<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, 1999 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 5, 1999 6,525,337 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
Financial Condition and Results of Operations
For the Quarter Ended March 31, 1999 8-18
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 19
ITEM 2 Changes in Securities and Use of Proceeds 19
ITEM 3 Defaults upon Senior Securities 19
ITEM 4 Submission of Matters to a Vote of Security Holders 19
ITEM 5 Other Information 19
ITEM 6 Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE> 3
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 26,260 $ 29,337
Short-term investments 12,700 16,100
---------- ----------
Cash and cash equivalents 38,960 45,437
---------- ----------
Assets held for sale, at lower of
cost or market 3,800 11,282
Investments available for sale (amortized
cost of $184,467 in 1999 and $163,399
in 1998) 185,449 165,491
Investments held to maturity (market value
of $91,660 in 1999 and $102,512 in 1998) 90,533 100,920
Loans 1,067,547 1,050,765
Allowance for loan losses (11,154) (10,486)
---------- ----------
Net loans 1,056,393 1,040,279
---------- ----------
Mortgage servicing assets, net 8,842 8,956
Other real estate owned, net 221 252
Premises and equipment, net 9,143 9,255
Accrued interest receivable 8,025 7,432
Stock in FHLBB, at cost 15,747 15,747
Net deferred income taxes receivable 3,620 2,925
Other assets 2,212 2,271
---------- ----------
Total assets $1,422,945 $1,410,247
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 970,548 $ 988,656
Securities sold under agreements
to repurchase 17,701 16,332
Federal Home Loan Bank advances 296,531 267,492
Mortgagors' escrow accounts 3,178 2,819
Income taxes payable 6,324 7,631
Accrued expenses and other liabilities 4,740 6,175
---------- ----------
Total liabilities 1,299,022 1,289,105
---------- ----------
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; 6,523,212 and 6,520,012
shares issued in 1999 and 1998, respectively 652 652
Additional paid-in capital 60,525 60,507
Retained earnings 62,139 58,716
Accumulated other comprehensive income 607 1,267
---------- ----------
Total stockholders' equity 123,923 121,142
---------- ----------
Total liabilities and stockholders' equity $1,422,945 $1,410,247
========== ==========
</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,
----------------------------
1999 1998
---------- ----------
(In thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income:
Loans $ 19,548 $ 18,929
Mortgage-backed securities 2,448 3,223
Investment securities 2,134 1,748
Short-term investments 132 247
---------- ----------
Total interest and dividend income 24,262 24,147
---------- ----------
Interest expense:
Deposits 8,794 9,869
Federal Home Loan Bank advances 3,701 3,869
Securities sold under agreements to repurchase 333 89
---------- ----------
Total interest expense 12,828 13,827
---------- ----------
Net interest and dividend income 11,434 10,320
Provision for loan losses -- 45
---------- ----------
Net interest and dividend income
after provision for loan losses 11,434 10,275
---------- ----------
Non-interest income:
Net gains from sales of assets held for sale 93 150
Mortgage banking income, net 217 16
Losses on real estate operations, net (14) (76)
Other income 903 943
---------- ----------
Total non-interest income 1,199 1,033
---------- ----------
Non-interest expense:
Salaries and employee benefits 2,327 3,097
Office occupancy and equipment 747 655
Data processing 526 512
Professional fees 483 227
Marketing 212 231
Mortgage banking expense 126 226
Other operating expense 800 732
---------- ----------
Total non-interest expense 5,221 5,680
---------- ----------
Income before income tax expense 7,412 5,628
Income tax expense 2,620 1,926
---------- ----------
Net income $ 4,792 $ 3,702
========== ==========
Basic earnings per share $ 0.73 $ 0.57
========== ==========
Diluted earnings per share $ 0.71 $ 0.55
========== ==========
Weighted average shares outstanding - basic 6,521,968 6,463,498
Dilutive impact of stock options 183,167 217,513
---------- ----------
Weighted average shares outstanding - diluted 6,705,135 6,681,011
</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, 1998 and Three Months Ended March 31, 1999
(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, 1997 $517 $59,619 $45,814 $ -- $1,129 $107,079
Comprehensive income:
Net income -- -- 17,386 -- -- 17,386
Other comprehensive income, net
of tax:
Unrealized holding gains arising
during the period, net of taxes
of $70 -- -- -- -- 126 126
Realized gains included in net
income, net of taxes of $5 -- -- -- -- 12 12
--------
Total comprehensive income 17,524
Dividends declared and
paid ($0.69 per share) 130 (130) (4,484) -- -- (4,484)
Stock options exercised 5 1,018 -- -- 1,023
---- ------- ------- ---- ------ --------
Balance at December 31, 1998 652 60,507 58,716 -- 1,267 121,142
Comprehensive income:
Net income -- -- 4,792 -- -- 4,792
Other comprehensive income, net
of tax:
Unrealized holding losses arising
during the period, net of tax
benefit of $450 -- -- -- -- (660) (660)
Realized gains included in net
income, net of taxes of $-0- -- -- -- -- -- --
--------
Total comprehensive income (660)
Dividends declared and
paid ($0.21 per share) -- -- (1,369) -- -- (1,369)
