UNITED STATES
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 or March 31, 2006
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[ ] 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
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NORTH CENTRAL BANCSHARES, INC.
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(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 No.)
825 Central Avenue, Fort Dodge, Iowa 50501
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(Address of principal executive offices) (Zip Code)
515-576-7531
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(Registrant's telephone number, including area code)
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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 by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer | | Accelerated filer | | Non-accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (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 May 1, 2006
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Common Stock, $.01 par value 1,430,053
NORTH CENTRAL BANCSHARES, INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Condensed
Financial Statements (Unaudited) 1
Consolidated Condensed Statements of
Financial Condition at March 31, 2006
and December 31, 2005 1
Consolidated Condensed Statements of
Income for the three months ended
March 31, 2006 and 2005 2
Consolidated Condensed Statements of
Cash Flows for the three months ended
March 31, 2006 and 2005 3
Notes to Consolidated Condensed Financial
Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 4. Controls and Procedures 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits 15
Signatures 17
Exhibits
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
ASSETS 2006 2005
---- ----
Cash and due from banks:
Interest-bearing $ 92,139 $ 552,456
Noninterest-bearing 7,871,084 8,087,216
Securities available-for-sale 16,715,470 15,457,942
Federal Home Loan Bank stock, at cost 5,405,500 5,250,100
Loans receivable, net 437,273,967 430,278,191
Loans held for sale 88,350 737,838
Accrued interest receivable 2,113,046 2,146,102
Foreclosed real estate 835,773 1,142,901
Premises and equipment, net 11,417,523 10,962,248
Rental real estate 2,683,133 2,684,484
Title plant 925,256 925,256
Goodwill 4,970,800 4,970,800
Deferred taxes 926,574 953,676
Prepaid expenses and other assets 1,010,546 1,041,915
------------- -------------
Total assets $ 492,329,161 $ 485,191,125
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 338,955,841 $ 334,337,583
Borrowed funds 107,436,920 102,443,743
Advances from borrowers for taxes and insurance 1,182,061 1,897,511
Dividends payable 476,867 438,684
Accrued expenses and other liabilities 2,165,678 1,795,104
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Total liabilities 450,217,367 440,912,625
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized
3,000,000 shares; none issued and outstanding) - -
Common stock ($.01 par value, authorized 15,500,000
shares; issued and outstanding at March 31, 2006,
1,430,053; at December 31, 2005, 1,507,703 shares) 14,301 15,077
Additional paid-in capital 17,900,623 18,447,059
Retained earnings, substantially restricted 24,142,919 25,847,345
Accumulated other comprehensive gain (loss) 53,951 (15,284)
Unearned shares, employee stock ownership plan - (15,697)
------------- -------------
Total stockholders' equity 42,111,794 44,278,500
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Total liabilities and stockholders' equity $ 492,329,161 $ 485,191,125
============= =============
See Notes to Consolidated Condensed Financial Statements
1
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2006 2005
---- ----
Interest income:
Loans receivable $ 6,529,897 $ 6,074,537
Securities and cash deposits 245,193 233,436
----------- -----------
6,775,090 6,307,973
----------- -----------
Interest expense:
Deposits 2,219,434 1,801,034
Borrowed funds 1,232,438 1,095,449
----------- -----------
3,451,872 2,896,483
----------- -----------
Net interest income 3,323,218 3,411,490
Provision for loan losses 60,000 50,000
----------- -----------
Net interest income after provision for
loan losses 3,263,218 3,361,490
----------- -----------
Noninterest income:
Fees and service charges 1,259,050 830,543
Abstract fees 332,874 276,261
Provision for impairment on available-for-sale securities - (255,000)
Mortgage banking income 37,615 40,688
Other income 296,006 296,011
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Total noninterest income 1,925,545 1,188,503
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Noninterest expense:
Compensation and employee benefits 1,882,159 1,578,679
Premises and equipment 389,960 349,979
Data processing 161,773 141,773
Other expenses 942,165 850,647
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Total noninterest expense 3,376,057 2,921,078
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Income before income taxes 1,812,706 1,628,915
Provision for income taxes 571,750 553,380
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Net income $ 1,240,956 $ 1,075,535
=========== ===========
Basic earnings per common share $ 0.84 $ 0.70
=========== ===========
Diluted earnings per common share $ 0.82 $ 0.68
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Dividends declared per common share $ 0.33 $ 0.29
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Comprehensive income $ 1,310,192 $ 1,312,461
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See Notes to Consolidated Condensed Financial Statements.
