UNITED STATES
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 March 31, 2004
[ ] 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
---------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (515) 576-7531
None
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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 by check mark whether the Registrant is an accelerated Filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
---
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 April 30, 2004
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 1,567,780
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 March 31, 2004
and December 31, 2003 1
Consolidated Condensed Statements of
Income for the three months ended
March 31, 2004 and 2003 2
Consolidated Condensed Statements of
Cash Flows for the three months ended
March 31, 2004 and 2003 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
Exhibits
PART I. FINANCIAL INFORMATION
ITEM 1.
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
ASSETS 2004 2003
------------- -------------
Cash and due from banks:
Interest-bearing $ 5,805,189 $ 7,124,828
Noninterest-bearing 2,805,860 2,893,745
Securities available-for-sale 26,905,015 26,952,157
Loans receivable, net 381,456,216 362,959,238
Loans held for sale 642,650 326,900
Accrued interest receivable 1,874,383 1,866,521
Foreclosed real estate 1,364,941 1,453,353
Premises and equipment, net 10,073,702 9,842,477
Rental real estate 2,927,091 2,968,918
Title plant 925,256 925,256
Goodwill 4,970,800 4,970,800
Deferred taxes 755,306 757,543
Prepaid expenses and other assets 1,036,057 967,565
------------- -------------
Total assets $ 441,542,466 $ 424,009,301
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 294,118,863 $ 283,963,569
Borrowed funds 102,998,265 95,004,605
Advances from borrowers for taxes and insurance 1,138,860 1,736,755
Dividends payable 397,070 337,907
Accrued expenses and other liabilities 1,688,586 1,374,824
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Total liabilities 400,341,664 382,417,660
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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 2004, 1,642,485; 2003, 1,604,780 shares) 16,425 16,048
Additional paid-in capital 18,627,732 17,711,322
Retained earnings, substantially restricted 24,929,615 24,103,330
Accumulated other comprehensive income (loss) 25,229 (71,266)
Less cost of treasury stock, 2004, 61,705 shares;
2003, none (2,265,060) --
Unearned shares, employee stock ownership plan (133,139) (167,793)
------------- -------------
Total stockholders' equity 41,200,802 41,591,641
------------- -------------
Total liabilities and stockholders' equity $ 441,542,466 $ 424,009,301
============= =============
See Notes to Consolidated Condensed Financial Statements
1
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2004 2003
---------- ----------
Interest income:
Loans receivable $5,816,384 $6,168,662
Securities and cash deposits 284,106 357,721
---------- ----------
6,100,490 6,526,383
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Interest expense:
Deposits 1,727,150 2,081,680
Borrowed funds 1,089,877 1,098,008
---------- ----------
2,817,027 3,179,688
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Net Interest Income 3,283,463 3,346,695
Provision for loan losses 60,000 60,000
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Net interest income after provision for loan losses 3,223,463 3,286,695
---------- ----------
Noninterest income:
Fees and service charges 704,233 563,592
Abstract fees 353,839 434,020
Mortgage banking fees 53,981 174,368
Other income 319,805 220,980
---------- ----------
Total noninterest income 1,431,858 1,392,960
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,582,325 1,432,360
Premises and equipment 358,989 309,172
Data processing 139,514 134,319
Other expenses 782,099 681,899
---------- ----------
Total noninterest expense 2,862,927 2,557,750
---------- ----------
Income before income taxes 1,792,394 2,121,905
Provision for income taxes 575,883 619,520
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Net Income $1,216,511 $1,502,385
========== ==========
Basic earnings per common share $ 0.77 $ 0.94
========== ==========
Earnings per common share- assuming dilution $ 0.73 $ 0.88
========== ==========
Dividends declared per common share $ 0.25 $ 0.21
========== ==========
Comprehensive income $1,313,006 $1,528,771
========== ==========
See Notes to Consolidated Condensed Financial Statements.
