<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998, Commission File
Number: 0-15982
NATIONAL MERCANTILE BANCORP
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 95-3819685
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, California 90067
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (310) 277-2265
Indicate by check mark whether the issuer (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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's Common Stock, no par value, as
of October 30, 1998 was 677,048.
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks-demand . . . . . . . . . . . . . . . . . . . . . . $ 6,410 $ 4,186
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 11,900
------------- ------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . 13,410 16,086
Interest-bearing deposits with other financial institutions. . . . . . . . 250 250
Securities available-for-sale, at fair value;
aggregate amortized cost of $64,808 and $25,794 at
September 30, 1998 and December 31, 1997, respectively . . . . . . . . . 65,602 25,832
Securities held-to-maturity, at amortized cost;
aggregate market value of $14,010 at
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14,000
FRB and other stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 646
Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,828 61,252
Allowance for credit losses. . . . . . . . . . . . . . . . . . . . . . . (2,060) (2,023)
------------- ------------
Net loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . 59,768 59,229
Premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . 787 785
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . 517 777
Accrued interest receivable and other assets . . . . . . . . . . . . . . . 1,924 1,800
------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,580 $ 119,405
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . $ 42,646 $ 35,399
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . . 7,091 7,431
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,663 19,646
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,195 3,524
Time certificates of deposit:
$100,000 or more. . . . . . . . . . . . . . . . . . . . . . . . . . . 16,729 12,402
Under $100,000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,853 18,986
------------- ------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 117,177 97,388
Securities sold under agreements to repurchase . . . . . . . . . . . . . . - 5,050
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,500 3,500
Accrued interest payable and other liabilities . . . . . . . . . . . . . . 1,266 1,027
------------- ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 129,943 106,965
Shareholders' equity:
Preferred stock, 6.5% noncumulative convertible preferred
stock; $10.00 stated value, authorized 1,000,000 shares;
issued and outstanding 900,000 shares . . . . . . . . . . . . . . . . 7,350 7,350
Common stock, no par value; authorized 10,000,000
shares; issued and outstanding 677,048 shares and 677,144 shares
at September 30, 1998 and December 31, 1997, respectively. . . . . . . . 24,613 24,613
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . (19,120) (19,561)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . 794 38
------------- ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 13,637 12,440
------------- ------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . $ 143,580 $ 119,405
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- --------- -------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,461 $ 1,485 $ 4,399 $ 4,435
Securities held-to-maturity. . . . . . . . . . . . . . . . . . . . . . . - 306 134 916
Securities available-for-sale . . . . . . . . . . . . . . . . . . . . 918 217 2,169 348
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . . 196 220 595 540
Interest-bearing deposits with other financial institutions . . . . . 3 - 11 -
---------- --------- -------- ---------
Total interest income . . . . . . . . . . . . . . . . . . . . . . . 2,578 2,228 7,308 6,239
Interest expense:
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . . 26 24 71 70
Money market and savings . . . . . . . . . . . . . . . . . . . . . . . . 215 172 627 444
Time certificate of deposits:
$100,000 or more. . . . . . . . . . . . . . . . . . . . . . . . . . . 212 114 570 297
Under $100,000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 384 861 1,234
---------- --------- -------- ---------
Total interest expense on deposits. . . . . . . . . . . . . . . . . 742 694 2,129 2,045
Securities sold under agreements to repurchase . . . . . . . . . . . . . 32 10 135 18
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . 165 - 276 6
---------- --------- -------- ---------
Total interest expense. . . . . . . . . . . . . . . . . . . . . . . . 939 704 2,540 2,069
---------- --------- -------- ---------
Net interest income before provision for credit losses. . . . . . . . 1,639 1,524 4,768 4,170
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . - - - -
---------- --------- -------- ---------
Net interest income after provision for credit losses. . . . . . . . . . 1,639 1,524 4,768 4,170
Other operating income:
Net gain (loss) on sale of securities available-for-sale . . . . . . . . 1 (12) 39 (12)
International services . . . . . . . . . . . . . . . . . . . . . . . . . 19 30 68 82
Investment division. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4 31 14
Deposit-related and other customer services. . . . . . . . . . . . . . . 123 85 395 251
Gain on sale of other real estate owned and fixed assets . . . . . . . . - - 68 -
---------- --------- -------- ---------
Total other operating income. . . . . . . . . . . . . . . . . . . . . 155 107 601 335
Other operating expenses:
Salaries and related benefits. . . . . . . . . . . . . . . . . . . . . . 792 723 2,332 2,181
Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 200 624 615
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 76 47 210 152
Printing and communications. . . . . . . . . . . . . . . . . . . . . . . 57 55 174 173
Insurance and regulatory assessments . . . . . . . . . . . . . . . . . . 74 126 230 396
Customer services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 164 600 394
Computer data processing . . . . . . . . . . . . . . . . . . . . . . . . 75 65 213 222
Legal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 34 140 158
Other professional services. . . . . . . . . . . . . . . . . . . . . . . 73 53 214 160
Other real estate owned expenses . . . . . . . . . . . . . . . . . . . . 6 5 15 16
Promotion and other expenses . . . . . . . . . . . . . . . . . . . . . . 53 65 168 156
---------- --------- -------- ---------
Total other operating expenses. . . . . . . . . . . . . . . . . . . . 1,686 1,537 4,920 4,623
---------- --------- -------- ---------
Net income (loss) before provision for income taxes. . . . . . . . . . . 108 94 449 (118)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . 6 - 8 -
---------- --------- -------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102 $ 94 $ 441 $ (118)
---------- --------- -------- ---------
---------- --------- -------- ---------
Earnings (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.14 $ 0.65 $ (0.17)
---------- --------- -------- ---------
---------- --------- -------- ---------
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.04 $ 0.04 $ 0.17 $ (0.17)
---------- --------- -------- ---------
---------- --------- -------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE-MONTHS
ENDED SEPTEMBER 30,
----------------------
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net cash flow from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 441 $ (118)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 183 134
Gain on sale of fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . (9) -
Gain on sale of other real estate owned . . . . . . . . . . . . . . . . . . . (59) -
Net (gain) loss on sale of securities available-for-sale. . . . . . . . . . . (39) 12
Net amortization of premiums (discounts) on securities. . . . . . . . . . . . 66 (30)
Net accretion of discounts on loans purchased . . . . . . . . . . . . . . . . (24) (27)
Increase in accrued interest receivable and other assets. . . . . . . . . . . (124) (88)
Increase in accrued interest payable and other liabilities. . . . . . . . . . 239 490
---------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 674 373
Cash flows from investing activities:
Increase in interest-bearing deposits . . . . . . . . . . . . . . . . . . . . - (19)
Purchase of securities held-to-maturity . . . . . . . . . . . . . . . . . . . - (6,972)
Purchase of securities available-for-sale . . . . . . . . . . . . . . . . . . (62,290) (23,119)
Proceeds from sales of securities available-for-sale. . . . . . . . . . . . . 6,102 1,865
Proceeds from repayments and maturities of securities available-for-sale. . . 16,471 323
Proceeds from repayments and maturities of secutiries-held-to-maturity. . . . 14,000 3,475
Loan originations and principal collections, net. . . . . . . . . . . . . . . (515) 5,525
Proceeds from sale of other real estate owned . . . . . . . . . . . . . . . . 319 -
