<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-QSB
---------------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending June 30, 2000
---------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -----------------------
Commission File Number 0-25814
---------------------------------------------------------
N S & L Bancorp, Inc.
---------------------
(Exact name of registrant as specified in its charter)
Missouri 43-1709446
-------------------------------------- ----------------------------
(State or other jurisdiction of I.R.S. (I.R.S. Employer
Employer Incorporation or organization) Identification No.)
P.O. Box 369, Neosho, MO 64850
------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(417) 451-0429
-------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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
--- ---
AS OF AUGUST 4, 2000, THERE WERE 667,746 SHARES OF THE REGISTRANT'S COMMON
STOCK, $.01 PAR VALUE PER SHARE, OUTSTANDING.
<PAGE> 2
N S & L BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
JUNE 30, 2000
INDEX PAGE
----- ----
PART I-FINANCIAL INFORMATION
----------------------------
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) 1-2
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 3-4
CONSOLIDATED STATEMENTS OF COMPRESHENSIVE INCOME (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 6-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-17
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES
HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES
<PAGE> 3
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
------------------------------
(Unaudited)
JUNE 30, SEPTEMBER 30,
2000 1999
------------ -----------
(Dollars in thousands)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents, including
interest-bearing accounts of $1,674 at $ 2,192 $ 2,317
June 30, 2000 and $1,371 at September 30, 1999
Certificates of deposit 80 1,664
Investment securities available-for-sale, at fair value 162 183
Investment securities held-to-maturity
(estimated market value of $18,932 at June 30, 2000
and $19,541 at September 30) 19,618 20,028
Investment in Federal Home Loan Bank stock, at cost 584 365
Mortgage-backed securities held-to-maturity
(estimated market value of $3,128 at June 30, 2000
and $2,525 at September 30.) 3,095 2,484
Loans held for sale 126 79
Loans receivable, net (reserves for loan losses of $58
at June 30, 2000 and $63 at September 30, 1999) 43,467 40,091
Income taxes recoverable-current -- 82
Accrued interest receivable 544 514
Property and equipment, less accumulated
depreciation 1,075 1,119
Intangible assets 76 78
Other assets 213 224
----------- -----------
Total assets $ 71,232 $ 69,228
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Customers deposits $ 48,240 $ 51,547
Advances from FHLB 11,653 5,856
Advances from borrowers for taxes and insurance 298 354
Income taxes payable - current 42 --
Deferred income taxes 324 344
Other Liabilities 579 470
----------- -----------
Total liabilities 61,136 58,571
----------- -----------
Commitments and contingencies -- --
</TABLE>
See accompanying notes to Consolidated Financial Statements.
1
<PAGE> 4
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
---------------------------------------------
(Unaudited)
JUNE 30, SEPTEMBER 30,
2000 1999
------------ ----------
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)
------------------------------------------------
<S> <C> <C>
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 8,000,000 shares
authorized, 1,012,441 issued and 672,386 outstanding
at June 30, 2000 and 741,866
outstanding at September 30, 1999 10 10
Paid-in capital 10,384 10,371
Retained earning - substantially restricted 4,997 4,956
Treasury Stock - at cost; 340,055 shares at June 30,
2000 and 270,575 at September 30, 1999 (4,884) (4,174)
Unearned compensation (412) (524)
Accumulated other comprehensive income 1 18
------------ -----------
Total stockholders' equity 10,096 10,657
------------ -----------
Total liabilities and stockholders' equity $ 71,232 $ 69,228
============ ===========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------
(Unaudited)
QUARTER ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
2000 1999 2000 1999
--------- --------- --------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loan receivable $ 818 $ 728 $ 2,391 $ 2,168
Investment securities 327 278 978 626
Mortgage-backed and
related securities 53 52 135 175
Other interest-earning assets 30 65 100 278
--------- --------- --------- ----------
Total interest income 1,228 1,123 3,604 3,247
========= ========= ========= ==========
Interest Expense:
Customer deposits 533 542 1,590 1,597
Borrowed funds 172 55 410 167
--------- --------- --------- ----------
Total interest expense 705 597 2,000 1,764
--------- --------- --------- ----------
Net interest income 523 526 1,604 1,483
Provision for loan losses (4) 4 8 6
Net interest income after
provision for loan losses 527 522 1,596 1,477
Noninterest Income:
Gain on sale of loans 29 23 45 56
Banking service charges
and fees 56 53 157 148
Loan late charges 2 2 7 7
