<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
Commission File Number 0-12936
WESTPORT BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1094350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
87 POST ROAD EAST, WESTPORT, CONNECTICUT 06880
(Address of principal executive office)
(203) 222-6911
(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares outstanding of Westport Bancorp, Inc.'s $.01 par value common
stock as of July 31, 1995 is 5,379,801 shares.
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WESTPORT BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------------------------------------------------------------------------------------------------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
Consolidated Statements of Condition -- June 30, 1995 (unaudited)
and December 31, 1994 3
Consolidated Statements of Income -- Three Months and Six Months
Ended June 30, 1995 and 1994 (unaudited) 4
Consolidated Statement of Changes in Stockholders' Equity -- Six
Months Ended June 30, 1995 and 1994 (unaudited) 5
Consolidated Statements of Cash Flows -- Six Months Ended
June 30, 1995 and 1994 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings 30
Item 2 -- Changes in Securities 30
Item 3 -- Defaults Upon Senior Securities 30
Item 4 -- Submission of Matters to a Vote of Security Holders 30
Item 5 -- Other Information 31
Item 6 -- Exhibits and Reports on Form 8-K 31
Signatures 36
Exhibit 11 Statement Regarding Computation of Per Share Earnings 37
</TABLE>
2
<PAGE> 3
PART I, ITEM 1 -- FINANCIAL INFORMATION.
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
($ in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 20,469 $ 17,924
Federal funds sold 7,500 ---
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 27,969 17,924
------------------------------------------------------------------------------------------------------------
Securities available for sale, at market value 24,150 27,276
Securities held to maturity (market value: June 30, 1995,
$44,126; December 31, 1994, $39,678) 45,016 43,206
------------------------------------------------------------------------------------------------------------
Total securities 69,166 70,482
------------------------------------------------------------------------------------------------------------
Loans 178,983 186,648
Allowance for loan losses (3,041) (3,341)
------------------------------------------------------------------------------------------------------------
Loans - net 175,942 183,307
------------------------------------------------------------------------------------------------------------
Premises and equipment - net 5,079 5,137
Accrued interest receivable 1,928 1,758
Other real estate owned 71 352
Other assets 6,953 4,544
------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $287,108 $283,504
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Noninterest-bearing deposits $ 69,225 $ 72,972
Interest-bearing deposits 169,423 180,986
------------------------------------------------------------------------------------------------------------
Total deposits 238,648 253,958
------------------------------------------------------------------------------------------------------------
Short-term borrowings 24,376 10,484
Other liabilities 2,718 2,664
------------------------------------------------------------------------------------------------------------
Total liabilities 265,742 267,106
------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - $.01 par value; authorized 2,000,000
shares; outstanding 42,350 shares at June 30, 1995,
43,950 shares at December 31, 1994 1 1
Common stock - $.01 par value; authorized 20,500,000
shares; outstanding, 5,353,550 shares at June 30, 1995,
3,211,752 shares at December 31, 1994 53 32
Additional paid in capital 22,939 21,459
Accumulated deficit (1,630) (4,680)
Net unrealized appreciation/(depreciation)
on securities available for sale 3 (414)
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 21,366 16,398
------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $287,108 $283,504
============================================================================================================
</TABLE>
See notes to consolidated financial statements.
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WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $4,033 $3,179 $8,175 $6,235
Securities 984 868 1,947 1,645
Federal funds sold and other 63 37 72 98
----------------------------------------------------------------------------------------------------
Total interest income 5,080 4,084 10,194 7,978
----------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 1,162 1,128 2,248 2,323
Short-term borrowings 335 29 657 56
----------------------------------------------------------------------------------------------------
Total interest expense 1,497 1,157 2,905 2,379
----------------------------------------------------------------------------------------------------
Net interest income 3,583 2,927 7,289 5,599
Provision for loan losses 375 450 750 900
----------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,208 2,477 6,539 4,699
----------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Trust fees 465 421 869 812
Service charges on deposit accounts 344 343 686 664
Realized security gains (losses) - net (23) --- (233) 3
Loan sale gains - net 21 --- 38 85
Mortgage service fees 34 38 65 72
Other 147 127 283 250
----------------------------------------------------------------------------------------------------
Total other operating income 988 929 1,708 1,886
----------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSE:
Salaries and benefits 1,346 1,273 2,760 2,617
Occupancy - net 331 366 690 753
Professional fees 209 236 412 444
FDIC insurance premiums 177 163 353 337
Data processing 142 183 282 373
Furniture and equipment 63 87 139 173
Others insurance premiums 55 73 112 153
Other real estate owned - net 44 66 109 217
Other 362 339 706 639
----------------------------------------------------------------------------------------------------
Total other operating expense 2,729 2,786 5,563 5,706
----------------------------------------------------------------------------------------------------
Income before income taxes 1,467 620 2,684 879
Income tax benefit (115) (320) (558) (312)
----------------------------------------------------------------------------------------------------
NET INCOME $1,582 $ 940 $3,242 $1,191
====================================================================================================
NET INCOME PER COMMON SHARE $ 0.15 $ 0.09 $ 0.32 $ 0.12
====================================================================================================
Weighted average number of common
shares and common equivalent
shares outstanding 10,377,543 10,291,712 10,191,198 10,287,285
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
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WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Preferred Stock Common Stock Appreciation/
------------------ ------------------ Additional (Depreciation)
Number of Number of Paid in Accumulated on Securities
Shares Amount Shares Amount Capital Deficit Available for Sale Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 44,950 $ 1 3,081,365 $ 31 $21,415 $(9,042) --- $12,405
-----------------------------------------------------------------------------------------------------------------------------------
Net income --- --- --- --- --- 1,191 --- 1,191
Issuance of Common Stock -
Warrants exercised --- -- 12,500 --- 9 --- --- 9
Employee Options exercised --- --- 2,500 --- 5 --- --- 5
Exercise of 1992 Rights --- --- 13 --- --- --- --- ---
Offering
Dividend Reinvestment and
Stock Purchase Plan --- --- 374 --- 1 --- --- 1
Net change in unrealized
depreciation on securities
available for sale --- --- --- --- --- --- $ (85) (85)
-----------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1994 44,950 $ 1 3,096,752 $ 31 $21,430 $(7,851) $ (85) $13,526
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 43,950 $ 1 3,211,752 $ 32 $21,459 $(4,680) $(414) $16,398
-----------------------------------------------------------------------------------------------------------------------------------
Net income --- --- --- --- --- 3,242 --- 3,242
Issuance of Common Stock -
Warrants exercised --- --- 1,972,000 20 1,459 --- --- 1,479
Employee Options exercised --- --- 9,000 --- 18
--- --- 18
Stock Conversion (1,600) --- 160,000 1 (1) --- --- ---
Dividend Reinvestment and
Stock Purchase Plan --- --- 798 --- 4 --- --- 4
Dividends Paid -
Preferred Stock --- --- --- --- --- (85) --- (85)
Common Stock --- --- --- --- --- (107) --- (107)
Net change in unrealized
appreciation/(depreciation)
on securities available
for sale --- --- --- --- --- --- 417 417
-----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 42,350 $ 1 5,353,550 $ 53 $22,939 $(1,630) $ 3 $21,366
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
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WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,242 $ 1,191
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 750 900
Recognition of deferred tax asset (618) (334)
Depreciation, amortization and accretion 420 538
Losses on other real estate owned - net 120 218
Loan sale gains - net (38) (85)
Realized security (gains) losses - net 233 (3)
Decrease (increase) in accrued interest receivable (170) 929
Increase in other assets (1,791) (219)
Increase (decrease) in other liabilities 54 (58)
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,202 3,077
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities or calls of securities -
Available for sale --- 37,890
Held to maturity 1,000 12,500
Proceeds from sales of securities -
Available for sale 21,399 4,262
Principal collected on securities 2,313 542
Purchases of securities -
Available for sale (18,268) (21,303)
Held to maturity (4,999) (14,454)
Increase in loans - net (3,627) (21,476)
Loans repurchased by the FDIC 1,246 475
Proceeds from sales of loans 9,034 7,356
Purchase of loans --- (95)
Proceeds from sales of other real estate owned 161 433
Purchases of premises and equipment (307) (208)
---------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 7,952 5,922
---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase (decrease) in noninterest-bearing deposits - net (3,747) 6,632
Decrease in interest-bearing deposits - net (11,563) (8,771)
Increase in short-term borrowings - net 13,892 793
Proceeds from issuance of Common Stock - net 1,501 15
Dividends (192) ---
---------------------------------------------------------------------------------------------------------
Net cash used in financing activities (109) (1,331)
---------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 10,045 7,668
Cash and cash equivalents at beginning of year 17,924 13,799
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 27,969 $ 21,467
=========================================================================================================
</TABLE>
See notes to consolidated financial statements.
