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 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 ___________
Commission file number 0-23435
-------
MEDFORD BANCORP, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3384928
------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
29 High Street
--------------
Medford, Massachusetts 02155
- ---------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 395-7700
--------------
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 |_|
The number of shares outstanding of Medford Bancorp, Inc.'s common stock, $0.50
par value per share, as of March 31, 1999 was 8,292,632.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets................................. 1
Consolidated Statements of Income........................... 2-3
Consolidated Statements of Changes in Stockholders' Equity.. 4
Consolidated Statements of Cash Flows....................... 5-6
Notes to Consolidated Financial Statements.................. 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 8-26
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................ 27
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings........................................... 28
ITEM 2 - Changes in Securities and Use of Proceeds................... 28
ITEM 3 - Defaults Upon Senior Securities............................. 28
ITEM 4 - Submission of Matters to a Vote of Security Holders......... 28
ITEM 5 - Other Information........................................... 28
ITEM 6 - Exhibits and Reports on Form 8-K............................ 28
SIGNATURES.................................................. 29
Exhibit Index............................................... 30
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
MEDFORD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $16,490 $17,439
Interest-bearing deposits 8,437 4,563
----------- -----------
Cash and cash equivalents 24,927 22,002
----------- -----------
Investment securities available for sale 497,506 475,169
Investment securities held to maturity 29,020 29,043
Restricted equity securities 9,547 8,436
Loans 588,237 587,541
Less allowance for loan losses (6,824) (6,876)
----------- -----------
Loans, net 581,413 580,665
----------- -----------
Banking premises and equipment, net 11,855 12,008
Accrued interest receivable 8,791 8,230
Goodwill and deposit-based intangibles 4,520 4,807
Other assets 10,836 10,828
----------- -----------
TOTAL ASSETS $1,178,415 $1,151,188
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $902,915 $871,702
Short-term borrowings 25,473 38,463
Long-term debt 148,653 131,653
Accrued taxes and expenses 4,913 4,078
Other liabilities 2,302 3,025
----------- -----------
Total liabilities 1,084,256 1,048,921
----------- -----------
Stockholders' equity:
Serial preferred stock, $.50 par value, 5,000,000 shares authorized;
none issued; -- --
Common stock, 15,000,000 shares authorized;
$.50 par value, 9,122,596 shares issued 4,561 4,561
Additional paid-in capital 26,249 26,389
Retained earnings 79,549 76,770
Accumulated other comprehensive income (loss) (172) 3,058
Treasury stock, at cost (829,964 and 412,768 shares, respectively) (16,028) (8,511)
----------- -----------
Total stockholders' equity 94,159 102,267
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,178,415 $1,151,188
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
------- -------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $11,063 $11,618
Interest on debt securities 7,699 7,612
Dividends on equity securities 140 115
Interest on short-term investments 50 45
------- -------
Total interest and dividend income 18,952 19,390
------- -------
Interest expense:
Interest on deposits 8,061 7,758
Interest on short-term borrowings 369 1,117
Interest on long-term debt 1,899 1,710
------- -------
Total interest expense 10,329 10,585
------- -------
Net interest income 8,623 8,805
Provision for loan losses -- 75
------- -------
Net interest income, after provision for loan losses 8,623 8,730
------- -------
Other income:
Customer service fees 445 479
Gain on sales of securities, net 1,243 513
Gain on sale of loans 3 158
Miscellaneous 199 176
------- -------
Total other income 1,890 1,326
------- -------
Operating expenses:
Salaries and employee benefits 2,591 2,643
Occupancy and equipment 645 595
Data processing 374 356
Professional fees 137 131
Amortization of intangibles 287 298
Advertising and marketing 141 117
Other general and administrative 488 545
------- -------
Total operating expenses 4,663 4,685
------- -------
Income before income taxes 5,850 5,371
Provision for income taxes 2,152 2,123
------- -------
Net income $3,698 $3,248
======= =======
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
2
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(concluded)
Three Months Ended
March 31,
-----------------
1999 1998
---- ----
(Dollars in thousands,
except per share data)
Earnings per share:
Basic $0.44 $0.36
Diluted $0.41 $0.34
Cash dividends declared per share $0.11 $0.10
Weighted average shares outstanding
Basic 8,487,779 9,089,954
Diluted 8,918,409 9,601,582
See accompanying notes to consolidated financial statements.
