U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 0-22800
NORTH BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3915073
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification Number)
100 West North Avenue, Chicago, Illinois 60610-1399
(Address of Principal Executive Offices) (Zip Code)
(312) 664-4320
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 July 31, 2000, there were 1,194,487 outstanding shares of the
Registrant's Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
1
NORTH BANCSHARES, INC.
Table of Contents
Part I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4. Recent Regulatory Developments 13
Part II - OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 6. Exhibits and Reports on Form 8-K 14
FORM 10-QSB SIGNATURE PAGE 15
2
Part I. Financial Information
Item 1. Consolidated Financial Statements
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS JUNE 30, 2000 DEC 31, 1999
Cash and due from banks $ 1,553 $ 1,712
Interest-bearing deposits 1,373 1,260
Federal funds sold 2,163 2,439
Investment in dollar-denominated mutual funds 1,389 466
- ------------------------------------------------------------------------------------ -------------
TOTAL CASH AND CASH EQUIVALENTS 6,478 5,877
Investment securities available for sale 16,854 17,050
Mortgage-backed securities available for sale 13,910 14,528
Stock in Federal Home Loan Bank of Chicago 1,805 2,205
Loans receivable, net of allowance for loan losses of $262 at
June 30, 2000 and $231 at December 31, 1999 91,175 88,989
Accrued interest receivable 951 941
Premises and equipment, net 812 1,033
Other assets 179 66
- ------------------------------------------------------------------------------------ -------------
TOTAL ASSETS 132,164 130,689
- ------------------------------------------------------------------------------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------ -------------
Deposit accounts 81,131 76,506
Borrowed funds 36,265 41,100
Advance payments by borrowers for taxes and insurance 1,140 1,092
Accrued interest payable and other liabilities 1,672 738
- ------------------------------------------------------------------------------------ -------------
TOTAL LIABILITIES 120,208 119,436
- ------------------------------------------------------------------------------------ -------------
Preferred stock, $.01 par value. Authorized 500,000 shares; none
outstanding - -
Common stock, $.01 par value. Authorized 3,500,000 shares; issued
1,914,075 shares 19 19
Additional paid in capital 13,258 13,393
Retained earnings, substantially restricted 11,994 11,115
Treasury stock, at cost (715,588 shares at June 30, 2000
and 682,868 shares at December 31, 1999) (11,192) (11,025)
Accumulated other comprehensive loss (1,845) (1,916)
Common stock acquired by Employee Stock Ownership Plan (278) (333)
- ------------------------------------------------------------------------------------ -------------
TOTAL STOCKHOLDERS' EQUITY 11,956 11,253
- ------------------------------------------------------------------------------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $132,164 $130,689
- ------------------------------------------------------------------------------------ -------------
See accompanying notes to unaudited consolidated financial statements.
3
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
INTEREST INCOME:
Loans receivable $1,690 $1,556 $3,347 $3,084
Interest-bearing deposits and federal funds sold 59 51 98 131
Investment securities available for sale 314 304 616 556
Mortgage-backed securities available for sale 226 242 456 472
Investment in mutual funds 5 3 11 16
Dividends on FHLB stock 36 31 77 60
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,330 2,187 4,605 4,319
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 877 804 1,717 1,601
Borrowed funds 572 507 1,130 977
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,449 1,311 2,847 2,578
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 881 876 1,758 1,741
PROVISION FOR LOAN LOSSES 27 8 31 8
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 854 868 1,727 1,733
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain (loss) on sale of investment securities available for sale (90) 49 (90) 82
Other than temporary decline in value of securities available for sale (24) - (24) -
Gain on sale of real estate 1,322 - 1,322 -
Fees and service charges 70 65 149 142
Other 6 5 10 9
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 1,284 119 1,367 233
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and benefits 429 395 850 795
Occupancy expense 111 107 241 219
Professional fees 66 49 115 92
Data processing 55 52 104 103
Advertising and promotion 41 38 85 61
Federal deposit insurance premium 4 2 8 11
Other 93 100 182 170
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 799 743 1,585 1,451
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,339 244 1,509 515
INCOME TAX EXPENSE 306 94 363 189
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME 1,033 150 1,146 326
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic .88 .12 .97 .27
Diluted .87 .12 .96 .26
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING:
Basic 1,171,405 1,196,851 1,181,380 1,202,731
Diluted 1,180,442 1,248,706 1,190,906 1,252,032
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.
