ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
Page
Letter to Stockholders 1
Business of the Corporation 2
Selected Consolidated Financial Information 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Independent Auditor's Report 16
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 22
Common Stock Information 46
Directors and Officers 47
Corporate Information 48
<PAGE>
[NS&L BANCORP, INC. LETTERHEAD]
President's Message
To Our Stockholders:
On behalf of our 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 sixth Annual Report as a public company.
During the fiscal year ending September 30, 2000 the Company's stock traded in a
range from $9.875 to $11.75 per share closing out the year at $10.375 per share.
To date, and in accordance with the Company's repurchase plan, we have
repurchased a total of 354,743 shares. The total outstanding shares as of the
close of business December 1, 2000 were 661,882. Our return on average assets
(ROA) was .67% and our return on average equity (ROE) was 4.66%. Diluted
earnings per share were $ .74. The Company posted a 5.17% growth in total
assets, and the net loans receivable increased $4.3 million to $44,477,000.
We continue to remain firm in our pledge to be a community oriented financial
institution providing affordable up to date financial services and products to
our present and future customers. 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 loans and consumer loans. The
Association also invests in mortgage-backed, U.S. Government and agency
securities and other assets.
2
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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. 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,
-------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In Thousands)
FINANCIAL CONDITION DATA:
<S> <C> <C> <C> <C> <C>
Total assets $61,807 $59,817 $63,367 $69,228 $72,809
Loans receivable, net.(1) 31,051 33,878 37,506 40,170 44,477
Mortgage-backed securities 5,342 4,473 3,121 2,484 2,907
Cash, interest bearing deposits
and investment securities 23,930 19,638 21,028 24,557 23,531
Customer deposits 48,444 43,892 47,944 51,547 48,256
Advances from Federal Home Loan Bank -- 3,000 3,986 5,856 13,117
Stockholders' equity 12,179 11,824 10,405 10,656 10,124
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended September 30,
--------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $3,703 $3,906 $4,053 $4,361 $4,895
Interest expense 1,873 2,065 2,150 2,342 2,763
------ ------ ------ ------ ------
Net interest income 1,830 1,841 1,903 2,019 2,132
Provision for loan losses 3 2 8 12 13
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 1,827 1,839 1,895 2,007 2,119
Noninterest income 265 235 424 451 434
Noninterest expense 1,613 1,372 1601 1703 1815
------ ------ ------ ------ ------
Income before taxes 479 702 718 755 738
Income taxes 152 246 264 247 256
------ ------ ------ ------ ------
Net income $ 327 $ 456 $ 454 $ 508 $ 482
==============================================================
Basic earnings per share.(2) $ .35 $ .57 $ .66 $ .74 $ .74
==============================================================
Diluted earnings per share.(2) $ .35 $ .56 $ .64 $ .73 $ .74
==============================================================
Dividends per share .(2) $ .40 $ .42 $ .42 $ .59 $ .64
==============================================================
</TABLE>
3
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<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Number of:
Real estate loans outstanding 911 948 956 987 968
Deposit accounts ............ 8,830 8,960 9,394 9,594 9,576
Full service offices ........ 2 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
At or For the Years Ended September 30,
--------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
Return on average assets (net income
divided by average assets) ........ .57% .78% .75% .76% .67%
Return on average equity (net income
divided by average equity) ........ 2.43 3.83 4.01 4.82 4.66
Average equity to average assets ... 23.34 20.27 18.71 15.86 14.47
Interest rate spread (difference
between average yield on interest-
earning assets and average cost of
interest-bearing liabilities) ..... 2.23 2.31 2.38 2.41 2.35
Net interest margin (net interest
income as a percentage of average
interest-earning assets) ........... 3.26 3.22 3.23 3.12 3.07
Noninterest expense to average
assets ............................ 2.80 2.34 2.64 2.56 2.54
Average interest-earning assets
to interest-bearing liabilities ... 131 125 123 120 118
Allowance for loan losses to total
loans at end of period ............ .13 .13 .14 .14 .14
Net charge-offs to average
outstanding loans during the period -- -- -- -- .03
Ratio of non-performing assets to
total assets ...................... .04 .03 .09 .09 .07
Dividend payout ratio.(3) .......... 114.29 73.68 63.64 79.73 86.49
</TABLE>
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(1) Includes loans held for sale.
(2) Per share information for periods prior to 1999 has been adjusted to reflect
the 20% stock dividend paid in April 1999.
(3) 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 92.5%, 88.8% and 93.3% of total loans at September
30, 1998, 1999 and 2000, respectively.
Maintaining Asset Quality. The Association strongly emphasizes
maintaining asset quality through sound underwriting, constant monitoring and
effective collection techniques. As of September 30, 2000, the Association's
ratio of non-performing assets to total assets was .07%; the same ratio at
September 30, 1999 was .09%. There was $13,000 in loan losses, net of
recoveries, for the year ended September 30, 2000 and $1,000 in loan losses for
1999.
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, 2000, 76.1% of the Association's loan portfolio was composed of
adjustable-rate loans.
Maintaining a High Level of Liquidity. At September 30, 2000, the
liquidity ratio of the Association was 40.8%. 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, 1999 and 2000
General. Net income decreased $26,000, or 5.1% from $508,000 for the
year ended September 30, 1999 to $482,000 for the year ended September 30, 2000.
Earnings per share remained stable at $.74 (diluted) compared to $.73 (diluted).
Interest income increased $534,000, which was partly offset, by an increase in
interest expense of $422,000. Noninterest income decreased $17,000 and
noninterest expense increased $112,000. Income taxes increased $9,000. The
Association's net interest margin decreased from 3.12% for the fiscal year ended
September 30, 1999 to 3.07% for the fiscal year ended September 30, 2000.
Net Interest Income. Net interest income increased $112,000, or 5.5%,
from $2,019,000 for the fiscal year ended September 30, 1999 to $2,131,000 for
the fiscal year ended September 30, 2000. Net interest income increased as a
result of an increase in interest income of $534,000 that was partially offset
by an increase in interest expense of $422,000.
Interest Income. Total interest income increased $534,000, or 12.2%,
from $4,361,000 for the year ended September 30, 1999 to $4,895,000 for the year
ended September 30, 2000. Interest income from loans receivable increased
$387,000 primarily as a result of an increase in the average balance of loans
receivable of $3,981,000 from $38,775,000 in 1999 to $42,756,000 in 2000. Loan
balances increased as a result of a more aggressive approach to solicitation and
pricing of mortgage loans. Income from investment securities increased by
$356,000 due to an increase in the average balance of those securities. Interest
income from mortgage-backed securities decreased by $31,000 as the average
balance of mortgage-backed securities decreased from $2,978,000 in 1999 to
$2,630,000 in 2000. Balances in mortgage-backed securities decreased as more
emphasis was placed on originating mortgage loans. The average balance of other
interest earning assets decreased $3,688, 000 from $7,495,000 for the year ended
September 30, 1999 to $3,807,000 for the year ended September 30, 2000. This
resulted in a decrease in earnings on other interest earning assets of $178,000
from $287,000 for the year ended September 30, 1999 to $109,000 for the year
ended September 30, 2000.
Interest Expense. Interest expense on customer deposits increased
$32,000, or 1.5%, from $2,111,000 for the year ended September 30, 1999 to
$2,143,000 for the year ended September 30, 2000. The increase was due to an
increase in interest rates paid on deposits due to an increase in the market
interest rates. Interest on advances from Federal Home Loan Bank of Des Moines
increased $391,000 from $230,000 for the year ending September 30, 1999 compared
to $621,000 for the year ending September 30, 2000. The increase resulted
primarily from an increase in the average balance of advances of $6,049,000 from
$4,166,000 in 1999 to $10,215,000 in 2000 and to a lesser extent on rising
interest rates.
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
6
<PAGE>
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 $13,000 for the year ended
September 30, 2000. This is an increase of $1,000 from the year ended September
30, 1999. There was $13,000 in actual loan losses, net of recoveries, for the
fiscal year ended September 30, 2000 and $1,000 in actual loan losses in the
fiscal year ended 1999.
Noninterest Income. Noninterest income decreased $17,000, or 3.8% from
$451,000 for the fiscal year ended September 30, 1999 to $434,000 for the year
ended September 30, 2000. The decrease resulted primarily from a decrease in
mortgage banking fees and a decrease in the gain on the sale of loans and was
partially offset by an increase in banking service charges and fees.
