<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
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Commission File Number 0-16595
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SUBURBAN BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware 54-1319441
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
7505 Greenway Center Drive, Greenbelt, Maryland 20770
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(Address of principal executive offices) (Zip Code)
(301) 474-6694
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
Common Stock $.01 Par Value Outstanding at May 3, 1999
- --------------------------- --------------------------
(Class)
11,301,218 Shares
-----------------
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<TABLE>
<CAPTION>
SUBURBAN BANCSHARES, INC.
S.E.C. FORM 10-Q
March 31, 1999
PART I. FINANCIAL INFORMATION PAGE NO.
- ----------------------------- --------
<S> <C>
Item 1. Condensed Financial Statements
Consolidated Balance Sheets March 31, 1999 (unaudited)
and December 31, 1998 (audited) 3
Consolidated Statements of Operations (unaudited)
Three months ended March 31, 1999 and March 31, 1998 4
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1999 and March 31, 1998 5
Consolidated Statements of Changes in Shareholders' Equity
(unaudited) Three months ended March 31, 1999 and March 31, 1998 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10-17
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reportson Form 8-K 17
</TABLE>
FORWARD-LOOKING INFORMATION
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Portions of this Quarterly Report on Form 10Q contain forward-looking
statements, including statements of goals, intentions, and expectations,
regarding or based upon general economic conditions, interest rates,
developments in national and local markets, the Company's ability to address the
Year 2000 issue and the ability of third parties to effectively address their
Year 2000 issues, and other matters, which, by their nature, are subject to
significant uncertainties. Because of these uncertainties and the assumptions on
which statements in this report are based, the actual future results may differ
materially from those indicated in this report.
2
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SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(in thousands) (unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,295 $ 12,280
Federal funds sold 31,500 43,093
Investment securities available for sale 51,691 45,843
Loans held for sale 466 1,814
Loans 127,468 129,885
Less: Allowance for loan losses (1,600) (1,524)
Loans, net 125,868 128,361
Premises and equipment, net 1,631 1,683
Foreclosed real estate 364 535
Accrued interest receivable 1,385 1,387
Deferred income taxes 2,541 2,474
Other assets 1,358 1,096
TOTAL ASSETS $230,099 $238,566
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 34,361 $ 37,507
Interest-bearing deposits 163,552 169,873
Total deposits 197,913 207,380
Securities sold under repurchase agreements 10,603 9,523
Accrued expenses and other liabilities 860 951
Total liabilities 209,376 217,854
Commitments and contingent liabilities -- --
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
shares issued and outstanding:
11,301,218 at March 31, 1999 and 10,951,218 at December 31, 1998 113 109
Paid-in capital - stock options 0 534
Additional paid-in capital 25,824 25,259
Accumulated deficit (5,188) (5,484)
Accumulated other comprehensive income (loss) (26) 294
Total shareholders' equity 20,723 20,712
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $230,099 $238,566
</TABLE>
See accompanying notes to consolidated financial statements
3
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SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(in thousands, except per share data) 1999 1998
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 2,511 $ 2,501
Taxable interest on securities 712 482
Interest on Federal funds sold and deposits with other banks 258 237
Total interest income 3,481 3,220
INTEREST EXPENSE
Interest on deposits 1,535 1,334
Interest on short-term borrowings 77 36
Total interest expense 1,612 1,370
NET INTEREST INCOME 1,869 1,850
Provision for loan losses 75 100
Net interest income after provision for loan losses 1,794 1,750
NONINTEREST INCOME
Service charges on deposit accounts 147 151
Gain on sale of investment securities 23 --
Other income 148 57
Total noninterest income 318 208
NONINTEREST EXPENSE
Salaries and employee benefits 922 816
Occupancy expense 191 182
Furniture and equipment expense 62 63
Other expense 487 439
Total noninterest expense 1,662 1,500
Income before income taxes 450 458
Income tax 154 163
NET INCOME $ 296 $ 295
Basic earnings per common share $0.03 $0.03
Diluted earnings per common share 0.03 0.03
See accompanying notes to consolidated financial statements
</TABLE>
4
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SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in thousands) 1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $296 $295
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 67 57
Provision for loan losses 75 100
Deferred income tax expense 134 163
Originations of loans held for sale (3,579) --
Proceeds from loan sales 4,927 --
Net realized gains on available for sale securities (23) --
Net accretion on securities (13) (22)
Increase (decrease) in deferred loan fees 16 (68)
Net increase in premium on loans purchased 171 89
(Increase) decrease in accrued income and other assets (260) 111
(Decrease) increase in accrued expenses and other liabilities (91) 65
Loss on sale of foreclosed real estate 4 --
Net cash provided by operating activities 1,724 790
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in Federal funds sold 11,593 (31,886)
Purchases of available for sale securities (12,108) (2,117)
Proceeds from maturities of available for sale securities 5,170 1,950
Proceeds from prepayments of principal on securities 100 5
Proceeds from sales of available for sale securities 505 --
Net decrease (increase) in loans 2,126 (1,947)
Purchases of loans -- (20)
Net purchases of premises and equipment (15) (119)
Proceeds from sale of foreclosed real estate 272 --
Net cash provided (used) by investing activities 7,643 (34,134)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in total deposits (9,467) 36,189
Net increase in securities sold under agreements to repurchase 1,080 1,912
Net proceeds from sale or issuance of common stock 35 --
