<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996
[_] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ______ to ______
Commission File Number: 0-20899
FIRST LANCASTER BANCSHARES, INC.
------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter
Delaware 61-1297318
--------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
208 Lexington Street, Lancaster, Kentucky 40444-1131
-----------------------------------------------------
(Address of Principal Executive Offices)
(606) 792-3368
---------------------------------------------------------
Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No X The issuer has not been subject to such filing requirements
------- ------
for the past 90 days.
As of June 26, 1996, the issuer had no shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
<PAGE>
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,
1996 and June 30, 1995 (unaudited)................................. 2
Consolidated Statement of Income for the Three
Months and Nine Months Ended
March 31, 1996 and 1995 (unaudited)................................ 3
Consolidated Statement of Cash Flows for the
Nine Months Ended
March 31, 1996 and 1995 (unaudited)................................ 4
Notes to Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis or Plan of
Operation.......................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 9
Item 2. Changes in Securities.............................................. 9
Item 3. Defaults Upon Senior Securities.................................... 9
Item 4. Submission of Matters to a Vote of
Security-Holders................................................... 9
Item 5. Other Information.................................................. 9
Item 6. Exhibits and Reports on Form 8-K................................... 9
SIGNATURES.................................................................. 10
<PAGE>
FIRST LANCASTER FEDERAL SAVINGS BANK AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1996 and June 30, 1995
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
--------------- ---------------
1996 1995
(unaudited)
<S> <C> <C>
Cash $ 200,587 357,713
Interest-bearing cash deposits in other depository institutions 2,477,855 1,994,181
Investment securities (Notes 1 and 2):
Available-for-sale, at market value (amortized cost $24,158 at
March 31, 1996 and June 30, 1995) 525,822 424,050
Mortgage-backed securities, held to maturity (market value of
$144,000 and $154,442 at March 31, 1996
and June 30, 1995, respectively) (Notes 1 and 3) 121,871 144,056
Loans receivable, net (Notes 1 and 4) 30,790,874 29,958,452
Investment in nonmarketable equity securities 311,500 300,400
Real estate acquired by foreclosure 101,850 10,000
Income taxes receivable (Notes 1 and 11) 54,069 30,987
Accrued interest receivable 136,565 108,046
Office property and equipment, at cost, less accumulated depreciation
(Notes 1 and 7) 437,565 464,676
Other assets 119,816 19,733
--------------- ---------------
$ 35,278,374 $ 33,812,294
=============== ===============
LIABILITIES AND EQUITY
Savings accounts and certificates (Note 8) $ 26,518,523 $ 24,186,523
Advance payments by borrowers for taxes and insurance 19,622 26,083
Accrued interest payable 58,589 80,087
Federal Home Loan Bank advances (Note 9) 3,486,968 4,675,317
Accounts payable and other liabilities 86,213 47,630
Deferred income taxes payable (Notes 1 and 11) 188,209 153,606
--------------- ---------------
Total liabilities 30,358,124 29,169,246
--------------- ---------------
Commitments and contingencies (Notes 6 and 9)
Retained earnings substantially restricted (Note 10) 4,589,152 4,379,119
Unrealized gain on securities available-for-sale (net of
deferred tax liability of $170,565 at March 31, 1996
and $135,963 at June 30, 1995) 331,098 263,929
--------------- ---------------
Total equity 4,920,250 4,643,048
--------------- ---------------
$ 35,278,374 $ 33,812,294
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
FIRST LANCASTER FEDERAL SAVINGS BANK AND SUBSIDIARY
Consolidated Statement of Income
for the nine months ended March 31, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
1996 1995 1996 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest on loans $ 671,698 $ 628,127 $ 2,010,790 $ 1,785,421
Interest on mortgage-backed securities 3,106 3,753 10,491 12,708
Dividends on investments 1,850 1,604 5,551 4,811
Interest on deposits in other depository institutions 40,673 18,622 121,154 55,660
Dividend on nonmarketable equity securities 5,209 3,416 15,396 11,304
------------ ------------ ------------ ------------
Total interest and dividend income 722,536 655,522 2,163,382 1,869,904
------------ ------------ ------------ ------------
Interest on savings accounts and certificates 366,142 269,448 1,084,733 761,284
Interest on other borrowings 65,469 65,489 219,152 144,120
------------ ------------ ------------ ------------
Total interest expense 431,611 334,937 1,303,885 905,404
------------ ------------ ------------ ------------
