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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
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 Incorporation or organization) | (I.R.S. Employer 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
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 OCTOBER 19, 2000 |
Common stock, par value $.01 per share | 1,391,096 |
Transitional Small Business Disclosure Format: YES [ ] NO [X]
LSB FINANCIAL CORP.
INDEX
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................................ 6-10
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. 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., 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 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 September 30, | Year-to-date September 30, | |||
2000 |
1999 | 2000 |
1999 | |
Weighted average shares outstanding (excluding unearned ESOP shares) |
1,329,192 | 1,305,922 | 1,321,539 | 1,301,582 |
Shares used to compute diluted earnings per share |
1,355,826 | 1,345,790 | 1,344,732 | 1,344,883 |
Earnings per share | $0.39 | $0.38 | $1.16 | $1.07 |
Diluted earnings per share | $0.38 | $0.37 | $1.14 | $1.04 |
MANAGEMENT'S DISCUSSION OF RECENT OPERATING RESULTS
All references in this quarterly report to "we," "us," "our," and the "Company" refer to LSB Financial Corp. and/or Lafayette Savings Bank, FSB, as the context requires.
Financial Condition
Comparison of Financial Condition at September 30, 2000 and December 31, 1999.
Our total assets increased $18.6 million during the nine months from December 31, 1999 to September 30, 2000. This increase was primarily due to a $19.3 million increase in our loan portfolio, partially offset by a $2.5 million decrease in cash and cash equivalents, 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. Investment securities increased $1.5 million primarily because of the Company's purchase of a $1.3 million portion of a local redevelopment revenue bond. We used an $11.8 million increase in deposits and a $4.8 million increase in Federal Home Loan Bank Advances to fund loan growth and provide liquidity for future lending activity. Non-performing loans decreased from $993,000 at December 31, 1999 to $431,000 at September 30, 2000. Shareholders' equity increased from $19.8 million at December 31, 1999 to $21.2 million at September 30, 2000, an increase of $1.4 million due primarily to net income partially offset by the payment of cash dividends.
Results of Operations
Comparison of Operating Results for the Nine Months and the Quarter Ended September 30, 1999 and September 30, 2000.
General.Net income for the nine months ended September 30, 2000 was $1.5 million, an increase of $140,000 or 10.05% from net income of $1.4 million for the nine months ended September 30, 1999. This increase was due primarily to a $495,000 increase in net interest income partially offset by a $347,000 increase in non-interest expenses. Net income for the third quarter of 2000 was $513,000, compared to $498,000 for the same period in 1999, due primarily to a $108,000 increase in net interest income and a $50,000 increase in noninterest income, offset by a $148,000 increase in non-interest expenses.
Net Interest Income.Net interest income for the nine months ended September 30, 2000 was $6.4 million, an increase of $495,000, or 8.34%, over the same period in 1999. Net interest
income for the third quarter of 2000 increased $108,000, or 5.22%, over the same period in 1999. These increases were primarily volume driven due to management's success in growing the balance sheet. Loan income during the third quarter also included a
$99,000 payment received from the Bennett Funding bankruptcy trustee. This loan was in nonaccrual status for a long period of time and the remaining balance was charged off in 1999. This payment represents proceeds from collateral liquidation and
collection on one problem lease. Management does not anticipate significant future payments. Our net interest margin excluding the $99,000 payment (net interest income divided by average interest-earning
assets) increased from 3.33% for the nine months ended September 30, 1999 to 3.34% for the nine months ended September 30, 2000. Average interest-earning assets increased from $237.9 million for the first nine months of 1999 to $254.4 million for the first nine months of 2000. The interest rate spread for the first nine months increased from 3.09% for 1999 to 3.12% for 2000.
Interest income on loans increased $1.5 million or 11.76% for the nine months ended September 30, 2000 compared to the same nine months in 1999, primarily the result of an increase of $19.4 million in average loans outstanding. This increase was primarily due to an active residential real estate market resulting from a strong local economy, and a continuing focus on commercial and consumer loan production. This increase in interest income was also attributable to an increase in the average yield on loans from 8.06% for the first nine months of 1999 to 8.25% for the first nine months on 2000, due to rising interest rates in the economy. Interest income on loans increased $619,000 for the third quarter of 2000 compared to the third quarter of 1999 due primarily to a $20.7 million increase in average loans.
Interest earned on other investments and Federal Home Loan Bank stock increased by $33,000 for the nine months ended September 30, 2000 compared to the same period in 1999. This was the result of an overall $2.9 million decrease in the average balance of other investments and Federal Home Loan Bank stock, offset by an increase in the average yield from 4.40% for the first nine months of 1999 to 5.15% over the same period in 2000. The yield increase was generally due to our replacing the short-term investments purchased early in 1999 with longer term, higher yielding investments, as well as to the rising rates in the economy. Interest income on other investments and Federal Home Loan Bank stock increased $54,000 for the third quarter of 2000 compared to the third quarter of 1999 due primarily to an $845,000 increase in the average balance of other investments and Federal Home Loan Bank stock.
Interest expense for the nine months ended September 30, 2000 increased $1.0 million or 13.52% over the same period in 1999. This increase was primarily due to an increase of $17.0 million in average interest-bearing liabilities, consisting of an additional $11.4 million in the average balance of customer deposit accounts and a $5.6 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 increased from 4.57% for the first nine months of 1999 to 4.83% for the same period in 2000 due primarily to increasing interest rates in the economy. Interest expense increased $565,000 for the third quarter of 2000 over the same period in 1999 primarily due to a $19.8 million increase in average interest-bearing liabilities along with an increase in the average rate paid from 4.50% for the three month period in 1999 to 5.05% for the same period in 2000.