3
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
-------------------- Paid-In Retained --------------------
Shares Dollars Capital Earnings Shares Dollars
------ ------- ------- -------- ------ -------
(In thousands, except number of shares)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 9,122,596 $4,561 $26,389 $76,770 (412,768) $(8,511)
Comprehensive income:
Net income -- -- -- 3,698 -- --
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment and tax effects -- -- -- -- -- --
Total comprehensive income
Cash dividends declared ($.11 per share) -- -- -- (919) -- --
Repurchase of treasury stock -- -- -- -- (425,796) (7,689)
Issuance of common stock under stock option
plan and related income tax benefits -- -- (140) -- 8,600 172
--------- ------ ------- ------- -------- --------
Balance at March 31, 1999 9,122,596 $4,561 $26,249 $79,549 (829,964) $(16,028)
========= ====== ======= ======= ======== ========
Balance at December 31, 1997 4,541,148 $2,271 $28,977 $68,938 -- --
Comprehensive income:
Net income -- -- -- 3,248 -- --
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment and tax effects -- -- -- -- -- --
Total comprehensive income
Cash dividends declared ($.10 per share) -- -- -- (910) -- --
Repurchase of treasury stock -- -- -- -- (20,000) (426)
Issuance of common stock under stock option
plan and related income tax benefits 8,950 4 230 -- -- --
--------- ------ ------- ------- -------- --------
Balance at March 31, 1998 4,550,098 $2,275 $29,207 $71,276 (20,000) $(426)
========= ====== ======= ======= ======== ========
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- -----
<S> <C> <C>
Balance at December 31, 1998 $3,058 $102,267
--------
Comprehensive income:
Net income -- 3,698
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment and tax effects (3,230) (3,230)
--------
Total comprehensive income 468
--------
Cash dividends declared ($.11 per share) -- (919)
Repurchase of treasury stock -- (7,689)
Issuance of common stock under stock option
plan and related income tax benefits -- 32
------ --------
Balance at March 31, 1999 $(172) $94,159
====== ========
Balance at December 31, 1997 $1,324 $101,510
--------
Comprehensive income:
Net income -- 3,248
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment and tax effects (172) (172)
--------
Total comprehensive income 3,076
--------
Cash dividends declared ($.10 per share) -- (910)
Repurchase of treasury stock -- (426)
Issuance of common stock under stock option
plan and related income tax benefits -- 234
------ --------
Balance at March 31, 1998 $1,152 $103,484
====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $3,698 $3,248
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses -- 75
Depreciation and amortization, net 649 514
Gain on sales of securities, net (1,243) (513)
Gain on sales of loans (3) (158)
Decrease (increase) in accrued interest receivable
and other assets 1,416 (1,350)
Increase in accrued taxes and expenses
and other liabilities 934 1,004
--------- ---------
Net cash provided by operating activities 5,451 2,820
--------- ---------
Cash flows from investing activities:
Maturities of investment securities available for sale 13,250 15,000
Purchases of investment securities available for sale (135,697) (62,901)
Sales of investment securities available for sale 77,753 35,481
Maturities of investment securities held to maturity 204 24,050
Purchases of investment securities held to maturity
and FHLBB stock (1,110) (1,065)
Principal amortization of mortgage-backed investments
available for sale 17,966 6,170
Proceeds from sale of loans, net 82 5,166
Loans originated and purchased, net of amortization and payoffs (786) (5,848)
Purchases of bank premises and equipment, net (128) (745)
Sales of, and principal payments received on,
foreclosed real estate 116 --
--------- ---------
Net cash provided by (used in) investing activities (28,350) 15,308
--------- ---------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
5
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(concluded)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 31,213 136
Net decrease in borrowings with maturities of three
months or less (12,990) (18,784)
Proceeds from long-term debt 17,000 1,336
Issuance of common stock 32 60
Payments to acquire treasury stock (7,689) (426)
Cash dividends paid (1,742) (1,634)
-------- --------
Net cash provided by (used in) financing activities 25,824 (19,312)
-------- --------
Net change in cash and cash equivalents 2,925 (1,184)
Cash and cash equivalents, beginning of period 22,002 16,180
-------- --------
Cash and cash equivalents, end of period $24,927 $14,996
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MEDFORD BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Note 1. Basis of Presentation
The consolidated interim financial statements of Medford Bancorp, Inc.
(the "Company") and its wholly-owned subsidiary, Medford Savings Bank (the
"Bank") presented herein are intended to be read in conjunction with the
consolidated financial statements presented in the Company's annual report for
the year ended December 31, 1998.
The consolidated financial information for the three months ended March
31, 1999 and 1998 is unaudited. In the opinion of management, however, the
consolidated financial information reflects all adjustments (consisting solely
of normal recurring accruals) necessary for a fair presentation in accordance
with generally accepted accounting principles. Interim results are not
necessarily indicative of results to be expected for the entire year.
Certain amounts have been reclassified in the March 31, 1998 financial
statements to conform to the 1999 presentation.
Note 2. Commitments
At March 31, 1999, the Company had outstanding commitments to originate
new residential and commercial real estate mortgage loans totalling
approximately $31.4 million, which are not reflected on the consolidated balance
sheet. Unadvanced funds on equity lines were $24.7 million, unadvanced
construction loan funds were $15.5 million, and unadvanced funds on commercial
lines of credit were $10.4 million at March 31, 1999.
Note 3. Earnings per share
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by the Company relate
solely to outstanding stock options, and are determined using the treasury stock
method. The assumed conversion of outstanding dilutive stock options would
increase the shares outstanding but would not require an adjustment to income as
a result of the conversion.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
This form 10-Q contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result, among other factors, of
changes in general national or regional economic conditions, changes in loan
default and charge-off rates, reductions in deposit levels necessitating
increased borrowing to fund loans and investments, changes in interest rates,
changes in the size and nature of the Company's competition, and changes in the
assumptions used in making such forward-looking statements.
Consolidated net income was $3,698,000, or basic earnings per share of $0.44
($0.41 diluted basis) for the three months ended March 31, 1999, compared to
$3,248,000 or basic earnings per share of $0.36 ($0.34 diluted basis) for the
comparable prior year period. This represents a $.07 or 20.6% increase in
diluted earnings per share and an increase in net income of $450,000 or 13.9%.
