<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 March 31, 1997
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
April 30, 1997 was:
Common Stock, $1.00 par value - 1,559,849 shares outstanding
<PAGE> 2
NSD BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1997
and December 31, 1996 3
Consolidated Statement of Income - For the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows - For the Three
Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NSD BANCORP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
ASSETS (UNAUDITED)
------------ ------------
<S> <C> <C>
Cash and Due From Banks 13,353,112 12,493,654
Federal Funds Sold 3,000,000 8,400,000
Securities Available for Sale 57,289,398 55,668,550
Securities Held to Maturity (Market Value of $8,954,718
at March 31, 1997 and $9,563,505
at December 31, 1996) 8,747,894 9,316,952
Loans Available for Sale 3,058,649 2,943,248
Loans, Net of Deferred Fees 216,854,945 211,106,328
Unearned Income (1,174,482) (1,212,814)
Reserve for Loan Losses (2,656,663) (2,578,504)
------------ ------------
Loans, Net 216,082,449 210,258,258
Premises and Equipment, Net 3,636,569 3,686,319
Accrued Interest Receivable 2,019,933 1,992,396
Other Real Estate Owned and Assets
Held for Sale 380,206 432,687
Other Assets 3,312,860 2,553,038
------------ ------------
TOTAL ASSETS 307,822,421 304,801,854
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-Interest Bearing 48,069,785 50,341,084
Interest Bearing 214,996,860 210,645,721
------------ ------------
Total Deposits 263,066,645 260,986,805
Borrowed Funds:
Repurchase Agreements 1,947,733 1,911,184
Short-Term Borrowings 5,560,000 5,560,000
Long-Term Borrowings 4,000,000 4,000,000
------------ ------------
Total Borrowed Funds 11,507,733 11,471,184
Accrued Interest Payable 4,802,805 4,551,792
Other Liabilities 954,538 471,820
------------ ------------
Total Liabilities 280,331,721 277,481,601
Common Stock $1 Par Value; Authorized
5,000,000 Shares, Issued and Outstanding
1,637,630 1,637,630 1,637,630
Capital Surplus 6,266,181 6,266,182
Net Unrealized Holding Gains on Securities Available for Sale 926,495 1,199,083
Retained Earnings 18,660,394 18,217,358
------------ ------------
Total Shareholders' Equity 27,490,700 27,320,253
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 307,822,421 304,801,854
============ ============
</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 Three Months Ended
March 31,
------------------------------------
NET INTEREST INCOME 1997 1996
---------- ---------
<S> <C> <C>
Loans, Including Fees $4,534,367 $4,172,063
Investment Securities:
Taxable 874,853 591,614
Tax-Exempt 140,794 200,783
Dividends 29,851 19,934
Interest Bearing Deposits 1,468 2,567
Federal Funds Sold 49,326 89,284
---------- ----------
Total Interest Income 5,630,659 5,076,245
Interest on Deposits 2,221,284 1,883,188
Interest on Borrowed Funds:
Repurchase Agreements 23,786 25,078
Short-Term Borrowings 14,528 36,917
Long-Term Borrowings 120,231 76,004
---------- ----------
Total Interest Expense 2,379,829 2,021,187
Net Interest Income 3,250,830 3,055,058
Provision for Loan Losses 150,000 150,000
---------- ----------
Net Interest Income After Provision for Loan Losses 3,100,830 2,905,058
OTHER INCOME
Net Investment Securities Gains 411 72,308
Service Fees 157,582 171,427
Other Operating Income 152,853 153,424
---------- ----------
Total Other Income 310,846 397,159
OTHER EXPENSES
Salaries and Employee Benefits 1,043,171 1,002,061
Occupancy Expense 201,038 200,674
Equipment and Supplies 236,932 222,342
Data Processing 137,669 127,103
FDIC Insurance 7,956 500
Advertising 17,154 26,282
Other Operating Expenses 517,391 374,651
---------- ----------
Total Other Expenses 2,161,311 1,953,613
Income Before Income Taxes 1,250,365 1,348,604
Provision for Income Taxes 397,920 394,239
---------- ----------
NET INCOME $ 852,445 $ 954,365
========== ==========
NET INCOME PER COMMON SHARE $0.52 $0.61
========== ==========
Common Dividends Declared and Paid Per Share $0.25 $0.20
========== ==========
Weighted Average Shares Outstanding 1,645,130 1,562,141
========== ==========
</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 Three Months Ended
March 31,
---------------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 852,445 954,365
Adjustments to Net Income:
Provision for Loan Losses 150,000 150,000
Gains on Investment Securities (411) (72,308)
Gains on Sale of Other Assets (1,757) -
Gain on Loan Sales - (14,614)
Depreciation and Amortization 162,158 119,476
Net Premium Amortization and Discount
Accretion on Investment Securities 21,772 68,691
(Increase) Decrease in Accrued Interest Receivable (27,537) 88,983
