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 September 30, 2001
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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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 October 31, 2001, there were 1,158,774 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. Condensed Consolidated Financial Statements 3
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 4. Recent Regulatory Developments 12
Part II - OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
FORM 10-QSB SIGNATURE PAGE 13
2
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
NORTH BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS SEPT 30, 2001 DEC 31, 2000
(UNAUDITED)
Cash and due from Banks $ 2,142 1,930
Interest-bearing deposits 1,784 2,006
Federal funds sold 13,592 4,245
Investment in dollar denominated mutual funds 1,022 903
- -----------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 18,540 9,084
Securities available for sale at fair value 14,558 16,961
Mortgage-backed securities available for sale at fair value 12,627 13,580
Stock in Federal Home Loan Bank of Chicago 2,727 1,905
Loans receivable, net of allowance for loan losses of $284 at
September 30, 2001 and $262 at December 31, 2000 91,836 90,765
Accrued interest receivable 865 1,016
Premises and equipment, net 739 803
Amounts due from brokers - 376
Other assets 166 91
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TOTAL ASSETS 142,058 134,581
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LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------
Deposit accounts 85,687 81,317
Borrowed Funds 39,100 38,200
Advance payments by borrowers for taxes and insurance 1,460 1,068
Accrued interest payable and other liabilities 2,529 1,213
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TOTAL LIABILITIES 128,776 121,798
- -----------------------------------------------------------------------------------------------
Preferred stock, $.01 par value. Authorized 500,000 shares; none
outstanding - -
Common stock, $.01 par value. Authorized 3,500,000 shares; issued
and outstanding 1,157,774 at September 30, 2001 and 1,181,253
at December 31, 2000 19 19
Additional paid in capital 13,240 13,242
Retained earnings, substantially restricted 11,941 11,955
Treasury stock, at cost (756,301 shares at September 30, 2001 and
732,822 shares at December 31, 2000) (11,542) (11,316)
Accumulated other comprehensive loss (237) (895)
Common stock acquired by Employee Stock Ownership Plan (139) (222)
- -----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,282 12,783
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $142,058 134,581
===============================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
3
NORTH BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30,
2001 2000 2001 2000
INTEREST INCOME:
Loans receivable $1,729 1,710 5,132 5,057
Interest-bearing deposits and federal funds sold 120 49 366 147
Securities available for sale 274 298 834 914
Mortgage-backed securities available for sale 194 220 610 676
Other interest income 49 38 133 126
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TOTAL INTEREST INCOME 2,366 2,315 7,075 6,920
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 877 871 2,686 2,588
Borrowed funds 558 557 1,695 1,687
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TOTAL INTEREST EXPENSE 1,435 1,428 4,381 4,275
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 931 887 2,694 2,645
PROVISION FOR LOAN LOSSES 11 - 22 31
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 920 887 2,672 2,614
- ------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain (loss) on sale of securities available for sale - - 11 (90)
Other than temporary decline in value of securities
available for sale - - - (24)
Gain on sale of real estate - - - 1,322
Gain (loss) on sale of mortgage loans 3 (15) 47 (15)
Other non-interest income 83 75 241 234
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TOTAL NON-INTEREST INCOME 86 60 299 1,427
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NON-INTEREST EXPENSE:
Compensation and benefits 453 423 1,353 1,273
Occupancy expense 110 104 358 345
Professional fees 37 44 108 159
Data processing 49 52 153 156
Advertising and promotion 50 40 109 125
Other non-interest expense 99 91 282 281
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TOTAL NON-INTEREST EXPENSE 798 754 2,363 2,339
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INCOME BEFORE INCOME TAXES 208 193 608 1,702
INCOME TAX EXPENSE 80 67 237 430
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NET INCOME $128 126 371 1,272
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EARNINGS PER SHARE:
Basic $.11 .11 .32 1.08
Diluted $.11 .11 .32 1.07
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AVERAGE SHARES OUTSTANDING:
Basic 1,141,148 1,163,122 1,147,113 1,177,756
Diluted 1,157,293 1,171,620 1,164,736 1,186,571
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COMPREHENSIVE INCOME $679 429 1,029 1,646
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited condensed consolidated financial statements.
