-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CpEUm3Xqo/opoq4Wl8BPuvhn58TARH4w8mc1NrGTwnXrqpZepSpvD0VSvNS9+3Yg 2xKXvYJAtdg19pmVn+q43w== 0000927797-05-000128.txt : 20050513 0000927797-05-000128.hdr.sgml : 20050513 20050513104237 ACCESSION NUMBER: 0000927797-05-000128 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050513 DATE AS OF CHANGE: 20050513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH CENTRAL BANCSHARES INC CENTRAL INDEX KEY: 0001005188 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 421449849 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27672 FILM NUMBER: 05826812 BUSINESS ADDRESS: STREET 1: 825 CENTRAL AVE STREET 2: C/O FIRST FED SAVINGS BANK OF FT DODGE CITY: FORT DODGE STATE: IA ZIP: 50501 BUSINESS PHONE: 5155767531 MAIL ADDRESS: STREET 1: 825 CENTRAL AVENUE CITY: FORT DODGE STATE: IA ZIP: 50501 10-Q 1 ncb-10q_033105.txt FORM 10-Q 03-31-05 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, 2005 [ ] 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 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, 2005 - -------------------------------------------------------------------------------- Common Stock, $.01 par value 1,538,430 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, 2005 and December 31, 2004 1 Consolidated Condensed Statements of Income for the three months ended March 31, 2005 and 2004 2 Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2005 and 2004 3 Notes to Consolidated Condensed Financial Statements 4 to 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 to 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4. Controls and Procedures 13 Part II. Other Information Items 1 through 6 14 Signatures 15 Exhibits PART I. FINANCIAL INFORMATION ITEM 1. NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
March 31, December 31, 2005 2004 ------------- ------------- ASSETS Cash and due from banks: Interest-bearing $ 4,773,488 $ 4,947,731 Noninterest-bearing 3,221,653 2,970,448 Securities available-for-sale 22,764,263 23,106,271 Loans receivable, net 415,544,444 407,316,318 Loans held for sale 641,590 904,127 Accrued interest receivable 1,986,002 1,953,605 Foreclosed real estate 966,574 1,079,257 Premises and equipment, net 10,707,621 9,889,737 Rental real estate 2,776,221 2,809,888 Title plant 925,256 925,256 Goodwill 4,970,800 4,970,800 Deferred taxes 995,124 1,102,612 Prepaid expenses and other assets 940,711 758,729 ------------- ------------- Total assets $ 471,213,747 $ 462,734,779 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $ 320,738,105 $ 316,333,731 Borrowed funds 104,168,130 100,974,695 Advances from borrowers for taxes and insurance 1,201,945 1,856,249 Dividends payable 446,086 382,632 Accrued expenses and other liabilities 1,992,719 1,653,266 ------------- ------------- Total liabilities 428,546,985 421,200,573 ------------- ------------- 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 2005, 1,538,430; 2004, 1,530,530 shares) 15,384 15,305 Additional paid-in capital 18,928,322 18,681,041 Retained earnings, substantially restricted 24,069,847 23,438,369 Accumulated other comprehensive (loss) (282,383) (519,309) Unearned shares, employee stock ownership plan (64,408) (81,200) ------------- ------------- Total stockholders' equity 42,666,762 41,534,206 ------------- ------------- Total liabilities and stockholders' equity $ 471,213,747 $ 462,734,779 ============= =============
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, 2005 2004 ----------- ----------- Interest income: Loans receivable $ 6,074,537 $ 5,816,384 Securities and cash deposits 260,797 284,106 ----------- ----------- 6,335,334 6,100,490 ----------- ----------- Interest expense: Deposits 1,801,034 1,727,150 Borrowed funds 1,095,449 1,089,877 ----------- ----------- 2,896,483 2,817,027 ----------- ----------- Net interest income 3,438,851 3,283,463 Provision for loan losses 50,000 60,000 ----------- ----------- Net interest income after provision for loan losses 3,388,851 3,223,463 ----------- ----------- Noninterest income: Fees and service charges 830,543 704,233 Abstract fees 276,261 353,839 Provision for impairment on available-for-sale securities (255,000) -- Mortgage banking income 40,688 53,981 Other income 286,102 319,805 ----------- ----------- Total noninterest income 1,178,594 1,431,858 ----------- ----------- Noninterest expense: Compensation and employee benefits 1,578,679 1,582,325 Premises and equipment 349,979 358,989 Data processing 141,773 139,514 Other expenses 868,099 782,099 ----------- ----------- Total noninterest expense 2,938,530 2,862,927 ----------- ----------- Income before income taxes 1,628,915 1,792,394 Provision for income taxes 553,380 575,883 ----------- ----------- Net income $ 1,075,535 $ 1,216,511 =========== =========== Basic earnings per common share $ 0.70 $ 0.77 =========== =========== Earnings per common share - assuming dilution $ 0.68 $ 0.73 =========== =========== Dividends declared per common share $ 0.29 $ 0.25 =========== =========== Comprehensive income $ 1,312,461 $ 1,313,006 =========== ===========
