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 September 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
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(State or Other Jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification Number)
825 Central Avenue Fort Dodge, Iowa 50501
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(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 October 24, 2002
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 1,659,880
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 September 30, 2002
(Unaudited) and December 31, 2001 1
Consolidated Condensed Statements of
Income for the three and nine months ended
September 30, 2002 and 2001 (Unaudited) 2
Consolidated Condensed Statements of
Cash Flows for the nine months ended
September 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
Item 4. Controls and Procedures 12
Part II. Other Information
Items 1 through 6 13
Signatures 14
Section 302 Certifications 15 & 16
Exhibits
PART I. FINANCIAL INFORMATION
ITEM 1.
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
ASSETS September 30, December 31,
2002 2001
------------- ------------
(Unaudited)
Cash and due from banks:
Interest-bearing $ 19,254,017 $ 17,650,064
Noninterest-bearing 2,282,699 2,258,838
Securities available-for-sale 23,828,816 31,365,731
Loans receivable, net 336,889,080 307,981,424
Loans held for sale 3,155,962 1,605,710
Accrued interest receivable 1,991,996 1,913,557
Foreclosed real estate 987,800 1,073,873
Premises and equipment, net 7,788,631 6,797,505
Rental real estate 1,812,959 1,681,337
Title plant 925,256 925,256
Goodwill 4,970,800 4,970,800
Deferred taxes 518,372 484,904
Prepaid expenses and other assets 721,860 666,228
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Total assets $ 405,128,248 $ 379,375,227
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 279,819,304 $ 268,813,731
Borrowed funds 84,560,115 71,412,723
Advances from borrowers for taxes and insurance 775,577 1,589,314
Dividends payable 300,992 256,587
Income taxes payable 280,296 78,711
Accrued expenses and other liabilities 1,190,667 1,311,412
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Total liabilities 366,926,951 343,462,478
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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, 1,770,580; 2001, 1,700,280 shares) 17,706 17,003
Additional paid-in capital 18,209,455 16,780,875
Retained earnings, substantially restricted 22,884,383 19,402,706
Accumulated other comprehensive income 349,005 189,991
Less cost of treasury stock, 2002, 110,700 shares; 2001,
none (2,902,048) --
Unearned shares, employee stock ownership plan (357,204) (477,826)
------------- -------------
Total stockholders' equity 38,201,297 35,912,749
------------- -------------
Total liabilities and stockholders' equity $ 405,128,248 $ 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 Nine Months Ended
September 30, September 30,
----------------------------------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Interest income:
Loans receivable $ 6,619,709 $ 6,389,131 $ 19,119,533 $ 19,106,625
Securities and cash deposits 317,198 505,180 1,108,613 1,750,661
------------ ------------ ------------ ------------
6,936,907 6,894,311 20,228,146 20,857,286
------------ ------------ ------------ ------------
Interest expense:
Deposits 2,394,364 2,983,834 7,197,948 9,202,908
Borrowed funds 1,138,206 1,121,880 3,326,469 3,539,202
------------ ------------ ------------ ------------
3,532,570 4,105,714 10,524,417 12,742,110
------------ ------------ ------------ ------------
Net Interest Income 3,404,337 2,788,597 9,703,729 8,115,176
Provision for loan losses 56,000 60,000 326,000 150,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 3,348,337 2,728,597 9,377,729 7,965,176
------------ ------------ ------------ ------------
Noninterest income:
Fees and service charges 661,825 502,758 1,846,679 1,383,034
Abstract fees 435,998 387,851 1,234,829 1,068,425
Mortgage banking fees 167,323 191,051 382,495 500,887
Gain (loss) on sale of securities available
for sale, net 842 -- (523) (933)
Other income 242,932 186,303 745,792 590,316
------------ ------------ ------------ ------------
Total noninterest income 1,508,920 1,267,963 4,209,272 3,541,729
------------ ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 1,260,754 1,126,739 3,851,098 3,274,592
Premises and equipment 261,179 290,065 871,631 876,569
Data processing 130,896 116,581 392,008 339,380
SAIF deposit insurance premiums 11,623 12,577 35,575 37,864
Goodwill amortization -- 118,072 -- 354,217
Other expenses 616,851 570,522 1,901,421 1,710,383
------------ ------------ ------------ ------------
Total noninterest expense 2,281,303 2,234,556 7,051,733 6,593,005
------------ ------------ ------------ ------------
Income before income taxes 2,575,954 1,762,004 6,535,268 4,913,900
Provision for income taxes 867,956 608,134 2,172,686 1,668,588
------------ ------------ ------------ ------------
Net Income $ 1,707,998 $ 1,153,870 $ 4,362,582 $ 3,245,312
============ ============ ============ ============
Basic earnings per common share $ 1.04 $ 0.66 $ 2.65 $ 1.81
============ ============ ============ ============
Earnings per common share- assuming dilution $ 0.98 $ 0.62 $ 2.50 $ 1.72
============ ============ ============ ============
Dividends declared per common share $ 0.18 $ 0.15 $ 0.54 $ 0.45
============ ============ ============ ============
Comprehensive income $ 1,859,212 $ 1,289,667 $ 4,521,596 $ 3,763,418
============ ============ ============ ============
See Notes to Consolidated Condensed Financial Statements.
