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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission file number
March 31, 1996 0-15645
FCNB Corp
(Exact name of registrant as specified in its charter)
MARYLAND 52-1479635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 North Market Street, Frederick, Maryland 21701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(301) 662-2191
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, $1 par value
per share, 5,390,779 shares outstanding as of April 30, 1996.
1
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Item 1. Financial Statements
FCNB Corp and Subsidiaries (Restated
Consolidated Balance Sheets (Note 2) (Unaudited) Unaudited)
(Dollars in thousands, except per share amounts) March 31, 1996 December 31, 1995
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,936 $ 24,085
Interest-bearing deposits in other banks 2,876 2,261
Federal funds sold 23,526 20,017
- - -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 50,338 46,363
- - -----------------------------------------------------------------------------------------------------------------------------
Loans held for sale 6,469 2,362
- - -----------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity at amortized cost-
fair value of $37,962 in 1996 and
$59,192 in 1995 37,871 58,511
- - -----------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale -
at fair value 108,235 83,987
- - -----------------------------------------------------------------------------------------------------------------------------
Loans 440,139 440,881
Less: Allowance for credit losses (5,252) (5,242)
Unearned income (739) (1,087)
- - -----------------------------------------------------------------------------------------------------------------------------
Net loans 434,148 434,552
- - -----------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 20,356 19,997
- - -----------------------------------------------------------------------------------------------------------------------------
Other assets 13,354 15,212
- - -----------------------------------------------------------------------------------------------------------------------------
Total assets $670,771 $660,984
=============================================================================================================================
Liabilities and Stockholders' Equity
LIABILITIES
Deposits:
Noninterest-bearing deposits $67,578 $66,558
Interest-bearing deposits 469,474 463,430
- - -----------------------------------------------------------------------------------------------------------------------------
Total deposits 537,052 529,988
- - -----------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 23,865 21,043
Other short-term borrowings 34,145 32,837
Long-term debt 6,180 5,680
Accrued interest and other liabilities 4,923 5,217
- - -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 606,165 594,765
- - -----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, per share par value $1.00;
1,000,000 shares authorized; none outstanding -- --
Common stock, per share par value $1.00;
20,000,000 shares authorized; 5,390,779
shares issued and outstanding in 1996
and 5,298,361 in 1995 5,391 5,298
Surplus 27,064 26,734
Retained earnings 32,182 33,657
Net unrealized gain (loss) on securities
available for sale (31) 530
- - ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 64,606 66,219
- - ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $670,771 $660,984
==============================================================================================================================
</TABLE>
2
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Income (Note 2)
For the Three Months Ended March 31, 1996 and 1995 (Restated
(Dollars in thousands, except per share amounts) (Unaudited) Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------
1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $10,769 $ 9,044
Interest and dividends on investments:
Taxable 2,104 2,594
Tax exempt 149 360
Dividends 120 70
Interest on federal funds 280 75
Other interest income 77 79
- - ------------------------------------------------------------------------------------------------------------------------------
Total interest income 13,499 12,222
- - ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 5,225 4,312
Interest on federal funds purchased and
securities sold under agreements to
repurchase 290 246
Interest on long-term debt 18 116
Interest on other short-term borrowings 461 620
- - ------------------------------------------------------------------------------------------------------------------------------
Total interest expense(1) 5,994 5,294
- - ------------------------------------------------------------------------------------------------------------------------------
Net interest income 7,505 6,928
Provision for credit losses 72 143
- - ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 7,433 6,785
- - ------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service fees 566 438
Net securities gains 65 14
Gain on sale of loans 89 37
Other operating income 293 248
- - ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,013 737
- - ------------------------------------------------------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 2,821 2,674
Occupancy expenses 602 403
Equipment expenses 368 361
Merger related expenses 1,874 52
Other operating expenses 1,413 1,512
- - ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 7,078 5,002
- - ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 1,368 2,520
- - ------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes:
Income tax expense 576 839
Deferred income tax effect of pre-1988 thrift
reserve for credit losses 1,601 --
- - ------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 2,177 839
- - ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (809) $1,681
- - ------------------------------------------------------------------------------------------------------------------------------
Net income per share $(0.15) $0.32 *
==============================================================================================================================
Dividends declared per share $0.12 $0.20 *
==============================================================================================================================
Weighted average number
of shares outstanding 5,360,010 5,269,880 *
==============================================================================================================================
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<FN>
(1) The total interest expense amount has been reduced by $96,000 for the period
ended March 31, 1996, while no adjustment was made in 1995. This interest
reduction is due to the capitalization of interest on the new corporate
headquarters.
* The amounts shown have been adjusted retroactively for a three
for two stock split, effected in the form of a 50% stock dividend declared in
April 1995.