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, 2005 2004 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,075,535 $ 1,216,511 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 50,000 60,000 Depreciation 201,235 205,751 Amortization and accretion 115,855 162,036 Deferred taxes (33,482) (55,169) Effect of contribution to employee stock ownership plan 68,383 132,595 (Gain) on sale of foreclosed real estate and loans, net (69,986) (57,081) Provision for impairment on available-for-sale securities 255,000 -- Loss on disposal of equipment and premises, net 25,340 594 Proceeds from sales of loans held for sale 3,120,463 3,826,833 Originations of loans held for sale (2,817,238) (4,088,602) Change in assets and liabilities: Accrued interest receivable (32,397) (7,862) Prepaid expenses and other assets (181,982) (68,492) Accrued expenses and other liabilities 339,453 313,762 ------------ ------------ Net cash provided by operating activities 2,116,179 1,640,876 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in loans 1,759,970 6,533,157 Purchase of loans (10,269,382) (25,283,810) Proceeds from sales of securities available-for-sale 389,800 294,200 Purchase of securities available-for-sale (509,500) (622,800) Proceeds from maturities of securities available-for-sale 571,806 517,630 Purchase of premises and equipment and rental real estate (1,010,792) (395,743) Other 270,210 135,165 ------------ ------------ Net cash (used in) investing activities (8,797,888) (18,822,201) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 4,404,374 10,155,294 Net (decrease) in advances from borrowers for taxes and insurance (654,304) (597,895) Net change in short-term borrowings 4,200,000 8,000,000 Proceeds from other borrowed funds 2,000,000 -- Payments on other borrowings (3,006,565) (6,320) Purchase of treasury stock -- (2,265,060) Dividends paid (380,603) (331,063) Issuance of common stock 195,769 818,845 ------------ ------------ Net cash provided by financing activities 6,758,671 15,773,801 ------------ ------------ Net increase (decrease) in cash 76,962 (1,407,524) CASH AND DUE FROM BANKS Beginning 7,918,179 10,018,573 ------------ ------------ Ending $ 7,995,141 $ 8,611,049 ============ ============ SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash payments for: Interest paid to depositors $ 1,806,666 $ 1,674,277 Interest paid on borrowings 1,095,424 1,089,834 Income taxes 52,269 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, 2005 and 2004 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 2004 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, 2005, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,526,643 and 1,577,802, respectively. 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. 3. DIVIDENDS On February 28, 2005, the Company declared a cash dividend on its common stock, payable on April 7, 2005 to stockholders of record as of March 16, 2005, equal to $0.29 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, 2004 and has determined that there has been no impairment of goodwill. As of March 31, 2005 and December 31, 2004, 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, 2005 or March 31, 2004. 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 4 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. 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, 2005 March 31, 2004 -------------- -------------- Net income, as reported $ 1,075,535 $ 1,216,511 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (32,608) (32,810) ----------- ----------- Pro forma net income $ 1,042,927 $ 1,183,701 =========== =========== Earnings per common share - basic: As reported $ 0.70 $ 0.77 Pro forma 0.68 0.75 Earnings per common share - assuming dilution: As reported $ 0.68 $ 0.73 Pro forma 0.66 0.71
