<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1999
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 October
29, 1999 was:
Common Stock, $1.00 par value - 2,793,363 shares outstanding
<PAGE> 2
NSD BANCORP, INC.
FORM 10Q
For the Quarter Ended September 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets September 30, 1999
and December 31,1998 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30,1999 and 1998 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K 20
</TABLE>
2
<PAGE> 3
NSD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 14,635,031 $ 19,778,095
Federal Funds Sold -- 2,500,000
Investment Securities Available for Sale at Market Value (Amortized Cost of
$101,103,298 at September 30, 1999 and $90,125,932 at December 31, 1998) 99,966,734 92,789,341
Investment Securities Held to Maturity at Amortized Cost (Market Value of 0 at
September 30, 1999 and $3,621,208 at December 31, 1998) -- 3,437,580
Loans Held for Sale 418,251 3,995,483
Loans, Net of Deferred Fees 257,621,939 230,937,044
Unearned Income (1,633,263) (1,984,393)
Reserve for Loan Losses (3,050,337) (2,756,502)
- -----------------------------------------------------------------------------------------------------------------------------
Loans, Net 252,938,339 226,196,149
Premises and Equipment, Net 3,110,741 2,728,434
Accrued Interest Receivable 2,061,516 2,115,343
Other Real Estate Owned and Assets Held for Sale 204,007 306,620
Other Assets 4,761,294 3,320,947
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 378,095,913 $ 357,167,992
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest Bearing $ 57,800,426 $ 60,317,643
Interest Bearing 229,156,890 219,797,517
- -----------------------------------------------------------------------------------------------------------------------------
Total Deposits 286,957,316 280,115,160
Borrowed Funds:
Advances from Federal Home Loan Bank and Other Borrowings 54,103,900 33,000,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds 54,103,900 33,000,000
Accrued Interest Payable 4,656,698 4,977,580
Other Liabilities 1,769,815 6,680,887
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 347,487,729 324,773,627
Common Stock $1 Par Value; 10,000 shares authorized, 2,872,580 issued and
2,799,188 outstanding at September 30, 1999 and 2,864,589 issued and 2,845,051
outstanding at December 31, 1998 2,872,580 2,604,172
Treasury Stock at cost, 74,417 shares at September 30, 1999 and 17,762 shares
at December 31, 1998 (1,674,622) (457,950)
Capital Surplus 13,612,253 7,885,041
Accumulated Other Comprehensive Income (723,994) 1,757,851
Retained Earnings 16,521,967 20,605,251
- -----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 30,608,184 32,394,365
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 378,095,913 $ 357,167,992
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
NSD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 14,591,742 $ 14,700,794 $ 5,055,381 $ 4,875,896
Investment Securities
Taxable 4,371,553 2,537,669 1,457,087 924,335
Tax-Exempt 198,873 198,413 66,169 60,162
Dividends 169,747 114,385 62,425 39,454
Interest Bearing Deposits 34,651 14,675 23,893 7,317
Federal Funds Sold 20,107 584,497 1,724 219,559
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 19,386,673 18,150,433 6,666,679 6,126,723
INTEREST EXPENSE
Deposits 6,539,071 6,662,356 2,232,714 2,236,261
Federal Funds Purchased 105,171 -- 42,757 --
FHLB Advances and Other Borrowings 1,587,442 881,202 627,797 295,071
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 8,231,684 7,543,558 2,903,268 2,531,332
Net Interest Income 11,154,989 10,606,875 3,763,411 3,595,391
Provision for Loan Losses 630,000 585,000 210,000 195,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 10,524,989 10,021,875 3,553,411 3,400,391
OTHER INCOME
Net Investment Securities Gains 169,822 175,975 28,763 32,281
Service Fees 675,657 572,178 245,200 196,297
Other Operating Income 456,628 428,151 143,600 120,212
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Income 1,302,107 1,176,304 417,563 348,790
OTHER EXPENSES
Salaries and Employee Benefits 3,361,644 3,243,910 1,117,850 1,093,770
Occupancy Expense 610,857 608,661 198,281 207,556
Equipment and Supplies 817,037 761,984 284,956 255,657
Data Processing 534,750 461,545 182,034 157,142
FDIC Insurance 29,877 28,447 9,297 9,332
Advertising 106,272 111,224 26,413 31,276
Other Operating Expenses 1,504,361 1,578,041 505,652 484,873
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Expenses 6,964,798 6,793,812 2,324,483 2,239,606
Income Before Income Taxes 4,862,298 4,404,367 1,646,491 1,509,575
Provision for Income Taxes 1,612,750 1,405,450 541,850 486,000
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 3,249,548 2,998,917 1,104,641 1,023,575
===================================================================================================================================
Other Comprehensive Income, net of tax (2,507,982) (150,752) (498,468) (217,716)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Comprehensive Income $ 741,566 $ 2,848,165 $ 606,173 $ 805,859
NET INCOME PER COMMON SHARE (1)
Net Income - Basic $ 1.15 $ 1.05 $ .39 $ .36
Net Income - Diluted $ 1.14 $ 1.03 $ .39 $ .35
Common Dividends Declared and Paid Per Share $ .52 $ .46 $ .17 $ .15
Weighted Average Shares Outstanding - Basic 2,828,816 2,854,986 2,812,943 2,860,092
Weighted Average Shares Outstanding - Diluted 2,858,944 2,902,671 2,835,963 2,903,204
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
NSD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 3,249,548 $ 2,998,917
Adjustments to Net Income:
Provision for Loan Losses 630,000 585,000
Gain on Sale of Investment Securities Available for Sale (169,822) (175,975)
