-----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, Qls2fUMN/59WN5p0NfgK6ufcypbn6CvjoFFQJQezAWfTSXLdgNTPq/Dtkm2HY2N7 gO5IYiufgfsQ2XaHRy5nXg== 0000950131-99-006255.txt : 19991115 0000950131-99-006255.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950131-99-006255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: SEC FILE NUMBER: 000-27672 FILM NUMBER: 99749431 BUSINESS ADDRESS: STREET 1: 825 CENTRAL AVE STREET 2: C/O FIRST FED SAVINGS BANK OF FT DODGE CITY: FORT DODGE STATE: I0 ZIP: 50501 BUSINESS PHONE: 5155767531 MAIL ADDRESS: STREET 1: 825 CENTRAL AVENUE CITY: FORT DODGE STATE: IA ZIP: 50501 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------------------- FORM 10-Q [Mark One] [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ Commission File Number 0-27672 NORTH CENTRAL BANCSHARES, INC. (Exact name of registrant as specified in its charter) Iowa 42-1449849 ---------------------------------------------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification Number) 825 Central Avenue Fort Dodge, Iowa 50501 -------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (515)576-7531 None - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 12, 1999 - -------------------------------------------------------------------------------- Common Stock, $.01 par value 2,322,242 NORTH CENTRAL BANCSHARES, INC. INDEX
Page Part I. Financial Information Item 1. Consolidated Condensed Financial Statements (Unaudited) 1 to 4 Consolidated Condensed Statements of Financial Condition at September 30, 1999 (Unaudited) and December 31, 1998 1 Consolidated Condensed Statements of Income for the three and nine months ended September 30, 1999 and 1998 (Unaudited) 2 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (Unaudited) 3 & 4 Notes to Consolidated Condensed Financial Statements 5 & 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 to 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 Part II. Other Information 17 & 18 Items 1 through 5 17 Signatures 18 Exhibits
PART 1. FINANCIAL INFORMATION ITEM 1. NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31, ASSETS 1999 1998 ------------- ------------ (Unaudited) Cash: Interest-bearing $ 3,766,123 $ 13,201,437 Noninterest-bearing 3,977,996 2,435,439 Securities available for sale 50,460,734 49,882,544 Loans receivable, net 281,475,653 254,032,497 Loans held for sale 548,031 1,681,017 Accrued interest receivable 2,016,523 1,933,237 Foreclosed real estate 301,803 186,931 Premises and equipment, net 5,132,945 3,616,438 Rental real estate 1,871,059 1,945,851 Title plant 925,256 925,256 Goodwill 6,033,454 6,387,671 Deferred taxes 678,078 13,490 Prepaid expenses and other assets 706,945 448,331 ------------ ------------ Total assets $357,894,600 $336,690,139 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $260,651,576 $246,690,313 Other borrowed funds 56,244,069 38,832,239 Advances from borrowers for taxes and insurance 496,855 1,066,025 Dividend payable 239,954 237,133 Income taxes payable 179,823 199,224 Accrued expenses and other liabilities 821,699 1,458,391 ------------ ------------ Total liabilities 318,633,976 288,483,325 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock ($.01 par value, authorized 3,000,000 shares, issued and outstanding none) -- -- Common Stock ($.01 par value, authorized 15,500,000 shares; issued and outstanding 4,011,057) 40,111 40,111 Additional paid-in capital 38,247,105 38,135,817 Retained earnings, substantially restricted 29,525,119 27,084,907 Accumulated other comprehensive income-unrealized gain (loss) on securities available for sale, net of income taxes (540,932 ) 358,666 Treasury stock at cost (1,653,815 and 1,046,608 shares, respectively) (27,139,113 ) (16,399,403) Unearned shares, employee stock ownership plan (871,666 ) (1,013,284) ------------ ------------ Total stockholders' equity 39,260,624 48,206,814 ------------ ------------ Total liabilities and stockholders' equity $357,894,600 $336,690,139 ============ ============
See Notes to Consolidated Condensed Financial Statements. -1- NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30, 1999 1998 1999 1998 ----------- ------------ ------------ ----------------- Interest income: Loans receivable $5,307,629 $5,212,578 $15,574,150 $15,118,419 Securities and cash deposits 821,758 832,371 2,526,727 2,441,673 ---------- ---------- ----------- ----------- 6,129,387 6,044,949 18,100,877 17,560,092 ---------- ---------- ----------- ----------- Interest expense: Deposits 2,814,579 2,830,448 8,165,869 8,044,700 Other borrowed funds 576,085 487,464 1,659,539 1,436,707 ---------- ---------- ----------- ----------- 3,390,664 3,317,912 9,825,408 9,481,407 ---------- ---------- ----------- ----------- Net Interest Income 2,738,723 2,727,037 8,275,469 8,078,685 Provision for loan losses 30,000 60,000 90,000 180,000 ---------- ---------- ----------- ----------- Net interest income after provision for loan losses 2,708,723 2,667,037 8,185,469 7,898,685 ---------- ---------- ----------- ----------- Noninterest income: Fees and service charges 378,799 335,294 1,074,152 884,692 Abstract fees 371,844 398,974 1,098,000 1,161,535 Gain (loss) on sale of securities available for sale, net 29,575 (3,491) 61,564 51,362 Other income 348,467 298,413 870,099 692,417 ---------- ---------- ----------- ----------- Total noninterest income 1,128,685 1,029,190 3,103,815 2,790,006 ---------- ---------- ----------- ----------- Noninterest expense: Salaries and employee benefits 1,033,039 916,321 3,013,023 2,560,557 Premises and equipment 235,859 222,793 658,823 557,522 Data processing 111,122 181,001 408,237 400,834 SAIF deposit insurance premiums 35,621 37,249 109,269 107,173 Goodwill amortization 118,072 120,850 354,217 317,189 Other expenses 593,997 537,823 1,795,753 1,573,559 ---------- ---------- ----------- ----------- Total noninterest expense 2,127,710 2,016,037 6,339,322 5,516,834 ---------- ---------- ----------- ----------- Income before income taxes 1,709,698 1,680,190 4,949,962 5,171,857 Provision for income taxes 622,193 605,972 1,730,820 1,875,847 ---------- ---------- ----------- ----------- Net Income $1,087,505 $1,074,218 $ 3,219,142 $ 3,296,010 ========== ========== =========== =========== Basic earnings per common share $ 0.44 $ 0.36 $ 1.20 $ 1.07 ========== ========== =========== =========== Diluted earnings per common share $ 0.43 $ 0.35 $ 1.18 $ 1.04 ========== ========== =========== =========== Dividends declared per common share $ 0.10 $ 0.08 $ 0.30 $ 0.24 ========== ========== =========== ===========
See Notes to Consolidated Condensed Financial Statements. -2- NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,219,142 $ 3,296,010 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 90,000 180,000 Depreciation 410,285 319,591 Amortization and accretion 431,790 381,805 Deferred taxes (126,152) (179,096) Effect of contribution to employee stock ownership plan 252,907 317,757 (Gain) on sale of foreclosed real estate and loans, net (28,742) (10,714) (Gain) on sale of securities available for sale (61,564) (51,362) Loss on sale and disposal of equipment, net 13,653 2,545 Change in assets and liabilities: (Increase) decrease in accrued interest receivable (83,286) 194,374 (Increase) decrease in prepaid expenses and other assets (258,614) 211,186 (Decrease) in income taxes payable (19,401) (55,860) (Decrease) increase in accrued expenses and other liabilities (636,692) 9,808 ------------ ------------ Net cash provided by operating activities 3,203,326 4,616,044 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in loans 8,465,153 11,515,288 Net (increase) decrease in loans held for sale 1,132,986 (2,527,186) Purchase of loans (36,004,744) (20,477,978) Proceeds from sales of securities available-for-sale 438,915 23,911,786 Purchase of securities available-for-sale (17,088,919) (13,655,875) Proceeds from maturities of securities available-for-sale 14,538,863 -- Purchase of premises and equipment and rental real estate (1,869,396) (577,212) Proceeds from sale of equipment 3,743 30 Purchase of rental real estate -- (735) Cash paid in connection with acquisition of Valley Financial Corporation, net of cash received -- (8,561,493) Other (787) 78,703 ------------ ------------ Net cash (used in) investing activities (30,384,186) (10,294,672) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 13,961,263 5,273,366 (Decrease) in advances from borrowers for taxes and insurance (569,170) (780,119) Net change in short term borrowings 14,500,000 250,000 Proceeds from other borrowed funds 6,000,000 14,542,000 Payments of other borrowings (3,088,170) (6,254,241) Purchase of treasury stock (10,739,710) (3,584,419) Dividends paid (776,110) (689,644) Other -- 6,239 ------------ ------------ Net cash provided by financing activities 19,288,103 8,763,182 ------------ ------------ Net increase (decrease) in cash (7,892,757) 3,084,554 CASH Beginning 15,636,876 3,445,163 ------------ ------------ Ending $ 7,744,119 $ 6,529,717 ============ ============
