May 14, 1997
Securities and Exchange Commission
450 5th Street
Washington, D. C. 20549
RE: CHITTENDEN CORPORATION QUARTERLY REPORT (ON FROM 10-Q)
REGISTRATION NO. 0-7974
To Whom It May Concern:
Pursuant to the requirements of Rule 13a-13 under the Securities Exchange Act of
1934, there is appended to this transmittal, an electronic file of the quarterly
report for the three months ended March 31, 1997 (on Form 10-Q) of Chittenden
Corporation, Two Burlington Square, Burlington, Vermont 05401.
If you have any questions concerning this quarterly report, please telephone the
undersigned at (802) 660-1410.
Kindly acknowledge receipt of this letter by Compuserve E-Mail.
Sincerely,
CHITTENDEN CORPORATION
S/F. SHELDON PRENTICE, SECRETARY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Three Months Ended March 31, 1997
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________to____________
Commission File Number 0-7974
CHITTENDEN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
VERMONT 03-0228404
(State of Incorporation) (IRS Employer Identification No.)
TWO BURLINGTON SQUARE
BURLINGTON, VERMONT 05401
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (802) 658-4000
NOT APPLICABLE
Former Name, Former Address and Formal Fiscal Year
If Changed Since Last Report
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
At March 31, 1997 there were 12,692,237 shares of the Corporations's $1.00 par
value common stock issued, with 12,152,863 shares outstanding.
CHITTENDEN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
1997 1996
---------------------------
ASSETS (In Thousands)
Cash and Cash Equivalents $147,958 $214,459
Securities Available For Sale 319,532 329,213
Securities Held for Investment (Market Value
$33,611,000 in 1997; and $35,405,000 in 1996) 33,893 35,580
Federal Home Loan Bank Stock 5,591 5,591
Mortgage Loans Held for Sale 5,417 9,870
Loans:
Commercial 328,930 321,068
Real Estate:
Residential 485,096 491,169
Commercial 305,718 304,530
Construction 26,552 25,084
--------------------------
Total Real Estate 817,366 820,783
Consumer 211,664 202,816
Total Loans 1,357,960 1,344,667
Less: Allowance for Possible Loan Losses (28,200) (28,096)
--------------------------
Net Loans 1,329,760 1,316,571
Accrued Interest Receivable 13,395 14,179
Other Real Estate Owned 2,297 2,251
Net Deferred Tax Asset 11,874 10,647
Other Assets 14,571 15,797
Premises and Equipment, Net 24,387 24,297
Intangible Assets 9,992 10,291
--------------------------
Total Assets $1,918,667 $1,988,746
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $279,837 $286,932
Certificates of Deposit $100,000 and Over 107,689 104,295
Savings and Other Time 1,286,815 1,370,352
--------------------------
Total Deposits 1,674,341 1,761,579
Short-Term Borrowings 44,133 23,992
Accrued Expenses and Other Liabilities 24,891 26,234
Long-Term Debt 2,554 2,540
--------------------------
Total Liabilities 1,745,919 1,814,345
--------------------------
Stockholders' Equity:
Common Stock - $1 Par Value
Authorized - 30,000,000 Shares
Issued - 12,692,237 Shares in 1997; and 12,678,625
in 1996 12,692 12,679
Surplus 74,900 74,706
Retained Earnings 96,467 92,040
Treasury Stock - At Cost, 539,374 Shares in 1997;
402,413 in 1996 (8,513) (4,770)
Net Unrealized Loss on Securities Available
for Sale,
Net of Benefit of $1,429,000 in 1997; and
$102,000 in 1996 (2,552) (208)
Unearned Portion of Employee Restricted Stock (246) (46)
--------------------------
Total Stockholders' Equity 172,748 174,401
--------------------------
Total Liabilities and Stockholders' Equity $1,918,667 $1,988,746
==========================
The accompanying notes are an integral part of these consolidated financial
statements.
