<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, 2000
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
28, 2000 was:
Common Stock, $1.00 par value - 2,784,691 shares outstanding
<PAGE> 2
NSD BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 2000
and December 31, 1999 3
Consolidated Statements of Income For the Three
Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows For the Three
Months Ended March 31, 2000 and 1999 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 16
Item 6. Exhibits and Reports on Form 8K 17
</TABLE>
<PAGE> 3
NSD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
ASSETS
<S> <C> <C>
Cash and Due From Banks $ 18,533,028 4 13,921,122
Investment Securities Available for Sale at Market Value (Amortized Cost of
$107,090,216 at March 31, 2000 and $105,667,201 at December 31, 1999) 104,176,402 103,253,784
Loans Held for Sale 914,720 630,777
Loans, Net of Deferred Fees 277,613,292 269,192,709
Unearned Income (2,716,190) (1,947,108)
Reserve for Loan Losses (3,178,873) (3,088,257)
- ---------------------------------------------------------------------------------------------------------------------------
Loans, Net 271,718,229 264,157,344
Premises and Equipment, Net 2,708,229 2,850,773
Accrued Interest Receivable 2,179,265 2,209,494
Other Real Estate Owned and Assets Held for Sale 278,888 262,160
Other Assets 5,279,696 5,000,018
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $405,788,457 $392,285,472
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest Bearing $ 62,930,925 $ 60,429,536
Interest Bearing 240,856,457 229,010,123
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits 303,787,382 289,439,659
Borrowed Funds:
Federal Funds Purchased 3,000,000 3,700,000
Advances from Federal Home Loan Bank and Other Borrowings 61,550,000 62,650,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds 64,550,000 66,350,000
Accrued Interest Payable 4,850,337 4,534,488
Other Liabilities 2,003,601 1,612,063
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 375,191,320 361,936,210
Common Stock $1 Par Value; 10,000 shares authorized, 2,873,405 issued and
2,787,691 outstanding at March 31, 2000 and 2,873,405 issued and 2,788,097
outstanding at December 31, 1999 2,873,405 2,873,405
Treasury Stock at cost, 85,714 shares at March 31, 2000 and 85,308 shares at
December 31, 1999 (1,887,404) (1,879,310)
Capital Surplus 13,625,727 13,625,727
Accumulated Other Comprehensive Income (1,919,285) (1,589,023)
Retained Earnings 17,904,694 17,318,463
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 30,597,137 30,349,262
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $405,788,457 $392,285,472
===========================================================================================================================
</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 THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 5,479,925 $ 4,718,109
Investment Securities
Taxable 1,609,700 1,362,844
Tax-Exempt 53,357 60,377
Dividends 78,475 48,562
Interest Bearing Deposits 2,672 1,024
Federal Funds Sold 3,554 17,539
- ---------------------------------------------------------------------------------------------------
Total Interest Income 7,227,683 6,208,455
INTEREST EXPENSE
Deposits 2,308,132 2,123,818
Federal Funds Purchased 41,289 15,883
FHLB Advances and Other Borrowings 909,970 444,529
- ---------------------------------------------------------------------------------------------------
Total Interest Expense 3,259,391 2,584,230
Net Interest Income 3,968,292 3,624,225
Provision for Loan Losses 225,000 210,000
- ---------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 3,743,292 3,414,225
OTHER INCOME
Net Investment Securities Gains 793 69
Service Fees 197,963 200,259
Other Operating Income 206,869 191,548
- ---------------------------------------------------------------------------------------------------
Total Other Income 405,625 391,876
OTHER EXPENSES
Salaries and Employee Benefits 1,149,635 1,119,964
Occupancy Expense 202,698 179,798
Equipment and Supplies 308,625 245,902
Data Processing 176,659 169,925
FDIC Insurance 14,850 9,363
Advertising 29,703 21,463
Other Operating Expenses 553,412 464,039
- ---------------------------------------------------------------------------------------------------
Total Other Expenses 2,435,582 2,210,454
Income Before Income Taxes 1,713,335 1,595,647
Provision for Income Taxes 581,000 549,250
- ---------------------------------------------------------------------------------------------------
NET INCOME 1,132,335 1,046,397
