FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
_________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
_______________ _______________
Commission file number 0-19214
____________________________________________
Union National Financial Corporation
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2415179
___________________________________ ________________________
(State of Incorporation) (I.R.S. Employer ID No.)
101 East Main Street, P.O. Box 567, Mount Joy,Pennsylvania 17552
__________________________________________________________ _____
(Address of principal executive offices) Zip Code
(717) 653 - 1441
_________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
_________________________________________________________________
(former name, former address, & former fiscal year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
______________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15 (d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court. Yes [ ] No[ ]
_________________
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
2,412,316 shares of $.25 (par) common stock were
_________________
outstanding as of July 31, 1998.
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<PAGE>
UNION NATIONAL FINANCIAL CORPORATION
10Q INDEX Page
#
____
PART I - FINANCIAL INFORMATION:
______________________
- Consolidated Statements of Financial Condition 1
- Consolidated Statements of Income 2
- Consolidated Statements of Comprehensive Income 2
- Consolidated Statements of Cash Flows 3
- Notes to Consolidated Financial Statements 4
- Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-15
PART II - OTHER INFORMATION 16
_________________
Signature Page 17
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<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
(In Thousands) 6/30/98 12/31/97
______________________
<S> <C> <C>
ASSETS
Cash and Due from Banks $5,242 $6,490
Federal Funds Sold 1,790 2,835
Investment Securities Held to Maturity
(Market Value - 1998-$20,754;1997-$18,943) 20,432 18,870
Investment Securities Available for Sale 42,876 45,867
Loans(Net of Unearned Income) 165,581 152,699
Less: Allowance for Loan Losses (1,709) (1,593)
______________________
Total Net Loans 163,872 151,106
Premises and Equipment - Net 5,224 5,415
Accrued Interest Receivable 1,457 1,446
Deferred Income Taxes 154 154
Investment in Limited Partnerships 908 941
Other Assets 205 119
______________________
TOTAL ASSETS $242,160 $233,243
======================
LIABILITIES
Deposits:
Noninterest-Bearing $18,914 $18,463
Interest-Bearing 169,974 161,672
______________________
Total Deposits 188,888 180,135
Short-Term Borrowing 900 900
Long-Term Debt 27,998 27,329
Accrued Interest Payable 1,061 1,008
Other Liabilities 395 115
______________________
TOTAL LIABILITIES 219,242 209,487
STOCKHOLDERS' EQUITY
Common Stock (Par Value $.25) 629 627
Shares: Authorized - 20,000,000; Issued -
2,514,819 in 1998 (2,509,327 in 1997)
Outstanding - 2,412,319 in 1998 (2,487,175
in 1997)
Surplus 4,940 4,815
Retained Earnings 19,289 18,461
Unrealized gain/(loss) on securities
available for sale, net of tax 331 295
Less: Treasury Stock - at cost
(102,500 shares in 1998 and 22,152 shares
in 1997) (2,271) (442)
______________________
TOTAL STOCKHOLDERS' EQUITY 22,918 23,756
______________________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $242,160 $233,243
======================
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended June 30,
_______________________________
(In Thousands, except Per Share Data) 1998 1997
_______________________________
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $3,484 $3,063
Investment Securities:
Taxable 710 677
Exempt from Federal Taxes 242 200
Deposits in Banks 0 1
Federal Funds Sold 37 54
______________________
Total Interest Income 4,473 3,995
INTEREST EXPENSE
Deposits 1,749 1,527
Short-Term Borrowing 5 24
Long-Term Debt 397 270
______________________
Total Interest Expense 2,151 1,821
______________________
Net Interest Income 2,322 2,174
PROVISION for LOAN LOSSES 130 101
______________________
Net Interest Income after Provision
for Loan Losses 2,192 2,073
OTHER OPERATING INCOME
Trust Income 34 30
Service Charges on Deposit Accounts 114 89
Other Service Charges, Commissions, Fees 117 87
Investment Securities Gains (Losses) (7) 4
Other Income 8 8
_____________________
Total Other Operating Income 266 218
OTHER OPERATING EXPENSES
Salaries and Wages 728 682
Retirement Plan and Other Employee Benefits 153 214
Net Occupancy Expense 149 134
Furniture and Equipment Expense 108 113
FDIC Insurance Assessment 5 5
Other Operating Expenses 460 430
______________________
Total Other Operating Expenses 1,603 1,578
______________________
Income before Income Taxes 855 713
PROVISION for INCOME TAXES 178 144
______________________
NET INCOME for PERIOD $677 $569
======================
PER SHARE INFORMATION
Net Income for Period (Basic and Assuming
Dilution) $0.28 $0.23
Cash Dividends $0.105 $0.086
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME* (UNAUDITED)
Net Income for Period $677 $569
Other Comprehensive Income, Net of Tax:
Unrealized Holding Gains/(Losses) on
Investment Securities Arising during
Period 12 215
Reclassification adjustment for (gains)
losses included in Net Income 4 (2)
______________________
Other Comprehensive Income (Loss) 16 213
______________________
COMPREHENSIVE INCOME for PERIOD $693 $782
======================
* This Statement is required by Statement No. 130, "Reporting
Comprehensive Income," as issued by the Financial Accounting
Standards Board. This Statement reflects net income as adjusted
for changes in stockholders' equity that result from changes in
the Corporation's unrealized gains and losses on its investment
securities available for sale. Changes in the interest rate
environment and other factors result in fluctuations in the value
of investment securities available for sale.
The accompanying notes are an integral part of the consolidated
financial statements.