4
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
Accumulated Common
Additional other stock
Common paid in Retained Treasury comprehensive acquired
Stock capital earnings stock income (loss) by ESOP Total
Balance at December 31, 1998 $19 13,437 11,127 (10,664) (153) (444) 13,322
Comprehensive loss:
Net income - - 326 - - - 326
Change in unrealized loss on securities
available for sale, net - - - - (995) - (995)
-------
Comprehensive loss - - - - - - (669)
Payment on ESOP loan - - - - - 55 55
Market adjustment for common ESOP shares - 46 - - - - 46
Purchase of treasury stock, 36,358 shares - - - (470) - - (470)
Cash dividend ($.22 per share) - - (276) - - - (276)
Options exercised and reissuance of treasury
stock, 9,500 shares - (85) - 157 - - 72
- -------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 19 13,398 11,177 (10,977) (1,148) (389) 12,080
===============================================================================================================================
Balance at December 31, 1999 19 13,393 11,115 (11,025) (1,916) (333) 11,253
Comprehensive income:
Net income - - 1,146 - - - 1,146
Change in unrealized loss on securities
available for sale, net - - - - 71 - 71
------
Comprehensive income - - - - - - 1,217
Payment on ESOP loan - - - - - 55 55
Market adjustment for common ESOP shares - 19 - - - - 19
Purchase of treasury stock, 49,830 shares - - - (442) - - (442)
Cash dividend ($.22 per share) - - (267) - - - (267)
Options exercised and reissuance of treasury
stock, 17,110 shares - (154) - 275 - - 121
- -------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 $19 13,258 11,994 (11,192) (1,845) (278) 11,956
===============================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
5
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30,
2000 1999
Cash flows from operating activities:
Net Income $ 1,146 326
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 51 54
Deferred loan costs, net of amortization 15 8
Amortization of premiums and discounts, net 2 (53)
ESOP expense 74 101
Provision for loan losses 31 8
Gain on sale of real estate (1,322) -
Loss (gain) on sale of investment securities available for sale 114 (82)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 14 (81)
Increase in other assets, net (137) (119)
Increase in other liabilities 897 996
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 885 1,158
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities available for sale - 2,135
Purchase of investment securities available for sale (1,991) (6,192)
Proceeds from sales of investment securities available for sale 2,191 255
Purchase of mortgage-backed securities available for sale - (3,680)
Proceeds from sales of mortgage-backed securities available for sale - 1,713
Repayment of mortgage-backed securities available for sale 606 1,006
Loan originations (7,382) (13,745)
Loan repayments 5,150 10,594
Procees from sale of real estate 1,500 -
Sale (purchase) of Federal Home Loan Bank of Chicago stock 477 (150)
Federal Home Loan Bank of Chicago stock dividend (77) -
Purchase of premises and equipment (8) (62)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 466 (8,126)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in deposit accounts 4,625 (691)
Proceeds from borrowed funds 25,745 5,500
Repayments of borrowed funds (30,580) 2,000
Increase in advance payments by borrowers for taxes and insurance 48 112
Payment of cash dividend (267) (276)
Proceeds from stock options exercised 121 72
Purchase of treasury stock (442) (470)
- ---------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (750) 2,247
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 601 (4,721)
Cash and cash equivalents at beginning of period 5,877 9,746
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $6,478 5,025
- ---------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $2,233 1,971
Taxes 125 55
Supplemental disclosures of noncash activities:
Transfer of mortgage-backed securities from held to maturity to
available for sale - 4,478
- ---------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10- QSB and Article 10
of Regulation S-X. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments (which are normal and recurring in nature)
necessary for a fair presentation of the financial condition as of June 30, 2000
and results of operations for the three and six month periods ended June 30,
2000 and June 30, 1999, but are not necessarily indicative of the results which
may be expected for the entire year.
(2) Principles of Consolidation
The accompanying unaudited consolidated financial statements include
the accounts of North Bancshares, Inc. (the "Company"), its wholly-owned
subsidiary, North Federal Savings Bank (the "Bank"), and the Bank's subsidiary
North Financial Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(3) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
For the three months For the six months
ended June 30, ended June 30,
(In thousands, except share data) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
Numerator:
Net Income $1,033 150 1,146 326
Denominator:
Basic earnings per share-weighted average
shares outstanding 1,171,405 1,196,851 1,181,380 1,204,731
Effect of dilutive stock options outstanding 9,037 51,855 9,526 49,301
Diluted earnings per share-adjusted weighted
average shares outstanding 1,180,442 1,248,706 1,190,906 1,254,032
Basic earnings per share .88 .12 .97 .27
Diluted earnings per share .87 .12 .96 .26
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
7
4) Comprehensive income
The following table sets forth the required disclosures of other
comprehensive income (loss) as presented on the statement of changes in
stockholders' equity and the related tax effects allocated to each component of
other comprehensive income for the periods indicated.
