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 June 30, 2003
[ ] 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
(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
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Indicate by check mark whether the Registrant is an accelerated Filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
---
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 July 25, 2003
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Common Stock, $.01 par value 1,601,580
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 June 30, 2003
and December 31, 2002 1
Consolidated Condensed Statements of
Income for the three and six months ended
June 30, 2003 and 2002 2
Consolidated Condensed Statements of
Cash Flows for the six months ended
June 30, 2003 and 2002 3
Notes to Consolidated Condensed Financial
Statements 4 & 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 13
Item 4. Controls and Procedures 13
Part II. Other Information
Items 1 through 6 14
Signatures 15
Exhibits
PART I. FINANCIAL INFORMATION
ITEM 1.
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
ASSETS 2003 2002
---- ----
Cash and due from banks:
Interest-bearing $ 22,481,460 $ 13,025,657
Noninterest-bearing 1,899,788 2,142,944
Securities available-for-sale 31,506,247 22,833,742
Loans receivable, net 348,727,460 341,146,364
Loans held for sale 3,317,892 2,372,134
Accrued interest receivable 1,880,423 1,928,278
Foreclosed real estate 1,277,071 768,726
Premises and equipment, net 8,922,411 8,195,963
Rental real estate 2,903,064 2,197,382
Title plant 925,256 925,256
Goodwill 4,970,800 4,970,800
Deferred taxes 829,704 608,657
Prepaid expenses and other assets 979,712 2,755,778
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Total assets $ 430,621,288 $ 403,871,681
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 290,336,491 $ 277,000,082
Borrowed funds 97,453,522 85,026,438
Advances from borrowers for taxes and insurance 1,481,520 1,512,114
Dividends payable 335,072 295,250
Income taxes payable 116,235 63,553
Accrued expenses and other liabilities 1,637,362 1,226,040
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Total liabilities 391,360,202 365,123,477
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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 2003, 1,601,580;
2002, 1,640,280 shares) 16,920 16,403
Additional paid-in capital 18,266,573 17,011,095
Retained earnings, substantially restricted 24,234,159 21,862,248
Accumulated other comprehensive income 54,775 176,555
Less cost of treasury stock, 2003, 90,400 shares;
2002, None (3,069,494) --
Unearned shares, employee stock ownership plan (241,847) (318,097)
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Total stockholders' equity 39,261,086 38,748,204
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Total liabilities and stockholders' equity $ 430,621,288 $ 403,871,681
============= =============
See Notes to Consolidated Condensed Financial Statements
1
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Interest income:
Loans receivable $ 6,063,880 $ 6,407,193 $ 12,232,542 $ 12,499,824
Securities and cash deposits 377,015 353,389 734,736 791,415
------------ ------------ ------------ ------------
6,440,895 6,760,582 12,967,278 13,291,239
------------ ------------ ------------ ------------
Interest expense:
Deposits 2,007,147 2,370,150 4,088,827 4,803,584
Borrowed funds 1,129,521 1,128,634 2,227,529 2,188,263
------------ ------------ ------------ ------------
3,136,668 3,498,784 6,316,356 6,991,847
------------ ------------ ------------ ------------
Net Interest Income 3,304,227 3,261,798 6,650,922 6,299,392
Provision for loan losses 60,000 90,000 120,000 270,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 3,244,227 3,171,798 6,530,922 6,029,392
------------ ------------ ------------ ------------
Noninterest income:
Fees and service charges 626,589 596,273 1,190,181 1,184,854
Abstract fees 495,127 402,221 929,147 798,831
Mortgage banking fees 275,361 107,014 449,729 215,172
Loss on sale of securities available for
sale, net -- -- -- (1,365)
Other income 301,979 280,322 522,959 502,860
------------ ------------ ------------ ------------
Total noninterest income 1,699,056 1,385,830 3,092,016 2,700,352
------------ ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 1,411,599 1,324,414 2,843,959 2,590,344
Premises and equipment 307,010 301,635 616,182 610,452
Data processing 156,179 132,180 290,498 261,112
SAIF deposit insurance premiums 11,145 11,766 22,792 23,952
Other expenses 768,144 634,979 1,438,396 1,284,570
------------ ------------ ------------ ------------
Total noninterest expense 2,654,077 2,404,974 5,211,827 4,770,430
------------ ------------ ------------ ------------
Income before income taxes 2,289,206 2,152,654 4,411,111 3,959,314
Provision for income taxes 761,506 728,806 1,381,026 1,304,730
------------ ------------ ------------ ------------
Net Income $ 1,527,700 $ 1,423,848 $ 3,030,085 $ 2,654,584
============ ============ ============ ============
Basic earnings per common share $ 0.97 $ 0.87 $ 1.91 $ 1.62
============ ============ ============ ============
Earnings per common share- assuming dilution $ 0.92 $ 0.81 $ 1.80 $ 1.52
============ ============ ============ ============
Dividends declared per common share $ 0.21 $ 0.18 $ 0.42 $ 0.36
============ ============ ============ ============
Comprehensive income $ 1,379,534 $ 1,483,291 $ 2,908,305 $ 2,662,384
============ ============ ============ ============
See Notes to Consolidated Condensed Financial Statements.
