<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, 1998
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, 1998 was:
Common Stock, $1.00 par value - 2,593,121 shares outstanding
<PAGE> 2
NSD BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 1998
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1998
and December 31, 1997 3
Consolidated Statement of Income - For the Three
Months Ended March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows - For the Three
Months Ended March 31, 1998 and 1997 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 19
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NSD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------------- -------------
<S> <C> <C>
Cash and Due From Banks $ 17,837,954 $ 13,638,396
Federal Funds Sold 12,000,000 2,000,000
Investment Securities Available for Sale (Amortized Cost of
$50,968,745 at March 31, 1998 and $55,290,512 at
December 31, 1997) 53,885,855 58,179,424
Investment Securities Held to Maturity (Market Value of $5,028,840
at March 31, 1998 and $5,459,499 at December 31, 1997 4,832,740 5,287,319
Loans Available for Sale 3,642,986 3,419,440
Loans, Net of Deferred Fees 228,549,941 233,039,784
Unearned Income (1,382,628) (1,290,389)
Reserve for Loan Losses (2,898,203) (2,914,329)
------------ ------------
Loans, Net 227,912,096 232,254,506
Premises and Equipment, Net 3,018,879 3,095,629
Accrued Interest Receivable 1,856,566 2,116,439
Other Real Estate Owned and Assets
Held for Sale 366,023 369,416
Other Assets 3,444,733 3,388,441
------------ ------------
TOTAL ASSETS $325,154,846 $320,329,570
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-Interest Bearing $ 50,935,207 $ 57,112,908
Interest Bearing 212,987,903 211,613,706
------------ ------------
Total Deposits 263,923,110 268,726,614
Borrowed Funds:
Short-Term Borrowings 6,000,000 6,000,000
Long-Term Borrowings 18,000,000 9,000,000
------------ ------------
Total Borrowed Funds 24,000,000 15,000,000
Accrued Interest Payable 4,583,873 4,783,086
Other Liabilities 1,692,726 1,480,299
------------ ------------
Total Liabilities 294,199,709 289,989,999
Common Stock $1 Par Value; Authorized 10,000,000
Shares, Issued and Outstanding 2,593,121 Shares at March
31, 1998 and 2,586,999 Shares at December 31, 1997 2,593,121 2,586,999
Capital Surplus 7,714,760 7,633,361
Net Unrealized Holding Gains on Investment Securities Available for Sale 1,925,294 1,906,683
Retained Earnings 18,721,962 18,212,528
------------ ------------
Total Shareholders' Equity 30,955,137 30,339,571
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $325,154,846 $320,329,570
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
NSD BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
NET INTEREST INCOME 1998 1997
---------- -----------
<S> <C> <C>
Loans, Including Fees $4,903,305 $ 4,534,367
Investment Securities:
Taxable 779,263 874,853
Tax-Exempt 77,243 140,794
Dividends 37,011 29,851
Interest Bearing Deposits 4,809 1,468
Federal Funds Sold 186,999 49,326
---------- -----------
Total Interest Income 5,988,630 5,630,659
---------- -----------
Interest on Deposits 2,220,693 2,221,284
Interest on Borrowed Funds:
Repurchase Agreements 0 23,786
Short-Term Borrowings 86,812 14,528
Long-Term Borrowings 215,744 120,231
---------- -----------
Total Interest Expense 2,523,249 2,379,829
---------- -----------
Net Interest Income 3,465,381 3,250,830
---------- -----------
Provision for Possible Loan Losses 195,000 150,000
---------- -----------
Net Interest Income After Provision for Possible Loan Losses 3,270,381 3,100,830
---------- -----------
OTHER INCOME
Net Investment Securities Gains 26,752 411
Service Fees 181,515 157,582
Other Operating Income 188,610 152,853
---------- -----------
Total Other Income 396,877 310,846
---------- -----------
OTHER EXPENSES
Salaries and Employee Benefits 1,092,485 1,043,171
Occupancy Expense 197,952 201,038
Equipment and Supplies 261,444 236,932
Data Processing 160,202 137,669
