U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OF 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to __________.
Commission File No. 000-25231
Northern Star Financial, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1912467 (State of
Incorporation) (IRS Employer ID #)
1650 Madison Avenue
Mankato, MN 56001
(Address of Principal Executive Offices)
507-388-4855
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or 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_____.
State the number of shares outstanding of each of the
issuer's classes of common equity as of the latest practicable date.
Class: Common Stock, par value $.01 per share
Outstanding shares at September 30, 2000: 427,600
<PAGE>
Northern Star Financial, Inc
Index to Form 10-QSB
September 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Summary Financial Data 3
Consolidated Statements of Financial Condition at
September 30, 2000 (unaudited) and
June 30, 2000 (audited) 4
Unaudited Consolidated Statements of Operations for the
three months ended September 30, 2000 and 1999 5
Unaudited Consolidated Statement of Cash Flows for the
three months ended September 30, 2000 and 1999 6 - 7
Notes to Condensed Consolidated Financial
Statements (unaudited) 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 19
Item 2. Changes in Securities 19
Item 3. Default upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
<PAGE>
Northern Star Financial Summary Financial Data
The following table summarizes certain historical financial data of Northern
Star Financial and its subsidiary on a consolidated basis as of and for the
three months ended September 30, 2000 and 1999. You should read this table in
conjunction with our financial statements and related notes appearing elsewhere
in this document.
<TABLE>
<CAPTION>
For The Three Months
Ended September 30,
--------------------------------------
2000 1999
------------------ -----------------
(unaudited) (unaudited)
Statement of Income Data:
<S> <C> <C>
Interest income $ 542,518 $ 181,235
Interest expense 329,935 56,076
------------------ -----------------
Net interest income 212,583 125,159
Provision for loan losses 20,350 33,750
Other non-interest income 29,519 14,103
Non-interest expense 267,605 278,661
------------------ -----------------
Income (loss) before income tax expense (45,852) (173,149)
Income tax expense (benefit) - -
------------------ -----------------
Net income (loss) $ (45,852) $ (173,149)
================== =================
Balance Sheet Data:
Assets $ 28,259,589 $ 11,003,196
Allowance for loan losses 201,850 90,000
Deposits 22,743,982 7,678,226
Shockholders' equity 2,765,210 3,246,710
Per Share Data:
Net income (loss) - basic $ (0.11) $ (0.41)
Net income (loss) - diluted $ (0.11) $ (0.41)
Book value $ 6.47 $ 7.63
Other Data:
Average shares outstanding - basic 427,600 425,600
Average shares outstanding - diluted 427,600 425,600
Financial Ratios:
Equity to assets 10.69 % 33.41 %
Return on average assets (0.18) % (1.71) %
Return on average stockholders' equity (1.65) % (5.11) %
Net interest margin 3.47 % 5.23 %
Tier 1 leverage ratio 9.90 % 26.38 %
Tier 1 capital to risk-weighted assets 12.09 % 32.65 %
Total capital to risk-weighted assets 13.05 % 33.77 %
Asset Quality Ratios:
Nonperforming assets to total assets 0.03 % N/A
Nonperforming assets to total loans and
and other real estated owned 0.04 % N/A
Allowance for loan losses to total loans 1.00 % 1.21 %
</TABLE>
<PAGE>
Northern Star Financial, Inc. and Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
(Unaudited) (Audited)
------------------------- -----------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 360,846 $ 385,098
Federal funds sold 2,332,978 304,106
------------------------- -----------------------
Total cash and cash equivalents 2,693,824 689,204
Securities available for sale at fair value 4,251,165 4,212,387
FHLB stock, at cost 135,000 97,500
Loans held for sale 118,450 385,050
Loans receivable, net of allowance for loan and
lease losses of $201,850 and $181,500 20,095,400 16,572,568
Accrued interest receivable 333,919 295,303
Property and equipment, net of depreciation 415,934 431,932
Other assets 215,897 299,790
------------------------- -----------------------
