<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file Number: 2-85306
Lake Ariel Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-2244948
(I.R.S. Employer Identification No.)
Post Office Box 67
Lake Ariel, Pennsylvania 18436
(Address of principal executive offices)
(Zip Code)
(717) 698-5695
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2)has been subject to such filing requirements for the past 90 days.
Yes X No
------------ ------------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,673,877 shares of common
stock, par value $.42 per share, as of September 30, 1996.
<PAGE>
LAKE ARIEL BANCORP, INC.
FORM 10-QSB
FOR THE NINE MONTHS ENDED September 30, 1996
INDEX
Page Number
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.................................. 3
Consolidated Statement of Income for the three and
nine months ended September 30, 1996 and 1995.......... 4
Earnings Per Share for the three and nine months
ended September 30, 1996 and 1995...................... 4
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1996 and 1995............... 5
Notes to Consolidated Financial Statements................ 6-7
Item 2. Management's Discussion and Analysis or
Plan of Operations..................................... 8-21
Part II - Other Information
Item 1. Legal Proceedings........................................... N/A
Item 2. Changes in Securities....................................... N/A
Item 3. Defaults Upon Senior Securities............................. N/A
Item 4. Submission of Matters to a Vote of Security
Holders................................................. N/A
Item 5. Other Information........................................... N/A
Item 6. Exhibits and Reports on Form 8-K............................ 22
Signatures................................................ 23
<PAGE>
LAKE ARIEL BANCORP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(in thousand) (in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................... $ 10,499 $ 12,519
Held-to-maturity securities (estimated fair market
value of $25,324 and $22,866, respectively) .... 26,654 22,589
Available-for-sale securities ..................... 60,447 50,580
Loans and leases .................................. 179,686 159,170
Mortgage loans held for resale .................... 2,593 3,405
Less unearned income and loan fees ............. (9,024) (8,612)
Less allowance for possible credit losses ...... (1,767) (1,657)
--------- ---------
Net Loans ................................ 171,488 152,306
Premises and equipment, net ....................... 7,430 7,785
Accrued interest receivable ....................... 2,226 1,971
Foreclosed assets held for sale ................... 691 52
Other assets ...................................... 4,801 4,057
--------- ---------
TOTAL ASSETS ...................................... $ 284,236 $ 251,859
========= =========
LIABILITIES
Deposits:
Noninterest-bearing ............................ $ 31,780 $ 26,866
Interest-bearing:
Demand ................................... 28,199 25,686
Savings .................................. 38,400 39,388
Time ..................................... 108,657 89,876
Time $100,000 and over ................... 32,686 26,943
--------- ---------
Total Deposits ........................... 239,722 208,759
Accrued interest payable .......................... 2,419 1,746
Federal funds purchased ........................... 5,200 --
Securities sold under agreements to repurchase .... 300 400
Short-term borrowings ............................. -- 5,000
Long-term debt .................................... 15,125 15,156
Other liabilities ................................. 1,023 1,289
--------- ---------
Total Liabilities ........................ 263,789 232,350
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock: Authorized 1,000,000 shares of
$1.25 par value each; no outstanding shares ..... -- --
Common stock: Authorized, 5,000,000 shares of
$.42 par value each; issued and outstanding
1,673,877 shares ................................ 703 696
Capital surplus ................................... 9,648 9,414
Retained earnings ................................. 10,596 9,118
Net unrealized gains (losses) on available-for-sale
securities ...................................... (500) 281
--------- ---------
Total Stockholders' Equity ............... 20,447 19,509
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 284,236 $ 251,859
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
LAKE ARIEL BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
-----------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
- ----------------
Loans and leases ............................. $10,713 $ 9,730 $ 3,697 $ 3,417
Investment Securities
Taxable .................................. 3,250 3,226 1,157 1,040
Exempt from federal income taxes ......... 796 715 287 233
Dividends ................................ 68 97 27 35
------- ------- ------- -------
Total Investment Securities Income .... 4,114 4,038 1,471 1,308
------- ------- ------- -------
Deposits in banks ............................ 21 1 3
Federal funds sold ........................... 93 134 8 24
------- ------- ------- -------
TOTAL INTEREST INCOME ................. 14,924 13,923 5,177 4,752
------- ------- ------- -------
INTEREST EXPENSE:
- -----------------
Deposits ..................................... 6,534 6,117 2,270 2,150
Long-term debt ............................... 740 1,029 252 286
Federal funds purchased ...................... 22 23 18 --
Short-term borrowings ........................ 113 20 20 (25)
Securities sold under agreements to repurchase 13 45 3 --
------- ------- ------- -------
TOTAL INTEREST EXPENSE ................. 7,422 7,234 2,563 2,411
------- ------- ------- -------
NET INTEREST INCOME .......................... 7,502 6,689 2,614 2,341
PROVISION FOR POSSIBLE
CREDIT LOSSES .............................. 425 500 175 140
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES ................. 7,077 6,189 2,439 2,153
------- ------- ------- -------
OTHER OPERATING INCOME:
- -----------------------
Loan origination fees ........................ 160 78 13 64
Customer service charges and fees ............ 909 781 303 305
Mortgage servicing fees ...................... 247 222 80 74
Investment security gains (losses) ........... 43 251 90 --
Gain (loss) on sale of loans, net ............ 61 107 2 67
Other income ................................. 469 502 162 272
------- ------- ------- -------
TOTAL OTHER OPERATING INCOME ................. 1,889 1,941 650 806
------- ------- ------- -------
OTHER OPERATING EXPENSES:
- -------------------------
Salaries and benefits ........................ 2,661 2,706 900 912
Occupancy expense ............................ 799 774 259 254
Equipment expense ............................ 623 672 209 313
FDIC assessment .............................. 202 1 (8)
Advertising .................................. 186 193 39 41
Other expenses ............................... 1,582 1,591 584 601
