U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2001.
|_| Transition Report Under 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
----------------------------------------------------
(Address of Principal Executive Offices)
(859) 792-3368
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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 past 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 15, 2001, the issuer had 840,328 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, 2001
(unaudited) and June 30, 2000 2
Consolidated Statements of Income and Comprehensive
Income for the Three and Nine Months Ended March 31,
2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2001 and 2000 (unaudited) 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis or Plan of Operation 8-12
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
1
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, JUNE 30,
2001 2000
(Unaudited)
Cash $ 950,305 $ 494,317
Interest-bearing cash deposits in other depository institutions 3,495,263 1,450,316
Investment securities available-for-sale, at market value (amortized cost
$24,158 at March 31, 2001 and June 30, 2000) 1,599,486 999,216
Mortgage-backed securities, held to maturity 212,232 255,488
Income tax receivable 37,865 45,633
Investments in nonmarketable equity securities, at cost 878,700 832,500
Loans receivable, net 47,253,763 49,373,865
Real estate acquired by foreclosure 1,112,392 952,333
Accrued interest receivable 306,506 341,453
Office property and equipment, less accumulated depreciation 367,590 393,538
Other assets 111,994 82,548
------------- -------------
Total assets $ 56,326,096 $ 55,221,207
============= =============
LIABILITIES
Savings accounts and certificates $ 29,667,377 $ 29,078,551
Advance payments by borrowers for taxes and insurance 27,528 29,976
Accrued interest payable 70,071 72,003
Federal Home Loan Bank advances 12,874,527 12,835,361
Accounts payable and other liabilities 416,560 421,557
Deferred income tax payable 432,200 168,160
------------- -------------
Total liabilities 43,488,263 42,605,608
------------- -------------
Common stock owned by ESOP subject to put option 838,040 386,949
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STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized Common stock, $.01 par value;
3,000,000 shares authorized;
784,656 and 780,087 shares issued and outstanding at
March 31, 2001 and June 30, 2000, respectively 9,588 9,588
Additional paid-in capital 9,228,173 9,204,136
Treasury stock (132,031 and 138,338 shares at March 31, 2001
and June 30, 2000, respectively) (1,702,370) (1,793,951)
Unearned employee stock ownership plan shares (321,591) (403,871)
Common stock owned by ESOP subject to put option (838,040) (386,949)
Accumulated comprehensive income 1,039,716 643,538
Retained earnings, substantially restricted 4,584,317 4,956,159
------------- -------------
Total stockholders' equity 11,999,793 12,228,650
------------- -------------
Total liabilities and stockholders' equity $ 56,326,096 $ 55,221,207
============= =============
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 and nine months ended March 31, 2001 and 2000 (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
2001 2000 2001 2000
------------- -------------- -------------- -------------
Interest on loans and mortgage-backed securities $ 1,060,968 $ 1,073,772 $ 3,328,653 $ 3,005,140
Interest and dividends on investments and deposits in
other depository institutions 48,758 40,681 136,013 118,953
------------ ------------- ------------- -----------
Total interest income 1,109,726 1,114,453 3,464,666 3,124,093
------------ ------------- ------------- -----------
Interest on savings accounts and certificates 432,726 377,530 1,248,012 1,115,015
Interest on other borrowings 206,486 198,997 705,096 474,504
------------ ------------- ------------- -----------
Total interest expense 639,212 576,527 1,953,108 1,589,519
------------ ------------- ------------- -----------
Net interest income 470,514 537,926 1,511,558 1,534,574
Provision for loan losses 10,000 20,000 30,000 35,000
------------ ------------- ------------- -----------
Net interest income after provision for loan
losses 460,514 517,926 1,481,558 1,499,574
------------ ------------- ------------- -----------
Non-interest income:
Service charges and fees 9,394 7,223 27,353 26,443
