SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO 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 0-27672
NORTH CENTRAL BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Iowa 42-1449849
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(State or Other Jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification Number)
825 Central Avenue Fort Dodge, Iowa 50501
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:(515)576-7531
None
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 9, 2001
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 1,744,580
NORTH CENTRAL BANCSHARES, INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Condensed
Financial Statements (Unaudited) 1 to 3
Consolidated Condensed Statements of
Financial Condition at September 30, 2001
(Unaudited) and December 31, 2000 1
Consolidated Condensed Statements of
Income for the three and nine months ended
September 30, 2001 and 2000 (Unaudited) 2
Consolidated Condensed Statements of
Cash Flows for the nine months ended
September 30, 2001 and 2000 (Unaudited) 3
Notes to Consolidated Condensed Financial
Statements 4 to 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6 to 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Part II. Other Information
Items 1 through 6 13
Signatures 14
Exhibits
PART I. FINANCIAL INFORMATION
ITEM 1.
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
ASSETS 2001 2000
------------- --------------
(Unaudited)
Cash and due from banks:
Interest-bearing $ 7,587,117 $ 6,330,525
Noninterest-bearing 2,300,110 2,519,201
Securities available-for-sale 33,942,533 43,351,850
Loans receivable, net 316,893,515 318,025,782
Loans held for sale 1,110,903 498,387
Accrued interest receivable 2,164,998 2,257,153
Foreclosed real estate 985,365 63,866
Premises and equipment, net 6,804,520 6,660,783
Rental real estate 1,702,422 1,757,014
Title plant 925,256 925,256
Goodwill 5,088,873 5,443,091
Deferred taxes 404,826 556,913
Income taxes receivable 3,971 209,995
Prepaid expenses and other assets 518,740 397,970
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Total assets $ 380,433,149 $ 388,997,786
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 270,186,956 $ 261,166,646
Borrowed funds 71,494,683 88,592,226
Advances from borrowers for taxes and insurance 804,612 1,318,069
Dividends payable 271,741 240,235
Accrued expenses and other liabilities 1,203,350 1,282,495
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Total liabilities $ 343,961,342 352,599,671
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized 3,000,000 shares,
issued and outstanding none) -- --
Common stock ($.01 par value, authorized 15,500,000 shares;
issued and outstanding 2001 4,041,257 shares; 2000 4,011,057 shares) 40,413 40,111
Additional paid-in capital 38,992,849 38,378,315
Retained earnings, substantially restricted 35,794,521 33,345,852
Accumulated other comprehensive income (loss) 270,766 (247,340)
Less cost of treasury stock, 2001 2,270,677 shares; 2000 2,099,177 shares (38,107,451) (34,471,911)
Unearned shares, employee stock ownership plan (519,291) (646,912)
------------- -------------
Total stockholders' equity 36,471,807 36,398,115
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Total liabilities and stockholders' equity $ 380,433,149 $ 388,997,786
============= =============
See Notes to Consolidated Condensed Financial Statements.
1
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Interest income:
Loans receivable $ 6,389,131 $ 6,210,911 $ 19,106,625 $ 17,919,983
Securities and cash deposits 505,180 739,999 1,750,661 2,292,378
-------------- -------------- -------------- --------------
6,894,311 6,950,910 20,857,286 20,212,361
-------------- -------------- -------------- --------------
Interest expense:
Deposits 2,983,834 3,127,879 9,202,908 9,077,768
Borrowed funds 1,121,880 1,228,044 3,539,202 3,094,573
-------------- -------------- -------------- --------------
4,105,714 4,355,923 12,742,110 12,172,341
-------------- -------------- -------------- --------------
Net Interest Income 2,788,597 2,594,987 8,115,176 8,040,020
Provision for loan losses 60,000 30,000 150,000 90,000
-------------- -------------- -------------- --------------
Net interest income after provision for loan losses 2,728,597 2,564,987 7,965,176 7,950,020
-------------- -------------- -------------- --------------
Noninterest income:
Fees and service charges 502,758 423,629 1,383,034 1,157,816
Abstract fees 387,851 304,583 1,068,425 962,333
Mortgage banking fees 191,051 54,264 500,887 126,854
Income (Loss) on sale of securities available for sale, net - - 42 (933) 42
Other income 186,303 206,093 590,316 648,625
-------------- -------------- -------------- --------------
