SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ________
Commission file number 0-25070.
LSB FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Indiana 35-1934975
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
101 Main Street, Lafayette, Indiana 47902
(Address or principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (765) 742-1064
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 Issuer was required to file such reports), and (2) has
been subject to such requirements for the past 90 days.
YES [X] NO[ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
CLASS OUTSTANDING AT MARCH 31, 1998
----- -----------------------------
Common stock, par value $.01 per share 916,350
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
LSB FINANCIAL CORP.
INDEX
PART I. FINANCIAL INFORMATION.................................... 1
Item 1. Financial Statements (Unaudited)......................... 1
Consolidated Statements of Financial Condition ............................ 1
Consolidated Statements of Income.......................................... 2
Consolidated Statements of Changes in Shareholders' Equity................. 3
Consolidated Statements of Cash Flow....................................... 4
Notes to Consolidated Financial Statements................................. 5-6
Item 2. Management's Discussion of Recent Operating Results...... 7-10
PART II. OTHER INFORMATION........................................ 11
SIGNATURES............................................... 12
EXHIBIT INDEX............................................ 13
<PAGE>
LSB FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
---------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $9,938 $11,925
Available-for-sale securities 7,863 10,446
Loans held for sale 1,265 2,028
Total loans 178,745 182,902
Less: Allowance for loan losses (1,478) (1,502)
---------------------------------------
Net loans 177,267 181,400
Premises and equipment, net 4,912 4,902
FHLB stock, at cost 2,600 2,600
Accrued interest receivable and other assets 2,739 2,764
---------------------------------------
Total Assets $206,584 $216,065
=======================================
Liabilities and Shareholders' Equity
Liabilities
Deposits $137,686 $146,240
Advances from FHLB 50,000 50,000
Note payable 189 181
Accrued interest payable and other liabilities 975 1,465
---------------------------------------
Total liabilities 188,850 197,886
Shareholders' Equity
Common stock 9 9
Additional paid-in-capital 7,854 7,892
Retained earnings 10,677 11,030
Unearned ESOP shares (570) (550)
Unamortized cost of recognition and retention plan (242) (220)
Accumulated other comprehensive income 6 18
---------------------------------------
Total shareholders' equity 17,734 18,179
---------------------------------------
Total liabilities and shareholders' equity $206,584 $216,065
=======================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LSB FINANCIAL CORP.
STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1998
---------------------------------------
<S> <C> <C>
Interest Income
Loans, including related fees $3,334 $3,840
Available-for-sale securities 157 216
FHLB stock 50 51
---------------------------------------
Total interest income 3,541 4,107
Interest Expense
Deposits 1,376 1,609
Borrowings 626 743
---------------------------------------
Total interest expense 2,002 2,352
Net interest income 1,539 1,755
Provision for loan losses 24 24
---------------------------------------
Net interest income after provision for loan losses 1,515 1,731
Noninterest Income
Service charges and fees 80 122
Net gain on mortgage loans originated for sale 68 86
Gain on sale of securities 0 0
Other income 51 100
---------------------------------------
Total noninterest income 199 308
Noninterest Expense
Salaries and benefits 587 680
Occupancy and equipment, net 188 198
FDIC insurance 3 4
Computer service 61 62
Advertising 63 85
Other 224 270
---------------------------------------
Total noninterest expense 1,126 1,299
Income before income taxes 588 740
Less: income taxes 230 295
---------------------------------------
Net income $358 $445
=======================================
Earnings per share (Note 3) $0.41 $0.50
Book value per share $19.37 $21.18
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LSB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Unamortized
Cost of Bank Accumulated
Additional Unearned Recognition Other
Common Paid-In Retained ESOP and Retention Treasury Comprehensive
Stock Capital Earnings Shares Plan Stock Income Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $11 $10,143 $10,289 ($653) ($332) ($2,629) ($33) $16,796
Exercise of stock option 3 3
ESOP shares earned 20 20 40
RRP expense 23 23
Treasury stock acquired (55) (55)
Dividends paid (73) (73)
Comprehensive income
Net income 358 358