2
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2006 2005
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,240,956 $ 1,075,535
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 60,000 50,000
Depreciation 167,166 201,235
Amortization and accretion 111,904 115,855
Deferred taxes (14,134) (33,482)
Effect of contribution to employee stock ownership plan 59,958 68,383
(Gain) on sale of foreclosed real estate and loans, net (48,170) (69,986)
Provision for impairment of available-for-sale securities - 255,000
Write-down of other real estate owned 73,118 -
Loss on disposal of equipment and premises, net - 25,340
Proceeds from sales of loans held for sale 2,769,584 3,120,463
Originations of loans held for sale (2,082,481) (2,817,238)
Change in assets and liabilities:
Accrued interest receivable 33,056 (32,397)
Prepaid expenses and other assets 31,369 (181,982)
Accrued expenses and other liabilities 370,574 339,453
------------ -------------
Net cash provided by operating activities 2,772,900 2,116,179
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans 8,758,162 1,759,970
Purchase of loans (15,748,011) (10,269,382)
Proceeds from sales of securities available-for-sale 183,900 389,800
Purchase of securities available-for-sale (1,833,966) (509,500)
Proceeds from maturities of securities available-for-sale 343,634 571,806
Purchase of premises and equipment and rental real estate (621,090) (1,010,792)
Other 70,710 270,210
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Net cash (used in) investing activities (8,846,661) (8,797,888)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,618,258 4,404,374
Net (decrease) in advances from borrowers for taxes and insurance (715,450) (654,304)
Net change in short-term borrowings (1,000,000) 4,200,000
Proceeds from other borrowed funds 10,000,000 2,000,000
Payments on other borrowings (4,006,823) (3,006,565)
Purchase of treasury stock (3,330,819) -
Dividends paid (434,880) (380,603)
Issuance of common stock 267,026 195,769
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Net cash provided by financing activities 5,397,312 6,758,671
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Net increase (decrease) in cash (676,449) 76,962
CASH AND DUE FROM BANKS
Beginning 8,639,672 7,918,179
------------ -------------
Ending $ 7,963,223 $ 7,995,141
============= =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 2,126,890 $ 1,806,666
Interest paid on borrowings 1,232,416 1,095,424
Income taxes - 52,269
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 month periods
ended March 31, 2006 and 2005 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 that 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 2005 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 March
31, 2006, the weighted average number of shares outstanding for basic and
diluted earnings per share computation were 1,475,911 and 1,507,748,
respectively. For the three-month period ended March 31, 2005, the weighted
average number of shares outstanding for basic and diluted earnings per share
computation were 1,526,643 and 1,577,802, respectively.
3. DIVIDENDS
On February 24, 2006, the Company declared a cash dividend on its common stock,
payable on April 6, 2006 to stockholders of record as of March 17, 2006, equal
to $0.33 per share.
4. GOODWILL
As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) 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, 2005 and has
determined that there has been no impairment of goodwill.
As of March 31, 2006 and December 31, 2005, 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
months ended March 31, 2006 or March 31, 2005.
5. STOCK OPTION PLAN
On March 31, 2006, the Company had a share-based compensation plan, which is
described below. The share-based compensation charged against income was $51,621
for the three months ended March 31, 2006. The total income tax benefit
recognized in the income statement for the share-based compensation was $19,255
for the three months ended March 31, 2006.
In 1996, the shareholders of the Company ratified the 1996 Incentive Stock
Option Plan (the "Plan"), which permits the grant of 441,105 shares of common
stock to its directors and employees. The Plan is intended to promote stock
ownership by directors and selected officers of the Company to increase their
proprietary interest in the success of the Company and to encourage them to
remain in the employment of the Company or
4
its subsidiaries. Awards granted under the Plan may include incentive stock
options, nonqualified stock options, and limited rights which are exercisable
only upon change in control of First Federal Savings Bank of Iowa (the "Bank")
or the Company. The Plan provides for the grant of options at an exercise price
equal to the market price of the Company's stock on the date of grant. The
option awards have a 10-year contractual term. Options granted to officers vest
in five equal annual installments commencing on the first anniversary of the
grant date and continuing each anniversary date thereafter. The options granted
to officers expire ten years from the date of grant unless an earlier expiration
date is triggered by death, disability, retirement or termination, as described
in the Plan. Options granted to directors are vested immediately and expire ten
years from the date of grant, unless an earlier expiration date is triggered by
removal for cause. All awards to date are nonqualified stock options.
On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment.
This Statement revised SFAS Statement No. 123, Accounting for Stock-Based
Compensation, amends SFAS Statement No. 95, Statement of Cash Flows, and
supersedes Accounting Principles Board (APB) Opinion No. 125, Accounting for
Stock Issued to Employees. Upon adoption of SFAS No. 123(R), the Company used
the modified prospective transition method. The modified prospective method
requires that compensation expense be recorded for all non-vested options
beginning with the first quarter after adoption. SFAS No. 123(R) requires that
all share-based compensation now be measured at fair value and recognized as an
expense in the income statement. The Company estimates the fair value of each
option award on the date of grant using the Black-Scholes method. The Company
uses historical data to estimate the expected term of the options granted,
volatilities, and other factors. Expected volatilities are based on the
historical volatility of the Company's stock over a period of time. The
risk-free rate for periods within the contractual life of the option is based on
the U.S. Treasury yield curve in effect at the time of grant. The dividend rate
is equal to the dividend rate in effect on the date of grant. The Company used
the following weighted-average assumptions for grants in 2006 and 2005,
respectively: dividend rates of 3.3% and 2.4%, price volatility of 11.3% and
14.5%, risk-free interest rates of 4.4% and 4.0%, and expected lives of 8 years
for all periods.
