10-Q 1 ncb-form10q_063005.txt FORM 10-Q 6-30-05 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 June 30, 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 July 31, 2005 -------------------------------------------------------------------------------- Common Stock, $.01 par value 1,534,340 NORTH CENTRAL BANCSHARES, INC. INDEX Page Part I. Financial Information Item 1. Consolidated Condensed Financial Statements (Unaudited) 1 to 3 Consolidated Condensed Statements of Financial Condition at June 30, 2005 and December 31, 2004 1 Consolidated Condensed Statements of Income for the three and six months ended June 30, 2005 and 2004 2 Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 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 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Item 4. Controls and Procedures 15 Part II. Other Information Items 1 through 6 16 & 17 Signatures 18 Exhibits PART I. FINANCIAL INFORMATION ITEM 1. NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
June 30, December 31, 2005 2004 ------------- ------------- ASSETS Cash and due from banks: Interest-bearing $ 7,109,063 $ 4,947,731 Noninterest-bearing 2,882,124 2,970,448 Securities available-for-sale 22,006,419 23,106,271 Loans receivable, net 423,003,593 407,316,318 Loans held for sale 815,679 904,127 Accrued interest receivable 2,013,973 1,953,605 Foreclosed real estate 819,146 1,079,257 Premises and equipment, net 10,822,964 9,889,737 Rental real estate 2,742,554 2,809,888 Title plant 925,256 925,256 Goodwill 4,970,800 4,970,800 Deferred taxes 735,059 1,102,612 Prepaid expenses and other assets 855,605 758,729 ------------- ------------- Total assets $ 479,702,235 $ 462,734,779 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $ 331,615,834 $ 316,333,731 Borrowed funds 100,457,193 100,974,695 Advances from borrowers for taxes and insurance 1,773,540 1,856,249 Dividends payable 446,263 382,632 Accrued expenses and other liabilities 1,879,575 1,653,266 ------------- ------------- Total liabilities 436,172,405 421,200,573 ------------- ------------- 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, 1,538,840; 2004, 1,530,530 shares; outstanding 2005, 1,534,340; 2004, 1,530,530 shares) 15,388 15,305 Additional paid-in capital 19,055,324 18,681,041 Retained earnings, substantially restricted 24,543,484 23,438,369 Accumulated other comprehensive gain (loss) 135,447 (519,309) Treasury stock at cost (171,900) -- Unearned shares, employee stock ownership plan (47,913) (81,200) ------------- ------------- Total stockholders' equity 43,529,830 41,534,206 ------------- ------------- Total liabilities and stockholders' equity $ 479,702,235 $ 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 Six Months Ended June 30, June 30, 2005 2004 2005 2004 -------------- ------------- ------------- ------------- Interest income: Loans receivable $ 6,323,968 $ 5,910,413 $ 12,398,505 $ 11,726,797 Securities and cash deposits 295,579 252,833 556,376 536,939 ------------- ------------- ------------- ------------- 6,619,547 6,163,246 12,954,881 12,263,736 ------------- ------------- ------------- ------------- Interest expense: Deposits 1,928,802 1,717,126 3,729,836 3,444,276 Borrowed funds 1,153,153 1,086,128 2,248,602 2,176,005 ------------- ------------- ------------- ------------- 3,081,955 2,803,254 5,978,438 5,620,281 ------------- ------------- ------------- ------------- Net interest income 3,537,592 3,359,992 6,976,443 6,643,455 Provision for loan losses 70,000 50,000 120,000 110,000 ------------- ------------- ------------- ------------- Net interest income after provision for loan losses 3,467,592 3,309,992 6,856,443 6,533,455 ------------- ------------- ------------- ------------- Noninterest income: Fees and service charges 990,435 825,971 1,820,978 1,530,204 Abstract fees 341,215 411,328 617,476 765,167 Provision for impairment on available-for- sale securities (424,500) -- (679,500) -- Mortgage banking income 75,723 73,653 116,411 127,634 Other income 297,150 320,769 583,252 640,574 ------------- ------------- ------------- ------------- Total noninterest income 1,280,023 1,631,721 2,458,617 3,063,579 ------------- ----------------- ------------- ------------- Noninterest expense: Compensation and employee benefits 1,606,525 1,491,378 3,185,204 3,073,703 Premises and equipment 354,369 351,439 704,348 710,428 Data processing 145,900 140,103 287,673 279,617 Other expenses 937,044 769,759 1,805,143 1,551,858 ------------- ------------- ------------- ------------- Total noninterest expense 3,043,838 2,752,679 5,982,368 5,615,606 ------------- ------------- ------------- ------------- Income before income taxes 1,703,777 2,189,034 3,332,692 3,981,428 Provision for income taxes 671,070 707,593 1,224,450 1,283,476 ------------- ------------- ------------- ------------- Net income $ 1,032,707 $ 1,481,441 $ 2,108,242 $ 2,697,952 ============= ============= ============= ============= Basic earnings per common share $ 0.67 $ 0.95 $ 1.38 $ 1.72 ============= ============= ============= ============= Earnings per common share - assuming dilution $ 0.65 $ 0.91 $ 1.34 $ 1.64 ============= ============= ============= ============= Dividends declared per common share $ 0.29 $ 0.25 $ 0.58 $ 0.50 ============= ============= ============= ============= Comprehensive income $ 1,450,537 $ 1,105,834 $ 2,762,998 $ 2,418,840 ============= ============= ============= ===============
