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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[*] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
September 30, 1999.
[ ] 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)
(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 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 November 17, 1999, the issuer had 893,872 shares of Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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CONTENTS
PART 1. FINANCIAL INFORMATION PAGE
----------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of September
30, 1999 (unaudited) and June 30, 1999 2
Consolidated Statements of Income and
Comprehensive Income for the Three Months Ended
September 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998
(unaudited) 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis or Plan of
Operation 8-11
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security
Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT 27 14
1
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FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
(Unaudited)
<S> <C> <C>
Cash $ 668,657 $ 474,513
Interest-bearing cash deposits in other depository
institutions 1,550,892 2,231,109
Investment securities available-for-sale, at market
value (amortized cost $24,158 at September 30, 1999
and June 30, 1999) 1,282,944 1,430,976
Mortgage-backed securities, held to maturity 296,106 318,160
Income tax receivable - 33,727
Investments in nonmarketable equity securities, at cost 790,500 776,600
Loans receivable, net 45,855,118 46,192,315
Real estate acquired by foreclosure 456,000 456,000
Accrued interest receivable 314,097 365,697
Office property and equipment, at cost, less
accumulated depreciation 392,416 383,340
Other assets 92,555 89,397
----------- -----------
Total assets $51,699,285 $52,751,834
=========== ===========
LIABILITIES
Savings accounts and certificates $28,754,876 $29,653,246
Advance payments by borrowers for taxes and insurance 29,388 23,437
Accrued interest payable 45,018 42,007
Federal Home Loan Bank advances 8,991,440 8,831,037
Accounts payable and other liabilities 418,959 379,673
Income tax payable 1,588 -
Deferred income tax payable 225,524 241,079
----------- -----------
Total liabilities 38,466,793 39,170,479
----------- -----------
Common stock owned by ESOP subject to put option 352,801 310,614
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized
Common stock, $.01 par value; 3,000,000 shares
authorized; 821,754 and 833,755 shares issued
and outstanding at September 30, 1999 and
June 30, 1999, respectively 9,588 9,588
Additional paid-in capital 9,184,673 9,181,318
Treasury stock (88,160 and 73,410 shares at September
30, 1999 and June 30, 1999, respectively) (1,166,235) (997,672)
Unearned employee stock ownership plan shares (486,311) (513,801)
Common stock owned by ESOP subject to put option (352,801) (310,614)
Accumulated comprehensive income 830,799 928,500
Retained earnings, substantially restricted 4,859,978 4,973,422
----------- -----------
Total stockholders' equity 12,879,691 13,270,741
----------- -----------
Total liabilities and stockholders'
equity $51,699,285 $52,751,834
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
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FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
for the three months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Interest on loans and mortgage-backed securities $ 965,193 $ 1,061,393
Interest and dividends on investments and deposits in
other depository institutions 38,897 39,783
---------- ------------
Total interest income 1,004,090 1,101,176
---------- ------------
Interest on savings accounts and certificates 375,557 346,714
Interest on other borrowings 121,619 197,901
---------- ------------
Total interest expense 497,176 544,615
---------- ------------
Net interest income 506,914 556,561
Provision for loan losses 10,000 -
---------- ------------
Net interest income after provision for loan
losses 496,914 556,561
---------- ------------
Non-interest income:
Service charges and fees 9,951 3,221
Gain on real estate acquired by foreclosure - 3,152
Other 1,138 6,344
---------- ------------
Total non-interest income 11,089 12,717
Non-interest expenses:
Compensation 96,577 108,652
Employee retirement and other benefits 64,799 91,829
State franchise taxes 13,725 10,154
SAIF deposit insurance premium 10,207 12,885
Loss on real estate acquired by foreclosure 7,626 12,553
Occupancy expense 17,857 21,656
Data processing 16,708 18,277
Other 73,338 68,419
---------- ------------
Total non-interest expenses 300,837 344,425
---------- ------------
Income before income taxes 207,166 224,853
Provision for income taxes 70,092 79,208
---------- ------------
Net income 137,074 145,645
Other comprehensive income (loss), net of income tax:
Unrealized gain (loss) on securities available for
sale arising in period (97,701) 41,726
---------- ------------
Comprehensive income $ 39,373 $ 187,371
========== ============
Weighted shares outstanding for basic earnings
per share 832,882 870,043