<CAPTION>
Six Months Ended June 30,
_______________________________
(In Thousands, except Per Share Data) 1998 1997
_______________________________
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $6,846 $5,971
Investment Securities:
Taxable 1,416 1,316
Exempt from Federal Taxes 478 411
Deposits in Banks 1 2
Federal Funds Sold 88 99
______________________
Total Interest Income 8,829 7,799
INTEREST EXPENSE
Deposits 3,449 3,021
Short-Term Borrowing 12 66
Long-Term Debt 786 477
______________________
Total Interest Expense 4,247 3,564
______________________
Net Interest Income 4,582 4,235
PROVISION for LOAN LOSSES 229 112
______________________
Net Interest Income after Provision
for Loan Losses 4,353 4,123
OTHER OPERATING INCOME
Trust Income 68 60
Service Charges on Deposit Accounts 210 172
Other Service Charges, Commissions, Fees 223 165
Investment Securities Gains (Losses) (7) 4
Other Income 59 54
_____________________
Total Other Operating Income 553 455
OTHER OPERATING EXPENSES
Salaries and Wages 1,470 1,355
Retirement Plan and Other Employee Benefits 311 440
Net Occupancy Expense 280 307
Furniture and Equipment Expense 201 201
FDIC Insurance Assessment 11 10
Other Operating Expenses 956 848
______________________
Total Other Operating Expenses 3,229 3,161
______________________
Income before Income Taxes 1,677 1,417
PROVISION for INCOME TAXES 347 282
______________________
NET INCOME for PERIOD $1,330 $1,135
======================
PER SHARE INFORMATION
Net Income for Period (Basic and Assuming
Dilution) $0.55 $0.46
Cash Dividends $0.205 $0.171
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME* (UNAUDITED)
Net Income for Period $1,330 $1,135
Other Comprehensive Income, Net of Tax:
Unrealized Holding Gains/(Losses) on
Investment Securities Arising during
Period 32 92
Reclassification adjustment for (gains)
losses included in Net Income 4 (2)
______________________
Other Comprehensive Income (Loss) 36 90
______________________
COMPREHENSIVE INCOME for PERIOD $1,366 $1,225
======================
* This Statement is required by Statement No. 130, "Reporting
Comprehensive Income," as issued by the Financial Accounting
Standards Board. This Statement reflects net income as adjusted
for changes in stockholders' equity that result from changes in
the Corporation's unrealized gains and losses on its investment
securities available for sale. Changes in the interest rate
environment and other factors result in fluctuations in the value
of investment securities available for sale.
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended June 30,
_____________________________
(In Thousands) 1998 1997
_____________________________
<S> <C> <C>
CASH FLOWS from OPERATING ACTIVITIES
Net Income $1,330 $1,135
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciating and Amortization 236 254
Provision for Loan Losses 229 112
Investment Securities (Gains)/Losses 7 (4)
Provision for Deferred Income Taxes (19) 14
(Increase)/Decrease in Accrued
Interest Receivable (11) (123)
(Increase)/Decrease in Other Assets (69) (25)
Increase/(Decrease) in Other Liabilities 332 272
_______________________
Net Cash Provided by Operating Activities 2,035 1,635
CASH FLOWS from INVESTING ACTIVITIES
Net (Increase)/Decrease in Federal Funds Sold 1,045 1,800
Proceed of Sales of Available for Sale
Securities 4,936 3,801
Proceeds from Maturities of
Available for Sale Securities 20,423 9,803
Proceeds from Maturities of
Held to Maturity Securities 669 1,823
Purchases of Available for Sale Securities (22,320) (15,005)
Purchases of Held to Maturity Securities (2,231) (1,323)
Loans Made to Customers, Net of
Principal Collected on Loans (12,994) (9,950)
Purchases of Property and Equipment (29) (70)
_______________________
Net Cash (Used in)Investing Activities (10,501) (9,121)
CASH FLOWS from FINANCING ACTIVITIES
Net Increase/(Decrease)in Demand Deposits
and Savings Accounts 3,320 1,565
Net Increase/(Decrease) in Certificates
of Deposits 5,434 3,412
Net Increase/(Decrease) in Short-Term
Borrowing 0 (2,089)
Proceeds from Issuance of Long-Term Debt 809 5,675
Payment of Long-Term Debt (140) 0
Acquisition of Treasury Stock (1,829) (121)
Issuance of Treasury Stock 126 68
Cash Dividends Paid (502) (429)
_______________________
Net Cash Provided by (Used in)
Financing Activities 7,218 8,081
_______________________
Net Increase/(Decrease) in Cash
and Cash Equivalents (1,248) 595
CASH and CASH EQUIVALENTS -
Beginning of Period 6,490 6,073
_______________________
CASH and CASH EQUIVALENTS - End of Period $5,242 $6,668
=======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payments for:
Interest Paid to Depositors $3,402 $2,959
Interest Paid - Other 792 520
Income Taxes 320 275
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
UNION NATIONAL FINANCIAL CORPORATION
MOUNT JOY, PENNSYLVANIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information contained in this interim report is
unaudited and subject to year-end adjustment and audit.
However, in the opinion of management, the information
reflects all adjustments necessary to present fairly the
financial condition and results of operations for the latest
period. All such adjustments were of a normal, recurring
nature. All material intercompany transactions have been
eliminated in consolidation.
2. These statements should be read in conjunction with notes to
the financial statements contained in the 1997 Annual Report
to Stockholders.
3. Management considers the allowance for loan losses (reserve)
to be adequate at this time.
4. All per share computations include the retroactive effect of
stock dividends. The weighted average number of shares of
common stock outstanding used was approximately 2,411,296
and 2,490,275 for the three month period ended June 30,
1998 and 1997, respectively and 2,428,403 and 2,491,310 for
the six month period ended June 30, 1998 and 1997,
respectively.
