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, 1997 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 Section 12(g) of the Act: Common Stock, par value $0.01 per share
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(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. X
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The registrant's revenues for the fiscal year ended September 30, 1997
were $4,092,000.
As of December 16, 1997, there were issued and outstanding 705,416 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 16, 1997, the aggregate value of the
Common Stock outstanding held by nonaffiliates of the registrant was
$13,029,034 (705,416 shares at $18.47 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, 1997 (Parts I and II)
2. Portions of Proxy Statement for the 1998 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, 1997, the
Corporation had total assets of $59.8 million, total deposits of $43.9 million
and stockholders' equity of $11.8 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, 1997, one- to four-family residential mortgage loans totalled
$31.6 million, which represented 92.6% 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 $4.5 million and
$13.7 million, respectively, at September 30, 1997.
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 4.0% as of October 1997.
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, 1997, 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,
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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 and advances from FHLB. The Association also invests
in U.S. Government and agency securities and mortgage-backed securities. The
Association plans to continue to fund its assets with deposits and 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.
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, 1997 and the
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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, 1997, 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.
Net Portfolio as % of
Basis Point ("bp") Net Portfolio Value Portfolio Value of Assets
------------------------------ -------------------------
Change in Rates $ Amount $ Change(1) % Change NPV Ratio(2) Change(3)
- ------------------ -------- ----------- -------- ------------ ---------
(Dollars in Thousands)
400 $ 9,239 -1,715 -16% 15.97% -203bp
300 9,909 -1,045 -10 16.85 -115
200 10,454 - 500 - 5 17.52 - 48
100 10,807 - 147 - 1 17.90 - 96
0 10,954 18.00
(100) 10,902 - 52 0 17.82 - 18
(200) 10,801 - 153 - 1 17.56 - 43
(300) 10,765 - 189 - 2 17.39 - 61
(400) 10,915 - 39 0 17.46 - 54
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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.
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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, 1997, the change in NPV as a percentage
of portfolio value of total assets is negative 82%, which is less than
negative 2.0%, indicating that the Association has a "normal" level of
interest rate risk.
At
September 30,
1997
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RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets . . . 18.00%
Exposure Measure: Post-Shock NPV Ratio. . . . . . . 17.52%
Sensitivity Measure: Change in NPV Ratio. . . . . . - 48bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets . . . . . . . . . .82
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 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.
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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,
-----------------------------------------------------
1995 1996 1997
----------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Mortgage loans:
One- to four-dwel-
ling units . . . . . $24,579 93.60% $29,625 94.46% $31,629 92.56%
Commercial and
multi-family . . . . 178 .68 77 .25 586 1.72
Construction . . . . . 604 2.30 486 1.55 345 1.01
------ ----- ------ ----- ------ -----
Total mortgage
loans . . . . . . . 25,361 96.58 30,188 96.26 32,560 95.29
------ ----- ------ ----- ------ -----
Consumer and other loans:
Loans on deposit
accounts. . . . . . . 403 1.54 471 1.51 408 1.19
Education. . . . . . . 2 .01 16 .05 32 .09
Automobile . . . . . . 492 1.87 680 2.17 1,143 3.35
Other. . . . . . . . . -- -- 4 .01 27 .08
------ ----- ------ ----- ------ -----
Total consumer and
other loans . . . 897 3.42 1,171 3.74 1,610 4.71
------ ----- ------ ----- ------ -----
Total loans. . . . . 26,258 100.00% 31,359 100.00% 34,170 100.00%
------ ====== ------ ====== ------ ======
Less:
Undisbursed loans
in process. . . . . . 267 225 209
Unearned loan fees . . 20 42 38
Allowances for loan
losses. . . . . . . . 38 41 44
------ ------ ------
Total loans
receivable, net . . $25,933 $31,051 $33,879
====== ====== ======
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, 1997, $31.6 million, or 92.6% of the
Association's total loan portfolio, consisted of loans secured by one- to
four-family residential real estate. Included in these loans are home equity
loans. 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 September 30, 1997, $26.1 million, or 82.8%, of
the Association's one- to four-family residential mortgage loans were subject
to periodic interest rate adjustments and $5.5 million, or 17.2%, 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, 1997, the initial interest rate on the Association's ARM loans
ranged from 5.50% to 9.50% 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
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adjustment period and the lifetime interest rate cap is generally 5.75% 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, 1997, 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.
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.
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%.
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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, 1997, construction loans
amounted to $345,000, or 1%, 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, 1997, commercial and multi-family real
estate loans in the Association's portfolio totalled $586,000. The
Association originated $592,000 of commercial real estate or multi-family
loans during the year ended September 30, 1997.
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
automobile loans, and savings account loans. At September 30, 1997, the
Association's consumer and other loans totalled approximately $1.6 million, or
4.7% 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, 1997,
automobile loans amounted to $1.1 million, or 3.3% of the Association's total
loans.
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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, 1997, total loans on savings accounts amounted to $408,000, or
1.2% 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,
1997, the Association had $11,000 of delinquencies in its consumer loan
portfolio.
Loan Maturity and Repricing
The following table sets forth certain information at September 30, 1997
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.
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One 3 5 10 10
Year Years Years Years Years Total
---- ----- ----- ----- ----- -----
(In Thousands)
Mortgage loans:
One- to four-dwel-
ling units . . . . $ 174 $ 865 $ 729 $2,522 $27,339 $31,629
Commercial and
multi-family
real estate. . . . -- 1 124 13 448 586
Construction . . . . 265 -- -- -- 80 345
Total mortgage
loans. . . . . . 439 866 853 2,535 27,867 32,560
Consumer and other
loans . . . . . . . 630 536 406 38 -- 1,610
------ ------ ------ ------ ------- -------
Total loans. . . . $1,069 $1,402 $1,259 $2,573 $27,867 $34,170
====== ====== ====== ====== ======= =======
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The following table sets forth the dollar amount of all loans due one
year after September 30, 1997, 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 . . . . . . $5,293 $26,162
Commercial and multi-family real
estate. . . . . . . . . . . . . . . . 116 470
Construction. . . . . . . . . . . . . . -- 80
Total mortgage loans. . . . . . . . . 5,409 26,712
Consumer and other loans . . . . . . . . 963 17
------ -------
Total loans. . . . . . . . . . . . . . $6,372 $26,729
====== =======
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.
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, 1997, the Association's total gross mortgage loan originations were $3.4
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.
In August 1997, the Association acquired Crawford Mortgage, Inc., a
mortgage broker based in Joplin, Missouri. Through Crawford Mortgage, the
Association originates loans to sell in the secondary market. 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 also purchased loans in
the year ended September 30, 1997 with a $1 million cash advanced from the
FHLB.
9
<PAGE>
<PAGE>
The following table shows total mortgage loans originated, purchased and
repaid during the periods indicated. No mortgage loans were sold during the
periods indicated.
Years Ended September 30,
---------------------------
1995 1996 1997
---- ---- ----
(In Thousands)
Total mortgage loans
at beginning of period. . . . . . $24,271 $25,361 $30,188
Mortgage loans originated:
One- to four-dwelling units(1) . 4,721 8,498 3,393
Commercial and multi-family
real estate . . . . . . . . . . -- -- 592
------- ------- -------
Total mortgage loans
originated . . . . . . . . . 4,721 8,498 3,985
Mortgage loans purchased . . . . . -- 1,178 1,015
Mortgage loan principal
repayments . . . . . . . . . . . 3,631 4,849 2,628
------- ------- -------
Loans transferred to other real
estate . . . . . . . . . . . . . -- -- --
------- ------- -------
Net loan activity. . . . . . . . . 1,090 4,827 2,372
------- ------- -------
Total gross mortgage loans
at end of period . . . . . . . . $25,361 $30,188 $32,560
======= ======= =======
- --------------
(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 $769,000 at September 30, 1997. See Note 14 of Notes to
Consolidated Financial Statements contained in the Annual Report.
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 $38,000 of net deferred mortgage loan fees at
September 30, 1997.
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,
10
<PAGE>
<PAGE>
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,
----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a
nonaccrual basis:
Real estate -
Residential . . . . . . . . $ -- $18 $49 $3 $ 9
Commercial and multi-
family. . . . . . . . . . -- -- -- -- --
Consumer and other . . . . . -- -- -- -- 11
---- --- --- --- ---
Total. . . . . . . . . . -- 18 49 3 20
---- --- --- --- ---
Accruing loans which are
contractually past due 90
days or more:
Real estate -
Residential. . . . . . . . -- 43 40 19 66
Commercial and multi-
family . . . . . . . . . -- -- -- -- --
Consumer and other . . . . . 1 -- -- -- --
---- --- --- --- ---
Total . . . . . . . . . 1 43 40 19 66
---- --- --- --- ---
Total of nonaccrual and 90
days past due loans . . . . . 1 61 89 22 86
Real estate owned(1) . . . . . -- -- -- -- --
---- --- --- --- ---
Total non-performing
assets. . . . . . . . . . $ 1 $61 $89 $22 $86
==== === === === ===
Restructured loans . . . . . . -- -- -- -- --
---- --- --- --- ---
(table continued on following page)
11
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<PAGE>
At September 30,
----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Total loans delinquent 90
days or more to net loans. . -- 0.25% 0.34% 0.07% 0.25%
==== ==== ==== ==== ====
Total loans delinquent 90
days or more to consoli-
dated total assets . . . . . -- 0.12% 0.15% 0.04% 0.14%
==== ==== ==== ==== ====
Total non-performing assets to
consolidated total assets. . -- 0.12% 0.15% 0.04% 0.14%
==== ==== ==== ==== ====
- ----------
(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, 1997 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $510. The amount of interest included in
interest income on such loans for the year ended September 30, 1997 amounted
to approximately $3,900.
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, 1997, 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. 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.
12
<PAGE>
<PAGE>
At September 30, 1997, classified assets totalled $81,000 and included
three substandard loans in the amount of $81,000 and no special mention loans.
The aggregate amounts of the Association's classified assets at the dates
indicated were as follows:
At September 30,
-----------------
1996 1997
---- ----
(In Thousands)
Loss . . . . . . . . . . . . . . . . . . . $ -- $ --
Doubtful . . . . . . . . . . . . . . . . . -- --
Substandard. . . . . . . . . . . . . . . . 3 81
Special mention. . . . . . . . . . . . . . 80 --
----- -----
Total classified assets. . . . . . . . . $ 83 $ 81
===== =====
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.
Generally, a provision for losses is charged against income on a
quarterly basis to maintain the allowances. A provision of $3,000 was charged
against income for the year ended September 30, 1997. At September 30, 1997,
the Association had an allowance for loan losses of $44,000. 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.
13
<PAGE>
<PAGE>
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,
----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Allowance at beginning of
period . . . . . . . . . . . $34 $31 $31 $38 $41
Provision for loan losses. . . -- -- 7 3 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 . $31 $31 $38 $41 $44
=== === === === ===
Ratio of allowance to total
loans outstanding at the
end of the period. . . . . . 0.14% 0.12% 0.15% 0.10% 0.13%
Ratio of net charge-offs to
average loans outstanding
during the period. . . . . . 0.01% -- -- -- --
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
At September 30,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- --------------
% 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. . . $ 30 93.60% $33 94.46% $34 92.56%
Commercial and
multi-family. . . . -- 0.68 -- 0.25 -- 1.72
Construction . . . . -- 2.30 -- 1.55 -- 1.01
Consumer and other
loans. . . . . . . . 8 3.42 8 3.74 10 4.71
---- ------ --- ------ --- ------
Total allowance
for loan losses . $ 38 100.00% $41 100.00% $44 100.00%
==== ====== === ====== === ======
14
<PAGE>
<PAGE>
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, 1997, the Association's regulatory liquidity was 34% 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 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 4 of Notes to Consolidated
Financial Statements contained in the Annual Report.