2
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,362,582 $ 3,245,312
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 326,000 150,000
Depreciation 531,622 523,324
Amortization and accretion 169,452 498,706
Deferred taxes (127,021) (157,470)
Effect of contribution to employee stock ownership plan 318,224 276,676
(Gain) on sale of foreclosed real estate and loans, net (379,688) (498,464)
Loss on sale of securities available for sale 523 933
Loss on disposal of equipment and premises, net 5,923 5,121
Proceeds from sales of loans held for sale 29,647,050 32,545,314
Originations of loans held for sale (30,814,807) (32,656,943)
Change in assets and liabilities:
Accrued interest receivable (78,439) 92,155
Income taxes receivable -- 206,024
Prepaid expenses and other assets (89,232) (120,770)
Income taxes payable 201,585 --
Accrued expenses and other liabilities (120,745) (79,145)
------------ ------------
Net cash provided by operating activities 3,953,029 4,030,773
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans 34,306,299 18,757,858
Purchase of loans (63,607,175) (18,591,648)
Proceeds from sales of securities available-for-sale 750,227 220,125
Purchase of securities available-for-sale (322,763) (7,293,386)
Proceeds from maturities of securities available-for-sale 7,341,398 17,273,623
Purchase of premises and equipment and rental real estate (1,627,708) (635,966)
Proceeds from sale of equipment 1,015 18,376
Other 1,131 (216,668)
------------ ------------
Net cash provided by (used in) investing activities (23,157,576) 9,532,314
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,005,573 9,020,310
(Decrease) in advances from borrowers for taxes and
insurance (813,737) (513,457)
Net change in short-term borrowings (250,000) (3,000,000)
Proceeds from other borrowed funds 34,000,000 3,000,000
Payments on other borrowings (20,602,608) (17,097,543)
Purchase of treasury stock (2,902,048) (3,635,540)
Dividends paid (836,500) (765,136)
Issuance of common stock 1,231,681 475,484
Other -- (9,704)
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Net cash provided by (used in) financing activities 20,832,361 (12,525,586)
------------ ------------
Net increase in cash 1,627,814 1,037,501
CASH
Beginning 19,908,902 8,849,726
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Ending $ 21,536,716 $ 9,887,227
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 7,462,117 $ 9,289,479
Interest paid on borrowings 3,326,937 3,590,140
Income taxes 1,744,053 1,527,753
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 nine-month
periods ended September 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
September 30, 2002, the weighted average number of shares outstanding for basic
and diluted earnings per share computation were 1,648,583 and 1,747,428,
respectively. For the nine-month period ended September 30, 2002, the weighted
average number of shares outstanding for basic and diluted earnings per share
computation were 1,644,583 and 1,745,906, respectively. For the three-month
period ended September 30, 2001, the weighted average number of shares
outstanding for basic and diluted earnings per share computation were 1,755,147
and 1,857,930, respectively. For the nine-month period ended September 30, 2001,
the weighted average number of shares outstanding for basic and diluted earnings
per share computation were 1,788,812 and 1,882,818, respectively.
