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, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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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
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(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, 2000, there were 1,183,353 outstanding shares of the
Registrant's Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
1
<PAGE>
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
Item 4. Recent Regulatory Developments 14
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
2
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Part I. Financial Information
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS SEPTEMBER 30, 2000 DEC 31, 1999
<S> <C> <C>
Cash and due from Banks $ 2,301 $ 1,712
Interest-bearing deposits 1,390 1,260
Federal funds sold 491 2,439
Investment in dollar denominated mutual funds 518 466
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TOTAL CASH AND CASH EQUIVALENTS 4,700 5,877
Investment securities available for sale 17,095 17,050
Mortgage-backed securities available for sale 13,746 14,528
Stock in Federal Home Loan Bank of Chicago 1,705 2,205
Loans receivable, net of allowance for loan losses of $262 at
September 30, 2000 and $231 at December 31, 1999 89,012 88,989
Accrued interest receivable 915 965
Premises and equipment, net 806 1,033
Other assets 194 42
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TOTAL ASSETS 128,173 130,689
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposit accounts 80,152 76,506
Borrowed Funds 32,190 41,100
Advance payments by borrowers for taxes and insurance 532 1,092
Accrued interest payable and other liabilities 3,096 738
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TOTAL LIABILITIES 115,970 119,436
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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 13,234 13,393
Retained earnings, substantially restricted 11,988 11,115
Treasury stock, at cost (724,722 shares at September 30, 2000 and
682,868 shares at December 31, 1999) (11,246) (11,025)
Accumulated other comprehensive loss (1,542) (1,916)
Common stock acquired by Employee Stock Ownership Plan (250) (333)
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TOTAL STOCKHOLDERS' EQUITY 12,203 11,253
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,173 $130,689
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</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans receivable $1,710 $1,611 $5,057 $4,695
Interest-bearing deposits and federal funds sold 49 32 147 163
Investment securities available for sale 298 304 914 860
Mortgage-backed securities available for sale 220 241 676 713
Investment in mutual funds 6 6 17 22
Dividends on FHLB stock 32 34 109 94
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TOTAL INTEREST INCOME 2,315 2,228 6,920 6,547
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INTEREST EXPENSE:
Deposit accounts 871 797 2,588 2,398
Borrowed funds 557 526 1,687 1,503
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TOTAL INTEREST EXPENSE 1,428 1,323 4,275 3,901
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 887 905 2,645 2,646
PROVISION FOR LOAN LOSSES - 9 31 17
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 887 896 2,614 2,629
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NON-INTEREST INCOME:
Gain (loss) on sale of investment securities available for sale - (15) (90) 75
Other than temporary decline in value of securities available for sale - (24) (24) (32)
Gain on sale of real estate - - 1,322 -
Loss on sale of loans (15) - (15) -
Fees and service charges 69 73 218 215
Other 6 4 16 13
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TOTAL NON-INTEREST INCOME 60 38 1,427 271
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NON-INTEREST EXPENSE:
Compensation and benefits 423 409 1,273 1,204
Occupancy expense 104 106 345 325
Professional fees 44 39 159 131
Data processing 52 53 156 156
Advertising and promotion 40 49 125 110
Federal deposit insurance premium 2 23 10 34
Other 89 85 271 255
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TOTAL NON-INTEREST EXPENSE 754 764 2,339 2,215
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INCOME BEFORE INCOME TAXES 193 170 1,702 685
INCOME TAX EXPENSE 67 78 430 267
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NET INCOME $126 $ 92 $1,272 $ 418
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EARNINGS PER SHARE:
Basic .11 .08 1.08 .35
Diluted .11 .07 1.07 .34
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AVERAGE SHARES OUTSTANDING:
Basic 1,163,122 1,188,241 1,177,756 1,200,516
Diluted 1,171,620 1,236,616 1,186,571 1,247,372
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
Accumulated Common
Additional other stock
Common paid in Retained Treasury comprehensive acquired
Stock capital earnings stock income (loss) by ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $19 13,437 11,127 (10,664) (153) (444) 13,322
