<PAGE>
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, 1995
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 1-10203
NORTHBAY FINANCIAL CORPORATION
HOLDING COMPANY FOR NORTHBAY SAVINGS BANK, F.S.B.
(Exact name of registrant as specified in its charter)
Delaware 68-02085083
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1360 Redwood Way, Petaluma, California 94954
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (707)792-7409
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 proceeding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
---------------------------- -----------------------------
Common Stock, Par Value $.10 2,741,915 Shares
<PAGE>
<PAGE>
INDEX
NORTHBAY FINANCIAL CORPORATION
(HOLDING COMPANY FOR NORTHBAY SAVINGS BANK, FSB)
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements to Northbay Financial
Corporation and Subsidiary (Unaudited):
Consolidated Statements of Financial Condition..........3
Consolidated Statements of Operations...................4-5
Consolidated Statements of Cash Flows...................6-7
Notes to Consolidated Financial Statements..............8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................10-17
PART II. OTHER INFORMATION
Other Information.........................................18
Signatures................................................19
2
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
(In Thousands) (unaudited)
- - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash, including noninterest-bearing deposits of $7,941 and $6,564 $ 9,115 $ 7,255
Overnight federal funds 900 -
Certificates of deposit 1,445 1,745
Investment securities held to maturity (market value: $12,331 and $9,158) 12,634 9,518
Investment securities available for sale (net of valuation
adjustments of: ($47) and $87) 2,685 2,823
Mortgage-backed securities held to maturity
(market value: $1,638 and $1,720) 1,694 1,778
Mortgage-backed securities available for sale (net of valuation
allowance of: $46 and $91) 6,470 6,165
Loans receivable (net of allowance of: $2,265 and $2,067) 344,089 324,711
Interest receivable:
Loans 1,964 1,810
Mortgage-backed securities 51 48
Investments 295 165
Office property, equipment, and leasehold improvements, net 2,903 3,100
Real estate acquired through settlement of loans, net 1,328 1,637
Stock of Federal Home Loan Bank of San Francisco, at cost 3,747 2,315
Deferred premiums on loans sold 53 59
Prepaid expenses and other assets 2,106 1,584
- - - - - - -----------------------------------------------------------------------------------------------
$391,479 $364,713
===============================================================================================
Liabilities and Stockholders' Equity
Savings accounts 283,502 276,900
Advances from the Federal Home Loan Bank 68,751 47,695
Other borrowings 2,180 3,118
Other liabilities and accrued expenses 1,602 1,995
Deferred and current income taxes payable 450 726
Deferred gain on sale of buildings 569 595
- - - - - - -----------------------------------------------------------------------------------------------
357,054 331,029
Stockholders' equity:
Common stock (par value $.10 per share, 4,000,000 shares authorized,
2,741,915 and 2,741,123 shares outstanding) 274 228
Additional paid-in capital 20,812 20,803
Retained earnings - substantially restricted 13,632 12,895
Debt incurred by ESOP (200) (238)
Net unrealized loss on securities available for sale (93) (4)
- - - - - - -----------------------------------------------------------------------------------------------
34,425 33,684
$391,479 $364,713
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -------------------
(In Thousands Except Per Share Amounts) 1995 1994 1995 1994
- - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Loans $5,990 $5,339 $17,933 $16,297
Mortgage-backed securities 145 72 432 278
Interest and dividends on investments 323 182 870 525
- - - - - - -----------------------------------------------------------------------------------------------
Total interest income 6,458 5,593 19,235 17,100
- - - - - - -----------------------------------------------------------------------------------------------
Interest expense
Savings accounts 2,743 2,002 7,280 6,177
Advances and other borrowings 1,153 237 2,945 695
- - - - - - -----------------------------------------------------------------------------------------------
Total interest expence 3,896 2,239 10,225 6,872
- - - - - - -----------------------------------------------------------------------------------------------
Net interest income 2,562 3,354 9,010 10,228
Provision for loan losses 60 200 282 555
- - - - - - -----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,502 3,154 8,728 9,673
- - - - - - -----------------------------------------------------------------------------------------------
Noninterest income
Service charges 182 167 568 545
(Loss) gain on sale of loans and
mortgage-backed securities, net - (188) - 161
Write down of deferred servicing premiums - (5) (3) (31)
(Loss) gain on sale of investment securities
held for sale - 287 117 367
(Loss) income from real estate acquired in
settlement of loans (21) (131) (99) (131)
Other 80 47 192 146
- - - - - - -----------------------------------------------------------------------------------------------
Total noninterest income 241 177 775 1,057
- - - - - - -----------------------------------------------------------------------------------------------
Noninterest expense
Compensation and benefits 1,075 1,108 3,264 3,207
Occupancy 301 304 909 873
Depreciation and amortization 111 118 332 341
Data processing 154 145 442 410
Advertising and supplies 84 132 220 312
Federal Deposit Insurance Corporation premiums 155 148 465 436
Other 399 360 1,248 1,237
- - - - - - -----------------------------------------------------------------------------------------------
Total noninterest expense 2,279 2,315 6,880 6,816
- - - - - - -----------------------------------------------------------------------------------------------
Income before taxes and cumulative effect of
change in accounting principle 464 1,016 2,623 3,914
Income tax expense 155 392 980 1,561
- - - - - - -----------------------------------------------------------------------------------------------
Income before cumulative effect of change
in accounting principle 309 624 1,643 2,353
Cumulative effect of change in accounting principle
for income taxes - - - 220
- - - - - - -----------------------------------------------------------------------------------------------
Net income $ 309 $ 624 $ 1,643 $ 2,573
===============================================================================================
