SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------------------------------
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, 1996
[ ] 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
---- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
825 CENTRAL AVENUE FORT DODGE, IOWA 50501
--------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 515-
576-7531
NONE
------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
X No
- ---- -----
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
State 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 12, 1996
- ----- ------------------------------
(Common Stock, $.01 par value) 4,011,057
<PAGE>
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,
1996 and December 31, 1995 1
Consolidated Condensed Statements of
Income for the six months ended
June 30, 1996 and 1995 2
Consolidated Condensed Statements of
Cash Flows for the six months ended
June 30, 1996 and 1995 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 13
PART II. OTHER INFORMATION 14 to 17
Items 1 through 6 14
Signatures 15
Exhibits 16 to 17
<PAGE>
NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, December 31,
ASSETS 1996 1995
--------- --------
<S> <C> <C>
Cash:
Interest-bearing $4,900,993 $ 2,362,244
Noninterest-bearing 877,101 709,398
Securities available for sale 16,923,233 7,799,445
Securities held to maturity 10,498,624 15,994,521
Loans receivable, net 155,857,313 147,871,666
Accrued interest receivable 1,455,163 1,415,111
Foreclosed real estate 135,719 127,989
Premises and equipment, net 1,677,364 1,621,734
Title plant 857,800 857,800
Income taxes receivable -- 31,766
Deferred taxes 166,000 67,626
Prepaid expenses and other assets 933,762 1,070,396
----------- ------------
Total assets $194,283,072 $179,929,696
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $129,020,848 $126,672,313
Other borrowed funds 7,872,000 21,940,000
Advances from borrowers for taxes and 814,534 781,545
insurance
Dividend payable 250,691 127,829
Income taxes payable 121,700 --
Accrued expenses and other liabilities 467,769 507,681
----------- -----------
Total liabilities 138,547,542 150,029,368
----------- -----------
1
<PAGE>
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common Stock 40,111 37,000
Additional paid-in capital 37,739,564 12,350,840
Retained earnings, 19,521,198 18,220,626
substantially restricted
Unrealized gain (loss) on securities (40,553) 60,652
available for sale, net of income taxes
Unearned shares, employee (1,524,790) (768,790)
----------- -----------
stock ownership plan
Total stockholders' equity 55,735,530 29,900,328
---------- ----------
Total liabilities and stockholders' $194,283,072 $179,929,696
equity ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
2
<PAGE>
NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable:
First mortgage loans $2,740,860 $2,365,370 $5,418,587 $4,636,368
Consumer loans 491,238 414,865 951,463 803,853
Securities and cash deposits 502,132 414,027 941,720 808,208
------- ------- ------- -------
3,734,230 3,194,262 7,311,770 6,248,429
--------- --------- --------- ---------
Interest expense:
Deposits 1,543,675 1,576,239 3,099,358 3,064,394
Other borrowed funds 63,550 181,603 344,432 309,439
---------- ---------- ---------- ----------
1,607,225 1,757,842 3,443,790 3,373,833
--------- --------- ---------- ----------
Net Interest Income 2,127,005 1,436,420 3,867,980 2,874,596
Provision for loan losses 60,000 115,000 120,000 130,000
---------- --------- ------- -------
Net interest income after provision
for loan losses
2,067,005 1,321,420 3,747,980 2,744,596
--------- --------- ---------- ----------
Noninterest income:
Fees and service charges 124,466 119,665 249,103 217,407
Abstract fees 256,613 190,464 452,253 368,353
Gain on sale of securities
available for sale -- 181,871 13,774 181,871
Other income 100,950 80,334 189,141 141,019
---------- ------ ------- ----------
Total noninterest income 482,029 572,334 904,271 908,650
---------- ---------- --------- ----------
Noninterest expense:
Salaries and employee benefits 446,611 404,900 1,029,153 823,802
Premises and equipment 112,758 90,085 223,818 182,378
Data processing 58,937 55,010 119,072 111,423
SAIF deposit insurance premiums 72,990 71,536 146,099 143,072
Other expenses 273,549 296,055 522,408 536,089