Comprehensive loss:
Net income - - 418 - - - 418
Change in unrealized loss on securities
available for sale, net - - - - (1,642) - (1,642)
---------
Comprehensive loss - - - - - - (1,224)
Payment on ESOP loan - - - - - 83 83
Market adjustment for common ESOP shares - 73 - - - - 73
Purchase of treasury stock, 48,178 shares - - - (630) - - (630)
Cash dividend ($.33 per share) - - (413) - - - (413)
Options exercised and reissuance of treasury
stock, 16,500 shares - (137) - 269 - - 132
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Balance at September 30, 1999 19 13,373 11,132 (11,025) (1,795) (361) 11,343
==================================================================================================================================
Balance at December 31, 1999 19 13,393 11,115 (11,025) (1,916) (333) 11,253
Comprehensive income:
Net income - - 1,272 - - - 1,272
Change in unrealized loss on securities
available for sale, net - - - - 374 - 374
--------
Comprehensive income - - - - - - 1,646
Payment on ESOP loan - - - - - 83 83
Market adjustment for common ESOP shares - 28 - - - - 28
Purchase of treasury stock, 63,130 shares - - - (561) - - (561)
Cash dividend ($.33 per share) - - (399) - - - (399)
Options exercised and reissuance of treasury
stock, 21,276 shares - (187) - 340 - - 153
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Balance at September 30, 2000 $19 13,234 11,988 (11,246) (1,542) (250) 12,203
===================================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
NORTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPT 30,
<S> <C> <C>
2000 1999
Cash flows from operating activities:
Net Income $ 1,272 418
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 73 73
Deferred loan costs, net of amortization 38 15
Amortization of premiums and discounts, net 4 (3)
ESOP expense 111 156
Provision for loan losses 31 17
Loss (gain) on sale of investment securities available for sale 100 (75)
Loss on sale of loans 15
Gain on sale of real estate (1,322) -
Proceeds from sale of loans 1,767 425
Federal Home Loan Bank of Chicago stock dividend (111) -
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 50 (47)
Increase in other assets, net (152) 63
Increase in other liabilities 2,167 1,011
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Net cash provided by operating activities 4,043 2,053
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Cash flows from investing activities:
Maturities of investment securities available for sale - 2,135
Purchase of investment securities available for sale (1,991) (6,192)
Proceeds from sales of investment securities available for sale 2,191 255
Purchase of mortgage-backed securities available for sale - (3,680)
Proceeds from sales of mortgage-backed securities available for sale - 2,005
Repayment of mortgage-backed securities available for sale 984 1,426
Loan originations (11,347) (22,027)
Loan repayments 9,487 13,537
Sale (purchase) of Federal Home Loan Bank of Chicago Stock 611 (250)
Proceeds from sale of real estate 1,500 -
Purchase of premises and equipment (24) (80)
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,411 (12,871)
-------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in deposit accounts 3,646 (744)
Proceeds from borrowed funds 34,140 12,000
Repayments of borrowed funds (43,050) (5,000)
(Decrease) increase in advance payments by borrowers for taxes
and insurance (560) 585
Payment of cash dividend (399) (413)
Proceeds from stock options exercised 153 132
Purchase of treasury stock (561) (630)
-------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (6,631) 5,930
-------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,177) (4,888)
Cash and cash equivalents at beginning of period 5,877 9,746
-------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $4,700 4,858
-------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $3,528 3,078
Taxes 250 105
Supplemental disclosures of noncash activities:
Transfer of mortgage-backed securities from held to maturity to
available for sale - 4,478
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
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,
2000 and results of operations for the three and nine month periods ended
September 30, 2000 and September 30, 1999, 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"), its wholly-owned
subsidiary, North Federal Savings Bank (the "Bank"), and the Bank's 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,
<S> <C> <C> <C> <C>
(In thousands, except share data) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
Numerator:
Net Income $126 92 1,272 418
Denominator:
Basic earnings per share-weighted average
shares outstanding 1,163,122 1,188,241 1,177,756 1,200,516
Effect of dilutive stock options outstanding 8,498 48,375 8,815 46,856
Diluted earnings per share-adjusted weighted
average shares outstanding 1,171,620 1,236,616 1,186,756 1,247,372
Basic earnings per share .11 .08 1.08 .35
