=============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 July 26, 1999, there were 1,239,715 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 8
Part II - OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Recent Development 15
Item 6. Exhibits and Reports on Form 8-K 15
FORM 10-QSB SIGNATURE PAGE 16
<PAGE 3>
Part I. Financial Information
Item 1. Consolidated Financial Statements
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 DEC 31, 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 1,319 $ 810
Interest-bearing deposits 1,839 2,413
Federal funds sold 1,457 5,722
Investment in dollar-denominated mutual funds 410 801
- --------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 5,025 9,746
Investment securities available for sale 17,990 14,880
Mortgage-backed securities held to maturity - 4,478
Mortgage-backed securities available for sale 15,587 10,884
Stock in Federal Home Loan Bank of Chicago 1,855 1,705
Loans receivable, net of allowance for loan
losses of $222 at June 30, 1999 and $208 at
December 31, 1998 85,258 82,123
Accrued interest receivable 930 849
Premises and equipment, net 1,029 1,021
Other assets 265 146
- --------------------------------------------------------------------------
TOTAL ASSETS 127,939 125,832
==========================================================================
LIABLITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
Deposit accounts 75,531 76,222
Borrowed funds 37,600 34,100
Advance payments by borrowers for
taxes and insurance 1,148 1,036
Accrued interest payable and other liabilities 1,580 1,152
- -------------------------------------------------------------------------
TOTAL LIABILITIES 115,859 112,510
- -------------------------------------------------------------------------
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 13,398 13,437
Retained earnings, substantially restricted 11,177 11,127
Treasury stock at cost (678,040 shares at
June 30, 1999 and 651,182 shares at
December 31, 1998) (10,977) (10,664)
Accumulated other comprehensive loss (1,148) (153)
Common stock acquired by Employee Stock
Ownership Plan (389) (444)
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 12,080 13,322
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $127,939 $125,832
==========================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 4>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $1,556 $1,463 $3,084 $2,957
Interest-bearing deposits and federal funds sold 51 135 131 251
Investment securities available for sale 304 399 556 782
Mortgage-backed securities held to maturity - 80 - 176
mortgage-backed securities available for sale 242 - 472 -
Investment in mutual funds 3 9 16 40
Dividends on FHLB stock 31 33 60 62
- ------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,187 2,119 4,319 4,268
- ------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit accounts 804 798 1,601 1,617
Borrowed funds 507 458 977 879
- ------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,311 1,256 2,578 2,496
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 876 863 1,741 1,772
PROVISION FOR LOAN LOSSES 8 - 8 -
- ------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 868 863 1,733 1,772
- ------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Gain on sale of securities available for sale 49 20 82 60
Fees and service charges 65 66 142 125
Other 5 5 9 9
- ------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 119 91 233 194
- ------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and benefits 395 432 795 884
Occupancy expense 107 127 219 252
Professional fees 49 77 92 153
Data processing 52 49 103 96
Advertising and promotion 38 39 61 63
Federal deposit insurance premium 2 11 11 23
Other 100 88 170 151
- ------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 743 823 1,451 1,622
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 244 131 515 344
INCOME TAX EXPENSE 94 65 189 123
- ------------------------------------------------------------------------------------------
NET INCOME 150 66 326 221
==========================================================================================
EARNINGS PER SHARE:
Basic .12 .05 .27 .18
Diluted .12 .05 .26 .17
==========================================================================================
AVERAGE SHARES OUTSTANDING:
Basic 1,196,851 1,207,513 1,202,731 1,242,091
Diluted 1,248,706 1,272,066 1,252,032 1,308,002
============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE 5>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 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 - - 221 - -
Change in unrealized loss on securities
available for sale, net - - - - 38
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 91 - - -
Purchase of treasury stock, 192,948 shares - - - (3,478) -
Cash dividend ($.20 per share) - - (270) - -
Options exercised and reissuance of treasury