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 2005 and 2004, respectively: dividend rates of 2.4% and 2.3%, price volatility of 14.5% and 20%, risk-free interest rates of 4.01% and 4.10%, and expected lives of 8 years for all periods. 6. RECENT ACCOUNTING PRONOUNCEMENTS. In December 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 requires loans acquired through a transfer, such as a business combination, where there are differences in expected cash flows and contractual cash flows due in part to credit quality, to be recognized at their fair value. Under the provisions of SOP 03-3, any future excess of cash flows over the original expected cash flows is to be recognized as an adjustment of future yield. Future decreases in actual cash flow compared to the original expected cash flow is recognized as a valuation allowance and expensed immediately. Under SOP 03-3, valuation allowances cannot be created or "carried over" in the initial accounting for impaired loans acquired. SOP 03-3 is effective for impaired loans acquired in fiscal years beginning after December 15, 2004. The Company does not expect adoption to have a material impact on the consolidated financial statements, results of operations or liquidity of the Company. In March 2004, the Financial Accounting Standards Board (FASB) reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-1). The guidance is applicable to debt and equity securities that are within the scope of FASB Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities and certain other investments. EITF 03-1 specifies that an impairment would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. EITF 03-1 cost method investment and disclosure provisions are effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to debt and equity securities have been delayed until the FASB issues 5 additional guidance. The Company adopted cost method investment and disclosure provisions of EITF 03-1 on June 30, 2004. In December 2004, the FASB issued SFAS No. 123(Revised), Share-Based Payment (SFAS No. 123(R)), establishing accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. SFAS No. 123(R) also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments, or that may be settled by the issuance of those equity instruments. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based stock awards, stock appreciation rights and employee stock purchase plans. SFAS No. 123(R) replaces existing requirements under SFAS No. 123, Accounting for Stock-Based Compensation, and eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25. The provisions of SFAS No. 123(R) are effective for the Company on January 1, 2006. The Company is currently assessing the financial statement impact of adopting SFAS No. 123(R). 6 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 consolidated financial condition, results of operations and business of the Company and its subsidiaries including First Federal Savings Bank of Iowa (the "Bank") 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 The Company'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 During the quarter the Company recorded an other-than-temporary, non-cash, charge of $255,000 ($229,000 after-tax, or $0.15 per fully diluted share) related to a $1.0 million face value perpetual preferred stock that declined in value due to decreased interest rates. This perpetual preferred stock was issued by Federal Home Loan Mortgage Corporation ("Freddie Mac"). Its dividend rate reprices every five years, most recently at year end 2004. This perpetual preferred stock issue is an investment grade security that is held in the Company's available-for-sale securities portfolio. o The Bank continues to open new offices in market areas where population growth trends are positive. During the quarter the Company purchased a building site in West Des Moines near Jordan Creek Town Center Mall. The Company intends to begin construction of a new branch office at this location and open this office in 2006, at which point the Company will have three offices in the greater Des Moines, Iowa area. Des Moines is Iowa's largest metropolitan area. The Bank will continue to analyze de novo branch opportunities in the Des Moines metropolitan area. 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 strong positive trend. The growth in core deposits continues to be due in part to the direct mail marketing program emphasizing checking accounts and the growth of the Company's offices in Clive and Ankeny, Iowa. This direct mail program is ongoing and is expected to result in a continued growth in core deposits and fee income. 