Mortgage banking fees 36 29 85 110
Other 3 3 7 10
--------- --------- --------- ----------
Total non interest income 126 110 301 331
Non interest Expense:
Compensation and
employee benefits 286 240 806 713
Occupancy and equipment 47 49 141 148
Deposit insurance premi 3 8 13 22
Data processing 31 30 99 91
See accompanying notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
---------------------------------------------
(Unaudited)
QUARTER ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
2000 1999 2000 1999
----------- ----------- --------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Printing , postage, stationery
and supplies 15 18 53 55
Professional fees 13 11 40 46
Other 65 50 188 169
----------- ----------- --------- ----------
Total noninterest expense 460 406 1,340 1,244
----------- ----------- --------- ----------
Income before taxes 193 226 557 564
Income Taxes 53 75 184 183
----------- ----------- --------- ----------
Net income $ 140 $ 151 $ 373 $ 381
=========== =========== ========= ==========
Basic earnings per share $ .22 $ .22 $ .56 $ .55
=========== =========== ========= ==========
Diluted earnings per share $ .22 $ .21 $ .56 $ .55
=========== =========== ========= ==========
Dividend per share $ .16 $ .16 $ .48 $ .48
=========== =========== ========= ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE> 7
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
------------------------------------------------------------------
(Unaudited)
QUARTER ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
2000 1999 2000 1999
---------- --------- --------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 140 $ 151 $ 373 $ 381
Unrealized gains (losses)
on securities:
Gains (losses) arising during
period, net of tax (5) 4 (17) (6)
Reclassification
adjustment, net of tax -- -- -- --
--------- --------- --------- ----------
Other comprehensive
income (loss) (5) 4 (17) (6)
--------- --------- --------- ----------
Comprehensive income $ 135 $ 155 $ 356 $ 375
========= ========= ========= ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
5
<PAGE> 8
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
2000 1999
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 373 $ 381
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 64 68
Amortization 2 3
Premiums and discounts on mortgage-backed
securities and investment securities (59) (73)
Origination of loans held for sale (2,733) (5,195)
Proceeds from sale of loans held for sale 2,731 4,684
Loss on loans, net of recoveries 8 6
Release of ESOP shares 64 65
Vesting of MRDP shares 61 58
Gain on sale of loans (45) (56)
Net change in operating accounts:
Accrued interest receivable (30) (128)
Other assets 11 (197)
Other liabilities 121 12
Income taxes payable - deferred (16) 94
Income taxes payable - current 124 7
------------ ------------
Net cash from (used in) operating activities 676 (271)
------------ ------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (498) (13,838)
Proceeds from maturity of investment securities
held-to-maturity 750 4,334
Net change in certificates of deposit 1,584 594
Net change in loan receivable (3,384) (727)
Proceeds from principal payments and maturities
of mortgage-backed securities held-to-maturity 496 1,036
Purchase of mortgage-backed securities held-to-maturity (1,109) (555)
Purchases of property and equipment (20) (73)
------------ ------------
Net cash (used in) investing activities $ (2,181) $ (9,229)
------------ ------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
6
<PAGE> 9
<TABLE>
<CAPTION>
N S & L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
2000 1999
----------- ------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from financing activities:
Net change in demand deposits, savings
accounts, and certificates of deposit $ (3,307) $ 3,085
Net decrease in mortgage escrow funds (56) (36)
Cash advances from FHLB 6,100 --
Repayment of cash advances from FHLB (303) (97)
Purchase of treasury stock (710) (15)
Cash dividends paid (344) (275)
----------- ---------
Net cash from financing activities 1,380 2,662
----------- ---------
Net increase (decrease) in cash and
cash equivalents (125) (6,838)
Cash and cash equivalents -
beginning of period 2,317 10,383
----------- ---------
Cash and cash equivalents -
end of period $ 2,192 $ 3,545
=========== =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
7
<PAGE> 10
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - Basis of Presentation
------------------------------
The consolidated interim financial statements as of June 30, 2000 included in
this report have been prepared by the Registrant without audit. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation are reflected in the June 30, 2000 interim
financial statements. The results of operations for the period ended June 30,
2000 and 1999 are not necessarily indicative of the operating results for the
full year. The September 30, 1999 Consolidated Statement of Financial Condition
presented with the interim financial statements was audited and received an
unqualified opinion.