2
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,030,085 $ 2,654,584
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 120,000 270,000
Depreciation 380,866 353,196
Amortization and accretion 309,863 91,813
Deferred taxes (148,617) (103,782)
Effect of contribution to employee stock ownership plan 269,386 204,528
(Gain) on sale of foreclosed real estate and loans, net (482,786) (212,789)
Loss on sale of securities available for sale -- 1,365
(Gain) loss on disposal of equipment and premises, net 1,253 (889)
Proceeds from sales of loans held for sale 28,946,235 16,064,139
Originations of loans held for sale (29,442,264) (15,906,346)
Change in assets and liabilities:
Accrued interest receivable 47,855 (138,692)
Income taxes receivable -- (175,622)
Prepaid expenses and other assets 1,776,066 (32,736)
Income taxes payable 52,682 (78,711)
Accrued expenses and other liabilities 411,322 (202,351)
------------ ------------
Net cash provided by operating activities 5,271,946 2,787,707
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CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans 17,592,624 17,865,181
Purchase of loans (26,199,567) (53,214,514)
Proceeds from sales of securities available-for-sale -- 13,760
Purchase of securities available-for-sale (10,865,958) (273,363)
Proceeds from maturities of securities available-for-sale 1,978,412 5,973,549
Purchase of premises and equipment and rental real estate (1,814,249) (1,026,381)
Proceeds from sale of equipment -- 1,015
Other 141,527 6,344
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Net cash (used in) investing activities (19,167,211) (30,654,409)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 13,336,409 11,922,099
(Decrease) in advances from borrowers for taxes and
insurance (30,594) (154,452)
Net change in short-term borrowings -- 750,000
Proceeds from other borrowed funds 17,500,000 27,000,000
Payments on other borrowings (5,072,916) (15,569,367)
Purchase of treasury stock (3,069,494) (1,514,050)
Dividends paid (618,352) (538,882)
Issuance of common stock 1,062,859 1,122,866
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Net cash provided by financing activities 23,107,912 23,018,214
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Net increase (decrease) in cash 9,212,647 (4,848,488)
CASH
Beginning 15,168,601 19,908,902
------------ ------------
Ending $ 24,381,248 $ 15,060,414
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 4,124,268 $ 5,017,193
Interest paid on borrowings 2,227,635 2,188,726
Income taxes 1,091,808 1,343,904
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 six month
periods ended June 30, 2003 and 2002 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 disclosures 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 2002 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 June
30, 2003, the weighted average number of shares outstanding for basic and
diluted earnings per share computation were 1,572,148 and 1,666,398,
respectively. For the six-month period ended June 30, 2003, the weighted average
number of shares outstanding for basic and diluted earnings per share
computation were 1,583,748 and 1,684,531, respectively. For the three-month
period ended June 30, 2002, the weighted average number of shares outstanding
for basic and diluted earnings per share computation were 1,645,954 and
1,755,609, respectively. For the six-month period ended June 30, 2002, the
weighted average number of shares outstanding for basic and diluted earnings per
share computation were 1,642,584 and 1,745,147, respectively.
3. DIVIDENDS
On May 23, 2003, the Company declared a cash dividend on its common stock,
payable on July 7, 2003 to stockholders of record as of June 16, 2003, equal to
$0.21 per share.