2
NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,216,511 $ 1,502,385
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 60,000 60,000
Depreciation 205,751 180,507
Amortization and accretion 162,036 132,316
Deferred taxes (55,169) (116,818)
Effect of contribution to employee stock ownership plan 132,595 135,600
(Gain) on sale of foreclosed real estate and loans, net (57,081) (184,570)
Loss on disposal of equipment and premises, net 594 96
Proceeds from sales of loans held for sale 3,826,833 11,757,787
Originations of loans held for sale (4,088,602) (11,399,548)
Change in assets and liabilities:
Accrued interest receivable (7,862) (25,677)
Prepaid expenses and other assets (68,492) (194,653)
Accrued expenses and other liabilities 313,762 774,491
------------ ------------
Net cash provided by operating activities 1,640,876 2,621,916
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans 6,533,157 11,647,249
Purchase of loans (25,283,810) (19,910,025)
Proceeds from sales of securities available-for-sale 294,200 --
Purchase of securities available-for-sale (622,800) (10,865,958)
Proceeds from maturities of securities available-for-sale 517,630 735,258
Purchase of premises and equipment and rental real estate (395,743) (946,063)
Proceeds from sale of equipment -- --
Other 135,165 56,623
------------ ------------
Net cash (used in) investing activities (18,822,201) (19,282,916)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 10,155,294 3,748,929
(Decrease) in advances from borrowers for taxes and insurance (597,895) (498,756)
Net change in short-term borrowings 8,000,000 6,000,000
Proceeds from other borrowed funds -- 16,000,000
Payments on other borrowings (6,320) (4,034,122)
Purchase of treasury stock (2,265,060) (2,390,794)
Dividends paid (331,063) (286,386)
Issuance of common stock 818,845 771,575
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Net cash provided by financing activities 15,773,801 19,310,446
------------ ------------
Net increase (decrease) in cash (1,407,524) 2,649,446
CASH
Beginning 10,018,573 15,168,601
------------ ------------
Ending $ 8,611,049 $ 17,818,047
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 1,674,277 $ 2,106,663
Interest paid on borrowings 1,089,834 1,097,954
Income taxes 38,576 --
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 month periods
ended March 31, 2004 and 2003 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 2003 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 March
31, 2004, the weighted average number of shares outstanding for basic and
diluted earnings per share computation were 1,582,434 and 1,658,884,
respectively. For the three-month period ended March 31, 2003, the weighted
average number of shares outstanding for basic and diluted earnings per share
computation were 1,594,015 and 1,701,331, respectively.
3. DIVIDENDS
On February 27, 2004, the Company declared a cash dividend on its common stock,
payable on April 7, 2004 to stockholders of record as of March 16, 2004, equal
to $0.25 per share.
4. GOODWILL
As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" that eliminated the
amortization and required a goodwill impairment test. The Company completed the
goodwill impairment test during the year ended December 31, 2003 and has
determined that there has been no impairment of goodwill.
As of March 31, 2004 and December 31, 2003, 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 three
months ended March 31, 2004 or March 31, 2003.
5. STOCK OPTION PLAN
FASB Statement No. 123, Accounting for Stock-Based Compensation, establishes a
fair value based method for financial accounting and reporting for stock-based
employee compensation plans and for transactions in which an entity issues its
equity instruments to acquire goods and services from nonemployees. However, the
standard allows compensation to continue to be measured by using the intrinsic
value based method of accounting prescribed by APB No. 25, Accounting for Stock
Issued to Employees, but requires expanded disclosures. The Company has elected
to apply the intrinsic value based method of accounting for stock options issued
to employees. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock.
4
Had compensation cost for the Plan been determined based on the grant date fair
values of awards (the method described in FASB Statement No. 123), the
approximate reported net income and earnings per common share would have been
decreased to the pro forma amounts shown below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
------------------ ------------------
Net income, as reported $ 1,216,511 $ 1,502,385
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (32,810) (39,677)
----------- -----------
Pro forma net income $ 1,183,701 $ 1,462,708
=========== ===========
Earnings per common share - basic:
As reported $ 0.77 $ 0.94
Pro forma 0.75 0.92
Earnings per common share - assuming dilution:
As reported $ 0.73 $ 0.88
Pro forma 0.71 0.86
The fair values of the grants are estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 2004 and 2003, respectively: dividend rate of 2.3% and
2.3%, price volatility of 20% and 20%, risk-free interest rate of 4.10% and
3.70%, and expected lives of 8 years for all periods.
