SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO 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 0-27672
NORTH CENTRAL BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Iowa 42-1449849
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification Number)
825 Central Avenue Fort Dodge, Iowa 50501
-----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:(515) 576-7531
None
----
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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
-----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 1, 2002
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 1,702,680
NORTH CENTRAL BANCSHARES, INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Condensed
Financial Statements (Unaudited) 1 to 3
Consolidated Condensed Statements of
Financial Condition at June 30, 2002
(Unaudited) and December 31, 2001 1
Consolidated Condensed Statements of
Income for the three and six months ended
June 30, 2002 and 2001 (Unaudited) 2
Consolidated Condensed Statements of
Cash Flows for the six months ended
June 30, 2002 and 2001 (Unaudited) 3
Notes to Consolidated Condensed Financial
Statements 4 & 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6 to 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Part II. Other Information
Items 1 through 6 13 & 14
Signatures 15
Exhibits
PART I. FINANCIAL INFORMATION
ITEM 1.
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
ASSETS 2002 2001
------------- -------------
(Unaudited)
Cash and due from banks:
Interest-bearing $ 12,797,874 $ 17,650,064
Noninterest-bearing 2,262,540 2,258,838
Securities available-for-sale 25,651,999 31,365,731
Loans receivable, net 343,179,243 307,981,424
Loans held for sale 1,663,089 1,605,710
Accrued interest receivable 2,052,249 1,913,557
Foreclosed real estate 865,418 1,073,873
Premises and equipment, net 7,511,599 6,797,505
Rental real estate 1,640,302 1,681,337
Title plant 925,256 925,256
Goodwill 4,970,800 4,970,800
Deferred taxes 584,336 484,904
Income taxes receivable 175,622 --
Prepaid expenses and other assets 698,964 666,228
------------- -------------
Total assets $ 404,979,291 $ 379,375,227
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 280,735,830 $ 268,813,731
Borrowed funds 83,593,356 71,412,723
Advances from borrowers for taxes and insurance 1,434,862 1,589,314
Dividends payable 306,482 256,587
Income taxes payable -- 78,711
Accrued expenses and other liabilities 1,109,061 1,311,412
------------- -------------
Total liabilities 367,179,591 343,462,478
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized 3,000,000
shares; issued and outstanding none) -- --
Common stock ($.01 par value, authorized 15,500,000
shares; issued 2002, 1,764,680; 2001, 1,700,280 shares) 17,647 17,003
Additional paid-in capital 18,026,700 16,780,875
Retained earnings, substantially restricted 21,468,513 19,402,706
Accumulated other comprehensive income 197,791 189,991
Less cost of treasury stock, 2002, 62,000 shares; 2001,
none (1,514,050) --
Unearned shares, employee stock ownership plan (396,901) (477,826)
------------- -------------
Total stockholders' equity 37,799,700 35,912,749
------------- -------------
Total liabilities and stockholders' equity $ 404,979,291 $ 379,375,227
============= =============
See Notes to Consolidated Condensed Financial Statements.
-1-
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Interest income:
Loans receivable $ 6,407,193 $ 6,344,461 $ 12,499,824 $ 12,717,494
Securities and cash deposits 353,389 577,961 791,415 1,245,481
------------ ------------ ------------ ------------
6,760,582 6,922,422 13,291,239 13,962,975
------------ ------------ ------------ ------------
Interest expense:
Deposits 2,370,150 3,086,479 4,803,584 6,219,074
Borrowed funds 1,128,634 1,168,504 2,188,263 2,417,322
------------ ------------ ------------ ------------
3,498,784 4,254,983 6,991,847 8,636,396
------------ ------------ ------------ ------------
Net Interest Income 3,261,798 2,667,439 6,299,392 5,326,579
Provision for loan losses 90,000 60,000 270,000 90,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 3,171,798 2,607,439 6,029,392 5,236,579
------------ ------------ ------------ ------------
Noninterest income:
Fees and service charges 596,273 471,470 1,184,854 880,276
Abstract fees 402,221 378,302 798,831 680,574
Mortgage banking fees 107,014 201,073 215,172 309,836
Loss on sale of securities available for
sale, net -- (1,733) (1,365) (933)
Other income 280,322 186,078 502,860 404,013
------------ ------------ ------------ ------------
Total noninterest income 1,385,830 1,235,190 2,700,352 2,273,766
------------ ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 1,324,414 1,048,007 2,590,344 2,147,853
Premises and equipment 301,635 289,359 610,452 586,504
Data processing 132,180 117,219 261,112 222,799
SAIF deposit insurance premiums 11,766 12,451 23,952 25,287
Goodwill amortization -- 118,072 -- 236,145
Other expenses 634,979 599,482 1,284,570 1,139,861
------------ ------------ ------------ ------------
Total noninterest expense 2,404,974 2,184,590 4,770,430 4,358,449
------------ ------------ ------------ ------------
Income before income taxes 2,152,654 1,658,039 3,959,314 3,151,896
Provision for income taxes 728,806 547,735 1,304,730 1,060,454
------------ ------------ ------------ ------------
Net Income $ 1,423,848 $ 1,110,304 $ 2,654,584 $ 2,091,442
============ ============ ============ ============
Basic earnings per common share $ 0.87 $ 0.62 $ 1.62 $ 1.16
============ ============ ============ ============
Earnings per common share- assuming dilution $ 0.81 $ 0.59 $ 1.52 $ 1.10
============ ============ ============ ============
Dividends declared per common share $ 0.18 $ 0.15 $ 0.36 $ 0.30
============ ============ ============ ============
Comprehensive income $ 1,483,291 $ 1,109,404 $ 2,662,384 $ 2,473,751
============ ============ ============ ============
See Notes to Consolidated Condensed Financial Statements.