FDIC Insurance 9,450 7,956
Advertising 29,603 17,154
Other Operating Expenses 542,955 517,391
---------- -----------
Total Other Expenses 2,294,091 2,161,311
---------- -----------
Income Before Income Taxes 1,373,167 1,250,365
Provision for Income Taxes 422,900 397,920
---------- -----------
NET INCOME $ 950,267 $ 852,445
========== ===========
Other Comprehensive Income (net of tax) 18,611 (272,588)
---------- -----------
COMPREHENSIVE INCOME 968,878 579,857
========== ===========
NET INCOME PER COMMON SHARE - BASIC $0.37 $0.33
===== =====
NET INCOME PER COMMON SHARE - DILUTED $0.36 $0.33
===== =====
Common Dividends Declared and Paid Per Share $0.17 $0.16
===== =====
Weighted Average Shares Outstanding - Basic 2,593,121 2,578,789
========== ===========
Weighted Average Shares Outstanding - Diluted 2,637,874 2,594,136
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
NSD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 950,267 $ 852,445
Adjustments to Net Income:
Provision for Possible Loan Losses 195,000 150,000
Gains on Investment Securities (26,752) (411)
Gains on Sale of Other Assets (1,780) (1,757)
Depreciation and Amortization 159,520 162,158
Net Premium Amortization and Discount
Accretion on Investment Securities 27,124 21,772
Decrease (Increase) in Accrued Interest Receivable 261,299 (27,537)
(Decrease) Increase in Accrued Interest Payable (200,640) 250,937
Increase in Other Assets (108,794) (799,237)
Deferred Loan Fees, Net (12,439) (2,846)
Increase in Other Liabilities 165,967 482,718
----------- -----------
Net Cash Provided by Operating Activities 1,408,772 1,088,242
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investment Securities Available for Sale 4,532,988 5,581,197
Proceeds from Repayments and Maturities of Investment
Securities Available for Sale 13,389,238 557,431
Proceeds from Repayments and Maturities of Investment
Securities Held to Maturity 456,000 570,000
Purchases of Investment Securities Available for Sale (13,602,253) (8,235,736)
Proceeds from Sales of Other Real Estate Owned 49,001 70,783
Net Decrease (Increase) in Loans 4,116,022 (5,824,191)
Purchases of Premises and Equipment, Net (33,945) (55,248)
----------- -----------
Net Cash Provided (Used) by Investing Activities 8,907,051 (7,335,764)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Demand and Savings
Deposit Accounts (4,414,674) (2,052,201)
Net (Decrease) Increase in Certificates of Deposit (388,830) 4,132,041
Net Increase in Repurchase Agreements -- 36,549
Proceeds from the Exercise of Stock Options 128,072 --
Proceeds from Long-Term Borrowings 10,000,000 --
Repayments of Short-Term Borrowings (1,000,000) --
Cash Dividends Paid (440,833) (409,409)
----------- -----------
Net Cash Provided by Financing Activities 3,883,735 1,706,980
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 14,199,558 (4,540,542)
Cash and Cash Equivalents at Beginning of Year 15,638,396 20,893,654
----------- -----------
Cash and Cash Equivalents at End of Period $29,837,954 $16,353,112
=========== ===========
</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
Basic earnings per share are based on the weighted average number of
shares outstanding and common stock equivalents in each period. Diluted
earnings per share are based the sum of the weighted average shares
outstanding and the number of shares of common stock which would be
issued assuming the exercise of stock options during each period.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued. This standard redefines how
operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating
segments. The corporation is not required to disclose segment
information in accordance with this standard until its 1998 annual
report, at which time it will restate prior years' segment disclosures
to conform to the standard's segment presentation, if applicable. In
the first quarter 1999 report, and in subsequent quarters, the
corporation will present the interim disclosures required by SFAS No.
