<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, 1999
( ) 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, 1999, there were 1,252,035 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 8
Part II - OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
FORM 10-QSB SIGNATURE PAGE 13
<PAGE 3>
Part I. Financial Information
Item 1. Consolidated Financial Statements
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1999 DEC 31, 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 971 $ 810
Interest-bearing deposits 2,047 2,413
Federal funds sold 4,344 5,722
Investment in dollar-denominated mutual funds 2,286 801
- --------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 9,648 9,746
Investment securities available for sale 16,393 14,880
Mortgage-backed securities held to maturity - 4,478
Mortgage-backed securities available for sale 14,436 10,884
Stock in Federal Home Loan Bank of Chicago 1,855 1,705
Loans receivable, net of allowance for loan
losses of $214 at March 31, 1999 and
December 31, 1998 82,771 82,123
Accrued interest receivable 801 849
Premises and equipment, net 1,013 1,021
Other assets 164 146
- --------------------------------------------------------------------------
TOTAL ASSETS 127,081 125,832
==========================================================================
LIABLITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
Deposit accounts 74,681 76,222
Borrowed funds 37,100 34,100
Advance payments by borrowers for
taxes and insurance 666 1,036
Accrued interest payable and other liabilities 1,619 1,152
- -------------------------------------------------------------------------
TOTAL LIABILITIES 114,066 112,510
- -------------------------------------------------------------------------
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 13,394 13,437
Retained earnings, substantially restricted 11,165 11,127
Treasury stock at cost (661,990 shares at
March 31, 1999 and 651,182 shares at
December 31, 1998) (10,762) (10,664)
Accumulated other comprehensive loss (384) (153)
Common stock acquired by Employee Stock
Ownership Plan (417) (444)
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,015 13,322
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $127,081 $125,832
==========================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 4>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $1,528 $1,494
Interest-bearing deposits and federal funds sold 80 116
Investment securities available for sale 252 383
Mortgage-backed securities held to maturity - 96
Mortgage-backed securities available for sale 230 -
Investment in mutual funds 13 31
Dividends on FHLB stock 29 29
- ----------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,132 2,149
- ----------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 797 819
Borrowed funds 470 421
- ----------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,267 1,240
- ----------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 865 909
PROVISION FOR LOAN LOSSES - -
- ----------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 865 909
- ----------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of investment securities
available for sale, net 33 40
Fees and service charges 77 59
Other 4 4
- ----------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 114 103
- ----------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and benefits 400 452
Occupancy expense 112 125
Professional fees 43 75
Data processing 51 47
Advertising and promotion 23 25
Federal deposit insurance premium 9 12
Other 70 63
- ---------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 708 799
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 271 213
INCOME TAX EXPENSE 95 58
- ---------------------------------------------------------------------------
NET INCOME 176 155
===========================================================================
EARNINGS PER SHARE:
Basic .15 .12
Diluted .14 .12
===========================================================================
AVERAGE SHARES OUTSTANDING:
Basic 1,204,652 1,272,779
Diluted 1,252,295 1,341,510
===========================================================================
</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, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<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, 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)
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 48 - - -
Purchase of treasury stock, 173,198 shares - - - (3,144) -
Cash dividend ($.10 per share) - - (141) - -
Options exercised and reissuance of treasury
stock, 23,664 shares - (189) - 369 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 19 13,626 11,153 (10,481) (220)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 19 13,437 11,127 (10,664) (153)
Comprehensive loss:
Net income - - 176 - -
Change in unrealized loss on
securities available for sale, net - - - - (231)
Comprehensive loss - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 20 - - -
Purchase of treasury stock, 17,308 shares - - - (205)
Cash dividend ($.11 per share) - - (138) -
Options exercised and reissuance of
treasury stock, 6,500 shares - (63) - 107 -
- -------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $19 13,394 11,165 (10,762) (384)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Common
stock
acquired
ESOP Total
- -------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 (555) 16,448
Comprehensive income:
Net income - 155
Change in unrealized loss on
securities available for sale, net - (4)
--------
Comprehensive income - 151
Payment on ESOP loan 27 27
Market adjustment for common ESOP shares - 48
Purchase of treasury stock, 173,198 - (3,144)
Cash dividend ($.10 per share) - (141)
