=============================================================================
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 September 30, 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 October 31, 1999, there were 1,231,212 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)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPT 30, 1999 DEC 31, 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 1,367 $ 810
Interest-bearing deposits 2,297 2,413
Federal funds sold 1,097 5,722
Investment in dollar-denominated mutual funds 97 801
- --------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 4,858 9,746
Investment securities available for sale 17,023 14,880
Mortgage-backed securities held to maturity - 4,478
Mortgage-backed securities available for sale 14,698 10,884
Stock in Federal Home Loan Bank of Chicago 1,955 1,705
Loans receivable, net of allowance for loan
losses of $231 at Septmeber 30, 1999 and $214
at December 31, 1998 90,156 82,123
Accrued interest receivable 896 849
Premises and equipment, net 1,028 1,021
Other assets 83 146
- --------------------------------------------------------------------------
TOTAL ASSETS 130,697 125,832
==========================================================================
LIABLITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
Deposit accounts 75,478 76,222
Borrowed funds 41,100 34,100
Advance payments by borrowers for
taxes and insurance 1,621 1,036
Accrued interest payable and other liabilities 1,155 1,152
- -------------------------------------------------------------------------
TOTAL LIABILITIES 119,354 112,510
- -------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized
500,000 shares; none outstanding - -
Common stock, $.01 Par value. Authorized
3,500,000 shares; issued 1,914,075 shares 19 19
Additional paid in capital 13,373 13,437
Retained earnings, substantially restricted 11,132 11,127
Treasury stock at cost (682,860 shares at
September 30, 1999 and 651,182 shares at
December 31, 1998) (11,025) (10,664)
Accumulated other comprehensive loss (1,795) (153)
Common stock acquired by Employee Stock
Ownership Plan (361) (444)
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 11,343 13,322
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $130,697 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $1,611 $1,452 $4,695 $4,409
Interest-bearing deposits and federal funds sold 32 113 163 364
Investment securities available for sale 304 480 860 1,262
Mortgage-backed securities held to maturity - 88 - 264
mortgage-backed securities available for sale 241 1 713 1
Investment in mutual funds 6 7 22 47
Dividends on FHLB stock 34 32 94 94
- ------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,228 2,173 6,547 6,441
- ------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 797 823 2,398 2,440
Borrowed funds 526 475 1,503 1,354
- ------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,323 1,298 3,901 3,794
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 905 875 2,646 2,647
PROVISION FOR LOAN LOSSES 9 - 17 -
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 896 875 2,629 2,647
- ------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain (loss) on sale of securities available for sale (15) 23 75 81
Gain on sale of loans held for sale - 1 - 3
Other than temporary decline in value of securities
available for sale (24) - (32) -
Fees and service charges 73 69 215 194
Other 4 6 13 15
- ------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 38 99 271 293
- ------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and benefits 409 428 1,204 1,312
Occupancy expense 106 122 325 374
Professional fees 39 52 131 205
Data processing 53 48 156 144
Advertising and promotion 49 50 110 113
Federal deposit insurance premium 23 12 34 35
Other 85 85 255 236
- ------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 764 797 2,215 2,419
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 170 177 685 521
INCOME TAX EXPENSE 78 64 267 186
- ------------------------------------------------------------------------------------------
NET INCOME 92 113 418 335
==========================================================================================
EARNINGS PER SHARE:
Basic .08 .09 .35 .27
Diluted .07 .09 .34 .26
==========================================================================================
AVERAGE SHARES OUTSTANDING:
Basic 1,188,241 1,207,344 1,200,516 1,232,833
Diluted 1,236,616 1,267,476 1,247,372 1,301,197
============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 5>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional other
Common paid-in Retained Treasury comprehensive
stock capital earnings stock loss
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 19 13,767 11,139 (7,706) (216)
Comprehensive income:
Net Income - - 335 - -
Change in unrealized loss on securities
available for sale, net - - - - (40)
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 119 - - -
Purchase of treasury stock, 194,948 shares - - - (3,656) -
Cash dividend ($.30 per share) - - (397) - -
Options exercised and reissuance of treasury
stock, 46,402 shares - (384) - 745 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 19 13,502 11,077 (10,617) (256)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 19 13,437 11,127 (10,664) (153)
Comprehensive income:
Net income - - 418 - -
Change in unrealized loss on securities
available for sale, net - - - - (1,642)
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 73 - - -
Purchase of treasury stock, 48,178 shares - - - (630)
Cash dividend ($.33 per share) - - (413) -
Options exercised and reissuance of treasury
stock, 16,500 shares - (137) - 269 -
- -------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 19 13,373 11,132 (11,025) (1,795)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Common
stock
acquired
ESOP Total
