U.S. SECURITIES AND EXCHANGE COMMISSION
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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, 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
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(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification Number)
100 West North Avenue, Chicago, Illinois 60610-1399
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(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 15, 2002, there were 1,138,029 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. Controls and Procedures 13
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 14
FORM 10-QSB SIGNATURE PAGE 15
CERTIFICATION 16
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 SEPTEMBER 30, 2002 DECEMBER 31, 2001
Cash and due from Banks $ 1,702 1,497
Interest-bearing deposits 2,888 2,446
Federal funds sold 7,778 14,697
Investment in dollar denominated mutual funds 319 1,098
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TOTAL CASH AND CASH EQUIVALENTS 12,687 19,738
Securities available for sale 28,102 18,753
Stock in Federal Home Loan Bank of Chicago 3,891 2,770
Loans receivable, net of allowance for loan losses of $326 at
September 30, 2002 and $298 at December 31, 2001 92,576 93,425
Accrued interest receivable 661 725
Premises and equipment, net 861 743
Other assets 786 607
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TOTAL ASSETS 139,564 136,761
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits
Interest-bearing 84,855 82,964
Non-interest-bearing 4,667 4,484
Borrowed Funds 31,750 31,750
Advance payments by borrowers for taxes and insurance 1,444 770
Amounts due to broker 237 1,000
Accrued interest payable and other liabilities 2,819 2,300
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TOTAL LIABILITIES 125,772 123,268
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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 1,138,029 at September 30, 2002
and 1,156,774 at December 31, 2001 19 19
Additional paid in capital 13,265 13,251
Retained earnings, substantially restricted 12,077 11,928
Treasury stock, at cost (776,046 shares at September 30, 2002
and 757,301 shares at December 31, 2001) (11,745) (11,552)
Accumulated other comprehensive income (loss) 259 (42)
Unearned stock awards (55) -
Common stock acquired by Employee Stock Ownership Plan (28) (111)
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TOTAL STOCKHOLDERS' EQUITY 13,792 13,493
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $139,564 136,761
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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,
2002 2001 2002 2001
INTEREST INCOME:
Loans receivable $1,688 1,729 5,097 5,132
Interest-bearing deposits and federal funds sold 42 120 136 366
Securities available for sale 369 468 1,031 1,444
Dividend on FHLB stock and other interest income 50 49 132 133
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TOTAL INTEREST INCOME 2,149 2,366 6,396 7,075
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INTEREST EXPENSE:
Deposit accounts 656 877 2,063 2,686
Borrowed funds 442 558 1,311 1,695
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TOTAL INTEREST EXPENSE 1,098 1,435 3,374 4,381
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 1,051 931 3,022 2,694
PROVISION FOR LOAN LOSSES - 11 28 22
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,051 920 2,994 2,672
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NON-INTEREST INCOME:
Gain on sale of securities available for sale 98 - 118 11
Gain on sale of mortgage loans held for sale 16 3 41 47
Service charges and other non-interest income 88 83 241 241
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TOTAL NON-INTEREST INCOME 202 86 400 299
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NON-INTEREST EXPENSE:
Compensation and benefits 476 453 1,372 1,353
Occupancy expense 110 110 336 358
Professional fees 56 37 176 108
Data processing 66 49 190 153
Advertising and promotion 18 50 73 109
Other non-interest expense 120 99 380 282
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TOTAL NON-INTEREST EXPENSE 846 798 2,527 2,363
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INCOME BEFORE INCOME TAXES 407 208 867 608
INCOME TAX EXPENSE 165 80 335 237
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NET INCOME $242 128 532 371
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EARNINGS PER SHARE:
Basic $.21 .11 .46 .32
Diluted $.21 .11 .46 .32
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AVERAGE SHARES OUTSTANDING:
Basic 1,150,321 1,141,148 1,152,765 1,147,113
Diluted 1,170,468 1,157,293 1,168,263 1,164,736
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COMPREHENSIVE INCOME $409 679 833 1,029
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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)
NINE MONTHS ENDED SEPT 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 $19 13,242 11,955 (11,316) (895) - (222) 12,783
Net income - - 371 - - - - 371
Change in accumulated other
comprehensive income (loss) - - - - 658 - - 658
