SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-25814
NS&L BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1709446
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
111 East Main Street, Neosho, Missouri 64850
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 451-0429
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Common Stock, par value $0.01 per share
Section 12(g) of the Act: ---------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES x NO
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendments to this Form 10-KSB. ____
The registrant's revenues for the fiscal year ended September 30,
1996 were $3,856,000.
As of December 3, 1996, there were issued and outstanding 759,082
shares of the registrant's Common Stock, which are listed on the Nasdaq
Smallcap Market under the symbol "NSLB." Based on the average of the bid and
asked prices for the Common Stock on December 3, 1996, the aggregate value of
the Common Stock outstanding held by nonaffiliates of the registrant was
$10,342,492 (759,082 shares at $13.625 per share). For purposes of this
calculation, officers and directors of the registrant are considered
nonaffiliates.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
September 30, 1996 (Parts I and II)
2. Portions of Proxy Statement for the 1997 Annual Meeting of
Stockholders. (Part III)
Transitional Small Business Disclosure Format (check one) Yes No X
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PART I
Item 1. Description of Business
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General
NS&L Bancorp, Inc. ("NS&L Bancorp" or the "Corporation"), a
Missouri corporation, was organized on February 27, 1995 for the purpose of
becoming the holding company for Neosho Savings and Loan Association, F.A.
("Neosho Savings" or the "Association") upon Neosho Savings's conversion from
a federal mutual to a federal stock savings and loan association
("Conversion"). The Conversion was completed on June 7, 1995. At September
30, 1996, the Corporation had total assets of $61.8 million, total deposits of
$48.4 million and stockholders' equity of $12.2 million. NS&L Bancorp has not
engaged in any significant activity other than holding the stock of Neosho
Savings. Accordingly, the information set forth in this report, including
financial statements and related data, relates primarily to Neosho Savings and
its subsidiary.
Neosho Savings, founded in 1884, is a federally chartered stock
savings and loan association, located in Neosho, Missouri. The Association is
regulated by the Office of Thrift Supervision ("OTS"), its primary federal
regulator, and the Federal Deposit Insurance Corporation ("FDIC"), the insurer
of its deposits. The Association's deposits are insured by the Savings
Association Insurance Fund ("SAIF"). The Association has been a member of the
Federal Home Loan Bank ("FHLB") System since 1956.
The Association is a community oriented financial institution
that is engaged primarily in the business of attracting deposits from the
general public and using these funds to originate one- to four-family
residential mortgage loans within the Association's lending market area. The
Association is a portfolio lender and has not sold the mortgage loans that it
originates. At September 30, 1996, one- to four-family residential mortgage
loans totalled $28.6 million, which represented 91.1% of the Association's
total loans at that date.
In addition, the Corporation invests in mortgage-backed
securities issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
the Federal National Mortgage Association ("FNMA") and in investment
securities, including securities issued by the U.S. Government and agencies
thereof. Mortgage-backed securities and investment securities totalled $5.3
million and $12.5 million, respectively, at September 30, 1996.
Recent Developments
Recapitalization of SAIF and SAIF Premiums. On September 30,
1996, the Deposit Insurance Fund ("DIF") Act was enacted into law. Among
other things, the DIF Act authorizes the FDIC to impose a special one- time
assessment on each depository institution with SAIF-assessable deposits so
that the SAIF may achieve its designated reserve ratio. The Association's
assessment was $281,000 on a pre-tax basis ($177,000 on an after-tax basis),
and was accrued during the quarter ended September 30, 1996. In addition, the
DIF Act provides for the merger of the Bank Insurance Fund ("BIF") and the
SAIF on January 1, 1999, but only if no insured depository institution is a
savings association on that date. The DIF contemplates the development of a
common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the financial
condition or results of operations of the Association. See "Regulation --
Federal Regulation of Savings Associations -- Federal Deposit Insurance
Corporation."
Legislation is proposed periodically providing for a
comprehensive reform of the banking and thrift industries, and has included
provisions that would (i) require federal savings associations to convert to a
national bank or a state-chartered bank or thrift, (ii) require all savings
and loan holding companies to become bank holding companies and (iii) abolish
the OTS. Included in such proposed legislation may be provisions imposing
material limitations on the non-banking activities of federal savings
associations, particularly insurance activities. It is
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uncertain when or if any of this type of legislation will be passed, and, if
passed, in what form the legislation would be passed. As a result, management
cannot accurately predict the possible impact of such legislation on the
Association.
Acquisition of Lot for Future Development. In December 1996, the
Corporation entered into an agreement to purchase a lot in a commercial
development in the south part of Neosho, Missouri. The purchase is expected
to close in January 1997. The lot is being purchased for a possible future
expansion site for the Association. At this time, no plans or time frame for
the utilization of this location have been developed.
Market Area and Competition
Neosho, Missouri is located in Newton County approximately 20
miles southeast of Joplin, Missouri in the Southwest corner of Missouri. The
Association focuses primarily on serving customers located in Newton County,
Missouri and, to a lesser extent, on customers in surrounding counties in
southwest Missouri (McDonald, Jasper, Barry and Lawrence counties). According
to the 1990 census, Newton County had a population of approximately 44,500.
The primary industry in Newton County is light manufacturing. The
unemployment rate in Newton County is estimated to be 5.7% as of October 1996.
Major employers in the Association's market area include La-Z Boy Midwest, a
furniture manufacturer, Sunbeam Outdoor Products, a manufacturer of outdoor
grills and other products, and Tyson Foods, Inc., a poultry processor.
The Association operates in a highly competitive market for the
attraction of savings deposits (its primary source of lendable funds) and in
the origination of loans. Its most direct competition for savings deposits
has historically come from other thrift institutions and from commercial banks
located in its lending market area. As of September 30, 1996, there was one
other thrift institution and four commercial banks in Neosho. Particularly in
times of high interest rates, the Association has faced additional significant
competition for investors' funds from short-term money market securities and
other corporate and government securities. The Association's competition for
loans comes principally from other thrift institutions and commercial banks.
Such competition for deposits and the origination of loans may limit the
Association's growth in the future. In addition, the Association's future
growth may be restricted by the generally limited growth being experienced in
the Association's market area.
Operating Strategy
The business of the Association consists principally of
attracting deposits from the general public and using such deposits to
originate mortgage loans secured primarily by one- to four-family residences.
The Association has also purchased loans with funds received from the
Corporation's sale of stock in the Conversion. The Association also invests
in U.S. Government and agency securities and mortgage-backed securities. The
Association plans to continue to fund its assets primarily with deposits.
However, FHLB advances will be utilized when appropriate. The Association's
profitability depends primarily on its net interest income, which is the
difference between the income it receives on its loan, investment and
mortgage-backed and related securities portfolios and its cost of funds, which
consists of interest paid on deposits and FHLB advances. Net interest income
is also affected by the relative amounts of interest-earning assets and
interest-bearing liabilities. When interest-earning assets equal or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income.
The Association's profitability is also affected by the level of
other income and expenses. Other income consists of service charges and fees
and loan late charges. Other expenses consists of compensation and employee
benefits, occupancy expenses, deposit insurance premiums and other operating
costs. The Association's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes
in market interest rates, government legislation and policies concerning
monetary and fiscal affairs, housing and financial institutions and the
attendant actions of the regulatory authorities.
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Selected Consolidated Financial Information
This information is incorporated by reference from page 3 of the
1996 Annual Report to Stockholders ("Annual Report") attached hereto as
Exhibit 13.
Yields Earned and Rates Paid
This information is incorporated by reference from page 10 of the
Annual Report attached hereto as Exhibit 13.
Asset and Liability Management
The Association's principal financial objective is to achieve
long-term profitability while reducing its exposure to fluctuating interest
rates. The Association has sought to reduce exposure of its earnings to
changes in market interest rates by managing the mismatch between asset and
liability maturities and interest rates. The principal element in achieving
this objective is to increase the interest-rate sensitivity of the
Association's assets by originating loans with interest rates subject to
periodic adjustment to market conditions. Accordingly, when possible, the
Association has emphasized the origination of ARM loans for retention in its
portfolio. In addition, the Association maintains an investment portfolio
with laddered maturities in shorter-term securities. The Association relies
on retail deposits as its primary source of funds. Management believes retail
deposits, compared to brokered deposits, reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds.
As part of its interest rate risk management strategy, the Association
promotes transaction accounts and one- to three-year certificates of deposit.
In order to encourage institutions to reduce their interest rate
risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. Using data from the
Association's quarterly reports to the OTS, the Association receives a report
which measures interest rate risk by modeling the change in Net Portfolio
Value ("NPV") over a variety of interest rate scenarios. This procedure for
measuring interest rate risk was developed by the OTS to replace the "gap"
analysis (the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period). NPV is the
present value of expected cash flows from assets, liabilities and off-balance
sheet contracts. The calculation is intended to illustrate the change in NPV
that will occur in the event of an immediate change in interest rates of at
least 200 basis points with no effect given to any steps that management might
take to counter the effect of that interest rate movement. Under proposed OTS
regulations, an institution with a greater than "normal" level of interest
rate risk will be subject to a deduction from total capital for purposes of
calculating its risk-based capital. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is
less than 2.0%. Institutions with assets of less than $300 million and a
risk-based capital ratio of more than 12.0% are exempt. The Association meets
these qualifications and therefore is exempt. Assuming this proposed rule was
in effect at September 30, 1996 and the Association was not exempt from the
rule, the Association's level of interest rate risk would not have caused it
to be treated as an institution with greater than "normal" interest rate risk.
The following table is provided by the OTS and illustrates the
change in NPV at September 30, 1996, based on OTS assumptions, that would
occur in the event of an immediate change in interest rates, with no effect
given to any steps that management might take to counter the effect of that
interest rate movement.
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Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
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Basis Point ("bp")
Change in Rates $ Amount $ Change(1) % Change NPV Ratio(2) Change(3)
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(Dollars in Thousands)
400 7,063 -2,644 -27% 12.43% -361 bp
300 7,883 -1,824 -19 13.61 -243
200 8,638 -1,069 -11 14.66 -138
100 9,257 -450 -5 15.48 -56
0 9,707 16.04
(100) 9,981 274 +3 16.35 +31
(200) 10,097 390 +4 16.43 +39
(300) 10,287 580 +6 16.60 +56
(400) 10,591 884 +9 16.93 +89
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(1) Represents the increase (decrease) of the estimated NPV at the
indicated change in interest rates compared to the NPV assuming
no change in interest rates.
(2) Calculated as the estimated NPV divided by the portfolio value of
total assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming
the indicated change in interest rates over the estimated NPV
ratio assuming no change in interest rates.
The following table is provided by the OTS and is based on the
calculations in the above table. It sets forth the IRR capital component that
will be deducted from risk-based capital in determining the level of
risk-based capital. At September 30, 1996, the change in NPV as a percentage
of portfolio value of total assets is negative 1.77%, which is less than
negative 2.0%, indicating that the Association has a "normal" level of
interest rate risk.
At
September 30,
1996
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RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets 16.04%
Exposure Measure: Post-Shock NPV Ratio 14.66%
Sensitivity Measure: Change in NPV Ratio -138
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets 1.77%
Interest Rate Risk Capital Component (1) --
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(1) No amount is shown on the IRR capital component line because the
Association is exempt from the IRR capital component.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as
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ARM loans, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of a
change in interest rates, expected rates of prepayments on loans and early
withdrawals from certificates could likely deviate significantly from those
assumed in calculating the table.
Lending Activities
General. The principal lending activity of the Association
currently is the origination of conventional mortgage loans for the purpose of
purchasing, constructing or refinancing owner-occupied, one- to four-family
residential property. To a significantly lesser extent, the Association also
originates commercial real estate, residential construction and consumer
loans.
Loan Portfolio Analysis. The following table sets forth the
composition of the Association's loan portfolio by type of loan as of the
dates indicated.
At September 30,
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1994 1995 1996
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Amount Percent Amount Percent Amount Percent
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(Dollars in Thousands)
Mortgage loans:
One- to four-dwelling
units $22,646 89.90% $23,512 89.54% 28,571 91.10%
Commercial and multi-
family 215 .85 178 .68 77 .25
Construction 500 1.98 604 2.30 486 1.55
------- ------- ------- ------ ------- ------
Total mortgage loans 23,361 92.73 24,294 92.52 29,134 92.90
------- ------- ------- ------ ------- ------
Consumer and other loans:
Home equity 910 3.62 1,067 4.06 1,054 3.36
Commercial business 23 .09 -- -- -- --
Loans on deposit accounts 388 1.54 403 1.54 471 1.51
Education 140 .56 2 .01 16 .05
Automobile 369 1.46 492 1.87 680 2.17
Other -- -- -- -- 4 .01
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Total consumer and
other loans 1,830 7.27 1,964 7.48 2,225 7.10
------- ------- ------- ------ ------- ------
Total loans 25,191 100.00% 26,258 100.00% 31,359 100.00%
------- ====== ------- ====== ------- ======
Less:
Undisbursed loans in
process 261 267 225
Unearned loan fees 27 20 42
Allowances for loan
losses 31 38 41
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Total loans
receivable, net $24,872 $25,933 $31,051
======= ======= =======
Residential Real Estate Lending. The primary lending activity of
the Association is the origination of mortgage loans to enable borrowers to
purchase existing homes or to construct new one- to four-family homes.
Management believes that this policy of focusing on one- to four-family
residential mortgage loans located in its lending market area has been
successful in contributing to interest income while keeping delinquencies and
losses to a minimum. At September 30, 1996, $28.6 million, or 91.1% of the
Association's total loan portfolio, consisted of loans secured by one- to
four-family residential real estate. The Association presently originates for
retention in its portfolio both fixed-rate mortgage loans and ARM loans
secured by one- to four-family properties with terms of 15 to 30 years.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a function
of the level of interest rates, the expectations of changes in the level of
interest rates and the difference between the initial interest rates and fees
charged for each type of loan. The relative amount of fixed-rate mortgage
loans and ARM loans that can be originated at any time is largely determined
by the demand for each in a competitive environment. At
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September 30, 1996, $24.5 million, or 85.6%, of the Association's one- to
four-family residential mortgage loans were subject to periodic interest rate
adjustments and $4.1 million, or 14.4%, were fixed-rate loans.
The loan fees charged, interest rates and other provisions of the
Association's ARM loans are determined by the Association on the basis of its
own pricing criteria and competitive market conditions. Since July 1994, the
Association has originated ARM loans whose interest rates and payments
generally are adjusted annually to a rate typically equal to 2.25% above the
one-year constant maturity U.S. Treasury index. The Association previously
originated ARM loans whose rates are based on the Eighth District Cost of
Funds Index. The Association currently offers ARM loans with initial rates
below those which would prevail under the foregoing computations, determined
by the Association based on market factors and competitive rates for loans
having similar features offered by other lenders for such initial periods. At
September 30, 1996, the initial interest rate on the Association's ARM loans
ranged from 5.75% to 8.0% per annum. The periodic interest rate cap (the
maximum amount by which the interest rate may be increased or decreased in a
given period) on the Association's ARM loans is generally 2% per adjustment
period and the lifetime interest rate cap is generally 5.5% over the initial
interest rate of the loan. The Association does not originate negative
amortization loans. The terms and conditions of the ARM loans offered by the
Association, including the index for interest rates, may vary from time to
time. The Association believes that the annual adjustment feature of its ARM
loans also provides flexibility to meet competitive conditions as to initial
rate concessions while preserving the Association's return on equity
objectives by limiting the duration of the initial rate concession.
The retention of ARM loans in the Association's loan portfolio
helps reduce the Association's exposure to changes in interest rates. There
are, however, unquantifiable credit risks resulting from the potential of
increased costs due to changed rates to be paid by the customer. It is
possible that, during periods of rising interest rates, the risk of default on
ARM loans may increase as a result of repricing and the increased costs to the
borrower. The Association qualifies the borrower based on the borrower's
ability to repay the ARM loan assuming the fully indexed accrual rate on the
loan remains constant during the loan term. As a result, the potential for
delinquencies and defaults on ARM loans is lessened. Furthermore, because the
ARM loans originated by the Association generally provide, as a marketing
incentive, for initial rates of interest below the rates which would apply
were the adjustment index used for pricing initially (discounting), these
loans are subject to increased risks of default or delinquency. Another
consideration is that although ARM loans allow the Association to increase the
sensitivity of its asset base to changes in the interest rates, the extent of
this interest sensitivity is limited by the periodic and lifetime interest
rate adjustment limits. Because of these considerations, the Association has
no assurance that yields on ARM loans will be sufficient to offset increases
in the Association's cost of funds.
As discussed above, the Association also originates conventional
fixed-rate mortgage loans on one- to four-family residential properties. All
fixed-rate products are underwritten according to FHLMC standards so as to
qualify for sale in the secondary mortgage market, though it has been the
Association's policy to retain its fixed-rate mortgage loans in its loan
portfolio. The Association's decision to hold or sell these loans is based on
its asset/liability management policies and goals and the market conditions
for mortgages at any period in time. During the three years ended September
30, 1996, the Association sold no fixed-rate mortgage loans.
While fixed-rate single-family residential real estate loans are
normally originated with 15- or 20-year terms, and the Association permits its
ARM loans to be assumed by qualified borrowers, such loans typically remain
outstanding for substantially shorter periods. This is because borrowers
often prepay their loans in full upon sale of the property pledged as security
or upon refinancing the original loan. In addition, substantially all
mortgage loans in the Association's loan portfolio contain due-on-sale clauses
providing that the Association may declare the unpaid amount due and payable
upon the sale of the property securing the loan. The Association enforces
these due-on-sale clauses to the extent permitted by law and as business
judgment dictates. Thus, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the real estate market,
prevailing interest rates and the interest rates payable on outstanding loans.
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The Association generally requires title insurance insuring the
status of its lien on all of the real estate secured loans, though in some
instances it will accept an abstract of title accompanied by an attorney's
opinion. The Association also requires that fire and extended coverage
casualty insurance (and, if appropriate, flood insurance) be maintained in an
amount at least equal to the outstanding loan balance.
The Association's lending policies generally limit the maximum
loan-to-value ratio on mortgage loans secured by owner-occupied properties to
95% of the lesser of the appraised value or the purchase price, with the
condition that private mortgage insurance is required on loans with
loan-to-value ratios greater than 80%. The Association has established a
program for first-time home buyers under which it will make loans with a
loan-to-value ratio up to 89.9%.
Construction Lending. The Association currently originates
residential construction loans to individuals to construct their own homes
and, to a much lesser extent, to local builders. At September 30, 1996,
construction loans amounted to $486,000, or 1.6%, of the Association's total
loan portfolio. The Association's construction loan portfolio did not include
any loans to builders or any speculative loans at that date, although the
Association occasionally makes such loans.
The Association's construction loans to individuals are made in
connection with the granting of permanent financing on the property and
require monthly payments of interest only during their term. Residential
construction loans convert to an adjustable-rate loan at the earlier of the
completion of construction or one year. Draws are generally made to the
borrower after he has provided the Association with billings showing the costs
and work completed and following an inspection by the Association.
Construction lending is generally considered to involve a higher
level of risk as compared to one- to four-family residential lending because
of the inherent difficulty in estimating both a property's value at completion
of the project and the estimated cost of the project. The nature of these
loans is such that they are generally more difficult to evaluate and monitor.
If the estimate of construction cost proves to be inaccurate, the Association
may be required to advance funds beyond the amount originally committed to
permit completion of the project. If the estimate of value proves to be
inaccurate, the Association may be confronted at, or prior to the maturity of
the loan, with a project whose value is insufficient to assure full repayment.
Speculative loans, i.e., loans to builders to construct homes for which no
purchaser has been identified, carry more risk because the payoff for the loan
is dependent on the builder's ability to sell the property prior to the time
that the construction loan is due.
Commercial and Multi-family Real Estate Loans. The Association
has historically engaged in a limited amount of commercial and multi-family
real estate lending. At September 30, 1996, commercial and multi-family real
estate loans in the Association's portfolio totalled $77,000. The Association
originated no commercial real estate or multi-family loans during the year
ended September 30, 1996.
The Association does not actively solicit or originate commercial
or multi-family real estate loans. Loans secured by commercial or
multi-family real estate generally are larger and involve greater risks than
one- to four-family residential mortgage loans. Payments on loans secured by
such properties are often dependent on successful operation or management of
the properties. Repayment of such loans may be subject to a greater extent to
adverse conditions in the real estate market or the economy. The Association
seeks to minimize these risks in a variety of ways, including limiting the
size of such loans and strictly scrutinizing the financial condition of the
borrower, the quality of the collateral and the management of the property
securing the loan. The Association also obtains loan guarantees from
financially capable parties. Substantially all of the properties securing the
Association's commercial and multi-family real estate loans are inspected by
the Association's lending personnel before the loan is made. The Association
also obtains appraisals on each property in accordance with applicable
regulations.
Consumer and Other Loans. Consumer lending has traditionally
been a small part of the Association's business. Consumer loans generally
have shorter-terms to maturity or repricing and higher interest rates than
mortgage loans. The Association's consumer and other loans consist primarily
of home equity loans, automobile
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loans, and savings account loans. At September 30, 1996, the Association's
consumer and other loans totalled approximately $2.2 million, or 7.1% of the
Association's total loans.