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 (555) 16,448
Comprehensive income:
Net income - 335
Change in unrealized loss on securities
available for sale, net - (40)
-----
Comprehensive income - 295
Payment on ESOP loan 83 83
Market adjustment for common ESOP shares - 119
Purchase of treasury stock, 194,948 - (3,656)
Cash dividend ($.30 per share) - (397)
Options exercised and reissuance of treasury
stock, 46,402 shares - 361
- ------------------------------------------------------------------------------------
Balance at September 30, 1998 (472) 13,253
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (444) 13,322
Comprehensive income:
Net income - 418
Change in unrealized loss on securities
available for sale, net - (1,642)
-------
Comprehensive income - (1,224)
Payment on ESOP loan 83 83
Market adjustment for common ESOP shares - 73
Purchase of treasury stock, 48,178 shares - (630)
Cash dividend ($.33 per share) - (413)
Options exercised and reissuance of treasury
stock, 16,500 shares - 132
- -----------------------------------------------------------------------------------------------
Balance at September 30, 1999 (361) 11,343
================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE 6>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<Cation>
FOR THE NINE MONTHS ENDED SEPT 30,
- ---------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 418 335
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 73 66
Deferred loan costs, net of amortization 15 (64)
Amortization of premiums and discounts, net (3) (121)
Provision for loan losses 17 -
ESOP expense 156 202
Gain on sale of securities available for sale (75) (84)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable (47) 181
Decrease (increase) in other assets, net 63 (63)
Increase in other liabilities 1,011 2,370
- -----------------------------------------------------------------------------
Net cash provided by operating activities 1,628 2,822
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities available
for sale 2,135 17,730
Purchase of investment securities available
for sale (6,192) (24,610)
Proceeds from sales of investment securities
and loans available for sale 255 5,386
Proceeds from sales of loans held for sale - 233
Purchase of mortgage-backed securities
available for sale (3,680) 5,000
Proceeds from sales of mortgage-backed securities
available for sale 2,005 -
Repayment of mortgage-backed securities held
to maturity - 1,082
Repayment of mortgage-backed securities available
for sale 1,426 -
Loan originations (22,027) (20,691)
Loan repayments 13,962 21,298
Purchase of Federal Home Loan Bank of Chgo Stock (250) -
Purchase of premises and equipment (80) (36)
- ----------------------------------------------------------------------------
Net cash used in investing activities (12,446) (4,608)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposit accounts (744) (1,699)
Increase in borrowed funds 7,000 5,000
Increase (decrease) in advance payments by
borrowers for taxes and insurance 585 (667)
Payment of cash dividend (413) (397)
Proceeds from stock options exercised 132 361
Purchase of treasury stock (630) (3,656)
- ----------------------------------------------------------------------------
Net cash provided (used in) by financing activities 5,930 (1,058)
- ----------------------------------------------------------------------------
Net decrease increase in cash and cash equivalents (4,888) (2,844)
Cash and cash equivalents at beginning of period 9,746 11,117
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $4,858 8,273
============================================================================
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $3,078 2,509
Taxes 105 315
============================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE 7>
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 September
30, 1999 and results of operations for the three and six-month periods ended
September 30, 1999 and September 30, 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 months For the nine months
ended September 30, ended September 30,
(In thoudsands, except share data) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 92 113 418 335
Denominator:
Basic earnings per share-weighted
average shares outstanding 1,188,241 1,207,344 1,200,516 1,232,833
Effect of dilutive stock options
outstanding 48,375 60,132 46,856 68,364
Diluted earnings per share-adjusted
weighted average shares outstanding 1,236,616 1,267,476 1,247,372 1,301,197
Basic earnings per share .08 .09 .35 .27
Diluted earnings per share .07 .09 .34 .26
=================================================================================
</TABLE>
<PAGE 8>
(4) Comprehensive income
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 September 30, 1998
Disclosure of reclassification amount:
Unrealized holding gain on securities available
for sale arising during the period $(141) 48 (93)
Less: reclassification adjustment for gain on
securities available for sale included in net income 23 (8) 15
- ----------------------------------------------------------------------------------------
Change in net unrealized gain on securities
available for sale $(118) 40 (78)
- ----------------------------------------------------------------------------------------
Three months ended September 30, 1999
Disclosure of reclassification amount:
Unrealized holding loss on securities available
for sale arising during the period $(941) 320 (621)
Less: reclassification adjustment for loss on
securities available for sale included in net income (39) 13 (26)
- ----------------------------------------------------------------------------------------
Change in net unrealized loss on securities
available for sale $(980) 333 (647)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Nine months ended September 30, 1998
Disclosure of reclassification amount:
Unrealized holding gain on securities available
for sale arising during the period $(141) 48 (93)
Less: reclassification adjustment for gain on
securities available for sale included in net income 81 (28) 53
- ----------------------------------------------------------------------------------------
Change in net unrealized gain on securities
available for sale $ (60) 20 (40)
- ----------------------------------------------------------------------------------------
Nine months ended September 30, 1999
Disclosure of reclassification amount:
Unrealized holding loss on securities available
for sale arising during the period $(2,530) 860 (1,670)
Less: reclassification adjustment for gain on
securities available for sale included in net income 43 (15) 28
- ----------------------------------------------------------------------------------------
Change in net unrealized loss on securities
available for sale $(2,487) 845 (1,642)
- ----------------------------------------------------------------------------------------
</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 September 30, 1999, 39,451 shares had been
repurchsed at an average cost of $12.07 per share. Management continues to
believe that stock repurchase programs are an effective capital management
tool and provide enhanced value to both the Company and its stockholders.
<PAGE 9>
(6) Dividend Declaration
On October 15, 1999, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, payable on November 15, 1999
to stockholders of record on November 1, 1999.
(7) Commitments and Contingencies
At September 30, 1999, the Bank had outstanding commitments to originate
or purchase mortgage loans in the amount of $2.3 million and unused equity
lines of credit totaling $1.2 million.
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, commercial loans and equity
lines of credit secured by real estate. The Company also invests in federal
agency mortgage-backed securities, U. S. Government and agency securities,
investment grade securities, common stocks of other financial institutions
and money market accounts.
The Company's consolidated results of operations are primarily dependent
on net interest income, which is the difference between the interest income
earned on interest-earning assets and the interest paid on deposits and other
borrowings, and to a lesser degree on non-interest income less non-interest
expense and income taxes. The Company's operating expenses consist
principally of employee compensation and benefits, occupancy expenses 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.
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
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 DISCLOSURES
The Year 2000 issue arises from the inability of some computer sustems
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
millenium, these programs and computers will recognize "00" as the year 1900
rather than the year 2000.
<PAGE 10>
The Company 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 supply mission critical systems
and non-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 are 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 tested were processed
correctly. Other non-information technology systems and mechanical systems
have been tested or certified to be compliant. Additional tests conducted in
July 1999 all indicated that trasnactions 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 has been approved by the board of directors and is being
implemented by management. The costs associated with the compliance efforts
have been approximately $42,000 to date. It is anticipated that total costs
will not exceed $45,000 and are not expected to have a significant impact on
the Company's ongoing results of operations. However, it is not possible at
this time to estimate future costs due to various uncertainties such as
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 other investment and mortgage-backed
securities and occasionally the use of reverse repurchase agreements. The
Bank can also borrow from its correspondent banks and it has access to the
wholesale certificate of deposit market. The Bank uses its liquid resources
to fund loan commitments, to meet operating expenses, to make investments and
to fund deposit withdrawals. Management believes that loan repayments and
these 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
September 30, 1999, the Bank's liquidity ratio was 4.4% compared with 7.8%
for the quarter ended September 30, 1998. The decrease in liquidity was the
result of funds reinvested into higher-yielding mortgage loans, investment
securities and mortgage-backed securities from shorter term liquid assets in
an effort to increase the return on interest-earning assets. In addition,
there has been a substantial reduction in loan repayments dueing 1999 compared
with 1998 while loan originations have increased.
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. Management
intends to continue to focus its lending efforts on these types of properties
while expanding consumer and commercial lending. The Company also purchases
agency mortgage-backed securities and U.S. government agency 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 September 30, 1999, the Bank exceeded
all of its minimum regulatory capital standards. 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 $10.2 million or 7.7%, $8.2 million or 6.2% and $7.7 million
or 14.2%, respectively.
<PAGE 11>
CHANGES IN FINANCIAL CONDITION
Total assets amounted to $130.7 million at September 30, 1999, an
increase of $4.9 million from $125.8 million at December 31, 1998. The
increase was primarily attributable to a $8.1 million increase in net loans
receivable and a $2.1 million increase in investment securities available for
sale partially offset by a $4.9 million decrease in cash and cash equivalents.
