SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 - Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter ended June 30, 1997 Commission File Number 2-89559
Zachary Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-0981148
(State of or other jurisdiction (I.R.S. Employer incorporation
of organizaton) or Identification No.)
4700 Main Street
Post Office Box 497
Zachary, Louisiana 70791-0497
(Address of principal executive office) (Zipcode)
Registrant's telephone number, including area code 504 654 2701
None
(Former name, former address and former fiscal
year if changed since last report)
Indicate by check mark whether the registant (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 of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $10 par value, 193,667 shares outstanding as of June 30,
1997.
I N D E X
Financial Statements:
Consolidated Balance Sheets - June 30, 1997,
December 31, 1995 and June 30, 1996 2
Consolidated Statements of Income - for the three
and six months ended June 30, 1997 and 1996 3
Consolidated Statements of Changes in Stockholders'
Equity - for the six months ended June 30,
1997 and 1996 4
Consolidated Statements of Cash Flows -
for the six months ended June 30, 1997 and 1996 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
Part II - Other Information 14
Signatures 15
Exhibit 15 - Report of Independent Accountant 16
Management's Responsibility for Financial Reporting 17
1
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
June 30, 1997, December 31, 1996 and June 30, 1996
ASSETS
(UNAUDITED) (UNAUDITED)
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
Cash and Due from Banks $ 3,003,080 $ 3,654,801 $ 2,763,186
Interest Bearing Deposits in
Other Institutions 92,395 111,469 108,973
Reserve Funds Sold 1,200,000 850,000 750,000
Securities Available for Sale
(Amortized Cost $28,467,639,
$32,554,647 and $36,000,224) 28,411,277 32,528,819 35,657,803
Loans 40,514,930 37,260,053 33,322,601
Less: Allowance for Loan
Losses (819,781) (820,227) (818,418)
39,695,149 36,439,826 32,504,183
Bank Premises and Equipment 1,480,581 1,339,439 940,137
Other Real Estate 363,003 408,181 408,181
Accrued Interest Receivable 586,025 612,568 716,956
Other Assets 52,795 82,324 224,868
Total Assets $74,884,305 $76,027,427 $74,074,287
LIABILITIES
Deposits:
Noninterest Bearing $13,734,835 $12,327,349 $12,899,184
Interest Bearing 52,908,408 55,841,920 53,524,662
66,643,243 68,169,269 66,423,846
Accrued Interest Payable 187,432 185,288 182,978
Other Liabilities 184,841 60,994 295,271
Total Liabilities 67,015,516 68,415,551 66,902,095
STOCKHOLDERS' EQUITY
Common Stock - $10 Par Value; Authorized
2,000,000 Shares; Issued 216,000
Shares, Respectively $ 2,160,000 $ 2,160,000 $ 2,160,000
Surplus 1,480,000 1,480,000 1,480,000
Retained Earnings 4,712,648 4,435,582 4,204,850
Unrealized Gain (Loss) on Securities
Available for Sale, Net Treasury (37,199) (17,046) (225,998)
Stock (22,333 Shares at Cost) (446,660) (446,660) (446,660)
Total Stockholders'
Equity 7,868,789 7,611,876 7,172,192
Total Liabilities and
Stockholders' Equity $74,884,305 $76,027,427 $74,074,287
See accountant's report and accompanying notes.