4. GOODWILL
As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" that eliminated the
amortization and required a goodwill impairment test. The Company completed the
goodwill impairment test during the year ended December 31, 2002 and has
determined that there has been no impairment of goodwill.
As of June 30, 2003 and December 31, 2002, the Company had intangible assets of
$4,970,800, all of which has been determined to be goodwill. There was no
goodwill impairment loss or amortization related to goodwill during the three
and six months ended June 30, 2003 or June 30, 2002.
5. STOCK OPTION PLAN
FASB Statement No. 123, Accounting for Stock-Based Compensation, establishes a
fair value based method for financial accounting and reporting for stock-based
employee compensation plans and for transactions in which an entity issues its
equity instruments to acquire goods and services from nonemployees. However, the
standard allows compensation to continue to be measured by using the intrinsic
value based method of
4
accounting prescribed by APB No. 25, Accounting for Stock Issued to Employees,
but requires expanded disclosures. The Company has elected to apply the
intrinsic value based method of accounting for stock options issued to
employees. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock.
Had compensation cost for the Plan been determined based on the grant date fair
values of awards (the method described in FASB Statement No. 123), the
approximate reported net income and earnings per common share would have been
decreased to the pro forma amounts shown below:
Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income, as reported $ 1,527,700 $ 1,423,848
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (13,317) (29,251)
----------- -----------
Pro forma net income $ 1,514,383 $ 1,394,597
=========== ===========
Earnings per common share - basic:
As reported $ 0.97 $ 0.87
Pro forma 0.96 0.85
Earnings per common share - assuming dilution:
As reported $ 0.92 $ 0.81
Pro forma 0.91 0.79
Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income, as reported $ 3,030,085 $ 2,654,584
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (52,994) (55,887)
----------- -----------
Pro forma net income $ 2,977,091 $ 2,598,697
=========== ===========
Earnings per common share - basic:
As reported $ 1.91 $ 1.62
Pro forma 1.88 1.58
Earnings per common share - assuming dilution:
As reported $ 1.80 $ 1.52
Pro forma 1.77 1.49
The fair values of the grants are estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 2003 and 2002, respectively: dividend rate of 2.3% and
3.5%, price volatility of 20% and 20%, risk-free interest rate of 3.70% and
4.92%, and expected lives of 8 years for all periods.
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. The Company disclaims any
obligation to publicly announce future events or developments that may affect
the forward-looking financial statements contained here within.
FINANCIAL CONDITION
Total assets increased $26.7 million, or 6.6%, to $430.6 million at June 30,
2003 compared to $403.9 million at December 31, 2002. Interest-bearing cash
increased $9.5 million, or 72.6%, to $22.5 million at June 30, 2003 from $13.0
million at December 31, 2002. Securities available for sale increased $8.7
million, or 38.0%, to $31.5 million at June 30, 2003 from $22.8 million at
December 31, 2002, primarily invested in mortgage backed securities. Total loans
receivable, net, increased by $7.6 million to $348.7 million at June 30, 2003
from $341.1 million at December 31, 2002, due primarily to originations of $32.7
million of first mortgage loans secured primarily by one-to four-family
residences, purchases of $26.2 million of first mortgage loans secured primarily
by one to four family, multifamily and commercial real estate and originations
of $12.6 million of second mortgage loans secured primarily by
one-to-four-family residences. These originations and purchases were offset in
part by payments and prepayments of loans of approximately $68.7 million.
Foreclosed real estate increased $508,000, or 66.1% to $1.3 million at June 30,
2003 from $769,000 at December 31, 2002. At June 30, 2003, foreclosed real
estate consisted of fourteen one-to-four family properties and one commercial
real estate property in the state of Washington.
Total deposits increased $13.3 million, or 4.8%, to $290.3 million at June 30,
2003 from $277.0 million at December 31, 2002, reflecting increases primarily in
checking, savings accounts, money market accounts and public fund certificates
of deposits, offset by a decrease in retail certificates of deposit accounts.
The increase in the Bank's deposits was due in part to an increase in the
deposits at the Bank's Ankeny office, which moved to a permanent location in the
first quarter of 2003. Other borrowings, primarily Federal Home Loan Bank
("FHLB") advances, increased by $12.4 million to $97.5 million at June 30, 2003
from $85.0 million at December 31, 2002, as management elected to increase
borrowings to fund asset growth. Total stockholders' equity increased $513,000,
to $39.3 million at June 30, 2003 from $38.7 million at December 31, 2002. See
"Capital."