Options exercised and reissuance of
treasury stock, 23,664 shares - 180
- ----------------------------------------------------------------------------------------
Balance at March 31, 1998 (528) 13,569
- ----------------------------------------------------------------------------------------
Balance at December 31, 1998 (444) 13,322
Comprehensive loss:
Net income - 176
Change in unrealized loss on
securities available for sale, net - (231)
-------
Comprehensive loss - (55)
Payment on ESOP loan 27 27
Market adjustment for common ESOP shares - 20
Purchase of treasury stock, 17,308 shares - (205)
Cash dividend ($.11 per share) - (138)
Options exercised and reissuance of
treasury stock, 6,500 shares - 44
- -----------------------------------------------------------------------------------------------
Balance at March 31, 1999 (417) 13,015
================================================================================================
</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,
- ---------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 176 155
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24 24
Deferred loan fees, net of amortization 9 6
Amortization of premiums and discounts (43) 1
ESOP expense 47 75
Gain on sale of investment securities available
for sale (33) (40)
Changes in assets and liabilities:
Decrease in accrued interest receivable 48 257
Increase in other assets, net (18) (148)
Increase in other liabilities 564 306
- -----------------------------------------------------------------------------
Net cash provided by operating activities 774 636
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities available
for sale 2,039 6,730
Purchase of investment securities available
for sale (3,987) (4,912)
Proceeds from sales of investment securities
available for sale 64 353
Proceeds from sales of mortgage-backed securities
available for sale 411 -
Repayment of mortgage-backed securities held
to maturity - 281
Repayment of mortgage-backed securities
available for sale 634 -
Loan originations (5,918) (5,467)
Loan repayments 5,561 8,716
Purchase of Federal Home Loan Bank of Chgo Stock (150) -
Purchase of premises and equipment (16) -
- ----------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,662) 5,701
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposit accounts (1,541) (1,592)
Increase in borrowed funds 3,000 -
Decrease in advance payments by borrowers for
taxes and insurance (370) (447)
Payment of cash dividend (138) (141)
Proceeds from stock options exercised 44 180
Purchase of treasury stock (205) (3,144)
- ----------------------------------------------------------------------------
Net cash provided by (used in) financing activities 790 (5,144)
- ----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (98) 1,193
Cash and cash equivalents at beginning of period 9,746 11,117
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,648 12,310
============================================================================
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest 928 873
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,
1999 and results of operations for the three-month periods ended March 31,
1999 and March 31, 1998, 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
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 thousands, except share data) March 31, 1999 March 31, 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net Income $ 176 155
Denominator:
Basic earnings per share-weighted
average shares outstanding 1,204,652 1,272,779
Effect of dilutive stock options
outstanding 47,643 68,731
Diluted earnings per share-adjusted
weighted average shares outstanding 1,252,295 1,341,510
Basic earnings per share .15 .12
Diluted earnings per share .14 .12
==============================================================================
</TABLE>
<PAGE 8>
(4) Comprehensive income
In fiscal 1998 the Company adopted SFAS No. 130,"Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, 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 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
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended March 31, 1998
Disclosure of reclassification amount:
Unrealized holding loss on securities
available for sale arising during
the period $(47) 20 (27)
Less: reclassification adjustment for
gain on securities available for sale
included in net income 40 (17) 23
- -----------------------------------------------------------------------------
Change in net unrealized loss on
securities available for sale $(7) 3 (4)
- -----------------------------------------------------------------------------
Three months ended March 31, 1999
Disclosure of reclassification amount:
Unrealized holding loss on securities
available for sale arising during
the period $(383) 130 (253)
Less: reclassification adjustment for
gain on securities available for
sale included in net income 33 (11) 22
- -----------------------------------------------------------------------------
Change in net unrealized loss on
securities available for sale $(350) 119 (231)
- -----------------------------------------------------------------------------
</TABLE>
(5) Stock Repurchase Program
On January 26, 1999, the Company announced a 50,000 share stock
repurchase program. The repurchase program amounts to approximately 4.0% of
the outstanding shares of the Company. The Company intends to repurchase
shares in open market transactions or in privately negotiated transactions
over a one year period. At March 31, 1999, 8,581 shares had been repurchased
at an average cost of $11.90 per share. Management continues to believe that
stock repurchase programs provide enhanced value to both the Company and its
Stockholders.
