<PAGE> 1
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.
For the quarterly period ended March 31, 1998 or
--------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______________ to ____________________
Commission File Number 0-16358
------------------
ANDOVER BANCORP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-2952665
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
61 Main Street, Andover, Massachusetts 01810
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(978) 749-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
The number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date is:
Class: Common Stock, par value $0.10 per share
Outstanding as of May 1, 1998: 5,181,784 shares
<PAGE> 2
ANDOVER BANCORP, INC.
AND SUBSIDIARIES
Index
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4-5
Notes to Consolidated Financial
Statements 6
Analysis of Net Yield on Earning Assets 7
ITEM 2 Management's Discussion and Analysis of 8-17
Financial Condition and Results of Operations
For the Quarter Ended March 31, 1998
ITEM 3 Qualitative and Quantitative Market Risk ---
(incorporated by reference to Andover's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 18
ITEM 2 Changes in Securities 18
ITEM 3 Defaults upon Senior Securities 18
ITEM 4 Submission of Matters to a Vote of Security Holders 18
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE> 3
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,268 $ 21,586
Short-term investments 18,700 14,150
---------- ----------
Cash and cash equivalents 43,968 35,736
---------- ----------
Assets held for sale, at lower of
cost or market 10,192 5,537
Investments available for sale (Amortized
cost of $159,340 in 1998 and $137,175
in 1997) 161,010 139,054
Investments held to maturity (Market value
of $133,748 in 1998 and $130,947 in 1997) 132,270 129,363
Loans 1,004,056 978,823
Allowance for loan losses (12,593) (12,521)
Net loans 991,463 966,302
Mortgage servicing assets, net 8,953 9,500
Other real estate owned, net 322 406
Premises and equipment, net 9,421 9,593
Accrued interest receivable 7,967 7,567
Stock in FHLBB, at cost 15,747 15,747
Net deferred income taxes receivable 2,063 1,832
Other assets 2,131 2,108
---------- ----------
Total assets $1,385,507 $1,322,745
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 975,748 $ 946,982
Securities sold under agreements
to repurchase 10,206 10,171
Federal Home Loan Bank advances 278,129 248,561
Mortgagors' escrow accounts 2,683 2,478
Income taxes payable 4,071 2,250
Accrued expenses and other liabilities 4,794 5,224
---------- ----------
Total liabilities 1,275,631 1,215,666
---------- ----------
Stockholders' equity:
Serial preferred stock, $0.10 par value per share;
3,000,000 shares authorized, none issued -- --
Common stock, $0.10 par value per share;
15,000,000 shares authorized; 5,178,814 and 5,168,114
shares issued in 1998 and 1997, respectively 518 517
Additional paid-in capital 59,830 59,619
Retained earnings 48,534 45,814
Accumulated other comprehensive income 994 1,129
---------- ----------
Total stockholders' equity 109,876 107,079
---------- ----------
Total liabilities and stockholders' equity $1,385,507 $1,322,745
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31,
-------------------------
1998 1997
------- -------
(In thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income:
Loans $18,929 $17,146
Mortgage-backed securities 3,223 3,077
Investment securities 1,748 1,552
Short-term investments 247 190
------- -------
Total interest and dividend income 24,147 21,965
------- -------
Interest expense:
Deposits 9,869 8,768
Federal Home Loan Bank advances 3,869 3,655
Securities sold under agreements to repurchase 89 63
------- -------
Total interest expense 13,827 12,486
------- -------
Net interest and dividend income 10,320 9,479
Provision for loan losses 45 330
------- -------
Net interest and dividend income
after provision for loan losses 10,275 9,149
------- -------
Non-interest income:
Net gains from sales of assets held for sale 150 29
Mortgage banking income, net 16 602
Losses on real estate operations, net (76) (357)
Other income 943 719
------- -------
Total non-interest income 1,033 993
------- -------
Non-interest expense:
Salaries and employee benefits 3,097 2,887
Office occupancy and equipment 655 684
Data processing 512 425
Marketing 231 219
Professional fees 227 189
Mortgage banking expense 226 79
Deposit insurance premiums 35 29
Other operating expense 697 656
------- -------
Total non-interest expense 5,680 5,168
------- -------
Income before income tax expense 5,628 4,974
Income tax expense 1,926 1,766
------- -------
Net income $ 3,702 $ 3,208
======= =======
Basic earnings per share $ 0.72 $ 0.62
======= =======
Diluted earnings per share $ 0.69 $ 0.61
======= =======
Weighted average shares outstanding - basic 5,170,994 5,138,240
Weighted average shares outstanding - diluted 5,345,003 5,277,603
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1997 and Quarter Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
ADDITIONAL OTHER STOCK-
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE HOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME EQUITY
----- ------- -------- ----- ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $515 $59,222 $36,109 $(301) $301 $95,846
Comprehensive income:
Net income -- -- 13,206 -- -- 13,206
Other comprehensive income -- -- -- -- 828 828
---- ------- ------- ----- ---- -------
Total comprehensive income -- -- 13,206 -- 828 14,034
Dividends declared and
paid ($0.68 per share) -- -- (3,501) -- -- (3,501)
Stock options exercised 2 397 -- 301 -- 700
---- ------- ------ ----- ----- --------
