<PAGE 1>
=============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
( ) 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, 1998, there were 1,272,723 outstanding 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 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
FORM 10-QSB SIGNATURE PAGE 16
<PAGE 3>
Part I. Financial Information
Item 1. Consolidated Financial Statements
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 DEC 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 781 $ 727
Interest-bearing deposits 3,061 2,937
Federal funds sold 5,593 5,976
Investment in dollar denominated mutual funds 178 1,477
- --------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 9,613 11,117
Investment securities available for sale 29,178 23,250
Mortgage-backed securities held to maturity 5,092 5,841
Stock in Federal Home Loan Bank of Chicago 1,705 1,705
Loans receivable, net of allowance for loan
losses of $208 at June 30, 1998 and
December 31, 1997 75,628 79,031
Accrued interest receivable 1,029 1,060
Premises and equipment, net 1,000 1,043
Other assets 66 31
- --------------------------------------------------------------------------
TOTAL ASSETS $123,311 $123,078
==========================================================================
LIABLITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
Deposit accounts $ 72,844 $75,053
Borrowed funds 34,100 29,100
Advance payments by borrowers for
taxes and insurance 1,213 1,239
Accrued interest payable and other liabilities 1,811 1,101
- -------------------------------------------------------------------------
TOTAL LIABILITIES 109,968 106,493
- -------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized
500,000 shares; none outstanding - -
Common stock, $.01 Par value. Authorized
3,500,000 shares; issued 1,914,075 shares 19 19
Additional paid-in capital 13,658 13,767
Retained earnings, substantially restricted 11,090 11,139
Treasury stock at cost (649,381 shares at
June 30, 1998 and 484,293 shares at
December 31, 1997) (10,746) (7,706)
Accumulated other comprehensive income (178) (216)
Common stock acquired by Employee Stock
Ownership Plan (500) (555)
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,343 16,448
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $123,311 $123,078
==========================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 4>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $1,463 $1,487 $2,957 $2,936
Interest-bearing deposits and federal funds sold 135 34 251 82
Investment securities available for sale 399 512 782 977
Mortgage-backed securities held to maturity 80 121 176 246
Investment in mutual funds 9 18 40 52
Dividends on FHLB stock 33 23 62 45
- ------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,119 2,195 4,268 4,338
- ------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 798 779 1,617 1,552
Borrowed funds 458 446 879 847
- ------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,256 1,225 2,496 2,399
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 863 970 1,772 1,939
PROVISION FOR LOAN LOSSES - - - -
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 863 970 1,772 1,939
- ------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of investment securities and loans
available for sale, net 20 6 60 54
Fees and service charges 66 57 125 103
Other 5 5 9 9
- ------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 91 68 194 166
- ------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and benefits 432 418 884 812
Occupancy expense 127 117 252 230
Professional fees 77 48 153 86
Data processing 49 43 96 85
Advertising and promotion 39 32 63 63
Federal deposit insurance premium 11 11 23 23
Recognition and retention plan - 23 - 42
Other 88 104 151 201
- ------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 823 796 1,622 1,542
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 131 242 344 563
INCOME TAX EXPENSE 65 67 123 159
- ------------------------------------------------------------------------------------------
NET INCOME 66 175 221 404
==========================================================================================
EARNINGS PER SHARE:
Basic .05 .12 .18 .28
Diluted .05 .12 .17 .26
==========================================================================================
AVERAGE SHARES OUTSTANDING:
Basic 1,207,513 1,434,162 1,242,091 1,461,655
Diluted 1,272,066 1,509,856 1,308,002 1,532,717
============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 5>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional other
Common paid-in Retained Treasury comprehensive
stock capital earnings stock income
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 14 13,688 10,988 (5,340) (786)
Comprehensive income:
Net Income - - 404 - -
Change in unrealized loss on
securities available for sale, net - - - - 224
additional liability adjustment for
employee pension plan, net - - - - -
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 84 - - -
Amortization of award of MRP stock - - - - -
Purchase of treasury stock, 81,142 shares - - - (1,568) -
Cash dividend ($.16 per share) - - ( 251) - -
Options exercised and reissuance of
treasury stock, 17,777 shares - - - 257 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 14 13,772 11,141 (6,651) (562)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 19 13,767 11,139 (7,706) (216)
Comprehensive income:
Net income - - 221 - -
Change in unrealized loss on
securities available for sale, net - - - - 40
Additional liability adjustment for
employee pension plan, net - - - - -
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 91 - - -
Purchase of treasury stock, 192,948 shares - - - (3,478)
Cash dividend ($.20 per share) - - (270) -
Options exercised and reissuance of
treasury stock, 27,830 shares - (200) - 438 -