Noninterest Expense. Noninterest expense increased $112,000, or 6.6%
from $1,703,000 for the fiscal year ended September 30, 1999 to $1,815,000 for
the year ended September 30, 2000. Compensation expense and employee benefits
increased $110,000 as a result of additional personnel as well as annual salary
increases. Data processing fees increased $11,000 or 9.2% from $120,000 at
September 30, 1999 to $131,000 at September 30, 2000 while other expenses
increased $11,000 as a result of normal operations of the Company. Partially
offsetting the increases in noninterest expense were deposit insurance premiums
that decreased $14,000, or 48.3% from $29,000 at September 30, 1999 to $15,000
at September 30, 2000,and occupancy and equipment expense decreased $8,000, or
4.1% from $194,000 at September 30, 1999 to $186,000 at September 30, 2000.
Income Taxes. Provision for income tax expense increased $9,000, or
3.6% from $247,000 for the fiscal year ended September 30, 1999 to $256,000 for
the year ended September 30, 2000 as a result of higher taxable income.
Comparison of Operating Results for the Years Ended September 30, 1998 and 1999
General. Net income increased $54,000, or 11.9% from $454,000 for the
year ended September 30, 1998 to $508,000 for the year ended September 30, 1999.
Earnings per share rose to $.73 (diluted) from $.64 (diluted). Interest income
increased $308,000, which was partly offset, by an increase in interest expense
of $191,000. Noninterest income increased $27,000, which was offset, by an
increase in non interest expense of $102,000. Income taxes decreased $17,000 and
compensation and employee benefits increased $62,000 as a result of annual
salary increases and additional personnel. The Association's net interest margin
decreased from 3.23% for the year ended September 30, 1998 to 3.12% for the year
ended September 30, 1999.
Net Interest Income. Net interest income increased $116,000, or 6.14%
from $1,903,000 for the year ended September 30, 1998 to $2,019,000 for the year
ended September 30, 1999. The increase in net interest income resulted from an
increase in interest income of $308,000 and was partially offset by an increase
in interest expense of $192,000.
Interest Income. Total interest income increased by $308,000, or 7.6%
from $4,053,000 for the year ended September 30, 1998 to $4,361,000 for the year
ended September 30, 1999. Interest income from loans receivable increased
$204,000 primarily as a result of an increase in the average balance of loans
receivable of $2,618,000 from $36,157,000 in 1998 to $38,775,000 in 1999. Loan
balances increased as a result of a more aggressive approach to solicitation and
pricing of mortgage loans. Income from investment securities increased by
7
<PAGE>
$264,000 due to an increase in the average balance of those securities. Interest
income from mortgage-backed securities decreased by $75,000 as the average
balance of mortgage-backed securities decreased from $3,742,000 in 1998 to
$2,978,000 in 1999. Balances of mortgage-backed securities and other investments
decreased as more emphasis was placed on originating mortgage loans. Income from
other interest-bearing assets decreased $85,000 from $372,000 for the year ended
September 30, 1998 to $287,000 for the year ended September 30, 1999.
Interest expense. Interest expense on customer deposits increased by
$54,000, or 2.6% from $2,057,000 for the year ended September 30, 1998 to
$2,111,000 for the year ended September 30, 1999. This increase was due to an
increase of $3,736,000 in the average balance of interest bearing deposits from
$46,118,000 for the year ended September 30, 1998 to $49,854,000 for the year
ended September 30, 1999. Interest on advances from Federal Home Loan Bank of
Des Moines increased $136,000, from $94,000 for the year ended September 30,
1998 compared to $230,000 for the year ended September 30, 1999. The increase
resulted from an increase in the average balance of advances of $2,585,000 from
$1,581,000 in 1998 to $4,166,000 in 1999.
Provision for Loan Losses. The provision for loan losses was $12,000
for the year ended September 30, 1999. This is an increase of $4,000 over the
year ended September 30, 1998. There were $1,000 in loan losses, net of
recoveries, for the fiscal years ended September 30, 1999 and no actual loan
losses in the fiscal year ended September 30, 1998.
Noninterest Income. Noninterest income increased by $27,000, or 6.4%,
from $424,000 for the year ended September 30, 1998 for the year ended $451,000
at September 30, 1999. The increase resulted primarily from banking service
charges and fees and was partially offset by a reduction in gains on the sale of
investments of $18,000.
Noninterest Expense. Noninterest expense increased $102,000, or 6.4%
from $1,601,000 for the year ended September 30, 1998 to $1,703,000 for the year
ended September 30, 1999. Compensation and employee benefits increased $62,000,
as a result of additional personnel as well as annual salary increases. The ESOP
expense was $122,000 for the year ended September 30, 1998 compared to $84,000
for the year ended September 30, 1999. In addition, the MRDP expense was $74,000
for the year ended September 30, 1998 and $79,000 for the year ended September
30,1999. Data processing expenses increased $18,000 and printing, postage,
stationery and supplies expense increased $14,000 between the two periods as a
result of normal operations of the Company.
Income Taxes. Provision for income tax expense decreased $17,000, or
6.4% from $264,000 at September 30, 1998 to $247,000 for the year ended
September 30, 1999 as a result of lower taxable income.
Financial Condition
-------------------
General. During the year ended September 30, 2000, 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
8
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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 and loans available for sale on the secondary
market. The Association has emphasized the origination of ARM loan products in
order to increase the interest rate sensitivity of its loan portfolio.
Total Assets. Total assets increased by $3,581,000, or 5.2% from
$69,228,000 at September 30, 1999 to $72,809,000 at September 30, 2000. The
increase in mortgage loans, FHLB stock, and cash and cash equivalents accounts
for the majority of the asset growth and is partially offset by decreases in
certificates of deposit and investment securities.
Cash and Cash Equivalents. Cash and cash equivalents increased by
$665,000, or 28.7% to $2,982,000 at September 30, 2000 from $2,317,000 at
September 30, 1999. This increase was a result of the maturity of $1,584,000 in
certificates of deposits and was partially offset by the purchase of $292,000 of
FHLB stock and the purchase of $423,000 in mortgage-backed securities.
Certificates of Deposit. Certificates of deposit totaling $1,584,000
matured during the year ending September 30, 2000, leaving a balance of $80,000
at September 30, 2000.
Investment Securities. Investment securities decreased by $399,000, or
2.0%, from $20,211,000 at September 30, 1999 to $19,812,000 at September 30,
2000 as some investment securities matured.
Federal Home Loan Bank Stock. Investments in Federal Home Loan Bank
stock increased by $292,000 from $365,000 at September 30, 1999 to $657,000 at
September 30, 2000.
Mortgage-backed Securities. Mortgage-backed securities increased by
$423,000, or 17.1%, from $2,484,000 at September 30, 1999 to $2,907,000 at
September 30, 2000. The increase resulted from the purchase of a $1.1 million
mortgaged-backed security and was partially offset by the receipt of principal
payments on the mortgage-backed securities.
Loans Receivable. Net loans increased $4,307,000, or 10.7%, to
$44,477,000 at September 30, 2000 from $40,170,000 at September 30, 1999. The
increase in loans was primarily the result of increases in one-to-four family
residential real estate loans and equity line of credit loans (ELOC) that were
funded from funds on hand and cash advances from FHLB of Des Moines.
Deposits. Deposits decreased $3,291,000, or 6.4%, to $48,256,000 at
September 30, 2000 compared to $51,547,000 at September 30, 1999. The decrease
can be attributed to the maturity of $1.5 million in special funds and some run
off of funds as competition in the market area continues to increase.
FHLB Advances. Cash advances from Federal Home Loan Bank of Des Moines
were utilized during the fiscal year ending September 30, 2000 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 and as needed for liquidity purposes. The Association borrowed a
net $7.3 million additional in advances during the year ended September 30,
2000.
9
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Stockholders' Equity. Stockholders' equity decreased $532,000, or 5.0%,
from $10,656,000 at September 30, 1999 to $10,124,000 at September 30, 2000, as
a result of quarterly dividend payments and the repurchase of treasury stock and
was partially offset by net income of $482,000. During the year ended September
30, 2000, the Company repurchased 76,920 shares of treasury stock at a cost of
$785,000.
Yields Earned and Rates Paid
The earnings of the Association depend largely on the spread between
the yield on interest-earning assets and the cost of interest-bearing
liabilities, as well as the relative size of the Association's interest-earning
assets and interest-bearing liability portfolios.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields, interest rate
spread, net interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances have been calculated
using the average of month-end balances during such year.