stock, 27,830 shares - (200) - 438 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 19 13,658 11,090 (10,746) (178)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 19 13,437 11,127 (10,664) (153)
Comprehensive income:
Net income - - 326 - -
Change in unrealized loss on securities
available for sale, net - - - - (995)
Comprehensive income - - - - -
Payment on ESOP loan - - - - -
Market adjustment for common ESOP shares - 46 - - -
Purchase of treasury stock, 36,358 shares - - - (470)
Cash dividend ($.22 per share) - - (276) -
Options exercised and reissuance of treasury
stock, 9,500 shares - (85) - 157 -
- -------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 19 13,398 11,177 (10,977) (1,148)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Common
stock
acquired
ESOP Total
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 (555) 16,448
Comprehensive income:
Net income - 221
Change in unrealized loss on securities
available for sale, net - 38
-----
Comprehensive income - 259
Payment on ESOP loan 55 55
Market adjustment for common ESOP shares - 91
Purchase of treasury stock, 192,948 - (3,478)
Cash dividend ($.20 per share) - (270)
Options exercised and reissuance of treasury
stock, 27,830 shares - 238
- ------------------------------------------------------------------------------------
Balance at June 30, 1998 (500) 13,343
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (444) 13,322
Comprehensive income:
Net income - 326
Change in unrealized loss on securities
available for sale, net - (995)
-------
Comprehensive income - (669)
Payment on ESOP loan 55 55
Market adjustment for common ESOP shares - 46
Purchase of treasury stock, 36,358 shares - (470)
Cash dividend ($.22 per share) - (276)
Options exercised and reissuance of treasury
stock, 9,500 shares - 72
- -----------------------------------------------------------------------------------------------
Balance at June 30, 1999 (389) 12,080
================================================================================================
</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 SIX MONTHS ENDED JUNE 30,
- ---------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 326 221
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 54 44
Deferred loan costs, net of amortization 8 8
Amortization of premiums and discounts, net (53) (4)
Provision for loan losses 8 -
ESOP expense 101 146
Gain on sale of securities available for sale (82) (60)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (81) 31
Increase in other assets, net (119) (35)
Increase in other liabilities 996 557
- -----------------------------------------------------------------------------
Net cash provided by operating activities 1,158 908
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of investment securities available
for sale 2,135 10,730
Purchase of investment securities available
for sale (6,192) (17,166)
Proceeds from sales of investment securities
and loans available for sale 255 799
Purchase of mortgage-backed securities
available for sale (3,680) -
Proceeds from sales of mortgage-backed securities
available for sale 1,713 -
Repayment of mortgage-backed securities held
to maturity - 739
Repayment of mortgage-backed securities available
for sale 1,006 -
Loan originations (13,745) (12,983)
Loan repayments 10,594 16,235
Purchase of Federal Home Loan Bank of Chgo Stock (150) -
Purchase of premises and equipment (62) (1)
- ----------------------------------------------------------------------------
Net cash used in investing activities (8,126) (1,647)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposit accounts (691) (2,197)
Increase in borrowed funds 3,500 5,000
Increase (decrease) in advance payments by
borrowers for taxes and insurance 112 (26)
Payment of cash dividend (276) (371)
Proceeds from stock options exercised 72 270
Purchase of treasury stock (470) (3,478)
- ----------------------------------------------------------------------------
Net cash provided (used in) by financing activities 2,247 (765)
- ----------------------------------------------------------------------------
Net decrease increase in cash and cash equivalents (4,721) (1,504)
Cash and cash equivalents at beginning of period 9,746 11,117
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $5,025 9,613
============================================================================
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $1,971 1,530
Taxes 55 265
============================================================================
</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 June 30,
1999 and results of operations for the three and six-month periods ended June
30, 1999 and June 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 six months
ended June 30, ended June 30,
(In thoudsands, except share data) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $150 66 326 221
Denominator:
Basic earnings per share-weighted
average shares outstanding 1,196,851 1,207,513 1,202,731 1,242,091
Effect of dilutive stock options
outstanding 51,855 64,553 49,301 65,911