------- ------- ------- -------
TOTAL OTHER OPERATING EXPENSES ........ 5,853 6,138 1,992 2,113
------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES ................................ 3,113 1,992 1,097 846
PROVISION FOR INCOME TAXES ................... 835 415 320 175
------- ------- ------- -------
NET INCOME ................................... $ 2,278 $ 1,577 $ 777 $ 671
======= ======= ======= =======
Earnings per share: .......................... $ 1.36 $ 0.96 $ .46 $ 0.41
======= ======= ======= =======
Dividends per share: ......................... $ .48 $ 0.40 $ .17 $ 0.14
======= ======= ======= =======
Weighted average no. of shares outstanding: .. 1,677 1,645 1,677 1,645
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
LAKE ARIEL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income ............................................. $ 2,278 $ 1,577
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for possible credit losses ................ 425 500
Depreciation, amortization and accretion ............ 540 673
(Increase) decrease in mortgage loans held for resale 812 (1,495)
Investment security (gains) losses, net ............. (43) (251)
Loss on sale of foreclosed assets ................... 40 60
(Gain) loss on sale of equipment .................... -- 2
(Increase) decrease in accrued interest receivable .. (255) 66
Increase (decrease) in accrued interest payable ..... 673 624
(Increase) decrease in other assets ................. (342) (376)
Increase (decrease) in other liabilities ............ (266) 826
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES .................................. 3,862 2,206
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Held-to-maturity securities:
Proceeds from maturities ............................. 392 12,967
Purchases of securities .............................. (4,457) (4,246)
Available-for-sale securities::
Proceeds from maturities ............................. 7,369 3,440
Proceeds from sales .................................. 22,186 8,213
Purchases of securities .............................. (40,553) (17,878)
Net (increase) decrease in loans and leases ............ (21,167) (11,729)
Purchases of premises and equipment .................... (194) (1,602)
Proceeds from sale of equipment ........................ -- 2
Proceeds from sale of foreclosed assets ................ 69 266
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES ................................ (36,355) (10,567)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Net increase in deposits ............................... 30,963 21,823
Increase (decrease) in federal funds purchased ......... 5,200 400
Increase (decrease) in short-term borrowings ........... (5,000) (7,250)
Increase (decrease) in securities sold under
agreements to repurchase ............................. (100) (600)
Proceeds from long-term debt ........................... -- 15,000
Principal payments on long-term debt ................... (31) (20,071)
Proceeds from issuance of common stock ................. 241 216
Cash dividends paid .................................... (800) (658)
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .................................. 30,473 8,860
-------- --------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS ........... (2,020) 499
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD ................................... 12,519 10,719
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD ................ $ 10,499 $ 11,218
======== ========
CASH PAID DURING THE YEAR FOR:
Interest .............................................. $ 6,749 $ 7,858
======== ========
Income taxes .......................................... $ 775 $ 328
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
LAKE ARIEL BANCORP,INC.
FORM 10-QSB
Part I - Financial Information (Cont'd)
Item 1 - Financial Statements (Cont'd)
Notes to Consolidated Financial Statements
1. REPORTING AND ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accounting and financial reporting policies of Lake Ariel Bancorp,
Inc. and its subsidiary conform to generally accepted accounting principles and
to general practice within the banking industry. The consolidated statements
include the accounts of Lake Ariel Bancorp, Inc. and its wholly owned
consolidated subsidiary, LA Bank, N.A. (Bank) including its subsidiary, LA
Lease, Inc. (collectively, Company). All material intercompany accounts and
transactions have been eliminated in consolidation. The accompanying interim
financial statements are unaudited. In management's opinion, the consolidated
financial statements reflect a fair presentation of the consolidated financial
position of Lake Ariel Bancorp, Inc. and subsidiary, and the results of its
operations and changes in its financial position for the interim periods
presented, in conformity with generally accepted accounting principles.
2. CASH FLOWS
The Company considers amounts due from banks and federal funds sold as
cash equivalents. Generally, federal funds are sold for one-day periods.
From time to time, the Company swaps its residential mortgage loans for
participation certificates of a similar amount issued by the Federal Home Loan
Mortgage Corporation. These certificates do not involve the transfer of cash for
cash flow purposes. No mortgage loans were swapped for participation
certificates during the first nine months of 1996 or 1995.
3. INVESTMENT SECURITIES
The Company adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," on January 1, 1994. SFAS No. 115 requires the
classification of securities as held-to-maturity, available-for-sale or trading.
Securities, other than securities classified as available-for-sale, are carried
at amortized cost if management has the ability and intent to hold these
securities to maturity. Securities expected to be held for an indefinite period
of time and not held until maturity are classified as available-for-sale and are
carried at estimated fair value. Decisions to sell these securities are
determined by the Company's financial position, including but not limited to,
liquidity, interest rate risk, asset liability management strategies, regulatory
requirements, tax considerations or capital adequacy. Gains or losses on
investment securities are computed using the specific identification method.
<PAGE>
The Company has no derivative financial instruments requiring
disclosure under SFAS No. 119.
4. RECLASSIFICATIONS
Certain prior years amounts have been reclassified to conform to the
1996 reporting format.
5. The financial information as of December 31, 1995 and for the interim
periods ended September 30, 1996 and 1995 included herein is unaudited;
however, such information reflects all adjustments consisting of only
normal recurring adjustments, which are, in the opinion of management,
necessary to a fair presentation of the results for the interim
periods.
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
There were no short-term borrowings at September 30, 1996.
