U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) X QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- -------------- Commission file number 0-10627 ----------------------- NORTH COUNTY BANCORP - ------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) California 95-3669135 - ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 444 S. Escondido Blvd., P.O.Box 1476, Escondido, California 92025 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 743-2200 --------------------- - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 --- ---- As of November 7, 1996 the Registrant had 1,890,077 shares of no par value common stock issued and outstanding. NORTH COUNTY BANCORP Page ------ Part I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Statement of Financial Condition - September 30, 1996 and December 31, 1995 2 Consolidated Statement of Income - Three Months Ended and Nine months Ended September 30, 1996 and 1995 3 Consolidated Statement of Cash Flows - Nine months Ended September 30, 1996 and September 30, 1995 4 Notes to Consolidated Financial Statements 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6 Part II OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K 11 1 NORTH COUNTY BANCORP PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL CONDITION September 30, December 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS Cash and cash equivalents: Cash and due from banks $ 25,435,000 $ 24,233,000 Federal funds sold 11,200,000 10,500,000 ------------- ------------ 36,635,000 34,733,000 Investment securities: Available for sale 21,734,000 18,250,000 Held to maturity 10,085,000 7,922,000 Loans, net 172,195,000 159,034,000 Other real estate owned 2,568,000 2,402,000 Premises and equipment, net 8,974,000 9,526,000 Other assets 6,357,000 5,167,000 ------------- ------------ $258,548,000 $237,034,000 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 78,231,000 $ 70,728,000 Interest bearing 151,004,000 143,108,000 ------------- ------------ 229,235,000 213,836,000 Accrued expenses and other liabilities 2,029,000 1,788,000 U.S. Treasury demand note 4,278,000 543,000 Notes payable 1,568,000 1,500,000 Capital lease obligation 437,000 462,000 Convertible subordinated debentures 1,675,000 1,678,000 ------------- ------------ Total liabilities 239,222,000 219,807,000 ------------- ------------ Stockholders' equity: Common stock, no par value, Authorized, 5,000,000 shares; Outstanding shares 1,885,545 in 1996 and 1,878,984 in 1995 9,958,000 9,156,000 Retained earnings 9,503,000 8,164,000 Unrealized loss on available for sale securities, net of tax (135,000) (93,000) ------------- ------------ Total stockholders' equity 19,326,000 17,227,000 ------------- ------------ $258,548,000 $237,034,000 ------------- ------------ ------------- ------------ See accompanying notes to consolidated financial statements. 2 NORTH COUNTY BANCORP CONSOLIDATED STATEMENT OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------------- --------------------------- 1996 1995 1996 1995 ---------- ----------- ------------ ------------ Interest income: Interest and fees on loans $4,506,000 $4,427,000 $13,151,000 $13,332,000 Investment securities 410,000 231,000 1,155,000 868,000 Federal funds sold 133,000 173,000 288,000 239,000 Deposits with other financial institutions --- --- --- 2,000 ---------- ----------- ------------ ------------ Total interest income 5,049,000 4,831,000 14,594,000 14,441,000 ---------- ----------- ------------ ------------ Interest expense: Deposits 1,211,000 1,252,000 3,474,000 3,523,000 Federal funds purchased and U.S. Treasury demand note 25,000 12,000 47,000 79,000 Notes payable, capital lease obilgation and convertible subordinated debentures 86,000 87,000 259,000 259,000 ---------- ----------- ------------ ------------ Total interest expense 1,322,000 1,351,000 3,780,000 3,861,000 ---------- ----------- ------------ ------------ Net interest income 3,727,000 3,480,000 10,814,000 10,580,000 Provision for loan and lease losses 100,000 925,000 1,100,000 2,661,000 ---------- ----------- ------------ ------------ Net interest income after provision for loan and lease losses 3,627,000 2,555,000 9,714,000 7,919,000 Other income 1,679,000 1,634,000 5,384,000 5,017,000 Other expense 3,834,000 4,134,000 11,541,000 11,828,000 ---------- ----------- ------------ ------------ Income before income taxes 1,472,000 55,000 3,557,000 1,108,000 Provision for income taxes 570,000 (59,000) 1,455,000 229,000 ---------- ----------- ------------ ------------ Net income $ 902,000 $ 114,000 $2,102,000 $ 879,000 ---------- ----------- ------------ ------------ ---------- ----------- ------------ ------------ Primary earnings per share $ 0.47 $ 0.07 $ 