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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, 1997
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission File No. 0-22124
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NSD Bancorp, Inc.
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(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, 1997 was:
Common Stock, $1.00 par value - 1,719,286 shares outstanding
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NSD BANCORP, INC.
FORM 10-Q
For the Quarter Ended June 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1997
and December 31, 1996 3
Consolidated Statement of Income - For the Six and Three
Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows - For the Six
Months Ended June 30, 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 20
</TABLE>
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Item 1. Financial Statements
NSD BANCORP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
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<S> <C> <C>
ASSETS
Cash and Due From Banks $ 13,699,126 $ 12,493,654
Federal Funds Sold -- 8,400,000
Securities Available for Sale 61,402,205 55,668,550
Securities Held to Maturity (Market Value of $7,127,688
at June 30, 1997 and $9,563,505
at December 31, 1996) 6,936,722 9,316,952
Loans Available for Sale 3,046,121 2,943,248
Loans, Net of Deferred Fees 229,402,587 211,106,328
Unearned Income (1,204,333) (1,212,814)
Reserve for Loan Losses (2,746,810) (2,578,504)
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Loans, Net 228,497,565 210,258,258
Premises and Equipment, Net 3,267,616 3,686,319
Accrued Interest Receivable 2,241,982 1,992,396
Other Real Estate Owned and Assets
Held for Sale 334,786 432,687
Other Assets 3,949,901 2,553,038
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TOTAL ASSETS $320,329,903 $304,801,854
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-Interest Bearing $ 53,827,578 $ 50,341,084
Interest Bearing 213,544,183 210,645,721
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Total Deposits 267,371,761 260,986,805
Borrowed Funds:
Repurchase Agreements 1,975,304 1,911,184
Short-Term Borrowings 14,899,000 5,560,000
Long-Term Borrowings 1,000,000 4,000,000
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Total Borrowed Funds 17,874,304 11,471,184
Accrued Interest Payable 4,800,489 4,551,792
Other Liabilities 1,707,857 471,820
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Total Liabilities 291,754,411 277,481,601
Common Stock $1 Par Value; Authorized
5,000,000 Shares, Issued and Outstanding 1,719,286 1,719,286 1,637,630
Capital Surplus 8,389,237 6,266,182
Net Unrealized Holding Gains on Securities Available for Sale 1,462,481 1,199,083
Retained Earnings 17,004,488 18,217,358
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Total Shareholders' Equity 28,575,492 27,320,253
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $320,329,903 $304,801,854
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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NSD BANCORP, INC
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
NET INTEREST INCOME
Loans, Including Fees $ 9,406,820 $ 8,469,930 $4,872,452 $4,297,867
Investment Securities:
Taxable 1,811,702 1,331,844 936,849 740,230
Tax-Exempt 258,719 393,536 117,925 192,753
Dividends 58,130 51,800 28,278 31,866
Interest Bearing Deposits 2,800 5,156 1,332 2,589
Federal Funds Sold 67,345 156,394 18,019 67,110
----------- ----------- ---------- ----------
Total Interest Income 11,605,516 10,408,660 5,974,855 5,332,415
Interest on Deposits 4,495,654 3,872,875 2,274,369 1,989,687
Interest on Borrowed Funds:
Repurchase Agreements 49,972 48,605 26,186 23,527
Short-Term Borrowings 313,407 35,687 33,185 (1,230)
Long-Term Borrowings 25,737 208,225 171,200 132,221
----------- ----------- ---------- ----------
Total Interest Expense 4,884,770 4,165,392 2,504,940 2,144,205
Net Interest Income 6,720,746 6,243,268 3,469,915 3,188,210
Provision for Loan Losses 330,000 300,000 180,000 150,000
----------- ----------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 6,390,746 5,943,268 3,289,915 3,038,210
OTHER INCOME
Net Investment Securities Gains 94,931 72,206 94,521 (102)
Service Fees 331,198 339,935 173,616 168,508