10
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<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------------------------------
1998 1999
------------------------------------- -------------------------------------
Average Interest & Yield/ Average Interest & Yield/
Balance (2) Dividends Cost Balance (2) Dividends Cost
------------ ------------ -------- ------------ ------------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $36,157 $2,695 7.45% $38,775 $2,899 7.48%
Investment securities 10,297 689 6.69 15,396 953 6.19
Mortgage-backed and related securities 3,742 297 7.94 2,978 222 7.45
Daily interest-bearing assets 8,663 372 4.29 7,495 287 3.83
------------ ------------ ------------ -------------
Total interest-earning assets 58,859 4,053 6.89 64,644 4,361 6.75
Noninterest-earning assets:
Office properties and
equipment, net 1,141 1,132
Other noninterest-earning assets 598 744
------------ ------------
Total assets $60,598 $66,520
============ ============
Interest-earning liabilities:
Passbook savings accounts 5,800 160 2.76 5,898 163 2.76
Demand and NOW accounts 7,103 179 2.52 8,603 221 2.57
Money market accounts 2,861 93 3.25 2,778 90 3.24
Certificates of deposit 30,354 1,624 5.35 32,575 1,638 5.03
------------ ------------ ------------ -------------
Total deposits 46,118 2,056 4.46 49,854 2,112 4.24
Advances from FHLB 1,581 94 5.95 4,166 230 5.52
------------ ------------ ------------ -------------
Total interest-bearing liabilities 47,699 2,150 4.51 54,020 2,342 4.34
Noninterest-bearing liabilities:
Noninterest-bearing deposits 570 875
Other liabilities 993 1,075
------------ ------------
Total liabilities 49,262 55,970
Stockholders' equity 11,336 10,550
------------ ------------
Total liabilities and
stockholders' equity $60,598 $66,520
============ ============
Net interest income $1,903 $2,019
============ =============
Interest rate spread 2.38 2.41
Net interest margin 3.23 3.12
Ratio of average interest-earning assets
to average interest-bearing liabilities 123% 120%
</TABLE>
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------
2000
-------------------------------------
Average Interest & Yield/
Balance (2) Dividends Cost
------------- ------------ -------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $42,756 $3,286 7.69%
Investment securities 20,251 1309 6.46
Mortgage-backed and related securities 2,630 191 7.26
Daily interest-bearing assets 3,807 109 2.86
------------- ------------
Total interest-earning assets 69,444 4,895 7.05
Noninterest-earning assets:
Office properties and
equipment, net 1,088
Other noninterest-earning assets 911
-------------
Total assets $71,443
=============
Interest-earning liabilities:
Passbook savings accounts 5,587 156 2.79
Demand and NOW accounts 8,614 237 2.75
Money market accounts 2,529 84 3.32
Certificates of deposit 31,920 1,666 5.22
------------- ------------
Total deposits 48,650 2,143 4.40
Advances from FHLB 10,215 621 6.08
------------- ------------
Total interest-bearing liabilities 58,865 2,764 4.70
Noninterest-bearing liabilities:
Noninterest-bearing deposits 1032
Other liabilities 1,209
-------------
Total liabilities 61,106
Stockholders' equity 10,337
-------------
Total liabilities and
stockholders' equity $71,443
=============
Net interest income $2,131
============
Interest rate spread 2.35
Net interest margin 3.07
Ratio of average interest-earning assets
to average interest-bearing liabilities 118%
</TABLE>
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(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
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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>
Years Ended September 30, At
--------------------------------------- September 30,
1998 1999 2000 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on loan portfolio 7.45 % 7.48 % 7.69 % 8.12 %
Weighted average yield on mortgage-
backed and related securities............ 6.69 7.45 7.26 7.41
Weighted average yield on investment
securities................................ 7.94 6.19 6.46 6.69
Weighted average yield on interest-
bearing deposits......................... 4.29 3.83 2.86 2.62
Weighted average yield on all interest-
earning assets........................... 6.89 6.75 7.05 7.45
Weighted average rate paid on
total deposits............................ 4.46 4.24 4.40 4.57
Weighted average rate paid on all
advances from FHLB................. 5.95 5.52 6.08 6.47
Weighted average rate paid on all
interest-bearing liabilities............. 4.51 4.34 4.70 4.98
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities)..................... 2.38 2.41 2.35 2.47
Net interest margin (net interest income
as a percentage of average
interest-earning assets)................. 3.23 3.12 3.07 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,
---------------------------------------------------------------------------------
1999 Compared to 1998 2000 Compared to 1999
(Dollars In Thousands)
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> <C>
Interest-earning assets:
Loans receivable (1) $ 10 $ 195 ($ 1) $ 204 $ 81 $ 298 $ 8 $ 387
Investment securities (51) 341 (26) 264 42 301 13 356
Mortgage-backed and related securities (18) (61) 4 (75) (6) (26) 1 (31)
Daily interest-bearing deposits (40) (50) 5 (85) (73) (141) 36 (178)
---- ---- - ---- ---- ----- -- -----
Total net change in income
on interest-bearing assets (99) 425 (18) 308 44 432 58 534
Interest-bearing liabilities:
Interest-bearing deposits (102) 166 (8) 56 80 (51) 2 31
Advances from FHLB (7) 154 (11) 136 23 334 34 391
--- --- ---- --- -- --- -- ---
Total net change in expenses
on interest-bearing liabilities (109) 320 (19) 192 103 283 36 422
------ --- ---- --- ---- --- -- ---
Net change in net interest income $ 10 $ 105 $ 1 $ 116 $ (59) $ 149 $22 $ 112
======================================= ======================================
</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 uses 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 $4,307,000,
mortgage-backed securities had a net increase of $423,000 and investment in
Federal Home Loan Bank Stock increased $292,000. There was a net decrease in
investments securities of $390,000 during the year ended September 30, 1999.
Cash on hand, maturing and calling of investments and the use of cash advances
from Federal Home Loan Bank of Des Moines primarily funded these activities.
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 year 1998 the Association used its
sources of funds primarily to fund loan commitments and to pay maturing savings
certificates and deposit withdrawals. During fiscal years 1999 and 2000, the
Association used its sources of funds and cash advances to fund loan commitments
and purchase investment securities. At September 30, 2000, the Association had
loan commitments of $2,741,000.
At September 30, 2000, savings certificates amounted to $31,913,000, or
66.2%, of the Association's total deposits, including $26,223,000 that were
scheduled to mature by September 30, 2001. 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, 2000, 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 36.7%, 39.4% and 40.6% during the years ended September
30, 1998, 1999 and 2000, respectively. The Association's actual ratio at
September 30, 2000 was 40.8%. 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, 2000, the Association was in
compliance with all regulatory capital requirements that were effective as of
such date with tangible, core and risk-based capital ratios of 12.3%, 12.3% and
27.5%, respectively. See Note 17 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
The year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. Date-sensitive systems may recognize
the year 2000 as 1900, or not 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.
The Association believes it has effectively addressed the year 2000 issue. The
Association did not experience any system malfunctions and is unaware of any
year 2000 issues that have impaired the ability of the Association's borrowers
to repay their debt.
15
<PAGE>
[KIRKPATRICK, PHILLIPS & MILLER LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
- - - - - - - - - - - - - - - - - - -
To the Board of Directors and Shareholders of 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, 1999 and 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 2000. 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, 1999 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2000, in conformity with generally accepted accounting principles.