Before Tax Net
Tax (Expense) of Tax
(In thousands) Amount or Benefit Amount
- --------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000
Change in unrealized loss on securities available for sale
arising during the period, net 309 (106) 203
Less: reclassification adjustment for gain on securities
available for sale included in net income (114) 39 (75)
- --------------------------------------------------------------------------------------------------------
Change in unrealized loss on securities available
for sale, net $ 195 (67) 128
- --------------------------------------------------------------------------------------------------------
Three months ended June 30, 1999
Change in unrealized loss on securities available for
sale arising during the period, net $(383) 130 (253)
Less: reclassification adjustment for gain on
securities available for sale included in net income 33 (11) 22
- --------------------------------------------------------------------------------------------------------
Change in unrealized gain on securities available
for sale, net $ (350) 119 (231)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000
Unrealized holding loss on securities available for
sale arising during the period $221 (75) 146
Less: reclassification adjustment for gain on
securities available for sale included in net income (114) 39 (75)
- -------------------------------------------------------------------------------------------------------
Change in net unrealized loss on securities available
for sale $ 107 (36) 71
- -------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Unrealized holding loss on securities available for
sale arising during the period $ (1,589) 540 (1,049)
Less: reclassification adjustment for gain on
securities available for sale included in net income 82 (28) 54
- -------------------------------------------------------------------------------------------------------
Change in net unrealized loss on securities available
for sale $ (1,507) 512 (995)
- -------------------------------------------------------------------------------------------------------
(5) Stock Repurchase Program
On January 27, 2000, the Company announced the beginning of the
thirteenth stock repurchase program. The repurchase program amounts to 50,000
shares or approximately 4.0% of the outstanding shares of the Company. The
Company intends to repurchase shares in open market transactions or in privately
negotiated transactions over a one year period. At June 30, 2000, 39,289 shares
had been repurchased under the new program at an average cost of $8.91 per
share. Management continues to believe that stock repurchase programs provide
enhanced value to both the Company and its stockholders.
(6) Dividend Declaration
On April 14, 2000, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, which was paid on May 15, 2000
to stockholders of record on May 1, 2000. On July 14, 2000, the Company
announced that the Board of Directors declared a quarterly dividend of $.11 per
share, to be paid on August 15, 2000 to stockholders of record on August 1,
2000.
8
(7) Commitments and Contingencies
At June 30, 2000, the Bank had outstanding commitments to originate
loans in the amount of $4.0 million at an average rate of 9.50% and unused
equity lines of credit totaling $1.8 million.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The primary business of the Company is that of an independent
community-oriented financial institution offering a variety of financial
services to meet the needs of the communities it serves. The Company attracts
deposits from the general public or borrows funds and uses such funds to
originate or acquire one-to-four family residential mortgages, loans secured by
small apartment buildings or mixed use properties, equity lines of credit
secured by real estate and commercial real estate loans. The Company also
invests in U.S. Government and agency securities, federal agency mortgage-backed
securities, investment grade securities, common stocks of other financial
institutions and money market accounts.
The Company's consolidated results of operations are primarily
dependent on net interest income, which is the difference between the interest
income earned on interest-earning assets and the interest paid on deposits and
other borrowings, loan loss provisions and to a lesser degree on non-interest
income less non- interest expense and income taxes. The Company's operating
expenses consist principally of employee compensation and benefits, occupancy
expenses, and other non-interest expenses. The Company's results of operations
are also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Forward-Looking Statements
When used in this Form 10-QSB, and in other filings by the Company with
the SEC, in the Company's press releases or other public or shareholder
communications, and in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimate", "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area and
competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake -- and specifically disclaims any
obligation -- to publicly release the results of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
9
A contingency plan, which involves processing transactions at the
third-party data processors back-up recovery site, disaster recovery programs in
the event of electrical failures, manual bookkeeping systems and additional cash
requirements was approved by the board of directors and will be maintained by
management during the year 2000 in the event that unanticipated Year 2000 issues
arise.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, borrowings from the
FHLB of Chicago, amortization and prepayment of loans and mortgage-backed
securities, sales and maturities of investment and mortgage- backed securities
and occasionally the use of reverse repurchase agreements. The Bank can also
borrow from its correspondent banks. The Bank uses its liquid resources to fund
loan commitments, to meet operating expenses, and to invest and to fund deposit
withdrawals. Management believes that loan repayments and the Bank's other
sources of funds will be adequate to meet the liquidity needs of the Bank.
