<PAGE> 1
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 0-22800
NORTH BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3915073
(State or other jurisdiction I.R.S. Employer
of Incorporation or organization) Identification Number
100 West North Avenue, Chicago, Illinois 60610-1399
(Address of Principal Executive Offices) (Zip Code)
(312) 664-4320
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ( )
As of July 31, 1996, there were outstanding 1,113,631 shares of the
Registrant's Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
==============================================================================
<PAGE> 2
NORTH BANCSHARES, INC.
Table of Contents
Part I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Financial Statements 3
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 13
Item 1. Legal Proceedings 13
Item 4. Submission of matters to a vote of security holders 13
Item 6. Exhibits and Reports on Form 8K 14
FORM 10QSB SIGNATURE PAGE 15
<PAGE> 3
Part I. Financial Information
Item 1. Consolidated Financial Statements
<TABLE>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<CAPTION>
ASSETS JUNE 30, 1996 DEC 31, 1995
(UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 701 $ 607
Interest-bearing deposits 2,938 2,634
Investment in dollar denominated mutual funds 594 1,127
Federal funds sold 2,150 3,925
------ ------
TOTAL CASH AND CASH EQUIVALENTS 6,383 8,293
====== ======
Investment securities available for sale 34,165 27,882
Investment securities held-to-maturity - 498
Mortgage-backed securities available for sale - 6,927
Mortgage-backed securities held-to-maturity 8,284 9,419
Loans receivable, net of allowance for loan
losses of $208 at June 30, 1996 and $200
at December 31, 1995 66,285 56,161
Accrued interest receivable 1,161 959
Premises and equipment, net 942 834
Stock in Federal Home Loan Bank of Chicago 1,087 624
Amounts due from brokers for investments sold 1,000 -
Other assets 129 71
------- -------
TOTAL ASSETS $119,436 $111,668
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposit accounts $ 75,547 $75,169
Borrowed funds 21,750 11,750
Advance payments by borrowers for
taxes and insurance 1,254 1,079
Amounts due to broker for investments
purchased - 1,000
Other liabilities 2,371 1,642
------- -------
TOTAL LIABILITIES 100,922 90,640
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. 500,000
shares authorized; none outstanding - -
Common stock, $.01 Par value. 3,500,000
shares authorized; 1,437,501 shares issued,
1,113,631 outstanding at June 30, 1996 and
1,232,478 outstanding at December 31, 1995 14 14
Additional paid-in capital 13,625 13,629
Retained earnings, substantially restricted 11,031 10,949
Treasury stock at cost (323,870 shares at
June 30, 1996 and 205,023 shares at
December 31, 1995) (4,445) (2,599)
Unrealized gain (loss) on securities
available for sale, net of tax effect (749) 90
SFAS No. 87 adjustment, net of tax effect (128) (128)
Common stock acquired by Employee Stock
Ownership Plan (722) (778)
Deferred compensation (112) (149)
------- -------
TOTAL STOCKHOLDERS' EQUITY 18,514 21,028
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $119,436 $111,668
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $1,248 $1,021 $2,381 $1,998
Interest-bearing deposits and federal funds sold 66 95 152 157
Investment securities available for sale 647 341 1,155 680
Investment securities held-to-maturity - 74 2 125
Mortgage-backed securities available for sale - - 90 -
Mortgage-backed securities held-to-maturity 133 306 292 555
Investment in mutual funds - 23 - 137
Dividends on FHLB of Chicago stock 16 10 29 18
----- ----- ----- -----
TOTAL INTEREST INCOME 2,110 1,870 4,101 3,670
----- ----- ----- -----
INTEREST EXPENSE
Deposit accounts 855 873 1,686 1,623
Borrowed funds 335 203 595 435
----- ----- ----- -----
TOTAL INTEREST EXPENSE 1,190 1,076 2,281 2,058
----- ----- ----- -----
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 920 794 1,820 1,612
PROVISION FOR LOAN LOSSES - 10 8 24
----- ----- ----- -----
