UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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 number 0-3041
NATCOM Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-192-1969
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1127 Tower Avenue
Superior, Wisconsin 54880
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(Address of principal (Zip Code)
executive office)
(715) 394-5531
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 month (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 share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 72,000 shares of the Company's
Common Stock ($0.01 par value) were outstanding.
<PAGE>
NATCOM BANCSHARES, INC.
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Consolidated Statements of Income
Three Months Ended March 31, 1998
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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PART II OTHER INFORMATION
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
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SIGNATURE
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Financial Data Schedule Worksheet
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All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
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<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS ( in 000's of dollars)
(Unaudited)
<TABLE>
March 31, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................... $ 8,969 $ 7,816
Federal funds sold ................................................ 8,952 7,720
Available-for-sale securities ..................................... 48,652 49,325
Loans held for sale ............................................... 658 325
Loans, less allowance for loan losses of 1998 $1,479 ; 1997 $1,493 112,538 109,989
Premises and equipment, net ....................................... 1,778 1,786
Other real estate and personal property owned ..................... 1,112 971
Accrued interest receivable and other assets ...................... 2,175 1,863
-------------------
$184,834 $179,795
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing ...................................... $ 24,247 $ 22,981
Interest-bearing ......................................... 118,318 112,722
-------------------
Total deposits ........................................ 142,565 135,703
Short-term borrowings ........................................ 17,506 19,913
Accrued interest payable and other liabilities ............... 1,564 1,231
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Total liabilities ..................................... 161,635 156,847
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Commitments, Contingencies, and Credit Risk
Stockholders' Equity
Common stock, $0.01 par value; 72,000 shares
authorized and issued .................................... 1 1
Additional paid-in capital ................................... 3,799 3,799
Retained earnings ............................................ 18,889 18,631
Accumulated other comprehensive income, unrealized gain on
available-for-sale securities, net ......................... 510 517
-------------------
Total stockholders' equity ............................ 23,199 22,948
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$184,834 $179,795
===================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (in 000's of dollars)
(Unaudited)
Three Months
Ended March 31,
-------------------
1998 1997
- ---------------------------------------------------------
Interest Income
Loans ........................ $ 2,605 $ 2,516
Securities ................... 701 800
Federal funds sold and other . 165 40
-------------------
3,471 3,356
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Interest Expense
Deposits ..................... 1,213 1,202
Short-term borrowings ........ 240 165
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1,453 1,367
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2,018 1,989
Provision for Loan Losses ......... 15 --
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2,003 1,989
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Other Income
Service charges and other fees 170 159
Securities gains (losses), net -- (3)
Other income ................. 50 32
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220 188
-------------------
Other Expenses
Salaries and employee benefits 650 572
Occupancy expenses ........... 129 136
Other expenses ............... 356 316
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1,135 1,024
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1,088 1,153
Income Tax Expense ................ 326 309
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$ 726 $ 844
===================
Weighted Average Shares Outstanding 72,000 72,000
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Earnings Per Common Share ......... $ 10.58 $ 11.72
===================
Dividends per common share ........ $ 7.00 $ 7.00
===================
Comprehensive income .............. $ 755 $ 739
===================
See Notes to Consolidated Financial Statements
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in 000's of dollars)
Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
Unrealized
Gain (Loss)
Additional on Available
Common Paid-in Retained For-Sale
Stock Capital Earnings Securities Total
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<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ...... $ 1 $ 3,799 $ 18,631 $ 517 $ 22,948
Net income ...................... -- -- 762 -- 762
Net change in unrealized gain
(loss) on available-for-sale
securities, net ............ -- -- -- (7) (7)
Cash dividends paid ............. -- -- (504) -- (504)
----------------------------------------------------
Balance, March 31, 1998 ......... $ 1 $ 3,799 $ 18,889 510 $ 23,199
====================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (in 000's of dollars)
(Unaudited)
<TABLE>
Three Months
Ended March 31,
--------------------
1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities
Net income ...................................................... $ 762 $ 844
Adjustments to reconcile net income to cash
provided by operating activities:
Net amortization and accretion of bond premiums and discounts 8 --
