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, 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 July 31, 2002, there were 1,158,031 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 9
Item 3. New Accounting Pronouncements 14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
FORM 10-QSB SIGNATURE PAGE 15
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 JUNE 30, 2002 DEC 31, 2001
Cash and due from banks $ 1,835 1,497
Interest-bearing deposits 4,160 2,446
Federal funds sold 7,289 14,697
Investment in dollar denominated mutual funds 319 1,098
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TOTAL CASH AND CASH EQUIVALENTS 13,603 19,738
Securities available for sale 27,832 18,753
Stock in Federal Home Loan Bank of Chicago 3,844 2,770
Loans receivable, net of allowance for loan losses of $326 at
June 30, 2002 and $298 at December 31, 2001 95,683 93,425
Accrued interest receivable 751 725
Premises and equipment, net 846 743
Other assets 735 607
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TOTAL ASSETS 143,294 136,761
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits
Interest-bearing 86,548 82,964
Non-interest-bearing 4,815 4,484
Borrowed funds 34,250 31,750
Advance payments by borrowers for taxes and insurance 970 770
Amounts due to broker - 1,000
Accrued interest payable and other liabilities 3,016 2,300
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TOTAL LIABILITIES 129,599 123,268
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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 1,158,031 at June 30, 2002 and
1,156,774 at December 31, 2001 19 19
Additional paid in capital 13,245 13,251
Retained earnings, substantially restricted 11,962 11,928
Treasury stock, at cost (756,044 shares at June 30, 2002 and
757,301 shares at December 31, 2001) (11,508) (11,552)
Accumulated other comprehensive income (loss) 92 (42)
Unearned stock awards (59) -
Common stock acquired by Employee Stock Ownership Plan (56) (111)
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TOTAL STOCKHOLDERS' EQUITY 13,695 13,493
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $143,294 136,761
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See accompanying notes to unaudited condensed consolidated financial statements.
3
NORTH BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
INTEREST INCOME:
Loans receivable $1,690 1,696 3,409 3,403
Interest-bearing deposits and federal funds sold 36 118 94 246
Securities available for sale 359 479 662 976
Other interest income 48 41 82 84
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TOTAL INTEREST INCOME 2,133 2,334 4,247 4,709
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INTEREST EXPENSE:
Deposit accounts 687 887 1,407 1,809
Borrowed funds 443 557 869 1,137
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TOTAL INTEREST EXPENSE 1,130 1,444 2,276 2,946
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 1,003 890 1,971 1,763
PROVISION FOR LOAN LOSSES 10 7 28 11
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 993 883 1,943 1,752
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NON-INTEREST INCOME:
Gain on sale of securities available for sale 20 - 20 11
Gain on sale of mortgage loans held for sale 14 9 25 44
Service charges and other non-interest income 79 86 153 158
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TOTAL NON-INTEREST INCOME 113 95 198 213
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NON-INTEREST EXPENSE:
Compensation and benefits 459 445 896 900
Occupancy expense 116 124 226 248
Professional fees 64 43 120 71
Data processing 69 55 124 104
Advertising and promotion 31 36 55 59
Other non-interest expense 149 92 260 183
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TOTAL NON-INTEREST EXPENSE 888 795 1,681 1,565
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INCOME BEFORE INCOME TAXES 218 183 460 400
INCOME TAX EXPENSE 85 73 170 157
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NET INCOME $133 110 290 243
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EARNINGS PER SHARE:
Basic $.11 .10 .25 .21
Diluted $.11 .10 .25 .21
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WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 1,148,605 1,139,347 1,150,732 1,146,620
Diluted 1,164,359 1,152,318 1,166,191 1,158,579
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COMPREHENSIVE INCOME (LOSS) $519 (74) 424 350
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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 SHARE DATA)
SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(UNAUDITED)
Accumulated Common
Additional other Unearned stock
Common paid in Retained Treasury comprehensive stock acquired
Stock capital earnings stock income (loss) Awards by ESOP Total
Balance at December 31, 2000 $19 13,242 11,955 (11,316) (895) - (222) 12,783
Net income - - 243 - - - - 243
Change in accumulated other
comprehensive income (loss) - - - - 107 - - 107
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Total comprehensive income - - - - - - - 350
ESOP shares earned - 25 - - - - 55 80
Purchase of treasury stock, 30,749 shares - - - (318) - - - (318)
Cash dividend ($.22 per share) - - (257) - - - - (257)
