<PAGE>
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, 1998 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, 1998 were
$4,444,000.
As of December 16, 1998, there were issued and outstanding 616,739 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, 1998, the aggregate value of the Common Stock
outstanding held by nonaffiliates of the registrant was $8,036,109 (616,739
shares at $13.03 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, 1998 (Parts I and II)
2. Portions of Proxy Statement for the 1999 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, 1998, the Corporation had total
assets of $63.4 million, total deposits of $47.9 million and stockholders'
equity of $10.4 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 also originates mortgage loans for sale in the secondary market
through its wholly-owned subsidiary, Crawford Mortgage, Inc.
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 4.2% as of November 1998. 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, 1998, there was one
other thrift institution and four commercial banks in Neosho. Particularly in
times of high interest rates, the Association has faced additional significant
competition for investors' funds from short-term money market securities and
other corporate and government securities. The Association's competition for
loans comes principally from other thrift institutions and commercial banks.
Such competition for deposits and the origination of loans may limit the
Association's growth in the future. In addition, the limited growth of the
Association's market area may restrict the future growth of the Association.
OPERATING STRATEGY
The business of the Association consists principally of attracting deposits
from the general public and using such deposits to originate and purchase
mortgage loans secured primarily by one- to four-family residences. 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, although FHLB advances will be utilized when appropriate.
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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, gains
on sales of loans 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.
The Association uses interest rate sensitivity analysis to measure its
interest rate risk by computing changes in NPV (net portfolio value) of its cash
flows from assets, liabilities and off-balance sheet items in the event of a
range of assumed changes in market interest rates. NPV represents the market
value of portfolio equity and is equal to the market value of assets minus the
market value of liabilities, with adjustments made for off-balance sheet items.
This analysis assesses the risk of loss in market risk sensitive instruments in
the event of a sudden and sustained 100 to 400 basis point increase or decrease
in market interest rates with no effect given to any steps that management might
take to counter the effect of that interest rate movement. Using data compiled
by the OTS, the Association receives a report which measures interest rate risk
by modeling the change in NPV (net portfolio value) 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).
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The following table is provided by the OTS and illustrates the change in
NPV at September 30, 1998, 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.
<TABLE>
<CAPTION>
NPV AS % OF PERCENT OF
PORTFOLIO VALUE OF ASSETS
BASIS POINTS ("bp") NET PORTFOLIO VALUE -------------------------
------------------------------- NPV
CHANGES IN RATES $ AMOUNT $ CHANGE(1) % CHANGE RATIO(2) CHANGE (3)
- ---------------- -------- ----------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $ 9,832 $ 168 2% 15.92% 83bp
300 10,052 388 4 16.09 100
200 10,145 481 5 16.05 96
100 9,990 326 3 15.69 60
0 9,664 15.09
(100) 9,270 (394) (4) 14.39 (70)
(200) 8,993 (671) (7) 13.84 (125)
(300) 8,718 (946) (9) 13.36 (173)
(400) 8,488 (1,176) (12) 12.77 (232)
</TABLE>
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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.
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 (including loans held for sale) by type of loan
as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
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1998 1997 1996
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PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-dwelling units....... $33,621 86.49% $31,577 92.41% $29,625 94.46%
Commercial and multi-family....... 564 1.45 586 1.72 77 0.25
Construction...................... 2,167 5.58 431 1.26 486 1.55
------- ------ ------- ------ ------- ------
Total mortgage loans............ 36,352 93.52 32,594 95.39 30,188 96.26
------- ------ ------- ------ ------- ------
Consumer and other loans:
Loans on deposit accounts......... 471 1.21 408 1.19 471 1.51
Home equity....................... 809 2.08 19 0.06 -- --
Education......................... 23 0.06 31 0.09 16 0.05
Automobile........................ 1,206 3.10 1,090 3.19 680 2.17
Other............................. 12 0.03 27 0.08 4 0.01
------- ------ ------- ------ ------- ------
Total consumer and other loans.. 2,521 6.48 1,575 4.61 1,171 3.74
------- ------ ------- ------ ------- ------
Total loans..................... 38,873 100.00% 34,169 100.00% 31,359 100.00%
------- ====== ------- ====== ------- ======
Less:
Undisbursed loans in process...... 1,299 210 225
Unearned loan fees................ 16 36 42
Allowances for loan losses........ 52 44 41
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Total loans receivable, net..... $37,506 $33,879 $31,051
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</TABLE>
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, 1998, $33.6 million, or 86.5% 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, 1998, $28.0 million, or 83.3%, of the Association's one- to four-
family residential mortgage loans were subject to periodic interest rate
adjustments and $5.6 million, or 16.7%, 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
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for such initial periods. At September 30, 1998, the initial interest rate on
the Association's ARM loans ranged from 5.75% to 9.5% per annum. The periodic
interest rate cap (the maximum amount by which the interest rate may be
increased or decreased in a given period) on the Association's ARM loans is
generally 2% per adjustment period and the lifetime interest rate cap is
generally 5.75% 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 Freddie Mac standards so as to qualify
for sale in the secondary mortgage market, though until recently 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.
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, 1998, construction loans
amounted to $2.2 million, or 5.6%, of the Association's total loan portfolio.
The Association's construction loan portfolio did not include any loans to
builders or any speculative loans at that date, although the Association
occasionally makes such loans.
The Association's construction loans to individuals are made in connection
with the granting of permanent financing on the property and require monthly
payments of interest only during their term. Residential construction loans
convert to an adjustable-rate loan at the earlier of the completion of
construction or one year. Draws are generally made to the borrower after he has
provided the Association with billings showing the costs and work completed and
following an inspection by the Association.
Construction lending is generally considered to involve a higher level of
risk as compared to one- to four-family residential lending because of the
inherent difficulty in estimating both a property's value at completion of the
project and the estimated cost of the project. The nature of these loans is
such that they are generally more difficult to evaluate and monitor. If the
estimate of construction cost proves to be inaccurate, the Association may be
required to advance funds beyond the amount originally committed to permit
completion of the project. If the estimate of value proves to be inaccurate,
the Association may be confronted at, or prior to the maturity of the loan, with
a project whose value is insufficient to assure full repayment. Speculative
loans, i.e., loans to builders to construct homes for which no purchaser has
been identified, carry more risk because the payoff for the loan is dependent on
the builder's ability to sell the property prior to the time that the
construction loan is due.
COMMERCIAL AND MULTI-FAMILY REAL ESTATE LOANS. The Association has
historically engaged in a limited amount of commercial and multi-family real
estate lending. At September 30, 1998, commercial and multi-family real estate
loans in the Association's portfolio totalled $564,000. The Association
originated $360,000 of commercial real estate or multi-family loans during the
year ended September 30, 1998.
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,
home equity loans and savings account loans. At September 30, 1998, the
Association's consumer and other loans totalled approximately $2.5 million, or
6.5% 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, 1998,
automobile loans amounted to $1.2 million, or 3.1% of the Association's total
loans.
The Association began making equity line of credit ("ELOC") loans during
September 30, 1997, however full implementation of the ELOC loans occurred
during the year ended September 30, 1998. ELOC loans are for a period
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of 12 years, with the first two years being the draw years and the next 10 years
being the repayment years. ELOC loans can be made for up to 95% of the appraised
value of the property securing the loan. Home equity loans amounted to $809,000,
or 2.08% of the Association's total loans at September 30, 1998.
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,
1998, total loans on savings accounts amounted to $471,000 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, 1998, the Association had no delinquencies in its consumer loan
portfolio.
LOAN MATURITY AND REPRICING
The following table sets forth certain information at September 30, 1998
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. Amounts include loans for sale.
<TABLE>
<CAPTION>
AFTER AFTER AFTER
ONE YEAR 3 YEARS 5 YEARS
WITHIN THROUGH THROUGH THROUGH BEYOND
ONE YEAR 3 YEARS 5 YEARS 10 YEARS 10 YEARS TOTAL
--------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-dwelling units.............. $ 673 $ 512 $ 817 $2,619 $29,000 $33,621
Commercial and multi-family
real estate........................... -- -- 81 51 432 564
Construction............................. 1,244 -- -- -- 923 2,167
------ ------ ------ ------ ------- -------
Total mortgage loans.................... 1,917 512 898 2,670 30,355 36,352
Consumer and other loans.................. 700 603 406 12 800 2,521
------ ------ ------ ------ ------- -------
Total loans............................. $2,617 $1,115 $1,304 $2,682 $31,155 $38,873
====== ====== ====== ====== ======= =======
</TABLE>
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The following table sets forth the dollar amount of all loans due one year
after September 30, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
FLOATING- OR
FIXED- ADJUSTABLE-
RATE RATES
------ --------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
<S> <C> <C>
One- to four-dwelling units $5,087 $27,861
Commercial and multi-family 81 483
real estate
Construction 543 380
------ -------
Total mortgage loans 5,711 28,724
Consumer and other loans 1,021 800
------ -------
Total loans $6,732 $29,524
====== =======
</TABLE>
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,
1998, the Association's total gross mortgage loan originations were $11.3
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 had 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, 1998 the Association sold $877,000 of loans.
8
<PAGE>
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 cash advance from
the FHLB. No loans were purchased during the year ended September 30, 1998.
The following table shows total mortgage loans originated, purchased, sold
and repaid during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1998 1997 1996
-------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total mortgage loans at beginning of period........... $32,594 $30,188 $25,361
Mortgage loans originated:
One- to four-dwelling units(1)....................... 10,920 3,393 8,498
Commercial and multi-family real estate.............. 360 592 --
------- ------- -------
Total mortgage loans originated..................... 11,280 3,985 8,498
Mortgage loans purchased.............................. -- 1,015 1,178
Mortgage loans sold................................... 877 -- --
Mortgage loan principal repayments.................... 6,645 2,594 4,849
Loans transferred to other real estate................ -- -- --
------- ------- -------
Net loan activity..................................... 3,758 2,406 4,827
------- ------- -------
Total gross mortgage loans at end of period $36,352 $32,594 $30,188
======= ======= =======
</TABLE>
- --------------------------------
(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 $1.4 million at September 30, 1998. See Note 16 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 $16,000 of net deferred mortgage loan fees at
September 30, 1998.
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
9
<PAGE>
to establish (i) the cause of the delinquency, (ii) whether the cause is
temporary, (iii) the attitude of the borrower toward the debt, and (iv) a
mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st
day of delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued
and uncollected interest.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Association institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. If payment is not promptly received, a second notice is
mailed to the borrower 20 days following the payment due date and the customer
is contacted by telephone to ascertain the nature of the delinquency. If the
delinquency remains uncured, the Association mails an additional notice to the
borrower on the 30th day of delinquency and every 30 days thereafter and
continues to contact the borrower by telephone.
In most cases, delinquencies are cured promptly; however, if, by the 91st
day of delinquency the delinquency has not been cured, the Association begins
action to either obtain a judgment in small claims court or to repossess the
collateral.
The Association's Board of Directors is informed on a monthly basis as to
the status of all mortgage and consumer loans that are delinquent more than 30
days, the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by the Association.
