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 September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to ________
Commission file number 0-25070.
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 NOVEMBER 10, 1999
- --------------------- --------------------------------
Common stock, par value $.01 per share 1,381,118
Transitional Small Business Disclosure 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
Item 2. Management's Discussion of Recent Operating Results...... 12
PART II. OTHER INFORMATION........................................ 12
SIGNATURES............................................... 13
EXHIBIT INDEX............................................ 14
<PAGE>
LSB FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
----------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $9,646 $6,650
Available-for-sale securities 12,675 10,871
Loans held for sale 2,694 329
Gross loans receivable 198,230 221,885
Less: Allowance for loan losses (1,578) (1,668)
----------------------------------------
Loans, net of allowance 196,652 220,217
Premises and equipment, net 5,805 5,940
FHLB stock, at cost 2,825 3,050
Accrued interest receivable and other assets 2,514 2,833
----------------------------------------
Total Assets $232,811 $249,890
========================================
Liabilities and Shareholders' Equity
Liabilities
Deposits $161,781 $175,156
Advances from FHLB 51,500 54,000
Note payable 156 130
Accrued interest payable and other liabilities 1,180 1,275
----------------------------------------
Total liabilities 214,617 230,561
Shareholders' Equity
Common stock 9 14
Additional paid-in-capital 8,064 8,138
Retained earnings 10,703 11,775
Unearned ESOP shares (492) (436)
Unamortized cost of recognition and retention plan (152) (85)
Accumulated other comprehensive income 62 (77)
----------------------------------------
Total shareholders' equity 18,194 19,329
----------------------------------------
Total liabilities and shareholders' equity $232,811 $249,890
========================================
</TABLE>
See accompanying notes
1
<PAGE>
LSB FINANCIAL CORP.
STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, including related fees $4,385 $4,092 $12,833 $11,863
Available-for-sale securities 198 199 663 617
FHLB stock 63 59 181 161
-----------------------------------------------------------------------
Total interest income 4,646 4,350 13,677 12,641
Interest Expense
Deposits 1,790 1,741 5,321 4,984
Borrowings 789 772 2,424 2,272
-----------------------------------------------------------------------
Total interest expense 2,579 2,513 7,745 7,256
Net interest income 2,067 1,837 5,932 5,385
Provision for loan losses 30 30 90 84
-----------------------------------------------------------------------
Net interest income after provision for loan losses 2,037 1,807 5,842 5,301
Noninterest Income
Service charges and fees 148 131 432 401
Gain on sale of securities and assets 0 0 0 0
Net gain on mortgage loans originated for sale 15 90 123 329
Other 123 98 362 283
-----------------------------------------------------------------------
Total noninterest income 287 319 917 1,013
Noninterest Expense
Salaries and benefits 780 710 2,282 2,070
Occupancy and equipment, net 203 238 657 646
Computer service 56 65 213 190
Advertising 108 80 293 257
Other 351 309 998 885
-----------------------------------------------------------------------
Total noninterest expense 1,498 1,402 4,443 4,048
Income before income taxes 826 724 2,316 2,266
Less: income taxes 327 295 924 923
-----------------------------------------------------------------------
Net income $498 $429 $1,392 $1,343
=======================================================================
Earnings per share (Note 3) $0.38 $0.32 $1.07 $1.03
Diluted Earnings per Share $0.37 $0.31 $1.04 $0.99
Book value per share $14.77 $13.83 $14.77 $13.83
</TABLE>
See accompanying notes
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
Unamortized
Cost of Accumulated
Additional Unearned Recognition Other
Common Paid-In Retained ESOP and Retention Comprehensive
Stock Capital Earnings Shares Plan Income Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $9 $7,854 $10,677 ($570) ($242) $6 $17,734
Exercise of stock option 1 19 20
ESOP shares earned 129 60 189
RRP expense 67 67
Treasury stock acquired (952) (952)
Dividends paid (280) (280)
Comprehensive income (1) 1,359 (1,366) (8)
Net income
Change in unrealized
gain/(loss) 1,343 1,343
Total comprehensive income 65 65
-------
1,408
Balance at September 30, 1998
---------------------------------------------------------------------------------------------
$9 $8,409 $10,374 ($510) ($175) $71 $18,178
=============================================================================================
Balance at January 1, 1999 $9 $8,064 $10,703 ($492) ($152) $62 $18,194
Adjustment for stock split 5 (5)
Exercise of stock option 28 28
ESOP shares earned 111 56 167
RRP expense 67 67