Gain on Loan Sales (37,468) --
Loss (Gain) on Sale of Other Assets 28,569 (6,373)
Loss on Disposition of Premises and Equipment 39,024 --
Depreciation and Amortization 472,856 473,144
Net Premium Amortization (Discount Accretion) 111,268 56,645
Decrease in Accrued Interest Receivable 53,827 207,349
Decrease in Accrued Interest Payable (320,882) (241,147)
(Increase) Decrease in Other Assets (300,259) 110,152
Deferred Loan Fees, Net 33,105 (45,843)
(Decrease) Increase in Other Liabilities (4,825,790) 438,986
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Operating Activities (1,036,024) 4,400,855
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Investment Securities Available for Sale 10,959,708 13,815,947
Proceeds from Repayments and Maturities of Investment Securities
Available for Sale 21,682,349 27,824,805
Proceeds from Repayments and Maturities of Investment Securities Held
to Maturity 1,172,588 1,527,000
Purchases of Investment Securities (41,262,080) (54,047,575)
Proceeds from Sales of Other Real Estate Owned 342,618 292,763
Net (Increase) Decrease in Loans (27,911,582) 9,859,783
Proceeds from the Sale of Loans 3,852,413 --
Dispositions (Purchases) of Premises and Equipment, Net (761,738) (59,851)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (31,925,724) (787,128)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Demand and Savings Accounts 2,770,863 (4,684,295)
Net Increase in Certificates of Deposit 4,071,293 496,421
Proceeds from Federal Home Loan Bank Advances and Other Borrowings 31,103,900 22,000,000
Repayment of Federal Home Loan Bank Advances and Other Borrowings (10,000,000) (11,000,000)
Proceeds from the Exercise of Common Stock Options 127,838 232,353
Cash Paid in Lieu of Fractional Shares (3,926) --
Treasury Stock Purchased (1,286,260) (11,400)
Cash Dividends Paid (1,465,025) (1,323,692)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 25,318,683 5,709,387
- -----------------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (7,643,065) 9,323,114
Cash and Cash Equivalents at Beginning of Year 22,278,095 15,638,396
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year 14,635,031 24,961,510
===================================================================================================================================
</TABLE>
See notes to 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 wholly owned subsidiary, NorthSide
Bank, a community bank operating ten branch offices located in Western
Pennsylvania, and NorthSide Bank's wholly owned subsidiary, 100 Federal Street,
Inc. Material intercompany accounts and transactions have been eliminated.
2. EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by the sum
of the weighted average number of shares of common stock outstanding during each
period. Diluted earnings per common share is calculated by dividing net income
by the sum of the weighted average number of shares of common stock 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 October 1998, Statement of Financial Accounting Standards (SFAS) No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" was issued which
establishes the accounting and reporting standards for enterprises involved in
the business of securitizing mortgage loans held for sale. This statement
requires that these instruments be classified as trading securities and reported
at fair value. The Corporation is not in the business of securitizing mortgage
loans and, therefore, will not implement this statement at this time.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is an analysis of NSD Bancorp, Inc.'s (the
"Corporation") financial condition and results of operations for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1999 was $3,249,548 an
increase of $250,631 from $2,998,917 for the nine months ended September 30,
1998. Contributing to the increase were increases in net interest income of
$548,114 and service fee and other income of $103,479 and $28,477, respectively,
and a decrease in other operating expense of $73,680. Offsetting these increases
to net income were increases in the provision for loan losses, salaries and
employee benefits, equipment and supplies, data processing and provision for
income taxes of $45,000, $117,734, $55,053, $73,205, $207,300, respectively, for
the nine months ended September 30, 1999 compared to the same period in 1998.
The Corporation's annualized return on average assets (ROA) for the first nine
months of 1999 was 1.19% compared to 1.24%. This decrease reflects the impact of
significant growth in average assets and compression in the net interest margin.
Annualized return on average equity (ROE) was 13.64% for the first nine months
of 1999 compared to 12.70% for the same period in 1998. This increase is largely
due to a lower equity-to-assets ratio resulting from significant growth in
average assets and, to a lesser extent, the repurchase of common shares into
treasury. Offsetting this increase was a decline in net interest margin.
Net income for the third quarter of 1999 was $1,104,641, an increase of $81,066
from $1,023,575 for the third quarter of 1998. Contributing to the overall
increase were increases in net interest income, service fee income, and other
operating income of $168,020, $48,903 and $23,388, respectively. Offsetting the
increases to net income were increases to the provision for loan losses,
salaries and employee benefits, equipment and supplies, data processing, other
operating expenses and provision for income taxes of $15,000, $24,080, $29,299,
$24,892, $20,779 and $55,850, respectively. ROA and ROE for the third quarter of
1999 was 1.15% and 13.96%, respectively, compared to 1.24% and 12.61% for same
period in 1998.
