UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-22937
NSS BANCORP, INC.
-----------------
(Exact name of registrant as specified in its charter)
Connecticut 06-1485317
----------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
48 Wall Street, Norwalk, Connecticut
------------------------------------
(Address of principal executive offices)
06852 (203) 838-4545
----- --------------
(Zip Code) Registrant's telephone #)
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 the latest practicable date.
Class: Common Stock, par value $.01 per share
Outstanding at September 30, 1998: 2,390,941 shares
TABLE OF CONTENTS
PART I - CONSOLIDATED FINANCIAL INFORMATION Page
- -------------------------------------------
A. Consolidated Statements of Financial Condition 1
B. Consolidated Statements of Operations 2
C. Consolidated Statements of Shareholders' Equity 3
D. Consolidated Statements of Cash Flows 4-5
E. Notes to Consolidated Financial Statements 6-7
F. Management's Discussion and Analysis 8-28
G. Quantitative and Qualitative Disclosures about Market Risk 28
H. Selected Consolidated Financial Highlights 29-30
PART II - OTHER INFORMATION 31
PART III - SIGNATURES 32
<TABLE>
<S>
NSS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1998 1997
------------- ------------
ASSETS (in thousands)
- ------ <C> <C>
Cash and Due from Banks $ 11,512 $ 11,486
Interest Bearing Deposits in
Other Banks 5,880 5,555
Federal Funds Sold - 5,000
Securities:
Trading, at Fair Value 3,093 1,830
Available-for-Sale, at Fair Value 189,766 178,667
Loans Receivable, Net of allowance
for credit losses of $5,435 as of
September 30 and $5,832 as of
December 31 411,794 425,812
Loans Held-for-Sale 4,479 5,311
Accrued Interest Receivable 4,269 3,859
Federal Home Loan Bank Stock, At Cost 7,347 7,347
Other Real Estate Owned, Net 270 574
Bank Premises and Equipment, Net 3,690 3,738
Deferred Income Tax Asset, Net 1,139 361
Goodwill, Net 1,279 1,524
Other Assets 5,737 3,158
-------- --------
Total Assets $650,255 $654,222
======== ========
LIABILITIES
- -----------
Deposits
- --------
Non-interest Bearing $ 33,267 $ 27,471
Savings, Money Market and
NOW Accounts 188,973 174,873
Time Accounts 223,561 241,867
Total Deposits 445,801 444,211
Borrowed Funds 146,200 151,671
Accrued Expenses and Other Liabilities 2,723 2,202
------- -------
Total Liabilities 594,724 598,084
------- -------
SHAREHOLDERS' EQUITY
- --------------------
Preferred Stock ($.01 par value,
500,000 shares authorized,
none outstanding) - -
Common Stock ($.01 par value,
7,000,000 shares authorized,
issued 2,493,783 as of September 30
and 2,460,370 as of December 31;
outstanding 2,390,941 as of
September 30 and 2,434,096
as of December 31) 25 25
Additional Paid-In Capital 25,346 24,199
Retained Earnings 33,965 31,048
Other Accumulated Comprehensive Income 110 1,129
-------- --------
Total 59,446 56,401
Less: Unearned ESOP Shares 123 263
Treasury Stock (90,500 shares
as of September 30)at Cost 3,792 -
-------- --------
Total Shareholders' Equity 55,531 56,138
-------- --------
Total Liabilities and
Shareholders' Equity $650,255 $654,222
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<S>
NSS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
INTEREST AND DIVIDEND INCOME <C> <C> <C> <C>
Loans, Including Fees $ 8,167 $ 8,544 $24,788 $24,841
Investment Securities and Other
- -------------------------------
Taxable Interest 2,477 2,719 7,892 7,817
Dividends 657 706 1,945 1,335
------ ------ ------ ------
Total 11,301 11,969 34,625 33,993
------ ------ ------ ------
INTEREST EXPENSE
Deposits 4,353 4,271 13,048 12,779
Borrowed Funds 1,958 2,657 6,523 6,935
----- ----- ------ ------
Total 6,311 6,928 19,571 19,714
----- ----- ------ ------
NET INTEREST INCOME 4,990 5,041 15,054 14,279
Provision for Credit Losses - - 150 -
----- ----- ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 4,990 5,041 14,904 14,279
----- ----- ------ ------
NON-INTEREST INCOME
Customer Service Fees 211 201 636 607
Loan Servicing Fees 82 108 286 340
Trust Department Fees 162 154 472 432
Net Gain (Loss) on Sale of
Loans and Securities (282) 516 196 879
Credit Card Fees 460 330 1,237 1,017
Other 276 198 745 354
----- ----- ----- -----
Total Non-Interest Income 909 1,507 3,572 3,629
----- ----- ----- -----
NON-INTEREST EXPENSE
Compensation and Benefits 2,064 2,039 6,189 5,895
Occupancy, Equipment and
Data Processing 656 647 1,931 1,967
Regulatory Assessments 14 13 41 41
OREO Holding Costs and Expenses 16 24 73 122
Sale of OREO (Gains) Losses, Net (17) (98) (61) (306)
Credit Card Expense 383 279 1,044 824
Goodwill Amortization 82 82 245 244
Other 810 920 3,068 2,817
----- ----- ------ ------
Total Non-Interest Expense 4,008 3,906 12,530 11,604
----- ----- ------ ------
EARNINGS BEFORE INCOME TAXES 1,891 2,642 5,946 6,304
Provision for Income Taxes 678 965 2,136 2,433
----- ----- ----- -----
NET EARNINGS $1,213 $1,677 $3,810 $3,871
===== ===== ===== =====
EARNINGS PER SHARE - BASIC $0.51 $0.69 $1.59 $1.60
EARNINGS PER SHARE - ASSUMING
DILUTION $0.48 $0.66 $1.49 $1.54
Weighted average shares outstanding (000's):
Basic 2,384 2,418 2,393 2,408
Assuming Dilution 2,550 2,551 2,552 2,516
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<S>
NSS BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Paid-In Retained
Shares Stock Capital Earnings
------ ------ ---------- --------
($ in thousands)
<C> <C> <C> <C>
Balance - December 31, 1996 2,397,312 $24 $23,545 $26,339
Comprehensive Income:
Net Income 5,565
Other, Net of Tax
Total
Stock Options Exercised 18,201 1 272 -
Shares Distributed to Advisory
Board 40 - 1 -
Cash Dividends Paid on Common
Stock - - - (856)
ESOP Shares Committed to be
Released 18,543 - 381 -
-------- --- ------ ------
Balance - December 31, 1997 2,434,096 25 24,199 31,048
Comprehensive Income:
Net Income 3,810
Other, Net of Tax
Total
Stock Options Exercised 29,516 - 505 -
Cash Dividends Paid on Common
Stock - - - (893)
Long-Term Incentive Compensation
Plan Shares 3,897 - 142 -
ESOP Shares Committed to be
Released 13,932 - 500 -
Treasury Stock (90,500) - - -
--------- --- ------- -------
Balance - September 30, 1998 2,390,941 $25 $25,346 $33,965
========= === ======= =======
Other Comprehensive Income:
Before-Tax Tax Net-of-Tax
Amount Effect Amount
---------- ------ ----------
Unrealized Gains (Losses) <C> <C> <C>
on Securities:
Balance - December 31, 1997 $1,911 $(782) $1,129
Activity Arising During the Period (1,613) 660 (953)
Less: Reclassification (112) 46 (66)
------ ---- -----
Balance - September 30, 1998 186 (76) 110
====== ==== =====
</TABLE>
<TABLE>
<S>
Other Total
Accumulated Unearned Share-
Comprehensive ESOP Treasury holders'
Income Shares Stock Equity
------------- ------- -------- --------
($ in thousands)
<C> <C> <C> <C>
Balance - December 31, 1996 $ (106) $(449) $ - $49,353
Comprehensive Income:
Net Income 5,565
Other, Net of Tax 1,235 1,235
------
Total 6,800
------
Stock Options Exercised - - - 273
Shares Distributed to Advisory
Board - - - 1
Cash Dividends Paid on Common
Stock - - - (856)
ESOP Shares Committed to be
Released - 186 - 567
----- ---- ---- ------
Balance - December 31, 1997 1,129 (263) - 56,138
Comprehensive Income:
Net Income 3,810
Other, Net of Tax (1,019) (1,019)
------
Total 2,791
------
Stock Options Exercised - - - 505
Cash Dividends Paid on Common
Stock - - - (893)
Long-Term Incentive Compensation
Plan Shares - - - 142
ESOP Shares Committed to be
Released - 140 - 640
Treasury Stock - - (3,792) (3,792)
---- ---- ----- ------
Balance - September 30, 1998 $110 ($123) ($3,792) $55,531
==== === ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<C>
NSS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash & Cash Equivalents
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
($ in thousands)
Cash Flows from Operating Activities: <C> <C>
Net Earnings $ 3,810 $ 3,871
Adjustments to Reconcile Net Earnings ------- -------
to Net Cash Provided (Used) by Operating Activities
Provision for Credit Losses 150 -
Deferred Income Tax (70) 970
Provision for ESOP Benefit Cost 454 508
Depreciation and Amortization 453 461
Goodwill Amortization 245 244
Net Amortization of Discounts and
Premiums on Securities 918 530
Net Gains on Sales of Loans and Securities (144) (218)
Net Gains on Sales of OREO (61) (306)
Net (Increase) Decrease in Trading
Securities (1,263) 977
Increase in Accrued Interest Receivable (620) (787)
Increase in Other Assets (1,236) (3,922)
Decrease in Accrued Expense and Other
Liabilities 320 2,698
------- -------
Total Adjustments (1,494) 1,155
------- -------
Net Cash Provided by Operating Activities 2,316 5,026
------- -------
Cash Flows from Investing Activities:
Proceeds from:
Sales of Loans and Securities 53,518 61,454
Maturities of Securities 34,636 18,545
Sales of Other Real Estate Owned 712 1,206
Purchases of Securities (96,502) (120,747)
Net Decrease (Increase) in Loans (8,824) (25,968)
Additions to Goodwill - (95)
Additions to Bank Premises and Equipment (405) (1,008)
------ -------
Net Cash Provided by (Applied to)
Investing Activities 783 (66,613)
------ -------
Cash Flows from Financing Activities:
Net Increase in Deposits 1,572 5,336
Repayments of FHLBB Advances and Other