Diluted earnings per share-adjusted
weighted average shares outstanding 1,248,706 1,272,066 1,252,032 1,308,002
Basic earnings per share .12 .05 .27 .18
Diluted earnings per share .12 .05 .26 .17
=================================================================================
</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 June 30, 1998
Disclosure of reclassification amount:
Unrealized holding gain on securities available
for sale arising during the period $(80) 29 (51)
Less: reclassification adjustment for gain on
securities available for sale included in net income 20 (3) 17
- ----------------------------------------------------------------------------------------
Change in net unrealized gain on securities
available for sale $(60) 26 (34)
- ----------------------------------------------------------------------------------------
Three months ended June 30, 1999
Disclosure of reclassification amount:
Unrealized holding loss on securities available
for sale arising during the period $(1,205) 409 (796)
Less: reclassification adjustment for gain on
securities available for sale included in net income 49 (17) 32
- ----------------------------------------------------------------------------------------
Change in net unrealized loss on securities
available for sale $(1,156) 392 (764)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Six months ended June 30, 1998
Disclosure of reclassification amount:
Unrealized holding gain on securities available
for sale arising during the period $ 127 (49) 78
Less: reclassification adjustment for gain on
securities available for sale included in net income (60) 20 (40)
- ----------------------------------------------------------------------------------------
Change in net unrealized gain on securities
available for sale $ 67 (29) 38
- ----------------------------------------------------------------------------------------
Six months ended June 30, 1999
Disclosure of reclassification amount:
Unrealized holding loss on securities available
for sale arising during the period $(1,589) 540 (1,049)
Less: reclassification adjustment for gain on
securities available for sale included in net income 82 (28) 54
- ----------------------------------------------------------------------------------------
Change in net unrealized loss on securities
available for sale $(1,507) 512 (995)
- ----------------------------------------------------------------------------------------
</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 June 30, 1999, 27,631 shares had been repurchsed
at an average cost of $13.02 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 July 15, 1999, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, payable on August 16, 1999
to stockholders of record on August 2, 1999.
(7) Commitments and Contingencies
At June 30, 1999, the Bank had outstanding commitments to originate
mortgage loans in the amount of $1.0 million and unused equity lines of
credit totaling $788,000.
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, 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
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. Additional tests will be
conducted in July 1999.
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 being implemented by management. The costs associated with
the compliance efforts have been approximately $40,000 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
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 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 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 June 30,
1999, the Bank's liquidity ratio was 4.6% compared with 11.6% for the quarter
ended June 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.
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 June 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 $10.3 million or 8.0%, $8.3 million or 6.5% and $8.3 million
or 15.8%, respectively.
<PAGE 11>
CHANGES IN FINANCIAL CONDITION
Total assets were $127.9 million at June 30, 1999, an increase of $2.1
million from $125.8 million at December 31, 1998. The increase was primarily
attributable to a $6.3 million increase in net loans receivable and investment
securities available for sale partially offset by a $4.7 million decrease in
cash and cash equivalents.
Net loans receivable amounted to $85.3 million at June 30, 1999, an
increase of $3.2 million from $82.1 million at December 31, 1998. The
increase was due primarily to $2.5 million in multi-family, commercial real
estate loans and equity lines of credit closed during the period. The Company
originated $13.7 million in mortgage, consumer and commercial real estate
loans during the six months ended June 30, 1999.
Investment securities available for sale amounted to $18.0 million at
June 30, 1999, an increase of $3.1 million from $14.9 million at December 31,
1998. The increase was primarily attributable to the reallocation of shorter
term liquid assets into intermediate and long term investment securities.