15
<PAGE>
<PAGE>
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,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- --------------
Percent Percent Percent
Book of Book of of
Value Portfolio Value Portfolio Value Portfolio
------ --------- ----- --------- ----- ---------
(Dollars in Thousands)
Mortgage-backed
securities:
GNMA
Fixed. . . . . . $ -- --% $ 69 1.29% $ 56 1.25%
Adjustable . . . 985 16.77 823 15.41 993 22.20
FHLMC
Fixed . . . . . 1,805 30.75 1,450 27.14 1,152 25.76
Adjustable . . . -- -- -- -- -- --
FNMA
Fixed. . . . . . 348 5.91 525 9.83 413 9.23
Adjustable. . . . 2,854 48.63 2,574 48.18 1,945 43.48
Unamortized premium
(discount), net. . (121) (2.06) (99) (1.85) (86) (1.92)
------ ------ ------ ------ ------ ------
Total mortgage-
backed
securities . . $5,871 100.00% $5,342 100.00% $4,473 100.00%
====== ====== ====== ====== ====== ======
- -------------
(1) The market value of the Association's mortgage-backed securities
portfolio amounted to $6.1 million, $5.4 million and $4.6 million at September
30, 1995, 1996 and 1997, respectively.
At September 30, 1997, the Corporation's investment securities portfolio
totalled approximately $13.5 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 $844,000 at fair value
($835,000 at amortized cost) at September 30, 1997, 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.
The following table sets forth the composition of Corporation's
investment securities portfolio at carrying value at the dates indicated.
At September 30,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- --------------
Percent Percent Percent
Carrying of Carrying of Carrying 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. . . . . $12,000 90.98% $10,174 88.06% $12,218 90.69%
State and political
subdivision. . . 779 5.90 959 8.30 834 6.19
------- ------ ------- ------ ------- ------
Total debt
securities. . . 12,779 96.88 11,133 96.36 13,052 96.88
------- ------ ------- ------ ------- ------
Equity securities:
FHLB stock . . . . 412 3.12 421 3.64 421 3.12
------- ------ ------- ------ ------- ------
Total . . . . . $13,191 100.00% $11,554 100.00% $13,473 100.00%
======= ====== ======= ====== ======= ======
(table continued on following page)
16
<PAGE>
<PAGE>
At September 30,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- --------------
Percent Percent Percent
Carrying of Carrying of Carrying of
Value Portfolio Value Portfolio Value Portfolio
------ --------- ----- --------- ----- ---------
(Dollars in Thousands)
Available for Sale
Debt securities:
U.S. Government
treasury and
obligations
of U.S.
Government
agencies . . . . $ -- --% $ 495 53.51% $ -- --%
Equity securities:
Common stock . . . -- -- 430 46.49 180 100.00%
------- ------ ------- ------ ------- ------
Total. . . . . . $ -- --% $ 925 100.00% $180 100.00%
======= ====== ======= ====== ======= ======
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, 1997.
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. . . . $2,232 6.30% $5,447 6.28% $3,079 7.71% $1,460 8.08%
State and
political
subdivisions. . 225 4.86 420 5.28 189 6.23 -- --
------ ------ ------ ------
Total. . . . $2,457 $5,867 $3,268 $1,460
====== ====== ====== ======
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.
17
<PAGE>
<PAGE>
The following table sets forth information concerning the Association's
time deposits and other interest-bearing deposits at September 30, 1997.
Weighted
Average Percentage
Interest Checking and Minimum of Total
Rate Term Savings Deposits Amount Balances Deposits
(In Thousands)
2.41% None Demand and NOW checking $100 - 1,000 $ 6,348 14.46%
3.25 None Money market deposit 2,500 3,088 7.04
2.78 None Passbook savings accounts 10 5,732 13.06
Certificates of Deposit
4.40 3 months Fixed term, fixed rate 1,000 356 .81
4.84 6 months Fixed term, fixed rate 1,000 3,641 8.30
4.98 9 months Fixed term, fixed rate 500 1,707 3.89
5.39 12 months Fixed term, fixed rate 500 10,729 24.44
5.34 18 months Fixed term, fixed rate 500 3,173 7.23
5.67 24 months Fixed term, fixed rate 500 2,461 5.61
5.71 30 months Fixed term, fixed rate 500 3,703 8.43
5.69 48 months Fixed term, fixed rate 500 2,954 6.73
------- ------
$43,892 100.00%
======= ======
- ------------------
(1) Noninterest-bearing accounts with an aggregate balance of $398,000 are
included in demand and NOW checking balances.
The following table indicates the amount of the Association's jumbo
certificates of deposit by time remaining until maturity as of September 30,
1997. Jumbo certificates of deposit require minimum deposits of $100,000.
Maturity Period Amounts
--------------- -------
(In Thousands)
Three months or less . . . . . . . . . . $438
Over three through six months. . . . . . 100
Over six through twelve months . . . . . 254
Over twelve months . . . . . . . . . . . 200
----
Total $992
====
18
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<PAGE>
<TABLE>
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,
-------------------------------------------------------------------------
1995 1996 1997
--------------- -------------------------- --------------------------
Percent Percent Percent
of of Increase of Increase
Amount Total Amount Total (Decrease) Amount Total (Decrease)
------ ----- ------ ----- ---------- ------ ----- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing. . . . $ 226 0.51% $ 204 0.42% $ (22) $ 398 .91% $ 194
Demand and NOW checking. . 6,449 14.63 5,939 12.26 (510) 5,950 13.56 11
Passbook savings
accounts(1). . . . . . . 6,134 13.91 5,807 11.99 (327) 5,732 13.06 (75)
Money market deposit . . . 2,887 6.55 2,929 6.05 42 3,088 7.03 159
Fixed-rate certificates
which mature (1):
Within one year . . . . 21,004 47.64 26,616 54.94 5,612 21,608 49.23 (5,008)
After one year, but
within three years . . 6,471 14.68 5,963 12.31 (508) 6,430 14.65 467
After three years. . . . 917 2.08 986 2.03 69 686 1.56 (300)
------- ------ ------- ------ ------ ------- ------ -------
Total . . . . . . . . $44,088 100.00% $48,444 100.00% $4,356 $43,892 100.00% $(4,552)
======= ====== ======= ====== ====== ======= ====== =======
</TABLE>
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- -----------------
(1) IRAs are included in passbook savings and certificate balances: Amounts
are $3.3 million, $3.6 million and $3.6 million at September 30, 1995, 1996,
1997, respectively.
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,
--------------------------------
1995 1996 1997
---- ---- ----
(In Thousands)
3.00 - 3.99%. . . . . . . . . . . $ 174 $ -- $ --
4.00 - 4.99%. . . . . . . . . . . 7,674 3,516 5,020
5.00 - 5.99%. . . . . . . . . . . 12,069 21,079 21,844
6.00 - 6.99%. . . . . . . . . . . 8,446 8,970 1,860
7.00 - 7.99%. . . . . . . . . . . 27 -- --
8.00% and Over. . . . . . . . . . 2 -- --
------- ------- -------
Total. . . . . . . . . . . . $28,392 $33,565 $28,724
======= ======= =======
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The following table sets forth the amount and maturities of time deposits
at September 30, 1997.
Amount Due
Less Percent
Than After of Total
One 1-2 2-3 3-4 4 Certificate
Year Years Years Years Years Total Accounts
---- ----- ----- ----- ----- ----- --------
(Dollars in Thousands)
4.00 - 4.99%. . $ 5,020 $ -- $ -- $ -- $ -- $ 5,020 17.48%
5.00 - 5.99%. . 15,663 4,213 1,387 581 -- 21,844 76.05
6.00 - 6.99%. . 925 705 125 105 -- 1,860 6.47
------- ------ ------ ----- ----- ------- ------
Total . . .$21,608 $4,918 $1,512 $ 686 $ -- $28,724 100.00%
======= ====== ====== ===== ===== ======= ======
The following table sets forth the deposit activities of the Association
for the periods indicated.
Years Ended September 30,
--------------------------------
1995 1996 1997
---- ---- ----
(In Thousands)
Beginning balance. . . . . . . . $44,196 $44,088 $48,444
------- ------- -------
Net increase (decrease) before
interest credited. . . . . . . (1,184) 2,979 (5,959)
Interest credited. . . . . . . . 1,076 1,377 1,407
Net increase (decrease) in
deposits . . . . . . . . . . . (108) 4,356 (4,552)
------- ------- -------
Ending balance . . . . . . . . . $44,088 $48,444 $43,892
======= ======= =======
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.
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The following table sets forth certain information regarding the
Association's use of FHLB advances during the periods indicated.
Years Ended September 30,
--------------------------------
1995 1996 1997
---- ---- ----
(Dollars in thousands)
Maximum balance at any month end . . -- -- $3,000
Average balance. . . . . . . . . . . -- -- 2,917
Year end balance . . . . . . . . . . -- -- 3,000
Weighted average interest rate:
At end of year . . . . . . . . . . -- -- 5.60
During the year. . . . . . . . . . -- -- 5.63
Subsidiary Activities
In August 1997, the Association acquired Crawford Mortgage, Inc., which
is engaged in the business of mortgage brokerage.
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, 1997 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, 1997, the Association's investment in
the Service Corporation was $2,000.
Year 2000 Issues.
Computer programs that use only two digits to identify a year could fail
or create erroneous results by or at the year 2000. All of the material data
processing of the Association that could be affected by this problem is
provided by a third party service bureau. The Association has contaced its
service bureau and has been informed that the service bureau is testing and
upgrading its systems. In addition, managment is reviewing its alternatives
for data processing in the future. Internally, the Association has upgraded
all personal computers to be year 2000 compliant. The Association does not
beleive that the costs associated with the actions of its vendors will be
material to the Association. However, in the event the Association's service
bureau is unable to fulfill its contractual obligations to the Association, it
could have a significant adverse impact on the financial condition and results
of operations of the Association.
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 ("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.
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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 deposit 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 and the Securities and Exchange Commission ("SEC").
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 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 markets; 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, 1997. Among other
benefits, the FHLB-Des Moines 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.
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 maintains two separate insurance funds:
the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Association's
deposits, the FDIC has examination, supervisory and enforcement authority over
the Association.
The Association's deposit accounts are insured by the FDIC under the SAIF
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" or "undercapitalized"), which are defined in the same
manner as the regulations establishing the prompt corrective action system
under the FDIA as discussed below. 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.
Pursuant to the Deposit Insurance Fund Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each
depository institution with SAIF-assessable deposits which resulted in
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the SAIF achieving its designated reserve ratio. In connection therewith, the
FDIC reduced the assessment schedule for SAIF members, effective January 1,
1997, to a range of 0% to 0.27%, with most institutions, including the
Association, paying 0%. This assessment schedule is the same as that for the
BIF, which reached its designated reserve ratio in 1995. In addition, since
January 1, 1997, SAIF members are charged an assessment of 0.065% of
SAIF-assessable deposits for the purpose of paying interest on the obligations
issued by the Financing Corporation ("FICO") in the 1980's 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
.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 Act 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 for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Association.