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Total comprehensive income - - - - - - - 1,029
ESOP shares earned - 41 - - - - 83 124
Purchase of treasury stock, 29,479 shares - - - (318) - - - (318)
Cash dividend ($.33 per share) - - (385) - - - - (385)
Options exercised and reissuance of
treasury stock, 6,000 shares - (43) - 92 - - - 49
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Balance at September 30, 2001 19 13,240 11,941 (11,542) (237) - (139) 13,282
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Balance at December 31, 2001 19 13,251 11,928 (11,552) (42) - (111) 13,493
Net income - - 532 - - - - 532
Change in accumulated other
comprehensive income (loss) - - - - 301 - - 301
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Total comprehensive income - - - - - - - 833
ESOP shares earned - 57 - - - - 83 140
Stock awards earned - - - - - 10 - 10
Issuance of stock awards-5,000 shares - (11) - 76 - (65) - --
Purchase of treasury stock, 28,745 shares - - - (345) - - - (345)
Cash dividend ($.33 per share) - - (383) - - - - (383)
Options exercised and reissuance of
treasury stock, 5,000 shares - (32) - 76 - - - 44
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Balance at September 30, 2002 $19 13,265 12,077 (11,745) 259 (55) (28) 13,792
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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 NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
Cash flows from operating activities:
Net Income $ 532 $371
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 86 68
Provision for loan losses 28 22
Deferred loan fees, net of amortization (14) 35
Amortization of premiums and discounts, net 62 (21)
ESOP and stock awards expense 150 124
FHLB stock dividend (121) (115)
Gain on sale of loans held for sale (41) (47)
Gain on sale of securities available for sale (118) (11)
Net changes in loans held for sale 41 47
Net change in accrued interest receivable 64 151
Other assets, net (179) 301
Other liabilities, net 301 973
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Net cash provided by (used in) operating activities 791 1,898
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Cash flows from investing activities:
Maturities, repayments and calls of securities available for sale 6,498 4,451
Purchase of securities available for sale (22,300) (986)
Proceeds from sales of securities available for sale 6,265 924
Loan originations and repayments, net 835 (1,128)
Purchase of Federal Home Loan Bank stock (1,000) (707)
Purchase of premises and equipment (204) (4)
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Net cash provided by (used in) investing activities (9,906) 2,550
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Cash flows from financing activities:
Net change in deposit accounts 2,074 4,370
Proceeds from borrowed funds 2,500 15,000
Repayments of borrowed funds (2,500) (14,100)
Net change in advance payments by borrowers for taxes and insurance 674 392
Payment of common stock dividends (383) (385)
Proceeds from stock options exercised 44 49
Purchase of treasury stock (345) (318)
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Net cash provided by (used in) financing activities 2,064 5,008
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Net (decrease) increase in cash and cash equivalents (7,051) 9,456
Cash and cash equivalents at beginning of period 19,738 9,084
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Cash and cash equivalents at end of period $12,687 $18,540
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Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $2,644 $3,520
Taxes 289 460
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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 Company's
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 Company's 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 condensed 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
September 30, 2002 and results of operations for the three and nine month
periods ended September 30, 2002 and September 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 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 nine months
ended Sept 30, ended Sept 30,
(In thousands, except share data) 2002 2001 2002 2001
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Numerator:
Net Income $242 128 532 371
Denominator:
Basic earnings per share-weighted average
shares outstanding 1,150,321 1,141,148 1,152,765 1,147,113
Effect of dilutive stock options and awards
outstanding(1) 20,147 16,145 15,498 17,623
Diluted earnings per share-adjusted weighted
average shares outstanding 1,170,468 1,157,293 1,168,263 1,164,736
Basic earnings per share .21 .11 .46 .32
Diluted earnings per share .21 .11 .46 .32
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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
only considered in the computation of diluted earnings per share for the three
months ended September 30, 2002 because the effects of the assumed exercise
would have been anti-dilutive in the other periods presented.