The Association makes both fixed-rate and adjustable-rate home
equity loans. These loans are secured by a first or second mortgage on
residential property. Fixed-rate home equity loans have a term of 24 or 36
months while adjustable-rate home equity loans have a term of 36 to 60 months.
At September 30, 1996, home equity loans amounted to $1.1 million, or 3.4% of
the Association's total loans.
Automobile loans are secured by both new and used cars.
Automobile loans are only made to the borrower-owners on a direct basis. New
cars are financed for a period of up to 54 months while used cars are financed
for 42 months or less depending on the age of the car. Collision and
comprehensive insurance coverage is required on all automobile loans and the
Association holds the certificate of title to the car securing the loan. At
September 30, 1996, automobile loans amounted to $680,000, or 2.2% of the
Association's total loans.
The Association may make savings account loans with the account
pledged as collateral to secure the loan. Savings account loans are payable
in monthly payments of principal and interest or in a single payment. At
September 30, 1996, total loans on savings accounts amounted to $471,000, or
1.5% of the Association's total loans.
Consumer loans entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or
secured by rapidly depreciating assets such as automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower beyond obtaining a deficiency judgment. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of
various Federal and state laws, including Federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans.
Such loans may also give rise to claims and defenses by a consumer loan
borrower against an assignee of such loans such as the Association, and a
borrower may be able to assert against such assignee claims and defenses that
it has against the seller of the underlying collateral. At September 30,
1996, the Association had no material delinquencies in its consumer loan
portfolio.
Loan Maturity and Repricing
The following table sets forth certain information at September
30, 1996 regarding the dollar amount of loans maturing in the Association's
portfolio based on their contractual terms to maturity, but does not include
scheduled payments or potential prepayments. Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Loan balances are before deductions for
undisbursed loan proceeds, unearned discounts, unearned income and allowance
for loan losses.
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After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- -----
(In Thousands)
Mortgage loans:
One- to four-dwelling
units $267 $620 $282 $2,680 $24,722 $28,571
Commercial and multi-
family real estate -- 2 12 -- 63 77
Construction -- -- -- -- 486 486
---- ------ ---- ------ ------- -------
Total mortgage loans 267 622 294 2,680 25,271 29,134
Consumer and other loans 568 1,203 454 -- -- 2,225
---- ------ ---- ------ ------- -------
Total loans $835 $1,825 $748 $2,680 $25,271 $31,359
==== ====== ==== ====== ======= =======
The following table sets forth the dollar amount of all loans due
one year after September 30, 1996, which have fixed interest rates and have
floating or adjustable interest rates.
Fixed- Floating- or
Rates Adjustable-Rates
------ ----------------
(In Thousands)
Mortgage loans:
One- to four-dwelling units $3,862 $24,442
Commercial and multi-family
real estate 2 75
Construction 486 --
------- --------
Total mortgage loans 4,350 24,517
Consumer and other loans 845 812
------- --------
Total loans $ 5,195 $ 25,329
======= ========
Scheduled contractual principal repayments of loans and
mortgage-backed securities do not reflect the actual life of such assets. The
average life of loans and mortgage-backed securities is substantially less
than their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Association the right to declare loans
immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase, however, when
current mortgage loan market rates are substantially higher than rates on
existing mortgage loans and, conversely, decreases when rates on existing
mortgage loans are substantially higher than current mortgage loan market
rates.
Loan Solicitation and Processing. Loan applicants come through
referrals by realtors and previous and present customers and through
advertising promotions. Upon receipt of a loan application from a prospective
borrower, a credit report and other data are obtained to verify specific
information relating to the loan applicant's employment, income and credit
standing. An appraisal of the real estate offered as collateral generally is
undertaken by a fee appraiser approved by the Association and, when required,
licensed or certified by the State of Missouri.
Loans in the amount of $75,000 or less may be approved by any one
member of the Association's Loan Committee, which consists of the
Association's President and two directors. Loans of $75,000 to $100,000 must
be approved by any one member of the Loan Committee and reviewed by another
member. Loans in excess of $100,000 must be approved by two members of the
Loan Committee and reviewed by the Association's Board of Directors.
9
<PAGE>
<PAGE>
Mortgage loans are generally approved or denied within ten days
and closed within 21 days. Interest rates are subject to change if the
approved loan is not closed within the time of the commitment, which usually
is 30 days.
Loan Originations, Sales and Purchases. During the year ended
September 30, 1996, the Association's total gross mortgage loan originations
were $8.5 million. While the Association originates both adjustable-rate and
fixed-rate loans, its ability to generate loans is dependent upon relative
customer demand for loans in its market.
Consistent with its asset/liability management strategy, the
Association's policy has been to retain in its portfolio all of the one- to
four-family loans that it originates. Effective November 1994, the
Association adopted a policy to sell all of its student loans to the Student
Loan Marketing Association. The Association completed the sale of $129,000 of
student loans in February 1995.
While the Association has purchased whole loans in the past, such
purchases are infrequent. During the year ended September 30, 1996, the
Association used proceeds from the Conversion to purchase mortgage loans
secured by one- to four-family residential properties in southwest Missouri.
The loan purchases were made in conformance with the Association's
underwriting standards. The Association may decide to purchase loans in the
future depending upon the demand for mortgage credit in its market area.
The following table shows total mortgage loans originated,
purchased and repaid during the periods indicated. No mortgage loans were
sold during the periods indicated.
At or For
the
Years Ended September 30,
------------------------------------
1994 1995 1996
---- ---- ----
(In Thousands)
Total mortgage loans
at beginning of period $20,889 $23,361 24,294
Mortgage loans originated:
One- to four-dwelling units(1) 7,108 4,564 8,511
Commercial and multi-family
real estate -- -- --
Total mortgage loans ------- ------- -------
originated 7,108 4,564 8,511
Mortgage loans purchased -- -- 1,178
Mortgage loan principal
repayments 4,636 3,631 4,849
Loans transferred to other ------- ------- -------
real estate -- -- --
------- ------- -------
Net loan activity 2,472 933 4,840
------- -------- --------
Total gross mortgage loans
at end of period $23,361 $24,294 $29,134
======= ======= =======
- ----------------
(1) Includes construction loans originated during the period.
Loan Commitments. The Association issues commitments for fixed-
and adjustable-rate one- to four-family residential mortgage loans conditioned
upon the occurrence of certain events. Such commitments are made in writing
on specified terms and conditions and are honored for up to 30 days from the
date of loan approval. The Association had outstanding net loan commitments
of approximately $167,000 at September 30, 1996. See Note 11 of Notes to
Consolidated Financial Statements contained in the Annual Report.
10
<PAGE>
<PAGE>
Loan Origination and Other Fees. The Association, in most
instances, receives loan origination fees and discount "points." Loan fees
and points are a percentage of the principal amount of the mortgage loan which
are charged to the borrower for funding the loan. The amount of points
charged by the Association varies, though the range generally is between 0 and
2 points. Current accounting standards require fees received (net of certain
loan origination costs) for originating loans to be deferred and amortized
into interest income over the contractual life of the loan. Net deferred fees
associated with loans that are prepaid are recognized as income at the time of
prepayment. The Association had $42,000 of net deferred mortgage loan fees at
September 30, 1996.
Non-performing Assets and Delinquencies. When a mortgage loan
borrower fails to make a required payment when due, the Association institutes
collection procedures. The first notice is mailed to the borrower at the end
of the month in which the payment is due and, if necessary, a second written
notice follows within 30 days thereafter. Attempts to contact the borrower by
telephone generally begin soon after the first notice is mailed to the
borrower. If a satisfactory response is not obtained, continuous follow-up
contacts are attempted until the loan has been brought current. Before the
90th day of delinquency, attempts to interview the borrower, preferably in
person, are made to establish (i) the cause of the delinquency, (ii) whether
the cause is temporary, (iii) the attitude of the borrower toward the debt,
and (iv) a mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by
the 91st day of delinquency, or sooner if the borrower is chronically
delinquent and all reasonable means of obtaining payment on time have been
exhausted, foreclosure, according to the terms of the security instrument and
applicable law, is initiated. Interest income on loans is reduced by the full
amount of accrued and uncollected interest.
When a consumer loan borrower fails to make a required payment on
a consumer loan by the payment due date, the Association institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. If payment is not promptly received, a second notice is
mailed to the borrower 20 days following the payment due date and the customer
is contacted by telephone to ascertain the nature of the delinquency. If the
delinquency remains uncured, the Association mails an additional notice to the
borrower on the 30th day of delinquency and every 30 days thereafter and
continues to contact the borrower by telephone.
In most cases, delinquencies are cured promptly; however, if, by
the 91st day of delinquency the delinquency has not been cured, the
Association begins action to either obtain a judgment in small claims court or
to repossess the collateral.
The Association's Board of Directors is informed on a monthly
basis as to the status of all mortgage and consumer loans that are delinquent
more than 30 days, the status on all loans currently in foreclosure, and the
status of all foreclosed and repossessed property owned by the Association.
The following table sets forth information with respect to the
Association's non-performing assets and restructured loans within the meaning
of Statement of Financial Accounting Standards No. 15 at the dates indicated.
Any loan four or more payments past due is placed on nonaccrual status.
At September 30,
------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a
nonaccrual basis:
Real estate -
Residential $28 $ -- $18 $49 $3
Commercial and multi-family -- -- -- -- --
Consumer and other -- -- -- -- --
--- ----- --- --- --
Total 28 -- 18 49 3
--- ----- --- --- --
(table continued on following page)
11
<PAGE>
<PAGE>
At September 30,
------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
Accruing loans which are
contractually past due
90 days or more:
Real estate -
Residential 18 -- 43 40 19
Commercial and multi-family -- -- -- -- --
Consumer and other 3 1 -- -- --
--- ---- --- --- ---
Total 21 1 43 40 19
--- ---- --- --- ---
Total of nonaccrual and 90 days
past due loans 49 1 61 89 22
Real estate owned(1) -- -- -- -- --
--- ---- --- --- --
Total non-performing assets $49 $ 1 $61 $89 $22
=== ==== === === ===
Restructured loans -- -- -- -- --
--- ---- --- --- --
Total loans delinquent 90 days
or more to net loans 0.22% -- 0.25% 0.34% 0.07%
==== ==== ==== ==== ====
Total loans delinquent 90 days
or more to consolidated total
assets 0.09% -- 0.12% 0.15% 0.04%
==== ==== ==== ==== ====
Total non-performing assets to
consolidated total 0.09% -- 0.12% 0.15% 0.04%
==== ==== ==== ==== ====
- ------------------
(1) Represents the book value of property acquired through foreclosure, net
of valuation reserves.
Interest income that would have been recorded for the year ended
September 30, 1996 had nonaccruing loans been current in accordance with their
original terms amounted to approximately $150. The amount of interest
included in interest income on such loans for the year ended September 30,
1996 amounted to approximately $590.
Real Estate Owned. Real estate acquired by the Association as a
result of foreclosure or by deed-in-lieu of foreclosure is classified as real
estate owned until it is sold. When property is acquired it is recorded at
the lower of its cost, which is the unpaid principal balance of the related
loan plus foreclosure costs, or fair market value. Subsequent to foreclosure,
the property is carried at the lower of the foreclosed amount or fair value.
Upon receipt of a new appraisal and market analysis, the carrying value is
written down through the establishment of a specific reserve to its fair
value. At September 30, 1996, the Association had no real estate owned.
Asset Classification. The OTS has adopted various regulations
regarding problem assets of savings institutions. The regulations require
that each insured institution review and classify its assets on a regular
basis. In addition, in connection with examinations of insured institutions,
OTS examiners have authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets must have one or
more defined weaknesses and are characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected.
12
<PAGE>
<PAGE>
Doubtful assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high possibility of loss. An asset classified loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified
loss, the insured institution establishes specific allowances for loan losses
for the full amount of the portion of the asset classified loss. A portion of
general loan loss allowances established to cover possible losses related to
assets classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "special mention." Not all of the Association's
non-performing assets are classified as problem assets. In determining
whether the Association's non-performing assets expose the Association to
sufficient risk to warrant classification, the Association may consider
various factors, including the borrower's payment history, the existence of
private mortgage insurance, and the loan-to-value ratio. Upon consideration
of these factors, the Association may determine that the asset in question
does not present a risk of loss that requires it to be classified.
At September 30, 1996, classified assets totalled $83,000 and
included one substandard loan in the amount of $3,000 and three special
mention loans, which totalled $80,000. The aggregate amounts of the
Association's classified assets at the dates indicated were as follows:
At September 30,
------------------------------
1995 1996
---- ----
(In Thousands)
Loss $ -- $ --
Doubtful -- --
Substandard 45 3
Special mention 37 80
----- -----
Total classified assets $ 82 $ 83
===== =====
Allowance for Loan Losses. The Association has established a
systematic methodology for the determination of provisions for loan losses.
The methodology is set forth in a formal policy and takes into consideration
the need for an overall general valuation allowance as well as specific
allowances that are tied to individual loans.
In originating loans, the Association recognizes that losses will
be experienced and that the risk of loss will vary with, among other things,
the type of loan being made, the creditworthiness of the borrower over the
term of the loan, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan. The Association increases its
allowance for loan losses by charging provisions for possible loan losses
against the Association's income.
The general valuation allowance is maintained to cover losses
inherent in the portfolio of performing loans. Management reviews the
adequacy of the allowance at least quarterly based on the Association's past
loan loss experiences, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Specific valuation allowances are established to absorb losses on
loans for which full collectibility may not be reasonably assured. The amount
of the allowance is based on the estimated value of the collateral securing
the loan and other analyses pertinent to each situation.
13
<PAGE>
<PAGE>
Generally, a provision for losses is charged against income on a
quarterly basis to maintain the allowances. A provision of $3,500 was charged
against income for the year ended September 30, 1996. At September 30, 1996,
the Association had an allowance for loan losses of $41,000. Management
believes that the amount maintained in the allowances will be adequate to
absorb losses inherent in the portfolio.
Although management believes that it uses the best information
available to make such determinations, future adjustments to the allowance for
loan losses may be necessary and results of operations could be significantly
and adversely affected if circumstances differ substantially from the
assumptions used in making the determinations.
While the Association believes it has established its existing
allowance for loan losses in accordance with GAAP, there can be no assurance
that regulators, in reviewing the Association's loan portfolio, will not
request the Association to increase significantly its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the
existing allowance for loan losses is adequate or that substantial increases
will not be necessary should the quality of any loans deteriorate as a result
of the factors discussed above. Any material increase in the allowance for
loan losses may adversely affect the Association's financial condition and
results of operations.
The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated. Where specific loan loss
reserves have been established, any differences between the loss reserve and
the amount of loss realized has been charged or credited to current income.
Years Ended September 30,
-------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(Dollars in Thousands)
Allowance at beginning of period $30 $34 $31 $31 $38
Provision for loan losses 4 -- -- 7 3
Recoveries:
Residential real estate -- -- -- -- --
Commercial and multi-family
real estate -- -- -- -- --
Consumer and other -- -- -- -- --
--- --- --- --- ---
Total recoveries -- -- -- -- --
--- --- --- --- ---
Charge-offs:
Residential real estate -- 3 -- -- --
Commercial and multi-family real
estate -- -- -- -- --
Consumer and other -- -- -- -- --
--- --- --- --- ---
Total charge-offs -- 3 -- -- --
Net charge-offs -- 3 -- -- --
--- --- --- --- ---
Balance at end of period $34 $31 $31 $38 $41
--- --- --- --- ---
Ratio of allowance to total loans
outstanding at the end of the
period 0.15% 0.14% 0.12% 0.15% 0.10%
Ratio of net charge-offs to average
loans outstanding during the
period -- 0.01% -- -- --
14
<PAGE>
<PAGE>
The following table sets forth the breakdown of the allowance for
loan losses by loan category for the periods indicated.
At September 30,
----------------------------------------------------
1994 1995 1996
--------------- ---------------- -----------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Mortgage loans:
One- to four-dwelling
units $24 89.90% $ 30 89.54% $33 91.10%
Commercial and
multi-family -- 0.85 -- 0.68 -- 0.25
Construction -- 1.98 -- 2.30 -- 1.55
Consumer and other
loans 7 7.27 8 7.48 8 7.10
--- ------ ---- ------ --- ------
Total allowance for
loan losses $31 100.00% $ 38 100.00% $41 100.00%
=== ====== ==== ====== === ======
Investment Activities
The Association is permitted under Federal and state law to
invest in various types of liquid assets, including U.S. Treasury obligations,
securities of various Federal agencies and of state and municipal governments,
deposits at the FHLB-Des Moines, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, the Association may also invest a portion of its assets
in commercial paper, corporate debt securities and ARM funds, the assets of
which conform to the investments that the Association is authorized to make
directly. Savings institutions like the Association are also required to
maintain an investment in FHLB stock and a minimum level of liquid assets
which vary from time to time. See "Regulation -- Federal Home Loan Bank
System." The Association may decide to increase its liquidity above the
required levels depending upon the availability of funds and comparative
yields on investments in relation to return on loans.
The Association is required under federal regulations to maintain
a minimum amount of liquid assets and is also permitted to make certain other
securities investments. See "Regulation" contained herein, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" contained in the Annual Report. At September
30, 1996, the Association's regulatory liquidity was 35.9% which is
significantly in excess of the 5% required by OTS regulations. It is the
intention of management to hold all securities in the Association's investment
portfolio in order to enable the Association to provide liquidity for loan
funding upon maturity of such investment securities and to match more closely
the interest-rate sensitivities of its assets and liabilities.
The Association's President determines appropriate investments in
accordance with the Board of Directors' approved investment policies and
procedures. Investments are made following certain considerations, which
include the Association's liquidity position and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments).
Further, the effect that the proposed investment would have on the
Association's credit and interest rate risk, and risk-based capital is given
consideration during the evaluation. The interest rate, yield, settlement
date and maturity are also reviewed.
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires that
investments be categorized as "held to maturity," "trading securities" or
"available for sale," based on management's intent as to the ultimate
disposition of each security. Debt securities may be
15
<PAGE>
<PAGE>
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and
ability to hold those securities to maturity. Securities that might be sold
in response to changes in market interest rates, changes in the security's
prepayment risk, increases in loan demand, or other similar factors cannot be
classified as "held to maturity." Debt and equity securities held for current
resale are classified as "trading securities." Such securities are reported
at fair value, and unrealized gains and losses on such securities would be
included in earnings. Debt and equity securities not classified as either
"held to maturity" or "trading securities" are classified as "available for
sale." Such securities are reported at fair value, and unrealized gains and
losses on such securities are excluded from earnings and reported as a net
amount in a separate component of equity.
The Association purchases mortgage-backed securities in the form
of GNMA, FHLMC and FNMA participation certificates in order to supplement loan
production. GNMA and FNMA certificates are guaranteed as to principal and
interest by the full faith and credit of the United States, while FHLMC
certificates are guaranteed by FHLMC. Mortgage-backed securities generally
entitle the Association to receive a pro rata portion of the cash flows from
an identified pool of mortgages. The cash flows from such pools are segmented
and paid in accordance with a predetermined priority to various classes of
securities issued by the entity. See Note 3 of Notes to Consolidated
Financial Statements contained in the Annual Report.
The following table sets forth the composition of Association's
mortgage-backed securities portfolio at carrying value at the dates indicated.
All of the Association's mortgage-backed securities are classified as held to
maturity.
At September 30,
----------------------------------------------------------------
1994 1995 1996
-------------------- -------------------- --------------------
Book Percent of Book Percent of Book Percent of
Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio
-------------------- -------------------- --------------------
(Dollars in Thousands)
Mortgage-backed
securities:
GNMA
Fixed $ -- --% $ -- --% $ 69 1.29%
Adjustable 1,069 19.50 985 16.77 823 15.41
FHLMC
Fixed 2,105 38.41 1,805 30.75 1,450 27.14
Adjustable -- -- -- -- -- --
FNMA
Fixed 521 9.50 348 5.91 525 9.83
Adjustable 1,930 35.21 2,854 48.63 2,574 48.18
Unamortized premium
(discount),
net (144) (2.62) (121) (2.06) (99) (1.85)
------ ------ ------ ------ ------ ------
Total mortgage-
backed
securi-
ties $5,481 100.00% $5,871 100.00% $5,342 100.00%
====== ====== ====== ====== ====== ======
- -------------
(1) The market value of the Association's mortgage-backed securities
portfolio amounted to $5.6 million, $6.1 million and $5.4 million
at September 30, 1994, 1995 and 1996, respectively.
At September 30, 1996, the Corporation's investment securities
portfolio totalled approximately $12.5 million at carrying value and consisted
principally of U.S. Treasury and agency securities and municipal bonds. The
Corporation's municipal bond portfolio, which totalled $975,000 at fair value
($959,000 at amortized cost) at September 30, 1996, was comprised primarily of
obligations of political subdivisions of the State of Missouri that have
maturities ranging from less than one year to five to ten years.
16
<PAGE>
<PAGE>
The following table sets forth the composition of Corporation's
investment securities portfolio at carrying value at the dates indicated.
At September 30,
-------------------------------------------------------------
1994 1995 1996
------------------- ------------------- -------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
-------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
Held to Maturity
Debt securities:
U.S. Government
treasury and
obligations
of U.S.
