SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25446
LCS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1337116
(State or other jurisdiction of (IRS Employer I.D.)
incorporation or organization)
501 North State, Litchfield, Illinois 62056
(Address of principal executive office) (Zip Code)
Registrant's telephone number, incl. area code (217) 324-2576
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO
As of November 8, 1996, the Company had 107,640 shares of
$0.01 par value common stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements Page No.
Consolidated Statement of Financial Condition
as of September 30, 1996 and December 31, 1995........... 3
Consolidated Statement of Income for the Three Months
Ended September 30, 1996 and September 30, 1995;
and the Nine Months Ended September 30, 1996 and
September 30, 1995 ..................................... 4
Consolidated Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1996 and
September 30, 1995 ...................................... 5
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 1996 and September 30, 1995 ......... 6
Notes to Consolidated Financial Statements ........... 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ............................ 20
Item 2 - Changes in Securities ....................... 20
Item 3 - Default upon Senior Securities .............. 20
Item 4 - Submission of Matters to a Vote of
Security-Holders ............................. 20
Item 5 - Other Information ............................ 20
Item 6 - Exhibits and Reports on Form 8-K ............. 20
Signature Page ........................................ 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
LCS Bancorp, Inc.
9/30/96 12/31/95
(In Thousands)
Assets:
Cash and due from banks $ 174 $ 126
Short-term interest-bearing deposits 1,171 1,882
Total cash and cash equivalents 1,345 2,008
Interest bearing deposits 484 485
Investment securities-held to maturity 1,644 1,908
Investment securities-available for sale 4,453 4,509
Mortgage-backed securities-held to maturity 86 99
Mortgage-backed securities-avail. for sale 1,355 1,528
Loans receivable, net 8,576 8,277
Office property and equipment, net 211 208
Other assets 238 159
TOTAL ASSETS $ 18,392 $ 19,181
Liabilities:
Deposits $ 16,259 $ 17,068
Other Liabilities 240 142
Deferred income taxes 18 22
TOTAL LIABILITIES 16,517 17,232
Stockholders' Equity
Common stock, $.01 par value
(400,000 shares auth., 107,640
shares issued and outstanding) 1 1
Paid-in capital 855 855
Unrealized holding gains (losses) on
securities avail. for sale, net tax ( 45) ( 7)
Retained earnings 1,153 1,200
Less unearned ESOP shares
(1996-4,270; 1995-4,658) ( 43) ( 46)
Less stock held for MRP
(1996-3,563; 1995-4,140 ( 46) ( 54)
TOTAL STOCKHOLDERS' EQUITY 1,875 1,949
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 18,392 $ 19,181
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
LCS Bancorp, Inc.
For the 3 months For the 9 months
Ended Sept.30, Ended Sept.30,
1996 1995 1996 1995
(In Thousands Except Per Share Data)
Interest Income:
Loans $ 178 $ 164 $ 531 $ 461
Investments 93 108 277 325
Mortgage-backed securities 25 30 80 93
Interest on deposits-bank 30 45 99 144
Total interest income 326 347 987 1,023
Interest expense on deposit accounts 213 228 640 674
Net interest income 113 119 347 349
Provision for losses on loans ( 2) 0 ( 2) 6
Net interest income after provision
for credit losses 115 119 349 343
Other Income 5 6 15 14
Other Expenses:
Compensation 55 50 159 144
Occupancy 9 8 26 24
FDIC Insurance Premiums 129 11 149 32
Other general and admin. exp 27 28 92 82
Total other expenses 220 97 426 282
Income before income taxes ( 100) 28 ( 62) 75
Income taxes ( 22) 4 ( 15) 11
Net income $( 78) $ 24 $( 47) $ 64
Earnings per share $( 0.72) $ 0.22 $(0.44) $ 0.66
Weighted average shares of
common stock & common
stock equivalents 107,640 107,640 107,640 96,428
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
LCS Bancorp, Inc.