Diluted earnings per share .11 .07 1.07 .34
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</TABLE>
7
<PAGE>
4) Comprehensive income
The following table sets forth the required disclosures of other
comprehensive income (loss) 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, 2000
Change in unrealized loss on securities available
for sale, net $ 458 (155) 303
---------------------------------------------------------------------------------------------------
Three months ended September 30, 1999
Change in unrealized loss on securities available for
sale arising during the period, net $(941) 320 (621)
Less: reclassification adjustment for loss on
securities available for sale included in net income (39) 13 (26)
---------------------------------------------------------------------------------------------------
Change in unrealized gain on securities available
for sale, net $(980) 333 (647)
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Nine months ended September 30, 2000
Unrealized holding loss on securities available for
sale arising during the period $680 (231) 449
Less: reclassification adjustment for loss on
securities available for sale included in net income (114) 39 (75)
---------------------------------------------------------------------------------------------------
Change in net unrealized loss on securities available
for sale $ 566 (192) 374
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Nine months ended September 30, 1999
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)
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</TABLE>
(5) Stock Repurchase Program
On September 14, 2000, the Company completed the stock repurchase
program announced on January 27, 2000. The Company repurchased 50,000 shares at
an average price of $8.90. Also on September 14, 2000, the Company announced the
beginning of another stock repurchase program. The new repurchase program
amounts to 50,000 shares or 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,
2000, 2,589 shares had been repurchased under the new program at an average cost
of $8.92 per share. Management continues to believe that stock repurchase
programs provide enhanced value to both the Company and its stockholders.
(6) Dividend Declaration
On July 14, 2000, the Company announced that the Board of Directors
declared a quarterly dividend of $.11 per share, which was paid on August 15,
2000 to stockholders of record on August 1, 2000. On October 16, 2000, the
Company announced that the Board of Directors declared a quarterly dividend of
$.11 per share, to be paid on November 15, 2000 to stockholders of record on
November 1, 2000.
8
<PAGE>
(7) Commitments and Contingencies
At September 30, 2000, the Bank had outstanding commitments to
originate loans or fund participations in the amount of $4.3 million at an
average rate of 9.14% and unused equity lines of credit totaling $2.4 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, equity lines of credit
secured by real estate and commercial real estate loans. The Company also
invests in U.S. Government and agency securities, federal agency mortgage-backed
securities, investment grade securities, common stocks of other financial
institutions and money market accounts.
The Company's consolidated results of operations are primarily
dependent on net interest income, which is the difference between the interest
income earned on interest-earning assets and the interest paid on deposits and
other borrowings, loan loss provisions and to a lesser degree on non-interest
income less non- interest expense and income taxes. The Company's operating
expenses consist principally of employee compensation and benefits, occupancy
expenses, and other non-interest expenses. The Company's results of operations
are also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Forward-Looking Statements
When used in this Form 10-QSB, and in other filings by the Company with
the SEC, in the Company's press releases or other public or shareholder
communications, and in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimate", "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties including 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.
The Company does not undertake -- and specifically disclaims any
obligation -- to publicly release the results 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.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, borrowings from the
FHLB of Chicago, amortization and prepayment of loans and mortgage-backed
securities, sales and maturities of investment and mortgage- backed securities
and occasionally the use of reverse repurchase agreements. The Bank can also
borrow from its correspondent banks. The Bank uses its liquid resources to fund
loan commitments, to meet operating expenses, and to invest and to fund deposit
withdrawals. Management believes that loan repayments and the Bank's other
sources of funds will be adequate to meet the liquidity needs of the Bank.