---------- ---------- ---------- ----------
Total noninterest expense 964,845 917,586 2,040,550 1,796,764
---------- ---------- ---------- ----------
Income before income taxes 1,584,189 976,168 2,611,701 1,856,482
Provision for income taxes 577,749 356,096 949,383 688,451
---------- -------- ---------- ----------
Net income $1,006,440 $620,072 $1,622,318 $1,168,031
========== ========= ========== ==========
Earnings per share $0.26 $0.16 $0.43 $0.30
========== ========= =========== ===========
Dividends declared per common share $0.0625 $0.3500 $0.1625 $0.4500
========== ========= ========== ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1995 1996
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,662,318 $1,168,031
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 120,000 130,000
Depreciation 102,642 80,334
Amortization and accretion (79,392) (116,101)
Deferred taxes (41,956) 34,528
Effect of contribution to employee stock 47,268 (1,391)
ownership plan
(Gain) on sale of foreclosed real estate and (9,103) (7,973)
loans, net
(Gain) on sale of securities available for (13,774) (181,871)
sale
Loss on disposal of equipment 1,752 --
Change in assets and liabilities:
(Increase) decrease in accrued interest (40,052) 278
receivable
Decrease in income taxes receivable 31,766 --
(Increase) decrease in prepaid expenses and 136,634 (649,699)
other assets
Increase (decrease) in income taxes payable 121,700 (7,151)
Increase (decrease) in accrued expenses and (39,912) 159,706
-------- -------
other liabilities
Net cash provided by operating activities 1,999,891 608,691
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in loans (4,020,120) (3,307,451)
Purchase of loans (4,093,289) (6,563,530)
Proceeds from sale of securities available for sale 53,891 1,165,856
Purchase of securities available for sale (9,320,762) (176,816)
Proceeds from maturities of securities held to maturity 5,500,000 5,000,000
Purchase of securities held to maturity -- (5,491,045)
Purchase of premises and equipment (160,025) (112,666)
Purchase of title plant -- (699,270)
Other 83,657 7,973
----------- -----------
Net cash (used in) investing activities (11,956,648) (10,176,949)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,348,535 1,313,901
Increase in advances from borrowers for 32,989 87,809
taxes and insurance
Net change in short term borrowings (14,000,000) 4,500,000
Proceeds from other borrowed funds -- 3,150,000
Payments of other borrowings (20,000) --
Proceeds from issuance of 2,625,467 shares of common 25,412,159 --
stock
Payments for expenses incurred relating to (871,592) --
conversion to stock form
Dividends paid (238,882) (544,050)
----------- ----------
Net cash provided by financing activities 12,663,209 8,507,660
---------- ---------
Net increase (decrease) in cash 2,706,452 (1,060,598)
CASH
Beginning 3,071,642 4,977,724
--------- ---------
Ending $5,778,094 $3,917,126
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash payments for:
Interest paid to depositors $3,088,047 $3,027,224
Interest paid on borrowings 374,584 298,748
Income taxes 837,873 643,574
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
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
periods ended June 30, 1996 and 1995 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 1995 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
approximately $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.
The accompanying condensed consolidated financial statements include the
accounts of the Company and its subsidiaries. For periods prior to the
Reorganization the statements include the accounts of the Bank and its
subsidiaries and the accounts of the MHC. The inclusion of the accounts of the
MHC had the effect of increasing stockholders' equity at December 31, 1995 by
$314,000 and decreasing net income for the three and six months ended June 30,
1995 by $17,000 and $20,000, respectively as compared to amounts previously
reported by the Bank.
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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, 1996, the
weighted average number of shares outstanding were 3,846,798 and 3,882,177,
respectively. For the three and six months ended June 30, 1995, the weighted
average number of shares outstanding were 3,917,826 and 3,916,152, respectively.