The OTS requires minimum levels of liquid assets. OTS regulations
currently require the Bank to maintain an average daily balance of liquid assets
equal to at least 4% of the sum of its average daily balance of net withdrawable
accounts and borrowings payable in one year or less. At June 30, 2000, the
Bank's liquidity ratio was 5.8% compared with 4.6% for the quarter ended June
30, 1999.
Current regulatory standards impose the following capital requirements
on the Bank and other thrifts: a tangible capital ratio expressed as a
percentage of total adjusted assets, a leverage ratio of core capital to total
adjusted assets and a risk-based capital standard expressed as a percentage of
risk-adjusted assets. At June 30, 2000, the Bank exceeded all of its regulatory
capital requirements. At such date, the Bank's tangible capital, core capital
and risk-based capital of $12.9 million, $12.9 million and $13.2 million,
respectively, exceeded the applicable minimum requirements by $10.9 million or
8.2%, $8.9 million or 6.7%, and $8.5 million or 14.4%, respectively.
Changes In Financial Condition
Total assets amounted to $132.2 million at June 30, 2000, an increase
of $1.5 million from $130.7 million at December 31, 1999. The increase was
primarily attributable to a $2.2 million increase in net loans receivable
partially offset by a $600,000 decrease in mortgage-backed securities available
for sale.
Loans receivable amounted to $91.4 million at June 30, 2000, an
increase of $2.2 million from $89.2 million at December 31, 1999. The Company
originated $7.4 million in residential mortgage, consumer and commercial real
estate loans during the six months ended June 30, 2000 compared with $13.7
million during the six months ended June 30, 1999. Repayments of loans during
the six months ended June 30, 2000 amounted to $5.1 million compared with $10.6
million during the six months ended June 30, 1999. The decrease in originations
and repayments was primarily due to higher market rates of interest.
Total deposits amounted to $81.1 million at June 30, 2000 compared with
$76.5 million at December 31, 1999. The $4.6 million increase was primarily
attributable to an increase in certificates of deposit. The increase in
certificates was primarily due to the use of brokered certificates of deposit as
a funding source for short term construction and commercial real estate loans
and to reduce borrowed funds. Non-interest bearing checking balances increased
$1.0 million to $3.3 million at June 30, 2000 from $2.3 million at December 31,
1999.
Borrowed funds decreased $4.8 million to $36.3 million at June 30, 2000
from $41.1 million at December 31, 1999. The decrease was attributable to
repayments of FHLB advances or other borrowings which matured or were called
prior to maturity during the six months ended June 30, 2000.
Accrued interest payable and other liabilities amounted to $1.7 million
at June 30, 2000, an increase of $934,000 from $738,000 at December 31, 1999.
The increase was primarily attributable to accrued interest on certificates of
deposit that pay interest once a year in December.
Stockholders' equity was $12.0 million at June 30, 2000 compared with
$11.3 million at December 31, 1999. The increase was primarily attributable to a
$1.1 million increase in retained earnings, primarily due to net income for the
six month period, which was partially offset by $267,000 in dividend payments.
In addition, there was a $167,000 increase in treasury stock.
10
Average Balance Sheet
The following table presents certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively for the periods shown. Average balances are derived
from average monthly balances. The yields and costs include fees which are
considered adjustments to yield.
