<PAGE 1>
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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 March 31, 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 April 30, 1998, there were 1,280,278 outstanding shares of the
Registrant's Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
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<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 6. Exhibits and Reports on Form 8-K 14
FORM 10-QSB SIGNATURE PAGE 15
<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 MARCH 31, 1998 DEC 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 764 $ 727
Interest-bearing deposits 2,657 2,937
Federal funds sold 7,121 5,976
Investment in dollar denominated mutual funds 1,768 1,477
- --------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 12,310 11,117
Investment securities available for sale 21,125 23,250
Mortgage-backed securities held to maturity 5,560 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 March 31, 1998 and
December 31, 1997 75,776 79,031
Accrued interest receivable 803 1,060
Premises and equipment, net 1,019 1,043
Other assets 179 31
- --------------------------------------------------------------------------
TOTAL ASSETS $118,477 $123,078
==========================================================================
LIABLITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
Deposit accounts $ 73,449 $75,053
Borrowed funds 29,100 29,100
Advance payments by borrowers for
taxes and insurance 792 1,239
Accrued interest payable and other liabilities 1,567 1,101
- -------------------------------------------------------------------------
TOTAL LIABILITIES 104,908 106,493
- -------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized
500,000 shares; none outstanding - -
Common stock, $.01 Par value. Authorized
3,500,000 shares; issued 1,914,105 shares 19 19
Additional paid-in capital 13,626 13,767
Retained earnings, substantially restricted 11,153 11,139
Treasury stock at cost (633,827 shares at
March 31, 1998 and 484,293 shares at
December 31, 1997) (10,481) (7,706)
Accumulated other comprehensive income (220) (216)
Common stock acquired by Employee Stock
Ownership Plan (528) (555)
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,569 16,448
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $118,477 $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 MARCH 31,
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $1,494 $1,449
Interest-bearing deposits and federal funds sold 116 48
Investment securities available for sale 383 465
Mortgage-backed securities held to maturity 96 125
Investment in mutual funds 31 34
Dividends on FHLB stock 29 22
- ----------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,149 2,143
- ----------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 819 773
Borrowed funds 421 401
- ----------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,240 1,174
- ----------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 909 969
PROVISION FOR LOAN LOSSES - -
- ----------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 909 969
- ----------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of investment securities
available for sale, net 40 48
Fees and service charges 59 46
Other 4 4
- ----------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 103 98
- ----------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and benefits 452 394
Occupancy expense 125 113
Professional fees 75 38
Data processing 47 42
Advertising and promotion 25 31
Federal deposit insurance premium 12 12
Recognition and retention plan - 19
Other 63 97
- ---------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 799 746
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 213 321
INCOME TAX EXPENSE 58 92
- ---------------------------------------------------------------------------
NET INCOME $ 155 $ 229
===========================================================================
EARNINGS PER SHARE:
Basic $.12 $.15
Diluted $.12 $.15
===========================================================================
AVERAGE SHARES OUTSTANDING:
Basic 1,272,779 1,484,931
Diluted 1,341,510 1,558,490
===========================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 5>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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 - - 229 - -
Change in unrealized loss on
securities available for sale, net - - - - (36)
additional liability adjustment for
employee pension plan, net - - - - -
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 21 - - -
Amortization of award of MRP stock - - - - -
Purchase of treasury stock, 23,000 shares - - - (424) -
Cash dividend ($.08 per share) - - 127 - -
- --------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 14 13,709 11,090 (5,764) (822)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 19 13,767 11,139 (7,706) (216)
Comprehensive income:
Net income - - 155 - -
Change in unrealized loss on
securities available for sale, net - - - - (4)
Additional liability adjustment for
employee pension plan, net - - - - -
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 48 - - -
Purchase of treasury stock, 173,198 shares - - - (3,144)
Cash dividend ($.10 per share) - - (141) -
Options exercised and reissuance of
treasury stock, 23,664 shares - (189) - 369 -
- -------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 19 13,626 11,153 (10,481) (220)
- -------------------------------------------------------------------------------------------------------------------------
<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 - - 229
Change in unrealized loss on
securities available for sale, net - - (36)
Additional liability adjustment for
employee pension plan, net - - -
--------
Comprehensive income - - 193
Payment on ESOP loan 28 - 28
Market adjustment for common ESOP shares - - 21
Amortization of award of MRP stock - 19 19
Purchase of treasury stock, 23,000 - - (424)
Cash dividend ($.08 per share) - - (127)
- -------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 (639) (55) 17,533
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 (555) - 16,448
Comprehensive income:
Net income - - 155
Change in unrealized loss on
securities available for sale, net - - (4)