A summary of option activity under the Plan as of March 31, 2006, and changes
during the quarter ended March 31, 2006, is presented below:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Shares Price Term Value
------- ------ --------- ----------- -----
Outstanding at January 1, 2006 102,600 $25.90
Granted 23,000 38.46
Exercised (8,200) 19.41
Forfeited or expired - -
Outstanding at March 31, 2006 117,400 $28.82 6.3 $1,268,503
------- ----- --- ----------
Vested/exercisable at March 31, 2006 79,300 $24.83 4.9 $1,176,488
------- ----- --- ----------
The weighted-average grant-date fair value of options granted during the
quarters ended March 31, 2006 and 2005, was $4.91 and $7.47, respectively. The
total intrinsic value of options exercised during the quarters ended March 31,
2006 and 2005, was $150,710 and $209,818, respectively.
A summary of the Company's nonvested shares as of March 31, 2006, and changes
during the quarter ended March 31, 2006, is presented below:
Weighted-
Average
Grant-Date
Nonvested Shares Shares Fair Value
---------------- ------ ----------
Nonvested at January 1, 2006 26,500 $ 5.83
Granted 23,000 4.91
Vested (11,400) 5.15
Forfeited - -
-------
Nonvested at March 31, 2006 38,100 5.47
-------
5
As of March 31, 2006, there was $179,925 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted-average period of
4.5 years. The total fair value of shares vested during the quarter ended March
31, 2006, was $58,707.
The pro forma disclosures previously permitted under SFAS No. 123, Accounting
for Stock-Based Compensation, are no longer an alternative to financial
statement recognition. SFAS No. 123 established a fair value based method for
financial accounting and reporting for stock-based employee compensation plans
and for transactions in which an entity issued its equity instruments to acquire
goods and services from nonemployees. However, the standard allowed compensation
to continue to be measured by using the intrinsic value based method of
accounting prescribed by APB No. 25, Accounting for Stock Issued to Employees,
but required expanded disclosures. The Company had elected to apply the
intrinsic value based method of accounting for stock options issued to
employees. Accordingly, prior to January 1, 2006, no compensation cost had been
recognized by the Company in its financial statements. Had compensation cost for
the Plan been determined based on the grant date fair values of awards (the
method described in SFAS 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
March 31, 2005
--------------
Net income, as reported $ 1,075,535
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (32,608)
-----------
Pro forma net income $ 1,042,927
===========
Earnings per common share - basic:
As reported $ 0.70
Pro forma 0.68
Earnings per common share - assuming dilution:
As reported $ 0.68
Pro forma 0.66
6. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 155, Accounting for Certain
Hybrid Financial Instruments. SFAS No.155 is an amendment of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and SFAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement eliminates the exemption from applying Statement
133 to interests in securitized financial assets so that similar instruments are
accounted for similarly regardless of the form of the instruments. The Statement
also allows an entity to elect fair value measurement at acquisition, at
issuance, or when a previously recognized financial instrument is subject to a
remeasurement event, on an instrument-by-instrument basis. This Statement is
effective for the Company beginning on January 1, 2007. The Company does not
expect this Statement to have a material effect on its financial condition or
results of operations.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets. SFAS No. 156 is an amendment of SFAS No. 140. SFAS No. 156
requires an entity to recognize a servicing asset or liability each time it
undertakes an obligation to service a financial asset and requires each
servicing asset or liability to be initially measured at fair value. Entities
are permitted to choose the fair value measurement method or the amortization
method for subsequent reporting periods. This Statement is effective for the
Company beginning on January 1, 2007. The Company is assessing the impact of
this pronouncement.
7. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified,
with no effect on net income or stockholders' equity, to be consistent with the
current period classification.
6
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 consolidated financial condition,
results of operations and business of the Company and its subsidiaries,
including the Bank, 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 herein.
Executive Overview
The Company's business strategy is to operate the Bank as a well-capitalized,
profitable and independent community-oriented savings bank. Specifically, the
Company's business strategy incorporates the following elements: (1) increasing
loan and deposit balances in existing branch offices as well as by establishing
de novo branch offices in markets where population growth trends are positive,
such as the Des Moines, Iowa metropolitan area; (2) maintaining high asset
quality by emphasizing investment in residential mortgage, multifamily and
commercial real estate loans and consumer loans; (3) emphasizing growth in core
deposits, which includes demand deposit, NOW, money market and savings accounts;
(4) maintaining capital in excess of regulatory requirements; (5) controlling
noninterest expense; (6) managing interest rate risk exposure; and (7)
increasing noninterest income through increases in fees, service charges and
sales of noninsured products.
The purpose of this summary is to provide an overview of the items that
management focuses on when evaluating the condition of the Company and our
success in implementing our stockholder value strategy. Our stockholder value
strategy has three major themes: (1) enhancing our shareholders' value; (2)
making our retail banking franchise more valuable; and (3) efficiently utilizing
our capital.
