<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 June 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 (I.R.S. 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 July
31, 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 June 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1996
and December 31, 1995 3
Consolidated Statement of Income - For the Six and Three
Months Ended June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows - For the Six
Months Ended June 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 I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NSD BANCORP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1996 December 31,
ASSETS (Unaudited) 1995
------------- -------------
<S> <C> <C>
Cash and Due From Banks $ 10,729,906 $ 8,897,094
Federal Funds Sold 4,100,000 3,200,000
Securities Available for Sale 51,586,036 43,770,267
Securities Held to Maturity (Market Value of $10,860,931 at
June 30, 1996 and $11,330,157 at December 31, 1995) 10,604,930 10,888,223
Loans Available for Sale 2,481,249 5,715,476
Loans, Net of Deferred Fees 200,840,740 182,937,989
Unearned Income (1,283,986) (1,402,670)
Reserve for Loan Losses (2,560,983) (2,676,362)
------------- -------------
Loans, Net 196,995,771 178,858,957
Premises and Equipment, Net 3,697,316 3,746,891
Accrued Interest Receivable 1,965,139 1,815,216
Other Real Estate Owned and Assets Held for Sale 162,553 75,741
Other Assets 2,148,501 1,763,777
------------- -------------
TOTAL ASSETS $ 284,471,401 $ 258,731,642
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-Interest Bearing $ 49,237,716 $ 44,976,118
Interest Bearing 192,621,853 175,267,017
------------- -------------
Total Deposits 241,859,569 220,243,135
Borrowed Funds:
Repurchase Agreements 1,863,500 1,822,433
Short-Term Borrowings 1,740,000 2,780,000
Long-Term Borrowings 8,600,000 4,600,000
------------- -------------
Total Borrowed Funds 12,203,500 9,202,433
Accrued Interest Payable 4,257,020 3,904,564
Other Liabilities 546,485 517,656
------------- -------------
Total Liabilities 258,866,574 233,867,788
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 524,132 969,099
Retained Earnings 17,176,884 17,741,015
------------- -------------
Total Shareholders' Equity 25,604,827 24,863,854
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 284,471,401 $ 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 Six Months Ended For the Three Months Ended
June 30, June 30,
------------------------ --------------------------
NET INTEREST INCOME 1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Loans, Including Fees $ 8,469,930 $7,717,203 $ 4,297,867 $3,933,545
Investment Securities:
Taxable 1,331,844 973,999 740,230 492,981
Tax-Exempt 393,536 443,699 192,753 218,526
Dividends 51,800 36,659 31,866 18,083
Interest Bearing Deposits 5,156 1,631 2,589 849
Federal Funds Sold 156,394 177,568 67,110 118,600
----------- ---------- ----------- ----------
Total Interest Income 10,408,660 9,350,759 5,332,415 4,782,584
Interest on Deposits 3,872,875 3,470,118 1,989,687 1,822,031
Interest on Borrowed Funds:
Repurchase Agreements 48,605 40,586 23,527 21,725
Short-Term Borrowings 35,687 -- (1,230) --
Long-Term Borrowings 208,225 39,891 132,221 31,255
----------- ---------- ----------- ----------
Total Interest Expense 4,165,392 3,550,595 2,144,205 1,875,011
Net Interest Income 6,243,268 5,800,164 3,188,210 2,907,573
Provision for Loan Losses 300,000 240,000 150,000 120,000
----------- ---------- ----------- ----------
Net Interest Income After Provision for Loan Losses 5,943,268 5,560,164 3,038,210 2,787,573
OTHER INCOME
Net Investment Securities Gains (Losses) 72,206 10,409 (102) --
Service Fees 339,935 325,609 168,508 173,529
Net Gain on Settlement and Curtailment of Pension Plan -- 510,960 -- --
Other Operating Income 252,757 336,290 99,333 103,658
----------- ---------- ----------- ----------
Total Other Income 664,898 1,183,268 267,739 277,187
OTHER EXPENSES
Salaries and Employee Benefits 2,016,995 1,948,454 1,014,934 987,582
Occupancy Expense 399,544 369,653 198,870 182,103