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 $1,165,051 during the nine months ended
September 30, 1999 as compared to the same period in 1998 as the result of a
$39,264,677 increase in average earning assets offset by a decline in the yield
on average earning assets to 7.53% at September 30, 1999 from 7.99% at September
30, 1998. The increase in average assets was comprised of increases in average
investment securities and loans of $41,861,812 and $11,122,368, respectively,
while average federal funds sold declined by $13,529,085 for the first nine
months of 1999 as compared to the same period in 1998.
7
<PAGE> 8
Total interest expense increased $688,126 during the nine months ended September
30, 1999 compared to the same period in 1998 as the result of a $35,329,495
increase in average interest bearing liabilities offset by a decline in the
average cost of such funds to 4.09% at September 30, 1999 from 4.31% at
September 30, 1998. The increase in average interest bearing liabilities was
comprised of increases in average interest bearing deposits, federal funds
purchased and FHLB advances of $12,624,205, $2,769,066 and $19,936,224,
respectively.
Total interest income increased $557,848 to $6,711,645 during the third quarter
of 1999 compared to the same period in 1998. This increase is the result of
growth in average earning assets of $48,562,552 offset by a decline in the yield
on total earning assets from 7.89% for the third quarter of 1998 to 7.44% for
the third quarter of 1999. Average loans increased, quarter over quarter, by
$26,702,491. The benefit of this increase was partially offset by a decrease in
the yield on average loans to 8.00% during 1999's third quarter compared to
8.61% for the same period in 1998. An increase in average investment securities
outstanding of $35,973,114 in conjunction with an increase in average yield
during the quarter to 6.15% from 6.10% for the third quarter of 1998,
contributed significantly to the overall increase in interest income.
Interest expense increased $371,936 during the third quarter of 1999 compared to
the third quarter of 1998 largely due to a $47,866,425 increase in interest
bearing liabilities. The increase was somewhat mitigated by a decline in the
average total cost of funds from 4.29% for the third quarter of 1998 to 4.08%
for third quarter of 1999. Average interest bearing deposits increased
$18,752,412 while the cost of total average interest bearing deposits declined
to 3.84% in the third quarter of 1999 from 4.19% for the same period in 1998.
The increase in average interest bearing deposits consisted of $1,737,865,
$12,200,243 and $4,814,304 increases in saving, money market and interest
checking, and certificate of deposit accounts, respectively. Average borrowed
funds increased $6,643,064 for the third quarter of 1999 compared to the third
quarter of 1998.
The Corporation's year-to-date net interest margin decreased from 4.71% as of
September 30, 1998 to 4.36% as of September 30, 1999, due to a decrease in the
average yield on earning assets partially offset by a decrease in the average
cost of funds paid on interest bearing liabilities. The Corporation's 1999 third
quarter net interest margin of 4.22% reflects a decline from 4.65% for the same
period in 1998. This decline was the result of earning asset yield compression
partially offset by a lower average cost for interest bearing liabilities.
PROVISIONS FOR LOAN LOSSES
The Corporation's provision for loan losses was $630,000 and $210,000 for the
nine and three month periods ended September 30, 1999, respectively, compared to
$585,000 and $195,000, respectively, for the same periods in 1998. The
Corporation had net charge-offs of $336,165 and $802,906 for the first nine
months of 1999 and 1998, respectively. The decrease in net charge-offs was
largely due to commercial loans charged-off related to one borrower during the
second quarter of 1998. The charged-off loans related to this borrower had been
anticipated by management and, therefore, had been placed on nonaccrual status
with an appropriate reserve allocation.
8
<PAGE> 9
The Corporation's net charge-off by loan type in the reserve for loan losses
were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve for Loan Losses at Beginning of Year $2,756,502 $2,914,329
Charge-offs:
Commercial, Financial, and Agricultural Loans 66,560 398,681
Real Estate Mortgage Loans 7,837 --
Installment Loans 283,664 398,960
Lease Financing 19,963 36,309
- ---------------------------------------------------------------------------------------------------------------------------
Total Charge-offs 378,024 833,950
Recoveries:
Commercial, Financial, and Agricultural Loans -- --
Real Estate Mortgage Loans -- --
Installment Loans 40,259 29,844
Lease Financing 1,600 1,200
- ---------------------------------------------------------------------------------------------------------------------------
Total Recoveries 41,859 31,044
- ---------------------------------------------------------------------------------------------------------------------------
Net Charge-offs 336,165 802,906
Provisions for Loan Losses 630,000 585,000
- ---------------------------------------------------------------------------------------------------------------------------
Reserve for Loan Losses at End of Year $3,050,337 $2,696,423
===========================================================================================================================
</TABLE>
OTHER INCOME
Other income increased $125,803 to $1,302,107 for the nine months ended
September 30, 1999 from $1,176,304 for the nine months ended September 30, 1998.