For the Nine months
Ended Sept. 30,
1996 1995
(in Thousands)
Common stock:
Beginning of the period $ 1 $ 0
Proceeds of initial stock offering 0 1
Proceeds of option stock issued 0 0
End of period 1 1
Additional paid-in-capital:
Beginning of period 855 0
Net proceeds of common stock offering
upon conversion from mutual to stock 0 847
Proceeds of option stock issued 0 0
End of period 855 847
Unrealized holding gains or (losses) on
available-for-sale securities, net of tax
Beginning of period ( 7) (289)
Change in unrealized gains, net of tax ( 38) 222
End of period ( 45) ( 67)
Retained earnings:
Beginning of period 1,200 1,124
Net income ( 47) 64
End of period 1,153 1,188
Unearned ESOP Shares:
Beginning of period ( 46) 0
Shares set aside in conversion 0 ( 52)
Shares realized 3 4
End of period ( 43) ( 48)
Shares held for MRP:
Beginning of period ( 54) 0
MRP Plan shares issued 0 ( 46)
MRP Plan shares awarded 8 0
End of period ( 46) ( 46)
TOTAL STOCKHOLDERS' EQUITY $ 1,875 $ 1,875
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
LCS Bancorp, Inc.
For the nine months ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES : (in thousands)
Net Income (Loss) $( 47) $ 64
Adjustments to reconcile net income to
net cash provided by oper.activities:
Depreciation 13 13
Premium and discount amortization 4 7
Prov.for (recovery of) credit losses ( 2) 6
Deferred income tax (benefit) ( 4) 0
Net (gain) on disposal of investments ( 2) 0
(Incr) decr. in accr. inc. & other assets ( 70) 126
Incr. (decr) in accr. exp. & other liab. 106 15
Total adjustments 45 167
Net cash provided by operating activities ( 2) 231
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest bearing deposits 1 97
Proceeds from sales/maturities of
investment securities:
Available for sale 92 730
Held to maturity 815 972
Purchases of inv. securities-held maturity ( 624) ( 992)
(Purchase) sale of FHLB Stock 4 ( 1)
Net (incr.) decr. in loans receivable ( 297) (1,055)
Payments on mortgage backed securities 171 169
Purchase of property and equipment ( 17) ( 15)
Net cash provided by investing activities 145 ( 95)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
demand, NOW, Money Market and Savings ( 25) ( 967)
Net increase (decrease) in time deposits ( 785) ( 401)
Proceeds from issuance of common stock/ESOP 4 754
Net cash provided by financing activities ( 806) ( 614)
Net change in cash and cash equivalents ( 663) ( 478)
Cash and cash equivalents-beg. of period 2,008 2,304
Cash and cash equivalents-end of period $1,345 $1,826
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits 283 307
Income taxes 45 0
Noncash transactions:
Loans transferred to repossessed assets 1 0
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
fair presentation have been included. The results of operations
for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996.
The Company adopted Statement of Financial Accounting Standards
No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt
and Equity Securities" for investments held as of or acquired after
December 31, 1993. All financial statements presented reflect the
adoption of this accounting standard.
Note B - Conversion to Stock Ownership
In January, 1995, the Company converted from a state-chartered
mutual savings bank to a state-chartered stock savings bank with
the concurrent formation of LCS Bancorp, Inc., the "Holding
Company." On January 27, 1995, the Holding Company sold 103,500
shares of common stock at $10.00 per share to depositors, employees
and residents of the State of Illinois. Total proceeds from the
conversion of $802,000 was recorded as common stock and additional
paid-in-capital. The Holding Company utilized $615,000 of the net
proceeds to acquire all of the capital stock of the Company.
At the time of conversion, the Company established a liquidation
account in the amount of $835,000 for the benefit of eligible
account holders who continue to maintain their accounts at the
Company after the conversion. The liquidation account will be
reduced annually to the extent that eligible account holders have
reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holders interest in the liquidation
account. In the event of a complete liquidation, each account
holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current
adjusted qualifying balances for accounts then held. At December
31, 1995, the liquidation account had been reduced to approximately
$487,000. The Company may not declare or pay dividends on or
repurchase any of its shares of common stock if the effect thereof
would cause stockholders' equity to be reduced below the balance of
the liquidation account or if such declaration would otherwise
violate regulatory requirements.