Total noninterest income 1,267,963 988,611 3,541,729 2,895,670
-------------- -------------- -------------- --------------
Noninterest expense:
Salaries and employee benefits 1,126,739 1,004,519 3,274,592 3,039,533
Premises and equipment 290,065 282,842 876,569 764,297
Data processing 116,581 112,252 339,380 341,788
SAIF deposit insurance premiums 12,577 13,920 37,864 41,854
Goodwill amortization 118,072 118,072 354,217 354,217
Other expenses 570,522 546,257 1,710,383 1,758,801
-------------- -------------- -------------- --------------
Total noninterest expense 2,234,556 2,077,862 6,593,005 6,300,490
-------------- -------------- -------------- --------------
Income before income taxes 1,762,004 1,475,736 4,913,900 4,545,200
Provision for income taxes 608,134 504,266 1,668,588 1,561,863
-------------- -------------- -------------- --------------
Net Income $ 1,153,870 $ 971,470 $ 3,245,312 $ 2,983,337
============== ============== ============== ==============
Basic earnings per common share $ 0.66 $ 0.50 $ 1.81 $ 1.50
============== ============== ============== ==============
Earnings per common share - assuming dilution $ 0.62 $ 0.49 $ 1.72 $ 1.47
============== ============== ============== ==============
Dividends declared per common share $ 0.15 $ 0.125 $ 0.45 $ 0.375
============== ============== ============== ==============
Comprehensive income $ 1,289,667 $ 1,237,783 $ 3,763,418 $ 3,122,845
============== ============== ============== ==============
See Notes to Consolidated Condensed Financial Statements.
2
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2001 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,245,312 $ 2,983,337
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 150,000 90,000
Depreciation 523,324 453,094
Amortization and accretion 498,706 418,541
Deferred taxes (157,470) (3,062)
Effect of contribution to employee stock ownership plan 276,676 208,617
(Gain) on sale of foreclosed real estate and loans, net (498,464) (33,796)
(Gain) loss on sale of securities available for sale 933 (42)
Loss on impairment and disposal of equipment and premises, net 5,121 28,294
Proceeds from sales of loans held for sale 32,545,314 7,469,293
Originations of loans held for sale (32,656,943) (8,835,182)
Change in assets and liabilities:
Accrued interest receivable 92,155 (152,085)
Income taxes receivable 206,024 - -
Prepaid expenses and other assets (120,770) (40,087)
Income taxes payable - - (64,094)
Accrued expenses and other liabilities (79,145) 256,642
-------------- --------------
Net cash provided by operating activities 4,030,773 2,779,470
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans 18,757,858 (11,253,726)
Purchase of loans (18,591,648) (14,540,353)
Proceeds from sales of securities available-for-sale 220,125 224,792
Purchase of securities available-for-sale (7,293,386) (1,395,100)
Proceeds from maturities of securities available-for-sale 17,273,623 7,592,261
Purchase of premises and equipment and rental real estate (635,966) (1,651,671)
Proceeds from sale of equipment 18,376 257,139
Other (216,668) 85,329
-------------- --------------
Net cash provided by (used in) investing activities 9,532,314 (20,681,329)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 9,020,310 (9,345,022)
(Decrease) in advances from borrowers for taxes and insurance (513,457) (707,708)
Net change in short-term borrowings (3,000,000) 4,000,000
Proceeds from other borrowed funds 3,000,000 34,000,000
Payments of other borrowings (17,097,543) (9,092,735)
Purchase of treasury stock (3,635,540) (4,723,405)
Dividends paid (765,136) (705,475)
Issuance of common stock 475,484 - -
Other (9,704) (5,409)
-------------- --------------
Net cash provided by (used in) financing activities (12,525,586) 13,420,246
-------------- --------------
Net increase (decrease) in cash 1,037,501 (4,481,613)
CASH 8,849,726 12,668,678
-------------- --------------
Beginning $ 9,887,227 $ 8,187,065
============== ==============
Ending
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 9,289,479 $ 8,884,213
Interest paid on borrowings 3,590,140 3,039,400
Income taxes 1,527,753 1,628,903
3
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated condensed financial statements for the three and nine month
periods ended September 30, 2001 and 2000 are unaudited. In the opinion of the
management of North Central Bancshares, Inc. (the "Company" or the "Registrant")
these financial statements reflect all adjustments, consisting only of normal
recurring accruals, necessary to present fairly these consolidated financial
statements. The results of operations for the interim periods are not
necessarily indicative of results which may be expected for an entire year.