Net interest income 290,925 320,585 859,497 964,500
Provision for loan losses 39,985
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 290,925 320,585 819,512 964,500
------------ ------------ ------------ ------------
Other expenses:
Compensation 77,506 55,364 234,041 179,019
Employee retirement and other benefits
(Notes 12 and 13) 3,096 5,899 13,370 16,714
State franchise taxes 7,677 6,701 20,907 19,644
SAIF deposit insurance premium 20,468 18,373 53,287 49,895
Depreciation 10,176 8,467 27,111 17,129
Data processing (Note 14) 11,134 12,136 31,265 27,362
Provision for loss on real estate acquired by
foreclosure 16,150 16,150
Other 36,447 57,061 105,149 112,905
------------ ------------ ------------ ------------
Total other expenses 182,654 164,001 501,280 422,668
------------ ------------ ------------ ------------
Income before income taxes 108,271 156,584 318,232 541,832
Provision for income taxes (Note 11) 36,812 53,238 108,199 184,222
------------ ------------ ------------ ------------
Net income $ 71,459 $ 103,346 $ 210,033 $ 357,610
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
FIRST LANCASTER FEDERAL SAVINGS BANK AND SUBSIDIARY
Consolidated Statement of Cash Flows
for the nine months ended March 31, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------------------
1996 1995
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 210,033 $ 357,610
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 27,111 17,129
Provision for loan losses 39,985
Stock dividend, FHLB stock (11,100) (7,900)
Deferred income taxes 1 4,673
Net loan origination fees deferred 23,543 23,213
Amortization of deferred loan fees (12,780) (9,160)
Accretion of discount on
mortgage-backed securities (150) (1,086)
Change in assets and liabilities:
Accrued interest receivable (28,519) (40,842)
Other assets (6,585) (14,790)
Income tax receivable (23,082)
Accrued interest payable (21,498) 23,010
Accounts payable and other liabilities 38,583 27,672
Income taxes payable 47,309
--------------- ---------------
Net cash provided by operating
activities 235,542 426,838
--------------- ---------------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (49,300)
Proceeds from sale of real estate acquired
by foreclosure 10,000
Mortgage-backed securities principal
repayments 22,335 30,324
Net increase in loans receivable (985,020) (4,001,763)
Purchase of office property and equipment (242,626)
--------------- ---------------
Net cash used in investing
activities (952,685) (4,263,365)
--------------- ---------------
</TABLE>
(continued)
4
<PAGE>
FIRST LANCASTER FEDERAL SAVINGS BANK AND SUBSIDIARY
Consolidated Statement of Cash Flows, Continued
for the nine months ended March 31, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------------------
1996 1995
(unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in savings
accounts and certificates $ 2,332,000 $ (131,998)
Advance payments by borrowers for taxes
and insurance (6,461) (1,862)
Federal Home Loan Bank advances 4,550,000
Federal Home Loan Bank advance principal
repayments (1,188,349) (5,387)
Stock conversion costs (93,499)
--------------- ---------------
Net cash provided by financing
activities 1,043,691 4,410,753
--------------- ---------------
Net increase in cash
and cash equivalents 326,548 574,226
Cash and cash equivalents at beginning of
year 2,351,894 1,154,228
--------------- ---------------
Cash and cash equivalents at end of year $ 2,678,442 $ 1,728,454
=============== ===============
Supplemental disclosure of cash flow
information:
Interest paid $ 1,325,383 $ 882,394
Income taxes paid $ 131,926 $ 132,244
Supplemental disclosure of non-cash investing
activities:
Unrealized gain on securities available for
sale, net of deferred tax liability of
$107,565 at March 31, 1996 and
$117,875 at March 31, 1995 $ 67,169 $ 228,817
Loans transferred to real estate acquired
by foreclosure $ 118,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
FIRST LANCASTER FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General:
The accompanying consolidated financial statements of First Lancaster
Federal Savings Bank and Subsidiary 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 financial
position 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 operations for the nine months ended March 31, 1996 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, 1995.
2. Allowance for Loan Losses:
An analysis of the changes in the loan loss allowance for the nine months
ended March 31 follows:
Nine Months Ended
1996 1995
----------------------------
Beginning balance $ 70,000 $ 70,000
Provision 39,985
Charge offs (9,985)
------------ ------------
Ending balance $ 100,000 $ 70,000
============ ============
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Comparison of Financial Condition at March 31, 1996 and June 30, 1995
The Bank's total assets increased by approximately $1.5 million, or
4.4%, from $33.8 million at June 30, 1995 to $35.3 million at March 31, 1996.