/s/ Kirkpatrick, Phillips & Miller
----------------------------------
KIRKPATRICK, PHILLIPS & MILLER
November 9, 2000
Springfield, Missouri
16
<PAGE>
<TABLE>
<CAPTION>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
September 30, 1999 and 2000
1999 2000
---- ----
ASSETS
------
<S> <C> <C>
Cash and cash equivalents, including
interest-bearing accounts of $1,371,255 in
1999 and $2,437,098 in 2000 $ 2,316,542 $ 2,981,902
Certificates of deposit 1,664,000 80,000
Investment securities available-for-sale,
at fair value 183,031 173,375
Investment securities held-to-maturity
(estimated market value of $19,540,819 in 1999
and $19,242,915 in 2000) 20,028,363 19,638,443
Investment in Federal Home Loan Bank stock, at cost 365,400 657,100
Mortgage-backed securities held-to-maturity
(estimated market value of $2,525,001 in 1999
and $2,924,243 in 2000) 2,483,912 2,906,678
Loans held for sale 79,262 386,292
Loans receivable, net 40,090,543 44,090,649
Income taxes recoverable - current 82,489 --
Accrued interest receivable 513,563 560,413
Property and equipment,
less accumulated depreciation 1,118,904 1,063,002
Intangible assets 77,775 74,991
Other assets 223,746 196,052
-------- -------
Total assets $ 69,227,530 $ 72,808,897
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $ 51,546,988 $ 48,256,428
Advances from Federal Home Loan Bank 5,855,578 13,117,297
Advances from borrowers for taxes and insurance 354,010 378,578
Income taxes payable - current -- 81,224
Deferred income taxes 344,180 290,409
Other liabilities 470,314 561,407
-------- -------
Total liabilities 58,571,070 62,685,343
----------- ----------
Commitments and Contigencies -- --
Preferred stock, $.01 par value; 2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value; 8,000,000 shares authorized,
issued 1,012,441 in 1999 and 2000, outstanding
741,866 in 1999 and 664,946 in 2000 10,124 10,124
Paid-in capital 10,370,931 10,388,385
Retained earnings - substantially restricted 4,956,386 5,051,208
Treasury stock, at cost, 270,575 shares in 1999
and 347,495 in 2000 (4,174,612) (4,959,579)
Unearned compensation (524,029) (375,010)
Accumulated other comprehensive income 17,660 8,426
------- -----
Total stockholders' equity 10,656,460 10,123,554
----------- ----------
Total liabilities and stockholders' equity $ 69,227,530 $ 72,808,897
============= ============
</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, 1998, 1999 and 2000
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Interest Income:
Loans receivable $2,695,123 $2,898,515 $3,286,171
Investment securities 689,208 952,735 1,309,268
Mortgage-backed and related securities 296,973 222,218 190,794
Other interest-earning assets 372,111 287,216 109,031
-------- -------- -------
Total interest income 4,053,415 4,360,684 4,895,264
---------- ---------- ---------
Interest Expense:
Customer deposits 2,056,649 2,111,134 2,143,154
Federal Home Loan Bank advances 93,839 230,347 620,683
------- -------- -------
Total interest expense 2,150,488 2,341,481 2,763,837
---------- ---------- ---------
Net interest income 1,902,927 2,019,203 2,131,427
Provision for Loan Losses 7,825 12,112 12,682
------ ------- ------
Net interest income after provision for loan losses 1,895,102 2,007,091 2,118,745
---------- ---------- ---------
Noninterest Income:
Gain on sale of investment securities 18,125 -- --
Gain on sale of loans 9,732 70,278 61,429
Banking service charges and fees 162,902 206,821 221,079
Mortgage banking fees 219,843 152,099 129,112
Loan late charges 7,621 8,840 9,658
Other 5,353 13,031 12,587
------ ------- ------
Total noninterest income 423,576 451,069 433,865
-------- -------- -------
Noninterest Expense:
Compensation and employee benefits 940,765 1,002,621 1,112,798
Occupancy and equipment 188,689 194,423 186,103
Deposit insurance premium 28,280 29,250 15,221
Data processing 102,418 120,301 131,083
Printing, postage, stationery and supplies 56,001 70,217 68,869
Professional fees 52,979 53,227 50,821
Advertising 42,423 47,935 54,124
Other 188,979 184,739 196,243
-------- -------- -------
Total noninterest expense 1,600,534 1,702,713 1,815,262
---------- ---------- ---------
Income before taxes 718,144 755,447 737,348
Income Taxes 263,879 247,221 255,577
-------- -------- -------
Net income $ 454,265 $ 508,226 $ 481,771
========== ========== =========
Basic earnings per share $ 0.66 $ 0.74 $ 0.74
======= ======= ======
Diluted earnings per share $ 0.64 $ 0.73 $ 0.74
======= ======= ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
18
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
<TABLE>
<CAPTION>
Common
Stock
------------------------ Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
----------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1997 711,666 $ 8,863 $ 8,461,129 $ 6,493,728 $ (2,414,324)
Net income -- -- -- 454,265 --
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,340) -- -- -- -- --
Less: reclassification adjustment, net of
deferred income taxes of $(6,706) -- -- -- -- --
Total Comprehensive Income 430,349
Dividends ($.42 per share) -- -- -- (300,109) --
Purchase of treasury stock at cost (94,827) -- -- -- (1,746,051)
Vesting of MRDP shares -- -- -- -- --
Release of ESOP shares -- -- 53,550 -- --
---------- ------------ ------------ ------------ ------------
Balances at September 30, 1998 616,839 8,863 8,514,679 6,647,884 (4,160,375)
Net income -- -- -- 508,226 --
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,703) -- -- -- -- --
Total Comprehensive Income 495,110
Dividends ($.59 per share) -- -- -- (391,605) --
Stock dividend (20%) 123,627 1,236 1,806,883 (1,808,119) --
Net proceeds from issue of common stock 2,500 25 33,725 -- --
Common stock acquired by MRDP -- -- -- -- --
Purchase of treasury stock at cost (1,100) -- -- -- (14,237)
Vesting of MRDP shares -- -- -- -- --
Release of ESOP shares -- -- 15,644 -- --
---------- ------------ ------------ ------------ ------------
Balances at September 30, 1999 741,866 10,124 10,370,931 4,956,386 (4,174,612)
Net income -- -- -- 481,771 --
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(5,423) -- -- -- -- --
Total Comprehensive Income 472,537
Dividends ($.64 per share) -- -- -- (386,949) --
Purchase of treasury stock at cost (76,920) -- -- -- (784,967)
Vesting of MRDP shares -- -- -- -- --
Release of ESOP shares -- -- 17,454 -- --
---------- ------------ ------------ ------------ ------------
Balances at September 30, 2000 664,946 $ 10,124 $ 10,388,385 $ 5,051,208 $ (4,959,579)
========== ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Unearned Comprehensive Stockholders'
Compensation Income Equity
--------------- ------------ -------------
<S> <C> <C> <C>
Balances at September 30, 1997 $ (779,793) $ 54,692 $ 11,824,295
------------
Net income -- -- 454,265
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,340) -- (12,497) (12,497)
Less: reclassification adjustment, net of
deferred income taxes of $(6,706) -- (11,419) (11,419)
------------
Total Comprehensive Income
------------
Dividends ($.42 per share) -- -- (300,109)
Purchase of treasury stock at cost -- -- (1,746,051)
Vesting of MRDP shares 74,074 -- 74,074
Release of ESOP shares 68,520 -- 122,070
------------ ------------ ------------
Balances at September 30, 1998 (637,199) 30,776 10,404,628
------------
Net income -- -- 508,226
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,703) -- (13,116) (13,116)
------------
Total Comprehensive Income 495,110
------------
Dividends ($.59 per share) -- -- (391,605)
Stock dividend (20%) -- -- --
Net proceeds from issue of common stock -- -- 33,750
Common stock acquired by MRDP (33,750) -- (33,750)
Purchase of treasury stock at cost -- -- (14,237)
Vesting of MRDP shares 78,575 -- 78,575
Release of ESOP shares 68,346 -- 83,990
------------ ------------ ------------
Balances at September 30, 1999 (524,029) 17,660 10,656,460
------------
Net income -- -- 481,771
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(5,423) -- (9,234) (9,234)
Total Comprehensive Income 472,537
------------
Dividends ($.64 per share) -- -- (386,949)
Purchase of treasury stock at cost -- -- (784,967)
Vesting of MRDP shares 80,825 -- 80,825
Release of ESOP shares 68,194 -- 85,648
------------ ------------ ------------
Balances at September 30, 2000 $ (375,010) $ 8,426 $ 10,123,554
============ ============ ============
</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, 1998, 1999 and 2000
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 454,265 $ 508,226 $ 481,771
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 88,479 95,502 85,857
Amortization 2,784 2,784 2,784
Premiums and discounts on mortgage-backed
securities and investment securities (116,814) (90,640) (90,174)
Origination of loans held for sale (968,673) (5,611,609) (4,795,292)
Proceeds from sale of loans held for sale 923,282 5,687,356 4,549,484
Provision for loan losses 7,825 12,112 12,682
Gain on sale of investment securities (18,125) - -
Gain on sale of loans (9,732) (70,278) (61,429)
Loss on sale of equipment - 1,217 -
Vesting of MRDP shares 74,074 78,574 80,825
Release of ESOP shares 122,070 83,990 85,648
Net change in operating accounts:
Accrued interest receivable 93,990 (153,347) (46,850)
Other assets 893 (83,376) 27,694
Other liabilities 52,263 53,265 103,411
Income taxes payable - deferred (24,073) 11,773 (48,349)
Income taxes payable - current (58,716) (93,008) 163,713
------------ -------------- -------------
Net cash from operating activities 623,792 432,541 551,775
------------ -------------- -------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (6,602,800) (15,087,234) (280,000)
Proceeds from maturities of investment
securities held-to-maturity 10,344,102 4,535,000 750,000
Purchase of investment securities available-for-sale - - (5,000)
Net change in certificates of deposit (297,000) (990,000) 1,584,000
Proceeds from sales of investment
securities available-for-sale 43,125 - -
Proceeds from sale of Federal Home Loan Bank stock 55,200 - -
Purchase of Federal Home Loan Bank stock - - (291,700)
Net change in loans receivable (3,591,801) (2,686,745) (4,216,414)