Borrowings (159,786) (79,819)
Net Increase in Repurchase Agreements 5,906 3,300
Advances from FHLB of Boston 144,617 144,409
Proceeds from Exercised Stock Options 835 212
Proceeds from Advances from Credit Line 3,792 -
Purchase of Treasury Stock (3,792) -
Cash Dividends (893) (611)
------ ------
Net Cash (Applied to) Provided
by Financing Activities (7,749) 72,827
------ ------
(Decrease) Increase in Cash and Cash
Equivalents (4,650) 11,240
Cash and Cash Equivalents - Beginning 22,041 18,851
------ ------
Cash and Cash Equivalents - Ending $17,391 $30,091
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<S>
NSS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash & Cash Equivalents
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
($ in thousands)
SUPPLEMENTAL DISCLOSURES OF <C> <C>
CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest $19,487 $19,654
Income Taxes $2,136 $2,433
Non-Cash Investing and Financing Activities:
Loans Receivable Transferred to OREO $1,644 $681
Loans Originated in Connection with
Sale of OREO $1,296 $461
Exchange of Loans for Mortgage-Backed
Securities $1,176 $ -
Transfer of Loans Receivable to
Loans-Held-For-Sale $4,479 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
NSS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 (unaudited) and December 31, 1997
NOTE 1 - NATURE OF BUSINESS AND REGULATIONS
- -------------------------------------------
NSS Bancorp. Inc. (the Company or Bancorp) is the holding company
for NSS Bank (Bank)(formerly Norwalk Savings Society). The Bank is a
Connecticut state-chartered savings bank which provides a full range of
banking services to its local area customers in and around
southern Fairfield County, Connecticut. The Bank is subject to
competition from various other financial institutions, and is
also subject to the regulations of certain Federal and State
agencies and undergoes periodic examination by those regulatory
authorities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The condensed consolidated financial statements in this report have
not been audited, with the exception of the information derived
from the Consolidated Statement of Financial Condition as of
December 31, 1997, which information should be read in conjunction
with the Company's audited financial statements and footnotes
thereto included in its Annual Report to Shareholders for the year
ended December 31, 1997.
The consolidated financial statements include the accounts of
Bancorp, Bank, and the Bank's wholly owned subsidiary, NSS Realty
Corporation (NSS Realty). All significant intercompany accounts
and transactions have been eliminated in consolidation. In the
opinion of management, all adjustments necessary for a fair
presentation of financial position and results of operations for
the interim periods presented have been made, and all such
adjustments are of a normal recurring nature.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the
Consolidated Statement of Financial Condition and income and
expenses for the periods presented. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term related to the determination of the
allowance for credit losses and valuation of other real estate
owned ("OREO"). In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Bank's allowances for losses. Such agencies may require the Bank
to recognize additions to the allowances based on their judgment of
information available to them at the time of their examination.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," on January 1,
1998. SFAS No. 130 defines total comprehensive income as all
changes in equity during a period from transactions and other
events and circumstances from nonowner sources. Other
comprehensive income includes revenues, expenses, gains and losses
that, under generally accepted accounting principles, are included
in comprehensive income but excluded from net income. The
Company's other comprehensive income is generally comprised of
unrealized gains and losses on securities available for sale.
Disclosure of comprehensive income for the 1998 and 1997 periods
is presented in the accompanying Consolidated Statements of
Shareholders' Equity.
NSS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 (unaudited) and December 31, 1997
NOTE 3 - SUPPLEMENTAL DISCLOSURES
- ---------------------------------
Additional information and supporting disclosures as to effective
income tax rates, investment securities, loans, non-performing
assets and related allowances for losses are included in Management's
Discussion and Analysis.
NOTE 4 - OTHER SIGNIFICANT MATTERS
- ----------------------------------
On February 23, 1994, the Board of Directors unanimously adopted
and approved the Bank's plan of Conversion (Conversion) to convert
from a Connecticut-chartered mutual to a Connecticut-chartered
capital stock savings bank through amendment of its mutual charter
and the sale of common stock to the Bank's depositors and others.
The Bank commenced its subscription offering on May 4, 1994, and
concluded the offering on June 9, 1994. A total of 2,426,740
shares were issued on June 15, 1994, the effective issuance date
of the securities.
As part of the Conversion, the Board of Directors adopted a tax-
qualified employee stock ownership plan (ESOP). The ESOP Trustee
borrowed the funds to purchase Conversion stock in an amount equal
to 5% of the total number of shares issued in the Conversion. The
Trustee for the ESOP acquired 121,337 shares in connection with
the stock conversion through the subscription offering. The
shares were purchased with a loan obtained from a third party,
guaranteed by the Company, reflected as "Other Borrowings" on the
Consolidated Statements of Financial Condition.
At the 1997 Annual Meeting, shareholders approved the formation of
a bank holding company, and NSS Bancorp, Inc. was organized
effective October 1, 1997. Consolidated financial information for
all periods prior to October 1, 1997 reflect the financial
conditions and results of operations of only the Bank and NSS
Realty.
In February 1998, Bancorp obtained a $15 million line of credit
from another bank in connection with its Treasury Stock Repurchase
Program. The line of credit calls for interest at the prime rate,
with a one year interest-only payment requirement and a four year
principal and interest repayment term. The balance outstanding was
$3.8 million at June 30, 1998.
On October 28, 1998, Bancorp's Board of Directors declared a cash
dividend of thirteen cents ($.13) per share to common shareholders
of record November 10, 1998 and payable on November 25, 1998.
On June 17, 1998, the Company announced that it had entered into
an agreement with Summit Bancorp (Summit), Princeton, New Jersey,
whereby the Company would be merged with and into Summit in a
stock-for-stock exchange which is expected to close during the
fourth quarter of 1998.
On November 5, 1998, shareholders of the Company approved the merger
with Summit.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
--------
NSS Bancorp, Inc. (the "Company" or "Bancorp") is the holding company
for NSS Bank ("NSS" or the "Bank"). The Company's principal asset
consists of all of the outstanding shares of the Bank. NSS Bancorp was
formed effective October 1, 1997, and is subject to regulation by the
Board of Governors of the Federal Reserve System.
NSS Bank was founded in 1849 and is a Connecticut-chartered capital stock
savings bank, with deposits insured by the Federal Deposit Insurance
Corporation ("FDIC"), headquartered in Norwalk, Connecticut. Its initial
public offering of common stock was effective June 15, 1994. Formerly
Norwalk Savings Society, in February 1998 the Bank changed its name to
NSS Bank to better reflect the nature of its operations.
As a result of the successful completion of its public offering, the Bank
had sufficient capital to meet regulatory requirements, deal with its
non-performing assets, restructure its balance sheet to improve its
operating results, and position itself for long term growth.
In 1996 and continuing into 1997, the Bank embarked on a program of
expanding its business products and services as well as continuing to
provide a full range of personal banking products and services. The Bank
acquired certain assets and assumed essentially all of the liabilities of
Fairfield First Bank & Trust Company ("FFB&T") in an FDIC-assisted
transaction and opened a full service branch office in Darien.
In October 1997 the Bank formed NSS Bancorp, Inc., a holding company,
that will allow the Company to expand or enter into other financial
service activities, capitalizing on its newly acquired business customer
base and affording it the opportunity to expand its services to its
existing consumer relationships. This reemphasis has not changed the
Company's strong commitment to the communities where its business and
consumer customers live and work.
In order to respond to the community's significant demand for credit, and
at the same time manage balance sheet growth, in 1997 and continuing in
1998, the Bank expanded its correspondent loan program, whereby it acts
as an agent for third party lenders and receives a fee for its
origination efforts.