Net loans receivable amounted to $90.2 million at September 30, 1999, an
increase of $8.1 million from $82.1 million at December 31, 1998. The
increase was due partially to $4.4 million in multi-family and commercial real
estate mortgages originated or purchased during the period and new home equity
consumer loans. The Company originated $22.0 million in mortgage, consumer
and commercial real estate loans during the nine months ended September 30,
1999 and received $13.9 million in loan repayments during the period compared
with $20.7 million in originations and $21.3 million in repayments during the
nine months ended September 30, 1998.
Investment securities available for sale amounted to $17.0 million at
September 30, 1999, an increase of $2.1 million from $14.9 million at
December 31, 1998. The increase was primarily attributable to the
reallocation of cash and cash equivalents into intermediate and longer term
investment securities.
Mortgage-backed securities available for sale amounted to $14.7 million
at September 30, 1999 compared with $10.9 million at December 31, 1998. The
increase was due primarily to the reclassification of $4.5 million mortgage-
backed securities that were previously classified held to maturity. The early
adoption of SFAS No. 133, "Accounting For Derivative Investments and Hedging
Activities," allowed a one-time reclassification of certain investment
securities. 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 $75.5 million at September 30, 1999 compared
with $76.2 million at December 31, 1998. The $744,000 decrease was primarily
attributable to a $5.0 million decrease in certificates of deposit. The
majority of the certificates withdrawn were accounts that had been paid a bonus
rate of interest and, if renewed, would have been at lower rates. These
withdrawals were partially offset by a $4.2 million increase in money market
and checking accounts. The increase in money market and checking accounts is
primarily attributable to the promotion of these products at attractive terms
and higher rates. 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 contines to
promote these products and places less emphasis on retail certificates of
deposit as a funding source. Management is currently considering the use of
brokered certificates of deposit as an additional funding source.
Borrowed funds increased $7.0 million to $41.1 million at September 30,
1999 from $34.1 million at December 31, 1998. The additional borrowings were
used to fund new loan originations during the period.
Stockholders' Equity totaled $11.3 million at September 30, 1999
compared with $13.3 million at December 31, 1998. The decrease was primarily
attributable to a $1.6 million increase in accumulated other comprehensive
loss related to an increase in medium and long term interest rates and their
negative effect on the market value of the available for sale securities
portfolio. Retained earnings remained steady at $11.1 million at September
30, 1999 compared with December 31, 1998 due to net income being offset by
dividend payments. Treasury Stock increased $361,000 from $10.7 million at
December 31, 1998 to $11.0 million at June 30, 1999. The increase in treasury
stock was attributable to $630,000 in stock repurchases partially offset by
$269,000 in stock options exercised.
<PAGE 12>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
GENERAL. Net income was $92,000 for the three months ended September 30
, 1999, a decrease of $21,000 from $113,000 for the three months ended
September 30, 1998. Diluted earnings per share amounted to $.07 for the three
months ended September 30, 1999, a decrease of $.02, from $.09 per share for
the three months ended September 30, 1998. The decrease in earnings per
share is primarily related to a $61,000 decrease in non-interest income
partially offset by a $30,000 increase in net interest income before provision
for loan losses.
INTEREST INCOME. Interest income increased $55,000 and amounted to $2.2
million for the three months ended September 30, 1999 and September 30, 1998.
The increase was primarily attributable to a $6.9 million increase in average
interest-earning assets to $127.3 million for the three months ended September
30, 1999 from $120.4 million for the three months ended September 30, 1998.
The increase was primarily attributable to a $10.9 million increase in the
average balance of loans receivable from $76.7 million for the three months
ended September 30, 1998 to $87.6 million for the three months ended September
30, 1999. This increase was partially offset by a decrease in the annualized
yield on average interest-earning assets from 7.22% for the three months
ended September 30, 1998 to 7.00% for the three months ended September 30,
1999. The decrease in the annualized yield was primarily attributable to
higher yielding mortgage loans being prepaid or refinanced at lower rates
with the proceeds reinvested at lower rates.