9
<PAGE>
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, 2000, the
Bank's liquidity ratio was 4.3% compared with 4.4% at September 30, 1999.
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, 2000, the Bank exceeded all of its
regulatory capital requirements. At such date, the Bank's tangible capital, core
capital and risk-based capital of $12.9 million, $12.9 million and $13.2
million, respectively, exceeded the applicable minimum requirements by $11.0
million or 8.5%, $9.0 million or 7.0%, and $8.6 million or 15.0%, respectively.
Changes In Financial Condition
Total assets amounted to $128.2 million at September 30, 2000, a
decrease of $2.5 million from $130.7 million at December 31, 1999. The decrease
was primarily attributable to a $1.2 million decrease in cash and cash
equivalents and an $800,000 decrease in mortgaged-backed securities available
for sale.
Net loans receivable amounted to $89.0 million at September 30, 2000
and at December 31, 1999. The Company originated $11.3 million in residential
mortgage, consumer and commercial real estate loans during the nine months ended
September 30, 2000 compared with $22.0 million during the nine months ended
September 30, 1999. Repayments totaled $9.5 million and loan sales totaled $1.8
million during the nine months ended September 30, 2000 compared with $14.0
million in repayments and $425,000 in loan sales during the nine months ended
September 30, 1999. The decrease in originations and repayments was primarily
due to the effect of higher interest rates.
Total deposits amounted to $80.2 million at September 30, 2000 compared
with $76.5 million at December 31, 1999. The $3.7 million increase was primarily
attributable to an increase in certificates of deposit. The increase in
certificates was primarily due to the use of brokered certificates of deposit as
a funding source for short term construction and commercial real estate loans
and to repay borrowed funds. Non-interest bearing checking balances increased
$1.0 million to $3.3 million at September 30, 2000 from $2.3 million at December
31, 1999.
Borrowed funds decreased $8.9 million to $32.2 million at September 30,
2000 from $41.1 million at December 31, 1999. The decrease was primarily
attributable to repayment of FHLB advances which were called by the FHLB prior
to maturity due to the interest rate being below market.
Accrued interest payable and other liabilities amounted to $3.1 million
at September 30, 2000, an increase of $2.4 million from $738,000 at December 31,
1999. The increase is primarily attributable to accrued interest on certificates
of deposit that pay interest once a year in December.
Stockholders' equity was $12.2 million at September 30, 2000 compared
with $11.3 million at December 31, 1999. The increase was primarily attributable
to net income for the nine month period which was partially offset by $399,000
in dividend payments. In addition, there was a $374,000 improvement in
accumulated other comprehensive loss primarily due to lower interest rates on
certain agency securities and their effect on the securities portfolio. There
was also a $221,000 increase in treasury stock related to stock repurchases.
Book value per share increased to $10.26 at September 30, 2000 from $9.14 at
December 31, 1999.
10
<PAGE>
Average Balance Sheet
The following table presents certain information relating to the
Company's average balance sheet and reflects the average yield in assets and
average cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively for the periods shown. Average balances are derived
from average monthly balances. The yields and costs include fees which are
considered adjustments to yield.