Early in 1997, the Bank adopted an income tax strategy to grow the
investment securities portfolio with callable preferred securities which
provide dividend income, a substantial portion of which is exempt from
State and Federal income taxation. The result of this strategy is a
lower than normal effective income tax rate for the Company.
In December 1997, the Company adopted a stock repurchase program under
which the Company agreed to repurchase up to 15% of its issued and
outstanding common stock at market prices in negotiated and/or open
market purchases. The original program was scheduled to expire on March
31, 1998 but was extended through the end of 1998. Under this program,
in February and March 1998, the Company acquired 90,500 shares at a cost
of $3.8 million. The Company reported net earnings of $1.2 million, or
basic and diluted earnings per common share of $0.51 and $0.48,
respectively, for the three months ended September 30, 1998, and $3.8
million or $1.59 basic and $1.49 diluted earnings per share for the nine
months ended September 30, 1998. The Company's tier one leverage capital
ratio was 8.40% as of September 30,1998, qualifying it as "well
capitalized" according to standards established by bank regulatory
authorities.
During the three months ended September 30, 1998, the Company declared a
$.13 dividend on common stock to its shareholders. The Company's stock
price was $37.75 per share on January 1, 1998, $47.25 per share on March
31, 1998, $56.00 on June 30, 1998, and $44.63 on September 30, 1998.
RESULTS OF OPERATIONS
---------------------
Comparison of Operating Results for the Three Months Ended
----------------------------------------------------------
September 30, 1998 and 1997
---------------------------
General
- -------
Net earnings for the three months ended September 30, 1998 were $1.2
million, or $0.51 and $0.48 per common share, on a basic and diluted
basis, respectively. The Bank's net earnings were $1.7 million, or $0.69
and $0.66 per common share on a basic and diluted basis, respectively,
for the comparable period of 1997.
There was no provision for credit losses in either the 1998 or 1997
periods.
There was a significant decrease in gains from the sales of securities
and loans, primarily due to a significant increase in unrealized losses
on trading securities, for the three months ended September 30, 1998
compared to the same period in 1997.
Net Interest Income
- -------------------
Net interest income, which is the primary source of income for the
Company, is the difference between the interest, fees and dividends
earned on loans and investments, and the interest paid on deposits and
borrowings.
Net interest income was $4.99 million for the three months ended
September 30, 1998, a decrease of 1% from the $5.04 million for the three
months ended September 30, 1997. The $51 thousand decrease resulted from
a decrease in interest income of $668 thousand offset by a $617 thousand
decrease in interest expense. The $668 thousand decrease in interest
income was attributable to a $344 thousand decrease in volume and a $324
thousand decrease in rate, while the $617 thousand decrease in interest
expense resulted from a $577 thousand decrease due to volume and a $40
thousand decrease related to rate.
The 5.6% decrease in interest income, from $12.0 million in 1997 to $11.3
million in 1998, was primarily attributable to the decrease in the volume
of interest income from the loan portfolio, partially offset by growth in
the securities portfolio. There was also a substantial decline in
interest income from securities due to declining rates. The 8.9% decrease
in interest expense, from $6.9 million in 1997 to $6.3 million in 1998,
resulted primarily from the decrease in interest expense attributable to
the decreased level of borrowings, partially offset by an unfavorable
variance on deposit accounts.
On an overall basis, the Company was able to maintain its net interest
income by controlling volume in order to offset the effect of margin
compression resulting from declining interest rates on loans and
securities during the 1998 period.
The following table summarizes the Company's net interest income and net
yield on average interest-earning assets. Non-accruing loans are
included in average loans outstanding during the periods, and daily
average amounts were used to compute average balances.
<TABLE>
<S>
Table 1 Three Months Ended September 30, 1998
Compared to
Three Months Ended September 30, 1997
($ thousands) 1998
-------------------------------
Average Average
Balance Interest Rate
------- -------- -------
Interest-Earning Assets <C> <C> <C>
- -----------------------
Loans Receivable $420,898 $ 8,178 7.77%
Investment Securities 62,810 1,094 6.97
Mortgage-Backed Securities 81,308 1,252 6.16
Short-Term Investments 16,875 236 5.59
Marketable Equities 43,036 541 5.03
------- ------
Total Interest-Earning Assets 624,927 11,301 7.23%
------- ------ ----
Non-Interest-Earning Assets
- ---------------------------
Cash and Cash Equivalents 9,078
Accrued Income Receivable 3,815
Premises and Equipment 3,589
Other 9,133
Less: Allowance for Credit
Losses (5,421)
Total Non-Interest-Earning ------
Assets 20,194
-------
Total Assets $645,121
=======
Interest-Bearing Liabilities
- ----------------------------
Deposits
Regular Savings and NOW $ 67,435 260 1.54%
Super Savings and Money
Market 118,513 1,014 3.42
Time 226,833 3,059 5.39
------- ----- ----
Total Deposits 412,781 4,333 4.20
Borrowings 135,632 1,958 5.77
Mortgage Escrow Deposits 3,304 20 2.42
Total Interest-Bearing ------- ----- ----
Liabilities 551,717 6,311 4.58%
------- ----- ----
Non-Interest-Bearing Liabilities
- --------------------------------
Non-Interest-Bearing Deposits 34,861
Other Liabilities 2,170
Total Non-Interest-Bearing -------
Liabilities 37,031
-------
Shareholders' Equity 56,373
-------
Total Liabilities and Shareholders'
Equity $645,121
=======
Net Interest-Earning Assets and
Interest Rate Spread $73,210 2.65%
====== ----
Net Interest Income and Net Yield
on Average Interest-Earning Assets $4,990 3.19%
===== ====
</TABLE>
<TABLE>
<S>
Table 1 Three Months Ended September 30, 1998
Compared to
Three Months Ended September 30, 1997
($ thousands) 1997
-------------------------------
Average Average
Balance Interest Rate
------- -------- -------
Interest-Earning Assets <C> <C> <C>
- -----------------------
Loans Receivable $444,209 $ 8,544 7.69%
Investment Securities 61,411 1,105 7.20
Mortgage-Backed Securities 82,070 1,397 6.81
Short-Term Investments 13,951 211 6.05
Marketable Equities 39,666 712 7.18
------- ------
Total Interest-Earning Assets 641,307 11,969 7.47%
------- ------ ----
Non-Interest-Earning Assets
- ---------------------------
Cash and Cash Equivalents 12,073
Accrued Income Receivable 5,885
Premises and Equipment 3,614
Other 8,312
Less: Allowance for Credit
Losses (6,679)
Total Non-Interest-Earning -------
Assets 23,205
-------
Total Assets $664,512
=======
Interest-Bearing Liabilities
- ----------------------------
Deposits
Regular Savings and NOW $ 62,190 262 1.69%
Super Savings and Money
Market 94,924 724 3.05
Time 238,762 3,263 5.47
------- -----
Total Deposits 395,876 4,249 4.29
Borrowings 179,543 2,657 5.92
Mortgage Escrow Deposits 3,557 22 2.47
Total Interest-Bearing ------- -----
Liabilities 578,976 6,928 4.79%
------- ----- ----
Non-Interest-Bearing Liabilities
- --------------------------------
Non-Interest-Bearing Deposits 30,145
Other Liabilities 2,212
Total Non-Interest-Bearing -------
Liabilities 32,357
-------
Shareholders' Equity 53,179
-------
Total Liabilities and Shareholders'
Equity $664,512
=======
Net Interest-Earning Assets and
Interest Rate Spread $62,331 2.68%
======= ----
Net Interest Income and Net Yield
on Average Interest-Earning Assets% $5,041 3.14%
===== ====
</TABLE>
Rate/Volume Analysis
- --------------------
The following table presents the changes in interest and dividend income
and the changes in interest expense attributable to changes in interest
rates or changes in volume of interest-earning assets and interest-bearing
liabilities during the three months ended September 30,
1998 and 1997. Changes which are attributable to both rate and volume
have been allocated proportionately.
<TABLE>
<S>
Table 2 THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
NET
RATE VOLUME CHANGE
---- ------ ------
(in thousands)
INTEREST INCOME <C> <C> <C>
- ---------------
Loans Receivable $ 88 ($454) ($366)
Mortgage-Backed Securities (132) (13) (145)
Short-Term Investments (17) 42 25
Investment Securities (263) 81 (182)
---- ---- ----
Total (324) (344) (668)
---- ---- ----
INTEREST EXPENSE
- ----------------
Deposits
--------
Savings and Other 24 (22) 2
Super Savings and Money Market (95) (195) (290)
Time 46 158 204
---- ---- ----
Total Deposits (25) (59) (84)
Borrowings 65 634 699
Mortgage Escrow Deposits 0 2 2
---- ---- ----
Total 40 577 617
---- ---- ----
CHANGE IN NET INTEREST INCOME ($284) $233 ($51)
==== ==== ====
</TABLE>
Provision for Credit Losses
- ---------------------------
The improvement in asset quality resulted in no provision for credit
losses in either the 1998 or 1997 periods. (See Financial Condition -
Non-Performing Assets/Asset Quality).
