SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
[Mark One]
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________________ to __________________
Commission File Number 0-27672
NORTH CENTRAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1449849
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
825 Central Avenue Fort Dodge, Iowa 50501
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(Address of principal executive offices)
Registrant's telephone number, including area code #(515)576-7531
None
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
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 August 10, 1997
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(Common Stock, $.01 par value) 3,257,983
NORTH CENTRAL BANCSHARES, INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Condensed
Financial Statements (unaudited) 1 to 5
Consolidated Condensed Statements of
Financial Condition at June 30,
1997 and December 31, 1996 1
Consolidated Condensed Statements of
Income for the six months ended
June 30, 1997 and 1996 2
Consolidated Condensed Statements of
Cash Flows for the six months ended
June 30, 1997 and 1996 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 12
Part II. Other Information 13 to 15
Items 1 through 6 13 & 14
Signatures 15
Exhibits
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
ASSETS 1997 1996
------------- -------------
Cash:
Interest-bearing $ 7,244,336 $ 2,973,490
Noninterest-bearing 637,863 963,325
Securities available for sale 25,315,061 23,103,614
Securities held to maturity - - 3,499,528
Loans receivable, net 172,430,540 165,831,040
Accrued interest receivable 1,341,533 1,327,733
Foreclosed real estate 116,931 128,471
Premises and equipment, net 2,004,069 1,780,392
Rental real estate 2,075,680 1,775,844
Title plant 925,256 968,747
Deferred taxes 180,000 198,000
Prepaid expenses and other assets 597,323 542,351
------------ ------------
Total assets $212,868,592 $203,092,535
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $136,257,906 $129,722,044
Other borrowed funds 26,550,000 22,335,000
Advances from borrowers for taxes and insurance 858,169 845,488
Dividend payable 203,624 230,344
Income taxes payable 109,431 182,826
Accrued expenses and other liabilities 632,683 542,026
------------ ------------
Total liabilities 164,611,813 153,857,728
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized 3,000,000 shares;
issued and outstanding none) -- --
Common Stock ($.01 par value, authorized 15,500,000 shares;
issued and outstanding 4,011,057) 40,111 40,111
Additional paid-in capital 37,857,398 37,796,611
Retained earnings, substantially restricted 21,981,693 20,531,604
Unrealized gain on securities available for sale, net of
income taxes 186,817 73,097
Treasury stock at cost (1997 753,074 shares; 1996 581,602 shares) (10,496,411) (7,789,661)
Unearned shares, employee stock ownership plan (1,312,829) (1,416,955)
------------ ------------
Total stockholders' equity 48,256,779 49,234,807
------------ ------------
Total liabilities and stockholders' equity $212,868,592 $203,092,535
============ ============
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,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Interest Income:
Loans receivable:
First mortgage loans $3,014,004 $2,740,860 $5,994,607 $5,418,587
Consumer loans 537,488 491,238 1,060,955 951,463
Securities and cash deposits 380,070 502,132 780,948 941,720
---------- ---------- ---------- ----------
3,931,562 3,734,230 7,836,510 7,311,770
---------- ---------- ---------- ----------
Interest expense:
Deposits 1,580,062 1,543,675 3,130,329 3,099,358
Other borrowed funds 315,762 63,550 619,786 344,432
---------- ---------- ---------- ----------
1,895,824 1,607,225 3,750,115 3,443,790
---------- ---------- ---------- ----------
Net Interest Income 2,035,738 2,127,005 4,086,395 3,867,980
Provision for loan losses 60,000 60,000 120,000 120,000
---------- ---------- ---------- ----------
Net interest income after provision for loan 1,975,738 2,067,005 3,966,395 3,747,980
losses ---------- ---------- ---------- ----------
Noninterest income:
Fees and service charges 154,636 124,466 309,000 249,103
Abstract fees 307,967 256,613 562,777 452,253
Gain on sale of securities available for
sale -- -- -- 13,774
Other income 135,995 100,950 211,206 189,141
---------- ---------- ---------- ----------
Total noninterest income 598,598 482,029 1,082,983 904,271
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 531,720 446,611 1,055,903 1,029,153
Premises and equipment 102,675 112,758 206,489 223,818
Data processing 61,783 58,937 126,202 119,072
