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 March 31, 2002
( ) 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 April 30, 2002, there were 1,158,035 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
Part II - OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
FORM 10-QSB SIGNATURE PAGE 14
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)
(UNAUDITED)
ASSETS MARCH 31, 2002 DEC 31, 2001
Cash and due from Banks $2,403 1,497
Interest-bearing deposits 3,316 2,446
Federal funds sold 7,637 14,697
Investment in dollar denominated mutual funds 268 1,098
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TOTAL CASH AND CASH EQUIVALENTS 13,624 19,738
Securities available for sale 23,647 18,753
Stock in Federal Home Loan Bank of Chicago 2,810 2,770
Loans receivable, net of allowance for loan losses of $315 at March
31, 2002 and $298 at December 31, 2001 93,917 93,425
Accrued interest receivable 733 725
Premises and equipment, net 782 743
Other assets 695 607
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TOTAL ASSETS 136,208 136,761
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LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------
Deposit accounts
Interest-bearing 83,676 82,964
Non-interest-bearing 4,053 4,484
Borrowed funds 32,750 31,750
Advance payments by borrowers for taxes and insurance 408 770
Amounts due to brokers - 1000
Accrued interest payable and other liabilities 1,990 2,300
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TOTAL LIABILITIES 122,877 123,268
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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, outstanding 1,164,035 at March 31, 2002 and 1,156,774 at
December 31, 2001 19 19
Additional paid in capital 13,226 13,251
Retained earnings, substantially restricted 11,957 11,928
Treasury stock, at cost (750,040 shares at March 31, 2002 and
757,301 shares at December 31, 2001) (11,433) (11,552)
Accumulated other comprehensive loss (294) (42)
Unearned stock awards (61) -
Common stock acquired by employee stock ownership plan (83) (111)
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TOTAL STOCKHOLDERS' EQUITY 13,331 13,493
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,208 $136,761
- --------------------------------------------------------------------------------------------------
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
MARCH 31,
2002 2001
INTEREST INCOME:
Loans receivable $1,719 1,707
Interest-bearing deposits and federal funds sold 58 128
Securities available-for-sale 303 497
Other interest income 34 43
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TOTAL INTEREST INCOME 2,114 2,375
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INTEREST EXPENSE:
Deposit accounts 720 922
Borrowed funds 426 580
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TOTAL INTEREST EXPENSE 1,146 1,502
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 968 873
PROVISION FOR LOAN LOSSES 18 4
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 950 869
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NON-INTEREST INCOME:
Gain on sale of securities available for sale - 11
Gain on sale of mortgage loans held for sale 11 35
Service charges and other non-interest income 74 72
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TOTAL NON-INTEREST INCOME 85 118
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NON-INTEREST EXPENSE:
Compensation and benefits 437 455
Occupancy expense 110 124
Professional fees 56 28
Data processing 55 49
Advertising and promotion 24 23
Other 111 91
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TOTAL NON-INTEREST EXPENSE 793 770
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INCOME BEFORE INCOME TAXES 242 217
INCOME TAX EXPENSE 85 84
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NET INCOME $157 133
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EARNINGS PER SHARE:
Basic $.14 .12
Diluted $.14 .11
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AVERAGE SHARES OUTSTANDING:
Basic 1,151,616 1,150,440
Diluted 1,161,030 1,163,381
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COMPREHENSIVE (LOSS) INCOME $(95) 424
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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 PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2001 AND 2002
(UNAUDITED)
Accumulated Common
Additional other Inearned stock
Common paid in Retained Treasury comprehensive stock acquired
Stock capital earnings stock income (loss) awards by ESOP Total
Balance at December 31, 2000 $19 13,242 11,955 (11,316) (895) - (222) 12,783
Net income - - 133 - - - - 133
Change in accumulated other
comprehensive loss - - - - 291 - - 291
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - - 424
ESOP shares earned - 11 - - - - 28 39
Purchase of treasury stock, 19,000
shares - - - (202) - - - (202)
Cash dividend ($.11 per share) - - (130) - - - - (130)
Options exercised and reissuance of
treasury stock, none - - - - - - - -
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Balance at March 31, 2001 19 13,253 11,958 (11,518) (604) - (194) 12,914
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Balance at December 31, 2001 19 13,251 11,928 (11,552) (42) - (111) 13,493
Net income - - 157 - - - - 157
Change in accumulated other
comprehensive loss - - - - (252) - - (252)
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - - (95)
ESOP shares earned - 18 - - - - 28 46
Stock awards earned - - - - - 4 - 4
Issuance of stock awards-5,000 shares - (11) - 76 - (65) - -
Purchase of treasury stock, 2,739 shares - - - (33) - - - (33)
Cash dividend ($.11 per share) - - (128) - - - - (128)
Options exercised and reissuance of
treasury stock, 5,000 - (32) - 76 - - - 44
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Balance at March 31, 2002 $19 13,226 11,957 (11,433) (294) (61) (83) 13,331
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See accompanying notes to unaudited condensed consolidated financial statements.
