SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
[X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to .
---------- ----------
Commission File No. 0-25149
Ridgewood Financial, Inc.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
New Jersey 22-3616280
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
55 North Broad Street, Ridgewood, New Jersey 07450
--------------------------------------------------
(Address of Principal Executive Offices)
(201) 445-7887
- --------------------------------------------------------------------------------
Issuer's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Number of shares of Common Stock outstanding as of August 2, 1999: 3,180,000
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
<PAGE>
RIDGEWOOD FINANCIAL, INC.
Contents
--------
Page(s)
-------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements..........................3
Item 2. Management's Discussion and Analysis .....................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................23
Item 2. Changes in Securities and Use of Proceeds.................23
Item 3. Defaults upon Senior Securities...........................23
Item 4. Submission of Matters to a Vote of Security Holders.......23
Item 5. Other Information.........................................23
Item 6. Exhibits and Reports on Form 8-K..........................23
Signatures..........................................................24
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ridgewood Financial Inc.
Consolidated Statements of Financial Condition
June 30, 1999 and December 31, 1998
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets:
Cash and due from banks $ 6,839 $ 2,274
Federal funds sold 4,900 41,200
--------------- -----------------
Cash and cash equivalents 11,739 43,474
Investment securities:
Held to Maturity (fair value of $1,154 and $1,374
at June 30, 1999 and December 31, 1998, respectively) 1,132 1,354
Available for Sale 30,944 16,921
Mortgage-backed securities:
Held to Maturity (fair value of $10,090 and $11,409
at June 30, 1999 and December 31, 1998, respectively) 10,160 11,277
Available for Sale 66,036 88,390
Loans receivable, net 137,545 107,021
Accrued interest receivable 1,664 1,387
Premises and equipment, net 6,218 2,218
Federal Home Loan Bank ("FHLB") stock, at cost 2,622 1,949
Other assets 1,002 742
--------------- -----------------
Total assets $ 269,062 $ 274,733
=============== =================
Liabilities And Stockholders' Equity
Deposits 190,312 205,529
Borrowed funds 52,331 32,557
Initial public offering subscriptions payable - 17,809
Advances from borrowers for taxes and insurance 1,080 926
Accounts payable and other liabilities 428 490
--------------- -----------------
Total liabilities 244,151 257,311
Stockholders' Equity
Preferred stock, authorized 5,000,000 shares,
None issued and outstanding - -
Common stock, $0.10 Par Value,
Authorized Shares 10,000,000,
Issued 3,180,000 in 1999 and none in 1998,
Outstanding Shares 3,180,000 in 1999
and none in 1998 318 -
Additional paid-in capital 9,428 -
Retained earnings 17,151 17,693
Unallocated common stock owned by
employee stock ownership plan (915) -
Accumulated other comprehensive loss (1,071) (271)
--------------- -----------------
Total stockholders' equity 24,911 17,422
--------------- -----------------
Total Liabilities and Stockholders' Equity $ 269,062 $ 274,733
=============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Ridgewood Financial, Inc.
Consolidated Statements of Income (Expense)
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Year to Date
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 2,283 $ 2,081 $ 4,390 $ 4,150
Investment securities 12 55 27 184
Mortgage-backed securities 166 231 343 481
Securities available for sale 1,314 1,481 2,772 2,700
Other 201 264 508 512
-------------- ------------ -------------- ------------
Total interest income 3,976 4,112 8,040 8,027
-------------- ------------ -------------- ------------
Interest Expense:
Deposits 2,177 2,415 4,468 4,792
Borrowed funds 576 314 1,033 520
-------------- ------------ -------------- ------------
Total interest expense 2,753 2,729 5,501 5,312
-------------- ------------ -------------- ------------
Net interest income 1,223 1,383 2,539 2,715
Provision for loan losses 36 129 72 132
-------------- ------------ -------------- ------------
Net interest income after provision for loan losses 1,187 1,254 2,467 2,583
-------------- ------------ -------------- ------------
Noninterest income:
Fees and service charges 39 31 75 67
(Loss) gain on sale of securities (1,070) 16 (1,070) 24
Gain on sale of loans - - - 21
Other 5 6 6 6
-------------- ------------ -------------- ------------
Total noninterest income (1,026) 53 (989) 118
-------------- ------------ -------------- ------------
Noninterest expenses:
Salaries and benefits 566 542 1,175 1,036
Occupancy and equipment 295 301 610 555
Advertising and promotion 18 45 45 76
SAIF deposit insurance premium 33 30 63 59
Other expenses 188 150 343 243
-------------- ------------ -------------- ------------
Total noninterest expense 1,100 1,068 2,236 1,969
-------------- ------------ -------------- ------------
Income (loss) before income taxes (benefit) expense (939) 239 (758) 732
Income taxes (benefit) expense (415) 91 (415) 245
-------------- ------------ -------------- ------------
Net (loss) income $ (524) $ 148 $ (343) $ 487
============== ============ ============== ============
(Loss) earnings per common share:
Basic $ (0.17) $ - $ (0.11) $ -
============== ============ ============== ============
Diluted $ (0.17) $ - $ (0.11) $ -
============== ============ ============== ============
Weighted average shares outstanding:
Basic 3,089,872 - 3,113,803 -
Diluted 3,089,872 - 3,113,803 -
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Ridgewood Financial, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Cash flows from Operating Activities:
Net (loss) income $ (343)$ 487
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 109 100
Amortization of loan fees (104) (60)
Premiums and discounts on mortgage-backed and
investment securities 1,827 416
Proceeds from loan sales - 771
Gain on sale of loans - (21)
Gain on sale of securities available for sale - (24)
Provision for loan losses 72 132
Allocation of employee stock ownership shares 48 -
Deferred income tax expense (benefit) 44 (118)
(Increase) decrease in accrued interest receivable (277) 223