Certain amounts for 1996 have been reclassified to conform with
1997 classifications.
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
1997 1996
--------------------------------
(In Thousands, Except Share Data)
Interest Income:
Interest on Loans $29,727 $29,087
Investment Securities:
Mortgage-Backed Securities 1,778 1,470
Taxable 4,005 3,188
Tax-Favored Debt 9 28
Tax-Favored Equity 205 437
Short-Term Investments 454 446
--------------------------------
Total Interest Income 36,178 34,656
--------------------------------
Interest Expense:
Deposits:
Savings 7,052 6,588
Time 6,617 7,481
--------------------------------
Total Interest on Deposits 13,669 14,069
Short-Term Borrowings 517 475
Long-Term Debt 50 48
--------------------------------
Total Interest Expense 14,236 14,592
--------------------------------
Net Interest Income 21,942 20,064
Provision for Possible Loan Losses 1,013 983
--------------------------------
Net Interest Income after Provision for
Possible Loan Losses 20,929 19,081
--------------------------------
Noninterest Income:
Trust Income 1,256 1,179
Service Charges on Deposit Accounts 1,596 1,485
Mortgage Servicing Income 564 626
Gains on Sales of Mortgage Loans, Net 405 779
Credit Card Income, Net 1,344 936
Other 1,246 1,127
--------------------------------
Total Noninterest Income 6,411 6,132
--------------------------------
Noninterest Expense:
Salaries 6,535 6,180
Employee Benefits 2,482 2,039
Net Occupancy Expense 2,414 2,359
FDIC Deposit Insurance 53 9
Other Real Estate Owned, Income and Expense, Net 56 68
Other 5,402 5,437
--------------------------------
Total Noninterest Expense 16,942 16,092
--------------------------------
Income Before Income Taxes 10,398 9,121
Provision for Income Taxes 3,514 3,108
--------------------------------
Net Income $6,884 $6,013
================================
Earnings Per Share $0.55 $0.49
Dividends Per Share $0.20 $0.11
Book Value Per Share $14.21 $13.00
Weighted Average Common and Common Equivalent
Shares Outstanding 12,512,491 12,361,082
The accompanying notes are an integral part of these consolidated financial
statements.
Certain amounts for 1996 have been reclassified to conform with
1997 classifications.
Chittenden Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For Three Months Ended March 31,
--------------------------------
1997 1996
--------------------------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,884 $6,013
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 1,013 983
Depreciation 861 751
Amortization of intangible assets 299 327
Amortization of premiums, fees, and discounts, net 1,738 604
Deferred income taxes 101 130
Loans originated and purchased for sale (29,523) (56,537)
Proceeds from sales of loans 34,381 54,923
Gain on sales of loans (405) (779)
Changes in assets and liabilities:
Accrued interest receivable 784 (985)
Other assets 1,262 72
Accrued expenses and other liabilities (1,285) (1,382)
--------- ----------
Net cash provided by operating activities 16,110 4,120
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale 35,055 -
Proceeds from maturing securities and principal
payments on securities available for sale 62,395 96,052
Purchase of securities available for sale (91,458) (109,668)
Proceeds from principal payments on securities
held for investment 1,857 1,255
Purchases of securities held for investment (189) (290)
Loans originated, net of principal repayments (15,962) (19,705)
Purchases of premises and equipment (951) (457)
--------- ----------
Net cash used in investing activities (9,253) (32,813)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (87,252) 19,815
Net increase (decrease) in short-term borrowings 20,141 (10,677)
Net increase in long-term debt 14 14
Proceeds from issuance of treasury and common stock 40 1,186
Dividends on common stock (2,457) (1,408)
Repurchase of common stock (3,844) -
--------- ---------
Net cash provided by (used in) financing
activities (73,358) 8,930
-------- ---------
Net decrease in cash and cash equivalents (66,501) (19,763)
Cash and cash equivalents at beginning of period 214,459 165,441
-------- ---------
Cash and cash equivalents at end of period $147,958 $145,678
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $14,384 $14,428
Income taxes 57 -
Noncash investing and financing activities:
Loans transferred to other real estate owned 991 1,135
Issuance of treasury and restricted stock 268 22
The accompanying notes are an integral part of these consolidated financial
statements.