Mortgage-backed securities available for sale amounted to $15.6 million
at June 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 June 30, 1999 compared with
$76.2 million at December 31, 1998. The $700,000 decrease was primarily
attributable to a $4.5 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 $3.8 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 contines to promote these products and places less emphasis on
retail certificates of deposit as a funding source.
Borrowed funds increased $3.5 million to $37.6 million at June 30, 1999
from $34.1 million at December 31, 1998. The additional borrowings were used
to partially fund new loan originations during the period.
Stockholders' Equity totaled $12.1 million at June 30, 1999 compared with
$13.3 million at December 31, 1998. The decrease was primarily attributable
to a $995,000 increase in accumulated other comprehensive loss related to an
increase in medium and long term interest rates and their effect on the market
value of the available for sale securities portfolio. Retained earnings
increased $50,000 to $11.2 million at June 30, 1999. The increase was
attributable to $326,000 in net income partially offset by $276,000 in
dividend payments. Treasury Stock increased $313,000 from $10.7 million at
December 31, 1998 to $11.0 million at June 30, 1999. The increase in treasury
stock was attributable to $470,000 in stock repurchases partially offset by
$157,000 in stock options exercised.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998
GENERAL. Net income was $150,000 for the three months ended June 30,
1999, an increase of $84,000 or 127%, from $66,000 for the three months ended
June 30, 1998. Diluted earnings per share amounted to $.12 for the three
months ended June 30, 1999, an increase of $.07 or 140%, from $.05 per share
for the three months ended June 30, 1998. The improvement in earnings per
shares is related to an $80,000 reduction in non-interest expenses, a $28,000
increase in non-interest income and a $13,000 increase in net interest income.
These improvements were offset by a $29,000 increase in income tax expense and
an $8,000 increase in the provision for loan losses.
<PAGE 12>
INTEREST INCOME. Interest income increased $68,000 and amounted to $2.2
million for the three months ended June 30, 1999 compared with $2.1 million
for the three months ended June 30, 1998. The increase was primarily
attributable to a $6.7 million increase in the average interest-earning
assets to $125.3 million for the three months ended June 30, 1999 from $118.6
million for the three months ended June 30, 1998. The increase was
primarily attributable to a reallocation of liquid assets into higher yielding
intermediate and longer term assets. This increase was partially offset by a
decrease in the annualized average yield on interest-earning assets from 7.15%
for the three months ended June 30, 1998 to 6.98% for the three months ended
June 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 temporarily reinvested at lower rates.
INTEREST EXPENSE. Interest expense increased by $55,000 and remained
steady at $1.3 million for the three months ended June 30, 1999 and June 30,
1998. The annualized average cost of interest-bearing liabilities for the
three months ended June 30, 1999 was 4.72%, an improvement from 4.82% for the
three months ended June 30, 1998. The improvement was due primarily to a
decrease in the average cost of certificates of deposit from 5.66% for the
three months ended June 30, 1998 to 5.33% for the three months ended June 30,
1999. The average balance of interest-bearing deposit accounts was $73.3
million for the three months ended June 30, 1999, an increase of $1.9 million
from $71.4 million for the three months ended June 30, 1998. The average
balance of borrowed funds was $37.7 million for the three months ended June
30, 1999, an increase of $4.8 million from $32.9 million for the three months
ended June 30, 1998. This increase was partially offset by a decrease in the
average cost of borrowed funds from 5.58% for the three months ended June 30,
1998 to 5.38% for the three months ended June 30, 1999.
PROVISION FOR LOAN LOSSES. The Company added $8,000 to its allowance for
loan losses for the three months ended June 30, 1999 compared with no addition
for the three months ended June 30, 1998. The allowance for loan losses was
$222,000 at June 30, 1999 and $208,000 at June 30, 1998. The allowance for
loan losses amounted to .26% of loans receivable at June 30, 1999 and at June
30, 1998. There were no loans delinquent 90 days or more at June 30, 1999 or
at June 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 $119,000 for the
three months ended June 30, 1999, an increase of $28,000 from $91,000 for the
three months ended June 30, 1998. The increase was primarily attributable to
a $29,000 increase in gain on the sale of investment securities available for
sale.
