<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1996
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
--------- ---------
Commission File No. 0-22124
-------
NSD BANCORP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1616814
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
5004 McKnight Road, Pittsburgh, Pennsylvania 15237
-------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
(412) 231-6900
----------------------------------------------------
(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 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
----- -----
The number of shares outstanding of the Registrant's common stock as of
November 30, 1996 was.
Common Stock, $1.00 par value - 1,637,630 shares outstanding
<PAGE> 2
NSD BANCORP, INC.
FORM 10-Q
For the Quarter Ended September 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 1996
and December 31, 1995 3
Consolidated Statement of Income - For the Nine and Three
Months ended September 30, 1996 and 1995 4
Consolidated Statement of Cash Flows - for the Nine
Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NSD BANCORP, INC
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1996 December 31,
ASSETS (UNAUDITED) 1995
------------- ------------
<S> <C> <C>
Cash and Due From Banks 12,852,841 8,897,094
Federal Funds Sold 0 3,200,000
Securities Available for Sale 51,433,059 43,770,267
Securities Held to Maturity (Market Value of $10,553,988 at
September 30, 1996 and $11,330,157 at December 31, 1995) 9,986,003 10,888,223
Loans Available for Sale 2,751,478 5,715,476
Loans, Net of Deferred Fees 206,122,551 182,937,989
Unearned Income (1,169,910) (1,402,670)
Reserve for Loan Losses (2,407,895) (2,676,362)
----------- -----------
Loans, Net 202,544,746 178,858,957
Premises and Equipment, Net 3,695,409 3,746,891
Accrued Interest Receivable 1,866,739 1,815,216
Other Real Estate Owned and Assets Held for Sale 381,331 75,741
Other Assets 2,097,799 1,763,777
----------- -----------
TOTAL ASSETS 287,609,405 258,731,642
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-Interest Bearing 49,105,443 44,976,118
Interest Bearing 195,716,376 175,267,017
----------- -----------
Total Deposits 244,821,819 220,243,135
Borrowed Funds:
Repurchase Agreements 1,903,362 1,822,433
Short-Term Borrowings 3,560,000 2,780,000
Long-Term Borrowings 6,000,000 4,600,000
----------- -----------
Total Borrowed Funds 11,463,362 9,202,433
Accrued Interest Payable 4,067,356 3,904,564
Other Liabilities 754,028 517,656
----------- -----------
Total Liabilities 261,106,565 233,867,788
Common Stock $1 Par Value; Authorized
5,000,000 Shares, Issued and Outstanding
1,637,630 in 1996 and 1,559,849 in 1995
Common Stock 1,637,630 1,559,849
Capital Surplus 6,266,181 4,593,891
Net Unrealized Holding Gains on Securities Available for Sale 859,261 969,099
Retained Earnings 17,739,768 17,741,015
----------- -----------
Total Shareholders' Equity 26,502,840 24,863,854
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 287,609,405 258,731,642
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE> 4
NSD BANCORP, INC
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
SEPTEMBER 30, SEPTEMBER 30,
NET INTEREST INCOME 1996 1995 1996 1995
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Loans, Including Fees 12,931,942 11,772,473 4,462,012 4,055,270
Investment Securities:
Taxable 2,087,305 1,516,076 755,461 542,077
Tax-Exempt 576,111 662,226 182,575 218,527
Dividends 70,294 62,346 18,494 25,687
Interest Bearing Deposits 6,772 3,954 1,616 2,323
Federal Funds Sold 195,652 292,895 39,258 115,327
---------- ---------- --------- ---------
Total Interest Income 15,868,076 14,309,969 5,459,416 4,959,210
Interest on Deposits 5,950,957 5,324,557 2,078,083 1,854,439
Interest on Borrowed Funds: 0 0
Repurchase Agreements 72,135 64,252 23,530 23,666
Short-Term Borrowings 49,154 938 3,529 938
Long-Term Borrowings 334,966 85,043 136,678 45,152
---------- ---------- --------- ---------
Total Interest Expense 6,407,212 5,474,790 2,241,820 1,924,195
Net Interest Income 9,460,864 8,835,179 3,217,596 3,035,015
Provision for Loan Losses 450,000 360,000 150,000 120,000
---------- ---------- --------- ---------
Net Interest Income After Provision for Loan Losses 9,010,864 8,475,179 3,067,596 2,915,015
OTHER INCOME
Net Investment Securities Gains 74,885 53,361 2,679 42,952
Service Fees 501,993 506,746 162,058 181,137
Net Gain on Settlement & Curtailment of Pension Plan - 510,960 0 0
Other Operating Income 360,792 436,554 108,035 100,264
---------- --------- --------- ---------
Total Other Income 937,670 1,507,620 272,772 324,352
OTHER EXPENSES
Salaries and Employee Benefits 3,041,323 2,936,322 1,024,328 987,868
Occupancy Expense 584,209 540,511 184,665 170,858
Equipment and Supplies 748,277 613,079 266,445 207,777
Data Processing 380,332 378,527 127,315 121,270