Purchase of mortgage-backed and
related securities held-to-maturity - (560,507) (1,096,233)
Proceeds from principal payments and
maturities of mortgage-backed securities
held-to-maturity 1,378,323 1,213,666 683,561
Proceeds from sale of repossessed assets - 5,527 203,832
Purchases of property and equipment (58,660) (85,592) (29,955)
------------ -------------- -------------
Net cash from (used in) investing activities $ 1,270,489 $ (13,655,885) $ (2,697,909)
------------ -------------- -------------
</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, 1998, 1999 and 2000
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand deposits,
savings accounts, and certificates of deposit $ 4,052,114 $ 3,602,499 $ (3,290,560)
Proceeds from Federal Home Loan Bank advances 3,000,000 2,000,000 34,483,100
Payments on Federal Home Loan Bank advances (2,013,868) (130,556) (27,221,381)
Cash dividends paid (311,963) (350,010) (399,266)
Purchase of treasury stock (1,746,051) (14,237) (784,967)
Net increase (decrease) in mortgage escrow funds (12,349) 48,811 24,568
-------- ------- ------
Net cash from financing activities 2,967,883 5,156,507 2,811,494
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 4,862,164 (8,066,837) 665,360
Cash and cash equivalents-beginning of year 5,521,215 10,383,379 2,316,542
---------- ----------- ---------
Cash and cash equivalents-end of year $ 10,383,379 $ 2,316,542 $ 2,981,902
============= ============ ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 2,158,283 $ 2,362,186 $ 2,724,222
Income taxes 348,953 329,097 179,481
Supplemental schedule of non-cash
investing and financing activities:
Dividends declared September 17,
1998, payable October 30, 1998 $ 77,105 $ -- $ --
Dividends declared September 15,
1999, payable October 29, 1999 -- 118,699 --
Dividends declared September 20,
2000, payable October 31, 2000 -- -- 106,381
Loan receivable transferred to property and
equipment in settlement of loan 11,811 -- --
Loans transferred to foreclosed and repossessed assets -- 5,527 216,489
</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, 1998, 1999 and 2000
(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 maturities of
three months or less at the date of their acquisition.
22
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Investment securities and mortgage-backed securities - Securities are
classified in accordance 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, 1999 and 2000, 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, 2000, the Company had no material
loans which were impaired.
Property, equipment and related depreciation - Property and equipment have
been stated at cost. Depreciation has been principally computed by
applying the following methods and estimated lives:
Category Estimated Life Method
------------------------- -------------- ---------------------
Office furniture, Straight-line and
fixtures and equipment 3-10 Years declining-balance
Buildings and lease- Straight-line and
hold improvements 10-40 Years declining-balance
23
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(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, Inc. 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 $2,784 for each of the years
ended September 30, 1998, 1999 and 2000.
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.
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.
Stock dividend - On March 24, 1999, the Company's Board of Directors
declared a twenty percent stock dividend of NS&L Bancorp, Inc. common
stock to stockholders of record on April 15, 1999, payable on April 30,
1999. Common stock and paid-in capital were increased and retained
earnings was reduced for the aggregate value of the shares issued. The
stated par value of each share was not changed from $.01.
All per share amounts and average shares outstanding have been restated to
reflect the aforementioned stock dividend.
24
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(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.
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 shares 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.
Comprehensiveincome - The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," as of October 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of
the balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS No. 130 had no effect on the
Company's net income or shareholders' equity.
New accounting standards - In June 1998, FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes 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. In June 1999, SFAS No. 133 was amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" which deferred
the effective date to the first quarter of fiscal years beginning after
June 15, 2000. In June 2000, SFAS No. 133 was amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities" which adds guidance related to accounting for derivative
instruments and hedging activities. The adoption of this standard 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, 1998, 1999 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
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 was adopted during the year
ended September 30, 2000. The adoption of this standard did not 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) 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 statements of financial condition, and their
approximate market values were as follows:
A summary of investment securities available-for-sale at September 30,
1999 is as follows:
Gross Unrealized Estimated
Amortized ----------------------- Fair
Cost Gains Losses Value
------------- --------- ----------- -----------
Common stock $ 155,000 $ 32,719 $ 4,688 $ 183,031
============= ========= =========== ===========
There were no sales of common stock held as available-for-sale during the
year ended September 30, 1999.
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.
A summary of the investment securities held-to-maturity at September 30,
1999 is as follows:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized ----------------------- Fair
Cost Gains Losses Value
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $18,969,507 $ 133,178 $ 607,391 $18,495,294
Obligations of states and
political subdivisions 1,058,856 6,761 20,092 1,045,525
----------- ---------- --------- -----------
Total $20,028,363 $ 139,939 $ 627,483 $19,540,819
=========== ========== ========= ===========
</TABLE>
26
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(2) INVESTMENT SECURITIES - (CONTINUED)
-----------------------------------
A summary of investment securities available-for-sale at September 30,
2000 is as follows:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized ----------------------- Fair
Cost Gains Losses Value
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Common Stock $ 160,000 $ 16,250 $ 2,875 $ 173,375
============== ========= ========= ============
</TABLE>
There were no sales of common stock held as available-for-sale
during the year ended September 30, 2000.
A summary of the investment securities held-to-maturity at
September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized ----------------------- Fair
Cost Gains Losses Value
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 18,299,347 $ 121,035 $ 490,461 $ 17,929,921
Obligations of states and
political subdivisions 1,339,096 2,814 28,916 1,312,994
------------ --------- --------- ------------
Total $ 19,638,443 $ 123,849 $ 519,377 $ 19,242,915
============ ========= ========= ============
</TABLE>
The amortized cost and estimated market value of investment securities
held-to-maturity at September 30, 2000, 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 $ 84,953 $ 85,000
Due after one year through five years 6,228,785 6,139,605
Due after five years through ten years 12,289,705 12,032,760
Due after ten years 1,035,000 985,550
--------------- --------------
Total $ 19,638,443 $ 19,242,915
=============== ==============
</TABLE>
Securities pledged as collateral had book values of $1,530,338 and market
values of $1,544,634 at September 30, 1999. There were no securities
pledged as collateral at September 30, 2000.
27
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(3) 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 $657,100 at September 30, 2000.
(4) 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, 1999
------------------------------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
GNMA Certificates $ 835,216 $ 2,736 $ 2,317 $ 835,635
FHLMC Certificates 520,677 60 32,690 488,047
FNMA Certificates 1,166,830 - 6,600 1,160,230
---------------- ---------------- -------------- -------------
$ 2,522,723 $ 2,796 $ 41,607 $ 2,483,912
================ ================ ============== =============
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
GNMA Certificates $ 835,635 $ 2,858 $ 2,441 $ 836,052
FHLMC Certificates 488,047 33,005 60 520,992
FNMA Certificates 1,160,230 7,727 - 1,167,957
---------------- ---------------- -------------- -------------
$ 2,483,912 $ 43,590 $ 2,501 $ 2,525,001
================ ================ ============== =============
</TABLE>
28
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(4) MORTGAGE-BACKED SECURITIES - (CONTINUED)
----------------------------------------
<TABLE>
<CAPTION>
September 30, 2000
-------------------------------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 668,330 $ 2,007 $ 1,924 $ 668,413
FHLMC Certificates 435,946 46 24,641 411,351
FNMA Certificates 1,839,782 - 12,868 1,826,914
----------- ----------- --------- -----------
$ 2,944,058 $ 2,053 $ 39,433 $ 2,906,678
=========== =========== ========= ===========
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 668,413 $ - $ 6,355 $ 662,058
FHLMC Certificates 411,351 26,782 445 437,688
FNMA Certificates 1,826,914 4,145 6,562 1,824,497
----------- ----------- --------- -----------
$ 2,906,678 $ 30,927 $ 13,362 $ 2,924,243
=========== =========== ========= ===========
</TABLE>
The mortgage-backed securities presented above are non-equity securities.