SAIF deposit insurance premiums 21,162 72,990 42,231 146,099
Other expenses 401,718 273,549 797,863 522,408
---------- ---------- ---------- ----------
Total noninterest expense 1,119,058 964,845 2,228,688 2,040,550
---------- ---------- ---------- ----------
Income before income taxes 1,455,278 1,584,189 2,820,690 2,611,701
Provision for income taxes 495,954 577,749 972,216 949,383
---------- ---------- ---------- ----------
Net Income $ 959,324 $1,006,440 $1,848,474 $1,662,318
========== ========== ========== ==========
Earnings per share $ 0.30 $ 0.26 $ 0.57 $ 0.43
========== ========== ========== ==========
Dividends declared per common share $ 0.0625 $ 0.0625 $ 0.1250 $ 0.1547
========== ========== ========== ==========
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,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,848,474 $ 1,662,318
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 120,000 120,000
Depreciation, premises and equipment 92,063 102,642
Depreciation, rental real estate 32,500 --
Amortization and accretion 67,550 (79,392)
Deferred taxes (49,054) (41,956)
Effect of contribution to employee stock ownership plan 164,913 47,268
(Gain) on sale of foreclosed real estate and loans, net (21,107) (9,103)
(Gain) on sale of securities available for sale -- (13,774)
Loss on disposal of equipment 4,674 1,752
Change in assets and liabilities:
(Increase) in accrued interest receivable (13,800) (40,052)
Decrease in income taxes receivable -- 31,766
(Increase) decrease in prepaid expenses and other assets (54,972) 210,715
Increase (decrease) in income taxes payable (73,395) 121,700
Increase (decrease) in accrued expenses and other liabilities 90,657 (39,912)
----------- ------------
Net cash provided by operating activities 2,208,503 2,073,972
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans (801,969) (4,020,120)
Purchase of loans (6,077,253) (4,093,289)
Proceeds from sale of loans 161,381 --
Proceeds from sales and maturities of securities available for sale 500,000 53,891
Purchase of securities available for sale (2,598,973) (9,320,762)
Proceeds from maturities of securities held to maturity 3,500,000 5,500,000
Purchase of premises and equipment (351,714) (160,025)
Proceeds from sale of premises and equipment 31,300 --
Purchase of rental real estate (332,336) (74,081)
Proceeds from sale of title plant 43,491 --
Other 31,188 83,657
----------- ------------
Net cash (used in) investing activities (5,894,885) (11,956,648)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,535,862 2,348,535
Increase (decrease) in advances from borrowers for taxes and insurance 12,681 32,989
Net change in short term borrowings (6,000,000) (14,000,000)
Proceeds from other borrowed funds 13,250,000 --
Payments of other borrowings (3,035,000) (20,000)
Proceeds from issuance of 2,625,467 shares of common stock -- 25,412,159
Payments for expenses incurred relating to conversion to stock form -- (871,592)
Purchase of treasury stock (2,706,750) --
Dividends paid (425,027) (238,882)
----------- ------------
Net cash provided by financing activities 7,631,766 12,663,209
----------- ------------
Net increase in cash 3,945,384 2,706,452
CASH
Beginning 3,936,815 3,071,642
----------- ------------
Ending $ 7,882,199 $ 5,778,094
=========== ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 3,103,105 $ 3,088,047
Interest paid on borrowings 332,751 374,584
Income taxes 1,097,131 837,873
See Notes to Consolidated Condensed Financial Statements.
-3-
ITEM 1.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated condensed financial statements for the three and six month
period ended June 30, 1997 and 1996 are unaudited. In the opinion of the
management of North Central Bancshares, Inc. (the "Company" or the "Registrant")
these financial statements reflect all adjustments, consisting only of normal
recurring accruals, necessary to present fairly these consolidated financial
statements. The results of operations for the interim periods are not
necessarily indicative of results which may be expected for an entire year.
Certain information and footnote disclosure normally included in complete
financial statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the requirements for interim
financial statements. The financial statements and notes thereto should be read
in conjunction with the Company's 1996 Annual Report on Form 10-K.
The consolidated condensed financial statements include the accounts of the
Company and its wholly-owned subsidiaries (See Note 2). All significant
intercompany balances and transactions have been eliminated in consolidation.
