<PAGE>
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 September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 2,322,242
<PAGE>
NORTH CENTRAL BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Consolidated Condensed
Financial Statements (Unaudited) 1 to 4
Consolidated Condensed Statements of
Financial Condition at September 30,
1999 (Unaudited) and December 31, 1998 1
Consolidated Condensed Statements of
Income for the three and nine months ended
September 30, 1999 and 1998 (Unaudited) 2
Consolidated Condensed Statements of
Cash Flows for the nine months ended
September 30, 1999 and 1998 (Unaudited) 3 & 4
Notes to Consolidated Condensed Financial
Statements 5 & 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7 to 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Part II. Other Information 17 & 18
Items 1 through 5 17
Signatures 18
Exhibits
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1.
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
(Unaudited)
Cash:
Interest-bearing $ 3,766,123 $ 13,201,437
Noninterest-bearing 3,977,996 2,435,439
Securities available for sale 50,460,734 49,882,544
Loans receivable, net 281,475,653 254,032,497
Loans held for sale 548,031 1,681,017
Accrued interest receivable 2,016,523 1,933,237
Foreclosed real estate 301,803 186,931
Premises and equipment, net 5,132,945 3,616,438
Rental real estate 1,871,059 1,945,851
Title plant 925,256 925,256
Goodwill 6,033,454 6,387,671
Deferred taxes 678,078 13,490
Prepaid expenses and other assets 706,945 448,331
------------ ------------
Total assets $357,894,600 $336,690,139
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $260,651,576 $246,690,313
Other borrowed funds 56,244,069 38,832,239
Advances from borrowers for taxes and insurance 496,855 1,066,025
Dividend payable 239,954 237,133
Income taxes payable 179,823 199,224
Accrued expenses and other liabilities 821,699 1,458,391
------------ ------------
Total liabilities 318,633,976 288,483,325
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized
3,000,000 shares, issued and outstanding none) -- --
Common Stock ($.01 par value, authorized
15,500,000 shares; issued and outstanding
4,011,057) 40,111 40,111
Additional paid-in capital 38,247,105 38,135,817
Retained earnings, substantially restricted 29,525,119 27,084,907
Accumulated other comprehensive income-unrealized
gain (loss) on securities available for sale,
net of income taxes (540,932 ) 358,666
Treasury stock at cost (1,653,815 and
1,046,608 shares, respectively) (27,139,113 ) (16,399,403)
Unearned shares, employee stock ownership plan (871,666 ) (1,013,284)
------------ ------------
Total stockholders' equity 39,260,624 48,206,814
------------ ------------
Total liabilities and stockholders' equity $357,894,600 $336,690,139
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
-1-
<PAGE>
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
1999 1998 1999 1998
----------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $5,307,629 $5,212,578 $15,574,150 $15,118,419
Securities and cash deposits 821,758 832,371 2,526,727 2,441,673
---------- ---------- ----------- -----------
6,129,387 6,044,949 18,100,877 17,560,092
---------- ---------- ----------- -----------
Interest expense:
Deposits 2,814,579 2,830,448 8,165,869 8,044,700
Other borrowed funds 576,085 487,464 1,659,539 1,436,707
---------- ---------- ----------- -----------
3,390,664 3,317,912 9,825,408 9,481,407
---------- ---------- ----------- -----------
Net Interest Income 2,738,723 2,727,037 8,275,469 8,078,685
Provision for loan losses 30,000 60,000 90,000 180,000
---------- ---------- ----------- -----------
Net interest income after provision for loan losses 2,708,723 2,667,037 8,185,469 7,898,685
---------- ---------- ----------- -----------
Noninterest income:
Fees and service charges 378,799 335,294 1,074,152 884,692
Abstract fees 371,844 398,974 1,098,000 1,161,535
Gain (loss) on sale of securities available for
sale, net 29,575 (3,491) 61,564 51,362
Other income 348,467 298,413 870,099 692,417
---------- ---------- ----------- -----------
Total noninterest income 1,128,685 1,029,190 3,103,815 2,790,006
---------- ---------- ----------- -----------
Noninterest expense:
Salaries and employee benefits 1,033,039 916,321 3,013,023 2,560,557
Premises and equipment 235,859 222,793 658,823 557,522
Data processing 111,122 181,001 408,237 400,834
SAIF deposit insurance premiums 35,621 37,249 109,269 107,173
Goodwill amortization 118,072 120,850 354,217 317,189
Other expenses 593,997 537,823 1,795,753 1,573,559
---------- ---------- ----------- -----------
Total noninterest expense 2,127,710 2,016,037 6,339,322 5,516,834
---------- ---------- ----------- -----------
Income before income taxes 1,709,698 1,680,190 4,949,962 5,171,857
Provision for income taxes 622,193 605,972 1,730,820 1,875,847
---------- ---------- ----------- -----------
Net Income $1,087,505 $1,074,218 $ 3,219,142 $ 3,296,010
========== ========== =========== ===========
Basic earnings per common share $ 0.44 $ 0.36 $ 1.20 $ 1.07
========== ========== =========== ===========
Diluted earnings per common share $ 0.43 $ 0.35 $ 1.18 $ 1.04
========== ========== =========== ===========
Dividends declared per common share $ 0.10 $ 0.08 $ 0.30 $ 0.24
========== ========== =========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
-2-
<PAGE>
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,219,142 $ 3,296,010
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 90,000 180,000
Depreciation 410,285 319,591
Amortization and accretion 431,790 381,805
Deferred taxes (126,152) (179,096)
Effect of contribution to employee stock ownership plan 252,907 317,757
(Gain) on sale of foreclosed real estate and loans, net (28,742) (10,714)
(Gain) on sale of securities available for sale (61,564) (51,362)
Loss on sale and disposal of equipment, net 13,653 2,545
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (83,286) 194,374
(Increase) decrease in prepaid expenses and other assets (258,614) 211,186
(Decrease) in income taxes payable (19,401) (55,860)
(Decrease) increase in accrued expenses and other liabilities (636,692) 9,808
------------ ------------
Net cash provided by operating activities 3,203,326 4,616,044
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans 8,465,153 11,515,288
Net (increase) decrease in loans held for sale 1,132,986 (2,527,186)
Purchase of loans (36,004,744) (20,477,978)
Proceeds from sales of securities available-for-sale 438,915 23,911,786
Purchase of securities available-for-sale (17,088,919) (13,655,875)
Proceeds from maturities of securities available-for-sale 14,538,863 --
Purchase of premises and equipment and rental real estate (1,869,396) (577,212)
Proceeds from sale of equipment 3,743 30
Purchase of rental real estate -- (735)
Cash paid in connection with acquisition of Valley Financial Corporation,
net of cash received -- (8,561,493)
Other (787) 78,703
------------ ------------
Net cash (used in) investing activities (30,384,186) (10,294,672)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 13,961,263 5,273,366
(Decrease) in advances from borrowers for taxes and insurance (569,170) (780,119)
Net change in short term borrowings 14,500,000 250,000
Proceeds from other borrowed funds 6,000,000 14,542,000
Payments of other borrowings (3,088,170) (6,254,241)
Purchase of treasury stock (10,739,710) (3,584,419)
Dividends paid (776,110) (689,644)
Other -- 6,239
------------ ------------
Net cash provided by financing activities 19,288,103 8,763,182
------------ ------------
Net increase (decrease) in cash (7,892,757) 3,084,554
CASH
Beginning 15,636,876 3,445,163
------------ ------------
Ending $ 7,744,119 $ 6,529,717
============ ============
</TABLE>
(Continued)
-3-
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
<S> <C> <C>
Cash payments for:
Interest paid to depositors $ 8,229,094 $ 7,973,289
Interest paid on borrowings 1,656,694 1,436,432
Income taxes 1,876,373 2,088,987
</TABLE>
The following is a summary of the assets acquired and liabilities assumed in
connection with the acquisition of Valley Financial Corporation
<TABLE>
<CAPTION>
<S> <C>
Cash $ 6,157,507
Securities 41,818,057
Loans 58,567,364
Accrued interest receivable 1,019,373
Premises and equipment 1,081,890
Goodwill 6,565,174
Prepaid expenses and other assets 209,906
Deposits (99,261,995)
Advances from borrowers for taxes and insurance (301,783)
Deferred income taxes (300,030)
Accrued taxes payable 12,565
Accrued expenses and other liabilities (849,028)
------------
Cash Paid $ 14,719,000
Less Cash Received 6,157,507
------------
Cash Paid, net of cash received $ 8,561,493
============
</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 nine month
periods ended September 30, 1999 and 1998 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 1998 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 Iowa, formerly known as 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 canceled, 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 $26.3 million. 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. ACQUISITION OF VALLEY FINANCIAL CORP.