===================================================================================================
Other Comprehensive Income, net of tax (330,261) (299,846)
- ---------------------------------------------------------------------------------------------------
Net Comprehensive Income $ 802,074 $ 746,551
NET INCOME PER COMMON SHARE
Net Income - Basic $ .41 $ .37
Net Income - Diluted $ .40 $ .36
Common Dividends Declared and Paid Per Share $ .19 $ .17
Weighted Average Shares Outstanding - Basic 2,787,826 2,840,248
Weighted Average Shares Outstanding - Diluted 2,807,002 2,867,881
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
NSD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 1,132,335 $ 1,046,397
Adjustments to Net Income:
Provision for Loan Losses 225,000 210,000
Gain on Sale of Investment Securities Available for Sale 793 755
(Gain) Loss on Sale of Other Assets (6,584) 32,827
Loss (Gain) on Disposition of Premises and Equipment 1,908 (41,014)
Depreciation and Amortization 183,483 152,342
Net Premium Amortization 7,809 56,453
Decrease (Increase) in Accrued Interest Receivable 30,230 (128,101)
Increase (Decrease) in Accrued Interest Payable 315,849 (25,877)
(Increase) Decrease in Other Assets (239,297) 66,011
Deferred Loan Fees, Net 28,566 4,268
Increase (Decrease) in Other Liabilities 477,139 (4,533,734)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities 2,155,647 (3,159,673)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Investment Securities Available for Sale 321,035 998,978
Proceeds from Repayments and Maturities of Investment Securities
Available for Sale 962,455 9,039,592
Proceeds from Repayments and Maturities of Investment Securities Held
to Maturity -- 65,000
Purchases of Investment Securities (2,713,521) (23,429,225)
Proceeds from Sales of Other Real Estate Owned 63,676 109,886
Net Increase in Loans (8,179,190) (3,011,805)
Dispositions of Premises and Equipment, Net 1,304 230,522
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (9,544,241) (15,997,052)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Demand and Savings Accounts 10,376,820 (2,174,739)
Net Increase (Decrease) in Certificates of Deposit 3,977,879 (1,702,166)
(Decrease) Increase in Federal Funds Purchased (700,000) 7,900,000
Proceeds from Federal Home Loan Bank Advances and Other Borrowings 20,000,000 9,000,000
Repayment of Federal Home Loan Bank Advances and Other Borrowings (21,100,000) (1,000,000)
Proceeds from the Exercise of Common Stock Options -- 127,838
Cash Paid in Lieu of Fractional Shares -- (3,922)
Treasury Stock Purchased (8,095) (409,568)
Cash Dividends Paid (546,104) (488,342)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 12,000,500 11,249,101
- -----------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 4,611,906 7,907,624
Cash and Cash Equivalents at Beginning of Year 13,921,122 22,278,095
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year 18,533,028 14,370,471
=======================================================================================================================
</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. COMPREHENSIVE INCOME:
The Corporation currently has one component of other comprehensive income which
is the change in unrealized gains (losses) on securities available for sale and
is detailed as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
period $(499,603) $(454,243)
Less: reclassification adjustment for gain realized in net
income 793 69
- ---------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) (500,396) (454,312)
- ---------------------------------------------------------------------------------------------------------
Other Comprehensive Income (500,396) (454,312)
Tax Expense (Benefit) at 34% (170,135) (154,466)
=========================================================================================================
Other Comprehensive Income, net $(330,261) $(299,846)
=========================================================================================================
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). This establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It applies to all entities and
requires that any entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Under SFAS No. 133, the change in fair value is reflected in the
income statement or as an element of other comprehensive income. SFAS No. 133,
as amended by SFAS No. 137, is effective for all quarters of all fiscal years
beginning after June 15, 2000. Management is currently in the process of
evaluating the impact of this statement on the consolidated financial
statements.