Non-Interest Income
- -------------------
Non-interest income consists of deposit service charges and fees, fees
derived from both servicing and originating loans for others, net
realized and unrealized gains on securities, net gain on sale of loans,
fees derived from the Bank's Trust Department and the credit card
program.
The table below identifies the primary components of Non-interest income,
which are Fees and Gains on Sales of Assets.
<TABLE>
<S>
Table 3 - Non-Interest Income
Three Months Ended September 30,
--------------------------------
($ thousands)
1998 1997
---- ----
Non-Interest Income <C> <C>
Fee Income:
Loan Servicing Fees $ 48 $ 73
Other Loan Fees 34 35
Deposit Service Charges 211 201
Credit Card Fees 460 330
Trust Department Fees 162 154
Correspondent Loan Program Fees 186 144
Other 90 54
----- ----
Total Fees 1,191 991
----- ----
Securities Gains (Losses) from:
Call Options 93 141
Trading Portfolio (394) (10)
Sales 19 167
---- -----
Net (Losses) Gains on Securities (282) 298
Net Gains on Sale of Loans - 218
---- -----
Net (Losses) Gains on Sales of Assets (282) 516
---- ------
Total Non-Interest Income $909 $1,507
==== ======
</TABLE>
Total Non-interest income decreased from $1.5 million for the three
months ended September 30, 1997 to $909 thousand, a decrease of 39.7%
for the comparable period in 1998. Total fees for the three months
ended September 30, 1997 were $1.0 million compared to $1.2 million for
the three months ended September 30, 1998; the increase of $200 thousand,
or 20.1%, was due primarily to increases in correspondent loan program
fees and credit card fees.
The other component of Non-interest income is Gains and Losses on Sales
of Assets. The Bank continues to derive a significant portion of its
non-interest income from its Trading portfolio investment strategy
whereby covered call options are sold against high quality equities,
primarily for yield enhancement. The sudden third quarter decline in
the stock market had a significant impact on the carrying value of the
Company's trading portfolio as of September 30, 1998, and resulted in a
net loss on securities approximating $282,000 for the third quarter of
1998, primarily from unrealized trading portfolio losses.
Non-Interest Expense
- --------------------
Non-interest expense is comprised of general and administrative expenses
incurred in managing the business of the Bank and costs associated with
managing and selling OREO properties.
The table that follows indicates the elements of Non-interest expense,
including OREO related expense, which is directly related to the level
of non-performing assets.
<TABLE>
<S>
Table 4 - Non-Interest Expense
Three Months Ended September 30,
($ thousands)
1998 1997
General and Administrative Expense <C> <C>
- ----------------------------------
Compensation $1,535 $1,535
Employee Benefits 529 504
Occupancy and Equipment 424 450
Data Processing 232 197
Regulatory Assessments 14 13
Credit Card Processing 383 279
Amortization of Goodwill 82 82
Marketing 181 208
Legal and Professional 91 211
Printing, Postage and Office Supplies 134 153
Insurance 41 58
Other 363 290
----- -----
Total 4,009 3,980
OREO Related Expense ----- -----
- --------------------
Net Holding Costs and Expenses 16 24
Net Gain on Sales of OREO (17) (98)
----- -----
Total (1) (74)
----- -----
Total Non-Interest Expense $4,008 $3,906
===== =====
</TABLE>
Total Non-interest expense was $3.9 million for the three months ended
September 30, 1997, compared to $4.0 million for the same period in 1998,
an increase of 2.6%.
Overall, Non-interest expense did not increase significantly.
General and Administrative Expense
- ----------------------------------
The most significant part of general and administrative expense is
compensation and benefits. The cost of the employee stock ownership
program (ESOP) accounts for a significant portion of the benefits
expenses.
The Company has maintained a stable level of expenses in 1998; credit
card processing costs have increased due to increased volume.
OREO Related Expenses
- ---------------------
OREO related expenses continued to decline to nominal levels.
Provision for Income Taxes
- --------------------------
The Company's income is subject to Federal and State taxation at a
combined rate approximating 40%. The Bank's effective tax rate for the
three months ended September 30, 1997 was 36.5%, compared to the
Company's effective tax rate of 35.9% for the comparable period in 1998.
The decrease was substantially due to the tax savings from the dividend
earnings on the Bank's equity securities portfolio, a substantial portion
of which is exempt from both State and Federal taxation.
<TABLE>
<S>
Three Months Ended September 30,
1998 1997
---- ----
($ thousands)
Amount % Amount %
<C> <C> <C> <C>
Tax at Statutory Federal Rate $644 34.0% $898 34.0%
State Tax, Net of Federal Benefit 103 5.5 159 6.0
Non-Deductible ESOP Expense Provision 60 3.2 45 1.7
Dividends Received Deduction (129) (6.8) (143) (5.4)
Other, Net - - 6 0.2
---- ---- ---- ----
Total $678 35.9% $965 36.5%
==== ==== ==== ====
</TABLE>
RESULTS OF OPERATIONS
---------------------
Comparison of Operating Results for the Nine Months Ended
---------------------------------------------------------
September 30, 1998 and 1997
---------------------------
General
- -------
Net earnings for the nine months ended September 30, 1998 were $3.8
million, or $1.59 and $1.49 per common share, on a basic and diluted
basis, respectively. The Bank's net earnings were $3.9 million, or $1.60
and $1.54 per common share on a basic and diluted basis, respectively,
for the comparable period of 1997.
The Bank recognized a $150 thousand provision for credit losses in the
nine months ended September 30, 1998. There was no provision for credit
losses in the same period of 1997.
There was a continued increase in correspondent loan program fees for the
nine months ended September 30, 1998 compared to 1997.
There was a significant decrease in gains from the sales of securities
and loans, primarily due to a significant increase in unrealized losses
on trading securities, for the nine months ended September 30, 1998
compared to the same period in 1997.
Net Interest Income
- -------------------
Net interest income, which is the primary source of income for the
Company, is the difference between the interest, fees and dividends
earned on loans and investments, and the interest paid on deposits and
borrowings.
Net interest income was $15.1 million for the nine months ended September
30, 1998, an increase of 5.4% over the $14.3 million for the nine months
ended September 30, 1997. The $775 thousand increase resulted from an
increase in interest income of $632 thousand augmented by a $143 thousand
decrease in interest expense. The $632 thousand increase in interest
income was attributable to a $719 thousand increase from volume offset by
an $87 thousand decrease due to rate, while the $143 thousand decrease in
interest expense resulted from a $55 thousand increase due to volume and
a $198 thousand decrease related to rate.
The 1.9% increase in interest income, from $34.0 million in 1997 to $34.6
million in 1998, was primarily attributable to the growth in dividend
income from the investment portfolio; the decrease in the interest income
from the loan portfolio was attributable primarily to rate. The 0.7%
decrease in interest expense, from $19.7 million in 1997 to $19.6 million
in 1998, resulted primarily from the increase in interest expense
attributable to the increased level of money market deposits, partially
offset by favorable rate and volume variances on time deposit accounts,
and a significant decrease in the volume of borrowings.
On an overall basis, the Company was able to increase its net interest
income through a combination of favorable rate spreads on its increased
volume while continuing to control the rate component of the cost of
funds.
The following table summarizes the Company's net interest income and net
yield on average interest-earning assets. Non-accruing loans are
included in average loans outstanding during the periods, and daily
average amounts were used to compute average balances.