In connection with the conversion to stock ownership, the
Company formed an Employee Stock Ownership Plan ("ESOP") for
eligible employees. The ESOP borrowed funds from the Holding
Company in the amount of $51,750 in order to purchase 5% of the
common stock to be issued in the conversion (5,175 shares at $10.00
per share). Shares committed to be released as principal payments
are made on the loan are expensed as compensation during the period
based on original cost. The loan is scheduled to be repaid in
forty quarterly installments of principal, plus interest at the
prime rate. The Company has adopted the AICPA Statement of
Position ("SOP") 93-6 "Employers Accounting For Employee Stock
Ownership Plans". The Company has made scheduled cash
contributions to the third party trustee sufficient to service the
amounts borrowed. During the first nine months of 1996, principal
of $3,881 and interest of $2,811 was contributed towards the ESOP
debt, with payments of $1,294 towards principal and $907 towards
interest during the third quarter of 1996. During the same nine
month period of 1995, principal of $3,881 and interest of $3,054
was contributed towards the ESOP debt, with payments of $1,294
towards principal and $1,077 towards interest during the third
quarter of 1995. During the third quarter of 1996 and 1995,
respectively, uncommitted ESOP shares averaged 4,398 shares and
4,917 shares, and were included in the weighted average number of
common shares outstanding. At September 30, 1996 and 1995, 4,270
shares and 4,787 shares, respectively, were uncommitted.
Additionally, the Company's stockholders approved a Management
Development and Recognition Plan ("MRP") at the first annual
stockholders' meeting held on April 11, 1995. This plan provides
for up to an additional 4,140 shares to be awarded to management,
directors, and certain key employees. An initial grant of 1,750 of
these shares was awarded in April, 1995, following approval by the
stockholders, to be amortized over a three-year period of time on
each January 1, beginning January 1, 1996. A second grant of
2,390 shares was awarded in May, 1996 to be amortized over a ten-
year period of time on each May 1, beginning May 1, 1997. The
aggregate purchase price of these shares will be amortized to
expense as a portion of annual compensation and the unamortized
cost will be reflected as a reduction of stockholders' equity.
For the nine months ended September 30, 1996 and 1995,
respectively, $6,965 and $4,278 were amortized to compensation
expense. For the three months ended September 30, 1996 and 1995,
respectively, $2,667 and $2,139 were amortized to compensation
expense. These shares were included in the weighted average number
of common shares outstanding for the third quarter of 1996 and
1995.
Note C - Regulatory Capital
Pursuant to the Office of the Commissioner of Savings and
Residential Finance for the State of Illinois ("OCSRF") and the
Federal Deposit Insurance Corporation ("FDIC") regulations, a
savings bank must meet two separate minimum capital-to-assets
requirements: (1) a risk-based capital requirement of 8% of risk-
weighted assets, and (2) a leverage (core) ratio of 4% core capital
to total adjusted assets. The following table summarizes, as of
September 30, 1996, the Bank's capital requirements under FIRREA
and its actual capital ratios at that date:
Required Actual Required Actual Excess
Capital Capital Capital Capital Capital
% % Balance Balance Balance
(Amounts in Thousands)
Risk-based 8.0% 20.1% $ 734 $1,842 $1,108
Core Capital 4.0% 9.6% $ 732 $1,751 $1,019
Note D - Change in Method of Accounting for Income Taxes
On February 11, 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." The Company adopted the
provisions of the new standards in its financial statements
effective for the year ended December 31, 1993. The cumulative
effect of the change in accounting principle was immaterial and was
included in other income for 1993. Financial statements for prior
years were not restated.
Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method a deferred tax asset or liability
is calculated by applying the provisions of existing laws to
measure the deferred tax consequence of temporary differences that
resulted in net taxable or deductible amounts in each future year.
SFAS 109 allows the Company to record a tax benefit on its general
loan loss allowance that was previously not tax benefitted. Prior
to the adoption of SFAS 109, income tax expense was based on items
of income and expense that were reported in different years in the
financial statements and tax returns and was measured at the rate
in effect in the year the difference originated. Significant
components of the deferred tax liabilities and assets at September
30, 1996 and 1995, are as follows (in thousands):
9-30-96 9-30-95
Deferred Tax Liabilities:
Depreciation $ 18 $ 14
Deferred Tax Assets (See Note E):
Mark-to-Market Loss on
Debt and Equity Securities
Available for Sale $ 11 $ 12
Net deferred tax (asset) liability $ 7 $ 2
Current tax liability (refund) $( 31) $ 8
Total tax liability $( 24) $ 10
Note E - Accounting for Certain Investments in Debt and Equity
Securities
Effective December 31, 1993, the Bank adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement
requires that securities be classified in three categories and
provides specific accounting treatment for each as noted below:
Trading account securities - Securities which the Company
intends to sell in the near term. These securities are carried at
market value. Gains and losses are included in other income.