Increase in Accrued Interest Payable 250,937 253,196
Increase in Other Assets (799,237) (162,800)
Deferred Loan Fees, Net (2,846) (4,867)
Increase in Other Liabilities 482,718 343,270
----------- ------------
Net Cash Provided by Operating Activities 1,088,242 1,723,392
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investment Securities Available for Sale 5,581,197 5,135,766
Proceeds from Repayments and Maturities of Investment
Securities Available for Sale 557,431 5,861,008
Proceeds from Repayments and Maturities of Investment
Securities Held to Maturity 570,000 60,000
Purchases of Investment Securities Available for Sale (8,235,736) (18,121,155)
Proceeds from Sales of Other Real Estate Owned 70,783 -
Net Increase in Loans (5,824,191) (2,147,351)
Proceeds from Sales of Loans - 1,475,996
Purchases of Premises and Equipment, Net (55,248) (84,572)
----------- ------------
Net Cash Used by Investing Activities (7,335,764) (7,820,308)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Demand and Savings
Deposit Accounts (2,052,201) 7,851,464
Net Increase in Certificates of Deposit 4,132,041 1,448,733
Net Increase in Repurchase Agreements 36,549 25,092
Proceeds from Long-Term Borrowings - 2,000,000
Repayments of Short-Term Borrowings - (2,000,000)
Cash Dividends Paid in Lieu of Fractional Shares - -
Cash Dividends Paid (409,409) (311,970)
----------- ------------
Net Cash Provided by Financing Activities 1,706,980 9,013,319
----------- ------------
Increase (Decrease) in Cash and Cash Equivalents (4,540,542) 2,916,403
Cash and Cash Equivalents at Beginning of Year 20,893,654 12,097,094
----------- ------------
Cash and Cash Equivalents at End of Period 16,353,112 15,013,497
=========== ============
</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. 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.
6
<PAGE> 7
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June of 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 125 provides accounting and reporting standards
based on the control-oriented "financial components" approach. Under
this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and
liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when
extinguished. The statement provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement is effective for
transfers and servicing of financial assets transactions occurring
after December 31, 1996.
In December of 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." This
statement defers the effective date of FAS 125 by one year to January
1, 1998, for certain transfer transactions including repurchase
agreements; dollar roll, securities lending and similar arrangements.
SFAS No. 127 also delays by one year the provisions of SFAS No. 125
for recognition of collateral by secured parties in conjunction with
secured borrowings. The Corporation is currently evaluating the effect
that implementation of these standards will have on its results of
operations and financial position.
During the first quarter of 1997, the Corporation adopted both
pronouncements, neither of which is anticipated to have any material
effect on the financial statements.
In February of 1997, the FASB issued SFAS No. 128, "Earnings Per
Share." This statement specifies the computation, presentation, and
disclosure requirements for EPS. SFAS No. 128 is designed to improve
the EPS information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of EPS data on an
international basis.
The Corporation is currently evaluating the effect that implementation
of this standard will have on its results of operation and financial
position.
7
<PAGE> 8
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 three months
ended March 31, 1997 compared to the three months ended March 31, 1996.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $852,445, a decrease
of $101,920 from $954,365 for the three months ended March 31, 1996. This
decrease is the result of an increase in deposit premium amortization expense
of $39,984 related to the acquisition of two branch offices in December of
1996. Net investment securities gains of $72,308 recognized in the first
quarter of 1996, compared to $411 in the first quarter of 1997, also
contributed to the decline in net income. Net interest income increased
$195,773 while salaries and employee benefits, equipment and supplies, data
processing, and other operating expenses increased $41,110, $14,590, $10,566,
and $142,741, respectively, for the three months ended March 31, 1997. The
Corporation's ROA for the first three months of 1997 was 1.14% compared to
1.46% for the first three months of 1996. ROE for the first three months of
1997 was 12.46% compared to 15.17% for the like period in 1996.