-2-
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
----------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,654,584 $ 2,091,442
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 270,000 90,000
Depreciation 353,196 345,437
Amortization and accretion 91,813 309,002
Deferred taxes (103,782) (131,415)
Effect of contribution to employee stock ownership plan 204,528 178,947
(Gain) on sale of foreclosed real estate and loans, net (212,789) (295,211)
Loss on sale of securities available for sale 1,365 933
(Gain) loss on impairment and disposal of equipment and premises, (889) 5,121
net
Proceeds from sales of loans held for sale 16,064,139 21,345,410
Originations of loans held for sale (15,906,346) (22,303,539)
Change in assets and liabilities:
Accrued interest receivable (138,692) 128,848
Income taxes receivable (175,622) 209,995
Prepaid expenses and other assets (32,736) (120,781)
Income taxes payable (78,711) 47,432
Accrued expenses and other liabilities (202,351) (74,848)
------------ ------------
Net cash provided by operating activities 2,787,707 1,826,773
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans 17,865,181 11,103,149
Purchase of loans (53,214,514) (14,408,497)
Proceeds from sales of securities available-for-sale 13,760 220,125
Purchase of securities available-for-sale (273,363) (6,736,938)
Proceeds from maturities of securities available-for-sale 5,973,549 16,726,643
Purchase of premises and equipment and rental real estate (1,026,381) (466,809)
Proceeds from sale of equipment 1,015 18,376
Other 6,344 --
------------ ------------
Net cash provided by (used in) investing activities (30,654,409) 6,456,049
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,922,099 10,737,345
Increase (decrease) in advances from borrowers for taxes and (154,452) 130,350
insurance
Net change in short-term borrowings 750,000 (5,000,000)
Proceeds from other borrowed funds 27,000,000 3,000,000
Payments of other borrowings (15,569,367) (9,566,000)
Purchase of treasury stock (1,514,050) (2,131,985)
Dividends paid (538,882) (504,121)
Issuance of common stock 1,122,866 170,965
Other -- (9,704)
------------ ------------
Net cash provided by (used in) financing activities 23,018,214 (3,173,150)
------------ ------------
Net increase (decrease) in cash (4,848,488) 5,109,672
CASH
Beginning 19,908,902 8,849,726
------------ ------------
Ending $ 15,060,414 $ 13,959,398
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 5,017,193 $ 6,294,220
Interest paid on borrowings 2,188,726 2,468,872
Income taxes 1,343,904 934,442
-3-
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated condensed financial statements for the three and six-month
periods ended June 30, 2002 and 2001 are unaudited. In the opinion of the
management of North Central Bancshares, Inc. (the "Company" or the "Registrant")
these financial statements reflect all adjustments, consisting only of normal
recurring accruals, necessary to present fairly these consolidated financial
statements. The results of operations for the interim periods are not
necessarily indicative of results, which may be expected for an entire year.
Certain information and footnote disclosure normally included in complete
financial statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the requirements for interim
financial statements. The financial statements and notes thereto should be read
in conjunction with the Company's 2001 Annual Report on Form 10-K.
The consolidated condensed financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
2. EARNINGS PER SHARE
The earnings per share amounts were computed using the weighted average number
of shares outstanding during the periods presented. In accordance with Statement
of Position No. 93-6, Employers' Accounting for Employee Stock Ownership Plans,
issued by the American Institute of Certified Public Accountants, shares owned
by First Federal Savings Bank of Iowa's Employee Stock Ownership Plan that have
not been committed to be released are not considered to be outstanding for the
purpose of computing earnings per share. For the three-month period ended June
30, 2002, the weighted average number of shares outstanding for basic and
diluted earnings per share computation were 1,645,954 and 1,755,609,
respectively. For the six-month period ended June 30, 2002, the weighted average
number of shares outstanding for basic and diluted earnings per share
computation were 1,642,584 and 1,745,147, respectively. For the three-month
period ended June 30, 2001, the weighted average number of shares outstanding
for basic and diluted earnings per share computation were 1,777,141 and
1,870,053, respectively. For the six-month period ended June 30, 2001, the
weighted average number of shares outstanding for basic and diluted earnings per
share computation were 1,805,929 and 1,895,546, respectively.