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.
Executive Overview
North Central Bancshares, Inc.'s business strategy is to operate the Bank as a
well-capitalized, profitable and independent community oriented savings bank.
Specifically, the Company's business strategy incorporates the following
elements: (1) operating as a community oriented financial institution; (2)
increasing loan and deposit balances in existing branch offices as well as by
establishing de novo branch offices in markets where population growth trends
are positive such as the Des Moines, Iowa metropolitan area; (3) maintaining
high asset quality by emphasizing investment in residential mortgage,
multifamily and commercial real estate loans and consumer loans; (4) emphasizing
growth in core deposits, which includes demand deposit, NOW, money market and
savings accounts; (5) maintaining capital in excess of regulatory requirements;
(6) controlling noninterest expense; (7) managing interest rate risk exposure;
and (8) increasing noninterest income through increases in fees, service charges
and sales of noninsured products.
The purpose of this summary is to provide an overview of the items management
focuses on when evaluating the condition of the Company and our success in
implementing our stockholder value strategy. Our stockholder value strategy has
three major themes: (1) enhancing our shareholders' value; (2) making our retail
banking franchise more valuable; and (3) efficiently utilizing our capital.
Management believes the following points were the most important to that
analysis this quarter:
o A key factor in the Company's management of Capital is the Company's
stock repurchase programs. An active stock repurchase program has
consistently been used by the Company to manage capital and increase
earnings per share. Since the Company's inception it has repurchased
2,688,272 shares at a cost of $49.7 million as of March 31, 2004.
o The Bank continues to open new offices in market areas where population
growth trends are positive. A temporary office was opened in Clive, Iowa
in October, 2003. The Clive office's permanent location opened in March,
2004. The Bank opened a permanent office in Ankeny, Iowa in February,
2003. Both of these locations are in suburbs of Des Moines which is
Iowa's largest metropolitan area. The Company will
continue to analyze de novo branch opportunities in the Des Moines
metropolitan area. Noninterest expenses have increased during the
quarters ended March 31, 2004 and 2003 in part due to the Company's
strategy of opening de novo branch offices. We believe that this
strategy will result in loan and deposit growth for the Company but will
negatively impact net earnings until each de novo branch achieves
profitability.
o Consistent with the Bank's emphasis on attracting and retaining core
deposits, deposit fee growth continued a strongly positive trend. The
growth in core deposits is due in part to a new direct mail
marketing program implemented in early 2003 emphasizing checking
accounts. This direct mail program is ongoing and is expected to result
in a continued growth in core deposits and fee income.
6
o Management believes that the allowance for loan losses is adequate. The
allowance for loan losses to nonaccrual loans was 1,275.76% at March 31,
2004. Net annualized chargeoffs for 2004 were .03% of total loans and
have averaged 0.04% of total loans for the past five years. During the
first quarter of 2004, the Company's loan portfolio increased $18.5
million or 5.1%. This increase primarily consisted of increases in the
commercial and multifamily real estate loans, which carry a higher level
of credit risk than other loans in the portfolio. The Company's
provision for loan losses for the three months ended March 31, 2004 was
$60,000.
o Purchases and originations of out of state real estate loans remained an
integral part of the Company's o business plan. The Company has
purchased and originated out of state real estate loans to supplement
local mortgage loan originations and to diversify its mortgage loan
portfolio geographically.
FINANCIAL CONDITION
Total assets increased $17.5 million, or 4.1%, to $441.5 million at March 31,
2004 from $424.0 million at December 31, 2003. The increase in assets was due
primarily to increases in net loans receivable, offset in part by a decrease in
interest bearing cash and due from banks.