As of the close of business on January 30, 1998, the Bank completed the
acquisition of Valley Financial Corp. ("Valley Financial") (the "Acquisition")
pursuant to an Agreement and Plan of Merger, dated as of September 18, 1997 (the
"Merger Agreement"). The Acquisition resulted in the merger of Valley
Financial's wholly-owned subsidiary, Valley Savings Bank, FSB ("Valley
Savings"), with and into the Bank, with the Bank as the resulting financial
institution. Valley Savings, headquartered in Burlington, Iowa, was a
federally-chartered stock savings bank with three branch offices located in
southeastern Iowa.
In connection with the Acquisition, each share of Valley Financial's common
stock, par value $1.00 per share, issued and outstanding (other than shares held
as treasury stock of Valley Financial) was canceled and converted automatically
into the right to receive $525 per share in cash pursuant to the terms and
conditions of the Merger Agreement. As a result of the Acquisition,
shareholders of Valley Financial were paid a total of $14.7 million in cash.
The Acquisition was accounted for as a purchase transaction, resulting in
goodwill of $6.6 million. The operating results of the former offices of Valley
Savings are included in the 1998 operating results of the Company only from the
date of acquisition through September 30, 1998.
-5-
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
4. 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 month period ended
September 30, 1999, the weighted average number of shares outstanding for basic
and diluted earnings per share computation were 2,463,982 and 2,524,721,
respectively. For the nine month period ended September 30, 1999, the weighted
average number of shares outstanding for basic and diluted earnings per share
computation were 2,679,297 and 2,739,582, respectively. For the three month
period ended September 30, 1998, the weighted average number of shares
outstanding for basic and diluted earnings per share computation were 2,996,571
and 3,070,727, respectively. For the nine month period ended September 30,
1998, the weighted average number of shares outstanding for basic and diluted
earnings per share computation were 3,081,083 and 3,174,142, respectively.
5. DIVIDENDS
On August 27, 1999, the Company declared a cash dividend on its common stock,
payable on October 6, 1999 to stockholders of record as of September 16, 1999,
equal to $0.10 per share.
6. COMPREHENSIVE INCOME
Comprehensive income for the three months ended September 30, 1999 and 1998 was
$890,815 and $1,134,724, respectively. Comprehensive income for the nine
months ended September 30, 1999 and 1998 was $2,280,943 and $3,312,687,
respectively.
-6-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q contains forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include changes in general, economic, market, legislative and regulatory
conditions, and the development of an interest rate environment that adversely
affects the interest rate spread or other income anticipated from the Company's
operations and investments. The Company's actual results may differ from the
results discussed in the forward looking statements.
ACQUISITION OF VALLEY FINANCIAL CORP.
On September 18, 1997, the Company announced the execution of a definitive
agreement to acquire Valley Financial, a privately held Iowa corporation and
parent company of Valley Savings, Burlington, Iowa. As of the close of business
on January 30, 1998, the Bank completed the Acquisition. Under the terms of the
Merger Agreement, the Bank acquired in a cash transaction totalling $14.7
million, or $525 per share, all of the 28,050 shares outstanding of Valley
Financial's common stock.
Valley Savings was a federally-chartered savings bank, with two offices in
Burlington, Iowa and one office in Mount Pleasant, Iowa. At January 30, 1998,
just prior to the merger, Valley Financial had assets of $108.0 million, loans
of $57.9 million and deposits of $98.9 million.
The acquisition of Valley Financial resulted in the merger of Valley Financial's
wholly-owned subsidiary, Valley Savings, with and into the Bank. The
transaction was accounted for as a purchase, resulting in goodwill of $6.6
million, and closed on January 30, 1998. Consequently, the operating results of
the former Valley Savings are included in the 1998 operating results of the
Company only from the date of acquisition through September 30, 1998.
FINANCIAL CONDITION
Total assets increased $21.2 million, or 6.3%, to $357.9 million at September
30, 1999 compared to $336.7 million at December 31, 1998. Cash decreased $7.9
million, or 50.5%, due to the use of cash to fund growth in other areas of the
balance sheet. Securities available for sale increased $578,000, or 1.2%,
primarily due to $16.9 million of purchases, partially offset by $14.9 million
of maturities, sales and calls and a decrease in the gross unrealized gain of
$1.4 million. Total loans receivable, net, increased by $27.4 million from
December 31, 1998, due to originations of $32.3 million of first mortgage loans
secured primarily by one-to-four family residences, purchases of $36.0 million
of first mortgage loans secured by multi-family residences, one-to-four family
residences and commercial real estate and originations of $12.3 million of
second mortgage loans. These increases were offset in part by payments and
prepayments of loans (of approximately $58.4 million) and loan sales of
$475,000. Deposits increased $14.0 million, or 5.7%, to $260.7 million at
September 30, 1999 from $246.7 million at December 31, 1998, reflecting
increases primarily in certificate of deposit accounts. This increase was due
primarily to deposits of certain public funds and the marketing of retail
certificate of deposits during the nine months ended September 30, 1999. Other
borrowings, primarily Federal Home Loan Bank ("FHLB") advances, increased by
$17.4 million to $56.2 million at September 30, 1999 from $38.8 million at
December 31, 1998, due to borrowings on the Bank's FHLB open line of credit and
through fixed term advances, offset in part by the maturities of certain FHLB
advances. Total stockholders' equity decreased $8.9 million, to $39.3 million
at September 30, 1999 from $48.2 million at December 31, 1998. See "Capital."
-7-
<PAGE>
CAPITAL
The Company's total stockholders' equity decreased by $8.9 million to $39.3
million at September 30, 1999 from $48.2 million at December 31, 1998, primarily
due to stock repurchases and dividends declared, which were offset in part by
earnings. The changes in stockholders' equity were also due to an decrease in
the unrealized (gain) loss on securities available for sale by $900,000 to
$541,000 at September 30, 1999 from $(359,000) at December 31, 1998. The
unearned shares from the Employee Stock Ownership Plan (the "ESOP") decreased by
$142,000 to $872,000 at September 30, 1999 from $1,013,000 at December 31, 1998,
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 September
30, 1999, the Bank exceeded all of its regulatory capital requirements. The
Bank's required, actual and excess capital levels as of September 30, 1999 are
as follows:
<TABLE>
<CAPTION>
Amount Percentage of Assets
-------- ---------------------
(dollars in thousands)
Tangible capital:
<S> <C> <C>
Capital level $30,721 8.76%
Less Requirement 5,260 1.50%
------- -----
Excess $25,461 7.26%
======= =====
Core capital:
Capital level $30,721 8.76%
Less Requirement 14,028 4.00%
------- -----
Excess $16,693 4.76%
======= =====
Risk-based capital:
Capital level $33,198 17.22%
Less Requirement 15,425 8.00%
------- -----
Excess $17,773 9.22%
======= =====
</TABLE>
LIQUIDITY
The Company's primary sources of funds are cash provided by operating activities
(including net income), certain financing activities (including increases in
deposits and proceeds from borrowings) and certain investing activities
(including principal payments on loans and maturities and calls of securities).
