts 27,628 27,198
-------- --------
Total interest bearing deposits $265,830 $259,325
======== ========
4. The following table lists the components of loan interest income for the
three month and six month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended
------------------------ -------------------------
6/30/01 6/30/00 6/30/01 6/30/00
---------- ----------- ---------- -----------
(In Thousands)
Residential mortgage loans $ 1,481 $ 1,417 $ 2,922 $ 2,848
Loans held for sale 12 1 14 4
Home equity loans 285 268 585 510
Construction loans 397 312 783 578
Commercial real estate loans 1,979 1,780 3,904 3,580
Commercial loans 371 267 816 534
Consumer loans 27 26 56 53
---------- ----------- ---------- -----------
Total loan interest income $ 4,552 $ 4,071 $ 9,080 $ 8,107
========== =========== ========== ===========
6
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5. The following table lists the components of deposit interest expense
for the three and six month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended
----------------------- -------------------------
6/30/01 6/30/00 6/30/01 6/30/00
----------- ----------- ---------- -----------
(In Thousands)
NOW and Super NOW accounts $ 41 $ 34 $ 79 $ 66
Savings deposit accounts 201 195 390 387
Money market investment accounts 448 484 941 868
Certificates of deposit 1,641 1,300 3,301 2,551
Retirement accounts 385 350 771 702
---------- ----------- ---------- -----------
Total deposit interest expense $ 2,716 $ 2,363 $ 5,482 $ 4,574
========== =========== ========== ===========
6. The following table summarizes changes in the allowance for loan
losses for the three and six month periods ended June 30, 2001 and
2000:
Three Months Ended Six Months Ended
----------------------- -------------------------
6/30/01 6/30/00 6/30/01 6/30/00
---------- ----------- ---------- -----------
Beginning balance $ 3,730 $ 3,393 $ 3,685 $ 3,381
Provision charged to operations 50 -- 50 --
Recoveries on loans previously charged-off 3 15 48 27
Loans charged-off -- -- -- --
--------- ----------- --------- ----------
Ending balance $ 3,783 $ 3,408 $ 3,783 $ 3,408
========= =========== ========= ==========
7
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Bank has made forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act
of 1934 as amended) in this document that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations of the Bank. Also, when words
such as "believes," "expects," "anticipates" or similar expressions are used,
forward-looking statements are being made. Stockholders should note that many
factors, some of which are discussed elsewhere in this document and in the
documents which we incorporate by reference, could affect the future financial
results of the Bank and could cause the results to differ materially from those
expressed in or incorporated by reference in this document. Those factors
include fluctuations in interest rate, inflation, government regulations and
economic conditions and competition in the geographic and business areas in
which the Bank conducts its operations.
RISK ASSETS
Risk assets consist of non-performing loans and other real estate owned.
Non-performing loans consist of both a) loans 90 days or more past due and b)
loans placed on non-accrual because full collection of the principal balance is
in doubt. Other real estate owned (OREO) is comprised of foreclosed properties
where the Bank has formally received title or has possession of the collateral.
Properties are carried at the lower of the investment in the related loan or the
estimated fair value of the property or collateral less selling costs. Fair
value of such property or collateral is determined based on independent
appraisals and other relevant factors. Management periodically reviews property
values and makes adjustments as required. Gains from sales of properties, net
operating expenses and any subsequent provisions to increase the allowance for
losses on real estate acquired by foreclosure are charged to other real estate
owned expenses. Losses are charged to the allowance.
The following table summarizes the Bank's risk assets for the period ended June
30, 2001, December 31, 2000 and June 30, 2000. The Bank continues to maintain a
low level of risk assets which is below 1% for the three periods reported.