10
<PAGE>
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.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------
1998 1997 1996 1995 1994
----------------------------------------
(DOLLARS IN THOUSANDS)
Loans accounted for on a nonaccrual basis:
Real estate:
<S> <C> <C> <C> <C> <C>
Residential............................................ $ 21 $ 9 $ 3 $ 49 $ 18
Commercial and multi-family............................ -- -- -- -- --
Consumer and other....................................... -- 11 -- -- --
----- ----- ----- ----- -----
Total................................................. 21 20 3 49 18
----- ----- ----- ----- -----
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Residential............................................ 45 66 19 40 43
Commercial and multi-family............................ -- -- -- -- --
Consumer and other....................................... -- -- -- -- --
----- ----- ----- ----- -----
Total................................................. 45 66 19 40 43
----- ----- ----- ----- -----
Total of nonaccrual and 90 days
past due loans......................................... 66 86 22 89 61
Real estate owned(1)...................................... -- -- -- -- --
----- ----- ----- ----- -----
Total non-performing assets........................... $ 66 $ 86 $ 22 $ 89 $ 61
===== ===== ===== ===== =====
Restructured loans........................................ -- -- -- -- --
===== ===== ===== ===== =====
Total loans delinquent 90 days or
more to net loans.............................. 0.18% 0.25% 0.07% 0.34% 0.25%
===== ===== ===== ===== =====
Total loans delinquent 90 days or
more to consolidated total assets.............. 0.09% 0.14% 0.04% 0.15% 0.12%
===== ===== ===== ===== =====
Total non-performing assets to
consolidated total assets........................ 0.09% 0.14% 0.04% 0.15% 0.12%
====== ===== ===== ===== =====
</TABLE>
___________________________________
(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, 1998 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $2,000. The amount of interest included in
interest income on such loans for the year ended September 30, 1998 amounted to
approximately $0.
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
11
<PAGE>
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, 1998,
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.
At September 30, 1998, classified assets totalled $43,000 and included two
substandard loans in the amount of $43,000 and no special mention loans. The
aggregate amounts of the Association's classified assets at the dates indicated
were as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
===============
1998 1997
====== ======
(IN THOUSANDS)
<S> <C> <C>
Loss......................... $ -- $ --
Doubtful..................... -- --
Substandard.................. 43 81
Special mention.............. -- --
----- -----
Total classified assets... $ 43 $ 81
===== =====
</TABLE>
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.
12
<PAGE>
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 $8,000 was charged against
income for the year ended September 30, 1998. At September 30, 1998, the
Association had an allowance for loan losses of $52,000. 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 generally accepted accounting principles,
there can be no assurance that regulators, in reviewing the Association's loan
portfolio, will not request the Association to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase
in the allowance for loan losses may adversely affect the Association's
financial condition and results of operations.
The following table sets forth an analysis of the Association's allowance
for loan losses for the periods indicated. Where specific loan loss reserves
have been established, any differences between the loss reserve and the amount
of loss realized has been charged or credited to current income.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period....... $ 44 $ 41 $ 38 $ 31 $ 31
Provision for loan losses.............. 8 3 3 7 --
Recoveries............................. -- -- -- -- --
Charge-offs............................ -- -- -- -- --
----- ----- ----- ----- -----
Net charge-offs........................ -- -- -- -- --
----- ----- ----- ----- -----
Balance at end of period............... $ 52 $ 44 $ 41 $ 38 $ 31
===== ===== ===== ===== =====
Ratio of allowance to total loans...... 0.14% 0.13% 0.13% 0.15% 0.12%
Ratio of net charge-offs to average
loans outstanding during the period. -- -- -- -- --
</TABLE>
13
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------------
1998 1997 1996
-------------------- ------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------ ------ ------------ ------ -------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-dwelling units............ $41 86.49% $34 92.56% $33 94.46%
Commercial and multi-family............ -- 1.45 -- 1.72 -- 0.25
Construction........................... -- 5.58 -- 1.01 -- 1.55
Consumer and other loans................ 11 6.48 10 4.71 8 3.74
--- ------ --- ------ --- ------
Total allowance for loan losses....... $52 100.00% $44 100.00% $41 100.00%
=== ====== === ====== === ======
</TABLE>
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, 1998, the
Association's regulatory liquidity was 40.1% which is significantly in excess of
the 4% 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
14
<PAGE>
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 Ginnie
Mae, Freddie Mac and Fannie Mae participation certificates in order to
supplement loan production. Ginnie Mae and Fannie Mae certificates are
guaranteed as to principal and interest by the full faith and credit of the
United States, while Freddie Mac certificates are guaranteed by Freddie Mac.
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 5 of
Notes to Consolidated Financial Statements contained in the Annual Report.
The following table sets forth the composition of Association's mortgage-
backed securities portfolio at carrying value at the dates indicated. All of
the Association's mortgage-backed securities are classified as held to maturity.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------
BOOK PERCENT OF BOOK PERCENT OF BOOK PERCENT OF
VALUE PORTFOLIO VALUE PORTFOLIO VALUE PORTFOLIO
------ ---------- ----- ---------- ----- ----------
(DOLLARS IN THOUSANDS)
Mortgage-backed securities:
GNMA:
<S> <C> <C> <C> <C> <C> <C>
Fixed.............................. $ 40 1.28% $ 56 1.25% $ 69 1.29%
Adjustable......................... 690 22.11 993 22.20 823 15.41
FHLMC:
Fixed.............................. 712 22.81 1,152 25.76 1,450 27.14
Adjustable......................... -- -- -- -- -- --
FNMA:
Fixed.............................. 264 8.46 413 9.23 525 9.83
Adjustable......................... 1,475 47.26 1,945 43.48 2,574 48.18
Unamortized premium (discount), net.. (60) (1.92) (86) (1.92) (99) (1.85)
------ ------ ------ ------ ------ ------
Total mortgage-backed securities.. $3,121 100.00% $4,473 100.00% $5,342 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
At September 30, 1998, the Corporation's investment securities portfolio
totalled approximately $10.0 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 $939,000 at fair value ($919,000 at
amortized cost) at September 30, 1998, 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.
15
<PAGE>
The following table sets forth the composition of Corporation's investment
securities portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------------------------
1998 1997 1996
---------------------- -------------------- --------------------
CARRYING PERCENT OF CARRYING PERCENT OF CARRYING PERCENT OF
VALUE PORTFOLIO VALUE PORTFOLIO VALUE PORTFOLIO
---------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government treasury and
obligations of U.S.
Government agencies........... $8,482 85.07% $12,218 88.92% $10,669 85.50%
State and political subdivision.. 919 9.22 834 6.07 959 7.68
------ ------ ------- ------ ------- ------
Total debt securities........... 9,401 94.29 13,052 94.99 11,628 93.18
------ ------ ------- ------ ------- ------
Equity securities:
FHLB stock....................... 365 3.66 421 3.07 421 3.37
Common stock..................... 204 2.05 267 1.94 430 3.45
------ ------ ------- ------ ------- ------
Total equity securities......... 569 5.71 688 5.01 851 6.82
------ ------ ------- ------ ------- ------
Total......................... $9,970 100.00% $13,740 100.00% $12,479 100.00%
====== ====== ======= ====== ======= ======
</TABLE>
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, 1998.
<TABLE>
<CAPTION>
LESS THAN ONE TO OVER FIVE TO OVER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
--------------- ---------------- ------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
Debt securities:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government treasury and
obligations of U.S.
Government agencies............ $400 6.13% $1,750 5.77% $5,112 6.62% $1,220 8.03%
State and political subdivision... 335 5.54 275 5.62 309 4.45 --
---- ------ ------ ------
Total............................ $735 $2,025 $5,421 $1,220
==== ====== ====== ======
</TABLE>
16
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major sources of the
Association's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources. Presently, the Association has no other borrowing
arrangements.
DEPOSIT ACCOUNTS. Substantially all of the Association's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Association's lending market area through the offering of a broad selection of
deposit instruments, including NOW accounts, money market deposit accounts,
regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary, according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of its deposit accounts, the Association
considers current market interest rates, profitability to the Association,
matching deposit and loan products and its customer preferences and concerns.
The Association generally reviews its deposit mix and pricing twice weekly.
The following table indicates the amount of the Association's jumbo
certificates of deposit by time remaining until maturity as of September 30,
1998. Jumbo certificates of deposit represent minimum deposits of $100,000.
<TABLE>
<CAPTION>
MATURITY PERIOD AMOUNTS
- --------------- -------------
(IN THOUSANDS)
<S> <C>
Three months or less $ 636
Over three through six months 403
Over six through twelve months 435
Over twelve months 323
------
Total $1,797
======
</TABLE>
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.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------------- ------------------
PERCENT PERCENT PERCENT
OF INCREASE OF INCREASE OF
AMOUNT TOTAL (DECREASE) AMOUNT TOTAL (DECREASE) AMOUNT TOTAL
------ ------- ---------- ------ -------- --------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing........... $ 579 1.21% $ 181 $ 398 0.91% $ 194 $ 204 0.42%
Demand and NOW checking....... 7,336 15.30 1,386 5,950 13.56 11 5,939 12.26
Passbook savings accounts..... 5,718 11.93 (14) 5,732 13.06 (75) 5,807 11.99
Money market deposit.......... 2,584 5.39 (504) 3,088 7.03 159 2,929 6.05
Fixed-rate certificates
which mature:
Within one year.............. 22,809 47.57 1,201 21,608 49.23 (5,008) 26,616 54.94
After one year, but
within three years........ 8,435 17.59 2,005 6,430 14.65 467 5,963 12.31
After three years............ 483 1.01 (203) 686 1.56 (300) 986 2.03
------- ------ ------ ------- ------ ------- ------- ------
Total...................... $47,944 100.00% $4,052 $43,892 100.00% $(4,552) $48,444 100.00%
======= ====== ====== ======= ====== ======= ======= ======
</TABLE>
17
<PAGE>
The following table sets forth the time deposits in the Association
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------
1998 1997 1996
----------------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
4.00 - 4.99%...... $ 4,568 $ 5,020 $ 3,516
5.00 - 5.99%...... 26,230 21,844 21,079
6.00 - 6.99%...... 929 1,860 8,970
------- ------- -------
Total.......... $31,727 $28,724 $33,565
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time
deposits at September 30, 1998.
<TABLE>
<CAPTION>
AMOUNT DUE
--------------------------------------------
PERCENT
OF TOTAL
LESS THAN 1 - 2 2 - 3 3 - 4 AFTER CERTIFICATE
ONE YEAR YEARS YEARS YEARS 4 YEARS TOTAL ACCOUNTS
----------- ------ ------ ------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00 - 4.99%....... $ 4,568 $ -- $ -- $ -- $ -- $ 4,568 14.40%
5.00 - 5.99%....... 17,535 5,868 2,344 483 -- 26,230 82.67
6.00 - 6.99%....... 707 117 105 -- -- 929 2.93
------- ------ ------ ------ ------- ------- ------
Total........... $22,810 $5,985 $2,449 $ 483 $ -- $31,727 100.00%
======= ====== ====== ====== ======= ======= ======
</TABLE>
The following table sets forth the deposit activities of the Association for
the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance..................... $43,892 $48,444 $44,088
------- ------- -------
Net increase (decrease) before 2,437 (5,959) 2,979
interest credited..................
Interest credited..................... 1,615 1,407 1,377
------- ------- -------
Net increase (decrease) in deposits... 4,052 (4,552) 4,356
------- ------- -------
Ending balance........................ $47,944 $43,892 $48,444
======= ======= =======
</TABLE>
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
18
<PAGE>
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.
The following table sets forth certain information regarding the
Association's use of FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum balance at any month end... $3,986 $3,000 $ --
Average balance.................... 1,581 2,917 --
Year end balance................... 3,986 3,000 --
Weighted average interest rate:
At end of year................... 5.81% 5.60% --%
During the year.................. 5.95 5.63 --%
</TABLE>
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, 1998, the Association's investment in the Service Corporation was
$3,000.