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 920 784 1,812 1,588
----- ----- ----- -----
NON-INTEREST INCOME
Gain on sale of investment securities
and mutual funds available for sale 9 - 8 167
Fees and service charges 42 28 87 57
Other 6 4 12 9
----- ----- ----- -----
TOTAL NON-INTEREST INCOME 57 32 107 233
----- ----- ----- -----
NON-INTEREST EXPENSE
Compensation and benefits 342 355 677 708
Occupancy expense 103 91 201 196
Professional fees 62 45 103 88
Data processing 32 22 59 48
Advertising and promotion 66 27 97 50
Federal deposit insurance premium 52 49 104 97
Recognition and retention plan 18 28 37 79
Other 93 85 156 145
----- ----- ----- -----
TOTAL NON-INTEREST EXPENSE 768 702 1,434 1,411
----- ----- ----- -----
INCOME BEFORE TAXES 209 114 485 410
INCOME TAX EXPENSE 76 8 165 46
----- ----- ----- -----
NET INCOME $ 133 $ 106 $ 320 $ 364
===== ===== ===== =====
PRIMARY EARNINGS PER SHARE $.12 $.09 $.28 $.30
FULLY DILUTED EARNINGS PER SHARE $.12 $.09 $.28 $.30
WEIGHTED AVERAGE SHARES OUTSTANDING 1,109,206 1,231,891 1,146,736 1,236,007
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 320 $ 364
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38 28
Provision for loan losses 8 24
Deferred loan fees, net of amortization (80) 8
Amortization of premiums and discounts 90 (14)
Amortization of cost of stock benefit plans 93 136
Gain on sale of investment securities and mutual
funds available for sale (8) (167)
Federal Home Loan Bank of Chicago stock dividend - (8)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable (202) 56
Decrease (increase) in other assets, net 257 (145)
Increase in other liabilities 729 1,690
------ ------
Net cash provided by operating activities 1,245 1,972
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of dollar denominated mutual funds - (2,782)
Purchase of investment securities available for sale (14,893) (10,728)
Purchase of investment securities held-to-maturity - (1,000)
Proceeds from sales of mortgage-backed securities
available for sale 6,496 -
Proceeds from sales of investment securities and mutual
funds available for sale 1,000 8,743
Maturities of investment securities available for sale 6,500 7,500
Maturities of investment securities held-to-maturity 500 4,000
Purchase of mortgage-backed securities - (1,961)
Loan originations (15,658) (9,723)
Loan repayments 5,606 3,016
Repayments of mortgage-backed securities 1,420 1,104
Purchase of Federal Home Loan Bank of Chicago Stock (463) (113)
Purchase of premises and equipment (146) (30)
Decrease in payable to brokers (1,000) -
Increase in receivables from brokers (1,000) -
------ ------
Net cash used in investing activities (11,638) (1,974)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposit accounts 378 3,543
Increase in advance payments by borrowers for
taxes and insurance 175 58
Increase (decrease) in borrowings 10,000 (2,976)
Purchase of treasury stock (1,846) (828)
Exercise of stock options 14 -
Dividends paid (238) (324)
------ ------
Net cash provided by (used in) financing activities (8,483) (527)
------ ------
Net decrease in cash and cash equivalents (1,910) (529)
Cash and cash equivalents at beginning of period 8,293 6,385
------ ------
Cash and cash equivalents at end of period $ 6,383 $ 5,856
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments during the period for:
Interest 1,500 1,029
Income taxes 35 110
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
NORTH BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-B Accordingly, they do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements.
In the opinion of management, the audited and unaudited consolidated
financial statements contain all adjustments (which are normal and recurring
in nature) necessary for a fair presentation of the financial condition as
of December 31, 1995 and June 30, 1996 and results of operations for the
three-month period ended June 30, 1996 and June 30, 1995 and the six-month
period ended June 30, 1996 and June 30, 1995, but are not necessarily
indicative of the results which may be expected for the entire year.
