U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of The Securities Exchange Act of 1934
For the Quarterly period Ended June 30, 1999
Commission file Number 000-24933
Heritage Bancorp, Inc.
(Exact Name of Registrant As Specified In Its Charter)
VIRGINIA 54-1914902
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
1313 Dolley Madison Blvd., McLean, Va. 22101
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER
703-356-6060
N/A
(Former Name, Former Address and Former Year,
If Changed Since Last Report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS
FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF
EXCHANGE ACT DURING THE PRECEDING 12
MONTHS (OF 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___
COMMON SHARES OUTSTANDING AS OF July 26,1999: 2,294,617
38
<PAGE>
INDEX
HERITAGE BANCORP,INC.
Part 1 Financial Information Page
----
Item 1 Financial Statements
Balance Sheets
June 30, 1999 and December 31, 1998 3
Statement of income
Three months ended June 30, 1999 and 1998 4
Statement of income
Six months ended June 30, 1999 and 1998 5
Statement of Stockholders Equity
Three months ended March 31, 1999 and 1998 6
Statement of Cash Flows
Three months ended March 31, 1999 and 1998 7
Notes to Financial Statements 8
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of operation 9
and Selected Financial Data
Part II. Other Information: 19
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon /Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
<TABLE>
ITEM I.
Part I. Financial Information
HERITAGE BANCORP,INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, unaudited)
<CAPTION>
ASSETS JUNE 30,1999 DECEMBER 31, 1998
------------ -----------------
<S> <C> <C>
Cash and Due from Banks $ 1,955 $ 5,825
Federal Funds Sold 3,900 8,550
Total Cash and Due From Banks 5,855 14,375
Securities available for sale 22,991 19,824
Loans, Net 29,534 29,181
Premises and Equipment, Net 839 376
Other Real Estate Owned 263 263
Accrued Interest and other Assets 871 $ 757
--------- ----------
TOTAL ASSETS $ 60,353 $ 64,776
========= ==========
LIABILITIES AND STOCKHOLDERS
EQUITY
Liabilities
Noninterest Bearing Deposits $ 11,376 $ 17,386
Interest bearing deposits 37,496 36,056
--------- ----------
Total Deposits 48,872 53,442
Security Sold Under Agreement to 2,595 2,287
Repurchase
Other liabilities 80 119
--------- ----------
Total Liabilities 51,547 55,848
--------- ----------
Stockholders' Equity
Common Stock 2,295 2,295
Surplus 6,530 6,530
Undivided Profits 220 28
Accumulated other Comprehensive
Income (Loss) (239) 75
--------- ----------
Total Stockholders' Equity 8,806 8,928
--------- ----------
TOTAL LIABILITIES AND $ 60,353 $ 64,776
========= ==========
STOCKHOLDERS' EQUITY
</TABLE>
Notes to financial statements are an integral part of these statements.
3
<PAGE>
<TABLE>
HERITAGE BANCORP,INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATION
Three Months Ending June 30, 1999
(in thousands, unaudited)
<CAPTION>
Three Months Ended
------------------------------------------
INTEREST INCOME June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Loans $ 692 $ 577
Securities 356 259
Federal Funds Sold 64 81
----------- -----------
Total interest income 1,112 917
INTEREST EXPENSE
Interest checking deposit 42 33
Other time deposit 235 222
Cert.of deposit $100,000 or more 66 45
Repurchase agreements 23 4
----------- -----------
Total interest expense 366 304
Net interest income 746 613
Provision for loan losses 6 2
----------- -----------
Net interest income after
provision for loan losses 740 611
OTHER INCOME
Service charges on deposit accounts 28 28
Other operating income, net 9 7
Gain or loss on sale of securities 1 (1)
----------- -----------
Total other income 38 34
OTHER EXPENSES
Salaries and employee benefits 354 261
Occupancy expense 85 73
Equipment expense 21 12
Other operating expenses 289 197
----------- -----------
Total other expenses 749 543
Income before income taxes 29 102
Income tax 14 2
----------- -----------
NET INCOME $ 15 $ 100
=========== ===========
Basic income per share $ 0.01 $ 0.05
=========== ===========
Diluted income per share $ 0.01 $ 0.05
=========== ===========
Weighted avg shares outstanding 2,294,617 1,879,195
=========== ===========
</TABLE>
Notes to financial statements are an integral part of these statements
4
<PAGE>
<TABLE>
HERITAGE BANCORP,INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATION
Six Months Ending June 30, 1999
(in Thousands,unaudited)
<CAPTION>
Six Months Ended
------------------------------------------
INTEREST INCOME June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Loans $ 1,391 $ 1,130
Securities 675 486
Federal Funds Sold 145 138
----------- -----------
Total interest income $ 2,211 $ 1,754
INTEREST EXPENSE
Interest checking deposit 78 64
Other time deposit 476 420
Cert.of deposit $100,000 or more 137 90
Repurchase agreements 35 7
----------- -----------
Total interest expense 726 581
Net interest income 1,485 1,173
Provision for loan losses 13 4
----------- -----------
Net interest income after
provision for loan losses 1,472 1,169
OTHER INCOME
Service charges on deposit accounts 54 53
Other operating income, net 17 14
Gain or loss on sale of securities 1 (1)
----------- -----------
Total other income 72 66
OTHER EXPENSES
Salaries and employee benefits 649 525
Occupancy expense 162 147
Equipment expense 35 19
Other operating expenses 473 341
----------- -----------
Total other expenses 1,319 1,032
Income before income taxes 225 203
Income tax 33 2
----------- -----------
NET INCOME $ 192 $ 201
=========== ===========
Basic income per share $ 0.08 $ 0.12
=========== ===========
Diluted income per share $ 0.08 $ 0.12
=========== ===========
Weighted avg shares outstanding 2,294,617 1,685,353
=========== ===========
</TABLE>
Notes to financial statements are an integral part of these statements
5
<PAGE>
<TABLE>
HERITAGE BANCORP,INC. AND SUBSIDIARY
Consolidated Statements of Change in Stockholder's Equity
For Six Months Ended June 30, 1999 and June 30 1998
(Dollars in Thousands,unaudited)
<CAPTION>
Accumulated
other
Comprehensive Retained comprehensive Capital
Total income earnings income Common stock surplus
----- ------ -------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balances January 1,1998 $ 4,731 $ (104) $ 18 $ 1,490 $ 3,327
Comprehensive income
Net income 201 $ 201 201 - - -
Other comprehensive income net of tax
Unrealized holding gain(loss) arising during period (9) - - -
net of tax of $(8)
Less reclassification adjustment 1 - - -
Other comprehensive income, net of tax (8) (8) - (8) - -
--- -------
Total comprehensive income $ 193 -
======= -
Issuance of common Stock $ 4,107 $ 803 $ 3,304
------- ------ --------
Balances June 30, 1998 $9,031 $ 97 $ 10 $ 2,293 $ 6,631
====== ========= ===== ======= =======
Balances January 1, 1999 $ 8,928 $ 28 $ 75 $ 2,295 $ 6,530
Comprehensive income
Net income 192 $ 192 192 - - -
Other comprehensive income net of tax
Unrealized holding gain(loss) arising during period (315) - - -
net of tax of $(124)
Less reclassification adjustment 1 - - -
----
Other comprehensive income, net of tax (314) (314) - (314) - -
Total comprehensive income $ (122)
------ ============= ---- ---- -----
balances June 30, 1999 $ 8,806 $220 $ (239) $ 2,295 $ 6,530
======= ==== ======== ======= =======
</TABLE>
6
<PAGE>
<TABLE>
HERITAGE BANCORP, INC. AND
SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands of Dollars unaudited)
<CAPTION>
Six months Ended
June 30,1999 June 30,1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 192 $ 201
Adjustments to reconcile net income(loss) to net
cash provided by (used in) operating activities
Provision for loan losses 13 4
Depreciation and amortization 33 29
Gain on sale of available for sale investments 1 (1)
Amortization of investment security
premiums, net of discount 13 15
(Increase)decrease in accrued interest and
other assets 36 (417)
(Increase)in accrued interest and other
liabilities (26) ( 1)
------- -------
Net cash provided by(used in) operating activities $ 262 $(170)
------- -------
Cash Flows From Investing Activities
Maturities of securities available-for-sale $ 7,895 $4,000
Purchases of securities available-for-sale ( 11,552) (11,803)
Proceeds from sale of securities available for sale 499
(Increase)in loans (366) (2,580)
Purchase of premises and equipment (496) (4)
------- -------
Net cash (used in) investing activities $( 4,519) $(9,888)
------- -------
Cash Flows From Financing Activities
(Decrease) in non interest-bearing deposits $(6,178) $ ( 183)
Increase in certif of deposits and savings 1,607 3,181
Increase in securities sold under repurchase
agreement. 308 530
Issuance of common stock 0 4,107
------- -------
Net cash provided by (used in) financing activities $(4,263) $ 7,635
------- -------
Net change in cash and cash equivalents (8,520) $(2,423)
Cash and cash equivalents, beginning of year 14,375 9,587
------- -------
Cash and cash equivalents, end of period $ 5,855 $ 7,164
======= =======
</TABLE>
7
<PAGE>
HERITAGE BANCORP,INC. AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements included herein have been prepared
by the company without audit. In the opinion of management, the quarterly
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations at and for the periods presented. The Company believes
that the disclosures are adequate to make the information presented not
misleading, however, the results for the periods presented are not necessarily
indicative of results to be expected for the entire year. The consolidated
statements include the accounts of Heritage Bancorp Inc. and subsidiary The
Heritage Bank. All significant intercompany balances and transactions have been
eliminated.