REGULATION
GENERAL
The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended ("HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of 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
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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 $365,000 at September 30, 1998. 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 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.
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<PAGE>
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
4.0%) of its net withdrawable accounts plus short-term borrowings.
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
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, 1998, 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
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<PAGE>
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 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 Freddie Mac or Fannie Mae. 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, 1998, the Association was in compliance with the QTL test.
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 CAMELS examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See
"--Prompt Corrective Action."
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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, 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.
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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, 1998, the Association's limit on
loans to one borrower was $1.3 million. At September 30, 1998, the Association's
largest aggregate amount of loans to one borrower was $534,000.
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.
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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, 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.
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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 cash 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 Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions regarding thrift bad debt rules were
revised. 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
26
<PAGE>
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 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 9 of Notes to
Consolidated Financial Statements contained in the Annual Report.
PERSONNEL
As of September 30, 1998, 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, 1998, the net book value of the
property (including land and building) was $557,000. 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, 1998, the net book value of the property was
$112,000. The net book value of the Association's fixtures, furniture and
equipment
27
<PAGE>
at September 30, 1998 was $121,000 Crawford Mortgage has furniture, fixtures and
equipment with a net book value of $37,000 at September 30, 1998. The
Corporation owns a building lot with a book value of $303,000 at September 30,
1998.
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, 1998.
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,
1997 and 1998
(b) Consolidated Statements of Income for the Years Ended September 30,
1996, 1997 and 1998
(c) Consolidated Statements of Stockholders' Equity For the Years Ended
September 30, 1996, 1997 and 1998
(d) Consolidated Statements of Cash Flows For the Years Ended September
30, 1996, 1997 and 1998
(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.
28
<PAGE>
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.
<TABLE>
<CAPTION>
Age at
September 30,
Name 1998 Position
- ---- ------------- --------
<S> <C> <C>
George A. Henry 75 Chairman of the Board
C.R. "Rick" Butler 51 President and Director
Dorothy A. LaDue 59 Senior Vice President and Secretary
Carol A. Guest 52 Treasurer
</TABLE>
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
29
<PAGE>
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."
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, 1998.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NS&L BANCORP, INC.
Date: December 29, 1998 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 29, 1998
---------------------------------------
C.R. Butler
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Carol A. Guest December 29, 1998
---------------------------------------
Carol A. Guest
Treasurer
(Principal Financial and
Accounting Officer)
By: /s/ George A. Henry December 29, 1998
---------------------------------------
George A. Henry
Chairman of the Board and Director
By: /s/ John C. Genisio December 29, 1998
---------------------------------------
John C. Genisio
Director
By: /s/ John D. Mills December 29, 1998
---------------------------------------
John D. Mills
Director
By: /s/ Ralph J. Haas December 29, 1998
---------------------------------------
Ralph J. Haas
Director
By: /s/ Robert J. Johnson December 29, 1998
---------------------------------------
Robert J. Johnson
Director
<PAGE>
EXHIBIT 13
1998 ANNUAL REPORT
[PICTURE APPEARS HERE]
NS&L BANCORP, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 49
Directors and Officers 50
Corporate Information 51
</TABLE>
<PAGE>
NSL BANCORP, INC.
President's Message
To Our Stockholders:
On behalf of the Board of Directors, Officers and Employees of NS&L Bancorp,
Inc. and its wholly owned subsidiary, Neosho Savings & Loan Association, F.A.,
we are pleased to submit our third Annual Report as a public company.
During the fiscal year ending September 30, 1998 the Company's stock traded in a
range from $15.359 to $19.50 per share closing out the year at $15.359 per
share. To date, and in accordance with the Company's repurchase plan, we have
repurchased a total of 273,759 shares (31% of the shares issued) at an average
cost of $15.40 per share. Total shares outstanding as of September 30, 1998 were
616,839. Operating and financial results remained substantially the same as last
fiscal year. The return on average assets was .75%, with a return on average
equity of 4.01%. We are pleased to report that the Association reported a 5.9%
growth in total assets and an increase in earnings per share of 16.1%. Loan
originations also increased significantly from $6.6 million last fiscal year to
$11.2 million for the fiscal year ending September 30, 1998.
We continue to be excited about the future and we remain firm in our pledge 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. 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
stockholder value.
THANK YOU for taking stock in our future, we look forward to a long lasting and
profitable relationship.
Sincerely,
/s/ C.R. `Rick' Butler
C.R. `Rick' Butler
President
1
<PAGE>
BUSINESS OF THE CORPORATION
NS&L Bancorp, Inc. (the "Company"), a Missouri corporation, was organized
in February 1995 for the purpose of becoming the holding company for Neosho
Savings and Loan Association, F.A. (the "Association") upon the conversion of
the Association from a federal mutual to a federal stock savings and loan
association. That conversion was completed in June 1995.
The Company is not engaged in any significant business activity other than
holding the stock of Neosho Savings and Loan Association, F.A. Accordingly, the
information set forth in the report, including financial statements and related
data, applies primarily to the Association.
The Association is a federally-chartered, federally-insured stock savings
and loan association organized in 1884. The Association is regulated by the
Office of Thrift Supervision ("OTS"). Its deposits are insured up to applicable
limits by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"). The Association also is a member of the Federal
Home Loan Bank ("FHLB") System.
The Association's principal business consists of attracting deposits from
the general public through a variety of deposit programs and originating loans
secured primarily by one-to-four family residential properties. To a
significantly lesser extent, the Association originates loans secured by
commercial real estate, residential construction and consumer loans. The
Association also invests in mortgage-backed, U.S. Government and agency
securities and other assets.
2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the financial
position of the Company 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 subsidiaries
presented herein.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
FINANCIAL CONDITION DATA: (In Thousands)
<S> <C> <C> <C> <C> <C>
Total assets................................ $50,995 $58,758 $61,807 $59,817 $63,367
Loans receivable, net.(1)................... 24,873 25,933 31,051 33,878 37,506
Mortgage-backed securities.................. 5,481 5,871 5,342 4,473 3,121
Cash, interest bearing deposits
and investment securities.................. 19,196 25,374 23,930 19,638 21,028
Customer deposits........................... 44,196 44,088 48,444 43,892 47,944
Advances from Federal Home Loan Bank........ -- -- -- 3,000 3,986
Stockholders' equity........................ 6,006 13,729 12,179 11,824 10,405
For the Years Ended September 30,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In Thousands, except per share data)
OPERATING DATA:
Interest income............................. $ 3,149 $ 3,284 $ 3,703 $ 3,906 $ 4,053
Interest expense............................ 1,469 1,649 1,873 2,065 2150
----------------------------------------------------------------
Net interest income......................... 1,680 1,635 1,830 1,841 1,903
Provision for loan losses.................. -- 8 3 2 8
----------------------------------------------------------------
Net interest income after
provision for loan losses.................. 1,680 1,627 1,827 1,839 1,895
Noninterest income.......................... 185 208 265 235 424
Noninterest expense......................... 1,065 1,141 1,613 1,372 1601
----------------------------------------------------------------
Income before taxes and cumulative
effect of change in accounting principle... 800 694 479 702 718
Income taxes................................ 281 212 152 246 264
----------------------------------------------------------------
Income before cumulative effect of
change in accounting principle............. 519 482 327 456 454
Cumulative effect of change in
accounting principle.(2)................... (67) -- -- -- --
----------------------------------------------------------------
Net income.................................. $ 452 $ 482 $ 327 $ 456 $ 454
================================================================
Basic earnings per share.................... * $ .61 $ .42 $ .68 $ .79
===============================================
Diluted earnings per share.................. * $ .61 $ .42 $ .67 $ .77
===============================================
Dividends per share......................... * $ .10 $ .475 $ .50 $ .50
===============================================
</TABLE>
*Operating as a mutual
3
<PAGE>
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Number of:
Real estate loans outstanding................ 888 889 911 948 956
Deposit accounts............................. 9,104 8,828 8,830 8,960 9,394
Full service offices......................... 2 2 2 2 2
At or For the Years Ended September 30,
------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
KEY OPERATING RATIOS:
Return on average assets (net income
divided by average assets)................... .86%(3) .91% .57% .78% .75%
Return on average equity (net income
divided by average equity)................... 7.76(3) 5.57 2.43 3.83 4.01
Average equity to average assets.............. 11.11 16.40 23.34 20.27 18.71
Interest rate spread (difference
between average yield on interest-
earning assets and average cost of
interest-bearing liabilities)................ 3.01 2.66 2.23 2.31 2.38
Net interest margin (net interest
income as a percentage of average
interest-earning assets)...................... 3.32 3.23 3.26 3.22 3.23
Noninterest expense to average
assets....................................... 2.03 2.16 2.80 2.34 2.64
Average interest-earning assets
to interest-bearing liabilities.............. 111 118 131 125 123
Allowance for loan losses to total
loans at end of period....................... .12 .15 .13 .13 .14
Net charge-offs to average
outstanding loans during the period.... -- -- -- -- --
Ratio of non-performing assets to
total assets................................. .12 .15 .04 .03 .09
Dividend payout ratio.(4)..................... N/A 16.39 113.10 73.53 63.29
</TABLE>
______________________________________________
(1) Includes loans held for sale.
(2) Reflects effect of adoption of Statement of Financial Accounting
Standard("SFAS") No. 109, "Accounting for Income Taxes."
(3) Based on net income after cumulative effect of change in accounting
principle.
(4) Dividends paid divided by basic earnings per share.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
- -------
Management's discussion and analysis of the consolidated financial
condition and results of operations is intended to assist in understanding the
consolidated financial condition and results of operations of the Company. The
information contained in this section should be read in conjunction with the
Consolidated Financial Statements and accompanying notes thereto.
OPERATING STRATEGY
- ------------------
The primary goal of management is to increase the Association's
profitability and enhance its net worth while minimizing risk. Operational
results are dependent primarily on net interest income, which is the difference
between the income earned on its interest-earning assets, such as loans and
investments, and the cost of its interest-bearing liabilities, consisting of
deposits. Operational results are also significantly affected by general
economic conditions, changes in market interest rates, governmental legislation
and policies concerning monetary and fiscal affairs and housing, as well as
financial institutions and the attendant actions of the regulatory authorities.
Management strives to operate a conservative, well capitalized, profitable
thrift dedicated to financing home ownership and other consumer needs, and to
provide quality service to its customers. The Association believes it has
successfully implemented this strategy by:
Emphasizing One-to-Four Family Lending. Historically, the Association has
---------------------------------------
been predominantly a one-to-four family residential lender. Single family
residential loans constituted 94.5%, 94.6% and 92.5% of total loans at September
30, 1996, 1997 and 1998, respectively.
Maintaining Asset Quality. The Association strongly emphasizes maintaining
--------------------------
asset quality through sound underwriting, constant monitoring and effective
collection techniques. As of September 30, 1998, the Association's ratio of
non-performing assets to total assets was .09%. That same ratio as of September
30, 1997 was .03%. There were no loan losses, net of recoveries, for the years
ended September 30, 1997 and 1998.
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, 1998, 73.33% of the Association's loan portfolio was composed of
adjustable-rate loans.
Maintaining a High Level of Liquidity. At September 30, 1998, the
--------------------------------------
liquidity ratio of the Association was 40.1%. 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>
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, 1997 AND 1998
- -------------------------------------------------------------------------------
GENERAL. Net income remained relatively stable with a decrease of $2,000,
or .4% from $456,000 at September 30, 1997 to $454,000 at September 30, 1998.