6/30/01 12/31/00 6/30/00
------- -------- -------
(In thousands)
Non-performing loans $ 10 $ 10 $ 98
Other real estate owned 27 32 37
------ ----- -----
Total risk assets $ 37 $ 42 $ 135
====== ===== =====
Risk assets as a percent of total assets 0.01% 0.01% 0.03%
===== ===== =====
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LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds include collections of principal payments
and prepayments on outstanding loans, increases in deposits, advances from the
Federal Home Loan Bank of Boston (FHLB) and securities sold under agreements to
repurchase. The Bank has a line of credit of $6.8 million with the FHLB. The
Bank also has a $5.0 million unsecured Federal Funds line of credit.
At June 30, 2001, stockholders' equity was $53.2 million as compared to $52.3
million at December 31, 2000. The increase during the first half of 2001
occurred due to net income of $1.6 million and was reduced by dividends of $0.9
million. The Bank's leverage ratio at June 30, 2001 and December 31, 2000 was
11.97% and 11.71%, respectively. The Bank exceeds all regulatory minimum capital
ratio requirements as defined by the FDIC.
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
OVERVIEW
The Bank has maintained risk assets below 1% for the past several years.
Lawrence Savings Bank maintains its commitment to servicing the needs of the
local community in the Merrimack Valley area. The loan portfolio is up by
approximately $13.1 million and investment securities are up by $3.7 million as
of June 30, 2001 from March 31, 2001. The growth in loans and investment
securities was funded by maturities of Federal funds sold.
The Bank reported net income of $0.8 million and $0.9 million for the three
months ended June 30, 2001 and 2000, respectively.
Net-interest income increased to $3.3 million in the second quarter 2001 up from
$3.1 million for the same quarter in 2000. Offsetting this increase to net
income was increased expenses associated with the reorganization of the Bank
into a holding company structure which are included in non-interest expense.
Non- interest income was down by $49 thousand in second quarter 2001 from second
quarter 2000 and provisions for loan losses increased by $50 thousand in second
quarter 2001 compared to same period in 2000.
NET INTEREST INCOME
Net interest income for the three months ended June 30, 2001 and 2000 was $3.3
million and $3.1 million, respectively. The net interest rate spread increased
to 2.66% for the quarter ended June 30, 2001 from 2.64% for the same quarter of
2000. The increase was due to rates paid on interest bearing liabilities
decreasing faster than the yields earned on interest earning assets.
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The following table presents the components of net interest income and net
interest spread:
Income/expense Yield/rate
-------------------- ------------------
Quarter Ended
----------------------------------------------
6/30/01 6/30/00 6/30/01 6/30/00
------- ------- ------- -------
(In Thousands)
Interest income and average yield:
Loans $4,552 $4,071 8.10% 8.36%
Investments, mortgage-backed securities
and other earning assets 2,730 3,035 6.06 6.26
------ ------
Total 7,282 7,106 7.20 7.31
------ ------ ----- ----
Interest expense and average rate paid:
Deposits 2,716 2,363 4.04 3.97
Federal Home Loan Bank advances 1,194 1,007 6.07 6.14
Securities sold under agreements to
repurchase and other borrowed funds 97 631 7.76 6.48
------ ------
Total 4,007 4,001 4.54 4.67
------ ------ ---- ----
Net interest income $3,275 $3,105
====== ======
Net interest rate spread 2.66% 2.64%
==== ====
INTEREST INCOME
Interest income for the second quarter of 2001 was $7.3 million as compared to
$7.1 million for the same quarter of 2000. Higher average balances increased
interest income by $0.4 million. The impact of lower yields on average balances
resulted in a decrease of $0.2 million to interest income.
Yields on investment securities decreased to 6.06% for the second quarter 2001
as compared to 6.26% for same period of 2000 resulting in a decrease of $0.1
million to interest income. Lower average investment balances of $180.6 million
versus $195.0 million for the quarters ended June 30, 2001 and 2000,
respectively, resulted in $0.2 million decrease to interest income.
Higher average loan balances of $225.3 million versus $195.9 million for the
quarters ended June 30, 2001 and 2000, respectively, resulted in a $0.6 million
increase of interest income. Yields on loans decreased to 8.10% for the quarter
ended June 30, 2001 versus 8.36% for the same period in 2000. The impact of
lower yields on loans resulted in a decrease of $0.1 million to interest
income.
