<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: MARCH 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-11401
SECURITY CHICAGO CORP.
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(Exact Name of Registrant as Specified In Its Charter)
DELAWARE 36-3236203
- ---------------------------------------- ---------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
196 E. PEARSON, CHICAGO, ILLINOIS 60611
- ---------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
312/280-0360
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding at April 1, 1996
- ---------------------------------------- -----------------------------------
Common Stock, par value $5.00 208,714 shares (excluding 31,286
shares held as treasury shares)
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<PAGE>
SECURITY CHICAGO CORP.
AND SUBSIDIARY
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income for the three months
ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1996 and 1995 . . . . . . . . . 6
Notes to the Condensed Consolidated Financial Statements as of
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operation. . . . . . . . . . . . . . . . . . . . . . . . 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 13
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,258 $ 3,923
Federal funds sold 16,800 19,900
-------- --------
Total cash and cash equivalents 22,058 23,823
Securities available-for-sale 2,927 2,836
Securities held-to-maturity (market value:
1996 - $15,304; 1995 - $14,551) 15,371 14,553
Loans, net of unearned discount and deferred loan fees 26,883 26,577
Less: Allowance for loan losses (354) (354)
-------- --------
26,529 26,223
Property, plant and equipment, net 3,002 133
Due from broker for matured securities - 4,085
Accrued interest and other assets 417 534
-------- --------
$ 70,304 $ 72,187
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 11,106 $ 13,829
Interest-bearing 49,330 48,758
-------- --------
Total deposits 60,436 62,587
Accrued interest and other liabilities 1,229 1,140
-------- --------
61,665 63,727
Stockholders' equity
Common stock, $5 par value; 1,000,000 shares
authorized; 240,000 shares issued 1,200 1,200
Surplus 1,200 1,200
Retained earnings 6,962 6,842
Net unrealized loss on securities
available-for-sale, net of tax (35) (94)
Treasury stock, at cost - 31,286 shares (688) (688)
-------- --------
8,639 8,460
-------- --------
$ 70,304 $ 72,187
-------- --------
-------- --------
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
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<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fee income $ 582 $ 633
Securities
Taxable 194 274
Tax-exempt 17 22
Federal funds sold 268 46
Dividends 23 29
-------- --------
1,084 1,004
INTEREST EXPENSE
Deposits 446 355
Notes payable - 19
-------- --------
446 374
-------- --------
NET INTEREST INCOME 638 630
Provision for loan losses - -
-------- --------
638 630
OTHER INCOME
Service fees 153 182
Other income 35 42
-------- --------
188 224
OTHER EXPENSES
Salaries and employee benefits 309 291
Occupancy and equipment expense 173 150
Professional fees 29 47
Computer service fees 50 55
Other operating expenses 86 121
-------- --------
647 664
-------- --------
Income before income taxes 179 190
Provision for income taxes 59 53
-------- --------
NET INCOME $ 120 $ 137
-------- --------
-------- --------
Earnings per share $ 0.57 $ 0.65
-------- --------
-------- --------
Weighted average shares outstanding 208,714 210,005
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 120 $ 137
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for depreciation and amortization 28 24
Net amortization of investment security premiums/
discounts 8 13
Decrease in deferred loan fees (5) (14)
Decrease in due to broker 4,085 -
(Increase) decrease in accrued interest receivable and
other assets 117 (129)
Increase in accrued interest payable and
other liabilities 57 78
-------- --------
Net cash provided by operating activities 4,410 109
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held-to-maturity 1,168 145
Purchases of securities held-to-maturity (1,994) -
Net increase in loans (301) (166)
Purchases of building and equipment, net (2,897) (6)
-------- --------
Net cash used in investing activities (4,024) (27)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (2,151) (2,092)
Cash dividends paid - (108)
Purchase of treasury stock - (246)
-------- --------
Net cash used in financing activities (2,151) (2,446)
-------- --------
Net decrease in cash and cash equivalents (1,765) (2,364)
Cash and cash equivalents at beginning of period 23,823 11,256
-------- --------
Cash and cash equivalents at end of period $ 22,058 $ 8,892
