<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 1-14671
WORONOCO BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3444269
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31 Court Street, Westfield, Massachusetts 01085
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(413) 568-9141
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changes since last
report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: the Issuer had 5,998,860 shares
of common stock, par value $0.01 per share, outstanding as of November 9, 1999.
<PAGE>
WORONOCO BANCORP, INC.
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998.................... 1
Consolidated Statements of Operations for the Three
And Nine Months Ended September 30, 1999 and 1998........... 2
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1999 and 1998....... 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998............... 4
Notes to Unaudited Consolidated Financial Statements........ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk......................................... 29
PART II: OTHER INFORMATION
Item 1. Legal Proceedings......................................... 30
Item 2. Changes in Securities and Use of Proceeds................. 30
Item 3. Defaults Upon Senior Securities........................... 30
Item 4. Submission of Matters to a Vote of Security Holders....... 30
Item 5. Other Information......................................... 31
Item 6. Exhibits and Reports on Form 8-K.......................... 31
SIGNATURES........................................................ 32
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Unaudited
September 30, December 31,
Assets 1999 1998
------------------ -------------------
<S> <C> <C>
Cash and due from banks $11,578 $10,371
Interest-bearing balances 1,018 1,607
------------------ -------------------
Total cash and cash equivalents 12,596 11,978
Securities available for sale, at fair value 158,206 111,409
Federal Home Loan Bank stock, at cost 6,597 5,648
Loans, net of allowance for loan losses ($2,330 at September 30, 1999
and $2,166 at December 31, 1998) 297,704 284,043
Other real estate owned, net 212 241
Banking premises and equipment, net 8,960 8,290
Accrued interest receivable 2,278 1,748
Net deferred tax asset 3,789 55
Cash surrender value of life insurance 2,035 1,917
Other assets 877 1,497
------------------ -------------------
Total assets $493,254 $426,826
================== ===================
Liabilities and Stockholders' Equity
Deposits $271,804 $275,041
Federal Home Loan Bank advances 130,427 111,163
Repurchase agreements 110 100
Mortgagors' escrow accounts 1,426 645
Accrued expenses and other liabilities 3,753 4,104
------------------ -------------------
Total liabilities 407,520 391,053
------------------ -------------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock ($.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding) - -
Common stock ($.01 par value; 16,000,000 shares
authorized; shares issued and outstanding:
5,998,860 at September 30, 1999) 60 -
Additional paid-in capital 57,870 -
Unearned compensation - ESOP (4,342) -
Retained earnings 34,199 34,060
Accumulated other comprehensive (loss) income - net
unrealized (loss) gain on securities available for sale,
net of tax effects (2,053) 1,713
------------------ -------------------
Total stockholders' equity 85,734 35,773
------------------ -------------------
Total liabilities and stockholders' equity $493,254 $426,826
================== ===================
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
1
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------------ ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $5,513 $5,312 $16,293 $15,861
Interest and dividends on investment
securities:
Interest 1,609 684 4,407 1,954
Dividends 519 232 1,138 655
Interest on federal funds sold 3 1 326 53
Other interest income 13 16 37 73
------------------ ----------------- ------------------ ----------------
Total interest and dividend income 7,657 6,245 22,201 18,596
------------------ ----------------- ------------------ ----------------
Interest expense:
Interest on deposits 2,259 2,626 6,988 7,789
Interest on borrowings 1,292 782 3,478 2,194
------------------ ----------------- ------------------ ----------------
Total interest expense 3,551 3,408 10,466 9,983
------------------ ----------------- ------------------ ----------------
Net interest income 4,106 2,837 11,735 8,613
Provision for loan losses 60 60 180 180
------------------ ----------------- ------------------ ----------------
Net interest income, after provision
for loan losses 4,046 2,777 11,555 8,433
------------------ ----------------- ------------------ ----------------
Other income:
Fee income 451 400 1,371 1,163
Gain on sales and disposition of
securities, net 384 64 1,187 1,182
Gain on sales of loans, net - 290 - 290
Other income 103 81 198 175
------------------ ----------------- ------------------ ----------------
Total other income 938 835 2,756 2,810
------------------ ----------------- ------------------ ----------------
Other expenses:
Salaries and employee benefits 1,643 1,306 4,581 3,750
Occupancy and equipment 452 363 1,332 1,064
Marketing 215 75 624 464
Professional services 248 131 639 361
Data processing 196 173 562 487
Deposit insurance 8 8 33 32
Contributions 1 7 4,447 114
Other general and administrative 561 401 1,500 1,199
------------------ ----------------- ------------------ ----------------
Total other expenses 3,324 2,464 13,718 7,471
------------------ ----------------- ------------------ ----------------
Income before income taxes 1,660 1,148 593 3,772
Income tax expense 646 420 219 1,311
------------------ ----------------- ------------------ ----------------
Net income $1,014 $728 $374 $2,461
================== ================= ================== ================
Earnings per share:
Basic $0.18 NA NA NA
Diluted $0.18 NA NA NA
Weighted average shares outstanding:
Basic 5,529,059 NA NA NA
Diluted 5,529,059 NA NA NA
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
2
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Unearned Retained Comprehensive
Stock Capital Compensation Earnings Income (Loss) Total
------------- ------------- ------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ - $ - $ - $ 34,060 $ 1,713 $ 35,773
-----------
Comprehensive income (loss):
Net income - - - 374 - 374
Change in net unrealized gain (loss) on
securities available for sale, net of
tax effects - - - - (3,766) (3,766)
-----------
Total comprehensive loss (3,392)
-----------
Issuance of common stock in connection with
Bank's conversion from mutual to stock-
owned savings bank 60 57,870 (4,609) - - 53,321
Cash dividends declared - - - (235) - (235)
Decrease in unearned compensation - - 267 - - 267
------------- ------------- ------------- ------------- -------------- -----------
Balance at September 30, 1999 $ 60 $ 57,870 $ (4,342) $ 34,199 $ (2,053) $ 85,734
============= ============= ============= ============= ============== ===========
Balance at December 31, 1997 $ - $ - $ - $ 30,950 $ 2,382 $ 33,332
Comprehensive income:
Net income - - - 2,461 - 2,461
Change in net unrealized gain on securities
available for sale, net of tax effects - - - - (1,505) (1,505)
-----------
Total comprehensive income 956
------------- ------------- ------------- ------------- -------------- -----------
Balance at September 30, 1998 $ - $ - $ - $33,411 $877 $34,288
============= ============= ============= ============= ============== ===========
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
3
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
September 30, September 30,
1999 1998
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $374 $2,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 180 180
Provision for losses on other real estate owned - 10
Charitable contribution in the form of equity securities 4,444 102
Net amortization (accretion) of investments 30 (10)
Depreciation and amortization 561 487
Employee stock ownership plan expense 267 -
Deferred taxes (1,511) -
Gain on sales and disposition of securities, net (1,187) (1,182)
Gain on sales of loans, net - (290)
Gain on sale of other real estate owned - (5)
Changes in operating assets and liabilities:
Accrued interest receivable (530) (158)
Accrued expenses and other liabilities (351) 367
Other, net 237 709
--------------- ------------------
Net cash provided by operating activities 2,514 2,671
--------------- ------------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 8,312 7,156
Purchase of securities available for sale (71,213) (13,696)
Proceeds from maturities of securities available for sale 684 587
Principal payments on mortgage-backed investments 10,618 7,383
Purchase of Federal Home Loan Bank stock (949) (551)
Loans originated, net of loan payments received (13,899) (26,110)
Purchases of banking premises and equipment (1,231) (1,970)
Proceeds from sales of foreclosed real estate 87 53
Loan to fund employee stock ownership plan (4,609) -
--------------- ------------------
Net cash used in investing activities (72,200) (27,148)
--------------- ------------------
Cash flows from financing activities:
Net (decrease) increase in deposits (3,237) 10,872
Net increase in borrowings 19,274 14,092
Net increase in escrow 781 521
Net proceeds from initial public offering 53,486 -
--------------- ------------------
Net cash provided by financing activities 70,304 25,485
--------------- ------------------
Net increase in cash & cash equivalents 618 1,008
Cash & cash equivalents at beginning of period 11,978 11,686
--------------- ------------------
Cash & cash equivalents at end of period $12,596 $12,694
=============== ==================
Suplemental cash flow information:
Interest paid on deposits $6,987 $7,788
Interest paid on borrowings 3,399 2,129
Income taxes paid 1,574 1,055
Transfers from loans to other real estate owned 58 22
Securitization of loans to mortgage-backed securities - 19,068
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
4
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
(Dollars in thousands except per share amounts)
1. Consolidated Financial Statements
The Consolidated Financial Statements of Woronoco Bancorp, Inc. and its
subsidiaries (the "Company") included herein are unaudited, and in the opinion
of management all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial condition, results of
operations and cash flows, as of and for the periods covered herein, have been
made. Certain information and note disclosures normally included in the
Consolidated Financial Statements have been omitted as they are included in the
most recent Securities and Exchange Commission ("SEC") Form 10-K and
accompanying Notes to the Financial Statements (the "Form 10-K") filed by the
Company for the year ended December 31, 1998. Management believes that the
disclosures contained herein are adequate to make a fair presentation.