Other Operating Income 430,896 252,757 278,042 99,333
----------- ----------- ---------- ----------
Total Other Income 857,025 664,898 546,179 267,739
OTHER EXPENSES
Salaries and Employee Benefits 2,086,884 2,016,995 1,043,713 1,014,934
Occupancy Expense 385,307 399,544 184,270 198,870
Equipment and Supplies 497,574 481,832 260,642 259,490
Data Processing 274,114 253,017 136,445 125,914
FDIC Insurance 27,067 1,000 19,110 500
Advertising 82,607 97,330 57,590 70,408
Other Operating Expenses 1,218,125 777,683 708,596 403,672
----------- ----------- ---------- ----------
Total Other Expenses 4,571,678 4,027,401 2,410,366 2,073,788
Income Before Income Taxes 2,676,093 2,580,765 1,425,728 1,232,161
Provision for Income Taxes 839,000 750,569 441,080 356,330
----------- ----------- ---------- ----------
NET INCOME $ 1,837,093 $ 1,830,196 $ 984,648 $ 875,831
=========== =========== ========== ==========
NET INCOME PER COMMON SHARE $ 1.06 $ 1.06 $ 0.57 $ 0.51
=========== =========== ========== ==========
Common Dividends Declared and Paid Per Share $ 0.49 $ 0.37 $ 0.25 $ 0.19
=========== =========== ========== ==========
Weighted Average Shares Outstanding 1,729,558 1,722,419 1,729,886 1,721,605
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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NSD BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,837,093 $ 1,830,196
Adjustments to Net Income:
Provision for Loan Losses 330,000 300,000
Gains on Investment Securities (94,931) (72,206)
(Gain) Loss on Sale of Other Assets (11,036) 3,321
Gain on Loan Sales -- (14,614)
Gain on Sale of Land (167,000) --
Depreciation and Amortization 323,703 235,082
Net Premium Amortization and Discount
Accretion on Investment Securities 44,391 118,089
(Increase) Decrease in Accrued Interest Receivable (249,586) (149,923)
Increase in Accrued Interest Payable 248,752 352,456
Increase in Other Assets (912,256) (181,147)
Deferred Loan Fees, Net (11,790) (22,788)
Increase in Other Liabilities 544,709 28,829
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Net Cash Provided by Operating Activities 1,882,049 2,427,295
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investment Securities Available for Sale 7,993,975 5,836,668
Proceeds from Repayments and Maturities of Investment
Securities Available for Sale 4,335,948 9,043,751
Proceeds from Repayments and Maturities of Investment
Securities Held to Maturity 2,390,000 285,000
Purchases of Investment Securities Available for Sale (17,621,813) (23,417,970)
Proceeds from Sales of Other Real Estate Owned 185,259 --
Net Increase in Loans (18,557,518) (16,736,837)
Proceeds from Sales of Loans -- 1,475,996
Disposition (Aquisition) of Premises and Equipment, Net 369,462 (154,478)
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Net Cash Used by Investing Activities (20,904,687) (23,667,870)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand and Savings
Deposit Accounts 3,786,421 23,304,931
Net Increase (Decrease) in Certificates of Deposit 2,483,758 (1,688,497)
Net Increase in Repurchase Agreements 64,120 41,067
Proceeds from Short-Term Borrowings 7,299,000 960,000
Proceeds from Long-Term Borrowings -- 4,000,000
Repayments of Short-Term Borrowings (960,000) (2,000,000)
Cash Dividends Paid in Lieu of Fractional Shares (6,026) (4,617)
Cash Dividends Paid (839,163) (639,497)
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Net Cash Provided by Financing Activities 11,828,110 23,973,387
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Increase (Decrease) in Cash and Cash Equivalents (7,194,528) 2,732,812
Cash and Cash Equivalents at Beginning of Year 20,893,654 12,097,094
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Cash and Cash Equivalents at End of Period $ 13,699,126 $ 14,829,906
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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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. On May 27, 1997, the Corporation's Board of
Directors declared a 5% common stock dividend payable on June 30, 1997 to
shareholders of record on June 16, 1997. Earnings per share and dividends
per share have been restated to reflect this dividend. The effect of the
dividend increased shares outstanding by 81,656 shares and caused a transfer
of $2,123,056 from retained earnings to capital surplus.