Total loans receivable, net, increased by $18.5 million, or 5.1%, to $381.5
million at March 31, 2004 from $363.0 million at December 31, 2003, primarily
due to the origination of $12.9 million of first mortgage loans secured by
one-to-four family residences and multifamily loans, purchases of first mortgage
loans primarily secured by multifamily residences and commercial real estate
loans of $24.3 million, and originations of $4.6 million of second mortgage
loans during the quarter ended March 31, 2004. These originations and purchases
were offset in part by payments and prepayments of $22.4 million and sales of
loans of $4.1 million during the quarter ended March 31, 2004. Loan originations
and repayments decreased in the first quarter of 2004 as compared to the first
quarter of 2003 primarily due to the ongoing low interest rate environment in
2004. The Company sells substantially all fixed-rate loans primarily with
maturities in excess of 15 years in the secondary mortgage market in order to
reduce interest rate risk. The Company has also sold a portion of the fixed-rate
loans with 15 year maturities in the secondary market in order to reduce
interest rate risk. Interest bearing cash decreased $1.3 million, or 18.5%, to
$5.8 million at March 31, 2004 from $7.1 million at December 31, 2003 as the
Company invested cash in loans.
Deposits increased $10.2 million, or 3.6%, to $294.1 million at March 31, 2004
from $284.0 million at December 31, 2003, primarily reflecting increases in NOW
accounts, savings accounts, money market accounts and retail certificate of
deposit accounts. The increase in deposits is due primarily to the opening of
two new offices in Ankeny and Clive, Iowa and management's marketing efforts.
Borrowings, primarily FHLB advances, increased $8.0 million, to $103.0 million
at March 31, 2004 from $95.0 million at December 31, 2003. The increase in
borrowed funds is due primarily to an increase in short term borrowings. The
Company utilized the increase in deposits and FHLB advances to fund loans.
Total shareholders' equity decreased $391,000 to $41.2 million at March 31, 2004
from $41.6 million at December 31, 2003, primarily due to funds used for the
repurchase of stock and dividends paid to shareholders, offset in part by net
income, stock options exercised and increases in unrealized gains on securities
available for sale.
7
The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum
tangible, leverage (core) and risk-based capital requirements. As of March 31,
2004, the Bank exceeded all of its regulatory capital requirements. The Bank's
required, actual and excess capital levels as of March 31, 2004 were as follows:
Amount Percentage of Assets
------ --------------------
(dollars in thousands)
Tangible capital:
Capital level $ 32,043 7.35%
Less Requirement 6,538 1.50%
-------- ----
Excess $ 25,505 5.85%
======== ====
Core capital:
Capital level $ 32,043 7.35%
Less Requirement 17,434 4.00%
-------- ----
Excess $ 14,609 3.35%
======== ====
Risk-based capital:
Capital level $ 35,176 12.01%
Less Requirement 23,428 8.00%
-------- ----
Excess $ 11,748 4.01%
======== ====
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, calls and proceeds from
the sale of securities). During the first three months of 2004 and 2003,
principal payments, repayments and proceeds from sale of loans totaled $26.5
million and $44.7 million, respectively. The net increase in deposits during the
first three months of 2004 and 2003 totaled $10.2 million and $3.7 million,
respectively. The proceeds from borrowed funds during the three months ended
March 31, 2004 and 2003 totaled none and $16.0 million, respectively. The net
change in short term borrowings during the three months ended March 31, 2004 and
2003 totaled $8.0 million and $6.0 million, respectively. During the first three
months of 2004 and 2003, the proceeds from the maturities, calls and sales of
securities totaled $518,000 and $735,000, respectively. Cash provided from
operating activities during the first three months of 2004 and 2003 totaled $1.6
million and $2.6 million, respectively. The Company's primary use of funds is to
originate and purchase loans, purchase securities available for sale, repay
borrowed funds and other financing activities. During the first three months of
2004 and 2003, the Company's gross purchases and origination of loans totaled
$44.3 million and $53.0 million, respectively. The purchase of securities
available for sale for the three months ended March 31, 2004 and 2003 totaled
$623,000 and $10.9 million, respectively. The repayment of borrowed funds during
the first three months of 2004 and 2003 totaled $6,000 and $4.0 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 has a line of credit agreement in the amount of $3.0 million with an
unaffiliated bank. As of March 31, 2004, there were no borrowings outstanding on
this line of credit. The Company may use this line of credit to fund stock
repurchases in the future and for general corporate purposes.