These unaudited consolidated financial statements should be read in conjunction
with the Form 10-K.
The results for the three and nine month interim periods covered hereby are not
necessarily indicative of the operating results for a full year.
2. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal years beginning
after June 15, 1999. Subsequently, in June 1999, the FASB issued SFAS No. 137
which delays the effective date of SFAS No. 133 until fiscal quarters beginning
after June 15, 2000. This Statement standardizes the accounting for derivative
instruments, including derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
balance sheet and measure them at fair value. In specific circumstances, an
entity may elect to designate a derivative as follows: (1) a hedge of the
exposure to changes in the fair market value of a recognized asset or liability,
or of an unrecognized firm commitment that is attributable to a particular risk;
(2) a hedge of the exposure to variability in the cash flows of a recognized
asset or liability, or of a forecasted transaction, that are attributable to a
particular risk; or (3) a hedge of the foreign currency exposure of an
unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation. This Statement
generally provides for matching the timing of a gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or the
earnings effect of the hedged forecasted transaction. The Company will adopt the
requirements of this Statement during the year ended December 31, 2000, and it
is not expected to have a material impact on the Company.
3. Earnings Per Share
Basic earnings per share represents net income divided by the weighted-average
number of common shares outstanding during the period. Diluted earnings per
share reflects additional common shares that would have been outstanding if
potential dilutive shares, such as stock options or restricted stock, had been
issued. At September 30, 1999, the Company had no outstanding dilutive
securities. Earnings per share data is not presented in these financial
statements for the nine months ended September 30, 1999 and the three and nine
months ended September 30, 1998 since shares of common stock were not issued
until March 19, 1999.
5
<PAGE>
The following table sets forth the calculation of basic and diluted earnings per
share for the periods indicated (dollars in thousands except per share amounts).
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------------- -------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Net income $1,014 NA NA NA
Weighted average shares outstanding:
Weighted average shares outstanding 5,998,860 NA NA NA
Less: unearned ESOP shares (469,801) NA NA NA
-------------------
Basic 5,529,059 NA NA NA
Diluted 5,529,059 NA NA NA
Net income per share:
Basic $0.18 NA NA NA
Diluted $0.18 NA NA NA
</TABLE>
4. Dividends
On September 15, 1999, the Company declared a cash dividend of $0.0425 per share
payable on October 12, 1999 to shareholders of record as of the close of
business on September 27, 1999.
5. Loan commitments
Outstanding commitments for all loans totaled $6.6 million at September 30, 1999
compared to $10.0 million at December 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
--------------
The following analysis discusses changes in the financial condition and results
of operations at and for the three and nine months ended September 30, 1999 and
1998, and should be read in conjunction with the Company's Unaudited
Consolidated Financial Statements and the notes thereto, appearing in Part I,
Item 1 of this document.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
6
<PAGE>
inherently uncertain. Factors which could have a material adverse effect on the
operations of the Company include, but are not limited to, changes in: interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Company's market area and accounting
principles and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Examples of these assumptions may be found in the discussion of
Management Strategy, Classified Assets, Non-performing Assets and Impaired
Loans, Allowance for Loan Losses, Liquidity and Capital Resources, Regulatory
Capital and Year 2000 Compliance. Further information concerning the Company
and its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's other filings with the
SEC.
The Company does not undertake - and specifically disclaims any obligation - to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
General
The Company was incorporated in October 1998 under Delaware law. On March 19,
1999, the Company acquired Woronoco Savings Bank (the "Bank") as part of the
Bank's conversion from a Massachusetts-chartered mutual savings bank to a
Massachusetts-chartered stock savings bank (the "Conversion"). The Company
acquired the Bank for 50% of the net proceeds from the Conversion. The Company
is currently a savings and loan holding company regulated by the Office of
Thrift Supervision ("OTS"). In connection with the Conversion, the Company
issued an aggregate of 5,998,860 shares of its common stock of which 5,554,500
shares were sold at a purchase price of $10 per share in a subscription offering
and 444,360 shares were issued to Woronoco Savings Charitable Foundation, a
charitable foundation established by the Company. The net proceeds resulting
from the offering totaled $53.5 million.
The Company does not transact any material business other than through the Bank.
The Bank's results of operations are dependent primarily on net interest income,
which is the difference between the interest income earned on the Bank's
interest-earning assets, such as loans and investments, and the interest expense
on its interest-bearing liabilities, such as deposits and borrowings. The Bank
also generates non-interest income such as gains on sales of securities and
loans, service charges and other fees. The Bank's non-interest expenses
primarily consist of employee compensation and benefits, occupancy and equipment
expense, marketing expenses, data processing, professional services and other
general and administrative expenses. The Bank's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.
Management Strategy
The Bank operates as a community-oriented savings bank, offering traditional
deposit and loan products to its customers. In recent years, the Bank's
strategy has been to maintain profitability while managing its capital position
and limiting its credit and interest rate risk exposure. To accomplish these
objectives, the Bank has sought to:
7
<PAGE>
. Emphasize providing superior service and competitive rates to increase
deposits, including commercial accounts
. Control credit risk by emphasizing the origination of single-family, owner-
occupied residential mortgage loans and consumer loans, consisting primarily
of home equity loans and lines of credit
. Invest funds in excess of loan demand primarily in mortgage-backed and
investment grade equity securities
. Control interest rate risk by selectively utilizing off-balance sheet
hedging transactions such as interest rate swaps, caps and floors
. Originate high quality, multi-family and commercial real estate and
commercial business loans which increase the yields earned on its overall
loan portfolio, without incurring unnecessary risk
. Expand its lending and deposit base through the establishment of full-
service banking offices
Beginning in 1994, the Bank began opening full-service banking offices in
supermarket/grocery stores operated by the regionally based Big Y Foods, Inc.
Since 1994, the Bank has established four such banking offices. The Bank will
continue to seek attractive opportunities to expand its branching activities
through supermarket facilities as such opportunities arise.
Management intends to continue these operating strategies in an effort to
enhance the Company's long-term profitability while maintaining a reasonable
level of interest rate risk. Management also intends to enhance the Company's
current operating strategy by expanding the products and services that it
offers, as necessary, to improve its market share in its primary market area.