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 three
months ended March 31, 2000 compared to the three months ended March 31, 1999.
This discussion and the related financial data are presented to assist in the
understanding and evaluation of the consolidated financial condition and
results of operations of NSD Bancorp, Inc. (the "Corporation"). In addition to
historical information, this discussion and analysis contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Important
factors that might cause such a difference include, but are not limited to,
those discussed in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Corporation undertakes no obligation
to publicly revise or update these forward-looking statements to reflect events
or circumstances that arise after the date hereof.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2000 was $1,132,335 an increase
of $85,938 from $1,046,397 for the three months ended March 31, 1999.
Contributing to the increase were increases in net interest income of $344,067
and other operating income of $13,749. Offsetting these increases to net income
were increases in the provision for loan losses, salaries and employee benefits,
occupancy, equipment and supplies, data processing, other operating expenses and
provision for income taxes of $15,000, $29,671, $22,900, $62,723 and $89,372,
respectively, for the three months ended March 31, 2000 compared to the same
period in 1999. The Corporation's annualized return on average assets (ROA) for
the first three months of 2000 was 1.16% compared to 1.20%. 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 15.48%
for the first quarter of 2000 compared to 13.16% for the same period in 1999.
This increase is largely due to a lower equity-to-assets ratio resulting from
significant growth in average assets and the change in unrealized gains
(losses), and to a lesser extent, the repurchase of common shares into treasury.
Offsetting this increase was a decline in net interest margin.
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 tax-equivalent interest income increased $1,017,932 during the three
months ended March 31, 2000 as compared to the same period in 1999 as the result
of a $38,191,954 increase in average earning assets combined with an increase in
the yield on average earning assets to 7.84% at March 31, 2000 from 7.54% at
March 31, 1999. The increase in average assets was comprised of an increase in
average loans of $38,192,698 and an $1,505,600 increase in average investment
securities outstanding. Average federal funds sold declined by $1,237,858 for
the first three months of 2000 as compared to the same period in 1999.
Total interest expense increased $675,161 during the three months ended March
31, 2000 compared to the same period in 1999 as the result of a $43,733,195
increase in average interest bearing liabilities along with an increase in the
average cost of such funds to 4.36% at March 31, 2000 from 4.08% at March 31,
1999. The increase in average interest bearing liabilities was comprised of
increases in average interest bearing deposits, federal funds purchased and FHLB
advances of $14,091,455, $1,503,340 and $28,138,400, respectively.
The Corporation's year-to-date net interest margin decreased from 4.43% as of
March 31, 1999 to 4.31% as of March 31, 2000, due to an increase in the average
cost of funds primarily resulting from higher wholesale borrowing costs,
partially offset by the increase in the average yield on earning assets.
7
<PAGE> 8
PROVISIONS FOR LOAN LOSSES
The Corporation's provision for loan losses was $225,000 for the three months
ended March 31, 2000, compared to $210,000 for the same periods in 1999. The
Corporation had net charge-offs of $134,384 and $119,839 for the first three
months of 2000 and 1999, respectively. The increase in net charge-offs was
largely due to a $19,935 increase in installment loan charged-offs which had
been anticipated by management and, therefore, had previously been placed on
non-accrual status with an appropriate reserve allocation.