Balance at December 31, 1997 517 59,619 45,814 -- 1,129 107,079
Comprehensive income:
Net income -- -- 3,702 -- -- 3,702
Other comprehensive income -- -- -- -- (135) (135)
---- ------- ------- ----- ------ --------
Total comprehensive income -- -- 3,702 -- (135) 3,567
Dividends declared and
paid ($0.19 per share) -- -- (982) -- -- (982)
Stock options exercised 1 211 -- -- 212
---- ------ ------- ----- ------ --------
Balance at March 31, 1998 $518 $59,830 $48,534 $ -- $ 994 $109,876
==== ======= ======= ===== ====== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED,
MARCH 31,
---------
1998 1997
---- ----
In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,702 $ 3,208
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 45 330
Net losses on sales and provisions
for other real estate owned 3 136
Net gains from sales of assets held for sale (150) (29)
Depreciation and amortization 377 349
Amortization of fees, discounts and premiums, net 107 112
Deferred income taxes (157) 256
(Increase) decrease in:
Assets held for sale (4,505) 497
Accrued interest receivable (400) (573)
Mortgage servicing assets 754 293
Other assets (23) 318
Increase (decrease) in:
Mortgagors' escrow accounts 205 122
Accrued income taxes payable 1,821 639
Accrued expenses and other liabilities (430) (1,082)
-------- ---------
Net cash provided by operating activities 1,349 4,576
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment and mortgage-backed securities available for sale:
Purchases (27,521) (24,377)
Proceeds from sales 500 --
Proceeds from maturities and redemptions -- 1,000
Principal repayments 4,786 1,623
Investment and mortgage-backed securities held to maturity:
Purchases (10,041) --
Proceeds from maturities and redemptions -- 500
Principal repayments 7,097 5,539
Purchases of whole loans (7,949) (1,024)
Purchases of mortgage servicing rights (207) (2,566)
Net increase in loans (17,429) (3,712)
Capital expenditures on premises and equipment, net (205) (289)
Proceeds from sales of other real estate owned 253 423
Capital expenditures on other real estate owned -- (44)
-------- ---------
Net cash used by investing activities (50,716) (22,927)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 28,766 37,075
Net increase (decrease) in securities sold
under agreements to repurchase 35 2,719
Proceeds from issuance of FHLB advances 100,000 65,000
Principal repayments of FHLB advances (70,432) (101,406)
Dividends paid (982) (772)
Stock options exercised 212 136
-------- ---------
Net cash provided by financing activities 57,599 2,752
-------- ---------
Net increase (decrease) in cash and cash equivalents 8,232 (15,599)
Cash and cash equivalents, at beginning of period 35,736 46,089
-------- ---------
Cash and cash equivalents, at end of period $ 43,968 $ 30,490
======== =========
continued on next page
</TABLE>
4
<PAGE> 7
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED,
MARCH 31,
---------
1998 1997
---- ----
In thousands)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 13,883 $ 12,681
Income taxes 343 869
Supplemental noncash investing and financing activities:
Conversion of real estate loans to mortgage-backed
securities held for sale or investments available for sale 24,068 5,010
Transfer of loans to other real estate owned 172 774
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 8
ANDOVER BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1) BASIS OF PRESENTATION
The unaudited consolidated financial statements of Andover Bancorp, Inc.
("Andover" or the "Company") and its subsidiaries, including its principal
subsidiaries, Andover Bank and Andover Bank NH (collectively the "Banks"),
presented herein, should be read in conjunction with the consolidated
financial statements of the Company as of and for the year ended December
31, 1997. Andover Bank (the "Bank") is a state chartered savings bank with
its headquarters located in Andover, Massachusetts. Andover Bank NH
("ABNH") is a state chartered guaranty savings bank established in
September, 1995 and headquartered in Salem, New Hampshire. In the opinion
of management, the unaudited consolidated financial statements presented
herein reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. Interim results are not
necessarily indicative of results to be expected for the entire year.
2) COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by and distributions to shareholders. Net income is a component
of comprehensive income, with all other components referred to in the
aggregate as other comprehensive income. The Company's disclosure currently
complies with the provisions of this statement. The following table shows
the components of other comprehensive income for the year ended December
31, 1997 and quarter ended March 31, 1998.
<TABLE>
<CAPTION>
Before-tax Tax Net-of
Amount Expense Tax Amount
<S> <C> <C> <C>
Balance at December 31, 1996 $ 502 $(201) $ 301
Unrealized gains on securities
for year ended December 31, 1997 1,377 (549) 828
------ ----- ------
Balance at December 31, 1997 1,879 (750) 1,129
Decrease in unrealized gains on securities
for the quarter ended March 31, 1998 (209) 74 (135)
------ ----- ------
Balance at March 31, 1998 $1,670 $(676) $ 994
====== ===== ======
</TABLE>
3) STOCK SPLIT
On April 23, 1998, the Company's Board of Directors declared a five for
four stock split, effected in the form of a 25% stock dividend that will be
paid in the form of one additional share for each four shares of common
stock outstanding. The payment date for the stock dividend is May 18, 1998
to stockholders of record on May 4, 1998. The effect of this stock split on
earnings per share, dividends per share and weighted average shares
outstanding for the periods presented is provided below.