Additional liability adjustment for
employee pension plan, net - - -
-------
Comprehensive income - - 151
Payment on ESOP loan 27 - 27
Market adjustment for common ESOP shares - - 48
Purchase of treasury stock, 173,198 shares - - (3,144)
Cash dividend ($.10 per share) - - (141)
Options exercised and reissuance of
treasury stock, 23,664 shares - - 180
- -----------------------------------------------------------------------------------------------
Balance at March 31, 1998 (528) - 13,569
================================================================================================
</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 MONTHS ENDED MARCH 31,
- ---------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 155 $ 229
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 24 36
Deferred loan fees, net of amortization 6 (1)
Amortization of premiums and discounts 1 11
ESOP and MRP compensation expense 75 47
Gain on sale of investment securities available
for sale, net (40) (48)
Changes in assets and liabilities:
Decrease (increase) in accrued interest
receivable 257 (59)
Decrease (increase) in other assets, net (148) 10
Increase in other liabilities 306 1,024
- -----------------------------------------------------------------------------
Net cash provided by operating activities 636 1,249
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities available
for sale 6,730 -
Purchase of investment securities available
for sale (4,912) (5,225)
Proceeds from sales of investment securities
available for sale 353 326
Repayment of mortgage-backed securities held
to maturity 281 326
Loan originations (5,467) (2,420)
Loan repayments 8,716 1,703
Purchase of Federal Home Loan Bank of Chgo Stock - (185)
Purchase of premises and equipment - (49)
- ----------------------------------------------------------------------------
Net cash provided by (used in) investing activities 5,701 (5,524)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposit accounts (1,592) (1,487)
Increase in borrowed funds - 3,700
Increase in advance payments by borrowers for
taxes and insurance (447) (388)
Payment of cash dividend (141) (127)
Proceeds from stock options exercised 180 -
Purchase of treasury stock (3,144) (424)
- ----------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,144) 1,274
- ----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,193 (3,001)
Cash and cash equivalents at beginning of period 11,117 8,609
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $12,310 $ 5,608
============================================================================
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest 873 667
Taxes 240 -
============================================================================
</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 March 31,
1998 and results of operations for the three-month periods ended March 31,
1998 and March 31, 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 Baord 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 periods ended
(In thoudsands, except share data) March 31, 1998 March 31, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net Income $ 155 229
Denominator:
Basic earnings per share-weighted
average shares outstanding 1,272,779 1,484,931
Effect of dilutive stock options
outstanding 68,731 73,559
Diluted earnings per share-adjusted
weighted average shares outstanding 1,341,510 1,558,490
Basic earnings per share .12 .15
Diluted earnings per share .12 .15
==============================================================================
</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 teh 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
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended March 31, 1997
Disclosure of reclassification amount:
Unrealized holding loss on securities
arising during the period $(105) 39 (66)
Less: reclassification adjustment for
gain included in net income 48 (18) 30
- -----------------------------------------------------------------------------
Net unrealized loss on securities $(57) 21 (36)
- -----------------------------------------------------------------------------
Three months ended March 31, 1998
Disclosure of reclassification amount:
Unrealized holding loss on securities
arising during the period $(47) 20 (27)
Less: reclassification adjustment for
gain included in net income 40 (17) 23
- -----------------------------------------------------------------------------
Net unrealized loss on securities $ (7) 3 (4)
- -----------------------------------------------------------------------------
</TABLE>
(5) Stock Repurchase Program
On January 26, 1998, the Company announced a 75,000 share stock repurchase
program. On February 2, 1998, the Company announced the completion of the
repurchase program initiated on January 26, 1998 and a new stock repurchase
program of an additional 75,000 shares or approximately 5.3% of its then
outstanding shares of common stock. 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 Stockholders and the Company.
(6) Dividend Declaration
On April 17, 1998, the Company announced that the Board of Directors
declared a quarterly dividend of $.10 per share, payable on May 15, 1998 to
stockholders of record on May 1, 1998.
<PAGE 9>
(7) Commitments and Contingencies
At March 31, 1998, the Bank had outstanding commitments to originate
mortgage loans in the amount of $2.5 million and unused home equity lines of
credit totaling $199,000. Also at March 31, 1998, the Company also had a
$500,000 commitment to fund a participating interest in the Financial
Institutions Capital Appreciation Partners I, LP., a limited partnership
established to invest in financial institutions common stocks.
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, borrows funds or enters into reverse repurchase
agreements and uses such funds to originate or acquire one-to-four family
residential mortgages, or 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 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 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 per share information has been adjusted to reflect the three-for-two
stock split effected inthe 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 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.