</TABLE>
4
<PAGE>
Consolidated Statements of Operations (continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -------------------
(In Thousands Except Per Share Amounts) 1995 1994 1995 1994
- - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings per share
Before cumulative effect of accounting change $ 0.11 $ 0.22 $ 0.56 $ 0.78
Cumulative effect of accounting change - - - 0.08
Net Income $ 0.11 $ 0.22 $ 0.56 $ 0.86
- - - - - - -----------------------------------------------------------------------------------------------
Fully diluted $ 0.11 $ 0.22 $ 0.57 $ 0.86
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
(In Thousands) 1995 1994
- - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 1,643 $ 2,573
Adjustments to reconcile net income to net cash
Depreciation and amortization 332 341
Amortization of:
Deferred premiums 3 33
Deferred loan fees (964) (1,075)
Deferred gain on sale/leaseback of buildings (26) (26)
Other (6) 50
Provision for loan loss 282 555
Gain on sale of loans and mortgage-backed securities - (161)
Loss from real estate activities 99 -
Gain on sale of investment securities held for sale (116) (367)
(Decrease) increase in income taxes payable and deferred (276) (51)
(Increase) decrease in accrued interest receivable (287) 29
(Decrease) in other liabilities and accrued expenses (393) (829)
(Increase) in prepaid and other assets (522) (325)
Write down deferred servicing premium 3 26
Long-term loans originated as held for sale (649) (20,534)
Proceeds from sales of loans held for sale 649 24,664
Investment securities purchased as held for sale (6) -
Mortgage backed securities purchased as available for sale (1,052) -
Proceeds from sales of investment securities held for sale 124 815
FHLB stock dividend (126) (58)
Net effect of adopting a change in accounting principal - (220)
- - - - - - ------------------------------------------------------------------------------------------------
Net cash (used in), provided by operating activities (1,288) 5,440
- - - - - - ------------------------------------------------------------------------------------------------
Net cash flows from investing activities:
Principal payments on loans 70,438 81,917
Principal payments on mortgage backed securities 915 2,848
Long-term loans originated as held to maturity (89,650) (93,970)
Long-term loans purchased as held to maturity (306) (3,403)
Net decrease in short-term loans 84 336
Maturities of investment securities held to maturity 1,073 1,693
Purchases of investment securities held to maturity (3,861) (4,269)
Purchases of premises and equipment (135) (523)
Purchases of mortgage-backed securities held to maturity - (1,007)
Purchase of FHLB stock (1,706) -
Proceeds from sale of FHLB stock 400 -
Proceeds from sale of real estate received in settlement of loans 869 218
Proceeds from sale of fixed assets 3 3
- - - - - - ------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,876) (16,157)
- - - - - - ------------------------------------------------------------------------------------------------
Cash flows provided from financing activities:
Dividends paid on common stock (810) (623)
Common stock issued as a result of stock option exercised 14 -
Net (decrease) increase in savings accounts 6,602 11,970
Net increase in short-term borrowings 20,118 1,840
- - - - - - ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 25,924 13,187
- - - - - - ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
(In Thousands) 1995 1994
- - - - - - ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in cash and cash equivalents 2,760 2,470
Cash and cash equivalents at beginning of year 7,255 8,500
- - - - - - ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $10,015 $10,970
================================================================================================
Supplemental disclosures of cash flow information:
Noncash investing in financing activites:
Real estate acquired in settlement of loans $ 640 $ 1,189
Cash paid during the year for:
Income taxes $ 1,256 $ 1,392
Interest on deposits $ 7,323 $ 6,897
</TABLE>
See accompanying notes to consolidated financial statements.
7<PAGE>
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1995
Note 1 - Basis of Presentation
In the opinion of Northbay Financial Corporation (the "Corporation") the
accompanying consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the Corporation's consolidated financial condition, the results of its
operations and its cash flows.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a complete presentation of
financial condition, results of operations and statements of cash flows in
conformity with generally accepted accounting principles. When necessary,
reclassifications have been made to prior period balances to conform to current
period presentation. The results of operations for the nine month period ended
March 31, 1995, are not necessarily indicative of the results to be expected
for the fiscal year.
Earnings per share and shares outstanding have been adjusted in all
periods to reflect a 10% stock dividend effective January 29, 1993, a 10% stock
dividend effective June 24, 1994, and a 20% stock split in the form of a
dividend declared September 30, 1994, paid October 28, 1994.
Note 2 - Change in Accounting Principal - Income Taxes
On February 10, 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 109, entitled
Accounting for Income Taxes. This statement supersedes SFAS 96 and changes the
criteria for recognition and measurement of deferred tax assets and various
other requirements of SFAS 96 and reduces its complexity. Under SFAS 109
deferred tax liabilities are recognized on all taxable temporary differences,
and deferred tax assets are recognized on all deductible temporary differences,
operating loss and tax credit carry-forwards. Valuation allowances are
recognized to reduce deferred tax assets if it is determined to be "more likely
than not" that all or some portion of the potential deferred tax assets will
not be realized. Other significant changes made by SFAS 109 include: (1) the
comprehensive scheduling of temporary differences required by SFAS 96 will not
be required; (2) a deferred tax asset may be recognized for the financial
statement general valuation allowance for loans and real estate owned, while a
deferred tax liability must be recognized for that portion of the tax bad debt
reserve exceeding the "base year" reserves; (3) tax-planning strategies must be
prudent and feasible, and; (4) tax benefits recognized as a result of all tax
planning strategies should be net of any expenses or losses.