Stock options exercised -- 18 -- -- -- 18
---- ------- ------- ---- ------ --------
Balance at March 31, 1999 $652 $60,525 $62,139 $ -- $ 607 $123,923
==== ======= ======= ==== ====== ========
</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>
THREE MONTHS ENDED,
MARCH 31,
-------------------------
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,792 $ 3,702
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- 45
Net (gains) losses on sales and provisions
for other real estate owned (9) 3
Net gains from sales of assets held for sale (93) (150)
Depreciation and amortization 356 377
Amortization of fees, discounts and premiums, net 149 107
Deferred income taxes (245) (157)
(Increase) decrease in:
Assets held for sale 7,575 (4,505)
Accrued interest receivable (593) (400)
Mortgage servicing assets 467 754
Other assets 59 (23)
Increase (decrease) in:
Mortgagors' escrow accounts 359 205
Accrued income taxes payable (1,307) 1,821
Accrued expenses and other liabilities (1,435) (430)
--------- --------
Net cash provided by operating activities 10,075 1,349
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment and mortgage-backed securities available for sale:
Purchases (28,677) (27,521)
Proceeds from sales -- 500
Proceeds from maturities and redemptions 500 --
Principal repayments 6,962 4,786
Investment and mortgage-backed securities held to maturity:
Purchases -- (10,041)
Proceeds from maturities and redemptions 1,000 --
Principal repayments 9,373 7,097
Purchases of whole loans (10,461) (7,949)
Purchases of mortgage servicing rights (353) (207)
Net increase in loans (5,808) (17,429)
Capital expenditures on premises and equipment, net (244) (205)
Proceeds from sales of other real estate owned 207 253
--------- --------
Net cash used by investing activities (27,501) (50,716)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (18,108) 28,766
Net increase in securities sold
under agreements to repurchase 1,369 35
Proceeds from issuance of FHLB advances 136,100 100,000
Principal repayments of FHLB advances (107,061) (70,432)
Dividends paid (1,369) (982)
Stock options exercised 18 212
--------- --------
Net cash provided by financing activities 10,949 57,599
--------- --------
Net increase (decrease) in cash equivalents (6,477) 8,232
Cash and cash equivalents, at beginning of period 45,437 35,736
--------- --------
Cash and cash equivalents, at end of period $ 38,960 $ 43,968
========= ========
</TABLE>
Statement continued on next page.
4
<PAGE> 7
ANDOVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
MARCH 31,
--------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $12,896 $13,883
Income taxes 4,173 343
Supplemental noncash investing and financing activities:
Conversion of real estate loans to mortgage-backed
securities held for sale or investments available for sale 14,057 24,068
Transfer of loans to other real estate owned 167 172
</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, 1998. 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. In the first
quarter of 1999, the Company received the regulatory approvals
necessary to merge ABNH with and into Andover Bank. This merger was
anticipated to occur in the second quarter of 1999 but was postponed
until the third quarter of 1999.
6
<PAGE> 9
ANDOVER BANCORP, INC. AND SUBSIDIARIES
NET YIELD ON EARNING ASSETS
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
-------------------------------------------------------------------------
1999 1998
--------------------------------- -----------------------------------
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 $ 11,263 $ 132 4.75% $ 18,050 $ 247 5.55%
Investment securities (1) 135,966 2,134 6.37 104,737 1,748 6.77
Mortgage-backed securities (1) 150,249 2,448 6.61 192,435 3,223 6.79
---------- ------- ---------- -------
Total investments 297,478 4,714 6.43 315,222 5,218 6.71
---------- ------- ---------- -------
Residential loans (1) (2) 756,156 12,776 6.85 729,725 12,985 7.22
Commercial real estate loans (2) 153,704 3,459 9.13 142,122 3,167 9.04
Construction and land loans 55,450 1,260 9.22 33,783 851 10.22
---------- ------- --------- -------
Total real estate loans 965,310 17,495 7.35 905,630 17,003 7.61
Consumer loans (2) 60,928 1,196 7.96 67,306 1,450 8.74
Commercial loans (2) 41,882 857 8.30 20,092 476 9.61
---------- ------- ---------- -------
Total loans 1,068,120 19,548 7.42 993,028 18,929 7.73
---------- ------- ---------- -------
Total interest-earning assets 1,365,598 24,262 7.21% 1,308,250 24,147 7.49%
------- -------
Allowance for loan losses (11,050) (12,790)
Other real estate owned 208 414
Other assets 49,659 49,824
---------- ----------
Total assets $1,404,415 $1,345,698
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $ 92,081 $ 181 0.80% $ 81,347 $ 200 1.00%
Savings accounts 201,860 1,597 3.21 153,902 1,369 3.61
Money market deposit accounts 96,088 656 2.77 106,563 770 2.93
Certificates of deposit 481,846 6,360 5.35 523,777 7,530 5.83
---------- ------- ---------- -------
Total interest-bearing deposits 871,875 8,794 4.09 865,589 9,869 4.62
---------- ------- ---------- -------
Borrowed funds:
Reverse repurchase agreements 29,283 333 4.61 7,239 89 4.99
Federal Home Loan Bank advances 275,014 3,701 5.46 273,891 3,869 5.73
---------- ------- ---------- -------