Securities available for sale - Securities which the Bank may
sell to meet liquidity or other investment needs. These securities
are carried at market value. Realized gains and losses on sales
are included in other income. Unrealized changes in market values
are included in retained income.
Securities held to maturity - Securities which the Bank has
the ability and intent to hold to maturity. These securities are
carried at cost, adjusted for amortization or premium and accretion
of discount, computed by a method that approximates level yield.
At September 30, 1996, the carrying amounts of investment
securities as shown in the balance sheet of the Company and their
approximate market values were as follows (in thousands):
Carrying Market
Value Value
U.S. Government and agency securities:
Available for sale $ 1,246 $ 1,246
Held to maturity 974 974
Corporate Bonds
Available for sale 1,389 1,389
Held to maturity 595 581
Municipal Bonds-Held to maturity 75 75
Federal Home Loan Bank Stock 73 73
Mutual Fund-ARM loans and securities 1,745 1,745
$ 6,097 $ 6,083
At September 30, 1996, there were realized gains of $2,700 and
losses of $900 on sales of investment securities.
At September 30, 1996, the carrying amounts of mortgage-backed
securities as shown in the balance sheet of the Company and their
approximate market values were as follows (in thousands):
Carrying Market
Value Value
Federal National Mortgage Association:
Available for Sale $ 876 $ 876
Government National Mortgage Association:
Available for Sale 479 479
Held to maturity 86 86
$ 1,441 $1,441
At September 30 1996, there were no realized gains or losses on
sales of mortgage backed securities.
Note F - Earnings Per Share
Earnings per share of Common Stock outstanding for the three
months ended September 30, 1996, have been determined by dividing
net income for the period by the weighted average number of shares
of common stock and common stock equivalents outstanding. Common
stock equivalents assume the exercise of stock options and use of
proceeds to purchase Treasury Stock at the average market price for
the period (See Note B for effect of SOP 93-6). At the Company's
annual stockholders meeting held April 11, 1995, 10,350 stock
options were approved of which 5,570 shares were awarded during the
second quarter of 1995 at an exercise price of $11 per share. The
remaining 4,780 stock options were awarded during the second
quarter of 1996 at an exercise price of $13 per share. During the
three months ended September 30, 1996, none of the options were
exercised, nor were any options exercised during the nine months
ended September 30, 1996. Weighted average shares of common stock
and common stock equivalents for the three months and nine months
ended September 30, 1996, consisted of 107,640 shares outstanding
and 107,640 shares outstanding, respectively, under SOP 93-6. At
September 30, 1996, there was a total of 10,350 stock options
outstanding and not exercised.
Note G - Commitments and Contingencies
At September 30, 1996, the Company had approved loan
commitments totalling $783,000 to originate loans and $500,000 in
unused lines of credit. Commitments to fund loans have credit risk
essentially the same as that involved in extending loans to
customers and are subject to the Company's normal credit
policies.
[The remainder of this page is intentionally left blank.]
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
LCS Bancorp, Inc. (the "Company") completed its initial public
offering of Common Stock on January 27, 1995. It is the Holding
Company of Litchfield Community Savings, S.B., Litchfield, Illinois
(the "Bank"), a state-chartered savings bank which operates from
one office in Litchfield, Illinois. The Bank has no subsidiary
companies.
The Company's business activities in its first eighteen months
of operation consist of investment in short-term interest bearing
deposits and investments and operation of the Bank. The Bank's
principal business consists of attracting deposits from the public
and investing these deposits, together with funds generated from
operations, primarily in one-to-four family mortgage loans,
commercial and agricultural real estate loans, and consumer and
commercial loans. Excess funds are primarily invested in mortgage-
backed securities, corporate bonds, U.S. governments and agencies
and an mutual fund that invests in adjustable rate mortgages. The
Bank's deposit accounts are insured to the maximum allowable by the
FDIC.