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.
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions
that 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 leverage
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, has a
Tier I risk-based capital ratio of 4.0% or more, has a leverage 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%, has a Tier I risk-based capital ratio
that is less than 4.0% or a leverage 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%, has a Tier I risk-based
capital ratio that is less than 3.0% or a leverage 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%.
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
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rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
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 various mandatory and
discretionary restrictions on its operations.
At September 30, 1997, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, 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; (vi) asset quality; (vii)
earnings, and (viii) compensation, fees and benefits. The regulations 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 regulations, the agency may require the
Association to submit to the agency an acceptable plan to achieve compliance
with the standard. 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 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: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) 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; (iii) the association shall be ineligible
to obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to 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 qualify as a
domestic building and loan association under the Internal Revenue Code of
1986, as amended ("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 Federal Home Loan Mortgage Corporation or 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, 1997, the Association was in compliance with the QTL test.
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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.
An institution that fails 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's 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 "-- Prompt Corrective Action."
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, subject to an amortization schedule, 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 conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included 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,
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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. A savings association with assets of less
than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. 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.
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. A Tier 3
savings association has capital below the minimum capital requirement (either
before or after the proposed capital distribution). A Tier 3 savings
association may not make any capital distributions without prior approval from
the OTS.
The Association currently meets 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, 1997, the
Association's limit on loans to one borrower was $1.3 million. At September
30, 1997, the Association's largest aggregate amount of loans to one borrower
was $366,000.
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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 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 guarantee and similar types of
transactions. Any loan or extension of credit by the Association to an
affiliate must be secured by collateral in accordance with Section 23A.
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 governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations generally
require that such loans be made on terms and conditions substantially the same
as those offered to unaffiliated individuals and not involve more than the
normal risk of repayment. Generally, 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 federal CRA, 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 regulatory
applications to establish a new branch office that will accept deposits,
relocate an existing office, or merge or consolidate with, or acquire the
assets or assume the liabilities of,
27
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a federally regulated financial institution, among others. 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
under the HOLA. If the Corporation acquires control of another savings
association as a separate subsidiary other than in a supervisory acquisition,
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 on those of a unitary savings and loan holding company. 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 savings and loan holding company.
Qualified Thrift Lender Test. The HOLA provides that 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.
TAXATION
Federal Taxation
General. The Corporation and the Association report their income on a
fiscal year basis using the accrual method of accounting and are 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.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted
to establish a reserve for bad debts and to make annual additions thereto,
which may have been deducted in arriving at their taxable income. The
Association's deductions with respect to "qualifying real property loans,"
which are generally loans secured by certain interest in real property, were
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 non-qualifying reserve. Due to the
28
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Association's loss experience, the Association generally recognized a bad debt
deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection
Act of 1996." The new rules eliminate the 8% of taxable income method for
deducting additions to the tax bad debt reserves for all thrifts for tax years
beginning after December 31, 1995. These rules also require that all
institutions recapture all or a portion of their bad debt reserves added since
the base year (last taxable year beginning before January 1, 1988). The
Association has previously recorded a deferred tax liability equal to the bad
debt recapture and as such the new rules will have no effect on the net income
or federal income tax expense. For taxable years beginning after December 31,
1995, the Association's bad debt deduction will be determined under the
experience method using a formula based on actual bad debt experience over a
period of years or, if the Association is a "large" association (assets in
excess of $500 million) on the basis of net charge-offs during the taxable
year. The new rules allow an institution to suspend bad debt reserve
recapture for the 1996 and 1997 tax years if the institution's lending
activity for those years is equal to or greater than the institutions average
mortgage lending activity for the six taxable years preceding 1996 adjusted
for inflation. For this purpose, only home purchase or home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If
an institution is permitted to postpone the reserve recapture, it must begin
its six year recapture no later than the 1998 tax year. The unrecaptured base
year reserves will not be subject to recapture as long as the institution
continues to carry on the business of banking. In addition, the balance of
the pre-1988 bad debt reserves continue to be subject to provisions of present
law referred to below that require recapture in the case of certain excess
distributions to shareholders.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Corporation, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of
December 31, 1987 (or a lesser amount if the Association's loan portfolio
decreased since December 31, 1987) and then from the supplemental reserve for
losses on loans ("Excess Distributions"), and an amount based on the Excess
Distributions 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 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. The
amount of additional taxable income created from 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 Excess
Distribution would be includable in gross income for federal income tax
purposes, assuming a 34% 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 0.12% 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 is paid.
Dividends-Received Deduction. 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
29
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Association owns more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be deducted.
Audits. 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 8 of Notes to
Consolidated Financial Statements contained in the 1997 Annual Report to
Stockholders ("Annual Report).
Personnel
As of September 30, 1997, the Corporation had 22 full-time and 3
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.
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, 1997, the net book
value of the property (including land and building) was $479,000. 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, 1997, 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, 1997 was $103,000.
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, 1997.
30
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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,
1996 and 1997
(b) Consolidated Statements of Income for the Years Ended September 30,
1995, 1996 and 1997
(c) Consolidated Statements of Stockholders' Equity For the Years Ended
September 30, 1995, 1996 and 1997
(d) Consolidated Statements of Cash Flows For the Years Ended September
30, 1995, 1996 and 1997
(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.
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 1997 Position
- ---- ---- --------
George A. Henry 74 Chairman of the Board
C.R. "Rick" Butler 50 President and Director
Dorothy A. LaDue 58 Senior Vice President and
Secretary
Carol A. Guest 51 Treasurer
31
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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.
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."
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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, 1997.
33
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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 24, 1997 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 24, 1997
--------------------------------------------
C.R. Butler
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/Carol A. Guest December 24, 1997
--------------------------------------------
Carol A. Guest
Treasurer
(Principal Financial and Accounting Officer)
By:/s/George A. Henry December 24, 1997
--------------------------------------------
George A. Henry
Chairman of the Board and Director
By:/s/John C. Genisio December 24, 1997
--------------------------------------------
Jon C. Genisio
Director
By:/s/John D. Mills December 24, 1997
--------------------------------------------
John D. Mills
Director
By:/s/Ralph J. Haas December 24, 1997
--------------------------------------------
Ralph J. Haas
Director
By:/s/Robert J. Johnson December 24, 1997
--------------------------------------------
Robert J. Johnson
Director
<PAGE>
<PAGE>
Exhibit 13
Annual Report to Stockholders
<PAGE>
<PAGE>
ANNUAL REPORT 1997
[Logo - 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 Auditor's Report 16
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 22
Common Stock Information 50
Directors and Officers 51
Corporate Information 52
<PAGE>
<PAGE>
[Letterhead of NS&L Bancorp]
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 third Annual Report as a public company.
During the fiscal year ending September 30, 1997 the Company's stock traded in
a range from $12.50 to $19.50 per share closing out the year at $19.00 per
share. Our return on average assets was .78%, with a return on average equity
of 3.83%.
The Company has continuously paid a quarterly dividend since becoming a public
company in June 1995. And, in accordance with the Company's stock repurchase
plan, the company has repurchased 56,350 shares of its common stock at
December 4, 1997. To date, the Company has repurchased a total of 180,898
shares (20% of the shares issued) at an average cost of $13.98 per share. At
September 30, 1997, total stockholder's equity was $11.8 million and total
consolidated assets were $59.8 million.
We are also pleased to report that on August 14, 1997, the Association
received final regulatory approval to acquire Crawford Mortgage and Financial
Services, Inc., which is a mortgage banking operation in Joplin, Missouri.
The acquisition was finalized on August 26, 1997. In addition to adding
experienced loan personnel to our staff and the potential of additional
income, this acquisition will give us an opportunity for additional growth
and expansion.
As we look toward the future, we remain firm in our pledge to continue to be a
community oriented financial institution with a commitment to provide
affordable financial services and products to our customers and the
communities we serve. And as we grow and build on our strengths we continue
to acknowledge and accept our responsibility to you, the stockholder, to set
goals and develop long term strategies to increase profitability with minimal
risk that will enhance shareholder value.
All of us at NS&L appreciate you taking stock in our future and look forward
to a long lasting and profitable relationship.
Sincerely,
/s/ C.R. 'Rick' Butler
C.R. 'Rick' Butler
President
1
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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
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<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. During June 1995, the Company
became the holding company for the Association. 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 during June 1995, the
financial information presented for the periods prior to 1995 is that of 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 subsidary presented herein.
At September 30,
------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
FINANCIAL CONDITION DATA: (In Thousands)
Total assets............. $52,944 $50,995 $58,758 $61,807 $59,817
Loans receivable, net.... 22,174 24,873 25,933 31,051 33,878
Mortgage-backed
securities.............. 7,171 5,481 5,871 5,342 4,473
Cash, interest bearing
deposits and investment
securities.............. 22,141 19,196 25,374 23,930 19,638
Customer deposits........ 46,647 44,196 44,088 48,444 43,892
Advances from Federal
Home Loan Bank.......... -- -- -- -- 3,000
Stockholders' equity..... 5,554 6,006 13,729 12,179 11,824
For the Years Ended September 30,
------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In Thousands, Except Per Share Data)
OPERATING DATA:
Interest income.......... $3,467 $3,149 $3,284 $ 3,703 $ 3,906
Interest expense......... 1,718 1,469 1,649 1,873 2,065
------ ------ ------ ------- -------
Net interest income...... 1,749 1,680 1,635 1,830 1,841
Provision for loan
losses.................. -- -- 8 3 2
------ ------ ------ ------- -------
Net interest income
after provision for
loan losses............. 1,749 1,680 1,627 1,827 1,839
Noninterest income....... 203 185 208 265 235
Noninterest expense...... 1,004 1,065 1,141 1,613 1,372
------ ------ ------ ------- -------
Income before taxes and
cumulative effect of
change in accounting
principle............... 948 800 694 479 702
Income taxes............. 307 281 212 152 246
------ ------ ------ ------- -------
Income before cumulative
effect of change in
accounting principle.... 641 519 482 327 456
Cumulative effect of
change in accounting
principle.(1)........... -- (67) -- -- --
------ ------ ------ ------- -------
Net income............... $ 641 $ 452 $ 482 $ 327 $ 456
===========================================
Earnings per share....... * * $ .61 $ .42 $ .68
=========================
Dividends per share...... * * $ .10 $ .475 $ .50
=========================
*Operating as a mutual
3
PAGE
<PAGE>
At September 30,
------------------------------------------
1993 1994 1995 1996 1997
OTHER DATA: ---- ---- ---- ---- ----
Number of:
Real estate loans
outstanding............ 902 888 889 911 948
Deposit accounts....... 9,281 9,104 8,828 8,830 8960
Full service offices.... 2 2 2 2 2
At or For the Years Ended September 30,
------------------------------------------
1993 1994 1995 1996 1997
KEY OPERATING RATIOS: ---- ---- ---- ---- ----
Return on average assets
(net income divided
by average assets)...... 1.21% .86%(2) .91% .57% .78%
Return on average equity
(net income divided by
average equity)......... 12.24 7.76(2) 5.57 2.43 3.83
Average equity to average
assets.................. 9.90 11.11 16.40 23.34 20.27
Interest rate spread
(difference between
average yield on interest
-earning assets and
average cost of interest-
bearing liabilities).... 3.12 3.01 2.66 2.23 2.31
Net interest margin
(net interest income as
a percentage of average
interest-earning
assets)................. 3.43 3.32 3.23 3.26 3.22
Noninterest expense to
average assets.......... 1.90 2.03 2.16 2.80 2.34
Average interest-earning
assets to interest-bearing
liabilities............. 109 111 118 131 125
Allowance for loan losses
to total loans at end
of period............... 14 .12 .15 .13 .13
Net charge-offs to average
outstanding loans during
the period.... .01 -- -- -- --
Ratio of non-performing
assets to total assets.. -- .12 .15 .04 .03
Dividend payout ratio.... N/A N/A 16.39 113.10 73.53
- ------------------------------
(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
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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 93.6%, 94.5% and 94.6% of total loans at
September 30, 1995, 1996 and 1997, respectively.