Decrease in other assets, net 143 215
Decrease in initial public offering subscriptions payable (17,809) -
Increase in other liabilities (62) (299)
---------- ----------
Net cash provided by operating activities (16,352) 1,822
---------- ----------
Cash flows from investing activities:
Net (increase) decrease in first mortgage loans (15,858) 1,803
Purchase of 1st mortgage loans (15,180) -
Net decrease (increase) in consumer loans 510 (787)
Purchases of mortgage-backed securities available for sale - (46,600)
Principal collected on mortgage-backed securities 22,167 11,669
Purchases of investment securities available for sale (15,771) (1,470)
Proceeds from sales of securities available for sale - 7,022
Maturities and calls of investment securities held to maturity - 6,976
Maturities and calls of investment securities available for sale - 9,700
Principal collected on investment securities 201 175
Purchases of premises and equipment (4,109) (37)
Purchases of FHLB Stock (673) -
Proceeds from collection of loan fees 36 -
---------- ----------
Net cash used in investing activities (28,677) (11,549)
---------- ----------
Cash flows from financing activities:
Net (decrease) increase in passbook, NOW and money market
accounts (1,702) 5,010
Net decrease in certificates of deposit (13,515) (297)
Proceeds from borrowed funds 19,774 18,190
Repayment of borrowed funds - (9,040)
Net proceeds from initial public offering 9,751 -
Purchase of employee stock ownership plan stock (968) -
Capitalization of mutual holding company (200) -
Net increase (decrease) in advances from
borrowers for taxes and insurance 154 (6)
---------- ----------
Net cash (used in) provided by financing activities 13,294 13,857
---------- ----------
Net (decrease) increase in cash and cash equivalents (31,735) 4,130
Cash and cash equivalents at beginning of period 43,474 15,398
---------- ----------
Cash and cash equivalents at end of period $ 11,739 $ 19,528
========== ==========
Supplemental disclosures of cash flow information
Cash payments for:
Interest on deposits and borrowed funds $ 5,532 $ 5,344
Income taxes 48 370
Non-cash transactions - writedown of securities 1,070 -
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
RIDGEWOOD FINANCIAL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and therefore do not include all
disclosures necessary for a complete presentation of the consolidated financial
statements in conformity with generally accepted accounting principles. However,
all adjustments which are, in the opinion of management, necessary for the fair
presentation of the interim financial statements have been included. All such
adjustments are of a normal recurring nature. The consolidated statements of
income are not necessarily indicative of results which may be expected for the
entire year.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
unaudited financial statement be read in conjunction with the Form 10-KSB for
the year ended December 31, 1998.
(2) Conversion and Reorganization
On June 22, 1998, the Board of Directors of Ridgewood Savings Bank of New Jersey
(the Bank) adopted a Plan of Conversion to convert from a New Jersey chartered
mutual savings bank to a New Jersey chartered stock savings bank. The Bank is
now a wholly-owned subsidiary of Ridgewood Financial, Inc. (the Company), a
holding company formed by the Bank.
The Company is a savings bank holding company that was incorporated in July 1998
under the laws of the State of New Jersey for the purpose of acquiring all of
the issued and outstanding common stock of the Bank. This acquisition occurred
in January 1999, at the time the Bank simultaneously converted from a mutual to
a stock institution and sold all of its outstanding capital stock to the
Company. The Company made its initial public offering of common stock and
provided additional shares of common stock to Ridgewood Financial, MHC, a mutual
holding company that holds 53% of the outstanding shares of the Company. Because
the reorganization and conversion was not completed until January 7, 1999, at
December 31, 1998, the Company had no assets, liabilities or equity.
The reorganization and conversion, including the initial public offering of the
common stock of the Company, was completed on January 7, 1999, resulting in the
issuance of 3,180,000 shares of common stock, $0.10 par value per share, of the
Company of which 1,494,600 shares (47%) were sold at a purchase price per share
of $7.00 and 1,685,400 shares (53%) were issued to Ridgewood Financial, MHC,
resulting in gross proceeds of $10.5 million. Total expenses were approximately
$700,000 resulting in net proceeds of $9.8 million.
Approximately half of the net proceeds were paid directly by the Company to the
Bank in return for 100,000 shares of common stock, $2.00 par value per share, of
the Bank (100% of the issued and outstanding shares of the Bank). In addition,
$200,000 was provided to Ridgewood Financial, MHC by the Bank. The remaining net
proceeds were retained by the Company.
Concurrent with the conversion and reorganization, the Company established an
Employee Stock Ownership Plan (ESOP) for the benefit of employees. The ESOP will
purchase 8% of the number of shares sold in the offering, in the open market,
using a loan from the Company.
6
<PAGE>
In addition, a stock option plan will be submitted for stockholders' approval.
If implemented, up to 10% of the number of shares sold in the offering would be
reserved for issuance through exercise of options for common stock.
As part of the conversion, 5,000,000 shares of preferred stock at no par value
were authorized; however, none were issued. Included in the Bank's financial
statements at December 31, 1998 was $17.8 million of subscriptions payable
related to the offering.
Upon a complete liquidation of the Bank after the conversion, the Company, as a
holder of the Bank's common stock would be entitled to any assets remaining upon
a liquidation of the Bank. Each depositor would not have a claim in the assets
of the Bank. However, upon a complete liquidation of the MHC after the
conversion, each depositor would have a claim up to the pro rata value of his or
her accounts, in the assets of the MHC remaining after the claims of the
creditors of the MHC are satisfied. Depositors who have liquidation rights in
the Bank immediately prior to the conversion will continue to have such rights
in the MHC after the conversion for so long as they maintain deposit accounts in
the Bank after the conversion.