INTEREST EXPENSE
Interest expense for the second quarters of 2001 and 2000 was $4.0 million. The
overall impact in average balances of interest bearing liabilities offset the
impact to interest expense due to lower interest rates paid on these interest
bearing liabilities.
Lower cost of interest bearing liabilities resulted in a minimal impact in
interest expense for the quarter ended June 30, 2001 from the same quarter of
2000. The average rates paid on deposits were 4.04% and 3.97% for the quarters
ended June 30, 2001 and 2000. Average rates paid on Federal Home Loan Bank
advances were 6.07% and 6.14% for the second quarter 2001 and 2000 while average
rates paid on short-term and other borrowed funds were 7.76% and 6.48% for the
same quarters resulted in $0.1 million increase to interest expense.
Higher average deposit balances of $269.8 million versus $239.5 million for the
quarters ended June 30, 2001 and 2000 resulted in a $0.3 million increase in
interest expense. Lower average borrowed funds of $84.0 million versus $105.1
million for the same quarters in 2001 and 2000, respectively, resulted in a $0.4
million decrease in interest expense.
10
12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $50 thousand and zero for the quarters ended
June 30, 2001 and 2000. The following table shows the allowance for loan losses
as a percent of total loans:
6/30/01 12/31/00 6/30/00
-------- -------- -------
(In thousands)
Non-performing loans $ 10 $ 10 $ 98
Allowance for loan losses $3,783 $3,685 $3,408
Allowance for loan losses as a
percent of total loans 1.62% 1.66% 1.70%
The allowance for the loan losses balance reflects management's assessment of
losses and is based on a review of the risk characteristics of the loan
portfolio. The Bank considers many factors in determining the adequacy of the
allowance for loan losses. Collateral value on a loan by loan basis, trends of
loan delinquencies on a portfolio segment level, risk classification identified
in the Bank's regular review of individual loans, and economic conditions are
primary factors in establishing allowance levels. The allowance level is
adequate to absorb estimated credit losses associated with the loan and lease
portfolio, including all binding commitments to lend and off-balance sheet
credit instruments. The allowance for loan losses reflects all information
available at the end of each period.
The increase in the allowance since March 31, 2001 occurred because the Bank
made provisions for loan losses of $50 thousand during the second quarter of
2001 and had $3 in loan loss recoveries during the same time period.
NON-INTEREST INCOME
Non-interest income decreased by $49 thousand for the quarter ended June 30,
2001 versus 2000. Other Real Estate Owned (OREO) income decreased by $51
thousand due to a gain on the sale of OREO property during the second quarter
2000, which did not occur in the second quarter 2001. The increase in deposit
account fees, debit card fees and gains on sales of mortgage loans offset the
decline in loan fees due to writedowns of mortgage servicing rights and lower
late charges received on commercial loans.
NON-INTEREST EXPENSE
Non-interest expense was $2.3 million and $2.1 million for the quarters ended
June 30, 2001 and 2000, respectively. The increase in non-interest expense can
be attributable to expenses associated with the reorganization of the Bank into
a holding company structure and shareholders' expenses of the Bank in connection
with this reorganization. Holding company expenses were $38 thousand in the
second quarter 2001. Shareholders' expenses increased by $44 thousand for the
second quarter 2001. In addition, data processing expenses increased by $36
thousand and salaries and employee benefits increased by $45 thousand due to
normal employee raises.
INCOME TAXES
The Bank reported an income tax expense of $430 thousand as compared to income
tax expense of $456 thousand for the quarters ended June 30, 2001 and 2000
representing an effective tax rate of 35.2% and 33.7%, respectively.
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
OVERVIEW
The Bank reported net income of $1.6 million and $1.8 million for the six months
ended June 30, 2001 and 2000, respectively. The decrease was primarily due to
non-interest expense increasing to $4.5
11
13
million for the first half of 2001 compared to $4.2 million for the same period
in 2000. The increase to non-interest expense can be attributed to expenses
associated with the reorganization of the Bank into a holding company structure,
shareholders expenses of the Bank in connection with this reorganization,
additional data processing expenses and an increase in salaries and employee
benefits due to normal employees raises.