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
---------------------------------------------------------------------
Interest Average Interest Average
Average Earned\ Yield\ Average Earned\ Yield\
Balance Paid Cost(3) Balance Paid Cost
---------------------------------------------------------------------
(Dollars in thousands)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans receivable $90,627 $1,710 7.55% $87,561 $1,611 7.36%
Investment securities 18,539 304 6.56 18,382 304 6.62
Mortgage-backed securities 14,534 220 6.05 16,005 241 6.02
Federal funds sold 1,519 33 8.69 1,276 13 4.08
Other 3,400 48 5.65 4,046 59 5.83
-----------------------------------------------------------------------------------------------------
Total interest-earning assets 128,619 2,315 7.20 127,270 2,228 7.00
Non-interest-earning assets 1,985 2,367
-----------------------------------------------------------------------------------------------------
Total Assets $130,604 $129,637
-----------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
MMDA & NOW accounts 23,811 252 4.23 22,747 218 3.83
Passbook accounts 12,657 87 2.75 13,455 94 2.79
Certificate accounts 40,166 532 5.30 36,767 488 5.31
Borrowed funds 35,196 557 6.33 39,475 523 5.30
-----------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 111,830 1,428 5.11 112,444 1,323 4.71
Non-interest bearing deposits 3,109 2,169
Other liabilities 3,669 3,158
-----------------------------------------------------------------------------------------------------
Total liabilities 118,608 117,771
Stockholders' equity 11,996 11,866
-----------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $130,604 $129,637
-----------------------------------------------------------------------------------------------------
Net interest income/interest rate
spread (1) 887 2.09% 905 2.30%
-----------------------------------------------------------------------------------------------------
Net earning assets/net interest
margin (2) $16,789 2.76% $14,826 2.84%
------------------------------------------------------------------------------------------------------
Percentage of interest-earning
assets to interest-bearing LIabilities 115.01% 113.19%
------------------------------------------------------------------------------------------------------
</TABLE>
1. Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
2. Net interest margin represents net interest income divided by average
interest-earning assets.
3. Average yields and costs for the three and nine month periods presented are
annualized for presentation purposes.
11
<PAGE>
Comparison Of Operating Results For The Three Months Ended September 30, 2000
And September 30, 1999
General. Net income was $126,000 for the three months ended September
30, 2000, an increase of $34,000, from $92,000 for the three months ended
September 30, 1999. Diluted earnings per share amounted to $.11 for the three
months ended September 30, 2000, an increase of $.04, from $.07 per share for
the three months ended September 30, 1999. The increase in net income and
earnings per share was primarily related to a $22,000 increase in non-interest
income and a $10,000 reduction in non-interest expense partially offset by an
$18,000 decrease in net interest income.
Interest Income. Interest income increased by $87,000 and amounted to
$2.3 million for the three months ended September 30, 2000 compared with $2.2
million for the three months ended September 30, 1999. There was an increase in
the annualized yield on average interest-earning assets to 7.20% for the three
months ended September 30, 2000 from 7.00% for the three months ended September
30, 1999. The increase was primarily attributable to an increase in the average
yield on loans receivable to 7.55% for the three months ended September 30, 2000
from 7.36% for the three months ended September 30, 1999. In addition there was
an increase in average interest-earning assets to $128.6 million for the three
months ended September 30, 2000 compared with $127.3 million for the three
months ended September 30, 1999.
Interest Expense. Interest expense increased $105,000 and amounted to
$1.4 million for the three months ended September 30, 2000, compared with $1.3
million for the three months ended September 30, 1999. The annualized average
cost of interest-bearing liabilities increased to 5.11% for the three months
ended September 30, 2000 from 4.71% for the three months ended September 30,
1999. The increase was due primarily to an increase in the average cost of
borrowed funds to 6.33% for the three months ended September 30, 2000 from 5.30%
for the three months ended September 30, 1999. The increase in the average cost
was partially offset by a decrease in average interest-bearing liabilities to
$111.8 million for the three months ended September 30, 2000 from $112.4 million
for the three months ended September 30, 1999.
Provision For Loan Losses. The Company did not add to its allowance for
loan losses for the three months ended September 30, 2000 compared with an
additional $9,000 for the three months ended September 30, 1999. The allowance
for loan losses was $262,000 at September 30, 2000 and $231,000 at September 30,
1999. The allowance for loan losses amounted to .29% of loans receivable at
September 30, 2000 and .26% at September 30, 1999. There were no chargeoffs
during the quarter and no loans were delinquent 90 days or more at September 30,
2000. Future additions to the Company's allowance 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 increased by $22,000 and
amounted to $60,000 for the quarter ended September 30, 2000 compared with
$38,000 for the quarter ended September 30, 1999. The increase was primarily
attributable to a $24,000 other than temporary decline in value of securities
available for sale during the 1999 period which did not re-occur in the 2000
period. In addition, there was a $15,000 loss on the sale of loans during the
quarter and a $15,000 loss on the sale of investment securities available for
sale during the quarter ended September 30, 1999.
