UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 2005
o Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 000-32955
LSB Corporation
| Massachusetts | 04-3557612 | |
| (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)
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 report), and (2) has been subject to such filing requirements for the past 90 days.
| Yes þ | No o |
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes o | No þ |
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
|
Outstanding as of April 30, 2005 | |
Common Stock, par value $.10 per share
|
4,388,319 shares |
LSB CORPORATION AND SUBSIDIARY
INDEX
2
PART 1 — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSB CORPORATION AND SUBSIDIARY
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (In thousands, except share data) | ||||||||
ASSETS |
||||||||
Assets: |
||||||||
Cash and due from banks |
$ | 6,704 | $ | 7,193 | ||||
Federal funds sold |
3,427 | 209 | ||||||
Total cash and cash equivalents |
10,131 | 7,402 | ||||||
Investment securities held to maturity (market value
of $234,314 in 2005 and $198,716 in 2004) |
238,659 | 200,264 | ||||||
Investment securities available for sale (amortized
cost of
$62,035 in 2005 and $63,706 in 2004) |
60,448 | 63,039 | ||||||
Federal Home Loan Bank stock, at cost |
9,681 | 7,887 | ||||||
Loans, net of allowance for loan losses |
230,313 | 228,670 | ||||||
Bank premises and equipment |
3,419 | 3,486 | ||||||
Accrued interest receivable |
2,928 | 2,894 | ||||||
Deferred income tax asset |
3,663 | 3,067 | ||||||
Other assets |
1,371 | 1,768 | ||||||
Total assets |
$ | 560,613 | $ | 518,477 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Liabilities: |
||||||||
Interest bearing deposits |
$ | 284,900 | $ | 284,309 | ||||
Non-interest bearing deposits |
16,973 | 14,797 | ||||||
Federal Home Loan Bank advances |
112,971 | 105,102 | ||||||
Other borrowed funds |
81,000 | 49,000 | ||||||
Securities sold under agreements to repurchase |
2,918 | 3,161 | ||||||
Advance payments by borrowers for taxes and insurance |
653 | 506 | ||||||
Other liabilities |
3,194 | 3,764 | ||||||
Total liabilities |
502,609 | 460,639 | ||||||
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;
4,605,026 and 4,556,742 shares issued at
March 31, 2005 and
December 31, 2004, respectively, and 4,385,726
and 4,337,442 shares
outstanding at March 31, 2005 and December 31,
2004, respectively |
461 | 456 | ||||||
Additional paid-in capital |
59,606 | 59,145 | ||||||
Retained earnings |
1,635 | 1,389 | ||||||
Treasury stock, at cost (219,300 shares) |
(2,758 | ) | (2,758 | ) | ||||
Accumulated other comprehensive loss |
(940 | ) | (394 | ) | ||||
Total stockholders’ equity |
58,004 | 57,838 | ||||||
Total liabilities and stockholders’ equity |
$ | 560,613 | $ | 518,477 | ||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
3
LSB CORPORATION AND SUBSIDIARY
| Three months ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
| (In thousands, except share data) | ||||||||
Interest and dividend income: |
||||||||
Loans |
$ | 3,572 | $ | 3,303 | ||||
Investment securities held to maturity |
1,914 | 1,669 | ||||||
Investment securities available for sale |
524 | 428 | ||||||
Federal Home Loan Bank stock |
84 | 36 | ||||||
Other interest and dividend income |
15 | 6 | ||||||
Total interest and dividend income |
6,109 | 5,442 | ||||||
Interest expense: |
||||||||
Deposits |
1,066 | 828 | ||||||
Federal Home Loan Bank advances |
1,173 | 1,052 | ||||||
Other borrowed funds |
308 | 136 | ||||||
Securities sold under agreements to repurchase |
8 | 3 | ||||||
Total interest expense |
2,555 | 2,019 | ||||||
Net interest income |
3,554 | 3,423 | ||||||
Provision for loan losses |
— | — | ||||||
Net interest income after provision for loan losses |
3,554 | 3,423 | ||||||
Non-interest income: |
||||||||
Loan servicing fees |
38 | 20 | ||||||