</FN>
</TABLE>
4
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows (Note 2)
For the Three Months Ended March 31, 1996 and 1995 (Restated
(Dollars in thousands) (Unaudited) Unaudited)
- - ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(809) $1,681
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 288 252
Provision for credit losses 72 143
Provision for foreclosed properties -- 62
Provision for deferred income taxes (benefits) (511) (57)
Net premium amortization (discount accretion)
on investment securities 15 (24)
Accretion of net loan origination fees (169) (89)
Net securities gains (65) (14)
Net loss on disposition of bank
premises and equipment 10 53
Net gain on sale of foreclosed properties (10) (4)
Decrease in other assets 4,272 180
Decrease (increase) in loans held for sale(1) (4,107) 807
Increase (decrease) in accrued interest and
other liabilities (294) 543
- - ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (1,308) 3,533
- - ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities -
available for sale 949 19
Proceeds from maturities of investment securities -
available for sale 3,978 3,132
Proceeds from maturities of investment securities -
held to maturity 8,010 3,347
Purchases of investment securities - available for sale (17,370) (3,243)
Purchases of investment securities - held to maturity -- (378)
Net decrease (increase) in loans 395 (28,241)
Purchases of bank premises and equipment (1,892) (1,185)
Proceeds from dispositions of bank premises and equipment -- 92
Investment in foreclosed properties (316) --
Proceeds from dispositions of foreclosed properties 78 211
- - ---------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (6,168) (26,246)
- - ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in noninterest-bearing
deposits, NOW accounts, money market accounts, and
savings accounts 4,532 3,687
Net increase (decrease) in time deposits 2,532 (4,097)
Net increase in short-term borrowings 4,130 16,113
Proceeds from long-term debt 500 --
Proceeds from sale of stock 423 --
Dividend reinvestment plan (3) --
Dividends paid (663) (1,045)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,451 14,658
- - ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 3,975 (8,055)
Cash and cash equivalents:
Beginning of period 46,363 37,924
- - ---------------------------------------------------------------------------------------------------------------------------------
End of period $50,338 $29,869
=================================================================================================================================
(continued)
</TABLE>
5
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (Note 2)
For the Three Months Ended March 31, 1996 and 1995 (Restated
(Dollars in thousands) (Unaudited) Unaudited)
- - ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosures:
Interest paid $5,952 $5,074
=================================================================================================================================
Income taxes paid $720 $87
=================================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Foreclosed properties acquired in settlement of loans $106 $--
=================================================================================================================================
Bank premises transferred to other assets $1,235 $--
=================================================================================================================================
Fair value adjustment for securities available for sale,
net of applicable deferred income tax effects $(561) $1,200
=================================================================================================================================
<FN>
(1) Loans held for sale are generally held for periods of ninety days or less.
</FN>
</TABLE>
6
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FCNB Corp and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - The accompanying unaudited consolidated financial statements for FCNB
Corp (the "Company") have been prepared in accordance with the instructions for
Form 10-Q and, therefore, do not include all information and footnotes required
by generally accepted accounting principles for complete financial statements.
The interim financial statements have been prepared utilizing the interim basis
of reporting and, as such, reflect all adjustments which are normal and
recurring in nature and are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented. The financial data for
the period ended March 31, 1995 contained in these unaudited consolidated
financial statements has been restated to include the effects of the pooling-of-
interest transaction with Laurel Bancorp, Inc. ("Laurel"), discussed below. The
results of operations include the three month periods ended March 31, 1995 for
the Company and February 28, 1995 for Laurel. In management's opinion, the one
month difference between the period end dates does not cause a material effect
on the financial condition or results of operations. The period ended March 31,
1996 includes the results of operations from Laurel for the four month period
December 1, 1995 to March 31, 1996. The net income for Laurel for the month
ended December 31, 1995 was $124,000 and is not considered to be a material
amount relative to the consolidated net loss. The December net income for Laurel
is included in the 1996 consolidated financial statements and is not included in
the restated 1995 consolidated financial statements. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
Note 2 - Merger and Acquisitions: On January 26, 1996, FCNB Corp (the "Company")
consummated its merger of Laurel Bancorp, Inc., the holding company for Laurel
Federal Savings Bank, Laurel, Maryland, with and into the Company. As a result
of the merger, each share of the outstanding common stock, $0.01 par value of
Laurel, was converted into 0.7656 shares of the common stock, $1.00 par value,
of the Company, resulting in the issuance of approximately 1,320,900 shares of
the Company's common stock.
The merger transaction with Laurel has been accounted for as a pooling of
interests. Therefore, the consolidated balance sheet as of December 31, 1995 and
the consolidated statements of income for the three month period ended March 31,
1995 have been restated to reflect this business combination.
The combined and separate results of operations for Laurel, for the three month
period ended February 28, 1995, and for the Company, for the three month period
ended March 31, 1995, preceding the merger are as follows:
(Dollars in thousands) Total Net Net income
For the Period Ended March 31, 1995 income income per share
----------------------------------- ------- ------ ---------
The Company $10,683 $1,312 $0.32
Results of pooled entity 2,276 369
- - ------------------------------------------------------------------------------
Combined $12,959 $1,681 $0.32
==============================================================================
Total income and net income for Laurel for the period during 1996 prior to
affiliation totaled $1.51 million and $261,000, respectively.
Note 3 - Investments: Using the criteria specified in Statement 115, the Company
classifies its investments in debt and equity securities at March 31, 1996 and
December 31, 1995 into two categories: held-to-maturity and available-for-sale.
Securities classified as held-to-maturity are those debt securities the Company
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed using the interest method over their contractual
lives.
Securities classified as available-for-sale are equity securities with readily
determinable fair values and those debt securities that the Company intends to
7
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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 Company's assets and
liabilities, liquidity needs, regulatory capital considerations, and
other similar factors. These securities are carried at fair value, with
any unrealized gains or losses reported in stockholders' equity, net of
the related deferred tax effect.