Equipment and Supplies 481,832 405,302 259,490 197,349
Data Processing 253,017 257,257 125,914 126,422
FDIC Insurance 1,000 235,592 500 117,796
Advertising 96,468 74,687 70,186 52,155
Other Operating Expenses 778,545 766,207 403,894 358,757
----------- ---------- ----------- ----------
Total Other Expenses 4,027,401 4,057,152 2,073,788 2,022,164
Income Before Income Taxes 2,580,765 2,686,280 1,232,161 1,042,596
Provision for Income Taxes 750,569 777,729 356,330 288,816
----------- ---------- ----------- ----------
NET INCOME $ 1,830,196 $1,908,551 $ 875,831 $ 753,780
=========== ========== =========== ==========
NET INCOME PER COMMON SHARE $ 1.12 $ 1.17 $ 0.53 $ 0.46
=========== ========== =========== ==========
Common Dividends Declared and Paid Per Share $ 0.39 $ 0.27 $ 0.20 $ 0.14
=========== ========== =========== ==========
Weighted Average Shares Outstanding 1,640,399 1,637,630 1,639,624 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 Six Months Ended
June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,830,196 $ 1,908,551
Adjustments to Net Income:
Provision for Loan Losses 300,000 240,000
Net Gains on Investment Securities (72,206) (10,409)
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 235,082 193,031
Net Premium Amortization and Discount
Accretion on Investment Securities 118,089 25,295
(Increase) Decrease in Accrued Interest Receivable (149,923) 30,089
Increase in Accrued Interest Payable 352,456 484,060
Decrease in Other Assets (181,147) (131,832)
Deferred Loan Fees, Net (22,788) 321
Increase in Other Liabilities 28,829 95,183
------------ ------------
Net Cash Provided by Operating Activities 2,427,295 2,230,616
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investment Securities Available for Sale 5,836,668 2,175,445
Proceeds from Repayments and Maturities of Investment
Securities Available for Sale 9,043,751 1,113,919
Proceeds from Repayments and Maturities of Investment
Securities Held to Maturity 285,000 3,773,000
Purchases of Investment Securities Available for Sale (23,417,970) (4,814,592)
Purchases of Investment Securities Held to Maturity -- (2,000,000)
Proceeds from Sales of Other Real Estate Owned -- 662,500
Proceeds from Loan Sales 1,475,996 --
Net Increase in Loans (16,736,837) (4,848,157)
Purchases of Premises and Equipment, Net (154,478) (122,560)
------------ ------------
Net Cash Used by Investing Activities (23,667,870) (4,060,445)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Demand and Savings
Deposit Accounts 23,304,931 (9,229,305)
Net (Decrease) Increase in Certificates of Deposit (1,688,497) 12,826,797
Net Increase in Repurchase Agreements 41,067 276,567
Proceeds From Short-Term Borrowings 960,000 --
Proceeds From Long-Term Borrowings 4,000,000 2,000,000
Repayments of Short-Term Borrowings (2,000,000) --
Cash Dividends Paid in Lieu of Fractional Shares (4,617) (3,681)
Cash Dividends Paid (639,497) (436,758)
------------ ------------
Net Cash Provided by Financing Activities 23,973,387 5,433,620
------------ ------------
Increase in Cash and Cash Equivalents 2,732,812 3,603,791
Cash and Cash Equivalents at Beginning of Year 12,097,094 17,219,954
------------ ------------
Cash and Cash Equivalents at End of Period $ 14,829,906 $ 20,823,745
============ ============
</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.
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 six and
three months ended June 30, 1996 compared to the six and three months ended
June 30, 1995.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1996 was $1,830,196, a decrease of
$78,355 from $1,908,551 for the six months ended June 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 $443,104 during the first six months
of 1996 and FDIC insurance expense, data processing expenses and the provision
for income taxes decreased by $234,592, $4,240 and $27,160, respectively, for
the six months ended June 30, 1996. These contributions to net income were
partially offset by increases in the provision for loan losses of $60,000 and
salaries and employee benefits of $68,541 during the first six months of 1996.