Change in unrealized gain/(loss) (24) (24)
---------
Total comprehensive income 334
------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $11 $10,166 $10,574 ($633) ($309) ($2,684) ($57) $17,068
================================================================================================
Balance at January 1, 1998 $9 $7,854 $10,677 ($570) ($242) $0 $6 $17,734
Exercise of stock option 0 0
ESOP shares earned 38 20 58
RRP expense 22 22
Treasury stock acquired 0 0
Dividends paid (92) (92)
Comprehensive income
Net income 445 445
Change in unrealized loss 12 12
---------
Total comprehensive income 457
------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $9 $7,892 $11,030 ($550) ($220) $0 $18 $18,179
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LSB FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the 3 months ended March 31,
1997 1998
---------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $358 $445
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 82 93
Net amortization/(accretion) on securities 13 (11)
Gain on sale of securities 0 0
Writedown of loans held for sale 0 0
Gain on sale of loans (68) (86)
Loans originated for sale, net of sales proceeds 5,354 (677)
Deferred loan fees, net (27) (14)
Provision for loan losses 24 24
Employee stock ownership plan shares earned 40 58
Change in assets and liabilities
Accrued interest receivable (15) (15)
Other assets (19) 4
Accrued interest payable (18) (3)
Other liabilities 190 492
---------------------------------------
Net cash from operating activities 5,914 310
Cash Flows from Investing Activities
Purchases of available-for-sale securities (2,485) (4,867)
Proceeds from paydowns and maturities of
available-for-sale securities 389 2,315
Sales of available-for-sale securities 0 0
Purchase of Federal Home Loan Bank stock 0 0
Loans made to customers net of payments received (7,456) (4,143)
Property and equipment expenditures (16) (83)
---------------------------------------
Net cash from investing activities (9,568) (6,778)
Cash Flows from Financing Activities
Net change in deposits 9,483 8,555
Proceeds from Federal Home Loan Bank advances 7,000 0
Payments on Federal Home Loan Bank advances (13,500) 0
Payments on note payable (7) (8)
Treasury Stock Purchased (55) 0
Dividends paid (73) (92)
Stock options exercised 3 0
---------------------------------------
Net cash from financing activities 2,851 8,455
Net change in cash and equivalents (803) 1,987
Cash and equivalents at January 1 9,798 9,938
---------------------------------------
Cash and equivalents at March 31 $8,995 $11,925
=======================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LSB FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
Note 1 - General
The financial statements were prepared in accordance with the instructions for
Form 10-QSB and, therefore, do not include all of the disclosures necessary for
a complete presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. Except for
the adoption of required accounting changes, these interim financial statements
have been prepared on a basis consistent with the annual financial statements
and include, in the opinion of management, all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
of operations and financial position for and at the end of such interim periods.
Note 2 - Principles of Consolidation
The accompanying financial statements include the accounts of LSB Financial
Corp. (the Company), its wholly owned subsidiary Lafayette Savings Bank, FSB
(the Bank) and the Bank's wholly owned subsidiaries, LSB Service Corporation and
Lafayette Insurance and Investments, Inc. Lafayette Insurance and Investments,
Inc. was formed December 30, 1996 and began operations in May of 1997. All
significant intercompany transactions have been eliminated upon consolidation.
Note 3 - Earnings per share
Earnings per share are based upon the weighted average number of shares
outstanding during the period. Diluted earnings per share further assume the
issuance of any potentially dilutive shares. Unearned ESOP shares are not
considered to be outstanding for the earnings per share computation. The
following table presents information about the number of shares used to compute
earnings per share and the results of the computations:
Quarter ended
March 31,
1998 1997
---- ----
Weighted average shares outstanding 857,383 879,519
(excluding unearned ESOP shares)
Shares used to compute diluted
earnings per share 888,900 897,392
Earnings per share $0.52 $0.41
Diluted earnings per share $0.50 $0.41
<PAGE>
On June 30, 1997, a 5.00% stock dividend was paid to shareholders of record
on June 3. 1997. This dividend resulted in the issuance of 44,792 shares with a
value at the record date of $868,000. All share and per share data has been
restated to reflect the effect of this dividend.