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share $0.72 $0.57 $0.62 $0.50
Diluted earnings per share $0.69 $0.55 $0.61 $0.49
Dividends declared per share $0.19 $0.15 $0.15 $0.12
Basic shares outstanding 5,170,994 6,463,743 5,138,240 6,422,800
Diluted shares outstanding 5,345,003 6,681,254 5,277,603 6,598,004
</TABLE>
6
<PAGE> 9
ANDOVER BANCORP, INC. AND SUBSIDIARIES
NET YIELD ON EARNING ASSETS
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
------------------------
1998 1997
---- ----
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE(3) BALANCE PAID RATE(3)
------- ---- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Short-term investments $ 18,050 $ 247 5.55% $ 14,148 $ 190 5.45%
Investment securities (1) 104,737 1,748 6.77 93,528 1,552 6.73
Mortgage-backed securities (1) 192,435 3,223 6.79 180,692 3,077 6.91
---------- ------- ---------- -------
Total investments 315,222 5,218 6.71 288,368 4,819 6.78
---------- ------- ---------- -------
Residential loans (1) (2) 729,725 12,985 7.22 627,317 11,672 7.55
Commercial loans (2) 142,122 3,167 9.04 135,124 2,984 8.96
Construction and land loans 33,783 851 10.22 34,367 824 9.72
---------- ------- ---------- -------
Total real estate loans 905,630 17,003 7.61 796,808 15,480 7.88
Consumer loans (2) 67,306 1,450 8.74 60,803 1,229 8.20
Commercial loans (2) 20,092 476 9.61 18,944 437 9.36
---------- ------- ---------- -------
Total loans 993,028 18,929 7.73 876,555 17,146 7.93
---------- ------- ---------- -------
Total interest-earning assets 1,308,250 24,147 7.49% 1,164,923 21,965 7.65%
------- -------
Allowance for loan losses (12,790) (12,264)
Other real estate owned 414 1,652
Other assets 49,824 54,519
---------- ----------
Total assets $1,345,698 $1,208,830
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $ 81,347 $ 200 1.00% $ 66,833 $ 169 1.03%
Regular savings accounts 153,902 1,369 3.61 104,046 808 3.15
Money market deposit accounts 106,563 770 2.93 117,204 871 3.01
Certificates of deposit 523,777 7,530 5.83 488,434 6,920 5.75
---------- ------- ---------- -------
Total interest-bearing deposits 865,589 9,869 4.62 776,517 8,768 4.58
---------- ------- ---------- -------
Borrowed funds:
Reverse repurchase agreements 7,239 89 4.99 5,667 63 4.51
Federal Home Loan Bank advances 273,891 3,869 5.73 257,945 3,655 5.75
---------- ------- ---------- -------
Total borrowed funds 281,130 3,958 5.71 263,612 3,718 5.72
---------- ------- ---------- -------
Total interest-bearing liabilities 1,146,719 13,827 4.89% 1,040,129 12,486 4.87%
------- -------
Demand deposits 83,641 62,249
Other liabilities 9,518 10,436
---------- ----------
Total liabilities 1,239,878 1,112,814
Stockholders' equity 105,820 96,016
---------- ----------
Total liabilities and stock-
holders' equity $1,345,698 $1,208,830
========== ==========
Net interest income $10,320 $ 9,479
======= =======
Interest rate spread 2.60% 2.78%
===== =====
Net yield on earning assets 3.20% 3.30%
===== =====
</TABLE>
(1) Included in the average balance amounts are the corresponding components of
the assets held for sale, available for sale and held to maturity. The yield has
been calculated using interest income divided by the average balance of the
amortized historical cost.
(2) Interest on nonaccruing loans has been included only to the extent reflected
in the statement of operations. However, the loan balances are included in the
average amounts outstanding.
(3) The "Average Yield/Rate" calculation is based on an annualized basis
reflecting 90 days in the first quarter of 1998 and 1997.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1998
------------------------------------
This quarterly report contains certain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results could differ materially from those projected in the
forward-looking statements as a result, among other factors, of the risk factors
set forth in the Company's filings with the Securities and Exchange Commission
and of changes in general economic conditions, changes in interest rates and
changes in the assumptions used in making such forward-looking statements.
RESULTS OF OPERATIONS
GENERAL. Net income amounted to $3.7 million, or $0.69 per diluted share, for
the quarter ended March 31, 1998 as compared to net income of $3.2 million, or
$0.61 per diluted share, in the corresponding quarter of 1997. The current
quarter results include an increase in net interest income and a decline in
mortgage banking income, losses on real estate operations and provisions for
loan losses. Andover's annualized return on average assets increased to 1.12%
for the first quarter of 1998 compared to 1.08% in the first quarter of 1997.
The annualized return on average stockholders' equity increased to 14.19% in the
first quarter of 1998 from 13.55% in the first quarter of 1997.
NET INTEREST AND DIVIDEND INCOME. Net interest and dividend income was $10.3
million for the first quarter of 1998 as compared to $9.5 million for the same
period in 1997. This increase resulted from a 12.3% increase in total
interest-earning assets. While significant progress has been made in reducing
non-performing assets, the overall levels of non-performing assets continue to
result in foregone income and other operating costs associated with holding and
disposing of such assets. Foregone income, which represents the amount of
interest income earned but excluded from earnings on nonaccruing loans, amounted
to $131,000 in the first quarter of 1998, versus $195,000 in the comparable
quarter of 1997. The 10 basis point decline in the net yield on earning assets
to 3.20% for the first quarter of 1998, compared to 3.30% in 1997, was due
primarily to lower yields on the residential real estate portfolio.