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 $527,073 during the three months ended March
31, 1997 as compared to the same period in 1996. This increase was due to a
significant increase in average earning assets of $34,937,886 offset by a
decrease in the yield on earning assets to 8.18% at March 31, 1997, from 8.40%
at March 31, 1996. Average loans increased $27,603,626 to $213,152,155 at March
31, 1997. The average yield on loans declined to 8.64% at March 31, 1997
compared to 9.06% at March 31, 1996. Average investment securities increased
$9,892,635 while the average yield increased from 6.60% at March 31, 1996 to
6.94% at March 31, 1997. Interest expense increased $358,642 during the first
three months of 1997 as a result of an increase in total interest bearing funds
of $35,104,409 coupled with a slight increase in the average cost of funds from
4.25% at March 31, 1996 to 4.27% at March 31, 1997. Average interest bearing
deposits increased $32,814,891, consisting of a $25,260,039 increase in
interest checking and money market deposits, $10,217,900 increase in time
deposits and a $2,663,048 decline in savings deposits. Average borrowed funds
increased $2,289,518 at March 31, 1997, also contributing to an increase in
interest expense of $358,642.
8
<PAGE> 9
The Corporation's net interest margin decreased from 5.13% at March 31, 1996 to
4.78% at March 31, 1997, resulting from a decrease in the yield on interest
earning assets combined with a slight increase in the cost of funds of interest
bearing liabilities.
PROVISION FOR LOAN LOSSES
The Corporation's provision for loan losses was $150,000 for both the three
months ended March 31, 1997 and the three months ended March 31, 1996. The
Corporation had net charge-offs of $71,841 and $325,535 for the first three
months of 1997 and 1996, respectively.
The Corporation's net charge-offs by loan type and changes in the reserve for
loan losses were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Reserve for Loan Losses at Beginning of Year $2,578,504 $2,676,362
Charge-Offs:
Commercial, Financial and Agricultural Loans -- 257,197
Real Estate Mortgage Loans 12,037 --
Installment Loans 70,875 60,653
Lease Financing 7,773 35,994
---------- ----------
Total Charge-Offs 90,685 353,844
Recoveries:
Commercial, Financial and Agricultural Loans 6,870 1,322
Real Estate Mortgage Loans 450 450
Installment Loans 11,524 26,537
Lease Financing -- --
---------- ----------
Total Recoveries 18,844 28,309
---------- ----------
Net Charge-Offs 71,841 325,535
Provision for Loan Losses 150,000 150,000
---------- ----------
Reserve for Loan Losses at End of Period $2,656,663 $2,500,827
========== ==========
</TABLE>
9
<PAGE> 10
OTHER INCOME
Other income decreased $86,313 from $397,159 for the three months ended March
31, 1996 to $310,846 for the three months ended March 31, 1997. The sale of
certain marketable equity securities available for sale during the first three
months of 1996 resulted in net investment securities gains of $72,308 compared
to $411 for the same period in 1997. Service fees decreased to $157,582 for the
first three months of 1997, from $171,427 for the first three months of 1996.
Of this increase, $13,900 was attributed to reduced NSF charge and checking
account fee penetration during the first three months of 1997. Other operating
income decreased $571. There were two sales of other real estate during the
first three months of 1997 resulting in a net gain of $991. Loan sales during
the first quarter of 1996 resulted in a gain of $14,614. There were no loan
sales during the first quarter of 1997.
OTHER EXPENSES
Total other expenses for the first quarter of 1997 increased $207,698 to
$2,161,311 from $1,953,613 for the first quarter of 1996. Salaries and employee
benefits increased $41,110, reflecting normal salary and benefit increases,
additional staffing to support the growth of the Corporation and the addition
of personnel as the result of operating a new branch office beginning in
December of 1996. Occupancy expense increased $364, primarily due to scheduled
building maintenance performed at several branch locations. Equipment and
supplies expense increased $14,590 primarily due to an increase in equipment
rental expense of $8,085 related to the replacement of capitalized photocopy
machines with leased equipment during 1996. Also contributing to the overall
increase was an $8,233 increase in stationery and supplies expense due to
ordering for a new branch office and also a difference in the timing of normal
purchases. Data processing expense increased $10,566 largely due to costs
incurred during conversion of acquired branch deposits. FDIC insurance expense
increased $7,456 as the Federal Deposit Insurance Corporation levied additional
assessments on the deposits of all banks insured by its Bank Insurance Fund.
