10-Q 1 northcentral10q_09-01.txt SEPTEMBER 30, 2001 FORM 10-Q 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, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- --------------- Commission File Number 0-27672 NORTH CENTRAL BANCSHARES, INC. (Exact Name of Registrant as Specified in Its Charter) Iowa 42-1449849 ------------------------------------------------------------------------ (State or Other Jurisdiction of (I. R. S. Employer Incorporation or Organization) Identification Number) 825 Central Avenue Fort Dodge, Iowa 50501 -------------------------------------------------- (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code:(515)576-7531 None -------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 9, 2001 -------------------------------------------------------------------------------- Common Stock, $.01 par value 1,744,580 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, 2001 (Unaudited) and December 31, 2000 1 Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2001 and 2000 (Unaudited) 2 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (Unaudited) 3 Notes to Consolidated Condensed Financial Statements 4 to 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 to 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Part II. Other Information Items 1 through 6 13 Signatures 14 Exhibits PART I. FINANCIAL INFORMATION ITEM 1. NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31, ASSETS 2001 2000 ------------- -------------- (Unaudited) Cash and due from banks: Interest-bearing $ 7,587,117 $ 6,330,525 Noninterest-bearing 2,300,110 2,519,201 Securities available-for-sale 33,942,533 43,351,850 Loans receivable, net 316,893,515 318,025,782 Loans held for sale 1,110,903 498,387 Accrued interest receivable 2,164,998 2,257,153 Foreclosed real estate 985,365 63,866 Premises and equipment, net 6,804,520 6,660,783 Rental real estate 1,702,422 1,757,014 Title plant 925,256 925,256 Goodwill 5,088,873 5,443,091 Deferred taxes 404,826 556,913 Income taxes receivable 3,971 209,995 Prepaid expenses and other assets 518,740 397,970 ------------- ------------- Total assets $ 380,433,149 $ 388,997,786 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $ 270,186,956 $ 261,166,646 Borrowed funds 71,494,683 88,592,226 Advances from borrowers for taxes and insurance 804,612 1,318,069 Dividends payable 271,741 240,235 Accrued expenses and other liabilities 1,203,350 1,282,495 ------------- ------------- Total liabilities $ 343,961,342 352,599,671 ------------- ------------- 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 and outstanding 2001 4,041,257 shares; 2000 4,011,057 shares) 40,413 40,111 Additional paid-in capital 38,992,849 38,378,315 Retained earnings, substantially restricted 35,794,521 33,345,852 Accumulated other comprehensive income (loss) 270,766 (247,340) Less cost of treasury stock, 2001 2,270,677 shares; 2000 2,099,177 shares (38,107,451) (34,471,911) Unearned shares, employee stock ownership plan (519,291) (646,912) ------------- ------------- Total stockholders' equity 36,471,807 36,398,115 ------------- ------------- Total liabilities and stockholders' equity $ 380,433,149 $ 388,997,786 ============= =============
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, 2001 2000 2001 2000 -------------- -------------- -------------- -------------- Interest income: Loans receivable $ 6,389,131 $ 6,210,911 $ 19,106,625 $ 17,919,983 Securities and cash deposits 505,180 739,999 1,750,661 2,292,378 -------------- -------------- -------------- -------------- 6,894,311 6,950,910 20,857,286 20,212,361 -------------- -------------- -------------- -------------- Interest expense: Deposits 2,983,834 3,127,879 9,202,908 9,077,768 Borrowed funds 1,121,880 1,228,044 3,539,202 3,094,573 -------------- -------------- -------------- -------------- 4,105,714 4,355,923 12,742,110 12,172,341 -------------- -------------- -------------- -------------- Net Interest Income 2,788,597 2,594,987 8,115,176 8,040,020 Provision for loan losses 60,000 30,000 150,000 90,000 -------------- -------------- -------------- -------------- Net interest income after provision for loan losses 2,728,597 2,564,987 7,965,176 7,950,020 -------------- -------------- -------------- -------------- Noninterest income: Fees and service charges 502,758 423,629 1,383,034 1,157,816 Abstract fees 387,851 304,583 1,068,425 962,333 Mortgage banking fees 191,051 54,264 500,887 126,854 Income (Loss) on sale of securities available for sale, net - - 42 (933) 42 Other income 186,303 206,093 590,316 648,625 -------------- -------------- -------------- -------------- Total noninterest income 1,267,963 988,611 3,541,729 2,895,670 -------------- -------------- -------------- -------------- Noninterest expense: Salaries and employee benefits 1,126,739 1,004,519 3,274,592 3,039,533 Premises and equipment 290,065 282,842 876,569 764,297 Data processing 116,581 112,252 339,380 341,788 SAIF deposit insurance premiums 12,577 13,920 37,864 41,854 Goodwill amortization 118,072 118,072 354,217 354,217 Other expenses 570,522 546,257 1,710,383 1,758,801 -------------- -------------- -------------- -------------- Total noninterest expense 2,234,556 2,077,862 6,593,005 6,300,490 -------------- -------------- -------------- -------------- Income before income taxes 1,762,004 1,475,736 4,913,900 4,545,200 Provision for income taxes 608,134 504,266 1,668,588 1,561,863 -------------- -------------- -------------- -------------- Net Income $ 1,153,870 $ 971,470 $ 3,245,312 $ 2,983,337 ============== ============== ============== ============== Basic earnings per common share $ 0.66 $ 0.50 $ 1.81 $ 1.50 ============== ============== ============== ============== Earnings per common share - assuming dilution $ 0.62 $ 0.49 $ 1.72 $ 1.47 ============== ============== ============== ============== Dividends declared per common share $ 0.15 $ 0.125 $ 0.45 $ 0.375 ============== ============== ============== ============== Comprehensive income $ 1,289,667 $ 1,237,783 $ 3,763,418 $ 3,122,845 ============== ============== ============== ==============
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, 2001 2000 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,245,312 $ 2,983,337 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 150,000 90,000 Depreciation 523,324 453,094 Amortization and accretion 498,706 418,541 Deferred taxes (157,470) (3,062) Effect of contribution to employee stock ownership plan 276,676 208,617 (Gain) on sale of foreclosed real estate and loans, net (498,464) (33,796) (Gain) loss on sale of securities available for sale 933 (42) Loss on impairment and disposal of equipment and premises, net 5,121 28,294 Proceeds from sales of loans held for sale 32,545,314 7,469,293 Originations of loans held for sale (32,656,943) (8,835,182) Change in assets and liabilities: Accrued interest receivable 92,155 (152,085) Income taxes receivable 206,024 - - Prepaid expenses and other assets (120,770) (40,087) Income taxes payable - - (64,094) Accrued expenses and other liabilities (79,145) 256,642 -------------- -------------- Net cash provided by operating activities 4,030,773 2,779,470 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in loans 18,757,858 (11,253,726) Purchase of loans (18,591,648) (14,540,353) Proceeds from sales of securities available-for-sale 220,125 224,792 Purchase of securities available-for-sale (7,293,386) (1,395,100) Proceeds from maturities of securities available-for-sale 17,273,623 7,592,261 Purchase of premises and equipment and rental real estate (635,966) (1,651,671) Proceeds from sale of equipment 18,376 257,139 Other (216,668) 85,329 -------------- -------------- Net cash provided by (used in) investing activities 9,532,314 (20,681,329) -------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 9,020,310 (9,345,022) (Decrease) in advances from borrowers for taxes and insurance (513,457) (707,708) Net change in short-term borrowings (3,000,000) 4,000,000 Proceeds from other borrowed funds 3,000,000 34,000,000 Payments of other borrowings (17,097,543) (9,092,735) Purchase of treasury stock (3,635,540) (4,723,405) Dividends paid (765,136) (705,475) Issuance of common stock 475,484 - - Other (9,704) (5,409) -------------- -------------- Net cash provided by (used in) financing activities (12,525,586) 13,420,246 -------------- -------------- Net increase (decrease) in cash 1,037,501 (4,481,613) CASH 8,849,726 12,668,678 -------------- -------------- Beginning $ 9,887,227 $ 8,187,065 ============== ============== Ending SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash payments for: Interest paid to depositors $ 9,289,479 $ 8,884,213 Interest paid on borrowings 3,590,140 3,039,400 Income taxes 1,527,753 1,628,903
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, 2001 and 2000 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 2000 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, 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. For the three month period ended September 30, 2000, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,924,950 and 1,968,305, respectively. For the nine month period ended September 30, 2000, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,993,493 and 2,029,734, respectively. 3. DIVIDENDS On August 23, 2001, the Company declared a cash dividend on its common stock, payable on October 5, 2001 to stockholders of record as of September 14, 2001, equal to $0.15 per share. 