SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20529
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 September 30, 2001
[ ] 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 000-32955
LSB CORPORATION
(Exact name of Bank as specified in Charter)
MASSACHUSETTS 04-3557612
(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 that 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 registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding as of October 31, 2001
- ----- ----------------------------------
Common Stock, par value $.10 per share 4,379,550 shares
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2001 2000
---- ----
(In Thousands)
ASSETS
Assets:
Cash and due from banks $ 7,103 $ 7,086
Federal funds sold 6,207 15,427
--------- ---------
Total cash and cash equivalents 13,310 22,513
Investment securities held to maturity (market value
of $148,627 in 2001 and $118,393 in 2000) 144,986 117,806
Investment securities available for sale (amortized cost
of $20,393 in 2001 and $32,840 in 2000) 20,770 33,027
Federal Home Loan Bank stock, at cost 5,950 5,950
Loans, net of allowance for loan losses (Notes 2 and 6) 239,139 218,360
Bank premises and equipment 3,208 3,337
Accrued interest receivable 2,488 2,969
Other real estate owned 24 32
Deferred income tax asset 6,210 7,511
Other assets 1,511 1,585
--------- ---------
Total assets $ 437,596 $ 413,090
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits (Note 3) $ 262,418 $ 259,325
Non-interest bearing deposits 12,639 11,223
Federal Home Loan Bank advances 96,415 82,283
Securities sold under agreements to repurchase 4,474 --
Other borrowed funds 3,902 3,878
Advance payments by borrowers for taxes and insurance 661 513
Other liabilities 3,520 3,555
--------- ---------
Total liabilities 384,029 360,777
--------- ---------
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;
4,379,550 and 4,364,800 shares issued and outstanding
at September 30, 2001 and December 31, 2000, respectively 438 436
Additional paid-in capital 57,813 57,711
Accumulated deficit (4,933) (5,956)
Accumulated other comprehensive income 249 122
--------- ---------
Total stockholders' equity 53,567 52,313
--------- ---------
Total liabilities and stockholders' equity $ 437,596 $ 413,090
========= =========
The accompanying notes are an integral part of these unaudited financial
statements.
2
LSB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months Nine months
ended ended
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
---- ---- ---- ----
(In thousands except per share data)
Interest and dividend income:
Loans (Note 4) $ 4,653 $ 4,328 $ 13,733 $ 12,435
Investment securities held to maturity 2,073 2,043 6,256 6,145
Investment securities available for sale 382 801 1,229 2,453
Federal Home Loan Bank stock 84 119 283 334
Other interest and dividend income 45 39 416 84
----------- ----------- ----------- -----------
Total interest and dividend income 7,237 7,330 21,917 21,451
----------- ----------- ----------- -----------
Interest expense:
Deposits (Note 5) 2,499 2,544 7,981 7,118
Borrowed funds 1,309 1,029 3,845 3,151
Other borrowed funds 120 651 305 1,734
----------- ----------- ----------- -----------
Total interest expense 3,928 4,224 12,131 12,003
----------- ----------- ----------- -----------
Net interest income 3,309 3,106 9,786 9,448
Provision for loan losses 125 125 175 125
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 3,184 2,981 9,611 9,323
----------- ----------- ----------- -----------
Non-interest income:
Loan servicing fees 76 40 162 213
Deposit account fees 157 123 430 372
Gains on sales of mortgage loans 52 22 90 37
Other income 69 61 251 208
----------- ----------- ----------- -----------
Total non-interest income 354 246 933 830
----------- ----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits 1,340 1,288 3,941 3,791
Occupancy and equipment expenses 232 187 655 577
Professional expenses 199 97 509 366
Data processing expenses 179 143 515 440
Other expenses 362 370 1,203 1,088
----------- ----------- ----------- -----------
Total non-interest expenses 2,312 2,085 6,823 6,262
----------- ----------- ----------- -----------
Income before income taxes 1,226 1,142 3,721 3,891
Income tax expense (benefit) 472 (185) 1,386 768
----------- ----------- ----------- -----------
Net income $ 754 $ 1,327 $ 2,335 $ 3,123
=====================================================================================================================
Average shares outstanding 4,376,052 4,363,800 4,372,390 4,359,201
Average diluted shares outstanding 4,553,049 4,440,759 4,534,072 4,424,998
=====================================================================================================================
Basic earnings per share $ 0.17 $ 0.30 $ 0.53 $ 0.72
Diluted earnings per share $ 0.17 $ 0.30 $ 0.52 $ 0.70
=====================================================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
3
LSB CORPORATION 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 -- -- 3,123 -- 3,123
Other comprehensive income
unrealized gain on securities
available for sale (tax effect $129) -- -- -- 253 253
-------- -------- -------- -------- --------
Total comprehensive income 3,376
Exercise of stock options 41 -- -- 41
Dividends declared and
paid ($0.19 per share) -- -- (828) -- (828)
-------- -------- -------- -------- --------
Balance at September 30, 2000 $ 436 $ 57,709 $ (6,850) $ (298) $ 50,997
======== ======== ======== ======== ========
Balance at December 31, 2000 $ 436 $ 57,711 $ (5,956) $ 122 $ 52,313
Net income -- -- 2,335 -- 2,335
Other comprehensive income
unrealized gain on securities
available for sale (tax effect $63) -- -- -- 127 127
-------- -------- -------- -------- --------
Total comprehensive income 2,462
Exercise of stock options 2 102 -- -- 104
Dividends declared and
paid ($0.30 per share) -- -- (1,312) -- (1,312)
-------- -------- -------- -------- --------
Balance at September 30, 2001 $ 438 $ 57,813 $ (4,933) $ 249 $ 53,567
======== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited financial
statements.