Advertising expense decreased $9,128 to $17,154 from $26,282 for the same
period in 1996. Other operating expenses increased to $517,392 for the first
quarter of 1997, up from $374,651. This increase is primarily due to additional
expenses incurred as the result of operating an additional branch office opened
in December of 1996. Also contributing to the increase in other operating
expenses was a loss of $50,000, recognized from transactions with one of
NorthSide Bank's merchant credit card customers. Additional losses, related to
the same merchant credit card customer, are anticipated to occur during the
second quarter and possibly the third quarter of 1997. The final total amount
of such losses could not be reasonably estimated as of the date of this filing.
However, as of May 13, 1997, the company has recognized $148,405 in additional
losses.
10
<PAGE> 11
INCOME TAXES
The Corporation recorded an income tax provision of $397,920 for the three
months ended March 31, 1997 compared to $394,239 for the three months ended
March 31, 1996. This increase in the tax provision during the first three
months of 1997 is the result of a reduction in interest earned on tax free
earning assets offset by a decrease in pre-tax earnings.
FINANCIAL CONDITION
The Corporation's total assets were $307,823,889 at March 31, 1997, an increase
of $3,022,035 from December 31, 1996. The purchase of securities available for
sale resulted in an increase of $1,620,848 at March 31, 1997. The maturity and
call of investment securities held to maturity resulted in a decline of
$569,058. Net loans increased $5,824,191, from $210,258,258 at December 31,
1996 to $216,082,449 at March 31, 1997. Cash and due from banks and federal
funds sold increased $859,458 and $5,400,000, respectively, at March 31, 1997.
INVESTMENT SECURITIES
Investment securities available for sale increased $1,620,848. An increase in
U.S. government agencies available for sale of $1,860,820 and an increase in
mortgage-backed securities available for sale of $245,477 was attributed to the
investment of funds in the first quarter of 1997 which were obtained through
branch aquisitions during the fourth quarter of 1996.
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -------------------------------- FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 9,196,558 $ 5,552 $ 16,386 $ 9,185,724
Obligations of U.S. Government Agencies 27,599,266 5,717 462,469 27,142,514
Mortgage-Backed Securities 17,029,834 51,944 205,411 16,876,367
Obligations of State and Political 544,951 3,669 1,418 547,202
Subdivisions
Marketable Equity Securities 1,514,743 2,022,848 -- 3,537,591
----------- ---------- -------- -----------
$55,885,352 $2,089,730 $685,684 $57,289,398
=========== ========== ======== ===========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED --------------------------------- FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 9,195,877 $ 43,413 $ 2,854 $ 9,236,436
Obligations of U.S. Government Agencies 25,403,448 68,571 190,325 25,281,694
Mortgage-Backed Securities 17,160,596 71,578 110,330 17,121,844
Obligations of State and Political 719,948 4,556 1,682 722,822
Subdivisions
Marketable Equity Securities 1,377,143 1,928,611 -- 3,305,754
----------- ---------- -------- -----------
$53,857,012 $2,116,729 $305,191 $55,668,550
=========== ========== ======== ===========
</TABLE>
A summary of investment securities held to maturity is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED --------------------------------- FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Obligations of State and Political $8,497,894 $206,824 -- $8,704,718
Subdivisions
Corporate Bonds 250,000 -- -- 250,000
---------- -------- ------------- ----------
$8,747,894 $206,824 -- $8,954,718
========== ======== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED --------------------------------- FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Obligations of State and Political $9,066,952 $246,553 -- $9,313,505
Subdivisions
Corporate Bonds 250,000 -- -- 250,000
---------- -------- ------------- ----------
$9,316,952 $246,553 -- $9,563,505
========== ======== ============= ==========
</TABLE>
12
<PAGE> 13
LOANS
Loans, net of deferred fees, increased to $216,082,449 at March 31, 1997. This
increase was primarily in small business and indirect automobile loans due to
increased sales calling efforts in each respective area during the first three
months of 1997. Loans available for sale increased slightly to $3,058,649 at
March 31, 1997, from $2,943,248 at December 31, 1996. This increase is
attributable to origination of slightly more student loans which are intended
for sale in the secondary market in the first quarter of 1997.