6
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WESTPORT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include the
accounts of Westport Bancorp, Inc. ("Bancorp") and its subsidiary, The Westport
Bank & Trust Company (the "Bank") (collectively, the "Company"). The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In preparing the interim financial statements, management has made estimates
and assumptions that affect the reported amounts of assets and liabilities and
the revenue and expenses for the reported periods. Actual future results could
differ significantly from these estimates. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results are not necessarily
indicative of the results that may be expected for the year ended December 31,
1995. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
Certain prior year amounts have been reclassified to conform with the 1995
presentation.
NOTE 2 - REGULATORY MATTERS
On December 20, 1994, the Federal Deposit Insurance Corporation (the "FDIC")
and the State of Connecticut Banking Commissioner (the "Commissioner") removed
the Order to Cease and Desist originally imposed on the Bank in October 1991.
This action was the result of a routine examination by the FDIC completed in
the fourth quarter of 1994.
On March 16, 1995, the Federal Reserve Bank of New York ("FRBNY") removed all
restrictions it had imposed on the Company in October 1991.
The Federal Reserve Board and the FDIC require bank holding companies and
banks, respectively, to comply with guidelines based upon the ratio of capital
to total assets adjusted for risk and the ratio of Tier 1 capital to total
quarterly average assets (leverage ratio).
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The following summarizes the minimum capital requirements and the Company's
capital position (there are no significant differences between the Bank's and
the Company's capital ratios) at June 30, 1995.
<TABLE>
<CAPTION>
Company's Minimum Capital
Capital Ratio Capital Position Requirements
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Capital to Risk-Weighted Assets 12.93% 8.0%
Tier 1 Capital to Risk-Weighted Assets 11.68 4.0
Tier 1 Capital to Average Assets (Leverage Ratio) 7.54 3.0(1)
</TABLE>
(1) An additional 1% to 2% is required for all but the most highly rated
institutions.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") of 1991
establishes five classifications for banks on the basis of their capital
levels; well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. At June 30,
1995, the Company was "well capitalized" under FDICIA, based upon the above
capital ratios. Management believes, in the current economic and operating
environment and due to the significant improvement in the Company's core
earnings, it will continue to maintain its capital level at the well
capitalized classification. However, deterioration of economic conditions and
real estate values could adversely affect future results, leading to increased
levels of loan charge-offs, provision for loan losses and nonaccrual loans,
effecting the ability of the Company to maintain the well capitalized
classification, and resulting in reductions in income and total capital.
NOTE 3 - INCOME TAXES
The 1995 six month provision for income taxes is comprised of a $51,000 current
federal provision, a $9,000 current state provision and a $618,000 reversal of
a portion of the previously established deferred tax valuation allowance. The
1994 six month provision for income taxes is comprised of a $15,000 federal
provision, a $7,500 state provision and a $334,000 reversal of a portion of the
previously established deferred tax allowance.
At June 30, 1995 and 1994, the Company had recorded, for financial statement
purposes, net deferred tax assets (included in Other Assets) of $2,268,000 and
$684,000, respectively, for anticipated future utilization of its net operating
loss carryforwards ("NOL's"). The FDIC and the FRBNY limit the amount of net
deferred tax assets that can be included in capital for regulatory purposes to
the lesser of the tax effect of the estimated subsequent twelve months pretax
earnings or 10% of stockholders' equity. On June 30, 1995, the recorded net
deferred tax asset, reflected in the accompanying statement of condition, was
based on the amount of such benefit expected to be realized within one year and
included $256,000 determined to be "ineligible" for regulatory capital
purposes. At June 30, 1994, no portion of the $684,000 deferred tax asset was
disqualified from capital for regulatory purposes. Although management
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<PAGE> 9
believes a substantial portion of the gross deferred tax asset at June 30, 1995
will be realized through future earnings, a valuation allowance has been
established for the amount in excess of $2,268,000.
As a result of the Company's net operating losses in prior years, the Company
had a net operating loss carryforward of approximately $12.1 million at
December 31, 1994 for federal purposes, which is available to offset future
taxable income.
For the six month periods ended June 30, 1995 and June 30, 1994, the Company
made cash payments for income taxes of approximately $64,550 and $24,520,
respectively.
NOTE 4 - EARNINGS PER SHARE
Earnings per share were computed by dividing adjusted earnings by the weighted
average number of common shares and common share equivalents outstanding. For
the quarter ended June 30, 1995 and 1994, the computation includes 4,763,227
and 3,096,752 weighted average shares outstanding and 1,331,844 and 2,699,960
weighted average common equivalent shares, respectively, computed under the
treasury stock method. The earnings per share computations also include
4,282,472 and 4,495,000 weighted average common shares in 1995 and 1994,
respectively, issuable upon the assumed conversion of preferred stock.
Adjusted earnings consist of net income and the interest effect of the assumed
reduction in short-term borrowings in 1994, under the treasury stock method.
For the six months ended June 30, 1995 and 1994, the computation includes
4,010,532 and 3,092,325 weighted average common shares outstanding and
1,842,241 and 2,699,960 weighted average common equivalent shares,
respectively, under the treasury stock method. The earnings per share
computations also include 4,338,425 and 4,495,000 weighted average common
shares in 1995 and 1994, respectively, issuable upon the adjusted conversion
of preferred stock. There was no difference between primary and fully diluted
earnings per share for 1995 and 1994.
NOTE 5 - NEW ACCOUNTING STANDARDS
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a
Loan", and Statement of Financial Accounting Standards No. 118 ("SFAS 118"),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures". SFAS 114 and 118 address the accounting by creditors for
impairment of certain loans and the recognition of interest income on these
loans and requires that impairment of these loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or the fair value of collateral. A loan is considered impaired,
based on current information and events, if it is probable that the Company
will be unable to collect the scheduled payments of principal and interest when
due according to the contractual terms of the loan agreement. The adoption of
SFAS 114 and 118 on January 1, 1995 did not materially affect the Company's
financial statements or the amount of the allowance for loan losses.
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<PAGE> 10
Interest payments received on accruing impaired loans are recorded as interest
income. Interest payments on nonaccruing impaired loans are recorded as
reductions of loan principal.
At June 30, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $5,827,000, of
which $3,454,000 were nonaccrual loans. The Company has elected to measure all
restructured loans, including those restructured prior to January 1, 1995, in
accordance with SFAS 114 and 118. At June 30, 1995, the valuation allowance
related to all impaired loans, totaled $1,370,000 and is included in the
allowance for loan losses on the statement of condition. For the three months
ended June 30, 1995, the average recorded investment in impaired loans was
approximately $6,256,000. Total interest in the amount of $33,000 was
recognized on accruing impaired loans during the quarter.
The following table sets forth the activity in the allowance for loan losses
for six months ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C>
Balance, January 1, $3,341 $3,024
Loans charged-off 1,114 1,333
Recoveries on amounts previously charged-off 64 296
------------------------------------------------------------------------------------------------------
Net loans charged-off 1,050 1,037
Provision charged to operating expenses 750 900
------------------------------------------------------------------------------------------------------
Balance, June 30, $3,041 $2,887
======================================================================================================
</TABLE>
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for
Mortgage Servicing Rights". SFAS 122 addresses the accounting for mortgage
servicing rights for purchased as well as originated mortgages by a servicer.