NOTE B - 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.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
2000 1999
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ ------ ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
Common Stockholders $140,000 640,085 $.22 $151,000 691,703 $.22
Effect of dilutive securities:
Stock options -- -- -- 15,488
--------- -------- -------- -------
Diluted EPS:
Income available to common
stockholders plus stock
options $140,000 640,085 $.22 $151,000 707,191 $.21
======== ======= ==== ======== ======= ====
FOR THE NINE MONTHS ENDED JUNE 30,
2000 1999
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ ------ ---------- ------------- ------
Basic EPS:
Income available to
Common Stockholders $373,000 662,716 $.56 $381,000 688,854 $.55
Effect of dilutive securities:
Stock options -- -- -- 9,259
--------- -------- -------- -------
Diluted EPS:
Income available to common
stockholders plus stock
options $373,000 662,716 $.56 $381,000 698,113 $.55
======== ======= ==== ======== ======= ====
</TABLE>
8
<PAGE> 11
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE C - Employee Stock Ownership Plan
--------------------------------------
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 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 five years. As of June 30, 2000, the loan
had an outstanding balance of $459,248 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 of 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 a part of 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 Company 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 expense was $21,179 and $23,841 for the three months
ended June 30, 2000 and 1999 and $64,550 and $65,124 for the nine months ended
June 30, 2000 and 1999 respectively.
A summary of ESOP shares at June 30, 2000 is as follows:
Shares allocated 35,457
Shares committed for release 6,162
Unreleased shares 40,600
------
Total 82,219
======
Fair value of unreleased shares $411,075
9
<PAGE> 12
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE D - Management Recognition and Development Plan and Stock Option Plan
--------------------------------------------------------------------------
The 1995 Management Recognition and Development Plan ("MRDP") was approved by
the stockholders on January 17, 1996. The MRDP is administered by the Board of
Directors of the Company. Collectively, the Board issued 41,109 shares of the
Company's common stock, of which currently there are 37,638 shares awarded to
employees at a cost of $410,620. The MRDP shares are vesting and being expensed
over a five-year period which began on January 17, 1996. The value of the common
stock contributed to the MRDP is amortized to compensation expense as the shares
vest. MRDP expense was $20,206 and $20,206 for the three months ended June 30,
2000 and 1999 and $60,618 and $58,368 for the nine months ended June 30, 2000
and 1999 respectively.
Also adopted on January 17, 1996 was a Stock Option plan whereby 102,774 shares
of the Company's common stock have been reserved to be awarded to certain
officers employees and directors. The Stock Option Plan is administered by a
committee of the Board of Directors. All options expire no later than ten years
from the date of grant. At August 4, 2000, 1,000 shares had been exercised.
NOTE E - Stock Repurchase Program
---------------------------------
At August 4, 2000, The Company has repurchased 344,695 shares of the
Corporation's outstanding stock at a cost of $4,940,349.
NOTE F - New Accounting Pronouncements
--------------------------------------
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 did
not have a material impact on the Company.
In October 1999, 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 standard did not have a material impact on the
Company.