Occupancy expense, equipment and supplies expense, and advertising expense also
increased $29,891, $76,530 and $21,781, respectively, during the first six
months of 1996. The Corporation's ROA for the first six months of 1996 was 1.36%
compared to 1.59% for the first six months of 1995. ROE for the first six months
of 1996 was 14.50% compared to 16.87% for the first six months of 1995.
Net income for the second quarter of 1996 was $875,831, an increase of $122,051
from $753,780 for the second quarter of 1995. This increase is primarily the
result of an increase in net interest income of $280,637 and a decrease in FDIC
insurance expense of $117,296 during the three months ended June 30, 1996.
Partially offsetting these contributions to income during the second quarter of
1996 were increases in the provision for loan losses of $30,000, salaries and
employee benefits of $27,352, occupancy expense of $16,767, equipment and
supplies of $62,141, advertising expense of $18,031, other operating expenses
of $45,137 and the provision for income taxes of $67,514.
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 $1,038,246 during the six months ended June 30,
1996 as compared to the same period in 1995. This increase was due to a
significant increase in average earning assets of $27,206,557 slightly offset
by a decrease in the yield on earning assets to 8.39%
7
<PAGE> 8
at June 30, 1996, from 8.50% at June 30, 1995. Average loans increased
$17,376,140 to $189,597,654 at June 30, 1996. The average yield on loans
decreased slightly to 9.00% at June 30, 1996 compared to 9.06% at June 30,
1995. Average investment securities increased $9,548,069 while the average
yield decreased from 6.85% at June 30, 1995 to 6.77% at June 30, 1996. Interest
expense increased $614,797 during the first six months of 1996 as a result of
an increase in total interest-bearing funds of $19,875,592 coupled with an
increase in the average cost of funds from 4.06% at June 30, 1995 to 4.27% at
June 30, 1996. Average interest bearing deposits increased $12,223,743, mainly
in the area of certificates of deposit and money market accounts. Average
borrowed funds increased $7,282,647 at June 30, 1996, also contributing to an
increase in interest expense of $204,021.
During the second quarter of 1996, interest income increased $533,881 as
compared to the second quarter of 1995. Contributing to the increase in
interest income was an increase in average earning assets of $30,006,520 offset
by a decline in the yield on earning assets from 8.48% during the second
quarter of 1995 to 8.32% during the second quarter of 1996. Average loans
increased $19,695,569, offset by a decline in the average yield to 8.92% during
the second quarter of 1996 compared to 9.09% during the second quarter of 1995.
Average investments increased $12,740,680 during the three months ended June
30, 1996, and the average yield increased slightly to 6.77% during the second
quarter of 1996 from 6.71% during the second quarter of 1995. Interest expense
increased $269,194 during the second quarter of 1996 as a result of an increase
in interest bearing funds of $22,951,268 coupled with an increase in the
average cost of funds from 4.20% during the second quarter of 1995 to 4.26%
during the second quarter of 1996. Average interest bearing deposits increased
$14,720,896 during the second quarter, mainly in the area of money market
accounts. Also increasing during the second quarter of 1996 were average
borrowed funds by $7,933,334 also contributing $99,736 to interest expense.
The Corporation's net interest margin decreased from 5.36% and 5.24% for the
six and three months ended June 30, 1995, respectively, to 5.11% and 5.04% for
the six and three months ended June 30, 1996, respectively, resulting from a
slight 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 $300,000 for the six months
ended June 30, 1996 compared to $240,000 for the six months ended June 30,
1995. The Corporation's provision for loan losses was $150,000 for the second
quarter of 1996 compared to $120,000 for the second quarter of 1995. This
increase was primarily the result of an increase in the average loans
outstanding during the first six months of 1996. The Corporation had net
charge-offs of $415,379 during the first six months of 1996 compared to net
recoveries of $140,634 during the first six months of 1995. This change is the
result of a charge-off during the first six months of 1996 of commercial loans
related to one borrower, compared to the recovery of one commercial loan during
the first six 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 SIX MONTHS
ENDED JUNE 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 312,571 87,865
Real Estate Mortgage Loans -- --
Installment Loans 132,041 109,566
Lease Financing 35,994 15,005
---------- -----------
Total Charge-Offs 480,606 212,436
Recoveries:
Commercial, Financial and Agricultural Loans 1,522 329,222
Real Estate Mortgage Loans 900 900
Installment Loans 62,805 21,910
Lease Financing -- 1,038
---------- -----------
Total Recoveries 65,227 353,070
---------- -----------
Net Charge-Offs (Recoveries) 415,379 (140,634)
Provision for Loan Losses 300,000 240,000
---------- -----------
Reserve for Loan Losses at End of Period $2,560,983 $ 2,662,232
========== ===========
</TABLE>
OTHER INCOME
Other income decreased $518,370 from $1,183,168 for the six months ended June
30, 1995 to $664,898 for the six months ended June 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 six months of
1996 resulted in an increase in net investment securities gains of $72,206.