CAPITAL
The Company's total stockholders' equity increased by $513,000 to $39.3 million
at June 30, 2003 from $38.7 million at December 31, 2002, primarily due to
earnings and stock issued in connection with stock options exercised, 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 $242,000 at June 30, 2003 from $318,000 at December 31, 2002. The decrease in
unearned shares resulted from the release of shares within 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 June 30,
2003, the Bank exceeded all of its regulatory capital requirements. The Bank's
required, actual and excess capital levels as of June 30, 2003 were as follows:
Amount Percentage of Assets
(dollars in thousands)
Tangible capital:
Capital level $ 31,595 7.44%
Less Requirement 6,372 1.50%
--------- ----
Excess $ 25,223 5.94%
========= ====
Core capital:
Capital level $ 31,595 7.44%
Less Requirement 16,991 4.00%
--------- ----
Excess $ 14,604 3.44%
========= ====
Risk-based capital:
Capital level $ 34,710 12.34%
Less Requirement 22,497 8.00%
--------- ----
Excess $ 12,213 4.34%
========= ====
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, calls and proceeds from
the sale of securities). During the first six months of 2003 and 2002, principal
payments, repayments and proceeds from sale of loans totaled $98.1 million and
$53.0 million, respectively. The net increase in deposits during the first six
months of 2003 and 2002 totaled $13.3 million and $11.9 million, respectively.
The proceeds from borrowed funds during the six months ended June 30, 2003 and
2002 totaled $17.5 million and $27.0 million, respectively. The net change in
short term borrowings during the six months ended June 30, 2002 totaled
$750,000. During the first six months of 2003 and 2002, the proceeds from the
maturities, calls and sales of securities totaled $2.0 million and $6.0 million,
respectively. Cash provided from operating activities during the first six
months of 2003 and 2002 totaled $5.3 million and $2.8 million, respectively. 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. During the first six months of 2003 and 2002, the
Company's gross purchases and origination of loans totaled $106.9 million and
$101.2 million, respectively. The purchase of securities available for sale for
the six months ended June 30, 2003 and 2002 totaled $10.9 million and $273,000,
respectively. The repayment of borrowed funds during the first six months of
2003 and 2002 totaled $5.1 million and $15.6 million, respectively. 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 Company to maintain sufficient liquidity to
ensure its safe and sound operation.
The Company has a line of credit agreement in the amount of $3.0 million with an
unaffiliated bank. As of June 30, 2003, there were no borrowings outstanding on
this line of credit. The Company may use this line of credit to fund stock
repurchases in the future and for general corporate purposes.
Stockholders' equity totaled $39.3 million at June 30, 2003 compared to $38.7
million at December 31, 2002, reflecting the Company's earnings, stock issued,
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 income. The Company repurchased 90,400 shares of common
stock during the six months ended June 30, 2003 at an average price of $33.95.
On April 7, 2003, the Company paid a quarterly cash dividend of $0.21 per share
on common stock outstanding as of the close of business on March 17, 2003,
aggregating $339,000. On May 23, 2003, the Company declared a quarterly cash
dividend of $0.21 per share payable on July 7, 2003 to shareholders of record as
of the close of business on June 16, 2003, aggregating $335,000.