131 for both 1999 and 1998. The corporation has not completed its
analysis of which operating segments it will report, if any.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued
which requires businesses to disclose comprehensive income and its
components in their general-purpose financial statements. This standard
requires the reporting of all items of comprehensive income in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years
beginning after December 15, 1997, with reclassification of comparitive
financial statements and applicable to interim periods. The Corporation
has chosen to disclose comprehensive income in a separate income
statement, in which the components of comprehensive income are
displayed net of income taxes. The Corporation currently has one
component of other comprehensive income which includes unrealized gains
of losses
6
<PAGE> 7
on securities available for sale which is detailed as follows for the
three months ended March 31, 1998 and 1997:
Other Comprehensive Income:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
----------------------------------------- ----------------------------------------
Before-Tax Tax (Expense) Net-of-Tax Before-Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
------ ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
the period $28,198 $9,587 $18,611 ($413,012) ($140,424) ($272,588)
Less: reclassification
adjustment for gain
realized in net income 0 0 0 0 0 0
------- ------ ------- --------- --------- ---------
Net realized gains
(losses) 28,198 9,587 18,611 (413,012) (140,424) (272,588)
------- ------ ------- --------- --------- ---------
Other Comprehensive
Income $28,198 $9,587 $18,611 ($413,012) ($140,424) ($272,588)
======= ====== ======= ========= ========= =========
</TABLE>
Accumulated Other Comprehensive Income:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance January 1: $1,906,683 $1,199,083
Other Comprehensive Income, net 18,611 (272,588)
---------- ----------
Balance March 31: $1,925,294 $ 926,495
========== ==========
</TABLE>
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, 1998 compared to the three months ended March 31, 1997.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 was $950,267, an increase
of $97,822 from $852,445 for the three months ended March 31, 1997. This
increase is the result of increases in net interest income after provision for
possible loan losses of $169,551 and other operating income of $86,031, for the
first three months of 1998 versus the same period in 1997. Also contributing to
the overall increase was a slight decrease in occupancy expense of $3,086.
Offsetting this were increases in salaries and benefits, equipment and supplies,
data processing, FDIC insurance, advertising and other operating expenses of
$49,314, $24,512, $22,533, $1,494, $12,449 and $25,564 respectively. The
Corporation's annualized ROA for the first three months of 1998 was 1.22%
compared to 1.14% for the first three months of 1997. Annualized ROE for the
first three months of 1998 was 12.70% compared to 12.46% for the like period in
1997.
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 $357,971 during the three months ended March 31,
1998 as compared to the same period in 1997. This increase was due to an
increase in average earning assets of $21,669,791 offset by a decrease in the
yield on earning assets to 8.04% at March 31, 1998, from 8.18% at March 31,
1997. Average loans increased $18,636,103 to $231,788,258 at March 31, 1998. The
average yield on loans declined to 8.59% at March 31, 1998 compared to 8.64% at
March 31, 1997. Average investment securities decreased $6,736,999 while the
average yield decreased from 6.94% at March 31, 1997 to 6.50% at March 31, 1998.
Interest expense increased $143,420 during the first three months of 1998 as a
result of an increase in total interest bearing funds of $8,033,275 coupled with
a slight increase in the average cost of funds from 4.27% at March 31, 1997 to
4.37% at March 31, 1998. Average interest bearing deposits decreased $2,594,249,
consisting of a $5,935,262 decrease in time deposits and increases of $303,484
and $3,037,529 in savings deposits and money market and interest checking,
respectively. Average borrowed funds increased $10,627,524 at March 31, 1998
which contributed $144,011 to the overall increase.