- -------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 19 13,658 11,090 (10,746) (178)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Common
stock Deferred
acquired by compen-
ESOP sation Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 (667) (74) 17,823
Comprehensive income:
Net income - - 404
Change in unrealized loss on
securities available for sale, net - - 224
Additional liability adjustment for
employee pension plan, net - - -
--------
Comprehensive income - - 628
Payment on ESOP loan 56 - 56
Market adjustment for common ESOP shares - - 84
Amortization of award of MRP stock - 43 43
Purchase of treasury stock, 81,142 - - (1,568)
Cash dividend ($.16 per share) - - (251)
Options exercised and reissuance of
tresury stock, 17,777 - - 257
- -------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 (611) (31) 17,072
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 (555) - 16,448
Comprehensive income:
Net income - - 221
Change in unrealized loss on
securities available for sale, net - - 38
Additional liability adjustment for
employee pension plan, net - - -
-------
Comprehensive income - - 259
Payment on ESOP loan 55 - 55
Market adjustment for common ESOP shares - - 91
Purchase of treasury stock, 192,948 shares - - (3,478)
Cash dividend ($.20 per share) - - (270)
Options exercised and reissuance of
treasury stock, 27,830 shares - - 238
- -----------------------------------------------------------------------------------------------
Balance at June 30, 1998 (500) - 13,343
================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE 6>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<Cation>
FOR THE THREE SIX ENDED JUNE 30,
- ---------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 221 $ 404
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 44 57
Deferred loan costs (fees), net of amortization 8 (7)
Amortization of premiums and discounts (4) 15
ESOP and MRP compensation expense 146 99
Gain on sale of investment securities and
loans available for sale, net (60) (54)
Changes in assets and liabilities:
Decrease (increase) in accrued interest
receivable 31 (120)
Increase (decrease) in other assets, net (35) 243
Increase in other liabilities 557 987
- -----------------------------------------------------------------------------
Net cash provided by operating activities 911 1,708
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities available
for sale 10,730 -
Purchase of investment securities available
for sale (17,166) (5,225)
Proceeds from sales of investment securities
and loans available for sale 799 3,001
Repayment of mortgage-backed securities held
to maturity 739 769
Loan originations (12,983) (9,036)
Loan repayments 16,235 4,973
Purchase of Federal Home Loan Bank of Chgo Stock - (185)
Purchase of premises and equipment (1) 58
- ----------------------------------------------------------------------------
Net cash used in investing activities (1,647) (5,761)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposit accounts (2,197) (1,978)
Increase in borrowed funds 5,000 3,700
Increase in advance payments by borrowers for
taxes and insurance (26) 106
Payment of cash dividend (270) (251)
Proceeds from stock options exercised 206 257
Purchase of treasury stock (3,478) (1,568)
- ----------------------------------------------------------------------------
Net cash (used in) provided by financing activities (765) 266
- ----------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,504) (3,787)
Cash and cash equivalents at beginning of period 11,117 8,609
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,613 4,822
============================================================================
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $1,538 1,530
Taxes 265 -
============================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE 7>
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-X. 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 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 June 30,
1998 and results of operations for the three and six-month periods ended
June 30, 1998 and June 30, 1997, 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
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share is calculated
by dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted earnings per share is calculated
by dividing net income by the weighted average number of shares adjusted for
the dilutive effct of outstanding stock options.
The Company adopted SFAS 128 at December 31, 1997. All earnings per
share amounts for prior periods have been restated under the provisions of
SFAS 128. The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three month For the six months
ended June 30, ended June 30,
(In thoudsands, except share data) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 66 175 221 404
Denominator:
Basic earnings per share-weighted
average shares outstanding 1,207,513 1,434,162 1,242,091 1,461,655
Effect of dilutive stock options
outstanding 64,553 75,694 65,911 71,062
Diluted earnings per share-adjusted
weighted average shares outstanding 1,272,066 1,509,856 1,308,002 1,532,717
Basic earnings per share .05 .12 .18 .28
Diluted earnings per share .05 .12 .17 .26
==============================================================================
</TABLE>
<PAGE 8>
(4) Comprehensive income
In June 1997, FASB issued SFAS No. 130, "Reporting comprehensive income",
which is effective for fiscal years beginning after December 15, 1997. This
statement establishes standards for reporting and display of comprehensive
income and its components (revenues, espenses, gains and losses) in a full set
of general purpose financial statements. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. The
Company adopted this statement effective January 1, 1998.