7
RESULTS OF OPERATIONS
Interest Income. Interest income decreased by $320,000 to $6.4 million for the
three months ended June 30, 2003 compared to $6.8 million for the three months
ended June 30, 2002. The decrease in interest income was primarily due to a
decrease in the average yield on interest earning assets, offset in part by an
increase in the average interest bearing assets. The yield on interest earning
assets decreased to 6.35% for the three months ended June 30, 2003 from 7.14%
for the three months ended June 30, 2002. The decrease in average yields was due
primarily to a decrease in the average yield on loans, securities available for
sale and interest-bearing cash. The average yield on loans decreased to 6.87%
for the three months ended June 30, 2003 from 7.60% for the three months ended
June 30, 2002. The average yield on securities available for sale decreased to
4.19% for the three months ended June 30, 2003 from 4.66% for the three months
ended June 30, 2002. The average yield on interest bearing cash decreased to
0.85% for the three months ended June 30, 2003 from 1.40% for the three months
ended June 30, 2002. The decrease in the average yields on assets was primarily
due to decreases in market interest rates. The average balance of interest
earning assets increased $26.3 million to $405.1 million for the three months
ended June 30, 2003 from $378.8 million for the three months ended June 30,
2002. This increase was primarily due to higher levels of loans, securities
available for sale and interest bearing cash. The increase in the average
balance of loans generally reflects originations over the past twelve months of
first mortgage loans, second mortgage loans and purchases of first mortgage
loans secured primarily by one-to four-family residential, multifamily and
commercial real estate loans, offset in part by payments, sales and prepayments
of loans. The increase in the average balance of securities available for sale
generally reflects purchases over the past twelve months, offset in part by
proceeds from the maturity of securities available for sale. See "Financial
Condition."
Interest income decreased by $324,000 to $13.0 million for the six months ended
June 30, 2003 compared to $13.3 million for the six months ended June 30, 2002.
.. The decrease in interest income was primarily due to a decrease in the average
yield on interest earning assets, offset in part by an increase in the average
interest bearing assets. The yield on interest earning assets decreased to 6.51%
for the six months ended June 30, 2003 from 7.13% for the six months ended June
30, 2002. The decrease in average yields was due primarily to a decrease in the
average yield on loans, securities available for sale and interest-bearing cash.
The average yield on loans decreased to 6.99% for the six months ended June 30,
2003 from 7.66% for the six months ended June 30, 2002. The average yield on
securities available for sale decreased to 4.30% for the six months ended June
30, 2003 from 4.87% for the six months ended June 30, 2002. The average yield on
interest bearing cash decreased to 0.85% for the six months ended June 30, 2003
from 1.40% for the six months ended June 30, 2002. The decrease in the average
yields on assets was primarily due to decreases in market interest rates. The
average balance of interest earning assets increased $26.0 million to $399.2
million for the six months ended June 30, 2003 from $373.2 million for the six
months ended June 30, 2002. This increase was primarily due to higher levels of
loans and securities available for sale. The increase in the average balance of
loans generally reflects originations over the past twelve months of first
mortgage loans, second mortgage loans and purchases of first mortgage loans
secured primarily by one-to four-family residential, multifamily and commercial
real estate loans, offset in part by payments, sales and prepayments of loans. .
The increase in the average balance of securities available for sale generally
reflects purchases over the past twelve months, offset in part by proceeds from
the maturity and sale of securities available for sale. See "Financial
Condition."
Interest Expense. Interest expense decreased by $362,000 to $3.1 million for the
three months ended June 30, 2003 compared to $3.5 million for the three months
ended June 30, 2002. 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 balances of interest bearing liabilities. The average
cost of interest bearing liabilities decreased to 3.35% for the three months
ended June 30, 2003 from 4.00% for the three months ended June 30, 2002. The
decrease in the average cost of interest bearing liabilities was due primarily
to decreases in all categories of interest bearing liabilities. The average cost
of NOW and money market accounts decreased to 0.64% for the three months ended
June 30, 2003 from 0.96% for the three months ended June 30, 2002. The average
cost of savings accounts decreased to 0.54% for the three months ended June 30,
2003 from 1.25% for the three months ended June 30, 2002. The average cost of
certificates of deposit decreased to 4.08% for the three months ended June 30,
2003 from 4.77% for the three months ended June 30, 2002. The average cost of
borrowed funds decreased to 4.62% for the three months ended June 30, 2003 from
5.36% for the three months ended June 30, 2002. The decrease in the average cost
of funds was primarily due to decreases in market interest rates. The average
balance of interest bearing liabilities increased $25.1 million to $375.8
million for
8
RESULTS OF OPERATIONS (Continued)
the three months ended June 30, 2003 from $350.8 million for the three months
ended June 30, 2002. This increase was due primarily to an increase in NOW
accounts, money market accounts, savings accounts, certificates of deposit and
borrowed funds.
Interest expense decreased by $675,000 to $6.3 million for the six months ended
June 30, 2003 compared to $7.0 million for the six months ended June 30, 2002.