Net cash (used) provided by financing activities (8,352) 38,101
Net increase in cash and due from banks 1,015 4,757
Cash and due from banks at beginning of period 12,280 10,759
Cash and due from banks at end of period $13,295 $15,516
Interest paid $1,647 $1,360
Income taxes paid 20 --
Loans transferred to foreclosed real estate 105 740
See accompanying notes to consolidated financial statements
</TABLE>
5
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SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Accumulated
Other
Three Months Ended Comprehensive Accumulated Comprehensive Common Paid-in
March 31, 1999 Total Income Deficit Income Stock Capital
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $20,712 $(5,484) $ 294 $109 $25,793
------- ------- ----- ---- -------
Exercise of management stock options 35 4 31
Comprehensive income:
Net income 296 296 296
----
Other comprehensive income, net of tax
Unrealized gains (losses)on
securities available for sale (320) (320) (320)
----
Comprehensive income (24)
------- ==== ------- ----- ---- -------
Ending balance $20,723 $(5,188) $ (26) $113 $25,824
======= ======= ===== ==== =======
Three Months Ended
March 31, 1998
Beginning balance $19,182 $(6,910) $ 190 $109 $25,793
------- ------- ----- ---- -------
Comprehensive income:
Net income 295 295 295
----
Other comprehensive income, net of tax
Unrealized gains (losses) on securities
available for sale (9) (9) (9)
----
Comprehensive income ------- 286 ------- ----- ---- -------
Ending balance $19,468 ==== $(6,615) $ 181 $109 $25,793
======= ======= ===== ==== =======
</TABLE>
6
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SUBURBAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited consolidated financial statements, which
include the accounts of Suburban Bancshares, Inc. ("Bancshares" or "the
Company") and its wholly-owned subsidiary, Suburban Bank of Maryland ("Suburban
Maryland"), have been prepared in accordance with the instructions to Form 10-Q
and do not include all of the disclosures required by generally accepted
accounting principles. All adjustments which, in the opinion of management, are
necessary to a fair presentation of the results for the interim periods
presented have been made; all of these adjustments are of a normal and recurring
nature. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of results that may be expected for the entire year
ending December 31, 1999.
NOTE A - ACCOUNTING POLICIES AND OTHER DATA
- -------------------------------------------
Reference should be made to the Notes to Consolidated Financial
Statements included in the Company's Annual Report to Shareholders for the year
ended December 31, 1998, which contain the Company's accounting policies and
other data.
NOTE B - INVESTMENT SECURITIES
- ------------------------------
The following table shows the amortized cost and estimated fair value of
investment securities classified as available for sale at March 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated Fair
Amortized Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 1,198 $ 19 $ -- $ 1,217
Federal agencies 38,689 300 (313) 38,676
Mortgage-backed obligations of federal agencies 10,777 4 (67) 10,714
Other 1,069 19 (4) 1,084
Total investment securities $51,733 $342 $ (384) $51,691
</TABLE>
The schedule below shows the amortized cost and estimated fair value of
investment securities classified as available for sale at December 31, 1998 (in
thousands):
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated Fair
Amortized Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 1,448 $ 30 $ 0 $ 1,478
Federal agencies 38,381 512 (77) 38,816
Mortgage-backed obligations of federal agencies 4,267 8 (14) 4,261
Other 1,268 21 (1) 1,288
Total securities available for sale $45,364 $571 $ (92) $45,843
</TABLE>
The amortized cost and estimated fair value for securities at March 31,
1999, by contractual maturity are shown in the following table. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay certain obligations with or without call premiums or
prepayment penalties.
<TABLE>
<CAPTION>
In thousands Amortized Cost Estimated Fair Value
<S> <C> <C>
Due in one year or less $ 5,868 $ 5,921
Due after one year through 5 years 27,687 27,748
Due after 5 years through 10 years 8,238 8,145
Due after 10 years -- --
Mortgage-backed securities 9,940 9,877
Total $51,733 $51,691
</TABLE>
7
<PAGE> 8
Sales of securities in the three months ended March 31, 1999 resulted in
profits of $23,000; there were no sales of securities in the three months ended
March 31, 1998. The net unrealized holding loss on available for sale
securities, which is included in accumulated other comprehensive income and
shown as a separate component of shareholders' equity in the accompanying
Consolidated Balance Sheets, was $26,000 at March 31, 1999; a gain of $294,000
was reported at December 31, 1998.
NOTE C - IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------
Impaired loans are loans for which it is probable that the creditor will
not collect all principal and interest payments according to the loan's
contractual terms. The impairment of a loan is measured at the present value of
expected future cash flows using the loan's effective interest rate, or as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Interest income on impaired
loans is recognized on a cash basis. Restructured loans are loans on which the
borrower has been granted a concession as to rate or term as a result of
financial difficulty.
Information with respect to impaired loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
in thousands 1999 1998
<S> <C> <C>
Impaired loans with a valuation allowance $1,082 $ 1,160
Impaired loans without a valuation allowance -- --
------ ------
Total impaired loans 1,082 1,160
Allowance for credit losses related to impaired loans 170 135
Allowance for credit losses related to other than impaired loans 1,430 1,389
----- -----
Total allowance for credit losses 1,600 1,524
Average impaired loans for the period $1,357 $1,569
Interest income on impaired loans recognized on the cash basis -- --
</TABLE>
The provision for loan losses is determined by analyzing the status of
individual loans, reviewing historical loss experience and reviewing the
delinquency of principal and interest payments where pertinent. Management
believes that uncollectible amounts have been charged off and that the allowance
is adequate to cover losses inherent in the portfolio at March 31, 1999.
