<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended March 31, 1999
-----------------------------------------
Commission File Number: 0-28496
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Community Financial Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1626938
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(State or other jurisdiction (I.R.S Employer Identification No.)
of incorporation or organization)
401 Church Street, Nashville, Tennessee 37219-2213
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(Address of principal executive offices) (Zip Code)
(615) 271-2000 (Registrant's telephone number, including area code)
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Check 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 past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common shares outstanding 4,145,846 as of April 30, 1999.
<PAGE> 2
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
- - Consolidated Balance Sheets - March 31, 1999 and December 31, 1998................... 1
- - Consolidated Statement of Shareholders' Equity and Other
Comprehensive Income - Three Months
Ended March 31, 1998 and 1999....................................................... 2
- - Consolidated Statements of Income - Three Months Ended
March 31, 1999 and 1998.............................................................. 3
- - Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1999 and 1998......................................... 4 - 5
- - Notes to Consolidated Financial Statements - March 31, 1999.......................... 6 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 10 - 16
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 17 - 19
</TABLE>
<PAGE> 3
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Cash and due from banks $ 11,471 $ 13,243
Securities available for sale (amortized cost $74,136 in 1999 and $71,113 in 1998) 74,524 71,662
Loans (net of unearned income of $384 in 1999 and $295 in 1998):
Commercial 57,959 51,970
Real estate - mortgage loans 84,252 79,455
Real estate - construction loans 14,168 14,667
Consumer 5,798 6,583
-------- --------
Loans, net of unearned income 162,177 152,675
Less allowance for loan losses (3,609) (3,646)
-------- --------
Total Net Loans 158,568 149,029
-------- --------
Premises and equipment, net 3,147 2,726
Accrued interest and other assets 1,718 1,525
-------- --------
Total Assets $249,428 $238,185
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits $ 17,539 $ 17,980
Interest-bearing deposits:
NOW accounts 13,572 13,368
Money market accounts 85,926 71,263
Time certificates less than $100,000 25,398 27,757
Time certificates $100,000 and greater 29,978 32,185
-------- --------
Total Deposits 172,413 162,553
-------- --------
Federal Home Loan Bank borrowings 14,500 14,500
Federal funds purchased 9,000 8,000
Accounts payable and accrued liabilities 2,033 1,961
-------- --------
Total Liabilities 197,946 187,014
-------- --------
Commitments and contingencies (Note G) - -
Shareholders' equity:
Common stock, $6 par value; authorized 50,000,000 shares; issued and
outstanding shares, 4,209,436 in 1999 and 4,216,531 in 1998 25,256 25,299
Additional paid-in capital 19,716 19,773
Retained earnings 6,269 5,759
Accumulated other comprehensive income 241 340
-------- --------
Total Shareholders' Equity 51,482 51,171
-------- --------
Total Liabilities and Shareholders' Equity $249,428 $238,185
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND OTHER
COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
-------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 13,275 $ 6,736 $ 3,747 $ 294 $ 24,052
Comprehensive income:
Net income -- -- 640 --
Change in unrealized gain on securities
available for sale -- -- -- 2
Total comprehensive income -- -- -- -- 642
Issuance of common stock - (2,643 shares) 15 19 -- -- 34
Cash dividends - $.06 per share -- -- (132) -- (132)
-------- -------- ------- ----- --------
Balance, March 31, 1998 $ 13,290 $ 6,755 $ 4,255 $ 296 $ 24,596
======== ======== ======= ===== ========
Balance, January 1, 1999 $ 25,299 $ 19,773 $ 5,759 $ 340 $ 51,171
Comprehensive income:
Net income -- -- 805 --
Change in unrealized gain on securities
available for sale -- -- -- (99)
Total comprehensive income -- -- -- -- 706
Issuance of common stock - (2,905 shares) 17 12 -- -- 29
Repurchase of common stock (10,000 shares) (60) (69) -- -- (129)
Cash dividends - $.07 per share -- -- (295) -- (295)
-------- -------- ------- ----- --------
Balance, March 31, 1999 $ 25,256 $ 19,716 $ 6,269 $ 241 $ 51,482
======== ======== ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,251 $ 2,886
Interest on federal funds sold 119 77
Interest on balances in banks 11 2
Interest on securities:
U.S. Treasury securities -- 32
Other U.S. government agency obligations 957 1,011
States and political subdivisions 16 10
Other securities 38 28
---------- ----------
Total interest income 4,392 4,046
---------- ----------
Interest expense:
Interest bearing demand deposits 933 897
Savings and time deposits less than $100,000 346 482
Time deposits $100,000 and over 391 430
Interest on Federal Home Loan Bank borrowings 175 206
Federal funds purchased 11 3
---------- ----------
Total interest expense 1,856 2,018
---------- ----------
Net interest income 2,536 2,028
Provision for loan losses 45 39
---------- ----------
Net interest income after provision for loan losses 2,491 1,989
Non-interest income:
Service fee income 205 125
Trust income 12 40
Investment Center income 321 26
Gain on sale of foreclosed assets -- 17
Other 83 88
---------- ----------
Total non-interest income 621 296
---------- ----------
Non-interest expense:
Salaries and employee benefits 1,017 653
Occupancy expense 276 186