3. DIVIDENDS
On May 24, 2002, the Company declared a cash dividend on its common stock,
payable on July 5, 2002 to stockholders of record as of June 17, 2002, equal to
$0.18 per share.
4. GOODWILL
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 141, "Business Combinations, " and No. 142, "Goodwill and Other
Intangible Assets" (SFAS 141 and 142). SFAS 141 addresses financial accounting
and reporting for business combinations and replaces APB Opinion No. 16,
"Business Combinations" (APB 16). SFAS 141 no longer allows the pooling of
interests method of accounting for acquisitions, provides new recognition
criteria for intangible assets and carries forward without reconsideration the
guidance in APB 16 related to the application of the purchase method of
accounting. SFAS 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and replaces APB Opinion No. 17,
"Intangible Assets." SFAS 142 addresses how intangible assets should be
accounted for upon their acquisition and after they have been initially
recognized in the financial statements. The new standards provide specific
guidance on measuring goodwill for impairment annually using a two-step process.
The first step identifies potential impairment and the second step measures the
amount of goodwill impairment loss to be recognized.
As of January 1, 2002, the Company has undertaken to identify those intangible
assets that remain separable under the provisions of the new standard and those
that are to be included in goodwill and concluded that all amounts should be
included in goodwill. In the year of adoption, SFAS 142 requires the first step
of the goodwill impairment test to be completed within the first six months and
the final step to be completed within the twelve months of adoption.
The Company has completed the first step of the goodwill impairment test and has
determined that there is no impairment of goodwill.
-4-
Had the provisions of SFAS 141 and 142 been applied in fiscal year 2001, the
Company's net income and net income per share would have been as follows:
Three months ended
June 30, 2001
--------------------------------------------------------
Net Basic earnings Diluted earnings
Income Per Share Per Share
----------- -------------- ----------------
Net Income:
As reported $ 1,110,304 $ 0.62 $ 0.59
Add: Goodwill amortization 118,072 0.07 0.07
----------- ------- -------
Pro forma net income $ 1,228,376 $ 0.69 $ 0.66
=========== ======= =======
Six months ended
June 30, 2001
--------------------------------------------------------
Net Basic earnings Diluted earnings
Income Per Share Per Share
----------- -------------- ----------------
Net Income:
As reported $ 2,091,442 $ 1.16 $ 1.10
Add: Goodwill amortization 236,145 0.13 0.13
----------- ------- -------
Pro forma net income $ 2,327,587 $ 1.29 $ 1.23
=========== ======= =======
As of December 31, 2001 and June 30, 2002, the Company had intangible assets of
$4,970,800, all of which has been determined to be goodwill. There was no
goodwill impairment loss or amortization related to goodwill during the six
months ended June 30, 2002.
-5-
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q contains forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include changes in general, economic, market, legislative and regulatory
conditions, and the development of an interest rate environment that adversely
affects the interest rate spread or other income anticipated from the Company's
operations and investments. The Company's actual results may differ from the
results discussed in the forward-looking statements. The Company disclaims any
obligation to publicly announce future events or developments that may affect
the forward-looking financial statements contained here within.
FINANCIAL CONDITION
Total assets increased $25.6 million, or 6.7%, to $405.0 million at June 30,
2002 compared to $379.4 million at December 31, 2001. Interest-bearing cash
decreased $4.9 million, or 27.5% from $17.7 million at December 31, 2001 to
$12.8 million as of June 30, 2002. Securities available for sale decreased $5.7
million, or 18.2% from $31.4 million at December 31, 2001 to $25.7 million at
June 30, 2002, primarily due to $6.0 million of maturities, calls and sales,
offset in part due to $273,000 in purchases. Total loans receivable, net,
increased by $35.2 million to $343.2 million at June 30, 2002 from $308.0
million at December 31, 2001, due primarily to originations of $27.7 million of
first mortgage loans secured primarily by one-to four-family residences,
purchases of $53.2 million of first mortgage loans secured primarily by
multifamily and commercial real estate and originations of $13.3 million of
second mortgage loans secured primarily by one-to-four-family residences. These
originations and purchases were offset in part by payments and prepayments of
loans of approximately $53.0 million. Total deposits increased $11.9 million, or
4.4%, to $280.7 million at June 30, 2002 from $268.8 million at December 31,
2001, reflecting increases primarily in checking, savings and retail
certificates of deposit accounts, offset in part by a decrease in the money
market account and public funds certificates of deposit. Other borrowings,
primarily Federal Home Loan Bank ("FHLB") advances, increased by $12.2 million
to $83.6 million at June 30, 2002 from $71.4 million at December 31, 2001. Total
stockholders' equity increased $1.9 million, to $37.8 million at June 30, 2002
from $35.9 million at December 31, 2001. See "Capital."