7 o Management believes that the allowance for loan losses is adequate. The allowance for loan losses to nonaccrual loans was 573.80% at March 31, 2005. Net annualized chargeoffs for 2005 were 0.02% of total loans and have averaged 0.04% of total loans for the past five years. During the three months ended March 31, 2005, the Company's net loan portfolio increased $8.2 million or 2.0%. A significant portion of this increase consisted of increases in the one-to-four family and multifamily real estate loans. The Company's provision for loan losses for the three months ended March 31, 2005 was $50,000. o Purchases and originations of out of state real estate loans remained an integral part of the Company's 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 $8.5 million, or 1.8%, to $471.2 million at March 31, 2005 from $462.7 million at December 31, 2004. The increase in assets was due primarily to the increase in net loans receivable. Total loans receivable, net, increased by $8.2 million, or 2.0%, to $415.5 million at March 31, 2005 from $407.3 million at December 31, 2004, primarily due to the origination of $13.2 million of first mortgage loans secured by one-to-four family residences, multifamily, and commercial real estate; purchases of first mortgage loans primarily secured by multifamily residences and commercial real estate of $10.6 million; and originations of $5.1 million of second mortgage loans during the three months ended March 31, 2005. These originations and purchases were offset in part by payments and prepayments of $19.6 million and sales of loans of $3.1 million during the three months ended March 31, 2005. The Company sells substantially all fixed-rate loans with maturities in excess of 15 years in the secondary mortgage market in order to reduce interest rate risk. Securities available-for-sale decreased $0.3 million, or 1.5%, to $22.8 million at March 31, 2005 from $23.1 million at December 31, 2004, as the Company invested its cash in loans. Deposits increased $4.4 million, or 1.4%, to $320.7 million at March 31, 2005 from $316.3 million at December 31, 2004, primarily reflecting increases in money market accounts and savings accounts. The increase in deposits is due primarily to pricing strategies and continued marketing efforts. Borrowings, primarily FHLB advances, increased $3.2 million, to $104.2 million at March 31, 2005 from $101.0 million at December 31, 2004. The Company utilized the increase in deposits and FHLB advances to fund loans. Total shareholders' equity increased $1.1 million to $42.7 million at March 31, 2005 from $41.5 million at December 31, 2004, primarily due to earnings, increased capital attributable to stock options exercised and a decrease in accumulated other comprehensive loss, offset in part by declared dividends. 8 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, 2005, the Bank exceeded all of its regulatory capital requirements. The Bank's required, actual and excess capital levels as of March 31, 2005 were as follows: Amount Percentage of Assets -------- -------------------- (Dollars in thousands) Tangible capital: Capital level $ 33,053 7.26% Less Requirement 6,991 1.50% -------- ---- Excess $ 26,062 5.76% ======== ==== Core capital: Capital level $ 33,053 7.26% Less Requirement 18,641 4.00% -------- ---- Excess $ 14,412 3.26% ======== ==== Risk-based capital: Capital level $ 37,019 11.67% Less Requirement 25,369 8.00% -------- ---- Excess $ 11,650 3.67% ======== ==== 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 2005 and 2004, principal payments, prepayments, and proceeds from sale of loans totaled $22.7 million and $26.5 million, respectively. The net increase in deposits during the first three months of 2005 and 2004 totaled $4.4 million and $10.2 million, respectively. The proceeds from borrowed funds during the three months ended March 31, 2005 and 2004 totaled $2.0 million and $0.0 million, respectively. The net increase in short term borrowings during the three months ended March 31, 2005 and 2004 totaled $4.2 million and $8.0 million, respectively. During the first three months of 2005 and 2004, the proceeds from the maturities, calls and sales of securities totaled $1.0 million and $0.8 million, respectively. Cash provided from operating activities during the first three months of 2005 and 2004 totaled $2.1 million and $1.6 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 2005 and 2004, the Company's gross purchases and origination of loans totaled $31.7 million and $44.3 million, respectively. The purchase of securities available-for-sale for the three months ended March 31, 2005 and 2004 totaled $0.5 million and $0.6 million, respectively. The repayment of borrowed funds during the first three months of 2005 and 2004 totaled $3.0 million and $6,000, 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, 2005, 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 did not repurchase any shares of common stock during the three months ended March 31, 2005. On January 6, 2005, the Company paid a quarterly cash dividend of $0.25 per share on common stock outstanding as of the close of business on December 15, 2004, aggregating $383,000. On February 28, 2005, the Company declared a quarterly cash dividend of $0.29 per share payable on April 7, 2005 to shareholders of record as of the close of business on March 16, 2005, aggregating $446,000. 