Treasury stock acquired (60) (60)
Dividends paid (320) (320)
Comprehensive income
Net income 1,392 1,392
Change in unrealized
gain/(loss) (139) (139)
-------
Total comprehensive income 1,253
---------------------------------------------------------------------------------------------
Balance at September 30, 1999 $14 $8,138 $11,775 ($436) ($85) ($77) $19,329
=============================================================================================
</TABLE>
See accompanying notes
3
<PAGE>
LSB FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months ended September 30,
1998 1999
-----------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $1,343 $1,392
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 294 323
Net amortization/(accretion) on securities (2) 48
Gain on sale of securities 0 0
Writedown of loans held for sale 0 0
Gain on sale of loans (329) (123)
Loans originated for sale, net of sales proceeds (1,403) 2,488
Deferred loan fees, net (64) (15)
Provision for loan losses 84 90
Employee stock ownership plan shares earned 189 167
Change in assets and liabilities
Accrued interest receivable (91) 17
Other assets 72 (176)
Accrued interest payable (21) 15
Other liabilities 137 (108)
----------------------------------------
Net cash from operating activities 209 4,118
Cash Flows from Investing Activities
Purchases of available-for-sale securities (6,297) (1,486)
Proceeds from paydowns and maturities of
available-for-sale securities 3,497 3,011
Sales of available-for-sale securities 0 0
Purchase of Federal Home Loan Bank stock (225) (225)
Loans made to customers net of payments received (14,232) (23,640)
Property and equipment expenditures (347) (459)
----------------------------------------
Net cash from investing activities (17,604) (22,799)
Cash Flows from Financing Activities
Net change in deposits 19,702 13,375
Proceeds from Federal Home Loan Bank advances 12,500 29,000
Payments on Federal Home Loan Bank advances (12,500) (26,500)
Net change in advances from borrowers
for taxes and insurance 223 188
Payments on note payable (25) (26)
Treasury Stock Purchased (952) (60)
Dividends paid (288) (320)
Stock options exercised 20 28
----------------------------------------
Net cash from financing activities 18,680 15,685
Net change in cash and equivalents 1,285 (2,996)
Cash and equivalents at January 1 9,938 9,646
----------------------------------------
Cash and equivalents at June 30 $11,223 $6,650
========================================
</TABLE>
See accompanying notes
4
<PAGE>
LSB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 1 - General
These interim 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. 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. The results of operations
for the interim periods disclosed herein are not necessarily indicative of the
results that may be expected for a full year.
Note 2 - Principles of Consolidation
The accompanying financial statements include the accounts of LSB Financial
Corp., its wholly owned subsidiary Lafayette Savings Bank, FSB and Lafayette
Savings' wholly owned subsidiaries, LSB Service Corporation and Lafayette
Insurance and Investments, Inc. All significant intercompany transactions have
been eliminated upon consolidation.
Note 3 - Earnings per share
Earnings per share are computed 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. On June 4,
1999, a 3-for-2 stock split in the form of a 50% stock dividend was paid to
shareholders of record on May 14, 1999. This dividend resulted in the issuance
of an additional 459,365 shares. All share and per share data has been restated
to reflect the effect of this split. The following table presents information
about the number of shares used to compute earnings per share and the results of
the computations:
Quarter ended Nine months ended
September 30 September 30
1999 1998 1999 1998
--------- --------- -------- --------
Weighted average shares
outstanding (excluding
unearned ESOP shares) 1,305,922 1,331,483 1,301,582 1,297,091
Shares used to compute
diluted earnings per
share 1,345,790 1,387,515 1,344,883 1,351,125
Basic earnings per share $0.38 $0.32 $1.07 $1.03
Diluted earnings per share $0.37 $0.31 $1.04 $0.99
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD LOOKING STATEMENTS
LSB Financial Corp. may from time to time make written or oral
forward-looking statements, including statements contained in our filings with
the Securities and Exchange Commission, including this Quarterly Report on Form
10-QSB and its exhibits, and in other communications by us, which are made in
good faith pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words "may", "could", "should", "would",
"believe", "anticipate", "estimate", "expect", "intend", "plan" and similar
expressions are intended to identify forward-looking statements. References in
this Form 10-QSB to "we", "us", and "our" refer to LSB Financial and its
subsidiaries as the context requires.