1.10 $ 0.53 ---------- ----------- ------------ ------------ ---------- ----------- ------------ ------------ Fully diluted earnings per share $ 0.43 $ 0.06 $ 1.02 $ 0.47 ---------- ----------- ------------ ------------ ---------- ----------- ------------ ------------ 3 NORTH COUNTY BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, ------------------------------ 1996 1995 ------------ ------------- Cash flows from operating activities: Net income $ 2,102,000 $ 879,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of: Office property and equipment 1,012,000 1,132,000 Deferred loan fees and costs, net (362,000) (80,000) Investment premiums and discounts, net 73,000 25,000 Loan servicing rights 164,000 240,000 Other 38,000 37,000 Provision for loan loss 1,100,000 2,661,000 Loss on sale of investment securities 24,000 11,000 (Increase) decrease in interest receivable (70,000) 178,000 Decrease in taxes payable (220,000) (143,000) Increase in accrued expenses 342,000 127,000 Increase in interest payable 8,000 312,000 Other, net (1,186,000) 331,000 ------------ ------------- Net cash provided by operating activities 3,025,000 5,710,000 ------------ ------------- Cash flows from investing activities: Proceeds from sales and maturities of investment securities 11,262,000 13,559,000 Purchase of investment securities (17,007,000) (9,206,000) Net increase in loans (16,172,000) (1,827,000) Purchase of premises and equipment (460,000) (536,000) Proceeds from sale of other real estate owned 2,038,000 2,808,000 ------------ ------------- Net cash (used in) provided by investing activities (20,339,000) 4,798,000 ------------ ------------- Cash flows from financing activities: Cash payments on notes payable and capital lease obligations (24,000) (21,000) Net increase (decrease) in deposits 15,399,000 (15,191,000) Net increase (decrease) in short term borrowings 3,735,000 (1,055,000) Net increase in long term borrowings 68,000 -- Cash proceeds from sale of common stock 38,000 1,776,000 ------------ ------------- Net cash provided by (used in) financing activities 19,216,000 (14,491,000) ------------ ------------- Net increase (decrease) in cash and cash equivalents 1,902,000 (3,983,000) Cash and cash equivalents at beginning of year 34,733,000 33,053,000 ------------ ------------- Cash and cash equivalents at end of period $ 36,635,000 $ 29,070,000 ------------ ------------- ------------ ------------- Disclosures: Total interest paid $ 3,772,000 $ 3,549,000 ------------ ------------- ------------ ------------- Total taxes paid $ 1,874,000 $ 485,000 ------------ ------------- ------------ ------------- Foreclosed real estate loans $ 2,274,000 $ 2,836,000 ------------ ------------- ------------ ------------- See accompanying notes to consolidated financial statements. 4 NORTH COUNTY BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying financial information has been prepared in accordance with the Securities and Exchange Commission rules and regulations for quarterly reporting and therefore does not necessarily include all information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. This information should be read in conjunction with the Company's Annual Report for the year ended December 31, 1995. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. In the opinion of management, the unaudited financial information for the three month and nine month periods ended September 30, 1996 and 1995, reflect all adjustments, consisting only of normal recurring accruals and provisions, necessary for a fair presentation thereof. NOTE 2 - EARNINGS PER SHARE Earnings per share are based upon the weighted average number of common stock and common stock equivalent shares outstanding adjusted retroactively for stock dividends. The weighted average number of shares outstanding for primary earnings per share was 1,911,523 and 1,909,258 for the three and nine months ended September 30, 1996, respectively, and 1,720,116 and 1,660,811 for the three and nine months ended September 30, 1995, respectively. The calculation of fully diluted earnings per share assumes the issuance of 213,648 shares of common stock upon conversion of the Company's convertible subordinated debentures. The weighted average number of shares outstanding for fully diluted earnings per share was 2,125,455 and 2,126,303 for the three and nine months ended September 30, 1996, respectively, and 1,934,146 and 1,874,842 for the three and nine months ended September 30, 1995, respectively. NOTE 3 - STOCK DIVIDEND On February 21, 1996, the Company declared a 5% stock dividend which was paid on March 29, 1996 to stockholders of record on March 1, 1996. This resulted in the issuance of 89,288 shares of common stock. 