<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
or the quarterly period ended SEPTEMBER 30, 1997 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 No. 0-17222
WARREN BANCORP, INC.
(Exact Name of registrant as specified in the charter)
MASSACHUSETTS 04-3024165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 MAIN STREET, PEABODY, MASSACHUSETTS 01960
(Address of principal executive offices) (Zip Code)
(978) 531-7400
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 7, 1997
- -------------------------------------- -------------------------------
Common Stock, par value $.10 per share 3,803,597
<PAGE> 2
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED
<S> <C> <C>
A S S E T S
Cash and due from banks (non-interest bearing)............................................... $ 6,170 $ 5,855
Money market funds and overnight investments................................................. 7,452 6,733
Investment and mortgage-backed securities available for sale (amortized cost of $98,744
at September 30, 1997 and $103,802 at December 31, 1996).................................. 100,816 104,937
Other investments (market value of $6,534 at September 30, 1997 and $6,918
at December 31, 1996............................................................... 6,294 6,678
Loans held for sale.......................................................................... 569 3,003
Loans........................................................................................ 234,075 222,846
Allowance for loan losses.................................................................... (4,066) (4,533)
-------- --------
Net loans................................................................................. 230,009 218,313
Banking premises and equipment, net.......................................................... 4,625 4,604
Accrued interest receivable.................................................................. 2,709 2,660
Real estate acquired by foreclosure.......................................................... 1,684 2,230
Other assets................................................................................. 3,802 3,941
-------- --------
Total assets.............................................................................. $364,130 $358,954
======== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Liabilities:
Deposits.................................................................................. $316,048 $316,366
Borrowed funds............................................................................ 3,829 4,927
Escrow deposits of borrowers.............................................................. 996 1,108
Accrued interest payable.................................................................. 642 632
Accrued expenses and other liabilities.................................................... 3,853 1,476
-------- --------
Total liabilities....................................................................... 325,368 324,509
-------- --------
Stockholders' equity:
Preferred stock, $.10 par value; Authorized - 10,000,000 shares;
Issued and outstanding - none........................................................... -- --
Common stock, $.10 par value; Authorized - 20,000,000 shares;
Issued - 3,896,427 shares at September 30, 1997 and 3,759,567 shares
at December 31, 1996............................................................... -- --
Outstanding - 3,798,427 shares at September 30, 1997 and 3,661,567 shares
at December 31, 1996............................................................... 390 376
Additional paid-in capital................................................................ 34,914 34,245
Retained earnings......................................................................... 3,283 260
Treasury stock, at cost, 98,000 shares at September 30, 1997 and December 31, 1996........ (1,174) (1,174)
-------- --------
37,413 33,707
Unrealized gain on marketable securities available for sale, net.......................... 1,349 738
-------- --------
Total stockholders' equity............................................................. 38,762 34,445
-------- --------
Total liabilities and stockholders' equity............................................. $364,130 $358,954
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1997 1996 1997 1996
------ ------ ------- -------
(Unaudited)
(Dollars in thousands, except per-share data)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans ....................................... $5,324 $5,125 $15,722 $15,125
Interest and dividends on investments ................... 1,100 990 3,329 3,253
Interest on mortgage-backed securities .................. 697 799 2,171 2,464
------ ------ ------- -------
Total interest and dividend income ................... 7,121 6,914 21,222 20,842
------ ------ ------- -------
Interest expense:
Interest on deposits .................................... 2,840 2,767 8,354 8,331
Interest on borrowed funds .............................. 30 69 112 251
------ ------ ------- -------
Total interest expense ............................... 2,870 2,836 8,466 8,582
------ ------ ------- -------
Net interest income .................................. 4,251 4,078 12,756 12,260
Provision for (recovery of) loan losses .................... (126) (141) (364) 17
------ ------ ------- -------
Net interest income after provision for or recovery of
loan losses ....................................... 4,377 4,219 13,120 12,243
------ ------ ------- -------
Non-interest income:
Loan servicing fees ..................................... 1 174 117 478
Customer service fees ................................... 213 311 689 780
Gains on sales of investment securities, net ............ 21 -- 120 241
Gains on sales of mortgage loans ........................ 38 76 129 258
Gain on sales of mortgage servicing rights .............. 29 -- 1,436 --
Gain from termination of pension plan ................... 457 -- 457 --
Other ................................................... 1 2 6 5
------ ------ ------- -------
Total non-interest income ............................ 760 563 2,954 1,762
------ ------ ------- -------
Income before non-interest expense and income taxes .. 5,137 4,782 16,074 14,005
------ ------ ------- -------
Non-interest expense:
Salaries and employee benefits .......................... 1,411 1,409 4,301 4,182
Office occupancy and equipment .......................... 282 264 854 807
Professional services ................................... 14 71 179 234
Marketing ............................................... 36 53 124 132
Real estate operations .................................. 17 81 390 155
Outside data processing expense ......................... 124 102 357 329
Other ................................................... 388 402 1,189 1,243
------ ------ ------- -------
Total non-interest expenses .......................... 2,272 2,382 7,394 7,082
------ ------ ------- -------
Income before income taxes .......................... 2,865 2,400 8,680 6,923