In this regard, the Company has begun to offer new consumer and commercial
deposit products and customer improvement services, and it intends to expand its
trust services and invest in technological enhancements. In addition, and
consistent with its plan to increase its loan portfolio, the Company has hired
two loan originators and an additional credit analyst, and it intends to hire an
additional commercial loan officer. Finally, management will continue to
evaluate various alternatives to increase the Company's market share and expand
its core businesses.
Comparison of Financial Condition at September 30, 1999 and December 31, 1998
Total assets increased by $66.4 million, or 15.6%, to $493.3 million at
September 30, 1999, from $426.8 million at December 31, 1998 due primarily to
growth in securities available for sale and net loans and to a lesser extent to
net deferred tax assets. Securities available for sale increased $46.8 million,
or 42.0%, to $158.2 million at September 30, 1999 from $111.4 million at
December 31, 1998 reflecting the purchase of $49.7 million of mortgage-backed
securities. Net loans increased $13.7 million, or 4.8%, to $297.7 million at
September 30, 1999 from $284.0 million at December 31, 1998 primarily as a
result of net new originations of one- to four-family residential real estate
loans. Total stockholders' equity increased $50.0 million to $85.7 million at
September 30, 1999 from $35.8 million at December 31, 1998 reflecting the $53.5
million of proceeds retained in the Conversion. These proceeds and additional
Federal Home Loan Bank borrowings were used to fund the Company's growth in
assets.
8
<PAGE>
Investments
At September 30, 1999, the Company's securities portfolio totaled $158.2
million, or 32.1% of assets, all of which was categorized as available-for-sale.
The following table sets forth at the dates indicated information regarding the
amortized cost and market values of the Company's investment securities.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------------------------- -------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- --------------------- --------------------- -------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Equity securities:
Preferred stock $ 3,831 $ 3,637 $ 3,754 $ 3,815
Trust preferred 9,901 9,276 - -
Common stock 19,071 19,372 15,438 17,436
Mutual funds 1,603 1,464 1,524 1,394
----------------- --------------------- --------------------- --------------------
Total equity securities 34,406 33,749 20,716 22,645
----------------- --------------------- --------------------- --------------------
Mortgage-backed and mortgage-related
securities:
Freddie Mac 23,860 23,629 5,459 5,546
Fannie Mae 55,694 55,232 31,955 32,435
Ginnie Mae 40,642 38,450 42,726 42,670
REMIC 6,862 7,146 7,833 8,113
----------------- --------------------- --------------------- --------------------
Total mortgage-backed securities 127,058 124,457 87,973 88,764
----------------- --------------------- --------------------- --------------------
Total securities (1) $ 161,464 $ 158,206 $ 108,689 $ 111,409
================= ===================== ===================== ====================
</TABLE>
(1) Does not include $6.6 million and $5.6 million of FHLB-Boston stock held at
September 30, 1999 and December 31, 1998, respectively.
9
<PAGE>
Lending Activities
At September 30, 1999, the Company's gross loan portfolio was $301.6 million, or
61.2%, of total assets. The following table sets forth the composition of the
Company's loan portfolio in dollar amounts and as a percentage of the respective
portfolio at the dates indicated.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
----------------------------------- ----------------------------------
Percent Percent
Amount of Total Amount of Total
---------------- ---------------- ---------------- ----------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Real estate loans
One- to four-family $168,646 55.92% $157,698 54.95%
Multi-family 24,215 8.03% 22,962 8.00%
Commercial 23,506 7.79% 20,595 7.18%
Construction and development 2,247 0.74% 3,464 1.21%
---------------- ---------------- ---------------- ----------------
Total real estate loans 218,614 72.48% 204,719 71.34%
---------------- ---------------- ---------------- ----------------
Consumer loans
Home equity loans 64,156 21.27% 64,705 22.55%
Automobile 9,408 3.12% 9,460 3.30%
Other 3,543 1.17% 3,454 1.20%
---------------- ---------------- ---------------- ----------------
Total consumer loans 77,107 25.56% 77,619 27.05%
---------------- ---------------- ---------------- ----------------
Commercial loans 5,920 1.96% 4,613 1.61%
---------------- ---------------- ----------------
Total loans 301,641 100.00% 286,951 100.00%
================ ================
Less:
Unadvanced loan funds (1) (2,141) (1,453)
Deferred loan origination costs 534 711
Allowance for loan losses (2,330) (2,166)
---------------- ----------------
Net loans $ 297,704 $ 284,043
================ ================
</TABLE>
(1) Includes committed but unadvanced loan amounts.
One- to four-family residential real estate loans increased $10.9 million during
the nine months ended September 30, 1999, reflecting new originations offset by
prepayments and amortization of the existing portfolio.
For the nine months ended September 30, 1999, multi-family real estate,
commercial real estate and commercial loans increased $1.3 million, $2.9 million
and $1.3 million, respectively, primarily due to new originations.
10
<PAGE>
Classified Assets
Federal and state regulations and the Company's internal policies require that
the Company utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Company currently classifies
problem and potential problem assets as "Substandard," "Doubtful" or "Loss". An
asset is considered Substandard if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected.
Assets classified as Doubtful have all of the weaknesses inherent in those
classified Substandard with the added characteristic that the weaknesses present
make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and improbable. Assets
classified as Loss are those considered uncollectible and of such little value
that there continuance as assets, without the establishment of a specific loss
reserve, is not warranted. Assets which do not currently expose the Company to a
sufficient degree of risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "Special
Mention."
When the Company classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for loan
losses in an amount deemed prudent by management. When the Company classifies
one or more assets, or portions thereof, as Loss, it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
assets so classified or to charge off the loan in full.
At September 30, 1999, the Company had $2.5 million, or 0.5%, of assets
designated as Substandard, consisting of twelve one- to four-family loans, two
commercial real estate loans, four multi-family loans, eleven home equity lines
of credit, eight consumer loans and four commercial business loans. At such
date, the Company had no loans classified as Doubtful or Loss. Also, at
September 30, 1999, the Company had $1.3 million or 0.3% of assets designated as
Special Mention, consisting of eleven one- to four-family real estate loans,
three commercial real estate loans, three multi-family real estate loan, two
home equity lines of credit and three commercial business loans. At September
30, 1999, all of these classified assets represented 1.3% of total loans.
At September 30, 1999, the Company had two loans, each with balances of $500
thousand or more, which had been adversely classified or identified as a problem
credit. The first, which is classified as substandard, was restructured in 1994
and is secured by a blanket first mortgage on ten multi-family properties
located in Westfield, Massachusetts. Currently, the borrower provides the
Company with monthly financial statements and the Company actively monitors the
properties' vacancy rates. The borrower is current with respect to payments. The
second loan, which was originally restructured in 1992 and, more recently in
December 1997, is classified as impaired. This loan is secured by an
office/retail building located in Wilbraham, Massachusetts. The borrower is
current with respect to payments. As of September 30, 1999, the aggregate
outstanding carrying balance of these loans was $1.4 million.
Non-performing Assets and Impaired Loans
The following table sets forth information regarding nonaccrual loans, real
estate owned and restructured loans. Interest on loans is recognized on a simple
interest basis and is generally not accrued on loans which are identified as
impaired or loans which are ninety days or more past due. Interest income
previously accrued on such loans is reversed against current period interest
income. Interest income on all nonaccrual loans is recognized only to the extent
of interest payments received. If interest payments on all nonaccrual loans for
the nine months ended September 30, 1999 and 1998 had been made in accordance
with original loan agreements, interest income of $6 thousand and $14 thousand
respectively, would have been recognized.