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION North County Bancorp (the "Company") has one wholly owned subsidiary, North County Bank (the "Bank"). North County Bank's operations are the only significant operations of the Company. The accompanying financial information should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. FINANCIAL CONDITION Total assets of the Company increased $21.5 million or 9.1% to $258.6 million at September 30, 1996, from $237.0 million at December 31, 1995. Cash and cash equivalents showed an increase of 5.5% or $1.9 million. Within this category cash and due from banks increased 5% or $1.2 million to $25.4 million at period end from $24.2 million at the end of 1995. Federal funds sold increased $700,000 to $11.2 million from $10.5 million during this same time period. Investment securities increased $5.6 million or 21.2% to $31.8 million at September 30, 1996 from $26.2 million at the end of the year. The increase consisted of $17.0 million in investment purchases partially offset by $8.7 million in maturities and bond calls and $2.6 million in the sale of securities. The sale of securities during the second quarter of 1996, which netted an after tax loss of $13,000, was in response to short term liquidity needs due to increased loan demand. Net loans increased 8.3% or $13.2 million to $172.2 million at period end from $159.0 million at the end of 1995. Within the loan portfolio, real estate mortgage loans increased $9.5 million or 35.3% to $36.3 million resulting from the Company's efforts to promote commercial real estate loans. Real estate mortgage loans increased to 20.7% as a percentage of gross loans as compared to 16.6% at year end. Consumer lending increased $5.6 million or 12% to $52.3 million at September 30, 1996 primarily due to Title I loans which increased $8.3 million or 69.4% offset by a decrease of $2.5 million or 4.7% in other consumer loans. Commercial loans increased 5.4% or $4.0 million to $78.8 million at September 30, 1996, from $74.8 million at year end. The increase in real estate, consumer, and commercial lending was partially offset by construction loans which decreased $4.6 million or 49.6%. Lending rates, which declined during the first quarter in response to a 25 basis point cut in the discount rate by the Federal Reserve Bank, remained relatively stable during the second and third quarters. Declining interest rates and improved economic conditions in southern California contributed to increased loan demand in the Company's market area. Other real estate owned increased 6.9% or $200,000 to $2.6 million from $2.4 million during the first nine months of 1996. The Company sold twelve properties which totaled $2.0 million from its other real estate owned portfolio. These sales were offset by foreclosures during the first nine months of 1996 that totaled $2.2 million. Total deposits at September 30, 1996 increased $15.4 million or 7.2% from December 31, 1995. Non-interest bearing demand deposits increased $7.5 million or 10.6% to $78.2 million. Interest bearing deposits increased $7.9 million or 5.5% to $151.0 million at September 30, 1996. Within the interest bearing deposit category time deposits increased $3.9 million or 11.7% to $37.7 million from $33.8 million, savings accounts increased $3.6 million or 4.8% to $77.8 million from $74.2 million, and NOW accounts increased $389,000 or 1.1% to $35.5 million from $35.1 million at year end. An increase of $3.7 million to $4.3 million from $543,000 in the U.S. Treasury demand note account was used as an additional short term source of funds. Total stockholders' equity at September 30, 1996 was $19.3 million as compared to $17.2 million at December 31, 1995, an increase of $2.1 million or 12.2%. (See "CAPITAL RESOURCES.") 6 RESULTS OF OPERATIONS SUMMARY Net income for the nine months ended September 30, 1996 increased $1.2 million or 139.1% to $2.1 million from $879,000 for the same period in 1995. The increase is attributable to a number of factors, the largest of which was a decrease in the provision for loan and lease losses of $1.6 million or 58.7% to $1.1 million for the first nine month of 1996 from $2.7 million for the same 1995 period. Net interest income increased $234,000 or 2.2% to $10.8 million. Other income increased $367,000 or 7.3% to $5.4 million and other expense decreased $287,000 or 2.4% to $11.5 million for the first nine months of 1996. The provision for income taxes increased $1.2 million to $1.5 million for the first nine months of 1996 from $229,000 for the same prior year period due to a higher effective tax rate on an increase in pre-tax earnings of $2.4 million. Return on average assets and average stockholders' equity