Other 1,107 1,184 2,973 2,985
------------ ------------- ------------- -----------
Total non-interest income 10,501 8,407 30,326 29,428
Non-interest expenses:
Compensation 127,033 131,074 374,234 324,534
Employee retirement and other benefits 67,370 74,818 208,302 201,563
State franchise taxes 14,105 13,333 41,223 40,783
SAIF deposit insurance premium 12,626 14,893 29,461 35,317
Loss on real estate acquired by foreclosure 7,412 9,050 32,270 27,271
Occupancy expense 20,301 22,318 67,081 61,332
Data processing 24,542 22,033 71,378 55,717
Merger related expenses 46,935 -- 219,529 --
Other 64,571 67,856 213,467 227,506
------------ ------------- ------------- -----------
Total non-interest expenses 384,895 355,375 1,256,945 974,023
------------ ------------- ------------- -----------
Income before income taxes 86,120 170,958 254,939 554,979
Provision for income taxes 49,157 61,007 154,656 191,838
------------ ------------- ------------- -----------
Net income 36,963 109,951 100,283 363,141
Other comprehensive (loss) income, net of income tax:
Unrealized (loss) gain on securities available-for-sale
arising in period (65,948) (46,815) 396,178 (224,916)
------------ ------------- ------------- -----------
Comprehensive (loss) income $ (28,985) $ 63,136 $ 496,461 $ 138,225
============ ============= ============= ===========
Weighted shares outstanding for basic earnings
per share 784,116 801,877 783,693 817,928
Basic earnings per share $ 0.05 $ 0.14 $ 0.13 $ 0.44
Weighted shares outstanding for diluted earnings
per share 790,929 811,865 789,842 829,274
Diluted earnings per share $ 0.05 $ 0.14 $ 0.13 $ 0.44
The accompanying notes are an integral part of the consolidated financial
statements.
3
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
------------- --------------
Cash flows from operating activities:
Net income $ 100,283 $ 363,141
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 31,319 29,624
Provision for loan losses 30,000
35,000
Stock dividend, Federal Home Loan Bank stock (46,200)
(41,200)
Deferred income taxes 59,948 92,551
Net loan origination fees 2,181 3,400
Employee Stock Ownership Plan benefit expense 106,317 98,670
Management Retirement Plan benefit expense 74,372 73,806
Supplemental Executive Retirement Plan benefit expense 14,066 25,200
Loss on sale of real estate acquired by foreclosure 7,281 --
Change in assets and liabilities:
Accrued interest receivable 34,947 56,757
Other assets (29,446) 7,388
Accrued interest payable (1,932) 30,454
Accounts payable and other liabilities 6,884 8,975
Income tax receivable 7,768 (92,680)
------------- --------------
Net cash provided by operating activities 397,788 691,086
------------- --------------
Cash flows from investing activities:
Improvements on real estate acquired by foreclosure (228,000) (22,332)
Proceeds from sale of OREO 20,619 --
Purchase of property and equipment (5,371) (46,942)
Mortgage-backed securities principal repayments 43,256 47,659
Net decrease (increase) in loans receivable 2,127,963 (3,487,669)
------------- --------------
Net cash provided (used) in investing activities 1,958,467 (3,509,284)
------------- --------------
Cash flows from financing activities:
Net increase (decrease) in savings accounts and certificates 588,826 (694,881)
Net decrease in advance payments by borrowers for taxes and insurance (2,448) (957)
Purchase of treasury stock -- (819,731)
Dividends paid (480,864) (498,239)
Federal Home Loan Bank advances 2,900,000 5,563,000
Federal Home Loan Bank advances principal repayments (2,860,834) (1,288,309)
------------- --------------
Net cash provided by financing activities 144,680 2,260,883
-------------- -------------
Net increase (decrease) in cash and cash equivalents 2,500,935 (557,315)
Cash and cash equivalents at beginning of period 1,944,633 2,705,622
------------- --------------
Cash and cash equivalents at end of period $ 4,445,568 $ 2,148,307
============= ==============
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale, net of deferred tax
liability (benefit) of $204,092 and ($115,866) at March 31, 2001 and
2000, respectively $ 396,178 $ (224,916)
Renewed Federal Home Loan Bank advances $ 6,975,000 $ 8,250,000
Real estate owned through foreclosure $ 49,959 $ 424,000
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, 2001 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, 2000.