Net purchases of premises and equipment . . . . . . . . . . . . . . . . . . . (176) (9)
---------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . (26,089) (18,931)
Cash flows from financing activities:
Net increase in demand deposits, money market and savings accounts. . . . . . 15,595 674
Net increase (decrease) in time certificates of deposit . . . . . . . . . . . 4,194 (8,109)
Net (decrease) increase in securities sold under agreements to repurchase. . (5,050) 5,057
Net increase in other borrowed funds . . . . . . . . . . . . . . . . . . . . 8,000 -
Return of fractional shares of common stocks. . . . . . . . . . . . . . . . . - (2)
Net proceeds from issuance of 900,000 shares of preferred stock . . . . . . . - 7,350
---------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . 22,739 4,970
---------- ---------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . (2,676) (13,588)
Cash and cash equivalents, January 1 . . . . . . . . . . . . . . . . . . . . . . 16,086 28,113
---------- ---------
Cash and cash equivalents, September 30. . . . . . . . . . . . . . . . . . . . . $ 13,410 $ 14,525
---------- ---------
---------- ---------
Supplemental cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,416 $ 2,048
Increase in unrealized gain on securities
available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 756 $ 59
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK OTHER
------------------- --------------------- ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT DEFICIT INCOME TOTAL
--------- -------- ---------- --------- ---------- -------------- -------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 . . . . . . . . . - $ - 3,078,146 $ 24,614 $ (19,693) $ (76) $ 4,845
9.09 to 1 reverse stock split
effective June 20, 1997 . . . . . . . . (2,739,516)
Return of fractional common
shares due to reverse stock
split . . . . . . . . . . . . . . . . . (58) (1) (1)
Issuance of 6.5% noncumulative
convertible preferred stock,
$10.00 stated value, net. . . . . . . . 900,000 7,350 7,350
100 % stock dividend declared on
January 8, 1998 . . . . . . . . . . . . 338,572
Comprehensive income:
Other comprehensive income:
Unrealized holding gain during
the period. . . . . . . . . . . . . . 77 77
Add: Reclassification adjustment
for losses icluded in net income. . . 37 37
Net income. . . . . . . . . . . . . . . 132 132
-------
Comprehensive income. . . . . . . . . 246
--------- -------- ---------- --------- ---------- -------------- -------
Balance at December 31, 1997 . . . . . . . . 900,000 7,350 677,144 24,613 (19,561) 38 12,440
Return of fractional common
shares due to reverse stock
split . . . . . . . . . . . . . . . . . (96) -
Comprehensive income:
Other comprehensive income:
Unrealized holding gains during
the period. . . . . . . . . . . . . . 795 795
Less: Reclassification adjustment
for gains included in net income. . . (39) (39)
Net income. . . . . . . . . . . . . . . 441 441
-------
Comprehensive income. . . . . . . . . 1,197
--------- -------- ---------- --------- ---------- -------------- -------
Balance at September 30, 1998. . . . . . . . 900,000 $ 7,350 677,048 $ 24,613 $ (19,120) $ 794 $13,637
--------- -------- ---------- --------- ---------- -------------- -------
--------- -------- ---------- --------- ---------- -------------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATIONS
The unaudited consolidated financial statements include the accounts of
National Mercantile Bancorp (the "Company") and its wholly owned subsidiary,
Mercantile National Bank (the "Bank"). The unaudited consolidated financial
statements reflect the interim adjustments, all of which are of a normal
recurring nature and which, in management's opinion, are necessary for the fair
presentation of the Company's consolidated financial position and the results of
its operations and cash flows for such interim periods. The results for the
three and nine months ended September 30, 1998 are not necessarily indicative of
the results expected for any subsequent period or for the full year ending
December 31, 1998. The unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
("1997 Form 10-K").
NOTE 2--EARNINGS (LOSS) PER SHARE
Earnings (loss) per basic common share is computed using the weighted
average number of common shares outstanding during the period. The weighted
average number of common shares outstanding used in computing earnings per
basic common share for the three and nine months ended September 30, 1998,
and the three months ended September 30, 1997 was 677,048, 677,065, and
677,144, respectively. The weighted average number of common shares
outstanding used in computing and loss per common share for the nine months
ended September 30, 1997, was 677,221. The weighted average number of common
shares and potential common shares outstanding used in computing earnings per
diluted common share for the three and nine months ended September 30, 1998,
and the three months ended September 30, 1997 was 2,537,127, 2,553, 863 and
2,555,172, respectively. Loss per share computations for the nine month
period ended September 30, 1997 exclude potential common shares, since the
effect would be to reduce the loss per share amount. All periods presented
were restated to reflect the 9.09 to 1 reverse stock split effective
September 20, 1997 and the 100% common stock dividend declared January 8,
1998 and paid February 13, 1998. The 100% stock dividend was accounted for
as a 2 for 1 stock split.
6
<PAGE>
The following table is a reconciliation of net income (loss) and shares
used in the computation of earnings per basic and diluted common share:
<TABLE>
<CAPTION>
NET INCOME PER SHARE
(LOSS) SHARES AMOUNT
------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998:
Basic EPS . . . . . . . . . . . . . . . . . . $ 102 677,048 $ 0.15
-----------
-----------
Effect of dilutive securities:
Options and warrants . . . . . . . . . . 60,079
Convertible preferred stock. . . . . . . 1,800,000
------------- ----------
Diluted EPS . . . . . . . . . . . . . . . . . $ 102 2,537,127 $ 0.04
------------- ---------- -----------
------------- ---------- -----------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997:
Basic and diluted EPS . . . . . . . . . . . . $ 94 677,144 $ 0.14
-----------
-----------
Effect of dilutive securities:
Options and warrants . . . . . . . . . . 78,028
Convertible preferred stock. . . . . . . 1,800,000
------------- ----------
Diluted EPS . . . . . . . . . . . . . . . . . $ 94 2,555,172 $ 0.04
------------- ---------- -----------
------------- ---------- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
Basic EPS . . . . . . . . . . . . . . . . . . $ 441 677,065 $ 0.65
-----------
-----------
Effect of dilutive securities:
Options and warrants . . . . . . . . . . 76,798
Convertible preferred stock. . . . . . . 1,800,000
------------- ----------
Diluted EPS . . . . . . . . . . . . . . . . . $ 441 2,553,863 $ 0.17
------------- ---------- -----------
------------- ---------- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
Basic and diluted EPS . . . . . . . . . . . . $ (118) 677,221 $ (0.17)
------------- ---------- -----------
------------- ---------- -----------
</TABLE>
NOTE 3--INVESTMENT SECURITIES
Securities held for investment are classified as securities
held-to-maturity. Because the Company has the ability and management has the
intent to hold investment securities until maturity, securities
held-to-maturity are stated at cost, adjusted for amortization of premiums
and accretion of discounts. Investments classified as securities
available-for-sale are recorded at fair value. Unrealized holding gains or
losses for securities available-for-sale are excluded from earnings, and
reported as a separate component of shareholders' equity, until realized.
See "Note 5 - Comprehensive Income".
NOTE 4--CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and amounts due from banks and federal funds sold and securities purchased
under agreements to resell.
7
<PAGE>
NOTE 5--COMPREHENSIVE INCOME
In September 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from nonowner sources. The
accumulated balance of other comprehensive income is not required to be
displayed separately from retained earnings and additional paid in capital in
the consolidated balance sheet. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
The components of other comprehensive income together with total
comprehensive income are reported in the consolidated statement of changes in
shareholders' equity. The accumulated balance of other comprehensive income
is not reported as a net amount after taxes due to the size and availability
of the Company's net operating loss carry forwards. See "Note 6 - Income
Taxes".
NOTE 6--INCOME TAXES
No income tax provision, other than alternative minimum tax, was recorded
during the three and nine months ended September 30, 1998 and the three months
ended September 30, 1997, due to the utilization of previously unrecognized tax
benefits to offset the current period tax liability. No income tax benefit was
recorded during the nine month period ended September 30, 1997 due to the
uncertainty with respect to the ultimate realization of such benefit.