<TABLE>
<S>
Table 1 Nine Months Ended September 30, 1998
Compared to
Nine Months Ended September 30, 1997
($ thousands) 1998
---------------------------
Average Average
Balance Interest Rate
------- -------- -------
Interest-Earning Assets <C> <C> <C>
- -----------------------
Loans Receivable $424,682 $24,788 7.78%
Investment Securities 57,525 3,017 6.99
Mortgage-Backed Securities 92,256 4,369 6.31
Short-Term Investments 19,823 857 5.76
Marketable Equities 40,989 1,594 5.19
Total Interest-Earning ------- ------ ----
Assets 635,275 34,625 7.27%
------- ------ ----
Non-Interest-Earning Assets
- ---------------------------
Cash and Cash Equivalents 10,420
Accrued Income Receivable 4,096
Premises and Equipment 3,637
Other 11,362
Less: Allowance for Credit
Losses (5,439)
Total Non-Interest-Earning -------
Assets 24,076
-------
Total Assets $659,351
=======
Interest-Bearing Liabilities
- ----------------------------
Deposit
-------
Regular Savings and NOW $ 67,061 778 1.55%
Super Savings and Money
Market 114,580 2,823 3.29
Time 233,785 9,379 5.35
------- ------ ----
Total Deposits 415,426 12,980 4.17
Borrowings 148,929 6,523 5.84
Mortgage Escrow Deposits 3,486 68 2.60
Total Interest-Bearing ------- ------ ----
Liabilities 567,841 19,571 4.60%
Non-Interest-Bearing Liabilities
- --------------------------------
Non-Interest-Bearing Deposits 33,075
Other Liabilities 2,158
Total Non-Interest-Bearing ------
Liabilities 35,233
------
Shareholders' Equity 56,277
------
Total Liabilities and
Shareholders' Equity $659,351
=======
Net Interest-Earning Assets
and Interest Rate Spread $67,434 2.67%
====== ----
Net Interest Income and Net Yield
on Average Interest-Earning Assets $15,054 3.16%
====== ====
</TABLE>
<TABLE>
<S>
Table 1 Nine Months Ended September 30, 1998
Compared to
Nine Months Ended September 30, 1997
($ thousands) 1997
---------------------------
Average Average
Balance Interest Rate
------- -------- -------
Interest-Earning Assets <C> <C> <C>
- -----------------------
Loans Receivable $434,342 $24,841 7.63%
Investment Securities 50,708 2,754 7.24
Mortgage-Backed Securities 88,009 4,770 7.23
Short-Term Investments 12,439 573 6.14
Marketable Equities 30,874 1,055 4.56
Total Interest-Earning ------- ------
Assets 616,372 33,993 7.34%
------- ------ ----
Non-Interest-Earning Assets
- ---------------------------
Cash and Cash Equivalents 11,527
Accrued Income Receivable 5,767
Premises and Equipment 3,520
Other 7,851
Less: Allowance for Credit
Losses (7,095)
Total Non-Interest-Earning -------
Assets 21,570
-------
Total Assets $637,942
=======
Interest-Bearing Liabilities
- ----------------------------
Deposits
--------
Regular Savings and NOW $60,620 735 1.62%
Super Savings and Money
Market 94,915 2,221 3.12
Time 239,195 9,750 5.43
------- ------
Total Deposits 394,730 12,706 4.29
Borrowings 157,701 6,935 5.86
Mortgage Escrow Deposits 3,644 73 2.67
Total Interest-Bearing ------- ------
Liabilities 556,075 19,714 4.73%
------- ------ ----
Non-Interest-Bearing Liabilities
- --------------------------------
Non-Interest-Bearing Deposits 28,211
Other Liabilities 1,994
Total Non-Interest-Bearing -------
Liabilities 30,205
-------
Shareholders' Equity 51,662
-------
Total Liabilities and
Shareholders' Equity $637,942
=======
Net Interest-Earning Assets
and Interest Rate Spread $60,297 2.61%
====== ----
Net Interest Income and Net Yield
on Average Interest-Earning Assets $14,279 3.09%
====== ====
</TABLE>
Rate/Volume Analysis
- --------------------
The following table presents the changes in interest and dividend income
and the changes in interest expense attributable to changes in interest
rates or changes in volume of interest-earning assets and interest-bearing
liabilities during the nine months ended September 30, 1998 and 1997.
Changes which are attributable to both rate and volume have been allocated
proportionately.
<TABLE>
<S>
Table 2 NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1997
NET
RATE VOLUME CHANGE
---- ------ ------
(in thousands)
INTEREST INCOME <C> <C> <C>
- ---------------
Loans Receivable $237 ($290) $(53)
Mortgage-Backed Securities (457) 56 (401)
Short-Term Investments (5) 289 284
Investment Securities 138 664 802
---- ---- ----
Total (87) 719 632
---- ---- ----
INTEREST EXPENSE
- ----------------
Deposits
--------
Savings and Other 10 (53) (43)
Super Savings and Money Market 0 (602) (602)
Time 154 217 371
---- ---- ----
Total Deposits 164 (438) (274)
Borrowings 32 380 412
Mortgage Escrow Deposits 2 3 5
---- ---- ----
Total 198 (55) 143
---- ---- ----
CHANGE IN NET INTEREST INCOME $111 $664 $775
==== ==== ====
</TABLE>
Provision for Credit Losses
- ---------------------------
The Bank provided $150,000 for loan losses in the 1998 period and no
provision during the comparable period in 1997. (See Financial Condition
- -Non-Performing Assets/Asset Quality).
Non-Interest Income
- -------------------
Non-interest income consists of deposit service charges and fees, fees
derived from both servicing and originating loans for others, net
realized and unrealized gains on securities, net gain on sale of loans,
fees derived from the Bank's Trust Department and the credit card
program.
The table below identifies the primary components of Non-interest income,
which are Fees and Gains on sales of Assets.
<TABLE>
<S>
Table 3 - Non-Interest Income
Nine Months Ended September 30,
-------------------------------
Non-Interest Income 1998 1997
---- ----
Fee Income: <C> <C>
Loan Servicing Fees $ 176 $ 223
Other Loan Fees 110 117
Deposit Service Charges 636 607
Credit Card Fees 1,237 1,017
Trust Department Fees 472 432
Correspondent Loan Program Fees 548 180
Other 197 174
----- -----
Total Fees 3,376 2,750
----- -----
Securities Gains (Losses) from:
Call Options 164 374
Trading Portfolio (112) 69
Sales 25 218
----- -----
Net (Losses) Gains on Securities 77 661
Net Gains on Sale of Loans 119 218
----- -----
Net Gains on Sales of Assets 196 879
----- -----
Total Non-Interest Income $3,572 $3,629
===== =====
</TABLE>
Total Non-interest income decreased from $3.63 million for the nine
months ended September 30, 1997 to $3.57 million, a decrease of 1.6% for
the comparable period in 1998. Total fees for the nine months ended
September 30, 1997 were $2.8 million compared to $3.4 million for the
nine months ended September 30, 1998; the increase of $626 thousand, or
22.8%, was due primarily to increases in correspondent loan program fees
and credit card fees.
The other component of Non-interest income is Gains on Sales of Assets.
The Bank continues to derive a significant portion of its non-interest
income from its Trading portfolio investment strategy whereby covered
call options are sold against high quality equities, primarily for yield
enhancement. However, the sudden decline in the investment markets
during the third quarter of 1998 resulted in significant market value
declines in the Bank's trading portfolio during the third quarter.
Non-Interest Expense
- --------------------
Non-interest expense is comprised of general and administrative expenses
incurred in managing the business of the Bank and costs associated with
managing and selling OREO properties.
The table that follows indicates the elements of Non-interest expense,
including OREO related expense, which is directly related to the level of
non-performing assets.
<TABLE>
<S>
Table 4 - Non-Interest Expense
Nine Months Ended September 30,
-------------------------------
($ thousands)
1998 1997
General and Administrative Expense ---- ----
- ---------------------------------- <C> <C>
Compensation $ 4,479 $ 4,396
Employee Benefits 1,710 1,499
Occupancy and Equipment 1,288 1,370
Data Processing 642 597
Regulatory Assessments 41 41
Credit Card Processing 1,044 824
Amortization of Goodwill 245 244
Marketing 548 472
Legal and Professional 784 700
Printing, Postage and Office Supplies 555 556
Insurance 137 164
Other 1,045 925
------ ------
Total 12,518 11,788
OREO Related Expense ------ ------
- --------------------
Net Holding Costs and Expenses 73 122
Net Gain on Sales of OREO (61) (306)
Provision for Estimated Losses - -
------ ------
Total 12 (184)
------ ------
Total Non-Interest Expense $12,530 $11,604
====== ======
</TABLE>
Total Non-interest expense was $11.6 million for the nine months ended
September 30, 1997, compared to $12.5 million for the same period in
1998, an increase of 8.0%. Overall, Non-interest expense did not
increase significantly.
General and Administrative Expense
- ----------------------------------
Of the total increase of $730 thousand in general and administrative
expense, a significant part of the increase was attributable to
compensation and benefits. The cost of the employee stock ownership
program (ESOP) accounts for a significant portion of the benefits
expenses; the $211 thousand increase was primarily due to increased ESOP
expense due to the increased market value of the Company's stock.
The increase in Marketing expense resulted from continued efforts to
promote the Bank's products and services, while Legal and Professional
costs resulted from costs associated with the holding company and
shareholder relations. Credit card processing costs increased $220
thousand, or 26.7%, reflecting the increased levels of the volume of this
business.
OREO Related Expenses
- ---------------------
OREO related expenses continued to decline to nominal levels.
Provision for Income Taxes
- --------------------------
The Company's income is subject to Federal and State taxation at a
combined rate approximating 40%. The Bank's effective tax rate for the
nine months ended September 30, 1997 was 38.6%, compared to the Company's
effective tax rate of 35.9% for the comparable period in 1998. The
decrease was substantially due to the tax savings from the dividend
earnings on the Bank's equity securities portfolio, a substantial portion
of which is exempt from both State and Federal taxation.
<TABLE>
<S>
Nine Months Ended September 30,
1998 1997
---- ----
($ thousands)
Amount % Amount %
<C> <C> <C> <C>
Tax at Statutory Federal Rate $2,022 34.0% $2,143 34.0%
State Tax, Net of Federal Benefit 323 5.4 401 6.4
Non-Deductible ESOP Expense Provision 164 2.8 124 2.0
Dividends Received Deduction (379) (6.4) (242) (3.9)
Other, Net 6 0.1 7 0.1
----- ---- ----- ----
Total $2,136 35.9% $2,433 38.6%
===== ==== ===== ====
</TABLE>
FINANCIAL CONDITION
-------------------
General
- -------
Total assets were $650.3 million as of September 30, 1998 representing a
$4.0 million decrease from the $654.2 million at December 31, 1997.