The Bank's results of operations are dependent primarily on
net interest income, which is the difference between the interest
income earned on its loan, mortgage-backed securities and
investment securities portfolios, and its cost of funds, consisting
of interest paid on its deposits. The Bank has not utilized
borrowed funds during the last five years. The Bank's operating
results are also affected, to a lesser extent, by loan fees,
customer service charges and other income. Operating expenses of
the Bank are employee compensation and benefits, equipment and
occupancy costs, federal deposit insurance premiums and other
administrative expenses. The Bank's results of operations are
further affected by economic and competitive conditions,
particularly changes in market interest rates, government policies
and actions of regulatory authorities.
FINANCIAL CONDITION
As of September 30, 1996, total assets decreased $789,000, or
4.1%, to $18,392,000 from $19,181,000 at December 31, 1995. The
decrease primarily resulted from a net savings deposit outflow of
$809,000, a net loss of $47,000, a decrease in the market value of
investments available for sale, net of tax, of $38,000, as
partially offset by an increase in other liabilities of $98,000.
Net loans receivable increased by $299,000, or 3.6% during the
nine months ended September 30, 1996. During the first nine months
of 1996, loan originations of $2,475,000 were offset by loan
repayments of $2,173,000. The Company's lending activities have
been concentrated primarily in residential real property secured by
first liens. At September 30, 1996, approximately 82% of the
Company's mortgage loans were secured primarily by one-to-four
family residential dwellings and 18% were secured by commercial and
agricultural real estate. The Company generally maintains loan-to-
value ratios on mortgage loans no greater than 80%. The Company is
continuing its expansion of the loan portfolio into commercial and
agricultural products.
During the first nine months of 1996, commercial and
agricultural loans accounted for $555,000 of the $2,475,000 in
originations. Virtually all loans originated by the Company are
in the local lending area, which is comprised of the area within a
20-mile radius surrounding the Company office. Within that
territory, most loans are originated in Montgomery and Macoupin
counties in Illinois.
ASSET QUALITY
Non-performing assets (those 90 days or more past due and non-
accrual loans, foreclosures, and in-substance foreclosures), were
0.00% and 0.02% of total assets at September 30, 1996, and December
31, 1995, respectively. As of Sepember 30, 1996, non-accrual loans
were $0, or 0.0% of total loans, compared to $3,000, or 0.04% of
total loans at December 31, 1995. There was no real estate owned
as a result of foreclosure or in-substance foreclosure at September
30, 1996, or December 31, 1995.
As of September 30, 1996, the loan loss allowance was $91,000,
an decrease of $3,000 from $94,000 at December 31, 1995. As a
percentage of total loans, the allowance for loan losses decreased
to 1.05% at September 30, 1996 from 1.12% at December 31, 1995. The
decrease was primarily the result of the decline in the loan
portfolio delinquencies in the first nine months of 1996 and the
historical loss experience of the Company. Management believes
that the level of loan loss allowances is adequate, based on its
evaluation which includes a review of all loans on which full
collectibility may not be reasonably assured, the estimated fair
value of the underlying collateral, economic conditions, historical
loss experience and the Association's internal credit review
process.
NET INTEREST INCOME
Net interest income decreased $6,000, or 5.0%, for the three
months ended September 30, 1996, compared to the same period in
1995. The average yield on interest earning assets for the three
months ended September 30, 1996 was 7.13%, as compared to 7.19% for
the three months ended September 30, 1995. The average cost of
funds for the three months ended September 30, 1996 was 5.17%, as
compared to 5.15% for the three months ended September 30, 1995.
Net interest income decreased $2,000, or 0.6%, during the
first nine months of 1996, as compared to the same period in 1995.
The average yield on interest earning assets for the nine months
ended September 30, 1996 was 7.18%, as compared to 7.08% for the
same period in 1995. The average cost of funds for the nine months
ended September 30, 1996 was 5.10%, as compared to 5.01% for the
nine months ended September 30, 1995, resulting in an increase in
the rate spread to 2.08% at September 30, 1996, from 2.07% at
September 30, 1995.
ASSET/LIABILITY MANAGEMENT
The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to
be interest rate sensitive within a specific time period it if will
mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest earning assets anticipated, based upon certain
assumptions, to mature or reprice within a specific time period and
the amount of interest bearing liabilities anticipated, based upon
certain assumptions, to mature or reprice within that time period.
A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During a period of rising interest rates,
a negative gap would tend to adversely affect net interest income,
while a positive gap would tend to result in an increase in net
interest income.