(2) Accounting Policies
The interim financial information should be read in conjunction with the
Company's 1998 Annual Report on Form 10-KSB. Management is required to make
estimates and assumptions that affect amounts reported in the financial
statements. Actual results could differ significantly from estimates.
(3) Earnings Per Share
The following shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number of shares
of diluted potential common stock. Potential dilutive common stock had no effect
on income available to common shareholders.
<TABLE>
<CAPTION>
June 30, 1999 June 30,1998
---- -------- ------------
Per Share Per Share
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings
per share 2,294,617 $ .08 1,685,353 $ .12
============= =============
Effect of dilutive
securities:
Stock options 54,050 37,375
Diluted earnings
per share 2,348,667 $ .08 1,722,728 $ .12
============ ============= ============ =============
</TABLE>
(4) Holding Company Formation
On October 1, 1998, the Heritage Bank became a wholly-owned
subsidiary of Heritage Bancorp, Inc., a newly formed stock holding company,
pursuant to an agreement and plan of reorganization approved by the Bank's
shareholders on August 26, 1998. Upon completion of the reorganization, holders
of the Bank's common stock became holders of Heritage Bancorp, Inc. common stock
in a share for share exchange. The common stock of Heritage Bancorp, Inc. trades
on the Nasdaq SmallCap Market under the symbol "HBVA."
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion and analysis of financial condition and
results of operations, unless otherwise disclosed, presented in this quarterly
report on Form 10-QSB represents the activities of the Company for the quarter
ended June 30, 1999 and should be read in conjunction with the financial
statements of the Company included in this Form 10-QSB.
Heritage Bancorp, Inc. (the "Company"), a Virginia corporation, is the
holding company for The Heritage Bank (the "Bank"), a Virginia chartered
commercial bank. On October 1, 1998, the Company acquired all of the capital
stock of the Bank and shareholders of the Bank became shareholders of the
Company in a share for share exchange pursuant to a plan of reorganization
approved by the Bank's shareholders on August 26, 1998, whereby the Bank became
the wholly-owned subsidiary of the Company (the "Reorganization"). The Company's
sole business activity is ownership of the Bank. The Company's common stock
trades on the Nasdaq SmallCap Market under the symbol "HBVA".
The Bank is the only independent financial institution headquartered in
McLean, Virginia. Established in 1987, the Bank operated as a wholly-owned
subsidiary of Heritage Bankshares, Inc. (formerly Independent Banks of Virginia,
Inc.) until 1992 when it became an independent bank. The Bank is a
well-capitalized, profitable community bank dedicated to financing small
business and consumer needs in its market area. The Bank also is committed to
providing personalized "hometown" quality service to its customers by tailoring
its products and services to appeal to its local market. The Bank currently
operates two full-service offices and engages in a broad range of lending and
deposit services aimed at individual and commercial customers in the McLean area
of Fairfax County, Virginia and the Sterling area of Loudoun County.
The business of the Bank consists of attracting deposits from the
general public and using these funds to originate various types of individual
and commercial loans primarily in the McLean and Sterling areas. The Bank's
commercial activities include providing checking accounts, money market accounts
and certificates of deposit to small and medium sized businesses. The Bank also
provides credit services, such as lines of credit, term loans, construction
loans, and letters of credit, as well as real estate loans and other forms of
collateralized financing. The Bank's products include checking accounts, NOW
accounts, savings accounts, certificates of deposit, installment accounts,
construction and other personal loans, home improvement loans, automobile and
other consumer financing.
On May 18, 1998, the Bank closed a secondary offering of 805,000 shares
of its common stock, par value $1.00 per share (the "Offering"), at $5.50 per
share, raising $4.4 million in gross proceeds. After offering expenses and
underwriting commission , the Bank received $4,012,204 in new capital from the
offering.
9
<PAGE>
<TABLE>
The selected financial ratios and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
Unaudited Financial Statements of the Company and Notes thereto presented
elsewhere in this report.
SELECTED FINANCIAL DATA
<CAPTION>
For the Six months Ended For the Six Months
June 30, 1999 Ended June 30, 1998
------------- -------------------
(Dollars in thousands)
(Unaudited)
Summary of operating results:
<S> <C> <C>
Total interest income............................... $ 2,211 $ 1,754
Total interest expense.............................. 726 581
----- ----
Net interest income................................. $ 1,485 $ 1,173
Provision for loan losses........................... 13 4
---- -----
Net interest income after provision for
loan losses.................................. $ 1,472 $ 1,169
Other income........................................ 72 66
Other expenses...................................... 1,319 1,032
------ -------
Income before taxes................................. 225 203
Income tax expense(1)............................... 33 2
Net income.......................................... $192 $201
==== ====
Per share:
Basic earnings per share............................ $ 0.08 $ 0.12
Diluted earnings per share.......................... 0.08 0.12
Cash dividend declared.............................. 0 0
Book value at period end............................ 3.84 3.94
Common shares outstanding........................... 2,294,617 2,292,917
Balance sheet data (at period end): June 30, 1999 December 31, 1998
------------- -----------------
Loans, net of unearned interest..................... $ 29,965 $ 29,610
Allowance for loan loss............................. 431 429
Total assets........................................ 60,353 64,776
Total deposits...................................... 48,872 53,442
Total stockholders' equity.......................... 8,806 8,928
Performance and asset quality ratios:
Return on average total assets (3).................. 0.63% 0.26%
Return on average stockholders' equity...........(3) 4.27 1.79
Average stockholders' equity to average total
assets.............................................. 14.84 14.47
Non-accrual and past due loans to total loans....... 2.67 1.35
Allowance for loan losses to total loans............ 1.44 1.45
Net yield........................................... 3.88 3.87
Net interest margin(2).............................. 5.18 5.09
- ------------------
</TABLE>
(1) At December 31, 1998, the Company had available approximately $129,000
of an operating loss carryforward which could be offset against future
income.
(2) Net interest margin is calculated as net interest income divided by
average earning assets and represents the Company's net yield on its
earning assets.
(3) Annualized for the six months ended June 30, 1999.
10
<PAGE>
Comparison of Financial Condition at June 30, 1999 and December 31, 1998
Total assets decreased $4.4 million, or 6.8%, from $64.8 million at
December 31, 1998 to $60.4 million at June 30, 1999. This decrease in assets was
due to the withdrawal of funds from attorneys escrow accounts. On December 28,
1998 the Bank had $8.0 million dollars deposited into attorneys escrow account.
These funds were withdrawn the first week of January 1999. In addition, net
loans increased by $0.4 million. Federal funds sold decreased $4.7 million from
$8.6 million at December 31, 1998 to $3.9 million at June 30, 1999. This
decrease primarily is due to the use of these funds to purchase U. S. Agencies
Bonds in order to receive a higher yield.
Securities available for sale increased $3.2 million, or 15.9%, from
$19.8 million at December 31, 1998 to $23.0 million at June 30, 1999. The
increase was primarily caused by the investment of funds transferred from fed
funds sold into the bond portfolio.
Net loans increased $353 thousand, or 1.2%, from $29.2 million at
December 31, 1998 to $29.5 million at June 30, 1999. This increase was primarily
due to a increase in loan demand due to marketing efforts.
Total deposits decreased $4.6 million, or 8.6%, from $53.4 million at
December 31, 1998 to $48.9 million at June 30, 1999. This decrease was caused by
a decrease in attorney's escrow account balances. Of these deposits, $40.0
million were core deposits which the Bank uses to originate loans.