The Company repurchased 61,705 shares of common stock during the three months
ended March 31, 2004 at an average price of $36.71.
On January 7, 2004, the Company paid a quarterly cash dividend of $0.21 per
share on common stock outstanding as of the close of business on December 15,
2003, aggregating $338,000. On February 27, 2004, the Company declared a
quarterly cash dividend of $0.25 per share payable on April 7, 2004 to
shareholders of record as of the close of business on March 16, 2004,
aggregating $397,000.
8
RESULTS OF OPERATIONS
Net Income. Net income decreased by $286,000 to $1.2 million for the quarter
ended March 31, 2004 compared to $1.5 million for the same period in 2003. Net
income is primarily dependent on net interest income, noninterest income,
noninterest expense and income tax expense. The decrease in net income was
primarily due to increases in noninterest expenses and decreases in net interest
income, offset in part by increases in noninterest income and decreases in
income tax expense.
Net Interest Income. Net interest income before provision for loan losses
decreased by $63,000 to $3,283,000 for the quarter ended March 31, 2004 from
$3,347,000 for the quarter ended March 31, 2003. The decrease is primarily due
to a decrease in the yield on interest earning assets and an increase in the
average balance of interest bearing liabilities, offset in part by an increase
in the average balance of interest earning assets and the decrease in the
average cost of funds. The interest rate spread (i.e., the difference in the
average yield on assets and average cost of liabilities) decreased to 2.97% for
the quarter ended March 31, 2004 from 3.11% for the quarter ended March 31,
2003. The decrease in interest rate spread reflects the general decrease in the
yield on interest earning assets offset in part by the decrease in the overall
cost of interest bearing liabilities. The decrease in the yield on interest
earning assets and the cost of interest bearing liabilities reflects a
continuing low interest rate environment.
Interest Income. Interest income decreased by $426,000 to $6.1 million for the
quarter ended March 31, 2004 compared to $6.5 million for the quarter ended
March 31, 2003. 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 average yield on interest
earning assets decreased to 6.01% for the quarter ended March 31, 2004 from
6.65% for the quarter ended March 31, 2003, primarily due to the continuing low
interest rate environment. The average balance of interest earning assets
increased $13.0 million to $406.4 million for the quarter ended March 31, 2004,
from $393.4 million for 2003. The increase in the average balance of interest
earning assets primarily reflects increases in the average balances of first
mortgage loans, offset in part by decreases in interest bearing cash and due
from banks. The increase in the average balances of first mortgage loans were
primarily derived from originations of first mortgage loans secured by one-to
four-family residences, purchases of first mortgage loans secured by multifamily
residences and commercial real estate, which originations and purchases were
offset in part by payments and prepayments and sales of loans during the twelve
months ended March 31, 2004. This reflects the Company's continued emphasis on
residential lending. See "Financial Condition."
Interest Expense. Interest expense decreased by $363,000 to $2.8 million for the
quarter ended March 31, 2004 compared to $3.2 million for the quarter ended
March 31, 2003. The decrease in interest expense was primarily due to a decrease
in the average cost of funds, offset in part by an increase in the average
balances of interest bearing liabilities. The average cost of funds decreased to
3.04% for the quarter ended March 31, 2004 from 3.54% for the quarter ended
March 31, 2003, primarily due to the continuing low interest rate environment.
The decrease in interest expense was partially offset by a $9.6 million increase
in the average balance of interest-bearing liabilities to $373.3 million for the
quarter ended March 31, 2004, from $363.7 million for the same period in 2003.