During the first nine months of 1999 and 1998, principal payments and repayments
on loans totalled $58.4 million and $53.3 million, respectively. The increase
in loan payments and repayments is due primarily to the interest rate
environment. The net increase in deposits during the first nine months of 1999
and 1998 totalled $14.0 million and $5.3 million, respectively. The proceeds
from borrowed funds during the first nine months ended September 30, 1999 and
1998 totalled $20.5 million and $14.8 million, respectively. During the first
nine months of 1999 and 1998, the proceeds from the maturities, calls and sales
of securities totalled $14.9 million and $23.9 million, respectively. The
decrease in proceeds from securities is due in part to the proceeds from the
sales of certain investments, including investments acquired as a part of the
Acquisition, in 1998 of $4,446,000 compared to proceeds of $439,000 in 1999.
Cash provided from operating activities during the first nine months of 1999 and
1998 totalled $3.2 million and $4.6 million, respectively, of which $3.2 million
and $3.3 million, respectively, represented net income of the Company. The
Company's primary use of funds is cash used to originate and purchase loans,
purchase of securities available for sale, repayment of borrowed funds and other
financing activities. During the first nine months of 1999 and 1998, the
Company's gross purchases and origination of loans totalled $87.3 million and
$66.1 million, respectively. The increase in purchase and origination of loans
is due to the expansion of our geographic area for the purchase of loans and an
increase in the marketing of our originated loan products during the nine months
ended September 30, 1999. The purchase of securities available for sale for the
nine months ended September 30, 1999 and 1998 totalled $17.1 million and $13.7
million, respectively. The repayment of borrowed funds during the first nine
months of 1999 and 1998 totalled $3.1 million and $6.3 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."
-8-
<PAGE>
The Bank is required to maintain an average daily balance of liquid assets
(cash, certain time deposits, bankers' acceptances, specified United States
Government, state or federal agency obligations, shares of certain mutual funds
and certain corporate debt securities and commercial paper) in each calendar
quarter of not less than four percent of either (1) the liquidity base at the
end of the preceding quarter, or (2) the average daily balance of the liquidity
base during the preceding quarter equal to a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4.0% to 10%, depending upon economic conditions and the savings flows
of member institutions. Currently, it is 4.0%. Monetary penalties may be
imposed for failure to meet these liquidity requirements. At September 30,
1999, the Bank's liquidity position was $38.3 million, or 14.3%, of liquid
assets, compared to $45.7 million, or 17.6%, at December 31, 1998.
Stockholders' equity totaled $39.3 million at September 30, 1999 compared to
$48.2 million at December 31, 1998, reflecting the Company's stock repurchases,
earnings for the quarter, the amortization of the unallocated portion of shares
held by the ESOP, dividends declared on common stock and the change in the net
unrealized gains (losses) on securities, net of taxes.
On July 6, 1999, the Company paid a quarterly cash dividend equal to $0.10 per
share on common stock outstanding as of the close of business on June 16, 1999,
aggregating $274,000. On August 27, 1999, the Company declared a quarterly cash
dividend of $0.10 per share payable on October 6, 1999 to shareholders of record
as of the close of business on September 16, 1999, aggregating $240,000.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
The following unaudited pro forma consolidated statement of income for the nine
months ended September 30, 1998 presented on the following page is based on the
historical income statements of the Company and Valley Financial. The unaudited
pro forma consolidated statement of income for the nine months ended September
30, 1998 was prepared as if the Acquisition had occurred as of the beginning of
the respective period for purposes of the combined consolidated statements of
income.
This pro forma income statement is not necessarily indicative of the results of
operations that might have occurred had the Acquisition taken place at the
beginning of the period, or to project the Company's results of operations at
any future date or for any future period. The pro forma consolidated condensed
statement of income should be read in connection with the notes thereto.
-9-
<PAGE>
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Actual Actual Actual ProForma
1999 1998 1999 1998
----------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Interest income $6,129,387 $6,044,949 $18,100,877 $18,182,401
Interest expense 3,390,664 3,317,912 9,825,408 9,931,487
---------- ---------- ----------- -----------
Net interest income 2,738,723 2,727,037 8,275,469 8,250,914
Provision for loan losses 30,000 60,000 90,000 180,000
---------- ---------- ----------- -----------
Net interest income after provision for
loan losses 2,708,723 2,667,037 8,185,469 8,070,914
---------- ---------- ----------- -----------
Noninterest income:
Fees and service charges 378,799 335,294 1,074,152 920,597
Abstract fees 371,844 398,974 1,098,000 1,161,535
Gain (loss) on sale of securities
available for sale, net 29,575 (3,491) 61,564 51,362
Other income 348,467 298,413 870,099 710,252
---------- ---------- ----------- -----------
Total noninterest income 1,128,685 1,029,190 3,103,815 2,843,746
---------- ---------- ----------- -----------
Noninterest expense:
Salaries and employee benefits 1,033,039 916,321 3,013,023 2,729,252
Premises and equipment 235,859 222,793 658,823 592,020
Data processing 111,122 181,001 408,237 430,657
SAIF deposit insurance premiums 35,621 37,249 109,269 112,467
Goodwill amortization 118,072 120,850 354,217 353,662
Other expenses 593,997 537,823 1,795,753 1,705,305
---------- ---------- ----------- -----------
Total noninterest expense 2,127,710 2,016,037 6,339,322 5,923,363
---------- ---------- ----------- -----------
Income before income taxes 1,709,698 1,680,190 4,949,962 4,991,297
Provision for income taxes 622,193 605,972 1,730,820 1,834,659
---------- ---------- ----------- -----------
Net Income $1,087,505 $1,074,218 $ 3,219,142 $ 3,156,638
========== ========== =========== ===========
</TABLE>
The actual statement of income for the three months ended September 30, 1999 was
used for comparison purposes to the actual statement of income for the three
months ended September 30, 1998. The actual statement of income for the nine
months ended September 30, 1999 was used for comparison purposes to the pro
forma statement of income for the nine months ended September 30, 1998 in order
to more clearly present the changes in the results of operations.
Interest Income. Interest income increased by $84,000 to $6.1 million for the
three months ended September 30, 1999 compared to $6.0 million for the three
months ended September 30, 1998. The increase in interest income was primarily
due to an increase in the average balance of interest earning assets, offset in
part by a decrease in the average yield on average assets. The increase in the
average balance of interest earning assets increased $11.6 million (primarily
due to first mortgage and consumer loans, offset by a decrease in securities
available for sale and cash) to $345.6 million for the three months ended
September 30, 1999 from $315.3 million for the three months ended September 30,
1998. The increase in the average balance of 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 primarily by multi-
family, one-to-four family residential and commercial real estate loans, which
were offset in part by payments and prepayments on cash loans. See "Financial
Condition." The decrease in the average balance of securities available for
sale was due to sales, calls and maturities, which offset, in part, by purchases
of available for sale securities. The impact of this increase in the
-10-
<PAGE>
RESULTS OF OPERATIONS (Continued)
average balance of interest earning assets was offset in part by a decrease in
the average yields. The yields on interest earning assets decreased from 7.66%
for the three months ended September 30, 1998 to 7.49% for the three months
ended September 30, 1999. This decrease in average yields were due primarily to
a decrease in the average yield on loans offset in part by an increase in the
average yield on securities available for sale and interest bearing cash. The
average yields on loans declined due to a general decrease in the market
interest rates.
