<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20552
__________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________to___________________
Securities Exchange Act Number 0-29040
FIDELITY BANKSHARES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0717085
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
218 Datura Street, West Palm Beach, Florida 33401
--------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (561) 659-9900
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check X whether the Registrant has filed all reports required to
be filed by Sections 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: There were 6,805,704 shares
of the Registrant's common stock outstanding as of April 30, 1999.
<PAGE>
FIDELITY BANKSHARES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements....................................... 1
Consolidated Statements of Financial Condition as
of December 31, 1998 and March 31, 1999.................. 2
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1999............... 3
Consolidated Statements of Comprehensive
Operations for the three months
ended March 31, 1998 and 1999............................ 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1999............... 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 12
PART II. OTHER INFORMATION.................................................. 20
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
1
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Unaudited
December 31, March 31,
1998 1999
===========================================
(In Thousands)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions ............................. $ 27,951 $ 28,623
Interest-bearing deposits ..................................................... 32,075 37,091
----------- -----------
Total cash and cash equivalents ......................................... 60,026 65,714
ASSETS AVAILABLE FOR SALE (At Fair Value):
Government and agency securities .............................................. 18,824 39,412
Mortgage-backed and other securities .......................................... 389,263 367,044
Corporate debt securities ..................................................... 44,488 44,923
----------- -----------
Total assets available for sale ......................................... 452,575 451,379
LOANS RECEIVABLE, Net (Notes 2, 3) ................................................... 977,166 1,012,716
OFFICE PROPERTIES AND EQUIPMENT, Net ................................................. 37,708 38,729
FEDERAL HOME LOAN BANK STOCK, At cost, which approximates market ..................... 15,658 15,561
REAL ESTATE OWNED, Net ............................................................... 907 350
ACCRUED INTEREST RECEIVABLE .......................................................... 7,549 7,507
DEFERRED INCOME TAX ASSET ............................................................ 1,443 1,253
OTHER ASSETS ......................................................................... 13,895 13,679
=========== ===========
TOTAL ASSETS ......................................................................... $ 1,566,927 $ 1,606,888
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS ............................................................................. $ 1,120,746 $ 1,161,869
OTHER BORROWED FUNDS ................................................................. 6,981 8,104
ADVANCES FROM FEDERAL HOME LOAN BANK ................................................. 303,140 301,211
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE ........................................ 3,081 7,156
DRAFTS PAYABLE ....................................................................... 9,605 7,968
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
JUNIOR SUBORDINATED DEBENTURES ................................................ 28,750 28,750
OTHER LIABILITIES .................................................................... 9,625 8,780
----------- -----------
TOTAL LIABILITIES ............................................................. 1,481,928 1,523,838
----------- -----------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, 2,000,000 shares authorized, none issued ............................ -- --
COMMON STOCK ($ .10 par value) 8,200,000 authorized shares,
6,803,042 shares outstanding at December 31, 1998, and
6,805,704 shares outstanding at March 31, 1999 ................................ 680 681
ADDITIONAL PAID IN CAPITAL ........................................................... 40,535 40,659
RETAINED EARNINGS - substantially restricted ......................................... 52,018 51,617
TREASURY STOCK, at cost, 394,029 shares at December 31, 1998 and
489,848 shares at March 31, 1999 .............................................. (7,258) (9,222)
COMMON STOCK PURCHASED BY EMPLOYEE STOCK OWNERSHIP PLAN .............................. (658) (575)
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 6) ........................................ (318) (110)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (Note 4) ........................................... 84,999 83,050
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................... $ 1,566,927 $ 1,606,888
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited
For the Three Months Ended
March 31,
1998 1999
========================================
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans ............................................................................ $ 17,336 $ 18,846
Investment securities ............................................................ 240 321
Other investments ................................................................ 835 823
Mortgage-backed and other securities ............................................. 4,409 6,064
-------- --------
Total interest income ...................................................... 22,820 26,054
-------- --------
Interest expense:
Deposits ......................................................................... 10,015 12,267
Advances from Federal Home Loan Bank and other borrowings ........................ 4,265 5,159
-------- --------
Total interest expense ..................................................... 14,280 17,426
-------- --------
Net interest income .................................................................... 8,540 8,628
Provision for (recovery from) loan losses .............................................. (69) 34
-------- --------
Net interest income after provision for loan losses .................................... 8,609 8,594
-------- --------
Other income:
Servicing income and other fees .................................................. 1,089 1,238
Net gain on sale of loans, investments
and mortgage-backed securities ............................................. 671 206
Miscellaneous .................................................................... 154 367
-------- --------
Total other income ......................................................... 1,914 1,811
-------- --------
Operating expense:
Employee compensation and benefits ............................................... 3,807 4,741
Occupancy and equipment .......................................................... 1,437 1,805
Loss on real estate owned ........................................................ 17 (100)
Marketing ........................................................................ 258 257
Federal deposit insurance premium ................................................ 132 159
Other ............................................................................ 1,362 1,556
-------- --------
Total operating expense .................................................... 7,013 8,418
-------- --------
Income before provision for income taxes ............................................... 3,510 1,987
-------- --------
Provision for income taxes:
Current .......................................................................... 1,297 690
Deferred ......................................................................... 120 80
-------- --------
