FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-23525
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NORTH ARKANSAS BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 71-0800742
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Olivia Drive, Newport, Arkansas 72112
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(Address of principal (Zip Code)
executive office)
Issuer's telephone number, including area code: (870) 523-3611
--------
Check whether the issuer (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 [ ]
As of November 8, 2000, the latest practicable date, 299,973 shares of the
registrant's common stock were issued and outstanding.
Transitional small business disclosure format (check one):
Yes [ ] No [ X ]
<PAGE>
PART I. FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 2000 (unaudited) and June 30, 2000 .....................3
Consolidated Statements of Operations for the
Three Months Ended September 30, 2000 and 1999 (unaudited) .........4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2000 and 1999 (unaudited) .........5
Notes to Consolidated Financial Statements ...........................6
Item 2. Management's Discussion and Analysis or Plan of Operations ..7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...............................................10
Item 2. Changes in Securities and Use of Proceeds .......................10
Item 3. Defaults Upon Senior Securities .................................10
Item 4. Submission of Matters to a Vote of Security Holders .............10
Item 5. Other Information ...............................................10
Item 6. Exhibits and Reports on Form 8-K ................................10
SIGNATURES
2
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PART I FINANCIAL STATEMENTS
NORTH ARKANSAS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 AND JUNE 30, 2000
<TABLE>
<CAPTION>
September 30, June 30,
Assets 2000 2000
------ ------------ ------------
(Audited)
<S> <C> <C>
Cash and amount due from banks, includes interest bearing
deposits of $487,350 and $1,096,221 at September 30, and
June 30, 2000, respectively $ 627,187 $ 1,236,521
Certificates of Deposit with other financial institutions 1,098,000 1,198,000
Investment securities held-to-maturity, at cost 12,444,395 12,741,700
Loans receivable, net 28,577,189 28,251,774
Real Estate Owned 26,322 26,322
Office properties and equipment, net 1,359,984 1,368,767
Accrued interest receivable 348,974 321,787
Other Assets 217,328 214,230
------------ ------------
Total Assets $ 44,699,379 $ 45,359,101
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 29,336,150 $ 30,125,720
Federal Home Loan Bank advances 10,286,967 10,158,957
Other liabilities 173,375 200,804
------------ ------------
Total Liabilities 39,796,492 40,485,481
------------ ------------
Stockholders' Equity
--------------------
Preferred Stock, $.01 par value per share, 3,000,000
shares authorized, no shares issued or outstanding -- --
Common Stock, $.01 par value per share, 9,000,000 shares
authorized, 299,973 and 303,100 shares issued and
outstanding at September 30, and June 30, 2000, respectively 3,000 3,031
Unearned MRP Shares (10,818) (10,818)
Additional paid-in capital 2,631,373 2,656,357
Retained earnings -- substantially restricted 2,486,700 2,432,418
Loan to employee stock ownership plan (207,368) (207,368)
------------ ------------
Total Stockholders' Equity 4,902,887 4,873,620
------------ ------------
Total Liabilities and Stockholders' Equity $ 44,699,379 $ 45,359,101
============ ============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
3
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NORTH ARKANSAS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Interest income:
Loans receivable $568,279 $570,578
Deposits in other financial institutions 24,751 25,182
Mortgage-backed securities 152,760 167,894
Investment securities 53,423 51,533
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Total interest income 799,213 815,187
-------- --------
Interest expense:
Deposits 361,180 405,463
Federal Home Loan advances 156,882 110,698
-------- --------
Total interest expense 518,062 516,161
-------- --------
Net interest income 281,151 299,026
Provision for loan losses -- 5,920
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Net interest income after provision 281,151 293,106
-------- --------
Non-interest income - other 44,854 35,127
-------- --------
Non-interest expenses:
Salaries and employee benefits 107,413 110,542
Contribution Expense--ESOP 7,404 7,404
Legal and professional fees 15,084 13,004
Data processing fees 33,324 31,384
Federal insurance expense 5,498 9,968
Furniture and equipment expense 11,261 11,873
Occupancy expense 19,610 21,095
Other 48,829 37,424
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248,423 242,694
-------- --------
Net income before income taxes 77,582 85,539
Income tax expense 23,300 23,400
-------- --------
Net income $ 54,282 $ 62,139
======== ========
Earnings per share
Basic and diluted $ 0.20 $ 0.20
Weighted average shares outstanding 278,345 307,405
</TABLE>
See accompanying condensed notes to consolidated financial statements.