(Continued) -3-
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash payments for: Interest paid to depositors $ 8,229,094 $ 7,973,289 Interest paid on borrowings 1,656,694 1,436,432 Income taxes 1,876,373 2,088,987
The following is a summary of the assets acquired and liabilities assumed in connection with the acquisition of Valley Financial Corporation
Cash $ 6,157,507 Securities 41,818,057 Loans 58,567,364 Accrued interest receivable 1,019,373 Premises and equipment 1,081,890 Goodwill 6,565,174 Prepaid expenses and other assets 209,906 Deposits (99,261,995) Advances from borrowers for taxes and insurance (301,783) Deferred income taxes (300,030) Accrued taxes payable 12,565 Accrued expenses and other liabilities (849,028) ------------ Cash Paid $ 14,719,000 Less Cash Received 6,157,507 ------------ Cash Paid, net of cash received $ 8,561,493 ============
See Notes to Consolidated Condensed Financial Statements -4- ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES 1. SIGNIFICANT ACCOUNTING POLICIES The consolidated condensed financial statements for the three and nine month periods ended September 30, 1999 and 1998 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 1998 Annual Report on Form 10-K. The consolidated condensed financial statements include the accounts of the Company and its wholly-owned subsidiaries (See Note 2). All significant intercompany balances and transactions have been eliminated in consolidation. 2. REORGANIZATION The Company was organized on December 5, 1995 at the direction of the Board of Directors of First Federal Savings Bank of Iowa, formerly known as First Federal Savings Bank of Fort Dodge (the "Bank"), for the purpose of acquiring all of the capital stock of the Bank, in connection with the conversion of the Bank and North Central Bancshares, M.H.C. (the "Mutual Holding Company" or "MHC") from the mutual to the stock holding company structure (these transactions are collectively referred to as the "Reorganization"). On March 20, 1996, upon completion of the Reorganization, the Company issued an aggregate of 4,011,057 shares of its common stock, 1,385,590 shares of which were issued in exchange for all of the Bank's issued and outstanding shares, except for shares owned by the MHC which were canceled, and 2,625,467 shares of which were sold in Subscription and Community Offerings (the "Offering") at a price of $10.00 per share, with gross proceeds amounting to $26.3 million. In addition, the Company replaced the Bank as the issuer listed on The Nasdaq Stock Market. At this time, the Company conducts business as a unitary savings and loan holding company and the principal business of the Company consists of the operation of its wholly-owned subsidiary, the Bank. 3. ACQUISITION OF VALLEY FINANCIAL CORP. As of the close of business on January 30, 1998, the Bank completed the acquisition of Valley Financial Corp. ("Valley Financial") (the "Acquisition") pursuant to an Agreement and Plan of Merger, dated as of September 18, 1997 (the "Merger Agreement"). The Acquisition resulted in the merger of Valley Financial's wholly-owned subsidiary, Valley Savings Bank, FSB ("Valley Savings"), with and into the Bank, with the Bank as the resulting financial institution. Valley Savings, headquartered in Burlington, Iowa, was a federally-chartered stock savings bank with three branch offices located in southeastern Iowa. In connection with the Acquisition, each share of Valley Financial's common stock, par value $1.00 per share, issued and outstanding (other than shares held as treasury stock of Valley Financial) was canceled and converted automatically into the right to receive $525 per share in cash pursuant to the terms and conditions of the Merger Agreement. As a result of the Acquisition, shareholders of Valley Financial were paid a total of $14.7 million in cash. The Acquisition was accounted for as a purchase transaction, resulting in goodwill of $6.6 million. The operating results of the former offices of Valley Savings are included in the 1998 operating results of the Company only from the date of acquisition through September 30, 1998. -5- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)(Continued) 4. 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 the Bank's Employee Stock Ownership Plan that have not been committed to be released are not considered to be outstanding for the purpose of computing earnings per share. For the three month period ended September 30, 1999, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 2,463,982 and 2,524,721, respectively. For the nine month period ended September 30, 1999, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 2,679,297 and 2,739,582, respectively. For the three month period ended September 30, 1998, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 2,996,571 and 3,070,727, respectively. For the nine month period ended September 30, 1998, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 3,081,083 and 3,174,142, respectively. 5. DIVIDENDS On August 27, 1999, the Company declared a cash dividend on its common stock, payable on October 6, 1999 to stockholders of record as of September 16, 1999, equal to $0.10 per share. 6. COMPREHENSIVE INCOME Comprehensive income for the three months ended September 30, 1999 and 1998 was $890,815 and $1,134,724, respectively. Comprehensive income for the nine months ended September 30, 1999 and 1998 was $2,280,943 and $3,312,687, respectively. -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 financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include changes in general, economic, market, legislative and regulatory conditions, and the development of an interest rate environment that adversely affects the interest rate spread or other income anticipated from the Company's operations and investments. The Company's actual results may differ from the results discussed in the forward looking statements. ACQUISITION OF VALLEY FINANCIAL CORP. On September 18, 1997, the Company announced the execution of a definitive agreement to acquire Valley Financial, a privately held Iowa corporation and parent company of Valley Savings, Burlington, Iowa. As of the close of business on January 30, 1998, the Bank completed the Acquisition. Under the terms of the Merger Agreement, the Bank acquired in a cash transaction totalling $14.7 million, or $525 per share, all of the 28,050 shares outstanding of Valley Financial's common stock. Valley Savings was a federally-chartered savings bank, with two offices in Burlington, Iowa and one office in Mount Pleasant, Iowa. At January 30, 1998, just prior to the merger, Valley Financial had assets of $108.0 million, loans of $57.9 million and deposits of $98.9 million. The acquisition of Valley Financial resulted in the merger of Valley Financial's wholly-owned subsidiary, Valley Savings, with and into the Bank. The transaction was accounted for as a purchase, resulting in goodwill of $6.6 million, and closed on January 30, 1998. Consequently, the operating results of the former Valley Savings are included in the 1998 operating results of the Company only from the date of acquisition through September 30, 1998. FINANCIAL CONDITION Total assets increased $21.2 million, or 6.3%, to $357.9 million at September 30, 1999 compared to $336.7 million at December 31, 1998. Cash decreased $7.9 million, or 50.5%, due to the use of cash to fund growth in other areas of the balance sheet. Securities available for sale increased $578,000, or 1.2%, primarily due to $16.9 million of purchases, partially offset by $14.9 million of maturities, sales and calls and a decrease in the gross unrealized gain of $1.4 million. Total loans receivable, net, increased by $27.4 million from December 31, 1998, due to originations of $32.3 million of first mortgage loans secured primarily by one-to-four family residences, purchases of $36.0 million of first mortgage loans secured by multi-family residences, one-to-four family residences and commercial real estate and originations of $12.3 million of second mortgage loans. These increases were offset in part by payments and prepayments of loans (of approximately $58.4 million) and loan sales of $475,000. Deposits increased $14.0 million, or 5.7%, to $260.7 million at September 30, 1999 from $246.7 million at December 31, 1998, reflecting increases primarily in certificate of deposit accounts. This increase was due primarily to deposits of certain public funds and the marketing of retail certificate of deposits during the nine months ended September 30, 1999. Other borrowings, primarily Federal Home Loan Bank ("FHLB") advances, increased by $17.4 million to $56.2 million at September 30, 1999 from $38.8 million at December 31, 1998, due to borrowings on the Bank's FHLB open line of credit and through fixed term advances, offset in part by the maturities of certain FHLB advances. Total stockholders' equity decreased $8.9 million, to $39.3 million at September 30, 1999 from $48.2 million at December 31, 1998. See "Capital." -7- CAPITAL The Company's total stockholders' equity decreased by $8.9 million to $39.3 million at September 30, 1999 from $48.2 million at December 31, 1998, primarily due to stock repurchases and dividends declared, which were offset in part by earnings. The changes in stockholders' equity were also due to an decrease in the unrealized (gain) loss on securities available for sale by $900,000 to $541,000 at September 30, 1999 from $(359,000) at December 31, 1998. The unearned shares from the Employee Stock Ownership Plan (the "ESOP") decreased by $142,000 to $872,000 at September 30, 1999 from $1,013,000 at December 31, 1998, due to the release of shares by the ESOP to employees of the Bank. The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum tangible, leverage (core) and risk-based capital requirements. As of September 30, 1999, the Bank exceeded all of its regulatory capital requirements. The Bank's required, actual and excess capital levels as of September 30, 1999 are as follows:
Amount Percentage of Assets -------- --------------------- (dollars in thousands) Tangible capital: Capital level $30,721 8.76% Less Requirement 5,260 1.50% ------- ----- Excess $25,461 7.26% ======= ===== Core capital: Capital level $30,721 8.76% Less Requirement 14,028 4.00% ------- ----- Excess $16,693 4.76% ======= ===== Risk-based capital: Capital level $33,198 17.22% Less Requirement 15,425 8.00% ------- ----- Excess $17,773 9.22% ======= =====
LIQUIDITY The Company's primary sources of funds are cash provided by operating activities (including net income), certain financing activities (including increases in deposits and proceeds from borrowings) and certain investing activities (including principal payments on loans and maturities and calls of securities). During the first nine months of 1999 and 1998, principal payments and repayments on loans totalled $58.4 million and $53.3 million, respectively. The increase in loan payments and repayments is due primarily to the interest rate environment. The net increase in deposits during the first nine months of 1999 and 1998 totalled $14.0 million and $5.3 million, respectively. The proceeds from borrowed funds during the first nine months ended September 30, 1999 and 1998 totalled $20.5 million and $14.8 million, respectively. During the first nine months of 1999 and 1998, the proceeds from the maturities, calls and sales of securities totalled $14.9 million and $23.9 million, respectively. The decrease in proceeds from securities is due in part to the proceeds from the sales of certain investments, including investments acquired as a part of the Acquisition, in 1998 of $4,446,000 compared to proceeds of $439,000 in 1999. Cash provided from operating activities during the first nine months of 1999 and 1998 totalled $3.2 million and $4.6 million, respectively, of which $3.2 million and $3.3 million, respectively, represented net income of the Company. The Company's primary use of funds is cash used to originate and purchase loans, purchase of securities available for sale, repayment of borrowed funds and other financing activities. During the first nine months of 1999 and 1998, the Company's gross purchases and origination of loans totalled $87.3 million and $66.1 million, respectively. The increase in purchase and origination of loans is due to the expansion of our geographic area for the purchase of loans and an increase in the marketing of our originated loan products during the nine months ended September 30, 1999. The purchase of securities available for sale for the nine months ended September 30, 1999 and 1998 totalled $17.1 million and $13.7 million, respectively. The repayment of borrowed funds during the first nine months of 1999 and 1998 totalled $3.1 million and $6.3 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." -8- The Bank is required to maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, specified United States Government, state or federal agency obligations, shares of certain mutual funds and certain corporate debt securities and commercial paper) in each calendar quarter of not less than four percent of either (1) the liquidity base at the end of the preceding quarter, or (2) the average daily balance of the liquidity base during the preceding quarter equal to a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. This liquidity requirement may be changed from time to time by the OTS to any amount within the range of 4.0% to 10%, depending upon economic conditions and the savings flows of member institutions. Currently, it is 4.0%. Monetary penalties may be imposed for failure to meet these liquidity requirements. At September 30, 1999, the Bank's liquidity position was $38.3 million, or 14.3%, of liquid assets, compared to $45.7 million, or 17.6%, at December 31, 1998. Stockholders' equity totaled $39.3 million at September 30, 1999 compared to $48.2 million at December 31, 1998, reflecting the Company's stock repurchases, earnings for the quarter, the amortization of the unallocated portion of shares held by the ESOP, dividends declared on common stock and the change in the net unrealized gains (losses) on securities, net of taxes. On July 6, 1999, the Company paid a quarterly cash dividend equal to $0.10 per share on common stock outstanding as of the close of business on June 16, 1999, aggregating $274,000. On August 27, 1999, the Company declared a quarterly cash dividend of $0.10 per share payable on October 6, 1999 to shareholders of record as of the close of business on September 16, 1999, aggregating $240,000. PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) The following unaudited pro forma consolidated statement of income for the nine months ended September 30, 1998 presented on the following page is based on the historical income statements of the Company and Valley Financial. The unaudited pro forma consolidated statement of income for the nine months ended September 30, 1998 was prepared as if the Acquisition had occurred as of the beginning of the respective period for purposes of the combined consolidated statements of income. This pro forma income statement is not necessarily indicative of the results of operations that might have occurred had the Acquisition taken place at the beginning of the period, or to project the Company's results of operations at any future date or for any future period. The pro forma consolidated condensed statement of income should be read in connection with the notes thereto. -9- NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, Actual Actual Actual ProForma 1999 1998 1999 1998 ----------- ------------ ------------ ----------------- Interest income $6,129,387 $6,044,949 $18,100,877 $18,182,401 Interest expense 3,390,664 3,317,912 9,825,408 9,931,487 ---------- ---------- ----------- ----------- Net interest income 2,738,723 2,727,037 8,275,469 8,250,914 Provision for loan losses 30,000 60,000 90,000 180,000 ---------- ---------- ----------- ----------- Net interest income after provision for loan losses 2,708,723 2,667,037 8,185,469 8,070,914 ---------- ---------- ----------- ----------- Noninterest income: Fees and service charges 378,799 335,294 1,074,152 920,597 Abstract fees 371,844 398,974 1,098,000 1,161,535 Gain (loss) on sale of securities available for sale, net 29,575 (3,491) 61,564 51,362 Other income 348,467 298,413 870,099 710,252 ---------- ---------- ----------- ----------- Total noninterest income 1,128,685 1,029,190 3,103,815 2,843,746 ---------- ---------- ----------- ----------- Noninterest expense: Salaries and employee benefits 1,033,039 916,321 3,013,023 2,729,252 Premises and equipment 235,859 222,793 658,823 592,020 Data processing 111,122 181,001 408,237 430,657 SAIF deposit insurance premiums 35,621 37,249 109,269 112,467 Goodwill amortization 118,072 120,850 354,217 353,662 Other expenses 593,997 537,823 1,795,753 1,705,305 ---------- ---------- ----------- ----------- Total noninterest expense 2,127,710 2,016,037 6,339,322 5,923,363 ---------- ---------- ----------- ----------- Income before income taxes 1,709,698 1,680,190 4,949,962 4,991,297 Provision for income taxes 622,193 605,972 1,730,820 1,834,659 ---------- ---------- ----------- ----------- Net Income $1,087,505 $1,074,218 $ 3,219,142 $ 3,156,638 ========== ========== =========== ===========