Total provision for income taxes ........................................... 1,417 770
-------- --------
Net income ............................................................................. $ 2,093 $ 1,217
======== ========
Earnings per share (Note 5):
Basic ............................................................................ $ 0.31 $ 0.19
======== ========
Diluted .......................................................................... $ 0.31 $ 0.19
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited
For the
Three Months Ended
March 31,
1998 1999
======================
(In Thousands)
<S> <C> <C>
Net income .............................................................................................. $ 2,093 $ 1,217
Other comprehensive income, net of tax:
Unrealized gains (losses) on assets available for sale:
Unrealized holding gains (losses) arising during period ......... 173 208
Less: reclassification adjustment for gains realized
in net income ................................ (320) --
------- -------
Comprehensive income (Note 6) ........................................................................... $ 1,946 $ 1,425
======= =======
</TABLE>
4
<PAGE>
FIDELITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited
For the Three Months Ended
March 31,
1998 1999
==========================
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net Income ............................................................................................. $ 2,093 $ 1,217
Adjustments to reconcile net income to net cash provided by (used
Depreciation and amortization ................................................................ 385 600
ESOP and Recognition and Retention Plan compensation exp ..................................... 234 137
Accretion of discounts, amortization of premiums, and ot ..................................... (89) 614
Provision for loan losses and real estate losses ............................................. (69) 34
Provisions for (gains) losses and net (gains) losses on ...................................... 14 (80)
Net (gain) on sale of:
Loans ................................................................................. (154) (206)
Mortgage-backed securities ............................................................ (516) --
(Increase) decrease in accrued interest receivable ..................................................... (608) 42
Decrease in other assets ............................................................................... 110 216
Increase (decrease) in drafts payable .................................................................. 424 (1,637)
(Increase) decrease in deferred income taxes ........................................................... (87) 190
Increase (decrease) in other liabilities ............................................................... 1,865 (1,716)
------------------------
Net cash from (used for) operating activities ......................................... 3,602 (589)
------------------------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans ...................................................... (33,688) (38,027)
Principal payments received on mortgage-backed securities .............................................. 16,796 31,478
Purchases of:
Loans ........................................................................................ (12,082) (9,296)
Mortgage-backed and other securities ......................................................... (94,963) (10,044)
Federal Home Loan Bank stock ................................................................. (1,066) --
Investment securities ........................................................................ (4,989) (22,670)
Office properties and equipment .............................................................. (7,401) (1,658)
Proceeds from sales of:
Loans ........................................................................................ 7,491 11,673
Federal Home Loan Bank stock ................................................................. -- 98
Real estate acquired in settlement of loans .................................................. 455 845
Mortgage-backed securities ................................................................... 12,137 --
Proceeds from maturities of investment securities ...................................................... 2,000 2,000
Other .................................................................................................. 639 117
------------------------
Net cash used for investing activities ................................................ (114,671) (35,484)
------------------------
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Gross proceeds from the sale of common stock ........................................................... 70 13
Purchase of Treasury Stock ............................................................................. -- (1,915)
Sale of subordinated debentures, Net .................................................................. 27,389 --
Cash dividends ......................................................................................... (709) (730)
NOW accounts, demand deposits, and savings accounts .......................................... 16,970 32,655
Certificates of deposit ...................................................................... 32,068 8,468
Advances from Federal Home Loan Bank ......................................................... 14,805 (1,929)
Other borrowed funds ......................................................................... 390 1,124
Advances by borrowers for taxes and insurance ................................................ 3,676 4,075
------------------------
Net cash from financing activities .................................................... 94,659 41,761
------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................................... (16,410) 5,688
CASH AND CASH EQUIVALENTS, Beginning of period ......................................................... 55,824 60,026
========================
CASH AND CASH EQUIVALENTS, End of period ............................................................... $ 39,414 $ 65,714
========================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies of Fidelity Bankshares, Inc. (the
"Company") and its subsidiary Fidelity Federal Savings Bank of Florida (the
"Bank") conform to generally accepted accounting principles and to
predominant practices within the thrift industry. The Company has not changed
its accounting and reporting policies from those disclosed in its 1998 Annual
Report on Form 10-K.
The Company conducts no business other than holding the common stock of the
Bank. Consequently, its net income is derived from the operations of the
Bank. In the opinion of the Company's management, all adjustments necessary
to fairly present the consolidated financial position of the Company at March
31, 1999 and the results of its consolidated operations and cash flows for
the period then ended, all of which are of a normal and recurring nature,
have been included.
In June, 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and
reporting standards for derivative instruments and for hedging activities.
The Statement requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. If certain
conditions are met, a derivative may be specifically designated as a fair
value hedge, a cash flow hedge, or a foreign currency hedge. Entities may
reclassify securities from the held-to-maturity category to the available-
for-sale category at the time adopting SFAS No. 133. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999 and, accordingly, would apply to the Company beginning on April 1, 2000.
The Company plans to adopt the standard at that time and does not presently
intend to reclassify securities between categories. The Company has not
engaged in derivatives and hedging activities covered by the new standard,
and does not expect to do so in the foreseeable future. Accordingly, SFAS No.
133 is not expected to have a material impact on the Company's financial
statements.