3. DIVIDENDS
On August 23, 2002, the Company declared a cash dividend on its common stock,
payable on October 7, 2002 to stockholders of record as of September 16, 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
September 30, 2001
------------------------------------------------
Net Basic earnings Diluted earnings
Income Per Share Per Share
----------- -------------- ----------------
Net Income:
As reported $ 1,153,870 $ 0.66 $ 0.62
Add: Goodwill amortization 118,072 0.06 0.06
----------- -------- --------
Pro forma net income $ 1,271,942 $ 0.72 $ 0.68
=========== ======== ========
Nine months ended
September 30, 2001
-------------------------------------------------
Net Basic earnings Diluted earnings
Income Per Share Per Share
----------- -------------- ----------------
Net Income:
As reported $ 3,245,312 $ 1.81 $ 1.72
Add: Goodwill amortization 354,217 0.20 0.19
----------- -------- --------
Pro forma net income $ 3,599,529 $ 2.01 $ 1.91
=========== ======== =======
As of December 31, 2001 and September 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 nine
months ended September 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 $25.8 million, or 6.8%, to $405.1 million at September
30, 2002 compared to $379.4 million at December 31, 2001. Interest-bearing cash
increased $1.6 million, or 9.1%, to $19.3 million at September 30, 2002 from
$17.7 million as of December 31, 2001. Securities available for sale decreased
$7.5 million, or 24.0% from $31.4 million at December 31, 2001 to $23.8 million
at September 30, 2002, primarily due to $8.1 million of maturities, calls and
sales, offset in part due to $323,000 in purchases. Total loans receivable, net,
increased by $28.9 million to $336.9 million at September 30, 2002 from $308.0
million at December 31, 2001, due primarily to originations of $49.9 million of
first mortgage loans secured primarily by one-to four-family residences,
purchases of $63.6 million of first mortgage loans secured primarily by
multifamily and commercial real estate and originations of $22.2 million of
second mortgage loans secured primarily by one-to-four-family residences. These
originations and purchases were offset in part by payments, prepayments and
sales proceeds of loans of approximately $116.3 million.
Total deposits increased $11.0 million, or 4.1%, to $279.8 million at September
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 $13.1 million to $84.6 million at September 30,
2002 from $71.4 million at December 31, 2001, as management elected to increase
borrowings to fund loan originations. Total stockholders' equity increased $2.3
million, to $38.2 million at September 30, 2002 from $35.9 million at December
31, 2001. See "Capital."
CAPITAL
The Company's total stockholders' equity increased by $2.3 million to $38.2
million at September 30, 2002 from $35.9 million at December 31, 2001, primarily
due to earnings and stock issued in connection with stock options exercised,
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 $357,000 at September 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 September
30, 2002, the Bank exceeded all of its regulatory capital requirements. The
Bank's required, actual and excess capital levels as of September 30, 2002 were
as follows:
Amount Percentage of Assets
--------- --------------------
(dollars in thousands)
Tangible capital:
Capital level $ 30,548 7.66%
Less Requirement 5,979 1.50%
--------- ----
Excess $ 24,569 6.16%
========= ====
Core capital:
Capital level $ 30,548 7.66%
Less Requirement 15,944 4.00%
--------- ----
Excess $ 14,604 3.66%
========= ====
Risk-based capital:
Capital level $ 33,614 13.08%
Less Requirement 20,556 8.00%
--------- ----
Excess $ 13,058 5.08%
========= ====
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 nine months of 2002 and 2001, principal payments, repayments
and proceeds from sale of loans totaled $116.3 million and $104.6 million,
respectively. The net increase in deposits during the first nine months of 2002
and 2001 totaled $11.0 million and $9.0 million, respectively. The proceeds from
borrowed funds during the nine months ended September 30, 2002 and 2001 totaled
$34.0 million and $3.0 million, respectively. During the first nine months of
2002 and 2001, the proceeds from the maturities, calls and sales of securities
totaled $8.1 million and $17.5 million, respectively. Cash provided from
operating activities during the first nine months of 2002 and 2001 totaled $4.0
million and $4.0 million, respectively, of which $4.4 million and $3.2 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 nine months of 2002 and 2001, the Company's gross purchases and
origination of loans totaled $145.7 million and $104.6 million, respectively.