At December 31, 1997, the Company had federal net operating loss
carryforwards of $22.3 million, which begin to expire in the year 2007, and
California net operating loss carryforwards of $11.1 million, of which
$686,000 expire in 1998, $5.5 million expire in 1999 and the remaining expire
thereafter. In addition, the Company has an Alternate Minimum Tax credit at
December 31, 1997 of $218,000, which may be carried forward indefinitely.
NOTE 7--RECLASSIFICATIONS
Certain prior year data have been reclassified to conform with current year
presentation.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
National Mercantile Bancorp (the "Company") is the holding company for
Mercantile National Bank (the "Bank"). Because the Bank constitutes
substantially all of the business of the Company, references to the Company in
this Item 2 reflect the consolidated activities of the Company and the Bank.
RESULTS OF OPERATIONS
The Company recorded consolidated net income of $102,000, or $0.04 per
diluted common share, during the third quarter of 1998, compared to $94,000, or
$0.04 per diluted common share, during the third quarter of 1997. Earnings per
basic common share were $0.15 and $0.14 during the third quarters of 1998 and
1997, respectively. The improvement between the third quarter of 1998 compared
to the third quarter of 1997 resulted primarily from an increase in net interest
income of $115,000 or 7.5%, and an increase in other operating income of
$48,000 or 44.9%, offset by a $149,000 or 9.7% increase in other operating
expense.
Net income for the first nine months of 1998 was $441,000, or $0.17 per
diluted common share, compared with a loss of $118,000, or $0.17 loss per
common share. Earnings per basic common share was $0.65 during the first nine
months of 1998. The improvement between the first nine months of 1998 compared
to the first nine months of 1997 resulted largely from a $598,000, or 14.3%
increase in net interest income and a $266,000, or 79.4% increase in other
operating income, partially offset by a $297,000, or 6.4% increase in other
operating expense.
Return on average assets during the third quarter and first nine months of
1998 was 0.28% and 0.45%, respectively, compared with 0.34% during the third
quarter of 1997, and compared with a loss of 0.15% during the first nine months
of 1997. Return on average equity during the third quarter and first nine
months of 1998 was 3.09% and 4.61%, respectively, compared with 3.07% during the
third quarter of 1997, and compared with a loss of 2.25% during the first nine
months of 1997.
The increase in net interest income during the three and nine months ended
September 30, 1998 compared to the corresponding periods during 1997 resulted
primarily from an increase in the net average interest-earning assets (the
difference between average interest-earning assets and average interest-bearing
liabilities) of $9.9 million and $10.9 million, respectively. Average
interest-earning assets and average interest-bearing liabilities increased as a
result of the Company's plan to grow following its recapitalization in 1997,
which raised net proceeds of $7.35 million. Growth in average interest-earning
assets
9
<PAGE>
occurred primarily through the purchase of securities. The Company funded
this growth with liquidity provided by the recapitalization and increased
deposits and other borrowings.
During the three and nine months ended September 30, 1998 the Company
experienced a compressed net interest margin compared to the same periods during
1997 as a result of a higher proportion of average interest-earning assets
consisting of lower yielding securities and federal funds, and a more rapid
repricing of interest-earning assets than interest-bearing liabilities during
the downward trend of overall interest rates experienced during 1998 compared to
1997.
During the third quarter of 1998, the Company experienced a decrease in
the weighted average yield on loans receivable which was caused primarily by
refinancings and new fundings at lower interest rates due to a decrease in
market interest rates. The weighted average yield on loans receivable decreased
from 10.24% during the third quarter of 1997 to 9.34% during the third quarter
of 1998, and from 9.98% during the first nine months of 1997 compared to 9.75%
during the first nine months of 1998.
The weighted average yield on securities decreased during the third
quarter of 1998 compared to 1997 from 6.55% to 6.30%, and decreased from
6.51% to 6.43% during the first nine months of 1998 compared to the first
nine months of 1997. These decreases reflected the overall downward trend in
market interest rates, which induced the issuers of securities with an
optional principal redemption feature to exercise such "call" options . The
Company reinvested the proceeds into lower yielding securities. During
1998, composition of the Company's investment securities portfolio shifted
from one which was primarily comprised of callable federal agency securities
to a portfolio primarily comprised of mortgage-backed securities ("MBS") and
collateral mortgage obligations ("CMO"). As of September 30, 1998 the
Company no longer holds investment securities with a call option feature
other than the embedded prepayment option associated with mortgage securities.
The weighted average cost of interest-bearing liabilities increased during
the third quarter of 1998 compared to 1997 from 4.28% to 4.41% and increased
during the first nine months of 1998 compared to 1997 from 4.35% to 4.41%.
These increases were due primarily to an increase in higher cost other
borrowings, constituting a greater proportion of interest-bearing liabilities.
Average loans receivable increased $4.5 million, or 7.8%, to $62.0 million
during the quarter ended September 30, 1998 compared to $57.5 million during the
quarter ended September 30, 1997. As a result of declining market interest
rates, the Company continued to experience higher than historical loan payoffs
during the third quarter of 1998 of approximately $4.2 million which, when
combined with principal reductions, substantially offset loan fundings of
approximately $5.2 million during the same period.
10
<PAGE>
Average securities available-for-sale increased by $44.3 million to
$57.8 million during the quarter ended September 30, 1998 compared to $13.5
million during the quarter ended September 30, 1997, while securities
held-to-maturity decreased from $18.2 million to zero during the same period.
This increase in the securities portfolio, which consists primarily of MBS
and CMO securities, was funded by the liquidity provided by the net proceeds
from the recapitalization along with the growth of deposits and other
borrowings.
Average deposits increased $18.1 million (including an $11.7 million
increase in non-interest-bearing deposits), or 18.8%, to $114.4 million
during the third quarter of 1998 compared to $96.3 million during the third
quarter of 1997 due primarily to additional deposits generated by the Bank's
business banking, entertainment and escrow divisions. Average securities
sold under agreements to repurchase and other borrowed funds (collectively
referred to as other borrowings) increased $12.9 million to $13.6 million
during the quarter ended September 30, 1998 from $714,000 during the quarter
ended September 30, 1997. This increase in other borrowed funds was
primarily the result of borrowings from the Federal Home Loan Bank ("FHLB")
the majority of which bear interest at rates that are adjusted monthly based
on the London InterBank Offer Rate ("LIBOR") interest rate index. The
proceeds from these borrowings were used to purchase investment securities
that bear interest at rates adjusted monthly based on LIBOR.
Average loans receivable increased $901,000, or 1.5%, during the first
nine months of 1998 compared to the first nine months of 1997, rising to
$60.3 million compared to $59.4 million. During these same periods, average
securities available-for-sale increased $37.6 million to $45.2 million
compared to $7.6 million, and average securities held-to-maturity decreased
$15.7 million to $2.7 million compared to $18.4 million. Average deposits
during the nine months ended September 30, 1998 increased $11.8, million or
12.4%, during the comparable periods of 1998 and 1997, rising to $106.9
million compared to $95.1 million.
The provision for credit losses was zero for the three and nine months
ended September 30, 1998 and 1997. Loan charge offs during the third quarter
and first nine months of 1998 were $121,000 and $346,000, respectively, compared
to $45,000 and $695,000 during the third quarter and first nine months of 1997,
respectively. Recoveries were $92,000 and $383,000 during the third quarter and
first nine months of 1998, respectively, compared to $88,000 and $315,000 during
the third quarter and first nine months of 1997, respectively.