Government
agencies $10,858 89.26% $12,000 90.98% $10,174 88.06%
State and
political
sub-
division 894 7.35 779 5.90 959 8.30
------- ------ ------- ------ ------- ------
Total debt
securities 11,752 96.61 12,779 96.88 11,133 96.36
------- ------ ------- ------ ------- ------
Equity
securities:
FHLB stock 412 3.39 412 3.12 421 3.64
------- ------ ------- ------ ------- ------
Total $12,164 100.00% $13,191 100.00% $11,554 100.00%
======= ====== ======= ====== ======= ======
Available for Sale
Debt securities:
U.S. Govern-
ment treasury
and obliga-
tions of U.S.
Govern-
ment
agencies $ -- --% $ -- --% $ 495 53.51%
Equity
securities:
Common
stock -- -- -- -- 430 46.49
-------- ------ ------- ------ ------- ------
Total $ -- --% $ -- --% $ 925 100.00%
======== ====== ======= ====== ======= ======
The following table sets forth the maturities and weighted
average yields of the debt securities in the Corporation's investment
securities portfolio at September 30, 1996.
Over
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
------------- ------------- ------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Held to Maturity
U.S. Government
treasury and
obligations of
U.S. Government
agencies $ -- --% $7,496 6.17% $1,571 6.30% $1,107 7.87%
State and politi-
cal subdivisions 125 4.00 644 5.14 190 6.23 -- --
---- ------ ------ ------
Total $125 4.00 $8,140 6.09 $1,761 6.29 $1,107 7.87
==== ====== ====== ======
Available for Sale
U.S. Government
treasury and
obligations of
U.S. Government
agencies $ -- --% $ -- --% $ 495 7.02% $ -- --%
17
<PAGE>
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of
the Association's funds for lending and other investment purposes. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and outflows and loan prepayments are influenced significantly by general
interest rates and money market conditions. Borrowings through the FHLB-Des
Moines may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. Presently, the Association has no
other borrowing arrangements.
Deposit Accounts. Substantially all of the Association's
depositors are residents of the State of Missouri. Deposits are attracted
from within the Association's lending market area through the offering of a
broad selection of deposit instruments, including NOW accounts, money market
deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary, according to the
minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors. In determining the terms of its
deposit accounts, the Association considers current market interest rates,
profitability to the Association, matching deposit and loan products and its
customer preferences and concerns. The Association generally reviews its
deposit mix and pricing twice weekly.
The following table sets forth information concerning the
Association's time deposits and other interest-bearing deposits at September
30, 1996.
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Checking and Savings Deposits Amount Balance Deposits
- -------- ------ ----------------------------- -------- ------- ---------
(In Thousands)
2.22 None Demand and NOW checking $350-1,000 $6,143 12.68%
3.25 None Money market deposit 2,500 2,929 6.05
2.77 None Passbook savings accounts 10 5,807 11.99
Certificates of Deposit
-----------------------
6.17 3 months Fixed term, fixed rate 1,000 6,346 13.10
5.08 6 months Fixed term, fixed rate 1,000 4,064 8.39
5.13 9 months Fixed term, fixed rate 500 2,265 4.67
5.33 12 months Fixed term, fixed rate 500 9,449 19.50
5.53 18 months Fixed term, fixed rate 500 3,540 7.31
5.76 24 months Fixed term, fixed rate 500 1,003 2.07
5.55 30 months Fixed term, fixed rate 500 3,812 7.87
5.43 48 months Fixed term, fixed rate 500 3,086 6.37
------- -----
$48,444 100.00%
======= ======
- --------------------
(1) Noninterest-bearing accounts with an aggregate balance of
$204,000 are included in demand and NOW checking balances.
18
<PAGE>
<PAGE>
The following table indicates the amount of the Association's
jumbo certificates of deposit by time remaining until maturity as of September
30, 1996. Jumbo certificates of deposit require minimum deposits of $100,000.
Maturity Period Amounts
(In Thousands)
Three months or less $6,222
Over three through six months 320
Over six through twelve months 149
Over twelve months 103
------
Total $6,794
======
Included in the above table was a deposit of $6.0 million which
matured in October 1996. Such deposit was not renewed.
Deposit Flow. The following table sets forth the balances
(inclusive of interest credited) of deposits in the various types of accounts
offered by the Association at the dates indicated.
At September 30,
----------------------------------------------------------------------
1994 1995 1996
---------------- ------------------------- ---------------------------
Percent Percent Percent
of of Increase of Increase
Amount Total Amount Total (Decrease) Amount Total (Decrease)
------ ----- ------ ----- ---------- ------ ----- ----------
(Dollars in Thousands)
Non-
interest-
bearing $ 154 0.35% $ 226 0.51% $ 72 $ 204 0.42% (22)
Demand
and
NOW
check-
ing 6,715 15.19 6,449 14.63 (266) 5,939 12.26 (510)
Passbook
savings
accounts
(1) 8,243 18.65 6,134 13.91 (2,109) 5,807 11.99 (327)
Money
market
deposit 4,035 9.13 2,887 6.55 (1,148) 2,929 6.05 42
Fixed-rate
certifi-
cates
which
mature(1):
Within
one
year 18,593 42.07 21,004 47.64 2,411 26,616 54.94 5,612
After
one
year,
but
within
three
years 5,551 12.56 6,471 14.68 920 5,963 12.31 (508)
After
three
years 906 2.05 917 2.08 11 986 2.03 69
------- ------ ------- ------ ----- ------- ------ ------
Total $44,197 100.00%$44,088 100.00% $(109) $48,444 100.00% $4,356
======= ====== ======= ====== ===== ======= ====== ======
- --------------------
(1) IRAs are included in passbook savings and certificate balances:
Amounts are $3.7 million, $3.3 million and $3.6 million at
September 30, 1994, 1995, 1996, respectively.
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Time Deposits by Rates. The following table sets forth the time
deposits in the Association classified by rates as of the dates indicated.
At September 30,
------------------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
3.00 - 3.99% $13,310 $ 174 $ --
4.00 - 4.99% 10,080 7,674 3,516
5.00 - 5.99% 983 12,069 21,079
6.00 - 6.99% 322 8,446 8,970
7.00 - 7.99% 330 27 --
8.00% and Over 25 2 --
------- ------- -------
Total $25,050 $28,392 $33,565
======= ======= =======
The following table sets forth the amount and maturities of time
deposits at September 30, 1996.
Amount Due
------------------------------------------------ Percent
of Total
Less Than 1-2 2-3 3-4 After Certificate
One Year Years Years Years 4 Years Total Accounts
-------- ----- ----- ----- ------- ----- --------
(Dollars in Thousands)
4.00 - 4.99% $ 3,205 $ 311 $ -- $ -- $ -- $ 3,516 10.48%
5.00 - 5.99% 16,097 3,418 714 850 -- 21,079 62.80
6.00 - 6.99% 7,314 772 748 136 -- 8,970 26.72
------- ------ ------ ----- ---- ------- ------
Total $26,616 $4,501 $1,462 $ 986 $ -- $33,565 100.00%
======= ====== ====== ===== ==== ======= ======
The following table sets forth the deposit activities of the
Association for the periods indicated.
Years Ended September 30,
--------------------------------
1994 1995 1996
---- ---- ----
(In Thousands)
Beginning balance $46,647 $44,196 $44,088
------- ------- -------
Net increase (decrease)
before interest credited (3,526) (1,184) 2,979
Interest credited 1,075 1,076 1,377
------- ------- -------
Net increase (decrease)
in deposits (2,451) (108) 4,356
------- ------- -------
Ending balance $44,196 $44,088 $48,444
======= ======= =======
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Borrowings. Savings deposits are the primary source of funds for
the Association's lending and investment activities and for its general
business purposes. The Association has the ability to use advances from the
FHLB-Des Moines to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Des Moines functions as a central reserve
bank providing credit for savings and loan associations and certain other
member financial institutions. As a member of the FHLB-Des Moines, the
Association is required to own capital stock in the FHLB-Des Moines and is
authorized to apply for advances on the security of such stock and certain of
its mortgage loans and other assets (principally securities which are
obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness standards have been met. Advances are made pursuant to
several different credit programs. Each credit program has its own interest
rate and range of maturities. Depending on the program, limitations on the
amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
September 30, 1996 and during the three years ending September 30, 1996, the
Association had no borrowings from the FHLB-Des Moines, although it may decide
to make use of such instruments in the future.
Subsidiary Activities
Federal associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount
in excess of 1% is used primarily for community, inner-city and community
development projects. The Association's investment in its service corporation
at September 30, 1996 did not exceed the limits applicable to Federal
associations.
NS&L Enterprises, Inc. (the "Service Corporation") is a wholly
owned subsidiary of the Association. The Service Corporation was established
in 1992 for the purpose of offering credit life insurance and discount
brokerage services. At September 30, 1996, the Association's investment in
the Service Corporation was $2,000.
REGULATION
General
The Association is subject to extensive regulation, examination
and supervision by the OTS as its chartering agency, and the FDIC, as the
insurer of its deposits. The activities of federal savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDIA") and the regulations
issued by the OTS and the FDIC to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in which federal
savings associations may engage. Lending activities and other investments
must comply with various statutory and regulatory capital requirements. In
addition, the Association's relationship with its depositors and borrowers is
also regulated to a great extent, especially in such matters as the ownership
of savings accounts and the form and content of the Association's mortgage
documents. The Association must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as
mergers with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to review the Association's
compliance with various regulatory requirements. The regulatory structure
also gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have
a material adverse impact on the Corporation, the Association and their
operations. The Corporation, as a savings and loan holding company, is also
required to file certain reports with, and otherwise comply with the rules and
regulations of the OTS.
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Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the
Department of the Treasury subject to the general oversight of the Secretary
of the Treasury. The OTS generally possesses the supervisory and regulatory
duties and responsibilities formerly vested in the Federal Home Loan Bank
Board. Among other functions, the OTS issues and enforces regulations
affecting federally insured savings associations and regularly examines these
institutions.
Federal Deposit Insurance Corporation. The FDIC is an
independent federal agency that insures the deposits, up to prescribed
statutory limits, of depository institutions. The FDIC currently maintains
two separate insurance funds: the BIF and the SAIF. As insurer of deposits,
the FDIC has examination, supervisory and enforcement authority over all
savings associations.
The Association's accounts are insured by the SAIF up to the
maximum extent permitted by law. The Association pays deposit insurance
premiums to the FDIC based on a risk-based assessment system established by
the FDIC for all SAIF-member institutions. Under applicable regulations,
institutions are assigned to one of three capital groups that are based solely
on the level of an institution's capital -- "well capitalized," "adequately
capitalized," and "undercapitalized" -- which are defined in the same manner
as the regulations establishing the prompt corrective action system, as
discussed below. These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates that until September 30, 1996 ranged from 0.23%
for well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken.
Until the second half of 1995, the same matrix applied to
BIF-member institutions. As a result of the BIF having reached its designated
reserve ratio, effective January 1, 1996, the FDIC substantially reduced
deposit insurance premiums for well-capitalized, well-managed financial
institutions that are members of the BIF. Under the new assessment schedule,
rates were reduced to a range of 0 to 27 basis points, with approximately 92%
of BIF members paying the statutory minimum annual assessment rate of $2,000.
Pursuant to the DIF Act, which was enacted on September 30, 1996, the FDIC
imposed a special one-time assessment on each depository institution with
SAIF-assessable deposits so that the SAIF may achieve its designated reserve
ratio. Beginning January 1, 1997, the assessment schedule for SAIF members
will be the same as that for BIF members. In addition, beginning January 1,
1997, SAIF members will be charged an assessment of 0.064% of SAIF-assessable
deposits for the purpose of paying interest on the obligations issued by the
Financing Corporation ("FICO") in the 1980s to help fund the thrift industry
cleanup. BIF-assessable deposits will be charged an assessment to help pay
interest on the FICO bonds at a rate of approximately 0.013% until the earlier
of December 31, 1999 or the date upon which the last savings association
ceases to exist, after which time the assessment will be the same for all
insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into
the Deposit Insurance Fund on January 1, 1999, but only if no insured
depository institution is a savings association on that date. The DIF
contemplates the development of a common charter for all federally chartered
depository institutions and the abolition of separate charters for national
banks and federal savings associations. It is not known what form the common
charter may take and what effect, if any, the adoption of a new charter would
have on the operation of the Association.
The FDIC may terminate the deposit insurance of any insured
depository institution if it determines after a hearing that the institution
has engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured
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<PAGE>
for a period of six months to two years, as determined by the FDIC.
Management is aware of no existing circumstances which could result in
termination of the deposit insurance of the Association.
Federal Home Loan Bank System. The FHLB System, consisting of 12
FHLBs, is under the jurisdiction of the Federal Housing Finance Board
("FHFB"). The designated duties of the FHFB are to: supervise the FHLBs;
ensure that the FHLBs carry out their housing finance mission; ensure that the
FHLBs remain adequately capitalized and able to raise funds in the capital
market; and ensure that the FHLBs operate in a safe and sound manner.
The Association, as a member of the FHLB-Des Moines, is required
to acquire and hold shares of capital stock in the FHLB-Des Moines in an
amount equal to the greater of (i) 1.0% of the aggregate outstanding principal
amount of residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or (ii) 1/20 of its advances
(borrowings) from the FHLB-Des Moines. The Association is in compliance with
this requirement with an investment in FHLB-Des Moines stock of $421,000 at
September 30, 1996.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Des Moines.
Liquidity Requirements. Under OTS regulations, each savings
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 5.0%) of its net withdrawable accounts plus short-term
borrowings. OTS regulations also require each savings institution to maintain
an average daily balance of short-term liquid assets at a specified percentage
(currently 1.0%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" contained in the Annual Report
Prompt Corrective Action. Under Section 38 of the FDIA, each
federal banking agency is required to implement a system of prompt corrective
action for institutions which it regulates. The federal banking agencies have
promulgated substantially similar regulations to implement this system of
prompt corrective action. Under the regulations, an institution shall be
deemed to be (i) "well capitalized" if it has a total risk-based capital ratio
of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
Tier I leverage capital ratio of 5.0% or more and is not subject to specified
requirements to meet and maintain as specific capital level for any capital
measure; (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a
Tier I leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier
I leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances); (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a Tier I leverage capital ratio that is less
than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
Section 38 of the FDIA and the implementing regulations also
provide that a federal banking agency may, after notice and an opportunity for
a hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity. (The
OTS may not, however, reclassify a significantly undercapitalized institution
as critically undercapitalized.)
23
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<PAGE>
An institution generally must file a written capital restoration
plan that meets specified requirements, as well as a performance guaranty by
each company that controls the institution, with the appropriate federal
banking agency within 45 days of the date that the institution receives notice
or is deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the provisions of
Section 38 of the FDIA, which sets forth various mandatory and discretionary
restrictions on its operations.
At September 30, 1996, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the
federal banking regulatory agencies to prescribe, by regulation, standards for
all insured depository institutions relating to: (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and
(vi) compensation, fees and benefits. The federal banking agencies adopted
regulations and Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") to implement safety and soundness standards required
by the FDIA. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the OTS
determines that the Association fails to meet any standard prescribed by the
Guidelines, the agency may require the Association to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the
FDIA. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are
required to meet a qualified thrift lender ("QTL") test set forth in the HOLA
and regulations of the OTS thereunder to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either become a national bank or be subject to the following restrictions on
its operations: (1) the association may not make any new investment or
engaging in activities that would not be permissible for national banks; (2)
the association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish
a branch office; (3) the association shall not be eligible to obtain new
advances from any FHLB; and (4) the payment of dividends by the association
shall be subject to the rules regarding the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after
the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in
any activity not permissible for a national bank and would be required to
repay any outstanding advances to any FHLB. In addition, within one year of
the date on which a savings association controlled by a company ceases to be a
QTL, the company must register as a bank holding company and become subject to
the rules applicable to such companies. A savings institution may requalify
as a QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution
quality as a domestic building and loan association under the Internal Revenue
Code or that 65% of an institution's "portfolio assets" (as defined) consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion
as part of the 65% requirement are loans made to purchase, refinance,
construct, improve or repair domestic residential housing and manufactured
housing; home equity loans; mortgage-backed securities (where the mortgages
are secured by domestic residential housing or manufactured housing); FHLB
stock; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test subject to an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days
of origination; 100% of consumer loans; and stock issued by the FHLMC or the
FNMA. Portfolio assets consist of total assets minus the sum of (i) goodwill
and other intangible assets, (ii) property used by the savings institution to
conduct its business, and (iii) liquid assets up to 20% of the institution's
total assets. At September 30, 1996, the Association satisfied the qualified
thrift lender test.
24
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Capital Requirements. Under OTS regulations a savings
association must satisfy three minimum capital requirements: core capital,
tangible capital and risk-based capital. Savings associations must meet all
of the standards in order to comply with the capital requirements. The
Corporation is not subject to any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage
ratio (defined as the ratio of core capital to adjusted total assets). Core
capital is defined to include common stockholders' equity, noncumulative
perpetual preferred stock and any related surplus, and minority interests in
equity accounts of consolidated subsidiaries, less (i) any intangible assets,
except for certain qualifying intangible assets; (ii) certain mortgage
servicing rights; and (iii) equity and debt investments in subsidiaries that
are not "includable subsidiaries," which is defined as subsidiaries engaged
solely in activities not impermissible for a national bank, engaged in
activities impermissible for a national bank but only as an agent for its
customers, or engaged solely in mortgage-banking activities. In calculating
adjusted total assets, adjustments are made to total assets to give effect to
the exclusion of certain assets from capital and to account appropriately for
the investments in and assets of both includable and nonincludable
subsidiaries. Institutions that fail to meet the core capital requirement
would be required to file with the OTS a capital plan that details the steps
they will take to reach compliance. In addition, the OTS' prompt corrective
action regulation provides that a savings institution that has a leverage
ratio of less than 4% (3% for institutions receiving the highest CAMEL
examination rating) will be deemed to be "undercapitalized" and may be subject
to certain restrictions. See "-- Federal Regulation of Savings Associations
- -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising
its minimum core capital requirement to be no less stringent than that imposed
on national banks. The OTS has proposed that only those savings associations
rated a composite one (the highest rating) under the CAMEL rating system for
savings associations will be permitted to operate at or near the regulatory
minimum leverage ratio of 3%. All other savings associations will be required
to maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a
case-by-case basis to determine the applicable requirement. No assurance can
be given as to the final form of any such regulation, the date of its
effectiveness or the requirement applicable to the Association.
Savings associations also must maintain "tangible capital" not
less than 1.5% of the Association's adjusted total assets. "Tangible capital"
is defined, generally, as core capital minus any "intangible assets" other
than purchased mortgage servicing rights.
Each savings institution must maintain total risk-based capital
equal to at least 8% of risk-weighted assets. Total risk-based capital
consists of the sum of core and supplementary capital, provided that
supplementary capital cannot exceed core capital, as previously defined.
Supplementary capital includes (i) permanent capital instruments such as
cumulative perpetual preferred stock, perpetual subordinated debt and
mandatory convertible subordinated debt, (ii) maturing capital instruments
such as subordinated debt, intermediate-term preferred stock and mandatory
convertible subordinated debt, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet
asset held by a savings institution to one of four risk categories based on
the amount of credit risk associated with that particular class of assets.
Assets not included for purposes of calculating capital are not included in
calculating risk-weighted assets. The categories range from 0% for cash and
securities that are backed by the full faith and credit of the U.S. Government
to 100% for repossessed assets or assets more than 90 days past due.
Qualifying residential mortgage loans (including multi-family mortgage loans)
are assigned a 50% risk weight. Consumer, commercial, home equity and
residential construction loans are assigned a 100% risk weight, as are
nonqualifying residential mortgage loans and that portion of land loans and
nonresidential construction loans that do not exceed an 80% loan-to-value
ratio. The book value of assets in each category is multiplied by the
weighing factor (from 0% to 100%) assigned to that category. These products
are then totalled to arrive at total risk-weighted assets. Off-balance sheet
items are included in risk-weighted assets by converting them to an
approximate balance sheet "credit equivalent amount" based on a
25
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conversion schedule. These credit equivalent amounts are then assigned to
risk categories in the same manner as balance sheet assets and included as
risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its
risk-based capital requirement. Under the rule, there is a two quarter lag
between the reporting date of an institution's financial data and the
effective date for the new capital requirement based on that data. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in
lieu of the OTS-calculated amount. The OTS has postponed the date that the
component will first be deducted from an institution's total capital until
savings associations become familiar with the process for requesting an
adjustment to its interest rate risk component.
At September 30, 1996, Neosho Savings's core capital of
approximately $8.2 million, or 13.8% of adjusted total assets, was $6.4
million in excess of the OTS requirement of $1.8 million, or 3% of adjusted
total assets. As of such date, the Association's tangible capital of
approximately $8.2 million, or 13.8% of adjusted total assets, was $7.3
million in excess of the OTS requirement of $890,000, or 1.5% of adjusted
total assets. Finally, at September 30, 1996, the Association had risk-based
capital of approximately $8.2 million or 38.5% of total risk-weighted assets,
which was $6.5 million in excess of the OTS risk-based capital requirement of
$1.7 million or 8% of risk-weighted assets.