for the first nine months of 1996 were 1.15% and 15.38%, respectively, compared to 0.51% and 7.06%, respectively for the same 1995 period. Primary and fully diluted earnings per share for the first nine months of 1996 increased to $1.10 and $1.02, respectively, from $0.53 and $0.47, respectively, for the same 1995 period. (See "RESULTS OF OPERATIONS -- PROVISION FOR LOAN AND LEASE LOSSES", "RESULTS OF OPERATION -- NONPERFORMING ASSETS", and "RESULTS OF OPERATIONS -- OTHER INCOME AND EXPENSE.") For the three months ended September 30, 1996, the Company recorded net income of $902,000 compared to $114,000, an increase of $788,000 or 691.2% over the same 1995 period. The increase in third quarter earnings is primarily due to a decrease of $825,000 in the provision for loan and lease losses combined with a decrease in other expense of $300,000, an increase in net interest income of $247,000 partially offset by an increase of $629,000 in the provision for income taxes. Return on average assets and average equity for the quarter ended September 30, 1996, were 1.44% and 19.04%, respectively, compared to 0.20% and 2.86%, respectively for the third quarter of 1995. Primary and fully diluted earnings per share for the third quarter of 1996 increased to $0.47 and $0.43, respectively, from $0.07 and $0.06, respectively for the same 1995 period. NET INTEREST INCOME Net interest income for the nine months ended September 30, 1996 increased $234,000 or 2.2%. Total interest income increased $153,000 or 1.1% and consisted primarily of of an increase of $287,000 in investment securities interest and $49,000 in Federal funds sold interest partially offset by a decrease of $181,000 in interest and fees on loans. Generally lower short term interest rates over the past year decreased the taxable equivalent yield on earning assets to 9.53% at September 30, 1996 from 10.05% for the same 1995 period. During this time period the tax equivalent yield on loans decreased to 10.40% from 10.77% on average loan balances outstanding which increased to $169.8 million from $166.4 million for the nine months ended September 30, 1996 and 1995, respectively. Although the tax equivalent yield on the investment portfolio decreased to 5.54% from 5.59% the average volume increased to $28.4 million from $21.1 million for the nine months ended September 30, 1996 and 1995, respectively. During this same time period the yield on Federal funds sold decreased to 5.08% from 5.62% while the related average balance increased to $7.6 million from $5.7 million. The net tax equivalent interest margin (net interest income as a percentage of average interest-earning assets) was 7.07% and 7.38% for the nine months ended September 30, 1996 and 1995, respectively. Interest expense decreased $81,000 or 2.1% for the first nine months of 1996 compared to the same period in 1995. This variance consisted of a decrease of $49,000 in interest paid on deposits and a decrease of $32,000 in interest paid on Federal funds purchased and U.S. Treasury demand note. The average rate paid on deposits decreased during this time period to 3.17% at September 30, 1996 compared to 3.30% for the same 1995 period while average deposit balances increased to $217.5 million from $209.6 million. The average rate paid on NOW and savings accounts dropped to 1.44% and 3.30%, respectively, from 1.74% and 3.45%, respectively. During the same period the average rate paid on time deposits increased to 4.75% from 4.64%. In addition to the rate increase average balances on time deposits grew $5.0 million during the first nine months of 1996 to $34.3 million compared to $29.3 million for the same 1995 period. Federal funds purchased and the U.S. Treasury demand note account averaged $2.2 million for the first nine months of 1996 compared to $1.8 million for the same period last year. 7 OTHER INCOME AND OTHER EXPENSE Other income increased $367,000 and other expense decreased $287,000 for the nine months ended September 30, 1996 as compared to the same 1995 period. The increase in other income is largely due to an increase of $563,000 or 24.5% in service charges on deposit accounts, primarily increased overdraft fees, and an increase of $73,000 or 8.2% in other fees due to increased loan servicing income, partially offset by a decrease of $331,000 or 20.5% in gains from the sale of loans. Contributing to the decrease in gain on loan sales for 1996 as compared to 1995 was management's decision to increase the Bank's portfolio of Title I loans, which were sold in the secondary market in the prior year, due to slow consumer loan demand in the Company's market area and to enhance loan yields. Gain on sale of equity loans increased $361,000 during 1996, due