NET INTEREST INCOME FROM OPERATIONS
Net interest income for the six months ended June 30, 2001 and 2000 was $6.5
million and $6.3 million, respectively. The net interest rate spread decreased
to 2.65% from 2.73%. The rates paid on interest bearing liabilities increased
more than the yield on interest bearing assets. The following table presents the
components of net interest income and net interest spread:
Income/expense Yield/rate
-------------------- --------------------
Six Months Ended
-----------------------------------------------
6/30/01 6/30/00 6/30/01 6/30/00
------- ------- ------- -------
(In Thousands)
Interest income and average yield:
Loans $ 9,080 $ 8,107 8.24% 8.31%
Investments, mortgage-backed
securities and other earning assets 5,600 6,014 6.21 6.22
------- -------
Total 14,680 14,121 7.33 7.27
------- ------- ----- ----
Interest expense and average rate paid:
Deposits 5,482 4,574 4.15 3.86
Federal Home Loan Bank advances 2,535 2,122 6.21 5.94
Short-term and other borrowed funds 186 1,083 8.57 6.29
------- -------
Total 8,203 7,779 4.68 4.54
------- ------- ----- ----
Net interest income $ 6,477 $ 6,342
======== =======
Net interest rate spread 2.65% 2.73%
===== ====
INTEREST INCOME
Interest income for the first half of 2001 was $14.7 million as compared to
$14.1 million for the same period of 2000. The increase of $0.6 million is
primarily due to increased average balances for the loan portfolios.
The yield on investments decreased to 6.21% in the first half of 2001 as
compared to 6.22% in the same period of 2000. Lower yields on investments had
minimal impact to interest income. Lower average yields on loans also resulted
in a minimal impact to interest income. Yields on loans were 8.24% and 8.31% for
the six months ended June 30, 2001 and 2000, respectively.
Higher average loan balances of $222.1 million versus $196.3 million for the six
months ended June 30, 2001 and 2000 resulted in a $1.0 million increase to
interest income. Lower average investment balances of $182.0 million versus
$194.3 million for the same periods resulted in an decrease of $0.4 million
interest income.
INTEREST EXPENSE
Interest expense for the first half of 2001 and 2000 was $8.2 million and $7.8
million, respectively. Rates were higher during the first six months of 2001 as
compared to the same period of 2000; this resulted in a $0.8 million increase in
interest expense. Higher average interest paying liability balances resulted in
a $0.4 million decrease in interest expense, due to a change in the interest
bearing liabilities mix.
Higher costs of deposits resulted in a $0.3 million increase of interest
expense. The average rate paid on deposits was 4.15% and 3.86% for the six
months ended June 30, 2001 and 2000. The average rate paid on Federal Loan Bank
advances was 6.21% and 5.94% for the first half of 2001 and 2000,
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respectively. The average rate paid on short-term and other borrowed funds was
8.57% and 6.29% for the same periods. Combined, FHLB advances and short-term and
other borrowed funds increased interest expense by $0.5 million.
Higher average deposit balances of $266.4 million versus $238.3 million for the
six months ended June 30, 2001 and 2000, respectively, resulted in a $0.6
million increase of interest expense. Lower average borrowed funds of $86.7
million versus $106.4 million for the same quarters resulted in a $1.0 million
decrease to interest expense.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $50 thousand and zero for the six months ended
June 30, 2001 and 2000, respectively.
The allowance for loan losses increased slightly from December 31, 2000. This
was because the Bank received recoveries on loans previously charged off of $48
thousand and made provisions for loan losses of $50 thousand. No charge-offs
were made during the six month periods based upon management's analysis of the
borrowers' financial situation and estimated collateral values.