Certain amounts for 1996 have been reclassified to conform with
1997 classifications.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE 1 - ACCOUNTING POLICIES
The Company's significant accounting policies, other than those described in
Note 2 below, are described in Note 1 of the Notes to Consolidated Financial
Statements included in its 1996 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. For interim reporting purposes, the Company
follows the same basic accounting policies and considers each interim period as
an integral part of an annual period. Certain amounts for 1996 have been
reclassified to conform with 1997 classifications.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
NOTE 2 - ACCOUNTING POLICY CHANGES - ADOPTION OF SFAS 125
As of January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENT OF LIABILITIES ("SFAS 125"), which superseded SFAS 122,
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. Under the financial-components
approach set forth in SFAS 125, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The Statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS 125 did not have a
significant impact on the Company s financial position, results of operations,
or accounting policies as previously promulgated by SFAS 122.
NOTE 3 NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ( SFAS 128 ), which
established new standards for calculating and presenting earnings per share.
The Company will adopt this new standard in its financial statements for the
period ended December 31, 1997. The standard will require the reporting of
diluted earnings per share and basic earnings per share. For the three months
ended March 31, 1997 and 1996, diluted earnings per share would have been $.55
and $.49, respectively. Basic earnings per share would have been $.56 and $.50,
respectively, for those same periods.
NOTE 4 - SUBSEQUENT EVENT
On April 16, 1997, the Company declared dividends of approximately $2.665
million or $0.22 per share. This dividend is to be paid on May 16, 1997 to
stockholders of record on May 2, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Three Months Ended March 31,
1997
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate(1)
---------------------------------
ASSETS
Interest-Earning Assets:
Loans $1,351,751 $29,882 8.97%
Industrial Revenue Bonds (2) 4,675 131 11.36%
Investments:
Taxable 370,423 5,783 6.33%
Tax-Favored Debt Securities 490 9 7.45%
Tax-Favored Equity Securities 20,448 282 5.59%
Interest-Bearing Deposits in Banks 100 1 4.06%
Federal Funds Sold 34,251 453 5.36%
------- -------
Total Interest-Earning Assets 1,782,138 36,541 8.32%
-------
NonInterest-Earning Assets 140,016
Allowance for Possible Loan Losses (28,197)
-------
Total Assets $1,893,957
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 867,600 7,052 3.30%
Certificates of Deposit $100,000
and Over 106,888 1,394 5.29%
Other Time Deposits 415,404 5,223 5.10%
------- -------
Total Interest-Bearing Deposit 1,389,892 13,669 3.99%
Short-Term Borrowings 32,818 517 6.39%
Long-Term Debt 2,549 50 7.96%
------- -------
Total Interest-Bearing Liabilities 1,425,259 14,236 4.05%
-------
NonInterest-Bearing Liabilities:
Demand Deposits 272,401
Other Liabilities 20,900
-------
Total Liabilities 1,718,560
Stockholders' Equity 175,397
-------
Total Liabilities and
Stockholders' Equity $1,893,957
==========
Net Interest Income $22,305
=======
Interest Rate Spread (3) 4.27%
Net Yield on Earning Assets (4) 5.08%
(1) On a fully taxable equivalent basis. Calculated using a Federal Income
Tax Rate of 35%. Loan income includes fees.
(2) Industrial revenue bonds are included in Loans in the Financial
Statements.
(3) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid on interest-bearing liabilities.
(4) Net yield on earning assets is net interest income divided by total
interest-earning assets.