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 allocation of allowance amounts to each loan type. We recorded
a $108,000 provision for
loan losses during the nine months of 2000 as a result of analyzing our current loan portfolios. This compares to a $90,000 provision for the first nine months of 1999. There were $431,000 of non-performing or restructured loans at September 30, 2000 compared to $1.1 million of non-performing or restructured loans at September 30, 1999 (excluding the $2.1 million of Bennett Funding Group leases of which $1.4 million was recovered and $671,000 was written off against the allowance for loan losses in December 1999). At September 30, 2000, our allowance equaled 0.41% of net loans receivable and 220.78% of non-performing assets compared to 0.75% and 53.44% respectively at September 30, 1999.
Non-Interest Income. Non-interest income for the nine months ended September 30, 2000 increased by $29,000, or 3.16%, compared to the same period in 1999. This was primarily due to a $72,000 increase in fee income on various services, offset by a $59,000 decrease in the gain on the sale of mortgage loans in the secondary market resulting from the decreased sales activity. Non-interest income for the third quarter of 2000 increased by $50,000 over the same period in 1999, primarily due to an increase in the gain on the sale of mortgage loans in the secondary market due to an increase in the volume of loans sold with servicing released.
Non-Interest Expense. Non-interest expense for the nine months ended September 30, 2000 increased $347,000 over the same period in 1999. The major components of this increase included a $205,000 increase in salaries and employee benefits primarily due to merit increases and the hiring of a Chief Operating Officer, a $103,000 increase in occupancy and equipment expense due to the purchase of a building to house back-office operations and a $61,000 increase in various other expenses. Non-interest expense for the third quarter of 2000 increased by $148,000 over the same period in 1999, primarily due to a $91,000 increase in salaries and employee benefits, and a $60,000 increase in occupancy expenses due to the new building.
Income Tax Expense. The Company's income tax provision increased by $19,000 for the nine months ended September 30, 2000, compared to the same period in 1999, and decreased $11,000 for the third quarter of 2000 compared to the same period in 1999. These changes were driven by changes in income before tax and by a slightly lower effective tax rate in 2000, compared to 1999.
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, Federal Home Loan Bank advance opportunities, market yields and objectives of our asset/liability management program. Base levels of liquidity have generally been invested in interest-earning overnight and time deposits with the Federal Home Loan Bank 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.
We are 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 4.00%. Our internal policy for liquidity is 6% to 8%. Our liquidity ratios at December 31, 1999 and September 30, 2000 were 8.79% and 7.84%, respectively.
Capital Resources. Shareholders' equity totaled $21.2 million at September 30, 2000 compared to $19.8 million at December 31, 1999, an increase of $1.4 million or 7.22%, due to net income of $1.5 million and a reduction in unearned ESOP shares and the unamortized cost of the Recognition and Retention plan, offset by $355,000 of cash dividends paid to shareholders.
Federal regulations require Lafayette Savings Bank to maintain certain minimum levels of regulatory capital. The regulations currently require that core capital be at least 4.0% of total assets, and that risk based capital be at least 8.0% of risk-based assets. At September 30, 2000 our capital ratios were as follows:
Amount (000) |
Percent of Applicable assets | |
Tangible and Core capital | $20,317 | 7.37% |
Requirement | $11,025 | 4.00% |
Excess | $9,292 | 3.37% |
Risk-based capital | $21,310 | 11.27% |
Requirement | $15,128 | 8.00% |
Excess | $6,182 | 3.27% |
REGARDING FORWARD-LOOKING STATEMENTS
This document, including information included or incorporated by reference, contains, and future filings by LSB Financial of Form 10-KSB, Form 10-QSB and Form 8-K and future oral and written statements by LSB Financial and our management may contain, forward-looking statements about LSB Financial and its subsidiaries which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management. Words such as "may", "could", "should", "would", "believe", "anticipate", "estimate", "expect", "intend", "plan" and similar expressions are intended to identify forward-looking statements. Forward-looking statements by LSB Financial and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. The important factors we discuss below and elsewhere in this document, as well as other factors discussed under the caption "Management's Discussion of Recent Operating Results" in this document and identified in our filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document:
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:
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company, from time to time, is 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 Company 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K
None to be reported.
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 3, 2000 | /s/ JOHN W. COREY John W. Corey, President (Principal Executive Officer) |
Date November 3, 2000 | /s/ MARY JO DAVID Mary Jo David, Treasurer (Principal Financial and Accounting Officer) |
INDEX TO EXHIBITS
Regulation S-K Exhibit Number |
Document |
3 | Articles of Incorporation and Bylaws, filed on September 21, 1994 as exhibits to
Registrant's Registration Statement on Form S-1 (File No. 33-84266), are
incorporated by reference. |
4 | Registrant's Specimen Stock Certificate, filed on September 21, 1994 as exhibits
to Registrant's Registration Statement on Form S-1 (File No. 33-84266), is
incorporated by reference. |
10.1 | Registrant's 1995 Stock Option and Incentive Plan, filed on July 11, 1995 as
Appendix A to Registrant's Proxy Statement on Schedule 14A (File No. 0-25070), is incorporated herein by reference. |
10.2 | Severance Agreement by and between the Registrant's operating subsidiary and
John W. Corey, filed on September 21, 1994 as exhibits to Registrant's
Registration Statement on Form S-1 (File No. 33-84266), is incorporated by
reference. |
10.3 | Registrant's 1995 Recognition and Retention Plan, filed on July 11, 1995 as
Appendix B to Registrant's Proxy Statement on Schedule 14A (File No. 0-25070), is incorporated herein by reference. |
10.4 | Employment Agreement for Clark K. Bush |
11 | Statement re computation of per share earnings |
27 | Financial Data Schedule |
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