Maintaining Asset Quality. The Association strongly emphasizes
maintaining asset quality through sound underwriting, constant monitoring and
effective collection techniques. As of September 30, 1997, the Association's
ratio of non-performing assets to total assets was .03%. That same ratio as
of September 30, 1996 was .04%. There were no loan losses, net of recoveries,
for the years ended September 30, 1996 and 1997.
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, 1997, 78.43% of the Association's loan portfolio was composed of
adjustable-rate loans.
Maintaining a High Level of Liquidity. At September 30, 1997, the
liquidity ratio of the Association was 34.1%. 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, 1996 and
1997
- --------------------------------------------------------------------------
General. Net income increased $129,000, or 39.4% from $327,000 at
September 30, 1996 to $456,000 at September 30, 1997. The increase 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 $203,000 which was partly offset by
an increase in interest expense of $192,000. Noninterest income decreased
$30,000 primarily as a result of gains on sales of securities by the Company
in the year ended September 30, 1996. Compensation expense increased $83,000
as a result of the Management Recognition and Development Plan (MRDP), which
was adopted in January 1996, and ESOP expense as well as annual salary
increases. The Association's net interest margin decreased from 3.26% for the
fiscal year ended September 30, 1996 to 3.22% for the fiscal year ended
September 30, 1997.
Net Interest Income. Net interest income increased $11,000, or .6%, from
$1,830,000 for the fiscal year ended September 30, 1996 to $1,841,000 at
September 30, 1997. Net interest income increased as a result of an increase
in interest income of $203,000 that was partially offset by a increase in
interest expense of $192,000.
Interest Income. Total interest income increased $203,000, or 5.5%, from
$3,703,000 for the year ended September 30, 1996 to $3,906,000 for the year
ended September 30, 1997. Interest income from loans receivable increased
$322,000 primarily as a result of an increase in the average balance of loans
receivable of $3,575,000 from $28,841,000 in 1996 to $32,416,000 in 1997.
Income from investment securities increased by $137,000 due to an increase in
the average balance of those securities. Interest income from mortgage-backed
securities decreased by $64,000 as the average balance of mortgage-backed
securities decreased from $5,645,000 in 1996 to $4,951,000 in 1997. A
decrease in the average balance of daily interest-bearing assets and a
decrease in the yields earned on the interest-bearing assets, from 4.96% in
1996 to 4.40% in 1997, decreased other interest income $192,000.
Interest Expense. Interest expense on customer deposits increased
$40,000, or 2.1%, from $1,873,000 for the year ended September 30, 1996 to
$1,913,000 for the year ended September 30, 1997. The increase was due to the
average rate paid on deposits increasing from 4.36% in 1996 to 4.49% in 1997.
There was also a decrease in the average balance of deposits of $355,000 from
$42,975,000 for the year ended September 30, 1996 to $42,620,000 for the year
ended September 30, 1997. The Company began using advances from Federal Home
Loan Bank of Des Moines in 1997 and these advances accounted for $153,000 in
additional interest expense for the year ending September 30, 1997.
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 $2,000 for the year ended September 30, 1997. This is a decrease of
$1,000 from the year ended September 30, 1996. There were no actual loan
losses, net of recoveries, for the fiscal years ended September 30, 1996 and
1997.
Noninterest Income. Noninterest income decreased $30,000, or 11.3% from
$265,000 for the fiscal year ended September 30, 1996 to $235,000 for the year
ended September 30, 1997. The decrease resulted primarily from gains on sales
of investments of $77,000 in 1996 compared to a $37,000 gain in 1997. Other
income decreased $22,000 as a result of a one time sale of assets received
from the data center in 1996. This was offset by a $33,000 increase in
mortgage banking fees from Crawford Mortgage, Inc. that was acquired in August
of 1997.
Noninterest Expense. Noninterest expense decreased $241,000, or 14.9%
from $1,613,000 for the fiscal year ended September 30, 1996 to $1,372,000 for
the year ended September 30, 1997. This decrease resulted primarily from the
one-time FDIC special assessment of $281,000 in 1996. This decrease was
offset by increases in compensation expense and employee benefits of $83,000
or 11.8%. In addition to annual salary increases, this increase was a result
of the Employee Stock Ownership Plan expense which was $104,000 for the year
ended September 30, 1997 compared to $87,000 for the year ended September 30,
1996. In addition, the MRDP expense was $58,000 in 1996 compared to $74,000
for the year ended September 30, 1997. Other expenses also increased $9,000.
Income Taxes. Provision for income tax expense increased $94,000, or
61.8% from $152,000 for the fiscal year ended September 30, 1996 to $246,000
for the year ended September 30, 1997 as a result of higher income and the
repeal of the percentage of taxable income special bad debt deduction.
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. 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 year ended September 30, 1995 to 3.26% for the year ended
September 30, 1996.
Net Interest Income. Net interest income increased $195,000, or 11.9%
from $1,635,000 at September 30, 1995 to $1,830,000 at September 30, 1996.
The increase in net interest income resulted from an increase in interest
income of $419,000 and was partially offset by an increase in interest expense
of $224,000.
7
<PAGE>
<PAGE>
Interest Income. Total interest income increased by $419,000, or 12.8%
from $3,284,000 at September 30, 1995 to $3,703,000 at 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 from 1995 to 1996 of
$3,587,000. Income from investment securities decreased by $23,000 mainly 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. Income from other interest-bearing assets increased by $60,000 due to
an increase in the average balances and on the yields earned on
interest-bearing assets from 4.85% in 1995 to 4.96% in 1996.
Interest expense. Interest expense on customer deposits increased by
$224,000, or 13.5% from $1,649,000 at September 30, 1995 to $1,873,000 at
September 30, 1996. This 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 at September 30, 1995 to $42,975,000 at
September 30, 1996.
Provision for Loan Losses. The provision for loan losses was $3,000 for
the year ended September 30, 1996. This is an decrease of $5,000 over 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 by $57,000, or 27.5%
from $208,000 at September 30, 1995 to $265,000 at September 30, 1996. The
increase was 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 at September 30, 1995 to $1,613,000 at September 30, 1996.
This increase resulted from the one-time FDIC special assessment of $281,000
in 1996. This decrease was offset by increases in compensation 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. 1996 was the first full year as a public company
and resulted in additional expenses being incurred during the year.
Additional general operating expenses, including advertising and now account
expenses, increased $13,000 and an adjustment in 1995 to lower supervisory
expense due to an over accrual, resulted in an $11,000 increase in expense for
1996.
8
<PAGE>
<PAGE>
Income Taxes. Provision for income tax expense decreased $60,000, or
28.3% from $212,000 at September 30, 1995 to $152,000 at 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.
Financial Condition
- -------------------
General. During the year ended September 30, 1997, 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 decreased by $1,990,000, or 3.2% from
$61,807,000 at September 30, 1996 to $59,817,000 at September 30, 1997. Total
assets at September 30, 1996 include a $6.0 million short term deposit that
was withdrawn in October 1996. Excluding the effect of this short term
deposit, total assets would actually have increased by $4,000,000.
Cash and Cash Equivalents. Cash and cash equivalents decreased by
$3,332,000, or 37.6% to $5,521,000 at September 30, 1997 from $8,853,000 at
September 30, 1996. This decrease was a result of the maturity of a $6.0
million short term deposit and increased by $3.0 million in cash advances from
Federal Home Loan of Des Moines.
Certificates of Deposit. Certificates of deposit purchased as
investments totaled $377,000 at September 30, 1997, a decrease of $2,221,000
from $2,598,000 at September 30, 1996.
Investment Securities. Investment securities increased by $1,261,000, or
10.1%, from $12,479,000 at September 30, 1996 to $13,740,000 at September 30,
1997. The increase was primarily due to investments purchased with advances
from FHLB of Des Moines.
Mortgage-backed Securities. Mortgage-backed securities decreased by
$869,000, or 16.3%, from $5,342,000 at September 30, 1996 to $4,473,000 at
September 30, 1997. The decrease was due to the receipt of principal payments
on those securities.
9
<PAGE>
<PAGE>
Loans Receivable. The balance of net loans increased $2,827,000, or
9.1%, to $33,878,000 at September 30, 1997 from $31,051,000 at September 30,
1996. 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 and a $1 million cash
advance from FHLB of Des Moines.
Deposits. Deposits decreased $4,552,000, or 9.4%, to $43,892,000 at
September 30, 1997 compared to $48,444,000 at September 30, 1996. However,
the decrease was the result of a $6 million short term deposit that was
withdrawn in October 1996. Excluding the short term deposit, deposits
actually increased $1,448,000.
FHLB Advances. The use of cash advances from Federal Home Loan Bank of
Des Moines was implemented during the fiscal year ending September 30, 1997 as
part of the Association's short term investment strategy. The Association
borrowed a total of $3.0 million that was used to purchase a $1.0 million
package of one to four family residential loans and $2.0 in FHLB bonds.
Stockholders' Equity. Stockholders' equity decreased $355,000, or 2.9%,
from $12,179,000 at September 30, 1996 to $11,824,000 at September 30, 1997,
as a result of the stock repurchase program and quarterly dividend payments.
During the year ended September 30, 1997, the Company repurchased 50,100
shares of its stock at an average price of $15.83 per share.