The actual statement of income for the three months ended September 30, 1999 was used for comparison purposes to the actual statement of income for the three months ended September 30, 1998. The actual statement of income for the nine months ended September 30, 1999 was used for comparison purposes to the pro forma statement of income for the nine months ended September 30, 1998 in order to more clearly present the changes in the results of operations. Interest Income. Interest income increased by $84,000 to $6.1 million for the three months ended September 30, 1999 compared to $6.0 million for the three months ended September 30, 1998. 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 average assets. The increase in the average balance of interest earning assets increased $11.6 million (primarily due to first mortgage and consumer loans, offset by a decrease in securities available for sale and cash) to $345.6 million for the three months ended September 30, 1999 from $315.3 million for the three months ended September 30, 1998. The increase in the average balance of loans generally reflects an increase over the past twelve months in originations of first and second mortgage loans and purchases of first mortgage loans secured primarily by multi- family, one-to-four family residential and commercial real estate loans, which were offset in part by payments and prepayments on cash loans. See "Financial Condition." The decrease in the average balance of securities available for sale was due to sales, calls and maturities, which offset, in part, by purchases of available for sale securities. The impact of this increase in the -10- RESULTS OF OPERATIONS (Continued) average balance of interest earning assets was offset in part by a decrease in the average yields. The yields on interest earning assets decreased from 7.66% for the three months ended September 30, 1998 to 7.49% for the three months ended September 30, 1999. This decrease in average yields were due primarily to a decrease in the average yield on loans offset in part by an increase in the average yield on securities available for sale and interest bearing cash. The average yields on loans declined due to a general decrease in the market interest rates. Interest income decreased by $82,000 to $18.1 million for the nine months ended September 30, 1999 compared to $18.2 million for the nine months ended September 30, 1998. The decrease in interest income was primarily due to a decrease in the average yield on assets offset in part by an increase in the average balance of interest bearing assets. The average yield on interest earning assets decreased from 7.69% for the nine months ended September 30, 1998 to 7.52% for the nine months ended September 30, 1999. The average yields on loans and interest earning cash declined due to a general decrease in the market interest rates. The impact of the decrease in average yields was offset in part by an increase in the average balance of interest earning assets. The average balance of interest bearing assets increased $6.0 million (primarily first mortgage and consumer loans) to $321.3 million for the nine months ended September 30, 1999 from $315.3 million for the comparable 1998 period. The increase in the average balance of loans generally reflects an increase over the past twelve months in originations of first and second mortgage loans and purchases of first mortgage loans secured primarily by multi-family residences, one-to-four family residences and commercial real estate, which were offset, in part, by payments and prepayments on such loans. See "Financial Condition." The impact of the increase in the average balances of loans was offset in part by a decrease in the average balance of securities available for sale. The decrease in the average balance of securities available for sale was due to sales, calls and maturities, which were offset, in part, by purchases of available for sale securities. Interest Expense. Interest expense increased by $73,000 to $3.4 million for the three months ended September 30, 1999 compared to $3.3 million for the three months ended September 30, 1998. The increase in interest expense was primarily due to a increase in the average balance of interest bearing liabilities, offset in part by a decrease in the average cost of interest bearing liabilities. The increase in the average balance of interest bearing liabilities was primarily due to a $5.9 million increase in the average balance of NOW and money market savings accounts, a $10.3 million increase in the average balance of certificates of deposits and a $6.7 million increase in the average balance of borrowed funds. The increase in such deposit accounts is due primarily to an increase in deposits of certain public funds. The increase in the borrowed funds was due to the borrowing of funds in part to fund the corresponding asset growth. The impact of the increase in the average balances of interest bearing liabilities were offset in part by the decrease in the average cost of interest bearing liabilities. The average cost of interest bearing liabilities decreased from 4.83% for the three months ended September 30, 1998 to 4.52% for the three months ended September 30, 1999. The average cost of interest bearing liabilities declined due to a general decrease in the market interest rates. Interest expense decreased by $106,000 to $9.8 million for the nine months ended September 30, 1999 compared to $9.9 million for the nine months ended September 30, 1998. The decrease in interest expense was primarily due to the decrease in the average cost of interest bearing liabilities offset in part by an increase in the average balance of interest bearing liabilities. The average cost of interest bearing liabilities decreased from 4.86% for the nine months ended September 30, 1998 to 4.56% for the nine months ended September 30, 1999. The average cost of interest bearing liabilities declined due to a general decrease in the market interest rates. The impact of the decrease in average cost of interest bearing liabilities was offset in part by an increase in the average balance of interest bearing liabilities. The increase in the average balance of interest bearing liabilities was primarily due to a $4.7 million increase in the average balance of NOW accounts, a $4.7 million increase in the average balance of certificate of deposit accounts and a $3.9 million increase in the average balance of borrowed funds. The increase in such deposit accounts is due primarily to an increase in deposits of certain public funds. The increase in the borrowed funds was due to the borrowing of funds in part to fund the corresponding asset growth. Net Interest Income. Net interest income before the provision for loan losses increased by $12,000 to $2.74 million for the three months ended September 30, 1999 from $2.73 million for the three months ended September 30, 1998. The increase is primarily due to the increase in the interest rate spread, offset by the decrease in the excess of average interest earning assets over the average interest bearing liabilities. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) increased to 2.97% for the three months ended September 30, 1999 from 2.83% for the three months ended September 30, 1998. -11- RESULTS OF OPERATIONS (Continued) Net interest income before the provision for loan losses increased by $25,000 to $8.28 million for the nine months ended September 30, 1999 from $8.25 million for the nine months ended September 30, 1998. The increase is primarily due to the increase in the interest rate spread, offset by the decrease in the excess of average interest earning assets over the average interest bearing liabilities. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) increased to 2.96% for the nine months ended September 30, 1999 from 2.83% for the nine months ended September 30, 1998. The following table sets forth certain information relating to the Company's actual and pro forma average balance sheets and reflects the actual and pro forma average yield on assets and actual and pro forma average cost of liabilities for the three and nine month periods ended September 30, 1999 and 1998, respectively. -12- RESULTS OF OPERATIONS (Continued)