5
NORTH BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31,
2002 2001
Cash flows from operating activities:
Net Income $ 157 $133
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 29 21
Provision for loan losses 18 4
Deferred loan fees, net of amortization 1 22
Amortization of premiums and discounts, net 2 (26)
ESOP and stock awards expense 50 39
FHLB stock dividend (40) (36)
Gain on sale of loans held for sale (11) (35)
Gain on sale of securities available for sale - (11)
Net changes in loans held for sale 11 35
Net change in accrued interest receivable (8) 121
Other assets, net (88) (65)
Other liabilities, net (208) 926
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Net cash (used in) provided by operating activities (87) 578
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Cash flows from investing activities:
Maturities, repayments and calls of securities available for sale 3,944 1,303
Purchase of securities available for sale (10,194) (986)
Proceeds from sales of securities available for sale - 1,302
Loan originations and repayments, net (511) 2,110
Purchase of Federal Home Loan Bank stock - (214)
Purchase of premises and equipment (68) -
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Net cash (used in) provided by investing activities (6,829) 3,515
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Cash flows from financing activities:
Net change in deposit accounts 281 472
Proceeds from borrowed funds 1,000 10,000
Repayments of borrowed funds - (10,100)
Net change in escrows (362) (405)
Payment of common stock dividends (128) (130)
Proceeds from stock options exercised 44 -
Purchase of treasury stock (33) (202)
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Net cash provided by (used in ) financing activities 802 (365)
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Net increase (decrease) in cash and cash equivalents (6,114) 4,278
Cash and cash equivalents at beginning of period 19,738 9,084
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Cash and cash equivalents at end of period $13,624 $13,362
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Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $756 $1,052
Taxes 60 275
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See accompanying notes to unaudited condensed 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-B. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements.
To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses and status of contingencies are particularly subject to change.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments which are normal and recurring in nature and
necessary for a fair presentation of the financial condition as of March 31,
2002 and results of operations for the three month periods ended March 31, 2002
and March 31, 2001, 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) Stock Awards
On January 1, 2002, the Company granted 5,000 stock awards to certain
officers of the company under the Companys recognition and retention plan(RRP).
These awards vest over a five-year period. The unamortized cost of awards not
yet earned (vested) is reported as a reduction of stockholders equity. RRP
compensation expense totaled $4,000 in the first quarter of 2002.
(4) 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
ended March 31,
(In thousands, except share data) 2002 2001
- ------------------------------------------------------------------------------
Numerator:
Net Income $157 133
Denominator:
Basic earnings per share-weighted average
shares outstanding 1,151,616 1,150,440
Effect of dilutive stock options outstanding 9,414 12,941
Diluted earnings per share-adjusted weighted
average shares outstanding 1,161,030 1,163,381
Basic earnings per share .14 .12
Diluted earnings per share .14 .11
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Only options where the exercise price is below the current market price
are included in calculating diluted earnings per share. Stock awards were not
considered in the computation of diluted earnings per share because the effects
of the assumed exercise would have been anti-dilutive.
(5) Comprehensive income (loss)
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.
(6) Stock Repurchase Program
On September 14, 2000, the Company announced the beginning of another
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 until the program is complete. At March 31, 2002, 44,907 shares had
been repurchased under the new program at an average cost of $10.45 per share.
On April 19, 2002, the Company announced the completion of this program at an
average cost of $10.67 and a new stock repurchase program which amounts to
50,000 shares or approximately 4.3% of the outstanding shares. The new program
is expected to be completed over a one year period. Management continues to
believe that stock repurchase programs provide enhanced value to both the
Company and its stockholders.
7
(7) Dividend Declaration
On January 18, 2002, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, which was paid on February 15,
2002 to stockholders of record on February 1, 2002. On April 15, 2002, the
Company announced that the Board of Directors declared a quarterly dividend of
$.11 per share, to be paid on May 15, 2002 to stockholders of record on May 1,
2002.