-------- --------
-------- --------
Supplemental disclosure of cash flow information
Cash paid during period for
Interest $ 431 $ 377
Income taxes 81 -
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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SECURITY CHICAGO CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
For Three Months Ended March 31, 1996 and 1995
(In thousands, except share data)
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<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
on Securities
Available- Total
Common Retained for-Sale, Treasury Stockholders'
Stock Surplus Earnings Net of Tax Stock Equity
----- ------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,200 $1,200 $6,328 $(329) $(405) $7,994
Net income for three months ended March 31, 1995 - - 137 - - 137
Purchase of 6,743 treasury shares - - - - (246) (246)
Change in unrealized gain (loss) on
securities available-for-sale, net of tax - - - 71 - 71
------ ------ ------ ----- ----- ------
Balance at March 31, 1995 $1,200 $1,200 $6,465 $(258) $(651) $7,956
------ ------ ------ ----- ----- ------
------ ------ ------ ----- ----- ------
Balance at December 31, 1995 $1,200 $1,200 $6,842 $(94) $(688) $8,460
Net income for three months ended March 31, 1996 - - 120 - - 120
Change in unrealized loss on
securities available-for-sale, net of tax - - - 59 - 59
------ ------ ------ ---- ----- ------
Balance at March 31, 1996 $1,200 $1,200 $6,962 $(35) $(688) $8,639
------ ------ ------ ---- ----- ------
------ ------ ------ ---- ----- ------
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
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NOTE 1
Security Chicago Corp. (Corporation) is a one bank holding company which owns
100% of the voting stock of First Security Bank of Chicago (Bank), a state
chartered commercial bank located in Chicago, Illinois. In the opinion of
management, the accompanying condensed consolidated financial statements contain
all adjustments (consisting of normally recurring items) necessary to present
fairly the Corporation's consolidated financial position as of March 31, 1996
and December 31, 1995, and the results of its consolidated operations, its
consolidated cash flows, and its changes in stockholders' equity for the three
months ended March 31, 1996 and 1995. The results of operations for the period
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
The financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the Corporation's annual
financial statements and notes thereto.
NOTE 2
The Bank has the following contractual amounts of financial instruments
outstanding at March 31, 1996 (in 000's):
Commitments to originate loans $ 741
Standby letters of credit $ 40
NOTE 3
On January 4, 1996, the Bank purchased a building for $2.8 million at 190 E.
Delaware, Chicago, Illinois to house its main office. Management anticipates
advancing an additional $1.5 million for the remodeling and refurbishing of the
building.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 1996
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The following discussion focuses on the consolidated financial condition of
Security Chicago Corp. and Subsidiary at March 31, 1996 and the consolidated
results of operations for the three months ending March 31, 1996, compared to
the same period in 1995. The purpose of this discussion is to provide a better
understanding of the condensed consolidated financial statements and the
operations of the Corporation and its subsidiary, First Security Bank of
Chicago(Bank). This discussion should be read in conjunction with the interim
condensed consolidated financial statements and notes thereto included herein.
RESULTS OF OPERATIONS
Consolidated net income of the Corporation for the first quarter of 1996 totaled
$120,000, or $.57 per share, a 12% decrease compared to $137,000, or $.65 per
share, earned for the first quarter of 1995. The primary factors that led to the
$17,000 decrease in 1996 three month net income were the decrease in service fee
income and increases in interest expense and other expenses. These expenses in
1996 were somewhat offset by an increase in interest income. These factors are
discussed more fully below.
NET INTEREST INCOME
Interest income increased $80,000 over 1995, mainly due to a $222,000 increase
in federal funds sold income as a result of increased volumes held over the
prior period. This is partially offset by a $51,000 decrease in loan income and
an $85,000 decrease in securities income, which is primarily due to the volume
of assets held. The increase in interest income was offset by an increase of
$91,000 in interest expense, which is primarily due to increased interest rates.