Increases and decreases in the allowance include changes in the measurement of
impaired loans.
Activity in the allowance for losses is summarized as follows:
Three Months Ended
in thousands March 31, 1999
--------------
Balance at beginning of period $ 1,524
Provision for loan losses 75
Loans charged off (10)
Recoveries 11
----------------
Balance at end of period $ 1,600
================
NOTE D - FORECLOSED REAL ESTATE
- -------------------------------
Foreclosed real estate is carried at the lower of cost or fair value,
less estimated selling costs, based upon current market conditions and expected
cash flows.
The following schedule presents a breakdown, by type of property, of
foreclosed real estate:
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<PAGE> 9
in thousands March 31, 1999 December 31, 1998
-----------------------------------------
Commercial property $ 202 $562
Residential property 105 --
Commercial land 60 60
-----------------------------------------
Total $367 622
Allowance for losses (3) (87)
-----------------------------------------
ESTIMATED FAIR VALUE $364 $535
=========================================
NOTE E - REGULATORY MATTERS
- ---------------------------
The Company is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classifications are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of March 31, 1999, that the Company
meets all capital adequacy requirements to which it is subject.
As of March 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The actual capital amounts and ratios for the Company and the Bank are
presented in the table below:
9
<PAGE> 10
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY CAPITALIZED
PURPOSES
$ in thousands AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Total capital (to risk-weighted assets):
Company $22,285 17.79% $10,032 8.00% $12,539 10.00%
Suburban Bank of Maryland 17,609 14.23 9,897 8.00 12,371 10.00
Tier 1 capital (to risk-weighted assets):
Company 20,738 16.54 5,016 4.00 7,524 6.00
Suburban Bank of Maryland 16,062 12.98 4,949 4.00 7,423 6.00
Tier 1 capital (to average assets):
Company 20,738 9.66 8,591 4.00 10,738 5.00
Suburban Bank of Maryland 16,062 7.58 8,472 4.00 10,590 5.00
As of December 31, 1998:
Total capital (to risk-weighted
assets):
Company $21,583 16.65% $10,371 8.00% $12,964 10.00%
Suburban Bank of Maryland 16,914 13.23 10,226 8.00 12,783 10.00
Tier 1 capital (to risk-weighted assets):
Company 20,058 15.47 5,186 4.00 7,779 6.00
Suburban Bank of Maryland 15,390 12.04 5,113 4.00 7,670 6.00
Tier 1 capital (to average assets):
Company 20,058 9.13 8,791 4.00 10,988 5.00
Suburban Bank of Maryland 15,390 7.05 8,738 4.00 10,922 5.00
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary provides an overview of the financial condition
and significant changes in the results of the operations of Suburban Bancshares,
Inc. and its subsidiary ("Bancshares" or "the Company") for the three months
ended March 31, 1999 and 1998. Throughout this review the subsidiary of Suburban
Bancshares, Inc., Suburban Bank of Maryland, is referred to as "Suburban
Maryland" or "the Bank". This discussion should assist readers in their analysis
of the accompanying consolidated financial statements.
OVERVIEW
- --------
Suburban Bancshares, Inc. reported earnings of $296,000 for the three
months ending March 31, 1999, an increase of $1,000, or 0.3%, over $295,000
reported for the same period of 1998. This modest improvement in earnings is
attributed to solid asset growth, offset by a declining net interest margin.
Total assets reached $230.1 million at March 31, 1999, a $16.0 million,
or 7.5%, increase from $214.1 million at March 31, 1998. Assets have declined
since December 31, 1998, $8.5 million, or 3.6%. Loans have increased $13.3
million, or 11.6%, since March 31, 1998 and have decreased $3.8 million, or
2.9%, since year-end 1998, reaching $127.9 million at the end of the first
quarter of 1999. Deposits, at $197.9 million, rose 4.7% since March 31, 1998 and
have fallen 4.6% since December 31, 1998.
Average assets were $214.7 million for the first three months of 1999,
$40.4 million, or 23.2%, above average assets of $174.3 million for the same
period of 1998. Average earning assets rose $38.2 million, or 23.9%, and average
deposits rose $33.4 million, or 22.2%.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income, the largest contributor to the Company's earnings,
is defined as the difference between income on assets and the cost of funds
supporting those assets. Earning assets are composed primarily of loans and
investments while deposits and short-term borrowings, in the form of securities
sold under repurchase agreements, represent interest-bearing liabilities.
Noninterest-bearing checking deposits are another component of funding sources.
Variations in the volume and mix of these assets and liabilities, as well as
changes in
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<PAGE> 11
the yields earned and rates paid, are determinants of changes in net interest
income.
Net interest income rose $19,000, or 1.0%, from $1,850,000 for the first
three months of 1998 to $1,869,000 in 1999, the net result of higher loan and
deposit volume which offset a falling net interest margin.
The net interest margin represents the Company's net yield on its earning
assets and is calculated as net interest income divided by average earning
assets. In the first quarter of 1999, the net interest margin was 3.83%, falling
86 basis points from 4.69% in the same period of 1998, the result of a drop of
116 basis points in the yield on loans and a 40 basis point drop in the yield
for invested funds, while funding costs declined only 22 basis points.