As of March 31, 1996, the gross unrealized losses in the Company's
investment portfolio were $772,000 in the held-to-maturity investment
portfolio and $1.29 million in the available-for-sale investment
portfolio compared to $547,000 and $523,000, respectively, as of
December 31, 1995. The increase in the gross unrealized losses in the
total investment portfolio is principally the result of an increase in
market interest rates during late 1995 and early 1996. Since the
Company's held-to-maturity investment portfolio includes fixed rate
investment securities that have below current market interest rates,
the future operating results of the Company would be negatively
impacted in an increasing rate environment. This reduction in net
interest income would result when the cost of funding the Company's
operations increases, while the income earned on the held-to-maturity
portfolio remains constant.
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of securities classified as
held-to-maturity at March 31, 1996 are as follows:
Held-to-maturity portfolio
- - --------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1996 Cost Gains Losses Value
- - --------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $ 4,901 $ 10 $ -- $ 4,911
State and political subdivisions 6,720 602 8 7,314
Mortgage-backed debt securities 26,250 251 764 25,737
- - --------------------------------------------------------------------------------------------------
$37,871 $863 $772 $37,962
==================================================================================================
</TABLE>
The amortized cost and estimated fair value of securities classified as
available-for-sale at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Available-for-sale portfolio
- - --------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1996 Cost Gains Losses Value
- - --------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $ 14,370 $ 9 $ 275 $ 14,104
State and political subdivisions 600 2 -- 602
Mortgage-backed debt securities 82,620 909 1,029 82,500
Equity securities 10,682 347 -- 11,029
- - --------------------------------------------------------------------------------------------------
$108,272 $1,267 $1,304 $108,235
==================================================================================================
</TABLE>
The gross realized gains on securities sold from the available-for-sale
portfolio for the first quarter of 1996 and 1995 are $72,000 and $17,000,
respectively. The gross realized losses on securities sold from the
available-for-sale portfolio for the same periods are $7,000 and $3,000,
respectively.
8
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The amortized cost and estimated fair value of securities classified as
held-to-maturity and available-for-sale at March 31, 1996 summarized by
contractual maturity, are as follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
- - ----------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- - ----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 4,361 $ 4,426 $ 3,601 $ 3,600
Due after one through five years 4,528 4,730 10,369 10,140
Due after five through ten years 2,379 2,713 1,000 966
Due after ten years 353 356 -- --
Mortgage-backed debt securities 26,250 25,737 82,620 82,500
Equity securities -- -- 10,682 11,029
- - ----------------------------------------------------------------------------------------------
$37,871 $37,962 $108,272 $108,235
==============================================================================================
</TABLE>
Actual maturities may differ from the contractual maturities reflected in the
preceding table because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Mortgage-backed securities
have no stated maturity and primarily reflect investments in various
Pass-through and Participation Certificates issued by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation,
respectively. Repayment of mortgage-backed securities is dependent on the
contractual repayment terms of the underlying mortgages collateralizing these
obligations and the current level of interest rates.
The amortized cost and estimated fair value of securities classified as
held-to-maturity at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Held-to-maturity portfolio
- - -----------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- - -----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $14,507 $ 37 $137 $14,407
State and political subdivisions 8,329 681 -- 9,010
Mortgage-backed debt securities 35,675 510 410 35,775
- - -----------------------------------------------------------------------------------------------
$58,511 $1,228 $547 $59,192
===============================================================================================
</TABLE>
The amortized cost and estimated fair value of securities classified as
available-for-sale at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Available-for-sale portfolio
- - -----------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- - -----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $12,423 $ 53 $116 $12,360
State and political subdivisions 600 5 -- 605
Mortgage-backed debt securities 62,991 1,046 407 63,630
Equity securities 7,135 257 -- 7,392
- - ----------------------------------------------------------------------------------------------
$83,149 $1,361 $523 $83,987
==============================================================================================
</TABLE>
9
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Note 4 - Long-Term Debt: The Company has a secured lending arrangement, with a
regional national bank, which financed the cost of its new corporate
headquarters facility in Frederick, Maryland (the "Facility"). Pursuant to the
terms of this arrangement, the Company will borrow $6.55 million. The Loan is
secured by a first lien security interest on the Facility's land, improvements
and fixtures and equipment. The principal amount of the loan will be amortized
with monthly payments over a 15 year term commencing on the earlier of the first
day of the first month following the completion of the Facility, or November 1,
1996. Any remaining unpaid balance on May 1, 2002 is due in full. The loan bears
interest at a fluctuating rate equal to the daily London Interbank Offering Rate
for one-month U.S. Dollar deposits (LIBOR), plus 1.35 percent, subject to a
limited upward adjustment if certain performance ratios are not maintained. The
outstanding balance as of March 31, 1996 was $6.18 million, bearing interest at
a rate of 6.79%. The interest paid on this loan totaled $54,000 during 1996 and
was capitalized as part of the cost of the Facility. The balance as of March 31,
1995 was $1.0 million and consisted of an advance from the Federal Home Loan
Bank of Atlanta and was due in November 1997.
Assuming the total amount borrowed is $6,545,000, payments begin in June 1996,
and using the current interest rate of 6.79%, principal payments for the next
five years will be as follows:
- - --------------------------------------------------------------------------------
Years ending December 31, (dollars in thousands)
1996 $ 150
1997 271
1998 290
1999 310
2000 332
Later years 5,192
- - --------------------------------------------------------------------------------
$6,545
================================================================================
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
- - --------
On January 26, 1996, FCNB Corp (the "Company") consummated its merger of
Laurel Bancorp, Inc. ("Laurel"), the holding company for Laurel Federal Savings
Bank, Laurel, Maryland, with and into the Company. As a result of the merger,
each share of the outstanding common stock, $0.01 par value of Laurel, was
converted into 0.7656 shares of the common stock, $1.00 par value, of the
Company, resulting in the issuance of approximately 1,320,900 shares of the
Company's common stock. As a result of the merger transaction, Laurel Federal
Savings Bank was merged with and into Elkridge Bank and the branch of Laurel
Federal Savings Bank in Monrovia, Maryland was transferred to FCNB Bank.