In October, 1998 the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise" which amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities". Statement No. 65, as amended by
Statement No. 115 and Statement No. 125, required that after securitization
of a mortgage loan held for sale, a mortgage banking enterprise classify the
resulting security as a trading security. Statement No. 134 amends this
section to require that after the securitization of mortgage loans held for
sale, the entity classify the resulting mortgage-backed security or other
retained interests based on its ability and intent to sell or hold those
investments. SFAS 134 is effective for the first quarter beginning after
December 15, 1998 and accordingly would apply to the Company for the quarter
ended March 31, 1999. The Company has not engaged in retaining securities
after the securitization of its mortgage loans held for sale and does not
expect to do so in the foreseeable future. Accordingly, SFAS No. 134 is not
expected to have a material impact on the Company's financial statements.
Certain amounts in the financial statements have been reclassified to conform
with the March 31, 1999 presentation.
On August 31, 1998, the Company announced its plan to commence a stock
repurchase program to acquire up to 340,000 shares of the Company's Common
Stock, which represents approximately 5% of the outstanding Common Stock. At
March 31, 1999, the Company had repurchased all 340,000 shares of its Common
Stock at an average price of $22.53 per share.
6
<PAGE>
2. LOANS RECEIVABLE
Loans receivable at December 31, 1998 and March 31, 1999, consist of the
following:
<TABLE>
December 31, March 31,
1998 1999
=============================================
(In Thousands)
<S> <C> <C>
One-to-four single family, residential real estate
mortgages .............................................................. $ 828,929 $ 844,581
Commercial real estate mortgages ................................................. 74,671 80,332
Real estate construction-primarily residential ................................... 53,515 57,727
Land loans-primarily residential ................................................. 8,583 13,586
----------- -----------
Total first mortgage loans ............................................. 965,698 996,226
Consumer loans ................................................................... 48,270 49,780
Commercial business loans ........................................................ 46,958 50,241
----------- -----------
Total gross loans ...................................................... 1,060,926 1,096,247
Less:
Undisbursed portion of loans in process ................................ 84,155 83,772
Unearned discounts, premiums and deferred loan
fees, net ....................................................... (3,621) (3,442)
Allowance for loan losses .............................................. 3,226 3,201
-----------
=========== ===========
Loans receivable-net ............................................................. $ 977,166 $ 1,012,716
=========== ===========
</TABLE>
7
<PAGE>
3. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the year ended
December 31, 1998 and the three months ended March 31, 1998 and 1999, is as
follows:
<TABLE>
<CAPTION>
For the Year For the Three Months
Ended Ended
December 31, March 31,
1998 1998 1999
========================================================
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period ................................ $ 3,294 $ 3,294 $ 3,226
Current provision (recovery) - net ............................ 77 (69) 34
Charge-offs ................................................... (145) -- (59)
----------- ------------------------------
Ending balance ................................................ $ 3,226 $ 3,225 $ 3,201
=========== ==============================
</TABLE>
An analysis of the recorded investment in impaired loans owned by the Company at
the end of each period and the related specific valuation allowance for those
loans is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1999
=============================================================
Loan Related Loan Related
Balance Allowance Balance Allowance
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Impaired loan balances and related
specific valuation allowances:
Loans performing in conformity with
contractual terms ................................. $ 959 $ 294 $ 305 $ 145
Loans for which interest income is
not being recognized .............................. 3,566 -- 3,534 --
-------------------------------------------------------------
Total ........................................ $4,525 $ 294 $3,839 $ 145
=============================================================
</TABLE>
The Bank's policy on interest income on impaired loans is to reverse all accrued
interest against interest income if a loan becomes more than 90 days delinquent
and cease accruing interest thereafter. Such interest ultimately collected is
credited to income in the period of recovery.
8
<PAGE>
4. REGULATORY CAPITAL
The Company's subsidiary, Fidelity Federal Savings Bank of Florida, is a
regulated financial institution. Its regulatory capital amounts and ratios are
presented in the following table:
<TABLE>
<CAPTION>
To be Considered
Minimum for Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
----------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998 Stockholders' Equity
and ratio to total assets .......................... 8.6% $ 112,797
=====
Net unrealized increase in market value of assets
available for sale (net of applicable
income taxes) ...................................... (1,258)
Goodwill ................................................. (2,673)
Disallowed servicing assets and deferred tax assets ...... (39)
-----------
Tangible capital and ratio to adjusted total assets ...... 8.3% $ 108,827 1.5% $ 19,727
===== =========== ===== ===========
Tier 1 (core) capital and ratio to adjusted
total assets ....................................... 8.3% $ 108,827 3.0% $ 39,454 5.0% $ 65,756
===== =========== ===== =========== ===== =========
Tier 1 (core) capital and ratio to risk-weighted
total assets ....................................... 15.3% $ 108,827 6.0% $ 42,579
===== =========== ===== =========
Allowable Tier 2 capital:
General loan valuation allowances .................. 2,242
Equity investments ................................. --
-----------
Total risk-based capital and ratio to risk-weighted
total assets .................................. 15.7% $ 111,069 8.0% $ 56,773 10.0% $ 70,966
====== =========== ==== ========== ===== ==========
Total assets ............................................. $1,319,096
===========
Adjusted total assets .................................... $1,315,126
===========
Risk-weighted assets ..................................... $ 709,658
===========
As of March 31, 1999 Stockholders' Equity
and ratio to total assets .......................... 6.7% $ 108,096
=====
Net unrealized increase in market value of assets
available for sale (net of applicable