Management does not believe there is substantial risk associated with
these securities.
(5) LOANS RECEIVABLE
----------------
Loans receivable consist of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------------------------
1999 2000
--------------- ----------------
<S> <C> <C>
Mortgage loans:
One-to-four dwelling units $ 34,220,790 $ 38,465,040
Commercial 856,622 768,605
Construction 2,162,675 654,400
Land - 42,350
--------------- ---------------
Total mortgage loans 37,240,087 39,930,395
--------------- ---------------
Other loans:
Loans on deposits 481,674 364,873
Home equity loans 1,646,777 1,992,746
Consumer and automobile 1,599,428 2,058,407
Unsecured 1,600 -
--------------- ---------------
Total other loans 3,729,479 4,416,026
--------------- ---------------
Less:
Undisbursed portion of loans in process 858,417 284,620
Net deferred loan origination fees (costs) (42,100) (91,579)
Allowance for loan losses 62,706 62,731
--------------- ---------------
Net loans receivable $ 40,090,543 $ 44,090,649
=============== ===============
</TABLE>
29
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(5) LOANS RECEIVABLE - (CONTINUED)
------------------------------
Activity in the allowance for loan losses is summarized as follows:
Years Ended September 30,
1998 1999 2000
-------- --------- ----------
Beginning balance $ 43,787 $ 51,612 $ 62,706
Provision charged
to income 7,825 12,112 12,682
Net charge-offs - (1,018) (12,657)
-------- -------- ---------
Ending balance $ 51,612 $ 62,706 $ 62,731
======== ======== =========
The Association primarily grants residential loans to customers throughout
southwest Missouri. The loans are typically secured by real estate.
(6) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
September 30,
--------------------
1999 2000
---- ----
Investment securities $ 288,572 $ 304,174
Mortgage-backed securities 18,423 19,966
Loans receivable 206,568 236,273
---------- ----------
$ 513,563 $ 560,413
========== ==========
(7) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30, 1999
------------------
Accum.
Category Cost Deprec. Net
-------- ----------- --------- ------------
Land $ 402,015 $ - $ 402,015
Leasehold improvements 13,198 1,467 11,731
Buildings 1,125,399 585,466 539,933
Office furniture, fixtures
and equipment 559,007 393,782 165,225
----------- --------- ------------
$ 2,099,619 $ 980,715 $ 1,118,904
=========== ========= ============
30
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(7) PROPERTY AND EQUIPMENT - (CONTINUED)
------------------------------------
September 30, 2000
------------------
Accum.
Category Cost Deprec. Net
-------- ---- ------- ---
Land $ 402,015 $ - $ 402,015
Leasehold improvements 13,198 2,148 11,050
Buildings 1,125,399 625,328 500,071
Office furniture, fixtures
and equipment 523,908 374,042 149,866
----------- ----------- -----------
$ 2,064,520 $ 1,001,518 $ 1,063,002
=========== =========== ===========
Depreciation charged to operations for the years ended September 30, 1998,
1999 and 2000 was $88,479, $95,502, and $85,857.
(8) INCOME TAXES
The provision for income tax expense is as follows:
Years Ended September 30,
----------------------------------------
1998 1999 2000
---------- --------- --------
Current $ 322,595 $ 235,448 $ 303,926
Deferred (58,716) 11,773 (48,349)
--------- --------- ---------
Total $ 263,879 $ 247,221 $ 255,577
========= ========= =========
The provision for income taxes differs from that computed at the statutory
corporate rate of 34% as follows:
Years Ended September 30,
------------------------------------
1998 1999 2000
---------- ----------- ---------
Tax at statutory rate $ 244,169 $ 256,852 $ 250,698
Increase (decrease) in taxes
resulting from:
State taxes, net of federal
benefit 9,097 8,457 25,849
Non-deductible expenses 25,222 8,310 7,977
Tax-exempt income (15,381) (18,533) (22,820)
Other 772 (7,865) (6,127)
--------- ---------- ---------
Provision for income taxes $ 263,879 $ 247,221 $ 255,577
========= ========== =========
31
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(8) INCOME TAXES - (CONTINUED)
--------------------------
Deferred income tax expense (benefit) results from timing differences in
the recognition of income and expense for tax and financial reporting
purposes. The sources of the differences and the related tax effects are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------
1998 1999 2000
------------- ------------ ---------
<S> <C> <C> <C>
Difference from depreciation methods used
for tax purposes and financial statements $ (1,347) $ 128 $ 2,035
Use of different methods for computing
loan loss reserves for tax purposes and
financial statements (2,895) (40,494) (23,826)
Difference from accretion methods used
for mortgage-backed security discounts
for tax purposes and financial statements (3,306) (5,858) (8,654)
Federal Home Loan Bank stock
dividends (4,773) -- --
Difference from cash basis accounting
for tax purposes and accrual basis
accounting for financial statements (31,683) 92,253 7,644
Use of different methods for computing
net deferred loan fees for tax purposes
and financial statements (3,185) (4,477) (3,562)
Deferred compensation (35,544) (21,587) (22,964)
Unearned compensation 9,675 (4,743) (1,023)
Other book/tax differences 14,342 (3,449) 2,001
------------ ----------- ------------
Increase (decrease) in deferred income taxes $ (58,716) $ 11,773 $(48,349)
============ =========== =============
</TABLE>
The components of deferred tax assets and liabilities consisted of:
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1999 2000
---------------- ------------
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 23,201 $ 23,210
Deferred compensation 91,347 114,311
Unearned compensation 43,935 44,958
---------------- ------------
Total gross deferred tax assets 158,483 182,479
---------------- ------------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation 27,221 29,256
Federal Home Loan Bank stock dividends 31,601 31,601
Bad debt reserves for tax purposes in excess of
base year bad debt reserves 119,085 95,268
Cash basis conversion for tax purposes 181,622 189,266
Book accretion in excess of tax accretion
on mortgage-backed security discounts 80,560 71,906
Net unrealized gains on investments 10,371 4,949
Deferred loan fees 45,652 42,090
Other 6,551 8,552
Total gross deferred tax liabilities 502,663 472,888
---------------- ------------
Net deferred tax liabilities $ 344,180 $ 290,409
================ ============
</TABLE>
32
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(8) INCOME TAXES - (CONTINUED)
--------------------------
In accordance with SFAS No. 109, a deferred tax liability has not been
recognized for tax basis bad debt reserves of approximately $1,406,992 of
the Association that arose in tax years that began prior to December 31,
1987. At September 30, 2000, the amount of the deferred tax liability that
had not been recognized was approximately $520,587. 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 savings institution,' as defined by the Internal Revenue Code,
certain distributions are made with respect to the stock of the
Association, or the bad debt reserves are used for any purpose other than
absorbing bad debts. In August 1996, new legislation was enacted which
provided for the recapture into taxable income of certain amounts
previously deducted as additions to the bad debt reserves for income tax
purposes. The Association began changing its method of determining bad
debt reserves for tax purposes during 1996. The amounts to be recaptured
for income tax reporting purposes are considered by the Association in the
determination of the net deferred tax liability.
(9) CUSTOMER DEPOSITS
-----------------
Deposit account balances at September 30, 1999 and 2000, are summarized as
follows:
<TABLE>
<CAPTION>
1999 2000
-------------------------- -------------------------
Amount % Amount %
------------ -------- ------------- -----
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 961,565 1.9 $ 976,633 2.0
Interest-bearing checking accounts 8,841,425 17.1 7,818,174 16.2
Money market accounts 2,852,975 5.5 2,221,860 4.6
Passbook savings 5,668,897 11.0 5,326,473 11.0
Certificates of deposit 33,222,126 64.5 31,913,288 66.2
------------ ---- ------------- -----
$ 51,546,988 100.0% $ 48,256,428 100.0%
============ ===== ============= ======
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $3,087,014 and $2,306,281 at
September 30, 1999 and 2000, respectively.