The increase in basic and diluted earnings per share has benefited from our
stock repurchase programs announced in February and December 1998.
Net interest income was $8,623,000 for the quarter ended March 31, 1999, down
$182,000 or 2.1% from the comparable 1998 period, and represented a net interest
margin of 3.08% compared to 3.23% for the comparable 1998 period. Net gain on
sales of securities and loans totalled $1,246,000 for the 1999 first quarter
compared to $671,000 for the same quarter in 1998.
Total operating expenses were $4,663,000 for the first quarter of 1999, down
$22,000 or 0.47% from the $4,685,000 during the comparable period in 1998. There
was no provision for loan losses recorded for the three month period ended March
31, 1999 as compared to $75,000 for the comparable prior year period.
For the first quarter of 1999, the annualized return on assets was 1.31% and the
annualized return on equity was 15.28%, compared to 1.17% and 12.80% for the
comparable period in 1998.
8
<PAGE>
Total non-performing assets were $2,749,000 or 0.23% of total assets at March
31, 1999 compared to $1,932,000 or 0.17%, respectively, at December 31, 1998.
The allowance for loan losses at March 31, 1999 was $6,824,000, representing
1.16% of total loans. At December 31, 1998, the allowance for loan losses was
$6,876,000, representing 1.17% of total loans. The Company had no foreclosed
real estate at March 31, 1999, compared to $119,000 at December 31, 1998.
The Company had total assets of $1.18 billion and capital of $94.2 million at
March 31, 1999, representing a capital to assets ratio of 7.99%, exceeding all
regulatory requirements. As compared to December 31, 1998, investment securities
increased $23.4 million or 4.6% to $536 million, total loans increased $696,000
or 0.1% to $588.2 million, deposits increased $31.2 million or 3.6% to $902.9
million, and borrowings increased $4.0 million, or 2.4% to $174.1 million.
A more detailed discussion and analysis of the Company's financial condition and
results of operations follows.
9
<PAGE>
INVESTMENT SECURITIES
Investment securities consist of the following:
March 31, December 31,
1999 1998
-------- --------
(In thousands)
Securities available for sale, at fair value $497,506 $475,169
Securities held to maturity, at amortized cost 29,020 29,043
Restricted equity securities:
Federal Home Loan Bank stock 8,433 7,322
Massachusetts Savings Bank Life Insurance stock 1,114 1,114
-------- --------
$536,073 $512,648
======== ========
The amortized cost and fair value of investment securities, excluding restricted
equity securities, at March 31, 1999 and December 31, 1998 with gross unrealized
gains and losses, follows:
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
Corporate bonds $202,071 $ 1,135 $ (364) $202,842
Mortgage - backed 247,142 837 (1,239) 246,740
U.S. Government and
federal agency 46,266 110 (432) 45,944
-------- -------- -------- --------
Total debt securities 495,479 2,082 (2,035) 495,526
Marketable equity securities 2,332 8 (360) 1,980
-------- -------- -------- --------
Total securities
available for sale $497,811 $ 2,090 $ (2,395) $497,506
======== ======== ======== ========
Securities Held to Maturity
U.S. Government
and federal agency $ 29,020 $ 155 $ -- $ 29,175
======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
Corporate bonds $188,087 $ 1,966 $ (33) $190,020
Mortgage - backed 215,933 2,392 (129) 218,196
U.S. Government and
federal agency 63,591 1,190 (89) 64,692
-------- -------- -------- --------
Total debt securities 467,611 5,548 (251) 472,908
Marketable equity securities 2,532 45 (316) 2,261
-------- -------- -------- --------
Total securities
available for sale $470,143 $ 5,593 $ (567) $475,169
======== ======== ======== ========
Securities Held to Maturity
U.S. Government and federal agency $ 29,043 $ 286 $ -- $ 29,329
======== ======== ======== ========
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity at
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------
Available for Sale Held to Maturity
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 48,505 $ 48,823 $ 24,020 $ 24,120
After 1 year through 5 years 191,424 191,839 5,000 5,055
After 5 years through 10 years 8,408 8,124 -- --
-------- -------- -------- --------
248,337 248,786 29,020 29,175
Mortgage - backed securities 247,142 246,740 -- --
-------- -------- -------- --------
$495,479 $495,526 $ 29,020 $ 29,175
======== ======== ======== ========
</TABLE>
11
<PAGE>
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------
Available for Sale Held to Maturity
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 42,335 $ 42,549 $ 24,043 $ 24,241
After 1 year through 5 years 193,752 196,394 5,000 5,088
After 5 years through 10 years 10,446 10,528 -- --
After 10 years 5,145 5,241 -- --
-------- -------- -------- --------
251,678 254,712 29,043 29,329
Mortgage - backed securities 215,933 218,196 -- --
-------- -------- -------- --------
$467,611 $472,908 $ 29,043 $ 29,329
======== ======== ======== ========
</TABLE>
Investment securities increased $23.4 million from $512.6 million at December
31, 1998 to $536.1 million at March 31, 1999. During the first three months of
1999, management continued its program to maintain portfolio yield by reducing
U.S. Government and federal agency securities approximately $17 million as they
matured or were sold, and by increasing mortgage-backed securities approximately
$31 million. At March 31, 1999, the securities portfolio classified as
"available for sale" reflected an unrealized pre-tax loss of $305,000 as a
result of rising market rates as compared to an unrealized pre-tax gain of $5.0
million at December 31, 1998. In accordance with the Company's asset-liability
strategies, purchases of mortgage-backed securities are primarily in fifteen
year mortgages with weighted average lives of six years and other investment
securities are generally short-term with maturities of five years or less.