At September 30, 1996, total interest earning assets maturing
or repricing within one year exceeded total interest bearing
liabilities maturing or repricing within one year, as adjusted for
certain prepayment assumptions, by $1,961,000, representing a
positive cumulative one-year gap of 10.94%. At December 31, 1995,
total interest earning assets maturing or repricing within one year
exceeded total interest bearing liabilities maturing or repricing
within one year, as adjusted for certain prepayment assumptions, by
$183,000, representing a positive cumulative one-year gap of 0.97%.
Although the Company has significantly increased its
adjustable rate loan portfolio in recent years, the level of the
Company's portfolio of fixed rate mortgages and fixed rate
investment securities maturing in three to five years continues to
affect the Company's gap position. In addition, the competition
for funds financed with certificates of deposit with maturities of
over one year increase the positive gap at the one-year position.
However, management believes that, given the high level of capital
of the Company, and the excess of interest earning assets over
interest bearing liabilities, the increased net interest income
resulting from a mismatch in the maturity of its asset and
liability portfolios provides sufficient returns to justify the
increased vulnerability to sudden and unexpected changes in
interest rates. Nonetheless, the Company carefully monitors its
interest rate risk as such risk relates to management's strategy.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is established through a
provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and the general economy.
Management's evaluation includes a review of all loans on which
full collectibility may not be reasonably assured, the estimated
fair value of the underlying collateral, economic conditions,
historical loan loss experience and the Company's internal credit
review process.
The Company decreased its allowance by $2,000 in the three
months ended September 30, 1996 to correspond to the decrease in
the risk associated with the loan portfolio. During the third
quarter of 1996, a net recovery of $2,000 was credited to income.
The Company decreased its allowance by $3,000 in the first
nine months of 1996 to correspond to the decrease in the loan
delinquencies and the Company's actual loss experience. During the
first nine of 1996, a net recovery of $2,000 was credited to
income. Management believes that the current provision is
adequate, based on its evaluation of the portfolio.
OTHER INCOME
Other income decreased $1,000, or 16.7%, for the three months
ended September 30, 1996, as compared to the three months ended
September 30, 1995. This was primarily the result of an decrease
in deposit account service charges of $1,000.
Other income increased $1,000 or 7.1%, for the first nine
months ended September 30, 1996, as compared to the nine months
ended September 30, 1995. This was primarily the result of a net
gain on disposal of securities of $2,000, as partially offset by a
$1,000 decrease in deposit account service charges.
OPERATING EXPENSES
Operating expenses increased $123,000, or 126.8%, to $220,000
for the three months ended September 30, 1996 from $97,000 for the
three months ended September 30, 1995, primarily due to a $118,000
increase in SAIF insurance premiums (see "Recent Development" note
on page 19), a $5,000 increase in compensation expense, as
partially offset by a $1,000 decrease in other general and
administrative costs.
Operating expenses increased $144,000, or 51.1%, to $426,000
for the nine months ended September 30, 1996, from $282,000 for the
nine months ended September 30, 1995. The increase was primarily
due to a $117,000 increase in SAIF insurance premiums (see "Recent
Development" note on page 19), a $15,000 increase in compensation
expense, and a $10,000 increase in general and administrative
expenses. Included in general and administrative expenses were
franchise taxes, registrar/trustee fees, and other expenses not
incurred in the first nine months of 1995, following the conversion
of the Company on January 27, 1995. Operating expenses as a
percent of average assets increased to 3.03% in the first nine
months of 1996, compared to 1.92% for the first nine months of
1995.
INCOME TAXES
The income tax provisions for the third quarter of 1996 and
the third quarter of 1995 were 22% and 14%, respectively, and
reflect the estimated combined federal and state tax rates
applicable to the Company. The income tax provisions for the
first nine months of 1996 and the first nine months of 1995 were
24% and 15.0%, respectively, and reflect the estimated combined
federal and state tax rates applicable to the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds include deposits,
principal and interest payments on loans and mortgage-backed
securities, maturing investment securities and sales of securities
from the available-for-sale portfolio. While maturities and
scheduled amortization of loans and mortgage-backed securities are
a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates,
economic conditions, and competition.