Total borrowed funds 304,297 4,034 5.38 281,130 3,958 5.71
---------- ------- ---------- -------
Total interest-bearing liabilities 1,176,172 12,828 4.42% 1,146,719 13,827 4.89%
------- -------
Demand deposits 95,297 83,641
Other liabilities 13,067 9,518
---------- ----------
Total liabilities 1,284,536 1,239,878
Stockholders' equity 119,879 105,820
---------- ----------
Total liabilities and stock-
holders' equity $1,404,415 $1,345,698
========== ==========
Net interest income $11,434 $10,320
======= =======
Interest rate spread 2.79% 2.60%
==== ====
Net yield on earning assets 3.40% 3.20%
==== ====
</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 1999 and 1998.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999
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
words "believe", "expect", "anticipate", "intend", "estimate", "assume", "plan",
and other similar expressions which are predictions of or indicate future events
and trends and which do not relate to historical matters identify
forward-looking statements. 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 those set forth below under the caption
"Certain Factors That May Affect Future Results".
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS. The following important factors,
among others, could cause actual results, performance or achievements of the
Company to differ materially from those expressed or implied by forward-looking
statements made in this quarterly report on Form 10-Q or presented elsewhere by
management from time to time. Defined terms used elsewhere in this quarterly
report have the same meanings herein as therein. A number of uncertainties exist
that could affect the Company's future operating results, performance or
achievements including, without limitation, the Banks' continued ability to
originate quality loans, fluctuation of interest rates, real estate market
conditions in the Banks' lending areas, general and local economic conditions,
the Banks' continued ability to attract and retain deposits, the Company's
ability to control costs, new accounting pronouncements, unanticipated delays or
expenses in achieving Year 2000 compliance experienced by the Company, its
customers or suppliers, and changing regulatory requirements. You should
carefully review all of these factors, and you should be aware that there may be
other factors that could cause these differences. These forward-looking
statements were based on information, plans and estimates at the date of this
report and the Company does not promise to update any forward-looking statements
to reflect changes in underlying assumptions or factors, new information, future
events or other changes.
RESULTS OF OPERATIONS
GENERAL. Net income amounted to $4.8 million, or $0.71 per diluted share, for
the quarter ended March 31, 1999 as compared to net income of $3.7 million, or
$0.55 per diluted share, in the corresponding quarter of 1998. The current
quarter results include a pre-tax gain of $1.1 million from the curtailment of
the Company's defined benefit pension plan. Andover's annualized return on
average assets increased to 1.38% for the first quarter of 1999 compared to
1.12% in the first quarter of 1998. The annualized return on average
stockholders' equity increased to 16.21% in the first quarter of 1999 from
14.19% in the first quarter of 1998.
NET INTEREST AND DIVIDEND INCOME. Net interest and dividend income was $11.4
million for the first quarter of 1999 as compared to $10.3 million for the same
period in 1998. This increase resulted from a 4.4% increase in average total
interest-earning assets as well as an improved net interest margin. The 20 basis
point increase in the net yield on earning assets to 3.40% for the first quarter
of 1999 compared to 3.20% in the corresponding quarter of 1998, was due
primarily to a 47 basis point decline on the rates paid on the interest-bearing
liabilities, partially offset by a 28 basis point decline in the yield on the
interest-earning assets. The overall decline in market interest rates has led to
continued pressure on the yield on earning assets while providing opportunities
to lower the Company's cost of funds.
8
<PAGE> 11
PROVISION FOR LOAN LOSSES. The allowance for loan losses is established through
a provision for loan losses charged to the statement of operations. The
allowance is reduced by a credit for loan losses as well as loan charge-offs.
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 probable 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.
There were no provisions for loan losses for the first quarter of 1999 versus a
provision of $45,000 in the comparable period in 1998. In addition to the
factors mentioned above, management considered several other factors in
determining that no provision was needed in the first quarter of 1999. These
factors include, without limitation, the level and mix of loan growth, the level
of nonaccrual and delinquent loans, as well as charge-offs and recoveries.
During the first quarter of 1999, the total loan portfolio increased by a modest
1.6%. In addition, nonaccrual loans decreased from year-end 1998 and delinquent
loans decreased by 22.3% during the same period. Net recoveries totalled
$668,000 for the first quarter of 1999 as compared to $27,000 in 1998.