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000
--------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Earned\ Yield\ Average Earned\ Yield\ Average Earned\ Yield\
Balance Paid Cost(3) Balance Paid Cost Balance Paid Cost
--------------------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------------------
Interest-earnings assets:
Loans receivable $90,543 $1,690 7.47% $84,622 $1,556 7.36% $89,890 $3,347 7.45%
Investment securities 19,051 319 6.70 18,308 333 7.28 18,765 627 6.68
Mortgage-backed securities 14,891 226 6.07 15,912 242 6.08 15,039 456 6.06
Federal funds sold 2,357 43 7.30 2,651 36 5.43 2,248 68 6.05
Other 3,581 52 5.81 3,786 20 2.11 3,640 107 5.88
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 130,423 2,330 7.15 125,279 2,187 6.98 129,582 4,605 7.11
Non-interest-earning assets 2,202 3,075 2,124
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $132,625 $128,354 $131,706
- -----------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
MMDA & NOW accounts 23,821 241 4.05 21,490 202 3.76 23,880 475 3.98
Passbook accounts 12,884 88 2.73 13,609 93 2.73 12,912 177 2.74
Certificate accounts 40,213 548 5.45 38,167 509 5.33 39,043 1,065 5.46
Borrowed funds 39,192 572 5.84 37,225 507 5.38 39,724 1,130 5.69
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 116,110 1,449 4.99 110,491 1,311 4.72 115,559 2,847 4.93
Non-interest bearing deposits 2,825 1,962 2,664
Other liabilities 2,255 3,247 2,131
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 121,190 115,700 120,354
Stockholders' equity 11,435 12,654 11,352
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $132,625 $128,354 $131,706
- ------------------------------------------------------------------------------------------------------------------------
Net interest income/interest rate
spread (1) 881 2.16% 876 2.26% 1,758 2.18%
- ------------------------------------------------------------------------------------------------------------------------
Net earning assets/net interest
margin (2) $14,313 2.70% $14,288 2.80% $14,023 2.71%
- ------------------------------------------------------------------------------------------------------------------------
Percentage of interest-earning
assets to interest-bearing
liabilities 112.33% 112.87% 112.13%
- ------------------------------------------------------------------------------------------------------------------------
1. Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of
interest-bearing liabilities.
2. Net interest margin represents net interest income divided by average interest-earning assets.
3. Average yield and costs for the three and six month periods presented are annualized for presentation purposes.
11
Comparison Of Operating Results For The Three Months Ended June 30, 2000 And
June 30, 1999
General. Net income was $1.0 million for the three months ended June
30, 2000, an increase of $883,000, from $150,000 for the three months ended June
30, 1999. Diluted earnings per share amounted to $.87 for the three months ended
June 30, 2000, an increase of $.75, from $.12 per share for the three months
ended June 30, 1999. The increase in net income and dilurted earnings per share
was primarily related to a $1.3 million pre tax gain on the sale of real estate.
The gain was partially offset by a $212,000 increase in income tax expense and a
$139,000 decrease in gain on the sale of investment securities available for
sale.
Interest Income. Interest income increased by $143,000 and amounted to
$2.3 million for the three months ended June 30, 2000 compared with $2.2 million
for the three months ended June 30, 1999. There was an increase in the
annualized yield on average interest-earning assets to 7.15% for the three
months ended June 30, 2000 from 6.98% for the three months ended June 30, 1999
due primarily to an increase in higher yielding multi-family and commercial real
estate lending. In addition there was an increase in average interest-earning
assets to $130.4 million for the three months ended June 30, 2000 compared with
$125.3 million for the three months ended June 30, 1999 due primarily to
increased mortgage lending during the period.
Interest Expense. Interest expense increased $138,000 and amounted to
$1.4 million for the three months ended June 30, 2000, compared with $1.3
million for the three months ended June 30, 1999. The annualized average cost of
interest-bearing liabilities increased to 4.99% for the three months ended June
30, 2000 from 4.72% for the three months ended June 30, 1999. The increase was
due primarily to an increase in the average cost of money market deposit
accounts and borrowed funds. In addition, there was an increase in average
interest-bearing liabilities to $116.1 million for the three months ended June
30, 2000 from $110.5 million for the three months ended June 30, 1999.
Provision For Loan Losses. The Company provided an additional $27,000
to its allowance for loan losses for the three months ended June 30, 2000
compared with $8,000 for the three months ended June 30, 1999. The allowance for
loan losses was $262,000 at June 30, 2000 and $222,000 at June 30, 1999. The
allowance for loan losses amounted to .29% of loans receivable at June 30, 2000
and .26% at June 30, 1999. The increase in the allowance was primarily
attributable to an increase in commercial real estate lending and general
economic conditions. There were no loans delinquent 90 days or more at June 30,
2000. Future additions to the Company's allowance are dependent upon various
factors such as the performance and composition of the Company's loan portfolio,
the economy, changes in real estate values, interest rates and the view of the
regulatory authorities toward reserve levels and inflation.