2. INVESTMENT SECURITIES:
Investment securities are summarized as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
MARCH 31, 2001 COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 2,282,797 $ (707,469) $ 1,599,486
========== =========== ========= ===========
JUNE 30, 2000
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 1,582,606 $ (607,548) $ 999,216
========== =========== ========= ===========
3. ALLOWANCE FOR LOAN LOSSES:
An analysis of the changes in the loan loss allowance for the three and
nine months ended March 31 follows:
THREE MONTHS ENDED NINE MONTHS ENDED
2001 2000 2001 2000
------------ ------------- -------------- -------------
Balance at beginning of period $ 336,106 $ 435,432 $ 331,445 $ 551,000
Provision charged to operations 10,000 20,000 30,000 35,000
Loans charged off (90,000) (117,987) (105,339) (248,555)
----------- ----------- ------------ ------------
Balance at end of period $ 256,106 $ 337,445 $ 256,106 $ 337,445
=========== =========== ============ ============
Nonaccrual loans amounted to $875,499 and $314,167 at March 31, 2001 and
June 30, 2000, respectively.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances at March 31, 2001 and June 30, 2000 are as
follows:
MARCH 31, JUNE 30,
2001 2000
------------------------------
DATE INTEREST
OF ISSUE YEAR OF MATURITY AMOUNT AMOUNT RATE
1/31/95 1/30/15 650,000 650,000 5.23
1/28/98 2/01/08 68,059 73,798 6.37
7/02/99 8/01/19 140,333 159,124 6.55
7/30/99 7/28/00 -- 500,000 5.96
8/13/99 8/11/00 -- 500,000 6.18
8/24/99 8/24/00 -- 500,000 6.06
9/20/99 9/20/00 -- 750,000 6.12
11/08/99 12/01/04 907,470 963,885 6.50
12/20/99 1/01/03 742,619 787,209 6.93
12/20/99 1/01/05 491,046 506,345 7.08
12/20/99 12/20/00 -- 1,175,000 6.59
3/17/00 9/13/00 -- 750,000 6.43
3/24/00 9/20/00 -- 2,500,000 6.48
4/21/00 10/18/00 -- 1,000,000 6.57
5/17/00 11/13/00 -- 350,000 7.06
6/15/00 7/05/00 -- 250,000 6.73
6/16/00 9/14/00 -- 270,000 7.35
6/16/00 9/14/00 -- 1,150,000 6.78
3/14/01 4/3/01 3,325,000 -- 5.48
3/28/01 4/27/01 6,550,000 -- 5.48
----------- -----------
$ 12,874,527 $ 12,835,361
=========== ===========
5. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS:
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (as amended by SFAS No. 137). 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, 2000, but
earlier application is permitted as of the beginning of any fiscal quarters
subsequent to June 15, 1998. Upon the statement's 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 in SFAS No. 133. On July 1, 2000,
adoption of SFAS No. 133 did not have a material financial statement impact
on the Company's financial condition or operating results. The Company does
not hold derivative securities.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
6. EARNINGS PER SHARE:
For the three months ended March 31, 2001 For the three months ended March 31, 2000
--------------------------------------------- ---------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
Shareholders $ 36,963 784,116 $ 0.05 $ 109,951 801,877 $ 0.14
Effect of dilutive
securities
Stock options 3,361 338
Management recognition plan 3,452 9,650
Diluted earnings per share
Income available to common
Shareholders plus
assumed Conversions $ 36,963 790,929 $ 0.05 $ 109,951 811,865 $ 0.14
For the nine months ended March 31, 2001 For the nine months ended March 31, 2000
--------------------------------------------- ---------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Income available to common
Shareholders $ 100,283 783,693 $ 0.13 $ 363,141 817,928 $ 0.44
Effect of dilutive
securities
Stock options 1,372 187
Management recognition plan 4,777 11,159
Diluted earnings per share
Income available to common
Shareholders plus
assumed Conversions $ 100,283 789,842 $ 0.13 $ 363,141 829,274 $ 0.44
There were no preferred dividends that would effect the computation of
earnings per share.