Service fees increased to $339,935 for the first six months of 1996, from
$325,609 for the first six months of 1995. Of this increase, $5,443 was
attributed to an increase in NSF charges during the first six months of 1996.
An increase in service charges on savings deposits of $5,340 during the first
six months of 1996 also contributed to the increase in service fees. Other
operating income
9
<PAGE> 10
decreased $83,533. This decrease is primarily the result of net gains on the
sale of other real estate of $92,713 recognized during the first six months of
1995. There were no sales of other real estate during the first six months of
1996. Loan sales during the first six months of 1996 resulted in a gain of
$14,614. There were no loan sales during the first six months of 1995.
Other income decreased $9,448 during the second quarter, from $277,187 in 1995
to $267,739 in 1996. Service fees decreased to $168,508 during the three months
ended June 30, 1996, from $173,529 during the three months ended June 30, 1995.
This decrease is primarily the result of an increase in waived NSF charges
during the second quarter of 1996. Other operating income incurred a slight
decrease of $4,325 during the second quarter of 1996.
OTHER EXPENSES
Total other expenses for the first six months of 1996 decreased $29,751 to
$4,027,401 from $4,057,152 for the first six months of 1995. Salaries and
employee benefits increased $68,541, which is attributable to normal salary and
benefit increases and additional staffing to support the growth of the
Corporation. Occupancy expense increased $29,891, primarily due to scheduled
building maintenance performed at several branch locations. Equipment and
supplies expense increased $76,530 due to an increase in depreciation expense
of $42,051 during the first six months of 1996 related to automatic teller
machines installed during the fourth quarter of 1995. Also contributing to this
increase was an increase in equipment maintenance contracts of $27,429 during
the six months ended June 30, 1996. Data processing expense decreased slightly
to $253,017 for the six months ended June 30, 1996, compared to $257,257 for
the six months ended June 30, 1995. FDIC insurance expense decreased to $1,000
for the first six months of 1996, down from $235,592 for the first six 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 $21,781 during the first six
months of 1996, from $74,687 in 1995 to $96,468 in 1996. This increase is due
primarily to advertising campaigns to develop customer awareness of a new
deposit product. Other operating expenses increased to $778,545 for the first
six months of 1996, up from $766,207 for the first six months of 1995. This
increase is the result of a decrease in asset recovery expense attributable to
expenses incurred in the sale of other real estate owned during the first six
months of 1995 offset by increases in various expenses during the first six
months of 1996, none of which individually is significant.
Total other expenses increased $51,624 during the second quarter, from
$2,022,164 in 1995 to $2,073,788 in 1996. Salaries and employee benefits
increased $27,352 during the second quarter due to normal salary and benefit
increases and additional staffing to support the growth of the Corporation.
Occupancy expense increased to $198,870 for the second quarter of 1996 from
$182,103 for the second quarter of 1995. This increase is primarily the result
of scheduled building maintenance at several branch locations performed during
the second quarter of 1996. Equipment and supplies expense increased $62,141
during the second quarter of 1996. This increase is the result of an increase
in expenditures during the second quarter of 1996 for
10
<PAGE> 11
equipment maintenance contracts and anticipated equipment related expenses of
$12,974 and $20,946, respectively. Data processing expenses declined slightly
to $125,914 during the three months ended June 30, 1996, from $126,422 for the
three months ended June 30, 1995. FDIC insurance expense decreased to $500
during the second quarter of 1996 from $117,796 during the second quarter of
1995. This decrease is due to a reduction in the Corporation's FDIC insurance
premium from $.23 per $100 in deposits to a nominal quarterly assessment of
$500. Advertising expenses increased $18,031 during the second quarter of 1996
due to increased advertising campaigns to promote new deposit products. Other
operating expenses increased to $403,894 during the three months ended June 30,
1996 from $358,757 during the three months ended June 30, 1995. This increase
is due to increases in various expenses incurred during the second quarter of
1996, none of which is individually significant.