Income tax expense ........................................ 1,161 821 2,888 2,265
------ ------ ------- -------
Net income ............................................ $1,704 $1,579 $ 5,792 $ 4,658
====== ====== ======= =======
Net income per common and common equivalent share ..... $ 0.42 $ 0.40 $ 1.46 $ 1.19
====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
RETAINED MARKETABLE
ADDITIONAL EARNINGS SECURITIES
COMMON PAID-IN (ACCUMULATED AVAILABLE FOR TREASURY
STOCK CAPITAL DEFICIT) SALE, NET STOCK TOTAL
------ ---------- ------------ -------------- -------- -------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ...... $364 $33,911 $(4,401) $ 1,364 -- $31,238
Net income ..................... -- -- 4,658 -- -- 4,658
Dividend paid .................. -- -- (1,558) -- -- (1,558)
Purchase of treasury stock
(98,000 shares) .............. -- -- -- -- (1,174) (1,174)
Change in unrealized gain
on marketable securities
available for sale, net ....... -- -- -- (1,044) -- (1,044)
Issuance of 113,905 shares
for exercise of options ....... 12 308 -- -- -- 320
---- ------- ------- ------- ------- -------
Balance at September 30, 1996 ..... $376 $34,219 $(1,301) $ 320 $(1,174) $32,440
Net income ..................... -- -- 1,951 -- -- 1,951
Dividend paid .................. -- -- (390) -- -- (390)
Change in unrealized gain
on marketable securities
available for sale, net ....... -- -- -- 418 -- 418
Issuance of 8,120 shares
for exercise of options ....... -- 26 -- -- -- 26
---- ------- ------- ------- ------- -------
Balance at December 31, 1996 ...... $376 $34,245 $ 260 $ 738 $(1,174) $34,445
Net income ..................... -- -- 5,792 -- -- 5,792
Issuance of 136,860 shares
for exercise of options ....... 14 669 -- -- -- 683
Dividend paid .................. -- -- (2,769) -- -- (2,769)
Change in unrealized gain
on marketable securities
available for sale, net ...... -- -- -- 611 -- 611
---- ------- ------- ------- ------- -------
Balance at September 30, 1997 ..... $390 $34,914 $ 3,283 $ 1,349 $(1,174) $38,762
==== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------- ---------
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income............................................................... $ 5,792 $ 4,658
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for (recovery of) loan losses................................ (364) 17
Depreciation and amortization..................................... .... 452 431
Deferred income tax expense (benefit).................................. (461) 1,153
Amortization of premiums, fees and discounts........................... 126 22
(Gains) on sales of investment securities......................... .... (120) (241)
(Gains) on sales of mortgage loans..................................... (129) (258)
Provision for losses on real estate acquired by foreclosure ........... 210 (32)
(Gains) on sale of real estate acquired by foreclosure................. (2) 48
Decrease in loans held for sale........................................ 2,434 2,141
(Increase) in accrued interest receivable.............................. (49) (211)
(Increase) decrease in other assets.................................... 275 (1,059)
Increase (decrease) in accrued interest payable........................ 10 (13)
Increase in other liabilities.......................................... 2,265 623
------- --------
Net cash provided by operating activities.......................... 10,439 7,279
------- --------
Cash flows from investing activities:
Net (increase) in money market funds..................................... (720) (5,851)
Purchase of investment securities........................................ (30,047) (28,163)
Proceeds from sales of investment securities available for sale.......... 1,121 12,351
Proceeds from maturities of investment securities........................ 30,469 18,827
Proceeds from sales of real estate acquired by foreclosure............... 574 1,209
Purchases of mortgage-backed securities.................................. -- (1,911)
Proceeds from payments of mortgage-backed securities..................... 5,796 8,576
Net (increase) in loans.................................................. (13,342) (7,997)
Purchases of premises and equipment...................................... (473) (218)
------- --------
Net cash used in investing activities................................. $(6,622) $ (3,177)
======= ========
</TABLE>
<PAGE> 6
WARREN FIVE CENTS SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------- ---------
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net (decrease) in deposits............................................... $ (318) $(1,117
Proceeds from Federal Home Loan Bank advances............................ 630 913
Principal payments on Federal Home Loan Bank advances.................... (2,674) (4,001)
Net increase in other borrowed funds..................................... 946 127
Purchase of treasury stock............................................... -- (1,174)
Dividends paid........................................................... $(2,769) (1,558)
Proceeds from issuance of common stock................................... 683 320
------- -------
Net cash used in financing activities............................. (3,502) (6,490)
------- -------
Net increase (decrease) in cash and due from banks....................... 315 (2,388)
Cash and due from banks at beginning of period........................... 5,855 8,869
------- -------
Cash and due from banks at end of period................................. $ 6,170 $ 6,481
------- -------
Cash paid during the period for:
Interest............................................................. $ 8,481 $ 8,595
Income taxes......................................................... $ 2,150 1,798
Supplemental noncash investing and financing activities:
Real estate foreclosures.............................................. $ 236 $ 392
Securitization of loans to mortgage-backed securities................. $ 1,903 $ 2,171
Increase (decrease) in unrealized gain on investment and mortgage-
backed securities available for sale, net of estimated income taxes... $ 611 $(1,044)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
WARREN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements of Warren Bancorp, Inc. (the
"Corporation") presented herein should be read in conjunction with the
consolidated financial statements of the Corporation as of and for the year
ended December 31, 1996. In the opinion of management, the financial statements
reflect all adjustments necessary for a fair presentation of the results for the
interim periods presented. Certain amounts have been reclassified to conform
with the 1997 presentation.
EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Earnings-per-share data are based upon the average daily number of
shares and share equivalents (options) outstanding, which was 4,024,000 and
3,970,000, respectively, for the quarter and nine months ended September 30,
1997 and for the quarter and nine months ended September 30, 1996 was 3,911,000
and 3,916,000, respectively.