Non-Interest Expense. Non-interest expense decreased by $10,000 to
$754,000 for the quarter ended September 30, 2000 compared with $764,000 for the
quarter ended September 30, 1999. The decrease was primarily attributable to a
combined $30,000 decrease in federal deposit insurance premiums and advertising
and promotion expense, partially offset by a $14,000 increase in compensation
and benefits expense related to increased salaries and benefits expense. The
decrease in federal deposit insurance premiums was primarily due to a reduction
of the deposit insurance rate by the Federal Deposit Insurance Corporation.
Income Tax Expense. Income tax expense amounted to $67,000 for the
three months ended September 30, 2000 compared with $78,000 for the three months
ended September 30, 1999. The effective tax rate amounted to 34.7% for the three
months ended September 30, 2000 compared with 45.9% for the three months ended
September 30, 1999. The higher tax rate for the three months ended September 30,
1999 was primarily due to no tax benefit being recorded due to capital losses
generated during the period.
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Comparison Of Operating Results For The Nine Months Ended September 30, 2000
And September 30, 1999
General. Net income amounted to $1.3 million for the nine months ended
September 30, 2000, an increase of $854,000 from $418,000 for the nine months
ended September 30, 1999. Diluted earnings per share amounted to $1.07 for the
nine months ended September 30, 2000, an increase of $.73 from $.34 per share
for the nine months ended September 30, 1999. The increase was primarily
attributable to a $1.2 million increase in non-interest income primarily related
to a $1.3 million gain on the sale of real estate. This increase was partially
offset by a $163,000 increase in income tax expense and a $124,000 increase in
non- interest expense.
Interest Income. Interest income increased $373,000 and amounted to
$6.9 million for the nine months ended September 30, 2000 compared with $6.5
million for the nine months ended September 30, 1999. The increase was primarily
attributable to an increase in average interest earning assets to $129.0 million
for the nine months ended September 30, 2000 from $125.1 million for the nine
months ended September 30, 1999. The increase was primarily attributable to an
increase in the average balance of loans receivable to $90.1 million for the
nine months ended September 30, 2000 from $84.9 million for the nine months
ended September 30, 1999. In addition, there was an increase in the annualized
yield on average interest-earning assets to 7.15% for the nine months ended
September 30, 2000 from 6.98% for the nine months ended September 30, 1999. The
increase in the annualized yield was primarily attributable to an improvement in
the average yield on loans receivable to 7.49% for the nine months ended
September 30, 2000 from 7.38% for the nine months ended September 30, 1999 due
primarily to an increase in higher yielding home equity and commercial real
estate loans in the portfolio.
Interest Expense. Interest expense increased $374,000 and amounted to
$4.3 million for the nine months ended September 30, 2000 compared with $3.9
million for the nine months ended September 30, 1999. The increase was primarily
attributable to an increase in the average balance of interest-bearing
liabilities to $114.2 million for the nine months ended September 30, 2000 from
$110.6 million for the nine months ended September 30, 1999. In addition, there
was an increase in the average cost of interest-bearing liabilities to 4.99% for
the nine months ended September 30, 2000 from 4.70% for the nine months ended
September 30, 1999 due primarily to an increase in the average cost of borrowed
funds to 5.89% for the nine months ended September 30, 2000 from 5.34% for the
nine months ended September 30, 1999.