Sales of debt securities produced gains of $1.2 million during the 1999 first
quarter compared to gains of $286,000 for the first quarter ended March 31,
1998. Sales of equities produced gains of $4,000 during the 1999 first quarter
compared to gains of $227,000 for the quarter ended March 31, 1998.
12
<PAGE>
LOANS
A summary of the Company's outstanding loan balances as of the dates
indicated are as follows:
March 31, December 31,
1999 1998
--------- ---------
(In thousands)
Mortgage loans on real estate:
Residential 1-4 family $429,593 $421,462
Commercial 105,971 109,561
Construction 28,490 28,647
Second mortgages 1,023 1,111
Equity lines of credit 19,474 20,606
-------- --------
584,551 581,387
Less: Unadvanced construction
loan funds (15,460) (15,574)
-------- --------
569,091 565,813
-------- --------
Other loans:
Commercial loans 15,066 17,358
Personal loans 1,901 2,076
Education and other 889 1,069
-------- --------
17,856 20,503
-------- --------
Add: Premium on loans acquired 208 223
Net deferred fees 1,082 1,002
-------- --------
Total loans 588,237 587,541
Less: Allowance for loan losses (6,824) (6,876)
-------- --------
Loans, net $581,413 $580,665
======== ========
While total loans outstanding at March 31, 1999 were essentially flat to the
December 31, 1998 level, residential 1-4 family real estate mortgage loans
increased $8.1 million. Commercial real estate loans decreased $3.6 million from
the December 31, 1998 level due to ongoing intense pricing competition from both
bank and non-bank competitors, while the $2.3 million decrease in commercial
loans is reflective of seasonal borrowing trends in asset-based lending. The
payoff of a sizable bridge loan and the effects of residential 1-4 family
mortgage loan refinancings accounts for the decrease of $1.1 million in equity
lines of credit. All other loan categories remained essentially stable during
the quarter as new loan originations replaced amortization and payoffs.
13
<PAGE>
NON-PERFORMING ASSETS
Total non-performing assets were $2.7 million and $1.9 million at March 31, 1999
and December 31, 1998, respectively. Included in non-performing assets at
December 31, 1998 was a single foreclosed real estate property carried at
$119,000 that was sold during the quarter ended March 31, 1999. There were no
other foreclosed real estate properties added during the 1999 first quarter. As
a percentage of total assets, non-performing assets equaled 0.23% and 0.17% at
March 31, 1999 and December 31, 1998, respectively. It is the Company's general
policy to place loans on a non-accrual basis when such loans become 90 days
contractually delinquent or when the collectibility of principal or interest
payments becomes doubtful. When a loan is placed on non-accrual status, its
interest income accrual ceases and all income previously accrued but unpaid is
reversed.
In accordance with SFAS No. 114, a loan is considered impaired when, based on
current information and events, it is probable that the borrower will be unable
to meet principal or interest payments as agreed in the original loan contract.
The principal balance of impaired loans at March 31, 1999 was $2.7 million, all
of which were included in the $2.7 million non-performing assets referenced in
the preceding paragraph. The loan loss reserve allocated to these impaired loans
was $175,000 at March 31, 1999.
ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses follows:
Three Months Ended
---------------------------
March 31, March 31,
1999 1998
------- -------
(In thousands)
Balance at beginning
of period $6,876 $6,733
Provisions -- 75
Recoveries 15 8
Less: Charge-offs (67) (30)
------- -------
Balance at end of period $6,824 $6,786
======= =======
14
<PAGE>
The allowance for loan losses is established, as losses are estimated to have
occurred, through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the collectibility of
the loan balance is unlikely. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, known inherent risks in the nature and volume of
the loan portfolio, levels of non-performing loans, adverse situations that may
affect the borrowers' ability to repay, trends in delinquencies and charge-offs,
estimated value of any underlying collateral, and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available. Ultimate losses may vary from current estimates and future additions
to the allowance may be necessary.
The allowance for loan losses was $6.8 million at March 31, 1999, a reserve
coverage of 1.16% of total loans. At December 31, 1998, the allowance for loan
losses was $6.9 million, representing 1.17% of total loans.
DEPOSITS
Total deposits increased $31.2 million from December 31, 1998 to $902.9 million
at March 31, 1999. This growth resulted from increases in core deposits and
success in the municipal deposit program.
Generally, the Company's strategy is to maintain stable deposit rates and to
increase deposit levels through selective core deposit and term deposit
promotions. To retain core deposits, the Company continues to promote its
"ComboPlus" account, which combines a statement savings and a demand account.
This "ComboPlus" account has contributed to an increase in both its related
savings and demand deposits.
15
<PAGE>
The following table indicates the balances in various deposit accounts at the
dates indicated.