Additionally, SFAS 122 requires the capitalization of the fair value of
mortgage servicing rights and amortization of these rights in proportion to the
net servicing income over the period during which servicing income is expected.
SFAS 122 applies to financial statements for fiscal years beginning after
December 15, 1995. The Company is currently in the process of evaluating the
impact of this pronouncement on its financial statements; however, it has not
yet quantified such impact.
NOTE 6 - SUBSEQUENT EVENTS
On July 20, 1995, the Company declared its second consecutive quarterly
dividend of $0.02 per common share and $2.00 per preferred share to
shareholders of record as of August 4, 1995, payable on August 18, 1995.
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PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Overview
The Company's earnings are largely dependent upon net interest income and
noninterest income from its community banking operations, including fees
generated by its Trust department. Net interest income is the difference
between interest earned on the loan and investment portfolios and interest paid
on deposits and other sources of funds. Noninterest income is primarily the
result of fees generated by the Trust department, charges related to
transaction activity from commercial and retail checking accounts and gains
from loan and securities sales.
The Company reported net income for the first six months of 1995 of $3,242,000,
or $0.32 per common share, compared to net income of $1,191,000, or $0.12 per
common share for the comparable 1994 period, an increase of 172%. Contributing
to the improved results in 1995 was a decline in nonperforming assets and
related costs, increases in average earning assets and fee income, an improved
net interest margin and the continued reduction of operating expenses. Results
of operations for the first six months of 1995 included the recognition of a
net deferred tax asset of $618,000 and a net loss on the sale of securities
totaling $233,000. Earnings from core operations (income before income taxes,
excluding non-recurring gains and losses) for the six months ended June 30,
1995 have increased by more than 260% over the same period last year.
Excluding the deferred tax asset, securities losses and loan sale gains of
$38,000, core earnings for the six months ended June 30, 1995 totaled
$2,879,000. By contrast, at June 30, 1994, excluding a net deferred tax asset
of $334,000, and gains on the sale of securities and loans totaling $88,000,
core earnings totaled $791,000.
During the second quarter of 1995, the Company reported net income of
$1,582,000, or $0.15 per common share, compared to net income of $940,000 or
$0.09 per common share for the comparable 1994 period, an increase of 68%. Net
income for the quarter included the recognition of a deferred tax asset of
$150,000 and a net loss on the sale of securities totaling $23,000 as compared
to the recognition in the second quarter of 1994 of a net deferred tax asset of
$334,000 and no gains or losses on the sale of securities or loans.
Negatively impacting results for both the three and six months ended June 30,
1995 was an increase in the Company's cost of funds, increased salaries and
benefits related to the implementation of a bonus and incentive program and an
increase in other operating expenses related to costs associated with the
Bank's conversion to a new hardware and software system in the fourth quarter
of 1994.
The past decline in the regional economy, particularly in the local real estate
market, has impacted many of the Company's borrowers' ability to repay their
loans. Also, since 1989, real estate values in the Company's market area have
declined substantially. While the Company's residential and construction
mortgage lending policies have specified a 75% or less loan-to-value ratio,
the decline in values has increased the possibility of loss in the event of
default. Management believes that this decline abated somewhat during 1994 and
that the improvement has continued during 1995.
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NET INTEREST INCOME
Net interest income is the difference between interest earned on loans and
other investments and interest paid on deposits and other sources of funds.
Net interest income was $7,289,000 for the first six months of 1995, compared
with $5,599,000 in the comparable 1994 period, an increase of $1,690,000 or
30.2%. For the second quarter of 1995, net interest income increased $656,000
to $3,583,000 or 22.4% over the 1994 second quarter. Contributing factors to
the changes in interest income and expense are discussed below.
Total interest income amounted to $10,194,000 for the first six months of 1995,
compared to $7,978,000 for the same period in 1994, an increase of 27.8%. For
the second quarter of 1995, total interest income increased $996,000, or 24.4%
to $5,080,000 from $4,084,000 for the same period in 1994.
A key factor relating to the higher level of total interest income for 1995,
compared to the prior year, was an increase in the yield on earning assets.
During the first six months of 1995, the yield on average interest-earning
assets increased to 8.0% from 6.7% in 1994, resulting in an increase in
interest income of $1,457,000. Additionally, average earning assets increased
6.5% during the first six months of 1995 to $256,480,000 from $240,865,000 in
the comparable 1994 period. This increase in volume during the 1995 period,
resulted in an additional $759,000 of interest income. Accruing loans, as a
component of earning assets, experienced the most significant increase, from
$158,454,000 in 1994 to $181,375,000 in 1995, an increase of 14.5%. Positively
impacting the second quarter of 1995, the yields on average interest earning
assets increased to 8.0% from 6.7%, resulting in $661,000 of additional
interest income. In addition, average earning assets increased 5.0% to
$255,768,000 positively impacting interest income by $335,000.
Total interest expense, for the six months ended June 30, 1995, was $2,905,000,
an increase of 22.1% from $2,379,000 for the same period in 1994. This
increase is, in part, the result of the average interest rate on deposits and
other interest-bearing liabilities increasing from 1.9% in 1994 to 2.3% in
1995, increasing interest expense by $313,000. Also, impacting interest
expense was a 1.4% increase in total interest-bearing liabilities as a result
of increased short-term borrowings resulting in an additional $213,000 of
interest expense. For the second quarter of 1995, interest expense increased
$340,000 or 29.4% to $1,497,000 from $1,157,000 for the same period in 1994.
During the quarter, the average interest rate on deposits and other
interest-bearing liabilities increased to 2.3% in 1995 from 1.9% in the
comparable 1994 period resulting in an increase in expense of $158,000. An
increase in the average balance of total interest bearing-liabilities,
primarily in the short-term borrowing category, in both the three and six month
periods of 1995, resulted in an increase in interest expense of $225,000 and
$411,000, respectively.
Total interest income for the comparable periods of 1995 and 1994 was
negatively impacted by the level of nonaccrual loans, which averaged $4.3
million and $5.8 million for the first six months of 1995 and 1994,
respectively. Further improvement in net interest income is dependent, in
part, upon the continued resolution of nonperforming assets.
The following table sets forth a comparison of average earning assets,
nonaccrual loans, average interest-bearing liabilities and related interest
income and expense during the three and six month periods ended June 30, 1995
and 1994. Average balances are averages of daily closing balances, except for
nonaccrual loans in 1994, which are averages of monthly closing balances.
12
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<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Accruing loans $179,459 $4,033 9.0% $161,676 $3,179 7.9%
Non-accruing loans 4,424 --- --- 6,124 --- ---
-----------------------------------------------------------------------------------------------------------------
Total loans 183,883 4,033 8.8 167,800 3,179 7.6
Investment securities 67,729 984 5.8 71,648 868 4.8
Federal funds sold
and other 4,156 63 6.0 4,129 37 3.6
-----------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $255,768 5,080 8.0 $243,577 4,084 6.7
======== ------ ======== ------
Noninterest-bearing
demand deposits $ 66,133 $ 59,021
-----------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
NOW & Money market 66,222 273 1.7 74,587 267 1.4
Savings 52,116 257 2.0 64,451 324 2.0
Certificates of deposit 50,106 620 5.0 48,976 530 4.3
Other 23,267 347 6.0 4,225 36 3.4
-----------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 191,711 1,497 3.1 192,239 1,157 2.4
-----------------------------------------------------------------------------------------------------------------
Total noninterest-
bearing deposits and
interest-bearing
liabilities $257,844 1,497 2.3 $251,260 1,157 1.9
======== ------ ======== ------
Net interest income(1) $3,583 $2,927
=================================================================================================================
Net interest margin(2) 5.6% 4.8%
=================================================================================================================
Interest rate spread(3) 5.7% 4.8%
=================================================================================================================
</TABLE>
(1) Interest income includes fees on loans of $49,000 and $56,000 for 1995 and
1994, respectively.
(2) Net interest margin is net interest income divided by total average
earning assets.
(3) Interest rate spread is the difference between the yield on total average
interest-earning assets and the cost of total average noninterest-bearing
deposits and interest-bearing liabilities.