See Notes to Consolidated Condensed Financial Statements. 2 NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 2005 2004 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,108,242 $ 2,697,952 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 120,000 110,000 Depreciation 403,374 428,939 Amortization and accretion 209,147 211,965 Deferred taxes (21,983) (43,131) Effect of contribution to employee stock ownership plan 132,742 198,594 (Gain) on sale of foreclosed real estate and loans, net (150,225) (162,969) Provision for impairment on available-for-sale securities 679,500 -- Loss on disposal of equipment and premises, net 26,796 2,718 Proceeds from sales of loans held for sale 8,250,937 9,156,254 Originations of loans held for sale (8,046,078) (9,513,281) Change in assets and liabilities: Accrued interest receivable (60,368) (18,278) Prepaid expenses and other assets (96,876) 98,040 Accrued expenses and other liabilities 226,309 511,426 -------------- -------------- Net cash provided by operating activities 3,781,517 3,678,229 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in loans 535,600 11,812,536 Purchase of loans (16,674,102) (41,670,703) Proceeds from sales of securities available-for-sale 609,200 744,500 Purchase of securities available-for-sale (659,300) (1,056,500) Proceeds from maturities of securities available-for-sale 1,494,431 2,093,295 Purchase of premises and equipment and rental real estate (1,296,063) (519,434) Other 436,318 311,171 --------------- --------------- Net cash (used in) investing activities (15,553,916) (28,285,135) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 15,282,103 18,568,041 Net (decrease) in advances from borrowers for taxes and insurance (82,709) (23,581) Net change in short-term borrowings (6,000,000) 4,500,000 Proceeds from other borrowed funds 12,000,000 5,000,000 Payments on other borrowings (6,517,502) (2,016,964) Purchase of treasury stock (295,052) (3,182,560) Dividends paid (819,583) (723,903) Issuance of common stock 278,150 969,878 -------------- -------------- Net cash provided by financing activities 13,845,407 23,090,911 -------------- -------------- Net increase (decrease) in cash 2,073,008 (1,515,995) CASH AND DUE FROM BANKS Beginning 7,918,179 10,018,573 -------------- -------------- Ending $ 9,991,187 $ 8,502,578 ============== ============== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash payments for: Interest paid to depositors $ 3,729,382 $ 3,347,774 Interest paid on borrowings 2,248,673 2,176,111 Income taxes 1,187,672 506,576
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 and six month periods ended June 30, 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 June 30, 2005, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,532,123 and 1,577,353, respectively. For the six-month period ended June 30, 2005, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,529,393 and 1,577,588, respectively. For the three-month period ended June 30, 2004, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,557,367 and 1,623,165, respectively. For the six-month period ended June 30, 2004, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,569,902 and 1,641,026, respectively. 3. DIVIDENDS On May 27, 2005, the Company declared a cash dividend on its common stock, payable on July 6, 2005 to stockholders of record as of June 15, 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 June 30, 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 and six months ended June 30, 2005 or June 30, 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 June 30, 2005 June 30, 2004 ------------- ------------- Net income, as reported $ 1,032,707 $ 1,481,441 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,264) (5,048) ----------- ----------- Pro forma net income $ 1,031,443 $ 1,476,393 =========== =========== Earnings per common share - basic: As reported $ 0.67 $ 0.95 Pro forma 0.67 0.95 Earnings per common share - assuming dilution: As reported $ 0.65 $ 0.91 Pro forma 0.65 0.91