4. PRONOUNCEMENTS ISSUED NOT YET ADOPTED In July, 2001, the Financial Accounting Standards Board issued two statements-Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets, which will potentially impact the Company's accounting for its reported goodwill and other intangible assets. Statement 141: o Eliminates the pooling method for accounting for business combinations. o Requires that intangible assets that meet certain criteria be reported separately from goodwill. o Requires negative goodwill arising from a business combination to be recorded as an extraordinary gain. Statement 142: o Eliminates the amortization of goodwill and other intangibles that are determined to have an indefinite life. 4 o Requires, at a minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life. Upon adoption of these Statements, the Company is required to: o Re-evaluate goodwill and other intangibles assets that arose from business combinations entered into before July 1, 2001. If the recorded other intangible assets do not meet the criteria for separate recognition, they should be reclassified to goodwill. Similarly, if there are other intangible assets that meet the criteria for separate recognition but were not separately recorded from goodwill, they should be reclassified from goodwill. o Reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly. o Write-off any remaining negative goodwill. The Company has not yet completed its full assessment of the effects of these new pronouncements on its financial statements and so is uncertain as to the impact. The standards generally are required to be implemented by the Company in its 2002 financial statements. 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. FINANCIAL CONDITION Total assets decreased $8.6 million, or 2.2%, to $380.4 million at September 30, 2001 compared to $389.0 million at December 31, 2000. Interest-bearing cash increased $1.3 million, or 19.8% to $7.6 million at September 30, 2001 from $6.3 million at December 31, 2000. Securities available for sale decreased $9.4 million, or 21.7% from $43.4 million at December 31, 2000 to $33.9 million at September 30, 2001, primarily due to $17.5 million of maturities, calls and sales, offset in part by increases in fair market value of $828,000 and purchases of $7.3 million of such securities. Total loans receivable, net and loans held for sale, decreased by $520,000 to $318.0 million at September 30, 2001 from $318.5 million at December 31, 2000, due primarily to originations of $56.9 million of first mortgage loans secured primarily by one-to four-family residences, purchases of $18.6 million of first mortgage loans secured primarily by one-to four- family, multifamily and commercial real estate and originations of $19.8 million of second mortgage loans. These originations and purchases were offset in part by payments and prepayments of loans of approximately $72.1 million and loan sales of $32.4 million. Foreclosed real estate increased $921,000 to $985,000 at September 30, 2001 from $64,000 at December 31, 2001, due primarily to the foreclosure of one commercial real estate property and six one-to-four family real estate properties. Total deposits increased $9.0 million, or 3.5%, to $270.2 million at September 30, 2001 from $261.2 million at December 31, 2000, reflecting increases primarily in money market savings accounts and certificates of deposit accounts. Other borrowings, primarily Federal Home Loan Bank ("FHLB") advances, decreased by $17.1 million from $88.6 million at December 31, 2000 to $71.5 million at September 30, 2001, due in part to deposit growth and securities available for sales maturities and calls. Total stockholders' equity increased $74,000, to $36.5 million at September 30, 2001 from $36.4 million at December 31, 2000. See "Capital." CAPITAL The Company's total stockholders' equity increased by $74,000 to $36.5 million at September 30, 2001 from $36.4 million at December 31, 2000, primarily due to earnings and an increase in the accumulated other comprehensive income, 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 $519,000 at September 30, 2001 from $647,000 at December 31, 2000. The decrease in unearned shares resulted from the release of shares by 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, 2001, the Bank exceeded all of its regulatory capital requirements. The Bank's required, actual and excess capital levels as of September 30, 2001 were as follows:
Amount Percentage of Assets ------ -------------------- (dollars in thousands) Tangible capital: Capital level $ 29,025 7.76% Less Requirement 5,607 1.50% -------- ----- Excess $ 23,418 6.26% ======== ===== Core capital: Capital level $ 29,025 7.76% Less Requirement 14,953 4.00% -------- ----- Excess $ 14,072 3.76% ======== ===== Risk-based capital: Capital level $ 31,863 14.01% Less Requirement 18,191 8.00% -------- ----- Excess $ 13,672 6.01% ======== =====
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 and calls of securities). During the first nine months of 2001 and 2000, principal payments and repayments on loans totalled $72.1 million and $42.6 million, respectively. The net increase in deposits during the first nine months of 2001 totalled $9.0 million. The proceeds from borrowed funds during the nine months ended September 30, 2001 and 2000 totalled $3.0 million and $34.0 million, respectively. The net change in short-term borrowings during the nine months ended September 30, 2000 totalled $4.0 million. During the first nine months of 2001 and 2000, the proceeds from the maturities, calls and sales of securities totalled $17.3 million and $7.6 million, respectively. Cash provided from operating activities during the first nine months of 2001 and 2000 totalled $4.0 million and $2.8 million, respectively, of which $3.2 million and $3.0 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 (including decreases in deposits). During the first nine months of 2001 and 2000, the Company's gross purchases and origination of loans totalled $104.6 million and $68.7 million, respectively. The increase in purchases and originations is due in part to lower market interest rates in 2001. The purchase of securities available for sale for the nine months ended September 30, 2001 and 2000 totalled $7.3 million and $1.4 million, respectively. The net decrease in deposits during the first nine months of 2000 totalled $9.3 million. The repayment of borrowed funds during the first nine months of 2001 and 2000 totalled $17.1 million and $9.1 million, respectively. The net change in short-term borrowings during the nine months ended September 30, 2001 totalled $3.0 million. For additional information about cash flows from the Company's operating, financing and investing activities, see "Statements of Cash Flows in the Condensed Consolidated Financial Statements." The OTS regulations require the Bank to maintain sufficient liquidity to ensure its safe and sound operation. The Company entered into a $2.0 million unsecured line of credit agreement on September 21, 2000 with another unaffiliated bank. The Company may use this line of credit to fund stock repurchases in the future and general corporate purposes. As of September 30, 2001, there were no borrowings outstanding on this line of credit. Stockholders' equity totaled $36.5 million at September 30, 2001 compared to $36.4 million at December 31, 2000, reflecting the Company's earnings, 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 loss. The Company repurchased 171,500 shares of common stock during the nine months ended September 30, 2001 at an average price of $21.20. On July 6, 2001, the Company paid a quarterly cash dividend of $0.15 per share on common stock outstanding as of the close of business on June 15, 2001, aggregating $273,000. On August 23, 2001, the Company declared a quarterly cash dividend of $0.15 per share payable on October 5, 2001 to shareholders of record as of the close of business on September 14, 2001, aggregating $272,000. 7 Interest Income. Interest income decreased by $57,000 to $6.9 million for the three months ended September 30, 2001 compared to $7.0 million for the three months ended September 30, 2000. The decrease in interest income was primarily due to decreases in the average balance and average yield on interest earning assets. The average balance of interest earning assets decreased $261,000 to $361.8 million for the three months ended September 30, 2001 from $362.0 million for the three months ended September 30, 2000. This decrease was primarily due to securities available for sale, offset by an increase in first mortgage loans, consumer loans and interest-bearing cash. The decrease in securities available for sale reflects maturities, calls and sales, offset in part by purchases. The increase in the average balance of loans generally reflects an increase over the past twelve months in originations of first mortgage loans, second mortgage loans and purchases of first mortgage loans secured primarily by multi-family, one-to four-family residential and commercial real estate loans, which were offset in part by payments, sales and prepayments of loans. See "Financial Condition." The yield on interest earning assets decreased to 7.61% for the three months ended September 30, 2001 from 7.67% for the three months ended September 30, 2000. The decrease in average yields was due primarily to an increase in the average balance of loans as compared to the average balance of interest bearing assets, a decrease in the average yield on loans, offset in part by a decrease in the average yield on securities available for sale and interest bearing cash. The average yield on loans decreased to 7.90% for the three months ended September 20, 2001 from 7.94% for the three months ended September 30, 2000. The average yield on securities available for sale decreased to 5.66% for the three months ended September 30, 2001 from 5.93% for the three months ended September 30, 2000. The average yield on interest bearing cash decreased to 3.18% for the three months ended September 30, 2001 from 6.21% for the three months ended September 30, 2000, due to decreases in market interest rates. Interest income increased by $645,000 to $20.9 million for the nine months ended September 30, 2001 compared to $20.2 million for the nine months ended September 30, 2000. The increase in interest income was primarily due to increases in the average balance and average yield on interest earning assets. The average balance of interest earning assets increased $8.1 million to $363.7 million for the nine months ended September 30, 2001 from $355.5 million for the nine month ended September 30, 2000. This increase was primarily due to first mortgage loans, consumer loans and interest bearing cash, offset by a decrease in securities available for sale. The increase in the average balance of loans generally reflects an increase over the past twelve months in originations of first