Other operating income, excluding gains and losses on the sale of
securities and assets, totaled $154,000 during the third quarter of 1998, up
$35,000, or 29.4%, from $119,000 during the third quarter of 1997. During the
nine months ended September 30, 1998, other operating income, excluding gains
and losses on the sale of securities and assets, totaled $494,000,
11
<PAGE>
an increase of $147,000, or 42.4%, from $347,000 during the comparable period
of 1997. Service charges on deposit accounts increased $38,000, or 44.7%, and
$144,000, or 57.4%, during the third quarter and nine months ended September
30, 1998, respectively, compared to corresponding periods in 1997. These
increases were due primarily to adjustments in fee pricing effective December
1, 1997 and increased volume due to deposit growth.
The net gain on sale of securities totaled $1,000 and $39,000 during the
third quarter and first nine months of 1998, respectively, compared to a net
loss of $12,000 during each of the corresponding periods in 1997. Additionally,
the Bank recorded a net gain on the sale of other real estate owned and fixed
assets of $68,000 during the first nine months of 1998, compared to no such
gains during corresponding period of 1997.
Other operating expense increased $149,000, or 9.7%, to $1.7 million during
the third quarter of 1998 compared to $1.5 million during the third quarter of
1997. Salaries and related benefits increased $69,000, or 9.5%, during the
quarter ended September 30, 1998 compared to the third quarter of 1997, due
primarily to the personnel added to the business banking and entertainment
divisions. Other operating expense categories, other than salaries and related
benefits, increased $80,000, or 9.8%, for the quarter ended September 30, 1998
from the comparable period in 1997. Increases in customer services expense of
$49,000 resulting from increased escrow deposits, along with increases in
furniture and equipment expense of $29,000, were offset by reductions in
insurance and regulatory assessments of $52,000, primarily reduced Federal
Deposit Insurance Corporation ("FDIC") Insurance premiums.
Other operating expenses increased $297,000, or 6.4%, to $4.9 million
during the nine months ended September 30, 1998 compared to $4.6 million during
the same period of 1997. This increase resulted from the same factors which
caused the increases between the third quarters of 1998 compared to 1997,
specifically, increases of $151,000 in salaries and related benefits (due
primarily to an increase in number of personnel) and $206,000 in customer
services, which were offset by reductions of $166,000 in insurance and
regulatory costs.
12
<PAGE>
The following table presents the components of net interest income for the
quarters ended September 30, 1998 and 1997.
13
<PAGE>
AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------ ----------------------------------
WEIGHTED WEIGHTED
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
AMOUNT EXPENSE RATE AMOUNT EXPENSE RATE
----------- --------- ----------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Federal funds sold and securities purchased under
agreements to resell. . . . . . . . . . . . . . . $ 13,860 $ 196 5.61% $ 15,526 $ 220 5.62%
Interest-bearing deposits with other
financial institutions. . . . . . . . . . . . . . 250 3 6.06% 9 - -
Securities held-to-maturity. . . . . . . . . . . . . - - 18,213 306 6.67%
Securities available-for-sale. . . . . . . . . . . . 57,785 918 6.30% 13,464 217 6.39%
Loans receivable (1) (2) . . . . . . . . . . . . . . 62,039 1,461 9.34% 57,541 1,485 10.24%
----------- --------- --------- -----------
Total interest-earning assets. . . . . . . . . . . . 133,934 $ 2,578 7.64% 104,753 $ 2,228 8.44%
--------- -----------
--------- -----------
Noninterest earning assets:
Cash and due from banks - demand . . . . . . . . . . 6,904 5,419
Other assets . . . . . . . . . . . . . . . . . . . . 3,332 2,934
Allowance for credit losses. . . . . . . . . . . . . (2,085) (2,604)
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 142,085 $ 110,502
---------- ----------
---------- ----------
Liabilities and shareholders' equity:
Interest-bearing deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . $ 8,081 $ 26 1.28% $ 7,659 $ 24 1.24%
Money market and savings . . . . . . . . . . . . . . 28,215 215 3.02% 22,857 172 2.99%
Time certificates of deposit:
$100,000 or more. . . . . . . . . . . . . . . . . 14,909 212 5.64% 8,367 114 5.41%
Under $100,000. . . . . . . . . . . . . . . . . . 19,679 289 5.83% 25,615 384 5.95%
----------- --------- --------- -----------
Total time certificates of deposit . . . . . . . . . 34,588 501 5.75% 33,982 498 5.81%
----------- --------- --------- -----------
Total interest-bearing deposits. . . . . . . . . . . 70,884 742 4.15% 64,498 694 4.27%
Securities sold under agreements to repurchase . . . . 2,100 32 6.05% 714 10 5.56%
Other borrowed funds . . . . . . . . . . . . . . . . . 11,500 165 5.69% - - -
----------- --------- --------- -----------
Total interest-bearing liabilities . . . . . . . . . 84,484 $ 939 4.41% 65,212 $ 704 4.28%
--------- -----------
--------- -----------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits. . . . . . . . . 43,507 31,758
Other liabilities. . . . . . . . . . . . . . . . . . 1,010 1,436
Shareholders' equity . . . . . . . . . . . . . . . . . 13,084 12,096
---------- ----------
Total liabilities and shareholders' equity . . . . . . $ 142,085 $ 110,502
---------- ----------
---------- ----------
Net interest income (spread) . . . . . . . . . . . . . $ 1,639 3.23% $ 1,524 4.16%
--------- -----------
--------- -----------
Net yield on earning assets (2). . . . . . . . . . . . 4.86% 5.77%
</TABLE>
- -------------------
(1) Includes average balance of nonperforming loans of $7.8 million and $6.6
million for 1998 and 1997, respectively.
(2) Yields and amounts earned on loans receivable include loan fees of $34,000
and $46,000 for the three months ended September 30, 1998 and 1997,
respectively.
The following table presents the components of net interest income for the nine
months ended September 30, 1998 and 1997.
14
<PAGE>
AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------ ----------------------------------
WEIGHTED WEIGHTED
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
AMOUNT EXPENSE RATE AMOUNT EXPENSE RATE
----------- --------- ----------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Federal funds sold and securities purchased under
agreements to resell. . . . . . . . . . . . . . . $ 14,316 $ 595 5.56% $ 13,122 $ 540 5.50%
Interest-bearing deposits with other
financial institutions . . . . . . . . . . . . . 250 11 5.88% 3 - -
Securities held-to-maturity . . . . . . . . . . . . 2,699 134 6.64% 18,365 916 6.67%
Securities available-for-sale . . . . . . . . . . . 45,209 2,169 6.41% 7,590 348 6.13%
Loans receivable (1) (2). . . . . . . . . . . . . . 60,340 4,399 9.75% 59,439 4,435 9.98%
----------- --------- --------- -----------
Total interest-earning assets . . . . . . . . . . . 122,814 $ 7,308 7.96% 98,519 $ 6,239 8.47%
--------- -----------
--------- -----------
Noninterest earning assets:
Cash and due from banks - demand. . . . . . . . . . 6,047 4,778
Other assets. . . . . . . . . . . . . . . . . . . . 3,282 3,465
Allowance for credit losses . . . . . . . . . . . . (1,994) (2,940)
----------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 130,149 $ 103,822
----------- ----------
----------- ----------
Liabilities and shareholders' equity:
Interest-bearing deposits:
Demand. . . . . . . . . . . . . . . . . . . . . . . $ 7,423 $ 71 1.28% $ 7,464 $ 70 1.25%
Money market and savings. . . . . . . . . . . . . . 27,081 627 3.10% 20,245 444 2.93%
Time certificates of deposit:
$100,000 or more. . . . . . . . . . . . . . . . . 13,305 570 5.73% 7,258 297 5.47%
Under $100,000. . . . . . . . . . . . . . . . . . 19,671 861 5.85% 27,906 1,234 5.91%
----------- --------- --------- -----------
Total time certificates of deposit. . . . . . . . . 32,976 1,431 5.80% 35,164 1,531 5.82%
----------- --------- --------- -----------
Total interest-bearing deposits . . . . . . . . . . 67,480 2,129 4.22% 62,873 2,045 4.35%
Securities sold under agreements to repurchase . . . . 3,043 135 5.93% 484 18 4.97%
Other borrowed funds . . . . . . . . . . . . . . . . . 6,427 276 5.74% 173 6 4.64%
----------- --------- --------- -----------
Total interest-bearing liabilities. . . . . . . . . 76,950 $ 2,540 4.41% 63,530 $ 2,069 4.35%
--------- -----------
--------- -----------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposit. . . . . . . . . 39,441 32,236
Other liabilities . . . . . . . . . . . . . . . . . 977 1,039
Shareholders' equity . . . . . . . . . . . . . . . . . 12,781 7,017
----------- ----------
Total liabilities and shareholders' equity . . . . . . $ 130,149 $ 103,822
----------- ----------
----------- ----------
Net interest income (spread) . . . . . . . . . . . . . $ 4,768 3.54% $ 4,170 4.11%
--------- -----------
--------- -----------
Net yield on earning assets (2). . . . . . . . . . . . 5.19% 5.66%
</TABLE>
- -------------------
(1) Includes average balance of nonperforming loans of $7.6 million and $6.6
million for 1998 and 1997, respectively.