Basic earnings per share $ 0.16 $ 0.17
Weighted shares outstanding for diluted earnings
per share 845,005 884,990
Diluted earnings per share $ 0.16 $ 0.16
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
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FIRST LANCASTER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 137,074 $ 145,645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,359 7,071
Provision for loan losses 10,000 -
Stock dividend, Federal Home Loan Bank stock (13,900) -
Deferred income taxes 34,776 (20,393)
Net loan origination fees (6,140) 15,111
Employee Stock Ownership Plan benefit expense 20,248 35,404
Management Retirement Plan benefit expense 27,053 26,307
Loss on sale of real estate acquired by foreclosure - 9,401
Change in assets and liabilities:
Accrued interest receivable 51,600 20,876
Other assets (3,158) (7,785)
Accrued interest payable 3,011 (1,332)
Accounts payable and other liabilities 26,679 38,592
Income tax payable 35,315 94,786
----------- -----------
Net cash provided by operating activities 330,917 363,683
----------- ------------
Cash flows from investing activities:
Proceeds from sale of real estate acquired by
foreclosure - 396,000
Purchase of property and equipment (17,435) (9,768)
Mortgage-backed securities principal repayments 22,054 33,947
Net decrease (increase) in loans receivable 333,337 (1,458,425)
----------- -----------
Net cash provided by (used in)investing
activities 337,956 (1,038,246)
----------- -----------
Cash flows from financing activities:
Net (decrease) increase in savings accounts and
certificates (898,370) 1,460,201
Net increase in advance payments by borrowers for
taxes and insurance 5,951 3,500
Purchase of treasury stock (172,500) (112,957)
Dividends paid (250,430) (259,612)
Federal Home Loan Bank advances 662,500 2,500,000
Federal Home Loan Bank advances principal repayments (502,097) (2,508,044)
----------- -----------
Net cash (used in) provided by financing
activities (1,154,946) 1,083,088
----------- -----------
Net (decrease) increase in cash and cash
equivalents (486,073) 408,525
Cash and cash equivalents at beginning of period 2,705,622 2,703,120
----------- -----------
Cash and cash equivalents at end of period $ 2,219,549 $ 3,111,645
=========== ===========
Supplemental disclosure of non-cash investing and
financing activities:
Unrealized (loss) gain on securities available for
sale, net of deferred tax (benefit) liability of
($50,331) and $21,495 at September 30, 1999 and
1998, respectively $ (97,701) $ 41,726
Renewed Federal Home Loan Bank advances $ 2,250,000 $ -
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
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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 ended
September 30, 1999 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,
1999.
2. INVESTMENT SECURITIES:
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
SEPTEMBER 30, 1999 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 $1,582,606 $(323,820) $1,282,944
======= ========== ========= ==========
JUNE 30, 1999
Available-for-Sale Equity Securities:
Federal Home Loan Mortgage
Corporation Common stock -
24,672 shares $24,158 $1,582,606 $(175,788) $1,430,976
======= ========== ========= ==========
</TABLE>
3. ALLOWANCE FOR LOAN LOSSES:
An analysis of the changes in the loan loss allowance for the
three months ended September 30 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period $ 551,000 $200,000
Provision charged to operations 10,000 -
Loans charged off (120,000) -
--------- --------
Balance at end of period $ 441,000 $200,000
========= ========
</TABLE>
The significant increase in the allowance for loan losses
relates primarily to a specific group of construction loans to
one borrower, which became doubtful for collection in December,
1998. Nonaccrual loans amounted to $1,130,284 and $510,678 at
September 30, 1999 and 1998, respectively.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank advances at September 30, 1999 and
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
DATE OF ------------- ----------- INTEREST
ISSUE YEAR OF MATURITY AMOUNT AMOUNT RATE
<S> <C> <C> <C> <C>
1/31/95 1/30/15 650,000 650,000 5.01
3/25/97 3/24/00 500,000 500,000 6.75
1/28/98 2/01/08 79,270 81,037 6.37
7/31/98 7/30/99 - 1,000,000 5.80
8/14/98 8/13/99 - 500,000 5.73
8/24/98 8/24/99 - 250,000 5.69
8/25/98 8/24/99 - 250,000 5.69
3/12/99 3/10/00 750,000 750,000 5.32
3/19/99 3/17/00 750,000 750,000 5.23
3/24/99 9/20/99 - 500,000 5.07
3/25/99 3/24/00 2,000,000 2,000,000 5.33
4/23/99 4/21/00 1,000,000 1,000,000 5.29
6/24/99 10/22/99 600,000 600,000 5.37
7/02/99 8/01/19 162,170 - 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
9/07/99 11/05/99 250,000 - 5.54
9/20/99 9/20/00 750,000 - 6.12
---------- ----------
$8,991,440 $8,831,037
========== ==========
</TABLE>
5. LINE OF CREDIT:
On March 5, 1999, First Lancaster Bancshares, Inc. entered
into a line of credit for $2.5 million with an interest rate
of prime less 1/2 percent. Any outstanding balance on this
line of credit is collateralized by 100% of the Bank's
stock. As of September 30, 1999, there is no outstanding
balance.