4
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NORTH ARKANSAS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flow from operating activities:
Net income $ 54,282 $ 62,139
Adjusted to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 15,460 15,460
Provision for Loan Loss -- 5,920
FHLB Stock Dividends (8,400) (6,000)
Net premium amortization on investments 8,468 8,678
Increase in interest receivable (27,187) (2,552)
Increase in other assets (4,340) (86,768)
Decrease in other liabilities (27,429) (26,810)
----------- -----------
Net cash provided by (used in) operating activities 10,854 (29,933)
----------- -----------
Cash flows from investing activities:
Purchase of held to maturity ("HTM") securities -- --
Proceeds from maturities/principal repayments of HTM securities 297,237 442,463
Net decrease (increase) in loans receivable (325,415) 439,211
Net decrease in certificates of deposit with other
financial institutions 100,000 300,000
Purchase of office properties and equipment (5,434) (4,950)
----------- -----------
Net cash provided by investing activities 66,388 1,176,724
----------- -----------
Cash flows from financing activities:
Repurchase of common stock (25,016) --
Net decrease in deposits (789,570) (233,225)
Net (decrease) increase in Federal Home Loan Bank advances 128,010 (149,045)
----------- -----------
Net cash used in financing activities (686,576) (382,270)
----------- -----------
Net increase (decrease) in cash and amounts due from banks (609,334) 764,521
Cash and amounts due from banks at beginning of year 1,236,521 307,907
----------- -----------
Cash and amounts due from banks at end of year $ 627,187 $ 1,072,428
=========== ===========
Supplemental disclosures of cash flow information:
Noncash investing and financing activities:
Transfer from real estate acquired through foreclosure -- --
Cash paid during the period:
Interest on deposits 359,145 401,831
Income taxes -- --
</TABLE>
See accompanying condensed notes to consolidated financial statements.
5
<PAGE>
NORTH ARKANSAS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2000 and 1999
NOTE 1 - NORTH ARKANSAS BANCSHARES, INC.
----------------------------------------
North Arkansas Bancshares, Inc. (the "Company") was incorporated under the laws
of the State of Tennessee for the purpose of becoming the holding company of
Newport Federal Savings Bank (the "Bank") in connection with the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank. On November 12, 1997, the Company
commenced a subscription offering of its shares in connection with the Bank's
conversion. The Company's offering and the Bank's conversion closed on December
18, 1997. A total of 370,300 shares were sold at $10.00 per share.
NOTE 2 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
--------------------------------------------------------------
The accompanying unaudited financial statements (except for the statement of
financial condition at June 30, 2000, which is audited) have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position, results of operations, and cash flows
for the interim periods presented have been included. The financial statements
of the Company are presented on a consolidated basis with those of the Bank. The
results of operations for the three months ended September 30, 2000 are not
necessarily indicative of the results expected for the full year.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2000 filed with
the Securities and Exchange Commission.
NOTE 3 - EARNINGS PER SHARE
---------------------------
Earnings per share have been calculated in accordance with Financial Accounting
Standards Board Statement No.128, "Earnings Per Share," and Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans." For
purposes of this computation, the number of shares of common stock purchased by
the employee stock ownership plan (the "ESOP") which have not been allocated to
participant's accounts are not assumed to be outstanding. As of September 30,
2000, 8,886 of the 29,624 shares of common stock held by the ESOP had been
allocated to participants' accounts. The weighted average number of shares used
for basic and diluted earnings per share for the three months ended September
30, 2000 was 278,345 shares.
NOTE 4 - PLAN OF CONVERSION
---------------------------
On May 29, 1997, the Bank's Board of Directors formally approved a plan ("Plan")
to convert from a federally chartered mutual savings bank to a federally
chartered stock savings bank subject to approval by the Bank's members and the
Office of Thrift Supervision. The Plan called for the common stock of the Bank
to be purchased by the Company and the common stock of the Company to be offered
to various parties in a subscription offering at a price based upon an
independent appraisal of the Bank. All requisite approvals were obtained and the
conversion and the Company's offering were consummated effective December 18,
1997. Upon consummation of the conversion, the Bank established a liquidation
account in an amount equal to its retained earnings as reflected in the latest
statement of financial condition used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of certain depositors of
the Bank who continue to maintain their deposit accounts in the Bank after
conversion. In the event of a complete liquidation of the Bank, such depositors
will be entitled to receive a distribution from the liquidation account before
any liquidation may be made with respect to the common stock.