The increase resulted primarily from an increase in net loans receivable of
$800,000, or 2.7%, from $30.0 million at June 30, 1995 to $30.8 million at March
31, 1996, which reflects the effect of a declining interest rate environment.
Investment securities available for sale increased by $102,000, or 24.1%, from
$424,000 at June 30, 1995 to $526,000 at March 31, 1996. The Bank's savings
accounts increased by $2.3 million, or 9.5%, from $24.2 million at June 30, 1995
to $26.5 million at March 31, 1996. The Bank's FHLB advances decreased by $1.2
million, or 25.7%, from $4.7 million at June 30, 1995 to $3.5 million at March
31, 1996, as the Bank utilized excess liquidity to reduce outstanding FHLB
advances which carried high interest rates.
Comparison of Operating Results for the Quarter and Nine Months Ended March 31,
1996 and 1995
Net Income. The Bank's net income decreased by $32,000, or 31.1%,
from $103,000 for the quarter ended March 31, 1995 to $71,000 for the quarter
ended March 31, 1996. Such decrease was due primarily to a $30,000, or 9.3%,
decrease in net interest income and to a $19,000, or 11.6%, increase in
noninterest expense. The Bank's net income decreased by $148,000 or 41.3%, from
$358,000 for the nine months ended March 31, 1995 to $210,000 for the nine
months ended March 31, 1996. Such decrease was due to a $106,000, or 11.0%,
decrease in net interest income before provision for loan losses, a $40,000
increase in provision for loan losses and a $78,000, or 18.4%, increase in
noninterest expense.
Net Interest Income. Net interest income decreased by $30,000, or
9.3%, from $321,000 for the quarter ended March 31, 1995 to $291,000 for the
quarter ended March 31, 1996, due primarily to the decrease in the Bank's
interest rate spread to 2.8% for the quarter ended March 31, 1996 from 3.6% for
the quarter ended March 31, 1995, which resulted in the decrease in the Bank's
net yield on interest-earning assets to 3.4% for the quarter ended March 31,
1996 from 4.1% for the quarter ended March 31, 1995. Net interest income before
provision for loan losses decreased by $106,000, or 11.0%, from $965,000 for the
nine months ended March 31, 1995 to $859,000 for the nine months ended March 31,
1996, due primarily to the decrease in the Bank's interest rate spread to 2.8%
for the nine months ended March 31, 1996 from 3.8% for the nine months ended
March 31, 1995, which resulted in the decrease in the Bank's net yield on
interest-earning assets to 3.4% for the nine months ended March 31, 1996 from
4.3% for the nine months ended March 31, 1995.
Interest Income. Total interest and dividend income increased by
$67,000, or 10.2%, to $723,000 for the quarter ended March 31, 1996 from
$656,000 for the quarter ended March 31, 1995. The increase primarily reflects
an increase in interest income on loans and an increase in interest on deposits
and other depository institutions. Total interest and dividend income increased
by $293,000, or 15.7%, to $2.2 million for the nine months ended March 31, 1996
from $1.9 million for the nine months ended March 31, 1995. Interest on loans
increased by $44,000, or 6.9%, and by $225,000, or 12.6%, during the quarter and
nine months ended March 31, 1996, respectively, as compared to the respective
prior comparable periods, as the Bank continued its policy of loan growth
through originations. Interest on deposits in other depository institutions
increased by $22,000, or 118.4%, and by $65,000, or 117.7%, during the quarter
and nine months ended March 31, 1996, respectively, as compared to the
respective prior comparable periods. Such increases reflect increases in the
average balance of such deposits as the Bank increased its liquidity through
deposit growth for use in originating loans.
Interest Expense. Total interest expense increased by $97,000, or
29.0%, to $432,000 for the quarter ended March 31, 1996 from $335,000 for the
quarter ended March 31, 1995. Interest expense increased by $399,000, or 44.1%,
to $1.3 million for the nine months ended March 31, 1996 from $905,000 for the
nine months ended March 31, 1995. Most of such increases were due to increases
in interest on savings accounts and certificates of deposit, as the Bank
increased deposit rates to maintain and increase its deposit base to fund loan
originations. The average cost of deposits increased by 98 basis points to 5.6%
for the quarter ended March 31, 1996 from 4.6% for the quarter ended March 31,
1995 and by 129 basis points to 5.7% for the nine months ended March 31, 1996
from 4.4% for the nine months ended March 31, 1995. Interest on other
borrowings was $65,000 for each of the quarters ended March 31, 1996 and 1995,
and increased by $75,000, or 52.1%, to $219,000 for the nine months ended March
31, 1996 from $144,000 for the nine months ended March 31, 1995.