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,
----------------------------------------------------------------------------------------
1995 1996 1997
---------------------------- ---------------------------- ---------------------------
Average Interest & Yield/ Average Interest & Yield/ Average Interest Yield/
Balance (2) Dividends Cost Balance (2) Dividends Cost Balance (2) Dividends Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S>
Interest-
earning
assets:
Loans
receiv- <C> <C> <C> <C> <C> <C> <C> <C> <C>
able (1) $25,254 $1,712 6.78 % $28,841 $2,069 7.17 % $32,416 $2,391 7.38 %
Investment
securities 12,083 781 6.46 12,593 758 6.02 13,815 895 6.48
Mortgage-
backed and
related
securities 5,297 400 7.55 5,645 425 7.53 4,951 361 7.29
Daily
interest-
bearing
assets 8,057 391 4.85 9,089 451 4.96 5,881 259 4.40
------- ------- ------- ------- ------- ------- ------- ------
Total
interest-
earning
assets 50,691 3,284 6.48 56,168 3,703 6.59 57,063 3,906 6.85
Noninterest-
earning
assets:
Office
properties
and
equipment, net 961 897 1,073
Other noninterest
-earning assets 1,066 542 584
------- ------- -------
Total assets $52,718 $57,607 $58,720
======= ======= =======
Interest-
earning
liabilities:
Passbook
savings
accounts 6,912 195 2.82 5,815 163 2.80 5,752 160 2.78
Demand and
NOW accounts 6,880 151 2.19 6,188 141 2.28 5,953 138 2.32
Money
market accounts 3,415 96 2.81 3,095 100 3.23 2,839 92 3.24
Certificates
of deposit 25,906 1,207 4.66 27,877 1,469 5.27 28,076 1,522 5.42
------- ------- ------- ------- ------- ------- ------- ------
Total deposits 43,113 1,649 3.82 42,975 1,873 4.36 42,620 1,912 4.49
Advances from
FHLB -- -- -- -- -- -- 2,917 153 5.25
------- ------- ------- ------- ------- ------- ------- ------
Total interest
-bearing
liabilities 43,113 1,649 3.82 42,975 1,873 4.36 45,537 2,065 4.54
Noninterest-bearing
liabilities:
Noninterest-
bearing
deposits 219 245 293
Other
liabilities 735 943 990
------- ------- -------
Total
liabilities 44,067 44,163 46,820
Stockholders'
equity 8,651 13,444 11,900
------- ------- -------
Total liabilities
and stockholders'
equity $52,718 $57,607 $58,720
======= ======= =======
Net interest
income $1,635 $1,830 $1,841
====== ====== ======
Interest rate
spread 2.66 2.23 2.31
Net interest margin 3.23 3.26 3.22
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 118% 131% 125%
__________________________
(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
September 30, 30,
------------------ ---------
1995 1996 1997 1997
---- ---- ---- ----
Weighted average yield on loan portfolio... 6.78% 7.17% 7.38% 7.41%
Weighted average yield on mortgage-
backed and related securities........... 7.55 7.53 7.29 7.18
Weighted average yield on investment
securities.............................. 6.46 6.02 6.48 6.34
Weighted average yield on interest-
bearing deposits........................ 4.85 4.96 4.40 5.57
Weighted average yield on all interest-
earning assets.......................... 6.48 6.59 6.85 6.95
Weighted average rate paid on
total deposits.......................... 3.82 4.36 4.49 4.47
Weighted average rate paid on all
advances from FHLB...................... -- -- 5.25 5.60
Weighted average rate paid on all
interest-bearing liabilities............ 3.82 4.36 4.54 4.55
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities).................... 2.66 2.23 2.31 2.40
Net interest margin (net interest income
as a percentage of average
interest-earning assets)................ 3.23 3.26 3.22 N/A
12
<PAGE>
<PAGE>
<TABLE>
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (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,
-------------------------------------------------------------------
1996 Compared to 1995 1997 Compared to 1996
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------ -----------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
<S>
Interest-earning assets: <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $99 $244 $14 $357 $61 $253 $8 $322
Investment securities (54) 33 (2) (23) 58 73 6 137
Mortgage-backed and related
securities (1) 26 -- 25 (14) (50) -- (64)
Daily interest-bearing
deposits 9 50 1 60 (51) (159) 18 (192)
----- ---- --- ---- ---- ---- --- ----
Total net change in income
on interest-bearing assets 53 353 13 419 54 117 32 203
Interest-bearing liabilities:
Interest-bearing deposits 231 (6) (1) 224 56 (15) (2) 39
Advances from FHLB -- -- -- -- 21 125 7 153
----- ---- --- ---- ---- ---- --- ----
Total net change in expenses
on interest-bearing
liabilities 231 (6) (1) 224 77 110 5 192
----- ---- --- ---- ---- ---- --- ----
Net change in net interest
income $(178) $359 $14 $195 $(23) $ 7 $27 $ 11
===== ==== === ==== ==== ==== === ====
- --------------
(1) For purposes of calculating volume, rate, and rate/volume variances,
nonaccrual loans were included in the weighted-average balance outstanding.
13
</TABLE>
<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. 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 access to and has begun 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.
Mortgage loan originations in excess of repayment totaled $2,424,000 and a net
increase in investment securities and mortgage-backed securities totaled
$392,000 during the year ended September 30, 1997. These activities were
primarily funded by cash on hand, maturing investments and the use of cash
advances from Federal Home Loan Bank of Des Moines.
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 1995, 1996 and 1997 the Association used its
sources of funds primarily to fund loan commitments and to pay maturing
savings certificates and deposit withdrawals. At September 30, 1997, the
Association had loan commitments of $769,000.
At September 30, 1997, Savings certificates amounted to $28,724,000 or
65.4%, of the Association's total deposits, including $21,608,000 which were
scheduled to mature by September 30, 1998. 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 advances and that it can adjust
the offering rates of savings certificates to retain deposits n changing
interest rate environments.
During the year ended September 30, 1997, the OTS required 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 withdrawal deposits and short-term borrowings. In addition,
short-term liquid assets currently must constitute 1.0% of the sum of net
withdrawable deposits accounts plus short-term borrowings. The Association's
average liquidity ratios were 48.4%, 40.5% and 35.6% during the years ended
September 30, 1995, 1996 and 1997, respectively. The Association's average
short-term liquidity ratios for the same periods were 26.8%, 19.6% and 14.7%,
respectively. The Association's actual short- and long-term liquidity ratios
at September 30, 1997 were 14.66% and 34.09%. 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, 1997, 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 14.9%, 14.9%
and 34.8%, respectively. See Note 16 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
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>
[Letterhead of KIRKPATRICK, PHILLIPS & MILLER, CPAs, P.C.]
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, 1996 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1997. 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, 1996 and 1997, and the
results of its operations and its cash flows for each of the three years in
the period ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/KIRKPATRICK, PHILLIPS & MILLER, CPAs, P.C.
KIRKPATRICK, PHILLIPS & MILLER, CPAs, P.C.
October 29, 1997
Springfield, Missouri
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - - - - - - - - - - - - - - - - - - - - - - -
September 30, 1996 and 1997
1996 1997
ASSETS ---- ----
------
Cash and cash equivalents, including
interest-bearing accounts of $8,202,356
in 1996 and $4,844,199 in 1997 $8,853,273 $5,521,215
Certificates of deposit 2,597,553 377,000
Investment securities available-for-sale,
at fair value (Notes 1 and 3) 925,138 266,813
Investment securities held-to-maturity
(estimated market value of $11,480,181 in 1996
and $13,459,795 in 1997) (Notes 1 and 3) 11,554,177 13,472,811
Mortgage-backed securities held-to-maturity
(estimated market value of $5,448,035 in 1996
and $4,608,360 in 1997) (Notes 1 and 4) 5,341,911 4,473,160
Loans receivable, net (Notes 1 and 5 ) 31,051,211 33,878,880
Accrued interest receivable (Note 6) 391,261 454,206
Property and equipment,
less accumulated depreciation (Notes 1 and 7) 868,144 1,148,039
Intangible assets (Note 1) - 83,343
Other assets 224,771 141,263
----------- -----------
Total assets $61,807,439 $59,816,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Customer deposits (Note 9) $48,443,533 $43,892,375
Advances from Federal Home Loan Bank (Note 10) - 3,000,000
Advances from borrowers
for taxes and insurance 314,471 317,548
Income taxes payable - current (Note 8) 21,519 34,592
Deferred income taxes (Notes 1 and 8) 291,007 412,873
Other liabilities 558,346 335,047
----------- -----------
Total liabilities 49,628,876 47,992,435
----------- -----------
Commitments and Contingencies (Note 14) - -
Preferred stock, $.01 par value; 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 8,000,000
shares authorized, issued 887,814 in 1996
and 886,314 in 1997, outstanding 759,082
in 1996 and 711,666 in 1997 8,878 8,863
Paid-in capital 8,415,931 8,461,129
Retained earnings - substantially
restricted (Notes 16 and 17) 6,363,058 6,493,728
Treasury stock, at cost 128,732 shares in 1996
and 174,648 shares in 1997 (1,675,943) (2,414,324)
Unearned compensation (Note 11) (952,706) (779,793)
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes 19,345 54,692
----------- -----------
Total stockholders' equity 12,178,563 11,824,295
----------- -----------
Total liabilities and stockholders' equity $61,807,439 $59,816,730
=========== ===========
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, 1995, 1996 and 1997
1995 1996 1997
---- ---- ----
Interest Income:
Loans receivable $1,712,227 $2,069,138 $2,391,319
Investment securities 780,772 757,481 894,610
Mortgage-backed and
related securities 399,595 425,189 361,409
Other interest-earning assets 391,569 450,831 258,951
--------- --------- ---------
Total interest income 3,284,163 3,702,639 3,906,289
--------- --------- ---------
Interest Expense:
Customer deposits 1,649,491 1,872,658 1,912,171
Federal Home Loan Bank advances - - 153,359
--------- --------- ---------
Total interest expense 1,649,491 1,872,658 2,065,530
Net interest income 1,634,672 1,829,981 1,840,759
Provision for Loan Losses 7,740 3,201 2,195
--------- --------- ---------
Net interest income after
provision for loan losses 1,626,932 1,826,780 1,838,564
--------- --------- ---------
Noninterest Income:
Gain on sale of investment securities - 77,137 36,859
Gain on sale of loans 1,409 - 286
Banking service charges and fees 151,924 146,326 145,751
Mortgage banking fees - - 33,219
Loan late charges 7,750 7,350 7,208
Other 46,882 34,331 11,576
--------- --------- ---------
Total noninterest income 207,965 265,144 234,899
--------- --------- ---------
Noninterest Expense:
Compensation and
employee benefits (Notes 11 and 12) 616,399 702,127 784,706
Occupancy and equipment 138,913 142,152 150,587
Deposit insurance premium 100,833 383,628 39,171
Data processing 90,322 83,871 91,095
Printing, postage, stationery and
supplies 46,897 60,551 55,937
Professional fees 17,663 63,291 62,959
Other 130,337 177,749 187,200
--------- --------- ---------
Total noninterest expense 1,141,364 1,613,369 1,371,655
--------- --------- ---------
Income before taxes 693,533 478,555 701,808
Income Taxes (Note 8) 211,726 151,623 246,209
--------- --------- ---------
Net income $ 481,807 $ 326,932 $ 455,599
========= ========= =========
Earnings per share (Note 1) $ .61 $ .42 $ .68
========= ========= =========
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, 1995, 1996 and 1997
Common
Stock Unrealized Total
--------------- Paid-In Retained Treasury Unearned Gain on Stockholders'
Shares Amount Capital Earnings Stock Compensation Securities Equity
------ ------ ------- -------- -------- ------------ ---------- ------------
<S>
Balances at <C> <C> <C> <C> <C> <C> <C> <C>
September 30,
1994 - $ - $ - $6,006,069 $ - $ - $ - $6,006,069
Net income - - - 481,807 - - - 481,807
Net proceeds
from issuance
of common
stock 856,449 8,564 7,986,040 - - - - 7,994,604
Common stock
acquired by
ESOP (Note 11) - - - - - (685,160) - (685,160)
Dividends
($.10 per
share) - - - (85,645) - - - (85,645)
Release of
ESOP shares
(Note 11) - - 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
11) - - - - - (407,745) - (407,745)
Dividends
($.475 per
share) - - - (366,105) - - - (366,105)
Purchase
of treasury
stock at
cost (128,732) - - - (1,675,943) - - (1,675,943)
Vesting of
MRDP shares
(Note 11) - - - - - 57,764 - 57,764
Release of
ESOP shares
(Note 11) - - 18,979 - - 68,475 - 87,454
Net change
in
unrealized
gain on
securities
available-
for-sale,
net of
applicable
deferred
income taxes - - - - - - 19,345 19,345