income taxes) ...................................... 110
Goodwill ................................................. (2,278)
Disallowed servicing assets and deferred tax assets ...... (64)
---------
Tangible capital and ratio to adjusted total assets ...... 6.6% $ 105,864 1.5% $ 24,043
===== =========== ===== ==========
Tier 1 (core) capital and ratio to adjusted
total assets ....................................... 6.6% $ 105,864 3.0% $ 48,086 5.0% $ 80,143
===== =========== ===== ========== ===== =========
Tier 1 (core) capital and ratio to risk-weighted
total assets ....................................... 13.5% $ 105,864 6.0% $ 46,924
===== ===== ==========
Allowable Tier 2 capital:
General loan valuation allowances .................. 2,377
Equity investments ................................. --
-----------
Total risk-based capital and ratio to risk-weighted
total assets .................................. 13.8% $ 108,241 8.0% $ 62,566 10.0% $ 78,207
===== =========== ===== =========== ===== ===========
Total assets ............................................. $1,605,098
===========
Adjusted total assets .................................... $1,602,866
===========
Risk-weighted assets ..................................... $ 782,070
===========
</TABLE>
9
<PAGE>
5. EARNINGS PER SHARE
The weighted-average number of shares used to calculate basic and diluted
earning per share, including the adjustments for the Bank's leveraged Employee
Stock Ownership Plan (ESOP), Management Recognition Plan (MRP) and stock options
for the three months ended March 31, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998
----------------------------------------------------------
Income Shares Per-Share
Numerator Denominator Amount
==========================================================
(Dollars In Thousands)
<S> <C> <C> <C>
Net income ................................................ $2,093,000
============
Basic EPS:
Income available to
common stockholders .................................. $2,093,000 6,701,332 $0.31
=========== =====
Effect of diluted shares:
Common stock options ................................. 109,845
-------
Diluted EPS:
Income available to
common stockholders .................................. $2,093,000 6,811,177 $0.31
=========== ========== =====
<CAPTION>
For the Three Months Ended
March 31, 1999
----------------------------------------------------------
Income Shares Per-Share
Numerator Denominator Amount
==========================================================
(Dollars In Thousands)
<S> <C> <C> <C>
Net income ................................................ $1,217,000
===========
Basic EPS:
Income available to
common stockholders .................................. $1,217,000 6,429,864 $0.19
=========== =====
Effect of diluted shares:
Common stock options ................................. 79,437
----------
Diluted EPS:
Income available to
common stockholders .................................. $1,217,000 6,509,301 $0.19
=========== ========== =====
</TABLE>
Pursuant to Statement of Position (SOP), 93-6, entitled "Employers' Accounting
for Employee Stock Ownership Plans," issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
(AICPA), ESOP shares that have not been committed to be released are not
considered to be outstanding.
10
<PAGE>
6. OTHER COMPREHENSIVE INCOME
An analysis of the changes in Accumulated Other Comprehensive Income for the
periods ended March 31, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
March 31, 1998 March 31, 1999
-------------------------- --------------------------
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on Securities on Securities
=========================================================
(In Thousands)
<S> <C> <C>
Beginning balance ...................................................... $ 1,405 $ (318)
Current-period change .................................................. (147) 208
------- -------
Ending balance ......................................................... $ 1,258 $ (110)
======= =======
</TABLE>
An analysis of the related tax effects allocated to Other Comprehensive Income
is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
March 31, 1998 March 31, 1999
-------------------------------------- -----------------------------------
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount Benefit Amount Amount Benefit Amount
============================================================================
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Unrealized gain (loss) on assets available for sale:
Unrealized holding gains (losses) arising
during period .............................. $ 279 $(106) $ 173 $ 335 $(127) $ 208
Less: reclassification adjustment for gains
realized in net income ..................... (516) 196 (320) -- -- --
------------------------------------- ---------------------------------
Other comprehensive income ....................... $(237) $ 90 $(147) $ 335 $(127) $ 208
===================================== =================================
</TABLE>
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General.
Fidelity Bankshares, Inc. (the "Company") is the parent company of Fidelity
Federal Savings Bank of Florida (the "Bank"). The Company conducts no business
other than holding the common stock of the Bank. Consequently, its net income
is derived from the Bank. The Bank's net income is primarily dependent on its
net interest income, which is the difference between interest income earned on
its investments in mortgage loans and mortgage-backed securities, other
investment securities and loans, and its cost of funds consisting of interest
paid on deposits and borrowings. The Bank's net income also is affected by its
provision for loan losses, as well as by the amount of other income, including
income from fees and service charges, net gains and losses on sales of
investments, and operating expense such as employee compensation and benefits,
deposit insurance premiums, occupancy and equipment costs, and income taxes.
Earnings of the Bank also are affected significantly by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities, which events are
beyond the control of the Bank. In particular, the general level of market
interest rates tends to be highly cyclical.
Forward-Looking Statements.
When used in this report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, among
other things, changes in economic conditions in the Company's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the Company's market area and competition, uncertainties
related to year 2000 that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. The Company wishes to
advise readers that the factors listed above could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
Recent Developments.
On August 31, 1998, the Company announced its plan to commence a stock
repurchase program to acquire up to 340,000 shares of the Company's Common
Stock, which represents approximately 5% of the outstanding Common Stock. This
repurchase program was completed on January 27, 1999. The average price of the
common stock purchased was $22.53 per share.