FDIC Insurance 1,500 223,811 500 (11,781)
Advertising 147,569 112,043 51,101 37,356
Other Operating Expenses 1,190,561 1,118,165 412,016 351,958
---------- --------- --------- -----------
Total Other Expenses 6,093,771 5,922,458 2,066,370 1,865,306
Income Before Income Taxes 3,854,763 4,060,341 1,273,998 1,374,061
Provision for Income Taxes 1,134,155 1,176,991 383,586 399,262
---------- --------- --------- ---------
NET INCOME 2,720,608 2,883,350 890,412 974,799
========= ========= ========= =========
NET INCOME PER COMMON SHARE $1.66 $1.76 $0.54 $0.60
========= ========= ========= =========
Common Dividends Declared and Paid Per Share $0.39 $0.27 $0.20 $0.14
========= ========= ========= =========
Weighted Average Shares Outstanding 1,640,505 1,637,630 1,640,625 1,637,630
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE> 5
NSD BANCORP, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 2,720,608 2,883,350
Adjustments to Net Income:
Provision for Loan Losses 450,000 360,000
Net Gains on Investment Securities (74,884) (53,360)
Net Losses (Gains) on Sale of Other Assets 3,321 (92,713)
Gain on Loan Sales (14,614) -
Gains on Settlement and Conversion of Pension Plan - (510,960)
Depreciation and Amortization 358,297 293,997
Net Premium Amortization and Discount
Accretion on Investment Securities 139,685 38,470
Increase in Accrued Interest Receivable (51,523) (4,948)
Increase in Accrued Interest Payable 162,791 679,641
(Increase) Decrease in Other Assets (365,407) 505,426
Deferred Loan Fees, Net (33,572) 543
Increase (Decrease) in Other Liabilities 236,373 (599,451)
---------- ----------
Net Cash Provided by Operating Activities 3,531,075 3,499,995
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investment Securities Available for Sale 10,700,412 4,053,540
Proceeds from Repayments and Maturities of Investment
Securities Available for Sale 11,077,814 3,288,130
Proceeds from Repayments and Maturities of Investment
Securities Held to Maturity 905,000 5,887,487
Purchases of Investment Securities Available for Sale (29,675,018) (14,070,880)
Purchases of Investment Securities Held to Maturity - (3,999,922)
Proceeds from Sales of Other Real Estate Owned - 662,500
Proceeds from Loan Sales 1,475,996 -
Net Increase in Loans (22,868,891) (13,880,660)
Purchases of Premises and Equipment, Net (258,612) (344,010)
---------- ----------
Net Cash Used by Investing Activities (28,643,299) (18,403,815)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Demand and Savings
Deposit Accounts 26,959,350 (10,252,391)
Net Increase (Decrease) in Certificates of Deposit (2,380,666) 11,094,072
Net Increase in Federal Funds Purchased - 2,500,000
Net Increase in Repurchase Agreements 80,929 300,502
Borrowings 4,960,000 7,168,264
Repayments (2,780,000) -
Cash Dividends Paid in Lieu of Fractional Shares (4,617) (3,724)
Cash Dividends Paid (967,025) (670,735)
---------- ----------
Net Cash Provided by Financing Activities 25,867,971 10,135,988
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents 755,747 (4,767,832)
Cash and Cash Equivalents at Beginning of Year 12,097,094 13,616,163
---------- ----------
Cash and Cash Equivalents at End of Period 12,852,841 8,848,331
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE> 6
NSD BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of NSD Bancorp, Inc. (the
Corporation) include the accounts of the Corporation and its wholly
owned subsidiary, NorthSide Bank (the Bank), and the Bank's wholly
owned subsidiary, 100 Federal Street, Inc. Material intercompany
accounts and transactions have been eliminated. In the opinion of
management, the accompanying consolidated financial statements include
all normal recurring adjustments necessary for a fair presentation of
the financial position and results of operations for the periods
presented.
2. EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents in each period, after
adjustment for the effect of the five percent stock dividend declared
on April 23, 1996. Dividends per share have also been restated to
reflect this adjustment. Weighted average shares outstanding include
common stock equivalents under NSD Bancorp, Inc.'s Employee Stock
Option Plan and NSD Bancorp, Inc.'s Non-Employee Director Stock Option
Plan.
3. STOCK BASED COMPENSATION
As of January 1, 1996, the Corporation adopted the provisions of
Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock Based Compensation." This statement encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options and other equity instruments to employees based
on the new fair value accounting rules and requires certain new
disclosures. The Corporation did not adopt the optional measurement
provisions of this statement, and accordingly, has determined that
such adoption would not have a material adverse effect on the
consolidated financial statements or results of operation of the
Corporation.