Forward-looking statements include statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, estimates and intentions,
that are subject to significant risks and uncertainties. The following factors,
many of which are subject to change based on various other factors beyond our
control, could cause our financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements:
o the strength of the United States economy in general and the
strength of the local economies in which we conduct our operations;
o the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Federal
Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
o the willingness of users to substitute competitors' products and
services for our products and services;
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and saving habits; and
o our success at managing the risks involved in the foregoing.
This list of important factors is not exclusive. We do not undertake to
update any forward-looking statement, whether written or oral, that we may make.
IMPACT OF THE YEAR 2000
The approaching millennium is causing organizations of all types to
review their computer
6
<PAGE>
systems for the ability to properly accommodate the year 2000. When computer
systems were first developed, two digits were used to designate the year in date
calculations and "19" was assumed for the century. As a result, there is
significant concern about the integrity of date sensitive calculations when the
calendar rolls over to January 1, 2000. An older system could interpret 01/01/00
as January 1, 1900 potentially causing major problems including but not limited
to calculating interest, payment, delinquency and/or maturity dates. An internal
committee comprised of four officers has been formed to address the potential
risk that the year 2000 poses to our business. This committee reports to the
audit committee of the board and the full board of directors quarterly or more
often as warranted.
Financial institution regulators have issued guidance concerning the
responsibilities of senior management and directors. The Federal Financial
Institutions Examination Council has issued several interagency statements on
Year 2000 Project Management Awareness. These statements require financial
institutions to, among other things, examine the year 2000 issue with respect to
their customers, suppliers and borrowers. These statements also require each
federally insured financial institution to survey its exposure, measure its risk
and prepare a plan to address the year 2000 issue. In addition, the federal
banking regulators have issued safety and soundness guidelines to be followed by
insured depository institutions to assure resolution of any year 2000 problems.
Accurate data processing is essential to our operations. A lack of
accurate processing by our vendors or us could have a significant adverse impact
on our financial condition and results of operations. We have been assured by
our outside data processing service that their computer services will function
properly on and after January 1, 2000. We have, however, developed a contingency
plan, in the unlikely event that our data processing service does not function
properly on or after January 1, 2000. This plan contemplates conducting
operations in a manual mode, including the recording of transactions on
spreadsheets.
We have also received year 2000 updates from most of our material,
non-information system providers, including but not limited to security cameras,
credit card and ATM card processors, the vault alarm, check printers, telephone
systems, participation loan servicers, and institutions we invest through or
with. Based on these updates, we do not anticipate any significant year 2000
issues. We have identified certain hardware and software that was not Year 2000
compliant and have purchased, installed and tested replacement equipment and
software. Expenditures for this equipment were approximately $184,000.
In addition to expenses related to our own systems, we could incur losses
if loan payments are delayed due to year 2000 problems affecting any of our
significant borrowers or impairing the payroll systems of large employers in our
market area. We have been communicating with our vendors to assess their
progress in evaluating their systems and implementing any corrective measures
required by them to be prepared for the year 2000. We also sent year 2000
readiness request letters to certain borrowers. These borrowers were selected
based on the aggregate amounts owed to us, the type of loans outstanding, and
the perceived year 2000 risk based on our knowledge of the loan customers and
their operations. We have been advised by such parties that they have plans in
place to address and correct the issues associated with the year 2000 problem;
however, no assurance can be given as to the adequacy of these plans or to the
timeliness of their implementation.
7
<PAGE>
Additionally, systems are in place to evaluate the year 2000 status of new
borrowers based on the above criteria, but due to the types of borrowers doing
business with us and the nature of our loans with these borrowers, we do not
consider the year 2000 issue a major part of our underwriting criteria.