The impact of changes in volumes and rates for earning assets and interest
bearing liabilities is presented in Table 1 for the three months ended March
31, 1996 and 1995. Table 1 analyzes the change in net interest income,
excluding dividend income, on a fully tax equivalent basis using a 34% tax rate.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 1996
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Table 1
Favorable (Unfavorable) Changes In Net Interest Income
(In 000's)
THREE MONTHS ENDED MARCH 31, 1996 OVER 1995
<TABLE>
<CAPTION>
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Federal funds sold $ 226 $ (4) $ 222
Securities (126) 39 (87)
Loans (65) 14 (51)
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Total earning assets 35 49 84
Deposits 56 35 91
Notes payable (19) - (19)
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Total interest bearing liabilities 37 35 72
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Change in net interest income $ (2) $ 14 $ 12
----- ----- -----
----- ----- -----
</TABLE>
In the above table, securities available-for-sale and held-to-maturity are
combined in the rate/volume analysis, and income from the Corporation's
investment in AMCORE is excluded from net interest income.
PROVISION FOR LOAN LOSSES
Credit quality and collection experience continued to be good in 1996, resulting
in no provision for loan losses during the first quarter of 1996 or 1995.
CHANGES IN NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Service fee income declined $29,000 (16%) for the three month period ended March
31, 1996, compared to the year earlier period, principally as a result of a
reduction in the minimum balance requirement on deposits held at the Bank.
Operating expenses for the three months ended March 31, 1996 decreased $17,000
(2.4%). The largest component of the decrease was a reduction in other
operating expenses of $35,000 for the three month period ending March 31, 1996,
as the Federal Deposit Insurance Corporation (FDIC) expense for the period
declined $36,000 compared to the same three month period in 1995. This is due
to the FDIC reducing its assessments beginning in the third quarter of 1995 as
the Bank Insurance Fund has become fully funded. In addition, professional fees,
none of which were individually significant, decreased by $18,000. These
decreases were partially offset by increases in salaries and employee benefits
of $18,000 and occupancy expense of $23,000 for the three months ended March 31,
1996. The increase in salaries and employee benefits was due to higher salaries
and bonuses paid in the first quarter of 1996 compared to the same period for
1995. The
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 1996
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increase in occupancy expense for the period was due to $24,000 of moving and
restoration expenses related to the upcoming move to the new location.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 1996
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PROVISION FOR INCOME TAXES
The provision for income tax for the three months ended March 31, 1996 was
$59,000. This is lower than the same period for 1995, but is consistent with
the proportionate decline in earnings.
FINANCIAL CONDITION
Consolidated total assets aggregated $70 million and $72 million at March 31,
1996 and December 31, 1995, respectively. The decrease in total assets is a
direct result of the decrease in deposits. Business demand deposits decreased
due to businesses making several large payments to the Internal Revenue Service
in March. Federal funds sold decreased by $3.1 million due primarily to the
purchase of the Bank building, and property, plant and equipment increased due
to this transaction which is further described in Note 3.. In addition, due
from broker decreased from $4.1 million to $0 as a result of the Bank receiving
payment for securities that matured on December 31, 1995. During the three
months ended March 31, 1996, securities held-to-maturity increased by $1 million
as a result of purchases exceeding maturities. Cash and cash equivalents
amounted to $22.1 million at March 31, 1996, which is a strong level of
liquidity.
The Corporation's allowance for loan losses was unchanged at $354,000 at March
31, 1996. The allowance represented 1.3% of outstanding loans at March 31, 1996
and December 31, 1995, respectively.
Statement of Financial Accounting Standard No. 114 (SFAS 114) was adopted on
January 1, 1995. Under SFAS 114, as amended by SFAS 118, the carrying value of
impaired loans is periodically adjusted to reflect cash payments, revised
estimates of future cash flows and increases in the present value of expected
cash flows due to the passage of time. Cash payments representing interest
income are reported as such and other cash payments are reported as reductions
in carrying value. Increases or decreases in carrying value due to changes in
estimates of future payments or the passage of time are reported as reductions
or increases in the provision for loan losses. The adoption of SFAS 114 did not
have a material impact on the Bank's financial position or results of
operations.