As reported in the Company's 1998 Annual Report, in November of 1988 the OTS
issued TB-73, which among other matters, stated concerns over institution's
investment in trust preferred securities, citing increased interest rate risks
due to the fixed rate nature of such securities and that some of these
securities could have their maturities extended at the option of the issuer.
The OTS adopted limitations on the investment of such securities to 15% of a
regulated institution's equity, but adopted a method by which an institution
could appeal the limitation. The Bank appealed to the OTS to permit it to
continue its investment at current levels and noted in its appeal that its
investments had floating rates and the issuer did not have the option to extend
the maturities. The OTS has approved the Bank maintaining its current
investment in these securities but not to increase its investment. These
securities are shown on the Company's Consolidated Statements of Condition as
Corporate Debt Securities.
13
<PAGE>
Other Comprehensive Income.
Accumulated Other Comprehensive Income for the quarter ended March 31, 1999
increased by $208,000. This increase was due to an increase in the market value
of Assets Available for Sale, that resulted from a modest decrease in market
interest rates for these instruments. Accumulated Other Comprehensive Income
for the quarter ended March 31, 1998 increased by $173,000, which was offset by
the reclassification of $320,000 of gains included in net income for the period,
resulting in an aggregate decrease of $147,000. The increase before
reclassification adjustments of $173,000 was due to an increase in the market
value of Assets Available for Sale, that resulted from a modest decrease in
market interest rates for these instruments.
Results of Operations.
Net income for the quarter ended March 31, 1999 was $1.2 million, a decrease of
$876,000 when compared to $2.1 million for the quarter ended March 31, 1998.
The primary reasons for this decrease, as more fully described later herein, was
an increase in interest expense of $3.1 million, a decrease in other income of
$103,000 and an increase in operating expenses of $1.4 million. Offsetting
these factors was an increase in interest income of $3.2 million and a decrease
in the provision for income taxes of $647,000.
Interest Income.
Interest income for the quarter ended March 31, 1999, totaled $26.1 million, an
increase of $3.2 million or 14.2% from the same quarter in 1998. The principal
reasons for this increase was an increase in interest income on the Bank's loans
of $1.5 million and an increase in interest income on the Bank's mortgage-backed
securities of $1.7 million. The increase from loans resulted from an increase
in the average balance of these loans to $995.5 million for the quarter ended
March 31, 1999 compared to $877.5 million for the comparable 1998 quarter. The
increase from mortgage-backed securities resulted from an increase in the
average balance of these securities to $424.6 million for the quarter ended
March 31, 1999 from $265.9 million for the same quarter in 1998. Interest
income also increased on investment securities by $81,000. This increase
resulted from an increase in the average balance of such securities to $25.2
million from $17.6 million for the quarters ended March 31, 1999 and 1998,
respectively.
Interest Expense.
Interest expense was $17.4 million for the quarter ended March 31, 1999,
representing a $3.1 million or 22.0% increase when compared to the same quarter
in 1998. The principal cause for this increase was an increase in interest
expense on deposits of $2.3 million. This resulted from an increase in the
average balance of deposits to $1.1 billion for the quarter ended March 31, 1999
compared to $898.7 million for the same quarter in 1998. Interest expense on
borrowed funds also increased by $894,000 caused primarily by a increase in the
average balance on such funds to $338.4 million for the quarter ended March 31,
1999 from $266.7 million for the comparable 1998 quarter. These increases were
partially offset by a decrease in the average yield on deposits to 4.27% from
4.46% and a decrease in the average yield on borrowed funds to 6.10% from 6.40%
for the quarters ended March 31, 1999 and 1998, respectively.
Net Interest Income.
While the Bank's interest income increased by $3.2 million for the quarter ended
March 31, 1999, compared to the same period in 1998, interest expense also
increased by $3.1 million, resulting in net interest income of $8.6 million for
the quarter ended March 31, 1999. This represents a $88,000 increase in net
interest income when compared to the same period in 1998.
14
<PAGE>
Provision for Loan Losses.
The Bank maintains an allowance for loan losses based upon management's estimate
of the fair value of collateral, as applicable, current and anticipated future
economic conditions, and the Bank's actual loss experience as well as guidelines
applied by the OTS and FDIC. The provision for loan losses was $34,000 for the
quarter ended March 31, 1999. The Bank experienced a credit provision for loan
losses of $69,000 for the quarter ended March 31, 1998. The credit provision
primarily resulted from the payoff of several delinquent loans on which the Bank
had previously provided specific loan loss allowances. The Bank's total
allowance for loan losses as a percentage of net loans receivable was
approximately .32% at March 31, 1999 which management believes to be adequate
considering the Bank's loan composition and historical loss experience.
Other Income.
Other income for the quarter ended March 31, 1999 was $1.8 million, a decrease
of $103,000 compared to the same quarter in 1998. The principal cause for this
decrease was a decrease in net gain on sale of loans, investments and mortgage-
backed securities of $465,000. Partially offsetting this decrease was an
increase in servicing income and other fees of $149,000. Servicing income and
other fees increased primarily due to an increase in the number of transaction
accounts at March 31, 1999 compared to March 31, 1998 that produced a
corresponding increase in fee income. Miscellaneous other income at March 31,
1999 also increased $213,000 compared to March 31, 1998, primarily as a result
of the receipt of $168,000 in rental income from Bank America's lease of a
portion of the Bank's office building and the receipt of $57,000 in fee income
from annuity sales.