Interest income decreased by $82,000 to $18.1 million for the nine months ended
September 30, 1999 compared to $18.2 million for the nine months ended September
30, 1998. The decrease in interest income was primarily due to a decrease in
the average yield on assets offset in part by an increase in the average balance
of interest bearing assets. The average yield on interest earning assets
decreased from 7.69% for the nine months ended September 30, 1998 to 7.52% for
the nine months ended September 30, 1999. The average yields on loans and
interest earning cash declined due to a general decrease in the market interest
rates. The impact of the decrease in average yields was offset in part by an
increase in the average balance of interest earning assets. The average balance
of interest bearing assets increased $6.0 million (primarily first mortgage and
consumer loans) to $321.3 million for the nine months ended September 30, 1999
from $315.3 million for the comparable 1998 period. The increase in the average
balance of 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 primarily by multi-family residences, one-to-four family
residences and commercial real estate, 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 loans was offset in part by a decrease in
the average balance of securities available for sale. The decrease in the
average balance of securities available for sale was due to sales, calls and
maturities, which were offset, in part, by purchases of available for sale
securities.
Interest Expense. Interest expense increased by $73,000 to $3.4 million for the
three months ended September 30, 1999 compared to $3.3 million for the three
months ended September 30, 1998. The increase in interest expense was
primarily due to a increase in the average balance of interest bearing
liabilities, offset in part by a decrease in the average cost of interest
bearing liabilities. The increase in the average balance of interest bearing
liabilities was primarily due to a $5.9 million increase in the average balance
of NOW and money market savings accounts, a $10.3 million increase in the
average balance of certificates of deposits and a $6.7 million increase in the
average balance of borrowed funds. The increase in such deposit accounts is due
primarily to an increase in deposits of certain public funds. The increase in
the borrowed funds was due to the borrowing of funds in part to fund the
corresponding asset growth. The impact of the increase in the average balances
of interest bearing liabilities were offset in part by the decrease in the
average cost of interest bearing liabilities. The average cost of interest
bearing liabilities decreased from 4.83% for the three months ended September
30, 1998 to 4.52% for the three months ended September 30, 1999. The average
cost of interest bearing liabilities declined due to a general decrease in the
market interest rates.
Interest expense decreased by $106,000 to $9.8 million for the nine months ended
September 30, 1999 compared to $9.9 million for the nine months ended September
30, 1998. The decrease in interest expense was primarily due to the decrease in
the average cost of interest bearing liabilities offset in part by an increase
in the average balance of interest bearing liabilities. The average cost of
interest bearing liabilities decreased from 4.86% for the nine months ended
September 30, 1998 to 4.56% for the nine months ended September 30, 1999. The
average cost of interest bearing liabilities declined due to a general decrease
in the market interest rates. The impact of the decrease in average cost of
interest bearing liabilities was offset in part by an increase in the average
balance of interest bearing liabilities. The increase in the average balance of
interest bearing liabilities was primarily due to a $4.7 million increase in the
average balance of NOW accounts, a $4.7 million increase in the average balance
of certificate of deposit accounts and a $3.9 million increase in the average
balance of borrowed funds. The increase in such deposit accounts is due
primarily to an increase in deposits of certain public funds. The increase in
the borrowed funds was due to the borrowing of funds in part to fund the
corresponding asset growth.
Net Interest Income. Net interest income before the provision for loan losses
increased by $12,000 to $2.74 million for the three months ended September 30,
1999 from $2.73 million for the three months ended September 30, 1998. The
increase is primarily due to the increase in the interest rate spread, offset by
the decrease in the excess of average interest earning assets over the average
interest bearing liabilities. The interest rate spread (i.e., the difference in
the average yield on assets and average cost of liabilities) increased to 2.97%
for the three months ended September 30, 1999 from 2.83% for the three months
ended September 30, 1998.
-11-
<PAGE>
RESULTS OF OPERATIONS (Continued)
Net interest income before the provision for loan losses increased by $25,000 to
$8.28 million for the nine months ended September 30, 1999 from $8.25 million
for the nine months ended September 30, 1998. The increase is primarily due to
the increase in the interest rate spread, offset by the decrease in the excess
of average interest earning assets over the average interest bearing
liabilities. The interest rate spread (i.e., the difference in the average
yield on assets and average cost of liabilities) increased to 2.96% for the nine
months ended September 30, 1999 from 2.83% for the nine months ended September
30, 1998.
The following table sets forth certain information relating to the Company's
actual and pro forma average balance sheets and reflects the actual and pro
forma average yield on assets and actual and pro forma average cost of
liabilities for the three and nine month periods ended September 30, 1999 and
1998, respectively.
-12-
<PAGE>
RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
For Three Months Ended September 30,
------------------------------------------------------------------
Actual Actual
1999 1998
-------------------------------- --------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ----------- --------- -------- -----------
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................. $269,956 $ 5,307 7.85% $255,838 $ 5,212 8.15%
Securities available for sale......... 51,847 758 5.85 52,730 755 5.68
Interest bearing cash................. 5,130 64 4.95 6,716 78 4.58
-------- ------- ------ -------- ------- ------
Total interest-earning assets....... 326,933 $ 6,129 7.49% 315,284 $ 6,045 7.66%
------- ------ ------- ------
Noninterest-earning assets.............. 18,676 17,624
-------- --------
Total assets........................ $345,609 $332,908
======== ========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings.......... $ 51,875 $ 274 2.10% $ 46,001 $ 360 3.10%
Savings............................... 28,048 142 2.01 26,474 156 2.33
Certificates of deposit............... 176,479 2,398 5.39 166,180 2,315 5.53
Borrowed funds........................ 40,309 576 5.59 33,588 487 5.68
-------- ------- ------ -------- ------- ------
Total interest-bearing liabilities...... 296,711 $ 3,390 4.52% 272,243 $ 3,318 4.83%
------- ------ ------- ------
Noninterest-bearing liabilities......... 6,597 11,151
-------- --------
Total liabilities................... 303,308 283,394
Equity.................................. 42,301 49,514
-------- --------
Total liabilities and equity........ $345,609 $332,908
======== ========
Net interest income........................ $ 2,739 $ 2,727
======= =======
Net interest rate spread................... 2.97% 2.83%
====== ======
Net interest margin........................ 3.35% 3.46%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities.... 110.19% 115.81%
====== ======
For Nine Months Ended September 30,
----------------------------------------------------------------
Actual ProForma
1999 1998
------------------------------ -------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ---------- --------- -------- ----------
Assets: (Dollars in thousands)
Interest-earning assets:
Loans................................. $261,747 $15,574 7.94% $252,713 $15,523 8.19%
Securities available for sale......... 51,333 2,243 5.83 55,184 2,391 5.79
Interest bearing cash................. 8,182 283 4.62 7,399 268 4.84
-------- ------- ------ -------- ------- ------
Total interest-earning assets....... 321,262 $18,100 7.52% 315,296 $18,182 7.69%
------- ------ ------- ------
Noninterest-earning assets.............. 17,661 17,444
-------- --------
Total assets........................ $338,923 $332,740
======== ========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings.......... $ 51,674 $ 827 2.14% $ 47,012 $ 1,088 3.12%
Savings............................... 27,313 427 2.09 26,412 466 2.36
Certificates of deposit............... 169,176 6,911 5.46 164,489 6,865 5.56
Borrowed funds........................ 38,981 1,660 5.61 35,048 1,512 5.77
-------- ------- ------ -------- ------- ------
Total interest-bearing liabilities...... 287,144 $ 9,825 4.56% 272,961 $ 9,931 4.86%