PROVISION FOR LOAN LOSSES. The allowance for loan losses is established through
a provision for loan losses charged to the statement of operations. Assessing
the adequacy of the allowance for loan losses involves substantial uncertainties
and is based upon management's estimation of the amount required to meet
reasonably foreseeable loan losses in light of several factors. Among the
factors that management considers are the quality of specific loans, risk
characteristics of the loan portfolio generally, the level of nonaccruing loans
in the various categories, current economic conditions, trends in delinquencies,
actual charge-off experience, and the collateral values of the underlying
security. Because the allowance for loan losses is based on various estimates,
and includes a high degree of judgment by management, subsequent changes in the
general economic prospects of the borrowers may require changes in those
estimates. In addition, regulatory agencies, as an integral part of the
examination process, review the Banks' allowance and may require the Banks to
provide additions to the allowance based on their assessment, which may differ
from management's assessment.
The provision for loan losses for the first quarter of 1998 was $45,000 versus
$330,000 in the comparable period in 1997. Management considered several
contributing factors in determining that a lower provision for loan losses was
appropriate in the first quarter of 1998. These factors include, without
limitation, the level and mix of loan growth, the level of nonaccrual and
restructured loans, as well as the level of delinquent loans, charge-offs and
recoveries. During the first quarter of 1998, the total loan portfolio increased
by only a modest 2.6%. Another factor considered in making the determination for
a lower provision for loan losses was the fact that non-performing
8
<PAGE> 11
assets experienced a decrease of 17.5% during the first quarter of 1998.
Charge-offs in the first quarter of 1998 totalled $415,000 versus $628,000 in
the corresponding quarter last year, while recoveries totalled $442,000 and
$443,000, respectively, for 1998 and 1997. Lastly, the reserve coverage as a
percentage of nonaccruing loans totalled 194.1% at March 31, 1998, an increase
from the 1997 year-end reserve coverage.
NON-INTEREST INCOME. Net gains from sales and redemptions of loans, investments
and mortgage-backed securities held for sale and available for sale totalled
$150,000 in the first quarter of 1998 as compared to net gains of $29,000 in the
first quarter of 1997.
Mortgage banking income totalled $16,000 in the first quarter of 1998 versus
$602,000 in the comparable quarter in 1997 due to a decrease in the Company's
servicing portfolio as well as increased amortization and provisions for the
valuation allowance on the mortgage servicing assets. Amortization expense
totalled $499,000 and $388,000, respectively, for the quarters ended March 31,
1998 and 1997. In addition, the Company incurred provisions for the valuation
allowance of $420,000 in the first three months of 1998 due to the high
prepayments experienced, and expected to be experienced, in the serviced loan
portfolio. In this low interest rate environment, loans repay faster than
expected, thereby causing the fair value of the mortgage servicing assets to
decline. If interest rates continue to remain at low levels, it is possible that
additional provisions for the valuation allowance may be necessary. The mortgage
servicing assets are assessed for impairment on a quarterly basis. Loans
serviced for investors totalled $915.9 million and $1,070.3 million,
respectively, at March 31, 1998 and 1997.
Losses of $76,000 on real estate operations were recognized in the first quarter
of 1998 as compared to $357,000 in the first quarter of 1997. A significant
portion of the losses on real estate operations during the first quarters of
both 1998 and 1997 were operating costs associated with acquiring, maintaining
and disposing of other real estate owned, and totalled $73,000 and $221,000,
respectively. Provisions for losses on other real estate owned added another
$125,000 to the loss on real estate operations during the first quarter of 1997,
as compared to $-0- in the first quarter of 1998.
Other income totalled $943,000 in the first quarter of 1998 as compared to
$719,000 in the first quarter of 1997 due to higher loan fee and deposit fee
income. These increases reflect the increase in both the loan and deposit
portfolios.
NON-INTEREST EXPENSE. Non-interest expenses increased by $512,000, or 9.9%, to
$5.7 million in the first quarter of 1998 from $5.2 million in the first quarter
of 1997.
Salaries and employee benefits, the largest component of non-interest expense,
increased $210,000, or 7.3%, from $2.9 million for the first quarter of 1997 to
$3.1 million in the current year's corresponding quarter. This increase was
primarily due to an increase in the number of employees and salary increases and
the related taxes thereon.
Office occupancy and equipment expenses decreased by 4.2%, to $655,000 in the
first quarter of 1998 from $684,000 in the comparable period of 1997 due to
reduced depreciation expense on fully depreciated equipment and computers.
Data processing expenses increased $87,000, or 20.5%, to $512,000 in the first
quarter of 1998 from $425,000 in the first quarter of 1997. This was due to an
increase in the number of loans and deposits serviced by the Company. In
addition, the costs incurred by the Company to conduct business in alternative
delivery systems, such as the telephone or personal computer, continue to
increase.
Marketing expenses increased modestly to $231,000 for the quarter ended March
31, 1998 from $219,000 for the first quarter of 1997 due to ongoing
discretionary promotions, primarily for home equity loans and deposits.
9
<PAGE> 12
Professional fees totalled $227,000 and $189,000, respectively, for the quarters
ended March 31, 1998 and 1997. This increase of $38,000 was primarily due to
increased corporate legal and consulting expenses.
Mortgage banking expenses increased $147,000 to $226,000 in the first quarter of
1998 from $79,000 in the comparable quarter of 1997 due to increased costs
associated with the high residential mortgage refinancing activity experienced
in the first quarter of 1998.