FINANCIAL CONDITION
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31,
1998.
Our total assets increased from $232.8 million to $249.9 million, or $17.1
million, during the nine months from December 31, 1998 to September 30, 1999.
This increase was primarily due to a $23.6 million increase in our loan
portfolio offset by a $2.4 million decrease in loans held for sale as we
continued our efforts to grow by aggressively seeking to attract new residential
mortgage borrowers and to increase the size of our higher-yielding multi-family,
commercial real estate, land and land development and consumer loan portfolios.
Cash and cash equivalents and securities decreased $4.8 million as money was
moved from lower yielding securities into higher yielding loan portfolios. We
used a $13.4 million increase in deposits and a net $2.5 million increase in
Federal Home Loan Bank advances primarily to fund loan growth. Non-performing
loans at September 30, 1999 were at $3.1 million, consisting primarily of $2.1
million of purchased equipment leases and $717,000 of residential real estate
loans, compared to $2.7 million at December 31, 1998. Shareholders' equity
increased from $18.2 million at December 31, 1998 to $19.3 million at September
30, 1999, an increase of $1.1 million due primarily to net income partially
offset by the payment of a cash dividend.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS AND THE QUARTER ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999.
GENERAL. Net income for the nine months ended September 30, 1999 was $1.4
million, an increase of $49,000 or 3.65% from net income for the nine months
ended September 30, 1998. This increase was primarily due to a $547,000 or
10.17% increase in net interest income and a $110,000 increase in service
charges and other non-interest income for the first nine months of 1999. The
increases were partially offset by a $395,000 increase in operating expenses,
and a $206,000 decrease in the gain on mortgage loans originated for sale. Net
income for the third quarter of 1999 was $498,000 compared to $429,000 for the
same period in 1998 due primarily to a $230,000 increase in net interest income
offset by a $96,000 increase in non-interest expenses and a $75,000 decrease in
the gain on mortgage loans originated for sale.
NET INTEREST INCOME. Net interest income for the nine months ended
September 30, 1999 was $5.9 million, an increase of $547,000, or 10.16%, over
the same period in 1998. Net interest income for the third quarter of 1999
increased $230,000, or 12.54%, over the same period in 1998. These increases
were primarily volume driven due to management's success in growing the balance
sheet. Our net interest margin (net interest income divided by average
interest-earning assets) decreased from 3.49% for the nine months ended
September 30, 1998 to 3.33% for the nine months
8
<PAGE>
ended September 30, 1999. Average interest-earning assets increased from $206.0
million for the first nine months of 1998 to $237.9 million for the nine months
of 1999, while our interest rate spread for the same period decreased from 3.31%
for 1998 to 3.10% for 1999.
Interest income on loans increased $970,000 or 8.18% for the nine months
ended September 30, 1999 compared to the same nine months in 1998, primarily the
result of an increase of $25.1 million in average loans outstanding. This
increase was primarily due to an active residential real estate market in 1999
due to continued low interest rates, a strong local economy and the ongoing
success of our focus on increasing our originations of the higher yielding
multi-family and commercial real estate, land development and consumer loans.
These higher-yielding portfolios increased from $92.4 million at December 31,
1998 to $101.7 million at September 30, 1999. Despite this increase, the average
yield on loans decreased from 8.45% for the first nine months of 1998 to 8.06%
for the first nine months of 1999, due to continued low market interest rates
and the increasing number of our 3-year adjustable rate mortgages repricing to
substantially lower interest rates. Interest income on loans increased $293,000
for the third quarter of 1999 compared to the third quarter of 1998 due
primarily to a $24.7 million increase in average loans.
Interest earned on other investments and Federal Home Loan Bank stock
increased by $66,000 for the nine months ended September 30, 1999 compared to
the same period in 1998. A $6.7 million increase in the average balance of other
investments was offset by a decrease in the average yield from 5.51% for the
first three quarters of 1998 to 4.40% over the same period in 1999 partially due
to our maintaining higher levels of short-term investments early in the year to
fund loans as short-term data processing conversion problems were resolved.