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. 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
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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. Under
the provisions of SFAS No. 128, primary and fully diluted earnings per share
will be replaced with basic and diluted earnings per share amounts.
In February of 1997, the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure," effective for financial statement for
periods ending after December 15, 1997. This statement requires disclosure
of rights and privileges of various securities outstanding. The Corporation
will adopt the disclosure provisions of this statement for
December 31, 1997.
In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes net income and all
other changes in shareholders' equity except those resulting from
investments and distributions to owners. The Corporation is currently
evaluating the effect that implementation of this standard will have on its
results of operation and financial position.
7
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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 months
ended June 30, 1997, compared to the six months ended June 30, 1996.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1997, was $1,837,093, an increase
of $6,897 from $1,830,196 for the six months ended June 30, 1996. Net interest
income, net investment securities gains and other operating income increased
$477,478, $22,725 and $178,139, respectively, for the six months ended June 30,
1997. Also contributing to net income were declines in occupancy expense of
$14,237 and advertising expense of $14,273. These increases in income were
partially offset by increases in the provision for loan losses of $30,000 and
increases in salaries and employee benefits, equipment and supplies, data
processing, FDIC insurance and other operating expenses of $69,889, $15,742,
$21,097, $26,067 and $440,442 respectively, during the first six months of
1997. The Corporation's ROA for the first six months of 1997 was 1.21%
compared to 1.36% for the first six months of 1996. ROE for the first six
months of 1997 was 13.24% compared to 14.50% for the first six months of 1996.
Net income for the second quarter of 1997 was $984,648, an increase of $108,817
from $875,831 for the second quarter of 1996. This improvement in earnings is
primarily the result of increases of $281,705, $94,623 and $178,709,
respectively, in net interest income, net investment securities gains and other
operating income over the prior year's second quarter. Partially offsetting
these contributions to income during the three months ended June 30, 1997, were
increases in the provision for loan losses of $30,000, salaries and employee
benefits of $28,779, FDIC insurance of $18,610, other operating expenses of
$304,324 and the provision for income taxes of $84,750.
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 $1,196,856 during the six months ended June 30,
1997, as compared to the same period in 1996. This increase was due to a
significant increase in average earning assets of $34,519,448 offset by a
decrease in the yield on earning assets to 8.19% at June 30, 1997, from 8.39%
at June 30, 1996. Average loans increased $30,054,234 to $219,651,888 at June
30, 1997. The average yield on loans decreased to 8.65% at June 30, 1997,
compared to
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9.00% at June 30, 1996. Average investment securities increased $7,705,137
while the average yield increased from 6.77% at June 30, 1996 to 6.87% at June
30, 1997. Interest expense increased $719,378 during the first six months of
1997 as a result of an increase in total interest-bearing funds of $30,030,393
coupled with an increase in the average cost of funds from 4.27% at June 30,
1996, to 4.36% at June 30, 1997. Average interest bearing deposits increased
$26,218,030, mainly in the area of certificates of deposit and money market
accounts. Average borrowed funds increased $3,812,363 at June 30, 1997,
contributing an additional $96,599 in interest expense.
During the second quarter of 1997, interest income increased $642,440 as
compared to the second quarter of 1996. Contributing to the increase in
interest income was an increase in average earning assets of $33,933,926 offset
by a decline in the yield on earning assets from 8.32% during the second
quarter of 1996 to 8.18% during the second quarter of 1996. Average loans
increased $32,420,707, offset by a decline in the average yield to 8.66% during
the second quarter of 1997 compared to 8.92% during the second quarter of 1996.
Average investments increased $5,415,964 during the three months ended June 30,
1997, and the average yield declined slightly to 6.70% during the second
quarter of 1997 from 6.77% during the second quarter of 1996. Interest expense
increased $360,735 during the second quarter of 1997 as a result of an increase
in interest bearing funds of $27,935,015 coupled with an increase in the
average cost of funds from 4.26% during the second quarter of 1996 to 4.37%
during the second quarter of 1997. Average interest bearing deposits increased
$22,665,471 during the second quarter, mainly in certificate of deposit
accounts. Also increasing during the second quarter of 1997 were average
borrowed funds by $5,269,543 contributing an additional $76,053 to interest
expense.