The increase in the average balance of interest-bearing liabilities primarily
reflects an increase in the NOW, money market, savings and certificates of
deposit accounts and borrowed funds. The increase in average interest bearing
deposits was primarily due to the opening of two new branches in Ankeny and
Clive and the Company's marketing efforts. The increase in interest bearing
liabilities was primarily used to fund loans.
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 month periods ended March 31, 2004 and 2003,
respectively.
For the Three Months Ended March 31,
---------------------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans $ 369,982 $ 5,816 6.29% $ 347,486 $ 6,169 7.12%
Securities available-for-sale 27,023 258 3.82 29,192 322 4.42
Interest bearing cash 9,413 26 1.12 16,710 35 0.86
--------- --------- ------ --------- --------- ------
Total interest-earning assets 406,418 6,100 6.01% 393,388 6,526 6.65%
Noninterest-earning assets 23,189 --------- ------ 21,166 --------- ------
--------- ---------
Total assets $ 429,607 $ 414,554
========= =========
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings $ 70,267 $ 85 0.49% $ 63,052 $ 114 0.73%
Passbook savings 28,655 22 0.31 26,624 51 0.78
Certificates of deposit 177,973 1,620 3.66 180,204 1,916 4.31
Borrowed funds 96,356 1,090 4.55 93,816 1,098 4.75
--------- --------- ------ --------- --------- ------
Total interest-bearing liabilities 373,251 $ 2,817 3.04% 363,696 $ 3,179 3.54%
--------- ------ --------- ------
Noninterest-bearing liabilities 14,504 11,932
--------- ---------
Total liabilities 387,755 375,628
Equity 41,852 38,926
--------- ---------
Total liabilities and equity $ 429,607 $ 414,554
========= =========
Net interest income $ 3,283 $ 3,347
======== ========
Net interest rate spread 2.97% 3.11%
==== ====
Net interest margin 3.23% 3.40%
==== ====
Ratio of average interest-earning assets
to average interest-bearing
liabilities 108.89% 108.16%
====== ======
10
RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The Company's provision for loan losses was $60,000
for each of the quarters ended March 31, 2004 and 2003. 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 prior loss experience, industry
standards, past due loans, economic conditions, the volume and type of loans in
the Company's portfolio, which includes a significant amount of multifamily and
commercial real estate loans, substantially all of which are purchased and are
secured by properties located out of state, and other factors related to the
collectibility of the Company's loan portfolio. The Company's total loan
portfolio increased $17.7 million or 4.8%, from March 31, 2004 as compared to
March 31, 2003. This increase primarily consisted of increases in the commercial
and multifamily real estate loans, offset in part by a decrease in one-to-four
family first mortgage real estate loans. The Company's out of state loans
increased $8.0 million, or 5.4%, from March 31, 2004, as compared to March 31,
2003. The properties securing the loans purchased are primarily out of state and
constitute a higher rate of risk than originated loans due to the size,
locations and type of collateral securing such loans. The economic conditions in
the Bank's primary market areas are currently stable. The net charge-offs were
$32,000 for the quarter ended March 31, 2004 as compared to $23,000 for the
quarter ended March 31, 2003. The increase in charge-offs were primarily due to
an increase in the charge-offs of automobile and second mortgage loans. The
resulting allowance for loan loss was $3.2 million and $3.2 million at March 31,
2004 and March 31, 2003, respectively.
The allowance for loan losses as a percentage of total loans receivable
decreased to 0.83% at March 31, 2004 from 0.89% at March 31, 2003. The level of
nonperforming loans was $250,000 at March 31, 2004 and $544,000 at March 31,
2003.