mortgage loans, second mortgage loans and purchases of first mortgage loans secured primarily by multi-family, one-to four-family residential and commercial real estate loans, which were 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 increased to 7.65% for the nine months ended September 30, 2001 from 7.58% for the nine months ended September 30, 2000. The increase in average yields was due primarily to an increase in the average balance of loans as compared to the average balance of interest bearing assets, an increase in the average yield on loans, offset in part by a decrease in the average yield on securities available for sale and interest bearing cash. The average yield on loans increased to 7.96% for the nine months ended September 30, 2001 from 7.87% for the nine months ended September 30, 2000. The average yield on securities available for sale decreased to 5.64% for the nine months ended September 30, 2001 from 5.89% for the nine months ended September 30, 2000. The decrease in the average yield on securities available for sale was due in part to a change in the average yield on Federal Home Loan Bank stock. The average yield on the Federal Home Loan Bank stock for the nine months ended September 30, 2001 and 2000 was 4.11% and 6.85%, respectively. The average yield on interest bearing cash decreased to 4.31% for the nine months ended September 30, 2001 from 5.85% for the nine months ended September 30, 2000. Interest Expense. Interest expense decreased by $250,000 to $4.1 million for the three months ended September 30, 2001 compared to $4.4 million for the three months ended September 30, 2000. 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 balance of interest bearing liabilities. The average balance of interest bearing liabilities increased $3.4 million to $338.2 million for the three months ended September 30, 2001 from $334.7 million for the three months ended September 30, 2000. This increase was due primarily to money market savings accounts, offset in part by decreases in savings, certificates of deposit and borrowed funds. The increase in money market funds was primarily due to the offering of a premium money market product. The decrease in the certificates of deposit was due in part to a decrease in the deposits of public funds. The average cost of interest bearing liabilities decreased to 4.87% for the three months ended September 30, 2001 from 5.14% for the three months ended September 30, 2000. The decrease in the average cost of interest bearing liabilities was due primarily to a decrease in market interest rates over the past twelve months. Interest expense increased by $570,000 to $12.7 million for the nine months ended September 30, 2001 compared to $12.2 million for the nine months ended September 30, 2000. The increase in interest expense was primarily due to an increase in the average balance and average cost of interest bearing liabilities. The average balance of interest bearing liabilities increased $11.4 million to $339.1 million for the nine months ended September 30, 2001 from $327.7 million 8 RESULTS OF OPERATIONS (Continued) for the nine months ended September 30, 2000. This increase was due primarily to money market savings accounts and borrowed funds, offset by a decrease in savings accounts and certificates of deposit. The increase in money market funds was primarily due to the offering of a premium money market product. The increase in the borrowed funds was due in part to fund the corresponding asset growth and stock repurchases. The decrease in the certificates of deposit was due in part to a decrease in the deposits of public funds. The average cost of interest bearing liabilities increased to 5.02% for the nine months ended September 30, 2001 from 4.93% for the nine months ended September 30, 2000. The increase in the average cost of interest bearing liabilities was due primarily to an increase in the average cost of certificates of deposit, offset in part by a decrease in the average cost of savings accounts. Net Interest Income. Net interest income before the provision for loan losses increased by $194,000 to $2,789,000 for the three months ended September 30, 2001 from $2,595,000 for the three months ended September 30, 2000. The increase is due primarily to an increase in the interest rate spread, offset in part by a decrease in the ratio of average interest earning assets to average interest bearing liabilities. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) increased to 2.74% for the three months ended September 30, 2001 from 2.53% for the three months ended September 30, 2000. The ratio of average interest earning assets to average interest bearing liabilities decreased to 106.98% for the three months ended September 30, 2001 from 108.15% for the three months ended September 30, 2000. Net interest income before the provision for loan losses increased by $75,000 to $8,115,000 for the nine months ended September 30, 2001 from $8,040,000 for the nine months ended September 30, 2000. The increase is due primarily to an increase in the average balance of interest earning assets and interest bearing liabilities. This was offset in part by decreases in the interest rate spread and the ratio of average interest earning assets to average interest bearing liabilities. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.63% for the nine months ended September 30, 2001 from 2.65% for the nine months ended September 30, 2000. The ratio of average interest earning assets to average interest bearing liabilities decreased to 107.25% for the nine months ended September 30, 2001 from 108.49% for the nine months ended September 30, 2000. 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, 2001 and 2000, respectively. 9 RESULTS OF OPERATIONS (Continued)