The allowance for loan losses at June 30, 2001 was 1.62% of total loans. The
same ratio at December 31, 2000 was 1.66%. The allowance for loan losses
reflects all information available at the end of each respective quarter.
NON-INTEREST INCOME
Non-interest income was $0.6 million for the six months ended June 30, 2001 and
2000, respectively. The decrease of $53 thousand in non-interest income
primarily resulted from loan servicing fees declining to $86 thousand in 2001
from $173 thousand in 2000 due to writedowns of mortgage servicing rights and
lower late charges on commercial loans. OREO income declined by $48 thousand due
to gains on sales of OREO property in 2000 that did not reoccur in 2001.
Offsetting these declines were increases to Debit Card fees and other income by
$35 thousand, deposit account fees increased by $24 thousand and gains on sales
of mortgage loans increased by $23 thousand.
NON-INTEREST EXPENSE
Non-interest expense was $4.5 million and $4.2 million for the six months ended
June 30, 2001 and 2000, respectively. The increase in non-interest expense can
be attributable to expenses associated with the reorganization of the Bank into
a holding company structure and shareholders' expenses of the Bank in connection
with this reorganization. Holding company expenses were $162 thousand in the
first half of 2001. Shareholders' expenses increased by $44 thousand for the for
the same period in 2001. In addition, data processing expenses increased by $39
thousand and salaries and employee benefits increased by $98 thousand due to
normal employee raises.
INCOME TAXES
The Bank reported an income tax expense of $914 thousand and $953 thousand for
the six months ended June 30, 2001 and 2000 representing an effective tax rate
of 36.6% and 34.7%, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The response is incorporated herein by reference from the discussion
under the subcaption "Interest Rate Sensitivity" of the caption "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on
pages 13 and 14 of the 2000 Annual Report which is incorporated herein by
reference.
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Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
The response is incorporated herein by reference from the discussion
under the caption "CONTINGENCIES" on page 34 of the Annual Report which is
incorporated herein by reference.
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
On May 1, 2001, Lawrence Savings Bank (the "Bank") held its annual meeting of
stockholders (the "Annual Meeting"). At the Annual Meeting, the stockholders
approved the Plan of Holding Company Reorganization of the Bank (the "Plan of
Reorganization") by an affirmative vote of 3,029,976 shares of the Bank's common
stock, constituting 69.31% of the outstanding common stock of the Bank. The Plan
of Reorganization received 42,903 negative votes, 33,525 abstentions and 888,798
broker non-votes.
The stockholders also elected each of the following three individuals as a Class
B Director of the Bank to serve until the 2004 annual meeting of stockholders,
with the following votes cast:
Broker Non-Votes
Nominee For Withheld And Abstentions
- ------- --- -------- ----------------
Malcolm W. Brawn 3,936,561 58,641 0
Neil H. Cullen 3,936,491 58,711 0
Richard H. Harrington 3,936,091 59,111 0
The following directors of the Bank continued as directors after the Annual
Meeting: Eugene A. Beliveau, Kathleen I. Boshar, Thomas J. Burke, Byron R.
Cleveland, Jr., Robert F. Hatem, Marsha McDonough and Paul A. Miller.
The stockholders also elected Robert P. Perreault as Clerk of the Bank. Mr.
Perreault received 3,940,111 affirmative votes, 28,364 negative votes and 26,726
abstentions.
Finally, the stockholders ratified the appointment of KPMG LLP ("KPMG") as the
Bank's independent auditors for the fiscal year ending December 31, 2001. KPMG
received 3,945,728 affirmative votes, 29,558 negative votes and 19,916
abstentions.
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ITEM 5. OTHER INFORMATION
As of the closing of the reporting period ending June 30, 2001, the Bank
expected to consummate the reorganization pursuant to the Plan of
Reorganization, effective as of July 1, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
/s/ Paul A. Miller
August 13, 2001 -------------------------------
Paul A. Miller
President and
Chief Executive Officer
/s/ John E. Sharland
August 13, 2001 ---------------------------------
John E. Sharland
Senior Vice President
Chief Financial Officer
Treasurer