11
<PAGE>
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118. At September 30, 1999, the Company had a $1.2
million recorded investment in impaired loans which had specific allowances of
$285 thousand. At December 31, 1998, there were $1.2 million of impaired loans
with specific loan loss allowances of $283 thousand.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
Real estate:
One- to four- family $ 49 $ 167
Commercial - 109
Home equity loans and lines of credit 139 30
Commercial - -
--------------- ----------------
Total 188 306
Real estate owned, net (1) 212 241
--------------- ----------------
Total non-performing assets 400 547
Troubled debt restructurings 750 773
--------------- ----------------
Troubled debt restructurings and
total non-performing assets $ 1,150 $ 1,320
=============== ================
Total non-performing loans and
troubled debt restructurings as a
percentage of total loans (2) (3) 0.31% 0.38%
Total non-performing assets and
troubled debt restructurings as a
percentage of total assets (3) 0.23% 0.31%
</TABLE>
(1) Real estate owned balances are shown net of related allowances.
(2) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
(3) Non-performing assets consist of non-performing loans and REO. Non-
performing loans consist of nonaccruing loans and all loans 90 days or more
past due and other loans which have been identified by the Company as
presenting uncertainty with respect to the collectibility of interest or
principal.
12
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions for loan losses
based on management's on-going evaluation of the risks inherent in the Company's
loan portfolio, consideration of the trends in the Company's loan portfolio,
national and regional economies and the real estate market in the Company's
primary lending area. The allowance for loan losses is maintained at an amount
management considers adequate to cover losses in the Company's loan portfolio
which are deemed probable and estimable based on information currently known to
management. The Company's loan loss allowance determinations also incorporate
factors and analyses which consider the potential principal loss associated with
the loan, costs of acquiring the property securing the loan through foreclosure
or deed in lieu thereof, the periods of time involved with the acquisition and
sale of such property, and costs and expenses associated with maintaining and
holding the property until sale.
Management calculates a loan loss allowance sufficiency analysis on a monthly
basis based upon the loan portfolio composition, asset classifications, loan-to-
value ratios, potential impairments in the loan portfolio and other factors. The
analysis is compared to actual losses, peer group comparisons and economic
conditions. Management believes that, based on information available at
September 30, 1999, the Company's allowance for loan losses was sufficient to
cover losses inherent in the Company's loan portfolio at that time. Based upon
the Company's plan to increase its emphasis on non-one- to four-family mortgage
lending, the Company may further increase its allowance for loan losses over
future periods as conditions dictate. However, no assurances can be given that
the Company's level of allowance for loan losses will be sufficient to cover
future loan losses incurred by the Company or that further future adjustments to
the allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used by
management to determine the current level of the allowance for loan losses. In
addition, the Federal Deposit Insurance Corporation ("FDIC") and the
Commissioner of Banks for the Commonwealth of Massachusetts ("Commissioner"), as
an integral part of their examination processes, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
make additional provisions for estimated loan losses based upon judgments
different from those of management.
13
<PAGE>
The following table sets forth activity in the allowance for loan losses for the
periods set forth in the table.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1999 1998
----------- ------------
(Dollars in Thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period $2,166 $1,952
Charged-off loans:
Real estate 7 -
Consumer 43 71
----------- ------------
Total charged-off loans 50 71
Recoveries on loans previously charged-off:
Real estate 9 3
Consumer 25 26
----------- ------------
Total recoveries 34 29
----------- ------------
Net loans charged off 16 42
Provision for loan losses 180 180
----------- ------------
Allowance for loan losses, end of period $2,330 $2,090
=========== ============
Net loans charged-off to average
interest-earning loans 0.01% 0.02%
Allowance for loan losses to total loans (1) 0.78% 0.77%
Allowance for loan losses to non-performing
loans and troubled debt restructurings (2) 248.40% 192.45%
Net loans charged-off to allowance for loan losses 0.92% 2.68%
Recoveries to charge-offs 68.00% 40.85%
</TABLE>
(1) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
(2) Non-performing loans and troubled debt restructurings consist of all loans
90 days or more past due and other loans which have been identified by the
Bank as presenting uncertainty with respect to the collectibility of
interest or principal.
14
<PAGE>
The following table sets forth the percent of allowance for loan losses to total
allowances and the percent of loans to total loans in each of the categories
listed at the dates indicated. Management believes that the allowance can be
allocated by category only on an approximate basis. These allocations are not
necessarily indicative of future losses and do not restrict the use of the
allowance to absorb losses in any other loan category.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------------------- -----------------------------------
Percent of Percent Percent of Percent
Allowance of Loans Allowance of Loans
in each in each in each in each
Category Category Category Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
---------- ---------------------- ---------- -----------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans $1,545 66.31% 72.48% $1,543 71.24% 71.34%
Consumer loans 687 29.48% 25.56% 525 24.24% 27.05%
Commercial loans 98 4.21% 1.96% 98 4.52% 1.61%
---------- ---------- ---------- ---------- ---------- ----------
Total allowance for loan losses $2,330 100.00% 100.00% $2,166 100.00% 100.00%
========== ========== ========== ========== ========== ==========
Deposits
The following table sets forth the distribution of deposit accounts for the
periods indicated.
<CAPTION>
September 30, 1999 December 31, 1998
----------------------------- -----------------------------
Percent Percent
of Total of Total
Balance Deposits Balance Deposits
-------------- ------------- -------------- -------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Demand deposits $11,959 4.40% $10,382 3.77%
Savings accounts 67,444 24.81% 66,774 24.28%
Money market accounts 31,417 11.56% 27,176 9.88%
NOW accounts 34,453 12.68% 32,305 11.75%
Certificates of deposit 126,531 46.55% 138,404 50.32%
-------------- ------------- -------------- -------------
Total deposits $ 271,804 100.00% $ 275,041 100.00%
============== ============= ============== =============
</TABLE>
The Company's core deposits, consisting of demand, savings, money market and NOW
accounts, increased $8.6 million, or 6.3%, reflecting the active promotion of
these products as well as increased deposits due to the opening of full service
banking offices.
Certificates of deposit balances declined $11.9 million, or 8.6%, primarily due
to the maturing of previously offered "specials" that the Company did not
actively seek to retain.
15
<PAGE>
Comparison of Operating Results for the Three Months Ended September 30, 1999
and 1998
General
The Company reported net income of $1.0 million for the three months ended
September 30, 1999 compared to net income of $728 thousand for the same period
in 1998. This increase of $286 thousand, or 39.3%, was primarily due to higher
interest and dividend income on investment securities, offset by higher other
expenses, mainly salaries and employee benefits.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
The following table sets forth, for the periods indicated, average balances,
interest income and expense, and yields earned or rates paid on the major
categories of assets and liabilities. The average yields and costs are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs. Average balances are derived from average daily
balances. The yields and costs include fees which are considered adjustments to
yields. Loan interest and yield data does not include any accrued interest from
nonaccruing loans.