4
LSB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months
ended
September 30,
---------------------------
2001 2000
---- ----
(In Thousands)
Cash flows from operating activities:
Net income $ 2,335 $ 3,123
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 175 125
Gains on sales of mortgage loans (90) (37)
Gains on investment securities held to maturity (13) --
Gains on investments securities available for sale (1) --
Net gains on sales of other real estate owned -- (39)
Depreciation and amortization of premises and
equipment, investments and other assets 319 574
Loans originated for sale (8,157) (2,039)
Proceeds from sales of mortgage loans 6,715 1,768
Decrease (increase) on accrued interest receivable 481 (427)
Decrease in deferred income tax asset 1,238 1,557
Decrease in other assets 74 43
Increase (decrease) in advance payments by borrowers 148 (6)
(Decrease) in other liabilities (35) (962)
--------- ---------
Net cash provided by operating activities 3,189 3,680
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 437,625 5,611
Purchases of investment securities held to maturity (477,492) (16,430)
Purchases of mortgage-backed securities held to maturity (4,335) --
Proceeds from sale of investment securities
available for sale 6,119 1,319
Principal payments of securities held to maturity 17,066 7,023
Principal payments of securities available for sale 6,388 1,883
Purchase of other equity securities (46) --
Increase in loans, net (19,422) (11,687)
Proceeds/payments from sales of OREO 8 524
Purchase of Bank premises and equipment (234) (338)
--------- ---------
Net cash (used in) investing activities (34,323) (12,095)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 4,509 15,214
Additions to Federal Home Loan Bank advances 41,120 604,950
Payments on Federal Home Loan Bank advances (26,988) (601,159)
Net increase in agreements to repurchase securities 4,474 22,337
Increase (decrease) in other borrowed funds 24 (31,034)
Dividends paid (1,312) (828)
Proceeds from exercise of stock options 104 41
--------- ---------
Net cash provided by financing activities 21,931 9,521
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (9,203) 1,106
Cash and cash equivalents beginning of period 22,513 7,597
--------- ---------
Cash and cash equivalents end of period $ 13,310 $ 8,703
===========================================================================================
Cash paid during the year for:
Interest on deposits $ 7,976 $ 7,113
Interest on borrowed funds 4,152 4,605
Income taxes 153 149
Supplemental schedule of non-cash activities:
Net change in valuation of investment
securities available for sale 190 382
===========================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
5
LSB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. Basis of Presentation
The unaudited consolidated financial statements of the LSB Corporation
(the "Company") and subsidiaries presented herein should be read in conjunction
with the consolidated financial statements of the Company 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 September 30, 2001 and
December 31, 2000:
9/30/01 12/31/00
------- --------
(In thousands)
Residential mortgage loans $ 85,617 $ 77,926
Loans held for sale 1,532 --
Home equity loans 15,378 15,997
Construction loans 21,006 17,148
Commercial real estate loans 98,718 87,129
Commercial loans 19,636 22,602
Consumer loans 1,162 1,243
--------- ---------
Total loans 243,049 222,045
Allowance for loan losses (3,910) (3,685)
--------- ---------
Total loans, net $ 239,139 $ 218,360
========= =========
3. The following table reflects the components of interest bearing deposits
at September 30, 2001 and December 31, 2000:
9/30/01 12/31/00
------- --------
(In thousands)
NOW and Super NOW accounts $ 32,500 $ 29,731
Savings deposit accounts 42,312 38,813
Money market investment accounts 54,873 51,344
Certificates of deposit 105,004 112,239
Retirement accounts 27,729 27,198
-------- --------
Total interest bearing deposits $262,418 $259,325
======== ========
4. The following table lists the components of loan interest income for the
three month and nine month periods ended September 30, 2001 and 2000:
Three months ended Nine months ended
---------------------- ----------------------
9/30/01 9/30/00 9/30/01 9/30/00
------- ------- ------- -------
(In Thousands)
Residential mortgage loans $ 1,529 $ 1,435 $ 4,451 $ 4,283
Loans held for sale 23 4 37 8
Home equity loans 281 310 866 820
Construction loans 407 303 1,190 881
Commercial real estate loans 2,041 1,831 5,945 5,411
Commercial loans 346 416 1,162 950
Consumer loans 26 29 82 82
------- ------- ------- -------
Total loan interest income $ 4,653 $ 4,328 $13,733 $12,435
======= ======= ======= =======
6
5. The following table lists the components of deposit interest expense for
the three and nine month periods ended September 30, 2001 and 2000:
Three months ended Nine months ended
---------------------- ----------------------
9/30/01 9/30/00 9/30/01 9/30/00
------- ------- ------- -------
(In Thousands)
NOW and Super NOW accounts $ 39 $ 35 $ 118 $ 101
Savings deposit accounts 208 194 598 581
Money market investment accounts 406 495 1,347 1,363
Certificates of deposit 1,472 1,451 4,773 4,002
Retirement accounts 374 369 1,145 1,071
------- ------- ------- -------
Total deposit interest expense $ 2,499 $ 2,544 $ 7,981 $ 7,118
======= ======= ======= =======
6. The following table summarizes changes in the allowance for loan losses
for the three and nine month periods ended September 30, 2001 and 2000.
Three months ended Nine months ended
---------------------- ----------------------
9/30/01 9/30/00 9/30/01 9/30/00
------- ------- ------- -------
(In Thousands)
Beginning balance $ 3,783 $ 3,408 $ 3,685 $ 3,381
Provision charged to operations 125 125 175 125
Recoveries on loans previously charged-off 2 9 50 36
Loans charged-off -- (27) -- (27)
------- ------- ------- -------
Ending balance $ 3,910 $ 3,515 $ 3,910 $ 3,515
======= ======= ======= =======
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company 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 Company. 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 Company 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 Company 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 Company 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.
Total risk assets were $1.4 million at September 30, 2001. This represents an
increase of $1.32 million from December 31, 2000 and September 30, 2000. These
changes were primarily attributable to an increase in non-performing loans to
$1.3 million at September 30, 2001 from $10 thousand at December 31, 2000 and
September 30, 2000.
The following table summarizes the Company's risk assets for the period ended
September 30, 2001, December 31, 2000 and September 30, 2000.
9/30/01 12/31/00 9/30/00
------- -------- -------
(In thousands)
Non-performing loans $ 1,336 $ 10 $ 10
Other real estate owned 24 32 34
------- ------- -------
Total risk assets $ 1,360 $ 42 $ 44
======= ======= =======
Risk assets as a percent of total assets 0.31% 0.01% 0.01%
======= ======= =======
8
Liquidity and Capital Resources
The Company's primary source of funds is cash dividends from its wholly-owned
subsidiary, Lawrence Savings Bank (the "Bank"). The Bank paid dividends to the
Company in the amount of $2.4 million during 2001. The Company made payments of
dividends to stockholders in the amount of $0.4 million in the third quarter
2001. Prior to the reorganization of the Bank into a holding company structure
the Bank paid dividends to stockholders of the Bank in the amount of $0.9
million.
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 September 30, 2001, the Company's stockholders' equity was $53.6 million as
compared to $52.3 million at December 31, 2000. The increase during the first
nine months of 2001 occurred due to net income of $2.3 million, a $0.1 million
increase in market values on securities available for sale, net of taxes,
proceeds from the exercise of stock options of $0.1 million and was reduced by
the declaration to pay dividends of $1.3 million. The Company's leverage ratio
at September 30, 2001 and December 31, 2000 was 11.52% and 11.71%. The Company
exceeds all regulatory minimum capital ratio requirements as defined by the
FDIC.