The primary investing activity of the Company is the
origination of mortgage loans and other commercial and consumer
loans, as well as the purchase of securities. During the first
nine months of 1996, the Company originated loans in the amount of
$2,475,000, compared to $3,151,000 in the first nine months of
1995. During the first nine months of 1996, the Company purchased
$624,000 of securities, primarily U.S. Treasury and agency
securities. During the first nine months of 1995, the Company
purchased $992,000 of securities, primarily U.S. Treasury and
agency securities.
During the first nine months of 1996, the Company funded the
origination of loans in part with the proceeds from the maturities
of investment securities from the held-to-maturity portfolio in the
amount of $815,000, and the partial sale of shares in a mutual fund
in the amount of $92,000. Financing activities during the first
nine months of 1996 included a decrease in deposits of $810,000.
There were no borrowings.
Federal regulations require a savings institution to maintain
an average daily balance of liquid assets (cash and eligible
investments) equal to at least 5% of the average daily balance of
its net withdrawable deposits and short-term borrowings.
Management's objectives and strategies for the Bank have
consistently maintained liquidity levels in excess of regulatory
requirements. The Bank's liquidity ratios at September 30, 1996
and 1995 were 54% and 43%, respectively.
RECENT DEVELOPMENTS
SAIF Special Assessment
The deposits of savings associations, such as the Bank, are
presently insured by the SAIF, which together with the BIF, are the
two insurance funds administered by the FDIC. On August 8, 1995,
the FDIC revised the premium schedule for BIF-insured banks to
provide for a range of .04% to .31% of deposits (as compared to the
current range of .23% to .31% of deposits for both BIF and SAIF-
insured institutions) in anticipation of the BIF achieving its
statutory reserve ratio. As a result, BIF members generally would
pay lower premiums than the SAIF members. The lower premiums for
BIF members took effect in the third quarter of 1995.
On September 30, 1996, the President of the United States of
America signed into law a measure which provides for a one-time
assessment of .657% of the assessable deposits imposed on financial
institutions insured by the SAIF Fund of the Federal Deposit
Insurance Corporation. This special assessment of approximately
$119,000 is to be paid in cash by November 27, 1996, and was
accrued at September 30, 1996. The special assessment reduces the
Bank's 1996 earnings by approximately $95,000, or $0.89 per share,
net of tax.
Agreement and Plan of Merger
On August 13, 1996, the Board of Directors of LCS Bancorp,
Inc. ("LCS") unanimously approved an Agreement and Plan of Merger
(the "Agreement") by and among Jacksonville Savings Bank, an
Illinois chartered savings bank ("Jacksonville"), LCS, and
Litchfield Community Savings, S.B. ("Litchfield"). Under the
Agreement, LCS will be merged into an acquisition subsidiary of
Jacksonville, with LCS being the surviving entity; after which
Litchfield will merge with and into Jacksonville, with Jacksonville
being the surviving institution; and LCS will be liquidated into
Jacksonville and will cease to exist.
Each of the shareholders of LCS stock will become entitled to
receive cash in an amount equal to $17.75 per share ("Purchase
Price") of LCS Common stock, subject to the rights of dissenting
stockholders which have been asserted and duly perfected in
accordance with the provisions of Section 262 of the General
Corporation Law of the State of Delaware. Each option shall be
cancelled and option holders shall receive the difference between
the Purchase Price and the option exercise price.
The Agreement requires regulatory approval, as well as
stockholder approval. LCS is in the process of applying for
regulatory approvals. Submission of the Agreement to the
stockholders at a special meeting of LCS is anticipated to occur in
December, 1996. Consummation of the Merger, upon approval, is
expected to occur in the first quarter of calendar 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Holding Company and Bank are not engaged in any legal
proceedings of a material nature at the present time.
Item 2. Changes in Securities
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
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
On August 13, 1996, the Board of Directors of the Holding
Company unanimously approved an Agreement and Plan of Merger
by and among Jacksonville Savings Bank, the Holding Company,
and the Bank. Form 8-K was filed on August 21, 1996.
A Preliminary Proxy Statement was filed on September 30,
1996, and Amendment #1 to the Preliminary Proxy Statement
was filed on November 8, 1996.
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirement of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
LCS BANCORP, INC.
s/Carol Radtke
Carol Radtke
President and Chief Executive Officer
s/Carol Radtke
Carol Radtke
Chief Financial Officer
Date: November 9, 1996
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INFORMATION FURNISHED IS UNAUDITED.
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