At September 30, 2000 scheduled maturities of certificates of deposit are
as follows:
2001 $ 26,223,356
2002 4,926,308
2003 425,908
2004 315,216
2005 22,500
-------------
$ 31,913,288
=============
33
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(10) ADVANCES FROM FEDERAL HOME LOAN BANK
-------------------------------------
The advances listed below were obtained from the Federal Home Loan Bank of
Des Moines and secured by Federal Home Loan Bank stock, loans, investment
securities and deposit accounts. Advances from the Federal Home Loan Bank
at September 30, are summarized as follows:
1999 2000
----------- ----------
109 day, 5.41% fixed, interest payable at
maturity, matured November 1999 $ 1,000,000 $ --
90 day, 5.42% fixed, interest payable at
maturity, matured December 1999 1,000,000 --
Ten year, 5.05% adjustable (FHLB DSM 1-
year cost of funds + .20%), interest payable
monthly, paid during year ended September 30,
2000 1,000,000 --
63 day, 6.71% fixed, interest payable at
maturity, matures October 2000 -- 1,500,000
64 day, 6.68% fixed, interest payable at
maturity, matures October 2000 -- 1,000,000
95 day, 6.71% fixed, interest payable at
maturity, matures October 2000 -- 1,000,000
61 day, 6.67% fixed, interest payable at
maturity, matures November 2000 -- 1,000,000
61 day, 6.67% fixed, interest payable at
maturity, matures November 2000 -- 1,000,000
61 day, 6.67% fixed, interest payable at
maturity, matures November 2000 -- 1,100,000
93 day, 6.73% fixed, interest payable at
maturity, matures November 2000 -- 1,000,000
92 day, 6.66% fixed, interest payable at
maturity, matures December 2000 -- 1,000,000
Two year, 6.87% fixed, interest payable
monthly, matures March 2002 -- 1,000,000
Fifteen year, 6.00% fixed, $8,439 due monthly
including interest, matures June 2013 946,577 900,864
Fifteen year, 5.79% fixed, $8,326 due monthly
including interest, matures August 2013 953,153 907,227
34
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(10) ADVANCES FROM FEDERAL HOME LOAN BANK - (CONTINUED)
--------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Fifteen year, 5.50% fixed, $8,171 due monthly
including interest, matures September 2013 955,848 909,206
Seventeen year, 5.99% adjustable (Reprice annually at
FHLB-DM 1 year advance rate), interest payable
monthly, matures November 2016 - 800,000
------------ -------------
$ 5,855,578 $ 13,117,297
============ =============
</TABLE>
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 fifteen year 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:
Aggregate
Annual
Year Ended September 30 Maturities
----------------------- --------------
2001 $ 8,746,460
2002 1,155,126
2003 164,305
2004 174,029
2005 184,328
Later Years 2,693,049
--------------
$ 13,117,297
==============
(11) EMPLOYEE BENEFITS
The Association has established a 401(k) employee benefit plan that covers
all employees meeting specific age and length of service requirements.
Total expenses incurred for the plan were $10,581, $15,394 and $16,309 for
the years ended September 30, 1998, 1999 and 2000, 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, 1998, 1999 and 2000 was $30,473, $32,353 and $34,348.
35
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(11) EMPLOYEE BENEFITS - (CONTINUED)
Effective June 1, 1997, the Association adopted a deferred compensation
plan for outside directors. The benefits will vest over a period of five
to fifteen 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 years ended
September 30, 1998, 1999 and 2000 was $25,992, $25,992 and $27,716.
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.
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 September 30, 2000, the loan had an outstanding balance
of $393,819 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, 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 $122,070 in 1998, $83,990 in 1999 and $85,648 in 2000.
36
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(11) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
A summary of ESOP shares at September 30, 2000 is as follows:
Allocated shares 35,457
Shares committed for release 8,217
Unreleased shares 38,545
-------
Total 82,219
=======
Fair value of unreleased shares $ 399,904
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 Plan authorizes
the Company to grant up to 41,109 shares of the Company stock, of which
37,638 shares have been awarded as of September 30, 2000. 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 $74,074 $78,574 and $80,825 of compensation expense
under the MRDP in 1998, 1999 and 2000.
(12) STOCK OPTION PLAN
-----------------
The company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
The Company's 1995 Stock Option and Incentive Plan has authorized the
grant of options to management personnel for up to 102,774 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 1999; risk-free interest rate of 6.25%; dividend yield of
4.74%, 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.
37
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(12) STOCK OPTION PLAN - (CONTINUED)
-------------------------------
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
1998 1999 2000
--------- ---------- ----------
Pro forma net income $ 434,093 $ 487,643 $ 460,939
========= ========== ==========
Pro forma basic earnings
per share: $ .63 $ .71 $ .70
========= ========== ==========
Pro forma diluted earnings
per share: $ .61 $ .70 $ .70
========= ========== ==========
A summary of the Company's stock option activity, and related
information for the years ended September 30 follows:
<TABLE>
<CAPTION>
1998 1999 2000
----------------------------- ------------------------- --------------------------
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 76,692 $ 11.01 76,692 $ 11.01 80,892 $ 11.02
Granted - - 4,200 11.25 - -
Exercised - - - - - -
Forfeited - - - - - -
-------- --------- --------
Outstanding-end of year 76,692 11.01 80,892 11.02 80,892 11.02
======== ========= ========
Exercisable at end of
year 29,837 10.90 45,174 10.94 61,352 10.96
Weighted-average fair
value of options
granted during the
year N/A $.78 N/A
</TABLE>
Exercise prices for options outstanding as of September 30, 2000 ranged
from $10.78 to $15.53. The weighted-average remaining contractual life of
those options is 5.5 years.
All references in this note to the number of shares and per share amounts
have been restated to reflect the 20% stock dividend during 1999.
38
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(13) 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>
1998 1999 2000
-------------------------------- -------------------------------- ----------------------------------
Per Share Per Share Per Share
Income Shares Amt. Income Shares Amt. Income Shares Amt.
----------- --------- ------ --------- -------- -------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available
to Common
Stockholders $ 454,265 689,326 0.66 $ 508,226 689,768 0.74 $ 481,771 653,878 0.74
----------- ---------- ======= ----------- ------- ====== ----------- ------- ========
Effect of dilutive
securities - 19,896 - 7,205 - -
----------- ---------- ----------- ------- ----------- --------
Diluted EPS:
Income available to
Stockholders plus
stock options $ 454,265 709,222 0.64 $ 508,226 696,973 0.73 $ 481,771 653,878 0.74
=========== ========== ======= =========== ======= ====== =========== ======= ======
</TABLE>
(14) 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:
1999 2000
---------------- ---------------
Beginning balance $ 705,726 $ 924,891
Originations and advances 444,218 349,010
Principal repayments (225,053) (152,180)
--------------- --------------
Ending balance $ 924,891 $ 1,121,721
=============== ==============
Crawford Mortgage, Inc. leases office facilities from an officer of the
corporation on a month-to-month basis. Current monthly rent is $1,200.
Rent charged to operations for the years ended September 30, 1998, 1999
and 2000 was $18,000, $17,700 and $14,400, respectively.
39
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(15) 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 $2,741,365 at
September 30, 2000.
(16) ADVERTISING COSTS
-----------------
The Company incurred $42,423, $47,935 and $54,124 in non-direct response
advertising costs during the years ended September 30, 1998, 1999 and
2000, respectively. The Company incurred no direct response advertising
costs during the three years.
(17) 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, 2000, that
the Association meets all capital adequacy requirements to which it is
subject.