6
<PAGE>
NORTH ARKANSAS BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND JUNE 30, 2000
The Company's total assets at September 30, 2000 were $44.7 million, a
decrease of $660,000, or 1.45%, from June 30, 2000's level of $45.4 million. The
decrease in assets was due primarily to the combined effects of a $609,000 , or
49.28%, reduction in cash and due from banks, a $297,000, or 2.33%, reduction in
investment securities classified as held-to-maturity and a $100,000, or 8.35%,
decrease in certificates of deposit with other financial institutions. These
decreases were partially offset by a $325,000, or 1.15%, increase in net loans
receivable
Net loans at September 30, 2000 amounted to $28.6 million, an increase of
$325,000, or 1.15%, from $28.3 million at June 30, 2000. The increase was
attributable to new loan originations during the quarter. During the three
months ended September 30, 2000, the Bank originated $1.3 million in new loans
consisting of $776,000 in one-to four-family mortgage loans and $549,000 in
consumer loans. The decrease in the investment securities portfolio reflects
maturities and principal repayments on such investments during the period. The
decreases in balances of cash and of certificates of deposit with other
institutions reflects the Company's decision not to renew certain certificates
upon maturity due to the Company's higher than normal cash needs as a result of
a decrease in deposits.
Total deposits at September 30, 2000 were $29.3 million, a decrease of
$790,000 from June 30, 2000's level of $30.1 million. The decrease was primarily
attributable to a decrease in certificate of deposit accounts. Federal Home Loan
Bank advances at September 30, 2000 totaled $10.3 million, up from $10.2 million
at June 30, 2000. Rather than attempt to match the rates offered on certificates
of deposit by some competitors, the Bank has opted to use FHLB advances as a
source of short term funding. In the current interest rate environment, these
advances are a lower cost source of funds than certificates of deposit. Total
stockholders' equity at September 30, 2000 amounted to $4.9 million, an increase
of $29,000 or 0.60% from $4.9 million at June 30, 2000. The increase during the
quarter was due to the retention of earnings of $54,000 from the period
partially offset by the cost of shares of the Company's common stock that were
repurchased during the period. During the three months ended September 30, 2000,
the Company repurchased 3,100 shares in the open market at a total cost of
$25,000 which accounted for the reduction.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income for the three months ended September 30, 2000 was $54,000 as
compared to net income of $62,000 for the three month period ended September 30,
1999, for a decrease of $8,000. The decrease was primarily attributable to a
reduction in total interest income and, to a lesser extent, an increase in
non-interest expenses, partially offset by an increase in non-interest income.
Net interest income during the three months ended September 30, 2000
decreased by $18,000, or 5.98%, as compared to the same period in 1999 due
mainly to a $15,000 decrease in interest income from mortgage-backed securities
which reflects a decrease in the average balance of these types of investments
during the current period. Also contributing to the decrease was a $2,000
increase in total interest expense from $516,000 for the quarter ended September
30, 1999 to $518,000 for the quarter ended September 30, 2000 as a decrease in
interest expense from deposit accounts was more than offset by an increase in
interest expense from FHLB advances. In recent months, the Bank has experienced
an outflow of certificate of deposit accounts due to its decision not to attempt
to match certificate rates offered by some competitors. Deposits in checking and
other transactional accounts increased during the period however. Interest
expense on these types of deposit accounts is lower than with certificate of
deposit accounts. In addition, the Bank has replaced the certificates of deposit
with FHLB advances which can be obtained on a short term basis at a lower cost
than certificates.
A provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the Bank,
the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market area and
other factors related to the collectibility of the Bank's loan portfolio. As a
result of such analysis, management recorded a $6,000 provision for loan losses
during the three months ended
7
<PAGE>
September 30, 1999 and no provision during the current period. During the three
months ended September 30, 2000, charge-offs totaled $2,000. While management
believes that the total allowance for loans losses is adequate, there can be no
assurance that the allowance for loan losses will be adequate to cover losses on
nonperforming assets in the future.
Non-interest income which consists mainly of deposit and loan fees amounted
to $45,000 for the three months ended September 30, 2000 as compared to $35,000
for the three months ended September 30, 1999. The $10,000, or 27.69%, increase
resulted from increased checking account fees and gain on other real estate
owned.
Total non-interest expense for the three months ended September 30, 2000
increased by $6,000, or 2.36%, to $248,000 from $243,000 for the three months
ended September 30, 1999 due primarily to an $11,000 increase in other
non-interest expenses, partially offset by decreases in salaries and employee
benefit expenses and deposit insurance premiums. Other non-interest expenses
amounted to $49,000 for the three months ended September 30, 2000 as compared to
$37,000 for the three months ended September 30, 1999 with the $111,000, or
30.48%, increase attributable to approximately $13,000 in expenses related to
two pieces of real estate owned. Salaries and employee benefits amounted to
$107,000 for the three months ended September 30, 2000 as compared to $111,000
for the three months ended September 30, 1999 with the decline attributable to a
decrease in staffing. Federal deposit insurance expense totaled $6,000 for the
first quarter of fiscal year 2001, a decrease of $4,000, or 44.84%, from $10,000
for the same period in fiscal year 2000 with the decline due to the decrease in
the rate of premiums paid by the Bank due to an overall decrease in rates that
became effective as of January 1, 2000.