2
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the three and six months ended June 30, 1997 and 1996
(UNAUDITED) (UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
Interest Income:
Interest and Fees on
Loans $ 855,659 $ 697,928 $1,654,620 $1,354,015
Interest on Securities 455,110 525,857 928,737 987,801
Other Interest Income 33,679 39,075 58,228 100,919
Total Interest
Income 1,344,448 1,262,860 2,641,585 2,442,735
Interest Expense on
Deposits 533,158 538,485 1,064,030 1,013,842
Net Interest Income 811,290 724,375 1,577,555 1,428,893
Provision for (Recovery of)
Loan Losses 7,735 - 15,214 -
Net Interest Income
After Provision for
Loan Losses 803,555 724,375 1,562,341 1,428,893
Other Income:
Service Charges on Deposit
Accounts 131,872 130,321 256,359 252,176
Gain (Loss) on
Securities (4,478) - (5,391) -
Other Operating Income 33,933 15,043 61,427 36,366
Total Other Income 161,327 145,364 312,395 288,542
Income before Other
Expenses 964,882 869,739 1,874,736 1,717,435
Other Expenses:
Salaries and Employee
Benefits 354,121 342,838 686,387 669,586
Occupancy Expense 51,075 90,984 100,433 134,742
Net Other Real Estate
Expense - (1,967) 1,200 (12,985)
Other Operating
Expenses 213,795 127,660 440,938 314,430
Total Other Expenses 618,991 559,515 1,228,958 1,105,773
Income before Income
Taxes 345,891 310,224 645,778 611,662
Applicable Income Taxes 117,725 102,441 213,778 197,369
Net Income $ 228,166 $ 207,783 $ 432,000 $ 414,293
Per Share:
Net Income $ 1.18 $ 1.07 $ 2.23 $ 2.14
Cash Dividends $ .80 $ .75 $ .80 $ .75
See accountant's report and accompanying notes.
3
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the six months ended June 30, 1997 and 1996
(UNAUDITED)
JUNE 30,
1997 1996
Common Stock:
Balance - Beginning and End of Period $2,160,000 $2,160,000
Surplus:
Balance - Beginning and End of Period $1,480,000 $1,480,000
Retained Earnings:
Balance - Beginning of Period $4,435,582 $3,935,807
Net Income 432,000 414,293
Cash Dividends (154,934) (145,250)
Balance - End of Period $4,712,648 $4,204,850
Net Unrealized Gain (Loss) on Securities
Available for Sale:
Balance - Beginning of Period $ (17,046) $ 38,260
Net Change in Unrealized Gain (Loss)
on Securities Available for Sale (20,153) (264,258)
Balance - End of Period $ (37,199) $ (225,998)
Treasury Stock:
Balance - Beginning and End of Period $ (446,660) $ (446,660)
See accountant's report and accompanying notes.
4
Zachary Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1997 and 1996
(UNAUDITED)
JUNE 30,
1997 1996
Cash Flows From Operating Activities:
Net Income $ 432,000 $ 414,293
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Provision for Loan Losses 15,214 -
Provision for Depreciation and
Amortization 81,639 47,486
Stock Dividends on Federal Home Loan
Bank Stock - (6,600)
Net (Accretion) Amortization of
Securities (Discounts) Premiums (13,369) 27,450
(Gain) Loss on Sale of Securities 5,391 -
Gain on Sale of Other Real Estate - (12,971)
(Increase) Decrease in Accrued
Interest Receivable 26,543 (132,409)
(Increase) Decrease in Other Assets 39,910 15,089
Increase (Decrease) in Accrued
Interest Payable 2,144 12,700
Increase (Decrease) in Other Liabilities 123,847 119,046
Net Cash Provided by Operating
Activities 713,319 484,084
Cash Flows From Investing Activities:
Net (Increase) Decrease in Reserve
Funds Sold (350,000) 1,950,000
Purchases of Securities Available for Sale (6,066,015) (7,411,927)
Maturities or Calls of Securities Available
for Sale 1,000,000 1,000,000
Principal Payments on Mortgage-Backed
Securities 218,084 407,532
Proceeds from Sales of Securities Available
for Sale 8,942,917 -
Net (Increase) Decrease in Loans (3,270,537) (2,916,736)
Purchases of Premises and Equipment (222,781) (52,071)
Proceeds from Sales of Other
Real Estate 45,178 76,164
Net Cash Provided (Used in)
Investing Activities 296,846 (6,947,038)
(CONTINUED)
5
(UNAUDITED)
JUNE 30,
1997 1996
Cash Flows From Financing Activities:
Net Increase (Decrease) in Demand
Deposits, NOW Accounts and
Savings Accounts (327,668) 4,638,174
Net Increase (Decrease) in Certificates
of Deposit (1,198,358) 2,429,147
Cash Dividends (154,934) (145,250)
Net Cash Provided by (Used in)
Financing Activities (1,680,960) 6,922,071
Increase (Decrease) in Cash and Due
from Banks (670,795) 459,117
Cash and Due from Banks - Beginning of
Period 3,766,270 2,413,042
Cash and Due from Banks - End of Period $ 3,095,475 $ 2,872,159
Supplemental Disclosures of Cash Flow
Information:
Noncash Investing Activities:
Other Real Estate Acquired in
Settlement of Loans $ - $ 19,604
Change in Unrealized Gain (Loss)
on Securities Available
for Sale $ (30,534) $ (400,390)
Change in Deferred Tax Effect
on Unrealized Gain on Securities
Available for Sale $ 10,381 $ (136,132)
Cash Payments For:
Interest Paid on Deposits $ 1,061,886 $ 1,001,142
Income Tax Payments $ 212,000 $ 199,248
See accountant's report and accompanying notes.