Management also believes that the allowance for loan losses will be adequate to
absorb probable credit losses inherent in the loan and lease portfolio.
NON-INTEREST INCOME. Net gains from sales and redemptions of loans, investments
and mortgage-backed securities held for sale and available for sale totalled
$93,000 in the first quarter of 1999 as compared to $150,000 in the first
quarter of 1998.
Mortgage banking income totalled $217,000 in the first quarter of 1999 versus
income of $16,000 in the comparable quarter in 1998 due to a lower provision for
the valuation allowance taken in the first quarter of 1998, offset by a decrease
in the Company's servicing portfolio. Amortization expense totalled $648,000 and
$499,000, respectively, for the quarters ended March 31, 1999 and 1998. In
addition, the Company incurred provisions for the valuation allowance of
$420,000 in the first quarter 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 further decline or 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 $852.6 million and $915.9 million, respectively,
at March 31, 1999 and 1998.
The following table summarizes the activity in the valuation allowance on
mortgage servicing assets for the quarters ended March 31, 1999 and 1998:
Quarters Ended
March 31,
---------------
1999 1998
------ -----
(In thousands)
Balance at beginning of period $1,125 $ 400
Provision for valuation allowance -- 420
Charge-offs (290) (165)
------ -----
Balance at end of period $ 835 $ 655
====== ======
9
<PAGE> 12
Losses of $14,000 on real estate operations were recognized in the first quarter
of 1999 as compared to $76,000 in the first quarter of 1998 due to lower
operating costs associated with other real estate owned.
Other income totalled $903,000 in the first quarter of 1999 as compared to
$943,000 in the first quarter of 1998 primarily due to lower loan fees and
miscellaneous income.
NON-INTEREST EXPENSE. Non-interest expenses decreased by $459,000, or 8.1%, to
$5.2 million in the first quarter of 1999 from $5.7 million in the first quarter
of 1998. The efficiency ratio (a ratio that measures operating expenses as a
percentage of operating income) decreased from 50.4% in the first quarter of
1998 to 41.6% in the comparable period of 1999. The primary reason for the
decrease in non-interest expenses was a $1.1 million pre-tax benefit derived
from the curtailment of the Company's defined benefit pension plan, partially
offset by higher operating costs.
Salaries and employee benefits, the largest component of non-interest expense
decreased $770,000, or 24.9%, from $3.1 million to $2.3 million due to the
recognition of a pre-tax gain of $1.1 million from the curtailment of its
defined benefit pension plan. Partially offsetting this pre-tax gain were
increased costs associated with an increased number of employees, enhanced
benefits and merit salary increases.
Office occupancy and equipment expenses increased 14.1% or $92,000 for the first
quarter of 1999 versus the corresponding period of 1998, primarily due to
increased depreciation of equipment.
Data processing expenses experienced a modest increase from the first quarter of
1998 to the corresponding quarter in 1999.
Professional fees increased $256,000 to $483,000 in the first quarter of 1999
from $227,000 in the first quarter of 1998 due to increased legal and corporate
consulting fees. Some of these costs relate to the proposed merger of ABNH into
the Bank and are therefore, non-recurring expenses.
Marketing expenses decreased 8.2% from 1998 to $212,000 in the first quarter of
1999 due to a reduced level of advertised promotions.
Mortgage banking expenses decreased 44.3% or $100,000 in the first quarter of
1999 versus 1998's first quarter due to reduced costs associated with a lower
serviced loan portfolio.
Other operating expenses increased 9.3% from the first quarter of 1998 to
$800,000 in the corresponding quarter in 1999 due to increased costs resulting
from running a larger organization.
INCOME TAX EXPENSE. The Company recorded an income tax expense of $2.6 million
and $1.9 million on its financial statement earnings for the first quarters of
1999 and 1998, respectively. The effective tax rate for the first quarter of
1999 was 35.3%, as compared to 34.2% for the corresponding period in 1998. The
lower than anticipated effective tax rate in the first quarter of 1999 was due
to a state tax credit while the lower effective tax rate in 1998 was due to a
state tax refund.
FINANCIAL CONDITION
Total assets increased slightly from $1,410.2 million at December 31, 1998 to
$1,422.9 million at March 31, 1999. Increases in investments available for sale
and the loan portfolio were funded by the growth experienced in the FHLB
advances during the first three months of 1999.
10
<PAGE> 13
LOANS. The following table shows the composition of the Company's loan portfolio
at March 31, 1999 and December 31, 1998. The balances shown in the table are net
of unadvanced funds and deferred loan origination fees and costs.
3/31/99 12/31/98
---------- ----------
(In thousands)
Real estate loans:
Residential $ 750,527 $740,009
Commercial 154,521 158,377
Construction and land 56,039 56,568
---------- ----------
Total real estate loans 961,087 954,954
---------- ----------
Consumer loans 59,843 61,851
Commercial loans 46,617 33,960
---------- ----------
Total loans $1,067,547 $1,050,765
========== ==========
Total loans increased $16.8 million during the first three months of 1999 to
$1,067.5 million at March 31, 1999, primarily due to increases in the
residential real estate portfolio. The increase in the residential loan
portfolio was aided by the favorable interest rate environment causing both a
strong home purchase and heavy mortgage refinance activity.