INCOME TAXES
The Corporation recorded an income tax provision of $750,569 and $777,729 for
the six months ended June 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 six months of 1995. The
Corporation recorded an income tax provision of $356,330 during the second
quarter of 1996 compared to $288,816 during the second quarter of 1995. This
increase is the result of an increase in pre-tax earnings, primarily due to an
increase in net interest income.
FINANCIAL CONDITION
The Corporation's total assets were $284,471,401 at June 30, 1996, an increase
of $25,739,759 from December 31, 1995. The purchase of securities available for
sale resulted in an increase of $7,815,769 at June 30, 1996. Loans available
for sale decreased $3,234,227 to $2,481,249 at June 30, 1996. Net loans
increased $18,136,814, from $178,858,957 at December 31, 1995 to $196,995,771
at June 30, 1996. Cash and due from banks and federal funds sold increased
$1,832,812 and $900,000, respectively, at June 30, 1996.
INVESTMENT SECURITIES
Investment securities available for sale increased $7,815,769. The maturity and
sale of U.S. Treasury securities available for sale resulted in a decline of
$2,684,363. An increase in U.S. government agencies available for sale and
mortgage-backed securities available for sale of $6,005,726 and $4,991,493,
respectively, was attributable to the purchase of several securities during the
first six 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 six months of 1996. The Corporation views
the overall decline to be both unusual and temporary in nature.
11
<PAGE> 12
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------------
AMORTIZED GROSS UNREALIZED HOLDING FAIR
------------------------
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 9,706,017 $ 18,757 $ 37,187 $ 9,687,587
Obligations of U.S. Government Agencies 19,505,146 -- 444,011 19,061,135
Mortgage-Backed Securities 16,127,133 41,843 283,280 15,885,696
Obligations of State and Political Subdivisions 2,958,747 4,391 16,735 2,946,403
Corporate Bonds 999,970 3,830 -- 1,003,800
Marketable Equity Securities 1,494,882 1,506,533 -- 3,001,415
----------- ---------- ----------- -----------
$50,791,895 $1,575,354 $ 781,213 $51,586,036
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------
AMORTIZED GROSS UNREALIZED HOLDING 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>
JUNE 30, 1996
-----------------------------------------------------
AMORTIZED GROSS UNREALIZED HOLDING FAIR
------------------------
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Obligations of State and Political Subdivisions $10,354,930 $ 256,001 -- $10,610,931
Corporate Bonds 250,000 -- -- 250,000
----------- ---------- ----------- -----------
$10,604,930 $ 256,001 -- $10,860,931
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------
AMORTIZED GROSS UNREALIZED HOLDING 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 $3,234,227 at June 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 six months of 1996. At June 30,
1996, there were no mortgage loans classified as available for sale. Loans, net
of deferred fees, increased to $199,556,754 at June 30, 1996. This increase was
primarily in residential mortgage loans due to declining mortgage rates and
increased demand during the first six months of 1996. Consumer loans to
individuals and commercial, financial and agricultural loans increased
$3,280,023 and $2,766,120, respectively, at June 30, 1996. Nonaccrual loans
increased to $1,103,691 at June 30, 1996 from $443,727 at December 31, 1995.