8
<PAGE> 9
The Corporation's net interest margin decreased from 4.78% at March 31, 1997 to
4.69% at March 31, 1998, 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 $195,000 for the three months
ended March 31, 1998 compared to $150,000 for the three months ended March 31,
1997. The Corporation had net charge-offs of $211,126 and $71,841 for the first
three months of 1998 and 1997, 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,
1998 1997
---------- ----------
<S> <C> <C>
Reserve for Loan Losses at Beginning of Year $2,914,329 $2,578,504
Charge-Offs:
Commercial, Financial and Agricultural Loans 25,000 --
Real Estate Mortgage Loans -- 12,037
Installment Loans 167,871 70,875
Lease Financing 25,747 7,773
---------- ----------
Total Charge-Offs 218,618 90,685
Recoveries:
Commercial, Financial and Agricultural Loans -- 6,870
Real Estate Mortgage Loans -- 450
Installment Loans 7,492 11,524
Lease Financing -- --
---------- ----------
Total Recoveries 7,492 18,844
---------- ----------
Net Charge-Offs 211,126 71,841
Provision for Loan Losses 195,000 150,000
---------- ----------
Reserve for Loan Losses at End of Period $2,898,203 $2,656,663
========== ==========
</TABLE>
9
<PAGE> 10
OTHER INCOME
Other income increased $86,031 from $310,846 for the three months ended March
31, 1997 to $396,877 for the three months ended March 31, 1998. The sales of
certain investment securities available for sale and calls of certain investment
securities being held to maturity during the first three months of 1998 resulted
in net investment securities gains of $26,752 compared to $411 for the same
period in 1997. Service fees increased to $181,515 for the first three months of
1998, from $157,582 for the first three months of 1997. Of this increase,
$24,946 was attributed to increased net NSF charges and checking account fees
during the first three months of 1998. Other operating income increased $35,757.
This overall increase was mainly attributable to an increase in money order fees
of $10,833 and an increase in ATM surcharge fees of $16,421 during the first
quarter of 1998 versus the same period of 1997.
OTHER EXPENSES
Total other expenses for the first quarter of 1998 increased $132,780 to
$2,294,091 from $2,161,311 for the first quarter of 1997. Salaries and employee
benefits increased $49,314, reflecting normal salary and benefit increases,
additional staffing to support the growth of the Corporation and the payroll tax
effect of stock options exercised by employees. Occupancy expense decreased
$3,086, primarily due to scheduled building maintenance performed at several
branch locations in 1997 that did not occur in 1998. Equipment and supplies
expense increased $24,512 primarily due to an adjustment in property tax expense
which resulted in an increase of $24,506. Data processing expense increased
$22,533 largely due to the addition of an automated collection system during the
second half of 1997 and partially due to the increase in the number of accounts
and related per-account charges. FDIC insurance expense increased $1,494 based
on the growth in deposit balances during the past twelve months. Advertising
expense increased $12,449 to $29,603 from $17,154 for the first quarter of 1997
as a result of several promotions during the first quarter of 1998. Other
operating expenses increased to $542,955 for the first quarter of 1998, up from
$517,391. Increases in protection costs, audit expense, ATM network fees,
Federal Reserve service charges, ATM losses and various holding company-related
expenses of $16,048, $7,843, $11,664, $2,469, $10,710 and $21,782, respectively,
contributed to the overall increase. This increase was offset by a $50,000
decrease in losses which were recognized in 1997 related to transactions with
one of NorthSide Bank's merchant credit card customers.
INCOME TAXES
The Corporation recorded an income tax provision of $422,900, for the three
months ended March 31, 1998 compared to $397,920 for the three months ended
March 31, 1997. The effective tax rates for the first quarters of 1998 and 1997
were 30.8% and 31.8%, respectively. The decrease in effective tax rate is due
mainly to the exercise of stock options by employees which is considered
compensation for income tax purposes but is not reported as salary-related
expenses on the financial statements. This is offset slightly by a decrease in
tax-exempt income.