Three Months Ended September 30, 2001 and 2000
Overview
The Company has maintained risk assets below 1% for the past several years. The
Company maintains its commitment to servicing the needs of the local community
in the Merrimack Valley area. The loan portfolio growth is up by approximately
$9.6 million as of September 30, 2001 from June 30, 2001. Deposits are down by
$6.2 million as of September 30, 2001 from June 30, 2001.
The Company reported net income of $0.8 million and $1.3 million for the three
months ended September 30, 2001 and 2000, respectively. The decrease in net
income is attributed to a favorable outcome of an income tax matter which led to
a lower year-to-date effective income tax rate in the third quarter 2000, which
did not reoccur during the third quarter 2001. Net income also decreased due to
higher non-interest expenses during the third quarter 2001 as compared to the
same quarter in 2000. Offsetting these two items were positive impacts to
earnings. Net interest income increased by $203 thousand and non-interest income
increased by $108 thousand in the third quarter 2001 compared to the third
quarter 2000.
Net Interest Income From Operations
Net interest income for the three months ended September 30, 2001 and 2000 was
$3.3 million and $3.1 million, respectively. The net interest rate spread
increased to 2.61% for the quarter ended September 30, 2001 from 2.55% for the
same quarter of 2000. This increase occurred because the average balances on
interest earning assets increased $19.7 million in the third quarter 2001
compared to 2000.
9
The following table presents the components of net interest income and net
interest spread:
Income/Expense Yield/Rate
----------------------- -----------------------
Quarter Ended
-------------------------------------------------------
9/30/01 9/30/00 9/30/01 9/30/00
------- ------- ------- -------
(In Thousands)
Interest income and average yield:
Loans $ 4,653 $ 4,328 7.77% 8.43%
Investments, mortgage-backed securities
and other earning assets 2,584 3,002 5.80 6.27
------- -------
Total 7,237 7,330 6.93 7.39
------- ------- ------- -------
Interest expense and average rate paid:
Deposits 2,499 2,544 3.77 4.12
Federal Home Loan Bank advances 1,309 1,029 5.80 6.38
Short term and other borrowed funds 120 651 5.80 6.87
------- -------
Total 3,928 4,224 4.32 4.84
------- ------- ------- -------
Net interest income $ 3,309 $ 3,106
======= =======
Net interest rate spread 2.61% 2.55%
======= =======
Interest Income
Interest income for the third quarter of 2001 was $7.2 million as compared to
$7.3 million for the same quarter of 2000. The decrease of $0.1 million in
interest income is due to $0.5 million from lower yields earned on loans and
investment securities. The decrease in interest income due to lower yields was
offset slightly by higher average balances, which increased interest income by
$0.4 million.
Yields on loans were 7.77% and 8.43% for the quarters ended September 30, 2001
and 2000, respectively. The impact to interest income due to lower yields was
$0.3 million. Higher average loan balances of $237.5 million versus $204.1
million for the quarters ended September 30, 2001 and 2000, respectively,
increased interest income by $0.6 million.
Yields on investment securities were 5.80% and 6.27% for the quarters ended
September 30, 2001 and 2000, respectively, decreased interest income by $0.2
million. Lower average investment securities balances of $176.8 million versus
$190.5 million for the same periods decreased interest income by $0.2 million.
Interest Expense
Interest expense for the third quarter 2001 was $3.9 million. This is a decrease
of $0.3 million from the same quarter of 2000. This decrease is primarily due to
lower rates paid on interest bearing liabilities, which impacted interest
expense by $0.4 million. Higher average balances resulted in a $0.1 million
increase.
Yields on deposits were 3.77% and 4.12% for the quarters ended September 30,
2001 and 2000, respectively. This decrease resulted in interest expense
decreasing by $0.2 million. Average balances on deposits were $263.1 million
versus $245.5 million for the same periods, which resulted in a $0.2 million
increase in interest expense.
Yields on FHLB advances were 5.80% and 6.38% for the third quarters of 2001 and
2000, respectively. The decrease in rates paid on FHLB advances resulted in
interest expense decreasing by $0.1 million. The average balances of FHLB
advances increased from quarter to quarter for the same periods to $89.5 million
in the third quarter 2001 from $64.2 million for 2000, which resulted in a
increase of interest expense by $0.4 million.
10
Yields on short term and other borrowed funds were 5.80% and 6.87% for the third
quarters of 2001 and 2000, respectively. The decrease in rates paid on these
interest bearing liabilities resulted in interest expense decreasing by $0.1
million. The average balance decreased to $8.2 million in 2001 from $37.7
million in 2000, which decreased interest expense by $0.5 million.