------- ----- --------- --------- ----- ---------- ------- ----------
Balances at
September
30, 1996 759,082 8,878 8,415,931 6,363,058 (1,675,943) (952,706) 19,345 12,178,563
Net income - - - 455,599 - - - 455,599
Net proceeds
from
issuance of
common
stock 500 5 8,120 - - - - 8,125
Proceeds from
exercise of
stock
options 1,000 10 12,928 - - - - 12,938
Common stock
acquired by
MRDP (Note
11) - - - - - (8,125) - (8,125)
Dividends
($.50 per
share) - - - (326,504) - - - (326,504)
Purchase of
treausry
stock at
cost (50,100) - - - (793,035) - - (793,035)
Issuance of
treasury
stock 4,184 - 21,846 - 54,654 - - 76,500
Vesting of
MRDP shares
(Note 11) - - - - - 73,519 - 73,519
Release of
ESOP shares
(Note 11) - - 41,274 - - 68,519 - 109,793
Forfeiture
of MRDP
shares (3,000) (30) (38,970) 1,575 - 39,000 - 1,575
Net change
in
unrealized
gain on
securities
available
for sale,
net of
applicable
deferral
income
taxes - - - - - - 35,347 35,347
Balances at
September
30, 1997 711,666 $8,863 $8,461,129 $6,493,728 $(2,414,324) $(779,793) $54,692 $11,824,295
======= ====== ========== ========== =========== ========= ======= ===========
The accompanying notes are an integral part of the
consolidated financial statements
19
</TABLE>
PAGE
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
1995 1996 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 481,807 $326,932 $455,599
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 82,077 82,887 84,895
Amortization - - 232
Premiums and discounts on
mortgage-backed securities
and investment securities (116,115) (107,509) (103,647)
Loss on loans, net of recoveries 7,740 3,201 2,195
Gain on sale of investment
securities - (77,137) (36,859)
Gain on sale of loans (1,409) - (283)
(Gain) loss on sale of equipment (300) - 795
Income reinvested on
Federal Home Loan Bank stock - (8,300) -
Vesting of MRDP shares - 57,764 73,519
Release of ESOP shares 17,441 87,454 109,793
Net change in operating accounts:
Accrued interest receivable (53,423) 44,503 (62,745)
Other assets (86,585) (73,206) 83,508
Other liabilities 72,956 310,279 (229,251)
Income taxes payable - deferred 1,865 (112,961) 96,906
Income taxes payable - current (86,089) 86,826 769
----------- ----------- -----------
Net cash from operating
activities 319,965 620,733 475,426
----------- ----------- -----------
Cash flows from investing activities:
Purchase of investment securities
held-to-maturity (3,000,000) (4,846,991) (2,803,760)
Proceeds from maturities of investment
securities held-to-maturity 2,065,000 6,578,000 975,000
Purchase of investment securities
available-for-sale - (4,163,255) -
Proceeds from maturities of investment
securities available-for-sale - 2,900,000 500,000
Net change in certificates of deposit 1,055,000 (655,553) 2,220,553
Proceeds from sales of investment
securities available-for-sale - 446,017 251,859
Net change in loans receivable (1,197,552) (5,121,492) (2,853,492)
Purchase of mortgage-backed and
related securities held-to-maturity (949,794) (370,372) (315,038)
Proceeds from principal payments and
maturities of mortgage-backed
securities held-to-maturity 583,565 921,150 1,196,993
Purchases of property and equipment (10,805) (23,379) (325,119)
Proceeds from sale of loans 130,819 - 57,142
Proceeds from sale of equipment 300 - -
Acquisition of Crawford Mortgage
Inc., net of cash - - (52,588)
----------- ----------- -----------
Net cash used in investing
activities $(1,323,467) $(4,335,875) $(1,148,450)
----------- ----------- -----------
The accompanying notes are an integral part of the
consolidated financial statements
20
PAGE
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
1995 1996 1997
Cash flows from financing activities: ---- ---- ----
Net change in demand deposits,
savings accounts, and
certificates of deposit $(108,807) $4,355,927 $(4,551,158)
Proceeds from Federal Home Loan
Bank advances - - 3,500,000
Payments on Federal Home Loan Bank
advances - - (500,000)
Proceeds from issuance of common
stock 7,309,444 - 12,938
Cash dividends paid - (356,865) (330,856)
Purchase of treasury stock - (1,675,943) (793,035)
Net increase in mortgage
escrow funds 8,427 4,957 3,077
----------- ---------- ----------
Net cash from (used in)
financing activities 7,209,064 2,328,076 (2,659,034)
----------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 6,205,562 (1,387,066) (3,332,058)
Cash and cash equivalents -
beginning of year 4,034,777 10,240,339 8,853,273
----------- ---------- ----------
Cash and cash equivalents -
end of year $10,240,339 $8,853,273 $5,521,215
=========== ========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest on deposits $1,642,348 $1,868,691 $2,045,292
Income taxes 295,951 231,291 147,476
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 -
Dividends declared September 22,
1997, payable October 31, 1997 - - 88,959
Issuance of treasury stock during
acquisition of subsidiary - - 76,500
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, 1995, 1996 and 1997
(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"). The Association is primarily engaged in providing a full
range of banking and mortgage services to individuals and corporate customers.
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 17).
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, periodically
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 and Crawford Mortgage Inc.,
wholly-owned subsidiaries 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, 1995, 1996 and 1997
(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. At September 30, 1996 and 1997, the Company had no
securities designated as trading securities. 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.
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, 1997.
23
PAGE
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(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, 1997, 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 10-40 Years declining-balance
INTANGIBLE ASSETS - Intangible assets have been recorded by the Association in
connection with the acquisition of the net assets of Crawford Mortgage and
Financial Services, Inc., which is discussed further in Note (2). Goodwill,
which represents the excess of the purchase price over the estimated market
value of net assets acquired, is being amortized on a straight-line basis over
thirty years. Amortization expense charged to operations amounted to $232 for
1997.
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.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance would be established to reduce deferred tax
assets if it is more likely than not that all, or some portion, of a deferred
tax asset will not be realized.
24
PAGE
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(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 11). The weighted average number of shares used in the computation of
earnings per share was 788,482 in 1995, 783,969 in 1996 and 671,599 in 1997.
There is no material difference between primary and fully diluted earnings per
share.
NEW ACCOUNTING STANDARDS - In June 1996, the Financial Accounting Standards
Board ("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 transfer 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. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS No. 125" defers
the December 31, 1996 effective date of application of certain portions of
SFAS No. 125 until January 1, 1998. The Company adopted the provisions of
SFAS No. 125 on January 1, 1997. The adoption did not have a material impact
on the Company's financial condition or results of operations.
25
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
-------------------------------------------------------
NEW ACCOUNTING STANDARDS - SFAS No. 128, "Earnings Per Share," was issued in
February 1997 and establishes standards for computing and presenting earnings
per share ("EPS"). It applies to entities with publicly-held common stock or
potential common stock. The Statement replaces the presentation of primary
EPS with a presentation of basic EPS and requires the dual presentation of
basic and diluted EPS on the face of the income statement. SFAS No. 128 is
effective for the financial statements for the period ending after December
15, 1997 and requires restatement of all prior period EPS data presented. The
impact of its adoption is not expected to be material to the Company.
SFAS No. 129, "Disclosure of Information About Capital Structure," establishes
standards for disclosing information about an entity's capital structure and
applies to all entities. SFAS No. 129 continues the previous requirements to
disclose certain information about an entity's capital structure found in
Accounting Principles Board ("APB") Opinions No. 10, "Omnibus Opinion - 1996."
and No. 15, "Earnings Per Share," and SFAS No. 47, "Disclosure of Long-Term
Obligations," for entities that were subject to those standards. SFAS No. 129
is effective for financial statements for periods ending after December 15,
1997. SFAS No. 129 contains no change in disclosure requirements for entities
that were previously subject to the requirements of APB Opinions Nos. 10 and
15 and SFAS No. 47. The adoption of the provisions of SFAS No. 129 is not
expected to have a material impact on the Company.
In July 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and presenting of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented
with the same prominence as other financial statements. SFAS No. 130 requires
that companies (i) classify items of other comprehensive income by their
nature in a financial statement and (ii) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
In June 1997, FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," which established standards for
disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS No. 131 becomes
effective for the Company's fiscal year ending September 30, 1999, and
requires that comparative information from earlier years be restated to
conform to its requirements. The adoption of the provisions of SFAS No. 131
is not expected to have a material impact on the Company.
26
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(2) ACQUISITION
-----------
During 1997, the Association formed a new subsidiary, Crawford Acquisition
Company for the sole purpose of acquiring Crawford Mortgage and Financial
Services, Inc.. On August 26, 1997, Crawford Aquisition Company acquired all
of the capital stock of Crawford Mortgage and Financial Services, Inc. in a
business combination accounted for as a purchase. Crawford Mortgage and
Financial Services, Inc. was engaged in originating mortgages primarily in
Missouri. After the acquisition, Crawford Mortgage and Financial Services,
Inc. was merged into Crawford Acquisition Company and the name was changed to
Crawford Mortgage, Inc. The results of operations of Crawford Mortgage, Inc.
are included in the accompanying financial statements since the date of
formation.
The total cost of this acquisition, which was based on fair market values of
the net assets acquired, was as follows:
Cash $ 20,911
Loans and accrued interest 33,432
Property and equipment 40,466
Goodwill 83,575
Accounts Payable (10,555)
Income tax payable (12,304)
Other liabilities (5,525)
------------
Total cost of net assets acquired $ 150,000
------------
The purchase price was comprised of 4,184 shares of NS & L Bancorp, Inc.
common stock, valued at $76,500 and cash of $73,500.
The table below presents an unaudited pro forma combined summary of operations
of the Company for the years ended September 30, 1996 and 1997. The Unaudited
Pro Forma Combined Summary of Operations is presented as if the acquisition of
Crawford Mortgage and Financial Services, Inc. had been effective October 1,
1995.
1996 1997
---- ----
Interest Income $3,703,659 $3,908,632
Interest Expense 1,872,658 2,065,578
---------- ----------
Net interest income 1,831,001 1,838,464
Provision for loan losses 3,201 2,195
Noninterest Income 376,076 494,237
Noninterest Expense 1,703,230 1,568,483
---------- ----------
Income before income taxes 500,646 766,613
Income taxes 159,723 262,309
---------- ----------
Net Income $ 340,923 $ 504,304
---------- ----------
Earnings per share $ .43 $ .75
---------- ----------
27
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(3) 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 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
-------- -------- ------- --------
Proceeds from the sales of common stock held as availale-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
----------- -------- --------- -----------
A summary of investment securities available-for-sale at September 30, 1997 is
as follows:
Gross Unrealized Estimated
Amortized ------------------ Fair
Cost Gains Losses Value
--------- ----- ---------- ---------
Common Stock $180,000 $ 86,813 $ - $266,813
-------- -------- -------- --------
Proceeds from the sales of common stock held as available-for-sale during the
year ended September 30, 1997 were $251,859. A gain of $36,859 was recognized
on these sales.