2. REORGANIZATION
The Company was organized on December 5, 1995 at the direction of the Board of
Directors of First Federal Savings Bank of Fort Dodge (the "Bank") for the
purpose of acquiring all of the capital stock of the Bank, in connection with
the conversion of the Bank, and North Central Bancshares, M.H.C. (the "Mutual
Holding Company" or "MHC") from the mutual to the stock holding company
structure (these transactions are collectively referred to as the
"Reorganization"). On March 20, 1996, upon completion of the Reorganization,
the Company issued an aggregate of 4,011,057 shares of its common stock,
1,385,590 shares of which were issued in exchange for all of the Bank's issued
and outstanding shares, except for shares owned by the MHC which were cancelled,
and 2,625,467 shares of which were sold in Subscription and Community Offerings
(the "Offering") at a price of $10.00 per share, with gross proceeds amounting
to $26,254,670. In addition, the Company replaced the Bank as the issuer listed
on The Nasdaq Stock Market.
At this time, the Company conducts business as a unitary savings and loan
holding company and the principal business of the Company consists of the
operation of its wholly owned subsidiary, the Bank.
3. 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 the Bank'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 and six month periods
ended June 30, 1997, the weighted average number of shares outstanding were
3,201,476 and 3,241,620, respectively. For the three and six month periods
ended June 30, 1996, the weighted average number of shares outstanding were
3,846,798 and 3,882,177, respectively. The number of shares outstanding for the
six month period ended June 30, 1996 was restated to reflect the conversion
ratio effected as part of the Reorganization.
4. DIVIDENDS
On May 23, 1997, the Company declared a cash dividend on its common stock,
payable on July 3, 1997 to stockholders of record as of June 13, 1997, equal to
$0.0625 per share.
-4-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. The Company adopted SFAS No. 125 on January 1,
1997 and its adoption has not had a material effect on the Company's financial
condition or results of operations.
In February 1997, FASB issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
This statement simplifies the standards for computing EPS previously found in
Accounting principles Board Opinion No. 15 ("APB No. 15"). It replaces the
presentation of primary EPS with a presentation of Basic EPS, and requires dual
presentation of basic and diluted EPS. Basic EPS is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior-period EPS data presented. Upon adoption of SFAS No.
128, the change will not result in a material change in the Company's EPS
presentation from primary to basic EPS and from fully diluted to diluted EPS.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129 ("SFAS No. 129") "Disclosure of Information about Capital Structure."
SFAS No. 129 requires nonpublic entities to include disclosure requirements
regarding capital structure as specified in APB Opinion No. 15, "Earnings Per
Share." These disclosure requirements are effective for financial statements for
periods ending after December 15, 1997. The adoption of SFAS No. 129 will have
no effect on the financial condition or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires
that all items that are components of comprehensive income (defined as "the
change in equity [net assets] of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners"), be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Companies will be required to (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997, and requires reclassification of prior periods presented. As
the requirements of SFAS No. 130 are disclosure-related, its implementation will
have no impact on the Company's financial condition or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 requires that enterprises report certain financial and
descriptive information about operating segments in complete sets of financial
statements of the Company and in condensed financial statements of interim
periods issued to shareholders. It also requires that a Company report certain
information about their products and services, geographic areas in which they
operate, and their major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. As the requirements of SFAS No. 131 are
disclosure-related, its implementation will have no impact on the Company's
financial condition or results of operations.
-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 and market, and legislative and
regulatory conditions, and the development of an adverse interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
FINANCIAL CONDITION
Total assets increased $9.8 million, or 4.8%, to $212.9 million at June 30, 1997
compared to $203.1 million at December 31, 1996. Interest-bearing cash
increased $4.3 million, or 143.6%, primarily due to the proceeds from a Federal
Home Loan Bank of Des Moines ("FHLB") advance in interest-bearing cash awaiting
investment. Securities available for sale increased $2.2 million, or 9.6%,
primarily due to the purchase of several U.S. Treasury Notes and certain equity
securities. Securities held to maturity decreased $3.5 million, or 100.0%, due
to the maturities of several U.S. Treasury Notes and the Company's decision not
to replace such securities. Total loans receivable, net, increased by $6.6
million, or 4.0%, from December 31, 1996, due primarily to originations of $10.8
million of first mortgage loans secured primarily by one-to-four family
residences, purchases of $6.1 million of first mortgage loans secured by one-to-
four family and multi-family residences and originations of $5.1 million of
second mortgage loans, which originations and purchases were offset in part by
payments and prepayments of loans (of approximately $16.9 million). Deposits
increased $6.5 million, or 5.0%, from $129.7 million at December 31, 1996 to
$136.3 million at June 30, 1997, primarily due to increases in certificates of
deposit, NOW and money market accounts, primarily due to increased advertising
by the Company to promote such products, the expansion of a branch of the Bank
in Ames, Iowa and normal market fluctuations. Other borrowings, primarily FHLB
advances, increased by $4.2 million, to $26.6 million at June 30, 1997 from
$22.3 million at December 31, 1996, primarily due to the borrowing of $4.0
million at the end of the quarter in anticipation of the funding of first
mortgage loans in the third quarter of 1997 and to take advantage of available
favorable terms on such borrowings. Total stockholders' equity decreased
$978,000, from $49.2 million at December 31, 1996 to $48.3 million at June 30,
1997, primarily due to stock repurchases and dividends declared, which were
offset in part by earnings.