Six Months Ended Six Months Ended June 30, 2005 June 30, 2004 ------------- ------------- Net income, as reported $ 2,108,242 $ 2,697,952 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (33,872) (42,906) ----------- ----------- Pro forma net income $ 2,074,370 $ 2,655,046 =========== =========== Earnings per common share - basic: As reported $ 1.38 $ 1.72 Pro forma 1.36 1.69 Earnings per common share - assuming dilution: As reported $ 1.34 $ 1.64 Pro forma 1.31 1.62
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 2.7% and 2.3%, price volatility of 15% and 20%, risk-free interest rates of 3.98% and 4.10%, and expected lives of 8 years for all periods. 6. RECENT ACCOUNTING PRONOUNCEMENTS. 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 5 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 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 $424,500 ($424,500 after-tax, or $0.27 per fully diluted share) related to two adjustable-rate, perpetual preferred stocks with a face value of $2,499,000. These perpetual preferred stocks were issued by Federal Home Loan Mortgage Corporation ("Freddie Mac"). These perpetual preferred stock issues are investment grade securities that are held in the Company's available-for-sale securities portfolio. The Company based the decision to record an other-than-temporary impairment charge on the facts and circumstances surrounding these two securities at this time, including the duration and amount of the unrealized loss in the securities, as well as the prospect for a change in market value within a reasonable period of time. The Company did not record an income tax benefit on this impairment amount. The Company's net income was $1.03 million, or $0.65 diluted earnings per share, for the quarter ended June 30, 2005, as compared to $1.48 million, or $0.91 diluted earnings per share, for the quarter ended June 30, 2004. Absent the impairment charge, the Company's net income was $1.46 million, or $0.92 diluted earnings per share for the quarter ended June 30, 2005. The Company's net income was $2.11 million, or $1.34 diluted earnings per share, for the six months ended June 30, 2005, as compared to $2.70 million, or $1.64 diluted earnings per share, for the six months ended June, 30, 2004. The reduction in earnings for the six months was due primarily to an other-than-temporary impairment, non-cash, after-tax charge of $653,500 on three Freddie Mac preferred stocks. Absent the impairment charge, the Company's net income was $2.76 million, or $1.75 diluted earnings per share for the six months ended June 30, 2005. 7 As of June 30, 2005, the Company owned two fixed rate perpetual preferred stock investments totaling $3.0 million in addition to the three Freddie Mac preferred stocks on which the Company has recorded impairments. These two fixed rate investments consist of a $2.0 million Freddie Mac preferred stock and a $1.0 million Fannie Mae preferred stock. As of June 30, 2005, the Company's financial statements included an unrealized gain of $200,000 relative to the $2.0 million Freddie Mac preferred stock and an unrealized loss of $20,000 relative to the $1.0 million Fannie Mae preferred stock. o The Bank continues to open new offices in market areas where population growth trends are positive. During the quarter the Company began designing a new branch office 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. This direct mail program is ongoing and is expected to result in a continued growth in core deposits and fee income. o Management believes that the allowance for loan losses is adequate. The allowance for loan losses to nonaccrual loans was 592.82% at June 30, 2005. Net annualized chargeoffs for 2005 were 0.04% of total loans and have averaged 0.04% of total loans for the past five years. During the six months ended June 30, 2005, the Company's net loan portfolio increased $15.7 million or 3.9%. A significant portion of this increase consisted of increases in the one-to-four family real estate loans and consumer loans. The Company's provision for loan losses for the three and six months ended June 30, 2005 was $70,000 and 120,000, respectively. 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 $17.0 million, or 3.7%, to $479.7 million at June 30, 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 $15.7 million, or 3.9%, to $423.0 million at June 30, 2005 from $407.3 million at December 31, 2004, primarily due to the origination of $37.3 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 $17.0 million; and originations of $12.7 million of second mortgage loans during the six months ended June 30, 2005. These originations and purchases were offset in part by payments and prepayments of $49.9 million and sales of loans of $8.1 million during the six months ended June 30, 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 $1.1 million, or 4.8%, to $22.0 million at June 30, 2005 from $23.1 million at December 31, 2004. Deposits increased $15.3 million, or 4.8%, to $331.6 million at June 30, 2005 from $316.3 million at December 31, 2004, primarily reflecting increases in certificates of deposit and money market accounts. The increase in deposits is due primarily to pricing strategies and continued marketing efforts. Borrowings, primarily FHLB advances, decreased $518,000, to $100.5 million at June 30, 2005 from $101.0 million at December 31, 2004. The Company utilized the increase in deposits to fund loans. Total shareholders' equity increased $2.0 million to $43.5 million at June 30, 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 and stock repurchases. 