In February 1997, Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share" (SFAS No. 128) was issued. The Statement is
effective for both interim and annual periods ending after December 15, 1997,
and it replaces the presentation of "primary" EPS with a presentation of "basic"
EPS. Basic EPS excludes dilution and is computed by dividing income available to
holders of common stock by the weighted-average number of common shares
outstanding during the period. The Statement also requires the presentation of
diluted EPS, if applicable, which is computed similarly to "fully diluted" EPS
under existing accounting rules. Restatement of prior years' EPS, if necessary,
is also required by this Statement. The adoption of SFAS No. 128 by the
Corporation will have no impact on the Corporation's computation of EPS.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements in this Form 10-Q constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. The words "believe," "expect," "anticipate," "intend,"
"plan," "assume" 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. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Corporation and may cause the actual results, performance or achievements of
the Corporation to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking
statements.
Certain factors that might cause such differences include, but are not
limited to, the following: interest rates may increase, adversely affecting the
ability of borrowers to repay adjustable-rate loans and the Corporation's
earnings and income which derive in significant part from loans to borrowers;
unemployment in the Corporation's market area may increase, adversely affecting
the ability of individual borrowers to repay loans; property values may decline,
adversely affecting the ability of borrowers to repay loans and the value of
real estate securing repayment of loans; and general economic and market
conditions in the Corporation's market area may decline, adversely affecting the
ability of borrowers to repay loans, the value of real estate securing repayment
of loans and the Corporation's ability to make profitable loans. Any of the
above may also result in lower interest income, increased loan losses,
additional charge-offs and writedowns and higher operating expenses. These and
other factors that might cause differences between actual and anticipated
results, performance and achievements are discussed in greater detail in this
Form 10-Q.
GENERAL
Warren Bancorp, Inc.'s (the "Corporation") operating results for the
three and nine months ended September 30, 1997 (the "1997 quarter" and "1997
period," respectively) reflect the operations of its only subsidiary, Warren
Five Cents Savings Bank (the "Bank"). The Bank, which is wholly owned by the
Corporation, operates as a community bank and is in the business of making
individual and commercial loans to customers in its market area.
The Corporation recorded an increased profit for the 1997 period
primarily due to a gain from the sale of rights to service residential mortgage
loans, a gain resulting from the termination of its defined-benefit pension
plan, an increase in net interest income and a decrease in the provision for
loan loss to a recovery compared to the period ended September 30, 1996 (the
"1996 period"). On January 31, 1997, the Corporation sold its rights to service
approximately $209 million of residential mortgage loans representing over 95%
of its portfolio of loans serviced for others. The Corporation received net
proceeds of $2.6 million. Certain assets and expenses totaling $1.2 million
consisting mainly of capitalized mortgage-servicing rights and capitalized
excess service fees, were charged against this gain resulting in a pre-tax
profit of $1.4 million. Please see "Loans and Loans Held-For-Sale," "Other
Assets" and "Non-Interest Income" under "Results of Operations for the
Nine-Months Ended September 30, 1997," for further discussion on this item.
Also, during the 1997 quarter the Bank terminated its defined-benefit pension
plan resulting in a pre-income-tax gain of $457,000 from excess plan assets
reverting back to the Bank. Please see "Non-Interest Income" under "Results of
Operations for the Three-Months September 30, 1997" for further discussion on
this item.
Real estate acquired by foreclosure increased by $80,000 to $1.7
million at September 30, 1997 from December 31, 1996. Nonperforming loans
decreased by $1.6 million to $1.1 million during the 1997 period. Management
continues to monitor these non-performing asset portfolios closely. If
conditions in the Massachusetts' real estate market become unstable and values
deteriorate, the amount of nonaccrual loans and real estate acquired through
foreclosure would be expected to increase, resulting in lower interest income
and increased loan losses, which could require additional loan loss provisions
to be charged to operating income. Moreover, real estate acquired through
foreclosure may give rise to additional charge-offs and writedowns and higher
expenses for property taxes and other carrying costs.
1
<PAGE> 9
ASSET/LIABILITY MANAGEMENT
A primary objective of the Corporation's asset/liability management
policy is to manage interest-rate risk over time to achieve a prudent level of
net interest income in changing interest-rate environments. Management's
strategies are intended to be responsive to changes in interest rates and to
recognize market demands for particular types of deposit and loan products.
These strategies are overseen by an internal Asset/Liability Management
Committee and by the Bank's Board of Directors.
The following table summarizes the Corporation's interest-rate
sensitivity position as of September 30, 1997. Assets and liabilities are
classified as interest-rate sensitive if they have a remaining term to maturity
of 0-12 months, or are subject to interest-rate adjustments within those time
periods. Adjustable-rate loans and mortgage-backed securities are shown as if
the entire balance came due on the repricing date. Nonaccruing loans are not
included in this analysis due to their status as non-earning assets. Estimates
of fixed-rate loan and fixed-rate mortgage-backed security amortization and
prepayments are included with rate sensitive assets. Because regular savings and
N.O.W. accounts may be withdrawn at any time and are subject to interest-rate
adjustments at any time, they are presented in the table below based on an
assumed maturity of less than six months.