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 favorable
interest rates experienced in the first three months of 1998 and 1999,
residential loan originations totalled $87.1 million and $73.8 million,
respectively. Residential loan balances increased only $10.5 million during the
first quarter of 1999 primarily due to the heavy refinancings as well as
securitization of certain fixed-rate loans, regular amortization and loan
prepayments.
Outstanding corporate loans, comprised of commercial real estate, commercial,
construction and land loans and lease loans, increased $8.3 million during the
first three months of 1999. Originations of corporate loans reflect the
Company's increased interest for this type of loan, higher real estate values
and the formation of the leasing subsidiary at the end of 1997. Corporate loan
originations totalled $37.7 million and $24.8 million, respectively, for the
three months ended March 31, 1999 and 1998.
Consumer loan balances decreased by approximately 13% on an annualized basis, to
$59.8 million at March 31, 1999, primarily due to payoffs of the home equity
loan balances and second mortgages resulting from the strong first mortgage
refinance activity.
RISK ELEMENTS. The following table shows the composition of non-performing
assets at March 31, 1999 and December 31, 1998:
3/31/99 12/31/98
------- --------
(Dollars in thousands)
Nonaccruing loans $3,160 $3,240
Other real estate owned 221 252
------ ------
Total non-performing assets $3,381 $3,492
====== ======
Total non-performing assets as a
percentage of total assets 0.2% 0.2%
Significant progress has been made over the past several years in reducing total
non-performing assets. A significant portion of the non-performing assets are
secured by
11
<PAGE> 14
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. 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, 1999,
approximately $983,000, or 29.1%, of non-performing assets were secured by
properties located in Lawrence, consisting primarily of mixed-use commercial and
multi-family properties, as compared to approximately $1.4 million at December
31, 1998.
At March 31, 1999, total impaired loans were $2.0 million, of which $483,000 had
related allowances of $38,000 and $1.5 million which did not require a related
allowance. During the three months ended March 31, 1999, the average recorded
value of impaired loans was $2.2 million.
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, 1999
and December 31, 1998:
3/31/99 12/31/98
------- --------
(Dollars in thousands)
Residential real estate $ 1,044 $ 932
Commercial real estate 1,321 2,023
Commercial 771 255
Consumer 24 30
------- -------
Total nonaccrual loans $ 3,160 $ 3,240
======= =======
Allowance for loan losses $11,154 $10,486
======= =======
Allowance for loan losses as a
percentage of nonaccruing loans 352.97% 323.64%
Allowance for loan losses as a
percentage of total loans 1.04% 1.00%
12
<PAGE> 15
ALLOWANCE FOR LOAN LOSSES. The following table summarizes the activity in the
Company's allowance for loan losses for the quarters ended March 31, 1999 and
1998.
Quarters Ended
March 31,
-----------------------
1999 1998
------- -------
(Dollars in thousands)
Balance at beginning of period $10,486 $12,521
Provision for loan losses -- 45
Charge-offs:
Residential real estate (88) (150)
Commercial real estate (20) (263)
Construction and land -- --
Commercial (15) --
Consumer (1) (2)
------- -------
Total charge-offs (124) (415)
------- -------
Recoveries:
Residential real estate 4 4
Commercial real estate 539 188
Construction and land -- 195
Commercial 236 48
Consumer 13 7
------- -------
Total recoveries 792 442
------- -------
Net recoveries 668 27
------- -------
Balance at end of period $11,154 $12,593
======= =======
Ratio of annualized net recoveries
to average loans outstanding 0.25% 0.01%
Management analyzes the adequacy of the allowance for loan losses on a quarterly
basis. See "Results of Operations - Provision for Loan Losses".
INVESTMENTS. As of March 31, 1999, the Company's total investment portfolio
amounted to $288.7 million for an increase of $6.2 million from December 31,
1998. The increase in the first quarter of 1999 was primarily due to purchases
of various investments available for sale, including U.S. government and federal
agency obligations, corporate bonds and mortgage-backed securities, totalling
$28.7 million. However, these purchases were offset by significant principal
repayments in the mortgage-backed portfolio and a lower federal funds sold
position.
Management continually evaluates its investment alternatives in order to
properly manage the overall balance sheet mix. The timing of purchases, 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, loan purchases or investment acquisitions while funding this
growth through a mix of retail deposits, FHLB advances and reverse repurchase
agreements.