(2) Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of North Bancshares, Inc. (the "Company"), and its wholly-owned
subsidiary North Federal Savings Bank (the "Bank"), and its subsidiary North
Financial Corporation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(3) Earnings Per Share
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of shares of common stock
and common stock equivalents outstanding for the three months ended June 30,
1996 and June 30, 1995 and for the six months ended June 30, 1996 and June 30,
1995. Stock options are treated as common stock equivalents and are therefore
considered in both primary and fully diluted earnings per share calculations.
Shares purchased by the Employee Stock Ownership Plan in the conversion but
not allocated to participants have been excluded from the primary and fully
diluted earnings per share calculation. Common stock equivalents are computed
using the treasury stock method and committed ESOP shares are computed using
the released shares outstanding method.
(4) Stock Repurchase Program
On July 25, 1996, the Company announced its sixth stock repurchase
program of 5% or 55,681 of its outstanding shares. The shares will be
repurchased in open market transactions or in unsolicited privately negotiated
transactions. As of July 31, 1996, no shares had been repurchased. Management
believes that stock repurchase programs provide enhanced value to both the
Stockholders and the Company.
(5) Reclassifications
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
(6) Commitments and Contingencies
At June 30, 1996 the Bank had outstanding commitments to originate
mortgage loans in the amount of $1.2 million.
<PAGE> 7
As a credit enhancement, the Bank has guaranteed the repayment of $1.0
million of a $17.0 million municipal revenue bond secured by a first mortgage
loan on a 216 unit apartment building project in Arlington Heights, Illinois,
which includes retail space on the ground floor of the building. At June 30,
1996 the Bank has pledged mortgage backed securities issued by FHLMC with an
amortized cost of $1.4 million. Although the project has maintained a 90% to
95% occupancy rate, the above market interest costs of the bonds are barely
met by the cash flows of the project. During the quarter ended June 30, 1996,
the Bank began to provide for specific reserves for this project, and has
recorded $20,000 as of June 30, 1996 in other expense. Management is
currently reviewing a number of financial options recommended by the lead
lender in the project.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a Delaware corporation which was organized in 1993 by the
Bank for the purpose of becoming a savings and loan holding company. The
Company owns all of the outstanding stock of the Bank issued on December 21,
1993, in connection with the completion of its conversion from the mutual to
the stock form of organization. The Company issued 1,388,625 shares of common
stock at $10.00 per share with an additional 48,876 shares of common stock
issued from authorized and unissued shares as part of a Management Recognition
and Retention Plan.
The primary business of the Company is that of a community-oriented
financial institution offering a variety of financial services to meet the
needs of the communities it serves. The Company attracts deposits from the
general public, borrows funds or enters into reverse repurchase agreements and
uses such funds to originate or acquire one-to-four family residential
mortgages, loans secured by small apartment buildings or mixed-use properties.
To a lesser extent, the Company originates consumer loans in its primary
market area. The Company also invests in mortgage-backed securities, U. S.
Government and agency securities, investment grade securities, common stocks
of other financial institutions and money market accounts.
The Company's consolidated results of operations are primarily dependent
on net interest income, which is the difference between the interest income
earned on interest-earning assets and the interest paid on deposits and other
borrowings, and to a lesser degree on non-interest income and non-interest
expense. The Company's operating expenses consist principally of employee
compensation and benefits, occupancy expenses, federal insurance premiums
and other general and administrative expenses. The Company's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
The Company's net loans receivable increased $10.1 million or 18.0% from
$56.2 million at December 31, 1995 to $66.3 million at June 30, 1996. The
Bank continues to develop relationships with mortgage brokers and focus its
marketing efforts on both owner occupied and non-owner occupied one-to-four
unit dwellings and small apartment buildings. In order to more effectively
compete for loan originations in its market area, the Company offers low down
payment mortgages to homebuyers accompanied with appropriate mortgage
insurance. The Bank has a First Time Homebuyer Program for purchases within
its delineated community, acquires loans from mortgage brokers or
purchases loans from other financial institutions. For the six months ended
June 30, 1996 the Bank originated $15.7 million in mortgage, consumer and
commercial loans of which $6.5 million or 41.4% are adjustable rate or balloon
type mortgages. Approximately 57% of total originations are located within
<PAGE> 8
the Bank's CRA delineated communities. Of the $15.7 million in loans
originated during the six months ended June 30, 1996, $8.8 million were for
the purchase of properties and $6.9 million were refinancings. $659,000 of
the refinancings were from the Bank's existing portfolio.