March 31, December 31,
1999 1998
-------- --------
(In thousands)
Demand accounts $49,607 $51,936
NOW accounts 61,081 64,888
Savings & money market accounts 363,538 351,047
Term certificates 428,689 403,831
-------- --------
$902,915 $871,702
======== ========
BORROWED FUNDS
Historically, the Company has selectively engaged in long-term borrowings to
fund loans and has entered into short-term repurchase agreements to fund
investment securities purchases. At March 31, 1999, the Company's long-term
borrowings increased by $17 million to $148.7 million from $131.7 million at
December 31, 1998 while its short-term borrowings decreased by $13 million to
$25.5 million from $38.5 million at year end. At March 31, 1999, borrowed funds
totalled $174.1 million, increasing $4.0 million from the $170.1 million
reported at December 31, 1998.
STOCKHOLDERS' EQUITY
The Company's capital to assets ratio was 7.99% and 8.88% at March 31, 1999 and
December 31, 1998, respectively.
The Company (on a consolidated basis) and its subsidiary Medford Savings Bank
(the "Bank") are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's and Bank's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company and/or the
Bank must meet specific capital guidelines that involve quantitative measures of
their assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. Holding companies, such as the Company,
are not subject to prompt corrective action provisions. The capital amounts and
classification are also
16
<PAGE>
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital (as defined) to average assets (as defined). As of December
31, 1998, the Company and the Bank met all capital adequacy requirements to be
categorized as well capitalized. No conditions or events occurred during the
first three months of 1999 that management believes have changed the Company's
or the Bank's category. Therefore, management believes as of March 31, 1999 that
the Company and the Bank met all capital adequacy requirements to continue to be
categorized as well capitalized.
The Company's book value at March 31, 1999 was $11.35 per share, compared with
$11.74 per share at December 31, 1998.
(Remainder of this page intentionally left blank.)
17
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 vs QUARTER ENDED MARCH 31, 1998
NET INTEREST INCOME
Interest and dividend income from loans and investments decreased $438,000 or
2.2% to $19.0 million for the 1999 first quarter when compared to the same
quarter in 1998. For the 1999 first quarter, average earning assets totalled
$1.1 billion, an increase of $25.5 million or 2.4% over the comparable average
for 1998, with $21.7 million of that increase attributed to short and long-term
investment securities and $3.8 million attributed to loans. The annualized
yields on earning assets were 6.86% and 7.19% for the first quarters in 1999 and
1998, respectively. The yield on investment securities was 6.08% for the first
quarter 1999 as compared to 6.24% for the first quarter 1998. Short and
long-term investments contributed $117,000 of additional interest and dividend
income when comparing the first quarter of 1999 to the first quarter of 1998,
primarily as a result of higher average balances. The increase in the average
balance on loans was more than offset by a yield decline, from 8.01% to 7.57%,
such that interest income on loans decreased by $555,000 from its 1998 first
quarter level.
Total interest expense for the three months ended March 31, 1999 was $10.3
million, reflecting a decrease of $256,000 or 2.4% over the same period in 1998.
At March 31, 1999 average interest bearing liabilities increased $27.4 million
or 2.8% over the comparable prior year period. This period-to-period increase
can be attributed to average deposit growth of $55.1 million, as average
borrowed funds decreased $27.7 million. Deposit growth occurred even as rates
paid declined from 4.05% to 3.98% for the quarters ended March 31, 1998 and
1999, respectively. Overall, interest expense on deposits increased $303,000 to
$8.1 million as increases in average deposits more than offset the lower rate
environment. Interest expense on borrowed funds decreased $559,000 as the
average balances decreased and the rates paid declined 38 basis points to 5.44%
in the first quarter of 1999 compared to the first quarter in 1998. The overall
cost of interest bearing liabilities decreased to 4.18% from 4.41% when
comparing the two quarters.
Net interest income decreased 2.1% or $182,000 to $8.6 million when comparing
the first quarter in 1999 to the same quarter in 1998, as the weighted average
rate spread and the net interest margin decreased by 10 and 15 basis points,
respectively. The decrease in net interest income, spread and net interest
margin are primarily due to yields on earning assets decreasing at a faster pace
than interest rates on interest bearing liabilities. The yield on earning assets
declined 33 basis points to 6.86% in the first quarter 1999 as compared to the
same quarter in 1998, while the cost of interest bearing liabilities decreased
by 23 basis points to 4.18%. This resulted in an interest rate spread and a net
interest margin of 2.68% and 3.08%, respectively, for the three months ended
March 31, 1999.
18
<PAGE>
MEDFORD BANCORP, INC.
INTEREST RATE SPREAD
Three Months Ended
March 31,
---------
1999 1998
---- ----
Weighted average yield earned on:
Short-term investments 4.66% 5.39%
Investment securities 6.08 6.24
Loans 7.57 8.01
---- ----
All earning assets 6.86% 7.19%
---- ----
Weighted average rate paid on:
Deposits 3.98% 4.05%
Borrowed funds 5.44 5.82
---- ----
All interest-bearing liabilities 4.18% 4.41%
---- ----
Weighted average rate spread 2.68% 2.78%
---- ----
Net interest margin 3.08% 3.23%
==== ====
19
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors, including the quality of specific
loans, risk characteristics of the loan portfolio generally, the level of
non-performing loans, current economic conditions, trends in delinquency and
charge-offs, and value of the underlying collateral. Management considers the
allowance for loan losses to be adequate at March 31, 1999, although there can
be no assurance that the allowance is adequate or that additional provisions to
the allowance for loan losses will not be necessary.