(2) Yields and amounts earned on loans receivable include loan fees of $121,000
and $88,000 for the nine months ended September 30, 1998 and 1997,
respectively.
15
<PAGE>
The following tables set forth, for the periods indicated, the changes
in interest earned and interest paid resulting from changes in volume and
changes in rates. Average balances in all categories in each reported period
were used in the volume computations. Average yields and rates in each
reported period were used in rate computations.
INCREASE (DECREASE) IN INTEREST INCOME/EXPENSE DUE TO CHANGE IN
AVERAGE VOLUME AND AVERAGE RATE
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 VS 1997
-----------------------------------------
INCREASE (DECREASE) DUE TO(1) NET
----------------------------- INCREASE
VOLUME RATE (DECREASE)
-------- ------- ----------
<S> <C> <C> <C>
Interest Income:
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . $ 50 $ 5 $ 55
Interest-bearing deposits with other financial institutions. 11 - 11
Securities held-to-maturity. . . . . . . . . . . . . . . . . (771) (11) (782)
Securities available-for-sale. . . . . . . . . . . . . . . . 1,803 18 1,821
Loans receivable (2) . . . . . . . . . . . . . . . . . . . . 66 (102) (36)
-------- ------- --------
Total interest-earning assets. . . . . . . . . . . . . . . $ 1,159 $ (90) $ 1,069
-------- ------- --------
-------- ------- --------
Interest Expense:
Interest-bearing deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 1 $ 1
Money market and savings . . . . . . . . . . . . . . . . . 170 13 183
Time certificates of deposit:
$100,000 or more. . . . . . . . . . . . . . . . . . . . 260 13 273
Under $100,000. . . . . . . . . . . . . . . . . . . . . (362) (11) (373)
-------- ------- --------
Total time certificates of deposit . . . . . . . . . . . . (102) 2 (100)
-------- ------- --------
Total interest-bearing deposits. . . . . . . . . . . . . . 68 16 84
Securities sold under agreements to repurchase
and other borrowings. . . . . . . . . . . . . . . . . . 113 4 117
Other borrowed funds . . . . . . . . . . . . . . . . . . . 268 2 270
-------- ------- --------
Total interest-bearing liabilities. . . . . . . . . . . $ 449 $ 22 $ 471
-------- ------- --------
-------- ------- --------
Net interest income. . . . . . . . . . . . . . . . . . . . $ 710 $ (112) $ 598
-------- ------- --------
-------- ------- --------
</TABLE>
--------------
(1) The change in interest income or interest expense that is attributable
to both changes in average volume and average rate has been allocated
to the changes due to (i) average volume and (ii) average rate in
proportion to the relationship of the absolute amounts of changes in
each.
(2) Table does not include interest income that would have been earned on
nonaccrual loans.
16
<PAGE>
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES
Comparative period-end investment securities portfolio balances are
presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------------ -----------------------
FAIR FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government and federal
agency securities . . . . . . . . . . . . . . . . . . . $ - $ - $ 14,000 $ 14,010
--------- --------- --------- ---------
--------- --------- --------- ---------
Securities available-for-sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . $ 1,001 $ 1,011 $ 1,002 $ 1,005
FNMA\FHLMC-issued mortgage
pass through certificates . . . . . . . . . . . . . . . 15,020 15,207 4,327 4,349
U.S. government and federal
agency securities . . . . . . . . . . . . . . . . . . . - - 15,488 15,522
CMO's and REMIC's issued by U.S.
government and federal agencies . . . . . . . . . . . . 48,787 49,384 4,977 4,956
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 1,322 646 646
--------- --------- --------- ---------
$ 66,130 $ 66,924 $ 26,440 $ 26,478
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The following tables provide the expected remaining maturities and yields of
debt securities within the investment securities portfolios as of September 30,
1998.
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
-------------------- ------------------ -------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- ------ ----- -------- ----- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S Treasury . . . . . . . . . . $ 1,011 5.85% $ - - $ - - $ - -
FNMA/FHLMC-issued mortgage
pass-through certificate. . . 21 6.21% 627 6.47% 2,106 6.57% 12,453 6.65%
CMO's and REMIC's issued by
U.S. government-sponsored
agencies. . . . . . . . . . - - - - - 49,384 6.46%
-------- ----- ------ ----- -------- ----- --------- -----
$ 1,032 5.86% $ 627 6.47% $ 2,106 6.57% $ 61,837 6.50%
-------- ----- ------ ----- -------- ----- --------- -----
-------- ----- ------ ----- -------- ----- --------- -----
<CAPTION>
TOTAL YIELD
--------- -----
<S> <C>
Securities available-for-sale:
U.S Treasury . . . . . . . . . . $ 1,011 5.85%
FNMA/FHLMC-issued mortgage
pass-through certificate. . . 15,207 6.63%
CMO's and REMIC's issued by
U.S. government-sponsored
agencies. . . . . . . . . . 49,384 6.46%
--------- -----
$ 65,602 6.49%
--------- -----
--------- -----
</TABLE>
17
<PAGE>
LOAN PORTFOLIO
The following comparative period-end table sets forth-certain information
concerning the composition of the loan portfolio.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate construction and land
development. . . . . . . . . . . . . $ 1,068 2% $ 3,148 5%
Commercial loans:
Secured by one to four family
residential properties. . . . . . 7,289 12% 6,545 11%
Secured by multifamily
residential properties. . . . . . 2,454 4% 2,494 4%
Secured by commercial real
properties. . . . . . . . . . . . 19,001 31% 22,324 36%
Other - secured and
unsecured . . . . . . . . . . . . 27,835 45% 21,264 35%
Home equity lines of credit. . . . . . 61 0% 252 0%
Consumer installment and
unsecured loans to individuals . . . 4,389 7% 5,508 9%
--------- ---- ---------- -----
Total loans outstanding . . . . . 62,097 100% 61,535 100%
Deferred net loan origination
fees and purchased loan discount . . (269) (283)
--------- ----------
Loans receivable, net. . . . . . . . . $ 61,828 $ 61,252
--------- ----------
</TABLE>
Total loans outstanding increased by $562,000 to $62.1 million at
September 30, 1998 compared to $61.5 million at December 31, 1997. As
indicated in the table above, the composition of the loan portfolio has
remained relatively unchanged at September 30, 1998 compared to December 31,
1997, other than a decrease of $2.1 million in real estate construction and
land development loans and a $3.3 million decrease in loans secured by
commercial properties, offset by a $6.6 million increase in other secured and
unsecured commercial loans. These changes in the composition of the
Company's loan portfolio are consistent with efforts to reduce the overall
level of loans secured by real estate and emphasize the growth of other
commercial loans generated by the business banking and entertainment
divisions.