However, as a result of having fewer shares outstanding, net income per share
rose to $.77 (diluted) from $.67 (diluted). Interest income increased $147,000
which was partly offset by an increase in interest expense of $85,000.
Noninterest income increased $189,000 which was offset by an increase in
noninterest expense of $229,000. Income taxes increased $18,000. The
Association's net interest margin increased from 3.22% for the fiscal year ended
September 30, 1997 to 3.23% for the fiscal year ended September 30, 1998.
NET INTEREST INCOME. Net interest income increased $62,000, or 3.4%, from
$1,841,000 for the fiscal year ended September 30, 1997 to $1,903,000 at
September 30, 1998. Net interest income increased as a result of an increase in
interest income of $147,000 that was partially offset by a increase in interest
expense of $85,000.
INTEREST INCOME. Total interest income increased $147,000, or 3.8%, from
$3,906,000 for the year ended September 30, 1997 to $4,053,000 for the year
ended September 30, 1998. Interest income from loans receivable increased
$304,000 primarily as a result of an increase in the average balance of loans
receivable of $3,741,000 from $32,416,000 in 1997 to $36,157,000 in 1998. Loan
balances increased as a result of a more aggressive approach to solicitation and
pricing of mortgage loans. Income from investment securities decreased by
$207,000 due to a decrease 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 $4,951,000 in 1997 to
$3,742,000 in 1998. Balances in mortgage-backed securities and other
investments decreased as more emphasis was placed on originating mortgage loans.
An increase in the average balances of the daily interest-bearing assets
increased other interest income $113,000, despite a decrease in average rates
from 4.40% in 1997 to 4.29% in 1998.
INTEREST EXPENSE. Interest expense on customer deposits increased
$144,000, or 7.6%, from $1,912,000 for the year ended September 30, 1997 to
$2,056,000 for the year ended September 30, 1998. The increase was due to an
increase of $3.498,000 in the average balance of interest bearing deposits from
$42,620,000 for the year ended September 30, 1997 to $46,118,000 for the year
ended September 30, 1998. Interest on advances from Federal Home Loan Bank of
Des Moines decreased $59,000 from $153,000 for the year ending September 30,
1997 compared to $94,000 for the year ending September 30, 1998. The decrease
resulted from a decrease in the average balance of advances of $1.336,000 during
1998.
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
6
<PAGE>
$8,000 for the year ended September 30, 1998. This is an increase of $6,000
from the year ended September 30, 1997. There were no actual loan losses, net
of recoveries, for the fiscal years ended September 30, 1997 and 1998.
NONINTEREST INCOME. Noninterest income increased $189,000, or 80% from
$235,000 for the fiscal year ended September 30, 1997 to $424,000 for the year
ended September 30, 1998. The increase resulted primarily from mortgage banking
fees received from Crawford Mortgage, Inc., a subsidiary of the Association
acquired in August of 1997.
NONINTEREST EXPENSE. Noninterest expense increased $229,000, or 16.7% from
$1,372,000 for the fiscal year ended September 30, 1997 to $1,601,000 for the
year ended September 30, 1998. Compensation expense and employee benefits
increased $156,000 as a result of additional personnel required in the operation
of Crawford Mortgage, Inc. as well as annual salary increases and additional
expenses of the benefit programs of the Employee Stock Option Plan (ESOP) and
the Management Recognition and Development Plan (MRDP). Occupancy and equipment
expense increased $36,000, or 23.5% from $153,000 at September 30, 1997 to
$189,000 at September 30, 12998, while professional fees decreased $10,000 for
1998 compared to the 1997 year end. In addition other operating expenses
increased $47,000 as a result of normal operations of the Company.
INCOME TAXES. Provision for income tax expense increased $18,000, or 7.3%
from $246,000 for the fiscal year ended September 30, 1997 to $264,000 for the
year ended September 30, 1998 as a result of higher taxable income.
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 decrease is primarily
attributable to a one-time industry-wide FDIC Special Assessment of $281,000 at
September 30, 1996 to recapitalize the Savings Association Insurance Fund.
Interest income increased $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 a decrease on 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 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 year ended September 30, 1996 to 3.22% for the year ended
September 30, 1997.
NET INTEREST INCOME. Net interest income increased $11,000, or .6% from
$1,830,000 at September 30, 1996 to $1,841,000 at September 30, 1997. The
increase in net interest income resulted from an increase in interest income of
$203,000 and was partially offset by an increase in interest expense of
$192,000.
INTEREST INCOME. Total interest income increased by $203,000, or 5.5% from
$3,703,000 at September 30, 1996 to $3,906,000 at 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 from 1996 to 1997 of
$3,575,000. 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. Income from other interest-bearing assets decreased by $192,000 due to a
decrease in the average balances and on the yields earned on interest-bearing
assets from 4.96% in 1996 to 4.40% in 1997.
7
<PAGE>
INTEREST EXPENSE. Interest expense on customer deposits increased by
$40,000, or 2.1% from $1,873,000 at September 30, 1996 to $1,913,000 at
September 30, 1997. This increase was due to the average rate paid on deposits
increasing from 4.36% in 1996 to 4.49% in 1997. This increase in rate was
partially offset by a decrease in the average balance of deposits between the
two years. The Company began using advances from Federal Home Loan Bank of Des
Moines in 1997, which accounted for $153,000 in additional interest expense for
the year ending September 30,1 997.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $2,000 for the
year ended September 30, 1997. This is a decrease of $1,000 over 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 by $30,000, or 11.3% from
$265,000 at September 30, 1996 to $235,000 at September 30, 1997. The decrease
was 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 partially
offset by a $33,000 increase in mortgage banking fees from Crawford Mortgage,
Inc.
NONINTEREST EXPENSE. Noninterest expense decreased $241,000, or 14.9% from
$1,613,000 at September 30, 1996 to $1,372,000 at 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 and
employee benefits of $83,000, or 11.8%. The ESOP expense 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 for the year ended
September 30, 1996 compared to $74,000 for the year ended September 30, 1997.
Other expenses also increased $9,000 from 1996 to 1997.
INCOME TAXES. Provision for income tax expense increased $94,000, or 61.8%
from $152,000 at September 30, 1996 to $246,000 at September 30, 1997 as a
result of higher taxable income and the repeal of the percentage of taxable
income special bad debt deduction.
FINANCIAL CONDITION
- -------------------
GENERAL. During the year ended September 30, 1998, 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.
8
<PAGE>
TOTAL ASSETS. Total assets increased by $3,550,000, or 5.9% from
$59,817,000 at September 30, 1997 to $63,367,000 at September 30, 1998. The
increase in mortgage loans accounts for the majority of the asset growth.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents increased by
$4,862,000, or 88.1% to $10,383,000 at September 30, 1998 from $5,521,000 at
September 30, 1997. This increase was a result of the maturity or calling of
$3.4 million in investment securities and certificate of deposits and the
principal payments received on mortgage backed securities of $1.4 million.
CERTIFICATES OF DEPOSIT. Certificates of deposit purchased as investments
totaled $674,000 at September 30, 1998, an increase of $297,000 from $377,000 at
September 30, 1997.
INVESTMENT SECURITIES. Investment securities decreased by $3,651,000, or
28.0%, from $13,052,000 at September 30, 1997 to $9,401,000 at September 30,
1998. The decrease was primarily due to the maturity or calling of investments.
FEDERAL HOME LOAN BANK STOCK. Investments in Federal Home Loan Bank stock
decreased $56,000 from $421,000 at September 30, 1997 to $365,000 at September
30, 1998. The FHLB redeemed excess stock during the year ended September 30,
1998.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities decreased by
$1,352,000, or 30.2%, from $4,473,000 at September 30, 1997 to $3,121,000 at
September 30, 1998. The decrease was due to the receipt of principal payments
on those securities.
LOANS RECEIVABLE. The balance of net loans increased $3,628,000, or 10.7%,
to $37,506,000 at September 30, 1998 from $33,878,000 at September 30, 1997.
The increase in loans was primarily the result of increases in one-to-four
family residential real estate loans and construction 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 increased $4,052,000, or 9.2%, to $47,944,000 at
September 30, 1998 compared to $43,892,000 at September 30, 1997. The increase
can be attributed to growth partially as a result of deposit transfers from
larger mega banks.
FHLB ADVANCES. The use of cash advances from Federal Home Loan Bank of Des
Moines were utilized during the fiscal year ending September 30, 1998 as part of
the Association's investment strategy to hedge against interest rate risk on the
fixed rate, fixed term loans that were originated by the Association to hold in
it's portfolio. The Association repaid $2.0 million and borrowed another $3.0
million in advances during the year ended September 30, 1998.
STOCKHOLDERS' EQUITY. Stockholders' equity decreased $1,419,000, or 12.0%,
from $11,824,000 at September 30, 1997 to $10,405,000 at September 30, 1998, as
a result of the stock repurchase program and quarterly dividend payments.
During the year ended September 30, 1998, the Company repurchased 94,827 shares
of its stock at an average price of $18.41 per share.
9
<PAGE>
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>
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------------------------------------
1996 1997
---------------------------------------------------------------------------------
Average Interest & Yield/ Average Interest & Yield/
Balance (2) Dividends Cost Balance (2) Dividends Cost
----------- ------------ -------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $28,841 $2,069 7.17% $32,416 $2,391 7.38%
Investment securities 12,593 758 6.02 13,815 895 6.48
Mortgage-backed and related securities 5,645 425 7.53 4,951 361 7.29
Daily interest-bearing assets 9,089 451 4.96 5,881 259 4.40
----------- ------------ ------------ -------------
Total interest-earning assets 56,168 3,703 6.59 57,063 3,906 6.85
Noninterest-earning assets:
Office properties and
equipment, net 897 1,073
Other noninterest-earning assets 542 584
----------- ------------
Total assets $57,607 $58,720
=========== ============
Interest-earning liabilities:
Passbook savings accounts 5,815 163 2.80 5,752 160 2.78
Demand and NOW accounts 6,188 141 2.28 5,953 138 2.32
Money market accounts 3,095 100 3.23 2,839 92 3.24
Certificates of deposit 27,877 1,469 5.27 28,076 1,522 5.42
----------- --------- ------------ -------------
Total deposits 42,975 1,873 4.36 42,620 1,912 4.49
Advances from FHLB -- -- -- 2,917 153 5.25
----------- --------- ------------ -------------
Total interest-bearing liabilities 42,975 1,873 4.36 45,537 2,065 4.54
Noninterest-bearing liabilities:
Noninterest-bearing deposits 245 293
Other liabilities 943 990
---------- -----------
Total liabilities 44,163 46,820
Stockholders' equity 13,444 11,900
---------- -----------
Total liabilities and
stockholders' equity $57,607 $58,720
========== ===========
Net interest income $1,830 $1,841
========= =============
Interest rate spread 2.23 2.31
Net interest margin 3.26 3.22
Ratio of average interest-earning assets
to average interest-bearing liabilities 131% 125%
<CAPTION>
Years ended September 30,
---------------------------------------------------
1998
---------------------------------------------------
Average Interest & Yield/
Balance (2) Dividends Cost
-------------- -------------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $36,157 $2,695 7.45%
Investment securities 10,297 689 6.69
Mortgage-backed and related securities 3,742 297 7.94
Daily interest-bearing assets 8,663 372 4.29
-------------- --------------
Total interest-earning assets 58,859 4,053 6.89
Noninterest-earning assets:
Office properties and
equipment, net 1,141
Other noninterest-earning assets 598
--------------
Total assets $60,598
==============
Interest-earning liabilities:
Passbook savings accounts 5,800 160 2.76
Demand and NOW accounts 7,103 179 2.52
Money market accounts 2,861 93 3.25
Certificates of deposit 30,354 1,624 5.35
-------------- --------------
Total deposits 46,118 2,056 4.46
Advances from FHLB 1,581 94 5.95
-------------- --------------
Total interest-bearing liabilities 47,699 2,150 4.51
Noninterest-bearing liabilities:
Noninterest-bearing deposits 570
Other liabilities 993
--------------
Total liabilities 49,262
Stockholders' equity 11,336
--------------
Total liabilities and
stockholders' equity $60,598
==============
Net interest income 1,903
==============
Interest rate spread 2.38
Net interest margin 3.23
Ratio of average interest-earning assets
to average interest-bearing liabilities 123%
</TABLE>
- -----------------------------------------------------
(1) Average balances include nonaccrual loans and loans 90 days or more past due
and loans held for sale.
