-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWeTHdxt+hs2HucSMU+V67ssHP5uF6JAWGswnNt4yQz/C+9VoTW0wKCDfMSz0pdH zAEW6gY1EZ3/vc4tEk97OQ== 0000950135-01-502521.txt : 20010815 0000950135-01-502521.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950135-01-502521 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LSB CORP CENTRAL INDEX KEY: 0001143848 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 043557612 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-32955 FILM NUMBER: 1711805 BUSINESS ADDRESS: STREET 1: C/O LSB CORP. STREET 2: 30 MASSACHUSETTS AVE. CITY: NORTH ANDOVER STATE: MA ZIP: 01845 BUSINESS PHONE: 9789757500 10-Q 1 b40079lbe10-q.txt LSB CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ___________ to ___________ Commission File Number 0-32955 ---------------- LSB CORPORATION (Exact name of Registrant as specified in its charter) Massachusetts 04-3557612 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 Massachusetts Ave., North Andover MA 01845 (Address of principal executive office) (Zip Code) ---------------- (978) 975-7500 (Registrant's telephone number, including area code) ---------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Class Outstanding as of August 8, 2001 - ----- -------------------------------- Common Stock, par value $0.10 per share 4,375,050 2 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, DC 20429 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended June 30, 2001 [ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from _____ to _____ FDIC Certificate No. 23288 -------------------- LAWRENCE SAVINGS BANK (Exact name of registrant as specified in its Charter) MASSACHUSETTS 04-1528790 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 30 MASSACHUSETTS AVENUE, NORTH ANDOVER, MA 01845 (Address of principal executive offices) (Zip Code) -------------------- (978) 725-7500 (Registrant's telephone number, including area code) -------------------- Indicated by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of August 8, 2001 - ----- -------------------------------- Common Stock, par value $.10 per share 4,375,050 shares 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2001 2000 Unaudited Audited ------------- ---------------- (In Thousands) ASSETS Assets: Cash and due from banks $ 9,066 $ 7,086 Federal funds sold 95 15,427 ------------ --------------- Total cash and cash equivalents 9,161 22,513 Investment securities held to maturity (market value of $150,114 in 2001 and $118,393 in 2000) 148,482 117,806 Investment securities available for sale (amortized cost of $24,437 in 2001 and $32,840 in 2000) 24,827 33,027 Federal Home Loan Bank stock, at cost 5,950 5,950 Loans, net of allowance for loan losses (Notes 2 and 6) 229,644 218,360 Bank premises and equipment 3,290 3,337 Accrued interest receivable 2,774 2,969 Other real estate owned 27 32 Deferred income tax asset 6,636 7,511 Other assets 1,381 1,585 ------------- ---------------- Total assets $ 432,172 $ 413,090 ============= ================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Interest bearing deposits (Note 3) $ 265,830 $ 259,325 Non-interest bearing deposits 15,412 11,223 Federal Home Loan Bank advances 87,508 82,283 Securities sold under agreements to repurchase 2,375 -- Other borrowed funds 3,908 3,878 Advance payments by borrowers for taxes and insurance 529 513 Other liabilities 3,424 3,555 ------------- ---------------- Total liabilities 378,986 360,777 ------------- ---------------- Stockholders' equity: Preferred stock, $.10 par value per share; 5,000,000 shares authorized, none issued. -- -- Common stock, $.10 par value per share; 20,000,000 shares authorized; 4,371,500 and 4,364,800 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively 437 436 Additional paid-in capital 57,740 57,711 Accumulated deficit (5,249) (5,956) Accumulated other comprehensive income 258 122 ------------- ---------------- Total stockholders' equity 53,186 52,313 ------------- ---------------- Total liabilities and stockholders' equity $ 432,172 $ 413,090 ============= ================