16
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-----------------------------------------------------------------------------
1999 1998
---------------------------------------- --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- ------------ -------- ---------- ---------- ------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (1)
Investments:
Mortgage-backed securities $ 96,407 $ 1,609 6.68% $ 41,772 $ 684 6.55%
Equity securities 34,823 420 4.82% 20,333 185 3.64%
FHLB stock 5,742 99 6.90% 2,984 47 6.30%
Loans: (2)
Residential real estate loans 188,175 3,405 7.24% 166,820 3,131 7.51%
Commercial real estate loans 24,558 566 9.22% 22,676 547 9.65%
Consumer loans 76,051 1,426 7.44% 78,509 1,524 7.70%
Commercial loans 6,185 116 7.34% 5,824 110 7.39%
------------- ----------- ----------- ---------
Loans, net 294,969 5,513 7.46% 273,829 5,312 7.74%
Other 1,815 16 3.45% 2,254 17 2.95%
------------- ----------- ----------- ---------
Total interest-earning assets 433,756 7,657 7.05% 341,172 6,245 7.30%
----------- ---------
Noninterest-earning assets 29,917 22,574
------------- -----------
Total assets $ 463,673 $ 363,746
============= ===========
Interest-bearing liabilities:
Deposits:
Money market accounts $ 30,303 $ 237 3.10% $ 24,530 $ 215 3.48%
Savings accounts (3) 69,775 342 1.94% 67,278 374 2.21%
NOW accounts 34,366 68 0.79% 27,996 74 1.05%
Certificates of deposit 128,548 1,612 4.98% 140,346 1,963 5.55%
------------- ----------- ----------- ---------
Total interest-bearing deposits 262,992 2,259 3.41% 260,150 2,626 4.00%
Borrowings 98,455 1,292 5.13% 56,292 782 5.44%
------------- ----------- ----------- ---------
Total interest-bearing liabilities 361,447 3,551 3.88% 316,442 3,408 4.26%
----------- ------------ --------- ----------
Demand deposits 12,225 10,511
Other noninterest-bearing liabilities 3,123 1,878
------------- -----------
Total liabilities 376,795 328,831
Total stockholders' equity 86,878 34,915
------------- -----------
Total liabilities and stockholders'
equity $ 463,673 $ 363,746
============= ===========
Net interest-earning assets $ 72,309 $ 24,730
============= ===========
Net interest income/interest
rate spread (4) $ 4,106 3.17% $ 2,837 3.04%
=========== ============ ========= ==========
Net interest margin as a percentage
of interest-earning assets (5) 3.79% 3.33%
============ ==========
Ratio of interest earning assets
to interest-bearing liabilities 120.01% 107.82%
============ ==========
</TABLE>
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan origination fees, unadvanced loan funds,
allowance for loan losses and includes nonaccrual loans. The Company
records interest income on nonaccruing loans on a cash basis.
(3) Savings accounts include mortgagors' escrow deposits.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
17
<PAGE>
Net interest income totaled $4.1 million for the three months ended September
30, 1999 compared to $2.8 million for the same period in 1998, representing an
increase of $1.3 million, or 44.7%. This increase was primarily due to a $92.6
million increase in average interest-earning assets and a 46 basis points
increase in the net interest margin. This significant increase in the net
interest margin primarily reflects the use of conversion proceeds to fund a
portion of the Company's asset growth.
Interest and dividend income increased $1.4 million, or 22.6%, to $7.7 million
for the three months ended September 30, 1999. This increase was attributable to
higher levels of interest-earning assets offset by lower yields on interest-
earning assets. Interest-earning assets totaled $433.8 million for the quarter
ended September 30, 1999 compared to $341.2 million for the same period last
year, an increase of $92.6 million, or 27.1%. Average investments increased
$69.1 million, or 111.3%, resulting from the use of conversion proceeds and
additional borrowings to fund the purchase of mortgage-backed and equity
securities, as well as the securitization of $19.1 million of fixed rate one-to
four-family residential mortgage loans in the third quarter of 1998. Average
loans increased $21.1 million, or 7.7%, primarily due to new originations of
residential real estate loans, offset by amortization and prepayments of the
existing loan portfolio and the loan securitization. Yields on interest-earning
assets declined 25 basis points due to a lower interest rate environment, the
refinancing of existing loans, and an increase in lower yielding mortgage-backed
securities balances.
Total interest expense increased $143 thousand, or 4.2%, to $3.6 million for the
three months ended September 30, 1999 resulting primarily from an increase in
borrowings, offset by lower rates paid on interest-bearing liabilities. The
average balance of interest-bearing liabilities was $361.4 million for the
quarter ended September 30, 1999 as compared to $316.4 million for the same
period last year, reflecting an increase of $45.0 million, or 14.2%. This
increase was primarily due to an increase of $42.2 million, or 74.9%, in average
borrowings resulting from management's decision to increase its utilization of
borrowings to fund asset growth. The growth in average interest-bearing
liabilities was also due to an increase of $14.6 million, or 12.2%, in money
market, savings and NOW account deposits as a result of the Company's active
promotion of these products, partially offset by lower certificate of deposit
balances reflecting the maturity of specially priced certificates of deposits
which the Bank did not seek to retain. Rates paid on interest-bearing
liabilities declined 38 basis points reflecting a lower interest rate
environment and the maturing of previously offered, specially priced
certificates of deposits.
18
<PAGE>
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 compared to 1998
-----------------------------------------------
Increase (Decrease)
Due to
-----------------------------------------------
Volume Rate Net
-------------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage-backed securities $ 912 $ 13 $ 925
Equity securities 174 61 235
FHLB stock 48 4 52
Loans:
Residential real estate loans 386 (112) 274
Commercial real estate loans 43 (24) 19
Consumer loans (46) (52) (98)
Commercial loans 7 (1) 6
-------------- ------------- --------------
Total loans 390 (189) 201
Other (12) 11 (1)
-------------- ------------- --------------
Total interest-earning assets $ 1,512 $ (100) $ 1,412
-------------- ------------- --------------
Interest-bearing liabilities:
Deposits:
Money market accounts $ 45 $ (23) $ 22
Savings accounts (1) 12 (44) (32)
NOW accounts 13 (19) (6)
Certificates of deposit (148) (203) (351)
-------------- ------------- --------------
Total deposits (78) (289) (367)
Borrowings 526 (16) 510
-------------- ------------- --------------
Total interest-bearing liabilities 448 (305) 143
-------------- ------------- --------------
Increase in net interest income $ 1,064 $ 205 $ 1,269
============== ============= ==============
</TABLE>
(1) Includes interest on mortgagors' escrow deposits.
19
<PAGE>
Provision for Loan Losses
The Company's provision for loan losses amounted to $60 thousand for each of the
quarters ended September 30, 1999 and 1998. The allowance for loan losses is
maintained through provisions for loan losses based on management's on-going
evaluation of the risks inherent in the Company's loan portfolio, consideration
of the trends in the Company's loan portfolio, national and regional economies
and the real estate market in the Company's primary lending area. The allowance
for loan losses is maintained at an amount management considers adequate to
cover losses in its loan portfolio which are deemed probable and estimable based
on information currently known to management.
Other Income
Total other income increased $103 thousand, or 12.3%, to $938 thousand for the
quarter ended September 30, 1999 from $835 thousand in the 1998 period primarily
as a result of increases in fee income and gain on sales of securities, offset
by a decrease in gain on sale of loans. Fee income increased $51 thousand, or
12.8%, for the three months ended September 30, 1999 due to an increase in fees
associated with the Company's larger deposit base as well as higher servicing
income resulting from the securitization of residential loans. The gain on sale
of loans resulted from the securitization of $19.1 million of residential
mortgages in the third quarter of 1998.
Other Expenses
Total other expenses increased $860 thousand, or 34.9%, to $3.3 million for the
quarter ended September 30, 1999 compared to $2.5 million for the same period in
1998. Salaries and benefits increased $337 thousand, or 25.8%, reflecting
expense related to the Company's employee stock ownership plan ("ESOP"),
standard wage increases and additional staff required to support the Bank's
expanded branch network and the growth of the Bank. Occupancy and equipment
expenses increased $89 thousand, or 24.5%, resulting from the opening of a new,
full service banking office as well as the expansion and renovation of the
Bank's headquarters. Marketing expenses increased $140 thousand, or 186.7%, due
to increased promotional activities. Professional expenses increased $117
thousand, or 89.3%, as a result of increased expenses related to the Company's
annual meeting and the additional requirements of being a public company.