Operating Expense.
Operating expenses increased by $1.4 million to $8.4 million for the quarter
ended March 31, 1999 as compared to the quarter ended March 31, 1998. Employee
compensation and benefits increased by $934,000. This increase, which includes
normal salary increases, is due mainly to the hiring of additional personnel in
connection with the Bank's planned branch expansion in 1999 as well as expansion
of the Bank's commercial loan production capabilities. As a result, the Bank's
full time equivalent personnel increased by 102 at March 31, 1999 to 421
compared to 319 at March 31, 1998. Occupancy and equipment costs increased by
$368,000 due in part to increases in real estate tax assessments on the Bank's
properties along with additional depreciation expenses relating to new computer
equipment. Also contributing to this increase was an increase in data
processing charges caused by increased usage by the Bank and a 5% rate increase.
In addition, there were increases in federal deposit insurance premiums of
$27,000 and other operating expense of $194,000 for the quarter ended March 31,
1999 compared to 1998. Partially offsetting these increases was a decrease in
the loss on real estate owned of $117,000.
Income Taxes.
Provision for incomes taxes was $770,000 for the quarter ended March 31, 1999
compared to $1.4 million for the quarter ended March 31, 1998. This decrease
was attributable to a decrease in income before provision for income taxes of
$1.5 million to $2.0 million in 1999 from $3.5 million in 1998. These expenses
approximate the rates paid by the Company for Federal and State income taxes
applied to the Company's pre-tax income.
15
<PAGE>
Changes in Financial Condition.
The Company's assets increased by $40.0 million from December 31, 1998 to March
31, 1999. Net loans receivable increased by $35.5 million. In addition, the
Bank increased its investment in office properties and equipment, primarily for
new office sites, by $1.0 million, while all other assets increased by $3.5
million. Funds for the increase in assets were provided primarily by an increase
in the Bank's deposits of $41.1 million. The Company's equity at March 31, 1999
decreased by $1.9 million from December 31, 1998. This decrease was due in part
to the Company's completion of the stock repurchase program and dividends
declared of $1.6 million. During the quarter, the Company repurchased 93,000
shares for $1.9 million. Partially offsetting the decrease in equity was net
income during the quarter of $1.2 million.
Market Risk Analysis
As a holding company for a financial institution, the Company's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense recorded on a
large portion of the Bank's assets and liabilities, and the market value of all
interest-earning assets, other than those which possess a short term to
maturity. Since the majority of the Company's interest-bearing liabilities and
nearly all of the Company's interest-earning assets are held by the Bank,
virtually all of the Company's interest rate risk exposure lies at the Bank
level. As a result, all significant interest rate risk management procedures are
performed by management of the Bank. Based upon the nature of the Bank's
operations, the Bank is not subject to foreign currency exchange or commodity
price risk. The Bank's loan portfolio is concentrated primarily in Palm Beach,
Martin and Broward Counties in Florida and is therefore subject to risks
associated with the local economy. As of March 31, 1999, the Company does not
own any trading assets, other than $585,000 of assets held by the SMPIAP Trust
which can be actively traded by and are held for the benefit of senior
management. Income in these accounts accrues to and losses are solely absorbed
by senior management. At March 31, 1999, the Company does not have any hedging
transactions in place such as interest rate swaps and caps.
Asset and Liability Management-Interest Rate Sensitivity Analysis.
The Bank also monitors interest rate risk by various methods including analyzing
changes in its Market Value of Portfolio Equity (MVPE). MVPE is generally
defined as the difference between the market value of the Bank's assets and the
market value of the Bank's liabilities. The Bank uses an internal model that
generates estimates of the Bank's MVPE over a range of interest rate scenarios.
The model calculates MVPE essentially by discounting the cash flows from the
Bank's assets and liabilities to present value using current market rates and
adjusting those discounts rates accordingly for various interest rate scenarios.
The following table sets forth the Bank's estimated internal calculations of
MVPE as of March 31, 1999.
<TABLE>
<CAPTION>
Changes in Rates Net Market Value of Portfolio Equity
(Rate Shock) Amount Change % Change
------------------------- ----------------------------------------
<S> <C> <C> <C>
+200bp 82,584 (24,225) -22.7%
+100bp 93,469 (13,340) -12.5%
-0- 106,809 - -
-100bp 117,680 10,871 10.2%
-200bp 123,219 16,410 15.4%
</TABLE>
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in MVPE requires the making of certain
assumptions that may or may not reflect how actual yields and costs respond to
changes in market rates. Accordingly, while the above table provides an
estimate of the Bank's interest rate risk exposure at a particular point in
time, it is not intended to provide a precise forecast of the effect of market
changes on the Bank's MVPE and net interest income as actual results may vary.
16
<PAGE>
Liquidity and Capital Resources.