Costs incurred that were directly associated with the conversion were deferred
as of December 31, 1998 and were deducted from the proceeds of the shares sold
in the conversion in January 1999.
(3) Earnings Per Common Share
Basic income per common share is computed by dividing net income by the weighted
average number of shares outstanding during each period.
Diluted net income per common share is computed by dividing net income by the
weighted average number of shares outstanding, as adjusted for the assumed
exercise of options for common stock, using the treasury stock method.
7
<PAGE>
(4) Investment Securities
The following is a summary of maturities of the investment securities as of
June 30, 1999 and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
----------------------------------------------- --------------------------------------------
(Unaudited)
Securities held Securities available Securities held Securities available
to Maturity for sale to Maturity for sale
---------------------- -------------------- --------------------- --------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---------- -------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts maturing in:
Equity Securities $ -- -- 8 26 $ -- -- 8 30
One year or less 44 44 -- -- 58 58 - --
After one year through five years -- -- 3,242 3,167 43 43 3,243 3,243
After five years through ten years 536 553 3,225 3,089 659 675 718 721
After ten years 552 557 26,030 24,662 594 598 12,769 12,927
-------- ----- ------- ------ -------- ------ ------ -------
$ 1,132 1,154 32,505 30,944 $ 1,354 1,374 16,738 16,921
======== ===== ====== ====== ======== ====== ====== =======
</TABLE>
8
<PAGE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
(5) Mortgage-backed Securities
The following is a summary of maturities of the mortgaged-backed securities as
of June 30, 1999 and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------------------------------------- ------------------------------------------
(Unaudited)
Securities held Securities available Securities held Securities available
to Maturity for sale to Maturity for sale
---------------------- -------------------- ------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts maturing in:
One year or less $ -- -- 49 49 $ -- -- 709 708
After one year through five years 945 929 3,090 3,059 -- -- 3,882 3,900
After five years through ten years 582 568 17,418 17,322 1,223 1,247 18,693 18,664
After ten years 8,633 8,593 45,593 45,606 10,054 10,162 65,713 65,118
------- ------ ------- ------ ------- ------ ------ ------
$10,160 10,090 66,150 66,036 $11,277 11,409 88,997 88,390
======= ====== ====== ====== ======= ====== ====== ======
</TABLE>
9
<PAGE>
(6) Borrowed Funds
Borrowed funds at June 30, 1999 and December 31, 1998 are summarized as follows
(in thousands):
June 30, 1999 December 31, 1998
------------------ -----------------------
(unaudited)
Advances from the FHLB $ 52,331 $ 32,557
================== =======================
Pursuant to collateral agreements with the FHLB, advances are secured by all
stock in the FHLB and qualifying first mortgage loans. Advances at June 30,
1999 have maturity dates as follows: (in thousands)
June 30, 1999 Weighted Average Rate
------------------- ---------------------
(unaudited)
1999 $ 6,600 5.22%
2000 2,650 5.81
2001 2,000 5.70
2002 4,200 5.32
2003 5,500 4.83
2004 3,000 5.27
2005 2,000 5.99
2006 531 6.76
2008 16,000 5.42
2009 9,850 6.03
------------------
$ 52,331 5.50%
================== ====================
(7) Comprehensive (loss) income
Total comprehensive income for the three-month and six-month periods ended June
30 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
------------------- -------------------
1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net (loss) income $ (524) $ 148 $ (343) $ 487
Change in unrealized gain on securities
available for sale, net of taxes (600) (546) (800) (330)
------ ---- ------ ----
Comprehensive (loss) income $(1,124) $(398) $(1,143) $ 157
====== ==== ====== ====
</TABLE>
(8) Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement
No. 133"). This statement establishes accounting and reporting standards for
derivative instruments, and for hedging activities. Statement No. 133 supersedes
the disclosure requirements in Statements No. 80, 105 and 119. Statement of
Financial Accounting Standards No. 137 deferred the effective date of this
statement to fiscal years beginning after June 15, 2000. The adoption of
Statement No. 133 is not expected to have a material impact on the financial
position or results of the Company.
In October 1998, the FASB issued Statement of Financial Accounting Standards No.
134 "Accounting for Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" ("Statement
No. 134"). This statement amends FASB Statement No. 65 "Accounting for Certain
Mortgage Banking Activities", to require that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking activities
classify the resulting mortgage-backed securities or other retained interests
based on its ability and intent to sell or hold those investments. Statement No.
134 is effective January 1, 1999. The adoption of this statement is not expected
to have a material impact on the financial position or results of operations of
the Company.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Bank's results of operations are primarily dependent on its net
interest income, which is the difference between the interest income earned on
assets, primarily loans, mortgage-backed securities, investments, and other
interest earning assets less the interest expense on its liabilities, primarily
deposits and borrowings. Net interest income may be affected significantly by
general economic and competitive conditions, particularly those with respect to
market interest rates, and policies of regulatory agencies. Furthermore, the
Bank's lending activity is concentrated in loans secured by real estate in the
Bank's market area and therefore the Bank's operations are affected by local
market conditions. The results of operations are also influenced by non-interest
income, including securities gains and losses, the level of non-interest
expenses, such as employees' salaries and benefits, occupancy and equipment
costs, non-interest income such as loan related fees and fees on deposit related
services, and the Bank's provision for loan losses.