Other operating expenses increased $41,000 to $697,000 in the first quarter of
1998 from $656,000 in the first quarter of 1997 due to expenses incurred in
operating a larger institution. These expenses include corporate insurance,
telephone expenses and postage expense.
INCOME TAX EXPENSE. The Company recorded an income tax expense of $1.9 million
and $1.8 million on its financial statement earnings for the first quarters of
1998 and 1997, respectively. The effective tax rate for the first quarter of
1998 was 34.2%, as compared to 35.5% for the corresponding period in 1997. The
decline in the first quarter of 1998 was due to a state tax refund.
FINANCIAL CONDITION
Total assets increased 4.7% from $1,322.7 million at December 31, 1997 to
$1,385.5 million at March 31, 1998. Increases in both the loan and investment
portfolios were funded by the growth experienced in the deposit balances and
FHLB advances during the first three months of 1998.
LOANS. The following table shows the composition of the Company's loan portfolio
at March 31, 1998 and December 31, 1997. The balances shown in the table are net
of unadvanced funds and deferred loan origination fees and costs.
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
(In thousands)
<S> <C> <C>
Real estate loans:
Residential $ 737,850 $715,503
Commercial 145,360 142,617
Construction and land 34,382 31,499
---------- --------
Total real estate loans 917,592 889,619
---------- --------
Consumer loans 65,625 68,204
Commercial loans 20,839 21,000
---------- --------
Total loans $1,004,056 $978,823
========== ========
</TABLE>
Total loans increased $25.2 million during the first three months of 1998 to
$1,004.1 million at March 31, 1998 primarily due to increases in the real estate
portfolio. The increase in the residential loan portfolio was aided by the
favorable interest rate environment causing a strong home purchase and heavy
mortgage refinance markets.
Originations of all loan types are sensitive to the interest rate environment,
the capacity for borrowing and real estate values, current and anticipated
economic conditions as well as the competitive landscape. Due to the extremely
favorable interest rates in the latter part of 1997 and the first quarter of
1998, residential loan originations increased over 300% from the first quarter
of 1997 to the corresponding period of 1998. Residential loan balances increased
only $22.3 million due to the securitization of certain fixed-rate loans,
regular amortization and excessive repayments due to the strong refinance
activity. Residential loan originations totalled $87.1 million and $24.3
million, respectively, for the quarters ended March 31, 1998 and 1997.
Outstanding corporate loans, comprised of commercial real estate, commercial,
construction and land loans, increased $5.5 million during the first quarter of
1998.
10
<PAGE> 13
Originations of corporate loans reflect the Company's increased interest for
this type of loan as well as higher real estate values. Corporate loan
originations totalled $23.8 million and $14.7 million, respectively, for the
quarters ended March 31, 1998 and 1997.
Consumer loan balances decreased by approximately 3.8% on an annualized basis,
to $65.6 million at March 31, 1998, primarily due to payoffs of home equity
balances and second mortgage loans.
RISK ELEMENTS. The following table shows the composition of non-performing
assets at March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
(Dollars in thousands)
<S> <C> <C>
Nonaccruing loans $6,488 $7,849
Other real estate owned 322 406
------ ------
Total non-performing assets $6,810 $8,255
====== ======
Total non-performing assets as a
percentage of total assets 0.5% 0.6%
</TABLE>
Total non-performing assets decreased 17.5% in the first three months of 1998
primarily due to nonaccruing loans moving back into performing status or being
paid off altogether, as well as the sale of other real estate owned.
Significant progress has been made over the past several years in reducing total
non-performing assets. However, Andover continues to experience levels of
non-performing assets that divert management's attention and negatively impact
earnings. These include, but are not limited to, foregone income, provisions for
loan and other real estate owned losses, loan charge-offs and other costs
associated with non-performing asset disposition. Interest income of
approximately $205,000 would have been recorded in the first three months of
1998 on nonaccruing loans if those loans had been on a current basis in
accordance with their original terms. Interest income actually recognized thus
far in 1998 on nonaccruing loans amounted to approximately $10,000.
Additionally, another $64,000 in interest payments were applied as a reduction
of the nonaccruing loan balances instead of as interest income during the first
three months of 1998.
A significant portion of the non-performing assets are secured by mixed-use
commercial and multi-family real estate located in Lawrence, Massachusetts. This
city had been especially hard hit with declines in real estate values due to
increased vacancies and rapid turnover in the multi-family investor-owned
properties. These multi-family investor-owned properties represent the majority
of the Bank's collateral on troubled loans and other real estate owned in
Lawrence. Continued deterioration in this market area will adversely impact the
collectibility of residential and commercial real estate loans and may result in
an increase in non-performing assets. At March 31, 1998, approximately $2.9
million, or 45.3%, of nonaccrual loans and $267,000, or 82.9%, of other real
estate owned were secured by properties located in Lawrence, consisting
primarily of mixed-use commercial and multi-family properties, as compared to
approximately $3.4 million and almost all of the other real estate owned,
respectively, at December 31, 1997.
At March 31, 1998, total impaired loans were $5.9 million, of which $2.3 million
had related allowances of $0.2 million and $3.6 million which did not require a
related allowance. During the three months ended March 31, 1998, the average
recorded value of impaired loans was $6.1 million and the related amount of
interest income recognized was approximately $1,000.