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings. The required ratio currently is 4.0%. The
Bank's liquidity ratio averaged 7.42% during the month of March 1999. Liquidity
ratios averaged 6.86% for the quarter ended March 31, 1999. The Bank adjusts
its liquidity levels in order to meet funding needs of deposit outflows, payment
of real estate taxes on mortgage loans, and repayment of borrowings and loan
commitments. The Bank also adjusts liquidity as appropriate to meet its asset
and liability management objectives.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities and other short-term investments, as well
as earnings and funds provided from operations. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. The Bank manages
the pricing of its deposits to maintain a desired deposit balance. In addition,
the Bank invests excess funds in short-term interest-earning and other assets,
which provide liquidity to meet lending requirements. Short-term interest-
bearing deposits with the FHLB of Atlanta amounted to $37.1 million and $32.1
million at March, 31, 1999 and December 31, 1998, respectively. Other assets
qualifying for liquidity at March 31, 1999 and December 31, 1998, amounted to
$50.4 million and $33.5 million, respectively. For additional information about
cash flows from the Company's operating, financing and investing activities, see
Consolidated Statements of Cash Flows included in the Financial Statements. A
major portion of the Bank's liquidity consists of cash and cash equivalents,
which are a product of its operating, investing and financing activities. The
primary sources of cash are net income, principal repayments on loans and
mortgage-backed securities, increases in deposit accounts and advances from the
FHLB.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. At March 31, 1999, the Bank had $301.2 million in advances
from the FHLB. At March 31, 1999, the Bank had commitments outstanding to
originate or purchase loans of $34.0 million. This amount does not include the
unfunded portion of loans in process. Certificates of deposit scheduled to
mature in less than one year at March 31, 1999, totaled $588.0 million. Based
on prior experience, management believes that a significant portion of such
deposits will remain with the Bank.
Year 2000 Preparations.
Like many financial institutions, the Bank relies upon computers for the daily
conduct of its business and for data processing generally. There is concern that
on January 1, 2000 computers will be unable to "read" the new year and as a
consequence, there may be widespread computer malfunctions. To address this
contingency the Bank formed a Year 2000 Committee in March 1997, comprised of
the Bank's Senior Management, which meets monthly to review the Bank's plan to
achieve compliance with the issues associated with the year 2000 and progress to
date and report such progress to the Board of Directors. The Bank's Year 2000
Project Plan includes five phases; assessment, evaluation, renovation,
validation and implementation. The Bank has substantially completed all of the
above phases for its internal applications and systems, except for final
installation of additional hardware and software, which is in progress.
Management of the Bank believes all "mission critical" applications have been
identified. The Bank has identified 270 potential information and non
information technology applications including, for example, electrical
utilities, phone service, alarm systems and elevators which might have problems
associated with the year 2000. Most of these applications are not mission
critical. Of these applications, 226 providers assert they are or will be year
2000 compliant. To the extent applications suppliers assert their applications
are year 2000 ready, whether they are information technology or non information
technology related, the Bank is currently testing and validating their claims,
while working toward solutions with others. However, legal recourse against the
Bank's third party vendors may be limited to having the third party vendor
correct any service deficiency that fails in the event the service is not year
2000 compliant.
17
<PAGE>
Management does not believe that it would be able to obtain any material
compensatory or punitive damages in the event a vendor is not year 2000
compliant. Management has concluded that the cost of modernizing the Bank's
computer hardware and software, on an accelerated basis, will cost approximately
$ 2.3 million, including data processing upgrades not necessarily associated
with the year 2000 and other non-information technology costs, of which
approximately $1.7 million has already been incurred. These costs, which will be
funded through operating cash flow, are being capitalized and expensed in
conformity with generally accepted accounting principles. The Bank does not
separately track internal costs associated with the year 2000 plan, including
salaries and benefits for all employees working on the project and has not
included such costs in the above estimate.
The Bank contracts with a data processing service bureau, FiServ-Orlando to
provide all direct processing of the Bank's loan and deposit transactions,
together with calculations of interest income and expense thereon. Management of
the Bank is in regular contact with the service bureau and closely monitors the
service bureau's reports on it progress in becoming year 2000 ready. Based on
its most recent report, the service bureau asserts it has completed the
assessment and evaluation phases. With respect to the renovation phase, the
service bureau reports substantial progress on all mission critical
applications. The testing and implementation phases have begun in several
applications. The Bank is participating in the testing of these applications.
While the service bureau assures management of the Bank that it will achieve
year 2000 readiness, management is unable to predict whether the service bureau
will achieve year 2000 readiness on a timely basis or the magnitude of the
financial consequences to the Bank in the event of the service bureau's failure
to achieve such readiness.
Since the Bank's business relies on the ability of computers to track and credit
deposits and loan repayments, the failure of the Bank's computer systems would
materially and adversely affect the Bank's ability to conduct its business. The
Bank's loan portfolio primarily consists of loans secured by residential real
estate. Consequently, the Bank does not believe that its residential real estate
lending operations are dependent on borrowers' compliance with the year 2000
issue. With respect to outstanding loans made to commercial borrowers, the Bank
has reviewed all commercial loan files and assigned risk factors to each loan
relating to credit problems which might arise with respect to year 2000 issues.