The following table sets forth the required disclosures of the
reclassification amounts as presented on the statement of changes in
stockholders' equity and the related tax effects allocated to each component
of other comprehensive income for the periods indicated.
<TABLE>
<CAPTION>
Before Tax Net
Tax (Expense) of Tax
(In thousands) Amount or Benefit Amount
- -----------------------------------------------------------------------------
Three months ended June 30, 1997
Disclosure of reclassification amount:
Unrealized holding loss on securities
arising during the period $(415) 221 (194)
Less: reclassification adjustment for
gain included in net income 6 - 6
- -----------------------------------------------------------------------------
Net unrealized loss on securities $(409) 221 (188)
- -----------------------------------------------------------------------------
Three months ended June 30, 1998
Disclosure of reclassification amount:
Unrealized holding loss on securities
arising during the period (80) 29 (51)
Less: reclassification adjustment for
gain included in net income 20 (3) 17
- -----------------------------------------------------------------------------
Net unrealized loss on securities $ (60) 26 (34)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Six months ended June 30, 1997
Disclosure of reclassification amount:
Unrealized holding loss on securities
arising during the period $(520) 260 (260)
Less: reclassification adjustment for
gain included in net income 54 (18) 36
- -----------------------------------------------------------------------------
Net unrealized loss on securities $(466) 242 (224)
- -----------------------------------------------------------------------------
Six months ended June 30, 1998
Disclosure of reclassification amount:
Unrealized holding loss on securities
arising during the period $(127) 49 (78)
Less: reclassification adjustment for
gain included in net income 60 (20) 40
- -----------------------------------------------------------------------------
Net unrealized loss on securities $(67) 29 (38)
- -----------------------------------------------------------------------------
</TABLE>
(5) Stock Repurchase Program
On May 18, 1998, the Company announced a 50,000 share stock repurchase
program to begin upon completion of the 75,000 share repurchase program
announced on February 4, 1998. The repurchase program amounts to
approximately 3.9% of the outstanding shares of the Company. The Company
completed the 75,000 share program on May 18, 1998 and at June 30, 1998,
19,473 shares had been repurchsed under the current program. Shares will be
repurchased in open market transactions or in privately negotiated
transactions over a one year period. Management continues to believe that
stock repurchase programs provide enhanced value to both the Company and its
stockholders.
(6) Dividend Declaration
On July 14, 1998, the Company announced that the Board of Directors
declared a quarterly dividend of $.10 per share, payable on August 14, 1998 to
stockholders of record on July 31, 1998.
(7) Commitments and Contingencies
At June 30, 1998, the Bank had outstanding commitments to originate
mortgage loans in the amount of $2.6 million and unused equity lines of
credit totaling $425,000.
<PAGE 9>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The primary business of the Company is that of an independent 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 or borrows funds and uses such funds to originate or
acquire one-to-four family residential mortgages, loans secured by small
apartment buildings or mixed use properties. The Company has recently begun
originating equity lines of credit secured by real estate. The Company also
invests in U. S. Government and agency securities, federal agency mortgage-
backed 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 less non-interest
expense and income taxes. The Company's operating expenses consist
principally of employee compensation and benefits, occupancy expenses,
federal deposit 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.
All 1997 share and per share information has been adjusted to reflect a
three-for-two stock split effected in the form of a 50% stock dividend paid
on December 29, 1997 to stockholders of record on December 8, 1997.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, and in future filings by the Company 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
oans 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.
<PAGE 10>
YEAR 2000 COMPLIANCE
The comapny utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company's third-party data
processor and other software purchased which is operated on in-house personal
computers and a wide area network. During 1997, the Company initiated a
review and formed a committee to conduct an assessment of all hardware and
software systems to confirm they will function properly in the year 2000. To
date, we have not found anything material that would affect the operations of
the Company and the vendors who have been contacted have indicated that their
hardware and software is or will be Year 2000 compliant during the time frames
established by our regulators. Testing of hardware and software is ongoing
with the company's third-party data processor conducting system wide tests
during August 1998. The costs associated with the compliance efforts are
estimated to be approximately $25,000 to $40,000 in total and are not
expected to have a significant impact on the Comapny's ongoing results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Banks's primary sources of funds are deposits, borrowings from the
Federal Home Loan Bank of Chicago, amortization and prepayment of loans and
mortgage-backed securities, sales and maturities of other investment
securities and occasionally the use of reverse repurchase agreements. The
Bank can also borrow from its correspondent banks. The Bank uses its liquid
resources to fund loan commitments, to meet operating expenses, to invest and
to fund deposit withdrawals. Management believes that loan repayments and
the other sources of funds will be adequate to meet the liquidity needs of
the Bank.