The accompanying notes are an integral part of these unaudited financial statements. 2 4 LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months Six months ended ended June 30, June 30, ---------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- (In thousands except share data) Interest and dividend income: Loans (Note 4) $ 4,552 $ 4,071 $ 9,080 $ 8,107 Investment securities held to maturity 2,141 2,083 4,183 4,102 Investment securities available for sale 408 823 847 1,652 Federal Home Loan Bank stock 93 111 199 215 Other interest and dividend income 88 18 371 45 --------- --------- --------- --------- Total interest and dividend income 7,282 7,106 14,680 14,121 --------- --------- --------- --------- Interest expense: Deposits (Note 5) 2,716 2,363 5,482 4,574 Borrowed funds 1,194 1,007 2,535 2,122 Other borrowed funds 97 631 186 1,083 --------- --------- --------- --------- Total interest expense 4,007 4,001 8,203 7,779 --------- --------- --------- --------- Net interest income 3,275 3,105 6,477 6,342 Provision for loan losses 50 -- 50 -- --------- --------- --------- --------- Net interest income after provision for loan losses 3,225 3,105 6,427 6,342 --------- --------- --------- --------- Non-interest income: Loan servicing fees 28 91 86 173 Deposit account fees 141 125 273 249 Gains on sales of mortgage loans 34 5 38 15 Other real estate owned income -- 51 -- 48 Other income 95 75 182 147 --------- --------- --------- --------- Total non-interest income 298 347 579 632 --------- --------- --------- --------- Non-interest expense: Salaries and employee benefits 1,306 1,261 2,601 2,503 Occupancy and equipment expenses 209 195 423 390 Professional expenses 143 146 310 269 Data processing expenses 178 142 336 297 Other expenses 467 356 841 766 --------- --------- --------- --------- Total non-interest expenses 2,303 2,100 4,511 4,225 --------- --------- --------- --------- Income before income taxes 1,220 1,352 2,495 2,749 Income tax expense 430 456 914 953 --------- --------- --------- --------- Net income $ 790 $ 896 $ 1,581 $ 1,796 ========= ========= ========= ========= Average shares outstanding 4,371,500 4,356,954 4,370,529 4,356,877 Average diluted shares outstanding 4,532,275 4,416,809 4,524,479 4,417,032 ========= ========= ========= ========= Basic earnings per share $ 0.18 $ 0.21 $ 0.36 $ 0.41 Diluted earnings per share $ 0.17 $ 0.20 $ 0.35 $ 0.40 ========= ========= ========= =========
The accompanying notes are an integral part of these unaudited financial statements. 3 5 LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Additional Other Total Common Paid-In (Accumulated Comprehensive Stockholders' Stock Capital Deficit) Income (Loss) Equity ------- ---------- ------------ ------------- ------------- (In Thousands) Balance at December 31, 1999 $ 436 $57,668 $(9,145) $ (551) $ 48,408 Net income -- -- 1,796 -- 1,796 Other comprehensive income unrealized loss on securities available for sale (tax effect $11) -- -- -- (17) (17) -------- Total comprehensive income 1,779 Exercise of stock options -- 41 -- -- 41 Dividends declared and paid ($0.12 per share) -- -- (523) -- (523) ----- ------- ------- ------ -------- Balance at June 30, 2000 $ 436 $57,709 $(7,872) $ (568) $ 49,705 ===== ======= ======= ====== ======== Balance at December 31, 2000 $ 436 $57,711 $(5,956) $ 122 $ 52,313 Net income -- -- 1,581 -- 1,581 Other comprehensive income unrealized gain on securities available for sale (tax effect $67) -- -- -- 136 136 -------- Total comprehensive income 1,717 Exercise of stock options 1 29 -- -- 30 Dividends declared and paid ($0.20 per share) -- -- (874) -- (874) ----- ------- -------- ------ -------- Balance at June 30, 2001 $ 437 $57,740 $(5,249) $ 258 $ 53,186 ===== ======= ======= ====== ========
The accompanying notes are an integral part of these unaudited financial statements. 