Provision and Allowance for Loan Losses
The provision for loan losses was a charge of $125 thousand for the quarters
ended September 30, 2001 and 2000. The following table shows the allowance for
loan losses as a percent of total loans:
9/30/01 12/31/00 9/30/00
------- -------- -------
(In thousands)
Non-performing loans $ 1,336 $ 10 $ 10
Allowance for loan losses $ 3,910 $ 3,685 $ 3,515
Allowance for loan losses as a
percent of total loans 1.61% 1.66% 1.67%
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 Company 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 Company's regular review of individual loans, and economic conditions are
primary factors in establishing allowance levels. Management believes 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
information available to management at the end of each period.
The increase in the allowance since September 30, 2001, occurred because the
Bank had provision for loan losses of $125 thousand and net recoveries of $2
thousand during the third quarter of 2001.
Non-interest Income
Non-interest income was $0.4 million and $0.2 million for the quarters ended
September 30, 2001 and 2000, respectively. The increase in non-interest income
is due to increase in loan fees by $36 thousand, increase in deposit account
fees by $34 thousand, gain on sales of mortgage loans by $30 thousand and other
items increasing overall by $8 thousand in the third quarter 2001 as compared to
the same quarter in 2000.
Non-interest Expense
Non-interest expense was $2.3 million and $2.1 million for the quarters ended
September 30, 2001 and 2000, respectively. Salaries and employee benefits
increased by $52 thousand in the third quarter 2001 due to normal raises
compared to the third quarter in 2000. Professional expense increase to $199
thousand in the third quarter 2001 compared to $97 thousand in the same period
in 2000. The increase was due to addition legal expenses associated with
collection efforts on non-performing loans and prior borrowers. Data processing
expenses increased to $179 thousand in the third quarter 2001 compared to $143
thousand in the same quarter in 2000.
Income Taxes
The Company reported an income tax expense of $472 thousand for the quarter
ended September 30, 2001
11
or effective income tax rate of 38.5%. This compares to an income tax benefit of
$185 thousand for the quarter ended September 30, 2000 or effective income tax
benefit of 16.2%. The income tax benefit recognized during the third quarter
2000 was due to a favorable outcome of an income tax matter that led to a lower
year-to-date effective income tax rate for the Company.
Nine Months Ended September 30, 2001 and 2000
Overview
The Company reported net income of $2.3 million and $3.1 million for the nine
months ended September 30, 2001 and 2000, respectively. The decrease in net
income can be attributed to higher expenses associated with income taxes and
non-interest expenses. Offsetting these unfavorable items to earnings were
increases in net interest income and non-interest income.
Total assets increased to $437.6 million as of September 30, 2001 from $413.1
million at December 31, 2000. This increase was due to loan growth of $21.0
million during the nine months of 2001 funded by deposit growth and borrowed
funds.
Net Interest Income From Operations
Net interest income for the nine months ended September 30, 2001 and 2000 was
$9.8 million and $9.4 million, respectively. This increase occurred because
yields on interest earning assets increased less than the rates paid on interest
bearing liabilities.
Income/Expense Yield/Rate
------------------ ----------------
Nine Months Ended
---------------------------------------
9/30/01 9/30/00 9/30/01 9/30/00
------- ------- ------- -------
(In Thousands)
Interest income and average yield:
Loans $13,733 $ 12,435 8.08% 8.35%
Investments, mortgage-backed securities
and other earning assets 8,184 9,016 6.07 6.24
------- --------
Total 21,917 21,451 7.19 7.31
------- -------- ---- ----
Interest expense and average rate paid:
Deposits 7,981 7,118 4.02 3.95
Federal Home Loan Bank advances 3,845 3,151 6.06 6.08
Short term and other borrowed funds 305 1,734 7.20 6.49
------- --------
Total 12,131 12,003 4.56 4.64
------- -------- ---- ----
Net interest income $ 9,786 $ 9,448
======= ========
Net interest rate spread 2.63% 2.67%
==== ====
Interest Income
Interest income for the nine months of 2001 and 2000 was $21.9 million and $21.5
million, respectively. The increase of $0.4 million is primarily due to higher
average earnings, assets and a change in the asset mix due to loan growth.
Higher average balances increased interest income by $1.1 million. Lower yields
on loans and investment securities resulted in interest income decreasing by
$0.7 million.