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 4% of the sum of its average daily balance of net
withdrawable accounts and borrowings payable in one year or less. At June
30, 1998, the Bank's liquidity ratio was 11.6% compared with 7.5% at June
30, 1997. The increase in liquidity was the result of a higher than normal
amount of mortgage loans being prepaid prior to the end of the quarter and
the funds temporarily deployed into shorter term liquid assets.
The primary investing activities of the Company are lending on owner
occupied and non-owner occupied one-to four-family residential properties,
multi-family residential properties, and mixed use properties. The Company
also purchases U.S. government agency securities and to a lesser extent
purchased mortgage backed securities. Management intends to continue to
focus its lending efforts on these types of properties while expanding its
consumer lending to include manufactured housing loans and by expanding real
estate lending to include equity lines of credit.
For the six months ended June 30, 1998, the Company originated and
purchased $13.0 million in mortgage, consumer, and commercial loans compared
with $9.0 million during the six months ended June 30, 1997. Loan repayments
amounted to $16.2 million during the six months ended June 30, 1998 compared
with $5.0 million during the six months ended June 30, 1997. The Company
purchased $17.2 million of securities during the six months ended June 30,
1998 compared with $5.2 million during the six months ended June 30, 1997 and
repurchased $3.5 million in Company stock during the six month period ended
June 30, 1998 compared with $1.6 million during the six month period ended
June 30, 1997.
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, 1998, the Bank exceeded
its regulatory capital standards. At such date, the Bank's tangible capital,
core capital and risk-based capital of $11.9 million, $11.9 million and $12.1
million, respectively, exceeded the applicable minimum requirements by $10.1
million or 8.2%, $8.4 million or 6.7% and $8.5 million or 19.1%, respectively.
<PAGE 11>
CHANGES IN FINANCIAL CONDITION
Total assets were $123.3 million at June 30, 1998, an increase of
$200,000 from $123.1 million at December 31, 1997.
Net loans receivable amounted to $75.6 million at June 30, 1998, a
decline of $3.4 million from $79.0 million at December 31, 1997. The
Company originated $13.0 million in mortgage, consumer and commercial loans
during the six months ended June 30, 1998. Repayments of loans during the
six months ended June 30, 1998 amounted to $16.4 million, primarily
attributable to the high level of mortgage loan refinancing activity that
occured during the period due to the decline in interest rates.
Investment securities amounted to $29.2 million at June 30, 1998, an
increase of $5.9 million from $23.3 million at December 31, 1997. The
increase was primarily attributable to the purchase of a $5.0 million federal
agency security leveraged with a $5.0 million Federal Home Loan Bank advance.
These transactions are done to increase income at little interest rate risk
by securing FHLB advances to purchase U. S. Government securities, in order
to obtain an attractive interest rate spread.
Borrowed funds totaled $34.1 million at June 30, 1998, an increase of
$5.0 million from $29.1 million at December 31, 1997. The increase is
attributable to a $5.0 million leveraged security transaction described above
under investment securities.
Deposit accounts amounted to $72.8 million at June 30, 1998, a decrease
of $2.2 million from $75.0 million at December 31, 1997. The decrease was
primarily attributable to a $2.4 million decrease in certificates of deposit,
offset by a $200,000 net increase in checking, passbook and money market
accounts. The decrease in certificates is attributed to the maturity and
withdrawal of certificates that had been paid a bonus rate of interest and
would have renewed at a lower rate. The number of checking accounts
increased by 4.1% since December 31, 1997, as a result of the continued
marketing of the Free Checking Account product. Management expects to
experience some additional deposit shifting from interest-bearing accounts to
non-interest bearing checking accounts as it continues to promote free
individual checking accounts and small business checking accounts. The Bank
introduced an enhanced version of its Money Market Deposit Account on July 1,
1998, which is designed to result in more deposits shifting from certificate
accounts.