10
<PAGE> 11
FINANCIAL CONDITION
The Corporation's total assets were $325,154,846 at March 31, 1998, an increase
of $4,825,276 from December 31, 1997. The sales and calls of investment
securities available for sale and the maturities and calls of investment
securities held to maturity resulted in declines of $4,293,569 and $454,579,
respectively. Net loans decreased $4,342,410, from $232,254,506 at December 31,
1997 to $227,912,096 at March 31, 1998. Cash and due from banks and federal
funds sold increased $4,199,558 and $10,000,000, respectively, at March 31,
1998.
INVESTMENT SECURITIES
Investment securities available for sale decreased $4,293,569 during the first
quarter of 1998. Decreases of $4,195,532 in U.S. government agencies, $1,168,097
in mortgage backed securities and $498,608 in obligations of state and political
subdivisions were due to a few sales but primarily to a significant amount of
calls caused by the current rate environment. These decreases were offset
slightly by the purchase of $1,041,388 of trust preferred investments and the
increase in net unrealized gains. Investment securities held to maturity
decreased slightly during the first three months of 1998 due to calls or
maturities of certain investment securities.
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------------- FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 6,198,763 $ 34,315 $ -- $ 6,233,078
Obligations of U.S. Government Agencies 16,507,680 139,479 31,448 16,615,711
Mortgage-Backed Securities 25,328,322 176,830 126,932 25,378,220
Obligations of State and Political 49,957 84 -- 50,041
Subdivisions
Trust Preferred 1,041,388 -- -- 1,041,388
Marketable Equity Securities 1,842,635 2,724,782 -- 4,567,417
----------- ---------- ----------- -----------
$50,968,745 $3,075,490 $ 158,380 $53,885,855
=========== ========== =========== ===========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------------- FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 6,199,308 $ 30,403 $ 1,413 $ 6,228,298
Obligations of U.S. Government Agencies 20,657,983 174,423 21,163 20,811,243
Mortgage-Backed Securities 26,385,529 204,861 44,073 26,546,317
Obligations of State and Political 544,955 3,694 -- 548,649
Subdivisions
Marketable Equity Securities 1,502,737 2,542,180 -- 4,044,917
----------- ---------- ----------- -----------
$55,290,512 $2,955,561 $ 66,649 $58,179,424
=========== ========== =========== ===========
</TABLE>
A summary of investment securities held to maturity is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------------- FAIR
COST GAINS LOSSES VALUE
---------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of State and Political $4,582,740 $175,980 -- $4,758,720
Subdivisions
Corporate Bonds 250,000 $ 20,120 -- 270,120
---------- -------- ---------- ----------
$4,832,740 $196,100 -- $5,028,840
========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------
GROSS UNREALIZED HOLDING FAIR
AMORTIZED ----------------------------
COST GAINS LOSSES VALUE
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Obligations of State and Political $5,037,319 $172,180 -- $5,209,499
Subdivisions
Corporate Bonds 250,000 -- -- 250,000
---------- -------- ---------- ----------
$5,287,319 $172,180 -- $5,459,499
========== ======== ========== ==========
</TABLE>
12
<PAGE> 13
LOANS
Loans, net of deferred fees, decreased to $228,549,942 at March 31, 1998.
Decreases in nearly all types of loans during the first three months of 1998
were due to increasingly competitive markets. The most significant decline
occured in indirect automobile loans which can be attributed to an overall drop
in sales of automobiles to this point in 1998 versus 1997. Loans available for
sale increased slightly to $3,642,986 at March 31, 1998, from $3,419,440 at
December 31, 1997. This increase is attributable to origination of slightly more
student loans which are intended for sale in the secondary market in 1998.