Changes in the volume of earning assets and interest bearing funds impact
both interest income and interest expense. Both total average earning assets and
total average interest bearing funds rose in the first quarter of 1999 as
compared to 1998. Average earning assets rose $38.2 million, or 23.9%, from
$159.8 million in 1998 to $198.0 million in 1999, and average interest bearing
funds increased $30.7 million, or 24.1%, from $127.2 million to $154.9 million
for the same periods. Because the amount of growth in earning assets exceeded
the growth in interest-bearing funds, the level of net interest income
increased.
Combined changes in interest rates received on earning assets and paid on
funding sources negatively affected the net interest margin in the first three
months of 1999. The yield on earning assets fell in 1999 to 7.13% from 8.17% in
1998, as loan yields dropped to 7.92% from 9.08%. The lower yield on loans was
the combined effect of competitive factors in our market, a lower interest rate
environment overall after market rates declined in the last quarter of 1998, and
a lower rate earned on a portfolio of the guaranteed portion of SBA loans. This
pool, averaging $19,666,000 in the first three months of 1999, represents 15.3%
of the average loan portfolio, and because of the reduced risk associated with
the pool, the yield is less than loans without the backing of a government
guarantee. That yield was further reduced in the first quarter of 1999, as
payoffs in the portfolio resulted in elimination of purchase premiums which
directly impacts the margin. The yield on the investment portfolio fell only 22
basis points as maturing dollars were reinvested at lower yields, while
extending the overall portfolio maturity, and the return on Federal funds
dropped 78 basis points on average compared to the first three months of 1998. A
slight decrease in the cost of funds helped to mitigate the falling margin, as
rates paid for funds declined to 3.39% for 1999 from 3.61% in 1998, a 22 basis
point drop, primarily the result of falling market rates.
Changes in the mix of both earning assets and funding sources also
impacted net interest income in the first three months of both 1999 and 1998;
however, the changes in the mix of funding sources were not significant compared
to the changes in composition of earning assets. Average loans as a percentage
of average earning assets decreased from 69.9% in 1998 to 64.9% in 1999; average
investments rose from 19.3% to 24.1%. Short-term investments, Federal funds
sold, rose slightly from 10.8% of earning assets to 11.0%. The impact of the
shift to a lower percentage of loans in earing assets was significant, because
loans are typically the highest yielding earnings asset and a drop in the
percentage will result in a lower yield on earning assets. Changes in the mix of
interest-bearing funds were less pronounced as funds shifted to higher-cost
deposits from lower-cost transaction accounts. Time deposits rose $15.0 million,
from 24.3% of funding sources to 27.2% in 1999, and checking and money market
deposits fell from 40.4% to 36.3%; both of these changes in deposit composition
resulted in an increase in the cost of funds, offsetting falling rates.
11
<PAGE> 12
AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
(In thousands)
<TABLE>
<CAPTION>
Three Months ended March 31, 1999 1998
AVERAGE AVERAGE
AVERAGE YIELD AVERAGE YIELD
ASSETS BALANCE INTEREST OR RATE BALANCE INTEREST OR RATE
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $128,508 $2,511 7.92% $111,758 $2,501 9.08%
Investment securities 47,633 712 6.06% 30,861 482 6.34%
Fed funds sold and other deposits 21,853 258 4.80% 17,216 237 5.58%
Total interest-earning assets 197,994 3,481 7.13% 159,835 3,220 8.17%
Noninterest-earning assets:
Cash and due from banks 11,053 8,704
Bank property and equipment 1,662 1,714
Other assets 5,568 5,599
Less: Allowance for loan losses (1,567) (1,505)
Total noninterest-earning assets 16,716 14,512
TOTAL ASSETS $214,710 $174,347
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Checking and money market $69,942 $ 579 3.35% $62,141 $ 551 3.59%
Savings 26,734 261 3.96% 24,228 279 4.67%
Time deposits 52,412 695 5.38% 37,385 504 5.47%
Securities sold under repurchase agreements 8,820 77 3.56% 3,473 36 4.22%
Total interest-bearing liabilities 157,908 127,227
Noninterest-bearing deposits 34,879 1,612 4.14% 26,766 1,370 4.37%
Total funding sources 192,787 1,612 3.39% 153,993 1,370 3.61%
Other liabilities 1,184 945
TOTAL LIABILITIES 193,971 154,938
Shareholders' equity 20,739 19,409
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $214,710 $174,347
Net interest income
Net interest spread 3.74% 4.56%
Net interest margin $1,869 3.83% $1,850 4.69%
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is the effect of maintaining an allowance,
or reserve, for anticipated future losses on loans. The allowance for loan
losses reflects management's judgment as to the level considered appropriate to
absorb such losses based upon a review of many factors, including historical
loss experience, adverse situations that may affect the borrower's ability to
repay (including the timing of future payments), economic conditions and trends,
loan portfolio volume and mix, loan performance trends, the value and adequacy
of collateral, and the Company's internal credit review process. Based on this
ongoing evaluation, management determines the provision or reversal necessary to
maintain an appropriate allowance.
12
<PAGE> 13
In the first quarter of 1999, the provision for loan losses was $75,000.
Loans charged off totaled $10,000 and recoveries were $11,000. In the same
period of 1998, the provision was $100,000, loans charged off were $183,000 and
recoveries totaled $44,000.