This increase is the result of an increase in loans classified as nonaccrual 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>
JUNE 30, DECEMBER 31, INCREASE
1996 1995 (DECREASE)
------------- ------------- ------------
<S> <C> <C> <C>
Consumer Loans to Individuals $ 70,989,328 $ 67,709,305 $ 3,280,023
Mortgage
Non-Residential 13,367,707 14,326,228 (958,521)
Residential 48,483,694 35,830,068 12,653,626
Commercial, Financial and Agricultural 53,375,327 50,609,207 2,766,120
Lines of Credit 5,434,243 5,681,628 (247,385)
Lease Financing 7,239,210 8,797,060 (1,557,850)
Nonaccrual Loans 1,103,691 443,727 659,964
------------- ------------- ------------
199,993,200 183,397,223 16,595,977
Deferred Fees (436,446) (459,234) 22,788
------------- ------------- ------------
$ 199,556,754 $ 182,937,989 $ 16,618,765
============= ============= ============
</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 June 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 June 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 $346,598 during the first six months
of 1996. The Corporation recognized approximately $2,291 and $2,432 of interest
on impaired loans during the first six months of 1996 under the accrual method
and cash basis, respectively (during the portion of the period that they were
impaired). There was no additional reserve required for impaired loans during
the first six months of 1996.
NON-PERFORMING ASSETS
Non-performing assets increased from $519,468 at December 31, 1995 to
$1,266,244 at June 30, 1996, due to an increase in nonaccrual loans of $659,964
and an increase in other real estate owned of $95,657 offset by a decrease in
other assets held for sale of $8,845. Although such assets increased during the
first six months of 1996, total non-performing assets represent only .63% of
total loans outstanding at June 30, 1996. Loans past due 90 days or more and
still accruing decreased to $759,153 at June 30, 1996. Of this, $369,852 was
related to one commercial real estate loan for which foreclosure proceedings
began early in the third quarter of
14
<PAGE> 15
1996. Management anticipates that full recovery of past due principal and
interest will be made on this loan. However, due to the uncertainty as to the
specific date of recovery, this loan may be classified as either nonaccrual or
other real estate owned at the end of the third quarter of 1996.
The following table presents the composition of non-performing assets and past
due loans:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Nonaccrual Loans $1,103,691 $ 443,727
Other Real Estate Owned 139,623 43,966
Other Assets Held For Sale 22,930 31,775
---------- ----------
Total Non-Performing Assets 1,266,244 519,468
Loans Past Due 90 Days or More and Still Accruing 759,153 801,743
---------- ----------
Total Non-Performing Assets and Past Due Loans $2,025,397 $1,321,211
========== ==========
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at June 30, 1996 was $2,560,983 or 1.28% of
total loans compared to $2,676,362 or 1.47% of total loans at December 31,
1995. The provision for loan losses increased $60,000 during the first six
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.
The following table details the activity in the loan loss reserve for the six
months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
1996 1995
---------- ----------
<S> <C> <C>
Beginning Balance $2,676,362 $2,281,598
Provision 300,000 240,000
Net Charge-Offs (Recoveries) 415,379 (140,634)
---------- ----------
Ending Balance $2,560,983 $2,662,232
========== ==========
Loan Loss Reserve to Loans 1.28% 1.54%
</TABLE>
15
<PAGE> 16
LIABILITIES
Total liabilities were $258,866,574 at June 30, 1996, an increase of
$24,998,786 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 $17,354,836 primarily due to the addition of a new deposit product
during the first six months of 1996 and total borrowed funds of $3,001,067.
DEPOSITS
Total deposits increased $21,616,434 from $220,243,135 at December 31, 1995 to
$241,859,569 at June 30, 1996. Promotion of a new money market deposit account
during the first six months of 1996 resulted in an increase of $20,683,805 at
June 30, 1996. Also contributing to the increase in total deposits was an
increase in non-interest bearing deposits of $4,261,599 offset by decreases in
interest bearing demand deposits, savings deposits and time deposits of
$506,124, $1,134,349, and $1,688,497, respectively, at June 30, 1996.
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, INCREASE
1996 1995 (DECREASE)
------------- ------------- ------------
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 49,237,716 $ 44,976,117 $ 4,261,599
Interest Bearing Demand Deposits 25,378,368 25,884,492 (506,124)
Savings Deposits 38,805,509 39,939,858 (1,134,349)
Money Market Deposit Accounts 44,206,061 23,522,256 20,683,805
Time Deposits > $100,000 10,396,620 9,681,193 715,427
Time Deposits < $100,000 73,835,295 76,239,219 (2,403,924)
------------- ------------- ------------
$ 241,859,569 $ 220,243,135 $ 21,616,434
============= ============= ============
</TABLE>
REPURCHASE AGREEMENTS
Repurchase agreements increased from $1,822,433 at December 31, 1995 to
$1,863,500 at June 30, 1996. Securities sold under agreement to repurchase were
U.S. Treasury securities. Such agreements mature within 30 days or less.