9 RESULTS OF OPERATIONS Net Income. Net income decreased by $141,000 to $1,076,000 for the quarter ended March 31, 2005 compared to $1,217,000 for the same period in 2004. Net income is an aggregate of net interest income, noninterest income, noninterest expense and income tax expense. The decrease in net income was primarily due to a decrease in noninterest income and an increase in noninterest expense, offset in part by an increase in net interest income and a decrease in income tax expense. Net Interest Income. Net interest income before provision for loan losses increased by $155,000 to $3.44 million for the quarter ended March 31, 2005 from $3.28 million for the quarter ended March 31, 2004. The increase is primarily due to an increase in the average balance of interest-earning assets and a decrease in the average cost of funds, offset in part by a decrease in the yield on interest-earning assets and an increase in the average balance of interest- bearing liabilities. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.85% for the quarter ended March 31, 2005 from 2.97% for the quarter ended March 31, 2004. 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 repricing of interest-earning assets and interest-bearing liabilities at generally lower current market interest rates. Interest Income. Interest income increased by $235,000 to $6.34 million for the quarter ended March 31, 2005 compared to $6.10 million for the quarter ended March 31, 2004. 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 $34.4 million to $440.8 million for the quarter ended March 31, 2005, from $406.4 million for 2004. The average yield on interest-earning assets decreased to 5.76% for the quarter ended March 31, 2005 from 6.01% for the quarter ended March 31, 2004, primarily due to a general decrease in market interest rates compared to their original rates. The increase in the average balance of interest-earning assets primarily reflects increases in the average balances of first mortgage loans and consumer loans, offset in part by decreases in interest-bearing cash and due from banks and securities available-for-sale. 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 and multifamily residences and commercial real estate, 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, 2005. This reflects the Company's continued emphasis on real estate lending. The decrease in the average balance of securities available-for-sale were derived from payments and calls of securities, offset in part by purchases during the twelve months ended March 31, 2005. See "Financial Condition." Interest Expense. Interest expense increased by $79,000 to $2.90 million for the quarter ended March 31, 2005 compared to $2.82 million for the quarter ended March 31, 2004. The increase in interest expense was primarily due to an increase in the average balances of interest-bearing liabilities, offset in part by a decrease in the average cost of funds. The average balance of interest-bearing liabilities increased by $30.5 million to $403.8 million for the quarter ended March 31, 2005, from $373.3 million for the same period in 2004. The increase in the average balance of interest-bearing liabilities primarily reflects an increase in the average balances of NOW, money market, savings accounts and certificates of deposits. The increase in average interest- bearing deposits was primarily due to the Company's continued marketing efforts and the deposit activity associated with the Company's newest branches in Ankeny and Clive, Iowa. The average cost of funds decreased to 2.91% for the quarter ended March 31, 2005 from 3.04% for the quarter ended March 31, 2004, primarily due to an increase in the average balances of deposit products which have a lower average cost of funds compared to the overall cost of funds of the total interest-bearing liabilities. 10 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 months ended March 31, 2005 and 2004, respectively.