The composition of loans is shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, INCREASE
1998 1997 (DECREASE)
------------- ------------- ----------
<S> <C> <C> <C>
Consumer Loans to Individuals $ 92,084,504 $ 95,357,873 $(3,273,369)
Mortgage
Non-Residential 29,638,805 29,385,042 253,763
Residential 54,464,549 55,125,240 (660,691)
Commercial, Financial and Agricultural 36,589,407 37,831,540 (1,242,133)
Lines of Credit 5,374,800 5,487,417 (112,617)
Lease Financing 9,433,261 8,900,409 532,852
Nonaccrual Loans 1,355,531 1,355,617 (86)
------------- ------------- -----------
228,940,857 233,443,138 (4,502,281)
Deferred Fees (390,915) (403,354) 12,439
------------- ------------- -----------
$ 228,549,942 $ 233,039,784 $(4,489,842)
============= ============= ===========
</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, 1998, the Corporation's recorded investment in
loans for which impairment has been recognized in accordance with SFAS No. 114
totaled $471,181, with a corresponding reserve for loan losses of $94,236. There
were no loans considered impaired that have been partially written down through
charge-offs. The average recorded investment in impaired loans was $471,181
during the first three months of 1998. All loans considered impaired at March
31, 1998 were on nonaccrual status, therefore, the Corporation did not recognize
any interest on impaired loans during the first three months of 1998. There was
no additional reserve required for impaired loans during the first three months
of 1998.
13
<PAGE> 14
NON-PERFORMING ASSETS
Non-performing assets increased from $2,820,685 at December 31, 1997 to
$2,844,798 at March 31, 1998, due to increases in other assets held for sale and
other real estate owned of $70,351 and $43,828, respectively, offset by a
decrease in loans past due 90 days or more and still accruing of $89,553.
The following table presents the composition of non-performing assets and past
due loans:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
Nonaccrual Loans $1,355,104 $1,355,617
Other Real Estate Owned 225,961 182,133
Other Assets Held For Sale 140,061 69,710
---------- ----------
Total Non-Performing Assets 1,721,126 1,607,460
Loans Past Due 90 Days or More and Still
Accruing 1,123,672 1,213,225
---------- ----------
Total Non-Performing Assets and Past Due
Loans $2,844,798 $2,820,685
========== ==========
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at March 31, 1998 was $2,898,203 or 1.25% of
total loans compared to $2,656,663 or 1.20% of total loans at March 31, 1997.
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, 1998 and 1997.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1998 1997
---------- ----------
<S> <C> <C>
Beginning Balance $2,914,329 $2,578,504
Provision 195,000 150,000
Net Charge-Offs 211,126 71,841
---------- ----------
Ending Balance $2,898,203 $2,656,663
========== ==========
Loan Loss Reserve to Loans 1.25% 1.20%
</TABLE>
14
<PAGE> 15
LIABILITIES
Total liabilities were $294,199,709 at March 31, 1998, an increase of $4,209,710
from $289,989,999 at December 31, 1997. The increase in total liabilities was
primarily the result of an increase in borrowed funds of $9,000,000 offset by a
decrease in total deposits of $4,803,504.
DEPOSITS
Total deposits decreased $4,803,504 from $268,726,614 at December 31, 1997 to
$263,923,110 at March 31, 1998. The overall decrease was primarily the result of
a decline of $6,177,701 in non-interest bearing demand deposits offset by
increases of $1,326,273 and $1,408,252 in money market and savings deposits,
respectively.
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, INCREASE
1998 1997 (DECREASE)
------------ ------------- ----------
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 50,935,207 $ 57,112,908 $(6,177,701)
Interest Bearing Demand Deposits 28,485,512 29,598,650 (1,113,138)
Savings Deposits 38,928,490 37,520,238 1,408,252
Money Market Deposit Accounts 53,538,321 52,212,048 1,326,273
Time Deposits--$100,000 12,723,581 12,246,082 477,499
(greater than)
Time Deposits--$100,000 79,311,999 80,036,688 (724,689)
(less than)
------------ ------------- -----------
$263,923,110 $ 268,726,614 $(4,803,504)
============= ============= ===========
</TABLE>
REPURCHASE AGREEMENTS
At March 31, 1998, the Corporation had no outstanding repurchase agreements.