6
Zachary Bancshares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1997 and 1996
Note A - Summary of Significant Accounting Policies -
The accounting principles followed by Zachary Bancshares, Inc. and its
wholly-owned Subsidiary, Bank of Zachary, are those which are generally
practiced within the banking industry. The methods of applying those prin-
ciples conform with generally accepted accounting principles and have been
applied on a consistent basis. The principles which significantly affect
the determination of financial position, results of operations, changes in
stockholders' equity and cash flows are summarized below.
Presentation
The accompanying unaudited consolidated interim financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles. Management is of the opinion that the unaudited
interim financial statements reflect all normal, recurring accrual adjust
ments necessary to provide a fair statement of the results for the interim
periods presented. It is noted that the results for the first six months
ended June 30, 1997 are no indication of the expected results for the annual
period which ends December 31, 1997. Additional information concerning the
audited financial statements and notes can be obtained from Zachary Bancshares,
Inc's annual report and Form 10K filed for the period ended December 31, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of Zachary Banc
shares, Inc. (the Company), and its wholly-owned subsidiary, Bank of
Zachary (the Bank). All material intercompany accounts and transactions
have been eliminated. Certain reclassifications to previously published
financial statements have been made to comply with current reporting require
ments.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
7
Securities
Securities are being accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Investments in Debt and
Equity Securities," which requires the classification of securities as held
to maturity, trading, or available for sale.
Securities classified as held to maturity are those debt securities the Bank
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
Securities classified as trading are those securities held for resale in
anticipation of short-term market movements. The Bank holds no securities
classified as held to maturity or trading.
Securities classified as available for sale are those debt securities that
the Bank intends to hold for an indefinite period of time but not necessarily
to maturity. Any decision to sell a security classified as available for
sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Bank's assets and lia
bilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in stock
holders' equity, net of the reported deferred tax effect. Realized gains
or losses, determined on the basis of the costs of specific securities sold,
are included in earnings.
Loans
Loans are stated at principal amounts outstanding, less unearned income and
allowance for loan losses. Interest on commercial loans is accrued daily
based on the principal outstanding. Interest on installment loans is
recognized and included in interest income using the sum-of-the-digits
method, which does not differ materially from the interest method.
The Bank discontinues the accrual of interest income when a loan becomes 90
days past due as to principal or interest. Interest on impaired loans is dis
continued when, in management's opinion the borrower may be unable to meet
payments as they become due. When a loan is placed on non-accrual status,
previously recognized but uncollected interest is reversed to income or
charged to the allowance for loan losses. Interest income is subsequently
recognized only to the extent cash payments are received.
Allowance for Loan Losses
The allowance for loan losses is an amount which in management's judgment is
adequate to absorb potential losses in the loan portfolio. The allowance
for loan losses is based upon management's review and evaluation of the loan
portfolio. Factors considered in the establishment of the allowance for
loan losses include management's evaluation of specific loans; the level
and composition of classified loans; historical loss experience; results of
examinations by regulatory agencies; an internal asset review process; expect
ations of future economic conditions and their impact on particular borrowers;
and other judgmental factors.