(6) Dividend Declaration
On April 16, 1999, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, payable on May 14, 1999 to
stockholders of record on April 30, 1999.
<PAGE 9>
(7) Commitments and Contingencies
At March 31, 1999, the Bank had outstanding commitments to originate
mortgage loans in the amount of $1.8 million and unused home equity lines of
credit totaling $603,000.
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 and 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 loan loss reserves, 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, and other non-interest 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.
FORWARD-LOOKING STATEMENTS
When used in this 10-QSB, and in other 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,
but not limited to, 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.
<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 READINESS DISCLOSURE
The Year 2000 issue arises from the inability of some computer systems to
recognize the year 2000. Many existing computer programs and systems
originally were programmed with six digit dates that provided only two digits
to identify the calendar year in the date field. With the impending new
millennium, these programs and computers will recognize "00" as the year 1900
rather than the year 2000.
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 assess whether they will function properly in the year
2000. To date, we have not found anything material that would affect the
operations of the Company. The vendors who provide mission critical systems
have been contacted and indicated that their hardware and software is or will
be Year 2000 compliant during the time frames established by our regulators.
In house testing of mission critical hardware and software systems is
substantially complete. Tests of mission critical systems that are supplied
by the Company's third-party data processor, such as deposit, loan, general
ledger, item-processing, imaging and telephone banking systems are complete.
The results of the tests, using various dates in the year 2000 indicated that
all the transactions were processed correctly.
A contingency plan, which involves processing transactions at the third-
party data processors back-up recovery site, disaster recovery programs in the
event of electrical failures, manual bookkeeping systems and additional cash
requirements is currently being developed by management. The costs
associated with the compliance efforts have been approximately $30,000 to
date. It is anticipated that total costs will not exceed $40,000 and are not
expected to have a significant impact on the Company's ongoing results of
operations. However, it is not possible to estimate future costs due to
possible loss of electrical power or phone systems and service.
LIQUIDITY AND CAPITAL RESOURCES
The Banks's primary sources of funds are deposits, borrowings from the
FHLB of Chicago, amortization and prepayment of loans and mortgage-backed
securities, sales and maturities of investment and mortgage-backed 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 purchase investment
securities 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 March
31, 1999, the Bank's liquidity ratio was 8.9% compared with 12.9% at March
31, 1998. The decrease in liquidity was the result of funds reinvested into
mortgage loans and mortgage-backed securities from 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,
mlti-family residential properties and mixed use properties. Management
intends to continue to focus its lending efforts on these types of properties
while expanding consumer lending. The Company also purchases U. S. Government
securities and to a lesser extent purchases mortgage-backed securities.
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, 1999, the Bank exceeded all
of its regulatory capital requirements. At such date, the Bank's tangible
capital core capital and risk-based capital of $12.2 million, $12.2 million
and $12.4 million, respectively, exceeded the applicable minimum requirements
by $10.3 million or 8.1%, $8.4 million or 6.6% and $8.3 million or 16.4%,
respectively.
CHANGES IN FINANCIAL CONDITION
Total assets amounted to $127.1 million at March 31, 1999, an increase of
$1.3 million from $125.8 million at December 31, 1998.
Loans receivable amounted to $82.8 million at March 31, 1999, an
increase of $700,000 from $82.1 million at December 31, 1998. The Company
originated $5.9 million in mortgage, consumer and commercial loans during the
three months ended March 31, 1999. Repayments of loans during the three
months ended March 31, 1999 amounted to $5.2 million, primarily attributable
to mortgage loan prepayments that occured during the period due to a decline
in interest rates.