<PAGE 10>
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.
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. The costs associated with the compliance
efforts have yet to be determined but 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 through the use of reverse
federal funds. The Bank 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 Bank 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 4% of the sum of its average daily balance of net
withdrawable accounts and borrowings payable in one year or less. At March
31, 1998, the Bank's liquidity ratio was 12.9% compared with 10.8% at March
31, 1997. The increase is liquidity was the result of mortgage loans being
repaid 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 single family, condominium and multi-family
residential properties, and purchasing of U.S. government agency securities
and to a lesser extent mortgage backed securities. Management intends to
continue to focus its lending efforts on these types of properties while
expanding its consumer lending with a focus on home equity lines of credit
and manufactured housing loans.
During the quarter ended March 31, 1998, the Company originated and
purchased $5.5 million in mortgage, consumer, and commercial loans compared
with $2.4 million during the quarter ended March 31, 1997. The Company also
purchased $4.9 million of securities, and repurchased $3.1 million in Company
stock during the quarter.
<PAGE 11>
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 March 31, 1998, the Bank exceeded
its regulatory capital standards. At such date, the Bank's tangible capital,
core capital and risk-based capital of $11.7 million, $11.7 million and $11.9
million, respectively, exceeded the applicable minimum requirements by $10.0
million or 8.5%, $8.2 million or 7.0% and $8.3 million or 18.6%, respectively.
CHANGES IN FINANCIAL CONDITION
Total assets decreased $4.6 million or 3.7% from $123.1 million at
December 31, 1997 to $118.5 million at March 31, 1998. The decrease was
primarily attributable to a $3.2 million decrease in net loans receivable
from $79.0 million at December 31, 1997 to $75.8 million March 31, 1998 and a
$2.1 million or 9.1% decrease investment securities available for sale from
$23.2 million at December 31, 1997 to $21.1 million at March 31, 1998.
Net loans receivable decreased $3.2 million or 4.1% from $79.0 million at
December 31, 1997 to $75.8 million at March 31, 1998. The Company originated
$5.5 million in mortgage, consumer and commercial loans during the three
months ended March 31, 1998. Repayments of loans during the three months
ended March 31, 1998 amounted to $8.7 million, primarily attributable to the
high level of mortgage refinancing activity that occured during the period
due to the decline in interest rates.
Investment securities decreased $2.1 million or 9.1% from $23.2 million
at December 31, 1997 to $21.1 million at March 31, 1998. The decrease was
primarily attributable to federal agency securities being called prior to
maturity.
Deposit accounts decreased $1.6 million or 2.1% from $75.0 million at
December 31, 1997 to $73.4 million at March 31, 1998. The decrease was
primarily attributable to a $1.9 million decrease in certificates of deposit,
offset by a $300,000 net increase in checking, passbook and money market
accounts. The number of checking accounts increased by 2.3% as a result of
the continued marketing of a Free Checking Account product. Management
expects to experience some additional deposit shifting from certificates and
interest-bearing checking accounts to non-interest bearing checking accounts
as it continues to promote free checking accounts. The Bank also plans to
introduce an enhanced version of its Money Market Deposit Account during the
second quarter of 1998 that may result in more deposits shifting from
certificate accounts.
Stockholders' Equity decreased $2.8 million or 17.1% from $16.4
million at December 31, 1997 to $13.6 million at March 31, 1998. The decrease
was primarily attributable to a $2.8 million increase in treausry stock
related to $3.1 million in stock repurchases offset by $369,000 in stock
options exercised. Retained earnings increased $14,000 from $11.1 million
at December 31, 1997 to $11.2 million at March 31, 1998. The increase is
attributable to $155,000 in net income offset by $141,000 in dividend
payments.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
MARCH 31, 1997
GENERAL. Net income decreased $74,000 or 32.3% from $229,000 for the
three months ended March 31, 1997 to $155,000 for the three months ended
<PAGE 12>
March 31, 1998. Diluted earnings per share decreased $.03 or 20.0% from $.15
per share for the three months ended March 31, 1997 to $.12 for the three
months ended March 31, 1998. The decrease was primarily attributable to a
$60,000 decrease in net interest income and a $52,000 increase in non-interest
expenses primarily related to increses in compensation and benefits expense
and professional fees.
INTEREST INCOME. Interest income remained steady at $2.1 million for
the three months ended March 31, 1997 and March 31, 1998. Thereswas a
decrease in the annualized yield on average interest-earning assets from
7.35% for the three months ended March 31, 1997 to 7.27% for the three months
ended March 31, 1998. Average interest-earning assets increased $1.6 million
or 1.4% from $116.7 million for the three months ended March 31, 1997 to
$118.3 million for the three months ended March 31, 1998.