Total Assets $ 28,259,589 $ 22,983,734
========================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilites:
Demand deposits $ 2,260,323 $ 1,880,209
Savings deposits 5,238,884 5,786,894
Time deposits 15,244,775 10,526,828
------------------------- -----------------------
Total deposits 22,743,982 18,193,931
Advances from FHLB 2,700,000 1,950,000
Advances from borrowers for taxes and insurance 21,367 17,311
Other liabilities 29,030 34,088
------------------------- -----------------------
Total Liabilities 25,494,379 20,195,330
------------------------- -----------------------
Shareholders Equity:
Common Stock, $.01 par value, 15,000,000 shares
authorized; 427,600 shares issued 4,276 4,276
Undesignated stock, par value $.01 per share; 5,000,000
shares authorized, no shares issued - -
Paid in capital 3,939,557 3,939,557
Accumulated deficit (1,146,881) (1,101,028)
Unearned stock compensation (18,997) (20,000)
Accumulated comprehensive (loss) (12,745) (34,401)
------------------------- -----------------------
Total Shareholders' Equity 2,765,210 2,788,404
------------------------- -----------------------
Total Liabilites and Shareholders Equity $ 28,259,589 $ 22,983,734
========================= =======================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Northern Star Financial, Inc. and Subsidiary
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Interest income
Loans receivable $ 439,625 $ 142,631
Securities available for sale 77,487 21,757
Due from banks 13 -
Federal funds sold 25,392 16,847
----------------- -----------------
Total interest income 542,517 181,235
Interest expense
Deposits 284,135 56,076
Borrowed funds 45,800 -
----------------- -----------------
Total interest expense 329,935 56,076
Net interest income 212,583 125,159
Provision for loan losses 20,350 33,750
----------------- -----------------
Net interest income after
provision for loan loss 192,233 91,409
----------------- -----------------
Noninterest income:
Other fees and service charges 19,423 9,001
Gain/(loss) on sale of loans 10,096 5,101
----------------- -----------------
Total noninterest income 29,519 14,103
----------------- -----------------
Noninterest expense
Compensation and employee benefits 108,053 100,780
Board fees 19,500 20,000
Occupancy 19,153 23,183
Legal and accounting 22,253 22,610
Printing & supplies 6,659 6,660
Property and equipment depreciation 16,854 14,044
Data processing 17,552 11,683
Other 42,360 33,206
----------------- -----------------
Total noninterest expense 252,385 232,167
----------------- -----------------
Loss Before income Tax Benefit and Discontinued Operations (30,633) (126,655)
Income Tax Benefit - -
----------------- -----------------
Loss from Continuing Operations (30,633) (126,655)
Loss from Discontinued Operations (15,220) (46,494)
----------------- -----------------
Net Loss $ (45,853) $ (173,149)
================= =================
Net Loss per Common Share
Basic from Continuing Operations $ (0.07) $ (0.30)
Basic from Discontinued Operations (0.04) (0.11)
----------------- -----------------
Basic (loss) per share of common stock $ (0.11) $ (0.41)
================= =================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Northern Star Financial, Inc and Subsidiary
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
----------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Interest received on loans and investments $ 501,216 $ 122,216
Interest paid (111,573) (57,011)
Other fees, commissions, and income received 15,174 9,001
Cash paid to suppliers, employees and others (252,500) (172,855)
Contributions to charities (200) (100)
Loans originated for sale (839,066) (1,097,675)
Proceeds from sale of loans 1,115,762 1,258,369
----------------- ---------------
Net cash provided by (used in) operating activities 428,813 61,945
----------------- ---------------
Cash flows from investing activities:
Purchases of available-for-sale securities - (1,139,529)
Proceeds from maturities of available-for-sale - 150,000
Purchases of FHLB stock (37,500) -
Investment in joint venture 67,352 (196,000)
Loan originations and principal payments on loans, net (3,538,934) (1,913,473)