The number of shares outstanding for the three and six month periods ended at
June 30, 1995 were restated to reflect the conversion ratio effected as part of
the Reorganization.
4. DIVIDENDS
On May 24, 1996, the Company declared a cash dividend on its common stock,
payable on July 5, 1996 to stockholders of record as of June 14, 1996, equal to
$0.0625 per share.
5. PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has approved, effective for
years beginning after December 15, 1995, Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
Statement No. 122, Accounting for Mortgage Servicing Rights and Statement No.
123, Accounting for Stock-Based Compensation. The implementation of FASB
Statements No. 121, 122 and 123 did not have a material effect on the Company's
financial statements when adopted.
FASB has appproved, effective for transactions entered into after December 31,
1996, Statement No. 125, Accounting for transfers and servicing of financial
assets and extinguishments of liabilities. The implementation of FASB Statement
No. 125 will not have a material effect on the Company's financial statements
when adopted.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets increased by $14.4 million, or 8.0%, from $179.9 million at
December 31, 1995 to $194.3 million at June 30, 1996. Cash increased by $2.7
million, or 88.1%, from $3.1 million at December 31, 1995 to $5.8 million at
June 30, 1996. Securities available for sale increased by $9.1 million, or
117.0%, primarily due to the purchase of U.S. Treasury Notes and equity
securities. Securities held to maturity decreased $5.5 million, or 34.4%,
primarily due to the maturity of U.S. Treasury Notes. Total loans receivable,
net, increased by $8.0 million, or 5.4%, due to originations of $11.1 million of
first mortgage loans secured by one-to-four family residences, purchases of $4.1
million of first mortgage loans secured by one-to-four family and multi-family
residences and originations of $5.0 million of second mortgage loans, which
originations and purchases were offset in part by payments and prepayments of
loans during the six months ended June 30, 1996. Deposits increased $2.3
million, or 1.9%, from $126.7 million at December 31, 1995 to $129.0 million at
June 30, 1996. Other borrowings, primarily Federal Home Loan Bank of Des Moines
("FHLB") advances, decreased by $14.0 million, to $7.9 million at June 30, 1996
from $21.9 million at December 31, 1995, primarily due to the use of a portion
of the proceeds from the Offering to repay FHLB advances. Total stockholders'
equity increased $25.8 million, from $29.9 million at December 31, 1995 to $55.7
million at June 30, 1996, primarily due to the issuance of common stock in the
Offering.
CAPITAL
The Company's total stockholders' equity increased by $25.8 million to $55.7
million at June 30, 1996 from $29.9 million at December 31, 1995. The unrealized
gain (loss) on securities available for sale decreased by $101,000 to $(41,000)
at June 30, 1996 from $61,000 at December 31, 1995. The unearned shares from the
Employee Stock Ownership Plan increased by $756,000 to $1.5 million at June 30,
1996 from $769,000 at December 31, 1995, primarily due to the purchase of
additional shares by the employee stock ownership plan as a part of the
Offering.
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,
1996, the Bank exceeded all of its regulatory capital requirements. The Bank's
required, actual and excess capital levels as of June 30, 1996 are as follows:
7
<PAGE>
Amount Percentage
of Assets
(DOLLAR AMOUNTS IN THOUSANDS)
Tangible capital:
Capital level $42,300 21.91%
Requirement 2,896 1.50%
Excess $39,404 20.41%
Core capital:
Capital level $42,300 21.91%
Requirement 5,791 3.00%
Excess $36,509 18.91%
Risk-based capital:
Capital level $43,607 41.93%
Requirement 8,320 8.00%
Excess $35,287 33.93%
LIQUIDITY
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 United States 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, 1996, the Bank's
liquidity position was $24.4 million or 19.01% of liquid assets, compared to
$9.8 million or 6.85% at December 31, 1995. The increase of $14.6 million was
primarily due to the release of $13.0 million of pledged liquid assets held as
collateral on the Bank's borrowings from the FHLB.