Long-term debt at September 30, 1996 consisted of the following:
Unsecured notes, payable in the amount
of $31,200 semiannually, maturing
April 22, 1998..................................... $ 125,000
Borrowings with The Federal Home Loan Bank......... $15,000,000
-----------
Total..................................... $15,125,000
===========
Annual maturities of the long-term debt are as follows: $31,200 in
1996; $62,400 in 1997; $31,400 in 1998; $5,000,000 in 2000; $5,000,000 in 2002;
and $5,000,000 in 2005.
The borrowings with the Federal Home Loan Bank of Pittsburgh require
the Company to maintain collateral with a fair value in an amount which
approximates the total outstanding debt. In addition, the Company must maintain
its membership with the Federal Home Loan Bank of Pittsburgh.
<PAGE>
LAKE ARIEL BANCORP, INC.
FORM 10-QSB
Part I - Financial Information (Cont'd)
Item 2 - Management's Discussion and Analysis or Plan of Operations:
The consolidated financial review of the Company is intended to compare
the performance of the Company for the periods ended September 30, 1996 and
1995. The review of the information presented should be read in conjunction with
the consolidated financial statements and the accompanying notes.
NET INCOME
Net income for the first nine months of 1996 increased 44% compared to
the same period in 1995. Net income was positively influenced by a 14% growth in
net interest income after provision for possible credit losses, while
effectively controlling overhead costs which decreased by 5%. The primary reason
for the modest decrease in overhead expenses was the substantial reduction of
FDIC expense in 1996.
Profit performance for financial institutions is measured by the return
on average assets (ROA) and the return on average equity (ROE). On an annualized
basis, the ROA was 1.12% in 1996 compared to .83% in 1995. The ROE was 15.14%
for the first nine months of 1996 compared to 12.27% in 1995.
NET INTEREST INCOME
Net interest income is the difference between interest income and fees
on earning assets and interest expense on deposits and borrowed funds. The
principal components of earning assets are loans and investment securities. The
primary sources used to fund these assets were deposits, borrowed funds and
capital. For purposes of this review, income that is exempt from federal income
taxes has been adjusted to a tax equivalent basis using the statutory rate of
34% for each period presented.
In the first nine months of 1996 net interest income (tax equivalent
basis) increased 13% over the same period in 1995 primarily due to the volume
increase in earning assets and the positive improvement in the net interest
expense charged on interest-bearing liabilities. Total average earning assets
were $21 million greater at September 30, 1996 compared to the same period in
1995. Average loans and leases grew by 14% or $20 million in the first nine
months of 1996. Average commercial loans increased by 10%, real estate mortgage
loans by 25% and consumer loans and lease financing did not change. The increase
in volume of loans resulted in a 11% growth in loan interest income. Commercial
loan income remained constant, mortgage loan income grew by 20% and consumer
loan income increased by 9%.
<PAGE>
Investment securities income increased 3% and is directly attributable
to slightly higher volume levels and yields during the period. Tax exempt state
and municipal securities income increased 11% or $123 thousand due to
reinvestments into tax-exempt securities. U.S. government agencies income
increased by 1%, or $24 thousand, again because of volume. Other securities
income decreased 30% due to volume. Included in other securities are dividends
on both Federal Reserve Bank and Federal Home Loan Bank stock. Gross unrealized
gains on held to maturity securities were approximately $249 thousand while
gross unrealized losses amounted to $643 thousand.
Total interest expense increased 3% or $188 thousand in the first nine
months of 1996. The higher levels of average interest-bearing deposit accounts
were mostly offset by a decrease in the rates paid on these deposits. Average
time (certificates of deposit) deposits contributed to the growth. In aggregate,
average savings and interest-bearing deposits currently represent 32% of
interest-bearing deposits compared to 37% in September, 1995. Total interest
expense associated with these types of deposits decreased 3% or $52 thousand
during the third quarter of 1996. Total average certificates of deposit
increased 20%, but due to the repricing frequency of these deposits and rate
changes, interest expense increased by 10%. The effect of the lower average
rates resulted in a basis point decrease in the cost of interest-bearing
deposits, from 4.53% at September 1995 to 4.38% at September 1996.
Average total borrowings were approximately $19.5 million at September
30, 1996 compared to $24.3 million at September 30, 1995. Federal Home Loan Bank
borrowings of $5 million were paid back during 1996. The majority of the
borrowings were utilized as part of investment and asset liability strategies to
increase interest income.
During the first nine months of 1996, the average yield on earning
assets decreased by 13 basis points and cost of interest-bearing liabilities
decreased by 27 basis points. The net effect was a 14 basis point increase in
the net interest margin from 4.10% in 1995 to 4.24% in 1996.
The following table provides an analysis of changes in net interest
income with regard to volume, rate and yields of interest-bearing assets and
liabilities based on month-end average balances for each period. Components of
interest income and expense are presented on a tax equivalent basis using the
federal income tax rate of 34% for each period.