4. BRANCH ACQUISITION
On July 26, 1996, NorthSide Bank entered into a definitive agreement
to assume approximately $13 million in deposits of two branch offices
of First Home Savings Bank, FSB. NorthSide Bank will also assume the
lease of one of these branch locations. This transaction is subject to
regulatory approval.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is an analysis of NSD Bancorp, Inc.'s (the
Corporation) financial condition and results of operations for the nine and
three months ended September 30, 1996 compared to the nine and three months
ended September 30, 1995.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1996 was $2,720,608, a
decrease of $162,742 from $2,883,350 for the nine months ended September 30,
1995. This decrease is due primarily to a net gain of $510,960 realized on the
settlement and curtailment of the pension plan and gains on the sale of other
real estate owned of $92,713. Net interest income increased $625,685 during the
first nine months of 1996 and FDIC insurance expense, and the provision for
income taxes decreased by $222,311, and $42,836, respectively, for the nine
months ended September 30, 1996. These contributions to net income were offset
by increases in the provision for loan losses of $90,000 salaries, employee
benefits of $105,001, and equipment and supplies of $135,197 during the first
nine months of 1996. Occupancy, advertising, and other expenses also increased
$43,698, $35,526 and $72,396, respectively, during the first nine months of
1996. The Corporation's ROA for the first nine months of 1996 was 1.32%
compared to 1.57% for the first nine months of 1995. ROE for the first nine
months of 1996 was 14.19% compared to 16.58% for the first nine months of 1995.
Net income for the third quarter of 1996 was $890,412, a decrease of $84,387
from $974,799 for the third quarter of 1995. This increase is primarily the
result of an increase in net interest income of $182,581 and a decrease in the
provision for income taxes of $15,676 during the three months ended September
30, 1996. Offsetting these contributions to income during the third quarter of
1996 were increases in the provision for loan losses of $30,000, salaries and
employee benefits of $36,460, occupancy expense of $13,807, equipment and
supplies of $58,667, advertising expense of $13,745, other operating expenses
of $60,058, FDIC Insurance of $12,281 and Data Processing of $6,045. Also
affecting net income was a $51,581 decline in other income consisting of a
decline in net investment security gains of $40,273, and a decline in service
fee income, offset by an increase of $7,771 in other operating income.
NET INTEREST INCOME
The primary component of the Corporation's earnings is net interest income,
which is the difference between interest earned on loans, investments and other
earning assets and the interest expense on deposits and other interest bearing
liabilities which fund those assets. Tax-exempt securities and loans carry
pretax yields lower than comparable taxable assets. Therefore, it is more
meaningful to analyze net interest income on a tax-equivalent basis.
Total interest income increased $1,558,107 during the nine months ended
September 30, 1996 as compared to the same period in 1995. This increase was
due to a significant increase in average earning assets of $28,930,639 offset
by a decrease in the yield on earning assets to 8.30% at September 30, 1996,
from 8.49% at September 30, 1995. Average loans increased $21,244,819 to
$195,083,324 at September 30, 1996. The average yield on loans decreased to
8.87% at September 30, 1996 compared to 9.08% at September 30, 1995. Average
investment securities increased $9,165,603 while the average yield decreased
from 6.89% at September 30, 1995 to 6.80% at September 30, 1996. Interest
expense increased $932,422 during the first nine months of 1996 as a result of
an increase in average total interest-bearing funds of $25,066,154 coupled
7
<PAGE> 8
with an increase in the average cost of funds from 4.11% at September 30, 1995
to 4.21% at September 30, 1996. Average interest bearing deposits increased
$17,680,312, mainly in the area of certificates of deposit and money market
accounts. Average borrowed funds increased $7,385,841 at September 30, 1996,
increasing interest expense by $306,021.
During the third quarter of 1996, interest income increased $500,206 as
compared to the third quarter of 1995. Contributing to the increase in interest
income was an increase in average earning assets of $32,404,577 offset by a
decline in the yield on earning assets from 8.55% during the third quarter of
1995 to 8.21% during the third quarter of 1996. Average loans increased
$28,900,248, offset by a decline in the average yield to 8.63% during the third
quarter of 1996 compared to 9.21% during the third quarter of 1995. Average
investments increased $8,420,114 during the three months ended September 30,
1996, and the average yield increased slightly to 6.77% during the third
quarter of 1996 from 6.76% during the third quarter of 1995. Interest expense
increased $317,625 during the third quarter of 1996 as a result of an increase
in average total interest bearing funds of $25,614,534 coupled with an increase
in the average cost of funds from 4.20% during the third quarter of 1995 to
4.30% during the third quarter of 1996. Average interest bearing deposits
increased $18,760,404 during the third quarter of 1996, mainly in the area of
money market accounts. Also increasing during the third quarter of 1996 were
average borrowed funds by $6,854,130 adding $93,982 to interest expense.
The Corporation's net interest margin decreased from 5.34% and 5.31% for the
nine and three months ended September 30, 1995, respectively, to 5.02% and
4.90% for the nine and three months ended September 30, 1996, respectively,
resulting from a decrease in the yield on interest earning assets combined with
an increase in the cost of funds of interest-bearing liabilities.