Management believes the following points were the most important to that
analysis this quarter:
o The Company has effectively managed its capital since the Company's
inception in 1996. Annual dividends per share have increased from $.25 per
share in 1997 to $1.16 per share in 2005. During the first quarter of 2006,
the Company increased its quarterly dividend 13.8%, to $0.33 per share. An
active stock repurchase program has also been consistently used by the
Company to manage capital and increase earnings per share. During the first
quarter of 2006, the Company approved two separate Stock Repurchase Plans.
The Company repurchased 85,850 shares during the three months ended March
31, 2006. As of March 31, 2006, the Company has repurchased 2,871,404
shares at a cost of $54.5 million, since its inception.
o The Bank has opened new offices in market areas where population growth
trends are positive. New offices were opened in Ankeny, Iowa in February
2003 and in Clive, Iowa in March, 2004. In October 2005, the Bank began
construction of a new branch office in West Des Moines, Iowa near Jordan
Town Center Mall. The Bank expects to open this office in July 2006. These
locations are in suburbs of Des Moines, Iowa, which is Iowa's largest
metropolitan area. The Company will continue to analyze de novo branch
opportunities in the Des Moines metropolitan area. Noninterest expenses
have increased during the quarter ended March 31, 2006 and the years ended
December 31, 2005, 2004 and 2003 in part due to the Company's strategy of
opening de novo branch offices. We believe that this strategy will result
in loan and deposit growth for the Company, but will negatively impact net
earnings until each de novo branch achieves profitability.
7
o On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment. SFAS No. 123(R) requires that
all share-based compensation now be measured at fair value and recognized
as expense in the income statement. Upon adoption of SFAS No. 123(R), the
Company used the modified prospective transition method. The modified
prospective method requires that compensation expense be recorded for all
non-vested options beginning with the first quarter after adoption.
Share-based compensation for the three months ended March 31, 2006 was
$51,621.
o The Company's exposure to interest rate risk has increased from the prior
year. This is primarily due to the growth of interest-bearing liabilities
in higher cost certificates of deposit and borrowed funds. Also
contributing to the increase of the cost of funds is the shift of lower
cost non-maturing deposits into higher cost short-term certificates of
deposit.
o Noninterest income for the quarter ended March 31, 2006, included $352,000
in loan prepayment fees, compared to $98,000 for the quarter ended March
31, 2005. The increase in noninterest income was also due to the $255,000
provision for impairment of available-for-sale securities recorded in the
first quarter of 2005.
o Management believes that the allowance for loan losses is adequate. The
allowance for loan losses to nonaccrual loans was 266% at March 31, 2006.
Net annualized chargeoffs for the quarter ended March 31, 2006 was 0.05% of
total loans and have averaged 0.05% of total loans for the past five years.
During the three months ended March 31, 2006, the Company's net loan
portfolio increased $7.0 million, or 1.6%. A significant portion of this
increase consisted of increases in multifamily and commercial real estate
loans. The Company's provision for loan losses for the three months ended
March 31, 2006 was $60,000.
o Purchases of out of state real estate loans remain an integral part of the
Company's business plan. The Company has continued to purchase out of state
real estate loans to supplement local mortgage loan originations and to
diversify its mortgage loan portfolio geographically.
FINANCIAL CONDITION
Total assets increased $7.1 million, or 1.5%, to $492.3 million at March 31,
2006, from $485.2 million at December 31, 2005. The increase in assets was
primarily due to the increase in net loans receivable.
Loans receivable, net, increased by $7.0 million, or 1.6%, to $437.3 million at
March 31, 2006, from $430.3 million at December 31, 2005, primarily due to the
purchase of $15.7 million of first mortgage loans secured by commercial real
estate, multifamily, and one-to-four family residences; the origination of $7.2
million of first mortgage loans primarily secured by one-to-four family
residences and commercial real estate; and the origination of $6.8 million of
second mortgage loans during the three months ended March 31, 2006. These
purchases and originations were offset in part by payments and prepayments of
$25.1 million and loan sales of $2.7 million during the three months ended March
31, 2006. The Company sells substantially all fixed-rate loans with maturities
in excess of 15 years in the secondary mortgage market in order to reduce
interest rate risk.
Deposits increased $4.6 million, or 1.4%, to $338.9 million at March 31, 2006,
from $334.3 million at December 31, 2005, primarily reflecting an increase in
certificates of deposit. The increase in deposits is primarily due to the
utilization of brokered certificates of deposit, which increased $3.9 million
for the quarter ended March 31, 2006. Borrowings, primarily Federal Home Loan
Bank (the "FHLB") advances, increased $5.0 million, or 4.9%, to $107.4 million
at March 31, 2006, from $102.4 million at December 31, 2005. The Company
utilized the increase in deposits and borrowed funds to fund loan growth.
