U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1997
[x] Transition Report Pursuant to Section 13 or 15(d) of
the Exchange Act
For the transition period from ______ to ______
Commission file number: 0-23525
NORTH ARKANSAS BANCSHARES, INC.
-------------------------------
(Exact Name of Small Business Issuer
as Specified in its Charter)
Tennessee 71-0800742
--------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 Olivia Drive, Newport, Arkansas 72112
-----------------------------------------
(Address of Principal Executive Offices)
(870) 523-3611
--------------
Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the pre-
ceding 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 [ ] No [X]
The issuer has not been subject to such filing requirements for
the past 90 days.
As of February 13, 1998, the issuer had 370,300 shares of
Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
CONTENTS
PART I. FINANCIAL INFORMATION
- - -----------------------------
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as
of December 31, 1997 (unaudited) and
June 30, 1997. . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three
and Six Months Ended December 31, 1997 and 1996
(unaudited). . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1997 and 1996
(unaudited). . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 9
Item 4. Submissions of Matters to a Vote of Security Holders . 9
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 9
SIGNATURES
2
PART I - FINANCIAL INFORMATION
NORTH ARKANSAS BANCSHARES, INC.
Consolidated Statements of Financial Condition
December 31, 1997 and June 30, 1997
December 31, June 30,
1997 1997
------------- -------------
(Unaudited)
Assets
------
Cash and amounts due from banks, includes interest
bearing deposits of $3,326,801 and $603,729 at
December 31, 1997 and June 30, 1997, respectively $ 4,619,391 $ 884,002
Certificates of deposit with other financial
institutions 691,000 691,000
Investment securities held-to-maturity, at cost 4,846,038 5,922,956
Loans receivable, net 25,169,284 24,794,194
Real estate owned 27,999 --
Office properties and equipment, net 1,640,721 1,651,298
Accrued interest receivable 184,423 227,356
Other assets 65,405 207,760
-------------- ------------
Total assets $ 37,244,261 $ 34,378,566
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Deposits $ 30,811,358 $ 31,072,533
Federal Home Loan Bank advances 1,010,287 618,389
Advances from borrowers for taxes and insurance 21,898 57,459
Other liabilities 3,675 363,916
-------------- ------------
Total liabilities 31,847,218 32,112,297
STOCKHOLDERS EQUITY
-------------------
Preferred Stock, $0.01 par value per share,
3,000,000 shares authorized, no shares issued
or outstanding $ -- $ --
Common Stock, $0.01 par value per share 9,000,000
shares authorized, 370,300 and -0- shares issued
and outstanding at December 31, 1997 and
June 30, 1997 3,703 --
Additional paid-in capital 3,355,920 --
Retained earnings - substantially restricted 2,333,660 2,266,269
Unearned ESOP shares (296,240) --
-------------- ------------
Total stockholder's equity 5,397,043 2,266,269
-------------- ------------
Total liabilities and stockholder's
equity $ 37,244,261 $ 33,750,091
============== ============
See accompanying notes to consolidated financial statements.
3
NORTH ARKANSAS BANCSHARES, INC.
Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 1997 and 1996
Three Months Ended Six Months Ended
December 31, December 31
------------------- -------------------
1997 1996 1997 1996
----- ------ ------ ------
Interest income:
Loans receivable $511,354 $499,127 $1,004,685 $ 987,989
Deposits in other financial
institutions 28,322 31,288 44,688 54,540
Mortgage-backed securities 75,827 88,569 157,227 168,140
Investment securities 5,825 5,895 18,899 28,507
-------- -------- ---------- ----------
Total interest income 621,328 624,879 1,225,499 1,239,176
-------- -------- ---------- ----------
Interest expense:
Deposits 387,756 390,413 783,513 779,277
Federal Home Loan advances 13,265 16,483 23,299 18,505
-------- -------- ---------- ----------
Total interest expense 401,021 406,896 806,812 797,782
-------- -------- ---------- ----------
Net interest income 220,307 217,983 418,687 441,394
-------- -------- ---------- ----------
Provision for loan losses -- -- -- --
Net interest income after provision
for loan losses 220,307 217,983 418,687 441,394
-------- -------- ---------- ----------
Non-interest income - other 42,425 27,686 87,427 49,965
-------- -------- ---------- ----------
Non-interest expenses:
Salaries and employee benefits 98,816 83,454 199,319 174,431
Legal and professional fees 15,191 613 25,617 878
Data processing fees 20,432 15,752 43,792 30,430
Federal insurance expense 7,854 18,631 15,276 216,392
Furniture and equipment expense 18,472 17,815 27,306 24,199
Occupancy expense 14,692 16,884 26,804 38,844
Other 39,480 65,840 100,609 97,252
-------- -------- ---------- ----------
214,937 218,989 438,723 582,426
-------- -------- ---------- ----------
Income (loss) before
income taxes 47,795 26,680 67,391 (91,067)
Income tax expense (benefit) -- -- -- --
_________ ________ __________ __________
Net income (loss) $ 47,795 $ 26,680 $ 67,391 $ (91,067)
========= ======== ========== ==========
See accompanying notes to consolidated financial statements.
4
NORTH ARKANSAS BANCSHARES, INC.
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1997 and 1996
Six Months Ended
December 31,
-------------------
1997 1996
------ ------
Cash flows from operating activities:
Net income (loss) $ 67,391 $ (91,067)
Adjustment to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 30,867 26,240
Loss on sale of real estate owned 267 --
FHLB stock dividends (8,500) (7,864)
Net premium amortization on investments 5,454 5,266
Provision for loan losses -- --
(Increase) decrease in interest receivable 42,933 (54,182)
(Increase) decrease in other assets 142,355 9,938
Increase (decrease) in other liabilities (360,241) (24,778)
---------- -----------
Net cash provided by (used in)
operating activities (79,474) (136,447)
---------- -----------
Cash flows from investing activities:
Purchase of held to maturity ("HTM") securities -- (850,312)
Proceeds from maturities/principal repayments
of HTM securities 1,079,964 810,739
Net increase in loan receivable (420,095) (2,312,954)
Net decrease (increase) in certificates of
deposit with other financial institutions -- --
Purchase of office properties and equipment (20,290) (8,835)
Proceeds from sale of real estate owned 16,739 --
---------- -----------
Net cash provided by (used in)
investing activities 656,318 (2,261,362)
Cash flows from financing activities:
Proceeds from sale of common stock 3,063,383 --
Net increase (decrease) in deposits and advances
from borrowers (296,736) 198,296
Net increase (decrease) in Federal Home Loan
advances 391,898 1,742,347
---------- -----------
Net cash (used in) provided by
financing activities 3,158,545 1,940,643
---------- -----------
Net increase (decrease) in cash and amounts due
from banks 3,735,389 (457,166)
Cash and amounts due from banks at beginning of year 884,002 1,167,202
---------- -----------
Cash and amounts due from banks at end of year $4,619,391 $ 710,036
========== ===========
Supplemental disclosures of cash flow information:
Noncash investing and financing activities:
Transfers from real estate acquired
through foreclosure $ 27,999 $ --
Cash paid during the period:
Interest on deposits 790,265 781,838
Income taxes $ $
========== ===========
See accompanying notes to consolidated financial statements.
5
NORTH ARKANSAS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1 - NORTH ARKANSAS BANCSHARES, INC.
North Arkansas Bancshares, Inc. (the "Company") was incorporated
under the laws of the State of Tennessee for the purpose of
becoming the holding company of Newport Federal Savings Bank
(the "Bank") in connection with the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered
capital stock savings bank. On November 12, 1997, the Company
commenced a subscription offering of its shares in connection
with the Bank's conversion. The Company's offering and the
Bank's conversion closed on December 18, 1997. A total of
370,300 shares were sold at $10.00 per share.
NOTE 2 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited financial statements (except for the
statement of financial condition at June 30, 1997, which is
audited) have been prepared in accordance with generally
accepted accounting principles for interim financial statements
and with the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations, and cash
flows for the interim periods presented have been included. The
financial statements of the Company are presented on a
consolidated basis with those of the Bank. The account balances
include only the accounts and operations of the Bank prior to
December 18, 1997. The results of operations for the three and
six months ended December 31, 1997 are not necessarily
indicative of the results expected for the full year.