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 September 30, 2002,
20,913 shares had been repurchased under the new program at an average cost of
$11.88 per share. Management continues to believe that stock repurchase programs
provide enhanced value to both the Company and its stockholders.
(7) Dividend Declaration
On July 16, 2002, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, which was paid on August 15,
2002 to stockholders of record on August 1, 2002. On October 15, 2002, the
Company announced that the Board of Directors declared a quarterly dividend of
$.11 per share, to be paid on November 15, 2002 to stockholders of record on
November 1, 2002.
(8) Commitments and Contingencies
At September 30, 2002, the Bank had outstanding commitments to
originate loans in the amount of $2.7 million and unused lines of credit
totaling $8.5 million. The Bank leases a branch office in Wilmette, Illinois.
Monthly rent and maintenance and tax payments amount to $2,358 per month. The
Bank has signed a lease for a free standing 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 average annual cost of
$56,900. Occupancy is expected to be May 2003.
The following tables disclose contractual obligations and commercial
commitments of the Company as of September 30, 2002:
Less Than Over
Total 1 Year 1 - 3 Years 4 -5 Years 5 Years
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FHLB advances $31,750 4,250 9,500 2,000 16,000
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Total contractual cash obligations $31,750 4,250 9,500 2,000 16,000
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Total
Amounts Less Than Over
Committed 1 Year 1 - 3 Years 4 - 5 Years 5 - Years
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Lines of credit $8,483 $293 $530 $7,580 $0
Other commercial commitments (1) 935 1,015 0 0 0
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Total commercial commitments $9,418 $1,308 $530 $7,580 $0
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(1) Amounts primarily represent unfunded construction loans.
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 September 30, 2002, the Bank's liquidity ratio
was 15.4% compared with 15.2% for the quarter ended September 30, 2001.
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
9
and a risk-based capital standard expressed as a percentage of risk-adjusted
assets. At September 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 $13.1 million, $13.1 million and $13.5 million, respectively,
exceeded the applicable minimum requirements by $7.6 million or 5.5%, $7.6
million or 5.5%, and $7.7 million or 10.2%, respectively.
Certificates of deposit scheduled to mature in one year or less at
September 30, 2002, totaled approximately $15.3 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 $2.8 million and amounted to $139.6 million
at September 30, 2002 from $136.8 million at December 31, 2001. The increase was
primarily attributable to a $9.3 million increase in securities available for
sale partially offset by a $7.0 million decrease in cash and cash equivalents.
Cash and cash equivalents decreased by $7.0 million to $12.7 million at
September 30, 2002 compared with $19.7 million at December 31, 2001. The
decrease was due primarily to a $6.9 million decrease in federal funds sold.
These funds were reinvested into higher-yielding mortgage=backed securities
available for sale.
Net loans receivable totaled $92.6 million at September 30, 2002
compared with $93.4 million at December 31, 2001. The Bank originated $32.4
million in loans during the nine months ended September 30, 2002 and recorded
$31.1 million in repayments and $2.1 million in loan sales compared with $21.1
million in originations, $19.0 in repayments and $1.1 million in loan sales
during the nine months ended September 30, 2001. Equity lines of credit, that
adjust to the prime rate, have increased by $5.0 million from $5.5 million at
December 31, 2001 to $10.5 million at September 30, 2002. At September 30, 2002,
the Bank had $2.7 million in oputstanding loan commitments and $8.5 million in
unused lines of credit. The total allowance for loan losses amounted to $326,000
or 0.35% of loans receivable at September 30, 2002 compared with $298,000 at
December 31, 2001, which amounted to 0.32% of loans receivable. The increase in
the allowance was primarily related to an increase in commercial real estate
loans and consumer loans in the portfolio. There were two loans delinquent 60
days or more at September 30, 2002 totaling approximately $83,000. One of the
loans in the amount of $68,000 was brought currenton October 1, 2002.
Total deposits increased by $2.1 million and amounted to $89.5 million
at September 30, 2002 compared with $87.4 million at December 31, 2001. The
increase was primarily attributable to a $1.1 million increase in money market
deposit accounts along with a $600,000 increase in passbook accounts. The
weighted average cost of deposits for the three months ended September 30, 2002
decreased to 3.05% from 4.32% for the three months ended September 30, 2001.