(2) Average balances for a period have been calculated using the average of
month-end balances during such period.
11
<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.
<TABLE>
<CAPTION>
At
Years Ended September 30, September 30,
------------------------------------------------
1996 1997 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on loan portfolio 7.17% 7.38% 7.45% 7.28%
Weighted average yield on mortgage-
backed and related securities........ 7.53 7.29 6.69 7.25
Weighted average yield on investment
securities........................... 6.02 6.48 7.94 6.20
Weighted average yield on interest-
bearing deposits..................... 4.96 4.40 4.29 5.77
Weighted average yield on all interest-
earning assets....................... 6.59 6.85 6.89 7.20
Weighted average rate paid on
total deposits....................... 4.36 4.49 4.46 4.36
Weighted average rate paid on all
advances from FHLB................... -- 5.25 5.95 5.81
Weighted average rate paid on all
interest-bearing liabilities......... 4.36 4.54 4.51 4.47
Interest rate spread (spread between
weighted average rate on all
interest-
earning assets and all interest-
bearing liabilities)................. 2.23 2.31 2.38 2.73
Net interest margin (net interest income
as a percentage of average
interest-earning assets)............. 3.26 3.22 3.23 N/A
</TABLE>
12
<PAGE>
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).
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------------------------------
1997 Compared to 1996 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------ ------------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 61 $253 8 $322 $ 23 $278 $ 3 $304
Investment securities 58 73 6 137 29 (228) (7) (206)
Mortgage-backed and related securities (14) (50) -- (64) 32 (88) (8) (64)
Daily interest-bearing deposits (51) (159) 18 (192) (6) 122 (3) 113
--------- ----- ---- ----- ---- ----- ---- -----
Total net change in income
on interest-bearing assets 54 117 32 203 78 84 (15) 147
Interest-bearing liabilities:
Interest-bearing deposits 56 (15) (2) 39 (13) 157 -- 144
Advances from FHLB 21 125 7 153 20 (70) (9) (59)
--------- ----- ---- ----- ---- ----- ---- -----
Total net change in expenses
on interest-bearing liabilities 77 110 5 192 7 87 (9) 85
--------- ----- ---- ----- ---- ----- ---- -----
Net change in net interest income $ (23) $ 7 $ 27 $ 11 $ 71 $ (3) $ (6) $ 62
==================================== ====================================
</TABLE>
________________________________________________
(1) For purposes of calculating volume, rate, and rate/volume variances,
nonaccrual loans were included in the weighted-average balance outstanding.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Association's primary sources of funds are deposits and proceeds
from principal and interest payments on loans and 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 repayments totaled $3,695,000 while
there was a net decrease in investments in securities and mortgage-backed
securities totaling $5,121,000 during the year ended September 30, 1998. These
activities were primarily funded by cash on hand, maturing and calling of
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 commitments and to take advantage of
investment opportunities. During fiscal years 1996, 1997 and 1998 the
Association used its sources of funds primarily to fund loan commitments and to
pay maturing savings certificates and deposit withdrawals. At September 30,
1998, the Association had loan commitments of $1,398,000.
At September 30, 1998, savings certificates amounted to $31,727,000,
or 66.2%, of the Association's total deposits, including $22,809,000 which were
scheduled to mature by September 30, 1999. 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 in changing
interest rate environments.
During the year ended September 30, 1998, the OTS required a savings
institution to maintain an average daily balance of liquid assets (cash and
eligible investments) equal to at least 4.0% of the average daily balance of its
net withdrawal deposits and short-term borrowings. The Association's average
liquidity ratios were 40.5%, 35.6% and 36.7% during the years ended September
30, 1996, 1997 and 1998, respectively. The Association's actual ratio at
September 30, 1998 was 40.1%. 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, 1998, the Association was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 13.4%, 13.4% and
29.7%, respectively. See Note 18 of the Notes to Consolidated Financial
Statements.
14
<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 STANDARDS
- ----------------------------------
See Note 1 of the Notes to the Consolidated Financial Statements.
YEAR 2000 ISSUE
- ----------------
Information is being provided worldwide on the Y2K (year 2000)
problems and concerns of a computer crash that will occur when the year rolls to
January 1, 2000. The reason for concern is that when computers were first being
developed, storage space was at a premium and two digits were used for the year
instead of four. An example is 1967 was stored on a computer as 67 to save
space. Because of this practice, many computer programs are still using the two
digit format and would read the year 2000 as 1900. The Company has researched
the Y2K problem and has developed a plan to identify and correct any potential
problems. Costs of corrective measures are not expected to be material to the
operations, business or financial condition of the Company.
The Company uses FISERV of Des Moines as its data center to process
transactions. FISERV has been upgrading their systems and testing has begun
using a proxy sample of institutions. Results of testing have been sent to the
Company and are being examined by appropriate personnel. In the first quarter
of 1999, connectivity testing will be conducted in the Y2K mode. In the event
that there are still problems that occur in FISERV processing for the Company in
January of 2000, significant data processing delays or mistakes could occur.
Contingency plans are also being developed, but a switch to another processor or
to an-house system, could result in delays in processing customer transactions.
As a result of the extensive testing through FISERV, Year 2000 problems are not
anticipated and there should not be any significant adverse impact on the
Company's financial condition and results of operations.
15
<PAGE>
[LETTERHEAD OF KIRKPATRICK, PHILLIPS & MILLER APPEARS HERE]
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, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1998. 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, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
/s/ Kirkpatrick, Phillips & Miller
KIRKPATRICK, PHILLIPS & MILLER, CPAs, P.C.
November 3, 1998
Springfield, Missouri
16
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents, including
interest-bearing accounts of $4,844,199 in
1997 and $9,697,525 in 1998 $ 5,521,215 $ 10,383,379
Certificates of deposit 377,000 674,000
Investment securities available-for-sale,
at fair value (Notes 1 and 3) 266,813 203,850
Investment securities held-to-maturity
(estimated market value of $13,039,195 in 1997
and $9,701,638 in 1998)(Notes 1 and 3) 13,052,211 9,401,155
Investment in Federal Home Loan Bank stock, at cost (Note 4) 420,600 365,400
Mortgage-backed securities held-to-maturity
(estimated market value of $4,608,360 in 1997
and $3,205,626 in 1998)(Notes 1 and 5) 4,473,160 3,121,405
Loans held for sale (Note 1) 31,060 85,582
Loans receivable, net (Notes 1 and 6) 33,847,820 37,420,586
Accrued interest receivable (Note 7) 454,206 360,216
Property and equipment,
less accumulated depreciation (Notes 1 and 8) 1,148,039 1,130,031
Intangible assets (Note 1) 83,343 80,559
Other assets 141,263 140,370
------------ ------------
TOTAL ASSETS $ 59,816,730 $ 63,366,533
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Customer deposits (Note 10) $ 43,892,375 $ 47,944,489
Advances from Federal Home Loan Bank (Note 11) 3,000,000 3,986,132
Advances from borrowers for taxes and insurance 317,548 305,199
Income taxes payable - current (Note 9) 34,592 10,519
Deferred income taxes (Notes 1 and 9) 412,873 340,110
Other liabilities 335,047 375,456
------------ ------------
Total liabilities 47,992,435 52,961,905
------------ ------------
Commitments and Contigencies (Note 16) - -
Preferred stock, $.01 par value; 2,000,000
shares authorized, none issued - -
Common stock, $.0l par value; 8,000,000 shares authorized,
issued 886,314 in 1997 and 886,314 in 1998, outstanding
711,666 in 1997 and 616,839 in 1998 8,863 8,863
Paid-in capital 8,461,129 8,514,679
Retained earnings - substantially restricted (Note 18) 6,493,728 6,647,884
Treasury stock, at cost 174,648 shares in 1997
and 269,475 in 1998 (2,414,324) (4,160,375)
Unearned compensation (Note 12) (779,793) (637,199)
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes 54,692 30,776
------------ ------------
Total stockholders' equity 11,824,295 10,404,628
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 59,816,730 $ 63,366,533
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
17
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $ 2,069,138 $ 2,391,319 $ 2,695,123
Investment securities 757,481 894,610 689,208
Mortgage-backed and related securities 425,189 361,409 296,973
Other interest-earning assets 450,831 258,951 372,111
----------- ----------- -----------
Total interest income 3,702,639 3,906,289 4,053,415
----------- ----------- -----------
INTEREST EXPENSE:
Customer deposits 1,872,658 1,912,171 2,056,649
Federal Home Loan Bank advances - 153,359 93,839
----------- ----------- -----------
Total interest expense 1,872,658 2,065,530 2,150,488
----------- ----------- -----------
Net interest income 1,829,981 1,840,759 1,902,927
PROVISION FOR LOAN LOSSES 3,201 2,195 7,825
----------- ----------- -----------
Net interest income after provision for loan losses 1,826,780 1,838,564 1,895,102
----------- ----------- -----------
NONINTEREST INCOME:
Gain on sale of investment securities 77,137 36,859 18,125
Gain on sale of loans - 286 9,732
Banking service charges and fees 146,326 145,751 162,902
Mortgage banking fees - 33,219 219,843
Loan late charges 7,350 7,208 7,621
Other 34,331 11,576 5,353
----------- ----------- -----------
Total noninterest income 265,144 234,899 423,576
----------- ----------- -----------
NONINTEREST EXPENSE:
Compensation and
employee benefits (Notes 12 and 13) 702,127 784,706 940,765
Occupancy and equipment 142,152 152,571 188,689
Deposit insurance premium 383,628 39,171 28,280
Data processing 83,871 91,095 102,418
Printing, postage, stationery and supplies 60,551 55,937 56,001
Professional fees 63,291 62,959 52,979
Other 177,749 185,216 231,402
----------- ----------- -----------
Total noninterest expense 1,613,369 1,371,655 1,600,534
----------- ----------- -----------
INCOME BEFORE TAXES 478,555 701,808 7l8,144
Income Taxes (Note 9) 151,623 246,209 263,879
----------- ----------- -----------
NET INCOME $ 326,932 $ 455,599 $ 454,265
=========== =========== ===========
Basic earnings per share (Notes 1 and 14) $ 0.42 $ 0.68 $ 0.79
=========== =========== ===========
Diluted earnings per share (Notes 1 and 14) $ 0.42 $ 0.67 $ 0.77
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
18
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Common
Stock Paid-In Retained Treasury
-------------------------
Shares Amount Capital Earnings Stock
---------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1995 $ 856,449 $ 8,564 $ 7,989,521 $ 6,402,231 $ -
Net income - - - 326,932 -
Net proceeds from issuance of common stock 31,365 314 407,431 - -
Common stock acquired by MRDP (Note 12) - - - - -
Dividends ($.475 per share) - - - (366,l05) -
Purchase of treasury stock at cost (128,732) - - - (1,675,943)
Vesting of MRDP shares (Note 12) - - - - -
Release of ESOP shares (Note 12) - - 18,979 - -
Net change in unrealized gain on
securities available-for-sale, net of
applicable deferred income taxes - - - - -
--------- --------- ------------ ------------- -------------
Balances at September 30, 1996 759,082 8,878 8,415,931 6,363,058 (1,675,943)
Net income - - - 455,599 -
Net proceeds from issuance of common stock 500 5 8,120 - -
Proceeds from exercise of stock options (1,000) 10 12,928 - -
Common stock acquired by MRDP (Note 12) - - - - -
Dividends ($.50 per share) - - - (326,504) -
Purchase of treausry stock at cost (50,100) - - - (793,035)
Issuance of treasury stock 4,184 - 21,846 - 54,654
Vesting of MRDP shares (Note 12) - - - - -
Release of ESOP shares (Note 12) - - 41,274 - -
Forfeiture of MRDP shares (3,000) (30) (38,970) 1,575 -
Net change in unrealized gain
on securities available for sale,
net of applicable deferred income
taxes - - - - -
--------- --------- ------------ ------------- -------------