Total stockholders' equity decreased $2.2 million, or 4.9%, to $42.1 million at
March 31, 2006, from $44.2 million at December 31, 2005, primarily due to stock
repurchases and declared dividends, offset in part by earnings, the exercise of
stock options, and an increase in the unrealized gain on securities
available-for-sale. During the quarter ended March 31, 2006, the Company
repurchased $3.3 million, or 85,850 shares, of common stock at prevailing market
prices averaging $38.80 per share.
8
The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum
tangible, leverage (core) and risk-based capital requirements. As of March 31,
2006, the Bank exceeded all of its regulatory capital requirements. The Bank's
required, actual and excess capital levels as of March 31, 2006 were as follows:
Amount Percentage of Assets
-------- --------------------
(Dollars in thousands)
Tangible capital:
Capital level $ 35,370 7.26%
Less Requirement 7,312 1.50%
-------- ----
Excess $ 28,058 5.76%
======== ====
Core capital:
Capital level $ 35,370 7.26%
Less Requirement 19,498 4.00%
-------- ----
Excess $ 15,872 3.26%
======== ====
Risk-based capital:
Capital level $ 38,808 11.80%
Less Requirement 26,312 8.00%
-------- ----
Excess $ 12,496 3.80%
======== ====
LIQUIDITY AND CAPITAL RESOURCES
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 three months of 2006 and 2005,
principal payments, prepayments, and proceeds from sale of loans totaled $27.9
million and $22.7, respectively. The net increase in deposits during the first
three months of 2006 and 2005 totaled $4.6 million and $4.4 million,
respectively. The proceeds from borrowed funds during the three months ended
March 31, 2006 and 2005 totaled $10.0 million and $2.0 million, respectively.
The net (decrease) increase in short term borrowings during the three months
ended March 31, 2006 and 2005 totaled ($1.0) million and $4.2 million,
respectively. During the first three months of 2006 and 2005, the proceeds from
the maturities, calls and sales of securities totaled $528,000 and $1.0 million,
respectively. Cash provided from operating activities during the first three
months of 2006 and 2005 totaled $2.8 million and $2.1 million, respectively. The
Company's primary use of funds is to originate and purchase loans, purchase
securities available-for-sale, repay borrowed funds and other financing
activities. During the first three months of 2006 and 2005, the Company's gross
purchases and origination of loans totaled $32.3 million and $31.7 million,
respectively. The purchase of securities available-for-sale for the three months
ended March 31, 2006 and 2005 totaled $1.8 million and $510,000, respectively.
The repayment of borrowed funds during the first three months of 2006 and 2005
totaled $4.0 million and $3.0 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 March 31, 2006, 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.
On January 6, 2006, the Company paid a quarterly cash dividend of $0.29 per
share on common stock outstanding as of the close of business on December 15,
2005, aggregating $435,000. On February 24, 2006, the Company declared a
quarterly cash dividend of $0.33 per share payable on April 6, 2006 to
shareholders of record as of the close of business on March 17, 2006,
aggregating $477,000.
9
RESULTS OF OPERATIONS
Net Income. Net income increased by $165,000 to $1.24 million for the quarter
ended March 31, 2006, compared to $1.07 million for the quarter ended March 31,
2005. Net income is an aggregate of net interest income, noninterest income,
noninterest expense and income tax expense. The increase in net income was
primarily due to an increase in noninterest income, offset in part by increases
in noninterest expense and income tax expense.
Net Interest Income. Net interest income before provision for loan losses
decreased by $88,000 to $3.32 million for the quarter ended March 31, 2006, from
$3.41 million for the quarter ended March 31, 2005. The decrease is primarily
due to an increase in the average balance of interest-bearing liabilities and an
increase in the average cost of funds, offset in part by an increase in the
average balance of interest-earning assets and an increase in the yield on
interest-earning assets. The interest rate spread (i.e., the difference in the
average yield on assets and average cost of liabilities) decreased to 2.62% for
the quarter ended March 31, 2006, from 2.91% for the quarter ended March 31,
2005. The decrease in interest rate spread primarily reflects the increase in
the overall cost of interest-bearing liabilities, offset in part by an increase
in the yield on interest-earning assets. The increase in the cost of
interest-bearing liabilities primarily reflects the growth of interest-bearing
liabilities in higher cost certificates of deposit and borrowed funds. Also
contributing to the increase of the cost of funds is the continuing shift of
lower cost non-maturing deposits into higher cost short-term certificates of
deposit.