NOTE 3 - EARNINGS PER SHARE
As no shares of Common Stock were outstanding prior to December
18, 1997, presentation of earnings per share has been omitted as
it was not meaningful.
NOTE 4 - PLAN OF CONVERSION
On May 29, 1997, the Bank's Board of Directors formally approved
a plan ("Plan") to convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank subject
to approval by the Bank's members and the Office of Thrift
Supervision. The Plan called for the common stock of the Bank
to be purchased by the Company and the common stock of the
Company to be offered to various parties in a subscription
offering at a price based upon an independent appraisal of the
Bank. All requisite approvals were obtained and the conversion
and the Company's offering were consummated effective December
18, 1997.
6
Upon consummation of the conversion, the Bank established a
liquidation account in an amount equal to its retained earnings
as reflected in the latest statement of financial condition used
int he final conversion prospectus. The liquidation account
will be maintained for the benefit of certain depositors of the
Bank who continue to maintain their deposit accounts in the Bank
after conversion. In the event of a complete liquidation of he
Bank, such depositors will be entitled to receive a distribution
from the liquidation account before any liquidation may be made
with respect to the common stock.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE
30, 1997
The Company's total assets at December 31, 1997 were $37.2
million, an increase of $2.9 million, or 8.3%, from June 30,
1997's level of $34.4 million. The increase was due primarily
to the receipt of the $3.3 million in net proceeds from the
Company's initial public offering which closed on December 18,
1997. Approximately $1.9 million of such funds were contributed
to the Bank in exchange for all of its issued and outstanding
shares of common stock with the remainder retained by the
Company. At December 31, 1997, such funds were primarily
invested in short-term interest-bearing deposits. Cash and
interest-bearing deposits totaled $4.6 million at December 31,
1997 as compared to $884,000 at June 30, 1997.
Net loans receivable remained relatively unchanged from
June 30, 1997 to December 31, 1997, increasing by only $375,000.
Management anticipates that the Bank's loan portfolio will
increase in future periods as proceeds from the stock offering
are deployed into loans and other higher-yielding investments.
Total deposits at December 31, 1997 were $30.8 million, a
decline of $261,000 from June 30, 1997's level of $31.1 million.
This decline can be attributed to the use by certain depositors
of deposit funds to purchase stock in the Company's initial
public offering. Total stockholders' equity at December 31,
1997 amounted to $5.4 million, up from $2.3 million at June 30,
1997 reflecting the receipt of the net proceeds from the initial
public offering and the retention of earnings from the period.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 AND 1996
The Company earned net income of $48,000 for the three
months ended December 31, 1997 as compared to net income of
$27,000 for the three month period ended December 31, 1996. The
$21,000 improvement was due to the combined effects of a $2,000
increase in net interest income, a $15,000 increase in non-
interest income and a $4,000 reduction in non-interest expense.
Net interest income during the three months ended December
31, 1997 increased by $2,000 as compared to the same period in
1996 due to a reduction in interest expense, partially offset by
a reduction in interest income. Total interest income declined
by $4,000 as increases in interest from the Bank's loan
portfolio was offset by declines in every other category. The
increase in loan interest reflects the growth in the Bank's loan
portfolio as compared to the same period in 1996, partially
offset by an increase in nonaccrual loans. During the quarter
ended September 30, 1997, the Bank placed its largest loan on
nonaccrual status. Such loan remained a nonearning asset for
all of the quarter ended December 31, 1997. The decrease in
interest income from mortgage-backed securities reflects a drop
in the average balance of such investments as compared to the
prior year. Interest expense dropped by $6,000 to $401,000 for
the three months ended December 31, 1997 as compared to $407,000
for the three months ended December 31, 1996 as a result of
lower levels of interest-bearing liabilities.