Balances at September 30, 1997 711,666 8,863 8,461,129 6,493,728 (2,414,324)
Net income - - - 454,265 -
Dividends ($.5O per share) - - - (300,109) -
Purchase of treausry stock at cost (94,827) - - - (1,746,051)
Vesting of MRDP shares (Note 12) - - - - -
Release of ESOP shares (Note 12) - - 53,550 - -
Net change in, unrealized gain
on securities available for sale,
net of applicable deferred income - - - - -
taxes --------- --------- ------------ ------------- -------------
Balances at September 30, 1998 616,839 $ 8,863 $ 8,514,679 $ 6,647,884 $ (4,160,375)
========= ========= ============ ============= =============
<CAPTION>
Unrealized Total
Unearned Gain on Stockholders'
Compensation Securities Equity
------------ ------------ -------------
<S> <C> <C> <C>
Balances at September 30, 1995 $ (671,200) $ - $ 13,729,116
Net income - - 326,932
Net proceeds from issuance of common stock - - 407,745
Common stock acquired by MRDP (Note 12) (407,745) - (407,745)
Dividends ($.475 per share) - - (366,105)
Purchase of treasury stock at cost - - (1,675,943)
Vesting of MRDP shares (Note 12) 57,764 - 57,764
Release of ESOP shares (Note 12) 68,475 - 87,454
Net change in unrealized gain on
securities available-for-sale, net of
applicable deferred income taxes - 19,345 19,345
------------ ------------ -------------
Balances at September 30, 1996 (952,706) 19,345 12,178,563
Net income - - 455,599
Net proceeds from issuance of common stock - - 8,125
Proceeds from exercise of stock options - - 12,938
Common stock acquired by MRDP (Note 12) (8,125) - (8,125)
Dividends ($.50 per share) - - (326,504)
Purchase of treausry stock at cost - - (793,035)
Issuance of treasury stock - - 76,500
Vesting of MRDP shares (Note 12) 73,519 - 73,519
Release of ESOP shares (Note 12) 68,519 - 109,793
Forfeiture or MRDP shares 39,000 - 1,575
Net change in unrealized gain
on securities available for sale,
net of applicable deferred income
taxes - 35,347 35,347
------------ ------------ -------------
Balances at September 30, 1997 (779,793) 54,692 11,824,295
Net income - - 454,265
Dividends ($.50 per share) - - (300,109)
Purchase of treausry stock at cost - - (1,746,051)
Vesting of MRDP shares (Note 12) 74,074 - 74,074
Release of ESOP shares (Note 12) 68,520 - 122,070
Net change in, unrealized gain
on securities available for sale,
net of applicable deferred income
taxes - (23,916) (23,916)
------------ ------------ -------------
Balances at September 30, 1998 $ (637,199) $ 30,776 $ 10,404,628
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
19
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 326,932 $ 455,599 $ 454,265
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 82,887 84,895 88,479
Amortization - 232 2,784
Premiums and discounts on mortgage-backed
securities and investment securities (107,509) (103,647) (116,814)
Origination of loans held for sale - (72,276) (968,673)
Proceeds from sale of loans held for sale - 57,142 923,282
Loss on loans, net of recoveries 3,201 2,195 7,825
Gain on sale of investment securities (77,137) (36,859) (18,125)
Gain on sale of loans - (283) (9,732)
Loss on sale of equipment - 795 -
Income reinvested on Federal Home Loan Bank stock (8,300) - -
Vesting of MRDP shares 57,764 73,519 74,074
Release of ESOP shares 87,454 109,793 122,070
Net change in operating accounts:
Accrued interest receivable 44,503 (62,745) 93,990
Other assets (73,206) 83,508 893
Other liabilities 310,279 (229,251) 52,263
Income taxes payable - deferred (112,961) 96,906 (24,073)
Income taxes payable - current 86,826 769 (58,716)
------------ ------------- ------------
Net cash from operating activities 620,733 460,292 623,792
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities held-to-maturity (4,846,991) (2,803,760) (6,602,800)
Proceeds from maturities of investment
securities held-to-maturity 6,578,000 975,000 10,344,102
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 (655,553) 2,220,553 (297,000)
Proceeds from sales of investment
securities available-for-sale 446,017 251,859 43,125
Proceeds from sale of Federal Home Loan Bank stock - - 55,200
Net change in loans receivable (5,121,492) (2,781,216) (3,591,801)
Purchase of mortgage-backed and
related securities held-to-maturity (370,372) (315,038) -
Proceeds from principal payments and
maturities of mortgage-backed securities
held-to-maturity 921,150 1,196,993 1,378,323
Purchases of property and equipment (23,379) (325,119) (58,660)
Acquisition of Crawford Mortgage Inc, net of cash - (52,588) -
------------ ------------- ------------
Net cash from (used in) investing activities $ (4,335,875) $ (1,133,316) $ 1,270,489
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
20
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits,
savings accounts, and certificates of deposit $ 4,355,927 $ (4,551,158) $ 4,052,114
Proceeds from Federal Home Loan Bank advances - 3,500,000 3,000,000
Payments on Federal Home Loan Bank advances - (500,000) (2,013,868)
Proceeds from issuance of common stock - 12,938 -
Cash dividends paid (356,865) (330,856) (311,963)
Purchase of treasury stock (1,675,943) (793,035) (1,746,051)
Net increase (decrease) in mortgage escrow funds 4,957 3,077 (12,349)
--------------- -------------- ---------------
Net cash from (used in) financing activities 2,328,076 (2,659,034) 2,967,883
=============== =============== ================
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,387,066) (3,332,058) 4,862,164
Cash and cash equivalents-beginning of year 10,240,339 8,853,273 5,521,215
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS-END OF YEAR $ 8,853,273 $ 5,521,215 $ 10,383,379
=============== ============== ===============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,868,691 $ 2,045,292 $ 2,158,283
Income taxes 231,291 147,476 348,953
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Dividends declared September 20,
1996, payable October 3l, 1996 $ 94,885 $ - $ -
Dividends declared September 22,
1997, payable October 31, 1997 - 88,959 -
Dividends declared September 17,
1998, payable October 30, 1998 - - 77,105
Issuance of treasury stock during
acquisition of subsidiary - 76,500 -
Loan receivable transferred to property and
equipment in settlement of loan - - 11,811
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
21
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(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. In August of 1997 Crawford
Mortgage, Inc. was formed as a subsidiary of the Association.
Crawford Mortgage, Inc. originates mortgages primarily in Missouri.
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.
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.
22
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES -- Securities are
classified in accordanec with the 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,
1997 and 1998, 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.
LOANS HELD FOR SALE - Loans held for sale include mortgage and education
loans and are carried at the lower of cost or fair value on an
aggregate basis.
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, 1998, 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:
<TABLE>
<CAPTION>
CATEGORY ESTIMATED LIFE METHOD
--------------------- -------------- -----------------
<S> <C> <C>
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
</TABLE>
23
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
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
and $2,784 for the years ended September 30, 1997 and 1998,
respectively.
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.
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.
Management has considered the effect of the of the year 2000 issues
on major borrowers in the determination of the adequacy of the
allowance for loan losses.
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.
24
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
-------------------------------------------------------
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
replaces the presentation of primary earnings per share with a
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures. SFAS
No. 128 also requires a reconciliation of the numerator and denominator of
the basic and diluted earnings per share computation. The Company adopted
SFAS No. 128 for the year ended September 30, 1998, and prior periods were
restated. The adoption of this standard did not have a material effect on
previously reported earnings per share.
Basic earnings per share excludes dilution and is computed by dividing net
income available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or resulted in the
issuance of common stock that would share in the earnings of the Company.
Dilutive potential common share are added to weighted average shares used
to compute basic earnings per share. The number of shares that would be
issued from the exercise of stock options has been reduced by the number
of shares that could have been purchased from the proceeds at the average
market price of the Company's stock.
NEW ACCOUNTING STANDARDS - 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 comparative purposes is required. The Company's most
significant component of other comprehensive income is the unrealized
holding gains and losses on investment securities classified as available-
for-sale.
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.
25
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes
the disclosure requirements for pensions and other postretirement
benefits and requires additional information on changes in the
benefit obligations and fair values of plan assets that will
facilitate financial analysis. SFAS No. 132 is effective for years
beginning after December 15, 1997, and requires comparative
information for earlier years to be restated, unless such information
is not readily available. The adoption of SFAS No. 132 is not
expected to have a material impact on the Company.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires
that an entity recognize all derivatives as either assets or
liabilities in the Statement of Financial Position and measure those
instruments at fair value. This Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The adoption
of this standard is not expected to have a material impact on the
Company.
In October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which established
accounting and reporting standards for certain activities of mortgage
banking enterprises and other enterprises that are substantially
similar to the primary operations of a mortgage banking enterprise.
It requires that after the securitization of a mortgage loan held for
sale, an entity engaged in mortgage banking activities classify the
resulting mortgage-backed security as a trading security. This
statement is effective for the first fiscal quarter beginning after
December 15, 1998. The adoption of this standards is not expected to
have a material impact on the Company.
RECLASSIFICATIONS - Certain accounts in the prior-years' consolidated
financial statements have been reclassified for comparative purposes
to conform with the presentation in the current-year consolidated
financial statements.
(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 Acquisition
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.
26
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(2) ACQUISITION - (CONTINUED)
-------------------------
The total cost of this acquisition, which was based on fair market values
of the net assets acquired, was as follows:
<TABLE>
<S> <C>
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
============
</TABLE>
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.
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Interest Income $ 3,703,659 $ 3,908,632
Interest Expense 1,872,658 2,065,578
----------- -----------
Net interest income 1,831,001 1,843,054
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
=========== ===========
Basic earnings per share $ .43 $ .75
=========== ===========
Diluted earnings per share $ .43 $ .74
=========== ===========
</TABLE>
27
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATRD F1NANC1AL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(3) INVESTMENT SECURITIES
---------------------
As discussed in Note (1), the Company has designated certain securities
as available-for-sale. The carrying amounts of investment securities
as shown in the consolidated balance sheets, and their approximate market
values were as foflows:
A summary of investment securities available-for-sale at September 30,
1997 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
-------------------------
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock $ l80,000 $ 86,813 $ - $ 266,813
========== ========== ========== ==========
</TABLE>
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.