13
<PAGE> 16
The following table presents the composition and carrying values of the
investment portfolio at March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
3/31/99 12/31/98
-------- --------
(In thousands)
<S> <C> <C>
SHORT-TERM INVESTMENTS $ 12,700 $ 16,100
======== ========
INVESTMENTS AVAILABLE FOR SALE (AT MARKET):
U.S. government and federal agency obligations $ 71,690 $ 62,556
Other bonds and obligations 45,775 37,561
-------- --------
Total bonds and obligations 117,465 100,117
-------- --------
GNMA mortgage-backed securities 31,859 35,884
FHLMC participation certificates 24,486 26,981
FNMA pass-through certificates 7,176 2,509
Collateralized mortgage obligations 4,463 --
-------- --------
Total mortgage-backed securities 67,984 65,374
-------- --------
Total investments available for sale $185,449 $165,491
======== ========
INVESTMENTS HELD TO MATURITY (AT AMORTIZED COST):
U.S. government and federal agency obligations $ 8,521 $ 8,526
Other bonds and obligations 3,537 4,545
-------- --------
Total bonds and obligations 12,058 13,071
-------- --------
FHLMC participation certificates 26,331 30,207
FNMA pass-through certificates 30,869 35,435
GNMA mortgage-backed securities 2,368 2,576
Collateralized mortgage obligations 18,404 19,080
Other asset-backed securities 503 551
-------- --------
Total mortgage-backed securities 78,475 87,849
-------- --------
Total investments held to maturity $ 90,533 $100,920
======== ========
Total investments $288,682 $282,511
======== ========
</TABLE>
The following table shows the gross unrealized gains and losses by major
categories of securities as of March 31, 1999:
<TABLE>
<CAPTION>
Unrealized Unrealized
Gains Losses
---------- ----------
(In thousands)
<S> <C> <C>
INVESTMENTS AVAILABLE FOR SALE:
U.S. government and federal agency obligations $ 720 $ (76)
Other bonds and obligations 243 (257)
Mortgage-backed securities 625 (273)
------ -----
Total investments available for sale $1,588 $(606)
------ -----
INVESTMENTS HELD TO MATURITY:
U.S. government and federal agency obligations $ 98 $ --
Other bonds and obligations 74 --
Mortgage-backed securities 1,142 (187)
------ -----
Total investments held to maturity 1,314 (187)
------ -----
Total unrealized gains and losses $2,902 $(793)
====== =====
</TABLE>
At March 31, 1999, the Company's net unrealized gain on investments available
for sale amounted to $982,000, a fair value decrease of $1.1 million from an
unrealized gain of $2.1 million at December 31, 1998. At March 31, 1999, the
Company's net unrealized gain on investments held to maturity totalled $1.1
million, for a decrease of $465,000 from an unrealized gain of $1.6 million at
December 31, 1998. The changes in the net unrealized gains on the total
investment portfolio from year-end 1998 were primarily due to an increase in
market interest rates at the end of the first quarter of 1999.
14
<PAGE> 17
DEPOSITS AND BORROWED FUNDS. Total deposits decreased $18.1 million to $970.5
million at March 31, 1999 from $988.7 million at December 31, 1998. This
decrease was most pronounced in certificates of deposits which declined by $13.1
million. In addition, demand deposits and NOW accounts decreased by $9.0 million
and $5.4 million, respectively, during the first quarter of 1999. Offsetting
these decreases, however, was an increase of $9.7 million or 4.9% in savings
accounts during the first three months of 1999. The decline in the transactional
balances resulted from the high level of refinancing activity which caused the
custodial accounts and legal conveyances accounts to be higher at year-end 1998.
The decline in the certificates of deposits during the first quarter reflects
the continued shift from longer maturity term deposits into core deposits
without fixed maturities.
The following table shows the composition of the Company's deposits at March 31,
1999 and December 31, 1998:
3/31/99 12/31/98
-------- --------
(In thousands)
Demand deposit accounts $ 93,992 $103,029
NOW accounts 97,277 102,635
Money market deposit accounts 95,898 96,332
Savings accounts 209,025 199,304
Certificates of deposit 474,356 487,356
-------- --------
Total deposits $970,548 $988,656
======== ========
In order to fund the growth in total assets, the Banks offset the decline in
deposits with increased borrowings. Federal Home Loan Bank advances increased
$29.0 million from December 31, 1998 to $296.5 million at March 31, 1999.
Securities sold under agreements to repurchase increased slightly during the
quarter to $17.7 million at March 31, 1999.
LIQUIDITY. The goal of the Company's liquidity management process is to assess
its funding requirements so as 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.
In the first quarter of 1999, the Company made payments of dividends to its
stockholders in the amount of $1.4 million. In April, 1999, the Company declared
a dividend in the amount of $1.4 million, payable in the second quarter of 1999.