CAPITAL
The Company's total stockholders' equity increased by $1.9 million to $37.8
million at June 30, 2002 from $35.9 million at December 31, 2001, primarily due
to earnings and stock issued, which were offset in part by stock repurchases and
dividends declared. The changes in stockholders' equity were also due to a
decrease in the unearned shares from First Federal Savings Bank of Iowa's
Employee Stock Ownership Plan (the "ESOP") to $397,000 at June 30, 2002 from
$478,000 at December 31, 2001. The decrease in unearned shares resulted from the
release of shares within the ESOP to employees of First Federal Savings Bank of
Iowa (the "Bank").
-6-
The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum
tangible, leverage (core) and risk-based capital requirements. As of June 30,
2002, the Bank exceeded all of its regulatory capital requirements. The Bank's
required, actual and excess capital levels as of June 30, 2002 were as follows:
Amount Percentage of Assets
------ --------------------
(dollars in thousands)
Tangible capital:
Capital level $ 29,863 7.50%
Less Requirement 5,972 1.50%
--------- ------
Excess $ 23,891 6.00%
========= ======
Core capital:
Capital level $ 29,863 7.50%
Less Requirement 15,925 4.00%
--------- ------
Excess $ 13,938 3.50%
========= ======
Risk-based capital:
Capital level $ 32,921 12.78%
Less Requirement 20,602 8.00%
--------- ------
Excess $ 12,319 4.78%
========= ======
LIQUIDITY
The Company's primary sources of funds are cash provided by operating activities
(including net income), certain financing activities (including increases in
deposits and proceeds from borrowings) and certain investing activities
(including principal payments on loans and maturities and calls of securities).
During the first six months of 2002 and 2001, principal payments and repayments
on loans totaled $53.0 million and $43.6 million, respectively. The net increase
in deposits during the first six months of 2002 and 2001 totaled $11.9 million
and $10.7 million, respectively. The proceeds from borrowed funds during the six
months ended June 30, 2002 and 2001 totaled $27.0 million and $3.0 million,
respectively. The net change in short-term borrowings during the six months
ended June 30, 2002 totaled $750,000. During the first six months of 2002 and
2001, the proceeds from the maturities, calls and sales of securities totaled
$6.0 million and $16.9 million, respectively. Cash provided from operating
activities during the first six months of 2002 and 2001 totaled $2.8 million and
$1.8 million, respectively, of which $2.7 million and $2.1 million,
respectively, represented net income of the Company. The Company's primary use
of funds is cash used to originate and purchase loans, purchase of securities
available for sale, repayment of borrowed funds and other financing activities.
During the first six months of 2002 and 2001, the Company's gross purchases and
origination of loans totaled $101.2 million and $69.9 million, respectively. The
purchase of securities available for sale for the six months ended June 30, 2002
and 2001 totaled $273,000 and $6.7 million, respectively. The repayment of
borrowed funds during the first six months of 2002 and 2001 totaled $15.6
million and $9.6 million, respectively. The net change in short-term borrowings
during the six months ended June 30, 2001 totaled $5.0 million. For additional
information about cash flows from the Company's operating, financing and
investing activities, see "Statements of Cash Flows in the Condensed
Consolidated Financial Statements."
The OTS regulations require the Company to maintain sufficient liquidity to
ensure its safe and sound operation.
The Company entered into a $2.0 million line of credit agreement on October 1,
2001 with another unaffiliated bank. The Company may use this line of credit to
fund stock repurchases in the future and general corporate purposes. As of June
30, 2002, there were no borrowings outstanding on this line of credit.
Stockholders' equity totaled $37.8 million at June 30, 2002 compared to $35.9
million at December 31, 2001, reflecting the Company's earnings, stock issued,
stock repurchases, the amortization of the unallocated portion of shares held by
the ESOP, dividends declared on common stock and the change in the accumulated
other comprehensive income. The Company repurchased 62,000 shares of common
stock during the six months ended June 30, 2002 at an average price of $24.42.
On April 8, 2002, the Company paid a quarterly cash dividend of $0.18 per share
on common stock outstanding as of the close of business on March 15, 2002,
aggregating $301,000. On May 24, 2002, the Company declared a quarterly cash
dividend of $0.18 per share payable on July 5, 2002 to shareholders of record as
of the close of business on June 17, 2002, aggregating $306,000.