BORROWED FUNDS
At June 30, 1996, the Corporation had outstanding borrowings of $9,380,000, of
which $780,000 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.
16
<PAGE> 17
At June 30, 1996, the Corporation had outstanding borrowings of $960,000 that
will mature during the next 12 months. The Corporation borrowed these funds for
specific asset-liability management strategies and are collateralized by
qualifying securities.
SHAREHOLDERS EQUITY
Consolidated shareholders' equity increased $740,973 from $24,863,854 at
December 31, 1995 to $25,604,827 at June 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 June
30, 1996 was 9.69% compared to 9.68% at December 31, 1995. The Corporation's
total capital ratio at June 30, 1996 was 10.64% compared to 10.77% at December
31, 1995. Regulatory requirements for tier I and total capital ratios are 4.00%
and 8.00%, respectively.
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 $2,427,295 during the first six
months of 1996 compared to $2,230,616 during the first six months of 1995. The
primary sources of operating cash flows
17
<PAGE> 18
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 $23,667,870 during the first six months
of 1996 compared to $4,060,445 during the first six months of 1995. The first
six 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 six
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 six
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 six months of 1995.
Financing activities provided net cash of $23,973,387 and $5,433,620 during the
first six of 1996 and 1995, respectively. During the first six months of 1996,
cash was provided by an increase in money market deposit accounts resulting
from the promotion of a new deposit product. Cash was also provided by
repurchase agreements and net borrowings, while cash was used in the payment of
dividends to shareholders. During the first six 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 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 second quarter of 1995 provided cash for
asset/liability management purposes.
18
<PAGE> 19
PART II - OTHER INFORMATION
- - ---------------------------
Items 1-5. Not applicable pursuant to the instructions to Part II.
Item 6. Exhibits and Reports on Form 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
10-K 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.
(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: August 12, 1996 /s/ LLOYD G. GIBSON
-------------------------------------
Lloyd G. Gibson
President and Chief Executive Officer
Dated: August 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 NSD BANCORP,
INC.'S JUNE 30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000898624
<NAME> NSD BANCORP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,729,906
<INT-BEARING-DEPOSITS> 192,621,853
<FED-FUNDS-SOLD> 4,100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,586,036
<INVESTMENTS-CARRYING> 10,604,930
<INVESTMENTS-MARKET> 10,860,931
<LOANS> 202,038,003
<ALLOWANCE> 2,560,983
<TOTAL-ASSETS> 284,471,401
<DEPOSITS> 241,859,569
<SHORT-TERM> 3,603,500
<LIABILITIES-OTHER> 4,803,505
<LONG-TERM> 8,600,000
0
0
<COMMON> 1,637,630
<OTHER-SE> 23,967,197
<TOTAL-LIABILITIES-AND-EQUITY> 284,471,401
<INTEREST-LOAN> 8,469,930
<INTEREST-INVEST> 1,777,180
<INTEREST-OTHER> 161,550
<INTEREST-TOTAL> 10,408,660
<INTEREST-DEPOSIT> 3,872,875
<INTEREST-EXPENSE> 4,165,392
<INTEREST-INCOME-NET> 6,243,268
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 72,206
<EXPENSE-OTHER> 4,027,401
<INCOME-PRETAX> 2,580,765
<INCOME-PRE-EXTRAORDINARY> 1,830,196
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,830,196
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 5.11
<LOANS-NON> 1,103,691
<LOANS-PAST> 759,153
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 369,852
<ALLOWANCE-OPEN> 2,676,362
<CHARGE-OFFS> 480,606
<RECOVERIES> 415,379
<ALLOWANCE-CLOSE> 2,560,983
<ALLOWANCE-DOMESTIC> 2,560,983
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 178,000
</TABLE>