NON-INTEREST EXPENSE. Non-interest expense amounted to $743,000 for the
three months ended June 30, 1999 compared with $823,000 for the three months
ended June 30, 1998. The $80,000 improvement was primarily attributable to a
$37,000 decrease in compensation and benefits expense and a $28,000 reduction
in professional fees. The reduction is compensation and benefits expense is
primarily related to lower payroll and benefits expense due to a reduction in
staff. 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 a reduction in tax accounting expense.
INCOME TAX EXPENSE. Income tax expense amounted to $94,000 for the
three months ended June 30, 1999, compared with $65,000 for the three months
ended June 30, 1998. The increase in income tax expense was primarily due to
an increase in taxable income.
<PAGE 13>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998.
GENERAL. Net income amounted to $326,000 for the six months ended June
30, 1999, an increase of $105,000, or 48%, from $221,000 for the six months
ended June 30, 1998. Diluted earnings per share amounted to $.26 for the six
months ended June 30, 1999, an increase of $.09 or 53%, from $.17 per share
for the six months ended June 30, 1998. The increase was primarily
attributable to a $171,000 reduction in non-interest expense and a $39,000
increase in non-interest income partially offset by a $66,000 increase in
income tax expense. The decrease in non-interest expense is primarily
related to reduced compensation and benefits expense and a decrease in
professional fees.
INTEREST INCOME. Interest income increased $51,000 and amounted to $4.3
million for the six months ended June 30, 1999 and June 30, 1998. The
increase was primarily attributable to an increase in average interest-earning
assets to $124.0 million for the six months ended June 30, 1999 from $118.9
million for the six months ended June 30, 1998. The increase was primarily
attributable to a reallocation of liquid assets into higher yielding
intermediate and longer term assets. The increase was partially offset by a
decline in the annualized yield on average interest-earning assets to 6.97%
for the nine months ended June 30, 1999 from 7.18% for the six months ended
June 30, 1998. The decrease in the annualized yield was primarily attributable
to higher yielding mortgage loans being prepaid or refinanced at lower rates
with the proceeds temporarily reinvested at lower rates.
INTEREST EXPENSE. Interest expense amounted to $2.6 million for the six
months ended June 30, 1999, an increase of $82,000 from $2.5 million for the
six months ended June 30, 1998. The increase was primarily attributable to a
$6.4 million increase in the average balance of interest-bearing liabilities
to $109.9 million for the six months ended June 30, 1999 from $103.5 million
for the six months ende June 30, 1998. This increase was partially offset by
a decrease in the average cost of interest-bearing liabilities to 4.69% for
the six months ended June 30, 1999 from 4.82% for the six months ended June
30, 1998 due to a shift from higher cost certificates of deposit to money
market deposit accounts. The improvement in the average cost of interest-
bearing liabilities was due primarily to an improvement in the average cost
of certificates of depsoit to 5.36% for the six months ended June 30, 1999
from 5.67% for the six months ended June 30, 1998. In addition, the cost of
borrowed funds improved to 5.34% for the six months ended June 30, 1999 from
5.63% for the six months ended June 30, 1998.
PROVISION FOR LOAN LOSSES. The Company added $8,000 to its allowance for
loan losses for the six months ended June 30, 1998 compared with no addition
for the six months ended June 30, 1998. The allowance for loan losses was
$222,000 at June 30, 1999 and $208,000 at June 30, 1998. The allowance for
loan losses amounted to .26% of loans receivable at June 30, 1999 and June 30
, 1998. There were no loans delinquent 90 days or more at June 30, 1999 or at
June 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 $233,000 for the
six months ended June 30, 1999, an improvement of $39,000 from $194,000 for
the six months ended June 30, 1998. The increase was primarily attributable
to a $22,000 increase gain on the sale of securities available for sale and a
$17,000 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.