Investment securities amounted to $16.4 million at March 31, 1999, an
increase of $1.5 million from $14.9 million at December 31, 1998. The
increase was primarily attributable to the purchase of short-term investment
securities funded by an FHLB advance.
Mortgage-backed securities available for sale amounted to $14.4 million
at March 31, 1999, compared with $10.9 million at december 31, 1998. The
increase was primarily attributable to the reclassification of $4.5 million
mortgage-backed securities that were previously classified held to maturity.
The adoption of SFAS No. 133, "Accounting For Derivative Investments and
Hedging Activities," allowed a one-time reclassification of assets. The
Company determined that reclassifying assets into an available for sale
category provided the Company with the flexibility to reinvest these assets
into other categories of assets when appropriate or needed.
Total deposits amounted to $74.7 million at March 31, 1999, compared with
$76.2 million at December 31, 1998. The decrease was primarily attributable
to a $3.0 million decrease in certificates of deposit. The majority of the
certificates withdrawn were accounts that had been paid a bonus rate of
interest and would have renewed at lower rates. These withdrawals were
partially offset by a $1.5 million increase in money market and checking
accounts. The increase in money market and checking accounts is primarily
attributable to promotion of these products. Management expects to attract
new customers and experience additional deposit shifting from certificates of
deposit to money market deposit accounts and non-interest bearing checking
accounts as it continues to promote these products.
Borrowed funds increased $3.0 million to $37.1 million at March 31, 1999
from $34.1 million at December 31, 1998. A portion of these funds were used
to offset the withdrawal of certificates of deposit described above with the
balance invested in investment securities available for sale.
Accrued interest payable and other liabilities amounted to $1.6 milion at
March 31, 1999, an increase of $467,000 from $1.2 million at December 31,
1998. The increase is primarily attributable to outstanding checks issued for
real estate tax escrow disbursements and accrued interest on certificates of
deposit that pay interest once a year in December.
Stockholders' Equity totaled $13.0 million at March 31, 1999, a decrease
of $307,000 from $13.3 million at December 31, 1998. The decrease was
primarily attributable to a $231,000 million increase in accumulated other
comprehensive loss related to a decrease in the market value of available for
sale securities and a $100,000 increase in treasury stock. Retained earnings
increased to $11.2 million at March 31, 1999, compared with $11.1 million at
December 31, 1998, due to net income partially offset by dividend payments
for the quarter.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
MARCH 31, 1998
GENERAL. Net income was $176,000 for the three months ended March 31,
1999, an increase of $21,000 or 14%, from $155,000 for the three months ended
March 31, 1998. Diluted earnings per share amounted to $.14 for the three
months ended March 31, 1999, an increase of $.02 or 17%, from $.12 per share
for the three months ended March 31, 1998. The improvement in earnings per
share is primarily related to a $91,000 reduction in non-interest expenses
and an $11,000 increase in non-interest income, offset by a $44,000 decrease
in net interest income and an increase of $37,000 in income tax expense. In
addition, there was a decrease in the average number of outstanding shares.
INTEREST INCOME. Interest income amounted to $2.1 million for the three
months ended March 31, 1999 and March 31, 1998. There was a decrease in the
annualized yield on average interest-earning assets from 7.27% for the three
months ended March 31, 1998 to 6.95% for the three months ended March 31,
1999. The decrease was primarily attributable to higher yielding mortgage
loans being prepaid or refinanced at lower rates and higher yielding
securities being called prior to maturity dates with the proceeds temporarily
invested at lower rates. The reduction in yield was offset by an increase in
average interest-earning assets to $122.6 million for the three months ended
March 31, 1999, an increase of $4.3 million from $118.3 million for the three
months ended March 31, 1998.