CAPITAL
The Company's total stockholders' equity decreased by $978,000 to $48.3 million
at June 30, 1997 from $49.2 million at December 31, 1996, primarily due to stock
repurchases and dividends declared, which were offset in part by earnings. The
changes in stockholders' equity were also due to the unrealized gain on
securities available for sale increased by $114,000 to $187,000 at June 30, 1997
from $73,000 at December 31, 1996. The unearned shares from the Employee Stock
Ownership Plan (the "ESOP") decreased by $104,000 to $1.3 million at June 30,
1997 from $1.4 million at December 31, 1996, due to the release of shares by the
ESOP to employees of the Bank.
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,
1997, the Bank exceeded all of its regulatory capital requirements. The Bank's
required, actual and excess capital levels as of June 30, 1997 are as follows:
-6-
Amount Percentage of Assets
-------- ---------------------
(dollars in thousands)
Tangible capital:
Capital level $36,029 17.15%
Less Requirement 3,152 1.50%
------- -----
Excess $32,877 15.65%
======= =====
Core capital:
Capital level $36,029 17.15%
Less Requirement 6,303 3.00%
------- -----
Excess $29,726 14.15%
======= =====
Risk-based capital:
Capital level $37,487 32.31%
Less Requirement 9,283 8.00%
------- -----
Excess $28,204 24.31%
======= =====
LIQUIDITY
The Company's primary sources of funds are cash provided by operating activities
(including principal and interest payment on loans), certain financing
activities (including increases in deposits and proceeds from borrowings) and
certain investing activities (including maturities of securities and other
investments). During the first six months of 1997 and 1996, principal payments
and repayments on loans totalled $16.9 million and $13.2 million, respectively.
The net increases in deposits during the first six months of 1997 and 1996
totalled $6.5 million and $2.3 million, respectively. The proceeds from
borrowed funds during the first six months of 1997 totalled $13.3 million.
During the first six months of 1997 and 1996, the proceeds from the maturities
and sales of securities totalled $4.0 million and $5.6 million, respectively.
Cash provided from operating activities during the first six months of 1997 and
1996 totalled $2.2 million and $2.1 million, respectively, of which $1.8 and
$1.7 million, respectively, represented net income of the Company. In the first
six months of 1996, the Company also received net proceeds from the
Reorganization of $24.5 million. The Company's primary use of funds is cash used
to originate and purchase loans, repayment of borrowed funds and other financing
activities. During the first six months of 1997 and 1996, the Company's gross
purchases and origination of loans totalled $24.7 million and $22.2 million,
respectively. The repayment of borrowed funds during the first six months of
1997 and 1996 totalled $9.0 million and $14.0 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.
OTS regulations require that thrift institutions such as the Bank maintain an
average daily balance of liquid assets (cash, certain time deposits, banker's
acceptances and specified U.S. government, state or federal agency obligations)
equal to a monthly average of not less than 5% of their net withdrawable
deposits, plus short term borrowings. At June 30, 1997, the Bank's liquidity
position was $14.3 million or 9.78% of liquid assets, compared to $13.1 million
or 9.11% at December 31, 1996.
OTS regulations also require that thrift institutions such as the Bank maintain
an average daily balance of short term liquid assets (cash, certain time
deposits, banker's acceptances and specified U.S. government, state or federal
agency obligations) equal to a monthly average of not less than 1% of their net
withdrawable deposits, plus short term borrowings. At June 30, 1997, the Bank's
short term liquidity position was $7.8 million or 5.33% of short term liquid
assets, compared to $4.1 million or 2.84% at December 31, 1996. The increase
was due primarily to the increase in interest-bearing cash.