40
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(17) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
---------------------------------------------
As of September 30, 2000, the most recent notification from the 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>
Actual
-------------------
Amount Ratio
------ ------
<S> <C> <C>
As of September 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 9,219 29.9%
Core Capital
(to Adjusted Tangible Assets) 9,156 13.3%
Tangible Capital
(to Tangible Assets) 9,156 13.3%
Tier 1 Capital
(to Risk-Weighted Assets) 9,156 29.7%
As of September 30, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) 8,964 27.5%
Core Capital
(to Adjusted Tangible Assets) 8,901 12.3%
Tangible Capital
(to Tangible Assets) 8,901 12.3%
Tier 1 Capital
(to Risk-Weighted Assets) 8,901 27.3%
</TABLE>
<TABLE>
<CAPTION>
For Capital
Adequacy Purposes
-------------------------------------------------------------------------
Amount Ratio
--------- -----
<S> <C> <C> <C> <C>
As of September 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) greater than or equal to $ 2,467 greater than or equal to 8.0%
Core Capital
(to Adjusted Tangible Assets) greater than or equal to 2,749 greater than or equal to 4.0%
Tangible Capital
(to Tangible Assets) greater than or equal to 1,031 greater than or equal to 1.5%
Tier 1 Capital
(to Risk-Weighted Assets) N/A
As of September 30, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) greater than or equal to 2,611 greater than or equal to 8.0%
Core Capital
(to Adjusted Tangible Assets) greater than or equal to 2,887 greater than or equal to 4.0%
Tangible Capital
(to Tangible Assets) greater than or equal to 1,083 greater than or equal to 1.5%
Tier 1 Capital
(to Risk-Weighted Assets) N/A
</TABLE>
<TABLE>
<CAPTION>
Prompt Corrective
Action Provisions
---------------------------------------------------------------------------
Amount Ratio
------- ------
<S> <C> <C> <C> <C>
As of September 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) greater than or equal to $ 3,083 greater than or equal to 10.0%
Core Capital
(to Adjusted Tangible Assets) greater than or equal to 3,436 greater than or equal to 5.0%
Tangible Capital
(to Tangible Assets) N/A
Tier 1 Capital
(to Risk-Weighted Assets) greater than or equal to 1,850 greater than or equal to 6.0%
As of September 30, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) greater than or equal to 3,264 greater than or equal to 10.0%
Core Capital
(to Adjusted Tangible Assets) greater than or equal to 3,609 greater than or equal to 5.0%
Tangible Capital
(to Tangible Assets) N/A
Tier 1 Capital
(to Risk-Weighted Assets) 1,958 greater than or equal to 6.0%
</TABLE>
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents and certificates of deposit - For these
short-term instruments, the carrying amount approximates fair value.
41
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
-------------------------------------------------------------------
Available-for-sale and held-to-maturity securities - Fair values for
investment securities equal quoted market prices, if available. If quoted
market prices are not available, fair values are estimated based on quoted
market prices of similar securities.
Loans held for sale - These instruments are carried in the consolidated
statements of financial condition 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.
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.
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.
42
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
-------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
September 30, 1999 September 30, 2000
-------------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,316,542 $ 2,316,542 $ 2,981,902 $ 2,981,902
Certificates of deposit 1,664,000 1,664,000 80,000 80,000
Available-for-sale securities 183,031 183,031 173,375 173,375
Held-to-maturity securities 20,028,363 19,540,819 19,638,443 19,242,915
Investment in FHLB stock 365,400 365,400 657,100 657,100
Held-to-maturity mortgage-backed
securities 2,483,912 2,525,001 2,906,678 2,924,243
Loans held for sale 79,262 82,977 386,292 390,846
Loans, net of allowance for loan losses 40,090,543 39,883,000 44,090,649 43,526,000
Accrued interest receivable 513,563 513,563 560,413 560,413
Financial liabilities:
Deposits 51,546,988 51,125,000 48,256,428 48,115,000
Federal Home Loan Bank advances 5,855,578 5,492,000 13,117,297 12,828,000
Advances from borrowers for taxes
and insurance 354,010 354,010 378,578 378,578
Unrecognized financial instruments
(net of contract amount):
Commitments to extend credit -- -- -- --
Letters of credit -- -- -- --
Unused lines of credit -- -- -- --
</TABLE>
43
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statements of financial condition and condensed
statements of income and cash flows for NS&L Bancorp, Inc. should be read
in conjunction with the consolidated financial statements and notes
thereto.
Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
September 30,
------------------------------
ASSETS 1999 2000
------ ------------ ------------
<S> <C> <C>
Cash $ 513,404 $ 304,091
Certificates of deposit 80,000 80,000
Investment securities available-for-sale, at fair value 183,031 173,375
Investment in subsidiary 9,234,425 8,975,770
Loan to ESOP 459,248 393,819
Land 302,865 302,865
Other assets 13,120 5,827
------------- -------------
Total assets $ 10,786,093 $ 10,235,747
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 98 $ 399
Deferred income taxes, net 10,836 5,413
Dividends payable 118,699 106,381
Stockholders' equity 10,656,460 10,123,554
------------------------------
Total liabilities and stockholders' equity $ 10,786,093 $ 10,235,747
==============================
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- ------------
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiary $421,452 $500,298 $472,397
Interest income 61,140 50,675 46,282
Dividend income 6,916 8,856 8,530
Gain on sale of investments 18,125 -- --
Other income 715 -- --
------------- ------------- ------------
Total income 508,348 559,829 527,209
------------- ------------- ------------
Expenses:
Professional fees 15,304 22,456 20,381
Other 25,824 28,385 23,231
Income tax 12,955 762 1,826
------------- ------------- ------------
Total expenses 54,083 51,603 45,438
------------- ------------- ------------
Net income $454,265 $508,226 $481,771
============= ============= ============
</TABLE>
44
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1998, 1999 and 2000
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 454,265 $ 508,226 $ 481,771
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of subsidiary (421,452) (500,298) (472,397)
Gain on sale of investments (18,125) -- --
Net change in operating accounts:
Deferred income taxes, net 815 -- --
Other assets 13,979 (1,784) 7,292
Liabilities (17,111) (582) 301
----------- --------- -----------
Net cash from
operating activities 12,371 5,562 16,967
----------- --------- -----------
Cash flows from investing activities:
Dividends from subsidiary 1,000,000 -- 950,000
Receipt of principal payment on
ESOP loan 20,907 16,502 12,953
Purchase of investment securities -- -- (5,000)
Proceeds from sales of investments 43,125 -- --
Net change in certificates of deposit 99,000 -- --
----------- --------- -----------
Net cash from investing activities 1,163,032 16,502 957,953
----------- --------- -----------
Cash flows from financing activities:
Cash dividends paid (311,963) (350,012) (399,266)
Purchase of treasury stock (1,746,051) (14,237) (784,967)
----------- --------- -----------
Net cash used in financing
activities (2,058,014) (364,249) (1,184,233)
----------- --------- -----------
Net decrease in cash and
cash equivalents (882,611) (342,185) (209,313)
Cash and cash equivalents at
beginning of period 1,738,200 855,589 513,404
----------- --------- -----------
Cash and cash equivalents at
end of period $ 855,589 $ 513,404 $ 304,091
=========== ========= ===========
</TABLE>
45
<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 27, 2000, there were
252 stockholders of record and 661,882 shares of common stock outstanding
(including unreleased ESOP shares of 38,545). This does not reflect the number
of persons or entities who hold stock in nominee or "street name". On September
20, 2000, the Company declared a $.16 common stock dividend payable October 31,
2000 to stockholders of record on October 16, 2000. 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. Share price and dividend information has been adjusted
for the first two quarters of 1999 to reflect the 20% stock dividend paid in
April 1999.
Fiscal 1999 Fiscal 2000
----------- -----------
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
First Quarter $12.50 $10.42 $0.133 $11.50 $10.00 $0.16
Second Quarter $13.54 $11.25 $0.133 $11.75 $ 9.88 $0.16
Third Quarter $15.00 $12.75 $0.16 $10.75 $10.00 $0.16
Fourth Quarter $12.88 $11.50 $0.16 $10.50 $10.00 $0.16
46
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NS&L BANCORP, INC. NEOSHO SAVINGS AND
LOAN ASSOCIATION, F.A.
DIRECTORS: DIRECTORS:
<S> <C>
George A. Henry George A. Henry
Chairman of the Board Chairman of the Board
NS&L Bancorp, Inc. Neosho Savings and Loan Association, F.A.
C.R. 'Rick' Butler C.R. 'Rick' Butler
President and Chief Executive Officer President
NS&L Bancorp, Inc. Neosho Savings and Loan Association, F.A.
Jon C. Genisio Jon C. Genisio
Owner Owner
Jon's Pharmacy, Inc. Jon's Pharmacy, Inc.
John D. Mills John D. Mills
President President
Mills Park Centre Furniture & Appliance Mills Park Centre Furniture &Appliance
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
Larry Neff Larry Neff
President President
Red Carpet Enterprises, Inc. Red Carpet Enterprises, Inc.
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>
47
<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, LLP
Washington, D.C.
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ANNUAL MEETING
The Annual Meeting of Stockholders will be held Wednesday, January 17,
2001, at 3:00 p.m., Central Time, at the branch office of Neosho Savings and
Loan Association, F.A 713 Neosho Boulevard, Neosho, Missouri.
--------------------------------------------------------------------------------
A COPY OF THE COMPANY'S FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD
DATE FOR VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS UPON WRITTEN REQUEST TO
THE SECRETARY, NS&L BANCORP, INC., 111 EAST MAIN STREET, NEOSHO, MISSOURI 64850.
48