Interest earned on other investments and Federal Home Loan Bank stock for the
three month period ended September 30, 1999 was virtually unchanged compared to
the same period in 1998.
Interest expense for the nine months ended September 30, 1999 increased
$489,000 or 6.74% over the same period in 1998. This increase was primarily due
to an increase of $27.3 million in average interest-bearing liabilities,
consisting of an additional $21.2 million in the average balance of customer
deposit accounts and a $6.4 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 decreased slightly from 4.87% for the first nine
months of 1998 to 4.57% for the same period in 1999. Interest expense increased
$66,000 for the third quarter of 1999 over the same period in 1998 primarily due
to a $25.2 million increase in average interest-bearing liabilities partially
offset by a decrease in the average rate paid from 4.87% for the three month
period in 1998 to 4.58% for the same period in 1999.
PROVISION FOR LOAN LOSSES. We establish our 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. The majority
of our non-performing loans relate to a situation involving
9
<PAGE>
the Bennett Funding Group of Syracuse, New York through which we had acquired
$2.4 million of equipment leases. Upon learning of the fraudulent activities
involving Bennett, $970,000 was initially reserved against the leases. A
settlement reached in June of 1997 resulted in a write-down of $319,000, leaving
$651,000 in reserves on $2.1 million of the remaining leases. The leases were
then divided into a $1.4 million restructured loan due to pay off at December
31, 1999 for which there are no concerns, and a $671,000 lease of office
equipment to a company. The entire $651,000 reserve will likely be used to write
off this lease in the fourth quarter. We also recorded a $90,000 provision for
loan losses during the nine months of 1999 as a result of analyzing the risks
inherent in our current loan portfolios. This compares to an $84,000 provision
for the first nine months of 1998. In addition to the $2.1 million of Bennett
Funding Group leases there were $1.1 million of non-performing or restructured
loans at September 30, 1999. At September 30, 1999, our allowance equaled 0.75%
of gross loans receivable compared to 0.79% at September 30, 1998 and 53.44% of
non-performing loans compared to 61.48% at September 30, 1998.
NON-INTEREST INCOME. Non-interest income for the nine months ended
September 30, 1999 decreased by $96,000, or 9.48%, compared to the same period
in 1998. This was primarily due to a $206,000 decrease in the gain on the sale
of mortgage loans in the secondary market resulting from the decreased sales
activity and lower average gains on loans sold. We sell the majority of our
fixed rate mortgage loans on the secondary market, and with the increase in
market rates, customer preference is for adjustable rate mortgages. This
decrease was offset by a $31,000 increase in service charges and fees on deposit
accounts due to the increased number of these accounts, a $50,000 increase in
fees on various debit and credit card products and a $29,000 increase in income
from our insurance and investment subsidiary. Non-interest income for the third
quarter of 1999 decreased by $32,000 compared to the same period in 1998,
primarily due to a $75,000 decrease in the gain on the sale of loans in the
secondary market partially offset by a $17,000 increase in service charges and
various fees and a $26,000 increase in other fees.
NON-INTEREST EXPENSE. Non-interest expense for the nine months ended
September 30, 1999 increased $395,000 over the same period in 1998. The major
components of this increase included a $212,000 increase in salaries and
employee benefits due to normal cost of living adjustments and the increased
number of employees required to handle the additional customer and transaction
activities corresponding to a $22.8 million growth in asset size, a $59,000
increase in data processing and advertising costs due partially to Year 2000
remediation and communication efforts. Noninterest expense for the third quarter
of 1999 increased by $96,000 over the same period in 1998, due primarily to the
same reasons described above.
INCOME TAX EXPENSE. Income taxes remained virtually unchanged for the nine
months ended September 30, 1999 compared to the same period in 1998. The
Company's income taxes for the third quarter of 1999 increased $32,000 over the
same period in 1998 primarily due to the increase in income.
LIQUIDITY. Liquidity management is both a daily and long-term function for
our senior management. We adjust our 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 our asset/liability management program. Base levels
10
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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.