Certain information and footnote disclosure normally included in complete
financial statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the requirements for interim
financial statements. The financial statements and notes thereto should be read
in conjunction with the Company's 2000 Annual Report on Form 10-K.
The consolidated condensed financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
2. EARNINGS PER SHARE
The earnings per share amounts were computed using the weighted average number
of shares outstanding during the periods presented. In accordance with Statement
of Position No. 93-6, Employers' Accounting for Employee Stock Ownership Plans,
issued by the American Institute of Certified Public Accountants, shares owned
by First Federal Savings Bank of Iowa's Employee Stock Ownership Plan that have
not been committed to be released are not considered to be outstanding for the
purpose of computing earnings per share. For the three month period ended
September 30, 2001, the weighted average number of shares outstanding for basic
and diluted earnings per share computation were 1,755,147 and 1,857,930,
respectively. For the nine month period ended September 30, 2001, the weighted
average number of shares outstanding for basic and diluted earnings per share
computation were 1,788,812 and 1,882,818, respectively. For the three month
period ended September 30, 2000, the weighted average number of shares
outstanding for basic and diluted earnings per share computation were 1,924,950
and 1,968,305, respectively. For the nine month period ended September 30, 2000,
the weighted average number of shares outstanding for basic and diluted earnings
per share computation were 1,993,493 and 2,029,734, respectively.
3. DIVIDENDS
On August 23, 2001, the Company declared a cash dividend on its common stock,
payable on October 5, 2001 to stockholders of record as of September 14, 2001,
equal to $0.15 per share.
4. PRONOUNCEMENTS ISSUED NOT YET ADOPTED
In July, 2001, the Financial Accounting Standards Board issued two
statements-Statement 141, Business Combinations, and Statement 142, Goodwill and
Other Intangible Assets, which will potentially impact the Company's accounting
for its reported goodwill and other intangible assets.
Statement 141:
o Eliminates the pooling method for accounting for business
combinations.
o Requires that intangible assets that meet certain criteria be reported
separately from goodwill.
o Requires negative goodwill arising from a business combination to be
recorded as an extraordinary gain.
Statement 142:
o Eliminates the amortization of goodwill and other intangibles that are
determined to have an indefinite life.
4
o Requires, at a minimum, annual impairment tests for goodwill and other
intangible assets that are determined to have an indefinite life.
Upon adoption of these Statements, the Company is required to:
o Re-evaluate goodwill and other intangibles assets that arose from
business combinations entered into before July 1, 2001. If the
recorded other intangible assets do not meet the criteria for separate
recognition, they should be reclassified to goodwill. Similarly, if
there are other intangible assets that meet the criteria for separate
recognition but were not separately recorded from goodwill, they
should be reclassified from goodwill.
o Reassess the useful lives of intangible assets and adjust the
remaining amortization periods accordingly.
o Write-off any remaining negative goodwill.
The Company has not yet completed its full assessment of the effects of these
new pronouncements on its financial statements and so is uncertain as to the
impact. The standards generally are required to be implemented by the Company in
its 2002 financial statements.
5
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q contains forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include changes in general, economic, market, legislative and regulatory
conditions, and the development of an interest rate environment that adversely
affects the interest rate spread or other income anticipated from the Company's
operations and investments. The Company's actual results may differ from the
results discussed in the forward looking statements.
FINANCIAL CONDITION
Total assets decreased $8.6 million, or 2.2%, to $380.4 million at September 30,
2001 compared to $389.0 million at December 31, 2000. Interest-bearing cash
increased $1.3 million, or 19.8% to $7.6 million at September 30, 2001 from $6.3
million at December 31, 2000. Securities available for sale decreased $9.4
million, or 21.7% from $43.4 million at December 31, 2000 to $33.9 million at
September 30, 2001, primarily due to $17.5 million of maturities, calls and
sales, offset in part by increases in fair market value of $828,000 and
purchases of $7.3 million of such securities. Total loans receivable, net and
loans held for sale, decreased by $520,000 to $318.0 million at September 30,
2001 from $318.5 million at December 31, 2000, due primarily to originations of
$56.9 million of first mortgage loans secured primarily by one-to four-family
residences, purchases of $18.6 million of first mortgage loans secured primarily
by one-to four- family, multifamily and commercial real estate and originations
of $19.8 million of second mortgage loans. These originations and purchases were
offset in part by payments and prepayments of loans of approximately $72.1
million and loan sales of $32.4 million. Foreclosed real estate increased
$921,000 to $985,000 at September 30, 2001 from $64,000 at December 31, 2001,
due primarily to the foreclosure of one commercial real estate property and six
one-to-four family real estate properties. Total deposits increased $9.0
million, or 3.5%, to $270.2 million at September 30, 2001 from $261.2 million at
December 31, 2000, reflecting increases primarily in money market savings
accounts and certificates of deposit accounts. Other borrowings, primarily
Federal Home Loan Bank ("FHLB") advances, decreased by $17.1 million from $88.6
million at December 31, 2000 to $71.5 million at September 30, 2001, due in part
to deposit growth and securities available for sales maturities and calls. Total
stockholders' equity increased $74,000, to $36.5 million at September 30, 2001
from $36.4 million at December 31, 2000. See "Capital."