Repurchase agreements at June 30, 1999 totaled $2.6 million as compared
to $2.3 million at December 31, 1998. The Bank utilizes repurchase agreements to
fund customer sweep accounts.
11
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30,
1999 and 1998
Net income. The Company had net income for the three months ended June
30, 1999 of $15 000, or $0.01 basic and diluted earnings per share, compared to
net income of $100,000, or $0.05 basic and diluted earnings per share, for the
three months ended June 30, 1998. This $85,000 decrease in net income for the
three months ended June 30,1999 compared to the same period in 1998 was due
primarily to an increase of $43,000 in occupancy expense connected to the
opening of the Sterling Branch and some new office space in the main office, and
an increase in personnel expense of $93,000. Personnel expense increased because
of additional salaries of $41,000 for the Sterling Branch and incentive bonuses
paid to employees of $52,000. Consulting and legal expenses in connection with a
potential branch site and expansion of the main office totaled $45,000. Other
expenses were affected by $40,000 of non-loan charge-offs, of which a large part
was the payment due under the terms of a lawsuit settled in March 1999. These
expenses were partially offset by an increase of $133,000 in net interest income
due primarily to the growth in both the loan and security portfolio.
Interest Income. Total interest income for the three months ended June 30, 1999
was $1.1 million as compared to $917,000 for the three months ended June 30,
1998, representing an increase of $195,000, or 21.3%. This increase was due
primarily to the increase in the bond portfolio and interest on loans due to
increased marketing efforts.
Interest Expense. Total interest expense increased from $304,000 for
the three months ended June 30, 1998 to $366,000 for the three months ended June
30, 1999, representing an increase of $62,000, or 20.4%. This increase was due
primarily to the increase in interest bearing deposits from June 30, 1998.
Net Interest Income. Net interest income is the difference between
interest earned on loans, investments, securities and short term investments and
interest paid on deposits. Factors affecting net interest income include
interest rates earned on loans and investments and those paid on deposits, the
mix and volume of earning assets and interest bearing liabilities and the level
of non-earning assets and non-interest bearing liabilities. The Bank's
management seeks to maximize net interest income by managing the balance sheet
and determining the optimal product mix with respect to yields on assets and
costs of funds in light of projected economic conditions, while maintaining an
acceptable level of risk.
Net interest income increased in the three months ended June 30, 1999
by $133,000, or 21.7%, from $613,000 for the three months ended June 30, 1998 to
$746,000 for the three months ended June 30, 1999. This increase was due
primarily to the increase in the bond portfolio and interest on loans.
Provision for Loan Losses. The provision for loan losses for the three
months ended June 30, 1999 was $6,000, as compared to $2,000 for the same period
in the prior year, representing a 200% increase. The level of the allowance for
loan losses is based upon management's ongoing review of the loan portfolio and
includes the present and prospective financial condition of borrowers,
consideration of actual loan loss experience and projected economic conditions
in general and for the Bank's service areas in particular. Management believes
that the provision for loan losses and the allowance for loan losses are
reasonable and adequate to cover any known losses and any losses reasonably
expected in the existing loan portfolio. While management estimates loan losses
using the best available information, such as independent appraisals on
collateral, no assurance can be given that future additions to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding known problem loans,
identification of
12
<PAGE>
additional problem loans, regulatory examinations and other factors, both within
and outside of management's control.
Other income. Total other income consists primarily of service charges
and fees associated with the Bank's checking and savings accounts. Total other
income increased $4,000 from $34,000 for the three months ended June 30, 1998 to
$38,000 for the three months ended June 30, 1999. This was caused by an increase
in service charges on deposit accounts.
Other expense. Other expense consists primarily of operating expenses
for compensation and related benefits, occupancy, federal insurance premiums and
operating assessments and data processing charges. Total other expense increased
by $206,000, or 37.9%, from $543,000 for the three months ended June 30, 1998 to
$749,000 for the three months ended June 30, 1999. This increase was due
primarily to an increase of $93,000 in salaries and employees benefits caused by
$41,000 in additional salaries for the Sterling Branch and $52,000 paid to
employees in incentive bonuses. Also occupancy expense increased by $49,000
caused by the opening of the Loudoun Branch and the addition of new space in the
main office. Other expenses increased by $56,000 caused by legal fees and
consultant fees in connection with a possible branch location in Great Falls,
Va. Other expenses were also affected by $40,000 of non-loan charge-offs, of
which a large part was the payment due under the terms of a lawsuit settled in
March 1999.
Income Tax Expense. The Company had a tax expense of $14,000 for the
three months ended June 30, 1999 and $2,000 for June 30, 1998. At December 31,
1998, the Company had operating loss carryforwards of approximately $129,000
that may be offset against future taxable income. The Company has used its net
operating loss carryforward in its entirety by June 30, 1999.
13
<PAGE>
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998
Net income. The Company had net income for the six months ended June
30, 1999 of $192,000, or $0.08 basic and diluted earnings per share, compared to
net income of $201,000, or $0.12 basic and diluted earnings per share, for the
six months ended June 30, 1998. This $9,000 decrease was due primarily to an
increase of $124,000 in salaries and benefits caused by additional salaries of
$41,000 for the Sterling Branch and incentive bonuses paid to employees of
$52,000. Interest expense increased $145,000, also occupancy expense increased
by $43,000 caused by the opening of the Loudoun County Branch and the addition
of new space in the main office. Other expenses increased by $105,000 caused by
legal fees and consultant fees in connection with a possible branch location in
Great Falls, Va. and non-loan charge-offs of $40,000. These expenses were
partially offset by a increase of $457,000 in total interest income.
Interest Income. Total interest income for the six months ended June
30, 1999 was $2.2 million as compared to $1.8 million for six months ended June
30, 1998, representing an increase of $457,000, or 26.1%. This increase was due
primarily to the growth in the bond portfolio and interest on loans.
Interest Expense. Total interest expense increased from $581,000 for
the six months ended June 30, 1998 to $726,000 for the six months ended June 30,
1999, representing an increase of $145,000, or 25.0%. This increase was due
primarily to the growth in interest bearing deposits from June 30, 1998 to June
30, 1999.
Net Interest Income. Net interest income is the difference between
interest earned on loans, investments, securities and short term investments and
interest paid on deposits. Factors affecting net interest income include
interest rates earned on loans and investments and those paid on deposits, the
mix and volume of earning assets and interest bearing liabilities and the level
or non-earning assets and non-interest bearing liabilities. The Bank's
management seeks to maximize net interest income by managing the balance sheet
and determining the optimal product mix with respect to yields on assets and
costs of funds in light of projected economic conditions, while maintaining an
acceptable level of risk.
Net interest income increased in the six months ended June 30, 1999 by
$312,000, or 26.6%, from $1,173,000 for the six months ended June 30, 1998 to
$1,485,000 for the six months ended June 30, 1999. This increase was due to the
growth in the security portfolio and loan portfolios, which was partially offset
by the increase in interest bearing deposits used to fund the growth.
Provision for Loan Losses. The provision for loan losses for the six
months ended June 30, 1999 was $13,000, as compared to $4,000 for the same
period in the prior year, representing a $9,000 increase. The level of the
allowance for loan losses is based upon management's ongoing review of the loan
portfolio and includes the present and prospective financial condition of
borrowers, consideration of actual loan loss experience and projected economic
conditions in general and for the Bank's service areas in particular. Management
believes that the provision for loan losses and the allowance for loan losses
are reasonable and adequate to cover any known losses and any losses reasonably
expected in the existing loan portfolio. While management estimates loan losses
using the best available information, such as independent appraisals on
collateral, no assurance can be given that future additions to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding known problem loans,
identification of additional problem loans, regulatory examinations and other
factors, both within and outside of management's control.
14
<PAGE>
Other income. Total other income consists primarily of service charges
and fees associated with the Bank's checking and savings accounts. Total other
income increased $6,000 from $66,000 for the six months ended June 30, 1998 to
$72,000 for the six months ended June 30, 1999. This increase was caused by an
increase in other service charges.
Other expense. Other expense consists primarily of operating expenses
for compensation and related benefits, occupancy, federal insurance premiums and
operating assessments and data processing charges. Total other expense increased
by $287,000, or 27.8%, from $1,032,000 for the six months ended June 30, 1998 to
$1,319,000 for the six months ended June 30, 1999. This increase was due
primarily to an increase of $124,000 in salaries and employees benefits caused
in part by $41,000 in additional salaries for the Sterling Branch and $52,000
paid to employees in incentive bonuses. Also occupancy expense increased by
$49,000 caused by the opening of the Loudoun Branch and the addition of new
space in the main office. Other expenses increased by $105,000 caused by legal
fees and consultant fees in connection with a possible branch location in Great
Falls, Va. Other expenses were also affected by $40,000 of non-loan charge-offs,
of which a large part was the payment due under the terms of a lawsuit settled
in March 1999.