13
<PAGE> 14
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Accruing loans $181,375 $ 8,175 9.1% $158,454 $6,235 7.9%
Non-accruing loans 4,333 --- --- 5,789 --- ---
-----------------------------------------------------------------------------------------------------------------
Total loans 185,708 8,175 8.9 164,243 6,235 7.6
Investment securities 68,372 1,947 5.7 70,688 1,645 4.7
Federal funds sold
and other 2,400 72 6.0 5,934 98 3.3
-----------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $256,480 10,194 8.0 $240,865 7,978 6.7
======== ------- ======== ------
Noninterest-bearing
demand deposits $ 65,687 $ 57,123
-----------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
NOW & Money market 67,814 536 1.6 73,936 540 1.5
Savings 54,413 536 2.0 62,985 635 2.0
Certificates of deposit 48,710 1,156 4.8 49,979 1,134 4.6
Other 23,201 677 5.9 4,526 70 3.1
-----------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 194,138 2,905 3.0 191,426 2,379 2.5
-----------------------------------------------------------------------------------------------------------------
Total noninterest-
bearing deposits and
interest-bearing
liabilities $259,825 2,905 2.3 $248,549 2,379 1.9
======== ------- ======== ------
Net interest income(1) $ 7,289 $5,599
=================================================================================================================
Net interest margin(2) 5.7% 4.7%
=================================================================================================================
Interest rate spread(3) 5.7% 4.8%
=================================================================================================================
</TABLE>
(1) Interest income includes fees on loans of $106,000 and $118,000 for 1995
and 1994, respectively.
(2) Net interest margin is net interest income divided by total average
earning assets.
(3) Interest rate spread is the difference between the yield on total average
interest-earning assets and the cost of total average noninterest-bearing
deposits and interest-bearing liabilities.
14
<PAGE> 15
The following table analyzes the changes attributable to the rate and volume
components of net interest income.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------------------------------------------------------------------------------------
1995 vs 1994 1995 vs 1994
Increase/(decrease) Increase/(decrease)
due to change in(1): due to change in(1):
Total Total
Change Rate Volume Change Rate Volume
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income on Earning Assets:
Loans $854 $481 $373 $1,940 $ 985 $ 955
Investment securities 130 163 (33) 315 361 (46)
Federal funds sold and other 12 17 (5) (39) 111 (150)
-----------------------------------------------------------------------------------------------------------------------
Total interest income 996 661 335 2,216 1,457 759
-----------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits and other interest-bearing
liabilities:
NOW & Money market 6 13 (7) (4) 82 (86)
Savings (67) (19) (48) (99) (14) (85)
Certificate of deposit 90 78 12 22 49 (27)
Other 311 86 225 607 196 411
-----------------------------------------------------------------------------------------------------------------------
Total interest expense 340 158 182 526 313 213
-----------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income $656 $503 $153 $1,690 $1,144 $ 546
=======================================================================================================================
</TABLE>
(1) Variances were computed as follows:
Variance due to rate = change in rate multiplied by old volume.
Variance due to volume = change in volume multiplied by old rate.
Variance due to rate/volume prorated to rate and variance volumes on the
basis of gross value.
15
<PAGE> 16
NONPERFORMING ASSETS
The following table sets forth the principal portion of loans contractually
past due 90 days or more, impaired loans and other real estate owned at June
30, 1995, December 31, 1994 and June 30, 1994.
<TABLE>
<CAPTION>
% Change % Change
June 30, June 30,
1995 vs 1995 vs
June 30, Dec. 31, June 30, Dec. 31, June 30,
1995 1994 1994 1994 1994
--------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past
due, on accrual status:
Mortgages:
Secured by residential
property $ 454 $ 78 $ 160 482% 184%
Commercial and other --- --- --- --- ---
Commercial --- 6 288 (100) (100)
Home equity 150 102 50 47 200
Consumer and other 16 14 10 14 60
----------------------------------------------------------------------------------------------------------
620 200 508 210 22
----------------------------------------------------------------------------------------------------------
Impaired Nonaccruing Loans:
Mortgages:
Secured by residential
property $ 656 $2,659 $ 2,114 (75) (69)
Commercial and other 1,098 1,098 1,807 --- (39)
Commercial 1,700 500 1,149 240 48
Home equity --- 59 264 (100) (100)
Consumer and other --- --- 206 --- (100)
----------------------------------------------------------------------------------------------------------
3,454 4,316 5,540 (20) (38)
Impaired Accruing Loans: 2,373 3,724 5,395 (36) (56)
----------------------------------------------------------------------------------------------------------
Total nonperforming loans 6,447 8,240 11,443 (22) (44)
Other real estate owned 71 352 723 (80) (90)
----------------------------------------------------------------------------------------------------------
Total nonperforming assets $6,518 $8,592 $12,166 (24)% (46)%
==========================================================================================================
</TABLE>
16
<PAGE> 17
At June 30, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $5,827,000, of
which $3,454,000 were nonaccrual loans. The Company has elected to measure all
restructured loans, including those restructured prior to January 1, 1995 in
accordance with SFAS 114 and 118. For the three months ended June 30, 1995,
the average recorded investment in impaired loans was approximately $6.3
million. Total interest in the amount of $33,000 was recognized on accruing
impaired loans during the quarter.
At June 30, 1995, impaired accruing loans included $2.2 million of loans with
interest rates below market, all of which were current and in compliance with
the terms and conditions of the modification agreements. At June 30, 1995,
the Company had no commitments to lend additional funds to borrowers with loans
that have been classified as impaired. The level of nonperforming assets has
had a significant negative impact on the Company's capital and earnings over
the last five years. Although management recognizes the level of nonperforming
assets is still high, it is encouraged by the downward trend since 1990 and the
46% decline from June 30, 1994 to June 30, 1995.
It is the Company's policy to discontinue the accrual of interest on loans,
including impaired loans, when, in the opinion of management, a reasonable
doubt exists as to the timely collection of the amounts due. Additionally,
regulatory requirements generally prohibit the accrual of interest on certain
loans when principal or interest is due and remains unpaid for 90 days or more,
unless the loan is both well secured and in the process of collection.
Operating results since 1989 have been adversely impacted by the level of
nonperforming assets caused by the deterioration of borrowers' ability to make
scheduled interest and principal payments, the decline in real estate values, a
severe slowdown in business activity and a high rate of unemployment. In
addition to foregone revenue, the Company had to provide a high level of
provision for loan losses and incurred significant collection costs and costs
associated with the management and disposition of foreclosed properties.
However, during 1994 and continuing into 1995, management has seen some
positive trends; e.g., stabilization of the local economy, reduction in vacancy
rates, and renewed activity in the real estate market, which have had a
positive effect on earnings.
The characteristics of the real estate market since 1988 include a substantial
decline in real estate property values and a significant increase in the amount
of time that properties remain on the market prior to sale. Factors
contributing to the depressed market conditions are an over supply of
properties on the market and a continued sluggish local economy. As a result,
the most significant increases in nonperforming loans since 1988 have been in
commercial mortgage loans and real estate related commercial loans. Management
has seen some recent improvement in the real estate market and the local
economy, which has had a positive effect on its efforts to resolve
nonperforming loans. Management is aggressively pursuing the collection of all
nonperforming loans. Management's efforts to return nonperforming loans to
performing status may be hampered by market factors.
17
<PAGE> 18
The following table summarizes the activity on nonaccrual loans for the periods
ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
% Change
June 30,
1995 vs
June 30,
1995 1994 1994
-----------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Balance, January 1, $4,316 $5,950 (27)%
----------------------------------------------------------------------------------------------------------
Additions 1,200 1,797 (33)
Reductions:
Repayments 1,379 605 128
Charge-offs 160 1,255 (87)
Reinstate accruing 523 347 51
----------------------------------------------------------------------------------------------------------
Total resolved 2,062 2,207 (7)
----------------------------------------------------------------------------------------------------------
Balance, June 30, $3,454 $5,540 (38)%
==========================================================================================================
</TABLE>
In addition to the loans classified as nonperforming in the preceding table,
the Company's internal loan review function has identified approximately $1.6
million of loans with more than normal credit risk. These loans, as well as
nonperforming loans, have been considered in the analysis of the adequacy of
the allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a
Loan", and Statement of Financial Accounting Standards No. 118 ("SFAS 118"),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures". SFAS 114 and 118 address the accounting by creditors for
impairment of certain loans and the recognition of interest income on these
loans and requires that impairment of these loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or the fair value of collateral. A loan is considered impaired,
based on current information and events, if it is probable that the Company
will be unable to collect the scheduled payments of principal and interest when
due according to the contractual terms of the loan agreement. The adoption of
SFAS 114 and 118 on January 1, 1995 did not materially affect the Company's
financial statements or the amount of the allowance for loan losses.