10
<PAGE> 13
N S & L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE G - Stock Dividend
-----------------------
On March 24, 1999, the Company declared a 20% stock dividend on all outstanding
shares of record as of April 15, 1999. A total of 123, 627 shares were issued
and cash in lieu of stock was issued for all partial shares. The total number of
outstanding shares after the stock dividend was 741,866, which has since been
reduced 74,120 shares by stock repurchases. All per share amounts and average
shares outstanding have been restated to reflect the aforementioned stock
dividend.
11
<PAGE> 14
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material changes
in liquidity and capital resources that have occurred since September 30, 1999,
as well as certain changes in results of operations during the three and nine
month periods ended June 30, 2000 and 1999.
The following should be read in conjunction with the Company's Form 10-KSB
for the year ended September 30, 1999, which contains the latest audited
financial statements and notes thereto, together with Management's Discussion
and Analysis of Financial Condition and Results of Operations as of September
30, 1999, and for the year then ended. Therefore, only material changes in
financial condition and results of operations are discussed herein.
This report contains certain "forward-looking statements" concerning the
future operations of NS&L Bancorp, Inc. We have used forward-looking statements
to describe future plans and strategies, including our expectations of our
future financial results. Management's ability to predict results or the effect
of future plans or strategies is inherently uncertain. Factors which could
affect actual results include interest rate trends, the general economic climate
in our market area and the country as a whole, our loan delinquency rates, and
changes in federal and state regulation. These factors should be considered in
evaluation of the forward-looking statements contained in this report and undue
reliance should not be placed on such statements.
CHANGES IN FINANCIAL CONDITION
------------------------------
Total assets increased $2.0 million from September 30, 1999. Loans
increased $3.4 million and mortgage-backed securities increased $611,000 during
the nine months ended June 30, 2000. These increases were partially offset by
decreases in cash and cash equivalents of $125,000, decreases in certificates of
deposit of $1.6 million, decreases in investment securities of $213,000 and
other assets decreased $199,000. Customer deposits decreased $3.3 million due to
the maturity of $1.5 million in short term deposits and increased competition as
more lending institutions enter the market area. Cash advances from Federal Home
Loan Bank of Des Moines increased $5.8 million to fund the increase in loans and
supply liquidity. Loans for 1 to 4 family dwellings comprised the majority of
the increase in loans.
Nonperforming assets were $23,000 or .03% of total assets at June 30,
2000, compared to $255,000, or .37% of total assets at September 30, 1999. There
were no nonaccrual loans at June 30, 2000 and $37,000 at September 30, 1999.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, 1999
-------------
NET INCOME. Net income was $140,000 for the quarter ended June 30, 2000
compared to $151,000 for the quarter ended June 30, 1999. Net interest income
after provision for loan losses was $527,000 for the quarter compared to
$522,000 for the same quarter last year. Noninterest income increased $16,000
and noninterest expense increased $54,000. Income tax expense decreased $22,000.
12
<PAGE> 15
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NET INTEREST INCOME. Net interest income of $523,000 for the quarter ended
June 30, 2000 decreased from $526,000 for the quarter ended June 30, 1999.
Interest income increased $105,000 while interest expense increased $108,000.
INTEREST INCOME. Interest income increased by $105,000, or 9.3%, to $1.2
million for the quarter ended June 30, 2000 from $1.1 million for the quarter
ended June 30, 1999. Interest income from loans receivable increased $90,000 to
$818,000 for the quarter ended June 30, 2000 from $728,000 for the quarter ended
June 30, 1999. The increase was primarily attributable to the increase in the
average balance of loans outstanding and to a lesser extent to interest rate
increases on existing adjustable rate loans. Interest income from investment
securities increased by $49,000 to $327,000 for the quarter ended June 30, 2000
from $278,000 for the quarter ended June 30, 1999. This increase was due to an
increase in the balances in investment securities. Interest income from
mortgage-backed securities increased by $1,000 to $53,000 for the quarter ended
June 30, 2000 from $52,000 for the quarter ended June 30, 1999. Interest income
from other interest-earning assets decreased by $35,000 to $30,000 for the
quarter ended June 30, 2000 from $65,000 for the quarter ended June 30, 1999.
