<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, 1998.
[_] 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 X No
--- ---
As of May 11, 1998, the issuer had 958,812 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
---- ----
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION PAGE
--------------------- ----
<C> <S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and June 30, 1997 (unaudited) 2
Consolidated Statements of Income for the Three Months and Nine Months
Ended March 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 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
EXHIBIT 27 16
</TABLE>
<PAGE>
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
1998 1997
<S> <C> <C>
Cash $ 469,380 $ 670,998
Interest-bearing cash deposits in other depository institutions 1,630,045 1,437,113
Investment securities available-for-sale, at market value (amortized cost
$24,158 at March 31, 1998 and June 30, 1997) 1,170,378 863,520
Mortgage-backed securities, held to maturity 465,989 540,408
Investments in nonmarketable equity securities, at cost 712,700 342,700
Loans receivable, net 47,439,332 38,283,591
Accrued interest receivable 387,302 260,227
Office property and equipment, at cost, less accumulated depreciation 382,408 400,523
Real estate acquired by foreclosure 290,200
Income tax receivable 37,772
Other assets 16,221 8,563
------------- -------------
Total assets $ 53,001,727 $ 42,807,643
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings accounts and certificates $ 24,416,959 $ 22,127,687
Advance payments by borrowers for taxes and insurance 23,602 28,421
Accrued interest payable 74,795 35,583
Federal Home Loan Bank advances 13,719,061 5,926,928
Accounts payable and other liabilities 322,623 293,672
Income tax payable 70,849
Deferred income tax payable 320,749 216,416
------------- -------------
Total liabilities 38,877,789 28,699,556
------------- -------------
Preferred stock, 500,000 shares authorized
Common stock, $.01 par value; 3,000,000 shares authorized;
881,359 and 888,500 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively 9,588 9,588
Treasury Stock (12,267 shares) (193,184)
Additional paid-in capital 9,140,753 9,110,683
Employee stock ownership plan (651,860) (703,121)
Unrealized gain on securities available-for-sale (net of deferred tax
liability of $389,714 and $285,383, respectively) 756,505 553,979
Retained earnings, substantially restricted 5,062,136 5,136,958
------------- -------------
Total stockholders' equity 14,123,938 14,108,087
------------- -------------
Total liabilities and stockholders' equity $ 53,001,727 $ 42,807,643
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
for the three months and nine months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest on loans and mortgage-backed securities $ 969,993 $ 749,037 $ 2,860,878 $ 2,202,653
Interest and dividends on investments and deposits in
other depository institutions 46,577 31,688 103,847 151,392
------------- ------------- ------------ --------------
Total interest income 1,016,570 780,725 2,964,725 2,354,045
------------- ------------- ----------- ------------
Interest on savings accounts and certificates 318,773 282,623 934,199 859,601
Interest on other borrowings 192,154 22,719 481,612 86,615
------------- ------------- ------------ --------------
Total interest expense 510,927 305,342 1,415,811 946,216
------------- ------------- ----------- ------------
Net interest income 505,643 475,383 1,548,914 1,407,829
Provision for loan losses 31,507 84,554 13,560
------------- ------------- ------------ --------------
Net interest income after provision for
loan losses 474,136 475,383 1,464,360 1,394,269
------------- ------------- ----------- ------------
Other expenses:
Compensation 116,736 77,673 289,677 222,665
Employee retirement and other benefits 79,061 81,901 247,013 191,682
State franchise taxes 6,999 7,630 19,867 21,922
SAIF deposit insurance premium 11,658 6,503 25,640 196,540
Occupancy expense 15,177 15,631 47,177 57,126
Data processing 9,128 11,782 33,135 32,402
Other 45,782 53,666 218,538 144,493
------------- ------------- ------------ --------------
Total other expenses 284,541 254,786 881,047 866,830
------------- ------------- ----------- ------------
Income before income taxes 189,595 220,597 583,313 527,439
Provision for income taxes 67,681 77,845 204,642 186,997
------------- ------------- ------------ --------------
Net income $ 121,914 $ 142,752 $ 378,671 $ 340,442
============= ============= ============ ==============
Weighted shares outstanding for basic earnings
per share 881,602 886,106 884,917 884,507
Basic earnings per share 0.14 0.16 0.43 0.38
Weighted shares outstanding for diluted earnings
per share 902,501 907,629 907,002 891,681
Diluted earnings per share 0.14 0.16 0.42 0.38
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
for the nine months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 378,671 $ 340,442
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 23,771 27,738
Provision for loan losses 84,554 13,560
Stock dividend, FHLB stock (28,600) (15,900)
Net loan origination fees deferred 19,145 21,095
Amortization of deferred loan fees (20,433)
Noncash compensation related to ESOP 81,331 70,493
Loss on sale of real estate acquired by foreclosure 2,633
MRP benefit expense 69,842
Change in assets and liabilities:
Accrued interest receivable (127,075) (63,646)
Other assets (7,658) 12,324
Income tax receivable (37,772)
Accrued interest payable 39,212 (42,375)
Accounts payable and other liabilities 65,634 73,330
Income tax payable (70,849) 25,219
---------------- ----------------
Net cash provided by operating activities 490,206 444,480
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of real estate acquired by foreclosure 166,332
Purchase of property, plant & equipment (5,656)
Purchase of Federal Home Loan Bank common stock (341,400)
Purchase mortgage backed securities (499,932)
Mortgage-backed securities principal repayments 74,419 53,639
Net increase in loans receivable (9,549,640) (3,469,468)
---------------- ----------------
Net cash used in investing activities (9,822,277) (3,749,429)
---------------- ----------------
Cash flows from financing activities:
Net (decrease) increase in savings accounts and certificates 2,289,272 (1,518,817)
Advance payments by borrowers for taxes and insurance (4,819) (5,115)
Purchase of treasury stock (307,441)
Cash dividends paid (445,750)
Federal Home Loan Bank advances 19,750,000 3,250,000
Federal Home Loan Bank advance principal repayments (11,957,867) (2,547,006)
Stock conversion costs (69,575)
---------------- ----------------
Net cash (used in) provided by financing activities 9,323,395 (890,513)
---------------- ----------------
Net decrease in cash and cash equivalents (8,676) (4,195,462)
Cash and cash equivalents at beginning of period 2,108,101 7,624,857
---------------- ----------------
Cash and cash equivalents at end of period $ 2,099,425 $ 3,429,395
================ ================
Supplemental disclosure of non-cash investing activities:
Unrealized gain on securities available for sale $ 202,526 $ 95,666
Loan transferred to real estate acquired by foreclosure $ 290,200 $ 118,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
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 and nine months ended March 31, 1998 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, 1997.
2. Investment Securities:
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
March 31, 1998 Cost Gains Losses Value
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 1,146,220 $ $ 1,170,378
============ ============= ============ =============
June 30, 1997
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage Corporation
Common stock - 24,672 shares $ 24,158 $ 839,362 $ $ 863,520
============ ============= ============ =============
</TABLE>
3. Allowance for Loan Losses:
An analysis of the changes in the loan loss allowance for the three
months and nine months ended March 31 follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Beginning balance $ 150,000 $ 100,000 $ 125,000 $ 100,000
Provision 31,507 84,554 13,560
Charge offs (11,507) (39,554) (13,560)
--------------- --------------- --------------- ---------------
Ending balance $ 170,000 $ 100,000 $ 170,000 $ 100,000
=============== =============== =============== ===============
</TABLE>
Nonaccrual loans amounted to $608,973 and $184,019 at March 31, 1998 and
1997, respectively.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Federal Home Loan Bank Advances:
Federal Home Loan Bank advances at March 31, 1998 and June 30, 1997 are
as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------------- ---------------------------
Date of Interest
Issue Year of Maturity Amount Amount Rate
------------ ------------------------ -------------- -------------- -----------
<S> <C> <C> <C> <C>
10/27/94 11/01/04 $ 110,360 136,155 8.45
1/31/95 1/30/15 650,000 650,000 5.75
5/09/95 6/01/05 119,240 140,773 7.35
3/14/97 3/13/98 750,000 6.05
3/25/97 3/25/98 500,000 500,000 6.75
3/25/97 3/25/98 2,000,000 6.20
5/01/97 10/28/97 1,750,000 6.00
7/31/97 7/31/98 1,000,000 5.88
8/14/97 8/14/98 500,000 5.95
10/22/97 10/22/98 250,000 6.05
10/28/97 4/24/98 1,750,000 5.86
10/30/97 4/28/98 250,000 5.85
11/14/97 5/13/98 500,000 5.83
11/24/97 5/22/98 250,000 5.88
12/26/97 6/24/98 250,000 5.91
1/27/98 1/22/98 1,000,000 5.75
1/28/98 2/01/08 89,461 6.37
2/17/98 8/14/98 500,000 5.61
2/20/98 2/20/99 500,000 5.67
3/03/98 3/03/99 1,000,000 5.75
3/13/98 3/12/99 1,250,000 5.74
3/20/98 3/19/99 750,000 5.77
3/25/98 3/25/99 2,000,000 5.81
3/31/98 9/25/98 500,000 5.71
-------------- --------------
$ 13,719,061 $ 5,926,928
============== ==============
</TABLE>
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Effect of Implementing New Accounting Standards
In June 1996, the FASB issued Statement of Financial Standards (SFAS) No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Under this standard, accounting for
transfers and servicing of financial assets and extinguishments of
liabilities is based on control. After a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. This
statement applies prospectively in fiscal years beginning after December
31, 1996. The Corporation adopted the statement July 1, 1997 with no
material affect on the financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
(EPS). This statement specifies the computation, presentation, and
disclosure requirements for EPS. SFAS No. 128 is designed to improve the
EPS information provided in financial statements by simplifying the
existing computational guidelines, revising the disclosure requirements,
and increasing the comparability of EPS data on an international basis.
Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic
EPS, with the principal difference being that common stock equivalents
are not considered in computing basic EPS, (b) eliminating the modified
treasury stock method and three percent materiality provision, and (c)
revising the contingent share provisions and the supplemental EPS data
requirements. SFAS No. 128 requires presentation of basic EPS amounts
from income for continuing operations and net income on the face of the
income statement for entities with simple capital structures and dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures regardless of whether
basic and diluted EPS are the same. The statement also requires a
reconciliation of the numerator and denominator used on computing basic
and diluted EPS and is applicable to all entities with publicly held
common stock or potential common stock.
SFAS No. 128 was adopted as of January 1, 1998. EPS calculated under SFAS
No. 128 are not materially different from EPS calculated under the
previous method.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The purpose of reporting
comprehensive income is to present a measure of all changes in equity
that result from recognized transactions and other economic events of the
period other than transactions with owners in their capacity as owners.
If used with related disclosures and other information in the
consolidated financial statements, the FASB believes that the information
provided by reporting comprehensive income should help investors,
creditors, and others in assessing an enterprise's activities and the
timing and magnitude of its future cash flows. The statement requires
that an enterprise classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of
other comprehensive income
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Effect of Implementing New Accounting Standards, continued:
separately from retained earnings and additional paid-in capital in the
equity section of the statement of financial condition. This statement is
effective for fiscal years beginning after December 31, 1997 and
reclassification of financial statements for earlier periods provided for
comparative purposes is required. The only transactions that meet the
definition of comprehensive income for the Corporation include the
unrealized gains on securities available for sale. These unrealized gains
are currently reported separately in the equity section of the statement
of financial condition. Therefore, there should not be any impact on the
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards
for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. This statement also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement requires
the reporting of financial and descriptive information about an
enterprise's reportable operating segments.
This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company
does not anticipate that the adoption of SFAS No. 131 will have a
material effect on the Company.
6. Earnings Per Share:
<TABLE>
<CAPTION>
For the three months ended March 31, 1998 For the nine months ended March 31, 1998
----------------------------------------- ----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $ 121,914 881,602 $ 0.14 $ 378,671 884,917 $ 0.43
Effect of dilutive
securities
Stock options 6,724 5,126
Management recognition plan 14,175 16,958
Diluted earnings per share
Income available to common
shareholders
plus assumed
conversions $ 121,914 902,501 $ 0.14 $ 378,671 907,001 $ 0.42
</TABLE>
There were no preferred dividends or antidultive securities that would effect
the computation of earnings per share.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowings. The
Company's operating expenses consist primarily of employee compensation,
occupancy expenses, federal deposit insurance premiums and other general and
administrative expenses. The Company's results of operations are significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of regulatory agencies.
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to" "will continue," "is anticipated," "estimate," "project" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties including changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Possible Year 2000 Computer Program Problems
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 190-0 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operations of the Company. Data
processing is also essential to most other financial institutions and manu other
companies.
All of the material data processing of the Company that could be affected by
this problem is provided by a third party service bureau. The service bureau of
the Company has advised the Company that it expects to resolve this potential
problem before the year 2000. However, if the service bureau is unable to
resolve this potential problem in time, the Company would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on the financial condition
and results of operation of the Company.