Interest Income. Interest income increased by $467,000 to $6.78 million for the
quarter ended March 31, 2006, compared to $6.31 million for the quarter ended
March 31, 2005. The increase in interest income was primarily due to an increase
in the average balance of interest-earning assets. The average balance of
interest-earning assets increased $26.9 million to $461.9 million for the
quarter ended March 31, 2006, from $435.0 million for the quarter ended March
31, 2005. The average yield on interest-earning assets increased to 5.88% for
the quarter ended March 31, 2006 from 5.81% for the quarter ended March 31,
2005, primarily due to an increase in market interest rates on consumer loans
and securities available-for-sale. The increase in the average balance of
interest-earning assets primarily reflects increases in the average balances of
first mortgage loans and consumer loans, offset in part by a decrease in
securities available-for-sale. The increase in the average balance of first
mortgage loans was primarily derived from originations of first mortgage loans
secured by one-to-four family and commercial real estate, purchases of first
mortgage loans secured by multifamily residences and commercial real estate,
which originations and purchases were offset in part by payments and prepayments
and sales of loans during the twelve months ended March 31, 2006. This reflects
the Company's continued emphasis on real estate lending. The decrease in the
average balance of securities available-for-sale was derived from payments and
calls of securities, offset in part by purchases during the twelve months ended
March 31, 2006. See "Financial Condition" above.
Interest Expense. Interest expense increased by $555,000 to $3.45 million for
the quarter ended March 31, 2006, compared to $2.90 million for the quarter
ended March 31, 2005. The increase in interest expense was due to an increase in
the average balance of interest-bearing liabilities and an increase in the
average cost of funds. The average balance of interest-bearing liabilities
increased by $24.2 million to $429.0 million for the quarter ended March 31,
2006, from $404.8 million for the quarter ended March 31, 2005. The increase in
the average balance of interest-bearing liabilities primarily reflects an
increase in the average balances of certificates of deposits and borrowed funds,
offset in part by decreases in NOW, money market and savings balances. The
increase in average interest-bearing deposits was primarily due to the Company's
continued pricing strategies and marketing efforts. The average cost of funds
increased to 3.26% for the quarter ended March 31, 2006, from 2.90% for the
quarter ended March 31, 2005, due to an increase in the current market interest
rates, a shift of core deposits into higher cost certificates of deposits, and
an increase in certificates of deposit and borrowed funds.
10
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 months ended March 31, 2006 and 2005, respectively.
For the Three Months Ended March 31,
---------------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 438,907 $ 6,530 5.96% $ 410,459 $ 6,075 5.93%
Securities available-for-sale 21,164 226 4.28 23,609 228 3.87
Interest-bearing cash 1,799 19 4.22 941 5 2.20
--------- ------- ------ --------- -------- ------
Total interest-earning assets 461,870 $ 6,775 5.88% 435,009 6,308 5.81%
Noninterest-earning assets 28,674 ------- ------ 29,016 -------- ------
--------- ---------
Total assets $ 490,544 $ 464,025
========= =========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings $ 89,291 $ 250 1.13% $ 96,718 $ 239 1.00%
Passbook savings 27,169 21 0.32 29,016 22 0.31
Certificates of deposit 205,952 1,948 3.84 181,833 1,539 3.43
Borrowed funds 106,556 1,233 4.69 97,215 1,096 4.57
--------- ------- ------ --------- -------- ------
Total interest-bearing liabilities 428,968 $ 3,452 3.26% 404,782 $ 2,896 2.90%
Noninterest-bearing liabilities 17,968 ------- ------ 17,141 -------- ------
--------- --------
Total liabilities 446,936 421,923
Equity 43,608 42,102
--------- ---------
Total liabilities and equity $ 490,544 $ 464,025
========= =========
Net interest income $ 3,323 $ 3,412
======= =======
Net interest rate spread 2.62% 2.91%
====== ======
Net interest margin 2.88% 3.14%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 107.67% 107.47%
====== ======
Provision for Loan Losses. The Company's provision for loan losses was $60,000
and $50,000 for the quarters ended March 31, 2006 and 2005, 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 prior loss experience, industry
standards, past due loans, economic conditions, the volume and type of loans in
the Company's portfolio, and other factors related to the collectibility of the
Company's loan portfolio. The Company's total loan portfolio increased $15.5
million, or 3.6%, from March 31, 2005 to March 31, 2006. This increase primarily
consisted of increases in the one-to-four family real estate loans. The
Company's out of state loans decreased $12.3 million, or 7.6%, from March 31,
2005 to March 31, 2006. The properties securing the loans purchased are
primarily out of state and constitute a higher rate of risk than originated
loans due to the size, locations and type of collateral securing such loans. The
economic conditions in the Bank's primary market areas remain stable. The net
charge-offs were $51,000 for the three months ended March 31, 2006, compared to
$25,000 for the three months ended March 31, 2005. The resulting allowance for
loan loss was $3.3 million and $3.3 million at March 31, 2006 and March 31,
2005, respectively.
The allowance for loan losses as a percentage of total loans receivable
decreased to 0.75% at March 31, 2006 from 0.76% at March 31, 2005. The level of
nonperforming loans was $1.25 million at March 31, 2006 and $568,000 at March
31, 2005.
Management believes that the allowance for loan losses is adequate as of March
31, 2006. 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 problem loans, identification
of additional problem loans, and other factors, both within and outside of
management's control.