-7-
RESULTS OF OPERATIONS (Continued)
Interest Income. Interest income decreased by $162,000 to $6.8 million for the
three months ended June 30, 2002 compared to $6.9 million for the three months
ended June 30, 2001. The decrease in interest income was primarily due to a
decrease in the average yield on interest earning assets, offset in part by an
increase in the average balance of interest earning assets. The yield on
interest earning assets decreased to 7.14% for the three months ended June 30,
2002 from 7.66% for the three months ended June 30, 2001. The decrease in
average yields was due primarily to a decrease in the average yield on loans,
securities available for sale and interest-bearing cash. The average yield on
loans decreased to 7.60% for the three months ended June 30, 2002 from 7.96% for
the three months ended June 30, 2001. The average yield on securities available
for sale decreased to 4.66% for the three months ended June 30, 2002 from 5.83%
for the three months ended June 30, 2001. The average yield on interest bearing
cash decreased to 1.40% for the three months ended June 30, 2002 from 4.19% for
the three months ended June 30, 2001. The decrease in the average yields on
assets was primarily due to decreases in market interest rates. The average
balance of interest earning assets increased $17.3 million to $378.8 million for
the three months ended June 30, 2002 from $361.5 million for the three months
ended June 30, 2001. This increase was primarily due to higher levels of loans
and interest bearing cash, offset in part by a decrease in securities available
for sale. The increase in the average balance of loans generally reflects
originations over the past twelve months of first mortgage loans, second
mortgage loans and purchases of first mortgage loans secured primarily by one-to
four-family residential, multifamily and commercial real estate loans, offset in
part by payments, sales and prepayments of loans. See "Financial Condition." The
decrease in securities available for sale reflects maturities, calls and sales,
offset in part by purchases.
Interest income decreased by $672,000 to $13.3 million for the six months ended
June 30, 2002 compared to $14.0 million for the six months ended June 30, 2001.
The decrease in interest income was primarily due to a decrease in the average
yield on interest earning assets, offset in part by an increase in the average
balance of interest earning assets. The yield on interest earning assets
decreased to 7.13% for the six months ended June 30, 2002 from 7.67% for the six
months ended June 30, 2001. The decrease in average yields was due primarily to
a decrease in the average yield on loans, securities available for sale and
interest-bearing cash. The average yield on loans decreased to 7.66% for the six
months ended June 30, 2002 from 7.99% for the six months ended June 30, 2001.
The average yield on securities available for sale decreased to 4.87% for the
six months ended June 30, 2002 from 5.63% for the six months ended June 30,
2001. The average yield on interest bearing cash decreased to 1.40% for the six
months ended June 30, 2002 from 4.74% for the six months ended June 30, 2001.
The decrease in the average yields on assets was primarily due to decreases in
market interest rates. The average balance of interest earning assets increased
$8.6 million to $373.2 million for the six months ended June 30, 2002 from
$364.6 million for the six months ended June 30, 2001. This increase was
primarily due to higher levels of loans and interest bearing cash, offset in
part by a decrease in securities available for sale. The increase in the average
balance of loans generally reflects originations over the past twelve months of
first mortgage loans, second mortgage loans and purchases of first mortgage
loans secured primarily by one-to four-family residential, multifamily and
commercial real estate loans, offset in part by payments, sales and prepayments
of loans. See "Financial Condition." The decrease in securities available for
sale reflects maturities, calls and sales, offset in part by purchases.
Interest Expense. Interest expense decreased by $756,000 to $3.5 million for the
three months ended June 30, 2002 compared to $4.3 million for the three months
ended June 30, 2001. The decrease in interest expense was primarily due to a
decrease in the average cost of interest bearing liabilities, offset in part by
an increase in the average balances of interest bearing liabilities. The average
cost of interest bearing liabilities decreased to 4.00% for the three months
ended June 30, 2002 from 5.04% for the three months ended June 30, 2001. The
decrease in the average cost of interest bearing liabilities was due primarily
to decreases in all categories of interest bearing liabilities. The average NOW
and money market accounts decreased to 0.96% for the three months ended June 30,
2002 from 2.29% for the three months ended June 30, 2001. The average cost of
savings accounts decreased to 1.25% for the three months ended June 30, 2002
from 1.72% for the three months ended June 30, 2001. The average cost of
certificates of deposit decreased to 4.77% for the three months ended June 30,
2002 from 5.89% for the three months ended June 30, 2001. The average cost of
borrowed funds decrease to 5.36% for the three months ended June 30, 2002 from
6.07% for the three months ended June 30, 2001. The decreased in the average
cost of funds was primarily due to decreases in market interest rates. The
average balance of interest bearing liabilities increased $12.4 million to
$350.8 million for the three months ended June 30, 2002 from $338.4 million for
the three months ended June 30, 2001. This increase was due primarily to an
increase in NOW and money market savings accounts, savings accounts and borrowed
funds, offset in part by a decrease in certificates of deposits.
-8-
RESULTS OF OPERATIONS (Continued)
The decrease in the certificates of deposit was due in part to a decrease in the
average balances of public funds certificates of deposits, offset in part by an
increase in the average balance of retail certificates of deposit.