Options exercised and reissuance of
treasury stock, 6,000 shares - (43) - 92 - - - 49
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Balance at June 30, 2001 19 13,224 11,941 (11,542) (788) - (167) 12,687
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Balance at December 31, 2001 19 13,251 11,928 (11,552) (42) - (111) 13,493
Net income - - 290 - - - - 290
Change in accumulated other
comprehensive income (loss) - - - - 134 - - 134
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - - 424
ESOP shares earned - 37 - - - - 55 92
Stock awards earned - - - - - 6 - 6
Issuance of stock awards-5,000 shares - (11) - 76 - (65) - -
Purchase of treasury stock, 8,743 shares - - - (108) - - - (108)
Cash dividend ($.22 per share) - - (256) - - - - (256)
Options exercised and reissuance of
treasury stock, 5,000 - (32) - 76 - - - 44
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 $19 13,245 11,962 (11,508) 92 (59) (56) 13,695
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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 SIX MONTHS ENDED JUNE 30,
2002 2001
Cash flows from operating activities:
Net Income $ 290 $243
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 54 48
Provision for loan losses 28 11
Deferred loan fees, net of amortization 7 24
Amortization of premiums and discounts, net 128 (25)
ESOP and stock awards expense 98 80
FHLB stock dividend (74) (71)
Gain on sale of loans held for sale (25) (10)
Gain on sale of securities available for sale (20) (11)
Net changes in loans held for sale 25 10
Net change in accrued interest receivable (26) 4
Other assets, net (128) 275
Other liabilities, net 1,053 1,038
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Net cash provided by operating activities 1,410 1,616
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Cash flows from investing activities:
Maturities, repayments and calls of securities available for sale 4,944 1,829
Purchase of securities available for sale (16,356) (986)
Proceeds from sales of securities available for sale 1,022 924
Loan originations and repayments, net (2,293) (1,161)
Purchase of Federal Home Loan Bank stock (1,000) (716)
Purchase of premises and equipment (157) (3)
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Net cash used in investing activities (13,840) (113)
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Cash flows from financing activities:
Net change in deposit accounts 3,915 3,327
Proceeds from borrowed funds 2,500 11,000
Repayments of borrowed funds - (10,100)
Net change in advance payments by borrowers for taxes and insurance 200 26
Payment of common stock dividends (256) (257)
Proceeds from stock options exercised 44 49
Purchase of treasury stock (108) (318)
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Net cash provided by financing activities 6,295 3,727
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Net (decrease) increase in cash and cash equivalents (6,135) 5,230
Cash and cash equivalents at beginning of period 19,738 9,084
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Cash and cash equivalents at end of period $13,603 $14,314
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Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $1,720 $2,191
Taxes 180 385
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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 accounting principles generally accepted
in the United States of America 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 accounting principles
generally accepted in the United States of America for complete financial
statements. These interim statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys
2001 Annual Report on Form 10KSB filed with the Securities and Exchange
Commission. The December 31, 2001 balance sheet presented herein has been
derived from the audited financial statements included on the Companys 2001
Annual Report on Form 10-KSB filed with the Securities and Exchange Commission,
but does not include all disclosures required by generally accepted accounting
principles.
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 June 30, 2002
and results of operations for the three and six month periods ended June 30,
2002 and June 30, 2001, 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) Stock Awards
On January 1, 2002, the Company granted 5,000 stock awards to certain
officers of the company under the Company's 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.
(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 For the six months
ended June 30, ended June 30,
(In thousands, except share data) 2002 2001 2002 2001
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Numerator:
Net Income $133 110 290 243
Denominator:
Basic earnings per share-weighted average
shares outstanding 1,148,605 1,139,347 1,150,732 1,146,620
Effect of dilutive stock options outstanding(1) 15,754 12,971 15,459 11,959
Diluted earnings per share-adjusted weighted
average shares outstanding 1,164,359 1,152,318 1,166,191 1,158,579
Basic earnings per share .11 .10 .25 .21
Diluted earnings per share .11 .10 .25 .21
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(1) 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.