Purchase of property and equipment (856) (5,109)
----------------- ---------------
Net cash used in investing activities (3,509,938) (3,104,111)
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing demand
and savings deposit accounts (168,977) 918,584
Net (decrease) increase in time deposits 4,500,666 596,009
Net (decrease) increase in mortgage escrow funds 4,056 (13,423)
Proceeds from FHLB advances 1,050,000 -
Repayment of FHLB advances (300,000) -
----------------- ---------------
Net cash provided by financing activities 5,085,745 1,501,170
----------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,004,620 (1,540,996)
Cash and cash equivalents beginning 689,204 2,743,898
----------------- ---------------
Cash and cash equivalents ending $ 2,693,824 $ 1,202,902
================= ===============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Northern Star Financial, Inc and Subsidiary
Unaudited Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Three Months
Ended Septemer 30,
-----------------------------------
2000 1999
----------------- ---------------
RECONCILATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (45,852) $ (173,149)
Adjustments:
Depreciation 16,854 16,565
Joint venture loss - 40,587
Loss on disposition of joint venture 15,220 -
Provision for loan losses 20,350 33,750
Premiums accretion on investments (2,685) (118)
Discount amortization on investments - 671
Deferred loan fees/cost, net (4,249) -
Earned stock compensation 1,003 -
(Increase) decrease in:
Loans held for sale 266,600 155,593
Accrued interest receivable (38,616) (59,572)
Prepaid income tax - -
Other assets 1,321 4,207
Increase (decrease) in:
Accrued interest payable 218,362 (935)
Other liabilities (19,495) 44,346
----------------- ---------------
Net cash provided by operating
activities $ 428,813 $ 61,945
================= ===============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
Note 1: PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements as of and for the three
month periods ended September 30, 2000 and 1999, include the accounts of
Northern Star Financial, Inc. (the "Company"), and its wholly owned subsidiary
Northern Star Bank (the "Bank"). All significant inter-company accounts and
transactions have been eliminated in consolidation.
Note 2: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
information and disclosures required by generally accepted accounting principles
for complete financial statements. The accompanying consolidated financial
statements do not purport to contain all the necessary financial disclosures
required by generally accepted accounting principles that might otherwise be
necessary in the circumstances and should be read with the fiscal 2000
consolidated financial statements and notes of Northern Star Financial, Inc. and
Subsidiary included in its annual report to shareholders for the year ended June
30, 2000.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentations have been
included. The results of operations for the three month period ended September
30, 2000 and 1999, are not necessarily indicative of the results that my be
expected for the entire fiscal year or any other interim period.
Note 3: EARNINGS PER SHARE
The earnings per share amounts were computed using the weighted average
number of shares outstanding during the periods presented. For the three month
periods ended September 30, 2000 and 1999 the weighted average number of shares
outstanding for basic and diluted earnings per share computation were 427,600
and 425,600 respectively. There were 79,600 common stock shares from stock
options that were not included in the calculation of diluted earnings per share
because they were anti-dilutive.
Note 4: NEW FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 140 was issued
September 29, 2000 as a replacement to SFAS No. 125 "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities". Statement 140
is effective for transfers after March 31, 2001. It is effective for disclosures
about security actions and collateral, and for recognition and reclassification
of collateral for fiscal year ending June 30, 2001. Adoption will not have a
material effect on the Company's financial statements.