Stockholders' Equity was $13.3 million at June 30, 1998, a decrease of
$3.1 million from $16.4 million at December 31, 1997. The reduction was
primarily attributable to a $3.0 million increase in treausry stock due to
$3.5 million in stock repurchases offset by $438,000 in stock options
exercised. Retained earnings amounted to $11.1 million at June 30, 1998 and
at December 31, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
GENERAL. Net income was $66,000 for the three months ended June 30, 1998
a decrease of $109,000 from $175,000 for the three months ended June 30, 1997.
Diluted earnings per share amounted to $.05 for the three months ended June 30
, 1998 a decrease of $.07 from $.12 per share for the three months ended June
30, 1997. The decrease was primarily attributable to a decline in net
interest income and an increase in professional fees related to shareholder
proposals and annual meeting expenses, partially offset by a decrease in the
weighted average number of shares outstanding.
INTEREST INCOME. Interest income amounted to $2.1 million for the three
months ended June 30, 1998, a decrease of $76,000 from $2.2 million for the
three months ended June 30, 1997. There was a decline in the annualized
yield on average interest-earning assets from 7.50% for the three months
ended June 30, 1997 to 7.15% for the three months ended June 30, 1998. The
decrease was primarily attributable to mortgage loans refinanced at lower
rates and higher yielding securities called prior to maturity with the
proceeds temporarily invested at lower rates. The reduction in yield was
partially offset by the increase in average interest-earning assets to
<PAGE 12>
$118.6 million for the three months ended June 30, 1998, an increase of $1.9
million from $117.0 million for the three months ended June 30, 1997.
INTEREST EXPENSE. Interest expense amounted to $1.3 million for the
three months ended June 30, 1998, an increase of $31,000 from $1.2 million
for the three months ended June 30, 1997. The increase was primarily
attributable to a $19,000 increase in interest on deposit accounts and a
$12,000 increase in interest on borrowed funds. The average balance of
interest-bearing deposit accounts was $71.4 million for the three months ended
June 30, 1998, an increase of $700,000 from $70.7 million for the three
months ended June 30, 1997. The average balance of borrowed funds was $32.8
million for the three months ended June 30, 1998, an increase of $4.7
million from $28.1 million for the three months ended June 30, 1997. The
annualized average cost of interest-bearing liabilities was 4.82% for the
three months ended June 30, 1998, an improvement from 4.96% for the three
months ended June 30, 1997. The improvement was due primarily to a decrease
in the average cost of borrowed funds from 6.36% for the three months ended
June 30, 1997 to 5.58% for the three months ended June 30, 1998.
PROVISION FOR LOAN LOSSES. The Company did not add to its allowance for
loan losses for the three months ended June 30, 1998 or June 30, 1997. The
allowance for loan losses was $208,000 and amounted to .28% of loans
receivable at June 30, 1998, however, there were no loans delinquent 60 days
or more at June 30, 1998 or at June 30, 1997. 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 and composition 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 amounted to $91,000 for the
three months ended June 30, 1998, an increase of $23,000 from $68,000 for the
three months ended June 30, 1997. The increase was attributable to a $14,000
increase in gain on the sale of investment securities and loans available for
sale and a $9,000 increase in fees and service charges. The improvement in
fees and service charges is related to a greater number of transaction
accounts that produce fee income, in addition to increases in interchange
fees on foreign ATM transactions, debit card transaction fees and increased
safe deposit vault rentals.
NON-INTEREST EXPENSE. Non-interest expense amounted to $823,000 for the
three months ended June 30, 1998, an increase of $27,000 from $796,000 for
the three months ended June 30, 1997. The increase was primarily
attributable to $29,000 in additional professional fees related to the annual
stockholders meeting and shareholder proposals. In addition, there was a
$24,000 increase in compensation and benefits expense and occupancy expense
related to an extension of the hours of operation partially offset by a
$23,000 reduction in recognition and retention plan expense. The reduction in
recognition and retention plan expense is due to the expiration of the expense
accrual period related to Company stock allocated to the benefit plan in
December 1993.
INCOME TAX EXPENSE. The allocation for income taxes was $65,000 for the
three months ended June 30, 1998, a decrease of $2,000 from $67,000 for the
three months ended June 30, 1997. The effective tax rate was 49.6% for the
three months ended June 30, 1998, an increase from 27.7% for the three months
ended June 30, 1997.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997.