COMPARISON OF FINANCIAL CONDITION
AT JUNE 30, 1999 AND DECEMBER 31, 1998
Total assets decreased by $5.7 million or 2.1% to $269.1 million at
June 30, 1999 from $274.7 million at December 31, 1998. This decrease was
primarily due to reduction in initial public offering subscriptions payable
totaling $17.8 million due to acquisition of stock for stockholders and
refunding of oversubscriptions. As a result, federal funds sold decreased $36.3
million to $4.9 million at June 30, 1999 from $41.2 million at December 31,
1998. Available for sale mortgage-backed securities decreased by $22.4 million
to $66.0 million at June 30, 1999 from $88.4 million at December 31, 1998,
offset by an increase in available for sale investment securities of $14.0
million to $30.9 million at June 30, 1999 from $16.9 million at December 31,
1998. During this period, the Bank's security purchases were concentrated in tax
exempt securities during the period rather than mortgage-backed securities.
Loans receivable increased $30.5 million due to the Bank's ability to increase
mortgage loan originations resulting from higher levels of loan refinancings
during a lower interest rate environment. In addition, the Bank completed a
purchase of $15.2 million in residential mortgage loans during the second
quarter. Further, premises and equipment increased $4.0 million or 180.3% to
$6.2 million at June 30, 1999 from $2.2 million at December 31, 1998, as the
Bank completed the purchase of a building for $4.0 million, to serve as an
additional branch office and to house administrative operations. Refurbishment
costs for this purpose are estimated to be an additional $2.3 million.
11
<PAGE>
The Bank's deposits, decreased by $15.2 million or 7.4% to $190.3
million at June 30, 1999, as deposits were withdrawn for purchases of the
initial public offering as well as in response to the Bank's pricing strategies
designed to lower cost of funds. Borrowings increased $19.8 million or 60.7% to
$52.3 million at June 30, 1999 from $32.6 million at December 31, 1998 as the
Bank used borrowings in conjunction with deposit pricing strategies to generate
additional income as part of its leveraging strategy. In addition, initial
public offering subscriptions payable decreased $17.8 million due to acquisition
of stock for stockholders and refunding of oversubscriptions related to the
stock offering.
Total equity increased $7.5 million to $24.9 million at June 30, 1999
primarily due to the completion of the initial public offering which provided
net proceeds of $9.7 million, offset by a net loss of $343,000 for the six
months ended June 30, 1999, as well as $800,000 of unrealized losses on
securities available for sale, net of taxes, and unearned ESOP stock of
$915,000.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND JUNE 30, 1998
Net Income. Net income decreased $830,000 to a net loss of $343,000 for
the six months ended June 30, 1999 as compared to net income of $487,000 for the
six months ended June 30, 1998. Net income was lower primarily due to a loss of
$1.1 million recognized on the sale of available for sale mortgage backed
securities. Continued high prepayment volume along with the increased premium
amortization required thereby, have resulted in below-market yields on the
Bank's CMO portfolio. Due to the low yields on these securities, and based upon
the high level of prepayments, the Bank decided to liquidate the entire CMO
portfolio with the proceeds to be reinvested in assets which are less
susceptible to prepayment risk. The sale of the CMO portfolio occurred in July
1999 but the Bank recognized a writedown of the securities in June 1999 when the
Bank made the decision to sell the CMO portfolio. Such writedown is included
in loss on sale of securities in the income statement. In addition, there was a
decrease of $176,000 in net interest income as a result of an increase in total
interest expense of $189,000, slightly offset by an increase in interest income
of $13,000. Further, there was a decrease in loan loss provisions of $60,000 for
the six months ended June 30, 1999, as compared to the same period for 1998.
Non-interest income declined $1.1 million primarily due to the loss recognized
in the investment portfolio. Non-interest expense increased $267,000, to
$2,236,000 from $1,969,000 for the same period to period comparison.
12
<PAGE>
Net Interest Income. Net interest income before provision for loan
losses decreased by $176,000 or 6.5% to $2.5 million for the six months ended
June 30, 1999. The decrease was primarily due to a decline in the average yield
on interest earning assets (on a tax equivalent basis) of 33 basis points from
7.05% for the six months ended June 30, 1998 to 6.72% for the same period ended
1999, offset by a decrease of 22 basis points in the average cost of interest
bearing liabilities to 4.75% from 4.97% for the same period to period
comparison.
The Bank's interest rate spread, which is the difference between the
yield on average interest earning assets less the cost of interest bearing
liabilities, declined to 1.97 % for the six months ended June 30, 1999, from
2.08 % for the six months ended June 30, 1998. This was primarily attributed to
higher prepayments on mortgage backed securities, specifically the CMO
portfolio, which required increased premium amortization resulting in
below-market yields on these securities. Coupled with higher prepayments on
loans receivable, these proceeds were reinvested in lower yielding assets due to
the general decline of market interest rates for these instruments. In addition,
competitive pressure on the pricing of loans and deposits has resulted in a
smaller interest rate spread. Competitive pressure in the future may further
reduce the spread between asset yields and the cost of funds.
Interest Income. Interest income on a tax equivalent basis, increased
to $8.3 million for the six months ended June 30, 1999, from $8.0 million for
the six months ended June 30, 1998. The increase was due to higher average
balances in loans receivable and available for sale securities, offset by a
decrease in the average balance of securities held to maturity and other
interest-earning assets. The average balance of securities held to maturity
declined $7.9 million to $11.9 million for the six months ended June 30, 1999,
from $19.8 million for the same six months in 1998. This decline was due to
higher prepayments of held to maturity mortgage-backed securities, and the lack
of any additions to this classification. The average balance of securities
available for sale increased $20.8 million to $105.7 million for the six months
ended June 30, 1999, from $84.9 million for the same prior period of one year
ago. The increase in available for sale securities was due to classification of
reinvested funds as available for sale. The average yield of interest earning
assets (on a tax equivalent basis) decreased from 7.05% for the six months ended
June 30, 1998, to 6.72% for the six months ended June 30, 1999, due to
prepayment of higher coupon mortgage-backed securities and loans with
reinvestment of proceeds into lower coupon instruments during a low interest
rate environment with a flat yield curve.