Stockholders' equity was $13.8 million at September 30, 2002 compared
with $13.5 million at December 31, 2001. There was a $301,000 improvement in
other comprehensive income (loss) which was partially offset by a $193,000
increase in treasury stock resulting from stock repurchases totaling 28,745
shares and a $55,000 increase in unearned stock awards. Retained earnings
increased by net income of $532,000 which was partially offset by $383,000 in
dividend payments. Book value per share increased to $12.12 at September 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.
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
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Interest Average Interest Average Interest Average Interest Average
Average Earned\ Yield\ Average Earned\ Yield\ Average Earned\ Yield\ Average Earned\ Yield\
Balance Paid Cost Balance Paid Cost Balance Paid Cost Balance Paid Cost
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(Dollars in thousands)
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Interest-earnings assets:
Loans receivable(1) $94,053 $1,688 7.17% $91,572 $1,729 7.55% $93,928 $5,097 7.23% $90,620 $5,132 7.55%
Securities available for sale 32,716 419 5.14 32,289 517 6.40 29,228 1,163 5.31 32,924 1,577 6.39
Federal funds sold and
interest-earning deposits 10,545 42 1.59 13,259 120 3.62 11,499 136 1.58 11,194 366 4.36
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Total interest-earning assets 137,314 2,149 6.26 37,120 2,366 6.90 34,655 6,396 6.33 134,738 7,075 7.00
Non-interest-earning assets 4,501 3,405 3,248 3,248
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Total Assets $141,815 $140,525 $137,903 $137,986
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Interest-bearing liabilities:
MMDA & NOW accounts 28,300 119 1.68 25,679 196 3.05 27,514 415 2.01 24,981 660 3.52
Passbook accounts 12,223 48 1.57 12,219 85 2.78 12,118 161 1.77 12,256 251 2.73
Certificate accounts 45,490 488 4.29 43,316 596 5.50 44,882 1,487 4.42 42,176 1,775 5.61
Borrowed funds 33,000 443 5.37 39,100 558 5.71 32,700 1,311 5.35 39,220 1,695 5.76
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Total interest-bearing
liabilities 119,013 1,098 3.61 20,314 1,435 4.71 17,214 3,374 3.81 18,633 4,381 4.92
Non-interest bearing deposits 4,833 3,347 4,485 3,155
Other liabilities 4,169 3,851 2,593 3,285
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Total liabilities 128,015 127,512 124,292 125,073
Stockholders' equity 13,800 13,013 13,611 12,913
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Total liabilities and stockholders'
equity $141,815 $140,525 $137,903 $137,986
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Net interest income/interest rate
spread (2) 1,051 2.57% 931 2.13% 3,022 2.49% 2,694 2.08%
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Net earning assets/net interest
margin (3) $18,301 3.06% $16,806 2.72% $17,441 2.99% $16,105 2.67%
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Percentage of interest-earning assets
to interest-bearing liabilities 115.38% 113.97% 114.88% 113.58%
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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 September, 2002
And September 30, 2001
General. Net income increased by $114,000 and amounted to $242,000 for
the three months ended September 30, 2002 from $128,000 for the three months
ended September 30, 2001. Both basic and diluted earnings per share increased to
$.21 for the three months ended September 30, 2002 from $.11 for both basic and
diluted earnings per share for the three months ended September 30, 2001. The
increase in net income and earnings per share was primarily related to a $98,000
increase in gain on the sale of investment securities available for sale and a
$131,000 increase in net interest income after provision for loan losses,
partially offset by a $48,000 increase in non- interest expense.
11
Interest Income. Interest income decreased by $217,000 and amounted to
$2.1 million for the three months ended September 30, 2002 from $2.4 million for
the three months ended September 30, 2001. There was a decrease in the
annualized yield on average interest-earning assets to 6.26% for the three
months ended September 30, 2002 from 6.90% for the three months ended September
30, 2001. The decrease was primarily attributable to early repayment or
refinancing of higher-rate loans as a result of the decline in interest rates
that began in 2001 and has continued during 2002.