The following discussion and related financial data for the Company has been
restated to recognize the January 26, 1996 acquisition of Laurel which was
accounted for as a pooling of interests. This discussion provides an overview of
the financial condition and results of operations of the Company and its
wholly-owned subsidiaries, which is presented on a consolidated basis. The
principal subsidiaries of the Company are FCNB Bank and Elkridge Bank. Since the
merger transaction with Laurel has been accounted for as a pooling of interests,
the financial information has been combined for the two companies. For the first
quarter of 1996, the Company recorded a loss of ($809,000) but recorded net
income of $2.08 million before specific one-time merger related costs compared
to net income of $1.68 million for the same period in 1995.
Throughout the discussion on the financial performance of the Company for
the periods ended March 31, 1996 and 1995, the yield on interest-earning assets,
the net interest spread, the net interest margin, the risk-based capital ratios,
and the leverage ratio, exclude the effects of the adoption of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." However, the return on average assets and the
return on average equity include the effects of this pronouncement.
Return on average assets and return on average equity are key measures of
earnings performance. Return on average assets measures the ability of a bank to
utilize its assets in generating income. Return on average assets for the three
months ended March 31, 1996 was (0.49)% (annualized), but was 1.27% (annualized)
before specific one-time merger related costs compared to 1.08% (annualized) for
the same period in 1995. Return on average stockholders' equity, which measures
the income earned on the capital invested, for the quarter ended March 31, 1996
was (4.94)% (annualized), but was 12.68% (annualized) before specific one-time
merger related costs compared to 11.34% (annualized) for the three months ended
March 31, 1995.
On December 22, 1995, the Company entered into an Agreement and Plan of
Merger to acquire all of the common stock of Harbor Investment Corporation
("Harbor"), the parent company of Odenton Federal Savings and Loan Association
("Odenton"), Odenton, Maryland. At March 31, 1996, Harbor had total assets and
stockholders' equity of approximately $35 million and $4 million, respectively.
On April 30, 1996, this transaction was consummated and the stockholders of
Harbor were paid approximately $6.72 million.
In the ordinary course of its business, the Company routinely explores
opportunities for additional growth and expansion of its core banking business
and related activities, by acquisition of existing branches, by merger with
other institutions, and by de novo branching, both within the Company's existing
market, and in new markets. There can be no assurance that any growth or
expansion will have a positive impact on the Company's earnings, dividends, book
value or market value.
Net Interest Income
- - -------------------
Net interest income represents the Company's gross profit from lending and
investment activities, and is the most significant component of the Company's
earnings. Net interest income is the difference between interest and related fee
income on earning assets (primarily loans and investment securities) and the
cost of funds (primarily deposits and short-term borrowings) supporting them. To
facilitate the analysis of the table on page 17, net interest income is
presented on a taxable equivalent basis to adjust for the tax-exempt status of
certain loans and investment securities. This adjustment, based on the statutory
federal income tax rate of 34%, increases the tax-exempt income to an amount
representing an estimate of what would have been earned if that income were
fully taxable.
Taxable equivalent net interest income for the first three months of 1996
totaled $7.09 million, decreasing 0.3% from the $7.11 million recorded for the
same period in 1995. The Company's average interest-earning assets increased
3.4% to $608.11 million from March 31, 1995. This increase was primarily funded
with a 4.2% increase in the Company's average interest-bearing liabilities, and
11
<PAGE>
a 5.2% increase in its average noninterest-bearing deposits for the same period.
The Company's net interest margin (taxable equivalent net interest income as
a percent of average interest-earning assets) was 4.66% and 4.84% in the first
quarter of 1996 and 1995, respectively. The net interest margin is impacted by
the change in the spread between yields on earning assets and rates paid on
interest-bearing liabilities. This spread decreased by 17 basis points when
compared to the same period in the prior year. This was caused principally by an
increase in rates paid on interest-bearing liabilities combined with a decrease
in the yield earned on the Company's investments, which was greater than the
increase in the yield earned on the loan portfolio. The yield on earning assets
decreased 1 basis point to 8.43%, while the rates paid on interest-bearing
liabilities increased by 16 basis points to 4.38%.
The rate of interest earned on interest-earning assets and the rate paid on
interest-bearing liabilities, while significantly affected by the actions taken
by the Federal Reserve to control economic growth, are influenced by competitive
factors within the Company's market. Competitive pressures during late 1995 and
early 1996 for both loans and the funding sources needed to satisfy loan demand
within the Company's market area caused its net interest spread to narrow. The
management of the Company feels that the competitive pressures in this market
will cause the net interest spread to continue to be under pressure during 1996.
Therefore, the Company is currently pursuing operating efficiencies through
improved technology and is adding new products and services in an effort to
enhance its level of noninterest income. There can be no assurance that these
benefits will be realized.