BORROWED FUNDS
At March 31, 1998, the Corporation had outstanding borrowings of $24,000,000, of
which $6,000,000 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 $615,566 from $30,339,571 at
December 31, 1997 to $30,955,137 at March 31, 1998. This increase is the result
of the retention of earnings, the issuance of new shares of common stock for
exercise of employee/director stock options and an increase in net unrealized
holding gains on securities available for sale offset by dividends paid to
shareholders.
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, 1998 was 12.56% compared to 12.53% at December 31, 1997. The
Corporation's total risk-based capital ratio at March 31, 1998 was 13.81%
compared to 13.78% at December 31, 1997. Regulatory requirements for tier I and
total risk-based capital ratios are 4.00% and 8.00%, respectively.
MARKET RISK
The Corporation operates as a traditional commercial banking institution
investing in securities and loans with funding primarily provided by retail
deposits and wholesale borrowings. The primary source of revenue is the net
spread between interest earned on investments and the cost of related funding.
Inherent in this business is market risk or the risk of an adverse impact on
earnings from changes in market interest rates. Other types of market risks such
as foreign currency exchange rate risk and commodity price risk do not arise in
the normal course of the Corporation's business activities. 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. Management's objective is to provide an optimum return
while maintaining an appropriate mix of earning assets and funding sources
consistent with acceptable exposure to market risk. Ultimately, the Corporation
seeks to produce consistent profitability in all interest rate environments.
Simulation modeling enables management to quantify the extent of the
Corporation's interest rate exposure by forecasting how net interest income, and
consequently net income, varies under alternative interest rate scenarios based
on the Corporation's current position. At March 31, 1998, a simulation analysis
assuming a one-time 200 basis point increase in interest rates, results in a
negative impact of less than 1.5% or approximately $200,000 on projected net
interest income over a one-year period. Conversely, a 200 basis point decrease
in interest rates results in an increase in projected net interest income by
slightly more than 1.0% or approximately $160,000 over the same period. These
findings are the result of normal projected growth in interest earning assets
and interest related liability levels based on the Corporation's position at
March 31, 1998. The results reflect the impact of a relatively short repricing
or rate adjustment period of the Corporation's loan products and the effect of
investment security prepayments matched with the relative short term nature of
interest sensitive deposit and borrowing liabilities. In a rising rate
environment, the increased cost of funding would be offset by increases in
yields on prime rate, LIBOR and Treasury indexed loans and securities and the
repricing of significant cashflow in the consumer loan portfolio. In a declining
rate environment, the declining yield on
16
<PAGE> 17
loans and securities due to prepayments and index adjustments would be offset by
a shortening of deposit maturities and the repricing of a significant interest
bearing demand deposit portfolio. In any event, a sudden, substantial and
protracted shift in interest rates may adversely impact the Corporation's
earnings to the extent that the interest rates on interest earning assets and
interest earning liabilities change at varying frequencies and market forces may
limit the ability to appropriately respond to such changes.
Interest rate risk is also analyzed by comparing 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
asset 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.
Based upon historical trends, the Corporation has typically considered all
demand and savings deposits as core deposits and relatively non-rate sensitive.
Such analysis is prepared, as required, presenting interest bearing demand
deposits and savings deposits as repricing within the earliest period. As a
result, a negative, or liability sensitive, cumulative interest GAP position of
$63,431 is present in the first one-year GAP as of December 31, 1997. Results of
simulation modeling and historical experience indicate, however, that the
overall potential effect on net interest income should not have an adverse
result of future financial performance.
There have been no shifts in asset/liability composition or repricing
characteristics of individual portfolios which would materially affect the
results of the analysis performed as December 31, 1997. Therefore, such analysis
is regarded as a fair representation of the Corporation's market risk as of
March 31, 1998.