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differential
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For nine months ended September 30, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Annual Income/ Average Annual Income/
Balance (1) Rate Expense Balance(1) Rate Expense
----------- ------ -------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold ...................................... $ 2,336 5.32% $ 93 $ 2,929 6.12% $ 134
Deposits in Federal Home Loan Bank ...................... 126 4.24% 4 340 8.26% 21
Investment Securities:
U.S. government agencies .............................. 64,050 6.78% 3,250 63,788 6.76% 3,226
State and municipal (2) ............................... 19,420 8.30% 17,142 8.45% 1,083
Other securities ...................................... 1,427 6.37% 68 1,940 6.68% 97
-------- ---- -------- -------- ----- --------
Total Securities .................................... $ 84,897 7.12% 4,524 82,870 7.11% 4,406
Loans and Leases:
Commercial, financial and industrial(4) ............... 47,483 9.21% 3,270 43,274 10.09% 3.265
Real estate-construction and mortgage ................. 78,997 8.08% 4,524 63,105 8.42% 3,972
Installment loans to individuals (3) .................. 33,752 10.05% 2,538 34,612 9.11% 2,358
Lease financing (3) ................................... 2,011 8.64% 130 1,182 9.73% 86
-------- ---- -------- -------- ----- --------
Total Loans and Leases .............................. $162,243 8.83% 10,713 142,173 9.10% 9,681
Total earning assets .................................... 249,602 8.21% 15,334 228,312 8.34% 14,242
Cash and due from banks ................................. 10,083 -- -- 10,778 -- --
Premises and equipment .................................. 7,626 -- 7,684 -- --
Other, less allowance for credit losses
and loan fees ......................................... 4,010 -- 4,614 -- --
-------- ---- -------- -------- ----- --------
Total Assets ............................................ $271,321 7.56% $ 15,334 $251,388 7.57% $ 14,242
======== ==== ======== ======== ===== ========
Liabilities and Stockholders' Equity
Interest-Bearing Deposits:
Demand ................................................ $ 25,404 2.06% $ 391 $ 25,630 2.43% $ 465
Savings ............................................... 38,825 4.02% 1,168 41,834 3.66% 1,146
Time .................................................. 103,740 5.03% 3,902 86,615 5.46% 3,535
Time over $100,000 .................................... 31,640 4.53% 1,073 26,659 4.87% 971
Total Interest-Bearing Deposits ..................... $199,609 4.38% 6,534 180,738 4.53% 6,117
Federal Funds Purchased ................................. 547 5.38% 22 517 5.17% 20
Short-term borrowings ................................... 3,000 5.04% 113 3,491 6.20% 162
Long-term debt .......................................... 15,657 6.32% 740 19,705 6.19% 912
Securities sold under agreements to repurchase .......... 350 4.97% 590 5.21% 23
-------- ---- -------- -------- ----- --------
Total Interest-Bearing Liabilities .................. 219,163 4.53% 7,422 205,041 4.72% 7,234
Demand - noninterest - bearing .......................... 28,846 -- -- 25,879 -- --
Other liabilities ....................................... 3,253 -- -- 3,386 -- --
-------- ---- -------- -------- ----- --------
Total Liabilities ....................................... 251,262 3.95% 7,422 234,306 4.13% 7,234
Stockholders' equity .................................... 20,059 -- -- 17,082 -- --
-------- ---- -------- -------- ----- --------
Total Liabilities and Stockholders' Equity .............. $271,321 3.66% $ 7,422 $251,388 3.85% $ 7,234
======== ==== ======== ======== ===== ========
Margin Analysis
Interest income/earning assets ....................... 8.21% $ 15,334 8.34% $ 14,242
Interest expense/earning assets ...................... 3.97% 7,422 4.24% 7,234
---- -------- ----- --------
Net interest income/earning assets ................... 4.24% $ 7,912 4.10% $ 7,008
==== ======== ===== ========
</TABLE>
(Percentages may not add due to rounding.)
(1) Average balances have been computed using daily balances in 1996 and
month-end balances in 1995. Nonaccrual loans are included in loan balances.
(2) Interest and yield are presented on a tax equivalent basis using 34% for
each period.
(3) Installment loans and leases are presented net of unearned interest.
(4) Does not include recovered interest of $49,000 on nonaccrual loan paid off
during 1995.
<PAGE>
Rate/Volume Variance Analysis Calculation
for nine months ended September 30, 1996
1996 Compared to 1995 (5)
Total Caused by
Variance Rate Volume
-------- ---- ------
Interest Income:
Federal funds sold ........................... $ (41) $ (15) $ (26)
Deposits in Federal Home Loan Bank ........... (17) (7) (10)
Investment Securities:
U.S. government agencies ................... 24 11 13
State and municipal ........................ 123 (19) 142
Other securities ........................... (29) (5) (24)
------------------------------
Total Investment Securities .............. 118 (13) 131
------------------------------
Loans and Leases:
Commercial, financial and industrial ....... 5 (300) 305
Real estate-construction and mortgage ...... 803 (163) 966
Installment loans to individuals ........... 180 238 (58)
Lease financing ............................ 44 (11) 55
------------------------------
Total Loans and Leases ................... 1,032 (236) 1,268
------------------------------
Total Earning Assets ......................... 1,092 (271) 1,363
------------------------------
Interest Expense:
Interest-bearing deposits:
Demand ..................................... (74) (70) (4)
Savings .................................... 22 108 (86)
Time ....................................... 367 (294) 661
Time over $100,000 ......................... 102 (70) 172
------------------------------
Total Interest-Bearing Deposits .......... 417 (326) 743
Federal Funds Purchased ...................... 2 1 1
Short-term borrowings ........................ (49) (28) (21)
Long-term debt ............................... (172) 20 (192)
Securities sold under agreements to repurchase (10) (1) (9)
------------------------------
Total Interest-Bearing Liabilities ........... 188 (334) 522
------------------------------
Net Interest Income Variances ................ $ 904 $ 63 $ 841
==============================
(5) The proportion of the total change attributable to volume and rate changes
during the period has been allocated to the volume and rate components
based upon the absolute dollar amount of the change in each component prior
to the allocation.
<PAGE>
OTHER OPERATING INCOME
Other operating income, during the first nine months of 1996, decreased
3% from the same period in 1995. Loan origination fees increased by 105% or $82
thousand, because of the volume in residential mortgage loans sold for cash.
Mortgage servicing fee income increased by 11% or $25 thousand when compared to
the first nine months of 1995. These fees are directly influenced by the volume
of loans that are sold in the secondary market. Gains or losses on sales of
mortgage loans occur when the coupon rates on mortgage loans exceed or fall
short of the yields required by the purchasers. The net gain recorded in 1996
and 1995 is indicative of the changes in interest rates during the periods in
which the sales occurred.