CAPITAL
The Company's total stockholders' equity increased by $74,000 to $36.5 million
at September 30, 2001 from $36.4 million at December 31, 2000, primarily due to
earnings and an increase in the accumulated other comprehensive income, which
were offset in part by stock repurchases and dividends declared. The changes in
stockholders' equity were also due to a decrease in the unearned shares from
First Federal Savings Bank of Iowa's Employee Stock Ownership Plan (the "ESOP")
to $519,000 at September 30, 2001 from $647,000 at December 31, 2000. The
decrease in unearned shares resulted from the release of shares by the ESOP to
employees of First Federal Savings Bank of Iowa (the "Bank").
6
The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum
tangible, leverage (core) and risk- based capital requirements. As of September
30, 2001, the Bank exceeded all of its regulatory capital requirements. The
Bank's required, actual and excess capital levels as of September 30, 2001 were
as follows:
Amount Percentage of Assets
------ --------------------
(dollars in thousands)
Tangible capital:
Capital level $ 29,025 7.76%
Less Requirement 5,607 1.50%
-------- -----
Excess $ 23,418 6.26%
======== =====
Core capital:
Capital level $ 29,025 7.76%
Less Requirement 14,953 4.00%
-------- -----
Excess $ 14,072 3.76%
======== =====
Risk-based capital:
Capital level $ 31,863 14.01%
Less Requirement 18,191 8.00%
-------- -----
Excess $ 13,672 6.01%
======== =====
LIQUIDITY
The Company's primary sources of funds are cash provided by operating activities
(including net income), certain financing activities (including increases in
deposits and proceeds from borrowings) and certain investing activities
(including principal payments on loans and maturities and calls of securities).
During the first nine months of 2001 and 2000, principal payments and repayments
on loans totalled $72.1 million and $42.6 million, respectively. The net
increase in deposits during the first nine months of 2001 totalled $9.0 million.
The proceeds from borrowed funds during the nine months ended September 30, 2001
and 2000 totalled $3.0 million and $34.0 million, respectively. The net change
in short-term borrowings during the nine months ended September 30, 2000
totalled $4.0 million. During the first nine months of 2001 and 2000, the
proceeds from the maturities, calls and sales of securities totalled $17.3
million and $7.6 million, respectively. Cash provided from operating activities
during the first nine months of 2001 and 2000 totalled $4.0 million and $2.8
million, respectively, of which $3.2 million and $3.0 million, respectively,
represented net income of the Company. The Company's primary use of funds is
cash used to originate and purchase loans, purchase of securities available for
sale, repayment of borrowed funds and other financing activities (including
decreases in deposits). During the first nine months of 2001 and 2000, the
Company's gross purchases and origination of loans totalled $104.6 million and
$68.7 million, respectively. The increase in purchases and originations is due
in part to lower market interest rates in 2001. The purchase of securities
available for sale for the nine months ended September 30, 2001 and 2000
totalled $7.3 million and $1.4 million, respectively. The net decrease in
deposits during the first nine months of 2000 totalled $9.3 million. The
repayment of borrowed funds during the first nine months of 2001 and 2000
totalled $17.1 million and $9.1 million, respectively. The net change in
short-term borrowings during the nine months ended September 30, 2001 totalled
$3.0 million. For additional information about cash flows from the Company's
operating, financing and investing activities, see "Statements of Cash Flows in
the Condensed Consolidated Financial Statements."
The OTS regulations require the Bank to maintain sufficient liquidity to ensure
its safe and sound operation.
The Company entered into a $2.0 million unsecured line of credit agreement on
September 21, 2000 with another unaffiliated bank. The Company may use this line
of credit to fund stock repurchases in the future and general corporate
purposes. As of September 30, 2001, there were no borrowings outstanding on this
line of credit.
