<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- --------------
Commission file number 0-10627
-----------------------
NORTH COUNTY BANCORP
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 95-3669135
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
444 S. Escondido Blvd., P.O.Box 1476, Escondido, California 92025
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 743-2200
---------------------
- -------------------------------------------------------------------------------
(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 Sections 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
--- ----
As of November 7, 1996 the Registrant had 1,890,077 shares of no par value
common stock issued and outstanding.
<PAGE>
NORTH COUNTY BANCORP
Page
------
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statement of Financial Condition -
September 30, 1996 and December 31, 1995 2
Consolidated Statement of Income -
Three Months Ended and Nine months Ended
September 30, 1996 and 1995 3
Consolidated Statement of Cash Flows -
Nine months Ended September 30, 1996
and September 30, 1995 4
Notes to Consolidated Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
Part II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 11
1
<PAGE>
NORTH COUNTY BANCORP
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 25,435,000 $ 24,233,000
Federal funds sold 11,200,000 10,500,000
------------- ------------
36,635,000 34,733,000
Investment securities:
Available for sale 21,734,000 18,250,000
Held to maturity 10,085,000 7,922,000
Loans, net 172,195,000 159,034,000
Other real estate owned 2,568,000 2,402,000
Premises and equipment, net 8,974,000 9,526,000
Other assets 6,357,000 5,167,000
------------- ------------
$258,548,000 $237,034,000
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 78,231,000 $ 70,728,000
Interest bearing 151,004,000 143,108,000
------------- ------------
229,235,000 213,836,000
Accrued expenses and
other liabilities 2,029,000 1,788,000
U.S. Treasury demand note 4,278,000 543,000
Notes payable 1,568,000 1,500,000
Capital lease obligation 437,000 462,000
Convertible subordinated debentures 1,675,000 1,678,000
------------- ------------
Total liabilities 239,222,000 219,807,000
------------- ------------
Stockholders' equity:
Common stock, no par value,
Authorized, 5,000,000 shares;
Outstanding shares 1,885,545
in 1996 and 1,878,984 in 1995 9,958,000 9,156,000
Retained earnings 9,503,000 8,164,000
Unrealized loss on available for
sale securities, net of tax (135,000) (93,000)
------------- ------------
Total stockholders' equity 19,326,000 17,227,000
------------- ------------
$258,548,000 $237,034,000
------------- ------------
------------- ------------
See accompanying notes to consolidated financial statements.
2
<PAGE>
NORTH COUNTY BANCORP
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1996 1995 1996 1995
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $4,506,000 $4,427,000 $13,151,000 $13,332,000
Investment securities 410,000 231,000 1,155,000 868,000
Federal funds sold 133,000 173,000 288,000 239,000
Deposits with other
financial institutions --- --- --- 2,000
---------- ----------- ------------ ------------
Total interest income 5,049,000 4,831,000 14,594,000 14,441,000
---------- ----------- ------------ ------------
Interest expense:
Deposits 1,211,000 1,252,000 3,474,000 3,523,000
Federal funds purchased and
U.S. Treasury demand note 25,000 12,000 47,000 79,000
Notes payable, capital lease
obilgation and convertible
subordinated debentures 86,000 87,000 259,000 259,000
---------- ----------- ------------ ------------
Total interest expense 1,322,000 1,351,000 3,780,000 3,861,000
---------- ----------- ------------ ------------
Net interest income 3,727,000 3,480,000 10,814,000 10,580,000
Provision for loan and lease losses 100,000 925,000 1,100,000 2,661,000
---------- ----------- ------------ ------------
Net interest income after provision
for loan and lease losses 3,627,000 2,555,000 9,714,000 7,919,000
Other income 1,679,000 1,634,000 5,384,000 5,017,000
Other expense 3,834,000 4,134,000 11,541,000 11,828,000
---------- ----------- ------------ ------------
Income before income taxes 1,472,000 55,000 3,557,000 1,108,000
Provision for income taxes 570,000 (59,000) 1,455,000 229,000
---------- ----------- ------------ ------------
Net income $ 902,000 $ 114,000 $2,102,000 $ 879,000
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
Primary earnings per share $ 0.47 $ 0.07 $ 1.10 $ 0.53
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
Fully diluted earnings per share $ 0.43 $ 0.06 $ 1.02 $ 0.47
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
</TABLE>
3
<PAGE>
NORTH COUNTY BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
------------------------------
1996 1995
------------ -------------
Cash flows from operating activities:
Net income $ 2,102,000 $ 879,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of:
Office property and equipment 1,012,000 1,132,000