GENERAL. Net income amounted to $221,000 for the six months ended June
30, 1998, a decrease of $183,000 from $404,000 for the six months ended June
30, 1997. Diluted earnings per share were $.17 for the six months ended June
30, 1998, a decrease of $.09 from $.26 per share for the six months ended June
30, 1997. The decrease was primarily attributable to a decline in net
interest income and an increase in non-interest expenses primarily realted to
increases in professional fees, compensation and benefits expense and
occupancy expenses, partially offset by a decrease in teh weighted average
number of shares outstanding.
<PAGE 13>
INTEREST INCOME. Interest income was $4.3 million for the six months
ended June 30, 1998, a $70,000 decrease from the six months ended June 30,
1998. There was a decline in the annualized yield on average interest-
earning assets to 7.18% for the six months ended June 30, 1998 from 7.42% for
the six months ended June 30, 1997. The decline was primarily attributable
to the high level of refinance activity and higher yielding investment
securities called prior to maturity. Average interest-earning assets
amounted to $118.9 million for the six months ended June 30, 1998, an
improvement of $2.0 million from $116.9 million for the six months ended
June 30, 1997, which partially offset the yield reduction.
INTEREST EXPENSE. Interest expense was $2.5 million for the six months
ended June 30, 1998, an increase of $97,000 from $2.4 million for the six
months ended June 30, 1997. The increase was attributable to a $65,000
increase in interest on deposit accounts and a $32,000 increase in interest
on borrowed funds. The average balance of interest-bearing deposit accounts
was $72.3 million for the six months ended June 30, 1998, an increase of $1.2
million from $71.1 million for the six months ended June 30, 1997. The
average balance of borrowed funds amounted to $31.2 million for the six
months ended June 30, 1998, an increase of $4.3 million from $26.9 million
for the six months ended June 30, 1997. The annualized average cost of
interest-bearing liabilities was 4.82% for the six months ended June 30, 1998
, an improvement from 4.90% for the six months ended June 30, 1997, due
primarily to an improvement in the average cost of borrowed funds from 6.30%
for the six months ended June 30, 1997 to 5.63% for the six months ended June
30, 1998.
PROVISION FOR LOAN LOSSES. The Company did not add to its allowance for
loan losses for the six months ended June 30, 1998 or June 30, 1997. The
allowance for loan losses was $208,000 and amounted to .28% of loans
receivable at June 30, 1998, however, there were no loans delinquent 60 days
or more at June 30, 1998 or at June 30, 1997. 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 and composition 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 amounted to $194,000 for the
six months ended June 30, 1998, an improvement of $28,000 from $166,000 for
the six months ended June 30, 1997. The increase was primarily attributable
to a $22,000 increase in fees and service charges. The improvement in fees
and service charges is related to an increase in the number of transaction
accounts that produce fee income in addition to increases in interchange fees
on foreign ATM transactions, debit card transaction fees and increased safe
deposit vault rentals.
NON-INTEREST EXPENSE. Non-interest expense amounted to $1.6 million for
the six months ended June 30, 1998, an increase of $80,000 from $1.5 million
for the six months ended June 30, 1997. The increase was primarily
attributable to a $72,000 increase in compensation and benefits expense
related to an extension of the hours of operation. In addition, there was a
$67,000 increase in professional fees primarily related to an unsuccessful
hostile takeover attempt, annual shareholders meeting and shareholder
proposals. For the six months ended June 30, 1998, a total of $91,000 in
ESOP expense, compared with $84,000 for the six months ended June 30, 1997,
was recorded along with an offsetting entry to additional paid in capital,
and therefore stockholders' equity was unaffected by the transaction. There
was no recognition and retention plan expense for the six months ended June
30, 1998 due to the expiration of the expense accrual period related to
company stock allocated to the benefit plan in December 1993.
INCOME TAX EXPENSE. The allocation for income taxes was $123,000 for the
six months ended June 30, 1998, a decrease of $36,000 from $159,000 for the
six months ended June 30, 1997. The decrease was primarily attributable to a
$219,000 decline in income before taxes. The effective tax rate was 35.8%
for the six months ended June 30, 1998, an increase from 28.2% for the six
months ended June 30, 1997.
<PAGE 14>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS AND OTHER REGULATORY ISSUES
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers
The Company does not expect the adoption of this statement will have a
material effect on the Comapny's financial statements.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits", which is effective for fiscal
years beginning after December 15, 1997. This statement amends the
disclosure requirements of SFAS No. 87, "Employers' Accounting for Pensions,
SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." The
statement standardizes the disclosure requirements of Statements No. 87 and
No. 106 to the extent practicable and recommends a parallel format for
presenting information about pensions and other postretirement benefits.