INTEREST EXPENSE. Interest expense increased by $25,000 and remained
steady at $1.3 million for the three months ended September 30, 1999 and
September 30, 1998. The annualized average cost of interest-bearing
liabilities for the three months ended September 30, 1999 was 4.71%, an
improvement from 4.92% for the three months ended September 30, 1998. The
improvement was due primarily to a decrease in the average cost of
certificates of deposit from 5.71% for the three months ended September 30,
1998 to 5.31% for the three months ended September 30, 1999. The average
balance of interest-bearing deposit accounts was $73.0 million for the three
months ended September 30, 1999, an increase of $1.5 million from $71.5
million for the three months ended September 30, 1998. The average balance
of borrowed funds was $39.5 million for the three months ended September 30,
1999, an increase of $5.4 million from $34.1 million for the three months
ended September 30, 1998, which was used to partially fund the increase in
loans receivable. This increase was partially offset by a decrease in the
average cost of borrowed funds from 5.57% for the three months ended
September 30, 1998 to 5.30% for the three months ended September 30, 1999.
PROVISION FOR LOAN LOSSES. The Company added $9,000 to its allowance for
loan losses for the three months ended September 30, 1999 compared with no
addition for the three months ended September 30, 1998. The allowance for
loan losses was $231,000 at September 30, 1999 and $208,000 at September 30,
1998. The allowance for loan losses amounted to .26% of loans receivable at
September 30, 1999 and .27% at September 30, 1998. There were no loans
delinquent 90 days or more at September 30, 1999 or at September 30, 1998.
Future additions to the Company's allowance for loan losses are dependent
upon various factors such as 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 $38,000 for the
three months ended September 30, 1999, a decrease of $61,000 from $99,000 for
the three months ended September 30, 1998. The decrease was primarily
attributable to a $38,000 decrease in gain on the sale of securities
available for sale and $24,000 in other than temporary decline in value of
securities available for sale. The other than temporary decline in value of
securities available for sale is related to common stocks the Company owns
which have been trading at below cost for an extended period of time.
NON-INTEREST EXPENSE. Non-interest expense amounted to $764,000 for the
three months ended September 30, 1999 compared with $797,000 for the three
months ended September 30, 1998. The $33,000 improvement was primarily
attributable to a $19,000 decrease in compensation and benefits expense and a
$16,000 reduction in occupancy expense. The reduction is compensation and
benefits expense is primarily related to lower payroll and benefits expense
due to a reduction in staff as part of the Company's efforts to improve
efficiency.
INCOME TAX EXPENSE. Income tax expense amounted to $78,000 for the
three months ended September 30, 1999, compared with $64,000 for the three
months ended September 30, 1998. The effective tax rate was 45.9% for the
three months ended September 32, 1999 compared with 36.2% for the three months
ended September 30, 1998. The increase in income tax expense and the
effective tax rate were primarily due to a tax benefit, which may not be
realized and thus not recorded, due to capital losses incurred during the
period.
<PAGE 13>
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998.
GENERAL. Net income amounted to $418,000 for the nine months ended
September 30, 1999, an increase of $83,000, or 24.8%, from $335,000 for the
nine months ended Septmeber 30, 1998. Diluted earnings per share amounted to
$.34 for the nine months ended September 30, 1999, an increase of $.08 or 30.8
%, from $.26 per share for the nine months ended September 30, 1998. The
increase was primarily attributable to a $204,000 reduction in non-interest
expense partially offset by a $81,000 increase in income tax expense.
INTEREST INCOME. Interest income increased $106,000 and amounted to $6.5
million for the nine months ended September 30, 1999 compared with $6.4
million for the nine months ended Setpember 30, 1998. The increase was
primarily attributable to a $5.7 million increase in average interest-earning
assets to $125.1 million for the nine months ended September 30, 1999 from
$119.4 million for the nine months ended September 30, 1998. The increase
was primarily attributable to a $17.7 million increase in the average balance
of loans receivable and mortgage-backed securities partially offset by a $8.3
million decrease in the average balance of investment securities. The
increase was partially offset by a decline in the annualized yield on average
interest-earning assets to 6.98% for the nine months ended September 30, 1999
from 7.19% for the nine months ended September 30, 1998. The decrease in the
annualized yield was primarily attributable to higher yielding mortgage loans
being prepaid or refinanced with the proceeds reinvested at lower rates.