The Corporation's net interest margin decreased from 5.11% and 5.04% for the
six and three months ended June 30, 1996, respectively, to 4.80% and 4.79% for
the six and three months ended June 30, 1997, 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 $330,000 for the six months
ended June 30, 1997, compared to $300,000 for the six months ended June 30,
1996. The Corporation's provision for loan losses was $180,000 for the second
quarter of 1997 compared to $150,000 for the second quarter of 1996. This
increase is largely related to an increase in the average loans outstanding
during the first six months of 1997. The Corporation had net charge-offs of
$161,694 during the first six months of 1997 compared to net charge-offs of
$415,379 during the first six months of 1996. This change is primarily the
result of a charge-off during the first six months of 1996 of commercial loans
related to one borrower.
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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,
1997 1996
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<S> <C> <C>
Reserve for Loan Losses at Beginning of Year $2,578,504 $2,676,362
Charge-Offs:
Commercial, Financial and Agricultural Loans -- 312,571
Real Estate Mortgage Loans 29,932 --
Installment Loans 158,413 132,041
Lease Financing 32,638 35,994
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Total Charge-Offs 220,983 480,606
Recoveries:
Commercial, Financial and Agricultural Loans 36,870 1,522
Real Estate Mortgage Loans 900 900
Installment Loans 21,519 62,805
Total Recoveries 59,289 65,227
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Net Charge-Offs 161,694 415,379
Provision for Loan Losses 330,000 300,000
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Reserve for Loan Losses at End of Period $2,746,810 $2,560,983
========== ==========
</TABLE>
OTHER INCOME
Other income increased $192,127 from $664,898 for the six months ended June 30,
1996, to $857,025 for the six months ended June 30, 1977. Net gains recognized
upon the sale of certain marketable equity securities available for sale
increased $22,725 during the first six months of 1997 compared to the same
period in 1996. Service fees declined to $331,198 for the first six months of
1997, from $339,935 for the first six months of 1996. Of this decrease, $5,036
and $2,484 was attributable to declines in savings account service charges and
account research fees, respectively. Other operating income increased $178,139
to $430,896 for the six months ended June 30, 1997. This increase is primarily
due to a $167,000 gain recognized upon the sale of
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land owned by the Bank during the second quarter of 1997. The property was sold
upon the exercise of a third party's option, expiring by the end of the second
quarter in 1997, to purchase the property. In addition, increases in checkbook
commission and MAC fees of $8,332 and $3,391, respectively, contributed to the
overall increase in other income for the six months ended June 30, 1997.
Other income increased $278,440 during the second quarter, from $267,739 in
1996 to $546,179 in 1997. An increase in net investment securities gains of
$94,521 for the three months ended June 30, 1997, compared to net losses of
$102 for the same period in 1996 contributed to the increase. In addition,
service fees increased $5,108 primarily due to improved NSF fee penetration.
Other operating income increased $178,709 for the three months ended June 30,
1997, compared to the same period in 1996. This increase is largely the result
of the $167,000 gain on the sale of land during the second quarter, as
previously discussed. Slight increases in several other income sources, none
of which individually is considered material, comprised the remainder of the
increase.
OTHER EXPENSES
Total other expenses for the first six months of 1997 increased $544,277 to
$4,571,678 from $4,027,401 for the first six months of 1996. Salaries and
employee benefits increased $69,889, which is attributable to normal salary and
benefit increases and additional staffing to support the growth of the
Corporation.