Audit, tax and accounting 64 47
Data processing expense 45 44
Other operating expenses 434 315
---------- ----------
Total non-interest expense 1,836 1,245
---------- ----------
Income before income taxes 1,276 1,040
Provision for income taxes 471 400
---------- ----------
Net income $ 805 $ 640
========== ==========
Net income per share
Basic $ .19 $ .29
========== ==========
Diluted $ .19 $ .22
========== ==========
Weighted average common shares outstanding
Basic 4,217,795 2,213,868
========== ==========
Diluted 4,296,416 2,866,809
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 4,324 $ 3,924
Fees received 621 296
Interest paid (2,037) (2,501)
Cash paid to suppliers and associates (2,035) (1,108)
-------- --------
Net cash provided by operating activities 873 611
-------- --------
Cash flows from investing activities:
Maturities of securities available for sale 35,245 6,464
Sales of securities available for sale 330 --
Purchases of securities available for sale (38,568) (4,006)
Loans (originated) repaid by customers, net (9,584) (3,483)
Capital expenditures (533) (27)
-------- --------
Net cash used by investing activities (13,110) (1,052)
-------- --------
Cash flows from financing activities:
Net increase demand deposits, NOW, money market accounts 14,426 6,815
Net increase (decrease) in certificates of deposit (4,566) (4,857)
Proceeds from issuance of common stock 29 34
Re-purchase of common stock (129) --
Dividends paid (295) (132)
-------- --------
Net cash provided by financing activities 9,465 1,860
-------- --------
Net increase (decrease) in cash and cash equivalents (2,772) 1,419
Cash and cash equivalents - beginning of period 5,243 16,591
-------- --------
Cash and cash equivalents - end of period $ 2,471 $ 18,010
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $ 805 $ 640
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 110 86
Provision for possible loan losses 45 39
Provision for deferred taxes (95) --
Gain on sale of foreclosed assets -- (17)
Stock dividend income (28) (28)
Changes in assets and liabilities:
(Increase) decrease in accrued interest and other assets (193) 119
Increase (decrease) in accounts payable and accrued liabilities 229 (228)
----- -----
Net cash provided by operating activities $ 873 $ 611
===== =====
Supplemental Disclosure:
Non Cash Transactions:
Change in unrealized gain on securities available for sale, net of tax $ (99) $ 2
===== =====
Cash paid for:
Income taxes $ 79 $ 32
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 8
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
A. HOLDING COMPANY INFORMATION AND PRINCIPLES OF CONSOLIDATION
Community Financial Group, Inc. (CFGI), a Tennessee corporation, is a
bank holding company operating according to federal bank holding
company law. Its wholly owned subsidiary is The Bank of Nashville.
The accompanying unaudited consolidated financial statements include
the accounts of CFGI and The Bank. The operations of CFGI and The Bank
are collectively referred herein as the Company. All significant
intercompany balances and transactions have been eliminated in the
accompanying consolidated financial statements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with general practices within the banking
industry and generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the
opinion of management, all adjustments consisting of normal recurring
accruals considered necessary for a fair presentation have been
included.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
The interim consolidated financial statements should be read in
conjunction with the Summary of Significant Accounting Policies and the
Notes to the Financial Statements presented in the Company's 1998
Annual Report to Shareholders. The interim consolidated statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of interim results. The results for
the interim period are not necessarily indicative of results to be
expected for the complete calendar year.
B. SECURITIES
Securities with an aggregate fair market value of $36.7 million at
March 31, 1999, were pledged to secure public deposits, Federal Home
Loan Bank borrowings and for other purposes as required or permitted by
law.
C. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for possible loan losses
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
<S> <C>
Balance, beginning of period $ 3,646
Provision charged to operations 45
Loans charged off (145)
Recoveries 63
-------
Balance, end of period $ 3,609
=======
Allowance ratios are as follows:
Balance, to loans outstanding end of period 2.23%
Net recoveries to average loans .05%
</TABLE>
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<PAGE> 9
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
D. IMPAIRED LOANS
At March 31, 1999, the Company's recorded investment in impaired loans
and the related valuation allowance was $86,000 and $5,000,
respectively. At December 31, 1998 the investment in impaired loans and
the related valuation allowance was $108,000 and $17,000, respectively.
This valuation allowance is included in the allowance for loan losses
on the consolidated balance sheet.
The average recorded investment in impaired loans for the three months
ended March 31, 1999 was $94,000.
Interest payments received on impaired loans are recorded as reductions
in principal outstanding or recoveries of principal previously charged
off. Once the entire principal has been collected any additional
payments received are recognized as interest income. No interest income
was recognized on impaired loans in the three month period ended March
31, 1999.
E. INCOME TAXES
Actual income tax expense for the three months ended March 31, 1999
differed from "expected" tax expense (computed by applying the U.S.