INTEREST-RATE SENSITIVITY POSITION
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
0-3 3-6 6-12 1-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS
-------- -------- -------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Investment securities....................... $ 27,282 $ 10,279 $ 13,100 $21,775 $ --
Loans held for sale......................... 569 -- -- -- --
Adjustable-rate loans....................... 66,313 21,988 69,695 41,100 400
Fixed-rate loans............................ 6,879 899 5,356 12,004 8,334
Mortgage-backed securities.................. 3,709 5,956 13,300 10,713 4,672
-------- -------- -------- ------- -------
Total interest sensitive assets.......... 104,752 39,122 101,451 85,592 13,406
-------- -------- -------- ------- -------
INTEREST SENSITIVE LIABILITIES:
Cash manager and passbook plus
accounts................................... 13,314 13,314 -- -- --
Time deposits............................... 26,279 41,742 36,104 36,482 8
Other deposits (a).......................... 67,877 67,430 -- -- --
Borrowings.................................. 3,158 -- -- 14 657
-------- -------- -------- ------- -------
Total interest sensitive liabilities..... 110,628 122,486 36,104 36,496 665
-------- -------- -------- ------- -------
Excess (deficiency) of interest
sensitive assets over interest
sensitive liabilities...................... $ (5,876) $(83,364) $ 65,347 $49,096 $12,741
======== ======== ======== ======= =======
Excess (deficiency) of cumulative
interest sensitive assets over cumu-
lative interest sensitive liabilities...... $ (5,876) $(89,240) $(23,893) $25,203 $37,944
======== ======== ======== ======= =======
Cumulative interest sensitive assets
as a percentage of cumulative
interest sensitive liabilities............. 94.7% 61.7% 91.1% 108.2% 112.4%
======== ======== ======== ======= =======
Cumulative excess (deficiency) as a
percentage of total assets................. (1.6)% (24.5)% (6.6)% 6.9% 10.4%
======== ======== ======== ======= =======
</TABLE>
- ----------
(a) Other deposits consist of regular savings, club and N.O.W. accounts.
2
<PAGE> 10
Interest-rate sensitivity statistics are static measures that do not
necessarily take into consideration external factors which might affect the
sensitivity of assets and liabilities and consequently cannot be used alone to
predict the operating results of a financial institution in a changing
environment. However, these measurements do reflect major trends and thus the
Corporation's sensitivity to interest rates changes over time.
LIQUIDITY
The Bank seeks to ensure sufficient liquidity is available to meet cash
requirements while earning a return on liquid assets. The Bank uses its
liquidity primarily to fund loan and investment commitments, to supplement
deposit flows and to meet operating expenses. The primary sources of liquidity
are interest and amortization from loans, mortgage-backed securities and
investments, sales and maturities of investments, loan sales, deposits and
Federal Home Loan Bank of Boston ("FHLBB") advances, which include a $15 million
overnight line of credit. The Bank also has access to the Federal Reserve Bank's
discount window and may borrow from the Depositors Insurance Fund Liquidity
Fund. During the 1997 period, the Bank did not use the Federal Reserve Bank
discount window and did not borrow from the Depositors Insurance Fund Liquidity
Fund.
The Bank also uses the longer term borrowings facilities within its
total available credit line with the FHLBB. Advances from the FHLBB, none of
which were from the overnight facility, were $671,000 at September 30, 1997.
During 1997, the primary sources of liquidity were $17.1 million in
loan sales, proceeds from sale of investments of $1.1 million, proceeds from
maturities of investment securities of $30.5 million, proceeds from paydowns of
mortgage-backed securities of $5.8 million, and $2.6 million from the sale of
rights to service residential mortgage loans. Primary uses of funds were
$65.4 million in residential, commercial real estate and commercial loan
originations, $30.0 million to purchase investment securities and $2.0 million
to pay down Federal Home Loan Bank advances. At September 30, 1997, the Bank had
$7.5 million in overnight investments.
The primary source of liquidity for the Corporation is dividends from
the Bank. The Corporation pays dividends to its shareholders which are funded by
dividends paid by the Bank to the Corporation. Dividends paid by the Corporation
is the primary use of this liquidity.
From time to time, the Bank has obtained time deposits in denominations
of $100,000 and over. The following table summarizes maturities of time deposits
of $100,000 or more outstanding at September 30, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
WITHIN ONE YEAR
---------------
Less than 3 months...................... $ 3,104
3 to 6 months........................... 5,789
6 to 12 months.......................... 5,127
-------
14,020
More than 12 months..................... 3,664
-------
$17,684
=======
</TABLE>
CAPITAL ADEQUACY
Total stockholders' equity at September 30, 1997 was $38.8 million, an
increase of $4.4 million from $34.4 million at the end of 1996. Included in
stockholders' equity at September 30, 1997 is an unrealized gain on marketable
securities available for sale, which increased stockholders' equity, of $1.3
million as compared to an unrealized gain at December 31, 1996 of $738,000. This
positive change in the market value of marketable securities available for sale
was due mainly to decreased interest rates during the 1997 period. Future
interest-rate increases could reduce the market value of these securities and
reduce stockholders' equity. As a percentage of total assets, stockholders'
equity was 10.65% at September 30, 1997 compared to 9.60% at December 31, 1996.
3
<PAGE> 11
At September 30, 1997, neither the Federal Reserve Board ("FRB") nor
the FDIC permitted the unrealized gain or loss to be used in their calculation
of Tier I capital. At September 30, 1997, net of applicable income taxes, the
unrealized gain on marketable securities available for sale was $1.3 million.
The Federal Reserve Board's leverage capital-to-assets guidelines
require the strongest and most highly rated bank holding companies to maintain
at least a 3.00% ratio of Tier I capital to average consolidated assets. All
other bank holding companies, including the Corporation, are required to
maintain at least 4.00% to 5.00%, depending on how the FRB evaluates their
condition. The FRB may require a higher capital ratio. At September 30, 1997,
the FRB leverage capital ratio was 10.76% compared to 9.48% at December 31,
1996.
The FDIC's leverage capital-to-assets ratio guidelines are
substantially similar to those adopted by the FRB and described above. At
September 30, 1997, the Bank's leverage capital ratio, under FDIC guidelines,
was 9.75% compared to 9.14% at December 31, 1996.