NONINTEREST INCOME
Noninterest income rose $110,000, or 52.9%, in the first three months of
1999 to $318,000 from $208,000 in the same period of 1998. Fees for the
origination of mortgage loans, a new service offered in 1998, account for
$66,000 of the increase and a gain on the sale of investment securities added
$23,000.
NONINTEREST EXPENSES
Noninterest expenses increased $162,000, or 10.8%, in the first quarter
of 1999 as compared to the same period of 1998, from $1,500,000 to $1,662,000.
Salaries and benefits increased, the result of merit increases and staffing for
a new branch. The new branch in White Flint and expenses associated with the
conversion to a new computer services vendor and the installation of a wide-area
network have pushed other expenses higher, as well.
ASSET QUALITY
Loan impairment applies to loans for which it is probable that the
creditor will not collect all principal and interest payments according to the
loan's contractual terms. The impairment of a loan is measured at the present
value of expected future cash flows using the loan's effective interest rate, or
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Interest income on
impaired loans is recognized on a cash basis. Restructured loans are loans on
which the borrower has been granted a concession as to rate or term as a result
of financial difficulty. Nonaccrual loans are those loans on which the accrual
of interest is discontinued when full collection of principal or interest is in
doubt, or when the payment of principal or interest has become contractually 90
days past due, unless the obligation is both well secured and is in the process
of collection. Loans may be placed on nonaccrual status when past due less than
90 days if collection becomes uncertain based upon an evaluation of the fair
value of the collateral and the financial strength of the borrower. When a loan
is placed on nonaccrual status, interest income in the current period is reduced
by the amount of any accrued and uncollected interest. Subsequent payments of
interest are applied as a reduction of principal when concern exists as to the
ultimate collection of principal; otherwise such payments are recognized as
interest income. Loans are removed from nonaccrual status when they have
demonstrated a period of performance and when concern no longer exists as to the
collectibility of principal or interest.
The recorded investment in loans that were considered impaired was
$1,082,000 and $1,160,000 at March 31, 1999 and December 31, 1998, respectively,
a decrease of $78,000.
Real estate acquired through foreclosure or deed in lieu of foreclosure
is carried at fair value less estimated selling costs, based upon current market
conditions and expected cash flows. Foreclosed real estate was $364,000 at March
31, 1999 and $535,000 at December 31, 1998.
The allowance for loan losses is maintained at a level believed adequate
by management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance. The allowance for loan losses related to loans that
are identified as impaired is based on discounted cash flows using the loans'
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans.
The allowance for loan losses was $1,600,000 at March 31, 1999, an
increase of $76,000 from $1,524,000 at December 31, 1998. Activity in the
allowance for loan losses during the first quarter of 1999 included recoveries
of $11,000, charge-offs of $10,000, and a provision for future losses of
$75,000.
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity is the ability to generate and maintain sufficient cash flows
to fund operations and to meet financial obligations to
13
<PAGE> 14
depositors and borrowers promptly and in a cost-effective manner. Liquidity is
provided through readily marketable assets, maturing loans and investments, and
the ability to generate new deposits or borrowings as needed. The Company's
liquidity position is monitored and managed by the Asset/Liability Management
Committee, which has the overall objective of optimizing income while minimizing
and controlling liquidity and interest rate risk, and maintaining capital
adequacy.
Core deposits normally provide a stable source of liquidity for the
Company. These core deposits are composed of noninterest checking accounts,
checking and money market accounts, and savings and individual retirement
accounts. This core deposit base represented 71.6% of total funding sources at
March 31, 1999, compared to 73.4% at the end of 1998. Another indicator of
adequate liquidity is the level of readily marketable assets. As the core
deposit base was falling due to an increase in time deposits, these liquid
assets, securities available for sale, overnight federal funds and the
guaranteed portion of SBA loan in the loan portfolio, also declined slightly to
48.1% of total assets at March 31, 1999 from 49.4% at December 31, 1998, as
overnight investments dropped. The relatively small changes in core deposits and
marketable assets are indicative of the stability of the liquidity they provide.
As a supplementary source of short-term liquidity, the Bank maintains
$6,000,000 of reverse repurchase lines of credit and unsecured lines of credit
totaling $4,500,000 with correspondent banks. These correspondents meet
regulatory capital requirements for well capitalized financial institutions,
thereby minimizing the risk that might be associated with this level of
interbank exposure. The Bank has not needed to utilize these backup lines as
internally generated liquidity has provided ample resources.
Interest sensitivity pertains to the volatility of earnings resulting
from interest rate fluctuations. The management of interest rate risk has two
goals: to minimize fluctuations in net interest income and net income, and to
identify the potential change in the Company's market value of portfolio equity.
Interest rate risk can be defined or measured as either the change in earnings
that results from changes in interest rates (earnings at risk) or a change in
the theoretical market value of the Company (economic value at risk). Economic
value at risk is essentially the value of equity at risk. The Company recognizes
that with return, there must be risk; however, the levels of risk must be
contained within tolerable limits as established by the Asset/Liability
Management Committee and the Investment Committee.