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Three Months Ended March 31,
1996
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate(1)
--------------------------------
ASSETS
Interest-Earning Assets:
Loans $1,277,064 $29,291 9.22%
Industrial Revenue Bonds (2) 5,156 148 11.54%
Investments:
Taxable 300,021 4,658 6.24%
Tax-Favored Debt Securities 1,546 37 9.63%
Tax-Favored Equity Securities 40,608 602 5.96%
Interest-Bearing Deposits in Banks 146 - 3.00%
Federal Funds Sold 39,121 446 4.59%
------- -------
Total Interest-Earning Assets 1,663,662 35,182 8.51%
-------
NonInterest-Earning Assets 150,721
Allowance for Possible Loan Losses (28,372)
-------
Total Assets $1,786,011
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 801,793 6,588 3.30%
Certificates of Deposit $100,000
and Over 103,853 1,503 5.82%
Other Time Deposits 434,775 5,978 5.53%
------- -------
Total Interest-Bearing Deposits 1,340,421 14,069 4.22%
Short-Term Borrowings 32,380 475 5.90%
Long-Term Debt 2,493 48 7.74%
------- -------
Total Interest-Bearing Liabilities 1,375,294 14,592 4.27%
-------
NonInterest-Bearing Liabilities:
Demand Deposits 233,086
Other Liabilities 22,067
-------
Total Liabilities 1,630,447
Stockholders' Equity 155,564
-------
Total Liabilities and
Stockholders' Equity $1,786,011
==========
Net Interest Income $20,590
=======
Interest Rate Spread (3) 4.24%
Net Yield on Earning Assets (4) 4.98%
(1) On a fully taxable equivalent basis. Calculated using a Federal Income
Tax Rate of 35%. Loan income includes fees.
(2) Industrial revenue bonds are included in Loans in the Financial
Statements.
(3) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid on interest-bearing liabilities.
(4) Net yield on earning assets is net interest income divided by total
interest-earning assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Chittenden Corporation's net income for the first quarter of 1997 was $6.9
million compared with $6.0 million a year ago. Net income per share of common
stock was $0.55 for the three months ended March 31, 1997, up from $0.49
reported for the first three months of 1996. Return on average assets was 1.47%
for the first quarter of 1997, up from 1.35% for the same period last year.
Return on average equity was 15.92% for the quarter ended March 31, 1997
compared with 15.55% for the same period in 1996.
Net interest income on a fully taxable equivalent basis for the three months
ended March 31, 1997 was $22.3 million, up $1.7 million from the amount earned
during the same period in 1996. This increase was a result of higher average
earning assets, up $118 million from a year ago, as well as to an increase in
the net yield on those assets to 5.08% for the first quarter of 1997, from 4.98%
for the same period in 1996. The increase in average earning assets was
distributed among both loans and investments and was funded primarily by higher
deposit levels, as well as by growth in stockholders equity.
Provisions for and activity in the allowance for possible loan losses are
summarized as follows:
Three Months Ended March 31,
1997 1996
----------------------------
(In thousands)
Beginning Balance,
Allowance for Possible Loan Losses $28,096 $27,817
Provision for Possible Loan Losses 1,013 983
Loans Charged Off (1,359) (1,417)
Loan Recoveries 450 614
-------- --------
Ending Balance,
Allowance for Possible Loan Loases $28,200 $27,997
Noninterest income amounted to $6.4 million for the first quarter of 1997, up
$279,000 or 5% from last year. Net credit card income increased by $408,000, or
44%, reflecting growth in merchant services transaction volumes. More modest
increases were seen in several categories including service charges on deposit
accounts ($111,000 or 7%) and trust income ($77,000 or 7%). Gains on sales of
mortgages were $405,000 for the first quarter of 1997 compared with $779,000 for
the same period a year ago as a result of decreased market activity.
For the first quarter of 1997, noninterest expenses were $16.9 million, up
$850,000 or 5% from the comparable 1996 level. Approximately $798,000 of this
increase was in the salaries and employee benefits areas, which increased due to
a combination of slightly higher staffing levels, higher than normal
recruitment expenses, and higher incentive accruals.