Income Tax Expense. The Company had a tax expense of $33,000 for the
six months ended June 30, 1999 and $2,000 expense for June 30, 1998. At December
31, 1998, the Company had operating loss carryforwards of approximately $129,000
that may be offset against future taxable income. The Company had used its net
operating loss carryforward in its entirety by June 30, 1999.
Liquidity and Capital Resources
Liquidity is a measure of the Bank's ability to generate sufficient
cash to meet present and future financial obligations in a timely manner through
either the sale or maturity of existing assets or the acquisition of additional
funds through liability management. These obligations include the credit needs
of customers, funding deposit withdrawals, and the day-to-day operations of the
Bank. Liquid assets include cash, interest-bearing deposits with banks, federal
funds sold, and certain investment securities. As a result of the Bank's
management of liquid assets and the ability to generate liquidity through
liability funding, management believes that the Bank maintains overall liquidity
sufficient to satisfy its depositors' requirements and meet its customers'
credit needs. The levels of the Bank's liquid assets are dependent on the Bank's
operating, financing and investing activities during any given period.
Management believes it will have adequate resources to fund all commitments on a
short-term and long-term basis in accordance with its business strategy.
As of June 30, 1999, cash, federal funds sold, and available-for-sale
securities represented 55.96% of deposits and other liabilities, compared to
61.24% at December 31, 1998.
Management continuously reviews the capital position of the Bank to
insure compliance with minimum regulatory requirements, as well as exploring
ways to increase capital either by retained earnings or other means.
Banks are required to maintain minimum risk-based capital ratios. These
ratios compare capital, as defined by the risk-based regulations, to assets
adjusted for their relative risk as defined by the regulations. Guidelines
require banks to have a minimum Tier 1 capital ratio, as defined by the
regulators, of 4.00% and a minimum Tier 2 capital ratio of 8.00%, and a minimum
4.00% leverage capital ratio. On June 30, 1999, the Bank's Tier 1 capital ratio
was 24.69%, Tier 2 capital ratio was 25.94% and leverage ratio was 14.59%, which
exceeded all of its regulatory capital requirements.
15
<PAGE>
At June 30, 1999, the total stockholders' equity of the Company was
$8.8 million, and the ratio of average stockholders' equity to average total
assets was 14.84%, as compared to 14.47% for 1998.
Year 2000 Issues
The "Year 2000 Problem" centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers will recognize "00" as the year 1900 rather than the Year 2000. Like
most financial service providers, the Bank may be significantly affected by the
Year 2000 Problem due to the nature of financial information. Furthermore, if
computer systems are not adequately changed to identify the Year 2000, many
computer applications could fail or create erroneous results.
In addition, noninformation technology systems, such as telephones,
copies and elevators may contain embedded technology which controls its
operations and which may be affected by the Year 2000 Problem. Thus, even
noninformation technology systems may affect the normal operations of the
Company upon the arrival of the Year 2000.
To address the Year 2000 Problem, the Bank hired an outside consultant to
assess the impact of the Year 2000 Problem on the Bank. Because the Bank
outsources its data processing operations, a significant component of the Year
2000 plan is working with external vendors to test and certify their systems as
Year 2000 compliant. The Bank's external vendors have surveyed their programs to
inventory the necessary changes and have begun correcting the applicable
computer programs and replacing equipment so that the Bank's information systems
will be Year 2000 compliant prior to the end of 1998. This will enable the Bank
to devote substantial time to the testing of the upgraded systems prior to the
arrival of the millennium in order to comply with all applicable regulations.
The Company's timetable for working on the Year 2000 Problem is divided
into the following five phases:
<TABLE>
<CAPTION>
Phase Description Status
- ----- ----------- ------
<S> <C>
1. Awareness Define the problem. Completed
11/1/97.
2. Assessment Identify all systems and criticality of systems. Completed 6/1/98
3. Renovation Program enhancements, hardware and software Complete
upgrades, system replacements, and vendor 6/30/99
certifications.
4. Validation Test and verify system changes. Completed
12/30/98
5. Implementation Components certified as Year 2000 compliant and Completed
moved to production. 6/30/99
</TABLE>
Contingency Planning. The Bank has a contingency plan to keep the Bank
in operation in the event that some Year 2000 problems have been overlooked and
system malfunctions occur at the turn of the century. This plan was developed by
the Bank's outside consultant with the help of Bank management. The Company has
developed contingency or
16
<PAGE>
alternate plans for its mission critical systems on a department-by- department
basis in anticipation of potential unplanned system difficulties or third-party
failures at January 1, 2000 or dates beyond. However, the Bank understands that
certain events beyond its control, such as extended power outages and loss of
telecommunications, may diminish its ability to provide minimum levels of
service. Failure of these services will affect companies, individuals and the
government, and can not be remedied by anyone other than the responsible party.
For some systems, contingency plans consist of using or reverting to manual
systems until the problems can be corrected.
While the Company expects to complete its Year 2000 project in a timely
manner, it cannot guarantee that the systems of companies with whom it conducts
business, will also be completed in a timely manner. The failure of these
entities to adequately address the Year 2000 Problem could adversely affect the
Company's and Bank's ability to conduct business.
Costs. The Company currently estimates its total direct and indirect
cost will be $35,000. To date, the Company has spent $31,000 on Year 2000
issues. The costs of the project and the date on which the Bank plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans. In
addition, there can be no guarantee that the systems of other companies on which
the Bank's systems rely will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with the Bank's
systems, would not have a material adverse effect on the Bank. The Bank has a
contingency plan to keep the bank in operation in the event that some year 2000
problems have been overlooked and system malfunctions occur at the turn of the
century. This plan was developed by the Bank's outside consultant with the help
of Bank management.
Provision for Loan Losses
For the three months ended June 30, 1999 the provision for loan losses
was $6,000, a 200% increase compared to the $2,000 allowance for loan losses
recorded in the second three months of 1998.
An analysis of the allowance for loan losses is as follows:
Loan Loss Reserve
Balance, December 31, 429,000
1998
Provision for Loan Losses 13,000
Charge-offs (20,000)
Recoveries 9,000
Balance, June 30,1999 431,000
=======
The level of the allowance is based upon management's ongoing review of
the loan portfolio and includes the present and prospective financial condition
of borrowers, consideration of actual loan loss experience and projected
economic conditions in general and for the Bank's service areas in particular.
17
<PAGE>
Potential Problem Loans
At June 30, 1999, in addition to $129,000 of loans on either
non-accrual status or loans past due 90 days or more and still accruing, the
Bank had approximately 3.17% of the loan portfolio in loans which were either
internally classified or specially mentioned and require more than normal
attention and are potential problem loans. The Bank has considered these loans
in establishing the level of the allowance for loan losses. As of June 30 1998,
$454,000 of loans were either on a non-accrual status or loans past due 90 days
or more and still accruing. In addition to these loans, 7.1% of the loan
portfolio was either internally classified or specially mentioned and required
more than normal attention and considered potential problems loans.
18
<PAGE>
Part II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Consulting and Employment Agreements
Exhibit 27.1-Financial Data Schedule* *Filed in electronic format
only.
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
HERITAGE BANCORP, INC.
(Registrant)
Date: August 13, 1999 /s/ William B. Sutphin
-------------------------------
William B. Sutphin
Senior V. P. and Cashier
20
CONSULTING AGREEMENT
BETWEEN
TERRIE G. SPIRO
and
THE HERITAGE BANK and HERITAGE BANCORP, INC.
This Consulting Agreement (hereinafter the "Agreement") is made this 3rd day of
May, 1999 by TERRIE G. SPIRO, residing at 105 Follin Lane S.E., Vienna, Virginia
22180 (hereinafter "Consultant") and THE HERITAGE BANK, with its principal
offices located at 1313 Dolley Madison Boulevard, McLean, Virginia 22101, a
Virginia corporation (hereinafter the "Bank"), and HERITAGE BANCORP, INC. (the
"Company"). WHEREAS, Consultant has experience in administration and marketing
in connection with banks and financial institutions; and
WHEREAS, the Bank and Company desire to hire Consultant as an independent
consultant; and
WHEREAS, Consultant is willing to act as a consultant to the Bank and
Company in accordance with the following terms, conditions and provisions:
W I T N E S S E T H :
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Consulting Services. Effective as of the date hereof, the Bank and Company
retain Consultant to render, and Consultant agrees to render, to the Bank and
Company, Services (hereinafter the "Services"), as an independent consultant in
an advisory capacity for and relating to the operation and promotion of the Bank
and Company's business, upon the reasonable request from time to time, and
pursuant to the direction of the Board of Directors of the Bank and Company, or
their designees.