PROVISION FOR LOAN LOSSES
The Corporation's provision for loan losses was $450,000 for the nine months
ended September 30, 1996 compared to $360,000 for the nine months ended
September 30, 1995. The Corporation's provision for loan losses was $150,000
for the third quarter of 1996 compared to $120,000 for the third quarter of
1995. This increase was primarily the result of an increase in the average
loans outstanding during the first nine months of 1996. The Corporation had net
charge-offs of $718,467 during the first nine months of 1996 compared to net
recoveries of $67,990 during the first nine months of 1995. This change is
primarily due to the charge-off of two large unrelated commercial loans during
the first nine months of 1996, compared to the recovery of one significant
commercial loan during the first nine months of 1995.
8
<PAGE> 9
The Corporation's net charge-offs by loan type and changes in the reserve for
loan losses were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
---------- ----------
<S> <C> <C>
Reserve for Loan Losses at Beginning of Year $2,676,362 $2,281,598
Charge-Offs:
Commercial, Financial and Agricultural Loans 546,426 132,145
Real Estate Mortgage Loans -- --
Installment Loans 213,884 148,036
Lease Financing 35,994 15,005
---------- ----------
Total Charge-Offs 796,304 295,186
Recoveries:
Commercial, Financial and Agricultural Loans 4,472 329,222
Real Estate Mortgage Loans 1,200 1,200
Installment Loans 72,165 31,716
Lease Financing -- 1,038
---------- ----------
Total Recoveries 77,837 363,176
---------- ----------
Net Charge-Offs (Recoveries) 718,467 (67,990)
Provision for Loan Losses 450,000 360,000
---------- ----------
Reserve for Loan Losses at End of Period $2,407,895 $2,709,588
========== ==========
</TABLE>
OTHER INCOME
Other income decreased $569,951 from $1,507,620 for the nine months ended June
30, 1995 to $937,670 for the nine months ended September 30, 1996. During the
first quarter of 1995, a net, non-cash gain of $510,960 was realized due to the
settlement and curtailment of the Bank's pension plan. The sale of certain
marketable equity securities available for sale during the first nine months of
1996 resulted net investment securities gains of $74,885. Service fees
decreased slightly to $501,993 for the first nine months of 1996, from $506,746
for the first nine months of 1995. Contributing to the decrease in service fees
was a $14,431 reduction in the amount of NSF charges received offset by a
$6,694 increase in service charges on savings deposits during the first nine
months of 1996. Other operating income decreased $75,762. This decrease is
primarily the result of net gains on the sale of other real estate of $92,713
recognized during the first nine
9
<PAGE> 10
months of 1995. There were no sales of other real estate during the first nine
months of 1996. Loan sales during the first nine months of 1996 resulted in a
gain of $14,614. There were no loan sales during the first nine months of 1995.
Other income decreased $51,581 during the third quarter, from $324,352 in 1995
to $272,772 in 1996. Service fees decreased to $162,058 during the three months
ended September 30, 1996, from $181,137 during the three months ended September
30, 1995. This decrease is largely the result of a $21,044 increase in NSF fees
charged during the third quarter of 1996. Other operating income increased by
$7,771 during the third quarter of 1996.
OTHER EXPENSES
Total other expenses for the first nine months of 1996 increased $171,313 to
$6,093,771 from $5,922,458 for the first nine months of 1995. Salaries and
employee benefits increased $105,001, which is attributable to normal salary
and benefit increases and additional staffing to support the growth of the
Corporation. Occupancy expense increased $43,698, primarily due to scheduled
building maintenance performed at several branch locations. Equipment and
supplies expense increased $135,197 due to an increase in depreciation expense
of $64,300 during the first nine months of 1996 primarily related to platform
and automated teller equipment installed during the fourth quarter of 1995 and
in the first quarter of 1996. Also contributing to this increase was an
increase in equipment maintenance contracts and equipment repairs of $39,466
and $11,518, respectively, during the nine months ended September 30, 1996.
Data processing expense increased slightly to $380,332 for the nine months
ended September 30, 1996, compared to $378,527 for the nine months ended
September 30, 1995. FDIC insurance expense decreased to $1,500 for the first
nine months of 1996, down from $223,811 for the first nine months of 1995. This
decrease is due to a reduction in the Corporation's FDIC insurance premium from
$0.23 per $100 in deposits to a nominal quarterly assessment of $500 as the
Bank is classified by regulators as "well-capitalized." Advertising expense
increased $35,526 during the first nine months of 1996, from $112,043 in 1995
to $147,569 in 1996. This increase is due primarily to greater emphasis on
advertising campaigns to develop market awareness and specific deposit product
promotions. Other operating expenses increased to $1,190,561 for the first nine
months of 1996, up from $1,118,165 for the first nine months of 1995. This
increase is the result of a $13,951 increase in checkbook costs incurred in
relation to the significant growth in the Bank's money market account product.