The Company continues to believe that maintaining loan delinquencies at
the lowest possible levels is imperative to achieving adequate profitability,
and will continue its policy of underwriting loans that it originates and
acquires in what it believes is a conservative and consistent manner. At June
30, 1996 there were no loans delinquent 90 days or more compared with $24,000
as of December 31, 1995. The allowance for loan losses at June 30, 1996 was
$208,000 as compared with $200,000 at December 31, 1995.
FORWARD-LOOKING STATEMENTS
When used in this Form 10QSB, and in future filings with the SEC, in the
Company's press releases or other public or shareholder communications, and
in oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties - including, changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made.
The Company wishes to advise readers that the factors listed above could
affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company does not undertake -- and specifically disclaims any
obligation -- to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated
or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, sales and maturities of
other investment securities, borrowings from the Federal Home Loan Bank
of Chicago and reverse repurchase agreements. The Company uses its liquid
resources to fund loan commitments, to meet operating expenses, to purchase
investment securities and to fund deposit withdrawals. Management believes
that these sources of funds will be adequate to meet the liquidity needs of
the Company for the balance of the fiscal year.
The OTS requires minimum levels of liquid assets. OTS regulations
currently require the Bank to maintain an average daily balance of liquid
assets equal to at least 5% of the sum of its average daily balance of net
withdrawable accounts and borrowings payable in one year or less. At June 30,
1996 the Bank's liquidity ratio was 15.2%, compared with 24.1% at December 31,
1995. In addition, the Bank is required to maintain short term liquid
assets equal to at least 1.0% of the average sum of net withdrawable deposits
and other borrowings. The Bank's short term liquidity ratio was 7.7% at June
30, 1996 compared with 12.1% at December 31, 1995. These levels are expected
to continue to decline as new loan originations replace short and medium term
investments.
<PAGE> 9
The primary investing activities of the Company are lending on single
family and small multi-family residential properties, purchases of
mortgage-backed securities and the purchase of U.S. government agency
securities and bankers acceptances. The Company's loan origination marketing
efforts and mortgage broker relationships have maintained adequate loan
demand. Management believes that adequate liquidity will be available to fund
any increased loan demand. The Company does not have the same regulatory
restrictions on investments as the Bank and makes investments in equity
securities of financial service firms.
During the quarter ended June 30, 1996, the Company originated $10.7
million in mortgage and consumer loans and purchased $5.9 million of United
States Treasury and other government agency securities and money market
accounts. Also during the quarter ended June 30, 1996, $1.0 million of
investment securities were sold, the Company entered into a $5.0 million
leverage securities transaction using FHLB advances, experienced a $592,000
net savings deposit inflow and repurchased 58,612 shares of its common stock
at an average price of $16.06 per share for a total cost of $942,000.
Current regulatory standards impose the following capital requirements on
the Bank and other thrifts: a tangible capital ratio expressed as a percentage
of total adjusted assets, a leverage ratio of core capital to total adjusted
assets, and a risk-based capital standard expressed as a percentage of
risk-adjusted assets. At June 30, 1996, the Bank exceeded its regulatory
capital standards. At such date, the Bank's tangible capital, core capital
and risk-based capital of $17.2 million, $17.2 million and $17.4 million,
respectively, exceeded the applicable minimum requirements by $15.4 million or
13.0%, $13.6 million or 11.5% and $14.0 million or 33.0%, respectively.