Occupancy expense decreased $14,237, primarily due to a $16,125 reduction in
building maintenance costs related to nonrecurring projects scheduled during
the first half of 1996. Also contributing to this decrease was a decline in
property taxes of $20,803 offset by an increase in rent expense of $25,385
related to the addition of the Bank's downtown branch office in December of
1996. Equipment and supplies expense increased $15,742 due to an increase in
depreciation expense of $16,987 related to replacement and upgrading of
existing equipment during the first six months of 1997. An increase in
equipment rental expense of $16,442 also contributed to the increase as the
Corporation replaced capitalized photocopy machines with leased equipment
during 1996. A reduction in equipment repairs of $20,418 due to nonrecurring
expenses recognized during the first six months of 1996, partially offset these
increases. Data processing expense increased $21,097 largely due to costs
incurred during conversion of acquired branch deposits and with the significant
increase in item volume processing resulting from deposit and loan account
growth. FDIC insurance expense increased $26,067 as the Federal Deposit
Insurance Corporation levied additional assessments on the deposits of all
banks insured by its Bank Insurance Fund and also due to premiums on acquired
SAIF insured deposits. Advertising expense decreased $14,723 to $82,607 from
$97,330 for the same period in 1996. Other operating expenses increased to
$1,218,125 for the first six months of 1997, up from $777,683. A significant
portion of this increase is attributable to $263,000 in unrecoverable charges
recognized from transactions with one of NorthSide Bank's merchant credit card
customers. Although additional losses may be incurred, it is anticipated that
any future charges,
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related to this customer, will not have a material effect on the Corporation's
financial results. Also contributing to the increase in other operating
expenses was an increase in deposit premium amortization expense of $71,634
related to deposits acquired from another financial institution in December,
1996. Asset recovery expense increased $22,917 as additional costs were
incurred in the process of resolving several individual workout situations
during the first half of 1997. In addition, increases in postage, telephone and
legal expenses of $13,369, $13,951 and $14,167, respectively, contributed to
the overall increase in other operating expenses for the six months ended June
30, 1997, compared to the same period in 1996.
Total other expenses increased $336,578 during the second quarter, from
$2,073,788 in 1996 to $2,410,366 in 1997. Salaries and employee benefits
increased due to normal salary and benefit increases and additional staffing to
support the growth of the Corporation. Occupancy expense decreased $14,600
largely due to a $15,667 reduction in building maintenance costs related
nonrecurring projects scheduled during the second quarter of 1996. Also, a
decrease in property tax expense of $7,429 was offset by an increase in rent
expense of $10,401 related to the operation of an additional branch office
opened in December of 1996. A $21,148 decrease in equipment repair expense
related to nonrecurring expenses incurred in the second quarter of 1996 was
offset by an increase in depreciation expense of $14,289 and equipment rent of
$8,356. Data processing expense increased to $136,445 during the three months
ended June 30, 1997, from $125,914 for the same period in 1996 in conjunction
with an increase in the volume of items processed resulting from deposit and
loan growth. FDIC insurance expense increased as the Federal Deposit Insurance
Corporation levied additional assessments on the deposits of all banks insured
by its Bank Insurance Fund and also due to assessments related to SAIF insured
deposits acquired in December of 1996. Advertising expense decreased $12,818 to
$57,590 for the second quarter of 1997, from $70,408 for the same period in
1996.
Other operating expenses increased to $708,596 during the three months ended
June 30, 1997, from $403,672 during the three months ended June 30, 1996. A
significant portion of this increase is due to $213,000 in unrecoverable
charges, as previously discussed, recognized during the second quarter of 1997,
from transactions with one of NorthSide Bank's merchant credit card customers.
An increase in deposit premium amortization expense of $31,650 was related to
the premium paid on deposits acquired in December of 1996. Also contributing to
the overall increase in other operating expense was an additional $10,656 in
legal expenses largely incurred in the process of pursuing a resolution to the
merchant credit transactions described above and other asset recovery matters.
INCOME TAXES
The Corporation recorded an income tax provision of $839,000 for the six months
ended June 30, 1997, compared to $750,569 for the six months ended June 30,
1996. This increase in the tax provision during the first six months of 1997 is
the result of a reduction in interest earned on tax free earning assets and an
increase in pre-tax earnings. The Corporation recorded an income tax provision
of $441,080 and $356,330 for the three months ended June 30, 1997, and 1996,
12
<PAGE> 13
respectively. This increase was also due to a reduction in tax-free interest
earned on assets offset by an increase in pre-tax earnings.