28
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(3) INVESTMENT SECURITIES - (CONTINUED)
----------------------------------
A summary of the investment securities held-to-maturity at September 30, 1997
is as follows:
Estimated
Amortized Gross Unrealized Fair
Cost Gains Losses Value
--------- ----- ---------- ---------
U.S. Treasury securities and
obligations of U.S.
government
corporations and
agencies $12,217,582 $113,046 $135,483 $12,195,145
Obligations of states and
political subdivisions 834,629 9,421 - 844,050
Stock in Federal Home Loan
Bank, at cost 420,600 - - 420,600
----------- -------- -------- -----------
Total $13,472,811 $122,467 $135,483 $13,459,795
=========== ======== ======== ===========
The amortized cost and estimated market value of investment securities
held-to-maturity at September 30, 1997, 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 $ 2,457,775 $ 2,456,009
Due after one year through five years 5,867,275 5,841,875
Due after five years through ten years 3,268,941 3,194,901
Due after ten years 1,458,220 1,546,410
----------- -----------
Total $13,052,211 $13,039,195
=========== ===========
Securities pledged as collateral had book values of $6,220,849 and $2,395,005
and market values of $6,244,540 and $2,391,750 at September 30, 1996 and 1997,
respectively.
29
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996, and 1997
(4) 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, 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
========== ========== ========= ==========
September 30, 1997
------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
--------- ----------- --------- ----------
GNMA Certificates $1,048,907 $ - $ 4,226 $1,044,681
FHLMC Certificates 1,152,857 115 69,290 1,083,682
FNMA Certificates 2,357,648 - 12,851 2,344,797
---------- ---------- --------- ----------
$4,559,412 $ 115 $ 86,367 $4,473,160
========== ========== ========= ==========
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
--------- ---------- --------- ----------
GNMA Certificates $1,044,681 $ 14,715 $ - $1,059,396
FHLMC Certificates 1,083,682 83,554 - 1,167,236
FNMA Certificates 2,344,797 36,931 - 2,381,728
---------- ---------- --------- ----------
$4,473,160 $ 135,200 $ - $4,608,360
========== ========== ========= ==========
The mortgage-backed securities presented above are non-equity securities.
Management does not believe there is substantial risk associated with these
securities.
30
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(5) LOANS RECEIVABLE
----------------
Loans receivable consist of the following:
September 30,
--------------------------
1996 1997
Mortgage loans: ----------- -----------
One-to-four dwelling units $29,625,575 $32,319,127
Commercial 76,576 72,250
Construction 486,356 221,681
----------- -----------
Total mortgage loans 30,188,507 32,613,058
----------- -----------
Other loans:
Loans on deposits 471,223 407,857
Education 15,643 32,416
Consumer and automobile 679,895 1,089,930
Unsecured 3,775 26,440
----------- -----------
Total other loans 1,170,536 1,556,643
----------- -----------
Less:
Undisbursed portion of loans in process 224,602 209,515
Net deferred loan origination fees 41,638 37,519
Allowance for loan losses 41,592 43,787
----------- -----------
Net loans receivable $31,051,211 $33,878,880
=========== ===========
The Association has 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,
------------------------------
1995 1996 1997
------- ------ ------
Beginning balance $30,651 $38,391 $41,592
Provision charged
to income 7,740 3,201 2,195
------- ------- -------
Ending balance $38,391 $41,592 $43,787
======= ======= =======
The Association primarily grants residential loans to customers throughout
southwest Missouri. The loans are typically secured by real estate.
31
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(6) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
September 30,
------------------------
1996 1997
-------- --------
Investment securities $ 197,345 $243,575
Mortgage-backed securities 40,604 33,368
Loans receivable 153,312 177,263
--------- --------
$ 391,261 $454,206
========= ========
(7) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
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
========== ========= ========
September 30, 1997
---------------------------------
Accum.
Category Cost Deprec. Net
-------------------- --------- --------- --------
Land $ 398,215 $ - $ 398,215
Leasehold improvements 5,963 330 5,633
Buildings 1,107,552 500,488 607,064
Office furniture, fixtures
and equipment 436,937 299,810 137,127
---------- --------- ----------
$1,948,667 $ 800,628 $1,148,039
========== ========= ==========
Depreciation charged to operations for the years ended September 30, 1995,
1996 and 1997 was $82,077, $82,887, and $84,895.
32
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(8) INCOME TAXES
------------
The provision for income tax expense is as follows:
Years Ended September 30,
------------------------------------
1995 1996 1997
--------- -------- --------
Current $ 209,861 $264,584 $145,103
Deferred 1,865 (112,961) 101,106
--------- -------- --------
Total $ 211,726 $151,623 $246,209
========= ======== ========
The provision for income taxes differs from that computed at the statutory
corporate rate of 34% as follows:
Years Ended September 30,
------------------------------------
1995 1996 1997
--------- -------- --------
Tax at statutory rate $235,801 $162,709 $238,615
Increase (decrease) in taxes
resulting from:
State taxes, net of federal
benefit 1,342 27,736 5,533
Non-deductible expenses 3,315 9,804 17,223
Tax-exempt income (20,627) (18,008) (18,173)
Other (8,105) (30,618) 3,011
--------- -------- --------
Provision for income taxes $211,726 $151,623 $246,209
========= ======== ========
33
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(8) 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,
------------------------------------
1995 1996 1997
--------- -------- --------
Difference from depreciation
methods used for tax purposes
and financial statements $ 2,214 $ (1,435) $ 9,070
Use of different methods for
computing loan loss reserves
for tax purposes and
financial statements 14,175 19,735 (812)
Difference from accretion methods
used for mortgage-backed
security discounts for tax
purposes and financial
statements (7,404) (7,201) (8,134)
Federal Home Loan Bank stock
dividends - 3,070 -
Difference from cash basis
accounting for tax purposes
and accrual basis accounting
for financial statements 17,111 (125,998) 109,730
Use of different methods for
computing net deferred loan
fees for tax purposes and
financial statements 15,953 27,491 9,870
Deferred compensation (33,489) (5,752) 5,025
Unearned compensation - (29,566) (19,301)
Other book/tax differences (6,695) 6,695 (4,342)
-------- --------- --------
Increase (decrease) in
deferred income taxes $1,865 $(112,961) $101,106
======== ========= ========
34
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(8) INCOME TAXES - (CONTINUED)
--------------------------
The components of deferred tax assets and liabilities consisted of:
September 30,
-------------------
1996 1997
-------- --------
Deferred tax assets:
Reserve for loan losses $ 15,389 $ 16,201
Deferred compensation 39,241 34,216
Unrealized losses on investments 1,936 -
Unearned compensation 29,566 48,867
Other - 4,342
Total gross deferred tax assets 86,132 103,626
Deferred tax liabilities:
Tax depreciation in excess of book
depreciation 19,370 28,440
Federal Home Loan Bank stock dividends 36,374 36,374
Bad debt reserves for tax purposes in
excess of base year bad debt
reserves 155,474 155,474
Cash basis conversion for tax purposes 11,322 121,052
Book accretion in excess of tax accretion
on mortgage-backed security discounts 97,858 89,724
Unrealized gains on investments 13,297 32,121
Deferred loan fees 43,444 53,314
Total gross deferred tax liabilities 377,139 516,499
-------- --------
Net deferred tax liabilities $291,007 $412,873
======== ========
Under the Internal Revenue Code, the Association, in determining taxable
income, was allowed a special bad debt deduction based on a percentage of
taxable income (8%) for 1995 and 1996 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, 1997, 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.
35
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(9) CUSTOMER DEPOSITS
-----------------
Deposit account balances at September 30, 1996 and 1997, are summarized as
follows:
1996 1997
------------------ ------------------
Amount % Amount %
----------- ---- ----------- ----
Non-interest bearing
deposits $ 203,748 .4 $ 398,307 .9
Interest-bearing checking
accounts 5,938,953 12.3 5,949,863 13.6
Money market accounts 2,928,979 6.0 3,087,506 7.0
Passbook savings 5,807,296 12.0 5,732,738 13.1
Certificates of deposit 33,564,557 69.3 28,723,961 65.4
----------- ----- ----------- -----
$48,443,533 100.0% $43,892,375 100.0%
=========== ===== =========== =====
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $6,793,852 and $991,982 at
September 30, 1996 and 1997, respectively.
At September 30, 1997 scheduled maturities of certificates of deposit are as
follows:
1998 $21,607,825
1999 4,917,560
2000 1,512,560
2001 686,016
-----------
$28,723,961
===========
(10) ADVANCES FROM FEDERAL HOME LOAN BANK
------------------------------------
The advances listed below were obtained from the Federal Home Loan Bank of Des
Moines and secured by Federal Home Loan Bank stock, loans, investment
securities and deposit accounts. Advances from the Federal Home Loan Bank at
September 30, 1997 are summarized as follows:
92 day, 5.66% fixed, interest payable
at maturity, matures October 1997 $2,000,000
Ten year, 5.49% adjustable (FHLB DSM 1-
year cost of funds + .20%), interest payable
monthly, matures November 2016 1,000,000
----------
$3,000,000
==========
The advances shown above shall be subject to a prepayment fee equal to 100
percent of the present value of the monthly lost cash flow to the Federal Home
Loan Bank based upon the difference between the contract rate on the
advance and the rate on an alternative qualifying investment of the same
remaining maturity. Advances may be prepaid without a prepayment fee if
the rate on an advance being prepaid is equal to or below the current rate
for an alternative qualifying investment of the same remaining maturity.
36
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(10) ADVANCES FROM FEDERAL HOME LOAN BANK - (CONTINUED)
--------------------------------------------------
Maturities of Federal Home Loan Bank advances are as follows:
Aggregate
Annual
Year Ended September 30 Maturities
----------------------- ----------
1998 $2,000,000
1999 -
2000 -
2001 -
2002 -
Later Years 1,000,000
----------
$3,000,000
==========
(11) 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 $9,296, $9,403, and $9,657 for the years
ended September 30, 1995, 1996 and 1997, respectively.
The Association has also entered into a salary continuation agreement with
five 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,
1995, 1996 and 1997 was $30,394, $32,269 and $17,354.
Effective June 1, 1997, the Association adopted a deferred compensation plan
for five outside directors. The directors will vest over a period of five
years and the agreements provide for monthly deferred compensation payments
for a period of five years following retirement. Directors' deferred
compensation charged to operations for the year ended September 30, 1997 was
$8,664.
The Association has entered into employment agreements with two 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
officers would be entitled to receive severance payments from the Association
of 2.99 times the officers' average annual compensation during the preceding
five years.
37
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(11) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
In connection with the conversion to stock form as described in Note (17), 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 eight years. As of
September 30, 1997, the loan had an outstanding balance of $574,346 and an
interest rate of 9%.
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, $87,454 in 1996 and
$104,378 in 1997.
38
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(11) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
A summary of ESOP shares at September 30, 1997 is as follows:
Allocated shares 9,004
Shares committed for release 6,848
Unreleased shares 52,664
----------
Total 68,516
----------
Fair value of unreleased shares $1,000,616
==========
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 28,865 shares have
been awarded as of September 30, 1997. 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 $73,519 of
compensation expense under the MRDP in 1997.
(12) STOCK OPTION PLAN
-----------------
The company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company's 1995 Stock Option and Incentive Plan has authorized the grant of
options to management personnel for up to 85,645 shares of the Company's
common stock. All options granted have 10 year terms and vest and become
exercisable ratably over 5 years following date of grant.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the company had accounted for
its employee stock options under the fair value method of that Statement.
Stock Options were first granted January 17, 1996; therefore only information
for fiscal years ending 1996 and 1997 is provided. The fair value for these
options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1996 and
1997, respectively; risk-free interest rates of 6.25% and 6.25%; dividend
yields of 3.86% and 2.79%, and a weighted-average expected life of the option
of 10 years. Based on historical fluctuations of stock price, the volatility
factor is considered zero.