Securities losses ........................................... -- 3
Provision for loan losses ................................... 15 --
Net increase in loans held for sale ......................... (333) --
Depreciation ................................................ 59 69
Deferred income taxes ....................................... -- 29
Other ....................................................... 21 (109)
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Net cash provided by operating activities ............ 532 836
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Cash Flows from Investing Activities
Cash flows from available-for-sale securites:
Sales ....................................................... 3,354 6,683
Maturities .................................................. 7,353 1,000
Purchases ................................................... (10,049) (2,997)
Net (increase) decrease in federal funds sold ................... (1,233) 4,150
Net increase in loans ........................................... (2,705) (4,451)
Purchases of bank premises and equipment ........................ (53) (4)
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Net cash provided by (used in) investing activities .. (3,333) 4,381
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Cash Flows from Financing Activities
Net increase (decrease) in deposits ............................. 6,865 (9,546)
Net proceeds from (repayments of) short-term borrowings ......... (2,407) 4,090
Cash dividends paid ............................................. (504) (504)
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Net cash provided by (used in) financing activities .. 3,954 (5,960)
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Increase (decrease) in cash and cash equivalents ..... 1,153 (743)
Cash and cash equivalents:
Beginning ....................................................... 7,816 9,294
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Ending .......................................................... $ 8,969 $ 8,551
====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
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Note 1. Summary of Significant Accounting Policies
NATCOM Bancshares, Inc. (the Company) was incorporated under the laws of the
state of Wisconsin on January 23, 1998 for the purpose of becoming the bank
holding company of National Bank of Commerce in Superior (the Bank) in
connection with a reorganization whereby (i) the Bank became a wholly-owned
subsidiary of the Company and (ii) shareholders of the Bank became shareholders
of the Company. The Company and Bank have received regulatory approval from the
Office of the Comptroller of the Currency and the Federal Reserve Bank for the
reorganization. The reorganization was consummated on May 11, 1998.
The consolidated financial statements included herein are for the Company, the
Bank and the Bank's wholly-owned subsidiary, NATCOM Investment Corporation. The
reorganization has been accounted for similar to a pooling of interests for
companies under common control. Accordingly, the historical financial statements
have been retroactively restated to give effect to the reorganization as of the
beginning of the earliest period presented.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Interim
results are not necessarily indicative of results for a full year.
A summary of the Company's significant accounting policies is presented on page
F-7 (not shown) of its Registration Statement on Form S-4 (No. 333-47579). Users
of financial information produced for interim periods are encouraged to refer to
the footnotes contained in Registration Statement on Form S-4 (No. 333-47579)
when reviewing interim financial results. There has been no material change in
the accounting policies followed by the Company during 1998.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations, cash flows, and shareholders' equity of NATCOM
Bancshares, Inc.
Note 2. Earnings Per Share
Earnings per share are based on weighted number of shares of common stock
outstanding during each period. The number of shares used in the calculation of
earnings per share was 72,000 in 1998 and 1997.
Note 3. Regulatory Capital Requirements
At March 31, 1998, the Company meet each of three current minimum regulatory
capital requirements. The following table summarizes the Company's regulatory
capital position at March 31, 1998:
Actual Required
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Total capital (to risk weighted assets) ............... 18.6% 8.0%
Tier I capital (to risk weighted assets) .............. 17.4% 4.0%
Tier I capital (to average assets) .................... 12.2% 4.0%
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATIONS
Item 2
General: The Company's net earnings are dependent primarily on its net interest
income, which is the difference between interest earned on loans and
investments, and the interest paid on interest-bearing liabilities, primarily
deposits. Net interest income is determined by (i) the difference between the
yield earned on interest earning assets and rates paid on interest-bearing
liabilities ("interest rate spread") and (ii) the relative amounts of interest
earning assets and interest-bearing liabilities. The Company's interest rate
spread is also affected by regulatory, economic, and competitive factors that
influence interest rates, loan demand, and deposit flows. The Company's net
earnings are also affected by the generation of noninterest income, which
primarily consists of fees and service charges. In addition, net earnings are
affect by the level of operating expenses and provisions for loan losses.
The operations of financial institutions, including the Bank, are significantly
affected by prevailing economic conditions, competition, regulatory policies,
and the monetary and fiscal policies of the U.S. Government and government
agencies. Lending activities are influenced by the demand for, and supply of
housing, competition among lenders, the level of interest rates and the
availability of funds. Deposit flows and cost of funds are influenced by
prevailing market rates of interest primarily on competing investments, account
maturities and the levels of personal income and savings in the market area of
the Bank.