------- ------ ------- ------
Noninterest-bearing liabilities......... 5,907 9,343
-------- --------
Total liabilities................... 293,051 282,304
Equity.................................. 45,872 50,436
-------- --------
Total liabilities and equity........ $338,923 $332,740
======== ========
Net interest income........................ $ 8,275 $ 8,251
======= =======
Net interest rate spread................... 2.96% 2.83%
====== ======
Net interest margin........................ 3.43% 3.49%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities.... 111.88% 115.51%
====== ======
</TABLE>
-13-
<PAGE>
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $30,000
and $60,000 for the three months ended September 30, 1999 and 1998,
respectively. The Company's provision for loan losses was $90,000 and $180,000
for the nine months ended September 30, 1999 and 1998, 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 Bank's portfolio, which includes a significant amount of multifamily and
commercial real estate loans, substantially all of which are purchased and are
collateralized by properties located outside of the Bank's market area, and
other factors related to the collectibility of the Bank's loan portfolio. The
net charge offs were $13,000 for the nine months ended September 30, 1999 as
compared to net charge offs of $13,000 for the nine months ended September 30,
1998. The resulting allowance for loan losses was $2.8 million at September 30,
1999 as compared to $2.7 million at December 31, 1998 and $2.7 million at
September 30, 1998. The level of nonperforming loans decreased to $503,000 at
September 30, 1999 from $956,000 at December 31, 1998 and decreased from
$542,000 at September 30, 1998. 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 $99,000 to $1,129,000
for the three months ended September 30, 1999 from $1,029,000 for the three
months ended September 30, 1998. The increase is primarily due to increases in
fees and service charges and other income, offset by a decrease in abstract
fees. Other fees and service charges increased $44,000, primarily due to
increases in overdraft fees and NOW and savings account service charges. Other
income increased $50,000, primarily due to an increase in revenues from the sale
of uninsured products, offset by decreases in insurance sales. Abstract income
decreased $27,000 due to decreased sales volume, which in part is attributable
to the current level of interest rates. Noninterest income for the three months
ended September 30, 1999 reflects gains on sales of securities available for
sale of $30,000, while the three months ended September 30, 1998 includes
(losses) on the sale of securities available for sale of $(3,000).
Total noninterest income increased by $260,000 to $3,103,000 for the nine months
ended September 30, 1999 from $2,844,000 for the nine months ended September 30,
1998. The increase is due primarily to increases in fees and service charges
and other income, offset in part by a decrease in abstract fees. Other fees and
service charges increased $154,000, primarily due to increases in overdraft
fees, NOW and savings account service charges and loan prepayment fees. Other
income increased $160,000, primarily due to an increase from the sale of
uninsured products, revenues from the sale of loans, rent income and gain on the
sale of foreclosed real estate, offset by losses on disposal of certain
equipment and decreases in insurance sales. Abstract income decreased $64,000
due to decreased sales volume, which in part is attributable to the current
level of interest rates. Noninterest income for the nine months ended September
30, 1999 reflects gains on sales of securities available for sale of $62,000,
compared to gains on sale of securities available for sale of $51,000 for the
nine months ended June 30, 1998.
Noninterest Expense. Total noninterest expense increased by $112,000 to $2.1
million for the three months ended September 30, 1999 from $2.0 million for the
three months ended September 30, 1998. The increase is primarily due to
increases in salaries and employee benefits, premises and equipment and other
expenses, offset in part by a decrease in data processing. The increase in
salaries and employee benefits was primarily due to normal salary increases and
additional employees and related insurance costs and payroll taxes. The
increases in premises and equipment was primarily due to an increase in
depreciation expense relating primarily to the purchase of computer equipment,
software, ATMs, the opening of a branch located in Perry, Iowa and normal cost
increases. The increase in other expenses was primarily due to increased costs
associated with the Valley Savings Bank division changing its operating name to
First Federal Savings Bank of Iowa and increased marketing costs. The decrease
in the data processing costs were due primarily due to the Bank signing new
multi year data processing contract in 1999, offset in part by higher costs
associated with one time costs as a result of a data conversion in 1998. The
Company's efficiency ratio for the three months ended September 30, 1999 and
1998 were 55.02% and 53.67%, respectively. The Company's ratio of noninterest
expense to average assets for the three months ended September 30, 1999 and 1998
were 2.46% and 2.39%, respectively.
Total noninterest expense increased by $415,000 to $6.4 million for the nine
months ended September 30, 1999 from $5.9 million for the nine months ended
September 30, 1998. The increase is primarily due to increases in salaries and
-14-
<PAGE>
RESULTS OF OPERATIONS (Continued)
employee benefits, premises and equipment, data processing and other expenses.
The increase in salaries and benefits was primarily due to normal salary
increases and additional employees and related insurance costs and payroll
taxes. The increases in premises and equipment was primarily due to an increase
in depreciation expense relating to the purchase of computer equipment and
software, ATMs, the opening of a branch located in Perry, Iowa and normal cost
increases. The increase in data processing expense was due to one time costs
incurred as a result of additional data processing services utilized by the Bank
due to the Acquisition, upgrading the Bank's operating systems, Year 2000 costs
and normal cost increases, offset in part by signing of a multi year data
processing contract in 1999. The increase in other expenses was primarily due to
increased professional fees, costs associated with the Valley Savings Bank
division changing its operating name to First Federal Savings Bank of Iowa,
marketing costs and costs to process checking account transactions. The
Company's efficiency ratio for the nine months ended September 30, 1999 and 1998
were 55.71% and 53.39%, respectively. The Company's ratio of noninterest
expense to average assets for the nine months ended September 30, 1999 and 1998
were 2.49% and 2.37%, respectively.
Income Taxes. Income taxes increased by $16,000 to $622,000 for the three
months ended September 30, 1999 as compared to $606,000 for the three months
ended September 30, 1998. The increase was primarily due to an increase in pre-
tax earnings during the 1999 period as compared to the corresponding 1998
period.
Income taxes decreased by $104,000 to $1,731,000 for the nine months ended
September 30, 1999 as compared to $1,835,000 for the nine months ended September
30, 1998. The decrease was primarily due to a decrease in pre-tax earnings
during the 1999 period as compared to the corresponding 1998 period.
Net Income. Net income totaled $1,088,000 for the three months ended September
30, 1999, compared to $1,074,000 for the same period in 1998.
Net income totaled $3,219,000 for the nine months ended September 30, 1999,
compared to $3,157,000 for the same period in 1998.
Year 2000 Compliance. The Year 2000 ("Y2K") issue is a serious operational
problem that is widespread and complex, affecting all industries. The problem
consists essentially of the risk that programming code in existing computer
systems will fail to properly recognize the new millennium when it occurs in the
Year 2000. Many computer programs and related hard-printed memory circuits were
developed with six-digit date fields. These programs and memory circuits were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, many computer applications could fail or create
erroneous results by or at the Year 2000. Because banks rely heavily on their
computer systems, the Federal Financial Institutions Examination Council
("FFIEC") has placed significant emphasis on the problems surrounding the Year
2000 issues and has required financial institutions to document the assessment,
testing and corrections made to ready their computer systems and programs for
the Year 2000 date change. The FFIEC and the OTS have strict regulations,
guidelines and milestones in place that each FDIC-insured financial institution
must follow in order to remain operational. The Company's board of directors
has remained informed of the Company's position and progress in its Year 2000
project.