The FRB and the FDIC have also imposed risk-based capital requirements
on the Corporation and the Bank, respectively, which give different risk
weightings to assets and to off-balance sheet assets such as loan commitments
and loans sold with recourse. Both the FRB and FDIC guidelines require the
Corporation and the Bank to have an 8.00% risk-based capital ratio. The
Corporation's and the Bank's risk-based capital ratios were 14.87% and 13.96%,
respectively, at September 30, 1997 compared to 14.72% and 14.28% at
December 31, 1996, thus exceeding their risk-based capital requirements.
As of September 30, 1997, the Bank's total risk-based capital ratio,
Tier I risk-based capital ratio and leverage capital ratio were 13.96%, 12.71%,
and 9.75%, respectively. Based on these capital ratios, the Bank is considered
to be "well capitalized."
FINANCIAL CONDITION
The Corporation's total assets increased to $364.1 million at September
30, 1997 from $359.0 million at December 31, 1996. Increases in commercial real
estate loans, commercial construction loans, and commercial loans were partially
offset by decreases in investments available for sale, residential mortgage
loans and from the elimination of certain "other" assets related to the sale of
the rights to service residential mortgage loans consisting mainly of
capitalized mortgage-servicing rights and capitalized excess servicing fees. The
elimination of these "other" assets was partially offset by an increase in the
receivable related to the termination of the Bank's defined-benefit pension
plan.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Investments, consisting of overnight investments, investment and
mortgage-backed securities available for sale, and other investments, decreased
to $114.6 million at September 30, 1997 from $118.3 million at December 31,
1996. This decrease was due to various maturities of U.S. Treasury and U.S.
Government Agency obligations and corporate notes. Mortgage-backed securities
decreased to $39.1 million at September 30, 1997 from $42.7 million at
December 31, 1996 due to $5.8 million of principal payments during the 1997
period partially offset by a $1.9 million securitization of adjustable-rate
residential mortgage loans. The market value of these investments increased
during 1997 due mainly to the decrease in interest rates from December 31, 1996.
Future increases in interest rates could reduce the value of these investments.
4
<PAGE> 12
INVESTMENTS AT SEPTEMBER 30, 1997 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OVERNIGHT
Money market funds.......................... $ 87 $ -- $ -- $ 87
Federal funds sold.......................... 7,365 -- -- 7,365
-------- ------ ----- --------
7,452 -- -- 7,452
-------- ------ ----- --------
AVAILABLE-FOR-SALE
Fixed income mutual funds................... 18,990 642 -- 19,632
FNMA mortgage-backed securities............. 24,857 917 -- 25,774
GNMA mortgage-backed securities............. 13,493 -- (203) 13,290
U.S. Government and related
obligations................................ 15,603 13 (10) 15,606
Corporate notes............................. 17,880 15 (1) 17,894
Common stock................................ 21 54 -- 75
Preferred stock............................. 7,900 645 -- 8,545
-------- ------ ----- --------
98,744 2,286 (214) 100,816
-------- ------ ----- --------
OTHER
Foreign government bonds and
notes..................................... 500 -- -- 500
Stock in Federal Home Loan Bank
of Boston................................. 4,110 -- -- 4,110
Stock in Depositors Insurance Fund
Liquidity Fund............................ 108 -- -- 108
Stock in Savings Bank Life Insurance
Company of Massachusetts ................. 1,576 240 -- 1,816
-------- ------ ----- --------
6,294 240 -- 6,534
-------- ------ ----- --------
$112,490 $2,526 $(214) $114,802
======== ====== ===== ========
</TABLE>
LOANS AND LOANS HELD FOR SALE
Loans and loans held for sale increased by $8.7 million during the 1997
period to $234.6 million at September 30, 1997. This increase is primarily the
result of increases in commercial, commercial real estate and commercial
construction loans partially offset by paydowns and payoffs of residential
mortgage loans, securitization of residential mortgage loans and from the sale
of the residential mortgage loans held for sale at December 31, 1996. Commercial
real estate, commercial construction and commercial loans typically earn higher
yields than residential mortgage loans, but usually carry higher risk due to
loan size.
The following table sets forth the classification of the Corporation's
loans as of September 30, 1997 and December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Residential mortgages.............. $ 57,181 $ 66,654
Commercial real estate............. 116,681 107,428
Commercial construction ........... 18,330 10,742
Commercial loans................... 21,467 16,458
Consumer loans..................... 20,416 21,564
-------- --------
$234,075 $222,846
======== ========
</TABLE>
5
<PAGE> 13
Residential mortgage loan originations during the 1997 period were
$20.1 million compared to $29.3 million in the 1996 period. The Corporation sold
or securitized loans totaling $19.0 million during the 1997 period compared to
$26.5 million sold in the 1996 period. At September 30, 1997, the Corporation
held $569,000 of fixed rate residential mortgage loans for sale compared to $3.0
million at December 31, 1996.
On January 31, 1997, the Corporation sold its rights to service
approximately $209 million of residential mortgage loans representing over 95%
of the portfolio of loans serviced for others. In the future, the Corporation
intends to sell servicing released all residential fixed-rate mortgage loans it
originates, and it will continue to service the loans it owns.
CREDIT QUALITY
IMPAIRED LOANS
Loans are deemed by the Corporation to be impaired when, based on
current information and events, it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of the
original loan agreement. Generally, nonaccruing loans are deemed impaired. Large
groups of homogeneous loans, such as smaller balance residential mortgage and
consumer installment loans are collectively evaluated for impairment. Typically,
the minimum delay in receiving payments according to the contractual terms of
the loan that can occur before a loan is considered impaired is ninety days.