The Company recorded no provision for loan losses for the first quarter of 1999,
compared to $75,000 provided for the first quarter of 1998. Net loan charge-offs
for the three months ended March 31, 1999 totalled $52,000, compared to net loan
charge-offs of $22,000 for the same period in 1998.
OTHER INCOME
Other income, including customer service fees and gains and losses on sales of
assets equaled $1,890,000 in the first quarter of 1999 as compared to $1,326,000
in the first quarter of 1998, representing an increase of $564,000 or 42.5%. The
$575,000 increase in combined gain on sales of securities and loans, when
comparing the first quarters of 1999 to 1998, accounts for the increase in other
income. See related discussions under "Investment Securities" and "Loans"
included in "Management's Discussion and Analysis" in Item 2 of Part I of this
report.
OPERATING EXPENSES
Operating expenses were essentially unchanged at $4.7 million, decreasing
$22,000 or 0.5%, for the three months ended March 31, 1999 when compared to the
same period in 1998. Decreases in salaries and employee benefits, amortization
of intangibles and other general and administrative expenses offset the
increases in the other categories of operating expenses. The Company's
annualized expense ratio, which is the ratio of non-interest expense to average
assets, was 1.62% for the three months ended March 31, 1999, as compared to
1.67% for the prior year comparable period. The Company continues to focus on
cost containment with the intent to be a low cost provider of high quality
banking products and services.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are customer deposits,
amortization and payoff of existing loan principal, and sales or maturities of
various investment securities. The Company is a voluntary member of the Federal
Home Loan Bank of Boston ("FHLBB"), and as such may take advantage of the
FHLBB's borrowing programs to enhance liquidity and leverage its favorable
capital position. The Company also may draw on lines of credit at the FHLBB and
a large commercial bank, and it may pledge U.S. Government securities to borrow
from certain investment firms and the Mutual Savings Central Fund of
Massachusetts. These various sources of liquidity are used to fund withdrawals,
new loans, and investments.
Management seeks to promote deposit growth while controlling the Company's
cost of funds. Sales oriented programs to attract new depositors and the
cross-selling of various products to its existing customer base are currently in
place. Management reviews, on an ongoing basis, possible new products, with
particular attention to products and services which will assist retention of the
Company's base of lower-costing deposits.
Maturities and sales of investment securities provide significant
liquidity to the Company. The Company's policy of purchasing shorter-term debt
securities reduces market risk in the bond portfolio while providing significant
cash flow. For the three months ended March 31, 1999 cash flow from maturities
and sales of securities was $91.2 million compared to $74.5 million for the
three months ended March 31, 1998. Principal payments received on
mortgage-backed investments during the three months ended March 31, 1999 and
1998 totalled $18.0 million and $6.2 million, respectively. During periods of
high interest rates, maturities in the bond portfolio have provided significant
liquidity at a lower cost than borrowings.
Amortization and payoffs of the loan portfolio also contribute significant
liquidity to the Company. Traditionally, the amortization and payoffs have been
reinvested into loans. When payoff rates exceed origination rates, excess
liquidity from loan payoffs is shifted into the investment portfolio.
The Company also uses borrowed funds as a source of liquidity. These
borrowings generally contribute toward funding over-all loan growth. At March
31, 1999 the Company's outstanding borrowings from the FHLBB were $158.6
million, as compared to $131.6 million at December 31, 1998. The Company also
utilizes repurchase agreements as a source of funding when management deems
market conditions to be conducive to such activities. Repurchase agreements
totalled $14.9 million at March 31, 1999 as compared to $38.3 million at
December 31, 1998.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(continued)
Commitments to originate residential and commercial real estate mortgage
loans at March 31, 1999 excluding unadvanced construction funds of $15.5 million
were $31.4 million. Management believes that adequate liquidity is available to
fund loan commitments utilizing deposits, loan amortization, maturities of
securities, or borrowings.
Purchases of securities during the three months ended March 31, 1999
totalled $136.8 million consisting of debt instruments generally maturing in
less than five years and equities. This compares with purchases of $64.0 million
for the three months ended March 31, 1998.
Residential and commercial real estate mortgage loan originations for the
three months ended March 31, 1999 totalled $31.4 million, compared with $38.0
million for the three months ended March 31, 1998.
The Company's capital position (total stockholders' equity) was $94.2
million or 7.99% of total assets at March 31, 1999 compared with $102.3 million
or 8.88% of total assets at December 31, 1998. The Company's capital position
exceeds all regulatory requirements.
(Remainder of this page intentionally left blank.)
22
<PAGE>
ASSET-LIABILITY MANAGEMENT
Through the Company's Asset-Liability Management Committee ("ALCO"), which
is comprised of certain senior and middle management personnel, the Company
monitors the level and general mix of interest rate-sensitive assets and
liabilities. The primary objective of the Company's ALCO program is to manage
the assets and liabilities of the Company to provide for optimum profitability
and capital at prudent levels of liquidity and interest rate, credit, and market
risk.