Total loans, net of allowance for credit losses, were $411.8 million, a
decrease of $14.0 million from the $425.8 million as of December 31,
1997. Total investment securities were $192.9 million as of September
30, 1998, an increase of $12.4 million from $180.5 million as of December
31, 1997. Total deposits were $445.8 million, an increase of $1.6
million from the December 31, 1997 level of $444.2 million. Total other
borrowed money was $146.2 million as of September 30, 1998, a decrease of
$5.5 million from the December 31, 1997 level of $151.7 million.
Shareholders' equity was $55.5 million as of September 30, 1998, a
decrease of $0.6 million from the December 31, 1997 level of $56.1
million. The Company's tier one leverage capital ratio was 8.4% as of
September 30, 1998, compared to 8.2% as of December 31, 1997.
Investment Securities
- ---------------------
Total securities amounted to $192.9 million as of September 30, 1998
compared to $180.5 million at December 31, 1997, representing a $12.4
million increase or 6.8%. The activity in the investment securities
portfolio resulted from a number of Government Agency Bonds being called
during the first quarter and the Bank reinvested the proceeds into fixed-
rate mortgage-backed securities; during the second quarter the Bank
increased its level of investments in equity securities, primarily in
trust preferred issues, when significant amounts of mortgage-backed
securities prepaid during the period.
The Bank's covered call option program is designed for yield enhancement
and to lessen the Bank's exposure to a potentially volatile stock market.
In this program, the Bank purchases shares of qualified common stock and
sells a call option against the investment. As required by SFAS 115, the
Bank marks the common stock and related covered call option to market
through current period earnings.
Inasmuch as the Bank's equity investment privileges have been
grandfathered by the FDIC, it intends to continue to maintain an equity
stock portfolio. To provide direction, the Bank's Board of Directors has
established upward limits and an investment policy which includes
guidelines that the Bank's equity investments have a minimum quality
rating of "A" by a widely recognized rating service; the policy also
requires adequate diversification to avoid concentrations in lines of
business and geographic regions.
The following table presents a summary of the investments and other
securities portfolios as of September 30, 1998 and December 31, 1997,
fair values and unrealized gains and losses as of those dates.
<TABLE>
<S>
Table 5 - Investment & Other Securities
-----------------------------
($ thousands) September 30, 1998
----------------------------------------
Amortized Unrealized Holding Fair
Cost Gains Losses Value
Available-for-Sale --------- ---------- ------- -----
------------------ <C> <C> <C> <C>
U.S. Government and Federal
Agency Obligations $ 35,393 $ 104 $ - $ 35,497
Mortgage-Backed Securities 75,527 166 325 75,368
Equity Securities and Other 78,663 1,277 1,039 78,901
------- ----- ----- -------
Total Available-for-Sale $189,583 $18 $572 $189,766
======= ===== ===== =======
Trading
-------
Equity Securities $3,647 $18 $572 $3,093
----- ---- ---- -----
December 31, 1997
-----------------------------------------
Amortized Unrealized Holding Fair
Cost Gains Losses Value
Available-for-Sale --------- ---------- ------- -----
------------------ <C> <C> <C> <C>
U.S. Government and Federal
Agency Obligations $ 55,122 $ 190 $ 55 $ 55,257
Mortgage-Backed Securities 85,543 461 56 85,948
Equity Securities and Other 36,091 1,429 58 37,462
------- ----- ---- -------
Total Available-for-Sale $176,756 $2,080 $169 $178,667
======= ===== ==== =======
Trading
-------
Equity Securities $1,976 $4 $150 $1,830
----- ---- ---- -----
</TABLE>
Loans
- -----
Total loans, before reductions for loans held for sale, deferred credits,
fees and the allowance for credit losses, amounted to $422.2 million as
of September 30, 1998, representing a $15.4 million or 3.5% decrease from
the December 31, 1997 level of $437.6 million. The overall decrease in
the loan portfolio was not significant. The change in mix in the
residential mortgage portfolio reflects the dynamics of the current
interest rate markets. The $14.4 million decrease in real estate loans
resulted essentially from a $33 million decrease in adjustable rate one-
to-four family loans, offset by an $11.0 million increase in fixed rate
one-to-four family loans and an $8.8 million increase in commercial real
estate loans.
During the first nine months of 1998, the Bank's response to the
increased level of demand for the 30-year residential fixed-rate mortgage
was to utilize the correspondent loan program. Additionally, in
conjunction with the management of the portfolio, the Bank sold or
securitized $5.6 million, of which $5.3 million was identified as loans
held-for-sale as of December 31, 1997. At September 30, 1998, the Bank
has identified $4.5 million of residential loans held-for-sale.
<TABLE>
<S>
Table 6 - Loan Portfolio
($ thousands)
September 30, 1998 December 31,1997
Real Estate Loans ------------------ ----------------
- ----------------- <C> <C> <c. <C>
One-to-Four Family Adjustable
Rate $245,242 58.09% $278,231 63.59%
One-to-Four Fixed Rate 75,417 17.86 64,510 14.74
One-to-Four Held-For-Sale 4,479 1.06 5,311 1.21
Multi-Family 2,820 0.67 5,398 1.24
Commercial Real Estate 63,879 15.13 55,124 12.60
Home Equity Lines-of-Credit 7,448 1.76 7,632 1.74
Home Improvement and Second
Mortgage 4,131 0.98 2,852 0.65
Land 1,120 0.27 640 0.15
Construction 3,712 0.88 2,942 0.67
------- ------ ------- -----
Total 408,248 96.70 422,640 96.59
------- ------ ------- -----
Commercial Loans 6,789 1.61 7,587 1.73
- ---------------- ------- ------ ------- -----
Consumer Loans
- --------------
Passbook 1,122 0.27 1,508 0.34
Automobile Loans 1,878 0.44 2,332 0.53
Credit Cards 1,824 0.43 1,409 0.32
Other Consumer 2,317 0.55 2,104 0.49
------- ------- ------- ------
Total 7,141 1.69 7,353 1.68
------- ------- ------- ------
Total Loans, Gross 422,178 100.00% 437,580 100.00%
Deferred Fees and Credits (470) ======= (625)======
------- -------
421,708 436,955
Allowance for Credit Losses (5,435) (5,832)
------- -------
Total Loans, Net 416,273 431,123
One-to-four Family Held-For-Sale (4,479) (5,311)
------- -------
Loans, Net $411,794 $425,812
======= =======
</TABLE>
Non-Performing Assets/Asset Quality
- -----------------------------------
The Bank's level of non-performing assets continued to steadily decline
during the years 1996, 1997 and continued into 1998. Total
non-performing assets as of September 30, 1998 were $3.9 million or 0.61%
of total assets. As of December 31, 1997 non-performing assets were
$5.4 million, representing 0.83% of total assets.
The Bank's Watch List is comprised of loans which have been identified by
the Bank's credit analysis system as exhibiting more than usual risk of
non-performance or loss. The Bank's Watch List was $6.8 million at
September 30, 1998, compared to $11.7 million at December 31, 1997.
Of the total non-performing assets, non-performing loans were $3.7
million as of September 30, 1998 compared to $4.8 million as of December
31, 1997. There were no troubled debt restructurings included in
non-performing loans as of December 31, 1997 and $329 thousand in such
loans as of September 30, 1998.
The allowance for credit losses amounted to $5.4 million as of September
30, 1998 representing coverage of 146.1% compared to $5.8 million as of
December 31, 1997, representing coverage of 120.3% of non-performing
loans. The credit risk allowance for the FFB&T acquired loans was $554
thousand as of September 30, 1998.
Net charge-offs in the first nine months of 1998 were $547 thousand or 13
basis points of the average loan portfolio, compared to $885 thousand or
21 basis points of the average loan portfolio for the nine months ended
September 30, 1997.
Details of the Bank's asset quality are shown in the analysis provided by
the following table.