Impaired loans are analyzed and categorized by level of credit risk and
collectibility in order to determine their related allowance for loan losses. At
September 30, 1997 and December 31, 1996 there were five loans considered
impaired and accruing totaling $864,000.
NONPERFORMING LOANS
Loans past due 90 days or more, or past due less than 90 days but in a
nonaccrual status were $1.1 million at September 30, 1997 compared to $2.7
million at December 31, 1996. Included in nonperforming loans are three loans
considered impaired and nonaccruing in the amount of $865,000 at September 30,
1997 as compared to six loans considered impaired and nonaccruing totaling $1.9
million at December 31, 1996. Accrual of interest on loans is discontinued
either when a reasonable doubt exists as to the full, timely collection of
principal or interest or when the loans become contractually past due by ninety
days or more, unless they are adequately secured and are in the process of
collection.
When a loan is placed on nonaccrual status, all interest previously
accrued but not collected is reversed against current period interest income.
Income on such loans is recognized to the extent that cash is received and where
the ultimate collection of principal and interest is probable. Following
collection procedures, the Corporation generally institutes appropriate action
to foreclose the property or acquire it by deed in lieu of foreclosure.
6
<PAGE> 14
The table below details nonperforming loans at:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accruing loans 90 days or more in arrears......... $ -- $ 0
Nonaccrual loans.................................. 1,107 2,712
------ ------
Total nonperforming loans......................... $1,107 $2,712
====== ======
Percentage of nonperforming loans to:
Total loans....................................... 0.47% 1.22%
====== ======
Total assets...................................... 0.30% 0.76%
====== ======
</TABLE>
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure totaled $1.7 million at
September 30, 1997 compared to $2.2 million at December 31, 1996. Real estate
acquired by foreclosure, net of an allowance for loss, is reflected at the lower
of the net carrying value or fair value of the property less estimated cost of
disposition. These properties consist mainly of land and single-family and
multi-family dwellings.
The Corporation had a provision for losses of $208,000 on real estate
acquired by foreclosure, net of gains on sale, in the 1997 period compared to a
gain of $20,000 in the 1996 period. Unstable conditions in the Massachusetts
real estate market could result in losses and writedowns as the Corporation
reduces the book value of real estate to reflect likely realizable values.
Changes in the allowance for losses on real estate acquired by
foreclosure for the nine months ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance at December 31, 1996.............. $160
Provision charged to expense.............. 210
Net charge-offs........................... (2)
----
Balance at September 30, 1997............. $368
====
</TABLE>
Gains on sale and recoveries on real estate acquired by foreclosure
were $2,000 in the 1997 period.
In summary, nonperforming assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C>
Nonperforming loans.......................... $1,107 $2,712
Real estate acquired by foreclosure.......... 1,684 2,230
------ ------
Total nonperforming assets................... $2,791 $4,942
====== ======
Total nonperforming assets as a
percentage of total assets................ 0.8% 1.4%
</TABLE>
7
<PAGE> 15
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $4.1 million at September 30, 1997
and $4.5 million at December 31, 1996. The following table presents the activity
in the allowance for loan losses for the six months ended September 30, 1997
(dollars in thousands):
<TABLE>
<S> <C>
Balance at beginning of period.................................... $4,533
------
Losses charged to the allowance:
Residential mortgage.......................................... 204
Commercial mortgage and construction.......................... 309
Commercial loans.............................................. -
Consumer loans................................................ 9
------
522
------
Loan recoveries:
Residential mortgage.......................................... 68
Commercial mortgage and construction.......................... 232
Commercial loans.............................................. 112
Consumer loans................................................ 7
------
419
------
Net charge-offs................................................... (103)
------
Provision for (recovery of) loan losses (credited) to income...... (364)
------
Balance at end of period.......................................... $4,066
======
Allowance to total loans at end of period......................... 1.74%
======
Allowance to nonperforming loans at end of period................. 367.3%
======
Allocation of ending balance:
Residential mortgage.......................................... $ 838
Commercial mortgage and construction.......................... 2,605
Commercial loans.............................................. 305
Consumer loans................................................ 318
------
$4,066
======
</TABLE>
Notwithstanding the foregoing allocations, the entire allowance for
loan losses is available to absorb charge-offs in any category of loans. Loan
losses are charged against the allowance when management believes that the
collectibility of the loan principal is unlikely.
Balances in the allowance for loan losses are determined on a periodic
basis by management and the Loan Committee of the Board of Directors with
assistance from an independent credit review consulting firm. Loan loss
allocations are based on the conditions of each loan, whether performing or
non-performing, including collectibility, collateral adequacy and the general
condition of the borrowers, economic conditions, delinquency statistics, market
area activity, the risk factors associated with each of the various loan
categories and the borrower's adherence to the original terms of the loan.
Individual loans, including loans considered impaired, are analyzed and
categorized by level of credit risk and collectibility. The associated provision
for loan losses is the amount required to bring the allowance for loan losses to
the balance considered necessary by management at the end of the period after
accounting for the effect of loan charge-offs (which decrease the allowance) and
loan-loss recoveries (which increase the allowance). The allowance for loan
losses included above attributable to $1.7 million of impaired loans, of which
$1.4 million is measured using the present value method and $372,000 using the
fair value method, is $271,000.
LEGAL AND OFF-BALANCE SHEET RISKS
Various legal claims arise from time to time in the course of business
of the Corporation and its subsidiaries. At September 30, 1997, there were no
legal claims against the Corporation or its subsidiaries.
8
<PAGE> 16
The Corporation is party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations of interest rates.