18
<PAGE>
The following comparative period-end table sets forth certain
information concerning nonperforming assets.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
-------- --------
<S> <C> <C>
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,006 $ 1,201
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . 49 5,422
Loans contractually past due ninety or more days with respect
to either principal or interest and still accruing interest . . . . - -
-------- --------
Nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . . . 8,055 6,623
Other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . 517 777
-------- --------
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . $ 8,572 $ 7,400
-------- --------
-------- --------
Allowance for credit losses as a percent of nonaccrual loans . . . . . 25.7% 168.4%
Allowance for credit losses as a percent of
nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . 25.6% 30.5%
Total nonperforming assets as a percent of loans receivable. . . . . . 13.9% 12.1%
Total nonperforming assets as a percent of total
shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . 62.9% 59.5%
</TABLE>
Nonaccrual loans increased to $8.0 million at September 30, 1998 from
$1.2 million at December 31, 1997. This increase is primarily represented by
one loan with an outstanding balance of $5.4 million at September 30, 1998
which is secured by a first deed of trust on a single family residence which
as of August 1998, had an appraised value of $10 million. This loan was
reported as troubled debt restructuring ("TDR") loan as of December 31, 1997
and as a loan contractually past due ninety or more days and still accruing
as of the quarter ended June 30, 1998. The Bank commenced foreclosure
proceedings on this loan, but such proceedings were stayed as a result of a
Chapter 11 bankruptcy proceeding filed by the borrower in August 1998. The
Bank has initiated ann action to obtain relief from the automatic stay which
would enable it to proceed with the foreclosure. Increased delinquencies in
the SBA and commercial loan portfolios represented the remaining increases to
nonaccrual loans.
'TDRs represent loans for which the Company has modified the terms of
loans to borrowers by reductions in interest rates or extensions of maturity
dates at below-market rates for loans with similar credit risk
characteristics. TDRs totaled $49,000 at September 30, 1998 compared with
$5.4 million at December 31, 1997. The reduction in TDR loans during the
first nine months of 1998 is due to the reclassification of one loan totaling
$5.4 million to nonaccrual loans, discussed above. At September 30, 1998, all
TDR loans were performing in accordance with their modified terms.
19
<PAGE>
Loan delinquencies greater than 30 days past due decreased to $85,000 or
0.14% of loans receivable at September 30, 1998 from $752,000 or 1.2% of
loans receivable at December 31, 1997. This decrease in loan delinquencies
during the first nine months of 1998 was primarily the result of delinquent
loans becoming nonaccrual loans.
ALLOWANCE FOR CREDIT LOSSES
The following table sets forth information concerning the Company's
allowance for credit losses for the periods indicated.
ANALYSIS OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ----------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period. . . . . . . . . . . . . . . . . . . . . $ 2,089 $ 2,546 $ 2,023 $ 2,969
Loan charged off:
Commercial loans:
Secured by one to four family residential properties. . . . . - - 4 204
Secured by commercial real properties . . . . . . . . . . . . - - 31 56
Other - secured and unsecured . . . . . . . . . . . . . . . . 94 21 115 365
Consumer installment and unsecured loans to individuals. . . . . 27 24 196 70
-------- -------- -------- --------
Total loan charge-offs . . . . . . . . . . . . . . . . . . . . . 121 45 346 695
Recoveries of loans previously charged off:
Commercial loans:
Secured by one to four family residential properties. . . . . - 71 2 71
Other - secured and unsecured . . . . . . . . . . . . . . . . 4 10 81 167
Consumer installment and unsecured loans to individuals. . . . . 88 7 300 77
-------- -------- -------- --------
Total recoveries of loans previously charged off . . . . . . . . 92 88 383 315
-------- -------- -------- --------
Net charge-offs (recoveries) . . . . . . . . . . . . . . . . . . 29 (43) (37) 380
Provision for credit losses. . . . . . . . . . . . . . . . . . . - - - -
-------- -------- -------- --------
Balance, end of period . . . . . . . . . . . . . . . . . . . . . $ 2,060 $ 2,589 $ 2,060 $ 2,589
-------- -------- -------- --------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In September 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes SFAS 14 "Financial Reporting
for Segments of a Business Enterprise". SFAS No. 131 requires that all
public enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as components
regularly evaluated by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. This statement is effective
for fiscal years beginning after
20
<PAGE>
December 15, 1997. The Company believes that this Statement will have no
significant impact on its financial position or results of operations for
1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS 132"). This
Statement standardizes the disclosure requirements for defined benefit plans
and recommends a parallel format for presenting information about pensions
and other postretirement benefits. This Statement is effective for fiscal
years beginning after December 15, 1997. The Company believes that this
Statement will have no significant impact on its financial position or
results of operations for 1998 since it has no defined benefit plans.
CAPITAL ADEQUACY REQUIREMENTS
At September 30, 1998 the Company and the Bank were in compliance with
all applicable regulatory capital requirements and the Bank was "well
capitalized" under the Prompt Corrective Action rules of the Office of the
Comptroller of the Currency. On June 30, 1998 the Company contributed $2.0
million of capital to the Bank to enable it to increase its legal lending
limit and provide sufficient capital for continued growth. The following
table sets forth the regulatory capital standards for well capitalized
institutions, and the capital ratios for the Company and the Bank as of
September 30, 1998 and December 31, 1997.
REGULATORY CAPITAL INFORMATION
OF THE COMPANY AND BANK
<TABLE>
<CAPTION>
WELL CAPITALIZED SEPTEMBER 30, DECEMBER 31,
STANDARDS 1998 1997
---------------- ------------- ------------
<S> <C> <C> <C>
COMPANY:
Tier 1 leverage. . . . . . . . . . . . . . . . . . . . . . . . . N/A 9.05% 10.43%
Tier 1 risk-based capital. . . . . . . . . . . . . . . . . . . . N/A 16.61% 16.98%
Total risk-based capital . . . . . . . . . . . . . . . . . . . . N/A 17.88% 18.25%
BANK:
Tier 1 leverage. . . . . . . . . . . . . . . . . . . . . . . . . 5.00% 6.91% 6.48%
Tier 1 risk-based capital. . . . . . . . . . . . . . . . . . . . 6.00% 12.87% 10.36%
Total risk-based capital . . . . . . . . . . . . . . . . . . . . 10.00% 14.14% 11.63%
</TABLE>
LIQUIDITY
The Company continues to manage its liquidity through a combination of
core deposits (total deposits excluding money desk and escrow deposits),
federal funds purchased, repurchase agreements, collateralized borrowing
lines at the Federal Home Loan Bank of San Francisco, and a portfolio of
securities available for sale. Liquidity is also provided by maturing
investment securities and loans.
21
<PAGE>
Average core deposits (excludes money desk and escrow deposits) and
shareholders' equity comprised 63.5% and 69.2% of total funding during the
third quarter and first nine months of 1998, respectively, compared to 64.8%
and 66.5% during the corresponding periods of 1997. The following table
shows that the Company's cumulative one year interest rate sensitivity gap
indicated a liability sensitive position of $8.6 million at September 30,
1998, a change from the asset sensitive position of $110,000 at December 31,
1997. This change resulted from the Company's effort to lower its exposure
to decreases in net interest income due to a rapid decline in interest rates.