Federal corporate tax rate of 34% to income before income taxes) as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
<S> <C>
Computed "expected" tax expense $ 434
State tax expense, net of federal benefit 50
Other (13)
-----
Total Income Tax Expense $ 471
=====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
March 31, 1999 and December 31, 1998, are presented below (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Deferred tax assets:
Deferred fees, principally due to timing differences in
the recognition of income $ 174 $ 141
Other 5 4
----- -----
Total gross deferred tax assets 179 145
----- -----
Deferred tax liabilities:
Discount on securities deferred for tax purposes (91) (130)
Unrealized gain on securities available for sale (147) (209)
Loans, principally due to provision for loan losses (109) (126)
Other (75) (80)
----- -----
Total gross deferred tax liabilities (422) (545)
----- -----
Net deferred tax liabilities $(243) $(400)
===== =====
</TABLE>
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<PAGE> 10
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
F. SHAREHOLDERS' EQUITY
The Company had outstanding stock options totaling 182,627 and 142,627
shares at March 31, 1999 and December 31, 1998, respectively. The
following table is a reconciliation of net income and average shares
outstanding used in calculating basic and diluted earnings per share.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income available to common shareholders: $ 805,000 $ 640,000
========== ==========
Weighted average common shares outstanding basic 4,217,795 2,213,868
Dilutive effect of
Options 78,621 41,432
Warrants -- 611,509
---------- ----------
Weighted average common shares outstanding diluted 4,296,416 2,866,809
========== ==========
Antidilutive warrants -- --
========== ==========
Net income per share:
Basic $ .19 $ .29
Diluted $ .19 $ .22
</TABLE>
Accumulated other comprehensive income consists solely of the
unrealized gain or loss on securities available for sales net of the
income tax effect.
Comprehensive income for the three month periods for 1999 and 1998 are
presented in the table below:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Comprehensive Income
Net income $ 805 $640
Change in unrealized gain on securities available for sale, net of tax (99) 2
----- ----
Total Comprehensive Income $ 706 $ 642
===== ====
</TABLE>
G. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various commitments
outstanding to extend credit, such as the funding of undrawn lines of
credit or standby letters of credit, which generally accepted
accounting principles do not require to be recognized in the financial
statements. The Company, through regular reviews of these arrangements,
does not anticipate any material losses as a result of these
transactions. At March 31, 1999 and December 31, 1998, the Company had
unfunded commitments to extend credit totaling $69.4 and $58.2 million.
Additionally, the Company had standby letters of credit of $3.7 and
$4.8 million as of March 31, 1999 and December 31, 1998, respectively.
The Bank is required to maintain average balances with the Federal
Reserve Bank and in vault cash to meet its reserve requirements. The
average amount of these balances at the Federal Reserve Bank and vault
cash for the three month period ended March 31, 1999, totaled
approximately $4,508,000. The required balance at March 31, 1999 was
$4,001,000.
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<PAGE> 11
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
H. BUSINESS COMBINATIONS
In April, 1999, The Bank created a title agency through a joint venture
with Mooreland Title Company, LLC of Brentwood. This new title agency
has the ability to underwite title insurance on most real estate loan
transactions.
Community Financial Group, Inc.'s wholly owned subsidiary The Bank of
Nashville, entered into a Stock Purchase Agreement dated May 5, 1999,
to acquire 80% ownership in Machinery Leasing Company of North America,
Inc. for $1.3 million, subject to required approvals from bank
regulatory authorities. The transaction will be accounted for using the
purchase method of accounting and is expected to close during the
second quarter of 1999.
-9-
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Community Financial Group, Inc. (CFGI), is a bank holding company and owns The
Bank of Nashville (The Bank), both of which are collectively referred to as the
Company. The following discussion compares the Company's financial condition at
March 31, 1999 and December 31, 1998, and results of operations for the first
quarter of 1999 with the same period in 1998. The purpose of this discussion is
to focus on important factors affecting the Company's financial condition and
results of operations. Reference should be made to the consolidated financial
statements (including the notes thereto), presented elsewhere in this report for
an understanding of the following discussion and analysis. The quarterly
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary for fair presentation of results of interim
periods. The results for interim periods are not necessarily indicative of
results to be expected for the complete calendar year. Reference should be also
made to the Company's 1998 Annual Report for a more complete discussion of
factors that impact the results of the operations, liquidity and capital. To the
extent that the statements in this discussion relate to the plans, objectives,
or future performance of the Company, these statements may be deemed to be
forward looking statements within the meaning of the Private Security Litigation
Reform Act of 1995. Such statements are based on management's current
expectations and the current economic environment. Actual strategies and results
of future periods may differ materially from those currently expected due to
various risks and uncertainties.
The Company's primary base of operation is located in the L & C Tower at 401
Church Street, Nashville, Tennessee 37219. The Bank has three full-service
traditional branches, one located at the Glendale Center in Green Hills which
opened in January, 1997, one located at Maryland Farms in Brentwood which opened
in September, 1998 and the other located on Gallatin Road in Hendersonville
which opened in April, 1999. Additional branch services are provided through
full-service mobile branches, "Bank-on-Call", which was established in
September, 1996 and which has expanded in each subsequent year. Bank-on-Call
provides the convenience of "at your door" banking service to customers.
Additionally, the Company has expanded its delivery systems through full-service
ATMs, cash dispensers, cash management services and its recently introduced
"Bank-on-Line" Internet banking service. In April, 1999, The Bank created a
title agency through a joint venture with Mooreland Title Company, LLC of
Brentwood. This new title agency has the ability to underwrite title insurance
on most real estate loan transactions. Along with the benefit of reducing the
cost of title insurance, this investment should provide an increasing source of
fee income as the pace of real estate closings continues to be strong in and
around the Nashville market. This venture should contribute to The Bank's
profits and provide an additional alternative to existing customers and
prospects that prefer to lease rather than purchase equipment. The Bank offers
investment services through its relationship with LM Financial Partners, Inc., a
subsidiary of Legg Mason Wood Walker, Inc.
In March of 1999, the Company's Board of Directors approved the repurchase of up
to 400,000 shares of the Company's stock. Community Financial Group, Inc. is
listed on the NASDAQ Stock Market and traded under the symbol CFGI.