These financial instruments include commitments to originate loans, unused lines
of credit, standby letters of credit, recourse arrangements on sold assets and
forward commitments to sell loans. The financial instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets.
OTHER ASSETS
Included in other assets at September 30, 1997 and December 31, 1996
are $1,058,000 and $980,000, respectively, of deferred income taxes receivable.
Also included in other assets was a current income tax receivable of none at
September 30, 1997 compared to $278,000 at December 31, 1996. In addition, a
receivable related to the termination of the pension plan of $1.8 million at
September 30, 1997 compared to prepaid pension asset of $864,000 at December 31,
1996 is included in other assets. The $1.8 million was received by the Bank in
October 1997. As noted previously, on January 31, 1997, the Bank sold its rights
to service approximately $209 million of residential mortgage loans. In that
regard the entire balance of mortgage-servicing rights and capitalized excess
servicing fees were charged against the gain from the sale of mortgage-servicing
rights. These assets were included in other assets at December 31, 1996 and had
balances of $682,000 and $344,000, respectively.
LIABILITIES
Deposits decreased to $316.0 million at September 30, 1997 from $316.4
million at December 31, 1996. This decrease took place primarily in demand and
savings deposits and was partially offset by increases in NOW, time deposits and
money market deposit accounts.
Federal Home Loan Bank of Boston advances decreased to $671,000 at
September 30, 1997 from $2.7 million at December 31, 1996. Securities sold under
agreement to repurchase were $3.2 million at September 30, 1997 compared to $2.2
million at December 31, 1996.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
GENERAL
The Corporation recorded a profit for the 1997 quarter of $1.7 million
compared to a profit for the 1996 quarter of $1.6 million. The increase in the
1997 quarter profit is primarily due to the Bank's termination of its
defined-benefit pension plan, which resulted in a gain of $457,000 from excess
plan assets reverting to the Bank, an increase in net interest income and a
decrease in non-interest expense partially offset by a decrease in loan and
customer service fees. Income before taxes was $2.9 million in the 1997 quarter
compared to $2.4 million in the 1996 quarter.
Net interest income for the 1997 and 1996 quarters was $4.3 million and
$4.1 million, respectively. The weighted average interest rate spread for the
1997 quarter was 4.79% and 4.67% for the 1996 quarter. The net yield on average
earning assets was 4.95% for the 1997 quarter and 4.86% for the 1996 quarter.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income was $7.1 million for the 1997
quarter and $6.9 million for the 1996 quarter. Interest on loans increased to
$5.3 million for the 1997 quarter from $5.1 million for the 1996 quarter. This
increase is primarily the result of an increase in average loan yields to 9.23%
for the 1997 quarter from 9.14% for the 1996 quarter as well as an increase in
average loans outstanding for the 1997 quarter compared to the 1996 quarter.
Interest and dividends on investments increased to $1.1 million from $1.0
million for the 1997 and 1996 quarters, respectively. This increase is
attributed to an increase in the average amount of investments held despite a
decrease in the average yield on investments to 6.07% for the 1997 quarter from
6.21% for the 1996 quarter. Mortgage-backed securities income decreased to
$697,000 in the 1997 quarter from $799,000 in the 1996 quarter primarily due to
a decrease in the average amount of
9
<PAGE> 17
mortgage-backed securities held. The average yield was 7.33% in the 1997 quarter
compared to 7.15% in the 1996 quarter.
INTEREST EXPENSE
Interest on deposits was $2.8 million for the 1997 and the 1996
quarters. The average cost of deposits increased to 3.55% for the 1997 quarter
compared to 3.54% for the 1996 quarter, while average interest-bearing deposits
outstanding also increased slightly during the 1997 quarter. Interest on
borrowed funds decreased to $30,000 from $69,000 for the 1997 and 1996 quarters,
respectively. This decrease is primarily related to a decrease in borrowings.
The average cost of borrowings was 2.57% for the 1997 quarter and 4.47% for the
1996 quarter.
NON-INTEREST INCOME
Total non-interest income for the 1997 quarter was $760,000 compared to
$563,000 for the 1996 quarter. The gain from the termination of the Bank's
defined benefit pension plan was $457,000 for the 1997 quarter. This gain was
partially offset by a decrease in loan servicing fees from $174,000 in the 1996
quarter to $1,000 in the 1997 quarter. This decrease is the results of the sale
of mortgage servicing rights during the first quarter of 1997. Because the
Corporation has sold its mortgage servicing rights, it no longer generates loan
servicing fees. Customer service fee income decreased to $213,000 in the 1997
quarter from $311,000 in the 1996 quarter due to one-time fee income received in
the 1996 quarter. The gain from the sale of investment securities, net was
$21,000 in the 1997 quarter compared to zero in the 1996 quarter. Gains from the
sale of mortgage loans was $38,000 in the 1997 quarter and $76,000 in the 1996
quarter. The Corporation also realized a $29,000 gain from the sale of mortgage
servicing rights in the 1997 quarter related to the securitization of loans in
its portfolio.
NON-INTEREST EXPENSE
Total non-interest expense was $2.3 million in the 1997 quarter and
$2.4 million in the 1996 quarter. Decreases in professional services, marketing
and real estate operations expenses were partially offset by increases in
occupancy and equipment and outside data processing expense.