The cumulative effect to July 1, 1993 of adopting SFAS 109, which resulted
in a cumulative tax benefit of $220,000 to the Corporation, has been shown as a
separate item in the accompanying statement of operations for the fiscal year
ended June 30, 1994. The adoption of this accounting method did not have a
material impact on income tax expense and net income before the cumulative
effect of adopting SFAS 109 for 1994 over the amount that would have been
recorded under SFAS 96.
Temporary difference between the financial statement carrying amounts and
the tax basis of assets and liabilities that give rise to significant portions
of deferred tax liability at March 31, 1995 relate to the following:
<TABLE>
<CAPTION>
03/31/95
---------
<S> <C>
Deferred tax assets:
Book allowance for loan losses in excess of tax $ 388,858
Gain on sale of building 235,385
</TABLE>
8
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1995
<TABLE>
<CAPTION>
03/31/95
----------
<S> <C>
Deferred Compensation $ 118,226
California Franchise Tax 103,084
Other 5,032
----------
Deferred tax assets 850,585
Less valuation allowance 0
----------
Net Deferred Tax Assets 850,585
Deferred tax liabilities:
Loan fees deferred for tax purposes 1,027,990
FHLB dividends 243,726
Tax depreciation in excess of book 164,294
Other 65,752
----------
Net Deferred Tax Liabilities 1,501,762
Net deferred taxes $ 651,177
==========
</TABLE>
The following is a summary of deferred taxes under SFAS 109:
<TABLE>
<CAPTION>
Deferred Valuation Deferred Net
Tax Asset Allowance Tax Liability Total
---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Balance at March 31, 1995 $ 850,585 - $1,501,762 $ 651,177
</TABLE>
Note 3 - Capital
In accordance with Statement of Financial Accounting Standard (SFAS) 115,
which the Bank adopted on June 30, 1994, securities classified as available-
for-sale are carried at fair market value with the unrealized gain or
loss recorded in equity. The net unrealized loss at March 31, 1995
approximately was $93 thousand compared to an unrealized loss of approxi-
mately $4 thousand at June 30, 1994.
9
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
Financial Condition
- - - - - - -------------------
After over one year of generally rising interest rates in which we have
seen rates at certain points on the yield curve rise by as much as 350 basis
points, during the quarter ended March 31, 1995 we experienced a significant
decline in interest rates with maturities ranging from six months and beyond.
On February 2, 1995 the Federal Reserve Bank Board (FRB) increased the Federal
funds rate once again. The FRB's increase of 50 basis points in the Federal
funds rate, from 5.50% to 6.00%, marked the seventh increase during the past
year. This move by the FRB combined with more economic data supporting an
apparent slowing in the economy, led to the market decline in interest rates
with maturities beyond six months. For example, while the rate on the one year
treasury had increased from 3.35% at its low point in October of 1993 to 7.17%
at its peak in December of 1994, an increase of 3.82%, during the quarter ended
March 31, 1995 this same rate declined to 6.48%.
Despite the welcome relief in terms of generally lower interest rates, the
impact of this positive event in the financial markets is not readily apparent
in the operating results of the quarter ended March 31, 1995, and as with all
rate changes in such a large portfolio of financial assets and liabilities,
will take time to work through the portfolios. The lingering effects of a year
of rising interest rates continued to present Northbay Savings Bank F.S.B. (the
"Bank") with the challenge of maintaining a high level of net interest rate
spread. During the six months ended December 31, 1994, we witnessed both a
period of rising rates and a flattening of the yield curve. That is, the rates
on shorter-term maturities were rising more rapidly than rates on longer
maturity instruments. For example, while the rate on the one-year treasury note
increased from 3.35% at October 15, 1993 to 7.17% at December 31, 1994, an
increase of 3.82%, the corresponding rate on the 30-year treasury increased
much less, rising from 5.80% at October 15, 1993 to 7.85% at December 31, 1994.
During a period of a flattening yield curve in which short-term rates are
rising more rapidly than long-term rates, such as we experienced, the Bank will
feel the negative effect of a shrinking net interest rate spread. The Bank
will suffer a negative impact as a result of the continued increase in interest
rates on its shorter-term retail deposits and borrowings that cannot be matched
by the adjustment taking place on the adjustable rate loan portfolio.
The Bank should now begin to benefit during a period of level to falling
interest rates. While the Bank's large portfolio of adjustable rate loans
indexed to the 11th District Cost of Funds (COFI) continues to reprice upward
due to the lagging nature of the index, the Bank's cost of funding these assets
with short term-liabilities should diminish. Despite erosion of the net
interest margin from 3.04% for the quarter ended December 31, 1994 to 2.45% for
the quarter ended March 31, 1995, it is significant to note that the margin hit
a low of 2.45% in January and has since stabilized at approximately that same
rate. This stabilization in the net interest margin follows a period in which
the margin had been eroding continually for the previous seven quarters from a
peak of 5.05% for the quarter ended March 31, 1993 to a low of 2.45% for the
quarter ended March 31, 1995.