On May 5, 1999, the Bank of Nashville entered into a Stock Purchase Agreement to
acquire the majority ownership in Machinery Leasing Company of North America,
Inc., subject to the required approvals from bank regulatory authorities.
Headquartered in Nashville, Machinery Leasing Company operates throughout the
south and mid-west. Machinery Leasing Company primarily leases heavy
manufacturing equipment and will likely expand the types of equipment leasing
offered.
OVERVIEW
For the quarter ended March 31, 1999, net income totaled $805,000, a $165,000 or
25.8% increase over the $640,000 of net income reported for the first quarter of
1998. Earnings in the first quarter of 1999 were impacted by additional expenses
incurred as a result of the Company having opened a full service branch location
in Brentwood in September, 1998 and preparations for opening its Hendersonville
location in April, 1999. Basic earnings per share were $.19 in the first quarter
of 1999, down 34.5% from $.29 for the same period in 1998. Diluted earnings per
share were $.19 in the first quarter of 1999, compared to $.22 for the same
period in 1998. The decrease in basic and diluted earnings per share resulted
from the increased number of shares outstanding due to the exercise of warrants
in December 1998. Reference should be made to Note F. regarding the computation
of earnings per common share.
During the first quarter of 1999, the Company recorded $45,000 in provision for
loan losses, compared to $39,000 during the first quarter of 1998. During the
first quarter of 1999, the Company had net charge-offs of $82,000 compared to
net recoveries of $40,000 during the first quarter of 1998. The allowance for
loan losses was 2.2% of loans at March 31, 1999, compared with 2.5% for the same
period in 1998.
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<PAGE> 13
The Company's annualized return on average assets was 1.34% for the first
quarter of 1999, compared to 1.29% for the first quarter of 1998. Annualized
return on average equity was 6.40% for the first quarter of 1999 and 10.80% for
the same period in 1998. The decline in return on average equity was the result
of a $26.9 million increase in equity, due to the exercise of the warrants, at
March 31, 1999, compared with the same period in 1998.
The Company's non-performing assets were $532,000 at March 31, 1999, compared to
$559,000 at March 31, 1998 and $460,000 December 31, 1998. Total loans, net of
unearned income, were $162.2 million at March 31, 1999, an increase of $35.9
million or 28.4% from March 31, 1998 and an increase of $9.5 million, or 6.2%,
from December 31, 1998.
The Company's average equity to average assets ratio, excluding other
comprehensive income, was 20.9% during the first quarter of 1999 compared to
12.0% for the same period in 1998. The Company recorded quarterly dividends of
$.07 per share during the first quarter of 1999 and announced a dividend of $.13
per share to be paid in the second quarter of 1999. In the first quarter of
1998, the Company recorded a quarterly dividend of $.06 per share.
NET INTEREST INCOME
Net interest income is the principal component of the Company's income stream
and represents the difference or spread between interest generated from earning
assets and interest paid on interest bearing liabilities. Fluctuations in
interest rates, as well as volume and mix changes in earning assets and interest
bearing liabilities, materially impact net interest income.
Net interest income after provision for loan losses increased 25.2% in the first
quarter of 1999 compared to the same period in 1998. This increase reflects a
$346,000, or 8.6%, increase in interest income, and a $162,000, or 8.0%,
decrease in total interest expense. Net interest income before provision for
loan losses increased $508,000 to $2.5 million in the first quarter of 1999
compared to $2.0 million for the same period in 1998. The increase in net
interest income resulted from a $36.5 million, or 18.8%, increase in the volume
of average earning assets which was partially offset by a decrease of 66 basis
points in the average rate earned on those assets. Further impacting net
interest income was the change in mix and rate on interest bearing liabilities.
These liabilities increased $13.1 million, or 8.1%, while the average rate paid
on interest bearing liabilities decreased 75 basis points in the first quarter
of 1999 compared to the same period in 1998. The significant decline in rates
paid on interest bearing liabilities resulted from a lower interest rate
environment coupled with the Company's ability to be less aggressive in the
rates paid on interest bearing deposits due to its increased capital and
additional banking locations which make the Bank more convenient to a larger
number of customers. The increase in the volume of average earning assets may be
attributed to a $28.7 million increase in average loans outstanding, a $1.9
million increase in average investments and a $4.3 increase in average federal
funds sold. This shift in the mix of total earning assets which reflected the
highest growth in average loan outstandings, the Company's highest yielding
asset, contributed to the overall improvement in net interest income. Average
loans represented 65.8% of average earning assets in the first quarter of 1999
compared to 63.4% for the same period in 1998 while average investments
represented 29.7% of average earning assets in the first quarter of 1999
compared to 33.5% for the first quarter of 1998. Net interest income was further
impacted by a shift in the mix of interest bearing liabilities. The volume of
money market accounts increased $14.8 million, or 20.3%, NOW accounts increased
$4.2 million, or 43.3%, certificates of deposit $100,000 or greater increased
$.7 million, or 2.4%, and Federal Home Loan Bank and other borrowings increased
$.7 million, or 4.8% while certificates of deposit less than $100,000 declined
$7.4, or 21.9%. This shift in the mix of the Company's deposit products from a
higher rate certificate of deposit to lower rate money market and NOW accounts
reflects the success of the expansion into the Green Hills and Brentwood market
as well as the Company's mobile branches. The decline in average rate paid on
interest bearing liabilities was the result of the decline of 29 basis points on
NOW accounts, 70 basis points on money market accounts, 47 basis points on
certificates of deposit less than $100,000, 65 basis points on certificates of
deposit $100,000 or greater and 85 basis points on Federal Home Loan Bank and
other borrowings.