<TABLE>
<S>
Asset Quality
At September 30,
----------------
($ thousands) 1998 1997
---- ----
Non-Performing Assets <C> <C>
- ---------------------
Non-Accrual Loans $3,391 $7,479
Restructured Loans 329 -
----- -----
Total Non-Performing Loans 3,720 7,479
----- -----
Foreclosed Assets 270 180
Allowance for Estimated OREO Losses - -
----- -----
Total OREO 270 180
----- -----
Total Non-Performing Assets $3,990 $7,659
===== =====
Allowance for Credit Losses
- ---------------------------
Balance at Beginning of Period $5,832 $7,334
Provision for Credit Losses 150 -
Allocated to FFB&T Acquired
Loans - -
Charge-Offs (1,276) (1,519)
Recoveries 729 634
----- -----
Net Charge-Offs (547) (885)
----- -----
Balance at End of Period $5,435 $6,449
===== =====
Allowance for Estimated OREO Losses
- -----------------------------------
Balance at Beginning of Period $ - $ -
Provision for Estimated OREO Losses - -
Charge-Offs - -
---- ----
Balance at End of Period $ - $ -
==== ====
Loans Receivable, gross
End of Period $417,699 $436,323
Average $423,314 $427,247
Assets, end of Period $650,255 $670,749
Ratios
- ------
Allowance for Credit Losses to
Total Loans 1.30% 1.48%
Net Charge-Offs to Average Loans 0.13% 0.21%
Non-Performing Loans to Total
Loans 0.89% 1.71%
Non-Performing Assets to Total
Assets 0.61% 1.14%
Allowance for Credit Losses to
Non-Performing Loans 146.10% 86.23%
</TABLE>
<TABLE>
<S>
Asset Quality
At December 31,
--------------------------
($ thousands) 1997 1996 1995
---- ---- ----
Non-Performing Assets <C> <C> <C>
- ---------------------
Non-Accrual Loans $4,847 $10,441 $12,598
Restructured Loans - - 472
----- ------ ------
Total Non-Performing Loans 4,847 10,441 13,070
----- ------ ------
Foreclosed Assets 574 858 4,267
Allowance for Estimated OREO Losses - - -
----- ------ ------
Total OREO 574 858 4,267
----- ------ ------
Total Non-Performing Assets $5,421 $11,299 $17,337
===== ====== ======
Allowance for Credit Losses
- ---------------------------
Balance at Beginning of Period $7,334 $4,170 $4,827
Provision for Credit Losses - 4,415 1,005
Allocated to FFB&T Acquired
Loans - 1,000 -
Charge-Offs (2,155) (2,488) (1,799)
Recoveries 653 237 137
----- ------ ------
Net Charge-Offs (1,502) (2,251) (1,662)
----- ------ ------
Balance at End of Period $5,832 $7,334 $4,170
===== ===== =====
Allowance for Estimated OREO Losses
- -----------------------------------
Balance at Beginning of Period $ - $ - $ 802
Provision for Estimated OREO Losses - 459 460
Charge-Offs - (459) (1,262)
----- ---- -----
Balance at End of Period $ - $ - $ -
===== ==== =====
Loans Receivable, gross
End of Period $432,269 $418,818 $360,475
Average $435,610 $403,207 $323,072
Assets, end of Period $654,222 $589,589 $515,267
Ratios
- ------
Allowance for Credit Losses to
Total Loans 1.35% 1.75% 1.16%
Net Charge-Offs to Average Loans 0.34% 0.56% 0.53%
Non-Performing Loans to Total
Loans 1.12% 2.49% 3.63%
Non-Performing Assets to Total
Assets 0.83% 1.92% 3.36%
Allowance for Credit Losses to
Non-Performing Loans 120.32% 70.24% 31.91%
</TABLE>
Deposits
- --------
Total deposits at September 30, 1998 were $445.8 million compared to
$444.2 million at December 31, 1997, an increase of $1.6 million or
0.36%. The Bank continues to seek deposits with marketing and sales
efforts concentrated on its new and diversified products. The Bank does
not solicit, nor does it accept, brokered deposits.
The following table presents a summary of deposits as of September 30,
1998 and December 31, 1997.
<TABLE>
<S>
Table 8 - Deposits
September 30, 1998 December 31, 1997
($ in thousands) <C> <C> <C> <C>
Demand Deposits $ 33,267 7.5%$ $ 27,471 6.2%
Savings
Regular Savings 28,999 6.5 29,455 6.6
Super Savings 42,869 9.6 47,863 10.8
NOW 38,231 8.6 37,287 8.4
Money Market 75,962 17.0 55,541 12.5
Escrow Deposits 2,912 0.7 4,727 1.1
Certificates
Certificate Accounts 178,882 40.1 204,129 45.9
Money Market Certificates 44,679 10.0 37,738 8.5
------- ----- ------- -----
Total Deposits $445,801 100.0% $444,211 100.0%
======= ===== ======= =====
</TABLE>
Federal Home Loan Bank of Boston Advances and Other Borrowings
- --------------------------------------------------------------
The Bank continues to utilize the FHLB as a source of funds alternative
to the traditional deposit account relationship. As of September 30,
1998 borrowings totaled $95.9 million compared to $110.9 million as of
December 31, 1997. In addition, the Bank increased the use of the
reverse repurchase agreement as a means to borrow funds. These
agreements are essentially collateralized borrowings, similar to FHLB
borrowings, and to the extent that the rates and terms are more
favorable, the Bank utilizes the reverse repurchase agreement in lieu of
an FHLB borrowing. As of September 30, 1998, borrowings outstanding
under reverse repurchase agreements were $46.4 million compared to $40.4
million as of December 31, 1997.
The Company has reflected the guaranty of the ESOP loan as an obligation
in accordance with applicable accounting requirements. This loan was a
five-year adjustable rate loan (convertible to a fixed rate at the
Company's option) with interest and principal payable monthly. In 1997
the Company refinanced the loan into a two-year fixed rate loan. The
outstanding balance was $142 thousand as of September 30, 1998.
Borrowings from the FHLB, reverse repurchase agreements and the ESOP loan
amounted to $142.4 million as of September 30, 1998 at a weighted average
rate of 5.7% and a weighted average maturity of 1.7 years, compared to
$151.7 million at a weighted average rate of 5.8% and a weighted average
maturity of 1.4 years at December 31, 1997. As a percentage of total
assets, these borrowings amounted to 21.9% as of September 30, 1998
compared to 23.2% as of December 31, 1997.
As a means of financing the repurchases of its stock, the Company
arranged for a line of credit from another bank in the amount of $15.0
million. As of September 30, 1998 there was $3.8 million in the
outstanding balance.
Shareholders' Equity
- --------------------
Shareholders' equity at September 30, 1998 decreased to $55.5 million
from $56.1 million at December 31, 1997, reflecting tier 1 regulatory
leverage capital ratios of 8.4% and 8.2%, respectively.
As of September 30, 1998, in conjunction with the Company's stock
repurchase program, the Company had acquired 90,500 shares at a cost of
$3.8 million.
The following table indicates required and actual levels of capital for
the Company and the Bank as of September 30, 1998 and December 31, 1997.
<TABLE>
<S>
Regulatory Capital Required Actual Actual
-------- September 30, December 31,
1998 1997
Company ------------- ------------
- ------- <C> <C> <C>
Tier 1 Risk-Based Capital 4.0% 14.10% 15.4%
Total Risk-Based Capital 8.0% 15.35% 16.6%
Tier 1 Leverage Capital 4.0% - 5.0% 8.40% 8.2%
Bank
Tier 1 Risk-Based Capital 4.0% 13.92% 14.3%
Total Risk-Based Capital 8.0% 15.17% 15.5%
Tier 1 Leverage Capital 4.0% - 5.0% 8.27% 7.6%
</TABLE>
Liquidity and Interest Rate Management
- --------------------------------------
Liquidity is the ability of the Bank to meet its cash flow requirements
arising from fluctuations in loans, securities, deposits, and other
borrowings. At September 30, 1998 the Bank's primary liquidity,
consisting of cash, cash equivalents, marketable securities with
maturities of one year or less and loans held for sale was $85.4 million
or 13.1% of total assets. In addition, liquidity is the ability of the
Company to meet its cash flow requirements to pay operating expenses,
dividends, and other payments as may be necessary.
The Company's liquidity is provided by dividends from its wholly owned
subsidiary, the Bank. The Bank's ability to pay dividends is restricted
by Connecticut law to the Bank's net profits in the current year, plus
retained net profits from the two most recent fiscal years. The Company
may effect borrowings from time to time to meet specific liquidity needs.
The Bank's primary sources of funds are deposits and other borrowings,
primarily from the FHLB. The Bank monitors its liquidity in accordance
with policy guidelines established by the Asset and Liability Management
Policy and regulatory standards, administered by the Asset and Liability
Management Committee of the Bank.
As of September 30, 1998, the Bank had approved loan commitments
outstanding for one-to four-family loans of $9.2 million. In addition,
there was $9.2 million of unused credit under the home equity line-of-
credit facility, $1.1 million under the overdraft protection credit line
facility, and $2.7 million in unused credit card lines. The unadvanced
portion of residential construction loans amounted to $2.1 million.
There were $4.5 million in approved loan commitments and $0.9 million in
approved line-of-credit commitments in the Commercial Lending Department,
$3.0 million in unused commercial lines of credit and $0.3 million in
commercial letters of credit outstanding.
Management believes that the Company's liquidity is currently in a
position to meet normal operating needs. To meet unexpected demands, the
Bank maintains a line of credit with the FHLB. At September 30, 1998,
this line of credit was $11.8 million, of which no amount was
outstanding.
Management also believes that the capital positions of the Company and
the Bank are currently adequate to meet present needs and anticipated
growth. (See Shareholders' Equity).
Market Price of Common Stock
- ----------------------------
NSS Bancorp (Norwalk Savings Society prior to October 1, 1997) trades on
the NASDAQ National Market under the symbol "NSSY".