The Bank continued to focus on strategies designed to address the issues
brought about as a result of this rising interest rate environment. First, with
the dramatic rise in interest rates, and the corresponding decline in demand
for home refinancing with low rate fixed rate loans, the Bank concentrated its
efforts at reducing operating expense associated with the subdued demand for
home financing. The Bank's efforts at controlling operating expenses are
evident in a decline in operating expense to average assets from 2.82% for the
nine-months ended March 31, 1994 to 2.37% for the similar nine month period in
1995. Second, after initially aggressively pricing its residential adjustable
rate loans and increasing its loan portfolio by $17.7 million in the quarter
ended September 30, 1994, the Bank has now chosen to price that adjustable rate
product more conservatively, electing to focus on product profitability as
opposed to increasing market share. Third, the Bank continued to follow a
strategy aimed at protecting its interest margins, choosing not to pursue
growth through aggressive pricing of its core retail deposits, electing instead
to fund loan growth with short-term advances from the Federal
10
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
Home Loan Bank of San Francisco (FHLB). Asset growth of approximately $27
million, was funded with growth in retail savings of $6.6 million and growth in
FHLB advances of $21 million. While these two strategies have allowed the Bank
to preserve a low rate cost of retail funds, at the same time, leveraging both
capital and operating expense, the increased volume of lower earning adjustable
rate loans continued to dilute the Bank's net interest margin. The Bank's net
interest rate spread continued to narrow as the yields on the adjustable rate
loan portfolio failed to keep pace with the rising cost of retail and wholesale
funds.
On August 31, 1993, the Office of Thrift Supervision (OTS) published a
final regulation incorporating an interest rate risk component in the
risk-based capital rules. The rule took effect January 1, 1994 and will require
savings institutions with more than a "normal" level of interest rate risk to
maintain additional total capital. A savings institution's interest rate risk
will be measured in terms of the sensitivity of its "net portfolio value" to
changes in interest rates. Net portfolio value is defined, generally, as the
present value of expected cash inflows from existing assets and
off-balance-sheet contracts less the present value of expected cash outflows
from existing liabilities. A savings association will be considered to have a
"normal" level of interest rate risk if the decline in the market value of its
portfolio equity after an immediate 200 basis point increase or decrease in
market interest rates (whichever leads to the greater decline) is less than two
percent of the current estimated market value of its assets. A savings
institution with a greater than normal interest rate risk will be required to
deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the interest rate risk component "IRR") equal to
one-half the difference between the institution's measured interest rate risk
and the normal level of interest rate risk, multiplied by the economic value of
its total assets.
The OTS will calculate the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule
included in its quarterly Thrift Financial Report and utilize the interest rate
risk measurement model adopted by the OTS. The amount of the IRR, if any, is
to be deducted from a savings institution's risk-based capital. The IRR is to
be computed quarterly, and the capital requirement for the IRR will have an
effective lag of two calendar quarters. The first quarter to be measured has
once again been postponed indefinitely until questions regarding a review
procedure for institutions challenging the results of the OTS model has been
resolved. Based on the Bank's current level of adjustable rate, shorter-term
assets and regulatory capital, management does not expect the Bank's IRR to
have a material effect on the Bank's regulatory capital level or its compliance
with regulatory capital requirements.
The Bank exceeds all of the regulatory capital standards at March 31,
1995, with ratios of core, tangible, and risk-based capital to assets of 8.80%,
8.78% and 14.98%, respectively. Components of the Bank's regulatory capital at
March 31, 1995 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Tangible % of Core % of Risk- % of
(Unaudited) Capital Adjusted Capital Adjusted based Risk-Based
Assets Assets Capital Assets
- - - - - - --------------------------- -------- -------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Common Stock $ 274 .07 $ 274 .07 $ 274 .11
Additional Paid-in Capital 20,812 5.32 20,812 5.32 20,812 8.53
Retained Earnings 13,604 3.47 13,604 3.47 13,604 5.57
ESOP Loan (200) (.05) (200) (.05) (200) (.08)
General Loan Loss Reserves - - - - 2,114 .87
Unrealized Loss Certain
Available-For-Sale Securities (40) (.01) (40) (.01) (40) (.02)
Intangible Deposit Premium (79) (.02) - - - -
Total 34,371 8.78 34,450 8.80 36,564 14.98
Minimum Capital Required 5,872 1.50 11,746 3.00 19,530 8.00
Excess Regulatory Capital $28,499 7.28 $22,704 5.80 $17,034 6.98
</TABLE>
11
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
The Bank's assessment for deposit insurance premiums (expressed in terms of
percentage of total savings accounts) is 23 basis points. The minimum rate may
be decreased to not less than 18 basis points for the period of January 1, 1994
through December 31, 1997 and declining further to 15 basis points thereafter.
However, the Federal Deposit Insurance Corporation (FDIC) may increase the
assessment rate to 32.5 basis points after December 31, 1994, if certain
reserve fund ratios are not met. Although the FDIC insures both commercial
banks as well as savings and loans, the reserve funds have been segregated to
the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF). The FDIC's latest numbers on the Bank Insurance Fund's balance are
leading experts to forecast the fund could be recapitalized as early as
mid-1995, at which point the premium on banks' FDIC insurance premiums could be
reduced substantially. On the other hand, the SAIF, of which the Bank is a
member, is not expected to achieve regulatory capitalization until at least
2002. Without a merger of the two funds, a disparity of insurance premiums
could lead to a competitive disadvantage for the thrift industry.