Interest Expense. Interest expense decreased $337,000 and amounted to
$1.1 million for the three months ended September 30, 2002 from $1.4 million for
the three months ended September 30, 2001. The annualized average cost of
interest-bearing liabilities decreased to 3.69% for the three months ended
September 30, 2002 from 4.77% for the three months ended September 30, 2001. The
decrease was due primarily to a decrease in the average cost of certificates of
deposit from 5.50% for the three months ended September 30, 2001 to 4.29% for
the three months ended September 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 and has
continued through 2002.
Provision For Loan Losses. The Company did not add to its allowance for
loan losses for the quarter ended September 30, 2002 compared with $11,000 for
the quarter ended September 30, 2001. The lack of a provision was primarily
attributable to a decrease in the amount of commercial real estate loans in the
portfolio, which by their nature generally experience higher rates of losses
than single family loans. The allowance for loan losses was $326,000 at
September 30, 2002 and amounted to .35% of loans receivable compared with
$284,000 at September 30, 2001 and .32% of loans receivable. Their were two
loans delinquent 60 days or more at September 30, 2002 which amounted to
approximately $83,000. One of the loans was brought current on October 1, 2002
and amounted to $68,000. 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. Although management believes the
allowance for loan losses was at a level to absorb probable incurred losses on
existing loans at September 30, 2002, there can be no assurance that such losses
will not exceed estimated amounts.
Non-Interest Income. Non-interest income increased by $116,000 and
amounted to $202,000 for the three months ended September 30, 2002 compared with
$86,000 for the three months ended September 30, 2002. The increase was
primarily attributable to a $98,000 increase in gain on the sale of securities
available for sale.
Non-Interest Expense. Non-interest expense increased by $48,000 to
$846,000 for the quarter ended September 30, 2002 compared with $798,000 for the
quarter ended September 30, 2001. The increase was primarily attributable to a
$23,000 increase in compensation and benefits and a $21,000 increase in other
non-interest expense. The increase in compensation and benefits was primarily
related to increased benefit costs and the increase in other non-interest
expense was primarily related to an increase in loan related expenses and costs
associated with the deployment of new automated teler machines.
Income Tax Expense. Income tax expense increased by $85,000 and
amounted to $165,000 for the three months ended September 30, 2002 from $80,000
for the three months ended September 30, 2001. The increase in expense was
primarily related to an increase in pretax income.
Comparison Of Operating Results For The Nine Months Ended September 30, 2002
And September 30, 2001
General. Net income increased by $161,000 and amounted to $532,000 for
the nine months ended September 30, 2002 compared with $371,000 for the nine
months ended September 30, 2001. Basic and diluted earnings per share increased
by $.14 and amounted to $.46 for the nine months ended September 30, 2002
compared with basic and diluted earnings per share of $.32 for the nine months
ended September 30, 2001. The increase was
12
primarily attributable to a $322,000 increase in net interest income after
provision for loan losses. In addition, there was a $101,000 increase in
non-interest income primarily related to a $107,000 increase in gain on the sale
of investment securities available for sale.
Interest Income. Interest income decreased by $679,000 and amounted to
$6.4 million for the nine months ended September 30, 2002 compared with $7.1
million for the nine months ended September 30, 2001. The decrease was primarily
attributable to an decrease in the annualized yield on average interest-earning
assets to 6.33% for the nine months ended September 30, 2002 from 7.00% for the
nine months ended September 30, 2001. The decrease in the annualized yield was
primarily attributable to a decrease in the average yield on federal funds sold
and investment securities available for sale. In addition, there was a decrease
in the average yield on loans receivable dur primarily to early repayment or
refinancining of higher rate loans as a result of the decline ininterest rates
that began in 2001 and has continued during 2002.