Stockholders' equity totaled $48.3 million at June 30, 1997 compared to $49.2
million at December 31, 1996, reflecting the repurchase of the Company's common
stock, the Company's earnings for the quarter, the amortization of the
unallocated portion of shares held by the ESOP, dividends paid on common stock
and the change in the net unrealized gains on securities, net of taxes. The
Company repurchased 171,472 shares of its outstanding common stock at an
aggregate cost of $2,706,750 in open market purchases during the second quarter
of 1997.
On April 7, 1997, the Company paid a quarterly cash dividend equal to $0.0625
per share on common stock
-7-
outstanding as of the close of business on March 14, 1996, aggregating $214,000.
On May 23, 1997, the Company declared a quarterly cash dividend of $0.0625 per
share payable on July 3, 1997 to shareholders of record as of the close of
business on June 13, 1997 aggregating $204,000.
RESULTS OF OPERATIONS
Interest Income. Interest income increased by $197,000 to $3.9 million for the
three months ended June 30, 1997 compared to $3.7 million for the three months
ended June 30, 1996. The increase in interest income was primarily due to a
$14.1 million increase in the average balance of interest earning assets
(primarily first mortgage and consumer loans) to $200.1 million for the three
months ended June 30, 1997, from $186.0 million for the comparable 1996 period.
The increase in the average balance in first mortgage loans and consumer loans
(primarily second mortgage loans) generally reflects an increase over the past
twelve months in originations of first and second mortgage loans and purchases
of first mortgage loans secured by one-to-four family residences and multi-
family residences, which were offset, in part, by payments and prepayments on
such loans. See "Financial Condition." The impact of the increase in the
average balances of first mortgage and consumer loans was offset in part by a
decrease in the average yield on first mortgage loans, consumer loans and
securities available for sale. The average yield on first mortgage loans
decreased to 8.03% for the three months ended June 30, 1997 from 8.17% for the
three months ended June 30, 1996, primarily due to a general decrease in market
interest rates. The average yield on consumer loans decreased to 9.40% for the
three months ended June 30, 1997 from 9.57% for the three months ended June 30,
1996, also primarily due to a general decrease in market interest rates. The
average balance of securities held to maturity decreased $11.7 million, or
95.9%, and such securities were in part, replaced by lower yielding securities
available for sale. The average yield on interest earning assets decreased from
8.04% for the three months ended June 30, 1996 to 7.86% for the three months
ended June 30, 1997.
Interest income increased by $525,000 to $7.8 million for the six months ended
June 30, 1997 compared to $7.3 million for the six months ended June 30, 1996.
The increase in interest income was primarily due to a $16.5 million increase in
the average balance of interest earning assets (primarily first mortgage and
consumer loans) to $199.0 million for the six months ended June 30, 1997, from
$182.5 million for the comparable 1996 period. The increase in the average
balance in first mortgage loans and consumer loans (primarily second mortgage
loans) generally reflects an increase over the past twelve months in
originations of first and second mortgage loans and purchases of first mortgage
loans secured by one-to-four family residences and multi-family residences,
which were offset, in part, by payments and prepayments on such loans. See
"Financial Condition." The impact of the increase in the average balances of
first mortgage and consumer loans was offset in part by a decrease in the
average yield on first mortgage loans, consumer loans and securities available
for sale. The average yield on first mortgage loans decreased to 8.06% for the
six months ended June 30, 1997 from 8.16% for the six months ended June 30,
1996, primarily due to a general decrease in market interest rates. The average
yield on consumer loans decreased to 9.49% for the six months ended June 30,
1997 from 9.60% for the six months ended June 30, 1996, also primarily due to a
general decrease in market interest rates. The average balance of securities
held to maturity decreased $11.9 million, or 88.8%, and such securities were in
part, replaced by lower yielding securities available for sale. The average
yield on interest earning assets decreased from 8.03% for the six months ended
June 30, 1996 to 7.89% for the six months ended June 30, 1997.
Interest Expense. Interest expense increased by $289,000 to $1.9 million for
the three months ended June 30, 1997 compared to $1.6 million for the three
months ended June 30, 1996. The increase in interest expense was primarily due
to a $22.9 million increase in the average balance of interest bearing
liabilities (primarily borrowed funds) to $152.7 million for the three months
ended June 30, 1997 from $129.8 million for the comparable 1996 period. The
increase in the average balance in borrowed funds in 1997 reflects the repayment
of borrowed funds with the proceeds of the Reorganization in 1996 and the
increase of borrowed funds subsequent to the Reorganization in order to fund
asset growth. The average cost of interest bearing liabilities remained
relatively stable for the three months ended June 30, 1997, reflecting an
overall decline in the average cost of certificates of deposit and borrowed
funds, the effect of which was offset by the increased average balances of
certificates of deposit and borrowed funds, which generally have higher costs
than passbook, NOW and money market accounts.