4 6 LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, -------------------------- 2001 2000 ----------- --------- (In Thousands) Cash flows from operating activities: Net income $ 1,581 $ 1,796 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 50 -- (Gains) losses on sales of mortgage loans and mortgage-backed securities (38) (15) Net gains on sales of other real estate owned -- (39) Depreciation and amortization of premises and equipment, investments and other assets 119 380 Loans originated for sale (4,984) (933) Proceeds from sales of mortgage loans 3,405 948 Decrease (increase) on accrued interest receivable 195 (163) Decrease in deferred income tax asset 808 841 Decrease in other assets 204 36 Increase (decrease) in advance payments by borrowers 16 (158) (Decrease) increase in other liabilities (131) 214 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,225 2,907 --------- --------- Cash flows from investing activities: Proceeds from maturities of investment securities held to maturity 273,687 2,611 Proceeds from maturities of investment securities available for sale 6,118 -- Purchases of investment securities held to maturity (309,810) (16,430) Purchases of mortgage-backed securities held to maturity (4,335) -- Proceeds from sale of investment securities available for sale -- 1,319 Principal payments of securities held to maturity 9,868 4,823 Principal payments of securities available for sale 2,366 1,432 Purchase of other equity securities (46) -- Increase in loans, net (9,717) (2,207) Proceeds from sales/payments of OREO 5 521 Purchase of Bank premises and equipment (193) (266) --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES (32,057) (8,197) --------- --------- Cash flows from financing activities: Net increase in deposits 10,694 7,783 Additions to Federal Home Loan Bank advances 30,000 481,950 Payments on Federal Home Loan Bank advances (24,775) (497,156) Net increase in agreements to repurchase securities 2,375 41,933 Increase (decrease) in other borrowed funds 30 (28,921) Dividends paid (874) (523) Proceeds from exercise of stock options 30 41 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 17,480 5,107 --------- --------- Net decrease in cash and cash equivalents (13,352) (183) Cash and cash equivalents, beginning of period 22,513 7,597 --------- --------- Cash and cash equivalents end of period $ 9,161 $ 7,414 ========= ========= Cash paid during the year for: Interest on deposits $ 5,482 $ 4,572 Interest on borrowed funds 2,782 3,055 Supplemental schedule of non-cash activities: Net change in valuation of investment securities available for sale 203 (28) ========= =========
The accompanying notes are an integral part of these unaudited financial statements. 5 7 LAWRENCE SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 1. BASIS OF PRESENTATION The unaudited consolidated financial statements of the Lawrence Savings Bank (the "Bank") and subsidiaries presented herein should be read in conjunction with the consolidated financial statements of the Bank as of and for the year ended December 31, 2000. In the opinion of management, the unaudited financial statements reflect all adjustments necessary for a fair presentation. Interim results are not necessarily indicative of results to be expected for the entire year. 2. The following table reflects the loan portfolio at June 30, 2001 and December 31, 2000: 6/30/01 12/31/00 ---------- --------- (In thousands) Residential mortgage loans $ 83,944 $ 77,926 Loans held for sale 1,617 -- Home equity loans 15,172 15,997 Construction loans 21,104 17,148 Commercial real estate loans 90,950 87,129 Commercial loans 19,323 22,602 Consumer loans 1,317 1,243 -------- -------- Total loans 233,427 222,045 Allowance for loan losses (3,783) (3,685) -------- -------- Total loans, net $229,644 $218,360 ======== ======== 3. The following table reflects the components of inest bearing deposits at June 30, 2001 and December 31, 2000: 6/30/01 12/31/00 -------- -------- (In thousands) NOW and Super NOW accounts $ 33,097 $ 29,731 Savings deposit accounts 41,709 38,813 Money market investment accounts 51,176 51,344 Certificates of deposit 112,220 112,239 Retirement accounts 27,628 27,198 -------- -------- Total interest bearing deposits $265,830 $259,325 ======== ======== 4. The following table lists the components of loan interest income for the three month and six month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended ------------------------ ------------------------- 6/30/01 6/30/00 6/30/01 6/30/00 ---------- ----------- ---------- ----------- (In Thousands) Residential mortgage loans $ 1,481 $ 1,417 $ 2,922 $ 2,848 Loans held for sale 12 1 14 4 Home equity loans 285 268 585 510 Construction loans 397 312 783 578 Commercial real estate loans 1,979 1,780 3,904 3,580 Commercial loans 371 267 816 534 Consumer loans 27 26 56 53 ---------- ----------- ---------- ----------- Total loan interest income $ 4,552 $ 4,071 $ 9,080 $ 8,107 ========== =========== ========== ===========