Interest payments received on accruing impaired loans are recorded as interest
income. Interest payments on nonaccruing impaired loans are recorded as
reductions of loan principal.
18
<PAGE> 19
Management evaluates the adequacy of the allowance for loan losses on a regular
basis by considering various factors, including past loan loss experience,
delinquent and nonperforming loans and the quality and level of collateral
securing these loans, inherent risks in the loan portfolio, and current
economic and real estate market conditions. Management has performed a
loan-by-loan risk assessment of each classified loan and of a substantial
portion of the performing commercial and commercial mortgage portfolios
resulting in a specific reserve based on loss exposure. An additional
general reserve is also allocated to each of these portfolios as well as to the
residential mortgage and other loan portfolios on an overall basis, based upon
the risk category and loss experience of the given portfolio. Based upon this
review, management believes that, in the aggregate, the allowance of $3,041,000
at June 30, 1995 is adequate to absorb probable loan losses inherent in the
loan portfolio. At June 30, 1995, the valuation allowance, related to all
impaired loans totaled $1,370,000 and is included in the allowance for loan
losses shown on the balance sheet. The adverse real estate market in Fairfield
County, the Company's past reliance upon commercial real estate lending, the
level of charge-offs during the past five years and the continuing high level
of nonperforming loans are factors which are considered when the adequacy of
the allowance for loan losses is reviewed. There is no assurance that the
Company will not be required to make increases to the allowance in the future
in response to changing economic conditions or regulatory examinations.
The decrease in the allowance for loan losses from $3,341,000 at December 31,
1994 to $3,041,000 at June 30, 1995 reflects the reduction in nonperforming and
nonaccruing loans and $1,114,000 of loan charge-offs during the period. The
charge-offs in 1995 primarily relate to loans on which a specific reserve had
been allocated at December 31, 1994, based on anticipated loss exposure.
It is the Company's policy to charge-off loans against the allowance for loan
losses when losses are certain. Such decisions are based upon an analysis of
the loan, a judgment as to the borrower's ability to repay and the adequacy of
collateral.
19
<PAGE> 20
The following table summarizes other selected loan and allowance for loan
losses information at June 30, 1995, December 31, 1994 and June 30, 1994.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses $3,041 $3,341 $ 2,887
Nonaccrual loans 3,454 4,316 5,540
Nonperforming loans (1) 6,447 8,240 11,443
Allowance for loan losses
as a % of nonaccrual loans 88% 77% 52%
Allowance for loan losses
as a % of nonperforming loans 47% 41% 25%
Allowance for loan losses
as a % of loans outstanding 1.70% 1.79% 1.68%
</TABLE>
(1) Includes nonaccrual loans, impaired loans and loans accruing 90 days or
more past due.
As the volume of new loans increased and nonaccrual loans declined, the overall
credit quality of the total loan portfolio has improved. This has positively
impacted management's estimate of the allowance for loan losses and has caused
a reduction in the allowance for loan losses from December 31, 1994.
The allowance for loan losses ratio, as a percentage of outstanding loans shown
above is impacted by the loans purchased from the FDIC in late 1992. If these
loans (which must be repurchased by the FDIC if they become nonperforming
within three years of the purchase date) had not been included, the
allowance-to-loans outstanding ratio would have been 1.76% at June 30, 1995,
1.87% at December 31, 1994 and 1.79% for June 30, 1994.
Management is aware of its responsibility for maintaining an adequate allowance
for loan losses and an adequate system to identify credit risk and account for
it appropriately. The various regulatory examinations of the Company have not
identified significant problem loans not already identified by management.
Management will continue to review the findings of regulatory examinations and
comply with regulatory recommendations.
A deterioration of economic conditions and real estate values could adversely
affect future results, leading to increased levels of loan charge-offs,
provision for loan losses and nonaccrual loans and reductions in income and
total capital.
20
<PAGE> 21
The following table sets forth the activity in the allowance for loan losses
for six months ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C>
Balance, January 1, $3,341 $3,024
--------------------------------------------------------------------------------------------------------
Loans charged-off:
Mortgages:
Secured by residential property 162 122
Commercial and other 648 725
Commercial 150 407
Home equity 35 ---
Consumer and other 119 79
--------------------------------------------------------------------------------------------------------
Total loans charged-off 1,114 1,333
Recoveries on amounts previously
charged-off:
Mortgages:
Secured by residential property --- 12
Commercial and other --- ---
Commercial 27 177
Home equity 4 10
Consumer and other 33 97
--------------------------------------------------------------------------------------------------------
Total recoveries 64 296
Net loans charged-off 1,050 1,037
Provision charged to operating expenses 750 900
--------------------------------------------------------------------------------------------------------
Balance, June 30, $3,041 $2,887
========================================================================================================
</TABLE>
21
<PAGE> 22
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") totaled $71,000 and $723,000 at June 30, 1995
and 1994, respectively. During the first six months of 1995, the Company
recorded $120,000 of additional write-downs on real estate properties and sold
a real estate property with a carrying value of $161,000, which resulted in a
gain of $19,000 during the second quarter of 1995. During the first six months
of 1994, the Company sold properties with a carrying value of $546,000
incurring losses of $113,000, a portion of which had been previously accrued.
In addition, in the first quarter of 1994, the Company transferred a commercial
office building, carried at $1.3 million, from OREO to banking premises after
determining the building will be utilized for future use in operations after
the expiration of existing leases. No properties were acquired through
foreclosure or acquisition during the first six months of 1995 and 1994,
respectively.
The following table summarizes the changes in OREO for the six months ended
June 30, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C>
Balance, January 1, $ 352 $2,723
-------------------------------------------------------------------------------------------------------------
Sales (161) (546)
Write-downs (120) (105)
Transfers --- (1,349)
-------------------------------------------------------------------------------------------------------------
Balance, June 30, $ 71 $ 723
=============================================================================================================
</TABLE>
At June 30, 1995, OREO consists primarily of single family building lots
located in the Company's market area of Fairfield County, Connecticut. These
properties are carried at the lower of cost or estimated fair value. The
Company's efforts to reduce its holdings have been impacted by local market
conditions. However, the Company is aggressively pursuing the sale of such
properties. Further material declines in the real estate market could cause
increases in the level of OREO, further losses or write-downs.
22
<PAGE> 23
OTHER OPERATING INCOME AND EXPENSE
The following table sets forth other operating income and other operating
expense for the three month and six month periods ended June 30, 1995 and 1994,
and the percentage change from period to period.