8
The allowance for loan losses is based on estimates of potential future
losses, and ultimate losses may vary from the current estimates. These
estimates are reviewed periodically and as adjustments become necessary, the
effect of the change in estimate is charged to operating expenses in the
period incurred. All losses are charged to the allowance for loan losses
when the loss actually occurs or when management believes that the collect
ibility of the principal is unlikely. Recoveries are credited to the allow
ance at the time of recovery.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided at rates based upon estimated useful service lives
using the straight-line method for financial reporting purposes and accele
rated methods for income tax purposes.
The cost of assets retired or otherwise disposed of and the related accumu
lated depreciation are eliminated from the accounts in the year of disposal
and the resulting gains or losses are included in current operations.
Expenditures for maintenance and repairs are charged to operations as incur
red. Cost of major additions and improvements are capitalized.
Other Real Estate
Other real estate is comprised of properties acquired through foreclosure or
negotiated settlement. The carrying value of these properties is lower of
cost or fair value. Loan losses arising from the acquisition of these pro
perties are charged against the allowance for loan losses. Any subsequent
market reductions required are charged to Net Other Real Estate Expense.
Revenues and expenses associated with maintaining or disposing of foreclosed
properties are recorded during the period in which they are incurred.
Income Taxes
The provision for income taxes is based on income as reported in the fin
ancial statements after interest income from state and municipal securities
is excluded. Also certain items of income and expenses are recognized in
different time periods for financial statement purposes than for income tax
purposes. Thus provisions for deferred taxes are recorded in recognition of
such timing differences.
Deferred taxes are provided on a liability method in accordance with SFAS
No. 109 whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred
tax liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
9
The corporation and its subsidiary file a consolidated federal income tax
return. In addition, state income tax returns are filed individually by
Company in accordance with state statutes.
Earnings per Common Share
The computation of earnings per share and other per share amounts of common
stock is based on the weighted average number of shares of common stock out
standing during each year, which is 193,667 for all periods presented.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand and amounts due from banks (including cash items process of
clearing).
10
Zachary Bancshares, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION
June 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the significant
changes in income and expenses in relation to the changes in financial
position for the six months ended June 30, 1997 and 1996. This information
should be read in conjunction with the financial statements and notes rela
ting thereto. The Company is unaware of any trends, uncertainties or events
which would or could have a material impact on future operating results,
liquidity, or capital.
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
OVER 1996
Net Income for the six month period ended June 30, 1997, as compared to
the respective period of 1996 increased $17,707. Earning per share increased
4% to $2.23 in 1997 from $2.14 in 1996. The Company's increased income re
sulted from higher net interest income, a result of increased loan volume.
The Company's balance sheet increased 1% or $810,018 in the period under
review.
INTEREST INCOME
Interest Income for the six month period ended June 30, 1997 was $2,641,585,
an increase of $198,850 or 8% over the same period in 1996. The Company con
tinues to emphasize loan portfolio growth, which has increased loan interest
income.
Loans for the six month period ended June 30, 1997 as compared to the re
spective period in 1996 increased $7,192,329 or 21.5% to $40,514,930. Loan
interest income increased $300,605 or 22% to $1,654,620 for the six months
ended June 30, 1997 from $1,354,015 for the six months ended June 30, 1996.
Increased loan volume is the greatest cause of the 1997 income change.
Securities and other interest bearing assets (excluding loans) as of June 30,
1997 decreased $6,813,104 or 19% compared to the similar time period in 1996.
Corresponding income decreased $101,755 or 9% in the first six months of 1996.
11
INTEREST EXPENSE
Interest Bearing Liabilities decreased by $616,254 or 1% from June 30, 1996
to June 30, 1997. Interest Expense in the similar time period increased
$50,188 or 5%.
PROVISION FOR LOSSES
The Company made a $15,214 Loan Loss Provision in 1997. The Company did not
make a 1996 Provision. The substantial increase in loan volume influenced the
Company's decision to make a 1997 provision. Management's Watch List (assets
identified as weak or potentially deteriorating) indicates the current Allow
ance for Loan Losses is adequate to absorb potential losses.
OTHER INCOME
Total Other Income for the time period under consideration increased
$23,853 or 8%. Service Charges on Deposit Accounts and Other Operating Income
remained constant. Fee income associated with the sale of traditional non
banking products (mutual funds, annuities, equities etc.) accounted for the
majority of Other Operating Income increase.