The following table sets forth the high/low price range as reported by
NASDAQ and dividends paid for the periods indicated:
<TABLE>
<S>
1998 1997
High Low Div. High Low Div.
<C> <C> <C> <C> <C> <C>
First Quarter $48.50 $36.63 $0.10 $26.25 $22.94 $0.05
Second Quarter $57.13 $42.00 $0.13 $31.00 $23.00 $0.10
Third Quarter $58.75 $41.00 $0.13 $37.50 $28.25 $0.10
Fourth Quarter $ - $ - $ - $40.25 $31.75 $0.10
</TABLE>
<TABLE>
<S>
1996
High Low Div.
<C> <C> <C>
First Quarter $22.00 $18.75 $ -
Second Quarter $22.25 $17.94 $0.05(a)
Third Quarter $23.13 $20.88 $0.05
Fourth Quarter $24.88 $22.75 $0.05
</TABLE>
(a) The Bank began paying dividends in the second quarter of 1996.
At September 30, 1998 NSS Bancorp had approximately 700 shareholders of
record.
Year 2000 Compliance
- --------------------
There has been no substantive change in the status and progress of the
Company's efforts to attain Year 2000 compliance, from the disclosure
provided in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There has been no material change from December 31, 1997 to September 30,
1998, in either the qualitative or quantitative market risks, from the
disclosures provided in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
<TABLE>
<S>
NSS BANCORP, INC. SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
FINANCIAL CONDITION DATA September 30,
-------------
($ thousands) 1998 1997
---- ----
<C> <C>
Total assets $650,255 $670,749
Investment securities 192,859 180,523
Loans receivable 417,229 442,772
Allowance for credit losses (5,435) (6,449)
Deposits 445,801 428,627
Borrowed funds 146,200 181,933
Shareholders' equity 55,531 54,590
OREO, net 270 180
Non-accrual/non-performing loans 3,720 7,479
Total non-performing assets 3,990 7,659
</TABLE>
<TABLE>
<S>
EARNINGS DATA Nine Months September 30,
($ thousands, except per share data) 1998 1997
---- ----
<C> <C>
Net interest income $15,054 $14,279
Provision for credit losses 150 0
Net gains (Losses) on sales of
Assets and liabilities 196 879
Other non-interest income 3,376 2,750
OREO related costs (gain), net 12 (184)
Other non-interest expense 12,518 11,788
Income before income tax provisions 5,946 6,304
Current tax provision 2,223 1,463
Deferred tax provision (benefit) (87) 970
Income before ADP program 3,810 3,871
Effect of ADP program 0 0
Net income (loss) $3,810 $3,871
Income per share: Basic $1.59 $1.60
Income per share: Assuming Dilution $1.49 $1.54
</TABLE>
<TABLE>
<S>
NSS BANCORP, INC. SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
FINANCIAL CONDITION DATA December 31,
($ thousands) 1997 1996 1995
<C> <C> <C>
Total assets $654,222 $589,589 $515,267
Investment securities 180,497 140,101 123,865
Loans receivable 431,644 418,100 359,966
Allowance for credit losses (5,832) (7,334) (4,170)
Deposits 444,211 423,290 402,797
Borrowed funds 151,671 114,043 67,123
Shareholders' equity 56,138 49,353 43,595
OREO, net 574 858 4,267
Non-accrual/non-performing loans 4,847 10,441 13,070
Total non-performing assets 5,421 11,299 17,337
EARNINGS DATA Years Ended December 31,
($ thousands, except per share data) 1997 1996 1995
---- ---- ----
Net interest income $19,373 $17,615 $14,617
Provision for credit losses 0 4,415 2,105
Net gains (Losses) on sales of
assets and liabilities 1,459 4,156 798
Other non-interest income 3,787 2,687 1,897
OREO related costs (gain), net (103) 1,362 1,415
Other non-interest expense 15,827 14,104 11,304
Income before income tax provisions 8,895 4,577 2,488
Current tax provision 1,973 175 10
Deferred tax provision (benefit) 1,357 (1,300) (1,200)
Income before ADP program 5,565 5,702 3,678
Effect of ADP program 0 0 1,100
Net income (loss) $5,565 $5,702 $4,778
Income per share: Basic $2.31 $2.39 $2.04
Income per share: Assuming Dilution $2.20 $2.34 $2.03
</TABLE>
<TABLE>
<S>
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS (cont.)
PERFORMANCE, CAPITAL and Nine Months
September 30, Years Ended December 31,
------------- ------------------------
ASSET QUALITY RATIOS 1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Performance: <C> <C> <C> <C> <C>
Tangible book value per
share at period end $22.47 $21.83 $22.44 $19.90 $18.44
Return on average assets:
Before ADP program 0.77% 0.81% 0.87% 0.97% 0.76%
After ADP program n/a n/a n/a n/a 0.99%
Return on average equity
Before ADP program 9.03% 9.99% 10.54% 12.52% 8.97%
After ADP program n/a n/a n/a n/a 11.65%
Net interest margin 3.16% 3.09% 3.11% 3.12% 3.17%
Capital:
Tier 1 leverage 8.40% 7.78% 8.18% 7.90% 8.43%
Total risk-based 15.35% 15.87% 16.61% 17.00% 17.90%
Asset quality:
Non-performing assets to
total assets 0.61% 1.14% 0.83% 1.92% 3.36%
Non-performing loans to
total loans 0.89% 1.71% 1.12% 2.50% 3.63%
Allowance for credit losses
to non-performing loans 146.10% 86.23% 120.32% 70.24% 31.91%
Allowance for credit losses
to loans receivable 1.30% 1.48% 1.35% 1.75% 1.16%
</TABLE>
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
- --------------------------
Not applicable
Item 2. Changes in Securities
- ------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
- ----------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable
Item 5. Other Information
- --------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Not applicable
Exhibit Index
- -------------
Exhibit Pages of
Number this Report
------ -----------
11.3 Earnings Per Share 33
27.3 Financial Data Schedule 34 - 35
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
duly authorized.
NSS BANCORP, Inc.
-----------------
Registrant
Date: November 12, 1998 by: /s/ Robert T. Judson
----------------- Robert T. Judson
President & CEO
Date: November 12, 1998 by: /s/ Marcus I. Braverman, CPA
----------------- Marcus I. Braverman
Sr. VP, Treasurer & CFO
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEPTEMBER 30, 1998 UNAUDITED BALANCE SHEET, INCOME STATEMENT
AND CASH FLOW STATEMENT, AND NOTES THERETO, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,512,000
<INT-BEARING-DEPOSITS> 5,880,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 3,093,000
<INVESTMENTS-HELD-FOR-SALE> 189,766,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 417,229,000
<ALLOWANCE> 5,435,000
<TOTAL-ASSETS> 650,255,000
<DEPOSITS> 445,801,000
<SHORT-TERM> 146,200,000
<LIABILITIES-OTHER> 2,723,000
<LONG-TERM> 0
0
0
<COMMON> 25,000
<OTHER-SE> 55,506,000
<TOTAL-LIABILITIES-AND-EQUITY> 650,255,000
<INTEREST-LOAN> 8,167,000
<INTEREST-INVEST> 3,003,000
<INTEREST-OTHER> 131,000
<INTEREST-TOTAL> 11,301,000
<INTEREST-DEPOSIT> 4,353,000
<INTEREST-EXPENSE> 6,311,000
<INTEREST-INCOME-NET> 4,990,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (282,000)
<EXPENSE-OTHER> 4,008,000
<INCOME-PRETAX> 1,891,000
<INCOME-PRE-EXTRAORDINARY> 1,213,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213,000
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 3.19
<LOANS-NON> 3,391,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 329,000
<LOANS-PROBLEM> 6,800,000
<ALLOWANCE-OPEN> 5,374,000
<CHARGE-OFFS> 102,000
<RECOVERIES> 163,000
<ALLOWANCE-CLOSE> 5,435,000
<ALLOWANCE-DOMESTIC> 5,435,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 11.3
EARNINGS PER SHARE
<TABLE>
<S>
Nine Months Ended Three Months Ended
Amounts in thousands, September 30, September 30,
except per share data 1998 1997 1998 1997
---- ---- ---- ----
<C> <C> <C> <C>
Net Income $3,810 $3,871 $1,213 $1,677
Weighted average common shares,
including shares issued for
exercised options 2,386 2,401 2,382 2,416
Average shares committed to be
released under the ESOP 7 7 2 2
----- ---- ---- ----
Weighted average shares - basic 2,393 2,408 2,384 2,418
Weighted average effect of:
Shares contingently issuable
under executive compensation
plans 7 3 9 3
Shares issuable for assumed
exercise of outstanding
stock options 257 257 250 279
Share repurchasable using
the proceeds of assumed
exercise of stock options (105) (152) (93) (149)
----- ----- ----- -----
Weighted average shares -
assuming dilution 2,552 2,516 2,550 2,551
===== ===== ===== =====
Earnings per share:
Basic $1.59 $1.60 $0.51 $0.69
Assuming dilution $1.49 $1.54 $0.48 $0.66
</TABLE>