Sales of investment securities available for sale during the first nine months
of 1999 resulted in net gains of $169,822 compared to $175,975 for the same
period in 1998. Service fees increased $103,479 to $675,657 for the first nine
months of 1999, from $572,178 for the same period in 1998. Of this increase,
$102,557 was attributed to increased net NSF charges and checking account fees
during the first nine months of 1999. Other operating income increased to
$456,628 for the nine months ended September 30, 1999. A gain recognized on the
sale of land of $100,814 and increases in ATM surcharge and other operating
income of $89,700 and $25,559, respectively, were offset by a $140,000 writedown
in fixed assets in connection with installation of a new computer network and
branch teller/platform system and a $33,633 loss recognized due to an appraised
value modification related to one property held as Other Real Estate Owned. Also
contributing to the overall increase was a $37,468 gain recognized upon the sale
of student loans during the third quarter of 1999. Checkbook commission income
declined during the first nine months of 1999 by $19,050.
Other income increased $68,773 during the third quarter of 1999 to $417,563 from
$348,790 for third quarter of 1998. The sale of investment securities resulted
in net gains of $28,763 for the three months ended September 30, 1999 compared
to $32,281 for the same period a year ago. Service fees increased $48,903 to
$245,200 for the third quarter of 1999 due to increased net NSF charges and
checking fees of $37,329 and $13,308, respectively. Other operating income
increased over the prior year's third quarter by $23,388. Contributing to this
improvement was a $37,468 gain recognized upon the sale of student loans during
the third quarter of 1999 and an increase in ATM surcharge income of $32,998.
Offsetting these increases was a $40,000 writedown of fixed assets rendered
obsolete due to Year 2000 related computer system upgrades.
9
<PAGE> 10
OTHER EXPENSES
Total other expenses for the first nine months of 1999 increased $170,986 to
$6,964,798 from $6,793,812 for the same period in 1998. Salaries and employee
benefits increased $117,734, reflecting normal salary and benefit increases and
additional staffing to support the growth of the Corporation. Occupancy expense
increased $2,196 as rent expense increased by $8,443 due to the escalation of
certain contractual lease payments and $17,769 and $7,791 increases in building
maintenance and insurance expenses, respectively. Offsetting these increases was
a $38,198 reduction in property taxes. Equipment and supplies expense increased
$55,053 primarily due to increases in office and stationery and supply expenses
of $27,208 and $14,371, respectively, and additional depreciation of $14,282
related to newly installed computer network equipment. Data processing expense
increased $73,205 primarily due to increases in ATM network charges and home
banking system costs and additional core processing vendor charges associated
with the Bank's new contract and system installations. Advertising expense
decreased slightly to $106,272 compared to $111,224 for the same period in 1998.
Contributing to the $73,680 decrease in other operating expenses were decreases
in protection, asset recovery, promotions, financial services, director's fees,
general loss, teller and ATM over/short of $28,788, $52,029, $11,888, $21,602,
$11,009, $22,557, $37,670 and $11,949, respectively, offset by increases in
postage, telephone, legal, PA shares tax of $17,097, $39,230, $10,622, and
$19,054, respectively.
Total other expenses for the third quarter of 1999 increased $84,877 to
$2,324,483 from $2,239,606 for the same period in 1998. Salaries and employee
benefits increased $24,080 reflecting normal salary and benefit increases,
addition incentive compensation accruals and increased medical insurance costs
to the Corporation. Occupancy expense decreased $9,275 due to a reduction in
property taxes of $16,883 partially offset by a $6,316 increase in building
maintenance. Equipment and supplies expense increased $29,299 largely due to a
stationery and supply expense increase of $6,781 and additional depreciation of
$14,282 related to newly installed computer network equipment. Data processing
expense increased $24,892, $18,286 of which is attributable to ATM network
charges and home banking system costs Advertising expense also decreased $4,863.
Contributing to the $20,779 increase in other operating expenses were increases
in telephone, legal, promotions, state taxes, and correspondent bank service
charges of $23,242, $9,017, $22,911, $12,100 and $9,422, respectively, offset by
decreases in asset recovery expenses and general losses of $36,600 and $16,644,
respectively.
In 1997, the Corporation initiated the process of analyzing its information
systems and vendor supplied application systems to address any year 2000 issues
relating to its business or operations. The process involved internal testing or
obtaining certification of compliance then, if necessary, modifying or replacing
certain hardware and software systems maintained by the Corporation as well as
those provided by outside vendors. All systems and applications are
substantially compliant or near completion of any necessary remedial actions as
of September 30, 1999. Failure of third parties or the Corporation to adequately
resolve year 2000 issues could cause a disruption of operations resulting in
additional unanticipated operating costs. Credit quality could be affected to
the extent customers' financial positions are weakened as a result of year 2000
issues.
It was previously estimated that the total cumulative cost of this process would
approximate $750,000 including costs associated with modifying systems as well
as the cost of purchasing or leasing certain hardware and software. Cumulative
actual expenditures related to Year 2000 necessitated system and operational
modifications totaled $856,889 as of September 30, 1999. Purchased hardware and
software will be capitalized in accordance with normal policy. Personnel and all
other costs related to this process are being expensed as incurred.
10
<PAGE> 11
INCOME TAXES
The Corporation recorded an income tax provision of $1,612,750 for the nine
months ended September 30, 1999 compared to $1,405,450 for the nine months ended
September 30, 1998. The increase in tax provision was primarily the result of
higher pre-tax earnings. The effective tax rates for the first nine months of
1999 and 1998 were 33.2% and 31.9%, respectively. The increase in effective tax
rate is due mainly to the decrease in income earned on tax-exempt earning
assets.