Management of the Company employs extensive computer simulations to model
the impact of rising and falling interest rates. These simulations are based on
numerous assumptions management determines from their strategic planning process
and are run on a monthly basis using a shock analysis technique to determine the
effects on the Company's net income assuming an immediate increase or decrease
in interest rates. The Company has an interest rate risk management policy that
limits the amount of deterioration in net income, associated with an assumed
interest rate shock of +/- 100 and +/- 200 basis point change in interest rates,
to no more than 10% and 20% of net income, respectively.
Noninterest Income
- - ------------------
Noninterest income increased $276,000 (37.4%) for the three months ended
March 31, 1996, when compared to the same period in 1995. This increase was
primarily attributable to the increase in service fee income of $128,000 which
was due to an increase in the volume of deposit accounts maintained. The gains
recognized on sales of loans into the secondary mortgage market in 1996 totalled
$89,000 compared to the $37,000 recognized during 1995. Security gains increased
in 1996 to $65,000 from the $14,000 realized in 1995. The other operating income
increased by $45,000, principally due to increases in servicing fees recognized
on loans sold into the secondary mortgage market, on which the Company retains
the servicing function.
The Company is adding new products and services to enhance its level of
noninterest income in an effort to mitigate the effect of its decreasing net
interest spread. Some of these products are fee-based and, accordingly, the
income from these products is less sensitive to fluctuations in the level of
interest rates. The Company has an arrangement with Liberty Securities Corp, a
third party provider of mutual funds and annuities, to offer these products to
its customers. The arrangement will enable the Company in future years to earn
commissions on the sale of mutual funds and annuities whiling providing
customers access to alternative investment products. Additionally, revenue from
service charges on deposit accounts will continue to increase as the volume of
accounts maintained expands.
Noninterest income from gains realized on the sale of mortgage loans is
directly affected by the volume of mortgage loans settled, which is
significantly influenced by increases and decreases in the level of interest
rates. In periods of rising interest rates mortgage loan production typically
declines, whereas in periods of declining interest rates mortgage loan
production increases. As a result, this source of noninterest income is highly
influenced by the level and direction of future interest rate changes. Servicing
income on mortgage loans originated and sold however, is expected to make a
smaller contribution to noninterest income since the Company is currently not
retaining servicing rights on mortgages sold.
The Company's management is committed to developing and offering innovative,
market-driven products and services that will generate additional sources of
noninterest income.
Noninterest Expenses
- - --------------------
Noninterest expenses, excluding merger related expenses, increased $254,000
(5.1%) for the first
12
<PAGE>
three months of 1996, when compared to the first three months of 1995.
A portion of this increase is attributable to the additional overhead costs
associated with operating the new Brunswick branch opened in April 1995. Total
salaries and employee benefits increased $147,000 (5.5%) over the first three
months of 1995, which was primarily attributable to an increase in salary
expenses of $140,000 and payroll taxes. This change reflects the increase in the
current year's average number of full-time equivalent employees. During the
first three months of 1996, the Company employed 326 average full-time
equivalent employees, an increase of 4 people over the same period in 1995.
Occupancy expenses increased $199,000 (49.4%) while equipment expenses
increased only $7,000 (1.9%) over the first three months of 1995. The increase
in occupancy expenses is primarily associated with the increased costs of
maintaining the new corporate headquarters facility. These costs include
additional depreciation, utility expenses and real estate taxes. The increase in
equipment expenses is considered to be within normal limits.
Other operating expenses decreased $99,000 (6.5%) compared to the first
quarter of 1995. The primary reason for the decrease was associated with the
reduced FDIC insurance premiums.
Income Taxes
- - ------------
The Company's effective tax rates for the first three months of 1996 and
1995 were 159.1% and 33.3%, respectively. The effective tax rate for 1996 is
considerably higher than the effective tax rate experienced in 1995 due to the
nondeductibility of several of the merger related costs. Also, included in the
income tax expense for 1996 is the deferred income tax effect of pre-1988 thrift
reserves for credit losses. If these items are excluded from the income tax
expense calculation the effective tax rate is 36.0%. The Company's income tax
expense also differs from the amount computed at statutory rates primarily due
to tax-exempt interest from certain loans and investment securities.
Allowance for Credit Losses and Problem Assets
- - ----------------------------------------------
The Company follows the guidance of Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan"
as amended by Statement No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures." It requires that impaired loans within
its scope be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable market
price, or the fair value of the collateral if the loan is collateral dependent.
Since the Company's allowance for credit losses was considered adequate when
this Statement was adopted, the impact to the financial condition and results of
operations was not material.
SFAS 114 excludes smaller balance and homogeneous loans from impairment
reporting. Therefore, the Company has designated consumer, credit card and
residential mortgage loans to be excluded for this purpose. From the remaining
loan portfolio, loans rated as doubtful, or worse, classified as nonaccrual, and
troubled debt restructurings are considered to be impaired. Loans are placed on
nonaccrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income. Interest income
generally is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are applied as
a reduction of the loan principal balance. Interest income on other nonaccrual
loans is recognized only to the extent of interest payments received. Up to this
point, slow payment on a loan is considered, by the Company, to only be a
minimum delay. The Company has identified commercial real estate and commercial
and industrial type loans as the major risk classifications to be used in the
application of SFAS 114.
As of March 31, 1996, the Company had impaired loans totaling $3.03 million, for
which a specific allowance for credit losses of $690,000 has been provided and
other impaired loans of $512,000 for which no specific allowance for credit
losses is required. The average balance of these loans amounted to approximately
$3.56 million. Cash receipts on impaired loans applied to reduce the principal
balance and cash receipts recognized as interest income were $48,000 and
$15,000, respectively. In addition, at March 31, 1996, the Company had other
nonaccrual loans of approximately $756,000 for which impairment had not been
recognized. If interest on these other nonaccrual loans had been recognized at
the original interest rates, interest income would have increased approximately
$36,000.