During the last nine months, the Company has increased its investment
securities portfolio that reprice after one year to $48.6 million at
September 30, 1998 from $38.5 million at December 31, 1997, increased its
portfolio of loans that reprice after one year to $19.8 million at September
30, 1998 from $15.5 million at December 31, 1997 and increased its time
certificates of deposit which reprice within one year to $25.7 million at
September 30, 1998 from $20.7 million at December 31, 1997. The Company's
liability sensitive position during a period of slowly rising interest rates
is not expected to have a significant negative impact on net interest income
since rates paid on the Company's large base of interest checking, savings
and money market deposit accounts historically have not increased
proportionately with increases in interest rates.
22
<PAGE>
RATE-SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------------------------------------
MATURING OR REPRICING IN
----------------------------------------------------------------------
LESS AFTER THREE AFTER ONE
THAN MONTHS YEAR
THREE BUT WITHIN BUT WITHIN AFTER NOT RATE
MONTHS ONE YEAR 5 YEARS 5 YEARS SENSITIVE TOTAL
---------- ----------- ---------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Interest-bearing deposits with other
financial institutions. . . . . . . . . . $ - $ 250 $ - $ - $ - $ 250
Federal funds sold and securities purchased
under agreements to resell. . . . . . . . 7,000 - - - - 7,000
Securities held-to-maturity. . . . . . . . . - - - - - --
Securities available-for-sale. . . . . . . . 17,300 1,032 627 46,643 - 65,602
Equity investment-FRB, FHLB & PCBB . . . . . - - - 1,322 - 1,322
Loans receivable . . . . . . . . . . . . . . 26,487 15,524 16,673 3,144 - 61,828
---------- --------- --------- --------- ------- --------
Total rate-sensitive assets . . . . . . . 50,787 16,806 17,300 51,109 - 136,002
Rate-sensitive liabilities:
Interest bearing deposits (1):
Interest-bearing demand, money
market and savings. . . . . . . . . . . 38,949 - - - - 38,949
Time certificates of deposit. . . . . . . 16,292 9,457 9,833 - - 35,582
Securities sold under agreements to. . . . .
repurchase. . . . . . . . . . . . . . . . - - - - - --
Other borrowed funds . . . . . . . . . . . . 11,500 - - - - 11,500
---------- --------- --------- --------- ------- --------
Total rate-sensitive liabilities. . . . . 66,741 9,457 9,833 - - 86,031
Interest rate-sensitivity gap . . . . . . . (15,954) 7,349 7,467 51,109 - 49,971
----------------------------------------------------------------------
----------------------------------------------------------------------
Cumulative interest rate-sensitivity gap . . $ (15,954) $ (8,605) $ (1,138) $ 49,971 49,971
---------- --------- --------- --------- -------
---------- --------- --------- --------- -------
Cumulative ratio of rate sensitive assets to
rate-sensitive liabilities. . . . . . . . 76% 89% 99% 158%
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
(1) Customer deposits which are subject to immediate withdrawal are presented
as repricing within three months or less.
The distribution of other time deposits is based on scheduled maturities.
23
<PAGE>
RATE-SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------
MATURING OR REPRICING IN
--------------------------------------------------------------------
LESS AFTER THREE AFTER ONE
THAN MONTHS YEAR
THREE BUT WITHIN BUT WITHIN AFTER NOT RATE
MONTHS ONE YEAR 5 YEARS 5 YEARS SENSITIVE TOTAL
-------- --------- ----------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Interest-bearing deposits with other
financial institutions. . . . . . . . . . $ - $ 250 $ - $ - $ - $ 250
Federal Funds sold . . . . . . . . . . . . . 11,900 - - - - 11,900
Securities held-to-maturity. . . . . . . . . - 2,000 12,000 - - 14,000
Securities available-for-sale . . . . . . . - - 13,946 11,886 - 25,832
Equity investment-FRB, FHLB & PCBB . . . . . - - - 646 - 646
Loans receivable . . . . . . . . . . . . . . 26,258 19,520 13,325 2,149 - 61,252
-------- ------- ---------- ---------- ------- -------
Total rate-sensitive assets . . . . . . . 38,158 21,770 39,271 14,681 - 113,880
Rate-sensitive liabilities: (1)
Interest bearing deposits:
Interest-bearing demand, money
market and savings. . . . . . . . . . . 30,601 - - - - 30,601
Time certificates of deposit. . . . . . . 8,112 12,555 10,721 - - 31,388
Securities sold under agreements to
repurchase. . . . . . . . . . . . . . . . 50 5,000 - - - 5,050
Other borrowed funds.. . . . . . . . . . . . - 3,500 - - - 3,500
-------- ------- ---------- ---------- ------- -------
Total rate-sensitive liabilities. . . . . 38,763 21,055 10,721 - - 70,539
Interest rate-sensitivity gap. . . . . . . . (605) 715 28,550 14,681 - 43,341
--------------------------------------------------------------------
--------------------------------------------------------------------
Cumulative interest rate-sensitivity gap . . $ (605) $ 110 $ 28,660 $ 43,341 43,341
-------- ------- ---------- ---------- -------
-------- ------- ---------- ---------- -------
Cumulative ratio of rate sensitive assets to
rate-sensitive liabilities. . . . . . . . 98% 100% 141% 161%
-------- ------- ---------- ----------
-------- ------- ---------- ----------
</TABLE>
(1) Customer deposits which are subject to immediate withdrawal are presented
as repricing within three months or less.
The distribution of other time deposits is based on scheduled maturities.
24
<PAGE>
YEAR 2000 MATTERS
THE FOLLOWING CONSTITUTES A "YEAR 2000 READINESS" DISCLOSURE UNDER THE
YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
As the Year 2000 approaches, a critical issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. In brief, many existing application software products were
designed to only accommodate a two-digit date position, which represents the
year (e.g., '95' is stored on the system and represents the year 1995). As a
result, the year 1999 (i.e., '99') could be the maximum date value these
systems will be able to accurately process. Resolution of the Year 2000
problem is among the Company's highest priorities, and a comprehensive
program has been established to address its many aspects. The Company's Year
2000 program is comprised of numerous individual projects which address the
following broad areas: data processing systems, telecommunications and data
networks, physical facilities and security systems, vendor risk, customer
risk, liquidity risk, contingency planning, testing and communications. The
goal of the Company's Year 2000 program is to assure that it will be able to
conduct normal business before, during and after the century date change.
During 1997, a Year 2000 team was established, consisting of the senior
managers from each operational area of the Company. The first task was to
identify risks posed by the century date change, as the awareness phase of
the program. Below is a summary of steps taken, in addition to the awareness
phase, by the Company through September 30, 1998:
- Assessment - Systems have been inventoried, evaluated and prioritized
in importance to client service operations.
- Renovation - The Company has determined that internal systems do not
require renovation. The plans of vendors are being monitored
to assure that their system changes are completed within acceptable
timeframes.
- Validation - The testing and validation phase has commenced. Each
critical system provided by external vendors will be tested to ensure
processing and reporting accuracy. The plan calls for completion of
all testing and validation of mission critical systems by June 30,
1999.
The Company has determined to attempt to obtain certification from 19
external service bureau or software providers, of which four have been
assessed as mission critical. Currently eight, or 42%, of these 19 service
providers have been certified by the service provider as Year 2000 compliant,
including one that has been determined mission critical.
25
<PAGE>
The Company has determined to attempt to obtain certification from
43 vendors or suppliers that require certification of which two have been
assessed as mission critical. At September 30, 1998, 29, or 68%, of these 43
vendors or suppliers have been certified by the vendor or supplier as Year
2000 compliant which do not include any that have been determined to be
mission critical.