Deposit account fees |
207 | 202 | ||||||
Gains on sales of mortgage loans |
11 | 11 | ||||||
Other income |
109 | 89 | ||||||
Total non-interest income |
365 | 322 | ||||||
Non-interest expense: |
||||||||
Salaries and employee benefits |
1,576 | 1,622 | ||||||
Occupancy and equipment expenses |
255 | 197 | ||||||
Professional expenses |
104 | 115 | ||||||
Data processing expenses |
221 | 200 | ||||||
Other expenses |
425 | 354 | ||||||
Total non-interest expenses |
2,581 | 2,488 | ||||||
Income before income tax expense |
1,338 | 1,257 | ||||||
Income tax expense |
479 | 471 | ||||||
Net income |
$ | 859 | $ | 786 | ||||
Average shares outstanding |
4,365,559 | 4,263,637 | ||||||
Common stock equivalents |
167,192 | 192,342 | ||||||
Average diluted shares outstanding |
4,532,751 | 4,455,979 | ||||||
Basic earnings per share |
$ | 0.20 | $ | 0.18 | ||||
Diluted earnings per share |
$ | 0.19 | $ | 0.18 | ||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
4
LSB CORPORATION AND SUBSIDIARY
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common | Paid-In | (Accumulated | Treasury | Comprehensive | Stockholders’ | |||||||||||||||||||
| Stock | Capital | Deficit) | Stock | Income | Equity | |||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||
Balance at December 31, 2003 |
$ | 445 | $ | 58,350 | $ | (1,055 | ) | $ | (2,758 | ) | $ | 20 | $ | 55,002 | ||||||||||
Net income |
— | — | 786 | — | — | 786 | ||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Unrealized gain on securities
available for sale (tax effect $61) |
— | — | — | — | 94 | $ | 94 | |||||||||||||||||
Total comprehensive income |
880 | |||||||||||||||||||||||
Exercise of stock options |
6 | 294 | — | — | — | 300 | ||||||||||||||||||
Dividends declared and paid
($0.13 per share) |
— | — | (553 | ) | — | — | (553 | ) | ||||||||||||||||
Balance at March 31, 2004 |
$ | 451 | $ | 58,644 | $ | (822 | ) | $ | (2,758 | ) | $ | 114 | $ | 55,629 | ||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common | Paid-In | Retained | Treasury | Comprehensive | Stockholders’ | |||||||||||||||||||
| Stock | Capital | Earnings | Stock | Loss | Equity | |||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||
Balance at December 31, 2004 |
$ | 456 | $ | 59,145 | $ | 1,389 | $ | (2,758 | ) | $ | (394 | ) | $ | 57,838 | ||||||||||
Net income |
— | — | 859 | — | — | 859 | ||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Unrealized loss on securities
available for sale (tax effect $374) |
— | — | — | — | (546 | ) | $ | (546 | ) | |||||||||||||||
Total comprehensive income |
313 | |||||||||||||||||||||||
Exercise of stock options |
5 | 265 | — | — | — | 270 | ||||||||||||||||||
Tax benefit of stock options exercised |
— | 196 | — | — | — | 196 | ||||||||||||||||||
Dividends declared and paid
($0.14 per share) |
— | — | (613 | ) | — | — | (613 | ) | ||||||||||||||||
Balance at March 31, 2005 |
$ | 461 | $ | 59,606 | $ | 1,635 | $ | (2,758 | ) | $ | (940 | ) | $ | 58,004 | ||||||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
5
LSB CORPORATION AND SUBSIDIARY
| Three months ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 859 | $ | 786 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
Gains on sales of mortgage loans |
(11 | ) | (11 | ) | ||||
Net amortization of investment securities |
408 | 453 | ||||||
Depreciation of premises and equipment |
113 | 84 | ||||||
Loans originated for sale |
(1,741 | ) | (1,497 | ) | ||||
Proceeds from sales of mortgage loans |
1,752 | 884 | ||||||
Increase in accrued interest receivable |
(34 | ) | (412 | ) | ||||
Increase in deferred income tax asset |
(222 | ) | — | |||||
Decrease in other assets |
397 | 267 | ||||||
Increase in advance payments by borrowers |
147 | 107 | ||||||
Decrease in other liabilities |
(374 | ) | (618 | ) | ||||
Net cash provided by operating activities |