-8-
RESULTS OF OPERATIONS (Continued)
Interest expense increased by $306,000 to $3.8 million for the six months ended
June 30, 1997 compared to $3.4 million for the six months ended June 30, 1996.
The increase in interest expense was primarily due to a $13.0 million increase
in the average balance of interest-bearing liabilities (primarily borrowed
funds) to $150.7 million for the six months ended June 30, 1997 from $137.7
million for the comparable 1996 period.
The increase in the average balance in borrowed funds in 1997 reflects the
repayment of borrowed funds with the proceeds of the Reorganization in 1996 and
the increase of borrowed funds subsequent to the Reorganization in order to fund
asset growth. The average cost of interest bearing liabilities remained
relatively stable for the six months ended June 30, 1997, reflecting an overall
decline in the average cost of certificates of deposit, passbook savings
accounts and borrowed funds the effect of which was offset by the increased
average balances of certificates of deposit and borrowed funds, which generally
have higher costs than passbook, NOW and money market accounts.
Net Interest Income. Net interest income before provision for loan losses
decreased by $91,000 to $2.0 million for the three months ended June 30, 1997
from $2.1 million for the three months ended June 30, 1996. The decrease is
primarily due to the decrease in the excess of average interest earning assets
over the average interest bearing liabilities. This net decrease was also due
in part to the decrease in the Company's interest rate spread (i.e., the
difference in the average yield on assets and average cost of liabilities) from
3.06% for the three months ended June 30, 1996 to 2.88% for the three months
ended June 30, 1997.
Net interest income before provision for loan losses increased by $218,000 to
$4.1 million for the six months ended June 30, 1997 from $3.9 million for the
six months ended June 30, 1996. The increase is due in part to the increase in
the excess of average interest earning assets over average interest bearing
liabilities. The impact of this net increase was offset in part by the decrease
in the Company's interest rate spread (i.e., the difference in the average yield
on assets and average cost of liabilities) from 3.00% for the six months ended
June 30, 1996 to 2.87% for the six months ended June 30, 1997.
The following tables set forth certain information relating to the Company's
average balance sheets and reflect the average yield on assets and average cost
of liabilities for the three and six month periods ended June 30, 1997 and 1996.
-9-
RESULTS OF OPERATIONS (Continued)
For Three Months Ended June 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ----------- --------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
First mortgage loans.............. $150,065 $3,014 8.03% $134,168 $2,741 8.17%
Consumer loans.................... 22,924 537 9.40 20,640 491 9.57
Securities available for sale..... 24,000 539 5.66 14,484 241 6.70
Securities held to maturity....... 500 8 6.28 12,164 204 6.75
Interest bearing cash............. 2,646 34 5.11 4,571 57 5.00
-------- ------ ------ -------- ------ -------
Total interest-earning assets... 200,135 $3,932 7.86% 186,027 $3,734 8.04%
------ ------ ------ -------
Noninterest-earning assets........ 6,482 4,500
-------- --------
Total assets.................... $206,617 $190,527
======== ========
Interest-bearing liabilities:
NOW and money market savings....... $ 21,682 $ 156 2.88% $ 18,690 $ 131 2.82%
Passbook savings................... 17,538 98 2.25 18,781 105 2.25
Certificates of Deposit............ 91,466 1,326 5.81 88,280 1,308 5.96
Borrowed funds..................... 21,983 316 5.76 4,055 64 6.30
-------- ------ ------ -------- ------ -------
Total interest-bearing liabilities.. 152,668 $1,896 4.98% 129,805 $1,607 4.98%
------ ------ ------ -------
Noninterest-bearing liabilities..... 5,160 5,245
-------- --------
Total liabilities................. 157,828 135,051
Equity.............................. 48,789 55,476
-------- --------
Total liabilities and equity...... $206,617 $190,527
======== ========
Net interest income............... $2,036 $2,127
====== ======
Net interest rate spread.......... 2.88% 3.06%
====== ======
Net interest margin............... 4.07% 4.57%
====== ======
Ratio of average interest-earning. 131.09% 143.31%
====== ======
For Six Months Ended June 30,
-----------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ----------- --------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
First mortgage loans............... $148,671 $5,995 8.06% $132,885 $5,419 8.16%
Consumer loans..................... 22,546 1,061 9.49 19,935 951 9.60
Securities available for sale...... 23,539 663 5.68 11,980 389 6.52