It is ALCO's general policy to closely match the maturity or rate
sensitivity of its assets and liabilities. In accordance with this policy,
certain strategies have been implemented to improve the match between interest
rate sensitive assets and liabilities. These strategies include, but are not
limited to: daily monitoring of the Company's changing cash requirements, with
particular concentration on investment in short term securities; originating
adjustable and fixed rate mortgage loans for the Company's own portfolio;
managing the cost and structure of deposits; and generally using matched
borrowings to fund specific purchases of loan packages and large loan
origination. Occasionally, management may choose to deviate from specific
matching of maturities of assets and liabilities, if an attractive opportunity
to enhance yields becomes available.
The Company actively manages its liability portfolio in order to
effectively plan and manage growth and maturities of deposits. Management
recognizes the need for strict attention to all deposits. Accordingly, plans for
growth of all deposit types are reviewed regularly. Programs are in place which
are designed to build multiple relationships with customers and to enhance the
Company's ability to retain deposits at controlled rates of interest, and
management has adopted a policy of reviewing interest rates on an ongoing basis
on all deposit accounts, in order to control deposit growth and interest costs.
In addition to attracting deposits, the Company has selectively borrowed
funds using advances from the Federal Home Loan Bank of Boston and upon
occasion, reverse repurchase agreements. These funds have generally been used to
purchase loans typically having a matched repricing date.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing
23
<PAGE>
power of money over time due to inflation. The primary effect of inflation on
the operations of the Company is reflected in increased operating costs. Unlike
most industrial companies, virtually all assets of a financial institution are
monetary in nature. As a result, interest rates have a more significant effect
on a financial institution's performance than the effect of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
YEAR 2000 DISCLOSURE
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the "Year 2000 Information and Readiness
Disclosure Act."
The Year 2000 ("Y2K") issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. As the
century date change occurs, date sensitive systems may recognize the year 2000
as 1900, or not at all. This inability to recognize or properly treat the year
2000 may cause systems to process critical financial and operational information
incorrectly.
A year 2000 Task Force Committee ("Task Force") represented by members of
senior management was formed in 1997 and is responsible for Y2K compliance.
Diligent efforts, with management's participation, are being conducted by the
Company to address Y2K concerns that affect its operations. The objective of the
Company's Y2K compliance efforts is to enable its internal systems to function
normally with dates prior to, during, or after the year 2000. Additionally,
compliance shall also include out-sourced systems upon which the Company relies
for normal bank operations. The Company monitors compliance efforts of these
vendors to adequately assess readiness and has sought written assurances from
vendors of critical systems.
To become Y2K compliant, the Company is following the Federal Financial
Institutions Examination Council ("FFIEC") interagency statement of Year 2000
project management issued May 1997. The statement outlines five phases essential
to the Y2K remediation process. The Company's Year 2000 Task Force prepared a
"Year 2000 Action Plan" to define the tasks and monitor its progress in each of
the five phases. The five phases and the Company's status in its efforts in
completing each follow:
1. Awareness Phase - To define the Y2K problem, gain executive level
support for resources, establish a Y2K program team, and develop an overall
strategy that encompasses potentially affected systems. The Year 2000 Task Force
was formed in 1997 and has prepared a Year 2000 Action Plan to address the Y2K
problem. The Task Force has established and is maintaining ongoing
communications with employees, management, the
24
<PAGE>
Board of Directors and customers on Y2K awareness and understanding. Progress
updates on Y2K compliance are provided to the Board of Directors and its
Committees on a quarterly basis. The Year 2000 committee has also established a
"Customer Awareness Program" to provide updates and assurance to its customer
base on its efforts and progress on Y2K readiness. Communication, training and
awareness is ongoing and will continue throughout the Y2K remediation process.
2. Assessment Phase - Assess the size and complexity of the problem,
identify all hardware, software, networks, ATM's, and other various processing
platforms. The assessment also includes non-information systems dependent upon
embedded microchips. The Task Force has identified its third party vendor
("Third Party") of data processing for teller platform, deposit and loan
information systems as its critical computer application. The Task Force and
Third Party have established and are maintaining significant monitoring efforts
of Y2K compliance progress through newsletters, user group interface and direct
communication. Additionally, the Task Force has also assessed and prepared
inventories of all non-critical software and hardware information systems and
non-computer related equipment. The inventories outline actions to be taken,
including the need for repair and/or replacement, need for testing and
establishment of contingency plans as deemed appropriate. Major vendors
identified in this assessment phase have been contacted and requested to provide
written correspondence on Y2K readiness and progress.
3. Renovation Phase - Includes code enhancements, hardware and software
upgrades, system replacements, vendor certifications, and other associated
changes. A Remediation Contingency Plan for the Third Party computer application
was prepared and reviewed during the third quarter of 1998. The Task Force is in
the process of finalizing its Third Party Business Resumption Contingency Plan
which outlines how the Company would resume business if unanticipated problems
arise from nonperformance of the Third Party. In August 1998, the Third Party's
"Year 2000 Outsourcing Solution" was certified by the Information Technology
Association of America ("ITAA"). ITAA*2000 is the industry's century date change
certification program that examines processes and methods used by companies to
perform their Year 2000 software conversions. The Company and Third Party
successfully completed a conversion to the "Year 2000 Outsourcing Solution," the
Y2K-ready platform, in early October 1998. Replacement of in-house software and
hardware identified in its assessment phase was substantially complete at
year-end 1998.