The composition of loans is shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, INCREASE
1997 1996 (DECREASE)
------------ ------------ ------------
<S> <C> <C> <C>
Consumer Loans to Individuals $ 84,974,228 $ 80,107,845 $ 4,866,383
Mortgage
Non-Residential 11,225,529 11,636,798 (411,269)
Residential 51,363,270 56,641,022 (5,277,752)
Commercial, Financial and Agricultural 54,892,430 48,225,722 6,666,708
Lines of Credit 5,230,841 5,433,560 (202,719)
Lease Financing 8,179,387 8,248,698 (69,311)
Nonaccrual Loans 1,408,198 1,234,467 173,731
------------ ------------ -----------
217,273,883 211,528,112 5,745,771
Deferred Fees (418,938) (421,784) 2,846
------------ ------------ -----------
$216,854,945 $211,106,328 $ 5,748,617
============ ============ ===========
</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 March 31, 1997, the Corporation's recorded investment in
loans for which impairment has been recognized in accordance with FASB
Statement No. 114 totaled $641,947, with a corresponding reserve for loan
losses of $152,448. There were no loans considered impaired that have been
partially written down through charge-offs. The average recorded investment in
impaired loans was $647,992 during the first three months of 1997. All loans
considered impaired at March 31, 1997 were on nonaccrual status, therefore, the
Corporation did not recognize any interest on impaired loans during the first
three months of 1997. There was no interest income related to impaired loans
recognized on the cash basis during the three months ended March 31, 1996.
There was no additional reserve required for impaired loans during the first
three months of 1997.
13
<PAGE> 14
NON-PERFORMING ASSETS
Non-performing assets increased from $1,667,154 at December 31, 1996 to
$1,788,405 at March 31, 1997, due to an increase in nonaccrual loans of
$173,731 and an increase in other assets held for sale of $17,312 offset by a
decrease in other real estate owned of $69,792.
The following table presents the composition of non-performing assets and past
due loans:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- -----------
<S> <C> <C>
Nonaccrual Loans $1,408,198 $1,234,467
Other Real Estate Owned 302,190 371,982
Other Assets Held For Sale 78,017 60,705
---------- ----------
Total Non-Performing Assets 1,788,405 1,667,154
Loans Past Due 90 Days or More and Still
Accruing 425,308 615,466
---------- ----------
Total Non-Performing Assets and Past Due
Loans $2,213,713 $2,282,620
========== ==========
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at March 31, 1997 was $2,656,663 or 1.20%
of total loans compared to $2,578,504 or 1.33% of total loans at December 31,
1996. 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 three
months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Beginning Balance $2,578,504 $2,676,362
Provision 150,000 150,000
Net Charge-Off 71,841 325,535
---------- ----------
Ending Balance $2,656,663 $2,500,827
========== ==========
Loan Loss Reserve to Loans 1.20% 1.33%
</TABLE>
14
<PAGE> 15
LIABILITIES
Total liabilities were $280,331,721 at March 31, 1997, an increase of
$2,850,120 from $277,481,601 at December 31, 1996. The increase in total
liabilities was primarily the result of a net increase in total deposits of
$2,079,840.
DEPOSITS
Total deposits increased $2,079,840 from $260,986,805 at December 31, 1996 to
$263,066,645 at March 31, 1997. Specific certificate of deposit product
promotions during the first quarter of 1997, resulted in an increase in
interest-bearing deposits of $4,351,139 offset by a $2,271,299 decline in
non-interest bearing deposits.
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, INCREASE
1997 1996 (DECREASE)
------------ ------------ -----------
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 48,069,785 $ 50,341,084 $(2,271,299)
Interest Bearing Demand Deposits 28,167,876 29,601,513 (1,433,637)
Savings Deposits 37,839,070 38,177,186 (338,116)
Money Market Deposit Accounts 52,009,147 50,280,413 1,728,734
Time Deposits > $100,000 13,188,742 11,230,900 1,957,842
Time Deposits < $100,000 83,792,025 81,355,709 2,436,316
------------ ------------ -----------
$263,066,645 $260,986,805 $ 2,079,840
============ ============ ===========
</TABLE>
REPURCHASE AGREEMENTS
Repurchase agreements increased from $1,911,184 at December 31, 1996 to
$1,947,733 at March 31, 1997. Securities sold under agreement to repurchase
were U.S. Treasury securities. Such agreements mature within 30 to 90 days.