This decrease was primarily due to a decrease in the interest paid on smaller
average balances of cash invested at Federal Home Loan Bank of Des Moines as
cash was used to fund loans and purchase securities.
INTEREST EXPENSE. Interest expense of $705,000 for the quarter ended June
30, 2000 increased $108,000, or 18.1%, from $597,000 for the quarter ended June
30, 1999. The increase is primarily attributable to an increase in the average
balances of borrowed funds and to a lesser extent, to some special rate
offerings and an overall increase in rates on customer deposits.
PROVISION FOR LOAN LOSSES. Loan loss provision decreased by $8,000 for the
quarter ending June 30, 2000 compared to the quarter ending June 30, 1999 and
actual loan losses net of recoveries were $9,000 for the quarter ending June 30,
2000 and zero for the comparable quarter last year.
NONINTEREST INCOME. Noninterest income of $126,000 for the quarter ended
June 30, 2000 increased $16,000 from $110,000 for the quarter ended June 30,
1999. This increase was due to an increase in mortgage banking fees of $7,000,
an increase of $3,000 in banking service charges and fees and an increase on the
gain on the sale of loans of $6,000 for the quarter ending June 30, 2000
compared to the quarter ending June 30, 1999.
NONINTEREST EXPENSE. Noninterest expense increased $54,000, or 13.3%, to
$460,000 for the quarter ended June 30, 2000 from $406,000 for the quarter ended
June 30, 1999. This increase was due to an increase of $46,000 in compensation
and employee benefits as a result of annual salary increases effective October
1, 1999 and additional personnel needed in the normal operations of business and
a $15,000 increase in other expenses which was partially offset by a decrease of
$2,000 in occupancy and equipment and a $3,000 decrease in printing, postage and
supplies.
13
<PAGE> 16
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NET INTEREST MARGIN. Net interest margin was 2.98% for the three months ended
June 30, 2000 compared to 2.99% for the three months ended June 30, 1999. Income
from earning assets increased by $105,000, or 9.3%, between the two quarters and
interest expense increased by $108,000, or 18.1%. The average earning asset base
increased by $5.8 million, or 8.9%. The average interest-bearing liability base
increased by $5.3 million, or 9.8%.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2000 TO THE NINE MONTHS ENDED
---------------------------------------------------------------------------
JUNE 30, 1999
-------------
NET INCOME. Net income decreased $8,000 to $373,000 for the nine months
ended June 30, 2000 compared to $381,000 for the nine months ended June 30,
1999. Net interest income after provision for loan losses increased by $119,000
to $1.6 million for the nine months ended June 30, 2000 compared to $1.5 million
for the nine months ended June 30, 1999. Noninterest income decreased $30,000
and noninterest expense increased $96,000. Income tax expense increased $1,000.
NET INTEREST INCOME. Net interest income of $1.6 million for the nine
months ended June 30, 2000 increased by $121,000 from net interest income of
$1.5 million for the nine months ended June 30, 1999. Total interest income
increased $357,000 while interest expense increased $236,000.
INTEREST INCOME. Total interest income increased $357,000 to $3.6 million
for the nine months ended June 30, 2000 from $3.2 million for the nine months
ended June 30, 1999. Interest income from loans receivable increased $223,000 to
$2.4 million for the nine months ended June 30, 2000 from $2.2 million for the
nine months ended June 30, 1999. This increase was primarily attributable to the
increase in the average balance of loans between the two periods. Interest
income from investment securities increased by $352,000 to $978,000 for the nine
months ended June 30, 2000 from $626,000 for the nine months ended June 30, 1999
as a result of investing cash in FHLB securities which have higher rates than
the FHLB daily time rates were in the preceding period. Interest income from
other interest-earning assets decreased by $178,000 to $100,000 for the nine
months ended June 30, 2000 from $278,000 for the nine months ended June 30,
1999. This decrease was primarily due to a decrease in the interest paid on
smaller average balances of cash invested at Federal Home Loan Bank of Des
Moines. Income from mortgage-backed securities decreased $40,000 to $135,000 at
June 30, 2000 from $175,000 for the period ending June 30, 1999. The decrease in
mortgage-backed security income was a result of a lower average balance in those
investments as repayments were received.