6 8 5. The following table lists the components of deposit interest expense for the three and six month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended ----------------------- ------------------------- 6/30/01 6/30/00 6/30/01 6/30/00 ----------- ----------- ---------- ----------- (In Thousands) NOW and Super NOW accounts $ 41 $ 34 $ 79 $ 66 Savings deposit accounts 201 195 390 387 Money market investment accounts 448 484 941 868 Certificates of deposit 1,641 1,300 3,301 2,551 Retirement accounts 385 350 771 702 ---------- ----------- ---------- ----------- Total deposit interest expense $ 2,716 $ 2,363 $ 5,482 $ 4,574 ========== =========== ========== ===========
6. The following table summarizes changes in the allowance for loan losses for the three and six month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended ----------------------- ------------------------- 6/30/01 6/30/00 6/30/01 6/30/00 ---------- ----------- ---------- ----------- Beginning balance $ 3,730 $ 3,393 $ 3,685 $ 3,381 Provision charged to operations 50 -- 50 -- Recoveries on loans previously charged-off 3 15 48 27 Loans charged-off -- -- -- -- --------- ----------- --------- ---------- Ending balance $ 3,783 $ 3,408 $ 3,783 $ 3,408 ========= =========== ========= ==========
7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Bank has made forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended) in this document that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Bank. Also, when words such as "believes," "expects," "anticipates" or similar expressions are used, forward-looking statements are being made. Stockholders should note that many factors, some of which are discussed elsewhere in this document and in the documents which we incorporate by reference, could affect the future financial results of the Bank and could cause the results to differ materially from those expressed in or incorporated by reference in this document. Those factors include fluctuations in interest rate, inflation, government regulations and economic conditions and competition in the geographic and business areas in which the Bank conducts its operations. RISK ASSETS Risk assets consist of non-performing loans and other real estate owned. Non-performing loans consist of both a) loans 90 days or more past due and b) loans placed on non-accrual because full collection of the principal balance is in doubt. Other real estate owned (OREO) is comprised of foreclosed properties where the Bank has formally received title or has possession of the collateral. Properties are carried at the lower of the investment in the related loan or the estimated fair value of the property or collateral less selling costs. Fair value of such property or collateral is determined based on independent appraisals and other relevant factors. Management periodically reviews property values and makes adjustments as required. Gains from sales of properties, net operating expenses and any subsequent provisions to increase the allowance for losses on real estate acquired by foreclosure are charged to other real estate owned expenses. Losses are charged to the allowance. The following table summarizes the Bank's risk assets for the period ended June 30, 2001, December 31, 2000 and June 30, 2000. The Bank continues to maintain a low level of risk assets which is below 1% for the three periods reported. 6/30/01 12/31/00 6/30/00 ------- -------- ------- (In thousands) Non-performing loans $ 10 $ 10 $ 98 Other real estate owned 27 32 37 ------ ----- ----- Total risk assets $ 37 $ 42 $ 135 ====== ===== ===== Risk assets as a percent of total assets 0.01% 0.01% 0.03% ===== ===== ===== 8 10 LIQUIDITY AND CAPITAL RESOURCES The Bank's primary sources of funds include collections of principal payments and prepayments on outstanding loans, increases in deposits, advances from the Federal Home Loan Bank of Boston (FHLB) and securities sold under agreements to repurchase. The Bank has a line of credit of $6.8 million with the FHLB. The Bank also has a $5.0 million unsecured Federal Funds line of credit. At June 30, 2001, stockholders' equity