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 balances of interest bearing liabilities. The average cost of interest
bearing liabilities decreased to 3.45% for the six months ended June 30, 2003
from 4.07% for the six months ended June 30, 2002. The decrease in the average
cost of interest bearing liabilities was due primarily to decreases in all
categories of interest bearing liabilities. The average cost of NOW and money
market accounts decreased to 0.68% for the six months ended June 30, 2003 from
0.99% for the six months ended June 30, 2002. The average cost of savings
accounts decreased to 0.66% for the six months ended June 30, 2003 from 1.26%
for the six months ended June 30, 2002. The average cost of certificates of
deposit decreased to 4.19% for the six months ended June 30, 2003 from 4.89% for
the six months ended June 30, 2002. The average cost of borrowed funds decreased
to 4.68% for the six months ended June 30, 2003 from 5.49% for the six months
ended June 30, 2002. The decrease in the average cost of funds was primarily due
to decreases in market interest rates. The average balance of interest bearing
liabilities increased $23.8 million to $369.8 million for the six months ended
June 30, 2003 from $346.0 million for the six months ended June 30, 2002. This
increase was due primarily to an increase in NOW accounts, money market
accounts, savings accounts, certificates of deposit and borrowed funds.
Net Interest Income. Net interest income before the provision for loan losses
increased by $42,000 to $3.3 million for the three months ended June 30, 2003
from $3.3 million for the three months ended June 30, 2002. The increase is due
primarily to an increase in the average balance of interest earning assets,
offset in part by a narrowing interest rate spread. The interest rate spread
(i.e., the difference in the average yield on assets and average cost of
liabilities) decreased to 3.00% for the three months ended June 30, 2003 from
3.14% for the three months ended June 30, 2002.
Net interest income before the provision for loan losses increased by $352,000
to $6.7 million for the six months ended June 30, 2003 from $6.3 million for the
six months ended June 30, 2002. The increase is due primarily to an increase in
the average balance of interest earning assets. The interest rate spread (i.e.,
the difference in the average yield on assets and average cost of liabilities)
was 3.06% for the six months ended June 30, 2003 and 2002.
9
RESULTS OF OPERATIONS (Continued)
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 six month periods ended June 30, 2003 and 2002,
respectively.
For the Three Months Ended June 30,
--------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 353,505 $ 6,064 6.87% $ 337,506 $ 6,407 7.60%
Securities available for sale 32,002 336 4.19 25,621 299 4.66
Interest bearing cash 19,565 41 0.85 15,650 55 1.40
--------- --------- ------ --------- -------- ------
Total interest-earning assets 405,072 6,441 6.35% 378,777 $ 6,761 7.14%
--------- ------ -------- ------
Noninterest-earning assets 22,777 19,846
--------- ---------
Total assets $ 427,849 $ 398,623
========= =========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings $ 66,888 $ 106 0.64% $ 61,016 $ 146 0.96%
Passbook savings 27,642 38 0.54 24,924 78 1.25
Certificates of deposit 183,340 1,863 4.08 180,447 2,146 4.77
Borrowed funds 97,978 1,130 4.62 84,410 1,129 5.36
--------- --------- ------ --------- -------- ------
Total interest-bearing liabilities 375,848 $ 3,137 3.35% 350,797 $ 3,499 4.00%
--------- ------ -------- ------
Noninterest-bearing liabilities 12,884 10,858
--------- ---------
Total liabilities 388,732 361,655
Equity 39,117 36,968
--------- ---------
Total liabilities and equity $ 427,849 $ 398,623
========= =========
Net interest income $ 3,304 $ 3,262
======== ========
Net interest rate spread 3.00% 3.14%
====== ======
Net interest margin 3.26% 3.44%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.78% 107.98%
====== ======
For the Six Months Ended June 30,
--------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 350,512 $ 12,232 6.99% $ 327,178 $ 12,500 7.66%
Securities available for sale 30,597 658 4.30 27,095 660 4.87
Interest bearing cash 18,137 77 0.85 18,950 131 1.40
--------- --------- ------ --------- --------- ------
Total interest-earning assets 399,246 $ 12,967 6.51% 373,223 $ 13,291 7.13%
--------- ------ --------- ------
Noninterest-earning assets 21,955 19,488
--------- ---------
Total assets $ 421,201 $ 392,711
========= =========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings $ 64,970 $ 220 0.68% $ 62,151 $ 306 0.99%