Stockholders' equity totaled $36.5 million at September 30, 2001 compared to
$36.4 million at December 31, 2000, reflecting the Company's earnings, stock
repurchases, the amortization of the unallocated portion of shares held by the
ESOP, dividends declared on common stock and the change in the accumulated other
comprehensive loss. The Company repurchased 171,500 shares of common stock
during the nine months ended September 30, 2001 at an average price of $21.20.
On July 6, 2001, the Company paid a quarterly cash dividend of $0.15 per share
on common stock outstanding as of the close of business on June 15, 2001,
aggregating $273,000. On August 23, 2001, the Company declared a quarterly cash
dividend of $0.15 per share payable on October 5, 2001 to shareholders of record
as of the close of business on September 14, 2001, aggregating $272,000.
7
Interest Income. Interest income decreased by $57,000 to $6.9 million for the
three months ended September 30, 2001 compared to $7.0 million for the three
months ended September 30, 2000. The decrease in interest income was primarily
due to decreases in the average balance and average yield on interest earning
assets. The average balance of interest earning assets decreased $261,000 to
$361.8 million for the three months ended September 30, 2001 from $362.0 million
for the three months ended September 30, 2000. This decrease was primarily due
to securities available for sale, offset by an increase in first mortgage loans,
consumer loans and interest-bearing cash. The decrease in securities available
for sale reflects maturities, calls and sales, offset in part by purchases. The
increase in the average balance of loans generally reflects an increase over the
past twelve months in originations of first mortgage loans, second mortgage
loans and purchases of first mortgage loans secured primarily by multi-family,
one-to four-family residential and commercial real estate loans, which were
offset in part by payments, sales and prepayments of loans. See "Financial
Condition." The yield on interest earning assets decreased to 7.61% for the
three months ended September 30, 2001 from 7.67% for the three months ended
September 30, 2000. The decrease in average yields was due primarily to an
increase in the average balance of loans as compared to the average balance of
interest bearing assets, a decrease in the average yield on loans, offset in
part by a decrease in the average yield on securities available for sale and
interest bearing cash. The average yield on loans decreased to 7.90% for the
three months ended September 20, 2001 from 7.94% for the three months ended
September 30, 2000. The average yield on securities available for sale decreased
to 5.66% for the three months ended September 30, 2001 from 5.93% for the three
months ended September 30, 2000. The average yield on interest bearing cash
decreased to 3.18% for the three months ended September 30, 2001 from 6.21% for
the three months ended September 30, 2000, due to decreases in market interest
rates.
Interest income increased by $645,000 to $20.9 million for the nine months ended
September 30, 2001 compared to $20.2 million for the nine months ended September
30, 2000. The increase in interest income was primarily due to increases in the
average balance and average yield on interest earning assets. The average
balance of interest earning assets increased $8.1 million to $363.7 million for
the nine months ended September 30, 2001 from $355.5 million for the nine month
ended September 30, 2000. This increase was primarily due to first mortgage
loans, consumer loans and interest bearing cash, offset by a decrease in
securities available for sale. The increase in the average balance of loans
generally reflects an increase over the past twelve months in originations of
first mortgage loans, second mortgage loans and purchases of first mortgage
loans secured primarily by multi-family, one-to four-family residential and
commercial real estate loans, which were offset in part by payments, sales and
prepayments of loans. See "Financial Condition." The decrease in securities
available for sale reflects maturities, calls and sales, offset in part by
purchases. The yield on interest earning assets increased to 7.65% for the nine
months ended September 30, 2001 from 7.58% for the nine months ended September
30, 2000. The increase in average yields was due primarily to an increase in the
average balance of loans as compared to the average balance of interest bearing
assets, an increase in the average yield on loans, offset in part by a decrease
in the average yield on securities available for sale and interest bearing cash.
The average yield on loans increased to 7.96% for the nine months ended
September 30, 2001 from 7.87% for the nine months ended September 30, 2000. The
average yield on securities available for sale decreased to 5.64% for the nine
months ended September 30, 2001 from 5.89% for the nine months ended September
30, 2000. The decrease in the average yield on securities available for sale was
due in part to a change in the average yield on Federal Home Loan Bank stock.