FINANCIAL CONDITION
The Corporation's total assets were $320,329,903 at June 30, 1997, an increase
of $15,528,049 from December 31, 1996. The purchase of securities available for
sale resulted in an increase of $5,733,655 at June 30, 1997. The maturity and
call of investment securities held to maturity resulted in a decline of
$2,435,817. Net loans increased $18,239,307, from $210,258,258 at December 31,
1996 to $228,497,565 at June 30, 1997. Cash and due from banks increased
1,205,472 and federal funds sold decreased $8,400,000 at June 30, 1997.
INVESTMENT SECURITIES
Investment securities available for sale increased $5,733,655. This is the
result of the purchase of $17,621,813 in securities offset by the sales,
maturities or calls of $12,329,923 in securities.
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED ---------------------------- FAIR
COST GAINS LOSSES VALUE
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 9,197,554 $ 19,936 $ 4,052 $ 9,213,438
Obligations of U.S. Government Agencies 24,490,581 94,707 129,476 24,455,812
Mortgage-Backed Securities 23,444,501 94,402 79,283 23,459,620
Obligations of State and Political 544,951 4,062 -- 549,013
Subdivisions
Marketable Equity Securities 1,508,737 2,215,585 -- 3,724,322
----------- ---------- -------- -----------
$59,186,324 $2,428,692 $212,811 $61,402,205
=========== ========== ======== ===========
</TABLE>
13
<PAGE> 14
<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>
JUNE 30, 1997
-------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED ---------------------------- FAIR
COST GAINS LOSSES VALUE
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Obligations of State and Political $6,686,722 $190,966 -- $6,877,688
Subdivisions
Corporate Bonds 250,000 -- -- 250,000
---------- -------- -------- ----------
$6,936,722 $190,966 -- $7,127,688
========== ======== ======== ==========
</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>
14
<PAGE> 15
LOANS
Loans available for sale increased to $3,046,121 at June 30, 1997, up from
$2,943,248 at December 31, 1996. At June 30, 1997, loans classified as
available for sale were comprised entirely of student loans. Loans, net of
deferred fees, increased to $229,402,587 at June 30, 1997. This increase was
primarily achieved through increased sales calling efforts in small business
and indirect automobile sectors during the first six months of 1997. Consumer
loans to individuals and commercial, financial and agricultural loans increased
$11,785,587 and $9,316,553, respectively, at June 30, 1997. Nonaccrual loans
increased to $1,319,640 at June 30, 1997, from $1,234,467 at December 31, 1996.
The composition of loans is shown in the following table:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, INCREASE
1997 1996 (DECREASE)
------------------------------------------------------------
<S> <C> <C> <C>
Consumer Loans to Individuals $ 91,893,432 $ 80,107,845 $11,785,587
Mortgage
Non-Residential 10,751,173 11,636,798 (885,625)
Residential 54,422,054 56,641,022 (2,218,968)
Commercial, Financial and Agricultural 57,542,275 48,225,722 9,316,553
Lines of Credit 5,623,989 5,433,560 190,429
Lease Financing 8,260,018 8,248,698 11,320
Nonaccrual Loans 1,319,640 1,234,467 85,173
------------ ------------ -----------
229,812,581 211,528,112 18,284,469
Deferred Fees (409,994) (421,784) 11,790
------------ ------------ -----------
$229,402,587 $211,106,328 $18,296,259
============ ============ ===========
</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, 1997, the Corporation's recorded investment in
loans for which impairment has been recognized in accordance with FASB
Statement No. 114 totaled $571,303 compared to $650,673 at December 31, 1996.
The corresponding reserve for loan losses was $113,298 at June 30, 1997,
compared to $154,194 at December 31, 1996. There were no loans considered
impaired that have been partially written down through charge-offs. The average
recorded investment in impaired loans was $631,824 during the first six months
of 1997. All loans considered impaired at June 30, 1997 were on nonaccrual
status, therefore, the Corporation did not recognize any interest on impaired
loans during the first six months of 1997. There was no interest income related
to impaired loans recognized on the cash basis during the six months ended June
30, 1997. There was no additional reserve required for impaired loans during
the first six months of 1997.