The Corporation recorded an income tax provision of $541,850 for the three
months ended September 30, 1999 compared to $486,000 for the three months ended
September 30, 1998. The increase in tax expense was primarily the result of
higher pre-tax earnings. The effective tax rates for the third quarters of 1999
and 1998 were 32.9% and 32.2%, respectively. The increase in effective tax rate
is due mainly to the decrease in income earned on tax-exempt earning assets.
FINANCIAL CONDITION
The Corporation's total assets increased $20,927,921 from $357,167,992 at
December 31, 1998 to $378,095,913 at September 30, 1999. Securities available
for sale increased $7,177,393 while securities held to maturity decreased
$3,437,580. Loans available for sale decreased to $418,251 at September 30, 1999
from $3,995,483 at December 31, 1998. Loans available for sale at September 30,
1999 and December 31, 1998 were entirely comprised of student loans. Net loans
increased from $226,196,149 at December 31, 1998 to $252,938,339 at September
30, 1999.
INVESTMENT SECURITIES
Investment securities available for sale increased $7,177,393 during the first
nine months of 1999. Increases in U.S. Government agencies, mortgage-backed
securities and marketable equity securities of $4,334,990, $949,678 and
$553,156, respectively, were due to normal purchasing activity net of any sales,
calls, maturities and changes in unrealized gains classes. Obligations of state
and political subdivisions available for sale increased $2,739,520 largely due
to the reclassification of all such securities, which were previously classified
as held to maturity, as available for sale. During the third quarter of 1999,
all securities classified as held to maturity were transferred to the available
for sale category as part of a strategy designed to increase the Corporation's
liquidity position in a market that was favorable to the disposal of such
assets. It is the Corporation's policy to classify all future purchases of like
securities as available for sale. The Corporation experienced a significant
change in net, unrealized gains (losses) on fixed income securities principally
due to a dramatic shift in market pricing during the second quarter of 1999 that
continues to impact portfolio valuations. Although such investment securities
are categorized as available for sale, the portfolio is managed based on yield
and cashflow. Management considers this change in fair value to be temporary in
nature posing minimal impact to future profitability. Investment securities held
to maturity decreased 3,437,580 due to normal maturity and call activity and
also due to the transfer of all remaining securities to the available for sale
category. As a member of the Federal Home Loan Bank (FHLB), the Corporation is
required to maintain a minimum investment in FHLB stock which is calculated
based on the level of assets, residential real estate loans and outstanding FHLB
advances. Marketable equity securities increased $553,156 during the first nine
months of 1999 which was due almost entirely to an increase in the level of FHLB
stock.
11
<PAGE> 12
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -----------------------------
COST GAINS LOSSES FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 3,726,315 $ 2,800 $ -- $ 3,729,115
Obligations of U.S. Government Agencies 31,619,413 -- 1,038,399 30,581,014
Mortgage-backed Securities 51,898,732 9,336 1,967,715 49,940,353
Obligations of State and Political Subdivisions 3,467,912 2,549 167,831 3,302,630
Other Bonds 7,110,962 -- 293,272 6,817,690
Marketable Equity Securities 3,279,964 2,315,968 -- 5,595,932
- ------------------------------------------------------------------------------------------------------------------------------
$101,103,298 $2,330,653 $3,467,217 $99,966,734
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -----------------------------
COST GAINS LOSSES FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 5,225,749 $ 30,280 $ 2,823 $ 5,253,206
Obligations of U.S. Government Agencies 26,187,451 92,554 33,981 26,246,024
Mortgage-backed Securities 49,140,324 170,208 319,857 48,990,675
Obligations of State and Political Subdivisions 553,529 9,581 -- 563,110
Other Bonds 6,802,815 14,724 123,989 6,693,550
Marketable Equity Securities 2,216,064 2,826,712 -- 5,042,776
- ------------------------------------------------------------------------------------------------------------------------------
$ 90,125,932 $3,144,059 $ 480,650 $92,789,341
==============================================================================================================================
</TABLE>
A summary of investment securities held to maturity is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -----------------------------
COST GAINS LOSSES FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of State and Political Subdivisions $ -- $ -- $ -- $ --
Other Bonds -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ --
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -----------------------------
COST GAINS LOSSES FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of State and Political Subdivisions $ 3,187,580 $ 162,355 $ -- $ 3,349,935
Other Bonds 250,000 21,273 -- 271,273
- ------------------------------------------------------------------------------------------------------------------------------
$ 3,437,580 $ 183,628 $ -- $ 3,621,208
==============================================================================================================================
</TABLE>
12
<PAGE> 13
LOANS
Loans, net of deferred fees, increased to $257,621,939 at September 30, 1999
from $230,937,044 at December 31, 1998. Commercial loan development efforts
resulted in an increase of $15,640,235 in nonresidential mortgages while
commercial, financial and agricultural loans also increased by $1,004,054.