(8) Commitments and Contingencies
At March 31, 2002, the Bank had outstanding applications and
commitments to originate loans in the amount of $5.8 million and unused lines of
credit totaling $8.3 million. The Bank leases a branch office in Wilmette,
Illinois. The lease expires on September 30, 2002. Monthly rent and maintenance
and tax payments amount to $2,358.00 per month. Management seeks to negotiate a
renewal of the lease prior to the expiration date. The Bank has signed a letter
of intent to lease space for a new branch facility in a yet to be constructed
shopping center in the Humbolt Park neighborhood of Chicago. The office will be
approximately 2,000 square feet and will include a drive thru facility. The
lease is expected to have an initial ten year term with an approximate first
year cost of $50,000. Final negotiations on the lease have not been completed.
The following tables disclose contractual obligations and commercial
commitments of the Company as of March 31, 2002:
Less Than After
Total 1 Year 1 - 3 Years 4 -5 Year 5 Years
----- ------ ----------- ---------- -------
FHLB advances $32,750 4,250 3,500 9,000 16,000
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Total contractual cash
obligations $32,750 4,250 3,500 9,000 16,000
========================================================================================================
Total
Amounts Less Than Over
Committed 1 Year 1 - 3 Years 4 - 5 Years 5 - Years
----------- ------ ----------- ----------- ---------
Lines of credit (1) $8,272 342 1,364 6,566 0
Other commercial commitments (1) 412 412 0 0 0
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Total commercial commitments $8,684 754 1,364 6,566 0
========================================================================================================
(1) Represents amounts committed to customers.
8
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 Quarterly Report on Form 10-QSB and in other filings
with the Securities and Exchange Commission, in press releases or other public
or shareholder communications, or in oral statements made with the approval of
an authorized executive officer, the words or phrases "believe," "Will likely
result," "are expected to," "will continue", "is anticipated", "estimate",
"project", "plans," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You are cautioned not to place undue reliance on
any forward-looking statements, which speak only as of the date made. By their
nature, these statements are subject to numerous uncertainties that could cause
actual results to differ materially from those anticipated in the statements.
Important factors that could cause actual results to differ materially
from the results anticipated or projected include, but are not limited to, the
following: (1) the credit risks of lending activities, including changes in the
level and direction of loan delinquencies and write-offs; (2) changes in
managements's estimate of the adequacy of the allowance for loan losses; (3)
competitive pressures among depository institutions; (4) interest rate movements
and their impact on customer behavior and the Company's net interest margin; (5)
the impact of repricing and competitor's pricing initiatives on loan and deposit
products; (6) the Company's ability to adapt successfully to technological
changes to meet customers' needs and developments in the market place; (7) the
Company's ability to access cost-effective funding; (8) changes in financial
markets and general economic conditions; (9) new legislation or regulatory
changes; (10) changes in accounting principles, policies or guidelines.
The Company does not undertake any obligation to update any
forward-looking statement to reflect circumstances or events that occur after
the date on which the forward-looking statement is made.
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.
9.
The OTS requires the Bank to maintain sufficient liquidity to ensure
its safe and sound operation. At March 31, 2002, the Bank's liquidity ratio was
18.6% compared with 11.5% for the quarter ended March 31, 2001. 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 have not been
reinvested into loans or longer term securities available for sale.
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 March 31, 2002, the Bank exceeded all of its regulatory
capital requirements. At such date, the Bank's core capital, tier 1 capital and
risk-based capital of $12.9 million, $12.9 million and $13.3 million
respectively, exceeded the applicable minimum requirements by $7.5 million or
5.5%, $7.3 million or 10.5% and $7.7 million or 10.9%, respectively.
Certificates of deposit scheduled to mature in one year or less at March
31, 2001, totaled approximately $20.5 million. Management believes, based on
its ability to adjust rates on those accounts to market levels, that a
significant portion of such deposits will remain with the Company. The Company
will continue to focus on shifting its liability mix from higher cost
certificates of deposit to lower cost transaciton accounts that do not earn
interest and produce fee income. The Company will continue to use retail and
brokered certificates of deposit as alternate funding sources.
Changes In Financial Condition
Total assets decreased by $600,000 and amounted to $136.2 million at
March 31, 2002 from $136.8 million at December 31, 2001. The decrease was
primarily attributable to a $6.1 million decrease in cash and cash equivalents
partially offset by a $4.9 million increase in securities available for sale.