The Company's approach to evaluating potential Year 2000 issues
pertaining to its borrowers was first to determine the level of loans
dependent on borrower cash flow versus collateral such as real estate, and
second, to make as assessment of loans, over a certain dollar volume, which
may have exposure to Year 2000 issues. The Company has determined that
approximately 43% of the dollar volume of its loan portfolio are not
collateralized by real estate, and further determined it is not aware of any
pending issues that would cause the Company not to extend credit to these
"cash flow dependent" borrowers. The Company specifically reviewed
approximately 80% of the dollar volume of its loan portfolio to assess the
potential Year 2000 issues by first, determining whether the borrower was
exposed to Year 2000 date changes (e.g. individual versus commercial) and
second, completing an assessment of those borrowers it determined may have
potential exposure to Year 2000 issues. Based on this assessment completed
on substantially all of its borrowers with potential Year 2000 issues, the
Company is not aware of any pending issues that would cause it not to extend
credit to these borrowers. However, the Company's credit risk associated
with loans may increase as reliance on third party responses is subject to
both the borrower's understanding of the potential Year 2000 issues and the
borrowers determination of the impact on their ability to fulfil contractual
loan obligations. As a result, there may be increases in the Company's
problem loans and credit losses in future years. It is not, however,
possible to quantify the complete potential impact of such losses at this
time.
The financial impact of making the required systems changes described
above is expected to be approximately $100,000, of which approximately 50%
represent capital expenditures, and approximately $15,000 has been expended
to date.
The Company is developing contingency plans for implementation in the
event that mission critical third party vendors or other significant third
parties fail to adequately address Year 2000 issues. Such plans principally
involve identifying alternate vendors. The Company is also enhancing its
existing business resumption plans to reflect Year 2000 issues and is
developing plans designed to coordinate the efforts of its personnel and
resources in addressing Year 2000 problems that become evident after December
31, 1999. There can be no assurance that any such plans will fully mitigate
any such failures or problems. Furthermore, there may be certain mission
critical third parties, such as utilities or telecommunication companies,
where alternative arrangements or sources are limited or unavailable.
If Year 2000 issues are not adequately addressed by the Company and
third parties, the Company's business, results of operations and financial
position could be materially adversely affected.
26
<PAGE>
The foregoing Year 2000 discussion contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements, including without limitation, anticipated costs, the dates
by which the Company expects to substantially complete programming changes,
remediation and testing of systems and the impact of the redeployment of
existing staff, are based on management's best current estimates, which were
derived utilizing numerous assumptions about future events, including
continued availability of certain resources, representations received from
third party service providers and other factors. However, there can be no
guarantee that these estimates will be achieved, and accrual results could
differ materially form those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to identify and
convert all relevant computer systems, results of Year 2000 testing, adequate
resolution of Year 2000 issues by governmental agencies, business or other
third parties who are service providers, suppliers, borrowers or customers of
the Company, unanticipated system costs, the need to replace hardware, the
adequacy of and ability to implement contingency plans and similar
uncertainties. The "forward-looking statements made in the foregoing Year
2000 discussion speak only as of the date on which such statements are made,
and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company wishes to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 as to "forward looking"
statements in this Quarterly Report which are not historical facts. The
Company cautions readers that the following important factors could affect
the Company's business and cause actual results to differ materially from
those expressed in any forward looking statement made by, or on behalf of,
the Company.
- - Economic conditions. The Company's results are strongly influenced by
general economic conditions in its market area, Southern California, and a
deterioration in these conditions could have a material adverse impact on
the quality of the Bank's loan portfolio and the demand for its products
and services. In particular, changes in economic conditions in the real
estate and entertainment industries may affect the Company's performance.
- - Interest rates. Management anticipates that short-term interest rate
levels will remain constant in 1998, but if interest rates vary
substantially from this expectation, the Company's results could differ
materially.
27
<PAGE>
- - Government regulation and monetary policy. All forward-looking statements
presume a continuation of the existing regulatory environment and U.S.
Government monetary policies. The banking industry is subject to extensive
federal and state regulations, and significant new laws for changes in, or
repeal of, existing laws may cause results to differ materially. Further,
federal monetary policy, particularly as implemented through the Federal
Reserve System, significantly affects credit conditions for the Bank,
primarily through open market operations in U.S. government securities, the
discount rate for member bank borrowing and bank reserve requirements, and
a material change in these conditions would be likely to have an impact on
results.
- - Competition. The Bank competes with numerous other financial institutions
and non-depository financial intermediaries. Results may differ if
circumstances affecting the nature or level of competition change, such as
the merger of competing financial institutions or the acquisition of
California institutions by out-of-state companies.
- - Credit quality. A significant source of risk arises from the possibility
that losses will be sustained because borrowers, guarantors and related
parties may fail to perform in accordance with the terms of their loans.
The Bank has adopted underwriting and credit monitoring procedures and
credit policies, including the establishment and review of the allowance
for credit losses, that management believes are appropriate to minimize
this risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying the Bank's credit portfolio, but such policies
and procedures may not prevent unexpected losses that could adversely
affect the Company's results.
- - Other risks. From time to time, the Company details other risks to its
businesses and/or its financial results in its filings with the Securities
and Exchange Commission.
While management believes that its assumptions regarding these and other factors
on which forward looking statements are based are reasonable, such assumptions
are necessarily speculative in nature, and actual outcomes can be expected to
differ to some degree. Consequently, there can be no assurance that the results
described in such forward looking statements will, in fact, be achieved.
28
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
On November 6, 1998, the Corporation filed a report on Form 8-K reporting
Item 4.
"Changes in Registrant's Certifying Accountant".
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MERCANTILE BANCORP
-------------------------------
(Registrant)
DATE: November 16, 1998 /s/ SCOTT A. MONTGOMERY
------------------------- -------------------------------
SCOTT A. MONTGOMERY
Chief Executive Officer
DATE: November 16, 1998 /s/ JOSEPH W. KILEY III
------------------------- -------------------------------
JOSEPH W. KILEY, III
Chief Financial Officer
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND SCHEDULES/TABLES ON
NONPERFORMING ASSETS AND ANALYSIS OF CHANGES IN ALLOWANCE FOR CREDIT LOAN
LOSSES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,410
<INT-BEARING-DEPOSITS> 250
<FED-FUNDS-SOLD> 7,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65,602
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 61,828
<ALLOWANCE> 2,060
<TOTAL-ASSETS> 143,580
<DEPOSITS> 117,177
<SHORT-TERM> 3,500
<LIABILITIES-OTHER> 0
<LONG-TERM> 8,000
0
7,350
<COMMON> 24,613
<OTHER-SE> (18,326)
<TOTAL-LIABILITIES-AND-EQUITY> 143,580
<INTEREST-LOAN> 4,399
<INTEREST-INVEST> 2,303
<INTEREST-OTHER> 606
<INTEREST-TOTAL> 7,308
<INTEREST-DEPOSIT> 2,129
<INTEREST-EXPENSE> 2,540
<INTEREST-INCOME-NET> 4,768
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 39
<EXPENSE-OTHER> 4,920
<INCOME-PRETAX> 449
<INCOME-PRE-EXTRAORDINARY> 449
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 441
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 5.19
<LOANS-NON> 8,006
<LOANS-PAST> 0
<LOANS-TROUBLED> 49
<LOANS-PROBLEM> 41
<ALLOWANCE-OPEN> 2,023
<CHARGE-OFFS> 346
<RECOVERIES> 383
<ALLOWANCE-CLOSE> 2,060
<ALLOWANCE-DOMESTIC> 2,060
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