Deferred loan fees and costs, net (362,000) (80,000)
Investment premiums and discounts, net 73,000 25,000
Loan servicing rights 164,000 240,000
Other 38,000 37,000
Provision for loan loss 1,100,000 2,661,000
Loss on sale of investment securities 24,000 11,000
(Increase) decrease in
interest receivable (70,000) 178,000
Decrease in taxes payable (220,000) (143,000)
Increase in accrued expenses 342,000 127,000
Increase in interest payable 8,000 312,000
Other, net (1,186,000) 331,000
------------ -------------
Net cash provided by
operating activities 3,025,000 5,710,000
------------ -------------
Cash flows from investing activities:
Proceeds from sales and maturities
of investment securities 11,262,000 13,559,000
Purchase of investment securities (17,007,000) (9,206,000)
Net increase in loans (16,172,000) (1,827,000)
Purchase of premises and equipment (460,000) (536,000)
Proceeds from sale of other real
estate owned 2,038,000 2,808,000
------------ -------------
Net cash (used in) provided by
investing activities (20,339,000) 4,798,000
------------ -------------
Cash flows from financing activities:
Cash payments on notes payable
and capital lease obligations (24,000) (21,000)
Net increase (decrease) in deposits 15,399,000 (15,191,000)
Net increase (decrease) in short
term borrowings 3,735,000 (1,055,000)
Net increase in long term borrowings 68,000 --
Cash proceeds from sale of common stock 38,000 1,776,000
------------ -------------
Net cash provided by (used in)
financing activities 19,216,000 (14,491,000)
------------ -------------
Net increase (decrease) in cash and
cash equivalents 1,902,000 (3,983,000)
Cash and cash equivalents at
beginning of year 34,733,000 33,053,000
------------ -------------
Cash and cash equivalents at end of period $ 36,635,000 $ 29,070,000
------------ -------------
------------ -------------
Disclosures:
Total interest paid $ 3,772,000 $ 3,549,000
------------ -------------
------------ -------------
Total taxes paid $ 1,874,000 $ 485,000
------------ -------------
------------ -------------
Foreclosed real estate loans $ 2,274,000 $ 2,836,000
------------ -------------
------------ -------------
See accompanying notes to consolidated financial statements.
4
<PAGE>
NORTH COUNTY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial information has been prepared in accordance with the
Securities and Exchange Commission rules and regulations for quarterly reporting
and therefore does not necessarily include all information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles. This information should be read
in conjunction with the Company's Annual Report for the year ended December 31,
1995.
Operating results for interim periods are not necessarily indicative of
operating results for an entire fiscal year. In the opinion of management, the
unaudited financial information for the three month and nine month periods ended
September 30, 1996 and 1995, reflect all adjustments, consisting only of normal
recurring accruals and provisions, necessary for a fair presentation thereof.
NOTE 2 - EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common stock
and common stock equivalent shares outstanding adjusted retroactively for stock
dividends. The weighted average number of shares outstanding for primary
earnings per share was 1,911,523 and 1,909,258 for the three and nine months
ended September 30, 1996, respectively, and 1,720,116 and 1,660,811 for the
three and nine months ended September 30, 1995, respectively. The calculation
of fully diluted earnings per share assumes the issuance of 213,648 shares of
common stock upon conversion of the Company's convertible subordinated
debentures. The weighted average number of shares outstanding for fully diluted
earnings per share was 2,125,455 and 2,126,303 for the three and nine months
ended September 30, 1996, respectively, and 1,934,146 and 1,874,842 for the
three and nine months ended September 30, 1995, respectively.
NOTE 3 - STOCK DIVIDEND
On February 21, 1996, the Company declared a 5% stock dividend which was paid on
March 29, 1996 to stockholders of record on March 1, 1996. This resulted in the
issuance of 89,288 shares of common stock.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
North County Bancorp (the "Company") has one wholly owned subsidiary, North
County Bank (the "Bank"). North County Bank's operations are the only
significant operations of the Company. The accompanying financial information
should be read in conjunction with the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
FINANCIAL CONDITION
Total assets of the Company increased $21.5 million or 9.1% to $258.6 million at
September 30, 1996, from $237.0 million at December 31, 1995. Cash and cash
equivalents showed an increase of 5.5% or $1.9 million. Within this category
cash and due from banks increased 5% or $1.2 million to $25.4 million at period
end from $24.2 million at the end of 1995. Federal funds sold increased
$700,000 to $11.2 million from $10.5 million during this same time period.