11
RESULTS OF OPERATIONS (Continued)
Noninterest Income. Total noninterest income increased by $737,000, or 62.0%, to
$1.93 million for the quarter ended March 31, 2006, from $1.19 million for the
quarter ended March 31, 2005. The increase was primarily due to increases in
loan prepayment fees, fees and service charges, and abstract fees. During the
quarter ended March 31, 2006, the Company recorded $352,000 in loan prepayment
fees, compared to $98,000 for the quarter ended March 31, 2005. Fees and service
charges increased $175,000 primarily due to an increase in fees associated with
checking accounts, including overdraft fees. Abstract fees increased $57,000 due
to an increase in real estate activity. The increase in noninterest income was
also due to an impairment of securities available-for-sale recognized during the
quarter ended March 31, 2005. The Company recorded an other-than-temporary
impairment of $255,000 related to a $1.0 million face value Freddie Mac
perpetual preferred stock that declined in value due to decreased interest
rates. This perpetual preferred stock issue is an investment grade security that
is held in the Company's available-for-sale securities portfolio.
Noninterest Expense. Total noninterest expense increased by $455,000, or 15.6%,
to $3.38 million for the quarter ended March 31, 2006, from $2.92 million for
the quarter ended March 31, 2005. The increase is due primarily to increases in
employee salaries and benefits expenses and other operating expenses, which
included the write-down of other real estate owned. The Company's efficiency
ratio for the quarter ended March 31, 2006 and 2005 was 64.32% and 63.50%,
respectively. The Company's ratio of noninterest expense to average assets for
the quarters ended March 31, 2006 and 2005 were 2.75% and 2.52%, respectively.
Income Taxes. Income taxes increased by $19,000 to $572,000 for the quarter
ended March 31, 2006, compared to $553,000 for the quarter ended March 31, 2005.
The increase was due to an increase in pre-tax earnings, offset in part by the
limited deductibility of the impairment of securities available-for-sale in
2005.
OFF BALANCE SHEET ARRANGEMENTS
The Company is a party to off balance sheet arrangements in the normal course of
business to meet the financing needs of its customers. These financial
instruments consist primarily of commitments to extend credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the statement of financial condition. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-statement of financial condition instruments. The Company does
require collateral or other security to support financial instruments with
credit risks. No material changes in the Company's off-statement of financial
condition arrangements have occurred since December 31, 2005.
CRITICAL ACCOUNTING POLICIES
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the disclosures included within this report, are based on the
Company's consolidated financial statements. These statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The financial information contained in these statements is, for the
most part, based on approximate measures of the financial effects of
transactions and events that have already occurred. However, the preparation of
these statements requires management to make certain estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses.
The Company's critical accounting policies are described in the Company's 2005
Annual Report on Form 10-K in the "Notes to Consolidated Financial Statements."
Based on its consideration of accounting policies that involve the most complex
and subjective estimates and judgments, management has identified its most
critical accounting policies to be that related to the allowance for loan losses
and asset impairment judgments, including the recoverability of goodwill.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely. The
Company has policies and procedures for evaluating the overall credit quality of
its loan portfolio, including timely identification of potential problem
credits. On a quarterly basis, management reviews the appropriate level for the
allowance for loan losses, incorporating a variety of risk considerations, both
quantitative and qualitative. Quantitative factors include the Company's
historical loss experience,
12
delinquency and charge-off trends, collateral values, known information about
individual loans and other factors. Qualitative factors include the general
economic environment in the Company's market area and the expected trend of
those economic conditions. To the extent that actual results differ from
forecasts and management's judgment, the allowance for loan losses may be
greater or less than future charge-offs.
Asset impairment judgments include evaluating the decline in fair value of
held-to-maturity and available-for-sale securities below their cost. Declines in
fair value of held-to-maturity and available-for-sale securities below their
cost that are deemed to be other-than-temporary are reflected in earnings as
realized losses. In estimating other-than-temporary impairment losses,
management considers (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
Goodwill represents the excess of the acquisition cost over the fair value of
the net assets acquired in a purchase acquisition. Goodwill is tested for
impairment at least annually.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In management's opinion, there has not been a material change in the Company's
market risk profile since December 31, 2005. Please see the Company's Form 10-K
for the year ended December 31, 2005 for a more detailed discussion of the
Company's interest rate sensitivity analysis.
ITEM 4.
CONTROLS AND PROCEDURES
Management, including the Company's President and Chief Executive Officer and
the Company's Chief Financial Officer and Treasurer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this report. Based upon that evaluation, the President and Chief Executive
Officer and Chief Financial Officer and Treasurer concluded that the disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
(i) recorded, processed, summarized and reported as and when required and (ii)
accumulated and communicated to the Company's management, including the
Company's principal executive officer and principal accounting officer, as
appropriate to allow timely decisions regarding required disclosure.
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
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. The
Company believes that these routine legal proceedings, in the aggregate, are
immaterial to its financial condition and results of operations.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed on the
Company's Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January 2006, the Company approved a Stock Repurchase Plan which
provides for the repurchase of up to 100,000 shares of the Company's common
stock. At March 31, 2006, there were 14,150 shares which could be purchased
under the plan. On March 30, 2006, the Company approved a new Repurchase Plan
which provides for the repurchase of up to 100,000 shares of the Company's
common stock. This plan will commence upon the completion of the January 2006
Repurchase Plan.