5. No shares of common stock are reserved for issuance in the
event of conversions or the exercise of warrants, options or
other rights, except as follows: 124,830 shares which are
reserved for issuance under the Corporation's 1988 and 1997
Stock Incentive Plans, 100,000 shares which are reserved for
issuance under the Corporation's 1997 Employee Stock
Purchase Plan, and 157,500 shares which are reserved for
issuance under the Corporation's Dividend Reinvestment and
Stock Purchase Plan. As of June 30, 1998, options to
purchase 4,830 shares have been granted under the
Corporation's 1988 Stock Incentive Plan. The exercise price
for such options is $23.27. No options have been exercised
as of June 30, 1998 under this plan. As of June 30, 1998,
options to purchase 25,000 shares have been granted under
the Corporation's 1997 Employee Stock Purchase Plan. The
current exercise price for such options is $19.87. As of
June 30, 1998, 916 options have been exercised under this
plan. As of June 30, 1998, 17,346 shares have been issued
under the Corporation's Dividend Reinvestment and Stock
Purchase Plan.
6. The results of operations for the three month period ended
June 30, 1998 are not necessarily indicative of the results
to be expected for the full year.
7. Certain reclassifications have been made to the 1998
consolidated financial statements to conform with the 1997
presentation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the
significant changes in the results of operations, capital
resources and liquidity presented in its accompanying
consolidated financial statements for Union National Financial
Corporation, a bank holding company (the Corporation), and its
wholly-owned subsidiary, Union National Community Bank (the
Bank). The Corporation's consolidated financial condition and
results of operations consist almost entirely of the Bank's
financial condition and results of operations. Such financial
condition and results of operations are not intended to be
indicative of future performance. This discussion should be read
in conjunction with the 1997 Annual Report.
In addition to historical information, this 10-Q Report for the
six months ended June 30, 1998 contains forward-looking
statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected in the
forward-looking statements. For example, risks and uncertainties
can arise with changes in: general economic conditions, including
their impact on capital expenditures; business conditions in the
financial services industry; the regulatory environment; rapidly
changing technology and competition with community, regional and
national financial institutions; new service and product
offerings by competitors; and price pressures. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the
date hereof. The Corporation undertakes no obligation to publicly
revise or update these forward-looking statements to reflect
events or circumstances that arise after the date hereof. Readers
should carefully review the risk factors described in other
documents the Corporation files from time to time with the
Securities and Exchange Commission, including any Current Reports
on Form 8-K filed by the Corporation.
Results of Operations
_____________________
Overview
Consolidated net income for the six months ended June 30, 1998
was $1,330,000, an increase of 17.2%, as compared to the
consolidated net income of $1,135,000 for the same period in
1997.
Consolidated net income for the three months ended June 30, 1998
was $677,000, an increase of 19.0%, as compared to the
consolidated net income of $569,000 for the same period in 1997.
On a per share basis, net income for the six months ended June
30, 1998 was $.55, an increase of 19.6%, as compared to $.46 for
the same period in 1997. For the three months ended June 30,
1998 and 1997, earnings per share amounted to $.28 and $.23,
respectively, an increase of 21.7%.
Results of operations for the six months ended June 30, 1998 as
compared to the same period in 1997 were impacted by the
following items: (1) Net income increased due to a 17.4% increase
in average net loans, primarily residential and commercial
mortgages, which were funded by growth in deposits and by
additions to average borrowings; (2) net income increased due to
a 21.5% increase in other operating income; (3) net income
decreased due to the narrowing of the spread between the earnings
rates on loans and investments as compared to the interest rates
paid on certificates of deposit and long-term debt; (4) net
income decreased due to a 2.2% increase in other operating
expenses; and (5) net income decreased due to an increase in the
provision for loan losses. The above items are quantified and
discussed in further detail under their respective sections
below.
Net income as a percent of total average assets, also known as
return on average assets (ROAA), was 1.13% on an annualized basis
for the six months ended June 30, 1998, as compared to 1.10% for
the same period in 1997. Net income as a percent of
<PAGE>
average stockholders' equity, also known as return on average
equity (ROAE), was 11.7% on an annualized basis for the six
months ended June 30, 1998, as compared to 10.1% for the same
period in 1997. ROAE was positively impacted by the repurchase
of 79,581 shares of outstanding common stock. See the discussion
under the section on Stockholder's Equity for further details.
The growth in loans is considered a material favorable trend of
the Corporation which Management expects to continue for the
remainder of 1998. Management expects the growth in deposits for
1998 to be comparable to its historic growth rates of deposits.
Management has taken specific actions to enhance the Bank's
competitive position for core deposits. These actions include a
broad based sales training program for staff to enhance the
Bank's competitive position for loans, deposits and other
financial services in northwestern Lancaster County, Pennsylvania
(the Bank's Market Area). Other actions include the strategic
promotion of the Bank's retail offices in light of continued
consolidation of financial institutions in the Bank's Market Area
and the promotion of intermediate-term certificates of deposit.
As a result of the above described efforts, the Bank's
certificate of deposit portfolio under $100,000 increased by
$6,100,000 and the Bank's checking and savings deposits increased
by $3,300,000 for the six months ended June 30, 1998. The funding
for the loan growth is further discussed under the section on
Liquidity.
Management expects the loan growth to continue in 1998 for the
following reasons: (1) lending rates are at generally affordable
rates for prospective borrowers; (2) implementation of a broad
based sales training program for staff; (3) further product
development and promotion of the Bank's consumer and home equity
lines of credit; (4) economic stability of the Bank's Market Area
as discussed later in this section; and (5) continued population
growth in the Bank's Market Area.
It is anticipated that economic activity in the Bank's Market
Area during 1998 appears favorable due to the availability of
generally low lending rates and continued construction activity.
The overall effects of current and past economic conditions as
well as other factors can be seen by a mild lessening of certain
borrowers' financial strength. Management is monitoring these
general and specific trends closely. Their various effects are
discussed later under the section on Credit Risk and Loan
Quality.
Net Interest Income
For analytical and discussion purposes, net interest income and
corresponding yields are presented on a taxable equivalent basis.
Net interest income for the six months ended June 30, 1998
increased by $398,000, or 8.9%, over the same period in 1997.