Increased production of indirect automobile loans offset by the sale of
$3,746,811 of student loans was the primary reason for a $16,102,294 increase in
consumer loans to individuals. These increases were offset by a $5,143,521
decline in residential mortgages due largely to increased market competition and
to decreases in lease financing and lines of credit of $456,085 and 471,889,
respectively.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, INCREASE
1999 1998 (DECREASE)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Loans to Individuals $ 108,102,558 $ 92,000,264 $ 16,102,294
Mortgage:
Nonresidential 43,701,102 28,060,867 15,640,235
Residential 47,551,765 52,695,286 (5,143,521)
Commercial, Financial and Agricultural 41,449,103 40,445,049 1,004,054
Lines of Credit 4,904,959 5,376,848 (471,889)
Lease Financing 11,454,669 11,910,754 (456,085)
Nonaccrual Loans 828,272 785,360 42,912
- -----------------------------------------------------------------------------------------------------------------------------
Total Loans 257,992,428 231,274,428 26,718,000
Deferred Fees (370,489) (337,384) (33,105)
- -----------------------------------------------------------------------------------------------------------------------------
Loans, Net of Deferred Fees $ 257,621,939 $ 230,937,044 $ 26,684,895
=============================================================================================================================
</TABLE>
A loan is considered impaired when based upon current information and events, it
is probable that the Corporation will be unable to collect all amounts due for
principal and interest according to the contracted terms of the loan agreement.
At September 30, 1999, the Corporation had no recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114. There were
no loans considered impaired that have been partially written down through
charge-offs. The average recorded investment in impaired loans was $0 for the
first nine months of 1999. Therefore, no interest was recognized on impaired
loans and no additional reserve was required for impaired loans during the first
nine months of 1999.
NON-PERFORMING ASSETS
Non-performing assets decreased from $1,905,658 at December 31, 1998 to
$1,801,890 at September 30, 1999 due to declines in other real estate owned,
other assets held for sale and loans 90 days past due and still accruing of
$75,637, $26,977 and $44,066, respectively, offset by a $42,912 increase in
nonaccrual loans.
The current quality of the loan portfolio can be demonstrated by the following
table which details total non-performing loans and past due loans:
13
<PAGE> 14
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual Loans $ 828,272 $ 785,360
Other Real Estate Owned 115,915 191,552
Other Assets Held for Sale 88,092 115,069
- -----------------------------------------------------------------------------------------------------
Total Non-Performing Assets 1,032,279 1,091,981
Loans 90 Days Past Due and Still Accruing 769,611 813,677
- -----------------------------------------------------------------------------------------------------
Total Non-Performing Assets and Past Due Loans $ 1,801,890 $ 1,905,658
=====================================================================================================
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at September 30, 1999 was $3,050,337 or
1.19% of total loans compared to $2,696,423 or 1.20% of total loans at September
30, 1998. Management anticipates that the reserve for loan losses is adequate to
absorb reasonably foreseeable losses on loans.
The following is a summary of activity in the reserve for loan losses:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance $ 2,756,502 $ 2,914,329
Provision 630,000 585,000
Net Charge-offs 336,165 802,906
- -------------------------------------------------------------------------------------------------------
Ending Balance $ 3,050,337 $ 2,696,423
=======================================================================================================
Reserve for Loan Losses to Total Loans 1.19% 1.20%
=======================================================================================================
</TABLE>
The Corporation establishes specific reserves for potential problem loans as
determined by its loan review program described above. The specific reserves on
these loans are determined in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" taking into account the credit's current operating
status, pledged collateral and plans of action for resolving any deficiencies.
The specific reserves are usually only considered for the Corporation's
commercial loan portfolio.
The Corporation maintains formula reserves for all loans not considered by the
specific reserve method. Formula reserves are calculated for each pool of
homogeneous loans based on a loan's risk rating, delinquency status and the
historical charge-off experience pertaining to each loan type. The loss factors
used in calculating formula reserves for substandard, doubtful and loss credits
are based upon management's judgment of inherent losses from these
classifications of loans. Formula reserves, relative to loan delinquency status,
are based on the type of loan and delinquency aging and are determined by
management's judgment of inherent losses from these delinquency categories. The
Corporation also establishes formula reserves for all loan types based on the
historical charge-off percentages for each homogeneous pool of loans. The
historical charge-off percentage used by the Corporation is based on the two
year cumulative losses for each homogeneous loan pool.
These formula reserves are based on the Corporation's historical charge-off
experience. If current charge-off levels deviate from the Corporation's
historical charge-off levels, the deviation will be reflected in the
Corporation's ongoing formula reserves and will adjust the allowance for loan
losses accordingly.
14
<PAGE> 15
The Corporation maintains an unallocated reserve, which takes the following
factors into consideration:
o Concentrations of credit
o Delinquency and nonaccrual trends
o Local and national economic conditions
o Changes in lending and collection practices
o Trends in volume and terms of loans
o Other external factors that could affect the ability of the
Corporation's customers to repay their obligations.
Management regularly reviews these conditions to determine if any of these
conditions is evidenced by a specifically identified problem credit or portfolio
segment. Management's estimate of this condition may be reflected as a specific
allowance applicable to this credit or portfolio segment. Where any of these
conditions is not evidenced by a specifically identifiable problem credit or
portfolio segment as of the evaluation date, management's evaluation of the
potential risk concerning this condition is reflected in the unallocated
allowance.