The Company maintains its allowance for credit losses at a level deemed
sufficient to provide for estimated potential losses in the credit extension
process. Management reviews the adequacy of the allowance each quarter,
considering factors such as current and future economic conditions and their
anticipated impact on specific borrowers and industry groups, the growth and
composition
13
<PAGE>
of the loan portfolio, the level of classified and problem assets, historical
loss experience, and the collectibility of specific loans. Allowances for
impaired loans is generally determined based on collateral values or the present
value of estimated cash flows.
The provision for credit losses is charged to income in an amount necessary
to maintain the allowance at the level management believes is appropriate.
The allowance for credit losses was $5.25 million, or 1.20% of total loans,
net of unearned income, at March 31, 1996, compared to $4.79 million, or 1.15%
as of March 31, 1995, and $5.24 million, or 1.19% as of December 31, 1995. The
allowance for credit losses to nonperforming loans was 113.5%, 108.5% and 197.5%
as of March 31, 1996, March 31, 1995 and December 31, 1995, respectively.
Total nonperforming assets as of March 31, 1996 were $8.19 million, a $3.28
million increase from the level of nonperforming assets as of March 31, 1995,
and a $1.89 million increase from the level as of December 31, 1995. Total
nonperforming assets as of March 31, 1996, including properties acquired through
foreclosure, represent 1.22% of total assets, compared to .98% and .74% as of
March 31, 1995 and December 31, 1995, respectively.
Nonperforming assets at March 31, 1996 included $4.29 million of nonaccrual
loans, $334,000 of loans past due 90 days or more, $1.79 million of foreclosed
commercial properties, $539,000 of foreclosed residential properties and $1.24
million for the Company's vacated Operations Center transferred to other real
estate owned.
14
<PAGE>
<TABLE>
<CAPTION>
Allowance for Credit Losses
- - ---------------------------------------------------------------------------------------
Three months
ended Year ended
(Dollars in thousands) March 31, 1996 December 31, 1995
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
Average total loans outstanding during period $439,557 $423,722
=======================================================================================
Allowance at beginning of year $5,242 $4,691
- - ---------------------------------------------------------------------------------------
Charge-offs:
Real estate - construction -- --
Real estate - mortgage -- 22
Commercial and agricultural 332 19
Consumer 50 168
- - ---------------------------------------------------------------------------------------
Total charge-offs 382 209
- - ---------------------------------------------------------------------------------------
Recoveries:
Real estate - construction -- --
Real estate - mortgage -- 1
Commercial and agricultural 13 --
Consumer 9 49
- - ---------------------------------------------------------------------------------------
Total recoveries 22 50
- - ---------------------------------------------------------------------------------------
Net charge-offs 360 159
- - ---------------------------------------------------------------------------------------
Additions to Allowance charged to operating expenses 72 710
- - ---------------------------------------------------------------------------------------
Transfer of Allowance associated with foreclosed
properties reclassified under SFAS 114 298 --
- - ---------------------------------------------------------------------------------------
Allowance at end of period $5,252 $5,242
=======================================================================================
Ratio of net charge-offs to average total loans 0.08% 0.04%
=======================================================================================
</TABLE>
Allocation of Allowance for Credit Losses
- - -------------------------------------------------------------------------------
(Dollars in thousands) March 31, 1996 December 31, 1995
(1) (1)
- - -------------------------------------------------------------------------------
Real estate - construction $ 230 9% $ 806 9%
Real estate - mortgage 3,178 68 2,406 68
Commercial and agricultural 931 11 1,129 11
Consumer 414 12 476 12
Unallocated 499 -- 425 --
- - -------------------------------------------------------------------------------
Total Allowance $5,252 100% $5,242 100%
===============================================================================
(1) Percent of loans in each category to total loans, net of unearned income.
The Company makes real estate-construction, real estate-mortgage, commercial
and agricultural, and consumer loans. The real estate-construction loans are
generally secured by the construction project and have a term of one year or
less. The real estate-mortgage loans are generally secured by the property with
a maximum loan to value ratio of 75% and a term of one to seven years. The
commercial and agricultural loans consist of secured and unsecured loans. The
unsecured commercial loans are made based on the financial strength of the
borrower and usually require personal guarantees from the principals of the
business. The collateral for the secured commercial loans may be equipment,
accounts receivable, marketable securities or deposits in the subsidiary banks
of the Company. These loans have a maximum loan to value ratio of 75% and a term
of one to five years. The consumer loan category consists of secured and
unsecured loans. The unsecured consumer loans are made on the financial strength
of the individual borrower. The collateral for the secured consumer loans may be
marketable securities, automobile, recreational vehicles or deposits in the
subsidiary banks of the Company. The usual term for these loans is three to five
years.
15
<PAGE>
As of March 31, 1996, the Company had loans totaling $21.65 million that
were current but as to which there are concerns as to the ability of the
borrowers to comply with present loan repayment terms. While management of the
Company does not anticipate any loss not previously provided for on these loans,
changes in the financial condition of these borrowers may necessitate future
modifications in their loan repayment terms.