7
(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 April 18, 2002, the Company announced the completion of a stock
repurchase program. The Company repurchased 50,000 shares or approximately 4.2%
of the outstanding shares of the Company at an average cost of $10.67 per share.
On the same day the Company announced another stock repurchase program that
amounts to 50,000 shares or approximately 4.3% of the outstanding shares. The
Company intends to repurchase shares in open market transactions or in privately
negotiated transactions until the program is complete. At June 30, 2002, 911
shares had been repurchased under the new program at an average cost of $12.62
per share. Management continues to believe that stock repurchase programs
provide enhanced value to both the Company and its stockholders.
(7) Dividend Declaration
On April 15, 2002, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, which was paid on May 15, 2002
to stockholders of record on May 1, 2002. On July 16, 2002, the Company
announced that the Board of Directors declared a quarterly dividend of $.11 per
share, to be paid on August 15, 2002 to stockholders of record on August 1,
2002.
(8) Commitments and Contingencies
At June 30, 2002, the Bank had outstanding applications and commitments
to originate loans in the amount of $4.6 million and unused lines of credit
totaling $10.0 million. The Bank leases a branch office in Wilmette, Illinois.
Monthly rent and maintenance and tax payments amount to $2,358.00 per month. The
Bank has signed a lease 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 has an initial ten year term with an approximate first year cost of
$50,000.
The following tables disclose contractual obligations and commercial
commitments of the Company as of June 30, 2002:
Less Than After
Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years
----- ------ ----------- ----------- -------
FHLB advances $34,250 6,750 9,500 2,000 16,000
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Total contractual cash obligations $34,250 6,750 9,500 2,000 16,000
===========================================================================================================
Total
Amounts Less Than Over
Committed 1 Year 1 - 3 Years 4 - 5 Years 5 Years
----------- ------ ----------- ----------- -------
Lines of credit (1) $10,054 $ 439 $1,324 $8,291 $0
Other commercial commitments (1) 1,618 1,618 0 0 0
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Total commercial commitments $11,672 $2,057 $1,324 $8,291 $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, obtains brokered deposits 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, mutual funds
that invest in U.S. Government 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 less 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.
The OTS requires the Bank to maintain sufficient liquidity to ensure
its safe and sound operation. At June 30, 2002, the Bank's liquidity ratio was
20.6% compared with 12.4% for the quarter ended June 30, 2001. The increase in
liquidity was primarily due to funds allocated for loan closings, net deposit
inflows 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.
9
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, 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 $13.0 million, $13.0 million and $13.3 million,
respectively, exceeded the applicable minimum requirements by $7.3 million or
5.1%, $6.9 million or 9.1%, and $7.2 million or 9.6%, respectively.
Certificates of deposit scheduled to mature in one year or less at June
30, 2002, totaled approximately $27.8 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 transaction 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 increased by $6.5 million and amounted to $143.3 million
at June 30, 2002 from $136.8 million at December 31, 2001. The increase was
primarily attributable to a $9.0 million increase in investment securities
available for sale and a $2.3 million increase in net loans receivable partially
offset by a $6.1 million decrease in cash and cash equivalents.
Cash and cash equivalents decreased by $6.1 million to $13.6 million at
June 30, 2002 compared with $19.7 million at December 31, 2001. The decrease was
due primarily to a $7.4 million decrease in federal funds sold. These funds were
reinvested into higher-yielding securities available for sale and loans.
Net loans receivable totaled $95.7 million at June 30, 2002 compared
with $93.4 million at December 31, 2001. The Bank originated $24.1 million in
loans during the six months ended June 30, 2002 and recorded $20.2 million in
repayments and $1.7 million in loan sales compared with $15.3 million in
originations, $13.3 in repayments and $900,000 in loan sales during the six
months ended June 30, 2001. At June 30, 2002, the Bank had $4.6 million in loan
applications pending approval or closing and $10.0 in unused lines of credit.