Interest on loans receivable increased by $240,000 or 5.8 % for the six
months ended June 30, 1999 as compared to the same period of one year ago. The
increase was due to a $10.9 million or 10.4% increase in the average balance of
loans receivable resulting from originations of new loans in excess of
prepayments and amortization as well as the purchase of $15.2 million in
residential mortgage loans. The increase in the average balance of loans was
offset by a decline in the average yield of 27 basis points from 7.87% for the
six months ended June 30, 1998 to 7.60% for the six months ended June 30, 1999.
The decrease in the average yield was due to lower interest rates on originated
loans during the 1999 period and the prepayment/amortization of higher rate
loans.
13
<PAGE>
Interest expense. Interest expense increased $189,000 or 3.6% to $5.5
million for the six months ended June 30, 1999, as compared to $5.3 million for
the same period last year. The increase was due to a $19.9 million increase in
the average balance of interest bearing liabilities partially offset by a
decrease of 22 basis points in the average cost of interest bearing liabilities.
Interest expense on borrowed funds increased $513,000 mainly due to an increase
in the average balance of $20.5 million from $18.0 million for the six months
ended June 30, 1998 compared to $38.5 million for the same period this year,
offset by a decrease in the average cost of 36 basis points from 5.77% to 5.41%
for the same periods. Interest expense on time deposits decreased $366,000 due
to a decline in the average balances of time deposits of $4.5 million and a
decrease in the average cost of 29 basis points. Interest expense on DDA
accounts increased $16,000 due to an increase in the average balance of $2.3
million. Interest expense on savings deposits increased $19,000 as a result of a
$1.1 million increase in the average balances to $29.2 million for the six month
period ended June 30, 1999 from $28.0 million for the six month period ended
June 30, 1998 as well as an increase of 4 basis points in the average cost from
3.16% to 3.20% for the same periods.
Provision for loan losses. The provision for loan losses decreased
$60,000, to $72,000 for the six months ended June 30, 1999, as compared to
$132,000 for the six months ended June 30, 1998. The provision thereby increases
the allowance for loan losses to $894,000 at June 30, 1999. The decrease was due
to the decision in the prior comparable period to raise the allowance for loan
losses with a charge of $126,000, primarily as a result of management's review
of the risk inherent in the loan portfolio, based in part on a comparison of
loss experience at the Bank, loss experience and reserve levels at peer
institutions, and the changing proportion of commercial real estate and consumer
loans relative to single family mortgages in the overall loan portfolio.
Non-interest income. Non-interest income decreased by $1.1 million to a
net loss of $989,000 for the six months ended June 30, 1999, from $118,000 for
the six months ended June 30, 1998. This was primarily due to recognition of a
net loss of
14
<PAGE>
$1.1 million in the available for sale securities portfolio for the six months
ended June 30, 1999 as compared to a gains of $45,000 on the sale of securities
and loans for same six month period of one year ago. High prepayments along with
the required increase in premium amortization resulted in below market yields on
the Bank's CMO securities. Due to the low yields on these securities and based
upon the high level of prepayments, the Bank decided to liquidate the entire CMO
portfolio. The proceeds are to be reinvested in assets which are less
susceptible to prepayment risk. The sale of the CMO portfolio occurred in July
1999 but the Bank recognized a writedown of the securities in June 1999 when the
Bank made the decision to sell the CMO portfolio.
Non-interest expenses. Non-interest expenses increased by $267,000 to
$2.2 million for the six months ended June 30, 1999 from $2.0 million for the
same period ended June 30, 1998. The increase was primarily due to increases of
$139,000 in salaries and benefits resulting from an increase in staff, increases
in medical insurance rates, as well as normal salary and merit increases.
Occupancy and equipment expenses increased $55,000 mostly attributable to
increases in computer service expense of $58,000 resulting from an increase in
account volumes and including $5,000 in year 2000 compliance costs. Other
non-interest expense increased by $100,000 to $343,000 for the six months ended
June 30, 1999, from $243,000 for the six months ended June 30, 1998. This
increase was mainly due to a $57,800 increase in professional fees resulting
from the mutual holding company reorganization. In addition, appraisal and other
loan underwriting expenses increased $23,500 due to an increase in loan
origination volume, and seminar expenses were $5,000 higher due to costs
associated with staff training and education.
Income Taxes. The Bank has an income tax benefit of $415,000 for the
six months ended June 30, 1999 as compared to income tax expense of $245,000 for
the comparable prior year period. The benefit for the current period is due to
the loss recognized in the available for sale securities as discussed above and
an increase in levels of tax exempt securities.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998
Net Income. Net income decreased $672,000 due to a net loss of $524,000
for the three months ended June 30, 1999 as compared to net income of $148,000
for the three months ended June 30, 1998. Net income was lower primarily due to
a loss of $1.1 million recognized on the sale of available for sale mortgage
backed securities. Continued high prepayment volume along with the increased
premium amortization required thereby, have resulted in below-market yields on
the Bank's CMO portfolio.