4
NORTH BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001
(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, 1999 $19 13,393 11,115 (11,025) (1,916) (333) 11,253
Net income - - 1,272 - - - 1,272
Change in accumulated other
comprehensive income (loss) - - - - 374 - 374
- ---------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - 1,646
ESOP shares earned - 28 - - - 83 111
Purchase of treasury stock, 63,130
shares - - - (561) - - (561)
Cash dividend ($.33 per share) - - (399) - - - (399)
Options exercised and reissuance of
treasury stock, 21,276 shares - (187) - 340 - - 153
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 19 13,234 11,988 (11,246) (1,542) (250) 12,203
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 19 13,242 11,955 (11,316) (895) (222) 12,783
Net income - - 371 - - - 371
Change in accumulated other
comprehensive income (loss) - - - - 658 - 658
- ---------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - 1,029
ESOP shares earned - 41 - - - 83 124
Purchase of treasury stock, 29,479
shares - - - (318) - - (318)
Cash dividend ($.33 per share) - - (385) - - - (385)
Options exercised and reissuance of
treasury stock, 6,000 shares - (43) - 92 - - 49
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2001 $19 13,240 11,941 (11,542) (237) (139) 13,282
=====================================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
5
NORTH BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPT 30,
2001 2000
Cash flows from operating activities:
Net Income $ 371 1,272
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 68 73
Deferred loan costs, net of amortization 35 38
Amortization of premiums and discounts, net (21) 4
ESOP expense 124 111
Provision for loan losses 22 31
(Gain) loss on sale of investment securities available
for sale (11) 104
Gain on sale of real estate - (1,322)
Proceeds from sale of loans 1,051 1,767
(Gain) loss on sale of loans (12) 15
Federal Home Loan Bank of Chicago stock dividend (115) (111)
Changes in assets and liabilities:
Decrease in accrued interest receivable 151 50
Decrease (increase) in other assets, net 301 (152)
Increase in other liabilities 973 2,167
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Net cash provided by operating activities 2,937 4,043
- -------------------------------------------------------------------------------==----------------
Cash flows from investing activities:
Maturities and calls of investment securities available for sale 3,000 -
Purchase of investment securities available for sale - (1,991)
Proceeds from sales of investment securities available for sale - 2,191
Purchase of mortgage-backed securities available for sale (986) -
Proceeds from sales of mortgage-backed securities available
for sale 924 -
Repayment of mortgage-backed securities available for sale 1,451 984
Loan originations (21,153) (11,347)
Loan repayments 18,986 9,487
(Purchase) sale of Federal Home Loan Bank of Chicago Stock (707) 611
Proceeds from sale of real estate - 1,500
Purchase of premises and equipment (4) (24)
- -------------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,511 1,411
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in deposit accounts 4,370 3,646
Increase (decrease) in borrowed funds 900 (8,910)
Increase (decrease) in advance payments by borrowers for taxes
and insurance 392 (560)
Payment of cash dividend (385) (399)
Proceeds from stock options exercised 49 153
Purchase of treasury stock (318) (561)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,008 (6,631)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,456 (1,177)
Cash and cash equivalents at beginning of period 9,084 5,877
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $18,540 4,700
- -------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $3,520 3,528
Taxes 460 250
See accompanying notes to unaudited condensed consolidated financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation
The accompanying unaudited condensed 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 accounting principles generally accepted in
the United States of America for complete financial statements.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (which are normal and recurring in
nature) necessary for a fair presentation of the financial condition as of
September 30, 2001 and results of operations for the three and nine month
periods ended September 30, 2001 and September 30, 2000, but are not necessarily
indicative of the results which may be expected for the entire year.
(2) Principles of Consolidation
The accompanying unaudited condensed 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 nine months
ended Sept 30, ended Sept 30,
(In thousands, except share data) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------
Numerator:
Net Income $128 126 371 1,272
Denominator:
Basic earnings per share-weighted average
shares outstanding 1,141,148 1,163,122 1,147,113 1,177,756
Effect of dilutive stock options outstanding 16,145 8,498 17,623 8,815
Diluted earnings per share-adjusted weighted
average shares outstanding 1,157,293 1,171,620 1,164,736 1,186,571
Basic earnings per share .11 .11 .32 1.08
Diluted earnings per share .11 .11 .32 1.07
===================================================================================================
4) Comprehensive income
The Company's comprehensive income includes net income and other
comprehensive income (loss) comprised of unrealized gains or losses on
securities available for sale, net of tax effect, which are also recognized as
separate components of equity.