Effective January 1, 1993, a transitional risk-based methodology for
determining FDIC insurance premiums was implemented. Under the transitional
risk-based system, the assessment rate for an insured depository institution
depends on the assessment risk classification assigned to the institution by
the FDIC based upon the institution's level of capitalization and the FDIC's
judgement of the risk posed by the institution. Each institution is assigned
to one of three groups, ("well-capitalized", "adequately- capitalized" or
"under-capitalized") based on its capital ratios. A well-capitalized
institution is one that has at least a 10% total risk-based capital ratio, and
a 6% core capital to risk-based assets. An adequately-capitalized institution
is one that has an 8% total risk-based capital ratio, a 4% core capital to
risk-based assets ratio and a 4% leveraged capital ratio. An under-capitalized
institution is one that does not meet either of the above definitions. The
FDIC also assigns each institution to one of three subgroups based upon review
by the institution's primary federal or state supervisory agency, statistical
analysis of financial statements and other information relevant to gauging the
risk posed by the institution. The assessment for well-capitalized,
institutions is 3 basis points less than the average assessment rate for
insured depository institutions. Adequately-capitalized institutions that do
not present supervisory concern pay the average assessment rate. All other
institutions pay an assessment rate for insured deposit institutions ranging
from 23 basis points to 31 basis points.
The Bank's nonperforming assets (loans 90 days or more delinquent,
nonperforming loans, and foreclosed real estate) were $4.77 million or 1.22% of
assets at March 31, 1995, compared to $3.1 million to .80% at December 31, 1994
and $4.5 million or 1.23% at June 30, 1994. The increase in nonperforming
assets during the quarter ended March 31, 1995 can be attributed primarily to
three loans to a single borrower consisting of two single family dwelling
units totaling $460 thousand and one land development loan including a low
income single dwelling unit totaling $938 thousand. Although the Bank's market
area of Northern California did not experience the deepness of a recession that
was ,in fact, realized in Southern California, Northern California definitely
followed the pattern of the sluggish California economy over the past couple of
years. As the California economy is now recovering, the Bank's market areas too
have shown marked improvement in terms of growth and lower unemployment over
the past six months. As of March 31, 1995, the unemployment numbers of Sonoma
County, the Bank's primary market, stood at approximately 5.4% which mirrored
that of the nation as a whole.
In addition to the three loans mentioned above, the remaining balance of
nonperforming assets at March 31, 1995 is split between loans delinquent 90
days or more of approximately $2.1 million and real estate acquired as a result
of foreclosure of approximately $1.3 million. Nonperforming loans can be
further broken into three categories. First, included within nonperforming
loans are five nonmortgage commercial loans totaling $376 thousand upon which
specific reserves of $146 thousand have been recorded. Second, are two
commercial real estate loan totaling $332 thousand. Third, and finally are
eight loans secured by single family residential properties which in aggregate
12
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
total $1.34 million. Real estate acquired through foreclosure consists, of
seven single family residential units valued at $1.3 million. The Bank has
recognized write downs of approximately $287 thousand to record these
properties at an estimate of fair market value less selling costs. The Bank is
in the process of resolving these problem assets and does not anticipate
material losses will be incurred in the resolution of these assets. Several
factors within the Bank's loan portfolio contributed to the provision of $60
thousand to the loan loss reserve for the quarter ended March 31, 1995. Lack of
growth in the Bank's loan portfolio combined with a shrinking volume of more
risk-oriented loans such as construction and commercial, were offset somewhat
by the growth of nonperforming assets and assets with an adverse internal
classification in determining the Bank's provision for loan losses. That
reserve now stands at approximately $2.26 million or 48% of the total
nonperforming assets. This compares to a peer group average of reserves to
troubled assets of all west coast savings and loans at December 31, 1994 of
52%. Further, the Bank's current ratio of nonperforming assets to total assets
of 1.22% compares to a percentage of 1.73% as of December 31, 1994, for the
same peer group of institutions referred to above. The Bank continues to
monitor and evaluate its loan and real estate portfolios and provide loss
reserves as considered necessary. In the opinion of management, loss reserves
at March 31, 1995, were adequate to cover potential losses.
Results of Operations
- - - - - - ---------------------
The Bank's net income for the three-months ended March 31, 1995, was $309
thousand, a decrease of $315 thousand, or 50% below net income of $624 thousand
for the similar period in 1994. Net income for the nine-months ended March 31,
1995 was $1.64 million, a decrease of $710 thousand compared to the similar
nine-month period ended March 31, 1994 before a cumulative effect of adopting a
change in accounting for income taxes.
Net interest income before provision for loan losses was $2.56 million and
$9.01 million for the three- and nine-month periods ended March 31, 1995,
compared to $3.35 million and $10.23 million for the similar periods ended
March 31, 1994, representing decreases of 23% and 12% respectively. Despite
growth in the volume of interest earning assets and liabilities, a decrease in
the interest rate spread earned on those assets and liabilities led to
decreases in net interest income for the three- and nine-months ended March 31,
1995. Average interest-earning assets for the three- and nine-month periods
ended March 31, 1995, increased by $62 million and $64 million respectively,
compared with the similar periods in 1994, while average interest-bearing
liabilities increased by $61 million and $60 million over the similar periods
in 1994. During both the three- and nine-month periods ended March 31, 1995,
the Bank witnessed a flattening of the yield curve (the differential between
short-term rates and longer-term rates narrowed as a result of further
increases in shorter-term rates without corresponding increases in longer-term
rates). While the offering rate on 30 year fixed-rate loans increased from
8.375% at March 31, 1994 to 8.75% at March 31, 1995, an increase of 37.5 basis
points, the rate earned on overnight Federal funds sold rose from 3.75% at
March 31, 1994 to 6.00% at March 31, 1995, an increase of 225 basis points.