Also contributing to the increase in other operating expense were increases in
office, subscription, and entertainment expenses of $20,141, $10,817 and
$16,511, respectively. Non-recurring demand deposit account losses, primarily
related involving three unrelated transactions, added $41,396 to expense while
net teller shortages contributed $17,281. These increases were partially offset
by a reduction in asset recovery expense of $53,538 attributable to expenses
incurred in the sale of other real estate owned during the first nine months of
1995.
Total other expenses increased $201,064 during the third quarter, from
$1,865,306 in 1995 to $2,066,370 in 1996. Salaries and employee benefits
increased $36,460 during the third quarter due to normal salary and benefit
increases and additional staffing to support the growth of the
10
<PAGE> 11
Corporation. Occupancy expense increased to $184,665 for the third quarter of
1996 from $170,858 for the third quarter of 1995. This increase is primarily
the result of scheduled building maintenance at several branch locations
performed during the third quarter of 1996. Equipment and supplies expense
increased $58,667 during the third quarter of 1996. This increase is the result
of an increase in expenditures during the third quarter of 1996 for equipment
maintenance contract expense and depreciation of $12,037 and $22,249,
respectively. Data processing expenses increased to $127,315 during the three
months ended September 30, 1996, from $121,270 for the three months ended
September 30, 1995. FDIC insurance expense increased to $500 during the third
quarter of 1996 from $(11,781) during the third quarter of 1995. This increase
is the result of a reduction in Bank Insurance Fund premiums to a nominal
quarterly assessment of $500 and premiums refunded during the third quarter of
1995. Advertising expenses increased $13,745 during the third quarter of 1996
due to increased advertising campaigns to promote new deposit products. Other
operating expenses increased to $412,016 during the three months ended
September 30, 1996 from $351,958 during the three months ended September 30,
1995. Contributing to this increase were additional expenses of $15,421
incurred in the process of loan collection and asset recovery. Nonrecurring
demand deposit account losses, primarily involving three unrelated
transactions, added $41,396 to third quarter 1996 expense while net teller
shortages during the period accounted for $9,227 of the increase. Legal
expenses were also $9,346 higher during the third quarter of 1996 compared to
the same period in 1995.
INCOME TAXES
The Corporation recorded an income tax provision of $1,134,155 and $1,176,991
for the nine months ended September 30, 1996 and 1995, respectively. This
decrease in the tax provision is the result of a decrease in pre-tax earnings
related primarily to the gain recognized on settlement and curtailment of the
pension plan and gains on the sale of other real estate during the first nine
months of 1995. The Corporation recorded an income tax provision of $383,586
during the third quarter of 1996 compared to $399,262 during the third quarter
of 1995. This decrease is the result of lower pre-tax earnings for the quarter
ended September 30, 1996.
FINANCIAL CONDITION
The Corporation's total assets were $287,609,405 at September 30, 1996, an
increase of $28,877,763 from December 31, 1995. The purchase of securities
available for sale resulted in an increase of $7,662,790 at September 30, 1996.
Loans available for sale decreased $2,963,998 to $2,751,478 at September 30,
1996. Net loans increased $23,685,789, from $178,858,957 at December 31, 1995
to $202,544,746 at September 30, 1996. Cash and due from banks increased
$3,955,747 and federal funds sold decreased $3,200,000 at September 30, 1996.
INVESTMENT SECURITIES
Investment securities available for sale as of September 30, 1996 represent an
increase of $7,662,792 from December 31, 1995. The maturity and sale of U.S.
Treasury securities available for sale resulted in a decline of $3,184,452. An
increase in U.S. government agencies available
11
<PAGE> 12
for sale and mortgage-backed securities available for sale of $6,005,726 and
$4,144,452, respectively, was attributable to the purchase of several
securities during the first nine months of 1996. The decline in fair value of
securities in the investment portfolio is considered to be the result of
significant uncertainty in financial markets during the first nine months of
1996. The Corporation views the overall decline to be both unusual and
temporary in nature.