The purchase of securities available for sale for the nine months ended
September 30, 2002 and 2001 totaled $323,000 and $7.3 million, respectively. The
repayment of borrowed funds during the first nine months of 2002 and 2001
totaled $20.6 million and $17.1 million, respectively. The net change in
short-term borrowings during the nine months ended September 30, 2002 and 2001
totaled $250,000 and $3.0 million, respectively. 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 an unaffiliated bank for a one year term. The Company may use this
line of credit to fund stock repurchases in the future and for general corporate
purposes. As of September 30, 2002, there were no borrowings outstanding on this
line of credit. On October 1, 2002, the Company renewed its line of credit
agreement in the amount of $3.0 million with the same unaffiliated bank.
Stockholders' equity totaled $38.2 million at September 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 110,700 shares
of common stock during the nine months ended September 30, 2002 at an average
price of $26.22.
On July 5, 2002, the Company paid a quarterly cash dividend of $0.18 per share
on common stock outstanding as of the close of business on June 17, 2002,
aggregating $306,000. On August 23, 2002, the Company declared a quarterly cash
dividend of $0.18 per share payable on October 7, 2002 to shareholders of record
as of the close of business on September 16, 2002, aggregating $301,000.
7
RESULTS OF OPERATIONS
Interest Income. Interest income increased by $43,000 to $6.9 million for the
three months ended September 30, 2002 compared to $6.9 million for the three
months ended September 30, 2001. The increase in interest income was primarily
due to an increase in the average balance of interest earning assets, offset in
part by a decrease in the average yield on interest earning assets. The average
balance of interest earning assets increased $25.9 million to $387.6 million for
the three months ended September 30, 2002 from $361.8 million for the three
months ended September 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. The yield on interest
earning assets decreased to 7.14% for the three months ended September 30, 2002
from 7.61% for the three months ended September 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 7.56% for the three months ended September 30, 2002 from
7.90% for the three months ended September 30, 2001. The average yield on
securities available for sale decreased to 4.51% for the three months ended
September 30, 2002 from 5.66% for the three months ended September 30, 2001. The
average yield on interest bearing cash decreased to 1.32% for the three months
ended September 30, 2002 from 3.18% for the three months ended September 30,
2001. The decrease in the average yields on assets was primarily due to
decreases in market interest rates.
Interest income decreased by $629,000 to $20.2 million for the nine months ended
September 30, 2002 compared to $20.9 million for the nine months ended September
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 nine months ended September 30, 2002 from 7.65% for
the nine months ended September 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 7.62%
for the nine months ended September 30, 2002 from 7.96% for the nine months
ended September 30, 2001. The average yield on securities available for sale
decreased to 4.76% for the nine months ended September 30, 2002 from 5.64% for
the nine months ended September 30, 2001. The average yield on interest bearing
cash decreased to 1.37% for the nine months ended September 30, 2002 from 4.31%
for the nine months ended September 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 $14.4 million to $378.0 million for
the nine months ended September 30, 2002 from $363.7 million for the nine months
ended September 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 $573,000 to $3.5 million for the
three months ended September 30, 2002 compared to $4.1 million for the three
months ended September 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 3.90% for the three
months ended September 30, 2002 from 4.87% for the three months ended September
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 0.87% for the three
months ended September 30, 2002 from 1.91% for the three months ended September
30, 2001. The average cost of savings accounts decreased to 1.08% for the three
months ended September 30, 2002 from 1.72% for the three months ended September
30, 2001. The average cost of certificates of deposit decreased to 4.65% for the
three months ended September 30, 2002 from 5.67% for the three months ended
September 30, 2001. The average cost of borrowed funds decreased to 5.26% for
the three months ended September 30, 2002 from 6.00% for the three months ended
September 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 $21.1 million to $359.2 million for the three months ended
September 30, 2002 from $338.2 million for the three months ended September 30,
2001. This increase was due primarily to an increase in savings accounts,
certificates of deposit and borrowed funds. The increase in the average balance
of the certificates of deposit was offset in part by a decrease in the average
balance of the public funds certificates of deposit.