7. PENDING MERGER:
On December 14, 2000, the Board of Directors of the Company approved an
agreement whereby CKF Bancorp, Inc. and its wholly owned subsidiary,
Central Kentucky Federal Savings Bank, will acquire the Company. To
accomplish the acquisition, the Company will merge with a to-be-formed
subsidiary of Central Kentucky Federal Savings Bank. The Company's
stockholders approved the merger on April 16, 2001 and the OTS approved the
transaction on May 14, 2001. If the merger is completed, Company
stockholders will receive $16.27 in cash for each share of Company stock.
It is anticipated that the merger will be completed in the second quarter
of calendar year 2001.
7
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.
FORWARD-LOOKING STATEMENTS
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.
PENDING MERGER
On December 14, 2000, the Board of Directors of the Company approved an
agreement whereby CKF Bancorp, Inc. and its wholly owned subsidiary, Central
Kentucky Federal Savings Bank, will acquire the Company. To accomplish the
acquisition, the Company will merge with a to-be-formed subsidiary of Central
Kentucky Federal Savings Bank. The Company's stockholders approved the merger on
April 16, 2001 and the OTS approved the transaction on May 14, 2001. If the
merger is completed, Company stockholders will receive $16.27 in cash for each
share of Company common stock. It is anticipated that the merger will be
completed in the second quarter of calendar year 2001.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND JUNE 30, 2000
The Company's total assets increased approximately $1.1 million, or 2.0%, from
$55.2 million at June 30, 2000 to $56.3 million at March 31, 2001. This increase
was the combined result of several
8
increases and decreases within assets. Cash and interest bearing cash deposits
increased $2.5 million due to loan payoffs and increased deposits. Investment
securities increased $600,000, or 60.1%, due to an increased market value on the
securities. Net loans receivable decreased $2.1 million, or 4.3%, from $49.4
million at June 30, 2000 to $47.3 million at March 31, 2001 due primarily to
construction loan payoffs and a decrease in loan originations. The Company
continued to focus on loan growth; however, the number of loan originations
decreased in the current fiscal year as compared to the prior fiscal year in
response to the slowing of the economy. Real estate acquired by foreclosure
increased $160,000, from $952,000 at June 30, 2000 to $1.1 million at March 31,
2001, primarily due to capitalization of construction costs on one of the
properties. The Company's total liabilities increased approximately $883,000, or
2.1%, from $42.6 million at June 30, 2000 to $43.5 million at March 31, 2001.
This increase was primarily due to an increase in deposits of approximately
$589,000, or 2.0%, due to the increase in certain of the Bank's certificate of
deposit rates to be more competitive. Deferred income taxes payable increased
$264,000 and accumulated comprehensive income increased $396,000, net of income
tax liability, due to the unrealized gain associated with the increased market
value of the investment securities available-for-sale from June 30, 2000 to
March 31, 2001.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND
2000
NET INCOME/LOSS: The Company's net income decreased approximately $73,000 from
$110,000 for the quarter ended March 31, 2000 to $37,000 for the quarter ended
March 31, 2001. This decrease was primarily due to a decrease in net interest
income and an increase in non-interest expenses.
NET INTEREST INCOME: Net interest income decreased by $67,000, or 12.5%, from
$538,000 for the quarter ended March 31, 2000 to $471,000 for the quarter ended
March 31, 2001. This decrease was primarily caused by an increase in interest
expense. The increase in interest expense was caused primarily by higher average
deposits and higher average effective rates on these deposits.