Limitations on Capital Distributions. OTS regulations impose
uniform limitations on the ability of all savings associations to engage in
various distributions of capital such as dividends, stock repurchases and
cash-out mergers. In addition, OTS regulations require the Association to
give the OTS 30 days' advance notice of any proposed declaration of dividends,
and the OTS has the authority under its supervisory powers to prohibit the
payment of dividends. The regulation utilizes a three-tiered approach which
permits various levels of distributions based primarily upon a savings
association's capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). A Tier 1 savings association may make (without application but
upon prior notice to, and no objection made by, the OTS) capital distributions
during a calendar year up to 100% of its net income to date during the
calendar year plus one-half its surplus capital ratio (i.e., the amount of
capital in excess of its fully phased-in requirement) at the beginning of the
calendar year or the amount authorized for a Tier 2 association. Capital
distributions in excess of such amount require advance notice to the OTS. A
Tier 2 savings association has capital equal to or in excess of its minimum
capital requirement but below its fully phased-in capital requirement (both
before and after the proposed capital distribution). Such an association may
make (without application) capital distributions up to an amount equal to 75%
of its net income during the previous four quarters depending on how close the
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval. Tier 3
associations are savings associations with capital below the minimum capital
requirement (either before or after the proposed capital distribution). Tier
3 associations may not make any capital distributions without prior approval
from the OTS.
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The Association is currently meeting the criteria to be
designated a Tier 1 association and, consequently, could at its option (after
prior notice to, and no objection made by, the OTS) distribute up to 100% of
its net income during the calendar year plus 50% of its surplus capital ratio
at the beginning of the calendar year less any distributions previously paid
during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Association's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such
loan is secured by readily-marketable collateral, which is defined to include
certain financial instruments and bullion. The OTS by regulation has amended
the loans to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower
in additional amounts under circumstances limited essentially to loans to
develop or complete residential housing units. At September 30, 1996, the
Association's limit on loans to one borrower was $1.2 million. At September
30, 1996, the Association's largest aggregate amount of loans to one borrower
was $400,00, all of which were performing according to their original terms.
Activities of Associations and Their Subsidiaries. When a
savings association establishes or acquires a subsidiary or elects to conduct
any new activity through a subsidiary that the association controls, the
savings association must notify the FDIC and the OTS 30 days in advance and
provide the information each agency may, by regulation, require. Savings
associations also must conduct the activities of subsidiaries in accordance
with existing regulations and orders.
The OTS may determine that the continuation by a savings
association of its ownership control of, or its relationship to, the
subsidiary constitutes a serious risk to the safety, soundness or stability of
the association or is inconsistent with sound banking practices or with the
purposes of the FDIA. Based upon that determination, the FDIC or the OTS has
the authority to order the savings association to divest itself of control of
the subsidiary. The FDIC also may determine by regulation or order that any
specific activity poses a serious threat to the SAIF. If so, it may require
that no SAIF member engage in that activity directly.
Transactions with Affiliates. Savings associations must comply
with Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured association or its subsidiaries may engage in certain
covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus and place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and (ii) require that all such transactions be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, the purchase of assets, the issuance of a guaranty and
similar types of transactions.
Three additional rules apply to savings associations: (i) a
savings association may not make any loan or other extension of credit to an
affiliate unless that affiliate is engaged only in activities permissible for
bank holding companies; (ii) a savings association may not purchase or invest
in securities issued by an affiliate (other than securities of a subsidiary);
and (iii) the OTS may, for reasons of safety and soundness, impose more
stringent restrictions on savings associations but may not exempt transactions
from or otherwise abridge Section 23A or 23B. Exemptions from Section 23A or
23B may be granted only by the Federal Reserve Board, as is currently the case
with respect to all FDIC-insured banks. The Association has not been
significantly affected by the rules regarding transactions with affiliates.
The Association's authority to extend credit to executive
officers, directors and 10% shareholders, as well as entities controlled by
such persons, is currently governed by Sections 22(g) and 22(h) of the Federal
Reserve Act, and Regulation O thereunder. Among other things, these
regulations require that such loans be made on terms and
27
<PAGE>
<PAGE>
conditions substantially the same as those offered to unaffiliated individuals
and not involve more than the normal risk of repayment. Regulation O also
places individual and aggregate limits on the amount of loans the Association
may make to such persons based, in part, on the Association's capital
position, and requires certain board approval procedures to be followed. The
OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), a federal statute, all federally-insured financial institutions have
a continuing and affirmative obligation consistent with safe and sound
operations to help meet all the credit needs of its delineated community. The
CRA does not establish specific lending requirements or programs nor does it
limit an institution's discretion to develop the types of products and
services that it believes are best suited to meet all the credit needs of its
delineated community. The CRA requires the federal banking agencies, in
connection with regulatory examinations, to assess an institution's record of
meeting the credit needs of its delineated community and to take such record
into account in evaluating certain regulatory applications filed by an
institution. The CRA requires public disclosure of an institution's CRA
rating. The Association received a "satisfactory" rating as a result of its
latest evaluation.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations
issued thereunder generally prohibit a savings and loan holding company,
without prior OTS approval, from acquiring more than 5% of the voting stock of
any other savings association or savings and loan holding company or
controlling the assets thereof. They also prohibit, among other things, any
director or officer of a savings and loan holding company, or any individual
who owns or controls more than 25% of the voting shares of such holding
company, from acquiring control of any savings association not a subsidiary of
such savings and loan holding company, unless the acquisition is approved by
the OTS.
Holding Company Activities. As a unitary savings and loan
holding company, the Corporation generally is not subject to activity
restrictions. If the Corporation acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company. There generally are more restrictions on the activities
of a multiple savings and loan holding company than a unitary savings and loan
holding company. Specifically, if either federally insured subsidiary savings
association fails to meet the QTL test, the activities of the Corporation and
any of its subsidiaries (other than the Corporation or other federally insured
subsidiary savings associations) would thereafter be subject to further
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof which is not an insured
association shall commence or continue for more than two years after becoming
a multiple savings and loan association holding company or subsidiary thereof,
any business activity other than: (i) furnishing or performing management
services for a subsidiary insured institution, (ii) conducting an insurance
agency or escrow business, (iii) holding, managing, or liquidating assets
owned by or acquired from a subsidiary insured institution, (iv) holding or
managing properties used or occupied by a subsidiary insured institution, (v)
acting as trustee under deeds of trust, (vi) those activities previously
directly authorized by regulation as of March 5, 1987 to be engaged in by
multiple holding companies or (vii) those activities authorized by the Federal
Reserve Board as permissible for bank holding companies, unless the OTS by
regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- Federal Regulation of Savings Associations --
Qualified Thrift Lender Test," must, within one year after the date on which
the association ceases to be a QTL, register as and be deemed a bank holding
company subject to all applicable laws and regulations.
28
<PAGE>
<PAGE>
TAXATION
Federal Taxation
General. The Corporation and the Association report their income
on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations
with some exceptions, including particularly the Association's reserve for bad
debts discussed below. The following discussion of tax matters is intended
only as a summary and does not purport to be a comprehensive description of
the tax rules applicable to the Association or the Corporation.
Tax Bad Debt Reserves. For taxable years beginning prior to
January 1, 1996, savings institutions such as the Association which met
certain definitional tests primarily relating to their assets and the nature
of their business ("qualifying thrifts") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which additions may,
within specified formula limits, have been deducted in arriving at their
taxable income. The Association's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in real
property, may have been computed using an amount based on the Association's
actual loss experience, or a percentage equal to 8% of the Association's
taxable income, computed with certain modifications and reduced by the amount
of any permitted additions to the nonqualifying reserve. The Association's
deduction with respect to nonqualifying loans was computed under the
experience method, which essentially allows a deduction based on the
Association's actual loss experience over a period of several years. Each
year the Association selected the most favorable way to calculate the
deduction attributable to an addition to the tax bad debt reserve. The
Association used the percentage method bad debt deduction for the taxable
years ended September 30, 1994, 1995 and 1996.
Recently enacted legislation repealed the reserve method of
accounting for bad debt reserves for tax years beginning after December 31,
1995. As result, savings associations will no longer be able to calculate
their deduction for bad debts using the percentage-of-taxable-income method.
Instead, savings associations will be required to compute their deduction
based on specific charge-offs during the taxable year or, if the savings
association or its controlled group had assets of less than $500 million,
based on actual loss experience over a period of years. This legislation also
requires savings associations to recapture into income over a six-year period
their post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. At September 30, 1996, the Association's post-1987
reserves totalled approximately $420,000. The recapture may be suspended for
up to two years if, during those years, the institution satisfies a
residential loan requirement. The Association anticipates that it will meet
the residential loan requirement for the taxable year ending September 30,
1997.
Under prior law, if the Association failed to satisfy the
qualifying thrift definitional tests in any taxable year, it would be unable
to make additions to its bad debt reserve. Instead, the Association would be
required to deduct bad debts as they occur and would additionally be required
to recapture its bad debt reserve deductions ratably over a multi-year period.
At September 30, 1996, the Association's total bad debt reserve for tax
purposes was approximately $1.8 million. Among other things, the qualifying
thrift definitional tests required the Association to hold at least 60% of its
assets as "qualifying assets." Qualifying assets generally include cash,
obligations of the United States or any agency or instrumentality thereof,
certain obligations of a state or political subdivision thereof, loans secured
by interests in improved residential real property or by savings accounts,
student loans and property used by the Association in the conduct of its
banking business. Under current law, a savings association will not be
required to recapture its pre-1988 bad debt reserves if it ceases to meet the
qualifying thrift definitional tests.
Distributions. To the extent that the Association makes
"nondividend distributions" to the Corporation that are considered as made:
(i) from the reserve for losses on qualifying real property loans, to the
extent the reserve for such losses exceeds the amount that would have been
allowed under the experience method; or (ii) from the supplemental reserve for
losses on loans ("Excess Distributions"), then an amount based on the amount
distributed will be included in the Association's taxable income. Nondividend
distributions include distributions in excess of the Association's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out
of the Association's current or accumulated earnings
29
<PAGE>
<PAGE>
and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Association's bad debt
reserve. Thus, any dividends to the Corporation that would reduce amounts
appropriated to the Association's bad debt reserve and deducted for federal
income tax purposes would create a tax liability for the Association. The
amount of additional taxable income attributable to an Excess Distribution is
an amount that, when reduced by the tax attributable to the income, is equal
to the amount of the distribution. Thus, if, the Association makes a
"nondividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 35% corporate income tax rate (exclusive of state and
local taxes). See "Regulation" for limits on the payment of dividends by the
Association. The Association does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt
reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the tax bad debt reserve deduction using the percentage of taxable income
method over the deduction that would have been allowable under the experience
method is treated as a preference item for purposes of computing the AMTI. In
addition, only 90% of AMTI can be offset by net operating loss carryovers.
AMTI is increased by an amount equal to 75% of the amount by which the
Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses).
For taxable years beginning after December 31, 1986, and before January 1,
1996, an environmental tax of .12% of the excess of AMTI (with certain
modification) over $2.0 million is imposed on corporations, including the
Association, whether or not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Corporation
may exclude from its income 100% of dividends received from the Association as
a member of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Corporation and the
Association will not file a consolidated tax return, except that if the
Corporation or the Association owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
There have not been any IRS audits of the Association's Federal
income tax returns or audits of the Association's state income tax returns
during the past five years.
Missouri Taxation
Missouri-based thrift institutions, such as the Association, are
subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Association and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales taxes and use taxes. In addition,
Neosho Savings is entitled to a credit against this tax for all taxes paid to
the State of Missouri or any political subdivision except taxes on tangible
personal property owned by the Association and held for lease or rental to
others and on real estate, contributions paid pursuant to the Unemployment
Compensation Law of Missouri, social security taxes, sales and use taxes, and
taxes imposed by the Missouri Financial Institutions Tax Law. Missouri thrift
institutions are not subject to the regular state corporate income tax.
For additional information regarding taxation, see Note 7 of
Notes to Consolidated Financial Statements contained in the Annual Report.
Personnel
As of September 30, 1996, the Corporation had 18 full-time and
two part-time employees. The employees are not represented by a collective
bargaining unit and the Corporation believes its relationship with its
employees to be good.
30
<PAGE>
<PAGE>
Item 2. Description of Properties
- ----------------------------------
The Association has two offices, both of which are owned by the
Association. The Association's main office is located at 111 East Main
Street, Neosho, Missouri 64850. The office was opened in 1963 and the square
footage is approximately 6,840 feet. At September 30, 1996, the net book
value of the property (including land and building) was $521,000. The
Association has one branch office, which is located at 713 Neosho Boulevard,
Neosho, Missouri 64850. The branch office was opened in 1986 and the square
footage is approximately 2,922 feet. At September 30, 1996, the net book
value of the property was $223,000. The net book value of the Association's
fixtures, furniture and equipment at September 30, 1996 was $123,000.
Item 3. Legal Proceedings
- --------------------------
Periodically, there have been various claims and lawsuits
involving the Association, such as claims to enforce liens, condemnation
proceedings on properties in which the Association holds security interests,
claims involving the making and servicing of real property loans and other
issues incident to the Association's business. Neither the Corporation nor
the Association is a party to any pending legal proceedings that it believes
would have a material adverse effect on the financial condition or operations
of the Corporation or the Association.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during
the quarter ended September 30, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
- ------------------------------------------------------------------
The information contained in the section captioned "Common Stock
Information" in the Annual Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- ----------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- -----------------------------
Independent Auditors Report*
(a) Consolidated Statements of Financial Condition as of
September 30, 1995 and 1996
(b) Consolidated Statements of Income for the Years Ended
September 30, 1994, 1995 and 1996
(c) Consolidated Statements of Stockholders' Equity For the
Years Ended September 30, 1994, 1995 and 1996
(d) Consolidated Statements of Cash Flows For the Years Ended
September 30, 1994, 1995 and 1996
(e) Notes to Consolidated Financial Statements
* Contained in the Annual Report filed as an exhibit hereto and
incorporated herein by reference. All schedules have been
omitted as the required information is either inapplicable or
contained in the Consolidated Financial Statements or related
Notes contained in the Annual Report.
31
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<PAGE>
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
- ---------------------------------------------------------
No disagreement with the Corporation's independent accountants on
accounting and financial disclosure has occurred during the two most recent
fiscal years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
- -----------------------------------------------------------------------
The information contained under the section captioned "Proposal I
- -- Election of Directors" in the Proxy Statement is incorporated herein by
reference.
The following table sets forth certain information with respect
to the executive officers of the Corporation and the Association. Each of the
executive officers holds the same position with the Corporation and the
Association.
Age at
September 30,
Name 1996 Position
- ---- ------------- --------
George A. Henry 73 Chairman of the Board
C.R. "Rick" Butler 49 President and Director
Dorothy A. LaDue 57 Senior Vice President and Secretary
William J. Lynch 49 Vice President
Carol A. Guest 50 Treasurer
The following is a description of the principal occupation and
employment of the executive officers of the Corporation and the Association
during at least the past five years:
George A. Henry served as a judge on the Newton County Circuit
Court for 14 years until his retirement in 1990. Judge Henry has served as a
director of the Association since 1964 and was elected Chairman of the Board
in 1990. He currently serves on the Newton Country Library Board and is a
past member of the Administrative Council of the Neosho United Methodist
Church.
C. R. "Rick" Butler is President of the Corporation and the
Association. Mr. Butler joined the Association in August 1982 as the managing
officer and director. He currently serves on the Board of Trustees of Crowder
College, is a board member of the Neosho United Fund and the Neosho Area
Business Industrial Development Foundation, and is a member of the Economic
Development Committee of the Neosho Area Chamber of Commerce. Mr. Butler also
serves as a Director of District 2 of the Missouri League of Financial
Institutions.
Dorothy A. LaDue is Senior Vice President and Secretary of the
Corporation and the Association. Mrs. LaDue joined the Association in 1974
and has worked in all areas of operations. She is an active member of the
Neosho Area Chamber of Commerce serving on numerous Chamber committees.
32
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<PAGE>
William J. Lynch is Vice President of the Corporation and the
Association. Mr. Lynch joined the Association in 1983 and has worked in all
areas of operations with current responsibilities in real estate lending. He
currently serves on the Board of Directors of the Neosho Area Fire Protection
District, is a member of the Banquet Committee of the Neosho Area Chamber of
Commerce and is a past board member of the Neosho Kiwanis Club. Mr. Lynch
resides in Granby, Missouri.
Carol A. Guest is Treasurer of the Corporation and the
Association. Mrs. Guest, a Certified Public Accountant, joined the
Association in 1990 and is the officer in charge of the Association's
accounting department.
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I
- -- Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein
by reference to the section captioned "Security Ownership
of Certain Beneficial Owners and Management" of the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein
by reference to the sections captioned and "Security
Ownership of Certain Beneficial Owners and Management"
and "Proposal I - Election of Directors" of the Proxy
Statement.
(c) Changes in Control
The Corporation is not aware of any arrangements,
including any pledge by any person of securities of the
Corporation, the operation of which may at a subsequent
date result in a change in control of the Corporation.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of Directors --
Transactions with Management."
33
<PAGE>
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a) Exhibits
3.1 Articles of Incorporation of NS&L Bancorp,
Inc. (incorporated by reference to Exhibit
3.1 to the registrant's Registration
Statement on Form S-1 (33-89836))
3.2 Bylaws of NS&L Bancorp, Inc. (incorporated by
reference to Exhibit 3.2 to the registrant's
Registration Statement on Form S-1
(33-89836))
10.1 Employment Agreement with C.R. Butler
(incorporated by reference to the
registrant's Annual Report on Form 10-KSB for
the year ended September 30, 1995)
10.2 NS&L Bancorp, Inc. 1995 Stock Option Plan
(incorporated by reference to Exhibit A to
the registrant's proxy statement for the 1996
Annual Meeting of Stockholders)
10.3 NS&L Bancorp, Inc. Management Recognition and
Development Plan (incorporated by reference
to Exhibit B to the registrant's proxy
statement for the 1996 Annual Meeting of
Stockholders)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended
September 30, 1996.
34
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NS&L BANCORP, INC.
Date: December 20, 1996 By: /s/C.R. Butler
-------------------------------------
C.R. Butler
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: /s/C.R. Butler December 20, 1996
-------------------------------------
C.R. Butler
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/Carol A. Guest December 20, 1996
--------------------------------------
Carol A. Guest
Treasurer
(Principal Financial and Accounting Officer)
By: /s/George A. Henry December 20, 1996
-------------------------------------
George A. Henry
Chairman of the Board and Director
By: /s/John C. Genisio December 20, 1996
-------------------------------------
Jon C. Genisio
Director
By: /s/John D. Mills December 20, 1996
-------------------------------------
John D. Mills
Director
By: /s/Ralph J. Haas December 20, 1996
-------------------------------------
Ralph J. Haas
Director
By: /s/Robert J. Johnson December 20, 1996
-------------------------------------
Robert J. Johnson
Director
<PAGE>
<PAGE>
Exhibit 13
Annual Report to Stockholders
Annual Report 1996
NS&L Bancorp, Inc.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
Letter to Stockholders 1
Business of the Corporation 2
Selected Consolidated Financial Information 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Independent Auditors' Report 16
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 22
Common Stock Information 46
Directors and Officers 47
Corporate Information 48
<PAGE>
<PAGE>
NS&L Bancorp, Inc.
President's Message
To Our Stockholders:
On behalf of the Board of Directors, Officers and Employees of NS&L Bancorp,
Inc. and its wholly owned subsidiary, Neosho Savings & Loan Association, F.A.,
we are pleased to submit our second Annual Report as a public stock company.
During the fiscal year ending September 30, 1996, the Company's stock traded
as high as $13.75 per share and as low as $12.00 per share. Our return on
average assets was .57%, with a return on average equity of 2.43%. These
ratios reflect an added expense for the fiscal year of $177,000 net of
deferred tax, which was a one-time industry-wide special assessment by the
Federal Deposit Insurance Corporation (FDIC) to recapitalize the Savings
Association Insurance Fund (SAIF). Without this one-time special assessment,
earnings for the fiscal year would have been approximately $504,000 or $0.64
per share. The return on average assets would have been 0.87%, with an
estimated return on equity of 3.7%.
The Company has continuously paid a quarterly dividend since becoming a public
company in June 1995. The dividend for the last three quarters for the fiscal
year ending September 30, 1996 was $0.125 per share, up $0.025 per share from
the first quarter. As planned, during the course of the fiscal year, the
Company repurchased 128,732 shares of its common stock, which amounted to
fifteen percent of its outstanding shares. These treasury shares were
purchased on the open market at an average price of $13.02 per share or 81% of
the September 30, 1996 book value.
The Board of Directors and Management continue to set goals and develop long
term strategies to increase profitability with minimal risk and to enhance
shareholder value. The Company's financial strength and outstanding asset
quality continue to keep us positioned to take advantage of appropriate growth
and expansion opportunities.
We remain firm in our pledge to continue to be a community oriented financial
institution providing affordable financial services and products to the
citizens of Neosho and surrounding communities. All of us at NS&L appreciate
your taking stock in our future and look forward to a long lasting and
profitable relationship.
THANK YOU for your continued support.
Sincerely,
/s/ C.R. Butler
C.R. "Rick" Butler
President
P.O. Box 369/ Neosho, Missouri 64850/ 417-451-0429
Branch office:/ 713 S. Neosho Blvd./ 417-451-6970
<PAGE>
<PAGE>
Business of the Corporation
NS&L Bancorp, Inc. (the "Company"), a Missouri corporation, was
organized in February 1995 for the purpose of becoming the holding company for
Neosho Savings and Loan Association, F.A. (the "Association") upon the
conversion of the Association from a federal mutual to a federal stock
savings and loan association. That conversion was completed in June 1995.