Passbook savings 27,133 89 0.66 24,246 151 1.26
Certificates of deposit 181,772 3,779 4.19 179,172 4,347 4.89
Borrowed funds 95,920 2,228 4.68 80,443 2,188 5.49
--------- --------- ------ --------- ----- ------
Total interest-bearing liabilities 369,795 $ 6,316 3.45% 346,012 $ 6,992 4.07%
--------- ------ --------- ------
Noninterest-bearing liabilities 12,385 10,056
--------- ---------
Total liabilities 382,180 356,068
Equity 39,021 36,643
--------- ---------
Total liabilities and equity $ 421,201 $ 392,711
========= =========
Net interest income $ 6,651 $ 6,299
========= =========
Net interest rate spread 3.06% 3.06%
====== ======
Net interest margin 3.33% 3.38%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.96% 107.86%
====== ======
10
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $60,000
and $90,000 for the three months ended June 30, 2003 and 2002, respectively. The
Company's provision for loan losses was $120,000 and $270,000 for the six months
ended June 30, 2003 and 2002, 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 $74,000 for the six months ended June 30,
2003 as compared to net charge offs of $35,000 for the six months ended June 30,
2002. The resulting allowance for loan losses was $3.2 million, $3.1 million and
$3.1 million at June 30, 2003, December 31, 2002 and June 30, 2002,
respectively.
The allowance for loan losses as a percentage of total loans receivable was
0.90%, 0.90% and 0.90% at June 30, 2003, December 31, 2002 and June 30, 2002,
respectively. The level of nonperforming loans was $651,000 at June 30, 2003,
$643,000 at December 31, 2002 and $795,000 at June 30, 2002.
The allowance for loan losses is management's best estimates of probable losses
inherent in the loan portfolio as of the balance sheet date. 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 $313,000 to $1.7
million for the three months ended June 30, 2003 from $1.4 million for the three
months ended June 30, 2002. The increase is due to increases in fees and service
charges, abstract fees, mortgage banking income and other income. Fees and
service charges increased $30,000, primarily due to fees associated with NOW
accounts, including overdraft fees. Abstract fees increased $93,000, primarily
due to increased sales volume. Sales volume increased in part due to a general
increase in real estate activity. Mortgage banking income increased $168,000 due
in part to increase in loan originations resulting from lower interest rates.
Other income increased $22,000, primarily due to an increase in rent income due
to the opening of a second multifamily apartment building in March, 2003.
Total noninterest income increased by $392,000 to $3.1 million for the six
months ended June 30, 2003 from $2.7 million for the six months ended June 30,
2002. The increase is due to increases in abstract fees and mortgage banking
income. Abstract fees increased $130,000, primarily due to increased sales
volume. Sales volume increased in part due to a general increase in real estate
activity. Mortgage banking income increased $235,000 due in part to increase in
loan originations resulting from lower interest rates.
Noninterest Expense. Total noninterest expense increased by $249,000 to $2.7
million for the three months ended June 30, 2003 from $2.4 million for the three
months ended June 30, 2002. The increase is due primarily to increases in
salaries and employee benefits, data processing and other expenses. The increase
in salaries and employee benefits was due in part to increases in employee
benefit costs, an increase in personnel in the Ankeny, Iowa office and ordinary
salary increases. The increase in data processing costs was due in part to
increases in internet banking costs, consulting costs and ordinary cost
increases. The increase in other expenses were due in part to increases in
marketing costs in conjunction with a direct mail checking account promotion,
increased costs associated with Northridge Apartments Limited Partnership and
the increased costs associated with the opening of a second multifamily
apartment building in March, 2003. Other increases in noninterest expense were
partially due to the Bank relocating its Ankeny office to a newly constructed
5,000 square foot branch office in February, 2003. The Company's efficiency
ratio for the three months ended June 30, 2003 and 2002 was 53.05% and 51.75%,
respectively. The Company's ratio of noninterest expense to average assets for
the three months ended June 30, 2003 and 2002 was 2.48% and 2.41%, respectively.