(5) Stock Repurchase Program
On September 14, 2000, the Company announced the beginning of another
one year stock repurchase program. The repurchase program amounts to 50,000
shares or approximately 4.0% of the outstanding shares of the Company. At
September 14, 2001, 40,168 shares had been repurchased under the program at an
average cost of $10.23 per share. The Company plans to renew the program until
all 50,000 shares have been repurchased. Management continues to believe that
stock repurchase programs provide enhanced value to both the Company and its
stockholders.
7
(6) Dividend Declaration
On July 16, 2001, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, which was paid on August 15,
2001 to stockholders of record on August 1, 2001. On October 15, 2001, the
Company announced that the Board of Directors declared a quarterly dividend of
$.11 per share, to be paid on November 15, 2001 to stockholders of record on
November 1, 2001.
(7) Commitments and Contingencies
At September 30, 2001, the Bank had outstanding applications and
commitments to originate loans in the amount of $5.5 million at an average rate
of 7.52% and unused lines of credit totaling $4.2 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, acquires deposits through brokers 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.
8
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, borrowings from the
FHLB of Chicago, 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, to make investments 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 the Bank to maintain sufficient liquidity to ensure
its safe and sound operation. At September 30, 2001, the Bank's liquidity ratio
was 15.2% compared with 4.3% for the quarter ended September 30, 2000. The
increase in liquidity was primarily due to funds allocated for loan closings and
proceeds from securities that were called prior to their maturity that are being
held in short term investments.
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 September 30, 2001, the Bank exceeded all of its
regulatory capital requirements. At such date, the Bank's tangible capital, core
capital and risk-based capital of $12.6 million, $12.6 million and $12.9
million, respectively, exceeded the applicable minimum requirements by $10.5
million or 7.5%, $8.4 million or 6.0%, and $7.8 million or 12.1%, respectively.
Changes In Financial Condition
Total assets amounted to $142.1 million at September 30, 2001, an
increase of $7.5 million from $134.6 million at December 31, 2000. The increase
was primarily attributable to a $9.4 million increase in cash and cash
equivalents partially offset by a $3.4 million decrease in available for sale
securities. The primary source of funds can be attributed to a $4.4 million
increase in deposit accounts.
Total cash and cash equivalents increased to $18.5 million at September
30, 2001 from $9.1 million at December 31, 2000. The increase is primarily
attributable to proceeds from longer term investment securities which were
called prior to maturity and were reinvested in federal funds and interest-
bearing deposits at Spetember 30, 2001. Management intends to utilize a portion
of the excess liquidity to repay a $5.0 million FHLB advance which matures in
October 2001.
Net loans receivable amounted to $91.8 million at September 30, 2001,
an increase of $1.0 million from $90.8 million at December 31, 2000. The
increase was due primarily to increased equity line of credit activity during
the period. The Company originated $21.1 million in residential mortgage,
consumer and commercial real estate loans during the nine months ended September
30, 2001 compared with $11.3 million during the nine months ended September 30,
2000. Repayments of loans during the nine months ended September 30, 2001
amounted to $19.0 million compared with $9.5 million during the nine months
ended September 30, 2000. The Company also sold $1.1 million in fixed rate
mortgage loans during the nine months ended September 30, 2001 compared with
$1.8 million in loan sales during the nine months ended September 30, 2000.
Total deposits amounted to $85.7 million at September 30, 2001 compared
with $81.3 million at December 31, 2000. The $4.4 million increase was
attributable to a $2.5 million increase in certificates of deposit and a $2.4
million increase in checking and money market accounts partially offset by a
$500,000 decrease in passbook accounts. Non-interest bearing checking accounts
increased 29.2% to $4.1 million at September 30, 2001 compared with $3.1 million
at December 31, 2000. Management has been replacing shorter-term, higher rate
certificates with longer-term, lower rate certificates in order to reduce the
overall cost of funds and to reduce interest rate sensitivity in future periods.
The average cost of deposits decreased to 4.32% for the three months ended
September 30, 2001 from 4.56% for the three months ended September 30, 2000.
Borrowed funds increased by $900,000 to $39.1 million at September 30,
2001 compared with $38.2 million at December 31, 2000. The average cost of
borrowed funds decreased to 5.71% for the three months ended September 30, 2001
compared with 6.33% for the three months ended September 30, 2000. The decrease
in the average cost was primarily attributable to refinancing short-term, higher
cost FHLB advances with FHLB advances at lower rates and longer maturities.
Management plans to repay or refinance, at lower rates if possible,approximately
$7.4 million in higher cost FHLB advances during the fourth quarter of 2001.