was $53.2 million as compared to $52.3 million at December 31, 2000. The increase during the first half of 2001 occurred due to net income of $1.6 million and was reduced by dividends of $0.9 million. The Bank's leverage ratio at June 30, 2001 and December 31, 2000 was 11.97% and 11.71%, respectively. The Bank exceeds all regulatory minimum capital ratio requirements as defined by the FDIC. THREE MONTHS ENDED JUNE 30, 2001 AND 2000 OVERVIEW The Bank has maintained risk assets below 1% for the past several years. Lawrence Savings Bank maintains its commitment to servicing the needs of the local community in the Merrimack Valley area. The loan portfolio is up by approximately $13.1 million and investment securities are up by $3.7 million as of June 30, 2001 from March 31, 2001. The growth in loans and investment securities was funded by maturities of Federal funds sold. The Bank reported net income of $0.8 million and $0.9 million for the three months ended June 30, 2001 and 2000, respectively. Net-interest income increased to $3.3 million in the second quarter 2001 up from $3.1 million for the same quarter in 2000. Offsetting this increase to net income was increased expenses associated with the reorganization of the Bank into a holding company structure which are included in non-interest expense. Non- interest income was down by $49 thousand in second quarter 2001 from second quarter 2000 and provisions for loan losses increased by $50 thousand in second quarter 2001 compared to same period in 2000. NET INTEREST INCOME Net interest income for the three months ended June 30, 2001 and 2000 was $3.3 million and $3.1 million, respectively. The net interest rate spread increased to 2.66% for the quarter ended June 30, 2001 from 2.64% for the same quarter of 2000. The increase was due to rates paid on interest bearing liabilities decreasing faster than the yields earned on interest earning assets. 9 11 The following table presents the components of net interest income and net interest spread:
Income/expense Yield/rate -------------------- ------------------ Quarter Ended ---------------------------------------------- 6/30/01 6/30/00 6/30/01 6/30/00 ------- ------- ------- ------- (In Thousands) Interest income and average yield: Loans $4,552 $4,071 8.10% 8.36% Investments, mortgage-backed securities and other earning assets 2,730 3,035 6.06 6.26 ------ ------ Total 7,282 7,106 7.20 7.31 ------ ------ ----- ---- Interest expense and average rate paid: Deposits 2,716 2,363 4.04 3.97 Federal Home Loan Bank advances 1,194 1,007 6.07 6.14 Securities sold under agreements to repurchase and other borrowed funds 97 631 7.76 6.48 ------ ------ Total 4,007 4,001 4.54 4.67 ------ ------ ---- ---- Net interest income $3,275 $3,105 ====== ====== Net interest rate spread 2.66% 2.64% ==== ====
INTEREST INCOME Interest income for the second quarter of 2001 was $7.3 million as compared to $7.1 million for the same quarter of 2000. Higher average balances increased interest income by $0.4 million. The impact of lower yields on average balances resulted in a decrease of $0.2 million to interest income. Yields on investment securities decreased to 6.06% for the second quarter 2001 as compared to 6.26% for same period of 2000 resulting in a decrease of $0.1 million to interest income. Lower average investment balances of $180.6 million versus $195.0 million for the quarters ended June 30, 2001 and 2000, respectively, resulted in $0.2 million decrease to interest income. Higher average loan balances of $225.3 million versus $195.9 million for the quarters ended June 30, 2001 and 2000, respectively, resulted in a $0.6 million increase of interest income. Yields on loans decreased to 8.10% for the quarter ended June 30, 2001 versus 8.36% for the same period in 2000. The impact of lower yields on loans resulted in a decrease of $0.1 million to interest income. INTEREST EXPENSE Interest expense for the second quarters of 2001 and 2000 was $4.0 million. The overall impact in average balances of interest bearing liabilities offset the impact to interest expense due to lower interest rates paid on these interest bearing liabilities. Lower cost of interest bearing liabilities resulted in a minimal impact in interest expense for the