One method of measuring the Company's interest rate sensitivity is the
"gap" report, which measures the mismatch in repricing between
interest-sensitive assets and liabilities and provides a general indication of
the interest sensitivity of the balance sheet at a point in time. By limiting
the size of the gap position, the Company can limit the net interest income at
risk arising from pricing imbalances. The gap schedule that follows reflects the
earlier of the maturity or repricing dates for various interest-earning assets
and interest-bearing liabilities at March 31, 1999:
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
3 months or Over 3 months to Over 1 year
in thousands less 1 year to 5 years Over 5 years Total
<S> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other deposits $ 31,500 $ -- $ -- $ -- $ 31,500
Investment securities available for sale 7,617 12,172 21,285 10,617 51,691
Loans (1) 75,245 16,078 30,800 5,849 127,972
Total interest-earning assets 114,362 28,250 52,085 16,466 211,163
Cumulative rate sensitive assets 114,362 142,612 194,697 211,163
Interest-bearing liabilities:
Interest checking deposits $ 14,890 $ -- $ -- $ -- $ 14,890
Money market deposits and savings deposits 95,945 -- -- -- 95,945
Time deposits 39,656 6,296 6,765 -- 52,717
Securities sold under repurchase agreements 10,603 -- -- -- 10,603
Total interest-bearing liabilities 161,094 6,296 6,765 -- 174,155
Cumulative rate sensitive liabilities 161,094 167,390 174,155 174,155
GAP $ $(46,732) $ 21,954 $ 45,320 $ 16,466
CUMULATIVE GAP (46,732) (24,778) 20,542 37,008 $ 37,008
CUMULATIVE GAP TO TOTAL ASSETS -20.31% -10.77% 8.93% 16.08% 16.08%
(1) Excludes net deferred fees $38.
</TABLE>
14
<PAGE> 15
The amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the earlier of term to
repricing or the contractual terms of the asset or liability. The Company has
assumed that its savings, interest checking and money market accounts reprice
daily and that investment securities with call options will be called. At March
31, 1999, the Company's one-year interest sensitivity gap (the difference
between the amount of interest-earning assets anticipated by the Company, based
on certain assumptions, to mature or reprice within one year and the amount of
interest-bearing liabilities anticipated by the Company, based on certain
assumptions, to mature or reprice within one year) as a percentage to total
assets was negative 10.77%. This negative gap position means that the Company
had $24,778,000 more liabilities than assets repricing within one year. At
December 31, 1998 the gap as a percentage of assets was positive 1.83%. A
negative gap generally indicates that in a period of rising interest rates, the
Company's net interest income may be adversely affected. Conversely, in a
declining interest rate environment, the Company's net interest income may
improve.
Another tool used to assess interest rate risk reflects the adverse
changes that would occur assuming an instantaneous, parallel shift of 200 basis
points in the Treasury Yield Curve is introduced over a one-year forecast
horizon. This interest shock simulation measures the potential changes in
simulated earnings and the potential changes in market value of portfolio equity
as rates are shifted at each point on the yield curve upward and downward. The
methodology is based upon an initial forecast assumption of a constant balance
sheet and constant market interest rates and utilizes present value computations
on cash flows as well as duration analysis to produce measurements of earnings
and economic value at risk. The analyses are prepared using current call report
data from the Bank and incorporate both management assumptions and trend
analyses based upon the Company's historical data as well as market trends in
pricing spreads, prepayment patterns and other rate-driven parameters which
affect the level and timing of cash flows. Finally, the impact of planned growth
is factored into the simulation model.
The Asset/Liability Committee has established limits or guidelines on
earnings and economic value at risk and monitors the Company's performance
against these guidelines, as well as peer results, on a quarterly basis. The
Company's policy is to limit the percentage change in annual net interest income
to -15% and in economic value to -20% from an immediate and sustained parallel
shift in interest rates of 200 basis points. As of December 31, 1998, the
estimated sensitivity profile for the Company was as follows:
<TABLE>
<CAPTION>
Immediate Change in Rates Policy Limitation
+200BP -200BP
------ ------
<S> <C> <C> <C>
Net interest income at risk 10.00% -9.9% -15%
Economic value at risk 9.56% -13.8% -20%
</TABLE>
Based on the mix of assets and liabilities and the current interest rate
environment, management does not believe there has been a significant change in
the first quarter of 1999.
Both of the above tools used to assess interest rate risk have strengths
and weaknesses. Because the gap reflects a static position at a single point in
time, it is limited in quantifying the total impact of market rate changes which
do not affect all earning assets and interest-bearing liabilities equally or
simultaneously. In addition, gap reports depict the existing structure,
excluding exposure arising from new business. While the simulation process is a
powerful tool in analyzing interest rate sensitivity, many of the assumptions
used in the process are both highly qualitative and subjective and subject to
the risk that past historical activity may not generate accurate predictions of
the future. Both measurement tools, however, provide a comprehensive evaluation
of the Company's exposure to changes in interest rates, enabling management to
control the volatility of earnings.
CAPITAL RESOURCES AND ADEQUACY
Shareholders' equity increased $11,000, or 0.05%, in the first three
months of 1999 to $20,723,000 at March 31, 1999 from $20,712,000 at December 31,
1998. Earnings of $296,000 and a decrease of $320,000 in the accumulated other
comprehensive income accounted for most of the change in equity; the exercise of
management stock options contributed another $35,000.
A combination of a leverage capital ratio and risk-based capital ratios
is used to categorize banks as well capitalized, adequately capitalized, or
under capitalized financial institutions under the guidelines established by
FDICIA. A financial institution is considered "well capitalized" if it has a
total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital
ratio of at least 6%, and a leverage ratio of 5% or greater and it is not
subject to a written agreement, order or directive. At December 31, 1998 and
March 31, 1999, the Company was considered to be a well capitalized financial
institution.