Proceeds from the sales of common stock held as available-for-sale during
the year ended September 30, 1996 were $446,017. A gain of $77,137 was
recognized on these sales.
A summary of the investment securities held-to-maturity at September 30,
1997 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
----------------------------------
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
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
-------------- -------------- -------------- --------------
Total $ 13,052,211 $ 122,467 $ 135,483 $ 13,039,195
============== ============== ============== ==============
</TABLE>
A summary of investment securities avai1ab1e-for-sale at September 30,
1998 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
----------------------------
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common Stock $ 155,000 $ 48,850 $ - $ 203,850
=========== =========== =========== ===========
</TABLE>
Proceeds from the sales of common stock held as available-for-sale during
the year ended September 30, 1998 were $43,125. A gain of $18,125 was
recognized on these sales.
28
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(3) INVESTMENT SECURITIES - CONTINUED
---------------------------------
A summary of the investment securities held-to-maturity at September 30,
1998 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
-----------------------
Cost Gains Losses Value
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 8,482,539 $ 291,930 $ 11,939 $ 8,762,530
Obligations of states and
political subdivisions 918,616 20,492 - 939,108
----------- ---------- -------- -----------
Total $ 9,401,155 $ 312,422 $ 11,939 $ 9,701,638
=========== ========== ======== ===========
</TABLE>
The amortized cost and estimated market value of investment securities
held-to-maturity at September 30, 1998, 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.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 734,706 $ 738,630
Due after one year through five years 2,024,664 2,035,143
Due after five years through ten years 5,421,557 5,578,449
Due after ten years 1,220,228 1,349,416
----------- -----------
Total $ 9,401,155 $ 9,701,638
=========== ===========
</TABLE>
Securities pledged as collateral had book values of $2,395,005 and market
values of $2,391,750 at September 30, 1997. There were no securities
pledged as collateral at September 30, 1998.
(4) INVESTMENT IN FEDERAL HOME LOAN BANK STOCK
------------------------------------------
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 Savings Bank, 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 Savings Bank is in
compliance with this requirement with an investment in Federal Home Loan
Bank of Des Moines stock of $365,400 at September 30, 1998.
29
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997, AND 1998
(5) MORTGAGE-BACKED SECURITIES
--------------------------
As discussed in Note (1), the carrying values and estimated market
values of mortgage-backed securities are summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------
PRINCIPAL UNAMORTIZED UNEARNED CARRYING
BALANCE PREMIUMS DISCOUNTS VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
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
=========== =========== ============ ===========
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
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
=========== =========== ============ ===========
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------------------------
PRINCIPAL UNAMORTIZED UNEARNED CARRYING
BALANCE PREMIUMS DISCOUNTS VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 729,903 $ - $ 3,085 $ 726,818
FHLMC Certificates 711,747 94 46,708 665,133
FNMA Certificates 1,739,439 - 9,985 1,729,454
----------- ----------- ----------- -----------
$ 3,181,089 $ 94 $ 59,778 $ 3,121,405
=========== =========== ============ ===========
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 726,818 $ 27,051 - $ 753,869
FHLMC Certificates 665,133 56,080 $ 948 720,265
FNMA Certificates 1,729,454 8,020 5,982 1,731,492
----------- ----------- ----------- -----------
$ 3,121,405 $ 91,151 $ 6,930 $ 3,205,626
=========== =========== ============ ===========
</TABLE>
The mortgage-backed securities presented above are non-equity securities.
Management does not believe there is substantial risk associated with
these securities.
30
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(6) LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30.
---------------------------------
1997 1998
------------ ------------
<S> <C> <C>
MORTGAGE LOANS:
One-to-four dwelling units $ 31,577,027 $ 33,557,833
Commercial 585,513 563,786
Construction 431,196 2,167,200
------------ ------------
Total mortgage loans 32,593,736 36,288,819
------------ ------------
OTHER LOANS:
Loans on deposits 407,857 471,139
Home equity loans 19,323 809,345
Consumer and automobile 1,089,929 1,205,810
Unsecured 26,440 11,816
------------ ------------
Total other loans 1,543,549 2,498,110
------------ ------------
LESS:
Undisbursed portion of loans in process 209,515 1,298,715
Net deferred loan origination fees 36,163 16,016
Allowance for loan losses 43,787 51,612
------------ ------------
NET LOANS RECEIVABLE $ 33,847,82O $ 37,420,586
============ ============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Beginning balance $ 38,391 $ 41,592 $ 43,787
Provision charged
to income 3,201 2,195 7,825
-------- -------- --------
Ending balance $ 41,592 $ 43,787 $ 51,612
======== ======== ========
</TABLE>
The Association primarily grants residential loans to customers throughout
southwest Missouri. The loans are typically secured by real estate.
31
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(7) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1998
--------- ---------
<S> <C> <C>
Investment securities $ 243,575 $ 131,625
Mortgage-backed securities 33,368 24,091
Loans receivable 177,263 204,500
--------- ---------
$ 454,206 $ 360,216
========= =========
</TABLE>
(8) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------
ACCUM.
CATEGORY COST DEPREC. NET
------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
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
============ =========== ===========
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------
ACCUM.
CATEGORY COST DEPREC. NET
------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Land $ 402,015 $ - $ 402,015
Leasehold improvements 5,963 831 5,132
Buildings 1,113,272 542,925 570,347
Office furniture, fixtures
and equipment 497,879 345,342 152,537
------------ ----------- -----------
$ 2,019,129 $ 889,098 $ 1,130,031
============ =========== ===========
</TABLE>
Depreciation charged to operations for the years ended September 30,
1996, 1997 and 1998 was $82,887, $84,895, and $88,479.
32
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(9) INCOME TAXES
------------
The provision for income tax expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current $ 264,584 $ 145,103 $ 322,595
Deferred (112,961) 101,106 (58,716)
--------- --------- ---------
Total $ 151,623 $ 246,209 $ 263,879
========= ========= =========
</TABLE>
The provision for income taxes differs from that computed at the
statutory corporate rate of 34% as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate $ 162,709 $ 238,615 $ 244,169
Increase (decrease) in taxes
resulting from:
State taxes, net of federal
benefit 27,736 5,533 9,097
Non-deductible expenses 9,804 17,223 25,222
Tax-exempt income (18,008) (18,173) (15,381)
Other (30,618) 3,011 772
--------- --------- ---------
Provision for income taxes $ 151,623 $ 246,209 $ 263,879
========= ========= =========
</TABLE>
33
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(9) 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:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Difference from depreciation methods used
for tax purposes and financial statements $ (1,435) $ 9,070 $ (1,347)
Use of different methods for computing
loan loss reserves for tax purposes and
financial statements 19,735 (812) (2,895)
Difference from accretion methods used
for mortgage-backed security discounts
for tax purposes and financial statements (7,201) (8,134) (3,306)
Federal Home Loan Bank stock
dividends 3,070 - (4,773)
Difference from cash basis accounting
for tax purposes and accrual basis
accounting for financial statements (125,998) 109,730 (31,683)
Use of different methods for computing
net deferred loan fees for tax purposes
and financial statements 27,491 9,870 (3,185)
Deferred compensation (5,752) 5,025 (35,544)
Unearned compensation (29,566) (19,301) 9,675
Other book/tax differences 6,695 (4,342) 14,342
------------ ----------- -------------
Increase (decrease) in deferred income taxes $ (112,961) $ 101,106 $ (58,716)
============ =========== =============
</TABLE>
34
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(9) INCOME TAXES - (CONTINUED)
--------------------------
The components of deferred tax assets and liabilities consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 16,201 $ 19,096
Deferred compensation 34,216 69,760
Unearned compensation 48,867 39,192
Other 4,342 -
--------- ---------
Total gross deferred tax assets 103,626 128,048
--------- ---------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation 28,440 27,093
Federal Home Loan Bank stock dividends 36,374 31,601
Bad debt reserves for tax purposes in excess of
base year bad debt reserves 155,474 155,474
Cash basis conversion for tax purposes 121,052 89,369
Book accretion in excess of tax accretion
on mortgage-backed security discounts 89,724 86,418
Unrealized gains on investments 32,121 18,074
Deferred loan fees 53,314 50,129
Other - 10,000
--------- ---------
Total gross deferred tax liabilities 516,499 468,158
--------- ---------
Net deferred tax liabilities $ 412,873 $ 340,110
========= =========
</TABLE>
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 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, 1998, 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>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOUDATED FINANCIAL STATEMENTS
-----------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(10) CUSTOMER DEPOSITS
-----------------
Deposit account balances at September 30, 1997 and 1998, are summarized
as follows;
<TABLE>
<CAPTION>
1997 1998
-------------------- --------------------
AMOUNT % AMOUNT %
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 398,307 .9 $ 579,296 1.2
Interest-bearing checking accounts 5,949,863 13.6 7,335,785 15.3
Money market accounts 3,087,506 7.0 2,583,749 5.4
Passbook savings 5,732,738 13.1 5,718,696 11.9
Certificates of deposit 28,723,961 65.4 31,726,963 66.2
------------ ----- ------------ -----
$ 43,892,375 100.0% $ 47,944,489 100.0%
============ ===== ============ =====
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $991,982 and $1,796,692 at
September 30, 1997 and 1998, respectively.
At September 30, 1998 scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<S> <C>
1999 $22,809,224
2000 5,985,661
2001 2,449,546
2002 469,438
2003 13,094
-----------
$31,726,963
===========
</TABLE>
(11) 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, are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
92 day, 5.66% fixed, interest payable
at maturity, matured October 1997 $ 2,000,000 $ -
Ten year, 5.94% adjustable (FHLB DSM 1- year
cost of funds + .20%), interest payable
monthly, matures November 2016 1,000,000 1,000,000
Fifteen year, 6.00% fixed, $8,439 due monthly
including interest, matures June 2013 - 989,633
Fifteen year, 5.79% fixed, $8,326 due monthly
including interest, matures August 2013 - 996,499
Fifteen year, 5.50% fixed, $8,171 due monthly
including interest, matures September 2013 - 1,000,000
----------- -----------
$ 3,000,000 $ 3,986,132
=========== ===========
</TABLE>
36
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(11) ADVANCES FROM FEDERAL HOME LOAN BANK - (CONTINUED)
--------------------------------------------------
The adjustable advance 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. The advance 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. The fixed rate advances are not prepayable
during the first five years. After five years, the advances are
prepayable without penalty.
Maturities of Federal Home Loan Bank advances are as follows:
<TABLE>
<CAPTION>
Aggregate
Annual
Year Ended September30 Maturities
---------------------- ------------
<S> <C>
1999 $ 130,600
2000 138,300
2001 146,500
2002 155,100
2003 164,300
Later Years 3,251,332
------------
$ 3,986,132
============
</TABLE>
(12) 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 $9,403, $9,657
and $10,581 for the years ended September 30, 1996, 1997 and 1998,
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, 1996, 1997 and 1998 was $32,269, $17,354 and $30,473.
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 and 1998 was $8,664 and $25,992.
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>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(12) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
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 seven years. As of September 30, 1998, the
loan had an outstanding balance of $519,275 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 $87,454 in 1996, $109,793 in 1997
and $122,070 in 1998.
38
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(12) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
A summary of ESOP shares at September 30, 1998 is as follows:
<TABLE>
<S> <C>
Allocated shares 15,852
Shares committed for release 6,848
Unreleased shares 45,816
---------
Total 68,516
=========
Fair value of unreleased shares $ 703,688
</TABLE>
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, 1998. These
shares represent unearned compensation and have been accounted for as a
reduction of stockholders' equity. Such awards vest at the rate of 20% at
the end of each twelve months. Vesting is accelerated upon retirement.