The Corporation's net charge-off by loan type in the reserve for loan losses
were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve for Loan Losses at Beginning of Year $3,088,257 $2,756,502
Charge-offs:
Commercial, Financial, and Agricultural Loans -- 32,000
Real Estate Mortgage Loans -- --
Installment Loans 122,179 102,244
Lease Financing 16,209 3,036
- --------------------------------------------------------------------------------------------------------------
Total Charge-Offs 138,388 137,280
Recoveries:
Commercial, Financial, and Agricultural Loans -- --
Real Estate Mortgage Loans -- --
Installment Loans 3,404 16,641
Lease Financing 600 800
- --------------------------------------------------------------------------------------------------------------
Total Recoveries 4,004 17,441
- --------------------------------------------------------------------------------------------------------------
Net Charge-Offs 134,384 119,839
Provisions for Loan Losses 225,000 210,000
- --------------------------------------------------------------------------------------------------------------
Reserve for Loan Losses at End of Year $3,178,873 $2,846,663
==============================================================================================================
</TABLE>
OTHER INCOME
Other income increased $13,749 to $405,625 for the three months ended March 31,
2000 from $391, for the three months ended March 31, 1999. Sales and calls of
investment securities available for sale during the first quarter of 2000
resulted in net gains of $793 compared to $69 for the same period in 1999.
Service fees decreased slightly to $197,963 for the first three months of 2000,
from $200,259 for the same period in 1999. A decrease in net NSF charges of
$13,081 contributed to the decline offset by an increase in checking account
fees of $13,912 during the first three months of 2000. Other operating income
increased to $191,548 for the three months ended March 31, 2000. Increases in
ATM surcharges and checkbook commissions of $19,767 and $6,819, respectively,
were offset by a $3,822 decline in installment loan insurance commissions.
OTHER EXPENSES
Total other expenses for the first quarter of 2000 increased $225,127 to
$2,435,582 from $2,210,454 for the same period in 1999. Salaries and employee
benefits increased $29,671 reflecting normal salary and benefit increases,
addition incentive compensation accruals and increased medical insurance costs
to the Corporation. Occupancy expense increased $22,900 while equipment and
supplies expense increased $62,723 largely due to a stationery and supply
expense increase of $22,587 and additional depreciation of $30,426 related to
newly installed computer network equipment. Data processing expense increased
$6,734 which is attributed to additional network charges under a new service
agreement. Advertising expense also increased $8,240. Contributing to the
$89,372 increase in other operating expenses were increases in legal, financial
services, education, audit, cashflow maximizer operational expenses and
telephone expenses of $11,566, $11,839, $14,145, $10,043, $26,894 and $18,466,
respectively.
8
<PAGE> 9
INCOME TAXES
The Corporation recorded an income tax provision of $581,000 for the three
months ended March 31, 2000 compared to $549,250 for the three months ended
March 31, 1999. The increase in tax expense was primarily the result of higher
pre-tax earnings. The effective tax rates for the first quarters of 2000 and
1999 were 33.9% and 34.4%, 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 $13,502,985 from $392,285,472 at
December 31, 1999 to $405,788,457 at March 31, 2000. Securities available for
sale increased $922,618. There were no securities classified as held to maturity
during the first quarter of 2000. Loans available for sale increased to $914,720
at March 31, 2000 from $630,777 at December 31, 1999. Loans available for sale
at March 31, 2000 and December 31, 1999 were entirely comprised of student
loans. Net loans increased $8,475,605 to $272,632,949 at March 31, 2000 from
$267,245,601 at December 31, 1999.
INVESTMENT SECURITIES
Investment securities available for sale increased $922,618 during the first
three months of 2000. Increases in U.S. Government agencies, Obligations of
State and Political Subdivisions, corporate bonds and marketable equity
securities of $1,958,760, $230,619, $62,640 and $58,331, respectively, were due
to normal purchasing activity net of any sales, calls, maturities and changes in
unrealized gains classes. The Corporation experienced a $499,603 improvement in
net, unrealized gains (losses) on fixed income securities, however, the dramatic
shift in market pricing during the second half of 1999 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. There were no investment securities
classified as held to maturity during the first quarter of 2000. 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 $58,331 during the first three months of 2000 almost
entirely due to an increase in the level of FHLB stock.