INTEREST EXPENSE. Total interest expense of $2.0 million for the nine
months ended June 30, 2000, increased $236,000 from $1.8 million for the quarter
ended June 30, 1999. A decrease in the average balances of customer deposits
decreased interest paid on deposits by $7,000 and an increase of $243,000 in
interest on FHLB advances resulted from an increase in the average balance of
FHLB advances.
14
<PAGE> 17
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
PROVISION FOR LOAN LOSSES. Loan loss provision increased by $2,000 for the
nine months ending June 30, 2000 from the comparable period in 1999 and actual
loan losses net of recoveries were $13,000 for the period ending June 30, 2000
and zero for the period ending June 30, 1999.
NONINTEREST INCOME. Noninterest income of $301,000 for the nine months
ended June 30, 2000 decreased $30,000 from $331,000 for the nine months ended
June 30, 1999. This decrease was primarily attributable to a $25,000 decrease in
mortgage banking fees and a $11,000 decrease in the gain on sale of loans as
mortgage loan originations and loan fees have been reduced by increased
competition in the mortgage banking area. The decreases were partially offset by
a $9,000 increase in banking service charges and fees for the nine months ending
June 30, 2000 compared to the period ending June 30, 1999.
NONINTEREST EXPENSE. Noninterest expense increased $96,000 to $1.3 million
for the nine months ended June 30, 2000 from $1.2 million for the nine ended
June 30, 1999. Compensation and employee benefits increased by $93,000 as a
result of annual salary increases effective October 1, 1999 and additional
personnel needed in the normal operations of business. Data processing increased
$8,000 and other expenses increased by $19,000 as a result of normal operation
of the Company. These increases were partially offset by a decrease of $7,000 in
occupancy and equipment, a decrease of $9,000 in deposit insurance premiums and
a $6,000 decrease in professional fees from the comparable period.
NET INTEREST MARGIN. Net interest margin was 3.10% for the nine months
ended June 30, 2000 compared to 3.27% for the nine months ended June 30, 1999.
Income from earning assets increased by $357,000, or 11.0%, between the two
periods while interest expense increased by $236,000, or 13.4%. The average
earning asset base increased by $4.6 million, or 7.2%. The average
interest-bearing liability base increased by $4.3 million, or 7.9%.
YEAR 2000 ISSUES
----------------
The year 2000 issue exists because many computer systems and applications
use two- digit date fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to recognize or properly treat the year 2000 may cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
processing. As a user of computers, computer software and equipment utilizing
embedded microprocessors, failure to resolve year 2000 issues could cause
substantial disruption of the Association's business and could have a material
adverse effect on the Association's business, financial condition or results of
operations.
While there can be no assurances that the Association has effectively
addressed the year 2000 issue, the Association has not been notified, and is
unaware of, any vendor or service provider problems related to year 2000 and all
systems have performed properly since January 1, 2000. Likewise, the Association
is unaware of any year 2000 issues that have impaired the ability of the
Association's borrowers to repay their debt.
15
<PAGE> 18
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, mortgage-backed securities, investment
securities, net operating income and cash advances from Federal Home Loan Bank
of Des Moines when appropriate. While maturities and scheduled amortization of
loans and mortgage-backed securities are a somewhat predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Association must maintain an adequate level of liquidity to ensure
availability of sufficient funds to support loan growth and deposit withdrawals,
satisfy financial commitments and to take advantage of investment opportunities.
During the fiscal year 2000 and 1999, the Association used cash advances from
Federal Home Loan Bank of Des Moines as part of its investment strategy. At June
30, 2000, the Association had FHLB advances of $11.7 million that were used to
offset fixed rate mortgage loans and provide liquidity and had approved loan
commitments totaling $863,000 and undisbursed loans in process of $479,000.