CREDIT QUALITY
Nonperforming assets include nonaccrual loans, restructured debt, and foreclosed
real estate (Other Real Estate Owned). As of March 31, 1997, nonperforming
assets totaled $12.3 million, down from $13.9 million a year ago and $13.5
million at December 31, 1996. The allowance for loan losses was $28.2 million
at March 31, 1997, up from $28.0 million at March 31, 1996 and from $28.1
million at December 31, 1996. The provision for possible loan losses charged
against earnings in the first quarter was $1.0 million, a reduction of $312,000
from the level provided during the fourth quarter of 1996 and up slightly from
the amount provided during the first quarter of 1996.
A summary of credit quality follows:
03/31/97 12/31/96 03/31/96
------------------------------
(In Thousands)
Nonaccrual Loans $ 9,172 $10,601 $ 8,386
Restructured Debt 842 638 2,854
Other Real Estate
Owned (OREO) 2,276 2,251 2,623
-------- -------- --------
Total Nonperforming
Assets (NPA) $12,290 $13,490 $13,863
======== ======== ========
Loans Past Due 90 Days or More
and Still Accruing Interest $ 2,326 $ 966 $ 2,026
Allowance for Possible
Loan Losses 28,200 28,096 27,997
NPA as % of Loans plus OREO 0.90% 1.00% 1.08%
Loss Allowance as % of Loans 2.08 2.09 2.20
Loss Allowance as % of
Nonperforming Loans 281.58 249.99 249.08
Loss Allowance as % of NPA 229.45 208.27 201.95
CAPITAL
Stockholders' equity totaled $172.7 million at March 31, 1997, down from $174.4
million at December 31, 1996. The current level reflects year-to-date net
income of $6.9 million, repurchase of stock for $3.8 million, an increase of
$2.3 million in the valuation allowance for net unrealized losses on investment
securities available for sale, and dividends paid to stockholders of $2.5
million.
"Tier One" capital, consisting entirely of common equity, measured 11.69% of
risk-weighted assets at March 31, 1997. Total capital, including the "Tier Two"
allowance for loan losses, was 13.04% of risk-weighted assets. The leverage
capital ratio was 8.69%. These ratios placed Chittenden in the "well-
capitalized" category according to regulatory standards.
LIQUIDITY
The Company's liquidity and rate sensitivity are monitored by the Bank s asset
and liability committee. This committee meets regularly to review and direct
the Bank s lending and investment activities, as well as its deposit gathering
and borrowing functions.
The measure of an institution s liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of other assets to
cash at a reasonable price. At March 31, 1997, the Company maintained cash
balances and short-term investments of approximately $148.0 million, compared
with $214.5 million at December 31, 1996. During the first three months of
1997, the Company continued to be an average daily net seller of Federal Funds.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Beginning January 21, 1997 through March 10, 1997, there were seven transactions
in which 6,362 shares of the Company's common stock were issued pursuant to the
1993 Stock Incentive Plan (The SIP). The SIP provides an opportunity for key
employees of the Company to purchase the Company s common stock at stated
exercise prices. Options exercised during the first quarter had exercise prices
ranging from $3.97 to $8.70 per share, with a weighted average price of $6.27
per share. The Company received cash in the amount of $38,684 from these
transactions. The Company relies on Section 4 (2) of the Securities Act of 1933
for exemption from registration. The Company filed a registration on Form S-8
on April 17, 1997, covering the shares of the Company s common stock issued and
issuable pursuant to the SIP.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
CHITTENDEN CORPORATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHITTENDEN CORPORATION
Registrant
May 14, 1997 S/PAUL A. PERRAULT
- ------------------ ------------------------------------
Date Paul A. Perrault,
President and Chief Executive Officer
May 14, 1997 S/KIRK W. WALTERS
- ------------------- ------------------------------------
Date Kirk W. Walters,
Executive Vice President, Treasurer,
and Chief Financial Officer
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