For the Three Months Ended March 31, ----------------------------------------------------------------------------------- 2005 2004 ----------------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Loans $ 410,459 $ 6,075 5.93% $ 369,982 $ 5,816 6.29% Securities available-for-sale 23,609 228 3.87 27,023 258 3.82 Interest-bearing cash 6,738 32 1.95 9,413 26 1.12 --------- ------- ------ --------- -------- ------ Total interest-earning assets 440,806 6,335 5.76% 406,418 6,100 6.01% ------- ------ -------- ------ Noninterest-earning assets 23,219 23,189 --------- --------- Total assets $ 464,025 $ 429,607 ========= ========= Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings $ 96,718 $ 239 1.00% $ 70,267 $ 85 0.49% Passbook savings 29,016 22 0.31 28,655 22 0.31 Certificates of deposit 181,832 1,539 3.43 177,973 1,620 3.66 Borrowed funds 96,212 1,096 4.62 96,356 1,090 4.55 --------- ------- ------ --------- -------- ------ Total interest-bearing liabilities 403,778 $ 2,896 2.91% 373,251 $ 2,817 3.04% ------- ------ -------- ------- Noninterest-bearing liabilities 18,145 14,504 --------- --------- Total liabilities 421,923 387,755 Equity 42,102 41,852 --------- --------- Total liabilities and equity $ 464,025 $ 429,607 ========= ========= Net interest income $ 3,439 $ 3,283 ======= ======== Net interest rate spread 2.85% 2.97% ====== ====== Net interest margin 3.12% 3.23% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 109.17% 108.89% ====== ======
Provision for Loan Losses. The Company's provision for loan losses was $50,000 and $60,000 for the quarters ended March 31, 2005 and 2004, 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 prior loss experience, industry standards, past due loans, economic conditions, the volume and type of loans in the Company's portfolio, and other factors related to the collectibility of the Company's loan portfolio. The Company's total loan portfolio increased $42.6 million, or 11.1%, from March 31, 2004 to March 31, 2005. This increase primarily consisted of increases in the one-to-four family, commercial and multifamily real estate loans. The Company's out of state loans increased $6.3 million, or 4.1%, from March 31, 2004 to March 31, 2005. 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 to improving. The net charge-offs were $25,000 for the quarter ended March 31, 2005 as compared to $32,000 for the quarter ended March 31, 2004. The resulting allowance for loan loss was $3.3 million and $3.2 million at March 31, 2005 and March 31, 2004, respectively. The allowance for loan losses as a percentage of total loans receivable decreased to 0.76% at March 31, 2005 from 0.83% at March 31, 2004. The level of nonperforming loans was $568,000 at March 31, 2005 and $250,000 at March 31, 2004. 11 RESULTS OF OPERATIONS (Continued) Management believes that the allowance for loan losses is adequate as of March 31, 2005. 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 decreased by $253,000, or 17.7%, to $1.18 million for the quarter ended March 31, 2005 from $1.43 million for the quarter ended March 31, 2004. The decrease is due primarily to the other-than- temporary impairment of securities available-for-sale and decreases in abstract fees, loan prepayment fees, other income, and mortgage banking income (gain on the sale of loans), offset in part by increases in fees and service charges. During the quarter ended March 31, 2005, the Company recorded an other-than-temporary impairment of $255,000 related to a $1.0 million face value, perpetual preferred stock that declined in value due to decreased interest rates. This perpetual preferred stock was issued by Federal Home Loan Mortgage Corporation ("Freddie Mac"). Its dividend rate reprices every five years, most recently at year end 2004. This perpetual preferred stock issue is an investment grade security that is held in the Company's available-for-sale securities portfolio. Abstract fees decreased $78,000 due to decreased sales volume as a result of a general decrease in real estate and refinancing activity. Other income, which primarily includes annuity and mutual fund sales, rent income, insurance sales, and income associated with foreclosed real estate, decreased $34,000 due to a decrease in income from annuity sales, offset in part by increases in income from securities commissions and foreclosed real estate. Mortgage banking income decreased $13,000 due primarily to a decrease in originations of loans held for sale. Fees and service charges increased $177,000 due primarily to an increase in fees associated with checking accounts, including overdraft fees. Noninterest Expense. Total noninterest expense increased by $76,000, or 2.6%, to $2.94 million for the quarter ended March 31, 2005 from $2.86 million for the quarter ended March 31, 2004. The increase is due to an increase in other expenses, offset in part by a decrease in premises and equipment expenses. Premises and equipment decreased $9,000 primarily due to a decrease in the rent expense associated with the temporary branch facilities in Clive in 2004. The Company's efficiency ratio for the quarter ended March 31, 2005 and 2004 was 63.64% and 60.72%, respectively. The Company's ratio of noninterest expense to average assets for the quarters ended March 31, 2005 and 2004 were 2.53% and 2.67%, respectively. Income Taxes. Income taxes decreased by $23,000 to $553,000 for the quarter ended March 31, 2005 as compared to $576,000 for the quarter ended March 31, 2004. The decrease was due to the decrease in pre-tax earnings, offset in part by the limited deductibility of the other-than-temporary impairment of securities available-for-sale. 