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 United States 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, 1996,
the Bank's short term liquidity position was $5.9 million or 4.60% of short term
liquid assets, compared to $3.3 million or 2.31% at December 31, 1995. The
increase of $2.6 million was primarily due to the increase in cash at June 30,
1996.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans, maturities of securities and other investments, and earnings and funds
provided from operations. While scheduled principal repayments on loans are a
relatively predictable source of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. The Bank manages the pricing of its deposits to maintain a desired
deposit balance. In addition, the Bank invests in short-term interest-earning
assets, which provide liquidity to meet lending requirements. At June 30, 1996,
$11.0 million, or 59.5%, of the Bank's investment portfolio, excluding equity
securities, was scheduled to mature in one year or less and $7.5 million, or
40.5%, was scheduled to mature in one to five years. For additional information
about cash flows from the Bank's operating, financing and investing activities,
see Statements of Cash Flows included in the Condensed Consolidated Financial
Statements.
8
<PAGE>
PROPOSED SAIF RECAPITALIZATION
During the quarter ended June 30, 1996, no legislative action was taken by
Congress to recapitalize the Savings Association Insurance Fund ("SAIF"). The
Bank's officers and other industry leaders have continued to work toward passage
of recapitalization legislation comparable to that which was contained in the
Balance Budget Act of 1995, which was vetoed by the President for reasons
unrelated to the SAIF capitalization. If an 85 or 90 basis point assessment were
imposed against the Company based upon the deposits as of March 31, 1995, as had
been contemplated by such legislation, the aggregate SAIF assessment payable by
the Bank would have been approximately $1.1 million or $1.1 million, before
taxes, respectively. An assessment of 80 basis points would have been
approximately $1.0 million, before taxes.
At this time, the Company cannot predict whether any legislative proposals
regarding SAIF recapitalization will be adopted or, if so, in what form. Until
such time as a SAIF recapitalization is adopted, it is expected that the Company
will continue to be assessed deposit insurance assetsments at rates
substantially in excess of those assessed against comparably rated Bank
Insurance Fund ("BIF") insured institutions, primarily commercial banks. Based
upon the Company's June 30, 1996 assessment base, the SAIF premium paid by the
Company on an anuualized basis would equal approximately $296,000. A comparably
rated and sized BIFinsured institution would pay approximately $2,000 for the
same deposit insurance coverage.
RECAPTURE OF TAX BAD DEBT RESERVES
Under section 593 of the Internal Revenue Code, thrift institutions such as the
Bank, which met certain definitional tests, primarily relating to their assets
and the nature of their business, are permitted to establish a tax reserve for
bad debts and to make annual additions thereto, which additions may, within
specified limitations, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans", which are generally loans
secured by certain interest in real property, may currently be computed using an
amount based on the Bank's actual loss experience (the "Experience Method"), or
a percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications and
reduced by the amount of any permitted addition to the non-qualifying reserve.
Under the Small Business Job Protection Act of 1996 (the "1996 Act") as passed
by the House of Repressentatives and the Senate on August 2, 1996, the PTI
Method would be repealed and the Bank would be permitted to use only the
Experience Method of computing additions to its bad debt reserve. In addition,
the Bank would be required to recapture (i.e., take into income) over a
multi-year period, beginning with the Bank's taxable year beginning January 1,
1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the greater of (a) the
balance of such reserve as of December 31, 1987 (or a lesser amount if the
Bank's loan portfolio has decreased since December 31, 1987) or (b) an amount
that would have been the balance of such reserves as of December 31, 1995 had
the Bank always computed the additions to its reserves using the experience
method. However, such recapture requirements would be suspended for each of two
successive taxable years beginning January 1, 1996 in which the Bank originates
a minimum amount of certain residential loans based upon the average of the
principal amounts of such loans made by the Bank during its six taxable years
preceding January 1, 1996. It is anticipated that the President will sign the
1996 Act in the near future. The Bank's post-December 31, 1987 bad debt
9
<PAGE>
reserves at December 31, 1995 were $1.4 million. If that amount were recaptured,
the Bank would incur an additional tax liability of approximately $530,000.