Commercial, residential, and consumer average loan growth of
$23,360,000 and average investment security growth of $5,777,000
were funded by the growth in average deposits of $19,174,000 and
by the growth in average borrowings of $9,092,000. The additional
borrowings represented fixed-rate and variable-rate advances from
the Federal Home Loan Bank of Pittsburgh (FHLB). Average earning
assets increased in the amount of $28,623,000 in the aggregate
over the same period in 1997. The volume growth in earning assets
and interest-bearing liabilities increased net interest income by
the amount of $639,000.
The overall interest rate on the average total earning assets
decreased to 8.17% for the current period, as compared to 8.26%
for the same period of last year, due to the refinancing of
higher interest rate loans to lower interest rates. More
significantly, the overall interest rate on the average
interest-bearing liabilities increased to 4.45% for the current
period, as compared to 4.30% for the same period of last year,
due to the change in the mix of interest-bearing liabilities in
the form of additional long-term debt and additional funds in
higher paying money market accounts. The net effect of all
interest rate fluctuations and funding changes was to decrease
net interest income in the amount of $241,000 for the current
period over the same period in 1997. See Management's discussion
below concerning the anticipated impact of these interest rate
fluctuations to the results of operations for the remainder of
1998.
<PAGE>
In order to enhance the net interest income in future periods,
Management has entered into transactions that increase earning
assets funded by advances from the FHLB. The terms and amounts of
the transactions, when combined with the Bank's overall balance
sheet structure, maintain the Bank within its interest rate risk
policies. As of June 30, 1998, the Bank has received long-term
advances of $27,948,000 from its available credit at the FHLB for
purposes of funding loan demand and mortgage-backed security
purchases. The total advances have a current average effective
rate of 5.69% with maturities ranging from August 1998 to
December 2007.
For the remainder of 1998, Management currently expects its net
interest margin to further narrow as compared to the same period
of last year due to an increase in the weighted average interest
rates on interest-bearing liabilities. This is a result of
increased balances of liabilities in the form of long-term debt
and funds in money market accounts that are paying higher
interest rates. In contrast, the growth in the earning assets
during 1997 and the first six months of 1998 is currently
expected to increase the net interest margin for the remaining
months of 1998 over the same period of 1997. Although the
effective interest rate impact of expected cash flows on
investments and of renewing certificates of deposit can be
reasonably estimated at current interest rate levels, the yield
curve during the remainder of 1998, the options selected by
customers, and the future mix of the loan, investment and deposit
products in the Bank's portfolios may significantly change the
estimates used in the simulation models. Based on the Bank's
current model and estimates as of June 30, 1998, the factors
discussed above will have a net positive impact to the net
interest margin for the remaining months of 1998, as compared to
the same period in 1997. See discussions on Liquidity and Market
Risk - Interest Rate Risk.
Provision for Loan Losses
The provision for loan losses was $229,000 and $112,000 for the
six months ended June 30, 1998 and 1997, respectively. Net
charge-offs for the six months ended June 30, 1998 amounted to
$113,000 as compared to $41,000 for the same period in 1997. The
increase in the provision over the same period of last year is a
result of the additional net charge-offs and the significant loan
growth experienced during the first six months of 1998. Future
adjustments to the allowance, and consequently, the provision for
loan losses, may be necessary if economic conditions or loan
credit quality differ substantially from the assumptions used in
making Management's evaluation of the level of the allowance for
loan losses as compared to the balance of outstanding loans.
Other Operating Income
Other operating income for the six months ended June 30, 1998 was
$553,000, representing an increase of $98,000, or 21.5%, over the
same period in 1997. Contributing to this increase were
additional earnings in ATM and card usage fees including ATM
surcharges, additional earnings in insufficient funds charges,
additional earnings in mutual fund commissions, and additional
earnings in debit card interchange fee income. Currently, the
Bank assesses a surcharge at its ATMs; however, ATM surcharges,
or the elimination thereof, may be subject to future legislation.
Other Operating Expenses
The aggregate of noninterest expenses for the six months ended
June 30, 1998 increased by $68,000, or 2.2%, over the same period
in 1997.
Employee salaries and wages increased by $115,000, or 8.5%, over
the same period in 1997. This increase was essentially due to
annual merit and cost of living increases and new staff positions
for a retail office manager and an accounting officer. Related
fringe benefits decreased by $129,000, or 29.3%, from the same
period in 1997. The decrease is essentially due to a reduction in
the Bank's profit-sharing plan expense.
<PAGE>
Occupancy, furniture and equipment expenses for the six months
ended June 30, 1998 decreased by $27,000, or 5.3%, from the same
period in 1997. This decrease was primarily due to a decrease in
other real estate expense from the same period in 1997.
Other operating expenses for the six months ended June 30, 1998,
increased by $108,000, or 12.7%, over the same period in 1997.
Contributing factors to the increase in other operating expenses
as compared to the same period in 1997 included the following:
(1) an increase in professional and consulting fees in the amount
of $40,000; and (2) an increase in ATM transaction and clearing
costs in the amount of $22,000. The increase in professional and
consulting fees included consulting fees for a broad based sales
training program for staff and legal costs for certain loan
collection services.
The Corporation has conducted a comprehensive review of its
computer systems to identify the systems that could be affected
by the Year 2000 issue including interfaces with external
sources. The Corporation is utilizing both internal and external
resources to correct or modify and test the systems for Year 2000
compliance. It is currently expected that all modifications of
mission critical systems will be completed by December 31, 1998,
allowing adequate time for testing. All significant computer
software utilized by the Corporation is supplied by outside
vendors. These vendors have confirmed either that the software is
currently Year 2000 compliant or that plans for modification will
be made available to the Corporation no later than December 31,
1998. In addition, the costs of converting these programs are
largely included in the annual maintenance costs expensed by the
Corporation. The Corporation currently expects that the Year 2000
issue will not pose significant operational problems for the
Corporation's computer systems after modification and conversion
during 1998. Significant testing for compliance of mission
critical systems is currently expected to be largely completed in
1998. The total cost of the project is currently estimated to
have an immaterial impact to the Corporation's financial position
and results of operations for 1998 and 1999.