The Association recorded $57,764, $73,519 and $74,074 of compensation
expense under the MRDP in 1996, 1997 and 1998.
(13) 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. 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>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(13) 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:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income $ 312,903 $ 437,428 $ 434,093
========= ========= =========
Pro forma basic earnings
per share: $ .40 $ .65 $ .76
========= ========= =========
Pro forma diluted earnings
per share: $ .40 $ .64 $ .73
========= ========= =========
</TABLE>
A summary of the Company's stock option activity, and related
information for the years ended September 30 follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ----------------------- ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
-------- -------------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year - $ - 67,410 $ 12.94 63,910 $ 13.21
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 63,910 $ 13.21
======== ========= =========
Exercisable at end of
year - - 12,082 12.94 24,864 13.08
Weighted-average fair
value of options
granted during the
year $ 1.67 $ 3.75 N/A
</TABLE>
Exercise prices for options outstanding as of September 30, 1998 ranged
from $12.94 to $18.63. The weighted-average remaining contractual life of
those options is 7.4 years.
40
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(14) EARNINGS PER SHARE
------------------
The following information shows the amounts used in computing earnings
per share and the effect on income and the weighted average number of
shares of dilutive potential common stock. The amounts in the income
columns represent the numerator and the amounts in the shares columns
represent the denominator.
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------- ------------------------------ ----------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS;
Income available
to Common
Stockholders $326,932 783,969 0.42 $455,599 671,559 0.68 $454,265 574,439 0.79
==== ==== ====
Effect of
dilutive securities - - - 10,805 - 16,580
-------- -------- -------- ------- -------- --------
Diluted EPS:
Income available to
Stockholders plus
stock options $326,932 783,969 0.42 $455,599 682,364 0.67 $454,265 591,019 0.77
======== ======= ==== ======== ======= ==== ======== ======= ====
</TABLE>
(15) 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:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Beginning balance $ 406,795 $ 454,119
Originations and advances 157,220 366,631
Principal repayments (109,896) (115,024)
--------- -----------
Ending balance $ 454,119 $ 705,726
========= ===========
</TABLE>
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 for the years ended September 30, 1997 and
1998 was $1,984 and $18,000, respectively.
41
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(16) 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 $1,397,760
at September 30, 1998.
(17) ADVERTISING COSTS
-----------------
The Company incurred $30,122, $31,140 and $42,422 in non-direct response
advertising costs during the years ended September 30, 1996, 1997 and
1998, respectively. The Company incurred no direct response advertising
costs during the three years.
(18) 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, 1998, that
the Association meets all capital adequacy requirements to which it is
subject.
42
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(18) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
---------------------------------------------
As of September 30, 1998, 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.
The Association's actual capital amounts and ratios are also presented
in the table. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
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>
As of September 30, 1997:
Total Risk-Based Capital
(to Risk-Weighted Assets) 8,837 34.8% * 2,031 * 8.0% * 2,539 * 10.0%
Core Capital
(to Adjusted Tangible Assets) 8,793 14.9% * 1,769 * 3.0% * 2,949 * 5.0%
Tangible Capital
(to Tangible Assets) 8,793 14.9% * 885 * 1.5% N/A
Tier 1 Capital
(to Risk-Weighted Assets) 8,793 34.6% N/A * 1,523 * 6.0%
As of September 30, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) 8,465 29.7% * 2,279 * 8.0% * 2,849 * 10.0%
Core Capital
(to Adjusted Tangible Assets) 8,413 13.4% * 2,509 * 4.0% * 3,136 * 5.0%
Tangible Capital
(to Tangible Assets) 8,413 13.4% * 941 * 1.5% N/A
Tier 1 Capital
(to Risk-Weighted Assets) 8,413 29.5% N/A * 1,710 * 6.0%
</TABLE>
* Greater than or equal to
(19) DISCLOSURES ABOUT FAIR VALUE OF FINANCLAL 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.
43
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(19) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
------------------------------------------------------------------
Loans held for sale - These instruments are carried in the consolidated
balance sheet at the lower of cost or fair value. The fair values of
these instruments are based on subsequent liquidation values of the
instruments which did not result in any significant gains or losses.
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.
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.
44
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(19) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED)
-----------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
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 held for sale 31,060 31,000
Loans, net of allowance for loan losses 33,847,820 34,086,000
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 - -
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 10,383,379 $ 10,383,379
Certificates of deposit 674,000 674,000
Available-for-sale securities 203,850 203,850
Held-to-maturity securities 9,401,155 9,701,638
Investment in FHLB stock 365,400 365,400
Held-to-maturity mortgage-backed securities 3,121,405 3,205,626
Loans held for sale 85,582 87,313
Loans, net of allowance for loan losses 37,420,586 37,811,000
Accrued interest receivable 360,216 360,216
Financial liabilities:
Deposits $ 47,944,489 $ 48,060,000
Federal Home Loan Bank advances 3,986,132 4,181,000
Advances from borrowers for taxes and insurance 305,199 305,199
Unrecognized financial instruments
(net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
</TABLE>
45
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(20) 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
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
ASSETS 1997 1998
------ ------------ ------------
<S> <C> <C>
Cash $ 1,738,200 $ 855,589
Certificates of deposit 179,000 80,000
Investment securities available-for-sale, at fair value 266,813 203,850
Investment in subsidiary 8,876,278 8,528,038
Loan to ESOP 574,346 519,275
Land 302,865 302,865
Due from subsidiary 23,484 3,668
Other assets 1,830 7,667
----------- ------------
Total assets $11,962,8l6 $ 10,500,952
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accrued expenses $ 17,791 $ -
Accounts payable - 680
Deferred income taxes, net 31,771 18,539
Dividends payable 88,959 77,105
Stockholders' equity 11,824,295 10,404,628
----------- ------------
Total liabilities and stockholders' equity $11,962,816 $ 10,500,952
=========== ============
</TABLE>
46
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------- ----------- ------------
<S> <C> <C> <C>
Income
Equity in earnings of subsidiary $ 227,933 $ 375,058 $ 421,452
Interest income 133,174 124,059 61,140
Dividend income 5,526 8,806 6,916
Gain on sale of investments 77,137 36,859 18,125
Other income - - 715
------------- ------------ ------------
Total income 443,770 544,782 508,348
------------- ------------ ------------
Expenses
Professional fees 29,639 19,422 15,304
Other 28,260 25,895 25,824
Income tax 58,939 43,866 12,955
------------- ------------ ------------
Total expenses 116,838 89,183 54,083
------------- ------------ ------------
Net income $ 326,932 $ 455,599 $ 454,265
============= ============ ============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 326,932 $ 455,599 $ 454,265
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of subsidiary (227,933) (375,058) (421,452)
Discounts on investment securities (57) (568) -
Gain on sale of investments (77,137) (36,859) (18,125)
Net change in operating accounts:
Deferred income taxes, net 13,576 (13,926) 815
Other assets (117,985) 93,977 13,979
Liabilities 19,300 (9,272) (17,111)
------------ ------------ ------------
Net cash from (used in)
operating activities (63,304) 113,893 12,371
------------ ------------ ------------
</TABLE>
47
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from investing activities:
Dividends from subsidiary 2,000,000 - 1,000,000
Receipt of principal payment on
ESOP loan 15,500 16,312 20,907
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 43,125
Purchase of property and equipment - (302,865) -
Net change in certificates of deposit (1,358,553) 1,229,553 99,000
------------ ------------ ------------
Net cash from (used in) investing
activities (160,291) 1,694,859 1,163,032
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of
common stock - 12,938 -
Cash dividends paid (356,865) (330,856) (311,963)
Purchase of treasury stock (1,675,943) (793,035) (1,746,051)
------------ ------------ ------------
Net cash used in financing
activities (2,032,808) (1,110,953) (2,058,014)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (2,256,403) 697,799 (882,611)
Cash and cash equivalents at
beginning of period 3,296,804 1,040,401 1,738,200
------------ ------------ ------------
Cash and cash equivalents at
end of period $ 1,040,401 $ 1,738,200 $ 855,589
============ ============ ============
</TABLE>
48
<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 November 30, 1998, there were 281
stockholders of record and 616,839 shares of common stock outstanding (including
unreleased ESOP shares of 45,816). This does not reflect the number of persons
or entities who hold stock in nominee or "street name". On September 17, 1998,
the Company declared a $.125 common stock dividend payable October 30, 1998 to
stockholders of record on October 15, 1998. 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.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
------------------- -------------------
High Low Dividend High Low Dividend
---- --- --------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $14.00 $ 12.50 $0.125 $19.50 $ 18.25 $0.125
Second Quarter $16.75 $ 13.75 $0.125 $18.50 $17.375 $0.125
Third Quarter $17.25 $ 16.25 $0.125 $18.00 $17.375 $0.125
Fourth Quarter $19.50 $16.625 $0.125 $18.50 $15.359 $0.125
</TABLE>
49
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
<S> <C>
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 ad Chief Executive Officer President
NS&L Bancorp, Inc. President 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
Retired Insurance Agent Retired Insurance Agent
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 Senior Vice President
Carol A. Guest
Vice President and Treasurer
Greg Crawford
Vice President
</TABLE>
50
<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
Muldoon, Murphy & Faucette
Washington, D.C.
________________________________________________________________________
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Wednesday, January 13,
1999, 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.
51
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Parent
- ------
NS&L Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- --------------- ----------------------
<S> <C> <C>
Neosho Savings and Loan Association, F.A. 100% United States
NS&L Enterprises, Inc. (b) 100% Missouri
Crawford Mortgage, Inc. (b) 100% Missouri
- ------------------
</TABLE>
(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>
EXHIBIT 23
[KIRKPATRICK, PHILLIPS & MILLER LETTERHEAD APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We have issued our report dated November 3, 1998, 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, 1998. 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, CPA'S, P.C.
----------------------------------------------
KIRKPATRICK, PHILLIPS & MILLER, CPA'S, P.C.
December 24, 1998
Springfield, Missouri
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of NS&L Bancorp, Inc. for the year ended September 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,383,000
<INT-BEARING-DEPOSITS> 674,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 204,000
<INVESTMENTS-CARRYING> 12,888,000
<INVESTMENTS-MARKET> 13,273,000
<LOANS> 37,506,000
<ALLOWANCE> 52,000
<TOTAL-ASSETS> 63,367,000
<DEPOSITS> 47,944,000
<SHORT-TERM> 305,000
<LIABILITIES-OTHER> 726,000
<LONG-TERM> 3,986,000
0
0
<COMMON> 9,000
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 10,405,000
<INTEREST-LOAN> 2,695,000
<INTEREST-INVEST> 986,000
<INTEREST-OTHER> 372,000
<INTEREST-TOTAL> 4,053,000
<INTEREST-DEPOSIT> 2,057,000
<INTEREST-EXPENSE> 2,150,000
<INTEREST-INCOME-NET> 1,903,000
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,601,000
<INCOME-PRETAX> 718,000
<INCOME-PRE-EXTRAORDINARY> 454,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454,000
<EPS-PRIMARY> .79
<EPS-DILUTED> .77
<YIELD-ACTUAL> 2.38
<LOANS-NON> 21
<LOANS-PAST> 45,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 44,000
<CHARGE-OFFS> 8,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 52,000
<ALLOWANCE-DOMESTIC> 52,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