to increased volume. A change in the accounting method for gains on the sale of SBA loans contributed approximately $569,000 to gains recorded during the third quarter of 1995. Other expense consists primarily of salaries and employee benefits which increased $258,000 to $6.0 million, occupancy expense which decreased $53,000 to $2.5 million, expenses related to other real estate owned expense which decreased $232,000 to $420,000, and regulatory assessments which decreased $270,000 to $204,000. PROVISION FOR LOAN AND LEASE LOSSES The provision for loan and lease losseses for the nine months ended September 30, 1996 was $1.1 million compared to $2.7 million for the comparable 1995 period. The amount of the provision reflects management's judgement as to the adequacy of the allowance for loan and lease losses and is generally determined by the periodic review of the loan portfolio, the Bank's loan loss experience, and current and expected economic conditions. The decrease in the provision for loan and lease losses reflects a decrease in net charge offs to $631,000 for the first nine months of 1996 as compared to $2.6 million for the same prior year period. The annualized ratio of net charge offs to total loans was 0.48%, 1.93% and 2.24% at September 30, 1996, December 31, 1995, and September 30, 1995, respectively. The allowance for loan and lease losses was 1.93%, 1.80% and 1.70% of total gross loans at September 30, 1996, December 31, 1995 and September 30, 1995, respectively. Loans are charged against the allowance, when in management's opinion, they are deemed uncollectible, although the Bank continues to aggressively pursue collection. Although management believes that the allowance for loan and lease losses is adequate to absorb losses as they arise, there can be no assurance that the Company will not sustain losses in any given period which could be substantial in relation to the size of the allowance for loan and lease losses. NONPERFORMING ASSETS The following table provides information with respect to the components of the Company's nonperforming assets at September 30, 1996 and December 31, 1995: September 30, December 31, 1996 1995 ------------- ------------ Loans 90 days or more past due and still accruing $ -- $ -- Nonaccrual loans: Conventional real estate 149 1,095 Real estate construction 844 1,506 Commercial 2,899 1,560 Installment and consumer 1,523 1,129 ------- ------ Total 5,415 5,290 ------- ------ Total nonperforming loans 5,415 5,290 Other real estate owned 2,568 2,402 ------- ------ Total nonperforming assets $7,983 $7,692 ------- ------ ------- ------ Nonperforming assets to total gross loans plus other real estate owned 4.48% 4.68% ------- ------ ------- ------ 8 The Company considers a loan to be nonperforming when any one of the following events occurs: (a) any installment of principal or interest is 90 days past due; (b) the full timely collection of interest or principal becomes uncertain; the loan is classified as "doubtful" by bank examiners; or (d) a portion of its principal balance has been charged-off. The Company's policy is to classify loans which are 90 days past due as nonaccrual loans unless Management determines that the loan is adequately collateralized and in the process of collection or other circumstances exist which would justify the treatment of the loan as fully collectible. Impaired loans were recorded at $2,185,000 and $1,086,000 for commercial loans and real estate mortgage loans, respectively, at September 30, 1996. The recorded investments are stated net of allowance for loan and lease losses of $524,000 and $97,000, respectively. Impaired loans at December 31, 1995 were recorded at $1,270,000 and $2,467,000 for commercial loans and real estate mortgage loans, respectively, net of reserves for loan losses of $289,000 and $134,000, respectively. LIQUIDITY AND ASSET/LIABILITY MANAGEMENT The liquidity of a banking institution reflects its ability to provide funds to meet customer credit needs, to accommodate possible outflows in deposits, to provide funds for day-to-day operations, and to take advantage of interest rate market opportunities. Asset liquidity is provided by cash, certificates of deposit with other financial institutions, Federal funds sold, investment maturities and sales and loan maturities, repayments and sales. Liquid assets (consisting of cash, Federal funds sold and investment securities) comprised 26.5% and 25.7% of the Company's total assets at September 30, 1996 and December 31, 1995, respectively. Liquidity management also includes the management of unfunded commitments to make loans and undisbursed amounts under lines of credit. At September 30, 1996, these commitments totaled $29.3 