Note 4 - Accounting Changes
Effective January 1, 1997, the Company adopted a new accounting standard which
requires disclosure of comprehensive income for all periods. Comprehensive
income includes both net income and other comprehensive income. Other
comprehensive income includes the change in unrealized gains and losses on
securities available for sale, foreigh currency translation adjustments, and
additional minimum pension liability adjustments.
<PAGE>
MANAGEMENT'S DISCUSSION OF RECENT OPERATING RESULTS
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in this report may be deemed to be forward-looking statements that
involve risks and uncertainties. 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. Factors
which could cause actual results to differ include, but are not limited to,
fluctuations in interest rates, changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, the acceptance of new
products, the impact of competitive products and pricing, and the other risks
detailed from time to time in the Company's's SEC reports, including the report
on Form 10-K for the year ended December 31, 1997. These forward looking
statements represent the Company's judgement as of the date of this report. The
Company disclaims, however, any intent or obligation to update these
forward-looking statements.
Financial Condition
Comparison of Financial Condition at March 31, 1998 and December 31, 1997.
Total assets increased $9.5 million during the three months from December
31, 1997 to March 31, 1998. This increase was primarily due to a $4.9 million
increase in the Company's loan portfolio including a $763,000 increase in the
Company's loans held for sale as the Company continued its efforts to
restructure its balance sheet by increasing the size of its higher-yielding
multi-family and commercial real estate, land development and consumer loan
portfolios; and from a $4.6 million increase in cash and cash equivalents and
investment securities. An $8.6 million increase in deposits was used to fund
loan growth and provide liquidity for future lending activity. Non-performing
loans decreased from $2.5 million at December 31, 1997 to $2.2 million at March
31, 1998, consisting primarily of $2.1 million of purchased equipment leases.
Shareholders' equity increased from $17.7 million at December 31, 1997 to $18.2
million at March 31, 1998, an increase of $445,000 due primarily to net income.
Results of Operations
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
March 31, 1998.
General. Net income for the three months ended March 31, 1998 was $445,000,
an increase of $87,000 or 24.30% from net income of $358,000 for the three
months ended March 31, 1997. This increase was primarily due to a $216,000
increase in net interest income and a $109,000 increase in non- interest income
in the first quarter of 1998, partially offset by a $173,000 increase in
operating expenses and a $65,000 increase in income tax expenses.
<PAGE>
Net Interest Income. Net interest income for the three months ended March
31, 1998 increased $216,000, or 14.04% over the same period in 1997. This
increase was primarily attributable to the success of management's continuing
efforts to restructure the Company's balance sheet by investing new funds and
shifting existing funds into higher-yielding multi-family and commercial real
estate, land development and consumer loans. The Company's net interest margin
(net interest income divided by average interest-earning assets) decreased from
3.56% for the three months ended March 31, 1997 to 3.49% for the three months
ended March 31, 1998. The decline in yield was offset by increased volume as
average interest-earning assets increased from $172.7 million for the first
quarter of 1997 to $201.4 million for the first quarter of 1998.
Interest income on loans increased $506,000 or 15.18% for the three months
ended March 31, 1998 compared to the same three months in 1997, primarily the
result of an increase of $23.0 million in average loans outstanding. This
increase was primarily due to an active residential real estate market in 1997
due to continued low interest rates and a strong local economy, and the ongoing
success of the Company's focus on multi-family and commercial real estate, land
development and consumer loan production. These higher-yielding portfolios
increased from $80.7 million at December 31, 1997 to $86.5 million at March 31,
1998. This increase in volume was augmented by an increase in the average yield
on loans from 8.39% for the first three months of 1997 to 8.45% for the first
three months of 1998, caused primarily by the increasing percentage of loans in
these higher yielding categories.