Interest expense decreased by $2.2 million to $10.5 million for the nine months
ended September 30, 2002 compared to $12.7 million for the nine months ended
September 30, 2001. The decrease in interest expense was primarily due to a
decrease in the
8
RESULTS OF OPERATIONS (Continued)
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 4.02% for the nine months ended
September 30, 2002 from 5.02% for the nine months ended September 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 0.95% for the nine months ended September
30, 2002 from 2.32% for the nine months ended September 30, 2001. The average
cost of savings accounts decreased to 1.20% for the nine months ended September
30, 2002 from 1.76% for the nine months ended September 30, 2001. The average
cost of certificates of deposit decreased to 4.81% for the nine months ended
September 30, 2002 from 5.84% for the nine months ended September 30, 2001. The
average cost of borrowed funds decreased to 5.41% for the nine months ended
September 30, 2002 from 6.05% for the nine months ended September 30, 2001. The
decrease in the average cost of funds was primarily due to decreases in market
interest rates. The average balance of interest bearing liabilities increased
$11.3 million to $350.4 million for the nine months ended September 30, 2002
from $339.1 million for the nine months ended September 30, 2001. This increase
was due primarily to an increase in NOW and money market savings accounts,
savings accounts and borrowed funds.
Net Interest Income. Net interest income before the provision for loan losses
increased by $616,000 to $3.4 million for the three months ended September 30,
2002 from $2.8 million for the three months ended September 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 3.24% for the three months ended
September 30, 2002 from 2.74% for the three months ended September 30, 2001.
Net interest income before the provision for loan losses increased by $1.6
million to $9.7 million for the nine months ended September 30, 2002 from $8.1
million for the nine months ended September 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 3.12% for the nine months ended September 30, 2002
from 2.63% for the nine months ended September 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 nine-month periods ended September 30, 2002 and
2001, respectively.
For the Three Months Ended September 30,
------------------------------------------------------------------------------
2002 2001
------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 349,615 $ 6,620 7.56% $ 322,790 $ 6,389 7.90%
Securities available for sale 23,973 270 4.51 31,493 445 5.66
Interest bearing cash 14,055 47 1.32 7,471 60 3.18
--------- --------- ------ ---------- --------- -----
Total interest-earning assets 387,643 $ 6,937 7.14% 361,754 $ 6,894 7.61%
--------- ------ --------- -----
Noninterest-earning assets 20,531 22,760
--------- ----------
Total assets $ 408,174 $ 384,514
========= ==========
Liabilities & Equity:
Interest-bearing liabilities:
NOW and money market savings $ 61,375 $ 135 0.87% $ 60,290 $ 290 1.91%
Passbook savings 25,286 69 1.08 21,995 95 1.72
Certificates of deposit 186,772 2,191 4.65 181,713 2,599 5.67
Borrowed funds 85,783 1,138 5.26 74,168 1,122 6.00
--------- --------- ------ ---------- --------- -----
Total interest-bearing liabilities 359,216 $ 3,533 3.90% 338,166 $ 4,106 4.87%
--------- ------ --------- -----
Noninterest-bearing liabilities 10,473 9,440
--------- ----------
Total liabilities 369,689 347,606
Equity 38,485 36,908
--------- ----------
Total liabilities and equity $ 408,174 $ 384,514
========= ==========
Net interest income $ 3,404 $ 2,788
========= =========
Net interest rate spread 3.24% 2.74%
====== =====
Net interest margin 3.51% 3.08%
====== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.91% 106.98%
====== ======
For the Nine Months Ended September 30,
------------------------------------------------------------------------------
2002 2001
------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 334,658 $ 19,119 7.62% $ 320,109 $ 19,107 7.96%
Securities available for sale 26,054 931 4.76 34,453 1,457 5.64
Interest bearing cash 17,318 178 1.37 9,110 293 4.31
--------- --------- ------ ---------- --------- -----
Total interest-earning assets 378,030 $ 20,228 7.14% 363,672 $ 20,857 7.65%
--------- ------ ---------- -----
Noninterest-earning assets 19,836 21,343
--------- ----------
Total assets $ 397,866 $ 385,015
========= ==========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings $ 61,892 $ 441 0.95% $ 58,197 $ 1,008 2.32%