Currently, the Bank is implementing plans to communicate with all
material customers. Material customers include significant
commercial borrowers that would pose a credit risk to the Bank
and significant commercial depositors that would pose a liquidity
risk to the Bank, if they are not Year 2000 compliant and their
businesses are disrupted. Responses from material customers are
being evaluated accordingly and it is currently expected that
this evaluation process will be completed by the end of 1998.
Income Taxes
The Corporation's income tax expense increased by $65,000 for the
six months ended June 30, 1998 to $347,000 from $282,000 for the
same period in 1997. The effective tax rate was 20.7% and 19.9%
for the six months ended June 30, 1998 and 1997, respectively.
The increase in income tax expense and the effective tax rate was
due to the increase in corporate earnings before income taxes.
Currently, the effective tax rate of the Corporation for the
remaining months of 1998 is expected to approximate the effective
tax rate in 1997.
Regulatory Activity
___________________
Recently, Pennsylvania enacted a law to permit State chartered
financial institutions to sell insurance. The Office of the
Comptroller of the Currency has issued guidelines for national
banks to sell insurance. The Bank is evaluating its options
regarding the sale of insurance.
Congress is currently considering legislative reform centered on
repealing the Glass-Steagall Act which prohibits commercial banks
from engaging in the securities industry. The holding company
structure, under such a proposal, would be regulated by the
Federal Reserve Board, and its subsidiaries would be supervised
by the applicable
<PAGE>
regulator based on their respective functions.
From time to time, various types of federal and state legislation
have been proposed that could result in additional regulation of,
and restrictions on, the business of the Corporation and the
Bank. It cannot be predicted whether such legislation will be
adopted or, if adopted, how such legislation would affect the
business of the Corporation and the Bank. As a consequence of the
extensive regulation of commercial banking activities in the
United States, the Corporation's and the Bank's business is
particularly susceptible to being affected by federal legislation
and regulations that may increase the cost of doing business.
Except as specifically described above, Management believes that
the effect of the provisions of the aforementioned legislation on
the liquidity, capital resources, and results of operations of
the Corporation will be immaterial. Management is not aware of
any other current specific recommendations by regulatory
authorities or proposed legislation, which if they were
implemented, would have a material adverse effect upon the
liquidity, capital resources, or results of operations, although
the general cost of compliance with numerous and multiple federal
and state laws and regulations does have, and in the future may
have a negative impact on the Corporation's results of
operations.
Further, the business of the Corporation is also affected by the
state of the financial services industry in general. As a result
of legal and industry changes, Management predicts that the
industry will continue to experience an increase in
consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share.
Management believes that such consolidations and mergers may
enhance its competitive position as a community bank.
As the Year 2000 approaches, regulation of the Corporation and
the Bank with respect to completing Year 2000 modifications is
likely to increase. A brief discussion of the most recent federal
banking agency pronouncements that affect the Corporation and/or
the Bank follows.
In December 1997, the Federal Financial Institutions Examination
Council (FFIEC) issued an interagency statement. The statement
indicates that senior management and the board of directors
should be actively involved in managing the Corporation's and the
Bank's Year 2000 compliance efforts. The statement also
recommended that institutions obtain Year 2000 compliance
certification from vendors followed by comprehensive internal
testing. In addition, contingency plans should be developed for
all vendors that service mission critical applications, which are
applications vital to the successful continuance of a core
business activity.
The OCC issued an advisory indicating that Year 2000 preparedness
will be factored into reviews of de novo charters, conversions,
business combinations and establishment of federal branches and
agencies as well as hardware and software systems integrations
issues related to business combinations.
In addition, the OCC recently issued an advisory providing
guidance in key milestones and testing methods for institutions
to use to prepare their systems and applications for the Year
2000. Institutions should develop and implement written testing
strategies and plan to test both internal and external systems.
In May 1998, the FFIEC issued two interagency statements with
regards to Year 2000 readiness. The first statement provided
guidance for institutions to design its Year 2000 contingency
plan to mitigate the risks associated with the institutions
failure to become Year 2000 compliant or the failure of mission
critical systems at specific dates. The second statement
provides suggestions for developing a customer awareness program
and identifies issues that financial institutions should be
prepared to discuss with customers.
Changes in Accounting Standards
_______________________________
In 1996, the Financial Accounting Standards Board issued
Statement No. 125 (SFAS No. 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments
<PAGE>
of Liabilities" and Statement No. 127, an amendment to SFAS No.
125. All provisions of these Statements have become effective for
transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1997. The provisions
are to be applied prospectively. These Statements provide
consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowing.
The accounting approach is called the financial-components
approach that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the financial
and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. The
Corporation has adopted the provisions of these Statements when
they became applicable. There has been no incidence of coverage
under SFAS No. 125 and No. 127 since adoption.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, (SFAS No. 131), "Disclosures about Segments of
an Enterprise and Related Information." This Statement
establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. The Statement has been
adopted by the Corporation as of January 1, 1998 with interim
comparative financial reporting effective in 1999. The impact of
this Statement on the Corporation will be to require additional
disclosures in the Corporation's annual financial statements for
1998 and interim reports for 1999.
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, (SFAS No. 132), "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement
revises employers' disclosures about pension and other
postretirement benefit plans. It standardizes the disclosure
requirements for these plans to the extent practicable, requires
additional information on changes in the benefit obligation and
fair values of plan assets, and eliminates certain previously
required disclosures. This Statement has been adopted by the
Corporation as of January 1, 1998. The impact of this Statement
on the Corporation will be to require additional disclosures in
the Corporation's annual financial statements for 1998.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards for derivative instruments and
for hedging activities. The Corporation does not expect the
provisions of this statement to have a material effect on the
liquidity, results of operations, or capital resources of the
Corporation when it becomes effective in the first quarter of
2000.