Investment securities increased $5.6 million or 21.2% to $31.8 million at
September 30, 1996 from $26.2 million at the end of the year. The increase
consisted of $17.0 million in investment purchases partially offset by $8.7
million in maturities and bond calls and $2.6 million in the sale of securities.
The sale of securities during the second quarter of 1996, which netted an after
tax loss of $13,000, was in response to short term liquidity needs due to
increased loan demand. Net loans increased 8.3% or $13.2 million to $172.2
million at period end from $159.0 million at the end of 1995. Within the loan
portfolio, real estate mortgage loans increased $9.5 million or 35.3% to $36.3
million resulting from the Company's efforts to promote commercial real estate
loans. Real estate mortgage loans increased to 20.7% as a percentage of gross
loans as compared to 16.6% at year end. Consumer lending increased $5.6 million
or 12% to $52.3 million at September 30, 1996 primarily due to Title I loans
which increased $8.3 million or 69.4% offset by a decrease of $2.5 million or
4.7% in other consumer loans. Commercial loans increased 5.4% or $4.0 million
to $78.8 million at September 30, 1996, from $74.8 million at year end. The
increase in real estate, consumer, and commercial lending was partially offset
by construction loans which decreased $4.6 million or 49.6%. Lending rates,
which declined during the first quarter in response to a 25 basis point cut in
the discount rate by the Federal Reserve Bank, remained relatively stable during
the second and third quarters. Declining interest rates and improved economic
conditions in southern California contributed to increased loan demand in the
Company's market area. Other real estate owned increased 6.9% or $200,000 to
$2.6 million from $2.4 million during the first nine months of 1996. The
Company sold twelve properties which totaled $2.0 million from its other real
estate owned portfolio. These sales were offset by foreclosures during the
first nine months of 1996 that totaled $2.2 million.
Total deposits at September 30, 1996 increased $15.4 million or 7.2% from
December 31, 1995. Non-interest bearing demand deposits increased $7.5 million
or 10.6% to $78.2 million. Interest bearing deposits increased $7.9 million or
5.5% to $151.0 million at September 30, 1996. Within the interest bearing
deposit category time deposits increased $3.9 million or 11.7% to $37.7 million
from $33.8 million, savings accounts increased $3.6 million or 4.8% to $77.8
million from $74.2 million, and NOW accounts increased $389,000 or 1.1% to $35.5
million from $35.1 million at year end. An increase of $3.7 million to $4.3
million from $543,000 in the U.S. Treasury demand note account was used as an
additional short term source of funds. Total stockholders' equity at September
30, 1996 was $19.3 million as compared to $17.2 million at December 31, 1995, an
increase of $2.1 million or 12.2%. (See "CAPITAL RESOURCES.")
6
<PAGE>
RESULTS OF OPERATIONS
SUMMARY
Net income for the nine months ended September 30, 1996 increased $1.2 million
or 139.1% to $2.1 million from $879,000 for the same period in 1995. The
increase is attributable to a number of factors, the largest of which was a
decrease in the provision for loan and lease losses of $1.6 million or 58.7% to
$1.1 million for the first nine month of 1996 from $2.7 million for the same
1995 period. Net interest income increased $234,000 or 2.2% to $10.8 million.
Other income increased $367,000 or 7.3% to $5.4 million and other expense
decreased $287,000 or 2.4% to $11.5 million for the first nine months of 1996.
The provision for income taxes increased $1.2 million to $1.5 million for the
first nine months of 1996 from $229,000 for the same prior year period due to a
higher effective tax rate on an increase in pre-tax earnings of $2.4 million.
Return on average assets and average stockholders' equity for the first nine
months of 1996 were 1.15% and 15.38%, respectively, compared to 0.51% and 7.06%,
respectively for the same 1995 period. Primary and fully diluted earnings per
share for the first nine months of 1996 increased to $1.10 and $1.02,
respectively, from $0.53 and $0.47, respectively, for the same 1995 period.
(See "RESULTS OF OPERATIONS -- PROVISION FOR LOAN AND LEASE LOSSES", "RESULTS OF
OPERATION -- NONPERFORMING ASSETS", and "RESULTS OF OPERATIONS -- OTHER INCOME
AND EXPENSE.")