Financial Condition: Total assets increased by $5.04 million, or 2.80%, from
$179.80 million at December 31, 1997, to $184.83 million at March 31, 1998. The
increase was primarily due to an increase in net loans receivable, cash and cash
equivalents, and federal funds sold, partially offset by a decrease in the
available-for-sale securities portfolio of the Bank. Cash and cash equivalents
totaled $8.97 million at March 31, 1998, an increase of $1.15 million or 14.75%
from December 31, 1997. Federal funds sold increased $1.23 million or 15.96%
from $7.72 million at December 31, 1997 to $8.95 million at March 31, 1998. The
available-for-sale securities portfolio decreased $673,000 or 1.36% from $49.33
million at December 31, 1997 to $48.65 million at March 31, 1998. Net loans
receivable increased $2.55 million or 2.32%, from $109.99 million at December
31, 1997 to $112.54 million at March 31, 1998. This increase was due primarily
to an increase in residential real estate lending activity.
Deposits increased by $6.87 million, or 5.06%, from $135.70 million at December
31, 1997, to 142.57 million at March 31, 1998.
Borrowings decreased $2.41 million, or 12.09%, from 19.91 million at December
31, 1997, to 17.51 million at March 31, 1998.
Stockholders' equity increased during the three months ended March 31, 1998 by
$251,000 or 1.09%, from $22.95 million at December 31, 1997, to $23.20 million
at March 31, 1998. The increase was primarily a result of net earnings of
$762,000, partially offset by a $504,000 dividend paid on common stock.
Net Earnings: Net earnings for the three months ended March 31, 1998, decreased
$82,000 or 9.72% from the three months ended March 31, 1997, from $844,000 to
$762,000 respectively. This decrease was primarily the result of an increase in
noninterest expense and the provision for loan losses, partially offset by an
increase in net interest income and noninterest income during the period.
Net Interest Income: Net interest income increased by $29,000 or 1.46% for the
three months ended March 31, 1998, compared to the three months ended March 31,
1997. The Company increased its average interest earning assets by $8.56 million
or 5.15%, due primarily to the increase in leveraged borrowings, while the net
interest margin decreased from 4.86% for the three months ended March 31, 1997
to 4.68% for the three months ended March 31, 1998.
Interest Income: Interest income increased by $115,000 or 3.43% from $3.36
million for the three months ended March 31, 1997 to $3.47 million for the three
months ended March 31, 1998. The increase in interest income is primarily a
result of a $8.56 million increase in average interest earning assets, partially
offset by a 13 basis point decrease in the average yield on interest earning
assets between periods.
Interest Expense: Interest expense increased by $86,000 or 6.29% from $1.37
million for the three months ended March 31, 1997 to $1.45 million for the three
months ended March 31, 1998. The increase in interest expense is primarily a
result of a $5.77 million increase in average interest bearing liabilities along
with an increase in the average cost of interest bearing liabilities from 4.20%
for the three months ended March 31, 1997 to 4.28% for the three months ended
March 31, 1998.
<PAGE>
Provision for Loan Losses: The Bank's provision for loan losses increased
$15,000 for the three months ended March 31, 1998 over the three months ended
March 31, 1997. Adjustments to the Bank's provision for loan losses is a result
of management's ongoing evaluation of the loan portfolio.
Noninterest Income: Total noninterest income increased by $32,000 or 17.02% from
$188,000 for the three months ended March 31, 1997 to $220,000 for the three
months ended March 31, 1998. This increase was primarily due to an $11,000
increase in fees and service charges, a $3,000 decrease in net losses on the
sale of securities, and an $18,000 increase in other non interest income.
Noninterest Expense: Total noninterest expensed increased by $111,000 or 10.84%
from $1,02 million for the three months ended March 31, 1997 to $1.14 million
for the three months ended March 31, 1998. This increase was primarily for the
following reasons: (i) a $78,000 increase in compensation and employee benefits,
due to a change in the timing of recognizing incentive compensation in fiscal
1998 compared to fiscal 1997, (ii) a $7,000 decrease in occupancy expense and
(iii) a $40,000 increase in various other noninterest expense categories.
Income Tax Expense: Income tax expense increased by $17,000 or 5.50 from
$309,000 for the three months ended March 31, 1997 to $325,000 for the three
months ended March 31, 1998.
Liquidity and Capital Resources: The Company's primary source of funds for
operations are deposits from its market area; principal and interest payments on
loans, securities available for sale and federal funds sold; proceeds from the
sale or maturation of securities and loans; advances from the FHLB of Chicago,
and retail repurchase agreements. While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, and competition.