11
<PAGE> 14
Nonaccruing Loans. Management places loans on nonaccrual status when loan
payments are past due 90 days or more, regardless of collateral values. All
previously accrued but uncollected interest is reversed against current period
interest income when a loan is placed on nonaccrual status. Loans for which
payments are less than 90 days past due are placed on nonaccrual status when
concern exists regarding the ultimate collectibility of the loan.
The following table shows the composition of nonaccruing loans at March 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
(Dollars in thousands)
<S> <C> <C>
Residential real estate $ 1,750 $ 2,436
Commercial real estate 4,204 4,866
Commercial 501 513
Consumer 33 34
------- -------
Total nonaccrual loans $ 6,488 $ 7,849
======= =======
Allowance for loan losses $12,593 $12,521
======= =======
Allowance for loan losses as a
percentage of nonaccruing loans 194.1% 159.5%
Allowance for loan losses as
percentage of total loans 0.9% 1.3%
</TABLE>
Of the $6.5 million in nonaccruing loans at March 31, 1998, $1.7 million, or
26.7%, were less than 90 days past due but have exhibited some other credit
weakness. While stabilization in housing prices and even progress in regaining
lost jobs have appeared in certain sectors of the economy and real estate
market, if the regional economy were to deteriorate, nonaccruing loans would
likely increase, reversing progress made by the Company in reducing
non-performing assets over the past several years.
RESTRUCTURED LOANS. A restructured loan is one for which the Bank has modified
the loan to provide a temporary reduction in the rate of interest or terms due
to the deterioration in the financial position of the borrower. Restructured
loans are classified as such until the obligation has performed for a reasonable
period of time at a market rate of interest and its ultimate collectibility is
no longer in doubt. At March 31, 1998 and December 31, 1997, restructured loans
totalled $1.3 million and $1.4 million, respectively. The weighted average
interest rate on restructured loans as of March 31, 1998 was approximately 6.2%
OTHER REAL ESTATE OWNED. The following table shows the composition of other real
estate owned at March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
(In thousands)
<S> <C> <C>
Residential real estate $ 308 $ 239
Commercial real estate 14 66
Multi-family real estate 210 336
----- -----
532 641
Valuation allowance (210) (235)
----- -----
Total other real estate owned $ 322 $ 406
===== =====
</TABLE>
12
<PAGE> 15
The following table shows changes in the valuation allowance for other real
estate owned for the quarters ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Quarters Ended
March 31,
---------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Balance, beginning of period $235 $176
Provision -- 125
Charge-offs (25) (65)
---- ----
Balance, end of period $210 $236
==== ====
</TABLE>
During the first three months of 1998, sales of other real estate owned totalled
$253,000, as compared to $423,000 in the first three months of 1997. Net losses
on sales of other real estate owned totalled $3,000 and $11,000 for the quarters
ended March 31, 1998 and 1997, respectively.
ALLOWANCE FOR LOAN LOSSES. The following table summarizes the activity in the
Company's allowance for loan losses for the quarters ended March 31, 1998 and
1997:
<TABLE>
<CAPTION>
Quarters Ended
March 31,
---------
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $12,521 $12,229
Provision 45 330
Charge-offs:
Residential real estate (150) (302)
Commercial real estate (263) (253)
Construction and land -- ---
Commercial -- (54)
Consumer (2) (19)
------ ------
Total charge-offs (415) (628)
------ ------
Recoveries:
Residential real estate 4 ---
Commercial real estate 188 89
Construction and land 195 88
Commercial 48 263
Consumer 7 3
------- -------
Total recoveries 442 443
------- -------
Net (charge-offs)/recoveries 27 (185)
------- -------
Balance at end of period $12,593 $12,374
======= =======
Ratio of annualized net
(charge-offs)/recoveries to average
loans outstanding 0.01% (0.08)%
</TABLE>
Gross charge-offs totalled $415,000 during the first quarter of 1998 and were
spread out among 16 loans; the largest charge-off during the quarter was
$65,000. Management periodically analyzes the adequacy of the allowance for loan
losses. See "Results of Operations - Provision for Loan Losses."
13
<PAGE> 16
INVESTMENTS. As of March 31, 1998, the Company's total investment portfolio
amounted to $312.0 million, for an increase of $29.4 million from December 31,
1997, primarily due to the purchase of $37.6 million in investments, both
available for sale and held to maturity. These purchases were mostly GNMA
mortgage-backed securities and U.S. government obligations.
Management continually evaluates its investment alternatives in order to
properly manage the overall balance sheet mix. The timing of sales and
reinvestment, if any, will be based on various factors including expectation of
movements in market interest rates and loan demand. Notwithstanding these
events, it is the intent of management to grow the earning asset base through
loan originations and purchases, acquisitions of investment and mortgage-backed
securities while funding this growth through retail deposits, FHLB advances and
reverse repurchase agreements.