6. RECLASSIFICATIONS:
Certain presentation of accounts previously reported have
been reclassified in these consolidated financial
statements. Such reclassification had no effect on net
income or stockholders' equity as previously reported.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. EFFECT OF IMPLEMENTING NEW ACCOUNTING STANDARDS:
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". 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 (as revised by
SFAS No. 137) 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. Adoption of
SFAS No. 133 is not expected to have a material financial
statement impact on the Company.
8. EARNINGS PER SHARE:
<TABLE>
<CAPTION>
For the three months ended September 30,1999 For the three months ended September 30, 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 $137,074 832,882 $0.16 $145,645 870,043 $0.17
Effect of dilutive
securities
Stock options 28 -
Management recognition
plan 12,095 14,947
Diluted earnings per
share
Income available to
common shareholders
plus assumed
conversions $137,074 845,005 $0.16 $145,645 884,990 $0.16
</TABLE>
There were no preferred dividends that would effect the
computation of earnings per share.
7
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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.
YEAR 2000 READINESS DISCLOSURE
The following information constitutes "Year 2000 Readiness
Disclosure" under the Year 2000 Readiness and Disclosure Act.
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 1900 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 many
other companies.
Data processing of the Company 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
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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 operations of the Company.
The Company has installed a new teller computer network system
which is Year 2000 compliant and has established a Year 2000
committee to monitor the progress of achieving and certifying
overall Year 2000 compliance. Final validation testing with the
Company's third party service bureau was completed in November,
1998, with favorable results showing that all transactions ran
successfully in a Year 2000 sequence. The Company's third party
service bureau converted from satellite communication to high
speed land line communication on July 6, 1999. Year 2000
testing was successfully completed on this method of
communication on October 24, 1999. The Company has developed a
contingency plan in the event there is an interruption of its
on-line system, whereby transaction processing will be done in a
store and forward mode for short term interruptions, and for
extended interruptions, manual processing or the use of a local
database will be used. The main focus of the Company at this
point is training employees on the contingency plan and customer
awareness. Based upon preliminary analysis by the Company, the
total costs of the new computer network system and for the
services of the third party service bureau will not exceed
$75,000 and the majority of these costs have been incurred as of
September 30, 1999.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND JUNE
30, 1999
The Company's total assets decreased approximately $1.1 million,
or 2.0%, from $52.8 million at June 30, 1999 to $51.7 million at
September 30, 1999. This decrease was the combined result of
several decreases within assets. Cash and interest bearing
cash deposits decreased $486,000, or 18.0%, from $2.7 million at
June 30, 1999 to $2.2 million at September 30, 1999, primarily
due to treasury stock repurchases, a $.30 dividend paid to
shareholders in July 1999 and a decrease in certificates of
deposit. Investment securities decreased $148,000 due to lower
market values. Net loans receivable decreased approximately
$337,000, or .7%, from $46.2 million at June 30, 1999 to $45.9
million at September 30, 1999. This decrease was primarily due
to a decrease of approximately $1.0 million in construction
loans, which was caused by the continuing realignment of the
loan portfolio that started in January 1999. The Company's
total liabilities decreased approximately $704,000, or 1.8%,
from $39.2 million at June 30, 1999 to $38.5 million at
September 30, 1999. This decrease was primarily due to a
decrease in certificates of deposit of approximately $1.0
million, or 4.0%, from $26.0 million at June 30, 1999 to $25.0
million at September 30, 1999, offset by a slight increase in
Federal Home Loan Bank advances of $160,000, or 1.8%. During
the three month period ended September 30, 1999 the Company
acquired 15,000 common shares for a purchase price of $172,500.
These purchases were part of the Company's 5% stock repurchase
program that was announced July 9, 1999.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
NET INCOME/LOSS: The Company's net income decreased $9,000, or
5.9%, from $146,000 for the quarter ended September 30, 1998 to
$137,000 for the quarter ended September 30, 1999. Income
before income taxes decreased $18,000. This decrease was
primarily due to the decrease in net interest income.
NET INTEREST INCOME: Net interest income decreased by $50,000,
or 8.9%, from $556,000 for the quarter ended September 30, 1998
to $507,000 for the quarter ended September 30, 1999. This
9
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decrease was attributed to a decrease in interest income of
$97,000, which was offset by a decrease in interest expense of
$47,000. These decreases in interest income and expense were
primarily caused by lower average loan volumes and lower average
FHLB advances.
INTEREST INCOME: Total interest income decreased by $97,000, or
8.8%, to $1.0 million for the quarter ended September 30, 1999
from $1.1 million for the quarter ended September 30, 1998.
This decrease was primarily attributable to interest on loans.
Interest on loans decreased by $96,000, or 9.1%, during the
quarter ended September 30, 1999, as compared to the quarter
ended September 30, 1998. Average interest bearing loans
decreased from $48.3 million in the quarter ended September 30,
1998 to $45.5 million in the quarter ended September 30, 1999.