Liquid funds necessary for normal daily operations of the Association are
maintained in a working checking account and a daily time account with the
Federal Home Loan Bank of Des Moines. It is the Association's current policy to
maintain adequate collected balances in those deposit accounts to meet daily
operating expense, customer withdrawals, and fund loan demand. Funds received
from daily operating activities are deposited, on a daily basis, in the checking
account and transferred, when appropriate, to the daily time account to enhance
income.
Normal daily operating expenses are not expected to significantly change.
Noninterest expense as a percentage of average assets at 2.5% is expected to
remain basically constant. Interest expense is expected to gradually increase as
the average balance of cash advances has increased. However, overall interest
expense should remain stable because interest is now being paid on a smaller
average balance of customer accounts. The cash advance expenses are being offset
as the funds have been invested at rates higher than the expense incurred by
them. Loan interest income is expected to continue to increase as the average
balance of loans increases and rates on adjustable-rate loans continue to rise
as those loans reprice at the annual adjustment dates. Although customer
deposits have decreased in the past nine months as a result of increased
competition as new financial institutions enter the market area and the maturity
of $1.5 million in short term funds, deposits are expected to remain stable in
the future.
At June 30, 2000, certificates of deposit amounted to $30.6 million, or
63.3% of the Association total deposits, including $23.3 million of fixed rate
certificates scheduled to mature within twelve months. Historically, the
Association has been able to retain a significant amount of its deposits as they
mature. Management believes it has adequate resources to fund all loan
commitments from savings deposits, loan payments, maturities of investment
securities and advances from Federal Home Loan Bank of Des Moines.
The Office of Thrift Supervision requires a thrift institution to maintain
an average daily balance of liquid assets (cash and eligible investments) equal
to at least 4% of the average daily balance of its net withdrawable deposits and
short-term borrowings. The Association's liquidity
16
<PAGE> 19
N S & L BANCORP, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
ratio was 40.38% at June 30, 2000. Neosho Savings and Loan consistently
maintains liquidity levels in excess of regulatory requirements, and believes
this is an appropriate strategy for proper asset and liability management.
The Office of Thrift Supervision requires institutions such as the
Association to meet certain tangible, core, and risk-based capital requirements.
Tangible capital generally consists of stockholders' equity minus certain
intangible assets. Core capital generally consists of stockholders' equity. The
risk-based capital requirements presently address risk related to both recorded
assets and off-balance sheet commitments and obligations. The following table
summarizes the Association's capital ratios at June 30, 2000.
<TABLE>
<CAPTION>
Percent of Adjusted
Amount Total Assets
------------------------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Tangible capital $ 8,702 12.32%
Minimum tangible capital requirement 1,060 1.50
-------- -----
Excess $ 7,642 10.82%
======== =====
Core capital $ 8,702 12.32%
Minimum core capital requirement 2,826 4.00
-------- ------
Excess $ 5,876 8.32%
======== =====
Risk-based capital $ 8,760 27.44%
Minimum risk-based capital requirement 2,554 8.00
-------- ------
Excess $ 6,206 19.44%
======== =====
</TABLE>
17
<PAGE> 20
N S & L BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1, LEGAL PROCEEDINGS
Neither the Registrant nor the Association is a party to any material legal
proceedings at this time. From time to time the Association is involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2, CHANGES IN SECURITIES
Not applicable.
ITEM 3, DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5, OTHER INFORMATION
None.
ITEM 6, EXHIBITS AND REPORT ON FORM 8-K
A. Exhibits
Exhibit 27-Financial Data Schedule
B. Forms 8-K
None.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements 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.
N S & L BANCORP, INC.
DATE AUGUST 11, 2000 BY: /s/ C.R. Butler
--------------- --------------------------------
C.R. 'RICK' BUTLER
PRESIDENT
CEO
BY: /s/ Carol Guest
---------------------------------
Carol Guest
Treasurer