The company added $10,000 to the allowance for loan losses during the quarter
compared with $7,000 during the quarter ended June 30, 2001. The increased
provision was primarily due to increased commercial real estate and consumer
lending activity. The total allowance for loan losses amounted to $326,000 or
0.34% of loans receivable at June 30, 2002 compared with $298,000 at December
31, 2001, which amounted to 0.32% of loans receivable. There were no loans
delinquent 60 days or more at June 30, 2002.
Total deposits increased by $4.0 million and amounted to $91.4 million
at June 30, 2002 compared with $87.4 million at December 31, 2001. The increase
was primarily attributable to a $2.2 million increase in money market deposit
accounts along with a $900,000 increase in certificates of deposit. The weighted
average cost of deposits for the three months ended June 30, 2002 decreased to
3.25% from 4.46% at June 30, 2001.
Borrowed funds increased by $2.5 million and amounted to $34.3 million
at June 30, 2002 compared with $31.8 million at December 31, 2001. The increase
was attributable to the use of short-term borrowings to fund short-term
commercial real estate lending which resulted in an interest rate spread that
exceeded the Company's current average interest rate spread.
Stockholders' equity was $13.7 million at June 30, 2002 compared with
$13.5 million at December 31, 2001. There was a $134,000 improvement in other
comprehensive income (loss) which was partially offset by the purchase of 8,743
shares of Treasury stock totaling $108,000. Retained earnings increased by net
income of $290,000 which was partially offset by $256,000 in dividend payments.
Book value increased to $11.83 at June 30, 2002 compared with $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 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. Average yields and costs for the three and six
month period presented are annualized for presentation purposes.
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
-----------------------------------------------------------------------------------------------
InteresAverage InteresAverage InterestAverage InterestAverage
Average Earned\Yield\ Average Earned\Yield\ Average Earned\ Yield\ Average Earned\ Yield\
Balance Paid Cost Balance Paid Cost Balance Paid Cost Balance Paid Cost
-----------------------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------
Interest-earnings assets:
Loans receivable(1) $94,990 $1,690 7.12% $90,800 $1,696 7.47% $94,107 $3,409 7.24% $90,397 $3,403 7.53%
Securities available for sale 30,744 359 4.67 30,439 479 6.29 27,609 662 4.80 31,023 976 6.29
Federal funds sold and
interest-earning deposits 9,296 84 3.61 13,161 159 4.83 12,037 176 2.92 12,353 330 5.34
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 135,030 2,133 6.31 34,400 2,334 6.91 33,753 4,247 6.31 33,773 4,709 7.04
Non-interest-earning assets 4,153 3,021 3,873 3,024
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $139,183 $137,421 $137,626 $136,797
- ----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
MMDA & NOW accounts 27,804 149 2.14 25,194 218 3.46 27,206 296 2.18 24,706 464 3.76
Passbook accounts 12,162 54 1.78 12,191 83 2.72 12,060 113 1.87 12,254 167 2.73
Certificate accounts 44,626 484 4.34 42,072 586 5.57 44,688 998 4.47 41,701 1,178 5.65
Borrowed funds 33,500 443 5.29 38,850 557 5.73 32,750 869 5.31 39,268 1,137 5.79
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 118,092 1,130 3.81 18,307 1,444 4.81 16,704 2,276 3.91 17,929 2,946 5.00
Non-interest bearing deposits 4,304 3,056 4,327 3,065
Other liabilities 3,274 3,287 3,079 2,979
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 125,670 124,650 124,110 123,973
Stockholders' equity 13,513 12,771 13,516 12,824
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Total liabilities and
stockholders' equity $139,183 $137,421 $137,626 $136,797
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income/interest
rate spread (2) 1,003 2.49% 890 2.07% 2,276 2.45% 1,763 2.04%
- -----------------------------------------------------------------------------------------------------------------------------
Net earning assets/net interest
margin (3) $16,938 2.97% $16,093 2.65% $17,049 2.95% $15,844 2.64%
- -----------------------------------------------------------------------------------------------------------------------------
Percentage of interest-earning
assets to interest-bearing
liabilities 114.34% 113.60% 114.61% 113.44%
- -----------------------------------------------------------------------------------------------------------------------------
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.