Non-Interest Income. Non-interest income amounted to $1.3 million for
the three months ended June 30, 2000, an increase of $1.2 million from $119,000
for the three months ended June 30, 1999. The increase was primarily
attributable to a $1.3 million gain on the sale of real estate due to the sale
of the Bank's employee parking facility, partially offset by a 139,000 change
from a gain to a loss on the sale of investment securities available for sale
and $24,000 increase in other than temporary decline in value of securities
available for sale. The decrease in gain on the sale of investment securities
was primarily attributable to the sale of equity securities held by the Company.
The capital loss generated by the sale was used to partially offset the capital
gain generated by the sale of the parking facility for income tax purposes.
Non-Interest Expense. Non-interest expense increased by $56,000 to
$799,000 for the three months ended June 30, 2000, compared with $743,000 for
the three months ended June 30, 1999. There was a $34,000 increase in
compensation and benefits expense related to increased salary and benefit costs.
In addition, there was a $17,000 increase in professional fees primarily
related to the sale of the Bank's parking facility.
Income Tax Expense. Income tax expense amounted to $306,000 for the
three months ended June 30, 2000 compared with $94,000 for the three months
ended June 30, 1999. The increase was primarily due to an increase in income
before taxes. The effective tax rate amounted to 22.9% for the three months
ended June 30, 2000 compared with 38.5% for the three months ended June 30, 1999
The effective tax rate for the quarter ended June 30, 2000 was lower due
primarily to the utilization of capital loss carryforwards which had been
previously reserved for and would have expired at the end of this fiscal year.
Comparison Of Operating Results For The Six Months Ended June 30, 2000 And
June 30, 1999
12
General. Net income amounted to $1.1 million for the six months ended
June 30, 2000, an increase of $820,000 from $326,000 for the six months ended
June 30, 1999. Diluted earnings per share amounted to $.96 for the six months
ended June 30, 2000, an increase of $.70 from $.26 per share for the six months
ended June 30, 1999. The increase was primarily attributable to a $1.1 million
increase in non- interest income primarily related to a $1.3 million gain on the
sale of real estate. This increase was partially offset by a $174,000 increase
in income tax expense and a $134,000 increase in non-interest expense.
Interest Income. Interest income increased $286,000 and amounted to
$4.6 million for the six months ended June 30, 2000 compared with $4.3 million
for the six months ended June 30, 1999. The increase was primarily attributable
to an increase in average interest earning assets to $129.6 million for the six
months ended June 30, 2000 from $124.0 million for the six months ended June 30,
1999. The increase was primarily attributable to a reallocation of liquid assets
into higher yielding intermediate and longer term assets. In addition, there was
an increase in the annualized yield on average interest-earning assets to 7.11%
for the six months ended June 30, 2000 from 6.97% for the six months ended June
30, 1999. The increase in the annualized yield was primarily attributable to an
improvement in the average yield on loans receivable to 7.45% for the six months
ended June 30, 2000 from 7.39% for the six months ended June 30, 1999 due
primarily to a change inthe portfolio mix.
Interest Expense. Interest expense increased $269,000 and amounted to
$2.8 million for the six months ended June 30, 2000 compared with $2.6 million
for the six months ended June 30, 1999. The increase was primarily attributable
to an increase in the average balance of interest-bearing liabilities to $115.6
million for the six months ended June 30, 2000 from $109.9 million for the six
months ended June 30, 1999. In addition, there was an increase in the average
cost of interest-bearing liabilities to 4.93% for the six months ended June 30,
2000 from 4.69% for the six months ended June 30, 1999 due to higher borrowing
costs and an increase in the cost of certificates of deposit and money market
deposit accounts.
Provision For Loan Losses. The Company added $31,000 to its allowance
for loan losses for the six months ended June 30, 2000 compared with $8,000 for
the six months ended June 30, 1999. The allowance for loan losses was $262,000
at June 30, 2000 and amounted to .29% of loans receivable. The allowance for
loan losses was $222,000 and amounted to .26% of loans receivable at June 30,
1999. The increase in the allowance was primarily attributable to an increase in
commercial real estate lending and general economic conditions. There were no
loans delinquent 90 days or more at June 30, 2000. Future additions to the
Company's allowance for loan losses and any change in the related ratio of the
allowance for loan losses to non-performing loans are dependent upon various
factors such as the performance and composition of the Company's loan portfolio,
the economy, changes in real estate values, interest rates and the view of the
regulatory authorities toward reserve levels and inflation.