One measure of capital adequacy is the risk-based capital ratio or the
ratio of total capital to risk-adjusted assets. Total capital is composed of
both core capital (Tier 1) and supplemental capital (Tier 2). The Bank's Tier 1
capital consists of common equity, excluding
15
<PAGE> 16
unrealized gains or losses on available for sale securities, and a disallowed
portion of the deferred tax asset, and Tier 2, of a qualifying portion of the
allowance for loan losses. Assets, both on- and off-balance sheet items, are
weighted according to the underlying risk associated with the item and are
assigned a risk weighting from 0 to 100%. Financial institutions are expected to
meet a minimum ratio of total qualifying capital to risk-weighted assets of 8%,
with at least half of that percentage (4%) in the form of core capital. At March
31, 1999, the Company reported at Tier 1 risk-based capital ratio of 16.54% and
a ratio of 17.77% based on total capital. Both ratios were well above the
general regulatory minimums of 4% and 8%, respectively.
Another capital adequacy measure is the leverage capital ratio, which is
calculated by dividing average total assets for the most recent quarter into
core (Tier 1) capital. The regulatory minimum of this ratio is 3%, with most
financial institutions required to maintain a ratio of at least 4% to 5%,
depending upon risk profiles and other factors. At March 31, 1999, the leverage
capital ratio for the Company was 9.66%.
YEAR 2000 PROJECT
Many computer programs now in use have not been designed to properly recognize
years after 1999. If not corrected, these programs could fail or create
erroneous results. This Year 2000 ("Y2K") issue affects the entire banking
industry because of its reliance on computers and other equipment that use
computer chips. This problem is not limited to computer systems. Y2K issues may
affect every system that has an embedded microchip, such as automated teller
machines, elevators, vaults, heating, air conditioning, and security systems.
Y2K issues may also affect the operation of third parties with whom the Company
does business such as vendors, suppliers, utility companies, and customers.
Risks Related to Year 2000
- --------------------------
The Y2K issue poses certain risks to the Company and its operations. Some of
these risks are present because the Company purchases technology and information
system applications from other parties who also face Y2K challenges. Other risks
are specific to the banking industry.
Commercial banks may experience a deposit base reduction if customers withdraw
significant amounts of cash in anticipation of Y2K. Such a deposit contraction
could cause an increase in interest rates, require the Company to locate
alternative sources of funding or sell investment securities or other liquid
assets to meet liquidity needs, and may reduce future earnings. To reduce
customer concerns regarding Y2K noncompliance, a customer awareness plan has
been implemented which is directed towards making deposit customers
knowledgeable about the Company's Y2K compliance efforts.
The Company lends significant amounts to businesses and individuals in its
marketing areas. If these borrowers are adversely affected by Y2K problems, they
may not be able to repay their loans in a timely manner. This increased credit
risk could adversely affect the Company's financial performance. In an effort to
identify any potential loan loss risk because of borrower Y2K noncompliance, all
loan customers with loans or commitments exceeding $250,000 have been visited by
calling officers for the purpose of discussing their Y2K plans and for the
completion of a Y2K questionnaire. Additional visits will be made to reassess
the progress of those borrowers that were assumed to be computer-dependent.
The Company's operations, like those of many other companies, can be adversely
affected by Y2K triggered failures which may be experienced by third parties
upon whom the Company relies for processing transactions. The Company has
identified all critical third-party service providers and vendors and is
monitoring their Y2K compliance programs. The Company's primary supplier of data
processing services has adopted a Y2K compliance plan which includes a timetable
for making changes necessary to be able to provide services in the Y2K. That
supplier has provided written assurances to the Company regarding its progress
toward Y2K compliance and has been examined for Y2K readiness by federal bank
examiners.
The Company's operations may also be adversely affected by Y2K related failures
of third party providers of electricity, telecommunications services and other
utility services. The Y2K compliance of these providers is largely beyond the
control of the Company.
The Company's State of Readiness
- --------------------------------
The Company has created a task force to establish a Y2K plan to prevent or
mitigate the adverse effects of the Y2K issue on the Company and its customers.
Goals of the Y2K plan include identifying Y2K risks, information systems and
equipment used by the Company, informing customers of Y2K issues and risks,
establishing a contingency plan for operating if Y2K issues cause important
systems or equipment to fail, implementing changes necessary to achieve Y2K
compliance, and verifying that these changes are effective. The Federal Deposit
Insurance Corporation has examined the Company's Y2K compliance plan and the
Company's progress in its implementation. In addition, the Board of Directors is
carefully monitoring progress under the plan on a monthly basis.
16
<PAGE> 17
The assessment phase included an inventory and physical date rollover testing of
all computer hardware, and an identification of other systems or functions that
may be impacted by the date change. The Company has moved aggressively to verify
with third-party vendors and service providers that software and non-IT systems
are, or will be, Year 2000 compliant, and has completed 98% of the process of
internal testing of critical systems. Critical systems include communication
with the Federal Reserve via Fedline, the computer system and item processing
system, both of which are provided by the third party servicers, and the
wide-area network supporting communications between offices. Non-critical
systems that have been tested for date transition include ATMs, payroll,
accounts payable, internal telephone systems and general operational hardware
such as fax machines, postage meters, and copiers, some of which required
software enhancements and some, replacements.