The Bank's inability to match the upward repricing which occurred in its retail
savings liabilities and short-term FHLB advances with similar increases in its
loan and investment portfolios, resulted in a reduced interest rate spread. The
Bank's interest rate spread declined from 4.07% and 4.20% for the three- and
nine-month periods ended March 31, 1994 to 2.45% and 2.99% for the respective
periods in 1995. The average rate earned on interest-earning assets declined
from 7.15% and 7.40% for the three- and nine-month periods ended March 31, 1994
to 6.88% and 6.90% the three- and nine-months ended March 31, 1995. The
average interest rate on average interest-bearing liabilities on the other hand
increased from 3.08% and 3.20% for the three and nine-month periods ended March
31, 1994, to 4.43% and 3.90% for the similar periods in 1995.
The decline in yield on interest-earning assets can be attributed in large
part to the Bank's large portfolio of adjustable rate loans indexed to the
Federal Home Loan Bank's 11th District COFI. At March 31, 1995, approximately
$276 million, or 78% of the Bank's entire loan portfolio consisted of
adjustable rate loans indexed to the COFI. After two
13
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
years of steady inflation expectations, the fifteen-month period ended December
31, 1994, is a period in which a clear shift in interest rate cycles took
place. At early signals of inflation, the FRB took swift action, acting on six
different occasions raising the Federal funds rate, increasing that rate from
3.00% at September 30, 1993, to 5.50% at December 31, 1994. While other
"current" indices such as the one-year Constant Maturity Treasury (CMT)
increased from 3.35% at September 30, 1993, to 7.17% at December 31, 1994, the
COFI increased only marginally from 3.82% to 4.37%. The quarter-ended March 31,
1995 is significant because this cycle of inflationary fears and rising rates
was broken. Despite a seventh increase by the FRB in the Federal Funds rate to
6.0%, interest rates in general declined rather sharply. The yield on the
thirty-year treasury bond fell from 7.85% at December 31, 1994 to 7.46% at
March 31, 1995. During this same period of time the yield on the one-year
treasury declined even more sharply, from 7.18% to 6.48%. This decline in
current treasury rates combined with a continued increase in COFI from 4.37% at
December 31, 1994 to 4.925% at March 31, 1995, provides a much more promising
outlook for the Bank's portfolio of COFI indexed loans.
Despite this rather positive turn of events in interest rates during the
quarter ended March 31, 1995, due to the average reset of six months on the
Banks portfolio of COFI indexed loans, tangible results of these changes will
not begin appearing in the Bank's net interest margin for several months.
Further enforcing the Bank's optimism regarding the future widening of its net
interest margin is the fact that the majority of the Bank's adjustable rate
loans are indexed to the COFI, an index which trails more current indices,
these loans will continue to gradually reprice upward even after other indices
remain static as we have seen in the quarter ended March 31, 1995. The Bank has
elected to hold a large volume of its financial assets in products indexed to
the COFI because management believes this is an index that can be most closely
matched with the Bank's own cost of liabilities. While this index has clearly
benefitted the Bank by declining slowly during the past few years of generally
declining interest rates, the Bank recognizes there is an opportunity cost in
terms of lost cash flows during periods of rising interest rates, associated
with financial assets tied to a lagging index such as the 11th District COFI.
A significant event affecting both the Bank's current and future yield on
interest-earning assets has been the dramatic increase in competition in the
arena of mortgage loan financing. This general environment of increased
competition has led to both lower mortgage rates and lower loan fees charged to
the consumer to originate the loan. These loan origination fees are normally
deferred at the time of origination and amortized as a yield adjustment over
the life of the associated loans. The level of fees recognized into income as a
yield adjustment decreased approximately 11% from $1.08 million for the
nine-months ended March 31, 1994 to $.96 million for the same period in 1995.
As competition has dictated a lower loan origination fee to be passed on to the
consumer, future interest income will be adversely affected as this source of
yield adjustment continues to diminish.
The Bank's provision for loan losses for the three- and nine-months ended
March 31, 1995 was $60 thousand and $282 thousand, compared with $200 thousand
and $555 thousand for the similar three- and nine-month periods ended March 31,
1994. These decreases in the loan loss provision for the three- and nine-month
periods ended March 31, 1995 were based upon a decline in the volume of problem
assets during both the quarter and the nine months ended March 31, 1995
compared to the similar three- and nine-month periods in 1994. Contributing
further to the decline in provision for loan losses in 1995 compared to 1994,
was a decline in the portfolio of more risk-oriented construction and
commercial, and concentration of loans to a single borrower. The Bank believes
that the balance of general loan loss reserves is adequate to cover its risk
exposure.
Noninterest income for the three- and nine-month periods ended March 31,
1995, was $242 thousand and $775 thousand compared with $177 thousand and $1.06
million for the similar periods in 1994. The largest component of noninterest
income, service charges on loans and retail savings accounts, increased
modestly, from $167 thousand and $544 thousand, for the three- and nine-months
ended March 31, 1994 compared to $167 thousand and $568 thousand for the
similar three- and nine-month periods in 1995. These increases in service
charges
14
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
related income of 9% and 4%, are in line with the increases in volumes of loans
and retail savings accounts being serviced. Four other components of
noninterest income did show more significant variances between the three- and
nine-months ended March 31, 1995 compared to the similar three- and nine-month
periods in 1994.