OTHER EXPENSES
Total Other Expenses increased $123,185 or 11%, totaling $1,228,958 in 1997.
Employee Benefits (insurance, salaries and retirement) increased by $16,801
or 2.5%. The Company installed a new data processing system in February,
1997. The resulting June 30, 1997 equipment depreciation expense and assoc
iated maintenance expense is approximately $47,000. The non-reoccurring data
processing conversion expenses (telecommunications, stationary and printing,
training and other related costs) are approximately $50,000.
APPLICABLE INCOME TAXES
The Company is fully taxable in both 1997 and 1996. Amounts expensed in
the referenced time periods are $213,778 and $197,369 respectively.
12
EARNINGS PER SHARE
The Company's 1997 earning per share at June 30th was $2.23 a 4% increase
or $.09 per share over the previous year.
DIVIDENDS
The Company's cash dividend increased $.05 at June 30, 1997 to $.80 per
share or .067% over the previous year.
13
PART II
Item 6. EXHIBITS AND REPORTS
a. The following exhibit is filed as a part of this report.
Exhibit 15 - Report of Independent Accountants
14
SIGNATURES
Pursuant to the requirement of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
ZACHARY BANCSHARES, INC.
Date: August 12, 1997
Harry S. Morris, Jr.
President
Mark Thompson
Treasurer
15
July 16, 1997
Independent Accountant's Report
To the Board of Directors
Zachary Bancshares, Inc. and Subsidiary
Zachary, Louisiana
We have reviewed the accompanying Consolidated Balance Sheets of Zachary
Bancshares, Inc. and Subsidiary as of June 30, 1997 and 1996, and the related
Consolidated Statements of Income and Cash Flows for the six month periods
then ended all in accordance with standards established by the American
Institute of Certified Public Accountants.
We previously audited and expressed our unqualified opinion in our report
dated January 14, 1997, on the Consolidated Balance Sheet of Zachary Banc
shares, Inc. and Subsidiary as of December 31, 1996.
A review of interim financial information consists principally of obtaining
an understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and
making inquiries of persons responsible for financial and accounting matters.
It is substantially less in scope than an examination in accordance with
generally accepted auditing standards, the objective of which is the ex
pression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ HANNIS T. BOURGEOIS & CO., L.L.P.
16
Management's Responsibility for Financial Reporting
The management of Zachary Bancshares, Inc. is responsiblefor the
preparation of the financial statements, related financial data and
other information in this quarterly report. The financial statements
are prepared in accordance with generally accepted accounting princi-
ples and include some amounts that are necessarily based on manage-
ment's informed estimates and judgments, with consideration given to
materiality. Al financial information contained in this quarterly
report is consistent with that in the financial statements.
Management fulfills its responsibility for the integrity, objec-
tivity,consistency and fair presentation of the financial statements
and financial information through an accounting system and related
internal accounting controls that are designed to provide reasonable
assurance that assets are safeguarded and that transactions are au
thorized and recorded in accordance with established policies and
procedures. The concept of reasonable assurance is based on the
recognition that the cost of a system of internal accounting controls
should not exceed the related benefits. As an integral part of the
system of internal accounting controls, Zachary Bancshares, Inc. has a
professional staff who monitors compliance with and assesses the
effectiveness of the system of internal accounting controls and
coordinates audit coverage with the independent public accountants.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with management, and the inde
pendent public accounts to review matters relating to financial
reporting, internal accounting control and the nature, extent and
results of the audit effort. The independent public accountants have
direct access to the Audit Comittee with or without management
present.
The financial statements as of December 31, 1996 were examined by
Hannis T. Bourgeois & Co., L.L.P., independent public accountants, who
rendered an independent professional opinion on the financial state-
ments prepared by management. The financial statements as of June 30,
1997 have been reviewed by Hannis T. Bourgeois & Co., L.L.P. in accor-
dance with standards established by the American Institute of Certi
fied Public Accountants.
Mark Thompson, Treasurer
and Chief Financial Officer
17
??
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