As a result of the Company's planned migration to new data processing and item
processing providers in May 1999, and the planned enhancement of our
inter-branch communication network through a wide-area network, the hardware
replacement costs resulting from date recognition failure have been replaced by
equipment costs for support of the new network environment. Costs related to the
migration will approximate $260,000, to be amortized over the life of each of
the contracts, and costs associated with the installation of the wide-area
network will total approximately $380,000, which will be depreciated over its
useful life. A one-time de-conversion charge plus annual costs of the new
systems will result in a charge to income of approximately $120,000 in 1999, and
will not materially impact the results of operations in those or future years.
The Company has been assured that the new systems are Year 2000 compliant; we
will test the wide-area network, and we are using proxy-testing for the systems
provided by third party servicers to verify their readiness. A third-party
review of the proxy testing for Y2K compliance was recently issued for the data
processing system. The report was very favorable, showing a 99% success rate.
Proxy testing on the item processing system is complete, with the system
performing as expected.
In addition, an ongoing awareness campaign has been implemented to inform
customers and shareholders of the potential problem and its implications, and
our employees are kept informed of the issue and of our progress toward
minimizing its impact.
While management currently believes that its Year 2000 plans for monitoring
third-party progress and subsequent systems testing will mitigate the Year 2000
problem, if the service providers and customers, upon whom we rely, are not in
compliance, the Year 2000 issue may have a material adverse impact on the
operation of the Bank. The Company has established contingency plans in case of
failure resulting from the date change issue, and will be prepared to function
on a limited basis until such failure is corrected. Because the Bank is a
relatively small financial institution, daily transactions, deposits,
withdrawals and payments, can be processed normally, and accounts can be updated
manually until computer connectivity is re-established. Delays in processing
transactions may result in the event that the Company is forced to process
transactions manually and may disrupt normal business activities of the Company
and its customers.
PART II. OTHER INFORMATION
- ------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report.
Exhibit # Description
--------- -----------
11.0 Computation of per share earnings
27.0 Financial Data Schedule
(b) No reports on Form 8K were filed in the quarter ended March
31, 1999.
17
<PAGE> 18
PART II. OTHER INFORMATION - continued
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUBURBAN BANCSHARES, INC.
(Registrant)
Date: May 6, 1999 Stephen A. Horvath
----------- -------------------------------------------------
Stephen A. Horvath
President and Chief Operating Officer
Date: May 6, 1999 Sibyl S. Malatras
----------- -------------------------------------------------
Sibyl S. Malatras
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
18
<PAGE> 1
SUBURBAN BANCSHARES, INC. EXHIBIT 11
EARNINGS PER SHARE CALCULATION
March 31, 1999
INFORMATION FOR COMPUTATION OF DILUTION
=======================================
<TABLE>
<CAPTION>
Market Price per Share: Daily Average
<S> <C>
First Quarter 1999 $2.7169 62 trading days
Second Quarter 1999
Third Quarter 1999
Fourth Quarter 1999
Average Price for the Period Ended March 31, 1999 $2.7169 62 trading days
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(a) 12,600 options granted 1/22/97 exercisable at $2.625and outstanding for
the entire year
(b) 178,000 options granted 1/21/98 exercisable at $3.625 and outstanding for
the entire year
First Quarter 1999 Diluted
178,000 - ((178,000*3.625)/avg price) = (59,496) Antidilutive
(c) 41,590 options granted 1/21/98 and vested 1/21/99, exercisable at $3.625
First Quarter 1999 Diluted
41,590 - ((41,590*3.625)/avg price) = (13,901) Antidilutive
</TABLE>
EARNINGS PER SHARE CALCULATION - 1st QUARTER 1999
==================================================
<TABLE>
<CAPTION>
Income Shares
Basic Earnings per Share: (Numerator) (Denominator) EPS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $295,942
Common Shares Outstanding 11,301,218
Basic EPS $295,942 11,301,218 $0.03
</TABLE>
<TABLE>
<CAPTION>
Income Shares
Diluted Earnings per Share: (Numerator) (Denominator) EPS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $295,942 11,301,218
Additional shares to be issued upon assumed exercise of incentive
stock options (a) 12,600
Shares hypothetically repurchased at the average market price
with the proceeds (12,174)
Diluted EPS $295,942 11,301,644 $0.03
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,295
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 31,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,691
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 127,934
<ALLOWANCE> 1,600
<TOTAL-ASSETS> 230,099
<DEPOSITS> 197,913
<SHORT-TERM> 10,603
<LIABILITIES-OTHER> 860
<LONG-TERM> 0
0
0
<COMMON> 113
<OTHER-SE> 20,610
<TOTAL-LIABILITIES-AND-EQUITY> 230,099
<INTEREST-LOAN> 2,511
<INTEREST-INVEST> 712
<INTEREST-OTHER> 258
<INTEREST-TOTAL> 3,481
<INTEREST-DEPOSIT> 1,535
<INTEREST-EXPENSE> 1,612
<INTEREST-INCOME-NET> 1,869
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 1,662
<INCOME-PRETAX> 450
<INCOME-PRE-EXTRAORDINARY> 296
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
<YIELD-ACTUAL> 3.83
<LOANS-NON> 1,261
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,524
<CHARGE-OFFS> 10
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 1,600
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