For the Three Months Ended September 30, 2001 2000 ---------------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- --------- --------- ---------- (Dollars in thousand) Assets: Interest-earning assets: Loans..................................... $ 322,790 $ 6,389 7.90% $ 312,327 $ 6,211 7.94% Securities available for sale............. 31,493 445 5.66 45,286 671 5.93 Interest bearing cash..................... 7,471 60 3.18 4,402 69 6.21 --------- --------- --------- --------- --------- ------- Total interest-earning assets........... 361,754 $ 6,894 7.61% 362,015 $ 6,951 7.67% --------- --------- --------- ------- Noninterest-earning assets.................. 22,760 18,528 --------- --------- Total assets............................ $ 384,514 $ 380,543 ========= ========= Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings.............. $ 60,290 $ 290 1.91% $ 48,140 $ 315 2.60% Passbook savings.......................... 21,995 95 1.72 24,032 122 2.01 Certificates of deposit................... 181,713 2,599 5.67 185,276 2,691 5.76 Borrowed funds............................ 74,168 1,122 6.00 77,274 1,228 6.22 --------- --------- --------- --------- --------- ------- Total interest-bearing liabilities.......... 338,166 $ 4,106 4.87% 334,722 $ 4,356 5.14% --------- --------- --------- ------- Noninterest-bearing liabilities............. 9,440 9,835 --------- --------- Total liabilities....................... 347,606 344,557 Equity...................................... 36,908 35,986 --------- --------- Total liabilities and equity ........... $ 384,514 $ 380,543 ========= ========= Net interest income.......................... $ 2,788 $ 2,595 ========= ========= Net interest rate spread..................... 2.74% 2.53% ========= ======= Net interest margin.......................... 3.08% 2.87% ========= ======= Ratio of average interest-earning assets to average interest-bearing liabilities........ 106.98% 108.15% ========= =======
For the Nine Months Ended September 30, 2001 2000 ---------------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Loans..................................... $ 320,109 $ 19,107 7.96% $ 303,586 $ 17,920 7.87% Securities available for sale............. 34,453 1,457 5.64 47,669 2,104 5.89 Interest bearing cash..................... 9,110 293 4.31 4,293 188 5.85 --------- --------- --------- --------- --------- ------- Total interest-earning assets........... 363,672 $ 20,857 7.65% 355,548 $ 20,212 7.58% --------- --------- --------- ------- Noninterest-earning assets.................. 21,343 18,391 --------- --------- Total assets............................ $ 385,015 $ 373,939 ========= ========= Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings.............. $ 58,197 $ 1,008 2.32% $ 47,071 822 2.33% Passbook savings.......................... 21,750 286 1.76 25,256 380 2.01 Certificates of deposit................... 180,952 7,909 5.84 188,008 7,875 5.58 Borrowed funds............................ 78,200 3,539 6.05 67,377 3,095 6.03 --------- --------- --------- --------- --------- ------- Total interest-bearing liabilities.......... 339,099 $ 12,742 5.02% 327,712 $ 12,172 4.93% --------- --------- --------- ------- Noninterest-bearing liabilities............. 9,106 10,070 --------- --------- Total liabilities....................... 348,205 337,782 Equity...................................... 36,810 36,157 --------- --------- Total liabilities and equity ........... $ 385,015 $ 373,939 ========= ========= Net interest income.......................... $ 8,115 $ 8,040 ========= ========= Net interest rate spread..................... 2.63% 2.65% ========= ======= Net interest margin.......................... 2.98% 3.02% ========= ======= Ratio of average interest-earning assets to average interest-bearing liabilities........ 107.25% 108.49% ========= =======