Interest Expense. Interest expense decreased $1.0 million and amounted
to $3.4 million for the nine months ended September 30, 2002 compared with $4.4
million for the nine months ended September 30, 2001. The decrease was primarily
attributable to a decrease in the average cost of interest-bearing liabilities
to 3.84% for the nine months ended September 30, 2002 from 4.92% for the nine
months ended September 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 nine months ended September 30, 2002 compared with
$22,000 for the nine months ended September 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 September 30, 2002 and amounted to .35% of loans receivable compared
with $284,000 at September 30, 2001 and .32% of loans receivable. Their were two
loans delinquent 60 days or more at September 30, 2002 and amounted to
approximately $83,000. One of the loans totaling $68,000 was brought current on
October 1, 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. Although management believes the
allowance for loan losses was at a level to absorb probable incurred losses on
existing loans at September 30, 2002, there can be no assurance that such losses
will not exceed estimated amounts.
Non-Interest Income. Non-interest income increased $101,000 and
amounted to $400,000 for the nine months ended September 30, 2002 compared with
$299,000 for the nine months ended September 30, 2001. The increase was
primarily attributable to a $107,000 increase in gain on the sale of securities
available for sale.
Non-Interest Expense. Non-interest expense increased $164,000 and
amounted to $2.5 million for the nine months ended September 30, 2002 compared
with $2.4 million for the nine months ended September 30, 2001. The increase was
primarily attributable to a $98,000 increase in other non-interest expense and a
$68,000 increase in professional fees partially offset by a $36,000 decrease in
advertising expense. The increase in other non-interest expense is primarily
related to an increase loan related expenses and costs associated with the
deployment of new automated teller machines. The increase in professional fees
is primarily related to a lawsuit that settled after the end of the quarter and
professional fees related to a new branch location. The settlement of the
lawsuit will not have a material effect on the Company's consolidated financial
position or results of operations.
Income Tax Expense. Income tax expense increased $98,000 and amounted
to $335,000 for the nine months ended September 30, 2002 compared with $237,000
for the nine months ended September 30, 2001. The increase was primarily
attributable to an increase in pre-tax income.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of
the Companys disclosure controls and procedures (as defined in Section 13(a)-14
(c)of the Securities Exchange Act of 1934 (the Act)) was carried out under the
supervision and with the participation of the Companys Chief Executive Officer,
Chief Financial Officer and several other members of the Companys senior
management within the 90-day period preceding the filing date of this quarterly
report. The Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed
by the Company in the reports it files or submits under the Act is (i)
accumulated and communicated to the Companys management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
(b) Changes in Internal Controls: In the quarter ended September 30,
2002, the Company did not make any significant changes in, nor take any
corrective actions regarding, its internal controls or other factors that could
significantly affect these controls.
13
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 Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Form 8-K dated July 16, 2002, Registrant issued a press release
dated July 16, 2002 regarding second 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 October 31, 2002 /S/ Joseph A. Graber
-------------------- --------------------------
Joseph A. Graber
President and Chief Executive Officer
Date October 31, 2002 /S/ Martin W. Trofimuk
-------------------- --------------------------
Martin W. Trofimuk
Vice President, Treasurer and
Chief Financial Officer
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the
undersigned hereby certifies in his capacity as an officer of North Bancshares,
Inc. (the Company) that the Quarterly Report on Form 10-QSB fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934
and that the information contained in such report fairly presents, in all
material respects, the financial condition and results of operations of the
Company as of the dates and for the periods presented in the financial
statements included in such report.
Dated: October 31, 2002 /S/ Joseph A. Graber
---------------- --------------------
Joseph A. Graber
President and Chief Executive Officer
Dated: October 31, 2002 /S/ Martin W. Trofimuk
---------------- ----------------------
Martin W. Trofimuk
Vice President, Treasurer and
Chief Financial Officer
15
CERTIFICATION
I, Joseph A. Graber, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
North Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by the
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluations Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluations as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee or registrants board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
the quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluations, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 31, 2002
------------------------------------
/S/ Joseph A. Graber
-------------------------------------------------------
Joseph A. Graber, President and Chief Executive Officer
16
CERTIFICATION
I, Martin W. Trofimuk, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
North Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by the
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluations Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluations as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee or registrants board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
the quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluations, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 31, 2002
-------------------------------------
/S/ Martin W. Trofimuk
-------------------------------------------
Martin W. Trofimuk, Vice President, Treasurer
and Chief Financial Officer
17