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 9,190,105 $ 9,072 $ 11,679 $ 9,187,498
Obligations of U.S. Government Agencies 22,555,590 -- 362,674 22,192,916
Mortgage-Backed Securities 15,236,852 45,236 243,431 15,038,657
Obligations of State and Political Subdivisions 719,948 3,423 2,651 720,720
Corporate Bonds 999,970 1,820 -- 1,001,790
Marketable Equity Securities 1,428,682 1,862,796 -- 3,291,478
----------- ---------- -------- -----------
$50,131,147 $1,922,347 $620,435 $51,433,059
----------- ---------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------- FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $12,246,589 $ 125,475 $ 114 $12,371,950
Obligations of U.S. Government Agencies 13,011,469 47,059 3,119 13,055,409
Mortgage-Backed Securities 10,892,244 52,605 50,646 10,894,203
Obligations of State and Political Subdivisions 3,513,526 28,069 1,843 3,539,752
Corporate Bonds 999,970 10,950 -- 1,010,920
Marketable Equity Securities 1,638,138 1,259,895 -- 2,898,033
----------- ---------- ------- -----------
$42,301,936 $1,524,053 $55,722 $43,770,267
=========== ========== ======= ===========
</TABLE>
12
<PAGE> 13
A summary of investment securities held to maturity is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Obligations of State and Political Subdivisions $9,736,003 $245,708 -- $ 9,981,711
Corporate Bonds 250,000 -- -- 250,000
---------- -------- -------- -----------
$9,986,003 $245,708 -- $10,231,711
========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Obligations of State and Political Subdivisions $10,638,223 $441,934 -- $11,080,157
Corporate Bonds 250,000 -- -- 250,000
----------- -------- --------- -----------
$10,888,223 $441,934 -- $11,330,157
=========== ======== ========= ===========
</TABLE>
LOANS
Loans available for sale decreased to $2,751,478 at September 30, 1996, down
from $5,715,476 at December 31, 1995. This decrease is attributable to the sale
of $1,461,382 in mortgage loans during the first nine months of 1996. At
September 30, 1996, there were no mortgage loans classified as available for
sale. Loans, net of deferred fees, increased to $206,122,551 at September 30,
1996. This increase was primarily in consumer and residential mortgage loans
due to declining interest rates and increased demand during the first nine
months of 1996. Consumer loans to individuals increased $8,301,220 while
commercial, financial and agricultural loans declined $2,857,332 at September
30, 1996. Non-accrual loans increased to $1,325,906 at September 30, 1996 from
$443,727 at December 31, 1995. This increase is the result of an increase in
loans classified as non-accrual in the areas of commercial loans, consumer
loans to individuals and lease financing. Although this increase is notable,
management is confident with regard to the Corporation's potential to fully
collect a substantial portion of these loans. In the event any of these loans
are determined to be uncollectible, the reserve for loan losses is considered
adequate to absorb anticipated charge-offs.
13
<PAGE> 14
The composition of loans is shown in the following table:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, INCREASE
1996 1995 (DECREASE)
------------- ------------- --------------
<S> <C> <C> <C>
Consumer Loans to Individuals $ 76,010,525 $ 67,709,305 $ 8,301,220
Mortgage
Non-Residential 12,327,216 14,326,228 (1,999,012)
Residential 55,659,282 35,830,068 19,829,214
Commercial, Financial and Agricultural 47,751,875 50,609,207 (2,857,332)
Lines of Credit 5,463,798 5,681,628 (217,830)
Lease Financing 8,009,612 8,797,060 (787,448)
Non-accrual Loans 1,325,906 443,727 882,179
------------ ------------ ------------
206,548,214 183,397,223 23,150,991
Deferred Fees (425,663) (459,234) 33,571
------------ ------------ ------------
$206,122,551 $182,937,989 $ 23,184,562
============ ============ ============
</TABLE>
A loan is considered to be impaired when, based upon current information and
events, it is probable that the Corporation will be unable to collect all
amounts due for principal and interest according to the contracted terms of the
loan agreement. At September 30, 1996, the Corporation's recorded investment in
loans for which impairment has been recognized in accordance with FASB
Statement No. 114 totaled $347,075 compared to $509,153 at December 31, 1995.
The corresponding reserve for loan losses was $172,655 at September 30, 1996
compared to $207,003 at December 31, 1995. There were no loans considered
impaired that have been partially written down through charge-offs. The average
recorded investment in impaired loans was $490,604 during the first nine months
of 1996. There was no additional reserve required for impaired loans during the
first nine months of 1996.
NON-PERFORMING ASSETS
Non-performing assets increased from $519,468 at December 31, 1995 to
$1,707,237 at September 30, 1996, due to an increase in non-accrual loans of
$882,179 and an increase in other real estate owned of $269,290 and an increase
in other assets held for sale of $36,300. Total non-performing assets increased
$864,462 during the first nine months of 1996. More than one-half this increase
is the result of two commercial real estate loans to one borrower which were
placed on non-accrual status during the third quarter of 1996. Management feels
that, based on the value of collateral securing these loans and the Bank's lien
position, it is reasonable to anticipate collection of a substantial portion of
these loans. Loans past due 90 days or more and still
14
<PAGE> 15
accruing decreased to $478,436 at September 30, 1996. Of this, $471,181 was
related to the previously mentioned commercial real estate loans for which
foreclosure proceedings began in the third quarter of 1996.
The following table presents the composition of non-performing assets and past
due loans:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
Non-accrual Loans $1,325,906 $ 443,727
Other Real Estate Owned 313,256 43,966
Other Assets Held For Sale 68,075 31,775
---------- ----------
Total Non-Performing Assets 1,707,237 519,468
Loans Past Due 90 Days or More and Still Accruing 478,436 801,743
---------- ----------
Total Non-Performing Assets and Past Due Loans $2,185,673 $1,321,211
========== ==========
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at September 30, 1996 was $2,407,895 or
1.17% of total loans compared to $2,676,362 or 1.47% of total loans at December
31, 1995. The provision for loan losses increased $90,000 during the first nine
months of 1996, corresponding to an increase in average loans. Management
anticipates that the reserve for loan losses is adequate to absorb reasonably
foreseeable losses on loans.