2. Place of Work. Consultant shall use all of her best efforts and shall render
the Services at such time or times and such place or places as are mutually
agreeable to the parties hereto.
3. Term of Agreement. This Agreement shall be effective as of the date and year
first above written (hereinafter the "Commencement Date") and shall terminate
September 30, 1999, unless terminated earlier upon the mutual agreement of the
parties.
4. Fees. The Bank shall pay Consultant a fee of Ten Thousand Dollars
($10,000.00) per month, in twice-monthly payments during the Term, on the 15th
and 30th day of each month. Consultant's right to receipt of fees hereunder is
fully vested and shall be payable whether the Bank or Company require any
services to be performed under the provisions of paragraph 1 hereof.
<PAGE>
The Consultant shall also participate in all retirement, welfare, life and
health insurance, and other benefit plans to include vacation accrual or
programs of the Bank to the extent allowable for a Consultant under the Bank's
plans, with the exception of any stock option plans, now or hereafter applicable
to those classes of employees which include senior executives of the Bank;
provided (i) that during any period during the Term that the Consultant is
subject to a disability, meaning the inability of Consultant due to illness,
accident, or any other physical or mental incapacity to fulfill her obligations
hereunder for a period of ninety (90) consecutive days during the terms hereof,
the amount of Consultant's compensation under Section 4 hereof shall be reduced
by the sum of the amounts, if any, paid to the Consultant for the same period
under any disability benefit or pension plan of the Bank or the Company.
5. Expense Allowance. Consultant shall be provided an expense allowance of One
Thousand Two Hundred Fifty & 00/100 Dollars ($1,250.00) per month to cover her
expenses in promoting the business of the Bank and Company during the term of
the Consulting Agreement.
6. Confidential Nature of Services. Consultant will not, during or after the
Term, divulge to anyone other than the Board of Directors of the Bank or
Company, or their designees, except as necessary in the performance of the
Services, or make any use of, any information or knowledge relating to the
Services and/or the Bank or Company which shall have been obtained by Consultant
during the term of this Agreement and which shall not be generally known or
recognized as standard practice to anyone in the Bank or Company's businesses.
7. Reports of Work. Consultant shall submit reports to the Board of Directors of
the Bank and Company, upon their reasonable request therefor, of all Services
performed by Consultant and the results or findings thereof. Consultant shall
from time to time at the Bank or Company's request, and in all events upon the
expiration of the Term, deliver to the Bank or Company all working papers and
other documents and materials that have been prepared or developed by Consultant
or made available to Consultant in connection with the Services.
8. Nature of Relationship. It is understood that in performing the Services
Consultant is acting as an independent Consultant and contractor and not as an
employee, agent or representative of the Bank or Company, and as such will be
responsible for reporting and paying any federal and state taxes owing on the
Fees paid. Consultant shall not take any action, unless expressly authorized in
writing by the Board of Directors of the Bank or Company, as an agent of the
Bank or Company or enter into any agreements or incur any obligations on the
Bank or Company's behalf or commit it in any manner whatsoever.
9. Amendment. No modification, amendment, addition to, or termination of this
Agreement, nor waiver of any of its provisions, shall be valid or enforceable
unless in writing and signed by both parties.
10. Notices. All notices under this Agreement shall be in writing and shall be
served by personal service, or registered or certified mail, return receipt
requested.
Notice by mail shall be addressed to each party as follows:
To Bank: The Heritage Bank
Attn: Board of Directors
1313 Dolley Madison Boulevard
McLean, Virginia 22101
<PAGE>
To Company: Heritage Bancorp, Inc.
Attn: Harold E. Lieding, Chairman
1313 Dolley Madison Boulevard
McLean, VA 22101
To Consultant: Terrie G Spiro
105 Follin Lane S.E.
Vienna, Virginia 22180
.
11. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia. 12. Severability. In the event that any portions,
articles, or sections of this Agreement are rendered invalid by the decision of
any court or by the enactment of any law, ordinance or regulation, such
portion(s), article(s) or section(s) of this Agreement will be deemed to have
never been included herein and the balance of this Agreement shall continue in
effect in accordance with it terms.
13. Entire Agreement. This document contains the entire Agreement between the
parties with respect to the performance by Consultant of consulting duties on
behalf of the Company.
WITNESS the following signatures as of the day and year first above written.
CONSULTANT:
- -------------------------
Date 5/3/99
Terrie G. Spiro
BANK:
THE HERITAGE BANK
- ---------------------
By: Harold E. Lieding
George P. Shafran
Date 5/3/99
COMPANY:
HERITAGE BANCORP, INC.
- ---------------------
By: Harold E. Lieding
George P. Shafran
Date 5/3/99
<PAGE>
AGREEMENT
THIS AGREEMENT entered into this _3rd___ day of May, 1999 by and between THE
HERITAGE BANK, HERITAGE BANCORP, INC. and TERRIE G. SPIRO.
WHEREAS, the parties have agreed on all terms of a proposed Employment
Agreement in accordance with attached Exhibit A; and
WHEREAS, the parties intend to execute such Employment Agreement provided
Ms. Spiro successfully removes any covenants not to compete or other
restrictions which would inhibit her from executing and performing the
Employment Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency which is expressly acknowledged, the parties hereto agree as
follows:
1. It is expressly agreed and understood that the Employment Agreement attached
hereto as Exhibit A shall be executed by all parties within three days of the
time that Terrie G. Spiro is relieved of any and all covenants not to compete,
or any other restraints inhibiting her ability to execute and perform the
Employment Agreement.
2. Terrie G. Spiro agrees to promptly notify The Heritage Bank of her ability to
execute and perform the Employment Agreement and will provide The Heritage Bank
with written evidence of the removal or expiration of such impediments upon her
receipt thereof.
3. In the event Terrie G. Spiro is not in a position to legally able to execute
and perform the Employment Agreement in accordance with paragraph 1 above,
within 160 days of the date of this Agreement, then at the sole option of either
Heritage Bank or Heritage Bancorp, Inc., this Agreement may be declared null and
void , at which time neither party will have any liability or obligation under
this Agreement or the Employment Agreement.
4. The parties agree that their Agreement of March 26___, 1999 is hereby null
and void and superceded by this Agreement.
WITNESS THE FOLLOWING SIGNATURES AND SEALS.
THE HERITAGE BANK
- ---------
By: Harold E. Lieding
George P. Shafran [SEAL]
Date 5/3/99
HERITAGE BANCORP, INC.
- ---------
By: Harold E. Lieding
George P. Shafran [SEAL]
Date 5/3/99
____________________[SEAL]
Date 5/3/99
Terrie G. Spiro
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made by and between
HERITAGE BANK (the "Bank"), HERITAGE BANCORP, INC. (the "Company") and TERRIE G.
SPIRO (the "Executive") this day of October, 1999.
W I T N E S S E T H :
WHEREAS, the Bank and the Company wish to employ the Executive as
President, Chief Executive Officer and to elect her to their respective Boards
of Directors; and
WHEREAS, the Board of Directors of the Bank (the "Bank Board") and the
Board of Directors of the Company (the "Company Board") desire to provide for
the employment of the Executive and to establish terms and conditions of the
Executive's employment which the Bank Board and the Company Board have
determined will encourage the dedication of the Executive to the Bank and the
Company and will promote the best interests of the Bank, the Company and its
stockholders.
WHEREAS, the Executive is willing to be employed by the Bank and the
Company on the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein, the recitals set forth above, which are hereby incorporated by
reference herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Employment.
The Bank and the Company shall employ the Executive, and the Executive shall
serve the Bank and the Company, as President and Chief Executive Officer ("CEO")
upon the terms and conditions set forth herein. The Executive shall be elected
to the Bank Board and to
the Company Board and shall serve on all appropriate committees thereof as
designated by the respective Boards. Should Executive's employment hereunder
terminate for any reason whatsoever, she will immediately resign from such Board
of Directors. The Executive shall have such authority and responsibilities
consistent with her position and which may be set forth in the Bank's or the
Company's Bylaws or assigned by the Bank Board or the Company Board from time to
time. The Executive shall devote her full business time, attention, skill and
efforts to the performance of her duties hereunder, except during periods of
illness or periods of vacation and leaves of absence, consistent with Bank
and/or Company policy. The Executive may devote reasonable periods to service as
a director or advisor to other organizations, to charitable and community
activities, and to managing her personal investments, provided that such
activities do not materially interfere with the performance of her duties
hereunder and are not in conflict or competitive with, or adverse to, the
interests of the Bank and the Company.