In addition, the Bank's loan officers have asked their commercial borrowers to
advise the Bank of the exposure of the borrower's business to the year 2000
issue and how the borrower is addressing the year 2000 issue. In this regard,
the Bank has sent its commercial loan customers a letter asking them if they are
aware of the year 2000 issue, and of the potential exposure of the customer's
business to the year 2000 issue and asking the customer to advise the Bank of
the steps that have been taken to remediate any problems the customer's business
might have in becoming year 2000 compliant. Bank personnel follow-up the letter
by making a telephone call to its customers to discuss each customer's exposure
to the year 2000 and the customer's contingency plans to become year 2000
compliant. With respect to new commercial loans, all borrowers must describe how
dependent their business is on computer technology, the actions taken by the
borrower to ensure that their business or property will not be adversely
affected by the year 2000 issue, and the contingency planning the borrower is
undertaking to ensure their business is year 2000 compliant. As part of the loan
underwriting process, commercial borrowers must indicate in writing to the Bank
that they are aware of the year 2000 issue and are either year 2000 compliant,
or are taking steps to become year 2000 compliant. As a result of its actions,
the Bank believes that its commercial borrowers are aware of the year 2000 issue
and are taking actions to become year 2000 compliant.
The Bank has adopted and is testing contingency plans which address operational
policies and procedures in the event of data processing, electrical power supply
and/or phone service failures associated with the year 2000. In addition to
extensive training of its personnel, the Bank has organized a local financial
institutions "user group," comprised of financial institutions in Palm Beach,
Broward, Martin, St. Lucie and Indian River counties of Florida. The purpose of
the group is to meet and share ideas and solutions for solving issues associated
with the year 2000.
18
<PAGE>
FASB Statement on Derivatives and Hedging Activities - In June, 1998, the FASB
issued SFAS No. 133 which establishes accounting and reporting standards for
derivative instruments and for hedging activities. The Statement requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a foreign
currency hedge. Entities may reclassify securities from the held-to-maturity
category to the available-for-sale category at the time adopting SFAS No. 133.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999 and, accordingly, would apply to the Company beginning on
April 1, 2000. The Company plans to adopt the standard at that time and does
not presently intend to reclassify securities between categories. The Company
has not engaged in derivatives and hedging activities covered by the new
standard, and does not expect to do so in the foreseeable future. Accordingly,
SFAS No. 133 is not expected to have a material impact on the Company's
financial statements.
FASB Statement on Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise In October,
1998 the FASB issued SFAS No. 134 which amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities". Statement No. 65, as amended by Statement
No. 115 and Statement No. 125, required that after securitization of a mortgage
loan held for sale, a mortgage banking enterprise classify the resulting
security as a trading security. Statement No. 134 amends this section to
require that after the securitization of mortgage loans held for sale, the
entity classify the resulting mortgage-backed security or other retained
interests based on its ability and intent to sell or hold those investments.
SFAS 134 is effective for the first quarter beginning after December 15, 1998
and accordingly applies to the Company for the quarter ended March 31, 1999.
The Company has not engaged in retaining securities after the securitization of
its mortgage loans held for sale and does not expect to do so in the foreseeable
future. Accordingly, SFAS No. 134 is not expected to have a material impact on
the Company's financial statements.
19
<PAGE>
FIDELITY BANKSHARES, INC.
AND SUBSIDIARY
Part II - Other Information
Item 1 Legal Proceedings
The Company and its subsidiary are not involved in any litigation, nor
is the Company aware of any pending litigation, other than legal
proceedings incident to the business of the Company, such as foreclosure
actions filed on behalf of the Company. Management, therefore, believes
the results of any current litigation would be immaterial to the
consolidated financial condition or results of operation of the Company.
Item 2 Changes in Securities
None.
Item 3 Default Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) All required exhibits are included in Part I under Consolidated
Financial Statements (pages 2 through 5), Notes to Unaudited
Consolidated Financial Statements (pages 6 through 11) and
Management's Discussion and Analysis of Financial Condition and
Results of Operations (pages 12 through 19), and are incorporated
by reference, herein.
20
<PAGE>
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.
FIDELITY BANKSHARES, INC.
Date: May 14, 1999 By: /s/ Vince A. Elhilow
-----------------------------
Vince A. Elhilow
President and Chief Executive
Officer
Date: May 14, 1999 By: /s/ Richard D. Aldred
----------------------------
Richard D. Aldred
Executive Vice President
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 28,623
<INT-BEARING-DEPOSITS> 37,091
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 451,379
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,012,716
<ALLOWANCE> 3,201
<TOTAL-ASSETS> 1,606,888
<DEPOSITS> 1,161,869
<SHORT-TERM> 8,104
<LIABILITIES-OTHER> 23,904
<LONG-TERM> 329,961
0
0
<COMMON> 681
<OTHER-SE> 82,369
<TOTAL-LIABILITIES-AND-EQUITY> 1,606,888
<INTEREST-LOAN> 18,846
<INTEREST-INVEST> 321
<INTEREST-OTHER> 6,887
<INTEREST-TOTAL> 26,054
<INTEREST-DEPOSIT> 12,267
<INTEREST-EXPENSE> 5,159
<INTEREST-INCOME-NET> 8,628
<LOAN-LOSSES> 34
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,418
<INCOME-PRETAX> 1,987
<INCOME-PRE-EXTRAORDINARY> 1,987
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,217
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 2.53
<LOANS-NON> 2,971
<LOANS-PAST> 0
<LOANS-TROUBLED> 110
<LOANS-PROBLEM> 3,888
<ALLOWANCE-OPEN> 3,226
<CHARGE-OFFS> (59)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,201
<ALLOWANCE-DOMESTIC> 824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,377
</TABLE>