There was no trading account activity during the first nine months of
1996 and 1995.
Customer service charges and fees, which include fees on demand deposit
accounts, item processing and return items, increased 16% in the first nine
months of 1996. The increase is directly related to the growth in the number of
both consumer and business demand deposits and the fees associated with each
type of account.
Other income decreased $33 thousand or 7% in the first nine months of
1996 compared to the same period in 1995. Included in other income are earnings
on director's life insurance policies, credit card annual fees and merchant
discounts, safe deposit box rentals, rental income on excess office space in one
of the Company's branch offices and other general service fees.
OTHER OPERATING EXPENSES
For the first nine months of 1996, total other operating expenses
decreased 5% from the same period in 1995. Salaries and benefits, which
represent one of the most significant portions of operating expenses, decreased
by 2% in the first nine months of 1996 compared to 1995. The decrease is due to
turnover of employees, early retirements in 1995, and a change in the retirement
plan structure in the last six months of 1995. Occupancy expense increased by 3%
in 1996 compared to the same period in 1995. Equipment expense decreased by 7%
in 1996 compared to the first nine months of 1995. The increased cost of
computer equipment and related software costs in 1995 without the same
investment in 1996 resulted in the decrease in 1996. The increase in occupancy
expense is directly related to the overall increases in overhead expenses at all
branch offices. The decrease in the FDIC insurance assessment from $202 thousand
in 1995 to $2 thousand in 1996 reflects the decision by the FDIC in late 1995 to
charge well capitalized banks a $1,000 semi-annual membership fee without any
deposit-based insurance premium. Other expenses increased by 1% over the same
period in 1995 and include such costs as legal fees, professional and audit fees
and other general operating expenses.
<PAGE>
INCOME TAXES
The year-to-date provision for income taxes at September 30, 1996 more
than doubled in the first nine months of 1996 compared to the same period in
1995, due to the 56% increase in pre-tax income and the change in permanent
taxable/non-taxable items. The effective tax rate for the first six months of
1996 was 27% compared to 21% in the same period in 1995.
PROVISION FOR POSSIBLE CREDIT LOSSES
The provision for possible credit losses is based on management's
evaluation of the allowance for possible credit losses in relation to the credit
risk inherent in the loan portfolio. In establishing the amount of provision
required, management considers a variety of factors, including but not limited
to, general economic factors, volume of specific types of loans, collateral
adequacy and potential losses from significant borrowers. The Company has
strengthened its internal loan review process by implementing stringent
analytical standards in the review procedure. At monthly meetings, the loan
review committee analyzes information relative to both specific credits and the
total portfolio in general. The information is then used to determine the amount
to be charged to the provision which thereby increases the allowance for
possible credit losses.
At September 30, 1996 the amount charged to operating expense for the
provision for possible credit losses was $425 thousand compared to $500 thousand
at September 30, 1995. The provision represents management's assessment of the
risks inherent in the loan and lease portfolio while providing amounts necessary
to cover charge-offs. The allowance for possible credit losses was 1.02% at
September 30, 1996 compared to 1.04% at September 30, 1995.
FINANCIAL CONDITION
At September 30, 1996, the Company's total assets were $284.2 million,
representing an increase of $32.3 million or 13% from the December 31, 1995
balance of $251.9 million. The increase in assets is primarily attributable to a
$19 million growth in total loans and a $14 million increase in investment
securities.
Investment securities increased 19% from $73 million at December 31,
1995, to $87 million at September 30, 1996. The net increase of $14 million was
attributable to both an investment of liquidity generated by the increase in
deposits and an investment strategy that was implemented during the period to
increase earnings. The Company purchased $10 million of securities with funds
borrowed from the Federal Home Loan Bank of Pittsburgh. The strategy that was
employed provides a favorable yield pickup between the invested and borrowed
funds.
<PAGE>
Total net loans increased by $19 million from $152 million at year end
1995, to $171 million at September 30, 1996. Residential mortgage loans
increased $16 million from December 31, 1995 to September 30, 1996. The increase
is attributable to the increased mortgage loan activity during the period,
particularly during the third quarter of 1996. Consumer loans, net of unearned
discounts, grew by $300 thousand or 1%. Commercial loans increased $3 million or
7% at September 30, 1996. Commercial loans consist of loans made to small
businesses within the Company's market area and are generally secured by real
estate and other assets of the borrowers.
Total deposits increased $31 million or 15% from $209 million at year
end 1995 to $240 million at September 30, 1996. Noninterest-bearing demand
deposits increased $5 million or 18% during the first nine months of 1996. In
aggregate, savings accounts and interest-bearing demand deposits increased by
$1.5 million or 2% during the period. As a percentage of total deposits, savings
and interest-bearing demand deposits represented 28% at September 30, 1996,
compared to 31% at year end 1995. These deposits continue to be very attractive
to consumers because of their liquidity feature. Time deposits, including
certificates of deposit in denominations of $100 thousand or more, increased $25
million or 21% during the period. There were no brokered deposits within the
Company's deposit base at September 30, 1996.
The Company considers its current deposit base to be stable and
generally consumer in nature. The deposit mix is, in general, equally
distributed among all products without any significant concentrations.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans and foreclosed assets
held for sale. Nonperforming loans consist of loans where the principal,
interest, or both is 90 or more days past due and loans that have been placed on
nonaccrual. When loans are placed on nonaccrual, income from the current period
is reversed from current earnings and interest from prior periods is charged to
the allowance for possible credit losses. Consumer loans are charged off when
principal or interest is 120 or more days delinquent, or are placed on
nonaccrual if the collateral is sufficient to recover the principal. The
following table represents nonperforming assets of the Company at September 30,
1996 and 1995.