<TABLE>
<CAPTION>
Three Months Ended % Change Six Months Ended % Change
June 30, 1995 vs June 30, 1995 vs
1995 1994 1994 1995 1994 1994
----------------------------------------------------------------------------------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Operating Income:
Trust fees $ 465 $ 421 10.5% $ 869 $ 812 7.0%
Service charges on deposit accounts 344 343 .3 686 664 3.3
Realized security gains (losses) - net (23) --- N/M (233) 3 N/M
Loan sale gains 21 --- 100.0 38 85 (55.3)
Mortgage servicing fees 34 38 (10.5) 65 72 (9.7)
Other 147 127 15.8 283 250 13.2
----------------------------------------------------------------------------------------------------------------------------
Total other operating income $ 988 $ 929 6.4% $1,708 $1,886 (9.4)%
============================================================================================================================
Other Operating Expense:
Salaries and Benefits $1,346 $1,273 5.7% $2,760 $2,617 5.5%
Occupancy - net 331 366 (9.6) 690 753 (8.4)
Professional fees 209 236 (11.4) 412 444 (7.2)
FDIC insurance premiums 177 163 8.6 353 337 4.7
Data processing 142 183 (22.4) 282 373 (24.4)
Furniture and equipment 63 87 (27.6) 139 173 (20.0)
Other insurance premiums 55 73 (24.7) 112 153 (26.8)
Other real estate owned - net 44 66 (33.3) 109 217 (49.8)
Other 362 339 6.8 706 639 10.5
----------------------------------------------------------------------------------------------------------------------------
Total other operating expense $2,729 $2,786 (2.0)% $5,563 $5,706 (2.5)%
============================================================================================================================
</TABLE>
N/M = not measurable or not meaningful
For the first six months of 1995, total other operating income declined 9.4% to
$1,708,000 from $1,886,000 in 1994, primarily due to a net loss of $233,000
realized on the sale of securities in the available for sale portfolio. The
security losses were incurred in connection with the repositioning of the
available for sale portfolio in higher yielding government agency securities.
Excluding these losses, total other operating income would have increased 2.9%
in 1995 over the comparable 1994 period. For the second quarter of 1995, total
other operating income increased 6.4% to $988,000 from $929,000 for the same
period in 1994. Contributing factors are discussed below.
Trust fees increased 10.5% to $465,000 in the second quarter of 1995 and 7.0%
to $869,000 for the first six months of 1995 over the comparable 1994 periods.
This increase can primarily be attributed to new wealth management and
investment services offered in 1995 and an increase in estate fees.
23
<PAGE> 24
Service charges on deposit accounts have increased 3.3% to $686,000 for the
first six months of 1995 as compared to 1994, primarily due to an increase in
the Company's fee schedule that occurred in the second quarter of 1994.
The other income category increased 15.8% to $147,000 and 13.2% to $283,000 for
the three and six month periods of 1995, respectively, over the comparable 1994
periods. Contributing to this improvement was an increase in fees related to
letter of credit services and wire transfer services.
Negatively impacting the first six months of 1995 was a decline in gains
related to the sale of residential mortgage loans and a decline in mortgage
servicing fees. In the first six months of 1994, the Company sold $7.3 million
in residential mortgage loans, realizing a net gain of $85,000 primarily
related to origination fees that had been collected and deferred in accordance
with Financial Accounting Standards No. 91. In contrast, during the first six
months of 1995, the Company sold $9.0 million in residential mortgage loans,
realizing a net gain of $38,000, a decline of 55.3% from 1994. The Company
engages in the origination of residential mortgage loans and the sale of such
loans based upon liquidity needs and to manage interest rate risk.
Additionally, the average balance of residential mortgage loans serviced for
investors declined 11.4% to $42.2 million in 1995 as compared to $47.6 million
in 1994, resulting in a decrease of 9.7% in mortgage servicing income for the
first six months of 1995 as compared to the same period of 1994.
For the six months ended June 30, 1995, total other operating expense decreased
$143,000, or 2.5% to $5,563,000 from $5,706,000 in 1994. Total other operating
expense during the second quarter of 1995 decreased $57,000 or 2.0% from
$2,786,000 in 1994 to $2,729,000 in 1995. Contributing factors are discussed
below.
Other real estate owned expense declined 33.3% to $44,000 in the second
quarter of 1995 and 49.8% for the six months ended June 30, 1995, as compared
to the respective 1994 periods, due to a significant reduction in the levels of
foreclosed properties.
Furniture and equipment expense decreased 27.6% during the second quarter of
1995 and 20.0% for the six month period as a result of assets becoming fully
depreciated, with minimal purchases of new furniture or equipment. Occupancy
expense also declined in 1995 to $331,000 and $690,000 for the three and six
month periods, respectively, primarily due to the consolidation of previously
leased office space.
Insurance expense declined 24.7% to $55,000 in the second quarter of 1995 and
26.8% for the six month period in 1995 due to lower premium costs for the
Company's insurance coverage.
Data processing expense declined in the three and six month periods of 1995 to
$142,000 and $282,000, respectively. This reduction is due primarily, to the
purchase of a new bank-wide hardware and software system during the fourth
quarter of 1994, substantially reducing maintenance and equipment costs.
24
<PAGE> 25
Professional fees declined 11.4% to $209,000 and 7.2% to $412,000 for the three
and six month 1995 periods, respectively, as compared to the same periods in
1994. This decline was primarily attributable to lower collection costs and
consultant services during the 1995 period.
Offsetting these decreases, was an increase in salaries and benefits of 5.7% in
the second quarter and 5.5% for the first six months of 1995 primarily as a
result of a new bonus and incentive program implemented during 1995, along with
an increase in the Company's matching contribution to the employee 401(k) Plan.
In addition, the other expense category increased 6.8% in the second quarter
and 10.5% for the six month period in 1995, primarily as a result of an
increase in advertising costs associated with the promotion of new Trust
department services. Also impacting the respective periods was an increase in
forms and supplies related to the installation of the new hardware and software
system.
INCOME TAXES
The Company pays minimum income taxes as a result of utilizing its net
operating loss carryforwards. During the six months ended June 30, 1995 and
1994, the Company recorded a deferred tax benefit of $618,000 and $334,000,
respectively. See Note 3 to the accompanying unaudited consolidated financial
statements for further discussion.
FINANCIAL POSITION
Total assets at June 30, 1995 aggregated $287,108,000 compared with
$283,504,000 at December 31, 1994. Total loans were $178,983,000 at June 30,
1995, versus $186,648,000 at December 31, 1994. The decline in loans is
primarily attributable to the payoff of three large loans and the sale of
residential mortgage loans in excess of residential mortgage originations.
Noninterest-bearing deposits decreased, totaling $69,225,000 at June 30, 1995,
compared with $72,972,000 at December 31, 1994. Interest-bearing deposits
totaled $169,423,000 at June 30, 1995 versus $180,986,000 at December 31, 1994.
The balance of short-term borrowings was $24,376,000 at June 30, 1995 and
$10,484,000 at December 31, 1994. Secured borrowings and securities sold under
repurchase agreements are included in short-term borrowings.
Beginning December 31, 1992, banks and bank holding companies were required to
have a minimum risk-based capital ratio of 8.00%. The Company's total capital
as a percentage of risk-weighted assets was 12.93% at June 30, 1995, as
compared to 10.45% at December 31, 1994.
An additional capital requirement is a minimum leverage ratio of Tier 1 capital
to total quarterly average assets (leverage ratio), which is intended to
supplement the risk-based capital guidelines. As discussed in Note 2 to the
accompanying unaudited consolidated financial statements, banks and bank
holding companies are expected to meet a minimum Tier 1 leverage ratio of
3.00%. The Company's leverage ratio at June 30, 1995 was 7.54%, exceeding the
minimum requirements.
25
<PAGE> 26
The Company's capital resources are discussed further in Note 2 and Note 6 to
the June 30, 1995 unaudited consolidated financial statements and in the
Capital Resources section included elsewhere herein.
LIQUIDITY
Liquidity management involves the ability to meet the cash flow requirements of
depositors who want to withdraw funds or borrowers who need assurance that
sufficient funds will be available to meet their credit needs. The objective of
asset liquidity management is to determine and maintain an appropriate level of
liquid interest-earning assets. Aside from cash on hand and due from banks,
the Company's more liquid assets are Federal funds sold and securities
available for sale. On a daily basis, the Company lends its excess funds to
other commercial institutions in need of Federal funds. Such cash and cash
equivalents totaled $27,969,000 or 9.7% of total assets at June 30, 1995, as
compared with $17,924,000 or 6.3% of total assets at December 31, 1994.
Securities available for sale were $24,150,000 at June 30, 1995 compared with
$27,276,000 at December 31, 1994.
Demand deposits, regular savings, money market accounts and NOW deposits from
consumer and commercial customers are a relatively stable, low cost source of
funds which comprise a substantial portion of funding of the Company's
interest-earning assets. Other sources of asset liquidity include loan and
mortgage-backed security principal and interest payments, maturing securities
and loans, and earnings on investments.