BORROWED FUNDS
At March 31, 1997, the Corporation had outstanding borrowings of $9,560,000, of
which $5,560,000 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. Borrowings are collateralized by qualifying securities
and loans. These advances are subject to restrictions or penalties related to
prepayments.
15
<PAGE> 16
SHAREHOLDERS EQUITY
Consolidated shareholders' equity increased $170,447 from $27,320,253 at
December 31, 1996 to $27,490,700 at March 31, 1997. 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 risk-based capital
ratio at March 31, 1997 was 12.88% compared to 12.41% at December 31, 1996. The
Corporation's total risk-based capital ratio at March 31, 1997 was 14.13%
compared to 13.66% at December 31, 1996. Regulatory requirements for tier I and
total risk-based 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 $1,088,242 during the first three
months of 1997 compared to $1,723,392 during the first three months of 1996.
The primary source 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 $7,335,764 during the first three months
of 1997 compared to $7,820,308 during the first three months of 1996. The first
three months of 1997 provided cash by sales, repayments, and maturities of
investment securities and used cash by reinvesting in
16
<PAGE> 17
investment securities available for sale. Cash was also used to fund the net
increase in loan volume and purchase of premises and equipment. Proceeds from
the sale of loans during the first quarter of 1996 provided cash, while a net
increase in loans and net purchases of premises and equipment used cash.
Financing activities provided net cash of $1,706,980 during the first quarter
of 1997 compared to $9,013,319 during the first quarter of 1996. During the
first three months of 1997, cash was provided by an increase in certificate of
deposit accounts resulting from specific product promotions. Cash was also
provided by repurchase agreements and used by a decrease in demand and savings
deposits and cash dividends paid to shareholders. There was no effect on net
cash through the repayment of short-term borrowings and proceeds received from
long-term borrowings. During the first three months of 1996, cash was provided
by an increase in money market deposit accounts resulting from the offering of
a new deposit product. Cash was also provided by an increase in certificates of
deposit and repurchase agreements and used by cash dividends paid to
shareholders.
PART II - OTHER INFORMATION
Items 1-5. Not applicable pursant 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.
17
<PAGE> 18
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: May 13, 1997 /s/ LLOYD G. GIBSON
-------------------------------
Lloyd G. Gibson
President and Chief
Executive Officer
Dated: May 13, 1997 /s/ JAMES P. RADICK
-------------------------------
James P. Radick
Vice President, Treasurer
(Principal Financial and
Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,353,112
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,289,398
<INVESTMENTS-CARRYING> 8,747,894
<INVESTMENTS-MARKET> 8,954,718
<LOANS> 218,739,112
<ALLOWANCE> 2,656,663
<TOTAL-ASSETS> 307,822,421
<DEPOSITS> 263,066,645
<SHORT-TERM> 7,507,733
<LIABILITIES-OTHER> 5,757,343
<LONG-TERM> 4,000,000
0
0
<COMMON> 1,637,630
<OTHER-SE> 25,853,070
<TOTAL-LIABILITIES-AND-EQUITY> 307,822,421
<INTEREST-LOAN> 4,534,367
<INTEREST-INVEST> 1,045,498
<INTEREST-OTHER> 50,794
<INTEREST-TOTAL> 5,630,659
<INTEREST-DEPOSIT> 2,221,284
<INTEREST-EXPENSE> 2,379,829
<INTEREST-INCOME-NET> 3,250,830
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 411
<EXPENSE-OTHER> 2,161,311
<INCOME-PRETAX> 1,250,365
<INCOME-PRE-EXTRAORDINARY> 852,445
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 852,445
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 4.78
<LOANS-NON> 1,408,198
<LOANS-PAST> 425,308
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,578,504
<CHARGE-OFFS> 90,685
<RECOVERIES> 18,844
<ALLOWANCE-CLOSE> 2,656,663
<ALLOWANCE-DOMESTIC> 2,222,663
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 434,000
</TABLE>