The Company's income tax expense for the three months ended September 30,
2000 amounted to $23,000 which was comparable to the expense incurred for the
same period the previous year..
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings. The required ratio at September 30, 2000 was
4%. For the month ended September 30, 2000 the Bank was in compliance. As a
result of the conversion, the Bank's liquidity has increased due to the
additional funds it received. The Bank's primary sources of funds are deposits,
repayment of loans and mortgage-backed securities, maturities of investments and
interest-bearing deposits, funds provided from operations and advances from the
FHLB of Dallas. While scheduled repayments of loans and mortgage-backed
securities and maturities of investment securities are predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by the general
level of interest rates, economic conditions and competition. The Bank uses its
liquidity resources principally to fund existing and future loan commitments, to
fund maturing certificates of deposit and demand deposit withdrawals, to invest
in other interest-earning assets, to maintain liquidity, and to meet operating
expenses. At September 30, 2000, the Bank was in compliance with all applicable
regulatory capital requirements with total core and tangible capital of $4.3
million (9.70% of adjusted total assets) and total risk-based capital of $4.4
million (21.25% of risk-weighted assets).
FINANCIAL MODERNIZATION LEGISLATION.
On November 12, 1999, President Clinton signed into law legislation which
could have a far-reaching impact on the financial services industry. The
Gramm-Leach-Bliley ("G-L-B") Act authorizes affiliations between banking,
securities and insurance firms and authorizes bank holding companies and
national banks to engage in a variety of new financial activities. Among the new
activities that will be permitted to bank holding companies are securities and
insurance brokerage, securities underwriting, insurance underwriting and
merchant banking. The Federal Reserve Board, in consultation with the Department
of Treasury, may approve additional financial activities. National bank
subsidiaries will be permitted to engage in similar financial activities but
only on an agency basis unless they are one of the 50 largest banks in the
country. National bank subsidiaries will be prohibited from insurance
underwriting, real estate development and merchant banking. The G-L-B Act,
however, prohibits future affiliations between existing unitary savings and loan
holding companies, like the Company, and firms which are engaged in commercial
activities and prohibits the formation of new unitary holding companies.
The G-L-B Act imposes new requirements on financial institutions with
respect to customer privacy. The G-L-B Act generally prohibits disclosure of
customer information to non-affiliated third parties unless the customer has
been given the opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their privacy policies
to customers annually. Financial institutions, however, will be required to
8
<PAGE>
comply with state law if it is more protective of customer privacy than the
G-L-B Act. The G-L-B Act directs the federal banking agencies, the National
Credit Union Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after consultation with
the National Association of Insurance Commissioners, to promulgate implementing
regulations within six months of enactment. The privacy provisions will become
effective six months thereafter.
The G-L-B Act contains significant revisions to the Federal Home Loan Bank
System. The G-L-B Act imposes new capital requirements on the Federal Home Loan
Banks and authorizes them to issue two classes of stock with differing dividend
rates and redemption requirements. The G-L-B Act deletes the current requirement
that the Federal Home Loan Banks annually contribute $300 million to pay
interest on certain government obligations in favor of a 20% of net earnings
formula. The G-L-B Act expands the permissible uses of Federal Home Loan Bank
advances by community financial institutions (under $500 million in assets) to
include funding loans to small businesses, small farms and small
agri-businesses. The G-L-B Act makes membership in the Federal Home Loan Bank
voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions including a
prohibition against ATM surcharges unless the customer has first been provided
notice of the imposition and amount of the fee. The G-L-B Act reduces the
frequency of Community Reinvestment Act examinations for smaller institutions
and imposes certain reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the Community
Reinvestment Act. The G-L-B Act eliminates the SAIF special reserve and
authorizes a federal savings association that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.
The Company is unable to predict the impact of the G-L-B Act on its
operations at this time. Although the G-L-B Act reduces the range of companies
with which the Company may affiliate, it may facilitate affiliations with
companies in the financial services industry.
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NORTH ARKANSAS BANCSHARES, INC.
PART II
ITEM 1. LEGAL PROCEEDINGS
-----------------
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
-----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit 27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K.
None.
10
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NORTH ARKANSAS BANCSHARES, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: November 14, 2000 By:/s/ Brad Snider
----------------------------------
Brad Snider
President, Chief Executive Officer and Treasurer
(Duly Authorized and Principal
Executive, Accounting and Financial Officer)
11