In addition, noninformation technology systems, such as telephones, copiers, fax
machines and elevators may also contain embedded technology which controls its
operation and which may be affected by the Y2K problem. When the Year 2000
arrives, systems, including some of those with embedded chips, may not work
properly because of the way they store date information. They may not be able
to process correctly the date 01/01/00, and may not be able to function with
operational 'cycles' such as 'do X every 100 days'. Thus, even noninformation
technology systems may affect the normal operations of the Company upon arrival
of the Year 2000.
In order to address the Y2K issue and to minimize its potential adverse impact
on the Company and its operations, management began a process in June, 1997 to
identify areas that will be affected by the Y2K problem, assess its potential
impact on the operations of the Company, monitor the progress of Fiserv, Inc. of
Milwaukee ("Fiserv") and other third party software vendors in addressing the
matter, test changes provided by these vendors, and develop contingency plans
for all critical systems. An internal committee of the Company was formed to
address the potential risks that Y2K poses for the Company. The Company's Y2K
committee has completed the awareness, inventory, assessment and testing phases
of Y2K. The Company's most critical exposure to Y2K system problems is with its
data processing provider, Fiserv. The Company has been advised by Fiserv that
Fiserv's on-line real-time processing
-15-
<PAGE>
RESULTS OF OPERATIONS (Continued)
platform, Vision system, is Y2K ready as of February, 1999. Although the effort
to prepare for Y2K is intended to address all Y2K issues, the Company has
developed contingency plans to address potential Y2K issues that arise despite
the Company's Y2K compliance effort. Contingency plans have been developed on a
department-by-department basis in anticipation of the possibility of unplanned
system difficulties or failure of third parties to successfully prepare
reporting procedures. The testing phase on the Company's contingency plans began
in the second quarter of 1999 and will continue to be tested through the four
quarter of 1999.
The Company anticipates that it has and will incur internal staff costs,
consulting costs, data processing costs, additional purchase of equipment and
other expenses related to the enhancements necessary to prepare its systems for
Y2K. The Company has replaced some equipment, software and incurred consulting
fees at a cost of approximately $55,000. Management anticipates the additional
costs associated with Year 2000 compliance will not exceed $50,000. Any
personnel and consulting costs have been and will continue to be expensed as
incurred. If the Company is not Y2K compliant, the costs to become compliant
would likely be material to the financial condition and operating results of the
Company.
Financial Services Modernization Bill. In October 1999, the U.S. Congress
overwhelmingly passed the Gramm-Leach-Bliley Financial Services Modernization
Act of 1999, federal legislation intended to modernize the financial services
industry by establishing a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms and other financial
service providers. The legislation has been forwarded to the President for his
approval. Generally, the legislation would (i) repeal the historical
restrictions and eliminate many federal and state law barriers to affiliations
among banks, securities firms, insurance companies and other financial service
providers, (ii) provide a uniform framework for the functional regulation of the
activities of banks, savings institutions and their holding companies, (iii)
broaden the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies and their financial subsidiaries, (iv)
provide an enhanced framework for protecting the privacy of consumer
information, (v) adopt a number of provisions related to the capitalization,
membership, corporate governance and other measures designed to modernize the
Federal Home Loan Bank system, (vi) modify the laws governing the implementation
of the Community Reinvestment Act (vii) address a variety of other legal and
regulatory issues affecting both day-to-day operations and long-term activities
of financial institutions.
In particular, the pending legislation would restrict the authority of unitary
savings and loan holding companies under current law to engage in non-
financially related activities. Unitary savings and loan holding companies that
are "grandfathered," i.e., became a unitary savings and loan holding company
pursuant to an application filed with the OTS before May 4, 1999, (such as the
Company) would retain this authority. All other savings and loan holding
companies would be limited to financially related activities permissible for
financial holding companies, as defined under the new law. The proposed
legislation would also prohibit non-financial companies from acquiring savings
and loan holding companies.
Bank holding companies would be permitted to engage in a wider variety of
financial activities than permitted under current law, particularly with respect
to insurance and securities activities. In addition, in a change from current
law, bank holding companies will be in a position to be owned, controlled or
acquired by any company engaged in financially related activities.
We do not believe that the proposed legislation, as publicly reported, would
have a material adverse effect on our operations in the near term. However, to
the extent the legislation permits banks, securities firms and insurance
companies to affiliate, the financial services industry may experience further
consolidation. This could result in a growing number of larger financial
institutions that offer a wider variety of financial services than we currently
offer and that can aggressively compete in markets we currently serve.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In management's opinion, there has not been a material change in market risk
from December 31, 1998 as reported in Item 7A of the Form 10-K.
-16-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Other Information
None
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial data schedule. (Only submitted with filing in
electronic format.)
Exhibit 99.1 Press Release, dated July 23, 1999 (regarding stock
repurchase program).
Exhibit 99.2 Press Release, dated August 10, 1999 (regarding completion of
stock repurchase program)
Exhibit 99.3 Press Release, dated August 27, 1999 (regarding stock
repurchase program and the declaration of a dividend).
Exhibit 99.4 Press Release, dated September 22, 1999 (regarding the
completion of a stock repurchase program)
Exhibit 99.5 Press Release, dated October 19, 1999 (regarding the record
earnings per share for the end of the third quarter)
(b) Reports of Form 8-K
None
-17-
<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: November 12, 1999 BY: /s/ David M. Bradley
David M. Bradley, CPA
Chairman, President and
Chief Executive Officer
DATE: November 12, 1999 BY: /s/ John L. Pierschbacher
John L. Pierschbacher, CPA
Principal Financial Officer
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,977,996
<INT-BEARING-DEPOSITS> 3,766,123
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,460,734
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 281,475,653
<ALLOWANCE> 2,753,380
<TOTAL-ASSETS> 357,894,600
<DEPOSITS> 260,651,576
<SHORT-TERM> 25,500,000
<LIABILITIES-OTHER> 1,738,331
<LONG-TERM> 30,744,069
0
0
<COMMON> 40,111
<OTHER-SE> 39,220,513
<TOTAL-LIABILITIES-AND-EQUITY> 357,894,600
<INTEREST-LOAN> 15,574,150
<INTEREST-INVEST> 2,526,727
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,100,877
<INTEREST-DEPOSIT> 8,165,869
<INTEREST-EXPENSE> 9,825,408
<INTEREST-INCOME-NET> 8,275,469
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 61,564
<EXPENSE-OTHER> 6,339,322
<INCOME-PRETAX> 4,949,962
<INCOME-PRE-EXTRAORDINARY> 4,949,962
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,219,142
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 7.52
<LOANS-NON> 503,354
<LOANS-PAST> 28,199
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,676,438
<CHARGE-OFFS> 21,040
<RECOVERIES> 7,982
<ALLOWANCE-CLOSE> 2,753,380
<ALLOWANCE-DOMESTIC> 2,753,380
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.1 Press Release
PRESS RELEASE
July 23, 1999
For further information contact:
David M. Bradley
Chairman, President and Chief Executive Officer
North Central Bancshares, Inc.
825 Central Avenue
Fort Dodge, Iowa 50501
515-576-7531
NORTH CENTRAL BANCSHARES, INC. ANNOUNCES
STOCK REPURCHASE PROGRAM
Fort Dodge, Iowa, July 23, 1999 - North Central Bancshares, Inc. (Nasdaq:
"FFFD") (the "Company"), the holding company for First Federal Savings Bank of
Iowa, announced that it will commence a stock repurchase program beginning on or
about July 29th, 1999. The program authorizes the Company to repurchase up to
5.64% or 150,000 shares of its 2,657,242 outstanding shares of common stock
during the next twelve months. The repurchases will be made from time to time,
in open market transactions, at the discretion of management.