Credit Risk and Loan Quality
____________________________
Other than as described herein, Management does not believe there
are any trends, events or uncertainties which are reasonably
expected to have a material impact on future results of
operation, liquidity or capital resources. Further, based on
known information, Management believes that the effects of
current and past economic conditions and other unfavorable
specific business conditions may result in the inability of loans
amounting to $2,114,000 to comply with their respective repayment
terms. This amount represents a decrease from the amount of
$2,705,000 at December 31, 1997, since $1,279,000 in loans became
nonperforming assets in the second quarter of 1998. In
aggregate, these loans are well secured, essentially with real
estate, equipment and vehicles. Management currently believes
that potential losses on these loans have already been provided
for in the Allowance for Loan Losses. The borrowers are of
special mention since they have shown a decline in financial
strength and payment quality. Management has increased its
monitoring of the borrowers' financial strength. In addition,
Management currently estimates that an immaterial amount of these
loans will be classified as nonperforming in the remaining months
of 1998.
<PAGE>
<TABLE>
SUPPORTING SCHEDULES
<CAPTION>
Schedule of Nonperforming Assets
________________________________
June 30, December 31,
(In Thousands) 1998 1997
___________ ____________
<S> <C> <C>
Nonaccruing Loans $729 $ 94
Accrual Loans - 90 days or more
past due 771 612
Restructured Accrual Loans 0 0
Other Real Estate Owned 0 0
______ ______
Total Nonperforming Assets $1,500 $ 706
====== ======
Nonperforming Assets
as a % of Net Loans 0.9% 0.5%
====== ======
Allowance for Loan Losses
as a % of Nonperforming Loans 114% 226%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Analysis of Allowance for Loan Losses
_____________________________________
Six Months Ended June 31,
____________________________
(In Thousands) 1998 1997
________ ________
<S> <C> <C>
Average Total Loans Outstanding
(Less Unearned Income) $157,610 $134,250
======== ========
Allowance for Loan Losses,
Beginning of Period $1,593 $1,371
Loans Charged-off During Period 145 52
Recoveries of Loans Previously
Charged-off 32 11
________ ________
Net Loans Charged-off 113 41
Addition to Provision for Loan Losses
Charged to Operations 229 112
_________ _______
Allowance for Loan Losses,
End of Period $1,709 $1,442
======== ========
Ratio of Net Loans Charged-off to Average
Loans Outstanding (Annualized) 0.14% 0.06%
======== ========
Ratio of Allowance for Loan Losses to
Net Loans at End of Period 1.03% 1.03%
======== ========
</TABLE>
<PAGE>
At June 30, 1998, total nonperforming assets amounted to
$1,500,000, or .9% of total net loans, from a level of $706,000,
or .5%, at December 31, 1997. Historically, the percentage of
nonperforming assets to total net loans as of December 31, for
the previous five year period was an average of .7%. The primary
reason for the increase from December 31, 1997 is that one
borrower's relationship with loans totaling $680,000 went to
nonaccrual status as of June 30, 1998. These loans are generally
well secured, primarily by real estate.
Allowance for Loan Losses
_________________________
The allowance for loan losses is maintained at a level believed
adequate by Management to absorb estimated probable loan losses
and is formally reviewed by Management on a quarterly basis. The
allowance is increased by provisions charged to operating expense
and reduced by net charge-offs. Management's periodic evaluation
of the adequacy of the allowance is based on the Corporation's
past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's
ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant
factors. While Management uses available information to make such
evaluations, future adjustments to the allowance may be necessary
if economic conditions differ substantially from the assumptions
used in making the evaluation. In addition, various regulatory
agencies, as an integral part of their examination process,
review the Bank's Allowance for Loan Losses. Such agencies may
require the Bank to recognize additions to the allowance based on
their judgement of information available to them at the time of
their examination.
The allowance for loan losses increased by $116,000 for the six
months ended June 30, 1998, and the ratio of the allowance for
loan losses to net loans was 1.03% at June 30, 1998, as compared
to 1.04% at December 31, 1997. The increase in the allowance for
loan losses for the six month period was due to an increase in
loans outstanding amounting to $12,882,000 for the six month
period. Management believes based on information currently
available that the current allowance for loan losses of
$1,709,000 is adequate to meet potential loan losses.
Liquidity
The Corporation's objective is to maintain adequate liquidity to
fund needs at a reasonable cost and to provide contingency plans
to meet unanticipated funding needs or a loss of funding sources,
while minimizing interest rate risk. Adequate liquidity provides
resources for credit needs of borrowers, for depositor
withdrawals, and for funding Corporate operations. Sources of
liquidity are as follows: maturing investment securities, which
include overnight investments in federal funds sold; overnight
correspondent bank borrowing on various credit lines; payments on
loans and mortgage-backed securities; and a growing core deposit
base, primarily certificates of deposit. Management believes that
its core deposits are fairly stable even in periods of changing
interest rates. Liquidity management is governed by policies and
measured on a quarterly basis. These measurements indicate that
liquidity generally remains stable and that liquidity
consistently exceeds the Bank's minimum defined level. There are
no known trends, or any known demands, commitments, events, or
uncertainties that will result in, or that are reasonably likely
to result in, liquidity increasing or decreasing in any material
way.
Membership in the FHLB provides the Bank with additional
liquidity alternatives such as short- or long-term funding on
fixed- or variable-rate terms. Available funding from the FHLB
amounts to an overnight borrowing capacity of up to $8,229,000
and a maximum available funding capacity of up to $81,699,000. In
order to provide funding for the Bank's loans and investments,
the Bank had outstanding borrowing from the FHLB of $27,948,000
and $18,161,000 at June 30, 1998 and 1997, respectively.