Securities held to maturity........ 1,500 49 6.61 13,413 447 6.71
Interest bearing cash.............. 2,715 68 5.08 4,266 106 4.99
-------- ------ ------ -------- ------ -------
Total interest-earning assets.... 198,971 $7,837 7.89% 182,479 $7,312 8.03%
------ ------ ------ -------
Noninterest-earning assets......... 6,543 4,389
-------- --------
Total assets..................... $205,514 $186,868
======== ========
Interest-bearing liabilities:
NOW and money market savings....... $ 21,189 $ 302 2.87% $ 18,260 $ 256 2.81%
Passbook savings................... 17,595 196 2.25 19,828 225 2.29
Certificates of Deposit............ 90,628 2,632 5.86 88,124 2,619 5.98
Borrowed funds..................... 21,305 620 5.87 11,483 344 6.03
-------- ------ ------ -------- ------ -------
Total interest-bearing liabilities.. 150,717 $3,750 5.02% 137,695 $3,444 5.03%
------ ------ ------ -------
Noninterest-bearing liabilities..... 5,537 4,874
-------- --------
Total liabilities................. 156,253 142,569
Equity.............................. 49,261 44,299
-------- --------
Total liabilities and equity...... $205,514 $186,868
======== ========
Net interest income............... $4,086 $3,868
====== ======
Net interest rate spread.......... 2.87% 3.00%
====== ======
Net interest margin............... 4.11% 4.24%
====== ======
Ratio of average interest-earning. 132.02% 132.52%
====== ======
-10-
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $60,000
for each of the three months ended June 30, 1997 and 1996. The Company's
provision for loan losses was $120,000 for each of the six months ended June 30,
1997 and 1996. 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 Bank's portfolio, which includes a significant amount
of multifamily 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 (recoveries) were $(5,000) for the six months ended June 30,
1997 as compared to net charge offs of $3,000 for the six months ended June 30,
1996. The resulting allowance for loan losses was $2.1 million at June 30, 1997
as compared to $2.0 million at December 31, 1996 and $1.9 million at June 30,
1996. This increase in the allowance for the first six months of 1997 reflects
the increase in total loans from $160.2 million at June 30, 1996 to $176.5
million at June 30, 1997. The level of nonperforming loans decreased to
$132,000 at June 30, 1997 from $184,000 at December 31, 1996 and $277,000 at
June 30, 1996. Management believes that the allowance for loan losses is
adequate. While management estimates loan losses using the best available
information, such as independent appraisals for significant collateral
properties, no assurance can be made that future adjustments to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding known problem loans,
identification of additional problem loans, and other factors, both within and
outside of management's control.
Noninterest Income. Total noninterest income increased by $117,000 to $599,000
for the three months ended June 30, 1997 from $482,000 for the three months
ended June 30, 1996. The increase is due to increases in fees and service
charges, abstract fees and other income. Fees and service charges increased
$30,000, primarily due to increases in overdraft fees. Abstract fees increased
$51,000 due to increased sales volume, which is in part attributable to the
purchase of the assets of an abstract company in December, 1996. Other income
increased $35,000 primarily due to increases in rental income from the Bank's
investment in the Northridge Apartments Limited Partnership, which owns and
operates a 44-unit apartment complex in Fort Dodge, Iowa, insurance sales and
gains on the sale of foreclosed real estate, offset in part by decreases in
annuity sales.
Total noninterest income increased by $179,000 to $1.1 million for the six
months ended June 30, 1997 from $904,000 for the six months ended June 30, 1996.
The increase is due to increases in fees and service charges, abstract fees and
other income, offset by decreases in gain on sale of securities available for
sale. Fees and service charges increased $60,000, primarily due to increases in
overdraft fees. Abstract fees increased $111,000 due to increased sales volume,
which is in part attributable to the purchase of the assets of an abstract
company in December, 1996. Other income increased $22,000, primarily due to
increases in rental income from the Bank's investment in the Northridge
Apartments Limited Partnership, insurance sales and gains on the sale of
foreclosed real estate, offset in part by decreases in annuity sales.
Noninterest income for the six months ended June 30, 1996 also reflects gains on
sales of securities available for sale of $14,000, while no such gains were
recorded for the corresponding six month period in 1997.