The net interest margin (net interest income expressed as a percentage of
average earning assets) was 4.43% and 4.17% for the quarters ended March 31,
1999 and 1998, respectively. Fluctuations in net interest margins are also
affected by differences in the interest rate sensitivity of the Company's
earning assets and interest bearing liabilities.
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<PAGE> 14
NON-INTEREST INCOME
Non-interest income was $621,000 for the first quarter of 1999 reflecting an
increase of $325,000, or 109.8%, from the $296,000 reported for the same period
in 1998. Non-interest income during the first quarter of 1999 was positively
impacted by the decision to restructure how investment services were offered by
discontinuing most traditional trust services and redirecting efforts to an
expanded investment services department provided in conjunction with LM
Financial Partners, Inc. This expansion impacted both non-interest income and
non-interest expense. During the first quarter of 1999 compared with the same
period in 1998, investment center income increased $295,000 while trust
department income decreased $28,000. Non-interest income also reflected an
increase of $80,000, or 64.0%, in service fee income, primarily as a result of
increased volume and an increase in the fees charged on NSF checks and
overdrafts.
NON-INTEREST EXPENSE
Total non-interest expense increased $591,000 during the first quarter of 1999
compared to the same period in 1998. Salaries and employee benefits increased
$364,000 with $227,000 of this increase attributable to the Company's expansion
of its investment services area in conjunction with LM Financial Partners, Inc.,
and $50,000 attributable to the opening of its Brentwood Office and preparation
for opening its Hendersonville location. Other increases in salary and benefits
were the result of staff expansions in the commercial lending and bank
operations and technology areas. Occupancy expense increased $90,000 in the
first quarter of 1999 compared to the same period in 1998, primarily due to the
Company having established an office in Brentwood. Audit tax and accounting
expense increased $17,000 during the first quarter of 1999 compared to the same
period in 1998 as the Company engaged outside accountants to review financial
information and prepare proformas in conjunction with its analysis of strategic
expansions. Other operating expenses increased $119,000 during the first quarter
of 1999 compared to the same period in 1998 as a result of growth throughout the
Company. Non-interest expense, other than salaries and employee benefits,
increased $227,000, or 38.3% during the first quarter of 1999 compared to same
period in 1998 while total assets increased $42.3 million at March 31, 1999
compared to March 31, 1998.
The Company plans further expansions in 1999 that will impact non-interest
expense in future periods. The Hendersonville location opened in late April,
1999 and the Company's Board of Directors approved the purchase of a majority
interest in a locally owned leasing company which is planned for the second
quarter of 1999. Strategic growth plans include the expansion of the Company's
investment services area offered in conjunction with LM Financial Partners, Inc.
and the Company's commercial lending activities. These expansions will result in
increased expense in other support areas, but should also have a positive impact
on interest income and non-interest income. It is expected that the Company's
non-interest expense will increase slightly during the remainder of 1999 due to
expenses related to Year 2000. The costs related to this project had been
projected and are not expected to exceed $135,000 during 1999. A more detailed
discussion of Year 2000 issues is presented under the caption, "Non-Performing
Assets and Risk Elements". It should be noted that economic conditions and other
factors in the market could further impact non-interest expense.
INCOME TAXES
During the first quarter of 1999, the Company recorded provision for income
taxes of $471,000 compared to $400,000 during the same period in 1998. The
increase in provision for income taxes was the result of increased earnings.
Reference should be made to note E of the financial statement.
NON-PERFORMING ASSETS
Non-performing assets, which include non-accrual loans, restructured loans and
other real estate owned, were $532,000 at March 31, 1999, an increase of $72,000
from $460,000 at December 31, 1998 and a decrease of $27,000 from the $559,000
reported at March 31, 1998. The Company maintains an allowance for possible loan
losses at a level which, in management's evaluation, is adequate to cover
estimated losses on loans based on available information at the end of the
reporting period. Consideration in establishing the allowance include historical
net charge-offs, changes in the credit risk, mix and volume of the loan
portfolio, and other relevant factors, such as the risk of loss on particular
loans, the level of non-performing assets and current and forecasted economic
conditions. In the first quarter of 1999, the Company recorded $45,000 in
expense for provision for loan losses compared with $39,000 for the same period
in 1998. Provisions for loan losses were deemed appropriate due to growth in the
loan portfolio and increased charge-offs. Net charge-offs during the first
quarter of 1999 were $82,000 compared to net recoveries of $40,000 in the first
quarter of 1998. Subsequent to March 31, 1999 the
-12-
<PAGE> 15
Company has had recoveries of approximately $500,000 and anticipates other large
recoveries. These significant recoveries will impact management's decisions on
future provision expense. There were no loans 90 days or more past due and still
accruing interest at March 31, 1999 or 1998. Potential problem loans at March
31, 1999 totaled approximately $225,000 compared with $664,000 at March 31,
1998, and $256,000 at December 31, 1998. Other potential problem loans consist
of loans that are currently not considered non-performing, but where information
about possible credit problems has caused the Company to have serious doubts as
to the ability of the borrower to fully comply with present repayment terms.