20
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998
General
The Company reported net income of $374 thousand for the nine months ended
September 30, 1999 compared to $2.5 million for the same period in 1998. The
results for the first nine months of 1999 were affected by the Company's
contribution of $4.4 million to fund the Woronoco Savings Charitable Foundation
in connection with the Bank's conversion to stock form and the related tax
effect of $1.5 million. Excluding these items, the Company would have earned
$3.3 million for the nine months ended September 30, 1999 representing an
increase of $846 thousand, or 34.4%, from the same period last year. This
increase was primarily due to an increase in interest and dividend income on
investment securities, offset by higher interest expense on borrowings and other
expenses, mainly salaries and benefits, occupancy and equipment, marketing and
professional services expenses.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
The following table sets forth, for the periods indicated, average balances,
interest income and expense, and yields earned or rates paid on the major
categories of assets and liabilities. The average yields and costs are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs. Average balances are derived from average daily
balances. The yields and costs include fees which are considered adjustments to
yields. Loan interest and yield data does not include any accrued interest from
nonaccruing loans.
21
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ---------- ------------- ----------- ---------- -------------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (1)
Investments:
Mortgage-backed securities $ 88,541 $ 4,407 6.64% $ 39,224 $ 1,954 6.64%
Equity securities 26,892 894 4.43% 19,010 525 3.68%
FHLB stock 5,727 244 5.68% 2,844 130 6.09%
Loans: (2)
Residential real estate loans 185,378 10,149 7.30% 166,624 9,636 7.71%
Commercial real estate loans 22,921 1,549 9.01% 20,882 1,542 9.85%
Consumer loans 76,272 4,228 7.41% 77,702 4,359 7.50%
Commercial loans 6,544 367 7.40% 5,721 324 7.47%
----------- ---------- ---------- ----------
Loans, net 291,115 16,293 7.47% 270,929 15,861 7.81%
Other 11,120 363 4.30% 3,938 126 4.22%
----------- ---------- ---------- ----------
Total interest-earning assets 423,395 22,201 6.99% 335,945 18,596 7.38%
---------- ----------
Noninterest-earning assets 28,349 19,694
----------- ----------
Total assets $ 451,744 $ 355,639
=========== ==========
Interest-bearing liabilities:
Deposits:
Money market accounts $ 28,814 $ 662 3.07% $ 23,651 $ 610 3.45%
Savings accounts (3) 79,879 1,022 1.71% 66,506 1,128 2.27%
NOW accounts 33,070 233 0.94% 27,381 215 1.05%
Certificates of deposit 133,604 5,071 5.07% 140,059 5,836 5.57%
----------- ---------- ---------- ----------
Total interest-bearing deposits 275,367 6,988 3.39% 257,597 7,789 4.04%
Borrowings 90,339 3,478 5.08% 52,512 2,194 5.51%
----------- ---------- ---------- ----------
Total interest-bearing liabilities 365,706 10,466 3.81% 310,109 9,983 4.29%
---------- -------- ---------- ---------
Demand deposits 10,084 9,902
Other noninterest-bearing liabilities 3,138 898
----------- ----------
Total liabilities 378,928 320,909
Total stockholders' equity 72,816 34,730
----------- ----------
Total liabilities and stockholders'
equity $ 451,744 $ 355,639
=========== ==========
Net interest-earning assets $ 57,689 $ 25,836
=========== ==========
Net interest income/interest
rate spread (4) $11,735 3.18% $ 8,613 3.09%
======== ======== ========== =========
Net interest margin as a percentage
of interest-earning assets (5) 3.70% 3.42%
======== =========
Ratio of interest earning assets
to interest-bearing liabilities 115.77% 108.33%
======== =========
</TABLE>
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan origination fees, unadvanced loan funds,
allowance for loan losses and includes nonaccrual loans. The Company
records interest income on nonaccruing loans on a cash basis.
(3) Savings accounts include mortgagors' escrow deposits.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
22
<PAGE>
Net interest income totaled $11.7 million for the nine months ended September
30, 1999 compared to $8.6 million for the same period in 1998, representing an
increase of $3.1 million, or 36.2%. This increase was primarily due to a $87.5
million increase in average interest-earning assets and a 28 basis points
increase in the net interest margin. This increase in the net interest margin
primarily reflects the use of conversion proceeds to fund a portion of the
Company's asset growth.
Interest and dividend income increased $3.6 million, or 19.4%, to $22.2 million
for the nine months ended September 30, 1999. This increase was attributable to
higher levels of interest-earning assets offset by lower yields on interest-
earning assets. Interest-earning assets totaled $423.4 million for the nine
months ended September 30, 1999 compared to $335.9 million for the same period
last year, an increase of $87.5 million, or 26.0%. Average investments increased
$57.2 million, or 98.2%, as the Company utilized borrowings and conversion
proceeds to purchase mortgage-backed securities and equity securities. The
growth in average investments also reflects the securitization of $19.1 million
of fixed rate one-to four-family residential mortgage loans in the third quarter
of 1998. Average loans increased $20.2 million, or 7.5%, primarily due to new
originations of residential real estate loans, offset by amortization and
prepayments of the existing loan portfolio and the loan securitization. Other
interest-earning assets increased $7.2 million as a result of higher federal
funds sold. This increase in federal funds sold reflects the receipt of
subscriptions from potential investors as part of the Conversion. Yields on
interest-earning assets declined 39 basis points due to a lower interest rate
environment, the refinancing of existing loans and increases in lower yielding
mortgage-backed securities and federal funds sold balances.
Total interest expense increased $483 thousand, or 4.8%, to $10.5 million for
the nine months ended September 30, 1999 resulting from an increase in interest-
bearing liabilities offset by lower rates paid on such liabilities. Total
interest-bearing liabilities increased $55.6 million, or 17.9%, to $365.7
million for the nine months ended September 30, 1999 compared to $310.1 million
for the same period last year, reflecting growth in borrowings and interest-
bearing deposits. Average borrowings increased $37.8 million, or 72.0%,
resulting from management's decision to increase its utilization of borrowings
to fund a portion of the Company's asset growth. Average interest-bearing
deposits increased $17.8 million, or 6.9%, due to higher money market, savings
and NOW account deposits as a result of the Company's active promotion of these
products and the receipt of subscription proceeds from potential investors as
part of the Conversion. This increase was partially offset by lower certificate
of deposit balances reflecting the maturity of specially priced certificates of
deposits which the Bank did not seek to retain. Rates paid on interest-bearing
liabilities declined 48 basis points reflecting a lower interest rate
environment as well as the effect of the subscription receipts.
23
<PAGE>
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 compared to 1998
-----------------------------------------------
Increase (Decrease)
Due to
-----------------------------------------------
Volume Rate Net
-------------- -------------- --------------
<S> <C> <C> <C>
Interest-earning assets:
Mortgage-backed securities $ 2,455 $ (2) $ 2,453
Equity securities 262 107 369
FHLB stock 123 (9) 114
Loans:
Residential real estate loans 1,026 (513) 513
Commercial real estate loans 138 (131) 7
Consumer loans (79) (52) (131)
Commercial loans 46 (3) 43
-------------- -------------- --------------
Total loans 1,131 (699) 432
Other 234 3 237
-------------- -------------- --------------
Total interest-earning assets $ 4,205 $ (600) $ 3,605
-------------- -------------- --------------
Interest-bearing liabilities:
Deposits:
Money market accounts $ 119 $ (67) $ 52
Savings accounts (1) 171 (277) (106)
NOW accounts 40 (22) 18
Certificates of deposit (245) (520) (765)
-------------- -------------- --------------
Total deposits 85 (886) (801)
Borrowings 1,353 (69) 1,284
-------------- -------------- --------------
Total interest-bearing liabilities 1,438 (955) 483
-------------- -------------- --------------
Increase in net interest income $ 2,767 $ 355 $ 3,122
============== ============== ==============
</TABLE>
(1) Includes interest on mortgagors' escrow deposits.