A summary of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -------------------------------
COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 3,708,345 $ -- $ 35,520 $ 3,672,825
Obligations of U.S. Government Agencies 36,283,408 -- 1,581,849 34,701,559
Mortgage-backed Securities 51,499,643 6,913 2,532,995 48,973,561
Obligations of State and Political Subdivisions 4,291,601 23,807 190,509 4,124,899
Other Bonds 7,110,956 11,711 218,497 6,904,170
Marketable Equity Securities 4,196,263 1,603,125 -- 5,799,388
- ----------------------------------------------------------------------------------------------------------------------------------
$107,090,216 $1,645,556 $4,559,370 $104,176,402
==================================================================================================================================
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
DECEMBER 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
GROSS UNREALIZED
HOLDING
AMORTIZED -------------------------------
COST GAINS LOSSES FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 3,708,419 $ -- $ 27,321 $ 3,681,098
Obligations of U.S. Government Agencies 34,290,634 -- 1,547,835 32,742,799
Mortgage-backed Securities 52,784,308 9,108 2,440,396 50,353,020
Obligations of State and Political Subdivisions 4,126,696 20,965 253,381 3,894,280
Other Bonds 7,110,881 510 269,861 6,841,530
Marketable Equity Securities 3,646,263 2,094,794 -- 5,741,057
- ---------------------------------------------------------------------------------------------------------------------------------
$105,667,201 $2,125,377 $4,538,794 $103,253,784
=================================================================================================================================
</TABLE>
LOANS
Loans, net of deferred fees, increased to $277,613,292 at March 31, 2000 from
$269,192,709 at December 31, 1999. Commercial loan development efforts resulted
in an increase of $3,386,660 in nonresidential mortgages while commercial,
financial and agricultural loans decreased by $1,733,452. Increased production
of indirect automobile loans was the primary reason for a $1,132,102 increase in
consumer loans to individuals while residential mortgages increased by
$2,387,976. In addition, greater emphasis on lease financing business
development resulted in a $3,554,488 increase during the first quarter of 2000.
These increases were offset by a $123,184 decline in lines of credit and a
decline in nonaccrual loans of $155,441.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, INCREASE
2000 1999 (DECREASE)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Loans to Individuals $109,979,495 $108,847,393 $ 1,132,102
Mortgage:
Nonresidential 51,116,954 47,730,294 3,386,660
Residential 50,211,734 47,823,758 2,387,976
Commercial, Financial and Agricultural 44,320,005 46,053,457 (1,733,452)
Lines of Credit 4,799,533 4,922,717 (123,184)
Lease Financing 16,954,285 13,399,797 3,554,488
Nonaccrual Loans 622,520 777,961 (155,441)
- ----------------------------------------------------------------------------------------------------------------------------
Total Loans 278,004,526 269,555,377 8,449,149
Deferred Fees (391,234) (362,668) (28,566)
- ----------------------------------------------------------------------------------------------------------------------------
Loans, Net of Deferred Fees $277,613,292 $269,192,709 $ 8,420,583
============================================================================================================================
</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 March 31, 2000, 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 three months of 2000. Therefore, no interest was recognized on impaired
loans and no additional reserve was required for impaired loans during the first
three months of 2000.
10
<PAGE> 11
NON-PERFORMING ASSETS
Non-performing assets and past due loans decreased from $1,640,076 at December
31, 1999 to $1,482,949 at March 31, 2000 due to declines in nonaccrual loans and
loans 90 days past due and still accruing of $155,440 and $18,414, respectively,
offset by a $16,728 increase in other assets held for sale.
The current quality of the loan portfolio can be demonstrated by the following
table which details total non-performing loans and past due loans:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual Loans $ 622,520 $ 777,961
Other Real Estate Owned 132,092 132,092
Other Assets Held for Sale 146,796 130,068
- ------------------------------------------------------------------------------------------------
Total Non-Performing Assets 901,408 1,040,121
Loans 90 Days Past Due and Still Accruing 581,541 599,955
- ------------------------------------------------------------------------------------------------
Total Non-Performing Assets and Past Due Loans $1,482,949 $1,640,076
================================================================================================
</TABLE>
RESERVE FOR LOAN LOSSES
The Corporation's loan loss reserve at March 31, 2000 was $3,178,873 or 1.15% of
total loans compared to $3,088,257 or 1.20% of total loans at March 31, 1999.