15
<PAGE> 16
NON-PERFORMING ASSETS
Non-performing assets decreased from $1,667,154 at December 31, 1996 to
$1,654,426 at June 30, 1997, due to an increase in nonaccrual loans of $85,173
and an increase in other assets held for sale of $91,948 offset by a decrease
in other real estate owned of $189,849.
The following table presents the composition of non-performing assets and past
due loans:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Nonaccrual Loans $1,319,640 $1,234,467
Other Real Estate Owned 182,133 371,982
Other Assets Held For Sale 152,653 60,705
---------- ----------
Total Non-Performing Assets 1,654,426 1,667,154
Loans Past Due 90 Days or More and Still
Accruing 1,093,577 615,466
---------- ----------
Total Non-Performing Assets and Past Due
Loans $2,748,003 $2,282,620
========== ==========
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at June 30, 1997 was $2,746,810 or 1.19% 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 six
months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Beginning Balance $2,578,504 $2,676,362
Provision 330,000 300,000
Net Charge-Off 161,694 415,379
---------- ----------
Ending Balance $2,746,810 $2,560,983
========== ==========
Loan Loss Reserve to Loans 1.19% 1.27%
</TABLE>
16
<PAGE> 17
LIABILITIES
Total liabilities were $291,754,411 at June 30, 1997, an increase of
$14,272,810 from $277,481,601 at December 31, 1996. The increase in total
liabilities was primarily the result of a $3,486,494 increase in non-interest
bearing deposits, a $2,898,462 increase in interest-bearing deposits and a
$6,403,120 increase in borrowings at June 30, 1997 compared to December 31,
1996.
DEPOSITS
Total deposits increased $6,384,956 from $260,986,805 at December 31, 1996 to
$267,371,761 at June 30, 1997. Specific product promotions during the first six
months of 1997, resulted in an increase in interest-bearing deposits and
non-interest-bearing deposits of $2,898,462 and $3,486,494, respectively.
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, INCREASE
1997 1996 (Decrease)
------------ ------------ -----------
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 53,827,578 $ 50,341,084 $ 3,486,494
Interest Bearing Demand Deposits 27,065,485 29,601,513 (2,536,028)
Savings Deposits 38,426,469 38,177,186 249,283
Money Market Deposit Accounts 52,583,494 50,280,413 2,303,081
Time Deposits > $100,000 11,964,978 11,230,900 734,078
Time Deposits < $100,000 83,503,757 81,355,709 2,148,048
------------ ------------ -----------
$267,371,761 $260,986,805 $ 6,384,956
============ ============ ===========
</TABLE>
REPURCHASE AGREEMENTS
Repurchase agreements increased from $1,911,184 at December 31, 1996 to
$1,975,304 at June 30, 1997. Securities sold under agreement to repurchase were
U.S. Treasury securities. Such agreements mature within 30 to 90 days.
BORROWED FUNDS
At June 30, 1997, the Corporation had outstanding borrowings of $15,899,000, of
which $1,299,000 were fed funds purchased. The remainder were borrowed by the
Corporation 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.
Of the $14,600,000 in advances, $13,600,000 will mature within 12 months.
17
<PAGE> 18
SHAREHOLDERS EQUITY
Consolidated shareholders' equity increased $1,255,239 from $27,320,253 at
December 31, 1996 to $28,575,492 at June 30, 1997. This increase is the result
of the retention of earnings offset by dividends paid to shareholders and a
increase 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 June 30, 1997 was 11.89% compared to 12.41% at December 31, 1996. The
Corporation's total risk-based capital ratio at June 30, 1997 was 13.13%
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 $1,882,049 during the first six
months of 1997 compared to $2,427,295 during the first six 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 $20,904,687 during the first six months
of 1997 compared to $23,667,870 during the first six months of 1996. The first
six months of 1997 provided cash by sales, repayments, and maturities of
investment securities and used cash by reinvesting in
18
<PAGE> 19
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 half 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 $11,828,110 during the first half of
1997 compared to $23,973,387 during the first half of 1996. During the first
six months of 1997, cash was provided by an increase in certificate of deposit
accounts and non-interest demand deposit accounts resulting from specific
product promotions. Cash was also provided by short term borrowings and
repurchase agreements and used by repayment of maturing short term borrowings
and cash dividends paid to shareholders. During the first six 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.