39
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(12) STOCK OPTION PLAN - (CONTINUED)
-------------------------------
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1996 1997
--------- ---------
Pro forma net income $ 312,903 $ 437,428
--------- ---------
Pro forma earnings
per share: $ .40 $ .65
--------- ---------
A summary of the Company's stock option activity, and related information for
the years ended September 30 follows:
1996 1997
----------------------- -----------------------
Weighted- Weighted-
Average Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
Outstanding-beginning
of year - $ - 67,410 $12.94
Granted 67,410 12.94 3,500 17.95
Exercised - - (1,000) 12.94
Forfeited - - (6,000) 12.94
-------- -------
Outstanding-end of
year 67,410 12.94 63,910 13.21
-------- -------
Exercisable at end of
year - - 12,082 12.94
Weighted-average fair
value of options
granted during the
year $ 1.67 $ 3.75
Exercise prices for options outstanding as of September 30, 1997 ranged from
$12.94 to $18.63. The weighted-average remaining contractual life of those
options is 8.4 years.
40
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(13) 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:
1996 1997
-------- --------
Beginning balance $440,842 $406,795
Originations and advances 43,000 157,220
Principal repayments (77,047) (109,896)
-------- --------
Ending balance $406,795 $454,119
======== ========
Crawford Mortgage, Inc. leases office facilities from an officer of the
corporation on a month-to-month basis. Current monthly rent is $1,500. Rent
charged to operations from August 27, 1997 to September 30, 1997 was $1,984.
(14) 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 $769,464 at
September 30, 1997.
(15) ADVERTISING COSTS
-----------------
The Company incurred $23,916, $30,122 and $31,140 in non-direct response
advertising costs during the years ended September 30, 1995, 1996 and 1997,
respectively. The Company incurred no direct response advertising costs
during the three years.
41
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(16) REGULATORY CAPITAL REQUIREMENTS
-------------------------------
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision ("OTS"). Failure to meet the minimum regulatory capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators, that if undertaken, could have a direct
material affect on the Association and the consolidated financial statements.
Under the regulatory capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Association must meet specific capital
guidelines involving quantitative measures of the Association's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Association's capital amounts and
classification under the prompt corrective action guidelines are also subject
to qualitative judgements by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth in
the table below) of total risk-based capital and Tier 1 capital to
risk-weighted assets ( as defined in the regulations), Tier 1 capital to
adjusted total assets (as defined), and tangible capital to adjusted total
assets (as defined). Management believes, as of September 30, 1997, that the
Association meets all capital adequacy requirements to which it is subject.
As of September 30, 1997, the most recent notification from OTS, the
Association was categorized as well-capitalized under the framework for prompt
corrective action. To be categorized as well-capitalized, the Association
must maintain minimum total risk-based, Tier 1 risk-based, and core capital
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
institution's category.
42
<PAGE>
<PAGE>
<TABLE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(16) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
---------------------------------------------
The Association's actual capital amounts and ratios are also presented in the table.
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Total Risk-Based Capital greater greater greater greater
(to Risk-Weighted Assets) $ 8,249 38.5% /equal $ 1,714 /equal 8.0% /equal $2,142 /equal 10.0%
Core Capital
(to Adjusted Tangible greater greater greater greater
Assets) 8,207 13.8% /equal 1,781 /equal 3.0% /equal 2,968 /equal 5.0%
Tangible Capital greater greater greater greater
(to Tangible Assets) 8,207 13.8% /equal 890 /equal 1.5% /equal N/A /equal
Tier 1 Capital greater greater
(to Risk-Weighted Assets) 8,207 38.3% N/A /equal 1,285 /equal 6.0%
As of September 30, 1997:
Total Risk-Based Capital greater greater greater greater
(to Risk-Weighted Assets) 8,837 34.8% /equal 2,031 /equal 8.0% /equal 2,539 /equal 10.0%
Core Capital
(to Adjusted Tangible greater greater greater greater
Assets) 8,793 14.9% /equal 1,769 /equal 3.0% /equal 2,949 /equal 5.0%
Tangible Capital greater greater
(to Tangible Assets) 8,793 14.9% /equal 885 /equal 1.5% N/A
Tier 1 Capital greater greater
(to Risk-Weighted Assets) 8,793 34.6% N/A /equal 1,523 /equal 6.0%
</TABLE>
<PAGE>
(17) 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.
43
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(17) 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.
(18) 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.
44
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(18) 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.
Federal Home Loan Bank advances - Rates currently available to the Association
for advances with similar terms and remaining maturities are used to estimate
fair value of existing advances. The carrying amount of accrued interest
payable approximates its fair values.
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
45
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -
-------------------------------------------------------
(CONTINUED)
------------
September 30, 1996
-------------------------
Carrying Fair
Amount Value
----------- -----------
Financial liabilities:
Deposits $48,443,533 $48,394,000
Federal Home Loan Bank advances - -
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 - -
September 30, 1997
-------------------------
Carrying Fair
Amount Value
----------- -----------
Financial assets:
Cash and cash equivalents $ 5,521,215 $ 5,521,215
Certificates of deposit 377,000 377,000
Available-for-sale securities 266,813 266,813
Held-to-maturity securities 13,052,211 13,039,195
Investment in FHLB stock 420,600 420,600
Held-to-maturity mortgage-backed
securities 4,473,160 4,608,360
Loans, net of allowance for loan
losses 33,878,880 34,117,000
Accrued interest receivable 454,206 454,206
Financial liabilities:
Deposits $43,892,375 $43,847,000
Federal Home Loan Bank advances 3,000,000 2,983,000
Advances from borrowers for taxes
and insurance 317,548 317,548
Unrecognized financial instruments
(net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
46
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(19) 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 1996 1997
------ ----------- ----------
Cash $1,040,401 $1,738,200
Certificates of deposit 1,408,553 179,000
Investment securities available-for-
sale, at fair value 925,138 266,813
Investment in subsidiary 8,207,196 8,876,278
Loan to ESOP 624,869 574,346
Land - 302,865
Due from subsidiary - 23,484
Other assets 119,291 1,830
----------- ----------
Total assets $12,325,448 $11,962,816
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Due to subsidiary $ 24,821 $ -
Accrued expenses 2,242 17,791
Deferred income taxes, net 24,937 31,771
Dividends payable 94,885 88,959
Stockholders' equity 12,178,563 11,824,295
----------- ----------
Total liabilities and
stockholders' equity $12,325,448 $11,962,816
=========== ===========
47
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
Condensed Statements of Income
Period from
June 7, 1995 to Year Ended Year Ended
September 30, September 30, September 30,
1995 1996 1997
-------------- ------------- -------------
Income
Equity in earnings of
subsidiary $ 165,422 $ 227,933 $ 375,058
Interest income 28,788 133,174 124,059
Dividend income - 5,526 8,806
Gain on sale of
investments - 77,137 36,859
----------- ---------- -----------
Total income 194,210 443,770 544,782
Expenses
Professional fees 3,541 29,639 19,422
Other 3,240 28,260 25,895
Income tax 7,763 58,939 43,866
----------- ---------- -----------
Total expenses 14,544 116,838 89,183
----------- ---------- -----------
Net income $ 179,666 $ 326,932 $ 455,599
=========== ========== ===========
Condensed Statements of Cash Flows
Period from
June 7, 1995 to Year Ended Year Ended
September 30, September 30, September 30,
1995 1996 1997
-------------- ------------- -------------
Cash flows from operating
activities:
Net income $ 179,666 $ 326,932 $ 455,599
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Equity in earnings
of subsidiary (165,422) (227,933) (375,058)
Discounts on
investment securities - (57) (568)
Gain on sale of
investments - (77,137) (36,859)
Net change in operating
accounts:
Deferred income
taxes, net - 13,576 (13,926)
Other assets (1,306) (117,985) 93,977
Liabilities 7,763 19,300 (9,272)
----------- ---------- -----------
Net cash from (used
in) operating
activities 20,701 (63,304) 113,893
----------- ---------- -----------
48
<PAGE>
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended September 30, 1995, 1996 and 1997
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
Period from
June 7, 1995 to Year Ended Year Ended
September 30, September 30, September 30,
1995 1996 1997
-------------- ------------- -------------
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 16,312
Purchase of investment
securities - (4,163,255) -
Proceeds from maturities
of investments - 2,900,000 500,000
Proceeds from sales of
investments - 446,017 251,859
Purchase of property
and equipment - - (302,865)
Net change in certifi-
cates of deposit (50,000) (1,358,553) 1,229,553
Net cash from ---------- --------- ----------
(used in) investing
activities (4,718,501) (160,291) 1,694,859
---------- ---------- ----------
Cash flows from financing
activities:
Net proceeds from issuance
of common stock 7,994,604 - 12,938
Cash dividends paid - (356,865) (330,856)
Purchase of treasury stock - (1,675,943) (793,035)
Net cash from (used ---------- ---------- ----------
in) financing
activities 7,994,604 (2,032,808) (1,110,953)
Net increase (decrease) in ---------- ---------- ----------
cash and cash equivalents 3,296,804 (2,256,403) 697,799
Cash and cash equivalents at
beginning of period - 3,296,804 1,040,401
---------- ---------- ----------
Cash and cash equivalents at
end of period $3,296,804 $1,040,401 $1,738,200
========== ========== ==========
49
<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, 1997, there were
311 stockholders of record and 705,416 shares of common stock outstanding
(including unreleased ESOP shares of 52,664). This does not reflect the
number of persons or entities who hold stock in nominee or "street name". On
September 22, 1997, the Company declared a $.125 common stock dividend payable
October 31, 1997 to stockholders of record on October 15, 1997. 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.
<PAGE>
<TABLE>
Fiscal 1995 Fiscal 1996 Fiscal 1997
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Low Dividend High Low Dividend High Low Dividend
---- --- -------- ---- --- -------- ---- --- --------
First Quarter* N/A N/A N/A $13.50 $12.75 $0.10 $14.00 $12.50 $0.125
Second Quarter* N/A N/A N/A $13.75 $12.25 $0.125 $16.75 $13.75 $0.125
Third Quarter $12.50 $10.00 $0.00 $13.50 $12.50 $0.125 $17.25 $16.25 $0.125
Fourth
Quarter $13.75 $11.75 $0.10 $13.00 $12.00 $0.125 $19.50 $16.625 $0.125
</TABLE>
<PAGE>
__________________
*The Company's common stock began trading on June 8, 1995.
50
<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
Carol A. Guest Stephen M. Kelly
Treasurer Vice President
Carol A. Guest
Treasurer
51
<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
Neosho, Missouri
SPECIAL COUNSEL
Breyer & Aguggia
Washington, D.C.
______________________________________________________________________________
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Wednesday, January 14,
1998, 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.
52
<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
Crawford Mortgage, 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
[Letterhead of Kirkpatrick, Phillips & Miller, CPAS, P.C.]
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated October 29, 1997, 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,
1997. 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, CPAS, P.C.
KIRKPATRICK, PHILLIPS & MILLER, CPAS, P.C.
December 26, 1997
Springfield, Missouri
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 5521215
<INT-BEARING-DEPOSITS> 377333
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 266813
<INVESTMENTS-CARRYING> 17945971
<INVESTMENTS-MARKET> 18068155
<LOANS> 33878880
<ALLOWANCE> 43787
<TOTAL-ASSETS> 59816730
<DEPOSITS> 43892375
<SHORT-TERM> 2000000
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