15
<PAGE>
Due to the low yields on these securities, and based upon the high level of
prepayments, the Bank decided to liquidate the entire CMO portfolio with the
proceeds to be reinvested in assets which are less susceptible to prepayment
risk. The sale of the CMO portfolio occurred in July 1999 but the Bank
recognized a writedown of the securities in June 1999 when the Bank made the
decision to sell the CMO portfolio. Such writedown is included in loss on sale
of securities in the income statement. In addition, there was a decrease of
$160,000 in net interest income for the three months ended June 30, 1999, as a
result of a decline in interest income of $136,000 and an increase in total
interest expense of $24,000. Further, there was a decrease in loan loss
provisions of $93,000 for the three months ended June 30, 1999, as compared to
the same period for 1998. Non-interest income declined $1.1 million primarily
due to the loss recognized in the investment portfolio. Non-interest expense
increased $32,000 to $1,100,000 from $1,068,000 for the same three month period
to period comparison.
Net Interest Income. Net interest income before provision for loan
losses decreased by $160,000 or 11.6% to $1.2 million for the three months ended
June 30, 1999. The decrease was primarily due to a decline in the average yield
on interest earning assets (on a tax equivalent basis) of 47 basis points from
7.02% for the period ended June 30, 1998 to 6.55% for the same period ended
1999, offset by a decrease of 32 basis points in the average cost of interest
bearing liabilities to 4.69% from 5.01% for the same period to period
comparison.
The Bank's interest rate spread, which is the difference between the
yield on average interest earning assets less the cost of interest bearing
liabilities, declined to 1.86 % for the three months ended June 30, 1999, from
2.01 % for the same three month period in 1998. This was primarily attributed to
higher prepayments on mortgage backed securities, specifically the CMO
portfolio, which required increased premium amortization resulting in
below-market yields on those securities. During the same period, albeit to a
lesser extent, higher prepayments on loans receivable resulted in the proceeds
reinvested in lower yielding assets due to the general decline of market
interest rates for these instruments. In addition, competitive pressure on the
pricing of loans and deposits has resulted in a smaller interest rate spread.
Competitive pressure in the future may further reduce the spread between asset
yields and the cost of funds.
Interest Income. Interest income decreased to $4.0 million for the
three months ended June 30, 1999, from $4.1 million for the three months ended
June 30, 1998. The decrease was primarily attributed to a decline of 131 basis
points on the average yield of securities available for sale and to a lesser
extent, a decline of 52 basis points on the average yield of loans receivable.
For the three months ended June 30, 1999 the average yield of securities
available for sale decreased 131 basis points, to 5.25%, from 6.56%, offset by
an increase in the average balance from $90.6 million for the three months ended
June 30, 1998, to $103.9 million for the same three months ended June 30, 1999.
The decline in yield was mainly attributable to the high prepayments experienced
in the CMO sector of the portfolio, along with the increased premium
16
<PAGE>
amortization required thereby, resulting in below-market yields on the CMO
portfolio. During the three month period ended June 30, 1999, the average yield
of loans receivable decreased to 7.45%, from 7.97% for the three months ended
June 30, 1998, offset by an increase in the average balance to $122.9 million
from $104.8 million. The decrease in securities held to maturity of $9.6 million
was due to higher prepayments of held to maturity mortgage-backed securities.
The increase in available for sale securities was due to classification of
reinvested funds as available for sale.
Interest on loans receivable increased by $202,000 or 9.7 % for the
three months ended June 30, 1999 as compared to the same period of one year ago.
The increase was due to an $18.1 million or 17.3% increase in the average
balance of loans receivable resulting from originations of new loans in excess
of prepayments and amortization as well as the purchase of $15.2 million in
residential mortgage loans, offset by a decline in the average yield of 52 basis
points from 7.97% for the three months ended June 30, 1998 to 7.45% for the
three month period ended June 30, 1999. The decrease in the average yield was
due to lower interest rates on originated loans during the 1999 period and the
prepayment/amortization of higher rate loans.
Interest expense. Interest expense increased $24,000 or 1%, to
$2,753,000 for the three months ended June 30, 1999, as compared to $2,729,000
for the same period last year. The increase was due to a $17.0 million increase
in the average balance of interest bearing liabilities partially offset by a
decrease of 32 basis points in the average cost of interest bearing liabilities.
Interest expense on borrowed funds increased $262,000 mainly due to an increase
in the average balance of $20.8 million from $22.1 million for the period ended
June 30, 1998 compared to $43.0 million for the same period this year, offset by
a decrease in the average cost of 31 basis points from 5.69% to 5.38% for the
same periods. Interest expense on time deposits decreased $248,000 due to a
decline in the average balances of time deposits of $6.9 million and a decrease
in the average cost of 42 basis points. Interest expense on DDA accounts
increased $4,000 due to an increase in the average balance of $1.7 million.
Interest expense on savings deposits increased $5,000 as a result of an increase
in the average balances of $1.1 million to $29.4 million for the three month
period ended June 30, 1999 from $28.3 million for the three month period ended
June 30, 1998, slightly offset by a decrease of 5 basis points in the average
cost from 3.19% to 3.14% for the same periods.
Provision for loan losses. The provision for loan losses decreased
$93,000, to $36,000 for the three months ended June 30, 1999, as compared to
$129,000 for the three months ended June 30, 1998. The provision thereby
increases the allowance for loan losses to $894,000 at June 30, 1999. The
decrease was due to the decision in the prior comparable period to raise the
allowance for loan losses with a charge of $126,000, primarily as a result of
management's review of the risk inherent in the loan portfolio, based in part on
a comparison of loss experience at the Bank, loss experience and reserve levels
at peer institutions, and the changing proportion of commercial real
17
<PAGE>
estate and consumer loans relative to single family mortgages in the overall
loan portfolio.