quarter ended June 30, 2001 from the same quarter of 2000. The average rates paid on deposits were 4.04% and 3.97% for the quarters ended June 30, 2001 and 2000. Average rates paid on Federal Home Loan Bank advances were 6.07% and 6.14% for the second quarter 2001 and 2000 while average rates paid on short-term and other borrowed funds were 7.76% and 6.48% for the same quarters resulted in $0.1 million increase to interest expense. Higher average deposit balances of $269.8 million versus $239.5 million for the quarters ended June 30, 2001 and 2000 resulted in a $0.3 million increase in interest expense. Lower average borrowed funds of $84.0 million versus $105.1 million for the same quarters in 2001 and 2000, respectively, resulted in a $0.4 million decrease in interest expense. 10 12 PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses was $50 thousand and zero for the quarters ended June 30, 2001 and 2000. The following table shows the allowance for loan losses as a percent of total loans: 6/30/01 12/31/00 6/30/00 -------- -------- ------- (In thousands) Non-performing loans $ 10 $ 10 $ 98 Allowance for loan losses $3,783 $3,685 $3,408 Allowance for loan losses as a percent of total loans 1.62% 1.66% 1.70% The allowance for the loan losses balance reflects management's assessment of losses and is based on a review of the risk characteristics of the loan portfolio. The Bank considers many factors in determining the adequacy of the allowance for loan losses. Collateral value on a loan by loan basis, trends of loan delinquencies on a portfolio segment level, risk classification identified in the Bank's regular review of individual loans, and economic conditions are primary factors in establishing allowance levels. The allowance level is adequate to absorb estimated credit losses associated with the loan and lease portfolio, including all binding commitments to lend and off-balance sheet credit instruments. The allowance for loan losses reflects all information available at the end of each period. The increase in the allowance since March 31, 2001 occurred because the Bank made provisions for loan losses of $50 thousand during the second quarter of 2001 and had $3 in loan loss recoveries during the same time period. NON-INTEREST INCOME Non-interest income decreased by $49 thousand for the quarter ended June 30, 2001 versus 2000. Other Real Estate Owned (OREO) income decreased by $51 thousand due to a gain on the sale of OREO property during the second quarter 2000, which did not occur in the second quarter 2001. The increase in deposit account fees, debit card fees and gains on sales of mortgage loans offset the decline in loan fees due to writedowns of mortgage servicing rights and lower late charges received on commercial loans. NON-INTEREST EXPENSE Non-interest expense was $2.3 million and $2.1 million for the quarters ended June 30, 2001 and 2000, respectively. The increase in non-interest expense can be attributable to expenses associated with the reorganization of the Bank into a holding company structure and shareholders' expenses of the Bank in connection with this reorganization. Holding company expenses were $38 thousand in the second quarter 2001. Shareholders' expenses increased by $44 thousand for the second quarter 2001. In addition, data processing expenses increased by $36 thousand and salaries and employee benefits increased by $45 thousand due to normal employee raises. INCOME TAXES The Bank reported an income tax expense of $430 thousand as compared to income tax expense of $456 thousand for the quarters ended June 30, 2001 and 2000 representing an effective tax rate of 35.2% and 33.7%, respectively. SIX MONTHS ENDED JUNE 30, 2001 AND 2000 OVERVIEW The Bank reported net income of $1.6 million and $1.8 million for the six months ended June 30, 2001 and 2000, respectively. The decrease was primarily due to non-interest expense increasing to $4.5 11 13 million for the first half of 2001 compared to $4.2 million for the same period in 2000. The increase to non-interest expense can be attributed to expenses associated with the reorganization of the Bank into a holding company structure, shareholders expenses of the Bank in connection with this reorganization, additional data processing expenses and an increase in salaries and employee benefits due to normal employees raises. NET INTEREST INCOME FROM OPERATIONS Net interest income for the six months ended June 30, 2001 and 2000 was $6.5 million and $6.3 million, respectively. The net interest rate spread decreased to 2.65% from 2.73%. The rates paid on interest bearing liabilities increased more than the yield on interest bearing assets. The following table presents the components of net interest income and net interest spread:
Income/expense Yield/rate -------------------- -------------------- Six Months Ended ----------------------------------------------- 6/30/01 6/30/00 6/30/01 6/30/00 ------- ------- ------- ------- (In Thousands) Interest income and average yield: Loans $ 9,080 $ 8,107 8.24% 8.31% Investments, mortgage-backed securities and other earning assets 5,600 6,014 6.21 6.22 ------- ------- Total 14,680 14,121 7.33 7.27 ------- ------- ----- ---- Interest expense and average rate paid: Deposits 5,482 4,574 4.15 3.86 Federal Home Loan Bank advances 2,535 2,122 6.21 5.94 Short-term and other borrowed funds 186 1,083 8.57 6.29 ------- ------- Total 8,203 7,779 4.68 4.54 ------- ------- ----- ---- Net interest income $ 6,477 $ 6,342 ======== ======= Net interest rate spread 2.65% 2.73% ===== ====
INTEREST INCOME Interest income for the first half of 2001 was $14.7 million as compared to $14.1 million for the same period of 2000. The increase of $0.6 million is primarily due to increased average balances for the loan portfolios. The yield on investments decreased to 6.21% in the first half of 2001 as compared to 6.22% in the same period of 2000. Lower yields on investments had minimal impact to interest income. Lower average yields on loans also resulted in a minimal impact to interest income. Yields on loans were 8.24% and 8.31% for the six months ended June 30, 2001 and 2000, respectively. Higher average loan balances of $222.1 million versus $196.3 million for the six months ended June 30, 2001 and 2000 resulted in a $1.0 million increase to interest income. Lower average investment balances of $182.0 million versus $194.3 million for the same periods resulted in an decrease of $0.4 million interest income. INTEREST EXPENSE Interest expense for the first half of 2001 and 2000 was $8.2 million and $7.8 million, respectively. Rates were higher during the first six months of 2001 as compared to the same period of 2000; this resulted in a $0.8 million increase in interest expense. Higher average interest paying liability balances resulted in a $0.4 million decrease in interest expense, due to a change in the interest bearing liabilities mix. Higher costs of deposits resulted in a $0.3 million increase of interest expense. The average rate paid on deposits was 4.15% and 3.86% for the six months ended June 30, 2001 and 2000. The average rate paid on Federal Loan Bank advances was 6.21% and 5.94% for the first half of 2001 and 2000, 12 14 respectively. The average rate paid on short-term and other borrowed funds was 8.57% and 6.29% for the same periods. Combined, FHLB advances and short-term and other borrowed funds increased interest expense by $0.5 million. Higher average deposit balances of $266.4 million versus $238.3 million for the six months ended June 30, 2001 and 2000, respectively, resulted in a $0.6 million increase of interest expense. Lower average borrowed funds of $86.7 million versus $106.4 million for the same quarters resulted in a $1.0 million decrease to interest expense. PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses was $50 thousand and zero for the six months ended June 30, 2001 and 2000, respectively. The allowance for loan losses increased slightly from December 31, 2000. This was because the Bank received recoveries on loans previously charged off of $48 thousand and made provisions for loan losses of $50 thousand. No charge-offs were made during the six month periods based upon management's analysis of the borrowers' financial situation and estimated collateral values. The allowance for loan losses at June 30, 2001 was 1.62% of total loans. The same ratio at December 31, 2000 was 1.66%. The allowance for loan losses reflects all information available at the end of each respective quarter. NON-INTEREST INCOME