<PAGE>
Market Risk - Interest Rate Risk
As a financial institution, the Corporation's primary component
of market risk is interest rate volatility. Fluctuations in
interest rates will ultimately impact the level of income and
expense recorded on a large portion of the Bank's assets and
liabilities. Virtually all of the Corporation's interest-
sensitive assets and liabilities are held by the Bank, and
therefore, interest rate risk management procedures are performed
by the Bank. The nature of the Bank's current operations is such
that the Bank is not subject to foreign currency exchange or
commodity price risk. The Corporation does not own any trading
assets. The Corporation has not entered into any hedging
transactions such as interest rate floors, caps, and swaps.
The objectives of interest rate risk management are to maintain
or increase net interest income over a broad range of market
interest rate movements. The Asset and Liability Management
Committee is responsible for managing interest rate risk using
policies approved by the Bank's Board of Directors. The Bank
manages interest rate risk by changing the mix or repricing
characteristics of its investment securities portfolio and
borrowings from the FHLB and by the promotion or development of
specific loan and deposit products. The Bank retains an outside
consulting group to assist in monitoring its interest rate risk
using income simulation models on a quarterly basis. The
simulation model measures the sensitivity of future net interest
income to hypothetical changes in market interest rates.
In an effort to assess market risk, the Bank utilizes a
simulation model to determine the effect of gradual increases or
decreases in market interest rates on net interest income and net
income. The aforementioned assumptions are revised based on
defined scenarios of assumed speed and direction changes of
market interest rates. These assumptions are inherently uncertain
due to the timing, magnitude and frequency of rate changes and
changes in market conditions as well as management strategies,
among other factors. Because it is difficult to accurately
quantify into assumptions the reaction of depositors and
borrowers to market interest rate changes, the actual net
interest income and net income results may differ from simulated
results.
The simulation model assumes a hypothetical gradual shift in
market interest rates over a twelve month period. This is based
on a review of historical changes in market interest rates and
the level and curve of current interest rates. The simulated
results represent the hypothetical effects to the Bank's net
interest income and net income. Projections for loan and deposit
growth were ignored in the simulation model. The simulation model
includes all of the Bank's earning assets and interest-bearing
liabilities and assumes a parallel and prorated shift in interest
rates over a twelve month period. As a result of the simulation
model, it is currently anticipated that a hypothetical two
percent general rise or decline in prevailing market interest
rates over a one-year period will have an immaterial impact to
the Bank's net interest income over the next twelve months. The
computations do not contemplate any actions Management or the
Asset Liability Management Committee could undertake in response
to changes in market conditions or market interest rates.
The Bank managed its interest rate risk position for the six
months ended June 30, 1998 by the following: (1) paying higher
rates on intermediate term certificates in order to manage the
average remaining term on certificates of deposit below $100,000;
(2) marketing its floating rate home equity line of credit
(outstanding balances increased by $1,550,000 for the period);
(3) additions to or by repositioning of its investment security
portfolio into floating, short- or long-term securities; (4)
utilization of seven- and ten-year balloon mortgages (outstanding
balances increased by $2,009,000 for the period); (5) increasing
its extensions of adjustable and floating rate loans for new or
refinanced commercial and agricultural loans (these outstanding
loans increased by $5,046,000 for the period); (6) managing and
expanding the Bank's core deposit base; and (7) additions to or
restructuring of adjustable- and fixed-rate advances from the
FHLB. The above strategies and actions impact interest rate risk
and are all included in the Bank's quarterly simulation models in
order to determine future asset and liability management
strategies. See related discussions in the section on Net
Interest Income.
<PAGE>
Stockholders' Equity
The Corporation maintains capital ratios that are well above the
minimum total capital levels required by federal regulatory
authorities including the risk-based capital guidelines. There
are no material commitments for capital expenditures. There are
no known trends, events or uncertainties, including regulatory
matters that are expected to have a material impact on the
capital resources of the Corporation for the remaining months of
1998, except as discussed below concerning the Corporation's
common stock repurchase plan. In addition, see discussion on
Regulatory Activity.
On February 5, 1998, the Corporation announced that the Board of
Directors had authorized and approved a plan to purchase up to
100,000 shares of the Corporation's outstanding common stock in
open market or privately negotiated transactions. The Board of
Directors believes that a redemption or repurchase of this type
is in the best interests of the Corporation and its stockholders
as a method to enhance long-term shareholder value. Currently,
the shares are to be held as treasury shares (issued, but not
outstanding shares). As of June 30, 1998, a total of 79,581
shares of common stock were repurchased under this plan at a cost
of $1,811,015. This amount was funded by dividends from the
Corporation's wholly-owned subsidiary, Union National Community
Bank. The Bank paid the dividends from its current cash flow and
available retained earnings. The Bank remains well capitalized
after payment of the dividends as defined below.
The Bank has risk-based capital ratios exceeding the regulatory
requirement. The risk-based capital guidelines require banks to
maintain a minimum risk-based capital ratio of 8.0% at June 30,
1998, as compared to the Bank's current risk-based capital ratio
of 14.69%. The total risk-based capital ratio is computed by
dividing stockholders' equity plus the allowance for loan losses
by risk-adjusted assets. Risk-adjusted assets are determined by
assigning credit risk-weighing factors from 0% to 100% to various
categories of assets and off-balance-sheet financial instruments.