For the three months ended September 30, 1996, the Company recorded net income
of $902,000 compared to $114,000, an increase of $788,000 or 691.2% over the
same 1995 period. The increase in third quarter earnings is primarily due to a
decrease of $825,000 in the provision for loan and lease losses combined with a
decrease in other expense of $300,000, an increase in net interest income of
$247,000 partially offset by an increase of $629,000 in the provision for income
taxes. Return on average assets and average equity for the quarter ended
September 30, 1996, were 1.44% and 19.04%, respectively, compared to 0.20% and
2.86%, respectively for the third quarter of 1995. Primary and fully diluted
earnings per share for the third quarter of 1996 increased to $0.47 and $0.43,
respectively, from $0.07 and $0.06, respectively for the same 1995 period.
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 1996 increased
$234,000 or 2.2%. Total interest income increased $153,000 or 1.1% and
consisted primarily of of an increase of $287,000 in investment securities
interest and $49,000 in Federal funds sold interest partially offset by a
decrease of $181,000 in interest and fees on loans. Generally lower short term
interest rates over the past year decreased the taxable equivalent yield on
earning assets to 9.53% at September 30, 1996 from 10.05% for the same 1995
period. During this time period the tax equivalent yield on loans decreased to
10.40% from 10.77% on average loan balances outstanding which increased to
$169.8 million from $166.4 million for the nine months ended September 30, 1996
and 1995, respectively. Although the tax equivalent yield on the investment
portfolio decreased to 5.54% from 5.59% the average volume increased to $28.4
million from $21.1 million for the nine months ended September 30, 1996 and
1995, respectively. During this same time period the yield on Federal funds
sold decreased to 5.08% from 5.62% while the related average balance increased
to $7.6 million from $5.7 million. The net tax equivalent interest margin (net
interest income as a percentage of average interest-earning assets) was 7.07%
and 7.38% for the nine months ended September 30, 1996 and 1995, respectively.
Interest expense decreased $81,000 or 2.1% for the first nine months of 1996
compared to the same period in 1995. This variance consisted of a decrease of
$49,000 in interest paid on deposits and a decrease of $32,000 in interest paid
on Federal funds purchased and U.S. Treasury demand note. The average rate paid
on deposits decreased during this time period to 3.17% at September 30, 1996
compared to 3.30% for the same 1995 period while average deposit balances
increased to $217.5 million from $209.6 million. The average rate paid on NOW
and savings accounts dropped to 1.44% and 3.30%, respectively, from 1.74% and
3.45%, respectively. During the same period the average rate paid on time
deposits increased to 4.75% from 4.64%. In addition to the rate increase
average balances on time deposits grew $5.0 million during the first nine months
of 1996 to $34.3 million compared to $29.3 million for the same 1995 period.
Federal funds purchased and the U.S. Treasury demand note account averaged $2.2
million for the first nine months of 1996 compared to $1.8 million for the same
period last year.
7
<PAGE>
OTHER INCOME AND OTHER EXPENSE
Other income increased $367,000 and other expense decreased $287,000 for the
nine months ended September 30, 1996 as compared to the same 1995 period. The
increase in other income is largely due to an increase of $563,000 or 24.5% in
service charges on deposit accounts, primarily increased overdraft fees, and an
increase of $73,000 or 8.2% in other fees due to increased loan servicing
income, partially offset by a decrease of $331,000 or 20.5% in gains from the
sale of loans. Contributing to the decrease in gain on loan sales for 1996 as
compared to 1995 was management's decision to increase the Bank's portfolio of
Title I loans, which were sold in the secondary market in the prior year, due
to slow consumer loan demand in the Company's market area and to enhance loan
yields. Gain on sale of equity loans increased $361,000 during 1996, due to
increased volume. A change in the accounting method for gains on the sale of
SBA loans contributed approximately $569,000 to gains recorded during the third
quarter of 1995. Other expense consists primarily of salaries and employee
benefits which increased $258,000 to $6.0 million, occupancy expense which
decreased $53,000 to $2.5 million, expenses related to other real estate owned
expense which decreased $232,000 to $420,000, and regulatory assessments which
decreased $270,000 to $204,000.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losseses for the nine months ended September
30, 1996 was $1.1 million compared to $2.7 million for the comparable 1995
period. The amount of the provision reflects management's judgement as to the
adequacy of the allowance for loan and lease losses and is generally determined
by the periodic review of the loan portfolio, the Bank's loan loss experience,
and current and expected economic conditions. The decrease in the provision for
loan and lease losses reflects a decrease in net charge offs to $631,000 for the
first nine months of 1996 as compared to $2.6 million for the same prior year
period. The annualized ratio of net charge offs to total loans was 0.48%, 1.93%
and 2.24% at September 30, 1996, December 31, 1995, and September 30, 1995,
respectively. The allowance for loan and lease losses was 1.93%, 1.80% and 1.70%
of total gross loans at September 30, 1996, December 31, 1995 and September 30,
1995, respectively.