RESULTS OF OPERATIONS
INTEREST INCOME. Interest income increased by $540,000 to $3.7 million for the
three months ended June 30, 1996 compared to $3.2 million for the three months
ended June 30, 1995. The increase in interest income was primarily due to a
$22.9 million increase in the average balance of interest earning assets
(primarily first and second mortgage loans and securities) to $186.0 million for
the three months ended June 30, 1996, from $163.2 million for the comparable
1995 period. The increase in the average balance in first and second mortgage
loans generally reflects an increase over the past twelve months in originations
of first mortgage loans secured by one-to-four family residences, purchases of
first mortgage loans secured by one-to-four family and multi-family residences
and originations of second mortgage loans. See "Financial Condition." The
increase in securities is due to the purchase of FNMA preferred stock. The
increase in interest income was also due to an increase in the average yield on
first mortgage loans to 8.17% for the three months ended June 30, 1996 from
8.02% for the three months ended June 30, 1995, reflecting an upward adjustment
of interest rates on the Bank's adjustable-rate mortgage loan portfolio and the
higher yields on loans purchased. The average yield on interest earning assets
increased to 8.04% for the three months ended June 30, 1996 from 7.84% for the
three months ended June 30, 1995.
Interest income increased by $1.1 million to $7.3 million for the six months
ended June 30, 1996 compared to $6.2 million for the six months ended June 30,
1995. The increase in interest income was primarily due to a $21.3 million
increase in the average balance of interest earning assets (primarily first and
second mortgage loans) to $182.5 million for the six months ended June 30, 1996,
from $161.2 million for the comparable 1995 period. The increase in the average
balance in first and second mortgage loans generally reflects an increase over
the past twelve months in originations of first mortgage loans secured by
one-to-four family residences, purchases of first mortgage loans secured by
one-to-four family and multi-family residences and originations of second
mortgage loans. See "Financial Condition." The increase in interest income was
also due to an increase in the average yield on first mortgage loans to 8.16%
for the six months ended June 30, 1996 from 7.96% for the six months ended June
30, 1995, reflecting an upward adjustment of interest rates on the Bank's
adjustable-rate mortgage loan portfolio and the higher yields on loans
purchased. The average yield on interest earning assets increased to 8.03% for
the six months ended June 30, 1996 from 7.77% for the six months ended June 30,
1995.
INTEREST EXPENSE. Interest expense decreased by $151,000 to $1.6 million for the
three months ended June 30, 1996 compared to $1.8 million for the three months
ended June 30, 1995. The decrease in interest expense was primarily due to an
$4.5 million decrease in the average interest bearing liabilities to $129.8
million for the three months ended June 30, 1996 from $134.3 million for the
three months ended June 30, 1995. This decrease was due to a
10
<PAGE>
RESULTS OF OPERATIONS (Continued)
decrease of $7.3 million in the average borrowings from $11.8 million for the
three months ended June 30, 1995 to $4.0 million for the three months ended June
30, 1996, as the Company used a portion of the proceeds of the Offering to repay
FHLB advances. This decrease was offset in part by an increase of $3.2 million
in the average interest-bearing deposits from $122.5 million for the three
months ended June 30, 1995 to $125.8 million for the three months ended June 30,
1996, due to favorable rates being offered on certain types of deposit accounts.
The decrease in interest expense was also due to a decrease in the cost of
interest-bearing deposits to 4.94% for the three months ended June 30, 1996 from
5.16% for the three months ended June 30, 1995. The average cost of interest
bearing liabilities decreased to 4.98% for the three months ended June 30, 1996
from 5.25% for the three months ended June 30, 1995. The lowering cost of funds
reflects the decrease in higher costing FHLB advances due to the use of a
portion of the proceeds form the Offering which was use to repay FHLB advances.