For Three Months Ended September 30, ------------------------------------------------------------------ Actual Actual 1999 1998 -------------------------------- -------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost --------- -------- ----------- --------- -------- ----------- Assets: (Dollars in thousands) Interest-earning assets: Loans................................. $269,956 $ 5,307 7.85% $255,838 $ 5,212 8.15% Securities available for sale......... 51,847 758 5.85 52,730 755 5.68 Interest bearing cash................. 5,130 64 4.95 6,716 78 4.58 -------- ------- ------ -------- ------- ------ Total interest-earning assets....... 326,933 $ 6,129 7.49% 315,284 $ 6,045 7.66% ------- ------ ------- ------ Noninterest-earning assets.............. 18,676 17,624 -------- -------- Total assets........................ $345,609 $332,908 ======== ======== Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings.......... $ 51,875 $ 274 2.10% $ 46,001 $ 360 3.10% Savings............................... 28,048 142 2.01 26,474 156 2.33 Certificates of deposit............... 176,479 2,398 5.39 166,180 2,315 5.53 Borrowed funds........................ 40,309 576 5.59 33,588 487 5.68 -------- ------- ------ -------- ------- ------ Total interest-bearing liabilities...... 296,711 $ 3,390 4.52% 272,243 $ 3,318 4.83% ------- ------ ------- ------ Noninterest-bearing liabilities......... 6,597 11,151 -------- -------- Total liabilities................... 303,308 283,394 Equity.................................. 42,301 49,514 -------- -------- Total liabilities and equity........ $345,609 $332,908 ======== ======== Net interest income........................ $ 2,739 $ 2,727 ======= ======= Net interest rate spread................... 2.97% 2.83% ====== ====== Net interest margin........................ 3.35% 3.46% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities.... 110.19% 115.81% ====== ====== For Nine Months Ended September 30, ---------------------------------------------------------------- Actual ProForma 1999 1998 ------------------------------ ------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost --------- -------- ---------- --------- -------- ---------- Assets: (Dollars in thousands) Interest-earning assets: Loans................................. $261,747 $15,574 7.94% $252,713 $15,523 8.19% Securities available for sale......... 51,333 2,243 5.83 55,184 2,391 5.79 Interest bearing cash................. 8,182 283 4.62 7,399 268 4.84 -------- ------- ------ -------- ------- ------ Total interest-earning assets....... 321,262 $18,100 7.52% 315,296 $18,182 7.69% ------- ------ ------- ------ Noninterest-earning assets.............. 17,661 17,444 -------- -------- Total assets........................ $338,923 $332,740 ======== ======== Liabilities and Equity: Interest-bearing liabilities: NOW and money market savings.......... $ 51,674 $ 827 2.14% $ 47,012 $ 1,088 3.12% Savings............................... 27,313 427 2.09 26,412 466 2.36 Certificates of deposit............... 169,176 6,911 5.46 164,489 6,865 5.56 Borrowed funds........................ 38,981 1,660 5.61 35,048 1,512 5.77 -------- ------- ------ -------- ------- ------ Total interest-bearing liabilities...... 287,144 $ 9,825 4.56% 272,961 $ 9,931 4.86% ------- ------ ------- ------ Noninterest-bearing liabilities......... 5,907 9,343 -------- -------- Total liabilities................... 293,051 282,304 Equity.................................. 45,872 50,436 -------- -------- Total liabilities and equity........ $338,923 $332,740 ======== ======== Net interest income........................ $ 8,275 $ 8,251 ======= ======= Net interest rate spread................... 2.96% 2.83% ====== ====== Net interest margin........................ 3.43% 3.49% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities.... 111.88% 115.51% ====== ======
-13- RESULTS OF OPERATIONS (Continued) Provision for Loan Losses. The Company's provision for loan losses was $30,000 and $60,000 for the three months ended September 30, 1999 and 1998, respectively. The Company's provision for loan losses was $90,000 and $180,000 for the nine months ended September 30, 1999 and 1998, 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 Bank's portfolio, which includes a significant amount of multifamily and commercial real estate loans, substantially all of which are purchased and are collateralized by properties located outside of the Bank's market area, and other factors related to the collectibility of the Bank's loan portfolio. The net charge offs were $13,000 for the nine months ended September 30, 1999 as compared to net charge offs of $13,000 for the nine months ended September 30, 1998. The resulting allowance for loan losses was $2.8 million at September 30, 1999 as compared to $2.7 million at December 31, 1998 and $2.7 million at September 30, 1998. The level of nonperforming loans decreased to $503,000 at September 30, 1999 from $956,000 at December 31, 1998 and decreased from $542,000 at September 30, 1998. Management believes that the allowance for loan losses is adequate. While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, identification of additional problem loans, and other factors, both within and outside of management's control. Noninterest Income. Total noninterest income increased by $99,000 to $1,129,000 for the three months ended September 30, 1999 from $1,029,000 for the three months ended September 30, 1998. The increase is primarily due to increases in fees and service charges and other income, offset by a decrease in abstract fees. Other fees and service charges increased $44,000, primarily due to increases in overdraft fees and NOW and savings account service charges. Other income increased $50,000, primarily due to an increase in revenues from the sale of uninsured products, offset by decreases in insurance sales. Abstract income decreased $27,000 due to decreased sales volume, which in part is attributable to the current level of interest rates. Noninterest income for the three months ended September 30, 1999 reflects gains on sales of securities available for sale of $30,000, while the three months ended September 30, 1998 includes (losses) on the sale of securities available for sale of $(3,000). Total noninterest income increased by $260,000 to $3,103,000 for the nine months ended September 30, 1999 from $2,844,000 for the nine months ended September 30, 1998. The increase is due primarily to increases in fees and service charges and other income, offset in part by a decrease in abstract fees. Other fees and service charges increased $154,000, primarily due to increases in overdraft fees, NOW and savings account service charges and loan prepayment fees. Other income increased $160,000, primarily due to an increase from the sale of uninsured products, revenues from the sale of loans, rent income and gain on the sale of foreclosed real estate, offset by losses on disposal of certain equipment and decreases in insurance sales. Abstract income decreased $64,000 due to decreased sales volume, which in part is attributable to the current level of interest rates. Noninterest income for the nine months ended September 30, 1999 reflects gains on sales of securities available for sale of $62,000, compared to gains on sale of securities available for sale of $51,000 for the nine months ended June 30, 1998. Noninterest Expense. Total noninterest expense increased by $112,000 to $2.1 million for the three months ended September 30, 1999 from $2.0 million for the three months ended September 30, 1998. The increase is primarily due to increases in salaries and employee benefits, premises and equipment and other expenses, offset in part by a decrease in data processing. The increase in salaries and employee benefits was primarily due to normal salary increases and additional employees and related insurance costs and payroll taxes. The increases in premises and equipment was primarily due to an increase in depreciation expense relating primarily to the purchase of computer equipment, software, ATMs, the opening of a branch located in Perry, Iowa and normal cost increases. The increase in other expenses was primarily due to increased costs associated with the Valley Savings Bank division changing its operating name to First Federal Savings Bank of Iowa and increased marketing costs. The decrease in the data processing costs were due primarily due to the Bank signing new multi year data processing contract in 1999, offset in part by higher costs associated with one time costs as a result of a data conversion in 1998. The Company's efficiency ratio for the three months ended September 30, 1999 and 1998 were 55.02% and 53.67%, respectively. The Company's ratio of noninterest expense to average assets for the three months ended September 30, 1999 and 1998 were 2.46% and 2.39%, respectively. Total noninterest expense increased by $415,000 to $6.4 million for the nine months ended September 30, 1999 from $5.9 million for the nine months ended September 30, 1998. The increase is primarily due to increases in salaries and -14- RESULTS OF OPERATIONS (Continued) employee benefits, premises and equipment, data processing and other expenses. The increase in salaries and benefits was primarily due to normal salary increases and additional employees and related insurance costs and payroll taxes. The increases in premises and equipment was primarily due to an increase in depreciation expense relating to the purchase of computer equipment and software, ATMs, the opening of a branch located in Perry, Iowa and normal cost increases. The increase in data processing expense was due to one time costs incurred as a result of additional data processing services utilized by the Bank due to the Acquisition, upgrading the