First, with the sharp increase in interest rates that has occurred over
the past five quarters, and the corresponding decline in consumer demand for
fixed-rate loans, the Bank's ability to generate and sell such long-term
fixed-rate loans in the secondary market has been eliminated. As a result, the
Bank completed no sales of such loans into the secondary markets during the
three- and nine-months ended March 31, 1995, compared to sales of approximately
$7.2 million and $23.2 million with a corresponding loss of $189 thousand and a
gain of $161 thousand during the three- and nine-month periods ended March 31,
1994.
Second, during the three- and nine-month periods ended March 31, 1994, the
Bank took advantage of the strong prices in the equity markets, electing to
realize a gain in the price of stock held for sale in the Federal Home Loan
Mortgage Corporation (FHLMC). During the quarter ended September 30, 1993, the
Bank sold 2,000 shares of FHLMC stock at a price of $54.125, thus recognizing a
gain of $100 thousand. During the quarter ended March 31, 1994, the Bank sold
6,000 shares recognizing a gain of $303 thousand. The Bank similarly sold
approximately 2,300 shares of FHLMC stock recognizing a gain of $117 thousand
in the quarter ended December 31, 1994, however no such securities sales were
carried out during the quarter ended March 31, 1995.
Third, despite similar loss provisions recorded on real estate acquired in
settlement of loans of $131 thousand during the nine months ended March 31,
1994, compared to $99 thousand of such provisions during the nine months ended
March 31, 1995, the timing of recognition of such losses varies between
quarters in 1994 and 1995. The entire loss of $131 thousand recorded in 1994
related to the deterioration in the market value of a single loan on raw land
to be developed for the construction of single family dwelling units, which was
recognized in the quarter ended March 31, 1994. During the quarter ended
March 31, 1995, the Bank recorded a loss of $21 thousand, which related to the
disposal of a single 1-4 family dwelling structure.
Fourth, and finally the increase in other income of $45 thousand for the
nine months ended March 31, 1995 compared to the similar nine month period in
1994 was concentrated in the quarter ended March 31, 1995. The majority of
increased income is the result of increased sales of alternative investment
products such as mutual funds, equities and annuities, combined with an
enhanced contract relating distribution of the Bank's official check product.
Noninterest expense for the three month period ended March 31, 1995, was
relatively static decreasing from $2.32 million or 2.83% of average assets for
the quarter ended March 31, 1994 to $2.28 million or 2.34% of average assets
for the similar quarter in 1995. Noninterest expense for the nine-month period
ended March 31, 1995 increased from $6.82 million or 2.82% of average assets
for the quarter ended March 31, 1994 to $6.88 million and 2.34% of average
assets during the similar period in 1995. The relatively small increase in
noninterest expense is the result of a general trend in reducing operating
expenses combined with the additional expense of operating a new full service
savings branch office. The nine month period ended March 31, 1995 reflects a
complete period of ongoing operations of a branch opened in February of 1994 in
downtown Santa Rosa. Compensation and employee benefits, the largest component
of noninterest expense, decreased to $1.08 million for the three-month period
ended March 31, 1995 from $1.11 million during the similar quarter in 1994,
remaining unchanged at $3.2 million for the comparable nine-month periods in
1995 and 1994. Increases in compensation and other employee benefits, as well
as an increase in staff to bring a new full service retail branch office
on-line in downtown Santa Rosa, were offset in part by limiting staff increases
in other areas of the organization and in some areas achieving staff reductions
without a reduction to the Bank's commitment to customer service.
15
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
Occupancy expense, which decreased from $304 thousand for the three months
ended March 31, 1994 and increased from $873 thousand for nine-months ended
March 31, 1994 to $301 thousand and $908 thousand for the similar periods in
1995, can be attributed to the addition of two new facilities in Santa Rosa,
California. The new facilities, both leased, include a new full-service retail
savings branch and the consolidation of several loan origination functions to a
central facility opened in November of 1993 in Santa Rosa, California.
Data processing expense increased by $9 thousand or 6.3% and $32 thousand
or 7.8% over the three- and nine-month periods ended March 31, 1995 when
compared to the similar periods in 1994. The increases can be attributed to an
increase in the volume of data being processed, as well as scheduled increases
in the cost of data services provided by an independent service bureau.
Although the Bank's advertising and related supplies increased marginally
during the quarter ended March 31, 1995 from $147 thousand to $155 thousand,
the totals for the nine month period ended March 31, 1995 ,which indicate a
decline of $92 thousand, are more reflective of the Bank's efforts throughout
the year to be more selective in targeting its advertising efforts.
The growth in average retail savings deposits of approximately 5.4%
combined with the lagging measurement period for which the assessment is based
contributed to the increase in FDIC insurance premium from $436 thousand for
the nine months ended March 31, 1994, to $464 thousand for the similar period
in 1995.
Other noninterest expense remained fairly static increasing from $1.24
million for the nine months ended March 31, 1994, to $1.25 million for the
similar period ended March 31, 1995, an increase of approximately 1%.
Increases which occurred primarily in the quarter ended March 31, 1995 in
consulting fees were offset by a decline in legal fees as well as other
liability insurance premiums in previous quarters.