19
<PAGE> 20
PART II - OTHER INFORMATION
Items 1-3. Not applicable pursuant to the instructions to Part II.
Item 4. Submission of Matters for a Vote of Security Holders
An annual meeting of shareholders of the Corporation was held on April
22, 1997, for the purpose of (a) electing five directors, (b)
ratifying the appointment of Coopers & Lybrand, L.L.P., Certified
Public Accountants, as independent auditors and accountants for the
Corporation.
All five nominees were elected and the votes for and against/ withheld
were as follows:
<TABLE>
<CAPTION>
AGGREGATE VOTES
NOMINEE FOR AGAINST/WITHHELD
------- --- ----------------
<S> <C> <C>
William R. Baierl 1,347,808 815
Grant A. Colton, Jr. 1,347,273 1,350
L. R. Gaus 1,347,864 759
Polly B. Lechner 1,347,864 759
Arthur J. Rooney, II 1,322,669 25,954
</TABLE>
The appointment of Coopers & Lybrand, L.L.P., as independent auditors
and accountant was ratified with a vote of 1,346,940 for and 1683
against, withhold or abstaining.
With respect to the above matters, each holder of the Corporation's
common stock was entitled to one vote per share. The number of shares
of Common Stock outstanding and entitled to vote as of March 11, 1997,
the record date was 1,631,845.
Item 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.
20
<PAGE> 21
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.
21
<PAGE> 22
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 14, 1997 /s/ Lloyd G. Gibson
-----------------------------
Lloyd G. Gibson
President and Chief
Executive Officer
Dated: August 14, 1997 /s/ James P. Radick
-----------------------------
James P. Radick
Vice President, Treasurer
(Principal Financial and
Accounting Officer)
22
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 1997 SECOND
QUARTER INCORPORATE FINANCIAL REVIEW AND IS QUALIFIED IN ENTIRETY B REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,699,126
<INT-BEARING-DEPOSITS> 213,544,183
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,402,204
<INVESTMENTS-CARRYING> 6,936,722
<INVESTMENTS-MARKET> 9,563,505
<LOANS> 231,244,375
<ALLOWANCE> 2,746,810
<TOTAL-ASSETS> 320,329,903
<DEPOSITS> 267,371,761
<SHORT-TERM> 14,899,000
<LIABILITIES-OTHER> 6,508,346
<LONG-TERM> 1,000,000
0
0
<COMMON> 1,719,286
<OTHER-SE> 26,856,206
<TOTAL-LIABILITIES-AND-EQUITY> 320,329,903
<INTEREST-LOAN> 9,406,820
<INTEREST-INVEST> 2,128,550
<INTEREST-OTHER> 70,145
<INTEREST-TOTAL> 11,605,515
<INTEREST-DEPOSIT> 4,495,654
<INTEREST-EXPENSE> 4,884,770
<INTEREST-INCOME-NET> 6,720,746
<LOAN-LOSSES> 330,000
<SECURITIES-GAINS> 94,931
<EXPENSE-OTHER> 4,571,678
<INCOME-PRETAX> 2,676,093
<INCOME-PRE-EXTRAORDINARY> 1,837,093
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,837,093
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 4.80
<LOANS-NON> 1,319,640
<LOANS-PAST> 1,093,577
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,578,504
<CHARGE-OFFS> 220,983
<RECOVERIES> 59,289
<ALLOWANCE-CLOSE> 2,746,810
<ALLOWANCE-DOMESTIC> 2,746,810
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 393,000
</TABLE>