The composition of the Corporation's allowance for loan losses was as follows at
September 30, 1999, and 1998 (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1999 1998
----------------- -------------------
<S> <C> <C>
Specific reserves $ 617,600 $ 378,200
Formula reserves 1,980,591 1,764,278
Unallocated reserves 452,146 553,945
---------- ----------
Total $3,050,337 $2,696,423
---------- ----------
</TABLE>
Specific reserves increased $239,400 from September 30, 1998 to September 30,
1999 primarily due to an increase in classified loans relating to three
commercial loan customers. Management believes that current reserves
appropriately reflect the level of risk and potential loss of these credits. The
reserve amount specified for these credits may change in the event that there is
evidence of an improvement or further deterioration in the customer's ability to
satisfy contractual requirements.
The formula reserve portion of the allowance for loan losses increased $216,313
principally due to a significant increase in total commercial and installment
loans outstanding offset by a decline in residential mortgage loan portfolio
outstanding.
The unallocated reserve portion of the allowance for loan losses decreased
$101,799 reflecting an overall improvement in loan delinquencies and positive
current local and national economic trends. Also contributing to this decrease
has been an improvement in the Corporation's collection practices and specific
changes in lending practices.
LIABILITIES
Total liabilities were $347,487,729 at September 30, 1999, an increase of
$22,714,102 from December 31, 1998. An increase in total borrowed funds of
$21,103,900 and total deposits of $6,842,156, offset decreases in other
liabilities and accrued interest payable of $4,911,072 and $320,882,
respectively. The increase in borrowed funds was used to fund loan growth and to
increase the investment portfolio as part of an overall leverage strategy.
15
<PAGE> 16
DEPOSITS
Total deposits increased $6,842,156 from $280,115,160 at December 31, 1998 to
$286,957,316 at September 30, 1999. Contributing to the overall increase were
increases in savings, money market deposits, time deposits and time deposits
over $100,000 of $226,736, $8,953,586, $1,164,694 and $2,906,599, respectively.
These increases were offset by decreases in non-interest bearing demand deposits
and interest bearing demand deposits of $2,517,217 and $3,892,242, respectively.
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, INCREASE
1999 1998 (DECREASE)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-interest Bearing Demand $ 57,800,426 $ 60,317,643 $(2,517,217)
Interest Bearing Demand 27,807,747 31,699,989 (3,892,242)
Savings 37,933,266 37,706,530 226,736
Money Market Account 65,569,482 56,615,896 8,953,586
Time Deposits equal to or more than $100,000 15,304,017 14,139,323 1,164,694
Time Deposits less than $100,000 82,542,378 79,635,779 2,906,599
- ----------------------------------------------------------------------------------------------------------
Total Deposits $286,957,316 $280,115,160 $ 6,842,156
==========================================================================================================
</TABLE>
TOTAL BORROWED FUNDS
At September 30, 1999, the Corporation had total borrowed funds of $54,103,900,
$5,103,900 of which will mature within the next 12 months. The Corporation
borrowed these funds to provide liquidity for specific asset-liability
management strategies. At September 30, 1999, total borrowed funds was comprised
of advances from the Federal Home Loan Bank which are collateralized by
qualifying securities and loans and are subject to restrictions or penalties
related to prepayments of $49,000,000.
SHAREHOLDER'S EQUITY
Consolidated shareholders' equity decreased $1,786,181 from $32,394,365 at
December 31, 1998 to $30,608,184 at September 30, 1999. This decrease was the
result of the retention of earnings offset by the purchase of treasury stock,
payment of cash dividends to shareholders and a decline in accumulated other
comprehensive income which is comprised entirely of unrealized holding
gains/losses on investment securities.
The Corporation continues to maintain a strong capital position. Risk-based
capital ratios exceed current regulatory requirements. The Corporation's Tier I
risk-based capital ratio at September 30, 1999 was 11.52% compared to 12.36% at
December 31, 1998. The Corporation's total risk-based capital ratio at September
30, 1999 was 13.05% compared to 14.02% at December 31, 1998. 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
16
<PAGE> 17
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 August 31, 1999, a simulation analysis
assuming a one-time 200 basis point increase in interest rates, results in an
estimated negative impact of approximately 2.9% or approximately $463,000 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 of 2.1% or approximately $338,000 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
August 31, 1999. 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 cash flow in the consumer loan portfolio. In a
declining rate environment, the declining yield on 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
interest rates on earning assets and interest bearing liabilities change at
varying frequencies and market forces may limit the ability to appropriately
respond to such changes.
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 of August 31, 1999. Therefore, such
analysis is regarded as a fair presentation of the Corporation's market risk as
of September 30, 1999.
YEAR 2000 CONSIDERATIONS
In 1997, the Corporation began analyzing information systems and vendor supplied
application systems to identify and resolve any year 2000 issues concerning its
business or operations. Senior management views this initiative as one of the
highest priorities of the Corporation. With oversight from the Board of
Directors, the Corporation is aggressively pursuing appropriate solutions and
assurances with regard to compliance of all applications affected by the year
2000. As of September 30, 1999, the Corporation had completed its assessment of
all hardware, software, core business applications and data exchange interfaces
and had substantially completed renovating systems and applications and
validating year 2000 readiness.
Non-information technology systems such as the elevator, HVAC, security systems,
etc., have been reviewed to determine if there are any year 2000 issues. Any
non-compliant system or related equipment has either already been replaced or is
in the process of being replaced before the year 2000.