Depending on economic changes and future events, these loans and others, which
may not be presently identified, could become future non-performing assets. The
composition of non-performing assets at March 31, 1999, was 90.2% in non-accrual
loans and 9.8% in other real estate owned. This compares to 100% in non-accrual
loans at March 31, 1998 and 88.7% in non-accrual loans and 11.3% in other real
estate owned at December 31, 1998. The allowance for loan losses was $3.6
million at March 31, 1999, compared with $3.2 million at March 31, 1998, and
$3.6 million at December 31, 1998. The level of the allowance for loan losses is
monitored regularly by management and the Company for the Directors. The level
of this allowance and the amount of the provision are determined on a quarter by
quarter basis, and, given the inherent uncertainties involved in the estimation
process, no assurance can be given as to the amount of the allowance at any
future date. As of March 31, 1999 the allocated and unallocated parties of the
allowance were $2.3 million and $1.3 million, respectively.
YEAR 2000
Management and the Board of Directors are continuing their emphasis on the Year
2000 having implemented a comprehensive project plan, adopted a test plan,
completed testing, and established contingency plans, where appropriate. Year
2000 (Y2K) represents an issue which refers to the process of converting
computer programs to recognize more than two digits identifying a year in any
date field. The Company recognizes the technology and financial risks to both
the Company and its customers as the new millennium approaches and is taking
appropriate steps as outlined in the Company's "Year 2000 Readiness Disclosure
Statement" to combat these risks. The Company completed assessments of all
systems and completed remediation and/or testing of most internal systems by
December 31, 1998. Additional upgrades in two non-mission critical systems will
be completed during the second and third quarters of 1999. The Company completed
testing and upgrades of all mission critical systems prior to December 31, 1998.
The software system utilized for the Company's primary core application
processing is fully warranted by a financially strong, publicly traded company
that supplies this software to over 200 financial institutions nationwide. The
Company has no internally developed systems. Additionally, the Company has
actively participated in proxy testing with external vendors upon whom the
Company is reliant and has carefully reviewed the results of all tests to ensure
these systems are Year 2000 compliant. Testing or reviewing test scripts with
other external vendors on whom the Company is less dependant but with whom there
is some interaction, will continue through the second quarter of 1999 with
completion planned prior to June 30, 1999. The costs related to this project are
not expected to exceed $135,000 in 1999 and have been considered in the
Company's budget process. In addition to testing, renovating and/or replacing
systems, as appropriate, the Company is cognizant of the potential impact of Y2K
on its borrowing customers and large depositors and has, therefore, established
a system for monitoring the Y2K compliance of these customers. The Company has
also assessed its investment portfolio relative to Y2K risk exposure. The
portfolio consists primarily of securities guaranteed by agencies of the federal
government. These agencies are required to be Y2K compliant. Approximately $1.3
million of debt securities are issued by municipalities. Y2K questionnaires were
sent to these issuers and satisfactory responses have been received.
Additionally, the Company's Y2K task force has established a date of June 30,
1999 on which no further changes will be made to technology systems except if
necessary due to changes in regulatory requirements. Both a contingency and
liquidity plan have been prepared and will be implemented, as appropriate,
during 1999 to ensure the Company is well prepared to serve its customers. In an
effort to communicate with customers, the Company has published and distributed
a "Year 2000 Readiness Disclosure Statement" in addition to a series of
newsletter articles. Y2K credit risk continues to be assessed on all loans above
a pre-determined amount, Y2K language is being incorporated into contracts and
loan agreements, and the Company continues to educate all officers and staff to
be attuned to the potential risks associated with the Year 2000. Management and
the Board of Directors remain committed to ensuring that the Company's customers
and shareholders will not be impacted by the Y2K issue.
-13-
<PAGE> 16
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest rate risk exposure. The Company's
profitability is affected by fluctuations in interest rates. A sudden and
substantial movement in interest rates may adversely impact the Company's
earnings to the extent that the interest rates borne by assets and liabilities
do not change at the same speed, to the same extent, or on the same basis. The
Company monitors the impact of changes in interest rates on its net interest
income using several tools. At least quarterly, the Asset Liability Committee
(ALCO) of the Board of Directors reviews interest rate risk considering results
compared to policy, current rate and economic outlook, loan and deposit demand
levels, pricing and maturity of assets and liabilities, impact on net interest
income under varying rate scenarios, regulatory developments, comparison of
modified duration of both assets and liabilities as well as any appropriate
strategies to counteract adverse interest rate projections. The Company's
imbalance between the duration of assets and liabilities is limited to under one
year and generally should not exceed one-half year. One measure of the Company's
exposure to changes in interest rates between assets and liabilities is shown in
the Company's March 31, 1999 gap table below:
<TABLE>
<CAPTION>
Expected Repricing or Maturity Date
-----------------------------------------------------------------------------
Within One Two After
One to Two to Five Five
(Dollars In Thousands) Year Years Years Year Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Debt and equity securities $ 14,668 $ 29,953 $28,982 $ 921 $ 74,524
Average rate 6.77% 6.37% 6.52% 6.70% 6.51%
Net interest-earning loans 113,627 6,981 21,263 20,306 162,177