CAPITAL RESOURCES
Bank regulatory agencies have adopted capital standards by which all banks and
bank holding companies will be evaluated. Under the risk-based method of
measurement, the resulting ratio is dependent upon not only the level of capital
and assets, but the composition of assets and capital and the amount of
off-balance sheet commitments. Since the Company has consolidated assets of
less than $150 million, regulatory minimum capital tests are applied primarily
to the subsidiary Bank. In accordance with the guidelines of the Federal
Reserve, unrealized net gains and losses, net of deferred income taxes, which
are recorded as an adjustment to equity capital on the financial statements, are
not included in the calculation of these ratios.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 1996
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The Corporation's equity capital was $8,639,000 at March 31, 1996 compared to
$8,460,000 at December 31, 1995. The slight increase was primarily attributable
to net income of $120,000. In addition, the Corporation had a net unrealized
loss, net of taxes, on securities available-for-sale of $35,000 at March 31,
1996 compared to an unrealized loss, net of taxes, of $94,000 at December 31,
1995.
The Bank's regulatory capital position was as follows:
Regulatory
Requirement 3/31/96 12/31/95
----------- ------- --------
Risk-based total capital 8.0% 18.95% 21.15%
Risk-based tier 1 capital 4.0% 17.96% 22.34%
Tier 1 leveraged capital 4.0% - 5.0% 9.13% 9.10%
LIQUIDITY
Liquidity measures the ability of the Corporation to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund operations, and to provide for customers' credit needs. The liquidity of
the Corporation principally depends on cash flows from operating activities,
investment in and maturity of assets, changes in balances of deposits and
borrowings, and its ability to borrow funds in the money or capital markets.
Net cash outflows were primarily due to a decrease in deposits of $2.2 million
and purchases of the building for $2.9 million and securities for $2.0 million.
These were offset by cash inflows resulting primarily from a net decrease in due
from broker of $4.1 million which was the result of securities that matured on
December 31, 1995, however the proceeds were received in 1996.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights", became effective for financial statements issued for fiscal
years beginning after December 31, 1995. The pronouncement requires that the
fair value of the retained mortgage servicing rights on loans that are sold be
recorded as an asset and with a corresponding credit to income. The asset will
then be amortized over the estimated remaining life of the loan servicing
portfolio. The Corporation adopted the standard in 1996, and the impact is not
expected to be material as the Corporation currently does not sell loans into
the secondary market.
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<PAGE>
SECURITY CHICAGO CORP. AND SUBSIDIARY
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits - None
b. Reports on Form 8-K - none
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.
SECURITY CHICAGO CORP.
(Registrant)
/s/Thomas R. Beverlin
----------------------
Thomas R. Beverlin
Executive Vice President
April 16, 1995
/s/Sarah G. O'Sullivan
----------------------
Sarah G. O'Sullivan
Chief Financial Officer
April 16, 1996
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5258
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,927
<INVESTMENTS-CARRYING> 15,371
<INVESTMENTS-MARKET> 15,304
<LOANS> 26,883
<ALLOWANCE> 354
<TOTAL-ASSETS> 70,304
<DEPOSITS> 60,436
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,229
<LONG-TERM> 0
1,200
0
<COMMON> 0
<OTHER-SE> 7,439
<TOTAL-LIABILITIES-AND-EQUITY> 70,304
<INTEREST-LOAN> 582
<INTEREST-INVEST> 211
<INTEREST-OTHER> 291
<INTEREST-TOTAL> 1,084
<INTEREST-DEPOSIT> 446
<INTEREST-EXPENSE> 446
<INTEREST-INCOME-NET> 638
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 647
<INCOME-PRETAX> 179
<INCOME-PRE-EXTRAORDINARY> 120
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 4.01
<LOANS-NON> 39
<LOANS-PAST> 491
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 354
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 354
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 354
</TABLE>