<PAGE>
1996 1995
(Dollars in thousands)
Loans past due 90 days or more ................... $ 811 $1,040
Impaired loans on nonaccrual status .............. 711 1,334
Other nonaccrual loans ........................... 73 482
------ ------
Total nonperforming loans ...................... 1,595 2,856
Foreclosed assets held for sale .................. 691 265
------ ------
Total nonperforming assets ..................... $2,286 $3,121
====== ======
Nonperforming loans as a percent
of loans ....................................... .88% 2.03%
Nonperforming assets as a percent
assets ......................................... .80% 1.25%
Nonperforming assets at September 30, 1996 decreased $835 thousand or
27% compared to the same period in 1995. Nonaccrual loans were $1 million lower
at September 30, 1996 compared to September 30, 1995. Real estate loans
represent $73 thousand of nonaccrual loans while loans to commercial borrowers
represent the remaining $711 million balance. Generally, commercial loans are
secured by real estate and other assets of the borrowers. No material losses are
expected from legal proceedings on nonaccrual loans.
Loans past due 90 days or more decreased $229 thousand or 22% from 1995
levels. Approximately 50% percent of the delinquent loans are residential
mortgages, 32% are consumer installment and 18% are loans to commercial
borrowers. At quarterly loan review meetings, management reviews the status of
these loans with regard to legal proceedings and collection efforts.
Foreclosed assets held for sale consists of properties that are
acquired by legal proceedings and are carried at the lower of fair value minus
estimated costs to sell, or cost. No material losses are expected upon the sale
of the property.
POTENTIAL PROBLEM LOANS
At September 30, 1996, the Company had approximately $786,500 of
problem loans which were not included in the nonperforming loan classification.
Known information about possible credit problems related to these borrowers
caused management to have serious doubts as to the ability of such borrowers to
comply with present loan repayment terms and may result in future classification
of such loans as nonperforming. These potential problem loans were taken into
consideration by management when determining the adequacy of the allowance for
possible credit losses at September 30, 1996.
<PAGE>
LIQUIDITY AND FUNDS MANAGEMENT
The following discussion contains forward-looking statements that
involve risks and uncertainties. The actual results for any particular period
may vary. See "Factors That May Affect Future Results."
Liquidity is a measure of the Company's ability to meet present and
future financial obligations and commitments on a timely basis. Liquidity needs
include sufficient cash flow to meet present and future loan commitments,
anticipated and unanticipated deposit outflows, debt servicing payments,
investment commitments, and daily business operations. At the Bank subsidiary
level, liquidity is generally provided by deposit growth, principal repayments,
maturities and sales of securities, periodic repayments of loans, borrowings and
net income. Liquidity is provided to the Company in the form of issuance of
common stock through participation in the various stock plans of the Company and
quarterly dividend payments from the Bank subsidiary.
Liquidity is managed on a daily basis at both the parent company and
subsidiary levels, enabling management to effectively monitor changes in
liquidity and to react accordingly to market conditions. Management believes
that liquidity is sufficient to meet present and future financial obligations
and commitments on a timely basis.
At September 30, 1996, the Company maintained $10.5 million in cash and
cash equivalents (including Federal funds sold) in the form of cash and due from
banks (after reserve requirements). In addition, the Company had $2.6 of
mortgage loans held for resale and $60.4 million in available-for-sale
securities. This combined total of $73.5 million represented 26% of total assets
at September 30, 1996. The Company believes that its liquidity is adequate.
The Company considers its primary source of liquidity to be its core
deposit base. This funding source had grown steadily over the years and consists
of deposits from customers throughout the branch network. The Company will
continue to promote the acquisition of deposits through its branch offices. At
September 30, 1996, approximately 84% of the Company's assets were funded by
core deposits acquired within its market area. An additional 7% of the assets
were funded by the Company's equity. These two components provide a substantial
and stable source of funds.
Net cash provided by operating activities was $3.9 million at September
30, 1996, as compared to net cash provided by operating activities of $2.2
million for the comparable period in 1995. The $1.7 million increase is
primarily related to an increase in net income and a decrease in mortgage loans
held for resale. Net cash used in investing activities was $36.3 million at
September 30, 1996 compared to $10.6 million at September 30, 1995.
Approximately $17.6 million of the net increase was a net increase in the
purchase of securities. An increase of $9.4 million in loan and lease funding
makes up the remaining increase in cash used in investing activities.
<PAGE>
Net cash provided by financing activities increased to $30.5 million at
September 30, 1996 from $8.9 million at September 30, 1995, a net increase of
$21.6 million. The net increase of $9.1 million in deposits was the result of
overall Bank growth. The net change in proceeds from and repayments of long-term
borrowings of $5 million resulted in a net increase in cash provided by
financing activities. The net change in short-term borrowings and federal funds
purchased were $2.3 million and $4.8 million, respectively, at September 30,
1996.
INTEREST RATE SENSITIVITY
Interest rate sensitivity management involves the matching of maturity
and repricing dates of earning assets and interest-bearing liabilities to help
insure the Company's earnings against extreme fluctuations in interest rates.
The Company's Asset/Liability Committee ("ALCO"), which is comprised of senior
management and board members, meets quarterly to monitor the ratio of interest
sensitive assets to interest sensitive liabilities.
The Company's principal financial objective is to achieve long-term
profitability while managing its exposure to fluctuations in interest rates.
This is accomplished through the measurement of the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. The goal
of maintaining a reasonable balance between interest sensitive assets and
interest sensitive liabilities is accomplished through the Company's
asset/liability management program.
To manage the interest sensitivity position, an asset/ liability model
called "gap analysis" is used to monitor the difference in the volume of the
Company's interest sensitive assets and liabilities that mature or reprice
within given periods. A positive gap (asset sensitive) indicates that more
assets reprice during a given period compared to liabilities, while a negative
gap (liability sensitive) has the opposite effect. The use of this model assists
the ALCO to gauge the effects of interest rate changes on interest sensitive
assets and liabilities in order to determine what impact these rate changes will
have upon the net interest spread.