CHANGES IN FINANCIAL CONDITION
Total assets increased $7.7 million or 6.9% from $111.7 million at
December 31, 1995 to $119.4 million at June 30, 1996. The increase was
primarily attributable to a $15.9 million increase in net loans receivable and
investment securities partially offset by a $8.1 million decrease in mortgage-
backed securities and a $1.9 million decrease in cash and cash equivalents.
Net loans receivable increased $10.1 million or 18.0% from $56.2 million
at December 31, 1995 to $66.3 million at June 30, 1996. The Company
originated $10.7 million in mortgage and consumer loans during the three
months ended June 30, 1996 and a total of $15.7 million for the six months
ended June 30, 1996. Repayments of loans during the three months ended June
30, 1996 amounted to $2.6 million and a total of $5.6 million for the six
months ended June 30, 1996. The increase was funded primarily from the sale
of $6.5 million of mortgage-backed securities, that were classified available
for sale and repayments of mortgage-backed securities.
Investment securities increased $5.8 million or 20.4% from $28.4 million
at December 31, 1995 to $34.2 million at June 30, 1996. The increase was
attributable to $14.9 million in purchases of investment securities offset by
$8.0 million in maturities and sales of investment securities.
Deposit accounts increased $378,000 or .50% from $75.2 million at
December 31, 1995 to $75.5 million at June 30, 1996. The increase was
attributable to the introduction of a "Free Checking" product, the
modification of the terms of a small business checking account product and the
recent closing of two competitor bank's branch offices in the area. The
number of new checking accounts has increased by 21% since December 31, 1995.
The Company expects to continue to add to the number of checking accounts
during the next quarter but intense competition in the marketplace for these
lower cost liabilities and certificates of deposit will continue.
<PAGE> 10
Borrowed funds increased by $10.0 million or 84.7% from $11.8 million at
December 3,1 1995 to $21.8 million at June 30, 1996. The increase is
attributable to $10.0 million in leveraged securities transaction conducted
during the first six months of 1996 using FHLB advances.
Stockholders' Equity totalled $18.5 million or 15.5% of total assets at
June 30, 1996. Retained earnings increased by $82,000 from $10.9 million at
December 31, 1995 to $11.0 million at June 30, 1996 as a result of $320,000 in
net earnings for the six months ended June 30, 1996, partially offset by
$238,000 in dividend payments. A total of $749,000 in unrealized losses, net
of related tax effect on securities available for sale at June 30, 1996 have
been recorded as a component of Stockholders' Equity, a result of short and
long term interest rates increasing during the first six months of 1996. The
securities that have unrealized losses are short to intermediate term
securities that will not produce a loss unless sold prior to maturity.
Treasury stock increased by $1.8 million or 69.2% from $2.6 million at
December 31, 1995 to $4.4 million at June 30, 1996 due to additional stock
repurchases, partially offset by the exercise of stock options.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
GENERAL. Net income increased $27,000 or 25.5% from $106,000 for the
three months ended June 30, 1995 to $133,000 for the three months ended June
30, 1996. Earnings per primary share increased $.03 from $.09 per share for
the three months ended June 30, 1995 to $.12 for the three months ended June
30, 1996. The increase in per share earnings was attributable to the increase
in net income for the period and a decrease in the weighted average number of
shares outstanding during the three months ended June 30, 1996.
INTEREST INCOME. Interest income increased $240,000 or 12.6% from $1.9
million for the three months ended June 30, 1995 to $2.1 million for the three
months ended June 30, 1996. The increase was primarily attributable to a
$459,000 million increase in interest on loans receivable and investment
securities, partially offset by a $173,000 decrease in interest on mortgage-
backed securities. In addition, there was an increase in the annualized yield
on average interest-earning assets from 7.11% for the three months ended June
30, 1995 to 7.40% for the three months ended June 30, 1996. Management
believes the Company will continue to experience modest increases in interest
income during 1996 compared with 1995 as a result of the reallocation of lower
yielding investments into mortgage, consumer and commercial loans.