The following table presents the carrying values of the investment portfolio at
March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
(In thousands)
<S> <C> <C>
SHORT-TERM INVESTMENTS $ 18,700 $ 14,150
======== ========
INVESTMENTS AVAILABLE FOR SALE (AT MARKET):
U.S. government and federal agency obligations $ 55,224 $ 55,777
Other bonds and obligations 17,736 14,573
-------- --------
Total bonds and obligations 72,960 70,350
-------- --------
GNMA mortgage-backed securities 49,240 27,793
FHLMC participation certificates 35,011 36,805
FNMA pass-through certificates 3,799 4,106
-------- --------
Total mortgage-backed securities 88,050 68,704
-------- --------
Total investments available for sale $161,010 $139,054
======== ========
INVESTMENTS HELD TO MATURITY (AT AMORTIZED COST):
U.S. government and federal agency obligations $ 15,995 $ 10,001
Other bonds and obligations 7,087 7,106
Total bonds and obligations 23,082 17,107
-------- --------
FHLMC participation certificates 45,274 49,217
FNMA pass-through certificates 45,849 48,835
GNMA mortgage-backed securities 3,254 3,383
Other asset-backed securities 747 800
Collateralized mortgage obligations 14,064 10,021
-------- --------
Total mortgage-backed securities 109,188 112,256
-------- --------
Total investments held to maturity $132,270 $129,363
======== ========
Total investments $311,980 $282,567
======== ========
</TABLE>
14
<PAGE> 17
The following table presents the gross unrealized gains and losses by major
categories of securities as of March 31, 1998:
<TABLE>
<CAPTION>
Unrealized Unrealized
Gains Losses
----- ------
(In thousands)
<S> <C> <C>
INVESTMENTS AVAILABLE FOR SALE:
U.S. government and federal agency obligations $ 852 $ --
Other bonds and obligations 177 (2)
Mortgage-backed securities 749 (106)
------ -----
Total investments available for sale $1,778 (108)
------ -----
INVESTMENTS HELD TO MATURITY:
U.S. government and federal agency obligations $ 62 $ (38)
Other bonds and obligations 78 --
Mortgage-backed securities 1,600 (224)
------ -----
Total investments held to maturity 1,740 (262)
------ -----
Total unrealized gains and losses $3,518 $(370)
====== =====
</TABLE>
At March 31, 1998, the Company's net unrealized gain on investments available
for sale amounted to $1.7 million, a fair value decline of $209,000 from an
unrealized gain of $1.9 million at December 31, 1997. At March 31, 1998, the
Company's net unrealized gain on investments held to maturity totalled $1.5
million, for a modest decline of $106,000 from an unrealized gain of $1.6
million at December 31, 1997. The changes in the net unrealized gains on the
total investment portfolio from the end of 1997 was primarily due to a slight
upturn in market interest rates at the end of the first quarter of 1998.
DEPOSITS AND BORROWED FUNDS. Total deposits increased $28.8 million to $975.7
million at March 31, 1998 from $947.0 million at December 31, 1997. This
increase was most pronounced in regular savings accounts and demand deposit
accounts. However, during the first quarter of 1998, balances held in
certificates of deposit declined by $8.8 million, a decline which was more than
offset by increases in the regular savings accounts of $16.5 million and $19.9
million in the demand deposits during the same period.
The following table shows the composition of the Company's deposits at March 31,
1998 and December 31, 1997
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
(In thousands)
<S> <C> <C>
Demand deposit accounts $ 99,443 $ 79,501
Regular savings accounts 162,528 146,041
NOW accounts 89,687 85,917
Money market deposit accounts 105,290 107,919
Certificates of deposit 518,800 527,604
-------- --------
Total deposits $975,748 $946,982
======== ========
</TABLE>
In order to fund the growth in total assets, the Federal Home Loan Bank advances
increased $29.6 million from December 31, 1997, to $278.1 million at March 31,
1998. Securities sold under agreements to repurchase increased modestly during
the quarter to $10.2 million at March 31, 1998.
15
<PAGE> 18
LIQUIDITY. Liquidity refers to the ability of the Company to efficiently meet
the cash needs of borrowers and depositors, while also providing funds for
attractive investment opportunities. The Company's primary source of funds is
dividends from its bank subsidiaries. ABNH will be limited in its ability to pay
dividends during its initial years of operation. In the first quarter of 1998,
the Company paid dividends to its stockholders in the amount of $982,000. In
April, 1998, the Company declared a dividend in the amount of $1.2 million,
payable in the second quarter of 1998.
The Banks have a diverse base of funding sources including customer deposits,
borrowed funds, repayments and amortization of the loan and investment
portfolios. A portion of the Banks' deposits represent core deposits, which
management believes are relatively insensitive to fluctuations in interest
rates. Sources of borrowed funds include funds purchased from other
banks,customer repurchase agreements, the sale of securities under repurchase
agreements and, in the case of Andover Bank, borrowings from the FHLB, of which
the Bank is a voluntary member. The Banks may also obtain funds from the Federal
Reserve Bank of Boston by pledging certain assets.
Cash flows provided by operations decreased $3.2 million to $1.3 million in the
first three months of 1998, as compared to cash flows provided by operations of
$4.6 million in the corresponding period of 1997, due primarily to an increase
in assets held for sale. Cash flows used by investing activities increased by
$27.8 million to $50.7 million for the three months ended March 31, 1998, as
compared to cash flows used by investing activities of $22.9 million during the
equivalent period last year. This increase was mainly attributable to higher
purchases of investments, both available for sale and held to maturity, as well
as a $13.7 million increase in total loans in 1998 versus 1997. Cash flows
provided by financing activities increased $54.8 million for the period ended
March 31, 1998 to $57.6 million, as compared to $2.8 million in the equivalent
period in 1997 due to an increase in the FHLB advances over the the repayments
experienced in the equivalent period in 1997.