15
<PAGE> 16
The following table details the activity in the loan loss reserve for the nine
months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- ----------
<S> <C> <C>
Beginning Balance $2,676,362 $2,281,598
Provision 450,000 360,000
Net Charge-Offs (Recoveries) (718,467) 67,990
---------- ----------
Ending Balance $2,407,895 $2,709,588
========== ==========
Loss Reserve to Loans 1.17% 1.47%
</TABLE>
LIABILITIES
Total liabilities were $261,106,565 at September 30, 1996, an increase of
$27,238,777 from $233,867,788 at December 31, 1995. The increase in total
liabilities was primarily the result of an increase in interest bearing
deposits of $20,449,359 resulting from the addition of a new deposit product
during the first nine months of 1996, an increase in non-interest bearing
deposits of $4,129,325 and total borrowed funds of $2,260,929.
DEPOSITS
Total deposits increased $24,578,684 from $220,243,135 at December 31, 1995 to
$244,821,819 at September 30, 1996. Promotion of a new money market deposit
account during the first nine months of 1996 resulted in an increase of
$26,692,612 at September 30, 1996. Also contributing to the increase in total
deposits was an increase in non-interest bearing deposits of $4,129,326 offset
by decreases in interest bearing demand deposits, savings deposits and time
deposits of $870,465, $3,478,320, and $1,894,469, respectively, at September
30, 1996.
16
<PAGE> 17
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, INCREASE
1996 1995 (DECREASE)
------------ ------------ -----------
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 49,105,443 $ 44,976,117 $ 4,129,326
Interest Bearing Demand Deposits 25,014,027 25,884,492 (870,465)
Savings Deposits 36,461,538 39,939,858 (3,478,320)
Money Market Deposit Accounts 50,214,868 23,522,256 26,692,612
Time Deposits>$100,000 10,248,582 9,681,193 567,389
Time Deposits<$100,000 73,777,361 76,239,219 (2,461,858)
------------ ------------ -----------
$244,821,819 $220,243,135 $24,578,684
============ ============ ===========
</TABLE>
REPURCHASE AGREEMENTS
Repurchase agreements increased from $1,822,433 at December 31, 1995 to
$1,903,362 at September 30, 1996. Securities sold under agreement to
repurchase were U.S. Treasury securities. Such agreements mature within
30 days or less.
BORROWED FUNDS
At September 30, 1996, the Corporation had outstanding borrowings of
$9,560,000, of which $3,560,000 will mature during the next 12 months. The
Corporation borrowed these funds as part of a community investment program to
finance mortgage loans to lower income borrowers and for specific
asset-liability management strategies. Advances are collateralized by
qualifying securities and loans and are subject to restrictions or penalties
related to prepayments.
SHAREHOLDERS EQUITY
Consolidated shareholders' equity increased $1,638,986 from $24,863,854 at
December 31, 1995 to $26,502,840 at September 30, 1996. This increase is the
result of the retention of earnings offset by dividends paid to shareholders
and a decrease in the net unrealized holding gains on securities available for
sale.
The Corporation continues to maintain a strong capital position in excess of
current regulatory requirements. The Corporation's tier I capital ratio at
September 30, 1996 was 10.05% compared to 9.68% at December 31, 1995. The
Corporation's total capital ratio at September 30, 1996 was 10.94% compared to
10.77% at December 31, 1995. Regulatory requirements for tier I and total
capital ratios are 4.00% and 8.00%, respectively.
17
<PAGE> 18
INTEREST RATE SENSITIVITY AND LIQUIDITY
The Corporation has an asset/liability management process in place to monitor
and control risks associated with changing interest rates and the potential
impact on future financial performance. Interest rate risk is managed by
analyzing the maturity and repricing relationships between interest earning
assets and interest-bearing liabilities at specific points in time or "GAP"
analysis. Management, however, recognizes that a simplified GAP analysis may
not adequately reflect the degree to which assets and liabilities with similar
repricing characteristics react to changes in market interest rates. In
addition, repricing characteristics identified under a specific gap position
may vary significantly under different interest rate environments. Therefore,
simulation modeling is also performed to evaluate the extent and direction of
the Corporation's interest rate exposure under upward or downward changes in
interest rates.
Liquidity is the ability to generate cash or obtain funds at reasonable costs
to satisfy customer credit needs and the requirements of depositors. Liquid
assets include cash, federal funds sold, investments maturing in less than one
year and loan repayments. The Corporation is dependent upon the ability to
obtain deposits and purchase funds at reasonable rates. As a result of liquid
asset management and the ability to generate liquidity through deposit funding,
management believes that the Corporation maintains overall liquidity sufficient
to satisfy customer needs. In the event that such measures are not sufficient,
the Corporation has established alternative sources of funds in the form of
borrowing and repurchase agreements.