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 are material to investors. CRITICAL ACCOUNTING POLICIES The "Management's Discussion and Analysis of Financial Condition and Results of Operations" and disclosures included within this report, are based on the Company's audited consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained in these statements is, for the most part, based on approximate measures of the financial effects of transactions and events that have already occurred. 12 RESULTS OF OPERATIONS (Continued) However, the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company's significant accounting policies are described in the Company's 2004 Annual Report on Form 10-K in the "Notes to Consolidated Financial Statements". Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified its most critical accounting policy to be that related to the allowance for loan losses, and asset impairment judgments, including the recoverability of goodwill. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio including timely identification of potential problem credits. On a quarterly basis, management reviews the appropriate level for the allowance for loan losses incorporating a variety of risk considerations, both quantitative and qualitative. Quantitative factors include the Company's historical loss experience, delinquency and charge-off trends, collateral values, known information about individual loans and other factors. Qualitative factors include the general economic environment in the Company's market area and the expected trend of those economic conditions. To the extent actual results differ from forecasts and management's judgment, the allowance for loan losses may be greater or less than future charge-offs. Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired in a purchase acquisition. Goodwill is tested for impairment at least annually. 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, 2004. 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. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no purchases made by or on behalf of the Company or any "affiliated 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, 2005. As of March 31, 2005, the Company had 18,650 shares that may yet be purchased under the Repurchase Plan approved April 2004, which provided for the repurchase of up to 100,000 shares of the Company's common stock. In January 2005, the Company approved a new Repurchase Plan which provides for the repurchase of up to 100,000 shares of the Company's Common Stock. At March 31, 2005, there are 118,650 shares which may be purchased under both the April 2004 and January 2005 repurchase plans. 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 Exhibits Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certifications Exhibit 32.1 Section 1350 Certifications 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH CENTRAL BANCSHARES, INC. DATE: May 13, 2005 BY: /s/ David M. Bradley -------------------- David M. Bradley, Chairman, President and Chief Executive Officer DATE: May 13, 2005 BY: /s/ David W. Edge ----------------- David W. Edge, Chief Financial Officer and Treasurer 15 EX-31 3 ncb-10qexhibit311_033105.txt EXHIBIT 31.1 CERTIFICATIONS Exhibit 31.1 Rule 13a-14(a)/15(d)-14(a) Certifications. CERTIFICATIONS I, David M. Bradley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of North Central Bancshares, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: May 13, 2005 /s/ David M. Bradley -------------------- David M. Bradley President and Chief Executive Officer CERTIFICATIONS I, David W. Edge, certify that: 1. I have reviewed this quarterly report on Form 10-Q of North Central Bancshares, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: May 13, 2005 /s/ David W. Edge ----------------- David W. Edge Chief Financial Officer and Treasurer EX-32 4 ncb-10qexhibit321_033105.txt EXHIBIT 32.1 SECTION 1350 CERTIFICATIONS Exhibit 32.1 Section 1350 Certifications. STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, David M. Bradley, is the President and Chief Executive Officer of North Central Bancshares, Inc. (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Form 10-Q for the first quarter ended March 31, 2005 (the "Report"). By execution of this statement, I certify that: A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), and B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. May 13, 2005 /s/ David M. Bradley - ------------ -------------------- Date David M. Bradley President and Chief Executive Officer STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, David W. Edge, is the Chief Financial Officer and Treasurer of North Central Bancshares, Inc. (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Form 10-Q for the first quarter ended March 31, 2005 (the "Report"). By execution of this statement, I certify that: A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), and B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. May 13, 2005 /s/ David W. Edge - ------------ ----------------- Dated David W. Edge Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----