Non-interest income which consists mainly of deposit and
loan fees amounted to $42,000 for the three months ended
December 31, 1997 as compared to $28,000 for the three months
ended December 31, 1996 with the increase attributable to
a change in the composition of the Bank's deposits. During
1997, the Bank began to emphasize commercial transaction
accounts which generate more fees than do consumer accounts.
Total non-interest expense declined by $4,000 during the 1997
period due to reductions in deposit insurance premiums and
miscellaneous expenses which were partially offset by increases
in every other expense category.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
AND 1996
The Company earned net income of $67,000 for the six
months ended December 31, 1997 as compared to a net loss of
$91,000 for the same period in 1996. The $158,000 improvement
in net income for the 1997 period was due primarily to the
absence of any SAIF special assessment during such period.
During the six months ended December 31, 1996, the Bank incurred
a special assessment equal to $179,000. This special assessment
was required
8
to be paid by all institutions with deposits insured by the
SAIF. No similar special assessment was incurred during the
1997 period.
Net interest income for the six months ended December 31,
1997 amounted to $417,000, a decrease of $25,000, from net
interest income of $441,000 for the six months ended December
31, 1996. The decrease resulted from the combined effects of a
$14,000 drop in interest income and a $9,000 increase in
interest expense. The decrease in interest income was due to
a decreased average balance of such investments while the
increase in interest expense resulted from growth in the deposit
portfolio as well as a higher level of FHLB borrowings.
Non-interest income which consists mainly of
deposit account and loan fees amounted to $87,000 for the six
months ended December 31, 1997 as compared to $50,000 for the
six months ended December 31, 1996 with the increase
attributable to growth in the number of transaction accounts.
Total non-interest expense declined by $144,000 during the 1997
period due primarily to the absence of the aforementioned SAIF
special assessment and a $12,000 reduction in occupancy expense,
partially offset by increases in every other expense category.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid
assets as defined by OTS regulations. This requirement, which
varies from time to time depending upon economic conditions and
deposit flows, is based upon a percentage of our deposits and
short-term borrowings. The required ratio at December 31, 1997
was 5% for the month ended December 31, 1997 the Bank was in
compliance. As a result of the conversion, the Bank's liquidity
has increased due to the additional funds it received.
The Bank's primary sources of funds are deposits,
repayment of loans and mortgage-backed securities, maturities of
investments and interest-bearing deposits, funds provided from
operations and advances from the FHLB of Dallas. While
scheduled repayments of loans and mortgage-backed securities and
maturities of investment securities are predicable sources of
funds, deposit flows and loan prepayments are greatly influenced
by the general level of interest rates, economic conditions and
competition. The Bank uses its liquidity resources principally
to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to
invest in other interest-earning assets, to maintain liquidity,
and to meet operating expenses.
At December 31, 1997, the Bank was in compliance with
all applicable regulatory capital requirements with total core
and tangible capital of $4.2 million (11.72% of adjusted total
assets) and total risk-based capital of $4.3 million (22.77% of
risk-weighted assets).
BRANCH ACQUISITION
On January 22, 1998, the Bank completed its acquisition of
the Newport, Arkansas branch of NationsBank, N.A. The Bank
acquired approximately $4 million in total deposits along with
the branch property and certain other assets.
YEAR 2000 PLANNING
Like most financial institutions, the Company's principal
subsidiary relies extensively on computers in conducting its
business. It has been widely reported that many computer
programs currently in use were designed without adequately
considering the impact of the upcoming change in century on
their date codes. If these design flaws are not corrected,
these computer applications may malfunction in the year 2000.
The Bank generally relies on outside vendors for its most
critical data processing services. These vendors have advised
the Bank that they are actively addressing the year 2000 issue
and do not expect that any required solutions will require
material additional investments by the Bank.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K. During the quarter ended
December 31, 1997, the registrant did not
file any current reports on Form 8-K.
10
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
NORTH ARKANSAS BANCSHARES, INC.
Date: February 12, 1998 By: /s/ Brad Snider
--------------------------------
Brad Snider
President, Chief Executive
Officer and Treasurer
(Duly Authorized and Principal
Financial Officer)