<PAGE>
Note 5: COMPREHENSIVE (LOSS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------
<S> <C> <C>
2000 1999
---- ----
Accumulated comprehensive (loss)
is composed of the following:
Unrealized Gains (Losses) on Securities
Beginning Balance $ (34,401) $ (2,500)
Current-period change net of tax 21,656 (3,843)
------------ -------------
Ending Balance $ (12,745) $ (6,343)
------------ -------------
Comprehensive (Loss) consists of the following:
Net loss $ (45,852) $(173,149)
Other comprehensive (loss) income 21,656 (3,843)
------------ -------------
Comprehensive (Loss) $ (24,196) $(176,992)
=========== =============
</TABLE>
Note 6: JOINT VENTURE/DISCONTINUED OPERATIONS
In July 1999, the Company acquired a 49 percent joint venture interest
in Homeland Mortgage Company, LLC (Homeland Mortgage), a limited liability
company, in exchange for a total cash consideration of $196,000. The investment
in Homeland Mortgage was accounted for using the equity method. Homeland
Mortgage's primary business is originating residential real estate loans that
are secured by first and second mortgages and sold into the secondary mortgage
market. During the quarter ended September 30, 2000, the board of directors
voted to sell the Company's 49 percent joint venture interest for $67,352. The
Company did not retain any interest in the assets or liabilities of Homeland
Mortgage. The Company remains contingently liable for the lease of office real
estate, which expires July 1, 2002. The property has been sub-let and management
does not expect a default on the part of the tenant occupying the property.
Note 7: SECONDARY STOCK OFFERING INITIATED
The Company filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission to register the sale of a minimum 50,000
shares and a maximum of 300,000 shares of its common stock at $10.50 per share.
The Registration Statement and Prospectus were declared effective on September
18, 2000 and upon the sale of the minimum and maximum number of shares will
result in net proceeds of approximately $488,250 and $2,929,500, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Northern Star Financial, Inc. is the bank holding company of Northern Star Bank
(the "Bank"). Since the principal business of the Company is the Bank, the
following discussion pertains mainly to the Bank.
This report contains "forward-looking statements" as defined in section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended, which includes statements such as projections,
plans and objectives and assumptions about the future, and such forward looking
statements are subject to the safe harbor created by these sections. Many
factors could cause the actual results, amounts or events to differ materially
from those the Company expects to achieve or occur, such as changes in
competition, market interest rates, economic conditions and regulations.
Although the Company has based its plans and projections on certain assumptions,
there can be no assurances that its assumptions will be correct, or that its
plans and projections can be achieved.
FINANCIAL CONDITION
Assets
Total assets of Northern Star Financial, Inc. at September 30, 2000
were $28.26 million compared to $22.98 million at June 30, 2000, an increase of
$5.28 million over the prior quarter. Net loans increased $3.25 million during
the first three months ended September 30, 2000. Real estate loans increased
$242.8 thousand to $8.09 million at September 30, 2000, and business and
consumer loans increased $2.99 million to $ 12.26 million. Loans held for sale
decreased $267 thousand for the quarter. Investment securities increased $39.0
thousand, from $4.21 million at June 30, 2000 to $4.25 million at September 30,
2000. Federal Funds sold increased $2.03 million to $2.33 million at September
30, 2000. Higher levels of liquidity in the form of Federal funds sold were
accumulated during the period in anticipation of funding a growing inventory of
loans in process.
Liabilities
Total liabilities at September 30, 2000 were $25.49 million compared to
$20.20 million at June 30, 2000, a $5.29 million increase. Deposits at June 30,
2000 were $18.19 million compared to $22.74 million at September 30, 2000, an
increase of 25% or $4.55 million. During the first three months of fiscal year
2001, non-interest-bearing deposits increased $179.0 thousand to $1.67 million,
while interest bearing deposits increased $4.25 million to $20.84 million. Long
term-borrowings increased $750.0 thousand to $2.70 million at September 30, 2000
compared to $1.95 million at June 30, 2000.
Non-performing Assets
Non-performing assets of Northern Star Financial, Inc. consist of
non-accrual loans. The Company reported no non-performing loans on June 30,
2000. On September 30, 2000, non-accrual loans totaled $7.37 thousand. The
effect of non-accrual loans was not significant to the results of operations.
<PAGE>
The Company includes all loans considered impaired under FASB Statement No. 114
as non-accrual loans. The amount of impaired loans was not material at September
30, 2000.