Interest earned on other investments and FHLB stock increased by $60,000
for the three months ended March 31, 1998 compared to the same three months in
1997. This was the result of an overall $5.8 million increase in the average
balance of other investments primarily due to the Company's efforts to rebuild
its liquidity portfolio with an eye toward addressing its relatively high tax
burden, offset by a decrease in the average yield from 6.01% for the first
quarter of 1997 to 5.47% over the same period in 1998.
Interest expense for the three months ended March 31, 1998 increased
$350,000 or 17.48% over the same period in 1997. This increase was primarily due
to an increase of $29.6 million in average interest-bearing liabilities,
consisting of an additional $22.1 million in the average balance of customer
deposit accounts and a $7.5 million increase in the average balance of Federal
Home Loan Bank advances drawn to fund loan demand The average rate paid on
interest bearing liabilities remained virtually unchanged at 4.84% for the first
quarter of 1997 and 4.82% the first quarter of 1998.
Provision for Loan Losses. The Company establishes its provision for loan
losses based on a systematic analysis of risk factors in the loan portfolio. The
analysis includes evaluation of concentration of credit, past loss experience,
current economic conditions, the amount and composition of the loan portfolio,
estimated fair value of the underlying collateral, loan commitments outstanding,
delinquencies and industry standards. From time to time, management also uses
the services of a consultant to assist in the evaluation of its growing
multi-family and commercial real estate loan portfolio. Management's analysis
results in the allocations of allowance amounts for each loan type. Based on
this analysis, during the quarter ended June 30,
<PAGE>
1996 the Company recorded an $800,000 provision for loan losses primarily in
response to the situation involving the Bennett Funding Group ("Bennett") of
Syracuse, New York through which the Company owned $2.4 million of equipment
leases. A settlement involving the restructuring of these loans was reached
during the second quarter of 1997 and resulted in a write down of $319,000.
Management continues to allocate $651,000 of the $1.5 million allowance to the
remaining leases and the restructured loan to provide for potential losses. It
is believed that this reserve allocation will be sufficient to cover any losses.
The Company also recorded a $24,000 provision for loan losses during the three
months of 1998 as a result of its analysis of the Company's current loan
portfolios. In addition to the $2.1 million of Bennett leases there were
$172,000 of non-performing or restructured loans at March 31, 1998. At March 31,
1998, the Company's allowance equaled 0.81% of net loans receivable
Non-Interest Income. Non-interest income for the three months ended March
31, 1998 increased by $109,000, or 54.77%, over the same period in 1997. This
was primarily due to a $42,000 increase in service charges and fees on deposit
accounts due to the increasing number of these accounts, an $18,000 increase in
the gain on the sale of mortgage loans in the secondary market resulting from
the increased sales activity and a $12,000 increase in fees from the sale of
annuities and insurance products through the Bank's subsidiary, Lafayette
Insurance & Investments, Inc. (LIII).
Non-Interest Expense. Non-interest expense for the three months ended March
31, 1998 increased $173,000 over the same period in 1997. The major components
of this increase included a $93,000 increase in salaries and employee benefits
and a $22,000 increase in advertising expense. The increases were primarily
incurred in connection with the opening of the Company's fourth branch.
Income Tax Expense. The Company's income tax provision increased by $65,000
for the quarter ended March 31, 1998 compared to the quarter ended March 31,
1997. This was primarily due to the increase in income before income taxes.
Liquidity. Liquidity management is both a daily and long-term function for
the Bank's senior management. The Bank adjusts its investment strategy, within
the limits established by the investment policy, based upon assessments of
expected loan demand, expected cash flows, FHLB advance opportunities, market
yields and objectives of its asset/liability management program. Base levels of
liquidity have generally been invested in interest-earning overnight and time
deposits with the FHLB of Indianapolis. Funds for which a demand is not foreseen
in the near future are invested in investment and other securities for the
purpose of yield enhancement and asset/liability management.