INTEREST EXPENSE. Interest expense amounted to $1.3 million for the
three months ended March 31, 1999, compared with $1.2 million for the three
months ended March 31, 1998. The annualized average cost of interest-bearing
liabilities for the three months ended March 31, 1999 was 4.66%, an
improvement from 4.86% for the three months ended March 31, 1998. The
improvement was due primarily to a decrease in the average cost of borrowed
funds from 5.79% for the three months ended March 31, 1998 to 5.28% for the
three months ended March 31, 1999. The average balance of interest-bearing
deposit accounts was $73.2 million for the three months ended March 31, 1999,
an increase of $200,000 from $73.0 million for the three months ended March
31, 1998. The average balace of borrowed funds was $35.6 million for the
three months ended March 31, 1999, an increase of $6.5 million from $29.1
million for the three months ended March 31, 1998.
PROVISION FOR LOAN LOSSES. The Company did not add to its allowance for
loan losses for the three months ended March 31, 1999 or March 31, 1998. The
allowance for loan losses was $214,000 at March 31, 1999 and $208,000 at
March 31, 1998. The allowance for loan losses amounted to .26% of loans
receivable at March 31, 1999 and at March 31, 1998. There was one loan
delinquent 90 days or more at March 31, 1999 that amounted to $23,000. No
loans were delinquent 90 days or more at March 31, 1998. No loan were in a
non-accrual status and no loan losses were incurred during either period.
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 $114,000 for the
three months ended March 31, 1999, an increase of $11,000 from $103,000 for
the three months ended March 31, 1998. The increase was attributable to an
$18,000 increase in fees and service charges partially offset by a $7,000
decrease in gain on the sale of investment securities available for sale.
The improvement in fees and service charges is related to a greater number of
transaction accounts that produce fee income, an increase in the fee
structure for money market and checking accounts and increased ATM and debit
card fees.
NON-INTEREST EXPENSE. Non-interest expense decreased by $91,000 to
$708,000 for the three months ended March 31, 1999, compared with $799,000
for the three months ended March 31, 1998. The improvement was primarily
attributable to a $52,000 decrease in compensation and benefits expense and
a $32,000 reduction in professional fees. The reduction in compensation and
benefits expense is primarily related to lower payroll and benefits expense.
The reduction in professional fees is primarily related to a decline in the
number of shareholder proposals and related issues that required review by
counsel and accounting fees that were recorded in 1998 related to a stock
split.
INCOME TAX EXPENSE. Income tax expense amounted to $95,000 for the
three months ended March 31, 1999, compared with $58,000 for the three months
ended March 31, 1998. The effective tax rate amounted to 35.1% for the three
months ended March 31, 1999, compared with 27.2% for the three months ended
March 31, 1998. The increase is primarily due to increased income before
taxes in 1999 and the utilization of capital loss carryforwards in 1998.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 embedded in
other contracts and to hedging activities. This statement was adopted during
the first quarter of 1999 and did not have a material effect on the Company's
financial statements.
In October 1998, FASB issed SFAS No. 134, "Accounting for mortgage-backed
securities retained after the securitization of mortgage loans held for sale
by a Mortgage Banking Enterprise", which is effective for fiscal years
beginning after December 15, 1998. The statement requires that after
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or
retained interest based on its ability and intent to sell or hold those
investments, as discussed in SFAS 115, "Accounting for Certain Investment in
Debt and Equity Securities." The adoption of this statement did not have a
material effect on the Company's financial statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending 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 19, 1999, Registrant issued press
release dated January 19, 1999 regarding fourth quarter
1998 earnings and a regular quarterly dividend.
2. Form 8-K dated January 26, 1999 regarding the completion of
a stock repurchase program and the beginning of a new stock
repurchase program.
<PAGE 12>
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 10, 1999 /S/ Joseph A. Graber
Joseph A. Graber
President and Chief Executive Officer
Date May 10, 1999 /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 March 31, 1999 (unaudited) and the
Consolidated Statement of Operations for the three months ended March 31, 1999
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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<INT-BEARING-DEPOSITS> 2,047
<FED-FUNDS-SOLD> 4,344
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