Accrued interest payable and other liabilities amounted to $2.5 million
at September 30, 2001, an increase of $1.3 million from $1.2 million at December
31, 2000. The increase was primarily attributable to accrued interest on
certificates of deposit that pay interest annually in December.
Stockholders' equity was $13.3 million at September 30, 2001 compared
with $12.8 million at December 31, 2000. The increase was primarily attributable
to a $658,000 improvement in other comprehensive income (loss) due primarily to
the decrease in interest rates which had a positive effect on the market value
of investment securities and mortgage-backed securities portfolios. Retained
earnings increased by net income which was offset by dividend payments. Book
value increased to $11.47 at September 30, 2001 from $10.82 at December 31,
2000.
9
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 Sept 30, Nine Months Ended Sept 30,
2001 2000 2001
-------------------------------------------------------------------------------------------
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 $91,572 $1,729 7.55% $90,627 $1,710 7.55% $90,620 $5,132 7.55%
Investment securities(4) 19,422 274 5.64 20,303 336 6.62 19,548 834 5.69
Mortgage-backed securities 12,867 194 6.03 14,534 220 6.05 13,376 610 6.08
Federal funds sold and interest-
earning deposits 13,259 169 5.10 3,155 49 6.21 11,194 499 5.94
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 137,120 2,366 6.90 128,619 2,315 7.20 134,738 7,075 7.00
Non-interest-earning assets 3,405 1,985 3,248
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $140,525 $130,604 $137,986
- -----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
MMDA & NOW accounts 25,679 196 3.05 23,811 252 4.23 24,981 660 3.52
Passbook accounts 12,219 85 2.78 12,657 87 2.75 12,256 251 2.73
Certificate accounts 43,316 596 5.50 40,166 532 5.30 42,176 1,775 5.61
Borrowed funds 39,100 558 5.71 35,196 557 6.33 39,220 1,695 5.76
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 120,314 1,435 4.77 111,830 1,428 5.11 118,633 4,381 4.92
Non-interest bearing deposits 3,347 3,109 3,155
Other liabilities 3,851 3,669 3,285
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 127,512 118,608 125,073
Stockholders' equity 13,013 11,996 12,913
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $140,525 $130,604 $137,986
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income/interest rate
spread (1) 931 2.13% 887 2.09% 2,694 2.08%
- -----------------------------------------------------------------------------------------------------------------------------
Net earning assets/net interest
margin (2) $16,806 2.72% $16,789 2.76% $16,105 2.67%
- -----------------------------------------------------------------------------------------------------------------------------
Percentage of interest-earning
assets to interest-bearing
liabilities 113.97% 115.01% 113.58%
- -----------------------------------------------------------------------------------------------------------------------------
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 nine month periods presented are
annualized for presentation purposes.
4. Includes Stock in Federal Home laon Bank of Chicago.
10
Comparison Of Operating Results For The Three Months Ended September 30, 2001
And September 30, 2000
General. Net income was $128,000 for the three months ended September
30, 2001, an increase of $2,000, from $126,000 for the three months ended
September 30, 2000. Basic and Diluted earnings per share amounted to $.11 for
the three months ended September 30, 2001 which was unchanged from $.11 per
share for the three months ended September 30, 2000.
Interest Income. Interest income increased by $51,000 and amounted to
$2.4 million for the three months ended September 30, 2001 compared with $2.3
million for the three months ended September 30, 2000. There was a decrease in
the annualized yield on average interest-earning assets to 6.90% for the
three months ended September 30, 2001 from 7.20% for the three months ended
September 30, 2000 due primarily to a decrease in the average yield of federal
funds sold. The decrease in yield was partially offset by an increase in average
interest-earning assets to $137.1 million for the three months ended September
30, 2001 compared with $128.6 million for the three months ended September 30,
2000.
Interest Expense. Interest expense increased slightly by $7,000 and
amounted to $1.4 million for the three months ended September 30, 2001 and
September 30, 2000. The annualized average cost of interest-bearing liabilities
decreased to 4.77% for the three months ended September 30, 2001 from 5.11% for
the three months ended September 30, 2000. The decrease was due primarily to a
decrease in the average cost of money market deposit accounts and borrowed
funds. The decrease in the average cost was partially offset by a $4.6 million
increase in the average balance of interest-bearing deposit accounts to $81.2
million for the three months ended September 30, 2001 from $76.6 million for the
three months ended September 30, 2000.