Statement 132 only addresses disclosure and does not change any of the
measurement or recognition provisions provided for in Statements No. 87, No.
88, or No. 106. This statement is not expected to have a material effect on
the Company's financial statements when adopted.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the first quarter
of the fiscal year beginning after June 15, 1999. The statement establishes
accounting and reporting standards for derivative instruments and requires
measuring and recording on the balance sheet, the change in fair value of
the hedged risk portion of a derivative investment. If the derivative does
not qualify as a hedge, the gains and losses are reported in earnings when
they occur. This statement is not expected to have a meterial effect on the
Comapny's financial statements when adopted.
PROPOSED LEGISLATION
Legislation has been introduced in Congress that would eliminate the
federal thrift charter by requiring each federal thrift to convert to a
national bank or a state bank or thrift. The pending legislation would allow
savings and loan holding companies, such as the Company, to continue to engage
in any activity they are currently allowed, provided they remain "qualified
bank holding companies." A thrift institution which is a subsidiary of a
qualified bank holding company must continue to satisfy the the qualified
thrift lender test and comply with certain investment limitations. If a
savings and loan holding company failed to meet these tests it would become
subject to certain restrictions applicable to bank holding companies. In
addition, Congress is also considering expanding the authority of bank holding
companies to engage in securities and insurance activities. Management cannot
predict or determine the ultimate form of this legislation or the impact such
final legislation would have on the operations of the Company or the Bank.
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.
<PAGE 15>
Item 4. Submission of Matter to a Vote of Security Holders.
On April 22, 1998, the annual meeting of stockholders was held. At the
meeting Mary Ann Hass and Joseph A. Graber were elected to serve as directors
with terms expiring in 2001. Continuing on as directors were robert H. Rusher
and Elmer L. Hass whose terms will expire in 1999 and James L. Ferstel and
Gregory W. Rose whose terms will expire in 2000. The stockholders ratified
the appointment of KPMG Peat Marwick LLP as the Company's auditors for the
fiscal year ending December 31, 1998. The stockholders rejected stockholder
proposals concerning certain voting provisions in the Company's Certificate of
Incorporation, the calling of special meetings of stockholders and
classification of the Company's Board of Directors.
The voting on each item presented at the annual meeting was as follows:
Election of Directors For Withheld
- --------------------- --- --------
Mary Ann Hass 1,051,948 198,765
Joseph A. Graber 1,058,870 191,843
Ratification of the
appointment of KPMG
Peat Marwick LLP as the Broker
Company's auditors for For Against Abstain Non-votes
the fiscal year ending --- ------- ------- ---------
December 31, 1998 1,135,839 108,311 6,653 None
Voting provisions in the
Company's Certificate of
Incorporation 316,150 763,947 22,824 147,792
The calling of special
meetings of stockholders 298,704 782,797 21,420 147,792
The classification of the
Company's Board of Directors 316,869 764,811 21,241 147,792
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
EX-27 Financial Data Schedule
(B) 1. Form 8-K dated April 20, 1998, Registrant issued press release dated
April 20, 1998 regarding first quarter 1998 earnings and a regular
quarterly dividend.
2. Form 8-K dated April 27, 1998 regarding the retirement of Mary Ann
Hass.
3. Form 8-K dated May 18, 1998 regarding a stock repurchase program.
<PAGE 16>
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 13, 1998 /S/ Joseph A. Graber
--------------------
Joseph A. Graber
President
Date August 13, 1998 /S/ Martin W. Trofimuk
----------------------
Martin W. Trofimuk
Vice President and
Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Condition at June 30, 1998 (unaudited) and the
Consolidated Statement of Operations for the six months ended June 30, 1998
(unaudited) and is qualified in its entirety by reference to such financial
statements. Earnings per share amounts for prior periods have been adjusted
to reflect a three-for-two stock split payable in the form of a 50% stock
dividend on December 29, 1997 to stockholders of record on December 8, 1997.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 781
<INT-BEARING-DEPOSITS> 3,061
<FED-FUNDS-SOLD> 5,593
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<INVESTMENTS-HELD-FOR-SALE> 29,178
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<LOANS> 75,628
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<TOTAL-ASSETS> 123,311
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