Average rate 8.16% 8.88% 8.45% 8.11% 8.22%
Other 111 -- -- -- 111
Average rate 4.73% -- -- -- 4.73%
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing assets 128,406 36,934 50,245 21,227 236,812
Liabilities
Deposits 148,432 4,286 2,153 3 154,874
Average rate 4.21% 5.62% 5.67% 4.95% 4.27%
Federal Home Loan
Bank borrowings 14,500 -- -- -- 14,500
Average rate 4.74% -- -- -- 4.74%
Federal funds purchased 9,000 -- -- -- 9,000
Average rate 5.20% -- -- -- 5.20%
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 171,932 4,286 2,153 3 178,374
- ------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (43,526) $ 32,648 $48,092 $21,224
- ------------------------------------------------------------------------------------------------------------------
Cumulative interest rate
sensitivity gap $ (43,526) $(10,878) $37,214 $58,438
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Management recommends appropriate levels of interest rate risk to be assumed
within limits approved by the Board of Directors regarding the maximum
fluctuations acceptable in the market value of equity and in earnings, assuming
sudden rate movements (rising or falling) up to 200 basis points. The Company's
policy establishes a maximum change in annual pre-tax net interest income with a
200 basis point change in rates to 10% while establishing a maximum change
allowable in pre-tax market value of equity to 12% in the same assumed rate
environment. The Company's primary objective in managing interest rate risk is
to minimize the adverse impact of changes in interest rates on the Company's net
interest income and capital while structuring the Company's assets and
liabilities to obtain the maximum yield-cost spread. The Company relies
primarily on its asset liability structure to control interest rate risk. Based
on March 31, 1999 financial statements, a 200 basis point change in rates would
produce net interest income variations of a 7.8% decrease assuming rising rates
and a 5.9% increase assuming falling rates. Additionally, the 200 basis point
rate shock would produce changes in the market value of equity of a decrease of
10.5% assuming rising rates and 10.1% increase assuming falling rates.
-14-
<PAGE> 17
BALANCE SHEET
The Company's total assets at March 31, 1999, were $249.4 million, an increase
of $11.2 million, or 4.7%, from $238.2 million at December 31, 1998. This
increase was the result of a $9.5 million increase in total loans, $2.9 million
increase in investment securities, $.4 million increase in premises and
equipment and $.2 million increase in accrued interest and other assets. These
increases were slightly offset by a $1.8 million decrease in cash and balances
with banks. The growth in loans and investment securities reflect the Company's
effort to more effectively deploy additional capital received in late 1998. The
Company is employing additional commercial lenders to increase loan volume while
maintaining its focus on credit quality as a part of its internal growth
strategy.
Total deposits at March 31, 1999, were $172.4 million, an increase of $9.9
million, or 6.1%, from $162.6 million at December 31, 1998. The increase in
deposits was comprised of a $14.7 million increase in money market accounts and
a $.2 million increase in NOW accounts. These increases were partially offset by
decreases of $2.2 million in time certificates $100,000 or greater, $2.4 million
in time certificates less than $100,000 and $.4 million in non-interest bearing
demand deposits. The increase in money market accounts was primarily the result
of a significant increase in the balances on accounts of a few large commercial
customers.
Shareholder's equity, net of other comprehensive increased $311,000 to $51.5
million at March 31, 1999, from $51.2 million at December 31, 1998. The Company
recorded a dividend payment of $295,000 during the first quarter of 1999
compared with $132,000 for the same period in 1998. The increased dividend
payment reflected a $.01 per share increase in the dividend declared and the
increased number of shares outstanding which resulted from warrants exercised
during December 1998. Unrealized gains on securities available for sale, net of
income taxes, were $241,000 at March 31, 1999, compared to $340,000 at December
31, 1998.
CAPITAL ADEQUACY AND LIQUIDITY
The Company experienced a material change in its capital structure in December
1998 as 2.0 million warrants, each representing the right to acquire a common
share of stock at a price of $12.50, were exercised resulting in the addition of
$25.0 million in new equity capital. All warrants had an expiration date of
December 31, 1998 and there are no remaining warrants outstanding. Management
and the Board of Directors had recognized potential for this capital and
implemented short-term strategies to utilize capital in late December, 1998 and
early in the first quarter of 1999. The Company employed Dorland & Associates to
assist management in the evaluation of potential long-term strategies to more
effectively deploy this additional capital. During the first quarter of 1999,
the Company created a title agency through a joint venture with Mooreland Title
Company, LLC of Brentwood, Tennessee and approved the proposed purchase of a
majority interest in a locally owned leasing company as well as continued its
plan to open a Hendersonville location in the second quarter of 1999. In
addition to these items, the Company began implementation during the first
quarter of 1999 of its internal growth plan by expanding its lending
capabilities through the addition of loan officers with experience in the local
market area. In March of 1999, the Board of Directors approved the repurchase of
up to 400,000 shares of the Company's stock. As of March 31, 1999, 10,000 shares
had been repurchased by the Company. The evaluation and implementation of
appropriate longer-term business opportunities are expected to continue
throughout the remainder of 1999.
Shareholders' equity (excluding other comprehensive income) at March 31, 1999,
was $51.2 million, or 20.5% of total assets, which compares with $24.3 million,
or 11.7% at March 31, 1998 and $50.8 million, or 21.3% of total assets at
December 31, 1998. This calculation, when considered after the effect of the
Company's adoption of statement of financial accounting standards (SFAS) No.