Non-interest income. Non-interest income decreased by $1.1 million to a
net loss of $1,026,000 for the three months ended June 30, 1999, from $53,000
for the three months ended June 30, 1998. This was primarily due to recognition
of a net loss of $1.1 million in the available for sale securities for the three
months ended June 30, 1999 as compared to a gain of $16,000 for the comparable
prior year period. High prepayments along with the required increase in premium
amortization resulted in below market yields on the Bank's CMO securities. Due
to the low yields on these securities and based upon the high level of
prepayments, the Bank decided to liquidate the entire CMO portfolio. The
proceeds are to be reinvested in assets which are less susceptible to prepayment
risk. The sale of the CMO portfolio occurred in July 1999 but the Bank
recognized a writedown of the securities in June 1999 when the Bank made the
decision to sell the CMO portfolio.
Non-interest expenses. Non-interest expenses increased by $32,000 to
$1,100,000 for the three months ended June 30, 1999 from $1,068,000 for the same
three month period ended 1998. The increase was primarily due to increases of
$24,000 in salaries and benefits resulting from an increase in staff, increases
in medical insurance rates, as well as normal salary and merit increases.
Occupancy and equipment expenses decreased $6,000 and other non-interest expense
increased by $38,000 to $188,000 for the three months ended June 30, 1999, from
$150,000 for the three months ended June 30, 1998. This increase was due to a
$20,400 increase in professional fees resulting from the mutual holding company
reorganization. In addition, appraisal and other loan underwriting expenses
increased $18,400 due to an increase in loan origination volume.
Income Taxes. The Bank has an income tax benefit of $415,000 for the
three months ended June 30, 1999 as compared to income tax expense of $91,000
for the comparable prior year period. The benefit for the current period is due
to the loss recognized in the available for sale securities as discussed above
and an increase in levels of tax exempt securities.
18
<PAGE>
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, wholesale funding
from the Federal Home Loan Bank, principal and interest payments on loans, and
securities, and to a lesser extent, proceeds from the sale of loans and/or
securities. While maturities and scheduled amortization of loans and securities
provide an indication of the timing of the receipt of funds, changes in interest
rates, economic conditions, and competition strongly influence mortgage
prepayment rates and deposit flows, reducing the predictability of the timing of
sources of funds.
The primary investing activities of the Bank are the origination of
one-to-four-family residential and, to a lesser extent, commercial real estate
and multi-family mortgage loans, and the purchase of mortgage-backed and
mortgage-related and debt securities. During the six months ended June 30, 1999
and June 30, 1998, the Bank's disbursements for loan originations and loan
purchases totaled $ 47.2 million and $10.2 million, respectively. Purchases of
mortgage-backed, mortgage-related and debt securities totaled $15.8 million, and
$48.1 million for the six months ended June 30, 1999 and June 30, 1998
respectively. In addition, purchases of premises and equipment totaled $4.1
million for the six months ended June 30, 1999 compared to $37,000 for the same
period in 1998, as the Bank completed the purchase of a building to serve as an
additional branch office and to house administrative operations. These
activities were funded primarily by principal repayments and prepayments on
loans, mortgage-backed and mortgage-related securities, debt securities,
borrowings, and proceeds from the initial public offering. Proceeds from
principal collected on mortgage-backed securities totaled $22.2 million for the
six months ended June 30, 1999 as compared to $11.7 million for the same six
months in 1998. The Bank experienced a net decrease in total deposits of $15.2
million for the six months ended June 30, 1999 compared to an increase of $4.7
million for the six months ended June 30, 1998, as deposits were withdrawn for
purchases of the initial public offering and pricing strategies were designed to
lower cost of funds. Deposit flows are affected by the level of market interest
rates, as well as the interest rates and products offered by local competitors
and the Bank and other factors.
The Bank closely monitors its liquidity position on a daily basis.
Excess short-term liquidity is invested in overnight federal funds sold. On a
longer term basis, the Bank invests in various lending products, mortgage-backed
and mortgage-related and investment securities. The Bank may borrow funds from
the Federal Home Loan Bank subject to certain limitations. Based on the level of
qualifying collateral available to secure advances at June 30, 1999, the Bank's
borrowing limit from the Federal Home Loan Bank was approximately $79.7 million,
with unused borrowing capacity of $59.9 million at that date. Other sources of
liquidity include borrowings under repurchase agreements and sales of available
for sale securities.
19
<PAGE>
The Bank's most liquid assets are cash and cash equivalents, which
include interest-bearing deposits and short-term highly liquid investments (such
as federal funds sold) with original maturities of less than three months that
are readily convertible to known amounts of cash. The level of these assets is
dependent on the Bank's operating, financing and investing activities during any
given period. At June 30, 1999 and December 31, 1998, cash and cash equivalents
totaled $11.7 million and $43.5 million, respectively, which amounted to 4.3%
and 15.8% of total assets at those dates.
Loan commitments totaled $17.7 million at June 30, 1999, comprised of
$7.1 million in one- to- four-family loan commitments, $1.5 million in
construction loan commitments, $8.8 million in home equity loan commitments, and
$338,000 in checking line of credit loan commitments. Management of the Bank
anticipates that it will have sufficient funds available to meet its current
loan commitments.
Certificates of deposit which are scheduled to mature in less than one
year from June 30, 1999 totaled $103.5 million. Based upon past experience and
the Bank's current pricing strategy, management believes that a significant
portion of such deposits will remain with the Bank.
At June 30, 1999, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $22.0 million, or 8.49% of
adjusted assets, which is above the required level of $10.6 million, or 4.0% of
adjusted assets and total risk-based capital of $22.9 million, or 21.0% of
adjusted assets, which is above the required level of $8.8 million, or 8.0%.