The average effective interest rate earned on these loans also
decreased approximately 25 basis points from the quarter ended
September 30, 1998 to the quarter ended September 30, 1999.
INTEREST EXPENSE: Total interest expense decreased by $48,000,
or 8.7%, to $497,000 for the quarter ended September 30, 1999
from $545,000 for the quarter ended September 30, 1998.
Interest on savings accounts and certificates increased by
$29,000, or 8.3%, to $376,000 for the quarter ended September
30, 1999 from $347,000 for the quarter ended September 30, 1998
due to the increase in these deposits, primarily certificates,
from an average of $22.4 million to $25.5 million for the
quarters ended September 30, 1998 and 1999, respectively. This
increase was offset by a $76,000 decrease in interest expense on
other borrowings due to a decrease in the average balance of
FHLB advances from $13.4 million to $8.7 million for the
quarters ended September 30, 1998 and 1999, respectively. FHLB
advances steadily decreased in the second half of fiscal year
ended June 30 ,1999 as the Company's loan growth slowed,
deposits grew and the excess cash resulting from this situation
was directed toward repayment of these advances.
PROVISION FOR LOAN LOSSES: The Bank recognized loan loss
provisions of $10,000 in the quarter ended September 30, 1999,
as compared to the quarter ended September 30, 1998, when no
provision for loan losses was recognized. 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. Management
believes the allowance for loan losses as of September 30, 1999
was adequate to absorb any potential losses in the loan
portfolio.
NON-INTEREST INCOME: Total non-interest income decreased
approximately $2,000 from $13,000 for the quarter ended
September 30, 1998 to $11,000 for the quarter ended September
30, 1999. This slight decrease was primarily due to decreases
in gain on real estate acquired by foreclosure and other income
offset by an increase in service charges and fees. In the
second half of fiscal year June 30, 1999, management
re-evaluated the Bank's fee structure in comparison with
competitors and actual expenses incurred and added several
service fees.
NON-INTEREST EXPENSE: Total non-interest expenses decreased by
approximately $43,000, or 12.7%, from $344,000 for the quarter
ended September 30, 1998 to $301,000 for the quarter ended
September 30, 1999. This decrease was primarily attributable to
decreases in compensation and employee benefits. Compensation
decreased due to increasing deferred loan costs. Employee
retirement and other benefits decreased due to the Directors'
Retirement Plan being fully accrued for the three months ended
September 30, 1999 and also due to a decrease in the ESOP
expenses related to allocation of shares. These decreases were
offset slightly by increases in state franchise taxes and other
expenses.
10
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INCOME TAX: The effective tax rates for the quarters ended
September 30, 1999 and 1998 were 33.8% and 35.2%, respectively.
The provision for income taxes decreased by $9,000, or 11.5%,
from $79,000 for the quarter ended September 30, 1998 to $70,000
for the quarter ended September 30, 1999. The provision for
income taxes decreased as a result of the decrease in income
before taxes.
OTHER COMPREHENSIVE INCOME (LOSS): During the quarter ended
September 30, 1999, there was an unrealized loss on securities
of $97,000, net of tax benefit. This loss compares to an
unrealized gain on securities of $42,000, net of tax liability,
for the quarter ended September 30, 1998. The current quarter's
loss was due to the market price of available-for-sale
securities decreasing at September 30, 1999 as compared to the
market price at June 30, 1999.
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. As of September 30, 1999 there had been no draws on this
line of credit.
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 September 30, 1999 was 6.8%.
At September 30, 1999, the Company had outstanding commitments
to originate first mortgage loans totalling $1.0 million. 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 September 30, 1999, the Bank
met all capital adequacy requirements to which it is subject.
11
<PAGE>
<PAGE>
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) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) During the quarter ended September 30, 1999, the
Company filed two Current Reports on Form 8-K. In
the Current Report of Form 8-K, dated July 16,
1999, the Company reported under Item 5 that it
was commencing a stock repurchase program to
acquire up to 45,544 shares of its common stock,
representing approximately 5% of the outstanding
common stock. Additionally, the Company announced
its semi-annual cash dividend of $.30 per share to
be paid on July 30, 1999, to shareholders of
record as of July 16, 1999. In the Current Report
on Form 8-K, dated September 9, 1999, the Company
reported under Item 5 the restatement of certain
operating ratios for the fiscal year ended June
30, 1998.
12
<PAGE>
<PAGE>
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: November 17, 1999 /s/ Virginia R.S. Stump
--------------------------------
Virginia R.S. Stump
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 17, 1999 /s/ Julia G. Taylor
--------------------------------
Julia G. Taylor, CPA
Comptroller
(Principal Financial Officer)
13
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