The Company is not engaged in any significant business activity other
than holding the stock of Neosho Savings and Loan Association, F.A.
Accordingly, the information set forth in the report, including financial
statements and related data, applies primarily to the Association.
The Association is a federally-chartered, federally-insured stock
savings and loan association organized in 1884. The Association is regulated
by the Office of Thrift Supervision ("OTS"). Its deposits are insured up to
applicable limits by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation ("FDIC"). The Association also is a member of
the Federal Home Loan Bank ("FHLB") System.
The Association's principal business consists of attracting deposits
from the general public through a variety of deposit programs and originating
loans secured primarily by one-to-four family residential properties. To a
significantly lesser extent, the Association originates loans secured by
commercial real estate, residential construction and consumer loans. The
Association also invests in mortgage-backed, U.S. Government and agency
securities and other assets.
2
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the
financial position of the Company (including data from operations of its
subsidiary) as of and for the dates indicated. In June 1995, the Company
became the holding company for Neosho Savings and Loan Association, F.A. The
Company is primarily in the business of directing, planning and coordinating
the business activities of the Association. Since the Company had not
commenced operations prior to the mutual to stock conversion of the
Association in June 1995, the financial information presented for periods
prior to 1995 is for the Association. The consolidated data is derived in
part from, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and its subsidiary presented herein.<PAGE>
<TABLE>
At September 30,
------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
FINANCIAL CONDITION DATA: (In Thousands)
<S> <C> <C> <C> <C> <C>
Total assets................. $52,525 $52,944 $50,995 $58,758 $61,807
Loans receivable, net........ 22,096 22,174 24,873 25,933 31,051
Mortgage-backed securities... 7,067 7,171 5,481 5,871 5,342
Cash, interest bearing
deposits and investment
securities.................. 21,969 22,141 19,196 25,374 23,930
Customer deposits............. 46,855 46,647 44,196 44,088 48,444
Stockholders' equity.......... 4,913 5,554 6,006 13,729 12,179
For the Years Ended September 30,
----------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In Thousands, Except Per Share Data)
OPERATING DATA:
Interest Income............ $ 3,893 $ 3,467 $ 3,149 $3,284 $3,703
Interest expense........... 2,388 1,718 1,469 1,649 1,873
-------- -------- -------- ------ ------
Net interest income........ 1,505 1,749 1,680 1,635 1,830
Provision for loan losses.. 4 -- -- 8 3
-------- -------- -------- ------ ------
Net interest income after
provision for loan losses. 1,501 1,749 1,680 1,627 1,827
Noninterest income.......... 207 203 185 208 265
Noninterest expense......... 901 1,004 1,065 1,141 1,613
-------- -------- -------- ------ ------
Income before taxes and
cumulative effect of
change in accounting
principle................. 807 948 800 694 479
Income taxes................ 264 307 281 212 152
Income before cumulative -------- -------- -------- ------ ------
effect of change in
accounting principle...... 543 641 519 482 327
Cumulative effect of change
in accounting
principle(1)............... -- -- (67) -- --
-------- ------- -------- -------- --------
Net income..................$ 543 $ 641 $ 452 $ 482 $ 327
======== ======== ======= ======== ========
Earnings per share.......... * * * $ .61 $ .42
======== ========
Dividends per share......... * * * $ .10 $ .475
========= ========
*Operating as a mutual
</TABLE>
3
PAGE
<PAGE>
At September 30,
-----------------------------------------------
1992 1993 1994 1995 1996
----- ----- ---- ---- -----
OTHER DATA:
Number of:
Real estate loans
outstanding 936 902 888 889 911
Deposit accounts 9,336 9,356 9,281 9,104 8,828
Full service offices 2 2 2 2 2
At or For the Years Ended September 30,
----------------------------------------------
1992 1993 1994 1995 1996
KEY OPERATING RATIOS: ---- ---- ---- ---- ----
Return on average assets
(net income divided by
average assets) 1.04 % 1.21 % 0.86 %(2) 0.91 % .57%
Return on average equity
(net income divided by
average equity) 11.54 12.24 7.76 (2) 5.57 2.43
Average equity to average
assets 9.01 9.90 11.11 16.40 23.34
Interest rate spread
(difference between
average yield on
interest-earning assets
and average cost of
interest-bearing
liabilities) 2.56 3.12 3.01 2.66 2.23
Net interest margin (net
interest income as a
percentage of average
interest-earning assets) 2.97 3.43 3.32 3.23 3.26
Noninterest expense to
average assets 1.72 1.90 2.03 2.16 2.80
Average interest-earning
assets to interest-bearing
liabilities 109 109 111 118 131
Allowance for loan losses
to total loans at end
of period .15 .14 .12 .15 .13
Net charge-offs to average
outstanding loans during
the period -- 0.01 -- -- --
Ratio of non-performing
assets to total assets .09 -- .12 .15 .4
Dividend payout ratio N/A N/A N/A 16.39 113.10
- -------------
(1) Reflects effect of adoption of Statement of Financial Accounting Standard
("SFAS") No. 109, "Accounting for Income Taxes."
(2) Based on net income after cumulative effect of change in accounting
principle.
4
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
Management's discussion and analysis of the consolidated financial
condition and results of operations is intended to assist in understanding the
consolidated financial condition and results of operations of the Company.
The information contained in this section should be read in conjunction with
the Consolidated Financial Statements and accompanying notes thereto.
Operating Strategy
- ------------------
The primary goal of management is to increase the Association's
profitability and enhance its net worth while minimizing risk. Operational
results are dependent primarily on net interest income, which is the
difference between the income earned on its interest-earning assets, such as
loans and investments, and the cost of its interest-bearing liabilities,
consisting of deposits. Operational results are also significantly affected
by general economic conditions, changes in market interest rates, governmental
legislation and policies concerning monetary and fiscal affairs and housing,
as well as financial institutions and the attendant actions of the regulatory
authorities.
Management strives to operate a conservative, well capitalized,
profitable thrift dedicated to financing home ownership and other consumer
needs, and to provide quality service to its customers. The Association
believes it has successfully implemented this strategy by:
Emphasizing One-to-Four Family Lending. Historically, the Association
has been predominantly a one-to-four family residential lender. Single family
residential loans constituted 89.9%, 89.5% and 91.1% of total loans at
September 30, 1994, 1995 and 1996, respectively.
Maintaining Asset Quality. The Association strongly emphasizes
maintaining asset quality through sound underwriting, constant monitoring and
effective collection techniques. As of September 30, 1996, the Association's
ratio of non-performing assets to total assets was .04%. That same ratio as
of September 30, 1995 was .15%. There were no loan losses, net of recoveries,
for the years ended September 30, 1995 and 1996.
Managing Interest-Rate Risk. In order to reduce the impact on the
Association's net interest income due to changes in interest rates, the
Association's management has adopted a strategy that has been designed to
maintain the interest rate sensitivity of its assets and liabilities. The
primary elements of this strategy involve emphasizing the origination of ARM
loans and maintaining a short- and medium-term investment portfolio. At
September 30, 1996, 82.65% of the Association's loan portfolio was composed of
adjustable-rate loans.
Maintaining a High Level of Liquidity. At September 30, 1996, the
liquidity ratio of the Association was 35.9%. The Association maintains a
high level of liquidity so that it will be able to fund loans during periods
of deposit outflow. In determining the terms of its deposit accounts, the
Association does not always match above-market rates offered by competitors
who are attempting to increase market share. The Association will permit some
deposit outflow rather than increase its rate paid on deposits and reduce its
interest rate spread.
5
<PAGE>
<PAGE>
Results of Operations
- ---------------------
The earnings of the Association depend primarily on its level of net
interest income, which is the difference between interest earned on interest-
earning assets and the interest paid on interest-bearing liabilities. Net
interest income is a function of the Association's interest rate spread, which
is the difference between the yield earned on interest-earning assets and the
rate paid on interest-bearing liabilities, as well as a function of the
average balance of interest-earning assets as compared to the average balance
of interest-bearing liabilities.
Comparison of Operating Results for the Years Ended September 30, 1995 and
- --------------------------------------------------------------------------
1996
- ----
General. Net income decreased $155,000, or 32.2% from $482,000 at
September 30, 1995 to $327,000 at September 30, 1996. The decrease is
primarily attributable to a one-time, industry-wide FDIC Special Assessment of
$281,000 at September 30, 1996 to recapitalize the Savings Association
Insurance Fund. Interest income increased $419,000 which was partly offset by
an increase in interest expense of $224,000. Noninterest income increased
$57,000 primarily as a result of gains on sales of securities by the Company.
Compensation expense increased $86,000 as a result of the implementation of
the Management Recognition and Development Plan (MRDP), which was adopted in
January 1996, and a full year of ESOP expense as well as annual salary
increases. The Association's net interest margin increased from 3.23% for the
fiscal year ended September 30, 1995 to 3.26% for the fiscal year ended
September 30, 1996.
Net Interest Income. Net interest income increased $195,000, or 11.9%,
from $1,635,000 for the fiscal year ended September 30, 1995 to $1,830,000 at
September 30, 1996. Net interest income increased as a result of an increase
in interest income of $419,000 that was partially offset by a increase in
interest expense of $224,000.
Interest Income. Total interest income increased $419,000, or 12.8%,
from $3,284,000 for the year ended September 30, 1995 to $3,703,000 for the
year ended September 30, 1996. Interest income from loans receivable
increased $357,000 primarily as a result of an increase in the average balance
of loans receivable of $3,587,000 from $25,254,000 in 1995 to $28,841,000 in
1996. Income from investment securities decreased by $23,000 due to a
reduction in the average rates received on the securities as some older higher
paying investments have matured, and was partially offset by an increase in
the average balance of those securities. Interest income from mortgage-backed
securities increased by $25,000 as the average balance of mortgage-backed
securities increased from $5,297,000 in 1995 to $5,645,000 in 1996. An
increase in the average balance of daily interest-bearing assets and an
increase in the yields earned on the interest-bearing assets, from 4.85% in
1995 to 4.96% in 1996, increased other interest income $60,000.
Interest Expense. Interest expense on customer deposits increased
$224,000, or 13.5%, from $1,649,000 for the year ended September 30, 1995 to
$1,873,000 for the year ended September 30, 1996. The increase was due to the
average rate paid on deposits increasing from 3.82% in 1995 to 4.36% in 1996.
The increase in the average rate paid was partially offset by a decrease in
the average balance of deposits of $138,000 from $43,113,000 for the year
ended September 30, 1995 to $42,975,000 for the year ended September 30, 1996.
6
<PAGE>
<PAGE>
Provision for Loan Losses. Provision for loan losses are charged to
earnings to bring the total allowance for loan losses to a level considered by
management to adequately provide for estimated losses based on past loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of underlying
collateral, and current economic conditions. The provision for loan losses
was $3,000 for the year ended September 30, 1996. This is a decrease of
$5,000 from the year ended September 30, 1995. There were no actual loan
losses, net of recoveries, for the fiscal years ended September 30, 1995 and
1996.
Noninterest Income. Noninterest income increased $57,000, or 27.5%
from $208,000 for the fiscal year ended September 30, 1995 to $265,000 for the
year ended September 30, 1996. The increase resulted primarily from gains on
sales of investments of $77,000 in 1996 with no comparable gain in 1995, which
were partially offset by decreased income of $6,000 from service charges and
fees and other noninterest income. In 1995 a $38,000 patronage dividend was
received from the data processor compared to a $27,000 premium on sale of
assets received from the data center in 1996.
Noninterest Expense. Noninterest expense increased $472,000, or 41.4%
from $1,141,000 for the fiscal year ended September 30, 1995 to $1,613,000 for
the year ended September 30, 1996. This increase resulted primarily from the
one-time FDIC special assessment of $281,000. In addition, increases in
compensation expense and employee benefits were $86,000 or 13.9%. This
increase was primarily a result of the first full year of expense for the
Employee Stock Ownership Plan which was $87,000 for the year ended September
30, 1996 compared to $17,000 for the year ended September 30, 1995. In
addition, the MRDP was implemented in 1996 and resulted in additional expense
of $58,000. Professional fees increased $45,000 from $18,000 for the year
ended September 30, 1995 to $63,000 for the year ended September 30, 1996.
Other expenses also increased $48,000. Corporate administrative, filing fees
and printing expenses accounted for $23,000 of that increase. This was the
first full year as a public company and resulted in additional expenses being
incurred during the year ended September 30, 1996. Additional general
operating expenses, including advertising and now account expenses, increased
$13,000 and an adjustment in 1995 to lower the supervisory expense due to an
over accrual, resulted in an $11,000 increase in expense for 1996.
Income Taxes. Provision for income tax expense decreased $60,000, or
28.3% from $212,000 for the fiscal year ended September 30, 1995 to $152,000
for the year ended September 30, 1996 as a result of a deferred tax benefit of
$104,000 relating to the one-time FDIC special assessment which was partially
offset by higher taxable income.
Comparison of Operating Results for the Years Ended September 30, 1994 and
- --------------------------------------------------------------------------
1995
- ----
General. Net income before cumulative effect of change in accounting
principle decreased $37,000, or 7.1% from $519,000 at September 30, 1994 to
$482,000 at September 30, 1995. The decrease is partly attributable to the
net effect of an increase in interest expense of $180,000 and an increase in
interest income of $135,000, as the Association's rate paid on interest-
bearing deposits increased more rapidly than the yield on interest-earning
assets. The decrease was also caused by an increase in the provision for loan
losses of $8,000, an increase in noninterest income of $23,000, an increase in
noninterest expense of $76,000 and a decrease in income taxes of $69,000. Net
income after cumulative effect of change in accounting principle increased
$30,000, or 6.7% from $452,000 at September 30, 1994 to $482,000 at September
30, 1995. The Company's net interest margin decreased from 3.32% for the
fiscal year ended September 30, 1994 to 3.23% for the fiscal year ended
September 30, 1995.
7
<PAGE>
<PAGE>
Net Interest Income. Net interest income decreased $45,000, or 2.7%
from $1,680,000 at September 30, 1994 to $1,635,000 at September 30, 1995.
The decrease in net interest income resulted from an increase in interest
expense of $180,000 and an increase in interest income of $135,000.
Interest Income. Total interest income increased by $135,000, or 4.3%
from $3,149,000 at September 30, 1994 to $3,284,000 at September 30, 1995.
Interest income from loans receivable increased $106,000 primarily due to an
increase in the average balance of loans receivable from 1994 to 1995 of
$2,127,000. Income from investment securities decreased by $49,000 mainly due
to a decrease in the average balance of investment securities of $1,306,000
from 1994 to 1995. Interest income from mortgage-backed securities decreased
by $69,000 as the average balance of mortgage-backed securities decreased from
1994 to 1995 by $751,000. Income from other interest-bearing assets increased
by $147,000 due to an increase in the yields earned on the average balance
from 3.05% in 1994 to 4.85% in 1995.
Interest expense. Interest expense on customer deposits increased by
$180,000, or 12.2% from $1,469,000 at September 30, 1994 to $1,649,000 at
September 30, 1995. This increase was due to the average rate paid on
deposits increasing from 3.22% in 1994 to 3.82% in 1995. The increase in the
average rate paid was partially offset by a decrease in the average balance of
deposits of $2,506,000 from $45,619,000 at September 30, 1994 to $43,113,000
at September 30, 1995.
Provision for Loan Losses. The provision for loan losses was $8,000 for
the year ended September 30, 1995. This is an increase of $8,000 over the
year ended September 30, 1994. There were no actual loan losses, net of
recoveries, for the fiscal years ended September 30, 1994 and 1995. The
increase in the provision for loan losses was due to a slight increase in
non-performing assets of $28,000 from $61,000 at September 30, 1994 to $89,000
at September 30, 1995.
Noninterest Income. Noninterest income increased by $23,000, or 12.3%
from $185,000 at September 30, 1994 to $208,000 at September 30, 1995. The
increase was primarily due to the receipt of a $38,000 patronage dividend from
the Financial Information Trust, the Association's data processing center.
This was partially offset by a $11,000 decrease in bank service charges and
fees.
Noninterest Expense. Noninterest expense increased $76,000, or 7.1%
from $1,065,000 at September 30, 1994 to $1,141,000 at September 30, 1995.
Compensation and employee benefits increased $100,000, or 19.4%. Of this
increase, $19,000 related to a increase in deferred compensation and $17,000
was attributable to the Employee Stock Ownership Plan. This plan was
established in conjunction with the stock conversion. The remaining increase
in compensation resulted from annual increases in employee and director
compensation. The increase in compensation and employee benefits was
partially offset by a decrease in other noninterest expense of $30,000. This
decrease was mainly due to a decrease of $32,000 in officer life insurance on
policies owned by the Association on which there was an increase in the cash
surrender value of the policies.
Income Taxes. Income taxes decreased $69,000, or 24.3% from $281,000
at September 30, 1994 to $212,000 at September 30, 1995 as a result of lower
taxable income.
8
<PAGE>
<PAGE>
Cumulative Effect of a Change in Accounting for Income Taxes.
Effective October 1, 1993, the Association adopted SFAS No. 109, "Accounting
for Income Taxes." This statement requires an asset and liability approach of
providing for deferred income taxes. The cumulative effect of this accounting
change on fiscal years prior to September 1994 amounted to $67,000 and is
reflected as a decrease to net income in the year ended September 30, 1994.
Financial Condition
- -------------------
General. During the year ended September 30, 1996, the Association
concentrated on its principal business of attracting deposits from the general
public through a variety of deposit programs and originating loans secured
primarily by owner-occupied residential properties.
Deposits are attracted from within the Association's primary market
area through the offering of a broad selection of deposit instruments,
including negotiable order of withdrawals ("NOW") accounts, money market
deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary, according to the
minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors.
The principal lending activity of the Association is the origination of
conventional mortgage loans. The Association has emphasized the origination
of ARM loan products in order to increase the interest rate sensitivity of its
loan portfolio.
Total Assets. Total assets increased by $3,050,000, or 5.2% from
$58,757,000 at September 30, 1995 to $61,807,000 at September 30, 1996. The
Association had short term deposits of $2.5 million at September 30, 1995 and
$6 million at September 30, 1996. If these short term deposits were removed,
total assets would actually have decreased about $450,000.
Cash and Cash Equivalents. Cash and cash equivalents decreased by
$1,387,000, or 13.5% to $8,853,000 at September 30, 1996 from $10,240,000 at
September 30, 1995. This decrease was primarily a result of the use of funds
to implement the Company's stock repurchase program.
Certificates of Deposit. Certificates of deposit purchased as
investments totaled $2,598,000 at September 30, 1996, an increase of $656,000
from $1,942,000 at September 30, 1995.
Investment Securities. Investment securities decreased by $713,000, or
5.4%, from $13,192,000 at September 30, 1995 to $12,479,000 at September 30,
1996. The decrease was primarily due to these securities being called or
maturing.
Mortgage-backed Securities. Mortgage-backed securities decreased by
$529,000, or 9.0%, from $5,871,000 at September 30, 1995 to $5,342,000 at
September 30, 1996. The decrease was due to the receipt of principal payments
on those securities.
Loans Receivable. The balance of net loans increased $5,117,000, or
19.7%, to $31,050,000 at September 30, 1996 from $25,933,000 at September 30,
1995. The increase in loans was primarily the result of increases in one-to-
four family residential real estate loans which are adjustable rate and fixed
rate mortgages that were funded from funds on hand.
9
<PAGE>
<PAGE>
Deposits. Deposits increased $4,356,000, or 9.9%, to $48,444,000 at
September 30, 1996 compared to $44,088,000 at September 30, 1995. However,
the increase was the result of $6 million in short term deposits that were
withdrawn in October 1996 compared to $2.5 million in short term deposits that
were withdrawn in October 1995. Excluding the short term deposits, deposits
actually increased $856,000.
Stockholders' Equity. Stockholders' equity decreased $1,550,000, or
11.3%, from $13,729,000 at September 30, 1995 to $12,179,000 at September 30,
1996, primarily as a result of the stock repurchase program where 128,732
shares of the Company's stock has been repurchased at a total cost of
$1,676,000.
Yields Earned and Rates Paid
- ----------------------------
The earnings of the Association depend largely on the spread between
the yield on interest-earning assets and the cost of interest-bearing
liabilities, as well as the relative size of the Association's interest-
earning assets and interest-bearing liability portfolios.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities, resultant yields,
interest rate spread, net interest margin, and ratio of average interest-
earning assets to average interest-bearing liabilities. Average balances have
been calculated using the average of month-end balances during such year.