INTEREST EXPENSE. Interest expense increased $114,000 or 10.4% from $1.1
million for the three months ended June 30, 1995 to $1.2 million for the three
months ended June 30, 1996. The increase was primarily attributable to a
$132,000 increase in interest on borrowed funds from $203,000 for the three
months ended June 30,1995 to $335,000 for the three months ended June 30, 1996
partially offset by a $18,000 decrease in interest on deposit accounts. The
increase in interest on borrowed funds is a result of $10.0 million in
leveraged securities transactions conducted during the first six months of
1996. The decrease in interest on deposit accounts can be attributed to a
decrease in the annualized average cost of interest-bearing liabilities from
5.13% for the three months ended June 30, 1995 to 5.04% for the three months
ended June 30, 1996. The decrease in the annualized average cost of interest-
bearing liabilities is the result of longer term, higher rate certificates of
deposit maturing and renewing at lower rates and, to a lesser degree a shift
in the deposit mix to lower cost checking and money market accounts.
PROVISION FOR LOAN LOSSES. The Company did not add to its allowance for
loan losses for the three months ended June 30, 1996 compared with $10,000 for
the three months ended June 30, 1995. The allowance for loan losses to total
loans receivable amounted to .31% at June 30, 1996, however there were no
<PAGE> 11
loans delinquent 90 days or more at June 30, 1996. Future additions to the
Company's allowance for loan losses and any change in the related ratio of the
allowance for loan losses to non-performing loans are dependent upon the
performance of the Company's loan portfolio, the economy, changes in real
estate values, interest rates, and the view of the regulatory authorities
toward reserve levels and inflation.
NON-INTEREST INCOME. Non-interest income increased by $25,000 or 78.1%
from $32,000 for the three months ended June 30, 1995 to $57,000 for the three
months ended June 30, 1996. The increase was primarily attributable to a
$14,000 increase in service fees and charges related to an increase in the
total number of checking accounts and interchange fees from foreign ATM
transactions and MasterCard Master Money transactions and, to a lesser extent
rentals of new safe deposit boxes.
NON-INTEREST EXPENSE. Non-interest expense increased by $66,000 or 9.4%
from $702,000 for the three months ended June 30, 1995 to $768,000 for the
three months ended June 30, 1996. The increase was primarily attributable to
a $39,000 increase in advertising and promotion expense associated with the
Bank's 110th Anniversary celebration and the introduction of a "Free Checking"
account product and, a $20,000 reserve charged to other expense for the Credit
enhancement. In addition, there was a $17,000 increase in professional fees
related to the Company's annual meeting and shareholder issues.
INCOME TAX EXPENSE. The allocation for federal and state income taxes
increased by $68,000 from $8,000 for the three months ended June 30, 1995 to
$76,000 for the three months ended June 30, 1996 for an effective tax rate of
36.4%. The increase was primarily attributable to the utilization of capital
losses applied against $167,000 in capital gains on the sales of mutual funds
recognized during 1995 and the non-taxable interest received from U.S.
Government securities for state income tax purposes.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
GENERAL. Net income decreased by $44,000 or 12.1% from $364,000 for the
six months ended June 30, 1995 to $320,000 for the six months ended June 30,
1996. Earnings per primary share decreased $.02 from $.30 for the six months
ended June 30, 1995 to $.28 for the six months ended June 30, 1996. The
decrease was primarily attributable to a $159,000 decrease in gains on the
sales of investment securities and the related tax effect. Without securities
gains, net income increased $115,000 or 58.4% from $197,000 for the six months
ended June 30, 1995 to $312,000 for the six months ended June 30, 1996.
INTEREST INCOME. Interest income increased $431,000 or 11.7% from $3.7
million for the six months ended June 30, 1995 to $4.1 million for the six
months ended June 30, 1996. The increase was primarily attributable to a
$735,000 increase in interest on loans receivable and investment securities,
offset by a $304,000 decrease in interest on mortgage-backed securities and
other interest-earning assets. In addition, there was an increase in the
annualized yield on average interest-earning assets from 6.97% for the six
months ended June 30, 1995 to 7.34% for the six months ended June 30, 1996.