Interest expense decreased by $1.6 million to $7.0 million for the six months
ended June 30, 2002 compared to $8.6 million for the six months ended June 30,
2001. The decrease in interest expense was primarily due to a decrease in the
average cost of interest bearing liabilities, offset in part by an increase in
the average balances of interest bearing liabilities. The average cost of
interest bearing liabilities decreased to 4.07% for the six months ended June
30, 2002 from 5.13% for the six months ended June 30, 2001. The decrease in the
average cost of interest bearing liabilities was due primarily to decreases in
all categories of interest bearing liabilities. The average NOW and money market
accounts decreased to 0.99% for the six months ended June 30, 2002 from 2.53%
for the six months ended June 30, 2001. The average cost of savings accounts
decreased to 1.26% for the six months ended June 30, 2002 from 1.78% for the six
months ended June 30, 2001. The average cost of certificates of deposit
decreased to 4.89% for the six months ended June 30, 2002 from 5.93% for the six
months ended June 30, 2001. The average cost of borrowed funds decreased to
5.49% for the six months ended June 30, 2002 from 6.08% for the six months ended
June 30, 2001. The decreased in the average cost of funds was primarily due to
decreases in market interest rates. The average balance of interest bearing
liabilities increased $6.4 million to $346.0 million for the six months ended
June 30, 2002 from $339.6 million for the six months ended June 30, 2001. This
increase was due primarily to an increase in NOW and money market savings
accounts and savings accounts, offset in part by a decrease in certificates of
deposits. The decrease in the certificates of deposit was due in part to a
decrease in the average balances of public funds certificates of deposits,
offset in part by an increase in the average balance of retail certificates of
deposit.
Net Interest Income. Net interest income before the provision for loan losses
increased by $594,000 to $3.3 million for the three months ended June 30, 2002
from $2.7 million for the three months ended June 30, 2001. The increase is due
primarily to an increase in the interest rate spread. The interest rate spread
(i.e., the difference in the average yield on assets and average cost of
liabilities) increased to 3.14% for the three months ended June 30, 2002 from
2.62% for the three months ended June 30, 2001.
Net interest income before the provision for loan losses increased by $973,000
to $6.3 million for the six months ended June 30, 2002 from $5.3 million for the
six months ended June 30, 2001. The increase is due primarily to an increase in
the interest rate spread. The interest rate spread (i.e., the difference in the
average yield on assets and average cost of liabilities) increased to 3.06% for
the six months ended June 30, 2002 from 2.54% for the six months ended June 30,
2001.
-9-
RESULTS OF OPERATIONS (Continued)
The following table sets forth certain information relating to the Company's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the three and six-month periods ended June 30, 2002 and 2001,
respectively
For the Three Months Ended June 30,
----------------------------------------------------------------------------------
2002 2001
----------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 337,506 $ 6,407 7.60% $ 318,889 $ 6,344 7.96%
Securities available for sale 25,621 299 4.66 32,132 469 5.83
Interest bearing cash 15,650 55 1.40 10,462 109 4.19
---------- -------- -------- ---------- -------- -------
Total interest-earning assets 378,777 $ 6,761 7.14% 361,483 $ 6,922 7.66%
-------- -------- -------- -------
Noninterest-earning assets 19,846 22,318
---------- ----------
Total assets $ 398,623 $ 383,801
========== ==========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings $ 61,016 $ 146 0.96% $ 58,040 $ 331 2.29%
Passbook savings 24,924 78 1.25 21,807 94 1.72
Certificates of deposit 180,447 2,146 4.77 181,343 2,662 5.89
Borrowed funds 84,410 1,129 5.36 77,172 1,168 6.07
---------- -------- -------- ---------- -------- -------
Total interest-bearing liabilities 350,797 $ 3,499 4.00% 338,362 $ 4,255 5.04%
-------- -------- -------- -------
Noninterest-bearing liabilities 10,858 8,759
---------- ----------
Total liabilities 361,355 347,121
Equity 36,968 36,680
---------- ----------
Total liabilities and equity $ 398,623 $ 383,801
========== ==========
Net interest income $ 3,262 $ 2,667
======== ========
Net interest rate spread 3.14% 2.62%
======== =======
Net interest margin 3.44% 2.95%
======== =======
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.98% 106.83%
======== =======
For the Six Months Ended June 30,
----------------------------------------------------------------------------------
2002 2001
----------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- -------- -------- ----------
(Dollars in thousands)
AssetsAssets:
Interest-earning assets:
Loans $ 327,178 $ 12,500 7.66% $ 318,768 $ 12,718 7.99%
Securities available for sale 27,095 660 4.87 35,932 1,012 5.63
Interest bearing cash 18,950 131 1.40 9,930 233 4.74
---------- --------- -------- ---------- --------- --------
Total interest-earning assets 373,223 $ 13,291 7.13% 364,630 $ 13,963 7.67%
--------- -------- --------- --------
Noninterest-earning assets 19,488 20,635
---------- ----------
Total assets $ 392,711 $ 385,265
========== ==========
Liabilities and Equity
Interest-bearing liabilities:
NOW and money market savings $ 62,151 $ 306 0.99% $ 57,151 $ 718 2.53%
Passbook savings 24,246 151 1.26 21,628 191 1.78
Certificates of deposit 179,172 4,347 4.89 180,571 5,310 5.93
Borrowed funds 80,443 2,188 5.49 80,216 2,417 6.08
---------- --------- -------- ---------- --------- --------
Total interest-bearing liabilities 346,012 $ 6,992 4.07% 339,566 $ 8,636 5.13%
--------- --------- --------- --------
Noninterest-bearing liabilities 10,056 8,938
---------- ----------