10
PAGE
<PAGE>
<TABLE>
Years ended September 30,
------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------ ----------------------------- -------------------------
Average Interest & Yield/ Average Interest & Yield/ Average Interest & Yield/
Balance(2) Dividends Cost Balance(2) Dividends Cost Balance(2) Dividends Cost
---------- --------- ------ ---------- --------- ------ ---------- --------- -----
(Dollars in Thousands)
Interest-earning
assets:
Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
receivable(1) $23,127 $1,606 6.94% $25,254 $1,712 6.78% $28,841 $2,069 7.17%
Investment
securities 13,389 830 6.20 12,083 781 6.46 12,593 758 6.02
Mortgage-backed
and related
securities 6,048 469 7.75 5,297 400 7.55 5,645 425 7.53
Daily interest-
bearing assets 8,001 244 3.05 8,057 391 4.85 9,089 451 4.96
------- ------ ------- ------ ------- ------
Total interest-
earning asset 50,565 3,149 6.23 50,691 3,284 6.48 56,168 3,703 6.59
Noninterest-earning
assets:
Office properties
and equipment,
net 969 961 897
Other noninterest-
earning assets 898 1,066 542
------- ------- -------
Total assets $52,432 $52,718 $57,607
======= ======= =======
Interest-earning
liabilities:
Passbook savings
accounts 8,335 231 2.77 6,912 195 2.82 5,815 163 2.80
Demand and NOW
accounts 6,945 157 2.26 6,880 151 2.19 6,188 141 2.28
Money market
accounts 4,429 107 2.42 3,415 96 2.81 3,095 100 3.23
Certificates of
deposit 25,910 975 3.76 25,906 1,207 4.66 27,877 1,469 5.27
------ ------ ------- ------ ------ ------
Total deposits 45,619 1,470 3.22 43,113 1,649 3.82 42,975 1,873 4.36
Noninterest-bearing
liabilities:
Noninterest-
bearing
deposits 221 219 245
Other
liabilities 766 735 943
------ ------ ------
Total
liabilities 46,606 44,067 44,163
Stockholders'
equity 5,826 8,651 13,444
------ ------ -------
Total
liabilities
and
stockholders'
equity $52,432 $52,718 $57,607
======= ====== =======
Net interest
income $1,679 $1,635 $1,830
====== ====== ======
Interest rate
spread 3.01 2.66 2.23
Net interest
margin 3.32 3.23 3.26
Ratio of average
interest-earning
assets to average
interest-
bearing 111% 118% 131%
liabilities
- -----------------
(1) Average balances include nonaccrual loans and loans 90 days or more past due.
(2) Average balances for a period have been calculated using the average of month-end balances during such
period.
11
</TABLE>
PAGE
<PAGE>
The following table sets forth (on a consolidated basis) for the periods
and at the dates indicated, the weighted average yields earned on the
Company's assets, the weighted average interest rates paid on the Company's
liabilities, together with the net yield on interest-earning assets.
At
Years Ended September 30, September 30,
------------------------- -------------
1994 1995 1996 1996
---- ---- ---- ----
Weighted average yield
on loan portfolio 6.94 % 6.78 % 7.17 % 7.20%
Weighted average yield on
mortgage-backed and related
securities...................... 7.75 7.55 7.53 7.48
Weighted average yield on
investment securities........... 6.20 6.46 6.02 5.09
Weighted average yield on
interest-bearing deposits....... 3.05 4.85 4.96 4.53
Weighted average yield on all
interest-earning assets......... 6.23 6.48 6.59 6.44
Weighted average rate paid on
total deposits................ 3.22 3.82 4.36 4.14
Weighted average rate paid on
all interest-bearing
liabilities..................... 3.22 3.82 4.36 4.14
Interest rate spread (spread
between weighted average rate
on all interest-earning assets
and all interest-bearing
liabilities).................... 3.01 2.66 2.23 2.30
Net interest margin (net interest
income as a percentage of average
interest-earning assets)...... 3.32 3.23 3.26 N/A
12
PAGE
<PAGE>
The following table sets forth the effects of changing rates and volumes on
net interest (i) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) changes in rate/volume (change in rate multiplied by change in
volume).
Years Ended September 30,
-------------------------------------------------------
1995 Compared to 1994 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- ---------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ----- --- ---- ------ ----- ---
Interest-earning
assets:
Loans receivable(1) $(38) $148 $(4) $ 106 $99 $244 $14 $357
Investment securities 35 (81) (3) (49) (54) 33 (2) (23)
Mortgage-backed and
related securities (12) (59) 2 (69) (1) 26 -- 25
Daily interest-
bearing deposits 144 2 1 147 9 50 1 60
---- ---- --- ----- ---- ---- --- ----
Total net change in
income on interest
-bearing assets 129 10 (4) 135 53 353 13 419
Interest-bearing
liabilities:
Interest-bearing
deposits 276 (81) (15) 180 231 (6) (1) 224
---- ---- --- ----- ---- ---- --- ----
Net change in net
interest income $ (147) $ 91 $ 11 $ (45) $(178) $359 $14 $195
============================ =========================
- ----------------
(1) For purposes of calculating volume, rate, and rate/volume variances,
nonaccrual loans were included in the weighted-average balance
outstanding.
13
PAGE
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Association's primary sources of funds are deposits and proceeds
from principal and interest payments on loans, mortgage-backed securities and
investment securities. 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 Association also has the
ability to use advances from the Federal Home Loan Bank of Des Moines to
supplement its supply of funds.
The primary investing activity of the Association is the origination of
loans and purchasing of investment securities and mortgage-backed securities.
Loan originations in excess of repayments totaled $5,121,000 and a decrease in
investment securities and mortgage-backed securities totaled $1,241,000 during
the year ended September 30, 1996. These activities were primarily funded by
cash on hand and maturing investments.
The Association must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial 1994, 1995, and 1996 the Association used
its sources of funds primarily to fund loan commitments and to pay maturing
savings certificates and deposit withdrawals. At September 30, 1996, the
Association had loan commitments of $167,000.
At September 30, 1996, savings certificates amounted to $33,565,000, or
69.3%, of the Association's total deposits, including $26,616,000 which were
scheduled to mature by September 30, 1997. Historically, the Association has
been able to retain a significant amount of its deposits as they mature.
Management of the Association believes it has adequate resources to fund all
loan commitments by savings deposits and FHLB-Des Moines advances and that it
can adjust the offering rates of savings certificates to retain deposits in
changing interest rate environments.
The OTS requires a savings institution to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least
5.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. In addition, short-term liquid assets currently must
constitute 1.0% of the sum of net withdrawable deposit accounts plus
short-term borrowings. The Association's average liquidity ratios were 39.5%,
48.4% and 40.5% during the years ended September 30, 1994, 1995 and 1996,
respectively. The Association's average short-term liquidity ratios for the
same periods were 12.5%, 26.8%, and 19.6%, respectively. The Association's
actual short- and long-term liquidity ratios at September 30, 1996 were 21.9%
and 14.0%. The Association consistently maintains liquidity levels in excess
of regulatory requirements, and believes this is an appropriate strategy for
proper asset and liability management.
The Association is required to maintain specific amounts of capital
pursuant to OTS requirements. As of September 30, 1996, the Association was
in compliance with all regulatory capital requirements which were effective as
of such date with tangible, core and risk-based capital ratios of 13.8%, 13.8%
and 38.5%, respectively. See Note 13 of the Notes to Consolidated Financial
Statements.
14
<PAGE>
<PAGE>
Effect of Inflation and Changing Prices
---------------------------------------
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering the
change in the relative purchasing power of money over time due to inflation.
The primary impact of inflation on operations of the Association is reflected
in increased operating costs. Unlike most industrial companies, virtually all
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates generally have a more significant impact on a
financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
Impact of New Accounting Standard
- ---------------------------------
See Note 1 of the Notes to the Consolidated Financial Statements.
15
<PAGE>
<PAGE>
Kirkpatrick, Phillips & Miller
Certified Public Accountants
A Professional Corporation
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
NS&L Bancorp, Inc. and Subsidiary
Neosho, Missouri
We have audited the accompanying consolidated statements of financial
condition of NS&L Bancorp, Inc. and Subsidiary as of September 30, 1995 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform these audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NS&L
Bancorp, Inc. and Subsidiary as of September 30, 1995 and 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
/s/ Kirkpatrick, Phillips & Miller
KIRKPATRICK, PHILLIPS & MILLER, CPAs, P.C.
October 30, 1996
Springfield, Missouri
2203 East Sunshine, Springfield, Missouri 65804 417-882-4300 FAX 417-882-9418
1756 Bee Creek Rd., Suite D, Branson, Missouri 65616 417-334-2987 FAX 417-
336-3403
16
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - -
September 30, 1995 and 1996
1995 1996
ASSETS ---- ----
------
Cash and cash equivalents, including
interest-bearing accounts of $9,747,854
in 1995 and $8,202,356 in 1996 $ 10,240,339 $ 8,853,273
Certificates of deposit 1,942,000 2,597,553
Investment securities available-for-sale,
at fair value (Notes 1 and 2) - 925,138
Investment securities held-to-maturity
(estimated market value of $13,258,940
in 1995 and $11,480,181 in 1996)
(Notes 1 and 2) 13,191,661 11,554,177
Mortgage-backed securities held-to-maturity
(estimated market value of $6,103,873
in 1995 and $5,448,035 in 1996)
(Notes 1 and 3) 5,870,462 5,341,911
Loans receivable, net (Notes 1 and 4 ) 25,932,920 31,051,211
Accrued interest receivable (Note 5) 435,764 391,261
Property and equipment,
less accumulated depreciation
(Notes 1 and 6) 927,652 868,144
Income taxes receivable (Note 7) 65,307 -
Other assets 151,565 224,771
------------ ------------
Total assets $ 58,757,670 $ 61,807,439
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits (Note 8) $ 44,087,606 $ 48,443,533
Advances from borrowers
for taxes and insurance 309,514 314,471
Income taxes payable - current (Note 7) - 21,519
Deferred income taxes (Notes 1 and 7) 392,607 291,007
Other liabilities 238,827 558,346
------------ ------------
Total liabilities 45,028,554 49,628,876
============ ============
Commitments and Contingencies (Note 11) - -
Preferred stock, $.01 par value; 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 8,000,000
shares authorized, issued 856,449 in 1995
and 887,814 in 1996 outstanding 856,449
in 1995 and 759,082 in 1996 8,564 8,878
Paid-in capital 7,989,521 8,415,931
Retained earnings - substantially
restricted (Notes 13 and 14) 6,402,231 6,363,058
Treasury stock, at cost-128,732 shares
in 1996 - (1,675,943)
Unearned compensation (Note 9) (671,200) (952,706)
Unrealized gain on securities available-
for-sale, net of applicable deferred
income taxes - 19,345
Total stockholders' equity 13,729,116 12,178,563
Total liabilities and stockholders' ------------ ------------
equity $ 58,757,670 $ 61,807,439
============ ============
The accompanying notes are an integral part of the
consolidated financial statements
17
PAGE
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
1994 1995 1996
---- ---- ----
Interest Income:
Loans receivable $ 1,606,092 $ 1,712,227 $ 2,069,138
Investment securities 830,426 780,772 757,481
Mortgage-backed and
related securities 469,077 399,595 425,189
Other interest-earning
assets 243,443 391,569 450,831
----------- ----------- -----------
Total interest income 3,149,038 3,284,163 3,702,639
----------- ----------- -----------
Interest Expense:
Customer deposits (Note 8) 1,469,594 1,649,491 1,872,658
----------- ----------- -----------
Net interest income 1,679,444 1,634,672 1,829,981
Provision for Loan Losses - 7,740 3,201
Net interest income ----------- ----------- -----------
after provision for
loan losses 1,679,444 1,626,932 1,826,780
Noninterest Income: ----------- ----------- -----------
Gain on sale of investment
securities - - 77,137
Gain on sale of loans - 1,409 -
Banking service charges
and fees 163,295 151,924 146,326
Loan late charges 8,389 7,750 7,350
Other 13,462 46,882 34,331
Total noninterest ----------- ----------- -----------
income 185,146 207,965 265,144
Noninterest Expense: ----------- ----------- -----------
Compensation and
employee benefits
(Note 9) 515,982 616,399 702,127
Occupancy and equipment 127,601 138,913 142,152
Deposit insurance premium 106,045 100,833 383,628
Data processing 87,204 90,322 83,871
Printing, postage,
stationery and supplies 50,667 46,897 60,551
Professional fees 14,190 17,663 63,291
Other 163,666 130,337 177,749
Total noninterest ---------- ---------- ----------
expense 1,065,355 1,141,364 1,613,369
Income before taxes and ---------- ---------- ----------
cumulative effect of
change in accounting
principle 799,235 693,533 478,555
Income Taxes (Note 7) 280,352 211,726 151,623
Income before cumulative ---------- ---------- ----------
effect of change
in accounting principle 518,883 481,807 326,932
Cumulative effect of change
in accounting principle
(Note 1) (67,310) - -
----------- ----------- -----------
Net income $ 451,573 $ 481,807 $ 326,932
=========== =========== ===========
Earnings per share (Note 1) * $ .61 $ .42
=========== ===========
* Operating as a mutual
The accompanying notes are an integral part of the
consolidated financial statements
18
PAGE
<PAGE>
<TABLE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
Common
Stock Unrealized Total
---------------- Paid-in Retained Treasury Unearned Gain on Stockholders'
Shares Amount Capital Earnings Stock Compensation Securities Equity
------ ------ ------- -------- -------- ------------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
September
30, 1993 - $ - $ - $5,554,496 $ - $ - $ - $ 5,554,496
Net income - - - 451,573 - - - 451,573
------- ------ --------- ---------- ----------- ---------- ------- -----------
Balances at
September
30, 1994 - - - 6,006,069 - - - 6,006,069
Net income - - - 481,807 - - - 481,807
Net proceeds
from sale
of common
common
stock
(Note 14) 856,449 8,564 7,986,040 - - - - 7,994,604
Common
stock
acquired
by ESOP
(Note 9) - - - - - (685,160) - (685,160)
Dividends
($.10 per
share) - - - (85,645) - - - (85,645)
Release of
ESOP
shares
(Note 9) - - 3,481 - - 13,960 - 17,441
-------- ------ --------- ---------- ---------- ----------- ------ ------------
Balances at
September
30, 1995 856,449 8,564 7,989,521 6,402,231 - (671,200) - 13,729,116
Net
income - - - 326,932 - - - 326,932
Net
proceeds
from
issuance
of common
stock 31,365 314 407,431 - - - 407,745
Common
stock
acquired
by MRDP
(Note 9) - - - - - (407,745) - (407,745)
Dividends
($.475
per share) - - - (366,105) - - - (366,105)
Purchase of
treasury
stock
at cost (128,732) - - - (1,675,943) - - (1,675,943)
Vesting of
MRDP
stock
(Note 9) - - - - - 57,764 - 57,764
Release of
ESOP shares
(Note 9) - - 18,979 - - 68,475 - 87,454
Net change in
unrealized
loss on
securities
available-
for-sale,
net of
applicable
deferred
income
taxes - - - - - - 19,345 19,345
------- ------- ---------- ---------- ------------ ---------- -------- -----------
Balances at
September
30, 1996 759,082 $8,878 $8,415,931 $6,363,058 $(1,675,943) $(952,706) $19,345 $12,178,563
======= ====== ========== ========== ============ ========== ======= ===========
The accompanying notes are an integral part of the consolidated financial statements 19
19
</TABLE>
PAGE
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 451,573 $ 481,807 $ 326,932
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 75,924 82,077 82,887
Premiums and discounts on
mortgage-backed securities
and investment securities (177,666) (116,115) (107,509)
Loss on loans, net of recoveries - 7,740 3,201
Gain on sale of investment
securities - - (77,137)
Gain on sale of loans - (1,409) -
Gain on sale of equipment - (300) -
Income reinvested on
Federal Home Loan Bank stock - - (8,300)
Vesting of MRDP shares - - 57,764
Release of ESOP shares - 17,441 87,454
Net change in operating accounts:
Accrued interest receivable 30,863 (53,423) 44,503
Other assets (6,217) (86,585) (73,206)
Other liabilities (2,362) 72,956 310,279
Income taxes payable - deferred 83,030 1,865 (112,961)
Income taxes payable - current (33,754) (86,089) 86,826
Net cash from operating ---------- ---------- ----------
activities 421,391 319,965 620,733
---------- ---------- ----------
Cash flows from investing activities:
Purchase of investment securities
held-for-investment or held-to-
maturity (2,441,146) (3,000,000) (4,846,991)
Proceeds from maturities of
investment securities held-for-
investment or held-to-maturity 4,849,750 2,065,000 6,578,000
Purchase of investment securities
available-for-sale - - (4,163,255)
Proceeds from maturities of investment
securities available-for-sale - - 2,900,000
Net change in certificates of
deposit (1,020,000) 1,055,000 (655,553)
Proceeds from sales of investment
securities available-for-sale - - 446,017
Net change in loans receivable (2,698,082) (1,197,552) (5,121,492)
Purchase of mortgage-backed and
related securities held-to-maturity - (949,794) (370,372)
Proceeds from principal payments and
maturities of mortgage-backed
securities held-for-investment
or held-to-maturity 1,741,972 583,565 921,150
Purchases of property and equipment (89,476) (10,805) (23,379)
Proceeds from sale of loans - 130,819 -
Proceeds from sale of equipment - 300 -
----------- ----------- -----------
Net cash from (used in)
investing activities $ 343,018 $(1,323,467) $(4,335,875)
----------- ----------- -----------
20
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
1994 1995 1996
---- ---- ----
Cash flows from financing activities:
Net change in demand deposits,
savings accounts, and
certificates of deposit $(2,450,490) $ (108,807) $ 4,355,927
Proceeds from sale of common stock - 7,309,444 -
Cash dividends paid - - (356,865)
Purchase of treasury stock - - (1,675,943)
Net increase in mortgage
escrow funds 3,620 8,427 4,957
Net cash from (used in) ----------- ---------- -----------
financing activities (2,446,870) 7,209,064 2,328,076
----------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents (1,682,461) 6,205,562 (1,387,066)
Cash and cash equivalents -
beginning of year 5,717,238 4,034,777 10,240,339
Cash and cash equivalents - ----------- ----------- -----------
end of year $ 4,034,777 $10,240,339 $ 8,853,273
=========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest on deposits $ 1,483,121 $ 1,642,348 $ 1,868,691
Income taxes 298,386 295,951 231,291
Supplemental schedule of
non-cash investing and
financing activities:
Dividends declared September 22,
1995, payable October 31, 1995 $ - $ 85,645 $ -
Dividends declared September 20,
1996, payable October 31, 1996 - - 94,885
The accompanying notes are an integral part of the
consolidated financial statements
21
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NS&L Bancorp, Inc. (the "Company") is a Missouri corporation that was
organized in February 1995 for the purpose of becoming a unitary
savings and loan holding company for Neosho Savings and Loan
Association, F.A. (the "Association"). On February 22, 1995, the
Association's Board of Directors approved a plan of conversion
pursuant to which the Association converted from a federally
chartered mutual savings and loan association to a federally
chartered stock savings and loan association wholly owned by the
Company. On June 7, 1995, the Company completed its Subscription
and Community Offering and acquired the capital stock of the
Association with a portion of the proceeds (Note 14).
To assist the reader in evaluating the financial statements of NS&L
Bancorp, Inc. and Subsidiary, the significant accounting policies
are summarized below.
Use of estimates - Management uses estimates and assumptions in
preparing these financial statements in accordance with generally
accepted accounting principles. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could vary from the estimates
that were used.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances
may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodicallly review the Association's
allowances for loan losses and foreclosed real estate. Such
agencies may require the Association to recognize additions to the
allowances based on their judgments about information available to
them at the time of their examination.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of NS&L Bancorp, Inc. and its
wholly-owned subsidiary, the Association, and NS&L Enterprises, a
wholly-owned subsidiary of the Association. In consolidation, all
significant intercompany balances and transactions have been
eliminated.
22
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Consolidated statements of cash flows - For purposes of the consolidated
statements of cash flows, cash consists of cash on hand and deposits
with other financial institutions which are unrestricted as to
withdrawal or use. Cash equivalents include highly-liquid
instruments with an original maturity of three months or less.
Investment securities and mortgage-backed securities - During the year
ended September 30, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which established three
classifications of investment securities: held-to-maturity, trading
and available-for-sale. Trading securities are acquired principally
for the purpose of near term sales. Such securities are reported at
fair value and unrealized gains and losses are included in income.
Securities which are designated as held-to-maturity are designated
as such because the investor has the ability and the intent to hold
these securities to maturity. Such securities are reported at
amortized cost.
All other securities are designated as available-for-sale, a
designation which provides the investor with certain flexibility in
managing its investment portfolio. Such securities are reported at
fair value; net unrealized gains and losses are excluded from income
and reported net of applicable income taxes as a separate component
of stockholders' equity. Gains or losses on sales of securities are
recognized in operations at the time of sale and are determined by
the difference between the net sales proceeds and the cost of the
securities using the specific identification method, adjusted for
any unamortized premiums or discounts. Premiums or discounts are
amortized or accreted to income using the interest method over the
period to maturity. At September 30, 1995 and 1996, the Company had
no securities designated as trading securities.
Investment in stock of the Federal Home Loan Bank is required by law
of every federally-insured savings institution. No ready market
exists for this stock and it has no quoted market value. However,
redemption of this stock has been at par value.
The Association, as a member of the Federal Home Loan Bank of Des
Moines, is required to acquire and hold shares of capital stock in
the Federal Home Loan Bank of Des Moines in an amount equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or (ii) 1/20 of its
advances (borrowings) from the Federal Home Loan Bank of Des Moines.
The Association is in compliance with this requirement with an
investment in Federal Home Loan Bank of Des Moines stock of $420,600
at September 30, 1996.
23
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Loans receivable - Loans receivable are stated at their principal amount
outstanding, net of deferred loan origination and commitment fees
and certain direct costs, which are recognized over the contractual
life of the loan as an adjustment of the loan's yield. Interest
income on loans is recognized on an accrual basis.