1,294 | 43 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from maturities of investment securities held to maturity |
25,170 | 1,000 | ||||||
Proceeds from maturities of investment securities available for sale |
15,000 | 1,585 | ||||||
Purchases of investment securities held to maturity |
(45,613 | ) | (11,527 | ) | ||||
Purchases of mortgage-backed securities held to maturity |
(22,654 | ) | — | |||||
Purchases of investment securities available for sale |
(14,197 | ) | — | |||||
Purchases of other equity securities available for sale |
(72 | ) | — | |||||
Purchases of Federal Home Loan Bank stock |
(1,794 | ) | (299 | ) | ||||
Principal payments of securities held to maturity |
4,377 | 4,124 | ||||||
Principal payments of securities available for sale |
857 | 1,092 | ||||||
Increase in loans, net |
(1,643 | ) | (6,465 | ) | ||||
Purchases of Bank premises and equipment |
(46 | ) | (257 | ) | ||||
Net cash used in investing activities |
(40,615 | ) | (10,747 | ) | ||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
2,767 | 8,346 | ||||||
Additions to Federal Home Loan Bank advances |
33,900 | 20,000 | ||||||
Payments on Federal Home Loan Bank advances |
(26,031 | ) | (25 | ) | ||||
Net (decrease) increase in agreements to repurchase securities |
(243 | ) | 484 | |||||
Net increase (decrease) in other borrowed funds |
32,000 | (13,000 | ) | |||||
Dividends paid |
(613 | ) | (553 | ) | ||||
Proceeds from exercise of stock options |
270 | 300 | ||||||
Net cash provided by financing activities |
42,050 | 15,552 | ||||||
Net increase in cash and cash equivalents |
2,729 | 4,848 | ||||||
Cash and cash equivalents, beginning of period |
7,402 | 8,761 | ||||||
Cash and cash equivalents, end of period |
$ | 10,131 | $ | 13,609 | ||||
Cash paid during the period for: |
||||||||
Interest on deposits |
$ | 1,073 | $ | 827 | ||||
Interest on borrowed funds |
1,436 | 1,171 | ||||||
Income taxes |
1,185 | 1,145 | ||||||
Supplemental schedule of non-cash activities: |
||||||||
Net change in valuation of investment securities available for sale |
(920 | ) | 154 | |||||
Tax benefit relating to stock options exercised |
196 | — | ||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
6
LSB CORPORATION AND SUBSIDIARY
1. BASIS OF PRESENTATION
LSB Corporation (the “Corporation” or the “Company”) is a Massachusetts corporation and the holding company of its wholly-owned subsidiary Lawrence Savings Bank (the “Bank”) a state-chartered Massachusetts savings bank. The Corporation was organized by the Bank on July 1, 2001 to be a bank holding company and to acquire all of the capital stock of the Bank.
The Corporation is supervised by the Board of Governors of the Federal Reserve System (“FRB”), and it is also subject to the jurisdiction of the Massachusetts Division of Banks, while the Bank is subject to the regulations of, and periodic examination by, the Federal Deposit Insurance Corporation (“FDIC”) and the Massachusetts Division of Banks. The Bank’s deposits are insured by the Bank Insurance Fund of the FDIC up to $100,000 per account, as defined by the FDIC, and the Depositors Insurance Fund (“DIF”) for customer deposit amounts in excess of $100,000. The Consolidated Financial Statements include the accounts of LSB Corporation and its wholly-owned consolidated subsidiary, Lawrence Savings Bank, and its wholly-owned subsidiaries, Shawsheen Security Corporation, Shawsheen Security Corporation II, Pemberton Corporation, and Spruce Wood Realty Trust. All inter-company balances and transactions have been eliminated in consolidation. The Company has one reportable operating segment. In the opinion of management, the accompanying Consolidated Financial Statements reflect all necessary adjustments consisting of normal recurring accruals for fair presentation. Certain amounts in prior periods have been re-classified to conform to the current presentation.