The Bank is required to maintain minimum levels of liquidity as defined by
regulatory agencies. The liquidity requirement, which can vary, is based upon a
percentage of deposits and short term borrowings and is currently 4.0%. The
Bank's internal policy for liquidity is 6% to 8%. The Company's liquidity ratios
at December 31, 1997 and March 31, 1998 were 7.77% and 10.05%, respectively. The
Company expects the liquidity level to decline with the expected growth in the
loan portfolio and through scheduled maturities of FHLB advances.
<PAGE>
Capital Resources. Shareholders' equity totaled $18.2 million at March 31,
1998 compared to $17.7 million at December 31, 1997, an increase of $445,000 or
2.51%, due to net income of $445,000, and an $80,000 decrease in unearned ESOP
shares and unamortized cost of Bank Recognition and Retention Plan shares,
offset by $92,000 of cash dividends paid to shareholders.
Federal regulations require the Bank to maintain certain minimum levels
of regulatory capital. The regulations currently require that core capital as
defined be 4.0% of total assets, and that risk based capital be at least 8.0% of
risk-based assets as defined by regulations. At March 31, 1998 the Bank's
capital ratios were as follows:
Amount Percent of
(000) applicable assets
----------------------------------------
Tangible capital $16,892 7.82%
Requirement 3,238 1.50
------- -----
Excess $13,654 6.32%
======= =====
Core capital $16,892 7.82%
Requirement 6,477 3.00
------- -----
Excess $10,415 4.82%
======= =====
Risk-based Capital $17,985 11.85%
Requirement 12,121 8.00
------- -----
Excess $ 5,864 3.85%
======= =====
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and the Bank, from time to time, are involved as plaintiff or
defendant in various legal actions arising in the normal course of business.
While the ultimate outcome of these proceedings cannot be predicted with
certainty, it is the opinion of management, after consultation with counsel
representing the Bank in the proceedings, that the resolution of any prior and
pending proceedings should not have a material effect on the Company or the
Bank's financial condition or results of operations.
Item 2. CHANGES IN SECURITIES
None to be reported.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None to be reported.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to be reported.
Item 5. OTHER INFORMATION
None to be reported.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See exhibit index.
(b) Reports on Form 8-K
None to be reported.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LSB FINANCIAL CORP.
(Registrant)
Date May 11, 1998 /S/JOHN W. COREY
-------------------------------------
John W. Corey, President
(Principal Executive Officer)
Date May 11, 1998 /S/MARY JO DAVID
-------------------------------------
Mary Jo David, Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
11 Computation of Per Share Earnings
27 Financial Data Schedule
LSB FINANCIAL CORP.
COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31, 1998 March 31, 1997
Weighted
Average Per share Average Per share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common shareholders $ 445 857,383 $0.52 $ 358 879,519 $0.41
Effect of dilutive securities
Options 31,517 17,873
Diluted EPS
Income available to common shareholders $ 445 888,900 $0.50 358 897,392 $0.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary information extracted from the quarterly
report on Form 10-QSB for the quarter ended March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5729
<INT-BEARING-DEPOSITS> 6196
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10446
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 182902
<ALLOWANCE> 1502
<TOTAL-ASSETS> 216065
<DEPOSITS> 146240
<SHORT-TERM> 50000
<LIABILITIES-OTHER> 1465
<LONG-TERM> 181
0
0
<COMMON> 9
<OTHER-SE> 18170
<TOTAL-LIABILITIES-AND-EQUITY> 197886
<INTEREST-LOAN> 3840
<INTEREST-INVEST> 195
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 4107
<INTEREST-DEPOSIT> 1609
<INTEREST-EXPENSE> 2352
<INTEREST-INCOME-NET> 1755
<LOAN-LOSSES> 24
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1299
<INCOME-PRETAX> 740
<INCOME-PRE-EXTRAORDINARY> 740
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 445
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 3.49
<LOANS-NON> 2249
<LOANS-PAST> 0
<LOANS-TROUBLED> 1400
<LOANS-PROBLEM> 1481
<ALLOWANCE-OPEN> 1478
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1502
<ALLOWANCE-DOMESTIC> 1502
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 185
</TABLE>