Banking regulations also require the Bank to maintain certain
minimum capital levels in relation to Bank assets. Failure to
meet minimum capital requirements could result in prompt
corrective action by the federal banking agencies. As of December
31, 1997, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. There are no
conditions or events since that notification that Management
believes have changed the Bank's category. The Bank maintains the
following leverage and risk-based capital ratios:
<TABLE>
(In Thousands) June 30, December 31,
1998 1997
___________ _____________
<S> <C> <C>
Tier I - Total Stockholders' Equity $ 21,385 $ 22,358
Tier II - Allowance for Loan Losses 1,709 1,593
___________ _____________
Total Qualifying Capital $ 23,094 $ 23,951
=========== =============
Risk-adjusted On-balance-sheet Assets $148,299 $137,256
Risk-adjusted Off-balance-sheet Exposure 8,933 8,352
___________ _____________
Total Risk-adjusted Assets $157,232 $145,608
=========== =============
Actual Capital Ratio:
Tier I Capital to Average Total Assets 9.01% 9.95%
Minimum Required 4.00% 4.00%
To Be Well Capitalized Under Prompt
Corrective Action Provisions 5.00% 5.00%
Risk-based Capital Ratios:
Tier I Capital Ratio - Actual 13.60% 15.35%
Minimum Required 4.00% 4.00%
To Be Well Capitalized Under Prompt
Corrective Action Provisions 6.00% 6.00%
Total Capital Ratio - Actual 14.69% 16.45%
Minimum Required 8.00% 8.00%
To Be Well Capitalized Under Prompt
<PAGE>
Corrective Action Provisions 10.00% 10.00%
Total Risk-Based Capital in Excess of the
Minimum Regulatory Requirement $ 10,515 $ 12,302
=========== =============
</TABLE>
No shares of common stock are reserved for issuance in the event
of conversions or the exercise of warrants, options or other
rights, except as follows: 124,830 shares which are reserved for
issuance under the Corporation's 1988 and 1997 Stock Incentive
Plans, 100,000 shares which are reserved for issuance under the
Corporation's 1997 Employee Stock Purchase Plan, and 157,500
shares which are reserved for issuance under the Corporation's
Dividend Reinvestment and Stock Purchase Plan. As of June 30,
1998, options to purchase 4,830 shares have been granted under
the Corporation's 1988 Stock Incentive Plan. The exercise price
for such options is $23.27. No options have been exercised as of
June 30, 1998 under this plan. As of June 30, 1998, options to
purchase 25,000 shares have been granted under the Corporation's
1997 Employee Stock Purchase Plan. The current exercise price for
such options is $19.87. As of June 30, 1998, 916 options have
been exercised under this plan. As of June 30, 1998, 17,346
shares have been issued under the Corporation's Dividend
Reinvestment and Stock Purchase Plan.
<PAGE>
Part II - Other Information:
Item 1. Legal Proceedings
Management is not aware of any litigation that would have a
material adverse effect on the consolidated financial position of
the Corporation. There are no proceedings pending other than the
ordinary routine litigation incident to the business of the
Corporation and its subsidiary, Union National Community Bank. In
addition, no material proceedings are pending or are known to be
threatened or contemplated against the Corporation and the Bank
by government authorities.
Item 2. Changes in Securities - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders -
(a) An annual meeting of shareholders was held at 10:00 a.m. on
April 28, 1998 at The Country Table Restaurant, 740 East Main
Street, Mount Joy, Pennsylvania, 17552.
(b)- (c) The following matter was voted upon:
Four Class B directors were elected, as follows:
<TABLE>
<CAPTION>
Votes Votes
cast cast Votes
Reelected Term Expires "For" "Against" "Abstained"
__________ ____________ _________ _______ _________
<S> <C> <C> <C> <C>
Daniel C. Gohn 2001 1,700,265 14,460 26,423
Carl R. Hallgren 2001 1,700,265 26,695 26,423
David G. Heisey 2001 1,700,265 69,564 26,423
Daniel H. Raffensperger 2001 1,700,265 3,439 26,423
<CAPTION>
Directors whose term continued after the meeting
Class C Directors
<S> <C>
Donald H. Wolgemuth 1999
William E. Eby 1999
William D. Linkous 1999
Benjamin W. Piersol, Jr. 1999
<CAPTION>
Class A Directors
<S> <C>
Franklin R. Eichler 2000
E. Ralph Garber 2000
Mark D. Gainer 2000
</TABLE>
(d) Nothing to report.
Item 5. Other Information - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits - The following exhibit is being filed as
part of this Report: (see also Item 6(b)).
Exhibit No. 27 - Financial Data Schedule as of June
30, 1998.
(b) Reports on Form 8-K - Nothing to report.
<PAGE>
Signatures
__________
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Union National Financial Corporation
(Registrant)
By: /s/ William E. Eby
____________________________
William E. Eby
President & CEO
(Principal Executive Officer)
Date: August 13, 1998
By: /s/ Clement M. Hoober
____________________________
Clement M. Hoober,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5242
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1790
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42876
<INVESTMENTS-CARRYING> 20432
<INVESTMENTS-MARKET> 20754
<LOANS> 165581
<ALLOWANCE> 1709
<TOTAL-ASSETS> 242160
<DEPOSITS> 188888
<SHORT-TERM> 900
<LIABILITIES-OTHER> 1456
<LONG-TERM> 27998
0
0
<COMMON> 629
<OTHER-SE> 22289
<TOTAL-LIABILITIES-AND-EQUITY> 242160
<INTEREST-LOAN> 6846
<INTEREST-INVEST> 1894
<INTEREST-OTHER> 89
<INTEREST-TOTAL> 8829
<INTEREST-DEPOSIT> 3449
<INTEREST-EXPENSE> 4247
<INTEREST-INCOME-NET> 4582
<LOAN-LOSSES> 229
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 3229
<INCOME-PRETAX> 1677
<INCOME-PRE-EXTRAORDINARY> 1677
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1330
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 4.37
<LOANS-NON> 729
<LOANS-PAST> 771
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2114
<ALLOWANCE-OPEN> 1593
<CHARGE-OFFS> 145
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 1709
<ALLOWANCE-DOMESTIC> 1709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 725
</TABLE>