9
<PAGE>
Comparison of Financial Condition at March 31, 1998 and June 30, 1997
The Bank's total assets increased by approximately $10.2 million, or 23.8%,
from $42.8 million at June 30, 1997 to $53 million at March 31, 1998. The
increase resulted primarily from an increase in net loans receivable of $9.2
million from $38.3 million at June 30, 1997 to $47.5 million at March 31, 1998.
During the quarter ended March 31, 1998 the Bank acquired residential property
through foreclosure and the property was included in other real estate at its
current fair market value. The Bank's total liabilities increased by
approximately $10.2 million, or 35.5%, from $28.7 million at June 30, 1997 to
$38.9 million at March 31, 1998. This increase was due to an increase in FHLB
advances of $7.8 million, or 131.5%, from $5.9 million at June 30, 1997 to $13.7
million at March 31, 1998. The Bank's savings accounts also increased by $2.3
million, or 10.3%, from $22.1 million at June 30, 1997 to $24.4 million at March
31, 1998. During the nine month period ended March 31, 1998 the Company acquired
19,550 of common shares for a purchase price of $307,441. Such shares will be
used to fulfill the obligation under the Company's management recognition plan.
Comparison of Operating Results for the three months ended March 31, 1998 and
1997
Net Income: The Bank's net income decreased by $21 thousand or 14.6%, from
$143 thousand for the quarter ended March 31, 1997 to $122 thousand for the
quarter ended March 31, 1998. Such decrease was due primarily to an increase in
the provision for loan loss of $31 thousand, offset by a decrease in provision
for income taxes of $10 thousand.
Net Interest Income: Net interest income increased by $30 thousand, or 6.3%,
from $475 thousand for the quarter ended March 31, 1997 to $505 thousand for the
quarter ended March 31, 1998. The increase is attributed to an increase in
interest income of $236 thousand and an increase in interest expense of $206
thousand.
Interest Income: Total interest and dividend income increased by $236 thousand
or 30.1%, to $1 million for the quarter ended March 31, 1998 from $781 thousand
for the quarter ended March 31, 1997. The increase primarily reflects an
increase in interest income on loans. Interest on loans increased by $221
thousand, or 29.5%, during the quarter ended March 31, 1998, as compared to the
quarter ended March 31, 1997, as the Bank continued its policy of loan growth
through originations. Interest and dividends on investments and deposits in
other depository institutions increased by $15 thousand or 47%, during the
quarter ended March 31, 1998, as compared to the quarter ended March 31, 1997.
Interest Expense: Total interest expense increased by $206 thousand, or 67.3%,
to $511 thousand for the quarter ended March 31, 1998 from $305 thousand for the
quarter ended March 31, 1997. Interest on other borrowings increased by $170
thousand, or 745.8%, to $193 thousand for the quarter ended March 31, 1998 from
$23 thousand for the quarter ended March 31, 1997 due to the increase in FHLB
advances from $4.2 million at March 31, 1997 to $13.7 million at March 31, 1998.
Due to competition for deposits in its market area, the Company has utilized
FHLB advances to fund loan growth.
Provision for Loan Losses: The Bank established a $31 thousand provision for
loan loss in the quarter ended March 31, 1998. 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 including general
increases in the overall loan balance outstanding and an increase in the level
of nonaccrual loans at March 31, 1998.
10
<PAGE>
Other Expense: Total other expense increased by $30 thousand, or 11.7%, from
$255 thousand for the quarter ended March 31, 1997 to $285 thousand for the
quarter ended March 31, 1998. The increase was caused primarily by increases of
$39 thousand in compensation as a result of general pay increases and the
addition of two full-time employees. These increases were offset by a reduction
in employee retirement expense of $3 thousand and other expense of $8 thousand
and an increase in SAIF deposit insurance premium of $5 thousand.
Income Tax: The effective tax rates for the quarters ended March 31,
1998 and 1997 were 35.7% and 35.3%, respectively. Income tax expense decreased
by $10 thousand , or 13.1%, from $78 thousand for the quarter ended March 31,
1997 to $68 thousand for the quarter ended March 31, 1998. Income tax expense
decreased as a result of the decrease in income before income taxes.
Comparison of Operating Results for the nine months ended March 31, 1998 and
1997
Net Income: The Bank's net income increased by $38 thousand or 11.2% from $341
thousand for the nine months ended March 31, 1997 to $379 thousand for the nine
months ended March 31, 1998. Such increase was due primarily to an increase in
net interest income of $141 thousand or 10%, offset by an increase in provision
for loan losses of $71 thousand, an increase in other expenses of $7 thousand,
and an increase in income tax expense of $18 thousand.