Bank's operating systems, Year 2000 costs and normal cost increases, offset in part by signing of a multi year data processing contract in 1999. The increase in other expenses was primarily due to increased professional fees, costs associated with the Valley Savings Bank division changing its operating name to First Federal Savings Bank of Iowa, marketing costs and costs to process checking account transactions. The Company's efficiency ratio for the nine months ended September 30, 1999 and 1998 were 55.71% and 53.39%, respectively. The Company's ratio of noninterest expense to average assets for the nine months ended September 30, 1999 and 1998 were 2.49% and 2.37%, respectively. Income Taxes. Income taxes increased by $16,000 to $622,000 for the three months ended September 30, 1999 as compared to $606,000 for the three months ended September 30, 1998. The increase was primarily due to an increase in pre- tax earnings during the 1999 period as compared to the corresponding 1998 period. Income taxes decreased by $104,000 to $1,731,000 for the nine months ended September 30, 1999 as compared to $1,835,000 for the nine months ended September 30, 1998. The decrease was primarily due to a decrease in pre-tax earnings during the 1999 period as compared to the corresponding 1998 period. Net Income. Net income totaled $1,088,000 for the three months ended September 30, 1999, compared to $1,074,000 for the same period in 1998. Net income totaled $3,219,000 for the nine months ended September 30, 1999, compared to $3,157,000 for the same period in 1998. Year 2000 Compliance. The Year 2000 ("Y2K") issue is a serious operational problem that is widespread and complex, affecting all industries. The problem consists essentially of the risk that programming code in existing computer systems will fail to properly recognize the new millennium when it occurs in the Year 2000. Many computer programs and related hard-printed memory circuits were developed with six-digit date fields. These programs and memory circuits were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. Because banks rely heavily on their computer systems, the Federal Financial Institutions Examination Council ("FFIEC") has placed significant emphasis on the problems surrounding the Year 2000 issues and has required financial institutions to document the assessment, testing and corrections made to ready their computer systems and programs for the Year 2000 date change. The FFIEC and the OTS have strict regulations, guidelines and milestones in place that each FDIC-insured financial institution must follow in order to remain operational. The Company's board of directors has remained informed of the Company's position and progress in its Year 2000 project. In addition, noninformation technology systems, such as telephones, copiers, fax machines and elevators may also contain embedded technology which controls its operation and which may be affected by the Y2K problem. When the Year 2000 arrives, systems, including some of those with embedded chips, may not work properly because of the way they store date information. They may not be able to process correctly the date 01/01/00, and may not be able to function with operational 'cycles' such as 'do X every 100 days'. Thus, even noninformation technology systems may affect the normal operations of the Company upon arrival of the Year 2000. In order to address the Y2K issue and to minimize its potential adverse impact on the Company and its operations, management began a process in June, 1997 to identify areas that will be affected by the Y2K problem, assess its potential impact on the operations of the Company, monitor the progress of Fiserv, Inc. of Milwaukee ("Fiserv") and other third party software vendors in addressing the matter, test changes provided by these vendors, and develop contingency plans for all critical systems. An internal committee of the Company was formed to address the potential risks that Y2K poses for the Company. The Company's Y2K committee has completed the awareness, inventory, assessment and testing phases of Y2K. The Company's most critical exposure to Y2K system problems is with its data processing provider, Fiserv. The Company has been advised by Fiserv that Fiserv's on-line real-time processing -15- RESULTS OF OPERATIONS (Continued) platform, Vision system, is Y2K ready as of February, 1999. Although the effort to prepare for Y2K is intended to address all Y2K issues, the Company has developed contingency plans to address potential Y2K issues that arise despite the Company's Y2K compliance effort. Contingency plans have been developed on a department-by-department basis in anticipation of the possibility of unplanned system difficulties or failure of third parties to successfully prepare reporting procedures. The testing phase on the Company's contingency plans began in the second quarter of 1999 and will continue to be tested through the four quarter of 1999. The Company anticipates that it has and will incur internal staff costs, consulting costs, data processing costs, additional purchase of equipment and other expenses related to the enhancements necessary to prepare its systems for Y2K. The Company has replaced some equipment, software and incurred consulting fees at a cost of approximately $55,000. Management anticipates the additional costs associated with Year 2000 compliance will not exceed $50,000. Any personnel and consulting costs have been and will continue to be expensed as incurred. If the Company is not Y2K compliant, the costs to become compliant would likely be material to the financial condition and operating results of the Company. Financial Services Modernization Bill. In October 1999, the U.S. Congress overwhelmingly passed the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, federal legislation intended to modernize the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. The legislation has been forwarded to the President for his approval. Generally, the legislation would (i) repeal the historical restrictions and eliminate many federal and state law barriers to affiliations among banks, securities firms, insurance companies and other financial service providers, (ii) provide a uniform framework for the functional regulation of the activities of banks, savings institutions and their holding companies, (iii) broaden the activities that may be conducted by national banks, banking subsidiaries of bank holding companies and their financial subsidiaries, (iv) provide an enhanced framework for protecting the privacy of consumer information, (v) adopt a number of provisions related to the capitalization, membership, corporate governance and other measures designed to modernize the Federal Home Loan Bank system, (vi) modify the laws governing the implementation of the Community Reinvestment Act (vii) address a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. In particular, the pending legislation would restrict the authority of unitary savings and loan holding companies under current law to engage in non- financially related activities. Unitary savings and loan holding companies that are "grandfathered," i.e., became a unitary savings and loan holding company pursuant to an application filed with the OTS before May 4, 1999, (such as the Company) would retain this authority. All other savings and loan holding companies would be limited to financially related activities permissible for financial holding companies, as defined under the new law. The proposed legislation would also prohibit non-financial companies from acquiring savings and loan holding companies. Bank holding companies would be permitted to engage in a wider variety of financial activities than permitted under current law, particularly with respect to insurance and securities activities. In addition, in a change from current law, bank holding companies will be in a position to be owned, controlled or acquired by any company engaged in financially related activities. We do not believe that the proposed legislation, as publicly reported, would have a material adverse effect on our operations in the near term. However, to the extent the legislation permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This could result in a growing number of larger financial institutions that offer a wider variety of financial services than we currently offer and that can aggressively compete in markets we currently serve. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In management's opinion, there has not been a material change in market risk from December 31, 1998 as reported in Item 7A of the Form 10-K. -16- PART II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities and Use of Proceeds Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Other Information None Item 5. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27. Financial data schedule. (Only submitted with filing in electronic format.) Exhibit 99.1 Press Release, dated July 23, 1999 (regarding stock repurchase program). Exhibit 99.2 Press Release, dated August 10, 1999 (regarding completion of stock repurchase program) Exhibit 99.3 Press Release, dated August 27, 1999 (regarding stock repurchase program and the declaration of a dividend). Exhibit 99.4 Press Release, dated September 22, 1999 (regarding the completion of a stock repurchase program) Exhibit 99.5 Press Release, dated October 19, 1999 (regarding the record earnings per share for the end of the third quarter) (b) Reports of Form 8-K None -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. NORTH CENTRAL BANCSHARES, INC. DATE: November 12, 1999 BY: /s/ David M. Bradley David M. Bradley, CPA Chairman, President and Chief Executive Officer DATE: November 12, 1999 BY: /s/ John L. Pierschbacher John L. Pierschbacher, CPA Principal Financial Officer -18- EX-27 2 FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 3,977,996 3,766,123 0 0 50,460,734 0 0 281,475,653 2,753,380 357,894,600 260,651,576 25,500,000 1,738,331 30,744,069 0 0 40,111 39,220,513 357,894,600 15,574,150 2,526,727 0 18,100,877 8,165,869 9,825,408 8,275,469 90,000 61,564 6,339,322 4,949,962 4,949,962 0 0 3,219,142 1.20 1.18 7.52 503,354 28,199 0 0 2,676,438 21,040 7,982 2,753,380 2,753,380 0 0
EX-99.1 3 PRESS RELEASE, DATED 07/23/1999 Exhibit 99.1 Press Release PRESS RELEASE July 23, 1999 For further information contact: David M. Bradley Chairman, President and Chief Executive Officer North Central Bancshares, Inc. 825 Central Avenue Fort Dodge, Iowa 50501 515-576-7531 NORTH CENTRAL BANCSHARES, INC. ANNOUNCES STOCK REPURCHASE PROGRAM Fort Dodge, Iowa, July 23, 1999 - North Central Bancshares, Inc. (Nasdaq: "FFFD") (the "Company"), the holding company for First Federal Savings Bank of Iowa, announced that it will commence a stock repurchase program beginning on or about July 29th, 1999. The program authorizes the Company to repurchase up to 5.64% or 150,000 shares of its 2,657,242 outstanding shares of common stock during the next twelve months. The repurchases will be made from time to time, in open market transactions, at the discretion of management. North Central Bancshares, Inc., with over $340 million in assets, is the holding company for First Federal Savings Bank of Iowa, a federally chartered stock savings bank. First Federal is a community-oriented institution serving Iowa through 8 full service locations in Fort Dodge, Nevada, Ames, Burlington, Mt. Pleasant, and Perry, Iowa. First Federal's deposits are insured by the Federal Deposit Insurance Corporation. EX-99.2 4 PRESS RELEASE, DATED 08/10/1999 Exhibit 99.2 Press Release PRESS RELEASE August 10, 1999 For further information contact: David M. Bradley President and Chief Executive Officer North Central Bancshares, Inc. 825 Central Avenue Fort Dodge, Iowa 50501 515-576-7531 NORTH CENTRAL BANCSHARES, INC. COMPLETES STOCK REPURCHASE Fort Dodge, Iowa - North Central Bancshares, Inc. (Nasdaq: "FFFD") announced that it has completed a 5.64% stock repurchase program today. The Company said it repurchased 150,000 shares of its outstanding common stock, par value $.01 per share, at the aggregate cost of $2,637,250, in open market transactions. The repurchase program began on July 29, 1999. Upon settlement of the last transaction on or about August 13, 1999, there will be 2,507,242 shares of North Central Bancshares, Inc. common stock outstanding. North Central Bancshares, Inc., with over $343 million in assets, is the holding company for First Federal Savings Bank of Iowa, a federally chartered stock savings bank. First Federal is a community-oriented institution serving Iowa through 8 full service locations in Fort Dodge, Nevada, Ames, Perry, Burlington and Mt. Pleasant, Iowa. First Federal's deposits are insured by the Federal Deposit Insurance Corporation. EX-99.3 5 PRESS RELEASE, DATED 08/27/1999 Exhibit 99.3 Press Release PRESS RELEASE August 27, 1999 For further information contact: David M. Bradley Chairman, President and Chief Executive Officer North Central Bancshares, Inc. 825 Central Avenue Fort Dodge, Iowa 50501 515-576-7531 NORTH CENTRAL BANCSHARES, INC. ANNOUNCES STOCK REPURCHASE PROGRAM AND DECLARATION OF QUARTERLY DIVIDEND Fort Dodge, Iowa, August 27, 1999 - North Central Bancshares, Inc. (Nasdaq: "FFFD") (the "Company"), the holding company for First Federal Savings Bank of Iowa, announced that it will commence a stock repurchase program beginning on or about September 2 , 1999. The program authorizes the Company to repurchase up to 5.98 % or 150,000 shares of its 2,507,242 outstanding shares of common stock during the next twelve months. The repurchases will be made from time to time, in open market transactions, at the discretion of management. North Central also announced today that the Company declared a regular quarterly cash dividend of $0.10 per share on the Company's common stock for the fiscal quarter ended September 30, 1999. The dividend will be payable to all stockholders of record as of September 16, 1999 and will be paid on October 6, 1999. North Central Bancshares, Inc., with over $343 million in assets, is the holding company for First Federal Savings Bank of Iowa, a federally chartered stock savings bank. First Federal is a community-oriented institution serving Iowa through 8 full service locations in Fort Dodge, Nevada, Ames, Burlington, Mt. Pleasant, and Perry, Iowa. First Federal's deposits are insured by the Federal Deposit Insurance Corporation. EX-99.4 6 PRESS RELEASE, DATED 09/22/1999 Exhibit 99.4 - Press Release PRESS RELEASE September 22, 1999 For further information contact: David M. Bradley President and Chief Executive Officer North Central Bancshares, Inc. 825 Central Avenue Fort Dodge, Iowa 50501 515-576-7531 NORTH CENTRAL BANCSHARES, INC. COMPLETES STOCK REPURCHASE Fort Dodge, Iowa - North Central Bancshares, Inc. (Nasdaq: "FFFD") announced that it has completed a 5.98% stock repurchase program today. The Company said it repurchased 150,000 shares of its outstanding common stock, par value $.01 per share, at the aggregate cost of $2,599,088 in open market transactions. The repurchase program began on September 2, 1999. Upon settlement of the last transaction on or about September 27, 1999, there will be 2,357,242 shares of North Central Bancshares, Inc. common stock outstanding. North Central Bancshares, Inc., with over $343 million in assets, is the holding company for First Federal Savings Bank of Iowa, a federally chartered stock savings bank. First Federal is a community-oriented institution serving Iowa through 8 full service locations in Fort Dodge, Nevada, Ames, Perry, Burlington and Mt. Pleasant, Iowa. First Federal's deposits are insured by the Federal Deposit Insurance Corporation. EX-99.5 7 PRESS RELEASE, DATED 10/19/1999 Exhibit 99.5 Press Release PRESS RELEASE October 19, 1999 For further information contact: David M. Bradley Chairman, President and Chief Executive Officer North Central Bancshares, Inc. 825 Central Avenue PO Box 1237 Fort Dodge, Iowa 50501 515-576-7531 NORTH CENTRAL BANCSHARES, INC. ANNOUNCES RECORD EARNINGS PER SHARE FOR THIRD QUARTER 1999 (Nasdaq: FFFD) Fort Dodge, Iowa -- North Central Bancshares, Inc. (the "Company"), the holding company for First Federal Savings Bank of Iowa (the "Bank"), announced today that the Company earned a record $0.43 diluted earnings per share for the third quarter of 1999, compared to diluted earnings per share of $0.35 for the third quarter of 1998, an increase of 22.8%. In dollars, the Company earned $1,088,000 for the third quarter of 1999, compared to $1,074,000 for the third quarter of 1998. The Company earned $3,219,000, or diluted earnings per share of $1.18, for the nine months ended September 30, 1999, compared to $3,296,000, or diluted earnings per share of $1.04, for the nine months ended September 30, 1998, an increase in diluted earnings per share of 13.4%. Total assets at September 30, 1999 were $357.9 million as compared to $336.7 million at December 31, 1998. The increase in assets resulted primarily from increases in loans and premises and equipment, offset by a decrease in cash. Cash decreased $7.9 million, or 50.5%, from $15.6 million at December 31, 1998 to $7.7 million at September 30, 1999. Loans increased by $27.4 million, or 10.8%, from $254.0 million at December 31, 1998 to $281.5 million at September 30, 1999. Premises and equipment increased $1.5 million, or 41.9%, from $3.6 million at December 31, 1998 to $5.1 million at September 30, 1999. Deposits increased $14.0 million, or 5.7%, from $246.7 million at December 31, 1998 to $260.7 million at September 30, 1999. Other borrowed funds increased $17.4 million, or 44.8%, from $38.8 million at December 31, 1998 to $56.2 million at September 30, 1999. On January 30, 1998, the