Total liabilities 356,068 348,504
Equity 36,643 36,761
---------- ----------
Total liabilities and equity $ 392,711 $ 385,265
========== ==========
Net interest income $ 6,299 $ 5,327
========= =========
Net interest rate spread 3.06% 2.54%
======== ========
Net interest margin 3.38% 2.92%
======== ========
Ratio of average interest-earning
assets to average interest-bearing liabilities 107.86% 107.38%
======== ========
-10-
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $90,000
and $60,000 for the three months ended June 30, 2002 and 2001, respectively. The
Company's provision for loan losses was $270,000 and $90,000 for the six months
ended June 30, 2002 and 2001, respectively. The increase in the provision for
loan loss is primarily due to the increase in the loan portfolio, specifically
the commercial real estate loan portfolio, nonperforming loans and general
economic conditions. The Company establishes provisions for loan losses, which
are charged to operations, in order to maintain the allowance for loan losses at
a level, which is deemed to be appropriate, based upon an assessment of a number
of factors. These factors include prior loss experience, industry standards,
past due loans, economic conditions, the volume and type of loans in the Bank's
portfolio, which includes a significant amount of multi-family and commercial
real estate loans, substantially all of which are purchased and are
collateralized by properties located outside of the Bank's market area, and
other factors related to the collectibility of the Bank's loan portfolio. The
net charge offs were $35,000 for the six months ended June 30, 2002 as compared
to net charge offs of $33,000 for the six months ended June 30, 2001. The
resulting allowance for loan losses was $3.1 million, $2.9 million and $2.9
million at June 30, 2002, December 31, 2001 and June 30, 2001, respectively.
The allowance for loan losses as a percentage of total loans receivable was
0.90%, 0.92% and 0.89% at June 30, 2002, December 31, 2001 and June 30, 2001,
respectively. The level of nonperforming loans was $795,000 at June 30, 2002,
$277,000 at December 31, 2001 and $1.5 million at June 30, 2001. The level of
nonperforming assets was $1.7 million, $1.4 million and $1.7 million at June 30,
2002, December 31, 2001 and June 30, 2001, respectively.
The allowance for loan losses is management's best estimates of probable losses
inherent in the loan portfolio as of the balance sheet date. While management
estimates loan losses using the best available information, such as independent
appraisals for significant collateral properties, no assurance can be made that
future adjustments to the allowance will not be necessary based on changes in
economic and real estate market conditions, further information obtained
regarding known problem loans, identification of additional problem loans, and
other factors, both within and outside of management's control.
Noninterest Income. Total noninterest income increased by $151,000 to $1.4
million for the three months ended June 30, 2002 from $1.2 million for the three
months ended June 30, 2001. The increase is due to increases in fees and
services charges, abstract fees and other income, offset in part by a decrease
in mortgage banking income. Fees and services charges increased $125,000,
primarily due to increases in loan prepayment fees and overdraft fees. Abstract
fees increased $24,000, primarily due to increased sales volume. Sales volume
increased in part due to a general increase in real estate activity. Other
income increased $94,000, primarily due to increases in revenues from the sale
of annuities and mutual funds. Mortgage banking income decreased $94,000 due to
a decrease in loan originations. Noninterest income for the three months ended
June 30, 2001 reflects losses on the sales of securities available for sale of
$1,700, while the three months ended June 30, 2002 does not include any gains or
losses on the sale of securities available for sale.
Total noninterest income increased by $427,000 to $2.7 million for the six
months ended June 30, 2002 from $2.3 million for the six months ended June 30,
2001. The increase is due to increases in fees and services charges, abstract
fees and other income, offset in part by a decrease in mortgage banking income.
Fees and services charges increased $305,000, primarily due to increases in loan
prepayment fees and overdraft fees. Abstract fees increased $118,000, primarily
due to increased sales volume. Sales volume increased in part due to a general
increase in real estate activity. Other income increased $99,000, primarily due
to increases in revenues from the sale of annuities and mutual funds, offset in
part by decreases in revenues from the sale of insurance. Mortgage banking
income decreased $95,000 due to a decrease in loan originations. Noninterest
income for the six months ended June 30, 2002 reflects losses on the sales of
securities available for sale of $1,400, while the six months ended June 30,
2001 reflects losses on the sale of securities available for sale of $900.
Noninterest Expense. Total noninterest expense increased by $220,000 to $2.4
million for the three months ended June 30, 2002 from $2.2 million for the three
months ended June 30, 2001. The increase is due primarily to increases in
salaries and employee benefits, data processing and other expenses, offset in
part by a decrease in goodwill amortization. The increase in salaries and
employee benefits was due in part to normal salary increases, increases in
health insurance costs and other employee benefit costs, increases in salaries
related to the sale of annuities and mutual funds and the opening of a new
office in Ankeny, Iowa. The increase in data processing was primarily due to
normal data processing costs increases and an increase in consulting costs. The
increase in other expenses was primarily due to an increase in marketing
expenses, professional expenses and the opening of a new office in Ankeny, Iowa.