Passbook savings 24,593 220 1.20 21,750 286 1.76
Certificates of deposit 181,705 6,537 4.81 180,952 7,909 5.84
Borrowed funds 82,223 3,326 5.41 78,200 3,539 6.05
--------- --------- ------ ---------- ---------- -----
Total interest-bearing liabilities 350,413 $ 10,524 4.02% 339,099 $ 12,742 5.02%
--------- ------ --------- -----
Noninterest-bearing liabilities 10,196 9,106
--------- ----------
Total liabilities 360,609 348,205
Equity 37,257 36,810
--------- ----------
Total liabilities and equity $ 397,866 $ 385,015
========= ==========
Net interest income $ 9,704 $ 8,115
========= ==========
Net interest rate spread 3.12% 2.63%
==== ====
Net interest margin 3.42% 2.98%
==== ====
Ratio of average interest-earning
assets to average interest-bearing liabilities 107.88% 107.25%
====== ======
10
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $56,000
and $60,000 for the three months ended September 30, 2002 and 2001,
respectively. The Company's provision for loan losses was $326,000 and $150,000
for the nine months ended September 30, 2002 and 2001, respectively. The
increase in the provision for loan loss for the nine months 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 $89,000
for the nine months ended September 30, 2002 as compared to net charge offs of
$100,000 for the nine months ended September 30, 2001. The resulting allowance
for loan losses was $3.1 million, $2.9 million and $2.9 million at September 30,
2002, December 31, 2001 and September 30, 2001, respectively.
The allowance for loan losses as a percentage of total loans receivable was
0.91%, 0.92% and 0.90% at September 30, 2002, December 31, 2001 and September
30, 2001, respectively. The level of nonperforming loans was $599,000 at
September 30, 2002, $277,000 at December 31, 2001 and $614,000 at September 30,
2001. The level of nonperforming assets was $1.6 million, $1.4 million and $1.6
million at September 30, 2002, December 31, 2001 and September 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 $241,000 to $1.5
million for the three months ended September 30, 2002 from $1.3 million for the
three months ended September 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
$159,000, primarily due to increases in loan prepayment fees and overdraft fees.
Abstract fees increased $48,000, primarily due to increased sales volume. Sales
volume increased in part due to a general increase in real estate activity.
Other income increased $57,000, primarily due to increases in revenues from the
sale of annuities, mutual funds and insurance. Mortgage banking income decreased
$24,000 due to competitive pricing pressures.
Total noninterest income increased by $668,000 to $4.2 million for the nine
months ended September 30, 2002 from $3.5 million for the nine months ended
September 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 $464,000, primarily
due to increases in loan prepayment fees and overdraft fees. Abstract fees
increased $166,000, primarily due to increased sales volume. Sales volume
increased in part due to a general increase in real estate activity. Other
income increased $155,000, primarily due to increases in revenues from the sale
of annuities and mutual funds. Mortgage banking income decreased $118,000 due to
a decrease in loans held for sale originations and competitive pricing
pressures.
Noninterest Expense. Total noninterest expense increased by $47,000 to $2.3
million for the three months ended September 30, 2002 from $2.2 million for the
three months ended September 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 a new office in Ankeny, Iowa, normal
salary increases, increase in salaries related to the sale of annuities and
mutual funds, increases in health insurance costs and other employee benefit
costs. 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 donations, the opening of a
new office in Ankeny, Iowa, loan costs, insurance costs and costs associated
with the abstract companies, offset in part by a decrease in costs associated
with debit and ATM cards. The decrease in goodwill expense was due to no
amortization of goodwill expense for the three months ended September 30, 2002,
due to the Company's adoption of SFAS No. 142 goodwill and Other Intangible
Assets. As a result, the Company expects to experience a $118,000 decrease in
goodwill amortization each quarter for the foreseeable future. The Company's
efficiency ratio for the three months ended September 30, 2002 and 2002 was
46.43% and 55.08%, respectively. The Company's ratio of noninterest expense to
average assets for the three months ended September 30, 2002 and 2001 was 2.24%
and 2.32%, respectively.