Bank acquired Valley Financial Corp., headquartered in Burlington, Iowa. This acquisition resulted in the merger of Valley Financial's wholly owned subsidiary, Valley Savings Bank, FSB, into First Federal Savings Bank of Iowa. Valley Savings was a federally-chartered stock savings bank with three branch offices located in southeastern Iowa, with assets of approximately $110 million. The acquisition was accounted for as a purchase transaction and therefore, the operating results of the former offices of Valley Savings Bank are included in the 1998 operating results of the Company only from the date of acquisition through September 30, 1998. Therefore, the comparison between the nine month periods is significantly impacted by this acquisition. - MORE - The unaudited pro forma consolidated statement of income, for the nine months ended September 30, 1998, presented in this press release is based on the historical financial statements of the Company and Valley Financial and was prepared as if the acquisition had occurred as of the beginning of the period for purposes of the combined consolidated statement of income. The pro forma financial statement of income is not necessarily indicative of the results of operations that might have occurred had the acquisition taken place at the beginning of the period, or to project the Company's results of operations at any future date or for any future period. Nonperforming assets were 0.21% of total assets as of September 30, 1999 compared to 0.34% of total assets as of December 31, 1998. The allowance for loan losses was $2.8 million, or 0.96% of total loans, at September 30, 1999, compared to $2.7 million, or 1.03% of total loans, at December 31, 1998. The net interest spread for the three months ended September 30, 1999 of 2.97% was increased from the net interest spread of 2.83% for the three months ended September 30, 1998. The net interest margin for the three months ended September 30, 1999 of 3.35% was decreased from the net interest margin of 3.46% for the three months ended September 30, 1998. Net interest income for the three months ended September 30, 1999 was $2,739,000, compared to net interest income of $2,727,000 for the corresponding period a year ago. The Bank's provision for loan losses was $30,000 for the three months ended September 30, 1999, compared to pro forma provision for loan losses of $60,000 for the corresponding period a year ago. 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 conditions, the volume and type of loans in the Bank's portfolio, and other factors related to the collectibility of the Bank's loan portfolio. Stockholders' equity was $39.3 million at September 30, 1999, compared to $48.2 million at December 31, 1998, the decrease was due primarily to stock repurchases. North Central Bancshares, Inc. has repurchased 607,207 shares of its common stock at a cost of $10.7 million, for the nine months ended September 30, 1999. Book value, or stockholders' equity, per share at September 30, 1999 was $16.66, compared to $16.26 at December 31, 1998. The ratio of stockholders' equity to total assets was 11.0% at September 30, 1999, as compared to 14.3% at December 31, 1998. Stockholders of record on September 16, 1999, received a quarterly cash dividend of $0.10 per share on October 6, 1999. The Bank opened a newly constructed 3,000 square foot branch office on June 1, 1999 in Perry, Iowa in Dallas County. Also on October 1, 1999, the Bank began construction on a new 8,000 square foot branch office in Ames, Iowa. When completed during the summer of 2000, the Bank's current Ames branch office will relocate to this new site. North Central Bancshares, Inc. serves north central and southeastern Iowa at 8 full service locations in Fort Dodge, Nevada, Ames, Perry, Burlington and Mount Pleasant, Iowa through its wholly-owned subsidiary, First Federal Savings Bank of Iowa, headquartered in Fort Dodge, Iowa. The Bank's deposits are insured by the Federal Deposit Insurance Corporation. The Company's stock is traded on The Nasdaq National Market under the symbol "FFFD". For more information contact: David M. Bradley, President, 515-576-7531 FINANCIAL HIGHLIGHTS OF NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition
(Dollars in Thousands, except per share and share September 30, 1999 December 31, 1998 data) ------------------- ------------------ Assets Cash and cash equivalents $ 7,744 $ 15,637 Securities available for sale 50,461 49,883 Loans (net of allowance of loan loss of $2.8 million and $2.7 million, respectively) 281,476 254,032 Goodwill 6,033 6,388 Other assets 12,181 10,750 ---------- ---------- Total Assets $ 357,895 $ 336,690 ========== ========== Liabilities Deposits $ 260,652 $ 246,690 Other borrowed funds 56,244 38,832 Other liabilities 1,738 2,961 ---------- ---------- Total Liabilities 318,634 288,483 Stockholders' Equity 39,261 48,207 ---------- ---------- Total Liabilities and Stockholders' Equity $ 357,895 $ 336,690 ========== ========== Stockholders' equity to total assets 10.97% 14.32% ========== ========== Book value per share $ 16.66 $ 16.26 ========== ========== Total shares outstanding 2,357,242 2,964,449 ========== ==========
Condensed Consolidated Statements of Income (Dollars in Thousands, except per share data)
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 ------- -------- -------- -------- Interest income $6,129 $6,045 $18,101 $17,560 Interest expense 3,390 3,318 9,826 9,481 ------ ------ ------- ------- Net interest income 2,739 2,727 8,275 8,079 Provision for loan loss 30 60 90 180 ------ ------ ------- ------- Net interest income after provision for loan loss 2,709 2,667 8,185 7,899 Noninterest income 1,099 1,004 3,042 2,739 Gain (loss) on the sale of securities available for sale 30 (3) 62 51 Noninterest expense 2,128 1,988 6,339 5,517 ------ ------ ------- ------- Income before income taxes 1,710 1,680 4,950 5,172 Income taxes 622 606 1,731 1,876 ------ ------ ------- ------- Net income $1,088 $1,074 $ 3,219 $ 3,296 ====== ====== ======= ======= Basic earnings per share $ 0.44 $ 0.36 $ 1.20 $ 1.07 ====== ====== ======= ======= Diluted earnings per share $ 0.43 $ 0.35 $ 1.18 $ 1.04 ====== ====== ======= =======
Selected Financial Ratios
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 ------- -------- -------- -------- Performance ratios: Net interest spread 2.97% 2.83% 2.95% 2.84% Net interest margin 3.35% 3.46% 3.43% 3.54% Return on average assets 1.25% 1.29% 1.27% 1.37% Return on average equity 10.28% 8.68% 9.36% 8.71% Efficiency ratio (noninterest expense divided by the sum of net interest income before provision for loan losses plus noninterest income) 55.01% 53.32% 55.70% 50.76%
September 30, 1999 June 30, 1999 December 31, 1998 ------------------- -------------- ------------------ Asset Quality Ratios: Nonaccrual loans to total net loans 0.18% 0.10% 0.38% Nonperforming assets to total assets 0.21% 0.17% 0.34% Allowance for loan losses as a percent of total loans receivable 0.96% 1.01% 1.03%
Condensed Consolidated Statements of Income
For the Nine Months Ended September 30, Actual ProForma* 1999 1998 ------- --------- Interest income $18,101 $18,182 Interest expense 9,826 9,931 ------- ------- Net interest income 8,275 8,251 Provision for loan loss 90 180 ------- ------- Net interest income after provision for loan loss 8,185 8,071 Noninterest income 3,042 2,792 Gain on the sale of securities available for sale 62 51 Noninterest expense 6,339 5,923 ------- ------- Income before income taxes 4,950 4,991 Income taxes 1,731 1,834 ------- ------- Net income $ 3,219 $ 3,157 ======= =======
*See explanatory note below. Selected Financial Ratios
For the Nine Months Ended September 30, Actual ProForma* 1999 1998 -------- ----------- Performance ratios: Net interest spread 2.95% 2.83% Net interest margin 3.43% 3.45% Return on average assets 1.27% 1.26% Return on average equity 9.36% 8.34% Efficiency ratio (noninterest expense divided by the sum of net interest income before provision for loan losses plus noninterest income) 55.70% 53.39%
*See explanatory note below. *Pro Forma Consolidated Condensed Statement of Income (Unaudited) The above unaudited pro forma consolidated statement of income presented is based on the historical financial statements of the Company and Valley Financial. The unaudited pro forma consolidated statements of income for the nine months ended September 30, 1998 was prepared as if the acquisition had occurred as of the beginning of the respective period for purposes of the combined consolidated statements of income. The pro forma statement of income is not necessarily indicative of the results of operations that might have occurred had the acquisition taken place at the beginning of the period, or to project the Company's results of operations at any future date or for any future period. -----END PRIVACY-ENHANCED MESSAGE-----