The Corporation’s Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, management is required to make estimates and assumptions that affect amounts reported in the balance sheets and statements of income. Actual results could differ significantly from those estimates and judgments. Material estimates that are particularly susceptible to change relate to the allowance for loan losses.
The interim results of consolidated income are not necessarily indicative of the results for any future interim period or for the entire year. These interim Consolidated Financial Statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the annual Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2004 filed with the Securities and Exchange Commission.
2. STOCK OPTIONS
The Corporation measures compensation cost for stock-based plans using the intrinsic value method. The intrinsic value method measures compensation cost, if any, as the fair market value of the Company’s stock at the grant date over the exercise price. All options granted have an exercise price equivalent to the fair market value at the date of grant and, accordingly, no compensation cost has been recorded. If the fair value based method of accounting for stock options had been used, the Company’s net income and earnings per share would have been reduced to the pro forma amounts for the three months ended March 31, presented in the table which follows:
| Three months ended | ||||||||
| 3/31/05 | 3/31/04 | |||||||
| (In thousands, except per share data) | ||||||||
Net income: |
||||||||
As Reported |
$ | 859 | $ | 786 | ||||
Less: Pro forma stock based compensation cost (net of taxes) |
30 | 104 | ||||||
Pro forma |
$ | 829 | $ | 682 | ||||
Basic earnings per share: |
||||||||
As Reported |
$ | 0.20 | $ | 0.18 | ||||
Pro forma |
0.19 | 0.16 | ||||||
Diluted earnings per share: |
||||||||
As Reported |
$ | 0.19 | $ | 0.18 | ||||
Pro forma |
0.18 | 0.15 | ||||||
7
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2005: expected volatility of 23.8%, expected average life of 4.3 years, risk-free interest rate of 3.8% and expected dividend yield of 3.21%.
3. DEFINED BENEFIT PLAN
The Company provides pension benefits for its employees through membership in the Savings Bank Employees’ Retirement Association (the “Plan”). The Plan is a multiple-employer, non-contributory, defined benefit plan. Bank employees become eligible after attaining 21 years of age and completing one year of service. Additionally, benefits become fully vested after three years of eligible service. The Company’s annual contribution to the Plan is based upon standards established by the Employee Retirement Income Security Act. The contribution is based on an actuarial method intended to provide not only for benefits attributable to service date, but also for those expected to be earned in the future. The Company does not expect to contribute to the Plan for the Plan year ending October 31, 2005.
Net pension cost components for the quarters ended March 31, follow:
| 2005 | 2004 | |||||||
| (In thousands) | ||||||||
Service cost |
$ | 87 | $ | 104 | ||||
Interest cost |
107 | 106 | ||||||
Expected return on plan assets |
(136 | ) | (121 | ) | ||||
Net amortization and deferrals |
(1 | ) | (1 | ) | ||||
Net periodic pension cost |
$ | 57 | $ | 88 | ||||
4. CONTINGENCIES
The Bank is involved in various legal proceedings incidental to its business. After review with legal counsel, management does not believe resolution of such litigation will have a material adverse effect on the financial condition and operating results of the Company.
In one litigation matter, the Bank was awarded a $4.2 million judgment against the debtor in 1997. On February 13, 2002, the debtor filed a petition in bankruptcy under Chapter 7 of the Bankruptcy Code. Post-judgment interest calculated from the date of judgment to the date of the bankruptcy filing is approximately $1.9 million. In the Bankruptcy case, the Company’s wholly owned subsidiary, Lawrence Savings Bank (the ‘Bank”), is the only secured creditor.
On June