Interest expense increased by $70,000 to $3.4 million for the six months ended
June 30, 1996 compared to $3.4 million for the six months ended June 30, 1995.
The increase in interest expense was primarily due to an $5.0 million increase
in the average interest bearing liabilities to $137.7 million for the six months
ended June 30, 1996 from $132.7 million for the six months ended June 30, 1995.
This increase was primarily due to an increase of $4.2 million in the average
interest-bearing deposits from $122.0 million for the six months ended June 30,
1995 to $126.2 million for the six months ended June 30, 1996, due to favorable
rates being offered on certain types of deposit accounts. This increase was
offset in part by a decrease in the average cost of interest paid on the average
interest-bearing deposits to 4.94% for the six months ended June 30, 1996 from
5.07% for the six months ended June 30, 1995, due to the use of a portion of the
proceeds of the Offering to repay FHLB advances. The average cost of interest
bearing liabilities decreased to 5.03% for the six months ended June 30, 1996
from 5.13% for the six months ended June 30, 1995. The lowering cost of funds
reflects the decrease in FHLB advances due to the use of a portion of the
proceeds form the Offering which was use to repay FHLB advances.
NET INTEREST INCOME. Net interest income before provision for loan losses
increased by $691,000 to $2.1 million for the three months ended June 30, 1996
from $1.4 million for the three months ended June 30, 1995. The increase is
primarily due to the increase in the excess of average interest earning assets
over average interest bearing liabilities and the increase in the Bank's
interest rate spread from 2.59% for the three months ended June 30, 1995 to
3.06% for the three months ended June 30, 1996.
Net interest income before provision for loan losses increased by $993,000 to
$3.9 million for the six months ended June 30, 1996 from $2.9 million for the
six months ended June 30, 1995. The increase is primarily due to the increase in
the excess of average interest earning assets over average interest bearing
liabilities and the increase in the Bank's interest rate spread from 2.64% for
the six months ended June 30, 1995 to 3.00% for the six months ended June 30,
1996.
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the six months
11
<PAGE>
RESULTS OF OPERATIONS (Continued)
ended June 30, 1996 and the average yields earned and rates paid.
SIX MONTHS ENDED JUNE 30, 1996
------------------------------
Average
Average Yield/
BALANCE INTEREST COST
(Dollars in Thousands)
Interest-earning assets:
First mortgage loans $132,885 $ 5,419 8.16%
Consumer loans 19,935 951 9.60%
Securities available for sale 11,980 389 6.52%
Securities held to maturity 13,413 447 6.71%
Interest bearing cash 4,266 106 4.99%
-------- -------- -------
Total interest-earning assets $182,479 $ 7,312 8.03%
-------- -------
Noninterest-earning assets 4,389
--------
Total assets $186,868
========
Interest-bearing liabilities:
NOW and money market savings $ 18,260 $256 2.81%
Passbook savings 19,828 225 2.29%
Certificates of deposits 88,124 2,619 5.98%
Borrowed funds 11,483 344 6.03%
-------- -------- -------
Total interest-bearing liabilities $137,695 $ 3,444 5.03%
-------- -------
Noninterest-bearing liabilities 4,874
--------
Total liabilities $142,569
Equity 44,299
--------
Total liabilities and equity $186,868
========
Net interest income $3,868
======
Net interest rate spread 3.00%
=====
Interest-earning assets and
net interest margin 4.24%
=====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 132.52%
=======
12
<PAGE>
RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED JUNE 30, 1996
--------------------------------
Average
Average Yield/
BALANCE INTEREST COST
------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
First mortgage loans $134,168 $ 2,741 8.17%
Consumer loans 20,640 491 9.57%
Securities available for sale 14,484 241 6.70%
Securities held to maturity 12,164 204 6.75%
Interest bearing cash 4,571 57 5.00%
-------- -------- -------
Total interest-earning assets $186,027 $ 3,734 8.04%
-------- -------
Noninterest-earning assets 4,500
--------
Total assets $190,527
========
Interest-bearing liabilities:
NOW and money market savings $ 18,690 $ 131 2.82%
Passbook savings 18,781 105 2.25%
Certificates of deposits 88,280 1,308 5.96%
Borrowed funds 4,055 64 6.30%
-------- -------- -------
Total interest-bearing liabilities $129,805 $ 1,607 4.98%
-------- -------
Noninterest-bearing liabilities 5,245
--------
Total liabilities $135,051
Equity 55,476
--------
Total liabilities and equity $190,527
========
Net interest income $ 2,127
========
Net interest rate spread 3.06%
=====
Interest-earning assets and
net interest margin 4.57%
=====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 143.31%
=======
13
<PAGE>
RESULTS OF OPERATIONS (Continued)
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses was $60,000
for the three months ended June 30, 1996 and $115,000 for the three months ended
June 30, 1995. The Company's provision for loan losses was $120,000 for the six
months ended June 30, 1996 and $130,000 for the six months ended June 30, 1995.