INTEREST EXPENSE. Interest expense amounted to $3.9 million for the nine
months ended September 30, 1999, an increase of $107,000 from $3.8 million
for the nine months ended September 30, 1998. The increase was primarily
attributable to a $6.6 million increase in the average balance of interest-
bearing liabilities to $110.8 million for the nine months ended September 30,
1999 from $104.2 million for the nine months ended September 30, 1998. This
increase was partially offset by a decrease in the average cost of interest-
bearing liabilities to 4.70% for the nine months ended September 30, 1999
from 4.86% for the nine months ended September 30, 1998. The improvement in
the average cost of interest-bearing liabilities was due primarily to an
improvement in the average cost of certificates of deposit to 5.34% for the
nine months ended September 30, 1999 from 5.68% for the nine months ended
September 30, 1998, due to a shift from higher cost certificates of depsoit
to money market accounts. In addition, the average cost of borrowed funds
improved to 5.31% for the nine months ended September 30, 1999 from 5.62% for
the nine months ended September 30, 1998.
PROVISION FOR LOAN LOSSES. The Company added $17,000 to its allowance
for loan losses for the nine months ended September 30, 1998 compared with no
addition for the nine months ended September 30, 1998. The allowance for
loan losses was $231,000 and amounted to .26% of loans receivable at
September 30, 1999 compared with $208,000 and .27% at September 30, 1998.
There were no loans delinquent 90 days or more at September 30, 1999 or at
September 30, 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 various factors such as 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 $271,000 for the
nine months ended September 30, 1999, a decrease of $22,000 from $293,000 for
the nine months ended September 30, 1998. The decrease was primarily
attributable to a $32,000 increase in other than temporary decline in value
of securities available for sale and a $6,000 decrease in gain on the sale of
securities available for sale partially offset by a $21,000 increase in fees
and service charges. The improvement in fees and service charges is related
to a greater number of transaction accounts in 1999 that produce fee income.
The other than temporary decline in value of securities available for sale is
related to common stocks the Company owns which have been trading at below
cost for an extended period of time.
NON-INTEREST EXPENSE. Non-interest expense amounted to $2.2 million for
the nine months ended September 30, 1999, a decrease of $204,000 from $2.4
million for the nine months ended September 30, 1998. The decrease was
primarily attributable to an $108,000 decrease in compensation and benefits
expense related to lower payroll and benefits expense due to a reduction in
staff. In addition, there was a decrease of $74,000 in professional fees
primarily related to a decrease in the number of shareholders proposals and
related issues that required review by counsel and a reduction in tax
accounting expense.
INCOME TAX EXPENSE. Income tax expense amounted to $267,000 for the nine
months ended September 30, 1999, an increase of $81,000 from $186,000 for the
nine months ended September 30, 1998. The increase was primarily
attributable to an increase in taxable income. The effective tax rate was
39.0% for the nine months ended September 30, 1999 compared with 35.7% for
the nine months ended September 30, 1998.
<PAGE 14>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS AND OTHER REGULATORY ISSUES
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." On July 7, 1999, the FASB delayed
implementation of SFAS No. 133 until the fiscal year beginning after June 15,
2000 by issuing FASB Statement 137. The statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
and to hedging activities and also allowed a one-time reclassification of
certain investment securities. This statement was adopted early during the
first quarter of 1999, and did not have a material effect on the Company's
financial statements prospectively when adopted.
In October 1998, FASB issued 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 Investments in
Debt and Equity Securities." The adoption of this statement did not have an
effect on the Company's financial statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no 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 July 16, 1999, Registrant issued press release dated
July 16, 1999 regarding second quarter 1999 earnings and a regular quarterly
dividend.
<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 November 9, 1999 /S/ Joseph A. Graber
----------------- --------------------
Joseph A. Graber
President and
Chief Executive Officer
Date November 9, 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 Septemnber 30, 1999 (unaudited) and the
Consolidated Statement of Operations for the nine months ended September 30,
1999 (unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,367
<INT-BEARING-DEPOSITS> 2,297
<FED-FUNDS-SOLD> 1,097
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,721
<INVESTMENTS-CARRYING> 34,441
<INVESTMENTS-MARKET> 31,721
<LOANS> 90,387
<ALLOWANCE> 231
<TOTAL-ASSETS> 130,697
<DEPOSITS> 75,478
<SHORT-TERM> 17,000
<LIABILITIES-OTHER> 2,776
<LONG-TERM> 24,100
0
0
<COMMON> 19
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<TOTAL-LIABILITIES-AND-EQUITY> 130,697
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<INTEREST-TOTAL> 6,547
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<INCOME-PRETAX> 685
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<NET-INCOME> 418
<EPS-BASIC> .35
<EPS-DILUTED> .34
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<LOANS-TROUBLED> 0
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