INTEREST INCOME: Total interest income decreased by approximately $5,000 for the
quarter ended March 31, 2001 from the quarter ended March 31, 2000. This
decrease was attributable to a $13,000 decrease in interest on loans offset by
an $8,000 increase in interest on deposits in other depository institutions. The
average effective interest rate earned on loans increased approximately 42 basis
points from the quarter ended March 31, 2000 to the quarter ended March 31,
2001; however, the average outstanding loans balance decreased from $50.0
million during the quarter ended March 31, 2000 to $49.4 million during the
quarter ended March 31, 2001 and the Company reversed approximately $10,000 of
accrued interest income in the quarter ended March 31, 2001 related to loans to
two borrowers which became substandard. Interest income from deposits in other
depository institutions increased primarily due to an increase in the average
balance of these deposits from quarter to quarter.
INTEREST EXPENSE: Total interest expense increased approximately $62,000, or
10.9%, to $639,000 for the quarter ended March 31, 2001 from $577,000 for the
quarter ended March 31, 2000. Interest on savings accounts and certificates
increased by $55,000, or 14.6%, to $433,000 for the quarter ended March 31, 2001
from $378,000 for the quarter ended March 31, 2000. The average deposit balance
increased from $28.8 million during the quarter ended March 31, 2000 to $29.2
million during the quarter ended March 31, 2001 and the average effective rate
on certificates of deposit increased from 5.68% to 6.51% for the respective
quarters causing the overall increase in this interest expense. Interest expense
on FHLB advances increased by approximately $7,000 due to a higher average
balance of FHLB advances. The average FHLB advances balance increased from
9
$13.1 million in the quarter ended March 31, 2000 to $13.5 million in the
quarter ended March 31, 2001.
PROVISION FOR LOAN LOSSES: The Bank recorded a provision for loan losses of
$10,000 in the quarter ended March 31, 2001. 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,
historical data, substandard loans and special mention loans. Management
believes the allowance for loan losses as of March 31, 2001 was adequate to
absorb any potential losses in the loan portfolio.
NON-INTEREST INCOME: Total non-interest income increased approximately $2,000
from the quarter ended March 31, 2000 to the quarter ended March 31, 2001. This
slight increase was primarily due to an increase in non-sufficient funds fees.
Loan application fees actually decreased from quarter to quarter as fewer loan
applications were received in the quarter ended March 31, 2001 due to the
slowing economy.
NON-INTEREST EXPENSE: Total non-interest expenses increased by approximately
$30,000, or 8.3%, from $355,000 for the quarter ended March 31, 2000 to $385,000
for the quarter ended March 31, 2001. This increase was primarily attributable
the $47,000 of expenses related to the pending merger with CKF, Bancorp, Inc.
INCOME TAX: The effective tax rates for the quarters ended March 31, 2001 and
2000 were 57.1% and 35.7%, respectively. The effective rate for the quarter
ended March 31, 2001 is high due to the non-deductibility of the merger related
expenses.
OTHER COMPREHENSIVE INCOME: During the quarters ended March 31, 2001 and 2000,
there were unrealized losses on securities available-for-sale, net of income
tax, of $66,000 and $47,000, respectively. These losses were due to the market
price of available-for-sale securities decreasing during both quarters.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND
2000
NET INCOME/LOSS: The Company's net income decreased approximately $263,000 from
$363,000 for the nine months ended March 31, 2000 to $100,000 for the nine
months ended March 31, 2001. This decrease was primarily due to an increase in
non-interest expenses.
NET INTEREST INCOME: Net interest income decreased slightly by $23,000, or 1.5%,
from the nine months ended March 31, 2000 to the nine months ended March 31,
2001. This net decrease was the result of an increase of $341,000 in interest
income for the respective nine month periods being offset by an increase in
interest expense of $364,000 for the respective nine month periods.
INTEREST INCOME: Total interest income increased by $341,000, or 10.9%, to $3.5
million for the nine months ended March 31, 2001 from $3.1 million for the nine
months ended March 31, 2000. This increase was primarily attributable to
interest income on loans. Interest income on loans increased by $327,000, or
10.9%, during the nine months ended March 31, 2001, as compared to the nine
months ended March 31, 2000. The average loan balance increased from $48.3
million during the nine months ended March 31, 2000 to $50.5 million during the
nine months ended March 31, 2001. The average effective interest rate earned on
these loans also increased by approximately 42
10
basis points from the nine months ended March 31, 2000 to the nine months ended
March 31, 2001.