At September 30, 1996, the Company maintained a one year cumulative GAP
of negative $16.2 million or 5.71% of total assets. The effect of this GAP
position provided a negative mismatch of assets and liabilities which can expose
the Company to interest rate risk during a period of rising interest rates.
<PAGE>
The following table sets forth the Company's interest sensitivity gap
position as of September 30, 1996.
<TABLE>
<CAPTION>
3 months 3 through 1 through Over Total
or less 12 months 3 years 3 years
-------- --------- --------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Investment securities(1) $ 20,791 $ 11,853 $ 15,918 $ 39,297 $ 87,859
Loans(2) ....................... 43,167 24,313 35,141 68,795 171,416
-------- -------- -------- -------- --------
Total ........................ $ 63,958 $ 36,166 $ 51,059 $108,092 $259,275
======== ======== ======== ======== ========
Interest-bearing
transaction deposits(3) ...... $ -- $ 5,977 $ 19,704 $ 41,993 $ 67,674
Time ........................... 28,355 46,284 19,850 18,981 113,470
Time over $100,000 ............. 12,192 13,034 1,353 1,294 27,873
Repurchase agreements .......... 300 -- -- -- 300
Short-term borrowings .......... 5,200 -- -- -- 5,200
Long-term debt ................. 5,001 4 10 10,110 15,125
-------- -------- -------- -------- --------
Total ........................ $ 51,048 $ 65,299 $ 40,917 $ 72,378 $229,642
======== ======== ======== ======== ========
Gap ............................ $ 12,910 $(29,133) $ 10,142 $ 35,714
======== ======== ======== ========
Cumulative Gap ................. $ 12,910 $(16,223) $ (6,081) $ 29,633
======== ======== ======== ========
</TABLE>
(1) Gross of unrealized gains/losses on available for sale securities.
(2) Investments and loans are included in the earlier of the period in which
interest rates are next scheduled to adjust or the period in which they are due.
In addition, loans are included in the periods in which they are scheduled to be
repaid based on scheduled amortization. For amortizing loans and mortgage-backed
securities, annual prepayment rates are assumed reflecting historical experience
as well as management's knowledge and experience of its loan products.
(3) The Company's interest-bearing demand and savings accounts are generally
subject to immediate withdrawal. However, management considers a certain amount
of such accounts to be core accounts having significantly longer effective
maturities based on the retention experiences of such deposits in changing
interest rate environments. The effective maturities presented are the FDICIA
305 recommended maturity distribution limits for non-maturing deposits.
<PAGE>
Upon reviewing the current interest sensitivity scenario, decreasing
interest rates could positively affect net income because the Company is
liability sensitive. In a rising interest rate environment, net income could be
negatively affected because more liabilities than assets will reprice during a
given period. However, this analysis is only a simulation tool used to gauge the
effects of a changing interest rate scenario. Other factors such as product
pricing, customer preference and local market conditions play an important part
of interest rate risk management.
CAPITAL
The adequacy of the Company's capital is reviewed on an ongoing basis
with reference to size, composition and quality of the Company's resources. An
adequate capital base is important for continued growth and expansion in
addition to providing an added protection against unexpected losses.
As required by the federal banking regulatory authorities, new
guidelines have been adopted to measure capital adequacy. Under the guidelines,
certain minimum ratios are required for core capital and total capital as a
percentage of risk-weighted assets and other off-balance sheet instruments. For
the Company, Tier I capital consists of common stockholders' equity less
intangible assets, and Tier II capital includes the allowable portion of the
allowance for possible loan losses, currently limited to 1.25% of risk-weighted
assets. By regulatory guidelines, neither Tier I nor Tier II capital reflects
the adjustment of FASM 115, which requires adjustment in financial statements
prepared in accordance with generally accepted accounting principles by
including as a separate component of equity, the amount of net unrealized
holding gains or loses on debt and equity securities that are deemed to be
available-for-sale.
Regulatory guidelines that core capital and total risk-based capital
must be at least 4.00% and 8.00%, respectively. The following table illustrates
the Company's capital ratios as required under the guidelines.
Primary capital.............................. $ 20,936
Intangible assets............................ 124
--------
Tier I capital(1)............................ 20,812
Tier II Capital.............................. 1,715
--------
Total Risk-Based Capital..................... $ 22,527
========
Total Risk-Weighted Assets................... $167,307
Tier I Ratio................................. 12.44%
Risk-Based Capital Ratio..................... 13.46%
Tier I Leverage Ratio........................ 7.67%
<PAGE>
(1) Gross of unrealized losses on available-for-sale securities. If
unrealized losses on available for sale securities were included, Tier
I capital is 11.99%, total risk-based capital ratio is 13.01%, and the
Tier I leverage ratio is 7.39%.
FACTORS THAT MAY AFFECT FUTURE RESULTS
General. Banking is affected, directly and indirectly, by local,
domestic and international economic and political conditions, and by government
monetary and fiscal policies. Conditions such as inflation, recession,
unemployment, volatile interest rates, tight money supply, real estate values,
international conflicts and other factors beyond the control of the Company and
its Bank subsidiary may adversely affect the future results of operations of the
Company and its Bank subsidiary. Management does not expect any one particular
factor to affect the Bank subsidiary's results of operations. A downward trend
in several areas, however, including real estate, construction and consumer
spending, could have an adverse impact on the Bank subsidiary's ability to
maintain or increase profitability. Therefore, there is no assurance that the
Company and its Bank subsidiary will be able to continue their current rates of
income and growth.