Cash and cash equivalents decreased by $6.1 million to $13.6 million at
March 31, 2002 compared with $19.7 million at December 31, 2001. The decrease
was due primarily to a $7.1 million decrease in federal funds sold. These funds
were reinvested into longer-term higher-yielding securities available for sale
and loans.
Net loans receivable increased by $500,000 and amounted to $93.9
million at March 31, 2002 from $93.4 million at December 31, 2001. The increase
was primarily attributable to an increase in equity line of credit loans, the
hiring of a consumer loan officer and the Company's efforts to increase consumer
lending. The Company originated $13.5 million in residential mortgage, consumer
and commercial real estate loans during the three months ended March 31, 2002
compared with $5.3 million during the three months ended March 31, 2001.
Repayments totaled $12.4 million and loan sales totaled $509,000 during the
three months ended March 31, 2002 compared with $7.1 million in repayments and
$319,000 in loan sales during the three months ended March 31, 2001.
Total deposits increased by $300,000 and amounted to $87.7 million at
March 31, 2002 compared with $87.4 million at December 31, 2001. There was a
$900,000 increase in money market deposit accounts partially offset by a
$400,000 decrease in non-interest bearing checking accounts.
Stockholders' equity decreased slightly to $13.3 million at March 31,
2002 compared with $13.5 million at December 31, 2001. The decrease was
primarily attributable to a $252,000 increase in other comprehensive loss
related to fluctuations in the market value of short-term government securities
available for sale. In addition, deferred compensation increased to $61,000 as a
result of a stock bonus program implemented for certain management employees.
Retained earnings increased by $157,000 which was partially offset by $128,000
in dividend payments. Book value per share decreased to $11.45 at March 31, 2002
from $11.66 at December 31, 2001.
10
Average Balance Sheet
The following table presents certain information relating to the
Company's average balance sheet and reflects the average yield in 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 March 31,
2002 2001
----------------------------------------------------------------------
Interest Average Interest Average
Average Earned\ Yield\ Average Earned\ Yield\
Balance Paid Cost(4) Balance Paid Cost(4)
----------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------
Interest-earnings assets:
Loans receivable (1) $93,177 $1,719 7.38% $89,552 $1,707 7.62%
Securities available for sale 24,376 337 5.53 31,498 502 6.38
Federal funds sold and interest-earning
deposits 14,496 58 1.60 11,736 166 5.66
- ----------------------------------------------------------------------------------------------------------
Total interest-earning assets 132,049 2,114 6.40 132,786 2,375 7.15
Non-interest-earning assets 3,665 3,125
- ----------------------------------------------------------------------------------------------------------
Total Assets $135,714 $135,911
- ----------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
MMDA & NOW accounts 26,609 146 2.19 24,351 246 4.04
Passbook accounts 12,020 59 1.96 12,344 84 2.72
Certificate accounts 44,628 515 4.62 41,175 592 5.75
Borrowed funds 32,000 426 5.33 39,400 580 5.89
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 115,257 1,146 3.98 117,270 1,502 5.12
Non-interest bearing deposits 4,272 3,085
Other liabilities 2,712 2,661
- ----------------------------------------------------------------------------------------------------------
Total liabilities 122,241 123,016
Stockholders' equity 13,473 12,895
- ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $135,714 $135,911
- ----------------------------------------------------------------------------------------------------------
Net interest income/interest rate
spread (2) 968 2.42% 873 2.03%
- -----------------------------------------------------------------------------------------------------------
Net earning assets/net interest margin (3) $16,792 2.93% $15,516 2.63%
- -----------------------------------------------------------------------------------------------------------
Percentage of interest-earning assets to
interest-bearing liabilities 114.57% 113.23%
- -----------------------------------------------------------------------------------------------------------
1. Calculated net of deferred loan fees, loan discounts, loans in process and
allowance for loan losses.
2. Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing liabilities.
3. Net interest margin represents net interest income divided by average
interest-earning assets.
4. Average yields and costs for the three month period presented are annualized
for presentation purposes.