Management believes the Company will continue to experience modest increases
in interest income during 1996 compared with 1995 as a result of the
reallocation of lower yielding investments into mortgage, consumer and
commercial loans.
INTEREST EXPENSE. Interest expense increased by $223,000 or 10.6% from
$2.1 million for the six months ended June 30, 1995 to $2.3 million for the
six months ended June 30, 1996. The increase was primarily attributable to a
$8.2 million or 9.8% increase in average interest-bearing liabilities from
$83.5 million for the six months ended June 30, 1995 to $91.7 million for the
<PAGE> 12
six months ended June 30, 1996. This increase is attributable to an
additional $10.0 million in FHLB advances borrowed during the six months ended
June 30, 1996. In addition, the average cost of interest-bearing liabilities
increased from 4.93% for the six months ended June 30, 1995 to 4.97% for the
six months ended June 30, 1996.
PROVISION FOR LOAN LOSSES. The Company added $8,000 to its allowance for
loan losses for the six months ended June 30, 1996 compared with $24,000 for
the six months ended June 30, 1995. The additional $8,000 is primarily
attributable to the increase in the Company's loans receivable. The allowance
for loan losses to total loan receivable amounted to .31% at June 30, 1996,
however there were no loans 90 days or more delinquent as of June 30, 1996.
Future additions to the Company's allowance for loan losses and any change in
the related ratio of the allowance for loan losses to non-performing loans are
dependent upon the performance of the Company's loan portfolio, the economy,
changes in real estate values, interest rates, and the view of the regulatory
authorities toward reserve levels and inflation.
NON-INTEREST INCOME. Non-interest income decreased by $126,000 or 54.1%
from $233,000 for the six months ended June 30, 1995 to $107,000 for the six
months ended June 30, 1996. The decrease was primarily attributable to a
$159,000 decrease in gains on the sale of investment securities and mutual
funds, partially offset by a $30,000 increase in fees and service charges
related to an increase in the total number of checking accounts and
interchange fees resulting from foreign ATM transactions and MasterCard Master
Money transactions.
NON-INTEREST EXPENSE. Non-interest expense increased by $23,000 or 1.6%
and totaled $1.4 million for the six months ended June 30, 1995 and June 30,
1996. The increase is primarily attributable to increased advertising and
promotional expenses related to the Bank's 110th Anniversary promotion.
INCOME TAX EXPENSE. The allocation for federal and state income taxes
increased by $119,000 from $46,000 for the six months ended June 30, 1995 to
$165,000 for the six months ended June 30, 1996 for an effective tax rate of
34.0%. The increase was primarily attributable to the utilization of capital
losses applied against $167,000 in capital gains recognized on the sales of
mutual funds and the receipt of interest from U.S. Government securities, non-
taxable for state income tax purposes, both of which occurred during the six
months ended June 30, 1995.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS AND OTHER REGULATORY ISSUES
On May 12, 1995, the FASB issued a Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights (MSRs) (an
amendment to Statement No. 65)." SFAS 122 provides for capitalization of
MSRs when mortgage loans are either originated or purchased and the underlying
loan is sold or securitized with the MSR retained. The statement will apply
to servicing rights resulting from mortgage loans only and is effective for
the Company as of January 1, 1996. The Bank is currently not originating
mortgage loans for sale and therefore the adoption of SFAS 122 did not impact
the Company during the first two quarters of 1996.
During 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This Statement provides guidance for recognition and measurement of impairment
of long-lived assets, certain identifiable intangibles and goodwill related
both to assets to be held and used, and assets of which are to be disposed.
The Statement is effective for financial statements issued for fiscal years
beginning after December 31, 1995, and is not anticipated to have a
significant impact on the financial results of the Company.
<PAGE> 13
During 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" which provides new accounting guidelines over the
treatment of employee stock options. The Statement gives entities a choice of
either adopting a new fair value method of accounting for employee stock
options and expensing any related compensation costs in the income statement,
or continuing to apply Accounting Principles Board Opinion No. 25 and provide
proforma disclosure of the effect of the fair value method within the
financial statements. The Statement is effective for financial statements
beginning after December 15, 1995. The Company currently intends to adopt the
disclosure method of the Statement.