The Banks have a diverse base of funding sources including customer deposits,
borrowed funds, repayments, prepayments and amortization of the investment and
loan 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 the 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 increased $8.7 million to $10.1 million in the
first three months of 1999, as compared to $1.3 million in the corresponding
period of 1998, primarily due to a decrease in assets held for sale. Cash flows
used by investing activities decreased by $23.2 million to $27.5 million for the
three months ended March 31, 1999, as compared to $50.7 million during the
equivalent period last year. This decrease was mainly attributable to a
reduction in purchases of securities held to maturity and a smaller increase in
loans over the 1998 levels. Cash flows provided by financing activities
decreased $46.7 million for the three months ended March 31, 1999 to $10.9
million, as compared to $57.6 million in the equivalent period in 1998. This
financing activity decline was due to a net decrease in deposits over 1998's
amounts.
15
<PAGE> 18
At March 31, 1999, the Company had home equity, reserve credit and commercial
unadvanced lines of credit totalling $97.4 million. Outstanding commitments to
originate loans totalled $52.7 million. Unadvanced portions of construction and
land loans amounted to $28.6 million. Standby letters of credit were $2.9
million. Loans sold with recourse totalled $1.7 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 regulatory and risk-based capital requirements as of March 31, 1999:
Leverage Capital Ratio Risk-Based Capital Ratio
---------------------- ------------------------
Tier 1 Tier 1 Total
---------------------- ------ -----
Andover Bancorp, Inc. 8.78% 14.13% 15.38%
Andover Bank 8 07% 13.07% 14.32%
Andover Bank NH 9.72% 14.68% 15.49%
Current minimum regulatory requirements as of March 31, 1999 were 4.0% for the
leverage capital ratio and 4.0% and 8.0%, respectively, for the Tier 1 and total
risk-based capital ratios. As of March 31, 1999, 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.
YEAR 2000 READINESS DISCLOSURE. The statements in the following section include
"Year 2000 readiness disclosure" within the meaning of the Year 2000 Information
and Readiness Disclosure Act.
This section contains certain statements that are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1993, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"believe", "expect", "anticipate", "intend", "estimate", "assume", "plan", and
other similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Forward-looking statements include, without limitation, the
Company's expectations as to when it will complete the modification and testing
phases of its Year 2000 project plan as well as its Year 2000 contingency plans;
its estimated cost of achieving Year 2000 readiness; and the Company's belief
that its internal systems will be Year 2000 compliant in a timely manner. The
Company's readiness for the Year 2000, and the eventual effects of the Year 2000
on the Company may be materially different than currently projected. This may be
due to, among other things, unanticipated delays and expenses in the completion
of the Company's Year 2000 initiative, the availability of qualified personnel
and other information technology resources; the ability to identify and
remediate all date sensitive lines of computer code or to replace embedded
computer chips in affected systems or equipment; the failure of its proposed
contingency plans, if such contingency plans become necessary, to achieve their
desired result and the failure of governmental agencies and third parties with
whom the Company has a significant business relationship to achieve Year 2000
readiness.
The Year 2000 computer software compliance issues affect Andover and many other
financial institutions and companies in the U.S. Historically, certain computer
programs were written using two digits rather than four to define the applicable
years. As a result, software may recognize a date using the two digits "00" as
1900 rather than the year 2000. Computer programs that do not recognize the
proper date could generate erroneous data or cause systems to fail.
The Company started its Year 2000 initiative in early 1997. The Company has
completed its assessment of Year 2000 issues, developed a plan, tested its
various software information systems, hardware components and non-technology
systems and arranged for the required human and financial resources to complete
its necessary remediation
16
<PAGE> 19
efforts. The Company has substantially completed the remediating, testing and
returning to production all of its critical applications. Testing of the
Company's non-critical applications will continue into 1999 and will be
completed prior to any anticipated impact of the Year 2000 issue on its
operating systems.
The Company has considered various contingency plans for its critical
applications, including the possibility of obtaining alternative vendors or
replacement systems. Based on its assessment of their progress to date, the
Company has determined to rely on the ability of the Company's service bureau
and other critical vendors to achieve Year 2000 readiness. This assessment has
included multiple visits with the Company's service bureau, discussions with the
other critical vendors, reviewing each vendor's compliance in meeting its own
targeted deadlines as well as continuously monitoring each vendor by the
Company. In addition, the Company has actively participated in the testing of
its critical applications in conjunction with its significant vendors. However,
contingency plans beyond this reliance on vendor compliance have not been
established in the event that these critical vendors are unable to achieve Year
2000 readiness.
The Company has worked on a number of alternative solutions for their
non-technology systems such as heat, electric and telephone services. This has
involved seeking alternative vendors and sources such as generators to provide
heat in case of an electric failure or cellular phones in lieu of traditional
phone lines. Should the Company's worst case scenario, the loss of electric
power, occur, the Company will have in place an electric generator at its main
office. This will allow the Company to continue to run its core operating
system. Transactions that would be performed at a number of the Company's
locations would then have to be transported to the main office for input. This
would continue until such time as normal electric power is restored.