INTEREST EXPENSE. Interest expense inecreased $66,000 or 5.5% and
remained at $1.2 million for the three months ended March 31, 1997 and March
31, 1998. The increase was attributable to a $46,000 increase in interest on
deposit accounts and a $20,000 increase in interest on borrowed funds. The
average balance of interest-bearing deposit accounts increased $1.5 million
or 2.0% from $71.5 million for the three months ended March 31, 1997 to $73.0
million for the three months ended March 31, 1998. The average balance of
borrowed funds increased by $3.1 million or 11.9% from $26.0 million for the
three months ended March 31, 1997 to $29.1 million for the three months ended
March 31, 1998. There was a slight increase in the annualized average cost
of interest-bearing liabilities from 4.78% for the three months ended March
31, 1997 to 4.86% for the three months ended March 31, 1998, due primarily to
bonus interest paid on certificates of deposit.
PROVISION FOR LOAN LOSSES. The Company did not add to its allowance for
loan losses for the three months ended March 31, 1998 or March 31, 1997. The
allowance for loan losses to loans receivable amounted to .28% at March 31,
1998, however, there were no loans delinquent 60 days or more at March 31,
1998. 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 increased $5,000 or 5.1% from
$98,000 for the three months ended March 31, 1997 to $103,000 for the three
months ended March 31, 1998. The increase was attributable to a $13,000
increase in fees and services charges offset by a $8,000 decrease in gains on
the sale of investment securities, available for sale. The increase in fees
and service charges is related to an increase in the number of transaction
accounts that produce fee income, interchange fees on foreign ATM transactions,
debit card transaction fees and increased safe deposit vault rentals.
NON-INTEREST EXPENSE. Non-interest expense increased $53,000 or 7.1%
from $746,000 for the three months ended March 31, 1997 to $799,000 for the
three months ended March 31, 1998. The increase was primarily attributable
to a $58,000 increase in compensation and benefits expense, related to the
expansion of the hours of operation and a $27,000 increase in additional ESOP
expense, a component of compensation and benefits expense. The additional
ESOP expense is related to an increase, during the quarter ended March 31,
1998, in the market price of the Company's stock committed to be released
under the ESOP. For the quarter ended March 31, 1998, a total of $48,000 in
ESOP expense, compared with $21,000 for the quarter ended March 31, 1997, was
recorded along with an offsetting entry to additional paid in capital and
therefore stockholders' equity was unaffected by the transaction. In
addition, there was a $37,000 increase in professional fees directly related
to a review of a rejected unsolicited offer to purchase the Company and
shareholder proposals.
<PAGE 13>
INCOME TAX EXPENSE. The allocation for income taxes decreased by
$34,000 from $92,000 for the three months ended March 31, 1997 to $58,000 for
the three months ended March 31, 1998. The decrease was primarily
attributable to a $108,000 decrease in income before taxes. The effective
tax rate decreased from 28.7% for the three months ended March 31, 1997 to
27.2% for the three months ended March 31, 1998 due primarily to securities
gains which offset a capital loss carry-forward and are therefore not taxed.
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 adoption of this statement did not 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.
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.
<PAGE 14>
RECENT DEVELOPMENTS
On April 27, 1998, the Board of Directors announced the retirement of
Mary Ann Hass as chief Executive Officer of the Company and the Bank effective
July 31, 1998. The Board of Directors appointed Joseph A. Graber, currently
President and Chief Operating Officer to fill the position of Chief Executive
Officer and Victor E. Caputo, currently Executive Vice President and Secretary
to fill the position of Chief Operating Officer. Mrs. Hass will remain as
Chairman of both the Company and 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.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
EX-27 Financial Data Schedule
(B) 1. Form 8-K dated January 22, 1998, Registrant issued press
release dated January 22, 1998 regarding fourth quarter
1997 earnings and an increase in the regular quarterly
dividend.
2. Form 8-K dated January 26, 1998 regarding a stock repurchase
program.
3. Form 8-K dated February 4, 1998 regarding the completion of
the stock repurchase program initiated on January 26, 1998
and a new stock repurchase program.
<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 May 14, 1998 /S/ Joseph A. Graber
Joseph A. Graber
President
Date May 14, 1998 /S/ Martin W. Trofimuk
Martin W. Trofimuk
Vice President and
Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Condition at March 31, 1998 (unaudited) and the
Consolidated Statement of Operations for the three months ended March 31, 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.
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