2. Term.
Unless earlier terminated as provided herein, the Executive's employment under
this Agreement shall be for an initial term (the "Initial Term") of three (3)
years, commencing as of October , 1999 and terminating on October , 2002;
provided, however, this Agreement shall be automatically renewed after the
Initial Term for additional terms of two (2) years ("Renewal Terms") unless
either party gives the other written notice of non-renewal not later than six
(6) months prior to the expiration of the Initial Term or any Renewal Term.
<PAGE>
3. Compensation and Benefits.
3.1 Base Compensation. The Bank shall pay the Executive a base annual salary
("Base Compensation") at a rate of One Hundred Twenty Thousand and No/100
Dollars ($120,000.00) per annum commencing October , 1999, in accordance with
the salary payment practices of the Bank. The Bank Board (upon recommendation of
its Compensation Committee) shall review the Executive's Base Compensation at
least annually commencing for calendar year 2002 and each year thereafter and
may increase (but shall not decrease) the Executive's Base Compensation if it
determines in its sole discretion that an increase is appropriate. In making
such determination, the Bank Board shall review peer group CEO compensation, and
such other factors as the parties may agree upon; provided however, Base
Compensation shall be increased by at least the Consumer Price Index. As used
herein, the Term "Consumer Price Index" shall mean the "United States Bureau of
Labor Statistics, Consumer Price Index for Urban Wage Earners and Clerical
Workers" all items, Washington, D.C. standard Metropolitan Statistical Area
Average (1982-1984 = 100.00) CPI-W, and any revisions of or substitutes for that
Index. No additional compensation shall be paid to the Executive for her
employment by the Company except as set forth herein.
3.2 Short Term Performance Bonus. Provided the Bank achieves appropriate
regulatory ratings for safety and soundness, and based upon the performance of
the Bank in relation to targets for annual net profit after provision for
federal and state income taxes as set forth in the Bank's year-end Call report
opposite the caption "Net Income" on line 12 and excluding (i) tax loss
carryforward benefits and (ii) all other real estate properties owned as the
result of foreclosure or conveyance in lieu of foreclosure held by the Bank or
Company at the time this Agreement is executed regardless of the disposition
dates of such properties ("Profits") and asset growth established by the Bank
Board annually, in consultation with the Executive, the Executive shall be
entitled to receive a short term performance bonus ("Short Term Performance
Bonus"), in cash, as a percentage of Base Compensation, payable within thirty
(30) days after the completion of the year-end financial statements. The Short
Term Performance Bonus shall be pro-rated for the portion of the year Executive
is employed for any year in which Executive is not employed through the last day
of such year. The 1999 targets for Profits and asset growth are set forth below
and shall be applied to the entire 1999 calendar year as though the Executive
had been employed for the entirety of such year. These targets shall be reviewed
and adjusted annually by the Bank Board in consultation with the Executive
following receipt of the year-end financial statement. Profit growth and asset
growth shall each carry a fifty percent (50%) weighted value and a percentage of
salary payout prorated on the basis of the percentage of performance level based
upon a Profit achieved of Six Hundred Thousand and No/100 Dollars ($600,000.00)
as a 1999 base performance goal of (100%), and an asset growth base of
Sixty-Seven Million and No/100 Dollars ($67,000,000.00) as the 1999 asset growth
goal. The 1999 Short Term Bonus shall be computed as follows
Performance Achieved Payout Profit Achieved Asset Growth Achieved
90% 10% $540,000.00 $60,300,000.00
100% 15% 600,000.00 67,000,000.00
110% 20% 660,000.00 73,700,000.00
125% 30% 750,000.00 83,750,000.00
140% 40% 840,000.00 93,800,000.00
155% 50% 930,000.00 103,850,000.00
170% 60% 1,020,000.00 112,500,000.00
For each one and one-half percent (1 1/2%) of Performance Achieved above one
hundred seventy percent (170%), Payout shall be increased by one percent (1%).
For example, if Base Compensation for a given year is One Hundred Twenty
Thousand and No/100 Dollars ($120,000.00) and the Executive's performance level
is one hundred percent (100%) of asset growth achieved and one hundred ten
percent (110%) of Profit achieved, the Short Term Performance Bonus would be
Twenty-One Thousand and No/100 Dollars ($21,000.00) calculated as follows:
Target Base Compensation Weight Payout Bonus
----------- ------------ ------ ------ -----
Asset Growth $120,000.00 X .5 X 15%= $ 9,000.00
Earnings 120,000.00 X .5 X 20%= 12,000.00
---------
Total Bonus $21,000.00
3.3 Long Term Performance Bonus - Stock Options. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to targets for earnings and asset growth
established by the Bank Board, annually, in consultation with the Executive, the
Executive shall be entitled to receive long term performance bonus of stock
options ("Long Term Performance Bonus"), for a dollar amount of shares
calculated as a percentage of Base Compensation, to be awarded within thirty
(30) days after the completion of the year-end financial statements. The Long
Term Performance Bonus shall be prorated for the portion of the year that the
Executive is employed for any year in which the Executive is not employed
through the last day of such year. The 1999 targets for Profit and asset growth
are set forth below and shall be applied to the entire 1999 calendar year as
though the Executive had been employed for the entirety of such year. These
targets shall be reviewed and adjusted annually by the Bank Board in
consultation with the Executive following receipt of the year-end financial
statements. Profit growth and asset growth shall each carry a fifty percent
(50%) weighted value and the payout being prorated on the basis of the
percentage of performance level achieved as set forth in Paragraph 3.2. The 1999
Long Term Bonus shall be computed as follows:
Performance Level Payout Percentage
90% 25%
100% 50%
110% 75%
125% 100%
140% 125%
155% 150%
170% 175%
For each one and one-half percent (1 1/2%) of increase in performance level
above one hundred seventy percent (170%), the Payout Percentage shall increase
two and one-half percent (2 1/2%).
Such stock options shall constitute incentive stock options defined under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be issued under the Employee Incentive Stock Option Plan, as amended, or
any successor stock option plan or plans (the "Plan"), at an exercise price
equal to the fair market value of the underlying shares of the issuance date,
under terms and conditions substantially in the form of the Stock Option Grant
Agreement attached hereto as Exhibit "A".
For example, if Base Compensation for a year is One Hundred Twenty Thousand and
No/100 Dollars ($120,000.00) and at the time of the award the price of the
shares of common stock is Five and No/100 Dollars ($5.00) per share, and the
Executive's performance level was one hundred percent (100%) of asset growth and
one hundred ten percent (110%) of Profit growth, the Long Term Performance Bonus
would be an award of the option to purchase Fifteen Thousand (15,000) shares at
Five and No/100 Dollars ($5.00) per share, calculated as follows:
Payout
Target Base Compensation Percentage Weight Bonus
------ ----------------- ---------- ------ -----
Asset Growth $120,000.00 X .50 X .5 = $30,000.00
Earnings 120,000.00 X .75 X .5 = 45,000.00
---------
Total $75,000.00
Total: $75,000.00 / $5.00 per share = 15,000 option shares
3.4 Grant of Option Upon Execution. Upon execution of this Agreement, the
Company shall grant to the Executive an option ("Execution Option") to purchase
five thousand (5,000) shares of stock of the Company at an exercise price of
fair market value as of the date of execution. The Execution Option shall vest
immediately as to one hundred percent (100%) of the shares subject to such
Option. Such stock option shall constitute an incentive stock option under Code
Section 422, if the exercise price equals or exceeds the fair market value of
the underlying shares at the issuance date, and shall be issued under the Plan,
as amended as of the issuance date, under the terms and conditions contained in
the stock Heritage Bank Employee Incentive Stock Option attached hereto as
Exhibit "A", which shall be executed by the Company and the Executive as of the
date of the execution of this Agreement
Executive shall also receive a signing bonus equal to eight thousand times the
increase in the per share fair market value of Company common stock from May 3,
1999 to October 1, 1999. For example, if in the time period between May 3, 1999
and October 1, 1999 the per share market value increased ten cents, Executive's
bonus would be $800.00.