In addition, the Bank has two unsecured lines of credit with correspondent
banks totaling $5,000,000. There were no borrowings under these lines at June
30, 1995.
During the second quarter of 1995, the Bank became a member of the Federal Home
Loan Bank of Boston ("FHLBB"). Services offered by the FHLBB include an
unsecured credit line, up to a maximum of 2% of the Bank's assets. At June 30,
1995 this available line amounted to $5.7 million. The FHLBB also offers
collateralized fixed and variable rate borrowings, cash management services,
investment services, as well as lower cost advances for affordable housing or
community investment programs. The Bank did not have any borrowings with the
FHLBB as of June 30, 1995.
Additional sources of liquidity are available to the Company through the
Federal Reserve Bank's discount window and the sale of certain investment
securities to securities firms and correspondent banks under repurchase
agreements. Such agreements are generally short-term. The discount window, if
needed, would allow the Company to cover any short-term liquidity needs without
reducing earning assets.
Management believes the above sources of liquidity are adequate to meet the
Company's funding needs in 1995 and the foreseeable future. Bancorp has
minimal operations and therefore neither generates nor uses a significant
amount of funds.
26
<PAGE> 27
The following table provides a summary of outstanding loan and lines of credit
commitments and standby letters of credit at June 30, 1995.
<TABLE>
<CAPTION>
($ in thousands)
<S> <C>
Loan commitments:
Residential mortgage $ 3,427
Residential construction 790
--------------------------------------------------------------------------------
Total 4,217
--------------------------------------------------------------------------------
Lines of Credit commitments:
Commercial 9,675
Home equity 16,417
Personal 2,382
--------------------------------------------------------------------------------
Total 28,474
--------------------------------------------------------------------------------
Commercial letters of credit 12
Standby letters of credit 2,443
--------------------------------------------------------------------------------
Total 2,455
--------------------------------------------------------------------------------
Total commitments and letters of credit $ 35,146
================================================================================
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability management program focuses on maximizing net
interest income while minimizing balance sheet risk by maintaining what
management considers to be an appropriate balance between the volume of assets
and liabilities maturing or subject to repricing within the same interval.
Asset/liability management also focuses on maintaining adequate liquidity and
capital. Interest rate sensitivity has a major impact on the Company's
earnings. Proper asset/liability management involves the matching of
short-term interest sensitive assets and liabilities to reduce interest rate
risk. Interest rate sensitivity is measured by comparing the dollar difference
between the amount of assets repricing within a specified time period and the
amount of liabilities repricing within the same time period. This dollar
difference is referred to as the rate sensitivity or maturity "GAP".
Management's goal is to maintain a cumulative one year GAP of under 10% of
total assets. At June 30, 1995 the cumulative one year GAP as a percentage of
total assets was 4.76%. The Company concentrates on originating adjustable
rate loans to hold in its loan portfolio in order to reduce interest rate risk.
Deregulation of deposit instruments has allowed the Company to generate deposit
liabilities whose repricing more closely matches that of its loans.
27
<PAGE> 28
The following table provides detail reflecting the approximate repricing
intervals for rate-sensitive assets and liabilities at June 30, 1995:
<TABLE>
<CAPTION>
Maturity/Repricing Intervals
--------------------------------------------------------------------------------------------------------------
Over
3 Mos
3 Months through 1 - 5 Over 5
or Less 1 Year Years Years Total
--------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Loans(1) $ 83,345 $ 47,317 $24,217 $20,650 $175,529
Investment securities (2) 24,664 1,325 34,308 8,869 69,166
Federal funds sold and other 8,154 --- --- --- 8,154
--------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets 116,163 48,642 58,525 29,519 252,849
--------------------------------------------------------------------------------------------------------------
Rate-Sensitive Liabilities:
NOW & Money market deposits 70,922 --- --- --- 70,922
Certificates of deposit and other 11,612 24,106 15,330 --- 51,048
Savings deposits 47,453 --- --- --- 47,453
Short-term borrowings 24,376 --- --- --- 24,376
--------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities 154,363 24,106 15,330 --- 193,799
--------------------------------------------------------------------------------------------------------------
GAP $(38,200) $ 24,536 $43,195 $29,519 $ 59,050
==============================================================================================================
Cumulative GAP $(38,200) $(13,664) $29,531 $59,050
==============================================================================================================
Cumulative percentage of
rate-sensitive assets to
rate-sensitive liabilities 75% 92% 115% 130%
==============================================================================================================
</TABLE>
(1) Excludes nonaccrual loans of $3,454,000.
(2) Securities available for sale are included in the "3 Month or Less"
category.
The time periods indicated in the table represent the shorter of the remaining
time before the asset or liability matures or can be repriced. The principal
amount of each asset and liability is included in the period in which it
matures or reprices.
Nonaccrual loans have been excluded from the rate-sensitive assets. Regular
savings accounts, money market accounts and NOW deposits have been included in
the "3 Months or Less" category. However, these deposits have historically
remained stable and are an integral part of the Company's funding and
asset/liability management strategy.
28
<PAGE> 29
Noninterest-bearing demand deposits of $69,225,000 have been excluded from the
table. These deposits, which also have historically been stable, are used to
fund net interest rate sensitive assets beyond three months.
One measure of interest rate sensitivity is the excess or deficiency of assets
that mature or reprice in one year or less. As shown in the preceding table,
rate-sensitive assets that mature or reprice in one year total $164,805,000 and
rate-sensitive liabilities that mature or reprice in one year total
$178,469,000. The resulting negative one year rate-sensitive GAP is
$13,664,000. During periods of rising interest rates, a negative GAP position
can be a disadvantage if more rate-sensitive liabilities than rate-sensitive
assets reprice at higher rates, creating an adverse impact on net interest
income. This impact may be mitigated somewhat if the level of nonaccrual loans
and other real estate owned declines, resulting in an increase in
rate-sensitive assets. During a falling rate environment, a negative rate GAP
can be an advantage. However, the impact of rising and falling interest rates
on net interest income may not directly correlate to the Company's GAP position
since interest rate changes and the timing of such changes can be impacted by
management's actions as well as by competitive and market factors. As interest
rates change, rates earned on assets do not necessarily move in parallel with
rates paid on liabilities.
CAPITAL RESOURCES
Stockholders' equity increased to $21,366,000 at June 30, 1995 from $16,398,000
at December 31, 1994, primarily due to earnings of $3,242,000 and the exercise
of 1,972,000 warrants by preferred stockholders, which resulted in additional
capital of $1,479,000. Additionally, a $417,000 net change in the unrealized
appreciation of the securities available for sale portfolio at June 30, 1995
positively impacted stockholders' equity as compared to December 31, 1994.
Stockholder's equity is further reduced by the payment of dividends, which the
Company resumed in 1995.
At June 30, 1995, the Company's Tier 1 capital to average assets ratio
(leverage ratio) was 7.54% and its total capital to risk-weighted asset ratio
was 12.93%, exceeding minimum requirements.
29
<PAGE> 30
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of Westport Bancorp, Inc. was
held on May 25, 1995. The following matters were submitted to a vote:
(i) Appointment of Auditors:
The appointment of Arthur Andersen LLP as the independent
auditors for fiscal year ending 1995 was ratified. Of 7,685,952
votes entitled to be cast, 7,331,356 were cast - 7,276,190 for,
33,720 against, 21,446 abstained.
(ii) Election of Directors:
The nominees for director set forth in the proxy statement
received the following votes out of 7,685,952 entitled to be
cast.
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
George H. Damman 7,297,320 34,036
Michael H. Flynn 7,297,149 34,207
William L. Gault 7,297,310 34,046
Kurt B. Hersher 7,297,320 34,036
William E. Mitchell 7,292,410 38,946
David A. Rosow 7,297,149 34,207
William D. Rueckert 7,297,149 34,207
Jay Sherwood 7,298,093 33,263
</TABLE>
30
<PAGE> 31
(iii) Adoption of a new incentive stock option plan
The adoption of a new incentive stock option plan was ratified.