It is estimated that the total cumulative cost to the Corporation of this
process will approximate $750,000 which includes costs associated with modifying
existing systems, purchasing or leasing certain hardware and software and
write-down of items which will be disposed prematurely due to noncompliance. The
majority of such costs will be incurred during 1999. Purchased hardware and
software will be capitalized in accordance with normal policy. Personnel and all
other costs related to this process are being expensed as incurred.
17
<PAGE> 18
Although the Corporation believes that it is substantially year 2000 compliant,
any unforeseen system failures could result in a compromise in the Corporation's
ability to service customers and could have a potentially adverse impact on NSD
Bancorp's financial condition or results of operations. A Contingency and
Business Resumption Plan has been developed to help insure that the Corporation
is prepared in the event of an automated information system failure and to
address liquidity concerns due to possible public demands for cash.
All commercial loan customers with significant loan exposures have been
contacted to emphasize the importance of adequately preparing for year 2000
issues and to assess the state of their year 2000 readiness. The Corporation
could experience losses due to the interruption of a loan customer's business
caused by year 2000 related problems. As of September 30, 1999, there appears to
be no significant additional exposure to loan losses due to year 2000 related
issues. There is, however, no assurance that customers will not experience a
year 2000 related business interruption resulting in a potentially material
adverse effect on NSD Bancorp's financial condition or results of operation.
Management intends to continue its monitoring and assessments throughout 1999 to
mitigate any such losses.
INTEREST RATE SENSITIVITY, LIQUIDITY AND CASH FLOWS
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 flows or obtain funds at a reasonable
cost 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's ability to obtain deposits and
purchase funds at reasonable rates determines its liability liquidity. As a
result of liquid asset management and the ability to generate liquidity through
deposit funding, management feels 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 wholesale borrowings and repurchase agreements.
Operating activities used net cash of $1,036,024 during the first nine months of
1999, compared to providing cash of $4,400,855 during the first nine months of
1998. The primary source of operating cash flows for 1999 was net income
adjusted for the effect of non-cash expenses such as the provision for loan
losses, depreciation of premises and equipment and amortization of intangible
assets.
Investing activities used net cash of $31,925,724 during the first nine months
of 1999, compared to using cash of $787,128 during the first nine months of
1998. A significant portion of borrowings were invested in investment securities
available for sale as part of an overall leverage strategy. Proceeds from sales,
repayments and maturities of investment securities available for sale and held
to maturity were reinvested primarily in investment securities available for
sale although some cash was used to fund loan growth.
Financing activities provided cash of $25,318,683 and $5,709,387 for the first
nine months of 1999 and 1998, respectively. A net increase in total borrowed
funds and total deposits provided while cash was used by the payment of cash
dividends to shareholders and purchases of treasury stock.
18
<PAGE> 19
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NSD BANCORP, INC.
-----------------
(Registrant)
Dated: November 12, 1999 /S/_________________________________________________
Lloyd G. Gibson, President and Chief Executive
Officer
Dated: November 12, 1999 /S/_________________________________________________
James P. Radick, Treasurer (Principal Financial
and Accounting Officer)
<PAGE> 20
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NSD BANCORP, INC.
-----------------
(Registrant)
Dated: November 12, 1999 _________________________________________________
Lloyd G. Gibson, President and Chief Executive
Officer
Dated: November 12, 1999 _________________________________________________
James P. Radick, Treasurer (Principal Financial
and Accounting Officer)
<PAGE> 21
Part II - Other Information
Items 1-5 Not applicable pursuant to the instructions to Part II
Item 6 Exhibits and Reports on Forms 8-K
(a) Exhibits
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial information incorporated by reference to the 1999 Third
Quarter Incorporate Financial Review and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,774,805
<INT-BEARING-DEPOSITS> 860,226
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 99,966,734
<LOANS> 225,988,676
<ALLOWANCE> 3,050,337
<TOTAL-ASSETS> 378,095,913
<DEPOSITS> 286,957,316
<SHORT-TERM> 5,103,900
<LIABILITIES-OTHER> 6,426,513
<LONG-TERM> 49,000,000
0
0
<COMMON> 2,872,580
<OTHER-SE> 27,735,604
<TOTAL-LIABILITIES-AND-EQUITY> 378,095,913
<INTEREST-LOAN> 14,951,742
<INTEREST-INVEST> 4,740,173
<INTEREST-OTHER> 54,758
<INTEREST-TOTAL> 19,386,673
<INTEREST-DEPOSIT> 6,539,071
<INTEREST-EXPENSE> 8,231,684
<INTEREST-INCOME-NET> 11,154,989
<LOAN-LOSSES> 630,000
<SECURITIES-GAINS> 169,822
<EXPENSE-OTHER> 6,964,798
<INCOME-PRETAX> 4,862,298
<INCOME-PRE-EXTRAORDINARY> 3,249,548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,249,548
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 4.36
<LOANS-NON> 828,272
<LOANS-PAST> 769,611
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (2,756,502)
<CHARGE-OFFS> 378,024
<RECOVERIES> 41,859
<ALLOWANCE-CLOSE> (3,050,337)
<ALLOWANCE-DOMESTIC> (2,598,191)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (452,146)
</TABLE>