3.5 Grant of Option Vesting. Upon the execution of this Agreement, the
Company shall grant to the Executive an additional option ("Anniversary Option")
to purchase three thousand (3,000) shares of stock of the Company at an exercise
price of fair market value as of the date of the execution of this Agreement.
The Anniversary Option shall vest upon such first anniversary of Executive's
employment as to one hundred percent (100%) of the shares subject to such
Option. Such stock option shall constitute an incentive stock option under Code
Section 422, if the exercise price equals or exceeds the fair market value of
the underlying shares at the issuance date, and shall be issued under the Plan,
as amended as of the issuance date, under the terms and conditions contained in
the stock Heritage Bank Employee Incentive Stock Option attached hereto as
Exhibit "B", which shall be executed by the Company and the Executive as of the
date of the execution of this Agreement
3.6 Bonus Targets. For the period of January 1, 1999, through December 31,
1999, the budgetary goals for earnings and asset growth in conjunction with the
bonus to be paid to the Executive at the end of the fiscal year shall be the
goals heretofore established by the Bank for that period and reflected in
Paragraph 3.2 above. For the fiscal years commencing January 1, 2000, and
thereafter, the targets to be used shall be established by the Bank Board in
consultation with the Executive and shall be computed in accordance with
Paragraphs 3.2 and 3.3. Such goals shall be established in the first quarter of
each year and shall in all cases reflect earnings and growth goals for the full
calendar year.
3.7 Other Benefit Plans. The Executive shall participate in all retirement,
welfare, life and health insurance, and other benefit plans or programs of the
Bank now or hereafter applicable to the Executive or applicable generally to
employees of the Bank or to a class of employees that includes senior executives
of the Bank; provided (i) that during any period during the Term that the
Executive is subject to a disability (as defined in Paragraph 4.1.2), the amount
of the Executive's compensation provided under this Paragraph 3 shall be reduced
by the sum of the amounts, if any, paid to the Executive for the same period
under any disability benefit or pension plan of the Bank or the Company; and
(ii) that the Executive's participation in the Plan shall be limited to the
participation set forth in Paragraphs 3.4 and 3.5, unless otherwise determined
by the Bank Board and/or the Company Board.
3.8 Executive Expenses. The Bank shall provide to the Executive an annual
executive expense allowance to be applied to Executive's expenses as President
and CEO of the Bank and Company in the amount of Fifteen Thousand and No/100
Dollars ($15,000.00) to cover such costs as the business use of an automobile
owned or leased by the Executive, country club dues of the Executive, disability
insurance and other expenditures as may be reasonably appropriate for one in the
Executive's position.
3.9 Club Initiation Fee. The Bank shall reimburse the Executive for her
final initiation fee for membership, in the name of Executive, in Westwood
Country Club, not to exceed Six Thousand and No/100 Dollars ($6,000.00).
.
3.10 Expense Reimbursement. The Bank shall reimburse the Executive for
travel, seminar, and other expenses related to the Executive's duties which are
incurred and accounted for in accordance with the historic practices of the
Bank.
3.11 Vacation. The Executive shall be entitled to twenty (20) working days
of vacation in each year of her employment.
4. Termination.
4.1 The Executive's employment under this Agreement may be terminated prior
to the end of the Initial Term or any Renewal Term for any of the following:
4.1.1 Upon the death of the Executive.
4.1.2 By the Bank due to the disability of the Executive upon delivery of a
Notice of Termination (as defined in Paragraph 4.2) to the Executive. As used
herein, "Disability" shall mean the inability of the Executive, due to illness,
accident, or any other physical or mental incapacity, to fulfill her obligations
hereunder for a period of ninety (90) consecutive days during the term hereof.
4.1.3 The Bank or the Company may, by written notice to the Executive,
immediately terminate her employment at any time for Just Cause. The Executive
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Company Board
and/or the Bank Board, the Executive's personal dishonesty, breach of fiduciary
duty involving personal profit, willful failure to perform stated duties,
repeated refusal to carry out the written directions of the Bank Board or the
Company Board, willful violation of any law, rule or regulation (other than
traffic violations or similar minor offenses), final cease-and-desist order, or
material breach of any provision of this Agreement. No act or failure to act, on
the Executive's part, shall be considered "willful" unless she has acted or
failed to act with an absence of good faith and without a reasonable belief that
the action or failure to act was in the best interest of the Company or the
Bank. Notwithstanding the foregoing, the Executive shall not be deemed to have
been terminated for Just Cause unless there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of a
majority of either the Company Board or the Bank Board at a meeting of such
Board called and held for such purpose (after reasonable notice to the Executive
and an opportunity for the Executive to be heard before such Board), finding
that, in the good faith opinion of such Board, the Executive was guilty of
conduct constituting Just Cause and specifying the particulars thereof in
detail.
4.1.4 By the Bank or the Company, at any time, in their sole discretion
without Just Cause, upon delivery of a Notice of Termination (as defined in
paragraph 4.2) to the Executive. No Notice of Termination shall be given under
this paragraph unless there shall have been a majority vote of the Company Board
or the Bank Board approving such action at a meeting of such Board called and
held for that purpose.
4.1.5 By the Executive for Just Cause by delivering a Notice of Termination
(as hereinafter defined in paragraph 4.2) stating with particularity the reasons
for the giving of the Notice of Termination. Upon receipt of the Notice of
Termination under this Paragraph 4.1.5, the Bank and/or the Company shall have a
thirty (30) day period within which to cure the circumstances set forth in the
Notice of Termination given by the Executive. As used in this Paragraph 4.1.5,
Just Cause shall mean the occurrence of any of the following events that have
not been consented to in writing by the Executive in advance: (i) the
requirement that the Executive move her personal residence or perform her
principal executive functions, more than thirty-five (35) miles from her primary
office; (ii) the assignment to the Executive of duties and responsibilities
materially different from those normally associated with her position as
referenced in Paragraph 1 hereof; (iii) a failure to elect or re-elect the
Executive to the Bank Board or the Company Board; or (iv) a material diminution
or reduction in the Executive's responsibilities or authority (including
reporting responsibilities) in connection with her employment with the Bank.
4.2 "Notice of Termination" shall mean a written notice of termination from
the Bank or the Executive which specifies an effective date of termination,
indicates the specific termination provision in this Agreement relied upon, and
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. A Notice of Termination by the Bank without Just Cause shall be
sufficient if it states that the termination is without Just Cause without
further detail.
4.3 "Termination Date" shall mean, in the case of the Executive's death,
her date of death, or the date upon which the employment of the Executive
ceases.
4.4 If the Executive's employment with the Bank and/or the Company shall be
terminated during the Term (i) by reason of the Executive's death; or (ii) by
the Bank and/or the Company for Disability or Just Cause, the Bank shall pay to
the Executive (or in the case of her death, the Executive's estate) within
fifteen (15) days after the Termination Date a lump sum cash payment equal to
all Base Compensation earned through the Termination Date. If the Termination
Date occurs before Executive has received any Short Term and/or Long Term
Performance Bonuses to which she is entitled for any fiscal year pursuant to the
provisions of Paragraphs 3.2 and 3.3, then Executive shall also be paid the Long
Term and Short Term Performance Bonuses in accordance with the provisions of
Paragraphs 3.2 and 3.3 above. Vested rights of the Executive relating to such
matters as her 401(k) account, ESOP account, qualified pension plan and the like
shall not be affected by such termination, but shall be governed by the terms of
such plans and accounts.
4.5 If the Executive's employment with the Bank and/or the Company shall be
terminated by the Bank and/or the Company without Just Cause (pursuant to
paragraph 4.1.4), the Executive shall be entitled to the following:
4.5.1 The Bank and/or the Company shall pay the Executive (i) in cash
within fifteen (15) days after Termination Date an amount equal to all Base
Compensation earned through the Termination Date; and (ii) in the event that the
Termination Date occurs before Executive has received any Short Term and/or Long
Term Performance Bonuses to which she is entitled for that fiscal year pursuant
to the provisions of Paragraphs 3.2 and 3.3, then Executive shall also be paid
the Long Term and Short Term Performance Bonuses in accordance with the
provisions of Paragraphs 3.2 and 3.3 above.
4.5.2 For the period (the "Continuation Period") from the Termination Date
through the end of the Initial Term or Renewal Term, the Bank or the Company
shall pay to the Executive in cash at the end of each regular pay period of the
Bank, an amount equal to the Base Compensation to which the Executive is
entitled pursuant to Paragraph 3.1 above; provided, however, in no event shall
Executive be paid under this subsection for a period of less than nine (9)
months.