Total noninterest expense increased by $441,000 to $5.2 million for the six
months ended June 30, 2003 from $4.8 million for the six months ended June 30,
2002. The increase is due primarily to increases in salaries and
11
RESULTS OF OPERATIONS (Continued)
employee benefits, data processing and other expenses. The increase in salaries
and employee benefits was due in part to increases in employee benefits, an
increase in personnel in the Ankeny, Iowa office and ordinary salary increases.
The increase in data processing was due in part to increases in internet banking
costs and ordinary cost increases. The increase in other expenses were due in
part to increases in marketing costs in conjunction with a direct mail checking
account promotion, increased costs associated with Northridge Apartments Limited
Partnership, the increased costs associated with the opening of a second
multifamily apartment building in March, 2003 and increased insurance costs,
offset in part by lower professional fees. Other increases in noninterest
expense were partially due to the Bank relocating its Ankeny office to a newly
constructed 5,000 square foot branch office in February, 2003. The Company's
efficiency ratio for the six months ended June 30, 2003 and 2002 was 53.49% and
53.01%, respectively. The Company's ratio of noninterest expense to average
assets for the six months ended June 30, 2003 and 2002 was 2.47% and 2.43%,
respectively.
Income Taxes. Income taxes increased by $33,000 to $762,000 for the three months
ended June 30, 2003 as compared to $729,000 for the three months ended June 30,
2002, primarily due to an increase in net income before income taxes and a
decrease in nontaxable income, partially offset by federal income tax credit
from Northridge Apartments Limited Partnership II.
Income taxes increased by $76,000 to $1.4 million for the six months ended June
30, 2003 as compared to $1.3 million for the six months ended June 30, 2002,
primarily due to an increase in net income before income taxes and a decrease in
nontaxable income, partially offset by a one time state tax credit which
decreased income tax expense by approximately $100,000 and a federal income tax
credit from Northridge Apartments Limited Partnership II.
Net Income. Net income increased by $104,000 to $1.5 million for the three
months ended June 30, 2003, as compared to $1.4 million for the same period in
2002.
Net income increased by $376,000 to $3.0 million for the six months ended June
30, 2003, as compared to $2.7 million for the same period in 2002.
12
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, 2002 as reported in Item 7A of the Annual Report on Form 10-K.
ITEM 4.
CONTROLS AND PROCEDURES
Management, including the Company's Chief Executive Officer and Treasurer, has
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(e)) as of the end of the
period covered by this report. Based upon that evaluation, the Chief Executive
Officer and Treasurer concluded that the disclosure controls and procedures were
effective, in all material respects, to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required.
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during the
Company's last fiscal quarter that has materially affected, or that is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
13
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
The Company held its 2003 Annual Meeting of Stockholders on April 25,
2003. All proposals submitted to stockholders at the meeting were
approved. At the meeting, the stockholders of the Company considered
and voted upon the following matters:
1. The election of the following individuals as directors for a
three-year term:
David M. Bradley
Robert H. Singer, Jr.
The results of the election of directors are as follows:
Votes
-----
In favor Withheld
-------- --------
David M. Bradley 1,426,864 22,561
Robert H. Singer, Jr. 1,426,864 22,561
There were no broker non-votes or abstentions on this proposal.
The following directors' terms of office continued after the meeting:
Mark M. Thompson
Melvin R. Schroeder
KaRene Egemo
Craig R. Barnes
2. The ratification of the engagement of McGladrey & Pullen LLP, as
the Company's independent auditors for the 2003 fiscal year, was
approved by a vote of 1,440,428 in favor, 3,590 votes against and 5,407
votes abstaining.
There were no broker non-votes on this proposal.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification pursuant to Section 302 of the Sarbanes
Oxley Act of 2002
Exhibit 32.1 Certification pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
Exhibit 99.1 Press Release, dated April 24, 2003 (regarding 2003 first
quarter earnings)
Exhibit 99.2 Press Release, dated May 23, 2003 (regarding declaration
of dividend)
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 25, 2003 furnishing to the
Commission a press release announcing the Company's earnings for the
period ended March 31, 2003.
14
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: August 13, 2003 BY: /s/David M. Bradley
-----------------------------------------
David M. Bradley, Chairman, President and
Chief Executive Officer
DATE: August 13, 2003 BY: /s/John L. Pierschbacher
---------------------------
John L. Pierschbacher
Principal Financial Officer
15