8 The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum tangible, leverage (core) and risk-based capital requirements. As of June 30, 2005, the Bank exceeded all of its regulatory capital requirements. The Bank's required, actual and excess capital levels as of June 30, 2005 were as follows: Amount Percentage of Assets ------ -------------------- (Dollars in thousands) Tangible capital: Capital level $ 34,265 7.21% Less Requirement 7,126 1.50% --------- -------- Excess $ 27,139 5.71% ========= ======== Core capital: Capital level $ 34,265 7.21% Less Requirement 19,002 4.00% --------- -------- Excess $ 15,263 3.21% ========= ======== Risk-based capital: Capital level $ 37,655 11.70% Less Requirement 25,752 8.00% --------- -------- Excess $ 11,903 3.70% ========= ======== 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 six months of 2005 and 2004, principal payments, prepayments, and proceeds from sale of loans totaled $58.0 million and $65.8 million, respectively. The net increase in deposits during the first six months of 2005 and 2004 totaled $15.3 million and $18.6 million, respectively. The proceeds from borrowed funds during the six months ended June 30, 2005 and 2004 totaled $12.0 million and $5.0 million, respectively. The net (decrease) increase in short term borrowings during the six months ended June 30, 2005 and 2004 totaled ($6.0) million and $4.5 million, respectively. During the first six months of 2005 and 2004, the proceeds from the maturities, calls and sales of securities totaled $2.1 million and $2.8 million, respectively. Cash provided from operating activities during the first six months of 2005 and 2004 totaled $3.8 million and $3.7 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 six months of 2005 and 2004, the Company's gross purchases and origination of loans totaled $73.0 million and $96.3 million, respectively. The purchase of securities available-for-sale for the six months ended June 30, 2005 and 2004 totaled $0.6 million and $1.1 million, respectively. The repayment of borrowed funds during the first six months of 2005 and 2004 totaled $6.5 million and $2.0 million, respectively. For additional information about cash flows from the Company's operating, financing and investing activities, see "Statements of Cash Flows in the Condensed Consolidated Financial Statements." The OTS regulations require the Company to maintain sufficient liquidity to ensure its safe and sound operation. The Company has a line of credit agreement in the amount of $3.0 million with an unaffiliated bank. As of June 30, 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 repurchased 7,740 shares of common stock during the six months ended June 30, 2005 at an average price of $38.12. On April 7, 2005, the Company paid a quarterly cash dividend of $0.29 per share on common stock outstanding as of the close of business on March 16, 2005, aggregating $446,000. On May 27, 2005, the Company declared a quarterly cash dividend of $0.29 per share payable on July 6, 2005 to shareholders of record as of the close of business on June 15, 2005, aggregating $446,000. 9 RESULTS OF OPERATIONS Net Income. Net income decreased by $448,000 to $1,033,000 for the quarter ended June 30, 2005 compared to $1,481,000 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 income decreased by $590,000 to $2,108,000 for the six months ended June 30, 2005 compared to $2,698,000 for the same period in 2004. Net income is primarily dependent on net interest income, noninterest income, noninterest expense and income tax expense. The decrease in net income was primarily due to 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 $178,000 to $3.54 million for the quarter ended June 30, 2005 from $3.36 million for the quarter ended June 30, 2004. The increase is primarily due to an increase in the average balance of interest-earning assets, offset in part by an increase in the average balance of interest-bearing liabilities, an increase in the average cost of funds and a decrease in the yield on interest-earning assets. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.88% for the quarter ended June 30, 2005 from 2.96% for the quarter ended June 30, 2004. The decrease in interest rate spread primarily reflects the general increase in the overall cost of interest-bearing liabilities. The increase in the cost of interest-bearing liabilities reflects repricing of interest-bearing liabilities at generally higher current market interest rates. Net interest income before provision for loan losses increased by $333,000 to $6.98 million for the six months ended June 30, 2005 from $6.64 million for the six months ended June 30, 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 2.87% for the six months ended June 30, 2005 from 2.97% for the six months ended June 30, 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 current market interest rates. Interest Income. Interest income increased by $456,000 to $6.62 million for the quarter ended June 30, 2005 compared to $6.16 million for the quarter ended June 30, 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 $32.3 million to $452.3 million for the quarter ended June 30, 2005, from $420.0 million for 2004. The average yield on interest-earning assets decreased to 5.85% for the quarter ended June 30, 2005 from 5.88% for the quarter ended June 30, 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, consumer loans and interest-bearing cash and due from banks, offset in part by a decrease in 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 June 30, 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 June 30, 2005. See "Financial Condition." Interest income increased by $691,000 to $12.95 million for the six months ended June 30, 2005 compared to $12.26 million for the six months ended June 30, 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 yield on interest earning assets decreased to 5.81% for the six 10 RESULTS OF OPERATIONS (Continued) months ended June 30, 2005 from 5.94% for the six months ended June 30, 2004, primarily due to the repricing of interest-earning assets at lower current market interest rates. The average balance of interest earning assets increased $33.4 million to $446.6 million for the six months ended June 30, 2005, from $413.2 million for 2004. The increase in the average balance of interest earning assets primarily reflects increases in the average balances of first mortgage loans, offset in part by decreases in interest bearing cash and due from banks 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, purchases of first mortgage loans secured by one-to-four family residences, 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 June 30, 2005. This reflects the Company's continued emphasis on residential 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 June 30, 2005. See "Financial Condition." Interest Expense. Interest expense increased by $279,000 to $3.08 million for the quarter ended June 30, 2005 compared to $2.80 million for the quarter ended June 30, 2004. The increase in interest expense was due to an increase in the average balances of interest-bearing liabilities and an increase in the average cost of funds. The average balance of interest-bearing liabilities increased by $29.2 million to $415.8 million for the quarter ended June 30, 2005, from $386.6 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, certificates of deposits and borrowed funds. The increase in average interest-bearing deposits was primarily due to the Company's continued marketing efforts and pricing strategies. The average cost of funds increased to 2.97% for the quarter ended June 30, 2005 from 2.92% for the quarter ended June 30, 2004, primarily due to an increase in the current market interest rates. Interest expense increased by $358,000 to $5.98 million for the six months ended June 30, 2005 compared to $5.62 million for the six months ended June 30, 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 cost of funds decreased to 2.94% for the six months ended June 30, 2005 from 2.97% for the six months ended June 30, 2004, primarily due to the repricing of certificates of deposits at lower current market interest rates. The average balance on interest-bearing liabilities increased by $30.2 million to $410.3 million for the six months ended June 30, 2005, from $380.1 million for the six months ended June 30, 2004. The increase in the average balance of interest-bearing liabilities primarily reflects an increase in the average balance of NOW, money market, certificates of deposit and borrowed funds. The increase in average interest-bearing deposits was primarily due to the Company's marketing efforts and pricing strategies. The increase in interest bearing liabilities was primarily used to fund loans. 11 RESULTS OF OPERATIONS (Continued) The following table sets forth certain information relating to the Company's average balance sheets and reflects the average yield on assets and average cost of liabilities for the three and six months ended June 30, 2005 and 2004, respectively.