The following table provides information with respect to purchases made by
or on behalf of the Company or any "affiliated purchases" (as defined in rule
10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company's common
stock during the three months ended March 31, 2006.
Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Total Number of Average Price Paid Part of Publicly Be Purchased Under
Period Shares Purchased Per Share Announced Plans The Plan
------ ---------------- --------- --------------- --------
January 1, 2006 to
January 31, 2006 - - - 100,000
February 1, 2006 to
February 28, 2006 49,850 $38.80 49,850 50,150
March 1, 2006 to
March 31, 2006 36,000 $38.80 36,000 14,150
------ ------
Total 85,850 85,850
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.
14
Item 6. Exhibits
Exhibit No. Description Reference No.
----------- ----------- -------------
3.1 Articles of Incorporation of North Central Bancshares, Inc. (1)
3.2 Bylaws of North Central Bancshares, Inc. (1)
3.3 Bylaws of North Central Bancshares, Inc., as amended (2)
4.1 Federal Stock Charter of First Federal Savings Bank of
Iowa (formerly known as First Federal Savings Bank of
Fort Dodge) (1)
4.2 Bylaws of First Federal Savings Bank of Iowa (formerly known
as First Federal Savings Bank of Fort Dodge). (1)
4.3 Specimen Stock Certificate of North Central Bancshares, Inc. (1)
4.4 Bylaws of First Federal Savings Bank of Iowa, as amended (2)
10.1 Employee Stock Ownership Plan of First Federal Savings Bank
of Iowa (formerly known as First Federal Savings Bank of Fort
Dodge) and ESOP Trust Agreement (incorporating Amendments
1 and 2) (6)
10.1A Amendment #1 to Employee Stock Ownership Plan of First
Federal Savings Bank of Iowa (formerly known as First
Federal Savings Bank of Fort Dodge) and ESOP Trust Agreement (8)
10.1B Amendment #2 to Employee Stock Ownership Plan of First
Federal Savings Bank of Iowa (formerly known as First Federal
Savings Bank of Fort Dodge) and ESOP Trust Agreement (8)
10.2 ESOP Loan Documents, dated September 3, 1996 (5)
10.3 Employee Retention Agreements between First Federal Savings
Bank of Fort Dodge and certain executive officers (3)
10.4 Employment Agreement between First Federal Savings Bank of
Iowa (formerly known as First Federal Savings Bank of Fort
Dodge) and David M. Bradley, effective as of August 31, 1994 (1)
10.6 Form of Employment Agreement between North Central
Bancshares, Inc. and David M. Bradley (1)
10.8 North Central Bancshares, Inc. 1996 Stock Option Plan (4)
10.9 Amendment No. 1 to the North Central Bancshares, Inc. 1996
Stock Option Plan (6)
10.10 Supplemental Retirement and Deferred Compensation Plan of
First Federal Savings Bank of Iowa (8)
10.11 Form of Employment Agreement between First Federal Savings
Bank of Iowa and C. Thomas Chalstrom (7)
10.12 Form of Employment Agreement between First Federal Savings
Bank of Iowa and Kirk A. Yung (7)
10.13 Tax Allocation Agreement between North Central Bancshares,
Inc. and Subsidiaries (2)
10.14 North Central Bancshares, Inc. 2006 Stock Incentive Plan (9)
31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications
15
(1) Incorporated herein by reference to Registration Statement No. 33-80493 on
Form S-1 of North Central Bancshares, Inc. (the "Registrant") filed with
the Securities and Exchange Commission, (the "Commission") on December 18,
1995, as amended.
(2) Incorporated herein by reference to the Exhibits to the Annual Report on
Form 10-K of the Registrant filed with the Commission on March 22, 2004.
(3) Incorporated herein by reference to the Exhibits to the Annual Report on
Form 10-K of the Registrant for fiscal year 1995, filed with the Commission
on March 29, 1996.
(4) Incorporated herein by reference to the Amended Schedule 14A of the
Registrant filed with the Commission on August 19, 1996.
(5) Incorporated herein by reference to the Annual Report on Form 10-K of the
Registrant filed with the Commission on March 31, 1997.
(6) Incorporated herein by reference to the Annual Report on Form 10-K of the
Registrant filed with the Commission on March 31, 1998.
(7) Incorporated herein by reference to the Annual Report on Form 10-K of the
Registrant filed with the Commission on March 31, 2006.
(8) Incorporated herein by reference to the Annual Report on Form 10-K of the
Registrant filed with the Commission on March 29, 2002.
(9) Incorporated herein by reference to the Proxy Statement on Schedule 14A of
the Registrant filed with the Commission on March 20, 2006.
16
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: May 12, 2006 BY: /s/ David M. Bradley
--------------------
David M. Bradley, Chairman, President and
Chief Executive Officer
DATE: May 12, 2006 BY: /s/ David W. Edge
-----------------
David W. Edge, Chief Financial Officer and
Treasurer