The Company will continue to utilize both internal and external resources to
update, or replace, develop and test all software information systems and
hardware components 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
recognize the Year 2000 expenses. The expenses incurred and hardware capitalized
totalled approximately $50,000 for the quarter ended March 31, 1999 and $300,000
over the course of the project incurred to date. The Company expects that the
majority of the costs that will be incurred (as discussed below) will be to
replace or upgrade existing hardware and software which will be capitalized and
amortized in accordance with the Company's existing accounting policy while
miscellaneous consulting, maintenance and modification costs will be expensed as
incurred.
The Company continues to evaluate the estimated costs associated with achieving
Year 2000 readiness based on its experience to date. Based on current estimates,
the remaining costs of its efforts to achieve Year 2000 readiness are not
expected to exceed $350,000. However, no assurance can be given that the Company
or the third party vendors to whom the Company outsources its information
systems will solve such issues in a successful and timely fashion or that the
costs of such efforts will not exceed current estimates. If the Company does not
solve such issues, or does not do so in a timely manner, the Year 2000 issue
could have a material adverse impact on the Company's business, future operating
results and financial condition.
Bank regulatory agencies have issued guidance under which they are assessing
Year 2000 readiness. The failure of a financial institution, such as Andover, to
take appropriate action to address Year 2000 issues may result in enforcement
actions which could have a material adverse effect on such institution, result
in the imposition of civil money penalties, or result in the delay of
applications seeking to acquire other entities or otherwise expand the
institution's activities.
17
<PAGE> 20
RECENT ACCOUNTING DEVELOPMENTS. In June 1998, the FASB issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes new accounting and reporting standards for derivative instruments.
SFAS 133 requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. This statement is
effective for financial statements issued for all fiscal quarters of fiscal
years beginning after June 15, 1999. Early application is encouraged but
restatement of prior periods is prohibited. SFAS 133 is not expected to have a
material impact on the consolidated financial statements of the Company.
ASSET AND LIABILITY MANAGEMENT AND MARKET RISK. The Company's interest rate risk
and asset and liability management are the responsibility of Andover's
Asset/Liability Management Committee (ALCO). The ALCO Committee actively manages
and monitors its interest rate risk exposure and reports its findings to the
Board of Directors on a regular basis.
Interest rate risk, including mortgage prepayment risk, or market risk, is by
far the most significant non-credit related risk to which the Company is
exposed. Net interest income, the Banks' primary source of revenue, is affected
by changes in interest rates as well as fluctuations in the level and duration
of assets and liabilities on the Company's balance sheet.
The mortgage servicing assets are assessed for impairment on a quarterly basis.
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 further decline or remain at low levels, it is possible that
additional provisions for the valuation allowance on servicing assets may be
necessary.
For further information regarding quantitative and qualitative disclosures about
market risk, please refer to the consolidated financial statements of the
Company as of and for the year ended December 31, 1998.
18
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
Not Applicable
ITEM 2 Changes in Securities and Use of Proceeds
Not Applicable
ITEM 3 Defaults Upon Senior Securities
Not Applicable
ITEM 4 Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Shareholders of the registrant was held
on April 29, 1999. 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, Naomi A.
Gardner, Cornelius J. McCarthy and Robert J. Scribner. 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 three Class III Directors
Nominee For Withheld
------- --------- --------
Clifford E. Elias 5,394,291 290,622
Gerald T. Mulligan 5,417,925 266,988
Fred P. Shaheen 5,410,771 274,143
II. Ratification of KPMG Peat Marwick LLP as Independent Auditors
Broker
For Against Abstain Non Vote
--------- ------- ------- --------
5,565,230 101,064 18,619 --
ITEM 5 Other Information
None
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
19
<PAGE> 22
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, 1999 /s/ Gerald T. Mulligan
----------------------------------
Gerald T. Mulligan
President and
Chief Executive Officer
May 11, 1999 /s/ Joseph F. Casey
----------------------------------
Joseph F. Casey
Chief Financial Officer
and Treasurer
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS DATED MARCH 31, 1999 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-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 26,260
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,800
<INVESTMENTS-CARRYING> 90,533
<INVESTMENTS-MARKET> 91,660
<LOANS> 1,067,547
<ALLOWANCE> 11,154
<TOTAL-ASSETS> 1,422,945
<DEPOSITS> 970,548
<SHORT-TERM> 17,701
<LIABILITIES-OTHER> 14,242
<LONG-TERM> 296,531
0
0
<COMMON> 652
<OTHER-SE> 123,271
<TOTAL-LIABILITIES-AND-EQUITY> 1,422,945
<INTEREST-LOAN> 19,548
<INTEREST-INVEST> 4,714
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 24,262
<INTEREST-DEPOSIT> 8,794
<INTEREST-EXPENSE> 12,828
<INTEREST-INCOME-NET> 11,434
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 93
<EXPENSE-OTHER> 5,221
<INCOME-PRETAX> 7,412
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,792
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 3.40
<LOANS-NON> 3,160
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,486
<CHARGE-OFFS> 124
<RECOVERIES> 792
<ALLOWANCE-CLOSE> 11,154
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