INTEREST EXPENSE: Total interest expense increased approximately $364,000, or
22.9%, to $2.0 million for the nine months ended March 31, 2001 from $1.6
million for the nine months ended March 31, 2000. Interest on savings accounts
and certificates increased by $133,000, or 11.9%, to $1.2 million for the nine
months ended March 31, 2001 from $1.1 million for the nine months ended March
31, 2000. Interest expense on deposits increased due to an increase in the
effective rates on certificates of deposit. The average certificates of deposit
balance remained consistent at $25.2 million for the nine months ended March 31,
2001 and 2000; however, the average effective rate on certificates of deposit
increased from 5.51% to 6.32% for the respective nine month periods causing the
overall increase in this interest expense. Interest expense on FHLB advances
increased by $231,000. This increase was due to a higher average balance of FHLB
advances; which increased from $10.9 million in the nine months ended March 31,
2000 to $14.3 million in the nine months ended March 31, 2001. The average
effective rate on these FHLB advances also increased from approximately 5.8% for
the nine months ended March 31, 2000 to 6.6% for the nine months ended March 31,
2001.
PROVISION FOR LOAN LOSSES: The Bank recorded provisions for loan loss of $30,000
during the nine months ended March 31, 2001. 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,
historical data, substandard loans and special mention loans. Management
believes the allowance for loan losses as of March 31, 2001 was adequate to
absorb any potential losses in the loan portfolio.
NON-INTEREST INCOME: Total non-interest income increased approximately $1,000
for the nine months ended March 31, 2001 as compared to the nine months ended
March 31, 2000. This net increase was the result of an increase in general
service fees offset by a decrease in loan application fees. Fewer loan
applications were submitted in the nine months ended March 31, 2001 as compared
to the nine months ended March 31, 2000 due to the slowing economy.
NON-INTEREST EXPENSE: Total non-interest expenses increased by approximately
$283,000, or 29.1%, from $974,000 for the nine months ended March 31, 2000 to
$1.3 million for the nine months ended March 31, 2001. This increase was
primarily attributable to the merger-related expenses and increases in
compensation and data processing fees. During the nine months ended March 31,
2001, the Company incurred approximately $220,000 of non-recurring expenses
related to the pending merger. Compensation increased primarily due to a
decrease in the deferred compensation related to loan originations and data
processing fees increased due to an annual increase in fees from the Company's
service provider in 2000 and additional services being provided related to the
ATM machine put into place in December 1999.
INCOME TAX: The effective tax rates for the quarters ended March 31, 2001 and
2000 were 60.7% and 34.6%, respectively. The effective rate is high for the nine
months ended March 31, 2001 due to the non-deductibility of the majority of the
merger related expenses.
OTHER COMPREHENSIVE INCOME: During the nine months ended March 31, 2001, there
was an unrealized gain on securities of $396,000, net of income tax liability.
This gain was in contrast to an unrealized loss on securities of $225,000, net
of income tax benefit, for the nine months ended March 31, 2000. The gain was
due to the market price of available-for-sale securities increasing during the
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nine months ended March 31, 2001 as compared to the market price decreasing
during the nine months ended March 31, 2000.
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. The Company cancelled
this line of credit on February 15, 2001 without ever borrowing any funds.
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 percentage of liquid
assets for the quarter ended March 31, 2001 was 7.97%.
At March 31, 2001, the Company had $938,000 in outstanding commitments to
originate first mortgage loans. The Company anticipates that it will have
sufficient 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, 2001, the Bank met all capital adequacy
requirements to which it is subject.
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PART II 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) Exhibits: None
(b) There were no Reports on Form 8-K filed with
the SEC during the quarter ended March 31,
2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST LANCASTER BANCSHARES, INC.
Date: May 15, 2001 /s/ Virginia R.S. Stump
------------------------------------------
Virginia R.S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2001 /s/ Julia G. Taylor
------------------------------------------
Julia G. Taylor, CPA
Chief Financial Officer
(Principal Financial Officer)
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