At March 31, 1996, the Company had no concentrations of loans in any one
industry exceeding 10% of its total loan portfolio. An industry for this purpose
is defined as a group of counterparties that are engaged in similar activities
and have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions.
There were no other interest-bearing assets at March 31, 1996, classifiable
as nonaccrual, past due, restructured or problem assets.
16
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differentials
The following table shows average balances of asset and liability
categories, interest income and paid, and average yields and rates for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------------------
1996 1995
Average Interest Average Average Interest Average
daily income(1)/ yield/ daily income(1)/ yield/
balance paid rate balance paid rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing deposits $ 3,461 $ 57 6.59% $ 4,361 $ 79 7.25%
- - -----------------------------------------------------------------------------------------
Federal funds sold 21,334 280 5.25 4,970 75 6.04
- - ----------------------------------------------------------------------------------------
Loans held for sale 3,719 66 7.10 711 16 9.00
- - ----------------------------------------------------------------------------------------
Investment securities:
Taxable 132,049 2,150 6.51 159,424 2,664 6.68
Tax exempt 7,891 226 11.44 16,850 545 12.94
- - ----------------------------------------------------------------------------------------
Total Investment Securities 139,940 2,376 6.79 176,274 3,209 7.28
- - ----------------------------------------------------------------------------------------
Loans 2 439,557 10,042 9.14 401,941 9,028 8.98
- - ----------------------------------------------------------------------------------------
Total interest-earning assets 608,011 12,821 8.43 588,257 12,407 8.44
Noninterest-earning assets 47,329 36,000
Net effect of SFAS 115 502 (1,590)
- - -----------------------------------------------------------------------------------------
Total assets $655,842 $622,667
=========================================================================================
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $467,693 $ 4,950 4.23% $435,398 $ 4,312 3.96%
Long-term debt 3 5,833 66 4.53 7,000 116 6.63
Short-term borrowings 49,685 716 5.76 59,558 866 5.82
- - ----------------------------------------------------------------------------------------
Total interest-bearing
liabilities 523,211 5,732 4.38 501,956 5,294 4.22
- - ----------------------------------------------------------------------------------------
Noninterest-bearing deposits 60,328 57,330
Noninterest-bearing liabilities 6,797 4,096
- - ----------------------------------------------------------------------------------------
Total liabilities 590,336 563,382
- - ----------------------------------------------------------------------------------------
Stockholders' equity 65,004 60,875
Net effect of unrealized
gain (loss) on securities 502 (1,590)
- - ----------------------------------------------------------------------------------------
Total Stockholders' equity 65,506 59,285
- - ----------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $655,842 $622,667
========================================================================================
Net interest income $7,089 $7,113
========================================================================================
Net interest spread 4.05% 4.22%
========================================================================================
Net interest margin 4.66% 4.84%
========================================================================================
<FN>
1 Taxable equivalent adjustments of $77,000 for 1996 and $185,000 for 1995
are included in the interest income for total interest-earning assets. The
statement of income for the three month period ended March 31, 1996
includes the results of operations for Laurel for the four month period
from December 1, 1995 to January 26, 1996. To facilitate the analysis on
this table, the effects of interest income and interest expense in the
</FN>
</TABLE>
17
<PAGE>
amounts of $755,000 and $358,000, respectively, for Laurel during the
month of December 1995 have been eliminated from the above analysis.
2 Nonaccruing loans, which include impaired loans, are included in the
average balances. Net loan fees included in interest income totaled
$283,000 in 1996 and $235,000 in 1995.
3 The interest paid in 1996 includes $96,000 of capitalized construction
period interest.
Capital Resources
-----------------
The following table shows the risk-based capital and the leverage ratios for
the Company as of March 31, 1996:
Risk-based capital ratios
--------------------------------
Tier 1 Total capital Leverage ratio
------------- ---------------- ---------------
Actual 13.75% 14.88% 9.56%
Minimum 4.00 8.00 3.00
- - ------------------------------------------------------------------------
Excess 9.75% 6.88% 6.56%
========================================================================
Recent developments
- - -------------------
There are currently being discussed certain proposals relating to the reform
or restructuring of the deposit insurance fund system. Currently, there are two
deposit insurance funds maintained by the FDIC, the Bank Insurance Fund ("BIF")
and the Savings Association Insurance Fund ("SAIF"). Deposits of SAIF insured
institutions assumed by BIF insured banks (plus the deemed growth in such
deposits) continue to be treated as SAIF insured deposits, unless "entrance and
exit fees" amounting to approximately 1.79% of the assumed deposits are paid.
The designation of deposits as "BIF insured" or "SAIF insured" determines the
level of the deposit insurance premiums paid by an institution, and the
allocation of such premiums between BIF and SAIF. As of March 31, 1996, the
Company had approximately $117.00 million in deposits designated as SAIF
insured, out of $537.05 million in total deposits. Deposit premium assessments
for the Company's BIF insured deposits are .00%. SAIF deposit insurance premiums
are currently .23% and will remain at this level until SAIF meets the mandated
level of 1.25% of insured deposits. Among the proposals to recapitalize SAIF and
allow the equalization at the lower BIF premium levels is one which would impose
a one-time assessment of .85% to .90% of SAIF insured deposits on all
institutions holding SAIF insured deposits. If a one-time assessment of .85% of
SAIF insured deposits were imposed on the Company as of March 31, 1996, and the
assessment were imposed utilizing the same formula for calculating the level of
the SAIF insured deposit base as that currently utilized for allocating premiums
between BIF and SAIF, then the Company would be required to pay approximately
$997,000 in connection with the assessment without reduction for the effect of
income taxes. With the acquisition of Harbor which was consummated subsequent to
March 31, 1996, the Company acquired an additional $30.00 million in SAIF
insured deposits, and its one-time assessment increased by approximately
$255,000. There can be no assurance as to the enactment of any of the current
proposals, the form of any such proposals, the amount, tax treatment or timing
of any one-time assessment, or the means used to calculate the deposit base
subject to any such assessment.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No. 11 Statement Regarding Computation of Per Share Earnings
(b) A Report on Form 8-K Item 5. Other Events. was filed on January 10,
1996 for the event dated December 22, 1995. This filing was to
report the announcement of the Agreement and Plan of Merger of the
Company to acquire all of the capital stock of Harbor Investment
Corporation ("Harbor"), the parent company of Odenton Federal
Savings and Loan Association ("Odenton"), Odenton, Maryland.