24
<PAGE>
Provision for Loan Losses
The Company's provision for loan losses totaled $180 thousand for each of the
nine months ended September 30, 1999 and 1998. The allowance for loan losses is
maintained through provisions for loan losses based on management's on-going
evaluation of the risks inherent in the Company's loan portfolio, consideration
of the trends in the Company's loan portfolio, national and regional economies
and the real estate market in the Company's primary lending area. The allowance
for loan losses is maintained at an amount management considers adequate to
cover losses in its loan portfolio which are deemed probable and estimable based
on information currently known to management.
Other Income
Total other income was $2.8 million for the nine month periods ended September
30, 1999 and 1998 reflecting higher fee income offset by lower gain on sales of
loans. Fee income increased $208 thousand, or 17.9%, for the nine months ended
September 30, 1999 due to an increase in fees associated with the Company's
larger deposit base as well as higher servicing income resulting from the
securitization of $19.1 million of residential loans in the third quarter of
1998. The gain on sale of loans in 1998 resulted from the securitization of
residential mortgages. The Company sold no loans in the nine months ended
September 30, 1999.
Other Expenses
Other expenses totaled $13.7 million for the nine months ended September 30,
1999 compared to $7.5 million for the 1998 period. Excluding the $4.4 million
contribution to establish the Woronoco Savings Charitable Foundation, other
expenses for the nine months ended September 30, 1999 increased $1.8 million, or
24.1%, from the comparable 1998 period. This increase was primarily due to ESOP
expense, the opening of a new, full service banking office, additional staff
required to support the Bank's expanded branch network, investor related
expenses and annual meeting expenses.
Liquidity and Capital Resources
Liquidity and funding strategies are the responsibility of the Asset/Liability
Management Committee (the "ALCO"). The ALCO is responsible for establishing
liquidity targets and implementing strategies to meet desired goals. Liquidity
is measured by the Company's ability to raise cash within 30 days at a
reasonable cost and with a minimum of loss. The Company's primary sources of
funds are deposits, principal and interest payments on loans and investment
securities and borrowings from the FHLB-Boston. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
outflows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The primary investing activities of the Company are the origination of
residential one-to four-family mortgage loans and consumer loans, primarily home
equity loans and lines of credit, and, to a lesser extent, multi-family and
commercial real estate loans, construction and development loans, commercial
business loans, other types of consumer loans and the investment in mortgage-
backed and equity securities. These activities are funded primarily by
principal and interest payments on loans and investment securities, deposit
growth and the utilization of FHLB advances. During the nine months ended
September 30, 1999, the Company's loan originations totaled $62.5 million. At
September 30, 1999, the Company's investments in mortgage-backed and equity
securities totaled $158.2 million. The Company experienced a net decrease in
total deposits of $3.2 million for the nine months ended September 30, 1999.
Deposit flows are affected by the overall level of interest rates, the interest
rates and products offered by the Company and its local competitors and other
factors. The Company closely monitors its liquidity position on a daily basis.
If the
25
<PAGE>
Company requires funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB advances. At September
30, 1999, the Company had $130.4 million of outstanding FHLB borrowings.
Although the Company's policies allow for the use of brokered deposits, the
Company does not currently solicit brokered deposits.
Additionally, in August 1998, the Company completed the securitization
(converting whole loans into mortgage-backed securities) of $19.1 million of 30
year fixed-rate one- to four-family mortgage loans with Fannie Mae. The loans
are serviced as mortgage-backed securities for Fannie Mae. In addition to
resulting in a decrease in loans receivable and a related increase in mortgage-
backed securities, the securitization provides a liquidity related benefit to
the Company in that it adds high quality collateral to the Company's balance
sheet which can be pledged for borrowings in the secondary market and designates
such loans as "available-for-sale" so that the Company could sell or
collateralize such securities.
Outstanding commitments for all loans totaled $6.6 million at September 30,
1999. Management of the Company anticipates that it will have sufficient funds
available to meet its current loan commitments. Certificates of deposit which
are scheduled to mature in one year or less from September 30, 1999 totaled
$113.1 million. The Company relies primarily on competitive rates, customer
service, and long-standing relationships with customers to retain deposits.
From time to time, the Company will also offer competitive special products to
its customers to increase retention and to attract new deposits. Based upon the
Company's experience with deposit retention and current retention strategies,
management believes that, although it is not possible to predict future terms
and conditions upon renewal, a significant portion of such deposits will remain
with the Company.
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined) to risk weighted assets (as
defined) and to average assets (as defined). As of September 30, 1999, the Bank
meets all adequacy requirements to which it is subject.
26
<PAGE>
As of September 30, 1999 and December 31, 1998, the most recent notification
from the FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the following table. There were no conditions or
events since that notification that management believes have changed the Bank's
category.
<TABLE>
<CAPTION>
Minimum
to be Well
Capitalized Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisons
-------------------- ---------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
--------- -------- ----------- -------- --------- --------
(Dollars in Thousands)
As of September 30, 1999
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets $ 59,950 19.4% $ 24,721 8.0% $ 30,901 10.0%
Tier 1 Capital to Risk Weighted Assets 57,620 12.4% 12,361 4.0% 23,160 5.0%
Tier 1 Capital to Average Assets 57,620 18.6% 13,896 - 3.0% - 18,541 6.0%
23,160 5.0%
As of December 31, 1998
- -----------------------
Total Capital to Risk Weighted Assets $ 36,226 13.9% $ 20,898 8.0% $ 26,122 10.0%
Tier 1 Capital to Risk Weighted Assets 34,060 13.0% 10,449 4.0% 15,673 6.0%
Tier 1 Capital to Average Assets 34,060 9.3% 10,929 - 3.0% - 18,215 5.0%
18,215 5.0%
</TABLE>
Year 2000 Compliance
The Company has now achieved the stated compliance objective of its Year 2000
Action Plan. In 1998, the Company implemented this plan to ensure that all
software and hardware used in connection with the Company's business would
manage and manipulate data involved in the transition from 1999 to 2000 without
functional or date abnormality and without inaccurate results related to such
data. A schedule of critical issues identified timelines and responsibilities
for achieving this objective. With the recent installation of Year 2000
compliant versions of its e-mail, voice mail, and safe deposit systems, all of
the Company's critical Year 2000 issues are now resolved.
In order to achieve total Year 2000 compliance, the Company also depends upon
critical vendors and suppliers, especially its third party data processing
center. Having recently completed testing of all critical vendor and supplier
applications, the Company has now verified the Year 2000 compliance of its
critical third party banking applications.
The Company has also identified and contacted commercial borrowers that may be
vulnerable to the Year 2000 date change and has also provided brochures to its
customers to make them aware of the Year 2000 issue. The Company has determined
that Year 2000 readiness issues have little or no impact on the Bank's one-to
four-family lending relationships. However, the Company views Year 2000
compliance as an integral part of the commercial loan credit analysis and
underwriting process. Therefore, and as warranted by the type and nature of a
particular loan request, the Company reviews and assesses the impact of Year
2000 on an applicant's business and any factors that may limit the applicant's
ability to repay the debt. Additionally, an assessment is made on the potential
effect that vendors, suppliers and customers, who fail to remediate
27
<PAGE>
Year 2000 risks, might have on the applicant's business. Based upon the results
of the review and analysis, a determination is then made as to whether or not it
is necessary to require the applicant to develop a formal program to address
Year 2000 issues and to report the progress of such a program to the Company. In
situations that warrant formal programs and monitoring, this requirement becomes
a condition of the terms for granting the loan. Additionally, the Company has
completed its efforts to contact and survey all of its existing commercial
borrowers with lending relationships having aggregate exposure exceeding
$500,000. The majority of credits represented by these relationships are
comprised of multi-family and commercial real estate loans. All 32 borrowers in
this category responded to a comprehensive questionnaire either in writing or
via telephone. Based upon the responses and analysis of the type of business
operations that each borrower conducts, the Company concluded that the effect of
Year 2000 issues on these credits does not pose a material risk to the Company.