12
Higher average loan balances of $227.3 million versus $198.9 million for the
nine months ended September 30, 2001 and 2000, respectively, resulted in a $1.7
million increase of interest income. Lower average investment securities
balances of $180.2 million versus $193.0 million for the same periods resulted
in an decrease of $0.6 million of interest income.
Yields on loans were 8.08% and 8.35% for the nine months ended September 30,
2001 and 2000. Lower yields on loans resulted in a $0.4 million decrease of
interest income. Yields on investments and other earning assets were 6.07% and
6.24% for the nine months ended September 30, 2001 and 2000, respectively. The
lower yield earned on investments and other earning assets resulted in $0.3
million decrease to interest income.
INTEREST EXPENSE
Interest expense for the nine months of 2001 was $12.1 million. This is an
increase of $0.1 million from the same period of 2000. Rates were lower on the
total of interest bearing liabilities during the first nine months of 2001 as
compared to the same period of 2000. However, higher rates on deposits and
shortterm and other borrowed funds resulted in a $0.3 million increase in
interest expense. Lower average interest paying liability balances for shortterm
and other borrowed funds offset the increases of deposits and FHLB advances,
which resulted in a net decrease of $0.2 million in interest expense.
Higher costs of deposits and shortterm and other borrowed funds resulted in a
$0.3 million increase of interest expense. The average rate paid on deposits was
4.02.% and 3.95% for the nine months ended September 30, 2001 and 2000,
respectively. The average rate paid on Federal Home Loan Bank advances was 6.06%
and 6.08% while the average rate paid on short term and other borrowed funds was
7.20% and 6.49% for the same periods in 2001 and 2000.
Higher average deposit balances of $265.3 million versus $240.7 million for the
nine months ended September 30, 2001 and 2000, respectively, resulted in an
increase of $0.7 million to interest expense. Lower average borrowed funds of
$90.5 million versus $104.9 million for the same periods resulted in a $0.9
million decrease of interest expense.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was a charge of $175 thousand and $125 thousand
for the nine months ended September 30, 2001 and 2000, respectively. The
allowance increased by $225 thousand from December 31, 2000 to September 30,
2001. This was because there was a loan loss provision of $175 thousand and net
recoveries of $50 thousand. No charge-offs were made during the nine month
period based upon management's analysis of the borrowers' financial situation
and estimated collateral values.
The allowance for loan losses at September 30, 2001 was 1.61% of total loans.
The same ratio at December 31, 2000 was 1.66%. The allowance for loan losses
reflected information available to management at the end of each respective
quarter.
NON-INTEREST INCOME
Non-interest income was $0.9 million and $0.8 million for the nine months ended
September 30, 2001 and 2000, respectively. The increase in non-interest income
is due to deposit account fees increasing to $430 thousand for the nine months
ended September 30, 2001 compared to $372 in the same period in 2000. Net gains
on sales of mortgage loans of $90 thousand recognized in the nine months of 2001
compared to net gains on sales of mortgage loans of $37 thousand in 2000. Other
income has increased to $251 thousand in 2001 from $208 thousand in 2000.
NON-INTEREST EXPENSE
Non-interest expense was $6.8 million and $6.3 million for the nine months ended
September 30, 2001 and 2000, respectively. These increases are mainly attributed
to expenses of $197 thousand associated with the reorganization into a holding
company structure. Salaries and employee benefits increased by $150 thousand to
$3.9 million for the nine months ended September 30, 2001 as compared to $3.8
million in the same period in 2000. Data processing expenses increased by $75
thousand to $515 thousand in 2001 from $440 thousand in 2000. Occupancy and
equipment expenses increased to $655 thousand in 2001 compared to $577 thousand
for the nine months ended September 30, 2001 and 2000, respectively.
13
Income Taxes
The Company reported an income tax expense of $1.4 million for the nine months
ended September 30, 2001 compared to income tax expense of $0.8 million for the
nine months ended September 30, 2000. The increase was due to an income tax
benefit recognized during the third quarter of 2000, which was due to a
favorable outcome of an income tax matter that led to a lower year-to-date
effective income tax rate for the Bank. Accordingly, the Company reported an
effective income tax rate of 37.2% and 19.7% for the nine months ended
September 30, 2001 and 2000, respectively.
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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.
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 2000 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
None.
ITEM 5. OTHER INFORMATION
None.
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
November 14, 2001 /s/ Paul A. Miller
--------------------------------------
Paul A. Miller
President and
Chief Executive Office
November 14, 2001 /s/ John E. Sharland
--------------------------------------
John E. Sharland
Senior Vice President
Chief Financial Officer
16