4. Validation Phase - Includes testing of incremental changes and upgrades
to hardware and software components. The Task Force has prepared a "Year 2000
Test Plan" ("Test Plan") document that defines the environment, methodology,
human and financial resources, critical test dates and scheduled testing dates
for Third Party and in-house software and hardware. The Test Plan incorporates
the Third Party's Year 2000 20XX proxy
25
<PAGE>
testing plan which outlines the objectives, scope and completed testing of their
applications in the first quarter of 1999. In conjunction with the Task Force's
Test Plan, the Company has established an in-house laboratory for testing Y2K
readiness of all internal non-critical software and hardware systems. Plans,
test scripts, and actual testing dates for the internal non-critical software
and hardware systems were completed at year-end 1998.
5. Implementation Phase - In this Phase, systems should be certified as
Y2K compliant and be accepted by the Company. Given the Company's schedule for
renovation and validation, certification of Y2K compliance is anticipated to be
completed by the summer of 1999.
Costs of the Y2K compliance effort during 1998 totaled $20,440 and were
expensed as incurred. Additional costs of $50,000 for 1999 are expected to be
expensed as incurred. Based upon currently available information, this 1999
amount will not have a material impact on the Company's on-going results of
operations. A substantial part of the Y2K compliance effort will be accomplished
by reallocation of existing personnel and resources. In addition, investments in
new software and hardware planned by the Company in 1998 fall within the
ordinary course of business of maintaining industry technology standards, and
are not considered to be instrumental to the Company within the context of the
Y2K project.
In addition to the Third Party Business Resumption Contingency Plan, the
Company has developed a Liquidity Contingency Plan to address liquidity problems
that may be caused by Y2K. Although the Company has taken reasonable steps to
anticipate Y2K-related problems, no assurance can be given that the Company, or
vendors, governmental agencies, companies, etc. that interface with the Company
will resolve their Y2K issues in a successful and timely fashion or that the
costs of the Company's efforts will not exceed current estimates. If the Company
does not resolve such issues, or does not do so in a timely manner, the Y2K
issue could have a material adverse impact on the Company's business, future
operating results and financial condition. In addition, the Company's efforts to
become Y2K compliant are being monitored by its federal banking regulators.
Failure to be Y2K compliant could subject the Company to formal supervisory
enforcement actions.
The preceding Y2K discussion contains various forward-looking statements
within the meaning of Section 27A if the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's beliefs and expectations
regarding future events. When used in the Y2K discussion, the words "believes",
"expects", "estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include,
26
<PAGE>
without limitation, the Company's expectations as to when it will complete the
phases of the Plan; its estimated costs; and its belief that its internal
systems will be Y2K compliant in a timely manner. All forward-looking statements
involve a number of risks and uncertainties that could cause the actual results
to differ materially from the projected results. Factors that may cause these
differences include, but are not limited to, the availability of qualified
personnel and other information technology resources; the ability to identify
and remediate all date sensitive lines of computer code; and the actions of
governmental agencies or other third parties with respect to Y2K problems.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the Company's management of market risk exposure, see
"Asset-Liability Management" in Item 2 of Part I of this report and Item 7A of
Part II of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (the "1998 Annual Report").
For quantitative information about market risk, see Item 7A of Part II of
the Company's 1998 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of March 31, 1999 from those presented in the
Company's 1998 Annual Report.
27
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
There are no material legal proceedings to which the Company is a
party or to which any of its property is subject, although the
Company is a party to ordinary routine litigation incidental to its
business.
ITEM 2 - Changes in Securities and Use of Proceeds
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
None.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended March 31, 1999.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDFORD BANCORP, INC.
Date: May 7, 1999
/s/ Arthur H. Meehan
----------------------------------------------------------
Arthur H. Meehan
Chairman, President and Chief Executive Officer
Date: May 7, 1999
/s/ Phillip W. Wong
----------------------------------------------------------
Phillip W. Wong
Executive Vice President, Treasurer and Chief Financial Officer
29
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
30
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,490
<INT-BEARING-DEPOSITS> 4
<FED-FUNDS-SOLD> 8,433
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 497,506
<INVESTMENTS-CARRYING> 29,020
<INVESTMENTS-MARKET> 0
<LOANS> 588,237
<ALLOWANCE> (6,824)
<TOTAL-ASSETS> 1,178,415
<DEPOSITS> 902,915
<SHORT-TERM> 25,473
<LIABILITIES-OTHER> 7,215
<LONG-TERM> 148,653
0
0
<COMMON> 4,561
<OTHER-SE> 89,598
<TOTAL-LIABILITIES-AND-EQUITY> 1,178,415
<INTEREST-LOAN> 11,063
<INTEREST-INVEST> 7,839
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 18,952
<INTEREST-DEPOSIT> 8,061
<INTEREST-EXPENSE> 10,329
<INTEREST-INCOME-NET> 8,623
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,243
<EXPENSE-OTHER> 4,663
<INCOME-PRETAX> 5,850
<INCOME-PRE-EXTRAORDINARY> 5,850
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,698
<EPS-PRIMARY> .44
<EPS-DILUTED> .41
<YIELD-ACTUAL> 6.86
<LOANS-NON> 2,749
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,876
<CHARGE-OFFS> 67
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 6,824
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
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</TABLE>