NON-INTEREST EXPENSE. Non-interest expense amounted to $1.4 million for
the six months ended June 30, 1999, a decrease of $171,000 from $1.6 million
for the six months ended June 30, 1998. The decrease was primarily
attributable to an $89,000 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 $61,000 in professional fees primarily
related to a 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 $189,000 for the six
months ended June 30, 1999, an increase of $66,000 from $123,000 for the six
months ended June 30, 1998. The increase was primarily attributable to an
increase in taxable income. The effective tax rate was 36.7% for the six
months ended June 30, 1999 compared with 35.8% for the six months ended June
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. This statement was adopted early during the first
quarter of 1999 and did not have a material effect on the Company's financial
statements 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 4. Submission of Matters to a Vote of Security Holders.
On April 28, 1999, the annual meeting of stockholders was held. At the
meeting, Robert H. Rusher, Elmer L. Hass and Frank J. Donati were elected to
serve as directors with terms expiring in 2002. Continuing on as directors
were James L. Ferstel and Gregory W. Rose, whose terms will expire in 2000 and
Mary Ann Hass and Joseph A. Graber whose terms will expire in 2001. The
stockholders ratified the appointment KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999. The stockholders
rejected a stockholder proposal concerning the creation of a special
committee of the Company's Board of Directors.
The voting on each item presented at the annual meeting was as follows:
Election of Directors For Withheld
--------------------- --- --------
Robert H. Rusher 986,445 216,612
Elmer L. Hass 976,995 226,062
Frank J. Donati 994,095 208,962
Ratification of the
appointment of KPMG LLP
as the Company's auditors Broker
for the fiscal year ending For Against Abstain Non-votes
December 31, 1999 --- ------- ------- ---------
1,177,252 23,848 1,957 None
The creation of a special
committee of the board
of directors 364,201 718,104 8,309 112,443
<PAGE 15>
Item 5. Recent Development
On July 9, 1999, the Company terminated it relationship with Harris
Trust and Savings Bank as its Registrar and Transfer Agent. The Company's
new Registrar and Transfer agent is LaSalle Bank, N.A.. The address for
LaSalle Bank, N.A. is 135 South LaSalle Steet, Chicago, Illinois 60603.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
EX-27 Financial Data Schedule
(B) 1. Form 8-K dated April 16, 1999, Registrant issued press release dated
April 16, 1999 regarding first quarter 1999 earnings and a regular quarterly
dividend.
<PAGE 16>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NORTH BANCSHARES,INC.
(Registrant)
Date August 10, 1999 /S/ Joseph A. Graber
--------------- --------------------
Joseph A. Graber
President and
Chief Executive Officer
Date August 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 June 30, 1999 (unaudited) and the
Consolidated Statement of Operations for the six months ended June 30, 1998
(unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,319
<INT-BEARING-DEPOSITS> 1,839
<FED-FUNDS-SOLD> 1,457
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,577
<INVESTMENTS-CARRYING> 35,315
<INVESTMENTS-MARKET> 33,577
<LOANS> 85,258
<ALLOWANCE> 222
<TOTAL-ASSETS> 127,939
<DEPOSITS> 75,531
<SHORT-TERM> 13,500
<LIABILITIES-OTHER> 2,729
<LONG-TERM> 24,100
0
0
<COMMON> 19
<OTHER-SE> 12,061
<TOTAL-LIABILITIES-AND-EQUITY> 127,939
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<INTEREST-TOTAL> 4,319
<INTEREST-DEPOSIT> 1,601
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<EXPENSE-OTHER> 1,451
<INCOME-PRETAX> 515
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326
<EPS-BASIC> .27
<EPS-DILUTED> .26
<YIELD-ACTUAL> 5.03
<LOANS-TROUBLED> 0
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