Provision For Loan Losses. The Company provided an additional $11,000
to its allowance for loan losses for the three months ended September 30, 2001
compared with no provision for the three months ended September 30, 2000. The
allowance for loan losses was $284,000 at September 30, 2001 compared with
$262,000 at December 31, 2000. The allowance for loan losses amounted to .31% of
loans receivable at September 30, 2001 and .29% at December 31, 2000. The change
in the allowance to gross loan ratio was primarily attributable to an increase
in commercial real estate lending and general economic conditions. There were no
loans delinquent 60 days or more at September 30, 2001.
On a quarterly basis, management of the Bank meets to review the
adequacy of the allowance for loan losses. Management classifies loans in
compliance with regulatory classifications. Classified loans are individually
reviewed to arrive at specific reserves for those loans. Once the specific
portion of the allowance is calculated, management calculates a historical
portion for each loan category based on loan loss history, peer data, current
economic conditions and trends in the portfolio, including delinquencies and
impairments, as well as changes in the composition of the loan portfolio.
Although management believes the allowance for loan losses was at a level
adequate to absorb probable incurred losses on existing loans at September 30,
2001, there can be no assurance that such losses will not exceed estimated
amounts.
Non-Interest Income. Non-interest income increased by $26,000 and
amounted to $86,000 for the three months ended September 30, 2001 compared with
$60,000 for the three months ended September 30, 2000. The increase was
primarily attributable to a $15,000 loss on the sale of loans recorded during
the three months ended September 30, 2000 compared with a $3,000 gain on the
sale of loans recorded during the three months ended September 30, 2001. In
addition, there was an $8,000 increase in other non- interest income.
Non-Interest Expense. Non-interest expense increased by $44,000 to
$798,000 for the three months ended September 30, 2001 compared with $754,000
for the three months ended September 30, 2000. The increase was primarily
attributable to a $30,000 increase in compensation and benefits expense related
to increased salaries and benefit costs. In addition, there was a $10,000
increase in advertising expense primarily related to an anniversary promotion at
the Wilmette branch office.
Income Tax Expense. Income tax expense increased by $13,000 and
amounted to $80,000 for the three months ended September 30, 2001 compared with
$67,000 for the three months ended September 30, 2000. The effective tax rate
amounted to 38.5% for the three months ended September 30, 2001 compared with
34.7% for the three months ended September 30, 2000.
Comparison Of Operating Results For The Nine Months Ended September 30, 2001 And
September 30, 2000
General. Net income amounted to $371,000 for the nine months ended
September 30, 2001, a decrease of $901,000 from $1.3 million for the nine months
ended September 30, 2000. Diluted earnings per share amounted to $.32 for the
nine months ended September 30, 2001 a decrease of $.75 from $1.07 per share for
the nine months ended September 30, 2000 while basic earnings per share amounted
to $.32 for the nine months ended September 30, 2001 compared with $1.08 per
share for the three months ended September 30, 2000. The decrease was primarily
attributable to a $1.3 million pre-tax gain on the sale of real estate recorded
during the nine months ended September 30, 2000. The gain on sale was partially
offset by $105,000 in losses on sales of securities and loans recorded during
the nine months ended September 30, 2000.
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Interest Income. Interest income increased $155,000 and amounted to
$7.1 million for the nine months ended September 30, 2001 compared with $6.9
million for the nine months ended September 30, 2000. The increase was primarily
attributable to an increase in average interest earning assets to $134.7 million
for the nine months ended September 30, 2001 from $129.0 million for the nine
months ended September 30, 2000. This increase was partially offset by a
decrease in the annualized yield on average interest-earning assets to 7.00% for
the nine months ended September 30, 2001 from 7.15% for the nine months ended
September 30, 2000. The decrease in the annualized yield was primarily
attributable to a decrease in the average yield on federal funds sold and other
investments.
Interest Expense. Interest expense increased $106,000 and amounted to
$4.4 million for the nine months ended September 30, 2001 compared with $4.3
million for the nine months ended September 30, 2000. The increase was primarily
attributable to an increase in the average balance of interest-bearing
liabilities to $118.6 million for the nine months ended September 30, 2001 from
$114.2 million for the nine months ended September 30, 2000. This increase was
partially offset by a decrease in the average cost of interest-bearing
liabilities to 4.92% for the nine months ended September 30, 2001 from 4.99% for
the nine months ended September 30, 2000 due primarily to a decrease in the
average money market deposit accounts and borrowed funds. During the nine month
period higher cost certificates of deposit and borrowings matured and were
replaced with lower cost deposits and borrowings with longer terms. As a result,
the overall weighted average cost of funds at September 30, 2001 decreased to
4.51% from 5.07% at September 30, 2000.