The average yield on the Federal Home Loan Bank stock for the nine months ended
September 30, 2001 and 2000 was 4.11% and 6.85%, respectively. The average yield
on interest bearing cash decreased to 4.31% for the nine months ended September
30, 2001 from 5.85% for the nine months ended September 30, 2000.
Interest Expense. Interest expense decreased by $250,000 to $4.1 million for the
three months ended September 30, 2001 compared to $4.4 million for the three
months ended September 30, 2000. The decrease in interest expense was primarily
due to a decrease in the average cost of interest bearing liabilities, offset in
part by an increase in the average balance of interest bearing liabilities. The
average balance of interest bearing liabilities increased $3.4 million to $338.2
million for the three months ended September 30, 2001 from $334.7 million for
the three months ended September 30, 2000. This increase was due primarily to
money market savings accounts, offset in part by decreases in savings,
certificates of deposit and borrowed funds. The increase in money market funds
was primarily due to the offering of a premium money market product. The
decrease in the certificates of deposit was due in part to a decrease in the
deposits of public funds. The average cost of interest bearing liabilities
decreased to 4.87% for the three months ended September 30, 2001 from 5.14% for
the three months ended September 30, 2000. The decrease in the average cost of
interest bearing liabilities was due primarily to a decrease in market interest
rates over the past twelve months.
Interest expense increased by $570,000 to $12.7 million for the nine months
ended September 30, 2001 compared to $12.2 million for the nine months ended
September 30, 2000. The increase in interest expense was primarily due to an
increase in the average balance and average cost of interest bearing
liabilities. The average balance of interest bearing liabilities increased
$11.4 million to $339.1 million for the nine months ended September 30, 2001
from $327.7 million
8
RESULTS OF OPERATIONS (Continued)
for the nine months ended September 30, 2000. This increase was due primarily to
money market savings accounts and borrowed funds, offset by a decrease in
savings accounts and certificates of deposit. The increase in money market funds
was primarily due to the offering of a premium money market product. The
increase in the borrowed funds was due in part to fund the corresponding asset
growth and stock repurchases. The decrease in the certificates of deposit was
due in part to a decrease in the deposits of public funds. The average cost of
interest bearing liabilities increased to 5.02% for the nine months ended
September 30, 2001 from 4.93% for the nine months ended September 30, 2000. The
increase in the average cost of interest bearing liabilities was due primarily
to an increase in the average cost of certificates of deposit, offset in part by
a decrease in the average cost of savings accounts.
Net Interest Income. Net interest income before the provision for loan losses
increased by $194,000 to $2,789,000 for the three months ended September 30,
2001 from $2,595,000 for the three months ended September 30, 2000. The increase
is due primarily to an increase in the interest rate spread, offset in part by a
decrease in the ratio of average interest earning assets to average interest
bearing liabilities. The interest rate spread (i.e., the difference in the
average yield on assets and average cost of liabilities) increased to 2.74% for
the three months ended September 30, 2001 from 2.53% for the three months ended
September 30, 2000. The ratio of average interest earning assets to average
interest bearing liabilities decreased to 106.98% for the three months ended
September 30, 2001 from 108.15% for the three months ended September 30, 2000.
Net interest income before the provision for loan losses increased by $75,000 to
$8,115,000 for the nine months ended September 30, 2001 from $8,040,000 for the
nine months ended September 30, 2000. The increase is due primarily to an
increase in the average balance of interest earning assets and interest bearing
liabilities. This was offset in part by decreases in the interest rate spread
and the ratio of average interest earning assets to average interest bearing
liabilities. The interest rate spread (i.e., the difference in the average yield
on assets and average cost of liabilities) decreased to 2.63% for the nine
months ended September 30, 2001 from 2.65% for the nine months ended September
30, 2000. The ratio of average interest earning assets to average interest
bearing liabilities decreased to 107.25% for the nine months ended September 30,
2001 from 108.49% for the nine months ended September 30, 2000.
The following table sets forth certain information relating to the Company's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the three and nine month periods ended September 30, 2001 and
2000, respectively.