Comparison Of Operating Results For The Three Months Ended March 31, 2002 And
March 31, 2001
General. Net income increased by $24,000 and amounted to $157,000 for
the three months ended March 31, 2002 from $133,000 for the three months ended
March 31, 2001. Both basic and diluted earnings per share increased to $.14for
the three months ended March 31, 2002 from $.12 and $.11 for basic and diluted
earnings per share for the three months ended March 31, 2001. The increase in
net income and earnings per share was primarily related to a $95,000 increase in
net interest income before provision for loan losses. The increase in net
interest income was partially offset by a $33,000 decrease in non-interest
income and a $23,000 increase in non-interest expenses.
Interest Income. Interest income decreased by $261,000 and amounted to
$2.1 million for the three months ended March 31, 2002 from $2.4 million for the
three months ended March 31, 2001. There was a decrease in the annualized yield
on average interest-earning assets to 6.40% for the three months ended March 31,
2002 from 7.15% for the three months ended March 31, 2001. The decrease was
primarily attributable to the decline in interest rates that occurred during the
year 2001.
11
Interest Expense. Interest expense decreased $356,000 to $1.1 million
for the three months ended March 31, 2002 from $1.5 million for the three months
ended March 31, 2001. The annualized average cost of interest-bearing
liabilities decreased to 3.98% for the three months ended March 31, 2002 from
5.12% for the three months ended March 31, 2001. The decrease was due primarily
to a decrease in the average cost of certificates of deposit from 5.75% for the
three months ended March 31, 2001 to 4.62% for the three months ended March 31,
2002. There were also decreases in all other categories of interest-bearing
liabilities, primarily attributable to the decline in interest rates that
occurred during the year 2001. The Company anticipates a lower average cost of
funds for at least the next quarter due primarily to the general decline in
interest rates that began in January 2001 and maturities of higher cost
certificates of deposit that renewed at lower rates during the first quarter of
2002.
Provision For Loan Losses. The Company added $17,500 to its allowance
for loan losses for the three months ended March 31, 2002 compared with $4,000
for the three months ended March 31, 2001.The increase is primarily attributable
to an increase in the amount of commercial real estate and consumer loans in the
loan portfolio, which by their nature generally experience higher rates of
losses than single family loans. The allowance for loan losses was $315,000 at
March 31, 2002 and amounted to .33% of loans receivable compared with $266,000
at March 31, 2001 and .30% of loans receivable. There were no loans delinquent
60 days or more at March 31, 2002. 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 laons are dependent upon various factors such as the
performacne 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 allowance levels and inflation.
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 incurred losses on existing loans at March 31, 2002,
there can be no assurance that such losses will not exceed estimated amounts.
Non-Interest Income. Non-interest income decreased by $33,000 and
amounted to $85,000 for the three months ended March 31, 2002 compared with
$118,000 for the three months ended March 31, 2002. The decrease was primarily
attributable to $24,000 decrease in gain on the sale of mortgage loans. In
addition there was a $11,000 decrease in gain on the sale of investment
securities available for sale.
Non-Interest Expense. Non-interest expense increased by $23,000 and
amounted to $793,000 for the three months ended March 31, 2002 from $770,000 for
the three months ended March 31, 2001. The increase was primarily attributable
to a $48,000 increase in professional fees and other non-interest expense
partially offset by an $18,000 decrease in compensation and benefits expense
primarily related to reduced pension expense.
Income Tax Expense. Income tax expense increased by $1,000 and amounted
to $85,000 for the three months ended March 31, 2002 from $84,000 for the three
months ended March 31, 2001. The increase in expense was primarily related to an
increase in pretax income.
ITEM 3. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted a new standard issued by
FASB on impairment and disposal of long-lived assets. The effect of this on the
financial position and results of operations of the Company is not expected to
be material.
A new accounting standard dealing with asset retirement obligations will
apply for 2003. The Company does not believe this standard will have a material
effect on its financial posiiton or results of operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiary are involved as plaintiff or defendant
in various legal actions arising in the normal course of their businesses. While
the ultimate outcome of the various legal proceedings involving the Company and
its subsidiary cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel, that the resolution of these legal
actions should not have a material effect on the Company's consolidated
financial position or results of operations.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Debt
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Informaiton
None
Item 6. Exhibits and Reports on Form 8-K
(A) Form 8-K dated January 18, 2002, Registrant issued a press release
dated January 18, 2002 regarding fourth quarter 2001 earnings and the
declaration of a regular quarterly dividend.
12.
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 May 13, 2002 /S/ Joseph A. Graber
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Joseph A. Graber
President and Chief Executive Officer
Date May 13, 2002 /S/ Martin W. Trofimuk
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Martin W. Trofimuk
Vice President and Treasurer
13