Noninterest Expense. Total noninterest expense increased by $154,000 to $1.1
million for the three months ended June 30, 1997 from $965,000 for the three
months ended June 30, 1996. The increase is primarily due to increases in
salaries and employee benefits and other expenses, offset by decreases in SAIF
deposit insurance premiums. The increase in salaries and benefits was primarily
a result of the increased costs associated with the ESOP, normal salary
increases and an increase in the number of employees at the Ames office. The
increase in other expenses is primarily a result of higher expenditures for
advertising, printing, postage and supplies and costs associated with the Bank's
investment in the Northridge Apartments Limited Partnership. The decrease in
SAIF deposit insurance premiums was primarily due to the enactment of
legislation to lower assessment rates. The Company's efficiency ratio for the
three months ended June 30, 1997 and 1996 were 42.48% and 36.98%, respectively.
The Company's ratio of noninterest expense to average assets for the three
months ended June 30, 1997 and 1996 were 2.17% and 2.03%, respectively.
-11-
RESULTS OF OPERATIONS (Continued)
Total noninterest expense increased by $188,000 to $2.2 million for the six
months ended June 30, 1997 from $2.0 million for the six months ended June 30,
1996. The increase is primarily due to increases in other expenses, offset by a
decrease in SAIF deposit insurance premiums. The increase in other expenses is
primarily a result of higher expenditures for professional fees, advertising,
printing, postage and supplies and costs associated with the Bank's investment
in the Northridge Apartments Limited Partnership. The decrease in SAIF deposit
insurance premiums was primarily due to the enactment of legislation to lower
assessment rates. The Company's efficiency ratio for the six months ended June
30, 1997 and 1996 were 43.11% and 42.76%, respectively. The Company's ratio of
noninterest expense to average assets for the six months ended June 30, 1997 and
1996 were 2.17% and 2.18%, respectively.
Income Taxes. Income taxes decreased by $82,000 to $496,000 for the three
months ended June 30, 1997 as compared to $578,000 for the three months ended
June 30, 1996. The decrease was primarily due to a decrease in pre-tax earnings
during the 1997 period as compared to the corresponding 1996 period and tax
credits recognized from the Bank's investment in the Northridge Apartments
Limited Partnership in 1997.
Income taxes increased by $23,000 to $972,000 for the six months ended June 30,
1997 as compared to $949,000 for the six months ended June 30, 1996. The
increase was primarily due to an increase in pre-tax earnings during the 1997
period as compared to the corresponding 1996 period, offset in part by tax
credits recognized from the Bank's investment in the Northridge Apartments
Limited Partnership in 1997.
Net Income. Net income totalled $959,000 for the three months ended June 30,
1997, compared to $1.0 million for the same period in 1996.
Net income totalled $1.8 million for the six months ended June 30, 1997,
compared to $1.7 million for the same period in 1996.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-12-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
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 1997 Annual Meeting of Stockholders on April 25, 1997. At
the meeting, the stockholders of the Company considered and voted upon:
1. The election as directors are as follows:
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 3,163,246 9,321
Robert H. Singer, Jr. 3,162,965 9,602
There were no broker non-votes on this proposal.
2. The approval of Amendment No. 1 to the North Central Bancshares, Inc. 1996
Stock Option Plan was approved by a vote of 2,691,708 in favor, 188,123 votes
against and 31,541 votes abstaining.
There were 261,195 broker non-votes on this proposal.
3. The ratification of the engagement of McGladrey & Pullen LLP, as the
Company's independent auditors, was approved by a vote of 3,137,214 in favor,
1,047 votes against and 34,226 votes abstaining.
There were 80 broker non-votes on this proposal.
Item 5. Other Information
Not applicable
-13-
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial data schedule. (Only submitted with filing in
electronic format.)
Exhibit 99.1 Press Release (regarding the declaration of a dividend).
Exhibit 99.2 Press Release (regarding the issuance of limited financial
information for the quarter ended June 30, 1997).
Exhibit 99.3 Press Release (regarding the announcement of a stock repurchase
program).
Exhibit 99.4 Press Release (regarding the completion of a stock repurchase
program).
(b)Reports on Form 8-K
None
-14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
NORTH CENTRAL BANCSHARES, INC.
DATE: August 13, 1997 BY: /s/ David M. Bradley
David M. Bradley, CPA
Chairman, President and
Chief Executive Officer
DATE: August 13, 1997 BY: /s/ John L. Pierschbacher
John L. Pierschbacher, CPA
Principal Financial Officer
-15-