Pursuant to the terms of the agreement each share of Harbor common
stock will be acquired for cash in the amount of $69.08 per share,
and the aggregate consideration shall not exceed $6,721,484. Point
of information: This transaction was closed on April 30, 1996.
A Report on Form 8-K Item 5. Other Events. was filed on February 7,
1996 for the event dated January 26, 1996. This filing was to
report the consummation of the previously announced merger of
Laurel Bancorp, Inc. ("Laurel"), the holding company of Laurel
Federal Savings Bank, Laurel, Maryland, with and into the Company,
and the merger of Laurel Federal Savings Bank with and into the
Company's wholly owned subsidiary, Elkridge Bank, Elkridge,
Maryland.
A Report on Form 8-K Item 5. Other Events. was filed on March 25,
1996 for the event dated February 29, 1996. This filing was to
report the results of operations for the one and two month periods
ended February 29, 1996, pursuant to the consummation of the merger
of Laurel Bancorp, Inc. with and into the Company which was
accounted for as a pooling of interests. This filing included the
Unaudited Consolidated Balance Sheet as of February 29, 1996 and
the Unaudited Consolidated Statements of Income for the one and two
months periods ended February 29, 1996.
A Report on Form 8-K Item 5. Other Events. was filed on April 1,
1996 for the event dated March 29, 1996. This filing was to report
the Company's announcement of its new stock repurchase program.
Pursuant to the stock repurchase program, the Company may
repurchase up to 80,000 shares of the Company's common stock, $1.00
par value, in open market transactions over the next two years and
up to an aggregate of 200,000 shares of common stock over the next
five years, with an aggregate maximum expenditure of approximately
$4,000,000. Repurchases will be made in open market transactions,
from time to time, in the discretion of management, based upon
market, business, legal, regulatory, accounting and other factors,
commencing on or after April 1, 1996. There is no minimum number of
shares which the Company is obligated to repurchase.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FCNB CORP
(Registrant)
May 10, 1996 BY:/s/A. Patrick Linton
--------------------
A. Patrick Linton, President,
Chief Executive Officer and
Director
May 10, 1996 BY:/s/Mark A. Severson
Mark A. Severson, Senior Vice
President and Treasurer
20
<PAGE>
Exhibit No. 11
Statement Regarding the Computation of Per Share Earnings
1996 1995(1)
--------- -----------
Earnings (loss) per Common Share:
Primary ($0.15) $0.31
Primary-before one-time
merger costs $0.39 $0.31
Primary average shares
outstanding 5,383,349 5,403,716
Fully diluted ($0.15) $0.31
Fully diluted-before one-time
merger costs $0.39 $0.31
Full diluted average shares
outstanding 5,383,397 5,403,074
(1) The amounts shown for 1995 have been retroactively restated to reflect
the acquisition of Laurel Bancorp, Inc. consummated on January 26,
1996, accounted for as a pooling of interests, and for the effects of a
three-for-two stock split, effected in the form of a 50% stock
dividend, declared in April 1995.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 803644
<NAME> FCNB CORP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 23,936
<INT-BEARING-DEPOSITS> 2,876
<FED-FUNDS-SOLD> 23,526
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,235
<INVESTMENTS-CARRYING> 37,871
<INVESTMENTS-MARKET> 37,962
<LOANS> 439,400
<ALLOWANCE> 5,252
<TOTAL-ASSETS> 670,771
<DEPOSITS> 537,052
<SHORT-TERM> 58,010
<LIABILITIES-OTHER> 4,923
<LONG-TERM> 6,180
<COMMON> 5,391
0
0
<OTHER-SE> 59,215
<TOTAL-LIABILITIES-AND-EQUITY> 670,771
<INTEREST-LOAN> 10,769
<INTEREST-INVEST> 2,373
<INTEREST-OTHER> 357
<INTEREST-TOTAL> 13,499
<INTEREST-DEPOSIT> 5,225
<INTEREST-EXPENSE> 5,994
<INTEREST-INCOME-NET> 7,505
<LOAN-LOSSES> 72
<SECURITIES-GAINS> 65
<EXPENSE-OTHER> 7,078
<INCOME-PRETAX> 1,368
<INCOME-PRE-EXTRAORDINARY> 1,368
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (809)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
<YIELD-ACTUAL> 4.66
<LOANS-NON> 4,294
<LOANS-PAST> 334
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 21,652
<ALLOWANCE-OPEN> 5,242
<CHARGE-OFFS> 382
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 5,252
<ALLOWANCE-DOMESTIC> 5,252
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