Non-Interest Income. Non-interest income increased $1.1 million and
amounted to $1.4 million for the six months ended June 30, 2000 compared with
$233,000 for the six months ended June 30, 1999. The increase was primarily
attributable to a $1.3 million gain on the sale of real estate related to the
sale of an employee parking facility, partially offset by a $172,000 change from
a gain to a loss on the sale of securities available for sale and a $24,000
increase in other than temporary decline in value of securities available for
sale. The decrease in gain on the sale of investment securities was primarily
attributable to the sale of equity securities held by the Company. The capital
loss generated by the sale was used to partially offset the capital gain
generated by the sale of the parking facility for income tax purposes.
Non-Interest Expense. Non-interest expense increased $134,000 and
amounted to $1.5 million for the six months ended June 30, 2000 compared with
$1.4 million for the six months ended June 30, 1999. The increase was primarily
attributable to a $55,000 increase in compensation and benefits expense related
to increased salaries and benefits expense. In addition, there was a $24,000
increase in advertising and promotion expense related to deposit account
promotions and a $22,000 increase in professional fees primarily related to the
sale of the Bank's parking facility.
Income Tax Expense. Income tax expense increased $174,000 and amounted
to $363,000 for the six months ended June 30, 2000 compared with $189,000 for
the six months ended June 30, 1999. The increase was primarily attributable to
an increase in taxable income. The effective tax rate was 24.1% for the six
months ended June 30, 2000 compared with 36.7% for the six months ended June 30,
1999. The effective tax rate for the waurter ended June 30, 2000 was lower due
primarily to the utilization of capital loss carryforwards which had been
previously reserved for and would have expired at the end of this fiscal year.
13
Item 4. Recent Regulatory Developments
On November 12, 1999, the Gramm-Leach Bliley Act ("the "Act"), was
signed into law. The Act will allow bank holding companies to engage in a wider
range of nonbanking activities, including greater authority to engage in
securities and insurance activities. Under the Act, a bank holding company that
elects to become a financial holding company may engage in any activity that the
Federal Reserve System determines by regulation or order is financial in nature
and does not pose a substantial risk to the safety and soundness of depository
institution or the financial system generally.
The Act limits the nonbanking activities of unitary savings and loan
holding companies by generally prohibiting any savings and loan holding company
from engaging in any activity other than activities that are currently permitted
for multiple savings and loan holding companies or are permissible for financial
holding companies. The Act prohibits any company from acquiring control of a
savings association or savings and loan holding company unless the acquiring
company engages solely in permissible activities. The Act creates an exemption
from the general prohibitions for unitary savings and loan holding companies in
existence or formed pursuant to an application pending before the Office of
Thrift Supervision, on or before May 4, 1999, which includes the Company.
Various bank regulatory agencies have begun issuing regulations as
mandated by the Act. In addition, all federal bank regulatory agencies have
jointly issued a proposed regulation that would implement the privacy provision
of the Act. At this time, it is not possible to predict the impact of the Act
and its implementing regulations may have on the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending to which the Company or
any of its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 26, 2000, the annual meeting of stockholders was held. At the
meeting, James L. Ferstel and Gregory W. Rose were elected to serve as directors
with terms expiring in 2003. Continuing on as directors were Mary Ann Hass and
Joseph A. Graber whose terms will expire in 2001 and Elmer L. Hass, Robert H.
Rusher and Frank J. Donati, whose terms will expire in the year 2002. In
addition, the stockholders ratified the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.
The voting on each item presented at the annual meeting was as follows:
Election of Directors For Withheld
James L. Ferstel 926,300 201,070
Gregory W. Rose 934,052 193,318
Ratification of the
appointment of KPMG LLP as
the Company's auditors for
the fiscal year ending Broker
December 31, 2000 For Against Abstain Non-votes
1,109,347 10,448 7,575 None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
EX-27 Financial Data Schedule
(B) 1. Form 8-K dated April 14, 2000, Registrant issued a press release
dated April 14, 2000 regarding first quarter 2000 earnings and a
regular quarterly dividend.
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTH BANCSHARES,INC.
(Registrant)
Date August 11, 2000 /S/ Joseph A. Graber
----------------------------
Joseph A. Graber
President and Chief Executive Officer
Date August 11, 2000 /S/ Martin W. Trofimuk
----------------------------
Martin W. Trofimuk
Vice President and Treasurer
16