Interest Rates. The Company's earnings depend, to a large extent, upon
net interest income, which is primarily influenced by the relationship between
its cost of funds (deposits and borrowings) and the yield on its
interest-earning assets (loans and investments). This relationship, known as the
net interest spread, is subject to fluctuate and is affected by regulatory,
economic and competitive factors which influence interest rates, the volume,
rate and mix of interest-earning assets and interest-bearing liabilities, and
the level of nonperforming assets. As part of its interest rate risk management
strategy, management seeks to control its exposure to interest rate changes by
managing the maturity and repricing characteristics of interest-earning assets
and interest-bearing liabilities. Through its asset/liability committee, the
Company continually monitors interest rate sensitivity of its earning assets and
interest-bearing liabilities to minimize any adverse effects on future earnings.
As of September 30, 1996, total interest-earning assets maturing or
repricing within one year were less than total interest-bearing liabilities
maturing or repricing in the same period by $16 million, representing a
cumulative one-year interest rate sensitivity gap as a percentage of total
assets of negative 5.7%. This condition suggests that the yield on the Company's
interest-earning assets should adjust to changes in market interest rates at a
slower rate than the cost of the Company's interest-bearing liabilities.
Consequently, the Company's net interest income could decrease during periods of
rising interest rates. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Interest Rate Sensitivity."
<PAGE>
Adequacy of Allowance for Loan Losses. In originating loans, there is a
likelihood that some credit losses will occur. This risk of loss varies with,
among other things, general economic conditions, the type of loan being made,
the creditworthiness and debt servicing capacity of the borrower over the term
of the loan and, in the case of a collateralized loan, the value and
marketability of the collateral securing the loan. Management maintains an
allowance for loan losses based on, among other things, historical loan loss
experience, known inherent risks in the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and an evaluation of current economic conditions.
Management currently believes that the allowance for loan losses is adequate,
but that there can be no assurance that nonperforming loans will not increase in
the future.
Local Economic Conditions. The success of the Company is dependent, to
a certain extent, upon the general economic conditions in the geographic market
served by the Bank subsidiary. Although the Company expects that economic
conditions will continue to be favorable in this market, no assurance can be
given that these economic conditions will continue. Adverse changes in economic
conditions in the geographic market that the Bank subsidiary serves would likely
impair the Bank subsidiary's ability to collect loans and could otherwise have a
material adverse effect on the consolidated results of operations and financial
condition of the Company.
Competition. The Banking industry is highly competitive, with rapid
changes in product delivery systems and in consolidation of service providers.
Many of the Company's competitors are bigger than the Company in terms of assets
and have substantially greater technical, marketing and financial resources.
Because of their size, many of these competitors can (and do) offer products and
services that the Company does not offer. The Company is constantly striving to
meet the convenience and needs of its customers and to enlarge its customer
base. No assurance can be given that these efforts will be successful in
maintaining and expanding the Company's customer base.
FUTURE OUTLOOK
Management is hopeful that the newest additional banking offices will
continue to expand the Company's deposit base by attracting new depositors,
while providing quality service to both new and existing customers. The initial
costs associated with the branch openings, such as salaries and benefits,
advertising, overhead expenses and marketing, had a negative impact on the
Company's earnings until the growth in deposits reached a level to offset these
expenses.
Our twelfth branch office in Lake Wallenpaupack (Pike County) is
expected to open in November, 1996. In addition, we are in the process of
acquiring the real estate and deposit customer lists of the Milford (Pike
County) and Mountainhome (Monroe County) branches of PNC Bank. These branches
will be open in December of this year.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 601 of Regulation S-K
Exhibit Number Description of Exhibit
-------------- ----------------------
2 None
4 None
11 None
15 None
18 None
19 None
20 None
23 None
24 None
25 None
28 None
(b) Reports on Form 8-K
On August 13, 1996, the Company filed Form 8-K electronically to put on
file the latest amended articles of incorporation and by-laws.
On September 10, 1996, the Company filed Form 8-K electronically
transmitting a corporate resolution and press release approving a 5% common
stock dividend declared on September 10, 1996.
<PAGE>
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.
LAKE ARIEL BANCORP, INC.
Date: November 5, 1996 By /s/ John G. Martines
-----------------------------
John G. Martines
CHIEF EXECUTIVE OFFICER
/s/ Joseph J. Earyes
-----------------------------
Joseph J. Earyes, CPA
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000723878
<NAME> LAKE ARIEL BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,350
<INT-BEARING-DEPOSITS> 149
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,447
<INVESTMENTS-CARRYING> 26,654
<INVESTMENTS-MARKET> 87,101
<LOANS> 173,255
<ALLOWANCE> 1,767
<TOTAL-ASSETS> 284,236
<DEPOSITS> 239,722
<SHORT-TERM> 5,500
<LIABILITIES-OTHER> 3,442
<LONG-TERM> 15,125
703
0
<COMMON> 0
<OTHER-SE> 19,744
<TOTAL-LIABILITIES-AND-EQUITY> 284,236
<INTEREST-LOAN> 10,713
<INTEREST-INVEST> 4,114
<INTEREST-OTHER> 97
<INTEREST-TOTAL> 14,924
<INTEREST-DEPOSIT> 6,534
<INTEREST-EXPENSE> 7,422
<INTEREST-INCOME-NET> 7,502
<LOAN-LOSSES> 425
<SECURITIES-GAINS> 43
<EXPENSE-OTHER> 1,582
<INCOME-PRETAX> 3,113
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,278
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 0
<LOANS-NON> 784
<LOANS-PAST> 811
<LOANS-TROUBLED> 1,595
<LOANS-PROBLEM> 786
<ALLOWANCE-OPEN> 1,790
<CHARGE-OFFS> 213
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,767
<ALLOWANCE-DOMESTIC> 1,767
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,767
</TABLE>