Non-performing loans are placed on a nonaccrual status when it is
determined that the payment of interest or principal is doubtful of
collection, or when interest or principal is past due 90 days or
more, except when the loan is well secured and in the process of
collection. Any accrued but uncollected interest previously
recorded on such loans is generally reversed in the current period
and interest income is subsequently recognized upon collection.
Cash collections subsequently received are applied against
outstanding principal until the loan is considered fully
collectible, after which cash collections are recognized as interest
income. As of September 30, 1996, the Company had no loans which
were impaired.
Property, equipment and related depreciation - Property and equipment
have been stated at cost. Depreciation has been principally
computed by applying the following methods and estimated lives:
Category Estimated Life Method
-------- -------------- ------
Office furniture, Straight-line and
fixtures and equipment 3-10 Years declining-balance
Buildings and lease- Straight-line and
hold improvements 15-40 Years declining-balance
Income taxes - The Company files a consolidated federal income tax
return with its wholly-owned subsidiary. The income tax effect of
timing differences in reporting transactions for financial reporting
and income tax purposes is reflected in the financial statements as
deferred income taxes.
Effective October 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and
liability approach to accounting for deferred income taxes. The
cumulative effect of this change was to decrease net income for the
year ended September 30, 1994 by $67,310. Under this method,
deferred income taxes are recognized for temporary differences by
applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
24
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Allowance for loan losses - The allowance for loan losses is increased
by charges to income and decreased by charge-offs, net of
recoveries, if any. Management's periodic evaluation of the
adequacy of the allowance is based on the Association's past loan
loss experiences, known and inherent risks in the portfolio, adverse
situations that may affect the borrowers ability to repay, the
estimated value of any underlying collateral, and current economic
conditions.
Foreclosed real estate - Real estate acquired in settlement of loans is
carried at the lower of the balance of the related loan at the time
of foreclosure or fair value less the estimated costs to sell the
asset.
Loan origination fees - Loan fees received are accounted for in
accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases." Under SFAS No. 91, loan origination fees
and certain direct loan origination costs are deferred and
recognized in interest income over the contractual lives of the
related loans using the interest method. When a loan is paid off or
sold, the unamortized balance of these deferred fees and costs are
recognized in income.
Advertising Costs - The Company expenses non-direct response advertising
costs as they are incurred.
Earnings per share - Pro forma earnings per share for the year ended
September 30, 1995 is determined by dividing income for the year by
the weighted average number of common and common equivalent shares
as if the Company's conversion occurred on October 1, 1994.
Employee Stock Ownership Plan ("ESOP") shares not committed to be
released are not considered outstanding for purposes of calculating
earnings per share due to the Company's adoption of Statement of
Position 93-6, "Employer's Accounting for Employee Stock Ownership
Plans" (see Note 9). The weighted average number of shares used in
the computation of earnings per share was 788,482 in 1995 and
783,969 in 1996. There is no material difference between primary
and fully diluted earnings per share. Pro forma earnings per share
for prior periods is not considered meaningful as the Company did
not complete its conversion from the mutual to stock form of
ownership until June 1995.
25
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
New accounting standards - In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of" and is effective for years beginning after December 15, 1995.
This statement generally requires disclosures for long-lived
impaired assets and long-lived impaired assets to be disposed of.
The impact of the adoption of the new accounting standard on the
Company's consolidated financial statements is not expected to be
material.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights". The statement requires that mortgage banking
enterprises recognize as separate assets rights to service mortgage
loans for others. Adoption of this statement will be required by
the Company during the year ending September 30, 1997. The impact
of this statement is not expected to have a material effect on the
Company's consolidated financial statements.
The Corporation records compensation expense for all stock-based
compensation plans as prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees". In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation". This
statement establishes a fair value based method of accounting for
stock-based compensation plans. It encourages entities to adopt
that method in place of the provisions of APB Opinion No. 25. This
statement is effective for transactions entered into in fiscal
years that begin after December 15, 1995. Upon adoption, companies
are also required to disclose information for awards granted in
their first fiscal year beginning after December 15, 1994. The
Company has not determined the impact of adopting SFAS No. 123 on
the Company's consolidated financial statements.
In June 1996, FASB issued SFAS No. 125, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", which clarifies and provides consistent guidance for
distinguishing transfers of financial assets that are sales from
transfers that are borrowings. The standard is based on a
financial components approach that focuses on control. Under that
approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and
liabilities it has incurred, and derecognizes liabilities when
extinguished. SFAS No. 125 applies to transfers occurring after
December 31, 1996 and will be applied prospectively. The Company
has not completed its assessment of the impact of adopting
Statement No. 125.
26
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(2) INVESTMENT SECURITIES
---------------------
As discussed in Note (1), during the year ended September 30, 1995, the
Company adopted SFAS No. 115. The carrying amounts of investment
securities as shown in the consolidated balance sheets, and their
approximate market values were as follows:
A summary of investment securities held-to-maturity at September 30,
1995 is as follows:
Gross Unrealized Estimated
Amortized ------------------- Fair
Cost Gains Losses Value
--------- ----- ------ ---------
U.S. Treasury
securities and
obligations of
U.S. government
corporations
and agencies $11,999,976 $ 134,758 $(87,469) $12,047,265
Obligations of
states and
political
subdivisions 779,385 20,575 (585) 799,375
Stock in Federal
Home Loan
Bank, at cost 412,300 - - 412,300
----------- --------- -------- -----------
Total $13,191,661 $ 155,333 $(88,054) $13,258,940
=========== ========= ======== ===========
A summary of investment securities available-for-sale at September 30,
1996 is as follows:
Gross Unrealized Estimated
Amortized ------------------- Fair
Cost Gains Losses Value
--------- ----- ------ ---------
United States
Government and
Federal
Agencies
obligations $ 499,432 $ - $ (3,982) $ 495,450
Common stock 395,000 35,938 (1,250) 429,688
----------- --------- -------- -----------
Total $ 894,432 $ 35,938 $ (5,232) $ 925,138
=========== ========= ======== ===========
The amortized cost and estimated market value of debt securities
available-for-sale at September 30, 1996 are summarized below by
contractual terms to maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
--------- ----------
Due in one year or less $ - $ -
Due after one year through five years - -
Due after five years through ten years 499,432 495,450
Due after ten years - -
-------- --------
Total $499,432 $495,450
======== ========
27
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(2) INVESTMENT SECURITIES - (CONTINUED)
-----------------------------------
Proceeds from the sales of common stock held as available-for-sale
during the year ended September 30, 1996 were $446,017. A gain of
$77,137 was recognized on these sales.
A summary of the investment securities held-to-maturity at September 30,
1996 is as follows:
Gross Unrealized Estimated
Amortized ------------------- Fair
Cost Gains Losses Value
--------- ----- ------ ---------
U.S. Treasury
securities and
obligations of
U.S. government
corporations
and agencies $10,174,079 $ 95,006 $(184,629) $10,084,456
Obligations of
states and
political
subdivisions 959,498 15,627 - 975,125
Stock in Federal
Home Loan
Bank, at cost 420,600 - - 420,600
----------- --------- --------- -----------
Total $11,554,177 $ 110,633 $(184,629) $11,480,181
=========== ========= ========= ===========
The amortized cost and estimated market value of investment securities
held-to-maturity at September 30, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
--------- ----------
Due in one year or less $ 125,000 $ 125,000
Due after one year through five years 8,141,049 8,043,812
Due after five years through ten years 1,760,550 1,714,089
Due after ten years 1,106,978 1,176,680
----------- -----------
Total $11,133,577 $11,059,581
=========== ===========
The book value of securities pledged as collateral was $1,770,201 at
September 30, 1995 and $5,620,849 at September 30, 1996.
28
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(3) MORTGAGE-BACKED SECURITIES
--------------------------
As discussed in Note (1), during the year ended September 30, 1995, the
Company adopted SFAS No. 115. The carrying values and estimated market
values of mortgage-backed securities are summarized below:
September 30, 1995
----------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
--------- ----------- --------- --------
GNMA Certificates $ 984,615 $ - $ 5,562 $ 979,053
FHLMC Certificates 1,804,983 222 105,620 1,699,585
FNMA Certificates 3,201,735 7,139 17,050 3,191,824
---------- --------- ----------- ----------
$5,991,333 $ 7,361 $ 128,232 $5,870,462
========== ========= =========== ==========
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- ---------- ---------- ---------
GNMA Certificates $ 979,053 $ 20,282 $ - $ 999,335
FHLMC Certificates 1,699,585 143,184 4,971 1,837,798
FNMA Certificates 3,191,824 74,916 - 3,266,740
---------- --------- ---------- ----------
$5,870,462 $ 238,382 $ 4,971 $6,103,873
========== ========= ========== ==========
September 30, 1996
----------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
--------- ----------- --------- --------
GNMA Certificates $ 892,353 $ - $ 4,960 $ 887,393
FHLMC Certificates 1,449,916 153 85,607 1,364,462
FNMA Certificates 3,099,098 6,089 15,131 3,090,056
---------- --------- ---------- ----------
$5,441,367 $ 6,242 $ 105,698 $5,341,911
========== ========= ========== ==========
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- ---------- ---------- ---------
GNMA Certificates $ 887,393 $ 9,115 $ 1,125 $ 895,383
FHLMC Certificates 1,364,462 103,845 6,419 1,461,888
FNMA Certificates 3,090,056 19,785 19,077 3,090,764
---------- --------- ---------- ----------
$5,341,911 $ 132,745 $ 26,621 $5,448,035
========== ========= ========== ==========
The mortgage-backed securities presented above are non-equity
securities. Management does not believe there is substantial risk
associated with these securities.
29
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(4) LOANS RECEIVABLE
----------------
Loans receivable consist of the following:
September 30,
----------------------------
1995 1996
---- ----
Mortgage loans:
One-to-four dwelling units $ 23,512,712 $ 28,571,218
Commercial 177,811 76,576
Construction 603,600 486,356
------------ ------------
Total mortgage loans 24,294,123 29,134,150
------------ ------------
Other loans:
Home equity 1,066,755 1,054,357
Loans on deposits 403,405 471,223
Education 1,750 15,643
Automobile 492,323 679,895
Unsecured - 3,775
------------ -----------
Total other loans 1,964,233 2,224,893
------------ -----------
Less:
Undisbursed portion of loans in process 267,070 224,602
Net deferred loan origination fees 19,975 41,638
Allowance for loan losses 38,391 41,592
------------ ------------
Net loans receivable $ 25,932,920 $ 31,051,211
============ ============
During November 1994, the Association designated its education loans as
held-for-sale. These loans are stated at the lower of cost or market.
Activity in the allowance for loan losses is summarized as follows:
Years Ended September 30,
-------------------------------------------
1994 1995 1996
---- ---- ----
Beginning balance $ 30,651 $ 30,651 $ 38,391
Provision charged
to income - 7,740 3,201
-------- -------- --------
Ending balance $ 30,651 $ 38,391 $ 41,592
======== ======== ========
The Association primarily grants residential loans to customers
throughout southwest Missouri. The loans are typically secured by real
estate.
30
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(5) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
September 30,
--------------------------
1995 1996
---- ----
Investment securities $ 271,428 $ 197,345
Mortgage-backed securities 44,256 40,604
Loans receivable 120,080 153,312
--------- ---------
$ 435,764 $ 391,261
========= =========
(6) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
September 30, 1995
---------------------------------------------
Accum.
Category Cost Deprec. Net
-------- ---- ------- ---
Land $ 95,350 $ - $ 95,350
Buildings 1,096,962 415,460 681,502
Office furniture,
fixtures and
equipment 408,405 257,605 150,800
---------- --------- ---------
$1,600,717 $ 673,065 $ 927,652
========== ========= =========
September 30, 1996
---------------------------------------------
Accum.
Category Cost Deprec. Net
-------- ---- ------- ---
Land $ 95,350 $ - $ 95,350
Buildings 1,107,552 458,061 649,491
Office furniture,
fixtures and
equipment 421,194 297,891 123,303
---------- --------- ----------
$1,624,096 $ 755,952 $ 868,144
========== ========= ==========
Depreciation charged to operations for the years ended September 30,
1994, 1995 and 1996 was $75,924, $82,077, and $82,887.
31
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(7) INCOME TAXES
------------
The provision for income tax expense is as follows:
Years Ended September 30,
-------------------------------------
1994 1995 1996
---- ---- ----
Current $ 264,632 $ 209,861 $ 264,584
Deferred 15,720 1,865 (112,961)
--------- --------- ---------
Total $ 280,352 $ 211,726 $ 151,623
========= ========= =========
The provision for income taxes differs from that computed at the
statutory corporate rate of 34% as follows:
Years Ended September 30,
-------------------------------------
1994 1995 1996
---- ---- ----
Tax at statutory rate $ 271,740 $ 235,801 $ 162,709
Increase (decrease) in taxes
resulting from:
State taxes, net of federal
benefit 20,867 1,342 27,736
Non-deductible expenses 9,375 3,315 9,804
Tax-exempt income (18,290) (20,627) (18,008)
Other (3,340) (8,105) (30,618)
--------- --------- ---------
Provision for income taxes $ 280,352 $ 211,726 $ 151,623
========= ========= =========
32
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(7) INCOME TAXES - (CONTINUED)
--------------------------
Deferred income tax expense (benefit) results from timing differences in
the recognition of income and expense for tax and financial reporting
purposes. The sources of the differences and the related tax effects
are as follows:
Years Ended September 30,
-------------------------------
1994 1995 1996
---- ---- ----
Difference from depreciation methods
used for tax purposes and financial
statements $ 226 $ 2,214 $ (1,435)
Use of different methods for computing
loan loss reserves for tax purposes
and financial statements 22,773 14,175 19,735
Difference from accretion methods used
for mortgage-backed security discounts
for tax purposes and financial
statements 3,898 (7,404) (7,201)
Federal Home Loan Bank stock
dividends - - 3,070
Difference from cash basis accounting
for tax purposes and accrual basis
accounting for financial statements (11,177) 17,111 (125,998)
Use of different methods for computing
net deferred loan fees for tax purposes
and financial statements - 15,953 27,491
Deferred compensation - (33,489) (5,752)
Unearned compensation - - (29,566)
Other book/tax differences - (6,695) 6,695
--------- ------- ---------
Increase (decrease) in deferred
income taxes $ 15,720 $ 1,865 $(112,961)
========= ======= =========
33
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(7) INCOME TAXES - (CONTINUED)
--------------------------
The components of deferred tax assets and liabilities consisted of:
September 30,
-------------------------------
1995 1996
---- ----
Deferred tax assets:
Reserve for loan losses $ 14,205 $ 15,389
Deferred compensation 33,489 39,241
Unrealized losses on investments - 1,936
Unearned compensation - 29,566
Other 6,695 -
Total gross deferred tax assets 54,389 86,132
Deferred tax liabilities:
Tax depreciation in excess of book
depreciation 20,805 19,370
Federal Home Loan Bank stock dividends 33,304 36,374
Bad debt reserves for tax purposes
in excess of base year bad debt
reserves 134,555 155,474
Cash basis conversion for tax purposes 137,320 11,322
Book accretion in excess of tax accretion
on mortgage-backed security discounts 105,059 97,858
Unrealized gains on investments - 13,297
Deferred loan fees 15,953 43,444
Total gross deferred tax liabilities 446,996 377,139
--------- ---------
Net deferred tax liabilities $ 392,607 $ 291,007
========= =========
Under the Internal Revenue Code, the Association, in determining taxable
income, is allowed a special bad debt deduction based on a percentage of
taxable income (8%) or on specified experience formulas. In accordance
with SFAS No. 109, a deferred tax liability has not been recognized for
tax basis bad debt reserves of approximately $1,373,013 of the
Association that arose in tax years that began prior to December 31,
1987. At September 30, 1996, the amount of the deferred tax liability
that had not been recognized was approximately $508,015. This deferred
tax liability could be recognized if, in the future, there is a change
in federal tax law, the Association fails to meet the definition of a
"qualified institution," as defined by the Internal Revenue Code, or the
bad debt reserves are used for any purpose other than absorbing bad
debts. In August 1996, the above percentage of taxable income special
bad debt deduction was repealed. All thrifts are required to recapture
and pay tax on all or a portion of their bad debt reserves added since
the last taxable year beginning before January 1, 1988 (the "base
year"). Institutions are required to recapture the excess of their bad
debt reserves over the balance of the bad debt reserves outstanding at
the end of the base year ratably over a six year period beginning with
the first taxable year after December 31, 1995. Institutions can
postpone the payment of these taxes for two years if they meet a
residential loan requirement. This requirement is, generally, the
institution's mortgage lending activity equaling or exceeding its
average mortgage lending activity for the six taxable years preceding
1996, adjusted for inflation. As a result of the SFAS No. 109 recording
described above, there will be no impact on the provision for federal
income tax resulting from the recapture of the excess reserves. As the
tax on the recapture is paid, the deferred tax liability will be
reduced.
34
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(8) CUSTOMER DEPOSITS
-----------------
September 30,
----------------------------------------
Weighted 1995 1996
Average Rate -------------- ------------------
at 9/30/96 Amount Pct. Amount Pct.
------------ ------ ---- ------ ----
Demand and NOW
accounts
including non-
interest bearing
deposits of
$225,688, and
$203,748 at
September 30,
1995 and 1996,
respectively 2.25 $ 6,675,376 15.14 $ 6,142,701 12.68
Money market 3.25 2,886,546 6.55 2,928,979 6.04
Passbook savings 2.76 6,134,375 13.91 5,807,296 11.99
----------- ------ ----------- ------
15,696,297 35.60 14,878,976 30.71
----------- ------ ----------- ------
Certificates of
deposit:
3.00 - 3.99% - 173,754 .39 - -
4.00 - 4.99% 4.68 7,673,537 17.41 3,515,981 7.26
5.00 - 5.99% 5.35 12,068,622 27.37 21,078,373 43.51
6.00 - 6.99% 6.23 8,445,846 19.16 8,970,203 18.52
7.00 - 7.99% - 27,550 .07 - -
8.00 and up - 2,000 - - -
----------- ------ ----------- ------
28,391,309 64.40 33,564,557 69.29
----------- ------ ----------- ------
$44,087,606 100.00 $48,443,533 100.00
=========== ====== =========== ======
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $3,106,130 and $6,793,852 at September 30,
1995 and 1996, respectively.
Scheduled maturities of certificates of deposit are as follows:
During the Years Ending September 30,
------------------------------------------------------------
1997 1998 1999 2000 Total
---- ---- ---- ---- -----
4.00 to 4.99% $ 3,204,744 $ 311,237 $ - $ - $ 3,515,981
5.00 to 5.99% 16,097,523 3,417,067 714,093 49,690 21,078,373
6.00 to 6.99% 7,313,576 771,978 748,190 136,459 8,970,203
7.00 to 7.99% - - - - -
8.00% and up - - - - -
----------- ---------- ---------- -------- -----------
$26,615,843 $4,500,282 $1,462,283 $986,149 $33,564,557
=========== ========== ========== ======== ===========
35
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(8) CUSTOMER DEPOSITS - (CONTINUED)
-------------------------------
Interest expense on deposits is summarized as follows:
Years Ended September 30,
--------------------------------------------
1994 1995 1996
---- ---- ----
Savings $ 494,790 $ 442,148 $ 403,312
Certificates
of deposit 974,804 1,207,343 1,469,346
---------- ---------- ----------
$1,469,594 $1,649,491 $1,872,658
========== ========== ==========
(9) EMPLOYEE BENEFITS
-----------------
The Association has established a 401(k) employee benefit plan that
covers all employees meeting specific age and length of service
requirements. Total expenses incurred for the plan were $9,072, $9,296,
and $9,403 for the years ended September 30, 1994, 1995 and 1996,
respectively.
The Association has also entered into a salary continuation agreement
with six of its officers. These agreements provide for monthly deferred
compensation payments for a period of ten years following retirement.
The Association has purchased life insurance policies to fund these
agreements. Deferred compensation charged to operations for the years
ended September 30, 1994, 1995 and 1996 was $11,577, $30,394 and
$32,269.
The Association has entered into an employment agreement with one of its
officers for three years. On each anniversary of the commencement date
of the agreement, the term of the agreement may be extended for an
additional year. In the event of a change of control or termination
other than for cause, the officer would be entitled to receive severance
payments from the Association of 2.99 times the officers average annual
compensation during the preceding five years.
In connection with the conversion to stock form as described in Note
(14), the Association established an internally-leveraged ESOP for the
exclusive benefit of participating employees (all salaried employees who
have completed at least 1000 hours of service in a twelve-month period
and have attained the age of 21). The ESOP borrowed funds from the
Company in an amount sufficient to purchase 68,516 shares (8% of the
Common Stock issued in the conversion). The loan is secured by the
shares purchased and will be repaid by the contributions to the ESOP and
any other earnings on ESOP assets. The Association presently expects to
contribute approximately $106,762 including interest annually to the
ESOP. Contributions will be applied to repay interest on the loan
first, then the remainder will be applied to principal. The loan is
expected to be repaid in approximately ten years. As of September 30,
1996, the loan had an outstanding balance of $624,869 and an interest
rate of 9%.
36
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(9) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
Shares purchased with the loan proceeds are held in a suspense account
for allocation among participants as the loan is repaid. Contributions
to the ESOP and shares released from the suspense account are allocated
among participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 25%
vested after each year of credited service beyond one year. Vesting is
accelerated upon retirement, death or disability or separation from
service. Since the Association's annual contributions are
discretionary, benefits payable under the ESOP cannot be estimated.