INCOME TAX EXPENSE
The income tax expense for the 1997 quarter was $1.2 million compared
to $821,000 for the 1996 quarter. This increase is due to higher taxable income
and from a higher effective tax rate of 40.5% in the 1997 quarter compared to
34.2% in the 1996 quarter. This rate increase is due mainly to certain costs
related to the pension plan termination not being eligible for income-tax
deductions. The net deferred tax asset at September 30, 1997 is $1.1 million
compared to a net deferred tax asset of $980,000 at December 31, 1996.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
GENERAL
The Corporation recorded a profit for the 1997 period of $5.8 million
compared to a net profit for the 1996 period of $4.7 million, primarily due to a
gain from the sale of rights to service mortgage loans, a gain from the
termination of pension plan, an increase in net interest income and a decrease
in the provision for loan loss to a recovery. Income before taxes was $8.7
million for the 1997 period compared to $6.9 million in the 1996 periods.
Net interest income for the 1997 period was $12.8 million compared to
$12.3 million for the 1996 period. The weighted average interest rate spread for
the 1997 period was 4.78% compared to 4.72% for the 1996 period. The net yield
on average earning assets was 4.97% for the 1997 period and 4.91% for the 1996
period.
10
<PAGE> 18
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased to $21.2 million for the
1997 period from $20.8 million for the 1996 period. Interest on loans increased
to $15.7 million for the 1997 period from $15.1 million for the 1996 period.
This increase is primarily the result of a higher volume of loans outstanding
during the 1997 period and from an increase in average loan yield to 9.24% for
the 1997 period from 9.20% for the 1996 period. Interest and dividends on
investments was $3.3 million for the 1997 and 1996 periods, respectively. The
average amount of investments held increased and the average yield on
investments decreased to 6.02% for the 1997 period from 6.36% for the 1996
period. Mortgage-backed securities income was $2.2 million for the 1997 period
and $2.5 million for the 1996 period primarily due to a decrease in the average
amount of mortgage-backed securities held.
INTEREST EXPENSE
Interest on deposits increased to $8.4 million in the 1997 period from
$8.3 million for the 1996 period. This increase was primarily related to an
increase in average interest-bearing deposits outstanding during the 1997 period
offset by a decrease in average cost of deposits during 1997 to 3.52% in the
1997 period from 3.57% for the 1996 period. Interest on borrowed funds decreased
to $112,000 from $251,000 for the 1996 period. This decrease is primarily
related to a decrease in borrowed funds.
NON-INTEREST INCOME
Total non-interest income for the 1997 period was $3.0 million compared
to $1.8 million for the 1996 period. The gain from the sale of mortgage service
rights, noted above, was $1.4 million for the 1997 period. The gain from
termination of pension plan also noted above, was $457,000 in the 1997 period.
The gain from the sale of mortgage loans was $129,000 in the 1997 period
compared to $258,000 in the 1996 period. Loan servicing fees were $117,000 for
the 1997 period compared to $478,000 in the 1996 period. This decrease is mainly
due to the sale of the above-mentioned mortgage servicing rights. The gains from
the sale of investment securities was $120,000 for the 1997 period compared to
$241,000 in the 1996 period.
NON-INTEREST EXPENSE
Total non-interest expense increased to $7.4 million in the 1997 period
from $7.1 million in the 1996 period. This increase is primarily attributed to
an increase in real estate operations expense to $390,000 in the 1997 period
from $155,000 in the 1996 period mainly due to a writedown in the value of real
estate owned through foreclosure.
INCOME TAX EXPENSE
Income tax expense for the 1997 period was $2.9 million compared to
$2.3 million for the 1996 period. As a result of the capital gain generated from
the sale of mortgage-servicing rights, the Corporation was able to recognize a
tax benefit in the amount of $279,000 in the 1997 period from capital losses of
prior periods. This compares to a tax credit of $400,000 recognized in the 1996
period in connection with an IRS audit. Also, depending on the outcome of
certain tax rulings by federal and state taxing authorities over the next
one-to-two years not specific to Warren Bancorp, the Corporation may have the
ability to record additional tax credits of up to an estimated $470,000 in
future periods.
11
<PAGE> 19
WARREN BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On September 2, 1997 the Corporation filed a current report on
Form 8-K and on September 5, 1997 filed an amended current report on
Form 8-K/A, both regarding a change in its certifying accountant.
12
<PAGE> 20
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.
WARREN BANCORP, INC.
DATE: November 14, 1997 By: /s/ George W. Phillips
----------------------------
George W. Phillips
President and
Chief Executive Officer
DATE: November 14, 1997 By: /s/ Paul M. Peduto
----------------------------
Paul M. Peduto
Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPT. 30,
1997 10-Q 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-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 6,170
<INT-BEARING-DEPOSITS> 7,452
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 100,816
<INVESTMENTS-CARRYING> 6,294
<INVESTMENTS-MARKET> 6,534
<LOANS> 234,644
<ALLOWANCE> 4,066
<TOTAL-ASSETS> 364,130
<DEPOSITS> 316,048
<SHORT-TERM> 3,158
<LIABILITIES-OTHER> 5,491
<LONG-TERM> 671
0
0
<COMMON> 390
<OTHER-SE> 38,372
<TOTAL-LIABILITIES-AND-EQUITY> 38,762
<INTEREST-LOAN> 5,325
<INTEREST-INVEST> 1,797
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,122
<INTEREST-DEPOSIT> 2,840
<INTEREST-EXPENSE> 2,870
<INTEREST-INCOME-NET> 4,252
<LOAN-LOSSES> (126)
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 2,272
<INCOME-PRETAX> 2,865
<INCOME-PRE-EXTRAORDINARY> 2,865
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,704
<EPS-PRIMARY> $0.42
<EPS-DILUTED> $0.42
<YIELD-ACTUAL> 4.95
<LOANS-NON> 1,107
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,399
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,533
<CHARGE-OFFS> 522
<RECOVERIES> 419
<ALLOWANCE-CLOSE> (364)
<ALLOWANCE-DOMESTIC> 4,066
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