For the Three Months Ended June 30, --------------------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Loans $ 422,318 $ 6,324 5.99% $ 386,949 $ 5,910 6.12% Securities available-for-sale 22,878 252 4.41 25,939 232 3.58 Interest-bearing cash 7,126 44 2.44 7,072 21 1.17 --------- --------- ------- --------- --------- ------- Total interest-earning assets 452,322 6,620 5.85% 419,960 6,163 5.88% --------- ------- --------- ------- Noninterest-earning assets 23,146 23,430 --------- --------- Total assets $ 475,468 $ 443,390 ========= ========= Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings $ 98,072 $ 268 1.09% $ 76,339 $ 117 0.62% Passbook savings 29,716 23 0.31 29,876 23 0.31 Certificates of deposit 186,782 1,638 3.52 182,811 1,577 3.47 Borrowed funds 101,215 1,153 4.57 97,618 1,086 4.48 --------- --------- ------- --------- --------- ------- Total interest-bearing liabilities 415,785 $ 3,082 2.97% 386,644 $ 2,803 2.92% --------- ------- --------- ------- Noninterest-bearing liabilities 16,560 15,303 --------- --------- Total liabilities 432,345 401,947 Equity 43,123 41,443 --------- --------- Total liabilities and equity $ 475,468 $ 443,390 ========= ========= Net interest income $ 3,538 $ 3,360 ======== ======== Net interest rate spread 2.88% 2.96% ======= ======= Net interest margin 3.13% 3.20% ======= ======= Ratio of average interest-earning assets to average interest-bearing liabilities 108.79% 108.62% ======= =======
For the Six Months Ended June 30, --------------------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Loans $ 416,389 $ 12,398 5.96% $ 378,465 $ 11,726 6.20% Securities available-for-sale 23,243 481 4.14 26,481 490 3.70 Interest-bearing cash 6,932 76 2.20 8,243 47 1.14 --------- --------- ------- --------- --------- -------- Total interest-earning assets 446,564 12,955 5.81% 413,189 $ 12,263 5.94% --------- ------- --------- --------- Noninterest-earning assets 23,183 23,310 --------- --------- Total assets $ 469,747 $ 436,499 ========= ========= Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings $ 97,395 $ 507 1.05% $ 73,303 $ 203 0.56% Passbook savings 29,367 46 0.31 29,266 45 0.31 Certificates of deposit 184,307 3,177 3.48 180,392 3,196 3.56 Borrowed funds 99,215 2,249 4.57 97,153 2,176 4.50 --------- --------- ------- --------- --------- -------- Total interest-bearing liabilities 410,284 $ 5,979 2.94% 380,114 $ 5,620 2.97% --------- ------- --------- -------- Noninterest-bearing liabilities 16,850 14,738 --------- --------- Total liabilities 427,134 394,852 Equity 42,613 41,647 --------- --------- Total liabilities and equity $ 469,747 $ 436,499 ========= ========= Net interest income $ 6,976 $ 6,643 ======== ========= Net interest rate spread 2.87% 2.97% ======= ======== Net interest margin 3.12% 3.22% ======= ======== Ratio of average interest-earning assets to average interest-bearing liabilities 108.84% 108.70% ======= ========
12 RESULTS OF OPERATIONS (Continued) Provision for Loan Losses. The Company's provision for loan losses was $70,000 and $50,000 for the quarters ended June 30, 2005 and 2004, respectively. The Company's provision for loan losses was $120,000 and $110,000 for the six months ended June 30, 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 $35.7 million, or 9.0%, from June 30, 2004 to June 30, 2005. This increase primarily consisted of increases in the one-to-four family real estate loans. The Company's out of state loans decreased $5.4 million, or 3.4%, from June 30, 2004 to June 30, 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. The net charge-offs were $88,000 for the six months ended June 30, 2005 as compared to $44,000 for the six months ended June 30, 2004. The resulting allowance for loan loss was $3.3 million and $3.2 million at June 30, 2005 and June 30, 2004, respectively. The allowance for loan losses as a percentage of total loans receivable decreased to 0.75% at June 30, 2005 from 0.81% at June 30, 2004. The level of nonperforming loans was $551,000 at June 30, 2005 and $561,000 at June 30, 2004. Management believes that the allowance for loan losses is adequate as of June 30, 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 $352,000, or 21.6%, to $1.28 million for the quarter ended June 30, 2005 from $1.63 million for the quarter ended June 30, 2004. The decrease is due primarily to the other-than-temporary impairment of securities available-for-sale and decreases in abstract fees and other income, offset in part by increases in fees and service charges. During the quarter ended June 30, 2005, the Company recorded an other-than-temporary impairment of $424,500 related to two adjustable rate, perpetual preferred stocks with a face value of $2,499,000. These perpetual preferred stocks were issued by Freddie Mac. These perpetual preferred stock issues are investment grade securities that are held in the Company's available-for-sale securities portfolio. Abstract fees decreased $70,000 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 $24,000 due primarily to a decrease in income from foreclosed real estate and annuity sales. Fees and service charges increased $164,000 due primarily to an increase in fees associated with checking accounts, including overdraft fees, offset in part by a decrease in loan prepayment fees. Total noninterest income decreased by $605,000, or 19.7%, to $2.5 million