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
allowance for loan loss was $1.9 million at June 30, 1996 as compared to $1.6
million at June 30, 1995 and $1.7 million at December 31, 1995. The level of
nonperforming loans has increased from $257,000 at June 30, 1995 to $277,000 at
June 30, 1996. This increase in the allowance is primarily due to the increase
in total loans from $134.6 million at June 30, 1995 to $155.9 million 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 decreased by $90,000 to $482,000
for the three months ended June 30, 1996 from $572,000 for the three months
ended June 30, 1995. The decrease is primarily due to a decrease in the gain on
the sale of securities available for sale of $182,000. This decrease was offset
in part by increases in all other categories of noninterest income. Fees and
service charges increased $5,000, primarily due to increases in overdraft fees.
Abstract fees increased $66,000 due to increased sales volume. Other income
increase $21,000 primarily due to increases in annuity sales.
Total noninterest income decreased by $4,000 to $904,000 for the six months
ended June 30, 1996 from $909,000 for the six months ended June 30, 1995. The
decrease is primarily due to a decrease in the gain on the sale securities
available for sale of $168,000. This decrease was offset in part by increases in
all other categories of noninterest income. Fees and service charges increased
$32,000, primarily due to increases in overdraft fees. Abstract fees increased
$84,000 due to increased sales volume. Other income increase $48,000 primarily
due to increases in annuity sales.
NONINTEREST EXPENSE. Total noninterest expense increased by $47,000 to $965,000
for the three months ended June 30, 1996 from $918,000 for the three months
ended June 30, 1995. The increase is primarily due to a $42,000 increase in
salaries and benefits and a $23,000 increase in premises and equipment, offset
by a $23,000 decrease in other expenses. The increase in salaries and benefits
was primarily a result of the increased costs associated with the ESOP and
normal salary increases. The increase in premises and equipment is primarily a
result of higher
14
<PAGE>
RESULTS OF OPERATIONS (Continued)
expenditures for repairs and maintenance and increased depreciation expense due
to expenditures on buildings and equipment in the Bank's Nevada office and
equipment in the abstract companies. The decrease in other expenses is primarily
a result of lower advertising costs.
Total noninterest expense increased by $244,000 to $2.0 million for the six
months ended June 30, 1996 from $1.8 million for the six months ended June 30,
1995. The increase is primarily due to a $205,000 increase in salaries and
benefits and a $41,000 increase in premises and equipment. The increase in
salaries and benefits was primarily a result of a one time adoption of a
retirement plan for the benefit of the chairman of the board, the increased
costs associated with the ESOP and normal salary increases. The increase in
premises and equipment is primarily a result of higher expenditures for repairs
and amintenance and increased depreciation expense due to expenditures on
buildings and equipment in the Bank's Nevada office and equipment in the
abstract companies.