7
<PAGE>
Provision for Loan Losses. The Bank established provisions for loan
losses of $40,000 in the nine months ended March 31, 1996. No provisions were
established for the comparable period in 1995 or for the quarter ended March 31,
1996 or 1995. Management's determination to increase the reserve during the
nine months ended March 31, 1996 was based in part on the general increases in
loans outstanding of $800,000, or 2.7%, and a $136,000, or 43.0%, increase in
nonaccrual loans from $316,000 at June 30, 1995 to $452,000 at March 31, 1996.
The Bank's provision for loan losses is based on management's assessment of the
general risk inherent in the loan portfolio based on all relevant factors and
conditions.
Noninterest Expense. Total noninterest expense increased by $19,000,
or 11.6%, from $164,000 for the quarter ended March 31, 1995 to $183,000 for the
quarter ended March 31, 1996. Total noninterest expenses increased by $78,000,
or 18.4%, from $423,000 for the nine months ended March 31, 1995 to $501,000 for
the nine months ended March 31, 1996. These increases were caused primarily by
increases of $22,000 and $55,000, respectively, in compensation and benefits as
a result of general salary increases and the addition of three full time
equivalent employees.
Income Tax. The effective tax rate for the quarters ended March 31,
1996 and 1995 and for the nine months ended March 31, 1996 and 1995 was 34%.
Income tax expense decreased by $17,000, or 31.5%, from $54,000 for the quarter
ended March 31, 1995 to $37,000 for the quarter ended March 31, 1996. Income
tax expense decreased by $76,000, or 41.3%, from $184,000 for the nine months
ended March 31, 1995 to $108,000 for the nine months ended March 31, 1996. Such
decreases reflected lower income before income taxes.
Liquidity and Capital Resources
The Bank's liquidity and capital resources at March 31, 1996 remained
relatively unchanged from December 31, 1995. The Bank anticipates that it will
have sufficient funds available to meet commitments outstanding at March 31,
1996 to originate loans. As of March 31, 1996, the Bank's ratios of tangible
capital and core capital to adjusted total assets were 13.0%, as compared to the
required levels of 1.5% and 3.0%, respectively. The risk-based capital ratio at
that date was 25.2%, as compared to the requirement of 8.0%.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
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
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST LANCASTER BANCSHARES, INC.
Date: June 26, 1996 /s/ Virginia R. S. Stump
-------------------------------------
Virginia R. S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 26, 1996 /s/ Tony A. Merida
-------------------------------------
Tony A. Merida
Executive Vice President
(Principal Financial Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
LANCASTER FEDERAL FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 200,587
<INT-BEARING-DEPOSITS> 2,477,855
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 525,822
<INVESTMENTS-CARRYING> 121,871
<INVESTMENTS-MARKET> 144,000
<LOANS> 30,890,874
<ALLOWANCE> 100,000
<TOTAL-ASSETS> 35,278,374
<DEPOSITS> 26,518,523
<SHORT-TERM> 0
<LIABILITIES-OTHER> 352,633
<LONG-TERM> 3,486,968
0
0
<COMMON> 0
<OTHER-SE> 4,920,250
<TOTAL-LIABILITIES-AND-EQUITY> 35,278,374
<INTEREST-LOAN> 2,010,790
<INTEREST-INVEST> 31,438
<INTEREST-OTHER> 121,154
<INTEREST-TOTAL> 2,163,382
<INTEREST-DEPOSIT> 1,084,733
<INTEREST-EXPENSE> 1,303,885
<INTEREST-INCOME-NET> 859,497
<LOAN-LOSSES> 39,985
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 501,280
<INCOME-PRETAX> 318,232
<INCOME-PRE-EXTRAORDINARY> 318,232
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,033
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.42
<LOANS-NON> 452,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 70,000
<CHARGE-OFFS> 9,985
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 100,000
<ALLOWANCE-DOMESTIC> 39,985
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 100,000
</TABLE>