9
RESULTS OF OPERATIONS (Continued)
For the Three Months Ended September 30,
2001 2000
----------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- --------- --------- ----------
(Dollars in thousand)
Assets:
Interest-earning assets:
Loans..................................... $ 322,790 $ 6,389 7.90% $ 312,327 $ 6,211 7.94%
Securities available for sale............. 31,493 445 5.66 45,286 671 5.93
Interest bearing cash..................... 7,471 60 3.18 4,402 69 6.21
--------- --------- --------- --------- --------- -------
Total interest-earning assets........... 361,754 $ 6,894 7.61% 362,015 $ 6,951 7.67%
--------- --------- --------- -------
Noninterest-earning assets.................. 22,760 18,528
--------- ---------
Total assets............................ $ 384,514 $ 380,543
========= =========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings.............. $ 60,290 $ 290 1.91% $ 48,140 $ 315 2.60%
Passbook savings.......................... 21,995 95 1.72 24,032 122 2.01
Certificates of deposit................... 181,713 2,599 5.67 185,276 2,691 5.76
Borrowed funds............................ 74,168 1,122 6.00 77,274 1,228 6.22
--------- --------- --------- --------- --------- -------
Total interest-bearing liabilities.......... 338,166 $ 4,106 4.87% 334,722 $ 4,356 5.14%
--------- --------- --------- -------
Noninterest-bearing liabilities............. 9,440 9,835
--------- ---------
Total liabilities....................... 347,606 344,557
Equity...................................... 36,908 35,986
--------- ---------
Total liabilities and equity ........... $ 384,514 $ 380,543
========= =========
Net interest income.......................... $ 2,788 $ 2,595
========= =========
Net interest rate spread..................... 2.74% 2.53%
========= =======
Net interest margin.......................... 3.08% 2.87%
========= =======
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 106.98% 108.15%
========= =======
For the Nine Months Ended September 30,
2001 2000
----------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans..................................... $ 320,109 $ 19,107 7.96% $ 303,586 $ 17,920 7.87%
Securities available for sale............. 34,453 1,457 5.64 47,669 2,104 5.89
Interest bearing cash..................... 9,110 293 4.31 4,293 188 5.85
--------- --------- --------- --------- --------- -------
Total interest-earning assets........... 363,672 $ 20,857 7.65% 355,548 $ 20,212 7.58%
--------- --------- --------- -------
Noninterest-earning assets.................. 21,343 18,391
--------- ---------
Total assets............................ $ 385,015 $ 373,939
========= =========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings.............. $ 58,197 $ 1,008 2.32% $ 47,071 822 2.33%
Passbook savings.......................... 21,750 286 1.76 25,256 380 2.01
Certificates of deposit................... 180,952 7,909 5.84 188,008 7,875 5.58
Borrowed funds............................ 78,200 3,539 6.05 67,377 3,095 6.03
--------- --------- --------- --------- --------- -------
Total interest-bearing liabilities.......... 339,099 $ 12,742 5.02% 327,712 $ 12,172 4.93%
--------- --------- --------- -------
Noninterest-bearing liabilities............. 9,106 10,070
--------- ---------
Total liabilities....................... 348,205 337,782
Equity...................................... 36,810 36,157
--------- ---------
Total liabilities and equity ........... $ 385,015 $ 373,939
========= =========
Net interest income.......................... $ 8,115 $ 8,040
========= =========
Net interest rate spread..................... 2.63% 2.65%
========= =======
Net interest margin.......................... 2.98% 3.02%
========= =======
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 107.25% 108.49%
========= =======
10
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $60,000
and $30,000 for the three months ended September 30, 2001 and 2000,
respectively. The Company's provision for loan losses was $150,000 and $90,000
for each of the nine months ended September 30, 2001 and 2000, respectively. The
Company establishes provisions for loan losses, which are charged to operations,
in order to maintain the allowance for loan losses at a level which is deemed to
be appropriate based upon an assessment of a number of factors. These factors
include prior loss experience, industry standards, past due loans, economic
conditions, the volume and type of loans in the Bank's portfolio, which includes
a significant amount of multi-family and commercial real estate loans,
substantially all of which are purchased and are collateralized by properties
located outside of the Bank's market area, and other factors related to the
collectibility of the Bank's loan portfolio. The net charge offs were $100,000
for the nine months ended September 30, 2001 as compared to net charge offs of
$47,000 for the nine months ended September 30, 2000. The resulting allowance
for loan losses was $2.9 million at September 30, 2001, $2.8 million at December
31, 2000 and $2.8 million at September 30, 2000. The level of nonperforming
loans decreased to $614,000 at September 30, 2001 from $1.0 million at December
31, 2000 and from $1.1 million at September 30, 2000. Management believes that
the allowance for loan losses is adequate. While management estimates loan
losses using the best available information, such as independent appraisals for
significant collateral properties, no assurance can be made that future
adjustments to the allowance will not be necessary based on changes in economic
and real estate market conditions, further information obtained regarding known
problem loans, identification of additional problem loans, and other factors,
both within and outside of management's control.