Provision For Loan Losses. The Company added $31,000 to its allowance
for loan losses for the nine months ended September 30, 2000 compared with
$17,000 for the nine months ended September 30, 1999. The allowance for loan
losses was $262,000 at September 30, 2000 and amounted to .29% of loans
receivable. The allowance for loan losses was $231,000 and amounted to .26% of
loans receivable at September 30, 1999. The increase in the allowance was
primarily attributable to an increase in commercial real estate lending, which
generally carries a higher level of risk than single family loans. There were no
chargeoffs during the nine month period and no loans were delinquent 90 days or
more at September 30, 2000. 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 increased $1.2 million and
amounted to $1.4 million for the nine months ended September 30, 2000 compared
with $271,000 for the nine months ended September 30, 1999. The increase was
primarily attributable to a $1.3 million gain on the sale of real estate
partially offset by a $165,000 decrease in gain on the sale of securities
available for sale.
Non-Interest Expense. Non-interest expense increased $124,000 and
amounted to $2.3 million for the nine months ended September 30, 2000 compared
with $2.2 million for the nine months ended September 30, 1999. The increase was
primarily attributable to a $69,000 increase in compensation and benefits
expense related to increased salaries and benefits expense. In addition, there
was a $20,000 increase in office occupancy expense and a $28,000 increase in
professional fees primarily related to the sale of the Bank's parking facility.
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Income tax Expense. Income tax expense increased $163,000 and amounted
to $430,000 for the nine months ended September 30, 2000 compared with $267,000
for the nine months ended September 30, 1999. The increase was primarily
attributable to an increase in taxable income. The effective tax rate was 25.3%
for the nine months ended September 30, 2000 compared with 39.0% for the nine
months ended September 30, 1999. The decrease in the effective tax rate was
primarily attributable to capital loss carryforwards used to offset capital
gains that had previously not been tax benefitted due to their uncertainty of
realization.
Impact of Recently issued accounting standards and Other Regulatory issues
In September 2000, the Financial Accounting Standards Board ("FASB"),
issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." The new Statement replaces Statement No.
125, issued in June 1996. It revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of the Statement 125's
provisions without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
march 31, 2001. The Statement is effective for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Adoption of SFAS No.
140 is not expected to have a material effect on the Company's financial
position or results of operations.
On November 12, 1999, the Gramm-Leach Bliley Act ("the "Act"), was
signed into law. The Act will allow bank holding companies to engage in a wider
range of nonbanking activities, including greater authority to engage in
securities and insurance activities. Under the Act, a bank holding company that
elects to become a financial holding company may engage in any activity that the
Federal Reserve System determines by regulation or order is financial in nature
and does not pose a substantial risk to the safety and soundness of depository
institution or the financial system generally.
The Act limits the nonbanking activities of unitary savings and loan
holding companies, such as the Company, by generally prohibiting any savings and
loan holding company from engaging in any activity other than activities that
are currently permitted for multiple savings and loan holding companies or are
permissible for financial holding companies. The Act prohibits any company from
acquiring control of a savings association or savings and loan holding company
unless the acquiring company engages solely in permissible activities. The Act
creates an exemption from the general prohibitions for unitary savings and loan
holding companies in existence or formed pursuant to an application pending
before the Office of Thrift Supervision, on or before May 4, 1999, which
includes the Company.
Various bank regulatory agencies have begun issuing regulations as
mandated by the Act. In addition, all federal bank regulatory agencies have
jointly issued a proposed regulation that would implement the privacy provision
of the Act. At this time, it is not possible to predict the impact of the Act
and its implementing regulations may have on the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending to which the Company or
any of its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
EX-27 Financial Data Schedule
(B) 1. Form 8-K dated July 14, 2000, Registrant issued a press release
dated July 14, 2000 regarding second quarter 2000 earnings and a
regular quarterly dividend.
2. Form 8-K dated September 14, 2000, Registrant issued a press
release dated September 14, 2000 regarding the completion of a
stock repurchase program and the beginning of a new stock
repurchase program.
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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 10, 2000 /S/ Joseph A. Graber
---------------------- --------------------------
Joseph A. Graber
President and Chief Executive Officer
Date November 10, 2000 /S/ Martin W. Trofimuk
---------------------- --------------------------
Martin W. Trofimuk
Vice President and Treasurer
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