The Company's operations may also be affected by the Year 2000 compliance of its
significant suppliers and other vendors that provide non-information and
technology systems. With respect to those parties, information has been gathered
to assess their Year 2000 compliance. Based on the responses received by the
Company, all of these other vendors and suppliers have now met our expectations
concerning their Year 2000 compliance progress.
The Company has also prepared a Year 2000 Contingency Plan for use in the
unlikely event of a Y2K related failure affecting any of its core business
processes. Various department managers have completed development of
appropriate test plans for all of the Company's core business processes. This
project is part of a general upgrade to the Company's Business Resumption Plan.
An overall test plan to validate the Company's Business Resumption capabilities
is in place. The testing which addresses Y2K contingencies also covers all of
the Company's critical processes as well as the manual procedures associated
with each critical process. The Company has established a Contingency Back-Up
Site and is conducting all Business Resumption Tests at that site. All test
results are formally documented by the Business Resumption Coordinator and by
the Company's Internal Auditor. To date, three successful tests of the plan
have been conducted and monthly tests will continue throughout the remainder of
1999.
The Company's most likely worst case scenario relates to a possible excess
amount of withdrawal requests created by depositor concerns over possible Year
2000 failures. Accordingly, the Company has implemented a customer awareness
program designed to keep customers well informed of the facts relating to Year
2000 and what the Company is doing to achieve Year 2000 compliance. Our goal is
to continually reassure customers concerning the safety of their deposits with
the Bank. Additionally, as part of its Year 2000 contingency planning efforts,
the Company has developed a Cash and Liquidity Plan. This plan is designed to
enable the Company to forecast and prepare for any unusual customer cash demands
associated with the Year 2000 date change.
The Company's total budget for expenditures relating to Year 2000 compliance is
$235,000. As of September 30, 1999, known expenditures of approximately
$191,000 relating to Year 2000 compliance have been identified for payment, with
$153,000 paid to date. Approximately 16% of the $235,000 Year 2000 budget was
utilized for remediation. To insure the reliability of the Company's Year 2000
risk and cost estimates, the Company follows the work program guidelines as
provided by the Federal Financial Institutions Examination Council. These are
the same guidelines used by federal examiners to determine the effectiveness of
the Year 2000 efforts by the banks they examine. The Company's Compliance
Officer monitors the Company's Year 2000 progress and the Company's Internal
Auditor performs regular audits of the Y2K Plan. In addition, the FDIC conducts
regular examinations of the Bank.
28
<PAGE>
Material costs, if any, that may arise from the failure of the Company's third
party data processing vendor or its other significant suppliers and vendors is
not currently determinable. While the Company has achieved its compliance
objectives as defined in its Year 2000 Action Plan, there can be no assurance
that potential systems interruptions or costs associated with same would not
have a materially adverse effect on the Company's business, financial condition,
results of operations, cash flows or business prospects. If the Company's
progress toward becoming Year 2000 compliant was ever deemed inadequate,
regulatory action would be undertaken.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no material changes in information regarding quantitative and
qualitative disclosure about market risk from the information presented as of
December 31, 1998 in the Company's Form 10-K.
29
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the financial condition and results of operations of the Company.
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.
---------------------------------------------------
a. An annual meeting of shareholders of the Company was held on October 6, 1999
("Annual Meeting").
b. Not applicable.
c. There were 5,998,860 shares of Common Stock of the Company eligible to be
voted at the Annual Meeting and 5,475,804 shares were represented at the
meeting by the holders thereof, which constituted a quorum. The items voted
upon at the Annual Meeting and the vote for each proposal were as follows:
1. Election of directors for a three-year term
Director Nominees Elected
For Three Year Term: For Withheld
------------------------ ----------- --------
Paul S. Allen 5,267,611 208,193
Joseph M. Houser, Jr. 5,257,206 218,598
Norman H. Storey 5,247,366 228,438
William G. Aiken 5,247,882 227,922
2. The approval of the Woronoco Bancorp, Inc. 1999 Stock-Based Incentive
Plan
For Against Abstain Non-Vote
--------- ------- ------- --------
3,437,463 576,009 35,954 1,426,378
3. The ratification of the appointment of Wolf & Company, P.C. as
independent auditors of Woronoco Bancorp, Inc. for the year ending
December 31, 1999.
For Against Abstain
--------- ------- -------
5,262,232 102,342 111,230
30
<PAGE>
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K ((S)249.308 of this Chapter).
-------------------------------------------------------------
(a) Exhibits
--------
2.1 Amended Plan of Conversion of Woronoco Savings Bank (1)
3.1 Certificate of Incorporation of Woronoco Bancorp, Inc. (1)
3.2 Amended Bylaws (2)
4.0 Stock Certificate of Woronoco Bancorp, Inc. (1)
10.1 Woronoco Bancorp, Inc. 1999 Stock Based Incentive Plan (3)
27.0 Financial Data Schedule
_____________________________
(1) Incorporated by reference from the Exhibits filed with the
Registration Statement on Form S-1, and any amendments
thereto, Registration No. 333-67255.
(2) Incorporated by reference to the Exhibits filed with the
Company's Form 10-Q on August 13, 1999.
(3) Incorporated by reference to the Proxy Statement for the 1999
Annual Meeting of Shareholders filed on August 23, 1999.
(b) Reports on Form 8-K
None
31
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WORONOCO BANCORP, INC.
Dated: November 12, 1999 By: /s/ Cornelius D. Mahoney
---------------------------------------
Cornelius D. Mahoney
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Dated: November 12, 1999 By: /s/ Debra L. Murphy
-------------------------------------
Debra L. Murphy
Senior Vice President and
Chief Financial Officer
(principal financial and accounting
officer)
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,578
<INT-BEARING-DEPOSITS> 1,018
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,803
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 297,704
<ALLOWANCE> (2,330)
<TOTAL-ASSETS> 493,254
<DEPOSITS> 271,804
<SHORT-TERM> 130,537
<LIABILITIES-OTHER> 5,179
<LONG-TERM> 0
0
0
<COMMON> 60
<OTHER-SE> 85,674
<TOTAL-LIABILITIES-AND-EQUITY> 493,254
<INTEREST-LOAN> 16,293
<INTEREST-INVEST> 5,545
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 22,201
<INTEREST-DEPOSIT> 6,988
<INTEREST-EXPENSE> 10,466
<INTEREST-INCOME-NET> 11,735
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 1,187
<EXPENSE-OTHER> 13,718
<INCOME-PRETAX> 593
<INCOME-PRE-EXTRAORDINARY> 593
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-BASIC> 000
<EPS-DILUTED> 000
<YIELD-ACTUAL> 6.99
<LOANS-NON> 188
<LOANS-PAST> 0
<LOANS-TROUBLED> 750
<LOANS-PROBLEM> 2,500
<ALLOWANCE-OPEN> 2,166
<CHARGE-OFFS> 50
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 2,330
<ALLOWANCE-DOMESTIC> 2,330
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