115, was $51.5 million, or 20.6%, at March 31, 1999, which compares with $24.6
million, or 11.9%, at March 31, 1998 and $51.2 million, or 21.5%, of total
assets at December 31, 1998. The increase in total equity during the first
quarter of 1999 primarily resulted from quarterly earnings net of dividend paid
and a decrease of $99,000 in the unrealized gain on securities available for
sale at March 31, 1999, compared with year end 1998. Certain capital statistics
are shown in the following chart:
<TABLE>
<CAPTION>
March 31, December 31,
Capital Statistics 1999 1998
------------------ --------- ------------
<S> <C> <C>
Total Assets $249,428 $238,185
Total Shareholders' Equity 51,482 51,171
Total Shareholders' Equity To Total Assets 20.6% 21.5%
</TABLE>
-15-
<PAGE> 18
While, in the past, the Company's capital ratios have exceeded all regulatory
requirements, currently its ratios indicate a significant amount of excess
capital based on industry standards and Federal Deposit Insurance Corporation
Improvement Act ("FDICIA") minimum ratios, resulting from the addition of $25
million in new capital which occurred during 1998. The Company reported dividend
payments of $295,000 during the first quarter of 1999 compared with $132,000 for
the same period in 1998. Each quarterly dividend payment made in 1998 was $.06
per share. The Company announced an increase in the quarterly dividend payment
per share of $.01 to $.07 per share for the dividend paid in the first quarter
of 1999 and has subsequently announced an increase of $.06 additional per share
to $.13 per share for the dividend to be paid in the second quarter of 1999. It
should be noted that the increases in the dividend payment amount per share
combined with approximately 2.0 million additional shares outstanding in 1999
will significantly increase the total amount of dividend payments. At March 31,
1999, the Company's primary and total capital ratios to adjusted assets were
both 22.2%, while its total risk based capital ratio was 29.4%. These ratios
compare to primary and total capital ratios to adjusted assets of 24.3% at
December 31, 1998 and a risk based capital ratio at December 31, 1998 of 31.6%.
Federal Deposit Insurance Corporation Improvement Act minimum primary and total
capital ratios for "well capitalized" banks are 4% and 8%, respectively.
The Company's principal sources of asset liquidity are marketable securities
available for sale and federal funds sold, as well as maturities of securities.
The estimated average maturity of securities was 5.3 years at March 31, 1999,
compared to 7.0 at December 31, 1998. At March 31, 1999 and December 31, 1998,
all securities were held as available for sale. Securities available for sale
were $74.5 million at March 31, 1999, compared to $71.7 million at December 31,
1998. The Company had no federal funds sold at either March 31, 1999 or December
31, 1998. Core deposits, a relatively stable funding base, comprised 82.6% of
total deposits at March 31, 1999, and 80.20% at December 31, 1998. Core deposits
represent total deposits excluding time certificates of $100,000 or greater.
-16-
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------------------------------------------------
<S> <C>
11 Statement regarding computation of earnings per share.
27 Financial Data Schedule (for SEC use only)
</TABLE>
(B) The following reports on Form 8-K were filed during the quarter ended
March 31, 1999.
January 5, 1999 announcing the purchase of 222,000 shares of
American Growth Finance, Inc. Convertible Preferred Stock.
January 7, 1999 announcing that 1,752,992 warrants to acquire
an equal number of common shares were exercised during the
fourth quarter of 1998.
March 26, 1999 announcing the Board of Directors authorization
of a share repurchase of up to 400,000 shares.
-17-
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
COMMUNITY FINANCIAL GROUP, INC.
-------------------------------
Registrant
May 13, 1999 /s/ Mack S. Linebaugh, Jr.
- ------------ -------------------------------
Date Mack S. Linebaugh, Jr.
President, Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
-18-
<PAGE> 1
EXHIBIT 11
COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
STATEMENT REGARDING: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Basic Income Per Common Share (1)
Net income (in thousands) $ 805 $ 640
========== ==========
Net income per share $ .19 $ .29
========== ==========
Weighted average common shares outstanding 4,217,795 2,213,868
========== ==========
Diluted Income Per Common Share (2)
Net income (in thousands) $ 805 $ 640
========== ==========
Net income per share $ .19 $ .22
========== ==========
Weighted average common shares outstanding 4,296,416 2,866,809
========== ==========
</TABLE>
(1) Basic net income per share has been computed using the weighted average
number of common shares outstanding during each period presented.
(2) Diluted net income per share has been computed using the weighted
average number of common share outstanding and the dilutive effect of
stock options and warrants outstanding during the periods presented.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,471
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,524
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 162,177
<ALLOWANCE> 3,609
<TOTAL-ASSETS> 249,428
<DEPOSITS> 172,413
<SHORT-TERM> 9,000
<LIABILITIES-OTHER> 2,033
<LONG-TERM> 14,500
0
0
<COMMON> 25,256
<OTHER-SE> 26,226
<TOTAL-LIABILITIES-AND-EQUITY> 51,482
<INTEREST-LOAN> 3,251
<INTEREST-INVEST> 1,011
<INTEREST-OTHER> 130
<INTEREST-TOTAL> 4,392
<INTEREST-DEPOSIT> 1,692
<INTEREST-EXPENSE> 1,856
<INTEREST-INCOME-NET> 2,536
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,836
<INCOME-PRETAX> 1,276
<INCOME-PRE-EXTRAORDINARY> 1,276
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 805
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 4.43
<LOANS-NON> 480
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 225
<ALLOWANCE-OPEN> 3,646
<CHARGE-OFFS> 145
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 3,609
<ALLOWANCE-DOMESTIC> 2,292
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,317
</TABLE>