RESULTS OF OPERATIONS
As a result of the Company's decision to suspend operations of Homeland
Mortgage, LLC., results of operations are presented on the basis of continuing
and discontinued operations in accordance with generally accepted accounting
principles. Historical presentation of continuing operations reflects the
Company's results of operations as if the disposition of Homeland Mortgage had
occurred for all periods presented. Discontinued operations represents Homeland
Mortgage's operating losses for the period presented.
Continuing Operations
For the first quarter of the fiscal year ending June 30, 2001, the
Company's net loss from continuing operations was $30.63 thousand compared to
$126.66 thousand for the same period of the fiscal year ended June 30, 2000, a
76% decrease. The Basic Loss per share from continuing operations in the first
quarter decreased 77% to $(0.07) in fiscal year 2001 from $(0.30) in the first
quarter of fiscal year 2000. The improvement in net earnings was attributable to
continued improvement in the performance of Northern Star Bank where increases
in net interest income and non-interest income resulted in the Bank reporting
its first quarterly profit of $12.71 thousand for the quarter ended September
30, 2000.
Discontinued Operations
Losses from discontinued operations for the three months ended September
30, 1999 and 2000 were $46.49 thousand and $15.22 thousand, net of income taxes,
respectively.
The Basic Loss per share from discontinued operations for the three months
ended September 30, 1999 and 2000 were $(0.11) and $(0.04), net of income taxes,
respectively.
Net Interest Income
Net interest income during the first three months ended September 30, 2000
increased $87.42 thousand to $212.58 thousand, up 70% from $125.16 thousand for
the same period ended September 30, 1999. Interest income on loans increased
208% to $439.60 thousand in the quarter ended September 30, 1999, an increase of
$297.0 thousand over the comparable period ended September 30, 1999. During the
first quarter of fiscal year 2001, income on investment securities increased
$55.73 thousand or 256% to $77.49 thousand compared to the first quarter of
fiscal year 2000. Interest expense on deposits increased 407% from $56.08
thousand in the first three months of fiscal year 2000 to $284.14 thousand in
fiscal year 2001. For the three months ended September 30, 2000, interest income
on Federal funds sold increased $8.545 thousand and interest expense on
long-term borrowings increased $45.8 thousand over the comparable period in
fiscal year 2000, respectively. The net interest margin was 3.47% in the first
quarter of fiscal year 2001 compared to 3.86% in the first quarter of fiscal
year 2000.
<PAGE>
Provision for Loan Losses
The provision for loan losses during the first three months of fiscal year
2001 was $20.35 thousand, down $13.40 thousand or 40% from the comparable period
in fiscal year 2000. The decrease in the loan loss provision in the first
quarter of fiscal year 2001 was attributable partially to decreases in the rate
of growth of the loan portfolio during the period as compared to the same period
in fiscal year 2000.
Non-Interest Income
For the first quarter of fiscal year ending June 30, 2001, non-interest
income was $29.52 thousand, an increase of $15.416 thousand, or 109%, compared
to the first quarter of fiscal year ended June 30, 2000. This increase was
attributable to a $10.42 thousand increase in loan service fees and charges on
deposit accounts and a $5.0 thousand increase in gains on the sale of mortgage
loans.
Non-Interest Expense
Non-interest expense during the first quarter of fiscal year 2001 increased
$20.22 thousand, or 8.7%, to $252.39 thousand compared with $232.17 thousand in
the comparable quarter of fiscal year 2000. This increase was attributable
primarily to a 7.20% increase in salaries and employee benefits and a 9.90%
increase in other operating expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Interest Sensitivity
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest-bearing deposits with banks, federal funds sold,
investments, and loans maturing within one year. As a result of the Company's
management of liquid assets and the ability to generate liquidity through
liability funding, management believes that the Company maintains overall
liquidity sufficient to satisfy its depositors' requirements and meet its
customers' credit needs.
At September 30, 2000, the Company had $2.81 million in unused loan
commitments and expects to have sufficient funds available to meet current loan
origination commitments. Funding is expected to be in the normal course of
business primarily through loan repayments, prepayments, and deposit growth. As
additional funding, the Company holds $4.25 million in investment securities.