Non-interest income was $0.6 million for the six months ended June 30, 2001 and 2000, respectively. The decrease of $53 thousand in non-interest income primarily resulted from loan servicing fees declining to $86 thousand in 2001 from $173 thousand in 2000 due to writedowns of mortgage servicing rights and lower late charges on commercial loans. OREO income declined by $48 thousand due to gains on sales of OREO property in 2000 that did not reoccur in 2001. Offsetting these declines were increases to Debit Card fees and other income by $35 thousand, deposit account fees increased by $24 thousand and gains on sales of mortgage loans increased by $23 thousand. NON-INTEREST EXPENSE Non-interest expense was $4.5 million and $4.2 million for the six months ended June 30, 2001 and 2000, respectively. The increase in non-interest expense can be attributable to expenses associated with the reorganization of the Bank into a holding company structure and shareholders' expenses of the Bank in connection with this reorganization. Holding company expenses were $162 thousand in the first half of 2001. Shareholders' expenses increased by $44 thousand for the for the same period in 2001. In addition, data processing expenses increased by $39 thousand and salaries and employee benefits increased by $98 thousand due to normal employee raises. INCOME TAXES The Bank reported an income tax expense of $914 thousand and $953 thousand for the six months ended June 30, 2001 and 2000 representing an effective tax rate of 36.6% and 34.7%, respectively. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The response is incorporated herein by reference from the discussion under the subcaption "Interest Rate Sensitivity" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 13 and 14 of the 2000 Annual Report which is incorporated herein by reference. 13 15 Part II - Other Information ITEM 1. LEGAL PROCEEDINGS The response is incorporated herein by reference from the discussion under the caption "CONTINGENCIES" on page 34 of the Annual Report which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 1, 2001, Lawrence Savings Bank (the "Bank") held its annual meeting of stockholders (the "Annual Meeting"). At the Annual Meeting, the stockholders approved the Plan of Holding Company Reorganization of the Bank (the "Plan of Reorganization") by an affirmative vote of 3,029,976 shares of the Bank's common stock, constituting 69.31% of the outstanding common stock of the Bank. The Plan of Reorganization received 42,903 negative votes, 33,525 abstentions and 888,798 broker non-votes. The stockholders also elected each of the following three individuals as a Class B Director of the Bank to serve until the 2004 annual meeting of stockholders, with the following votes cast: Broker Non-Votes Nominee For Withheld And Abstentions - ------- --- -------- ---------------- Malcolm W. Brawn 3,936,561 58,641 0 Neil H. Cullen 3,936,491 58,711 0 Richard H. Harrington 3,936,091 59,111 0 The following directors of the Bank continued as directors after the Annual Meeting: Eugene A. Beliveau, Kathleen I. Boshar, Thomas J. Burke, Byron R. Cleveland, Jr., Robert F. Hatem, Marsha McDonough and Paul A. Miller. The stockholders also elected Robert P. Perreault as Clerk of the Bank. Mr. Perreault received 3,940,111 affirmative votes, 28,364 negative votes and 26,726 abstentions. Finally, the stockholders ratified the appointment of KPMG LLP ("KPMG") as the Bank's independent auditors for the fiscal year ending December 31, 2001. KPMG received 3,945,728 affirmative votes, 29,558 negative votes and 19,916 abstentions. 14 16 ITEM 5. OTHER INFORMATION As of the closing of the reporting period ending June 30, 2001, the Bank expected to consummate the reorganization pursuant to the Plan of Reorganization, effective as of July 1, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 15 17 SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAWRENCE SAVINGS BANK AND SUBSIDIARIES /s/ Paul A. Miller August 13, 2001 ------------------------------- Paul A. Miller President and Chief Executive Officer /s/ John E. Sharland August 13, 2001 --------------------------------- John E. Sharland Senior Vice President Chief Financial Officer Treasurer -----END PRIVACY-ENHANCED MESSAGE-----