Noninterest Income. Total noninterest income increased by $279,000 to $1,268,000
for the three months ended September 30, 2001 from $989,000 for the three months
ended September 30, 2000. The increase is due to increases in fees and services
charges, abstracting income and mortgage banking income, offset by a decrease in
other income. Fees and services charges increased $79,000, primarily due to
increases in overdraft fees. Abstracting income increased $83,000, due to an
increased sales volume, which resulted in part from a general increase in real
estate activity. Mortgage banking income increased $137,000 due to an
increase in loan originations. Other income decreased $20,000, due to
decreases in revenues from the sale of annuities and mutual funds, offset in
part by an increase in revenues from the sale of insurance.
Total noninterest income increased by $646,000 to $3,542,000 for the nine months
ended September 30, 2001 from $2,896,000 for the nine months ended September 30,
2000. The increase is due to increases in fees and services charges, abstract
fees and mortgage banking income, offset in part by decreases in other income.
Fees and services charges increased $225,000, primarily due to increases in
overdraft fees. Abstract fees increased $106,000, due to an increased sales
volume, which resulted in part from a general increase in real estate activity.
Mortgage banking income increased $374,000 due to an increase in loan
originations. Other income decreased $58,000, primarily due to decreases in
revenues from the sale of annuities and mutual funds, offset in part by an
increase in revenues from the sale of insurance.
Noninterest Expense. Total noninterest expense increased by $157,000 to
$2,235,000 for the three months ended September 30, 2001 from $2,078,000 for the
three months ended September 30, 2000. The increase is due primarily to
increases in salaries and employee benefits. The increase in salaries and
employee benefits were due in part to normal salary increases and increases as a
result of the employee stock ownership plan. The Company's efficiency ratio for
the three months ended September 30, 2001 and 2000 were 55.08% and 57.98%,
respectively. The Company's ratio of noninterest expense to average assets for
the three months ended September 30, 2001 and 2000 were 2.32% and 2.18%,
respectively.
Total noninterest expense increased by $293,000 to $6,593,000 for the nine
months ended September 30, 2001 from $6,300,000 for the nine months ended
September 30, 2000. The increase is due primarily to increases in salaries and
employee benefits and premises and equipment. The increase in salaries and
employee benefits were due in part to normal salary increases and increases as a
result of the employee stock ownership plan. The increases in premises and
equipment were due in part to increases in utilities, real estate taxes and
depreciation, offset in part by a decrease in rent expense. The Company's
efficiency ratio for the nine months ended September 30, 2001 and 2000 were
56.56% and 57.61%, respectively. The Company's ratio of noninterest expense to
average assets for the nine months ended September 30, 2001 and 2000 were 2.28%
and 2.25%, respectively.
Income Taxes. Income taxes increased by $104,000 to $608,000 for the three
months ended September 30, 2001 as compared to $504,000 for the three months
ended September 30, 2000, primarily due to an increase in net income before
income taxes.
Income taxes increased by $107,000 to $1,669,000 for the nine months ended
September 30, 2001 as compared to $1,562,000 for the nine months ended September
30, 2000, primarily due to an increase in net income before income taxes.
11
RESULTS OF OPERATIONS (Continued)
Net Income. Net income increased by $182,000 to $1,154,000 for the three months
ended September 30, 2001, as compared to $971,000 for the same period in 2000.
Net income increased by $262,000 to $3,245,000 for the nine months ended
September 30, 2001, as compared to $2,983,000 for the same period in 2000.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In management's opinion, there has not been a material change in market risk
from December 31, 2000 as reported in Item 7A of the Annual Report on Form 10-K.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
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) Exhibits
Exhibit 99.1 Press Release, dated August 23, 2001 (regarding
declaration of dividend).
Exhibit 99.2 Press Release, dated September 20, 2001 (regarding
repurchase program).
Exhibit 99.3 Press Release, dated October 19, 2001 (regarding third
quarter earnings)
(b) Reports on Form 8-K
None
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH CENTRAL BANCSHARES, INC.
DATE: November 13, 2001 BY: /s/ David M. Bradley
-----------------------------------------
David M. Bradley, Chairman, President and
Chief Executive Officer
DATE: November 13, 2001 /s/ John L. Pierschbacher
-----------------------------------------
John L. Pierschbacher, CPA
Principal Financial Officer
14