The entire investment securities portfolio is classified as available for sale.
The entire investment securities portfolio of $4.2 million will mature between
one and seven years.
Capital Resources
Total shareholders' equity amounted to $2.77 million at September 30,
2000 compared to $2.79 million at June 30, 2000. As of September 30, 2000, the
<PAGE>
Company 's leverage ratio was 9.90%, with a tier 1 risk-based capital ratio of
12.09% and a total risk-based capital ratio of 13.05%. Each of these ratios is
above the level required in order to be classified as "well capitalized" for
regulatory purposes.
INCOME TAXES
The effective income tax rate for the Company and the Bank was 0% for
the three-month period ending September 30, 2000 because the expected future tax
benefit of the net operating loss amounting to approximately $18.34 thousand is
reduced by a deferred tax asset valuation allowance in accordance with generally
accepted accounting principles.
PUBLIC OFFERING OF COMMON STOCK
We have entered into an agreement with Berthel Fisher & Company
Financial Services, Inc. who agreed to sell, on a "best efforts basis," a
minimum of 50,000 shares and a maximum of 300,000 shares of the Company's common
stock at $10.50 per share to the public. We intend to use the proceeds from the
offering as working capital to provide our bank with additional capital to make
loans and grow its business.
JOINT VENTURE IN HOMELAND MORTGAGE, LLC.
In July 1999, we entered into a joint venture with First Federal
Savings Bank by acquiring a 49 percent joint interest in Homeland Mortgage
Company, LLC, in exchange for a total cash consideration of $196,000. The
investment in Homeland is being accounted for using the equity method.
Homeland's primary business is originating residential real estate loans that
are secured by first and second mortgages and sold into the secondary mortgage
market.
On August 25, 1999, the Federal Reserve Board initiated a policy of
increasing interest rates in an effort to reduce the rate of inflation in the
economy. The action of the Federal Reserve Board resulted in a slow down in
activity associated with the purchase and refinancing of residential properties
thereby affecting the ability of Homeland to generate new loans and the related
income. For the year ended June 30, 2000, we have incurred a loss from our
investment in Homeland of $113,428. On September 1, 2000, we sold our minority
interest in Homeland to First Federal Savings Bank for approximately $68,000.
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES
The following table sets forth, for the three months ended September
30, 2000 and 1999, the weighted average yields earned, the weighted average
rates paid, the interest rate spread and the net yield on earning assets and
interest-bearing liabilities, on an annualized basis.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30, 2000 September 30, 1999
------------------------------------------- -------------------------------------------
Average Average
Average Yield or Average Yield or
Balance Interest Rates Balance Interest Rates
---------------- ------------ ---------- ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans receivable $ 18,579,152 $ 439,625 9.46% $ 6,532,908 $ 142,631 8.73%
Investment securities 4,350,593 77,501 7.13% 1,317,948 21,757 6.60%
Federal funds sold 1,605,906 25,392 6.32% 1,384,934 16,847 4.86%
---------------- ------------ ---------- ----------------- -------------- ----------
Total interest-earning assets 24,535,651 542,518 8.84% 9,235,790 181,235 7.85%
Non-interest-earning assets 1,427,310 911,010
---------------- -----------------
Total assets $ 25,962,961 $ 10,146,800
================ =================
Liabilities and Stockholders' Equity
Interest Bearing Deposits $ 18,971,852 284,135 5.99% $ 5,656,876 60,950 4.31%
Other liabilities 2,665,759 45,800 6.87% -
---------------- ------------ ---------- ----------------- -------------- ----------
Total interest-bearing liabilities 21,637,611 329,935 6.10% 5,656,876 60,950 4.31%
------------ --------------
Non-interest-bearing liabilities 1,550,572 1,099,754
---------------- -----------------
Total liabilities 23,188,183 6,756,630
Stockholders' Equity 2,774,778 3,390,170
Total liabilities and stockholders'
equity $ 25,962,961 $ 10,146,800
================ =================
Net Interest Spread 2.74% 3.54%
Net Interest Income/Margin $ 212,583 3.47% $ 120,863 5.23%
============ ========== ============== ==========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.13x 1.63x
</TABLE>
<PAGE>
LOAN PORTFOLIO
Total gross loans outstanding at September 30, 2000, including loans
held for sale, was $20,352,416.