Management anticipates that the loan loss reserve 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 THREE MONTHS ENDED
MARCH 31,
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance $3,088,257 $2,756,502
Provision 225,000 210,000
Net Charge-offs 134,384 119,839
- -----------------------------------------------------------------------------------------------------
Ending Balance $3,178,873 $2,846,663
=====================================================================================================
Reserve for Loan Losses to Total Loans 1.15% 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
11
<PAGE> 12
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.
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 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
March 31, 2000, and 1999 (in thousands):
March 31,
-------------------------------------
2000 1999
-------------------------------------
Specific reserves . . . . . . . $ 481,481 $ 453,812
Formula reserves . . . . . . . . 2,116,865 1,852,793
Unallocated reserves . . . . . . 580,527 540,058
-------------------------------------
Total . . . . . . . . . . . . . . $3,050,337 $2,846,663
-------------------------------------
Specific reserves increased $27,669 from March 31, 1999 to March 31, 2000
primarily due to an increase in classified commercial loans the largest portion
of which is attributable to smaller loans that are to unrelated borrowers.
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 $264,072
principally due to a significant increase in total commercial and installment
loans outstanding offset by a decline in formula reserves related to the
residential mortgage loan portfolio.
12
<PAGE> 13
LIABILITIES
Total liabilities were $375,191,320 at March 31, 2000, an increase of
$13,255,111 from December 31, 1999. The decrease in total borrowed funds of
$1,800,000 was offset by an increase in total deposits of $14,347,723, and
increases in other liabilities and accrued interest payable of $391,538 and
$315,849, respectively.
DEPOSITS
Total deposits increased $14,347,723 from $289,439,659 at December 31, 1999 to
$303,787,382 at March 31, 2000. Contributing to the overall increase were
increases in non-interesting demand deposits, savings, money market deposits,
time deposits over $100,000 and other time deposits of $2,501,389, $739,865,
$7,189,972, $888,123, $3,089,757, respectively. These increases were offset by a
decrease in interest bearing demand deposits of $61,381.
The composition of deposits is shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, INCREASE
2000 1999 (DECREASE)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-interest Bearing Demand $ 62,930,925 $ 60,429,536 $ 2,501,389
Interest Bearing Demand 29,718,849 29,780,230 (61,381)
Savings 39,277,896 38,538,031 739,865
Money Market Account 69,395,032 62,205,060 7,189,972
Time Deposits equal to or more than $100,000 14,945,616 14,057,493 888,123
Time Deposits less than $100,000 87,519,064 84,429,309 3,089,755
- -----------------------------------------------------------------------------------------------------
Total Deposits $303,787,382 $289,439,659 $14,347,723
=====================================================================================================
</TABLE>
TOTAL BORROWED FUNDS
At March 31, 2000, the Corporation had total borrowed funds of $64,550,000,
$3,000,000 of which will mature within the next 12 months. The Corporation
borrowed these funds to provide liquidity for specific asset-liability
management strategies. At March 31, 2000, $61,550,000 in advances from the
Federal Home Loan Bank were collateralized by qualifying securities and loans.
Of these advances, $57,000,000 was subject to restrictions or penalties related
to prepayments.
SHAREHOLDER'S EQUITY
Consolidated shareholders' equity increased $247,875 from $30,349,262 at
December 31, 1999 to $30,597,137 at March 31, 2000. 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 exceeds current regulatory requirements. The Corporation's Tier I
risk-based capital ratio at March 31, 2000 was 11.21% compared to 11.28% at
December 31, 1999. The Corporation's total risk-based capital ratio at March 31,
2000 was 12.57% compared to 12.71% at December 31, 1999. Regulatory requirements
for Tier I and total risk-based capital ratios are 4.00% and 8.00%,
respectively.