Loans are charged against the allowance, when in management's opinion, they are
deemed uncollectible, although the Bank continues to aggressively pursue
collection. Although management believes that the allowance for loan and lease
losses is adequate to absorb losses as they arise, there can be no assurance
that the Company will not sustain losses in any given period which could be
substantial in relation to the size of the allowance for loan and lease losses.
NONPERFORMING ASSETS
The following table provides information with respect to the components of the
Company's nonperforming assets at September 30, 1996 and December 31, 1995:
September 30, December 31,
1996 1995
------------- ------------
Loans 90 days or more past due
and still accruing $ -- $ --
Nonaccrual loans:
Conventional real estate 149 1,095
Real estate construction 844 1,506
Commercial 2,899 1,560
Installment and consumer 1,523 1,129
------- ------
Total 5,415 5,290
------- ------
Total nonperforming loans 5,415 5,290
Other real estate owned 2,568 2,402
------- ------
Total nonperforming assets $7,983 $7,692
------- ------
------- ------
Nonperforming assets to total
gross loans plus other real
estate owned 4.48% 4.68%
------- ------
------- ------
8
<PAGE>
The Company considers a loan to be nonperforming when any one of the following
events occurs: (a) any installment of principal or interest is 90 days past due;
(b) the full timely collection of interest or principal becomes uncertain;
the loan is classified as "doubtful" by bank examiners; or (d) a portion of its
principal balance has been charged-off. The Company's policy is to classify
loans which are 90 days past due as nonaccrual loans unless Management
determines that the loan is adequately collateralized and in the process of
collection or other circumstances exist which would justify the treatment of the
loan as fully collectible.
Impaired loans were recorded at $2,185,000 and $1,086,000 for commercial loans
and real estate mortgage loans, respectively, at September 30, 1996. The
recorded investments are stated net of allowance for loan and lease losses of
$524,000 and $97,000, respectively. Impaired loans at December 31, 1995 were
recorded at $1,270,000 and $2,467,000 for commercial loans and real estate
mortgage loans, respectively, net of reserves for loan losses of $289,000 and
$134,000, respectively.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The liquidity of a banking institution reflects its ability to provide funds to
meet customer credit needs, to accommodate possible outflows in deposits, to
provide funds for day-to-day operations, and to take advantage of interest rate
market opportunities. Asset liquidity is provided by cash, certificates of
deposit with other financial institutions, Federal funds sold, investment
maturities and sales and loan maturities, repayments and sales. Liquid assets
(consisting of cash, Federal funds sold and investment securities) comprised
26.5% and 25.7% of the Company's total assets at September 30, 1996 and December
31, 1995, respectively. Liquidity management also includes the management of
unfunded commitments to make loans and undisbursed amounts under lines of
credit. At September 30, 1996, these commitments totaled $29.3 million in
commercial loans, $2.0 million in letters of credit, $4.2 million in real estate
construction loans, and $9.4 million in consumer and installment loans.
In addition to loan and investment sales and deposit growth, the Bank has
several secondary sources of liquidity. Many of the Bank's real estate
construction loans are originated pursuant to underwriting standards which make
them readily marketable to other financial institutions or investors in the
secondary market. In addition, in order to meet liquidity needs on a temporary
basis, the Bank has unsecured lines of credit in the amount of $3.0 million for
the purchase of Federal funds with other financial institutions and may borrow
funds at a correspondent financial institution and the Federal Reserve discount
window, subject to the Bank's ability to supply collateral.
Asset/Liability Management involves minimizing the impact of interest rate
changes on the Company's earnings through the management of the amount,
composition and repricing periods of rate sensitive assets and rate sensitive
liabilities. Emphasis is placed on maintaining a rate sensitivity position
within the Company's policy guidelines to avoid wide swings in spreads and to
minimize risk due to changes in interest rates. At September 30, 1996,
approximately 52% of the Company's interest earning assets have interest rates
which are tied to the Bank's base lending rate or mature in one year or less.
In order to match the rate sensitivity of its assets, the Company's policy is
to offer a large number of variable rate deposit products and limit the level of
large dollar time deposits with maturities of one year or longer. In addition to
managing its asset/liability position, the Company has taken steps to mitigate
the impact of changing interest rates by generating non-interest income through
service charges, offering products which are not interest rate sensitive, such
as escrow services and insurance products, and through the servicing of mortgage
loans.