North Central Bancshares, Inc., with over $340 million in assets, is the holding
company for First Federal Savings Bank of Iowa, a federally chartered stock
savings bank. First Federal is a community-oriented institution serving Iowa
through 8 full service locations in Fort Dodge, Nevada, Ames, Burlington, Mt.
Pleasant, and Perry, Iowa. First Federal's deposits are insured by the Federal
Deposit Insurance Corporation.
<PAGE>
Exhibit 99.2 Press Release
PRESS RELEASE
August 10, 1999
For further information contact:
David M. Bradley
President and Chief Executive Officer
North Central Bancshares, Inc.
825 Central Avenue
Fort Dodge, Iowa 50501
515-576-7531
NORTH CENTRAL BANCSHARES, INC. COMPLETES STOCK REPURCHASE
Fort Dodge, Iowa - North Central Bancshares, Inc. (Nasdaq: "FFFD") announced
that it has completed a 5.64% stock repurchase program today. The Company said
it repurchased 150,000 shares of its outstanding common stock, par value $.01
per share, at the aggregate cost of $2,637,250, in open market transactions.
The repurchase program began on July 29, 1999. Upon settlement of the last
transaction on or about August 13, 1999, there will be 2,507,242 shares of North
Central Bancshares, Inc. common stock outstanding.
North Central Bancshares, Inc., with over $343 million in assets, is the holding
company for First Federal Savings Bank of Iowa, a federally chartered stock
savings bank. First Federal is a community-oriented institution serving Iowa
through 8 full service locations in Fort Dodge, Nevada, Ames, Perry, Burlington
and Mt. Pleasant, Iowa. First Federal's deposits are insured by the Federal
Deposit Insurance Corporation.
<PAGE>
Exhibit 99.3 Press Release
PRESS RELEASE
August 27, 1999
For further information contact:
David M. Bradley
Chairman, President and Chief Executive Officer
North Central Bancshares, Inc.
825 Central Avenue
Fort Dodge, Iowa 50501
515-576-7531
NORTH CENTRAL BANCSHARES, INC. ANNOUNCES
STOCK REPURCHASE PROGRAM
AND
DECLARATION OF QUARTERLY DIVIDEND
Fort Dodge, Iowa, August 27, 1999 - North Central Bancshares, Inc. (Nasdaq:
"FFFD") (the "Company"), the holding company for First Federal Savings Bank of
Iowa, announced that it will commence a stock repurchase program beginning on or
about September 2 , 1999. The program authorizes the Company to repurchase up
to 5.98 % or 150,000 shares of its 2,507,242 outstanding shares of common stock
during the next twelve months. The repurchases will be made from time to time,
in open market transactions, at the discretion of management.
North Central also announced today that the Company declared a regular quarterly
cash dividend of $0.10 per share on the Company's common stock for the fiscal
quarter ended September 30, 1999. The dividend will be payable to all
stockholders of record as of September 16, 1999 and will be paid on October 6,
1999.
North Central Bancshares, Inc., with over $343 million in assets, is the holding
company for First Federal Savings Bank of Iowa, a federally chartered stock
savings bank. First Federal is a community-oriented institution serving Iowa
through 8 full service locations in Fort Dodge, Nevada, Ames, Burlington, Mt.
Pleasant, and Perry, Iowa. First Federal's deposits are insured by the Federal
Deposit Insurance Corporation.
<PAGE>
Exhibit 99.4 - Press Release
PRESS RELEASE
September 22, 1999
For further information contact:
David M. Bradley
President and Chief Executive Officer
North Central Bancshares, Inc.
825 Central Avenue
Fort Dodge, Iowa 50501
515-576-7531
NORTH CENTRAL BANCSHARES, INC. COMPLETES STOCK REPURCHASE
Fort Dodge, Iowa - North Central Bancshares, Inc. (Nasdaq: "FFFD") announced
that it has completed a 5.98% stock repurchase program today. The Company said
it repurchased 150,000 shares of its outstanding common stock, par value $.01
per share, at the aggregate cost of $2,599,088 in open market transactions. The
repurchase program began on September 2, 1999. Upon settlement of the last
transaction on or about September 27, 1999, there will be 2,357,242 shares of
North Central Bancshares, Inc. common stock outstanding.
North Central Bancshares, Inc., with over $343 million in assets, is the holding
company for First Federal Savings Bank of Iowa, a federally chartered stock
savings bank. First Federal is a community-oriented institution serving Iowa
through 8 full service locations in Fort Dodge, Nevada, Ames, Perry, Burlington
and Mt. Pleasant, Iowa. First Federal's deposits are insured by the Federal
Deposit Insurance Corporation.
<PAGE>
Exhibit 99.5 Press Release
PRESS RELEASE
October 19, 1999 For further information contact:
David M. Bradley
Chairman, President and Chief Executive Officer
North Central Bancshares, Inc.
825 Central Avenue PO Box 1237
Fort Dodge, Iowa 50501
515-576-7531
NORTH CENTRAL BANCSHARES, INC.
ANNOUNCES RECORD EARNINGS PER SHARE FOR THIRD QUARTER 1999
(Nasdaq: FFFD)
Fort Dodge, Iowa -- North Central Bancshares, Inc. (the "Company"), the holding
company for First Federal Savings Bank of Iowa (the "Bank"), announced today
that the Company earned a record $0.43 diluted earnings per share for the third
quarter of 1999, compared to diluted earnings per share of $0.35 for the third
quarter of 1998, an increase of 22.8%. In dollars, the Company earned $1,088,000
for the third quarter of 1999, compared to $1,074,000 for the third quarter of
1998. The Company earned $3,219,000, or diluted earnings per share of $1.18, for
the nine months ended September 30, 1999, compared to $3,296,000, or diluted
earnings per share of $1.04, for the nine months ended September 30, 1998, an
increase in diluted earnings per share of 13.4%.
Total assets at September 30, 1999 were $357.9 million as compared to $336.7
million at December 31, 1998. The increase in assets resulted primarily from
increases in loans and premises and equipment, offset by a decrease in cash.
Cash decreased $7.9 million, or 50.5%, from $15.6 million at December 31, 1998
to $7.7 million at September 30, 1999. Loans increased by $27.4 million, or
10.8%, from $254.0 million at December 31, 1998 to $281.5 million at September
30, 1999. Premises and equipment increased $1.5 million, or 41.9%, from $3.6
million at December 31, 1998 to $5.1 million at September 30, 1999.
Deposits increased $14.0 million, or 5.7%, from $246.7 million at December 31,
1998 to $260.7 million at September 30, 1999. Other borrowed funds increased
$17.4 million, or 44.8%, from $38.8 million at December 31, 1998 to $56.2
million at September 30, 1999.
On January 30, 1998, the Bank acquired Valley Financial Corp., headquartered in
Burlington, Iowa. This acquisition resulted in the merger of Valley Financial's
wholly owned subsidiary, Valley Savings Bank, FSB, into First Federal Savings
Bank of Iowa. Valley Savings was a federally-chartered stock savings bank with
three branch offices located in southeastern Iowa, with assets of approximately
$110 million.
The acquisition was accounted for as a purchase transaction and therefore, the
operating results of the former offices of Valley Savings Bank are included in
the 1998 operating results of the Company only from the date of acquisition
through September 30, 1998. Therefore, the comparison between the nine month
periods is significantly impacted by this acquisition.