The primary investing activities of the Company are the origination of
commercial, residential mortgage and consumer loans and the purchase of
securities. During the three months ended March 31, 1998 the Company's loan
originations totaled $11.22 million. The Company purchased investment securities
during the three months ended March 31, 1998 of $10.05 million.
The primary financing activity of the Company is the attraction of deposits and
secured borrowings. During the three months ended March 31, 1998, the Bank
experienced a net increase in deposits of $6.87 million.
The Company has utilized retail repurchase agreements as a source of funding. At
March 31, 1998, repurchase agreements totaled $14.51 million compared to $16.40
million at December 31, 1997.
The Company has the ability to borrow additional funds from the FHLB of Chicago
by pledging additional mortgage loans. At March 31, 1998 the Company had an
undrawn borrowing capacity with the FHLB for $22.47 million. At March 31, 1998
the Company had borrowings outstanding from the FHLB of Chicago for $2.0
million. Other sources of liquidity include the sale of securities held in the
available for sale portfolio, federal funds borrowing from nonaffiliated
financial institutions, and a $1.0 million note option with the U.S. Treasury.
The Company's most liquid assets are cash and cash equivalents and federal funds
sold which consist of short-term highly liquid investments with original
maturities of less than three months that are readily convertible to known
amounts of cash and interest-bearing deposits. The level of these assets is
dependent on the Company's operating, financing, and investing activities during
any given period. At March 31, 1998, cash and cash equivalents totaled $8.97
million and federal funds sold totaled $8.95 million.
The Company anticipates that it will have sufficient funds available to meet its
current commitments. At March 31, 1998 the Company had commitments to extend
credit of $32.97 million. Certificates of deposits which are scheduled to mature
in one year or less at March 31, 1998 totaled $42.03 million. Management
believes that a significant portion of such deposits will remain with the
Company.
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 5
At a Special Meeting of the shareholders of National Bank of Commerce in
Superior ("Bank") held on May 11, 1998, the shareholders approved the Agreement
and Plan of Merger dated as of January 27, 1998 ("Merger Agreement") by and
among NATCOM Bancshares, Inc. ("Holding Company"), the Bank and National Interim
Bank of Commerce in Superior whereby (i) National Bank of Commerce in Superior,
as the national bank resulting from the merger under the Merger Agreement, will
become a wholly-owned subsidiary of the Holding Company and (ii) shareholders of
the Bank will become shareholders of the Holding Company. Of the 72,000
outstanding shares of common stock of the Bank (which is the only capital stock
of the Bank), 60,773 shares were voted in favor of, 664 shares were voted
against, and 680 shares abstained from voting on, the Merger. There were no
broker non-votes. Management of the Holding Company anticipates that the Merger
will become effective on or before May 31, 1998.
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K
Item 6
(a) Exhibits
(27) Financial Data Schedule for the period ended March 31, 1998
(b) Reports on Form 8-K
None.
<PAGE>
NATCOM BANCSHARES, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATCOM Bancshares, Inc.
/S/ DANIEL N. WALLIN
- -------------------------------
Daniel N. Wallin
President
Dated this 15th day of May 1998.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE MARCH
31, 1998 FORM 10-Q OF NATCOM BANCSHARES, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,969
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,952
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,652
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 114,017
<ALLOWANCE> 1,479
<TOTAL-ASSETS> 184,834
<DEPOSITS> 142,565
<SHORT-TERM> 17,506
<LIABILITIES-OTHER> 1,564
<LONG-TERM> 0
0
0
<COMMON> 1
<OTHER-SE> 23,198
<TOTAL-LIABILITIES-AND-EQUITY> 184,834
<INTEREST-LOAN> 2,605
<INTEREST-INVEST> 701
<INTEREST-OTHER> 165
<INTEREST-TOTAL> 3,471
<INTEREST-DEPOSIT> 1,213
<INTEREST-EXPENSE> 1,453
<INTEREST-INCOME-NET> 2,018
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,135
<INCOME-PRETAX> 1,088
<INCOME-PRE-EXTRAORDINARY> 726
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 726
<EPS-PRIMARY> 10.58
<EPS-DILUTED> 10.58
<YIELD-ACTUAL> 4.68
<LOANS-NON> 142
<LOANS-PAST> 117
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,493
<CHARGE-OFFS> 35
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,479
<ALLOWANCE-DOMESTIC> 1,479
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 544
</TABLE>