9
<PAGE>
CAPITAL RESOURCES
Stockholders' equity increased 12.2% to $19.3 million at September 30, 1996 from
$17.2 million at December 31, 1995. Net income of $2.1 million partially offset
by an increase in net unrealized losses on available for sale securities of
$42,000 contributed to the increase in equity. The sale of common stock through
the exercise of stock options and the conversion of convertible subordinated
debentures increased stockholders an additional $40,000.
The following table provides information with respect to the Company's and the
Bank's regulatory capital ratios and regulatory minimum requirements:
September 30, December 31, Regulatory
1996 1995 Minimum Ratios
------------- ------------ --------------
NORTH COUNTY BANCORP
Risk-based capital
Tier 1 9.62% 9.06% 4.00%
Total 11.72% 11.21% 8.00%
Tier 1 leverage capital 7.65% 7.17% 4.00% - 5.00%
NORTH COUNTY BANK
Risk-based capital
Tier 1 11.04% 10.40% 4.00%
Total 12.29% 11.65% 8.00%
Tier 1 leverage capital 8.75% 8.20% 4.00% - 5.00%
At September 30, 1996, the Company had $1.7 million in 9 1/4% Convertible
Subordinated Debentures ("Debentures") due May 15, 2002 outstanding. The
debentures are convertible at the option of the holder into common stock of the
Company at a conversion price $7.84 per share, subject to adjustments for stock
splits, stock dividends or other certain events. The debentures are redeemable,
in whole or in part, at the option of the Company at declining redemption prices
that range from 103.25% at September 30, 1996 to par on or after May 15, 1999.
Under the risk-based capital regulations the debentures qualify as Tier 2
capital. Additionally, the Company had $1.6 million outstanding under two term
notes with directors of the Company as of September 30, 1996 that mature on
January 1, 1999 and July 1, 1998, respectively. The notes are unsecured and
have a fixed interest rate of 8.00%. The notes have varying interest and
principal payment schedules. The Company used the proceeds of these notes to
purchase $1.5 million of noncumulative perpetual preferred stock from the Bank.
Management anticipates no significant capital expenditures during 1996.
10
<PAGE>
PART II - OTHER INFORMATION
All items of Part II other than Item 6 below are either inapplicable or would be
responded to in the negative.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K have been filed during the period, and no
events have occurred which would require one to be filed.
11
<PAGE>
SIGNATURES
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.
NORTH COUNTY BANCORP
(Registrant)
/s/ MICHAEL J. GILLIGAN Date: November 7, 1996
------------------------------ ------------------
Michael J. Gilligan
Vice President
& Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 2 AND 3 OF THE COMPANY'S 10-QSB FOR SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,435,000
<INT-BEARING-DEPOSITS> 151,004,000
<FED-FUNDS-SOLD> 11,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,734,000
<INVESTMENTS-CARRYING> 10,085,000
<INVESTMENTS-MARKET> 9,995,000
<LOANS> 175,580,000
<ALLOWANCE> 3,385,000
<TOTAL-ASSETS> 258,548,000
<DEPOSITS> 229,235,000
<SHORT-TERM> 4,278,000
<LIABILITIES-OTHER> 2,029,000
<LONG-TERM> 3,680,000
0
0
<COMMON> 9,958,000
<OTHER-SE> 9,368,000
<TOTAL-LIABILITIES-AND-EQUITY> 258,548,000
<INTEREST-LOAN> 13,151,000
<INTEREST-INVEST> 1,155,000
<INTEREST-OTHER> 288,000
<INTEREST-TOTAL> 14,594,000
<INTEREST-DEPOSIT> 3,474,000
<INTEREST-EXPENSE> 3,780,000
<INTEREST-INCOME-NET> 10,814,000
<LOAN-LOSSES> 1,100,000
<SECURITIES-GAINS> (24,000)
<EXPENSE-OTHER> 11,517,000
<INCOME-PRETAX> 3,557,000
<INCOME-PRE-EXTRAORDINARY> 2,102,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,102,000
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 7.07
<LOANS-NON> 5,415,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 4,388,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,916,000
<CHARGE-OFFS> 887,000
<RECOVERIES> 256,000
<ALLOWANCE-CLOSE> 3,385,000
<ALLOWANCE-DOMESTIC> 3,385,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