The following table summarizes the composition of the loan portfolio as of
September 30, 2000, and June 30, 2000:
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
-------------------------------- -------------------------------
Amount % of Total Amount % of Total
------------------ ------------- ------------------ -----------
<S> <C> <C> <C> <C>
Commercial & Agricultural $ 3,787,005 18.61% $ 2,985,277 17.44%
Real Estate - individual 4,748,447 23.33% 3,731,185 21.79%
Real Estate - other 3,343,100 16.43% 4,117,578 24.06%
Consumer Loans 7,911,419 38.87% 5,660,632 33.07%
Lease Financing 562,445 2.76% 622,205 3.64%
------------------ ------------- ------------------ -----------
Total loans $ 20,352,416 100.00% $ 17,116,878 100.00%
============= ===========
Net Deferred Loans fees/(costs) 63,284 22,239
Less: Allowance for Loan Loss (201,850) (181,500)
------------------ ------------------
Total Net Loans $ 20,213,850 $ 16,957,617
================== ==================
</TABLE>
<PAGE>
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The information in the following table is based on the contractual
maturities of individual loans, including loans which, may be subject to renewal
at their contractual maturity. Renewal of such loans is subject to review and
credit approval, as well as modification of terms upon their maturity. Actual
repayments of loans may differ from maturities reflected below because borrowers
have the right to repay obligations with or without prepayment penalties. The
following table summarizes loan maturities, by type at September 30, 2000 and
June 30, 2000.
<TABLE>
<CAPTION>
As of September 30, 2000
-----------------------------------------------------------------------
One Year After One but After
or Less within Five Years Five Years Total
----------------- ---------------------------------- -----------------
<S> <C> <C> <C> <C>
Commercial & Agricultural $ 1,251,174 $1,412,596 $ 1,123,234 $ 3,787,005
Real Estate - individual 575,095 1,756,747 2,416,604 $ 4,748,447
Real Estate - other 400,230 2,587,558 355,313 $ 3,343,100
Consumer Loans 4,929,435 2,436,102 545,882 $ 7,911,419
Lease Financing 28,569 533,876 - $ 562,445
----------------- ----------------- ---------------- -----------
Total $ 7,184,503 $8,726,879 $ 4,441,034 $20,352,416
================= ================= ================ ================
Loans maturing after one year with
Fixed Interest Rate $ 10,431,477
Floating Interest Rates $ 2,736,436
As of June 30, 2000
-----------------------------------------------------------------------
One Year After One but After
or Less within Five Years Five Years Total
----------------- ---------------------------------- -----------------
Commercial Agricultural $ 1,236,383 $ 966,626 $ 782,268 $2,985,277
Real Estate - individual 65,000
Real Estate - other 1,189,093 2,384,194 544,291 4,117,578
Consumer loans 4,369,053 1,032,415 259,165 5,660,633
Lease Financing 48,159 574,046 - 622,205
----------------- ----------------- ---------------- -----------------
Total $ 6,907,688 $6,007,485 $ 4,201,705 $17,116,878
================= ================= ================ =================
Loans maturing after one year with
Fixed Interest Rate $ 7,855,057
Floating Interest Rates $ 2,354,133
</TABLE>
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company had developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential credit problems. Additions to the allowance for loan losses will be
made periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio.