Net Interest Income: Net interest income increased by $141 thousand, or 10% from
$1.4 million for the nine months ended March 31, 1997 to $1.5 million for the
nine months ended March 31, 1998. This increase is composed of the increases in
interest income and offsetting increase in interest expense as noted above. The
Bank's interest rate spread decreased from 3.38% for the nine months ended March
31, 1997 to 2.94% for the nine months ended March 31, 1998, due primarily to the
increased use of FHLB advances to fund loan growth. FHLB advances generally
carry higher rates than the average rate paid by the Bank on deposits.
Interest Income: Total interest and dividend income increased by $611 thousand
or 25.9% from $2.4 million for the nine months ended March 31, 1997 to $3.0
million for the nine months ended March 31, 1998. The increase reflects an
increase in interest income on loans offset in part by a decrease in interest
and dividends on investments and deposits in other depository institutions.
Interest on loans increased by $658 thousand or 29.9%, during the nine months
ended March 31, 1998, as compared to the nine months ended March 31, 1997, as
the Bank continued its policy of loan growth through originations. Interest and
dividends on investments and deposits in other depository institutions decreased
by $48 thousand or 31.4%, during the nine months ended March 31, 1998, as
compared to the nine months ended March 31, 1997.
Interest Expense: Total interest expense increased by $470 thousand, or 49.7%
for the nine months ended March 31, 1998 from $946 thousand at March 31, 1997 to
$1.4 million at March 31, 1998. Interest on other borrowings increased by $395
thousand, or 456.4% to $482 thousand for the nine months ended March 31, 1998
from $87 thousand for the nine months ended March 31, 1997 due to the increase
in FHLB advances from $4.2 million at March 31, 1997 to $13.7 million at March
31, 1998. Due to competition for deposits in its market area, the Company has
utilized FHLB advances to fund loan growth.
11
<PAGE>
Provision for Loan Loss: The Bank established a $85 thousand provision for loan
loss for the nine months ended March 31, 1998. 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 including a general
increase in the overall balance outstanding and an increase in the level of
nonaccrual loans.
Other Expense: Total other expense increased by $14 thousand or 1.6% from $867
thousand for the nine months ended March 31, 1997 to $881 thousand for the nine
months ended March 31, 1998. Employee retirement and other benefits increased
$55 thousand, primarily as a result of the new employee ESOP plan, the
management recognition plan and the directors retirement program. Compensation
expense, and other expense increased $67 thousand and $74 thousand respectively
as a result of general pay increases, the addition of the full time employees
and increase in professional and other expenses associated with being a public
company. These increases were offset by a reduction in SAIF deposit premium of
$171 thousand as a result of the one time special SAIF assessment and a $10
thousand reduction in general occupancy expenses.
Income Tax: The effective tax rates for the nine months ended March 31, 1998 and
1997 were 35.1% and 35.5%, respectively. Income tax expense increased by $18
thousand or 9.4%, from $187 thousand for the nine months ended March 31, 1997 to
$205 thousand for the nine months ended March 31, 1998. Income tax expense
increased as a result of the increase in income before income taxes.
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.
The Bank generally is required to maintain average daily balances 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 also is required to maintain sufficient
liquidity to ensure its safe and sound operation. Monetary penalties may be
imposed for failure to meet liquidity requirements. The liquid asset ratio of
the Bank at March 31, 1998 was 5.7%
At March 31, 1998, the Company had outstanding commitments to originate first
mortgage loans totaling $736 thousand. The Company anticipates that it will have
significant funds available to meet its current origination commitments.
The Bank is required by federal regulations to maintain minimum amounts of
capital. Currently, the minimum required levels are tangible capital of 1.5% of
tangible assets, core capital of 3.0% of adjusted tangible assets, and
risk-based capital of 8.0% of risk-weighted assets. At March 31, 1998, the Bank
had tangible capital of 27.83% of tangible assets, core capital of 26.26% of
adjusted tangible assets, and risk-based capital of 36.82% of risk-weighted
assets.
12
<PAGE>
PART 11 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
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1998
13
<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: May 11, 1998 /s/ Virginia R.S. Stump
-------------------------------------
Virginia R.S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 1997 /s/ Tony A. Merida
-------------------------------------
Tony A. Merida
Executive Vice President
(Principal Financial Officer)
14
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<PAGE>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 469,380
<INT-BEARING-DEPOSITS> 1,630,045
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<TRADING-ASSETS> 0
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0
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<NET-INCOME> 378,671
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