Management believes that the allowance for loan losses is adequate as of March
31, 2004. 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 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 $39,000, or 2.8%, to
$1,432,000 for the quarter ended March 31, 2004 from $1,393,000 for the quarter
ended March 31, 2003. The increase is due to increases in fees and service
charges and other income, offset in part by decreases in mortgage banking income
(gain on sale of loans) and abstract fees. Fees and service charges increased
$141,000 due to an increase in fees associated with checking accounts, including
overdraft fees and increases in loan prepayment fees. Other income, which
primarily includes annuity and mutual fund sales, rent income, insurance sales
and income associated with foreclosed real estate, increased $99,000 due to an
increase in annuity and mutual fund sales, increased rental income associated
with the opening of a second multifamily apartment building in March, 2003 and
increases in insurance sales. Mortgage banking income decreased $120,000 due
primarily to a decrease in originations of loans held for sale. Abstract fees
decreased $80,000 due to decreased sales volume as a result of a general
decrease in real estate activity, such as loan originations and refinances.
Noninterest Expense. Total noninterest expense increased by $305,000 to $2.9
million for the quarter ended March 31, 2004 from $2.6 million for the quarter
ended March 31, 2003. The increase is primarily due to an increase in salaries
and employee benefits, other expenses and premises and equipment. Salaries and
benefits increased $150,000 due to an increase in personnel at the Ankeny and
Clive offices, increases in the Company's contribution to the retirement plan,
normal salary increases and increases in other incentives associated with
deposit growth and annuity and mutual fund sales. Other expenses increased
$100,000 primarily due to increases in marketing costs in conjunction with a
direct mail checking account promotion, increased apartment operating costs
associated primarily from the opening of a second multifamily apartment building
in March, 2003, increases in professional fees, increases in costs associated
with checking accounts, including write-offs of overdrafts and an increase in
costs associated with the Ankeny and Clive offices. Premises and equipment
increased $50,000 primarily due to an increase in the costs associated with the
Ankeny and Clive offices. The Company's efficiency ratio for the quarter ended
March 31, 2004 and 2003 was 60.72% and 53.96%, respectively. The Company's ratio
of noninterest expense to average assets for the quarters ended March 31, 2004
and 2003 were 2.67% and 2.46%, respectively.
11
Income Taxes. Income taxes decreased by $44,000 to $576,000 for the quarter
ended March 31, 2004 as compared to $620,000 for the quarter ended March 31,
2003. The decrease was principally due to a decrease in pre-tax earnings during
the 2004 period as compared to the 2003 period, an increase in recurring federal
income tax credits from Northridge Apartment Limited Partnership II, offset in
part by a one time state tax credit from Northridge Apartment Limited
Partnership II, which decreased income tax expense by approximately $110,000 in
2003.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In management's opinion, there has not been a material change in market risk
since December 31, 2003.
ITEM 4.
CONTROLS AND PROCEDURES
Management, including the Company's President and Chief Executive Officer and
Chief Financial Officer and Treasurer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.
Based upon that evaluation, the President and Chief Executive Officer and Chief
Financial 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 changes in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during the
Company's last fiscal quarter that has materially affected, or that is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
The following table provides information with respect to purchases made by or on
behalf of the Company or any "affilited purchases' (as defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company's common
stock during the three months ended March 31, 2004.
CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Total Number of Average Price Paid Part of Publicly Be Purchased Under
Period Shares Purchased Per Share Announced Plans The Plan
- ---------------------------------------------------------------------------------------------------------------------
January 1, 2004 to
January 31, 2004 - - - - - - 82,900
February 1, 2004 to
February 29, 2004 47,705 $36.30 47,705 35,195
March 1, 2004 to
March 31, 2004 14,000 $38.10 14,000 - -
------ ------
Total 61,705 61,705
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
(a) Not applicable
(b) Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification pursuant to Section 302 of the Sarbanes
Oxley Act of 2003
Exhibit 32.1 Certification pursuant to Section 906 of the Sarbanes
Oxley Act of 2003
(b) Reports on Form 8-K
On January 27, 2004 the Company furnished to the Commission a press
release announcing the Company's earnings for the period ended December
31, 2003.
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: May 13, 2004 BY: /s/ David M. Bradley
--------------------
David M. Bradley, Chairman, President and
Chief Executive Officer
DATE: May 13, 2004 BY: /s/ John L. Pierschbacher
-------------------------
John L. Pierschbacher
Principal Financial Officer
14