Comparison Of Operating Results For The Three Months Ended June 30, 2002 And
June 30, 2001
General. Net income increased by $23,000 and amounted to $133,000 for
the three months ended June 30, 2002 from $110,000 for the three months ended
June 30, 2001. Basic and diluted earnings per share increased to $.12 and $.11
respectively for the three months ended June 30, 2002 from $.10 for both basic
and diluted earnings per share for the three months ended June 30, 2001. The
increase in net income and earnings per share was primarily related to a
$110,000 increase in net interest income after provision for loan losses,
partially offset by a $93,000 increase in non-interest expense.
Interest Income. Interest income decreased by $201,000 and amounted to
$2.1 million for the three months ended June 30, 2002 from $2.3 million for the
three months ended June 30, 2001. There was a decrease in the annualized yield
on average interest-earning assets to 6.32% for the three months ended June
11
30, 2002 from 6.95% for the three months ended June 30, 2001. The decrease was
primarily attributable to the decline in interest rates that occurred during
2001.
Interest Expense. Interest expense decreased $314,000 and amounted to
$1.1 million for the three months ended June 30, 2002 from $1.4 million for the
three months ended June 30, 2001. The annualized average cost of
interest-bearing liabilities decreased to 3.83% for the three months ended June
30, 2002 from 4.88% for the three months ended June 30, 2001. The decrease was
due primarily to a decrease in the average cost of certificates of deposit from
5.57% for the three months ended June 30, 2001 to 4.34% for the three months
ended June 30, 2002. There were also decreases in the cost of all other
categories of interest-bearing liabilities, primarily attributable to the
decline in interest rates that occurred during the year 2001.
Provision For Loan Losses. The Company added $10,700 to its allowance
for loan losses for the quarter ended June 30, 2002 compared with $7,000 for the
quarter ended June 30, 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 $326,000 at June 30,
2002 and amounted to .34% of loans receivable compared with $273,000 at June 30,
2001 and .30% of loans receivable. Their were no loans delinquent 60 days or
more at June 30, 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 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
allowance levels and inflation.
On a quarterly basis, management of the Bank meets to review 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. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Banks
allowance for losses on loans. Such agencies may require the bank to provide
additions to the allowance based upon judgements which differ from those of
management.Although management believes the allowance for loan losses was at a
level to absorb probable incurred losses on existing loans at June 30, 2002,
there can be no assurance that such losses will not exceed estimated amounts.
Non-Interest Income. Non-interest income increased by $18,000 and
amounted to $113,000 for the three months ended June 30, 2002 compared with
$95,000 for the three months ended June 30, 2001. The increase was primarily
attributable to a $20,000 increase in gain on the sale of investment securities
available for sale.
Non-Interest Expense. Non-interest expense increased by $93,000 to
$888,000 for the quarter ended June 30, 2002 compared with $795,000 for the
quarter ended June 30, 2001. The increase was primarily attributable to a
$78,000 increase in other non-interest expense and professional fees. The
increase in other non-interest expense was primarily related to an increased
volume of equity lines of credit and the related up- front costs. The increase
in professional fees is primarily due to an on-going lawsuit and professional
fees related to a new branch location. Management does not expect the lawsuit to
have a material effect on the Company's consolidated financial position or
results of operation.
Income Tax Expense. Income tax expense increased by $12,000 and
amounted to $85,000 for the three months ended June 30, 2002 from $73,000 for
the three months ended June 30, 2001. The increase in expense was primarily
related to an increase in pretax income.
Comparison Of Operating Results For The Six Months Ended June 30, 2002 And
June 30, 2001
General. Net income increased by $47,000 and amounted to $290,000 for
the six months ended June 30, 2002 compared with $243,000 for the six months
ended June 30, 2001. Basic and diluted earnings per share increased by $.04 and
amounted to $.25 for the six months ended June 30, 2002
12
compared with $.21 per share for the six months ended June 30, 2001. The
increase was primarily attributable to a $191,000 increase in net interest
income after provision for loan losses partially offset by a $116,000 increase
in non-interest expenses.
Interest Income. Interest income decreased by $462,000 and amounted to
$4.2 million for the six months ended June 30, 2002 compared with $4.7 million
for the six months ended June 30, 2001. The decrease was primarily attributable
to an decrease in the annualized yield on average interest-earning assets to
6.35% for the six months ended June 30, 2002 from 7.04% for the six months ended
June 30, 2001. The decrease in the annualized yield was primarily attributable
to a decline in market rates that occurred in 2001.