11
RESULTS OF OPERATIONS (Continued)
Total noninterest expense increased by $459,000 to $7.1 million for the nine
months ended September 30, 2002 from $6.6 million for the nine months ended
September 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 the opening of the Ankeny office, increases in
salaries related to the sale of annuities and mutual funds, normal salary
increases and increases in health insurance costs and other employee benefit
costs. 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 the opening of a new office in Ankeny, Iowa,
marketing expenses, office supplies, insurance and costs associated with the
abstract companies, offset in part by a decrease in costs associated with debit
and ATM cards. The decrease in goodwill expense was due to no amortization of
goodwill expense for the nine months ended September 30, 2002 due to the
Company's adoption of SFAS No. 142, Goodwill and Other Intangible Assets. As a
result, the Company expects to experience a $354,000 decrease in goodwill
amortization for each comparable period for the foreseeable future. The
Company's efficiency ratio for the nine months ended September 30, 2002 and 2001
was 50.68% and 56.56%, respectively. The Company's ratio of noninterest expense
to average assets for the nine months ended September 30, 2002 and 2001 was
2.36% and 2.28%, respectively.
Income Taxes. Income taxes increased by $260,000 to $868,000 for the three
months ended September 30, 2002 as compared to $608,000 for the three months
ended September 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, a reduction in nontaxable interest
income and an increase in taxable deductions due to changes in the Company's
retirement plan.
Income taxes increased by $504,000 to $2.2 million for the nine months ended
September 30, 2002 as compared to $1.7 million for the nine months ended
September 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, a reduction in nontaxable interest income
and an increase in taxable deductions due to changes in the Company's retirement
plan.
Net Income. Net income increased by $554,000 to $1.7 million for the three
months ended September 30, 2002, as compared to $1.2 million for the same period
in 2001.
Net income increased by $1.1 million to $4.4 million for the nine months ended
September 30, 2002, as compared to $3.2 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.
ITEM 4.
CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report, management,
including the Company's Chief Executive Officer and Treasurer, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon, and as of the date of that evaluation, the Chief
Executive Officer and Treasurer concluded that the disclosure controls and
procedures were effective, in all material respects, to ensure that information
required to be disclosed in the reports the Company files and submits under the
Exchange Act is recorded, processed, summarized and reported as and when
required.
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation. There were no significant
deficiencies or material weaknesses identified in the evaluation and therefore,
no corrective actions were taken.
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
None
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 September 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 99.4.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Press Release, dated August 23, 2002 (regarding the
declaration of a dividend).
Exhibit 99.2 Press Release, dated September 27, 2002 (regarding stock
repurchase program).
Exhibit 99.3 Press Release, dated October 24, 2002 (regarding 2002 3rd
Quarter earnings)
Exhibit 99.4 Certification of Chief Executive Officer and Treasurer.
(Pursuant to Section 906 of the Sarbanes-Oxley Act)
(b) Reports on Form 8-K
None
13
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: November 14, 2002 BY: /s/ David M. Bradley
-----------------------------------------
David M. Bradley, Chairman, President and
Chief Executive Officer
DATE: November 14, 2002 BY: /s/ John L. Pierschbacher
-----------------------------------------
John L. Pierschbacher
Principal Financial Officer
14
Certification of Chief Executive Officer and Treasurer
SARBANES-OXLEY ACT - SECTION 302 CERTIFICATIONS
I, David M. Bradley, certify that:
1. I have reviewed this annual report on Form 10-Q of North Central
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002 /s/ David M. Bradley
--------------------
David M. Bradley
President and Chief Executive Officer
15
SARBANES-OXLEY ACT - SECTION 302 CERTIFICATIONS
I, John L. Pierschbacher, certify that:
1. I have reviewed this annual report on Form 10-Q of North Central
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002 /s/ John L. Pierschbacher
-------------------------
John L. Pierschbacher
Treasurer
16