Income taxes
- - - - - - ------------
On February 10, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 109, entitled Accounting for
Income Taxes. This statement supersedes SFAS 96 to change the criteria for
recognition and measurement of deferred tax assets and various other
requirements of SFAS 96 and reduce its complexity. Under SFAS 109 deferred tax
liabilities are recognized on all taxable temporary differences, and deferred
tax assets are recognized on all deductible temporary differences, operating
loss and tax credit carry-forwards. Valuation allowances are recognized to
reduce deferred tax assets if it is determined to be "more likely than not"
that all or some portion of the potential deferred tax assets will not be
realized. Other significant changes made by SFAS 109 include: (1) the
comprehensive scheduling of temporary differences required by SFAS 96 will not
be required; (2) a deferred tax asset may be recognized for the financial
statement general valuation allowance for loans and real estate owned, while a
deferred tax liability must be recognized for the portion of the tax bad debt
reserve exceeding the "base year" reserves; (3) tax-planning strategies must be
prudent and feasible, and (4) tax benefits recognized as a result of all tax
planning strategies should be net of any expenses or losses.
The cumulative effect to July 1, 1993 of adopting SFAS 109, which resulted
in a cumulative tax benefit of $220,000 to the Corporation, has been shown as a
separate item in the accompanying statement of operations for the nine months
ended March 31, 1994. The adoption of this accounting method did not have a
material impact on income tax expense and net income before the cumulative
effect of adopting SFAS109 for 1994 over the amount that would have been
recorded under SFAS 96.
The Bank provided $155 thousand and $980 thousand for income taxes for the
three- and nine-months ended March 31, 1995, compared to $392 thousand and
$1.56 million for the
16
<PAGE>
NORTHBAY FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1995
similar three- and nine-months ended March 31, 1994. The effective tax rate
decreased from 38.6% and 39.9% for the three- and nine-months ended March 31,
1994 to 33.4% and 37.4% for the similar three- and nine-month periods ended
March 31, 1995. The decreases in 1995 can be attributed in part to an increase
in investments in low income housing tax credits which became effective in the
quarter ended September 30, 1994. Further benefits can be attributed to the tax
credits that existed previously in relation to a smaller pre-taxable income
base.
Liquidity and Capital Resources
- - - - - - -------------------------------
Under current Office of Thrift Supervision regulations, the Bank is
required to maintain liquid assets of 5% or more of its net withdrawable
deposits plus short-term borrowing. The Bank has at all times maintained
liquidity levels above those required by regulation. At March 31, 1995, the
Bank's liquidity ratio was 6.85%.
The principal sources of liquidity are deposit accounts, short-term
borrowings, advances from the FHLB of San Francisco, principal and interest
payments on loans, proceeds from the sale of loans and mortgage-backed
securities, and interest and dividends on investments. The Bank uses its
capital resources principally to fund real estate and consumer loans, repay
maturing borrowings, fund maturing savings certificates and to provide for
maintenance of its liquidity. The Bank considers its liquidity and capital
resources to be adequate to meet its foreseeable needs.
Impact of New Accounting Standards
- - - - - - ----------------------------------
Accounting for Impaired Loans.
In June 1993, the Financial Accounting Standards Board (FASB) issued FAS
114, "Accounting by Creditors for Impairment of a Loan." FAS 114 requires that
expected loss of interest income on non-performing loans be taken into account
when calculating loan loss reserves. FAS 114 requires that specified impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate. FAS 114 does not apply to
large groups of small balance, homogenous loans that are collectively evaluated
for impairment. FAS 114 is effective for years beginning after December 15,
1994 and is not expected to have a material effect on the Bank's financial
condition or results of operation.
17
<PAGE>
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
---------------------------------------------------
Previously reported in the Corporations Form 10 Q
for the period ended March 31, 1995.
Item 5. Other Information
-----------------
On March 23, 1995, Northbay Financial Corporation announced
that its Board of Directors has declared a cash dividend of
$0.11 per share, payable to stockholders of record on April 5, 1995,
to be paid April 19, 1995.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The Bank did not file a report 8-K Form during the three months
ended March 31, 1995.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
NORTHBAY FINANCIAL CORPORATION
Registrant
DATE: May 10, 1995
BY: (s)
----------------------------------------------
Alfred A. Alys
President and Chief Executive Officer
DATE: May 10, 1995
BY: (s)
----------------------------------------------
Gregory L. Jahn
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER
ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> MAR-31-1995
<CASH> 7,941
<INT-BEARING-DEPOSITS> 1,174
<FED-FUNDS-SOLD> 900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,155
<INVESTMENTS-CARRYING> 15,773
<INVESTMENTS-MARKET> 15,414
<LOANS> 349,089
<ALLOWANCE> 2,265
<TOTAL-ASSETS> 391,479
<DEPOSITS> 283,502
<SHORT-TERM> 68,751
<LIABILITIES-OTHER> 4,801
<LONG-TERM> 0
<COMMON> 274
0
0
<OTHER-SE> 34,444
<TOTAL-LIABILITIES-AND-EQUITY> 391,479
<INTEREST-LOAN> 17,993
<INTEREST-INVEST> 1,302
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 19,235
<INTEREST-DEPOSIT> 7,280
<INTEREST-EXPENSE> 10,225
<INTEREST-INCOME-NET> 9,010
<LOAN-LOSSES> 282
<SECURITIES-GAINS> 117
<EXPENSE-OTHER> 6,880
<INCOME-PRETAX> 2,623
<INCOME-PRE-EXTRAORDINARY> 2,623
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,643
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 3.23
<LOANS-NON> 3,446
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,067
<CHARGE-OFFS> 104
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 2,265
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</TABLE>