RECAPITALIZATION OF FDIC
Pending legislation to recapitalize the Federal Deposit Insurance
Corporation (FDIC) Savings Association Insurance Fund (SAIF) contemplates a
special assessment of approximately 80 to 90 basis points on SAIF insured
deposits at March 31, 1995. This special assessment would amount to
approximately $590,000 to $665,000, based on the Bank's level of deposits at
March 31, 1995. Management believes the strong capital position of the Bank
will be minimally affected by this one time charge and a reduction in the
annual FDIC premium assessment from $.23 to $.04 per $100 of deposits will
produce an improved earnings picture in the future. In addition, other
pending legislation includes a requirement that federally chartered thrifts
convert to national banks or state chartered institutions. Management cannot
predict or determine the ultimate form of any legislation or the impact such
final legislation would have on the Company and its operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party other than ordinary routine
litigation incidental to their respective businesses.
Item 4. Submission of Matters to a Vote of Security Holders
On April 24, 1996 the annual meeting of stockholders was held. At
the meeting, Robert H. Rusher, Elmer L. Hass and Michael J. Perri
were elected to serve as directors with terms expiring in 1999.
Continuing on as directors were Paul E. Rose and James L. Ferstel
whose terms will expire in 1997 and Mary Ann Hass and Joseph A.
Graber whose terms will expire in 1998. The Stockholders also
ratified the appointment of KPMG Peat Marwick LLP as the Company's
auditors for the fiscal year ending December 31, 1996.
The voting on each item presented at the annual meeting was a
follows:
Election of Directors For Withheld
Robert H. Rusher 965,661 41,347
Elmer L. Hass 965,661 41,347
Michael J. Perri 965,861 41,147
Ratification of the
appointment of KPMG
Peat Marwick LLP as the
Company's auditors for For Against Abstain
the fiscal year ending
December 31, 1996 961,760 34,422 5,880
There were 6,946 broker non-votes recorded.
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27 Financial Data Schedule
(b) 1. Form 8-K dated April 16, 1996, Registrant issued press
release dated April 16, 1996.
2. Form 8-K dated June 3, 1996, Registrant issued press release
dated June 3, 1996.
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORTH BANCSHARES,INC.
(Registrant)
Date August 8, 1996 /S/ Mary Ann Hass
Mary Ann Hass
Chairman and
Chief Executive Officer
Date August 8, 1996 /S/ Martin W. Trofimuk
Martin W. Trofimuk
Vice President and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Condition at June 30, 1996 (unaudited) and the
Consolidated Statement of Operations for the six months ended June 30, 1996
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 701
<INT-BEARING-DEPOSITS> 2,938
<FED-FUNDS-SOLD> 2,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,489
<INVESTMENTS-CARRYING> 8,284
<INVESTMENTS-MARKET> 34,165
<LOANS> 66,493
<ALLOWANCE> 208
<TOTAL-ASSETS> 119,436
<DEPOSITS> 75,547
<SHORT-TERM> 21,000
<LIABILITIES-OTHER> 3,625
<LONG-TERM> 750
0
0
<COMMON> 14
<OTHER-SE> 18,514
<TOTAL-LIABILITIES-AND-EQUITY> 119,436
<INTEREST-LOAN> 2,381
<INTEREST-INVEST> 1,539
<INTEREST-OTHER> 181
<INTEREST-TOTAL> 4,101
<INTEREST-DEPOSIT> 1,686
<INTEREST-EXPENSE> 2,281
<INTEREST-INCOME-NET> 1,820
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 1,434
<INCOME-PRETAX> 485
<INCOME-PRE-EXTRAORDINARY> 485
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 320
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 3.26
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 200
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 208
<ALLOWANCE-DOMESTIC> 208
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 208
</TABLE>