for the six months ended June 30, 2005 from $3.1 million for the six months ended June 30, 2004. The decrease is due primarily to the other-than-temporary impairment of securities available-for-sale and decreases in abstract fees and other income, offset in part by increases in fees and service charges. During the six months ended June 30, 2005, the Company recorded an other-than-temporary impairment of $679,500 related to three adjustable rate, perpetual preferred stocks with a face value of $3,499,000. These perpetual preferred stocks were issued by Freddie Mac. These perpetual preferred stock issues are investment grade securities that are held in the Company's available-for-sale securities portfolio. Abstract fees decreased $148,000 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 $57,000 due primarily to a decrease in income from foreclosed real estate and annuity sales. Fees and service charges increased $291,000 due primarily to an increase in fees associated with checking accounts, including overdraft fees, offset in part by a decrease in loan prepayment fees. 13 RESULTS OF OPERATIONS (Continued) Noninterest Expense. Total noninterest expense increased by $291,000, or 10.6%, to $3.04 million for the quarter ended June 30, 2005 from $2.75 million for the quarter ended June 30, 2004. The increase is due to an increase in other expenses and compensation expense. The Company's efficiency ratio for the quarter ended June 30, 2005 and 2004 was 63.18% and 55.14%, respectively. The Company's ratio of noninterest expense to average assets for the quarters ended June 30, 2005 and 2004 were 2.56% and 2.48%, respectively. Total noninterest expense increased by $367,000 to $6.0 million for the six months ended June 30, 2005 from $5.6 million for the six months ended June 30, 2004. The increase is primarily due to an increase in compensation and other expenses. The Company's efficiency ratio for the six months ended June 30, 2005 and 2004 was 63.41% and 57.85%, respectively. The Company's ratio of noninterest expense to average assets for the six months ended June 30, 2005 and 2004 were 2.55% and 2.57%, respectively. Income Taxes. Income taxes decreased by $37,000 to $671,000 for the quarter ended June 30, 2005 as compared to $708,000 for the quarter ended June 30, 2004. The decrease was due to the decrease in pre-tax earnings, offset in part by the lack of deductibility of the other-than-temporary impairment of securities available-for-sale. Income taxes decreased by $59,000 to $1.2 million for the six months ended June 30, 2005 as compared to $1.3 million for the six months ended June 30, 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 is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company's off-balance sheet arrangements have occurred since December 31, 2004. 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 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. 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 14 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. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds As of April 23, 2005, the Company had 18,650 shares that expired to 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 June 30, 2005, there are 92,260 shares which may be purchased under the January 2005 repurchase plan. The following table provides information with respect to 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 June 30, 2005.
Total Number of Maximum Number of Shares Purchased as Shares that May Yet Total Number of Average Price Paid Part of Publicly Be Purchased Under Period Shares Purchased Per Share Announced Plans The Plan ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- April 1, 2005 to April 30, 2005 -- -- -- 100,000 May 1, 2005 to May 31, 2005 3,240 $38.01 3,240 96,760 June 1, 2005 to June 30, 2005 4,500 $38.20 4,500 92,260 -------- -------- Total 7,740 7,740
Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders The Company held its 2005 Annual Meeting of Stockholders on April 22, 2005. All proposals submitted to stockholders at the meeting were approved. At the meeting, the stockholders of the Company considered and voted upon the following matters: 1. The election of the following individuals as directors for a three-year term: Mark M. Thompson Paul F. Bognanno The results of the election of directors are as follows: FOR WITHHELD Mark M. Thompson 1,376,395 5,441 Paul F. Bognanno 1,370,829 11,007 There were no broker non-votes or abstentions on this proposal. 16 The following directors' terms of office continued after the meeting: David M. Bradley Robert H. Singer, Jr. Melvin R. Schroeder Randall L. Minear C. Thomas Chalstrom 2. The ratification of the engagement of McGladrey & Pullen LLP, as the Company's independent auditors for the 2005 fiscal year, was approved by a vote of 1,371,729 in favor, 6,538 votes against and 3,569 votes abstained. There were no broker non-votes on this proposal. 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 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTH CENTRAL BANCSHARES, INC. DATE: August 12, 2005 BY: /s/ David M. Bradley ------------------------------------------ David M. Bradley, Chairman, President and Chief Executive Officer DATE: August 12, 2005 BY: /s/ David W. Edge ------------------------------------------ David W. Edge, Chief Financial Officer and Treasurer 18