4.5.3 The Bank shall, at its expense, continue for the Continuation Period
on behalf of the Executive and her dependents the life insurance, disability,
medical, dental and hospitalization benefits provided to the Executive as of the
Termination Date on the same basis as such benefits are provided to other
similarly situated executives who continue in the employ of the bank during the
Continuation Period. The coverage and benefits (including deductibles and costs)
provided in this Paragraph 4.5.3 during the Continuation Period shall be no less
favorable to the Executive and her dependents and beneficiaries than the
benefits available to Executive as of the Termination Date and shall provide for
Executive's automobile expenses, office and phone expenses and outplacement
services. The Bank's obligation hereunder with respect to the foregoing benefits
shall be limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the Bank may
reduce the coverage of any benefits it is required to provide the Executive
hereunder as long as the appropriate coverages and benefits of the combined
benefit plans is no less favorable to the Executive than the coverages and
benefits required to be provided hereunder.
4.5.4 The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Paragraph 4.5.3.
4.6 The severance pay and benefits provided for in this Paragraph 4 shall
be in lieu of any other severance or termination pay to which the Executive may
be entitled under any Bank severance or termination plan, program, practice or
arrangement, except that termination of Executive's employment by the Executive
after the occurrence of a Change in Control, as hereinafter defined, shall be
covered by the provisions of Paragraph 5 below and the provisions of this
Paragraph 4 shall not apply.
4.7 In the event that the Executive terminates this Agreement for Just Cause
pursuant to Paragraph 4.1.5, she shall be entitled to be paid by the Bank, in
cash at the end of each regular pay period of the Bank, an amount equal to the
Base Compensation to which the Executive is entitled pursuant to Paragraph 3.1
above; provided, however, in no event shall Executive be paid under this
subsection for a period of less than nine (9) months.
4.8 This Agreement shall terminate immediately without further liability or
obligation of the Bank or the Company to the Executive (i) if the Bank is closed
or taken over by the Office of the Comptroller of the Currency or other
supervisory authority, including the Federal Deposit Insurance Corporation; or
(ii) if any such supervisory authority should exercise its cease and desist
powers to remove the Executive from office.
4.9 To the extent any provision of this Agreement, with respect to the
Executive's employee stock options, is inconsistent with the Heritage Bancorp
Employee's Incentive Stock Option Plan, the provisions of such plan shall
prevail.
5. Change in Control Provisions.
5.l Definitions. For purposes of this provision, the following terms shall
have the following meanings:
5.1.1 "Base Amount" shall mean the amount of the Executive's annual Base
Compensation at the rate in effect immediately prior to the Change in Control.
5.1.2 "Bonus Amount" shall mean the most recent annual Short Term
Performance Bonus paid or payable to the Executive for the full fiscal year
ended prior to the fiscal year during which a Change in Control occurred.
5.1.3 "Change in Control" as used herein shall mean any of the following
events occurring after May 3, 1999:
(A) When the Company or the Bank acquires actual knowledge that any person
(as such term is used in sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, or record owner of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
(B) Upon the purchase of more than fifty percent (50%) of the Company's
common stock pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Company or an employee benefit plan established or
maintained by the Company or the Bank);
(C) Upon the approval by the Company's stockholders of: (i) a merger or
consolidation of the Company with or into another corporation (other than a
merger or consolidation the definitive agreement for which provides that at
least two-thirds (2/3) of the directors of the surviving or resulting
corporation immediately after the transaction are to be Directors who were
serving prior to the execution of such definitive agreement); or (ii) a sale or
disposition of all or substantially all of the Company's assets;
(D) If during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of either the Company
or the Bank (the "Continuing Directors") cease for any reason to constitute at
least a majority thereof;
(E) Upon a sale of (i) common stock of the Bank if after such sale any
person (as defined above), other than the Company or an employee benefit plan
established or maintained by the Company or the Bank, owns a majority of the
Bank's common stock or (ii) all or substantially all of the Bank's assets; or
(F) Any other agreement, happening or device which has substantially the
same effect on control of the Company or the Bank as any of the foregoing.
5.2 Upon the occurrence of a Change in Control of the Bank or the Company,
the Executive may voluntarily terminate her employment under this Agreement
within six (6) months following a Change in Control of the Company or the Bank
by giving Notice of Termination and the Executive shall thereupon be entitled to
receive an amount equal to 2.99 multiplied by the Executive's Base Amount and
Bonus Amount, provided, however, such payment shall be reduced to the extent
necessary to eliminate the imposition of any taxes under code Sections 280G and
4999 to such payment, if the amount of such payment thereby received by the
Executive on an after tax basis would be higher than the amount of such payment
the Executive would otherwise receive on an after tax basis had no reduction
occurred. In the event that the Executive is entitled to any payments under this
Paragraph 5.2 and has already received any payments under the provisions of
Paragraph 4.5, such payments already received shall be deducted from any payment
due under this Paragraph 5.2. Upon an election to receive payments under this
Section 5.2, the Executive shall not be entitled to receive any payments under
Paragraph 4.
5.3 Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
6. Trade Secrets; Covenant Not to Compete.
6.1 The Executive shall not, at any time, either during the Initial Term or
any Renewal Term or after the Termination Date, use or disclose any Trade
Secrets of the Bank, except in fulfillment of her duties as the Executive during
her employment, for so long as the pertinent information or data remain Trade
Secrets, whether or not the Trade Secrets are in written or tangible form. As
used herein, "Trade Secrets" shall mean any information, pattern, a compilation,
a program, a device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, information on customers, or a list of
actual or potential customers or suppliers, which: (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
6.2 Upon termination of Executive's employment hereunder, by the Bank, the
Company or the Executive, for any reason, other than nonrenewal of this
Agreement, for a period of six (6) months after the Termination Date (the
"Non-Compete Period"), Executive agrees that she will not engage in banking
activities similar to those engaged in by the Bank and the Company, within an
area (the "Territory") comprised of Fairfax, Arlington, Prince William and
Loudoun Counties, including the incorporated cities situated therein, and the
City of Alexandria in the Commonwealth of Virginia. In the event that the Bank
or the Company opens or acquires a location for its operations in any other
jurisdiction, the county or the District of Columbia in which such location is
opened or acquired shall be added to the Territory. During the Non-Compete
Period, Executive further agrees that she will not directly or indirectly
solicit or provide banking services to customers of the Bank or the Company.
7. Successors; Binding Agreement.
7.1 This Agreement shall be binding upon and shall inure to the benefit of
the Bank, their successors and assigns and the Company and the Bank shall
require any successors and assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
7.2 Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, her beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to Company:
Heritage Bancorp, Inc.
Attention: Harold E. Lieding, Chairman
1313 Dolley Madison Blvd.
McLean, VA 22101
If to Bank:
The Heritage Bank
Attention: Board of Directors
1313 Dolley Madison Blvd.
McLean, VA 22101
If to Executive:
Terrie G. Spiro
105 Follin Lane, S.E.
Vienna, VA 22180
Any party to this Agreement may change such address for notices by sending to
the parties to this Agreement written notice of a new address for such purpose.
All notices and communications shall be deemed to have been received on the date
of delivery thereof.
9. Settlement of Claims. The Company's and the Bank's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the company or the Bank may have against the Executive or others. The Company or
the Bank may, however, withhold from any benefits payable under this Agreement
all federal, state, city, or other taxes as shall be required pursuant to any
law or governmental regulation or ruling.
10. Modification and Waiver.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive, the Bank and the Company. No waiver by any party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
11. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia without giving effect
to the conflict of laws principles thereof.
12. Arbitration.
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof, shall be settled by arbitration administered by the American
Arbitration Association under its National Rules for the Resolution of
Employment Disputes, and judgment upon the award rendered by the arbitrator(s)
may be entered by any court having jurisdiction thereof.
WITNESS OUR HANDS AND SEALS as of the day above first written.
ATTEST:
BANK:
THE HERITAGE BANK
By:
Secretary
*SEAL*
ATTEST:
COMPANY:
HERITAGE BANCORP, INC.
By:
Secretary
*SEAL*
EXECUTIVE:
[SEAL]
TERRIE G. SPIRO
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Heritage Bancorp,
Inc. and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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<ALLOWANCE> 431,000
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<SHORT-TERM> 2,595,000
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<LONG-TERM> 0
0
0
<COMMON> 2,295,000
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<INCOME-PRETAX> 225,000
<INCOME-PRE-EXTRAORDINARY> 225,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,000
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<LOANS-PROBLEM> 1,077,000
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</TABLE>