At March 31, 1998, the Company had home equity, reserve credit and commercial
unadvanced lines of credit totalling $93.5 million. Outstanding commitments to
originate loans totalled $47.2 million. Unadvanced portions of construction and
land loans amounted to $25.1 million. Standby letters of credit were $2.9
million. Loans sold with recourse totalled $2.5 million. Management believes
that its sources of liquidity are sufficient to meet these commitments if and as
called upon.
CAPITAL RESOURCES. The following table presents regulatory capital ratios under
current Tier 1 leverage capital and risk-based capital requirements as of March
31, 1998:
<TABLE>
<CAPTION>
Leverage Capital Ratio Risk-Based Capital Ratio:
---------------------- -------------------------
Tier 1 Tier 1 Total
------ ------ -----
<S> <C> <C> <C>
Andover Bancorp, Inc. 8.1% 13.7% 15.0%
Andover Bank 7.7% 13.3% 14.5%
Andover Bank NH 8.8% 14.7% 15.6%
</TABLE>
Current minimum regulatory requirements for the Bank and the Company as of March
31, 1998 were 4.0% for the Tier 1 leverage capital ratio and 4.0% and 8.0%,
respectively, for the Tier 1 and total risk-based capital ratios. As a de novo
bank, Andover Bank NH is obligated to maintain a minimum Tier 1 leverage capital
ratio of 8%. As of March 31, 1998, the most recent notification from the FDIC
categorized the Banks as well capitalized under the prompt corrective action
provisions. Therefore, the Banks are entitled to pay the lowest deposit premium
possible.
16
<PAGE> 19
YEAR 2000 UPDATE. The Company will continue to utilize both internal and
external resources to update, or replace, develop and test all software
information systems for Year 2000 modifications. Included in other noninterest
expenses are charges incurred in connection with the modification or replacement
of software and hardware in order for the Company's computer systems to properly
conform with the Year 2000 compliance and totalled less than $50,000 for the
first quarter of 1998. The Company expects that the majority of the costs that
will be incurred (as disclosed below) will be to replace or update existing
hardware and software which will be capitalized and amortized in accordance with
the Company's existing accounting policy while maintenance and modification
costs will be expensed as incurred.
The Company has completed its assessment of Year 2000 issues, developed a plan,
begun testing its various software information systems and arranged for the
required resources to complete its necessary remediation efforts. The Company
plans to complete the Year 2000 project by December 31, 1998. The total
remaining cost of the Year 2000 project is estimated at $250,000 to $400,000;
however, it is not anticipated that material incremental costs will be incurred
in any single period.
The cost of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties. There
can be no guarantee that the systems of other companies, or third party vendors
on which the Company's systems rely, will be timely remediated. Therefore, the
Company could possibly be negatively impacted to the extent other entities not
affiliated with the Company are unsuccessful in properly addressing their
respective Year 2000 compliance responsibilities.
17
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
Not Applicable
ITEM 2 Changes in Securities
Not Applicable
ITEM 3 Defaults Upon Senior Securities
Not Applicable
ITEM 4 Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Shareholders of the registrant was
held on April 30, 1998. All nominees of the Board of Directors of
the registrant were re-elected for a three-year term. In
addition, the following individuals continued to remain members
of the Board of Directors following the meeting: Thomas F.
Caffrey, Clifford E. Elias, Cornelius J. McCarthy, Gerald T.
Mulligan and Fred P. Shaheen. Other matters voted on at the
meeting included ratification of KPMG Peat Marwick LLP as
Andover's independent auditors. Votes were cast as follows:
I. Election of two Class II Directors
Nominee For Withheld
------- --- --------
Robert J. Scribner 4,528,733 38,653
Naomi A. Gardner 4,531,392 35,993
II. Ratification of KPMG Peat Marwick LLP as Independent Auditors
Broker
For Against Abstain Non Vote
--- ------- ------- --------
4,538,365 14,153 14,867 0
ITEM 5 Other Information
None
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
18
<PAGE> 21
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.
ANDOVER BANCORP, INC.
May 11, 1998 /s/ Gerald T. Mulligan
---------------------------------
Gerald T. Mulligan
President and
Chief Executive Officer
May 11, 1998 /s/ Joseph F. Casey
---------------------------------
Joseph F. Casey
Chief Financial Officer
and Treasurer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 25,268
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,192
<INVESTMENTS-CARRYING> 132,270
<INVESTMENTS-MARKET> 133,748
<LOANS> 1,004,056
<ALLOWANCE> 12,593
<TOTAL-ASSETS> 1,385,507
<DEPOSITS> 975,748
<SHORT-TERM> 10,206
<LIABILITIES-OTHER> 11,548
<LONG-TERM> 278,129
0
0
<COMMON> 518
<OTHER-SE> 109,358
<TOTAL-LIABILITIES-AND-EQUITY> 1,385,507
<INTEREST-LOAN> 18,929
<INTEREST-INVEST> 5,218
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 24,147
<INTEREST-DEPOSIT> 9,869
<INTEREST-EXPENSE> 3,958
<INTEREST-INCOME-NET> 10,320
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 150
<EXPENSE-OTHER> 5,680
<INCOME-PRETAX> 5,628
<INCOME-PRE-EXTRAORDINARY> 5,628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,702
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> 3.20
<LOANS-NON> 6,488
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,324
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,521
<CHARGE-OFFS> 415
<RECOVERIES> 442
<ALLOWANCE-CLOSE> 12,593
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