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,
17
<PAGE> 18
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 $1,408,772 during the first three
months of 1998 compared to $1,088,242 during the first three months of 1997. 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 provided net cash of $8,907,051 during the first three
months of 1998 compared to using net cash of $7,335,764 during the first three
months of 1997. Cash was provided through the sales, calls and maturities of
investment securities and the net decrease in loans and used by the purchase of
investment securities and premises and equipment during the first quarter of
1998. The first three months of 1997 provided cash by sales, repayments, and
maturities of investment securities and used cash by reinvesting in investment
securities available for sale. Cash was also used to fund the net increase in
loan volume and purchase of premises and equipment.
Financing activities provided net cash of $3,883,735 during the first quarter of
1998 compared to $1,706,980 during the first quarter of 1997. During the first
quarter of 1998, cash was provided by increased borrowings and used by matured
borrowings, a net decrease in deposits and dividends paid to shareholders.
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.
18
<PAGE> 19
PART II - OTHER INFORMATION
Items 1-5. Not applicable pursuant to the instructions to Part II.
Items 6. Exhibits and Reports on Forms 8-K.
(a) Exhibits
10.1 Employment agreement, dated July 1, 1993 between NSD
Bancorp, Inc. and Lloyd G. Gibson filed as Exhibit
10D to NSD Bancorp, Inc.'s 10K for the fiscal year
ended December 31, 1993 is incorporated herein by
reference.
10.2 NSD Bancorp, Inc. 1994 Stock Option Plan filed as
Exhibit 4.1 to NSD Bancorp, Inc.'s Form S-8 filed
April 27, 1994 is incorporated herein by reference.
10.3 NSD Bancorp, Inc. 1994 Non-Employee director Stock
Option Plan filed as Exhibit 4.1 to NSD Bancorp,
Inc.'s form S-8 filed April 27, 1994 is incorporated
herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K: On March 18, 1998, the Corporation filed
Form 8-K in order to serve notice of the change of independent
certified public accountants from Coopers & Lybrand, L.L.P. to
Deloitte & Touche, L.L.P, effective March 13, 1998.
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: May 13, 1998 /S/ LLOYD G. GIBSON
-------------------
Lloyd G. Gibson
President and Chief
Executive Officer
Dated: May 13, 1998 /S/ JAMES P. RADICK
-------------------
James P. Radick
Vice President, Treasurer
(Principal Financial and
Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 1997 FOURTH
QUARTER INCORPORATED FINANCIAL REVIEW AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,837,954
<INT-BEARING-DEPOSITS> 212,987,903
<FED-FUNDS-SOLD> 12,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,885,855
<INVESTMENTS-CARRYING> 4,832,740
<INVESTMENTS-MARKET> 5,028,840
<LOANS> 230,810,299
<ALLOWANCE> 2,898,203
<TOTAL-ASSETS> 325,154,846
<DEPOSITS> 263,923,110
<SHORT-TERM> 6,000,000
<LIABILITIES-OTHER> 6,276,597
<LONG-TERM> 18,000,000
0
0
<COMMON> 2,593,121
<OTHER-SE> 28,362,017
<TOTAL-LIABILITIES-AND-EQUITY> 325,154,845
<INTEREST-LOAN> 4,903,305
<INTEREST-INVEST> 893,517
<INTEREST-OTHER> 191,808
<INTEREST-TOTAL> 5,988,630
<INTEREST-DEPOSIT> 2,220,693
<INTEREST-EXPENSE> 2,523,249
<INTEREST-INCOME-NET> 3,465,381
<LOAN-LOSSES> 195,000
<SECURITIES-GAINS> 26,752
<EXPENSE-OTHER> 2,294,092
<INCOME-PRETAX> 1,373,167
<INCOME-PRE-EXTRAORDINARY> 950,267
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 950,267
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 4.78
<LOANS-NON> 1,355,531
<LOANS-PAST> 1,123,672
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (2,914,329)
<CHARGE-OFFS> 218,618
<RECOVERIES> 7,492
<ALLOWANCE-CLOSE> (2,898,203)
<ALLOWANCE-DOMESTIC> (2,898,203)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 445,000
</TABLE>