The decrease in goodwill expense was due to no amortization of goodwill expense
for the three months ended June 30, 2002,
-11-
RESULTS OF OPERATIONS (Continued)
due to the Company's adoption of SFAS No. 142, Goodwill and Other Intangible
Assets. The Company expects that this trend in the decrease of $118,000 to
goodwill expense will continue. The Company's efficiency ratio for the three
months ended June 30, 2002 and 2002 were 51.75% and 55.98%, respectively. The
Company's ratio of noninterest expense to average assets for the three months
ended June 30, 2002 and 2001 were 2.41% and 2.28%, respectively.
Total noninterest expense increased by $412,000 to $4.8 million for the six
months ended June 30, 2002 from $4.4 million for the six months ended June 30,
2001. The increase is due primarily to increases in salaries and employee
benefits, data processing and other expenses, offset in part by a decrease in
goodwill amortization. The increase in salaries and employee benefits was due in
part to normal salary increases, increases in health insurance costs and other
employee benefit costs, increases in salaries related to the sale of annuities
and mutual funds and the opening of a new office in Ankeny, Iowa. The increase
in data processing was primarily due to normal data processing costs increases
and an increase in consulting costs. The increase in other expenses was
primarily due to an increase in marketing expenses and the opening of a new
office in Ankeny, Iowa. The decrease in goodwill expense was due to no
amortization of goodwill expense for the three months ended June 30, 2002 due to
the Company's adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
The Company expects that this trend in the decrease of $236,000 to goodwill
expense will continue. The Company's efficiency ratio for the six months ended
June 30, 2002 and 2001 were 53.01% and 57.35%, respectively. The Company's ratio
of noninterest expense to average assets for the six months ended June 30, 2002
and 2001 were 2.43% and 2.26%, respectively.
Income Taxes. Income taxes increased by $181,000 to $729,000 for the three
months ended June 30, 2002 as compared to $548,000 for the three months ended
June 30, 2001, primarily due to an increase in net income before income taxes,
partially offset by a decrease in nondeductible amortization as a result of the
Company's adoption of SFAS 142 and a reduction in nontaxable interest income.
Income taxes increased by $244,000 to $1.3 million for the six months ended June
30, 2002 as compared to $1.1 million for the six months ended June 30, 2001,
primarily due to an increase in net income before income taxes, partially offset
by a decrease in nondeductible amortization as a result of the Company's
adoption of SFAS 142 and a reduction in nontaxable interest income.
Net Income. Net income increased by $314,000 to $1.4 million for the three
months ended June 30, 2002, as compared to $1.1 million for the same period in
2001.
Net income increased by $563,000 to $2.7 million for the six months ended June
30, 2002, as compared to $2.1 million for the same period in 2001.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In management's opinion, there has not been a material change in market risk
from December 31, 2001 as reported in Item 7A of the Annual Report on Form 10-K.
-12-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 2002 Annual Meeting of Stockholders on April 25,
2002. All proposals submitted to stockholders at the meeting were
approved. At the meeting, the stockholders of the Company considered
and voted upon the following matters:
1. The election of the following individuals as directors for a
three-year term:
KaRene Egemo
Mark M. Thompson
The results of the election of directors are as follows:
Votes
-----
In favor Withheld
-------- --------
KaRene Egemo 1,598,179 13,340
Mark M. Thompson 1,598,891 12,628
There were no broker non-votes or abstentions on this proposal.
The following directors' terms of office continued after the meeting:
David M. Bradley
Melvin R. Schroeder
Robert H. Singer, Jr.
Craig R. Barnes
2. The ratification of the engagement of McGladrey & Pullen LLP, as the
Company's independent auditors for the 2002 fiscal year, was approved
by a vote of 1,596,488 in favor, 7,163 votes against and 7,868 votes
abstaining.
There were no broker non-votes on this proposal.
Item 5. Other Information
The Company's Chief Executive Officer and Treasurer have furnished statements
relating to its Form 10-Q for the quarter ended June 30, 2002 pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. The statements are attached hereto as Exhibit 99.3.
-13-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Press Release, dated May 24, 2002 (regarding the
declaration of a dividend).
Exhibit 99.2 Press Release, dated July 24, 2002 (regarding 2002 2nd
Quarter earnings)
Exhibit 99.3 Certification of Chief Executive Officer and Treasurer.
(b) Reports on Form 8-K
None
-14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH CENTRAL BANCSHARES, INC.
DATE: August 14, 2002 BY: /s/ David M. Bradley
----------------------------------
David M. Bradley, Chairman, President and
Chief Executive Officer
DATE: August 14, 2002 BY: /s/ John L. Pierschbacher
----------------------------------
John L. Pierschbacher
Principal Financial Officer
-15-