Interest Expense. Interest expense decreased $670,000 and amounted to
$2.3 million for the six months ended June 30, 2002 compared with $2.9 million
for the six months ended June 30, 2001. The decrease was primarily attributable
to a decrease in the average cost of interest-bearing liabilities to 3.90% for
the six months ended June 30, 2002 from 5.00% for the six months ended June 30,
2001 due primarily to a decrease in the average cost of certificates of deposit.
Provision For Loan Losses. The Company added $28,000 to its allowance
for loan losses for the six months ended June 30, 2002 compared with $11,000 for
the six months ended June 30, 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 $326,000 at June 30,
2002 and amounted to .34% of loans receivable compared with $273,000 at June 30,
2001 and .30% of loans receivable. Their were no loans delinquent 60 days or
more at June 30, 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 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
allowance levels and inflation.
On a quarterly basis, management of the Bank meets to review 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. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Banks
allowance for losses on loans. Such agencies may require the bank to provide
additions to the allowance based upon judgements which differ from those of
management.Although management believes the allowance for loan losses was at a
level to absorb probable incurred losses on existing loans at June 30, 2002,
there can be no assurance that such losses will not exceed estimated amounts.
Non-Interest Income. Non-interest income decreased $15,000 and amounted
to $198,000 for the six months ended June 30, 2002 compared with $213,000 for
the six months ended June 30, 2001. The decrease was primarily attributable to a
$19,000 decrease in gain on the sale of mortgage loans held for sale.
Non-Interest Expense. Non-interest expense increased $116,000 and
amounted to $1.7 million for the six months ended June 30, 2002 compared with
$1.6 million for the six months ended June 30, 2001. The increase was primarily
attributable to a $77,000 increase in other non-interest expense and a $49,000
increase in professional fees partially offset by a $22,000 decrease in
occupancy expense. The increase in other non-interest expense is primarily
related to an increase in home equity lending and up front cost associated with
this type of lending. The increase in professional fees is primarily related to
an on-going lawsuit and professional fees related to a new branch location.
Management does not expect the lawsuit to have a material effect on the
Company's consolidated financial position or results of operations.
Income Tax Expense. Income tax expense increased $13,000 and amounted
to $170,000 for the six months ended June 30, 2002 compared with $157,000 for
the six months ended June 30, 2001. The increase was primarily attributable to
an increase in pre-tax income.
13
ITEM 3. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted a new standard issued by
the FASB on impairment and disposal of long-lived assets. The effect of this on
the financial position and results of operations of the Company was not
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 position 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.
On April 26, 2002, the annual meeting of stockholders was held. At the
meeting, Elmer L. Hass, Robert H. Rusher and Frank J. Donati were elected to
serve as directors with terms expiring in 2005. Continuing on as directors were
James L. Ferstel and Gregory W. Rose, whose terms will expire in 2003 and Mary
Ann Hass and Joseph A. Graber whose terms will expire in 2004. In addition, the
stockholders ratified the appointment of Crowe, Chizek and Company LLP as the
Company's independent auditors for the fiscal year ending December 31, 2002.
The voting on each item presented at the annual meeting was as follows:
Election of Directors For Withheld
--------------------- --- --------
Elmer L. Hass 938,102 133,113
Robert H. Rusher 940,802 130,413
Frank J. Donati 942,174 129,041
Ratification of the
appointment of Crowe, Chizek
and Company LLP as the
Company's auditors for the Broker
fiscal year ending For Against Abstain Non-votes
December 31, 2002 --- ------- ------- ---------
1,047,525 20,667 3,023 None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Form 8-K dated April 15, 2002, Registrant issued a press release
dated April 15, 2002 regarding first quarter 2002 earnings and the
declaration of a regular quarterly dividend.
14
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 5, 2002 /S/ Joseph A. Graber
--------------------- --------------------------
Joseph A. Graber
President and Chief Executive Officer
Date August 5, 2002 /S/ Martin W. Trofimuk
--------------------- --------------------------
Martin W. Trofimuk
Vice President and Treasurer
15