INCOME TAXES. Income taxes increased by $222,000 to $578,000 for the three
months ended June 30, 1996 as compared to $356,000 for the three months ended
June 30, 1995. The increase was primarily due to an increase in pre-tax earnings
during the 1996 period as compared to the 1995 period.
Income taxes increased by $261,000 to $949,000 for the six months ended June 30,
1996 as compared to $688,000 for the six months ended June 30, 1995. The
increase was primarily due to an increase in pre-tax earnings during the 1996
period as compared to the 1995 period.
NET INCOME. Net income totalled $1.0 million for the three months ended June 30,
1996, compared to $620,000 for the same period in 1995.
Net income totalled $1.6 million for the six months ended June 30, 1996,
compared to $1.2 million for the same period in 1995.
15
<PAGE>
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 1996 Annual Meeting of Stockholders on May 24, 1996.
At the meeting, the stockholders of the Company considered and voted upon:
1. The election as directors of nominees listed below:
Three-year term: John M. Peters
KaRene Egemo
The results of the election of directors are as follows:
VOTES
------------------------------------
In favor Withheld
John M. Peters 2,971,795 31,220
KaRene Egemo 2,969,228 33,787
2. The ratification of the engagement of McGladrey & Pullen LLP, as the
Company's independent auditors, was approved by a vote of 2,991,549 votes
in favor, 3,840 votes against and 7,626 votes abstaining.
There were no broker non-votes on either proposal.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11. Statement on computation of per share earnings.
Exhibit 27. Financial data schedule. (Only submitted with
filing in electronic format.)
(b) Reports on Form 8-K
A form 8-K was filed on April 23, 1996 to report, pursuant to Item 5, the
issuance of limited financial information for the quarter ended March 31, 1996.
A form 8-K was filed on May 24, 1996 to report, pursuant to Item 5, the
payment of a cash dividend on the Company's common stock.
16
<PAGE>
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 12, 1996 BY: /s/ David M. Bradley
David M. Bradley, CPA
President and
Chief Executive Officer
DATE: August 12, 1996 BY: /s/ John L. Pierschbacher
John L. Pierschbacher, CPA
Principal Financial Officer
17
Exhibit 11. Statement on computation of per share earnings.
For the three months ended June 30, 1996 and 1995, the primary and fully
dilutive weighted average number of shares outstanding were 3,846,798 and
3,917,826, respectively. For the six months ended June 30, 1996 and 1995, the
primary and fully dilutive weighted average number of shares outstanding were
3,882,177 and 3,916,152, respectively. The number of shares outstanding for the
three and six month periods ended June 30, 1995 were restated to reflect the
conversion ratio of 1.0841375 shares of the Company's common stock per share of
the Bank's common stock effected as part of the Reorganization.
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed statement of financial condition and the consolidated
condensed statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 877,101
<INT-BEARING-DEPOSITS> 4,900,993
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,923,233
<INVESTMENTS-CARRYING> 10,498,624
<INVESTMENTS-MARKET> 0
<LOANS> 155,857,313
<ALLOWANCE> 1,852,792
<TOTAL-ASSETS> 194,283,072
<DEPOSITS> 129,020,848
<SHORT-TERM> 4,130,000
<LIABILITIES-OTHER> 1,654,694
<LONG-TERM> 3,742,000
<COMMON> 40,111
0
0
<OTHER-SE> 55,695,419
<TOTAL-LIABILITIES-AND-EQUITY> 194,283,072
<INTEREST-LOAN> 6,370,050
<INTEREST-INVEST> 941,720
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,311,770
<INTEREST-DEPOSIT> 3,099,358
<INTEREST-EXPENSE> 3,443,790
<INTEREST-INCOME-NET> 3,876,980
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 13,774
<EXPENSE-OTHER> 2,040,550
<INCOME-PRETAX> 2,611,701
<INCOME-PRE-EXTRAORDINARY> 2,611,701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,662,318
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 8.03
<LOANS-NON> 277,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,735,599
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,852,792
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