At September 30, 2000, the allowance for loan losses was $201,850 or 1%
of $20,233,965 in loan receivables (net of loans held for sale). The bank has
not charged off any loans since commencing operations. The provision for loan
losses was made primarily as a result of management's assessment of general loan
loss risk as the Bank recorded its first loans. The allowance is allocated as
follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30, 2000 June 30, 2000
<S> <C> <C>
Balance at Beginning of Period $ 181,500 $ 56,250
Charge-offs - -
Recoveries - -
Net Charge Offs - -
Additions charged to operations $ 20,350 125,250
------------------------ --------------------
Balance at End of Period $ 201,850 $ 181,500
======================== ======================
Ration of net charge-offs during the period 0% 0%
to average loans outstanding during the period
</TABLE>
At September 30, 2000 and June 30, 2000 the allowance was allocated as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Year Ended
September 30, 2000 June 30, 2000
------------------------------------------- -------------------------------------
Percent of Loans Percent of Loans
in Each Category in Each Category
Amount of Total Loans Amount of Total Loans
------------------- --------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Commercial & Agricultural $ 28,403 18.61 % $ 22,155 17.44 %
Real Estate - individual 35,338 23.33 % 27,611 21.79 %
Real Estate - other 25,073 16.43 % 27,872 24.06 %
Consumer loans 40,413 38.87 % 24,744 33.07 %
Lease Financing 3,844 2.76 % 4,484 3.64 %
Unallocated 68,779 ----- 74,634 ------
------------------- --------------------- ---------------- --------------------
Total $ 201,850 100.00 % $ 181,500 100.00 %
=================== ===================== ================ ====================
</TABLE>
<PAGE>
DEPOSITS
The following is a table of deposits by category at September 30, 2000 and June
30, 2000.
<TABLE>
<CAPTION>
As of September 30, 2000
----------------------------------------------------------------------------
Percentage
Percentage of Total
Ending of Total Average Average Effective
Balance Deposits Balance Deposits Cost
---------------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Demand Deposit $ 1,670,591 7.35% $ 1,308,777 6.39% 0.00%
Now 589,114 2.59% 566,556 2.77% 2.68%
Savings 5,238,300 23.03% 5,465,173 26.68% 4.10%
Time Accounts less than $100,000 11,977,773 52.66% 10,375,418 50.65% 7.07%
Time Accounts of $100,000 or more 3,031,155 13.33% 2,564,705 12.52% 6.40%
Accrued Interest Payable 237,048 1.04% 203,465 0.99%
---------------- ----------- --------------- ------------
Total Deposits $ 22,743,981 100.00% $ 20,484,093 100.00%
================ =========== =============== ============
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 2000
----------------------------------------------------------------------------
Percentage
Percentage of Total
Ending of Total Average Average Effective
Balance Deposits Balance Deposits Cost
---------------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Demand Deposit $ 1,491,958 8.20% $ 1,175,786 10.01% 0.00%
Now 387,797 2.13% 290,036 2.47% 2.62%
Savings 5,786,894 31.81% 4,580,690 39.01% 4.03%
Time Accounts less than $100,000 8,271,953 45.47% 3,637,155 30.98% 6.15%
Time Accounts of $100,000 or more 2,129,895 11.70% 1,955,807 16.66% 6.02%
Accrued Interest Payable 125,434 0.69% 102,386 0.87%
---------------- ----------- --------------- ------------
Total Deposits $ 18,193,931 100.00% $ 11,741,860 100.00%
================ =========== =============== ============
</TABLE>
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
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) See Exhibit Index on page following Signatures.
(b) None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTHERN STAR FINANCIAL, INC.
Date: November 10, 2000 By /s/ Thomas P. Stienessen
Thomas P. Stienessen, President and
Chief Executive Officer
Date: November 10, 2000 By /s/ Frank L. Gazzola
Frank L. Gazzola, Chief Financial Officer
<PAGE>
EXHIBIT INDEX
NORTHERN STAR FINANCIAL, INC.
FORM 10-QSB
FOR QUARTER ENDED September 30, 2000
Exhibit Number Description
27 Financial Data Schedule (filed in electronic format only)