Lafayette Savings 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%. Our internal policy for liquidity is 6% to 8%; however at December 31,
1998 and September 30, 1999, our liquidity ratio was 11.77% and 8.70%,
respectively. The decrease in the number of loans being refinanced and the
offsetting decrease in the need for additional short-term funding are combining
to bring the liquidity levels back within the desired range.
CAPITAL RESOURCES. Shareholders' equity totaled $19.3 million at September
30, 1999 compared to $18.2 million at December 31, 1998, an increase of $1.1
million or 6.24%, due to net income of $1.4 million, and $234,000 of earned
Employee Stock Ownership Plan shares and the recognized cost of shares under our
restricted stock plan, offset by $320,000 of cash dividends paid to
shareholders, $60,000 used to repurchase our common stock in the open market,
and a $139,000 unrealized holding loss on available-for-sale securities. Federal
regulations require Lafayette Savings to maintain certain minimum levels of
regulatory capital. The regulations currently require tangible capital as
defined by regulation to be at least 1.5% of total assets, as also defined by
regulation, 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 September 30, 1999, our capital ratios were as follows:
Amount Percent of
(000) applicable assets
----------- -----------------
Tangible capital $18,280 7.32%
Requirement 3,746 1.50
------- -----
Excess $14,534 5.82%
======= =====
Core capital $18,280 7.32%
Requirement 9,989 4.00
------- -----
Excess $ 8,291 3.32%
======= =====
Risk-based Capital $19,297 11.73%
Requirement 13,165 8.00
------- -----
Excess $ 6,132 3.73%
======= =====
11
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we 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 us in the
proceedings, that the resolution of any prior and pending proceedings should not
have a material effect on our 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) No reports on Form 8-K were filed for the quarter ended September 30,
1999.
12
<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 November 10, 1999 /s/ John W. Corey
---------------------------- ------------------------------------
John W. Corey, President
(Principal Executive Officer)
Date November 10, 1999 /s/ Mary Jo David
----------------------------- ------------------------------------
Mary Jo David, Treasurer
(Principal Financial and Accounting
Officer)
13
<PAGE>
INDEX TO EXHIBITS
Exhibit
NUMBER
11 Computation of Per Share Earnings
27 Financial Data Schedule
14
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands)
For the three months ended
September 30, 1999 September 30, 1998
---------------------------------------------------------------------------------------
Weighted 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 $498 1,305,922 $0.38 $429 1,331,483 $0.32
Effect of dilutive securities
Options 39,868 56,033
Diluted EPS
Income available to common
shareholders 498 1,345,790 $0.37 $429 1,387,515 $0.31
For the nine months ended
September 30, 1999 September 30, 1998
----------------------------------------------------------------------------------------
Basic EPS
Income available to common
shareholders $1,392 1,301,582 $1.07 $1,343 1,297,091 $1.03
Effect of dilutive securities
Options 43,301 54,035
Diluted EPS
Income available to common
shareholders 1,392 1,344,883 $1.04 $1,343 1,351,125 $0.99
</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 September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,694
<INT-BEARING-DEPOSITS> 4,956
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,871
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 222,214
<ALLOWANCE> (1,668)
<TOTAL-ASSETS> 249,890
<DEPOSITS> 175,156
<SHORT-TERM> 54,000
<LIABILITIES-OTHER> 1,275
<LONG-TERM> 130
0
0
<COMMON> 14
<OTHER-SE> 19,315
<TOTAL-LIABILITIES-AND-EQUITY> 249,890
<INTEREST-LOAN> 12,833
<INTEREST-INVEST> 714
<INTEREST-OTHER> 130
<INTEREST-TOTAL> 13,677
<INTEREST-DEPOSIT> 5,321
<INTEREST-EXPENSE> 7,745
<INTEREST-INCOME-NET> 5,932
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,443
<INCOME-PRETAX> 2,316
<INCOME-PRE-EXTRAORDINARY> 2,316
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,392
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 3.33
<LOANS-NON> 1,721
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,400
<LOANS-PROBLEM> 1,060
<ALLOWANCE-OPEN> (1,578)
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (1,668)
<ALLOWANCE-DOMESTIC> (1,668)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 238
</TABLE>