Of 7,685,952 votes entitled to be cast, 6,469,631 were cast -
6,245,314 for, 196,868 against, 27,449 abstained.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(i) The exhibits that are filed with this Form 10-Q, or that are
incorporated by reference, are set forth in the following
exhibit index.
(ii) No reports on Form 8-K were filed during the quarter ended June
30, 1995.
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Reference
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3(a) Restated Certificate Exhibit 3(a) to
of Incorporation Annual Report
filed May 16, 1990 on Form 10-K
for the year ended
December 31, 1991
3(b) Certificate of Exhibit 3(b) to
Designation filed Annual Report
February 21, 1992 on Form 10-K
for the year ended
December 31, 1991
3(c) By-Laws, as amended Exhibit 3(b) to
effective Annual Report
October 25, 1990 on Form 10-K
for the year ended
December 31, 1990
3(d) By-Laws, as amended Exhibit 3(d) to
effective Annual Report
April 29, 1993 on Form 10-K
for the year ended
December 31, 1992
4(a) Specimen Common Stock Exhibit 4 to
Certificate Registration
Statement
No. 2-93773
4(b) Specimen Series A Exhibit 4(b) to
Convertible Annual Report
Preferred Stock on Form 10-K
Certificate for the year ended
December 31, 1991
4(c) Specimen Warrant Exhibit 4(c) to
Certificate Annual Report
on Form 10-K
for the year ended
December 31, 1991
10(a) Weston Lease dated Exhibit 10(c) to
June 5, 1979 Registration
Statement
No. 2-93773
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Reference
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(b) Weston lease dated Exhibit 10(e) to
August 23, 1979 Annual Report
on Form 10-K
for the year ended
December 31, 1989
10(c) Weston lease modification Exhibit 10(c) to
dated July 1, 1993 Annual Report
on Form 10-K
for the year ended
December 31, 1993
10(d) Trust Department lease Exhibit 10(e) to
dated November 7, 1986 Annual Report
on Form 10-K
for the year ended
December 31, 1992
10(e) Gault Building lease Exhibit 10(f) to
dated April 1, 1987 Annual Report
on Form 10-K
for the year ended
December 31, 1992
10(f) Shelton Operations Exhibit 10(h) to
Center lease dated Annual Report
March 22, 1991 on Form 10-K for
the year ended
December 31, 1991
10(g)(1) Agreements with Exhibit 10(i)(1) to
Certain Executives: Annual Report
Employment & Option on Form 10-K for
Agreements for: the year ended
A) Michael H. Flynn December 31, 1992
B) Thomas P. Bilbao
C) Richard T. Cummings, Jr.
Executive Agreement for:
A) Arnold Levine
</TABLE>
33
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Reference
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(g)(2) Agreements of Waiver of Exhibit 10(i)(2) to
certain provisions of Annual Report
agreements with on Form 10-K
executives identified for the year ended
as Exhibit 10(g)(1) December 31, 1992
above:
Employment & Option
Agreements for:
A) Michael H. Flynn
B) Richard T. Cummings, Jr.
Executive Agreement for:
A) Arnold Levine
10(g)(3) Stock Option Exhibit 10(i)(3) to
Agreements with Annual Report
Executives: on Form 10-K
A) Michael H. Flynn for the year ended
B) Thomas P. Bilbao December 31, 1992
C) Richard T. Cummings, Jr.
10(g)(4) Employment Agreement with Exhibit 10(i)(4) to
Richard L. Card Annual Report
on Form 10-K
for the year ended
December 31, 1993
10(g)(5) Stock Option Agreements with Exhibit 10(i)(5) to
Certain Executives: Annual Report
A) William B. Laudano, Jr. on Form 10-K
B) Richard L. Card for the year ended
December 31, 1993
10(g)(6) Employment Agreement with Exhibit 10(g)(6) to
William B. Laudano, Jr. Annual Report
on form 10-K
for the year ended
December 31, 1994
10(h) Supplemental Executive Exhibit 10(j) to
Retirement Plan dated Annual Report
July, 1987 on Form 10-K
for the year ended
December 31, 1992
</TABLE>
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Reference
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(i) Directors Retirement Exhibit 10(m) to
Plan Annual Report
on Form 10-K
for the year ended
December 31, 1992
10(j) 1985 Incentive Stock Exhibit 10(n) to
Option Plan restated Annual Report
January 1, 1990 on Form 10-K
for the year ended
December 31, 1992
11 Statement Regarding Filed herewith
Computation of Per
Share Earnings
27 Financial Data Schedule Filed herewith
</TABLE>
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Bancorp
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WESTPORT BANCORP, INC.
DATE August 10, 1995 BY /s/Michael H. Flynn
--------------- ---------------------------------
Michael H. Flynn
President
Chief Executive Officer
DATE August 10, 1995 BY /s/William B. Laudano, Jr.
--------------- ---------------------------------
William B. Laudano, Jr.
Senior Vice President
Chief Financial Officer
Chief Accounting Officer
36
<PAGE> 37
EXHIBIT INDEX
--------------
Exhibit No. Description
----------- -----------
11 Statement Regarding Computation of Per
Share Earnings
27 Financial Data Schedule
<PAGE> 1
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended June 30,
1995 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME BEFORE ADJUSTMENT $ 1,582,000 $ 940,000
INTEREST ADJUSTMENT (1) --- 14,000
---------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,582,000 $ 954,000
===============================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,763,227 3,096,752
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK EQUIVALENTS:
Net shares assumed to be issued for
dilutive stock options and warrants 1,331,844 2,699,960
Shares assumed to be issued on
conversion of preferred stock 4,282,472 4,495,000
---------------------------------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,377,543 10,291,712
===============================================================================================================
EARNINGS PER COMMON SHARE $ 0.15 $ 0.09
===============================================================================================================
<CAPTION>
Six Months Ended June 30,
1995 1994
<S> <C> <C>
---------------------------------------------------------------------------------------------------------------
INCOME BEFORE ADJUSTMENT $ 3,242,000 $ 1,191,000
INTEREST ADJUSTMENT (1) --- 32,000
---------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,242,000 $ 1,223,000
===============================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,010,532 3,092,325
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK EQUIVALENTS:
Net shares assumed to be issued for
dilutive stock options and warrants 1,842,241 2,699,960
Shares assumed to be issued on
conversion of preferred stock 4,338,425 4,495,000
---------------------------------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,191,198 10,287,285
===============================================================================================================
EARNINGS PER COMMON SHARE $ 0.32 $ 0.12
===============================================================================================================
</TABLE>
(1) Pursuant to the "treasury stock method" - represents an adjustment to
interest from the assumed use of a portion of the proceeds from the
exercise of options and warrants to retire a portion of short-term
borrowings in 1994.
37
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 20469
<INT-BEARING-DEPOSITS> 169423
<FED-FUNDS-SOLD> 7500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24150
<INVESTMENTS-CARRYING> 45016
<INVESTMENTS-MARKET> 44083
<LOANS> 178983
<ALLOWANCE> 3041
<TOTAL-ASSETS> 287108
<DEPOSITS> 238648
<SHORT-TERM> 24376
<LIABILITIES-OTHER> 2718
<LONG-TERM> 0
<COMMON> 53
0
1
<OTHER-SE> 21312
<TOTAL-LIABILITIES-AND-EQUITY> 21366
<INTEREST-LOAN> 8175
<INTEREST-INVEST> 1947
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 10194
<INTEREST-DEPOSIT> 2248
<INTEREST-EXPENSE> 2905
<INTEREST-INCOME-NET> 7289
<LOAN-LOSSES> 750
<SECURITIES-GAINS> (233)
<EXPENSE-OTHER> 5563
<INCOME-PRETAX> 2684
<INCOME-PRE-EXTRAORDINARY> 2684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3242
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 8.0
<LOANS-NON> 3454
<LOANS-PAST> 620
<LOANS-TROUBLED> 2183
<LOANS-PROBLEM> 1582
<ALLOWANCE-OPEN> 3341
<CHARGE-OFFS> 1114
<RECOVERIES> 64
<ALLOWANCE-CLOSE> 3041
<ALLOWANCE-DOMESTIC> 3041
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