13
<PAGE> 14
MARKET RISK AND INTEREST RATE SENSITIVITY
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.
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.
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 December 31, 1999, a simulation
analysis assuming a one-time 200 basis point increase in interest rates, results
in an estimated negative impact of approximately 2.75% 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 2.2% or approximately $369,000 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
December 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 December 31, 1999. Therefore, such
analysis is regarded as a fair presentation of the Corporation's market risk as
of March 31, 2000.
14
<PAGE> 15
LIQUIDITY AND CASH FLOWS
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 provided net cash of $2,155,645 during the first three
months of 2000, compared to net cash used of $3,159,673 during the first three
months of 1999. The primary source of operating cash flows for 2000 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 $9,544,240 during the first three months
of 2000, compared to using cash of $15,997,052 during the first three months of
1999. A significant portion of borrowings were used to fund loan growth in
excess of deposit growth and also to replace repayments of borrowings 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.
Financing activities provided cash of $12,000,500 and $11,249,101 for the first
three months of 2000 and 1999, respectively. A net increase in total borrowed
funds and total deposits provided cash while cash was used by the repayment of
borrowings, the payment of cash dividends to shareholders and purchases of
treasury stock.
15
<PAGE> 16
Part II - Other Information
Items 1-2 Not applicable pursuant to the instructions to Part II
Item 3 Quantitative and qualitative disclosures about market risk.
Items 4-5 Not applicable pursuant to the instructions to Part II
Item 6 Exhibits and Reports on Forms 8-K
(a) Exhibits
27 Financial Data Schedule
16
<PAGE> 17
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 12, 2000 /S/______________________________________________________
Lloyd G. Gibson, President and Chief Executive Officer
Dated: May 12, 2000 /S/_______________________________________________________
James P. Radick, Treasurer (Principal Financial and
Accounting Officer)
18
<PAGE> 18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NSD BANCORP, INC.
-----------------
(Registrant)
Dated: May 12, 2000 __________________________________________________________
Lloyd G. Gibson, President and Chief Executive Officer
Dated: May 12, 2000 __________________________________________________________
James P. Radick, Treasurer (Principal Financial and
Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 2000 FIRST
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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,895,453
<INT-BEARING-DEPOSITS> 637,575
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 104,176,402
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 274,897,101
<ALLOWANCE> 3,178,873
<TOTAL-ASSETS> 405,788,457
<DEPOSITS> 303,787,382
<SHORT-TERM> 3,000,000
<LIABILITIES-OTHER> 6,853,937
<LONG-TERM> 61,550,000
0
0
<COMMON> 2,873,405
<OTHER-SE> 27,723,732
<TOTAL-LIABILITIES-AND-EQUITY> 405,788,457
<INTEREST-LOAN> 5,479,925
<INTEREST-INVEST> 1,741,532
<INTEREST-OTHER> 6,226
<INTEREST-TOTAL> 7,227,683
<INTEREST-DEPOSIT> 2,308,132
<INTEREST-EXPENSE> 3,259,391
<INTEREST-INCOME-NET> 3,968,292
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 793
<EXPENSE-OTHER> 2,435,582
<INCOME-PRETAX> 1,713,335
<INCOME-PRE-EXTRAORDINARY> 1,132,335
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,132,335
<EPS-BASIC> .41
<EPS-DILUTED> .40
<YIELD-ACTUAL> 4.33
<LOANS-NON> 622,520
<LOANS-PAST> 581,541
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (3,088,257)
<CHARGE-OFFS> 138,388
<RECOVERIES> 4,004
<ALLOWANCE-CLOSE> (3,178,873)
<ALLOWANCE-DOMESTIC> (2,598,346)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (580,527)
</TABLE>