Operating activities provided net cash of $3,531,075 during the first nine
months of 1996 compared to $3,499,995 during the first nine months of 1995. The
primary sources of operating cash flows are net income adjusted for the effect
of noncash expenses such as the provision for loan losses and depreciation.
Investing activities used net cash of $28,643,299 during the first nine months
of 1996 compared to $18,403,815 during the first nine months of 1995. The first
nine months of 1996 provided cash by the sales, repayments and maturities of
investment securities available for sale and held to maturity. Proceeds from
borrowings, the sale of loans and the increase in deposits during the first
nine months of 1996 provided cash to fund the growth in the investment and loan
portfolios. Net purchases of premises and equipment used cash. The first nine
months of 1995 provided cash by the sales, repayments and maturities of
investment securities available for sale, repayments and maturities of
investment securities held to maturity and the sale of other real estate owned.
The purchase of investment securities available for sale and held to maturity,
and a net increase in loans used cash during the first nine months of 1995.
Financing activities provided net cash of $25,867,971 and $10,135,988 during
the first nine of 1996 and 1995, respectively. During the first nine months of
1996, cash was provided by an increase in net demand and savings deposit
accounts resulting largely from the promotion of a new money market deposit
product. Cash was also provided by repurchase agreements and net borrowings,
while cash was used in the payment of dividends to shareholders and by a
decrease in certificates of deposit. During the first nine months of 1995, cash
was provided by an increase in certificates of deposit due to certain product
promotions. Cash was used by a decrease in demand
18
<PAGE> 19
and savings deposits due to normal fluctuations in account balances. Cash,
provided by the increase in certificates of deposit, was used to fund the
purchase of investment securities held to maturity, investment securities
available and the loan growth. Net borrowings of $2,000,000 during the first
nine months of 1995 provided cash for asset/liability management purposes.
PART II - OTHER INFORMATION
Items 1-5. Not applicable pursuant to the instructions to Part II.
Items 6. Exhibits and Reports on Forms 8-K.
(a) Exhibits
10.1 Employment agreement, dated July 1, 1993 between NSD
Bancorp, Inc. And Lloyd G. Gibson filed as Exhibit
10D to NSD Bancorp, Inc.'s 10K for the fiscal year
ended December 31, 1993 is incorporated herein by
reference.
10.2 NSD Bancorp, Inc. 1994 Stock Option Plan filed as
Exhibit 4.1 to NSD Bancorp, Inc.'s Form S-8 filed
April 27, 1994 is incorporated herein by reference.
10.3 NSD Bancorp, Inc. 1994 Non-Employee Director Stock
Option Plan filed as Exhibit 4.1 to NSD Bancorp,
Inc.'s form S-8 filed April 27, 1994 is incorporated
herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K: None.
19
<PAGE> 20
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.
NSD BANCORP, INC.
-----------------
(Registrant)
Dated: November 12, 1996 /S/ LLOYD G. GIBSON
-------------------------------------
Lloyd G. Gibson
President and Chief Executive Officer
Dated: November 12, 1996 /S/ JAMES P. RADICK
-------------------------------------
James P. Radick
Treasurer (Principal Financial and
Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 1996 THIRD
QUARTER INCORPORATED FINANCIAL REVIEW AND IS QUALIFIED IN ITS ENTIRELY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,852,841
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,433,057
<INVESTMENTS-CARRYING> 9,986,003
<INVESTMENTS-MARKET> 10,231,711
<LOANS> 207,704,119
<ALLOWANCE> 2,407,895
<TOTAL-ASSETS> 287,609,405
<DEPOSITS> 244,821,819
<SHORT-TERM> 5,463,362
<LIABILITIES-OTHER> 4,821,384
<LONG-TERM> 6,000,000
0
0
<COMMON> 1,637,630
<OTHER-SE> 24,865,210
<TOTAL-LIABILITIES-AND-EQUITY> 287,609,405
<INTEREST-LOAN> 12,931,942
<INTEREST-INVEST> 2,733,710
<INTEREST-OTHER> 202,424
<INTEREST-TOTAL> 15,868,076
<INTEREST-DEPOSIT> 5,950,957
<INTEREST-EXPENSE> 6,407,212
<INTEREST-INCOME-NET> 9,460,864
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> 74,885
<EXPENSE-OTHER> 6,093,771
<INCOME-PRETAX> 3,854,763
<INCOME-PRE-EXTRAORDINARY> 2,720,608
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,720,608
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 5.02
<LOANS-NON> 1,325,906
<LOANS-PAST> 478,436
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,676,362
<CHARGE-OFFS> 796,304
<RECOVERIES> 77,837
<ALLOWANCE-CLOSE> 2,407,895
<ALLOWANCE-DOMESTIC> 2,057,895
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 350,000
</TABLE>