The Association accounts for its ESOP in accordance with Statement of
Position 93-6, Employers Accounting for Employee Stock Ownership Plans.
Accordingly, the debt of the ESOP is eliminated in consolidation and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheets. Contributions to the ESOP shall be
sufficient to pay principal and interest currently due under the loan
agreement. As shares are committed to be released from collateral, the
Association reports compensation expense equal to the average market
price of the shares for the respective period, and the shares become
outstanding for earnings per share computations. Dividends on allocated
ESOP shares are recorded as a reduction of retained earnings; dividends
on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. ESOP compensation was $17,441 in 1995 and $87,454 in
1996.
A summary of ESOP shares at September 30, 1996 is as follows:
Allocated shares 2,157
Shares committed for release 6,847
Unreleased shares 59,512
---------
Total 68,516
=========
Fair value of unreleased shares $ 758,778
The Association has adopted a Management Recognition and Development
Plan ("MRDP") for the benefit of the directors, officers and employees
of the Association. The MRDP provides directors, officers and employees
of the Company with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Association. The
MRDP is managed by trustees comprised of the directors of the Company.
The trustees acquired 34,258 shares of the common stock of the Company,
of which 31,365 shares have been awarded as of September 30, 1996.
These shares represent unearned compensation and have been accounted for
as a reduction of stockholders' equity. Such awards vest at the rate of
20% at the end of each twelve months. Vesting is accelerated upon
retirement. The Association recorded $57,764 of compensation expense
under the MRDP in 1996.
37
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(9) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
During 1996, 85,645 shares of common stock were reserved under the 1995
Stock Option and Incentive Plan (Stock Option Plan) for the benefit of
certain officers, employees and directors. The Stock Option Plan is
administered by a committee of the Board of Directors. Management
intends that options granted under the Stock Option Plan constitute both
incentive and non-incentive stock options. Options granted to
non-employee directors will constitute non-incentive stock options.
With respect to incentive stock options, the option exercise price may
be no less than the fair market value of the Company's common stock on
the date of grant. All options expire no later than ten years from the
date of grant. The option grants vest at a rate of 20% at the end of
each 12 months. During 1996, 46,000 incentive and 21,410 non-incentive
stock options were granted at an exercise price of $12.9375 per share.
(10) RELATED-PARTY TRANSACTIONS
--------------------------
Certain employees, officers and directors are engaged in transactions
with the Association in the ordinary course of business. It is the
Association's policy that all related party transactions are conducted
at "arm's length" and all loans and commitments included in such
transactions are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers. A summary of the changes
in outstanding loans to employees, officers and directors for the years
ended September 30 is as follows:
1995 1996
---- ----
Beginning balance $ 460,011 $ 440,842
Originations and advances 94,000 43,000
Principal repayments (113,169) (77,047)
---------- ----------
Ending balance $ 440,842 $ 406,795
========== ==========
(11) COMMITMENTS AND CONTINGENCIES
-----------------------------
In the ordinary course of business, the Association has various
outstanding commitments that are not reflected in the accompanying
consolidated financial statements. Since some of the commitments are
expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
principal commitments of the Association are as follows:
Loan Commitments - The Association had outstanding firm commitments to
originate variable rate real estate loans in the amount of $167,100
at September 30, 1996.
(12) ADVERTISING COSTS
-----------------
The Company incurred $20,156, $23,916 and $30,122 in non-direct response
advertising costs during the years ended September 30, 1994, 1995 and
1996, respectively. The Company incurred no direct response advertising
costs during the three years.
38
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(13) REGULATORY CAPITAL REQUIREMENTS
-------------------------------
Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
of 1989 established the current capital standards for savings
institutions, requiring the Office of Thrift Supervision ("OTS") to
promulgate regulations to prescribe and maintain uniformly applicable
capital standards for savings institutions. The regulations include
three capital requirements: a leverage limit or core capital
requirement of 3.0% of adjusted total assets, a tangible capital
requirement of 1.5% of tangible assets and a risk-based capital
requirement of 8.0% of total risk-weighted assets.
During 1992, the OTS implemented additional statutory requirements for
savings institutions' regulatory capital, as required by provisions of
the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). This framework established five categories of capital
strength, set forth below, ranging from a high, defined as "well
capitalized," to a low, defined as "critically undercapitalized."
Savings institutions are categorized depending upon their capital ratios
in relation to certain capital measures, including risk-based capital
measures, a leverage capital (also referred to as core capital) measure,
and certain other factors. FDICIA requires the OTS and other federal
banking regulatory agencies to take prompt corrective action against
undercapitalized financial institutions and imposes a series of
progressive constraints on the operation of such under-capitalized
institutions.
At September 30, 1996, the Association's regulatory capital position
exceeded the requirements of the three FIRREA regulatory capital
standards in effect on such date as is summarized below:
Risk-
Core Tangible based
Capital Capital Capital
------- -------- -------
(Dollars in thousands)
Stockholder equity of the
Association $ 8,207 $ 8,207 $ 8,207
Additional capital items:
Allowance for loan losses - - 42
Less assets required to be
deducted - - -
------- ------- -------
Regulatory capital $ 8,207 $ 8,207 $ 8,249
Minimum capital requirement 1,781 890 1,714
------- ------- -------
Regulatory capital excess $ 6,426 $ 7,317 $ 6,535
======= ======= =======
Actual regulatory capital ratio 13.8% 13.8% 38.5%
Minimum required ratio-FIRREA 3.0% 1.5% 8.0%
Excess of actual over minimum ---- ---- ----
ratio 10.8% 12.3% 30.5%
==== ==== ====
FDICIA provides that a savings institution is "well-capitalized" if its
leverage ratio is 5% or greater, its Tier 1 risk-based capital ratio is
6% or greater, its total risk-based capital ratio is 10% or greater, and
the institution is not subject to a capital directive. As used herein,
total risk-based capital ratio means the ratio of total capital to
risk-weighted assets, Tier 1 risk-based capital ratio means the ratio of
core capital to risk-weighted assets, and leverage ratio means the ratio
of core capital to adjusted total assets, in each case as calculated in
accordance with current OTS capital regulations. Under these
regulations, the Association is deemed to be "well-capitalized."
39
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<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(13) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
---------------------------------------------
The Association's September 30, 1996 regulatory capital and the FDICIA
capital standards for a "well-capitalized" institution are shown below:
Tier 1 Risk-
Core Risk-Based Based
Capital Capital Capital
------- ---------- -------
(Dollars in thousands)
Actual regulatory capital $ 8,207 $ 8,207 $ 8,249
Minimum capital requirement for a
"well-capitalized" institution 2,968 1,285 2,142
------- ------- -------
Regulatory capital excess $ 5,239 $ 6,922 $ 6,107
======= ======= =======
Actual regulatory capital ratio 13.8% 38.3% 38.5%
Minimum required ratio-FDICIA 5.0% 6.0% 10.0%
---- ---- ----
Excess of actual over minimum ratio 8.8% 32.3% 28.5%
=== ==== ====
In August 1993, the OTS issued a regulation, effective September 30,
1994 that added an interest rate risk component to the risk-based
capital requirement for thrifts. Those thrifts that have an above
normal interest rate risk exposure must take a deduction from the total
capital available to meet their risk-based capital requirement. This
deduction will be equal to one-half of the difference between the
thrift's actual measured exposure and the normal level of exposure. A
thrift's actual measured interest rate risk is expressed as the change
that occurs in its net portfolio value ("NPV") as a result of an
immediate 200 basis point increase or decrease in interest rates
(whichever results in the lower NPV) divided by the estimated economic
value of its assets, as calculated in accordance with OTS instructions.
An above normal decline in NPV is one that exceeds 2% of the estimated
economic value of its assets. Based on its most recent computations,
the Association does not currently have an "above normal" interest rate
risk.
(14) CONVERSION
----------
On February 22, 1995, the Board of Directors of the Association adopted
a plan of conversion ("Plan") to convert from a state-chartered mutual
savings and loan association to a federally chartered mutual savings and
loan association and then to convert from a federally chartered mutual
savings and loan association to a federally chartered stock savings and
loan association to be held by a newly formed holding company. Upon
organization, the Company acquired all of the capital stock that the
Association issued upon its conversion from the mutual to stock form of
ownership.
The Plan was accomplished through amendment to the Association's charter
and bylaws and the sale of the Company's common stock in an amount equal
to the consolidated proforma market value of the Company and the
Association after giving effect to the conversion. A subscription
offering of the shares of common stock was offered initially to eligible
account holders, the Association's ESOP, and then to such other persons
as defined by the Plan. Simultaneously, shares were offered to members
of the general public.
40
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(14) CONVERSION - (CONTINUED)
------------------------
As required by OTS regulations, the Association established a
liquidation account at the time of the conversion. The liquidation
account is maintained for the benefit of eligible account holders who
continue to maintain their accounts at the Association after the
conversion. The initial balance of this liquidation account was equal
to the Association's net worth as defined by OTS regulations as of the
date of the latest statement of financial condition contained in the
final offering circular. The liquidation account will be reduced
annually to the extent the eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation of the Association (and only in such event) each
eligible holder shall be entitled to receive a liquidation distribution
from this account in the amount of the then current adjusted balance for
deposits then held, before any liquidation distribution may be made to
the stockholders. The liquidation account will not restrict the
Association's use or application of net worth except for the repurchase
of the Association's stock and the payment of dividends. The
Association is also prohibited from declaring cash dividends or
repurchasing its capital stock if it would cause a reduction in the
Association's net worth below either the liquidation account or the
statutory net worth requirements set by the OTS.
The conversion and establishment of the Holding Company was accounted
for in a manner similar to a pooling of interests. No goodwill or other
intangibles were recorded as a result of the transaction.
Costs relating to the conversion, totaling approximately $570,000, were
deferred and, upon conversion, charged against the proceeds from the
sale of stock.
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents and certificates of deposit - For these
short-term instruments, the carrying amount approximates fair value.
Available-for-sale and held-to-maturity securities - Fair values for
investment securities equal quoted market prices, if available. If
quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
Loans receivable - The fair value of loans is estimated by discounting
the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the
same remaining maturities. Loans with similar characteristics are
aggregated for purposes of the calculations. The carrying value of
accrued interest receivable approximates its fair value.
Investment in FHLB stock - Fair value of the Association's investment
in FHLB stock approximates the carrying value as no ready market
exists for this investment and the stock could only be sold back to
the Federal Home Loan Bank.
41
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -
-------------------------------------------------------
(CONTINUED)
-----------
Deposits - The fair value of demand deposits, savings accounts and
interest-bearing demand deposits is the amount payable on demand at
the reporting date (i.e., their carrying amount). The fair value of
fixed-maturity time deposits is estimated using a discounted cash
flow calculation that applies the rates currently offered for
deposits of similar remaining maturities. The carrying amount of
accrued interest payable approximates its fair value.
Advances from borrowers for taxes and insurance - For these short-term
liabilities, the carrying value approximates fair value.
Commitments to extend credit, letters of credit and lines of credit -
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness
of the counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit
and lines of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle
the obligations with the counterparts at the reporting date.
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments
were calculated by discounted expected cash flows, which involves
significant judgments by management and uncertainties. Fair value is
the estimated amount at which financial assets or liabilities could be
exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Because no market exists for certain
of these financial instruments and because management does not intend to
sell these financial instruments, the Company does not know whether the
fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
September 30, 1996
Carrying Fair
Amount Value
-------- -----
Financial assets:
Cash and cash equivalents $ 8,853,273 $ 8,853,273
Certificates of deposit 2,597,553 2,597,553
Available-for-sale securities 925,138 925,138
Held-to-maturity securities 11,133,577 11,059,581
Investment in FHLB stock 420,600 420,600
Held-to-maturity mortgage-backed
securities 5,341,911 5,448,035
Loans, net of allowance for loan losses 31,051,211 30,850,000
Accrued interest receivable 391,261 391,261
42
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -
-------------------------------------------------------
(CONTINUED)
-----------
September 30, 1996
Carrying Fair
Amount Value
-------- -----
Financial liabilities:
Deposits $48,443,533 $48,394,000
Advances from borrowers for taxes
and insurance 314,471 314,471
Unrecognized financial instruments
(net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
(16) PARENT COMPANY ONLY FINANCIAL INFORMATION
-----------------------------------------
The following condensed statements of financial condition and condensed
statements of income and cash flows for NS&L Bancorp, Inc. should be
read in conjunction with the consolidated financial statements and notes
thereto.
Condensed Statements of Financial Condition
September 30,
-------------------------
ASSETS 1995 1996
------ ---- ----
Cash $ 3,296,804 $ 1,040,401
Certificates of deposit 50,000 1,408,553
Investment securities available-for-sale,
at fair value - 925,138
Investment in subsidiary 9,803,214 8,207,196
Loan to ESOP 671,200 624,869
Other assets 1,306 119,291
----------- -----------
Total assets $13,822,524 $12,325,448
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Due to subsidiary $ 6,676 $ 24,821
Accrued expenses 1,087 2,242
Deferred income taxes, net - 24,937
Dividends payable 85,645 94,885
Stockholders' equity 13,729,116 12,178,563
----------- -----------
Total liabilities and stockholders'
equity $13,822,524 $12,325,448
=========== ===========
43
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(16) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
Condensed Statements of Income
Period from
June 7, 1995 to Year Ended
September 30, September 30,
1995 1996
--------------- -------------
Income
Equity in earnings of subsidiary $ 165,422 $ 227,933
Interest income 28,788 133,174
Dividend income - 5,526
Gain on sale of investments - 77,137
---------- ----------
Total income 194,210 443,770
---------- ----------
Expenses
Professional fees 3,541 29,639
Other 3,240 28,260
Income tax 7,763 58,939
---------- ----------
Total expenses 14,544 116,838
---------- ----------
Net income $ 179,666 $ 326,932
========== ==========
44
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1994, 1995 and 1996
(16) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
Condensed Statements of Cash Flows
Period from
June 7, 1995 to Year Ended
September 30, September 30,
1995 1996
--------------- -------------
Cash flows from operating activities:
Net income $ 179,666 $ 326,932
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of subsidiary (165,422) (227,933)
Discounts on investment securities - (57)
Gain on sale of investments - (77,137)
Net change in operating accounts:
Deferred income taxes, net - 13,576
Other assets (1,306) (117,985)
Liabilities 7,763 19,300
---------- -----------
Net cash provided by (used
used in operating
activities 20,701 (63,304)
---------- -----------
Cash flows from investing activities:
Investment in subsidiary (3,997,301) -
Loan to ESOP (685,160) -
Dividends from subsidiary - 2,000,000
Receipt of principal payment on
ESOP loan 13,960 15,500
Purchase of investment securities - (4,163,255)
Proceeds from maturities of
investments - 2,900,000
Proceeds from sales of investments - 446,017
Net change in certificates of
deposit (50,000) (1,358,553)
----------- ------------
Net cash used in investing
activities (4,718,501) (160,291)
----------- ------------
Cash flows from financing activities:
Net proceeds from sale of common
stock 7,994,604 -
Cash dividends paid - (356,865)
Purchase of treasury stock - (1,675,943)
----------- ------------
Net cash provided by (used in)
financing activities 7,994,604 (2,032,808)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 3,296,804 (2,256,403)
Cash and cash equivalents at
beginning of period - 3,296,804
----------- -----------
Cash and cash equivalents at
end of period $ 3,296,804 $ 1,040,401
=========== ===========
45
<PAGE>
<PAGE>
COMMON STOCK INFORMATION
The common stock of NS&L Bancorp, Inc. is traded on the Nasdaq (Small
Cap) Stock Market under the symbol "NSLB". As of December 1, 1996, there were
316 stockholders and 759,082 shares of common stock outstanding (including
unreleased ESOP shares of 59,512). This does not reflect the number of
persons or entities who hold stock in nominee or "street name". On September
20, 1996, the Company declared a $.125 common stock dividend payable October
31, 1996 to stockholders of record on October 15, 1996. Dividend payments by
the Company are dependent primarily on dividends received by the Company from
the Association. Under Federal regulations, the dollar amount of dividends a
savings and loan association may pay is dependent upon the association's
capital position and recent net income. Generally, if an association
satisfies its regulatory capital requirements, it may make dividend payments
up to the limits prescribed in the OTS regulations. However, institutions
that have converted to stock form of ownership may not declare or pay a
dividend on, or repurchase any of, its common stock if the effect thereof
would cause the regulatory capital of the institution to be reduced below the
amount required for the liquidation account which was established in
accordance with the OTS regulations and the Association's Plan of Conversion.
There are also certain dividend limitations applicable to the Company under
Missouri law.
The following table sets forth market price and dividend information for the
Company's common stock.
Fiscal 1995 Fiscal 1996
------------- --------------
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
First Quarter* N/A N/A N/A $13.50 $12.75 $0.10
Second Quarter* N/A N/A N/A $13.75 $12.25 $0.125
Third Quarter $12.50 $10.00 $0.00 $13.50 $12.50 $0.125
Fourth Quarter $13.75 $11.75 $0.10 $13.00 $12.00 $0.125
_________________
*The Company's common stock began trading on June 8, 1995.
46
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
NS&L BANCORP, INC. NEOSHO SAVINGS AND
LOAN ASSOCIATION, F.A.
DIRECTORS: DIRECTORS:
George A. Henry George A. Henry
Chairman of the Board Chairman of the Board
NS&L Bancorp, Inc. Neosho Savings and Loan
Association, F.A.
C.R. 'Rick' Butler C.R. 'Rick' Butler
President and Chief Executive Officer President
NS&L Bancorp, Inc. Neosho Savings and Loan
Association, F.A.
Jon C. Genisio Jon C. Genisio
Owner Owner
Jon's Pharmacy, Inc. Jon's Pharmacy, Inc.
John D. Mills John D. Mills
President President
Mills Appliance, Inc. Mills Appliance, Inc.
Ralph J. Haas Ralph J. Haas
President President
Haas Warehousing, Inc. Haas Warehousing, Inc.
Robert J. Johnson Robert J. Johnson
Insurance Agent Insurance Agent
State Farm Insurance Company State Farm Insurance Company
OFFICERS: OFFICERS:
George A. Henry George A. Henry
Chairman of the Board Chairman of the Board
C.R. 'Rick' Butler C.R. 'Rick' Butler
President and Director President and Director
Dorothy A. LaDue Dorothy A. LaDue
Senior Vice President and Secretary Senior Vice President and
Secretary
William J. Lynch William J. Lynch
Vice President Vice President
Carol A. Guest Carol A. Guest
Treasurer Treasurer
47
<PAGE>
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS TRANSFER AGENT
111 East Main Street Registrar and Transfer Co.
Neosho, Missouri 10 Commerce Drive
Cranford, New Jersey 07016
INDEPENDENT AUDITORS (800) 866-1340
Kirkpatrick, Phillips & Miller, CPAs, P.C. COMMON STOCK
Springfield, Missouri
Traded Nasdaq Small Cap Market
GENERAL COUNSEL
Nasdaq Symbol: NSLB
Sims, Johnson, Wood & Higdon
Neosho, Missouri
SPECIAL COUNSEL
Breyer & Aguggia
Washington, D.C.
___________________________________________________________________________
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Wednesday, January 15,
1997, at 3:00 p.m., Central Time, at the branch office of Neosho Savings and
Loan Association, F.A 713 Neosho Boulevard, Neosho, Missouri.
_____________________________________________________________________________
A COPY OF THE COMPANY'S FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD
DATE FOR VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS UPON WRITTEN REQUEST TO
THE SECRETARY, NS&L BANCORP, INC., 111 EAST MAIN STREET, NEOSHO, MISSOURI
64850.
48
<PAGE>
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Parent
- ------
NS&L Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
Neosho Savings and
Loan Association, F.A. 100% United States
NS&L Enterprises, Inc. (b) 100% Missouri
- ------------------
(a) The operation of the Corporation's wholly owned subsidiaries are
included in the Corporation's Financial Statements contained in
the Annual Report attached hereto as Exhibit 13.
(b) Wholly-owned subsidiary of Neosho Savings and Loan Association,
F.A.
<PAGE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We have issued our report dated October 30, 1996, accompanying the
consolidated financial statements incorporated by reference in the Annual
Report of NS&L Bancorp, Inc. on Form 10-KSB for the year ending September 30,
1996. We hereby consent to the incorporation by reference of said reports in
the registration statement of NS&L Bancorp Inc. on Form S-8 (File No.
333-1566, effective February 21, 1996).
/s/ Kirkpatrick, Phillips & Miller
KIRKPATRICK, PHILLIPS & MILLER, CPAS, P.C.
December 26, 1996
Springfield, Missouri
<PAGE>
<PAGE>
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 8853273
<INT-BEARING-DEPOSITS> 2597553
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 925138
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<LOANS> 31092803
<ALLOWANCE> 41592
<TOTAL-ASSETS> 61807439
<DEPOSITS> 48443533
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1185343
<LONG-TERM> 0
0
0
<COMMON> 8878
<OTHER-SE> 12169685
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<YIELD-ACTUAL> 3.26
<LOANS-NON> 3000
<LOANS-PAST> 19000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 80000
<ALLOWANCE-OPEN> 38381
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<ALLOWANCE-CLOSE> 41592
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