million in commercial loans, $2.0 million in letters of credit, $4.2 million in real estate construction loans, and $9.4 million in consumer and installment loans. In addition to loan and investment sales and deposit growth, the Bank has several secondary sources of liquidity. Many of the Bank's real estate construction loans are originated pursuant to underwriting standards which make them readily marketable to other financial institutions or investors in the secondary market. In addition, in order to meet liquidity needs on a temporary basis, the Bank has unsecured lines of credit in the amount of $3.0 million for the purchase of Federal funds with other financial institutions and may borrow funds at a correspondent financial institution and the Federal Reserve discount window, subject to the Bank's ability to supply collateral. Asset/Liability Management involves minimizing the impact of interest rate changes on the Company's earnings through the management of the amount, composition and repricing periods of rate sensitive assets and rate sensitive liabilities. Emphasis is placed on maintaining a rate sensitivity position within the Company's policy guidelines to avoid wide swings in spreads and to minimize risk due to changes in interest rates. At September 30, 1996, approximately 52% of the Company's interest earning assets have interest rates which are tied to the Bank's base lending rate or mature in one year or less. In order to match the rate sensitivity of its assets, the Company's policy is to offer a large number of variable rate deposit products and limit the level of large dollar time deposits with maturities of one year or longer. In addition to managing its asset/liability position, the Company has taken steps to mitigate the impact of changing interest rates by generating non-interest income through service charges, offering products which are not interest rate sensitive, such as escrow services and insurance products, and through the servicing of mortgage loans. 9 CAPITAL RESOURCES Stockholders' equity increased 12.2% to $19.3 million at September 30, 1996 from $17.2 million at December 31, 1995. Net income of $2.1 million partially offset by an increase in net unrealized losses on available for sale securities of $42,000 contributed to the increase in equity. The sale of common stock through the exercise of stock options and the conversion of convertible subordinated debentures increased stockholders an additional $40,000. The following table provides information with respect to the Company's and the Bank's regulatory capital ratios and regulatory minimum requirements: September 30, December 31, Regulatory 1996 1995 Minimum Ratios ------------- ------------ -------------- NORTH COUNTY BANCORP Risk-based capital Tier 1 9.62% 9.06% 4.00% Total 11.72% 11.21% 8.00% Tier 1 leverage capital 7.65% 7.17% 4.00% - 5.00% NORTH COUNTY BANK Risk-based capital Tier 1 11.04% 10.40% 4.00% Total 12.29% 11.65% 8.00% Tier 1 leverage capital 8.75% 8.20% 4.00% - 5.00% At September 30, 1996, the Company had $1.7 million in 9 1/4% Convertible Subordinated Debentures ("Debentures") due May 15, 2002 outstanding. The debentures are convertible at the option of the holder into common stock of the Company at a conversion price $7.84 per share, subject to adjustments for stock splits, stock dividends or other certain events. The debentures are redeemable, in whole or in part, at the option of the Company at declining redemption prices that range from 103.25% at September 30, 1996 to par on or after May 15, 1999. Under the risk-based capital regulations the debentures qualify as Tier 2 capital. Additionally, the Company had $1.6 million outstanding under two term notes with directors of the Company as of September 30, 1996 that mature on January 1, 1999 and July 1, 1998, respectively. The notes are unsecured and have a fixed interest rate of 8.00%. The notes have varying interest and principal payment schedules. The Company used the proceeds of these notes to purchase $1.5 million of noncumulative perpetual preferred stock from the Bank. Management anticipates no significant capital expenditures during 1996. 10 PART II - OTHER INFORMATION All items of Part II other than Item 6 below are either inapplicable or would be responded to in the negative. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) None (b) No reports on Form 8-K have been filed during the period, and no events have occurred which would require one to be filed. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH COUNTY BANCORP (Registrant) /s/ MICHAEL J. GILLIGAN Date: November 7, 1996 ------------------------------ ------------------ Michael J. Gilligan Vice President & Chief Financial Officer 12