- MORE -
<PAGE>
The unaudited pro forma consolidated statement of income, for the nine months
ended September 30, 1998, presented in this press release is based on the
historical financial statements of the Company and Valley Financial and was
prepared as if the acquisition had occurred as of the beginning of the period
for purposes of the combined consolidated statement of income.
The pro forma financial statement of income is not necessarily indicative of the
results of operations that might have occurred had the acquisition taken place
at the beginning of the period, or to project the Company's results of
operations at any future date or for any future period.
Nonperforming assets were 0.21% of total assets as of September 30, 1999
compared to 0.34% of total assets as of December 31, 1998. The allowance for
loan losses was $2.8 million, or 0.96% of total loans, at September 30, 1999,
compared to $2.7 million, or 1.03% of total loans, at December 31, 1998.
The net interest spread for the three months ended September 30, 1999 of 2.97%
was increased from the net interest spread of 2.83% for the three months ended
September 30, 1998. The net interest margin for the three months ended September
30, 1999 of 3.35% was decreased from the net interest margin of 3.46% for the
three months ended September 30, 1998. Net interest income for the three months
ended September 30, 1999 was $2,739,000, compared to net interest income of
$2,727,000 for the corresponding period a year ago.
The Bank's provision for loan losses was $30,000 for the three months ended
September 30, 1999, compared to pro forma provision for loan losses of $60,000
for the corresponding period a year ago. 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 conditions, the volume and type of loans in the Bank's
portfolio, and other factors related to the collectibility of the Bank's loan
portfolio.
Stockholders' equity was $39.3 million at September 30, 1999, compared to $48.2
million at December 31, 1998, the decrease was due primarily to stock
repurchases. North Central Bancshares, Inc. has repurchased 607,207 shares of
its common stock at a cost of $10.7 million, for the nine months ended September
30, 1999. Book value, or stockholders' equity, per share at September 30, 1999
was $16.66, compared to $16.26 at December 31, 1998. The ratio of stockholders'
equity to total assets was 11.0% at September 30, 1999, as compared to 14.3% at
December 31, 1998.
Stockholders of record on September 16, 1999, received a quarterly cash dividend
of $0.10 per share on October 6, 1999.
The Bank opened a newly constructed 3,000 square foot branch office on June 1,
1999 in Perry, Iowa in Dallas County. Also on October 1, 1999, the Bank began
construction on a new 8,000 square foot branch office in Ames, Iowa. When
completed during the summer of 2000, the Bank's current Ames branch office will
relocate to this new site.
North Central Bancshares, Inc. serves north central and southeastern Iowa at 8
full service locations in Fort Dodge, Nevada, Ames, Perry, Burlington and Mount
Pleasant, Iowa through its wholly-owned subsidiary, First Federal Savings Bank
of Iowa, headquartered in Fort Dodge, Iowa. The Bank's deposits are insured by
the Federal Deposit Insurance Corporation. The Company's stock is traded on The
Nasdaq National Market under the symbol "FFFD".
For more information contact: David M. Bradley, President, 515-576-7531
<PAGE>
FINANCIAL HIGHLIGHTS OF NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(Dollars in Thousands, except per share and share September 30, 1999 December 31, 1998
data) ------------------- ------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 7,744 $ 15,637
Securities available for sale 50,461 49,883
Loans (net of allowance of loan loss of $2.8
million and $2.7 million, respectively) 281,476 254,032
Goodwill 6,033 6,388
Other assets 12,181 10,750
---------- ----------
Total Assets $ 357,895 $ 336,690
========== ==========
Liabilities
Deposits $ 260,652 $ 246,690
Other borrowed funds 56,244 38,832
Other liabilities 1,738 2,961
---------- ----------
Total Liabilities 318,634 288,483
Stockholders' Equity 39,261 48,207
---------- ----------
Total Liabilities and Stockholders' Equity $ 357,895 $ 336,690
========== ==========
Stockholders' equity to total assets 10.97% 14.32%
========== ==========
Book value per share $ 16.66 $ 16.26
========== ==========
Total shares outstanding 2,357,242 2,964,449
========== ==========
</TABLE>
Condensed Consolidated Statements of Income
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income $6,129 $6,045 $18,101 $17,560
Interest expense 3,390 3,318 9,826 9,481
------ ------ ------- -------
Net interest income 2,739 2,727 8,275 8,079
Provision for loan loss 30 60 90 180
------ ------ ------- -------
Net interest income after provision for loan loss 2,709 2,667 8,185 7,899
Noninterest income 1,099 1,004 3,042 2,739
Gain (loss) on the sale of securities available for sale 30 (3) 62 51
Noninterest expense 2,128 1,988 6,339 5,517
------ ------ ------- -------
Income before income taxes 1,710 1,680 4,950 5,172
Income taxes 622 606 1,731 1,876
------ ------ ------- -------
Net income $1,088 $1,074 $ 3,219 $ 3,296
====== ====== ======= =======
Basic earnings per share $ 0.44 $ 0.36 $ 1.20 $ 1.07
====== ====== ======= =======
Diluted earnings per share $ 0.43 $ 0.35 $ 1.18 $ 1.04
====== ====== ======= =======
</TABLE>
Selected Financial Ratios
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Performance ratios:
Net interest spread 2.97% 2.83% 2.95% 2.84%
Net interest margin 3.35% 3.46% 3.43% 3.54%
Return on average assets 1.25% 1.29% 1.27% 1.37%
Return on average equity 10.28% 8.68% 9.36% 8.71%
Efficiency ratio (noninterest expense divided by the
sum of net interest income before provision for
loan losses plus noninterest income) 55.01% 53.32% 55.70% 50.76%
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999 December 31, 1998
------------------- -------------- ------------------
Asset Quality Ratios:
<S> <C> <C> <C>
Nonaccrual loans to total net loans 0.18% 0.10% 0.38%
Nonperforming assets to total assets 0.21% 0.17% 0.34%
Allowance for loan losses as a percent
of total loans receivable 0.96% 1.01% 1.03%
</TABLE>
<PAGE>
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
Actual ProForma*
1999 1998
------- ---------
<S> <C> <C>
Interest income $18,101 $18,182
Interest expense 9,826 9,931
------- -------
Net interest income 8,275 8,251
Provision for loan loss 90 180
------- -------
Net interest income after provision for loan loss 8,185 8,071
Noninterest income 3,042 2,792
Gain on the sale of securities available for sale 62 51
Noninterest expense 6,339 5,923
------- -------
Income before income taxes 4,950 4,991
Income taxes 1,731 1,834
------- -------
Net income $ 3,219 $ 3,157
======= =======
</TABLE>
*See explanatory note below.
Selected Financial Ratios
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
Actual ProForma*
1999 1998
-------- -----------
<S> <C> <C>
Performance ratios:
Net interest spread 2.95% 2.83%
Net interest margin 3.43% 3.45%
Return on average assets 1.27% 1.26%
Return on average equity 9.36% 8.34%
Efficiency ratio (noninterest expense divided by the
sum of net interest income before provision for
loan losses plus noninterest income) 55.70% 53.39%
</TABLE>
*See explanatory note below.
*Pro Forma Consolidated Condensed Statement of Income (Unaudited)
The above unaudited pro forma consolidated statement of income presented is
based on the historical financial statements of the Company and Valley
Financial. The unaudited pro forma consolidated statements of income for the
nine months ended September 30, 1998 was prepared as if the acquisition had
occurred as of the beginning of the respective period for purposes of the
combined consolidated statements of income.
The pro forma statement of income is not necessarily indicative of the results
of operations that might have occurred had the acquisition taken place at the
beginning of the period, or to project the Company's results of operations at
any future date or for any future period.