The liquidity of a banking institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits, and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short term loans and investments with specific types of
deposits and borrowings. Savings bank liquidity is normally considered in terms
of the nature and mix of the banking institution's sources and uses of funds.
Management is not aware of any trends, events or uncertainties that
will have or are reasonably likely to have a material effect on the Bank's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect.
20
<PAGE>
Year 2000 Evaluation
Rapid and accurate data processing is essential to the Bank's operations. Many
computer programs that can only distinguish the final two digits of the year
entered (a common programming practice in prior years) are expected to read
entries for the year 2000 as the year 1900 or as zero and incorrectly attempt to
compute payment, interest, delinquency and other data. The Bank has been
evaluating both information technology (computer systems) and non-information
technology systems (e.g., vault timers, electronic door lock and heating,
ventilation and air conditioning controls). The Bank has examined all of its
non-information technology systems and has either received certifications of
year 2000 compliance for systems controlled by third party providers or
determined that the systems should not be impacted by the year 2000. The Bank
expects to further test the systems it controls and receive third party
certification, where appropriate, that they will continue to function. The Bank
does not expect any material costs to address its non-information technology
systems and has not had any material costs to date. The Bank has determined that
the information technology systems it uses have substantially more year 2000
risk than the non-information technology systems it uses. The Bank has evaluated
its information technology systems risk in three areas: (1) our own computers,
(2) computers of others used by our borrowers, and (3) computers of others who
provide us with data processing. The bank is currently in its implementation
stage, which includes incorporating all necessary changes to become year 2000
compliant.
Our own computers. We expect to spend approximately $200,000 through December
31, 1999 to upgrade our computer system. At June 30, 1999, all such costs have
been capitalized and the Bank does not expect to incur any additional material
costs.
Computers of others used by our borrowers. We have evaluated most of our
borrowers and do not believe that the year 2000 problem should, on an aggregate
basis, impact their ability to make payments to the Bank. We believe that most
of our residential borrowers are not dependent on their home computers for
income and that none of our commercial borrowers are so large that a year 2000
problem would render them unable to collect revenue or rent and, in turn,
continue to make loan payments to the Bank. As a result, we have not contacted
residential borrowers concerning this issue and do not consider this issue in
our residential loan underwriting process. We have been contacting our
commercial borrowers with loans of $250,000 or more and we have been considering
this issue during commercial loan underwriting. At June 30, 1999 these loans
constituted $5.9 million or 78.7% of our $7.5 million commercial loan portfolio.
We do not expect any material costs to address this risk area.
21
<PAGE>
Computers of others who provide us with data processing. Between November 1998
and February 1999, the Bank performed year 2000 testing with its primary third
party service provider. Testing consisted of placing the Bank's computer system
in a year 2000 environment and conducting typical banking transactions using
critical 21st century dates, e.g., December 31, 1999, January 1, 2000, January
3, 2000, February 29, 2000, and March 1, 2000 (the year is a leap year).
Interface testing between the Bank and the Federal Reserves "Fedline" system
also took place in the fourth quarter of 1998. These testing programs were fully
successful, and the Bank management has every reason to believe that core data
processing systems will function properly in the year 2000. However, delays,
mistakes or failures could have a significant impact on our financial condition
and results of operations.
Contingency Plan. The Bank has developed a comprehensive Contingency and
Business Resumption Plan in accordance with FFIEC guidelines. This plan was
approved by the Board in July 1999. While Bank management fully expects to be
operational in a year 2000 environment, the contingency plan will guide Bank
operations in the event that one or more of our computer core systems are not
functioning. The activities addressed in the plan include remediation
contingency planning intended to mitigate any risks associated with unforeseen
system glitches, system failure, increased demands for cash, or processes
outside the Bank's control. The remainder of 1999 will be used to further
validate the plan.
The Bank continues to focus on public awareness by providing customers,
shareholders, and employees with timely information on the Bank's state of
preparedness for the year 2000. These efforts include employee awareness
meetings, talking points for bank staff, customer brochures, and a special
section on the bank's website.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIDGEWOOD FINANCIAL, INC.
Date: August 13, 1999 By: /s/ Susan E. Naruk
----------------------------------------
Susan E. Naruk
President and Chief Executive Officer
(Principal Executive Officer)
(Duly Authorized Officer)
Date: August 13, 1999 By: /s/ John Scognamiglio
----------------------------------------
John Scognamiglio
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,546
<INT-BEARING-DEPOSITS> 5,293
<FED-FUNDS-SOLD> 4,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 96,980
<INVESTMENTS-CARRYING> 108,272
<INVESTMENTS-MARKET> 108,224
<LOANS> 138,439
<ALLOWANCE> 894
<TOTAL-ASSETS> 269,062
<DEPOSITS> 190,312
<SHORT-TERM> 7,100
<LIABILITIES-OTHER> 1,508
<LONG-TERM> 45,231
0
0
<COMMON> 318
<OTHER-SE> 24,503
<TOTAL-LIABILITIES-AND-EQUITY> 269,062
<INTEREST-LOAN> 4,390
<INTEREST-INVEST> 3,142
<INTEREST-OTHER> 508
<INTEREST-TOTAL> 8,040
<INTEREST-DEPOSIT> 4,468
<INTEREST-EXPENSE> 5,501
<INTEREST-INCOME-NET> 2,539
<LOAN-LOSSES> 72
<SECURITIES-GAINS> (1,070)
<EXPENSE-OTHER> 2,236
<INCOME-PRETAX> (758)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (343)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
<YIELD-ACTUAL> 2.29
<LOANS-NON> 756
<LOANS-PAST> 20
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 822
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 894
<ALLOWANCE-DOMESTIC> 894
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