Provision For Loan Losses. The Company added $22,000 to its allowance
for loan losses for the nine months ended September 30, 2001 compared with
$31,000 for the nine months ended September 30, 2000. The allowance for loan
losses was $284,000 at September 30, 2001 and amounted to .31% of loans
receivable. The allowance for loan losses was $262,000 and amounted to .29% of
loans receivable at December 31, 2000. The change in the allowance to gross loan
ratio was primarily attributable to an increase in commercial real estate
lending and general economic conditions. There were no loans delinquent 60 days
or more at September 30, 2001.
On a quarterly basis, management of the Bank meets to review the
adequacy of the allowance for loan losses. Management classifies loans in
compliance with regulatory classifications. Classified loans are individually
reviewed to arrive at specific reserves for those loans. Once the specific
portion of the allowance is calculated, management calculates a historical
portion for each loan category based on loan loss history, peer data, current
economic conditions and trends in the portfolio, including delinquencies and
impairments, as well as changes in the composition of the loan portfolio.
Although management believes the allowance for loan losses was at a level
adequate to absorb probable incurred losses on existing loans at September 30,
2001, there can be no assurance that such losses will not exceed estimated
amounts.
Non-Interest Income. Non-interest income decreased $1.1 million and
amounted to $299,000 for the nine months ended September 30, 2001 compared with
$1.4 million for the nine months ended September 30, 2000. The decrease was
primarily attributable to a $1.3 million gain on the sale of real estate related
to the sale of an employee parking facility recorded during the nine months
ended September 30, 2000. That decrease was partially offset by $58,000 in gains
on the sale of mortgage loans and securities available for sale recorded during
the nine months ended September 30, 2001 compared with a $90,000 loss on
securities sales and a $24,000 other than temporary decline in value on
securities available for sale and a $15,000 loss on the sale of mortgage loans
recorded during the nine months ended September 30, 2000.
Non-Interest Expense. Non-interest expense increased $24,000 and
amounted to $2.4 million for the nine months ended September 30, 2001 compared
with $2.3 million for the three months ended September 30, 2000. The increase
was primarily attributable to an $80,000 increase in compensation and benefits
expense related to increased salaries and increased benefit costs which were
partially offset by a $51,000 decrease in professional fees and a $16,000
decrease in advertising and promotion expense. The decrease in professional fees
were primarily attributable to reduced audit and accounting expenses. In
addition, legal fees associated with the sale of the parking facility were
recorded during the year 2000.
Income Tax Expense. Income tax expense decreased $193,000 and amounted
to $237,000 for the nine months ended September 30, 2001 compared with $430,000
for the nine months ended September 30, 2000. The decrease was primarily
attributable to a decrease in taxable income. The effective tax rate was 38.9%
for the nine months ended September 30, 2001 compared with 25.3% for the nine
months ended September 30, 2000. The effective tax rate for the nine months
ended September 30, 2000 was lower due primarily to the utilization of capital
loss carryforwards.
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Item 4. Recent Regulatory Developments
In July 2001, Statement of Financial Accounting Standards (SFAS) No.
141,"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets" were issued by the Financial Accounting Standards Board (FASB).
SFAS 141, "Business Combinations", no longer permits the use of the
pooling-of-interests method and requires that all business combinations
initiated after June 30,2001 be accounted for under the purchase method.
This accounting standard will have no effect on the Company's financial
statements unless the Company enters into a business combination
transaction.
SFAS 142, "Goodwill and Other Intangible Assets", requires that goodwill
no longer be amortized to earnings, but instead be reviewed for impairment.
The amortization of goodwill ceases upon adoption of the Statement, which
for most companies will be January 1,2002. this pronouncement will not have
a material effect on the Company's financial statements.
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 6. Exhibits and Reports on Form 8-K
Forms 8-K:
(A) 1. Form 8-K dated July 16, 2001, Registrant issued a press
release dated July 16, 2001 regarding second quarter 2001
earnings and a regular quarterly dividend.
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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 November 13, 2001 /S/ Joseph A. Graber
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Joseph A. Graber
President and Chief Executive Officer
Date November 13, 2001 /S/ Martin W. Trofimuk
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Martin W. Trofimuk
Vice President and Treasurer
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