10 RESULTS OF OPERATIONS (Continued) Provision for Loan Losses. The Company's provision for loan losses was $60,000 and $30,000 for the three months ended September 30, 2001 and 2000, respectively. The Company's provision for loan losses was $150,000 and $90,000 for each of the nine months ended September 30, 2001 and 2000, respectively. 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 $100,000 for the nine months ended September 30, 2001 as compared to net charge offs of $47,000 for the nine months ended September 30, 2000. The resulting allowance for loan losses was $2.9 million at September 30, 2001, $2.8 million at December 31, 2000 and $2.8 million at September 30, 2000. The level of nonperforming loans decreased to $614,000 at September 30, 2001 from $1.0 million at December 31, 2000 and from $1.1 million at September 30, 2000. Management believes that the allowance for loan losses is adequate. 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 $279,000 to $1,268,000 for the three months ended September 30, 2001 from $989,000 for the three months ended September 30, 2000. The increase is due to increases in fees and services charges, abstracting income and mortgage banking income, offset by a decrease in other income. Fees and services charges increased $79,000, primarily due to increases in overdraft fees. Abstracting income increased $83,000, due to an increased sales volume, which resulted in part from a general increase in real estate activity. Mortgage banking income increased $137,000 due to an increase in loan originations. Other income decreased $20,000, due to decreases in revenues from the sale of annuities and mutual funds, offset in part by an increase in revenues from the sale of insurance. Total noninterest income increased by $646,000 to $3,542,000 for the nine months ended September 30, 2001 from $2,896,000 for the nine months ended September 30, 2000. The increase is due to increases in fees and services charges, abstract fees and mortgage banking income, offset in part by decreases in other income. Fees and services charges increased $225,000, primarily due to increases in overdraft fees. Abstract fees increased $106,000, due to an increased sales volume, which resulted in part from a general increase in real estate activity. Mortgage banking income increased $374,000 due to an increase in loan originations. Other income decreased $58,000, primarily due to decreases in revenues from the sale of annuities and mutual funds, offset in part by an increase in revenues from the sale of insurance. Noninterest Expense. Total noninterest expense increased by $157,000 to $2,235,000 for the three months ended September 30, 2001 from $2,078,000 for the three months ended September 30, 2000. The increase is due primarily to increases in salaries and employee benefits. The increase in salaries and employee benefits were due in part to normal salary increases and increases as a result of the employee stock ownership plan. The Company's efficiency ratio for the three months ended September 30, 2001 and 2000 were 55.08% and 57.98%, respectively. The Company's ratio of noninterest expense to average assets for the three months ended September 30, 2001 and 2000 were 2.32% and 2.18%, respectively. Total noninterest expense increased by $293,000 to $6,593,000 for the nine months ended September 30, 2001 from $6,300,000 for the nine months ended September 30, 2000. The increase is due primarily to increases in salaries and employee benefits and premises and equipment. The increase in salaries and employee benefits were due in part to normal salary increases and increases as a result of the employee stock ownership plan. The increases in premises and equipment were due in part to increases in utilities, real estate taxes and depreciation, offset in part by a decrease in rent expense. The Company's efficiency ratio for the nine months ended September 30, 2001 and 2000 were 56.56% and 57.61%, respectively. The Company's ratio of noninterest expense to average assets for the nine months ended September 30, 2001 and 2000 were 2.28% and 2.25%, respectively. Income Taxes. Income taxes increased by $104,000 to $608,000 for the three months ended September 30, 2001 as compared to $504,000 for the three months ended September 30, 2000, primarily due to an increase in net income before income taxes. Income taxes increased by $107,000 to $1,669,000 for the nine months ended September 30, 2001 as compared to $1,562,000 for the nine months ended September 30, 2000, primarily due to an increase in net income before income taxes. 11 RESULTS OF OPERATIONS (Continued) Net Income. Net income increased by $182,000 to $1,154,000 for the three months ended September 30, 2001, as compared to $971,000 for the same period in 2000. Net income increased by $262,000 to $3,245,000 for the nine months ended September 30, 2001, as compared to $2,983,000 for the same period in 2000. 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, 2000 as reported in Item 7A of the Annual Report on Form 10-K. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 99.1 Press Release, dated August 23, 2001 (regarding declaration of dividend). Exhibit 99.2 Press Release, dated September 20, 2001 (regarding repurchase program). Exhibit 99.3 Press Release, dated October 19, 2001 (regarding third quarter earnings) (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 13, 2001 BY: /s/ David M. Bradley ----------------------------------------- David M. Bradley, Chairman, President and Chief Executive Officer DATE: November 13, 2001 /s/ John L. Pierschbacher ----------------------------------------- John L. Pierschbacher, CPA Principal Financial Officer 14